CBRE GROUP, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide the reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity and certain other factors that may affect future results. The MD&A in this Quarterly Report on Form 10-Q (Quarterly Report) forCBRE Group, Inc. for the three months endedMarch 31, 2022 should be read in conjunction with our consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 (2021 Annual Report) as well as the unaudited financial statements included elsewhere in this Quarterly Report. In addition, the statements and assumptions in this Quarterly Report that are not statements of historical fact are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 or Section 21E of the Securities Exchange Act of 1934, each as amended, including, in particular, statements about our plans, strategies and prospects as well as estimates of industry growth for the next quarter and beyond. For important information regarding these forward-looking statements, please see the discussion below under the caption "Cautionary Note on Forward-Looking Statements."
Overview
CBRE Group, Inc. is aDelaware corporation. References to "CBRE," "the company," "we," "us" and "our" refer toCBRE Group, Inc. and include all of its consolidated subsidiaries, unless otherwise indicated or the context requires otherwise. We are the world's largest commercial real estate services and investment firm, based on 2021 revenue, with leading global market positions in leasing, property sales, occupier outsourcing and valuation businesses. As ofDecember 31, 2021 , the company had more than 105,000 employees (excluding Turner & Townsend employees) serving clients in more than 100 countries. We provide services to real estate investors and occupiers. For investors, our services include capital markets (property sales, mortgage origination, sales and servicing), property leasing, investment management, property management, valuation and development services, among others. For occupiers, our services include facilities management, project management, transaction (both property sales and leasing) and consulting services, among others. We provide services under the following brand names: "CBRE" (real estate advisory and outsourcing services); "CBRE Investment Management " (investment management); "Trammell Crow Company " (U.S. development); "Telford Homes " (U.K. development); and "Turner & Townsend Holdings Limited ". We generate revenue from both stable, recurring (large multi-year portfolio and per project contracts) and more cyclical, non-recurring sources, including commissions on transactions. Our revenue mix has become heavily weighted towards stable revenue sources, particularly occupier outsourcing, with our dependence on highly cyclical property sales and lease transaction revenue declining markedly. As a result of our four-dimension diversification strategy (asset types, lines of business, clients and geographies) and strong balance sheet, we believe we are well-positioned to capture a substantial and growing share of market opportunities at a time when investors and occupiers increasingly prefer to purchase integrated, account-based services on a national and global basis. We also believe we are increasingly well suited to weather challenging periods due to our increased diversification and resiliency. In 2021, we generated revenue from a highly diversified base of clients, including 93 of the Fortune 100 companies. We have been an S&P 500 company since 2006 and in 2022 we were ranked #122 on the Fortune 500. We have been voted the most recognized commercial real estate brand in theLipsey Company survey for 21 years in a row (including 2022). We have also been rated a World'sMost Ethical Company by theEthisphere Institute for nine consecutive years (including 2022), and have been included in both the Dow Jones World Sustainability Index for three years in a row and the Bloomberg Gender-Equality Index for three years in a row. The Covid-19 pandemic has primarily impacted the property sales and leasing lines of business in the Advisory Services segment. Many property owners and occupiers initially put transactions on hold and withdrew existing mandates, sharply reducing sales and leasing volumes. The effects of Covid-19 eased significantly in 2021 and early 2022 as global economic conditions have improved and sales and leasing volumes have risen markedly. Further, trends which have hindered office occupancy have catalyzed strong industrial and multifamily transaction volumes, which has offset subdued office activity. Nevertheless, Covid-19 continues to pose public health challenges that impact our operations, and the majority of workers remain out of their offices and occupier confidence in making long-term office leasing decisions has not returned to pre-pandemic levels. In addition,Russia's invasion ofUkraine onFebruary 24, 2022 and the ongoing military conflict poses heightened risk, particularly for our operations in central and easternEurope , and could exacerbate macro-economic challenges, including supply chain disruptions and persistently high inflation, as well as adversely affect business and/or consumer sentiment as well as overall economic growth. While the economies directly impacted by the invasion,Russia andUkraine , are not material to our business, the direct and indirect impacts of this evolving situation and its effect on global economies in future periods are difficult to predict. 26
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Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted inthe United States , or GAAP, which require us to make estimates and assumptions that affect reported amounts. The estimates and assumptions are based on historical experience and on other factors that we believe to be reasonable. Actual results may differ from those estimates. We believe that the following critical accounting policies represent the areas where more significant judgments and estimates are used in the preparation of our consolidated financial statements. A discussion of such critical accounting policies, which include revenue recognition, goodwill and other intangible assets, and income taxes can be found in our 202 1
Annual Report . There have been no material changes to these policies and
estimates as of
New Accounting Pronouncements
See Note 2 of the Notes to Consolidated Financial Statements (Unaudited) set forth in Item 1 of this Quarterly Report.
Seasonality
In a typical year, a significant portion of our revenue is seasonal, which an investor should keep in mind when comparing our financial condition and results of operations on a quarter-by-quarter basis. Historically, our revenue, operating income, net income and cash flow from operating activities have tended to be lowest in the first quarter and highest in the fourth quarter of each year. Revenue, earnings and cash flow have generally been concentrated in the fourth calendar quarter due to the focus on completing sales, financing and leasing transactions prior to year-end. The ongoing impact of the Covid-19 pandemic may cause seasonality to deviate from historical patterns.
Inflation
Our commissions and other variable costs related to revenue are primarily affected by commercial real estate market supply and demand, which may be affected by inflation. For example, input costs for construction materials in our development business have increased as a result of inflation related to supply chain issues and worker shortages. However, these increases have been more than offset by rising property values. We believe that our business has significant inherent protections against inflation, and to date, general inflation has not had a material impact upon our operations. The company continues to monitor inflation, potential monetary policy changes in response to high inflation and potentially adverse effects to our business from either higher inflation or interest rates, or both.
Items Affecting Comparability
When you read our financial statements and the information included in this Quarterly Report, you should consider that we have experienced, and continue to experience, several material trends and uncertainties (particularly those caused or exacerbated by Covid-19) that have affected our financial condition and results of operations that make it challenging to predict our future performance based on our historical results. We believe that the following material trends and uncertainties are crucial to an understanding of the variability in our historical earnings and cash flow and the potential for continued variability in the future. Macroeconomic Conditions Economic trends and government policies affect global and regional commercial real estate markets as well as our operations directly. These include overall economic activity and employment growth, with specific sensitivity to growth in office-based employment; levels of and changes in interest rates; the cost and availability of credit; the impact of tax and regulatory policies, and geopolitical events, such as the outbreak of war inUkraine . Periods of economic weakness or recession, significantly rising interest rates, fiscal uncertainty, declining employment levels, decreasing demand for commercial real estate, falling real estate values, disruptions to the global capital or credit markets or general economic activity, or the public perception that any of these events may occur, will negatively affect the performance of our business. Compensation is our largest expense and our sales and leasing professionals generally are paid on a commission and/or bonus basis that correlates with their revenue production. As a result, the negative effects on our operating margins of difficult market conditions, such as the environment that prevailed in the early months of the Covid-19 pandemic, are partially mitigated by the inherent variability of our compensation cost structure. In addition, when negative economic conditions have been particularly severe, like during the current Covid-19 pandemic, we have moved decisively to lower operating expenses to improve financial performance. Additionally, our contractual revenue and other sources of more stable revenue have increased over many years primarily as a result of growth in our outsourcing business, and we believe this contractual revenue should help offset the negative impacts that macroeconomic deterioration could have on other parts of our business. We also believe 27
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that we have significantly improved the resiliency of our business through a four-dimension diversification strategy that has expanded the business strategically across asset types, clients, geographies and lines of business. Nevertheless, adverse global and regional economic trends could pose significant risks to the performance of our consolidated operations and financial condition.
Effects of Acquisitions
We have historically made significant use of strategic acquisitions to add and enhance service capabilities around the world. Most recently, we acquired a 60% controlling ownership interest inTurner & Townsend Holdings Limited (Turner & Townsend). We believe that this partnership will help us advance our diversification strategy across four dimensions including asset types, lines of business, clients, and geographies. Turner & Townsend is a leading professional services company specializing in program management, project management, cost and commercial management and advisory services across the real estate, infrastructure and natural resources sectors, and is consolidated and reported in ourGlobal Workplace Solutions segment. Turner & Townsend was acquired for onNovember 1, 2021 for £960.0 million, or$1.3 billion along with the acquisition of$44.0 million (£32.2 million) in cash. The Turner & Townsend Acquisition was funded with cash on hand and gross deferred purchase consideration of$591.2 million (£432.0 million). Strategic in-fill acquisitions have played a key role in strengthening our service offerings. The companies we acquired have generally been regional or specialty firms that complement our existing platform, or independent affiliates, which, in some cases, we held a small equity interest. During 2021, we completed eight in-fill acquisitions: aU.S. firm that provides construction and project management services, a professional service advisory firm inAustralia , aU.S. firm focused on investment banking and investment sales in the global gaming real estate market, a leading facilities management firm inthe Netherlands , a workplace interior design and project management company inSingapore , a property management firm inFrance , a residential brokerage inthe Netherlands , and an occupancy management company based in theU.S. During the first quarter of 2022, we completed three in-fill acquisitions: a leading project management firm inSpain andPortugal , a retail acquisition and a property agency in theUnited Kingdom . We believe strategic acquisitions can significantly decrease the cost, time and resources necessary to attain a meaningful competitive position - or expand our capabilities - within targeted markets or business lines. In general, however, most acquisitions will initially have an adverse impact on our operating income and net income as a result of transaction-related expenditures, including severance, lease termination, transaction and deferred financing costs, as well as costs and charges associated with integrating the acquired business and integrating its financial and accounting systems into our own. Our acquisition structures often include deferred and/or contingent purchase consideration in future periods that are subject to the passage of time or achievement of certain performance metrics and other conditions. As ofMarch 31, 2022 , we have accrued deferred purchase and contingent considerations totaling$615.2 million , which is included in "Accounts payable and accrued expenses" and in "Other long-term liabilities" in the accompanying consolidated balance sheets set forth in Item 1 of this Quarterly Report.
International Operations
We conduct a significant portion of our business and employ a substantial number of people outside of theU.S. As a result, we are subject to risks associated with doing business globally. Our Real Estate Investments business has a significant amount of euro-denominated assets under management, as well as associated revenue and earnings inEurope . In addition, ourGlobal Workplace Solutions business also has a significant amount of its revenue and earnings denominated in foreign currencies, such as the euro and British pound sterling. Fluctuations in foreign currency exchange rates have resulted and may continue to result in corresponding fluctuations in our AUM, revenue and earnings. Our businesses could suffer from the effects of public health crises (such as the ongoing Covid-19 pandemic), geopolitical (such as the invasion ofUkraine ) or economic disruptions (or the perception that such disruptions may occur) that affect interest rates or liquidity or create financial, market or regulatory uncertainty. 28
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During the three months endedMarch 31, 2022 , approximately 43.7% of our revenue was transacted in foreign currencies. The following table sets forth our revenue derived from our most significant currencies (dollars in thousands): Three Months Ended March 31, 2022 2021 United States dollar$ 4,131,397 56.3 %$ 3,348,859 56.4 % British pound sterling 985,999 13.4 % 777,044 13.1 % euro 681,912 9.3 % 629,624 10.6 % Canadian dollar 318,560 4.3 % 239,710 4.0 % Australian dollar 165,939 2.3 % 110,052 1.9 % Indian rupee 119,866 1.6 % 107,310 1.8 % Chinese yuan 118,343 1.6 % 98,215 1.7 % Japanese yen 117,471 1.6 % 77,334 1.3 % Swiss franc 95,558 1.3 % 91,816 1.5 % Singapore dollar 83,125 1.1 % 66,873 1.1 % Other currencies (1) 514,763 7.2 % 392,042 6.6 % Total revenue$ 7,332,933 100.0 %$ 5,938,879 100.0 %
_______________________________
(1)Approximately 48 currencies comprise 7.2% of our revenues for the three
months ended
Although we operate globally, we report our results inU.S. dollars. As a result, the strengthening or weakening of theU.S. dollar may positively or negatively impact our reported results. For example, we estimate that had the British pound sterling-to-U.S. dollar exchange rates been 10% higher during the three months endedMarch 31, 2022 , the net impact would have been an increase in pre-tax income of$0.9 million . Had the euro-to-U.S. dollar exchange rates been 10% higher during the three months endedMarch 31, 2022 , the net impact would have been an increase in pre-tax income of$6.2 million . These hypothetical calculations estimate the impact of translating results intoU.S. dollars and do not include an estimate of the impact that a 10% change in theU.S. dollar against other currencies would have had on our foreign operations. Due to the constantly changing currency exposures to which we are subject and the volatility of currency exchange rates, we cannot predict the effect of exchange rate fluctuations upon future operating results. In addition, fluctuations in currencies relative to theU.S. dollar may make it more difficult to perform period-to-period comparisons of our reported results of operations. Our international operations also are subject to, among other things, political instability and changing regulatory environments, which affect the currency markets and which as a result may adversely affect our future financial condition and results of operations. We routinely monitor these risks and related costs and evaluate the appropriate amount of oversight to allocate towards business activities in foreign countries where such risks and costs are particularly significant. 29
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Results of Operations
The following table sets forth items derived from our consolidated statements of
operations for the three months ended
Three Months Ended
2022 2021
Revenue:
Net revenue:
Facilities management $ 1,242,529 16.9 % $ 1,156,489 19.5 %
Property management 438,094 6.0 % 408,569 6.9 %
Project management 623,961 8.5 % 308,117 5.2 %
Valuation 181,142 2.5 % 159,590 2.7 %
Loan servicing 74,015 1.0 % 68,841 1.2 %
Advisory leasing 772,722 10.5 % 520,216 8.8 %
Capital markets:
Advisory sales 619,827 8.5 % 392,312 6.6 %
Commercial mortgage origination 144,870 2.0 % 139,865 2.4 %
Investment management 150,567 2.1 % 132,071 2.2 %
Development services 133,190 1.8 % 79,058 1.2 %
Corporate, other and eliminations (4,888) (0.1) % (6,145) (0.1) %
Total net revenue 4,376,029 59.7 % 3,358,983 56.6 %
Pass through costs also recognized as revenue 2,956,904 40.3 % 2,579,896 43.4 %
Total revenue 7,332,933 100.0 % 5,938,879 100.0 %
Costs and expenses:
Cost of revenue 5,752,194 78.5 % 4,719,546 79.5 %
Operating, administrative and other 1,065,996 14.6 % 828,327 13.9 %
Depreciation and amortization 149,032 2.0 % 122,078 2.1 %
Asset impairments 10,351 0.1 % - 0.0 %
Total costs and expenses 6,977,573 95.2 % 5,669,951 95.5 %
Gain on disposition of real estate 21,592 0.3 % 156 0.0 %
Operating income 376,952 5.1 % 269,084 4.5 %
Equity income from unconsolidated subsidiaries 42,871 0.5 % 83,594 1.4 %
Other (loss) income (14,464) (0.2) % 2,732 0.0 %
Interest expense, net of interest income 12,826 0.1 % 10,106 0.1 %
Income before (benefit from) provision for income taxes 392,533
5.3 % 345,304 5.8 %
(Benefit from) provision for income taxes (3,738) (0.1) % 76,327 1.3 %
Net income 396,271 5.4 % 268,977 4.5 %
Less: Net income attributable to non-controlling
interests 3,974 0.1 % 2,775 0.0 %
Net income attributable to CBRE Group, Inc. $ 392,297 5.3 % $ 266,202 4.5 %
Consolidated Adjusted EBITDA (1) $ 595,699 8.1 % $ 493,919 8.3 %
Adjusted EBITDA attributable to non-controlling
interests (1) $ 18,500 $ 2,775 Adjusted EBITDA attributable to
$ 491,144
_______________________________
(1)In conjunction with the acquisition of a 60% interest in Turner & Townsend in the fourth quarter of 2021, we modified our definition of Consolidated Adjusted EBITDA and Segment Operating Profit (SOP) to be inclusive of net income attributable to non-controlling interests and have recast prior periods to conform to this definition. Net revenue and consolidated adjusted EBITDA are not recognized measurements under accounting principles generally accepted inthe United States , or 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. We generally use these non-GAAP financial measures to evaluate operating performance and for other discretionary purposes. We believe 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 costs and charges that may obscure the underlying performance of our business and related trends. Because not all companies use identical calculations, our presentation of net revenue and consolidated adjusted EBITDA may not be comparable to similarly titled measures of other companies. 30 -------------------------------------------------------------------------------- Table of contents Net revenue is gross revenue less costs largely associated with subcontracted vendor work performed for clients and generally has no margin. Prior to 2021, the company utilized fee revenue to analyze the overall financial performance. Fee revenue excluded additional reimbursed costs, primarily related to employees dedicated to clients, some of which included minimal margin. We use consolidated adjusted EBITDA as an indicator of consolidated financial performance. It represents earnings before the portion attributable to non-controlling interests, 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, and integration and other costs related to acquisitions. We believe 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 effects of acquisitions, which would include impairment charges of goodwill and intangibles created from acquisitions, the effects of financings and income taxes and the accounting effects of capital spending. Consolidated adjusted EBITDA is not intended to be a measure of free cash flow for our discretionary use because it does not consider certain cash requirements such as tax and debt service payments. This measure may also differ from the amounts calculated under similarly titled definitions in our credit facilities and debt instruments, which 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. We also use consolidated adjusted EBITDA as a significant component when measuring our operating performance under our employee incentive compensation programs. Consolidated adjusted EBITDA is calculated as follows (dollars in thousands): Three Months Ended March 31, 2022 2021 Net income attributable to CBRE Group, Inc.$ 392,297 $ 266,202 Net income attributable to non-controlling interests 3,974 2,775 Net income 396,271 268,977 Add: Depreciation and amortization 149,032 122,078 Asset impairments 10,351 - Interest expense, net of interest income 12,826 10,106 (Benefit from) provision for income taxes (3,738) 76,327
Carried interest incentive compensation expense to align with the
timing of associated revenue 22,856 15,332
Impact of fair value adjustments to real estate assets acquired in the
Telford acquisition (purchase accounting) that were sold in period (1,696)
1,099
Costs incurred related to legal entity restructuring 1,676 -
Integration and other costs related to acquisitions 8,121 -
Consolidated Adjusted EBITDA $ 595,699 $ 493,919 Three Months Ended
We reported consolidated net income of$392.3 million for the three months endedMarch 31, 2022 on revenue of$7.3 billion as compared to consolidated net income of$266.2 million on revenue of$5.9 billion for the three months endedMarch 31, 2021 . Our revenue on a consolidated basis for the three months endedMarch 31, 2022 increased by$1.4 billion , or 23.5%, as compared to the three months endedMarch 31, 2021 . The revenue increase reflects growth across the three business segments; Advisory Services gross revenue increased by$540.4 million or 31.6% as all lines of businesses experienced growth this quarter as compared to same quarter in prior year. However, growth in sales and lease revenue were the most significant as we continue to recover from the impacts of the pandemic across our major markets. Revenue in ourGlobal Workplace Solutions segment increased more than 19% primarily due to an increase in the project management revenue stream which now also reflects a full quarter contribution from our Turner & Townsend partnership. Revenue in theReal Estate Investment services segment was up 34% as we continue to realize elevated asset management fees driven by asset appreciation and increased development and construction revenue due to a robust deal portfolio. Foreign currency translation had a 2.0% negative impact 31
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on total revenue during the three months ended
Our cost of revenue on a consolidated basis increased by$1.0 billion , or 21.9%, during the three months endedMarch 31, 2022 as compared to the same period in 2021. This increase was primarily due to higher commission expense associated with our Advisory Services segment due to growth in our sales and leasing business. In addition, ourReal Estate Investment segment experienced a shift in the composition of its revenue this quarter comprising of an increased contribution from development services, which incurs cost of revenue in itsUK multifamily developments, as compared to investment management and the remainder of developments services, which does not have an associated cost of revenue. In addition, foreign currency translation had a 1.9% positive impact on total cost of revenue during the three months endedMarch 31, 2022 . Cost of revenue as a percentage of revenue decreased to 78.5% for the three months endedMarch 31, 2022 from 79.5% for the three months endedMarch 31, 2021 , primarily due to project management revenue stream from Turner & Townsend, which generally has a higher margin and contributed to the decline in the above ratio. Our operating, administrative and other expenses on a consolidated basis increased by$237.7 million , or 28.7%, during the three months endedMarch 31, 2022 as compared to the same period in 2021. The increase was primarily due to an increase in compensation and benefits for support staff given the expansion of the business, employee recruitment costs, business promotion, advertising and travel, overall bonus accrual, acquisition and integration related costs and higher charitable contributions and donations as compared to the three months endedMarch 31, 2021 . In addition, the current quarter also included operating expenses from our Turner & Townsend business. Foreign currency translation had a 2.2% positive impact on total operating, administrative and other expenses during the three months endedMarch 31, 2022 . Operating expenses as a percentage of revenue increased slightly to 14.6% for the three months endedMarch 31, 2022 from 13.9% for the three months endedMarch 31, 2021 . Our depreciation and amortization expense on a consolidated basis increased by$27.0 million , or 22.1%, during the three months endedMarch 31, 2022 as compared to the same period in 2021. This increase was primarily attributable to amortization of backlog and customer relationship intangibles from the acquisition of Turner & Townsend, with no comparable activity in the prior period.
We recorded
Our gain on disposition of real estate on a consolidated basis was$21.6 million for the three months endedMarch 31, 2022 , which was an increase over the prior year period, due to an increase in property sales on consolidated deals within our Real Estate Investments segment. Our equity income from unconsolidated subsidiaries decreased by$40.7 million , or 48.7%, during the three months endedMarch 31, 2022 as compared to the same period in 2021, primarily driven by a decrease in the fair value adjustment of our non-core strategic equity investment in Altus Power, Inc. (Altus). This was partially offset by higher equity earnings associated with property sales reported in our Real Estate Investments segment and a positive fair value adjustment related to Industrious in the Advisory Services segment. Our consolidated interest expense, net of interest income, increased by$2.7 million , or 26.9%, for the three months endedMarch 31, 2022 as compared to the same period in 2021. This increase was primarily due to interest expense associated with the 2.500% senior notes issued inMarch 2021 . Our benefit from income taxes on a consolidated basis was$3.7 million for the three months endedMarch 31, 2022 as compared to a provision for income taxes of$76.3 million for the three months endedMarch 31, 2021 . The decrease of$80.1 million is primarily related to the recognition of a net discrete tax benefit of approximately$82.2 million attributable to an outside basis difference recognized as a result of legal entity restructuring, offset by an increase in our consolidated pre-tax book income. Our effective tax rate decreased to (1.0)% for the three months endedMarch 31, 2022 from 22.1% for the three months endedMarch 31, 2021 . Our effective tax rate for the three months endedMarch 31, 2022 was different than theU.S. federal statutory tax rate of 21.0% primarily due to the recognition of a net discrete tax benefit of approximately$82.2 million attributable to an outside basis difference recognized as a result of legal entity restructuring. 32
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Segment Operations
We organize our operations around, and publicly report our financial results on,
three global business segments: (1) Advisory Services; (2)
Advisory Services provides a comprehensive range of services globally, including property leasing, property sales, mortgage services, property management, and valuation.Global Workplace Solutions provides a broad suite of integrated, contractually-based outsourcing services to occupiers of real estate, including facilities management and project management. Real Estate Investments includes investment management services provided globally and development services in theU.S. ,U.K. and Continental Europe. We also have a Corporate and Other segment. Corporate primarily consists of corporate overhead costs. Other consists of activities from strategic non-core non-controlling equity investments and is considered an operating segment but does not meet the aggregation criteria for presentation as a separate reportable segment and is, therefore, combined with Corporate and reported as Corporate and other. It also includes eliminations related to inter-segment revenue. For additional information on our segments, see Note 14 of the Notes to Consolidated Financial Statements (Unaudited) set forth in Item 1 of this Quarterly Report.
Advisory Services
The following table summarizes our results of operations for our Advisory
Services operating segment for the three months ended
Three Months Ended March 31,
2022 2021
Revenue:
Net revenue:
Property management $ 438,094 19.5 % $ 408,569 23.9 %
Valuation 181,142 8.1 % 159,590 9.3 %
Loan servicing 74,015 3.3 % 68,841 4.0 %
Advisory leasing 772,722 34.4 % 520,216 30.5 %
Capital markets:
Advisory sales 619,827 27.6 % 392,312 23.0 %
Commercial mortgage origination 144,870 6.3 % 139,865 8.2 %
Total segment net revenue 2,230,670 99.2 % 1,689,393 98.9 %
Pass through costs also recognized as revenue 17,778 0.8 % 18,619 1.1 %
Total segment revenue 2,248,448 100.0 % 1,708,012 100.0 %
Costs and expenses:
Cost of revenue 1,312,291 58.4 % 987,577 57.8 %
Operating, administrative and other 480,255 21.4 % 388,607 22.8 %
Depreciation and amortization 74,887 3.3 % 69,754 4.1 %
Asset impairments 10,351 0.4 % - 0.0 %
Operating income 370,664 16.5 % 262,074 15.3 %
Equity income from unconsolidated subsidiaries 9,756 0.5 % 750 0.0 %
Other (loss) income (4) 0.0 % 1 0.0 %
Add-back: Depreciation and amortization 74,887 3.3 % 69,754 4.2 %
Add-back: Asset impairments 10,351 0.4 % - 0.0 %
Segment operating profit and segment operating profit on revenue margin (1)
$ 465,654 20.7 %$ 332,579 19.5 % Segment operating profit on net revenue margin 20.9 % 19.7 %
Segment operating profit attributable to non-controlling interests (1) $
970 $ 279
Segment operating profit attributable to CBRE Group, Inc. (1) $ 464,684 $ 332,300 _______________________________
(1)During the fourth quarter of 2021, we changed the definition of SOP to
include net income (loss) attributable to non-controlling interest, as discussed
further in Note 14 (Segments). Prior period segment operating profit for our
reportable segments have been recast to conform to this change.
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Three Months Ended
Revenue increased by$540.4 million , or 31.6%, for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . All lines of businesses in Advisory Services segment experienced growth in the current quarter as compared to prior year. The expansion was primarily led by sales and lease revenue which increased approximately 58% and 49%, respectively. Growth in leasing revenue was supported by continuous recovery in industrial and office sectors, mainly inthe United States , which saw an increase of over 50% this quarter as compared to prior period. Strong property sales growth was broad-based in the first quarter of 2022, across all major geographies with Pacific,North Asia and the US being particular standouts. Our valuation line of business also experienced a notable growth of more than 10% primarily in theAmericas due to increased demand fueled by ongoing improvement in the market conditions. Foreign currency translation had a 2.3% negative impact on total revenue during the three months endedMarch 31, 2022 , primarily driven by weakness in the Australian dollar, euro and Japanese yen. Cost of revenue increased by$324.7 million , or 32.9%, for the three months endedMarch 31, 2022 as compared to the same period in 2021, primarily due to increased commission expense resulting from higher sales and leasing revenue. Foreign currency translation had a 2.1% positive impact on total cost of revenue during the three months endedMarch 31, 2022 . Cost of revenue as a percentage of revenue increased to 58.4% for the three months endedMarch 31, 2022 versus 57.8% for the same period in 2021 This slight decrease in margin is primarily due to a decrease in high margin originated mortgage servicing rights gains in the current period compared to prior period. Operating, administrative and other expenses increased by$91.6 million , or 23.6%, for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . This increase was primarily due to an increase in marketing expenses, support staff compensation and benefits, overall bonus accrual, and stock compensation expenses as compared to three months endedMarch 31, 2021 . Foreign currency translation had a 2.8% positive impact on total operating expenses during the three months endedMarch 31, 2022 . In connection with the origination and sale of mortgage loans for which the company retains servicing rights, we record servicing assets or liabilities based on the fair value of the retained mortgage servicing rights (MSRs) on the date the loans are sold. Upon origination of a mortgage loan held for sale, the fair value of the mortgage servicing rights to be retained is included in the forecasted proceeds from the anticipated loan sale and results in a net gain (which is reflected in revenue). Subsequent to the initial recording, MSRs are amortized (within amortization expense) and carried at the lower of amortized cost or fair value in other intangible assets in the accompanying consolidated balance sheets. They are amortized in proportion to and over the estimated period that the servicing income is expected to be received. For the three months endedMarch 31, 2022 , MSRs contributed to operating income$35.2 million of gains recognized in conjunction with the origination and sale of mortgage loans, offset by$41.0 million of amortization of related intangible assets. For the three months endedMarch 31, 2021 , MSRs contributed to operating income$50.3 million of gains recognized in conjunction with the origination and sale of mortgage loans, offset by$35.7 million of amortization of related intangible assets. 34
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The following table summarizes our results of operations for our
Three Months Ended
2022 2021
Revenue:
Net revenue:
Facilities management $ 1,242,529 25.9 % $ 1,156,489 28.7 %
Project management 623,961 12.9 % 308,117 7.7 %
Total segment net revenue 1,866,490 38.8 % 1,464,606 36.4 %
Pass through costs also recognized as revenue 2,939,126 61.2 % 2,561,277 63.6 %
Total segment revenue 4,805,616 100.0 % 4,025,883 100.0 %
Costs and expenses:
Cost of revenue 4,373,967 91.0 % 3,697,773 91.8 %
Operating, administrative and other 239,386 5.0 % 176,011 4.4 %
Depreciation and amortization 61,969 1.3 % 34,459 0.9 %
Operating income 130,294 2.7 % 117,640 2.9 %
Equity income (loss) from unconsolidated subsidiaries 863 0.0 % (182) 0.0 %
Other income 1,489 0.0 % 266 0.0 %
Add-back: Depreciation and amortization 61,969 1.3 % 34,459 0.9 %
Adjustments:
Integration and other costs related to acquisitions 8,121 0.2 % - 0.0 %
Segment operating profit and segment operating profit on revenue margin (1)
$ 202,736 4.2 %$ 152,183 3.8 % Segment operating profit on net revenue margin 10.9 % 10.4 %
Segment operating profit attributable to non-controlling interests (1)
$ 16,854 $ 6
Segment operating profit attributable to
$ 185,882 $ 152,177
_______________________________
(1)During the fourth quarter of 2021, we changed the definition of SOP to include net income (loss) attributable to non-controlling interest, as discussed further in Note 14 (Segments). Prior period segment operating profit for our reportable segments have been recast to conform to this change.
Three Months Ended
Revenue increased by$779.7 million , or 19.4%, for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . The increase was primarily attributable to growth in both facilities management line of business, which is contractual in nature, and in project management. We recorded approximately$312.1 million in revenue from Turner & Townsend during the quarter with no such activity in the comparable period. Excluding Turner & Townsend, revenue rose nearly 12% with project management up 27% and facilities management up 9%. Foreign currency translation had a 1.8% negative impact on total revenue during the three months endedMarch 31, 2022 , primarily driven by weakness in the Japanese yen, British pound sterling and euro, partially offset by strength in the Chinese yuan and Canadian dollar. Cost of revenue increased by$676.2 million , or 18.3%, for the three months endedMarch 31, 2022 as compared to the same period in 2021, driven by the higher revenue leading to higher pass through costs and higher professional compensation. Foreign currency translation had a 1.8% positive impact on total cost of revenue during the three months endedMarch 31, 2022 . Cost of revenue as a percentage of revenue decreased slightly to 91.0% for the three months endedMarch 31, 2022 from 91.8% for the same period in 2021, primarily due to increase in project management revenue with generally has higher margins. Operating, administrative and other expenses increased by$63.4 million , or 36.0%, for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . This increase was attributable to higher support staff compensation and benefits, stock compensation expense, integration costs associated with the Turner & Townsend transaction. In addition, we recorded operating expenses incurred by Turner & Townsend this quarter with no such activity in the comparable period. Foreign currency translation had a 2.0% positive impact on total operating expenses during the three months endedMarch 31, 2022 . 35
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Real Estate Investments
The following table summarizes our results of operations for our Real Estate Investments operating segment for the three months endedMarch 31, 2022 and 2021 (dollars in thousands):
Three Months Ended
2022 2021
Revenue:
Investment management $ 150,567 53.1 % $ 132,071 62.6 %
Development services 133,190 46.9 % 79,058 37.4 %
Total segment revenue 283,757 100.0 % 211,129 100.0 %
Costs and expenses:
Cost of revenue 70,053 24.7 % 40,990 19.4 %
Operating, administrative and other 246,752 87.0 % 180,980 85.7 %
Depreciation and amortization 3,856 1.3 % 10,430 5.0 %
Gain on disposition of real estate 21,592 7.6 % 156 0.1 %
Operating loss (15,312) (5.4 %) (21,115) (10.0 %)
Equity income from unconsolidated subsidiaries 157,440 55.5 % 56,894 26.9 %
Other (loss) income (92) 0.0 % 427 0.2 %
Add-back: Depreciation and amortization 3,856 1.3 % 10,430 5.0 %
Adjustments:
Carried interest incentive compensation expense to align with the timing of associated revenue
22,856 8.1 % 15,332 7.3 %
Impact of fair value adjustments to real estate assets
acquired in the Telford Acquisition (purchase accounting)
that were sold in period (1,696) (0.6) % 1,099 0.5 %
Segment operating profit (1) $ 167,052 58.9 % $ 63,067 29.9 %
Segment operating profit attributable to non-controlling interests (1)
$ 674 $ 2,736 Segment operating profit attributable to
$ 166,378 $ 60,331
_______________________________
(1)During the fourth quarter of 2021, we changed the definition of SOP to include net income (loss) attributable to non-controlling interest, as discussed further in Note 14 (Segments). Prior period segment operating profit for our reportable segments have been recast to conform to this change.
Three Months Ended
Revenue increased by$72.6 million , or 34.4%, for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 , primarily driven by an increase in real estate sales, primarily in theUnited Kingdom , and an increase in development and construction management fees in our development services line of business globally. Investment management fees increased, supported by co-investment returns which benefited from appreciating asset values. Foreign currency translation had a 3.2% negative impact on total revenue during the three months endedMarch 31, 2022 , primarily driven by weakness in the British pound sterling and euro. Cost of revenue increased by$29.1 million , or 70.9%, for the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 , primarily driven by a change in composition of revenue this quarter. Revenue from global development services, which has an associated cost of revenue in itsUK multifamily developments, increased to 46.9% of total segment revenue as compared to 37.4% last year. Revenue from investment management and the remainder of depeloment services, which have no associated cost of revenue, contributed 53.1% to total segment revenue as compared to 62.6% last year. Foreign currency translation had a 4.5% positive impact on total cost of revenue during the three months endedMarch 31, 2022 . Operating, administrative and other expenses increased by$65.8 million , or 36.3%, for the three months endedMarch 31, 2022 as compared to the same period in 2021, primarily due to an increase in compensation and profit share in our development services and investment management line of business consistent with higher revenue growth. Foreign currency translation had a 2.0% positive impact on total operating expenses during the three months endedMarch 31, 2022 . Our equity income from unconsolidated subsidiaries on a consolidated basis increased by$100.5 million , or 176.7%, during the three months endedMarch 31, 2021 as compared to the same period in 2020, primarily driven by higher equity earnings associated with property sales reported in the development line of business. 36
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A roll forward of our AUM by product type for the three months ended
Funds Separate Accounts Securities Total
Balance at December 31, 2021 $ 56.6 $ 73.6 $ 11.7 $ 141.9
Inflows 3.8 2.3 0.9 7.0
Outflows (0.6) (3.6) (0.3) (4.5)
Market appreciation (depreciation) 1.8 0.8 (0.2) 2.4
Balance at March 31, 2022 $ 61.6 $ 73.1 $ 12.1 $ 146.8
AUM generally refers to the properties and other assets with respect to which we
provide (or participate in) oversight, investment management services and other
advice, and which generally consist of real estate properties or loans,
securities portfolios and investments in operating companies and joint ventures.
Our AUM is intended principally to reflect the extent of our presence in the
real estate market, not the basis for determining our management fees. Our
assets under management consist of:
•the total fair market value of the real estate properties and other assets
either wholly-owned or held by joint ventures and other entities in which our
sponsored funds or investment vehicles and client accounts have invested or to
which they have provided financing. Committed (but unfunded) capital from
investors in our sponsored funds is not included in this component of our AUM.
The value of development properties is included at estimated completion cost. In
the case of real estate operating companies, the total value of real properties
controlled by the companies, generally through joint ventures, is included in
AUM; and
•the net asset value of our managed securities portfolios, including investments (which may be comprised of committed but uncalled capital) in private real estate funds under our fund of funds investments.
Our calculation of AUM may differ from the calculations of other asset managers, and as a result, this measure may not be comparable to similar measures presented by other asset managers.
Corporate and Other
Our Corporate segment primarily consists of corporate overhead costs. Other consists of activities from strategic non-core non-controlling equity investments and is considered an operating segment but does not meet the aggregation criteria for presentation as a separate reportable segment and is, therefore, combined with Corporate and reported as Corporate and other. The following table summarizes our results of operations for our Corporate and other segment for the three months endedMarch 31, 2022 and 2021 (dollars in thousands): Three Months Ended March 31, (1) 2022 2021 Elimination of inter-segment revenue$ (4,888) $ (6,145) Costs and expenses: Cost of revenue (4,117) (6,794) Operating, administrative and other 99,603 82,729 Depreciation and amortization 8,320 7,435 Operating loss (108,694) (89,515) Equity (loss) income from unconsolidated subsidiaries (125,188) 26,132 Other (loss) income (15,857) 2,038 Add-back: Depreciation and amortization 8,320 7,435
Adjustments:
Costs incurred related to legal entity restructuring 1,676 - Segment operating loss$ (239,743) $ (53,910) _______________
(1)Percentage of revenue calculations are not meaningful and therefore not included.
Operating, administrative and other expenses for our corporate function were approximately$99.6 million for the three months endedMarch 31, 2022 , an increase of 20.4% as compared to the three months endedMarch 31, 2021 . This was primarily due to an increase in general compensation and related benefits, an increase in charitable contributions and donations, and an increase in third party costs to support various growth initiatives, partially offset by a relatively lower stock 37
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compensation expense as compared to prior period when we recorded a catch up related change in estimate due to better than expected company performance.
Equity loss from unconsolidated subsidiaries was approximately$125.2 million for the three months endedMarch 31, 2022 , a decrease of 579.1% as compared to the three months endedMarch 31, 2021 . This was primarily due to an unfavorable adjustment of$117.0 million recorded on our investment in Altus coupled with other insignificant mark to market adjustments for investments where the fair value option has been elected. Other loss was approximately$15.9 million for the three months endedMarch 31, 2022 . This is primarily comprised of net unfavorable activity related to unrealized and realized gain/loss on equity and available for sale debt securities owned by our wholly-owned captive insurance company. These mark to market adjustments were in a net favorable position same period in prior year.
Liquidity and Capital Resources
We believe that we can satisfy our working capital and funding requirements with internally generated cash flow and, as necessary, borrowings under our revolving credit facility. Our expected capital requirements for 2022 include up to approximately$316 million of anticipated capital expenditures, net of tenant concessions. During the three months endedMarch 31, 2022 , we incurred$39.9 million of capital expenditures, net of tenant concessions received, which includes approximately$4.7 million related to technology enablement. As ofMarch 31, 2022 , we had aggregate commitments of$115.2 million to fund future co-investments in our Real Estate Investments business,$32.1 million of which is expected to be funded in 2022. Additionally, as ofMarch 31, 2022 , we are committed to fund additional capital of$49.7 million and$100.9 million , respectively, to unconsolidated subsidiaries and to consolidated projects within our Real Estate Investments business. As ofMarch 31, 2022 , we had$3.1 billion of borrowings available under our revolving credit facilities and$1.5 billion of cash and cash equivalents available for general corporate use. We have historically relied on our internally generated cash flow and our revolving credit facility to fund our working capital, capital expenditure and general investment requirements (including strategic in-fill acquisitions) and have not sought other external sources of financing to help fund these requirements. In the absence of extraordinary events or a large strategic acquisition, we anticipate that our cash flow from operations and our revolving credit facility would be sufficient to meet our anticipated cash requirements for the foreseeable future, and at a minimum for the next 12 months. Given compensation is our largest expense and our sales and leasing professionals are generally paid on a commission and/or bonus basis that correlates with their revenue production, the negative effect of difficult market conditions is partially mitigated by the inherent variability of our compensation cost structure. In addition, when negative economic conditions have been particularly severe, we have moved decisively to lower operating expenses to improve financial performance, and then have restored certain expenses as economic conditions improved. We may seek to take advantage of market opportunities to refinance existing debt instruments, as we have done in the past, with new debt instruments at interest rates, maturities and terms we deem attractive. We may also, from time to time in our sole discretion, purchase, redeem, or retire our existing senior notes, through tender offers, in privately negotiated or open market transactions, or otherwise. InMarch 2021 , we took advantage of favorable market conditions and low interest rates and conducted a new issuance for$500.0 million in aggregate principal amount of 2.500% senior notes due 2031. OnNovember 23, 2021 , we redeemed the$300.0 million aggregate outstanding principal amount of our tranche A term loan facility due 2024 in full. We funded this redemption using cash on hand. As noted above, we believe that any future significant acquisitions we may make could require us to obtain additional debt or equity financing. In the past, we have been able to obtain such financing for material transactions on terms that we believed to be reasonable. However, it is possible that we may not be able to obtain acquisition financing on favorable terms, or at all, in the future if we decide to make any further significant acquisitions. Our long-term liquidity needs, other than those related to ordinary course obligations and commitments such as operating leases, are generally comprised of three elements. The first is the repayment of the outstanding and anticipated principal amounts of our long-term indebtedness. If our cash flow is insufficient to repay our long-term debt when it comes due, then we expect that we would need to refinance such indebtedness or otherwise amend its terms to extend the maturity dates. We cannot make any assurances that such refinancing or amendments would be available on attractive terms, if at all.
The second long-term liquidity need is the payment of obligations related to
acquisitions. Our acquisition structures often include deferred and/or
contingent purchase consideration in future periods that are subject to the
passage of time or achievement of certain performance metrics and other
conditions. As of
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consideration totaling$615.2 million ($88.9 million of which was a current liability), which was included in "Accounts payable and accrued expenses" and in "Other liabilities" in the accompanying consolidated balance sheets set forth in Item 1 of this Quarterly Report. Lastly, as described in our 2021 Annual Report , inFebruary 2019 , our board of directors authorized a program for the repurchase of up to$500.0 million of our Class A common stock over three years (the 2019 program). During the year endedDecember 31, 2021 , we repurchased 3,122,054 shares of our Class A common stock with an average price of$92.03 per share using cash on hand for$287.3 million under the 2019 program. During the three months endedMarch 31, 2022 , we repurchased an additional 615,108 shares of our Class A common stock with an average price of$101.88 per share using cash on hand for$62.7 million . As ofMarch 31, 2022 , no capacity remained under the 2019 program. InNovember 2021 , our board of directors authorized a new program for the company to repurchase up to$2.0 billion of our Class A common stock over five years, effectiveNovember 19, 2021 (the 2021 program). During the year endedDecember 31, 2021 , we repurchased 832,315 shares of our Class A common stock with an average price of$102.82 per share using cash on hand for$85.6 million . During the three months endedMarch 31, 2022 , we repurchased an additional 3,563,278 shares of our common stock with an average price of$92.10 per share using cash on hand for$328.2 million . As ofMarch 31, 2022 andMay 3, 2022 , respectively, we had$1.59 billion and$1.35 billion of capacity remaining under the 2021 program. Our stock repurchases have been funded with cash on hand and we intend to continue funding future repurchases with existing cash. We may utilize our stock repurchase programs to continue offsetting the impact of our stock-based compensation program and on a more opportunistic basis if we believe our stock presents a compelling investment compared to other discretionary uses. The timing of any future repurchases and the actual amounts repurchased will depend on a variety of factors, including the market price of our common stock, general market and economic conditions and other factors.
Historical Cash Flows
Operating Activities
Net cash used in operating activities totaled$393.5 million for the three months endedMarch 31, 2022 , an increase of$200.1 million as compared to the three months endedMarch 31, 2021 . The primary drivers that contributed to the increased usage were as follows: (1) the net cash outflow associated with net working capital deteriorated in the current period as compared to same period last year by approximately$460.1 million . This was primarily due to timing of certain cash tax payments and refunds, increased issuance of incentive compensation in the form of producer based loans, lagged collection of receivables, higher outflow related to net bonus payments. This was partially offset by lower outflow this quarter as compared to prior period related to settlement of accounts payable and other accrued expenses, and (2) the net impact from the growth in our real estate under development portfolio was approximately$25.5 million this quarter as compared to prior period contributing to the increased cash usage.
These were partially offset by higher net income in the current quarter as compared to prior period, an increase in non-cash equity income pick up and distributions from unconsolidated subsidiaries as compared to prior period and non-cash asset impairment charges.
Investing Activities
Net cash used in investing activities totaled$95.6 million for the three months endedMarch 31, 2022 , a decrease of$98.3 million as compared to the three months endedMarch 31, 2021 . This decrease was primarily driven by lower contributions to our unconsolidated investments (we made our contributions in Industrious in prior period), an increase in cash used for strategic in-fill acquisitions, and an increase of capital expenditures compared to 2021, partially offset by$5.3 million in lower distributions received from unconsolidated subsidiaries.
Financing Activities
Net cash used in financing activities totaled$209.0 million for the three months endedMarch 31, 2022 as compared to net cash provided by financing activities of$402.0 million for the three months endedMarch 31, 2021 . The increased usage during the quarter was primarily due to$367.9 million used to repurchase shares as compared to$61.1 million in prior period. In addition, the cash flow benefited from the issuance of the 2.500% senior notes in the prior period. This was partially offset by$210.0 million in proceeds from our revolving credit facility received this quarter whereas no such proceeds were received in the prior period. 39
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Indebtedness
Our level of indebtedness increases the possibility that we may be unable to pay the principal amount of our indebtedness and other obligations when due. In addition, we may incur additional debt from time to time to finance strategic acquisitions, investments, joint ventures or for other purposes, subject to the restrictions contained in the documents governing our indebtedness. If we incur additional debt, the risks associated with our leverage, including our ability to service our debt, would increase.
Long-Term Debt
We maintain credit facilities with third-party lenders, which we use for a variety of purposes. OnMarch 4, 2019 ,CBRE Services, Inc. (CBRE Services) entered into an incremental assumption agreement with respect to its credit agreement, datedOctober 31, 2017 (such agreement, as amended by aDecember 20, 2018 incremental loan assumption agreement and suchMarch 4, 2019 incremental assumption agreement, is collectively referred to in this Quarterly Report as the 2019 Credit Agreement), which (i) extended the maturity of theU.S. dollar tranche A term loans under such credit agreement, (ii) extended the termination date of the revolving credit commitments available under such credit agreement and (iii) made certain changes to the interest rates and fees applicable to such tranche A term loans and revolving credit commitments under such credit agreement. The proceeds from a new tranche A term loan facility under the 2019 Credit Agreement were used to repay the$300.0 million of tranche A term loans outstanding under the credit agreement in effect prior to the entry into the 2019 incremental assumption agreement. OnJuly 9, 2021 , CBRE Services entered into an additional incremental assumption agreement with respect to the 2019 Credit Agreement for purposes of increasing the revolving credit commitments available under the 2019 Credit Agreement by an aggregate principal amount of$350.0 million (the 2019 Credit Agreement, as amended by theJuly 9, 2021 incremental assumption agreement is collectively referred to in this Quarterly Report as the 2021 Credit Agreement). OnDecember 10, 2021 , CBRE Services and certain of the other borrowers entered into an amendment of the 2021 Credit Agreement which (i) changed the interest rate applicable to revolving borrowings denominated in Sterling from a LIBOR-based rate to a rate based on the Sterling Overnight Index Average (SONIA) and (ii) changed the interest rate applicable to revolving borrowings denominated in Euros from a LIBOR-based rate to a rate based on EURIBOR. The revised interest rates went into effect onJanuary 1, 2022 . The 2021 Credit Agreement is a senior unsecured credit facility that is guaranteed by us. As ofMarch 31, 2022 , the 2021 Credit Agreement provided for the following: (1) a$3.15 billion revolving credit facility, which includes the capacity to obtain letters of credit and swingline loans and terminates onMarch 4, 2024 and (2) a €400.0 million term loan facility due and payable in full at maturity onDecember 20, 2023 . OnNovember 23, 2021 , we repaid our$300.0 million tranche A term loan facility under the 2021 Credit Agreement. OnMarch 18, 2021 , CBRE Services issued$500.0 million in aggregate principal amount of 2.500% senior notes dueApril 1, 2031 (the 2.500% senior notes) at a price equal to 98.451% of their face value. The 2.500% senior notes are unsecured obligations of CBRE Services, senior to all of its current and future subordinated indebtedness, but effectively subordinated to all of its current and future secured indebtedness. The 2.500% senior notes are jointly and severally guaranteed on a senior basis by us and any domestic subsidiary of CBRE Services that guarantees our 2019 Credit Agreement. Interest accrues at a rate of 2.500% per year and is payable semi-annually in arrears onApril 1 andOctober 1 . OnAugust 13, 2015 , CBRE Services issued$600.0 million in aggregate principal amount of 4.875% senior notes dueMarch 1, 2026 (the 4.875% senior notes) at a price equal to 99.24% of their face value. The 4.875% senior notes are unsecured obligations of CBRE Services, senior to all of its current and future subordinated indebtedness, but effectively subordinated to all of its current and future secured indebtedness. The 4.875% senior notes are jointly and severally guaranteed on a senior basis by us and any domestic subsidiary of CBRE Services that guarantees our 2019 Credit Agreement. Interest accrues at a rate of 4.875% per year and is payable semi-annually in arrears onMarch 1 andSeptember 1 . The indentures governing our 4.875% senior notes and 2.500% senior notes contain restrictive covenants that, among other things, limit our ability to create or permit liens on assets securing indebtedness, enter into sale/leaseback transactions and enter into consolidations or mergers.
On
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remain fully and unconditionally guaranteed by
March 31, 2022 December 31, 2021
Balance Sheet Data:
Current assets $ 7,860 $ 8,604
Noncurrent assets (1) 8,389 34,711
Total assets (1) 16,249 43,315
Current liabilities $ 242,008 $ 17,610
Noncurrent liabilities (1) 1,254,607 1,083,584
Total liabilities (1) 1,496,615 1,101,194
Three Months Ended
March 31,
2022 2021 (2)
Statement of Operations Data:
Revenue $ - $ 3,246,106
Operating (loss) income (540) 76,144
Net income 5,682 108,000
_______________________________
(1)Includes$170.5 million of intercompany loan payables and$25.3 million of intercompany loan receivables from non-guarantor subsidiaries as ofMarch 31, 2022 andDecember 31, 2021 , respectively. All intercompany balances and transactions betweenCBRE Group, Inc. and CBRE Services have been eliminated.
(2)Amounts include activity related to our subsidiaries that were still listed as guarantors for the period presented.
For additional information on all of our long-term debt, see Note 11 of the Notes to Consolidated Financial Statements set forth in Item 8 included in our
2021 Annual Report and Note 8 of the Notes to Consolidated Financial Statements (Unaudited) set forth in Item 1 of this Quarterly Report.
Short-Term Borrowings
We maintain a$3.15 billion revolving credit facility under the 2021 Credit Agreement and warehouse lines of credit with certain third-party lenders. As ofMarch 31, 2022 ,$210.0 million was outstanding under the revolving credit facility, as well as letters of credit totaling$2.0 million . As ofMay 9, 2022 ,$600.0 million was outstanding under the revolving credit facility. In addition, Turner & Townsend maintains a £120.0 million revolving credit facility under theMarch 31, 2022 credit agreement, with an additional accordion option of £20.0 million. For additional information on all of our short-term borrowings, see Notes 5 and 11 of the Notes to Consolidated Financial Statements set forth in Item 8 included in our 2021 Annual Report and Notes 4 and 8 of the Notes to Consolidated Financial Statements (Unaudited) set forth in Item 1 of this Quarterly Report.
Off -Balance Sheet Arrangements
We do not have off-balance sheet arrangements that we believe could have a
material current or future impact on our financial condition, liquidity or
results of operations. Our off-balance sheet arrangements are described in Note
10 of the Notes to Consolidated Financial Statements (Unaudited) set forth in
Item 1 of this Quarterly Report and are incorporated by reference herein.
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Cautionary Note on Forward-Looking Statements
This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. The words "anticipate," "believe," "could," "should," "propose," "continue," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will" and similar terms and phrases are used in this Quarterly Report to identify forward-looking statements. Except for historical information contained herein, the matters addressed in this Quarterly Report are forward-looking statements. These statements relate to analyses and other information based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies. These forward-looking statements are made based on our management's expectations and beliefs concerning future events affecting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. These uncertainties and factors could cause our actual results to differ materially from those matters expressed in or implied by these forward-looking statements.
The following factors are among those, but are not only those, that may cause actual results to differ materially from the forward-looking statements:
•disruptions in general economic, political and regulatory conditions and significant public health events or the outbreak of war, 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
•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 forU.S. 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;
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•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
•declines in lending activity of
•changes inU.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 inAsia ,Africa ,Russia ,Eastern Europe and theMiddle East , due to certain conflicts and 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, attract 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 data privacy and protection regulations, and the
anti-corruption laws and trade sanctions of the
•changes in applicable tax or accounting requirements;
•any inability for us to implement and maintain effective internal controls over financial reporting;
•the effect of implementation of new accounting rules and standards or the impairment of our goodwill and intangible assets;
•the performance of our equity investments in companies we do not control; and
•the other factors described elsewhere in this Quarterly Report on Form 10-Q, included under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies," "Quantitative and Qualitative Disclosures About Market Risk" and Part II, Item 1A, "Risk Factors" or as described in our 2021 Annual Report , in particular in Part II, Item 1A "Risk Factors", or as described in the other documents and reports we file with theSecurities and Exchange Commission (SEC). 43
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Forward-looking statements speak only as of the date the statements are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. Additional information concerning these and other risks and uncertainties is contained in our other periodic filings with theSEC . Investors and others should note that we routinely announce financial and other material information using our Investor Relations website (https://ir.cbre.com),SEC filings, press releases, public conference calls and webcasts. We use these channels of distribution to communicate with our investors and members of the public about our company, our services and other items of interest. Information contained on our website is not part of this Quarterly Report or our other filings with theSEC . 44
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