Cushman & Wakefield plc — FY 2021 Form 10-K
Business context and reporting period. The registrant is a global commercial real estate services firm operating in approximately 60 countries, with about 50,000 employees and more than 400 offices. Its services include property, facilities and project management; leasing; capital markets; and valuation and other advisory services. This is the annual report for the fiscal year ended December 31, 2021, not a standalone fourth-quarter filing. Unless noted, amounts are U.S. dollars.
Key financial results
| Metric | FY 2021 | FY 2020 | Change / context |
|---|---|---|---|
| Total revenue | $9.389 billion | $7.844 billion | Up 20% reported; 18% in local currency |
| Service line fee revenue | $6.891 billion | $5.466 billion | Up 26% reported; 24% in local currency |
| Net income (loss) | $250.0 million | $(220.5) million | Returned to profitability |
| Operating income (loss) | $497.0 million | $(53.1) million | Operating margin about 5.3%, versus a loss in 2020 |
| Adjusted EBITDA | $886.4 million | $504.3 million | Up 76% reported; 73% in local currency |
| Adjusted EBITDA margin | 12.9% | 9.2% | Expanded approximately 365 basis points; calculated on fee revenue |
| Basic / diluted EPS | $1.12 / $1.10 | $(1.00) / $(1.00) | Per share |
| Net interest expense | $179.5 million | $163.8 million | Up 10% reported |
| Cash from operating activities | $549.5 million | $(38.2) million | Improved by $587.7 million |
| Capital expenditures | $53.8 million | $41.0 million | Capital-light business model |
| Cash and cash equivalents | $770.7 million | $1.075 billion | Year-end balance |
| Total debt | Approximately $3.3 billion | Approximately $3.3 billion | Net debt approximately $2.4 billion at year-end |
| Available liquidity | Approximately $1.8 billion | — | $770.7 million cash plus $1.0 billion undrawn revolver |
Material changes versus FY 2020
- Brokerage activity rebounded strongly: leasing revenue increased 45% and capital markets revenue 75%. Management said brokerage revenue exceeded pre-pandemic levels.
- Property, facilities and project management revenue rose 7%, providing a comparatively recurring revenue base. Gross contract reimbursables rose 5%; these pass-through revenues carry substantially no margin.
- Revenue increased across all three segments. Americas revenue grew 23%, EMEA 15%, and APAC 8% in reported dollars; APAC growth was 2% in local currency.
- Operating efficiency initiatives generated $125 million of gross savings in 2021. Restructuring, impairment and related charges were $44.5 million, down from $57.1 million.
- Cash generation improved, while investing cash outflow increased to $749.5 million, mainly reflecting the Greystone and WeWork investments. Financing cash outflow was $65.8 million, compared with $571.9 million of inflow in 2020, when the company issued senior secured notes.
Liquidity, debt and capital allocation
- Debt included approximately $2.6 billion outstanding under the first-lien term loan and $0.6 billion of 2020 senior secured notes. The term loan bears variable-rate interest and matures in August 2025; the notes bear 6.75% interest and mature in May 2028. The revolver was undrawn at year-end and matures in August 2023.
- The company reported compliance with debt covenants at December 31, 2021. Its debt documents restrict, among other things, additional borrowing, acquisitions, dividends and certain other transactions.
- Operating lease obligations totaled $501.8 million, including $130.4 million due within 12 months. Current and non-current tax liabilities totaled $140.4 million; management estimated $105.1 million would require settlement within one year.
- Capital allocation included a $500 million investment for a 40% interest in Greystone’s multifamily agency, FHA and servicing businesses, finalized in December 2021, and a $150 million strategic investment in WeWork. Management expected Greystone to be immediately accretive.
- The company does not expect to pay cash dividends for the foreseeable future, intending to retain earnings for operations, expansion and debt repayment.
Outlook, commentary, risks and unusual items
- Management said it had sufficient liquidity to meet anticipated funding needs for at least the next 12 months, using operating cash flow, cash on hand and, if needed, the revolver. The filing provides no quantified revenue or earnings guidance.
- Management described commercial real estate as resilient and reported recovery in all segments and service lines, while emphasizing that the pandemic and potential future variants continue to create uncertainty. Supply-chain disruption, inflation and staffing shortages could raise service costs or constrain delivery.
- Key exposures include sensitivity to economic conditions and commercial property transaction volumes; competition for brokers and other talent; client concentration and contract cancellation; cybersecurity and technology disruption; regulation, litigation and potential environmental liabilities; foreign-exchange volatility; and acquisition integration risk.
- Most term-loan debt is variable rate. The company used interest-rate swaps to hedge exposure and noted uncertainty around the transition from LIBOR to alternative reference rates.
- Adjusted EBITDA is a non-GAAP measure. Its 2021 reconciliation includes $140.4 million of acquisition-related costs and efficiency initiatives, $32.4 million of merger integration costs, and $10.4 million of net unrealized investment losses, among other adjustments. WeWork investment valuation included a $21.0 million unrealized loss, partly offset by $10.6 million in gains on other fair-value investments.
- Recorded contingent liabilities for claims totaled $126.0 million at year-end; the company said ultimate settlements could exceed recorded amounts. It also disclosed guarantees with maximum potential payments of approximately $45 million, which management considered remote. Management did not expect pending litigation to materially affect consolidated financial position or results, while acknowledging uncertainty.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. No goodwill impairment was recorded in 2021.
Important facts for investors to verify
- Whether brokerage growth and the 12.9% Adjusted EBITDA margin are sustainable as market activity and compensation costs normalize; compare adjusted results with GAAP operating income and net income.
- Greystone’s contribution to earnings and cash generation, and the performance and valuation of the WeWork investment.
- Debt-service capacity under higher interest rates, hedge coverage and terms, LIBOR transition provisions, and the company’s ability to maintain covenant compliance.
- Working-capital movements and the seasonal pattern of cash flows; 2021 operating cash flow benefited from changes in accrued compensation and other balances.
- Potential cash requirements from tax positions, claims, leases, earn-outs and other contingencies, as well as the status and renewal of the $125 million receivables securitization arrangement, which was scheduled to terminate in August 2022 unless extended.