cbre-10q_20190630.htm

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, 2019

☐

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)

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 July 31, 2019 was 336,335,679.

FORM 10-Q

June 30, 2019

TABLE OF CONTENTS

		Page

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Consolidated Balance Sheets at June 30, 2019 and December 31, 2018	1

	Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018	2

	Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2019 and 2018	3

	Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018	4

	Consolidated Statements of Equity for the three and six months ended June 30, 2019 and 2018	6

	Notes to Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52

Item 4.	Controls and Procedures	52

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	53

Item 1A.	Risk Factors	53

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53

Item 6.	Exhibits	54

Signatures		55

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

CBRE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands, except share data)

	June 30,			December 31,
	2019			2018
ASSETS
Current Assets:
Cash and cash equivalents	$	535,618		$	777,219
Restricted cash		77,607			86,725
Receivables, less allowance for doubtful accounts of $68,991 and $60,348 at June 30, 2019 and December 31, 2018, respectively		4,001,003			3,668,591
Warehouse receivables		1,365,928			1,342,468
Contract assets		323,247			307,020
Prepaid expenses		290,254			254,892
Income taxes receivable		53,764			71,684
Other current assets		237,796			245,611
Total Current Assets		6,885,217			6,754,210
Property and equipment, net		746,490			721,692
Goodwill		3,663,789			3,652,309
Other intangible assets, net of accumulated amortization of $1,270,236 and $1,180,393 at June 30, 2019 and December 31, 2018, respectively		1,331,281			1,441,308
Operating lease assets		949,216			—
Investments in unconsolidated subsidiaries		307,308			216,174
Deferred tax assets, net		83,015			51,703
Other assets, net		752,819			619,397
Total Assets	$	14,719,135		$	13,456,793
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable and accrued expenses	$	2,063,845		$	1,919,827
Compensation and employee benefits payable		1,086,973			1,121,179
Accrued bonus and profit sharing		704,730			1,189,395
Operating lease liabilities		173,496			—
Contract liabilities		109,511			82,227
Income taxes payable		37,735			68,100
Short-term borrowings:
Warehouse lines of credit (which fund loans that U.S. Government Sponsored Enterprises have committed to purchase)		1,349,988			1,328,761
Revolving credit facility		230,000			—
Total short-term borrowings		1,579,988			1,328,761
Current maturities of long-term debt		2,258			3,146
Other current liabilities		128,913			90,745
Total Current Liabilities		5,887,449			5,803,380
Long-term debt, net of current maturities		1,766,564			1,767,260
Non-current operating lease liabilities		996,228			—
Non-current tax liabilities		178,990			172,626
Deferred tax liabilities, net		51,588			107,425
Other liabilities		447,786			596,200
Total Liabilities		9,328,605			8,446,891
Commitments and contingencies		—			—
Equity:
CBRE Group, Inc. Stockholders’ Equity:
Class A common stock; $0.01 par value; 525,000,000 shares authorized; 336,329,975 and 336,912,783 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively		3,363			3,369
Additional paid-in capital		1,162,002			1,149,013
Accumulated earnings		4,898,932			4,504,684
Accumulated other comprehensive loss		(717,660	)		(718,269	)
Total CBRE Group, Inc. Stockholders’ Equity		5,346,637			4,938,797
Non-controlling interests		43,893			71,105
Total Equity		5,390,530			5,009,902
Total Liabilities and Equity	$	14,719,135		$	13,456,793

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

CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except share data)

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2019			2018		2019		2018
Revenue	$	5,714,073		$	5,111,434	$	10,849,583	$	9,785,386
Costs and expenses:
Cost of services		4,445,790			3,958,748		8,467,824		7,578,709
Operating, administrative and other		877,397			826,282		1,670,273		1,558,517
Depreciation and amortization		106,479			113,399		212,302		221,564
Intangible asset impairment		—			—		89,037		—
Total costs and expenses		5,429,666			4,898,429		10,439,436		9,358,790
Gain on disposition of real estate		10			12,311		19,257		12,329
Operating income		284,417			225,316		429,404		438,925
Equity income from unconsolidated subsidiaries		21,773			96,021		94,437		136,200
Other income (loss)		4,369			4,009		25,222		(271	)
Interest expense, net of interest income		24,600			25,396		45,792		50,633
Write-off of financing costs on extinguished debt		—			—		2,608		27,982
Income before provision for income taxes		285,959			299,950		500,663		496,239
Provision for income taxes		62,521			70,319		106,399		116,483
Net income		223,438			229,631		394,264		379,756
Less: Net (loss) income attributable to non-controlling interests		(293	)		964		6,124		801
Net income attributable to CBRE Group, Inc.	$	223,731		$	228,667	$	388,140	$	378,955
Basic income per share:
Net income per share attributable to CBRE Group, Inc.	$	0.67		$	0.67	$	1.15	$	1.12
Weighted average shares outstanding for basic income per share		336,222,471			339,081,556		336,122,100		338,986,354
Diluted income per share:
Net income per share attributable to CBRE Group, Inc.	$	0.66		$	0.67	$	1.14	$	1.10
Weighted average shares outstanding for diluted income per share		340,508,931			343,471,513		340,334,315		343,031,189

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

CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in thousands)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Net income	$	223,438		$	229,631		$	394,264		$	379,756
Other comprehensive (loss) income:
Foreign currency translation loss		(2,532	)		(165,926	)		(1,595	)		(99,894	)
Adoption of Accounting Standards Update 2016-01, net of tax		—			—			—			(3,964	)
Amounts reclassified from accumulated other comprehensive loss to interest expense, net of tax		425			628			835			1,383
Unrealized (losses) gains on interest rate swaps, net of tax		(52	)		214			(111	)		817
Unrealized holding gains (losses) on available for sale debt securities, net of tax		705			(122	)		1,460			(627	)
Other, net		—			—			1			5,528
Total other comprehensive (loss) income		(1,454	)		(165,206	)		590			(96,757	)
Comprehensive income		221,984			64,425			394,854			282,999
Less: Comprehensive (loss) income attributable to non-controlling interests		(256	)		480			6,105			122
Comprehensive income attributable to CBRE Group, Inc.	$	222,240		$	63,945		$	388,749		$	282,877

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

CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

	Six Months Ended
	June 30,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	394,264		$	379,756
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		212,302			221,564
Amortization and write-off of financing costs on extinguished debt		5,705			31,646
Gains related to mortgage servicing rights, premiums on loan sales and sales of other assets		(114,283	)		(98,707	)
Intangible asset impairment		89,037			—
Gains on disposition of real estate held for investment		—			(3,197	)
Net realized and unrealized (gains) losses from investments		(25,222	)		271
Provision for doubtful accounts		11,438			11,809
Compensation expense for equity awards		65,580			61,675
Equity income from unconsolidated subsidiaries		(94,437	)		(136,200	)
Distribution of earnings from unconsolidated subsidiaries		97,561			131,395
Proceeds from sale of mortgage loans		10,099,268			7,019,614
Origination of mortgage loans		(10,090,347	)		(7,552,229	)
Increase in warehouse lines of credit		21,227			560,825
Tenant concessions received		12,931			16,130
Purchase of equity securities		(70,221	)		(41,389	)
Proceeds from sale of equity securities		38,495			37,715
Increase in receivables, prepaid expenses and other assets (including contract and lease assets)		(462,346	)		(197,768	)
Increase in accounts payable and accrued expenses and other liabilities (including contract and lease liabilities)		163,502			9,543
Decrease in compensation and employee benefits payable and accrued bonus and profit sharing		(552,302	)		(496,292	)
Increase in income taxes receivable/payable		(97,260	)		(41,830	)
Other operating activities, net		(21,724	)		(6,393	)
Net cash used in operating activities		(316,832	)		(92,062	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(100,674	)		(107,482	)
Acquisition of businesses, including net assets acquired, intangibles and goodwill, net of cash acquired		(2,142	)		(264,702	)
Contributions to unconsolidated subsidiaries		(35,187	)		(21,042	)
Distributions from unconsolidated subsidiaries		10,273			28,235
Net proceeds from disposition of real estate held for investment		—			14,174
Purchase of equity securities		(5,601	)		(13,718	)
Proceeds from sale of equity securities		9,869			8,889
Purchase of available for sale debt securities		(2,812	)		(18,723	)
Proceeds from the sale of available for sale debt securities		1,466			4,121
Other investing activities, net		224			(6,384	)
Net cash used in investing activities		(124,584	)		(376,632	)

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

CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

(Dollars in thousands)

	Six Months Ended
	June 30,
	2019			2018
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from senior term loans		300,000			550,000
Repayment of senior term loans		(300,000	)		—
Proceeds from revolving credit facility		1,596,000			2,000,000
Repayment of revolving credit facility		(1,366,000	)		(1,402,000	)
Repayment of 5.00% senior notes (including premium)		—			(820,000	)
Proceeds from notes payable on real estate		4,165			1,153
Repayment of notes payable on real estate		—			(16,019	)
Repurchase of common stock		(45,088	)		—
Acquisition of businesses (cash paid for acquisitions more than three months after purchase date)		(28,517	)		(11,183	)
Repayment of debt assumed in acquisition of FacilitySource		—			(26,295	)
Units repurchased for payment of taxes on equity awards		(9,565	)		(4,630	)
Non-controlling interest contributions		41,977			2,744
Non-controlling interest distributions		(2,563	)		(7,652	)
Other financing activities, net		(4,435	)		(76	)
Net cash provided by financing activities		185,974			266,042
Effect of currency exchange rate changes on cash and cash equivalents and restricted cash		4,723			(18,821	)
NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH		(250,719	)		(221,473	)
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, AT BEGINNING OF PERIOD		863,944			824,819
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, AT END OF PERIOD	$	613,225		$	603,346
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	46,525		$	59,337
Income taxes, net	$	208,876		$	159,833

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

CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(Dollars in thousands)

	CBRE Group, Inc. Shareholders
	Class A common stock		Additional paid-in capital			Accumulated earnings		Accumulated other comprehensive loss			Non- controlling interests			Total
Balance at March 31, 2019	$	3,363	$	1,126,984		$	4,675,201	$	(716,169	)	$	114,837		$	5,204,216
Net income (loss)		—		—			223,731		—			(293	)		223,438
Compensation expense for equity awards		—		36,309			—		—			—			36,309
Units repurchased for payment of taxes on equity awards		—		(379	)		—		—			—			(379	)
Foreign currency translation (loss) gain		—		—			—		(2,569	)		37			(2,532	)
Amounts reclassified from accumulated other comprehensive loss to interest expense, net of tax		—		—			—		425			—			425
Unrealized losses on interest rate swaps, net of tax		—		—			—		(52	)		—			(52	)
Unrealized holding gains on available for sale debt securities, net of tax		—		—			—		705			—			705
Contributions from non-controlling interests		—		—			—		—			1,203			1,203
Distributions to non-controlling interests		—		—			—		—			(1,216	)		(1,216	)
Deconsolidation of investment		—		—			—		—			(67,641	)		(67,641	)
Other		—		(912	)		—		—			(3,034	)		(3,946	)
Balance at June 30, 2019	$	3,363	$	1,162,002		$	4,898,932	$	(717,660	)	$	43,893		$	5,390,530

	CBRE Group, Inc. Shareholders
	Class A common stock		Additional paid-in capital			Accumulated earnings		Accumulated other comprehensive loss			Non- controlling interests			Total
Balance at March 31, 2018	$	3,397	$	1,246,251		$	3,591,753	$	(483,770	)	$	61,043		$	4,418,674
Net income		—		—			228,667		—			964			229,631
Compensation expense for equity awards		—		32,105			—		—			—			32,105
Units repurchased for payment of taxes on equity awards		—		(80	)		—		—			—			(80	)
Foreign currency translation loss		—		—			—		(165,442	)		(484	)		(165,926	)
Amounts reclassified from accumulated other comprehensive loss to interest expense, net of tax		—		—			—		628			—			628
Unrealized gains on interest rate swaps, net of tax		—		—			—		214			—			214
Unrealized holding losses on available for sale debt securities, net of tax		—		—			—		(122	)		—			(122	)
Contributions from non-controlling interests		—		—			—		—			1,149			1,149
Distributions to non-controlling interests		—		—			—		—			(6,627	)		(6,627	)
Other		1		(25	)		—		—			7,249			7,225
Balance at June 30, 2018	$	3,398	$	1,278,251		$	3,820,420	$	(648,492	)	$	63,294		$	4,516,871

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

CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF EQUITY (Continued)

(Unaudited)

(Dollars in thousands)

	CBRE Group, Inc. Shareholders
	Class A common stock			Additional paid-in capital			Accumulated earnings		Accumulated other comprehensive loss			Non- controlling interests			Total
Balance at December 31, 2018	$	3,369		$	1,149,013		$	4,504,684	$	(718,269	)	$	71,105		$	5,009,902
Net income		—			—			388,140		—			6,124			394,264
Compensation expense for equity awards		—			65,580			—		—			—			65,580
Units repurchased for payment of taxes on equity awards		—			(9,565	)		—		—			—			(9,565	)
Repurchase of common stock		(11	)		(45,077	)		—		—			—			(45,088	)
Foreign currency translation loss		—			—			—		(1,576	)		(19	)		(1,595	)
Amounts reclassified from accumulated other comprehensive loss to interest expense, net of tax		—			—			—		835			—			835
Unrealized losses on interest rate swaps, net of tax		—			—			—		(111	)		—			(111	)
Unrealized holding gains on available for sale debt securities, net of tax		—			—			—		1,460			—			1,460
Contributions from non-controlling interests		—			—			—		—			41,977			41,977
Distributions to non-controlling interests		—			—			—		—			(2,563	)		(2,563	)
Deconsolidation of investment		—			—			—		—			(67,641	)		(67,641	)
Other		5			2,051			6,108		1			(5,090	)		3,075
Balance at June 30, 2019	$	3,363		$	1,162,002		$	4,898,932	$	(717,660	)	$	43,893		$	5,390,530

	CBRE Group, Inc. Shareholders
	Class A common stock		Additional paid-in capital			Accumulated earnings			Accumulated other comprehensive loss			Non- controlling interests			Total
Balance at December 31, 2017	$	3,395	$	1,220,508		$	3,443,007		$	(552,414	)	$	60,118		$	4,174,614
Net income		—		—			378,955			—			801			379,756
Adoption of Accounting Standards Update 2016-01, net of tax		—		—			3,964			(3,964	)		—			—
Compensation expense for equity awards		—		61,675			—			—			—			61,675
Units repurchased for payment of taxes on equity awards		—		(4,630	)		—			—			—			(4,630	)
Foreign currency translation loss		—		—			—			(99,215	)		(679	)		(99,894	)
Amounts reclassified from accumulated other comprehensive loss to interest expense, net of tax		—		—			—			1,383			—			1,383
Unrealized gains on interest rate swaps, net of tax		—		—			—			817			—			817
Unrealized holding losses on available for sale debt securities, net of tax		—		—			—			(627	)		—			(627	)
Contributions from non-controlling interests		—		—			—			—			2,744			2,744
Distributions to non-controlling interests		—		—			—			—			(7,652	)		(7,652	)
Other		3		698			(5,506	)		5,528			7,962			8,685
Balance at June 30, 2018	$	3,398	$	1,278,251		$	3,820,420		$	(648,492	)	$	63,294		$	4,516,871

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

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, 2018, which are included in our 2018 Annual Report on Form 10-K (2018 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 2018 Annual Report for further discussion of our significant accounting policies and estimates.

The accompanying consolidated financial statements have been prepared in accordance with the rules applicable to quarterly reports on Form 10-Q and include all information and footnotes required for interim financial statement presentation, but do not include all disclosures required under accounting principles generally accepted in the United States (U.S.), or GAAP, for annual financial statements. In our opinion, all adjustments (consisting of normal recurring adjustments, except as otherwise noted) considered necessary for a fair presentation have been included. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported and reported amounts of revenue and expenses. Such estimates include the value of goodwill, intangibles and other long-lived assets, real estate assets, accounts receivable, contract assets, 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 2018 financial statements to conform with the 2019 presentation.

2.	New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

The Financial Accounting Standards Board (FASB) previously issued six Accounting Standards Updates (ASUs) related to leases. The ASUs issued were: (1) in February 2016, ASU 2016-02, “Leases (Topic 842)”, (2) in January 2018, ASU 2018-01, “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842”, (3) in July 2018, ASU 2018-10, “Codification Improvements to Topic 842, Leases”, (4) in July 2018, ASU 2018-11, “Targeted Improvements”, (5) in December 2018, ASU 2018-20, “Leases (Topic 842): Narrow-Scope Improvements for Lessors” and (6) in March 2019, ASU 2019-01, “Leases (Topic 842): Codification Improvements.” ASU 2016-02 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 previous lease accounting literature, but without relying upon the bright-line tests. The amendments in ASU 2018-01 specify how land easements are within the scope of Accounting Standards Codification (ASC) 842 and permit a practical expedient to not assess whether expired or existing land easements that were not previously accounted for as leases are leases under ASC 842. The amendments in ASU 2018-10 affect narrow aspects of the guidance issued in the amendments in ASU 2016-02. The amendments in ASU 2018-11 provide an optional method for adopting the new leasing guidance and provide lessors with a practical expedient to combine lease and associated non-lease components by class of underlying asset in contracts that meet certain criteria. The amendments in ASU 2018-20 provide an accounting policy election permitting lessors to treat certain sales and other similar taxes incurred as lessee costs, guidance on the treatment of certain lessor costs and guidance on recognizing variable payments for contracts with a lease and non-lease component. The amendments in ASU 2019-01 affect narrow aspects of the guidance issued in the amendments in ASU 2016-02. These ASUs are effective for annual periods in fiscal years beginning after December 15, 2018.

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

We adopted these ASUs in the first quarter of 2019 by using the optional transitional method associated with no adjustment to comparative period financial statements presented for prior periods. We elected certain practical expedients, including the package of transition practical expedients and the practical expedient to forego separating lease and non-lease components in our lessee contracts. We also made an accounting policy election to exempt short-term leases of 12 months or less from balance sheet recognition requirements associated with the new standard; fixed rental payments for short-term leases will be recognized as a straight-line expense over the lease term.

As a result of the adoption of the leasing guidance, the consolidated balance sheet as of January 1, 2019 reflected $1.2 billion of additional lease liabilities, along with corresponding right-of-use assets of $1.0 billion, reflecting adjustments for items such as prepaid and deferred rent, unamortized initial direct costs, and unamortized lease incentive balances. The adoption of the leasing guidance did not have a material impact on our consolidated statements of operations.

As of January 1, 2019, we account for leases in accordance with ASC Topic 842, “Leases.” The present value of lease payments, which are either fixed payments, in-substance fixed payments, or variable payments tied to an index or rate are recognized on the balance sheet with corresponding lease liabilities and right-of-use assets upon the commencement of the lease. These lease costs are expensed over the respective lease term in accordance with the classification of the lease (i.e. operating versus finance classification). Variable lease payments not tied to an index or rate are expensed as incurred and not subject to capitalization.

In August 2018, the FASB issued ASU 2018‑13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. This ASU is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. We elected to early adopt ASU 2018-13 in the second quarter of 2019. As this ASU only revises disclosure requirements, it did not have any impact on our consolidated financial statements. The adoption of ASU 2018‑13 did not have a material impact on our disclosures.

In October 2018, the FASB issued ASU 2018‑17, “Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities.” This ASU amends the guidance for determining whether a decision-making fee is a variable interest and requires organizations to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety (as currently required in GAAP). This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those years, with early adoption permitted. We elected to early adopt ASU 2018-17 in the second quarter of 2019. The adoption of ASU 2018-17 did not have any impact on our consolidated financial statements and related disclosures.

Recent Accounting Pronouncements Pending Adoption

The FASB issued three ASUs related to financial instruments – credit losses. The ASUs issued were: (1) in June 2016, ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, (2) in November 2018, ASU 2018-19 “Codification Improvements to Topic 326, Financial Instruments—Credit Losses” and (3) in May 2019, ASU 2019-05, “Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief.” ASU 2016-13 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. Additionally, ASU 2019-04, discussed further below, also includes amendments to ASU 2016-13. ASU 2018-19 clarifies that receivables arising from operating leases are not within the scope of the credit losses standard, but rather, should be accounted for in accordance with the leasing standard. ASU 2019-05 provide entities that have certain instruments within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost, with an option to irrevocably elect the fair value option in Subtopic 825-10, Financial Instruments—Overall. These ASUs are 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, ASU 2018-19 and ASU 2019-05 will have on our consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018‑14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans.” This ASU makes minor changes to the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This ASU is effective for fiscal years ending after December 15, 2020, with early adoption permitted. As ASU 2018-14 only revises disclosure requirements, it will not have any impact on our consolidated financial statements. We are evaluating the effect, if any, that ASU 2018‑14 will have on our disclosures.

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

In November 2018, the FASB issued ASU 2018‑18, “Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606.” This ASU provides guidance on how to assess whether certain transactions between collaborative arrangement participants should be accounted for within the revenue recognition standard and provides more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants. 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 2018‑18 will have on our consolidated financial statements and related disclosures.

In April 2019, the FASB issued ASU 2019‑04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.” The amendments in ASU 2019-04 clarify and improve areas of guidance related to the recently issued standards on financial instruments – credit losses, derivatives and hedging, and financial instruments. The amendments in this ASU that are related to financial instruments – credit losses are effective at the same time as the effective date of ASU 2016-13. The amendments in this ASU that are related to derivatives and hedging are effective for fiscal years beginning after April 25, 2019, and interim periods within those years, with early adoption permitted. The amendments in this ASU that are related to financial instruments are 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 the amendments in this ASU that are related to financial instruments – credit losses will have on our consolidated financial statements and related disclosures. We elected to early adopt the amendments in this ASU that are related to derivatives and hedging and financial instruments in the second quarter of 2019 and the adoption of these amendments did not have any impact on our consolidated financial statements and related disclosures.

3.	FacilitySource Acquisition

On June 12, 2018, CBRE Jason Acquisition LLC (Merger Sub), our wholly-owned subsidiary, and FacilitySource Holdings, LLC (FacilitySource), WP X Finance, LP and Warburg Pincus X Partners, LP (collectively, the Stockholders) entered into a stock purchase agreement and plan of merger (the Merger Agreement). As part of the Merger Agreement, (i) we purchased from the Stockholders all the outstanding shares of capital stock of FS WP Holdco, Inc (Blocker Corp), which owned 1,686,013 Class A units (the Blocker Units) and (ii) immediately following the acquisition of Blocker Corp, Merger Sub merged with FacilitySource, with FacilitySource continuing as the surviving company and our wholly-owned subsidiary within our Global Workplace Solutions segment (the FacilitySource Acquisition), with the remaining Blocker Units not held by Blocker Corp. canceled and converted into the right to receive cash consideration as set forth in the Merger Agreement. The final net purchase price was approximately $266.5 million paid in cash, with $263.0 million paid in 2018 and $3.5 million paid in 2019. We financed the transaction with cash on hand and borrowings under our revolving credit facility. We completed the FacilitySource Acquisition to help us (i) build a tech-enabled supply chain capability for the occupier outsourcing industry and (ii) drive meaningfully differentiated outcomes for leading occupiers of real estate.

The purchase accounting related to the FacilitySource Acquisition has been finalized (with no changes made in 2019 to the preliminary purchase accounting recorded in 2018). The excess purchase price over the estimated fair value of net assets acquired has been recorded to goodwill. The goodwill arising from the FacilitySource Acquisition consists largely of the synergies and economies of scale expected from combining the operations acquired from FacilitySource with ours. The goodwill recorded in connection with the FacilitySource Acquisition that is deductible for tax purposes was not significant.

4.	Warehouse Receivables & Warehouse Lines of Credit

Our wholly-owned subsidiary CBRE Capital Markets, Inc. (CBRE Capital Markets) is a Federal Home Loan Mortgage Corporation (Freddie Mac) approved Multifamily Program Plus Seller/Servicer and an approved Federal National Mortgage Association (Fannie Mae) Aggregation and Negotiated Transaction Seller/Servicer. In addition, CBRE Capital Markets’ wholly-owned subsidiary CBRE Multifamily Capital, Inc. (CBRE MCI) is an approved Fannie Mae Delegated Underwriting and Servicing (DUS) Seller/Servicer and CBRE Capital Markets’ wholly-owned subsidiary CBRE HMF, Inc. (CBRE HMF) is a U.S. Department of Housing and Urban Development (HUD) approved Non-Supervised Federal Housing Authority (FHA) Title II Mortgagee, an approved Multifamily Accelerated Processing (MAP) lender and an approved Government National Mortgage Association (Ginnie Mae) issuer of mortgage-backed securities (MBS). Under these arrangements, before loans are originated through

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 June 30, 2019 and December 31, 2018, 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, 2018	$	1,342,468
Origination of mortgage loans		10,090,347
Gains (premiums on loan sales)		29,784
Proceeds from sale of mortgage loans:
Sale of mortgage loans		(10,069,484	)
Cash collections of premiums on loan sales		(29,784	)
Proceeds from sale of mortgage loans		(10,099,268	)
Net increase in mortgage servicing rights included in warehouse receivables		2,597
Ending balance at June 30, 2019	$	1,365,928

The following table is a summary of our warehouse lines of credit in place as of June 30, 2019 and December 31, 2018 (dollars in thousands):

			June 30, 2019				December 31, 2018
Lender	Current Maturity	Pricing	Maximum Facility Size		Carrying Value		Maximum Facility Size		Carrying Value
JP Morgan Chase Bank, N.A. (JP Morgan)	10/21/2019	daily one-month LIBOR plus 1.30%	$	985,000	$	890,625	$	985,000	$	871,680
JP Morgan	10/21/2019	daily one-month LIBOR plus 2.75%		15,000		—		15,000		—
Capital One, N.A. (Capital One) (1)	7/27/2019	daily one-month LIBOR plus 1.35%		200,000		132,205		325,000		120,195
Fannie Mae Multifamily As Soon As Pooled Plus Agreement and Multifamily As Soon As Pooled Sale Agreement (ASAP) Program	Cancelable anytime	daily one-month LIBOR plus 1.35%, with a LIBOR floor of 0.35%		450,000		186,423		450,000		149,089
TD Bank, N.A. (TD Bank) (2)	6/30/2019	daily one-month LIBOR plus 1.20%		400,000		60,990		400,000		165,945
Bank of America, N.A. (BofA)	5/27/2020	daily one-month LIBOR plus 1.20%		350,000		79,745		—		—
BofA	5/27/2020	daily one-month LIBOR plus 1.15%		250,000		—		200,000		—
BofA	6/4/2019	daily one-month LIBOR plus 1.30%		—		—		225,000		21,852
MUFG Union Bank, N.A. (Union Bank)	6/28/2020	daily one-month LIBOR plus 1.20%		200,000		—		—		—
			$	2,850,000	$	1,349,988	$	2,600,000	$	1,328,761

(1)

During 2018, the maximum facility size was temporarily increased to $325.0 million and reverted to $200.0 million on January 31, 2019. The line was then temporarily increased from $200.0 million to $700.0 million effective February 27, 2019. The maximum facility size reverted to $200.0 million on April 1, 2019. In July 2019, this $200.0 million line of credit was renewed with terms that included an interest rate of daily one-month LIBOR plus 1.25% and a maturity date of July 27, 2020.

(2)	Effective July 1, 2019, this facility was amended with a revised interest rate of daily one-month LIBOR plus 1.15% and a maturity date of June 30, 2020. Effective August 1, 2019, this facility was temporarily increased to $800.0 million, and will revert back to $400.0 million on February 1, 2020.

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

During the six months ended June 30, 2019, we had a maximum of $2.5 billion of warehouse lines of credit principal outstanding.

5.	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 June 30, 2019 and December 31, 2018, our maximum exposure to loss related to VIEs which are not consolidated was as follows (dollars in thousands):

	June 30,		December 31,
		2019		2018
Investments in unconsolidated subsidiaries	$	27,059	$	23,266
Other current assets		4,058		3,827
Co-investment commitments		20,384		22,363
Maximum exposure to loss	$	51,501	$	49,456

6.	Fair Value Measurements

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

•

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

•

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

•

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

There have been no significant changes to the valuation techniques and inputs used to develop the recurring fair value measurements from those disclosed in our 2018 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 June 30, 2019 and December 31, 2018 (dollars in thousands):

	As of June 30, 2019
	Fair Value Measured and Recorded Using
	Level 1		Level 2		Level 3		Total
Assets
Available for sale securities:
Debt securities:
U.S. treasury securities	$	5,664	$	—	$	—	$	5,664
Debt securities issued by U.S. federal agencies		—		11,191		—		11,191
Corporate debt securities		—		27,290		—		27,290
Asset-backed securities		—		5,129		—		5,129
Collateralized mortgage obligations		—		2,256		—		2,256
Total available for sale debt securities		5,664		45,866		—		51,530
Equity securities		70,487		—		—		70,487
Warehouse receivables		—		1,365,928		—		1,365,928
Total assets at fair value	$	76,151	$	1,411,794	$	—	$	1,487,945
Liabilities
Interest rate swaps	$	—	$	377	$	—	$	377
Total liabilities at fair value	$	—	$	377	$	—	$	377

	As of December 31, 2018
	Fair Value Measured and Recorded Using
	Level 1		Level 2		Level 3		Total
Assets
Available for sale securities:
Debt securities:
U.S. treasury securities	$	3,138	$	—	$	—	$	3,138
Debt securities issued by U.S. federal agencies		—		11,196		—		11,196
Corporate debt securities		—		27,201		—		27,201
Asset-backed securities		—		5,017		—		5,017
Collateralized mortgage obligations		—		2,224		—		2,224
Total available for sale debt securities		3,138		45,638		—		48,776
Equity securities		153,762		—		—		153,762
Warehouse receivables		—		1,342,468		—		1,342,468
Total assets at fair value	$	156,900	$	1,388,106	$	—	$	1,545,006
Liabilities
Interest rate swaps	$	—	$	1,070	$	—	$	1,070
Securities sold, not yet purchased		3,133		—		—		3,133
Total liabilities at fair value	$	3,133	$	1,070	$	—	$	4,203

There were no significant non-recurring fair value measurements recorded during the three months ended June 30, 2019. The following non-recurring fair value measurement was recorded for the six months ended June 30, 2019 (dollars in thousands):

									Total
									Impairment Charges
	Net Carrying Value		Fair Value Measured and						for the
	as of		Recorded Using						Six Months Ended
	June 30, 2019		Level 1		Level 2		Level 3		June 30, 2019
Other intangible assets	$	16,000	$	—	$	—	$	16,000	$	89,037

During the six months ended June 30, 2019, we recorded an intangible asset impairment of $89.0 million in our Real Estate Investments segment. Such impairment charge was included as a separate line item in the accompanying consolidated statements of operations.

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

This non-cash write-off resulted from a review of the anticipated cash flows and the decrease in assets under management in our public securities business driven in part by continued industry-wide shift in investor preference for passive investment programs. The fair value measurements employed for our impairment evaluation was generally based upon a discounted cash flow approach. Inputs used in such evaluation included risk-free rates of return, estimated risk premiums as well as other economic variables.

There were no significant non-recurring fair value measurements recorded during the three and six months ended June 30, 2018.

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

•

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

•

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

•

Warehouse Receivables – These balances are carried at fair value. The primary source of value is either a contractual purchase commitment from Freddie Mac or a confirmed forward trade commitment for the issuance and purchase of a Fannie Mae or Ginnie Mae MBS (see Note 4).

•

Available for Sale Debt Securities – These investments are carried at their fair value.

•

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

•

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

•

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

•

Senior Term Loans – Based upon information from third-party banks (which falls within Level 2 of the fair value hierarchy), the estimated fair value of our senior term loans was approximately $740.4 million at June 30, 2019 and $757.0 million at December 31, 2018. Their actual carrying value, net of unamortized debt issuance costs, totaled $750.3 million and $751.3 million at June 30, 2019 and December 31, 2018, respectively (see Note 8).

•

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

•

Senior Notes – Based on dealers’ quotes (which falls within Level 2 of the fair value hierarchy), the estimated fair values of our 4.875% senior notes and 5.25% senior notes were $652.3 million and $467.8 million, respectively, at June 30, 2019 and $616.4 million and $443.7 million, respectively, at December 31, 2018. The actual carrying value of our 4.875% senior notes and 5.25% senior notes, net of unamortized debt issuance costs as well as unamortized discount or premium, if applicable, totaled $593.2 million and $422.8 million, respectively, at June 30, 2019 and $592.8 million and $422.7 million, respectively, at December 31, 2018.

7.	Investments in Unconsolidated Subsidiaries

Investments in unconsolidated subsidiaries are accounted for under the equity method of accounting. Our investment ownership percentages in equity method investments vary, generally ranging up to 50.0%.

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
		2019		2018		2019		2018
Revenue	$	342,822	$	445,030	$	707,947	$	788,229
Operating income		97,202		236,181		191,823		372,389
Net income		50,549		161,828		99,477		255,824

8.	Long-Term Debt and Short-Term Borrowings

Long-Term Debt

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

	June 30,			December 31,
		2019			2018
Senior term loans, with interest ranging from 0.75% to 3.44%, due quarterly through 2024	$	754,752		$	758,452
4.875% senior notes due in 2026, net of unamortized discount		596,850			596,653
5.25% senior notes due in 2025, net of unamortized premium		426,043			426,134
Other		2,455			3,682
Total long-term debt		1,780,100			1,784,921
Less: current maturities of long-term debt		(2,258	)		(3,146	)
Less: unamortized debt issuance costs		(11,278	)		(14,515	)
Total long-term debt, net of current maturities	$	1,766,564		$	1,767,260

We maintain credit facilities with third-party lenders, which we use for a variety of purposes. On October 31, 2017, CBRE Services, Inc. (CBRE Services), our wholly-owned subsidiary, entered into a Credit Agreement (the 2017 Credit Agreement), which refinanced and replaced our prior credit agreement (the 2015 Credit Agreement). On December 20, 2018, CBRE Global Acquisition Company, a wholly-owned subsidiary of CBRE Services, entered into an incremental term loan assumption agreement with a syndicate of banks jointly led by Wells Fargo Bank and National Westminster Bank plc to establish a new euro term loan facility under the 2017 Credit Agreement in an aggregate principal amount of €400.0 million. The proceeds of the new euro term loan facility were used to repay a portion of the U.S. dollar denominated term loans outstanding under the 2017 Credit Agreement. On March 4, 2019, CBRE Services entered into an additional incremental assumption agreement with respect to the 2017 Credit Agreement (the 2017 Agreement as amended by such incremental assumption agreement, the 2019 Credit Agreement), which (i) extended the maturity of the U.S. dollar tranche A term loans under the 2017 Credit Agreement, (ii) extended the termination date of the revolving credit commitments available under the 2017 Credit Agreement and (iii) made certain changes to the interest rates and fees applicable to such tranche A term loans and revolving credit commitments. The proceeds from the new tranche A term loan facility under the 2019 Credit Agreement were used to repay the $300.0 million of tranche A term loans outstanding under the 2017 Credit Agreement.

The 2019 Credit Agreement is a senior unsecured credit facility that is jointly and severally guaranteed by us and certain of our subsidiaries. As of June 30, 2019, the 2019 Credit Agreement provided for the following: (1) a $2.8 billion incremental revolving credit facility, which includes the capacity to obtain letters of credit and swingline loans and terminates on March 4, 2024; (2) a $300.0 million incremental tranche A term loan facility maturing on March 4, 2024, requiring quarterly principal payments unless our leverage ratio (as defined in the 2019 Credit Agreement) is less than or equal to 2.50 to 1.00 on the last day of the fiscal quarter immediately preceding any such payment date and (3) a €400.0 million term loan facility due and payable in full at maturity on December 20, 2023.

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The 2017 Credit Agreement was a senior unsecured credit facility that was jointly and severally guaranteed by us and certain of our subsidiaries. Our 2017 Credit Agreement provided for the following: (1) a $2.8 billion revolving credit facility, which included the capacity to obtain letters of credit and swingline loans and had a termination date of October 31, 2022; (2) a $750.0 million delayed draw tranche A term loan facility which would have matured on October 31, 2022 and which required quarterly principal payments unless our leverage ratio (as defined in the 2017 Credit Agreement) was less than or equal to 2.50 to 1.00 on the last day of the fiscal quarter immediately preceding any such payment date and (3) a €400.0 million term loan facility which would have been due and payable in full at maturity on December 20, 2023.

The indentures governing our 4.875% senior notes and 5.25% senior notes contain restrictive covenants that, among other things, limit our ability to create or permit liens on assets securing indebtedness, enter into sale/leaseback transactions and enter into consolidations or mergers. In addition, our 2019 Credit Agreement also requires us to maintain a minimum coverage ratio of consolidated EBITDA (as defined in the 2019 Credit Agreement) to consolidated interest expense of 2.00x and a maximum leverage ratio of total debt less available cash to consolidated EBITDA (as defined in the 2019 Credit Agreement) of 4.25x (and in the case of the first four full fiscal quarters following consummation of a qualified acquisition (as defined in the 2019 Credit Agreement), 4.75x) as of the end of each fiscal quarter. On this basis, our coverage ratio of consolidated EBITDA to consolidated interest expense was 21.78x for the trailing twelve months ended June 30, 2019, and our leverage ratio of total debt less available cash to consolidated EBITDA was 0.78x as of June 30, 2019.

Short-Term Borrowings

Revolving Credit Facility

The revolving credit facility under the 2019 Credit Agreement allows for borrowings outside of the U.S., with a $200.0 million sub-facility available to CBRE Services, one of our Canadian subsidiaries, one of our Australian subsidiaries and one of our New Zealand subsidiaries and a $300.0 million sub-facility available to CBRE Services and one of our U.K. subsidiaries. Borrowings under the revolving credit facility bear interest at varying rates, based at our option, on either (1) the applicable fixed rate plus 0.680% to 1.075% or (2) the daily rate plus 0.0% to 0.075%, in each case as determined by reference to our Credit Rating (as defined in the 2019 Credit Agreement). The 2019 Credit Agreement requires us to pay a fee based on the total amount of the revolving credit facility commitment (whether used or unused). As of June 30, 2019, $230.0 million was outstanding under the revolving credit facility. In addition, as of June 30, 2019, letters of credit totaling $2.0 million were outstanding under our revolving credit facility. These letters of credit, which reduce the amount we may borrow under the revolving credit facility, were primarily issued in the ordinary course of business.

The revolving credit facility under the 2017 Credit Agreement allowed for borrowings outside of the U.S., with a $200.0 million sub-facility available to CBRE Services, one of our Canadian subsidiaries, one of our Australian subsidiaries and one of our New Zealand subsidiaries and a $300.0 million sub-facility available to CBRE Services and one of our U.K. subsidiaries. Borrowings under the revolving credit facility bore interest at varying rates, based at our option, on either (1) the applicable fixed rate plus 0.775% to 1.075% or (2) the daily rate plus 0.0% to 0.075%, in each case as determined by reference to our Credit Rating (as defined in the 2017 Credit Agreement). The 2017 Credit Agreement required us to pay a fee based on the total amount of the revolving credit facility commitment (whether used or unused). As of December 31, 2018, no amounts were outstanding under our revolving credit facility other than letters of credit totaling $2.0 million. These letters of credit, which reduced the amount we could have borrowed under the revolving credit facility, were primarily issued in the ordinary course of business.

Warehouse Lines of Credit

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

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Leases

We are the lessee in contracts for our office space tenancies and leased vehicles. These arrangements account for the significant portion of our lease liabilities and right-of-use assets. We continually monitor our service arrangements to evaluate whether they meet the definition of a lease.

The base terms for our lease arrangements typically do not extend beyond 10 years. We commonly have renewal options in our leases, but most of these options do not create a significant economic incentive for us to extend the lease term. Therefore, payments during periods covered by these renewal options are typically not included in our lease liabilities and right-of-use assets. Specific to our vehicle leases, early termination options are common and economic penalties associated with early termination of these contracts are typically significant enough to make it reasonably certain that we will not exercise such options. Therefore, payments during periods covered by these early termination options in vehicle leases are typically included in our lease liabilities and right-of-use assets. As an accounting policy election, our short-term leases with an initial term of 12 months or less are not recognized as lease liabilities and right-of-use assets in the consolidated balance sheets. The rent expense associated with short term leases is recognized on a straight-line basis over the lease term.

Most of our office space leases include variable payments based on our share of actual common area maintenance and operating costs of the leased property. Many of our vehicle leases include variable payments based on actual service and fuel costs. For both office space and vehicle leases, we have elected the practical expedient to not separate lease components from non-lease components. Therefore, these costs are classified as variable lease payments.

Lease payments are typically discounted at our incremental borrowing rate because the interest rate implicit in the lease cannot be readily determined in the absence of key inputs which are typically not reported by our lessors. Because we do not generally borrow on a collateralized basis, judgement was used to estimate the secured borrowing rate associated with our leases based on relevant market data and our inputs applied to accepted valuation methodologies. The incremental borrowing rate calculated for each lease also reflects the lease term, currency, and geography specific to each lease.

Supplemental balance sheet information related to our leases is as follows (dollars in thousands):

Category	Classification	June 30, 2019
Assets
Operating lease assets	Operating lease assets	$	949,216
Financing lease assets	Other assets, net		68,193
Total leased assets		$	1,017,409

Liabilities
Current:
Operating	Operating lease liabilities	$	173,496
Financing	Other current liabilities		27,192
Non-current:
Operating	Non-current operating lease liabilities		996,228
Financing	Other liabilities		41,001
Total lease liabilities		$	1,237,917

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Components of lease cost are as follows (dollars in thousands):

Component	Classification	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
Operating lease cost	Operating, administrative and other	$	46,098		$	92,825
Finance lease cost:
Amortization of right-to-use assets	(1)		7,118			14,287
Interest on lease liabilities	Interest expense		243			448
Variable lease cost	(2)		16,106			33,053
Sublease income	Revenue		(1,033	)		(1,274	)
Total lease cost		$	68,532		$	139,339

(1)

Amortization costs of $5.7 million and $11.6 million, respectively, from vehicle finance leases utilized in client outsourcing arrangements are included in cost of services. Amortization costs of $1.4 million and $2.7 million, respectively, from all other finance leases are included in depreciation and amortization.

(2)	Variable lease costs of $3.8 million and $6.9 million, respectively, from leases in client outsourcing arrangements are included in cost of services. Variable lease costs of $12.3 million and $26.1 million, respectively, from all other leases are included in operating, administrative and other.

Weighted average remaining lease term and discount rate for our operating leases are as follows:

		June 30, 2019
Weighted-average remaining lease term:
Operating leases		9 years
Finance leases		3 years
Weighted-average discount rate:
Operating leases		3.4%
Finance leases		2.2%

Maturities of lease liabilities by fiscal year as of June 30, 2019 are as follows (dollars in thousands):

	Operating Leases		Financing Leases
2019	$	85,879	$	14,546
2020		188,651		24,902
2021		183,905		17,185
2022		159,028		9,750
2023		141,397		3,750
Thereafter		604,770		674
Total remaining lease payments at June 30, 2019	$	1,363,630	$	70,807
Less: Interest		193,906		2,614
Present value of lease liabilities at June 30, 2019	$	1,169,724	$	68,193

As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018 and under the previous lease accounting standard, the following is a schedule by year of future minimum lease payments for noncancelable operating leases as of December 31, 2018 (dollars in thousands):

2019	$	238,954
2020		219,351
2021		202,205
2022		172,267
2023		145,705
Thereafter		510,741
Total minimum payment required	$	1,489,223

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Supplemental cash flow information and non-cash activity related to our operating leases are as follows (dollars in thousands):

	Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	78,630
Operating cash flows from financing leases		621
Financing cash flows from financing leases		14,902
Right-of-use assets obtained in exchange for new operating lease liabilities		75,116
Right-of-use assets obtained in exchange for new financing lease liabilities		18,607
Other non-cash increases in operating lease right-of-use assets (1)		25,598
Other non-cash decreases in finance lease right-of-use assets (1)		(226	)

(1)	These noncash increases in right-of-use assets resulted from lease modifications and remeasurements.

10.	Commitments and Contingencies

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

In January 2008, CBRE MCI, a wholly-owned subsidiary of CBRE Capital Markets, entered into an agreement with Fannie Mae under Fannie Mae’s Delegated Underwriting and Servicing Lender Program (DUS Program), to provide financing for multifamily housing with five or more units. Under the DUS Program, CBRE MCI originates, underwrites, closes and services loans without prior approval by Fannie Mae, and typically, is subject to sharing up to one-third of any losses on loans originated under the DUS Program. CBRE MCI has funded loans subject to such loss sharing arrangements with unpaid principal balances of $25.9 billion at June 30, 2019. CBRE MCI, under its agreement with Fannie Mae, must post cash reserves or other acceptable collateral under formulas established by Fannie Mae to provide for sufficient capital in the event losses occur. As of June 30, 2019 and December 31, 2018, CBRE MCI had a $67.0 million and a $64.0 million, respectively, letter of credit under this reserve arrangement, and had recorded a liability of approximately $41.8 million and $37.9 million, respectively, for its loan loss guarantee obligation under such arrangement. Fannie Mae’s recourse under the DUS Program is limited to the assets of CBRE MCI, which assets totaled approximately $748.9 million (including $485.7 million of warehouse receivables, a substantial majority of which are pledged against warehouse lines of credit and are therefore not available to Fannie Mae) at June 30, 2019.

CBRE Capital Markets participates in Freddie Mac’s Multifamily Small Balance Loan (SBL) Program. Under the SBL program, CBRE Capital Markets has certain repurchase and loss reimbursement obligations. These obligations are for the period from origination of the loan to the securitization date. CBRE Capital Markets must post a cash reserve or other acceptable collateral to provide for sufficient capital in the event the obligations are triggered. As of both June 30, 2019 and December 31, 2018, CBRE Capital Markets had posted a $5.0 million letter of credit under this reserve arrangement.

We had outstanding letters of credit totaling $78.3 million as of June 30, 2019, excluding letters of credit for which we have outstanding liabilities already accrued on our consolidated balance sheet related to our subsidiaries’ outstanding reserves for claims under certain insurance programs as well as letters of credit related to operating leases. The CBRE Capital Markets letters of credit totaling $72.0 million as of June 30, 2019 referred to in the preceding paragraphs represented the majority of the $78.3 million outstanding letters of credit as of such date. The remaining letters of credit are primarily executed by us in the ordinary course of business and expire at varying dates through June 2020.

We had guarantees totaling $58.4 million as of June 30, 2019, excluding guarantees related to pension liabilities, consolidated indebtedness and other obligations for which we have outstanding liabilities already accrued on our consolidated balance sheet, and excluding guarantees related to operating leases. The $58.4 million primarily represents guarantees executed by us in the ordinary course of business, including various guarantees of management and vendor contracts in our operations overseas, which expire at the end of each of the respective agreements.

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

In addition, as of June 30, 2019, we had issued numerous non-recourse carveout, completion and budget guarantees relating to development projects for the benefit of third parties. These guarantees are commonplace in our industry and are made by us in the ordinary course of our Real Estate Investments business. Non-recourse carveout guarantees generally require that our project-entity borrower not commit specified improper acts, with us potentially liable for all or a portion of such entity’s indebtedness or other damages suffered by the lender if those acts occur. Completion and budget guarantees generally require us to complete construction of the relevant project within a specified timeframe and/or within a specified budget, with us potentially being liable for costs to complete in excess of such timeframe or budget. However, we generally use “guaranteed maximum price” contracts with reputable, bondable general contractors with respect to projects for which we provide these guarantees. These contracts are intended to pass the risk to such contractors. While there can be no assurance, we do not expect to incur any material losses under these guarantees.

An important part of the strategy for our Real Estate Investments business involves investing our capital in certain real estate investments with our clients. These co-investments generally total up to 2.0% of the equity in a particular fund. As of June 30, 2019, we had aggregate commitments of $73.0 million to fund these future co-investments. Additionally, an important part of our Real Estate Investments business strategy is to invest in unconsolidated real estate subsidiaries as a principal (in most cases co-investing with our clients). As of June 30, 2019, we had committed to fund $48.5 million of additional capital to these unconsolidated subsidiaries.

11.	Income Per Share and Stockholders’ Equity

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
		2019		2018		2019		2018
Basic Income Per Share
Net income attributable to CBRE Group, Inc. shareholders	$	223,731	$	228,667	$	388,140	$	378,955
Weighted average shares outstanding for basic income per share		336,222,471		339,081,556		336,122,100		338,986,354
Basic income per share attributable to CBRE Group, Inc. shareholders	$	0.67	$	0.67	$	1.15	$	1.12
Diluted Income Per Share
Net income attributable to CBRE Group, Inc. shareholders	$	223,731	$	228,667	$	388,140	$	378,955
Weighted average shares outstanding for basic income per share:		336,222,471		339,081,556		336,122,100		338,986,354
Dilutive effect of contingently issuable shares		4,286,460		4,389,957		4,212,215		4,044,050
Dilutive effect of stock options		—		—		—		785
Weighted average shares outstanding for diluted income per share		340,508,931		343,471,513		340,334,315		343,031,189
Diluted income per share attributable to CBRE Group, Inc. shareholders	$	0.66	$	0.67	$	1.14	$	1.10

For the three and six months ended June 30, 2019, 813,155 and 579,994, respectively, of contingently issuable shares were excluded from the computation of diluted income per share because their inclusion would have had an anti-dilutive effect.

For the three and six months ended June 30, 2018, 75,851 and 51,946, respectively, of contingently issuable shares were excluded from the computation of diluted income per share because their inclusion would have had an anti-dilutive effect.

On October 27, 2016, our board of directors authorized the company to repurchase up to an aggregate of $250.0 million of our Class A common stock over three years. Through December 31, 2018, we had spent $161.0 million to repurchase 3,980,656 shares of our Class A common stock with an average price paid per share of $40.43. During the month of January 2019, we spent $45.1 million to repurchase an additional 1,144,449 shares of our Class A common stock with an average price paid per share of $39.38. Additionally, on February 28, 2019, our board of directors authorized a new program for the company to repurchase up to $300.0 million of our Class A common stock over three years, effective March 11, 2019. The previous program terminated upon the effectiveness of the new program. As of June 30, 2019, the authorization under the new program remained unused.

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

12.	Revenue from Contracts with Customers

Disaggregated Revenue

The following tables represent a disaggregation of revenue from contracts with customers for the three and six months ended June 30, 2019 and 2018 by type of service and/or segment (dollars in thousands):

	Three Months Ended June 30, 2019
	Advisory Services		Global Workplace Solutions		Real Estate Investments		Consolidated
Topic 606 Revenue:
Global workplace solutions	$	—	$	3,385,452	$	—	$	3,385,452
Advisory leasing		817,788		—		—		817,788
Advisory sales		466,558		—		—		466,558
Property and advisory project management		555,822		—		—		555,822
Valuation		149,051		—		—		149,051
Commercial mortgage origination (1)		32,111		—		—		32,111
Loan servicing (2)		7,084		—		—		7,084
Investment management		—		—		101,646		101,646
Development services		—		—		48,017		48,017
Topic 606 Revenue		2,028,414		3,385,452		149,663		5,563,529
Out of Scope of Topic 606 Revenue:
Commercial mortgage origination		107,888		—		—		107,888
Loan servicing (2)		42,656		—		—		42,656
Total Out of Scope of Topic 606 Revenue		150,544		—		—		150,544
Total revenue	$	2,178,958	$	3,385,452	$	149,663	$	5,714,073

	Three Months Ended June 30, 2018 (3)
	Advisory Services		Global Workplace Solutions		Real Estate Investments		Consolidated
Topic 606 Revenue:
Global workplace solutions	$	—	$	3,034,973	$	—	$	3,034,973
Advisory leasing		687,386		—		—		687,386
Advisory sales		457,376		—		—		457,376
Property and advisory project management		502,201		—		—		502,201
Valuation		147,397		—		—		147,397
Commercial mortgage origination (1)		27,856		—		—		27,856
Loan servicing (2)		5,516		—		—		5,516
Investment management		—		—		98,947		98,947
Development services		—		—		18,408		18,408
Topic 606 Revenue		1,827,732		3,034,973		117,355		4,980,060
Out of Scope of Topic 606 Revenue:
Commercial mortgage origination		92,982		—		—		92,982
Loan servicing (2)		38,392		—		—		38,392
Total Out of Scope of Topic 606 Revenue		131,374		—		—		131,374
Total revenue	$	1,959,106	$	3,034,973	$	117,355	$	5,111,434

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

(2)	Loan servicing fees earned from servicing contracts for which we do not hold mortgage servicing rights are in scope of Topic 606.

(3)	Our new organizational structure became effective on January 1, 2019. See Note 13 for additional information. Revenue classifications for 2018 have been restated to conform to the new structure.

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

	Six Months Ended June 30, 2019
	Advisory Services		Global Workplace Solutions		Real Estate Investments		Consolidated
Topic 606 Revenue:
Global workplace solutions	$	—	$	6,551,367	$	—	$	6,551,367
Advisory leasing		1,440,428		—		—		1,440,428
Advisory sales		852,213		—		—		852,213
Property and advisory project management		1,076,706		—		—		1,076,706
Valuation		287,377		—		—		287,377
Commercial mortgage origination (1)		55,684		—		—		55,684
Loan servicing (2)		14,070		—		—		14,070
Investment management		—		—		207,954		207,954
Development services		—		—		76,902		76,902
Topic 606 Revenue		3,726,478		6,551,367		284,856		10,562,701
Out of Scope of Topic 606 Revenue:
Commercial mortgage origination		205,194		—		—		205,194
Loan servicing (2)		81,688		—		—		81,688
Total Out of Scope of Topic 606 Revenue		286,882		—		—		286,882
Total revenue	$	4,013,360	$	6,551,367	$	284,856	$	10,849,583

	Six Months Ended June 30, 2018 (3)
	Advisory Services		Global Workplace Solutions		Real Estate Investments		Consolidated
Topic 606 Revenue:
Global workplace solutions	$	—	$	5,862,476	$	—	$	5,862,476
Advisory leasing		1,204,895		—		—		1,204,895
Advisory sales		871,108		—		—		871,108
Property and advisory project management		986,983		—		—		986,983
Valuation		281,560		—		—		281,560
Commercial mortgage origination (1)		52,138		—		—		52,138
Loan servicing (2)		10,933		—		—		10,933
Investment management		—		—		222,637		222,637
Development services		—		—		41,733		41,733
Topic 606 Revenue		3,407,617		5,862,476		264,370		9,534,463
Out of Scope of Topic 606 Revenue:
Commercial mortgage origination		176,134		—		—		176,134
Loan servicing (2)		74,789		—		—		74,789
Total Out of Scope of Topic 606 Revenue		250,923		—		—		250,923
Total revenue	$	3,658,540	$	5,862,476	$	264,370	$	9,785,386

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

(2)	Loan servicing fees earned from servicing contracts for which we do not hold mortgage servicing rights are in scope of Topic 606.

(3)	Our new organizational structure became effective on January 1, 2019. See Note 13 for additional information. Revenue classifications for 2018 have been restated to conform to the new structure.

Contract Assets and Liabilities

We had contract assets totaling $465.7 million ($323.2 million of which was current) and $381.8 million ($307.0 million of which was current) as of June 30, 2019 and December 31, 2018, respectively.

We had contract liabilities totaling $120.0 million ($109.5 million of which was current) and $92.5 million ($82.2 million of which was current) as of June 30, 2019 and December 31, 2018, respectively. During the six months ended June 30, 2019, we recognized revenue of $64.3 million that was included in the contract liability balance at December 31, 2018.

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

13.

Segments

On August 17, 2018, we announced a new organizational structure that became effective on January 1, 2019. Under the new structure, we organize our operations around, and publicly report our financial results on, three global business segments: (1) Advisory Services; (2) Global Workplace Solutions and (3) Real Estate Investments.

Advisory Services provides a comprehensive range of services globally, including property leasing, property sales, mortgage services, valuation, property management and project management. Global Workplace Solutions provides a broad suite of integrated, contractually-based services to occupiers of real estate, including facilities management, project management, transaction management and management consulting. Real Estate Investments includes: (i) investment management services provided globally; (ii) development services in the U.S. and (iii) a new service designed to help institutional property owners meet the demand for flexible office space solutions.

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
		2019	2018 (1)			2019	2018 (1)
Revenue
Advisory Services	$	2,178,958	$	1,959,106	$	4,013,360	$	3,658,540
Global Workplace Solutions		3,385,452		3,034,973		6,551,367		5,862,476
Real Estate Investments		149,663		117,355		284,856		264,370
Total revenue	$	5,714,073	$	5,111,434	$	10,849,583	$	9,785,386

Adjusted EBITDA
Advisory Services	$	333,528	$	290,312	$	597,378	$	505,744
Global Workplace Solutions		104,060		79,081		203,739		161,816
Real Estate Investments		30,904		69,914		117,407		119,554
Total Adjusted EBITDA	$	468,492	$	439,307	$	918,524	$	787,114

(1)	Results for 2018 have been presented in conformity with the new structure.

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

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
		2019		2018		2019		2018
Net income attributable to CBRE Group, Inc.	$	223,731	$	228,667	$	388,140	$	378,955
Add:
Depreciation and amortization		106,479		113,399		212,302		221,564
Intangible asset impairment		—		—		89,037		—
Interest expense, net of interest income		24,600		25,396		45,792		50,633
Write-off of financing costs on extinguished debt		—		—		2,608		27,982
Provision for income taxes		62,521		70,319		106,399		116,483
EBITDA		417,331		437,781		844,278		795,617
Adjustments:
Costs associated with our reorganization, including cost-savings initiatives (1)		33,816		—		49,565		—
Integration and other costs related to acquisitions		9,037		—		9,037		—
Carried interest incentive compensation expense (reversal) to align with the timing of associated revenue		8,308		1,526		15,644		(8,503	)
Adjusted EBITDA	$	468,492	$	439,307	$	918,524	$	787,114

(1)	Primarily represents severance costs related to headcount reductions in connection with our reorganization announced in the third quarter of 2018 that became effective January 1, 2019.

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Our CODM is not provided with total asset information by segment and accordingly, does not measure or allocate total assets on a segment basis. As a result, we have not disclosed any asset information by segment.

Geographic Information

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
		2019		2018		2019		2018
Revenue
United States	$	3,372,201	$	2,908,185	$	6,408,907	$	5,582,402
United Kingdom		657,005		634,264		1,245,587		1,214,781
All other countries		1,684,867		1,568,985		3,195,089		2,988,203
Total revenue	$	5,714,073	$	5,111,434	$	10,849,583	$	9,785,386

14.	Guarantor and Nonguarantor Financial Statements

The following condensed consolidating financial information includes condensed consolidating balance sheets as of June 30, 2019 and December 31, 2018, condensed consolidating statements of operations and condensed consolidating statements of comprehensive income (loss) for the three and six months ended June 30, 2019 and 2018 and condensed consolidating statements of cash flows for the six months ended June 30, 2019 and 2018 of:

•

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

•

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

•

CBRE Group, Inc., on a consolidated basis.

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

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Condensed Consolidating Balance Sheets

	As of June 30, 2019
	Parent		CBRE Services		Guarantor Subsidiaries		Nonguarantor Subsidiaries		Eliminations			Consolidated Total
ASSETS
Current Assets:
Cash and cash equivalents	$	7	$	8,363	$	95,214	$	432,034	$	—		$	535,618
Restricted cash		—		—		7,352		70,255		—			77,607
Receivables, net		545		7		1,632,964		2,367,487		—			4,001,003
Warehouse receivables (1)		—		—		821,923		544,005		—			1,365,928
Contract assets		—		—		308,838		14,409		—			323,247
Prepaid expenses		—		—		126,980		163,274		—			290,254
Income taxes receivable		130		—		24,467		29,324		(157	)		53,764
Other current assets		—		—		80,186		157,610		—			237,796
Total Current Assets		682		8,370		3,097,924		3,778,398		(157	)		6,885,217
Property and equipment, net		—		—		515,525		230,965		—			746,490
Goodwill		—		—		2,234,731		1,429,058		—			3,663,789
Other intangible assets, net		—		—		730,619		600,662		—			1,331,281
Operating lease assets		—		—		445,234		503,982		—			949,216
Investments in unconsolidated subsidiaries		—		—		184,560		122,748		—			307,308
Investments in consolidated subsidiaries		7,332,563		6,150,477		3,368,024		—		(16,851,064	)		—
Intercompany loan receivable		—		2,720,490		700,000		567,215		(3,987,705	)		—
Deferred tax assets, net		—		—		91,552		54,383		(62,920	)		83,015
Other assets, net		—		18,940		581,482		152,397		—			752,819
Total Assets	$	7,333,245	$	8,898,277	$	11,949,651	$	7,439,808	$	(20,901,846	)	$	14,719,135
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable and accrued expenses	$	—	$	18,338	$	787,934	$	1,257,573	$	—		$	2,063,845
Compensation and employee benefits payable		—		—		677,258		409,715		—			1,086,973
Accrued bonus and profit sharing		—		—		408,569		296,161		—			704,730
Operating lease liabilities		—		—		78,567		94,929		—			173,496
Contract liabilities		—		—		55,037		54,474		—			109,511
Income taxes payable		—		3,962		—		33,930		(157	)		37,735
Short-term borrowings:
Warehouse lines of credit (which fund loans that U.S. Government Sponsored Enterprises have committed to purchase) (1)		—		—		814,896		535,092		—			1,349,988
Revolving credit facility		—		230,000		—		—		—			230,000
Total short-term borrowings		—		230,000		814,896		535,092		—			1,579,988
Current maturities of long-term debt		—		—		23		2,235		—			2,258
Other current liabilities		—		377		95,662		32,874		—			128,913
Total Current Liabilities		—		252,677		2,917,946		2,716,983		(157	)		5,887,449
Long-Term Debt, net:
Long-term debt, net		—		1,313,037		8		453,519		—			1,766,564
Intercompany loan payable		1,986,608		—		2,001,097		—		(3,987,705	)		—
Total Long-Term Debt, net		1,986,608		1,313,037		2,001,105		453,519		(3,987,705	)		1,766,564
Non-current operating lease liabilities		—		—		507,862		488,366		—			996,228
Non-current tax liabilities		—		—		143,449		35,541		—			178,990
Deferred tax liabilities, net		—		—		—		114,508		(62,920	)		51,588
Other liabilities		—		—		228,812		218,974		—			447,786
Total Liabilities		1,986,608		1,565,714		5,799,174		4,027,891		(4,050,782	)		9,328,605
Commitments and contingencies		—		—		—		—		—			—
Equity:
CBRE Group, Inc. Stockholders’ Equity		5,346,637		7,332,563		6,150,477		3,368,024		(16,851,064	)		5,346,637
Non-controlling interests		—		—		—		43,893		—			43,893
Total Equity		5,346,637		7,332,563		6,150,477		3,411,917		(16,851,064	)		5,390,530
Total Liabilities and Equity	$	7,333,245	$	8,898,277	$	11,949,651	$	7,439,808	$	(20,901,846	)	$	14,719,135

(1)

Although CBRE Capital Markets is included among our domestic subsidiaries that jointly and severally guarantee our 4.875% senior notes, 5.25% senior notes and our 2019 Credit Agreement, a substantial majority of warehouse receivables funded under JP Morgan, Fannie Mae ASAP, Capital One, BofA and TD Bank lines of credit are pledged to JP Morgan, Fannie Mae, Capital One, BofA and TD Bank, and accordingly, are not included as collateral for these notes or our other outstanding debt.

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Condensed Consolidating Balance Sheets

	As of December 31, 2018
	Parent		CBRE Services		Guarantor Subsidiaries		Nonguarantor Subsidiaries		Eliminations			Consolidated Total
ASSETS
Current Assets:
Cash and cash equivalents	$	7	$	34,063	$	261,181	$	481,968	$	—		$	777,219
Restricted cash		—		—		13,767		72,958		—			86,725
Receivables, net		—		5		1,340,120		2,328,466		—			3,668,591
Warehouse receivables (1)		—		—		664,095		678,373		—			1,342,468
Contract assets		—		—		289,214		17,806		—			307,020
Prepaid expenses		—		—		122,305		132,587		—			254,892
Income taxes receivable		6,099		—		18,992		52,692		(6,099	)		71,684
Other current assets		—		—		56,853		188,758		—			245,611
Total Current Assets		6,106		34,068		2,766,527		3,953,608		(6,099	)		6,754,210
Property and equipment, net		—		—		512,110		209,582		—			721,692
Goodwill		—		—		2,224,909		1,427,400		—			3,652,309
Other intangible assets, net		—		—		835,270		606,038		—			1,441,308
Investments in unconsolidated subsidiaries		—		—		170,698		45,476		—			216,174
Investments in consolidated subsidiaries		6,759,815		5,595,831		3,228,512		—		(15,584,158	)		—
Intercompany loan receivable		—		2,440,775		700,000		711,244		(3,852,019	)		—
Deferred tax assets, net		—		—		2,666		51,755		(2,718	)		51,703
Other assets, net		—		18,257		483,790		117,350		—			619,397
Total Assets	$	6,765,921	$	8,088,931	$	10,924,482	$	7,122,453	$	(19,444,994	)	$	13,456,793
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable and accrued expenses	$	40	$	17,450	$	655,582	$	1,246,755	$	—		$	1,919,827
Compensation and employee benefits payable		—		—		662,196		458,983		—			1,121,179
Accrued bonus and profit sharing		—		—		685,521		503,874		—			1,189,395
Contract liabilities		—		—		41,045		41,182		—			82,227
Income taxes payable		—		720		6,417		67,062		(6,099	)		68,100
Short-term borrowings:
Warehouse lines of credit (which fund loans that U.S. Government Sponsored Enterprises have committed to purchase) (1)		—		—		657,731		671,030		—			1,328,761
Total short-term borrowings		—		—		657,731		671,030		—			1,328,761
Current maturities of long-term debt		—		—		39		3,107		—			3,146
Other current liabilities		—		1,070		70,202		19,473		—			90,745
Total Current Liabilities		40		19,240		2,778,733		3,011,466		(6,099	)		5,803,380
Long-Term Debt, net:
Long-term debt, net		—		1,309,876		18		457,366		—			1,767,260
Intercompany loan payable		1,827,084		—		2,024,935		—		(3,852,019	)		—
Total Long-Term Debt, net		1,827,084		1,309,876		2,024,953		457,366		(3,852,019	)		1,767,260
Non-current tax liabilities		—		—		164,857		7,769		—			172,626
Deferred tax liabilities, net		—		—		—		110,143		(2,718	)		107,425
Other liabilities		—		—		360,108		236,092		—			596,200
Total Liabilities		1,827,124		1,329,116		5,328,651		3,822,836		(3,860,836	)		8,446,891
Commitments and contingencies		—		—		—		—		—			—
Equity:
CBRE Group, Inc. Stockholders’ Equity		4,938,797		6,759,815		5,595,831		3,228,512		(15,584,158	)		4,938,797
Non-controlling interests		—		—		—		71,105		—			71,105
Total Equity		4,938,797		6,759,815		5,595,831		3,299,617		(15,584,158	)		5,009,902
Total Liabilities and Equity	$	6,765,921	$	8,088,931	$	10,924,482	$	7,122,453	$	(19,444,994	)	$	13,456,793

(1)

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

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Condensed Consolidating Statements of Operations

	Three Months Ended June 30, 2019
	Parent			CBRE Services			Guarantor Subsidiaries		Nonguarantor Subsidiaries			Eliminations			Consolidated Total
Revenue	$	—		$	—		$	3,302,484	$	2,411,589		$	—		$	5,714,073
Costs and expenses:
Cost of services								2,602,522		1,843,268			—			4,445,790
Operating, administrative and other		250			226			436,939		439,982			—			877,397
Depreciation and amortization		—			—			65,351		41,128			—			106,479
Total costs and expenses		250			226			3,104,812		2,324,378			—			5,429,666
Gain on disposition of real estate		—			—			—		10			—			10
Operating (loss) income		(250	)		(226	)		197,672		87,221			—			284,417
Equity income from unconsolidated subsidiaries		—			—			18,961		2,812			—			21,773
Other income		—			—			1,479		2,890			—			4,369
Interest expense, net of interest income		—			(8,457	)		25,855		7,202			—			24,600
Royalty and management service expense (income)		—			—			14,765		(14,765	)		—			—
Income from consolidated subsidiaries		223,917			217,812			63,621		—			(505,350	)		—
Income before (benefit of) provision for income taxes		223,667			226,043			241,113		100,486			(505,350	)		285,959
(Benefit of) provision for income taxes		(64	)		2,126			23,301		37,158			—			62,521
Net income		223,731			223,917			217,812		63,328			(505,350	)		223,438
Less: Net loss attributable to non-controlling interests		—			—			—		(293	)		—			(293	)
Net income attributable to CBRE Group, Inc.	$	223,731		$	223,917		$	217,812	$	63,621		$	(505,350	)	$	223,731

	Three Months Ended June 30, 2018
	Parent			CBRE Services			Guarantor Subsidiaries		Nonguarantor Subsidiaries			Eliminations			Consolidated Total
Revenue	$	—		$	—		$	2,848,854	$	2,262,580		$	—		$	5,111,434
Costs and expenses:
Cost of services		—			—			2,265,206		1,693,542			—			3,958,748
Operating, administrative and other		7,039			246			415,495		403,502			—			826,282
Depreciation and amortization		—			—			68,334		45,065			—			113,399
Total costs and expenses		7,039			246			2,749,035		2,142,109			—			4,898,429
Gain on disposition of real estate		—			—			11,212		1,099			—			12,311
Operating (loss) income		(7,039	)		(246	)		111,031		121,570			—			225,316
Equity income from unconsolidated subsidiaries		—			—			94,755		1,266			—			96,021
Other income		—			—			1,189		2,820			—			4,009
Interest expense, net of interest income		—			(8,868	)		30,924		3,340			−			25,396
Royalty and management service expense (income)		—			—			11,587		(11,587	)		—			—
Income from consolidated subsidiaries		233,952			227,472			97,972		—			(559,396	)		—
Income before (benefit of) provision for income taxes		226,913			236,094			262,436		133,903			(559,396	)		299,950
(Benefit of) provision for income taxes		(1,754	)		2,142			34,964		34,967			—			70,319
Net income		228,667			233,952			227,472		98,936			(559,396	)		229,631
Less: Net income attributable to non-controlling interests		—			—			—		964			—			964
Net income attributable to CBRE Group, Inc.	$	228,667		$	233,952		$	227,472	$	97,972		$	(559,396	)	$	228,667

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Condensed Consolidating Statements of Operations

	Six Months Ended June 30, 2019
	Parent			CBRE Services			Guarantor Subsidiaries		Nonguarantor Subsidiaries			Eliminations			Consolidated Total
Revenue	$	—		$	—		$	6,268,601	$	4,580,982		$	—		$	10,849,583
Costs and expenses:
Cost of services								4,946,389		3,521,435			—			8,467,824
Operating, administrative and other		500			530			852,670		816,573			—			1,670,273
Depreciation and amortization		—			—			130,950		81,352			—			212,302
Intangible asset impairment		—			—			89,037		—			—			89,037
Total costs and expenses		500			530			6,019,046		4,419,360			—			10,439,436
Gain on disposition of real estate		—			—			19,231		26			—			19,257
Operating (loss) income		(500	)		(530	)		268,786		161,648			—			429,404
Equity income from unconsolidated subsidiaries		—			—			90,747		3,690			—			94,437
Other income		—			—			3,159		22,063			—			25,222
Interest expense, net of interest income		—			(18,323	)		43,327		20,788			—			45,792
Write-off of financing costs on extinguished debt		—			2,608			—		—			—			2,608
Royalty and management service expense (income)		—			—			21,505		(21,505	)		—			—
Income from consolidated subsidiaries		388,510			377,287			104,315		—			(870,112	)		—
Income before (benefit of) provision for income taxes		388,010			392,472			402,175		188,118			(870,112	)		500,663
(Benefit of) provision for income taxes		(130	)		3,962			24,888		77,679			—			106,399
Net income		388,140			388,510			377,287		110,439			(870,112	)		394,264
Less: Net income attributable to non-controlling interests		—			—			—		6,124			—			6,124
Net income attributable to CBRE Group, Inc.	$	388,140		$	388,510		$	377,287	$	104,315		$	(870,112	)	$	388,140

Six Months Ended June 30, 2018

Parent

CBRE

Services

Guarantor

Subsidiaries

Nonguarantor

Subsidiaries

Eliminations

Consolidated

Total

Revenue

—