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Press Release Details

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CBRE Group, Inc. Reports Financial Results for Second-Quarter 2019 and Increases Earnings Guidance for Full-year 2019

August 01, 2019

GAAP EPS of $0.66, down 1%
Adjusted EPS of $0.81, up 11%
Revenue and Fee Revenue up 12%

LOS ANGELES--(BUSINESS WIRE)-- CBRE Group, Inc. (NYSE:CBRE) today reported strong financial results for the second quarter ended June 30, 2019.

“CBRE had another quarter of strong growth with double-digit revenue increases in leasing, occupier outsourcing and U.S. capital markets,” said Bob Sulentic, the company’s president and chief executive officer. “In addition, the impact of our reorganization, which we announced last year, is driving margin improvement in our advisory services and outsourcing businesses. Cost efficiency was one of the key objectives of this change.”

Looking ahead, Mr. Sulentic said: “We are in a strong strategic position with excellent momentum in our business. In light of this, and our strong performance in the first half, we are raising our 2019 earnings expectations.”

CBRE now expects adjusted earnings-per-share for the full year to be in a range of $3.70 to $3.80. The $3.75 mid-point reflects a 14% increase over 2018 adjusted earnings per share.

Second-Quarter 2019 Results

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

 

 

 

 

 

 

 

 

 

% Change from Q2 2018

 

 

Q2 2019

 

 

Q2 2018

 

 

USD

 

 

LC (1)

 

Revenue

$

5,714

 

 

$

5,111

 

 

12%

 

 

15%

 

Fee revenue (2)

 

2,849

 

 

 

2,536

 

 

12%

 

 

15%

 

Adjusted EBITDA (3)

 

468

 

 

 

439

 

 

7%

 

 

8%

 

GAAP net income

 

224

 

 

 

229

 

 

-2%

 

 

-1%

 

GAAP EPS

$

0.66

 

 

$

0.67

 

 

-1%

 

 

0%

 

Adjusted net income (4)

 

277

 

 

 

253

 

 

10%

 

 

12%

 

Adjusted EPS (4)

$

0.81

 

 

$

0.74

 

 

11%

 

 

13%

 

Advisory Services Segment Review

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

 

 

 

 

 

 

 

 

 

% Change from Q2 2018

 

 

Q2 2019

 

 

Q2 2018

 

 

USD

 

 

LC

 

Revenue

$

2,179

 

 

$

1,959

 

 

11%

 

 

14%

 

Fee revenue

 

1,935

 

 

 

1,750

 

 

11%

 

 

13%

 

Adjusted EBITDA

 

334

 

 

 

290

 

 

15%

 

 

16%

 

Adjusted EBITDA on fee revenue margin

 

17.2

%

 

 

16.6

%

 

1%

 

 

0%

 

Growth was fueled by the Americas, where all business lines produced double-digit revenue increases (in both US dollars and local currency), except advisory property sales, which grew by 8% (9% local currency).

Advisory leasing revenue rose 19% (21% local currency) and was up 26% (27% local currency) in the Americas and down 1% (up 5% local currency) outside the Americas. In the United States, growth was again robust at 27% and was broad-based across markets and industries.

Capital markets revenue, which includes both advisory property sales and commercial mortgage origination, rose 5% (7% local currency) globally, reflecting strong market share gains.

  • Commercial mortgage origination revenue rose 16% (same local currency), fueled by activity with the U.S. Government-Sponsored Enterprises, life insurance companies and banks.
  • Advisory property sales revenue rose 2% (4% local currency), representing a solid performance versus global market volumes. Americas advisory property sales increased 8% (9% local currency), as CBRE again made market share gains in U.S. investment sales, according to Real Capital Analytics. Outside the Americas, property sales declined 8% (3% local currency), as performance was tempered by continued weak market fundamentals in residential sales in Asia Pacific. Excluding residential, property sales outside the Americas increased 2% (8% local currency) for the quarter.

Loan servicing revenue continued to grow at a brisk pace, rising 13% (14% local currency). The loan servicing portfolio totals more than $210 billion.

Property and advisory project management revenue and fee revenue increased 11% (14% local currency) and 7% (10% local currency), respectively, while valuation revenue edged up 1% (5% local currency).

Global Workplace Solutions Segment

The following table presents highlights of the Global Workplace Solutions segment performance (dollars in millions):

 

 

 

 

 

 

 

 

 

% Change from Q2 2018

 

 

Q2 2019

 

 

Q2 2018

 

 

USD

 

 

LC

 

Revenue

$

3,385

 

 

$

3,035

 

 

12%

 

 

15%

 

Fee revenue

 

764

 

 

 

668

 

 

14%

 

 

19%

 

Adjusted EBITDA

 

104

 

 

 

79

 

 

32%

 

 

34%

 

Adjusted EBITDA on fee revenue margin

 

13.6

%

 

 

11.8

%

 

2%

 

 

2%

 

Global Workplace Solutions again registered robust top- and bottom-line growth. Fee revenue grew at a double-digit rate in local currency in all three global regions.

Sustained growth is being driven by CBRE’s integrated service offering – increasingly enhanced by technology – that is designed to directly meet rising occupier demand for outsourced global real estate solutions. The company is further penetrating key vertical markets, such as life sciences and retail, and seeing particular success with clients that utilize more than one service. These clients have represented an increasing percentage of the new business pipeline for six consecutive quarters.

Real Estate Investments Segment

The following table presents highlights of the Real Estate Investments segment performance (dollars in millions):

 

 

 

 

 

 

 

 

 

% Change from Q2 2018

 

 

Q2 2019

 

 

Q2 2018

 

 

USD

 

 

LC

 

Revenue

$

150

 

 

$

117

 

 

28%

 

 

32%

 

Adjusted revenue (5)

 

169

 

 

 

216

 

 

-22%

 

 

-20%

 

Adjusted EBITDA

 

31

 

 

 

70

 

 

-56%

 

 

-55%

 

As expected, this segment’s adjusted EBITDA was below the year-earlier quarter due primarily to the timing of large asset dispositions in the development business – which were particularly strong in second-quarter 2018. Investment management performance improved compared with second-quarter 2018.

  • The in-process development portfolio increased to a record $10.6 billion, up $0.9 billion from first-quarter 2019. The pipeline declined by $0.3 billion during the second quarter to $2.5 billion, reflecting the conversion of prospective projects to in-process activity.
  • Investment management assets under management (AUM) totaled $106.7 billion, down $0.5 billion ($.0.4 billion local currency) from second-quarter 2019. Over the past 12 months, AUM has increased $5.0 billion ($6.7 billion local currency).

Subsequent to the end of the second quarter, CBRE announced its intention to acquire Telford Homes, a London-based developer of for-rent multifamily properties in the UK, which is subject to Telford shareholder and regulatory approval.

Adjustments to GAAP Net Income

Second-quarter 2019 adjustments to GAAP net income had a net impact of $53.3 million, including: pre-tax adjustments of:

  • $33.8 million of expenses associated with the company reorganization, including related cost-savings initiatives;
  • $19.6 million of non-cash acquisition-related depreciation and amortization;
  • $9.0 million of integration and other costs related to acquisitions; and
  • $8.3 million of net carried interest incentive compensation expense to align with the timing of associated revenue;
  • Offset by a $17.4 million net tax adjustment associated with the aforementioned pre-tax adjustments.

Conference Call Details

The company’s second quarter earnings conference call will be held today (Thursday, August 1, 2019) at 8:30 a.m. Eastern Time. A webcast, along with an associated slide presentation, will be accessible through the Investor Relations section of the company’s website at www.cbre.com/investorrelations.

The direct dial-in number for the conference call is 877-407-8037 for U.S. callers and 201-689-8037 for international callers. A replay of the call will be available starting at 1:00 p.m. Eastern Time on August 1, 2019 and will be available for one week following the event. The dial-in number for the replay is 877‑660‑6853 for U.S. callers and 201-612-7415 for international callers. The access code for the replay is 13691608#. A transcript of the call will be available on the company’s Investor Relations website at www.cbre.com/investorrelations. 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 filings and public conference calls and webcasts.

About CBRE Group, Inc.

CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2018 revenue). The company has more than 90,000 employees (excluding affiliates) and serves real estate investors and occupiers through more than 480 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated 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. The information contained in, or accessible through, the company’s website is not incorporated into this press release.

CBRE GROUP, INC.

OPERATING RESULTS

FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(Dollars in thousands, except share and per share data)

(Unaudited)







 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee revenue

 

$

2,849,494

 

 

$

2,535,600

 

 

$

5,278,219

 

 

$

4,812,499

 

Pass through costs also recognized as revenue

 

 

2,864,579

 

 

 

2,575,834

 

 

 

5,571,364

 

 

 

4,972,887

 

Total revenue

 

 

5,714,073

 

 

 

5,111,434

 

 

 

10,849,583

 

 

 

9,785,386

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services

 

 

4,445,790

 

 

 

3,958,748

 

 

 

8,467,824

 

 

 

7,578,709

 

Operating, administrative and other

 

 

877,397

 

 

 

826,282

 

 

 

1,670,273

 

 

 

1,558,517

 

Depreciation and amortization

 

 

106,479

 

 

 

113,399

 

 

 

212,302

 

 

 

221,564

 

Intangible asset impairment

 

 

 

 

 

 

 

 

89,037

 

 

 

 

Total costs and expenses

 

 

5,429,666

 

 

 

4,898,429

 

 

 

10,439,436

 

 

 

9,358,790

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on disposition of real estate (1)

 

 

10

 

 

 

12,311

 

 

 

19,257

 

 

 

12,329

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

284,417

 

 

 

225,316

 

 

 

429,404

 

 

 

438,925

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity income from unconsolidated subsidiaries (1)

 

 

21,773

 

 

 

96,021

 

 

 

94,437

 

 

 

136,200

 

Other income (loss)

 

 

4,369

 

 

 

4,009

 

 

 

25,222

 

 

 

(271

)

Interest expense, net of interest income

 

 

24,600

 

 

 

25,396

 

 

 

45,792

 

 

 

50,633

 

Write-off of financing costs on extinguished debt

 

 

 

 

 

 

 

 

2,608

 

 

 

27,982

 

Income before provision for income taxes

 

 

285,959

 

 

 

299,950

 

 

 

500,663

 

 

 

496,239

 

Provision for income taxes

 

 

62,521

 

 

 

70,319

 

 

 

106,399

 

 

 

116,483

 

Net income

 

 

223,438

 

 

 

229,631

 

 

 

394,264

 

 

 

379,756

 

Less: Net (loss) income attributable to non-controlling interests (1)

 

 

(293

)

 

 

964

 

 

 

6,124

 

 

 

801

 

Net income attributable to CBRE Group, Inc.

 

$

223,731

 

 

$

228,667

 

 

$

388,140

 

 

$

378,955

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share attributable to CBRE Group, Inc.

 

$

0.67

 

 

$

0.67

 

 

$

1.15

 

 

$

1.12

 

Weighted average shares outstanding for basic income per share

 

 

336,222,471

 

 

 

339,081,556

 

 

 

336,122,100

 

 

 

338,986,354

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share attributable to CBRE Group, Inc.

 

$

0.66

 

 

$

0.67

 

 

$

1.14

 

 

$

1.10

 

Weighted average shares outstanding for diluted income per share

 

 

340,508,931

 

 

 

343,471,513

 

 

 

340,334,315

 

 

 

343,031,189

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

468,492

 

 

$

439,307

 

 

$

918,524

 

 

$

787,114

 

________________________

(1)

Equity income from unconsolidated subsidiaries and gain on disposition of real estate, less net (loss) income attributable to non-controlling interests, includes income of $19.3 million and $99.0 million for the three months ended June 30, 2019 and 2018, respectively, and $104.6 million and $134.7 million for the six months ended June 30, 2019 and 2018, respectively, attributable to Real Estate Investments but does not include significant related compensation expense (which is included in operating, administrative and other expenses). In the Real Estate Investments segment, related equity income from unconsolidated subsidiaries and gain on disposition of real estate, net of non-controlling interests, and the associated compensation expense, are all included in adjusted EBITDA.

CBRE GROUP, INC.

SEGMENT RESULTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019

(Dollars in thousands)

(Unaudited)




 

 

 

Three Months Ended June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advisory

Services

 

 

Global Workplace

Solutions

 

 

Real Estate

Investments

 

 

Consolidated

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee revenue

 

$

1,935,506

 

 

$

764,325

 

 

$

149,663

 

 

$

2,849,494

 

Pass through costs also recognized as

revenue

 

 

243,452

 

 

 

2,621,127

 

 

 

 

 

 

2,864,579

 

Total revenue

 

 

2,178,958

 

 

 

3,385,452

 

 

 

149,663

 

 

 

5,714,073

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services

 

 

1,309,940

 

 

 

3,135,850

 

 

 

 

 

 

4,445,790

 

Operating, administrative and other

 

 

544,696

 

 

 

176,238

 

 

 

156,463

 

 

 

877,397

 

Depreciation and amortization

 

 

74,754

 

 

 

29,839

 

 

 

1,886

 

 

 

106,479

 

Total costs and expenses

 

 

1,929,390

 

 

 

3,341,927

 

 

 

158,349

 

 

 

5,429,666

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on disposition of real estate

 

 

 

 

 

 

 

 

10

 

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

249,568

 

 

 

43,525

 

 

 

(8,676

)

 

 

284,417

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity income (loss) from

unconsolidated subsidiaries

 

 

3,136

 

 

 

(325

)

 

 

18,962

 

 

 

21,773

 

Other income

 

 

1,480

 

 

 

1,522

 

 

 

1,367

 

 

 

4,369

 

Less: Net income (loss) attributable to

non-controlling interests

 

 

135

 

 

 

(105

)

 

 

(323

)

 

 

(293

)

Add-back: Depreciation and amortization

 

 

74,754

 

 

 

29,839

 

 

 

1,886

 

 

 

106,479

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA

 

 

328,803

 

 

 

74,666

 

 

 

13,862

 

 

 

417,331

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs associated with our reorganization,

including cost-savings initiatives (1)

 

 

4,422

 

 

 

29,394

 

 

 

 

 

 

33,816

 

Integration and other costs related to acquisitions

 

 

303

 

 

 

 

 

 

8,734

 

 

 

9,037

 

Carried interest incentive compensation

expense to align with the timing of

associated revenue

 

 

 

 

 

 

 

 

8,308

 

 

 

8,308

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

333,528

 

 

$

104,060

 

 

$

30,904

 

 

$

468,492

 

________________________

(1)

Primarily represents severance costs related to headcount reductions in connection with our reorganization announced in the third quarter of 2018 that became effective January 1 2019.

CBRE GROUP, INC.

SEGMENT RESULTS—(CONTINUED)

FOR THE THREE MONTHS ENDED JUNE 30, 2018

(Dollars in thousands)

(Unaudited)





 

 

 

Three Months Ended June 30, 2018 (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advisory

Services

 

 

Global Workplace

Solutions

 

 

Real Estate

Investments

 

 

Consolidated

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee revenue

 

$

1,750,180

 

 

$

668,065

 

 

$

117,355

 

 

$

2,535,600

 

Pass through costs also recognized as

revenue

 

 

208,926

 

 

 

2,366,908

 

 

 

 

 

 

2,575,834

 

Total revenue

 

 

1,959,106

 

 

 

3,034,973

 

 

 

117,355

 

 

 

5,111,434

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services

 

 

1,151,238

 

 

 

2,807,510

 

 

 

 

 

 

3,958,748

 

Operating, administrative and other

 

 

527,046

 

 

 

148,415

 

 

 

150,821

 

 

 

826,282

 

Depreciation and amortization

 

 

66,992

 

 

 

38,966

 

 

 

7,441

 

 

 

113,399

 

Total costs and expenses

 

 

1,745,276

 

 

 

2,994,891

 

 

 

158,262

 

 

 

4,898,429

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on disposition of real estate

 

 

 

 

 

 

 

 

12,311

 

 

 

12,311

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

213,830

 

 

 

40,082

 

 

 

(28,596

)

 

 

225,316

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity income (loss) from unconsolidated

subsidiaries

 

 

7,808

 

 

 

(1

)

 

 

88,214

 

 

 

96,021

 

Other income

 

 

1,075

 

 

 

87

 

 

 

2,847

 

 

 

4,009

 

Less: Net (loss) income attributable to

non-controlling interests

 

 

(607

)

 

 

53

 

 

 

1,518

 

 

 

964

 

Add-back: Depreciation and amortization

 

 

66,992

 

 

 

38,966

 

 

 

7,441

 

 

 

113,399

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA

 

 

290,312

 

 

 

79,081

 

 

 

68,388

 

 

 

437,781

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carried interest incentive compensation

expense to align with the timing of

associated revenue

 

 

 

 

 

 

 

 

1,526

 

 

 

1,526

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

290,312

 

 

$

79,081

 

 

$

69,914

 

 

$

439,307

 

________________________

(1)

Our new organizational structure became effective on January 1 2019. Under the new structure we organize our operations around and publicly report our financial results on three global business segments. Results for 2018 have been presented in conformity with the new structure.

CBRE GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

(Unaudited)







 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents (1)

 

$

535,618

 

 

$

777,219

 

Restricted cash

 

 

77,607

 

 

 

86,725

 

Receivables, net

 

 

4,001,003

 

 

 

3,668,591

 

Warehouse receivables (2)

 

 

1,365,928

 

 

 

1,342,468

 

Property and equipment, net

 

 

746,490

 

 

 

721,692

 

Operating lease assets (3)

 

 

949,216

 

 

 

 

Goodwill and other intangibles, net

 

 

4,995,070

 

 

 

5,093,617

 

Investments in and advances to unconsolidated subsidiaries

 

 

307,308

 

 

 

216,174

 

Other assets, net

 

 

1,740,895

 

 

 

1,550,307

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

14,719,135

 

 

$

13,456,793

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Current liabilities, excluding debt and operating lease liabilities

 

$

4,131,305

 

 

$

4,471,473

 

Warehouse lines of credit (which fund loans that U.S. Government Sponsored Enterprises

have committed to purchase) (2)

 

 

1,349,988

 

 

 

1,328,761

 

Revolving credit facility

 

 

230,000

 

 

 

 

Senior term loans, net

 

 

750,337

 

 

 

751,255

 

4.875% senior notes, net

 

 

593,201

 

 

 

592,781

 

5.25% senior notes, net

 

 

422,829

 

 

 

422,688

 

Other debt

 

 

2,857

 

 

 

3,682

 

Operating lease liabilities (3)

 

 

1,169,724

 

 

 

 

Other long-term liabilities

 

 

678,364

 

 

 

876,251

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

9,328,605

 

 

 

8,446,891

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

CBRE Group, Inc. stockholders' equity

 

 

5,346,637

 

 

 

4,938,797

 

Non-controlling interests

 

 

43,893

 

 

 

71,105

 

 

 

 

 

 

 

 

 

 

Total equity

 

 

5,390,530

 

 

 

5,009,902

 

 

 

 

 

 

 

 

 

 

Total liabilities and equity

 

$

14,719,135

 

 

$

13,456,793

 

________________________

(1)

Includes $141.8 million and $155.2 million of cash in consolidated funds and other entities not available for company use as of June 30, 2019 and December 31, 2018, respectively.

(2)

Represents loan receivables, the majority of which are offset by borrowings under related warehouse line of credit facilities.

(3)

Reflects assets and liabilities recorded as a result of adopting Accounting Standards Update (ASU) No. 2016-02, “Leases (Topic 842)” on January 1, 2019 prospectively using the optional transitional method with no adjustment to comparative period financial statements presented for prior periods.

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 our future growth momentum, operations, market share, business outlook, capital deployment, acquisition integration and financial performance. 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 and business conditions, particularly in geographies where our business may be concentrated; volatility and disruption of the securities, capital and credit markets, interest rate increases, the cost and availability of capital for investment in real estate, clients’ willingness to make real estate or long-term contractual commitments and other factors affecting the value of real estate assets, inside and outside the United States; increases in unemployment and general slowdowns in commercial activity; trends in pricing and risk assumption for commercial real estate services; the effect of significant movements in average cap 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; declines in lending activity of U.S. Government Sponsored Enterprises, regulatory oversight of such activity and our mortgage servicing revenue from the commercial real estate mortgage market; our ability to diversify our revenue model to offset cyclical economic trends in the commercial real estate industry; our ability to attract new user and investor clients; our ability to retain major clients and renew related contracts; our ability to leverage our global services platform to maximize and sustain long-term cash flow; our ability to maintain EBITDA and adjusted EBITDA margins that enable us to continue investing in our platform and client service offerings; our ability to control costs relative to revenue growth; economic volatility and market uncertainty globally related to the United Kingdom’s withdrawal from the European Union, including concerns relating to the economic impact of such withdrawal on businesses within the United Kingdom and Europe; foreign currency fluctuations; our ability to retain and incentivize key personnel; our ability to compete globally, or in specific geographic markets or business segments that are material to us; the emergence of disruptive business models and technologies; our ability to identify, acquire and integrate synergistic and accretive businesses; costs and potential future capital requirements relating to businesses we may acquire; integration challenges arising out of companies we may acquire; the ability of our investment management line of 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; 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; the ability of our wholly-owned subsidiary, CBRE Capital Markets, Inc., to periodically amend, or replace, on satisfactory terms, the agreements for its warehouse lines of credit; variations in historically customary seasonal patterns that cause our business not to perform as expected; 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; liabilities under guarantees, or for construction defects, that we incur in our development services line of business within our Real Estate Investments segment; our and our employees’ ability to execute on, and adapt to, information technology strategies and trends; cybersecurity threats, including the potential misappropriation of assets or sensitive information, corruption of data or operational disruption; changes in domestic 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 Russia, Eastern Europe and the Middle East, due to the level of political instability in those regions; our ability to comply with laws and regulations related to our global operations, including real estate licensure, tax, labor and employment laws and regulations, as well as the anti-corruption laws and trade sanctions of the U.S. and other countries; negative publicity or actions by our employees, regulators, media, activists, competitors or others that harm our reputation or brand; changes in applicable tax or accounting requirements, including the impact of any subsequent additional regulation or guidance associated with the Tax Cuts and Jobs Act (which was enacted into law on December 22, 2017); and the effect of implementation of new accounting rules and standards.

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, 2018 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, as well as in the company’s press releases and other periodic filings with the Securities and Exchange Commission (SEC). Such filings are available publicly and may be obtained on the company’s website at www.cbre.com or upon written request from CBRE’s Investor Relations Department at investorrelations@cbre.com.

The terms “fee revenue,” “adjusted revenue,” “adjusted net income,” “adjusted earnings per share” (or adjusted EPS), “adjusted EBITDA” and “adjusted EBITDA on fee revenue margin,” 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.

Note – CBRE has not reconciled the (non-GAAP) adjusted earnings per share forward-looking guidance included in this press 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.

1 Local currency percentage change is calculated by comparing current-period results at prior-period exchange rates versus prior-period results.

2 Fee revenue is gross revenue less both client reimbursed costs largely associated with employees that are dedicated to client facilities and subcontracted vendor work performed for clients.

3 EBITDA represents earnings before net interest expense, write-off of financing costs on extinguished debt, income taxes, depreciation, amortization and intangible asset impairments. Amounts shown for adjusted EBITDA further remove (from EBITDA) costs associated with our reorganization, including cost-savings initiatives, integration and other costs related to acquisitions and certain carried interest incentive compensation expense (reversal) to align with the timing of associated revenue. Adjusted EBITDA on fee revenue margin represents adjusted EBITDA divided by fee revenue.

4 Adjusted net income and adjusted earnings per diluted share (or adjusted EPS) exclude the effect of select items from GAAP net income and GAAP earnings per diluted share as well as adjust the provision for income taxes for such charges. Adjustments during the periods presented included non-cash depreciation and amortization expense related to certain assets attributable to acquisitions, costs associated with our reorganization, including cost-savings initiatives, integration and other costs related to acquisitions and certain carried interest incentive compensation expense to align with the timing of associated revenue.

5 Revenue in the Real Estate Investments segment does not include equity income from unconsolidated subsidiaries and gain on disposition of real estate, net of non-controlling interests. Adjusted revenue for the Real Estate Investments segment reflects revenue for this segment with equity income from unconsolidated subsidiaries and gain on disposition of real estate, net of non-controlling interests, included. Adjusted EBITDA includes equity income from unconsolidated subsidiaries and gain on disposition of real estate, net of non-controlling interests, and the associated compensation expense.

Non-GAAP Financial Measures

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


(i)

Fee revenue

 

(ii)

Adjusted revenue for the Real Estate Investments segment

 

(iii)

Net income attributable to CBRE Group, Inc., as adjusted (which we also refer to as “adjusted net income”)


(iv)

Diluted income per share attributable to CBRE Group, Inc. shareholders, as adjusted (which we also refer to as “adjusted earnings per diluted share” or “adjusted EPS”)


(v)

Adjusted EBITDA and adjusted EBITDA on fee revenue margin

These measures are not recognized measurements under United States generally accepted accounting principles, or “GAAP.” When analyzing our operating performance, investors should use them 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 that 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 fee revenue: the company believes that investors may find this measure useful to analyze the financial performance of our Global Workplace Solutions and Property and Advisory Project Management business lines and our business generally. Fee revenue excludes costs reimbursable by clients, and as such provides greater visibility into the underlying performance of our business.

With respect to adjusted revenue: the company believes that investors may find this measure useful to analyze the financial performance of our Real Estate Investments segment because it is more reflective of this segment’s total operations.

With respect to adjusted net income, adjusted EPS, adjusted EBITDA and adjusted EBITDA on fee revenue margin: 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 acquisitions, which would include impairment charges of goodwill and intangibles created from acquisitions—and in the case of adjusted EBITDA and adjusted EBITDA fee revenue margin—the effects of financings and income tax and the accounting effects of capital spending. All of these measures and adjusted revenue may vary for different companies for reasons unrelated to overall operating performance. In the case of adjusted 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 adjusted 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 and making certain restricted payments. The company also uses adjusted EBITDA and adjusted EPS as significant components when measuring our operating performance under our employee incentive compensation programs.

Net income attributable to CBRE Group, Inc., as adjusted (or adjusted net income), and diluted income per share attributable to CBRE Group, Inc. shareholders, as adjusted (or adjusted EPS), are calculated as follows (dollars in thousands, except share and per share data):

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to CBRE Group, Inc.

 

$

223,731

 

 

$

228,667

 

 

$

388,140

 

 

$

378,955

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Plus / minus:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs associated with our reorganization, including

cost-savings initiatives (1)

 

 

33,816

 

 

 

 

 

 

49,565

 

 

 

 

Non-cash depreciation and amortization expense related to

certain assets attributable to acquisitions

 

 

19,598

 

 

 

29,437

 

 

 

41,824

 

 

 

58,409

 

Integration and other costs related to acquisitions

 

 

9,037

 

 

 

 

 

 

9,037

 

 

 

 

Carried interest incentive compensation expense (reversal)

to align with the timing of associated revenue

 

 

8,308

 

 

 

1,526

 

 

 

15,644

 

 

 

(8,503

)

Intangible asset impairment

 

 

 

 

 

 

 

 

89,037

 

 

 

 

Write-off of financing costs on extinguished debt

 

 

 

 

 

 

 

 

2,608

 

 

 

27,982

 

Tax impact of adjusted items

 

 

(17,433

)

 

 

(7,068

)

 

 

(51,281

)

 

 

(18,605

)

Impact of U.S. tax reform

 

 

 

 

 

 

 

 

 

 

 

548

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to CBRE Group, Inc. shareholders,

as adjusted

 

$

277,057

 

 

$

252,562

 

 

$

544,574

 

 

$

438,786

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted income per share attributable to CBRE Group, Inc.

shareholders, as adjusted

 

$

0.81

 

 

$

0.74

 

 

$

1.60

 

 

$

1.28

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding for diluted income

per share

 

 

340,508,931

 

 

 

343,471,513

 

 

 

340,334,315

 

 

 

343,031,189

 







 

Adjusted EBITDA is calculated as follows (dollars in thousands):







 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to CBRE Group, Inc.

 

$

223,731

 

 

$

228,667

 

 

$

388,140

 

 

$

378,955

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

106,479

 

 

 

113,399

 

 

 

212,302

 

 

 

221,564

 

Intangible asset impairment

 

 

 

 

 

 

 

 

89,037

 

 

 

 

Interest expense, net of interest income

 

 

24,600

 

 

 

25,396

 

 

 

45,792

 

 

 

50,633

 

Write-off of financing costs on extinguished debt

 

 

 

 

 

 

 

 

2,608

 

 

 

27,982

 

Provision for income taxes

 

 

62,521

 

 

 

70,319

 

 

 

106,399

 

 

 

116,483

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA

 

 

417,331

 

 

 

437,781

 

 

 

844,278

 

 

 

795,617

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs associated with our reorganization, including

cost-savings initiatives (1)

 

 

33,816

 

 

 

 

 

 

49,565

 

 

 

 

Integration and other costs related to acquisitions

 

 

9,037

 

 

 

 

 

 

9,037

 

 

 

 

Carried interest incentive compensation expense (reversal)

to align with the timing of associated revenue

 

 

8,308

 

 

 

1,526

 

 

 

15,644

 

 

 

(8,503

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

468,492

 

 

$

439,307

 

 

$

918,524

 

 

$

787,114

 

________________________

(1)

Primarily represents severance costs related to headcount reductions in connection with our reorganization announced in the third quarter of 2018 that became effective January 1, 2019.

Revenue includes client reimbursed pass through costs largely associated with employees that are dedicated to client facilities and subcontracted vendor work performed for clients, both of which are excluded from fee revenue. Reconciliations are shown below (dollars in thousands):

 

 

Three Months Ended

 

 

 

June 30,

 

 

 

2019

 

 

2018

 

Property and Advisory Project Management

 

 

 

 

 

 

 

 

Fee revenue

 

$

312,370

 

 

$

293,275

 

Plus: Pass through costs also recognized as revenue

 

 

243,452

 

 

 

208,926

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

555,822

 

 

$

502,201

 




 

Real Estate Investments adjusted revenue is computed as follows (dollars in thousands):




 

 

 

Three Months Ended

 

 

 

June 30,

 

 

 

2019

 

 

2018

 

Real Estate Investments

 

 

 

 

 

 

 

 

Total revenue

 

$

149,663

 

 

$

117,355

 

Add:

 

 

 

 

 

 

 

 

Equity income from unconsolidated subsidiaries

 

 

18,962

 

 

 

88,214

 

Gain on disposition of real estate

 

 

10

 

 

 

12,311

 

Less:

 

 

 

 

 

 

 

 

Non-controlling interests

 

 

(323

)

 

 

1,518

 

 

 

 

 

 

 

 

 

 

Net adjustments

 

 

19,295

 

 

 

99,007

 

 

 

 

 

 

 

 

 

 

Adjusted revenue

 

$

168,958

 

 

$

216,362

 










 

 

For further information:

Brad Burke
Investors
214.863.3100

Steve Iaco
Media
212.984.6535

Source: CBRE Group, Inc.

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