10-QPeriod: Q3 FY2011

CBRE GROUP, INC. Quarterly Report for Q3 Ended Sep 30, 2011

Filed November 9, 2011For Securities:CBRE

Summary

CBRE Group, Inc. reported strong revenue growth in the third quarter and first nine months of 2011, driven by increased sales, leasing, and outsourcing activity across its global operations. This growth was partially fueled by the acquisition of Clarion Real Estate Securities (CRES) in July 2011, which significantly boosted the Global Investment Management segment's revenue. Despite increased operating expenses, including transaction and integration costs related to the ongoing ING REIM acquisitions, the company demonstrated effective cost control, leading to improved operating income and net income attributable to CBRE Group, Inc. shareholders for both periods compared to 2010. The company also successfully managed its debt obligations, maintaining strong leverage and coverage ratios. Financially, CBRE's balance sheet shows a substantial increase in assets, largely due to the acquisitions, with higher cash and cash equivalents and restricted cash. Long-term debt also increased to finance these strategic moves. The company's outlook suggests continued recovery in the commercial real estate market, supporting its revenue growth strategy, though it remains mindful of macroeconomic uncertainties and integration risks.

Financial Highlights

44 data points
Beta

Revenue

$1.53B

Net Income

$63.81M

4.2% Net Margin

EPS (Diluted)

$0.20

Total Assets

$6.42B

Cash & Equivalents

$662.59M

Free Cash Flow

$212.26M

Financial Statements
Beta
Revenue$1.53B
Operating Expenses$1.40B
Operating Income$143.00M
Interest Expense$39.08M
Net Income$63.81M
EPS (Basic)$0.20
EPS (Diluted)$0.20
Shares Outstanding (Basic)318.87M
Shares Outstanding (Diluted)323.71M

Key Highlights

  • 1Revenue increased by 21.2% for the third quarter and 19.6% for the first nine months of 2011 compared to the prior year periods.
  • 2Net income attributable to CBRE Group, Inc. shareholders was $63.8 million for Q3 2011 and $159.4 million for the first nine months of 2011, showing significant year-over-year growth.
  • 3The company successfully completed the acquisition of Clarion Real Estate Securities (CRES) on July 1, 2011, contributing to revenue growth in the Global Investment Management segment.
  • 4Significant progress was made on the ING REIM acquisitions, with the Asia portion closing October 3, 2011, and Europe portion closing October 31, 2011, funded by new term loans and existing credit facilities.
  • 5Despite increased operating expenses related to acquisitions and integration costs, the company's operating income and net income showed improvement.
  • 6Total debt increased significantly due to new term loan facilities drawn to finance acquisitions, but leverage and coverage ratios remained within compliance with debt covenants.
  • 7Cash and cash equivalents increased to $662.6 million as of September 30, 2011, from $506.6 million at the end of 2010, reflecting improved cash flow and financing activities.

Frequently Asked Questions

Revenue growth in the third quarter of 2011 was primarily driven by higher worldwide sales (up 22.5%), leasing (up 18.9%), and outsourcing (up 19.4%) activity. The acquisition of Clarion Real Estate Securities (CRES) also contributed to higher revenue in the Global Investment Management segment.

The acquisition of ING REIM, which is being completed in stages through October 2011, is a significant strategic move. It has led to an increase in total assets, with substantial goodwill and intangible assets recognized. The company has also drawn down new term loan facilities to finance these acquisitions, increasing its long-term debt and impacting its capital structure. Integration costs associated with these acquisitions are being incurred and are impacting operating expenses.

CBRE has a significant level of debt, including new term loan facilities drawn to finance recent acquisitions. As of September 30, 2011, total debt (excluding real estate notes payable and warehouse lines) was approximately $2.2 billion. The company reported a strong EBITDA to interest expense coverage ratio of 16.36x and a leverage ratio of 1.55x, indicating its ability to service its debt obligations under current covenants.

While operating, administrative, and other expenses increased due to integration costs related to the ING REIM acquisitions and higher payroll-related costs, CBRE demonstrated effective cost control. For the nine-month period, operating expenses as a percentage of revenue decreased to 30.9% from 31.3% in the prior year, indicating efficient management of indirect and support costs despite increased investment in growth.