filings.toolsCBRE Group 10-Q 2023-09-30
Filed 2023-10-27. 8 sections, 270K characters. Original on sec.gov · Markdown · JSON
Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2023
OR
| ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______________ to _______________
Commission File Number 001-32205
CBRE GROUP, INC.
(Exact name of registrant as specified in its charter)
___________________________________________________________
| Delaware | 94-3391143 | |||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| 2100 McKinney Avenue, Suite 1250, Dallas, Texas | 75201 | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
(214) 979-6100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| Class A Common Stock, $0.01 par value per share | “CBRE” | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☒ | Accelerated filer | ☐ | |||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||||
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of Class A common stock outstanding at October 23, 2023 was 304,792,801.
FORM 10-Q
September 30, 2023
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
CBRE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except share data)
| September 30, 2023 | December 31, 2022 | ||||||||||
| ASSETS | |||||||||||
| Current Assets: | |||||||||||
| Cash and cash equivalents | $ | 1,252,101 | $ | 1,318,290 | |||||||
| Restricted cash | 100,963 | 86,559 | |||||||||
| Receivables, less allowance for doubtful accounts of $103,654 and $92,354 at September 30, 2023 and December 31, 2022, respectively | 5,707,977 | 5,326,807 | |||||||||
| Warehouse receivables | 1,010,659 | 455,354 | |||||||||
| Contract assets | 407,652 | 391,626 | |||||||||
| Prepaid expenses | 324,493 | 311,508 | |||||||||
| Income taxes receivable | 179,653 | 81,528 | |||||||||
| Other current assets | 343,114 | 557,009 | |||||||||
| Total Current Assets | 9,326,612 | 8,528,681 | |||||||||
| Property and equipment, net of accumulated depreciation and amortization of $1,520,669 and $1,386,261 at September 30, 2023 and December 31, 2022, respectively | 851,739 | 836,041 | |||||||||
| Goodwill | 4,961,501 | 4,868,382 | |||||||||
| Other intangible assets, net of accumulated amortization of $2,097,149 and $1,915,725 at September 30, 2023 and December 31, 2022, respectively | 2,064,321 | 2,192,706 | |||||||||
| Operating lease assets | 998,733 | 1,033,011 | |||||||||
| Investments in unconsolidated subsidiaries (with $920,655 and $973,635 at fair value at September 30, 2023 and December 31, 2022, respectively) | 1,316,395 | 1,317,705 | |||||||||
| Non-current contract assets | 95,418 | 137,480 | |||||||||
| Real estate under development | 431,817 | 172,253 | |||||||||
| Non-current income taxes receivable | 71,526 | 51,910 | |||||||||
| Deferred tax assets, net | 332,424 | 265,554 | |||||||||
| Other assets, net | 1,236,931 | 1,109,666 | |||||||||
| Total Assets | $ | 21,687,417 | $ | 20,513,389 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current Liabilities: | |||||||||||
| Accounts payable and accrued expenses | $ | 2,901,451 | $ | 3,078,781 | |||||||
| Compensation and employee benefits payable | 1,285,717 | 1,459,001 | |||||||||
| Accrued bonus and profit sharing | 1,180,446 | 1,691,118 | |||||||||
| Operating lease liabilities | 238,904 | 229,591 | |||||||||
| Contract liabilities | 263,093 | 276,334 | |||||||||
| Income taxes payable | 161,808 | 184,453 | |||||||||
| Short-term borrowings: | |||||||||||
| Warehouse lines of credit (which fund loans that U.S. Government Sponsored Enterprises have committed to purchase) | 994,119 | 447,840 | |||||||||
| Revolving credit facility | 673,000 | 178,000 | |||||||||
| Other short-term borrowings | 4,795 | 42,914 | |||||||||
| Total short-term borrowings | 1,671,914 | 668,754 | |||||||||
| Current maturities of long-term debt | — | 427,792 | |||||||||
| Other current liabilities | 163,311 | 226,170 | |||||||||
| Total Current Liabilities | 7,866,644 | 8,241,994 | |||||||||
| Long-term debt, net of current maturities | 2,795,855 | 1,085,712 | |||||||||
| Non-current operating lease liabilities | 1,059,631 | 1,080,385 | |||||||||
| Non-current income taxes payable | 30,428 | 54,761 | |||||||||
| Non-current tax liabilities | 141,255 | 148,806 | |||||||||
| Deferred tax liabilities, net | 268,086 | 282,073 | |||||||||
| Other liabilities | 1,064,629 | 1,013,926 | |||||||||
| Total Liabilities | 13,226,528 | 11,907,657 | |||||||||
| Commitments and contingencies | — | — | |||||||||
| Equity: | |||||||||||
| CBRE Group, Inc. Stockholders’ Equity: | |||||||||||
| Class A common stock; $0.01 par value; 525,000,000 shares authorized; 304,750,283 and 311,014,160 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively | 3,048 | 3,110 | |||||||||
| Additional paid-in capital | — | — | |||||||||
| Accumulated earnings | 8,724,653 | 8,832,943 | |||||||||
| Accumulated other comprehensive loss | (1,043,685) | (982,780) | |||||||||
| Total CBRE Group, Inc. Stockholders’ Equity | 7,684,016 | 7,853,273 | |||||||||
| Non-controlling interests | 776,873 | 752,459 | |||||||||
| Total Equity | 8,460,889 | 8,605,732 | |||||||||
| Total Liabilities and Equity | $ | 21,687,417 | $ | 20,513,389 |
The accompanying notes are an integral part of these consolidated financial statements.
CBRE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except share and per share data)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Revenue | $ | 7,868,046 | $ | 7,529,546 | $ | 22,999,025 | $ | 22,633,757 | |||||||||||||||
| Costs and expenses: | |||||||||||||||||||||||
| Cost of revenue | 6,396,824 | 5,934,490 | 18,582,733 | 17,740,668 | |||||||||||||||||||
| Operating, administrative and other | 1,058,043 | 1,080,316 | 3,355,758 | 3,335,131 | |||||||||||||||||||
| Depreciation and amortization | 149,161 | 142,136 | 465,038 | 453,527 | |||||||||||||||||||
| Asset impairments | — | — | — | 36,756 | |||||||||||||||||||
| Total costs and expenses | 7,604,028 | 7,156,942 | 22,403,529 | 21,566,082 | |||||||||||||||||||
| Gain on disposition of real estate | 5,417 | 1,746 | 17,738 | 200,564 | |||||||||||||||||||
| Operating income | 269,435 | 374,350 | 613,234 | 1,268,239 | |||||||||||||||||||
| Equity (loss) income from unconsolidated subsidiaries | (13,361) | 233,972 | 120,817 | 396,011 | |||||||||||||||||||
| Other income (loss) | 13,628 | 7,844 | 21,714 | (13,529) | |||||||||||||||||||
| Interest expense, net of interest income | 38,206 | 19,957 | 109,603 | 51,301 | |||||||||||||||||||
| Write-off of financing costs on extinguished debt | — | 1,862 | — | 1,862 | |||||||||||||||||||
| Income before provision for income taxes | 231,496 | 594,347 | 646,162 | 1,597,558 | |||||||||||||||||||
| Provision for income taxes | 30,551 | 142,667 | 113,991 | 259,691 | |||||||||||||||||||
| Net income | 200,945 | 451,680 | 532,17 |
Showing the first 8K of 120K characters. Open the full section
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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) for CBRE Group, Inc. for the three and nine months ended September 30, 2023 should be read in conjunction with our consolidated financial statements and related notes included in our 2022 Annual Report on Form 10-K (2022 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 a Delaware corporation. References to “CBRE,” “the company,” “we,” “us” and “our” refer to CBRE 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 2022 revenue, with leading global market positions in our leasing, property sales, occupier outsourcing and valuation businesses. As of December 31, 2022, the company had approximately 115,000 employees (excluding Turner & Townsend Holdings Limited 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 and mortgage origination), mortgage 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 (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” (primarily U.S. development); “Telford Homes” (U.K. development); and “Turner & Townsend Holdings Limited” (Turner & Townsend, project management).
We generate revenue from stable, recurring sources (large multi-year portfolio and per project contracts) and from cyclical, non-recurring sources, including commissions on transactions. Our revenue mix has become more weighted towards stable revenue sources, particularly occupier outsourcing, and we are less dependent on cyclical property sales and lease transaction revenue than we were a decade or more ago. 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.
In 2022, we generated revenue from a highly diversified base of clients, including more than 95 of the Fortune 100 companies. We have been an S&P 500 company since 2006 and are currently ranked #135 on the Fortune 500. We have been voted the most recognized commercial real estate brand in the Lipsey Company survey for 22 years in a row. We have also been rated a World’s Most Ethical Company by the Ethisphere Institute for ten consecutive years and included in the Dow Jones World Sustainability Index for four years in a row (including 2022, the most recent year this ranking is available) and the Bloomberg Gender-Equality Index for four years in a row.
The macroeconomic environment remains challenging as central banks rapidly raised interest rates since 2022. The high rate environment and expectation that rates will remain higher for longer, coupled with large bank failures in early 2023 and ongoing economic uncertainty, have limited credit availability to commercial real estate. Less available and more expensive debt capital has had pronounced effects on our capital markets (mortgage origination and property sales) businesses, making property acquisitions and dispositions harder to finance. Similar factors also impact the timing and value of asset and fund monetization within our investment management and development businesses and our ability to source new debt capital to fund development projects.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the 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, business combinations, goodwill and other intangible assets, income taxes, contingencies, and investments in unconsolidated subsidiaries – fair value option can be found in our 2022 Annual Report. There have been no material changes to these policies and estimates as of September 30, 2023.
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 sharp rise in interest rates and a “higher for longer” rate environment, coupled with banking sector stress and economic uncertainty, may cause seasonality to deviate from historical patterns.
Inflation
Our business continues to be affected by high inflation in 2023. Most notably, moves by a number of central banks to reduce high inflation by rapidly raising interest rates has sharply increased the cost of debt capital and limited its availability, resulting in a significant decline in sales and financing transaction activity and affected the timing of asset monetization in our investment management and development businesses. In addition, rising price levels across the economy have required us to increase compensation expense to retain top talent and our development business has incurred higher input costs for construction materials. On the other hand, we believe that parts of our business are insulated to some degree against inflation through the ability to raise prices, sometimes through provisions in our service contracts. The company continues to monitor inflation, monetary policy changes in response to inflation and potentially adverse effects on our busines
Showing the first 8K of 127K characters. Open the full section
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The information in this section should be read in connection with the information on market risk related to changes in interest rates and non-U.S. currency exchange rates in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our 2022 Annual Report.
Our exposure to market risk primarily consists of foreign currency exchange rate fluctuations related to our international operations and changes in interest rates on debt obligations. We manage such risk primarily by managing the amount, sources, and duration of our debt funding and by using derivative financial instruments. We apply Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 815, “Derivatives and Hedging,” when accounting for derivative financial instruments. In all cases, we view derivative financial instruments as a risk management tool and, accordingly, do not use derivatives for trading or speculative purposes.
Exchange Rates
Our foreign operations expose us to fluctuations in foreign exchange rates. These fluctuations may impact the value of our cash receipts and payments in terms of our functional (reporting) currency, which is the U.S. dollar. See the discussion of international operations, which is included in Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Items Affecting Comparability—International Operations” and is incorporated by reference herein. On July 10, 2023, we entered into a cross currency swap to effectively hedge the foreign currency exposure related to our new euro-denominated term loan that was executed on that date.
Interest Rates
We manage our interest expense by using a combination of fixed and variable rate debt. Historically, we have entered into interest rate swap agreements to attempt to hedge the variability of future interest payments due to changes in interest rates. As of September 30, 2023, we did not have any outstanding interest rate swap agreements.
The estimated fair value of our senior term loans was approximately $726.5 million at September 30, 2023. Based on dealers’ quotes, the estimated fair value of our 5.950% senior notes, 4.875% senior notes and 2.500% senior notes was $944.3 million, $583.8 million and $387.3 million, respectively, at September 30, 2023.
We utilize sensitivity analyses to assess the potential effect on our variable rate debt. If interest rates were to increase 100 basis points on our outstanding variable rate debt at September 30, 2023, the net impact of the additional interest cost would be a decrease of $10.6 million on pre-tax income and an increase of $10.6 million in cash used in operating activities for the nine months ended September 30, 2023.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Rule 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934, as amended, requires that we conduct an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report, and we have a disclosure policy in furtherance of the same. This evaluation is designed to ensure that all corporate disclosure is complete and accurate in all material respects. The evaluation is further designed to ensure that all information required to be disclosed in our SEC reports is accumulated and communicated to management to allow timely decisions regarding required disclosures and recorded, processed, summarized and reported within the time periods and in the manner specified in the SEC’s rules and forms. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our Chief Executive Officer and Chief Financial Officer supervise and participate in this evaluation, and they are assisted by members of our Disclosure Committee. Our Disclosure Committee consists of our General Counsel, our Chief Accounting Officer, Senior Officers of significant business lines and other select employees.
We conducted the required evaluation, and our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined by Securities Exchange Act Rule 13a-15(e)) were effective as of September 30, 2023 to accomplish their objectives at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the fiscal quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material changes to our legal proceedings as previously disclosed in our 2022 Annual Report.
Item 1A. Risk Factors
There have been no material changes to our risk factors as previously disclosed in our 2022 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Open market share repurchase activity during the three months ended September 30, 2023 was as follows (dollars in thousands, except per share amounts):
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1) | |||||||||||||
| July 1, 2023 - July 31, 2023 | 1,625,061 | $ | 85.08 | 1,625,061 | |||||||||||||
| August 1, 2023 - August 31, 2023 | 2,982,626 | 83.34 | 2,982,626 | ||||||||||||||
| September 1, 2023 - September 30, 2023 | 1,606,234 | 80.38 | 1,606,234 | ||||||||||||||
| 6,213,921 | $ | 83.03 | 6,213,921 | $ | 1,485,637 |
**(1)**In November 2021, our board of directors authorized a program for the company to repurchase up to $2.0 billion of our Class A common stock over five years, effective November 19, 2021 (the “2021 program”). In August 2022, our board of directors authorized an additional $2.0 billion under this program, bringing the total authorized amount under the 2021 program to a total of $4.0 billion. During the third quarter of 2023, we repurchased an aggregate of $515.9 million of our common stock under the 2021 program. The remaining $1.5 billion in the table represents the amount available to repurchase shares under the 2021 program as of September 30, 2023.
Our stock repurchase program does not obligate us to acquire any specific number of shares. Under this program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act. 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.
Item 5. Other Information
During the three months ended September 30, 2023, our Chief Financial Officer, Emma E. Giamartino, entered into a Rule 10b5-1 Trading Plan (the “Trading Plan”) to sell shares of the company’s Class A common stock. The Trading Plan is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).
The table below provides certain information regarding Ms. Giamartino’s Trading Plan.
| Name | Plan Adoption Date | Maximum Number of Shares That May Be Sold Under the Plan | Plan Expiration Date | ||||||||
| Emma E. Giamartino | August 1, 2023 | Up to 11,680 | August 30, 2024 |
Trading under the Trading Plan may commence no sooner than November 13, 2023 and will end on the earlier of the applicable date set forth above and the date on which all the shares in the Trading Plan are sold. Ms. Giamartino’s Trading Plan was adopted during an authorized trading period and when she was not in possession of material non-public information. The transactions under Ms. Giamartino’s Trading Plan will be disclosed publicly through Form 144 and Form 4 filings with the Securities and Exchange Commission.
Item 6. Exhibits
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CBRE GROUP, INC. | |||||
| Date: October 27, 2023 | /s/ EMMA E. GIAMARTINO | ||||
| Emma E. Giamartino Chief Financial Officer (Principal Financial Officer) | |||||
| Date: October 27, 2023 | /s/ LINDSEY S. CAPLAN | ||||
| Lindsey S. Caplan Chief Accounting Officer (Principal Accounting Officer) |