10-QPeriod: Q3 FY2006

CBRE GROUP, INC. Quarterly Report for Q3 Ended Sep 30, 2006

Filed November 9, 2006For Securities:CBRE

Summary

CBRE GROUP, INC. (CBRE) reported strong financial performance for the nine months ended September 30, 2006, with revenue increasing by 23.8% to $2.42 billion and net income growing by 58.7% to $193.5 million year-over-year. This growth was driven by both organic expansion and strategic in-fill acquisitions, particularly in its Americas and EMEA segments. The company is actively managing its debt, having recently refinanced its credit facility and redeemed a significant portion of its senior subordinated notes. Looking ahead, CBRE announced a major development with the signing of a merger agreement to acquire Trammell Crow Company for $49.51 per share in cash, a transaction that is expected to be financed through substantial new debt. Investors should monitor the integration of this significant acquisition and the impact of increased leverage.

Key Highlights

  • 1Revenue increased by 23.8% to $2.42 billion for the nine months ended September 30, 2006, compared to the same period in 2005.
  • 2Net income for the nine months ended September 30, 2006, rose by 58.7% to $193.5 million.
  • 3The company refinanced its credit facility in June 2006, securing a $600 million multi-currency senior secured revolving credit facility.
  • 4CBRE redeemed the remaining $164.7 million of its 11.25% senior subordinated notes in June 2006.
  • 5A significant development announced on October 30, 2006, is the agreement to acquire Trammell Crow Company for $49.51 per share in cash.
  • 6The proposed acquisition of Trammell Crow is to be financed through approximately $2.2 billion in new debt facilities.
  • 7Goodwill increased to $969.6 million as of September 30, 2006, primarily due to acquisitions.

Frequently Asked Questions

CBRE's revenue growth of 23.8% to $2.42 billion was driven by a combination of organic growth (approximately two-thirds) and strategic in-fill acquisitions (one-third). Organic growth was primarily fueled by higher worldwide transaction revenue and increased fees from appraisal/valuation, mortgage brokerage, and property/facilities management services.

On October 30, 2006, CBRE announced a definitive agreement to acquire Trammell Crow Company for $49.51 per share in cash. This strategic acquisition, expected to be financed by significant debt, is a major event for the company, and its integration will be closely watched by investors.

CBRE has been actively managing its debt. In June 2006, it entered into a new $600 million revolving credit facility, replacing its prior agreement. Additionally, the company redeemed the remaining $164.7 million of its 11.25% senior subordinated notes in June 2006. The upcoming acquisition of Trammell Crow will significantly increase its leverage through approximately $2.2 billion in new debt facilities.

Acquisitions, both strategic large-scale ones like the proposed Trammell Crow deal and smaller 'in-fill' acquisitions, are a key growth strategy for CBRE. They contribute to revenue growth but also lead to increased transaction and integration expenses, as well as a rise in goodwill and other intangible assets on the balance sheet. The company is also mindful of the impact of acquisitions on its overall leverage.