CB Richard Ellis Surges on Plan to Help Repay Debt

CB Richard Ellis Group Inc., the commercial property broker with $2.4 billion in debt, surged 14 percent after announcing plans to raise up to $550 million selling shares and debt to the public and to investors including the U.S. hedge fund run by billionaire John Paulson.

The Los Angeles-based company will sell 13.4 million shares to Paulson & Co. for gross proceeds of $100 million, it said in a regulatory filing. It may raise another $50 million in a series of stock sales managed by JPMorgan Chase & Co. and also plans to sell by private placement $400 million in notes repayable in 2017, it said.

The broker has $310 million in debt due next year and $2.28 billion due in 2011, according to Bloomberg data, most of it tied to the 2006 purchase of Trammell Crow Co. Moody’s Investors Service assigned a Ba3 rating to CB Richard Ellis’s new senior subordinated debt and said the outlook is negative.

“CBRE’s real estate services business is highly correlated with real estate and economic cycles, especially its transactional businesses,” Moody’s analysts led by senior credit officer Karen Nickerson said in a statement. “Positively, Moody’s believes the company has adequate liquidity to fund its 2009 debt and operating obligations.”

CB Richard Ellis rose $1.11 to $9.25 in New York Stock Exchange composite trading.

Commercial real estate companies are losing revenue as lenders cut financing for building sales and employers slash jobs, reducing their need for office space. Both mean lower commissions for brokers.

Earlier Share Sale

Rival Jones Lang LaSalle Inc., based in Chicago and the world’s second-biggest publicly traded commercial property firm, said yesterday it plans to offer 5.5 million shares to repay debt and for general purposes.

CB Richard Ellis said in a separate filing that second- quarter earnings, excluding one-time items, may fall more than 50 percent from a year earlier.

Earnings per share will probably be less than 7 cents a share, compared with 16 cents a year earlier, the company said. That compares with the median estimate of 8.5 cents of six analysts surveyed by Bloomberg News.

In November, CB Richard Ellis abandoned plans to raise as much as $400 million in a private offering of convertible preferred stock and instead sold 50 million Class A common shares to the public.

The company paid $1.9 billion for Trammell Crow in 2006 in a bid to expand its building management business.

Quarterly Loss

The broker’s debt level “increases the possibility that we may be unable to generate cash sufficient to pay when due,” it said in its November prospectus. “We cannot be certain that our earnings will be sufficient to allow us to pay principal and interest on our debt and meet our other obligations.”

The broker reported a net loss of $36.7 million, or 14 cents a share, for the fiscal first quarter, compared with net income of $20.5 million, or 10 cents, a year earlier. It blamed “broad weakness in sales and leasing markets worldwide.”

Global property acquisitions fell 73 percent in the first quarter from a year earlier to $47 billion, or 1,014 properties, according to New York-based to Real Capital Analytics.

CB Richard Ellis earned about $77.8 million in revenue from property sales in the first quarter, down 66 percent from a year earlier, according to a presentation on its Web site. Leasing revenue dropped 32 percent to $267.1 million.

Source: Bloomberg 10 June 2009