DALLAS--(BUSINESS WIRE)--CBRE Group, Inc. (NYSE:CBRE) today reported financial results for the fourth quarter and year ended December 31, 2020.
“We ended 2020 on a high note with adjusted earnings per share for the quarter reaching an all-time high and adjusted EBITDA growing by 9%,” said Bob Sulentic, CBRE’s president and chief executive officer. “This capped a year of significant challenges stemming from Covid-19, but also one that brought to the forefront CBRE’s competitive advantages, our ability to capitalize on often-overlooked industry opportunities, and the resiliency we’ve built into the business over the past decade.”
“Our broad diversification across four key dimensions – property types, lines of business, geographic markets and clients – has served us well compared with prior downturns,” he continued. “Now we are exiting the worst of the Covid-19 crisis in great shape, with a leaner operating structure, significant financial capacity and a strategy squarely aimed at the many opportunities unfolding in our industry, including those with secular tailwinds. We’ve built our long-term plan on the assumption that office demand remains under pressure. Nevertheless, we still expect to achieve a minimum of low double-digit average annual adjusted earnings per share growth from this year through at least 2025, absent a recession, with meaningful upside potential from additional capital allocation.”
Consolidated Financial Results Overview
The following table presents highlights of CBRE performance (dollars in millions, except per share data):
|
% Change |
% Change |
|||||||||||||||||||||||
|
Q4 2020 |
Q4 2019 |
USD |
LC (1) |
FY 2020 |
FY 2019 |
USD |
LC (1) |
|||||||||||||||||
|
Operating Results |
||||||||||||||||||||||||
|
Revenue |
$ |
6,911 |
$ |
7,119 |
(2.9%) |
(4.0%) |
$ |
23,826 |
$ |
23,894 |
(0.3%) |
(0.2%) |
||||||||||||
|
Fee revenue (2) |
3,413 |
3,672 |
(7.1%) |
(8.4%) |
10,891 |
11,861 |
(8.2%) |
(8.3%) |
||||||||||||||||
|
GAAP net income |
314 |
638 |
(50.8%) |
(51.6%) |
752 |
1,282 |
(41.4%) |
(42.1%) |
||||||||||||||||
|
GAAP EPS |
$ |
0.93 |
$ |
1.87 |
(50.6%) |
(51.3%) |
$ |
2.22 |
$ |
3.77 |
(41.0%) |
(41.7%) |
||||||||||||
|
Adjusted EBITDA (3) |
753 |
691 |
9.0% |
7.3% |
1,892 |
2,064 |
(8.3%) |
(8.7%) |
||||||||||||||||
|
Adjusted net income (4) |
491 |
449 |
9.4% |
7.6% |
1,108 |
1,263 |
(12.3%) |
(13.4%) |
||||||||||||||||
|
Adjusted EPS (4) |
$ |
1.45 |
$ |
1.32 |
9.9% |
8.1% |
$ |
3.27 |
$ |
3.71 |
(11.7%) |
(12.8%) |
||||||||||||
|
Cash Flow Results |
||||||||||||||||||||||||
|
Cash flow from operations |
$ |
940 |
$ |
1,049 |
(10.3%) |
$ |
1,831 |
$ |
1,223 |
49.6% |
||||||||||||||
|
Less: Capital expenditures |
76 |
97 |
(22.0%) |
267 |
294 |
(9.2%) |
||||||||||||||||||
|
Free cash flow (5) |
$ |
864 |
$ |
951 |
(9.1%) |
$ |
1,564 |
$ |
930 |
68.2% |
||||||||||||||
Results for the quarter were negatively impacted by the Covid-19 pandemic, which continued to constrain sales and leasing activity. Additionally, GAAP net income and earnings per share reflect about $120 million of costs related to transformation initiatives, which reduced GAAP earnings per share by about $0.28 per diluted share. Adjusted earnings per share and adjusted EBITDA, which exclude these transitory costs, increased markedly from fourth-quarter 2019.
Advisory Services Segment
The following table presents highlights of the Advisory Services segment performance (dollars in millions):
|
% Change |
||||||||||||
|
Q4 2020 |
Q4 2019 |
USD |
LC |
|||||||||
|
Revenue |
$ |
2,460 |
$ |
2,815 |
(12.6%) |
(13.7%) |
||||||
|
Fee revenue |
2,218 |
2,548 |
(13.0%) |
(14.0%) |
||||||||
|
Adjusted EBITDA |
482 |
523 |
(7.9%) |
(9.2%) |
||||||||
|
Adjusted EBITDA on revenue margin (6) |
19.6 |
% |
18.6 |
% |
1.0% |
1.0% |
||||||
|
Adjusted EBITDA on fee revenue margin (6) |
21.7 |
% |
20.5 |
% |
1.2% |
1.1% |
||||||
In Advisory Services, the severe economic effects of the Covid-19 pandemic continued to constrain higher-margin lease and sales revenue, leading to lower adjusted EBITDA in the fourth quarter.
Large office occupiers continued to defer leasing decisions, resulting in a 28% (29% local currency) decline in advisory leasing revenue. Fourth quarter activity was soft across most of the world, with U.S. leasing revenue down 36%. Industrial leasing revenue, fueled by e-commerce, rose 20% globally and 24% in the Americas. Robust growth in industrial leasing limited the U.K.’s overall leasing revenue decline to 6% (8% local currency) in the quarter.
Capital flows into commercial real estate improved from earlier in the year, but global market activity remained well below 2019 levels. Global property sales revenue declined 15% (16% local currency). However, the U.S. performed much better with sales revenue down only 5%, driven by strong industrial and multifamily activity and an overall market share gain of 90 basis points for the quarter, according to Real Capital Analytics. In North Asia, sales revenue was flat (down 5% local currency) as strength in China offset weakness elsewhere.
By contrast, commercial mortgage originations were robust, reflecting a surge in government agency lending. Commercial mortgage revenue rose 49% (same local currency) from fourth-quarter 2019. Refinancing continued to drive lending activity and loan sales increased sharply. The recent rise in Treasury yields has been partially offset by tighter spreads as more lenders compete to place capital.
Revenue from loan servicing, which is performed for lenders on a contractual basis, jumped 25% (24% local currency) for the quarter. The loan servicing portfolio ended 2020 at approximately $269 billion, up 17% for the year.
Valuation also performed well with revenue up 4% (2% local currency), reflecting increased assignments from investor clients, particularly in Continental Europe, North Asia and Pacific. Property management and advisory project management services fee revenue fell 4% (6% local currency).
Global Workplace Solutions (GWS) Segment
The following table presents highlights of the GWS segment performance (dollars in millions):
|
% Change |
||||||||||||
|
Q4 2020 |
Q4 2019 |
USD |
LC |
|||||||||
|
Revenue |
$ |
4,161 |
$ |
4,057 |
2.6% |
1.5% |
||||||
|
Fee revenue |
906 |
877 |
3.3% |
1.5% |
||||||||
|
Adjusted EBITDA |
161 |
125 |
28.8% |
26.6% |
||||||||
|
Adjusted EBITDA on revenue margin |
3.9 |
% |
3.1 |
% |
0.8% |
0.8% |
||||||
|
Adjusted EBITDA on fee revenue margin |
17.8 |
% |
14.3 |
% |
3.5% |
3.5% |
||||||
Despite the ongoing challenges from Covid-19, CBRE’s GWS segment achieved robust global adjusted EBITDA growth, driven by strong gains in Continental Europe and North Asia as well as cost-control actions.
Solid fee revenue growth was constrained by sharply lower transaction activity for GWS occupier clients. Facilities management, which accounted for 84% of the segment’s fee revenue and is largely contractual, rose 7% (5% local currency). Facilities management growth was especially strong in Continental Europe. Project management fee revenue also rose notably, up 7% (5% local currency), with strong growth in Continental Europe, North Asia and India/Southeast Asia/Middle East/Africa.
The segment’s overall margin expansion of approximately 350 basis points reflected the benefit of lower discretionary spending and structural changes to the cost base.
Real Estate Investments (REI) Segment
The following table presents highlights of the REI segment performance (dollars in millions):
|
% Change |
||||||||||||
|
Q4 2020 |
Q4 2019 |
USD |
LC |
|||||||||
|
Revenue |
$ |
289 |
$ |
247 |
17.2% |
15.2% |
||||||
|
Adjusted revenue (7) |
307 |
212 |
44.6% |
42.5% |
||||||||
|
Adjusted EBITDA (8) |
110 |
43 |
158.6% |
154.2% |
||||||||
The sharp increase in this segment’s adjusted EBITDA was driven by robust performance from both investment management and U.S. development activity.
Investment management revenue rose 34% (30% local currency) to $150.2 million, reflecting strong carried interest revenue contributions and higher asset management, incentive and acquisition fees. Carried interest of $31.5 million – compared with $9.7 million in fourth-quarter 2019 – included strong gains on the disposition of a retail property portfolio in South Korea. Adjusted EBITDA surged 228% (217% local currency), as asset management growth and strong investment gains, including co-investment returns, were complemented by prudent cost management.
Assets under management at year-end 2020 totaled $122.7 billion, a record high for the company and an increase of $8.2 billion ($4.9 billion local currency) from third-quarter 2020. The increase reflected higher asset valuations, net capital inflows and favorable foreign currency movement.
U.S. real estate development contributed $58.3 million of adjusted EBITDA in the fourth quarter, more than double the $24.0 million achieved in the year-earlier fourth quarter. These results benefited from elevated industrial asset sales during the quarter. The U.K. multifamily development business (Telford Homes) produced $9.2 million of adjusted EBITDA, down from $10.9 million in fourth-quarter 2019.
The in-process development portfolio ended 2020 at $14.9 billion, up $0.1 billion from third-quarter 2020 – a record level for the company. Three asset types that remain in strong demand, multifamily, industrial and health care, plus office buildings that are at least 90% leased, comprise more than 80% of this portfolio. In addition, more than half of the in-process portfolio is attributable to fee-development and built-to-suit projects. The pipeline increased by $0.2 billion from third-quarter 2020 to $6.1 billion.
Investment in the startup of the company’s flexible workspace business, Hana, contributed a loss of $10.4 million, up from a loss of $8.4 million in fourth-quarter 2019. Hana operates 10 existing units in the U.S. and U.K., totaling nearly 500,000 sq. ft.
On February 22, 2021, CBRE announced the acquisition of a 35% interest in Industrious, a leading provider of premium flexible workplace solutions in the U.S., with the expectation to increase its total stake to 40% in the coming weeks. Under the agreement, Hana will be combined with Industrious in the second quarter.
Adjustments to GAAP Net Income and Earnings Per Share
Adjustments to GAAP net income totaled $177.0 million on a net basis. This included approximately $223.8 million of positive pre-tax adjustments, including $120.5 million of costs associated with transformation initiatives; $75.6 million of write-offs of financing costs on extinguished debt; $18.7 million of non-cash acquisition-related depreciation and amortization; $13.5 million of asset impairments; $11.4 million of investment management carried interest incentive compensation reversal to align with the timing of associated carried interest revenue; $4.4 million of costs incurred related to legal entity restructuring; $2.3 million of fair value adjustments to real estate assets acquired in the Telford Homes acquisition that were sold in the fourth quarter; $0.2 million of integration and other costs related to acquisitions; and a $46.8 million net tax adjustment associated with the aforementioned pre-tax adjustments.
GAAP net income decreased 51% (52% local currency) to $314 million and earnings per share decreased 51% (same local currency) to $0.93 per diluted share, compared with the prior-year period. Adjusted net income increased 9% (8% local currency) to $491 million and adjusted earnings per share increased 10% (8% local currency) to $1.45 per diluted share, compared with the prior-year period. The decrease in GAAP earnings per share largely reflected costs associated with transformation initiatives, which have been excluded from adjusted earnings per share. Certain of these costs were being contemplated prior to the onset of the Covid-19 pandemic and reflect the outcome of an in-depth strategic review. These initiatives are expected to drive significant cost structure benefits going forward.
Capital Allocation Overview
- Free Cash Flow – During the fourth quarter of 2020, free cash flow decreased 9% to approximately $864 million. This reflected cash flow from operating activities of $940 million, less total capital expenditures of $76 million. Net capital expenditures (of which a considerable portion during the period was discretionary) totaled $56.6 million.(9)
- Stock Repurchase Program – The company did not repurchase any of its stock during the fourth quarter of 2020, and has $350 million of capacity remaining under its repurchase program.
- Acquisitions – During the fourth quarter of 2020, the company acquired a provider of facilities and technical maintenance services in Australia.
Leverage and Financing Overview
- Leverage – The company’s net leverage ratio (net cash(10) to full year adjusted EBITDA) was (0.21x) as of December 31, 2020, which is substantially below the company’s primary debt covenant of 4.25x. The net leverage ratio is computed as follows (dollars in millions):
