CBRE GROUP, INC. This Quarterly Report on Form 10-Q (Quarterly Report) forCBRE Group, Inc. for the three months endedJune 30, 2021 represents an update to the more detailed and comprehensive disclosures included in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 (2020 Annual Report) . Accordingly, you should read the following discussion in conjunction with the information included in our 2020 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." OverviewCBRE 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 2020 revenue, with leading global market positions in leasing, property sales, occupier outsourcing and valuation businesses. As ofDecember 31, 2020 , the company has more than 100,000 employees (excluding affiliates) serving clients in more than 100 countries. Our business is focused on providing services to real estate investors and occupiers. For investors, we provide capital markets (property sales, mortgage origination, sales and servicing), property leasing, investment management, property management, valuation and development services, among others. For occupiers, we provide facilities management, project management, transaction (both property sales and leasing) and consulting services, among others. We provide services under the following brand names: "CBRE" (real estate advisory and outsourcing services); "CBRE Global Investors " (investment management); "Trammell Crow Company " (U.S. development); "Telford Homes " (U.K. development) and "Hana" (flexible-space solutions). In 2020, CBRE sponsored a special purpose acquisition company, or SPAC, CBRE Acquisition Holdings, Inc., which trades on the NYSE under the symbols "CBAH," "CBAH.U," and "CBAH.WS." OnJuly 13, 2021 , CBRE Acquisition Holdings, Inc. entered into a definitive merger agreement withAltus Power, Inc. that is expected to result inAltus Power, Inc. becoming a public company listed on the NYSE under the new ticker symbol "AMPS." The transaction is expected to close in the fourth quarter of 2021. Our revenue mix has shifted toward more stable revenue sources, particularly occupier outsourcing, and our dependence on highly cyclical property sales and lease transaction revenue has declined markedly over the past decade. We believe we are well-positioned to capture a substantial and growing share of market opportunities at a time when investors and occupiers increasingly prefer to purchase integrated, account-based services on a national and global basis. We generate revenue from both management fees (large multi-year portfolio and per-project contracts) and commissions on transactions. In 2020, 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 2021 we were ranked to #122 on the Fortune 500. We have been voted the most recognized commercial real estate brand in theLipsey Company survey for 20 years in a row (including 2021). We have also been rated a World'sMost Ethical Company by theEthisphere Institute for eight consecutive years (including 2021), and are included in both theDow Jones World Sustainability Index and the Bloomberg Gender-Equality Index for two years in a row. The Covid-19 pandemic has primarily impacted the property sales and leasing lines of business in the Advisory Services segment. Many property owners and occupiers put transactions on hold and withdrew existing mandates, sharply reducing sales and leasing volumes. The effects of Covid-19 have eased in parts of the world where progress has been made with vaccine distribution and global economic conditions have improved. Nevertheless Covid-19 continues to pose public health challenges that impact our operations, particularly as new strains emerge and spread and vaccine administration is slow in parts of the world. As of the date of this Quarterly Report, the majority of workers remain out of their offices and occupier confidence in making long-term office leasing decisions has not returned to pre-pandemic levels. 27 -------------------------------------------------------------------------------- Table of contents 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. We believe that the following critical accounting policies represent the areas where more significant judgments and estimates are used in the preparation of our consolidated financial statements. A discussion of such critical accounting policies, which include revenue recognition, goodwill and other intangible assets, and income taxes can be found in our 2020 Annual Report . There have been no material changes to these policies as ofJune 30, 2021 . New Accounting Pronouncements See Note 2 of the Notes to Consolidated Financial Statements (Unaudited) set forth in Item 1 of this Quarterly Report. Seasonality In a typical year, a significant portion of our revenue is seasonal, which an investor should keep in mind when comparing our financial condition and results of operations on a quarter-by-quarter basis. Historically, our revenue, operating income, net income and cash flow from operating activities have tended to be lowest in the first quarter and highest in the fourth quarter of each year. Revenue, earnings and cash flow have generally been concentrated in the fourth calendar quarter due to the focus on completing sales, financing and leasing transactions prior to year-end. The severe and ongoing impact of the Covid-19 pandemic may cause seasonality to deviate from 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 (particularly those caused or exacerbated by Covid-19) 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, particularly office-based employment; current and changes in interest rate levels; 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 global capital markets, or the public perception that any of these events may occur, will negatively affect the performance of certain portions of our business, with the greatest impact likely on some business lines within our Advisory segment. 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 effects on our Advisory segment operating margins of difficult market conditions, such as current conditions resulting from the Covid-19 pandemic, are partially mitigated by the inherent variability of our compensation cost structure. In addition, when negative economic conditions have been particularly severe, like during the Covid-19 pandemic, we have moved decisively to lower operating expenses to improve financial performance, and will restore certain expenses as economic conditions improve. Additionally, our revenue has become more resilient, primarily as a result of the growth of our outsourcing business, which is largely contractual, and we believe this resilient revenue should help to 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. 28 -------------------------------------------------------------------------------- Table of contents Effects of Acquisitions We have historically made significant use of strategic acquisitions to add and enhance service capabilities around the world. During the first half of 2021, we completed our integration ofHana withIndustrious National Management Company LLC (Industrious), increasing our stake to 40% as ofJune 30, 2021 . InOctober 2019 , we acquiredTelford Homes Plc (Telford), a leading developer of multifamily residential properties in theLondon area. Telford, which is reported in our Real Estate Investments segment, expanded our real estate development business outside theU.S. for the first time. 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, which, in some cases, we held a small equity interest. During 2020, we completed six in-fill acquisitions: leading local facilities management firms inSpain andItaly , aU.S. firm that helps companies reduce telecommunications costs, a technology-focused project management firm based inFlorida , a firm specializing in performing real estate valuations inSouth Korea , and a facilities management and technical maintenance firm inAustralia . In the first half of 2021, we completed four in-fill acquisitions: a construction management and project advisory services firm based inLos Angeles ; a technical facilities services firm based inDenmark ; an infrastructure and development services firm based inAustralia , and a gaming sector advisory firm based inLas Vegas . 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 structures often include deferred and/or contingent purchase consideration in future periods that are subject to the passage of time or achievement of certain performance metrics and other conditions. As ofJune 30, 2021 , we have accrued deferred purchase consideration totaling$125.6 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 conduct a significant portion of our business and employ a substantial number of people outside of theU.S. and, as a result, we are subject to risks associated with doing business globally. Our Real Estate Investments segment has significant euro-denominated assets under management, or AUM, as well as associated revenue and earnings inEurope . In addition, ourGlobal Workplace Solutions segment also derives significant revenue and earnings in foreign currencies, including the euro and 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. We are closely monitoring the impact of the Covid-19 pandemic on business conditions across all regions worldwide. Covid-19 has significantly impacted our operations and has the potential to further constrain our business activity, although its effects have eased in part of the world where vaccines have been administered and economic activity has recovered. Our businesses could also suffer from political or economic disruptions (or the perception that such disruptions may occur) that affect interest rates or liquidity or create financial, market or regulatory uncertainty in the jurisdictions in which we operate. Any currency volatility associated with the Covid-19 pandemic, geopolitical or economic dislocations could impact our results of operations. 29 -------------------------------------------------------------------------------- Table of contents During the six months endedJune 30, 2021 , approximately 44.8% of our revenue was transacted in foreign currencies. The following table sets forth our revenue derived from our most significant currencies (dollars in thousands): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 United States dollar$ 3,563,704 55.2 %$ 3,089,794 57.4 %$ 6,912,563 55.8 %$ 6,470,357 57.4 % British pound sterling 832,938 12.9 % 677,880 12.6 % 1,609,981 13.0 % 1,451,895 12.9 % euro 719,160 11.1 % 573,761 10.7 % 1,348,785 10.9 % 1,190,729 10.6 % Canadian dollar 259,012 4.0 % 170,896 3.2 % 498,722 4.0 % 364,131 3.2 % Australian dollar 161,240 2.5 % 93,923 1.7 % 271,293 2.2 % 188,064 1.7 % Chinese yuan 112,372 1.7 % 90,375 1.7 % 210,586 1.7 % 165,831 1.5 % Indian rupee 102,210 1.6 % 110,598 2.1 % 209,519 1.7 % 246,124 2.2 % Swiss franc 98,172 1.5 % 78,411 1.5 % 189,988 1.5 % 154,088 1.4 % Japanese yen 90,775 1.4 % 63,911 1.2 % 168,109 1.4 % 162,293 1.4 % Singapore dollar 74,776 1.2 % 62,501 1.1 % 141,649 1.1 % 130,405 1.1 % Other currencies (1) 444,254 6.9 % 369,334 6.8 % 836,297 6.7 % 746,635 6.6 % Total revenue$ 6,458,613 100.0 %$ 5,381,384 100.0 %$ 12,397,492 100.0 %$ 11,270,552 100.0 %
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(1)Approximately 37 currencies comprise 6.9% and 6.7% of our revenues for the three and six months endedJune 30, 2021 , respectively, and approximately 37 currencies comprise 6.8% and 6.6% of our revenues for the three and six months endedJune 30, 2020 , respectively. 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, 2021 , the net impact would have been an increase in pre-tax income of$6.5 million . Had the euro-to-U.S. dollar exchange rates been 10% higher during the six months endedJune 30, 2021 , the net impact would have been an increase in pre-tax income of$14.0 million . These hypothetical calculations estimate the impact of translating results intoU.S. dollars and do not include an estimate of the impact that a 10% change in theU.S. dollar against other currencies would have had on our foreign operations. Due to the constantly changing currency exposures to which we are subject and the volatility of currency exchange rates, we cannot predict the effect of exchange rate fluctuations upon future operating results. In addition, fluctuations in currencies relative to theU.S. dollar may make it more difficult to perform period-to-period comparisons of our reported results of operations. Our international operations also are subject to, among other things, political instability and changing regulatory environments, which affect the currency markets and which as a result may adversely affect our future financial condition and results of operations. We routinely monitor these risks and related costs and evaluate the appropriate amount of oversight to allocate towards business activities in foreign countries where such risks and costs are particularly significant. 30 -------------------------------------------------------------------------------- Table of contents Results of Operations The following table sets forth items derived from our consolidated statements of operations for the three and six months endedJune 30, 2021 and 2020 (dollars in thousands): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 (1) 2021 2020 (1) Revenue: Net revenue: Facilities management$ 1,199,657 18.6 %$ 1,087,657 20.2 %$ 2,356,146 19.0 %$ 2,201,715 19.5 % Property management 421,378 6.5 % 395,789 7.4 % 829,947 6.7 % 795,141 7.1 % Project management 338,011 5.2 % 293,386 5.5 % 646,128 5.2 % 625,048 5.5 % Valuation 181,226 2.8 % 131,837 2.4 % 340,816 2.7 % 279,575 2.5 % Loan servicing 65,894 1.0 % 57,050 1.1 % 134,736 1.1 % 113,730 1.0 % Advisory leasing 692,908 10.7 % 521,778 9.7 % 1,213,124 9.8 % 1,146,806 10.2 % Capital markets: Advisory sales 611,834 9.5 % 243,007 4.5 % 1,004,146 8.1 % 674,676 6.0 % Commercial mortgage origination 161,879 2.5 % 100,450 1.9 % 301,743 2.4 % 223,541 2.0 % Investment management 139,271 2.2 % 103,132 1.9 % 271,342 2.2 % 224,809 2.0 % Development services 104,092 1.7 % 58,478 1.0 % 183,151 1.5 % 148,272 1.3 % Corporate, other and eliminations (4,457) (0.1) % (4,892) (0.1) % (10,602) (0.1) % (14,410) (0.1) % Total net revenue 3,911,693 60.6 % 2,987,672 55.5 % 7,270,677 58.6 % 6,418,903 57.0 % Pass through costs also recognized as revenue 2,546,920 39.4 % 2,393,712 44.5 % 5,126,815 41.4 % 4,851,649 43.0 % Total revenue 6,458,613 100.0 % 5,381,384 100.0 % 12,397,492 100.0 % 11,270,552 100.0 % Costs and expenses: Cost of revenue 5,016,759 77.7 % 4,399,537 81.8 % 9,736,305 78.5 % 9,112,211 80.8 % Operating, administrative and other 957,216 14.8 % 770,806 14.3 % 1,785,543 14.4 % 1,560,872 13.8 % Depreciation and amortization 119,085 1.8 % 116,384 2.1 % 241,163 2.0 % 230,178 2.1 % Asset impairments - 0.0 % - 0.0 % - 0.0 % 75,171 0.7 % Total costs and expenses 6,093,060 94.3 % 5,286,727 98.2 % 11,763,011 94.9 % 10,978,432 97.4 % Gain (loss) on disposition of real estate 929 0.0 % (492) (0.1) % 1,085 0.0 % 22,335 0.2 % Operating income 366,482 5.7 % 94,165 1.7 % 635,566 5.1 % 314,455 2.8 % Equity income from unconsolidated subsidiaries 212,132 3.3 % 19,480 0.4 % 295,726 2.4 % 40,111 0.4 % Other income 12,045 0.2 % 5,220 0.1 % 14,777 0.1 % 5,027 0.0 % Interest expense, net of interest income 13,772 0.3 % 17,950 0.3 % 23,878 0.2 % 33,966 0.3 % Income before provision for income taxes 576,887 8.9 % 100,915 1.9 % 922,191 7.4 % 325,627 2.9 % Provision for income taxes 133,445 2.0 % 18,803 0.4 % 209,772 1.7 % 69,985 0.6 % Net income 443,442 6.9 % 82,112 1.5 % 712,419 5.7 % 255,642 2.3 % Less: Net income attributable to non-controlling interests 805 0.0 % 215 0.0 % 3,580 0.0 % 1,550 0.0 % Net income attributable to CBRE Group, Inc.$ 442,637 6.9 %$ 81,897 1.5 %$ 708,839 5.7 %$ 254,092 2.3 % Adjusted EBITDA$ 718,371 11.1 %$ 267,304 5.0 %$ 1,209,515 9.8 %$ 697,655 6.2 %
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(1)See discussion in segment operations for organization changes effectiveJanuary 1, 2021 . Prior period results have been recast to conform with these changes. Net 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 net revenue and adjusted EBITDA may not be comparable to similarly titled measures of other companies. 31 -------------------------------------------------------------------------------- Table of contents Net revenue is gross revenue less costs largely associated with subcontracted vendor work performed for clients and generally has no margin. Prior to 2021, the company utilized fee revenue to analyze the overall financial performance. This metric excluded additional reimbursed costs, primarily related to employees dedicated to clients, some of which included minimal margin. We use adjusted EBITDA as an indicator of consolidated financial performance. It represents earnings before net interest expense, write-off of financing costs on extinguished debt, income taxes, depreciation and amortization, asset impairments, adjustments related to certain carried interest incentive compensation expense (reversal) to align with the timing of associated revenue, 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, costs associated with workforce optimization efforts and integration and other costs related to acquisitions. 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, 2021 2020 2021 2020
Net income attributable to
$ 708,839 $ 254,092 Add: Depreciation and amortization 119,085 116,384 241,163 230,178 Asset impairments - - - 75,171 Interest expense, net of interest income 13,772 17,950 23,878 33,966 Provision for income taxes 133,445 18,803 209,772 69,985 Carried interest incentive compensation expense (reversal) to align with the timing of associated revenue 1,672 (7,500) 17,004 (15,284) Impact of fair value adjustments to real estate assets acquired in the Telford Acquisition (purchase accounting) that were sold in the period (374) 1,247 725 7,000 Costs incurred related to legal entity restructuring - 693 - 3,934 Integration and other costs related to acquisitions 8,134 236 8,134 1,019 Costs associated with workforce optimization efforts (1) - 37,594 - 37,594 Adjusted EBITDA$ 718,371 $ 267,304 $ 1,209,515 $ 697,655
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(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,$7.4 million was included within the "Cost of revenue" line item and$30.2 million was included in the "Operating, administrative and other" line item in the accompanying consolidated statements of operations for both the three and six months endedJune 30, 2020 . Three Months EndedJune 30, 2021 Compared to the Three Months EndedJune 30, 2020 We reported consolidated net income of$442.6 million for the three months endedJune 30, 2021 on revenue of$6.5 billion as compared to consolidated net income of$81.9 million on revenue of$5.4 billion for the three months endedJune 30, 2020 . Our revenue on a consolidated basis for the three months endedJune 30, 2021 increased by$1.1 billion , or 20.0%, as compared to the three months endedJune 30, 2020 . The revenue increase reflects growth across the three business segments; increases in revenue in ourGlobal Workplace Solutions segment due to growth in our facilities management and project management business, increases in our Advisory Services segment with notable growth in sales commission supported by a moderate growth in other advisory services such as lease revenue, property management and valuation services, and increases in asset management fees and development and construction revenue. Foreign currency translation had a 4.6% positive impact 32 -------------------------------------------------------------------------------- Table of contents on total revenue during the three months endedJune 30, 2021 , primarily driven by strength in the Canadian dollar, British pound sterling and euro, partially offset by weakness in the Argentine peso, and Japanese Yen. Our cost of revenue on a consolidated basis increased by$617.2 million , or 14.0%, during the three months endedJune 30, 2021 as compared to the same period in 2020. This increase was primarily due to higher costs associated with ourGlobal Workplace Solutions segment due to growth in our facilities management and project management business and higher commission expense associated with our Advisory Services segment due to growth in our sales and leasing business. In addition, foreign currency translation had a 4.2% negative impact on total cost of revenue during the three months endedJune 30, 2021 . Cost of revenue as a percentage of revenue decreased to 77.7% for the three months endedJune 30, 2021 from 81.8% for the three months endedJune 30, 2020 , primarily driven by the Advisory Services segment where revenue growth has outpaced fixed cost growth. Our operating, administrative and other expenses on a consolidated basis increased by$186.4 million , or 24.2%, during the three months endedJune 30, 2021 as compared to the same period in 2020. The increase was primarily due to an increase in overall bonus accrual, other incentive compensation, and stock compensation expense tied to significant growth in performance this quarter as compared to the three months endedJune 30, 2020 when the operating results were impacted by the pandemic. Foreign currency translation had a 4.5% negative impact on total operating, administrative and other expenses during the three months endedJune 30, 2021 . Operating expenses as a percentage of revenue increased slightly to 14.8% for the three months endedJune 30, 2021 from 14.3% for the three months endedJune 30, 2020 . Our depreciation and amortization expense on a consolidated basis increased by$2.7 million , or 2.3%, during the three months endedJune 30, 2021 as compared to the same period in 2020. This increase was primarily attributable to higher amortization expense associated with mortgage servicing rights. Our gain on disposition of real estate on a consolidated basis was$0.9 million for the three months endedJune 30, 2021 , which was an increase over the prior year period. These gains resulted from property sales within our Real Estate Investments segment. Our equity income from unconsolidated subsidiaries on a consolidated basis increased by$192.7 million , or 989.0%, during the three months endedJune 30, 2021 as compared to the same period in 2020, primarily driven by higher equity earnings associated with gains on property sales reported in our Real Estate Investments segment and higher equity pick up associated with certain equity investments reported in our Corporate and other segment. Our consolidated interest expense, net of interest income, decreased by$4.2 million , or 23.3%, for the three months endedJune 30, 2021 as compared to the same period in 2020. This decrease was primarily due to interest expense associated with the 5.25% senior note which was fully paid off inDecember 2020 , and offset by interest expense associated with the 2.500% senior note issued in the first half of 2021. Our provision for income taxes on a consolidated basis was$133.4 million for the three months endedJune 30, 2021 as compared to$18.8 million for the same period in 2020. The increase in tax expense for the three months endedJune 30, 2021 of$114.6 million was primarily related to the corresponding increase in our consolidated pre-tax book income. Our effective tax rate increased to 23.1% for the three months endedJune 30, 2021 from 18.6% for the three months endedJune 30, 2020 primarily resulted from a percentage decrease of favorable permanent book tax differences and tax credits in 2021. Six Months EndedJune 30, 2021 Compared to the Six Months EndedJune 30, 2020 We reported consolidated net income of$708.8 million for the six months endedJune 30, 2021 on revenue of$12.4 billion as compared to consolidated net income of$254.1 million on revenue of$11.3 billion for the six months endedJune 30, 2020 . Our revenue on a consolidated basis for the six months endedJune 30, 2021 increased by$1.1 billion , or 10.0%, as compared to the six months endedJune 30, 2020 . The revenue increase reflects higher revenue in ourGlobal Workplace Solutions segment (up 5.9%) led by growth in our facilities management line of business, driven by its contractual nature, an increase in higher revenue in our Advisory Services segment led primarily by higher sales (increase of 48.8% as compared to the same period in 2020) with an overall increase in its other advisory services, and improved revenue in our Real Estate Investments segment (up 21.8%) largely due to an increase in sales in our development services line of business and investment management fees related to growth in AUM. Foreign currency translation had a 3.3% positive impact on total revenue during the six months endedJune 30, 2021 , primarily driven by strength in the Australian dollar, British pound sterling and euro, partially offset by weakness in the Argentine peso and Brazilian real. 33 -------------------------------------------------------------------------------- Table of contents Our cost of revenue on a consolidated basis increased by$624.1 million , or 6.8%, during the six months endedJune 30, 2021 as compared to the same period in 2020. This increase was primarily due to higher costs associated with ourGlobal Workplace Solutions segment due to growth in our facilities management and project management business and higher costs associated with our Advisory Services segment due to growth in our sales and leasing business. Foreign currency translation had a 3.1% negative impact on total cost of revenue during the six months endedJune 30, 2021 . Cost of revenue as a percentage of revenue decreased to 78.5% for the six months endedJune 30, 2021 from 80.8% for the six months endedJune 30, 2020 . This was primarily due to Advisory Services segment where revenue growth has outpaced increase in fixed costs. Our operating, administrative and other expenses on a consolidated basis increased by$224.7 million , or 14.4%, for the six months endedJune 30, 2021 as compared to the same period in 2020. The increase was primarily due to an increase in overall bonus accrual, other incentive compensation, and stock compensation expense tied to significant improvement in the business performance during the six months endedJune 30, 2021 as compared to six months endedJune 30, 2020 . Foreign currency translation also had a 3.5% negative impact on total operating expenses during the six months endedJune 30, 2021 . Operating expenses as a percentage of revenue increased to 14.4% for the six months endedJune 30, 2021 from 13.8% for the six months endedJune 30, 2020 , primarily due to increased performance driven incentive expense partially offset by a decrease in discretionary expense such as travel and marketing. Our depreciation and amortization expense on a consolidated basis increased by$11.0 million , or 4.8%, during the six months endedJune 30, 2021 as compared to the same period in 2020. This increase was primarily attributable to a rise in amortization expense related to higher mortgage servicing rights and loan payoffs. We did not incur any asset impairments during the six months endedJune 30, 2021 . Our asset impairments on a consolidated basis totaled$75.2 million for the six months endedJune 30, 2020 and consisted of a non-cash goodwill impairment charge of$25.0 million in our Real Estate Investments segment and$50.2 million of non-cash asset impairment charges in ourGlobal Workplace Solutions segment. During 2020, 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 Covid-19. Our gain on disposition of real estate on a consolidated basis decreased by$21.3 million , or 95.1%, during the six months endedJune 30, 2021 as compared to the same period in 2020. These gains resulted from decreased activity related to property sales within our Real Estate Investments segment. Our equity income from unconsolidated subsidiaries on a consolidated basis increased by$255.6 million , or 637.3%, during the six months endedJune 30, 2021 as compared to the same period in 2020, primarily driven by higher equity earnings associated with gains on property sales reported in our Real Estate Investments segment and higher equity pick ups associated with certain equity investments reported in our Corporate and other segment. Our consolidated interest expense, net of interest income, decreased by$10.1 million , or 29.7%, for the six months endedJune 30, 2021 as compared to the same period in 2020. This decrease was primarily due to interest expense associated with the 5.25% senior note which was fully paid off inDecember 2020 , and offset by interest expense associated with the 2.500% senior note issued in the first half of 2021. Our provision for income taxes on a consolidated basis was$209.8 million for the six months endedJune 30, 2021 as compared to$70.0 million for the six months endedJune 30, 2020 . The increase of approximately$139.8 million was primarily related to the corresponding increase in consolidated pre-tax book income. Our effective tax rate increased to 22.7% for the six months endedJune 30, 2021 from 21.5% for the six months endedJune 30, 2020 primarily resulted from a percentage decrease of favorable permanent book tax differences and tax credits in 2021. OnMarch 27, 2020 , the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted inthe United States in response to the Covid-19 pandemic. The CARES Act has not had, nor is it expected to have, a significant impact on our effective tax rate for 2021. 34 -------------------------------------------------------------------------------- Table of contents 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. EffectiveJanuary 1, 2021 , we have realigned our organizational structure and performance measure to how our chief operating decision maker views the company. This includes a "Corporate, other and eliminations" component and a segment measurement of profit and loss referred to as segment operating profit. Advisory Services provides a comprehensive range of services globally, including property leasing, property sales, mortgage services, property management, and valuation.Global Workplace Solutions provides a broad suite of integrated, contractually-based outsourcing services to occupiers of real estate, including facilities management and project management. EffectiveJanuary 1, 2021 , transaction services was fully moved under the Advisory Services segment and project management was fully moved under theGlobal Workplace Solutions segment. Previously transaction services and project management were split between theGlobal Workplace Solutions segment and the Advisory Services segment. Real Estate Investments includes investment management services provided globally, development services in theU.S. andU.K. and flexible office space solutions. Corporate and other includes activities not attributed to our core business, primarily consisting of corporate headquarters costs for executive officers and certain other central functions. These costs are not allocated to the other business segments. It also includes eliminations related to inter-segment revenue. Prior period segment results for all of our reportable segments have been recast to conform to the above changes. 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. 35 -------------------------------------------------------------------------------- Table of contents Advisory Services The following table summarizes our results of operations for our Advisory Services operating segment for the three and six months endedJune 30, 2021 and 2020 (dollars in thousands): Three Months EndedJune 30 ,
Six Months Ended
2021 2020 2021 2020
Revenue:
Net revenue:
Property management $ 421,378 19.7 % $ 395,789 27.2 % $ 829,947 21.6 % $ 795,141 24.4 %
Valuation 181,226 8.5 % 131,837 9.1 % 340,816 8.9 % 279,575 8.6 %
Loan servicing 65,894 3.1 % 57,050 3.9 % 134,736 3.5 % 113,730 3.5 %
Advisory leasing 692,908 32.4 % 521,778 35.9 % 1,213,124 31.6 % 1,146,806 35.2 %
Capital markets:
Advisory sales 611,834 28.6 % 243,007 16.7 % 1,004,146 26.1 % 674,676 20.7 %
Commercial mortgage origination 161,879 7.6 % 100,450 6.9 % 301,743 7.8 % 223,541 6.9 %
Total segment net revenue 2,135,119 99.9 % 1,449,911 99.7 % 3,824,512 99.5 % 3,233,469 99.3 %
Pass through costs also recognized as revenue 1,866 0.1 % 4,321 0.3 % 20,485 0.5 % 23,450 0.7 %
Total segment revenue 2,136,985 100.0 % 1,454,232 100.0 % 3,844,997 100.0 % 3,256,919 100.0 %
Costs and expenses:
Cost of revenue 1,231,819 57.6 % 889,740 61.2 % 2,219,396 57.7 % 1,943,913 59.7 %
Operating, administrative and other 443,611 20.8 % 376,335 25.9 % 832,218 21.6 % 795,592 24.4 %
Depreciation and amortization 74,169 3.5 % 72,218 5.0 % 143,923 3.7 % 142,795 4.4 %
Operating income 387,386 18.1 % 115,939 7.9 % 649,460 17.0 % 374,619 11.5 %
Equity income from unconsolidated subsidiaries 2,149 0.1 % 1,293 0.1 % 2,899 0.2 % 2,328 0.1 %
Other income 801 0.0 % 185 0.0 % 802 0.0 % 3,096 0.1 %
Less: Net income attributable to non-controlling
interests 208 0.0 % 182 0.0 % 487 0.0 % 421 0.0 %
Add-back: Depreciation and amortization 74,169 3.5 % 72,218 5.0 % 143,923 3.7 % 142,795 4.4 %
Adjustments:
Costs associated with workforce optimization
efforts (1) - 0.0 % 12,659 0.9 % - 0.0 % 12,659 0.4 %
Segment operating profit and segment operating
profit on revenue margin $ 464,297 21.7 % $ 202,112 13.9 % $ 796,597 20.7 % $ 535,076 16.4 %
Segment operating profit on net revenue margin 21.7 % 13.9 % 20.8 % 16.5 %
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(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,$6.3 million was included within the "Cost of revenue" line item and$6.4 million was included in the "Operating, administrative and other" line item in the accompanying consolidated statements of operations for both the three and six months endedJune 30, 2020 . Three Months EndedJune 30, 2021 Compared to the Three Months EndedJune 30, 2020 Revenue increased by$682.8 million , or 46.9%, for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 . The revenue increase primarily reflects higher sales and leasing revenue, as well as increase in commercial mortgage origination activity, property management fees and valuation revenue. Foreign currency translation had a 5.2% positive impact on total revenue during the three months endedJune 30, 2021 , primarily driven by strength in the Australian dollar and euro, partially offset by weakness in the Japanese yen. Cost of revenue increased by$342.1 million , or 38.4%, for the three months endedJune 30, 2021 as compared to the same period in 2020, primarily due to increased commission expense resulting from higher sales and leasing revenue. Foreign currency translation had a 4.8% negative impact on total cost of revenue during the three months endedJune 30, 2021 . Cost of revenue as a percentage of revenue decreased to 57.6% for the three months endedJune 30, 2021 versus 61.2% for the same period in 2020 This increase in gross margin is primarily due to revenue growth outpacing fixed cost growth. 36 -------------------------------------------------------------------------------- Table of contents Operating, administrative and other expenses increased by$67.3 million , or 17.9%, for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 . This increase was primarily due to overall bonus accrual, other incentive compensation, and stock compensation expense tied to better operating results this quarter as compared to three months endedJune 30, 2020 . In addition, there has been an increase in new hires to support the growth of the business. Foreign currency translation had a 4.9% negative impact on total operating expenses during the three months endedJune 30, 2021 . 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, 2021 , MSRs contributed to operating income$41.8 million of gains recognized in conjunction with the origination and sale of mortgage loans, offset by$39.7 million of amortization of related intangible assets. 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. Six Months EndedJune 30, 2021 Compared to the Six Months EndedJune 30, 2020 Revenue increased by$0.6 billion , or 18.1%, for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 . The revenue increase primarily reflects higher sales and leasing revenue, as well as increase in commercial mortgage origination activity, property management and valuation revenue. Foreign currency translation had a 3.4% positive impact on total revenue during the six months endedJune 30, 2021 , primarily driven by strength in Australian dollar, British pound sterling and euro, partially offset by weakness in the Brazilian real. Cost of revenue increased by$275.5 million , or 14.2%, for the six months endedJune 30, 2021 as compared to the same period in 2020, primarily due to increased commission expense resulting from higher sales and leasing revenue and increased professional compensation to support the growth in the business. Foreign currency translation also had a 3.4% negative impact on total cost of revenue during the six months endedJune 30, 2021 . Cost of revenue as a percentage of revenue decreased slightly to 57.7% for the six months endedJune 30, 2021 from 59.7% for the six months endedJune 30, 2020 . Operating, administrative and other expenses increased by$36.6 million , or 4.6%, for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 . This increase was primarily due to overall bonus accrual, other incentive compensation, and stock compensation expense tied to better operating results this period as compared to six months endedJune 30, 2020 . This was offset by a decrease in certain operating expenses such as travel and entertainment and salaries for office and administrative staff due to cost cutting measures that were implemented last year. Foreign currency translation also had a 3.5% negative impact on total operating expenses during the six months endedJune 30, 2021 . For the six months endedJune 30, 2021 , MSRs contributed to operating income$92.1 million of gains recognized in conjunction with the origination and sale of mortgage loans, offset by$75.5 million of amortization of related intangible assets. 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$62.4 million of amortization of related intangible assets. 37 -------------------------------------------------------------------------------- Table of contentsGlobal Workplace Solutions The following table summarizes our results of operations for ourGlobal Workplace Solutions operating segment for the three and six months endedJune 30, 2021 and 2020 (dollars in thousands): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Revenue: Net revenue: Facilities management$ 1,199,657 29.4 %$ 1,087,657 28.8 %$ 2,356,146 29.1 %$ 2,201,715 28.8 % Project management 338,011 8.3 % 293,386 7.8 % 646,128 8.0 % 625,048 8.1 % Total segment net revenue 1,537,668 37.7 % 1,381,043 36.6 % 3,002,274 37.0 % 2,826,763 36.9 % Pass through costs also recognized as revenue 2,545,054 62.3 % 2,389,390 63.4 % 5,106,331 63.0 % 4,828,199 63.1 % Total segment revenue 4,082,722 100.0 % 3,770,433 100.0 % 8,108,605 100.0 % 7,654,962 100.0 % Costs and expenses: Cost of revenue 3,729,624 91.4 % 3,483,401 92.4 % 7,427,397 91.6 % 7,094,955 92.7 % Operating, administrative and other 193,284 4.7 % 163,944 4.3 % 369,295 4.6 % 330,624 4.3 % Depreciation and amortization 32,547 0.8 % 32,475 0.9 % 67,006 0.8 % 64,916 0.8 % Asset impairments - 0.0 % - 0.0 % - 0.0 % 50,171 0.7 % Operating income 127,267 3.1 % 90,613 2.4 % 244,907 3.0 % 114,296 1.5 % Equity income (loss) from unconsolidated subsidiaries 416 0.0 % (401) 0.0 % 234 0.0 % 116 0.0 % Other income (loss) 1,805 0.0 % (54) 0.0 % 2,071 0.0 % 115 0.0 % Less: Net income attributable to non-controlling interests 17 0.0 % 21 0.0 % 23 0.0 % 35 0.0 % Add-back: Depreciation and amortization 32,547 0.8 % 32,475 0.9 % 67,006 0.8 % 64,916 0.8 % Add-back: Asset impairments - 0.0 % - 0.0 % - 0.0 % 50,171 0.7 % Adjustments: Costs associated with workforce optimization efforts (1) - 0.0 % 4,878 0.1 % - 0.0 % 4,878 0.1 % Integration and other costs related to acquisitions 8,134 0.2 % - 0.0 % 8,134 0.1 % - 0.0 % Segment operating profit and segment operating profit on revenue margin$ 170,152 4.1 %$ 127,490 3.4 %$ 322,329 3.9 %$ 234,457 3.1 % Segment operating profit on net revenue margin 11.1 % 9.2 % 10.7 % 8.3 %
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(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,$1.2 million was included within the "Cost of revenue" line item and$3.8 million was included in the "Operating, administrative and other" line item in the accompanying consolidated statements of operations for both the three and six months endedJune 30, 2020 . Three Months EndedJune 30, 2021 Compared to the Three Months EndedJune 30, 2020 Revenue increased by$312.3 million , or 8.3%, for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 . The increase was primarily attributable to growth in our facilities management line of business, which is contractual in nature. Foreign currency translation had a 4.0% positive impact on total revenue during the three months endedJune 30, 2021 , primarily driven by weakness in the Argentine peso, partially offset by strength in the British pound sterling and euro. Cost of revenue increased by$246.2 million , or 7.1%, for the three months endedJune 30, 2021 as compared to the same period in 2020, driven by the higher revenue leading to higher pass through costs and higher professional compensation. Foreign currency translation had a 3.9% negative impact on total cost of revenue during the three months endedJune 30, 2021 . Cost of revenue as a percentage of revenue decreased slightly to 91.4% for the three months endedJune 30, 2021 from 92.4% for the same period in 2020. 38 -------------------------------------------------------------------------------- Table of contents Operating, administrative and other expenses increased by$29.3 million , or 17.9%, for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 . This increase was attributable to higher bonus accrual tied to segment and consolidated results and continued investments to sustain the growth in the business. Foreign currency translation had a 4.8% negative impact on total operating expenses during the three months endedJune 30, 2021 . Six Months EndedJune 30, 2021 Compared to the Six Months EndedJune 30, 2020 Revenue increased by$453.6 million , or 5.9%, for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 . The increase was primarily attributable to growth in our facilities management line of business, which is contractual in nature. Foreign currency translation had a 3.0% positive impact on total revenue during the six months endedJune 30, 2021 , primarily driven by weakness in the Argentine peso and Brazilian real, partially offset by strength in the British pound sterling and euro. Cost of revenue increased by$332.4 million , or 4.7%, for the six months endedJune 30, 2021 as compared to the same period in 2020, driven by the higher revenue leading to higher pass through costs and increased professional compensation. Foreign currency translation had a 2.9% negative impact on total cost of revenue during the six months endedJune 30, 2021 . Cost of revenue as a percentage of revenue decreased slightly to 91.6% for the six months endedJune 30, 2021 from 92.7% for the six months endedJune 30, 2020 . Operating, administrative and other expenses increased by$38.7 million , or 11.7%, for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 . This increase was attributable to higher bonus accrual tied to segment and consolidated results and continued investments to sustain the growth in the business in form of office management and administrative salaries. These increases were partially offset by benefits from targeted reduction in certain operating expenses, such as travel and entertainment costs, during the six months endedJune 30, 2021 . Foreign currency translation also had a 3.6% negative impact on total operating expenses during the six months endedJune 30, 2021 . 39 -------------------------------------------------------------------------------- Table of contents Real Estate Investments The following table summarizes our results of operations for our Real Estate Investments operating segment for the three and six months endedJune 30, 2021 and 2020 (dollars in thousands): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Revenue: Investment management$ 139,271 57.2 %$ 103,132 63.8 %$ 271,342 59.7 %$ 224,809 60.3 % Development services 104,092 42.8 % 58,479 36.2 % 183,150 40.3 % 148,272 39.7 % Total segment revenue 243,363 100.0 % 161,611 100.0 % 454,492 100.0 % 373,081 100.0 % Costs and expenses: Cost of revenue 56,970 23.4 % 30,021 18.6 % 97,960 21.6 % 85,070 22.8 % Operating, administrative and other 235,275 96.7 % 127,618 79.0 % 416,255 91.6 % 277,778 74.5 % Depreciation and amortization 5,523 2.3 % 4,693 2.8 % 15,953 3.5 % 9,137 2.4 % Asset impairments - 0.0 % - 0.0 % - 0.0 % 25,000 6.7 % Gain (loss) on disposition of real estate 929 0.4 % (492) (0.3) % 1,085 0.2 % 22,335 6.0 % Operating loss (53,476) (22.0 %) (1,213) (0.7 %) (74,591) (16.5 %) (1,569) (0.4 %) Equity income from unconsolidated subsidiaries 198,173 81.4 % 21,296 13.2 % 255,067 56.1 % 40,198 10.8 % Other income (loss) 2,525 1.0 % 735 0.5 % 2,952 0.6 % (1,904) (0.5) % Less: Net income attributable to non-controlling interests 580 0.2 % 12 0.0 % 3,070 0.7 % 1,094 0.3 % Add-back: Depreciation and amortization 5,523 2.3 % 4,693 2.9 % 15,953 3.5 % 9,137 2.4 % Add-back: Asset impairments - 0.0 % - 0.0 % - 0.0 % 25,000 6.7 %
Adjustments:
Carried interest incentive compensation expense (reversal) to align with the timing of associated revenue 1,672 0.7 % (7,500) (4.6 %) 17,004 3.7 % (15,284) (4.1 %) Impact of fair value adjustments to real estate assets acquired in the Telford Acquisition (purchase accounting) that were sold in period (374) (0.2) % 1,247 0.8 % 725 0.2 % 7,000 1.9 % Integration and other costs related to acquisitions - 0.0 % 236 0.1 % - 0.0 % 1,019 0.3 % Costs associated with workforce optimization efforts (1) - 0.0 % 5,172 3.2 % - 0.0 % 5,172 1.4 % Segment operating profit$ 153,463 63.0 %$ 24,654 15.4 %$ 214,040 46.9 %$ 67,675 18.2 %
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(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 endedJune 30, 2020 . Three Months EndedJune 30, 2021 Compared to the Three Months EndedJune 30, 2020 Revenue increased by$81.8 million , or 50.6%, for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 , primarily driven by an increase in real estate sales and an increase in construction management fees in our development services line of business. Investment management fees increased due to growth in AUM. Foreign currency translation had a 10.6% positive impact on total revenue during the three months endedJune 30, 2021 , primarily driven by strength in the British pound sterling and euro. Cost of revenue increased by$26.9 million , or 89.8%, for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 , primarily driven by an increase in cost related to real estate development and construction services which is consistent with an increase in sales in our development service line of business. Foreign currency translation had a 20.4% negative impact on total cost of revenue during the three months endedJune 30, 2021 . Operating, administrative and other expenses increased by$107.7 million , or 84.4%, for the three months endedJune 30, 2021 as compared to the same period in 2020, primarily due to an increase in compensation and bonuses in our 40 -------------------------------------------------------------------------------- Table of contents development services and investment management line of business consistent with higher revenue growth. Foreign currency translation had a 6.5% negative impact on total operating expenses during the three months endedJune 30, 2021 . A roll forward of our AUM by product type for the three months endedJune 30, 2021 is as follows (dollars in billions): Funds Separate Accounts Securities Total Balance at March 31, 2021$ 47.8 $ 68.4$ 8.3 $ 124.5 Inflows 1.9 2.8 0.5 5.2 Outflows (1.2) (1.7) (0.7) (3.6) Market appreciation 1.1 1.1 0.8 3.0 Balance at June 30, 2021$ 49.6 $ 70.6$ 8.9 $ 129.1 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 estate operating 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, including investments (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 EndedJune 30, 2021 Compared to the Six Months EndedJune 30, 2020 Revenue increased by$81.4 million , or 21.8%, for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 , primarily driven by an increase in real estate sales in our development services line of business and investment management fees related to growth in AUM. Foreign currency translation had a 6.8% positive impact on total revenue during the six months endedJune 30, 2021 , primarily driven by strength in the British pound sterling and euro. Cost of revenue increased by$12.9 million , or 15.2%, for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 , primarily driven by an increase in real estate development which is consistent with an increase in sales in our development service line of business. Foreign currency translation had a 9.6% negative impact on total cost of revenue during the three months endedJune 30, 2021 . Operating, administrative and other expenses increased by$138.5 million , or 49.9%, for the six months endedJune 30, 2021 as compared to the same period in 2020, primarily due to an increase in compensation and bonuses in our development services and investment management line of business consistent with higher revenue growth. These increases are partially offset by decreases in certain operating expenses, such as travel and entertainment costs, as a result of Covid-19. Foreign currency translation had a 5.0% negative impact on total operating expenses during the six months endedJune 30, 2021 . A roll forward of our AUM by product type for the six months endedJune 30, 2021 is as follows (dollars in billions): Funds Separate Accounts Securities Total Balance at January 1, 2021$ 47.2 $ 67.9$ 7.6 $ 122.7 Inflows 3.1 4.6 1.0 8.7 Outflows (1.8) (2.8) (1.0) (5.6) Market appreciation 1.1 0.9 1.3 3.3 Balance at June 30, 2021$ 49.6 $ 70.6$ 8.9 $ 129.1 41
-------------------------------------------------------------------------------- Table of contents 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. We expect our capital requirements for 2021 to be between$200 million and$240 million of anticipated capital expenditures, net of tenant concessions. During the six months endedJune 30, 2021 , we incurred$63.1 million of capital expenditures, net of tenant concessions received, which includes approximately$15.8 million related to technology enablement. As ofJune 30, 2021 , we had aggregate commitments of$118.7 million to fund future co-investments in our Real Estate Investments business,$25.4 million of which is expected to be funded in 2021. Additionally, as ofJune 30, 2021 , we are committed to fund$55.5 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, 2021 , we had$2.8 billion of borrowings available under our revolving credit facility and$2.0 billion of cash and cash equivalents available for general corporate use. OnJuly 9, 2021 , the revolving credit facility was increased by$350.0 million . 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. InDecember 2020 , we redeemed the$425.0 million aggregate outstanding principal amount of our 5.25% senior notes due 2025 in full. We funded this redemption using cash on hand. InMarch 2021 , we took advantage of favorable market conditions and low interest rates and conducted a new issuance for$500.0 million in aggregate principal amount of 2.500% senior notes due 2031. We may again seek to take advantage of market opportunities to refinance existing debt instruments with new debt instruments at interest rates, maturities and terms we deem attractive. 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. 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 consideration in future periods that are subject to the passage of time or achievement of certain performance metrics and other conditions. As ofJune 30, 2021 , we had accrued deferred purchase consideration totaling$125.6 million ($36.0 million of which was a current liability), which was included in "Accounts payable and accrued expenses" and in "Other liabilities" in the accompanying consolidated balance sheets set forth in Item 1 of this Quarterly Report. Lastly, as described in our 2020 Annual Report , our board of directors authorized a program for the repurchase of up to$500.0 million of our Class A common stock over three years. As ofDecember 31, 2020 ,$350.0 million was available for share repurchases under the authorized repurchase program. During the three months endedMarch 31, 2021 , we spent$64.1 million to repurchase, through a stock repurchase plan entered into pursuant to Rule 10b5-1 under the Exchange Act, 42 -------------------------------------------------------------------------------- Table of contents 831,274 shares of our Class A common stock with an average price paid per share of$77.15 . During the three months endedJune 30, 2021 , we spent$24.1 million to repurchase an additional 300,454 shares of our Class A common stock with an average price paid per share of$80.31 . As ofJune 30, 2021 , we had$261.7 million of capacity remaining under our repurchase program. Our stock repurchases have been funded with cash on hand and we intend to continue funding future repurchases with existing cash. We may utilize our stock repurchase 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 any future repurchases and the actual amounts repurchased will depend on a variety of factors, including the market price of our common stock, general market and economic conditions and other factors. Historical Cash Flows Operating Activities Net cash provided by operating activities totaled$227.1 million for the six months endedJune 30, 2021 , an increase of$203.0 million as compared to the six months endedJune 30, 2020 . The primary drivers that contributed to the net increase were an overall improvement in the company's performance and elevated distributions of earnings from unconsolidated subsidiaries (mainly due to certain transactions that occurred in second quarter in the REI segment). These were partially offset by increased outflows related to changes in net working capital of approximately$124.6 million and an increase in real estate under development of approximately$28.6 million . The increased real estate development activities are due to better market opportunities as compared to a pandemic affected environment during the same period last year. The impact from net working capital was largely attributable to an increase in accounts receivable, supplemented by a lower incentive compensation payout, partially offset by a larger net decrease in accounts payable and accrued expenses, and net income tax payment this period as compared to a net refund during the six months endedJune 30, 2020 . Investing Activities Net cash used in investing activities totaled$344.5 million for the six months endedJune 30, 2021 , an increase of$208.5 million as compared to the six months endedJune 30, 2020 . This increase was primarily driven by our investment in Industrious, uptick in mergers and acquisitions related activities, and approximately$27.8 million in lower distributions received from unconsolidated subsidiaries compared to 2020. Financing Activities Net cash provided by financing activities totaled$379.0 million for the six months endedJune 30, 2021 , an increase of$20.2 million as compared to the six months endedJune 30, 2020 . The increase was primarily due to the net proceeds of$492.3 million from the issuance of our 2.500% senior notes during 2021 as compared to net proceeds from our revolving credit facility of$451.0 million for the six months endedJune 30, 2020 . In addition, we received approximately$25.8 million from the issuance of note payables related to various real estate development activities during 2021, which was partially offset by additional funds that were used to repurchase shares during the six months endedJune 30, 2021 as compared to same period in 2020. 43 -------------------------------------------------------------------------------- Table of contents 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 agreement, as amended by aDecember 20, 2018 incremental loan assumption agreement and suchMarch 4, 2019 incremental assumption agreement, is collectively referred to in this Quarterly Report as 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 the 2019 incremental assumption agreement. The 2019 Credit Agreement is a senior unsecured credit facility that is guaranteed by us. As ofJune 30, 2021 , the 2019 Credit Agreement provided for the following: (1) a$2.8 billion 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 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 . OnJuly 9, 2021 , CBRE Services entered into an incremental assumption agreement with respect to the 2019 Credit Agreement for purposes of increasing the revolving credit commitments available under the 2019 Credit Agreement by an aggregate principal amount of$350.0 million . OnMarch 18, 2021 , CBRE Services issued$500.0 million in aggregate principal amount of 2.500% senior notes dueApril 1, 2031 at a price equal to 98.451% of their face value (the 2.500% senior notes). The 2.500% senior notes are unsecured obligations of CBRE 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 2.500% per year and is payable semi-annually in arrears onApril 1 andOctober 1 of each year, beginning onOctober 1, 2021 . The 2.500% senior notes are redeemable at our option, in whole or in part, on or afterJanuary 1, 2031 at a redemption price of 100% of the principal amount on that date, plus accrued and unpaid interest, if any, to, but excluding the date of redemption. At any time prior toJanuary 1, 2031 , we may redeem all or a portion of the notes at a redemption price equal to the greater of (1) 100% of the principal amount of the notes to be redeemed and (2) the sum of the present value at the date of redemption of the remaining scheduled payments of principal and interest thereon toJanuary 1, 2031 , assuming the notes matured onJanuary 1, 2031 , discounted to the date of redemption on a semi-annual basis at an adjusted rate equal to the treasury rate plus 20 basis points, minus accrued and unpaid interest to, but excluding, the date of redemption, plus, in either case, accrued and unpaid interest, if any, to, but not including, the redemption date. The amount of the 2.500% senior notes, net of unamortized discount and unamortized debt issuance costs, included in the accompanying consolidated balance sheet was$487.6 million atJune 30, 2021 . 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 of CBRE Services, senior to all of its current and future subordinated indebtedness, but effectively subordinated to all of its current and future secured indebtedness. The 4.875% senior notes are guaranteed on a senior basis by us. 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 were unsecured obligations of CBRE Services, senior to all of its current and future subordinated indebtedness, but effectively subordinated to all of its current and future secured indebtedness. The 5.25% senior notes were jointly and severally guaranteed on a senior basis by us and certain of 44 -------------------------------------------------------------------------------- Table of contents our subsidiaries. Interest accrued at a rate of 5.25% per year and was payable semi-annually in arrears onMarch 15 andSeptember 15 . We redeemed these notes in full onDecember 28, 2020 and incurred charges of$75.6 million , including a premium of$73.6 million and the write-off of$2.0 million of unamortized premium and debt issuance costs. We funded this redemption using cash on hand. The indentures governing our 4.875% senior notes and 2.500% senior notes contain restrictive covenants that, among other things, limit our ability to create or permit liens on assets securing indebtedness, enter into sale/leaseback transactions and enter into consolidations or mergers. OnMay 21, 2021 , we released all existing subsidiary guarantors from their guarantees of our 2019 Credit Agreement, 4.875% senior notes and 2.500% senior notes. Our 2019 Credit Agreement, 4.875% senior notes and 2.500% senior notes remain fully and unconditionally guaranteed byCBRE Group, Inc. Combined summarized financial information forCBRE Group, Inc. (parent) and CBRE Services (subsidiary issuer) is as follows (dollars in thousands): June 30, 2021 December 31, 2020 (1) Balance Sheet Data: Current assets$ 4,851 $ 3,307,147 Noncurrent assets (2) 248,102 5,252,455 Total assets (2) 252,953 8,559,602 Current liabilities$ 14,077 $ 3,241,264 Noncurrent liabilities 1,380,808 1,884,629 Total liabilities 1,394,885 5,125,893 Six Months Ended June 30, 2021 2020 Statement of Operations Data: Revenue $ -$ 6,332,337 Operating (loss) income (986) 138,122 Net income 15,847 118,459
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(1)Amounts include activity related to our subsidiaries that were still listed as guarantors for the period presented. (2)Includes$237.1 million and$360.0 million of intercompany loan receivables from non-guarantor subsidiaries as ofJune 30, 2021 andDecember 31, 2020 , respectively. All intercompany balances and transactions betweenCBRE Group, Inc. , CBRE Services and the guarantor subsidiaries have been eliminated. 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 2020 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$3.15 billion (inclusive of the$350.0 million increase executed onJuly 9, 2021 ) revolving credit facility under the 2019 Credit Agreement and 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 2020 Annual Report and Notes 3 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. 45 -------------------------------------------------------------------------------- Table of contents Cautionary Note on Forward-Looking Statements This Quarterly Report contains 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 and significant public health events, particularly in geographies or industry sectors where our business may be concentrated;
•volatility or adverse developments in the securities, capital or credit
markets, interest rate increases and conditions affecting the value of real
estate assets, inside and outside the
•poor performance of real estate investments or other conditions that negatively impact clients' willingness to make real estate or long-term contractual commitments and the cost and availability of capital for investment in real estate;
•foreign currency fluctuations and changes in currency restrictions, trade sanctions and import/export and transfer pricing rules;
•disruptions to business, market and operational conditions related to the Covid-19 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 forU.S. Government-Sponsored Enterprises (GSEs);
•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;
•increases in unemployment and general slowdowns in commercial activity;
•trends in pricing and risk assumption for commercial real estate services;
•the effect of significant changes in capitalization rates across different property types;
•a reduction by companies in their reliance on outsourcing for their commercial real estate needs, which would affect our revenues and operating performance;
•client actions to restrain project spending and reduce outsourced staffing levels;
•our ability to further diversify our revenue model to offset cyclical economic trends in the commercial real estate industry;
•our ability to attract new user and investor clients;
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•our ability to retain major clients and renew related contracts;
•our ability to leverage our global services platform to maximize and sustain long-term cash flow;
•our ability to continue investing in our platform and client service offerings;
•our ability to maintain expense discipline;
•the emergence of disruptive business models and technologies;
•negative publicity or harm to our brand and reputation;
•the failure by third parties to comply with service level agreements or regulatory or legal requirements;
•the ability of our investment management business to maintain and grow assets under management and achieve desired investment returns for our investors, and any potential related litigation, liabilities or reputational harm possible if we fail to do so;
•our ability to manage fluctuations in net earnings and cash flow, which could result from poor performance in our investment programs, including our participation as a principal in real estate investments;
•the ability of
•declines in lending activity of
•changes inU.S. and international law and regulatory environments (including relating to anti-corruption, anti-money laundering, trade sanctions, tariffs, currency controls and other trade control laws), particularly inAsia ,Africa ,Russia ,Eastern Europe and theMiddle East , due to the level of political instability in those regions;
•litigation and its financial and reputational risks to us;
•our exposure to liabilities in connection with real estate advisory and property management activities and our ability to procure sufficient insurance coverage on acceptable terms;
•our ability to retain and incentivize key personnel;
•our ability to manage organizational challenges associated with our size;
•liabilities under guarantees, or for construction defects, that we incur in our development services business;
•variations in historically customary seasonal patterns that cause our business not to perform as expected;
•our leverage under our debt instruments as well as the limited restrictions therein on our ability to incur additional debt, and the potential increased borrowing costs to us from a credit-ratings downgrade;
•our and our employees' ability to execute on, and adapt to, information technology strategies and trends;
•cybersecurity threats or other threats to our information technology networks, including the potential misappropriation of assets or sensitive information, corruption of data or operational disruption; •our ability to comply with laws and regulations related to our global operations, including real estate licensure, tax, labor and employment laws and regulations, as well as the anti-corruption laws and trade sanctions of theU.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;
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•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 2020 Annual Report , 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).
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 the SEC .
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 the SEC .
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