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, 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 October 31, 2017 was 339,459,138.

 

 

 


 

FORM 10-Q

September 30, 2017

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

 

 

 

 

 

 

 

 

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

 

1

 

 

 

 

 

 

 

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

 

2

 

 

 

 

 

 

 

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

 

3

 

 

 

 

 

 

 

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

 

4

 

 

 

 

 

 

 

Consolidated Statement of Equity for the nine months ended September 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

 

34

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

57

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

58

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

59

 

 

 

 

 

Item 1A.

 

Risk Factors

 

59

 

 

 

 

 

Item 6.

 

Exhibits

 

59

 

 

 

 

 

Signatures

 

62

 

 

 

 


 

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

CBRE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

 

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

955,605

 

 

$

762,576

 

Restricted cash

 

 

84,794

 

 

 

68,836

 

Receivables, less allowance for doubtful accounts of $47,596 and $39,469 at September 30,

   2017 and December 31, 2016, respectively

 

 

2,843,126

 

 

 

2,605,602

 

Warehouse receivables

 

 

1,434,910

 

 

 

1,276,047

 

Income taxes receivable

 

 

66,386

 

 

 

45,626

 

Prepaid expenses

 

 

218,049

 

 

 

184,107

 

Other current assets

 

 

201,864

 

 

 

179,656

 

Total Current Assets

 

 

5,804,734

 

 

 

5,122,450

 

Property and equipment, net

 

 

574,266

 

 

 

560,756

 

Goodwill

 

 

3,135,208

 

 

 

2,981,392

 

Other intangible assets, net of accumulated amortization of $943,587 and $771,673 at

   September 30, 2017 and December 31, 2016, respectively

 

 

1,400,699

 

 

 

1,411,039

 

Investments in unconsolidated subsidiaries

 

 

233,634

 

 

 

232,238

 

Deferred tax assets, net

 

 

94,250

 

 

 

105,324

 

Other assets, net

 

 

409,223

 

 

 

366,388

 

Total Assets

 

$

11,652,014

 

 

$

10,779,587

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

1,505,860

 

 

$

1,446,438

 

Compensation and employee benefits payable

 

 

763,554

 

 

 

772,922

 

Accrued bonus and profit sharing

 

 

727,066

 

 

 

890,321

 

Income taxes payable

 

 

82,106

 

 

 

58,351

 

Short-term borrowings:

 

 

 

 

 

 

 

 

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

   Enterprises have committed to purchase)

 

 

1,416,253

 

 

 

1,254,653

 

Other

 

 

16

 

 

 

16

 

Total short-term borrowings

 

 

1,416,269

 

 

 

1,254,669

 

Current maturities of long-term debt

 

 

10

 

 

 

11

 

Other current liabilities

 

 

56,512

 

 

 

102,717

 

Total Current Liabilities

 

 

4,551,377

 

 

 

4,525,429

 

Long-term debt, net of current maturities

 

 

2,551,568

 

 

 

2,548,126

 

Deferred tax liabilities, net

 

 

125,782

 

 

 

70,719

 

Non-current tax liabilities

 

 

17,851

 

 

 

54,042

 

Other liabilities

 

 

553,600

 

 

 

524,026

 

Total Liabilities

 

 

7,800,178

 

 

 

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; 339,459,138

   and 337,279,449 shares issued and outstanding at September 30, 2017 and

   December 31, 2016, respectively

 

 

3,395

 

 

 

3,373

 

Additional paid-in capital

 

 

1,192,855

 

 

 

1,145,226

 

Accumulated earnings

 

 

3,179,985

 

 

 

2,656,906

 

Accumulated other comprehensive loss

 

 

(580,765

)

 

 

(791,018

)

Total CBRE Group, Inc. Stockholders’ Equity

 

 

3,795,470

 

 

 

3,014,487

 

Non-controlling interests

 

 

56,366

 

 

 

42,758

 

Total Equity

 

 

3,851,836

 

 

 

3,057,245

 

Total Liabilities and Equity

 

$

11,652,014

 

 

$

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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenue

 

$

3,549,977

 

 

$

3,193,487

 

 

$

9,873,396

 

 

$

9,247,758

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services

 

 

2,513,377

 

 

 

2,252,783

 

 

 

6,919,018

 

 

 

6,520,629

 

Operating, administrative and other

 

 

704,898

 

 

 

686,530

 

 

 

2,023,503

 

 

 

2,010,338

 

Depreciation and amortization

 

 

102,591

 

 

 

92,725

 

 

 

297,014

 

 

 

269,987

 

Total costs and expenses

 

 

3,320,866

 

 

 

3,032,038

 

 

 

9,239,535

 

 

 

8,800,954

 

Gain on disposition of real estate

 

 

6,180

 

 

 

11,043

 

 

 

18,863

 

 

 

15,862

 

Operating income

 

 

235,291

 

 

 

172,492

 

 

 

652,724

 

 

 

462,666

 

Equity income from unconsolidated

   subsidiaries

 

 

67,834

 

 

 

24,672

 

 

 

158,236

 

 

 

116,902

 

Other income

 

 

1,768

 

 

 

1,356

 

 

 

9,069

 

 

 

8,453

 

Interest income

 

 

3,129

 

 

 

1,020

 

 

 

6,967

 

 

 

5,545

 

Interest expense

 

 

34,483

 

 

 

37,273

 

 

 

103,923

 

 

 

109,050

 

Income before provision for income

   taxes

 

 

273,539

 

 

 

162,267

 

 

 

723,073

 

 

 

484,516

 

Provision for income taxes

 

 

76,178

 

 

 

51,414

 

 

 

195,813

 

 

 

165,578

 

Net income

 

 

197,361

 

 

 

110,853

 

 

 

527,260

 

 

 

318,938

 

Less:  Net income attributable to non-

   controlling interests

 

 

1,044

 

 

 

6,690

 

 

 

4,181

 

 

 

10,940

 

Net income attributable to CBRE Group,

   Inc.

 

$

196,317

 

 

$

104,163

 

 

$

523,079

 

 

$

307,998

 

Basic income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share attributable to

   CBRE Group, Inc.

 

$

0.58

 

 

$

0.31

 

 

$

1.55

 

 

$

0.92

 

Weighted average shares outstanding

   for basic income per share

 

 

337,948,324

 

 

 

335,770,122

 

 

 

337,280,914

 

 

 

334,949,606

 

Diluted income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share attributable to

   CBRE Group, Inc.

 

$

0.58

 

 

$

0.31

 

 

$

1.54

 

 

$

0.91

 

Weighted average shares outstanding

   for diluted income per share

 

 

341,186,431

 

 

 

338,488,975

 

 

 

340,502,432

 

 

 

338,053,297

 

 

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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net income

 

$

197,361

 

 

$

110,853

 

 

$

527,260

 

 

$

318,938

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain

   (loss)

 

 

64,711

 

 

 

(15,940

)

 

 

204,147

 

 

 

(101,654

)

Amounts reclassified from

   accumulated other comprehensive

   loss to interest expense, net of tax

 

 

1,260

 

 

 

1,720

 

 

 

4,148

 

 

 

5,196

 

Unrealized gains (losses) on interest

   rate swaps, net of tax

 

 

25

 

 

 

788

 

 

 

102

 

 

 

(3,327

)

Unrealized holding gains on available

   for sale securities, net of tax

 

 

339

 

 

 

348

 

 

 

2,239

 

 

 

993

 

Other, net

 

 

(4

)

 

 

2

 

 

 

(20

)

 

 

(757

)

Total other comprehensive income

   (loss)

 

 

66,331

 

 

 

(13,082

)

 

 

210,616

 

 

 

(99,549

)

Comprehensive income

 

 

263,692

 

 

 

97,771

 

 

 

737,876

 

 

 

219,389

 

Less: Comprehensive income

   attributable to non-controlling interests

 

 

1,227

 

 

 

6,768

 

 

 

4,544

 

 

 

11,057

 

Comprehensive income attributable to

   CBRE Group, Inc.

 

$

262,465

 

 

$

91,003

 

 

$

733,332

 

 

$

208,332

 

 

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,

 

 

 

2017

 

 

2016

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

527,260

 

 

$

318,938

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

297,014

 

 

 

269,987

 

Amortization of financing costs

 

 

7,371

 

 

 

8,302

 

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

 

 

(131,062

)

 

 

(134,775

)

Net realized and unrealized gains from investments

 

 

(9,069

)

 

 

(8,453

)

Gain on disposition of real estate held for investment

 

 

 

 

(9,901

)

Equity income from unconsolidated subsidiaries

 

 

(158,236

)

 

 

(116,902

)

Provision for doubtful accounts

 

 

7,442

 

 

 

6,805

 

Compensation expense for equity awards

 

 

68,975

 

 

 

43,346

 

Proceeds from sale of mortgage loans

 

 

11,316,041

 

 

 

10,075,850

 

Origination of mortgage loans

 

 

(11,441,884

)

 

 

(9,917,310

)

Increase (decrease) in warehouse lines of credit

 

 

161,600

 

 

 

(131,690

)

Distribution of earnings from unconsolidated subsidiaries

 

 

17,612

 

 

 

19,982

 

Tenant concessions received

 

 

14,739

 

 

 

7,667

 

Purchase of trading securities

 

 

(61,813

)

 

 

(76,136

)

Proceeds from sale of trading securities

 

 

53,251

 

 

 

84,234

 

(Increase) decrease in receivables

 

 

(90,526

)

 

 

46,289

 

Increase in prepaid expenses and other assets

 

 

(82,673

)

 

 

(101,916

)

Decrease in real estate held for sale and under development

 

 

10,784

 

 

 

2,870

 

Decrease in accounts payable and accrued expenses

 

 

(4,876

)

 

 

(125,471

)

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

 

 

(224,798

)

 

 

(210,670

)

Increase in income taxes receivable/payable

 

 

(10,631

)

 

 

(66,589

)

Increase in other liabilities

 

 

1,162

 

 

 

8,807

 

Other operating activities, net

 

 

(20,415

)

 

 

(46,453

)

Net cash provided by (used in) operating activities

 

 

247,268

 

 

 

(53,189

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(101,606

)

 

 

(134,357

)

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

   acquired, intangibles and goodwill, net of cash acquired

 

 

(59,394

)

 

 

(22,066

)

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

 

 

 

 

(10,477

)

Contributions to unconsolidated subsidiaries

 

 

(36,659

)

 

 

(57,295

)

Distributions from unconsolidated subsidiaries

 

 

177,506

 

 

 

119,539

 

Net proceeds from disposition of real estate held for investment

 

 

 

 

44,326

 

Increase in restricted cash

 

 

(11,020

)

 

 

(1,623

)

Purchase of available for sale securities

 

 

(29,408

)

 

 

(31,413

)

Proceeds from the sale of available for sale securities

 

 

25,618

 

 

 

29,560

 

Other investing activities, net

 

 

1,156

 

 

 

24,185

 

Net cash used in investing activities

 

 

(33,807

)

 

 

(39,621

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Repayment of senior term loans

 

 

 

 

(23,125

)

Proceeds from revolving credit facility

 

 

911,000

 

 

 

2,195,000

 

Repayment of revolving credit facility

 

 

(911,000

)

 

 

(2,112,000

)

Proceeds from notes payable on real estate held for investment

 

 

79

 

 

 

7,274

 

Repayment of notes payable on real estate held for investment

 

 

(1,324

)

 

 

(33,516

)

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

 

 

3,341

 

 

 

15,110

 

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

 

 

(10,777

)

 

 

(4,102

)

Units repurchased for payment of taxes on equity awards

 

 

(29,549

)

 

 

(27,796

)

Non-controlling interest contributions

 

 

3,410

 

 

 

1,478

 

Non-controlling interest distributions

 

 

(6,643

)

 

 

(12,800

)

Payment of financing costs

 

 

(21

)

 

 

(5,601

)

Other financing activities, net

 

 

(2,673

)

 

 

(761

)

Net cash used in financing activities

 

 

(44,157

)

 

 

(839

)

Effect of currency exchange rate changes on cash and cash equivalents

 

 

23,725

 

 

 

(408

)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

193,029

 

 

 

(94,057

)

CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD

 

 

762,576

 

 

 

540,403

 

CASH AND CASH EQUIVALENTS, AT END OF PERIOD

 

$

955,605

 

 

$

446,346

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest

 

$

111,826

 

 

$

118,272

 

Income taxes, net

 

$

204,228

 

 

$

225,129

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Class A

 

 

Additional

 

 

 

 

 

 

other

 

 

Non-

 

 

 

 

 

 

 

common

 

 

paid-in

 

 

Accumulated

 

 

comprehensive

 

 

controlling

 

 

 

 

 

 

 

stock

 

 

capital

 

 

earnings

 

 

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

 

 

 

 

 

 

 

 

523,079

 

 

 

 

 

 

4,181

 

 

 

527,260

 

Non-cash issuance of common

   stock related to acquisition

 

 

5

 

 

 

7,586

 

 

 

 

 

 

 

 

 

 

 

 

7,591

 

Compensation expense for

   equity awards

 

 

 

 

 

68,975

 

 

 

 

 

 

 

 

 

 

 

 

68,975

 

Units repurchased for

   payment of taxes

   on equity awards

 

 

 

 

 

(29,549

)

 

 

 

 

 

 

 

 

 

 

 

(29,549

)

Foreign currency translation gain

 

 

 

 

 

 

 

 

 

 

 

203,784

 

 

 

363

 

 

 

204,147

 

Amounts reclassified from

   accumulated other

   comprehensive loss to

   interest expense, net of tax

 

 

 

 

 

 

 

 

 

 

 

4,148

 

 

 

 

 

 

4,148

 

Unrealized gains on interest

   rate swaps, net of tax

 

 

 

 

 

 

 

 

 

 

 

102

 

 

 

 

 

 

102

 

Unrealized holding gains on

   available for sale

   securities, net of tax

 

 

 

 

 

 

 

 

 

 

 

2,239

 

 

 

 

 

 

2,239

 

Contributions from non-

   controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,410

 

 

 

3,410

 

Distributions to non-

   controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,643

)

 

 

(6,643

)

Acquisition of non-

   controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,671

 

 

 

12,671

 

Other

 

 

17

 

 

 

617

 

 

 

 

 

 

(20

)

 

 

(374

)

 

 

240

 

Balance at September 30, 2017

 

$

3,395

 

 

$

1,192,855

 

 

$

3,179,985

 

 

$

(580,765

)

 

$

56,366

 

 

$

3,851,836

 

 

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 (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, 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 nine months ended September 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

Recent Accounting Pronouncements Pending Adoption

The Financial Accounting Standards Board (FASB) has recently issued five Accounting Standards Updates (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

6


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

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 assessment, the impact of the application of the new revenue recognition guidance will 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 have evaluated the impact of the 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.  We determined 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.

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

7


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

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.

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.

 

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

8


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

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 September 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

 

 

11,441,884

 

Gains (premiums on loan sales)

 

 

32,711

 

 

 

 

 

 

Sale of mortgage loans

 

 

(11,283,330

)

Cash collections of premiums on loan sales

 

 

(32,711

)

Proceeds from sale of mortgage loans

 

 

(11,316,041

)

 

 

 

 

 

Net increase in mortgage servicing rights included

   in warehouse receivables

 

 

309

 

Ending balance at September 30, 2017

 

$

1,434,910

 

 

 

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

 

 

 

 

 

 

 

September 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 (2)

 

10/23/2017

 

daily one-month LIBOR plus 1.45%

 

 

800,000

 

 

 

704,908

 

 

 

700,000

 

 

 

 

JP Morgan (2)

 

10/23/2017

 

daily one-month LIBOR plus 2.75%

 

 

25,000

 

 

 

1,487

 

 

 

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

 

 

 

155,744

 

 

 

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

 

 

 

94,250

 

 

 

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

 

 

 

366,600

 

 

 

400,000

 

 

 

 

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

 

1/23/2017

 

daily one-month LIBOR plus 1.45%