10-Q 1 cbre-10q_20190331.htm 10-Q cbre-10q_20190331.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _______________ to _______________

Commission File Number 001 – 32205

 

CBRE GROUP, INC.

(Exact name of Registrant as specified in its charter)

 

 

Delaware

 

94-3391143

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification Number)

 

 

 

400 South Hope Street, 25th Floor
Los Angeles, California

 

90071

(Address of principal executive offices)

 

(Zip Code)

 

 

 

(213) 613-3333

 

Not applicable

(Registrant's telephone number, including area code)

 

(Former name, former address and
former fiscal year, if changed since last report)

 

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 April 30, 2019 was 336,277,673.

 

 

 


 

FORM 10-Q

March 31, 2019

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

 

 

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements (Unaudited)

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets at March 31, 2019 and December 31, 2018

 

1

 

 

 

 

 

 

 

Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018

 

2

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income for the three months ended March 31, 2019 and 2018

 

3

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018

 

4

 

 

 

 

 

 

 

Consolidated Statements of Equity for the three months ended March 31, 2019 and 2018

 

6

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

7

 

 

 

 

 

Item 2.

 

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

 

31

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

47

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

48

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

48

 

 

 

 

 

Item 1A.

 

Risk Factors

 

48

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

48

 

 

 

 

 

Item 6.

 

Exhibits

 

50

 

 

 

 

 

Signatures

 

52

 

 

 

 


 

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

CBRE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands, except share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

604,952

 

 

$

777,219

 

Restricted cash

 

 

82,716

 

 

 

86,725

 

Receivables, less allowance for doubtful accounts of $60,115 and $60,348 at

   March 31, 2019 and December 31, 2018, respectively

 

 

3,801,474

 

 

 

3,668,591

 

Warehouse receivables

 

 

1,548,249

 

 

 

1,342,468

 

Contract assets

 

 

295,403

 

 

 

307,020

 

Prepaid expenses

 

 

248,359

 

 

 

254,892

 

Income taxes receivable

 

 

58,337

 

 

 

71,684

 

Other current assets

 

 

357,370

 

 

 

245,611

 

Total Current Assets

 

 

6,996,860

 

 

 

6,754,210

 

Property and equipment, net

 

 

730,450

 

 

 

721,692

 

Goodwill

 

 

3,663,882

 

 

 

3,652,309

 

Other intangible assets, net of accumulated amortization of $1,229,297 and $1,180,393 at

   March 31, 2019 and December 31, 2018, respectively

 

 

1,338,646

 

 

 

1,441,308

 

Operating lease assets

 

 

938,681

 

 

 

 

Investments in unconsolidated subsidiaries

 

 

228,406

 

 

 

216,174

 

Deferred tax assets, net

 

 

80,537

 

 

 

51,703

 

Other assets, net

 

 

715,546

 

 

 

619,397

 

Total Assets

 

$

14,693,008

 

 

$

13,456,793

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

1,833,841

 

 

$

1,919,827

 

Compensation and employee benefits payable

 

 

1,152,035

 

 

 

1,121,179

 

Accrued bonus and profit sharing

 

 

656,123

 

 

 

1,189,395

 

Operating lease liabilities

 

 

185,457

 

 

 

 

Contract liabilities

 

 

115,137

 

 

 

82,227

 

Income taxes payable

 

 

53,795

 

 

 

68,100

 

Short-term borrowings:

 

 

 

 

 

 

 

 

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

   Enterprises have committed to purchase)

 

 

1,561,207

 

 

 

1,328,761

 

Revolving credit facility

 

 

336,000

 

 

 

 

Total short-term borrowings

 

 

1,897,207

 

 

 

1,328,761

 

Current maturities of long-term debt

 

 

2,573

 

 

 

3,146

 

Other current liabilities

 

 

113,914

 

 

 

90,745

 

Total Current Liabilities

 

 

6,010,082

 

 

 

5,803,380

 

Long-term debt, net of current maturities

 

 

1,760,181

 

 

 

1,767,260

 

Non-current operating lease liabilities

 

 

969,216

 

 

 

 

Non-current tax liabilities

 

 

175,139

 

 

 

172,626

 

Deferred tax liabilities, net

 

 

126,384

 

 

 

107,425

 

Other liabilities

 

 

447,790

 

 

 

596,200

 

Total Liabilities

 

 

9,488,792

 

 

 

8,446,891

 

Commitments and contingencies

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

CBRE Group, Inc. Stockholders’ Equity:

 

 

 

 

 

 

 

 

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

   336,266,487 and 336,912,783 shares issued and outstanding at

   March 31, 2019 and December 31, 2018, respectively

 

 

3,363

 

 

 

3,369

 

Additional paid-in capital

 

 

1,126,984

 

 

 

1,149,013

 

Accumulated earnings

 

 

4,675,201

 

 

 

4,504,684

 

Accumulated other comprehensive loss

 

 

(716,169

)

 

 

(718,269

)

Total CBRE Group, Inc. Stockholders’ Equity

 

 

5,089,379

 

 

 

4,938,797

 

Non-controlling interests

 

 

114,837

 

 

 

71,105

 

Total Equity

 

 

5,204,216

 

 

 

5,009,902

 

Total Liabilities and Equity

 

$

14,693,008

 

 

$

13,456,793

 

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

1


 

CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except share data)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

Revenue

 

$

5,135,510

 

 

$

4,673,952

 

Costs and expenses:

 

 

 

 

 

 

 

 

Cost of services

 

 

4,022,034

 

 

 

3,619,961

 

Operating, administrative and other

 

 

792,876

 

 

 

732,235

 

Depreciation and amortization

 

 

105,823

 

 

 

108,165

 

Intangible asset impairment

 

 

89,037

 

 

 

 

Total costs and expenses

 

 

5,009,770

 

 

 

4,460,361

 

Gain on disposition of real estate

 

 

19,247

 

 

 

18

 

Operating income

 

 

144,987

 

 

 

213,609

 

Equity income from unconsolidated subsidiaries

 

 

72,664

 

 

 

40,179

 

Other income (loss)

 

 

20,853

 

 

 

(4,280

)

Interest income

 

 

1,534

 

 

 

3,621

 

Interest expense

 

 

22,726

 

 

 

28,858

 

Write-off of financing costs on extinguished debt

 

 

2,608

 

 

 

27,982

 

Income before provision for income taxes

 

 

214,704

 

 

 

196,289

 

Provision for income taxes

 

 

43,878

 

 

 

46,164

 

Net income

 

 

170,826

 

 

 

150,125

 

Less:  Net income (loss) attributable to non-controlling interests

 

 

6,417

 

 

 

(163

)

Net income attributable to CBRE Group, Inc.

 

$

164,409

 

 

$

150,288

 

Basic income per share:

 

 

 

 

 

 

 

 

Net income per share attributable to CBRE Group, Inc.

 

$

0.49

 

 

$

0.44

 

Weighted average shares outstanding for basic income per

   share

 

 

336,020,431

 

 

 

338,890,098

 

Diluted income per share:

 

 

 

 

 

 

 

 

Net income per share attributable to CBRE Group, Inc.

 

$

0.48

 

 

$

0.44

 

Weighted average shares outstanding for diluted income per

   share

 

 

340,158,399

 

 

 

342,589,810

 

 

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

 


2


 

CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

Net income

 

$

170,826

 

 

$

150,125

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Foreign currency translation gain

 

 

937

 

 

 

66,032

 

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

 

 

410

 

 

 

755

 

Unrealized (losses) gains on interest rate swaps, net of tax

 

 

(59

)

 

 

603

 

Unrealized holding gains (losses) on available for sale debt

   securities, net of tax

 

 

755

 

 

 

(505

)

Other, net

 

 

1

 

 

 

5,528

 

Total other comprehensive income

 

 

2,044

 

 

 

68,449

 

Comprehensive income

 

 

172,870

 

 

 

218,574

 

Less: Comprehensive income (loss) attributable to non-controlling

   interests

 

 

6,361

 

 

 

(358

)

Comprehensive income attributable to CBRE Group, Inc.

 

$

166,509

 

 

$

218,932

 

 

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

 


3


 

CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

170,826

 

 

$

150,125

 

Adjustments to reconcile net income to net cash used in operating

   activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

105,823

 

 

 

108,165

 

Amortization and write-off of financing costs on extinguished debt

 

 

4,175

 

 

 

29,733

 

Gains related to mortgage servicing rights, premiums on loan sales

   and sales of other assets

 

 

(53,517

)

 

 

(45,078

)

Intangible asset impairment

 

 

89,037

 

 

 

 

Net realized and unrealized (gains) losses from investments

 

 

(20,853

)

 

 

4,280

 

Provision for doubtful accounts

 

 

1,867

 

 

 

5,601

 

Compensation expense for equity awards

 

 

29,271

 

 

 

29,570

 

Equity income from unconsolidated subsidiaries

 

 

(72,664

)

 

 

(40,179

)

Distribution of earnings from unconsolidated subsidiaries

 

 

77,158

 

 

 

45,182

 

Proceeds from sale of mortgage loans

 

 

4,453,797

 

 

 

2,910,181

 

Origination of mortgage loans

 

 

(4,646,348

)

 

 

(3,132,008

)

Increase in warehouse lines of credit

 

 

232,446

 

 

 

237,239

 

Tenant concessions received

 

 

3,464

 

 

 

12,634

 

Purchase of equity securities

 

 

(62,117

)

 

 

(23,569

)

Proceeds from sale of equity securities

 

 

25,730

 

 

 

20,001

 

(Increase) decrease in receivables, prepaid expenses and other assets

   (including contract and lease assets)

 

 

(172,218

)

 

 

69,971

 

Decrease in accounts payable and accrued expenses and other liabilities

   (including contract and lease liabilities)

 

 

(33,982

)

 

 

(146,221

)

Decrease in compensation and employee benefits payable and accrued

   bonus and profit sharing

 

 

(519,719

)

 

 

(483,031

)

(Increase) decrease in income taxes receivable/payable

 

 

(11,344

)

 

 

4,668

 

Other operating activities, net

 

 

(2,721

)

 

 

(7,222

)

Net cash used in operating activities

 

 

(401,889

)

 

 

(249,958

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(47,665

)

 

 

(46,724

)

Acquisition of businesses, including net assets acquired, intangibles and

   goodwill, net of cash acquired

 

 

(2,142

)

 

 

 

Contributions to unconsolidated subsidiaries

 

 

(23,562

)

 

 

(10,611

)

Distributions from unconsolidated subsidiaries

 

 

5,974

 

 

 

15,216

 

Purchase of equity securities

 

 

(2,867

)

 

 

(10,219

)

Proceeds from sale of equity securities

 

 

4,356

 

 

 

4,367

 

Purchase of available for sale debt securities

 

 

 

 

 

(12,066

)

Proceeds from the sale of available for sale debt securities

 

 

603

 

 

 

2,264

 

Other investing activities, net

 

 

679

 

 

 

(6,439

)

Net cash used in investing activities

 

 

(64,624

)

 

 

(64,212

)

 

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


4


 

CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

(Dollars in thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

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

 

 

507,000

 

 

 

898,000

 

Repayment of revolving credit facility

 

 

(171,000

)

 

 

(435,000

)

Repayment of 5.00% senior notes (including premium)

 

 

 

 

 

(820,000

)

Repurchase of common stock

 

 

(45,088

)

 

 

 

Acquisition of businesses (cash paid for acquisitions more than

   three months after purchase date)

 

 

(17,185

)

 

 

(8,049

)

Units repurchased for payment of taxes on equity awards

 

 

(9,186

)

 

 

(4,550

)

Non-controlling interest contributions

 

 

40,774

 

 

 

1,595

 

Non-controlling interest distributions

 

 

(1,347

)

 

 

(1,025

)

Payment of financing costs

 

 

(3,374

)

 

 

(39

)

Other financing activities, net

 

 

(566

)

 

 

413

 

Net cash provided by financing activities

 

 

300,028

 

 

 

181,345

 

Effect of currency exchange rate changes on cash and cash

   equivalents and restricted cash

 

 

(9,791

)

 

 

29,819

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

   AND RESTRICTED CASH

 

 

(176,276

)

 

 

(103,006

)

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

 

$

687,668

 

 

$

721,813

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW

   INFORMATION:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest

 

$

33,606

 

 

$

48,994

 

Income taxes, net

 

$

54,241

 

 

$

37,219

 

 

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

 

5


 

CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(Dollars in thousands)

 

 

 

CBRE Group, Inc. 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

 

 

 

 

 

 

 

 

164,409

 

 

 

 

 

 

6,417

 

 

 

170,826

 

Compensation expense for equity awards

 

 

 

 

 

29,271

 

 

 

 

 

 

 

 

 

 

 

 

29,271

 

Units repurchased for payment of taxes on equity

   awards

 

 

 

 

 

(9,186

)

 

 

 

 

 

 

 

 

 

 

 

(9,186

)

Repurchase of common stock

 

 

(11

)

 

 

(45,077

)

 

 

 

 

 

 

 

 

 

 

 

(45,088

)

Foreign currency translation gain (loss)

 

 

 

 

 

 

 

 

 

 

 

993

 

 

 

(56

)

 

 

937

 

Amounts reclassified from accumulated other

   comprehensive loss to interest expense, net of tax

 

 

 

 

 

 

 

 

 

 

 

410

 

 

 

 

 

 

410

 

Unrealized losses on interest rate swaps, net of tax

 

 

 

 

 

 

 

 

 

 

 

(59

)

 

 

 

 

 

(59

)

Unrealized holding gains on available for sale debt

   securities, net of tax

 

 

 

 

 

 

 

 

 

 

 

755

 

 

 

 

 

 

755

 

Contributions from non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

40,774

 

 

 

40,774

 

Distributions to non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,347

)

 

 

(1,347

)

Other

 

 

5

 

 

 

2,963

 

 

 

6,108

 

 

 

1

 

 

 

(2,056

)

 

 

7,021

 

Balance at March 31, 2019

 

$

3,363

 

 

$

1,126,984

 

 

$

4,675,201

 

 

$

(716,169

)

 

$

114,837

 

 

$

5,204,216

 

 

 

 

 

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 (loss)

 

 

 

 

 

 

 

 

150,288

 

 

 

 

 

 

(163

)

 

 

150,125

 

Adoption of Accounting Standards Update

   2016-01, net of tax

 

 

 

 

 

 

 

 

3,964

 

 

 

(3,964

)

 

 

 

 

 

 

Compensation expense for equity awards

 

 

 

 

 

29,570

 

 

 

 

 

 

 

 

 

 

 

 

29,570

 

Units repurchased for payment of taxes on

   equity awards

 

 

 

 

 

(4,550

)

 

 

 

 

 

 

 

 

 

 

 

(4,550

)

Foreign currency translation gain (loss)

 

 

 

 

 

 

 

 

 

 

 

66,227

 

 

 

(195

)

 

 

66,032

 

Amounts reclassified from accumulated other

   comprehensive loss to interest expense, net of

   tax

 

 

 

 

 

 

 

 

 

 

 

755

 

 

 

 

 

 

755

 

Unrealized gains on interest rate swaps, net of

   tax

 

 

 

 

 

 

 

 

 

 

 

603

 

 

 

 

 

 

603

 

Unrealized holding losses on available for sale

   debt securities, net of tax

 

 

 

 

 

 

 

 

 

 

 

(505

)

 

 

 

 

 

(505

)

Contributions from non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,595

 

 

 

1,595

 

Distributions to non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,025

)

 

 

(1,025

)

Other

 

 

2

 

 

 

723

 

 

 

(5,506

)

 

 

5,528

 

 

 

713

 

 

 

1,460

 

Balance at March 31, 2018

 

$

3,397

 

 

$

1,246,251

 

 

$

3,591,753

 

 

$

(483,770

)

 

$

61,043

 

 

$

4,418,674

 

 

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

 

 

 

6


 

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 ASC 842 and permit a practical expedient to not assess whether expired or existing land easements that were not previously accounted for as leases are leases under ASC 842. The amendments in ASU 2018-10 affect narrow aspects of the guidance issued in the amendments in ASU 2016-02. The amendments in ASU 2018-11 provide an optional method for adopting the new leasing guidance and provide lessors with a practical expedient to combine lease and associated non-lease components by class of underlying asset in contracts that meet certain criteria. The amendments in ASU 2018-20 provide an accounting policy election permitting lessors to treat certain

7


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

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 January 2017, the FASB issued ASU 2017‑04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.”  This ASU eliminates Step 2 from the goodwill impairment test. This ASU also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those years, with early adoption permitted. We elected to early adopt ASU 2017‑04 in the first quarter of 2019. The adoption of ASU 2017‑04 did not have any impact on our consolidated financial statements and related disclosures.

In March 2017, the FASB issued ASU 2017‑08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities.”  This ASU requires the premium to be amortized to the earliest call date. This ASU does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. We adopted ASU 2017-08 in the first quarter of 2019 and the adoption did not have a material impact on our consolidated financial statements and related disclosures.

The FASB previously issued two ASUs related to derivatives and hedging. The ASUs issued were: (1) in August 2017, ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” and (2) in October 2018, ASU 2018-16 “Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting.” ASU 2017-12 refines and expands hedge accounting for both financial and commodity risks. ASU 2018-16 adds the OIS rate based on SOFR as a U.S. benchmark interest rate to facilitate the LIBOR to SOFR transition and provide sufficient lead time for entities to prepare for changes to interest rate risk hedging strategies for both risk management and hedge accounting purposes. These ASUs are effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. We adopted these ASUs in the first quarter of 2019 and the adoption did not have a material impact on our consolidated financial statements and related disclosures.

In February 2018, the FASB issued ASU 2018‑02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” This ASU provides an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax

8


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

Cuts and Jobs Act (or portion thereof) is recorded. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. We adopted ASU 2018-02 in the first quarter of 2019 and the adoption did not have a material impact on our consolidated financial statements and related disclosures.

In July 2018, the FASB issued ASU 2018‑09, “Codification Improvements.” The amendments in ASU 2018‑09 represent changes to clarify, correct errors in, or make minor improvements to the Codification, eliminating inconsistencies and providing clarifications in current guidance. This ASU is effective for fiscal years beginning after December 15, 2018. We adopted ASU 2018-09 in the first quarter of 2019 and the adoption did not have a material impact on our consolidated financial statements and related disclosures.

Recent Accounting Pronouncements Pending Adoption

The FASB previously issued two 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” and (2) in November 2018, ASU 2018-19 “Codification Improvements to Topic 326, Financial Instruments—Credit Losses.” 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. 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. 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 and ASU 2018-19 will have on our consolidated financial statements and related disclosures.

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

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

In October 2018, the FASB issued ASU 2018‑17, “Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities.” This ASU amends the guidance for determining whether a decision-making fee is a variable interest and requires organizations to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety (as currently required in GAAP). This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those years, with early adoption permitted. We are evaluating the effect that ASU 2018‑17 will have on our consolidated financial statements and related 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.

 

9


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

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 estimated net initial purchase price was approximately $266.5 million, with $263.0 million paid in cash. 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 preliminary purchase accounting related to the FacilitySource Acquisition has been recorded in the accompanying consolidated financial statements (with no change in the first quarter of 2019). 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. We are currently assessing if any portion of the goodwill recorded in connection with the FacilitySource Acquisition will be deductible for tax purposes, but do not expect any tax deductible goodwill to be significant. Given the complexity of the transaction, the calculation of the fair value of certain assets and liabilities acquired, primarily income tax items, is still preliminary. The purchase price allocation is expected to be completed as soon as practicable, but no later than one year from the acquisition date.

 

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 March 31, 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.

10


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

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

 

 

4,646,348

 

Gains (premiums on loan sales)

 

 

8,515

 

Proceeds from sale of mortgage loans:

 

 

 

 

Sale of mortgage loans

 

 

(4,445,282

)

Cash collections of premiums on loan sales

 

 

(8,515

)

   Proceeds from sale of mortgage loans

 

 

(4,453,797

)

Net increase in mortgage servicing rights included in warehouse

   receivables

 

 

4,715

 

Ending balance at March 31, 2019

 

$

1,548,249

 

 

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

 

 

 

 

 

 

 

March 31, 2019

 

 

December 31, 2018

 

Lender

 

Current

Maturity

 

Pricing

 

Maximum

Facility

Size

 

 

Carrying

Value

 

 

Maximum

Facility

Size

 

 

Carrying

Value

 

JP Morgan Chase Bank, N.A. (JP Morgan)

 

10/21/2019

 

daily one-month LIBOR plus 1.30%

 

$

985,000

 

 

$

959,921

 

 

$

985,000

 

 

$

871,680

 

JP Morgan

 

10/21/2019

 

daily one-month LIBOR plus 2.75%

 

 

15,000

 

 

 

 

 

 

15,000

 

 

 

 

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

 

7/27/2019

 

daily one-month LIBOR plus 1.35%

 

 

700,000

 

 

 

33,230

 

 

 

325,000

 

 

 

120,195

 

Fannie Mae Multifamily As Soon As

   Pooled Plus Agreement and Multifamily

   As Soon As Pooled Sale Agreement

   (ASAP) Program (2)

 

Cancelable

anytime

 

daily one-month LIBOR plus 1.35%, with a

LIBOR floor of 0.35%

 

 

450,000

 

 

 

123,237

 

 

 

450,000

 

 

 

149,089

 

TD Bank, N.A. (TD Bank)

 

6/30/2019

 

daily one-month LIBOR plus 1.20%

 

 

400,000

 

 

 

260,740

 

 

 

400,000

 

 

 

165,945

 

Bank of America, N.A. (BofA)

 

6/4/2019

 

daily one-month LIBOR plus 1.30%

 

 

225,000

 

 

 

184,079

 

 

 

225,000

 

 

 

21,852

 

BofA

 

6/4/2019

 

daily one-month LIBOR plus 1.15%

 

 

200,000

 

 

 

 

 

 

200,000

 

 

 

 

 

 

 

 

 

 

$

2,975,000

 

 

$

1,561,207

 

 

$

2,600,000

 

 

$

1,328,761

 

 

(1)

During 2018, the maximum facility size was temporarily increased to $325.0 million and reverted to $200.0 million on January 31, 2019. The line was then temporarily increased from $200.0 million to $700.0 million effective February 27, 2019. The maximum facility size reverted to $200.0 million on April 1, 2019.   

(2)

The maximum facility size was temporarily increased from $450.0 million to $575.0 million effective January 2, 2019. The maximum facility size reverted to $450.0 million on February 4, 2019.            

During the three months ended March 31, 2019, we had a maximum of $2.5 billion of warehouse lines of credit principal outstanding.

 

 

11


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

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

 

 

 

March 31,

 

 

December 31,

 

 

 

 

2019

 

 

 

2018

 

Investments in unconsolidated subsidiaries

 

$

25,556

 

 

$

23,266

 

Other current assets

 

 

3,940

 

 

 

3,827

 

Co-investment commitments

 

 

21,197

 

 

 

22,363

 

Maximum exposure to loss

 

$

50,693

 

 

$

49,456

 

 

 

6.

Fair Value Measurements

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

 

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

 

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

 

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

There were no significant transfers in or out of Level 1 and Level 2 during the three months ended March 31, 2019 and 2018. 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.

12


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

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

 

 

 

As of March 31, 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

 

$

3,189

 

 

$

 

 

$

 

 

$

3,189

 

Debt securities issued by U.S. federal agencies

 

 

 

 

 

11,167

 

 

 

 

 

 

11,167

 

Corporate debt securities

 

 

 

 

 

27,041

 

 

 

 

 

 

27,041

 

Asset-backed securities

 

 

 

 

 

4,897

 

 

 

 

 

 

4,897

 

Collateralized mortgage obligations

 

 

 

 

 

2,237

 

 

 

 

 

 

2,237

 

Total available for sale debt securities

 

 

3,189

 

 

 

45,342

 

 

 

 

 

 

48,531

 

Equity securities

 

 

210,160

 

 

 

 

 

 

 

 

 

210,160

 

Warehouse receivables

 

 

 

 

 

1,548,249

 

 

 

 

 

 

1,548,249

 

Total assets at fair value

 

$

213,349

 

 

$

1,593,591

 

 

$

 

 

$

1,806,940

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

 

 

$

736

 

 

$

 

 

$

736

 

Securities sold, not yet purchased

 

 

4,189

 

 

 

 

 

 

 

 

 

4,189

 

Total liabilities at fair value

 

$

4,189

 

 

$

736

 

 

$

 

 

$

4,925

 

 

 

 

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

 

 

The following non-recurring fair value measurement was recorded for the three months ended March 31, 2019 (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impairment Charges

 

 

Net Carrying Value

 

 

Fair Value Measured and

 

 

for the

 

 

as of

 

 

Recorded Using

 

 

Three Months Ended

 

 

March 31, 2019

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

March 31, 2019

 

Other intangible assets

$

16,000

 

 

$

 

 

$

 

 

$

16,000

 

 

$

89,037

 

 

During the three months ended March 31, 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.

13


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

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

There were no significant non-recurring fair value measurements recorded during the three months ended March 31, 2018.

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Short-Term Borrowings – The majority of this balance represents outstanding amounts under our warehouse lines of credit of our wholly-owned subsidiary, CBRE Capital Markets, and our revolving credit facility. Due to the short-term nature and variable interest rates of these instruments, fair value approximates carrying value (see Notes 4 and 9).

 

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 $725.0 million at March 31, 2019 and $757.0 million at December 31, 2018. Their actual carrying value, net of unamortized debt issuance costs, totaled $744.0 million and $751.3 million at March 31, 2019 and December 31, 2018, respectively (see Note 9).

 

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 $634.8 million and $455.7 million, respectively, at March 31, 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 $593.0 million and $422.8 million, respectively, at March 31, 2019 and $592.8 million and $422.7 million, respectively, at December 31, 2018.  

 

7.

Goodwill

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 (see Note 14). In connection with this change, we reassessed our reporting units as of January 1, 2019. As a result,

14


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

we have reassigned the goodwill balance to reflect our new segment structure using a relative fair value allocation approach. Under this approach, the fair value of each impacted reporting unit was determined using a combination of the income approach and the market approach and was compared to the goodwill of the impacted regional segments immediately prior to the reorganization to arrive at the reassigned goodwill balance.

We are required to test goodwill for impairment at least annually, or more often if circumstances or events indicate there may be a change in the impairment status, in accordance with ASC Topic 350, “Intangibles – Goodwill and Other.” We considered the change to our reportable segments and the resulting change in our identified reporting units to be a triggering event that required testing of our goodwill for impairment as of January 1, 2019. We elected to perform a quantitative test using a discounted cash flow approach to estimate the fair value of our reporting units. Management’s judgment is required in developing the assumptions for the discounted cash flow model. These assumptions include revenue growth rates, profit margin percentages, discount rates, etc. When we performed our goodwill impairment review as of January 1, 2019, we determined that no impairment existed as the estimated fair value of each of our reporting units was in excess of their carrying value.

The following tables summarizes our change in carrying amount of goodwill for the three months ended March 31, 2019 (dollars in thousands):

 

 

 

Advisory Services

 

 

Global Workplace Solutions

 

 

Real Estate Investments

 

 

Consolidated

 

Balance, January 1, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

3,269,954

 

 

$

875,570

 

 

$

575,291

 

 

$

4,720,815

 

Accumulated impairment losses

 

 

(761,448

)

 

 

(175,473

)

 

 

(131,585

)

 

 

(1,068,506

)

 

 

 

2,508,506

 

 

 

700,097

 

 

 

443,706

 

 

 

3,652,309

 

Purchase accounting entries

 

 

7,518

 

 

 

(292

)

 

 

 

 

 

7,226

 

Foreign exchange movement

 

 

(1,608

)

 

 

7,289

 

 

 

(1,334

)

 

 

4,347

 

Balance, March 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

3,275,864

 

 

 

882,567

 

 

 

573,957

 

 

 

4,732,388

 

Accumulated impairment losses

 

 

(761,448

)

 

 

(175,473

)

 

 

(131,585

)

 

 

(1,068,506

)

 

 

$

2,514,416

 

 

$

707,094

 

 

$

442,372

 

 

$

3,663,882

 

 

8.

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 March 31,

 

 

 

 

2019

 

 

 

2018

 

Revenue

 

$

365,125

 

 

$

343,199

 

Operating income

 

 

94,621

 

 

 

136,208

 

Net income

 

 

48,928

 

 

 

93,996

 

 

15


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

9.

Long-Term Debt and Short-Term Borrowings

Long-Term Debt

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

 

 

 

March 31,

 

 

December 31,

 

 

 

 

2019

 

 

 

2018

 

 

 

 

 

 

 

 

 

 

Senior term loans, with interest ranging from 0.75% to 3.49%, due quarterly through 2024

 

$

748,632

 

 

$

758,452

 

4.875% senior notes due in 2026, net of unamortized discount

 

 

596,750

 

 

 

596,653

 

5.25% senior notes due in 2025, net of unamortized premium

 

 

426,089

 

 

 

426,134

 

Other

 

 

2,998

 

 

 

3,682

 

Total long-term debt

 

 

1,774,469

 

 

 

1,784,921

 

Less: current maturities of long-term debt

 

 

(2,573

)

 

 

(3,146

)

Less: unamortized debt issuance costs

 

 

(11,715

)

 

 

(14,515

)

Total long-term debt, net of current maturities

 

$

1,760,181

 

 

$

1,767,260

 

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

The 2019 Credit Agreement is a senior unsecured credit facility that is jointly and severally guaranteed by us and certain of our subsidiaries. As of March 31, 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.

16


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 22.74x for the trailing twelve months ended March 31, 2019, and our leverage ratio of total debt less available cash to consolidated EBITDA was 0.80x as of March 31, 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 March 31, 2019, $336.0 million was outstanding under the revolving credit facility. In addition, as of March 31, 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.

 

 

10.

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

17


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

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

 

March 31, 2019

 

Assets

 

 

 

 

 

 

Operating lease assets

 

Operating lease assets

 

$

938,681

 

Financing lease assets

 

Other assets, net

 

 

59,638

 

Total leased assets

 

 

 

$

998,319

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Current:

 

 

 

 

 

 

Operating

 

Operating lease liabilities

 

$

185,457

 

Financing

 

Other current liabilities

 

 

25,007

 

Non-current:

 

 

 

 

 

 

Operating

 

Non-current operating lease liabilities

 

 

969,216

 

Financing

 

Other liabilities

 

 

34,348

 

Total lease liabilities

 

 

 

$

1,214,028

 

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

 

Component

 

Classification

 

Three Months

Ended

March 31, 2019

 

Operating lease cost

 

Operating, administrative and other

 

$

46,728

 

Finance lease cost:

 

 

 

 

 

 

Amortization of right-to-use assets

 

(1)

 

 

7,169

 

Interest on lease liabilities

 

Interest expense

 

 

204

 

Variable lease cost

 

(2)

 

 

16,947

 

Sublease income

 

Revenue

 

 

(240

)

Total lease cost

 

 

 

$

70,808

 

 

(1)

Amortization costs of $5.9 million from vehicle finance leases utilized in client outsourcing arrangements are included in cost of services. Amortization costs of $1.3 million from all other finance leases are included in depreciation and amortization.  

(2)

Variable lease costs of $3.1 million from leases in client outsourcing arrangements are included in cost of services.  Variable lease costs of $13.8 million from all other leases are included in operating, administrative and other.

18


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

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

 

 

 

March 31, 2019

 

Weighted-average remaining lease term:

 

 

 

 

Operating leases

 

9 years

 

Finance leases

 

3 years

 

Weighted-average discount rate:

 

 

 

 

Operating leases

 

3.4%

 

Finance leases

 

2.0%

 

 

Maturities of lease liabilities by fiscal year as of March 31, 2019 are as follows (dollars in thousands):

 

 

 

Operating Leases

 

 

Financing Leases

 

2019

 

$

140,874

 

 

$

19,571

 

2020

 

 

183,229

 

 

 

20,948

 

2021

 

 

177,613

 

 

 

13,342

 

2022

 

 

152,999

 

 

 

6,134

 

2023

 

 

133,500

 

 

 

1,286

 

Thereafter

 

 

550,913

 

 

 

25

 

Total remaining lease payments at March 31, 2019

 

$

1,339,128

 

 

$

61,306

 

Less: Interest

 

 

184,455

 

 

 

1,951

 

Present value of lease liabilities at March 31, 2019

 

$

1,154,673

 

 

$

59,355

 

 

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

 

 

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

 

 

Three Months

Ended

March 31, 2019

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

Operating cash flows from operating leases

 

$

35,573

 

Operating cash flows from financing leases

 

 

279

 

Financing cash flows from financing leases

 

 

7,414

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

 

47,467

 

Right-of-use assets obtained in exchange for new financing lease liabilities

 

 

2,668

 

Other non-cash increases in right-of-use assets (1)

 

 

1,372

 

 

(1)

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

 

11.

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.

19


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

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 $24.7 billion at March 31, 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 both March 31, 2019 and December 31, 2018, CBRE MCI had a $64.0 million letter of credit under this reserve arrangement, and had recorded a liability of approximately $40.3 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 $618.2 million (including $331.4 million of warehouse receivables, a substantial majority of which are pledged against warehouse lines of credit and are therefore not available to Fannie Mae) at March 31, 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 March 31, 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 $74.9 million as of March 31, 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 $69.0 million as of March 31, 2019 referred to in the preceding paragraphs represented the majority of the $74.9 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 February 2020.

We had guarantees totaling $62.3 million as of March 31, 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 $62.3 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 March 31, 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 March 31, 2019, we had aggregate commitments of $49.1 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 March 31, 2019, we had committed to fund $50.3 million of additional capital to these unconsolidated subsidiaries.

 

20


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 March 31,

 

 

 

 

2019

 

 

 

2018

 

Basic Income Per Share

 

 

 

 

 

 

 

 

Net income attributable to CBRE Group, Inc. shareholders

 

$

164,409

 

 

$

150,288

 

Weighted average shares outstanding for basic income per share

 

 

336,020,431

 

 

 

338,890,098

 

Basic income per share attributable to CBRE Group, Inc. shareholders

 

$

0.49

 

 

$

0.44

 

Diluted Income Per Share

 

 

 

 

 

 

 

 

Net income attributable to CBRE Group, Inc. shareholders

 

$

164,409

 

 

$

150,288

 

Weighted average shares outstanding for basic income per share:

 

 

336,020,431

 

 

 

338,890,098

 

Dilutive effect of contingently issuable shares

 

 

4,137,968

 

 

 

3,698,143

 

Dilutive effect of stock options

 

 

 

 

 

1,569

 

Weighted average shares outstanding for diluted income per share

 

 

340,158,399

 

 

 

342,589,810

 

Diluted income per share attributable to CBRE Group, Inc.

   shareholders

 

$

0.48

 

 

$

0.44

 

For the three months ended March 31, 2019 and 2018, 547,676 and 69,346, respectively, of contingently issuable shares were excluded from the computation of diluted income per share because their inclusion would have had an anti-dilutive effect.

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

 

13.

Revenue from Contracts with Customers

Disaggregated Revenue

The following tables represent a disaggregation of revenue from contracts with customers for the three months ended March 31, 2019 and 2018 by type of service and/or segment (dollars in thousands):

 

 

 

Three Months Ended March 31, 2019

 

 

 

Advisory

Services

 

 

Global

Workplace

Solutions

 

 

Real Estate

Investments

 

 

Consolidated

 

Topic 606 Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global workplace solutions

 

$

 

 

$

3,165,915

 

 

$

 

 

$

3,165,915

 

Advisory leasing

 

 

622,640

 

 

 

 

 

 

 

 

 

622,640

 

Advisory sales

 

 

385,655

 

 

 

 

 

 

 

 

 

385,655

 

Property and advisory project management

 

 

520,884

 

 

 

 

 

 

 

 

 

520,884

 

Valuation

 

 

138,326

 

 

 

 

 

 

 

 

 

138,326

 

Commercial mortgage origination (1)

 

 

23,573

 

 

 

 

 

 

 

 

 

23,573

 

Loan servicing (2)

 

 

6,986

 

 

 

 

 

 

 

 

 

6,986

 

Investment management

 

 

 

 

 

 

 

 

106,308

 

 

 

106,308

 

Development services

 

 

 

 

 

 

 

 

28,885

 

 

 

28,885

 

Topic 606 Revenue

 

 

1,698,064

 

 

 

3,165,915

 

 

 

135,193

 

 

 

4,999,172

 

Out of Scope of Topic 606 Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial mortgage origination

 

 

97,306

 

 

 

 

 

 

 

 

 

97,306

 

Loan servicing (2)

 

 

39,032

 

 

 

 

 

 

 

 

 

39,032

 

Total Out of Scope of Topic 606 Revenue

 

 

136,338

 

 

 

 

 

 

 

 

 

136,338

 

Total revenue

 

$

1,834,402

 

 

$

3,165,915

 

 

$

135,193

 

 

$

5,135,510

 

 

21


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

 

 

Three Months Ended March 31, 2018 (3)

 

 

 

Advisory

Services

 

 

Global

Workplace

Solutions

 

 

Real Estate

Investments

 

 

Consolidated

 

Topic 606 Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global workplace solutions

 

$

 

 

$

2,827,503

 

 

$

 

 

$

2,827,503

 

Advisory leasing

 

 

517,509

 

 

 

 

 

 

 

 

 

517,509

 

Advisory sales

 

 

413,732

 

 

 

 

 

 

 

 

 

413,732

 

Property and advisory project management

 

 

484,782

 

 

 

 

 

 

 

 

 

484,782

 

Valuation

 

 

134,163

 

 

 

 

 

 

 

 

 

134,163

 

Commercial mortgage origination (1)

 

 

24,282

 

 

 

 

 

 

 

 

 

24,282

 

Loan servicing (2)

 

 

5,417

 

 

 

 

 

 

 

 

 

5,417

 

Investment management

 

 

 

 

 

 

 

 

123,690

 

 

 

123,690

 

Development services

 

 

 

 

 

 

 

 

23,325

 

 

 

23,325

 

Topic 606 Revenue

 

 

1,579,885

 

 

 

2,827,503

 

 

 

147,015

 

 

 

4,554,403

 

Out of Scope of Topic 606 Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial mortgage origination

 

 

83,152

 

 

 

 

 

 

 

 

 

83,152

 

Loan servicing (2)

 

 

36,397

 

 

 

 

 

 

 

 

 

36,397

 

Total Out of Scope of Topic 606 Revenue

 

 

119,549

 

 

 

 

 

 

 

 

 

119,549

 

Total revenue

 

$

1,699,434

 

 

$

2,827,503

 

 

$

147,015

 

 

$

4,673,952

 

 

(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 $412.4 million ($295.4 million of which was current) and $381.8 million ($307.0 million of which was current) as of March 31, 2019 and December 31, 2018, respectively.

We had contract liabilities totaling $126.0 million ($115.1 million of which was current) and $92.5 million ($82.2 million of which was current) as of March 31, 2019 and December 31, 2018, respectively. During the three months ended March 31, 2019, we recognized revenue of $61.8 million that was included in the contract liability balance at December 31, 2018.

 

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.

22


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

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

 

 

 

Three Months Ended March 31,

 

 

 

 

2019

 

 

2018 (1)

 

Revenue

 

 

 

 

 

 

 

 

Advisory Services

 

$

1,834,402

 

 

$

1,699,434

 

Global Workplace Solutions

 

 

3,165,915

 

 

 

2,827,503

 

Real Estate Investments

 

 

135,193

 

 

 

147,015

 

Total revenue

 

$

5,135,510

 

 

$

4,673,952

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

 

 

 

 

 

 

 

Advisory Services

 

$

263,850

 

 

$

215,432

 

Global Workplace Solutions

 

 

99,679

 

 

 

82,735

 

Real Estate Investments

 

 

86,503

 

 

 

49,640

 

Total Adjusted EBITDA

 

$

450,032

 

 

$

347,807

 

 

(1)

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

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

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

 

 

 

Three Months Ended March 31,

 

 

 

 

2019

 

 

 

2018

 

Net income attributable to CBRE Group, Inc.

 

$

164,409

 

 

$

150,288

 

Add:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

105,823

 

 

 

108,165

 

Intangible asset impairment

 

 

89,037

 

 

 

 

Interest expense

 

 

22,726

 

 

 

28,858

 

Write-off of financing costs on extinguished debt

 

 

2,608

 

 

 

27,982

 

Provision for income taxes

 

 

43,878

 

 

 

46,164

 

Less:

 

 

 

 

 

 

 

 

Interest income

 

 

1,534

 

 

 

3,621

 

EBITDA

 

 

426,947

 

 

 

357,836

 

Adjustments:

 

 

 

 

 

 

 

 

Costs associated with our reorganization, including

   cost-savings initiatives (1)

 

 

15,749

 

 

 

 

Carried interest incentive compensation expense (reversal)

   to align with the timing of associated revenue

 

 

7,336

 

 

 

(10,029

)

Adjusted EBITDA

 

$

450,032

 

 

$

347,807

 

 

(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.

23


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

Geographic Information

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

 

 

 

Three Months Ended March 31,

 

 

 

 

2019

 

 

 

2018

 

Revenue

 

 

 

 

 

 

 

 

United States

 

$

3,036,707

 

 

$

2,674,217

 

United Kingdom

 

 

588,581

 

 

 

580,516

 

All other countries

 

 

1,510,222

 

 

 

1,419,219

 

Total revenue

 

$

5,135,510

 

 

$

4,673,952

 

 

15.

Guarantor and Nonguarantor Financial Statements

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

 

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

 

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

 

CBRE Group, Inc., on a consolidated basis.

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

24


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

Condensed Consolidating Balance Sheets

 

 

 

As of March 31, 2019

 

 

 

Parent

 

 

CBRE

Services

 

 

Guarantor

Subsidiaries

 

 

Nonguarantor

Subsidiaries

 

 

Eliminations

 

 

Consolidated

Total

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

7

 

 

$

15,190

 

 

$

65,783

 

 

$

523,972

 

 

$

 

 

$

604,952

 

Restricted cash

 

 

 

 

 

 

 

 

11,171

 

 

 

71,545

 

 

 

 

 

 

82,716

 

Receivables, net

 

 

 

 

 

10

 

 

 

1,503,057

 

 

 

2,298,407

 

 

 

 

 

 

3,801,474

 

Warehouse receivables (1)

 

 

 

 

 

 

 

 

1,213,477

 

 

 

334,772

 

 

 

 

 

 

1,548,249

 

Contract assets

 

 

 

 

 

 

 

 

281,050

 

 

 

14,353

 

 

 

 

 

 

295,403

 

Prepaid expenses

 

 

 

 

 

 

 

 

96,466

 

 

 

151,893

 

 

 

 

 

 

248,359

 

Income taxes receivable

 

 

66

 

 

 

 

 

 

10,963

 

 

 

47,374

 

 

 

(66

)

 

 

58,337

 

Other current assets

 

 

 

 

 

 

 

 

84,803

 

 

 

272,567

 

 

 

 

 

 

357,370

 

Total Current Assets

 

 

73

 

 

 

15,200

 

 

 

3,266,770

 

 

 

3,714,883

 

 

 

(66

)

 

 

6,996,860

 

Property and equipment, net

 

 

 

 

 

 

 

 

505,238

 

 

 

225,212

 

 

 

 

 

 

730,450

 

Goodwill

 

 

 

 

 

 

 

 

2,230,867

 

 

 

1,433,015

 

 

 

 

 

 

3,663,882

 

Other intangible assets, net

 

 

 

 

 

 

 

 

731,373

 

 

 

607,273

 

 

 

 

 

 

1,338,646

 

Operating lease assets

 

 

 

 

 

 

 

 

417,139

 

 

 

521,542

 

 

 

 

 

 

938,681

 

Investments in unconsolidated subsidiaries

 

 

 

 

 

 

 

 

178,665

 

 

 

49,741

 

 

 

 

 

 

228,406

 

Investments in consolidated subsidiaries

 

 

6,968,219

 

 

 

6,051,334

 

 

 

3,356,528

 

 

 

 

 

 

(16,376,081

)

 

 

 

Intercompany loan receivable

 

 

 

 

 

2,538,410

 

 

 

700,000

 

 

 

652,354

 

 

 

(3,890,764

)

 

 

 

Deferred tax assets, net

 

 

 

 

 

 

 

 

2,666

 

 

 

80,537

 

 

 

(2,666

)

 

 

80,537

 

Other assets, net

 

 

 

 

 

19,941

 

 

 

546,378

 

 

 

149,227

 

 

 

 

 

 

715,546

 

Total Assets

 

$

6,968,292

 

 

$

8,624,885

 

 

$

11,935,624

 

 

$

7,433,784

 

 

$

(20,269,577

)

 

$

14,693,008

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

 

 

$

5,488

 

 

$

640,173

 

 

$

1,188,180

 

 

$

 

 

$

1,833,841

 

Compensation and employee benefits payable

 

 

 

 

 

 

 

 

644,534

 

 

 

507,501

 

 

 

 

 

 

1,152,035

 

Accrued bonus and profit sharing

 

 

 

 

 

 

 

 

293,151

 

 

 

362,972

 

 

 

 

 

 

656,123

 

Operating lease liabilities

 

 

 

 

 

 

 

 

92,045

 

 

 

93,412

 

 

 

 

 

 

185,457

 

Contract liabilities

 

 

 

 

 

 

 

 

72,660

 

 

 

42,477

 

 

 

 

 

 

115,137

 

Income taxes payable

 

 

 

 

 

1,836

 

 

 

551

 

 

 

51,474

 

 

 

(66

)

 

 

53,795

 

Short-term borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warehouse lines of credit (which fund

   loans that U.S. Government Sponsored

   Enterprises have committed to purchase) (1)

 

 

 

 

 

 

 

 

1,201,563

 

 

 

359,644

 

 

 

 

 

 

1,561,207

 

Revolving credit facility

 

 

 

 

 

336,000

 

 

 

 

 

 

 

 

 

 

 

 

336,000

 

Total short-term borrowings

 

 

 

 

 

336,000

 

 

 

1,201,563

 

 

 

359,644

 

 

 

 

 

 

1,897,207

 

Current maturities of long-term debt

 

 

 

 

 

 

 

 

29

 

 

 

2,544

 

 

 

 

 

 

2,573

 

Other current liabilities

 

 

 

 

 

736

 

 

 

77,336

 

 

 

35,842

 

 

 

 

 

 

113,914

 

Total Current Liabilities

 

 

 

 

 

344,060

 

 

 

3,022,042

 

 

 

2,644,046

 

 

 

(66

)

 

 

6,010,082

 

Long-Term Debt, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, net

 

 

 

 

 

1,312,606

 

 

 

12

 

 

 

447,563

 

 

 

 

 

 

1,760,181

 

Intercompany loan payable

 

 

1,878,913

 

 

 

 

 

 

2,011,851

 

 

 

 

 

 

(3,890,764

)

 

 

 

Total Long-Term Debt, net

 

 

1,878,913

 

 

 

1,312,606

 

 

 

2,011,863

 

 

 

447,563

 

 

 

(3,890,764

)

 

 

1,760,181

 

Non-current operating lease liabilities

 

 

 

 

 

 

 

 

463,787

 

 

 

505,429

 

 

 

 

 

 

969,216

 

Non-current tax liabilities

 

 

 

 

 

 

 

 

142,712

 

 

 

32,427

 

 

 

 

 

 

175,139

 

Deferred tax liabilities, net

 

 

 

 

 

 

 

 

11,905

 

 

 

117,145

 

 

 

(2,666

)

 

 

126,384

 

Other liabilities

 

 

 

 

 

 

 

 

231,981

 

 

 

215,809

 

 

 

 

 

 

447,790

 

Total Liabilities

 

 

1,878,913

 

 

 

1,656,666

 

 

 

5,884,290

 

 

 

3,962,419

 

 

 

(3,893,496

)

 

 

9,488,792

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CBRE Group, Inc. Stockholders’ Equity

 

 

5,089,379

 

 

 

6,968,219

 

 

 

6,051,334

 

 

 

3,356,528

 

 

 

(16,376,081

)

 

 

5,089,379

 

Non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

114,837

 

 

 

 

 

 

114,837

 

Total Equity

 

 

5,089,379

 

 

 

6,968,219

 

 

 

6,051,334

 

 

 

3,471,365

 

 

 

(16,376,081

)

 

 

5,204,216

 

Total Liabilities and Equity

 

$

6,968,292

 

 

$

8,624,885

 

 

$

11,935,624

 

 

$

7,433,784

 

 

$

(20,269,577

)

 

$

14,693,008

 

 

(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, TD Bank, BofA, Fannie Mae ASAP and Capital One lines of credit are pledged to JP Morgan, TD Bank, BofA, Fannie Mae and Capital One, and accordingly, are not included as collateral for these notes or our other outstanding debt.

25


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

 

Accrued bonus and profit sharing

 

 

 

 

 

 

 

 

685,521

 

 

 

503,874

 

 

 

 

 

 

1,189,395

 

Compensation and employee benefits payable

 

 

 

 

 

 

 

 

662,196

 

 

 

458,983

 

 

 

 

 

 

1,121,179

 

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.


26


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

Condensed Consolidating Statements of Operations

 

 

 

Three Months Ended March 31, 2019

 

 

 

Parent

 

 

CBRE

Services

 

 

Guarantor

Subsidiaries

 

 

Nonguarantor

Subsidiaries

 

 

Eliminations

 

 

Consolidated

Total

 

Revenue

 

$

 

 

$

 

 

$

2,966,117

 

 

$

2,169,393

 

 

$

 

 

$

5,135,510

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services

 

 

 

 

 

 

 

 

 

 

2,343,867

 

 

 

1,678,167

 

 

 

 

 

 

4,022,034

 

Operating, administrative and other

 

 

250

 

 

 

304

 

 

 

415,731

 

 

 

376,591

 

 

 

 

 

 

792,876

 

Depreciation and amortization

 

 

 

 

 

 

 

 

65,599

 

 

 

40,224

 

 

 

 

 

 

105,823

 

Intangible asset impairment

 

 

 

 

 

 

 

 

89,037

 

 

 

 

 

 

 

 

 

89,037

 

Total costs and expenses

 

 

250

 

 

 

304

 

 

 

2,914,234

 

 

 

2,094,982

 

 

 

 

 

 

5,009,770

 

Gain on disposition of real estate

 

 

 

 

 

 

 

 

19,231

 

 

 

16

 

 

 

 

 

 

19,247

 

Operating (loss) income

 

 

(250

)

 

 

(304

)

 

 

71,114

 

 

 

74,427

 

 

 

 

 

 

144,987

 

Equity income from unconsolidated subsidiaries

 

 

 

 

 

 

 

 

71,786

 

 

 

878

 

 

 

 

 

 

72,664

 

Other income

 

 

 

 

 

 

 

 

1,680

 

 

 

19,173

 

 

 

 

 

 

20,853

 

Interest income

 

 

 

 

 

29,259

 

 

 

154

 

 

 

1,380

 

 

 

(29,259

)

 

 

1,534

 

Interest expense

 

 

 

 

 

19,393

 

 

 

17,626

 

 

 

14,966

 

 

 

(29,259

)

 

 

22,726

 

Write-off of financing costs on extinguished debt

 

 

 

 

 

2,608

 

 

 

 

 

 

 

 

 

 

 

 

2,608

 

Royalty and management service expense (income)

 

 

 

 

 

 

 

 

6,740

 

 

 

(6,740

)

 

 

 

 

 

 

Income from consolidated subsidiaries

 

 

164,593

 

 

 

159,475

 

 

 

40,694

 

 

 

 

 

 

(364,762

)

 

 

 

Income before (benefit of) provision for income taxes

 

 

164,343

 

 

 

166,429

 

 

 

161,062

 

 

 

87,632

 

 

 

(364,762

)

 

 

214,704

 

(Benefit of) provision for income taxes

 

 

(66

)

 

 

1,836

 

 

 

1,587

 

 

 

40,521

 

 

 

 

 

 

43,878

 

Net income

 

 

164,409

 

 

 

164,593

 

 

 

159,475

 

 

 

47,111

 

 

 

(364,762

)

 

 

170,826

 

Less: Net income attributable to non-controlling

   interests

 

 

 

 

 

 

 

 

 

 

 

6,417

 

 

 

 

 

 

6,417

 

Net income attributable to CBRE Group, Inc.

 

$

164,409

 

 

$

164,593

 

 

$

159,475

 

 

$

40,694

 

 

$

(364,762

)

 

$

164,409

 

 

 

 

 

Three Months Ended March 31, 2018

 

 

 

Parent

 

 

CBRE

Services

 

 

Guarantor

Subsidiaries

 

 

Nonguarantor

Subsidiaries

 

 

Eliminations

 

 

Consolidated

Total

 

Revenue

 

$

 

 

$

 

 

$

2,617,694

 

 

$

2,056,258

 

 

$

 

 

$

4,673,952

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services

 

 

 

 

 

 

 

 

2,057,613

 

 

 

1,562,348

 

 

 

 

 

 

3,619,961

 

Operating, administrative and other

 

 

5,704

 

 

 

485

 

 

 

360,631

 

 

 

365,415

 

 

 

 

 

 

732,235

 

Depreciation and amortization

 

 

 

 

 

 

 

 

64,309

 

 

 

43,856

 

 

 

 

 

 

108,165

 

Total costs and expenses

 

 

5,704

 

 

 

485

 

 

 

2,482,553

 

 

 

1,971,619

 

 

 

 

 

 

4,460,361

 

Gain on disposition of real estate

 

 

 

 

 

 

 

 

18

 

 

 

 

 

 

 

 

 

18

 

Operating (loss) income

 

 

(5,704

)

 

 

(485

)

 

 

135,159

 

 

 

84,639

 

 

 

 

 

 

213,609

 

Equity income from unconsolidated subsidiaries

 

 

 

 

 

 

 

 

39,292

 

 

 

887

 

 

 

 

 

 

40,179

 

Other income (loss)

 

 

 

 

 

 

 

 

1,710

 

 

 

(5,990

)

 

 

 

 

 

(4,280

)

Interest income

 

 

 

 

 

32,686

 

 

 

2,452

 

 

 

1,169

 

 

 

(32,686

)

 

 

3,621

 

Interest expense

 

 

 

 

 

27,875

 

 

 

27,031

 

 

 

6,638

 

 

 

(32,686

)

 

 

28,858

 

Write-off of financing costs on extinguished debt

 

 

 

 

 

27,982

 

 

 

 

 

 

 

 

 

 

 

 

27,982

 

Royalty and management service expense (income)

 

 

 

 

 

 

 

 

13,171

 

 

 

(13,171

)

 

 

 

 

 

 

Income from consolidated subsidiaries

 

 

154,573

 

 

 

172,343

 

 

 

61,171

 

 

 

 

 

 

(388,087

)

 

 

 

Income before (benefit of) provision for income taxes

 

 

148,869

 

 

 

148,687

 

 

 

199,582

 

 

 

87,238

 

 

 

(388,087

)

 

 

196,289

 

(Benefit of) provision for income taxes

 

 

(1,419

)

 

 

(5,886

)

 

 

27,239

 

 

 

26,230

 

 

 

 

 

 

46,164

 

Net income

 

 

150,288

 

 

 

154,573

 

 

 

172,343

 

 

 

61,008

 

 

 

(388,087

)

 

 

150,125

 

Less: Net loss attributable to non-controlling

   interests

 

 

 

 

 

 

 

 

 

 

 

(163

)

 

 

 

 

 

(163

)

Net income attributable to CBRE Group, Inc.

 

$

150,288

 

 

$

154,573

 

 

$

172,343

 

 

$

61,171

 

 

$

(388,087

)

 

$

150,288

 

 

27


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

Condensed Consolidating Statements of Comprehensive Income

 

 

 

Three Months Ended March 31, 2019

 

 

 

Parent

 

 

CBRE

Services

 

 

Guarantor

Subsidiaries

 

 

Nonguarantor

Subsidiaries

 

 

Eliminations

 

 

Consolidated

Total

 

Net income

 

$

164,409

 

 

$

164,593

 

 

$

159,475

 

 

$

47,111

 

 

$

(364,762

)

 

$

170,826

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain

 

 

 

 

 

 

 

 

 

 

 

937

 

 

 

 

 

 

937

 

Amounts reclassified from accumulated

   other comprehensive loss to interest

   expense, net

 

 

 

 

 

410

 

 

 

 

 

 

 

 

 

 

 

 

410

 

Unrealized losses on interest rate swaps,

   net

 

 

 

 

 

(59

)

 

 

 

 

 

 

 

 

 

 

 

(59

)

Unrealized holding gains on available

   for sale debt securities, net

 

 

 

 

 

 

 

 

755

 

 

 

 

 

 

 

 

 

755

 

Other, net

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Total other comprehensive income

 

 

 

 

 

351

 

 

 

756

 

 

 

937

 

 

 

 

 

 

2,044

 

Comprehensive income

 

 

164,409

 

 

 

164,944

 

 

 

160,231

 

 

 

48,048

 

 

 

(364,762

)

 

 

172,870

 

Less: Comprehensive income attributable to

   non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

6,361

 

 

 

 

 

 

6,361

 

Comprehensive income attributable to

   CBRE Group, Inc.

 

$

164,409

 

 

$

164,944

 

 

$

160,231

 

 

$

41,687

 

 

$

(364,762

)

 

$

166,509

 

 

 

 

 

Three Months Ended March 31, 2018

 

 

 

Parent

 

 

CBRE

Services

 

 

Guarantor

Subsidiaries

 

 

Nonguarantor

Subsidiaries

 

 

Eliminations

 

 

Consolidated

Total

 

Net income

 

$

150,288

 

 

$

154,573

 

 

$

172,343

 

 

$

61,008

 

 

$

(388,087

)

 

$

150,125

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain

 

 

 

 

 

 

 

 

 

 

 

66,032

 

 

 

 

 

 

66,032

 

Adoption of Accounting Standards

   Update 2016-01, net

 

 

 

 

 

 

 

 

(3,964

)

 

 

 

 

 

 

 

 

(3,964

)

Amounts reclassified from accumulated

   other comprehensive loss to interest

   expense, net

 

 

 

 

 

755

 

 

 

 

 

 

 

 

 

 

 

 

755

 

Unrealized gains on interest rate swaps,

   net

 

 

 

 

 

603

 

 

 

 

 

 

 

 

 

 

 

 

603

 

Unrealized holding losses on available

   for sale debt securities, net

 

 

 

 

 

 

 

 

(505

)

 

 

 

 

 

 

 

 

(505

)

Other, net

 

 

 

 

 

 

 

 

20

 

 

 

5,508

 

 

 

 

 

 

5,528

 

Total other comprehensive income (loss)

 

 

 

 

 

1,358

 

 

 

(4,449

)

 

 

71,540

 

 

 

 

 

 

68,449

 

Comprehensive income

 

 

150,288

 

 

 

155,931

 

 

 

167,894

 

 

 

132,548

 

 

 

(388,087

)

 

 

218,574

 

Less: Comprehensive loss attributable to

   non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

(358

)

 

 

 

 

 

(358

)

Comprehensive income attributable to

   CBRE Group, Inc.

 

$

150,288

 

 

$

155,931

 

 

$

167,894

 

 

$

132,906

 

 

$

(388,087

)

 

$

218,932

 

 

28


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

Condensed Consolidating Statements of Cash Flows

 

 

 

Three Months Ended March 31, 2019

 

 

 

Parent

 

 

CBRE

Services

 

 

Guarantor

Subsidiaries

 

 

Nonguarantor

Subsidiaries

 

 

Consolidated

Total

 

CASH FLOWS PROVIDED BY (USED IN) OPERATING

   ACTIVITIES:

 

$

35,080

 

 

$

(1,398

)

 

$

(341,646

)

 

$

(93,925

)

 

$

(401,889

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

 

 

 

 

 

 

(21,511

)

 

 

(26,154

)

 

 

(47,665

)

Acquisition of businesses, including net assets acquired,

   intangibles and goodwill, net of cash acquired

 

 

 

 

 

 

 

 

(1,798

)

 

 

(344

)

 

 

(2,142

)

Contributions to unconsolidated subsidiaries

 

 

 

 

 

 

 

 

(18,722

)

 

 

(4,840

)

 

 

(23,562

)

Distributions from unconsolidated subsidiaries

 

 

 

 

 

 

 

 

5,797

 

 

 

177

 

 

 

5,974

 

Purchase of equity securities

 

 

 

 

 

 

 

 

(2,867

)

 

 

 

 

 

(2,867

)

Proceeds from sale of equity securities

 

 

 

 

 

 

 

 

2,798

 

 

 

1,558

 

 

 

4,356

 

Proceeds from the sale of available for sale debt securities

 

 

 

 

 

 

 

 

603

 

 

 

 

 

 

603

 

Other investing activities, net

 

 

 

 

 

 

 

 

689

 

 

 

(10

)

 

 

679

 

Net cash used in investing activities

 

 

 

 

 

 

 

 

(35,011

)

 

 

(29,613

)

 

 

(64,624

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from senior term loans

 

 

 

 

 

300,000

 

 

 

 

 

 

 

 

 

300,000

 

Repayment of senior term loans

 

 

 

 

 

(300,000

)

 

 

 

 

 

 

 

 

(300,000

)

Proceeds from revolving credit facility

 

 

 

 

 

507,000

 

 

 

 

 

 

 

 

 

507,000

 

Repayment of revolving credit facility

 

 

 

 

 

(171,000

)

 

 

 

 

 

 

 

 

(171,000

)

Repurchase of common stock

 

 

(45,088

)

 

 

 

 

 

 

 

 

 

 

 

(45,088

)

Acquisition of businesses (cash paid for acquisitions more

   than three months after purchase date)

 

 

 

 

 

 

 

 

(16,319

)

 

 

(866

)

 

 

(17,185

)

Units repurchased for payment of taxes on equity awards

 

 

(9,186

)

 

 

 

 

 

 

 

 

 

 

 

(9,186

)

Non-controlling interest contributions

 

 

 

 

 

 

 

 

 

 

 

40,774

 

 

 

40,774

 

Non-controlling interest distributions

 

 

 

 

 

 

 

 

 

 

 

(1,347

)

 

 

(1,347

)

Payment of financing costs

 

 

 

 

 

(3,353

)

 

 

 

 

 

(21

)

 

 

(3,374

)

Decrease (increase) in intercompany receivables, net

 

 

19,194

 

 

 

(350,122

)

 

 

194,992

 

 

 

135,936

 

 

 

 

Other financing activities, net

 

 

 

 

 

 

 

 

(10

)

 

 

(556

)

 

 

(566

)

Net cash (used in) provided by financing activities

 

 

(35,080

)

 

 

(17,475

)

 

 

178,663

 

 

 

173,920

 

 

 

300,028

 

Effect of currency exchange rate changes on cash and cash

   equivalents and restricted cash

 

 

 

 

 

 

 

 

 

 

 

(9,791

)

 

 

(9,791

)

NET (DECREASE) INCREASE IN CASH AND CASH

   EQUIVALENTS AND RESTRICTED CASH

 

 

 

 

 

(18,873

)

 

 

(197,994

)

 

 

40,591

 

 

 

(176,276

)

CASH AND CASH EQUIVALENTS AND RESTRICTED

   CASH, AT BEGINNING OF PERIOD

 

 

7

 

 

 

34,063

 

 

 

274,948

 

 

 

554,926

 

 

 

863,944

 

CASH AND CASH EQUIVALENTS AND RESTRICTED

   CASH, AT END OF PERIOD

 

$

7

 

 

$

15,190

 

 

$

76,954

 

 

$

595,517

 

 

$

687,668

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW

   INFORMATION:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

$

 

 

$

28,993

 

 

$

 

 

$

4,613

 

 

$

33,606

 

Income taxes, net

 

$

 

 

$

 

 

$

3,197

 

 

$

51,044

 

 

$

54,241

 

29


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

Condensed Consolidating Statements of Cash Flows

 

 

 

Three Months Ended March 31, 2018

 

 

 

Parent

 

 

CBRE

Services

 

 

Guarantor

Subsidiaries

 

 

Nonguarantor

Subsidiaries

 

 

Consolidated

Total

 

CASH FLOWS PROVIDED BY (USED IN) OPERATING

   ACTIVITIES:

 

$

26,028

 

 

$

(21,075

)

 

$

(200,152

)

 

$

(54,759

)

 

$

(249,958

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

 

 

 

 

 

 

(30,870

)

 

 

(15,854

)

 

 

(46,724

)

Contributions to unconsolidated subsidiaries

 

 

 

 

 

 

 

 

(7,932

)

 

 

(2,679

)

 

 

(10,611

)

Distributions from unconsolidated subsidiaries

 

 

 

 

 

 

 

 

14,869

 

 

 

347

 

 

 

15,216

 

Purchase of equity securities

 

 

 

 

 

 

 

 

(10,219

)

 

 

 

 

 

(10,219

)

Proceeds from sale of equity securities

 

 

 

 

 

 

 

 

4,367

 

 

 

 

 

 

4,367

 

Purchase of available for sale debt securities

 

 

 

 

 

 

 

 

(12,066

)

 

 

 

 

 

(12,066

)

Proceeds from the sale of available for sale debt securities

 

 

 

 

 

 

 

 

2,264

 

 

 

 

 

 

2,264

 

Other investing activities, net

 

 

 

 

 

 

 

 

(6,590

)

 

 

151

 

 

 

(6,439

)

Net cash used in investing activities

 

 

 

 

 

 

 

 

(46,177

)

 

 

(18,035

)

 

 

(64,212

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from senior term loans

 

 

 

 

 

550,000

 

 

 

 

 

 

 

 

 

550,000

 

Proceeds from revolving credit facility

 

 

 

 

 

898,000

 

 

 

 

 

 

 

 

 

898,000

 

Repayment of revolving credit facility

 

 

 

 

 

(435,000

)

 

 

 

 

 

 

 

 

(435,000

)

Repayment of 5.00% senior notes (including premium)

 

 

 

 

 

(820,000

)

 

 

 

 

 

 

 

 

(820,000

)

Acquisition of businesses (cash (paid) received for acquisitions

   more than three months after purchase date)

 

 

 

 

 

 

 

 

(11,463

)

 

 

3,414

 

 

 

(8,049

)

Units repurchased for payment of taxes on equity awards

 

 

(4,550

)

 

 

 

 

 

 

 

 

 

 

 

(4,550

)

Non-controlling interest contributions

 

 

 

 

 

 

 

 

 

 

 

1,595

 

 

 

1,595

 

Non-controlling interest distributions

 

 

 

 

 

 

 

 

 

 

 

(1,025

)

 

 

(1,025

)

Payment of financing costs

 

 

 

 

 

(39

)

 

 

 

 

 

 

 

 

(39

)

(Increase) decrease in intercompany receivables, net

 

 

(21,532

)

 

 

(179,368

)

 

 

217,675

 

 

 

(16,775

)

 

 

 

Other financing activities, net

 

 

54

 

 

 

 

 

 

 

 

 

359

 

 

 

413

 

Net cash (used in) provided by financing activities

 

 

(26,028

)

 

 

13,593

 

 

 

206,212

 

 

 

(12,432

)

 

 

181,345

 

Effect of currency exchange rate changes on cash and cash

   equivalents and restricted cash

 

 

 

 

 

 

 

 

 

 

 

29,819

 

 

 

29,819

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

   AND RESTRICTED CASH

 

 

 

 

 

(7,482

)

 

 

(40,117

)

 

 

(55,407

)

 

 

(103,006

)

CASH AND CASH EQUIVALENTS AND RESTRICTED

   CASH, AT BEGINNING OF PERIOD

 

 

7

 

 

 

15,604

 

 

 

114,143

 

 

 

695,065

 

 

 

824,819

 

CASH AND CASH EQUIVALENTS AND RESTRICTED

   CASH, AT END OF PERIOD

 

$

7

 

 

$

8,122

 

 

$

74,026

 

 

$

639,658

 

 

$

721,813

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW

   INFORMATION:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

$

 

 

$

48,490

 

 

$

 

 

$

504

 

 

$

48,994

 

Income taxes, net

 

$

 

 

$

 

 

$

118

 

 

$

37,101

 

 

$

37,219

 

 

 

 

 

 

30


 

Item 2.

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

This Quarterly Report on Form 10-Q (Quarterly Report) for CBRE Group, Inc. for the three months ended March 31, 2019 represents an update to the more detailed and comprehensive disclosures included in our Annual Report on Form 10‑K for the year ended December 31, 2018. Accordingly, you should read the following discussion in conjunction with the information included in our Annual Report on Form 10-K for the year ended December 31, 2018 as well as the unaudited financial statements included elsewhere in this Quarterly Report.

In addition, the statements and assumptions in this Quarterly Report that are not statements of historical fact are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 or Section 21E of the Securities Exchange Act of 1934, each as amended, including, in particular, statements about our plans, strategies and prospects as well as estimates of industry growth for the next quarter and beyond. For important information regarding these forward-looking statements, please see the discussion below under the caption “Cautionary Note on Forward-Looking Statements.”

Overview

CBRE Group, Inc. is a Delaware corporation. References to “the company,” “we,” “us” and “our” refer to CBRE Group, Inc. and include all of its consolidated subsidiaries, unless otherwise indicated or the context requires otherwise.

We are the world’s largest commercial real estate services and investment firm, based on 2018 revenue, with leading global market positions in our advisory leasing, advisory property sales, occupier outsourcing and valuation businesses. As of December 31, 2018, we operated in more than 480 offices worldwide with over 90,000 employees, excluding independent affiliates.

Our business is focused on providing services to real estate occupiers and investors. For occupiers, we provide facilities management, project management, transaction (both property sales and leasing) and consulting services, among others. For investors, we provide capital markets (property sales, commercial mortgage brokerage, loan origination and servicing), leasing, investment management, property management, valuation and development services, among others. We provide services under the following brand names: “CBRE” (real estate advisory and outsourcing services); “CBRE Global Investors” (investment management); “Trammell Crow Company” (development); and “Hana” (flexible-space solutions).

Our revenue mix has shifted in recent years toward more contractual revenue as occupiers and investors increasingly prefer to purchase integrated, account-based services from firms that meet the full spectrum of their needs nationally and globally. We believe we are well-positioned to capture a growing share of this business. We generate revenue from both management fees (large multi-year portfolio and per-project contracts) and commissions on transactions. Our contractual, fee-for-services businesses generally involve occupier outsourcing (including facilities and project management), property management, investment management, appraisal/valuation and loan servicing. In addition, our leasing services business line is largely recurring in nature over time.

In 2018, we generated revenue from a highly diversified base of clients, including more than 90 of the Fortune 100 companies. We have been an S&P 500 company since 2006 and in 2018 we were ranked #207 on the Fortune 500. We have been voted the most recognized commercial real estate brand in the Lipsey Company survey for 18 years in a row (including 2019). We have also been rated a World’s Most Ethical Company by the Ethisphere Institute for six consecutive years (including 2019).

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP, which require us to make estimates and assumptions that affect reported amounts. The estimates and assumptions are based on historical experience and on other factors that we believe to be reasonable. Actual results may differ from those estimates. Critical accounting policies represent the areas where more significant judgments and estimates are used in the preparation of our consolidated financial statements. A

31


 

discussion of such critical accounting policies, which include revenue recognition, goodwill and other intangible assets, and income taxes can be found in our Annual Report on Form 10-K for the year ended December 31, 2018. There have been no material changes to these policies as of March 31, 2019.

New Accounting Pronouncements

See Note 2 of the Notes to Consolidated Financial Statements (Unaudited) set forth in Item 1 of this Quarterly Report.

Seasonality

A significant portion of our revenue is seasonal, which an investor should keep in mind when comparing our financial condition and results of operations on a quarter-by-quarter basis. Historically, our revenue, operating income, net income and cash flow from operating activities tend to be lowest in the first quarter, and highest in the fourth quarter of each year. Revenue, earnings and cash flow have generally been concentrated in the fourth calendar quarter due to the focus on completing sales, financing and leasing transactions prior to year-end.

Inflation

Our commissions and other variable costs related to revenue are primarily affected by commercial real estate market supply and demand, which may be affected by inflation. However, to date, we do not believe that general inflation has had a material impact upon our operations.

Items Affecting Comparability

When you read our financial statements and the information included in this Quarterly Report, you should consider that we have experienced, and continue to experience, several material trends and uncertainties that have affected our financial condition and results of operations that make it challenging to predict our future performance based on our historical results. We believe that the following material trends and uncertainties are crucial to an understanding of the variability in our historical earnings and cash flows and the potential for continued variability in the future.

Macroeconomic Conditions

Economic trends and government policies affect global and regional commercial real estate markets as well as our operations directly. These include: overall economic activity and employment growth; interest rate levels and changes in interest rates; the cost and availability of credit; and the impact of tax and regulatory policies. Periods of economic weakness or recession, significantly rising interest rates, fiscal uncertainty, declining employment levels, decreasing demand for commercial real estate, falling real estate values, disruption to the global capital or credit markets, or the public perception that any of these events may occur, will negatively affect the performance of our business.

Compensation is our largest expense and our sales and leasing professionals generally are paid on a commission and/or bonus basis that correlates with their revenue production. As a result, the negative effect of difficult market conditions on our operating margins is partially mitigated by the inherent variability of our compensation cost structure. In addition, when negative economic conditions have been particularly severe, we have moved decisively to lower operating expenses to improve financial performance, and then have restored certain expenses as economic conditions improved. Nevertheless, adverse global and regional economic trends could pose significant risks to the performance of our operations and our financial condition.

Commercial real estate markets in the United States have generally been marked by increased demand for space, falling vacancies and higher rents since 2010. During this time, healthy U.S. property sales activity has been sustained by gradually improving market fundamentals, including higher occupancy rates and rents, broad, low-cost credit availability and increased institutional capital allocations to commercial real estate. Following years of strong growth, U.S. property sales volumes slowed in the 2016-2017 period, but improved in 2018. The U.S. sales market

32


 

got off to a slow start in 2019; however, significant capital continues to target commercial real estate and relatively low-cost financing remains plentiful. The market for commercial real estate leasing has remained strong and picked up in 2018 and early 2019, reflecting continued healthy economic and employment growth.

European countries began to emerge from recession in 2013, with economic growth improving in 2017 and 2018. Sales and leasing activity generally improved across most of Europe for several years. While leasing demand has remained relatively solid, sales market volumes weakened in early 2019. Since the United Kingdom’s June 2016 referendum to leave the European Union, economic and property market performance has generally been solid. However, the continued uncertainty about the date and the terms on which the United Kingdom will leave the European Union has contributed to lower lease and sales volumes in early 2019.

In Asia Pacific, real estate leasing and investment markets have been active since late 2016. However, leasing activity and investment levels cooled in early 2019 as investors became more cautious due to global economic and geopolitical uncertainty. However, Asia Pacific investors remain a significant source of real estate investment both in the region and across other parts of the world.

Real estate investment management and property development markets have been generally favorable with abundant debt and equity capital flows into commercial real estate. Actively managed real estate equity strategies have been pressured by a shift in investor preferences from active to passive portfolio strategies and concerns about the potential for higher interest rates.

The performance of our global real estate services and investment businesses depends on sustained economic growth and job creation; stable, healthy global credit markets; and continued positive business and investor sentiment.

Effects of Acquisitions

We historically have made significant use of strategic acquisitions to add and enhance service competencies around the world. 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 estimated net initial purchase price was approximately $266.5 million, with $263.0 million paid in cash. 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.

Strategic in-fill acquisitions have also played a key role in strengthening our service offerings. The companies we acquired have generally been regional or specialty firms that complement our existing platform, or independent affiliates in which, in some cases, we held a small equity interest. During 2018, we acquired a retail leasing and property management firm in Australia, two firms in Israel (our former affiliate and a majority interest in a local facilities management provider), a commercial real estate services provider in San Antonio, a provider of real estate and facilities consulting services to healthcare companies across the United States and the remaining 50% equity interest in our longstanding New England joint venture. During the three months ended March 31, 2019, we acquired the assets of a leading advanced analytics software company based in the United Kingdom which provides technology and consulting services for large global data center operators and a commercial and residential real estate appraisal firm headquartered in Florida.

33


 

We believe that strategic acquisitions can significantly decrease the cost, time and commitment of management resources necessary to attain a meaningful competitive position within targeted markets or to expand our presence within our current markets. In general, however, most acquisitions will initially have an adverse impact on our operating and net income as a result of transaction-related expenditures. These include severance, lease termination, transaction and deferred financing costs, among others, and the charges and costs of integrating the acquired business and its financial and accounting systems into our own.

Our acquisition structures often include deferred and/or contingent purchase price payments in future periods that are subject to the passage of time or achievement of certain performance metrics and other conditions. As of March 31, 2019, we have accrued deferred consideration totaling $117.9 million, which is included in accounts payable and accrued expenses and in other long-term liabilities in the accompanying consolidated balance sheets set forth in Item 1 of this Quarterly Report.

International Operations

We are monitoring the economic and political developments related to the United Kingdom’s referendum to leave the European Union and the potential impact on our businesses in the United Kingdom and the rest of Europe, including, in particular, sales and leasing activity in the United Kingdom, as well as any associated currency volatility impact on our results of operations.

As we continue to increase our international operations through either acquisitions or organic growth, fluctuations in the value of the U.S. dollar relative to the other currencies in which we may generate earnings could adversely affect our business, financial condition and operating results. Our Real Estate Investments business has a significant amount of euro-denominated assets under management, or AUM, as well as associated revenue and earnings in Europe. In addition, our Global Workplace Solutions business also has a significant amount of its revenue and earnings denominated in foreign currencies, such as the euro and the British pound sterling. Fluctuations in foreign currency exchange rates have resulted and may continue to result in corresponding fluctuations in our AUM, revenue and earnings.

During the three months ended March 31, 2019, approximately 41% of our business was transacted in non-U.S. dollar currencies, the majority of which included the Australian dollar, Brazilian real, British pound sterling, Canadian dollar, Chinese yuan, Danish krone, euro, Hong Kong dollar, Indian rupee, Israeli shekel, Japanese yen, Mexican peso, New Zealand dollar, Polish zloty, Singapore dollar, Swedish krona, Swiss franc and Thai baht. The following table sets forth our revenue derived from our most significant currencies (U.S. dollars in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

United States dollar

 

$

3,036,707

 

 

 

59.1

%

 

$

2,674,217

 

 

 

57.2

%

British pound sterling

 

 

588,581

 

 

 

11.5

%

 

 

580,516

 

 

 

12.4

%

euro

 

 

530,425

 

 

 

10.3

%

 

 

495,946

 

 

 

10.6

%

Canadian dollar

 

 

161,896

 

 

 

3.2

%

 

 

160,882

 

 

 

3.4

%

Indian rupee

 

 

112,473

 

 

 

2.2

%

 

 

103,593

 

 

 

2.2

%

Australian dollar

 

 

87,390

 

 

 

1.7

%

 

 

101,557

 

 

 

2.2

%

Chinese yuan

 

 

73,593

 

 

 

1.4

%

 

 

62,375

 

 

 

1.3

%

Japanese yen

 

 

66,837

 

 

 

1.3

%

 

 

65,168

 

 

 

1.4

%

Singapore dollar

 

 

64,711

 

 

 

1.3

%

 

 

60,233

 

 

 

1.3

%

Brazilian real

 

 

44,121

 

 

 

0.9

%

 

 

40,696

 

 

 

0.9

%

Swiss franc

 

 

43,344

 

 

 

0.8

%

 

 

43,248

 

 

 

0.9

%

Hong Kong dollar

 

 

36,108

 

 

 

0.7

%

 

 

35,186

 

 

 

0.8

%

Mexican peso

 

 

33,191

 

 

 

0.6

%

 

 

32,610

 

 

 

0.7

%

Israeli shekel

 

 

27,223

 

 

 

0.5

%

 

 

6,335

 

 

 

0.1

%

Polish zloty

 

 

22,100

 

 

 

0.4

%

 

 

17,438

 

 

 

0.4

%

Danish krone

 

 

19,403

 

 

 

0.4

%

 

 

23,323

 

 

 

0.5

%

Thai baht

 

 

17,780

 

 

 

0.4

%

 

 

19,925

 

 

 

0.4

%

Swedish krona

 

 

17,216

 

 

 

0.3

%

 

 

19,420

 

 

 

0.4

%

New Zealand dollar

 

 

14,142

 

 

 

0.3

%

 

 

11,848

 

 

 

0.3

%

Other currencies

 

 

138,269

 

 

 

2.7

%

 

 

119,436

 

 

 

2.6

%

Total revenue

 

$

5,135,510

 

 

 

100.0

%

 

$

4,673,952

 

 

 

100.0

%

34


 

Although we operate globally, we report our results in U.S. dollars. As a result, the strengthening or weakening of the U.S. dollar may positively or negatively impact our reported results. For example, we estimate that had the British pound sterling-to-U.S. dollar exchange rates been 10% higher during the three months ended March 31, 2019, the net impact would have been a decrease in pre-tax income of $1.0 million. Had the euro-to-U.S. dollar exchange rates been 10% higher during the three months ended March 31, 2019, the net impact would have been an increase in pre-tax income of $2.5 million. These hypothetical calculations estimate the impact of translating results into U.S. dollars and do not include an estimate of the impact that a 10% change in the U.S. dollar against other currencies would have had on our foreign operations.

Due to the constantly changing currency exposures to which we are subject and the volatility of currency exchange rates, we cannot predict the effect of exchange rate fluctuations upon future operating results. In addition, fluctuations in currencies relative to the U.S. dollar may make it more difficult to perform period-to-period comparisons of our reported results of operations. Our international operations also are subject to, among other things, political instability and changing regulatory environments, which affects the currency markets and which as a result may adversely affect our future financial condition and results of operations. We routinely monitor these risks and related costs and evaluate the appropriate amount of oversight to allocate towards business activities in foreign countries where such risks and costs are particularly significant.

35


 

Results of Operations

The following table sets forth items derived from our consolidated statements of operations for the three months ended March 31, 2019 and 2018 (dollars in thousands):

 

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global workplace solutions

 

$

691,895

 

 

 

13.5

%

 

$

643,238

 

 

 

13.8

%

Property and advisory project management

 

 

288,119

 

 

 

5.6

%

 

 

271,994

 

 

 

5.8

%

Valuation

 

 

138,326

 

 

 

2.7

%

 

 

134,163

 

 

 

2.9

%

Loan servicing

 

 

46,018

 

 

 

0.9

%

 

 

41,814

 

 

 

0.9

%

Advisory leasing

 

 

622,640

 

 

 

12.1

%

 

 

517,509

 

 

 

11.1

%

Capital markets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advisory sales

 

 

385,655

 

 

 

7.5

%

 

 

413,732

 

 

 

8.9

%

Commercial mortgage origination

 

 

120,879

 

 

 

2.4

%

 

 

107,434

 

 

 

2.3

%

Investment management

 

 

106,308

 

 

 

2.1

%

 

 

123,690

 

 

 

2.6

%

Development services

 

 

28,885

 

 

 

0.5

%

 

 

23,325

 

 

 

0.4

%

Total fee revenue

 

 

2,428,725

 

 

 

47.3

%

 

 

2,276,899

 

 

 

48.7

%

Pass through costs also recognized as revenue

 

 

2,706,785

 

 

 

52.7

%

 

 

2,397,053

 

 

 

51.3

%

Total revenue

 

 

5,135,510

 

 

 

100.0

%

 

 

4,673,952

 

 

 

100.0

%

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services

 

 

4,022,034

 

 

 

78.3

%

 

 

3,619,961

 

 

 

77.4

%

Operating, administrative and other

 

 

792,876

 

 

 

15.4

%

 

 

732,235

 

 

 

15.7

%

Depreciation and amortization

 

 

105,823

 

 

 

2.2

%

 

 

108,165

 

 

 

2.3

%

Intangible asset impairment

 

 

89,037

 

 

 

1.7

%

 

 

 

 

 

0.0

%

Total costs and expenses

 

 

5,009,770

 

 

 

97.6

%

 

 

4,460,361

 

 

 

95.4

%

Gain on disposition of real estate

 

 

19,247

 

 

 

0.4

%

 

 

18

 

 

 

0.0

%

Operating income

 

 

144,987

 

 

 

2.8

%

 

 

213,609

 

 

 

4.6

%

Equity income from unconsolidated subsidiaries

 

 

72,664

 

 

 

1.4

%

 

 

40,179

 

 

 

0.8

%

Other income (loss)

 

 

20,853

 

 

 

0.4

%

 

 

(4,280

)

 

 

(0.1

%)

Interest income

 

 

1,534

 

 

 

0.0

%

 

 

3,621

 

 

 

0.1

%

Interest expense

 

 

22,726

 

 

 

0.4

%

 

 

28,858

 

 

 

0.6

%

Write-off of financing costs on extinguished debt

 

 

2,608

 

 

 

0.0

%

 

 

27,982

 

 

 

0.6

%

Income before provision for income taxes

 

 

214,704

 

 

 

4.2

%

 

 

196,289

 

 

 

4.2

%

Provision for income taxes

 

 

43,878

 

 

 

0.9

%

 

 

46,164

 

 

 

1.0

%

Net income

 

 

170,826

 

 

 

3.3

%

 

 

150,125

 

 

 

3.2

%

Less:  Net income (loss) attributable to non-controlling interests

 

 

6,417

 

 

 

0.1

%

 

 

(163

)

 

 

0.0

%

Net income attributable to CBRE Group, Inc.

 

$

164,409

 

 

 

3.2

%

 

$

150,288

 

 

 

3.2

%

EBITDA

 

$

426,947

 

 

 

8.3

%

 

$

357,836

 

 

 

7.7

%

Adjusted EBITDA

 

$

450,032

 

 

 

8.8

%

 

$

347,807

 

 

 

7.4

%

Adjusted EBITDA on fee revenue margin

 

 

 

 

 

 

18.5

%

 

 

 

 

 

 

15.3

%

 

Fee revenue, EBITDA, adjusted EBITDA and adjusted EBITDA on fee revenue margin are not recognized measurements under GAAP. When analyzing our operating performance, investors should use these measures in addition to, and not as an alternative for, their most directly comparable financial measure calculated and presented in accordance with GAAP. We generally use these non-GAAP financial measures to evaluate operating performance and for other discretionary purposes. We believe these measures provide a more complete understanding of ongoing operations, enhance comparability of current results to prior periods and may be useful for investors to analyze our financial performance because they eliminate the impact of selected charges that may obscure trends in the underlying performance of our business. Because not all companies use identical calculations, our presentation of fee revenue, EBITDA, adjusted EBITDA and adjusted EBITDA on fee revenue margin may not be comparable to similarly titled measures of other companies.

Fee revenue is gross revenue less both client reimbursed costs largely associated with employees that are dedicated to client facilities and subcontracted vendor work performed for clients. We believe that investors may find this measure useful to analyze the company’s overall financial performance because it excludes costs reimbursable by clients, and as such provides greater visibility into the underlying performance of our business.

36


 

EBITDA represents earnings before net interest expense, write-off of financing costs on extinguished debt, income taxes, depreciation and amortization and intangible asset impairments. Amounts shown for adjusted EBITDA further remove (from EBITDA) the impact of certain cash and non-cash items related to acquisitions, costs associated with our reorganization, including cost-savings initiatives, certain carried interest incentive compensation expense (reversal) to align with the timing of associated revenue and other non-recurring costs. We believe that investors may find these measures useful in evaluating our operating performance compared to that of other companies in our industry because their calculations generally eliminate the effects of acquisitions, which would include impairment charges of goodwill and intangibles created from acquisitions, the effects of financings and income taxes and the accounting effects of capital spending.

EBITDA and adjusted EBITDA are not intended to be measures of free cash flow for our discretionary use because they do not consider certain cash requirements such as tax and debt service payments. These measures may also differ from the amounts calculated under similarly titled definitions in our debt instruments, which amounts are further adjusted to reflect certain other cash and non-cash charges and are used by us to determine compliance with financial covenants therein and our ability to engage in certain activities, such as incurring additional debt and making certain restricted payments. We also use adjusted EBITDA as a significant component when measuring our operating performance under our employee incentive compensation programs.

EBITDA and adjusted EBITDA are calculated as follows (dollars in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

 

2019

 

 

 

2018

 

Net income attributable to CBRE Group, Inc.

 

$

164,409

 

 

$

150,288

 

Add:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

105,823

 

 

 

108,165

 

Intangible asset impairment

 

 

89,037

 

 

 

 

Interest expense

 

 

22,726

 

 

 

28,858

 

Write-off of financing costs on extinguished debt

 

 

2,608

 

 

 

27,982

 

Provision for income taxes

 

 

43,878

 

 

 

46,164

 

Less:

 

 

 

 

 

 

 

 

Interest income

 

 

1,534

 

 

 

3,621

 

EBITDA

 

 

426,947

 

 

 

357,836

 

Adjustments:

 

 

 

 

 

 

 

 

Costs associated with our reorganization, including

   cost-savings initiatives (1)

 

 

15,749

 

 

 

 

Carried interest incentive compensation expense (reversal)

   to align with the timing of associated revenue

 

 

7,336

 

 

 

(10,029

)

Adjusted EBITDA

 

$

450,032

 

 

$

347,807

 

 

(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.

Adjusted EBITDA on fee revenue margin is calculated as follows (dollars in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

 

2019

 

 

 

2018

 

Adjusted EBITDA

 

$

450,032

 

 

$

347,807

 

Fee revenue

 

 

2,428,725

 

 

 

2,276,899

 

Adjusted EBITDA on fee revenue margin

 

 

18.5

%

 

 

15.3

%

 

Three Months Ended March 31, 2019 Compared to the Three Months Ended March 31, 2018

We reported consolidated net income of $164.4 million for the three months ended March 31, 2019 on revenue of $5.1 billion as compared to consolidated net income of $150.3 million on revenue of $4.7 billion for the three months ended March 31, 2018.

Our revenue on a consolidated basis for the three months ended March 31, 2019 increased by $461.6 million, or 9.9%, as compared to the three months ended March 31, 2018. The revenue increase reflects strong organic growth fueled by higher revenue in our Global Workplace Solutions segment (up 15.5%) and improved revenue in

37


 

our Advisory Segment due to property and advisory project management revenue (up 11.2%) as well as increased advisory leasing (up 22.5%) and commercial mortgage origination activity (up 12.7%). These increases were partially offset by the impact of foreign currency translation, which had a $148.2 million negative impact on total revenue during the three months ended March 31, 2019, primarily driven by weakness in the Argentine peso, Australian dollar, British pound sterling, Canadian dollar, euro and Indian rupee.

Our cost of services on a consolidated basis increased by $402.1 million, or 11.1%, during the three months ended March 31, 2019 as compared to the same period in 2018. This increase was primarily due to higher costs associated with our Global Workplace Solutions segment. In addition, our sales professionals generally are paid on a commission basis, which substantially correlates with our transaction revenue performance. Accordingly, the increase in advisory lease transaction revenue led to a corresponding increase in commission expense. Lastly, higher costs in our property and advisory project management business also contributed to the increase. These items were partially offset by the impact of foreign currency translation, which had a $120.7 million positive impact on total cost of services during the three months ended March 31, 2019. Cost of services as a percentage of revenue increased from 77.4% for the three months ended March 31, 2018 to 78.3% for the three months ended March 31, 2019, primarily driven by our revenue mix, with revenue from our global workplace solutions business, which has a lower margin than revenue in our advisory business, comprising a higher percentage of revenue than in the prior year period.

Our operating, administrative and other expenses on a consolidated basis increased by $60.6 million, or 8.3%, during the three months ended March 31, 2019 as compared to the same period in 2018. The increase was mostly driven by higher payroll-related costs (including increased bonus expense) and higher carried interest expense. During the first quarter of 2019, we also incurred $14.3 million of costs in connection with our reorganization (including cost-savings initiatives). These items were partially offset by the impact of foreign currency translation, which had a $23.4 million positive impact on total operating expenses during the three months ended March 31, 2019. Operating expenses as a percentage of revenue was relatively consistent at 15.4% for the three months ended March 31, 2019 as compared to 15.7% for the three months ended March 31, 2018.

Our depreciation and amortization expense on a consolidated basis decreased by $2.3 million, or 2.2%, during the three months ended March 31, 2019 as compared to the same period in 2018. This decrease was primarily attributable to $7.1 million of lower amortization expense associated with intangibles from prior acquisitions. The decrease in amortization expense was partially offset by a rise in depreciation expense of $4.8 million during the three months ended March 31, 2019 driven by technology-related capital expenditures.

During the three months ended March 31, 2019, we recorded an intangible asset impairment of $89.0 million in our Real Estate Investments segment. 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.

Our gain on disposition of real estate on a consolidated basis was $19.2 million for the three months ended March 31, 2019. This gain resulted from property sales within our Real Estate Investments segment.

Our equity income from unconsolidated subsidiaries on a consolidated basis increased by $32.5 million, or 80.9%, during the three months ended March 31, 2019 as compared to the same period in 2018, primarily driven by higher equity earnings associated with gains on property sales reported in our Real Estate Investments segment.

Our consolidated interest expense decreased by $6.1 million, or 21.2%, for the three months ended March 31, 2019 as compared to the three months ended March 31, 2018. This decrease was primarily driven by the early redemption, in full, of the $800.0 million aggregate outstanding principal amount of our 5.00% senior notes in the first quarter of 2018.

Our write-off of financing costs on extinguished debt on a consolidated basis was $2.6 million for the three months ended March 31, 2019 as compared to $28.0 million for the three months ended March 31, 2018. The costs for the three months ended March 31, 2019 were incurred in connection with the refinancing of our credit agreement. The costs for the three months ended March 31, 2018 included a $20.0 million premium paid and the

38


 

write-off of $8.0 million of unamortized deferred financing costs in connection with the early redemption, in full, of the $800.0 million aggregate outstanding principal amount of our 5.00% senior notes.

Our provision for income taxes on a consolidated basis was $43.9 million for the three months ended March 31, 2019 as compared to $46.2 million for the same period in 2018. Our effective tax rate, after adjusting pre-tax income to remove the portion attributable to non-controlling interests, decreased from 23.5% for the three months ended March 31, 2018 to 21.1% for the three months ended March 31, 2019. We benefited from discrete items for the three months ended March 31, 2019 that exceeded the benefits for other discrete items for the prior-year period.

Segment Operations

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. For additional information on our segments, see Note 14 of the Notes to Consolidated Financial Statements (Unaudited) set forth in Item 1 of this Quarterly Report.

Advisory Services

The following table summarizes our results of operations for our Advisory Services operating segment for the three months ended March 31, 2019 and 2018 (dollars in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018 (1)

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and advisory project management

 

$

288,119

 

 

 

15.7

%

 

$

271,994

 

 

 

16.0

%

Valuation

 

 

138,326

 

 

 

7.5

%

 

 

134,163

 

 

 

7.9

%

Loan servicing

 

 

46,018

 

 

 

2.5

%

 

 

41,814

 

 

 

2.5

%

Advisory leasing

 

 

622,640

 

 

 

33.9

%

 

 

517,509

 

 

 

30.5

%

Capital markets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advisory sales

 

 

385,655

 

 

 

21.1

%

 

 

413,732

 

 

 

24.3

%

Commercial mortgage origination

 

 

120,879

 

 

 

6.6

%

 

 

107,434

 

 

 

6.3

%

Total fee revenue

 

 

1,601,637

 

 

 

87.3

%

 

 

1,486,646

 

 

 

87.5

%

Pass through costs also recognized as revenue

 

 

232,765

 

 

 

12.7

%

 

 

212,788

 

 

 

12.5

%

Total revenue

 

 

1,834,402

 

 

 

100.0

%

 

 

1,699,434

 

 

 

100.0

%

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services

 

 

1,083,099

 

 

 

59.0

%

 

 

1,008,662

 

 

 

59.4

%

Operating, administrative and other

 

 

496,618

 

 

 

27.1

%

 

 

481,818

 

 

 

28.4

%

Depreciation and amortization

 

 

71,647

 

 

 

3.9

%

 

 

64,978

 

 

 

3.8

%

Operating income

 

$

183,038

 

 

 

10.0

%

 

$

143,976

 

 

 

8.4

%

Equity income from unconsolidated subsidiaries

 

 

675

 

 

 

0.0

%

 

 

4,431

 

 

 

0.4

%

Other income

 

 

1,679

 

 

 

0.1

%

 

 

1,799

 

 

 

0.1

%

Less: Net loss attributable to non-controlling interests

 

 

(145

)

 

 

0.0

%

 

 

(248

)

 

 

0.0

%

Add-back: Depreciation and amortization

 

 

71,647

 

 

 

3.9

%

 

 

64,978

 

 

 

3.8

%

EBITDA

 

$

257,184

 

 

 

14.0

%

 

$

215,432

 

 

 

12.7

%

Adjusted EBITDA

 

$

263,850

 

 

 

14.4

%

 

$

215,432

 

 

 

12.7

%

Adjusted EBITDA on fee revenue margin

 

 

 

 

 

 

16.5

%

 

 

 

 

 

 

14.5

%

 

(1)

Our new organizational structure became effective on January 1, 2019. Results for 2018 have been presented in conformity with the new structure.

Three Months Ended March 31, 2019 Compared to the Three Months Ended March 31, 2018

Revenue increased by $135.0 million, or 7.9%, for the three months ended March 31, 2019 as compared to the three months ended March 31, 2018. The revenue increase reflects strong organic growth fueled by higher leasing and commercial mortgage origination activity as well as improved property and advisory project management revenue. Foreign currency translation had a $43.5 million negative impact on total revenue during the three months ended March 31, 2019, primarily driven by weakness in the Australian dollar, British pound sterling, euro and Indian rupee.

39


 

Cost of services increased by $74.4 million, or 7.4%, for the three months ended March 31, 2019 as compared to the same period in 2018, primarily due to higher commission expense resulting from improved lease transaction revenue. Higher costs in our property and advisory project management business also contributed to the increase. Foreign currency translation had a $27.3 million positive impact on total cost of services during the three months ended March 31, 2019. Cost of services as a percentage of revenue was relatively consistent at 59.0% for the three months ended March 31, 2019 versus 59.4% for the same period in 2018.

Operating, administrative and other expenses increased by $14.8 million, or 3.1%, for the three months ended March 31, 2019 as compared to the three months ended March 31, 2018. The increase was partly driven by higher payroll-related costs. During the three months ended March 31, 2019, we also incurred $5.6 million of severance costs in connection with our reorganization, including cost-savings initiatives. Foreign currency translation had a $14.5 million positive impact on total operating expenses during the three months ended March 31, 2019.

In connection with the origination and sale of mortgage loans for which the company retains servicing rights, we record servicing assets or liabilities based on the fair value of the retained mortgage servicing rights (MSRs) on the date the loans are sold. Upon origination of a mortgage loan held for sale, the fair value of the mortgage servicing rights to be retained is included in the forecasted proceeds from the anticipated loan sale and results in a net gain (which is reflected in revenue). Subsequent to the initial recording, MSRs are amortized (within amortization expense) and carried at the lower of amortized cost or fair value in other intangible assets in the accompanying consolidated balance sheets. They are amortized in proportion to and over the estimated period that the servicing income is expected to be received. For the three months ended March 31, 2019, MSRs contributed to operating income $38.3 million of gains recognized in conjunction with the origination and sale of mortgage loans, offset by $27.7 million of amortization of related intangible assets. For the three months ended March 31, 2018, MSRs contributed to operating income $32.1 million of gains recognized in conjunction with the origination and sale of mortgage loans, offset by $26.9 million of amortization of related intangible assets.

Global Workplace Solutions

The following table summarizes our results of operations for our Global Workplace Solutions operating segment for the three months ended March 31, 2019 and 2018 (dollars in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018 (1)

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fee revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global workplace solutions

 

$

691,895

 

 

 

21.9

%

 

$

643,238

 

 

 

22.7

%

Total fee revenue

 

 

691,895

 

 

 

21.9

%

 

 

643,238

 

 

 

22.7

%

Pass through costs also recognized as revenue

 

 

2,474,020

 

 

 

78.1

%

 

 

2,184,265

 

 

 

77.3

%

Total revenue

 

 

3,165,915

 

 

 

100.0

%

 

 

2,827,503

 

 

 

100.0

%

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services

 

 

2,938,935

 

 

 

92.8

%

 

 

2,611,299

 

 

 

92.4

%

Operating, administrative and other

 

 

135,472

 

 

 

4.3

%

 

 

133,512

 

 

 

4.7

%

Depreciation and amortization

 

 

29,483

 

 

 

0.9

%

 

 

36,530

 

 

 

1.3

%

Operating income

 

 

62,025

 

 

 

2.0

%

 

 

46,162

 

 

 

1.6

%

Equity loss from unconsolidated subsidiaries

 

 

(833

)

 

 

0.0

%

 

 

 

 

 

0.0

%

Other (loss) income

 

 

(16

)

 

 

0.0

%

 

 

32

 

 

 

0.0

%

Less: Net loss attributable to non-controlling interests

 

 

(158

)

 

 

0.0

%

 

 

(11

)

 

 

0.0

%

Add-back: Depreciation and amortization

 

 

29,483

 

 

 

0.9

%

 

 

36,530

 

 

 

1.3

%

EBITDA

 

$

90,817

 

 

 

2.9

%

 

$

82,735

 

 

 

2.9

%

Adjusted EBITDA

 

$

99,679

 

 

 

3.1

%

 

$

82,735

 

 

 

2.9

%

Adjusted EBITDA on fee revenue margin

 

 

 

 

 

 

14.4

%

 

 

 

 

 

 

12.9

%

 

(1)

Our new organizational structure became effective on January 1, 2019. Results for 2018 have been presented in conformity with the new structure.

40


 

Three Months Ended March 31, 2019 Compared to the Three Months Ended March 31, 2018

Revenue increased by $338.4 million, or 12.0%, for the three months ended March 31, 2019 as compared to the three months ended March 31, 2018. The revenue increase was fueled by growth in the market for real estate outsourcing services. Foreign currency translation had a $100.4 million negative impact on total revenue during the three months ended March 31, 2019, primarily driven by weakness in the Argentine peso, British pound sterling, Canadian dollar, euro and Indian rupee.

Cost of services increased by $327.6 million, or 12.5%, for the three months ended March 31, 2019 as compared to the same period in 2018, driven by the higher revenue. Foreign currency translation had a $93.4 million positive impact on total cost of services during the three months ended March 31, 2019. Cost of services as a percentage of revenue was relatively consistent at 92.8% for the three months ended March 31, 2019 versus 92.4% for the same period in 2018.

Operating, administrative and other expenses increased by $2.0 million, or 1.5% for the three months ended March 31, 2019 as compared to the three months ended March 31, 2018. During the three months ended March 31, 2019, we incurred $8.5 million of severance costs in connection with our reorganization, including cost-savings initiatives. These costs were mostly offset by the impact of foreign currency translation, which had a $5.6 million positive impact on total operating expenses during the three months ended March 31, 2019.

Real Estate Investments

The following table summarizes our results of operations for our Real Estate Investments operating segment for the three months ended March 31, 2019 and 2018 (dollars in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018 (1)

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment management

 

$

106,308

 

 

 

78.6

%

 

$

123,690

 

 

 

84.1

%

Development services

 

 

28,885

 

 

 

21.4

%

 

 

23,325

 

 

 

15.9

%

Total revenue

 

 

135,193

 

 

 

100.0

%

 

 

147,015

 

 

 

100.0

%

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating, administrative and other

 

 

160,786

 

 

 

118.9

%

 

 

116,905

 

 

 

79.5

%

Depreciation and amortization

 

 

4,693

 

 

 

3.5

%

 

 

6,657

 

 

 

4.5

%

Intangible asset impairment

 

 

89,037

 

 

 

65.9

%

 

 

 

 

 

0.0

%

Gain on disposition of real estate

 

 

19,247

 

 

 

14.2

%

 

 

18

 

 

 

0.0

%

Operating (loss) income

 

$

(100,076

)

 

 

(74.1

%)

 

$

23,471

 

 

 

16.0

%

Equity income from unconsolidated subsidiaries

 

 

72,822

 

 

 

53.9

%

 

 

35,748

 

 

 

24.4

%

Other income (loss)

 

 

19,190

 

 

 

14.2

%

 

 

(6,111

)

 

 

(4.2

%)

Less: Net income attributable to non-controlling interests

 

 

6,720

 

 

 

5.0

%

 

 

96

 

 

 

0.1

%

Add-back: Depreciation and amortization

 

 

4,693

 

 

 

3.5

%

 

 

6,657

 

 

 

4.5

%

Add-back: Intangible asset impairment

 

 

89,037

 

 

 

65.9

%

 

 

 

 

 

0.0

%

EBITDA

 

$

78,946

 

 

 

58.4

%

 

$

59,669

 

 

 

40.6

%

Adjusted EBITDA

 

$

86,503

 

 

 

64.0

%

 

$

49,640

 

 

 

33.8

%

 

(1)

Our new organizational structure became effective on January 1, 2019. Results for 2018 have been presented in conformity with the new structure.

Three Months Ended March 31, 2019 Compared to the Three Months Ended March 31, 2018

Revenue decreased by $11.8 million, or 8.0%, for the three months ended March 31, 2019 as compared to the three months ended March 31, 2018, primarily driven by lower carried interest revenue. Foreign currency translation also had a $4.3 million negative impact on total revenue during the three months ended March 31, 2019, primarily driven by weakness in the British pound sterling and euro.

Operating, administrative and other expenses increased by $43.9 million, or 37.5%, for the three months ended March 31, 2019 as compared to the same period in 2018, primarily driven by higher carried interest expense as well as higher payroll-related costs (including increased bonus expense). Foreign currency translation had a $3.3 million positive impact on total operating expenses during the three months ended March 31, 2019.

41


 

A roll forward of our AUM by product type for the three months ended March 31, 2019 is as follows (dollars in billions):

 

 

 

Funds

 

 

Separate Accounts

 

 

Securities

 

 

Total

 

Balance at January 1, 2019

 

$

35.0

 

 

$

60.2

 

 

$

10.3

 

 

$

105.5

 

Inflows

 

 

0.4

 

 

 

2.6

 

 

 

0.1

 

 

 

3.1

 

Outflows

 

 

(0.1

)

 

 

(1.7

)

 

 

(1.5

)

 

 

(3.3

)

Market appreciation (depreciation)

 

 

0.4

 

 

 

(0.1

)

 

 

1.6

 

 

 

1.9

 

Balance at March 31, 2019

 

$

35.7

 

 

$

61.0

 

 

$

10.5

 

 

$

107.2

 

 

AUM generally refers to the properties and other assets with respect to which we provide (or participate in) oversight, investment management services and other advice, and which generally consist of real estate properties or loans, securities portfolios and investments in operating companies and joint ventures. Our AUM is intended principally to reflect the extent of our presence in the real estate market, not the basis for determining our management fees. Our assets under management consist of:

 

the total fair market value of the real estate properties and other assets either wholly-owned or held by joint ventures and other entities in which our sponsored funds or investment vehicles and client accounts have invested or to which they have provided financing. Committed (but unfunded) capital from investors in our sponsored funds is not included in this component of our AUM. The value of development properties is included at estimated completion cost. In the case of real estate operating companies, the total value of real properties controlled by the companies, generally through joint ventures, is included in AUM; and

 

the net asset value of our managed securities portfolios, including investments (which may be comprised of committed but uncalled capital) in private real estate funds under our fund of funds investments.

Our calculation of AUM may differ from the calculations of other asset managers, and as a result, this measure may not be comparable to similar measures presented by other asset managers.

Liquidity and Capital Resources

We believe that we can satisfy our working capital and funding requirements with internally generated cash flow and, as necessary, borrowings under our revolving credit facility. Our expected capital requirements for 2019 include up to approximately $210 million of anticipated capital expenditures, net of tenant concessions. During the three months ended March 31, 2019, we incurred $44.2 million of capital expenditures, net of tenant concessions received. As of March 31, 2019, we had aggregate commitments of $49.1 million to fund future co-investments in our Real Estate Investments business, $23.0 million of which is expected to be funded in 2019. Additionally, as of March 31, 2019, we are committed to fund $50.3 million of additional capital to unconsolidated subsidiaries within our Real Estate Investments business, which we may be required to fund at any time. As of March 31, 2019, we had $2.5 billion of borrowings available under our $2.8 billion revolving credit facility.

We have historically relied on our internally generated cash flow and our revolving credit facility to fund our working capital, capital expenditure and general investment requirements (including strategic in-fill acquisitions) and have not sought other external sources of financing to help fund these requirements. In the absence of extraordinary events or a large strategic acquisition, we anticipate that our cash flow from operations and our revolving credit facility would be sufficient to meet our anticipated cash requirements for the foreseeable future, and at a minimum for the next 12 months. We may seek to take advantage of market opportunities to refinance existing debt instruments, as we have done in the past, with new debt instruments at interest rates, maturities and terms we deem attractive. We may also, from time to time in our sole discretion, purchase, redeem, or retire our existing senior notes, through tender offers, in privately negotiated or open market transactions, or otherwise.

42


 

As noted above, we believe that any future significant acquisitions that we may make could require us to obtain additional debt or equity financing. In the past, we have been able to obtain such financing for material transactions on terms that we believed to be reasonable. However, it is possible that we may not be able to obtain acquisition financing on favorable terms, or at all, in the future if we decide to make any further significant acquisitions.

Our long-term liquidity needs, other than those related to ordinary course obligations and commitments such as operating leases, are generally comprised of two elements. The first is the repayment of the outstanding and anticipated principal amounts of our long-term indebtedness. We are unable to project with certainty whether our long-term cash flow from operations will be sufficient to repay our long-term debt when it comes due. If our cash flow is insufficient, then we expect that we would need to refinance such indebtedness or otherwise amend its terms to extend the maturity dates. We cannot make any assurances that such refinancing or amendments would be available on attractive terms, if at all.

The second long-term liquidity need is the payment of obligations related to acquisitions. Our acquisition structures often include deferred and/or contingent purchase price payments in future periods that are subject to the passage of time or achievement of certain performance metrics and other conditions. As of March 31, 2019 and December 31, 2018, we had accrued $117.9 million ($30.0 million of which was a current liability) and $136.3 million ($41.7 million of which was a current liability), respectively, of deferred purchase consideration, which was included in accounts payable and accrued expenses and in other long-term liabilities in the accompanying consolidated balance sheets set forth in Item 1 of this Quarterly Report.

In addition, on October 27, 2016, we announced that our board of directors had authorized the company to repurchase up to an aggregate of $250.0 million of our Class A common stock over three years. As of December 31, 2018, we spent $161.0 million to repurchase 3,980,656 shares of our Class A common stock with an average price paid per share of $40.43. During the month of January 2019, we spent $45.1 million to repurchase an additional 1,144,449 shares of our Class A common stock with an average price paid per share of $39.38. Additionally, on February 28, 2019, our board of directors authorized a new program for the company to repurchase up to $300.0 million of our Class A common stock over three years, effective March 11, 2019. The previous program terminated upon the effectiveness of the new program. Our stock repurchases have been funded with cash on hand and we intend to continue funding future stock repurchases with existing cash. The timing of future repurchases and the actual amounts repurchased will depend on a variety of factors, including the market price of our common stock, general market and economic conditions and other factors.

Historical Cash Flows

Operating Activities

Net cash used in operating activities totaled $401.9 million for the three months ended March 31, 2019, an increase of $151.9 million as compared to the three months ended March 31, 2018. The increase in net cash used in operating activities was primarily driven by an increase in accounts receivable during the three months ended March 31, 2019 as compared to a decrease in accounts receivable during the three months ended March 31, 2018.

Investing Activities

Net cash used in investing activities was comparable at $64.6 million for the three months ended March 31, 2019 versus $64.2 million for the three months ended March 31, 2018.

43


 

Financing Activities

Net cash provided by financing activities totaled $300.0 million for the three months ended March 31, 2019, an increase of $118.7 million as compared to the three months ended March 31, 2018. This increase was primarily due the full redemption of the $800.0 million aggregate outstanding principal amount of our 5.00% senior notes (including $20.0 million premium) in the first quarter of 2018 as well as higher contributions received from non-controlling interests during the three months ended March 31, 2019. These items were partially offset by higher net borrowings of $550.0 million and $127.0 million from our senior term loans and revolving credit facility, respectively, in the first quarter of 2018, as well as the $45.1 million repurchase of our common stock during the three months ended March 31, 2019.

Indebtedness

Our level of indebtedness increases the possibility that we may be unable to pay the principal amount of our indebtedness and other obligations when due. In addition, we may incur additional debt from time to time to finance strategic acquisitions, investments, joint ventures or for other purposes, subject to the restrictions contained in the documents governing our indebtedness. If we incur additional debt, the risks associated with our leverage, including our ability to service our debt, would increase.

Long-Term Debt

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 March 31, 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.

In prior years, we also issued 4.875% and 5.25% senior notes that are due in 2026 and 2025, respectively. For additional information on all of our long-term debt, see Note 11 of the Notes to Consolidated Financial Statements set forth in Item 8 included in our Annual Report on Form 10‑K for the year ended December 31, 2018 and Note 9 of the Notes to Consolidated Financial Statements (Unaudited) set forth in Item 1 of this Quarterly Report.

Short-Term Borrowings

We maintain a $2.8 billion revolving credit facility under the 2019 Credit Agreement and warehouse lines of credit with certain third-party lenders. For additional information on all of our short-term borrowings, see Note 11 of the Notes to Consolidated Financial Statements set forth in Item 8 included in our Annual Report on Form 10‑K for

44


 

the year ended December 31, 2018 and Notes 4 and 9 of the Notes to Consolidated Financial Statements (Unaudited) set forth in Item 1 of this Quarterly Report.

Off –Balance Sheet Arrangements

Our off-balance sheet arrangements are described in Note 11 of the Notes to Consolidated Financial Statements (Unaudited) set forth in Item 1 of this Quarterly Report and are incorporated by reference herein.

Cautionary Note on Forward-Looking Statements

This Quarterly Report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. The words “anticipate,” “believe,” “could,” “should,” “propose,” “continue,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will” and similar terms and phrases are used in this Quarterly Report to identify forward-looking statements. Except for historical information contained herein, the matters addressed in this Quarterly Report are forward-looking statements. These statements relate to analyses and other information based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies.

These forward-looking statements are made based on our management’s expectations and beliefs concerning future events affecting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. These uncertainties and factors could cause our actual results to differ materially from those matters expressed in or implied by these forward-looking statements.

The following factors are among those, but are not only those, that may cause actual results to differ materially from the forward-looking statements:

 

disruptions in general economic and business conditions, particularly in geographies where our business may be concentrated;

 

volatility and disruption of the securities, capital and credit markets, interest rate increases, the cost and availability of capital for investment in real estate, clients’ willingness to make real estate or long-term contractual commitments and other factors affecting the value of real estate assets, inside and outside the United States;

 

increases in unemployment and general slowdowns in commercial activity;

 

trends in pricing and risk assumption for commercial real estate services;

 

the effect of significant movements in average cap rates across different property types;

 

a reduction by companies in their reliance on outsourcing for their commercial real estate needs, which would affect our revenues and operating performance;

 

client actions to restrain project spending and reduce outsourced staffing levels;

 

declines in lending activity of U.S. Government Sponsored Enterprises, regulatory oversight of such activity and our mortgage servicing revenue from the commercial real estate mortgage market;

 

our ability to diversify our revenue model to offset cyclical economic trends in the commercial real estate industry;

 

our ability to attract new user and investor clients;

 

our ability to retain major clients and renew related contracts;

 

our ability to leverage our global services platform to maximize and sustain long-term cash flow;

 

our ability to maintain EBITDA and adjusted EBITDA margins that enable us to continue investing in our platform and client service offerings;

 

our ability to control costs relative to revenue growth;

45


 

 

economic volatility and market uncertainty globally related to the United Kingdom’s withdrawal from the European Union, including concerns relating to the economic impact of such withdrawal on businesses within the United Kingdom and Europe;

 

foreign currency fluctuations;

 

our ability to retain and incentivize key personnel;

 

our ability to compete globally, or in specific geographic markets or business segments that are material to us;

 

the emergence of disruptive business models and technologies;

 

our ability to identify, acquire and integrate synergistic and accretive businesses;

 

costs and potential future capital requirements relating to businesses we may acquire;

 

integration challenges arising out of companies we may acquire;

 

the ability of our Real Estate Investments segment to maintain and grow assets under management and achieve desired investment returns for our investors, and any potential related litigation, liabilities or reputational harm possible if we fail to do so;

 

our ability to manage fluctuations in net earnings and cash flow, which could result from poor performance in our investment programs, including our participation as a principal in real estate investments;

 

our leverage under our debt instruments as well as the limited restrictions therein on our ability to incur additional debt, and the potential increased borrowing costs to us from a credit-ratings downgrade;

 

the ability of CBRE Capital Markets to periodically amend, or replace, on satisfactory terms, the agreements for its warehouse lines of credit;

 

variations in historically customary seasonal patterns that cause our business not to perform as expected;

 

litigation and its financial and reputational risks to us;

 

our exposure to liabilities in connection with real estate advisory and property management activities and our ability to procure sufficient insurance coverage on acceptable terms;

 

liabilities under guarantees, or for construction defects, that we incur in our Development Services business;

 

our and our employees’ ability to execute on, and adapt to, information technology strategies and trends;

 

cybersecurity threats, including the potential misappropriation of assets or sensitive information, corruption of data or operational disruption;

 

changes in domestic and international law and regulatory environments (including relating to anti-corruption, anti-money laundering, trade sanctions, tariffs, currency controls and other trade control laws), particularly in Russia, Eastern Europe and the Middle East, due to the level of political instability in those regions;

 

our ability to comply with laws and regulations related to our global operations, including real estate licensure, tax, labor and employment laws and regulations, as well as the anti-corruption laws and trade sanctions of the U.S. and other countries;

 

negative publicity or actions by our employees, regulators, media, activists, competitors or others that harm our reputation or brand;

 

changes in applicable tax or accounting requirements, including the impact of any subsequent additional regulation or guidance associated with the Tax Cuts and Jobs Act (which was enacted into law on December 22, 2017);

 

the effect of implementation of new accounting rules and standards; and

 

the other factors described elsewhere in this Quarterly Report on Form 10-Q, included under the headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations—

46


 

 

Critical Accounting Policies,” “Quantitative and Qualitative Disclosures About Market Risk” and Part II, Item 1A, “Risk Factors” or as described in our Annual Report on Form 10-K for the year ended December 31, 2018, in particular in Part II, Item 1A “Risk Factors”, or as described in the other documents and reports we file with the Securities and Exchange Commission (SEC).

Forward-looking statements speak only as of the date the statements are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. Additional information concerning these and other risks and uncertainties is contained in our other periodic filings with the SEC.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

The information in this section should be read in connection with the information on market risk related to changes in interest rates and non-U.S. currency exchange rates in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2018.

Our exposure to market risk primarily consists of foreign currency exchange rate fluctuations related to our international operations and changes in interest rates on debt obligations. We manage such risk primarily by managing the amount, sources, and duration of our debt funding and by using derivative financial instruments. We apply Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 815, “Derivatives and Hedging,” when accounting for derivative financial instruments. In all cases, we view derivative financial instruments as a risk management tool and, accordingly, do not use derivatives for trading or speculative purposes.

Exchange Rates

Our foreign operations expose us to fluctuations in foreign exchange rates. These fluctuations may impact the value of our cash receipts and payments in terms of our functional (reporting) currency, which is U.S. dollars. See the discussion of international operations, which is included in Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Items Affecting Comparability—International Operations” and is incorporated by reference herein.

Interest Rates

We manage our interest expense by using a combination of fixed and variable rate debt. We enter into interest rate swap agreements to attempt to hedge the variability of future interest payments due to changes in interest rates. See discussion of our interest rate swap agreements, which is included in Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Liquidity and Capital Resources—Indebtedness—Interest Rate Swap Agreements” and is incorporated by reference herein.

The estimated fair value of our senior term loans was approximately $725.0 million at March 31, 2019. Based on dealers’ quotes, the estimated fair values of our 4.875% senior notes and 5.25% senior notes were $634.8 million and $455.7 million, respectively, at March 31, 2019.

We utilize sensitivity analyses to assess the potential effect on our variable rate debt. If interest rates were to increase 100 basis points on our outstanding variable rate debt at March 31, 2019, the net impact of the additional interest cost would be a decrease of $2.2 million on pre-tax income and an increase of $2.2 million in cash used in operating activities for the three months ended March 31, 2019.

47


 

Item 4.

Controls and Procedures

Disclosure Controls and Procedures

Rule 13a-15 of the Securities and Exchange Act of 1934, as amended, requires that we conduct an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report, and we have a disclosure policy in furtherance of the same. This evaluation is designed to ensure that all corporate disclosure is complete and accurate in all material respects. The evaluation is further designed to ensure that all information required to be disclosed in our SEC reports is accumulated and communicated to management to allow timely decisions regarding required disclosures and recorded, processed, summarized and reported within the time periods and in the manner specified in the SEC’s rules and forms. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our Chief Executive Officer and Chief Financial Officer supervise and participate in this evaluation, and they are assisted by our Chief Accounting Officer and other members of our Disclosure Committee. In addition to our Chief Accounting Officer, our Disclosure Committee consists of our General Counsel, our Chief Digital and Technology Officer, our chief communication officer, our corporate controller, our senior director of Global SOX Assurance, our senior officers of significant business lines and other select employees.

We conducted the required evaluation, and our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined by Securities Exchange Act Rule 13a-15(e)) were effective as of March 31, 2019 to accomplish their objectives at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

No changes in our internal control over financial reporting occurred during the fiscal quarter ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

There have been no material changes to our legal proceedings as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Item 1A.

Risk Factors

There have been no material changes to our risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Open market share repurchase activity during the three months ended March 31, 2019 was as follows (dollars in thousands, except per share amounts):

 

Period

 

Total

Number of

Shares

Purchased

 

 

Average

Price Paid

per Share

 

 

Total

Number of

Shares

Purchased as

Part of

Publicly

Announced

Plans or

Programs

 

 

Approximate

Dollar Value

of Shares

That May

Yet Be

Purchased

Under the

Plans or

Programs (1)

 

January 1, 2019 - January 31, 2019

 

 

1,144,449

 

 

$

39.38

 

 

 

1,144,449

 

 

 

 

 

February 1, 2019 - February 28, 2019

 

 

 

 

$

 

 

 

 

 

 

 

 

March 1, 2019 - March 31, 2019

 

 

 

 

$

 

 

 

 

 

 

 

 

Total

 

 

1,144,449

 

 

$

39.38

 

 

 

1,144,449

 

 

$

300,000

 

48


 

 

(1)

On October 27, 2016, we announced that our board of directors had authorized the company to repurchase up to an aggregate of $250.0 million of our Class A common stock over three years (the prior program), of which $206.1 million had been utilized as of the termination of the prior program on March 11, 2019. Additionally, on February 28, 2019, our board of directors authorized a new program for the company to repurchase up to $300.0 million of our Class A common stock over three years, effective March 11, 2019. As noted above, the prior program terminated upon the effectiveness of the new program.

Our repurchase programs do not obligate us to acquire any specific number of shares. Under these programs, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act. The timing of any future repurchases and the actual amounts repurchased will depend on a variety of factors, including the market price of our common stock, general market and economic conditions and other factors.

 

49


 

Item 6.

Exhibits

 

 

Incorporated by Reference

Exhibit
No.

Exhibit Description

Form

SEC File No.

Exhibit

Filing Date

Filed Herewith

 

3.1

Amended and Restated Certificate of Incorporation of CBRE Group, Inc.

8-K

001-32205

3.1

05/23/2018

 

3.2

Amended and Restated By-Laws of CBRE Group, Inc.

8-K

001-32205

3.2

05/23/2018

 

10.1

Letter Agreement dated as of January 4, 2019 by and between CBRE, Inc. and James R. Groch +

 

 

 

 

X

10.2

Letter Agreement dated as of April 4, 2019 by and between CBRE, Inc. and Leah C. Stearns +

 

 

 

 

X

10.3

CBRE Group, Inc. Executive Bonus Plan +

 

 

 

 

X

10.4

Incremental Term Loan Assumption Agreement, dated as of March 4, 2019, among CBRE Group, Inc., CBRE Services, Inc., certain subsidiaries of CBRE Services, Inc., the lenders party thereto and Credit Suisse AG, Cayman Islands Branch, as administrative agent

8-K

001-32205

10.1

03/05/2019

 

10.5

Form of Grant Notice and Restricted Stock Unit Agreement for the CBRE Group, Inc. 2017 Equity Incentive Plan (Time Vest) +

8-K

001-32205

10.2

03/05/2019

 

10.6

Form of Grant Notice and Restricted Stock Unit Agreement for the CBRE Group, Inc. 2017 Equity Incentive Plan (Performance Vest) +

8-K

001-32205

10.3

03/05/2019

 

10.7

Form of Grant Notice and Restricted Stock Unit Agreement for the CBRE Group, Inc. 2017 Equity Incentive Plan (Groch Time Vest) +

8-K

001-32205

10.4

03/05/2019

 

10.8

Form of Grant Notice and Restricted Stock Unit Agreement for the CBRE Group, Inc. 2017 Equity Incentive Plan (Groch Performance Vest) +

8-K

001-32205

10.5

03/05/2019

 

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002

 

 

 

 

X

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002

 

 

 

 

X

32

Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002

 

 

 

 

X

50


 

 

Incorporated by Reference

Exhibit
No.

Exhibit Description

Form

SEC File No.

Exhibit

Filing Date

Filed Herewith

101.INS

XBRL Instance Document

 

 

 

 

X

101.SCH

XBRL Taxonomy Extension Schema Document

 

 

 

 

X

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

 

X

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

X

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

 

X

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

 

X

 

+

Denotes a management contract or compensatory arrangement

51


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

CBRE GROUP, INC.

 

 

 

Date:  May 10, 2019

 

/s/ James R. Groch

 

 

James R. Groch

 

 

Chief Financial Officer (Principal Financial Officer)

 

 

 

Date:  May 10, 2019

 

/s/ Dara A. Bazzano

 

 

Dara A. Bazzano

 

 

Chief Accounting Officer (Principal Accounting Officer)

 

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