CBRE Group, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. CBRE provides commercial real estate services and investment management through Advisory Services, Global Workplace Solutions and Real Estate Investments.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $7.77bn | $6.46bn | $15.10bn | $12.40bn |
| Operating income | $516.9m | $366.5m | $893.9m | $635.6m |
| Net income attributable to CBRE | $487.3m | $442.6m | $879.6m | $708.8m |
| Diluted EPS | $1.48 | $1.30 | $2.64 | $2.09 |
| Operating cash flow | Not separately provided | Not separately provided | $60.9m | $227.1m |
- Q2 revenue increased 20.3% year over year; six-month revenue rose 21.8%. Revenue growth spanned all three reportable segments, with facilities and project management, leasing and sales among the contributors.
- Q2 operating margin on reported revenue was approximately 6.7%, compared with 5.7% a year earlier. Six-month margin was approximately 5.9%, versus 5.1%.
- Q2 net income attributable to CBRE rose about 10.1%; diluted EPS increased about 13.8%, supported in part by fewer weighted-average shares following repurchases. Six-month net income attributable to CBRE grew about 24.1%.
- Q2 included a $177.2m gain on disposition of real estate, compared with $0.9m in the prior-year quarter. The gain materially supported operating income. Equity income from unconsolidated subsidiaries declined to $119.2m from $212.1m, principally reflecting lower Altus fair-value gains and lower property-sale earnings.
- Q2 segment operating profit increased to $520.7m in Advisory Services, $218.3m in Global Workplace Solutions and $274.5m in Real Estate Investments. These are company-defined non-GAAP measures; CBRE’s definition includes specified adjustments.
- Cash and cash equivalents were $1.19bn at June 30, down from $2.43bn at year-end 2021. Six-month operating cash flow was $60.9m, with management citing working-capital outflows, including compensation and bonus payments, tax-payment timing and slower receivables collection.
- Long-term debt, net of current maturities, was $1.50bn; short-term borrowings were $1.37bn, including $1.02bn of warehouse-line borrowings and $310m on the revolving facility. CBRE reported $3.0bn available under revolving credit facilities and $1.2bn of cash available for general corporate use. Covenant leverage was 0.34x and interest coverage 48.81x.
Material changes and unusual items
- Global Workplace Solutions revenue benefited from the full-period contribution of Turner & Townsend, acquired in November 2021; Q2 included approximately $338m of its revenue. Management attributed additional growth to project management and facilities management.
- Advisory Services benefited from recovery in sales and leasing activity. Q2 segment revenue increased 21.1%; leasing revenue rose approximately 40% and sales revenue approximately 17%.
- Real Estate Investments revenue increased 13.9% in Q2, but results reflected differing timing and structure of consolidated versus unconsolidated property transactions. Assets under management were $146.9bn at June 30, compared with $141.9bn at year-end 2021.
- CBRE recorded $26.4m of non-cash goodwill impairment for Telford Homes, citing inflation-driven construction, materials and labor costs and lower expected profitability. First-quarter impairments included $10.4m related to exiting most of its Russia Advisory Services business.
- Following Telford Homes’ UK Fire Safety Pledge, CBRE accrued $37.5m for remediation-related exposure. The company said it could not reasonably estimate costs above the amount accrued and that its potential liability could be material.
- The six-month effective tax rate was 11.7%, down from 22.7%, mainly due to a discrete tax benefit from legal-entity restructuring. The Q2 rate was 19.8%, versus 23.1%.
- CBRE repurchased $993.8m of stock during the first half of 2022. Financing cash flow was a $760.5m outflow, versus a $379.0m inflow in the prior-year period.
Outlook, risks and controls
- No specific earnings or revenue guidance is provided in the filing. Management said operating cash flow and revolving credit availability should meet anticipated cash requirements for the foreseeable future and at least the next 12 months, absent extraordinary events or a large strategic acquisition. Expected 2022 capital expenditures were up to approximately $292m, net of tenant concessions.
- Management cited potential pressure from higher interest rates, inflation, weaker economic activity, reduced real estate demand or values, tighter credit, currency movements, geopolitical events and continuing changes in office utilization. Approximately 43.3% of first-half revenue was transacted in foreign currencies.
- CBRE had material weaknesses in internal control over financial reporting related to its Global Workplace Solutions EMEA business. Management concluded disclosure controls were not effective as of June 30, 2022; remediation was ongoing, and the weaknesses were not yet considered fully remediated. Management nevertheless stated the financial statements fairly present the company’s results in all material respects.
- Other exposures include Fannie Mae loan-loss sharing arrangements, development guarantees and litigation. CBRE stated excess litigation losses were not expected to be significant, while noting litigation outcomes are uncertain.
Key facts for investors to verify
- How much of reported earnings growth depends on real estate disposition gains, discrete tax benefits and other adjustments, versus recurring operating performance.
- Whether working-capital outflows reverse and operating cash generation supports continued investment and share repurchases.
- The eventual scope and cost of Telford fire-safety remediation, and whether inflation continues to affect Telford project economics.
- Progress in remediating the Global Workplace Solutions EMEA control weaknesses.
- How interest rates, foreign exchange, commercial real estate transaction activity and Turner & Townsend integration affect future revenue and margins.
- Whether debt-facility and warehouse-line maturities, covenant headroom and the stated liquidity remain adequate as market conditions evolve.