CBRE Group, Inc. (CBG)

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CB Richard Ellis Group, Inc. (CBG)

Q4 2011 Earnings Call

February 7, 2012 5:00 pm ET

Executives

Nick Kormeluk - IR

Brett White - CEO

Gil Borok - CFO

Analysts

Anthony Paolone - JPMorgan

Sloan Bohlen - Goldman Sachs

Will Marks - JMP Securities

David Ridley-Lane - BofA Merrill Lynch

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the fourth quarter earnings call. (Operator Instructions) As a reminder, this call is being recorded. I'll now turn the conference over to Nick Kormeluk of Investor Relations.

Nick Kormeluk

About an hour ago, we issued a press release announcing our 2011 financial results. This release is available on the homepage of our website at www.cbre.com. This conference call is being webcast 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 archive audio of the webcast and a PDF version of the slide presentation will be posted to the website later today and a transcript of our call will be posted tomorrow.

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 ability to successfully integrate ING REIM businesses. 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, we undertake no obligation to update or publicly revise any of the forward-looking statements that you may hear today.

Please refer to our fourth quarter earnings report filed on Form 8-K, our current annual report on Form 10-K and our most recent 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, sec.gov, for a full discussion of the risks and other factors that may impact any estimates 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 hereto within the appendix.

Please turn to Slide 3. Participating with me today are Brett White, our Chief Executive Officer; and Gil Borok, our Chief Financial Officer.

I’ll now turn the call over to Brett.

Brett White

Thank you, Nick. Welcome everybody and please turn to Slide 4. The cyclical recovery in commercial real estate is now entering its third year. As we predicted in late 2010, the current recovery is slower, more uneven and more difficult to forecast than those we've experienced in the past. As a result, the relative contributions from our various service lines and geographies in 2011 were a bit different than we had originally envisioned.

Nevertheless, we provided earnings guidance at the outset of 2011, reaffirmed that guidance during the course of the year and now have produced full year results at the high end of our guidance range.

We are pleased with this outcome. It underscores our ability to deliver on the expectations we set for our shareholders as we do for our clients. And we thank and acknowledge our CBRE colleagues around the world for another in a series of terrific years.

For the full year 2011, revenue increased 15% to almost $6 billion. And normalized EBITDA increased to $803 million both second best in company history behind 2007. Normalized EBITDA margin for the year grew to 13.6%. Normalized diluted earnings per share came in at $1.03 which is almost 40% above full year 2010 and as I mentioned near the top end of our $0.95 to $1.05 guidance range. Total Q4 2011 revenues were $1.8 billion, a 7% increase over Q4 2010, with positive revenue growth in every region.

Outsourcing growth continued its strong pace with a total increase of 14% and double-digit contributions from all regions. Investment sales revenue increased 10%, driven by continued growth in the Americas and Asia-Pacific, while EMEA remained relatively flat in light of continued sovereign debt issues in the region.

While recent revenues exceeded 2007 peak levels for the full year, in Q4 2011 they declined 4% as compared to Q4 2010. This decline resulted from a decrease in the Americas, while EMEA and Asia-Pacific leasing continued to grow. The decrease in Americas leasing compares to Q4 2010 that grew 45% versus Q4 2009 and was also indicative of the continued lack of meaningful U.S. job growth.

Asset management fees more than doubled, primarily due to contributions from businesses acquired from ING during the year. These revenue gains were partially offset by a lack of carried interest revenue, which was almost $20 million in the fourth quarter of 2010.

Normalized EBITDA increased to $350 million in Q4 2011 from $253 million in Q4 2010. Our Q4 normalized EBITDA margin was 17.8% versus 15.3% in Q4 2010. This very impressive 250 basis point margin expansion was partially attributable to cost reduction actions we took during and preceding Q4 2011, some of which were reflected in the $31 million cost containment charge we recorded during the quarter.

We are cautiously optimistic that the recovery will improve in 2012, but our onboarding new expense at a measured pace, in order to protect and enhance margins and profitability in 2012. Some have been most notable transactions we completed during or immediately following the quarter are shown here on Slide 5. As usual, I will not go through them individually, but we have included them for your review.

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