CBRE Group, Inc. Reports Double-Digit Second-Quarter 2018 Revenue and Earnings Growth and Increases Full-Year Outlook

GAAP EPS up 14% to $0.67
Adjusted EPS up 10% to $0.74
Revenue up 15% (13% local currency)
Fee Revenue up 15% (12% local currency)

LOS ANGELES--()--CBRE Group, Inc. (NYSE:CBRE) today reported strong financial results for the second quarter ended June 30, 2018.

“We were pleased to have produced another strong quarter of double-digit growth in revenue, fee revenue and adjusted earnings per share,” said Bob Sulentic, CBRE’s president and chief executive officer. “We benefited significantly from the diversity and strength of our business mix – as leasing, occupier outsourcing and development services drove revenue growth in the quarter – and from our people’s focus on delivering differentiated outcomes for our clients – the key pillar of our strategy.”

“We begin the second half of the year with positive momentum across our business,” he continued. “The macro environment remains favorable with solid economic growth. While we are mindful of potential risks on the horizon, particularly from heightened trade tensions, we have thus far seen no discernible impact on our business.”

CBRE has raised its guidance for full-year 2018 adjusted earnings per share to a range of $3.10 to $3.20, up from $3.00 to $3.15. This implies growth of 15% for the full year at the mid-point of the guidance range, which would be CBRE’s 9th consecutive year of double-digit adjusted earnings per share growth.

Second-Quarter 2018 Results1

  • Revenue for the second quarter totaled $5.1 billion, an increase of 15% (13% local currency2). Fee revenue3 also rose 15% (12% local currency) to $2.5 billion. Organic fee revenue3 growth was 13% (10% local currency).
  • On a GAAP basis, net income increased 13% to $228.7 million, while earnings per diluted share increased 14% to $0.67 per share. Adjusted net income4 for the second quarter of 2018 rose 11% to $252.6 million, while adjusted earnings per diluted share improved 10% to $0.74 per share.
  • The adjustments to GAAP net income for the second quarter of 2018 included $29.4 million (pre-tax) of non-cash acquisition-related depreciation and amortization and $1.5 million (pre-tax) of net carried interest incentive compensation expense to align with the timing of associated revenue. These costs were partially offset by a net tax benefit of $7.1 million associated with the aforementioned pre-tax adjustments.
  • EBITDA5 increased 8% (6% local currency) to $437.8 million and adjusted EBITDA increased 5% (3% local currency) to $439.3 million. Adjusted EBITDA margin on fee revenue was 17.3% for the three months ended June 30, 2018.

Second-Quarter 2018 Segment and Business Line Review

The following tables present highlights of CBRE segment performance during the second quarter of 2018 (dollars in thousands):

 
    Americas     EMEA     APAC
   

% Change from Q2

2017

   

% Change from Q2
2017

   

% Change from Q2
2017

Q2 2018 USD     LC Q2 2018 USD     LC Q2 2018 USD     LC
Revenue $ 3,140,427 11 % 11 % $ 1,315,452 29 % 20 % $ 538,200 11 % 8 %
Fee revenue 1,432,833 13 % 13 % 684,620 24 % 15 % 300,792 10 % 7 %
EBITDA 258,353 14 % 14 % 66,519 6 % -1 % 42,861 -3 % -5 %
Adjusted EBITDA 258,353 11 % 10 % 66,519 -5 % -12 % 42,861 -4 % -6 %
         
 
Global Investment Management Development Services (6)

% Change from Q2
2017

% Change from Q2
2017

Q2 2018 USD LC Q2 2018 USD LC
Revenue $ 98,947 7 % 2 % $ 18,408 8 % 8 %
EBITDA 14,375 -46 % -50 % 55,673 20 % 20 %
Adjusted EBITDA 15,901 -33 % -37 % 55,673 20 % 20 %
 

CBRE experienced particularly strong revenue growth in its combined regional services business in the second quarter. For 2018, as indicated at the beginning of the year, the company is making incremental investments to support future growth, streamline operations, and share some of the benefits of tax reform with its employees. These investments, coupled with strong revenue growth in global occupier outsourcing and a decline in high-margin property sales in EMEA and APAC from an exceptionally strong prior-year quarter, weighed on EBITDA margins in the second quarter. The company does not expect to increase the current level of run-rate investment for the foreseeable future, and therefore does not expect these incremental investments to put negative pressure on operating leverage in its combined regional services business in 2019.

In EMEA, revenue rose 29% (20% local currency), driven by France, Italy, the Netherlands and the United Kingdom. Americas revenue was up 11% (same local currency), supported by strong gains in Brazil, Canada and the United States. APAC (Asia Pacific) revenue increased 11% (8% local currency), fueled by Greater China and India.

Among global business lines, leasing revenue growth was particularly strong, rising 20% (18% local currency). The Americas paced this performance with a 19% (same local currency) revenue gain, driven primarily by the United States. EMEA achieved 21% (12% local currency) growth, with especially strong contributions from France, Germany and the United Kingdom. APAC leasing revenue rose 23% (20% local currency), led by Australia, Greater China and Japan.

Global occupier outsourcing once again produced strong growth, as the combination of the on-going secular outsourcing trend and CBRE’s advancing capabilities continue to catalyze revenue gains. Revenue increased 18% (15% local currency) and fee revenue rose 24% (20% local currency). Growth was strong around the world, particularly in EMEA and APAC. Acquisitions contributed 2% (same local currency) to the revenue growth rate and 5% (same local currency) to the fee revenue growth rate in the second quarter of 2018.

Combined revenue from CBRE’s capital markets businesses – property sales and commercial mortgage origination – was up 3% (2% local currency). This was driven by commercial mortgage origination revenue growth of 15% (same local currency), reflecting solid activity with banks and government agencies.

Global property sales revenue was up 1% (down 2% local currency). Americas sales revenue was up 3% (same local currency), with double-digit growth in Brazil, Canada and Mexico. APAC sales revenue declined 12% (14% local currency) while EMEA sales revenue edged up 4% (down 3% local currency). This performance reflects very difficult comparisons with the second quarter of 2017, when EMEA and APAC both had exceptional growth of more than 40% (local currency).

Recurring revenue from the loan servicing portfolio increased 10% (same local currency).

Property management services produced revenue and fee revenue growth of 9% (6% local currency) and 13% (9% local currency), respectively, supported by growth in the fund administration business.

Valuation revenue rose 7% (4% local currency), paced by EMEA.

Adjusted EBITDA for CBRE’s real estate investment services businesses (CBRE Global Investors and Development Services) rose 2% (1% local currency) on a combined basis. Growth was driven by several large asset sales in Development Services (which were reported in equity income from unconsolidated subsidiaries and gain on disposition of real estate), where adjusted EBITDA grew by 20% (same local currency).

  • The in-process Development Services portfolio increased to a record $8.0 billion, up $0.3 billion from first quarter 2018, reflecting the continued conversion of pipeline activity. The pipeline decreased by $0.2 billion during the second quarter.
  • Global Investment Management assets under management (AUM) totaled $101.7 billion, down from $104.2 billion in the first quarter of 2018. AUM increased by approximately $0.7 billion during the quarter absent the negative currency movement due to the strengthening dollar.

CBRE made three acquisitions in the second quarter, highlighted by FacilitySource, a leader in technology-based procurement and facility management solutions in the United States.

Six-Month 2018 Results1

  • Revenue for the six months ended June 30, 2018 totaled $9.8 billion, an increase of 15% (12% local currency). Fee revenue rose 16% (13% local currency) to $4.8 billion. Organic fee revenue growth was 14% (10% local currency).
  • On a GAAP basis, net income increased 12% to $379.0 million, while earnings per diluted share increased 10% to $1.10 per share. Adjusted net income for the first six months of 2018 rose 16% to $438.8 million, while adjusted earnings per diluted share improved 15% to $1.28 per share.
  • The adjustments to GAAP net income for the first six months of 2018 included $58.4 million (pre-tax) of non-cash acquisition-related depreciation and amortization and $28.0 million (pre-tax) write-off of financing costs related to the redemption in March 2018 of $800 million principal amount of the company’s 5% bonds due in 2023. These costs were partially offset by an $8.5 million (pre-tax) reversal of net carried interest incentive compensation to align with the timing of associated revenue and a net tax benefit of $18.6 million associated with the aforementioned pre-tax adjustments. The adjustments also include a $0.5 million net charge7 attributable to an update to the provisional estimated tax impact of the 2017 Tax Cuts and Jobs Act, which was initially recorded in the fourth quarter of 2017.
  • EBITDA increased 10% (8% local currency) to $795.6 million and adjusted EBITDA rose 8% (5% local currency) to $787.1 million. Adjusted EBITDA margin on fee revenue was 16.4% for the six months ended June 30, 2018.

Conference Call Details

The company’s second quarter earnings conference call will be held today (Thursday, August 2, 2018) at 8:30 a.m. Eastern Time. A webcast, along with an associated slide presentation, will be accessible through the Investor Relations section of the company’s website at www.cbre.com/investorrelations.

The direct dial-in number for the conference call is 877-407-8037 for U.S. callers and 201-689-8037 for international callers. A replay of the call will be available starting at 1:00 p.m. Eastern Time on August 2, 2018, and will be available for one week following the event. The dial-in number for the replay is 877-660-6853 for U.S. callers and 201-612-7415 for international callers. The access code for the replay is 13681165. A transcript of the call will be available on the company’s Investor Relations website at www.cbre.com/investorrelations.

About CBRE Group, Inc.

CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2017 revenue). The company has more than 80,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.

The information contained in, or accessible through, the company’s website is not incorporated into this press release.

This press release contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding our future growth momentum, operations, financial performance (including adjusted earnings per share), market share, investment levels and business outlook. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the company’s actual results and performance in future periods to be materially different from any future results or performance suggested in forward-looking statements in this press release. Any forward-looking statements speak only as of the date of this press release and, except to the extent required by applicable securities laws, the company expressly disclaims any obligation to update or revise any of them to reflect actual results, any changes in expectations or any change in events. If the company does update one or more forward-looking statements, no inference should be drawn that it will make additional updates with respect to those or other forward-looking statements. Factors that could cause results to differ materially include, but are not limited to: disruptions in general economic and business conditions, particularly in geographies where our business may be concentrated; volatility and disruption of the securities, capital and credit markets, interest rate increases, the cost and availability of capital for investment in real estate, clients’ willingness to make real estate or long-term contractual commitments and other factors affecting the value of real estate assets, inside and outside the United States; increases in unemployment and general slowdowns in commercial activity; trends in pricing and risk assumption for commercial real estate services; the effect of significant movements in average cap rates across different property types; a reduction by companies in their reliance on outsourcing for their commercial real estate needs, which would affect our revenues and operating performance; client actions to restrain project spending and reduce outsourced staffing levels; declines in lending activity of U.S. Government Sponsored Enterprises, regulatory oversight of such activity and our mortgage servicing revenue from the commercial real estate mortgage market; our ability to diversify our revenue model to offset cyclical economic trends in the commercial real estate industry; our ability to attract new user and investor clients; our ability to retain major clients and renew related contracts; our ability to leverage our global services platform to maximize and sustain long-term cash flow; our ability to maintain EBITDA and adjusted EBITDA margins that enable us to continue investing in our platform and client service offerings; our ability to control costs relative to revenue growth; economic volatility and market uncertainty globally related to uncertainty surrounding the implementation and effect of the United Kingdom’s referendum to leave the European Union, including uncertainty in relation to the legal and regulatory framework that would apply to the United Kingdom and its relationship with the remaining members of the European Union; foreign currency fluctuations; our ability to retain and incentivize key personnel; our ability to compete globally, or in specific geographic markets or business segments that are material to us; our ability to identify, acquire and integrate synergistic and accretive businesses; costs and potential future capital requirements relating to businesses we may acquire; integration challenges arising out of companies we may acquire; the ability of our Global Investment Management business to maintain and grow assets under management and achieve desired investment returns for our investors, and any potential related litigation, liabilities or reputational harm possible if we fail to do so; our ability to manage fluctuations in net earnings and cash flow, which could result from poor performance in our investment programs, including our participation as a principal in real estate investments; our leverage under our debt instruments as well as the limited restrictions therein on our ability to incur additional debt, and the potential increased borrowing costs to us from a credit-ratings downgrade; the ability of our wholly-owned subsidiary, CBRE Capital Markets, Inc., to periodically amend, or replace, on satisfactory terms, the agreements for its warehouse lines of credit; variations in historically customary seasonal patterns that cause our business not to perform as expected; litigation and its financial and reputational risks to us; our exposure to liabilities in connection with real estate advisory and property management activities and our ability to procure sufficient insurance coverage on acceptable terms; liabilities under guarantees, or for construction defects, that we incur in our Development Services business; our and our employees’ ability to execute on, and adapt to, information technology strategies and trends; cybersecurity threats, including the potential misappropriation of assets or sensitive information, corruption of data or operational disruption; changes in domestic and international law and regulatory environments (including relating to anti-corruption, anti-money laundering, trade sanctions, tariffs, currency controls and other trade control laws), particularly in Russia, Eastern Europe and the Middle East, due to the level of political instability in those regions; our ability to comply with laws and regulations related to our global operations, including real estate licensure, tax, labor and employment laws and regulations, as well as the anti-corruption laws and trade sanctions of the U.S. and other countries; our ability to maintain our effective tax rate, including during 2018 as we continue to assess the provisional amount recorded based upon our best estimate of the tax impact of the Tax Cuts and Jobs Act (Tax Act) enacted into law on December 22, 2017 in accordance with our understanding of the Tax Act and the related guidance available; changes in applicable tax or accounting requirements, including the impact of any subsequent additional regulation or guidance associated with the Tax Act; and the effect of implementation of new accounting rules and standards (including new lease accounting guidance which will be effective in the first quarter of 2019).

Additional information concerning factors that may influence the company’s financial information is discussed under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk” and “Cautionary Note on Forward-Looking Statements” in our Annual Report on Form 10-K for the year ended December 31, 2017 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, as well as in the company’s press releases and other periodic filings with the Securities and Exchange Commission (SEC). Such filings are available publicly and may be obtained on the company’s website at www.cbre.com or upon written request from CBRE’s Investor Relations Department at investorrelations@cbre.com.

The terms “fee revenue,” “organic fee revenue,” “adjusted net income,” “adjusted earnings per share” (or adjusted EPS), “EBITDA” and “adjusted EBITDA,” all of which CBRE uses in this press release, are non-GAAP financial measures under SEC guidelines, and you should refer to the footnotes below as well as the “Non-GAAP Financial Measures” section in this press release for a further explanation of these measures. We have also included in that section reconciliations of these measures in specific periods to their most directly comparable financial measure calculated and presented in accordance with GAAP for those periods.

Note – CBRE has not reconciled the (non-GAAP) adjusted earnings per share forward-looking guidance included in this press release to the most directly comparable GAAP measure because this cannot be done without unreasonable effort due to the variability and low visibility with respect to costs related to acquisitions, carried interest incentive compensation and financing costs, which are potential adjustments to future earnings. We expect the variability of these items to have a potentially unpredictable, and a potentially significant, impact on our future GAAP financial results.

1 We adopted new revenue recognition guidance in the first quarter of 2018. Certain restatements have been made to the 2017 financial statements to conform with the 2018 presentation.

2 Local currency percentage change is calculated by comparing current-period results at prior-period exchange rates versus prior-period results.

3 Fee revenue is gross revenue less both client reimbursed costs largely associated with employees that are dedicated to client facilities and subcontracted vendor work performed for clients. Organic fee revenue for the three months ended June 30, 2018 further excludes contributions from all acquisitions completed after second-quarter 2017. Organic fee revenue for the six months ended June 30, 2018 further excludes contributions from: (i) all acquisitions completed after first-quarter 2017 for the three months ended March 31, 2018 and (ii) all acquisitions completed after the second-quarter of 2017 for the three months ended June 30, 2018.

4 Adjusted net income and adjusted earnings per share (or adjusted EPS) exclude the effect of select charges from GAAP net income and GAAP earnings per diluted share as well as adjust the provision for income taxes for such charges. Adjustments during the periods presented included non-cash depreciation and amortization expense related to certain assets attributable to acquisitions, write-off of financing costs on extinguished debt, and certain carried interest incentive compensation expense (reversals) to align with the timing of associated revenue. Adjustments for the six months ended June 30, 2018 also included an update to the provisional estimated tax impact of U.S. tax reform initially recorded in the fourth quarter of 2017.

5 EBITDA represents earnings before net interest expense, write-off of financing costs on extinguished debt, income taxes, depreciation and amortization. Amounts shown for adjusted EBITDA further remove (from EBITDA) the impact of certain carried interest incentive compensation reversals to align with the timing of associated revenue and cash and non-cash charges related to acquisitions.

6 Revenue in the Development Services segment does not include equity income from unconsolidated subsidiaries and gain on disposition of real estate, net of non-controlling interest. EBITDA includes equity income from unconsolidated subsidiaries and gain on disposition of real estate, net of non-controlling interests, and the associated compensation expense.

7 In December 2017, the Securities and Exchange Commission (SEC) staff issued Staff Accounting Bulletin No. 118 (SAB 118), Income Tax Accounting Implications of the Tax Cuts and Jobs Act (Tax Act), which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. The net charge in the first quarter of 2018 related to an update of the net provision associated with the Tax Act based upon our reasonable estimates and interpretation of the Tax Act. We consider certain aspects of this charge to be provisional and the impact may change due to additional guidance that may be issued by the U.S. Government as well as ongoing analysis of our data and assumptions we have made. Our accounting for the effects of the Tax Act is expected to be completed within the measurement period provided by SAB 118.

 

CBRE GROUP, INC.

OPERATING RESULTS

FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2018 AND 2017

(Dollars in thousands, except share data)

(Unaudited)

 
  Three Months Ended     Six Months Ended
June 30, June 30,
2018     2017 2018   2017
(As Adjusted) (1) (As Adjusted) (1)
Revenue:
Fee revenue $ 2,535,600 $ 2,200,949 $ 4,812,499 $ 4,134,803
Pass through costs also recognized as revenue   2,575,834   2,238,622   4,972,887   4,355,734
Total revenue   5,111,434   4,439,571   9,785,386   8,490,537
 
Costs and expenses:
Cost of services 3,958,748 3,409,540 7,578,709 6,556,017
Operating, administrative and other 826,282 712,615 1,558,517 1,319,241
Depreciation and amortization   113,399   100,386   221,564   194,423
Total costs and expenses   4,898,429   4,222,541   9,358,790   8,069,681
 
Gain on disposition of real estate (2)   12,311   11,298   12,329   12,683
 
Operating income 225,316 228,328 438,925 433,539
 
Equity income from unconsolidated subsidiaries (2) 96,021 75,384 136,200 90,402
Other income (loss) 4,009 3,186 (271 ) 7,301
Interest income 1,489 1,427 5,110 3,838
Interest expense 26,885 35,430 55,743 69,440
Write-off of financing costs on extinguished debt       27,982  
Income before provision for income taxes 299,950 272,895 496,239 465,640
Provision for income taxes   70,319   69,887   116,483   123,706
Net income 229,631 203,008 379,756 341,934
Less: Net income attributable to non-controlling interests (2)   964   1,231   801   3,137
Net income attributable to CBRE Group, Inc. $ 228,667 $ 201,777 $ 378,955 $ 338,797
 
 
Basic income per share:
Net income per share attributable to CBRE Group, Inc. $ 0.67 $ 0.60 $ 1.12 $ 1.01
Weighted average shares outstanding for basic income per share   339,081,556   336,975,149   338,986,354   336,941,681
 
Diluted income per share:
Net income per share attributable to CBRE Group, Inc. $ 0.67 $ 0.59 $ 1.10 $ 1.00
Weighted average shares outstanding for diluted income per share   343,471,513   340,882,603   343,031,189   340,214,246
 
 
EBITDA $ 437,781 $ 406,053 $ 795,617 $ 722,528
Adjusted EBITDA $ 439,307 $ 418,686 $ 787,114 $ 731,863
 

_______________________________

(1)     We adopted new revenue recognition guidance in the first quarter of 2018. Certain restatements have been made to the 2017 financial statements to conform with the 2018 presentation.
(2) Equity income from unconsolidated subsidiaries and gain on disposition of real estate, less net income attributable to non-controlling interests, includes income of $97.5 million and $76.7 million for the three months ended June 30, 2018 and 2017, respectively, and $132.7 million and $87.0 million for the six months ended June 30, 2018 and 2017, respectively, attributable to Development Services but does not include significant related compensation expense (which is included in operating, administrative and other expenses). In the Development Services segment, related equity income from unconsolidated subsidiaries and gain on disposition of real estate, net of non-controlling interests, and the associated compensation expense, are all included in EBITDA.
 
 

CBRE GROUP, INC.

SEGMENT RESULTS

FOR THE THREE MONTHS ENDED JUNE 30, 2018

(Dollars in thousands)

(Unaudited)

 
    Three Months Ended June 30, 2018
          Global      
Investment Development
Americas EMEA Asia Pacific Management Services Consolidated
Revenue:
Fee revenue $ 1,432,833 $ 684,620 $ 300,792 $ 98,947 $ 18,408 $ 2,535,600

Pass through costs also recognized as

revenue

 

  1,707,594   630,832   237,408       2,575,834
Total revenue   3,140,427   1,315,452   538,200   98,947   18,408   5,111,434
 
Costs and expenses:
Cost of services 2,506,171 1,048,971 403,606 3,958,748
Operating, administrative and other 384,626 200,728 91,768 88,891 60,269 826,282
Depreciation and amortization   80,693   20,277   4,989   7,257   183   113,399
Total costs and expenses   2,971,490   1,269,976   500,363   96,148   60,452   4,898,429
 
Gain on disposition of real estate           12,311   12,311
 
Operating income (loss) 168,937 45,476 37,837 2,799 (29,733 ) 225,316
 

Equity income from unconsolidated subsidiaries

 

7,534 238 35 2,461 85,753 96,021
Other income (loss) 1,189 (27 ) 2,847 4,009

Less: Net (loss) income attributable to

non-controlling interests

 

(555 ) 989 530 964
Add-back: Depreciation and amortization   80,693   20,277   4,989   7,257   183   113,399
 
EBITDA 258,353 66,519 42,861 14,375 55,673 437,781
 
Adjustments:
Carried interest incentive compensation

expense to align with the timing of

associated revenue

        1,526     1,526
 
Adjusted EBITDA $ 258,353 $ 66,519 $ 42,861 $ 15,901 $ 55,673 $ 439,307
 
 

CBRE GROUP, INC.

SEGMENT RESULTS—(CONTINUED)

FOR THE THREE MONTHS ENDED JUNE 30, 2017

(Dollars in thousands)

(Unaudited)

 
    Three Months Ended June 30, 2017 (As Adjusted) (1)
        Global    
Investment Development
Americas EMEA Asia Pacific Management Services Consolidated
Revenue:
Fee revenue $ 1,266,039 $ 551,466 $ 273,715 $ 92,763 $ 16,966 $ 2,200,949
Pass through costs also recognized as

revenue

  1,560,884   464,554   213,184       2,238,622
Total revenue   2,826,923   1,016,020   486,899   92,763   16,966   4,439,571
 
Costs and expenses:
Cost of services 2,255,569 789,693 364,278 3,409,540
Operating, administrative and other 350,937 164,540 78,332 71,309 47,497 712,615
Depreciation and amortization   71,724   18,845   4,389   4,885   543   100,386
Total costs and expenses   2,678,230   973,078   446,999   76,194   48,040   4,222,541
 
Gain on disposition of real estate           11,298   11,298
 
Operating income (loss) 148,693 42,942 39,900 16,569 (19,776 ) 228,328
 
Equity income (loss) from unconsolidated

subsidiaries

5,222 318 (19 ) 4,419 65,444 75,384
Other income 612 24 2,550 3,186
Less: Net income (loss) attributable to

non-controlling interests

1 (503 ) 1,738 (5 ) 1,231
Add-back: Depreciation and amortization   71,724   18,845   4,389   4,885   543   100,386
 
EBITDA 226,250 62,632 44,270 26,685 46,216 406,053
 
Adjustments:
Carried interest incentive compensation

reversal to align with the timing of

associated revenue

(2,775 ) (2,775 )
Integration and other costs related to

acquisitions

  7,461   7,661   286       15,408
 
Adjusted EBITDA $ 233,711 $ 70,293 $ 44,556 $ 23,910 $ 46,216 $ 418,686
 

_____________________________

(1)     We adopted new revenue recognition guidance in the first quarter of 2018. Certain restatements have been made to the 2017 financial statements to conform with the 2018 presentation.
 
 

CBRE GROUP, INC.

SEGMENT RESULTS

FOR THE SIX MONTHS ENDED JUNE 30, 2018

(Dollars in thousands)

(Unaudited)

 
    Six Months Ended June 30, 2018
          Global    
Investment Development
Americas EMEA Asia Pacific Management Services Consolidated
Revenue:
Fee revenue $ 2,701,567 $ 1,293,987 $ 552,575 $ 222,637 $ 41,733 $ 4,812,499
Pass through costs also recognized as

revenue

  3,289,084   1,202,719   481,084       4,972,887
Total revenue   5,990,651   2,496,706   1,033,659   222,637   41,733   9,785,386
 
Costs and expenses:
Cost of services 4,781,022 2,009,618 788,069 7,578,709
Operating, administrative and other 739,897 384,975 169,078 167,206 97,361 1,558,517
Depreciation and amortization   158,674   39,123   9,670   13,484   613   221,564
Total costs and expenses   5,679,593   2,433,716   966,817   180,690   97,974   9,358,790
 
Gain on disposition of real estate           12,329   12,329
 
Operating income (loss) 311,058 62,990 66,842 41,947 (43,912 ) 438,925
 
Equity income from unconsolidated

subsidiaries

11,533 476 229 3,336 120,626 136,200
Other income (loss) 2,931 62 (3,264 ) (271 )
Less: Net (loss) income attributable to

non-controlling interests

(814 ) 1,407 208 801
Add-back: Depreciation and amortization   158,674   39,123   9,670   13,484   613   221,564
 
EBITDA 484,196 103,465 76,741 54,096 77,119 795,617
 
Adjustments:
Carried interest incentive compensation

reversal to align with the timing of

associated revenue

        (8,503 )     (8,503 )
 
Adjusted EBITDA $ 484,196 $ 103,465 $ 76,741 $ 45,593 $ 77,119 $ 787,114
 
 

CBRE GROUP, INC.

SEGMENT RESULTS—(CONTINUED)

FOR THE SIX MONTHS ENDED JUNE 30, 2017

(Dollars in thousands)

(Unaudited)

 
    Six Months Ended June 30, 2017 (As Adjusted) (1)
        Global    
Investment Development
Americas EMEA Asia Pacific Management Services Consolidated
Revenue:
Fee revenue $ 2,399,250 $ 1,029,898 $ 492,143 $ 182,329 $ 31,183 $ 4,134,803
Pass through costs also recognized as

revenue

  3,066,879   890,753   398,102       4,355,734
Total revenue   5,466,129   1,920,651   890,245   182,329   31,183   8,490,537
 
Costs and expenses:
Cost of services 4,361,928 1,518,217 675,872 6,556,017
Operating, administrative and other 673,305 307,482 147,009 122,831 68,614 1,319,241
Depreciation and amortization   140,293   34,415   8,703   9,924   1,088   194,423
Total costs and expenses   5,175,526   1,860,114   831,584   132,755   69,702   8,069,681
 
Gain on disposition of real estate           12,683   12,683
 
Operating income (loss) 290,603 60,537 58,661 49,574 (25,836 ) 433,539
 
Equity income from unconsolidated

subsidiaries

9,862 819 50 5,292 74,379 90,402
Other income 1,039 23 6,239 7,301
Less: Net (loss) income attributable to

non-controlling interests

(160 ) 3,244 53 3,137
Add-back: Depreciation and amortization   140,293   34,415   8,703   9,924   1,088   194,423
 
EBITDA 441,797 95,954 67,414 67,785 49,578 722,528
 
Adjustments:
Carried interest incentive compensation

reversal to align with the timing of

associated revenue

(18,016 ) (18,016 )
Integration and other costs related to

acquisitions

  17,139   9,794   418       27,351
 
Adjusted EBITDA $ 458,936 $ 105,748 $ 67,832 $ 49,769 $ 49,578 $ 731,863
 

_____________________________

(1)     We adopted new revenue recognition guidance in the first quarter of 2018. Certain restatements have been made to the 2017 financial statements to conform with the 2018 presentation.
 

Non-GAAP Financial Measures

The following measures are considered “non-GAAP financial measures” under SEC guidelines:

          (i)     Fee revenue
(ii) Organic fee revenue
(iii) Net income attributable to CBRE Group, Inc., as adjusted (which we also refer to as “adjusted net income”)
(iv) Diluted income per share attributable to CBRE Group, Inc. shareholders, as adjusted (which we also refer to as “adjusted earnings per share” or “adjusted EPS”)
(v) EBITDA and adjusted EBITDA

These measures are not recognized measurements under United States generally accepted accounting principles, or “GAAP.” When analyzing our operating performance, investors should use them in addition to, and not as an alternative for, their most directly comparable financial measure calculated and presented in accordance with GAAP. Because not all companies use identical calculations, our presentation of these measures may not be comparable to similarly titled measures of other companies.

Our management generally uses these non-GAAP financial measures to evaluate operating performance and for other discretionary purposes. The company believes that these measures provide a more complete understanding of ongoing operations, enhance comparability of current results to prior periods and may be useful for investors to analyze our financial performance because they eliminate the impact of selected charges that may obscure trends in the underlying performance of our business. The company further uses certain of these measures, and believes that they are useful to investors, for purposes described below.

With respect to fee revenue and organic fee revenue: the company believes that investors may find these measures useful to analyze the financial performance of our Occupier Outsourcing and Property Management business lines and our business generally. Fee revenue excludes costs reimbursable by clients, and as such provides greater visibility into the underlying performance of our business. Organic fee revenue for the three months ended June 30, 2018 further excludes contributions from all acquisitions completed after second-quarter 2017. Organic fee revenue for the six months ended June 30, 2018 further excludes contributions from: (i) all acquisitions completed after first-quarter 2017 for the three months ended March 31, 2018 and (ii) all acquisitions completed after the second-quarter of 2017 for the three months ended June 30, 2018.

With respect to adjusted net income, adjusted EPS, EBITDA and adjusted EBITDA: the company believes that investors may find these measures useful in evaluating our operating performance compared to that of other companies in our industry because their calculations generally eliminate the accounting effects of acquisitions, which would include impairment charges of goodwill and intangibles created from acquisitions—and in the case of EBITDA and adjusted EBITDA—the effects of financings and income tax and the accounting effects of capital spending. All of these measures may vary for different companies for reasons unrelated to overall operating performance. In the case of EBITDA and adjusted EBITDA, these measures are not intended to be measures of free cash flow for our management’s discretionary use because they do not consider cash requirements such as tax and debt service payments. The EBITDA and adjusted EBITDA measures calculated herein may also differ from the amounts calculated under similarly titled definitions in our credit facilities and debt instruments, which amounts are further adjusted to reflect certain other cash and non-cash charges and are used by us to determine compliance with financial covenants therein and our ability to engage in certain activities, such as incurring additional debt and making certain restricted payments. The company also uses adjusted EBITDA and adjusted EPS as significant components when measuring our operating performance under our employee incentive compensation programs.

Net income attributable to CBRE Group, Inc., as adjusted (or adjusted net income), and diluted income per share attributable to CBRE Group, Inc. shareholders, as adjusted (or adjusted EPS), are calculated as follows (dollars in thousands, except share data):

 
    Three Months Ended  

Six Months Ended

June 30, June 30,
2018   2017 2018   2017

 

(As Adjusted) (1)

(As Adjusted) (1)
 
Net income attributable to CBRE Group, Inc. $ 228,667 $ 201,777 $ 378,955 $ 338,797
 
Plus / minus:
Non-cash depreciation and amortization expense related to

certain assets attributable to acquisitions

29,437 27,324 58,409 54,315
Write-off of financing costs on extinguished debt 27,982
Carried interest incentive compensation expense (reversal)

to align with the timing of associated revenue

1,526 (2,775 ) (8,503 ) (18,016 )
Integration and other costs related to acquisitions - 15,408 - 27,351
Tax impact of adjusted items (7,068 ) (14,797 ) (18,605 ) (23,245 )
Impact of U.S. tax reform       548  
 
Net income attributable to CBRE Group, Inc. shareholders,

as adjusted

$ 252,562 $ 226,937 $ 438,786 $ 379,202
 
Diluted income per share attributable to CBRE Group, Inc.

shareholders, as adjusted

$ 0.74 $ 0.67 $ 1.28 $ 1.11
 
Weighted average shares outstanding for diluted income

per share

  343,471,513   340,882,603   343,031,189   340,214,246
 

EBITDA and adjusted EBITDA, are calculated as follows (dollars in thousands):

 
    Three Months Ended   Six Months Ended
June 30, June 30,
2018     2017 2018   2017
(As Adjusted) (1) (As Adjusted) (1)
 
Net income attributable to CBRE Group, Inc. $ 228,667 $ 201,777 $ 378,955 $ 338,797
 
Add:
Depreciation and amortization 113,399 100,386 221,564 194,423
Interest expense 26,885 35,430 55,743 69,440
Write-off of financing costs on extinguished debt 27,982
Provision for income taxes 70,319 69,887 116,483 123,706
Less:
Interest income   1,489   1,427   5,110   3,838
 
EBITDA 437,781 406,053 795,617 722,528
 
Adjustments:
Carried interest incentive compensation expense (reversal)

to align with the timing of associated revenue

1,526 (2,775 ) (8,503 ) (18,016 )
Integration and other costs related to acquisitions     15,408     27,351
 
Adjusted EBITDA $ 439,307 $ 418,686 $ 787,114 $ 731,863
 

__________________________

(1)     We adopted new revenue recognition guidance in the first quarter of 2018. Certain restatements have been made to the 2017 financial statements to conform with the 2018 presentation.
 

Revenue includes client reimbursed pass through costs largely associated with employees that are dedicated to client facilities and subcontracted vendor work performed for clients, both of which are excluded from fee revenue. Organic fee revenue for the three months ended June 30, 2018 further excludes contributions from all acquisitions completed after second-quarter 2017. Organic fee revenue for the six months ended June 30, 2018 further excludes contributions from: (i) all acquisitions completed after first-quarter 2017 for the three months ended March 31, 2018 and (ii) all acquisitions completed after the second-quarter of 2017 for the three months ended June 30, 2018. Reconciliations are shown below (dollars in thousands):

 
    Three Months Ended     Six Months Ended
June 30, June 30,
2018   2017 2018   2017
(As Adjusted) (1) (As Adjusted) (1)

Organic Fee Revenue

Consolidated fee revenue (1) $ 2,535,600 $ 2,200,949 $ 4,812,499 $ 4,134,803
Less: Acquisitions   (51,250 )   (94,328 )
 
Organic fee revenue $ 2,484,350 $ 4,718,171
 
 

Occupier Outsourcing

Fee revenue (2) $ 762,173 $ 613,372 $ 1,474,694 $ 1,180,712
Plus: Pass through costs also recognized as revenue   2,421,394   2,091,914   4,662,952   4,062,047
 
Revenue (2) $ 3,183,567 $ 2,705,286 $ 6,137,646 $ 5,242,759

 

 

Property Management

Fee revenue (2) $ 150,181 $ 133,315 $ 298,310 $ 259,062
Plus: Pass through costs also recognized as revenue   154,440   146,708   309,935   293,687
 
Revenue (2) $ 304,621 $ 280,023 $ 608,245 $ 552,749
 

___________________

(1)     We adopted new revenue recognition guidance in the first quarter of 2018. Certain restatements have been made to the 2017 financial statements to conform with the 2018 presentation.
(2) Excludes associated leasing and sales revenue.
 
 

CBRE GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

(Unaudited)

 
    June 30,     December 31,
2018 2017
(As Adjusted) (1)
Assets:
Cash and cash equivalents (2) $ 531,481 $ 751,774
Restricted cash 71,865 73,045
Receivables, net 3,324,522 3,112,289
Warehouse receivables (3) 1,488,324 928,038
Property and equipment, net 705,469 617,739
Goodwill and other intangibles, net 4,855,453 4,653,852
Investments in and advances to unconsolidated subsidiaries 233,889 238,001
Other assets, net   1,324,454   1,343,658
 
Total assets $ 12,535,457 $ 11,718,396
 
Liabilities:
Current liabilities, excluding debt $ 3,310,062 $ 3,802,154
Warehouse lines of credit (which fund loans that U.S. Government Sponsored Enterprises

have committed to purchase) (3)

1,471,591 910,766
Revolving credit facility 598,000
Senior term loans, net 743,715 193,475
4.875% senior notes, net 592,372 591,972
5.25% senior notes, net 422,553 422,423
5.00% senior notes, net 791,733
Other debt 5,727 24
Other long-term liabilities   874,566   831,235
 
Total liabilities   8,018,586   7,543,782
 
Equity:
CBRE Group, Inc. stockholders' equity 4,453,577 4,114,496
Non-controlling interests   63,294   60,118
 
Total equity   4,516,871   4,174,614
 
Total liabilities and equity $ 12,535,457 $ 11,718,396
 

______________________________

(1)     We adopted new revenue recognition guidance in the first quarter of 2018. Certain restatements have been made to the 2017 financial statements to conform with the 2018 presentation.
(2) Includes $112.7 million and $123.8 million of cash in consolidated funds and other entities not available for company use as of June 30, 2018 and December 31, 2017, respectively.
(3) Represents loan receivables, the majority of which are offset by borrowings under related warehouse line of credit facilities.
 

Contacts

CBRE Group, Inc.
Brad Burke, 215.921.7436
Investor Relations
or
Steve Iaco, 212.984.6535
Media Relations

Contacts

CBRE Group, Inc.
Brad Burke, 215.921.7436
Investor Relations
or
Steve Iaco, 212.984.6535
Media Relations