CBRE Group, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. CBRE provides commercial real estate services and investment management through Advisory Services, Global Workplace Solutions (GWS), and Real Estate Investments (REI). Segment reporting was reorganized effective January 1, 2021; prior-period segment results were recast.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $6.46bn | $5.38bn | $12.40bn | $11.27bn |
| Operating income | $366.5m | $94.2m | $635.6m | $314.5m |
| Net income attributable to CBRE | $442.6m | $81.9m | $708.8m | $254.1m |
| Diluted EPS | $1.30 | $0.24 | $2.09 | $0.75 |
| Adjusted EBITDA (non-GAAP) | $718.4m | $267.3m | $1.21bn | $697.7m |
Q2 revenue rose 20.0% year over year; operating margin was 5.7% versus 1.7%, and net margin was 6.9% versus 1.5%. For the first half, revenue increased 10.0%. Cost of revenue fell as a share of revenue, while operating, administrative and other expenses rose as incentive and stock compensation increased with improved results.
- Segment trends, Q2: Advisory Services revenue increased 46.9% to $2.14bn and segment operating profit increased to $464.3m from $202.1m, led by sales and leasing recovery. GWS revenue rose 8.3% to $4.08bn and segment operating profit increased to $170.2m from $127.5m, led by contractual facilities management growth. REI revenue rose 50.6% to $243.4m; segment operating profit was $153.5m versus $24.7m.
- Q2 equity income from unconsolidated subsidiaries was $212.1m, up from $19.5m, primarily reflecting property-sale gains and higher earnings from certain investments. This was a substantial contributor to reported earnings growth.
- Assets under management in REI were $129.1bn at June 30, 2021, compared with $122.7bn at year-end 2020.
Cash flow, liquidity and debt
- First-half operating cash flow was $227.1m versus $24.2m a year earlier. Investing cash outflow was $344.5m; financing cash inflow was $379.0m. Cash and restricted cash totaled $2.26bn at June 30, 2021, including $2.14bn of cash and cash equivalents.
- Long-term debt, net of current maturities, was $1.85bn, up from $1.38bn at December 31, 2020, mainly following issuance of $500m of 2.500% senior notes due 2031. The company reported $2.8bn available under its revolving credit facility and no revolver borrowings at quarter-end. A $350m commitment increase became effective July 9, after quarter-end.
- Warehouse lines of credit were $1.10bn, funding mortgage loans generally committed for purchase or securitization; related warehouse receivables were $1.12bn. The company reported a 39.78x trailing-twelve-month interest coverage ratio and covenant leverage of (0.02)x.
- Management expected 2021 capital expenditures of $200m–$240m, net of tenant concessions. It said operating cash flow and the revolving facility should cover anticipated needs for at least the next 12 months, absent extraordinary events or a large strategic acquisition.
Outlook, risks and unusual items
- The filing provides no specific earnings or revenue guidance. Management described improving conditions in some markets as vaccination and economic activity progressed, but noted that COVID-19, emerging variants, and slower vaccine distribution continued to affect operations. Most workers remained out of offices, and occupier confidence in long-term office leasing had not returned to pre-pandemic levels.
- Key sensitivities include commercial real estate transaction volumes, economic and credit conditions, interest rates, currency movements, client outsourcing and spending decisions, acquisition integration, and COVID-related disruption. Historically, revenue and cash flow are seasonal and generally strongest in the fourth quarter; the pandemic may alter that pattern.
- The strong earnings comparison also reflects the weak pandemic-affected Q2 2020 base. First-half 2020 included $75.2m of asset impairments and $37.6m of workforce-optimization costs; neither impairment nor workforce-optimization costs were recorded in the first half of 2021. Q2 2021 included $8.1m of acquisition integration costs.
- On July 29, 2021, CBRE agreed to acquire 60% of Turner & Townsend for approximately $1.3bn in cash, partly deferred. Closing was expected in Q4 2021, subject to customary conditions; management planned to use cash and, if needed, the revolver.
- CBRE disclosed that its disclosure controls and procedures were not effective at June 30, 2021 because of previously reported material weaknesses in internal control over financial reporting. Remediation continued; management stated the weaknesses would not be considered fully remediated until controls operated effectively for a sufficient period and were formally tested.
- Contingencies include Fannie Mae DUS loan-loss sharing: $30.0bn of funded loans were subject to sharing arrangements, with a recorded liability of approximately $61.2m and a $95m letter of credit. The company also disclosed other guarantees, co-investment commitments, and litigation; it did not expect material losses under development guarantees, while noting litigation outcomes are uncertain.
Investor facts to verify
- How much of earnings growth is sustainable operating improvement versus equity-method property-sale gains and the prior-year pandemic comparison.
- Whether Advisory transaction activity and office leasing confidence continue to recover, and whether contractual GWS growth offsets cyclical weakness.
- Progress and formal testing of internal-control remediation, and any effect of the material weaknesses on reporting reliability.
- Funding, closing conditions, integration costs, and resulting debt levels for the Turner & Townsend acquisition.
- Potential exposure under mortgage servicing, loan-loss sharing, guarantee, co-investment and other commitments, alongside the company’s stated liquidity and covenant headroom.