10-QPeriod: Q1 FY2011

CBRE GROUP, INC. Quarterly Report for Q1 Ended Mar 31, 2011

Filed May 10, 2011For Securities:CBRE

Summary

CBRE GROUP, INC. (CBRE) reported a net income of $34.4 million for the first quarter of 2011, a significant improvement from a net loss of $6.6 million in the same period of the prior year. Revenue increased by 15.5% to $1.2 billion, driven by higher sales, leasing, and outsourcing activities across its global operations. The company is strategically positioning itself for future growth with the announced acquisition of ING's real estate investment management business (REIM) for approximately $940 million, which is expected to close in the second half of 2011 and will significantly expand its Global Investment Management segment. Despite the positive operational performance and strategic acquisition, the company continues to manage a substantial debt load, though leverage ratios remain within covenants. Key operational highlights include strong revenue growth in the Americas and Asia Pacific segments, and a notable turnaround in the Global Investment Management segment's profitability. The company's proactive management of expenses, with operating expenses as a percentage of revenue decreasing, indicates effective cost control. Investors should monitor the integration of the REIM acquisition and the ongoing macroeconomic conditions that could impact the commercial real estate market.

Financial Highlights

42 data points
Beta

Revenue

$1.19B

Net Income

$34.37M

2.9% Net Margin

EPS (Diluted)

$0.11

Total Assets

$4.79B

Cash & Equivalents

$427.64M

Free Cash Flow

-$127.50M

Financial Statements
Beta
Revenue$1.19B
Operating Expenses$1.11B
Operating Income$73.12M
Interest Expense$33.72M
Net Income$34.37M
EPS (Basic)$0.11
EPS (Diluted)$0.11
Shares Outstanding (Basic)316.56M
Shares Outstanding (Diluted)322.92M

Key Highlights

  • 1Reported a net income of $34.4 million for Q1 2011, a significant turnaround from a net loss of $6.6 million in Q1 2010.
  • 2Revenue grew by 15.5% to $1.2 billion, driven by increased sales, leasing, and outsourcing activity.
  • 3Announced a major acquisition of ING's global real estate investment management business (REIM) for approximately $940 million, expected to close in the second half of 2011.
  • 4Operating expenses as a percentage of revenue decreased to 31.8% from 33.0% in the prior year's quarter, demonstrating effective cost management.
  • 5The Global Investment Management segment showed improved profitability, with EBITDA increasing to $6.0 million from a loss of $4.9 million in the prior year.
  • 6Despite revenue growth, interest expense decreased by 32.3% due to debt repayments and refinancing efforts.
  • 7Company maintained strong leverage ratios, with EBITDA to total interest expense coverage at 10.1x and a leverage ratio of 1.07x.

Frequently Asked Questions

CBRE's revenue growth of 15.5% to $1.2 billion in Q1 2011 was primarily driven by increased worldwide sales (up 34.5%), leasing (up 7.9%), and outsourcing (up 13.7%) activities. Positive impacts from foreign currency translation also contributed to revenue growth.

The acquisition of ING's global real estate investment management business (REIM) for approximately $940 million is a significant strategic move. It is expected to substantially expand CBRE's Global Investment Management segment, combining ING REIM's $59.8 billion in assets under management with CBRE Investors' $37.6 billion, creating a more comprehensive offering for institutional investors across global markets. The acquisition is anticipated to close in the second half of 2011.

CBRE demonstrated effective cost control by reducing operating expenses, administrative, and other expenses as a percentage of revenue to 31.8% in Q1 2011, down from 33.0% in Q1 2010. This was achieved despite increased payroll-related costs, bonuses, and restoration of salaries to pre-financial crisis levels, indicating efficient operational management in support of revenue growth.

CBRE carries a significant debt load, with approximately $1.5 billion in total debt (excluding real estate notes payable and warehouse lines of credit) as of March 31, 2011. The company has secured $800 million in new term loans to help finance the REIM acquisition. While the company's leverage ratios (EBITDA to total interest expense coverage at 10.1x and leverage ratio at 1.07x) were within covenants, the substantial debt requires ongoing monitoring. The company also faces debt service obligations and potential refinancing needs in the future.