CBRE Group, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing also provides fourth-quarter results; this is an annual report, not a standalone Q4 filing. CBRE is a global commercial real estate services and investment firm operating through Advisory Services, Global Workplace Solutions (GWS), and Real Estate Investments.
Financial performance
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Revenue | $23.826 billion | $23.894 billion | Down 0.3% |
| Operating income | $969.8 million | $1.260 billion | Down 23.0% |
| Operating margin | 4.1% | 5.3% | Down 1.2 percentage points |
| Net income attributable to CBRE | $752.0 million | $1.282 billion | Down 41.4% |
| Diluted EPS | $2.22 | $3.77 | Down 41.1% |
| Adjusted EBITDA (non-GAAP) | $1.892 billion | $2.064 billion | Down 8.3% |
| Operating cash flow | $1.831 billion | $1.223 billion | Up $607.4 million |
Net margin attributable to CBRE was 3.2%, versus 5.4% in 2019; adjusted EBITDA margin was 7.9%, versus 8.6%. Cash and cash equivalents were $1.896 billion at year-end, compared with $971.8 million a year earlier. Total assets were $18.039 billion and total liabilities were $10.533 billion.
Segment revenue and adjusted EBITDA: Advisory Services revenue was $7.699 billion, down 15.1%, and adjusted EBITDA was $1.144 billion, down from $1.466 billion. GWS revenue was $15.296 billion, up 8.0%, and adjusted EBITDA was $516.8 million, up from $424.0 million. Real Estate Investments revenue was $831.5 million, up 25.9%, and adjusted EBITDA was $231.7 million, up from $174.0 million. Adjusted EBITDA is a non-GAAP measure.
FY2020 fourth-quarter revenue was $6.911 billion, operating income $443.9 million, net income attributable to CBRE $313.8 million, and diluted EPS $0.93. In Q4 2019, these were $7.119 billion, $513.8 million, $637.6 million, and $1.87, respectively; the prior-year quarter included a significant tax benefit.
Cash flow, debt and liquidity
- Operating cash flow increased to $1.831 billion, with management citing improved working capital, including lower receivables and lower net income tax payments; net income was lower. Investing cash outflow was $341.6 million and financing cash outflow was $625.3 million.
- Year-end long-term debt, net of current maturities, was $1.380 billion. Short-term borrowings were $1.389 billion, primarily warehouse borrowings secured by related receivables and recourse only to CBRE Capital Markets. Separately, CBRE reported $1.4 billion of total debt excluding warehouse lines and non-recourse real estate notes.
- CBRE redeemed $425 million of 5.25% senior notes in December 2020 using cash on hand, incurring a $75.6 million charge, including a $73.6 million premium. Net interest expense was $67.8 million, down from $85.8 million.
- CBRE reported $2.8 billion available under its revolving credit facility and $1.8 billion of cash available for general corporate use at year-end. Management expected operating cash flow and the revolver to meet anticipated requirements for at least the next 12 months, absent extraordinary events or a large strategic acquisition.
Material changes and unusual items
- COVID-19 sharply reduced property sales and leasing activity. Advisory sales revenue fell 22.2% and leasing revenue fell 26.5%. Industrial leasing was comparatively resilient and grew strongly in Q4, while sales activity improved in the U.S. and certain North Asian markets but remained below pre-pandemic levels.
- Contractual GWS revenue grew, led by facilities management. Real Estate Investments growth reflected the Telford acquisition and higher investment management fees; assets under management rose to $122.7 billion from $112.9 billion.
- FY2020 included $88.7 million of non-cash impairments, including $25.0 million of goodwill impairment. The prior year included $89.8 million of intangible impairment. CBRE also incurred $155.1 million of transformation costs and $37.6 million of workforce optimization costs, which are excluded from adjusted EBITDA.
- The effective tax rate was 22.1%, compared with 5.1% in 2019. The prior-year rate benefited from a $277.2 million tax benefit related to legal entity restructuring.
- CBRE sponsored a SPAC in 2020 and made a $50 million investment in flexible-workspace provider Industrious. In February 2021, it invested an additional approximately $150 million and reported a 35% interest, with agreements to increase its interest to 40%; the filing said Hana’s transfer was anticipated in Q2 2021.
Outlook, risks and contingencies
The filing provides no quantified earnings or revenue guidance. Management expected COVID-19 effects to continue into 2021 and described the operating environment and pace of global commercial real estate recovery as uncertain. Key sensitivities include transaction volumes, real estate values and rents, credit availability, client demand for outsourcing, foreign exchange, and the effects of remote work on office demand.
Material risks include potential GSE loan-forbearance advances and loss-sharing or repurchase obligations; real estate development guarantees and co-investment commitments; litigation and environmental exposure; cybersecurity and data-protection risks; and the possibility of further asset impairment. The company had $168.5 million of gross unrecognized tax benefits and $54.8 million remaining on its federal transition-tax liability. Management stated that pending litigation losses above recorded accruals were not expected to be significant, while noting litigation uncertainty.
Controls matter: Management and the auditor concluded that internal control over financial reporting was ineffective at December 31, 2020 due to material weaknesses in GWS EMEA, including control deficiencies involving revenue and receivables, reconciliations, journal entries, IT controls, staffing and oversight. The auditor issued an adverse opinion on internal controls but an unqualified opinion on the financial statements. Remediation was ongoing, with completion intended in 2021 but not assured.
Investor verification priorities
- Track remediation and independent testing of the GWS EMEA material weaknesses, and whether disclosure controls improve.
- Assess whether Advisory sales and leasing volumes recover, and whether GWS contractual growth can offset transaction weakness.
- Reconcile cash generation with working-capital movements and distinguish corporate debt from warehouse and non-recourse real estate borrowings.
- Monitor GSE forbearance exposure, loan loss-sharing and repurchase obligations, and related liquidity needs.
- Review transformation costs, impairment assumptions, tax positions, development guarantees and the funding and terms of the Industrious/Hana transactions.