CBRE's Stock Jumps On $130M Q2 Profit
CBRE reported second-quarter revenue growth just under double digits over this time last year despite high interest rates and value declines that continue to slow property sales around the world.
In an upbeat earnings call Thursday, CBRE executives said the strong performance of its workplace operations and advisory services divisions led to a 9% bump compared to the same period last year. The world's largest commercial real estate brokerage posted $8.4B in total revenue for the three months ended June 30 and a profit of $130M, an earnings statement shows.
Earnings of 81 cents a share beat analysts' consensus expectations of 69 cents, and the stock market responded by giving CBRE an almost 10% boost as of 4 p.m. ET.
CBRE executives reported persistently slow property sales, with a slight dip globally year-over-year. But the firm is sensing shorter hurdles ahead, CBRE Chief Financial Officer Emma Giamartino told analysts.
“We're still seeing declines, but you could argue this is relatively flat globally,” Giamartino said on the earnings call. “Sales activity for us, and revenue in the quarter, was only down 2% on a local currency basis, and we're actually seeing it going into July — and again, it's very early, so we're not going to call anything — but we're starting to see an uptick in activity in the U.S. sales market.”
U.S. leasing was up 13%, fueled by increased activity in New York City, which Giamartino called a bellwether city for the brokerage firm. Revenue in its capital markets division grew 5% over the quarter, and it saw a 38% uptick in its mortgage origination revenue, thanks in part to a 20% increase in fees.
In all, CBRE's advisory services arm saw $2.2B in revenue over the quarter, up 5% from a year ago. Revenue for the firm's global workplace solutions business jumped 9.5% year-over-year to $5.9B.
But CBRE's real estate investment arm saw a 9.2% decline, which Giamartino attributed to the lack of meaningful development project sales through the quarter.
CEO Bob Sulentic said the firm would continue to sharpen how it spends its money and had made progress in reining in costs in its global workforce solutions division over the second quarter. He said that could include letting go of excess real estate, technology and talent. CBRE cut costs via layoffs to the tune of $300M last year, although executives gave no hint major layoffs were in the offing.
“One of the things that we're doing in that regard is focusing more and more and more on getting rid of costs that don't contribute to the success of the company,” Sulentic said. “Costs of every kind. Technology projects that don't contribute, people that don't contribute, office space that doesn't contribute. And the stuff that does contribute — good office space, good technology, good people — we are aggressive buyers of those things to build our business.”
One of those purchases, the 2021 acquisition of a 60% stake in a UK-based project management firm, is already paying big dividends. Sulentic said he expects the combined operation to generate $3.5B in net revenue this year, pointing to several major corporate manufacturing plants CBRE-owned Trammell Crow Co. and Turner & Townsend are partnering on.
“The business will be large enough, resilient enough and rapidly growing enough to change the long-term profile of CBRE,” he said.
Like Giamartino, Sulentic expressed optimism about the future, adding he is hopeful that most of CBRE's earnings will come in the last quarter of the year as real estate investors get off the sidelines and into the race.
“What has to happen is, the environment needs to get to a place where you're going to see people jump in and act,” he said. “And what's happened is the certainty around interest rates coming down has grown. The bid-ask spread has narrowed. There's less volatility in the market.
“That's why, in a business with Trammell Crow where we're a principal, not an intermediary, we're seeing action, very real action, that's going to take place in the fourth quarter,” Sulentic said.
CBRE’s assets under management totaled $142.5B at the end of the second quarter, a decrease of $1.5B from the first quarter, according to its earnings statement. The decrease was attributed to a decline in asset values and foreign currency exchange changes that were adverse to its global portfolio.
