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CBRE Group: Diversification Is Key To Its Success

Mar. 03, 2021 9:54 AM ETCBRE Group, Inc. (CBRE)2 Comments
Karreta Advisors profile picture
Karreta Advisors


  • CBRE has navigated through FY12/2020 by generating record-high free cash flow and maintained flat revenues YoY.
  • The company's diversification over property types, lines of business, and clients has demonstrated its resilience, and it is now positioned for a robust recovery profile into FY12/2021.
  • The shares are trading on a current free cash flow yield of 4.0% which is attractive. We are buyers of the shares.

Investment thesis

Trading on a current free cash flow yield of 4.0%, we believe CBRE's (NYSE:CBRE) shares are attractive. We expect softness to remain in the office market YoY, but the company's diversified business exposure should result in a robust recovery overall.

Quick primer

With historic ties going back to 1906, CBRE is the largest global commercial real estate services and investment firm in terms of revenues. Around 40% of revenues is derived overseas.

Our objectives

CBRE reported stronger than expected Q4 FY12/2020 results. In this we want to assess the following:

  • How the company was able to navigate through the pandemic effectively.
  • The outlook for a sustained recovery into FY12/2021.

We will take each one in turn.

Diversification is the key

We will start with the conclusion here first. CBRE was able to book flat revenues YoY for FY12/2020 and adjusted EPS declining 12% YoY, primarily as a result of a diversified business spanning property types, lines of business and clients.

Segment revenue and adjusted EBITDA

CBRE Segment revenue and adjusted EBITDASource: Company, created by author

Out of the three core business segments, the most at-risk was the most profitable Advisory Services due to its prevalent non-recurring and deal-driven nature. Here FY12/2020 sales declined 15.1% YoY despite a visible drop in office sales and leases, offset by exposure to industrial and multi-family property.

Q4 FY12/2020 Advisory sales revenue by property type

Q4 FY12/20 CBRE advisory sales by property type

Source: Company, created by author

Q4 FY12/2020 Advisory leasing revenue by property type

CBRE Q4 FY12/2020 Advisory leasing revenue by property type

Source: Company, created by author

Global Workplace Solutions ("GWS") saw revenues and adjusted EBITDA increase YoY, as demand for facilities management grew combined with cost reductions. Again we see the diversification of property types that have allowed this to happen.

FY2020 GWS revenue by industry

CBRE FY2020 GWS revenues by industry

Source: Company, created by author

Real Estate Investments ("REI") saw double-digit growth as the pandemic

This article was written by

Karreta Advisors profile picture
We are an independent research house. We look at global stocks, favoring those with sustainable growth and recognized or emerging as a high quality franchise at suitable valuations. We primarily serve institutional investors.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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