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CB Richard Ellis Group, Inc. (CBG)

Q2 2011 Earnings Call

July 28, 2011 10:30 am ET


Nick Kormeluk - IR

Brett White - CEO

Gil Borok - CFO


Anthony Paolone - JPMorgan

Sloan Bohlen - Goldman Sachs

Brandon Dobell - William Blair

Bose George - KBW

Will Marks - JMP Securities

David Ridley-Lane - Merrill Lynch



Thank you for standing by and welcome to CB Richard Ellis's second quarter earnings call. At this time all participants are in a listen only mode. Later we will conduct a question-and-answer session; instructions will be given at that time. (Operator instructions) As a reminder this conference is being recorded and I would now like to turn the conference over to our host Mr. Nick Kormeluk.

Nick Kormeluk

Thank you and welcome to CB Richard Ellis's second quarter 2011 earnings conference call. Last night, we issued a press announcing our financial results. This release is available on the home page of our website at This conference call is being webcast live and is available on the Investor Relations section of our website. Also available is a presentation slide deck, which you can use to follow along with our prepared remarks.

An archived audio of the webcast, a transcript, and a PDF version of the slide presentation will be posted to the website later today. Please turn to the slide labeled forward-looking statements. This presentation contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our future growth momentum, operations, financial performance, business outlook and the ability to complete and integrate our announced acquisition of the ING REIM businesses in Europe and Asia.

These statements should be considered as estimates only and actual results may ultimately differ from these estimates. Except to the extent required by applicable security system update or publically revise any of these forward looking statement that you may hear today. Please refer to our Second Quarter Earnings report filed on Form 8-K, our current Annual Report on Form 10-K, and our current quarterly report on form 10-Q.

In particular any discussion of risk factors or forward-looking statements which are filed with the SEC and available at the SEC’s website at for a full discussion of the risks and other factors that may impact any estimates that you may hear today. 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 which are attached to slide three. Our management team members participating with me today are Brett White, our Chief Executive Officer; and Gil Borok,

I’ll now hand the call off to Brett.

Brett White

Thank you, Nick and please turn to slide 4. We are very pleased with our revenue growth of 21% in the second quarter of 2011 versus the second quarter of 2010. This clearly demonstrates the underlying strength of the recovery of our business and our industry. Our revenue growth was strong across all geographies and was particularly notable in our leasing investment sales and outsourcing business.

Routine revenues increased to 22% with each geography positing growth with at least 15% over the second quarter of 2010. This performance comes against a backdrop of gradually improving market conditions evidenced by falling vacancy and an uptick in rents in many parts of the World. These conditions have prompted more companies to lock in long-term occupancy at today’s relatively low market rents.

Investment sales revenues increased 44% lead by the Americas and Asia specific. Market activity accelerated very strongly in the US during the quarter, due to increase demand for core assets in prime markets, a broadening of investor appetite for properties in secondary markets and improved access for low-cost financing.

Outsourcing revenues increased 13% with double digit contributions from all geographies. We continued to see more and more companies embrace outsourcing solutions as a means of lowering cost and remaining competitive in a slow growth economic environment. Demand remains high for global mandates and is growing in Europe and Asia where outsourcing is a newer concept.

Normalized EBITDA increased to $172 million from $165 million. It is important to note that in second quarter 2010, development services normalized EBITDA was $19 million greater than in the second quarter of 2011, predominantly resulting from outside gains from property sales. In addition, in the second quarter of 2011, we recorded $5.3 million of carried interest compensation expense, due to the expectations of future profits from a fund in the invest management business.

These items negatively impacted quarter of a quarter normalized EBITDA comparisons in an absolute amount of $24 million. In the absence of these two items, our normalized EBITDA growth would have been 22%. Our normalized EBITDA margin was 12.1% while the prior year normalized EBITDA margin was 14.1%, had it not been for the two aforementioned items, normalized EBITDA margin would have been approximately 12.5% in both years.

Despite an uneven and somewhat subdued global economic recovery and a heightening of debt concerns in Europe during the last few months, we are pleased to observe continued commercial real estate recovery in the second quarter of 2011 as evidenced by our very strong revenue growth. We continued to be mindful of the potential impact of any real or perceived economic weakness and we continue to believe that the future timing and magnitude of the commercial real estate recovery is linked to the broader economic recovery.

Some of the more impressive transactions we completed during or immediately following the quarter are listed on slides 5. As usual I will not go through them individually but have included them to show some key business wins.

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