CBRE Group, Inc. Reports Financial Results for Second-Quarter 2024

CBRE Group, Inc. (NYSE:CBRE) today reported financial results for the second quarter ended June 30, 2024.

Key Highlights:

• Revenue up 9%; net revenue up 11%
• Resilient Business⁽¹⁾ net revenue increased 14%, bolstered by Turner & Townsend's 18% growth
• Advisory transaction revenue - leasing and capital markets - rose 5%, supported by growth of 13% in U.S. leasing revenue and 20% in mortgage origination fees
• GAAP EPS down 34% to $0.42; Core EPS down 2% to $0.81
• Deployed $1.3 billion of capital year-to-date across M&A and REI co-investments
• Both net cash flow from operations and free cash flow improved by approximately $300 million; free cash flow conversion was nearly 90%
• Now expect slightly over $1 billion of free cash flow for the full year
• Increased full-year Core EPS outlook to a range of $4.70 to $4.90 – up from $4.25 to $4.65

"CBRE had a successful second quarter for three reasons. First, revenue, profitability and cash flow exceeded our expectations, with outperformance across all three business segments. Second, we made several sizable capital investments consistent with our strategy to invest in cyclically resilient or secularly favored elements of our business. And third, we made quick, material progress on the cost challenges we identified last quarter," said Bob Sulentic, chair and chief executive officer of CBRE.

Consolidated Financial Results Overview

The following table presents highlights of CBRE performance (dollars in millions, except per share data; totals may not add due to rounding):

Advisory Services Segment

The following table presents highlights of the Advisory Services segment performance (dollars in millions; totals may not add due to rounding):

Note: all percent changes cited are vs. second-quarter 2023, except where noted.

Property Leasing

• Global leasing revenue rose 9% (same local currency), exceeding expectations.
• Growth was driven by the Americas, with leasing revenue up 12% (13% local currency), including 13% in the United States.
• Asia-Pacific (APAC) leasing revenue rose 3% (7% local currency), with solid growth across most of the region.
• In Europe, the Middle East & Africa (EMEA), leasing revenue fell 3% (4% local currency) with growth in the Netherlands, Poland and Spain offset by weakness elsewhere in the region.
• Globally, office leasing once again increased by double digits, led by the United States. New York office leasing was a key driver in the quarter.
• U.S. leasing showed continued momentum in July.

Capital Markets

• Property sales revenue began to stabilize. Global sales revenue declined 3% (2% local currency), less pronounced than expected.
• EMEA once again paced global activity with sales revenue up 3% (same local currency), led by double-digit growth in the United Kingdom, where property values have largely reset.
• In contrast, sales revenue fell 4% (same local currency) in the Americas and 5% (up 1% local currency) in APAC. Greater China, India and Singapore showed solid growth in the quarter.
• Among property types, industrial and multifamily sales showed global growth.
• Mortgage origination revenue jumped 38% (same local currency), led by a 20% increase in loan origination fees reflecting refinancing activity with debt funds, as well as higher interest earnings on escrow balances.

Other Advisory Business Lines

• Loan servicing revenue rose 7% (6% local currency). The servicing portfolio increased to more than $425 billion, up 3% for the quarter and 7% from a year ago.
• Property management net revenue increased 16% (same local currency), fueled by the onboarding of the Brookfield 65 million sq. ft. U.S. office portfolio.
• Valuations revenue edged up 2% (3% local currency). Growth was strongest in Continental Europe.

Global Workplace Solutions (GWS) Segment

The following table presents highlights of the GWS segment performance (dollars in millions; totals may not add due to rounding):

Note: all percent changes cited are vs. second-quarter 2023, except where noted.

• Facilities management net revenue increased 18% (19% local currency), paced by strength in the Local business. Organic net revenue, which excludes contributions from companies acquired since July 1, 2023, was also up by double digits.
• Project management net revenue rose 11% (12% local currency), with continued strong growth from Turner & Townsend.
• Net operating margin improved 20 basis points compared with first-quarter 2024 reflecting the early benefit of recent cost actions but was below the prior-year second quarter level.

Real Estate Investments (REI) Segment

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

Note: all percent changes cited are vs. second-quarter 2023, except where noted.

Investment Management

• Total revenue slipped 2% (1% local currency).
• Operating profit increased 4% (5% local currency) to approximately $39 million, largely due to higher co-investment returns.
• Assets Under Management (AUM) totaled $142.5 billion, a decrease of $1.5 billion from first-quarter 2024. The decrease was primarily driven by lower asset values as well as adverse foreign currency movement.

Real Estate Development

• Global development operating loss⁽⁹⁾ totaled approximately $26 million. As expected, asset sales activity was limited in the period.
• The in-process portfolio ended second-quarter 2024 at $18.8 billion, unchanged from first-quarter 2024. The pipeline increased $0.3 billion during the quarter to $13.1 billion.

Corporate and Other Segment

• Non-core operating loss totaled $13 million, primarily due to the lower value of the company's investment in Altus Power, Inc. (NYSE:AMPS), reflecting a decline in its share price during the quarter.
• Core corporate operating loss increased by approximately $29 million, primarily due to a resetting of incentive compensation, which had been reduced in last year's second quarter.

Capital Allocation Overview

• Free Cash Flow – During the second quarter of 2024, free cash flow was $220 million. This reflected cash provided by operating activities of $287 million, adjusted for total capital expenditures of $67 million.⁽¹⁰⁾ Cash flow conversion improved to 64% on a trailing 12-month basis, the third consecutive increase.
• Stock Repurchase Program – The company repurchased approximately 0.6 million shares for $48.4 million ($87.25 average price per share) during the second quarter. There was approximately $1.4 billion of capacity remaining under the company's authorized stock repurchase program as of June 30, 2024.
• Acquisitions and Investments – During the second quarter, CBRE made acquisitions totaling approximately $290.9 million in cash and non-cash consideration, primarily for Direct Line Global, a leading provider of technical facilities management services for data center owners and operators. Direct Line Global serves the world's largest global technology companies across the hyperscale, co-location and enterprise markets. CBRE also acquired a provider of local facilities management technical services in Canada.
  
  
  
  During the quarter, CBRE also announced plans to combine its project management business with its Turner & Townsend subsidiary. The combined business, which will be reported as a separate business segment beginning in 2025, will create a premier project, program and cost management business with more than 20,000 employees serving clients in over 60 countries.

Leverage and Financing Overview

• Leverage – CBRE's net leverage ratio (net debt⁽¹¹⁾ to trailing twelve-month core EBITDA) was 1.58x as of June 30, 2024, which is substantially below the company's primary debt covenant of 4.25x. The net leverage ratio is computed as follows (dollars in millions):

• Liquidity – As of June 30, 2024, the company had approximately $3.7 billion of total liquidity, consisting of $927.7 million in cash, plus the ability to borrow an aggregate of approximately $2.7 billion under its revolving credit facilities, net of any outstanding letters of credit.

Conference Call Details

The company's second quarter earnings webcast and conference call will be held today, Thursday, July 25, 2024 at 8:30 a.m. Eastern Time. Investors are encouraged to access the webcast via this link or they can click this link beginning at 8:15 a.m. Eastern Time for automated access to the conference call.

Alternatively, investors may dial into the conference call using these operator-assisted phone numbers: 877.407.8037 (U.S.) or 201.689.8037 (International). A replay of the call will be available starting at 1:00 p.m. Eastern Time on July 25, 2024. The replay is accessible by dialing 877.660.6853 (U.S.) or 201.612.7415 (International) and using the access code: 13747576#. 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 2023 revenue). The company has more than 130,000 employees (including Turner & Townsend 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 economic outlook, the company's future growth momentum, operations and business outlook. 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; 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 companies; costs and potential future capital requirements relating to companies 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 occupier 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 we do business with 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, 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, fire and safety building requirements and regulations, as well as data privacy and protection regulations and ESG matters, and the anti-corruption laws and trade sanctions of the U.S. and other countries; 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; and the performance of our equity investments in companies that we do not control.

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, 2023, our latest quarterly report on Form 10-Q, 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 [email protected].

The terms "net revenue," "core adjusted net income," "core EBITDA," "core EPS," "business line operating profit (loss)," "segment operating profit on revenue margin," "segment operating profit on net revenue margin," "net debt" 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.

Note: We have not reconciled the (non-GAAP) core earnings per share forward-looking guidance included in this release to the most directly comparable GAAP measure because this cannot be done without unreasonable effort due to the variability and low visibility with respect to costs related to acquisitions, carried interest incentive compensation and financing costs, which are potential adjustments to future earnings. We expect the variability of these items to have a potentially unpredictable, and a potentially significant, impact on our future GAAP financial results.

Non-GAAP Financial Measures

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

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

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

With respect to net revenue, net revenue is gross revenue less costs largely associated with subcontracted vendor work performed for clients. We believe that investors may find this measure useful to analyze the company's overall financial performance because it excludes costs reimbursable by clients that generally have no margin, and as such provides greater visibility into the underlying performance of our business.

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

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

With respect to core EBITDA, core EPS and core adjusted net income, the company believes that investors may find these measures useful to analyze the underlying performance of operations without the impact of strategic non-core equity investments (Altus Power, Inc. and certain other investments) that are not directly related to our business segments. These can be volatile and are often non-cash in nature.

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

Core EBITDA is calculated as follows (in millions, totals may not add due to rounding):

Core EBITDA for the trailing twelve months ended June 30, 2024 is calculated as follows (in millions):