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Business Review Day
CBRE Overview

 

Brett White, President

Ken Kay, CFO

March 23, 2005

 

[GRAPHIC]

 

[LOGO]

 



 

Forward Looking Statements

 

This presentation contains statements that are forward looking within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements should be considered as estimates only and actual results may ultimately differ from these estimates.  Except to the extent required by applicable securities laws, CB Richard Ellis undertakes no obligation to update or publicly revise any of the forward-looking statements that you may hear today. Please refer to our annual report on Form 10-K and our quarterly reports on Form 10-Q, which are filed with the SEC and available at the SEC’s website (http://www.sec.gov), for a full discussion of the risks and other factors, that may impact any estimates that you may hear today. Our responses to questions must be limited to information that is acceptable for dissemination within the public domain.  In addition, we may make certain statements during the course of this presentation which include references to “non-GAAP financial measures,” as defined by SEC regulations.  As required by these regulations, we have provided reconciliations of these measures to what we believe are the most directly comparable GAAP measures.

 

1



Overview

 

2



The World Class Commercial Real Estate Services Provider

 

Leading Global Brand

 

• 99 years

• 50 countries

• #1 in key cities in U.S., Europe and Asia

 

Broad Capabilities

 

• #1 commercial real estate brokerage

• #1 appraisal and valuation

• #1 property and facilities management

• #2 commercial mortgage brokerage

• $15.1 billion in investment assets under management

 

Scale, Diversity and Earnings and Power

 

• 2x nearest competitor

• Thousands of clients, more than 70% of Fortune 100

• 2004 Revenue of $2.4 billion

• 2004 Normalized EBITDA of $300.3 million (1)

• Strong organic revenue and earnings growth for 2004

 


(1).          Excludes merger-related charges, integration costs and one-time IPO compensation expense.

 

3



Global Reach & Local Leadership

 

2004 Revenue by Region

 

[CHART]

 

Leading

Market Positions

 

New York

 

ý

 

 

 

London

 

ý

 

 

 

Los Angeles

 

ý

 

 

 

Chicago

 

ý

 

 

 

Sydney

 

ý

 

 

 

Paris

 

ý

 

 

 

Washington, D.C.

 

ý

 

 

 

Madrid

 

ý

 

 

 

Singapore

 

ý

 

CBRE is unique in offering customers global coverage and leading local expertise.

 

4



Superior Platform Drives Outperformance

 

Competitive Landscape

 

[CHART]

 

 

FY 2001 -  2004 CAGR

 

[CHART]

 

 

 

CBG

 

JLL

 

TCC

 

Business
Services (2)

 

FY05 P/E

 

 

 

 

 

 

 

 

 

(as of 3/18/05)

 

17.3

x

20.0

x

17.2

x

21.6

x

 


(1)           Excluding merger related costs, integration costs and one-time IPO compensation expense.

(2)           Average based on ABM, ACN, ADP, CEN, FDC, KELYA, MAN, PAYX, RHI, and RMK.

 

Our full-service, global platform has allowed us to outperform competitors.

 

5



 

Growth Drivers

 

INDUSTRY TRENDS

 

RELATED STRATEGY

 

 

 

Increased vendor consolidation

 

•      Capitalize on cross-selling opportunities

•      Leverage geographic diversity of platform

•      Capitalize on breadth of service offerings

•      Selectively seek infill acquisition opportunities

 

 

 

Corporate outsourcing

 

•      Single Point of Contact management

•      Emphasize multi-market/cross-border capabilities

•      Focus on Fortune 500 penetration

•      Invest in enabling IT platforms

 

 

 

Increased capital allocations to real estate

 

•      Leverage demographic-driven investment trends and globalization of capital flows

•      Leverage expertise across all property types

•      Aggregate the fragmented private client market

 

 

 

Institutional ownership of real estate

 

•      Match risk/return profiles

•      Develop innovative investment vehicles

•      Grow assets under management

•      Capitalize on “feet on the ground” global platform

 

6



Remember Who We Are

 

We are:

 

•      A growth-oriented business services enterprise with 215 offices around the world

•      A full service provider with a diverse suite of services to address any commercial real estate need

•      More than 2X the size of our nearest competitor in terms of 2004 revenue

•      Focused on growing existing client relationships through cross-selling opportunities and multi-market approach

•      Focused on outperforming the industry in terms of margin expansion and market penetration

•      Able to significantly leverage our operating structure

•      A strong cash flow generator

 

We are not:

 

•      Asset intensive

•      Capital intensive

•      A REIT or direct property owner

•      Dependent on a few markets, producers or clients

•      Interest rate dependent

 

7



 

Financial Overview

 

8



 

Consistent Long Term Growth

 

[CHART]

 


(1)           Normalized EBITDA excludes merger-related costs, integration costs and one-time IPO compensation expense.

 

CBRE has consistently outpaced industry growth.

 

9



 

Annual Financial Results

 

 

 

 

 

2003

 

 

 

 

 

 

 

 

 

Incl.

 

 

 

($ in millions)

 

2004

 

Reported(1)

 

% Change

 

Insignia(2)

 

% Change

 

Revenue

 

2,365.1

 

1,630.1

 

45

 

1,948.8

 

21

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of Services

 

1,203.8

 

796.4

 

51

 

968.9

 

24

 

Operating, Admin. & Other

 

909.8

 

678.4

 

34

 

826.9

 

10

 

Merger-Related Charges

 

25.6

 

36.8

 

-30

 

36.8

 

-30

 

Equity Income

 

-19.5

 

-14.4

 

36

 

-14.4

 

35

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA

 

245.4

 

132.8

 

85

 

130.6

 

88

 

 

 

 

 

 

 

 

 

 

 

 

 

One Time Charges:

 

 

 

 

 

 

 

 

 

 

 

Merger-Related Charges

 

25.6

 

36.8

 

-30

 

36.8

 

-30

 

Integration Costs

 

14.3

 

13.6

 

5

 

13.6

 

5

 

IPO-Related Compensation Expense

 

15.0

 

—

 

100

 

—

 

100

 

 

 

 

 

 

 

 

 

 

 

 

 

Normalized EBITDA

 

300.3

 

183.2

 

64

 

181.0

 

66

 

 


(1).          Includes reported results of Insignia’s commercial operations which were purchased on 7/23/03.

(2).          Includes reported results of Insignia’s commercial operations prior to the acquisition on 7/23/03.  The financial information including Insignia is presented for informational purposes only and does not purport to represent what CB Richard Ellis’ results of operations or financial position would have been had the Insignia acquisition in fact occurred prior to the first seven months of 2003.

 

10



Strong Momentum Across Business Segments

 

2004 Revenue Breakdown

 

[CHART]

 

Growth in Business Segments

 

($ in millions)

 

 

 

 

 

 

 

Y-O-Y

 

 

 

2004

 

2003 (a)

 

% Δ

 

Investment Sales

 

$

807

 

$

569

 

42

%

Leasing

 

986

 

890

 

11

%

Property & Facilities Mgmt

 

185

 

176

 

5

%

Appraisal & Valuation

 

156

 

130

 

20

%

Mtg Brokerage

 

107

 

82

 

31

%

Investment Mgmt

 

91

 

67

 

36

%

Other

 

32

 

35

 

-8

%

Total

 

$

2,365

 

$

1,949

 

21

%

 


(a)           Includes reported results of Insignia’s commercial operations prior to the acquisition on 7/23/03.

 

11



EBITDA Margins

 

[CHART]

 

Continued margin improvement due to:

 

•      Robust revenue growth

•      Productivity improvements

•      Operating leverage

 

Variable vs. Fixed Detail

 

 

 

% of Revenue

 

 

 

2003

 

2004

 

 

 

 

 

 

 

Revenue

 

100.0

 

100.0

 

 

 

 

 

 

 

Total Variable Costs

 

55.4

 

57.0

 

 

 

 

 

 

 

Total Fixed Costs

 

33.4

 

30.3

 

 

 

 

 

 

 

Normalized EBITDA (1)

 

11.2

 

12.7

 

 


Notes:

(1) EBITDA margins exclude merger-related charges, integration expenses, amortization of Insignia revenue backlog and IPO related compensation expense.

(2) The financial information including Insignia is presented for informational purposes only and does not purport to represent what CB Richard Ellis results of operations or financial position would have been had the Insignia acquisition in fact occurred prior to 2003.

 

12



2004 Normalized Internal Cash Flow

 

•      Strong cash flow generation

 

•      Low capital intensity

 

•      2004 capital expenditures exclude $12.0 million related to the integration of Insignia

 

[CHART]

 


(a) Reconciliation of net income to net income, as adjusted provided on page 21.

 

13



Capitalization

 

 

 

As of

 

%

 

($ in millions)

 

12/31/2004

 

12/31/2003

 

Change

 

Cash

 

256.9

 

163.9

 

57

 

 

 

 

 

 

 

 

 

Revolver

 

—

 

—

 

—

 

Tranche B loan

 

277.1

 

297.5

 

-7

 

Other debt(1)

 

22.5

 

39.2

 

-43

 

93/4% senior notes

 

130.0

 

200.0

 

-35

 

111/4% senior subordinated notes(2)

 

205.0

 

226.2

 

-9

 

Total CB Richard Ellis Services debt

 

634.6

 

762.9

 

-17

 

 

 

 

 

 

 

 

 

16% senior notes

 

—

 

35.5

 

-100

 

Total debt

 

634.6

 

798.4

 

-21

 

Shareholders’ equity

 

558.9

 

332.9

 

68

 

Total capitalization

 

1,193.5

 

1,131.3

 

5

 

 

 

 

 

 

 

 

 

Total net debt

 

377.7

 

634.5

 

-40

 

 


(1).          Excludes $138.2 million and $230.8 million of warehouse facility at December 31, 2004 and December 31, 2003, respectively. Also excludes non-recourse debt relating to a building investment in Japan of $43.7 million at December 31, 2003.

 

(2).          The 2004 balance does not reflect $26.4 million of notes repurchased year-to-date in 2005.

 

14



 

Current Debt Maturity

 

 

 

As of December 31,

 

Maturity

 

(in millions)

 

2004

 

2005

 

2006

 

2007

 

Date

 

Revolver Facility(1)

 

—

 

—

 

—

 

—

 

3/31/2009

 

Senior Debt(2)

 

$

277.1

 

$

265.3

 

$

253.5

 

$

241.7

 

3/31/2010

 

9 ¾% Senior Notes

 

$

130.0

 

$

130.0

 

$

130.0

 

—

 

5/15/2010

 

11 ¼% Senior Subordinated Notes

 

$

205.0

 

$

166.9

 

—

 

—

 

6/15/2011

 

Other Debt(3)

 

$

22.5

 

$

27.5

 

$

22.5

 

$

22.5

 

Various

 

Total

 

$

634.6

 

$

589.7

 

$

406.0

 

$

264.2

 

 

 

 

Debt Management:

 

•      Projected minimal usage of the revolver facility

 

•      Analyze interest rate swap opportunities to reduce volatility in an increasing interest rate environment

 

•      No major funding requirement anticipated

 


(1).       No revolver usage in 2005 to 2007 except for potential interim acquisition funding

(2).       Senior secured term loan tranche B in 2004 and 2005 will be replaced by other fixed and variable rate debt in 2006 and 2007.

(3).       Excludes $138.2 million of non-recourse debt related to warehouse facility.

 

15



Key Drivers of Earnings Growth

 

 

Revenue

 

Margin

 

Deleveraging

 

Significant

Growth

 

Expansion

 

Balance Sheet

 

EPS Growth

 

 

 

 

 

 

 

•    Market growth

+

•    Operating leverage

  +

•    Minimum $50 million

  =

•    High teens to low

 

 

 

 

debt paydown targeted

 

20% annual EPS

 

 

 

 

 

 

growth

•    Market share gains

 

•    12% - 14% annual

 

 

 

 

 

 

EBITDA growth

 

 

 

 

•    7% - 9% annual revenue
growth

 

 

 

 

 

 

 

Revenue growth, margin expansion and deleveraging allow CBRE to achieve substantial earnings growth.

 

16



Supply / Vacancy Outlook

 

[CHART]

 

Source:  Torto Wheaton Q4 2004.

 

 

17



2005 Guidance

 

 

 

2004

 

2005

 

 

 

 

 

 

 

Revenues

 

$

2.4

B

8% Growth

 

 

 

 

 

 

 

Net Income

 

$

118

M

$149M - $156M (26% - 32% Growth) (1)

 

 

 

 

 

 

 

EPS

 

$

1.65

 

$1.95 - $2.05 (18% - 24% Growth) (1)

 

 


(1).       Excluding residual one-time Insignia and debt buy-back charges of approximately $15 million pre-tax.

 

18



[LOGO]

 

19



Appendix

 

20



Reconciliation of Net Income to Net Income, As Adjusted

 

[CHART]

 

(a)     Intangible asset amortization expense related to Insignia net revenue backlog

(b)     Insignia merger and integration related costs

(c)     One-time IPO related compensation expense

(d)     Costs of extinguishment of debt related to the IPO

 

21



Consolidated Net Income to EBITDA Reconciliation

 

 

 

Twelve Months Ended
December 31

 

($Mill)

 

2004

 

2003

 

Net Income (Loss)

 

$

64.7

 

$

(34.7

)

Add:

 

 

 

 

 

Depreciation and amortization

 

54.9

 

92.6

 

Interest expense

 

65.4

 

71.3

 

Loss on extinguishment of debt

 

21.1

 

13.5

 

Provision (benefit) for income taxes

 

43.5

 

(6.3

)

Less:

 

 

 

 

 

Interest income

 

4.3

 

3.6

 

EBITDA

 

$

245.3

 

$

132.8

 

 

22



Reconciliation of Reported EBITDA to Normalized EBITDA

 

 

 

Twelve Months Ended
December 31

 

($Mill)

 

2004

 

2003

 

 

 

 

 

 

 

Reported EBITDA

 

$

245.3

 

$

132.8

 

 

 

 

 

 

 

One Time Costs:

 

 

 

 

 

Merger Related Costs

 

25.6

 

36.8

 

Integration Costs

 

14.3

 

13.6

 

IPO - Related Compensation Costs

 

15.0

 

—

 

Total One Time Costs

 

$

54.9

 

$

50.4

 

 

 

 

 

 

 

Normalized EBITDA

 

$

300.3

 

$

183.2

 

 

23