Edited: Lisa Benston
Source: CB Richard Ellis Group, Inc.
CB Richard Ellis Group, Inc. today reported higher revenue and earnings for the second quarter ended June 30, 2010. Earnings per share improved to $0.17 on a 23% revenue rise while EBITDA more than doubled. These results represent the Company’s strongest quarterly year-over-year growth in revenue since the fourth quarter of 2007, and in EBITDA, excluding selected charges, since the first quarter of 2007.
“Our financial performance continued to strengthen across most business lines globally, and we have good momentum entering the year’s second half,” said Brett White, chief executive officer of CB Richard Ellis. “In the U.S., we saw a very strong pick up in property sales and leasing, reflecting recovering market conditions. Europe produced robust growth, fueled by the recovery of the property sales market in the larger economies, such as the U.K., Germany and France. Asia Pacific also sustained the strong top-line growth that first became evident there late last year.
“We are mindful of concerns about the pace of economic recovery, but the rebound in commercial real estate activity is progressing. During the 2008-2009 downturn, we removed more than $600 million of expense from our platform. We predicted then that even a modest recovery would produce outsized gains in profitability due to this cost reduction, and this is precisely the result we are now seeing. We are a very efficient, client-centric organization with a diversified revenue base, resulting in operating leverage that, as we saw in the second quarter, enables us to drive strong EBITDA growth and margin expansion.”
Revenue rose at a double-digit rate across all major business lines, except Development Services, with property sales and leasing growing globally by 61% and 29%, respectively. The property sales recovery was particularly strong in Europe (up 93%) and Asia Pacific (up 67%). The Americas also saw revenue grow significantly in both the property sales (up 47%) and property leasing (up 37%) business lines. Reflecting increased liquidity in the real estate capital markets, commercial mortgage revenue rose 33% and loan origination volume improved 30% from the year-earlier quarter’s very weak level.
Globally, outsourcing revenue, including property and facilities management, increased by 10% in the second quarter, its strongest growth since the third quarter of 2008. International outsourcing growth was once again very strong, with Asia Pacific and Europe posting revenue increases of 44% and 27%, respectively. The Company also achieved significant new business, signing 34 multi-year contracts, its highest quarterly total ever. This total included 17 new clients – including Deere & Company, Genbrand and NYSE Euronext – and 17 contract renewals or expansions, including Boeing, Chevron, Marathon Oil Corporation, Microsoft, Rockwell Automation, The Coca Cola Company, and the United States Department of State.
Although the market for distressed asset dispositions has developed more slowly than originally expected, the Company has continued to capture substantial opportunities in this sector. In the U.S., it is now marketing more than $7.5 billion of distressed assets and has successfully sold more than $1.3 billion of such assets since the beginning of the year. CB Richard Ellis also has a sizeable distressed asset specialty services business in Europe. In the U.K., the Company arranged for the sale of seven properties on behalf of the borrowers, administrators and receivers of the defaulted White Tower 2006-3 portfolio of CMBS loans, for aggregate gross proceeds of approximately $1.1 billion.
During the second quarter, the Company’s Development Services subsidiary completed two dispositions of high quality assets in the greater Houston market. Gains from these sales contributed to a significant increase in EBITDA for this segment during the quarter.
Following the close of the quarter, the Company pre-paid $150 million of its Term B loans maturing in December of 2013. In addition to the interest expense savings on the pre-paid debt, this pre-payment will lower the annual interest expense on the Company’s remaining $898 million of Term B loans by 50 basis points.
Second-Quarter 2010 Segment Results
Americas Region
Revenue for the Americas region, including the U.S., Canada and Latin America, rose 20% to $722.3 million for the second quarter of 2010, compared with $601.6 million for the second quarter of 2009. Operating income for the Americas region rose nearly three-fold during the current quarter to $72.2 million from $26.5 million for the second quarter of 2009. EBITDA for this region totaled $89.8 million for the second quarter of 2010, more than double the $42.6 million produced in last year’s second quarter. The region saw meaningful improvement across all business lines during the quarter.
EMEA Region
Revenue for the EMEA region, which mainly consists of operations in Europe, rose 28% to $225.4 million for the second quarter of 2010 from $176.6 million for the second quarter of 2009. The EMEA region reported operating income of $18.0 million for the second quarter of 2010, up very significantly from operating income of $3.4 million for the same period in 2009. EBITDA totaled $19.9 million for the second quarter of 2010 – more than three times the $5.9 million of EBITDA achieved in last year’s second quarter. These improved results reflect better business performance in the larger countries in Europe, particularly the United Kingdom, Germany and France.
Asia Pacific Region
In the Asia Pacific region, which includes operations in Asia, Australia and New Zealand, revenue rose 29% to $158.7 million for the second quarter of 2010 from $122.7 million for the second quarter of 2009. Operating income for the Asia Pacific region remained relatively flat at $10.8 million for the second quarter of 2010 compared with the same period of 2009. EBITDA increased slightly to $12.8 million for the second quarter of 2010 compared with $12.2 million for last year’s second quarter. These results reflect a shift in the revenue mix and aggressive hiring in this region to support expected growth.
Global Investment Management Business
In the Global Investment Management segment, which includes investment management operations in the U.S., Europe and Asia, revenue increased 44% to $46.9 million for the second quarter of 2010 from $32.6 million in the second quarter of 2009. This segment posted operating income for the second quarter of $3.4 million, compared with operating income of $4.5 million for the same period in 2009. Second-quarter 2010 EBITDA rose to $10.8 million, compared with EBITDA of $2.2 million in the prior year second quarter. The improvements noted in revenue and EBITDA in the current year were largely attributable to the consolidation of several properties due to a change in accounting regulations effective January 1, 2010. This accounting change had no bottom line impact. EBITDA for the second quarter of 2009 included $2.6 million of net non-cash write-downs, which were not included in operating income and did not recur in the current year quarter.
Assets under management totaled $33.7 billion at the end of the second quarter, down 3% from year-end 2009, but up 1% from the first quarter of 2010.
Development Services
In the Development Services segment, which consists of real estate development and investment activities primarily in the U.S., revenue totaled $18.7 million for the second quarter of 2010, compared with $22.2 million for the second quarter of 2009. The operating loss for the second quarter of 2010 was $7.3 million, compared with $6.4 million for the same period in 2009. Second-quarter 2010 EBITDA was $28.4 million, up from $5.5 million in the prior year second quarter. The increase in EBITDA was primarily driven by gains on property sales reflected in equity income and income from discontinued operations, both of which are included in the calculation of EBITDA but not operating income.
As of June 30, 2010, development projects in process totaled $4.4 billion and the inventory of pipeline deals as of June 30, 2010 was $0.8 billion. These totals are down from $4.7 billion and $0.9 billion, respectively, at year-end 2009.