How did CBRE perform in Q2 2003 relative to the prior year?

Revenue was $321.7 million, up about $36.8 million or roughly 13% year over year, driven mainly by stronger U.S. investment sales and appraisal activity. Cost of services rose about 19% and operating expense about 11%, which included a $5 million one-time performance bonus accrual. Reported EBITDA was $31.7 million after $3.3 million of merger-related charges. Excluding those charges and the bonus, management said EBITDA improved about 20%.

What is the status of the Insignia Financial Group acquisition?

The acquisition closed on July 23, 2003. Management said integration was proceeding well, with cost savings exceeding the initial target: about $30.6 million of the $34 million synergy goal was achieved at closing, and management said it expected to beat that by roughly $6 million. Management also indicated that the closing cash balance would likely be better than its model projected, though the July books were not yet closed when the call was held.

How did CBRE's leverage change, and is it in compliance with its debt covenants?

Total debt excluding the L.J. Melody warehouse line and non-recourse co-investment debt was $683.3 million at June 30, 2003, up $179.7 million from a year earlier, largely from the $200 million senior unsecured notes issued in May 2003 to fund the Insignia deal. The amended credit agreement took effect July 23, 2003, and management said its covenant calculations show compliance for the rest of 2003. Investors should note that these are management projections, not audited covenant results.

What did management say about the outlook for the commercial real estate leasing market?

Management said leasing markets have shown marked improvement across most of the U.S. since late 2002 or early 2003, with stronger activity in Southern California, Denver, Chicago and New York. San Francisco and northern Virginia remain weak, and London's City submarket is soft, while France, Spain and the Netherlands are described as strong. Management expects operating leverage to improve substantially once rents stabilize and begin rising.

CBRE 8-K SEC Disclosure

01—Abstract

Summary

Summary of the 8-K filed August 18, 2003. Cited figures are marked; the original filing is the authoritative source.

CBRE Holding, Inc. (CB Richard Ellis) filed this Form 8-K on August 18, 2003 to furnish the transcript of its Q2 2003 earnings conference call held August 11, 2003.

Results showed continued top-line momentum: second-quarter revenue rose about 13% year over year to $321.7 million^a, and revenue was up roughly 15% year to date. Reported EBITDA was $31.7 million, which included $3.3 million of Insignia merger-related charges and a one-time $5 million performance bonus accrual. Excluding those items, management said EBITDA improved about 20% year over year.

Operating expense rose 11%, or 6% excluding the one-time bonus, and interest expense increased about $2 million^b after the May 2003 issuance of $200 million of senior unsecured notes. The filing's central strategic development is the Insignia Financial Group acquisition, which closed on July 23, 2003. Management said integration was ahead of plan: the original synergy target was $34 million, about 90% (roughly $30.6 million) was achieved at closing, and management said it had beaten that figure by about $6 million.

Insignia's standalone Q2 revenue was $150.2 million^c, up 11%, with EBITDA margin improving from 5.6% to 7.1%. Management also said an amended credit agreement took effect July 23, 2003, and that covenant models indicate compliance for the rest of 2003. Total debt excluding warehouse and non-recourse co-investment debt was $683.3 million, up $179.7 million year over year.

For investors, the key takeaways are the revenue growth relative to listed competitors, the integration progress, and the higher leverage taken on to finance the deal. The filing is management commentary rather than audited financial statements, and the forward-looking statements caveat applies. Management's view is that the leasing market is improving in most U.S. markets, with weakness still in San Francisco and northern Virginia, and that cost-savings and cash-flow expectations have been raised since closing.

02—Key points

Key Highlights

Q2 2003 revenue of $321.7 million, up about 13% year over year; year-to-date revenue up about 15%, outpacing two major public competitors (reported +9% and -6% in Q2).
Reported Q2 EBITDA of $31.7 million included $3.3 million of merger-related charges and a one-time $5 million performance bonus; excluding these, EBITDA rose about 20%.
Insignia Financial Group acquisition closed July 23, 2003; original synergy target of $34 million, with about 90% (~$30.6 million) achieved at closing, reportedly beating internal expectations by about $6 million.
Insignia's standalone Q2 2003 revenue was $150.2 million (+11%), and its EBITDA margin improved from 5.6% to 7.1%.
Issued $200 million of senior unsecured notes in May 2003 to fund the Insignia transaction; total debt (excluding warehouse and non-recourse co-investment debt) reached $683.3 million, up $179.7 million year over year.
Amended and restated credit agreement effective July 23, 2003; management's covenant models indicate compliance for the remainder of 2003.
Management described leasing markets as improving across most U.S. markets, with San Francisco and northern Virginia still weak and London's City submarket soft, while France and Spain showed strength.

03—Questions

Frequently Asked Questions

How did CBRE perform in Q2 2003 relative to the prior year?
Revenue was $321.7 million, up about $36.8 million or roughly 13% year over year, driven mainly by stronger U.S. investment sales and appraisal activity. Cost of services rose about 19% and operating expense about 11%, which included a $5 million one-time performance bonus accrual. Reported EBITDA was $31.7 million after $3.3 million of merger-related charges. Excluding those charges and the bonus, management said EBITDA improved about 20%.
What is the status of the Insignia Financial Group acquisition?
The acquisition closed on July 23, 2003. Management said integration was proceeding well, with cost savings exceeding the initial target: about $30.6 million of the $34 million synergy goal was achieved at closing, and management said it expected to beat that by roughly $6 million. Management also indicated that the closing cash balance would likely be better than its model projected, though the July books were not yet closed when the call was held.
How did CBRE's leverage change, and is it in compliance with its debt covenants?
Total debt excluding the L.J. Melody warehouse line and non-recourse co-investment debt was $683.3 million at June 30, 2003, up $179.7 million from a year earlier, largely from the $200 million senior unsecured notes issued in May 2003 to fund the Insignia deal. The amended credit agreement took effect July 23, 2003, and management said its covenant calculations show compliance for the rest of 2003. Investors should note that these are management projections, not audited covenant results.
What did management say about the outlook for the commercial real estate leasing market?
Management said leasing markets have shown marked improvement across most of the U.S. since late 2002 or early 2003, with stronger activity in Southern California, Denver, Chicago and New York. San Francisco and northern Virginia remain weak, and London's City submarket is soft, while France, Spain and the Netherlands are described as strong. Management expects operating leverage to improve substantially once rents stabilize and begin rising.

04—Continue

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