CBRE Group (CBRE) Q3 Earnings Top, Resilient Business Aids

Zacks Equity Research
·5-min read

CBRE Group Inc. CBRE reported third-quarter 2020 adjusted earnings per share of 73 cents, beating the Zacks Consensus Estimate of 44 cents. However, the figure slid 8.3% year over year.

The company generated revenues of $5.64 billion, outpacing the Zacks Consensus Estimate of $5.59 billion. The revenue figure, however, compares unfavorably with the year-ago quarter’s $5.9 billion. Moreover, fee revenues were down 13.1% (13.9% in local currency), year on year, to $2.5 billion. Adjusted EBITDA dipped 2.8% (3.3% local currency) to $442 million.

Despite the pandemic’s adverse impact on property leasing and sales, the company is benefiting from the “resilient aspects” of its business and efforts to align expenses with decline in market demand.

Bob Sulentic, president & chief executive officer of CBRE noted, “We are continuing to take advantage of the strong secular growth trends that were driven by the last cycle, including occupier outsourcing, industrial and logistics space, institutional-quality multifamily assets and workplace experience services.”

Quarter in Detail

The company’s Advisory Services segment reported a year-over-year revenue decline of 21.7% (22.1% local currency) to $1.75 billion. Fee revenues decreased 23.5% (23.9% local currency) to $1.5 billion.

Results reflect the adverse impact of the COVID-19 pandemic, with prevailing weakness in higher-margin property lease and sales revenues, causing a sharp decline in adjusted EBITDA during the third quarter.

Advisory leasing revenues dipped 31% (same in local currency) as large occupiers continued keeping leasing decisions on hold. Leasing activity was down in the third quarter in most parts of the world, with U.S. leasing revenues plummeting 36%. However, globally industrial leasing revenues increased 10% on e-commerce and provided some support.

Advisory property sales revenue dropped 34% (35% local currency), including a 39% plunge in the United States, with capital flows into commercial real estate being severely disrupted, resulting in substantially lower market activity worldwide.

Commercial mortgage origination revenues were down 21% (same local currency), reflecting the coronavirus pandemic’s impact. Valuation revenues declined 10% (11% local currency), while revenues from property management and advisory project management services slipped 2% (3% local currency).

However, Global Workplace Solutions (GWS) segment results were relatively better owing to the contractual nature of the facilities management business. The segment registered an increase of 4.7% (4.0% local currency) in revenues to $3.7 billion. Fee revenues climbed 5.6% (4.1% in local currency) to $838 million.

Facilities management growth was solid in the U.S. and Continental Europe. Also, project management fee revenues increased on resumption of construction activity and capital projects subsequent to the second-quarter shutdowns, mainly in Continental Europe and the U.K. Nonetheless, steeply lower lease and sales activity for GWS occupier clients affected overall revenue growth tempo.

The Real Estate Investments segment recorded 31.3% (29% local currency) growth in revenues to $170 million. Nonetheless, adjusted EBITDA climbed substantially to $65 million from $14 million in the year-ago period, driven by a large contribution from U.S. development asset sales, as against the muted activity in the comparable period prior year. Also, investment management reported healthy adjusted EBITDA growth.

At third-quarter end, assets under management (AUM) reached a record high for the company and aggregated $114.5 billion, reflecting an increase of $4.9 billion ($2.2 billion local currency), from the prior-quarter end. This reflects net capital inflows and favorable foreign-currency movement.

Also, in-process development portfolio reached a new record for the company at $14.8 billion, reflecting an increase of $1.1 billion from second-quarter 2020. With conversion of potential projects to in-process activity, the pipeline decreased $0.2 billion from the prior quarter to $5.9 billion.

Balance Sheet Position

CBRE Group exited the July-September quarter with cash and cash equivalents of $1.48 billion, up from $971.8 million as of Dec 31, 2019.

As of Sep 30, 2020, the company had $4.2 billion of total liquidity. This comprised $1.4 billion in cash in addition to the ability to borrow a total of $2.8 billion under its revolving credit facilities, net of any outstanding letters of credit.The company’s net leverage ratio was 0.22x as of the same date. This is 4.03x below the company’s primary debt covenant of 4.25x.

During the September-end quarter, the company did not repurchase any of its stock. Currently, it has $350 million of stock-repurchase capacity.

Currently, CBRE Group carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CBRE Group, Inc. Price, Consensus and EPS Surprise

CBRE Group, Inc. Price, Consensus and EPS Surprise
CBRE Group, Inc. Price, Consensus and EPS Surprise

CBRE Group, Inc. price-consensus-eps-surprise-chart | CBRE Group, Inc. Quote

We, now, look forward to the earnings results of other companies in the broader real estate sector like Jones Lang LaSalle Incorporated JLL, Vornado Realty Trust VNO and Simon Property Group, Inc. SPG, scheduled for a Nov 2 release.

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