CBRE CBRE Group
Price fell 11% but still trades about 26% above value; cyclical fee earner, not a REIT, so stay patient.
The story
CBRE is not a REIT. It is the largest commercial real estate services and investment manager, earning fees from leasing, capital markets, facilities and project management, and development. Its 'FFO' is really cash earnings plus amortization of acquired intangibles, not real-estate depreciation. Revenue rose about 8% to 43.64B, but operating margin keeps shrinking (4.3% to 3.2%) as low-margin outsourcing grows. Rate exposure comes through transaction volumes rather than its balance sheet: capital markets and leasing activity rebound when rates fall and stall when they don't.
I raised Y1 growth slightly from 7% to 7.5%. Revenue grew about 8% while margins compressed further, so 7.5% matches that rather than chasing the 9.6% 5-year CAGR. The AFFO ratio stays at 0.80 because capex of 0.42B against FFO of 2.11B gives exactly 0.80. Beta stays at 1.2, above the 0.9 REIT anchor, because transaction fees are cyclical and the low-margin model adds operating leverage. Terminal growth stays at 3.4%, below the 5.24% risk-free rate.
Value drivers
| AFFO growth (Y1) | 7.5% |
| Terminal AFFO growth | 3.4% |
| AFFO / FFO ratio | 80.0% |
| Beta | 1.20 |
| Failure probability | 2.0% |
| Cost of equity | 10.6% |
Valuation bridge
| PV of AFFO (explicit) | 13.59B |
| PV of terminal value | 14.93B |
| Equity value | 27.95B |
| ÷ shares → per share | $96.51 |
Projected AFFO
| Yr | FFO | AFFO | Growth | PV |
|---|---|---|---|---|
| 1 | 2.27B | 1.82B | 7.5% | 1.64B |
| 2 | 2.43B | 1.95B | 7.0% | 1.59B |
| 3 | 2.59B | 2.07B | 6.6% | 1.53B |
| 4 | 2.75B | 2.20B | 6.1% | 1.47B |
| 5 | 2.91B | 2.33B | 5.7% | 1.40B |
| 6 | 3.06B | 2.45B | 5.2% | 1.33B |
| 7 | 3.20B | 2.56B | 4.8% | 1.26B |
| 8 | 3.34B | 2.67B | 4.3% | 1.19B |
| 9 | 3.47B | 2.78B | 3.9% | 1.12B |
| 10 | 3.59B | 2.87B | 3.4% | 1.05B |
Key risks
- Higher-for-longer rates suppress capital markets and leasing transaction fees
- Continued margin dilution from low-margin facilities and project management mix
- Office market weakness and tenant credit stress hitting leasing and the development/investment segment
Catalysts
- Rate cuts reviving commercial real estate transaction volumes and capital markets fees
- Margin recovery as resilient outsourcing scales and operating leverage returns