CBRE’s purchase of ING REIM drives earnings

Not surprisingly, CBRE Global Investors’ acquisition of ING Real Estate Investment Management (REIM) last year affected the fourth quarter and full-year earnings of parent company Richard Ellis. 

According to an earnings statement released yesterday, revenue for the Los Angeles-based real estate firm’s global investment management segment reached $107.8 million in the fourth quarter of 2011, up 35 percent from $79.8 million one year prior. The increase resulted from higher asset management fees, primarily stemming from the inclusion of ING REIM, which contributed approximately $60 million in revenue in the fourth quarter. 

CBRE Global Investors closed on its acquisition of ING Clarion Real Estate Securities on 1 July for $324 million and $59 million in co-investments. On 3 October, the firm closed on ING REIM Asia for $46 million and $14 million in co-investments. On 31 October, it closed on ING REIM Europe for $443 million and $7 million in co-investments. Overall, the transaction totalled $813 million and $80 million in co-investments, as well as $67 million in transaction and integration costs.

“Global investment and management revenue increased 44 percent quarter-over-quarter, driven by increases in asset management fees, largely attributable to the ING REIM businesses that we acquired,” said Gil Borok, chief financial officer of CBRE, during an earnings call held yesterday. 

Fourth quarter operating expenses were 34.2 percent of total revenue versus 31.6 percent in the fourth quarter of 2010. Excluding the impact of the cost containment expenses and integration in other costs related to ING REIM, operating expenses as a percentage of revenue were 31 percent for the fourth quarter, a slight decrease from 31.2 percent the prior year. This decrease came despite the inclusion of ING REIM’s operating expenses, all of which flow to the operating expense line as opposed to cost of services.

The assets under management associated with the ING REIM acquisition were $62.4 billion, as calculated at year-end 2011. As a result, CBRE’s assets under management grew to $94.1 billion, a 150 percent increase from the previous year. If certain additional assets are transferred to CBRE, the remaining potential cash needs are an additional $80 million in acquisition costs, up to $70 million in potential additional co-investments and $79 million in additional transaction and integration costs.

Total revenue for CBRE was $1.8 billion for the fourth quarter, up 7 percent from the previous year. The firm attributed this increase to growth in outsourcing, investment sales, investment management and commercial mortgage brokerage and development services.

On the firm’s overall outlook for 2012, CBRE Group’s chief executive Brett White said: “It is important to note that 2012 performance is likely to be more back-ended than usual due to the slow transaction environment we have experienced amid heightened market uncertainty. Our outlook for 2012 assumes a pickup in job growth, economic activity and sentiment by the summer.”