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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 September 30, 2021
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 | | (I.R.S. Employer |
incorporation or organization) | | Identification No.) |
2100 McKinney Avenue, Suite 1250 | | |
Dallas, Texas | | 75201 |
(Address of principal executive offices) | | (Zip Code) |
| (214) 979-6100 | |
| (Registrant's telephone number, including area code) | |
_____________________________________________________________________________________Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Class A Common Stock, $0.01 par value per share | “CBRE” | New York Stock Exchange |
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 every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 October 22, 2021 was 334,665,866.
FORM 10-Q
September 30, 2021
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
CBRE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except share data)
| | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
ASSETS | | | |
Current Assets: | | | |
Cash and cash equivalents | $ | 2,767,820 | | | $ | 1,896,188 | |
Restricted cash | 108,302 | | | 143,059 | |
Receivables, less allowance for doubtful accounts of $100,889 and $95,533 at September 30, 2021 and December 31, 2020, respectively | 4,445,790 | | | 4,394,954 | |
Warehouse receivables | 1,409,038 | | | 1,411,170 | |
Prepaid expenses | 354,682 | | | 294,992 | |
Contract assets | 331,910 | | | 318,191 | |
Income taxes receivable | 182,338 | | | 93,756 | |
Other current assets | 475,548 | | | 293,321 | |
Total Current Assets | 10,075,428 | | | 8,845,631 | |
Property and equipment, net of accumulated depreciation and amortization of $1,231,920 and $1,074,887 at September 30, 2021 and December 31, 2020, respectively | 722,646 | | | 815,009 | |
Goodwill | 3,874,743 | | | 3,821,609 | |
Other intangible assets, net of accumulated amortization of $1,696,577 and $1,556,537 at September 30, 2021 and December 31, 2020, respectively | 1,345,646 | | | 1,367,913 | |
Operating lease assets | 973,335 | | | 1,020,352 | |
Investments in unconsolidated subsidiaries (with $397,704 and $116,314 at fair value at September 30, 2021 and December 31, 2020, respectively) | 845,621 | | | 452,365 | |
Non-current contract assets | 144,563 | | | 153,636 | |
Real estate under development | 396,285 | | | 277,630 | |
Non-current income taxes receivable | 27,415 | | | 43,555 | |
Deferred tax assets, net | 83,263 | | | 91,529 | |
Investments held in trust - special purpose acquisition company | 402,519 | | | 402,501 | |
Other assets, net | 838,896 | | | 747,413 | |
Total Assets | $ | 19,730,360 | | | $ | 18,039,143 | |
LIABILITIES AND EQUITY | | | |
Current Liabilities: | | | |
Accounts payable and accrued expenses | $ | 2,604,640 | | | $ | 2,692,939 | |
Compensation and employee benefits payable | 1,466,004 | | | 1,287,383 | |
Accrued bonus and profit sharing | 1,182,150 | | | 1,183,786 | |
Operating lease liabilities | 228,421 | | | 208,526 | |
Contract liabilities | 195,145 | | | 162,045 | |
Income taxes payable | 174,522 | | | 57,892 | |
Warehouse lines of credit (which fund loans that U.S. Government Sponsored Enterprises have committed to purchase) | 1,383,772 | | | 1,383,964 | |
Other short-term borrowings | 5,311 | | | 5,330 | |
Current maturities of long-term debt | — | | | 1,514 | |
Other current liabilities | 195,589 | | | 160,604 | |
Total Current Liabilities | 7,435,554 | | | 7,143,983 | |
Long-term debt, net of current maturities | 1,843,849 | | | 1,380,202 | |
Non-current operating lease liabilities | 1,028,931 | | | 1,116,795 | |
Non-current tax liabilities | 122,603 | | | 87,954 | |
Non-current income taxes payable | 54,761 | | | 54,761 | |
Deferred tax liabilities, net | 156,197 | | | 124,485 | |
Other liabilities | 687,786 | | | 625,303 | |
Total Liabilities | 11,329,681 | | | 10,533,483 | |
Commitments and contingencies | — | | | — | |
Non-controlling interest subject to possible redemption - special purpose acquisition company | 402,519 | | | 385,573 | |
Equity: | | | |
CBRE Group, Inc. Stockholders’ Equity: | | | |
Class A common stock; $0.01 par value; 525,000,000 shares authorized; 334,642,584 and 335,561,345 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively | 3,346 | | | 3,356 | |
Additional paid-in capital | 938,784 | | | 1,074,639 | |
Accumulated earnings | 7,674,639 | | | 6,530,057 | |
Accumulated other comprehensive loss | (654,176) | | | (529,726) | |
Total CBRE Group, Inc. Stockholders’ Equity | 7,962,593 | | | 7,078,326 | |
Non-controlling interests | 35,567 | | | 41,761 | |
Total Equity | 7,998,160 | | | 7,120,087 | |
Total Liabilities and Equity | $ | 19,730,360 | | | $ | 18,039,143 | |
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 and per share data)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Revenue | $ | 6,798,327 | | | $ | 5,645,142 | | | $ | 19,195,819 | | | $ | 16,915,694 | |
Costs and expenses: | | | | | | | |
Cost of revenue | 5,258,947 | | | 4,564,579 | | | 14,995,252 | | | 13,676,790 | |
Operating, administrative and other | 1,025,681 | | | 794,227 | | | 2,811,224 | | | 2,355,099 | |
Depreciation and amortization | 122,564 | | | 127,725 | | | 363,727 | | | 357,903 | |
Asset impairments | — | | | — | | | — | | | 75,171 | |
Total costs and expenses | 6,407,192 | | | 5,486,531 | | | 18,170,203 | | | 16,464,963 | |
Gain on disposition of real estate | 18,530 | | | 52,797 | | | 19,615 | | | 75,132 | |
Operating income | 409,665 | | | 211,408 | | | 1,045,231 | | | 525,863 | |
Equity income from unconsolidated subsidiaries | 163,809 | | | 32,376 | | | 459,535 | | | 72,487 | |
Other income | 7,693 | | | 7,947 | | | 22,470 | | | 12,974 | |
Interest expense, net of interest income | 11,038 | | | 17,829 | | | 34,916 | | | 51,795 | |
| | | | | | | |
Income before provision for income taxes | 570,129 | | | 233,902 | | | 1,492,320 | | | 559,529 | |
Provision for income taxes | 133,507 | | | 49,062 | | | 343,279 | | | 119,047 | |
Net income | 436,622 | | | 184,840 | | | 1,149,041 | | | 440,482 | |
Less: Net income attributable to non-controlling interests | 879 | | | 708 | | | 4,459 | | | 2,258 | |
Net income attributable to CBRE Group, Inc. | $ | 435,743 | | | $ | 184,132 | | | $ | 1,144,582 | | | $ | 438,224 | |
Basic income per share: | | | | | | | |
Net income per share attributable to CBRE Group, Inc. | $ | 1.30 | | | $ | 0.55 | | | $ | 3.41 | | | $ | 1.31 | |
Weighted average shares outstanding for basic income per share | 335,364,942 | | | 335,287,245 | | | 335,621,337 | | | 335,128,531 | |
Diluted income per share: | | | | | | | |
Net income per share attributable to CBRE Group, Inc. | $ | 1.28 | | | $ | 0.55 | | | $ | 3.37 | | | $ | 1.30 | |
Weighted average shares outstanding for diluted income per share | 340,337,159 | | | 337,665,848 | | | 339,805,292 | | | 338,255,859 | |
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)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Net income | $ | 436,622 | | | $ | 184,840 | | | $ | 1,149,041 | | | $ | 440,482 | |
Other comprehensive (loss) income: | | | | | | | |
Foreign currency translation (loss) gain | (90,244) | | | 106,201 | | | (124,188) | | | (40,237) | |
Amounts reclassified from accumulated other comprehensive loss to interest expense, net of tax | 110 | | | 106 | | | 324 | | | 320 | |
| | | | | | | |
Unrealized holding gains (losses) on available for sale debt securities, net of tax | 215 | | | 811 | | | (971) | | | 1,311 | |
Other, net | 105 | | | — | | | 105 | | | (13,045) | |
Total other comprehensive (loss) income | (89,814) | | | 107,118 | | | (124,730) | | | (51,651) | |
Comprehensive income | 346,808 | | | 291,958 | | | 1,024,311 | | | 388,831 | |
Less: Comprehensive income attributable to non-controlling interests | 677 | | | 708 | | | 4,179 | | | 2,258 | |
Comprehensive income attributable to CBRE Group, Inc. | $ | 346,131 | | | $ | 291,250 | | | $ | 1,020,132 | | | $ | 386,573 | |
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)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2021 | | 2020 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net income | $ | 1,149,041 | | | $ | 440,482 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 363,727 | | | 357,903 | |
Amortization of financing costs | 5,080 | | | 4,632 | |
Gains related to mortgage servicing rights, premiums on loan sales and sales of other assets | (198,131) | | | (179,506) | |
Asset impairments | — | | | 75,171 | |
Net realized and unrealized gains, primarily from investments | (26,898) | | | (12,974) | |
Provision for doubtful accounts | 24,489 | | | 49,498 | |
Net compensation expense for equity awards | 133,308 | | | 41,841 | |
Equity income from unconsolidated subsidiaries | (459,535) | | | (72,487) | |
Distribution of earnings from unconsolidated subsidiaries | 382,831 | | | 103,796 | |
Proceeds from sale of mortgage loans | 12,767,544 | | | 11,565,281 | |
Origination of mortgage loans | (12,712,118) | | | (11,727,227) | |
(Decrease) increase in warehouse lines of credit | (192) | | | 214,659 | |
Tenant concessions received | 18,645 | | | 28,617 | |
Purchase of equity securities | (5,281) | | | (8,932) | |
Proceeds from sale of equity securities | 6,856 | | | 11,210 | |
Increase in real estate under development | (123,580) | | | (68,178) | |
(Increase) decrease in receivables, prepaid expenses and other assets (including contract and lease assets) | (255,161) | | | 610,058 | |
Decrease in accounts payable and accrued expenses and other liabilities (including contract and lease liabilities) | (107,756) | | | (98,977) | |
Increase (decrease) in compensation and employee benefits payable and accrued bonus and profit sharing | 176,413 | | | (550,932) | |
Decrease in net income taxes receivable/payable | 42,100 | | | 118,736 | |
Other operating activities, net | 18,739 | | | (12,313) | |
Net cash provided by operating activities | 1,200,121 | | | 890,358 | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Capital expenditures | (121,409) | | | (190,546) | |
Acquisition of businesses, including net assets acquired, intangibles and goodwill, net of cash acquired | (71,373) | | | (25,923) | |
Contributions to unconsolidated subsidiaries | (400,967) | | | (72,058) | |
Distributions from unconsolidated subsidiaries | 63,776 | | | 66,409 | |
Other investing activities, net | (25,433) | | | 15,631 | |
Net cash used in investing activities | (555,406) | | | (206,487) | |
The accompanying notes are an integral part of these consolidated financial statements.
4
CBRE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(Dollars in thousands)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2021 | | 2020 |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
Proceeds from revolving credit facility | — | | | 835,671 | |
Repayment of revolving credit facility | — | | | (835,671) | |
Proceeds from notes payable on real estate | 71,157 | | | 40,263 | |
Repayment of notes payable on real estate | (13,944) | | | (24,704) | |
Proceeds from issuance of 2.500% senior notes | 492,255 | | | — | |
Repurchase of common stock | (188,285) | | | (50,028) | |
Acquisition of businesses (cash paid for acquisitions more than three months after purchase date) | (3,421) | | | (34,400) | |
Units repurchased for payment of taxes on equity awards | (36,747) | | | (41,627) | |
Non-controlling interest contributions | 652 | | | 1,977 | |
Non-controlling interest distributions | (4,026) | | | (2,471) | |
Other financing activities, net | (42,767) | | | (30,050) | |
Net cash provided by (used in) financing activities | 274,874 | | | (141,040) | |
Effect of currency exchange rate changes on cash and cash equivalents and restricted cash | (82,714) | | | 9,981 | |
NET INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | 836,875 | | | 552,812 | |
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, AT BEGINNING OF PERIOD | 2,039,247 | | | 1,093,745 | |
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, AT END OF PERIOD | $ | 2,876,122 | | | $ | 1,646,557 | |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | | | |
Cash paid during the period for: | | | |
Interest | $ | 29,131 | | | $ | 60,415 | |
Income tax payments, net | $ | 220,955 | | | $ | 4,137 | |
The accompanying notes are an integral part of these consolidated financial statements.
5
CBRE GROUP, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(Dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CBRE Group, Inc. Stockholders' | | | | |
| Class A common stock | | Additional paid-in capital | | Accumulated earnings | | Accumulated other comprehensive loss | | Non- controlling interests | | Total |
Balance at June 30, 2021 | $ | 3,357 | | | $ | 1,001,832 | | | $ | 7,238,896 | | | $ | (564,564) | | | $ | 41,155 | | | $ | 7,720,676 | |
Net income | — | | | — | | | 435,743 | | | — | | | 879 | | | 436,622 | |
Net compensation expense for equity awards | — | | | 48,075 | | | — | | | — | | | — | | | 48,075 | |
Units repurchased for payment of taxes on equity awards | — | | | (472) | | | — | | | — | | | — | | | (472) | |
Repurchase of common stock | (11) | | | (99,999) | | | — | | | — | | | — | | | (100,010) | |
Foreign currency translation loss | — | | | — | | | — | | | (90,042) | | | (202) | | | (90,244) | |
Amounts reclassified from accumulated other comprehensive loss to interest expense, net of tax | — | | | — | | | — | | | 110 | | | — | | | 110 | |
Unrealized holding gains on available for sale debt securities, net of tax | — | | | — | | | — | | | 215 | | | — | | | 215 | |
Contributions from non-controlling interests | — | | | — | | | — | | | — | | | 125 | | | 125 | |
Distributions to non-controlling interests | — | | | — | | | — | | | — | | | (649) | | | (649) | |
Other | — | | | (10,652) | | | — | | | 105 | | | (5,741) | | | (16,288) | |
Balance at September 30, 2021 | $ | 3,346 | | | $ | 938,784 | | | $ | 7,674,639 | | | $ | (654,176) | | | $ | 35,567 | | | $ | 7,998,160 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CBRE Group, Inc. Stockholders' | | | | |
| Class A common stock | | Additional paid-in capital | | Accumulated earnings | | Accumulated other comprehensive loss | | Non- controlling interests | | Total |
Balance at June 30, 2020 | $ | 3,352 | | | $ | 1,046,999 | | | $ | 6,032,160 | | | $ | (838,517) | | | $ | 41,057 | | | $ | 6,285,051 | |
Net income | — | | | — | | | 184,132 | | | — | | | 708 | | | 184,840 | |
Net compensation expense for equity awards | — | | | 22,137 | | | — | | | — | | | — | | | 22,137 | |
Units repurchased for payment of taxes on equity awards | — | | | (4,269) | | | — | | | — | | | — | | | (4,269) | |
| | | | | | | | | | | |
Foreign currency translation gain | — | | | — | | | — | | | 106,201 | | | — | | | 106,201 | |
Amounts reclassified from accumulated other comprehensive loss to interest expense, net of tax | — | | | — | | | — | | | 106 | | | — | | | 106 | |
| | | | | | | | | | | |
Unrealized holding gains on available for sale debt securities, net of tax | — | | | — | | | — | | | 811 | | | — | | | 811 | |
Contributions from non-controlling interests | — | | | — | | | — | | | — | | | 549 | | | 549 | |
Distributions to non-controlling interests | — | | | — | | | — | | | — | | | (1,379) | | | (1,379) | |
| | | | | | | | | | | |
Other | 2 | | | (18) | | | — | | | — | | | 271 | | | 255 | |
Balance at September 30, 2020 | $ | 3,354 | | | $ | 1,064,849 | | | $ | 6,216,292 | | | $ | (731,399) | | | $ | 41,206 | | | $ | 6,594,302 | |
The accompanying notes are an integral part of these consolidated financial statements.
6
CBRE GROUP, INC.
CONSOLIDATED STATEMENTS OF EQUITY (Continued)
(Unaudited)
(Dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CBRE Group, Inc. Stockholders' | | | | |
| Class A common stock | | Additional paid-in capital | | Accumulated earnings | | Accumulated other comprehensive loss | | Non- controlling interests | | Total |
Balance at December 31, 2020 | $ | 3,356 | | | $ | 1,074,639 | | | $ | 6,530,057 | | | $ | (529,726) | | | $ | 41,761 | | | $ | 7,120,087 | |
Net income | — | | | — | | | 1,144,582 | | | — | | | 4,459 | | | 1,149,041 | |
Net compensation expense for equity awards | — | | | 133,308 | | | — | | | — | | | — | | | 133,308 | |
Units repurchased for payment of taxes on equity awards | — | | | (36,747) | | | — | | | — | | | — | | | (36,747) | |
Repurchase of common stock | (22) | | | (188,263) | | | — | | | — | | | — | | | (188,285) | |
Foreign currency translation loss | — | | | — | | | — | | | (123,908) | | | (280) | | | (124,188) | |
Amounts reclassified from accumulated other comprehensive loss to interest expense, net of tax | — | | | — | | | — | | | 324 | | | — | | | 324 | |
Unrealized holding losses on available for sale debt securities, net of tax | — | | | — | | | — | | | (971) | | | — | | | (971) | |
Contributions from non-controlling interests | — | | | — | | | — | | | — | | | 652 | | | 652 | |
Distributions to non-controlling interests | — | | | — | | | — | | | — | | | (4,026) | | | (4,026) | |
Other | 12 | | | (44,153) | | | — | | | 105 | | | (6,999) | | | (51,035) | |
Balance at September 30, 2021 | $ | 3,346 | | | $ | 938,784 | | | $ | 7,674,639 | | | $ | (654,176) | | | $ | 35,567 | | | $ | 7,998,160 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CBRE Group, Inc. Stockholders' | | | | |
| Class A common stock | | Additional paid-in capital | | Accumulated earnings | | Accumulated other comprehensive loss | | Non- controlling interests | | Total |
Balance at December 31, 2019 | $ | 3,348 | | | $ | 1,115,944 | | | $ | 5,793,149 | | | $ | (679,748) | | | $ | 40,419 | | | $ | 6,273,112 | |
Net income | — | | | — | | | 438,224 | | | — | | | 2,258 | | | 440,482 | |
Net compensation expense for equity awards | — | | | 41,841 | | | — | | | — | | | — | | | 41,841 | |
Units repurchased for payment of taxes on equity awards | — | | | (41,627) | | | — | | | — | | | — | | | (41,627) | |
Repurchase of common stock | (11) | | | (50,017) | | | — | | | — | | | — | | | (50,028) | |
Foreign currency translation loss | — | | | — | | | — | | | (40,237) | | | — | | | (40,237) | |
Amounts reclassified from accumulated other comprehensive loss to interest expense, net of tax | — | | | — | | | — | | | 320 | | | — | | | 320 | |
| | | | | | | | | | | |
Unrealized holding gains on available for sale debt securities, net of tax | — | | | — | | | — | | | 1,311 | | | — | | | 1,311 | |
Contributions from non-controlling interests | — | | | — | | | — | | | — | | | 1,977 | | | 1,977 | |
Distributions to non-controlling interests | — | | | — | | | — | | | — | | | (2,471) | | | (2,471) | |
| | | | | | | | | | | |
Other | 17 | | | (1,292) | | | (15,081) | | | (13,045) | | | (977) | | | (30,378) | |
Balance at September 30, 2020 | $ | 3,354 | | | $ | 1,064,849 | | | $ | 6,216,292 | | | $ | (731,399) | | | $ | 41,206 | | | $ | 6,594,302 | |
The accompanying notes are an integral part of these consolidated financial statements.
7
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, 2020, which are included in our 2020 Annual Report on Form 10-K (2020 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 2020 Annual Report for further discussion of our significant accounting policies and estimates.
Considerations Related to the Covid-19 Pandemic
The Covid-19 pandemic has primarily impacted the property sales and leasing lines of business in the Advisory Services segment. Many property owners and occupiers initially put transactions on hold and withdrew existing mandates, sharply reducing sales and leasing volumes. The effects of Covid-19 have eased significantly in 2021 as global economic conditions have improved. Nevertheless Covid-19 continues to pose public health challenges that impact our operations, particularly as new strains spread and vaccine administration is slow in parts of the world. As of the date of this Quarterly Report, the majority of workers remain out of their offices and occupier confidence in making long-term office leasing decisions has not returned to pre-pandemic levels.
See Note 5 (Fair Value Measurements) and Note 10 (Commitments and Contingencies) for further discussion of Covid-19 considerations.
Financial Statement Preparation
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, including the impact Covid-19 may have on our business. These estimates and the underlying assumptions affect the reported amounts of assets, liabilities, revenues and expenses. Such estimates include the value of goodwill, intangibles and other long-lived assets, real estate assets, accounts receivable, contract assets, operating lease 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 reclassifications have been made to the 2020 financial statements to conform with the 2021 presentation.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
2. New Accounting Pronouncements
Recent Accounting Pronouncements Pending Adoption
In March 2020 and January 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” and ASU 2021-01, “Reference Rate Reform: Scope,” respectively. Together, the ASUs provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance is effective for a limited time for all entities through December 31, 2022. We are evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.
In July 2021, the FASB issued ASU 2021-05, “Leases (Topic 842): Lessors-Certain Leases with Variable Lease Payments (Topic 842).” The ASU amends the lease classification requirements for lessors to align them with practice under Topic 840. Lessors should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if certain criteria are met. This guidance is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. We are evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures, but do not expect it to have a material impact.
3. 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 September 30, 2021 and December 31, 2020, 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 December 31, 2020 | $ | 1,411,170 | |
Origination of mortgage loans | 12,712,118 | |
Gains (premiums on loan sales) | 61,870 | |
Proceeds from sale of mortgage loans: | |
Sale of mortgage loans | (12,705,674) | |
Cash collections of premiums on loan sales | (61,870) | |
Proceeds from sale of mortgage loans | (12,767,544) | |
Net decrease in mortgage servicing rights included in warehouse receivables | (8,576) | |
Ending balance at September 30, 2021 | $ | 1,409,038 | |
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The following table is a summary of our warehouse lines of credit in place as of September 30, 2021 and December 31, 2020 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | September 30, 2021 | | December 31, 2020 |
Lender | | Current Maturity | | Pricing | | Maximum Facility Size | | Carrying Value | | Maximum Facility Size | | Carrying Value |
JP Morgan Chase Bank, N.A. (JP Morgan) (1) | | 10/17/2022 | | daily floating rate SOFR rate plus 1.60% | | $ | 985,000 | | | $ | 734,815 | | | $ | 1,585,000 | | | $ | 561,726 | |
JP Morgan | | 10/17/2022 | | daily floating rate SOFR rate plus 2.75% | | 15,000 | | | 3,003 | | | 15,000 | | | — | |
Fannie Mae Multifamily As Soon As Pooled Plus Agreement and Multifamily As Soon As Pooled Sale Agreement (ASAP) Program (2) | | Cancelable anytime | | daily one-month LIBOR plus 1.45%, with a LIBOR floor of 0.25% | | 650,000 | | | 31,485 | | | 450,000 | | | 132,692 | |
TD Bank, N.A. (TD Bank) (3) | | 7/15/2022 | | daily floating rate LIBOR plus 1.30% | | 800,000 | | | 222,311 | | | 800,000 | | | 401,849 | |
Bank of America, N.A. (BofA) (4) | | 5/25/2022 | | daily floating rate LIBOR plus 1.30%, with a LIBOR floor of 0.30% | | 350,000 | | | 265,368 | | | 350,000 | | | 175,862 | |
BofA (5) | | 5/25/2022 | | daily floating rate LIBOR plus 1.30%, with a LIBOR floor of 0.30% | | 250,000 | | | — | | | — | | | — | |
MUFG Union Bank, N.A. (Union Bank) (6) | | 6/28/2022 | | daily floating rate LIBOR plus 1.30% | | 200,000 | | | 126,790 | | | 300,000 | | | 111,835 | |
| | | | | | $ | 3,250,000 | | | $ | 1,383,772 | | | $ | 3,500,000 | | | $ | 1,383,964 | |
_______________________________
(1)Effective October 19, 2020, this facility was amended and the maximum facility size was temporarily increased to $1,585.0 million, and reverted back to $985.0 million on January 18, 2021. Effective October 18, 2021, this facility was renewed and amended and the maximum facility size was increased to $1,335.0 million. This facility has a revised maturity date of October 17, 2022 and a revised interest rate to a Secured Overnight Finance Rate ("SOFR") term plus 1.60%, noting the Business Lending sublimit has a revised interest rate of daily adjusted term SOFR plus 2.75%.
(2)Effective January 15, 2021, the maximum facility was temporarily increased to $650.0 million.
(3)Effective July 1, 2020, this facility was amended and provides for a maximum aggregate principal amount of $400.0 million, in addition to an uncommitted $400.0 million temporary line of credit. Effective June 28, 2021, this facility was renewed with a revised interest rate of daily floating rate LIBOR plus 1.30% and a maturity date of July 15, 2022. As of September 30, 2021, the uncommitted $400.0 million temporary line of credit was not utilized.
(4)The total commitment amount of $350.0 million includes a separate sublimit borrowing in the amount of $100.0 million, which can be utilized for specific purposes as defined within the agreement. Effective June 30, 2021, this facility was renewed with a revised interest rate of daily floating LIBOR plus 1.30% and a maturity date of May 25, 2022. The sublimit is subject to an interest rate of daily floating LIBOR plus 1.30%, with a LIBOR floor of 0.30%. As of September 30, 2021, the sublimit borrowing has not been utilized.
(5)Effective June 30, 2021, the advised consent line was renewed for $250.0 million of capacity with a revised interest rate of daily floating LIBOR plus 1.30%, with a LIBOR floor of 0.30%, and a maturity date of May 25, 2022.
(6)On June 28, 2019, we added a new warehouse facility for $200.0 million that contains an accordion feature which allowed for temporary increases not to exceed an additional $150.0 million. If utilized, the additional borrowings must be in predefined multiples and are not to occur more than 3 times within 12 consecutive months. Effective August 4, 2020, this facility was amended and decreased the accordion feature from $150.0 million to $100.0 million, with no changes to the predefined borrowing multiples. On September 22, 2020, the temporary increase of $100.0 million was utilized and expired on January 20, 2021. Effective June 28, 2021, this facility was renewed with a revised interest rate of daily floating rate LIBOR plus 1.30%, removing the LIBOR floor, and a maturity date of June 28, 2022.
During the nine months ended September 30, 2021, we had a maximum of $2.5 billion of warehouse lines of credit principal outstanding.
CBRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
4. Variable Interest Entities (VIEs)
We hold variable interests in certain VIEs in our Real Estate Investments segment 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 September 30, 2021 and December 31, 2020, our maximum exposure to loss related to VIEs which are not consolidated was as follows (dollars in thousands):
| | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
Investments in unconsolidated subsidiaries | $ | 78,561 | | | $ | 66,947 | |
Other current assets | 4,219 | | | 4,219 | |
Co-investment commitments | 91,865 | | | 47,957 | |
Maximum exposure to loss | $ | 174,645 | | | $ | 119,123 | |
5. Fair Value Measurements
Topic 820 of the FASB ASC defines fair value as the price that would be received to sell an asset or paid to transfer a 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 have been no significant changes to the valuation techniques and inputs used to develop the recurring fair value measurements from those disclosed in our 2020 Annual Report.
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 September 30, 2021 and December 31, 2020 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| As of September 30, 2021 |
| Fair Value Measured and Recorded Using | | |
| Level 1 | | Level 2 | | Level 3 | | Total |
Assets | | | | | | | |
Available for sale securities: | | | | | | | |
Debt securities: | | | | | | | |
U.S. treasury securities | $ | 7,108 | | | $ | — | | | $ | — | | | $ | 7,108 | |
Debt securities issued by U.S. federal agencies | — | | | 9,825 | | | — | | | 9,825 | |
Corporate debt securities | — | | | 50,551 | | | — | | | 50,551 | |
Asset-backed securities | — | | | 3,669 | | | — | | | 3,669 | |
Collateralized mortgage obligations | — | | | 776 | | | — | | | 776 | |
Total available for sale debt securities | 7,108 | | | 64,821 | | | — | | | 71,929 | |
Equity securities | 69,539 | | | — | | | — | | | 69,539 | |
Investments in unconsolidated subsidiaries | — | | | — | | | 283,965 | | | 283,965 | |
Warehouse receivables | — | |