cbre-10q_20190930.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 September 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 October 29, 2019 was 334,751,698.

FORM 10-Q

September 30, 2019

TABLE OF CONTENTS

		Page

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

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

	Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018	2

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

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018	4

	Consolidated Statements of Equity for the three and nine months ended September 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	35

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54

Item 4.	Controls and Procedures	55

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	55

Item 1A.	Risk Factors	55

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56

Item 6.	Exhibits	57

Signatures		58

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

CBRE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands, except share data)

	September 30,			December 31,
	2019			2018
ASSETS
Current Assets:
Cash and cash equivalents	$	577,460		$	777,219
Restricted cash		124,845			86,725
Receivables, less allowance for doubtful accounts of $77,293 and $60,348 at September 30, 2019 and December 31, 2018, respectively		4,057,751			3,668,591
Warehouse receivables		987,923			1,342,468
Advance warehouse funding		376,707			—
Contract assets		348,615			307,020
Prepaid expenses		282,640			254,892
Income taxes receivable		38,615			71,684
Other current assets		264,279			245,611
Total Current Assets		7,058,835			6,754,210
Property and equipment, net		782,004			721,692
Goodwill		3,627,327			3,652,309
Other intangible assets, net of accumulated amortization of $1,299,958 and $1,180,393 at September 30, 2019 and December 31, 2018, respectively		1,325,603			1,441,308
Operating lease assets		980,337			—
Investments in unconsolidated subsidiaries		328,580			216,174
Deferred tax assets, net		142,918			51,703
Other assets, net		795,338			619,397
Total Assets	$	15,040,942		$	13,456,793
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable and accrued expenses	$	2,085,391		$	1,919,827
Compensation and employee benefits payable		1,231,075			1,121,179
Accrued bonus and profit sharing		869,256			1,189,395
Operating lease liabilities		162,866			—
Contract liabilities		110,911			82,227
Income taxes payable		30,968			68,100
Short-term borrowings:
Warehouse lines of credit (which fund loans that U.S. Government Sponsored Enterprises have committed to purchase)		1,348,610			1,328,761
Revolving credit facility		52,000			—
Other		4,058			—
Total short-term borrowings		1,404,668			1,328,761
Current maturities of long-term debt		1,897			3,146
Other current liabilities		130,938			90,745
Total Current Liabilities		6,027,970			5,803,380
Long-term debt, net of current maturities		1,748,264			1,767,260
Non-current operating lease liabilities		1,039,865			—
Non-current tax liabilities		207,845			172,626
Deferred tax liabilities, net		21,287			107,425
Other liabilities		436,731			596,200
Total Liabilities		9,481,962			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; 335,755,183 and 336,912,783 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively		3,358			3,369
Additional paid-in capital		1,140,021			1,149,013
Accumulated earnings		5,155,531			4,504,684
Accumulated other comprehensive loss		(787,081	)		(718,269	)
Total CBRE Group, Inc. Stockholders’ Equity		5,511,829			4,938,797
Non-controlling interests		47,151			71,105
Total Equity		5,558,980			5,009,902
Total Liabilities and Equity	$	15,040,942		$	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				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Revenue	$	5,925,101	$	5,260,954	$	16,774,684	$	15,046,340
Costs and expenses:
Cost of services		4,687,336		4,098,904		13,155,160		11,677,613
Operating, administrative and other		809,584		859,085		2,479,857		2,417,602
Depreciation and amortization		111,560		113,484		323,862		335,048
Intangible asset impairment		—		—		89,037		—
Total costs and expenses		5,608,480		5,071,473		16,047,916		14,430,263
Gain on disposition of real estate		9		236		19,266		12,565
Operating income		316,630		189,717		746,034		628,642
Equity income from unconsolidated subsidiaries		25,796		126,840		120,233		263,040
Other income		941		95,515		26,163		95,244
Interest expense, net of interest income		21,846		25,420		67,638		76,053
Write-off of financing costs on extinguished debt		—		—		2,608		27,982
Income before provision for income taxes		321,521		386,652		822,184		882,891
Provision for income taxes		63,468		94,963		169,867		211,446
Net income		258,053		291,689		652,317		671,445
Less: Net income attributable to non-controlling interests		1,454		1,220		7,578		2,021
Net income attributable to CBRE Group, Inc.	$	256,599	$	290,469	$	644,739	$	669,424
Basic income per share:
Net income per share attributable to CBRE Group, Inc.	$	0.76	$	0.86	$	1.92	$	1.97
Weighted average shares outstanding for basic income per share		336,203,747		339,477,316		336,149,719		339,151,807
Diluted income per share:
Net income per share attributable to CBRE Group, Inc.	$	0.75	$	0.85	$	1.89	$	1.95
Weighted average shares outstanding for diluted income per share		341,100,182		343,733,947		340,590,007		343,267,240

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						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Net income	$	258,053		$	291,689		$	652,317		$	671,445
Other comprehensive loss:
Foreign currency translation loss		(78,177	)		(30,985	)		(79,772	)		(130,879	)
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		377			570			1,212			1,953
Unrealized gains (losses) on interest rate swaps, net of tax		7			65			(104	)		882
Unrealized holding gains (losses) on available for sale debt securities, net of tax		881			22			2,341			(605	)
Other, net		7,377			(15	)		7,378			5,513
Total other comprehensive loss		(69,535	)		(30,343	)		(68,945	)		(127,100	)
Comprehensive income		188,518			261,346			583,372			544,345
Less: Comprehensive income attributable to non-controlling interests		1,340			1,357			7,445			1,479
Comprehensive income attributable to CBRE Group, Inc.	$	187,178		$	259,989		$	575,927		$	542,866

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

CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

	Nine Months Ended
	September 30,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	652,317		$	671,445
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		323,862			335,048
Amortization and write-off of financing costs on extinguished debt		7,196			33,405
Gains related to mortgage servicing rights, premiums on loan sales and sales of other assets		(191,103	)		(156,973	)
Intangible asset impairment		89,037			—
Gain associated with remeasuring our investment in a joint venture entity to fair value at the date we acquired the remaining interest		—			(92,624	)
Gains on disposition of real estate held for investment		—			(3,197	)
Net realized and unrealized gains from investments		(26,163	)		(2,620	)
Provision for doubtful accounts		18,083			17,606
Compensation expense for equity awards		98,958			97,035
Equity income from unconsolidated subsidiaries		(120,233	)		(263,040	)
Distribution of earnings from unconsolidated subsidiaries		145,588			262,670
Proceeds from sale of mortgage loans		15,786,800			13,351,590
Origination of mortgage loans		(15,381,864	)		(13,979,299	)
Increase in warehouse lines of credit		19,849			668,974
Increase in advance warehouse funding		(376,707	)		—
Tenant concessions received		18,367			22,846
Purchase of equity securities		(81,369	)		(66,380	)
Proceeds from sale of equity securities		45,333			56,605
Increase in receivables, prepaid expenses and other assets (including contract and lease assets)		(647,942	)		(368,824	)
Increase in accounts payable and accrued expenses and other liabilities (including contract and lease liabilities)		158,708			85,648
Decrease in compensation and employee benefits payable and accrued bonus and profit sharing		(230,040	)		(136,257	)
Decrease in income taxes payable, net		(132,583	)		(21,642	)
Other operating activities, net		(36,793	)		(9,705	)
Net cash provided by operating activities		139,301			502,311
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(160,583	)		(151,893	)
Acquisition of businesses, including net assets acquired, intangibles and goodwill, net of cash acquired		(14,844	)		(313,560	)
Contributions to unconsolidated subsidiaries		(84,648	)		(31,026	)
Distributions from unconsolidated subsidiaries		20,960			53,720
Net proceeds from disposition of real estate held for investment		—			14,174
Purchase of equity securities		(10,160	)		(15,931	)
Proceeds from sale of equity securities		14,261			11,402
Purchase of available for sale debt securities		(4,219	)		(20,860	)
Proceeds from the sale of available for sale debt securities		2,392			5,432
Other investing activities, net		590			(5,557	)
Net cash used in investing activities		(236,251	)		(454,099	)

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)

	Nine Months Ended
	September 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		2,683,000			2,913,000
Repayment of revolving credit facility		(2,631,000	)		(2,772,000	)
Repayment of 5.00% senior notes (including premium)		—			(820,000	)
Proceeds from notes payable on real estate		5,243			3,239
Repayment of notes payable on real estate		—			(16,019	)
Repurchase of common stock		(94,088	)		—
Acquisition of businesses (cash paid for acquisitions more than three months after purchase date)		(36,089	)		(14,970	)
Repayment of debt assumed in acquisition of FacilitySource		—			(26,295	)
Units repurchased for payment of taxes on equity awards		(16,573	)		(27,696	)
Non-controlling interest contributions		46,513			9,558
Non-controlling interest distributions		(3,798	)		(11,382	)
Other financing activities, net		(5,171	)		(915	)
Net cash used in financing activities		(51,963	)		(213,480	)
Effect of currency exchange rate changes on cash and cash equivalents and restricted cash		(12,726	)		(31,613	)
NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH		(161,639	)		(196,881	)
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	$	702,305		$	627,938
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	80,179		$	95,822
Income taxes, net	$	302,735		$	235,305

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 June 30, 2019	$	3,363		$	1,162,002		$	4,898,932	$	(717,660	)	$	43,893		$	5,390,530
Net income		—			—			256,599		—			1,454			258,053
Compensation expense for equity awards		—			33,378			—		—			—			33,378
Units repurchased for payment of taxes on equity awards		—			(7,008	)		—		—			—			(7,008	)
Repurchase of common stock		—			(49,000	)		—		—			—			(49,000	)
Foreign currency translation loss		—			—			—		(78,063	)		(114	)		(78,177	)
Amounts reclassified from accumulated other comprehensive loss to interest expense, net of tax		—			—			—		377			—			377
Unrealized gains on interest rate swaps, net of tax		—			—			—		7			—			7
Unrealized holding gains on available for sale debt securities, net of tax		—			—			—		881			—			881
Contributions from non-controlling interests		—			—			—		—			4,536			4,536
Distributions to non-controlling interests		—			—			—		—			(1,235	)		(1,235	)
Deconsolidation of investment		—			—			—		—			(26	)		(26	)
Other		(5	)		649			—		7,377			(1,357	)		6,664
Balance at September 30, 2019	$	3,358		$	1,140,021		$	5,155,531	$	(787,081	)	$	47,151		$	5,558,980

	CBRE Group, Inc. Shareholders
	Class A common stock		Additional paid-in capital			Accumulated earnings		Accumulated other comprehensive loss			Non- controlling interests			Total
Balance at June 30, 2018	$	3,398	$	1,278,251		$	3,820,420	$	(648,492	)	$	63,294		$	4,516,871
Net income		—		—			290,469		—			1,220			291,689
Compensation expense for equity awards		—		35,360			—		—			—			35,360
Reclassification of stock incentive plan awards from an equity award to a liability award		—		(9,074	)		—		—			—			(9,074	)
Units repurchased for payment of taxes on equity awards		—		(23,066	)		—		—			—			(23,066	)
Foreign currency translation (loss) gain		—		—			—		(31,122	)		137			(30,985	)
Amounts reclassified from accumulated other comprehensive loss to interest expense, net of tax		—		—			—		570			—			570
Unrealized gains on interest rate swaps, net of tax		—		—			—		65			—			65
Unrealized holding gains on available for sale debt securities, net of tax		—		—			—		22			—			22
Contributions from non-controlling interests		—		—			—		—			6,814			6,814
Distributions to non-controlling interests		—		—			—		—			(3,730	)		(3,730	)
Other		11		(3,841	)		—		(15	)		(8,300	)		(12,145	)
Balance at September 30, 2018	$	3,409	$	1,277,630		$	4,110,889	$	(678,972	)	$	59,435		$	4,772,391

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		—			—			644,739		—			7,578			652,317
Compensation expense for equity awards		—			98,958			—		—			—			98,958
Units repurchased for payment of taxes on equity awards		—			(16,573	)		—		—			—			(16,573	)
Repurchase of common stock		(11	)		(94,077	)		—		—			—			(94,088	)
Foreign currency translation loss		—			—			—		(79,639	)		(133	)		(79,772	)
Amounts reclassified from accumulated other comprehensive loss to interest expense, net of tax		—			—			—		1,212			—			1,212
Unrealized losses on interest rate swaps, net of tax		—			—			—		(104	)		—			(104	)
Unrealized holding gains on available for sale debt securities, net of tax		—			—			—		2,341			—			2,341
Contributions from non-controlling interests		—			—			—		—			46,513			46,513
Distributions to non-controlling interests		—			—			—		—			(3,798	)		(3,798	)
Deconsolidation of investment		—			—			—		—			(67,667	)		(67,667	)
Other		—			2,700			6,108		7,378			(6,447	)		9,739
Balance at September 30, 2019	$	3,358		$	1,140,021		$	5,155,531	$	(787,081	)	$	47,151		$	5,558,980

	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		—		—			669,424			—			2,021			671,445
Adoption of Accounting Standards Update 2016-01, net of tax		—		—			3,964			(3,964	)		—			—
Compensation expense for equity awards		—		97,035			—			—			—			97,035
Reclassification of stock incentive plan awards from an equity award to a liability award		—		(9,074	)		—			—			—			(9,074	)
Units repurchased for payment of taxes on equity awards		—		(27,696	)		—			—			—			(27,696	)
Foreign currency translation loss		—		—			—			(130,337	)		(542	)		(130,879	)
Amounts reclassified from accumulated other comprehensive loss to interest expense, net of tax		—		—			—			1,953			—			1,953
Unrealized gains on interest rate swaps, net of tax		—		—			—			882			—			882
Unrealized holding losses on available for sale debt securities, net of tax		—		—			—			(605	)		—			(605	)
Contributions from non-controlling interests		—		—			—			—			9,558			9,558
Distributions to non-controlling interests		—		—			—			—			(11,382	)		(11,382	)
Other		14		(3,143	)		(5,506	)		5,513			(338	)		(3,460	)
Balance at September 30, 2018	$	3,409	$	1,277,630		$	4,110,889		$	(678,972	)	$	59,435		$	4,772,391

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

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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.

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 July 2019, the FASB issued ASU 2019-07, “Codification Updates to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates.” This ASU amends certain SEC sections or paragraphs within the FASB Accounting Standards Codification to reflect previously issued SEC final rules on Disclosure Update and Simplification and Investment Company Reporting Modernization. This ASU became effective immediately upon issuance. We adopted ASU 2019-07 in the third quarter of 2019 and the adoption 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.

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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.

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. 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.

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

4.	Warehouse Receivables & Warehouse Lines of Credit

Our wholly-owned subsidiary CBRE Capital Markets, Inc. (CBRE Capital Markets) is a Federal Home Loan Mortgage Corporation (Freddie Mac) approved Multifamily Program Plus Seller/Servicer and an approved Federal National Mortgage Association (Fannie Mae) Aggregation and Negotiated Transaction Seller/Servicer. In addition, CBRE Capital Markets’ wholly-owned subsidiary CBRE Multifamily Capital, Inc. (CBRE MCI) is an approved Fannie Mae Delegated Underwriting and Servicing (DUS) Seller/Servicer and CBRE Capital Markets’ wholly-owned subsidiary CBRE HMF, Inc. (CBRE HMF) is a U.S. Department of Housing and Urban Development (HUD) approved Non-Supervised Federal Housing Authority (FHA) Title II Mortgagee, an approved Multifamily Accelerated Processing (MAP) lender and an approved Government National Mortgage Association (Ginnie Mae) issuer of mortgage-backed securities (MBS). Under these arrangements, before loans are originated through proceeds from warehouse lines of credit, we obtain either a contractual loan purchase commitment from either Freddie Mac or Fannie Mae or a confirmed forward trade commitment for the issuance and purchase of a Fannie Mae or Ginnie Mae MBS that will be secured by the loans. The warehouse lines of credit are generally repaid within a one-month period when Freddie Mac or Fannie Mae buys the loans or upon settlement of the Fannie Mae or Ginnie Mae MBS, while we retain the servicing rights. Loans are funded at the prevailing market rates. We elect the fair value option for all warehouse receivables. At September 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		15,381,864
Gains (premiums on loan sales)		48,177
Proceeds from sale of mortgage loans:
Sale of mortgage loans		(15,738,623	)
Cash collections of premiums on loan sales		(48,177	)
Proceeds from sale of mortgage loans		(15,786,800	)
Net increase in mortgage servicing rights included in warehouse receivables		2,214
Ending balance at September 30, 2019	$	987,923

On September 30, 2019, we borrowed $376.7 million from our warehouse lines of credit to fund origination of mortgage loans scheduled to close on October 1, 2019. The transaction closed as scheduled and was recorded as a warehouse receivable on October 1, 2019. As a result, we had a $376.7 million advance warehouse funding, which has been included on a separate line item in the accompanying consolidated balance sheet at September 30, 2019.

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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

			September 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) (1)	10/21/2019	daily one-month LIBOR plus 1.30%	$	985,000	$	476,382	$	985,000	$	871,680
JP Morgan (1)	10/21/2019	daily one-month LIBOR plus 2.75%		15,000		—		15,000		—
Capital One, N.A. (Capital One) (2)	7/27/2020	daily one-month LIBOR plus 1.25%		200,000		171,731		325,000		120,195
Fannie Mae Multifamily As Soon As Pooled Plus Agreement and Multifamily As Soon As Pooled Sale Agreement (ASAP) Program (3)	Cancelable anytime	daily one-month LIBOR plus 1.35%, with a LIBOR floor of 0.35%		450,000		209,741		450,000		149,089
TD Bank, N.A. (TD Bank) (4)	6/30/2020	daily one-month LIBOR plus 1.15%		800,000		84,301		400,000		165,945
Bank of America, N.A. (BofA)	5/27/2020	daily one-month LIBOR plus 1.20%		350,000		332,130		—		—
BofA	5/27/2020	daily one-month LIBOR plus 1.15%		250,000		45,000		200,000		—
BofA	6/4/2019	daily one-month LIBOR plus 1.30%		—		—		225,000		21,852
MUFG Union Bank, N.A. (Union Bank) (5)	6/28/2020	daily one-month LIBOR plus 1.20%		350,000		29,325		—		—
			$	3,400,000	$	1,348,610	$	2,600,000	$	1,328,761

(1)	Effective October 21, 2019, we amended this facility which extended the maturity date until October 19, 2020.

(2)

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.

(3)	The maximum facility size was temporarily increased from $450.0 million to $600.0 million effective September 9, 2019. The maximum facility size reverted to $450.0 million on September 30, 2019.

(4)

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 contains an accordion feature which provides for a temporary increase to $800.0 million, if needed, that will expire on February 1, 2020. To date, the temporary increase has not been requested.

(5)

On June 28, 2019, we added a new warehouse facility for $200.0 million with Union Bank. This facility contains an accordion feature which allows for temporary increases not to exceed an additional $150.0 million. If utilized, the additional borrowings must be in predefined multiples and are not to occur more than three times within a calendar period. Since inception, no short-term temporary increases have been requested.

During the nine months ended September 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 September 30, 2019 and December 31, 2018, our maximum exposure to loss related to VIEs which are not consolidated was as follows (dollars in thousands):

	September 30,		December 31,
		2019		2018
Investments in unconsolidated subsidiaries	$	26,999	$	23,266
Other current assets		4,180		3,827
Co-investment commitments		30,167		22,363
Maximum exposure to loss	$	61,346	$	49,456

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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.

The following tables present the fair value of assets and liabilities measured at fair value on a recurring basis as of September 30, 2019 and December 31, 2018 (dollars in thousands):

	As of September 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	$	6,818	$	—	$	—	$	6,818
Debt securities issued by U.S. federal agencies		—		11,137		—		11,137
Corporate debt securities		—		27,463		—		27,463
Asset-backed securities		—		5,159		—		5,159
Collateralized mortgage obligations		—		2,251		—		2,251
Total available for sale debt securities		6,818		46,010		—		52,828
Equity securities		78,547		—		—		78,547
Warehouse receivables and advance warehouse funding		—		1,364,630		—		1,364,630
Total assets at fair value	$	85,365	$	1,410,640	$	—	$	1,496,005

	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

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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

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

During the nine months ended September 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.

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.

During the three and nine months ended September 30, 2018, we recorded a gain of $92.6 million associated with remeasuring our 50% investment in a previously unconsolidated subsidiary in New England to fair value as of the date we acquired the remaining 50% controlling interest. Fair value of this investment in unconsolidated subsidiary at acquisition date was $110.1 million, based upon the purchase price paid for the remaining 50% interest acquired, excluding the estimated control premium paid, which falls under Level 3 of the fair value hierarchy. Such gain was reflected in other income in our Advisory segment in the accompanying consolidated statements of operations for both the three and nine months ended September 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 and Advance Warehouse Funding – 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 $734.0 million at September 30, 2019 and $757.0 million at December 31, 2018. Their actual carrying value, net of unamortized debt issuance costs, totaled $731.8 million and $751.3 million at September 30, 2019 and December 31, 2018, respectively (see Note 8).

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

•

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 $671.7 million and $477.8 million, respectively, at September 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 $593.4 million and $422.9 million, respectively, at September 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%.

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
		2019		2018		2019		2018
Revenue	$	375,717	$	392,945	$	1,083,664	$	1,181,174
Operating income		191,667		522,989		383,490		895,378
Net income		189,960		455,887		289,437		711,711

8.	Long-Term Debt and Short-Term Borrowings

Long-Term Debt

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

	September 30,			December 31,
		2019			2018
Senior term loans, with interest ranging from 0.75% to 3.38%, due quarterly through 2024	$	735,968		$	758,452
4.875% senior notes due in 2026, net of unamortized discount		596,950			596,653
5.25% senior notes due in 2025, net of unamortized premium		425,997			426,134
Other		2,011			3,682
Total long-term debt		1,760,926			1,784,921
Less: current maturities of long-term debt		(1,897	)		(3,146	)
Less: unamortized debt issuance costs		(10,765	)		(14,515	)
Total long-term debt, net of current maturities	$	1,748,264		$	1,767,260

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 September 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.

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.

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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 22.21x for the trailing twelve months ended September 30, 2019, and our leverage ratio of total debt less available cash to consolidated EBITDA was 0.65x as of September 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 September 30, 2019, $52.0 million was outstanding under the revolving credit facility. In addition, as of September 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	September 30, 2019
Assets
Operating lease assets	Operating lease assets	$	980,337
Financing lease assets	Other assets, net		80,304
Total leased assets		$	1,060,641

Liabilities
Current:
Operating	Operating lease liabilities	$	162,866
Financing	Other current liabilities		30,562
Non-current:
Operating	Non-current operating lease liabilities		1,039,865
Financing	Other liabilities		50,204
Total lease liabilities		$	1,283,497

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 September 30, 2019			Nine Months Ended September 30, 2019
Operating lease cost	Operating, administrative and other	$	47,126		$	139,951
Finance lease cost:
Amortization of right-to-use assets	(1)		8,041			22,328
Interest on lease liabilities	Interest expense		378			826
Variable lease cost	(2)		20,582			53,634
Sublease income	Revenue		(608	)		(1,881	)
Total lease cost		$	75,519		$	214,858

(1)

Amortization costs of $6.6 million and $18.2 million, respectively, from vehicle finance leases utilized in client outsourcing arrangements are included in cost of services. Amortization costs of $1.4 million and $4.1 million, respectively, from all other finance leases are included in depreciation and amortization.

(2)	Variable lease costs of $4.8 million and $11.7 million, respectively, from leases in client outsourcing arrangements are included in cost of services. Variable lease costs of $15.8 million and $41.9 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:

		September 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		2.3%

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

	Operating Leases		Financing Leases
2019	$	40,311	$	8,401
2020		174,631		29,734
2021		190,249		21,740
2022		168,339		14,162
2023		150,954		7,777
Thereafter		683,568		2,421
Total remaining lease payments at September 30, 2019	$	1,408,052	$	84,235
Less: Interest		205,321		3,469
Present value of lease liabilities at September 30, 2019	$	1,202,731	$	80,766

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):

	Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	121,964
Operating cash flows from financing leases		1,059
Financing cash flows from financing leases		23,260
Right-of-use assets obtained in exchange for new operating lease liabilities		149,259
Right-of-use assets obtained in exchange for new financing lease liabilities		40,819
Other non-cash increases in operating lease right-of-use assets (1)		35,510
Other non-cash decreases in finance lease right-of-use assets (1)		(1,011	)

(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 $27.2 billion at September 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 September 30, 2019 and December 31, 2018, CBRE MCI had a $72.0 million and a $64.0 million, respectively, letter of credit under this reserve arrangement, and had recorded a liability of approximately $43.7 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 $1.2 billion (including $486.5 million of warehouse receivables and $376.7 million of advance warehouse funding, a substantial majority of which are pledged against warehouse lines of credit and are therefore not available to Fannie Mae) at September 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 September 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 $90.8 million as of September 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 $77.0 million as of September 30, 2019 referred to in the preceding paragraphs represented the majority of the $90.8 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 July 2020.

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

We had guarantees totaling $56.4 million as of September 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 $56.4 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.

In addition, as of September 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 September 30, 2019, we had aggregate commitments of $55.2 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 September 30, 2019, we had committed to fund $45.8 million of additional capital to these unconsolidated subsidiaries.

11.	Income Taxes

Our provision for income taxes on a consolidated basis was $63.5 million for the three months ended September 30, 2019 as compared to $95.0 million for the same period in 2018. Our effective tax rate decreased from 24.6% for the three months ended September 30, 2018 to 19.7% for the three months ended September 30, 2019. The lower tax rate for three months ended September 30, 2019 primarily resulted from the realization of a $22.1 million net tax benefit for tax over book basis in a foreign subsidiary that is expected to reverse in the foreseeable future. We benefited from discrete items for the three months ended September 30, 2019 that exceeded the benefits for other discrete items for the prior-year period.

Our provision for income taxes on a consolidated basis was $169.9 million for the nine months ended September 30, 2019 as compared to $211.4 million for the same period in 2018. Our effective tax rate decreased from 23.9% for the nine months ended September 30, 2018 to 20.7% for the nine months ended September 30, 2019. The lower tax rate for nine months ended September 30, 2019 primarily resulted from the realization of a $22.1 million net tax benefit for tax over book basis in a foreign subsidiary that is expected to reverse in the foreseeable future. We benefited from discrete items for the nine months ended September 30, 2019 that exceeded the benefits for other discrete items for the nine months ended September 30, 2018.

At December 31, 2018, we had gross unrecognized tax benefits of $95.0 million. In the third quarter of 2019, we recorded gross unrecognized tax benefits of $22.9 million, primarily related to the sustainability of certain tax attributes in light of unsettled tax law.

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

12.	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				Nine Months Ended
	September 30,				September 30,
		2019		2018		2019		2018
Basic Income Per Share
Net income attributable to CBRE Group, Inc. shareholders	$	256,599	$	290,469	$	644,739	$	669,424
Weighted average shares outstanding for basic income per share		336,203,747		339,477,316		336,149,719		339,151,807
Basic income per share attributable to CBRE Group, Inc. shareholders	$	0.76	$	0.86	$	1.92	$	1.97
Diluted Income Per Share
Net income attributable to CBRE Group, Inc. shareholders	$	256,599	$	290,469	$	644,739	$	669,424
Weighted average shares outstanding for basic income per share:		336,203,747		339,477,316		336,149,719		339,151,807
Dilutive effect of contingently issuable shares		4,896,435		4,256,631		4,440,288		4,114,910
Dilutive effect of stock options		—		—		—		523
Weighted average shares outstanding for diluted income per share		341,100,182		343,733,947		340,590,007		343,267,240
Diluted income per share attributable to CBRE Group, Inc. shareholders	$	0.75	$	0.85	$	1.89	$	1.95

For the three and nine months ended September 30, 2019, 320,154 and 447,687, 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 nine months ended September 30, 2018, 34,470 and 28,922, 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.

In October 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.

In February 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. In August 2019, our board of directors authorized an additional $100.0 million under our new program, bringing the total authorized amount under the new program to a total of $400.0 million. During the three months ended September 30, 2019, we spent $49.0 million to repurchase an additional 932,973 shares of our Class A common stock with an average price paid per share of $52.50.

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

13.	Revenue from Contracts with Customers

Disaggregated Revenue

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

	Three Months Ended September 30, 2019
	Advisory Services		Global Workplace Solutions		Real Estate Investments		Consolidated
Topic 606 Revenue:
Global workplace solutions	$	—	$	3,555,176	$	—	$	3,555,176
Advisory leasing		781,246		—		—		781,246
Advisory sales		526,104		—		—		526,104
Property and advisory project management		558,039		—		—		558,039
Valuation		154,861		—		—		154,861
Commercial mortgage origination (1)		46,787		—		—		46,787
Loan servicing (2)		8,599		—		—		8,599
Investment management		—		—		104,927		104,927
Development services		—		—		24,286		24,286
Topic 606 Revenue		2,075,636		3,555,176		129,213		5,760,025
Out of Scope of Topic 606 Revenue:
Commercial mortgage origination		117,052		—		—		117,052
Loan servicing (2)		48,024		—		—		48,024
Total Out of Scope of Topic 606 Revenue		165,076		—		—		165,076
Total revenue	$	2,240,712	$	3,555,176	$	129,213	$	5,925,101

	Three Months Ended September 30, 2018 (3)
	Advisory Services		Global Workplace Solutions		Real Estate Investments		Consolidated
Topic 606 Revenue:
Global workplace solutions	$	—	$	3,082,781	$	—	$	3,082,781
Advisory leasing		751,793		—		—		751,793
Advisory sales		486,398		—		—		486,398
Property and advisory project management		498,388		—		—		498,388
Valuation		143,814		—		—		143,814
Commercial mortgage origination (1)		30,939		—		—		30,939
Loan servicing (2)		5,358		—		—		5,358
Investment management		—		—		93,061		93,061
Development services		—		—		25,753		25,753
Topic 606 Revenue		1,916,690		3,082,781		118,814		5,118,285
Out of Scope of Topic 606 Revenue:
Commercial mortgage origination		101,561		—		—		101,561
Loan servicing (2)		41,108		—		—		41,108
Total Out of Scope of Topic 606 Revenue		142,669		—		—		142,669
Total revenue	$	2,059,359	$	3,082,781	$	118,814	$	5,260,954

(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 14 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)

	Nine Months Ended September 30, 2019
	Advisory Services		Global Workplace Solutions		Real Estate Investments		Consolidated
Topic 606 Revenue:
Global workplace solutions	$	—	$	10,106,543	$	—	$	10,106,543
Advisory leasing		2,221,674		—		—		2,221,674
Advisory sales		1,378,317		—		—		1,378,317
Property and advisory project management		1,634,745		—		—		1,634,745
Valuation		442,238		—		—		442,238
Commercial mortgage origination (1)		102,471		—		—		102,471
Loan servicing (2)		22,669		—		—		22,669
Investment management		—		—		312,881		312,881
Development services		—		—		101,188		101,188
Topic 606 Revenue		5,802,114		10,106,543		414,069		16,322,726
Out of Scope of Topic 606 Revenue:
Commercial mortgage origination		322,246		—		—		322,246
Loan servicing (2)		129,712		—		—		129,712
Total Out of Scope of Topic 606 Revenue		451,958		—		—		451,958
Total revenue	$	6,254,072	$	10,106,543	$	414,069	$	16,774,684

	Nine Months Ended September 30, 2018 (3)
	Advisory Services		Global Workplace Solutions		Real Estate Investments		Consolidated
Topic 606 Revenue:
Global workplace solutions	$	—	$	8,945,257	$	—	$	8,945,257
Advisory leasing		1,956,688		—		—		1,956,688
Advisory sales		1,357,506		—		—		1,357,506
Property and advisory project management		1,485,371		—		—		1,485,371
Valuation		425,374		—		—		425,374
Commercial mortgage origination (1)		83,077		—		—		83,077
Loan servicing (2)		16,291		—		—		16,291
Investment management		—		—		315,698		315,698
Development services		—		—		67,486		67,486
Topic 606 Revenue		5,324,307		8,945,257		383,184		14,652,748
Out of Scope of Topic 606 Revenue:
Commercial mortgage origination		277,695		—		—		277,695
Loan servicing (2)		115,897		—		—		115,897
Total Out of Scope of Topic 606 Revenue		393,592		—		—		393,592
Total revenue	$	5,717,899	$	8,945,257	$	383,184	$	15,046,340

(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 14 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 $510.4 million ($348.6 million of which was current) and $381.8 million ($307.0 million of which was current) as of September 30, 2019 and December 31, 2018, respectively.

We had contract liabilities totaling $115.7 million ($110.9 million of which was current) and $92.5 million ($82.2 million of which was current) as of September 30, 2019 and December 31, 2018, respectively. During the nine months ended September 30, 2019, we recognized revenue of $74.3 million that was included in the contract liability balance at December 31, 2018.

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

14.

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				Nine Months Ended
	September 30,				September 30,
		2019	2018 (1)			2019	2018 (1)
Revenue
Advisory Services	$	2,240,712	$	2,059,359	$	6,254,072	$	5,717,899
Global Workplace Solutions		3,555,176		3,082,781		10,106,543		8,945,257
Real Estate Investments		129,213		118,814		414,069		383,184
Total revenue	$	5,925,101	$	5,260,954	$	16,774,684	$	15,046,340

Adjusted EBITDA
Advisory Services	$	345,482	$	295,902	$	942,860	$	801,646
Global Workplace Solutions		95,209		82,810		298,948		244,626
Real Estate Investments		13,939		84,696		131,346		204,250
Total Adjusted EBITDA	$	454,630	$	463,408	$	1,373,154	$	1,250,522

(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, certain carried interest incentive compensation (reversal) expense to align with the timing of associated revenue, costs associated with our reorganization, including cost-savings initiatives, and other non-recurring costs.

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
		2019			2018			2019		2018
Net income attributable to CBRE Group, Inc.	$	256,599		$	290,469		$	644,739	$	669,424
Add:
Depreciation and amortization		111,560			113,484			323,862		335,048
Intangible asset impairment		—			—			89,037		—
Interest expense, net of interest income		21,846			25,420			67,638		76,053
Write-off of financing costs on extinguished debt		—			—			2,608		27,982
Provision for income taxes		63,468			94,963			169,867		211,446
EBITDA		453,473			524,336			1,297,751		1,319,953
Adjustments:
Integration and other costs related to acquisitions		4,517			6,100			13,554		6,100
Carried interest incentive compensation (reversal) expense to align with the timing of associated revenue		(3,360	)		3,960			12,284		(4,543	)
Costs associated with our reorganization, including cost-savings initiatives (1)		—			12,768			49,565		12,768
Costs incurred in connection with litigation settlement		—			8,868			—		8,868
One-time gain associated with remeasuring an investment in an unconsolidated subsidiary to fair value as of the date the remaining controlling interest was acquired		—			(92,624	)		—		(92,624	)
Adjusted EBITDA	$	454,630		$	463,408		$	1,373,154	$	1,250,522

(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.

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				Nine Months Ended
	September 30,				September 30,
		2019		2018		2019		2018
Revenue
United States	$	3,442,570	$	3,063,616	$	9,851,477	$	8,646,018
United Kingdom		758,084		638,018		2,003,671		1,852,799
All other countries		1,724,447		1,559,320		4,919,536		4,547,523
Total revenue	$	5,925,101	$	5,260,954	$	16,774,684	$	15,046,340

15.	Guarantor and Nonguarantor Financial Statements

The following condensed consolidating financial information includes condensed consolidating balance sheets as of September 30, 2019 and December 31, 2018, condensed consolidating statements of operations and condensed consolidating statements of comprehensive income for the three and nine months ended September 30, 2019 and 2018 and condensed consolidating statements of cash flows for the nine months ended September 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.

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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.

Condensed Consolidating Balance Sheets

	As of September 30, 2019
	Parent		CBRE Services		Guarantor Subsidiaries		Nonguarantor Subsidiaries		Eliminations			Consolidated Total
ASSETS
Current Assets:
Cash and cash equivalents	$	7	$	16,634	$	53,948	$	506,871	$	—		$	577,460
Restricted cash		—		—		37,581		87,264		—			124,845
Receivables, net		—		—		1,661,385		2,396,366		—			4,057,751
Warehouse receivables (1)		—		—		500,950		486,973		—			987,923
Advance warehouse funding		—		—		—		376,707		—			376,707
Contract assets		—		—		307,668		40,947		—			348,615
Prepaid expenses		—		—		125,510		157,130		—			282,640
Income taxes receivable		195		—		14,317		40,169		(16,066	)		38,615
Other current assets		—		—		71,310		192,969		—			264,279
Total Current Assets		202		16,634		2,772,669		4,285,396		(16,066	)		7,058,835
Property and equipment, net		—		—		529,654		252,350		—			782,004
Goodwill		—		—		2,243,519		1,383,808		—			3,627,327
Other intangible assets, net		—		—		734,365		591,238		—			1,325,603
Operating lease assets		—		—		463,423		516,914		—			980,337
Investments in unconsolidated subsidiaries		—		—		245,295		83,285		—			328,580
Investments in consolidated subsidiaries		7,603,675		6,150,662		3,385,682		—		(17,140,019	)		—
Intercompany loan receivable		—		2,794,822		700,000		581,831		(4,076,653	)		—
Deferred tax assets, net		—		—		199,840		52,048		(108,970	)		142,918
Other assets, net		—		18,017		624,090		153,231		—			795,338
Total Assets	$	7,603,877	$	8,980,135	$	11,898,537	$	7,900,101	$	(21,341,708	)	$	15,040,942
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable and accrued expenses	$	—	$	5,167	$	876,891	$	1,203,333	$	—		$	2,085,391
Compensation and employee benefits payable		—		—		753,051		478,024		—			1,231,075
Accrued bonus and profit sharing		—		—		530,013		339,243		—			869,256
Operating lease liabilities		—		—		74,499		88,367		—			162,866
Contract liabilities		—		—		47,765		63,146		—			110,911
Income taxes payable		—		5,823		10,519		30,692		(16,066	)		30,968
Short-term borrowings:
Warehouse lines of credit (which fund loans that U.S. Government Sponsored Enterprises have committed to purchase) (1)		—		—		496,076		852,534		—			1,348,610
Revolving credit facility		—		52,000		—		—		—			52,000
Other		—		—		—		4,058		—			4,058
Total short-term borrowings		—		52,000		496,076		856,592		—			1,404,668
Current maturities of long-term debt		—		—		23		1,874		—			1,897
Other current liabilities		—		—		49,019		81,919		—			130,938
Total Current Liabilities		—		62,990		2,837,856		3,143,190		(16,066	)		6,027,970
Long-Term Debt, net:
Long-term debt, net		—		1,313,470		—		434,794		—			1,748,264
Intercompany loan payable		2,092,048		—		1,984,605		—		(4,076,653	)		—
Total Long-Term Debt, net		2,092,048		1,313,470		1,984,605		434,794		(4,076,653	)		1,748,264
Non-current operating lease liabilities		—		—		532,938		506,927		—			1,039,865
Non-current tax liabilities		—		—		168,642		39,203		—			207,845
Deferred tax liabilities, net		—		—		—		130,257		(108,970	)		21,287
Other liabilities		—		—		223,834		212,897		—			436,731
Total Liabilities		2,092,048		1,376,460		5,747,875		4,467,268		(4,201,689	)		9,481,962
Commitments and contingencies		—		—		—		—		—			—
Equity:
CBRE Group, Inc. Stockholders’ Equity		5,511,829		7,603,675		6,150,662		3,385,682		(17,140,019	)		5,511,829
Non-controlling interests		—		—		—		47,151		—			47,151
Total Equity		5,511,829		7,603,675		6,150,662		3,432,833		(17,140,019	)		5,558,980
Total Liabilities and Equity	$	7,603,877	$	8,980,135	$	11,898,537	$	7,900,101	$	(21,341,708	)	$	15,040,942

(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, BofA, Fannie Mae ASAP, Capital One, TD Bank and Union Bank lines of credit are pledged to JP Morgan, BofA, Fannie Mae, Capital One, TD Bank and Union 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 September 30, 2019
	Parent			CBRE Services			Guarantor Subsidiaries		Nonguarantor Subsidiaries			Eliminations			Consolidated Total
Revenue	$	—		$	—		$	3,358,220	$	2,566,881		$	—		$	5,925,101
Costs and expenses:
Cost of services								2,708,008		1,979,328			—			4,687,336
Operating, administrative and other		250			233			411,222		397,879			—			809,584
Depreciation and amortization		—			—			67,168		44,392			—			111,560
Total costs and expenses		250			233			3,186,398		2,421,599			—			5,608,480
Gain on disposition of real estate		—			—			9		—			—			9
Operating (loss) income		(250	)		(233	)		171,831		145,282			—			316,630
Equity income (loss) from unconsolidated subsidiaries		—			—			26,664		(868	)		—			25,796
Other income (loss)		—			—			2,574		(1,633	)		—			941
Interest expense, net of interest income		—			(7,434	)		27,306		1,974			—			21,846
Royalty and management service expense (income)		—			—			2,509		(2,509	)		—			—
Income from consolidated subsidiaries		256,784			251,444			92,488		—			(600,716	)		—
Income before (benefit of) provision for income taxes		256,534			258,645			263,742		143,316			(600,716	)		321,521
(Benefit of) provision for income taxes		(65	)		1,861			12,298		49,374			—			63,468
Net income		256,599			256,784			251,444		93,942			(600,716	)		258,053
Less: Net income attributable to non-controlling interests		—			—			—		1,454			—			1,454
Net income attributable to CBRE Group, Inc.	$	256,599		$	256,784		$	251,444	$	92,488		$	(600,716	)	$	256,599

	Three Months Ended September 30, 2018
	Parent			CBRE Services			Guarantor Subsidiaries		Nonguarantor Subsidiaries			Eliminations			Consolidated Total
Revenue	$	—		$	—		$	2,995,019	$	2,265,935		$	—		$	5,260,954
Costs and expenses:
Cost of services		—			—			2,400,812		1,698,092			—			4,098,904
Operating, administrative and other		8,507			215			462,643		387,720			—			859,085
Depreciation and amortization		—			—			69,652		43,832			—			113,484
Total costs and expenses		8,507			215			2,933,107		2,129,644			—			5,071,473
Gain on disposition of real estate		—			—			187		49			—			236
Operating (loss) income		(8,507	)		(215	)		62,099		136,340			—			189,717
Equity income from unconsolidated subsidiaries		—			—			126,423		417			—			126,840
Other income (loss)		—			—			95,631		(116	)		—			95,515
Interest expense, net of interest income		—			(7,794	)		27,565		5,649			—			25,420
Royalty and management service expense (income)		—			—			16,070		(16,070	)		—			—
Income from consolidated subsidiaries		296,858			291,167			106,066		—			(694,091	)		—
Income before (benefit of) provision for income taxes		288,351			298,746			346,584		147,062			(694,091	)		386,652
(Benefit of) provision for income taxes		(2,118	)		1,888			55,417		39,776			—			94,963
Net income		290,469			296,858			291,167		107,286			(694,091	)		291,689
Less: Net income attributable to non-controlling interests		—			—			—		1,220			—			1,220
Net income attributable to CBRE Group, Inc.	$	290,469		$	296,858		$	291,167	$	106,066		$	(694,091	)	$	290,469

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Condensed Consolidating Statements of Operations

	Nine Months Ended September 30, 2019
	Parent			CBRE Services			Guarantor Subsidiaries		Nonguarantor Subsidiaries			Eliminations		Consolidated Total
Revenue	$	—		$	—		$	9,626,821	$	7,147,863		$	—	$	16,774,684
Costs and expenses:
Cost of services								7,654,397		5,500,763			—		13,155,160
Operating, administrative and other		750			763			1,263,892		1,214,452			—		2,479,857
Depreciation and amortization		—			—			198,118		125,744			—		323,862
Intangible asset impairment		—			—			89,037		—			—		89,037
Total costs and expenses		750			763			9,205,444		6,840,959			—		16,047,916
Gain on disposition of real estate		—			—			19,240		26			—		19,266
Operating (loss) income		(750	)		(763	)		440,617		306,930			—		746,034
Equity income from unconsolidated subsidiaries		—			—			117,411		2,822			—		120,233
Other income		—			—			5,733		20,430			—		26,163
Interest expense, net of interest income		—			(25,757	)		70,633		22,762			—		67,638
Write-off of financing costs on extinguished debt		—			2,608			—		—			—		2,608
Royalty and management service expense (income)		—			—			24,014		(24,014	)