This Quarterly Report on Form 10-Q (Quarterly Report) forCBRE Group, Inc. for the three months endedSeptember 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 leasing, property sales, occupier outsourcing and valuations. 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 contractual revenue earned by providing multiple services to occupiers and investors, who 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 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. The outbreak of the novel coronavirus (COVID19) global pandemic in the first quarter of 2020 has created a tremendous amount of uncertainty, precipitated a global economic contraction and severely disrupted both business activity and 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 stem 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. 25 --------------------------------------------------------------------------------
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 ofSeptember 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
Historically, a significant portion of our revenue has been seasonal, which an investor should keep in mind when comparing our financial condition and results of operations on a quarter-by-quarter basis. In a typical year, 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. 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. 26 -------------------------------------------------------------------------------- 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, negative effects on our operating margins of difficult market conditions, such as we are currently experiencing with the pandemic, 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 typically increased 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. From 2010 to early 2020, 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, as many property owners and occupiers have put transactions on hold and withdrawn existing mandates, sharply reducing sales and leasing volumes. We expect to see this trend continue, as concerns about a COVID-19 resurgence are high across our major markets. The recovery of real estate markets around the world remained uncertain as ofOctober 2020 . COVID-19 is putting downward pressure on parts of our business and creating larger opportunities in other parts. The severe economic effects of the pandemic continued to weigh heavily on higher-margin property lease and sales revenue in the Advisory Services segment. However, global industrial leasing revenue, fueled by e-commerce, and project management activities for occupier clients were resilient during the third quarter. Also, during the third quarter, our Continental Europe business showed signs of recovery and benefited from our diverse service offering during the period. The performance of our global real estate services and investment businesses depends on an improvement in macroeconomic conditions, including 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 . During the nine months endedSeptember 30, 2020 , we acquired leading local facilities management firms inSpain andItaly , aU.S. firm that helps companies reduce telecommunications costs, a leading provider of workplace technology project management, consulting and procurement services to occupiers across theU.S. and a firm specializing in performing real estate valuations inSouth Korea . 27
-------------------------------------------------------------------------------- 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 ofSeptember 30, 2020 , we have accrued deferred consideration totaling$89.7 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 also 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 nine months endedSeptember 30, 2020 , approximately 43.1% 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 September 30, Nine Months Ended September 30, 2020 2019 2020 2019 United States dollar$ 3,162,235 56.0 %$ 3,442,570 58.1 %$ 9,632,592 56.9 %$ 9,851,477 58.7 % British pound sterling 736,927 13.1 % 758,084 12.8 % 2,188,822 12.9 % 2,003,671 11.9 % euro 645,583 11.4 % 600,414 10.1 % 1,836,311 10.9 % 1,716,278 10.2 % Canadian dollar 184,967 3.3 % 204,009 3.4 % 549,098 3.2 % 562,470 3.4 % Australian dollar 108,060 1.9 % 112,543 1.9 % 296,124 1.8 % 311,185 1.9 % Indian rupee 106,956 1.9 % 127,376 2.2 % 353,080 2.1 % 361,567 2.2 % Chinese yuan 84,985 1.5 % 84,464 1.4 % 250,816 1.5 % 232,113 1.4 % Swiss franc 80,083 1.4 % 44,335 0.7 % 234,171 1.4 % 131,477 0.8 % Japanese yen 74,706 1.3 % 79,151 1.3 % 236,999 1.4 % 222,184 1.3 % Singapore dollar 63,151 1.1 % 77,605 1.3 % 193,556 1.1 % 218,511 1.3 % Other currencies (1) 397,489 7.1 % 394,550 6.8 % 1,144,125 6.8 % 1,163,751 6.9 % Total revenue$ 5,645,142 100.0 %$ 5,925,101 100.0 %$ 16,915,694 100.0 %$ 16,774,684 100.0 % (1) Approximately 39 currencies comprise 7.1% and 6.8% of our revenues for the three and nine months endedSeptember 30, 2020 , respectively, and approximately 38 currencies comprise 6.8% and 6.9% of our revenues for the three and nine months endedSeptember 30, 2019 , respectively. 28
-------------------------------------------------------------------------------- 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 nine months endedSeptember 30, 2020 , the net impact would have been a decrease in pre-tax income of$1.1 million . Had the euro-to-U.S. dollar exchange rates been 10% higher during the nine months endedSeptember 30, 2020 , the net impact would have been an increase in pre-tax income of$6.0 million . These hypothetical calculations estimate the impact of translating results intoU.S. dollars and do not include an estimate of the impact that a 10% change in theU.S. dollar against other currencies would have had on our foreign operations. Due to the constantly changing currency exposures to which we are subject and the volatility of currency exchange rates, we cannot predict the effect of exchange rate fluctuations upon future operating results. In addition, fluctuations in currencies relative to theU.S. dollar may make it more difficult to perform period-to-period comparisons of our reported results of operations. Our international operations also are subject to, among other things, political instability and changing regulatory environments, which affect the currency markets and which as a result may adversely affect our future financial condition and results of operations. We routinely monitor these risks and related costs and evaluate the appropriate amount of oversight to allocate towards business activities in foreign countries where such risks and costs are particularly significant. 29
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Results of Operations
The following table sets forth items derived from our consolidated statements of
operations for the three and nine months ended
Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Revenue: Fee revenue: Global workplace solutions$ 837,698 14.8 %$ 793,213 13.4 %$ 2,400,595 14.2 %$ 2,249,433 13.4 % Property and advisory project management 312,381 5.5 % 305,354 5.1 % 919,448 5.4 % 905,843 5.4 % Valuation 139,019 2.5 % 154,861 2.6 % 418,616 2.5 % 442,238 2.6 % Loan servicing 58,013 1.0 % 56,623 0.9 % 171,743 1.0 % 152,381 0.9 % Advisory leasing 536,132 9.5 % 781,246 13.2 % 1,653,367 9.8 % 2,221,674 13.3 % Capital markets: Advisory sales 346,650 6.1 % 526,104 8.9 % 1,018,853 6.0 % 1,378,317 8.2 % Commercial mortgage origination 129,026 2.4 % 163,839 2.8 % 352,553 2.1 % 424,717 2.5 % Investment management 99,935 1.8 % 104,927 1.8 % 324,745 1.9 % 312,881 1.9 % Development services 69,677 1.2 % 24,286 0.4 % 217,948 1.3 % 101,188 0.6 % Total fee revenue 2,528,531 44.8 % 2,910,453 49.1 % 7,477,868 44.2 % 8,188,672 48.8 % Pass through costs also recognized as revenue 3,116,611 55.2 % 3,014,648 50.9 % 9,437,826 55.8 % 8,586,012 51.2 % Total revenue 5,645,142 100.0 % 5,925,101 100.0 % 16,915,694 100.0 % 16,774,684 100.0 % Costs and expenses: Cost of revenue 4,564,579 80.9 % 4,687,336 79.1 % 13,676,790 80.9 % 13,155,160 78.4 % Operating, administrative and other 794,227 14.1 % 809,584 13.7 % 2,355,099 13.9 % 2,479,857 14.8 % Depreciation and amortization 127,725 2.2 % 111,560 1.9 % 357,903 2.1 % 323,862 2.0 % Asset impairments - 0.0 % - 0.0 % 75,171 0.4 % 89,037 0.5 % Total costs and expenses 5,486,531 97.2 % 5,608,480 94.7 % 16,464,963 97.3 % 16,047,916 95.7 % Gain on disposition of real estate 52,797 0.9 % 9 0.0 % 75,132 0.4 % 19,266 0.1 % Operating income 211,408 3.7 % 316,630 5.3 % 525,863 3.1 % 746,034 4.4 % Equity income from unconsolidated subsidiaries 32,376 0.6 % 25,796 0.5 % 72,487 0.4 % 120,233 0.7 % Other income 7,947 0.1 % 941 0.0 % 12,974 0.1 % 26,163 0.2 % Interest expense, net of interest income 17,829 0.3 % 21,846 0.4 % 51,795 0.3 % 67,638 0.4 % Write-off of financing costs on extinguished debt - 0.0 % - 0.0 % - 0.0 % 2,608 0.0 % Income before provision for income taxes 233,902 4.1 % 321,521 5.4 % 559,529 3.3 % 822,184 4.9 % Provision for income taxes 49,062 0.8 % 63,468 1.0 % 119,047 0.7 % 169,867 1.0 % Net income 184,840 3.3 % 258,053 4.4 % 440,482 2.6 % 652,317 3.9 % Less: Net income attributable to non-controlling interests 708 0.0 % 1,454 0.1 % 2,258 0.0 % 7,578 0.1 % Net income attributable to CBRE Group, Inc.$ 184,132 3.3 %$ 256,599 4.3 %$ 438,224 2.6 %$ 644,739 3.8 % Adjusted EBITDA$ 441,764 7.8 %$ 454,630 7.7 %$ 1,139,419 6.7 %$ 1,373,154 8.2 % 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. 30 -------------------------------------------------------------------------------- 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 associated with transformation initiatives, 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, integration and other costs related to acquisitions, costs associated with workforce optimization efforts in response to the COVID-19 pandemic 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 Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Net income attributable to CBRE Group, Inc.$ 184,132 $ 256,599 $ 438,224 $ 644,739 Add: Depreciation and amortization 127,725 111,560 357,903 323,862 Asset impairments - - 75,171 89,037 Interest expense, net of interest income 17,829 21,846 51,795 67,638 Write-off of financing costs on extinguished debt - - - 2,608 Provision for income taxes 49,062 63,468 119,047 169,867 EBITDA 378,748 453,473 1,042,140 1,297,751 Adjustments: Costs associated with transformation initiatives (1) 55,374 - 55,374 - Carried interest incentive compensation expense (reversal) to align with the timing of associated revenue 3,767 (3,360 ) (11,517 ) 12,284 Impact of fair value adjustments to real estate assets acquired in the Telford Acquisition (purchase accounting) that were sold in period 2,289 - 9,289 - Costs incurred related to legal entity restructuring 1,061 - 4,995 - Integration and other costs related to acquisitions 525 4,517 1,544 13,554 Costs associated with workforce optimization efforts (2) - - 37,594 - Costs associated with our reorganization, including cost-savings initiatives (3) - - - 49,565 Adjusted EBITDA$ 441,764 $ 454,630 $ 1,139,419 $ 1,373,154
(1) Commencing during the quarter ended
implementation of certain transformation initiatives to enable the company
to reduce costs, streamline operations and support future growth. The
majority of expenses incurred were cash in nature and primarily related to
employee separation benefits, lease termination costs and professional fees.
See Note 15 for further discussion. (2) 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 the nine months endedSeptember 30, 2020 . 31
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(3) 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
We reported consolidated net income of$184.1 million for the three months endedSeptember 30, 2020 on revenue of$5.6 billion as compared to consolidated net income of$256.6 million on revenue of$5.9 billion for the three months endedSeptember 30, 2019 . Our revenue on a consolidated basis for the three months endedSeptember 30, 2020 decreased by$280.0 million , or 4.7%, as compared to the three months endedSeptember 30, 2019 . The revenue decrease reflects the impact of COVID-19 on our Advisory Services segment, which resulted in lower sales (down 34.1%) and leasing revenue (down 31.4%) as well as decreased commercial mortgage origination activity (down 21.2%). These declines were partially offset by higher revenue in our Global Workplace Solutions segment (up 4.7%) 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 31.3%) largely due to the Telford Acquisition. Foreign currency translation had a 0.6% positive impact on total revenue during the three months endedSeptember 30, 2020 , primarily driven by strength in the Australian dollar, British pound sterling and euro, partially offset by weakness in the Argentine peso, Brazilian real and Indian rupee. Our cost of revenue on a consolidated basis decreased by$122.8 million , or 2.6%, during the three months endedSeptember 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 0.6% negative impact on total cost of revenue during the three months endedSeptember 30, 2020 . These items were largely offset by higher costs associated with our Global Workplace Solutions segment. We also incurred$15.7 million of costs (primarily employee separation benefits) related to certain transformation initiatives implemented by the company in the third quarter of 2020. Cost of revenue as a percentage of revenue increased to 80.9% for the three months endedSeptember 30, 2020 from 79.1% for the three months endedSeptember 30, 2019 , 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$15.4 million , or 1.9%, for the three months endedSeptember 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 compensation expense for equity awards. In addition, we reduced general business operating expenses such as travel and entertainment, marketing and employee events to improve financial performance for the three months endedSeptember 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$39.7 million of costs, primarily related to employee separation benefits, lease termination costs and professional fees, as management commenced the implementation of certain transformation initiatives during the quarter endedSeptember 30, 2020 to enable the company to prospectively reduce costs, streamline operations and support future growth. Additionally, investments were 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. Foreign currency translation also had a 0.9% negative impact on total operating expenses during the three months endedSeptember 30, 2020 . Operating expenses as a percentage of revenue increased slightly to 14.1% for the three months endedSeptember 30, 2020 from 13.7% for the three months endedSeptember 30, 2019 , primarily attributable to our Advisory Services segment. Our depreciation and amortization expense on a consolidated basis increased by$16.2 million , or 14.5%, during the three months endedSeptember 30, 2020 as compared to the same period in 2019. This increase was primarily attributable to a rise in depreciation expense of$15.5 million during the three months endedSeptember 30, 2020 driven by technology-related capital expenditures. 32 -------------------------------------------------------------------------------- Our gain on disposition of real estate on a consolidated basis was$52.8 million for the three months endedSeptember 30, 2020 , which was a substantial 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$6.6 million , or 25.5%, during the three months endedSeptember 30, 2020 as compared to the same period in 2019, primarily driven by higher equity earnings in our investment management line of business within our Real Estate Investments segment, partially offset by lower equity earnings in our Advisory Services segment. Our consolidated interest expense, net of interest income, decreased by$4.0 million , or 18.4%, for the three months endedSeptember 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 associated with cash pooling arrangements. Our provision for income taxes on a consolidated basis was$49.1 million for the three months endedSeptember 30, 2020 as compared to$63.5 million for the three months endedSeptember 30, 2019 . The decrease of$14.4 million was primarily related to the corresponding decrease in our consolidated pre-tax book income. Our effective tax rate increased to 21.0% for the three months endedSeptember 30, 2020 from 19.7% for the three months endedSeptember 30, 2019 primarily due to a larger impact on a percentage basis of unfavorable permanent book tax differences in certain non-U.S. jurisdictions due to lower pre-tax book income.
Nine Months Ended
We reported consolidated net income of$438.2 million for the nine months endedSeptember 30, 2020 on revenue of$16.9 billion as compared to consolidated net income of$644.7 million on revenue of$16.8 billion for the nine months endedSeptember 30, 2019 . Our revenue on a consolidated basis for the nine months endedSeptember 30, 2020 increased by$141.0 million , or 0.8%, as compared to the nine months endedSeptember 30, 2019 . The revenue increase reflects higher revenue in our Global Workplace Solutions segment (up 10.2%) 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 31.1%) 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 sales (down 26.1%) and leasing revenue (down 25.6%) as well as decreased commercial mortgage origination activity (down 17.0%). Foreign currency translation had a 0.6% negative impact on total revenue during the nine months endedSeptember 30, 2020 , primarily driven by weakness in the Australian dollar, Argentine peso, Brazilian real and Indian rupee, partially offset by strength in the British pound sterling. Our cost of revenue on a consolidated basis increased by$521.6 million , or 4.0%, during the nine months endedSeptember 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. We also incurred$15.7 million of costs (primarily employee separation benefits) related to certain transformation initiatives implemented by the company in the third quarter of 2020. These items were partially offset by lower commission expense incurred during the nine months endedSeptember 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 sales and leasing revenue led to a corresponding decrease in commission expense. Foreign currency translation had a 0.6% positive impact on total cost of revenue during the nine months endedSeptember 30, 2020 . Cost of revenue as a percentage of revenue increased to 80.9% for the nine months endedSeptember 30, 2020 from 78.4% for the nine months endedSeptember 30, 2019 , 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. 33
-------------------------------------------------------------------------------- Our operating, administrative and other expenses on a consolidated basis decreased by$124.8 million , or 5.0%, for the nine months endedSeptember 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, compensation expense for equity awards 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 0.6% positive impact on total operating expenses during the nine months endedSeptember 30, 2020 . These items were partially offset by$39.7 million of costs, primarily related to employee separation benefits, lease termination costs and professional fees, as management commenced the implementation of certain transformation initiatives during the quarter endedSeptember 30, 2020 to enable the company to prospectively reduce costs, streamline operations and support future growth. During the nine months endedSeptember 30, 2020 , we also incurred higher incremental costs associated withTelford , which we acquired onOctober 1, 2019 (nine months of operating expenses incurred in 2020 versus$13.3 million of transaction costs incurred pre-acquisition during the nine months endedSeptember 30, 2019 ), rent expense for our new flexible space offering and higher bad debt expense as a result of COVID-19. 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 to 13.9% for the nine months endedSeptember 30, 2020 from 14.8% for the nine months endedSeptember 30, 2019 , reflecting the operating leverage inherent in our business. Our depreciation and amortization expense on a consolidated basis increased by$34.0 million , or 10.5%, during the nine months endedSeptember 30, 2020 as compared to the same period in 2019. This increase was primarily attributable to a rise in depreciation expense of$34.8 million during the nine months endedSeptember 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 nine months endedSeptember 30, 2020 and 2019, respectively. During the nine months endedSeptember 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 nine months endedSeptember 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$55.9 million , or 290.0%, during the nine months endedSeptember 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$47.7 million , or 39.7%, during the nine months endedSeptember 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$15.8 million , or 23.4%, for the nine months endedSeptember 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 associated with cash pooling arrangements. Our write-off of financing costs on extinguished debt on a consolidated basis was$2.6 million for the nine months endedSeptember 30, 2019 . These costs were incurred in connection with the refinancing of our credit agreement. 34 -------------------------------------------------------------------------------- Our provision for income taxes on a consolidated basis was$119.0 million for the nine months endedSeptember 30, 2020 as compared to$169.9 million for the nine months endedSeptember 30, 2019 . The decrease of approximately$50.9 million was primarily related to the corresponding decrease in consolidated pre-tax book income. Our effective tax rate increased to 21.3% for the nine months endedSeptember 30, 2020 from 20.7% for the nine months endedSeptember 30, 2019 primarily due to a larger impact on a percentage basis of unfavorable permanent book tax differences in certain non-U.S. jurisdictions due to lower pre-tax book income. OnMarch 27, 2020 , the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted inthe United States in response to the COVID19 pandemic. The CARES Act has not had, nor is it expected to have, a significant impact on our effective tax rate for 2020.
Segment Operations
We organize our operations around, and publicly report our financial results on, three global business segments: (1) Advisory Services; (2) Global Workplace Solutions; and (3) Real Estate Investments. For additional information on our segments, see Note 14 of the Notes to Consolidated Financial Statements (Unaudited) set forth in Item 1 of this Quarterly Report. 35 --------------------------------------------------------------------------------
Advisory Services
The following table summarizes our results of operations for our Advisory
Services operating segment for the three and nine months ended
Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Revenue: Fee revenue: Property and advisory project management$ 312,381 17.8 %$ 305,354 13.6 %$ 919,448 17.6 %$ 905,843 14.5 % Valuation 139,019 7.9 % 154,861 6.9 % 418,616 8.0 % 442,238 7.1 % Loan servicing 58,013 3.3 % 56,623 2.5 % 171,743 3.3 % 152,381 2.4 % Advisory leasing 536,132 30.6 % 781,246 34.9 % 1,653,367 31.6 % 2,221,674 35.5 % Capital markets: Advisory sales 346,650
19.8 % 526,104 23.5 % 1,018,853 19.4 % 1,378,317 22.0 % Commercial mortgage origination
129,026 7.3 % 163,839 7.3 % 352,553 6.7 % 424,717 6.8 % Total fee revenue 1,521,221
86.7 % 1,988,027 88.7 % 4,534,580 86.6 % 5,525,170 88.3 % Pass through costs also recognized as revenue
232,944 13.3 % 252,685 11.3 % 704,038 13.4 % 728,902 11.7 % Total revenue 1,754,165 100.0 % 2,240,712 100.0 % 5,238,618 100.0 % 6,254,072 100.0 % Costs and expenses: Cost of revenue 1,085,748
61.9 % 1,369,710 61.1 % 3,210,998 61.3 % 3,762,749 60.2 % Operating, administrative and other
480,185
27.4 % 530,919 23.7 % 1,450,929 27.7 % 1,572,233 25.1 % Depreciation and amortization
90,494 5.1 % 79,280 3.6 % 250,591 4.8 % 225,681 3.6 % Operating income 97,738 5.6 % 260,803 11.6 % 326,100 6.2 % 693,409 11.1 % Equity income from unconsolidated subsidiaries 1,183 0.1 % 3,616 0.1 % 769 0.0 % 7,427 0.1 % Other income 7,787 0.4 % 2,263 0.1 % 14,606 0.3 % 5,422 0.1 % Less: Net income attributable to non-controlling interests 155 0.0 % 480 0.0 % 611 0.0 % 470 0.0 % Add-back: Depreciation and amortization 90,494 5.1 % 79,280 3.6 % 250,591 4.8 % 225,681 3.6 % EBITDA 197,047 11.2 % 345,482 15.4 % 591,455 11.3 % 931,469 14.9 % Adjustments: Costs associated with transformation initiatives (1) 38,261 2.2 % - 0.0 % 38,261 0.7 % - 0.0 % Costs incurred related to legal entity restructuring 1,061 0.1 % - 0.0 % 4,995 0.1 % - 0.0 % Costs associated with workforce optimization efforts (2) - 0.0 % - 0.0 % 27,418 0.5 % - 0.0 % Costs associated with our reorganization, including cost-savings initiatives (3) - 0.0 % - 0.0 % - 0.0 % 11,088 0.2 % Integration and other costs related to acquisitions - 0.0 % - 0.0 % - 0.0 % 303 0.0 % Adjusted EBITDA and Adjusted EBITDA on revenue margin$ 236,369
13.5 %
15.5 % 17.4 % 14.6 % 17.1 %
(1) Commencing during the quarter ended
implementation of certain transformation initiatives to enable the company
to reduce costs, streamline operations and support future growth. The
majority of expenses incurred were cash in nature and primarily related to
employee separation benefits, lease termination costs and professional fees.
See Note 15 for further discussion. (2) 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$21.3 million was included in the "Operating, administrative, and other" line item in the accompanying consolidated statements of operations for the nine months endedSeptember 30, 2020 .
(3) Primarily represents severance costs related to headcount reductions in
connection with our reorganization announced in the third quarter of 2018
that became effectiveJanuary 1, 2019 . 36
--------------------------------------------------------------------------------
Three Months Ended
Revenue decreased by$486.5 million , or 21.7%, for the three months endedSeptember 30, 2020 as compared to the three months endedSeptember 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 0.4% positive impact on total revenue during the three months endedSeptember 30, 2020 , primarily driven by strength in the British pound sterling and euro, partially offset by weakness in the Brazilian real. Cost of revenue decreased by$284.0 million , or 20.7%, for the three months endedSeptember 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. These decreases were partially offset by$11.8 million of costs (primarily employee separation benefits) related to certain transformation initiatives implemented by the company in the third quarter of 2020. In addition, foreign currency translation had a 0.5% negative impact on total cost of revenue during the three months endedSeptember 30, 2020 . Cost of revenue as a percentage of revenue was relatively consistent at 61.9% for the three months endedSeptember 30, 2020 versus 61.1% for the same period in 2019. Operating, administrative and other expenses decreased by$50.7 million , or 9.6%, for the three months endedSeptember 30, 2020 as compared to the three months endedSeptember 30, 2019 . The negative impact of COVID-19 on our operating results led to corresponding decreases in bonus and compensation expense for equity awards. In addition, to improve financial performance, we reduced certain operating expenses such as travel and entertainment, marketing, employee events and costs for 3rd party consultants. A reduction to general business operating expenses such as timing for our E&O insurance premium expense for the three months endedSeptember 30, 2020 , also contributed to the decline. These items were partially offset by an increase in certain costs as a result of COVID-19, including higher bad debt expense. Foreign currency translation also had a 0.5% negative impact on total operating expenses during the three months endedSeptember 30, 2020 . We also incurred$26.5 million of costs, primarily related to employee separation benefits, lease termination costs and professional fees, as management commenced the implementation of certain transformation initiatives during the quarter endedSeptember 30, 2020 to enable the company to prospectively reduce costs, streamline operations and support future growth. 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 endedSeptember 30, 2020 , MSRs contributed to operating income$54.5 million of gains recognized in conjunction with the origination and sale of mortgage loans, offset by$34.0 million of amortization of related intangible assets. For the three months endedSeptember 30, 2019 , MSRs contributed to operating income$59.6 million of gains recognized in conjunction with the origination and sale of mortgage loans, offset by$32.8 million of amortization of related intangible assets.
Nine Months Ended
Revenue decreased by$1.0 billion , or 16.2%, for the nine months endedSeptember 30, 2020 as compared to the nine months endedSeptember 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 0.6% negative impact on total revenue during the nine months endedSeptember 30, 2020 , primarily driven by weakness in the Australian dollar, Brazilian real and Indian rupee. 37 -------------------------------------------------------------------------------- Cost of revenue decreased by$551.8 million , or 14.7%, for the nine months endedSeptember 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. Foreign currency translation also had a 0.6% positive impact on total cost of revenue during the nine months endedSeptember 30, 2020 . These decreases were partially offset by$11.8 million of costs (primarily employee separation benefits) related to certain transformation initiatives implemented by the company in the third quarter of 2020. Cost of revenue as a percentage of revenue increased slightly to 61.3% for the nine months endedSeptember 30, 2020 from 60.2% for the nine months endedSeptember 30, 2019 . Operating, administrative and other expenses decreased by$121.3 million , or 7.7%, for the nine months endedSeptember 30, 2020 as compared to the nine months endedSeptember 30, 2019 . The negative impact of COVID-19 on our operating results led to corresponding decreases in bonus and compensation expense for equity awards. 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 0.7% positive impact on total operating expenses during the nine months endedSeptember 30, 2020 . These items were partially offset by$26.5 million of costs, primarily related to employee separation benefits, lease termination costs and professional fees, as management commenced the implementation of certain transformation initiatives during the quarter endedSeptember 30, 2020 to enable the company to prospectively reduce costs, streamline operations and support future growth. We also incurred certain costs as a result of COVID-19, including higher bad debt expense. We also incurred$21.3 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 . For the nine months endedSeptember 30, 2020 , MSRs contributed to operating income$127.8 million of gains recognized in conjunction with the origination and sale of mortgage loans, offset by$96.4 million of amortization of related intangible assets. For the nine months endedSeptember 30, 2019 , MSRs contributed to operating income$142.1 million of gains recognized in conjunction with the origination and sale of mortgage loans, offset by$89.8 million of amortization of related intangible assets. 38 --------------------------------------------------------------------------------
Global Workplace Solutions
The following table summarizes our results of operations for our Global
Workplace Solutions operating segment for the three and nine months ended
Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Revenue: Fee revenue: Global workplace solutions$ 837,698 22.5 % $
793,213 22.3 %$ 2,400,595 21.6 %$ 2,249,433 22.3 % Total fee revenue 837,698 22.5 % 793,213 22.3 % 2,400,595 21.6 % 2,249,433 22.3 % Pass through costs also recognized as revenue 2,883,667 77.5 % 2,761,963 77.7 % 8,733,788 78.4 % 7,857,110 77.7 % Total revenue 3,721,365 100.0 % 3,555,176 100.0 % 11,134,383 100.0 % 10,106,543 100.0 % Costs and expenses: Cost of revenue 3,438,447 92.4 %
3,317,626 93.3 % 10,340,338 92.9 % 9,392,411 92.9 % Operating, administrative and other
159,830 4.3 %
139,919 3.9 % 461,155 4.1 % 451,629 4.5 % Depreciation and amortization
31,329 0.8 % 29,710 0.9 % 92,273 0.8 % 89,032 0.9 % Asset impairments - 0.0 % - 0.0 % 50,171 0.5 % - 0.0 % Operating income 91,759 2.5 %
67,921 1.9 % 190,446 1.7 % 173,471 1.7 % Equity income (loss) from unconsolidated
subsidiaries 279 0.0 % 307 0.0 % 606 0.0 % (851 ) 0.0 % Other income (loss) 43 0.0 % (2,737 ) (0.1 %) 155 0.0 % (1,231 ) 0.0 % Less: Net loss attributable to non-controlling interests - 0.0 % (8 ) 0.0 % - 0.0 % (271 ) 0.0 % Add-back: Depreciation and amortization 31,329 0.8 % 29,710 0.9 % 92,273 0.8 % 89,032 0.9 % Add-back: Asset impairments - 0.0 % - 0.0 % 50,171 0.5 % - 0.0 % EBITDA 123,410 3.3 % 95,209 2.7 % 333,651 3.0 % 260,692 2.6 % Adjustments: Costs associated with transformation initiatives (1) 17,113 0.5 % - 0.0 % 17,113 0.2 % - 0.0 % Costs associated with workforce optimization efforts (2) - 0.0 % - 0.0 % 5,004 0.0 % - 0.0 % Costs associated with our reorganization, including cost-savings initiatives (3) - 0.0 % - 0.0 % - 0.0 % 38,256 0.4 % Adjusted EBITDA and Adjusted EBITDA on revenue margin$ 140,523 3.8 % $
95,209 2.7 %
16.8 % 12.0 % 14.8 % 13.3 %
(1) Commencing during the quarter ended
implementation of certain transformation initiatives to enable the company
to reduce costs, streamline operations and support future growth. The
majority of expenses incurred were cash in nature and primarily related to
employee separation benefits, lease termination costs and professional fees.
See Note 15 for further discussion. (2) 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$3.8 million was included in the "Operating, administrative, and other" line item in the accompanying consolidated statements of operations for the nine months endedSeptember 30, 2020 .
(3) 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$166.2 million , or 4.7%, for the three months endedSeptember 30, 2020 as compared to the three months endedSeptember 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 0.7% positive impact on total revenue during the three months endedSeptember 30, 2020 , primarily driven by strength in the British pound sterling and euro, partially offset by weakness in the Argentine peso, Brazilian real and Indian rupee. 39
-------------------------------------------------------------------------------- Cost of revenue increased by$120.8 million , or 3.6%, for the three months endedSeptember 30, 2020 as compared to the same period in 2019, driven by the higher revenue. We also incurred$3.9 million of costs (primarily employee separation benefits) related to certain transformation initiatives implemented by the company in the third quarter of 2020. In addition, foreign currency translation had a 0.7% negative impact on total cost of revenue during the three months endedSeptember 30, 2020 . Cost of revenue as a percentage of revenue decreased slightly to 92.4% for the three months endedSeptember 30, 2020 from 93.3% for the same period in 2019. Operating, administrative and other expenses increased by$19.9 million , or 14.2%, for the three months endedSeptember 30, 2020 as compared to the three months endedSeptember 30, 2019 . This increase was largely attributable to$13.2 million of costs, primarily related to employee separation benefits, lease termination costs and professional fees, as management commenced the implementation of certain transformation initiatives during the quarter endedSeptember 30, 2020 to enable the company to prospectively reduce costs, streamline operations and support future growth. In addition, in the nine months endedSeptember 30, 2020 , investments were made in both people and technology associated with efforts to remediate material weaknesses in ourEurope ,Middle East andAfrica (EMEA) region. Foreign currency translation also had a 1.4% negative impact on total operating expenses during the three months endedSeptember 30, 2020 . These increases were partially offset by a reduction to certain operating expenses, such as travel and entertainment costs, in the third quarter of 2020 as a result of COVID-19.
Nine Months Ended
Revenue increased by$1.0 billion , or 10.2%, for the nine months endedSeptember 30, 2020 as compared to the nine months endedSeptember 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 0.6% negative impact on total revenue during the nine months endedSeptember 30, 2020 , primarily driven by weakness in the Argentine peso, Brazilian real and Indian rupee, partially offset by strength in the British pound sterling. Cost of revenue increased by$947.9 million , or 10.1%, for the nine months endedSeptember 30, 2020 as compared to the same period in 2019, driven by the higher revenue. We also incurred$3.9 million of costs (primarily employee separation benefits) related to certain transformation initiatives implemented by the company in the third quarter of 2020. Foreign currency translation had a 0.6% positive impact on total cost of revenue during the nine months endedSeptember 30, 2020 . Cost of revenue as a percentage of revenue was consistent at 92.9% for the nine months endedSeptember 30, 2020 andSeptember 30, 2019 . Operating, administrative and other expenses increased by$9.5 million , or 2.1%, for the nine months endedSeptember 30, 2020 as compared to the nine months endedSeptember 30, 2019 . This increase was largely attributable to$13.2 million of costs, primarily related to employee separation benefits, lease termination costs and professional fees, as management commenced the implementation of certain transformation initiatives during the quarter endedSeptember 30, 2020 to enable the company to prospectively reduce costs, streamline operations and support future growth. Certain costs were also incurred 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. During the nine months endedSeptember 30, 2020 , investments were also made in both people and technology associated with efforts to remediate material weaknesses in ourEurope ,Middle East andAfrica (EMEA) region. Lastly, 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 . These increases were partially offset by a reduction to certain operating expenses, such as travel and entertainment costs, during the nine months endedSeptember 30, 2020 as a result of COVID-19. Additionally, during the first half of 2019, we incurred$36.3 million of costs in connection with our reorganization, which did not recur in the current period. Foreign currency translation also had a 0.8% positive impact on total operating expenses during the nine months endedSeptember 30, 2020 . 40
--------------------------------------------------------------------------------
Real Estate Investments
The following table summarizes our results of operations for our Real Estate Investments operating segment for the three and nine months endedSeptember 30, 2020 and 2019 (dollars in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Revenue: Investment management$ 99,935 58.9 %$ 104,927 81.2 %$ 324,745 59.8 %$ 312,881 75.6 % Development services 69,677 41.1 % 24,286 18.8 % 217,948 40.2 % 101,188 24.4 % Total revenue 169,612 100.0 % 129,213 100.0 % 542,693 100.0 % 414,069 100.0 % Costs and expenses: Cost of revenue 40,384 23.8 % - 0.0 % 125,454 23.1 % - 0.0 %
Operating, administrative and other 154,212 90.9 % 138,746
107.4 % 443,015 81.6 % 455,995 110.1 % Depreciation and amortization
5,902 3.5 % 2,570
2.0 % 15,039 2.8 % 9,149 2.2 % Asset impairments
- 0.0 % -
0.0 % 25,000 4.6 % 89,037 21.5 % Gain on disposition of real estate 52,797 31.1 %
9
0.0 % 75,132 13.8 % 19,266 4.7 % Operating income (loss)
21,911 12.9 % (12,094
) (9.4 %) 9,317 1.7 % (120,846 ) (29.1 %) Equity income from unconsolidated subsidiaries
30,914 18.2 % 21,873
17.0 % 71,112 13.1 % 113,657 27.4 % Other income (loss)
117 0.1 % 1,415
1.1 % (1,787 ) (0.3 %) 21,972 5.3 % Less: Net income attributable to
non-controlling interests 553 0.3 % 982 0.8 % 1,647 0.3 % 7,379 1.8 % Add-back: Depreciation and amortization 5,902 3.5 % 2,570 2.0 % 15,039 2.8 % 9,149 2.2 % Add-back: Asset impairments - 0.0 % - 0.0 % 25,000 4.6 % 89,037 21.5 % EBITDA 58,291 34.4 % 12,782 9.9 % 117,034 21.6 % 105,590 25.5 % Adjustments: Carried interest incentive compensation expense (reversal) to align with the timing of associated revenue 3,767 2.2 % (3,360
) (2.6 %) (11,517 ) (2.2 %) 12,284 3.0 % Impact of fair value adjustments to real estate
assets acquired in theTelford Acquisition (purchase accounting) that were sold in period 2,289 1.3 % - 0.0 % 9,289 1.7 % - 0.0 % Integration and other costs related to acquisitions 525 0.3 % 4,517 3.5 % 1,544 0.3 % 13,251 3.1 % Costs associated with workforce optimization efforts (1) - 0.0 % - 0.0 % 5,172 1.0 % - 0.0 % Costs associated with our reorganization, including cost-savings initiatives (2) - 0.0 % - 0.0 % - 0.0 % 221 0.1 % Adjusted EBITDA$ 64,872 38.2 %$ 13,939 10.8 %$ 121,522 22.4 %$ 131,346 31.7 % (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 the nine
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$40.4 million , or 31.3%, for the three months endedSeptember 30, 2020 as compared to the three months endedSeptember 30, 2019 , primarily driven by the Telford Acquisition in our development services line of business as well as increased asset management fees. These increases were partially offset by lower carried interest revenue and decreases in incentive and development fees due to the impact of COVID-19. Foreign currency translation had a 2.2% positive impact on total revenue during the three months endedSeptember 30, 2020 , primarily driven by strength in the British pound sterling and euro.
Cost of revenue was
41 -------------------------------------------------------------------------------- Operating, administrative and other expenses increased by$15.5 million , or 11.1%, for the three months endedSeptember 30, 2020 as compared to the same period in 2019. This was primarily attributable to an increase in bonuses in our development services line of business given higher gains on property sales and increased equity income from unconsolidated subsidiaries. Foreign currency translation also had a 1.9% negative impact on total operating expenses during the three months endedSeptember 30, 2020 . These items were partially offset by a reduction to certain operating expenses, such as travel and entertainment costs, in the third quarter of 2020 as a result of COVID-19.
A roll forward of our AUM by product type for the three months ended
Funds Separate Accounts Securities Total Balance at June 30, 2020$ 41.9 $ 61.2$ 6.5 $ 109.6 Inflows 1.6 1.7 0.3 3.6 Outflows (0.2 ) (1.0 ) (0.3 ) (1.5 ) Market appreciation (depreciation) 1.5 1.0 0.3 2.8 Balance at September 30, 2020$ 44.8 $ 62.9$ 6.8 $ 114.5 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.
Nine Months Ended
Revenue increased by$128.6 million , or 31.1%, for the nine months endedSeptember 30, 2020 as compared to the nine months endedSeptember 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 0.1% negative impact on total revenue during the nine months endedSeptember 30, 2020 , primarily driven by weakness in the euro.
Cost of revenue was
42 -------------------------------------------------------------------------------- Operating, administrative and other expenses decreased by$13.0 million , or 2.8%, for the nine months endedSeptember 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 carried interest expense. We also reduced certain operating expenses, such as travel and entertainment costs, in the nine months endedSeptember 30, 2020 as a result of COVID-19. During the first half of 2019, we also incurred$5.2 million of costs in connection with our reorganization, which did not recur in the current period. These decreases were partially offset by higher incremental costs associated withTelford , which we acquired onOctober 1, 2019 (nine months of operating expenses incurred in 2020 versus$13.3 million of transaction costs incurred pre-acquisition during the nine months endedSeptember 30, 2019 ) and rent expense for our new flexible space offering for the nine months endedSeptember 30, 2020 . Foreign currency translation had a negligible impact on total operating expenses during the nine months endedSeptember 30, 2020 .
A roll forward of our AUM by product type for the nine months ended
Funds Separate Accounts Securities Total Balance at January 1, 2020$ 40.1 $ 64.9$ 7.9 $ 112.9 Inflows 4.4 5.8 1.1 11.3 Outflows (1.3 ) (6.4 ) (1.3 ) (9.0 ) Market appreciation (depreciation) 1.6 (1.4 ) (0.9 ) (0.7 ) Balance at September 30, 2020$ 44.8 $ 62.9$ 6.8 $ 114.5 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 nine months endedSeptember 30, 2020 , we incurred$161.9 million of capital expenditures, net of tenant concessions received, which includes approximately$71.7 million related to technology enablement. Due to the uncertainty caused by COVID19, we expect our 2020 net capital expenditures to be meaningfully lower than initially forecast in our 2019 Annual Report . As ofSeptember 30, 2020 , we had aggregate commitments of$84.0 million to fund future co-investments in our Real Estate Investments business,$10.4 million of which is expected to be funded in 2020. Additionally, as ofSeptember 30, 2020 , we are committed to fund$41.0 million of additional capital to unconsolidated subsidiaries within our Real Estate Investments business, which we may be required to fund at any time. As ofSeptember 30, 2020 , we had$2.8 billion of borrowings available under our revolving credit facility and$1.4 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. 43 -------------------------------------------------------------------------------- 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 price payments in future periods that are subject to the passage of time or achievement of certain performance metrics and other conditions. As ofSeptember 30, 2020 , we had accrued$89.7 million ($20.6 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. Lastly, 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 and the three months endedSeptember 30, 2020 . As ofOctober 29, 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$860.6 million for the nine months endedSeptember 30, 2020 , an increase of$685.9 million as compared to the nine months endedSeptember 30, 2019 . The company experienced an overall increase in net working capital of approximately$886.7 million , partially offset by lower net income of$211.8 million as compared to the same period in the previous year. The positive impact from net working capital was largely attributable to a decrease in accounts receivable due to a heightened focus on cash collections across our businesses, and lower corporate income tax payments, partially offset by a net decrease to accounts payable and accrued expenses, as well as compensation payable and accrued bonus.
Investing Activities
Net cash used in investing activities totaled$206.5 million for the nine months endedSeptember 30, 2020 , a decrease of$65.2 million as compared to the nine months endedSeptember 30, 2019 . This decrease was largely driven by lower capital expenditures, greater distributions received from unconsolidated subsidiaries as well as lower contributions to unconsolidated subsidiaries during the nine months endedSeptember 30, 2020 . This was partially offset by higher amounts paid for in-fill acquisitions during the nine months endedSeptember 30, 2020 . 44 --------------------------------------------------------------------------------
Financing Activities
Net cash used in financing activities totaled$111.3 million for the nine months endedSeptember 30, 2020 , an increase of$59.4 million as compared to the nine months endedSeptember 30, 2019 . The increase was primarily due to a decrease in net borrowings of$52.0 million from our revolving credit facility and$43.2 million in lower net contributions received from non-controlling interests for the nine months endedSeptember 30, 2020 as compared to the nine months endedSeptember 30, 2019 , partially offset by the impact of$44.1 million in less proceeds used for repurchase of common stock during the current period.
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 ofSeptember 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$125.0 million in aggregate principal amount of 5.25% senior notes dueMarch 15, 2025 at a price equal to 101.5% of their face value, plus interest deemed to have accrued fromSeptember 26, 2014 . The 5.25% senior notes are unsecured obligations ofCBRE Services , senior to all of its current and future subordinated indebtedness, but effectively subordinated to all of its current and future secured indebtedness. Interest accrues at a rate of 5.25% per year and is payable semi-annually in arrears onMarch 15 andSeptember 15 . 45 -------------------------------------------------------------------------------- The indentures governing our 4.875% senior notes and 5.25% senior notes contain restrictive covenants that, among other things, limit our ability to create or permit liens on assets securing indebtedness, enter into sale/leaseback transactions and enter into consolidations or mergers. In addition, these indentures require that the 4.875% senior notes and the 5.25% senior notes be jointly and severally guaranteed on a senior basis byCBRE Group, Inc. and each domestic subsidiary ofCBRE Services that guarantees the 2019 Credit Agreement. Our 2019 Credit Agreement, 4.875% senior notes and 5.25% senior notes are all fully and unconditionally and jointly and severally guaranteed by us and certain subsidiaries (see Exhibit 22.1 for a listing of all such subsidiary guarantors). Combined summarized financial information forCBRE Group, Inc. , (parent);CBRE Services (subsidiary issuer); and the guarantor subsidiaries (collectively referred to as the obligated group), which excludes investment balances in non-guarantor subsidiaries as well as income from consolidated non-guarantor subsidiaries, is as follows (dollars in thousands): September 30, December 31, 2020 2019 Balance Sheet Data: Current assets$ 3,129,883 $ 2,901,618 Noncurrent assets (1) 5,200,369 5,610,084 Total assets (1) 8,330,252 8,511,702 Current liabilities$ 2,915,488 $ 2,893,775 Noncurrent liabilities 2,215,211 2,201,269 Total liabilities 5,130,699 5,095,044 Nine Months Ended September 30, 2020 2019 Statement of Operations Data: Revenue$ 9,410,167 $ 9,626,821 Operating income 207,270 439,104 Net income 188,518 447,936
(1) Includes
non-guarantor subsidiaries. All intercompany balances and transactions
between
eliminated.
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 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
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.
46 --------------------------------------------------------------------------------
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 inAsia ,Africa ,Russia ,Eastern Europe and theMiddle 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;
47 --------------------------------------------------------------------------------
• 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;
• 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 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;
• the effect of implementation of new accounting rules and standards or
the impairment of our goodwill and intangible assets; and 48
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• 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 , our Quarterly Report on Form 10-Q for the quarter ended Mach 31, 2020 , and our Quarterly Report on Form 10-Q for the quarter ended June, 30, 2020 , in particular in Part II, Item 1A "Risk Factors", or as described in the other documents and reports we file with theSecurities 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 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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