CBRE Group, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparative period is Q1 2021. CBRE provides commercial real estate services and investment management across Advisory Services, Global Workplace Solutions (GWS), and Real Estate Investments.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $7.33 billion | $5.94 billion | +23.5% |
| Net revenue, excluding largely pass-through costs | $4.38 billion | $3.36 billion | +30.3% |
| Operating income | $377.0 million | $269.1 million | +40.1% |
| Operating margin | 5.1% | 4.5% | +0.6 percentage points |
| Net income attributable to CBRE | $392.3 million | $266.2 million | +47.4% |
| Diluted EPS | $1.16 | $0.78 | +48.7% |
| Adjusted EBITDA | $595.7 million | $493.9 million | +20.6% |
| Cash flow from operations | $(393.5) million | $(193.4) million | Greater cash use |
Revenue increased across all three reportable segments. Advisory Services revenue rose 31.6% to $2.25 billion, led by sales and leasing recovery. GWS revenue rose 19.4% to $4.81 billion, including $312.1 million from Turner & Townsend. Real Estate Investments revenue rose 34.4% to $283.8 million; segment operating profit increased to $167.1 million from $63.1 million, reflecting stronger equity earnings and property activity.
Cost of revenue declined to 78.5% of revenue from 79.5%, supporting the operating-margin improvement. Operating, administrative and other expenses rose 28.7% and increased to 14.6% of revenue from 13.9%. The effective tax rate was negative 1.0%, versus 22.1%, mainly because of an $82.2 million discrete tax benefit from legal-entity restructuring; this materially benefited reported earnings.
Cash, debt and liquidity
Cash and cash equivalents were $1.66 billion at quarter-end, down from $2.43 billion at December 31, 2021; cash plus restricted cash was $1.79 billion. Operating cash use increased year over year, principally due to working-capital timing, including incentive compensation and bonus payments, receivables, and tax payments. Investing activities used $95.6 million. Financing activities used $209.0 million, including $367.9 million of cash used for share repurchases.
Long-term debt, net, was $1.53 billion. Short-term borrowings totaled $1.41 billion, including $1.17 billion under warehouse lines that fund mortgage loans committed for purchase or securitization, and $210 million drawn on the revolving facility. The company reported $3.1 billion available under revolving credit facilities and approximately $1.5 billion cash available for general corporate use. It said internally generated cash and available credit should meet anticipated needs for at least the next 12 months. Credit covenants require minimum interest coverage of 2.00x and maximum leverage of 4.25x; reported ratios were 52.16x and 0.23x, respectively.
CBRE repurchased $390.8 million of stock during the quarter and had $1.59 billion of capacity remaining under its $2.0 billion, five-year repurchase program at March 31. Management estimated 2022 capital expenditures of up to approximately $316 million, net of tenant concessions; Q1 spending on that basis was $39.9 million.
Material changes, outlook and risks
- Business recovery and acquisition contribution: Management attributed growth to recovering transaction markets, stronger leasing and sales activity, and continued outsourcing and project-management demand. Turner & Townsend contributed a full quarter to GWS; acquisition-related integration costs were $8.1 million.
- Market and geopolitical risks: COVID-19 continues to affect office occupancy and long-term leasing decisions. Russia’s invasion of Ukraine may increase geopolitical, inflation, supply-chain and economic risks, particularly in central and eastern Europe. CBRE exited most of its Russian Advisory Services business and recorded $10.4 million of non-cash impairment charges.
- Other unusual items: Equity income from unconsolidated subsidiaries fell 48.7%, partly due to lower fair-value gains on Altus Power. Corporate and other included a $117.0 million unfavorable Altus investment adjustment. The $82.2 million tax benefit is not indicative of the underlying tax rate.
- Contingencies: Telford Homes made a UK building fire-safety remediation pledge; the potential financial impact remained unestimable at filing. CBRE disclosed loan-loss sharing and repurchase exposures, letters of credit, guarantees, and project funding commitments. Management said it did not expect material losses under development guarantees; litigation outcomes remain uncertain.
- Controls: Management concluded disclosure controls were not effective at March 31, 2022 because of previously disclosed material weaknesses in internal control over financial reporting. Remediation was ongoing; management nevertheless concluded the quarterly financial statements fairly presented the company’s results under GAAP.
No earnings or revenue guidance is provided in the supplied filing text. Management cited macroeconomic, interest-rate, real-estate-market, currency, acquisition-integration, client-retention, cybersecurity and regulatory risks; it also noted normal seasonality, with first-quarter results historically lowest.
Investor verification priorities
- Assess earnings quality by separating the discrete tax benefit and investment fair-value movements from operating performance.
- Review the drivers and expected timing of operating cash use and the decline in cash balances.
- Distinguish corporate borrowings from warehouse funding tied to mortgage receivables; verify facility availability, maturities and subsequent borrowings.
- Monitor progress and potential costs of Telford fire-safety remediation, and the outcome of disclosed loan guarantees and contingencies.
- Track remediation of the internal-control material weaknesses and any subsequent disclosures.
- Evaluate the sustainability of transaction-market recovery, Turner & Townsend integration, share repurchases and planned capital spending.