UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Rule 100 and 101 of Regulation FD
Date of Report (Date of earliest event reported): February 8, 2001
________________________
CB RICHARD ELLIS SERVICES, INC.
(Exact name of registrant as specified in its chapter)
Delaware 001-12231 52-1616016
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
200 North Sepulveda Boulevard, El Segundo, California 90245-4380
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 563-8611
Not Applicable
(Former name or former address, if changed since last report)
Item 9. Regulation FD Disclosure
On February 8, 2001, CB Richard Ellis Services, Inc. (the Company)
conducted its fourth quarter earnings conference call, as follows:
Moderator: Jim Leonetti
February 8, 2001
9:00 a.m. MT
Operator: Ladies and gentlemen, thank you for standing by. Welcome to CB
Richard Ellis Fourth Quarter Earnings and Year End Conference
Call. At this time, all participants are in a listen-only mode.
Later we will conduct a question and answer session. At that time
if you have a question, you will need to press the one, followed
by the four on your telephone. As a reminder, this conference is
being recorded, Thursday, February 8th, 2001.
I would now like to turn the conference over to Jim Leonetti,
Chief Financial Officer of CB Richard Ellis.
Please go ahead, sir.
Jim Leonetti: Hello and thank you for joining us for the fourth quarter earnings
call. My name is Jim Leonetti and it is my pleasure to welcome you
to the CB Richard Ellis conference call covering our results for
the fourth quarter 2000. Participating on the call this morning
will be Ray Wirta, Chief Executive Officer, Brett White, the
Chairman of our America's Division, and Chris Ludeman, President
of Transaction Management.
Before we get started, I want to mention to you that we may make a
number of forward-looking statements during the course of the
call. These statements should be taken as estimates only and
actual results may differ materially from these estimates. CB
Richard Ellis undertakes no obligation to update or publicly
revise any of the forward-looking statements that you may hear
today. Please refer to the Company's annual report and 10-K and
our quarterly reports on form 10-Q for a full discussion of the
risks and other factors that may impact any estimates or
projections you may hear today, and with that, I'd like to turn
the call over to Ray.
Ray Wirta: Thank you, Jim, and good morning to everyone on the call. I'd like
to thank all of you who are participating in the call and all
those listening to us live on the Internet, which I hope includes
a great number of CBRE employees.
Today we'd like to cover several topics, especially our record
setting operating results. I'll provide a brief overview and then
Jim Leonetti will spend some time on the financial details. Next,
Brett White will give a detailed report of our operations. I will
conclude by discussing our 2001 expectations and providing a brief
status report on the buyout proposal. We'll then open discussion
to Q&A.
We are pleased with our operating performance for 2000. Revenue
growth, expense control, debt reduction, net earnings growth were
delivered in accordance with our commitments. This performance was
achieved despite the impact of foreign currency fluctuations,
which reduced our revenue from international operations by $23
million during 2000. Back in February of 2000, we made five
commitments to our shareholders. I'd like to go over our
commitments and our performance on each.
First, we said we would increase annual EPS by at least 20
percent. In fact, EPS increased $1.58 a share, which is 44 percent
better than last year.
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Second, we said we would continue to reduce back office expenses.
Operating expenses totaled 41 percent of revenue during 2000. This
compares to 44 percent of revenue in 1999. We streamlined our back
office operations and made substantial reductions in corporate
support and headcount.
Third, we said we would apply web-based technologies to our
various business lines and would develop a number of new Internet
enterprises that would have stand-alone capability. During 2000,
we have utilized web-based technologies throughout our
organization. Specific examples include our valuation business
where appraisals are now delivered on-line and human resources,
where employees can access benefit and payroll information also
on-line. We made investments totaling over $20 million in
SiteStuff and other internet-oriented enterprises, which are
expected to improve our operational efficiencies and reduce our
costs in the future.
The fourth commitment we made was to improve our sales employees'
compensation programs, recognizing that the most valuable asset in
our Company is our sales force. During 2000, we enhanced our
deferred compensation program and adopted a number of stock-based
programs, which give us one of the most attractive compensation
programs in our industry and provide us a strong competitive
advantage in retaining the best and brightest in the real estate
services industry.
Fifth and finally, we made a commitment that would reduce our debt
by 10 percent or $36 million, and I am pleased to report that at
December 31, 2000, we had reduced our debt by over $50 million,
which represents a 14 percent decline from December 31, 1999.
In summary, we have delivered on all of the commitments that we
made at this time last year. Our ability to deliver is a
reflection of our strong management group and the capabilities of
the 10,000 men and women who make up the CBRE team worldwide.
With that brief highlight summary, I'd like to turn the call back
over to Jim Leonetti, our CFO, for a financial overview.
Jim.
J. Leonetti: Thank you, Ray. As Ray pointed out we had a very strong fourth
quarter. The Company's revenue totaled $418 million, the highest
quarterly level in the history of the Company, and that is an
increase of six percent from the fourth quarter of last year.
Increase in revenue was driven by growth from leasing
transactions, which grew by 11 percent or $17 million. We also had
very strong results on our Commercial Mortgage unit and CBRE
Investors. Mortgage revenues increased by 18 percent during the
fourth quarter of 2000 over 1999. CBRE Investors similarly grew
their revenues by 27 percent. Revenue for the entire year of 2000
grew by 9 percent to $1.3 billion which was the highest level of
revenue in the history of the Company. During 2000, we maintained
focus on improving the efficiency of our operations. Corporate
staffing and overhead were sharply lowered during 2000, as
compared to 1999. Corporate overhead costs declined by nearly $11
million or 18 percent from last year. This contributed to a
reduction in operating costs which declined to 41 percent of
revenue, as compared to 44 percent last year.
The combination of revenue growth and expense control resulted in
the Company producing fourth quarter earnings before interest,
taxes, depreciation and amortization of $61.7 million, again the
largest amount in its history and an increase of $16 million over
the fourth quarter of last year, which is a 35 percent increase.
EBITDA totaled $150.5 million for all of 2000, an increase of $33
million or 28 percent over last year. These factors resulted in
net income totaling $21 million during the fourth quarter 2000 or
97 cents per diluted share. The entire year 2000 net income
totaled $33 million or $1.58 per diluted share, an improvement of
44 percent. Keeping with our commitment made during this time last
year, debt was lowered to $314 million from December 31, 1999, a
decrease of just over $50 million. The Company comfortably met and
comfortably complied with all of the convenants under its current
bank line.
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The Company's operations are organized into three geographic
divisions, the America's Division, which includes the U.S., Canada
and Latin America. EMEA, which includes Europe, the Middle East
and Africa, and Asia Pacific, which includes Asia, Australia and
New Zealand. The America's is the geographic division that
generates the largest amount of revenue and EBITDA accounting for
82 percent of revenue and 81 percent of EBITDA for the quarter.
EMEA contributed 12 percent of revenue and 13 percent of EBITDA,
while Asia Pacific contributed 6 percent of both revenue and
EBITDA. International operations were adversely affected by
foreign currency conversions during both the fourth quarter of
2000 and for the entire year. Using the exchange rates during 1999
as a benchmark, revenue from our international operations were
adversely affected by $11 million during the fourth quarter of
2000 and by $23 million during the entire year from the impact of
foreign currency. Likewise, EBITDA was adversely impacted by $2.1
million for the fourth quarter and by $3.7 million for the entire
year.
Now, Brett White will give us more detail on some specific
operating results for our business lines.
Brett.
Brett White: Thank you, Jim. I'd like to spend a few minutes this morning
discussing the specific performance of our various lines of
business for both the fourth quarter and the full year 2000. As
you know, we categorize our business operations into three
business segments. Transaction Management, Financial Services and
Management Services. Transaction Management concluded a very good
year. We increased revenue to $309 million during the fourth
quarter, up 3 percent over 1999 and for the entire year, revenues
were approximately $1 billion, an 8 percent improvement over 1999.
Transaction Management contributed $48.5 million of EBITDA for the
quarter, a 33 percent improvement over the fourth quarter of last
year. For the year, Transaction Management generated $104.6
million of EBITDA, an 18 percent increase over 1999.
We have three primary lines of business within Transaction
Management. Brokerage, Investment Properties and Corporate
Services. During 2000, we reallocated a number of our sales
professionals from brokerage to corporate services. As Chris
Ludeman will discuss in further detail, this allocation of
resources was very successful.
The Brokerage Business is a line of business that continues to
generate the major portion of the Company's revenues. Brokerage
generated $181 million of revenue, or 43 percent of total revenue
for the fourth quarter of 2000. For the year, Brokerage generated
$607 million of revenue, a 3 percent increase over 1999,
notwithstanding the reallocation of personnel to corporate
services.
The Investment Properties business line provides brokerage
services for commercial real estate property marketed for sale to
institutional and private investors. During the fourth quarter,
revenues totaled nearly $71 million, an increase of 12 percent
over the same period last year. Revenue for the full year was $189
million, consistent with 1999. During 2000, a higher interest rate
environment in the U.S., particularly during the first half of the
year, caused investment capital to be highly selective and
disciplined. These factors suppressed activity during the first
part of 2000. Multi-housing sales, in particular, were impacted
during the first half of 2000, but recovered nicely as did all of
our investment property business by year end. EBITDA for
Investment Properties increased to $16.6 million, a 51 percent
improvement over the fourth quarter of 1999. For the full year,
EBITDA improved to $24 million, a modest 2 percent improvement
over 1999.
Another important part of our Transaction Management business
segment is our Corporate Services line of business. I'd like to
ask Chris Ludeman to discuss this business unit's results in
detail.
Chris.
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Chris Ludeman: Thanks, Brett.
Corporate Services focuses on building strategic relationships
with large corporations in an effort to relieve them from
commercial real estate activities that are not core to their
competencies. We expect corporate services will continue to
experience growth rates higher than most other business lines due
to several factors. As Brett indicated, we first have put more
professionals and service lines to focus on this line of business
and the corporate occupier. Second, we are gaining more work from
current clients. We're expanding the breath and depth of their
outsource activities, and third, we have an increasing volume of
requests for outsourcing. Recent examples include an increased
scope of services and geographies served for companies that we
have previously done business with such as Boeing, SBC
Communications, Washington Mutual Bank, AT&T and Conseco.
Corporate Services had a very successful year and here are some
of the highlights. Revenues for the fourth quarter totaled $56
million, an increase of 47 percent over last year. Similarly for
the full year, revenues reached $151 million, an increase of over
50 percent over 1999. EBITDA for the fourth quarter totaled $13.4
million, an increase of nearly $9 million, or 186 percent over
the fourth quarter of 1999. For the full year, EBITDA totaled $24
million, an increase of 338 percent over last year. We believe
the trend towards outsourcing and our strong relationships with
corporate clients positions us to take advantage of our global
platform and local expertise. We continue to be excited about the
growth prospects for our Corporate Services outsourcing business.
We see a lot of opportunity ahead.
B. White: Thanks, Chris.
Now turning to the Financial Services operation. We have three
primary business lines: Valuation, the Commercial Mortgage
business and Investment Management services. Financial Services
generated 16 percent of fourth quarter revenues or $65 million.
This is an improvement of 19 percent over 1999 or $10.5 million.
EBITDA for financial services in the fourth quarter totaled $8.8
million, an increase of 58 percent over EBITDA from the fourth
quarter of last year. The EBITDA margin in the fourth quarter
improved to 14 percent from 10 percent during last year's fourth
quarter. Viewing the entire year, revenue for Financial Services
totaled $214 million, an increase of 21 percent over last year.
EBITDA totaled $30 million, an improvement of $12 million or 67
percent over 1999. The growth in Financial Services revenue and
EBITDA was driven by our Investment Management and Mortgage
businesses. Investment Management increased their fourth quarter
revenue by $2 million or 27 percent. Mortgage revenues were up by
$3 million or 18 percent over the fourth quarter of last year.
EBITDA for our Mortgage unit increased to $5 million or 24
percent during the fourth quarter of 2000 over last year. We
believe those results certainly speak for themselves.
Finally, I will speak briefly on results for our Management
Services business segment. This segment provides property,
facility, construction and project management services.
Management Services revenue for the fourth quarter totaled $44.2
million, a 4 percent increase over last year. Fourth quarter
EBITDA for Management Services totaled $4.4 million, an increase
of 17 percent from the fourth quarter of 1999. For the full year,
EBITDA totaled $16.1 million, an improvement of $5.6 million or
54 percent. During 2000, we made tremendous progress on revenue
growth and cost control for our property management business
line. Revenue increased by 11 percent during the fourth quarter
of 2000 versus 1999. EBITDA increased to $4.1 million, an
increase of $2.2 million or 117 percent. The increase in EBITDA
for the full year of 2000 versus 1999 was $5.3 million or 65
percent.
Now, I'll turn the call back to Ray.
R. Wirta: Thank you, Brett. Needless to say, we are pleased with our
results for the fourth quarter and the year. Now we'd like to
spend a few minutes talking about our outlook for 2001 and some
of the challenges we face.
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Real estate markets in the U.S. remain healthy. The current real
estate market does not have the characteristics of over building
and excessive vacancies that drove the real estate recession of
the early 1990's. Banks have acted to raised the underwriting
standards for loans for construction. This has helped to maintain
vacancies at low levels. Even with these positive factors,
however, there will be challenges this year. Our business is
dependent on job creation and upon the health and vitality of
real estate markets. Late in the fourth quarter of 2000 and
continuing this year, economic forecasters have projected a
decline in the U.S. economy. Additionally, a number of major
corporations have announced substantial work force reductions and
scaled back expansion plans. While we are closely monitoring
these negative economic forecasts, we remain positive about the
prospects of the Company to grow its business. We will have
growth in our 2001 results, although not at the same pace as we
achieved in 2000. We anticipate that cash flow from operations
will continue to be used to reduce debt and to be invested in our
higher margin business lines. Our current projections for 2001
forecast a minimum of $30 million of debt reduction.
Let me conclude our remarks by briefly commenting on the buyout
offer the Company received during the fourth quarter of this
year. In response to that offer, the Board of Directors formed a
special committee to evaluate not only this offer but also other
alternatives for the purpose of maximizing shareholder value.
This special committee has engaged independent legal counsel and
investment bankers to assist them in the evaluation of the
various alternatives. The special committee anticipates that it
will be in a position to present the results of its research and
its recommendation to the full Board of Directors at the next
board meeting currently scheduled for the latter part of
February. We will continue the current practice of using press
releases to update you on the progress of the buyout offer.
That concludes our formal remarks and at this time I'd like to
turn the call back to the operator to hopefully marshal questions
and answers from us. So, operator.
Operator: Thank you. Ladies and gentlemen, we will now begin the question
and answer session. If you have a question, please press the one,
followed by the four on your telephone. You will hear a three
tone prompt acknowledging your request. If your question has been
answered and you wish to withdraw your polling request, you may
do so by pressing the one, followed by the three. If you're on a
speakerphone, please pick up your handset before entering your
request.
One moment, please, for the first question.
The first question is from Steve Sakwa with Merrill Lynch. Please
go ahead with your question.
Steve Sakwa: Good morning, Ray and Brett.
R. Wirta: Hi, Steve.
B. White: Hi, Steve.
S. Sakwa: How are you?
R. Wirta: We're great.
B. White: Fine, thanks.
S. Sakwa: A couple questions. Can you talk first about the leasing
environment? You know some of the office companies, while they
had very good fourth quarters, have been talking about leasing
decisions taking longer, and because you guys are sort of on the
front line here, maybe you can just share with us what you're
hearing from the major corporations that you're dealing with? Are
they scaling back their space needs; do they need more space; are
they just taking longer to make decisions? Can you just kind of
tell us what you're seeing today?
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B. White: Steve, this is Brett. I'm going to ask Chris Ludeman to give us a
good response on this. He, as you know, is responsible for all of
our corporate services businesses worldwide. I think he has the
best feel for what certainly the corporate user's view for 2001
is.
So, Chris, can you answer that question, please?
C. Ludeman: Thanks, yeah. I would say generally we are watching all of these
markets very carefully and every market has slightly different
market conditions. In some instances we, with some businesses,
particularly in the dot com and technology sectors, it's actually
relieved some pressure of a lack of space and while it may retard
rent growth a bit, it does bring some more space to the
marketplace, which we think will maintain some equilibrium in the
marketplace. So we see that as actually a very positive thing.
With that said, there are certain very large corporations who
have taken very aggressive cost cutting, which include headcount
reduction measures which is putting more jobs in the marketplace
to be absorbed by people that have gone looking for jobs.
So, in general, we see activity continuing to stay at pretty
robust levels. However, it's a lot more tentative. I might also
mention that we initiated an on-line survey, a global on-line
survey of our transaction people yesterday and the day before to
solicit input from all over the world on a business level
activity. So we'll have those results shortly. But I would say,
generally, markets continue to be healthy, however more
tentative.
B. White: Steve, this is Brett again. I would echo what Chris said. We're
in a very interesting situation right now. All of the metrics
that we have in the business internally tell us that pipelines
look very good. That, as Chris mentioned, activity in almost all
of the markets remains very strong, notwithstanding the very
negative press that's been in place since November. So, we're
watching very carefully, but as we sit here today, and as Chris
said, generally things do look fine.
S. Sakwa: If you had to characterize how you felt about your business three
months ago versus today, do you feel better, worse or the same?
C. Ludeman: I would say --- this is Chris speaking. I would say we are more
concerned and skeptical and in fact the results that we are
seeing financially and internally in the business activity kind
of is counter to what we think should be happening in the market.
So we're being very careful.
R. Wirta: This is Ray, Steve. Just to paraphrase, however we felt three
months ago, we don't feel as good today, but we still feel pretty
good.
S. Sakwa: You may feel more defensive, but I guess I'm just trying to
figure out is what's actually happening in the business
environment actually slowing down, speeding up or about staying
the same?
B. White: Steve, this is Brett again. I'd say the answer needs to be this.
The real negative press began in late October and early November,
and in thinking of the lag times in our business, Steve, it is
frankly too early to tell whether or not the negative indicators
in the public market have had an impact yet on space acquisition.
As we've said, right now we're working on a good level of
business, but, frankly, that business was probably initiated in
mid-summer of last year. I think by the end of the first quarter,
we'll have a much better view on where the business is headed for
the balance of the year. But, certainly, we're a bit more
pessimistic today than we were in late September.
S. Sakwa: Okay, and then can you just quickly update kind of the
sales....kind of the same thought process, but on the sales side?
C. Ludeman: This is Chris again. I would say that two things are happening.
Capital continues to maintain its discipline. We saw an increase
in activity at the latter part of 2000 and that has continued
into the early parts, initial parts of 2001. So, again, the
numbers look pretty darn good. However, capital
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continues to be disciplined. We saw an up tick in our activity,
particularly in the private and the middle market arena because
of the lower interest rate environment. Now we're watching very
carefully because lenders seem to be a little bit more
disciplined in their underwriting criteria. So, again, there's a
lot of market forces that are in play and we're taking a very
careful wait and see. Indicators are good, activity levels are
good, but we're watching carefully.
S. Sakwa: Okay. Thanks.
B. White: Thank you.
Operator: Ladies and gentlemen, if there are any additional questions,
please press the one, followed by the four at this time.
Gentlemen, there are no further --- one moment, please.
Brett Hendrickson with B. Riley & Company. Please go ahead with
your question.
Justin Cable: Hi, guys. Actually this is Justin Cable filling in for Brett at
B. Riley & Company. Just one quick question. If you can give us
the assets under management in the Investment Management
operations as of today, that would be great?
J. Leonetti: That's roughly $10.3 billion in the Investment Management group,
up probably almost $2 billion from a year ago.
J. Cable: Great. All right. Thanks a lot, guys.
J. Leonetti: Thanks for the question.
R. Wirta: Operator, I think we'll make our concluding remarks.
Operator: All right. Thank you. Go ahead.
R. Wirta: This is Ray Wirta. I just want to thank all the people on the
call. Recognize potentially the questions relate to the pending
going private effort. And, so, wait for the next quarterly and
see what that brings. But we had a very good year, I think as you
sensed from our responses to Steve Sakwa's question - we remain
positive about 2001, but we do have to pay attention to what our
clients are saying and in some cases doing. So we're going to
wait for a couple of more months to go by to have another
conference about the expectations. But so far, so good. And thank
you for listening.
Bye.
Operator: Ladies and gentlemen, that does conclude your conference call for
today. You may all disconnect and thank you for participating.
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SIGNATURES
Pursuant to the requirements of Rule 100 and 101 of Regulation FD, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CB RICHARD ELLIS SERVICES, INC.
Date: March 21, 2001 By: /s/ James H. Leonetti
_____________________________
James H. Leonetti
Chief Financial Officer
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