CBRE Group, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods. CBRE provides commercial real estate advisory, outsourcing and investment services. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $6.80 billion | $5.65 billion | $19.20 billion | $16.92 billion |
| Operating income | $409.7 million | $211.4 million | $1.05 billion | $525.9 million |
| Net income attributable to CBRE | $435.7 million | $184.1 million | $1.145 billion | $438.2 million |
| Diluted EPS | $1.28 | $0.55 | $3.37 | $1.30 |
| Adjusted EBITDA (non-GAAP) | $736.1 million | $441.8 million | $1.946 billion | $1.139 billion |
Q3 revenue grew 20.4%; nine-month revenue grew 13.5%. Operating margin was 6.0% in Q3 versus 3.7%, and 5.4% year to date versus 3.1%. Adjusted EBITDA margin was 10.8% versus 7.8% in Q3 and 10.1% versus 6.7% year to date.
Growth spanned all three segments. Q3 revenue rose 48.0% in Advisory Services, 8.2% in Global Workplace Solutions (GWS), and 32.0% in Real Estate Investments (REI). Advisory benefited from stronger sales and leasing activity; GWS growth was led by facilities management; REI benefited from investment management and development activity. Segment operating profit was $521.5 million for Advisory, $187.3 million for GWS and $146.0 million for REI. Segment operating profit is a management measure, not GAAP net income.
Cash flow, debt and liquidity
- For the first nine months, operating cash flow was $1.20 billion, compared with $890.4 million in 2020; investing cash outflow was $555.4 million, compared with $206.5 million; financing cash inflow was $274.9 million, versus an outflow of $141.0 million.
- Cash and cash equivalents were $2.77 billion at September 30, 2021, up from $1.90 billion at year-end 2020. Cash plus restricted cash totaled $2.88 billion.
- Long-term debt, net, was $1.84 billion, compared with $1.38 billion at year-end. Warehouse lines of credit were $1.38 billion, generally funding mortgage loans committed for purchase or securitization. No revolving credit borrowings were outstanding; approximately $3.1 billion was available.
- The $3.15 billion revolving facility matures in March 2024. CBRE issued $500 million of 2.50% senior notes due 2031 during 2021. The company reported covenant interest coverage of 47.74x and leverage of negative 0.32x under the credit agreement’s definitions.
- CBRE repurchased $188.3 million of stock in the first nine months, including $100 million in Q3; $161.7 million remained under the authorization.
Changes, outlook and notable items
- Profit growth substantially exceeded revenue growth, reflecting improved activity and operating leverage, lower cost of revenue as a share of revenue, and higher equity income from unconsolidated subsidiaries. Equity income was $163.8 million in Q3 versus $32.4 million, and $459.5 million for nine months versus $72.5 million. Management attributed the increase mainly to property-sale earnings and fair-value gains, including an Industrious-related adjustment.
- There were no asset impairment charges in the first nine months of 2021, versus $75.2 million in 2020, including COVID-related impairments. Q3 2021 also included $16.2 million of acquisition integration costs and a $17.0 million carried-interest timing adjustment in the segment-profit reconciliation.
- CBRE expected 2021 capital expenditures, net of tenant concessions, of $150–$200 million; $102.8 million had been incurred through September. Management said cash from operations and the revolver should meet anticipated requirements for at least the next 12 months, absent extraordinary events or a large strategic acquisition. The filing provides no specific earnings or revenue guidance.
- CBRE agreed to acquire 60% of Turner & Townsend for approximately $1.3 billion in cash, with part of the consideration deferred to 2024 and 2025; closing was expected in Q4 2021. The company also committed $70 million to purchase CBAH shares, with up to an additional $150 million depending on redemptions, in connection with the SPAC’s proposed Altus Power transaction.
- COVID-19 impacts had eased, but office occupier confidence and long-term leasing decisions remained below pre-pandemic levels; new variants and uneven vaccine distribution remained concerns. Industrial and multifamily activity helped offset subdued office activity. CBRE also cited exposure to economic and real estate cycles, interest rates, foreign exchange, acquisitions, client demand, and litigation and guarantee obligations.
- Material weaknesses in internal control over financial reporting remained unremediated, and disclosure controls were deemed ineffective as of September 30. Management stated the financial statements fairly present the company’s results and described remediation work underway; effectiveness depends on controls operating successfully for a sufficient period and formal testing.
- Contingencies include Fannie Mae loan-loss sharing: $31.4 billion of funded loans were subject to the arrangement, with a recorded liability of approximately $62.4 million. Management said excess litigation losses were unlikely to be significant, while noting litigation uncertainty. No material changes to previously disclosed legal proceedings or risk factors were reported.
Investor verification points
- Check how much of earnings growth is recurring versus driven by property-sale-related equity income and fair-value adjustments.
- Verify Turner & Townsend and Altus Power transaction closing, funding, deferred consideration and subsequent results.
- Monitor office leasing recovery, COVID-related disruption and the cyclicality of Advisory transaction revenue.
- Review remediation and independent testing of the disclosed material weaknesses in financial reporting controls.
- Assess loan-loss sharing, development guarantees, co-investment commitments and the sensitivity of international results to currency and interest-rate changes.