Grubb & Ellis Company Reports Fiscal 2007 First Quarter Results

CHICAGO, Nov. 7 /PRNewswire-FirstCall/ -- Grubb & Ellis Company , a leading provider of integrated real estate services, today reported fiscal 2007 first quarter revenue of $117.3 million, a decrease of 2.9 percent from revenue of $120.7 million in the year ago period. Net loss to common stockholders for the first fiscal quarter was $106.2 million, or ($4.30) per diluted share, compared with net income of $2.2 million, or $0.14 per diluted share in the year earlier period. As previously reported, first quarter earnings were negatively impacted by the GAAP treatment of the exchange of the Company's preferred shares for common stock in conjunction with the 10-million-share public equity offering that closed July 6. Excluding the $105.3 million charge to earnings attributable to the preferred stock exchange, of which $95.2 million was non-cash, the net loss for the first fiscal quarter was $1.0 million, or ($0.04) per diluted share.

"Our first quarter financial performance reflects a company in the early stages of its repositioning and investment phase, specifically as a result of shifts we have made to both our people and our breadth of services, and the time it takes for those changes to translate into meaningful financial results. As we have previously stated, we expect to see fluctuations in revenue over the next several quarters as we continue to make the investments necessary to position Grubb & Ellis for long-term success," said Mark E. Rose, Chief Executive Officer of Grubb & Ellis Company. "We are encouraged by the second consecutive quarter of margin improvement and that Washington, D.C., New York, Chicago and Atlanta -- all offices in which we have made considerable investments -- performed well in the first quarter."

Rose added, "We remain confident in our business model and our ability to execute the growth strategies outlined in our five-year plan."

He noted that the Company continued to focus and execute on its four primary strategic key initiatives during the first quarter. The initiatives are to raise client service to a new level by delivering innovative, integrated solutions; expand the Company's domestic presence; broaden service lines, including capital markets capabilities; and build a sustainable global platform.

Fiscal 2007 First Quarter Highlights -- Added national corporate finance capabilities to provide a full range of corporate financing solutions to corporate clients. -- Smurfit-Stone named Grubb & Ellis its exclusive provider of real estate lease administration and transaction services in North America, bringing the number of multi-service wins during calendar 2006 to five. -- Hired by Sterling American Property Inc., and Greenville Partners, LLC to manage and lease 10 Penn Center, one of Philadelphia's signature Class A office properties. This win was a result of the Company's focus on building its agency leasing business. -- Awarded disposition of SOMA Square, a $50-million mixed-use property in downtown San Francisco. -- Corporate Services Group won a strategic consulting assignment from the City of San Diego to recommend changes to the city's practices of managing real estate. -- Closed public offering that raised proceeds of $44.4 million for the Company, net of discounts and commissions.

"We are investing for our future in a manner that supports the tenets of our growth strategy," said Shelby Sherard, Executive Vice President and Chief Financial Officer. "Grubb & Ellis will continue to seek opportunities for operational efficiencies with a focus on increased productivity."

Financial Results

EBITDA (earnings before interest, taxes, depreciation and amortization) was $0.8 million in the first fiscal quarter of 2007, compared with $4.0 million in the year earlier period. As anticipated, the lower year-over- year net income and EBITDA results are due in large part to the Company's investment in its growth initiatives and people.

In the first quarter, cost of services was 75.1 percent of total revenue, down from 75.8 percent in the year earlier period. These costs are primarily comprised of transaction commission expenses, which are incurred as a percentage of the related transaction revenue, and reimbursable salaries, wages and benefits that are fully offset by management services fees received from Grubb & Ellis clients. For the second consecutive quarter the Company recognized an overall decline in transaction commission expenses as a percentage of transaction services fees. Gross margin for the first quarter of fiscal 2007 improved to 24.9 percent, up from 24.2 percent in the same period a year ago.

General and administrative costs, including salaries and wages, were $30.3 million in the fiscal first quarter, up from $26.6 million reported during the same period in 2005. In the first quarter of fiscal 2007, salaries and wages increased 10.8 percent from the same period a year ago, a result of continued investment in professionals, including key business leaders in New York, to build and expand strategic offices and core services.

Transaction Services

Transaction Services fees, including commission, valuation and consulting revenue, declined 4.6 percent to $69.8 million in the first quarter, from $73.1 million in the year earlier period. The decline can be attributed to the changing mix of the Company's brokerage sales force as management continues to focus on broker productivity.

At Sept. 30, Grubb & Ellis had 903 brokers, down slightly from 906 at June 30, 2006. The Company experienced strong recruiting momentum in October, including the addition of four top-performing brokers from GVA Advantis in Bethesda, Md., a highly regarded four-person team in Denver, two senior-level brokers in New York City and six brokers in Chicago.

Management Services

Management Services fees include reimbursed salaries, wages and benefits, and fees from property management and facilities outsourcing services, along with business services fees. Fiscal first quarter fees totaled $47.5 million, flat with the $47.6 million generated in the first fiscal quarter of 2006. The segment is focused on improving the quality of its management portfolio by cross-selling its services to existing clients and focusing on higher-margin business.

Outlook

"We continue to put the pieces in place that will allow us to deliver on our long-term strategic vision," Rose said. "As we reshape Grubb & Ellis, we will opportunistically fill in our service, management and market gaps with an eye toward creating a company with the tools and leadership necessary to drive revenue and bring margins in line with our competitors. Although we still expect our results to fluctuate in the near term, we are encouraged by the top-line growth we've seen in those markets in which we have made investments. Going forward, we intend to further leverage Grubb & Ellis' extensive platform and powerful brand recognition to drive higher revenue and earnings results."

Conference Call & Webcast

The company's fiscal 2007 first quarter earnings conference call will be held today at 10 a.m. CT. A live webcast will be accessible through the Investor Relations section of the Company's Web site at http://www.grubb-ellis.com/ . The direct dial-in number for the conference call is 1.888.873.4896 for domestic callers and 1.617.213.8850 for international callers. The conference call ID number is 23558627. An audio replay will be available beginning today at 12 p.m. CT until 5 p.m. CT on Tue. Nov. 14, and can be accessed by dialing: 1.888.286.8010, and entering conference call ID 67965165. In addition, the conference call audio will be archived on the company's Web site following the call.

Grubb & Ellis Company

Grubb & Ellis Company is one of the world's leading full-service commercial real estate organizations, providing a complete range of transaction, management and consulting services. By leveraging local expertise with its global reach, Grubb & Ellis offers innovative, customized solutions and seamless service to owners, corporate occupants and investors throughout the globe. For more information, visit the Company's Web site at http://www.grubb-ellis.com/ .

Forward-looking Statement

Except for historical information, statements included in this announcement may constitute forward-looking statements regarding, among other things, future revenue growth, market trends, new business opportunities, new hires, results of operation, changes in expense levels and profitability and effects on the Company of changes in the real estate markets. These statements involve known and unknown risks, uncertainties and other factors that may cause the Company's actual results and performance in future periods to be materially different from any future results or performance suggested by these statements. Such factors which could adversely affect the Company's ability to obtain these results include, among other things: (i) the volume of sales and leasing transactions and prices for real estate in the real estate markets generally; (ii) a general or regional economic downturn that could create a recession in the real estate markets; (iii) the Company's debt level and its ability to make interest and principal payments; (iv) an increase in expenses related to new initiatives, investments in people, technology and service improvements; (v) the success of new initiatives and investments; and (vi) other factors described in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2006 and in the Company's other filings with the Securities and Exchange Commission (including the Registration Statement on Form S-1, as amended, registration number 331-133659).

Non-GAAP Financial Information

In addition to the results reported in accordance with U.S. generally accepted accounting principles (GAAP) included within this press release, Grubb & Ellis has provided certain information, which includes non-GAAP financial measures. Such information is reconciled to its closest GAAP measure in accordance with the Securities and Exchange Commission rules and is included in the attached supplemental data. Management believes that these non-GAAP financial measures are useful to both management and its stockholders in their analysis of the Company's business and operating performance. Management also uses this information for operational planning and decision- making purposes. Non-GAAP financial measures are not and should not be considered a substitute for any GAAP measure. Additionally, non-GAAP financial measures as presented by Grubb & Ellis may not be comparable to similarly titled measures reported by other companies.

. TABLES FOLLOW . GRUBB & ELLIS COMPANY Condensed Consolidated Statements of Income (in thousands, except share data) (unaudited) Three Months Ended September 30, 2006 2005 Services revenue Transaction fees $69,755 $73,133 Management fees, including reimbursed salaries, wages and benefits 47,506 47,604 Total services revenue 117,261 120,737 Costs of services Transaction commissions 44,151 47,073 Reimbursable salaries, wages and benefits 34,966 34,932 Salaries, wages and benefits and other direct costs 8,978 9,560 Total costs of services 88,095 91,565 General and administrative costs Salaries, wages and benefits 15,824 14,278 Selling, general and administrative 12,565 10,893 Depreciation and amortization 1,940 1,478 Total costs 118,424 118,214 Total operating income (loss) (1,163) 2,523 Other income and expenses Interest income 321 224 Interest expense (530) (538) Income (loss) before income taxes (1,372) 2,209 Benefit (provision) for income taxes 251 (34) Net income (loss) before equity method investment (1,121) 2,175 Income from equity method investment 150 - Net income (loss) (971) 2,175 Preferred stock redemption (105,267) - Net income (loss) to common stockholders $(106,238) $2,175 Weighted average shares outstanding (diluted) 24,698,879 15,386,986 Earnings per share - diluted $(4.30) $0.14 Net income (loss) $(971) $2,175 Depreciation and amortization 1,940 1,478 Interest, net 209 314 Income tax (benefit) provision (251) 34 Minority joint venture interest (150) - EBITDA(1) $777 $4,001 (1) EBITDA represents earnings before interest, taxes, depreciation and amortization.Management believes that EBITDA is relevant because it assists investors in evaluating the Company's ability to service its debt by providing a commonly used measure of cash available to pay interest. EBITDA should not be considered as an alternative to net income (loss) or cash flows from operating activities (which are determined in accordance with GAAP), as an indicator of operating performance or a measure of liquidity. EBITDA also facilitates comparison of the Company's results of operations with those companies having different capital structures. Other companies may define EBITDA differently, and, as a result, such measures may not be comparable to the Company's EBITDA. Grubb & Ellis Company financial statements are reported for first quarters ended September 30, 2006 and September 30, 2005. GRUBB & ELLIS COMPANY Condensed Consolidated Balance Sheets (in thousands) (unaudited) Sept 30, June 30, 2006 2006 Assets Cash and cash equivalents $15,145 $16,613 Services fees receivable, net 11,588 12,528 Other receivables 3,163 5,185 Professional service contracts, net 4,198 3,914 Prepaid and other current assets 4,568 3,442 Deferred tax assets, net 2,256 1,182 Total current assets 40,918 42,864 Equipment, software and leasehold improvements, net 9,455 9,908 Goodwill, net 24,763 24,763 Equity method investment 4,608 2,945 Professional service contracts, net 5,748 6,028 Other assets 5,113 7,715 Total assets $90,605 $94,223 Liabilities and Stockholders' Equity Accounts payable $4,468 $4,112 Commissions payable 6,981 6,699 Accrued compensation and employee benefits 14,486 11,931 Deferred commissions payable 3,119 1,012 Other accrued expenses 8,536 9,117 Total current liabilities 37,590 32,871 Credit facility debt - 40,000 Accrued claims and settlements 4,460 4,396 Other liabilities 5,294 5,430 Total liabilities 47,344 82,697 Total stockholders' equity 43,261 11,526 Total liabilities and stockholders' equity $90,605 $94,223