CB Richard Ellis swings to a profit
Led by an economic rebound in Asia, the world’s largest brokerage of office buildings, warehouses and other business properties surprised Wall Street with a solid fourth-quarter profit and a slight increase in revenue.
And, for the first time in two years, CB Richard Ellis discussed future earnings prospects, projecting 6% to 8% annual growth in revenue. The global economy appears to be heading toward a more “normal” operating environment, the company said.
Real estate brokerages are among the first to see changes in corporate bosses’ moods, analyst Craig Silvers said. CB Richard Ellis’ projection of more revenue suggests that companies the brokerage works for are starting to look for more space.
“This shows things are starting to turn,” said Silvers, president of Bricks & Mortar Capital. “If corporations were in a hunker-down mode, they wouldn’t be looking for space.”
Another analyst, Will Marks of JMP Securities, found the guidance for 6% to 8% growth “strange, because it’s quite low” compared with what Wall Street expects to see in terms of improvement from the depths of last year. CB Richard Ellis might be taking an overly cautious view in its forecast, he said.
Though commercial property sales and leasing were torpid in most U.S. markets, including Southern California, CB Richard Ellis Group Inc. reported net income of $64.3 million, or 21 cents a share, on Wednesday. The company lost more than $1 billion, or $4.70 a share, in 2008’s fourth quarter, after taking deep write-downs on goodwill and property values. Business was also slumping.
The Los Angeles company posted adjusted earnings of 28 cents a share after deducting one-time charges, well ahead of average analyst predictions that it would earn 18 cents. Among the charges were cost-cutting measures and the write-down of values of property owned by the company.
CB Richard Ellis and other commercial real estate services firms have been feeling the woes of their clients: property owners who can’t sell their buildings and landlords who are losing tenants. Fewer deals means fewer commissions for brokerages.
After enjoying a protracted boom that peaked in the mid-2000s, most commercial real estate markets have been in decline for about two years as property values and rents have fallen. About 53.7 million square feet of office space is vacant in Los Angeles, Orange, Riverside and San Bernardino counties, 18.5% of the total.
Buildings in most urban markets across the country and in other parts of the world have suffered similar or worse declines as the global financial crisis forced many companies to lay off workers or go out of business.
The lights are starting to go back on overseas, though, CB Richard Ellis said. The company saw investment sales activity rebound in Europe and Asia compared with the depressed levels of a year earlier. Leasing activity was also up sharply in what the company calls the Asia Pacific region, which includes Australia, China, Singapore, Japan, India and South Korea.
In the United States, Canada and Latin America, revenue was down from a year earlier. Income from property sales, however, grew for the first time in nine quarters -- but at a more modest rate than in Europe and Asia.
“It is evident that our efforts to streamline our business and eliminate $600 million of operating costs over the past two years have helped us to convert more revenue to the bottom line,” Chief Executive Brett White said.
The company’s revenue edged up 1% in the fourth quarter, the first time in seven quarters that revenue improved compared with a year earlier.
Shares of CB Richard Ellis closed up 20 cents at $13.69 before the earnings were reported. In the last year, the stock hit a low of $2.34 in March, when it appeared the tanking real estate market and substantial short-term debt might drive the company under.
