EPS Rises to $1.30 (GAAP) and $1.36 (Adjusted)

CBRE Group, Inc. (NYSE:CBRE) today reported financial results for the second quarter ended June 30, 2021.

“As our results for the second quarter demonstrate, CBRE continues to benefit from the multi-year efforts to diversify our business. The commercial real estate market has offered up significant opportunity to diversify across asset type, business lines, client type and geography. We have moved decisively to capitalize on this opportunity and are making investments and driving organic growth initiatives that will continue this trend,” said Bob Sulentic, president and chief executive officer of CBRE. “Our agreement to acquire a majority interest in Turner & Townsend is an excellent example. Turner & Townsend has a great brand and management team, operating in sectors with favorable long-term growth profiles that will advance diversification across the four dimensions of our business.”

“Our growth in the second quarter was strong, even compared with prior peak-year performance in 2019. Adjusted EBITDA grew at a better than 20% compound rate from second-quarter 2019 with strong growth across all three business segments. Each segment experienced significant margin expansion over this period,” he continued.

Consolidated Financial Results Overview

The following table presents highlights of CBRE performance (in millions, except per share data):

Advisory Services Segment

The following table presents highlights of the Advisory Services segment performance (in millions):

The Advisory Services segment rebounded strongly compared with second-quarter 2020, when the Covid pandemic suppressed business activity around the world. Second-quarter 2021 performance was very strong globally, with significantly higher revenue across all lines of business. This revenue growth, coupled with cost actions taken in 2020 and approximately $7 million of incremental Covid-related expenses in the prior-year period, led to a more than doubling of segment operating profit.

Capital markets activity led the segment’s recovery. Global property sales revenue surged 152% (142% local currency), from especially weak levels of last year’s second quarter. Impressively, global sales revenue was 27% above the second-quarter 2019 level. Internationally, the United Kingdom, Japan and Australia posted the sharpest gains compared with last year’s second quarter, while the United States posted a 163% increase over this period. In a rebounding United States investment sales market, CBRE market share improved 210 basis points from last year’s second quarter, according to Real Capital Analytics data.

Commercial mortgage origination revenue also improved significantly, rising 61% (60% local currency) from second-quarter 2020. Lending activity picked up dramatically across all commercial capital sources in step with the revival of investment market activity, particularly for industrial and multifamily assets. The Government-Sponsored Enterprises remained a steady source of debt capital for multifamily properties, particularly affordable housing.

Leasing revenue rose 33% (29% local currency) compared with last year’s second quarter but remained about 18% below the 2019 level. While overall leasing activity rebounded in the United States, with revenue up 24% compared with second-quarter 2020, it remained 30% lower than second-quarter 2019. International markets were generally stronger with Australia, Continental Europe and the United Kingdom each posting growth rates in excess of 50% versus second-quarter 2020. Industrial properties once again set the pace for growth, while office leasing continued to improve. Notably, overall leasing revenue in EMEA and APAC rose by double digits compared with second-quarter 2019.

Revenue growth from other Advisory Services business lines was also strong. Loan servicing revenue increased 16% (same local currency) for the quarter. The loan servicing portfolio totaled approximately $294 billion at quarter’s end, up 20% over the past year. Valuation revenue rose 38% (29% local currency), reflecting the recovery of property markets. Property management net revenue continued to grow steadily, rising over 6% (1% in local currency).

Global Workplace Solutions (GWS) Segment

The following table presents highlights of the GWS segment performance (in millions):

The GWS segment posted solid revenue and segment operating profit growth across its global business base.

Facilities management, which is largely contractual, saw net revenue rise 10% (6% local currency), with strong growth within data centers and local facilities management. Project management benefited from a continued rebound in construction activity, which helped to fuel 15% (11% local currency) net revenue growth.

The new business pipeline continues to have strong representation across client and property types that are benefiting from secular shifts accelerated by Covid, such as life sciences, technology and logistics companies, as well as growing demand for data center management.

Strong revenue growth, combined with ongoing prudent cost management, led to a robust increase in segment operating profit. The segment’s overall margin on net revenue expanded over 180 basis points. The prior-year second quarter also included approximately $17 million for Covid-related expenditures.

On July 27, 2021, CBRE announced an agreement to acquire a 60% ownership interest in Turner & Townsend Holdings Limited, a global leader in program management, project management and cost consulting, for approximately $1.3 billion. The acquisition is expected to close in the fourth quarter of 2021, subject to regulatory approvals and other customary closing conditions. Upon completion of the transaction, Turner & Townsend’s financial results will be consolidated and reported in CBRE’s GWS segment.

Real Estate Investments (REI) Segment

The following table presents highlights of the REI segment performance (in millions):

Strong performance in both development services and investment management spurred elevated REI segment operating profit growth.

U.S. real estate development operating profit ⁽¹⁰⁾ surged to nearly $122 million, from $11 million in the prior year, a quarterly record for the company. The robust performance was fueled by large office assets that commanded strong valuations due to the high quality of the assets and the tenancy. The U.K. multifamily development business (Telford Homes) showed continued recovery from the negative effects of Covid-19. Its net operating loss ⁽¹⁰⁾ for the quarter narrowed to approximately $2 million versus $11 million in the prior-year second quarter.

The in-process development portfolio ended the quarter at $15.2 billion, up $0.2 billion from first-quarter 2021 – a record level for the company. The pipeline increased by $2.8 billion from first-quarter 2021 to $9.6 billion, largely driven by fee-based office and industrial work for blue-chip occupier clients.

Investment management revenue surged 35% (26% local currency) to $139 million, driven by significantly higher asset management and incentive/development fees, as well as carried interest. Operating profit ⁽¹³⁾ rose 38% (27% local currency) to $45 million, reflecting revenue gains, prudent cost management, and the higher carried interest.

Assets under management ended the quarter at $129.1 billion, a record high for the company and an increase of $4.6 billion ($4.1 billion local currency) from first-quarter 2021. The increase reflected higher asset valuations, net capital inflows and favorable foreign currency movement.

Hana, the company’s startup flexible workspace business, completed its integration with Industrious National Management Company LLC (Industrious), during the second quarter. CBRE retains financial responsibility for four legacy Hana units, which will be reported in the Real Estate Investments segment. The financial impact of the company’s Industrious investment will be reported within the Advisory Services segment.

Corporate and Other Segment

Corporate segment expense, which primarily reflects overhead costs, declined to $69.5 million from $87.0 million in the prior-year quarter. Costs in the prior-year quarter were elevated due to approximately $17 million of incremental Covid-related expenses and a charitable contribution in support of Covid relief efforts as well as severance costs associated with the company’s workforce optimization. The 2021 second quarter benefited from approximately $10 million of venture investment gains and the effect of cost-structure improvement activities undertaken in 2020. These benefits were partially offset by higher incentive compensation expense, which had been significantly reduced in the prior-year quarter due to Covid’s impact on business activity.

Adjustments to GAAP Net Income and Earnings Per Share

Adjustments to GAAP net income totaled $20.2 million on a net basis. This included approximately $27.0 million of favorable pre-tax adjustments, including $17.2 million of non-cash acquisition-related depreciation and amortization; $8.1 million of integration and other costs related to acquisitions; $1.7 million of investment management carried interest incentive compensation expense to align with the timing of associated carried interest revenue, along with an unfavorable pre-tax adjustment of $(0.4) million related to fair value adjustments on real estate assets acquired in the Telford Homes acquisition; and a $6.5 million net tax adjustment associated with the aforementioned pre-tax adjustments.

GAAP net income increased 441% (414% local currency) to $443 million and earnings per share increased 437% (411% local currency) to $1.30, compared with the prior-year period. Adjusted net income and adjusted earnings per share increased 293% (274% local currency) and 290.6% (271.3% local currency) to $462.9 million and $1.36, respectively, compared with the prior-year period. The 2020 second quarter included the previously mentioned $38 million of costs associated with workforce optimization efforts and more than $40 million of incremental costs and donations related to the Covid-19 pandemic.

Capital Allocation Overview

• Free Cash Flow – During the second quarter of 2021, free cash flow increased 362% to approximately $375 million. This reflected cash from operating activities of $421 million, less total capital expenditures of $46.3 million. Net capital expenditures (of which a considerable portion during the period was discretionary) totaled $35.1 million. ⁽¹¹⁾
• Stock Repurchase Program – The company repurchased $24.1 million of its stock during the second quarter of 2021. There was $261.7 million of capacity remaining under the company’s authorized stock repurchase program as of June 30, 2021.
• Acquisitions and Investments – During the second quarter of 2021, as previously mentioned, the company purchased an incremental interest in Industrious, bringing its current ownership stake to 40%. In addition, the company acquired a technical facilities services firm based in Denmark; an infrastructure and development services firm based in Australia, and a gaming sector advisory firm based in Las Vegas.

Leverage and Financing Overview

• Leverage – The company’s net leverage ratio (net cash ⁽¹²⁾ to trailing twelve-month adjusted EBITDA) was (0.07x) as of June 30, 2021, which is substantially below the company's primary debt covenant of 4.25x. The net leverage ratio is computed as follows (dollars in millions):

• Liquidity – As of June 30, 2021, the company had approximately $4.8 billion of total liquidity, consisting of approximately $2.0 billion in cash, plus the ability to borrow an aggregate of approximately $2.8 billion under its revolving credit facilities, net of any outstanding letters of credit. On July 9, 2021, the revolving credit facility was increased by $350.0 million to $3.15 billion.

Conference Call Details

The company’s second quarter earnings webcast and conference call will be held today Thursday, July 29, 2021 at 8:30 a.m. Eastern time. Investors are encouraged to access the webcast via this link or they can click this link beginning at 8:15 a.m. Eastern time for automated access to the conference call.

Alternatively, investors may dial into the conference call using these operator-assisted phone numbers: 877.407.8037 (U.S.) or 201.689.8037 (International). A replay of the call will be available starting at 1:00 p.m. Eastern time on July 29, 2021. The replay is accessible by dialing 877.660.6853 (U.S.) or 201.612.7415 (International) and using the access code: 13721289#. A transcript of the call will be available on the company's Investor Relations website at https://ir.cbre.com.

About CBRE Group, Inc.

CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Dallas, is the world’s largest commercial real estate services and investment firm (based on 2020 revenue). The company has more than 100,000 employees serving clients in more than 100 countries. CBRE serves a diverse range of clients with an integrated suite of services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com. We routinely post important information on our website, including corporate and investor presentations and financial information. We intend to use our website as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. Such disclosures will be included in the Investor Relations section of our website at https://ir.cbre.com. Accordingly, investors should monitor such portion of our website, in addition to following our press releases, Securities and Exchange filings and public conference calls and webcasts.

Safe Harbor and Footnotes

This press release contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding the company’s future growth momentum, operations, market share, business outlook, capital deployment and financial performance as well as the completion of the Turner & Townsend acquisition. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the company’s actual results and performance in future periods to be materially different from any future results or performance suggested in forward-looking statements in this press release. Any forward-looking statements speak only as of the date of this press release and, except to the extent required by applicable securities laws, the company expressly disclaims any obligation to update or revise any of them to reflect actual results, any changes in expectations or any change in events. If the company does update one or more forward-looking statements, no inference should be drawn that it will make additional updates with respect to those or other forward-looking statements. Factors that could cause results to differ materially include, but are not limited to: disruptions in general economic, political and regulatory conditions and significant public health events, particularly in geographies or industry sectors where our business may be concentrated; volatility or adverse developments in the securities, capital or credit markets, interest rate increases and conditions affecting the value of real estate assets, inside and outside the United States; poor performance of real estate investments or other conditions that negatively impact clients’ willingness to make real estate or long-term contractual commitments and the cost and availability of capital for investment in real estate; foreign currency fluctuations and changes in currency restrictions, trade sanctions and import/export and transfer pricing rules; disruptions to business, market and operational conditions related to the Covid-19 pandemic and the impact of government rules and regulations intended to mitigate the effects of this pandemic, including, without limitation, rules and regulations that impact us as a loan originator and servicer for U.S. Government Sponsored Enterprises (GSEs); our ability to compete globally, or in specific geographic markets or business segments that are material to us; our ability to identify, acquire and integrate accretive businesses; costs and potential future capital requirements relating to businesses we may acquire; integration challenges arising out of companies we may acquire; increases in unemployment and general slowdowns in commercial activity; trends in pricing and risk assumption for commercial real estate services; the effect of significant changes in capitalization rates across different property types; a reduction by companies in their reliance on outsourcing for their commercial real estate needs, which would affect our revenues and operating performance; client actions to restrain project spending and reduce outsourced staffing levels; our ability to further diversify our revenue model to offset cyclical economic trends in the commercial real estate industry; our ability to attract new user and investor clients; our ability to retain major clients and renew related contracts; our ability to leverage our global services platform to maximize and sustain long-term cash flow; our ability to continue investing in our platform and client service offerings; our ability to maintain expense discipline; the emergence of disruptive business models and technologies; negative publicity or harm to our brand and reputation; the failure by third parties to comply with service level agreements or regulatory or legal requirements; the ability of our investment management business to maintain and grow assets under management and achieve desired investment returns for our investors, and any potential related litigation, liabilities or reputational harm possible if we fail to do so; our ability to manage fluctuations in net earnings and cash flow, which could result from poor performance in our investment programs, including our participation as a principal in real estate investments; the ability of our indirect subsidiary, CBRE Capital Markets, Inc., to periodically amend, or replace, on satisfactory terms, the agreements for its warehouse lines of credit; declines in lending activity of U.S. GSEs, regulatory oversight of such activity and our mortgage servicing revenue from the commercial real estate mortgage market; changes in U.S. and international law and regulatory environments (including relating to anti-corruption, anti-money laundering, trade sanctions, tariffs, currency controls and other trade control laws), particularly in Asia, Africa, Russia, Eastern Europe and the Middle East, due to the level of political instability in those regions; litigation and its financial and reputational risks to us; our exposure to liabilities in connection with real estate advisory and property management activities and our ability to procure sufficient insurance coverage on acceptable terms; our ability to retain and incentivize key personnel; our ability to manage organizational challenges associated with our size; liabilities under guarantees, or for construction defects, that we incur in our development services business; variations in historically customary seasonal patterns that cause our business not to perform as expected; our leverage under our debt instruments as well as the limited restrictions therein on our ability to incur additional debt, and the potential increased borrowing costs to us from a credit-ratings downgrade; our and our employees’ ability to execute on, and adapt to, information technology strategies and trends; cybersecurity threats or other threats to our information technology networks, including the potential misappropriation of assets or sensitive information, corruption of data or operational disruption; our ability to comply with laws and regulations related to our global operations, including real estate licensure, tax, labor and employment laws and regulations, as well as the anti-corruption laws and trade sanctions of the U.S. and other countries; changes in applicable tax or accounting requirements; and any inability for us to implement and maintain effective internal controls over financial reporting; and the effect of implementation of new accounting rules and standards or the impairment of our goodwill and intangible assets; and the satisfaction of the Turner & Townsend acquisition’s closing conditions.

Additional information concerning factors that may influence the company’s financial information is discussed under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk” and “Cautionary Note on Forward-Looking Statements” in our Annual Report on Form 10-K for the year ended December 31, 2020, our quarterly report on Form 10-Q for the quarterly period ended March 31, 2021, as well as in the company’s press releases and other periodic filings with the Securities and Exchange Commission (SEC). Such filings are available publicly and may be obtained on the company’s website at www.cbre.com or upon written request from CBRE’s Investor Relations Department at investorrelations@cbre.com.

The terms “net revenue,” “adjusted revenue,” “adjusted net income,” “adjusted earnings per share” (or adjusted EPS), “adjusted EBITDA,” “business line operating profit,” “segment operating profit on revenue margin,” “segment operating profit on net revenue margin” and “free cash flow,” all of which CBRE uses in this press release, are non-GAAP financial measures under SEC guidelines, and you should refer to the footnotes below as well as the “Non-GAAP Financial Measures” section in this press release for a further explanation of these measures. We have also included in that section reconciliations of these measures in specific periods to their most directly comparable financial measure calculated and presented in accordance with GAAP for those periods.

Totals may not sum in tables in millions included in this release due to rounding.

_______________

_______________

_______________

Non-GAAP Financial Measures

The following measures are considered “non-GAAP financial measures” under SEC guidelines:

These measures are not recognized measurements under United States generally accepted accounting principles (GAAP). When analyzing our operating performance, investors should use these measures in addition to, and not as an alternative for, their most directly comparable financial measure calculated and presented in accordance with GAAP. Because not all companies use identical calculations, our presentation of these measures may not be comparable to similarly titled measures of other companies.

Our management generally uses these non-GAAP financial measures to evaluate operating performance and for other discretionary purposes. The company believes these measures provide a more complete understanding of ongoing operations, enhance comparability of current results to prior periods and may be useful for investors to analyze our financial performance because they eliminate the impact of selected charges that may obscure trends in the underlying performance of our business. The company further uses certain of these measures, and believes that they are useful to investors, for purposes described below.

With respect to net revenue: net revenue is gross revenue less costs largely associated with subcontracted vendor work performed for clients. We believe that investors may find this measure useful to analyze the company’s overall financial performance because it excludes costs reimbursable by clients that generally have no margin, and as such provides greater visibility into the underlying performance of our business. Prior to 2021, the company utilized fee revenue to analyze the overall financial performance. This metric excluded additional reimbursed costs, primarily related to employees dedicated to clients, some of which included minimal margin.

With respect to adjusted revenue: the company believes that investors may find this measure useful to analyze the financial performance of our Real Estate Investments segment because it is more reflective of this segment’s total operations.

With respect to adjusted net income, adjusted EPS, adjusted EBITDA, business line operating profit, and segment operating profit on revenue and net revenue margins: the company believes that investors may find these measures useful in evaluating our operating performance compared to that of other companies in our industry because their calculations generally eliminate the accounting effects of acquisitions, which would include impairment charges of goodwill and intangibles created from acquisitions—and in the case of adjusted EBITDA, business line operating profit and segment operating profit on revenue and net revenue margins—the effects of financings and income tax and the accounting effects of capital spending. All of these measures and adjusted revenue may vary for different companies for reasons unrelated to overall operating performance. In the case of adjusted EBITDA, this measure is not intended to be a measure of free cash flow for our management’s discretionary use because it does not consider cash requirements such as tax and debt service payments. The adjusted EBITDA measure calculated herein may also differ from the amounts calculated under similarly titled definitions in our credit facilities and debt instruments, which amounts are further adjusted to reflect certain other cash and non-cash charges and are used by us to determine compliance with financial covenants therein and our ability to engage in certain activities, such as incurring additional debt. The company also uses adjusted EBITDA, segment operating profit and adjusted EPS as significant components when measuring our operating performance under our employee incentive compensation programs.

With respect to free cash flow, the company believes that investors may find this measure useful to analyze the cash flow generated from operations after accounting for cash outflows to support operations and capital expenditures. With respect to net cash, the company believes that investors use this measure when calculating the company’s net leverage ratio.

Net income attributable to CBRE Group, Inc. stockholders, as adjusted (or adjusted net income), and diluted income per share attributable to CBRE Group, Inc. stockholders, as adjusted (or adjusted EPS), are calculated as follows (in thousands, except share and per share data):

_______________

Adjusted EBITDA is calculated as follows (in thousands):

_______________

Adjusted EBITDA for the trailing twelve months ended June 30, 2021 is calculated as follows (in thousands):

_______________

Revenue includes client reimbursed pass through costs largely associated with employees that are dedicated to client facilities and subcontracted vendor work performed for clients. Reimbursement related to subcontracted vendor work generally has no margin and has been excluded from net revenue. Reconciliations are shown below (in thousands):

Real Estate Investments adjusted revenue is computed as follows (in thousands):

Below represents a reconciliation of REI business line operating profitability to REI segment operating profit (in thousands):

View source version on businesswire.com: https://www.businesswire.com/news/home/20210729005259/en/