Q1 2008 CB Richard Ellis Group, Inc. Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Ladies and gentlemen, thank you for standing by, and welcome to the CB RE first quarter 2008 earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded.

I'd now like to turn the conference over to your host, Senior Vice President of investor relations, Mr. Nick.Kormeluk. Please go ahead.

NICK KORMELUK, SVP OF IR, CB RICHARD ELLIS GROUP, INC.: Thank you and welcome to CB Richard Ellis' first quarter 2008 earnings conference call. Last night, we issued a press release announcing our financial results. This release is available on the homepage of our website, at www.cbre.com. 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 on the website later today.

Please turn to the slide labeled forward-looking statements. Our presentation today contain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our growth momentum in 2008, future operations, future expenses and future financial performance. These statements should be considered as estimates only and actual results may ultimately differ from these estimates. These forward-looking statements reflect the information we have on the day of this conference call and except to the extent required by applicable securities laws, CB Richard Ellis Group undertakes no obligation to update or publicly revise any of these forward-looking statements that we make today.

For a more detailed discussion of these forward-looking statements and other factors that could cause results to differ, please refer to our first quarter earnings press release dated April 29, 2008, on Form 8-K and on our annual report on Form 10-K, which are filed with the SEC and available at the SEC's website at www.sec.gov. We may make certain statements during the course of this presentation that 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 included in the appendix of today's presentation.

Please turn to slide three. Our management team members participating today include Brett White, our President and Chief Executive Officer; Ken Kay, our Senior Executive Vice President and Chief Financial Officer; and Bill Concannon, Vice Chairman of our Global Corporate Services division.

I would now like to turn the call over to Brett.

BRETT WHITE, PRESIDENT & CDO, CB RICHARD ELLIS GROUP, INC.: Thanks, Nick. Please turn to slide 4. It is clear that our long-term strategy of diversifying across geographies and service lines shielded us from the full effects of the downturn in Q1 and allowed to us post a modest increase in first quarter revenue, which was also better than our internal expectations. Negative factors for the quarter against our exceptions were: first, while we projected a steep decline in our global investment property sales business and our U.S. mortgage brokerage business, the decline in the U.S. and European property sales were marginally steeper than our forecast. Second, the anticipated downturn in U.S. and EMEA leasing volumes did not occur and we believe that this downturn has simply taken longer to manifest itself, and now could likely impact quarters two through four.

Neutral or positive performance against our expectations were: first, our Outsourcing business posted very strong growth with year-over-year quarterly revenue up 34%, well ahead of our expectations. Second, as mentioned earlier, the Global Leasing business was much stronger than forecast, up 20% over the prior-year quarter, our strongest first quarter ever. Third, our Global Valuation and Advisory business also showed strong growth of 9% year over year. Fourth, Development Services posted results consistent with our expectations. Fifth, Asia-Pacific exceeded our aggressive growth assumptions with revenues up 46% over prior year. And finally our CBRE Investors business, while well off prior-year Q1 performance due to timing of carried interest revenues, performed as anticipated. Assets under management in the Global Investment Management business grew substantially to $42 billion at the end of quarter one. In an effort to capitalize on current market conditions, we have been very aggressive with our infill acquisition execution. I will discuss this in more detail a little later.

As indicated on slide 5, revenue was $1.2 billion for the quarter. Net income, adjusting for one-time items was $31.7 million, which translates to $0.15 in adjusted earnings per share. Normalized EBITDA came in at $104.6 million. Listed on slide 6 are just a few accomplishments to the firm since our last call. Most notable on this list are our addition to the Fortune 500 this year, and the Business Week designation of being ranked number 11 among the 50 best-in-class companies. Additionally, CB Richard Ellis was once again ranked the number one investment sales firm by RCA in Q1 2008, with a market share of 14.2%, which is nearly double the number two firm. This list of accomplishments reflect ongoing recognition for our position as the world's preeminent commercial real estate services firm, and the exceptional client service we bring to the market every day.

Please turn to slide 7. Here we've highlighted just a few of our major successes during the quarter for your reference. Please turn to slide 8. We are continuing our aggressive approach to infill acquisitions in 2008, and have been very active in the first quarter. We completed eight transactions in the quarter for an aggregate purchase price of almost $125 million, most notable being our entrees into Romania and Denmark through our acquisitions of Eurisko and Cedar Homes respectively. These transactions add approximately $100 million of revenue on an annualized basis. Please turn to slide 9. Next, as we did last quarter, I would like to update you on select U.S. market statistics to provide some context for what we are seeing in the market. Forecast vacancy rates for 2008, for both office and industrial property in the U.S. have deteriorated since our last call. The deterioration of the vacancy figures is a direct result of our lowered forecast absorption in office and industrial properties. Our cap rate forecast by property type have not changed since last quarter.

Please turn to slide 10. Here we provided a more detailed breakdown of results of our sales and leasing businesses in the Americas. While sales for all of 2007 grew 7%, Q1 2008 results were down 38% compared to the prior-year quarter. This compares to the Q4 2007 decrease of 14%, which we indicated would worsen before it improved on our call last quarter. Generally, the sales performance in the first quarter was marginally worse than we had anticipated. Leasing results, which were up 3% for 2007, rose 16% for the quarter, as compared to the prior year first quarter. This was well ahead of our internal expectations.Turning to slide 11 we see the sales and leasing results for EMEA. For all of 2007 sales revenue grew 44%, but was down 32% for the first quarter of 2008, versus the comparable quarter last year. This result was materially worse than our expectations. Similar to U.S. results, the leasing business in EMEA did better than we had anticipated, posting 18% growth for the first quarter of 2008 when compared to the same quarter last year.

In Asia-Pacific, sales grew 115% for all of 2007, but 6% for the first quarter of 2008. The investment market in Asia was stable in the first quarter despite the continuing global credit crunch. The leasing business, which was up 13% for full-year 2007, rose 50% in Q1 2008, versus the same quarter last year. Leasing fundamentals across Asia-Pacific remain strong, reflecting substantial demand from both domestic and multinational occupiers. For a more detailed discussion of our …