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Press Release Details

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CBRE Group, Inc. Reports Strong Financial Results for Full-Year and Fourth-Quarter 2017

February 08, 2018

2017 Full Year Highlights
GAAP EPS of $2.03, up 20%
Adjusted EPS of $2.71, up 18%
8th Consecutive Year of Double-Digit Adjusted EPS Growth
Revenue and Fee Revenue up 9% and 8%, respectively

LOS ANGELES--(BUSINESS WIRE)--Feb. 8, 2018-- CBRE Group, Inc. (NYSE:CBG) today reported strong financial results for the year and fourth quarter ended December 31, 2017.

“Our fourth-quarter results capped another excellent year for CBRE,” said Bob Sulentic, the company’s president and chief executive officer. “Fee revenue was up 9% in local currency and adjusted earnings per share rose 6%. Our performance significantly exceeded the expectations we discussed on our third-quarter earnings call, and was led by occupier outsourcing and leasing fee revenue growth of 17% and 11%, respectively, in local currency.”

“Revenue and earnings for 2017 reached all-time highs, and we made important strategic gains across the company,” he added. 2017 marked the 8th consecutive year of double-digit adjusted earnings per share growth for CBRE.

Looking ahead to 2018, Mr. Sulentic said: “We regard the macro environment as a supportive backdrop for our business, and we continue to operate within an industry poised for long-term growth. This is due to the growing acceptance of outsourced commercial real estate services, the increasing capital allocation to commercial real estate as an institutional asset class, and the continuing consolidation of activity within our industry to the highest-quality, globally diversified market leaders.”

For full-year 2018, CBRE expects to achieve adjusted earnings per share in the range of $3.00 to $3.15. This represents an increase of 13% at the midpoint of the range with 8% attributable to EBITDA growth and 5% attributable to the combined net effect of a lower expected tax rate due to U.S. corporate tax reform, interest savings and higher depreciation & amortization.

Full-Year 2017 Results

  • Revenue for full-year 2017 totaled $14.2 billion, an increase of 9% (same local currency1). Fee revenue2 increased 8% (same local currency) to $9.4 billion.
  • On a GAAP basis, net income increased 21% and earnings per diluted share increased 20% to $691.5 million and $2.03 per share, respectively. Adjusted net income3 rose 19% to $924.5 million, while adjusted earnings per share3 improved 18% to $2.71 per share.
  • Full-year 2017 adjustments to GAAP net income included a $143.4 million4, or $0.42 per share, net charge, attributable to the tax impact of the 2017 Tax Cuts and Jobs Act (the Tax Act). This net charge is primarily comprised of a transition tax on accumulated foreign earnings, net of a tax benefit from the remeasurement of certain deferred tax assets and liabilities using the lower U.S. corporate income tax rate. Absent the non-recurring impact of the tax law changes, GAAP earnings per diluted share would have risen 45% for full-year 2017. Adjustments also included $112.9 million (pre-tax) of non-cash acquisition-related amortization and $27.4 million (pre-tax) of integration and other costs related to acquisitions. These costs were partially offset by $8.5 million (pre-tax) reversal of net carried interest incentive compensation and a net tax benefit of $42.1 million associated with the aforementioned pre-tax adjustments.
  • EBITDA5 increased 23% (same local currency) to $1.7 billion and adjusted EBITDA5 increased 10% (9% local currency) to $1.7 billion. Adjusted EBITDA margin on fee revenue increased 32 basis points to 18.2%.

Fourth-Quarter 2017 Results

  • Revenue for the fourth quarter totaled $4.3 billion, an increase of 13% (11% local currency). Fee revenue increased 11% (9% local currency) to $3.0 billion.
  • On a GAAP basis, net income decreased 36% and earnings per diluted share decreased 37% to $168.4 million and $0.49 per share, respectively. The declines in net income and earnings per diluted share were primarily attributable to the aforementioned impact of the Tax Act. Adjusted net income for the fourth quarter of 2017 rose 7% to $337.9 million, while adjusted earnings per share improved 6% to $0.99 per share.
  • The adjustments to GAAP net income for the fourth quarter of 2017 included a $143.4 million, or $0.42 per share, net charge attributable to the aforementioned impacts of the Tax Act. Absent the non-recurring impact of the tax law changes, GAAP earnings per diluted share would have risen 17% for the fourth quarter of 2017. Adjustments also included $30.4 million (pre-tax) of non-cash acquisition-related amortization and $4.4 million (pre-tax) of net carried interest incentive compensation expense. These costs were partially offset by a net tax benefit of $8.7 million associated with the aforementioned pre-tax adjustments.
  • EBITDA increased 10% (8% local currency) to $577.8 million and adjusted EBITDA increased 2% (1% local currency) to $582.2 million. Adjusted EBITDA margin on fee revenue decreased 170 basis points to 19.7%. The fourth quarter of 2016 represents a difficult comparison; note that the adjusted EBITDA margins on fee revenue for the fourth quarters of 2014, 2015, 2016, and 2017 were 17.2%, 16.3%, 19.9%, and 18.7%, respectively, in our regional services businesses. The fourth quarter of 2017 was also negatively impacted by the decline in adjusted EBITDA from Development Services.

Fourth-Quarter 2017 Segment Review

The following tables present highlights of CBRE segment performance during the fourth quarter of 2017 (dollars in thousands):

      Americas       EMEA       APAC
     

% Change from Q4

2016

     

% Change from Q4

2016

     

% Change from Q4

2016

Q4 2017 USD       LC Q4 2017 USD       LC Q4 2017 USD       LC
Revenue $ 2,341,276 11 % 12 % $ 1,332,825 17 % 9 % $ 526,603 13 % 11 %
Fee revenue 1,688,991 9 % 9 % 780,705 16 % 8 % 349,445 8 % 7 %
EBITDA 324,796 13 % 13 % 132,133 36 % 25 % 69,338 2 % 2 %
Adjusted EBITDA 324,796 4 % 4 % 132,133 8 % -1 % 69,338 -1 %
         
 
Global Investment Management Development Services (6)

% Change from Q4

2016

% Change from Q4

2016

Q4 2017 USD LC Q4 2017 USD LC
Revenue $ 103,193 12 % 7 % $ 32,315 60 % 60 %
EBITDA 17,038 -29 % -34 % 34,534 -28 % -28 %
Adjusted EBITDA 21,402 44 % 36 % 34,534 -28 % -28 %
 

Excluding the impact of all currency movement including hedging activity, adjusted EBITDA growth rates for the fourth quarter of 2017 were: 5% in the Americas, -1% in EMEA, -4% in APAC and 46% in Global Investment Management.

CBRE produced solid revenue growth in all three of its global regions in the fourth quarter of 2017.

  • APAC saw a 13% (11% local currency) revenue increase, supported by solid growth across the region, most notably in Australia, India, Japan and Singapore.
  • In the Americas, revenue increased 11% (12% local currency), with strong growth in Canada, Mexico and the United States.
  • EMEA revenue rose 17% (9% local currency), driven by Spain and the United Kingdom.

Revenue growth across CBRE’s global business lines was largely organic.

  • Global occupier outsourcing achieved growth of 19% (17% local currency) in revenue and 20% (17% local currency) in fee revenue. Acquisitions contributed 1% to the revenue growth rate and 2% to the fee revenue growth rate in the quarter.
    • Growth was broad-based across the three global regions, led by India, the United Kingdom and the United States.
  • Leasing revenue rose by double digits, increasing 13% (11% local currency).
    • APAC produced 17% (same local currency) leasing revenue growth, paced by Australia, Greater China and Japan.
    • Americas leasing revenue rose 12% (same local currency), with strong performance in Brazil, Canada and the United States.
    • EMEA leasing revenue rose 12% (3% local currency), led by France.
  • Revenue edged up 1% (down 1% local currency) for the capital markets businesses – property sales and commercial mortgage origination – on a combined basis.
  • Among the capital markets businesses, global property sales revenue was flat (down 2% local currency), consistent with the decline in market volumes globally.
    • EMEA remained robust with sales revenue up 29% (20% local currency). Several countries drove this outcome, including Germany, Italy, Netherlands, Spain and the United Kingdom.
    • APAC sales revenue fell 7% (down 8% local currency) compared with a very strong fourth quarter of 2016, when sales surged 42% (35% in local currency).
    • Americas sales revenue declined 8% (same local currency), as strong gains in Canada and Mexico were offset by lower activity in the United States, which saw revenue decrease in line with the decline in market volumes.
    • For the full year, CBRE’s U.S. investment sales market share rose 80 basis points to 17.0%, almost double the nearest competitor, according to Real Capital Analytics.
  • The other capital markets business, commercial mortgage origination, saw revenue increase 5% (same local currency). This is on top of the 36% growth achieved in the fourth quarter of 2016. Loan volume growth remained healthy, particularly with conduit lenders due to higher CMBS activity.
  • Recurring revenue from CBRE’s growing loan servicing portfolio increased 31% (30% local currency). At the end of the fourth quarter, the loan servicing portfolio totaled approximately $174 billion, up 20% from year-end 2016.
  • Property management services produced growth of 14% (12% local currency) for revenue and 16% (14% local currency) for fee revenue. Growth was strong worldwide, most notably in APAC.
  • Valuation revenue rose 3% (flat local currency).
  • CBRE’s Global Investment Management business produced adjusted EBITDA growth of 44% (36% local currency) in the fourth quarter.
    • In the Global Investment Management segment, assets under management (AUM) totaled $103.2 billion, up $4.9 billion from the third quarter of 2017. Favorable currency movement added approximately $600 million to AUM during the quarter.
  • As expected, adjusted EBITDA in the Development Services business declined 28% (same local currency) from the year-earlier fourth quarter due to the timing of asset sales, which were significantly higher in the fourth quarter of 2016.
    • In the Development Services segment, projects in process totaled $6.8 billion at year-end 2017, up almost $1.0 billion from the third quarter of 2017. The pipeline decreased $1.6 billion during the quarter, reflecting a higher-than-normal conversion of pipeline deals to in process activity.

CBRE also announced plans to call its $800 million of 5% bonds due in 2023 in March 2018, which will be funded with cash on hand and borrowings under its credit facility.

Conference Call Details

The company’s fourth quarter earnings conference call will be held today (Thursday, February 8, 2018) 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 February 8, 2018, and ending at midnight Eastern Time on February 15, 2018. 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 13675166. 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:CBG), 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 2017 revenue). The company has more than 80,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 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 (including adjusted earnings per share), currency movement, market share, 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 uncertainty surrounding the implementation and effect of the United Kingdom’s referendum to leave the European Union, including uncertainty in relation to the legal and regulatory framework that would apply to the United Kingdom and its relationship with the remaining members of the European Union; 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; 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 Global Investment Management 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 business; our and our employees’ ability to execute on, and adapt to, information technology strategies and trends; changes in domestic and international law and regulatory environments (including relating to anti-corruption, anti-money laundering, trade sanctions, 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; our ability to maintain our effective tax rate at or below current levels; changes in applicable tax or accounting requirements, including the impact of any subsequent additional regulation and guidance associated with the Tax Cuts and Jobs Act signed into law by President Trump 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, 2016 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2017, June 30, 2017 and September 30, 2017, 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.

Note – CBRE has not reconciled the (non-GAAP) adjusted earnings per share forward-looking guidance included in this press release to the most directly comparable GAAP measure because this cannot be done without unreasonable effort due to the variability and low visibility with respect to costs related to acquisitions, carried interest incentive compensation and financing costs, which are potential adjustments to future earnings. We expect the variability of these items to have a potentially unpredictable, and a potentially significant, impact on our future GAAP financial results.

The terms “fee revenue,” “adjusted net income,” “adjusted earnings per share” (or adjusted EPS), “EBITDA” and “adjusted EBITDA,” 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. Certain adjustments have been made to 2016 fee revenue to conform with current-year presentation.

3 Adjusted net income and adjusted earnings per share (or adjusted EPS) exclude the effect of select charges 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 non-cash amortization expense related to certain intangible assets attributable to acquisitions, integration and other costs related to acquisitions, cost-elimination expenses and certain carried interest incentive compensation expense (reversal) to align with the timing of associated revenue. Adjustments also included the tax impact of U.S. tax reform.

4 In December 2017, the Securities and Exchange Commission (SEC) staff issued Staff Accounting Bulletin No. 118 (SAB 118), Income Tax Accounting Implications of the Tax Cuts and Jobs Act (Tax Act), which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. The net charge related to the Tax Act is based upon our reasonable estimates and interpretation of the Tax Act. We consider certain aspects of this charge to be provisional and the impact may change due to additional guidance that may be issued by the U.S. Government as well as ongoing analysis of our data and assumptions we have made. Our accounting for the effects of the Tax Act is expected to be completed within the measurement period provided by SAB 118.

5 EBITDA represents earnings before net interest expense, write-off of financing costs on extinguished debt, income taxes, depreciation and amortization. Amounts shown for adjusted EBITDA further remove (from EBITDA) the impact of certain carried interest incentive compensation expense (reversal) to align with the timing of associated revenue, cash and non-cash charges related to acquisitions and certain cost-elimination expenses.

6 Revenue in the Development Services segment does not include equity income from unconsolidated subsidiaries and gain on disposition of real estate, net of non-controlling interest. 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 AND TWELVE MONTHS ENDED DECEMBER 31, 2017 AND 2016

(Dollars in thousands, except share data)

(Unaudited)

 
Three Months Ended Twelve Months Ended
December 31, December 31,
2017       2016 2017       2016
Revenue:
Fee revenue (1) $ 2,954,649 $ 2,655,299 $ 9,389,412 $ 8,725,829
Pass through costs also recognized as revenue   1,381,563   1,168,532   4,820,196   4,345,760
Total revenue   4,336,212   3,823,831   14,209,608   13,071,589
 
Costs and expenses:
Cost of services 2,974,208 2,603,098 9,893,226 9,123,727
Operating, administrative and other 835,151 770,972 2,858,654 2,781,310
Depreciation and amortization   109,100   96,940   406,114   366,927
Total costs and expenses   3,918,459   3,471,010   13,157,994   12,271,964
 
Gain on disposition of real estate (2)   965     19,828   15,862
 
Operating income 418,718 352,821 1,071,442 815,487
 
Equity income from unconsolidated subsidiaries (2) 51,971 80,449 210,207 197,351
Other income (loss) 336 (3,765 ) 9,405 4,688
Interest income 2,886 2,506 9,853 8,051
Interest expense   32,891   35,801   136,814   144,851
Income before provision for income taxes 441,020 396,210 1,164,093 880,726
Provision for income taxes   270,334   131,084   466,147   296,662
Net income 170,686 265,126 697,946 584,064
Less: Net income attributable to non-controlling interests (2)   2,286   1,151   6,467   12,091
Net income attributable to CBRE Group, Inc. $ 168,400 $ 263,975 $ 691,479 $ 571,973
 
 
Basic income per share:
Net income per share attributable to CBRE Group, Inc. $ 0.50 $ 0.78 $ 2.05 $ 1.71

Weighted average shares outstanding for basic income per share

  338,777,028   336,843,925   337,658,017   335,414,831
 
Diluted income per share:
Net income per share attributable to CBRE Group, Inc. $ 0.49 $ 0.78 $ 2.03 $ 1.69

Weighted average shares outstanding for diluted income per share

  341,728,078   338,839,469   340,783,556   338,424,563
 
 
EBITDA $ 577,839 $ 525,294 $ 1,690,701 $ 1,372,362
Adjusted EBITDA $ 582,203 $ 568,485 $ 1,709,534 $ 1,561,003
 
(1)     Certain adjustments have been made to 2016 fee revenue to conform with current-year presentation.
(2) Equity income from unconsolidated subsidiaries and gain on disposition of real estate, less net income attributable to non-controlling interests, includes income of $45.9 million and $74.7 million for the three months ended December 31, 2017 and 2016, respectively, and $201.3 million and $181.7 million for the twelve months ended December 31, 2017 and 2016, respectively, attributable to Development Services but does not include significant related compensation expense (which is included in operating, administrative and other expenses). In the Development Services 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 DECEMBER 31, 2017

(Dollars in thousands)

(Unaudited)

 
Three Months Ended December 31, 2017
                Global          
Investment Development
Americas EMEA Asia Pacific Management Services Consolidated
Revenue:
Fee revenue $ 1,688,991 $ 780,705 $ 349,445 $ 103,193 $ 32,315 $ 2,954,649

Pass through costs also recognized as revenue

  652,285   552,120   177,158       1,381,563
Total revenue   2,341,276   1,332,825   526,603   103,193   32,315   4,336,212
 
Costs and expenses:
Cost of services 1,628,722 978,037 367,449 2,974,208

Operating, administrative and other

391,933 222,826 90,052 86,653 43,687 835,151
Depreciation and amortization   75,277   20,368   4,898   8,117   440   109,100
Total costs and expenses   2,095,932   1,221,231   462,399   94,770   44,127   3,918,459
 
Gain on disposition of real estate           965   965
 
Operating income (loss) 245,344 111,594 64,204 8,423 (10,847 ) 418,718
 

Equity income from unconsolidated subsidiaries

5,632 335 236 736 45,032 51,971
Other (loss) income (1,457 ) 5 1,788 336

Less: Net income attributable to non-controlling interests

169 2,026 91 2,286

Add-back: Depreciation and amortization

  75,277   20,368   4,898   8,117   440   109,100
 
EBITDA 324,796 132,133 69,338 17,038 34,534 577,839
 
Adjustments:

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

        4,364     4,364
 
Adjusted EBITDA $ 324,796 $ 132,133 $ 69,338 $ 21,402 $ 34,534 $ 582,203
 
 
     

CBRE GROUP, INC.

SEGMENT RESULTS—(CONTINUED)

FOR THE THREE MONTHS ENDED DECEMBER 31, 2016

(Dollars in thousands)

(Unaudited)

 
Three Months Ended December 31, 2016
                Global        
Investment Development
Americas EMEA Asia Pacific Management Services Consolidated
Revenue:
Fee revenue (1) $ 1,544,518 $ 675,486 $ 323,168 $ 91,876 $ 20,251 $ 2,655,299

Pass through costs also recognized as revenue

  558,351   466,792   143,389       1,168,532
Total revenue   2,102,869   1,142,278   466,557   91,876   20,251   3,823,831
 
Costs and expenses:
Cost of services 1,455,136 832,055 315,907 2,603,098

Operating, administrative and other

363,342 212,637 83,115 64,734 47,144 770,972
Depreciation and amortization   67,766   15,988   4,847   7,801   538   96,940
Total costs and expenses   1,886,244   1,060,680   403,869   72,535   47,682   3,471,010
 
Gain on disposition of real estate            
 
Operating income (loss) 216,625 81,598 62,688 19,341 (27,431 ) 352,821
 

Equity income from unconsolidated subsidiaries

4,013 591 81 970 74,794 80,449
Other income (loss) 114 12 (3,891 ) (3,765 )

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

834 (123 ) 367 73 1,151

Add-back: Depreciation and amortization

  67,766   15,988   4,847   7,801   538   96,940
 
EBITDA 288,518 97,355 67,739 23,854 47,828 525,294
 
Adjustments:

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

(9,032 ) (9,032 )

Integration and other costs related to acquisitions

  25,169   25,451   1,603       52,223
 
Adjusted EBITDA $ 313,687 $ 122,806 $ 69,342 $ 14,822 $ 47,828 $ 568,485
 
(1)     In 2017, we have changed the presentation of the operating results of one of our emerging businesses among our regional services reporting segments. Prior year amounts have been reclassified to conform with the current-year presentation. This change had no impact on our consolidated results. Additionally, certain adjustments have been made to 2016 fee revenue to conform with current-year presentation.
 
 
     

CBRE GROUP, INC.

SEGMENT RESULTS—(CONTINUED)

FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2017

(Dollars in thousands)

(Unaudited)

 
Twelve Months Ended December 31, 2017
                Global        
Investment Development
Americas EMEA Asia Pacific Management Services Consolidated
Revenue:
Fee revenue $ 5,438,992 $ 2,378,582 $ 1,116,567 $ 377,644 $ 77,627 $ 9,389,412

Pass through costs also recognized as revenue

  2,421,247   1,786,207   612,742       4,820,196
Total revenue   7,860,239   4,164,789   1,729,309   377,644   77,627   14,209,608
 
Costs and expenses:
Cost of services 5,476,929 3,180,830 1,235,467 9,893,226

Operating, administrative and other

1,405,411 689,432 318,757 285,831 159,223 2,858,654
Depreciation and amortization   289,338   72,322   18,258   24,123   2,073   406,114
Total costs and expenses   7,171,678   3,942,584   1,572,482   309,954   161,296   13,157,994
 
Gain on disposition of real estate           19,828   19,828
 
Operating income (loss) 688,561 222,205 156,827 67,690 (63,841 ) 1,071,442
 

Equity income from unconsolidated subsidiaries

18,789 1,553 397 7,923 181,545 210,207
Other income (loss) 37 (67 ) 9,435 9,405

Less: Net income attributable to non-controlling interests

64 6,280 123 6,467

Add-back: Depreciation and amortization

  289,338   72,322   18,258   24,123   2,073   406,114
 
EBITDA 996,725 295,949 175,482 102,891 119,654 1,690,701
 
Adjustments:

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

(8,518 ) (8,518 )

Integration and other costs related to acquisitions

  17,139   9,794   418       27,351
 
Adjusted EBITDA $ 1,013,864 $ 305,743 $ 175,900 $ 94,373 $ 119,654 $ 1,709,534
 
 
     

CBRE GROUP, INC.

SEGMENT RESULTS—(CONTINUED)

FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2016

(Dollars in thousands)

(Unaudited)

 
Twelve Months Ended December 31, 2016
                Global        
Investment Development
Americas EMEA Asia Pacific Management Services Consolidated
Revenue:
Fee revenue (1) $ 5,106,971 $ 2,191,232 $ 986,412 $ 369,800 $ 71,414 $ 8,725,829

Pass through costs also recognized as revenue

  2,139,488   1,693,364   512,908       4,345,760
Total revenue   7,246,459   3,884,596   1,499,320   369,800   71,414   13,071,589
 
Costs and expenses:
Cost of services 5,049,774 3,001,724 1,072,229 9,123,727

Operating, administrative and other

1,357,781 686,079 301,097 297,194 139,159 2,781,310
Depreciation and amortization   254,118   66,619   17,810   25,911   2,469   366,927
Total costs and expenses   6,661,673   3,754,422   1,391,136   323,105   141,628   12,271,964
 
Gain on disposition of real estate           15,862   15,862
 
Operating income (loss) 584,786 130,174 108,184 46,695 (54,352 ) 815,487
 

Equity income from unconsolidated subsidiaries

17,892 1,817 223 7,243 170,176 197,351
Other (loss) income (90 ) 22 4,756 4,688

Less: Net income attributable to non-controlling interests

476 85 7,174 4,356 12,091

Add-back: Depreciation and amortization

  254,118   66,619   17,810   25,911   2,469   366,927
 
EBITDA 856,706 198,156 126,132 77,431 113,937 1,372,362
 
Adjustments:

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

(15,558 ) (15,558 )

Integration and other costs related to acquisitions

71,376 47,852 6,515 125,743
Cost-elimination expenses   22,273   25,640   9,265   21,278     78,456
 
Adjusted EBITDA $ 950,355 $ 271,648 $ 141,912 $ 83,151 $ 113,937 $ 1,561,003
 
(1)     In 2017, we have changed the presentation of the operating results of one of our emerging businesses among our regional services reporting segments. Prior year amounts have been reclassified to conform with the current-year presentation. This change had no impact on our consolidated results. Additionally, certain adjustments have been made to 2016 fee revenue to conform with current-year presentation.
 
 

Non-GAAP Financial Measures

The following measures are considered “non-GAAP financial measures” under SEC guidelines:

          (i)     Fee revenue
(ii) Net income attributable to CBRE Group, Inc., as adjusted (which we also refer to as “adjusted net income”)
(iii) Diluted income per share attributable to CBRE Group, Inc. shareholders, as adjusted (which we also refer to as “adjusted earnings per share” or “adjusted EPS”)
(iv) EBITDA and adjusted EBITDA
 

These measures are not recognized measurements under United States generally accepted accounting principles, or “GAAP.” When analyzing our operating performance, investors should use them in addition to, and not as an alternative for, their most directly comparable financial measure calculated and presented in accordance with GAAP. Because not all companies use identical calculations, our presentation of these measures may not be comparable to similarly titled measures of other companies.

Our management generally uses these non-GAAP financial measures to evaluate operating performance and for other discretionary purposes. The company believes that these measures provide a more complete understanding of ongoing operations, enhance comparability of current results to prior periods and may be useful for investors to analyze our financial performance because they eliminate the impact of selected charges that may obscure trends in the underlying performance of our business. The company further uses certain of these measures, and believes that they are useful to investors, for purposes described below.

With respect to fee revenue: the company believes that investors may find this measure useful to analyze the financial performance of our Occupier Outsourcing and Property Management business lines and our business generally. Fee revenue excludes costs reimbursable by clients, and as such provides greater visibility into the underlying performance of our business.

With respect to adjusted net income, adjusted EPS, EBITDA and adjusted EBITDA: the company believes that investors may find these measures useful in evaluating our operating performance compared to that of other companies in our industry because their calculations generally eliminate the accounting effects of acquisitions, which would include impairment charges of goodwill and intangibles created from acquisitions—and in the case of EBITDA and adjusted EBITDA—the effects of financings and income tax and the accounting effects of capital spending. All of these measures may vary for different companies for reasons unrelated to overall operating performance. In the case of EBITDA and adjusted EBITDA, these measures are not intended to be measures of free cash flow for our management’s discretionary use because they do not consider cash requirements such as tax and debt service payments. The EBITDA and adjusted EBITDA measures calculated herein may also differ from the amounts calculated under similarly titled definitions in our credit facilities and debt instruments, which amounts are further adjusted to reflect certain other cash and non-cash charges and are used by us to determine compliance with financial covenants therein and our ability to engage in certain activities, such as incurring additional debt and making certain restricted payments. The company also uses adjusted EBITDA and adjusted EPS as significant components when measuring our operating performance under our employee incentive compensation programs.

Net income attributable to CBRE Group, Inc., as adjusted (or adjusted net income), and diluted income per share attributable to CBRE Group, Inc. shareholders, as adjusted (or adjusted EPS), are calculated as follows (dollars in thousands, except share data):

      Three Months Ended     Twelve Months Ended
December 31, December 31,
2017     2016 2017     2016
 
Net income attributable to CBRE Group, Inc. $ 168,400 $ 263,975 $ 691,479 $ 571,973
 
Plus / minus:

Non-cash amortization expense related to certain intangible assets attributable to acquisitions

30,419 29,347 112,945 111,105

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

4,364 (9,032 ) (8,518 ) (15,558 )
Integration and other costs related to acquisitions 52,223 27,351 125,743
Cost-elimination expenses (1) 78,456
Tax impact of adjusted items (8,680 ) (21,766 ) (42,128 ) (93,181 )
Impact of U.S. tax reform   143,359     143,359  
 

Net income attributable to CBRE Group, Inc. shareholders, as adjusted

$ 337,862 $ 314,747 $ 924,488 $ 778,538
 

Diluted income per share attributable to CBRE Group, Inc. shareholders, as adjusted

$ 0.99 $ 0.93 $ 2.71 $ 2.30
 

Weighted average shares outstanding for diluted income per share

  341,728,078   338,839,469   340,783,556   338,424,563
 

EBITDA and adjusted EBITDA, are calculated as follows (dollars in thousands):

      Three Months Ended     Twelve Months Ended
December 31, December 31,
2017       2016 2017     2016
 
Net income attributable to CBRE Group, Inc. $ 168,400 $ 263,975 $ 691,479 $ 571,973
 
Add:
Depreciation and amortization 109,100 96,940 406,114 366,927
Interest expense 32,891 35,801 136,814 144,851
Provision for income taxes 270,334 131,084 466,147 296,662
Less:
Interest income   2,886   2,506   9,853   8,051
 
EBITDA 577,839 525,294 1,690,701 1,372,362
 
Adjustments:

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

4,364 (9,032 ) (8,518 ) (15,558 )
Integration and other costs related to acquisitions 52,223 27,351 125,743
Cost-elimination expenses (1)         78,456
 
Adjusted EBITDA $ 582,203 $ 568,485 $ 1,709,534 $ 1,561,003
 

(1)

    Represents cost-elimination expenses relating to a program initiated in the fourth quarter of 2015 and completed in the third quarter of 2016 to reduce the company’s global cost structure after several years of significant revenue and related cost growth. Cost-elimination expenses incurred during the twelve months ended December 31, 2016 consisted of $73.6 million of severance costs related to headcount reductions in connection with the program and $4.9 million of third-party contract termination costs.
 

Regional services businesses adjusted EBITDA margin on fee revenue is calculated as follows (dollars in thousands):

      Three Months Ended
December 31,
2017     2016     2015     2014
 
Regional services businesses revenue $ 4,200,704 $ 3,711,704 $ 3,537,582 $ 2,637,761
Less: Pass through costs also recognized as revenue   1,381,563   1,168,532   1,144,971   613,742
 
Regional services businesses fee revenue $ 2,819,141 $ 2,543,172 $ 2,392,611 $ 2,024,019
 
Regional services businesses adjusted EBITDA $ 526,267 $ 505,835 $ 390,732 $ 348,966
 

Regional services businesses adjusted EBITDA margin on fee revenue

  18.7 %   19.9 %   16.3 %   17.2 %
 

Revenue includes client reimbursed pass through costs largely associated with employees that are dedicated to client facilities and subcontracted vendor work performed for clients, both of which are excluded from fee revenue. Reconciliations are shown below (dollars in thousands):

      Three Months Ended       Twelve Months Ended
December 31, December 31,
2017       2016 2017       2016

Occupier Outsourcing

Fee revenue (1) (2) $ 729,218 $ 608,541 $ 2,523,264 $ 2,273,228
Plus: Pass through costs also recognized as revenue   1,227,863   1,032,059   4,230,111   3,805,336
 
Revenue (2) $ 1,957,081 $ 1,640,600 $ 6,753,375 $ 6,078,564
 
 

Property Management

Fee revenue (2) $ 156,239 $ 134,333 $ 549,953 $ 504,491
Plus: Pass through costs also recognized as revenue   153,700   136,473   590,085   540,424
 
Revenue (2) $ 309,939 $ 270,806 $ 1,140,038 $ 1,044,915
 
(1)     Certain adjustments have been made to 2016 fee revenue to conform with current-year presentation.
(2) Excludes associated leasing and sales revenue.
 
 
                         

CBRE GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

(Unaudited)

 
December 31, December 31,
2017 2016
Assets:
Cash and cash equivalents (1) $ 751,774 $ 762,576
Restricted cash 73,045 68,836
Receivables, net 3,207,285 2,605,602
Warehouse receivables (2) 928,038 1,276,047
Property and equipment, net 617,739 560,756
Goodwill and other intangibles, net 4,653,852 4,392,431
Investments in and advances to unconsolidated subsidiaries 238,001 232,238
Other assets, net   1,014,096   881,101
 
Total assets $ 11,483,830 $ 10,779,587
 
Liabilities:
Current liabilities, excluding debt $ 3,695,855 $ 3,270,749

Warehouse lines of credit (which fund loans that U.S. Government Sponsored Entities have committed to purchase) (2)

910,766 1,254,653
Senior term loans, net 193,475 744,332
5.00% senior notes, net 791,733 790,405
4.875% senior notes, net 591,972 591,203
5.25% senior notes, net 422,423 422,183
Other debt 24 30
Other long-term liabilities   798,034   648,787
 
Total liabilities   7,404,282   7,722,342
 
Equity:
CBRE Group, Inc. stockholders' equity 4,019,430 3,014,487
Non-controlling interests   60,118   42,758
 
Total equity   4,079,548   3,057,245
 
Total liabilities and equity $ 11,483,830 $ 10,779,587
 
(1)     Includes $123.8 million and $73.3 million of cash in consolidated funds and other entities not available for company use as of December 31, 2017 and 2016, respectively.
(2) Represents loan receivables, the majority of which are offset by borrowings under related warehouse line of credit facilities.
 

Source: CBRE Group, Inc.

CBRE Group, Inc.
Brad Burke
Investor Relations
215-921-7436
or
Steve Iaco
Media Relations
212-984-6535

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