GAV Grubb & Ellis Realty Advisors,

CHICAGO, May 14 /PRNewswire-FirstCall/ -- Grubb & Ellis Company (NYSE:GBE), a leading provider of integrated real estate services, today reported fiscal 2007 third quarter revenue of $114.9 million, an increase of 5.2 percent from revenue of $109.2 million in the year earlier period. The Company reported a net loss of $3.1 million, or ($0.12) per diluted share, compared with a net loss of $2.7 million, or ($0.29) per diluted share, in the year ago period. "We are beginning to see the positive impact associated with the strategic initiatives outlined in our five-year growth plan," said Mark E. Rose, Chief Executive Officer. "During the third fiscal quarter, each of our initiatives made solid progress with our investments in people and services contributing directly to our revenue growth. In addition, we believe that we made significant progress toward achieving the launch of Grubb & Ellis Realty Advisors, which is one of our top objectives." For the first nine months of fiscal 2007, the Company reported revenue of $378.0 million, an increase of 2.0 percent compared with revenue of $370.6 million in the year ago period. The Company reported a net loss to common stockholders of $103.2 million, or ($4.06) per diluted share, for the fiscal 2007 nine-month period, compared with net income of $4.4 million, or $0.34 per diluted share, in the comparable period a year earlier. The loss includes 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 in July 2006 as well as a gain from the Company's sale of marketable securities in the second fiscal quarter. Excluding the $105.3 million charge to earnings attributable to the preferred stock exchange, of which $95.2 million was non-cash, and the $2.3 million securities sale gain, net of taxes, the Company reported a net loss of $294,000, or ($0.01) per diluted share. Fiscal 2007 Third Quarter Highlights -- For the fourth consecutive quarter, the Company reported an improvement in its year-over-year transaction commission expense rate, a reflection of the Company's efforts to align its compensation structure with market rates. -- Grubb & Ellis continued to aggressively recruit top talent, adding 43 brokers during the quarter, including seasoned professionals in Boston, Chicago, Detroit, New Jersey, New York and Southern California. In addition, consistent with our plan to reposition the Company, 51 brokers (82 percent of which generated less than $200,000 in annual commissions) transitioned out of the business during the quarter. -- In addition to investing in its growth, the Company managed expenses, with selling, general and administrative costs increasing only 3.5 percent for the quarter over the year ago period, which represents an improvement over prior quarters. -- Grubb & Ellis successfully added Hallmark Cards, Inc., and Masco Corporation to its growing list of multi-service client relationships. -- As part of its strategy to aggregate and warehouse properties to facilitate the launch of its investment management affiliate, Grubb & Ellis Realty Advisors (AMEX:GAV), the Company completed the acquisitions of office buildings located in suburban Chicago and Dallas, and entered into a contract to acquire a third property in Danbury, Conn. for an aggregate purchase price of $122.2 million. The aggregate value of the three properties is sufficient to constitute Realty Advisors' business combination, if the purchase of such properties from the Company is approved by Realty Advisors' board of directors and stockholders. Although, the Company and Realty Advisors do not have any current arrangement or agreement with respect to the purchase of any properties by Realty Advisors and Realty Advisors does not have any obligation to purchase any of the properties from the Company, the Company is currently engaged in active discussions with Realty Advisors concerning the sale of the properties to Realty Advisors. "The trends we are seeing in several of our new initiatives remain encouraging," said Rich Pehlke, Executive Vice President and Chief Financial Officer. "Grubb & Ellis is in a position to leverage all of its strengths, in particular its people, to achieve growth, increased productivity and higher profit margins." Financial Results EBITDA (earnings before interest, taxes, depreciation and amortization) was a negative $2.6 million in the third quarter, compared with a negative $2.1 million in the year earlier period. The lower EBITDA results were expected as the Company realized the cost impact of its strategy to invest in people and its strategic growth plan. For the first nine months of fiscal 2007, EBITDA was $10.0 million, compared with $10.9 million in the same period a year ago. The year-to-date fiscal 2007 EBITDA results include a $3.8 million gain from the sale of marketable securities, which consisted of the Company's investment in LoopNet common stock that it originally acquired in 1999. Cost of services, which are primarily variable in nature, totaled 75.4 percent of revenue in the third fiscal quarter, compared with 74.9 percent in the year earlier period. For the first nine months of fiscal 2007, expenses were 75.0 percent of total revenue, down from 75.5 percent in the comparable fiscal 2006 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. The Company's gross margin percentage declined slightly to 24.6 percent in the fiscal 2007 third quarter from 25.1 percent in the same period a year ago due to higher salaries and direct costs related to the Company's investment strategy, including the staffing of a project management business. General and administrative costs, including salaries and wages, were $30.9 million in the third fiscal quarter, up 4.8 percent from $29.5 million reported during the same period in 2006. For the first nine months of the fiscal year, general and administrative costs totaled $88.4 million, compared with $80.0 million during the first nine months of fiscal 2006. Salaries and wages was the key factor driving this higher expense. The third fiscal quarter marked the first period in which salaries and wages included the full impact of the key non-brokerage hires made in 2006. Over the past year, the Company expanded its Transaction Services management structure to include an Eastern Region President and added new leaders in New York and Washington, D.C. Transaction Services Transaction Services fees, including commission, valuation and consulting revenue, increased 5.1 percent to $63.2 million in the third fiscal quarter, from $60.1 million in the year earlier period. For the first nine months of fiscal 2007, Transaction Services fees were $226.8 million, compared with $224.9 million earned during the first nine months of fiscal 2006. These results reflect the ongoing transition taking place in the business as the Company focuses on broker productivity and recruiting experienced, high- quality brokerage professionals. 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 third quarter fees totaled $51.8 million, a 5.4 percent increase from the $49.1 million generated in the third fiscal quarter of 2006. Fees in the first nine months of fiscal 2007 totaled $151.3 million, compared with $145.7 million during the same period a year earlier. The year-over-year increases reflect revenue from the Company's newly created project management business, the organic growth of the property and facilities businesses and continuing focus on improving the quality of its management portfolio. Conference Call & Webcast The company's fiscal 2007 third 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 888.396.2356 for domestic callers and 617.847.8709 for international callers. The conference call ID number is 29443940. An audio replay will be available beginning today at 12 p.m. CT until 5 p.m. CT on Mon. May 21, and can be accessed by dialing: 888.286.8010, and entering conference call ID 54435109. 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 the Company's 10-Qs for the fiscal quarters ended September 30, 2006 and December 31, 2006 and in the Company's other filings with the Securities and Exchange Commission. 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. GRUBB & ELLIS COMPANY Condensed Consolidated Statements of Operations (in thousands, except share data) (unaudited) Three Months Ended Nine Months Ended March 31, March 31, 2007 2006 2007 2006 Services revenue: Transaction fees $63,181 $60,121 $226,774 $224,856 Management fees 51,767 49,116 151,262 145,695 Total services revenue 114,948 109,237 378,036 370,551 Costs of services: Transaction commissions 38,148 36,466 143,179 143,501 Reimbursable salaries, wages and benefits 38,500 36,619 111,172 108,321 Salaries, wages, benefits and other direct costs 10,032 8,783 29,011 27,840 Total costs of services 86,680 81,868 283,362 279,662 General and administrative costs: Salaries, wages and benefits 16,940 16,005 48,110 43,331 Selling, general and administrative 13,933 13,462 40,316 36,622 Depreciation and amortization 2,423 1,457 6,411 5,090 Total costs 119,976 112,792 378,199 364,705 Operating income (loss) (5,028) (3,555) (163) 5,846 Other income and expenses Gain on sale of marketable equity securities available for sale - - 3,765 - Interest income 264 288 856 850 Interest expense (99) (582) (799) (1,684) Income (loss) before income taxes (4,863) (3,849) 3,659 5,012 Income tax benefit (provision) 1,794 1,101 (1,959) (594) Income (loss) before income from investment in affiliate (3,069) (2,748) 1,700 4,418 Income from investment in affiliate 135 - 454 - Income (loss) from continuing operations (2,934) (2,748) 2,154 4,418 Loss from operations of real estate held for sale, net of taxes of $96 at March 31, 2007 (151) - (151) - Net income (loss) (3,085) (2,748) 2,003 4,418 Preferred stock redemption - - (105,267) - Net income (loss) to common stockholders $(3,085) $(2,748) $(103,264) $4,418 Earnings per share - diluted Income (loss) from continuing operations to common stockholders per share $(0.11) $(0.29) $(4.05) $0.34 Net income (loss) to common stockholders per share $(0.12) $(0.29) $(4.06) $0.34 Weighted average shares 25,839,360 9,489,536 25,436,651 12,758,619 outstanding (diluted) Net income (loss) $(3,085) $(2,748) $2,003 $4,418 Depreciation and amortization 2,423 1,457 6,411 5,090 Interest, net (165) 294 (57) 834 Income tax (benefit) provision (1,794) (1,101) 1,959 594 Income from investment in affiliate (135) - (454) - Loss from operations of real estate held for sale 151 - 151 - EBITDA(1) $(2,605) $(2,098) $10,013 $10,936 (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 fiscal periods ended March 31, 2007 and 2006. GRUBB & ELLIS COMPANY Selected Condensed Consolidated Balance Sheet Data (in thousands) (unaudited) March 31, June 30, 2007 2006 Assets Cash and cash equivalents $4,638 $16,613 Services fees receivable, net 13,618 12,528 Other receivables 6,300 5,185 Professional service contracts, net 6,316 3,914 Prepaid and other current assets 3,230 3,442 Real estate held for sale 43,223 - Deferred tax assets, net 3,294 1,182 Total current assets 80,619 42,864 Equipment, software and leasehold improvements, net 11,465 9,908 Goodwill, net 24,763 24,763 Investment in affiliate 5,145 2,945 Professional service contracts, net 11,030 6,028 Other assets 2,420 7,715 Total assets $135,442 $94,223 Accounts payable $4,332 $4,112 Commissions payable 6,704 6,699 Accrued compensation and employee benefits 10,748 11,931 Liabilities related to real estate held for sale 43,037 - Other accrued expenses 9,457 10,129 Total current liabilities 74,278 32,871 Credit facility debt 3,954 40,000 Accrued claims and settlements 5,008 4,396 Other liabilities 6,216 5,430 Total liabilities 89,456 82,697 Total stockholders' equity 45,986 11,526 Total liabilities and stockholders' equity $135,442 $94,223 DATASOURCE: Grubb & Ellis Company CONTACT: Janice McDill of Grubb & Ellis Company, +1-312-698-6707, Web site: http://www.grubb-ellis.com/ Company News On-Call: http://www.prnewswire.com/comp/136726.html

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