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CBRE GROUP, INC. - Quarter Report: 2018 March (Form 10-Q)

 

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _______________ to _______________

Commission File Number 001 – 32205

 

CBRE GROUP, INC.

(Exact name of Registrant as specified in its charter)

 

 

Delaware

 

94-3391143

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification Number)

 

 

 

400 South Hope Street, 25th Floor
Los Angeles, California

 

90071

(Address of principal executive offices)

 

(Zip Code)

 

 

 

(213) 613-3333

 

Not applicable

(Registrant's telephone number, including area code)

 

(Former name, former address and
former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  .

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  .

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  .

The number of shares of Class A common stock outstanding at April 30, 2018 was 339,739,746.

 

 

 


 

FORM 10-Q

March 31, 2018

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

 

 

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements (Unaudited)

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets at March 31, 2018 and December 31, 2017

 

1

 

 

 

 

 

 

 

Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017

 

2

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income for the three months ended March 31, 2018 and 2017

 

3

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017

 

4

 

 

 

 

 

 

 

Consolidated Statement of Equity for the three months ended March 31, 2018

 

5

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

6

 

 

 

 

 

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

35

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

54

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

55

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

56

 

 

 

 

 

Item 1A.

 

Risk Factors

 

56

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

56

 

 

 

 

 

Item 6.

 

Exhibits

 

57

 

 

 

 

 

Signatures

 

58

 

 

 

 


 

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

CBRE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands, except share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

(As Adjusted)

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

642,854

 

 

$

751,774

 

Restricted cash

 

 

78,959

 

 

 

73,045

 

Receivables, less allowance for doubtful accounts of $52,960 and $46,789 at

   March 31, 2018 and December 31, 2017, respectively

 

 

3,121,520

 

 

 

3,112,289

 

Warehouse receivables

 

 

1,161,668

 

 

 

928,038

 

Prepaid expenses

 

 

223,746

 

 

 

215,336

 

Contract assets

 

 

200,167

 

 

 

273,053

 

Income taxes receivable

 

 

61,398

 

 

 

49,628

 

Other current assets

 

 

263,988

 

 

 

227,421

 

Total Current Assets

 

 

5,754,300

 

 

 

5,630,584

 

Property and equipment, net

 

 

633,666

 

 

 

617,739

 

Goodwill

 

 

3,278,631

 

 

 

3,254,740

 

Other intangible assets, net of accumulated amortization of $1,066,355 and $1,000,738 at

   March 31, 2018 and December 31, 2017, respectively

 

 

1,398,503

 

 

 

1,399,112

 

Investments in unconsolidated subsidiaries

 

 

228,950

 

 

 

238,001

 

Deferred tax assets, net

 

 

101,859

 

 

 

98,746

 

Other assets, net

 

 

511,533

 

 

 

479,474

 

Total Assets

 

$

11,907,442

 

 

$

11,718,396

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

1,505,134

 

 

$

1,573,672

 

Compensation and employee benefits payable

 

 

931,572

 

 

 

904,434

 

Accrued bonus and profit sharing

 

 

592,946

 

 

 

1,078,345

 

Contract liabilities

 

 

88,076

 

 

 

100,615

 

Income taxes payable

 

 

66,360

 

 

 

70,634

 

Short-term borrowings:

 

 

 

 

 

 

 

 

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

   Enterprises have committed to purchase)

 

 

1,148,005

 

 

 

910,766

 

Revolving credit facility

 

 

463,000

 

 

 

 

Other

 

 

16

 

 

 

16

 

Total short-term borrowings

 

 

1,611,021

 

 

 

910,782

 

Current maturities of long-term debt

 

 

51

 

 

 

8

 

Other current liabilities

 

 

74,495

 

 

 

74,454

 

Total Current Liabilities

 

 

4,869,655

 

 

 

4,712,944

 

Long-term debt, net of current maturities

 

 

1,758,188

 

 

 

1,999,603

 

Deferred tax liabilities, net

 

 

165,559

 

 

 

147,218

 

Non-current tax liabilities

 

 

144,758

 

 

 

140,792

 

Other liabilities

 

 

550,608

 

 

 

543,225

 

Total Liabilities

 

 

7,488,768

 

 

 

7,543,782

 

Commitments and contingencies

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

CBRE Group, Inc. Stockholders’ Equity:

 

 

 

 

 

 

 

 

Class A common stock; $0.01 par value; 525,000,000 shares authorized;

   339,737,454 and 339,459,138 shares issued and outstanding at March 31,

   2018 and December 31, 2017, respectively

 

 

3,397

 

 

 

3,395

 

Additional paid-in capital

 

 

1,246,251

 

 

 

1,220,508

 

Accumulated earnings

 

 

3,591,753

 

 

 

3,443,007

 

Accumulated other comprehensive loss

 

 

(483,770

)

 

 

(552,414

)

Total CBRE Group, Inc. Stockholders’ Equity

 

 

4,357,631

 

 

 

4,114,496

 

Non-controlling interests

 

 

61,043

 

 

 

60,118

 

Total Equity

 

 

4,418,674

 

 

 

4,174,614

 

Total Liabilities and Equity

 

$

11,907,442

 

 

$

11,718,396

 

The accompanying notes are an integral part of these consolidated financial statements.

1


 

CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except share data)

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

(As Adjusted)

 

Revenue

 

$

4,673,952

 

 

$

4,050,966

 

Costs and expenses:

 

 

 

 

 

 

 

 

Cost of services

 

 

3,619,961

 

 

 

3,146,477

 

Operating, administrative and other

 

 

732,235

 

 

 

606,626

 

Depreciation and amortization

 

 

108,165

 

 

 

94,037

 

Total costs and expenses

 

 

4,460,361

 

 

 

3,847,140

 

Gain on disposition of real estate

 

 

18

 

 

 

1,385

 

Operating income

 

 

213,609

 

 

 

205,211

 

Equity income from unconsolidated subsidiaries

 

 

40,179

 

 

 

15,018

 

Other (loss) income

 

 

(4,280

)

 

 

4,115

 

Interest income

 

 

3,621

 

 

 

2,411

 

Interest expense

 

 

28,858

 

 

 

34,010

 

Write-off of financing costs on extinguished debt

 

 

27,982

 

 

 

 

Income before provision for income taxes

 

 

196,289

 

 

 

192,745

 

Provision for income taxes

 

 

46,164

 

 

 

53,819

 

Net income

 

 

150,125

 

 

 

138,926

 

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

 

 

(163

)

 

 

1,906

 

Net income attributable to CBRE Group, Inc.

 

$

150,288

 

 

$

137,020

 

Basic income per share:

 

 

 

 

 

 

 

 

Net income per share attributable to CBRE Group, Inc.

 

$

0.44

 

 

$

0.41

 

Weighted average shares outstanding for basic income per

   share

 

 

338,890,098

 

 

 

336,907,836

 

Diluted income per share:

 

 

 

 

 

 

 

 

Net income per share attributable to CBRE Group, Inc.

 

$

0.44

 

 

$

0.40

 

Weighted average shares outstanding for diluted income per

   share

 

 

342,589,810

 

 

 

339,690,579

 

 

The accompanying notes are an integral part of these consolidated financial statements.

2


 

CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in thousands)

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

(As Adjusted)

 

Net income

 

$

150,125

 

 

$

138,926

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Foreign currency translation gain

 

 

66,032

 

 

 

51,188

 

Adoption of Accounting Standards Update 2016-01, net of tax

 

 

(3,964

)

 

 

 

Amounts reclassified from accumulated other comprehensive

   loss to interest expense, net of tax

 

 

755

 

 

 

1,508

 

Unrealized gains on interest rate swaps, net of tax

 

 

603

 

 

 

294

 

Unrealized holding (losses) gains on available for sale debt

   securities, net of tax

 

 

(505

)

 

 

923

 

Other, net

 

 

5,528

 

 

 

(6

)

Total other comprehensive income

 

 

68,449

 

 

 

53,907

 

Comprehensive income

 

 

218,574

 

 

 

192,833

 

Less: Comprehensive (loss) income attributable to non-controlling

   interests

 

 

(358

)

 

 

1,927

 

Comprehensive income attributable to CBRE Group, Inc.

 

$

218,932

 

 

$

190,906

 

 

The accompanying notes are an integral part of these consolidated financial statements.

3


 

CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

(As Adjusted)

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

150,125

 

 

$

138,926

 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

108,165

 

 

 

94,037

 

Amortization and write-off of financing costs on extinguished debt

 

 

29,733

 

 

 

2,439

 

Gains related to mortgage servicing rights, premiums on loan sales and sales of other assets

 

 

(45,078

)

 

 

(37,939

)

Net realized and unrealized losses (gains) from investments

 

 

4,280

 

 

 

(4,115

)

Equity income from unconsolidated subsidiaries

 

 

(40,179

)

 

 

(15,018

)

Provision for (recovery of) doubtful accounts

 

 

5,601

 

 

 

(928

)

Compensation expense for equity awards

 

 

29,570

 

 

 

15,411

 

Proceeds from sale of mortgage loans

 

 

2,910,181

 

 

 

3,259,597

 

Origination of mortgage loans

 

 

(3,132,008

)

 

 

(2,662,747

)

Increase (decrease) in warehouse lines of credit

 

 

237,239

 

 

 

(583,200

)

Distribution of earnings from unconsolidated subsidiaries

 

 

45,182

 

 

 

12,326

 

Tenant concessions received

 

 

12,634

 

 

 

3,776

 

Purchase of equity securities

 

 

(23,569

)

 

 

(22,986

)

Proceeds from sale of equity securities

 

 

20,001

 

 

 

15,270

 

Decrease in receivables, prepaid expenses and other assets (including contract assets)

 

 

71,161

 

 

 

141,737

 

Decrease in accounts payable and accrued expenses and other liabilities (including contract liabilities)

 

 

(146,221

)

 

 

(195,617

)

Decrease in compensation and employee benefits payable and accrued bonus and profit sharing

 

 

(483,031

)

 

 

(494,558

)

Increase in income taxes receivable/payable

 

 

4,668

 

 

 

13,193

 

Other operating activities, net

 

 

(8,412

)

 

 

(1,002

)

Net cash used in operating activities

 

 

(249,958

)

 

 

(321,398

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(46,724

)

 

 

(23,735

)

Acquisition of businesses, including net assets acquired, intangibles and goodwill, net of cash acquired

 

 

 

 

 

(12,861

)

Contributions to unconsolidated subsidiaries

 

 

(10,611

)

 

 

(14,567

)

Distributions from unconsolidated subsidiaries

 

 

15,216

 

 

 

6,875

 

Purchase of equity securities

 

 

(10,219

)

 

 

(3,375

)

Proceeds from sale of equity securities

 

 

4,367

 

 

 

3,415

 

Purchase of available for sale debt securities

 

 

(12,066

)

 

 

(3,914

)

Proceeds from sale of available for sale debt securities

 

 

2,264

 

 

 

3,805

 

Other investing activities, net

 

 

(6,439

)

 

 

1,080

 

Net cash used in investing activities

 

 

(64,212

)

 

 

(43,277

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from senior term loans

 

 

550,000

 

 

 

 

Proceeds from revolving credit facility

 

 

898,000

 

 

 

266,000

 

Repayment of revolving credit facility

 

 

(435,000

)

 

 

(146,000

)

Repayment of 5.00% senior notes (including premium)

 

 

(820,000

)

 

 

 

Proceeds from notes payable on real estate held for investment

 

 

49

 

 

 

 

Repayment of notes payable on real estate held for investment

 

 

(462

)

 

 

(435

)

Proceeds from notes payable on real estate held for sale and under development

 

 

775

 

 

 

1,711

 

Repayment of notes payable on real estate held for sale and under development

 

 

 

 

 

(2,744

)

Acquisition of businesses (cash paid for acquisitions more than three months after purchase date)

 

 

(8,049

)

 

 

(8,343

)

Units repurchased for payment of taxes on equity awards

 

 

(4,550

)

 

 

(1,900

)

Non-controlling interest contributions

 

 

1,595

 

 

 

1,574

 

Non-controlling interest distributions

 

 

(1,025

)

 

 

(744

)

Other financing activities, net

 

 

12

 

 

 

308

 

Net cash provided by financing activities

 

 

181,345

 

 

 

109,427

 

Effect of currency exchange rate changes on cash and cash equivalents and restricted cash

 

 

29,819

 

 

 

16,163

 

NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

 

 

(103,006

)

 

 

(239,085

)

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, AT BEGINNING OF PERIOD

 

 

824,819

 

 

 

831,412

 

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, AT END OF PERIOD

 

$

721,813

 

 

$

592,327

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest

 

$

48,994

 

 

$

52,027

 

Income taxes, net

 

$

37,219

 

 

$

37,333

 

 

The accompanying notes are an integral part of these consolidated financial statements.

4


 

CBRE GROUP, INC.

CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)

(Dollars in thousands)

  

 

 

CBRE Group, Inc. Shareholders

 

 

 

 

 

 

 

 

 

 

 

Class A

common

stock

 

 

Additional

paid-in

capital

 

 

Accumulated

earnings

 

 

Accumulated other

comprehensive loss

 

 

Non-

controlling

interests

 

 

Total

 

Balance at December 31, 2017 (As Adjusted)

 

$

3,395

 

 

$

1,220,508

 

 

$

3,443,007

 

 

$

(552,414

)

 

$

60,118

 

 

$

4,174,614

 

Net income (loss)

 

 

 

 

 

 

 

 

150,288

 

 

 

 

 

 

(163

)

 

 

150,125

 

Adoption of Accounting Standards Update

   2016-01, net of tax (see Note 3)

 

 

 

 

 

 

 

 

3,964

 

 

 

(3,964

)

 

 

 

 

 

 

Compensation expense for equity awards

 

 

 

 

 

29,570

 

 

 

 

 

 

 

 

 

 

 

 

29,570

 

Units repurchased for payment of taxes on

   equity awards

 

 

 

 

 

(4,550

)

 

 

 

 

 

 

 

 

 

 

 

(4,550

)

Foreign currency translation gain (loss)

 

 

 

 

 

 

 

 

 

 

 

66,227

 

 

 

(195

)

 

 

66,032

 

Amounts reclassified from accumulated other

   comprehensive loss to interest expense, net of

   tax

 

 

 

 

 

 

 

 

 

 

 

755

 

 

 

 

 

 

755

 

Unrealized gains on interest rate swaps, net of

   tax

 

 

 

 

 

 

 

 

 

 

 

603

 

 

 

 

 

 

603

 

Unrealized holding losses on available for sale

   debt securities, net of tax

 

 

 

 

 

 

 

 

 

 

 

(505

)

 

 

 

 

 

(505

)

Contributions from non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,595

 

 

 

1,595

 

Distributions to non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,025

)

 

 

(1,025

)

Other

 

 

2

 

 

 

723

 

 

 

(5,506

)

 

 

5,528

 

 

 

713

 

 

 

1,460

 

Balance at March 31, 2018

 

$

3,397

 

 

$

1,246,251

 

 

$

3,591,753

 

 

$

(483,770

)

 

$

61,043

 

 

$

4,418,674

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

5


 

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.

Basis of Presentation

Readers of this Quarterly Report on Form 10-Q (Quarterly Report) should refer to the audited financial statements and notes to consolidated financial statements of CBRE Group, Inc., a Delaware corporation (which may be referred to in these financial statements as “the company,” “we,” “us” and “our”), for the year ended December 31, 2017, which are included in our 2017 Annual Report on Form 10-K (2017 Annual Report), filed with the United States Securities and Exchange Commission (SEC) and also available on our website (www.cbre.com), since we have omitted from this Quarterly Report certain footnote disclosures which would substantially duplicate those contained in such audited financial statements.  You should also refer to Note 2, Significant Accounting Policies, in the notes to consolidated financial statements in our 2017 Annual Report for further discussion of our significant accounting policies and estimates.

The accompanying consolidated financial statements have been prepared in accordance with the rules applicable to quarterly reports on Form 10-Q and include all information and footnotes required for interim financial statement presentation, but do not include all disclosures required under accounting principles generally accepted in the United States (U.S.), or GAAP, for annual financial statements.  In our opinion, all adjustments (consisting of normal recurring adjustments, except as otherwise noted) considered necessary for a fair presentation have been included.  The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions about future events.  These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, and reported amounts of revenue and expenses.  Such estimates include the value of goodwill, intangibles and other long-lived assets, real estate assets, accounts receivable, contract assets, investments in unconsolidated subsidiaries and assumptions used in the calculation of income taxes, retirement and other post-employment benefits, among others.  These estimates and assumptions are based on our best judgment.  We evaluate our estimates and assumptions on an ongoing basis using historical experience and other factors, including consideration of the current economic environment, and adjust such estimates and assumptions when facts and circumstances dictate.  As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.  Changes in these estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.

Certain restatements have been made to the 2017 financial statements to conform with the 2018 presentation in connection with our adoption of new revenue recognition guidance (as further described in notes 2, 3 and 11). In addition, certain reclassifications have been made to the 2017 financial statements to conform with the 2018 presentation. Such reclassifications primarily relate to the adoption of Accounting Standards Update (ASU) 2016‑01, ASU 2016-15 and ASU 2016-18 as further described in Note 3.

The results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2018.

 

2. Significant Accounting Policies Update

 

Revenue Recognition

We account for revenue in accordance with Accounting Standards Codification (ASC) Topic 606, “Revenue from Contracts with Customers.” Topic 606 also includes Subtopic 340-40, “Other Assets and Deferred Costs – Contracts with Customers,” which requires deferral of incremental costs to obtain and fulfill a contract with a customer.  We adopted new revenue recognition guidance on January 1, 2018, using the full retrospective method (see Note 3).  Revenue is recognized when or as control of the promised services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services.

The following is a description of principal activities – separated by reportable segments – from which we generate revenue. For more detailed information about our reportable segments, see Notes 11 and 12.

6


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

The Americas, Europe, Middle East and Africa (EMEA), and Asia Pacific

The Americas segment is our largest segment of operations and provides a comprehensive range of services throughout the United States (U.S.), in the largest regions of Canada and in key markets in Latin America. The primary services offered consist of the following: property leasing, property sales, mortgage services, appraisal and valuation, occupier outsourcing and property management services.

Our EMEA and Asia Pacific segments generally provide services similar to the Americas business segment. The EMEA segment has operations primarily in Europe, while the Asia Pacific segment has operations in Asia, Australia and New Zealand.

Property Leasing and Property Sales

Through our Advisory & Transaction Services business line, we provide strategic advice and execution to owners, investors, and occupiers of real estate in connection with the leasing of office, industrial and retail space.  We also offer clients fully integrated property sales services under the CBRE Capital Markets brand. We are compensated for our services in the form of a commission and, in some instances may earn various forms of variable incentive consideration.  Our commission is paid upon the occurrence of certain contractual event(s) which may be contingent. For example, a portion of our leasing commission may be paid upon signing of the lease by the tenant, with the remaining paid upon occurrence of another future contingent event (e.g. payment of first month’s rent or tenant move-in). For sales, our commission is typically paid at the closing of the sale. We typically satisfy our performance obligation at a point in time when control is transferred; generally, at the time of the first contractual event where there is a present right to payment. We look to history, experience with a customer, and deal specific considerations to support our judgement that the second contingency (if applicable) will be met. Therefore, we typically accelerate the recognition of the revenue associated with the second contingent event.

In addition to our commission, we may recognize other forms of variable consideration which can include, but are not limited to, commissions subject to concession or claw back and volume based discounts or rebates. We assess variable consideration on a contract by contract basis, and when appropriate, recognize revenue based on our assessment of the outcome (using the most likely outcome approach or weighted probability) and historical results, if comparable and representative. We recognize variable consideration if it is deemed probable that there will not be significant reversal in the future.

Mortgage Originations and Loan Sales

Under the CBRE Capital Markets brand, we offer clients fully integrated commercial mortgage and structured financing services. Fees from services within our mortgage brokerage business that are in the scope of Topic 606 include fees earned for the brokering of commercial mortgage loans primarily through relationships established with investment banking firms, national and regional banks, credit companies, insurance companies and pension funds. We are compensated for our brokerage services via a fee paid upon successful placement of a commercial mortgage borrower with a lender who will provide financing. The fee earned is contingent upon the funding of the loan. We typically satisfy our performance obligation when control is transferred at the point in time of the funding of the loan.

We also earn fees from the origination and sale of commercial mortgage loans for which the company retains the servicing rights. These fees are governed by the “Fair Value Measurements and Disclosures” topic (Topic 820) and “Transfers and Servicing” topic (Topic 860) of the FASB ASC. Upon origination of a mortgage loan held for sale, the fair value of the mortgage servicing rights (MSR) 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). Upon sale, we record a servicing asset or liability based on the fair value of the retained MSR associated with the transferred loan. Subsequent to the initial recording, MSRs are amortized 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.

7


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

Appraisal and Valuation

We provide valuation services that include market-value appraisals, litigation support, discounted cash flow analyses, feasibility studies as well as consulting services such as property condition reports, hotel advisory and environmental consulting. We are compensated for valuation services in the form of a fee, which is payable on the occurrence of certain events (e.g. a portion on the delivery of a draft report with the remaining on the delivery of the final report). For consulting services, we may be paid based on the occurrence of time or event-based milestones (such as the delivery of draft reports). We typically satisfy our performance obligation as services are rendered over time.

Occupier Outsourcing Services

We provide a broad suite of services to occupiers of real estate, including facilities management, project management, transaction management and strategic consulting.  We report facilities and project management as well as strategic consulting activities in our occupier outsourcing revenue line and transaction management in our lease and sales revenue lines.

Facilities management involves the day-to-day management of client-occupied space and includes headquarter buildings, regional offices, administrative offices, data centers and other critical facilities, manufacturing and laboratory facilities, distribution facilities and retail space. Contracts for facilities management services are often structured so we are reimbursed for client-dedicated personnel costs and subcontracted vendor costs as well as associated overhead expenses plus a monthly fee, and, in some cases, annual incentives tied to agreed-upon performance targets, with any penalties typically capped. Facilities management services represent a series of distinct daily services rendered over time.

Project management services are often provided on a portfolio wide or programmatic basis. Revenues from project management services generally includes fixed management fees, variable fees, and incentive fees if certain agreed-upon performance targets are met. Revenues from project management may also include reimbursement of payroll and related costs for personnel providing the services and subcontracted vendor costs. Project management services represent a series of distinct daily services rendered over time.

The amount of revenue recognized is presented gross for any services provided by our employees, as we control them. This is evidenced by our obligation for their performance and our ability to direct and redirect their work, as well as negotiate the value of such services. The amount of revenue recognized related to the majority of facilities management contracts and certain project management arrangements is presented gross (with offsetting expense recorded in cost of services) for reimbursements of costs of third-party services because we control those services that are delivered to the client. In the instances when we do not control third-party services delivered to the client, we report revenues net of the third-party reimbursements.

In addition to our management fee, we receive various types of variable consideration which can include, but is not limited to; key performance indicator bonuses or penalties which may be linked to subcontractor performance, gross maximum price, glidepaths, savings guarantees, shared savings, or fixed fee structures. We assess variable consideration on a contract by contract basis, and when appropriate, recognize revenue based on our assessment of the outcome (using the most likely outcome approach or weighted probability) and historical results, if comparable and representative. Using management assessment and historical results and statistics, we accelerate revenue if it is deemed probable there will not be significant reversal in the future.

Property Management

We provide property management services on a contractual basis for owners of and investors in office, industrial and retail properties. These services include construction management, marketing, building engineering, accounting and financial services. We are compensated for our services through a monthly management fee earned based on either a specified percentage of the monthly rental income, rental receipts generated from the property under management or a fixed fee. We are also often reimbursed for our administrative and payroll costs directly attributable to the properties under management. Property management services represent a series of distinct daily services rendered over time. The amount of revenue recognized is presented gross for any services provided by our employees, as we control them. We generally do not control third-party services delivered to property management clients. As such, we report revenues net of third-party reimbursements.

8


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

Global Investment Management

Our Global Investment Management business segment provides investment management services to pension funds, insurance companies, sovereign wealth funds, foundations, endowments and other institutional investors seeking to generate returns and diversification through investment in real estate. We sponsor investment programs that span the risk/return spectrum in: North America, Europe, Asia and Australia.  We are typically compensated in the form of a base management fee, disposition fees, acquisition fees and incentive fees in the form of performance fees or carried interest based on fund type (open or closed ended, respectively). For the base management fee, we typically satisfy the performance obligation as service is rendered over time pursuant to the series guidance.  For acquisition and disposition services, we typically satisfy the performance obligation at a point in time (at acquisition or upon disposition). For contracts with contingent fees, including performance fees, incentive fees and carried interest, we assess variable consideration on a contract by contract basis, and when appropriate, recognize revenue based on our assessment of the outcome (using the most likely outcome approach or weighted probability) and historical results, if comparable and representative. Revenue associated with performance fees and carried interest are typically constrained due to volatility in the real estate market, a broad range of possible outcomes, and other factors in the market that are outside of our control.

Development Services

Our Development Services business segment consists of real estate development and investment activities primarily in the United States to users of and investors in commercial real estate, as well as for our own account. We pursue opportunistic, risk-mitigated development and investment in commercial real estate across a wide spectrum of property types, including: industrial, office and retail properties; healthcare facilities of all types (medical office buildings, hospitals and ambulatory surgery centers); and residential/mixed-use projects. We pursue development and investment activity on behalf of our clients on a fee basis with no, or limited, ownership interest in a property, in partnership with our clients through co-investment – either on an individual project basis or through programs with certain strategic capital partners or for our own account with 100% ownership. Development services represent a series of distinct daily services rendered over time. Fees are typically payable monthly over the service term or upon contractual defined events, like project milestones. In addition to development fee revenue, we receive various types of variable consideration which can include, but is not limited to, contingent lease-up bonuses, cost saving incentives, profit sharing on sales and at-risk fees. We assess variable consideration on a contract by contract basis, and when appropriate, recognize revenue based on our assessment of the outcome (using the most likely outcome approach or weighted probability) and historical results, if comparable and representative. We accelerate revenue if it is deemed probable there will not be significant reversal in the future.

Accounts Receivable and Allowance for Doubtful Accounts

We record accounts receivable for our unconditional rights to consideration arising from our performance under contracts with customers. The carrying value of such receivables, net of the allowance for doubtful accounts, represents their estimated net realizable value. We estimate our allowance for doubtful accounts for specific accounts receivable balances based on historical collection trends, the age of outstanding accounts receivables and existing economic conditions associated with the receivables. Past-due accounts receivable balances are written off when our internal collection efforts have been unsuccessful. As a practical expedient, we do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised service to a customer and when the customer pays for that service will be one year or less. We do not typically include extended payment terms in our contracts with customers.

Remaining Performance Obligations

Remaining performance obligations represent the aggregate transaction prices for contracts where our performance obligations have not yet been satisfied. As of March 31, 2018, the aggregate amount of transaction price allocated to remaining performance obligations in our property leasing business represented less than 2% of our total revenue. We apply the practical expedient related to remaining performance obligations that are part of a contract that has an original expected duration of one year or less and the practical expedient related to variable consideration from remaining performance obligations pursuant to the series guidance. All of our remaining performance obligations apply to one of these practical expedients.

9


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

Contract Assets and Contract Liabilities

Contract assets represent assets for revenue that has been recognized in advance of billing the customer and for which the right to bill is contingent upon something other than the passage of time. This is common for contingent portions of commissions in brokerage and incentive fees present in various businesses. Billing requirements vary by contract but are generally structured around fixed monthly fees, reimbursement of employee and other third-party costs, and the achievement or completion of certain contingent events.

When we receive consideration, or such consideration is unconditionally due, from a customer prior to transferring services to the customer under the terms of the services contract, we record deferred revenue, which represents a contract liability. Such deferred revenue typically results from milestone payments pertaining to future services not yet rendered. We recognize the contract liability as revenue once we have transferred control of service to the customer and all revenue recognition criteria are met.

Contract assets and contract liabilities are determined for each contract on a net basis. For contract assets, we classify the short-term portion as a separate line item within other current assets and the long-term portion within other assets, long-term in the accompanying consolidated balance sheets.  Contract liabilities are classified as a separate line item within other current liabilities in the accompanying consolidated balance sheets.

Contract Costs  

Contract costs primarily consist of upfront costs incurred to obtain or to fulfill a contract. These costs are typically found within our Occupier Outsourcing business line. Such costs relate to transition costs to fulfill contracts prior to services being rendered.  Capitalized transition costs are amortized based on the transfer of services to which the assets relate which can vary on a contract by contract basis, and are included in cost of services in the accompanying consolidated statement of operations. For contract costs that are recognized as assets, we periodically review for impairment.

Applying the contract cost practical expedient, we recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that we otherwise would have recognized is one year or less.

Income Taxes

On December 22, 2017, the Tax Cuts and Jobs Act (Tax Act) was signed into law making significant changes to the Internal Revenue Code, including, but not limited to: (i) a U.S. corporate tax rate decrease from 35% to 21%, effective for tax years beginning after December 31, 2017; (ii) the transition of U.S. international taxation from a worldwide tax system to a territorial system; and (iii) a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), “Income Tax Accounting Implications of the Tax Cuts and Jobs Act,” which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. In March 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-05, “Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118,” which added SEC guidance related to SAB 118. Our provision for income taxes for 2017 included a provisional amount related to our estimate of the U.S. federal and state tax impact of the transition tax and other components of the Tax Act. In the first quarter of 2018, we obtained additional information affecting the provisional amount initially recorded for the transition tax. As a result, we recorded an immaterial adjustment to the transition tax in the tax provision for the three months ended March 31, 2018. Provisional amounts that have been recorded are based upon our best estimate of the impact of the Tax Act in accordance with our understanding of the Tax Act and the related guidance available. Additional work is necessary on the provisional amount related to the transition tax, which includes performing a more detailed analysis of historic foreign earnings and tax pools and potential corresponding adjustments.

 

See Note 2 of the Notes to Consolidated Financial Statements set forth in Item 8 included in our Annual Report on Form 10-K for the year ended December 31, 2017 for a summary of our other significant accounting policies.

 

10


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

3.

New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

The FASB previously issued five ASUs related to revenue recognition (“new revenue recognition guidance”). The ASUs issued were: (1) in May 2014, ASU 2014‑09, “Revenue from Contracts with Customers (Topic 606);” (2) in March 2016, ASU 2016‑08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net);” (3) in April 2016, ASU 2016‑10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing;” (4) in May 2016, ASU 2016‑12, Revenue from Contracts with Customers (Topic 606): Narrow-scope Improvements and Practical Expedients;” and (5) in December 2016, ASU 2016‑20, “Technical Corrections and Improvements to Topic 606, Revenue From Contracts with Customers.” As mentioned in Note 2, we adopted the new revenue recognition guidance in the first quarter of 2018 using the full retrospective transition method. This resulted in a cumulative adjustment of $94.6 million to the accumulated earnings balance reflected in the accompanying consolidated balance sheets at December 31, 2017, including an $87.9 million impact of adoption effective January 1, 2016 as well as the impact from restatements of full year statements of operations for the years ended December 31, 2017 and 2016 resulting in adjustments of $5.6 million and $1.1 million, respectively. The impact of the application of the new revenue recognition guidance resulted in an acceleration of revenues that were based, in part, on future contingent events. For example, some leasing commission revenues in various countries where we operate were recognized earlier. Under former GAAP, a portion of these lease commission revenues was deferred until a future contingency was resolved (e.g., tenant move-in or payment of first month’s rent). Under the new revenue guidance, our performance obligation will be typically satisfied at lease signing and therefore the portion of the commission that is contingent on a future event has been recognized earlier if deemed probable that there will not be significant reversal in the future. The acceleration of the timing of revenue recognition also resulted in the acceleration of expense recognition relating to direct commissions payable to brokers. In addition, the acceleration of these revenues and expenses resulted in an increase in total assets and liabilities to reflect contract assets and accrued commissions payable.

We evaluated the impact of the updated principal versus agent guidance on our consolidated financial statements.  Under former GAAP, certain third-party costs associated with our facilities and project management contracts were accounted for on a net basis because the contracts include provisions such as “pay when paid” that mitigate payment risk with respect to services provided by third parties to our clients.  Under the new revenue recognition guidance, control of the services before transfer to the client is the primary factor in determining principal versus agent assessments.  Payment risk is no longer a determining factor under Topic 606.  We have determined that we control the services provided by third parties on behalf of certain of our facilities and project management clients.  Accordingly, under the new guidance, we are accounting for the cost of services provided by third parties and the related reimbursement revenue on a gross basis.  

11


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

The following table presents the effects of the adoption of the new revenue recognition guidance on our consolidated balance sheet as of December 31, 2017 (dollars in thousands):

 

 

 

 

 

 

 

Adoption of new

 

 

 

 

 

 

 

 

 

 

 

revenue recognition

 

 

 

 

 

 

 

As Reported

 

 

guidance

 

 

As Adjusted

 

Receivables

 

$

3,207,285

 

 

$

(94,996

)

 

$

3,112,289

 

Contract assets

 

$

 

 

$

273,053

 

 

$

273,053

 

Total current assets

 

$

5,452,527

 

 

$

178,057

 

 

$

5,630,584

 

Other assets, net

 

$

422,965

 

 

$

56,509

 

 

$

479,474

 

Total assets

 

$

11,483,830

 

 

$

234,566

 

 

$

11,718,396

 

Accounts payable and accrued expenses

 

$

1,674,287

 

 

$

(100,615

)

 

$

1,573,672

 

Compensation and employee benefits payable

 

$

803,504

 

 

$

100,930

 

 

$

904,434

 

Accrued bonus and profit sharing

 

$

1,072,976

 

 

$

5,369

 

 

$

1,078,345

 

Contract liabilities

 

$

 

 

$

100,615

 

 

$

100,615

 

Total current liabilities

 

$

4,606,645

 

 

$

106,299

 

 

$

4,712,944

 

Deferred tax liabilities, net

 

$

114,017

 

 

$

33,201

 

 

$

147,218

 

Total liabilities

 

$

7,404,282

 

 

$

139,500

 

 

$

7,543,782

 

Accumulated earnings

 

$

3,348,385

 

 

$

94,622

 

 

$

3,443,007

 

Accumulated other comprehensive loss

 

$

(552,858

)

 

$

444

 

 

$

(552,414

)

Total CBRE Group, Inc. stockholders' equity

 

$

4,019,430

 

 

$

95,066

 

 

$

4,114,496

 

Total liabilities and equity

 

$

11,483,830

 

 

$

234,566

 

 

$

11,718,396

 

 

The following table presents the effects of the adoption of the new revenue recognition guidance on our consolidated statements of operations for the three months ended March 31, 2017 (dollars in thousands, except share amounts):

 

 

 

 

 

 

 

Adoption of new

 

 

 

 

 

 

 

 

 

 

 

revenue recognition

 

 

 

 

 

 

 

As Reported

 

 

guidance

 

 

As Adjusted

 

Revenue

 

$

2,981,204

 

 

$

1,069,762

 

 

$

4,050,966

 

Cost of services

 

$

2,087,079

 

 

$

1,059,398

 

 

$

3,146,477

 

Operating, administrative and other

 

$

606,231

 

 

$

395

 

 

$

606,626

 

Operating income

 

$

195,242

 

 

$

9,969

 

 

$

205,211

 

Income before provision for income taxes

 

$

182,776

 

 

$

9,969

 

 

$

192,745

 

Provision for income taxes

 

$

51,273

 

 

$

2,546

 

 

$

53,819

 

Net income

 

$

131,503

 

 

$

7,423

 

 

$

138,926

 

Net income attributable to CBRE Group, Inc.

 

$

129,597

 

 

$

7,423

 

 

$

137,020

 

Basic income per share

 

$

0.38

 

 

$

0.03

 

 

$

0.41

 

Diluted income per share

 

$

0.38

 

 

$

0.02

 

 

$

0.40

 

 

See Note 2 for further discussion of the effects of the adoption of ASU 2014-09 on our significant accounting policies.

12


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

In January 2016, the FASB issued ASU 2016‑01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.”  This ASU 2016-01 states that entities will have to measure equity investments (except those accounted for under the equity method, those that result in consolidation of the investee and certain other investments) at fair value and recognize any changes in fair value in net income. Under the new guidance, entities will measure equity investments in the scope of the guidance at the end of each reporting period. We will no longer be able to classify equity investments as trading or available for sale, and will no longer recognize unrealized holding gains and losses on equity securities previously classified as available for sale in other comprehensive income (loss). However, the guidance for classifying and measuring investments in debt securities and loans is unchanged.  We adopted ASU 2016‑01 in the first quarter of 2018, which resulted in a cumulative adjustment to accumulated earnings of $4.0 million on January 1, 2018, representing the accumulated unrealized gains (net of tax) reported in accumulated other comprehensive loss for available for sale equity securities on December 31, 2017.

In August 2016, the FASB issued ASU 2016‑15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.”  This ASU addressed eight specific cash flow issues with the objective of reducing the existing diversity in practice. We adopted ASU 2016‑15 in the first quarter of 2018.  This resulted in changes to our consolidated statement of cash flows included in the accompanying consolidated financial statements, including:

 

An accounting policy election was made in the first quarter of 2018 to classify distributions from all of our equity method investments based on the “nature of distribution method”. Under this approach, we classify the distributions based on the nature of the activities of the investee that generated the distribution.  This resulted in $9.1 million of distributions from equity method investments being reclassified from cash flows from investing activities to cash flows from operating activities for the first quarter of 2017;

 

 

Purchase price payments made related to acquisitions more than three months after the acquisition closed are to be reflected as cash flows from financing activities (assuming they do not exceed the amount recorded in the initial measurement period). If we record an increase to the estimated purchase price liability post-measurement period, then such increase (i.e. amounts we pay out above and beyond initial estimate of liability) would get recorded as an operating cash flow.  This resulted in $8.3 million of cash paid for acquisitions being reclassified from cash used in investing activities to cash used in financing activities for the first quarter of 2017;

 

 

Payments for debt prepayment or debt extinguishment costs, including third-party costs, premiums paid, and other fees paid to lenders that are directly related to the debt prepayment or debt extinguishment are to be reflected as cash used in financing activities. During the three months ended March 31, 2018, we paid a $20.0 million premium in connection with the early redemption of our 5.00% senior notes (see Note 8). Such premium has been reflected in cash used in financing activities in the consolidated statement of cash flows for the three months ended March 31, 2018.

In October 2016, the FASB issued ASU 2016‑16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.”  This ASU requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. We adopted ASU 2016-16 in the first quarter of 2018 and the adoption did not have any impact on our consolidated financial statements and related disclosures.

In November 2016, the FASB issued ASU 2016‑18, “Statement of Cash Flows (Topic 230): Restricted Cash.”  This ASU requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash. We adopted ASU 2016-18 in the first quarter of 2018 and, as a result, restricted cash has been included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.

In February 2017, the FASB issued ASU 2017‑05, “Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.”  This ASU clarifies that a financial asset is within the scope of Subtopic 610-20 if it meets the definition of an in substance nonfinancial asset and also defines the term in substance nonfinancial asset. We adopted ASU 2017-05 in the first quarter of 2018 and the adoption did not have a material impact on our consolidated financial statements and related disclosures.

13


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

Recent Accounting Pronouncements Pending Adoption

In February 2016, the FASB issued ASU 2016‑02, “Leases (Topic 842).” This ASU requires lessees to recognize most leases on the balance sheet as liabilities, with corresponding right-of-use assets. For income statement recognition purposes, leases will be classified as either a finance or operating lease in a manner similar to the requirements under the current lease accounting literature, but without relying upon the bright-line tests. This ASU is effective for annual periods in fiscal years beginning after December 15, 2018 and mandates a modified retrospective transition method for all entities. We plan to adopt ASU 2016‑02 in the first quarter of 2019 and are currently continuing to evaluate the magnitude of its impact on our consolidated financial statements by reviewing our existing lease contracts and service contracts that may include embedded leases.

In June 2016, the FASB issued ASU 2016‑13, “Financial Instruments – Credit Losses (Topic 326):  Measurement of Credit Losses on Financial Instruments.”  This ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those years, with early adoption permitted. We are evaluating the effect that ASU 2016‑13 will have on our consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017‑04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.”  This ASU eliminates Step 2 from the goodwill impairment test. This ASU also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those years, with early adoption permitted. We are evaluating the effect that ASU 2017‑04 will have on our goodwill assessment process, but do not believe the adoption of ASU 2017‑04 will have a material impact on our consolidated financial statements and related disclosures.

In March 2017, the FASB issued ASU 2017‑08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities.”  This ASU requires the premium to be amortized to the earliest call date. This ASU does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. We are evaluating the effect that ASU 2017‑08 will have on our consolidated financial statements and related disclosures.

In August 2017, the FASB issued ASU 2017‑12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.”  This ASU refines and expands hedge accounting for both financial and commodity risks. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. We are evaluating the effect that ASU 2017‑12 will have on our consolidated financial statements and related disclosures.

In February 2018, the FASB issued ASU 2018‑02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” This ASU provides an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act (or portion thereof) is recorded. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. We are evaluating the effect that ASU 2018‑02 will have on our consolidated financial statements and related disclosures, but do not expect it to have a material impact.

 

14


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

4.

Warehouse Receivables & Warehouse Lines of Credit

 

Our wholly-owned subsidiary CBRE Capital Markets, Inc. (CBRE Capital Markets) is a Federal Home Loan Mortgage Corporation (Freddie Mac) approved Multifamily Program Plus Seller/Servicer and an approved Federal National Mortgage Association (Fannie Mae) Aggregation and Negotiated Transaction Seller/Servicer. In addition, CBRE Capital Markets’ wholly-owned subsidiary CBRE Multifamily Capital, Inc. (CBRE MCI) is an approved Fannie Mae Delegated Underwriting and Servicing (DUS) Seller/Servicer and CBRE Capital Markets’ wholly-owned subsidiary CBRE HMF, Inc. (CBRE HMF) is a U.S. Department of Housing and Urban Development (HUD) approved Non-Supervised Federal Housing Authority (FHA) Title II Mortgagee, an approved Multifamily Accelerated Processing (MAP) lender and an approved Government National Mortgage Association (Ginnie Mae) issuer of mortgage-backed securities (MBS).  Under these arrangements, before loans are originated through proceeds from warehouse lines of credit, we obtain either a contractual loan purchase commitment from either Freddie Mac or Fannie Mae or a confirmed forward trade commitment for the issuance and purchase of a Fannie Mae or Ginnie Mae MBS that will be secured by the loans. The warehouse lines of credit are generally repaid within a one-month period when Freddie Mac or Fannie Mae buys the loans or upon settlement of the Fannie Mae or Ginnie Mae MBS, while we retain the servicing rights. Loans are funded at the prevailing market rates. We elect the fair value option for all warehouse receivables. At March 31, 2018 and December 31, 2017, all of the warehouse receivables included in the accompanying consolidated balance sheets were either under commitment to be purchased by Freddie Mac or had confirmed forward trade commitments for the issuance and purchase of Fannie Mae or Ginnie Mae mortgage-backed securities that will be secured by the underlying loans.

 

A rollforward of our warehouse receivables is as follows (dollars in thousands):

 

Beginning balance at January 1, 2018

 

$

928,038

 

Origination of mortgage loans

 

 

3,132,008

 

Gains (premiums on loan sales)

 

 

13,308

 

Sale of mortgage loans

 

 

(2,896,873

)

Cash collections of premiums on loan sales

 

 

(13,308

)

Proceeds from sale of mortgage loans

 

 

(2,910,181

)

Net decrease in mortgage servicing rights included in warehouse receivables

 

 

(1,505

)

Ending balance at March 31, 2018

 

$

1,161,668

 

 

The following table is a summary of our warehouse lines of credit in place as of March 31, 2018 and December 31, 2017 (dollars in thousands):

 

 

 

 

 

 

 

March 31, 2018

 

 

December 31, 2017

 

 

 

 

 

 

 

Maximum

 

 

 

 

 

 

Maximum

 

 

 

 

 

Lender

 

Current

Maturity

 

Pricing

 

Facility

Size

 

 

Carrying

Value

 

 

Facility

Size

 

 

Carrying

Value

 

JP Morgan Chase Bank, N.A.

  (JP Morgan)

 

10/23/2018

 

daily one-month LIBOR plus 1.45%

 

$

1,000,000

 

 

$

815,266

 

 

$

1,000,000

 

 

$

192,180

 

JP Morgan

 

10/23/2018

 

daily one-month LIBOR plus 2.75%

 

 

25,000

 

 

 

2,578

 

 

 

25,000

 

 

 

5,800

 

Fannie Mae Multifamily As Soon  

  As Pooled Plus Agreement and  

  Multifamily As Soon As Pooled

  Sale Agreement (ASAP) Program

 

Cancelable

anytime

 

daily one-month LIBOR plus 1.35%, with a LIBOR floor of 0.35%

 

 

 

 

 

450,000

 

 

 

 

 

 

14,584

 

 

 

 

 

 

450,000

 

 

 

 

 

 

205,827

 

TD Bank, N.A. (TD Bank) (1)

 

6/30/2018

 

daily one-month LIBOR plus 1.25%

 

 

400,000

 

 

 

92,672

 

 

 

800,000

 

 

 

225,416

 

Bank of America, N.A. (BofA) (2)

 

6/5/2018

 

daily one-month LIBOR plus 1.40%

 

 

225,000

 

 

 

99,223

 

 

 

337,500

 

 

 

130,443

 

Capital One, N.A. (Capital One) (3)

 

7/27/2018

 

daily one-month LIBOR plus 1.40%

 

 

200,000

 

 

 

123,682

 

 

 

387,500

 

 

 

151,100

 

 

 

 

 

 

 

$

2,300,000

 

 

$

1,148,005

 

 

$

3,000,000

 

 

$

910,766

 

 

(1)

Line was temporarily increased from $400.0 million to $800.0 million to accommodate year-end volume. Maximum facility reverted back to $400.0 million on February 1, 2018.

15


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

(2)

Line was temporarily increased from $225.0 million to $337.5 million to accommodate year-end volume. Maximum facility reverted back to $225.0 million on January 27, 2018.  

(3)

Line was temporarily increased from $200.0 million to $387.5 million to accommodate year-end volume. Maximum facility reverted back to $200.0 million on January 9, 2018.

 

During the three months ended March 31, 2018, we had a maximum of $1.3 billion of warehouse lines of credit principal outstanding.

 

5.

Variable Interest Entities (VIEs)

We hold variable interests in certain VIEs in our Global Investment Management and Development Services segments which are not consolidated as it was determined that we are not the primary beneficiary. Our involvement with these entities is in the form of equity co-investments and fee arrangements.

As of March 31, 2018 and December 31, 2017, our maximum exposure to loss related to the VIEs which are not consolidated was as follows (dollars in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Investments in unconsolidated subsidiaries

 

$

26,550

 

 

$

26,273

 

Other current assets

 

 

3,501

 

 

 

3,401

 

Co-investment commitments

 

 

1,911

 

 

 

2,364

 

Maximum exposure to loss

 

$

31,962

 

 

$

32,038

 

 

6.

Fair Value Measurements

Topic 820 of the FASB Accounting Standards Codification defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.  Topic 820 also establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value.  This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs.  The three levels of inputs used to measure fair value are as follows:

 

Level 1 – Quoted prices in active markets for identical assets or liabilities.

 

Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.  This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

There were no significant transfers in or out of Level 1 and Level 2 during the three months ended March 31, 2018 and 2017.  There have been no significant changes to the valuation techniques and inputs used to develop the recurring fair value measurements from those disclosed in our 2017 Annual Report.

16


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

The following tables present the fair value of assets and liabilities measured at fair value on a recurring basis as of March 31, 2018 and December 31, 2017 (dollars in thousands):

 

 

 

As of March 31, 2018

 

 

 

Fair Value Measured and Recorded Using

 

 

 

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

$

4,520

 

 

$

 

 

$

 

 

$

4,520

 

Debt securities issued by U.S. federal

   agencies

 

 

 

 

 

7,652

 

 

 

 

 

 

7,652

 

Corporate debt securities

 

 

 

 

 

25,566

 

 

 

 

 

 

25,566

 

Asset-backed securities

 

 

 

 

 

3,206

 

 

 

 

 

 

3,206

 

Collateralized mortgage obligations

 

 

 

 

 

2,311

 

 

 

 

 

 

2,311

 

Total available for sale debt securities

 

 

4,520

 

 

 

38,735

 

 

 

 

 

 

43,255

 

Equity securities

 

 

136,871

 

 

 

 

 

 

 

 

 

136,871

 

Warehouse receivables

 

 

 

 

 

1,161,668

 

 

 

 

 

 

1,161,668

 

Total assets at fair value

 

$

141,391

 

 

$

1,200,403

 

 

$

 

 

$

1,341,794

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

 

 

$

3,095

 

 

$

 

 

$

3,095

 

Securities sold, not yet purchased

 

 

3,491

 

 

 

 

 

 

 

 

 

3,491

 

Total liabilities at fair value

 

$

3,491

 

 

$

3,095

 

 

$

 

 

$

6,586

 

 

 

 

 

As of December 31, 2017

 

 

 

Fair Value Measured and Recorded Using

 

 

 

 

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

$

3,820

 

 

$

 

 

$

 

 

$

3,820

 

Debt securities issued by U.S. federal

   agencies

 

 

 

 

 

4,901

 

 

 

 

 

 

4,901

 

Corporate debt securities

 

 

 

 

 

20,023

 

 

 

 

 

 

20,023

 

Asset-backed securities

 

 

 

 

 

3,577

 

 

 

 

 

 

3,577

 

Collateralized mortgage obligations

 

 

 

 

 

2,366

 

 

 

 

 

 

2,366

 

Total available for sale debt securities

 

 

3,820

 

 

 

30,867

 

 

 

 

 

 

34,687

 

Equity securities

 

 

133,595

 

 

 

 

 

 

 

 

 

133,595

 

Warehouse receivables

 

 

 

 

 

928,038

 

 

 

 

 

 

928,038

 

Total assets at fair value

 

$

137,415

 

 

$

958,905

 

 

$

 

 

$

1,096,320

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

 

 

$

4,766

 

 

$

 

 

$

4,766

 

Securities sold, not yet purchased

 

 

3,431

 

 

 

 

 

 

 

 

 

3,431

 

Foreign currency exchange forward contracts

 

 

 

 

 

55

 

 

 

 

 

 

55

 

Total liabilities at fair value

 

$

3,431

 

 

$

4,821

 

 

$

 

 

$

8,252

 

 

There were no significant non-recurring fair value measurements recorded during the three months ended March 31, 2018 and 2017.

17


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

FASB ASC Topic 825, “Financial Instruments” requires disclosure of fair value information about financial instruments, whether or not recognized in the accompanying consolidated balance sheets. Our financial instruments are as follows:

 

Cash and Cash Equivalents and Restricted Cash – These balances include cash and cash equivalents as well as restricted cash with maturities of less than three months.  The carrying amount approximates fair value due to the short-term maturities of these instruments.

 

Receivables, less Allowance for Doubtful Accounts – Due to their short-term nature, fair value approximates carrying value.

 

Warehouse Receivables – These balances are carried at fair value based on market prices at the balance sheet date.

 

Debt & Equity Securities – These investments are carried at their fair value.

 

Foreign Currency Exchange Forward Contracts – These assets and liabilities are carried at their fair value as calculated by using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative.

 

Securities Sold, not yet Purchased – These liabilities are carried at their fair value.

 

Short-Term Borrowings – The majority of this balance represents outstanding amounts under our warehouse lines of credit of our wholly-owned subsidiary, CBRE Capital Markets, and our revolving credit facility.  Due to the short-term nature and variable interest rates of these instruments, fair value approximates carrying value (see Notes 4 and 8).

 

Senior Term Loans – Based upon information from third-party banks (which falls within Level 2 of the fair value hierarchy), the estimated fair value of our senior term loans was approximately $750.5 million at March 31, 2018 and $199.9 million at December 31, 2017.  Their actual carrying value, net of unamortized debt issuance costs, totaled $743.5 million and $193.5 million at March 31, 2018 and December 31, 2017, respectively (see Note 8).

 

Interest Rate Swaps – These liabilities are carried at their fair value as calculated by using widely-accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative.

 

Senior Notes – Based on dealers’ quotes (which falls within Level 2 of the fair value hierarchy), the estimated fair values of our 4.875% senior notes and 5.25% senior notes were $633.0 million and $455.5 million, respectively, at March 31, 2018 and $645.7 million and $468.0 million, respectively, at December 31, 2017.  The actual carrying value of our 4.875% senior notes and 5.25% senior notes, net of unamortized debt issuance costs as well as unamortized discount or premium, if applicable, totaled $592.2 million and $422.5 million, respectively, at March 31, 2018 and $592.0 million and $422.4 million, respectively, at December 31, 2017. In March 2018, we redeemed our 5.00% senior notes in full (see Note 8). At December 31, 2017, the estimated fair value (based on dealers’ quotes) and actual carrying value (net of unamortized debt issuance costs) of our 5.00% senior notes was $823.8 million and $791.7 million, respectively.

7.

Investments in Unconsolidated Subsidiaries

Investments in unconsolidated subsidiaries are accounted for under the equity method of accounting.  Our investment ownership percentages in equity method investments vary, generally ranging up to 5.0% in our Global Investment Management segment, up to 10.0% in our Development Services segment, and up to 50.0% in our other business segments.

18


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

Combined condensed financial information for the entities accounted for using the equity method is as follows (dollars in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

Global Investment Management

 

 

 

 

 

 

 

 

Revenue

 

$

263,970

 

 

$

267,151

 

Operating income

 

$

71,156

 

 

$

15,478

 

Net income

 

$

34,337

 

 

$

4,090

 

Development Services

 

 

 

 

 

 

 

 

Revenue

 

$

22,676

 

 

$

21,526

 

Operating income

 

$

58,577

 

 

$

20,561

 

Net income

 

$

53,196

 

 

$

16,097

 

Other

 

 

 

 

 

 

 

 

Revenue

 

$

56,553

 

 

$

25,858

 

Operating income

 

$

6,475

 

 

$

2,179

 

Net income

 

$

6,463

 

 

$

2,148

 

Total

 

 

 

 

 

 

 

 

Revenue

 

$

343,199

 

 

$

314,535

 

Operating income

 

$

136,208

 

 

$

38,218

 

Net income

 

$

93,996

 

 

$

22,335

 

 

 

8.

Long-Term Debt and Short-Term Borrowings

Long-Term Debt

Long-term debt consists of the following (dollars in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Senior term loans, with interest ranging from

   2.51% to 2.91%, due quarterly through 2022

 

$

750,000

 

 

$

200,000

 

4.875% senior notes due in 2026, net of

   unamortized discount

 

 

596,366

 

 

 

596,273

 

5.25% senior notes due in 2025, net of unamortized

   premium

 

 

426,271

 

 

 

426,317

 

5.00% senior notes, redeemed in full in March 2018

 

 

 

 

 

800,000

 

Other

 

 

51

 

 

 

8

 

Total long-term debt

 

 

1,772,688

 

 

 

2,022,598

 

Less: current maturities of long-term debt

 

 

(51

)

 

 

(8

)

Less: unamortized debt issuance costs

 

 

(14,449

)

 

 

(22,987

)

Total long-term debt, net of current maturities

 

$

1,758,188

 

 

$

1,999,603

 

 

We maintain credit facilities with third-party lenders, which we use for a variety of purposes.  On October 31, 2017, CBRE Services, Inc. (CBRE Services), our wholly-owned subsidiary, entered into a Credit Agreement (the 2017 Credit Agreement), which refinanced and replaced our prior credit agreement (the 2015 Credit Agreement). We used $200.0 million of borrowings from the tranche A term loan facility and $83.0 million of revolving credit facility borrowings under the 2017 Credit Agreement, in addition to cash on hand, to repay all amounts outstanding under the 2015 Credit Agreement.

19


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

The 2017 Credit Agreement is a senior unsecured credit facility that is jointly and severally guaranteed by us and certain of our subsidiaries. As of March 31, 2018, the 2017 Credit Agreement provided for the following: (1) a $2.8 billion revolving credit facility, which includes the capacity to obtain letters of credit and swingline loans and matures on October 31, 2022 and (2) a $750.0 million delayed draw tranche A term loan facility, requiring  quarterly principal payments, which began on March 5, 2018 and continue through maturity on October 31, 2022, provided that in the event that our leverage ratio (as defined in the 2017 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, no such quarterly principal payment shall be required on such date.

 

On March 14, 2013, CBRE Services issued $800.0 million in aggregate principal amount of 5.00% senior notes due March 15, 2023. The 5.00% senior notes were unsecured obligations of CBRE Services, senior to all of its current and future subordinated indebtedness, but effectively subordinated to all of its current and future secured indebtedness. The 5.00% senior notes were jointly and severally guaranteed on a senior basis by us and each domestic subsidiary of CBRE Services that guaranteed our 2017 Credit Agreement. Interest accrued at a rate of 5.00% per year and was payable semi-annually in arrears on March 15 and September 15. The 5.00% senior notes were redeemable at our option, in whole or in part, on March 15, 2018 at a redemption price of 102.5% of the principal amount on that date. We redeemed these notes in full on March 15, 2018 and incurred charges of $28.0 million, including a premium of $20.0 million and the write-off of $8.0 million of unamortized deferred financing costs. We funded this redemption with $550.0 million of borrowings from our tranche A term loan facility and borrowings from our revolving credit facility under our 2017 Credit Agreement. The amount of the 5.00% senior notes, net of unamortized debt issuance costs, included in the accompanying consolidated balance sheets was $791.7 million at December 31, 2017.

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, our 2017 Credit Agreement also requires us to maintain a minimum coverage ratio of consolidated EBITDA (as defined in the 2017 Credit Agreement) to consolidated interest expense of 2.00x and a maximum leverage ratio of total debt less available cash to consolidated EBITDA (as defined in the 2017 Credit Agreement) of 4.25x (and in the case of the first four full fiscal quarters following consummation of a qualified acquisition (as defined in the 2017 Credit Agreement), 4.75x) as of the end of each fiscal quarter. On this basis, our coverage ratio of consolidated EBITDA to consolidated interest expense was 15.71x for the trailing twelve months ended March 31, 2018, and our leverage ratio of total debt less available cash to consolidated EBITDA was 0.91x as of March 31, 2018.

Short-Term Borrowings

Revolving Credit Facility

As of March 31, 2018, letters of credit totaling $2.0 million were outstanding under our revolving credit facility under our 2017 Credit Agreement.  These letters of credit, which reduce the amount we may borrow under the revolving credit facility, were primarily issued in the ordinary course of business.  As of March 31, 2018, $463.0 million was outstanding under the revolving credit facility. As of December 31, 2017, no amounts were outstanding under the revolving credit facility other than letters of credit totaling $2.0 million.  

Warehouse Lines of Credit

CBRE Capital Markets has warehouse lines of credit with third-party lenders for the purpose of funding mortgage loans that will be resold, and a funding arrangement with Fannie Mae for the purpose of selling a percentage of certain closed multifamily loans to Fannie Mae.  These warehouse lines are recourse only to CBRE Capital Markets and are secured by our related warehouse receivables.  See Note 4 for additional information.

 

9.

Commitments and Contingencies

We are a party to a number of pending or threatened lawsuits arising out of, or incident to, our ordinary course of business.  We believe that any losses in excess of the amounts accrued therefor as liabilities on our financial statements are unlikely to be significant, but litigation is inherently uncertain and there is the potential for a material adverse effect on our financial statements if one or more matters are resolved in a particular period in an amount materially in excess of what we anticipated.

20


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

In January 2008, CBRE MCI, a wholly-owned subsidiary of CBRE Capital Markets, entered into an agreement with Fannie Mae under Fannie Mae’s Delegated Underwriting and Servicing Lender Program (DUS Program), to provide financing for multifamily housing with five or more units. Under the DUS Program, CBRE MCI originates, underwrites, closes and services loans without prior approval by Fannie Mae, and typically, is subject to sharing up to one-third of any losses on loans originated under the DUS Program. CBRE MCI has funded loans subject to such loss sharing arrangements with unpaid principal balances of $20.4 billion at March 31, 2018. CBRE MCI, under its agreement with Fannie Mae, must post cash reserves or other acceptable collateral under formulas established by Fannie Mae to provide for sufficient capital in the event losses occur. As of both March 31, 2018 and December 31, 2017, CBRE MCI had a $58.0 million letter of credit under this reserve arrangement, and had recorded a liability of approximately $32.1 million and $32.9 million, respectively, for its loan loss guarantee obligation under such arrangement.  Fannie Mae’s recourse under the DUS Program is limited to the assets of CBRE MCI, which assets totaled approximately $632.8 million (including $397.6 million of warehouse receivables, a substantial majority of which are pledged against warehouse lines of credit and are therefore not available to Fannie Mae) at March 31, 2018.  

CBRE Capital Markets participates in Freddie Mac’s Multifamily Small Balance Loan (SBL) Program.  Under the SBL program, CBRE Capital Markets has certain repurchase and loss reimbursement obligations.  These obligations are for the period from origination of the loan to the securitization date.  CBRE Capital Markets must post a cash reserve or other acceptable collateral to provide for sufficient capital in the event the obligations are triggered.  As of both March 31, 2018 and December 31, 2017, CBRE Capital Markets had posted a $5.0 million letter of credit under this reserve arrangement.

We had outstanding letters of credit totaling $69.3 million as of March 31, 2018, excluding letters of credit for which we have outstanding liabilities already accrued on our consolidated balance sheet related to our subsidiaries’ outstanding reserves for claims under certain insurance programs as well as letters of credit related to operating leases.  The CBRE Capital Markets letters of credit totaling $63.0 million as of March 31, 2018 referred to in the preceding paragraphs represented the majority of the $69.3 million outstanding letters of credit as of such date.  The remaining letters of credit are primarily executed by us in the ordinary course of business and expire at varying dates through March 2019.

We had guarantees totaling $61.5 million as of March 31, 2018, excluding guarantees related to pension liabilities, consolidated indebtedness and other obligations for which we have outstanding liabilities already accrued on our consolidated balance sheet, and excluding guarantees related to operating leases. The $61.5 million primarily represents guarantees executed by us in the ordinary course of business, including various guarantees of management and vendor contracts in our operations overseas, which expire at the end of each of the respective agreements.

In addition, as of March 31, 2018, we had issued numerous non-recourse carveout, completion and budget guarantees relating to development projects for the benefit of third parties. These guarantees are commonplace in our industry and are made by us in the ordinary course of our Development Services business.  Non-recourse carveout guarantees generally require that our project-entity borrower not commit specified improper acts, with us potentially liable for all or a portion of such entity’s indebtedness or other damages suffered by the lender if those acts occur. Completion and budget guarantees generally require us to complete construction of the relevant project within a specified timeframe and/or within a specified budget, with us potentially being liable for costs to complete in excess of such timeframe or budget.  However, we generally use “guaranteed maximum price” contracts with reputable, bondable general contractors with respect to projects for which we provide these guarantees.  These contracts are intended to pass the risk to such contractors. While there can be no assurance, we do not expect to incur any material losses under these guarantees.

21


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

An important part of the strategy for our Global Investment Management business involves investing our capital in certain real estate investments with our clients. These co-investments generally total up to 2.0% of the equity in a particular fund. As of March 31, 2018, we had aggregate commitments of $35.1 million to fund future co-investments.

Additionally, an important part of our Development Services business strategy is to invest in unconsolidated real estate subsidiaries as a principal (in most cases co-investing with our clients). As of March 31, 2018, we had committed to fund $17.4 million of additional capital to these unconsolidated subsidiaries.

10.

Income Per Share Information

The calculations of basic and diluted income per share attributable to CBRE Group, Inc. shareholders are as follows (dollars in thousands, except share data): 

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

(As Adjusted) (1)

 

Basic Income Per Share

 

 

 

 

 

 

 

 

Net income attributable to CBRE Group, Inc.

   shareholders

 

$

150,288

 

 

$

137,020

 

Weighted average shares outstanding for basic

   income per share

 

 

338,890,098

 

 

 

336,907,836

 

Basic income per share attributable to CBRE

   Group, Inc. shareholders

 

$

0.44

 

 

$

0.41

 

Diluted Income Per Share

 

 

 

 

 

 

 

 

Net income attributable to CBRE Group, Inc.

   shareholders

 

$

150,288

 

 

$

137,020

 

Weighted average shares outstanding for basic

   income per share

 

 

338,890,098

 

 

 

336,907,836

 

Dilutive effect of contingently issuable shares

 

 

3,698,143

 

 

 

2,774,785

 

Dilutive effect of stock options

 

 

1,569

 

 

 

7,958

 

Weighted average shares outstanding for diluted

   income per share

 

 

342,589,810

 

 

 

339,690,579

 

Diluted income per share attributable to CBRE

   Group, Inc. shareholders

 

$

0.44

 

 

$

0.40

 

 

(1)

In the first quarter of 2018, we adopted new revenue recognition guidance. Certain restatements have been made to the 2017 financial statements to conform with the 2018 presentation. See Notes 2 and 3 for more information.

 

For the three months ended March 31, 2018 and 2017, 69,346 and 1,170,967, respectively, of contingently issuable shares were excluded from the computation of diluted income per share because their inclusion would have had an anti-dilutive effect.

 

22


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

11.

Revenue from Contracts with Customers

 

Disaggregated revenue

The following tables represent a disaggregation of revenue from contracts with customers for the three months ended March 31, 2018 and 2017 by type of service and/or region (dollars in thousands):

 

 

 

Three Months Ended March 31, 2018

 

 

 

Americas

 

 

EMEA

 

 

APAC

 

 

Global Investment Management

 

 

Development Services

 

 

Consolidated

 

Topic 606 Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Occupier outsourcing

 

$

1,794,147

 

 

$

893,817

 

 

$

266,115

 

 

$

 

 

$

 

 

$

2,954,079

 

Leasing

 

 

400,198

 

 

 

100,589

 

 

 

71,579

 

 

 

 

 

 

120

 

 

 

572,486

 

Sales

 

 

267,675

 

 

 

78,240

 

 

 

59,235

 

 

 

 

 

 

418

 

 

 

405,568

 

Property management

 

 

173,828

 

 

 

58,211

 

 

 

70,030

 

 

 

 

 

 

1,555

 

 

 

303,624

 

Valuation

 

 

59,066

 

 

 

41,063

 

 

 

26,089

 

 

 

 

 

 

 

 

 

126,218

 

Commercial mortgage origination (1)

 

 

21,827

 

 

 

1,223

 

 

 

51

 

 

 

 

 

 

 

 

 

23,101

 

Investment management

 

 

 

 

 

 

 

 

 

 

 

123,690

 

 

 

 

 

 

123,690

 

Development services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,232

 

 

 

21,232

 

Topic 606 Revenue

 

 

2,716,741

 

 

 

1,173,143

 

 

 

493,099

 

 

 

123,690

 

 

 

23,325

 

 

 

4,529,998

 

Out of Scope of Topic 606 Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial mortgage origination

 

 

84,193

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

84,193

 

Loan servicing

 

 

39,526

 

 

 

2,288

 

 

 

 

 

 

 

 

 

 

 

 

41,814

 

Other revenue

 

 

9,764

 

 

 

5,823

 

 

 

2,360

 

 

 

 

 

 

 

 

 

17,947

 

Total Out of Scope of Topic 606 Revenue

 

 

133,483

 

 

 

8,111

 

 

 

2,360

 

 

 

 

 

 

 

 

 

143,954

 

Total revenue

 

$

2,850,224

 

 

$

1,181,254

 

 

$

495,459

 

 

$

123,690

 

 

$

23,325

 

 

$

4,673,952

 

 

 

 

Three Months Ended March 31, 2017 (As Adjusted) (2)

 

 

 

Americas

 

 

EMEA

 

 

APAC

 

 

Global Investment Management

 

 

Development Services

 

 

Consolidated

 

Topic 606 Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Occupier outsourcing

 

$

1,664,354

 

 

$

666,694

 

 

$

206,425

 

 

$

 

 

$

 

 

$

2,537,473

 

Leasing

 

 

393,865

 

 

 

74,931

 

 

 

60,528

 

 

 

 

 

 

154

 

 

 

529,478

 

Sales

 

 

233,796

 

 

 

67,300

 

 

 

52,168

 

 

 

 

 

 

530

 

 

 

353,794

 

Property management

 

 

161,397

 

 

 

54,740

 

 

 

54,679

 

 

 

 

 

 

1,910

 

 

 

272,726

 

Valuation

 

 

57,181

 

 

 

32,509

 

 

 

26,765

 

 

 

 

 

 

 

 

 

116,455

 

Commercial mortgage origination (1)

 

 

19,818

 

 

 

1,820

 

 

 

539

 

 

 

 

 

 

 

 

 

22,177

 

Investment management

 

 

 

 

 

 

 

 

 

 

 

89,566

 

 

 

 

 

 

89,566

 

Development services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,623

 

 

 

11,623

 

Topic 606 Revenue

 

 

2,530,411

 

 

 

897,994

 

 

 

401,104

 

 

 

89,566

 

 

 

14,217

 

 

 

3,933,292

 

Out of Scope of Topic 606 Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial mortgage origination

 

 

62,547

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

62,547

 

Loan servicing

 

 

33,534

 

 

 

2,876

 

 

 

 

 

 

 

 

 

 

 

 

36,410

 

Other revenue

 

 

12,714

 

 

 

3,761

 

 

 

2,242

 

 

 

 

 

 

 

 

 

18,717

 

Total Out of Scope of Topic 606 Revenue

 

 

108,795

 

 

 

6,637

 

 

 

2,242

 

 

 

 

 

 

 

 

 

117,674

 

Total revenue

 

$

2,639,206

 

 

$

904,631

 

 

$

403,346

 

 

$

89,566

 

 

$

14,217

 

 

$

4,050,966

 

 

(1)

We earn fees for arranging financing for borrowers with third-party lender contacts. Such fees are in scope of Topic 606.

(2)

In the first quarter of 2018, we adopted new revenue recognition guidance. Certain restatements have been made to the 2017 financial statements to conform with the 2018 presentation. See Notes 2 and 3 for more information.

 

23


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

Contract Assets & Liabilities

We had contract assets totaling $257.0 million ($200.2 million of which was current) and $330.9 million ($273.1 million of which was current) as of March 31, 2018 and December 31, 2017, respectively. During the three months ended March 31, 2018, our contract assets decreased by $73.9 million, primarily due to contract assets moving to accounts receivable in our occupier outsourcing business (due to at-risk and incentive fees becoming billable per the contract terms) and in our leasing business (billing of commissions).

 

We had contract liabilities (all current) totaling $88.1 million and $100.6 million as of March 31, 2018 and December 31, 2017, respectively. During the three months ended March 31, 2018, we recognized revenue of $62.3 million that was included in the contract liability balance at December 31, 2017.

 

Contract Costs

 

Within our Occupier Outsourcing business line, we incur transition costs to fulfil contracts prior to services being rendered.  During the three months ended March 31, 2018 and 2017, we capitalized $9.6 million and $8.9 million, respectively, of transition costs.  During the three months ended March 31, 2018 and 2017, we recorded amortization of transition costs of $6.0 million and $3.6 million, respectively. No impairment loss in relation to the costs capitalized was recorded during either the three months ended March 31, 2018 or 2017.

 

12.

Segments

We report our operations through the following segments: (1) Americas; (2) Europe, Middle East and Africa (EMEA); (3) Asia Pacific; (4) Global Investment Management; and (5) Development Services.

Summarized financial information by segment is as follows (dollars in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

(As Adjusted) (1)

 

Revenue

 

 

 

 

 

 

 

 

Americas

 

$

2,850,224

 

 

$

2,639,206

 

EMEA

 

 

1,181,254

 

 

 

904,631

 

Asia Pacific

 

 

495,459

 

 

 

403,346

 

Global Investment Management

 

 

123,690

 

 

 

89,566

 

Development Services

 

 

23,325

 

 

 

14,217

 

Total revenue

 

$

4,673,952

 

 

$

4,050,966

 

Adjusted EBITDA

 

 

 

 

 

 

 

 

Americas

 

$

225,843

 

 

$

225,225

 

EMEA

 

 

36,946

 

 

 

35,455

 

Asia Pacific

 

 

33,880

 

 

 

23,276

 

Global Investment Management

 

 

29,692

 

 

 

25,859

 

Development Services

 

 

21,446

 

 

 

3,362

 

Total Adjusted EBITDA

 

$

347,807

 

 

$

313,177

 

 

 

(1)

In the first quarter of 2018, we adopted new revenue recognition guidance. Certain restatements have been made to the 2017 financial statements to conform with the 2018 presentation. See Notes 2 and 3 for more information.

 

24


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

Adjusted EBITDA is the measure reported to the chief operating decision maker for purposes of making decisions about allocating resources to each segment and assessing performance of each segment.  EBITDA represents earnings before net interest expense, write-off of financing costs on extinguished debt, income taxes, depreciation and amortization.  Amounts shown for adjusted EBITDA further remove (from EBITDA) the impact of certain cash and non-cash charges related to acquisitions and certain carried interest incentive compensation reversal to align with the timing of associated revenue.

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

(As Adjusted) (1)

 

Net income attributable to CBRE Group, Inc.

 

$

150,288

 

 

$

137,020

 

Add:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

108,165

 

 

 

94,037

 

Interest expense

 

 

28,858

 

 

 

34,010

 

Write-off of financing costs on extinguished debt

 

 

27,982

 

 

 

 

Provision for income taxes

 

 

46,164

 

 

 

53,819

 

Less:

 

 

 

 

 

 

 

 

Interest income

 

 

3,621

 

 

 

2,411

 

EBITDA

 

 

357,836

 

 

 

316,475

 

Adjustments:

 

 

 

 

 

 

 

 

Carried interest incentive compensation reversal to

   align with the timing of associated revenue

 

 

(10,029

)

 

 

(15,241

)

Integration and other costs related to acquisitions

 

 

 

 

 

11,943

 

Adjusted EBITDA

 

$

347,807

 

 

$

313,177

 

 

Geographic Information

Revenue in the table below is allocated based upon the country in which services are performed (dollars in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

(As Adjusted) (1)

 

Revenue

 

 

 

 

 

 

 

 

United States

 

$

2,674,217

 

 

$

2,472,406

 

United Kingdom

 

 

580,516

 

 

 

472,155

 

All other countries

 

 

1,419,219

 

 

 

1,106,405

 

Total revenue

 

$

4,673,952

 

 

$

4,050,966

 

 

 

(1)

In the first quarter of 2018, we adopted new revenue recognition guidance. Certain restatements have been made to the 2017 financial statements to conform with the 2018 presentation. See Notes 2 and 3 for more information.

 

 


25


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

13.

Guarantor and Nonguarantor Financial Statements

The following condensed consolidating financial information includes condensed consolidating balance sheets as of March 31, 2018 and December 31, 2017 and condensed consolidating statements of operations, condensed consolidating statements of comprehensive income and condensed consolidating statements of cash flows for the three months ended March 31, 2018 and 2017 of:

 

CBRE Group, Inc., as the parent; CBRE Services, as the subsidiary issuer; the guarantor subsidiaries; the nonguarantor subsidiaries;

 

Elimination entries necessary to consolidate CBRE Group, Inc., as the parent, with CBRE Services and its guarantor and nonguarantor subsidiaries; and

 

CBRE Group, Inc., on a consolidated basis.

Investments in consolidated subsidiaries are presented using the equity method of accounting.  The principal elimination entries eliminate investments in consolidated subsidiaries and intercompany balances and transactions.

26


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF MARCH 31, 2018

(Dollars in thousands)

 

 

 

 

 

 

 

CBRE

 

 

Guarantor

 

 

Nonguarantor

 

 

 

 

 

 

Consolidated

 

 

 

Parent

 

 

Services

 

 

Subsidiaries

 

 

Subsidiaries

 

 

Eliminations

 

 

Total

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

7

 

 

$

8,122

 

 

$

71,960

 

 

$

562,765

 

 

$

 

 

$

642,854

 

Restricted cash

 

 

 

 

 

 

 

 

2,066

 

 

 

76,893

 

 

 

 

 

 

78,959

 

Receivables, net

 

 

 

 

 

 

 

 

1,076,642

 

 

 

2,044,878

 

 

 

 

 

 

3,121,520

 

Warehouse receivables (1)

 

 

 

 

 

 

 

 

744,919

 

 

 

416,749

 

 

 

 

 

 

1,161,668

 

Prepaid expenses

 

 

 

 

 

 

 

 

70,409

 

 

 

153,337

 

 

 

 

 

 

223,746

 

Contract assets

 

 

 

 

 

 

 

 

193,787

 

 

 

6,380

 

 

 

 

 

 

200,167

 

Income taxes receivable

 

 

1,419

 

 

 

5,886

 

 

 

8,666

 

 

 

52,733

 

 

 

(7,306

)

 

 

61,398

 

Other current assets

 

 

 

 

 

 

 

 

74,310

 

 

 

189,678

 

 

 

 

 

 

263,988

 

Total Current Assets

 

 

1,426

 

 

 

14,008

 

 

 

2,242,759

 

 

 

3,503,413

 

 

 

(7,306

)

 

 

5,754,300

 

Property and equipment, net

 

 

 

 

 

 

 

 

437,939

 

 

 

195,727

 

 

 

 

 

 

633,666

 

Goodwill

 

 

 

 

 

 

 

 

1,759,043

 

 

 

1,519,588

 

 

 

 

 

 

3,278,631

 

Other intangible assets, net

 

 

 

 

 

 

 

 

745,391

 

 

 

653,112

 

 

 

 

 

 

1,398,503

 

Investments in unconsolidated subsidiaries

 

 

 

 

 

 

 

 

184,486

 

 

 

44,464

 

 

 

 

 

 

228,950

 

Investments in consolidated subsidiaries

 

 

5,799,674

 

 

 

5,310,057

 

 

 

3,191,735

 

 

 

 

 

 

(14,301,466

)

 

 

 

Intercompany loan receivable

 

 

 

 

 

2,684,781

 

 

 

700,000

 

 

 

 

 

 

(3,384,781

)

 

 

 

Deferred tax assets, net

 

 

 

 

 

 

 

 

5,300

 

 

 

97,515

 

 

 

(956

)

 

 

101,859

 

Other assets, net

 

 

 

 

 

21,630

 

 

 

378,406

 

 

 

111,497

 

 

 

 

 

 

511,533

 

Total Assets

 

$

5,801,100

 

 

$

8,030,476

 

 

$

9,645,059

 

 

$

6,125,316

 

 

$

(17,694,509

)

 

$

11,907,442

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

 

 

$

5,893

 

 

$

402,645

 

 

$

1,096,596

 

 

$

 

 

$

1,505,134

 

Compensation and employee benefits payable

 

 

 

 

 

626

 

 

 

483,114

 

 

 

447,832

 

 

 

 

 

 

931,572

 

Accrued bonus and profit sharing

 

 

 

 

 

 

 

 

239,231

 

 

 

353,715

 

 

 

 

 

 

592,946

 

Contract liabilities

 

 

 

 

 

 

 

 

31,020

 

 

 

57,056

 

 

 

 

 

 

88,076

 

Income taxes payable

 

 

 

 

 

 

 

 

41,569

 

 

 

32,097

 

 

 

(7,306

)

 

 

66,360

 

Short-term borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warehouse lines of credit (which fund

   loans that U.S. Government Sponsored

   Enterprises have committed to purchase) (1)

 

 

 

 

 

 

 

 

736,961

 

 

 

411,044

 

 

 

 

 

 

1,148,005

 

Revolving credit facility

 

 

 

 

 

463,000

 

 

 

 

 

 

 

 

 

 

 

 

463,000

 

Other

 

 

 

 

 

 

 

 

16

 

 

 

 

 

 

 

 

 

16

 

Total short-term borrowings

 

 

 

 

 

463,000

 

 

 

736,977

 

 

 

411,044

 

 

 

 

 

 

1,611,021

 

Current maturities of long-term debt

 

 

 

 

 

 

 

 

 

 

 

51

 

 

 

 

 

 

51

 

Other current liabilities

 

 

 

 

 

 

 

 

48,786

 

 

 

25,709

 

 

 

 

 

 

74,495

 

Total Current Liabilities

 

 

 

 

 

469,519

 

 

 

1,983,342

 

 

 

2,424,100

 

 

 

(7,306

)

 

 

4,869,655

 

Long-Term Debt, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, net

 

 

 

 

 

1,758,188

 

 

 

 

 

 

 

 

 

 

 

 

1,758,188

 

Intercompany loan payable

 

 

1,443,469

 

 

 

 

 

 

1,872,718

 

 

 

68,594

 

 

 

(3,384,781

)

 

 

 

Total Long-Term Debt, net

 

 

1,443,469

 

 

 

1,758,188

 

 

 

1,872,718

 

 

 

68,594

 

 

 

(3,384,781

)

 

 

1,758,188

 

Deferred tax liabilities, net

 

 

 

 

 

 

 

 

41,181

 

 

 

125,334

 

 

 

(956

)

 

 

165,559

 

Non-current tax liabilities

 

 

 

 

 

 

 

 

137,899

 

 

 

6,859

 

 

 

 

 

 

144,758

 

Other liabilities

 

 

 

 

 

3,095

 

 

 

299,862

 

 

 

247,651

 

 

 

 

 

 

550,608

 

Total Liabilities

 

 

1,443,469

 

 

 

2,230,802

 

 

 

4,335,002

 

 

 

2,872,538

 

 

 

(3,393,043

)

 

 

7,488,768

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CBRE Group, Inc. Stockholders’ Equity

 

 

4,357,631

 

 

 

5,799,674

 

 

 

5,310,057

 

 

 

3,191,735

 

 

 

(14,301,466

)

 

 

4,357,631

 

Non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

61,043

 

 

 

 

 

 

61,043

 

Total Equity

 

 

4,357,631

 

 

 

5,799,674

 

 

 

5,310,057

 

 

 

3,252,778

 

 

 

(14,301,466

)

 

 

4,418,674

 

Total Liabilities and Equity

 

$

5,801,100

 

 

$

8,030,476

 

 

$

9,645,059

 

 

$

6,125,316

 

 

$

(17,694,509

)

 

$

11,907,442

 

 

(1)

Although CBRE Capital Markets is included among our domestic subsidiaries that jointly and severally guarantee our 4.875% senior notes, 5.25% senior notes and our 2017 Credit Agreement, a substantial majority of warehouse receivables funded under JP Morgan, Capital One, BofA, TD Bank and Fannie Mae ASAP lines of credit are pledged to JP Morgan, Capital One, BofA, TD Bank and Fannie Mae.

27


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2017 (AS ADJUSTED) (1)

(Dollars in thousands)

 

 

 

 

 

 

 

CBRE

 

 

Guarantor

 

 

Nonguarantor

 

 

 

 

 

 

Consolidated

 

 

 

Parent

 

 

Services

 

 

Subsidiaries

 

 

Subsidiaries

 

 

Eliminations

 

 

Total

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

7

 

 

$

15,604

 

 

$

112,048

 

 

$

624,115

 

 

$

 

 

$

751,774

 

Restricted cash

 

 

 

 

 

 

 

 

2,095

 

 

 

70,950

 

 

 

 

 

 

73,045

 

Receivables, net

 

 

 

 

 

 

 

 

990,923

 

 

 

2,121,366

 

 

 

 

 

 

3,112,289

 

Warehouse receivables (2)

 

 

 

 

 

 

 

 

479,628

 

 

 

448,410

 

 

 

 

 

 

928,038

 

Prepaid expenses

 

 

 

 

 

 

 

 

81,106

 

 

 

134,230

 

 

 

 

 

 

215,336

 

Contract assets

 

 

 

 

 

 

 

 

263,756

 

 

 

9,297

 

 

 

 

 

 

273,053

 

Income taxes receivable

 

 

2,162

 

 

 

 

 

 

 

 

 

49,628

 

 

 

(2,162

)

 

 

49,628

 

Other current assets

 

 

 

 

 

 

 

 

50,556

 

 

 

176,865

 

 

 

 

 

 

227,421

 

Total Current Assets

 

 

2,169

 

 

 

15,604

 

 

 

1,980,112

 

 

 

3,634,861

 

 

 

(2,162

)

 

 

5,630,584

 

Property and equipment, net

 

 

 

 

 

 

 

 

431,755

 

 

 

185,984

 

 

 

 

 

 

617,739

 

Goodwill

 

 

 

 

 

 

 

 

1,774,529

 

 

 

1,480,211

 

 

 

 

 

 

3,254,740

 

Other intangible assets, net

 

 

 

 

 

 

 

 

751,930

 

 

 

647,182

 

 

 

 

 

 

1,399,112

 

Investments in unconsolidated subsidiaries

 

 

 

 

 

 

 

 

197,395

 

 

 

40,606

 

 

 

 

 

 

238,001

 

Investments in consolidated subsidiaries

 

 

5,551,781

 

 

 

4,930,109

 

 

 

3,066,303

 

 

 

 

 

 

(13,548,193

)

 

 

 

Intercompany loan receivable

 

 

 

 

 

2,621,330

 

 

 

700,000

 

 

 

 

 

 

(3,321,330

)

 

 

 

Deferred tax assets, net

 

 

 

 

 

 

 

 

5,300

 

 

 

98,746

 

 

 

(5,300

)

 

 

98,746

 

Other assets, net

 

 

 

 

 

22,810

 

 

 

348,191

 

 

 

108,473

 

 

 

 

 

 

479,474

 

Total Assets

 

$

5,553,950

 

 

$

7,589,853

 

 

$

9,255,515

 

 

$

6,196,063

 

 

$

(16,876,985

)

 

$

11,718,396

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

 

 

$

29,708

 

 

$

404,367

 

 

$

1,139,597

 

 

$

 

 

$

1,573,672

 

Compensation and employee benefits payable

 

 

 

 

 

626

 

 

 

479,306

 

 

 

424,502

 

 

 

 

 

 

904,434

 

Accrued bonus and profit sharing

 

 

 

 

 

 

 

 

590,534

 

 

 

487,811

 

 

 

 

 

 

1,078,345

 

Contract liabilities

 

 

 

 

 

 

 

 

42,994

 

 

 

57,621

 

 

 

 

 

 

100,615

 

Income taxes payable

 

 

 

 

 

3,314

 

 

 

13,704

 

 

 

55,778

 

 

 

(2,162

)

 

 

70,634

 

Short-term borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warehouse lines of credit (which fund

   loans that U.S. Government Sponsored

   Enterprises have committed to purchase) (2)

 

 

 

 

 

 

 

 

474,195

 

 

 

436,571

 

 

 

 

 

 

910,766

 

Other

 

 

 

 

 

 

 

 

16

 

 

 

 

 

 

 

 

 

16

 

Total short-term borrowings

 

 

 

 

 

 

 

 

474,211

 

 

 

436,571

 

 

 

 

 

 

910,782

 

Current maturities of long-term debt

 

 

 

 

 

 

 

 

 

 

 

8

 

 

 

 

 

 

8

 

Other current liabilities

 

 

 

 

 

55

 

 

 

56,260

 

 

 

18,139

 

 

 

 

 

 

74,454

 

Total Current Liabilities

 

 

 

 

 

33,703

 

 

 

2,061,376

 

 

 

2,620,027

 

 

 

(2,162

)

 

 

4,712,944

 

Long-Term Debt, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, net

 

 

 

 

 

1,999,603

 

 

 

 

 

 

 

 

 

 

 

 

1,999,603

 

Intercompany loan payable

 

 

1,439,454

 

 

 

 

 

 

1,798,550

 

 

 

83,326

 

 

 

(3,321,330

)

 

 

 

Total Long-Term Debt, net

 

 

1,439,454

 

 

 

1,999,603

 

 

 

1,798,550

 

 

 

83,326

 

 

 

(3,321,330

)

 

 

1,999,603

 

Deferred tax liabilities, net

 

 

 

 

 

 

 

 

29,785

 

 

 

122,733

 

 

 

(5,300

)

 

 

147,218

 

Non-current tax liabilities

 

 

 

 

 

 

 

 

135,396

 

 

 

5,396

 

 

 

 

 

 

140,792

 

Other liabilities

 

 

 

 

 

4,766

 

 

 

300,299

 

 

 

238,160

 

 

 

 

 

 

543,225

 

Total Liabilities

 

 

1,439,454

 

 

 

2,038,072

 

 

 

4,325,406

 

 

 

3,069,642

 

 

 

(3,328,792

)

 

 

7,543,782

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CBRE Group, Inc. Stockholders’ Equity

 

 

4,114,496

 

 

 

5,551,781

 

 

 

4,930,109

 

 

 

3,066,303

 

 

 

(13,548,193

)

 

 

4,114,496

 

Non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

60,118

 

 

 

 

 

 

60,118

 

Total Equity

 

 

4,114,496

 

 

 

5,551,781

 

 

 

4,930,109

 

 

 

3,126,421

 

 

 

(13,548,193

)

 

 

4,174,614

 

Total Liabilities and Equity

 

$

5,553,950

 

 

$

7,589,853

 

 

$

9,255,515

 

 

$

6,196,063

 

 

$

(16,876,985

)

 

$

11,718,396

 

 

(1)

In the first quarter of 2018, we adopted new revenue recognition guidance.  Certain restatements have been made to the 2017 financial statements to conform with the 2018 presentation.  See Notes 2 and 3 for more information.

(2)

Although CBRE Capital Markets is included among our domestic subsidiaries that jointly and severally guarantee our 5.00% senior notes, 4.875% senior notes, 5.25% senior notes and our 2017 Credit Agreement, a substantial majority of warehouse receivables funded under TD Bank, Fannie Mae ASAP, JP Morgan, Capital One and BofA lines of credit are pledged to TD Bank, Fannie Mae, JP Morgan, Capital One and BofA, and accordingly, are not included as collateral for these notes or our other outstanding debt.

28


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2018

(Dollars in thousands)

 

 

 

 

 

 

 

CBRE

 

 

Guarantor

 

 

Nonguarantor

 

 

 

 

 

 

Consolidated

 

 

 

Parent

 

 

Services

 

 

Subsidiaries

 

 

Subsidiaries

 

 

Eliminations

 

 

Total

 

Revenue

 

$

 

 

$

 

 

$

2,617,694

 

 

$

2,056,258

 

 

$

 

 

$

4,673,952

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services

 

 

 

 

 

 

 

 

2,057,613

 

 

 

1,562,348

 

 

 

 

 

 

3,619,961

 

Operating, administrative and other

 

 

5,704

 

 

 

485

 

 

 

372,345

 

 

 

353,701

 

 

 

 

 

 

732,235

 

Depreciation and amortization

 

 

 

 

 

 

 

 

64,309

 

 

 

43,856

 

 

 

 

 

 

108,165

 

Total costs and expenses

 

 

5,704

 

 

 

485

 

 

 

2,494,267

 

 

 

1,959,905

 

 

 

 

 

 

4,460,361

 

Gain on disposition of real estate

 

 

 

 

 

 

 

 

18

 

 

 

 

 

 

 

 

 

18

 

Operating (loss) income

 

 

(5,704

)

 

 

(485

)

 

 

123,445

 

 

 

96,353

 

 

 

 

 

 

213,609

 

Equity income from unconsolidated

   subsidiaries

 

 

 

 

 

 

 

 

39,292

 

 

 

887

 

 

 

 

 

 

40,179

 

Other income (loss)

 

 

 

 

 

 

 

 

1,710

 

 

 

(5,990

)

 

 

 

 

 

(4,280

)

Interest income

 

 

 

 

 

32,686

 

 

 

2,452

 

 

 

1,169

 

 

 

(32,686

)

 

 

3,621

 

Interest expense

 

 

 

 

 

27,875

 

 

 

27,031

 

 

 

6,638

 

 

 

(32,686

)

 

 

28,858

 

Write-off of financing costs on

   extinguished debt

 

 

 

 

 

27,982

 

 

 

 

 

 

 

 

 

 

 

 

27,982

 

Royalty and management service

   expense (income)

 

 

 

 

 

 

 

 

698

 

 

 

(698

)

 

 

 

 

 

 

Income from consolidated subsidiaries

 

 

154,573

 

 

 

172,343

 

 

 

60,412

 

 

 

 

 

 

(387,328

)

 

 

 

Income before (benefit of) provision for

   income taxes

 

 

148,869

 

 

 

148,687

 

 

 

199,582

 

 

 

86,479

 

 

 

(387,328

)

 

 

196,289

 

(Benefit of) provision for income taxes

 

 

(1,419

)

 

 

(5,886

)

 

 

27,239

 

 

 

26,230

 

 

 

 

 

 

46,164

 

Net income

 

 

150,288

 

 

 

154,573

 

 

 

172,343

 

 

 

60,249

 

 

 

(387,328

)

 

 

150,125

 

Less:  Net loss attributable to non-

   controlling interests

 

 

 

 

 

 

 

 

 

 

 

(163

)

 

 

 

 

 

(163

)

Net income attributable to CBRE

   Group, Inc.

 

$

150,288

 

 

$

154,573

 

 

$

172,343

 

 

$

60,412

 

 

$

(387,328

)

 

$

150,288

 

 

29


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2017 (AS ADJUSTED) (1)

(Dollars in thousands)

 

 

 

 

 

 

 

CBRE

 

 

Guarantor

 

 

Nonguarantor

 

 

 

 

 

 

Consolidated

 

 

 

Parent

 

 

Services

 

 

Subsidiaries

 

 

Subsidiaries

 

 

Eliminations

 

 

Total

 

Revenue

 

$

 

 

$

 

 

$

2,418,600

 

 

$

1,632,366

 

 

$

 

 

$

4,050,966

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services

 

 

 

 

 

 

 

 

1,920,688

 

 

 

1,225,789

 

 

 

 

 

 

3,146,477

 

Operating, administrative and other

 

 

(284

)

 

 

349

 

 

 

315,809

 

 

 

290,752

 

 

 

 

 

 

606,626

 

Depreciation and amortization

 

 

 

 

 

 

 

 

56,730

 

 

 

37,307

 

 

 

 

 

 

94,037

 

Total costs and expenses

 

 

(284

)

 

 

349

 

 

 

2,293,227

 

 

 

1,553,848

 

 

 

 

 

 

3,847,140

 

Gain on disposition of real estate

 

 

 

 

 

 

 

 

226

 

 

 

1,159

 

 

 

 

 

 

1,385

 

Operating income (loss)

 

 

284

 

 

 

(349

)

 

 

125,599

 

 

 

79,677

 

 

 

 

 

 

205,211

 

Equity income from unconsolidated

   subsidiaries

 

 

 

 

 

 

 

 

14,370

 

 

 

648

 

 

 

 

 

 

15,018

 

Other income

 

 

 

 

 

 

 

 

414

 

 

 

3,701

 

 

 

 

 

 

4,115

 

Interest income

 

 

 

 

 

29,901

 

 

 

1,647

 

 

 

764

 

 

 

(29,901

)

 

 

2,411

 

Interest expense

 

 

 

 

 

33,146

 

 

 

22,148

 

 

 

8,617

 

 

 

(29,901

)

 

 

34,010

 

Royalty and management service

   (income) expense

 

 

 

 

 

 

 

 

(5,802

)

 

 

5,802

 

 

 

 

 

 

 

Income from consolidated subsidiaries

 

 

136,845

 

 

 

139,064

 

 

 

45,519

 

 

 

 

 

 

(321,428

)

 

 

 

Income before provision for (benefit of)

   income taxes

 

 

137,129

 

 

 

135,470

 

 

 

171,203

 

 

 

70,371

 

 

 

(321,428

)

 

 

192,745

 

Provision for (benefit of) income taxes

 

 

109

 

 

 

(1,375

)

 

 

32,139

 

 

 

22,946

 

 

 

 

 

 

53,819

 

Net income

 

 

137,020

 

 

 

136,845

 

 

 

139,064

 

 

 

47,425

 

 

 

(321,428

)

 

 

138,926

 

Less:  Net income attributable to non-

   controlling interests

 

 

 

 

 

 

 

 

 

 

 

1,906

 

 

 

 

 

 

1,906

 

Net income attributable to CBRE

   Group, Inc.

 

$

137,020

 

 

$

136,845

 

 

$

139,064

 

 

$

45,519

 

 

$

(321,428

)

 

$

137,020

 

 

(1)

In the first quarter of 2018, we adopted new revenue recognition guidance. Certain restatements have been made to the 2017 financial statements to conform with the 2018 presentation. See Notes 2 and 3 for more information.

30


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2018

(Dollars in thousands)

 

 

 

 

 

 

 

CBRE

 

 

Guarantor

 

 

Nonguarantor

 

 

 

 

 

 

Consolidated

 

 

 

Parent

 

 

Services

 

 

Subsidiaries

 

 

Subsidiaries

 

 

Eliminations

 

 

Total

 

Net income

 

$

150,288

 

 

$

154,573

 

 

$

172,343

 

 

$

60,249

 

 

$

(387,328

)

 

$

150,125

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain

 

 

 

 

 

 

 

 

 

 

 

66,032

 

 

 

 

 

 

66,032

 

Adoption of Accounting Standards

   Update 2016-01, net

 

 

 

 

 

 

 

 

(3,964

)

 

 

 

 

 

 

 

 

(3,964

)

Amounts reclassified from accumulated

   other comprehensive loss to interest

   expense, net

 

 

 

 

 

755

 

 

 

 

 

 

 

 

 

 

 

 

755

 

Unrealized gains on interest rate

   swaps, net

 

 

 

 

 

603

 

 

 

 

 

 

 

 

 

 

 

 

603

 

Unrealized holding losses on available

   for sale debt securities, net

 

 

 

 

 

 

 

 

(505

)

 

 

 

 

 

 

 

 

(505

)

Other, net

 

 

 

 

 

 

 

 

20

 

 

 

5,508

 

 

 

 

 

 

5,528

 

Total other comprehensive (loss) income

 

 

 

 

 

1,358

 

 

 

(4,449

)

 

 

71,540

 

 

 

 

 

 

68,449

 

Comprehensive income

 

 

150,288

 

 

 

155,931

 

 

 

167,894

 

 

 

131,789

 

 

 

(387,328

)

 

 

218,574

 

Less: Comprehensive loss attributable

   to non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

(358

)

 

 

 

 

 

(358

)

Comprehensive income attributable to

   CBRE Group, Inc.

 

$

150,288

 

 

$

155,931

 

 

$

167,894

 

 

$

132,147

 

 

$

(387,328

)

 

$

218,932

 

 

31


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2017 (AS ADJUSTED) (1)

(Dollars in thousands)

 

 

 

 

 

 

 

CBRE

 

 

Guarantor

 

 

Nonguarantor

 

 

 

 

 

 

Consolidated

 

 

 

Parent

 

 

Services

 

 

Subsidiaries

 

 

Subsidiaries

 

 

Eliminations

 

 

Total

 

Net income

 

$

137,020

 

 

$

136,845

 

 

$

139,064

 

 

$

47,425

 

 

$

(321,428

)

 

$

138,926

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain

 

 

 

 

 

 

 

 

 

 

 

51,188

 

 

 

 

 

 

51,188

 

Amounts reclassified from accumulated

   other comprehensive loss to interest

   expense, net

 

 

 

 

 

1,508

 

 

 

 

 

 

 

 

 

 

 

 

1,508

 

Unrealized gains on interest rate swaps,

   net

 

 

 

 

 

294

 

 

 

 

 

 

 

 

 

 

 

 

294

 

Unrealized holding gains on available

   for sale debt securities,  net

 

 

 

 

 

 

 

 

829

 

 

 

94

 

 

 

 

 

 

923

 

Other, net

 

 

(5

)

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

(6

)

Total other comprehensive (loss) income

 

 

(5

)

 

 

1,802

 

 

 

828

 

 

 

51,282

 

 

 

 

 

 

53,907

 

Comprehensive income

 

 

137,015

 

 

 

138,647

 

 

 

139,892

 

 

 

98,707

 

 

 

(321,428

)

 

 

192,833

 

Less: Comprehensive income attributable

   to non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

1,927

 

 

 

 

 

 

1,927

 

Comprehensive income attributable to CBRE

   Group, Inc.

 

$

137,015

 

 

$

138,647

 

 

$

139,892

 

 

$

96,780

 

 

$

(321,428

)

 

$

190,906

 

 

(1)

In the first quarter of 2018, we adopted new revenue recognition guidance. Certain restatements have been made to the 2017 financial statements to conform with the 2018 presentation. See Notes 2 and 3 for more information.

32


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2018

(Dollars in thousands)

 

 

 

 

 

 

 

CBRE

 

 

Guarantor

 

 

Nonguarantor

 

 

Consolidated

 

 

 

Parent

 

 

Services

 

 

Subsidiaries

 

 

Subsidiaries

 

 

Total

 

CASH FLOWS PROVIDED BY (USED IN) OPERATING

   ACTIVITIES:

 

$

26,028

 

 

$

(21,075

)

 

$

(200,152

)

 

$

(54,759

)

 

$

(249,958

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

 

 

 

 

 

 

(30,870

)

 

 

(15,854

)

 

 

(46,724

)

Contributions to unconsolidated subsidiaries

 

 

 

 

 

 

 

 

(7,932

)

 

 

(2,679

)

 

 

(10,611

)

Distributions from unconsolidated subsidiaries

 

 

 

 

 

 

 

 

14,869

 

 

 

347

 

 

 

15,216

 

Purchase of equity securities

 

 

 

 

 

 

 

 

(10,219

)

 

 

 

 

 

(10,219

)

Proceeds from sale of equity securities

 

 

 

 

 

 

 

 

4,367

 

 

 

 

 

 

4,367

 

Purchase of available for sale debt securities

 

 

 

 

 

 

 

 

(12,066

)

 

 

 

 

 

(12,066

)

Proceeds from the sale of available for sale debt securities

 

 

 

 

 

 

 

 

2,264

 

 

 

 

 

 

2,264

 

Other investing activities, net

 

 

 

 

 

 

 

 

(6,590

)

 

 

151

 

 

 

(6,439

)

Net cash used in investing activities

 

 

 

 

 

 

 

 

(46,177

)

 

 

(18,035

)

 

 

(64,212

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from senior term loans

 

 

 

 

 

550,000

 

 

 

 

 

 

 

 

 

550,000

 

Proceeds from revolving credit facility

 

 

 

 

 

898,000

 

 

 

 

 

 

 

 

 

898,000

 

Repayment of revolving credit facility

 

 

 

 

 

(435,000

)

 

 

 

 

 

 

 

 

(435,000

)

Repayment of 5.00% senior notes (including premium)

 

 

 

 

 

(820,000

)

 

 

 

 

 

 

 

 

(820,000

)

Proceeds from notes payable on real estate held for investment

 

 

 

 

 

 

 

 

 

 

 

49

 

 

 

49

 

Repayment of notes payable on real estate held for investment

 

 

 

 

 

 

 

 

 

 

 

(462

)

 

 

(462

)

Proceeds from notes payable on real estate held for sale and

   under development

 

 

 

 

 

 

 

 

 

 

 

775

 

 

 

775

 

Acquisition of businesses (cash (paid) received for acquisitions

   more than three months after purchase date)

 

 

 

 

 

 

 

 

(11,463

)

 

 

3,414

 

 

 

(8,049

)

Units repurchased for payment of taxes on equity awards

 

 

(4,550

)

 

 

 

 

 

 

 

 

 

 

 

(4,550

)

Non-controlling interest contributions

 

 

 

 

 

 

 

 

 

 

 

1,595

 

 

 

1,595

 

Non-controlling interest distributions

 

 

 

 

 

 

 

 

 

 

 

(1,025

)

 

 

(1,025

)

(Increase) decrease in intercompany receivables, net

 

 

(21,532

)

 

 

(179,368

)

 

 

217,675

 

 

 

(16,775

)

 

 

 

Other financing activities, net

 

 

54

 

 

 

(39

)

 

 

 

 

 

(3

)

 

 

12

 

Net cash (used in) provided by financing activities

 

 

(26,028

)

 

 

13,593

 

 

 

206,212

 

 

 

(12,432

)

 

 

181,345

 

Effect of currency exchange rate changes on cash and cash

   equivalents and restricted cash

 

 

 

 

 

 

 

 

 

 

 

29,819

 

 

 

29,819

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

   AND RESTRICTED CASH

 

 

 

 

 

(7,482

)

 

 

(40,117

)

 

 

(55,407

)

 

 

(103,006

)

CASH AND CASH EQUIVALENTS AND RESTRICTED

   CASH, AT BEGINNING OF PERIOD

 

 

7

 

 

 

15,604

 

 

 

114,143

 

 

 

695,065

 

 

 

824,819

 

CASH AND CASH EQUIVALENTS AND RESTRICTED

   CASH, AT END OF PERIOD

 

$

7

 

 

$

8,122

 

 

$

74,026

 

 

$

639,658

 

 

$

721,813

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW

   INFORMATION:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

$

 

 

$

48,490

 

 

$

 

 

$

504

 

 

$

48,994

 

Income taxes, net

 

$

 

 

$

 

 

$

118

 

 

$

37,101

 

 

$

37,219

 

 

33


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2017 (AS ADJUSTED) (1)

(Dollars in thousands)

 

 

 

 

 

 

 

CBRE

 

 

Guarantor

 

 

Nonguarantor

 

 

Consolidated

 

 

 

Parent

 

 

Services

 

 

Subsidiaries

 

 

Subsidiaries

 

 

Total

 

CASH FLOWS PROVIDED BY (USED IN) OPERATING

   ACTIVITIES:

 

$

17,610

 

 

$

(6,445

)

 

$

(311,417

)

 

$

(21,146

)

 

$

(321,398

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

 

 

 

 

 

 

(17,095

)

 

 

(6,640

)

 

 

(23,735

)

Acquisition of businesses, including net assets acquired,

   intangibles and goodwill

 

 

 

 

 

 

 

 

(12,861

)

 

 

 

 

 

(12,861

)

Contributions to unconsolidated subsidiaries

 

 

 

 

 

 

 

 

(11,086

)

 

 

(3,481

)

 

 

(14,567

)

Distributions from unconsolidated subsidiaries

 

 

 

 

 

 

 

 

6,676

 

 

 

199

 

 

 

6,875

 

Purchase of equity securities

 

 

 

 

 

 

 

 

(3,914

)

 

 

539

 

 

 

(3,375

)

Proceeds from the sale of equity securities

 

 

 

 

 

 

 

 

3,805

 

 

 

(390

)

 

 

3,415

 

Purchase of available for sale debt securities

 

 

 

 

 

 

 

 

(3,375

)

 

 

(539

)

 

 

(3,914

)

Proceeds from the sale of available for sale debt securities

 

 

 

 

 

 

 

 

3,415

 

 

 

390

 

 

 

3,805

 

Other investing activities, net

 

 

 

 

 

 

 

 

1,275

 

 

 

(195

)

 

 

1,080

 

Net cash used in investing activities

 

 

 

 

 

 

 

 

(33,160

)

 

 

(10,117

)

 

 

(43,277

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from revolving credit facility

 

 

 

 

 

266,000

 

 

 

 

 

 

 

 

 

266,000

 

Repayment of revolving credit facility

 

 

 

 

 

(146,000

)

 

 

 

 

 

 

 

 

(146,000

)

Repayment of notes payable on real estate held for investment

 

 

 

 

 

 

 

 

 

 

 

(435

)

 

 

(435

)

Proceeds from notes payable on real estate held for sale and

   under development

 

 

 

 

 

 

 

 

 

 

 

1,711

 

 

 

1,711

 

Repayment of notes payable on real estate held for sale and

   under development

 

 

 

 

 

 

 

 

 

 

 

(2,744

)

 

 

(2,744

)

Acquisition of businesses (cash paid for acquisitions more than

   three months after purchase date)

 

 

 

 

 

 

 

 

(7,717

)

 

 

(626

)

 

 

(8,343

)

Units repurchased for payment of taxes on equity awards

 

 

(1,900

)

 

 

 

 

 

 

 

 

 

 

 

(1,900

)

Non-controlling interest contributions

 

 

 

 

 

 

 

 

 

 

 

1,574

 

 

 

1,574

 

Non-controlling interest distributions

 

 

 

 

 

 

 

 

 

 

 

(744

)

 

 

(744

)

(Increase) decrease in intercompany receivables, net

 

 

(16,020

)

 

 

(121,766

)

 

 

126,426

 

 

 

11,360

 

 

 

 

Other financing activities, net

 

 

310

 

 

 

 

 

 

 

 

 

(2

)

 

 

308

 

Net cash (used in) provided by financing activities

 

 

(17,610

)

 

 

(1,766

)

 

 

118,709

 

 

 

10,094

 

 

 

109,427

 

Effect of currency exchange rate changes on cash and cash

   equivalents and restricted cash

 

 

 

 

 

 

 

 

 

 

 

16,163

 

 

 

16,163

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

   AND RESTRICTED CASH

 

 

 

 

 

(8,211

)

 

 

(225,868

)

 

 

(5,006

)

 

 

(239,085

)

CASH AND CASH EQUIVALENTS AND RESTRICTED

   CASH, AT BEGINNING OF PERIOD

 

 

7

 

 

 

16,889

 

 

 

271,088

 

 

 

543,428

 

 

 

831,412

 

CASH AND CASH EQUIVALENTS AND RESTRICTED

   CASH, AT END OF PERIOD

 

$

7

 

 

$

8,678

 

 

$

45,220

 

 

$

538,422

 

 

$

592,327

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW

   INFORMATION:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

$

 

 

$

51,987

 

 

$

 

 

$

40

 

 

$

52,027

 

Income taxes, net

 

$

 

 

$

 

 

$

5,176

 

 

$

32,157

 

 

$

37,333

 

 

(1)

In the first quarter of 2018, we adopted new revenue recognition guidance. Certain restatements have been made to the 2017 financial statements to conform with the 2018 presentation. See Notes 2 and 3 for more information.

 

 

 

 

 

34


 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q (Quarterly Report) for CBRE Group, Inc. for the three months ended March 31, 2018 represents an update to the more detailed and comprehensive disclosures included in our Annual Report on Form 10‑K for the year ended December 31, 2017.  Accordingly, you should read the following discussion in conjunction with the information included in our Annual Report on Form 10-K for the year ended December 31, 2017 as well as the unaudited financial statements included elsewhere in this Quarterly Report.

In addition, the statements and assumptions in this Quarterly Report that are not statements of historical fact are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 or Section 21E of the Securities Exchange Act of 1934, each as amended, including, in particular, statements about our plans, strategies and prospects as well as estimates of industry growth for the next quarter and beyond.  For important information regarding these forward-looking statements, please see the discussion below under the caption “Cautionary Note on Forward-Looking Statements.”

Overview

CBRE Group, Inc. is a Delaware corporation. References to “the company,” “we,” “us” and “our” refer to CBRE Group, Inc. and include all of its consolidated subsidiaries, unless otherwise indicated or the context requires otherwise.

We are the world’s largest commercial real estate services and investment firm, based on 2017 revenue, with leading global market positions in our leasing, property sales, occupier outsourcing and valuation businesses. As of December 31, 2017, we operated in more than 450 offices worldwide with over 80,000 employees, excluding independent affiliates.

Our business is focused on providing services to both occupiers of and investors in real estate. For occupiers, we provide facilities management, project management, transaction (both property sales and tenant leasing) and consulting services, among others. For investors, we provide capital markets (property sales, commercial mortgage brokerage, loan origination and servicing), leasing, investment management, property management, valuation and development services, among others. We provide commercial real estate services under the “CBRE” brand name, investment management services under the “CBRE Global Investors” brand name and development services under the “Trammell Crow Company” brand name.

Our revenue mix has shifted in recent years toward more contractual revenue as occupiers and investors increasingly prefer to purchase integrated, account-based services from firms that meet the full spectrum of their needs nationally and globally. We believe we are well-positioned to capture a growing share of this business. We generate revenue from both management fees (large multi-year portfolio and per-project contracts) and commissions on transactions. Our contractual, fee-for-services businesses generally involve occupier outsourcing (including facilities and project management), property management, investment management, appraisal/valuation and loan servicing). In addition, our leasing services business line is largely recurring in nature over time.

In 2017, 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 2017 we were ranked #214 on the Fortune 500. We have been voted the most recognized commercial real estate brand in a Lipsey Company survey for 17 years in a row (including 2018). We have also been rated a World’s Most Ethical Company by the Ethisphere Institute for five consecutive years.   

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP, which require us to make estimates and assumptions that affect reported amounts.  The estimates and assumptions are based on historical experience and on other factors that we believe to be reasonable.  Actual results may differ from those estimates.  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

35


 

assets, and income taxes can be found in our Annual Report on Form 10-K for the year ended December 31, 2017.  There have been no material changes to these policies as of March 31, 2018, except for the adoption of new revenue recognition guidance in the first quarter of 2018 and an update to our estimate of the U.S. federal and state tax impact of the transition tax related to the Tax Cuts and Jobs Act (the Tax Act). For a detailed discussion of our new revenue recognition policies and updates to income taxes, see Note 2 of the Notes to Consolidated Financial Statements (Unaudited) set forth in Item 1 of this Quarterly Report.

New Accounting Pronouncements

See Note 3 of the Notes to Consolidated Financial Statements (Unaudited) set forth in Item 1 of this Quarterly Report.

Seasonality

A significant portion of our revenue is seasonal, which an investor should keep in mind when comparing our financial condition and results of operations on a quarter-by-quarter basis.  Historically, our revenue, operating income, net income and cash flow from operating activities tend to be lowest in the first quarter, and highest in the fourth quarter of each year.  Revenue, earnings and cash flow have generally been concentrated in the fourth calendar quarter due to the focus on completing sales, financing and leasing transactions prior to year-end.

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 do not believe that general inflation has 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; 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.

Compensation is our largest expense and our sales and leasing professionals generally are paid on a commission and/or bonus basis that correlates with their revenue production. As a result, the negative effect of difficult market conditions on our operating margins is partially mitigated by the inherent variability of our compensation cost structure. In addition, when negative economic conditions have been particularly severe, we have moved decisively to lower operating expenses to improve financial performance, and then have restored certain expenses as economic conditions improved. Nevertheless, adverse global and regional economic trends could pose significant risks to the performance of our operations and our financial condition.

36


 

Commercial real estate markets in the United States have generally been marked by increased demand for space, falling vacancies and higher rents since 2010.  During this time, healthy U.S. property sales activity has been sustained by gradually improving market fundamentals, including higher occupancy rates and rents, broad, low-cost credit availability and increased institutional capital allocations to commercial real estate. Following years of strong growth, U.S. property sales volumes slowed in 2016 and 2017, but ticked up modestly in early 2018 as significant capital continues to target commercial real estate.  Commercial mortgage markets also have remained highly active, driven by relatively low interest rates, a favorable lending environment and improved market fundamentals. The U.S. Government Sponsored Enterprises continue to be a significant source of debt capital for multi-family properties.

European countries began to emerge from recession in 2013, with economic growth accelerating in 2017. Sales and leasing activity has improved steadily across most of continental Europe for more than three years and this trend continued in 2017 and early 2018.  Since the United Kingdom’s June 2016 referendum to leave the European Union (EU), sentiment in that country has improved.  Progress was made by the end of 2017 on the terms of the United Kingdom’s withdrawal.  However, the absence of an agreement on the United Kingdom’s long-term relationship with the EU, and the fact that the March 2019 deadline draws closer, have contributed to uncertainty more recently.

In Asia Pacific, real estate leasing and investment markets strengthened broadly beginning in late 2016, a trend that has continued into early 2018. Asia Pacific investors also continue to be a significant source of real estate investment both in the region and across other parts of the world.

Real estate investment management and property development markets have been generally favorable with abundant debt and equity capital flows into commercial real estate. Actively managed real estate equity strategies have been pressured by a shift in investor preferences from active to passive portfolio strategies and concerns about potentially higher interest rates.

The performance of our global real estate services and real estate investment businesses depends on sustained economic growth and job creation; stable, healthy global credit markets; and continued positive business and investor sentiment.

Effects of Acquisitions

We historically have made significant use of strategic acquisitions to add and enhance service competencies around the world. 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 2017, we completed 11 in-fill acquisitions, including two leading Software as a Service (SaaS) platforms – one that produces scalable interactive visualization technologies for commercial real estate and one that provides technology solutions for facilities management operations, a healthcare-focused project manager in Australia, a full-service brokerage and management boutique in South Florida, a technology-enabled national boutique commercial real estate finance and consulting firm in the United States, a retail consultancy in France, a majority interest in a Toronto-based investment management business specializing in private infrastructure and private equity investments, a San Francisco-based technology-focused boutique real estate brokerage firm, a project management and design engineering firm operating across the United States, a Washington, D.C.-based retail brokerage operation and a leading technical engineering services provider in Italy. No in-fill acquisitions were completed during the three months ended March 31, 2018. In April 2018, we acquired a boutique retail specialty firm in Australia and our affiliate in Israel.

We believe that strategic acquisitions can significantly decrease the cost, time and commitment of management resources necessary to attain a meaningful competitive position within targeted markets or to expand our presence within our current markets. In general, however, most acquisitions will initially have an adverse impact on our operating and net income as a result of transaction-related expenditures. These include severance, lease termination, transaction and deferred financing costs, among others, and the charges and costs of integrating the acquired business and its financial and accounting systems into our own.

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 of March 31, 2018, we have accrued deferred consideration totaling $79.9 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.

37


 

International Operations

We are monitoring the economic and political developments related to the United Kingdom’s referendum to leave the European Union and the potential impact on our businesses in the United Kingdom and the rest of Europe, including, in particular, sales and leasing activity in the United Kingdom, as well as any associated currency volatility impact on our results of operations.

As we continue to increase our international operations through either acquisitions or organic growth, fluctuations in the value of the U.S. dollar relative to the other currencies in which we may generate earnings could adversely affect our business, financial condition and operating results. Our Global Investment Management business has a significant amount of euro-denominated assets under management, or AUM, as well as associated revenue and earnings in Europe. 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 three months ended March 31, 2018, approximately 43% of our business was transacted in non-U.S. dollar currencies, the majority of which included the Australian dollar, Brazilian real, British pound sterling, Canadian dollar, Chinese yuan, Danish krone, euro, Hong Kong dollar, Indian rupee, Japanese yen, Korean won, Mexican peso, Polish zloty, Singapore dollar, Swedish krona, Swiss franc and Thai baht. The following table sets forth our revenue derived from our most significant currencies (U.S. dollars in thousands):

  

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

(As Adjusted) (1)

 

United States dollar

 

$

2,674,217

 

 

 

57.2

%

 

$

2,472,406

 

 

 

61.0

%

British pound sterling

 

 

580,516

 

 

 

12.4

%

 

 

472,155

 

 

 

11.7

%

euro

 

 

495,946

 

 

 

10.6

%

 

 

349,272

 

 

 

8.6

%

Australian dollar

 

 

101,557

 

 

 

2.2

%

 

 

92,852

 

 

 

2.3

%

Canadian dollar

 

 

160,882

 

 

 

3.4

%

 

 

130,571

 

 

 

3.2

%

Indian rupee

 

 

103,593

 

 

 

2.2

%

 

 

77,819

 

 

 

1.9

%

Chinese yuan

 

 

62,375

 

 

 

1.3

%

 

 

50,435

 

 

 

1.2

%

Singapore dollar

 

 

60,233

 

 

 

1.3

%

 

 

57,178

 

 

 

1.4

%

Japanese yen

 

 

65,168

 

 

 

1.4

%

 

 

47,388

 

 

 

1.2

%

Swiss franc

 

 

43,248

 

 

 

0.9

%

 

 

37,081

 

 

 

0.9

%

Hong Kong dollar

 

 

35,186

 

 

 

0.8

%

 

 

31,271

 

 

 

0.8

%

Mexican peso

 

 

32,610

 

 

 

0.7

%

 

 

20,086

 

 

 

0.5

%

Brazilian real

 

 

40,696

 

 

 

0.9

%

 

 

35,307

 

 

 

0.9

%

Danish krone

 

 

23,323

 

 

 

0.5

%

 

 

18,461

 

 

 

0.5

%

Polish zloty

 

 

17,438

 

 

 

0.4

%

 

 

12,564

 

 

 

0.3

%

Swedish krona

 

 

19,420

 

 

 

0.4

%

 

 

14,913

 

 

 

0.4

%

Thai baht

 

 

19,925

 

 

 

0.4

%

 

 

13,533

 

 

 

0.3

%

Korean won

 

 

13,526

 

 

 

0.3

%

 

 

9,909

 

 

 

0.2

%

Other currencies

 

 

124,093

 

 

 

2.7

%

 

 

107,765

 

 

 

2.7

%

Total revenue

 

$

4,673,952

 

 

 

100.0

%

 

$

4,050,966

 

 

 

100.0

%

 

(1)

In the first quarter of 2018, we adopted new revenue recognition guidance. Certain restatements have been made to the 2017 financial statements to conform with the 2018 presentation. See Notes 2 and 3 of the Notes to Consolidated Financial Statements (Unaudited) set forth in Item 1 of this Quarterly Report for more information.

38


 

Although we operate globally, we report our results in U.S. dollars. As a result, the strengthening or weakening of the U.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 three months ended March 31, 2018, the net impact would have been an increase in pre-tax income of $0.5 million. Had the euro-to-U.S. dollar exchange rates been 10% higher during the three months ended March 31, 2018, the net impact would have been an increase in pre-tax income of $2.3 million. These hypothetical calculations estimate the impact of translating results into U.S. dollars and do not include an estimate of the impact that a 10% change in the U.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 the U.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 affects 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.

39


 

Results of Operations

The following table sets forth items derived from our consolidated statements of operations for the three months ended March 31, 2018 and 2017 (dollars in thousands):

  

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

(As Adjusted) (1)

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Occupier outsourcing

 

$

712,521

 

 

 

15.2

%

 

$

567,340

 

 

 

14.0

%

Property management

 

 

148,129

 

 

 

3.2

%

 

 

125,747

 

 

 

3.1

%

Valuation

 

 

126,218

 

 

 

2.7

%

 

 

116,455

 

 

 

2.9

%

Loan servicing

 

 

41,814

 

 

 

0.9

%

 

 

36,410

 

 

 

0.9

%

Investment management

 

 

123,690

 

 

 

2.6

%

 

 

89,566

 

 

 

2.2

%

Leasing

 

 

572,486

 

 

 

12.2

%

 

 

529,478

 

 

 

13.1

%

Capital Markets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

 

405,568

 

 

 

8.7

%

 

 

353,794

 

 

 

8.7

%

Commercial mortgage origination

 

 

107,294

 

 

 

2.3

%

 

 

84,724

 

 

 

2.1

%

Other:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Development services

 

 

21,232

 

 

 

0.5

%

 

 

11,623

 

 

 

0.3

%

Other

 

 

17,947

 

 

 

0.4

%

 

 

18,717

 

 

 

0.4

%

Total fee revenue

 

 

2,276,899

 

 

 

48.7

%

 

 

1,933,854

 

 

 

47.7

%

Pass through costs also recognized as revenue

 

 

2,397,053

 

 

 

51.3

%

 

 

2,117,112

 

 

 

52.3

%

Total revenue

 

 

4,673,952

 

 

 

100.0

%

 

 

4,050,966

 

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services

 

 

3,619,961

 

 

 

77.4

%

 

 

3,146,477

 

 

 

77.7

%

Operating, administrative and other

 

 

732,235

 

 

 

15.7

%

 

 

606,626

 

 

 

15.0

%

Depreciation and amortization

 

 

108,165

 

 

 

2.3

%

 

 

94,037

 

 

 

2.3

%

Total costs and expenses

 

 

4,460,361

 

 

 

95.4

%

 

 

3,847,140

 

 

 

95.0

%

Gain on disposition of real estate

 

 

18

 

 

 

0.0

%

 

 

1,385

 

 

 

0.1

%

Operating income

 

 

213,609

 

 

 

4.6

%

 

 

205,211

 

 

 

5.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity income from unconsolidated subsidiaries

 

 

40,179

 

 

 

0.9

%

 

 

15,018

 

 

 

0.4

%

Other (loss) income

 

 

(4,280

)

 

 

(0.1

%)

 

 

4,115

 

 

 

0.1

%

Interest income

 

 

3,621

 

 

 

0.1

%

 

 

2,411

 

 

 

0.0

%

Interest expense

 

 

28,858

 

 

 

0.6

%

 

 

34,010

 

 

 

0.8

%

Write-off of financing costs on extinguished debt

 

 

27,982

 

 

 

0.7

%

 

 

 

 

 

0.0

%

Income before provision for income taxes

 

 

196,289

 

 

 

4.2

%

 

 

192,745

 

 

 

4.8

%

Provision for income taxes

 

 

46,164

 

 

 

1.0

%

 

 

53,819

 

 

 

1.4

%

Net income

 

 

150,125

 

 

 

3.2

%

 

 

138,926

 

 

 

3.4

%

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

   interests

 

 

(163

)

 

 

0.0

%

 

 

1,906

 

 

 

0.0

%

Net income attributable to CBRE Group, Inc.

 

$

150,288

 

 

 

3.2

%

 

$

137,020

 

 

 

3.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA

 

$

357,836

 

 

 

7.7

%

 

$

316,475

 

 

 

7.8

%

Adjusted EBITDA

 

$

347,807

 

 

 

7.4

%

 

$

313,177

 

 

 

7.7

%

 

(1)

In the first quarter of 2018, we adopted new revenue recognition guidance. Certain restatements have been made to the 2017 financial statements to conform with the 2018 presentation. See Notes 2 and 3 of the Notes to Consolidated Financial Statements (Unaudited) set forth in Item 1 of this Quarterly Report for more information.

40


 

Fee revenue, EBITDA 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, EBITDA and adjusted EBITDA may not be comparable to similarly titled measures of other companies.

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. Amounts shown for adjusted EBITDA further remove (from EBITDA) the impact of certain cash and non-cash charges related to acquisitions and certain carried interest incentive compensation reversal to align with the timing of associated revenue. 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.

EBITDA and adjusted EBITDA are not intended to be measures of free cash flow for our discretionary use because they do not consider certain cash requirements such as tax and debt service payments. These measures may also differ from the amounts calculated under similarly titled definitions in our debt instruments, which amounts are further adjusted to reflect certain other cash and non-cash charges and are used by us to determine compliance with financial covenants therein and our ability to engage in certain activities, such as incurring additional debt and making certain restricted payments. We also use adjusted EBITDA as a significant component when measuring our operating performance under our employee incentive compensation programs.

EBITDA and adjusted EBITDA are calculated as follows (dollars in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

 

2018

 

 

 

2017

 

 

 

 

 

 

 

(As Adjusted) (1)

 

Net income attributable to CBRE Group, Inc.

 

$

150,288

 

 

$

137,020

 

Add:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

108,165

 

 

 

94,037

 

Interest expense

 

 

28,858

 

 

 

34,010

 

Write-off of financing costs on extinguished debt

 

 

27,982

 

 

 

 

Provision for income taxes

 

 

46,164

 

 

 

53,819

 

Less:

 

 

 

 

 

 

 

 

Interest income

 

 

3,621

 

 

 

2,411

 

EBITDA

 

 

357,836

 

 

 

316,475

 

Adjustments:

 

 

 

 

 

 

 

 

Carried interest incentive compensation reversal to

   align with the timing of associated revenue

 

 

(10,029

)

 

 

(15,241

)

Integration and other costs related to acquisitions

 

 

 

 

 

11,943

 

Adjusted EBITDA

 

$

347,807

 

 

$

313,177

 

 

(1)

In the first quarter of 2018, we adopted new revenue recognition guidance. Certain restatements have been made to the 2017 financial statements to conform with the 2018 presentation. See Notes 2 and 3 of the Notes to Consolidated Financial Statements (Unaudited) set forth in Item 1 of this Quarterly Report for more information.

41


 

 

Three Months Ended March 31, 2018 Compared to the Three Months Ended March 31, 2017

We reported consolidated net income of $150.3 million for the three months ended March 31, 2018 on revenue of $4.7 billion as compared to consolidated net income of $137.0 million on revenue of $4.1 billion for the three months ended March 31, 2017.

Our revenue on a consolidated basis for the three months ended March 31, 2018 increased by $623.0 million, or 15.4%, as compared to the three months ended March 31, 2017. The revenue increase reflects strong organic growth fueled by higher occupier outsourcing revenue (up 11.8%) and property management revenue (up 7.2%), increased sales (up 10.9%), leasing (up 5.1%) and commercial mortgage origination activity (up 26.4%) and higher revenue from our Global Investment Management segment (up 29.8%).  In addition, foreign currency translation had a $170.8 million positive impact on total revenue during the three months ended March 31, 2018, primarily driven by strength in the British pound sterling and euro.

Our cost of services on a consolidated basis increased by $473.5 million, or 15.0%, during the three months ended March 31, 2018 as compared to the same period in 2017. This increase was primarily due to higher costs associated with our occupier outsourcing business.  In addition, our sales professionals generally are paid on a commission basis, which substantially correlates with our transaction revenue performance. Lastly, foreign currency translation had a $131.5 million negative impact on total cost of services during the three months ended March 31, 2018. Cost of services as a percentage of revenue decreased slightly to 77.4% for the three months ended March 31, 2018 versus 77.7% for the three months ended March 31, 2017. This decline was primarily driven by an increase in non-commissionable revenue from our Global Investment Management and Development Services segments during the three months ended March 31, 2018.

Our operating, administrative and other expenses on a consolidated basis increased by $125.6 million, or 20.7%, during the three months ended March 31, 2018 as compared to the same period in 2017. The increase was mostly driven by higher payroll-related costs (including increases in bonus and stock compensation expense), higher carried interest expense and an increase in occupancy costs. Foreign currency translation also had a $31.3 million negative impact on total operating expenses during the three months ended March 31, 2018. These items contributed to operating expenses as a percentage of revenue increasing from 15.0% for the three months ended March 31, 2017 to 15.7% for the three months ended March 31, 2018.

Our depreciation and amortization expense on a consolidated basis increased by $14.1 million, or 15.0%, during the three months ended March 31, 2018 as compared to the same period in 2017. This increase was primarily attributable to higher amortization expense associated with mortgage servicing rights. A rise in depreciation expense of $5.4 million during the three months ended March 31, 2018 driven by technology-related capital expenditures also contributed to the increase.

Our equity income from unconsolidated subsidiaries on a consolidated basis increased by $25.2 million, or 167.5%, during the three months ended March 31, 2018 as compared to the same period in 2017, primarily driven by higher equity earnings associated with gains on property sales reported in our Development Services segment.

Our consolidated interest expense decreased by $5.2 million, or 15.1%, for the three months ended March 31, 2018 as compared to the three months ended March 31, 2017. This decrease was primarily driven by lower interest expense due to lower net borrowings under our credit agreement.  In addition, the early redemption, in full, of the $800.0 million aggregate outstanding principal amount of our 5.00% senior notes in the first quarter of 2018 also contributed to the decline in interest expense.

Our write-off of financing costs on extinguished debt on a consolidated basis was $28.0 million for the three months ended March 31, 2018. These costs included a $20.0 million premium paid and the write-off of $8.0 million of unamortized deferred financing costs in connection with the early redemption, in full, of the $800.0 million aggregate outstanding principal amount of our 5.00% senior notes.

42


 

Our provision for income taxes on a consolidated basis was $46.2 million for the three months ended March 31, 2018 as compared to $53.8 million for the same period in 2017. Our effective tax rate, after adjusting pre-tax income to remove the portion attributable to non-controlling interests, decreased to 23.5% for the three months ended March 31, 2018 compared to 28.2% for the three months ended March 31, 2017. We benefited from a lower U.S. corporate tax rate, with such rate being 35% in 2017 versus 21% in 2018. The effect of the decrease in the U.S. corporate tax rate was partially offset by discrete tax benefits for the three months ended March 31, 2017 from the re-measurement of income tax exposures relating to prior periods with no similar items for the three months ended March 31, 2018.

Segment Operations

We report our operations through the following segments: (1) Americas; (2) Europe, Middle East and Africa (EMEA); (3) Asia Pacific; (4) Global Investment Management; and (5) Development Services.  The Americas consists of operations located in the United States, Canada and key markets in Latin America.  EMEA mainly consists of operations in Europe, while Asia Pacific includes operations in Asia, Australia and New Zealand.  The Global Investment Management business consists of investment management operations in North America, Europe and Asia Pacific.  The Development Services business consists of real estate development and investment activities primarily in the United States.  

43


 

The following table summarizes our results of operations by our Americas, EMEA, Asia Pacific, Global Investment Management and Development Services operating segments for the three months ended March 31, 2018 and 2017 (dollars in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

(As Adjusted) (1)

 

Americas

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Occupier outsourcing

 

$

308,385

 

 

 

10.8

%

 

$

251,616

 

 

 

9.5

%

Property management

 

 

78,100

 

 

 

2.7

%

 

 

68,140

 

 

 

2.6

%

Valuation

 

 

59,066

 

 

 

2.1

%

 

 

57,181

 

 

 

2.2

%

Loan servicing

 

 

39,526

 

 

 

1.4

%

 

 

33,534

 

 

 

1.3

%

Leasing

 

 

400,198

 

 

 

14.0

%

 

 

393,865

 

 

 

14.9

%

Capital Markets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

 

267,675

 

 

 

9.4

%

 

 

233,796

 

 

 

8.9

%

Commercial mortgage origination

 

 

106,020

 

 

 

3.7

%

 

 

82,365

 

 

 

3.1

%

Other

 

 

9,764

 

 

 

0.4

%

 

 

12,714

 

 

 

0.4

%

Total fee revenue

 

 

1,268,734

 

 

 

44.5

%

 

 

1,133,211

 

 

 

42.9

%

Pass through costs also recognized as

   revenue

 

 

1,581,490

 

 

 

55.5

%

 

 

1,505,995

 

 

 

57.1

%

Total revenue

 

 

2,850,224

 

 

 

100.0

%

 

 

2,639,206

 

 

 

100.0

%

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services

 

 

2,274,851

 

 

 

79.8

%

 

 

2,106,359

 

 

 

79.8

%

Operating, administrative and other

 

 

355,271

 

 

 

12.5

%

 

 

322,368

 

 

 

12.2

%

Depreciation and amortization

 

 

77,981

 

 

 

2.7

%

 

 

68,569

 

 

 

2.6

%

Operating income

 

 

142,121

 

 

 

5.0

%

 

 

141,910

 

 

 

5.4

%

Equity income from unconsolidated

   subsidiaries

 

 

3,999

 

 

 

0.1

%

 

 

4,640

 

 

 

0.2

%

Other income

 

 

1,742

 

 

 

0.1

%

 

 

427

 

 

 

0.0

%

Less: Net loss attributable to non-controlling

   interests

 

 

 

 

 

0.0

%

 

 

(1

)

 

 

0.0

%

Add-back: Depreciation and amortization

 

 

77,981

 

 

 

2.7

%

 

 

68,569

 

 

 

2.6

%

EBITDA

 

$

225,843

 

 

 

7.9

%

 

$

215,547

 

 

 

8.2

%

Adjusted EBITDA

 

$

225,843

 

 

 

7.9

%

 

$

225,225

 

 

 

8.5

%

 

(1)

In the first quarter of 2018, we adopted new revenue recognition guidance. Certain restatements have been made to the 2017 financial statements to conform with the 2018 presentation. See Notes 2 and 3 of the Notes to Consolidated Financial Statements (Unaudited) set forth in Item 1 of this Quarterly Report for more information.

44


 

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

(As Adjusted) (1)

 

EMEA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Occupier outsourcing

 

$

334,938

 

 

 

28.4

%

 

$

259,332

 

 

 

28.7

%

Property management

 

 

45,203

 

 

 

3.8

%

 

 

35,903

 

 

 

4.0

%

Valuation

 

 

41,063

 

 

 

3.5

%

 

 

32,509

 

 

 

3.6

%

Loan servicing

 

 

2,288

 

 

 

0.2

%

 

 

2,876

 

 

 

0.3

%

Leasing

 

 

100,589

 

 

 

8.5

%

 

 

74,931

 

 

 

8.3

%

Capital Markets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

 

78,240

 

 

 

6.6

%

 

 

67,300

 

 

 

7.4

%

Commercial mortgage origination

 

 

1,223

 

 

 

0.1

%

 

 

1,820

 

 

 

0.2

%

Other

 

 

5,823

 

 

 

0.5

%

 

 

3,761

 

 

 

0.4

%

Total fee revenue

 

 

609,367

 

 

 

51.6

%

 

 

478,432

 

 

 

52.9

%

Pass through costs also recognized as

   revenue

 

 

571,887

 

 

 

48.4

%

 

 

426,199

 

 

 

47.1

%

Total revenue

 

 

1,181,254

 

 

 

100.0

%

 

 

904,631

 

 

 

100.0

%

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services

 

 

960,647

 

 

 

81.3

%

 

 

728,524

 

 

 

80.5

%

Operating, administrative and other

 

 

184,247

 

 

 

15.6

%

 

 

142,942

 

 

 

15.8

%

Depreciation and amortization

 

 

18,846

 

 

 

1.6

%

 

 

15,570

 

 

 

1.7

%

Operating income

 

$

17,514

 

 

 

1.5

%

 

$

17,595

 

 

 

2.0

%

Equity income from unconsolidated

   subsidiaries

 

 

238

 

 

 

0.0

%

 

 

501

 

 

 

0.0

%

Other income (loss)

 

 

89

 

 

 

0.0

%

 

 

(1

)

 

 

0.0

%

Less: Net (loss) income attributable to

   non-controlling interests

 

 

(259

)

 

 

0.0

%

 

 

343

 

 

 

0.0

%

Add-back: Depreciation and amortization

 

 

18,846

 

 

 

1.6

%

 

 

15,570

 

 

 

1.7

%

EBITDA

 

$

36,946

 

 

 

3.1

%

 

$

33,322

 

 

 

3.7

%

Adjusted EBITDA

 

$

36,946

 

 

 

3.1

%

 

$

35,455

 

 

 

3.9

%

 

(1)

In the first quarter of 2018, we adopted new revenue recognition guidance. Certain restatements have been made to the 2017 financial statements to conform with the 2018 presentation. See Notes 2 and 3 of the Notes to Consolidated Financial Statements (Unaudited) set forth in Item 1 of this Quarterly Report for more information.

45


 

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

(As Adjusted) (1)

 

Asia Pacific

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Occupier outsourcing

 

$

69,198

 

 

 

14.0

%

 

$

56,392

 

 

 

14.0

%

Property management

 

 

23,271

 

 

 

4.7

%

 

 

19,794

 

 

 

4.9

%

Valuation

 

 

26,089

 

 

 

5.3

%

 

 

26,765

 

 

 

6.6

%

Leasing

 

 

71,579

 

 

 

14.4

%

 

 

60,528

 

 

 

15.0

%

Capital Markets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

 

59,235

 

 

 

12.0

%

 

 

52,168

 

 

 

12.9

%

Commercial mortgage origination

 

 

51

 

 

 

0.0

%

 

 

539

 

 

 

0.1

%

Other

 

 

2,360

 

 

 

0.4

%

 

 

2,242

 

 

 

0.7

%

Total fee revenue

 

 

251,783

 

 

 

50.8

%

 

 

218,428

 

 

 

54.2

%

Pass through costs also recognized as

   revenue

 

 

243,676

 

 

 

49.2

%

 

 

184,918

 

 

 

45.8

%

Total revenue

 

 

495,459

 

 

 

100.0

%

 

 

403,346

 

 

 

100.0

%

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services

 

 

384,463

 

 

 

77.6

%

 

 

311,594

 

 

 

77.3

%

Operating, administrative and other

 

 

77,310

 

 

 

15.6

%

 

 

68,677

 

 

 

17.0

%

Depreciation and amortization

 

 

4,681

 

 

 

0.9

%

 

 

4,314

 

 

 

1.0

%

Operating income

 

$

29,005

 

 

 

5.9

%

 

$

18,761

 

 

 

4.7

%

Equity income from unconsolidated

   subsidiaries

 

 

194

 

 

 

0.0

%

 

 

69

 

 

 

0.0

%

Add-back: Depreciation and amortization

 

 

4,681

 

 

 

0.9

%

 

 

4,314

 

 

 

1.0

%

EBITDA

 

$

33,880

 

 

 

6.8

%

 

$

23,144

 

 

 

5.7

%

Adjusted EBITDA

 

$

33,880

 

 

 

6.8

%

 

$

23,276

 

 

 

5.8

%

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

(As Adjusted) (1)

 

Global Investment Management

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

123,690

 

 

 

100.0

%

 

$

89,566

 

 

 

100.0

%

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating, administrative and other

 

 

78,315

 

 

 

63.3

%

 

 

51,522

 

 

 

57.5

%

Depreciation and amortization

 

 

6,227

 

 

 

5.0

%

 

 

5,039

 

 

 

5.7

%

Operating income

 

$

39,148

 

 

 

31.7

%

 

$

33,005

 

 

 

36.8

%

Equity income from unconsolidated

   subsidiaries

 

 

875

 

 

 

0.6

%

 

 

873

 

 

 

1.0

%

Other (loss) income

 

 

(6,111

)

 

 

(4.9

%)

 

 

3,689

 

 

 

4.1

%

Less: Net income attributable to

   non-controlling interests

 

 

418

 

 

 

0.3

%

 

 

1,506

 

 

 

1.7

%

Add-back: Depreciation and amortization

 

 

6,227

 

 

 

5.0

%

 

 

5,039

 

 

 

5.7

%

EBITDA

 

$

39,721

 

 

 

32.1

%

 

$

41,100

 

 

 

45.9

%

Adjusted EBITDA

 

$

29,692

 

 

 

24.0

%

 

$

25,859

 

 

 

28.9

%

 

(1)

In the first quarter of 2018, we adopted new revenue recognition guidance. Certain restatements have been made to the 2017 financial statements to conform with the 2018 presentation. See Notes 2 and 3 of the Notes to Consolidated Financial Statements (Unaudited) set forth in Item 1 of this Quarterly Report for more information.

46


 

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

(As Adjusted) (1)

 

Development Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property management

 

$

1,555

 

 

 

6.7

%

 

$

1,910

 

 

 

13.4

%

Leasing

 

 

120

 

 

 

0.5

%

 

 

154

 

 

 

1.1

%

Capital Markets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

 

418

 

 

 

1.8

%

 

 

530

 

 

 

3.7

%

Other:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Development services

 

 

21,232

 

 

 

91.0

%

 

 

11,623

 

 

 

81.8

%

Total revenue

 

 

23,325

 

 

 

100.0

%

 

 

14,217

 

 

 

100.0

%

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating, administrative and other

 

 

37,092

 

 

 

159.0

%

 

 

21,117

 

 

 

148.5

%

Depreciation and amortization

 

 

430

 

 

 

1.8

%

 

 

545

 

 

 

3.8

%

Gain on disposition of real estate

 

 

18

 

 

 

0.0

%

 

 

1,385

 

 

 

9.7

%

Operating loss

 

$

(14,179

)

 

 

(60.8

%)

 

$

(6,060

)

 

 

(42.6

%)

Equity income from unconsolidated

   subsidiaries

 

 

34,873

 

 

 

149.5

%

 

 

8,935

 

 

 

62.8

%

Less: Net (loss) income attributable to

   non-controlling interests

 

 

(322

)

 

 

(1.4

%)

 

 

58

 

 

 

0.4

%

Add-back: Depreciation and amortization

 

 

430

 

 

 

1.8

%

 

 

545

 

 

 

3.8

%

EBITDA and Adjusted EBITDA

 

$

21,446

 

 

 

91.9

%

 

$

3,362

 

 

 

23.6

%

 

(1)

In the first quarter of 2018, we adopted new revenue recognition guidance. Certain restatements have been made to the 2017 financial statements to conform with the 2018 presentation. See Notes 2 and 3 of the Notes to Consolidated Financial Statements (Unaudited) set forth in Item 1 of this Quarterly Report for more information.

Three Months Ended March 31, 2018 Compared to the Three Months Ended March 31, 2017

Americas

Revenue increased by $211.0 million, or 8.0%, for the three months ended March 31, 2018 compared to the three months ended March 31, 2017. The revenue increase reflects strong organic growth fueled by higher occupier outsourcing and property management revenue as well as improved sales, leasing and commercial mortgage origination activity. Foreign currency translation also had a $7.8 million positive impact on total revenue during the three months ended March 31, 2018, primarily driven by strength in the Canadian dollar.

Cost of services increased by $168.5 million, or 8.0%, for the three months ended March 31, 2018 as compared to the same period in 2017, primarily due to higher costs associated with our occupier outsourcing business. Also contributing to the variance was higher commission expense resulting from improved sales and lease transaction revenue. Foreign currency translation had a $6.1 million negative impact on total cost of services during the three months ended March 31, 2018. Cost of services as a percentage of revenue was consistent at 79.8% for both three months ended March 31, 2018 and 2017.

Operating, administrative and other expenses increased by $32.9 million, or 10.2%, for the three months ended March 31, 2018 as compared to the three months ended March 31, 2017. The increase was partly driven by higher payroll-related costs (including an increase in stock compensation expense) and an increase in occupancy costs. Foreign currency translation also had a $1.0 million negative impact on total operating expenses during the three months ended March 31, 2018.

47


 

We earn fees from the origination and sale of commercial mortgage loans for which the company retains the servicing rights. Upon origination of a mortgage loan held for sale, the fair value of the mortgage servicing rights (MSR) 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). Upon sale, we record a servicing asset or liability based on the fair value of the retained MSR associated with the transferred loan. 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 ended March 31, 2018, MSRs contributed to operating income $32.1 million of gains recognized in conjunction with the origination and sale of mortgage loans, offset by $26.9 million of amortization of related intangible assets. For the three months ended March 31, 2017, MSRs contributed to operating income $28.0 million of gains recognized in conjunction with the origination and sale of mortgage loans, offset by $22.3 million of amortization of related intangible assets.

EMEA

Revenue increased by $276.6 million, or 30.6%, for the three months ended March 31, 2018 as compared to the same period in 2017. We achieved strong organic growth fueled by higher occupier outsourcing revenue, as well as higher sales and leasing activity. Foreign currency translation also had a $130.7 million positive impact on total revenue during the three months ended March 31, 2018, primarily driven by strength in the British pound sterling and euro.

Cost of services increased by $232.1 million, or 31.9%, for the three months ended March 31, 2018 as compared to the same period in 2017, primarily due to higher costs associated with our occupier outsourcing business. In addition, foreign currency translation had a $105.4 million negative impact on total cost of services during the three months ended March 31, 2018. Cost of services as a percentage of revenue increased from 80.5% for the three months ended March 31, 2017 to 81.3% for the three months ended March 31, 2018, primarily driven by our revenue mix, with outsourcing revenue, which has a lower margin than sales and lease revenue, being a higher percentage of revenue than in the prior year.

Operating, administrative and other expenses increased by $41.3 million, or 28.9%, for the three months ended March 31, 2018 as compared to the same period in 2017. This increase was primarily driven by higher payroll-related costs (including increases in bonus and stock compensation expense) and an increase in occupancy costs. Foreign currency translation also had a $20.9 million negative impact on total operating expenses during the three months ended March 31, 2018.

Asia Pacific

Revenue increased by $92.1 million, or 22.8%, for the three months ended March 31, 2018 as compared to the three months ended March 31, 2017. The revenue increase reflects strong organic growth, fueled by higher occupier outsourcing and property management revenue as well as improved sales and leasing activity. In addition, foreign currency translation had a $24.9 million positive impact on total revenue during the three months ended March 31, 2018, primarily driven by strength in the Australian dollar, Chinese yuan, Indian rupee and Singapore dollar.

Cost of services increased by $72.9 million, or 23.4%, for the three months ended March 31, 2018 as compared to the same period in 2017, driven by higher costs associated with our occupier outsourcing business. In addition, foreign currency translation had a $20.0 million negative impact on total cost of services during the three months ended March 31, 2018. Cost of services as a percentage of revenue was relatively consistent at 77.6% for the three months ended March 31, 2018 versus 77.3% for the three months ended March 31, 2017.

Operating, administrative and other expenses increased by $8.6 million, or 12.6%, for the three months ended March 31, 2018 as compared to the same period in 2017. We incurred higher payroll-related costs (including increased stock compensation and bonus expense) during the three months ended March 31, 2018. Foreign currency translation also had a $3.8 million negative impact on total operating expenses for the three months ended March 31, 2018.

48


 

Global Investment Management

Revenue increased by $34.1 million, or 38.1%, for the three months ended March 31, 2018 as compared to the three months ended March 31, 2017, primarily driven by higher carried interest revenue as well as higher asset management fees. Foreign currency translation also had a $7.4 million positive impact on total revenue during the three months ended March 31, 2018, primarily driven by strength in the British pound sterling and euro.

Operating, administrative and other expenses increased by $26.8 million, or 52.0%, for the three months ended March 31, 2018 as compared to the same period in 2017, primarily driven by higher carried interest expense. Foreign currency translation also had a $5.6 million negative impact on total operating expenses during the three months ended March 31, 2018.

A roll forward of our AUM by product type for the three months ended March 31, 2018 is as follows (dollars in billions):  

 

 

 

 

 

 

 

Separate

 

 

 

 

 

 

 

 

 

 

 

Funds

 

 

Accounts

 

 

Securities

 

 

Total

 

Balance at December 31, 2017

 

$

31.7

 

 

$

56.7

 

 

$

14.8

 

 

$

103.2

 

Inflows

 

 

1.7

 

 

 

1.0

 

 

 

0.4

 

 

 

3.1

 

Outflows

 

 

(0.7

)

 

 

(2.0

)

 

 

(1.0

)

 

 

(3.7

)

Market appreciation (depreciation)

 

 

1.1

 

 

 

1.4

 

 

 

(0.9

)

 

 

1.6

 

Balance at March 31, 2018

 

$

33.8

 

 

$

57.1

 

 

$

13.3

 

 

$

104.2

 

 

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.

Development Services

Revenue increased by $9.1 million, or 64.1%, for the three months ended March 31, 2018 as compared to the three months ended March 31, 2017, primarily driven by higher development and incentive fees during the three months ended March 31, 2018.

Operating, administrative and other expenses increased by $16.0 million, or 75.7%, for the three months ended March 31, 2018 as compared to the same period in 2017. This increase was primarily driven by higher payroll-related costs, particularly increased bonus expense during the three months ended March 31, 2018 due to improved performance (property sales reflected in equity income from unconsolidated subsidiaries was significantly higher during the three months ended March 31, 2018).

49


 

As of March 31, 2018, development projects in process totaled $7.7 billion, up almost $900.0 million from year-end 2017. The pipeline increased $300.0 million during the first quarter of 2018.

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. Our expected capital requirements for 2018 include up to approximately $180 million of anticipated capital expenditures, net of tenant concessions.  During the three months ended March 31, 2018, we incurred $34.1 million of capital expenditures, net of tenant concessions received.  As of March 31, 2018, we had aggregate commitments of $35.1 million to fund future co-investments in our Global Investment Management business, $28.1 million of which is expected to be funded in 2018.  Additionally, as of March 31, 2018, we are committed to fund $17.4 million of additional capital to unconsolidated subsidiaries within our Development Services business, which we may be required to fund at any time. As of March 31, 2018, we had $2.3 billion of borrowings available under our $2.8 billion revolving credit facility.

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.  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.

In March 2018, we redeemed the $800.0 million aggregate outstanding principal amount of our 5.00% senior notes in full. We funded this redemption with $550.0 million of borrowings from our tranche A term loan facility and borrowings from our revolving credit facility under our credit agreement.

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 two elements.  The first is the repayment of the outstanding and anticipated principal amounts of our long-term indebtedness.  We are unable to project with certainty whether our long-term cash flow from operations will be sufficient to repay our long-term debt when it comes due.  If our cash flow is insufficient, 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 of March 31, 2018 and December 31, 2017, we had accrued $79.9 million ($41.9 million of which was a current liability) and $83.6 million ($23.2 million of which was a current liability), respectively, 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.

In addition, on October 27, 2016, we announced that our board of directors had authorized the company to repurchase up to an aggregate of $250.0 million of our Class A common stock over three years.  The timing of the repurchase and the actual amount repurchased will depend on a variety of factors, including the market price of our common stock, general market and economic conditions and other factors.  We intend to fund the repurchases, if any, with cash on hand or borrowings under our revolving credit facility.  As of March 31, 2018, the authorization remained unused.

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Historical Cash Flows

Operating Activities

Net cash used in operating activities totaled $250.0 million for the three months ended March 31, 2018, a decrease of $71.4 million as compared to the three months ended March 31, 2017.  The decrease in net cash used in operating activities was primarily due to improved operating performance as well as a higher distribution of earnings from unconsolidated subsidiaries in the current year.

Investing Activities

Net cash used in investing activities totaled $64.2 million for the three months ended March 31, 2018, an increase of $20.9 million as compared to the three months ended March 31, 2017.  The increase in cash used in investing activities was primarily driven by higher capital expenditures in the current year.

Financing Activities

Net cash provided by financing activities totaled $181.3 million for the three months ended March 31, 2018, an increase of $71.9 million as compared to the three months ended March 31, 2017.  The increase was primarily due to $550.0 million of borrowings from our tranche A term loan facility as well as higher net borrowings under our revolving credit facility during the three months ended March 31, 2018.  These items were largely offset by the full redemption of the $800.0 million aggregate outstanding principal amount of our 5.00% senior notes (including premium) in the first quarter of 2018.

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.  On October 31, 2017, CBRE Services, Inc. entered into a Credit Agreement (the 2017 Credit Agreement), which refinanced and replaced our prior credit agreement (the 2015 Credit Agreement). We used $200.0 million of borrowings from the tranche A term loan facility and $83.0 million of revolving credit facility borrowings under the 2017 Credit Agreement, in addition to cash on hand, to repay all amounts outstanding under the 2015 Credit Agreement.

The 2017 Credit Agreement is a senior unsecured credit facility that is jointly and severally guaranteed by us and certain of our subsidiaries. The 2017 Credit Agreement currently provides for the following: (1) a $2.8 billion revolving credit facility, which includes the capacity to obtain letters of credit and swingline loans and matures on October 31, 2022 and (2) a $750.0 million delayed draw tranche A term loan facility, requiring quarterly principal payments, which began on March 5, 2018 and continue through maturity on October 31, 2022, provided that in the event that our leverage ratio (as defined in the 2017 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, no such quarterly principal payment shall be required on such date.

As previously mentioned, in March 2018, we redeemed the $800.0 million aggregate outstanding principal amount of our 5.00% senior notes in full. In connection with this early redemption, we incurred charges of $28.0 million, including a premium of $20.0 million and the write-off of $8.0 million of unamortized deferred financing costs.

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In prior years, we also issued 4.875% and 5.25% senior notes that are due in 2026 and 2025, respectively.  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 Annual Report on Form 10‑K for the year ended December 31, 2017 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 2017 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 Annual Report on Form 10‑K for the year ended December 31, 2017 and Notes 4 and 8 of the Notes to Consolidated Financial Statements (Unaudited) set forth in Item 1 of this Quarterly Report.

Interest Rate Swap Agreements

In March 2011, we entered into five interest rate swap agreements, all with effective dates in October 2011, and immediately designated them as cash flow hedges in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 815, “Derivatives and Hedging.”  The purpose of these interest rate swap agreements is to attempt to hedge potential changes to our cash flows due to the variable interest nature of our senior term loan facilities. A notional amount of $200.0 million of these interest rate swap agreements expired in October 2017.  The remaining total notional amount of these interest rate swap agreements at March 31, 2018 was $200.0 million, which expire in September 2019. As of March 31, 2018 and December 31, 2017, the fair values of such interest rate swap agreements were reflected as a $3.1 million liability and a $4.8 million liability, respectively, and were included in other long-term liabilities in the accompanying consolidated balance sheets set forth in Item 1 of this Quarterly Report.

In July 2015, we entered into three interest rate swap agreements with an aggregate notional amount of $300.0 million, all with effective dates in August 2015, and designated them as cash flow hedges in accordance with FASB ASC Topic 815. In August 2015, we elected to terminate these agreements and paid a $6.2 million cash settlement, which has been recorded to accumulated other comprehensive loss in the accompanying consolidated balance sheets set forth in Item 1 of this Quarterly Report. This settlement fee is being amortized to interest expense throughout the remaining term of the terminated hedge transaction until August 2025.

Off –Balance Sheet Arrangements

Our off-balance sheet arrangements are described in Note 9 of the Notes to Consolidated Financial Statements (Unaudited) set forth in Item 1 of this Quarterly Report and are incorporated by reference herein.

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.

52


 

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 and business conditions, particularly in geographies where our business may be concentrated;

 

volatility and disruption of the securities, capital and credit markets, interest rate increases, the cost and availability of capital for investment in real estate, clients’ willingness to make real estate or long-term contractual commitments and other factors affecting the value of real estate assets, inside and outside the United States;

 

increases in unemployment and general slowdowns in commercial activity;

 

trends in pricing and risk assumption for commercial real estate services;

 

the effect of significant movements in average cap rates across different property types;

 

a reduction by companies in their reliance on outsourcing for their commercial real estate needs, which would affect our revenues and operating performance;

 

client actions to restrain project spending and reduce outsourced staffing levels;

 

declines in lending activity of U.S. Government Sponsored Enterprises, regulatory oversight of such activity and our mortgage servicing revenue from the commercial real estate mortgage market;

 

our ability to diversify our revenue model to offset cyclical economic trends in the commercial real estate industry;

 

our ability to attract new user and investor clients;

 

our ability to retain major clients and renew related contracts;

 

our ability to leverage our global services platform to maximize and sustain long-term cash flow;

 

our ability to maintain EBITDA and adjusted EBITDA margins that enable us to continue investing in our platform and client service offerings;

 

our ability to control costs relative to revenue growth;

 

economic volatility and market uncertainty globally related to uncertainty surrounding the implementation and effect of the United Kingdom’s referendum to leave the European Union, including uncertainty in relation to the legal and regulatory framework that would apply to the United Kingdom and its relationship with the remaining members of the European Union;

 

foreign currency fluctuations;

 

our ability to retain and incentivize key personnel;

 

our ability to compete globally, or in specific geographic markets or business segments that are material to us;

 

our ability to identify, acquire and integrate synergistic and accretive businesses;

 

costs and potential future capital requirements relating to businesses we may acquire;

 

integration challenges arising out of companies we may acquire;

 

the ability of our Global 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;

53


 

 

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 CBRE Capital Markets to periodically amend, or replace, on satisfactory terms, the agreements for its warehouse lines of credit;

 

variations in historically customary seasonal patterns that cause our business not to perform as expected;

 

litigation and its financial and reputational risks to us;

 

our exposure to liabilities in connection with real estate advisory and property management activities and our ability to procure sufficient insurance coverage on acceptable terms;

 

liabilities under guarantees, or for construction defects, that we incur in our Development Services business;

 

our and our employees’ ability to execute on, and adapt to, information technology strategies and trends;

 

cybersecurity threats, including the potential misappropriation of assets or sensitive information, corruption of data or operational disruption;

 

changes in domestic and international law and regulatory environments (including relating to anti-corruption, anti-money laundering, trade sanctions, currency controls and other trade control laws), particularly in Russia, Eastern Europe and the Middle East, due to the level of political instability in those regions;

 

our ability to comply with laws and regulations related to our global operations, including real estate licensure, tax, labor and employment laws and regulations, as well as the anti-corruption laws and trade sanctions of the U.S. and other countries;

 

our ability to maintain our effective tax rate, including during 2018 as we continue to assess the provisional amount recorded based upon our best estimate of the tax impact of the Tax Act (which was enacted into law on December 22, 2017) in accordance with our understanding of the Tax Act and the related guidance available;

 

changes in applicable tax or accounting requirements, including the impact of any subsequent additional regulation or guidance associated with the Tax Act;

 

the effect of implementation of new accounting rules and standards (including new lease accounting guidance which will be effective in the first quarter of 2019); and

 

the other factors described elsewhere in this Quarterly Report on Form 10-Q, included under the headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies,” “Quantitative and Qualitative Disclosures About Market Risk” and Part II, Item 1A, “Risk Factors” or as described in our Annual Report on Form 10-K for the year ended December 31, 2017, in particular in Part II, Item 1A “Risk Factors”, or as described in the other documents and reports we file with the Securities and Exchange Commission (SEC).

Forward-looking statements speak only as of the date the statements are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. Additional information concerning these and other risks and uncertainties is contained in our other periodic filings with the SEC.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

The information in this section should be read in connection with the information on market risk related to changes in interest rates and non-U.S. currency exchange rates in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2017.

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Our exposure to market risk primarily consists of foreign currency exchange rate fluctuations related to our international operations and changes in interest rates on debt obligations.  We manage such risk primarily by managing the amount, sources, and duration of our debt funding and by using derivative financial instruments.  We apply Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 815, “Derivatives and Hedging,” when accounting for derivative financial instruments.  In all cases, we view derivative financial instruments as a risk management tool and, accordingly, do not use derivatives for trading or speculative purposes.

Exchange Rates

Our foreign operations expose us to fluctuations in foreign exchange rates.  These fluctuations may impact the value of our cash receipts and payments in terms of our functional (reporting) currency, which is U.S. dollars.  See the discussion of international operations, which is included in Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Items Affecting Comparability—International Operations” and is incorporated by reference herein.

Interest Rates

We manage our interest expense by using a combination of fixed and variable rate debt.  We enter into interest rate swap agreements to attempt to hedge the variability of future interest payments due to changes in interest rates.  See discussion of our interest rate swap agreements, which is included in Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Liquidity and Capital Resources—Indebtedness—Interest Rate Swap Agreements” and is incorporated by reference herein.

The estimated fair value of our senior term loans was approximately $750.5 million at March 31, 2018.  Based on dealers’ quotes, the estimated fair values of our 4.875% senior notes and 5.25% senior notes were $633.0 million and $455.5 million, respectively, at March 31, 2018.

We utilize sensitivity analyses to assess the potential effect of our variable rate debt.  If interest rates were to increase 100 basis points on our outstanding variable rate debt at March 31, 2018, excluding notes payable on real estate, the net impact of the additional interest cost would be a decrease of $2.5 million on pre-tax income and an increase of $2.5 million in cash used in operating activities for the three months ended March 31, 2018.

Item 4.

Controls and Procedures

Disclosure Controls and Procedures

Rule 13a-15 of the Securities and Exchange Act of 1934, as amended, requires that we conduct an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report, and we have a disclosure policy in furtherance of the same.  This evaluation is designed to ensure that all corporate disclosure is complete and accurate in all material respects.  The evaluation is further designed to ensure that all information required to be disclosed in our SEC reports is accumulated and communicated to management to allow timely decisions regarding required disclosures and recorded, processed, summarized and reported within the time periods and in the manner specified in the SEC’s rules and forms.  Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.  Our Chief Executive Officer and Chief Financial Officer supervise and participate in this evaluation, and they are assisted by our Chief Accounting Officer and other members of our Disclosure Committee.  In addition to our Chief Accounting Officer, our Disclosure Committee consists of our General Counsel, our chief communication officer, our corporate controller, our head of Global Assurance and Advisory, our senior officers of significant business lines and other select employees.

We conducted the required evaluation, and our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined by Securities Exchange Act Rule 13a-15(e)) were effective as of March 31, 2018 to accomplish their objectives at the reasonable assurance level.

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Changes in Internal Control Over Financial Reporting

No changes in our internal control over financial reporting occurred during the fiscal quarter ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

There have been no material changes to our legal proceedings as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

Item 1A.

Risk Factors

There have been no material changes to our risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

As permitted by our director compensation policy, one of our non-employee directors elected to receive shares of our Class A common stock as consideration for his service as director in lieu of cash payments during the first quarter of 2018. Director fees are allocated in quarterly installments, and the non-employee director participating in the “stock in lieu of cash” program was issued 45 shares on February 13, 2018 in lieu of $2,000 in accrued director fees. The number of shares issued was based on the closing price on the NYSE of our Class A common stock on the date of issuance. The issuance of these securities qualified for an exemption from registration under the Securities Act of 1933, as amended, or the Securities Act, pursuant to Section 4(a)(2) of the Securities Act because the issuance did not involve a public offering.

56


 

Item 6.

Exhibits

 

 

 

 

Incorporated by Reference

Exhibit
No.

 

Exhibit Description

 

Form

 

SEC File

No.

 

Exhibit

 

Filing

Date

 

Filed

Herewith

  3.1

 

Amended and Restated Certificate of Incorporation of CBRE Group, Inc.

 

8-K

 

001-32205

 

3.1

 

05/19/2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  3.2

 

Amended and Restated By-Laws of CBRE Group, Inc.

 

10-Q

 

001-32205

 

3.2

 

05/10/2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11

 

Statement concerning Computation of Per Share Earnings (filed as Note 10 of the Consolidated Financial Statements)

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

31.1

 

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

31.2

 

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

32

 

Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

101.INS

 

XBRL Instance Document

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema Document

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

 

 

 

 

 

 

X

 

57


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

CBRE GROUP, INC.

 

 

 

Date:  May 10, 2018

 

/s/ James R. Groch

 

 

James R. Groch

 

 

Chief Financial Officer (Principal Financial Officer)

 

 

 

Date:  May 10, 2018

 

/s/ Arlin E. Gaffner

 

 

Arlin E. Gaffner

 

 

Chief Accounting Officer (Principal Accounting Officer)

 

58