CBRE Group, Inc. Reports Strong Revenue and Earnings Growth for First-Quarter 2019

GAAP EPS of $0.48, up 9%
Adjusted EPS of $0.79, up 46%
Revenue
up 10% and Fee Revenue up 7%

LOS ANGELES–(BUSINESS WIRE)–CBRE Group, Inc. (NYSE:CBRE) today reported strong financial results for
the first quarter ended March 31, 2019.

“CBRE had an excellent start to 2019, as the positive momentum we
experienced last year carried over into the first quarter,” said Bob
Sulentic, president and chief executive officer of CBRE. “Strong
operating leverage across each of our three business segments drove
impressive bottom-line growth. Importantly, the organizational changes
we announced last year are improving our lines of business and helping
to make us a more efficient, client-focused company.”

“The macro market drivers and CBRE’s inherent competitive advantages
remain intact. As always, we caution against reading too much into first
quarter results, as this is our seasonally smallest period,” Mr.
Sulentic added.

First-Quarter 2019 Results

  • Revenue for the first quarter totaled $5.1 billion, an increase of 10%
    (13% local currency1). Fee revenue2 rose 7% (10%
    local currency) to $2.4 billion. Organic fee revenue2
    growth was 5% (8% local currency).
  • On a GAAP basis, net income and earnings per diluted share both
    increased 9% to $164.4 million and $0.48 per diluted share,
    respectively. Adjusted net income3 for the first quarter of
    2019 rose 44% to $267.5 million, while adjusted earnings per diluted
    share improved 46% to $0.79 per share.
  • First-quarter 2019 adjustments to GAAP net income had a net impact of
    $103.1 million, including:

    • Pre-tax adjustments of:

      • $89.0 million non-cash intangible asset impairment in the Real
        Estate Investments segment related to the securities
        investment management business, which has been impacted in
        part by the industry-wide shift in investor preference for
        passive investment programs;
      • $22.2 million of non-cash acquisition-related depreciation and
        amortization;
      • $15.8 million of expenses associated with the company
        reorganization, including related cost-savings initiatives;
      • $7.3 million of net carried interest incentive compensation
        expense to align with the timing of associated revenue, and
      • $2.6 million write-off of re-financing costs.
    • Offset by a $33.8 million net tax adjustment associated with the
      aforementioned pre-tax adjustments.
  • EBITDA4 increased 19% (20% local currency) to $426.9
    million and adjusted EBITDA4 increased 29% (31% local
    currency) to $450.0 million. Adjusted EBITDA margin on fee revenue4
    was 18.5% for the three months ended March 31, 2019 – up 320 basis
    points from first-quarter 2018.

First-Quarter 2019 Segment5
and Business Line Review

The following tables present highlights of CBRE segment performance
during the first quarter of 2019 (dollars in thousands):

    Advisory Services     Global Workplace Solutions     Real Estate Investments (6)
   

% Change from
Q1 2018

   

% Change from
Q1 2018

   

% Change from
Q1 2018

Q1 2019 USD     LC Q1 2019 USD     LC Q1 2019 USD     LC
Revenue $ 1,834,402 8 % 11 % $ 3,165,915 12 % 16 % $ 135,193 -8 % -5 %
Fee revenue 1,601,637 8 % 10 % 691,895 8 % 12 % 135,193 -8 % -5 %
EBITDA 257,184 19 % 20 % 90,817 10 % 11 % 78,946 32 % 34 %
Adjusted EBITDA 263,850 22 % 23 % 99,679 20 % 23 % 86,503 74 % 76 %
 

Advisory Services Segment

Advisory Services produced revenue growth of 8% (11% local currency) and
fee revenue growth of 8% (10% local currency). Growth was notably strong
in France, Greater China, Japan and the U.S. Advisory Services adjusted
EBITDA surged 22% (23% local currency).

  • Advisory leasing revenue rose 20% (22% local currency) and growth was
    almost entirely organic. In the U.S., revenue increased 28% with solid
    demand from multiple sectors, including consumer products, energy and
    technology. International markets also had very strong growth, led by
    France, Germany, India, Japan and the Netherlands.
  • Loan servicing revenue continued to grow briskly, rising 10% (same
    local currency). The portfolio increased to $210 billion – up 15% from
    first-quarter 2018.
  • Capital markets revenue, which includes both property sales and
    commercial mortgage origination, declined 3% (1% local currency)
    globally, reflecting meaningful gains in market share.

    • Commercial mortgage origination revenue rose 13% (same local
      currency), fueled by robust activity with the U.S.
      Government-Sponsored Enterprises as well as banks.
    • Advisory property sales revenue declined 7% (5% local currency).
      This reflected a tepid macro environment for market-wide property
      sales volume in all three global regions as well as a difficult
      comparison with first-quarter 2018. A modest U.S. sales revenue
      decline of 1% reflects significant market share gains, as
      estimated market volumes decreased 8%, according to Real Capital
      Analytics.
  • Property and advisory project management revenue increased 7% (11%
    local currency) and fee revenue rose 6% (10% local currency), with
    strong growth in Australia, Greater China, India, Spain, the U.K. and
    the U.S.
  • Valuation revenue rose 3% (7% local currency), driven by France,
    Germany and the U.K.

Global Workplace Solutions Segment
(Occupier Outsourcing Services)

Global Workplace Solutions achieved a 12% (16% local currency) increase
in revenue and an 8% (12% local currency) rise in fee revenue. This
segment’s adjusted EBITDA surged 20% (23% local currency), reflecting
strong operating leverage.

Continued strong revenue and earnings increases reflect CBRE’s ability
to capture a large share of the growing market for real estate
outsourcing and account-based client service. Enhanced technology and
service capabilities from the June 2018 FacilitySource acquisition also
contributed to account wins and expansions in the quarter.

Real Estate Investments Segment
(Development, Investment Management and Flexible-Space Solutions)

Revenue declined 8% (5% local currency). However, adjusted revenue –
which includes both equity earnings and gains from real estate sales,
net of controlling interests – rose 21% (23% local currency). This
segment’s adjusted EBITDA surged 74% (76% local currency).

The robust adjusted EBITDA growth was fueled by the timing of several
large development asset sales and gains from investment management
co-investments, partially offset by costs associated with starting up
the flexible-space solutions enterprise.

  • The in-process development portfolio increased to a record $9.7
    billion, up $0.7 billion from year-end 2018, reflecting the continued
    conversion of pipeline activity. The pipeline declined by $0.9 billion
    during the first quarter to $2.8 billion.
  • Investment management assets under management (AUM) totaled $107.2
    billion, up $1.7 billion ($2.0 billion local currency) from year-end
    2018. Over the past 12 months, AUM has increased $3.0 billion ($7.8
    billion local currency).

Conference Call Details

The company’s first quarter earnings conference call will be held today
(Wednesday, May 8, 2019) 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 May 8, 2019
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 13689185#.
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 2018 revenue). The company
has more than 90,000 employees (excluding affiliates) and serves real
estate investors and occupiers through more than 480 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, 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 the United Kingdom’s withdrawal from the European
Union, including concerns relating to the economic impact of such
withdrawal on businesses within the United Kingdom and Europe; 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; the emergence of
disruptive business models and technologies; 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 investment management line of 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 line of business within our Real
Estate Investments segment; 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; negative publicity or actions
by our employees, regulators, media, activists, competitors or others
that harm our reputation or brand; changes in applicable tax or
accounting requirements, including the impact of any subsequent
additional regulation or guidance associated with the Tax Cuts and Jobs
Act (which was enacted into law on December 22, 2017); and the effect of
implementation of new accounting rules and standards.

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, 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 revenue,”
“adjusted net income,” “adjusted earnings per diluted share” (or
adjusted EPS), “EBITDA,” “adjusted EBITDA” and “adjusted EBITDA on fee
revenue margin,” 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.

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

2 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 March 31, 2019 further excludes
contributions from all acquisitions completed after first-quarter 2018.

3 Adjusted net income and adjusted earnings per diluted share
(or adjusted EPS) exclude the effect of select items 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 intangible asset impairment, non-cash
depreciation and amortization expense related to certain assets
attributable to acquisitions, costs associated with our reorganization,
including cost-savings initiatives, certain carried interest incentive
compensation expense (reversal) to align with the timing of associated
revenue and the write-off of financing costs on extinguished debt.
Adjustments for the three months ended March 31, 2018 also included an
update to the provisional estimated tax impact of U.S. tax reform
initially recorded in the fourth quarter of 2017.

4 EBITDA represents earnings before net interest expense,
write-off of financing costs on extinguished debt, income taxes,
depreciation, amortization and intangible asset impairments. Amounts
shown for adjusted EBITDA further remove (from EBITDA) costs associated
with our reorganization, including cost-savings initiatives, and certain
carried interest incentive compensation expense (reversal) to align with
the timing of associated revenue. Adjusted EBITDA on fee revenue margin
represents adjusted EBITDA divided by fee revenue.

5 Our new organizational structure became effective on
January 1, 2019. Under the new structure, we organize our operations
around, and publicly report our financial results on, three global
business segments: (1) Advisory Services; (2) Global Workspace
Solutions; and (3) Real Estate Investments. Prior period results have
been presented in conformity with the new structure.

6 Revenue in the Real Estate Investments segment does not
include equity income from unconsolidated subsidiaries and gain on
disposition of real estate, net of non-controlling interests. Adjusted
revenue for the Real Estate Investments segment reflects revenue for
this segment with equity income from unconsolidated subsidiaries and
gain on disposition of real estate, net of non-controlling interests,
included. EBITDA includes equity income from unconsolidated subsidiaries
and gain on disposition of real estate, net of non-controlling
interests, and the associated compensation expense.

   

CBRE GROUP, INC.

OPERATING RESULTS

FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018

(Dollars in thousands, except share data)

(Unaudited)

 
Three Months Ended
March 31,
  2019       2018  
Revenue:
Fee revenue $ 2,428,725 $ 2,276,899
Pass through costs also recognized as revenue   2,706,785   2,397,053  
Total revenue   5,135,510   4,673,952  
 
Costs and expenses:
Cost of services 4,022,034 3,619,961
Operating, administrative and other 792,876 732,235
Depreciation and amortization 105,823 108,165
Intangible asset impairment   89,037    
Total costs and expenses   5,009,770   4,460,361  
 
Gain on disposition of real estate (1)   19,247   18  
 
Operating income 144,987 213,609
 
Equity income from unconsolidated subsidiaries (1) 72,664 40,179
Other income (loss) 20,853 (4,280 )
Interest income 1,534 3,621
Interest expense 22,726 28,858
Write-off of financing costs on extinguished debt   2,608   27,982  
Income before provision for income taxes 214,704 196,289
Provision for income taxes   43,878   46,164  
Net income 170,826 150,125
Less: Net income (loss) attributable to non-controlling interests (1)   6,417   (163 )
Net income attributable to CBRE Group, Inc. $ 164,409 $ 150,288  
 
 
Basic income per share:
Net income per share attributable to CBRE Group, Inc. $ 0.49 $ 0.44  
Weighted average shares outstanding for basic income per share   336,020,431   338,890,098  
 
Diluted income per share:
Net income per share attributable to CBRE Group, Inc. $ 0.48 $ 0.44  
Weighted average shares outstanding for diluted income per share   340,158,399   342,589,810  
 
 
EBITDA $ 426,947 $ 357,836  
Adjusted EBITDA $ 450,032 $ 347,807  

____________________________

(1)   Equity income from unconsolidated subsidiaries and gain on
disposition of real estate, less net income attributable to
non-controlling interests, includes income of $85.3 million and
$35.7 million for the three months ended March 31, 2019 and 2018,
respectively attributable to Real Estate Investments but does not
include significant related compensation expense (which is included
in operating, administrative and other expenses). In the Real Estate
Investments 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 MARCH 31, 2019

(Dollars in thousands)

(Unaudited)

 
Three Months Ended March 31, 2019
     

Advisory
Services

Global Workplace
Solutions

Real Estate
Investments

Consolidated
Revenue:
Fee revenue $ 1,601,637 $ 691,895 $ 135,193 $ 2,428,725

Pass through costs also recognized as revenue

  232,765   2,474,020     2,706,785
Total revenue   1,834,402   3,165,915   135,193   5,135,510
 
Costs and expenses:
Cost of services 1,083,099 2,938,935 4,022,034
Operating, administrative and other 496,618 135,472 160,786 792,876
Depreciation and amortization 71,647 29,483 4,693 105,823
Intangible asset impairment       89,037   89,037

Total costs and expenses

  1,651,364   3,103,890   254,516   5,009,770
 
Gain on disposition of real estate       19,247   19,247
 
Operating income (loss) 183,038 62,025 (100,076 ) 144,987
 

Equity income (loss) from unconsolidated subsidiaries

675 (833 ) 72,822 72,664
Other income (loss) 1,679 (16 ) 19,190 20,853

Less: Net (loss) income attributable to non-controlling interests

(145 ) (158 ) 6,720 6,417

Add-back: Depreciation and amortization

71,647 29,483 4,693 105,823

Add-back: Intangible asset impairment

      89,037   89,037
 
EBITDA 257,184 90,817 78,946 426,947
 
Adjustments:

Costs associated with our reorganization, including cost-savings
initiatives (1)

6,666 8,862 221 15,749

Carried interest incentive compensation expense to align with the
timing of associated revenue

      7,336   7,336
 
Adjusted EBITDA $ 263,850 $ 99,679 $ 86,503 $ 450,032

____________________________

(1)   Primarily represents severance costs related to headcount reductions
in connection with our reorganization announced in the third quarter
of 2018 that became effective January 1, 2019.
 
   

CBRE GROUP, INC.

SEGMENT RESULTS—(CONTINUED)

FOR THE THREE MONTHS ENDED MARCH 31, 2018

(Dollars in thousands)

(Unaudited)

 
Three Months Ended March 31, 2018 (1)
           

Advisory
Services

Global Workplace
Solutions

Real Estate
Investments

Consolidated
Revenue:
Fee revenue $ 1,486,646 $ 643,238 $ 147,015 $ 2,276,899

Pass through costs also recognized as revenue

  212,788     2,184,265         2,397,053  
Total revenue   1,699,434     2,827,503     147,015     4,673,952  
 
Costs and expenses:
Cost of services 1,008,662 2,611,299 3,619,961
Operating, administrative and other 481,818 133,512 116,905 732,235
Depreciation and amortization   64,978     36,530     6,657     108,165  
Total costs and expenses   1,555,458     2,781,341     123,562     4,460,361  
 
Gain on disposition of real estate           18     18  
 
Operating income 143,976 46,162 23,471 213,609
 

Equity income from unconsolidated subsidiaries

4,431 35,748 40,179
Other income (loss) 1,799 32 (6,111 ) (4,280 )

Less: Net (loss) income attributable to non-controlling interests

(248 ) (11 ) 96 (163 )
Add-back: Depreciation and amortization   64,978     36,530     6,657     108,165  
 
EBITDA 215,432 82,735 59,669 357,836
 
Adjustments:

Carried interest incentive compensation reversal to align with the
timing of associated revenue

          (10,029 )   (10,029 )
 
Adjusted EBITDA $ 215,432   $ 82,735   $ 49,640   $ 347,807  

____________________________

Contacts

For further information:

Brad Burke
Investor Relations
215.921.7436

Steve Iaco
Media Relations
212.984.6535

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