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 June 30, 2017

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 July 31, 2017 was 337,935,219.

 

 

 


 

FORM 10-Q

June 30, 2017

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets at June 30, 2017 (Unaudited) and December 31, 2016

 

1

 

 

 

 

 

 

 

Consolidated Statements of Operations for the three and six months ended June 30, 2017 and
2016 (Unaudited)

 

2

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income for the three and six months ended June 30,
2017 and 2016 (Unaudited)

 

3

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and
2016 (Unaudited)

 

4

 

 

 

 

 

 

 

Consolidated Statement of Equity for the six months ended June 30, 2017 (Unaudited)

 

5

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

6

 

 

 

 

 

Item 2.

 

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

 

33

 

 

 

 

 

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 6.

 

Exhibits

 

56

 

 

 

 

 

Signatures

 

59

 

 

 

 


 

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

CBRE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

 

 

 

June 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

535,681

 

 

$

762,576

 

Restricted cash

 

 

74,720

 

 

 

68,836

 

Receivables, less allowance for doubtful accounts of $46,221 and $39,469 at June 30, 2017

   and December 31, 2016, respectively

 

 

2,653,346

 

 

 

2,605,602

 

Warehouse receivables

 

 

1,069,889

 

 

 

1,276,047

 

Income taxes receivable

 

 

55,593

 

 

 

45,626

 

Prepaid expenses

 

 

235,717

 

 

 

184,107

 

Other current assets

 

 

199,390

 

 

 

179,656

 

Total Current Assets

 

 

4,824,336

 

 

 

5,122,450

 

Property and equipment, net

 

 

556,480

 

 

 

560,756

 

Goodwill

 

 

3,095,980

 

 

 

2,981,392

 

Other intangible assets, net of accumulated amortization of $884,737 and $771,673 at June 30,

   2017 and December 31, 2016, respectively

 

 

1,398,757

 

 

 

1,411,039

 

Investments in unconsolidated subsidiaries

 

 

246,715

 

 

 

232,238

 

Deferred tax assets, net

 

 

96,272

 

 

 

105,324

 

Other assets, net

 

 

387,678

 

 

 

366,388

 

Total Assets

 

$

10,606,218

 

 

$

10,779,587

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

1,427,401

 

 

$

1,446,438

 

Compensation and employee benefits payable

 

 

673,510

 

 

 

772,922

 

Accrued bonus and profit sharing

 

 

543,982

 

 

 

890,321

 

Income taxes payable

 

 

41,796

 

 

 

58,351

 

Short-term borrowings:

 

 

 

 

 

 

 

 

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

   have committed to purchase)

 

 

1,054,970

 

 

 

1,254,653

 

Other

 

 

16

 

 

 

16

 

Total short-term borrowings

 

 

1,054,986

 

 

 

1,254,669

 

Current maturities of long-term debt

 

 

11

 

 

 

11

 

Other current liabilities

 

 

55,864

 

 

 

102,717

 

Total Current Liabilities

 

 

3,797,550

 

 

 

4,525,429

 

Long-term debt, net of current maturities

 

 

2,550,404

 

 

 

2,548,126

 

Deferred tax liabilities, net

 

 

96,780

 

 

 

70,719

 

Non-current tax liabilities

 

 

32,427

 

 

 

54,042

 

Other liabilities

 

 

546,031

 

 

 

524,026

 

Total Liabilities

 

 

7,023,192

 

 

 

7,722,342

 

Commitments and contingencies

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

CBRE Group, Inc. Stockholders’ Equity:

 

 

 

 

 

 

 

 

Class A common stock; $0.01 par value; 525,000,000 shares authorized; 337,929,771

   and 337,279,449 shares issued and outstanding at June 30, 2017 and December 31,

   2016, respectively

 

 

3,379

 

 

 

3,373

 

Additional paid-in capital

 

 

1,199,559

 

 

 

1,145,226

 

Accumulated earnings

 

 

2,983,668

 

 

 

2,656,906

 

Accumulated other comprehensive loss

 

 

(646,913

)

 

 

(791,018

)

Total CBRE Group, Inc. Stockholders’ Equity

 

 

3,539,693

 

 

 

3,014,487

 

Non-controlling interests

 

 

43,333

 

 

 

42,758

 

Total Equity

 

 

3,583,026

 

 

 

3,057,245

 

Total Liabilities and Equity

 

$

10,606,218

 

 

$

10,779,587

 

 

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

1


 

CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATONS

(Unaudited)

(Dollars in thousands, except share data)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenue

 

$

3,342,215

 

 

$

3,207,537

 

 

$

6,323,419

 

 

$

6,054,271

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services

 

 

2,318,562

 

 

 

2,254,233

 

 

 

4,405,641

 

 

 

4,267,846

 

Operating, administrative and other

 

 

712,374

 

 

 

680,442

 

 

 

1,318,605

 

 

 

1,323,808

 

Depreciation and amortization

 

 

100,386

 

 

 

90,268

 

 

 

194,423

 

 

 

177,262

 

Total costs and expenses

 

 

3,131,322

 

 

 

3,024,943

 

 

 

5,918,669

 

 

 

5,768,916

 

Gain on disposition of real estate

 

 

11,298

 

 

 

-

 

 

 

12,683

 

 

 

4,819

 

Operating income

 

 

222,191

 

 

 

182,594

 

 

 

417,433

 

 

 

290,174

 

Equity income from unconsolidated

   subsidiaries

 

 

75,384

 

 

 

34,929

 

 

 

90,402

 

 

 

92,230

 

Other income

 

 

3,186

 

 

 

3,882

 

 

 

7,301

 

 

 

7,097

 

Interest income

 

 

1,427

 

 

 

3,066

 

 

 

3,838

 

 

 

4,525

 

Interest expense

 

 

35,430

 

 

 

36,987

 

 

 

69,440

 

 

 

71,777

 

Income before provision for income

   taxes

 

 

266,758

 

 

 

187,484

 

 

 

449,534

 

 

 

322,249

 

Provision for income taxes

 

 

68,362

 

 

 

64,039

 

 

 

119,635

 

 

 

114,164

 

Net income

 

 

198,396

 

 

 

123,445

 

 

 

329,899

 

 

 

208,085

 

Less:  Net income attributable to non-

   controlling interests

 

 

1,231

 

 

 

1,777

 

 

 

3,137

 

 

 

4,250

 

Net income attributable to CBRE Group,

   Inc.

 

$

197,165

 

 

$

121,668

 

 

$

326,762

 

 

$

203,835

 

Basic income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share attributable to

   CBRE Group, Inc.

 

$

0.59

 

 

$

0.36

 

 

$

0.97

 

 

$

0.61

 

Weighted average shares outstanding

   for basic income per share

 

 

336,975,149

 

 

 

335,076,746

 

 

 

336,941,681

 

 

 

334,534,841

 

Diluted income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share attributable to

   CBRE Group, Inc.

 

$

0.58

 

 

$

0.36

 

 

$

0.96

 

 

$

0.60

 

Weighted average shares outstanding

   for diluted income per share

 

 

340,882,603

 

 

 

338,080,641

 

 

 

340,214,246

 

 

 

337,797,887

 

 

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

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net income

 

$

198,396

 

 

$

123,445

 

 

$

329,899

 

 

$

208,085

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain

   (loss)

 

 

88,347

 

 

 

(102,308

)

 

 

139,436

 

 

 

(85,714

)

Amounts reclassified from

   accumulated other comprehensive

   loss to interest expense, net of tax

 

 

1,380

 

 

 

1,733

 

 

 

2,888

 

 

 

3,476

 

Unrealized (losses) gains on interest

   rate swaps, net of tax

 

 

(217

)

 

 

(1,206

)

 

 

77

 

 

 

(4,115

)

Unrealized holding gains on available

   for sale securities, net of tax

 

 

977

 

 

 

1,574

 

 

 

1,900

 

 

 

645

 

Other, net

 

 

(10

)

 

 

(702

)

 

 

(16

)

 

 

(759

)

Total other comprehensive income

   (loss)

 

 

90,477

 

 

 

(100,909

)

 

 

144,285

 

 

 

(86,467

)

Comprehensive income

 

 

288,873

 

 

 

22,536

 

 

 

474,184

 

 

 

121,618

 

Less: Comprehensive income

   attributable to non-controlling interests

 

 

1,390

 

 

 

1,694

 

 

 

3,317

 

 

 

4,289

 

Comprehensive income attributable to

   CBRE Group, Inc.

 

$

287,483

 

 

$

20,842

 

 

$

470,867

 

 

$

117,329

 

 

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)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2017

 

 

2016

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

329,899

 

 

$

208,085

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

194,423

 

 

 

177,262

 

Amortization of financing costs

 

 

4,912

 

 

 

5,204

 

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

 

 

(80,893

)

 

 

(73,404

)

Net realized and unrealized gains from investments

 

 

(7,301

)

 

 

(7,097

)

Equity income from unconsolidated subsidiaries

 

 

(90,402

)

 

 

(92,230

)

Provision for doubtful accounts

 

 

5,578

 

 

 

4,926

 

Compensation expense for equity awards

 

 

48,283

 

 

 

28,554

 

Proceeds from sale of mortgage loans

 

 

7,071,928

 

 

 

6,748,833

 

Origination of mortgage loans

 

 

(6,848,102

)

 

 

(5,821,981

)

Decrease in warehouse lines of credit

 

 

(199,683

)

 

 

(911,486

)

Distribution of earnings from unconsolidated subsidiaries

 

 

12,981

 

 

 

14,544

 

Tenant concessions received

 

 

7,436

 

 

 

2,339

 

Purchase of trading securities

 

 

(43,525

)

 

 

(57,985

)

Proceeds from sale of trading securities

 

 

34,476

 

 

 

62,497

 

Decrease in receivables

 

 

60,947

 

 

 

71,666

 

Increase in prepaid expenses and other assets

 

 

(88,576

)

 

 

(74,672

)

Decrease in real estate held for sale and under development

 

 

9,787

 

 

 

4,440

 

Decrease in accounts payable and accrued expenses

 

 

(55,029

)

 

 

(111,699

)

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

 

 

(487,997

)

 

 

(332,454

)

Increase in income taxes receivable/payable

 

 

(47,384

)

 

 

(53,095

)

(Decrease) increase in other liabilities

 

 

(7,067

)

 

 

21,122

 

Other operating activities, net

 

 

(15,428

)

 

 

(23,386

)

Net cash used in operating activities

 

 

(190,737

)

 

 

(210,017

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(59,863

)

 

 

(79,058

)

Acquisition of businesses (other than Global Workplace Solutions (GWS)), including net assets

   acquired, intangibles and goodwill, net of cash acquired

 

 

(40,452

)

 

 

(16,569

)

Acquisition of GWS, including net assets acquired, intangibles and goodwill

 

 

-

 

 

 

(21,900

)

Contributions to unconsolidated subsidiaries

 

 

(32,660

)

 

 

(27,431

)

Distributions from unconsolidated subsidiaries

 

 

96,941

 

 

 

93,912

 

Increase in restricted cash

 

 

(3,022

)

 

 

(478

)

Purchase of available for sale securities

 

 

(19,734

)

 

 

(23,984

)

Proceeds from the sale of available for sale securities

 

 

17,277

 

 

 

22,061

 

Other investing activities, net

 

 

2,608

 

 

 

13,929

 

Net cash used in investing activities

 

 

(38,905

)

 

 

(39,518

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Repayment of senior term loans

 

 

-

 

 

 

(14,375

)

Proceeds from revolving credit facility

 

 

911,000

 

 

 

1,356,000

 

Repayment of revolving credit facility

 

 

(911,000

)

 

 

(1,200,000

)

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

 

 

2,137

 

 

 

13,315

 

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

 

 

(9,189

)

 

 

(4,102

)

Units repurchased for payment of taxes on equity awards

 

 

(1,900

)

 

 

(5,112

)

Non-controlling interest contributions

 

 

1,941

 

 

 

821

 

Non-controlling interest distributions

 

 

(3,904

)

 

 

(3,517

)

Payment of financing costs

 

 

-

 

 

 

(5,529

)

Other financing activities, net

 

 

(3,666

)

 

 

3,987

 

Net cash (used in) provided by financing activities

 

 

(14,581

)

 

 

141,488

 

Effect of currency exchange rate changes on cash and cash equivalents

 

 

17,328

 

 

 

(588

)

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

 

(226,895

)

 

 

(108,635

)

CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD

 

 

762,576

 

 

 

540,403

 

CASH AND CASH EQUIVALENTS, AT END OF PERIOD

 

$

535,681

 

 

$

431,768

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest

 

$

59,490

 

 

$

63,420

 

Income taxes, net

 

$

163,885

 

 

$

160,353

 

 

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

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

 

common

 

 

paid-in

 

 

Accumulated

 

 

Accumulated other

 

 

controlling

 

 

 

 

 

 

 

stock

 

 

capital

 

 

earnings

 

 

comprehensive loss

 

 

interests

 

 

Total

 

Balance at December 31, 2016

 

$

3,373

 

 

$

1,145,226

 

 

$

2,656,906

 

 

$

(791,018

)

 

$

42,758

 

 

$

3,057,245

 

Net income

 

 

 

 

 

 

 

 

326,762

 

 

 

 

 

 

3,137

 

 

 

329,899

 

Non-cash issuance of common

   stock related to acquisition

 

 

5

 

 

 

7,586

 

 

 

 

 

 

(2

)

 

 

 

 

 

7,589

 

Compensation expense for

   equity awards

 

 

 

 

 

48,283

 

 

 

 

 

 

 

 

 

 

 

 

48,283

 

Units repurchased for

   payment of taxes

   on equity awards

 

 

 

 

 

(1,900

)

 

 

 

 

 

 

 

 

 

 

 

(1,900

)

Foreign currency translation

   gain

 

 

 

 

 

 

 

 

 

 

 

139,256

 

 

 

180

 

 

 

139,436

 

Amounts reclassified from

   accumulated other

   comprehensive loss to

   interest expense, net of tax

 

 

 

 

 

 

 

 

 

 

 

2,888

 

 

 

 

 

 

2,888

 

Unrealized gains on interest

   rate swaps, net of tax

 

 

 

 

 

 

 

 

 

 

 

77

 

 

 

 

 

 

77

 

Unrealized holding gains on

   available for sale

   securities, net of tax

 

 

 

 

 

 

 

 

 

 

 

1,900

 

 

 

 

 

 

1,900

 

Contributions from non-

   controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,941

 

 

 

1,941

 

Distributions to non-

   controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,904

)

 

 

(3,904

)

Other

 

 

1

 

 

 

364

 

 

 

 

 

 

(14

)

 

 

(779

)

 

 

(428

)

Balance at June 30, 2017

 

$

3,379

 

 

$

1,199,559

 

 

$

2,983,668

 

 

$

(646,913

)

 

$

43,333

 

 

$

3,583,026

 

 

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, 2016, which are included in our 2016 Annual Report on Form 10-K (2016 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 2016 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 (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, 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 2016 financial statements to conform with the 2017 presentation.

The results of operations for the three and six months ended June 30, 2017 are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2017.

2.

New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In May 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting.”  This ASU provides guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718.  This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted.  We elected to early adopt ASU 2017-09 in the second quarter of 2017 and the adoption did not have a material impact on our consolidated financial statements and related disclosures.

6


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

Recent Accounting Pronouncements Pending Adoption

The FASB has recently issued five ASUs related to revenue recognition (“new revenue recognition guidance”), all of which will become effective for the company on January 1, 2018.  The ASUs issued are: (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.”  ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers and will replace most existing revenue recognition guidance under GAAP.  This ASU permits the use of either the retrospective or cumulative effect transition method.  ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations.  ASU 2016-10 clarifies guidance related to identifying performance obligations and licensing implementation guidance contained in ASU 2014-09.  ASU 2016-12 clarifies guidance in certain narrow areas and adds some practical expedients.  ASU 2016-20 also clarifies guidance in certain narrow areas and adds optional exemptions to certain disclosure requirements.

We plan to adopt the new revenue recognition guidance in the first quarter of 2018 using the retrospective transition method. We continue to evaluate the impact that adoption of these updates will have on our consolidated financial statements and related disclosures. Based on our initial assessment, the impact of the application of the new revenue recognition guidance will likely result in an acceleration of some revenues that are based, in part, on future contingent events. For example, some brokerage revenues from leasing commissions in various countries where we operate will get recognized earlier. Under current GAAP, a portion of these commissions are deferred until a future contingency is resolved (e.g., tenant move-in or payment of first month’s rent). Under the new revenue guidance, the company’s performance obligation will be typically satisfied at lease signing and therefore the portion of the commission that is contingent on a future event will likely be recognized earlier if deemed not subject to significant reversal. We continue to evaluate the impact of updated principal versus agent guidance on our consolidated financial statements in relation to third-party costs which are billed to clients in association with facilities management and project management services.  While our assessment is still ongoing, we anticipate that a significant amount of additional contracts will be accounted for on a gross basis, resulting in a significant gross up of third-party costs as compared to our current presentation, with no impact on profitability.  This is driven by a change in the indicators used to assess if we control these third-party service providers.

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 will significantly change the income statement impact of equity investments and the recognition of changes in fair value of financial liabilities when the fair value option is elected.  This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017.  Early adoption is not permitted, except for the provisions related to the recognition of changes in fair value of financial liabilities when the fair value option is elected.  We do not believe the adoption of ASU 2016-01 will have a material impact on our consolidated financial statements and related disclosures.

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 evaluating the magnitude of its impact on our consolidated financial statements by reviewing our existing lease contracts and service contracts that may include embedded leases.

7


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

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 August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.”  This ASU addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice.  This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those years, with early adoption permitted.  At this point in time, we do not believe the adoption of ASU 2016-15 will have a material impact on our consolidated financial statements and related disclosures.

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.  This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those years, with early adoption permitted.  At this point in time, we do not believe the adoption of ASU 2016-16 will have a material 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 or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be 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.  This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those years, with early adoption permitted.  At this point in time, we do not believe the adoption of ASU 2016-18 will have a material impact 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 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.  This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those years.  At this point in time, we do not believe the adoption of ASU 2017-05 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.

8


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception.”  This ASU simplifies the accounting for certain financial instruments with down round features.   This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted.  At this point in time, we do not believe the adoption of ASU 2017-11 will have a material impact on our consolidated financial statements and related disclosures.

 

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. Loans funded from the warehouse lines of credit are generally repaid within a one-month period, on average, 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. Such loans are funded at the prevailing market rates. The warehouse lines of credit are recourse only to CBRE Capital Markets and are secured by our related warehouse receivables. We elect the fair value option for all warehouse receivables. At June 30, 2017 and December 31, 2016, 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, 2017

 

$

1,276,047

 

Origination of mortgage loans

 

 

6,848,102

 

Gains (premiums on loan sales)

 

 

21,460

 

 

 

 

 

 

Sale of mortgage loans

 

 

(7,050,468

)

Cash collections of premiums on loan sales

 

 

(21,460

)

Proceeds from sale of mortgage loans

 

 

(7,071,928

)

 

 

 

 

 

Net decrease in mortgage servicing rights included

   in warehouse receivables

 

 

(3,792

)

Ending balance at June 30, 2017

 

$

1,069,889

 

 

 

9


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 June 30, 2017 and December 31, 2016 (dollars in thousands):

 

 

 

 

 

 

 

June 30, 2017

 

 

December 31, 2016

 

 

 

 

 

 

 

Maximum

 

 

 

 

 

 

Maximum

 

 

 

 

 

Lender

 

Current

Maturity

 

Pricing

 

Facility

Size

 

 

Carrying

Value

 

 

Facility

Size

 

 

Carrying

Value

 

JP Morgan Chase Bank, N.A.

   (JP Morgan)  (1)

 

2/28/2017

 

daily one-month LIBOR plus 1.45%

 

$

-

 

 

$

-

 

 

$

300,000

 

 

$

275,945

 

JP Morgan

 

10/23/2017

 

daily one-month LIBOR plus 1.45%

 

 

800,000

 

 

 

400,178

 

 

 

700,000

 

 

 

-

 

JP Morgan

 

10/23/2017

 

daily one-month LIBOR plus 2.75%

 

 

25,000

 

 

 

1,433

 

 

 

25,000

 

 

 

3,768

 

Bank of America (BofA) (1)

 

1/30/2017

 

daily one-month LIBOR plus 1.60%

 

 

-

 

 

 

-

 

 

 

300,000

 

 

 

300,000

 

BofA

 

6/5/2018

 

daily one-month LIBOR plus 1.40%

 

 

225,000

 

 

 

127,437

 

 

 

200,000

 

 

 

18,555

 

Fannie Mae Multifamily As Soon

   As Pooled Plus Agreement and

   Multifamily As Soon As Pooled

   Sale Agreement (ASAP) Program

   (1)

 

1/17/2017

 

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

 

 

-

 

 

 

-

 

 

 

200,000

 

 

 

200,000

 

Fannie Mae ASAP Program

 

Cancelable

anytime

 

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

 

 

450,000

 

 

 

75,293

 

 

 

450,000

 

 

 

111,160

 

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

 

2/28/2017

 

daily one-month LIBOR plus 1.35%

 

 

-

 

 

 

-

 

 

 

375,000

 

 

 

154,032

 

TD Bank

 

6/30/2018

 

daily one-month LIBOR plus 1.25%

 

 

400,000

 

 

 

320,074

 

 

 

400,000

 

 

 

-

 

Capital One, N.A. (Capital One) (1)

 

1/23/2017

 

daily one-month LIBOR plus 1.45%

 

 

-

 

 

 

-

 

 

 

250,000

 

 

 

191,193

 

Capital One (2)

 

7/27/2017

 

daily one-month LIBOR plus 1.45%

 

 

200,000

 

 

 

130,555

 

 

 

200,000

 

 

 

-

 

 

 

 

 

 

 

$

2,100,000

 

 

$

1,054,970

 

 

$

3,400,000

 

 

$

1,254,653

 

 

(1)

Temporary facility to accommodate year-end volume.

(2)

On July 27, 2017, this agreement was amended to extend the maturity date to July 27, 2018 and reduce the interest rate to daily one-month LIBOR plus 1.40%.

 

During the six months ended June 30, 2017, we had a maximum of $1.7 billion of warehouse lines of credit principal outstanding.

 

4.

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.

10


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

As of June 30, 2017 and December 31, 2016, our maximum exposure to loss related to the VIEs which are not consolidated was as follows (dollars in thousands):