CBRE Group, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. CBRE provides commercial real estate advisory, outsourcing, investment management and development services. The company reorganized segment reporting effective January 1, 2021; prior-period segment figures were recast for comparison.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $5.939 billion | $5.889 billion |
| Operating income | $269.1 million | $220.3 million |
| Operating margin | 4.5% | 3.7% |
| Net income attributable to CBRE | $266.2 million | $172.2 million |
| Diluted EPS | $0.78 | $0.51 |
| Adjusted EBITDA | $491.1 million | $430.4 million |
| Cash flow from operating activities | $(193.4) million | $(128.8) million |
| Cash flow from investing activities | $(193.9) million | $(92.2) million |
| Cash flow from financing activities | $402.0 million | $(101.4) million |
Revenue grew 0.8%; CBRE-attributable net income rose about 55%. Results benefited from higher equity income from unconsolidated subsidiaries and the absence of $75.2 million of prior-year asset impairments. Revenue included $2.58 billion of pass-through costs; reported net revenue, a non-GAAP measure, was $3.36 billion, down from $3.43 billion.
Global Workplace Solutions revenue increased 3.6% to $4.03 billion and segment operating profit rose to $152.2 million from $107.0 million. Advisory Services revenue fell 5.3% to $1.71 billion; segment operating profit was essentially flat at $332.3 million. Real Estate Investments revenue was nearly unchanged at $211.1 million, while segment operating profit increased to $60.6 million from $43.0 million, including higher equity earnings.
At March 31, cash and cash equivalents were $1.91 billion; restricted cash was $91.4 million. Long-term debt, net of current maturities, was $1.85 billion, and warehouse lines of credit were $675.5 million, principally financing mortgage loans committed for resale. CBRE had no revolver borrowings and reported $2.8 billion available under its revolving credit facility. Total assets were $17.25 billion and total liabilities were $9.59 billion.
Material changes and notable transactions
- Facilities management growth supported revenue, partly offset by COVID-related declines in Advisory sales and leasing: sales revenue fell 9.1% and leasing revenue fell 16.8% year over year.
- Equity income from unconsolidated subsidiaries increased to $83.6 million from $20.6 million, primarily reflecting property-sale gains and higher earnings from certain investments.
- CBRE issued $500 million of 2.5% senior notes due 2031 in March, generating net proceeds of approximately $492 million. Net interest expense declined 36.9%, partly because the company redeemed its 5.25% notes in December 2020.
- CBRE invested approximately $150 million more in Industrious in February, bringing its interest to 35%; it has agreements to increase its interest to 40%.
- The company repurchased 831,274 shares for $64.1 million at an average $77.15 per share; $285.9 million remained under the authorization.
- Assets under management increased to $124.5 billion from $122.7 billion at year-end 2020.
Outlook, risks and contingencies
- Management expected operating challenges from COVID-19 to continue, citing high case levels, constrained business travel and face-to-face activity, and most workers remaining away from offices. The filing gives no specific earnings or revenue guidance.
- 2021 capital expenditures were expected to be $200–$240 million, net of tenant concessions. Management said cash from operations and the revolver were expected to meet anticipated cash needs for at least the next 12 months.
- Operating cash outflow was $193.4 million; management attributed the year-over-year deterioration mainly to working-capital movements and increased real estate development activity. Investing outflow included the Industrious investment.
- Key risks include economic and commercial real estate market weakness, reduced transaction volumes, foreign-exchange movements, interest rates and credit availability, client outsourcing or spending changes, acquisition integration, and real estate investment performance. Approximately 44% of quarterly revenue was transacted in foreign currencies.
- CBRE disclosed material weaknesses in internal control over financial reporting, and management concluded disclosure controls were not effective as of March 31, 2021. Remediation was underway but not considered complete; management nevertheless concluded the quarterly financial statements fairly presented results under U.S. GAAP.
- Mortgage-related exposures include loss-sharing arrangements on $29.5 billion of Fannie Mae loans, with a recorded loan-loss guarantee liability of approximately $58.8 million, plus servicing advances and Freddie Mac repurchase/loss obligations. The filing also describes ordinary-course litigation, development guarantees, and future co-investment commitments.
Important facts for investors to verify
- Whether Advisory sales and leasing recover as pandemic-related restrictions and workplace occupancy change.
- How much reported earnings growth reflects recurring operations versus equity-method property-sale gains and the prior-year impairment comparison.
- Cash conversion and working-capital trends, including the effects of mortgage loan origination and resale activity.
- Progress and testing of the internal-control remediation plan, particularly for revenue, receivables and IT controls.
- Industrious investment performance and the terms and timing of any increase in CBRE’s ownership stake.
- Potential losses or cash requirements from loan guarantees, servicing advances, development commitments and other contingencies.