CBRE GROUP, INC. This Quarterly Report on Form 10-Q (Quarterly Report) forCBRE Group, Inc. for the three months endedJune 30, 2020 represents an update to the more detailed and comprehensive disclosures included in our Annual Report on Form 10K for the fiscal year endedDecember 31, 2019 (2019 Annual Report) . Accordingly, you should read the following discussion in conjunction with the information included in our 2019 Annual Report as well as the unaudited financial statements included elsewhere in this Quarterly Report. In addition, the statements and assumptions in this Quarterly Report that are not statements of historical fact are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 or Section 21E of the Securities Exchange Act of 1934, each as amended, including, in particular, statements about our plans, strategies and prospects as well as estimates of industry growth for the next quarter and beyond. For important information regarding these forward-looking statements, please see the discussion below under the caption "Cautionary Note on Forward-Looking Statements."
Overview
CBRE Group, Inc. is aDelaware corporation. References to "CBRE," "the company," "we," "us" and "our" refer toCBRE Group, Inc. and include all of its consolidated subsidiaries, unless otherwise indicated or the context requires otherwise. We are the world's largest commercial real estate services and investment firm, based on 2019 revenue, with leading global market positions in our leasing, property sales, occupier outsourcing and valuation businesses. As ofDecember 31, 2019 , we operated in more than 530 offices worldwide and had more than 100,000 employees, excluding independent affiliates. We serve clients in more than 100 countries. Our business is focused on providing services to real estate occupiers and investors. For occupiers, we provide facilities management, project management, transaction (both property sales and leasing) and consulting services, among others. For investors, we provide capital markets (property sales, mortgage origination, sales and servicing), leasing, investment management, property management, valuation and development services, among others. We provide services under the following brand names: "CBRE" (real estate advisory and outsourcing services); "CBRE Global Investors " (investment management); "Trammell Crow Company " (U.S. development); "Telford Homes " (U.K. development) and "Hana" (enterprise-focused flexible workspace solutions). Our revenue mix has shifted in recent years toward more revenue earned as part of contracts encompassing multiple business lines as occupiers and investors increasingly prefer to purchase integrated, account-based services from firms that meet the full spectrum of their needs nationally and globally. We believe we are well-positioned to capture a substantial share of this growing market opportunity. We generate revenue from both management fees (large multi-year portfolio and per-project contracts) and commissions on transactions. Our contractual, fee-for-services businesses generally involve occupier outsourcing (including facilities and project management), property management, investment management, appraisal/valuation and loan servicing. In addition, our leasing services business line is largely recurring in nature over time. In 2019, we generated revenue from a highly diversified base of clients, including more than 90 of the Fortune 100 companies. We have been an S&P 500 company since 2006 and in 2020 we were ranked #128 on the Fortune 500. We have been voted the most recognized commercial real estate brand in theLipsey Company survey for 19 years in a row (including 2020). We have also been rated a World'sMost Ethical Company by theEthisphere Institute for seven consecutive years (including 2020) and are included in the Dow Jones World Sustainability Index and the Bloomberg Gender Equality Index. In the first half of 2020, the outbreak of the widespread novel coronavirus (COVID19) created a tremendous amount of uncertainty, disrupted business activity and severely impacted global real estate markets. As of the date of this Quarterly Report, many of our locations and those of our clients remain subject to significant operational limitations intended to mitigate the spread of COVID19 and a substantial portion of our employee population continues to work remotely, even in jurisdictions where government stay-at-home orders have been eased. 24
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Critical Accounting Policies
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted inthe United States , or GAAP, which require us to make estimates and assumptions that affect reported amounts. The estimates and assumptions are based on historical experience and on other factors that we believe to be reasonable. Actual results may differ from those estimates. Critical accounting policies represent the areas where more significant judgments and estimates are used in the preparation of our consolidated financial statements. A discussion of such critical accounting policies, which include revenue recognition, goodwill and other intangible assets, and income taxes can be found in our 2019 Annual Report . There have been no material changes to these policies as ofJune 30, 2020 .
New Accounting Pronouncements
See Note 2 of the Notes to Consolidated Financial Statements (Unaudited) set forth in Item 1 of this Quarterly Report.
Seasonality
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 tend 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. In light of the severe economic dislocations caused by COVID19, and the resulting uncertainty in the business outlook, the quarterly distribution of financial results in 2020 may not conform with historical patterns.
Inflation
Our commissions and other variable costs related to revenue are primarily affected by commercial real estate market supply and demand, which may be affected by inflation. However, to date, we believe that general inflation has not had a material impact upon our operations.
Items Affecting Comparability
When you read our financial statements and the information included in this Quarterly Report, you should consider that we have experienced, and continue to experience, several material trends and uncertainties that have affected our financial condition and results of operations that make it challenging to predict our future performance based on our historical results. We believe that the following material trends and uncertainties are crucial to an understanding of the variability in our historical earnings and cash flows and the potential for continued variability in the future.
Macroeconomic Conditions
Economic trends and government policies affect global and regional commercial
real estate markets as well as our operations directly. These include overall
economic activity and employment growth, with specific sensitivity to growth in
office-based employment; interest rate levels and changes in interest rates; the
cost and availability of credit; and the impact of tax and regulatory policies.
Periods of economic weakness or recession, significantly rising interest rates,
fiscal uncertainty, declining employment levels, decreasing demand for
commercial real estate, falling real estate values, disruption to the global
capital or credit markets, or the public perception that any of these events may
occur, will negatively affect the performance of our business.
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Compensation is our largest expense and our sales and leasing professionals
generally are paid on a commission and/or bonus basis that correlates with their
revenue production. As a result, the negative effect of difficult market
conditions on our operating margins is partially mitigated by the inherent
variability of our compensation cost structure. In addition, when negative
economic conditions have been particularly severe, we have moved decisively to
lower operating expenses to improve financial performance, and then have
restored certain expenses as economic conditions improved. Additionally, our
contractual revenue generally has continued to increase primarily as a result of
growth in our outsourcing business, and we believe this contractual revenue
should help offset the negative impacts that macroeconomic deterioration could
have on other parts of our business. Nevertheless, adverse global and regional
economic trends could pose significant risks to the performance of our
consolidated operations and financial condition.
Since 2010, commercial real estate markets had generally been characterized by
increased demand for space, falling vacancies, higher rents and strong capital
flows, leading to solid property sales and leasing activity. This healthy
backdrop changed abruptly in the first quarter of 2020 with the emergence of the
COVID19 pandemic and resultant sharp contraction of economic activity across
much of the world. There has been a significant impact on commercial real estate
markets throughout the first half of 2020. Many property owners and occupiers
have put transactions on hold and withdrawn existing mandates, driving lower
sales and leasing volumes. We expect to see this trend continue in the second
half of 2020, as concerns about a COVID-19 resurgence across our major markets
are high. The timing of the negative impact varies by geography with Asian
markets, which experienced the earliest effects of the pandemic, showing
tentative signs of recovering. The recovery of markets in other parts of the
world remained uncertain as of mid-year 2020.
Real estate investment management and property development markets have also
been, and we expect them to continue to be, affected by the abrupt
macroeconomic, real estate and capital markets challenges brought about by
COVID19. Additionally, actively managed public real estate equity funds and
programs continue to be pressured by a shift in investor preferences from active
to passive portfolio strategies.
The performance of our global real estate services and investment businesses
depends on an improvement in macroeconomic conditions, including a return to
restored business and consumer confidence, sustained economic growth, solid job
creation and, stable, functioning global credit markets.
Effects of Acquisitions
We historically have made significant use of strategic acquisitions to add and enhance service competencies around the world. OnOctober 1, 2019 , we acquiredTelford Homes Plc (Telford) to expand our real estate development business outsidethe United States (Telford Acquisition). A leading developer of multifamily residential properties in theLondon area,Telford is reported in our Real Estate Investments segment.Telford was acquired for £267.1 million, or$328.5 million along with the assumption of$110.7 million (£90.0 million) of debt and the acquisition of cash fromTelford of$7.9 million (£6.4 million). The Telford Acquisition was funded with borrowings under our revolving credit facility. Strategic in-fill acquisitions have also played a key role in strengthening our service offerings. The companies we acquired have generally been regional or specialty firms that complement our existing platform, or independent affiliates in which, in some cases, we held a small equity interest. During 2019, we completed eight in-fill acquisitions: a leading advanced analytics software company based in theUnited Kingdom , a commercial and residential real estate appraisal firm headquartered inFlorida , our former affiliate inOmaha , a project management firm inAustralia , a valuation and consulting business inSwitzerland , a leading project management firm inIsrael , a full-service real estate firm inSan Antonio with a focus on retail, office, medical office and land, and a debt-focused real estate investment management business in theUnited Kingdom . In the first quarter of 2020, we acquired leading local facilities management firms inSpain andItaly , aU.S. firm that helps companies reduce telecommunications costs and a leading provider of workplace technology project management, consulting and procurement services to occupiers across theU.S. InJuly 2020 , we acquired a firm specializing in performing real estate valuations inSouth Korea . 26
-------------------------------------------------------------------------------- We believe strategic acquisitions can significantly decrease the cost, time and resources necessary to attain a meaningful competitive position - or expand our capabilities - within targeted markets or business lines. In general, however, most acquisitions will initially have an adverse impact on our operating income and net income as a result of transaction-related expenditures, including severance, lease termination, transaction and deferred financing costs, as well as costs and charges associated with integrating the acquired business and integrating its financial and accounting systems into our own. Our acquisition agreements often require us to pay deferred and/or contingent purchase price payments, subject to the acquired company achieving certain performance metrics, and/or the passage of time as well as other conditions. As ofJune 30, 2020 , we have accrued deferred consideration totaling$112.1 million , which is included in accounts payable and accrued expenses and in other long-term liabilities in the accompanying consolidated balance sheets set forth in Item 1 of this Quarterly Report.
International Operations
We are closely monitoring the impact of the COVID19 global pandemic on business conditions across all regions worldwide. COVID19 has significantly impacted our operations and has the potential to further reduce our business activity. In addition, we continue to monitor developments related to theUnited Kingdom's withdrawal from theEuropean Union (Brexit) and the uncertainty of the long-term economic and trade relationship between theUnited Kingdom andEuropean Union . The continued uncertainty has the potential to impact our businesses in theUnited Kingdom and the rest ofEurope , particularly sales and leasing activity in theUnited Kingdom . Any currency volatility associated with COVID19, Brexit or other economic dislocations could impact our results of operations. As we continue to increase our international operations through either acquisitions or organic growth, fluctuations in the value of theU.S. dollar relative to the other currencies in which we may generate earnings could adversely affect our business, financial condition and operating results. Our Real Estate Investments business has a significant amount of euro-denominated assets under management, or AUM, as well as associated revenue and earnings inEurope . In addition, our Global Workplace Solutions business also has a significant amount of its revenue and earnings denominated in foreign currencies, such as the euro and the British pound sterling. Fluctuations in foreign currency exchange rates have resulted and may continue to result in corresponding fluctuations in our AUM, revenue and earnings. During the six months endedJune 30, 2020 , approximately 42.6% of our business was transacted in non-U.S. dollar currencies, the majority of which included the Australian dollar, British pound sterling, Canadian dollar, Chinese yuan, euro, Indian rupee, Japanese yen,Singapore dollar and Swiss franc. The following table sets forth our revenue derived from our most significant currencies (U.S. dollars in thousands): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 United States dollar$ 3,089,794 57.4 %$ 3,372,201 59.0 %$ 6,470,357 57.4 %$ 6,408,907 59.1 % British pound sterling 677,880 12.6 % 657,005 11.5 % 1,451,895 12.9 % 1,245,587 11.5 % euro 573,761 10.7 % 585,438 10.2 % 1,190,729 10.6 % 1,115,864 10.3 % Canadian dollar 170,896 3.2 % 196,565 3.4 % 364,131 3.2 % 358,461 3.3 % Indian rupee 110,598 2.1 % 121,718 2.1 % 246,124 2.2 % 234,191 2.1 % Australian dollar 93,923 1.7 % 111,252 2.0 % 188,064 1.7 % 198,642 1.8 % Chinese yuan 90,375 1.7 % 74,057 1.3 % 165,831 1.5 % 147,649 1.4 % Swiss franc 78,411 1.5 % 43,797 0.8 % 154,088 1.4 % 87,142 0.8 % Japanese yen 63,911 1.2 % 76,196 1.3 % 162,293 1.4 % 143,033 1.3 % Singapore dollar 62,501 1.1 % 76,195 1.3 % 130,405 1.1 % 140,906 1.3 % Other currencies (1) 369,334 6.8 % 399,649 7.1 % 746,635 6.6 % 769,201 7.1 % Total revenue$ 5,381,384 100.0 %$ 5,714,073 100.0 %$ 11,270,552 100.0 %$ 10,849,583 100.0 % (1) Approximately 37 currencies comprise 6.8% and 6.6% of our revenues for the
three and six months ended
currencies comprise 7.1% of our revenues for both the three and six months
ended June 30, 2019 .
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-------------------------------------------------------------------------------- Although we operate globally, we report our results inU.S. dollars. As a result, the strengthening or weakening of theU.S. dollar may positively or negatively impact our reported results. For example, we estimate that had the British pound sterling-to-U.S. dollar exchange rates been 10% higher during the six months endedJune 30, 2020 , the net impact would have been a decrease in pre-tax income of$1.6 million . Had the euro-to-U.S. dollar exchange rates been 10% higher during the six months endedJune 30, 2020 , the net impact would have been an increase in pre-tax income of$3.6 million . These hypothetical calculations estimate the impact of translating results intoU.S. dollars and do not include an estimate of the impact that a 10% change in theU.S. dollar against other currencies would have had on our foreign operations. Due to the constantly changing currency exposures to which we are subject and the volatility of currency exchange rates, we cannot predict the effect of exchange rate fluctuations upon future operating results. In addition, fluctuations in currencies relative to theU.S. dollar may make it more difficult to perform period-to-period comparisons of our reported results of operations. Our international operations also are subject to, among other things, political instability and changing regulatory environments, which affect the currency markets and which as a result may adversely affect our future financial condition and results of operations. We routinely monitor these risks and related costs and evaluate the appropriate amount of oversight to allocate towards business activities in foreign countries where such risks and costs are particularly significant. 28
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Results of Operations
The following table sets forth items derived from our consolidated statements of operations for the three and six months endedJune 30, 2020 and 2019 (dollars in thousands): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Revenue: Fee revenue: Global workplace solutions$ 755,335 14.0 %$ 764,325
13.4 %
management 298,388 5.5 % 312,370 5.5 % 607,067 5.4 % 600,489 5.5 % Valuation 131,845 2.5 % 149,051 2.6 % 279,597 2.5 % 287,377 2.6 % Loan servicing 57,050 1.1 % 49,740 0.9 % 113,730 1.0 % 95,758 0.9 % Advisory leasing 510,124 9.5 % 817,788 14.3 % 1,117,235 9.9 % 1,440,428 13.3 % Capital markets: Advisory sales 241,247 4.5 % 466,558 8.2 % 672,203 6.0 % 852,213 7.9 % Commercial mortgage origination 100,445 1.8 % 139,999 2.5 % 223,527 1.9 % 260,878 2.4 % Investment management 103,132 1.9 % 101,646 1.8 % 224,810 2.0 % 207,954 1.9 % Development services 58,479 1.1 % 48,017 0.7 % 148,271 1.3 % 76,902 0.7 % Total fee revenue 2,256,045 41.9 % 2,849,494 49.9 % 4,949,337 43.9 % 5,278,219 48.6 % Pass through costs also recognized as revenue 3,125,339 58.1 % 2,864,579 50.1 % 6,321,215 56.1 % 5,571,364 51.4 % Total revenue 5,381,384 100.0 % 5,714,073 100.0 % 11,270,552 100.0 % 10,849,583 100.0 % Costs and expenses: Cost of revenue 4,399,537 81.8 % 4,445,790
77.8 % 9,112,211 80.8 % 8,467,824 78.0 % Operating, administrative and
other 770,806 14.3 % 877,397
15.4 % 1,560,872 13.8 % 1,670,273 15.4 % Depreciation and amortization 116,384 2.1 % 106,479
1.8 % 230,178 2.1 % 212,302 2.0 %
Asset impairments - 0.0 % - 0.0 % 75,171 0.7 % 89,037 0.8 %
Total costs and expenses 5,286,727 98.2 % 5,429,666 95.0 % 10,978,432 97.4 % 10,439,436 96.2 % (Loss) gain on disposition of real estate
(492 ) (0.1 %) 10 0.0 % 22,335 0.2 % 19,257 0.2 % Operating income
94,165 1.7 % 284,417 5.0 % 314,455 2.8 % 429,404 4.0 %
Equity income from
unconsolidated
subsidiaries 19,480 0.4 % 21,773 0.3 % 40,111 0.4 % 94,437 0.9 %
Other income 5,220 0.1 % 4,369 0.1 % 5,027 0.0 % 25,222 0.2 % Interest expense, net of interest income
17,950 0.3 % 24,600 0.4 % 33,966 0.3 % 45,792 0.4 % Write-off of financing costs on
extinguished debt - 0.0 % - 0.0 % - 0.0 % 2,608 0.1 % Income before provision for income taxes 100,915 1.9 % 285,959
5.0 % 325,627 2.9 % 500,663 4.6 % Provision for income taxes
18,803 0.4 % 62,521 1.1 % 69,985 0.6 % 106,399 1.0 % Net income
82,112 1.5 % 223,438 3.9 % 255,642 2.3 % 394,264 3.6 % Less: Net income (loss) attributable to
non-controlling interests 215 0.0 % (293 ) 0.0 % 1,550 0.0 % 6,124 0.0 % Net income attributable to CBRE Group, Inc.$ 81,897 1.5 %$ 223,731 3.9 %$ 254,092 2.3 %$ 388,140 3.6 % Adjusted EBITDA$ 267,304 5.0 %$ 468,492 8.2 %$ 697,655 6.2 %$ 918,524 8.5 % Fee revenue and adjusted EBITDA are not recognized measurements under GAAP. When analyzing our operating performance, investors should use these measures in addition to, and not as an alternative for, their most directly comparable financial measure calculated and presented in accordance with GAAP. We generally use these non-GAAP financial measures to evaluate operating performance and for other discretionary purposes. We believe these measures provide a more complete understanding of ongoing operations, enhance comparability of current results to prior periods and may be useful for investors to analyze our financial performance because they eliminate the impact of selected charges that may obscure trends in the underlying performance of our business. Because not all companies use identical calculations, our presentation of fee revenue and adjusted EBITDA may not be comparable to similarly titled measures of other companies. 29 -------------------------------------------------------------------------------- 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. We believe that investors may find this measure useful to analyze the company's overall financial performance because it excludes costs reimbursable by clients, and as such provides greater visibility into the underlying performance of our business. EBITDA represents earnings before net interest expense, write-off of financing costs on extinguished debt, income taxes, depreciation and amortization and asset impairments. Amounts shown for adjusted EBITDA further remove (from EBITDA) the impact of costs primarily associated with workforce optimization efforts in response to the COVID-19 pandemic, fair value adjustments to real estate assets acquired in the Telford Acquisition (purchase accounting) that were sold in the period, costs incurred related to legal entity restructuring, integration and other costs related to acquisitions, certain carried interest incentive compensation (reversal) expense to align with the timing of associated revenue, and costs associated with our reorganization, including cost-savings initiatives. We believe that investors may find these measures useful in evaluating our operating performance compared to that of other companies in our industry because their calculations generally eliminate the effects of acquisitions, which would include impairment charges of goodwill and intangibles created from acquisitions, the effects of financings and income taxes and the accounting effects of capital spending. Adjusted EBITDA is not intended to be a measure of free cash flow for our discretionary use because it does not consider certain cash requirements such as tax and debt service payments. This measure may also differ from the amounts calculated under similarly titled definitions in our credit facilities and debt instruments, which are further adjusted to reflect certain other cash and non-cash charges and are used by us to determine compliance with financial covenants therein and our ability to engage in certain activities, such as incurring additional debt. We also use adjusted EBITDA as a significant component when measuring our operating performance under our employee incentive compensation programs.
Adjusted EBITDA is calculated as follows (dollars in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
Net income attributable to CBRE Group,
Inc. $ 81,897 $ 223,731 $ 254,092 $ 388,140
Add:
Depreciation and amortization 116,384 106,479 230,178 212,302
Asset impairments - - 75,171 89,037
Interest expense, net of interest income 17,950 24,600 33,966 45,792
Write-off of financing costs on
extinguished debt - - - 2,608
Provision for income taxes 18,803 62,521 69,985 106,399
EBITDA 235,034 417,331 663,392 844,278
Adjustments:
Costs associated with workforce
optimization efforts (1) 37,594 - 37,594 -
Impact of fair value adjustments to real
estate assets acquired in
the Telford Acquisition (purchase
accounting) that were sold in
period 1,247 - 7,000 -
Costs incurred related to legal entity
restructuring 693 - 3,934 -
Integration and other costs related to
acquisitions 236 9,037 1,019 9,037
Carried interest incentive compensation
(reversal) expense to align
with the timing of associated revenue (7,500 ) 8,308 (15,284 ) 15,644
Costs associated with our
reorganization, including cost-savings
initiatives (2) - 33,816 - 49,565
Adjusted EBITDA $ 267,304 $ 468,492 $ 697,655 $ 918,524
(1) Primarily represents costs incurred related to workforce optimization
initiated and executed in the second quarter of 2020 as part of management's
cost containment efforts in response to the COVID-19 pandemic. The charges
are cash expenditures primarily for severance costs incurred related to this
effort. Of the total costs,
revenue" line item and
administrative, and other" line item in the accompanying consolidated
statements of operations for both the three and six months ended
2020.
(2) 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 .
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Three Months Ended
We reported consolidated net income of$81.9 million for the three months endedJune 30, 2020 on revenue of$5.4 billion as compared to consolidated net income of$223.7 million on revenue of$5.7 billion for the three months endedJune 30, 2019 . Our revenue on a consolidated basis for the three months endedJune 30, 2020 decreased by$332.7 million , or 5.8%, as compared to the three months endedJune 30, 2019 . The revenue decrease reflects the impact of COVID-19 on our Advisory Services segment, which resulted in lower sales (down 49.3%) and leasing revenue (down 37.6%) as well as decreased commercial mortgage origination activity (down 28.3%). These declines were partially offset by higher revenue in our Global Workplace Solutions segment (up 8.3%) led by growth in our facilities management line of business, driven by its contractual nature, and improved revenue in our Real Estate Investments segment (up 8.0%) largely due to theTelford Acquisition. Foreign currency translation had a 1.6% negative impact on total revenue during the three months endedJune 30, 2020 , primarily driven by weakness in the Australian dollar, Brazilian real, British pound sterling, euro and Indian rupee. Our cost of revenue on a consolidated basis decreased by$46.3 million , or 1.0%, during the three months endedJune 30, 2020 as compared to the same period in 2019, primarily driven by lower commission expense. Our sales and leasing professionals generally are paid on a commission basis, which substantially correlates with our sales and lease revenue performance. Accordingly, the decrease in advisory sales and leasing revenue as a result of COVID-19 led to a corresponding decrease in commission expense. Lower bonuses in our Advisory Services segment attributable to lower revenue as a result of COVID-19 also contributed to the variance. Foreign currency translation had a 1.7% positive impact on total cost of revenue during the three months endedJune 30, 2020 . These items were largely offset by higher costs associated with our Global Workplace Solutions segment. Cost of revenue as a percentage of revenue increased from 77.8% for the three months endedJune 30, 2019 to 81.8% for the three months endedJune 30, 2020 , primarily driven by our mix of revenue, with revenue from our Global Workplace Solutions segment, which has a lower margin than our other revenue streams, comprising a higher percentage of revenue than in the prior year period. Our operating, administrative and other expenses on a consolidated basis decreased by$106.6 million , or 12.1%, for the three months endedJune 30, 2020 as compared to the same period in 2019. The negative impact of COVID-19 on our operating results led to a corresponding decrease in bonus, stock compensation and carried interest expense. In addition, we reduced certain operating expenses such as travel and entertainment, marketing and employee events to improve financial performance. During the second quarter of 2019, we incurred$32.7 million of costs in connection with our reorganization, which did not recur in the current period. Foreign currency translation also had a 1.7% positive impact on total operating expenses during the three months endedJune 30, 2020 . These items were partially offset by an increase in certain costs as a result of COVID-19, including higher bad debt expense. We also incurred$30.2 million of costs (mainly severance) primarily related to workforce optimization initiated and executed in the second quarter of 2020 as part of management's cost containment efforts in response to the COVID-19 pandemic. Lastly, in the second quarter of 2020, we saw an increase in charitable donations largely driven by a sizeable donation by the Company to itsCOVID-19 Relief Fund . Operating expenses as a percentage of revenue decreased from 15.4% for the three months endedJune 30, 2019 to 14.3% for the three months endedJune 30, 2020 , reflecting the operating leverage inherent in our business. Our depreciation and amortization expense on a consolidated basis increased by$9.9 million , or 9.3%, during the three months endedJune 30, 2020 as compared to the same period in 2019. This increase was attributable to a rise in depreciation expense of$9.9 million during the three months endedJune 30, 2020 driven by technology-related capital expenditures. Our equity income from unconsolidated subsidiaries on a consolidated basis decreased by$2.3 million , or 10.5%, during the three months endedJune 30, 2020 as compared to the same period in 2019, primarily driven by lower equity earnings associated with an investment in our Advisory Services segment, partially offset by higher equity earnings in our investment management line of business within our Real Estate Investments segment. 31 -------------------------------------------------------------------------------- Our consolidated interest expense, net of interest income, decreased by$6.7 million , or 27.0%, for the three months endedJune 30, 2020 as compared to the same period in 2019. This was primarily due to lower interest expense on borrowings associated with our credit agreement (driven by lower interest rates) as well as reduced net interest expense overseas as a result of higher cash balances, particularly within our cash pooling arrangement inEurope . Our provision for income taxes on a consolidated basis was$18.8 million for the three months endedJune 30, 2020 as compared to$62.5 million for the three months endedJune 30, 2019 . The decrease of$43.7 million was primarily related to the corresponding decrease in our consolidated pre-tax book income. Our effective tax rate decreased from 21.9% for the three months endedJune 30, 2019 to 18.6% for the three months endedJune 30, 2020 primarily due to a higher benefit on a percentage basis of favorable permanent book tax differences in certain non-U.S. jurisdictions due to lower pre-tax book income. OnMarch 27, 2020 , the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted inthe United States in response to the COVID19 pandemic. The CARES Act has not had, nor is it expected to have, a significant impact on our effective tax rate for 2020.
Six Months Ended
We reported consolidated net income of$254.1 million for the six months endedJune 30, 2020 on revenue of$11.3 billion as compared to consolidated net income of$388.1 million on revenue of$10.8 billion for the six months endedJune 30, 2019 . Our revenue on a consolidated basis for the six months endedJune 30, 2020 increased by$421.0 million , or 3.9%, as compared to the six months endedJune 30, 2019 . The revenue increase reflects higher revenue in our Global Workplace Solutions segment (up 13.2%) led by growth in our facilities management line of business, driven by its contractual nature, and improved revenue in our Real Estate Investments segment (up 31.0%) largely due to the Telford Acquisition. These increases were partially offset by decreases in revenue in our Advisory Services segment due to the impact of COVID-19, including lower leasing (down 22.4%) and sales revenue (down 21.1%) as well as decreased commercial mortgage origination activity (down 14.3%). Foreign currency translation had a 1.2% negative impact on total revenue during the six months endedJune 30, 2020 , primarily driven by weakness in the Australian dollar, Brazilian real, British pound sterling, euro, and Indian rupee. Our cost of revenue on a consolidated basis increased by$644.4 million , or 7.6%, during the six months endedJune 30, 2020 as compared to the same period in 2019. This increase was primarily due to higher costs associated with our Global Workplace Solutions segment and higher costs in our Real Estate Investments segment due to the Telford Acquisition. These items were partially offset by lower commission expense incurred during the six months endedJune 30, 2020 . As previously mentioned, our sales and leasing professionals generally are paid on a commission basis, which substantially correlates with our sales and lease revenue performance. Accordingly, the decrease in advisory leasing and sales revenue led to a corresponding decrease in commission expense. Foreign currency translation had a 1.2% positive impact on total cost of revenue during the six months endedJune 30, 2020 . Cost of revenue as a percentage of revenue increased from 78.0% for the six months endedJune 30, 2019 to 80.8% for the six months endedJune 30, 2020 , primarily driven by our mix of revenue, with revenue from our Global Workplace Solutions segment, which has a lower margin than our other revenue streams, comprising a higher percentage of revenue than in the prior year period. Our operating, administrative and other expenses on a consolidated basis decreased by$109.4 million , or 6.6%, for the six months endedJune 30, 2020 as compared to the same period in 2019. The negative impact of COVID-19 on our operating results led to corresponding decreases in bonus, stock compensation and carried interest expense. In addition, we reduced certain operating expenses such as travel and entertainment, marketing and employee events to improve financial performance. During the first half of 2019, we incurred$47.0 million of costs in connection with our reorganization, which did not recur in the current period. Foreign currency translation also had a 1.3% positive impact on total operating expenses during the six months endedJune 30, 2020 . These items were partially offset by an increase in certain costs, including higher costs as a result of the Telford Acquisition, investments made in both people and technology associated with efforts to remediate material weaknesses in ourEurope ,Middle East andAfrica (EMEA) region of our Global Workplace Solutions segment, investments in our new flexible space offering and higher costs as a result of COVID-19, including higher bad debt expense and accruals for losses on loans. We also incurred$30.2 million of costs (mainly severance) primarily related to workforce optimization initiated and executed in the second quarter of 2020 as part of management's cost containment efforts in response to the COVID-19 pandemic. Lastly, in the first half of 2020, we saw an increase in charitable donations largely driven by a sizeable donation by the Company to itsCOVID-19 Relief Fund . Operating expenses as a percentage of revenue decreased from 15.4% for the six months endedJune 30, 2019 to 13.8% for the six months endedJune 30, 2020 , reflecting the operating leverage inherent in our business. 32 -------------------------------------------------------------------------------- Our depreciation and amortization expense on a consolidated basis increased by$17.9 million , or 8.4%, during the six months endedJune 30, 2020 as compared to the same period in 2019. This increase was primarily attributable to a rise in depreciation expense of$19.3 million during the six months endedJune 30, 2020 driven by technology-related capital expenditures. Our asset impairments on a consolidated basis totaled$75.2 million and$89.0 million for the six months endedJune 30, 2020 and 2019, respectively. During the six months endedJune 30, 2020 , we recorded$50.2 million of non-cash asset impairment charges in our Global Workplace Solutions segment and a non-cash goodwill impairment charge of$25.0 million in our Real Estate Investments segment. As a result of the recent global economic disruption and uncertainty due to COVID19, we deemed there to be triggering events in the first quarter of 2020 that required testing of certain assets for impairment at that time. Based on these tests, we recorded the aforementioned non-cash impairment charges, which were driven by lower anticipated cash flows in certain businesses directly resulting from a downturn in forecasts as well as increased forecast risk due to COVID19. During the six months endedJune 30, 2019 , we recorded a non-cash intangible asset impairment charge of$89.0 million in our Real Estate Investments segment. This non-cash write-off resulted from a review of the anticipated cash flows and the decrease in assets under management in our public securities business driven in part by continued industry-wide shift in investor preference for passive investment programs. Our gain on disposition of real estate on a consolidated basis increased by$3.1 million , or 16.0%, during the six months endedJune 30, 2020 as compared to the same period in 2019. These gains resulted from property sales within our Real Estate Investments segment. Our equity income from unconsolidated subsidiaries on a consolidated basis decreased by$54.3 million , or 57.5%, during the six months endedJune 30, 2020 as compared to the same period in 2019, primarily driven by lower equity earnings associated with gains on property sales reported in our Real Estate Investments segment. Our consolidated interest expense, net of interest income, decreased by$11.8 million , or 25.8%, for the six months endedJune 30, 2020 as compared to the same period in 2019. This was primarily due to lower interest expense on borrowings associated with our credit agreement (driven by lower interest rates) as well as reduced net interest expense overseas as a result of higher cash balances, particularly within our cash pooling arrangement inEurope .
Our write-off of financing costs on extinguished debt on a consolidated basis
was
Our provision for income taxes on a consolidated basis was$70.0 million for the six months endedJune 30, 2020 as compared to$106.4 million for the six months endedJune 30, 2019 . The decrease of$36.4 million was primarily related to the corresponding decrease in consolidated pre-tax book income. There was no material difference between our effective tax rate of 21.5% and 21.3% for the six months endedJune 30, 2020 and 2019, respectively.
Segment Operations
We organize our operations around, and publicly report our financial results on,
three global business segments: (1) Advisory Services; (2) Global Workplace
Solutions; and (3) Real Estate Investments. For additional information on our
segments, see Note 14 of the Notes to Consolidated Financial Statements
(Unaudited) set forth in Item 1 of this Quarterly Report.
33
--------------------------------------------------------------------------------Advisory Services
The following table summarizes our results of operations for our Advisory
Services operating segment for the three and six months ended
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Revenue:
Fee revenue:
Property and advisory project management $ 298,388 19.2 % $ 312,370 14.3 % $ 607,067 17.4 % $ 600,489 15.0 %
Valuation 131,845 8.5 % 149,051 6.8 % 279,597 8.0 % 287,377 7.2 %
Loan servicing 57,050 3.7 % 49,740 2.3 % 113,730 3.3 % 95,758 2.4 %
Advisory leasing 510,124 32.8 % 817,788 37.5 % 1,117,235 32.1 % 1,440,428 35.9 %
Capital markets:
Advisory sales 241,247 15.5 % 466,558 21.5 % 672,203 19.3 % 852,213 21.1 %
Commercial mortgage origination 100,445 6.5 % 139,999 6.4 % 223,527 6.4 % 260,878 6.5 %
Total fee revenue 1,339,099 86.2 % 1,935,506 88.8 % 3,013,359 86.5 % 3,537,143 88.1 %
Pass through costs also recognized as revenue 213,830 13.8 % 243,452 11.2 % 471,094 13.5 % 476,217 11.9 %
Total revenue 1,552,929 100.0 % 2,178,958 100.0 % 3,484,453 100.0 % 4,013,360 100.0 %
Costs and expenses:
Cost of revenue 967,241 62.3 % 1,309,940 60.1 % 2,125,250 61.0 % 2,393,039 59.6 %
Operating, administrative and other 483,281 31.1 % 544,696 25.0 % 970,744 27.9 % 1,041,314
25.9 %
Depreciation and amortization 81,145 5.2 % 74,754 3.4 % 160,097 4.6 % 146,401 3.7 %
Operating income 21,262 1.4 % 249,568 11.5 % 228,362 6.5 % 432,606 10.8 %
Equity (loss) income from unconsolidated
subsidiaries (1,751 ) (0.1 %) 3,136 0.1 % (414 ) 0.0 % 3,811 0.1 %
Other income 4,542 0.3 % 1,480 0.1 % 6,819 0.2 % 3,159 0.0 %
Less: Net income (loss) attributable to
non-controlling interests 203 0.0 % 135 0.0 % 456 0.0 % (10 ) 0.0 %
Add-back: Depreciation and amortization 81,145 5.2 % 74,754 3.4 % 160,097 4.6 % 146,401 3.7 %
EBITDA 104,995 6.8 % 328,803 15.1 % 394,408 11.3 % 585,987 14.6 %
Adjustments:
Costs associated with workforce optimization
efforts (1) 27,418 1.8 % - 0.0 % 27,418 0.8 % - 0.0 %
Costs incurred related to legal entity
restructuring 693 0.0 % - 0.0 % 3,934 0.1 % - 0.0 %
Costs associated with our reorganization,
including cost-savings initiatives (2) - 0.0 % 4,422 0.2 % - 0.0 % 11,088 0.3 %
Integration and other costs related to
acquisitions - 0.0 % 303 0.0 % - 0.0 % 303 0.0 %
Adjusted EBITDA and Adjusted EBITDA on
revenue margin $ 133,106 8.6
%
14.9 % Adjusted EBITDA on fee revenue margin 9.9 % 17.2 % 14.1 % 16.9 %
(1) Primarily represents costs incurred related to workforce optimization
initiated and executed in the second quarter of 2020 as part of management's
cost containment efforts in response to the COVID-19 pandemic. The charges
are cash expenditures primarily for severance costs incurred related to this
effort. Of the total costs,
revenue" line item and
administrative, and other" line item in the accompanying consolidated
statements of operations for both the three and six months ended
2020.
(2) 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 .
34
--------------------------------------------------------------------------------
Three Months Ended
Revenue decreased by$626.0 million , or 28.7%, for the three months endedJune 30, 2020 as compared to the three months endedJune 30, 2019 . The revenue decrease primarily reflects the impact of COVID-19, which resulted in lower sales and leasing revenue as well as decreased commercial mortgage origination activity. Foreign currency translation had a 1.3% negative impact on total revenue during the three months endedJune 30, 2020 , primarily driven by weakness in the Australian dollar, Brazilian real, British pound sterling, euro and Indian rupee. Cost of revenue decreased by$342.7 million , or 26.2%, for the three months endedJune 30, 2020 as compared to the same period in 2019, primarily due to reduced commission expense resulting from lower sales and leasing revenue as a result of COVID-19. Lower bonuses attributable to lower revenue as a result of COVID-19 also contributed to the decrease. In addition, foreign currency translation had a 1.4% positive impact on total cost of revenue during the three months endedJune 30, 2020 . Cost of revenue as a percentage of revenue increased slightly from 60.1% for the three months endedJune 30, 2019 to 62.3% for the three months endedJune 30, 2020 . Operating, administrative and other expenses decreased by$61.4 million , or 11.3%, for the three months endedJune 30, 2020 as compared to the three months endedJune 30, 2019 . The negative impact of COVID-19 on our operating results led to corresponding decreases in bonus and stock compensation expense. In addition, to improve financial performance, we reduced certain operating expenses such as travel and entertainment, marketing and employee events. During the second quarter of 2019, we incurred$4.9 million of costs in connection with our reorganization, which did not recur in the current period. Foreign currency translation also had a 1.6% positive impact on total operating expenses during the three months endedJune 30, 2020 . These items were partially offset by$21.3 million of costs incurred (mainly severance) primarily related to workforce optimization initiated and executed in the second quarter of 2020 as part of management's cost containment efforts in response to the COVID-19 pandemic. Lastly, in the second quarter of 2020, we saw an increase in charitable donations largely driven by a sizeable donation by the Company to itsCOVID-19 Relief Fund . In connection with the origination and sale of mortgage loans for which the company retains servicing rights, we record servicing assets or liabilities based on the fair value of the retained mortgage servicing rights (MSRs) on the date the loans are sold. Upon origination of a mortgage loan held for sale, the fair value of the mortgage servicing rights to be retained is included in the forecasted proceeds from the anticipated loan sale and results in a net gain (which is reflected in revenue). Subsequent to the initial recording, MSRs are amortized (within amortization expense) and carried at the lower of amortized cost or fair value in other intangible assets in the accompanying consolidated balance sheets. They are amortized in proportion to and over the estimated period that the servicing income is expected to be received. For the three months endedJune 30, 2020 , MSRs contributed to operating income$37.7 million of gains recognized in conjunction with the origination and sale of mortgage loans, offset by$31.9 million of amortization of related intangible assets. For the three months endedJune 30, 2019 , MSRs contributed to operating income$44.3 million of gains recognized in conjunction with the origination and sale of mortgage loans, offset by$29.3 million of amortization of related intangible assets.
Six Months Ended
Revenue decreased by$528.9 million , or 13.2%, for the six months endedJune 30, 2020 as compared to the six months endedJune 30, 2019 . The revenue decrease primarily reflects the impact of COVID-19, which resulted in lower leasing and sales revenue as well as decreased commercial mortgage origination activity. Foreign currency translation had a 1.1% negative impact on total revenue during the six months endedJune 30, 2020 , primarily driven by weakness in the Australian dollar, Brazilian real, British pound sterling, euro and Indian rupee. Cost of revenue decreased by$267.8 million , or 11.2%, for the six months endedJune 30, 2020 as compared to the same period in 2019, primarily due to reduced commission expense resulting from lower leasing and sales revenue as a result of COVID-19. Foreign currency translation also had a 1.2% positive impact on total cost of revenue during the six months endedJune 30, 2020 . Cost of revenue as a percentage of revenue was relatively consistent at 61.0% for the six months endedJune 30, 2020 versus 59.6% for the same period in 2019. 35 -------------------------------------------------------------------------------- Operating, administrative and other expenses decreased by$70.6 million , or 6.8%, for the six months endedJune 30, 2020 as compared to the six months endedJune 30, 2019 . The negative impact of COVID-19 on our operating results led to corresponding decreases in bonus and stock compensation expense. In addition, to improve financial performance, we reduced certain operating expenses such as travel and entertainment, marketing and employee events. During the first half of 2019, we incurred$10.5 million of costs in connection with our reorganization, which did not recur in the current period. Foreign currency translation also had a 1.3% positive impact on total operating expenses during the six months endedJune 30, 2020 . These items were partially offset by$21.3 million of costs incurred (mainly severance) primarily related to workforce optimization initiated and executed in the second quarter of 2020 as part of management's cost containment efforts in response to the COVID-19 pandemic. We also incurred certain costs as a result of COVID-19, including higher bad debt expense and accruals for losses on loans. Lastly, in the first half of 2020, we saw an increase in charitable donations largely driven by a sizeable donation by the Company to itsCOVID-19 Relief Fund . For the six months endedJune 30, 2020 , MSRs contributed to operating income$73.3 million of gains recognized in conjunction with the origination and sale of mortgage loans, offset by$62.4 million of amortization of related intangible assets. For the six months endedJune 30, 2019 , MSRs contributed to operating income$82.6 million of gains recognized in conjunction with the origination and sale of mortgage loans, offset by$57.0 million of amortization of related intangible assets.
Global Workplace Solutions
The following table summarizes our results of operations for our Global
Workplace Solutions operating segment for the three and six months ended
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Revenue:
Fee revenue:
Global workplace solutions $ 755,335 20.6 % $ 764,325 22.6 %$ 1,562,897 21.1 %$ 1,456,220 22.2 % Total fee revenue 755,335 20.6 % 764,325 22.6 % 1,562,897 21.1 % 1,456,220 22.2 % Pass through costs also recognized as revenue 2,911,509 79.4 % 2,621,127 77.4 % 5,850,121 78.9 % 5,095,147 77.8 % Total revenue 3,666,844 100.0 % 3,385,452 100.0 % 7,413,018 100.0 % 6,551,367 100.0 % Costs and expenses: Cost of revenue 3,402,275 92.8 % 3,135,850 92.6 % 6,901,891 93.1 % 6,074,785 92.7 % Operating, administrative and other 153,504 4.2 %
176,238 5.2 % 301,325 4.1 % 311,710 4.8 % Depreciation and amortization
30,546 0.8 % 29,839 0.9 % 60,944 0.8 % 59,322 0.9 %
Asset impairments - 0.0 % - 0.0 % 50,171 0.7 % - 0.0 %
Operating income 80,519 2.2 % 43,525 1.3 % 98,687 1.3 % 105,550 1.6 %
Equity (loss) income from
unconsolidated
subsidiaries (65 ) 0.0 % (325 ) 0.0 % 327 0.0 % (1,158 ) 0.0 %
Other (loss) income (57 ) 0.0 % 1,522 0.0 % 112 0.0 % 1,506 0.0 %
Less: Net loss attributable to
non-controlling
interests - 0.0 % (105 ) 0.0 % - 0.0 % (263 ) 0.0 %
Add-back: Depreciation and
amortization 30,546 0.8 % 29,839 0.9 % 60,944 0.8 % 59,322 0.9 % Add-back: Asset impairments
- 0.0 % - 0.0 % 50,171 0.7 % - 0.0 %
EBITDA 110,943 3.0 % 74,666 2.2 % 210,241 2.8 % 165,483 2.5 %
Adjustments:
Costs associated with workforce
optimization
efforts (1) 5,004 0.2 % - 0.0 % 5,004 0.1 % - 0.0 %
Costs associated with our
reorganization,
including cost-savings
initiatives (2) - 0.0 % 29,394 0.9 % - 0.0 % 38,256 0.6 %
Adjusted EBITDA and Adjusted
EBITDA on
revenue margin $ 115,947 3.2 % $ 104,060 3.1 % $ 215,245 2.9 % $ 203,739 3.1 %
Adjusted EBITDA on fee revenue
margin 15.4 % 13.6 % 13.8 % 14.0 %
(1) Primarily represents costs incurred related to workforce optimization
initiated and executed in the second quarter of 2020 as part of management's
cost containment efforts in response to the COVID-19 pandemic. The charges
are cash expenditures primarily for severance costs incurred related to this
effort. Of the total costs,
revenue" line item and
administrative, and other" line item in the accompanying consolidated
statements of operations for both the three and six months ended
2020.
(2) 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 .
36
--------------------------------------------------------------------------------
Three Months Ended
Revenue increased by$281.4 million , or 8.3%, for the three months endedJune 30, 2020 as compared to the three months endedJune 30, 2019 . The increase was primarily attributable to growth in our facilities management line of business, which is contractual in nature. Foreign currency translation had a 1.8% negative impact on total revenue during the three months endedJune 30, 2020 , primarily driven by weakness in the Brazilian real, British pound sterling, euro and Indian rupee. Cost of revenue increased by$266.4 million , or 8.5%, for the three months endedJune 30, 2020 as compared to the same period in 2019, driven by the higher revenue. Foreign currency translation had a 1.8% positive impact on total cost of revenue during the three months endedJune 30, 2020 . Cost of revenue as a percentage of revenue was consistent at 92.8% for the three months endedJune 30, 2020 versus 92.6% for the same period in 2019. Operating, administrative and other expenses decreased by$22.7 million , or 12.9%, for the three months endedJune 30, 2020 as compared to the three months endedJune 30, 2019 . During the three months endedJune 30, 2019 , we incurred$27.8 million of costs in connection with our reorganization, which did not recur in the current period. We also reduced certain operating expenses, such as travel and entertainment costs, in the second quarter of 2020 as a result of COVID-19. Additionally, foreign currency translation had a 2.3% positive impact on total operating expenses during the three months endedJune 30, 2020 . These items were partially offset by an increase in certain costs as a result of COVID-19, including higher bad debt expense and$3.8 million of costs incurred (mainly severance) primarily related to workforce optimization initiated and executed in the second quarter of 2020 as part of management's cost containment efforts in response to the COVID-19 pandemic. Lastly, in the second quarter of 2020, we saw an increase in charitable donations largely driven by a sizeable donation by the Company to itsCOVID-19 Relief Fund .
Six Months Ended
Revenue increased by$861.7 million , or 13.2%, for the six months endedJune 30, 2020 as compared to the six months endedJune 30, 2019 . The increase was primarily attributable to growth in our facilities management line of business, which is contractual in nature. Foreign currency translation had a 1.3% negative impact on total revenue during the six months endedJune 30, 2020 , primarily driven by weakness in the Brazilian real, British pound sterling, euro and Indian rupee. Cost of revenue increased by$827.1 million , or 13.6%, for the six months endedJune 30, 2020 as compared to the same period in 2019, driven by the higher revenue. Foreign currency translation had a 1.3% positive impact on total cost of revenue during the six months endedJune 30, 2020 . Cost of revenue as a percentage of revenue was consistent at 93.1% for the six months endedJune 30, 2020 versus 92.7% for the same period in 2019. Operating, administrative and other expenses decreased by$10.4 million , or 3.3%, for the six months endedJune 30, 2020 as compared to the six months endedJune 30, 2019 . During the six months endedJune 30, 2019 , we incurred$36.3 million of costs in connection with our reorganization, which did not recur in the current period. We also reduced certain operating expenses, such as travel and entertainment costs, in the first half of 2020 as a result of COVID-19. Additionally, foreign currency translation had a 1.8% positive impact on total operating expenses during the six months endedJune 30, 2020 . These items were partially offset by an increase in certain costs as a result of COVID-19, including higher bad debt expense and$3.8 million of costs incurred (mainly severance) primarily related to workforce optimization initiated and executed in the second quarter of 2020 as part of management's cost containment efforts in response to the COVID-19 pandemic. In the first half of 2020, we also saw an increase in charitable donations largely driven by a sizeable donation by the Company to itsCOVID-19 Relief Fund . Lastly, during the first half of 2020, investments were made in both people and technology associated with efforts to remediate material weaknesses in ourEurope ,Middle East andAfrica (EMEA) region. 37 --------------------------------------------------------------------------------
Real Estate Investments
The following table summarizes our results of operations for our Real Estate Investments operating segment for the three and six months endedJune 30, 2020 and 2019 (dollars in thousands): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Revenue: Investment management$ 103,132 63.8 %$ 101,646 67.9 %$ 224,810 60.3 %$ 207,954 73.0 % Development services 58,479 36.2 % 48,017 32.1 % 148,271 39.7 % 76,902 27.0 % Total revenue 161,611 100.0 % 149,663 100.0 % 373,081 100.0 % 284,856 100.0 % Costs and expenses: Cost of revenue 30,021 18.6 % - 0.0 % 85,070 22.8 % - 0.0 % Operating, administrative and other 134,021 82.9 %
156,463 104.5 % 288,803 77.4 % 317,249 111.4 % Depreciation and amortization
4,693 2.9 % 1,886 1.3 % 9,137 2.4 % 6,579 2.2 % Asset impairments
- 0.0 % - 0.0 % 25,000 6.7 % 89,037 31.3 %
(Loss) gain on disposition of real
estate (492 ) (0.3 %) 10 0.0 % 22,335 5.9 % 19,257 6.8 %
Operating loss (7,616 ) (4.7 %) (8,676 ) (5.8 %) (12,594 ) (3.4 %) (108,752 ) (38.1 %)
Equity income from unconsolidated
subsidiaries 21,296 13.2 % 18,962 12.7 % 40,198 10.8 % 91,784 32.2 %
Other income (loss) 735 0.4 % 1,367 0.9 % (1,904 ) (0.5 %) 20,557 7.2 %
Less: Net income (loss)
attributable to
non-controlling interests 12 0.0 % (323 ) (0.2 %) 1,094 0.3 % 6,397 2.2 % Add-back: Depreciation and amortization
4,693 2.9 % 1,886 1.3 % 9,137 2.4 % 6,579 2.2 % Add-back: Asset impairments
- 0.0 % - 0.0 % 25,000 6.7 % 89,037 31.3 % EBITDA
19,096 11.8 % 13,862 9.3 % 58,743 15.7 % 92,808 32.6 %
Adjustments:
Costs associated with workforce
optimization
efforts (1) 5,172 3.2 % - 0.0 % 5,172 1.4 % - 0.0 %
Impact of fair value adjustments
to real estate
assets acquired in the Telford
Acquisition
(purchase accounting) that were
sold in
period 1,247 0.8 % - 0.0 % 7,000 1.9 % - 0.0 %
Integration and other costs
related to
acquisitions 236 0.1 % 8,734 5.7 % 1,019 0.3 % 8,734 3.0 % Carried interest incentive compensation
(reversal) expense to align with the timing of associated revenue (7,500 ) (4.6 %) 8,308 5.6 % (15,284 ) (4.1 %) 15,644 5.5 % Costs associated with our reorganization, including cost-savings initiatives (2) - 0.0 % - 0.0 % - 0.0 % 221 0.1 % Adjusted EBITDA$ 18,251 11.3 %$ 30,904 20.6 %$ 56,650 15.2 %$ 117,407 41.2 % (1) Primarily represents costs incurred related to workforce optimization
initiated and executed in the second quarter of 2020 as part of management's
cost containment efforts in response to the COVID-19 pandemic. The charges
are cash expenditures primarily for severance costs incurred related to this
effort and were included in the "Operating, administrative, and other" line
item in the accompanying consolidated statements of operations for both the
three and six months ended
(2) Primarily represents severance costs related to headcount reductions in
connection with our reorganization announced in the third quarter of 2018
that became effective
Three Months Ended
Revenue increased by$11.9 million , or 8.0%, for the three months endedJune 30, 2020 as compared to the three months endedJune 30, 2019 , primarily driven by the Telford Acquisition in our development services line of business as well as higher carried interest revenue and increased asset management fees. These increases were partially offset by decreases in acquisition, disposition, incentive and development fees due to the impact of COVID-19. Foreign currency translation had a 1.5% negative impact on total revenue during the three months endedJune 30, 2020 , primarily driven by weakness in the British pound sterling and euro.
Cost of revenue was
38
--------------------------------------------------------------------------------
Operating, administrative and other expenses decreased by $22.4 million , or
14.3%, for the three months ended June 30, 2020 as compared to the same period
in 2019. The negative impact of COVID-19 on our operating results led to a
corresponding decrease in bonus and carried interest expense. We also reduced
certain operating expenses, such as travel and entertainment costs, in the
second quarter of 2020 as a result of COVID-19. Additionally, foreign currency
translation had a 1.1% positive impact on total operating expenses during the
three months ended June 30, 2020 . These items were partially offset by $5.2
million of costs incurred (mainly severance) primarily related to workforce
optimization initiated and executed in the second quarter of 2020 as part of
management's cost containment efforts in response to the COVID-19 pandemic.
A roll forward of our AUM by product type for the three months ended
Funds Separate Accounts Securities Total
Balance at March 31, 2020 $ 40.9 $ 61.6 $ 5.6 $ 108.1
Inflows 0.9 1.1 0.4 2.4
Outflows (0.2 ) (1.2 ) (0.3 ) (1.7 )
Market appreciation (depreciation) 0.3 (0.3 ) 0.8 0.8
Balance at June 30, 2020 $ 41.9 $ 61.2 $ 6.5 $ 109.6
AUM generally refers to the properties and other assets with respect to which we
provide (or participate in) oversight, investment management services and other
advice, and which generally consist of real estate properties or loans,
securities portfolios and investments in operating companies and joint ventures.
Our AUM is intended principally to reflect the extent of our presence in the
real estate market, not the basis for determining our management fees. Our
assets under management consist of:
• the total fair market value of the real estate properties and other
assets either wholly-owned or held by joint ventures and other entities
in which our sponsored funds or investment vehicles and client accounts
have invested or to which they have provided financing. Committed (but
unfunded) capital from investors in our sponsored funds is not included
in this component of our AUM. The value of development properties is
included at estimated completion cost. In the case of real estateoperating companies, the total value of real properties controlled by
the companies, generally through joint ventures, is included in AUM; and
• the net asset value of our managed securities portfolios, includinginvestments (which may be comprised of committed but uncalled capital)
in private real estate funds under our fund of funds investments.
Our calculation of AUM may differ from the calculations of other asset managers, and as a result, this measure may not be comparable to similar measures presented by other asset managers.
Six Months Ended
Revenue increased by$88.2 million , or 31.0%, for the six months endedJune 30, 2020 as compared to the six months endedJune 30, 2019 , primarily driven by the Telford Acquisition in our development services line of business as well as higher carried interest revenue and increased asset management fees. These increases were partially offset by decreases in acquisition, disposition, incentive and development fees due to the impact of COVID-19. Foreign currency translation had a 1.1% negative impact on total revenue during the six months endedJune 30, 2020 , primarily driven by weakness in the British pound sterling and euro.
Cost of revenue was
Operating, administrative and other expenses decreased by$28.4 million , or 9.0%, for the six months endedJune 30, 2020 as compared to the same period in 2019. The negative impact of COVID-19 on our operating results led to a corresponding decrease in bonus and carried interest expense. We also reduced certain operating expenses, such as travel and entertainment costs, in the first half of 2020 as a result of COVID-19. Additionally, foreign currency translation had a 0.8% positive impact on total operating expenses during the six months endedJune 30 , 39
-------------------------------------------------------------------------------- 2020. These items were partially offset by higher incremental costs associated withTelford , which we acquired onOctober 1, 2019 (six months of operating expenses incurred in 2020 versus$8.7 million of transaction costs incurred pre-acquisition during the first half of 2019) as well as investments in our new flexible space offering. We also incurred$5.2 million of costs (mainly severance) primarily related to workforce optimization initiated and executed in the second quarter of 2020 as part of management's cost containment efforts in response to the COVID-19 pandemic.
A roll forward of our AUM by product type for the six months ended
Funds Separate Accounts Securities Total
Balance at January 1, 2020 $ 40.1 $ 64.9 $ 7.9 $ 112.9
Inflows 2.8 4.1 0.8 7.7
Outflows (1.1 ) (5.4 ) (1.0 ) (7.5 )
Market appreciation (depreciation) 0.1 (2.4 ) (1.2 ) (3.5 )
Balance at June 30, 2020 $ 41.9 $ 61.2 $ 6.5 $ 109.6
We describe above how we calculate AUM. Also, as noted above, our calculation of
AUM may differ from the calculations of other asset managers, and as a result,
this measure may not be comparable to similar measures presented by other asset
managers.
Liquidity and Capital Resources
We believe that we can satisfy our working capital and funding requirements with internally generated cash flow and, as necessary, borrowings under our revolving credit facility. During the six months endedJune 30, 2020 , we incurred$110.8 million of capital expenditures, net of tenant concessions received, which includes approximately$46.8 million related to technology enablement. Given the uncertainty caused by COVID19, we are not providing an estimate of net capital expenditures anticipated for the fiscal year endingDecember 31, 2020 as we are currently re-evaluating such spend, although we currently expect net capital expenditures to be meaningfully lower than initially forecast in our 2019 Annual Report. As ofJune 30, 2020 , we had aggregate commitments of$91.2 million to fund future co-investments in our Real Estate Investments business,$33.1 million of which is expected to be funded in 2020. Additionally, as ofJune 30, 2020 , we are committed to fund$43.9 million of additional capital to unconsolidated subsidiaries within our Real Estate Investments business, which we may be required to fund at any time. As ofJune 30, 2020 , we had$2.3 billion of borrowings available under our revolving credit facility and$1.1 billion of cash and cash equivalents available for general corporate use. We have historically relied on our internally generated cash flow and our revolving credit facility to fund our working capital, capital expenditure and general investment requirements (including strategic in-fill acquisitions) and have not sought other external sources of financing to help fund these requirements. In the absence of extraordinary events or a large strategic acquisition, we anticipate that our cash flow from operations and our revolving credit facility would be sufficient to meet our anticipated cash requirements for the foreseeable future, and at a minimum for the next 12 months. Given compensation is our largest expense and our sales and leasing professionals generally are paid on a commission and/or bonus basis that correlates with their revenue production, the negative effect of difficult market conditions is partially mitigated by the inherent variability of our compensation cost structure. In addition, when negative economic conditions have been particularly severe, we have moved decisively to lower operating expenses to improve financial performance, and then have restored certain expenses as economic conditions improved. We may seek to take advantage of market opportunities to refinance existing debt instruments, as we have done in the past, with new debt instruments at interest rates, maturities and terms we deem attractive. We may also, from time to time in our sole discretion, purchase, redeem, or retire our existing senior notes, through tender offers, in privately negotiated or open market transactions, or otherwise. As noted above, we believe that any future significant acquisitions that we may make could require us to obtain additional debt or equity financing. In the past, we have been able to obtain such financing for material transactions on terms that we believed to be reasonable. However, it is possible that we may not be able to obtain acquisition financing on favorable terms, or at all, in the future if we decide to make any further significant acquisitions. 40 -------------------------------------------------------------------------------- Our long-term liquidity needs, other than those related to ordinary course obligations and commitments such as operating leases, are generally comprised of three elements. The first is the repayment of the outstanding and anticipated principal amounts of our long-term indebtedness. If our cash flow is insufficient to repay our long-term debt when it comes due, then we expect that we would need to refinance such indebtedness or otherwise amend its terms to extend the maturity dates. We cannot make any assurances that such refinancing or amendments would be available on attractive terms, if at all. The second long-term liquidity need is the payment of obligations related to acquisitions. Our acquisition structures often include deferred and/or contingent purchase price payments in future periods that are subject to the passage of time or achievement of certain performance metrics and other conditions. As ofJune 30, 2020 , we had accrued$112.1 million ($39.0 million of which was a current liability) of deferred purchase consideration, which was included in accounts payable and accrued expenses and in other long-term liabilities in the accompanying consolidated balance sheets set forth in Item 1 of this Quarterly Report. As described in our 2019 Annual Report , our board of directors has authorized a program for the company to repurchase up to$500.0 million of our Class A common stock. As ofDecember 31, 2019 ,$400.0 million was available for share repurchases under the authorized repurchase program. During the three months endedMarch 31, 2020 , we spent$50.0 million to repurchase, through an existing stock repurchase plan entered into pursuant to Rule 10b5-1 under the Exchange Act, 1,050,084 shares of our Class A common stock with an average price paid per share of$47.62 . We did not repurchase any of our stock during the three months endedJune 30, 2020 . As ofAugust 4, 2020 , we had$350.0 million of capacity remaining under our current stock repurchase program. Our stock repurchases have been funded with cash on hand and we intend to continue funding future stock repurchases with existing cash. We may utilize our stock repurchase program 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 future repurchases, and the actual amounts repurchased, will depend on a variety of factors, including the market price of our common stock, general market and economic conditions and other factors.
Historical Cash Flows
Operating Activities
Net cash provided by operating activities totaled$6.1 million for the six months endedJune 30, 2020 as compared to net cash used in operating activities of$293.3 million for the six months endedJune 30, 2019 . The increase of approximately$299.3 million was primarily driven by a lower overall net increase in working capital during the first half of 2020 as compared to the same period in 2019, including the impact of net income tax refunds of$53.8 million received during the six months endedJune 30, 2020 as compared to net income tax payments made of$208.9 million during the six months endedJune 30, 2019 . This positive impact from working capital movement was partially offset by lower operating performance in the current period.
Investing Activities
Net cash used in investing activities totaled$135.9 million for the six months endedJune 30, 2020 , a decrease of$12.2 million as compared to the six months endedJune 30, 2019 . This decrease was largely driven by greater distributions received from unconsolidated subsidiaries during the six months endedJune 30, 2020 . This was partially offset by higher amounts paid for in-fill acquisitions and greater contributions to unconsolidated subsidiaries during the six months endedJune 30, 2020 . Financing Activities Net cash provided by financing activities totaled$377.0 million for the six months endedJune 30, 2020 , an increase of$191.0 million as compared to the six months endedJune 30, 2019 . The increase was primarily due to an increase in net borrowings of$221.0 million from our revolving credit facility for the six months endedJune 30, 2020 as compared to the six months endedJune 30, 2019 , partially offset by the impact of$40.5 million of lower contributions received from non-controlling interests in the current period. 41 --------------------------------------------------------------------------------
Indebtedness
Our level of indebtedness increases the possibility that we may be unable to pay the principal amount of our indebtedness and other obligations when due. In addition, we may incur additional debt from time to time to finance strategic acquisitions, investments, joint ventures or for other purposes, subject to the restrictions contained in the documents governing our indebtedness. If we incur additional debt, the risks associated with our leverage, including our ability to service our debt, would increase.
Long-Term Debt
We maintain credit facilities with third-party lenders, which we use for a variety of purposes. OnMarch 4, 2019 ,CBRE Services, Inc. (CBRE Services ) entered into an incremental assumption agreement with respect to its credit agreement, datedOctober 31, 2017 (such credit agreement, as amended by aDecember 20, 2018 incremental loan assumption agreement and suchMarch 4, 2019 incremental assumption agreement, the 2019 Credit Agreement), which (i) extended the maturity of theU.S. dollar tranche A term loans under such credit agreement, (ii) extended the termination date of the revolving credit commitments available under such credit agreement and (iii) made certain changes to the interest rates and fees applicable to such tranche A term loans and revolving credit commitments under such credit agreement. The proceeds from the new tranche A term loan facility under the 2019 Credit Agreement were used to repay the$300.0 million of tranche A term loans outstanding under the credit agreement in effect prior to the entry into this 2019 incremental assumption agreement. The 2019 Credit Agreement is a senior unsecured credit facility. As ofJune 30, 2020 , the 2019 Credit Agreement provided for the following: (1) a$2.8 billion incremental revolving credit facility, which includes the capacity to obtain letters of credit and swingline loans and terminates onMarch 4, 2024 ; (2) a$300.0 million incremental tranche A term loan facility maturing onMarch 4, 2024 , requiring quarterly principal payments unless our leverage ratio (as defined in the 2019 Credit Agreement) is less than or equal to 2.50 to 1.00 on the last day of the fiscal quarter immediately preceding any such payment date; and (3) a €400.0 million term loan facility due and payable in full at maturity onDecember 20, 2023 . OnAugust 13, 2015 ,CBRE Services issued$600.0 million in aggregate principal amount of 4.875% senior notes dueMarch 1, 2026 (the 4.875% senior notes) at a price equal to 99.24% of their face value. The 4.875% senior notes are unsecured obligations ofCBRE Services , senior to all of its current and future subordinated indebtedness, but effectively subordinated to all of its current and future secured indebtedness. Interest accrues at a rate of 4.875% per year and is payable semi-annually in arrears onMarch 1 andSeptember 1 . OnSeptember 26, 2014 ,CBRE Services issued$300.0 million in aggregate principal amount of 5.25% senior notes dueMarch 15, 2025 (the 5.25% senior notes). OnDecember 12, 2014 ,CBRE Services issued an additional$125.0 million in aggregate principal amount of 5.25% senior notes dueMarch 15, 2025 at a price equal to 101.5% of their face value, plus interest deemed to have accrued fromSeptember 26, 2014 . The 5.25% senior notes are unsecured obligations ofCBRE Services , senior to all of its current and future subordinated indebtedness, but effectively subordinated to all of its current and future secured indebtedness. Interest accrues at a rate of 5.25% per year and is payable semi-annually in arrears onMarch 15 andSeptember 15 . The indentures governing our 4.875% senior notes and 5.25% senior notes contain restrictive covenants that, among other things, limit our ability to create or permit liens on assets securing indebtedness, enter into sale/leaseback transactions and enter into consolidations or mergers. In addition, these indentures require that the 4.875% senior notes and the 5.25% senior notes be jointly and severally guaranteed on a senior basis byCBRE Group, Inc. and each domestic subsidiary ofCBRE Services that guarantees the 2019 Credit Agreement. 42 -------------------------------------------------------------------------------- Our 2019 Credit Agreement, 4.875% senior notes and 5.25% senior notes are all fully and unconditionally and jointly and severally guaranteed by us and certain subsidiaries (see Exhibit 22.1 for a listing of all such subsidiary guarantors). Combined summarized financial information forCBRE Group, Inc. , (parent);CBRE Services (subsidiary issuer); and the guarantor subsidiaries (collectively referred to as the obligated group), which excludes investment balances in non-guarantor subsidiaries as well as income from consolidated non-guarantor subsidiaries, is as follows (dollars in thousands): June 30, December 31, 2020 2019 Balance Sheet Data: Current assets$ 3,127,205 $ 2,901,618
Noncurrent assets (1) 5,177,571 5,610,084 Total assets (1)
8,304,776 8,511,702
Current liabilities $ 3,002,374 $ 2,893,775
Noncurrent liabilities 2,214,371 2,201,269
Total liabilities 5,216,745 5,095,044
Six Months Ended June 30,
2020 2019
Statement of Operations Data:
Revenue $ 6,332,337 $ 6,268,601
Operating income 138,122 267,756
Net income 118,459 283,825
(1) Includes
31, 2019, respectively, of intercompany loan receivables from non-guarantor
subsidiaries. All intercompany balances and transactions between
The €400.0 million term loan facility under our 2019 Credit Agreement is also jointly and severally guaranteed by five of our foreign subsidiaries. Such subsidiaries have been omitted from the table above given they do not jointly and severally guarantee other amounts under the 2019 Credit Agreement, the 4.875% senior notes or the 5.25% senior notes. Additionally, such subsidiaries if considered in the aggregate as if they were a single subsidiary, would not constitute a significant subsidiary.
For additional information on all of our long-term debt, see Note 11 of the Notes to Consolidated Financial Statements set forth in Item 8 included in our
2019 Annual Report and Note 8 of the Notes to Consolidated Financial Statements (Unaudited) set forth in Item 1 of this Quarterly Report.
Short-Term Borrowings
We maintain a$2.8 billion revolving credit facility under the 2019 Credit Agreement. Given the uncertainty associated with COVID-19, we elected to borrow amounts under such agreement during the second quarter of 2020. As ofJune 30, 2020 ,$451.0 million was outstanding under the revolving credit facility. During the month ofJuly 2020 , we repaid$200.0 million , such that$251.0 million was outstanding under the revolving credit facility as ofJuly 31, 2020 . We will continue to monitor the impact of COVID-19 as well as our borrowings under the revolving credit facility in response to it. We also maintain warehouse lines of credit with certain third-party lenders. For additional information on all of our short-term borrowings, see Note 11 of the Notes to Consolidated Financial Statements set forth in Item 8 included in our
2019 Annual Report and Notes 4 and 8 of the Notes to Consolidated Financial Statements (Unaudited) set forth in Item 1 of this Quarterly Report.
Off -Balance Sheet Arrangements
Our off-balance sheet arrangements are described in Note 10 of the Notes to Consolidated Financial Statements (Unaudited) set forth in Item 1 of this Quarterly Report and are incorporated by reference herein.
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--------------------------------------------------------------------------------Cautionary Note on Forward-Looking Statements
This Quarterly Report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. The words "anticipate," "believe," "could," "should," "propose," "continue," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will" and similar terms and phrases are used in this Quarterly Report to identify forward-looking statements. Except for historical information contained herein, the matters addressed in this Quarterly Report are forward-looking statements. These statements relate to analyses and other information based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies. These forward-looking statements are made based on our management's expectations and beliefs concerning future events affecting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. These uncertainties and factors could cause our actual results to differ materially from those matters expressed in or implied by these forward-looking statements.
The following factors are among those, but are not only those, that may cause actual results to differ materially from the forward-looking statements:
• disruptions in general economic, political and regulatory conditions,
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
• 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;
• disruptions to business, market and operational conditions related to
the COVID19 pandemic and the impact of government rules and regulations
intended to mitigate the effects of this pandemic, including, without
limitation, rules and regulations that impact us as a loan originator
and servicer for
• foreign currency fluctuations and changes in currency restrictions,
trade sanctions and import-export and transfer pricing rules;
• changes in
(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;
• our ability to compete globally, or in specific geographic markets or
business segments that are material to us;
• our ability to identify, acquire and integrate accretive businesses;
• costs and potential future capital requirements relating to businesses
we may acquire;
• integration challenges arising out of companies we may acquire;
• our ability to retain and incentivize key personnel;
• our ability to manage organizational challenges associated with our size;
• negative publicity or harm to our brand and reputation;
• 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 acrossdifferent 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;
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• client actions to restrain project spending and reduce outsourced
staffing levels;
• declines in lending activity of
regulatory oversight of such activity and our mortgage servicing revenue
from the commercial real estate mortgage market;
• our ability to further diversify our revenue model to offset cyclical
economic trends in the commercial real estate industry;
• our ability to attract new user and investor clients;
• 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;
• 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;
• 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
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 business;
• our and our employees' ability to execute on, and adapt to, information
technology strategies and trends;
• cybersecurity threats or other threats to our information technology
networks, including the potential misappropriation of assets or
sensitive information, corruption of data or operational disruption;
• our ability to comply with laws and regulations related to our global
operations, including real estate licensure, tax, labor and employment
laws and regulations, as well as 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 other factors described elsewhere in this Quarterly Report on Form
10-Q, included under the headings "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Critical Accounting
Policies," "Quantitative and Qualitative Disclosures About Market Risk"
and Part II, Item 1A, "Risk Factors" or as described in our 2019
Annual Report and our Quarterly Report on Form 10-Q for the quarterended Mach 31, 2020 , in particular in Part II, Item 1A "Risk Factors",
or as described in the other documents and reports we file with the
Securities and Exchange Commission (SEC).
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Forward-looking statements speak only as of the date the statements are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. Additional information concerning these and other risks and uncertainties is contained in our other periodic filings with theSEC . Investors and others should note that we routinely announce financial and other material information using our investor relations website (https://ir.cbre.com),SEC filings, press releases, public conference calls and webcasts. We use these channels of distribution to communicate with our investors and members of the public about our company, our services and other items of interest. Information contained on our website is not part of this Quarterly Report or our other filings with theSEC .
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