CBRE Sees Revenue Drops and Cash Flow Declines in First Quarter
Firm executives blamed “difficult” capital markets conditions
By Brian Pascus April 27, 2023 11:14 am
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Executives at CBRE put a positive spin on disappointing first-quarter financial results Thursday morning, arguing during an earnings call that the firm exceeded expectations in a challenging economic environment despite the brokerage having an annual decline in net revenue, cash flow and earnings per share.
CBRE, one of the “Big Four” U.S. commercial real estate firms, experienced a 4.5 percent decline in net revenue from the first quarter of 2022 to the first quarter of 2023, dropping from $4.3 billion to $4.1 billion. The firm also saw its core earnings per share decline by 34 percent, its capital markets revenues fall by 43 percent, and free cash flow drop by nearly 85 percent, highlighted by $805 million in outflows, during that time.
“Our first-quarter results were slightly better than we expected going into the year, but still down significantly from last year’s strong first quarter,” said Bob Sulentic, CBRE’s president and CEO. “Our performance relative to our expectations was led by the cyclically resilient elements of our business and our cost management efforts, which more than offset a greater-than-expected decline in property sales.”
On Wednesday, the firm’s stock closed at $69.94, down nearly 16 percent from its $82.93 price from April 27, 2022.
Property sales, capital sales and loan origination combined to drop by 43 percent, which CBRE’s Chief Financial Officer Emma Giamartino called “a slightly greater decline than expectations.”
The firm’s global leasing revenue slowed substantially in the first quarter of the year — down 8 percent — and leasing performance diverged across geographies, with the firm’s America’s activity down 10 percent. Giamartino said the firm anticipates property sales to fall by nearly 20 percent in 2023 and expects leasing activity to be down by “high single digits this year.”
Both Sulentic and Giamartino repeatedly pointed to existing market conditions when discussing the firm’s first-quarter performance, emphasizing the stress the environment has placed on capital markets.
“Our business is more resilient, but current conditions are difficult for capital markets and getting more difficult for leasing,” said Sulentic, who listed inflation, elevated interest rates, the likelihood of a recession, banking system stress and issues related to office utilization as the culprits.
“We are aligned with the consensus view that the economy will tip into a recession later this year,” he added.
The two executives did highlight CBRE’s Global Workplace Solutions businesses — a large-scale global real estate operations and portfolio management initiative — along with loan servicing, property management, valuations and asset management, as elements of the business that are “cyclically resilient.”
“Combined, these businesses saw revenue increase nearly 10 percent during the first quarter and are expected to account for more than 50 percent of our business segment operating profit for the year, a record high,” Sulentic said.
The firm’s Global Workplace Solutions business generated more than $900 million of segment operating profit over the past 12 months and is expected to grow by double digits in 2023, he added.
Giamartino said CBRE expects to generate in excess of $1 billion in free cash flow this year and as much as $5.5 billion when combining the cash flow with the firm’s balance sheet.
“We believe the current environment is an attractive time to deploy capital,” Giamartino said. “In any event, we expect to deploy more capital in the next 12 months than in the prior 12 months, while maintaining an appropriately conservative level of leverage.”
Brian Pascus can be reached at bpascus@commercialobserver.com.
