CBRE Raising $550M in Debt, Stock

CBRE officials were unavailable for comment beyond the company's public disclosures because the company is in a quiet period under SEC regulations. Analyst Craig Silvers, president of Los Angeles-based Bricks & Mortar Capital, which invests in REITs and other publicly held real estate companies, sees the new capital as a positive development for CBRE in a number of respects. "I think it's great that CBRE can get a stock deal done, especially with a firm with a reputation like Paulson's, and also that the market is willing to give the company another $400 million in debt," Silvers tells GlobeSt.com.

CBRE intends to offer the $400 million in senior subordinated notes, which will be due 2017, in a private placement, subject to market and other conditions. It plans to use the proceeds from the debt placement and the stock offerings to pay off existing debt and for general corporate purposes. CBRE's total net debt at the end of the first quarter of 2009 was approximately $2 billion, according to a transcript of the company's first-quarter earnings call.

In addition to raising capital, Silvers says, the debt placement and stock sales "position CBRE to take a bigger market share." Silvers explains that in today's uncertain economic times, property owners and others have to be concerned about the financial condition of real estate services companies, so a company that can secured a large infusion of capital will look more stable than some of its competitors.

Despite the credit market stagnation, Silvers says that REITs and other public real estate companies have been able to raise capital lately because of investors' long-term confidence in real estate. "People have realized that corporations need real estate, and that despite the tight credit markets, real estate is a necessity and they are willing to loan on it at the right price," he says. In terms of stock offerings, investors realize that they are buying at historically low prices, he adds.

Silvers compares current conditions top those of the 1990s, when REITs and other public real estate companies raised huge amounts of capital through initial public offerings as the economy was coming out of a recession. Real estate companies in those days needed to raise money to pay down debt, and later, when their earnings improved, shareholders profited from their investments, he explains.

The market also reacted positively to CBRE's news Wednesday, with the company's stock priced at $9.33 in late morning trading, up $1.19 for the day.Along with its debt and stock offerings, CBRE issued preliminary guidance on its expected earnings for the second quarter. The company anticipates diluted earnings per share will be in the range of approximately break-even to $0.07 for the second quarter, compared with $0.16 per share for the second quarter of 2008.

CBRE called the earnings forecast "highly preliminary," pointing out that actual results could vary because the second quarter of 2009 has not yet been completed and because of "the inherent nature of the company's sales and lease transaction businesses, which tend to recognize a significant portion of their revenue toward the end of a reporting period, as well as the continuing difficult and uncertain market environment."