CBRE Group, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021, compared primarily with fiscal 2020. This is an annual filing, not a standalone fourth-quarter report. CBRE provides commercial real estate advisory, outsourcing, investment management and development services globally.
Financial performance
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $27.75 billion | $23.83 billion |
| Net revenue (revenue less largely reimbursed pass-through costs; non-GAAP) | $17.01 billion | $13.79 billion |
| Operating income | $1.64 billion; 5.9% of revenue | $970 million; 4.1% of revenue |
| Net income attributable to CBRE | $1.84 billion | $752 million |
| Diluted EPS | $5.41 | $2.22 |
| Adjusted EBITDA (non-GAAP) | $3.07 billion | $1.90 billion |
| Cash provided by operating activities | $2.36 billion | $1.83 billion |
Revenue increased 16.5%. Net income more than doubled, reflecting a strong recovery in transaction activity and higher equity income, as well as a $187.5 million non-cash gain from the Altus Power SPAC merger. The effective tax rate rose to 23.6% from 22.0%. No asset impairments were recorded in 2021, versus $88.7 million in 2020.
- Advisory Services: Revenue grew 32.7% to $9.58 billion, led by property sales and leasing recovery. Segment operating profit was $2.06 billion versus $1.35 billion.
- Global Workplace Solutions: Revenue grew 8.2% to $17.10 billion, including $194 million from Turner & Townsend after its November acquisition. Segment operating profit was $708 million versus $575 million.
- Real Estate Investments: Revenue grew 31.3% to $1.09 billion; segment operating profit rose to $520 million from $258 million. Results included substantially higher equity earnings from property sales. Assets under management increased to $141.9 billion from $122.7 billion.
Operating cash flow increased, but receivables growth and slower collections used approximately $362 million of working capital. Investing cash outflow was $1.28 billion, including acquisitions and investments; financing cash outflow was $491 million, including share repurchases and repayment of term loans.
Liquidity, debt and capital allocation
At year-end, cash and cash equivalents were $2.43 billion; management reported $3.2 billion of borrowing availability under its revolving credit facility. Long-term debt was $1.55 billion gross ($1.54 billion net of financing costs), and short-term borrowings were $1.31 billion, primarily warehouse financing secured by mortgage loans. Excluding warehouse lines and generally non-recourse real estate notes, reported total debt was $1.6 billion. Interest expense, net, was $50 million. The company reported a 54.94x interest coverage ratio and net leverage of (0.04)x under credit-agreement definitions.
CBRE issued $500 million of 2.500% senior notes due 2031 and repaid its $300 million tranche A term loan during 2021. Expected 2022 capital expenditures were up to approximately $305 million, net of tenant concessions. The company has not paid cash dividends since inception. It repurchased $372.9 million of shares in 2021 and had approximately $1.98 billion of authorized repurchase capacity remaining at year-end.
Material changes, outlook and risks
- CBRE acquired a 60% controlling interest in Turner & Townsend for total consideration of approximately $1.22 billion, including deferred consideration. Its 2021 contribution was $194 million of revenue and a $0.5 million net loss; acquisition and integration costs were $44.6 million.
- The Altus Power merger ended CBRE’s consolidation of its sponsored SPAC. CBRE retained an investment valued at approximately $368 million at year-end; the deconsolidation generated the $187.5 million non-cash gain. The investment’s market value may fluctuate.
- Management provided no specific earnings or revenue guidance in the supplied filing text. It said operating cash flow and available revolving credit were expected to cover ordinary requirements for at least the next 12 months, absent extraordinary events or a large acquisition.
- Management noted recovery in commercial real estate markets, while warning that COVID-19-related changes in space use may benefit some property types and weigh on others. Hybrid work could reduce office demand; logistics and distribution demand could benefit industrial markets. Inflation had not materially affected operations to date, but construction input costs had risen.
- Key exposures include economic and credit-market cycles, interest rates, foreign exchange (43% of 2021 revenue was transacted in foreign currencies), acquisition integration, client retention, cybersecurity, litigation, environmental liabilities, and development guarantees. Pending or threatened ordinary-course lawsuits were disclosed; management said excess losses beyond accruals were not expected to be significant, while noting litigation uncertainty.
- Control issue: Management and the auditor concluded internal control over financial reporting was ineffective at December 31, 2021 because of material weaknesses in GWS EMEA revenue and receivables and journal-entry controls, attributed to insufficiently trained resources. Disclosure controls were also deemed ineffective. Remediation was ongoing, with completion intended in 2022 but not assured. The auditor gave an unqualified opinion on the financial statements but an adverse opinion on internal controls.
Investor verification priorities
- Track remediation and independent testing of the GWS EMEA control weaknesses, and assess whether any future corrections or restatements are needed.
- Separate recurring operating performance from the Altus gain, investment-related equity income and non-GAAP adjustments; review reconciliation details for adjusted EBITDA and segment operating profit.
- Monitor collections and receivables after the reported working-capital drag, alongside cash conversion and the high pass-through share of GWS revenue.
- Review Turner & Townsend integration, deferred acquisition payments, purchase-accounting estimates and contribution to margins and cash flow.
- Assess refinancing and liquidity needs, including warehouse-line maturities, debt covenants, planned capital expenditures, development commitments and share repurchases.