CBRE Group, Inc. Reports Financial Results for Third-Quarter 2021

Net Income Up 137% and EPS Up 135% to $1.28

Adjusted Net Income Up 93% and Adjusted EPS Up 92% to $1.39

DALLAS–(BUSINESS WIRE)–CBRE Group, Inc. (NYSE:CBRE) today reported financial results for the third quarter ended September 30, 2021.

“The benefits of our diversification strategy were clearly evident in the third quarter with both earnings per share and adjusted earnings per share 70% or more above the third-quarter 2019 peak,” said Bob Sulentic, president and chief executive officer of CBRE. “Our leaders around the world have been adept at identifying and securing compelling opportunities to grow our business across the four dimensions of diversification – asset types, business lines, client types and geographies. While returning capital to our shareholders, we have committed approximately $2 billion of capital already this year to secularly favored areas, including green energy and infrastructure project management, logistics and multifamily assets and flex office solutions. These investments, and the opportunities they open up for us to make further capital and organic investments in these areas, will position us to drive earnings growth for years to come.”

Consolidated Financial Results Overview

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

					% Change
	Q3 2021		Q3 2020		USD		LC⁽¹⁾
Operating Results
Revenue	$	6,798	$	5,645	20.4	%	18.6	%
Net revenue ⁽²⁾		4,173		3,249	28.5	%	26.5	%
GAAP net income		436		184	136.6	%	133.2	%
GAAP EPS	$	1.28	$	0.55	134.8	%	131.4	%
Adjusted EBITDA ⁽³⁾		736		442	66.6	%	64.6	%
Adjusted net income ⁽⁴⁾		474		245	93.4	%	90.6	%
Adjusted EPS ⁽⁴⁾	$	1.39	$	0.73	91.9	%	89.1	%

Cash Flow Results
Cash flow from operations	$	973	$	866	12.3	%
Less: Capital expenditures		45		56	(19.4	)%
Free cash flow ⁽⁵⁾	$	928	$	810	14.5	%

Advisory Services Segment

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

							% Change
	Q3 2021			Q3 2020			USD		LC
Revenue	$	2,412		$	1,630		48.0	%	46.2	%
Net revenue	2,402			1,624			47.9	%	46.1	%
Segment operating profit ⁽⁶⁾	522			287			81.9	%	80.2	%
Segment operating profit on revenue margin ⁽⁷⁾	21.6		%	17.6		%	4.0	%	4.1	%
Segment operating profit on net revenue margin ⁽⁷⁾	21.7		%	17.6		%	4.1	%	4.1	%

The Advisory Services segment rebounded strongly from pandemic-suppressed levels of third-quarter 2020. Third-quarter 2021 revenue growth was very strong, with all business lines exceeding third-quarter 2019 levels. In addition to strong revenue growth, cost-saving actions taken in 2020 contributed to a more than 80% increase in segment operating profit.

Capital markets activity led the segment’s recovery. Global property sales revenue rose 93% (91% local currency) from the weak levels of last year’s third quarter and exceeded the third-quarter 2019 peak level by 27%. Compared with last year’s third quarter, the United States posted a robust increase, with revenue up 116%, and CBRE’s market share improved 20 basis points from last year’s third quarter to a market-leading 16.8%, according to Real Capital Analytics. International markets also saw strong increases versus last year’s third quarter, paced by Australia and the United Kingdom.

Commercial mortgage origination revenue jumped 41% (same local currency) from third-quarter 2020. Lending activity rose across all capital sources in step with increased investment market activity, with private lenders leading the upturn. During the quarter, industrial and multifamily assets remained in keen demand, while interest in hospitality, retail and well-leased office assets also increased. Government-Sponsored Enterprise lending picked up from earlier in the year, with an emphasis on affordable housing.

Leasing activity continued to revive. Compared with last year’s third quarter, global leasing revenue increased 58% (57% local currency) and exceeded the third-quarter 2019 peak level by 7%. International markets continued to set the pace for leasing recovery with both EMEA and APAC increasing by double-digit percentages compared with the third-quarter 2019 peak level. United States revenue surged 67% compared with third-quarter 2020 and increased 5% from the third-quarter 2019 peak. Industrial properties once again saw very strong growth. Activity at United States office buildings improved notably compared with both second-quarter 2021 and third-quarter 2020 but remained below pre-pandemic levels.

Loan servicing revenue increased 35% (same local currency) from third-quarter 2020 and the loan servicing portfolio increased 19% to approximately $300 billion at quarter’s end. Valuation revenue continued to bounce back strongly around the globe, rising 27% (25% local currency) from third-quarter 2020. Property management revenue rose 6% (5% local currency) compared with third-quarter 2020.

Global Workplace Solutions (GWS) Segment

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

							% Change
	Q3 2021			Q3 2020			USD		LC
Revenue	$	4,167		$	3,851		8.2	%	6.5	%
Net revenue ⁽⁸⁾	1,552			1,460			6.3	%	4.4	%
Segment operating profit	187			161			16.5	%	14.4	%
Segment operating profit on revenue margin	4.5		%	4.2		%	0.3	%	0.3	%
Segment operating profit on net revenue margin	12.1		%	11.0		%	1.1	%	1.1	%

The GWS segment again posted solid revenue growth and 16% operating profit growth across its global business base.

Facilities management, which is largely contractual, saw an increase of 6% (4% local currency) in revenue compared with third-quarter 2020. This increase was propelled by significant strength with local clients.

Project management revenue rose 21% (19% local currency) from third-quarter 2020, reflecting a continued recovery of construction activity following last year’s lockdowns.

The new business pipeline increased markedly from the second quarter and was up relative to third-quarter 2020 and 2019 levels, with representation from financial services, industrial, life sciences and technology companies.

Real Estate Investments (REI) Segment

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

					% Change
	Q3 2021		Q3 2020		USD		LC
Revenue	$	224	$	170	32.0	%	27.7	%
Adjusted revenue ⁽⁹⁾	358		215		66.7	%	64.7	%
Segment operating profit⁽¹⁰⁾	146		71		104.6	%	103.1	%

Continued strong growth in both development services and investment management drove a sharp increase in segment operating profit in the third quarter.

Global real estate development operating profit ⁽¹¹⁾ nearly doubled from third-quarter 2020 to approximately $100 million, fueled by a strong pace of industrial asset sales at high valuations.

The in-process development portfolio ended the quarter at $16.8 billion, a record level for the company and up $1.6 billion from second-quarter 2021. Build-to-suits and fee development comprised approximately half of the in-process portfolio. The pipeline remained relatively stable at $9.6 billion, largely comprised of industrial and multifamily assets.

Investment management revenue rose 35% (32% local currency) from third-quarter 2020 to $135 million, driven by a record level of asset management fees and higher incentive, acquisition and disposition fees. Operating profit⁽¹¹⁾ surged 68% (64% local currency) from third-quarter 2020 to $49 million, reflecting strong revenue gains and prudent cost management.

Assets under management ended the quarter at $133.1 billion, a record high for the company and an increase of $4.0 billion ($5.8 billion local currency) from second-quarter 2021. The increase reflected higher asset valuations and strong net capital inflows, partly offset by unfavorable foreign currency movement.

Corporate and Other Segment

Corporate segment expense, which primarily reflects overhead costs, increased to $118.8 million from $77.1 million in the prior-year quarter. The increase was primarily due to an increase in stock compensation expense tied to significant growth in performance this quarter as compared to the three months ended September 30, 2020, when the operating results were impacted by the pandemic.

Capital Allocation Overview

Free Cash Flow – During the third quarter of 2021, free cash flow increased 14.5% to $927.5 million. This reflected cash from operating activities of $973.0 million, less total capital expenditures of $45.5 million. Net capital expenditures totaled $39.7 million. ⁽¹²⁾
Stock Repurchase Program – The company spent $100.0 million to repurchase more than 1.0 million shares at an average price of $97.55 per share during the third quarter of 2021, and $188.3 million to repurchase 2.2 million shares at an average price of $87.29 per share during the first nine months of 2021. There was $161.7 million of capacity remaining under the company’s authorized stock repurchase program as of September 30, 2021.
Acquisitions and Investments – As announced in July 2021, the company signed 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. Of this amount, an initial payment of approximately $0.7 billion will be made in early November, when the transaction is expected to close. In addition, the company made in-fill acquisitions totaling $21.0 million in cash and deferred consideration during the third quarter.

Leverage and Financing Overview

Leverage – The company’s net leverage ratio (net cash ⁽¹³⁾ to trailing twelve-month adjusted EBITDA) was (0.31x) as of September 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):

	As of
	September 30, 2021
Total debt	$	1,849
Less: Cash ⁽¹⁴⁾		2,676
Net debt (cash) ⁽¹³⁾	$	(827	)

Divided by: Trailing twelve month adjusted EBITDA	$	2,699

Net leverage ratio	(0.31x)

Liquidity – As of September 30, 2021, the company had approximately $5.8 billion of total liquidity, consisting of approximately $2.7 billion in cash, plus the ability to borrow an aggregate of approximately $3.1 billion under its revolving credit facilities, net of any outstanding letters of credit.

Conference Call Details

The company’s third quarter earnings webcast and conference call will be held today, Thursday, October 28, 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 October 28, 2021. The replay is accessible by dialing 877.660.6853 (U.S.) or 201.612.7415 (International) and using the access code: 13723947#. 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 Commission 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 June 30, 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.

⁽¹⁾		Local currency percentage change is calculated by comparing current-period results at prior-period exchange rates versus prior-period results.
⁽²⁾		Net revenue is gross revenue less costs largely associated with subcontracted vendor work performed for clients. These costs are reimbursable by clients and generally have no margin.
⁽³⁾		Adjusted EBITDA represents earnings before net interest expense, write-off of financing costs on extinguished debt, income taxes, depreciation and amortization, asset impairments, adjustments related to certain carried interest incentive compensation expense (reversal) to align with the timing of associated revenue, fair value adjustments to real estate assets acquired in the Telford Acquisition (purchase accounting) that were sold in the period, costs incurred related to legal entity restructuring, costs associated with workforce optimization, transformation initiatives, and integration and other costs related to acquisitions.
⁽⁴⁾		Adjusted net income and adjusted earnings per diluted share (or adjusted EPS) exclude the effect of select items from GAAP net income and GAAP earnings per diluted share as well as adjust the provision for income taxes for such charges. Adjustments during the periods presented included non-cash depreciation and amortization expense related to certain assets attributable to acquisitions, certain carried interest incentive compensation expense (reversal) to align with the timing of associated revenue, the impact of fair value adjustments to real estate assets acquired in the Telford Acquisition (purchase accounting) that were sold in the period, costs incurred related to legal entity restructuring, integration and other costs related to acquisitions, costs associated with workforce optimization, transformation initiatives and asset impairments.
⁽⁵⁾		Free cash flow is calculated as cash flow from operations, less capital expenditures (reflected in the investing section of the consolidated statement of cash flows).
⁽⁶⁾		Segment operating profit is the measure reported to the chief operating decision maker (CODM) for purposes of making decisions about allocating resources to each segment and assessing performance of each segment. Segment operating profit represents earnings before net interest expense, write-off of financing costs on extinguished debt, income taxes, depreciation and amortization and asset impairments, as well as adjustments related to the following: certain carried interest incentive compensation expense (reversal) to align with the timing of associated revenue, fair value adjustments to real estate acquired in the Telford Acquisition (purchase accounting) that were sold in the period, costs incurred related to legal entity restructuring, costs associated with workforce optimization, transformation initiatives and integration and other costs related to acquisitions. Prior period results have been recast to conform to this definition.
⁽⁷⁾		Segment operating profit on revenue and net revenue margins represent segment operating profit divided by revenue and net revenue, respectively.
⁽⁸⁾		Third-quarter 2021 GWS net revenue growth was negatively impacted by approximately 3% due to a reclassification of pass-through revenue in project management. There was no impact to GWS revenue in the period.
⁽⁹⁾		Adjusted revenue for the Real Estate Investments segment reflects revenue for this segment, less the direct cost of revenue, along with equity income from unconsolidated subsidiaries and gain on disposition of real estate, net of non-controlling interests. Adjusted revenue also removes the impact of fair value adjustments to real estate assets acquired in the Telford Acquisition (purchase accounting) that were sold in the period.
⁽¹⁰⁾		Segment operating profit in the Real Estate Investments segment includes equity income from unconsolidated subsidiaries and gain on disposition of real estate, net of non-controlling interests, and the associated compensation expense.
⁽¹¹⁾		Represents line of business profitability/losses, as adjusted.
⁽¹²⁾		For the three months ended September 30, 2021, the company incurred capital expenditures of $45.5 million (reflected in the investing section of the condensed consolidated statement of cash flows) and received tenant concessions from landlords of $5.8 million (reflected in the operating section of the condensed consolidated statement of cash flows).
⁽¹³⁾		Net debt (cash) is calculated as cash available for company use less total debt (excluding non-recourse debt).
⁽¹⁴⁾		Cash represents cash and cash equivalents (excluding restricted cash) and excludes $92.2 million of cash in consolidated funds and other entities not available for company use at September 30, 2021.