Is CBRE Stock A Buy?

CBRE Group Inc (NYSE:CBRE) is the largest commercial real estate company in the world. It acts as a real estate agent for office buildings, retail stores, apartment complexes, and other commercial buildings. That makes it a barometer for the market, which got obliterated by worldwide lockdowns.

With so many forces at play in real estate from low interest rates to mass migration, is CBRE stock a Buy?

The company took massive revenue hits on all ends due to social distancing rules in 2020. Office buildings sat empty as companies sent workers to work virtually. Retail stores (especially in niches like gyms and bars) were closed, and many shut down.

Unemployment in 2021 is still high, simply because nearly 100,000 businesses closed in 2020. Federal eviction and foreclosure moratoriums ran out too. As a vertically integrated company, CBRE Group has exposure to all of it.

Can CBRE pay its investors’ rent or should it be evicted from your portfolio?

CBRE Group Is Vertically & Horizontally Integrated

CBRE Group is the country’s biggest commercial real estate company. It acts as a broker, agent, landlord, and investor. This keeps it consistently generating revenue from every piece of real estate.

Originally a branch of Coldwell Banker, it was spun off as its own company after the Sears buyout in the 1990s.

The company is now both vertically and horizontally integrated. It expanded horizontally through a series of acquisitions. In the 2010s alone, it bought five real estate and facilities-related businesses.

CBRE now has a global presence that includes properties in China, Korea, Mexico, and the European Union.

Its staff includes experts in facilities, transactions and consulting, capital markets, brokerage services, leasing, and property management.

This diversity was key to the company staying afloat during the pandemic because it doesn’t depend on any one investment or market. If the U.S. lags behind China or Europe, CBRE still generates revenue.

Bus is that enough to make it a Buy?

Is CBRE Stock A Buy?

CBRE Group began the year with a market capitalization of over $21 billion and a P/E ratio near 20x. Share prices plunged to a 52-week low of $29.17 during the March 2020 stock market crash and took most of the rest of the year to recover. By the start of 2021, CBRE shares traded at over $60.00 per share.

The company felt the effects of global shutdowns across its divisions. It employs over 100,000 people and manages buildings of all types. Many of its market segments lost revenue, but it has a rosier outlook for recovery. This includes multifamily housing, offices, and industrial.

Its third quarter results showed $5.64 billion in revenue generating $184 million in profits for the quarter. That’s a 5 and 28.2 percent year-over-year decrease, respectively. It still produced nearly $800 million in free cash flow.

CBRE reported $0.73 earnings per share (EPS) for that quarter and showed slipping revenue in several key markets.

In fact, let’s discuss the hurdles of commercial real estate in this new economy.

CBRE Group Carries A Lot Of Debt

CBRE has a lot of debt, holding $1.79 billion in debt and $1.38 in cash reserves, although it does hold $4.2 billion in total liquidity and the ability to borrow another $2.8 billion if necessary.

That could be necessary if the economy doesn’t pick up the way CBRE President and CEO Bob Sulentic thinks. He believes corporations will push for more office space, despite the 2020 shift to virtual work.

It may not work out that way, as the 5-3-2 schedule is pitched often. It’s a 5-day work schedule with three days virtual and 2 days in the office. Companies using this schedule can leverage smaller spaces to accommodate a larger workforce.

Automation and cloud computing could pose significant problems moving forward, but currently shuttered businesses are the biggest obstacle.

Foreclosures and evictions don’t just happen to residential properties. Commercial properties across the country lost their leases en masse. It’s those closed businesses causing the mass unemployment filings.

If the economy continues to drag on, it could fuel a buyer’s market. That could hurt CBRE margins eventually.

CBRE Group Has Hot Competition

Although it’s the largest in the country, CBRE has competitors in every market. Some of its biggest rivals include Marcus & Millichap (MMI), Colliers International (CIGI), JLL (JLL), and Cushman and Wakefield (CWK). Each of these competitors has a major presence in commercial real estate.

They’re also vertically integrated to provide all the same full-service real-estate functions.

These competitors have deep pockets too, and REITs are very well funded. Each has its own bright spots and will focus their large professional sales teams on enticing new customers.

With bottlenecked revenues across the board, there’s no guarantee who will win. Growth rates will vary, and CBRE could lose enough market share to be dethroned as the biggest in the industry if it doesn’t stay nimble.

Is CBRE Group Stock A Buy? The Bottom Line

CBRE Group is the largest commercial real estate company in the U.S., and it has a global footprint. It’s a vertically integrated firm offering a full suite of real estate services, which helped it stay afloat during a rough economy.

The pandemic isn’t over. Businesses are still closed, and people are still unemployed. This means there’s a smaller pie being divided among the giants. They are looking to grow their portfolios.

If any landlord or property management company finds itself in trouble from evictions and foreclosures, it will be acquired. CBRE and others have money in the bank to snap them up.

It will be a slow road to growth, but difficult times typically lead to consolidation. Mergers and acquisitions are aplenty.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.