CB Richard Ellis Reports Third-Quarter Results.

EL SEGUNDO, Calif.--(BUSINESS WIRE)--Nov. 3, 1999--

CB Richard Ellis (NYSE:CBG) Wednesday reported a 12 percent increase in revenue for the third quarter ended Sept. 30, 1999, and a 16 percent increase in revenue for the nine months ended Sept. 30, 1999, compared with the same periods last year.

Earnings before interest, taxes, depreciation and amortization (EBITDA) in the September 1999 quarter declined 16 percent to $30.0 million, compared with $35.9 million in the same period last year. EBITDA for the nine months ended Sept. 30, 1999, decreased 10 percent to $71.7 million, compared with $79.2 million in the same period last year.

The increase in revenue in the September 1999 quarter primarily reflects stronger sales and leasing revenues and contributions from operations acquired last year. For the nine months ended Sept. 30, 1999, the increase primarily reflects the contribution from offshore operations acquired last year.

The decline in EBITDA was principally due to higher expenses associated with the company's North American and global operations relative to the pace of revenue growth and expenses related to the company's recently announced restructuring.

In addition, the emphasis on a bonus rather than commission-based compensation structure by the company's offshore operations resulted in higher expenses relative to revenues in the first three quarters of 1999 vs. the same periods last year.

Ray Wirta, chief executive officer, commented: "We are pleased that revenues continued to run ahead of last year. Offshore operations, in particular, continued to post strong results. We also are encouraged to see sales and leasing activity in North America in the recent quarter begin to improve, although there can be no assurance that this improvement will continue.

"Because the pace of sales and leasing activity in North America trailed expectations for most of the year, revenue growth has not been sufficient to offset the increased costs from building our North American and global platform. This resulted in lower earnings performance than we had expected to see at this time of the year.

"While we expect to see leasing activity remain strong for the rest of the year, final sales revenue for the year will depend, in large part, on interest-rate movements and the effect of Y2K concerns on year-end closings.

"We believe the challenges we face in revenue growth this year are temporary. Real estate fundamentals remain sound, continuing to benefit from a U.S. economy with stable growth and low inflation and an encouraging real estate supply/demand balance.

"Because of these temporary challenges, we are focused on controlling costs for the remainder of the year and into 2000. Our previously announced, and now fully implemented, restructuring of North American field operations will result in annual cost savings of $14 million in 2000 and beyond. These cost savings will have little impact on 1999 because of the associated severance costs.

"We will continue to focus on opportunities to streamline operations further in the coming months. In particular, we have targeted an additional $10 million in annual run-rate cost savings from our North American and global back-office operations, which currently run at a $55 million rate. These additional cost savings are expected to be in place by the first quarter of 2000."

The company reported net income for the September 1999 quarter of $4.6 million, or 22 cents per diluted share, compared with $10.1 million, or 48 cents per diluted share, in the September 1998 quarter.

Net income for the nine months ended Sept. 30, 1999, was $6.3 million, or 30 cents per diluted share, compared with a net loss applicable to common shareholders of $21.3 million, or $1.07 per diluted share, in the same period last year.

The results for the 1998 nine-month period include after-tax merger-related and other nonrecurring charges of $8.7 million and a deemed dividend of $32.3 million on the repurchase of the company's preferred stock. Excluding these factors, the company reported adjusted net income in the 1998 nine-month period of $19.7 million, or 96 cents per diluted share.

The decline in net income reflects the lower EBITDA, higher interest expense and goodwill amortization associated with last year's acquisitions and a higher effective income-tax rate.

Wirta commented: "The slower-than-expected pace of sales and leasing transactions in North America in the first half of the year has made it difficult to forecast revenue and earnings growth.

"Given the challenges we face in sales activity in the fourth quarter, EBITDA for the 1999 full year could come in 15 percent or more below current expectations. Because of the leverage created by the debt incurred and goodwill recorded in past acquisitions, this reduced level of EBITDA would translate into a reduction in earnings per share of approximately 25 percent from current expectations for 1999."

Segment Results

As previously announced, the company changed its segment reporting because of a reorganization undertaken to streamline operations and simplify reporting. Prior periods have been restated to conform to the new segment presentation.

Transaction management

Transaction management, which includes commercial property sales and leasing transactions and brokerage consulting fees, contributed 73 percent of the company's consolidated revenue in the September 1999 quarter. Investment property sales, which had previously been included in the financial-services segment, are now included in transaction management.

Transaction-management revenue increased 14 percent and 12 percent, respectively, in the September 1999 quarter and year-to-date compared with a year ago. EBITDA for transaction management increased 12 percent in the September 1999 quarter, but decreased 5 percent in the nine months ended Sept. 30, 1999, compared with the same periods last year.

The EBITDA margin for transaction management of 13.3 percent in the September 1999 quarter was essentially flat compared with the same period last year. For the nine months ended Sept. 30, 1999, the EBITDA margin for transaction management declined to 10.2 percent, compared with 12.0 percent in the same period last year.

The revenue and EBITDA improvement in the current quarter over last year is primarily due to higher sales and lease revenues, which reflect an improvement in transaction activity. The decline in EBITDA performance in the September 1999 nine-month period reflects the continued impact of the slower pace of sales and leasing activity in the first half of the year.

Wirta commented: "In spite of a challenging year for sales and leasing activity, our transaction-management segment posted solid results in the current quarter. CB Richard Ellis continued to lead the market with several major deals that demonstrated the synergies that are being brought to bear by our global services platform."

Financial Services 

Financial services provides valuation, mortgage lending and advisory services to property owners, including Wall Street firms and institutional, corporate and offshore investors. Financial services contributed 14 percent to the company's consolidated revenue in the September 1999 quarter.

Financial-services revenue increased 2 percent and 24 percent in the September 1999 quarter and year-to-date, respectively, compared with the same periods last year. Financial-services EBITDA declined 108 percent and 11 percent in the September 1999 quarter and year-to-date, respectively, compared with the same periods last year.

The revenue improvement in the nine-month period was primarily due to increased consulting and appraisal fees, partially offset by lower mortgage-banking fees.

The decline in EBITDA in the September 1999 quarter was primarily due to lower-than-expected revenues in the company's appraisal and mortgage-banking business lines as a result of the sluggish commercial mortgage-backed securities market and an unusually high level of activity in the third quarter of 1998.

Management Services

Management services provides property and facilities management services to investors and major corporate clients. Management services contributed 13 percent of the company's consolidated revenue in the September 1999 quarter.

Revenue for management services increased 14 percent and 33 percent in the September 1999 quarter and year-to-date, respectively, compared with the same periods last year. EBITDA for management services decreased 92 percent and 39 percent in the September 1999 quarter and year-to-date, respectively, compared with the same periods last year.

The higher revenues reflect increased business from the company's integrated service approach and increased servicing of larger portfolios. The decline in EBITDA reflects the company's continued investment in building its global corporate outsourcing capabilities.

The company secured several property and facilities management contracts in the recent quarter, increasing total square feet under management by 14 percent to 433 million square feet at the end of the September 1999 quarter from 380 million square feet a year ago.

Wirta noted that the company is also responding to a number of significant requests for proposals from both real estate investors and corporate America.

CB Richard Ellis is the world's leading real estate services company. With headquarters in Los Angeles and 10,000 employees worldwide, the company serves real estate owners, investors and occupiers through nearly 250 principal offices in 35 countries.

Services include property sales and leasing, property management, corporate services and facilities management, mortgage banking, investment management, capital markets, appraisal/valuation, research and consulting.

CB Richard Ellis had 1998 revenues of more than $1 billion. For more information about CB Richard Ellis, visit the company's Web site at www.cbrichardellis.com.

This release contains forward-looking statements concerning expectations for future revenues, cost reductions and earnings performance. These statements reflect the company's current plans and expectations and are based on information currently available to it. They rely on a number of assumptions and estimates, which could prove to be inaccurate and which are subject to risks and uncertainties that could cause the company's actual results to vary materially from the results anticipated. CB Richard Ellis undertakes no obligation to update publicly or revise any forward-looking statements. These statements are qualified by reference to the company's 1998 annual report and 10-K and its quarterly reports on 10-Q. -0-

                    CB RICHARD ELLIS SERVICES INC.
                          Operating Results
       (Dollars in thousands, except share and per-share data)
                             (Unaudited)

                            Three months ended      Nine months ended
                                 Sept. 30,               Sept. 30,
Consolidated                 1999        1998        1999        1998
Revenue:
 Leases                  $111,430     $97,763    $295,957    $252,654
 Sales                    106,695      93,770     268,704     253,463
 Property and facilities
  management fees          26,689      23,838      80,516      58,814
 Consulting and referral
  fees                     18,612      19,515      54,044      41,340
 Appraisal fees            15,018      13,983      45,334      31,661
 Loan origination and
  servicing fees           10,247      11,750      26,682      27,625
 Realty adviser fees        7,854       7,348      20,723      23,755
 Other                     10,473       5,836      25,426      14,902
 Total revenue            307,018     273,803     817,386     704,214
Costs and expenses:
 Commissions, fees and
  other incentives        137,709     119,959     351,317     315,271
 Operating, administrative
  and other               139,262     117,909     394,404     309,700
 Merger-related and
  other nonrecurring
   charges                     --          --          --      16,585
 Depreciation and
  amortization             10,001       9,337      29,963      22,086
Operating income           20,046      26,598      41,702      40,572
Interest income               791         703       1,861       1,968
Interest expense           10,294       9,628      29,670      21,359
Income before provision
 for income tax            10,543      17,673      13,893      21,181
Provision for income
 tax                        5,895       7,534       7,642      10,257
Net income               $  4,648     $10,139    $  6,251    $ 10,924
Dividend on preferred
 stock                   $     --     $    --    $     --    $ 32,273(b)
Earnings (loss)
 applicable to
 common stockholders     $  4,648     $10,139    $  6,251    $(21,349)
Basic earnings (loss)
 per share               $   0.22     $  0.49    $   0.30    $  (1.07)
Number of shares used
 in computing basic
 earnings (loss) per
 share                 21,098,757  20,692,573  21,021,512  19,917,773
Diluted earnings
 (loss) per share        $   0.22     $  0.48    $   0.30    $  (1.07)
Number of shares used
 in computing diluted
 earnings (loss) per
 share                 21,162,334  21,101,324  21,103,139  19,917,773
Adjusted diluted
 earnings per share (a)  $   0.22     $  0.48    $   0.30    $   0.96
Number of shares used
 in computing adjusted
 diluted earnings per
 share (a)             21,162,334  21,101,324  21,103,139  20,454,938
EBITDA excluding merger-
 related and other
 nonrecurring charges    $ 30,047     $35,935    $ 71,665    $ 79,243
EBITDA margin                9.8%       13.1%        8.8%       11.3%

(a) Excludes merger-related and other nonrecurring charges, net of
    tax effect and the effect of deemed dividend associated with the
    repurchase of preferred stock.
(b) Deemed dividend associated with the repurchase of preferred stock.


                    CB RICHARD ELLIS SERVICES INC.
                Operating Results by Business Segment
                        (Dollars in thousands)
                             (Unaudited)

                            Three months ended      Nine months ended
                                 Sept. 30,               Sept. 30,
                             1999        1998        1999        1998
Transaction management
Revenue:
 Leases                  $105,893     $93,433    $280,866    $240,584
 Sales                    103,890      91,107     261,510     246,780
 Other consulting and
  referral fees            15,461      12,967      40,192      33,315
 Total revenue            225,244     197,507     582,568     520,679
Costs and expenses:
 Commissions, fees and
  other incentives        119,717     105,041     305,206     278,497
 Operating, administrative
  and other                75,509      65,558     218,165     179,604
 Depreciation and
  amortization              4,826       3,981      13,615       8,959
Operating income         $ 25,192     $22,927    $ 45,582    $ 53,619
EBITDA                   $ 30,018     $26,908    $ 59,197    $ 62,578
EBITDA margin               13.3%       13.6%       10.2%       12.0%       .
EBITDA as a percent of
 consolidated EBITDA        99.9%       74.9%       82.6%       79.0%


Financial services
Revenue:
 Appraisal fees          $ 14,730     $14,389    $ 44,129    $ 31,911
 Loan origination and
  servicing fees           10,247      11,750      26,680      27,625
 Realty adviser fees        7,338       7,496      19,765      23,281
 Other                     10,632       8,654      32,125      16,351
 Total revenue             42,947      42,289     122,699      99,168
Costs and expenses:
 Commissions, fees and
  other incentives         14,858      12,437      36,966      28,140
 Operating, administrative
  and other                28,442      25,407      78,406      62,844
 Depreciation and
  amortization              2,804       3,080       9,260       7,499
Operating loss           $ (3,157)    $ 1,365    $ (1,933)   $    685
EBITDA                   $   (353)    $ 4,445    $  7,327    $  8,184
EBITDA margin               -0.8%       10.5%        6.0%        8.3%
EBITDA as a percent of
 consolidated EBITDA        -1.2%       12.4%       10.2%       10.3%


Management services
Revenue:
 Property management
  fees                   $ 19,706     $20,054    $ 60,712    $ 46,085
 Facilities management
  fees                      5,961       3,857      16,725      11,497
 Leases                     5,364       4,165      14,809      11,837
 Sales                      1,547       1,205       3,727       3,909
 Other                      6,249       4,726      16,146      11,039
 Total revenue             38,827      34,007     112,119      84,367
Costs and expenses:
 Commissions, fees and
  other incentives          3,134       2,481       9,145       8,634
 Operating, administrative
  and other                35,311      26,944      97,833      67,252
 Depreciation and
  amortization              2,371       2,276       7,088       5,628
Operating income (loss)  $ (1,989)    $ 2,306    $ (1,947)   $  2,853
EBITDA                   $    382     $ 4,582    $  5,141    $  8,481
EBITDA margin                1.0%       13.5%        4.6%       10.1%
EBITDA as a percent of
 consolidated EBITDA         1.3%       12.7%        7.2%       10.7%

Merger-related and other
 nonrecurring charges    $     --     $    --    $     --    $ 16,585

(a) Revenue is broken down by material line of business specific to
    the segment. "Other" includes revenue shown separately in the
    other segments that is immaterial to the segment.


                    CB RICHARD ELLIS SERVICES INC.
                Condensed Consolidated Balance Sheets
                        (Dollars in thousands)

                                                   Sept. 30,   Dec. 31,
                                                     1999        1998
                                                  (Unaudited)
Assets:
 Cash and cash equivalents                       $ 25,122    $ 19,551
 Other current assets                             172,597     156,853
 Property and equipment, net                       62,808      58,366
 Goodwill and other intangible assets, net        503,065     509,037
 Other assets, net                                107,567     113,085
 Total assets                                    $871,159    $856,892
Liabilities and stockholders' equity:
 Current maturities of long-term debt            $  3,846    $ 12,343
 Other current liabilities                        182,145     213,404
 Long-term debt, less current maturities          413,227     373,691
 Other long-term liabilities                       71,467      60,737
 Total liabilities                                670,685     660,175
 Minority interest                                  4,150       5,875
 Stockholders' equity:
  Contributed capital                             336,479     335,470
  Accumulated deficit                            (140,155)   (144,628)
  Total stockholders' equity                      196,324     190,842
 Total liabilities and stockholders' equity      $871,159    $856,892