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CBRE Group, Inc. reports strong financial results for full-year and fourth-quarter 2016

2016 Full Year Highlights Revenue of $13.1 billion, up 20% (23% local currency) Fee Revenue of $8.7 billion, up 13% (15% local currency) GAAP EPS of $1.69, up 4%; Adjusted EPS of $2.30, up 12% 

2016 Fourth Quarter Highlights Revenue of $3.8 billion, up 3% (6% local currency) Fee Revenue of $2.7 billion, up 4% (6% local currency) GAAP EPS of $0.78, up 47%; Adjusted EPS of $0.93, up 15% 

Los Angeles, CA

CBRE Group, Inc. (NYSE:CBG) today reported strong financial results for the year and fourth quarter ended December 31, 2016.   

“We ended 2016 on a high note,” said Bob Sulentic, CBRE’s president and chief executive officer.  “CBRE recorded double-digit adjusted earnings growth for the fourth quarter and the year, with excellent performance in all three regional services businesses.” 

Mr. Sulentic added: “In addition to achieving record financial performance, we continued to advance our strategy centered around creating exceptional outcomes for our clients.  Our people and the operating platform that supports them are the key elements to delivering these outcomes.  Both advanced materially in 2016 and the impact is showing up in our results.”  

Full-Year 2016 Results 

• Revenue for full-year 2016 totaled $13.1 billion, an increase of 20% (23% local currency1).  Fee revenue2 increased 13% (15% local currency) to $8.7 billion.  Organic fee revenue, which excludes contributions from all acquisitions including Global Workplace Solutions, increased 3% (5% local currency). Revenue contribution from the acquired Global Workplace Solutions business totaled approximately $2.75 billion for full-year 2016.  
• On a GAAP basis, net income for 2016 increased 5% to $572.0 million and earnings per diluted share rose 4% to $1.69 per share.  GAAP net income was reduced by $125.7 million (pre-tax) of integration costs associated with the Global Workplace Solutions acquisition; $111.1 million (pre-tax) of acquisition-related non-cash amortization; and $78.5 million (pre-tax) incurred in the cost-elimination program that ended in the third quarter of 2016.  These costs were partially offset by a $15.6 million (pre-tax) reversal of carried interest incentive compensation and a tax benefit associated with all noted adjustments of $93.2 million.
• Adjusted net income3 increased 13% to $778.5 million and adjusted earnings per share increased 12% to $2.30 per share.
• Foreign currency movement, primarily the impact of currency translation and the marking-tomarket of currency hedges, caused a net decrease to earnings per share of $0.06 in 2016 compared with last year.  This reflected a reduction of earnings per share in 2016 by approximately $0.03 per share, as compared to an increase of approximately $0.03 in 2015. Adjusted earnings per share would have increased by approximately 15% without the currency impact.
• EBITDA4 increased 6% (7% local currency) to $1.4 billion while adjusted EBITDA4 increased 10% (12% local currency) to $1.6 billion. In 2016, EBITDA and adjusted EBITDA were negatively impacted by $17.4 million of currency movement, including the marking-to-market of currency hedges, as compared to 2015, which was positively impacted by $15.3 million. Adjusted EBITDA would have increased by approximately 13%, without the currency impact.
• Adjusted EBITDA margin on fee revenue was 17.9%.
• For the year, CBRE’s more than $13 billion of revenue and nearly $1.6 billion of adjusted EBITDA set new records for the company.
• The company’s business mix continued to shift toward more recurring revenue in 2016 with contractual fee revenue5 comprising approximately 42% of total fee revenue, up from 37% in 2015. 

Fourth-Quarter 2016 Results

• Revenue for the fourth quarter totaled $3.8 billion, an increase of 3% (6% local currency).  Fee revenue increased 4% (6% local currency) to $2.7 billion.  Organic fee revenue, which excludes contributions from all acquisitions, increased 3% (5% local currency).
• On a GAAP basis, net income and earnings per diluted share both increased 47% to $264.0 million and $0.78 per share, respectively.  GAAP net income for the fourth quarter of 2016 was reduced by $52.2 million (pre-tax) of integration costs associated with the Global Workplace Solutions acquisition and $29.3 million (pre-tax) of acquisition-related non-cash amortization.  These costs were partially offset by a $9.0 million (pre-tax) reversal of carried interest incentive compensation and a tax benefit associated with all noted adjustments of $21.8 million.
• Adjusted net income for the fourth quarter of 2016 rose 16% to $314.7 million, while adjusted earnings per share improved 15% to $0.93 per share.
• Foreign currency movement, primarily the impact of currency translation and the marking-tomarket of currency hedges, caused a net decrease to earnings per share of $0.03 in the fourth quarter of 2016 compared with the same quarter last year.  This reflected a reduction of earnings per share in the fourth quarter of 2016 of approximately $0.01 per share, as compared to an increase of approximately $0.02 per share in the fourth quarter of 2015.  Adjusted earnings per share would have increased by approximately 19% without the currency impact.
• EBITDA increased 23% (24% local currency) to $525.3 million and adjusted EBITDA increased 10% (12% local currency) to $568.5 million.  In the fourth quarter of 2016, EBITDA and adjusted EBITDA were negatively impacted by $7.0 million of currency movement, including the marking to market of currency hedges, as compared to the fourth quarter of 2015, which was positively impacted by $8.8 million.  Adjusted EBITDA would have increased by approximately 13% without the currency impact. 
• Adjusted EBITDA margin on fee revenue was 21.4%. 

 Fourth-Quarter 2016 Review 

The Americas, the company’s largest business segment, posted a revenue increase of 6% (same in local currency) for the quarter.  Asia Pacific (APAC) was the company’s fastest-growing region for the quarter, as revenue rose 22% (19% local currency), with strong growth across the region.  The company’s revenue growth in Europe, the Middle East & Africa (EMEA) was adversely affected by foreign currency movement, principally the depreciation of the British pound sterling.  In local currency, EMEA revenue rose 6%, but fell 3% when converted to U.S. dollars. 

In the United Kingdom, overall revenue grew by 8% in local currency, led by the occupier outsourcing business line.  This solid performance in the wake of the U.K.’s decision to leave the European Union (Brexit) attests to the strength and diversity of CBRE’s service offering in this country. 

Among the company’s business lines, occupier outsourcing continued to produce strong growth, before the effects of currency movement.  In this line of business, global revenue rose 3% (8% local currency), while fee revenue increased 4% (10% local currency).  CBRE signed 110 outsourcing contracts in the fourth quarter, highlighted by continued strong gains in the health care sector. 

Global property sales revenue increased 8% (same local currency).  APAC sales revenue rose 42% (35% local currency) reflecting strength in Australia, Greater China and Singapore as well as an especially large transaction in Japan.  Sales revenue also rose solidly in EMEA before currency effects, paced by robust growth in France as well as in Belgium and Germany.  This more than offset a modest decline in the United Kingdom, where investors continue to adjust to the post-Brexit vote environment.  U.S. property sales revenue was largely unchanged compared with the 2015 fourth quarter. CBRE outperformed the market for U.S. investment sales with a 140 basis-point increase in market share in the fourth quarter, according to Real Capital Analytics. 

The commercial mortgage services business continued to perform very well, with revenue rising 31% (32% in local currency).  This growth was driven by strong gains from mortgage servicing rights as well as increased loan originations with U.S. Government Sponsored Enterprises (GSEs) and life insurance companies. CBRE’s loan servicing portfolio stood at approximately $145 billion at year-end 2016, up nearly $10 billion from 2015. 

Global leasing revenue increased 4% (6% local currency).  APAC posted double-digit growth, with revenue gains in nearly all countries, most notably in Greater China, Japan and Singapore.  EMEA saw solid growth before currency effects, led by Germany, Italy and Poland.  U.S. leasing revenue rose 4%. 

Valuation revenue increased 4% (6% local currency) for the fourth quarter.  Revenue from property management services was up 2% (4% local currency), while fee revenue from property management services rose 3% (4% local currency). 

In the Global Investment Management segment, assets under management (AUM) totaled $86.6 billion at year-end 2016.  In local currency, AUM for the year was up $2.1 billion, down $2.4 billion when measured in U.S dollars.  Approximately 60% of AUM, excluding securities, is in Europe and denominated in euro or British pound sterling.  In the Development Services segment, projects in process totaled $6.6 billion, down $100 million from year-end of 2015. 

The company’s balance sheet remains highly flexible, with no required debt repayments until 2019.  The company ended 2016 with more than $3.5 billion of available liquidity, including nearly $700 million of cash available for company use and $2.8 billion of undrawn capacity on its revolving credit facility.  Net debt6 stood at 1.2 times adjusted EBITDA, as of December 31, 2016. 

In early 2017, CBRE acquired Floored, Inc., a leading Software as a Service (SaaS) platform that produces scalable interactive visualization technologies for commercial real estate. The acquisition is emblematic of the company’s investments in digital and technology tools. 

Fourth-Quarter 2016 Segment Results 

The following tables present highlights of CBRE segment performance during the fourth quarter of 2016 (dollars in thousands): 

Fourth-quarter 2016 results were adjusted for select items including acquisition-related integration expenses in our regional segments and a reversal of carried interest incentive compensation in our Global Investment Management segment. The company does not adjust for foreign currency movements, including currency translation and gains or losses from currency hedging.  Accordingly, EBITDA and adjusted EBITDA were both impacted by foreign currency movements.  The current quarter segment impact of foreign currency movements, including currency translation and the markingto-market of currency hedges, is shown below. 

Business Outlook 

“CBRE enters 2017 in a great position following very strong performance in 2016,” Mr. Sulentic said.  “Our business has positive underlying momentum, as the global economy continues to grow – albeit at a modest pace – and commercial real estate fundamentals remain sound.  Our outlook is bolstered by the many advantages CBRE holds as the sector leader.  Our talent base is deep and our people are aligned with and energized by our strategy.  Our operating platform is becoming stronger, as we continue to invest in technology, data analytics and other strategic initiatives.” 

Overall, CBRE expects to achieve adjusted earnings per share for 2017 in the range of $2.35 to $2.45. The company anticipates growth to be constrained by a 6-cent per share headwind from adverse foreign currency movement.  At the midpoint of the range, the growth rate for adjusted earnings per share would be 4% in U.S. dollars, or 7% in local currency – almost entirely from organic growth. 

Conference Call Details 

The company’s fourth-quarter earnings conference call will be held today (Friday, February 10, 2017) 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. 

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 February 10, 2017, and ending at midnight Eastern Time on February 17, 2017.  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 13651462.