CBRE GROUP, INC. REPORTS DOUBLE-DIGIT THIRD-QUARTER 2018 REVENUE AND EARNINGS GROWTH

Los Angeles, CA – November 1, 2018 — CBRE Group, Inc. (NYSE:CBRE) today reported strong financial results for the third quarter ended September 30, 2018.

“We continue to deliver double-digit increases on the top- and bottom-lines,” said Bob Sulentic, president and chief executive officer of CBRE. “Our strong growth this quarter was driven by gains across major parts of our business – notably, global leasing, occupier outsourcing, mortgage origination and development services.

We also continued to make significant strategic gains.  The reorganization we are planning will give CBRE an enhanced focus on our business line capabilities around the world and greater operational and cost efficiency.  Our  new Hana flexible space solutions initiative allows us to deliver a service that is in strong and rapidly increasing demand.  This service evolved from a tremendous amount of interaction with – and encouragement from – our clients.  Our deep relationships with property investors and occupiers, and what we have learned from our workplace experience service, CBRE 360, position us well to succeed with this new offering.”

Looking ahead, Mr. Sulentic said: “While investors have clearly been concerned about the effects of higher interest rates and trade tensions, commercial real estate fundamentals have been resilient in the face of higher rates, and escalating trade tensions do not appear to be impacting our overall business. However, continued escalation could impact business sentiment, most notably for select markets in Asia, which, combined, typically represent approximately 2% of our adjusted EBITDA.”

Given its strong performance year-to-date and a favorable business outlook, CBRE anticipates full-year 2018 adjusted earnings-per-share coming in at the high end of its guidance, which was increased last quarter to a range of $3.10 to $3.20. 

Third-Quarter 2018 Results1

• Revenue for the third quarter totaled $5.3 billion, an increase of 13% (15% local currency2). Fee revenue3 rose 13% (14% local currency) to $2.6 billion. Organic fee revenue3 growth was 9% (10% local currency).

• On a GAAP basis, net income increased 46% to $290.5 million, while earnings per diluted share increased 47% to $0.85 per share. Adjusted net income4 for the third quarter of 2018 rose 21% to $270.0 million, while adjusted earnings per diluted share improved 22% to $0.79 per share.

• The adjustments to GAAP net income for the third quarter of 2018 included the removal of a one-time $92.6 million (pre-tax) non-cash gain associated with remeasuring CBRE’s investment in an unconsolidated subsidiary in New England to fair value as of the date the company acquired the remaining controlling interest. This gain was partially offset by $28.2 million (pre-tax) of non-cash acquisition-related depreciation and amortization, $12.8 million (pre-tax) of severance expenses related to the reorganization, $8.9 million (pre-tax) of costs incurred in connection with a litigation settlement relating to activities that occurred nearly a decade ago, $6.1 million (pre-tax) of integration and other costs related to acquisitions, $4.0 million (pre-tax) of net carried interest incentive compensation expense to align with the timing of associated revenue, and a net tax adjustment of $12.2 million associated with the aforementioned pre-tax adjustments.

• EBITDA5 increased 28% (29% local currency) to $524.3 million and adjusted EBITDA increased 12% (same local currency) to $463.4 million. Adjusted EBITDA margin on fee revenue was 17.7% for the three months ended September 30, 2018.

Third-Quarter 2018 Segment and Business Line Review
The following tables present highlights of CBRE segment performance during the third quarter of 2018 (dollars in thousands):

Revenue growth in the combined regional services business remained strong, particularly in the Americas and EMEA (Europe, the Middle East & Africa). In EMEA, revenue rose 22% (23% local currency), with notable growth in Germany, Italy, Spain and the United Kingdom. Americas revenue increased 12% (same local currency), paced by a 14% gain in the United States. APAC (Asia Pacific) revenue climbed 6% (9% local currency), led by Greater China, India and Singapore.

For the combined regional services business, fee revenue rose 13% (14% local currency) and adjusted EBITDA increased 6% (7% local currency). Adjusted EBITDA margin on fee revenue for the combined regional services business declined one percentage point versus the third quarter of 2017 to 15.0%. The majority of the decline was driven by incremental investments which the company outlined at the beginning of the year and is consistent with its guidance. Adjusted EBITDA margins on fee revenue for the regional services business would have been approximately 40 basis points higher absent the impact of all foreign currency effects and the acquisition of lower margin, but typically high-growth outsourcing businesses. The company continues to expect positive operating leverage in its combined regional services business in 2019.

The leasing business paced revenue growth with a 17% (18% local currency) gain, as all three global regions produced double-digit increases. The Americas led the way with an 18% (19% local currency) increase (15% organic growth), with strong performance across the region. EMEA was also very strong, with France and the United Kingdom driving a 17% (18% local currency) gain for the region. APAC rose 12% (16% local currency), led by Australia, Greater China and India.

Occupier outsourcing revenue rose by double-digits globally, as CBRE continued to capture a significant share of the growing trend toward outsourcing real estate and facilities services. On a global basis, both revenue and fee revenue increased 15% (16% local currency), with all three regions producing mid-teens fee revenue growth in local currency.

Combined revenue from the capital markets businesses – property sales and commercial mortgage origination – rose 7% (8% local currency). Commercial mortgage origination activity was once again especially strong with revenue up 22% (same local currency).

Global property sales revenue rose 4% (5% local currency). The primary driver was EMEA, which saw a 24% (same local currency) revenue jump, as Germany, Ireland, Spain and the United Kingdom all posted double-digit increases. Americas sales revenue was up 2% (same local currency), paced by a 7% gain in the United States. APAC revenue fell 9% (5% local currency) versus a difficult comparison with the third quarter of 2017.

Recurring revenue from loan servicing activities continued to grow robustly, rising 21% (same local currency). The loan servicing portfolio totaled approximately $196 billion at the end of the third quarter – up 19% from the same period in 2017.

Property management services produced increases of 5% (7% local currency) in revenue and 7% (8% local currency) in fee revenue, supported by continued double-digit growth in outsourced investment accounting and reporting services.

Valuation revenue rose 6% (7% local currency), buoyed by recruiting efforts and productivity gains.

Combined adjusted EBITDA for CBRE’s real estate investment businesses (Global Investment Management and Development Services) rose 44% (same local currency). The Development Services business generated outsized growth from larger-than-usual property sales (reported in equity income from unconsolidated subsidiaries and gains on disposition of real estate).

• The in-process Development Services portfolio increased to a record $8.8 billion, up $0.8 billion from second-quarter 2018, reflecting the continued conversion of pipeline activity. The pipeline decreased by $0.3 billion during the third quarter to $3.6 billion.

• Global Investment Management assets under management (AUM) totaled $104.5 billion, up $2.8 billion in the third quarter of 2018 from second-quarter 2018 ($3.3 billion in local currency).
CBRE completed four acquisitions in the third quarter, highlighted by the purchase of the remaining 50% interest in its longstanding joint venture company, CBRE/New England, the leading provider of commercial real estate services in Boston and throughout New England.

Nine-Month 2018 Results1

• Revenue for the nine months ended September 30, 2018 totaled $15.0 billion, an increase of 15% (13% local currency). Fee revenue also rose 15% (13% local currency) to $7.4 billion. Organic fee revenue growth was 12% (10% local currency).

• On a GAAP basis, net income increased 24% to $669.4 million, while earnings per diluted share increased 23% to $1.95 per share. Adjusted net income for the first nine months of 2018 rose 18% to $708.7 million, while adjusted earnings per diluted share improved 16% to $2.06 per share.

• The adjustments to GAAP net income for the nine months ended September 30, 2018 included the removal of a one-time $92.6 million (pre-tax) non-cash gain associated with remeasuring CBRE’s investment in an unconsolidated subsidiary in New England to fair value as of the date the company acquired the remaining controlling interest and a $4.5 million (pre-tax) reversal of net carried interest incentive compensation expense to align with the timing of associated revenue. These items were offset by $86.6 million (pre-tax) of non-cash acquisition-related depreciation and amortization, a $28.0 million (pre-tax) write-off of financing costs related to the redemption in March 2018 of $800 million principal amount of the company’s 5% bonds due in 2023, $12.8 million (pre-tax) of severance expenses related to the reorganization, $8.9 million (pre-tax) of costs incurred in connection with a litigation settlement relating to activities that occurred nearly a decade ago, $6.1 million (pre-tax) of integration and other costs related to acquisitions, and a net tax benefit of $6.4 million associated with the aforementioned pre-tax adjustments. The adjustments also included a $0.5 million net charge7 attributable to an update to the provisional estimated tax impact of the 2017 Tax Cuts and Jobs Act, which was initially recorded in the fourth quarter of 2017.
• EBITDA increased 17% (15% local currency) to $1.3 billion and adjusted EBITDA rose 9% (8% local currency) to $1.3 billion. Adjusted EBITDA margin on fee revenue was 16.8% for the nine months ended September 30, 2018.

Conference Call Details
The company’s third quarter earnings conference call will be held today (Thursday, November 1, 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 November 1, 2018, and will be available for one week following the event. 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 13683689. A transcript of the call will be available on the company’s Investor Relations website at www.cbre.com/investorrelations.