10-Q 1 cbg-10q_20180331.htm 10-Q cbg-10q_20180331.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, 2018

OR

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

For the Transition Period from _______________ to _______________

Commission File Number 001 – 32205

 

CBRE GROUP, INC.

(Exact name of Registrant as specified in its charter)

 

 

Delaware

 

94-3391143

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification Number)

 

 

 

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

 

90071

(Address of principal executive offices)

 

(Zip Code)

 

 

 

(213) 613-3333

 

Not applicable

(Registrant's telephone number, including area code)

 

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  .

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  .

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  .

The number of shares of Class A common stock outstanding at April 30, 2018 was 339,739,746.

 

 

 


 

FORM 10-Q

March 31, 2018

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

 

 

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements (Unaudited)

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets at March 31, 2018 and December 31, 2017

 

1

 

 

 

 

 

 

 

Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017

 

2

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income for the three months ended March 31, 2018 and 2017

 

3

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017

 

4

 

 

 

 

 

 

 

Consolidated Statement of Equity for the three months ended March 31, 2018

 

5

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

6

 

 

 

 

 

Item 2.

 

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

 

35

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

54

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

55

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

56

 

 

 

 

 

Item 1A.

 

Risk Factors

 

56

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

56

 

 

 

 

 

Item 6.

 

Exhibits

 

57

 

 

 

 

 

Signatures

 

58

 

 

 

 


 

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

CBRE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands, except share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

(As Adjusted)

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

642,854

 

 

$

751,774

 

Restricted cash

 

 

78,959

 

 

 

73,045

 

Receivables, less allowance for doubtful accounts of $52,960 and $46,789 at

   March 31, 2018 and December 31, 2017, respectively

 

 

3,121,520

 

 

 

3,112,289

 

Warehouse receivables

 

 

1,161,668

 

 

 

928,038

 

Prepaid expenses

 

 

223,746

 

 

 

215,336

 

Contract assets

 

 

200,167

 

 

 

273,053

 

Income taxes receivable

 

 

61,398

 

 

 

49,628

 

Other current assets

 

 

263,988

 

 

 

227,421

 

Total Current Assets

 

 

5,754,300

 

 

 

5,630,584

 

Property and equipment, net

 

 

633,666

 

 

 

617,739

 

Goodwill

 

 

3,278,631

 

 

 

3,254,740

 

Other intangible assets, net of accumulated amortization of $1,066,355 and $1,000,738 at

   March 31, 2018 and December 31, 2017, respectively

 

 

1,398,503

 

 

 

1,399,112

 

Investments in unconsolidated subsidiaries

 

 

228,950

 

 

 

238,001

 

Deferred tax assets, net

 

 

101,859

 

 

 

98,746

 

Other assets, net

 

 

511,533

 

 

 

479,474

 

Total Assets

 

$

11,907,442

 

 

$

11,718,396

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

1,505,134

 

 

$

1,573,672

 

Compensation and employee benefits payable

 

 

931,572

 

 

 

904,434

 

Accrued bonus and profit sharing

 

 

592,946

 

 

 

1,078,345

 

Contract liabilities

 

 

88,076

 

 

 

100,615

 

Income taxes payable

 

 

66,360

 

 

 

70,634

 

Short-term borrowings:

 

 

 

 

 

 

 

 

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

   Enterprises have committed to purchase)

 

 

1,148,005

 

 

 

910,766

 

Revolving credit facility

 

 

463,000

 

 

 

 

Other

 

 

16

 

 

 

16

 

Total short-term borrowings

 

 

1,611,021

 

 

 

910,782

 

Current maturities of long-term debt

 

 

51

 

 

 

8

 

Other current liabilities

 

 

74,495

 

 

 

74,454

 

Total Current Liabilities

 

 

4,869,655

 

 

 

4,712,944

 

Long-term debt, net of current maturities

 

 

1,758,188

 

 

 

1,999,603

 

Deferred tax liabilities, net

 

 

165,559

 

 

 

147,218

 

Non-current tax liabilities

 

 

144,758

 

 

 

140,792

 

Other liabilities

 

 

550,608

 

 

 

543,225

 

Total Liabilities

 

 

7,488,768

 

 

 

7,543,782

 

Commitments and contingencies

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

CBRE Group, Inc. Stockholders’ Equity:

 

 

 

 

 

 

 

 

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

   339,737,454 and 339,459,138 shares issued and outstanding at March 31,

   2018 and December 31, 2017, respectively

 

 

3,397

 

 

 

3,395

 

Additional paid-in capital

 

 

1,246,251

 

 

 

1,220,508

 

Accumulated earnings

 

 

3,591,753

 

 

 

3,443,007

 

Accumulated other comprehensive loss

 

 

(483,770

)

 

 

(552,414

)

Total CBRE Group, Inc. Stockholders’ Equity

 

 

4,357,631

 

 

 

4,114,496

 

Non-controlling interests

 

 

61,043

 

 

 

60,118

 

Total Equity

 

 

4,418,674

 

 

 

4,174,614

 

Total Liabilities and Equity

 

$

11,907,442

 

 

$

11,718,396

 

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)

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

(As Adjusted)

 

Revenue

 

$

4,673,952

 

 

$

4,050,966

 

Costs and expenses:

 

 

 

 

 

 

 

 

Cost of services

 

 

3,619,961

 

 

 

3,146,477

 

Operating, administrative and other

 

 

732,235

 

 

 

606,626

 

Depreciation and amortization

 

 

108,165

 

 

 

94,037

 

Total costs and expenses

 

 

4,460,361

 

 

 

3,847,140

 

Gain on disposition of real estate

 

 

18

 

 

 

1,385

 

Operating income

 

 

213,609

 

 

 

205,211

 

Equity income from unconsolidated subsidiaries

 

 

40,179

 

 

 

15,018

 

Other (loss) income

 

 

(4,280

)

 

 

4,115

 

Interest income

 

 

3,621

 

 

 

2,411

 

Interest expense

 

 

28,858

 

 

 

34,010

 

Write-off of financing costs on extinguished debt

 

 

27,982

 

 

 

 

Income before provision for income taxes

 

 

196,289

 

 

 

192,745

 

Provision for income taxes

 

 

46,164

 

 

 

53,819

 

Net income

 

 

150,125

 

 

 

138,926

 

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

 

 

(163

)

 

 

1,906

 

Net income attributable to CBRE Group, Inc.

 

$

150,288

 

 

$

137,020

 

Basic income per share:

 

 

 

 

 

 

 

 

Net income per share attributable to CBRE Group, Inc.

 

$

0.44

 

 

$

0.41

 

Weighted average shares outstanding for basic income per

   share

 

 

338,890,098

 

 

 

336,907,836

 

Diluted income per share:

 

 

 

 

 

 

 

 

Net income per share attributable to CBRE Group, Inc.

 

$

0.44

 

 

$

0.40

 

Weighted average shares outstanding for diluted income per

   share

 

 

342,589,810

 

 

 

339,690,579

 

 

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)

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

(As Adjusted)

 

Net income

 

$

150,125

 

 

$

138,926

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Foreign currency translation gain

 

 

66,032

 

 

 

51,188

 

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

 

 

755

 

 

 

1,508

 

Unrealized gains on interest rate swaps, net of tax

 

 

603

 

 

 

294

 

Unrealized holding (losses) gains on available for sale debt

   securities, net of tax

 

 

(505

)

 

 

923

 

Other, net

 

 

5,528

 

 

 

(6

)

Total other comprehensive income

 

 

68,449

 

 

 

53,907

 

Comprehensive income

 

 

218,574

 

 

 

192,833

 

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

   interests

 

 

(358

)

 

 

1,927

 

Comprehensive income attributable to CBRE Group, Inc.

 

$

218,932

 

 

$

190,906

 

 

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,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

(As Adjusted)

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

150,125

 

 

$

138,926

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

108,165

 

 

 

94,037

 

Amortization and write-off of financing costs on extinguished debt

 

 

29,733

 

 

 

2,439

 

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

 

 

(45,078

)

 

 

(37,939

)

Net realized and unrealized losses (gains) from investments

 

 

4,280

 

 

 

(4,115

)

Equity income from unconsolidated subsidiaries

 

 

(40,179

)

 

 

(15,018

)

Provision for (recovery of) doubtful accounts

 

 

5,601

 

 

 

(928

)

Compensation expense for equity awards

 

 

29,570

 

 

 

15,411

 

Proceeds from sale of mortgage loans

 

 

2,910,181

 

 

 

3,259,597

 

Origination of mortgage loans

 

 

(3,132,008

)

 

 

(2,662,747

)

Increase (decrease) in warehouse lines of credit

 

 

237,239

 

 

 

(583,200

)

Distribution of earnings from unconsolidated subsidiaries

 

 

45,182

 

 

 

12,326

 

Tenant concessions received

 

 

12,634

 

 

 

3,776

 

Purchase of equity securities

 

 

(23,569

)

 

 

(22,986

)

Proceeds from sale of equity securities

 

 

20,001

 

 

 

15,270

 

Decrease in receivables, prepaid expenses and other assets (including contract assets)

 

 

71,161

 

 

 

141,737

 

Decrease in accounts payable and accrued expenses and other liabilities (including contract liabilities)

 

 

(146,221

)

 

 

(195,617

)

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

 

 

(483,031

)

 

 

(494,558

)

Increase in income taxes receivable/payable

 

 

4,668

 

 

 

13,193

 

Other operating activities, net

 

 

(8,412

)

 

 

(1,002

)

Net cash used in operating activities

 

 

(249,958

)

 

 

(321,398

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(46,724

)

 

 

(23,735

)

Acquisition of businesses, including net assets acquired, intangibles and goodwill, net of cash acquired

 

 

 

 

 

(12,861

)

Contributions to unconsolidated subsidiaries

 

 

(10,611

)

 

 

(14,567

)

Distributions from unconsolidated subsidiaries

 

 

15,216

 

 

 

6,875

 

Purchase of equity securities

 

 

(10,219

)

 

 

(3,375

)

Proceeds from sale of equity securities

 

 

4,367

 

 

 

3,415

 

Purchase of available for sale debt securities

 

 

(12,066

)

 

 

(3,914

)

Proceeds from sale of available for sale debt securities

 

 

2,264

 

 

 

3,805

 

Other investing activities, net

 

 

(6,439

)

 

 

1,080

 

Net cash used in investing activities

 

 

(64,212

)

 

 

(43,277

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from senior term loans

 

 

550,000

 

 

 

 

Proceeds from revolving credit facility

 

 

898,000

 

 

 

266,000

 

Repayment of revolving credit facility

 

 

(435,000

)

 

 

(146,000

)

Repayment of 5.00% senior notes (including premium)

 

 

(820,000

)

 

 

 

Proceeds from notes payable on real estate held for investment

 

 

49

 

 

 

 

Repayment of notes payable on real estate held for investment

 

 

(462

)

 

 

(435

)

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

 

 

775

 

 

 

1,711

 

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

 

 

 

 

 

(2,744

)

Acquisition of businesses (cash paid for acquisitions more than three months after purchase date)

 

 

(8,049

)

 

 

(8,343

)

Units repurchased for payment of taxes on equity awards

 

 

(4,550

)

 

 

(1,900

)

Non-controlling interest contributions

 

 

1,595

 

 

 

1,574

 

Non-controlling interest distributions

 

 

(1,025

)

 

 

(744

)

Other financing activities, net

 

 

12

 

 

 

308

 

Net cash provided by financing activities

 

 

181,345

 

 

 

109,427

 

Effect of currency exchange rate changes on cash and cash equivalents and restricted cash

 

 

29,819

 

 

 

16,163

 

NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

 

 

(103,006

)

 

 

(239,085

)

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, AT BEGINNING OF PERIOD

 

 

824,819

 

 

 

831,412

 

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, AT END OF PERIOD

 

$

721,813

 

 

$

592,327

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest

 

$

48,994

 

 

$

52,027

 

Income taxes, net

 

$

37,219

 

 

$

37,333

 

 

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

4


 

CBRE GROUP, INC.

CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)

(Dollars in thousands)

  

 

 

CBRE Group, Inc. Shareholders

 

 

 

 

 

 

 

 

 

 

 

Class A

common

stock

 

 

Additional

paid-in

capital

 

 

Accumulated

earnings

 

 

Accumulated other

comprehensive loss

 

 

Non-

controlling

interests

 

 

Total

 

Balance at December 31, 2017 (As Adjusted)

 

$

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 (see Note 3)

 

 

 

 

 

 

 

 

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.

 

 

5


 

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.

Basis of Presentation

Readers of this Quarterly Report on Form 10-Q (Quarterly Report) should refer to the audited financial statements and notes to consolidated financial statements of CBRE Group, Inc., a Delaware corporation (which may be referred to in these financial statements as “the company,” “we,” “us” and “our”), for the year ended December 31, 2017, which are included in our 2017 Annual Report on Form 10-K (2017 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 2017 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, 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 restatements have been made to the 2017 financial statements to conform with the 2018 presentation in connection with our adoption of new revenue recognition guidance (as further described in notes 2, 3 and 11). In addition, certain reclassifications have been made to the 2017 financial statements to conform with the 2018 presentation. Such reclassifications primarily relate to the adoption of Accounting Standards Update (ASU) 2016‑01, ASU 2016-15 and ASU 2016-18 as further described in Note 3.

The results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2018.

 

2. Significant Accounting Policies Update

 

Revenue Recognition

We account for revenue in accordance with Accounting Standards Codification (ASC) Topic 606, “Revenue from Contracts with Customers.” Topic 606 also includes Subtopic 340-40, “Other Assets and Deferred Costs – Contracts with Customers,” which requires deferral of incremental costs to obtain and fulfill a contract with a customer.  We adopted new revenue recognition guidance on January 1, 2018, using the full retrospective method (see Note 3).  Revenue is recognized when or as control of the promised services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services.

The following is a description of principal activities – separated by reportable segments – from which we generate revenue. For more detailed information about our reportable segments, see Notes 11 and 12.

6


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

The Americas, Europe, Middle East and Africa (EMEA), and Asia Pacific

The Americas segment is our largest segment of operations and provides a comprehensive range of services throughout the United States (U.S.), in the largest regions of Canada and in key markets in Latin America. The primary services offered consist of the following: property leasing, property sales, mortgage services, appraisal and valuation, occupier outsourcing and property management services.

Our EMEA and Asia Pacific segments generally provide services similar to the Americas business segment. The EMEA segment has operations primarily in Europe, while the Asia Pacific segment has operations in Asia, Australia and New Zealand.

Property Leasing and Property Sales

Through our Advisory & Transaction Services business line, we provide strategic advice and execution to owners, investors, and occupiers of real estate in connection with the leasing of office, industrial and retail space.  We also offer clients fully integrated property sales services under the CBRE Capital Markets brand. We are compensated for our services in the form of a commission and, in some instances may earn various forms of variable incentive consideration.  Our commission is paid upon the occurrence of certain contractual event(s) which may be contingent. For example, a portion of our leasing commission may be paid upon signing of the lease by the tenant, with the remaining paid upon occurrence of another future contingent event (e.g. payment of first month’s rent or tenant move-in). For sales, our commission is typically paid at the closing of the sale. We typically satisfy our performance obligation at a point in time when control is transferred; generally, at the time of the first contractual event where there is a present right to payment. We look to history, experience with a customer, and deal specific considerations to support our judgement that the second contingency (if applicable) will be met. Therefore, we typically accelerate the recognition of the revenue associated with the second contingent event.

In addition to our commission, we may recognize other forms of variable consideration which can include, but are not limited to, commissions subject to concession or claw back and volume based discounts or rebates. We assess variable consideration on a contract by contract basis, and when appropriate, recognize revenue based on our assessment of the outcome (using the most likely outcome approach or weighted probability) and historical results, if comparable and representative. We recognize variable consideration if it is deemed probable that there will not be significant reversal in the future.

Mortgage Originations and Loan Sales

Under the CBRE Capital Markets brand, we offer clients fully integrated commercial mortgage and structured financing services. Fees from services within our mortgage brokerage business that are in the scope of Topic 606 include fees earned for the brokering of commercial mortgage loans primarily through relationships established with investment banking firms, national and regional banks, credit companies, insurance companies and pension funds. We are compensated for our brokerage services via a fee paid upon successful placement of a commercial mortgage borrower with a lender who will provide financing. The fee earned is contingent upon the funding of the loan. We typically satisfy our performance obligation when control is transferred at the point in time of the funding of the loan.

We also earn fees from the origination and sale of commercial mortgage loans for which the company retains the servicing rights. These fees are governed by the “Fair Value Measurements and Disclosures” topic (Topic 820) and “Transfers and Servicing” topic (Topic 860) of the FASB ASC. Upon origination of a mortgage loan held for sale, the fair value of the mortgage servicing rights (MSR) 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). Upon sale, we record a servicing asset or liability based on the fair value of the retained MSR associated with the transferred loan. Subsequent to the initial recording, MSRs are amortized 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.

7


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

Appraisal and Valuation

We provide valuation services that include market-value appraisals, litigation support, discounted cash flow analyses, feasibility studies as well as consulting services such as property condition reports, hotel advisory and environmental consulting. We are compensated for valuation services in the form of a fee, which is payable on the occurrence of certain events (e.g. a portion on the delivery of a draft report with the remaining on the delivery of the final report). For consulting services, we may be paid based on the occurrence of time or event-based milestones (such as the delivery of draft reports). We typically satisfy our performance obligation as services are rendered over time.

Occupier Outsourcing Services

We provide a broad suite of services to occupiers of real estate, including facilities management, project management, transaction management and strategic consulting.  We report facilities and project management as well as strategic consulting activities in our occupier outsourcing revenue line and transaction management in our lease and sales revenue lines.

Facilities management involves the day-to-day management of client-occupied space and includes headquarter buildings, regional offices, administrative offices, data centers and other critical facilities, manufacturing and laboratory facilities, distribution facilities and retail space. Contracts for facilities management services are often structured so we are reimbursed for client-dedicated personnel costs and subcontracted vendor costs as well as associated overhead expenses plus a monthly fee, and, in some cases, annual incentives tied to agreed-upon performance targets, with any penalties typically capped. Facilities management services represent a series of distinct daily services rendered over time.

Project management services are often provided on a portfolio wide or programmatic basis. Revenues from project management services generally includes fixed management fees, variable fees, and incentive fees if certain agreed-upon performance targets are met. Revenues from project management may also include reimbursement of payroll and related costs for personnel providing the services and subcontracted vendor costs. Project management services represent a series of distinct daily services rendered over time.

The amount of revenue recognized is presented gross for any services provided by our employees, as we control them. This is evidenced by our obligation for their performance and our ability to direct and redirect their work, as well as negotiate the value of such services. The amount of revenue recognized related to the majority of facilities management contracts and certain project management arrangements is presented gross (with offsetting expense recorded in cost of services) for reimbursements of costs of third-party services because we control those services that are delivered to the client. In the instances when we do not control third-party services delivered to the client, we report revenues net of the third-party reimbursements.

In addition to our management fee, we receive various types of variable consideration which can include, but is not limited to; key performance indicator bonuses or penalties which may be linked to subcontractor performance, gross maximum price, glidepaths, savings guarantees, shared savings, or fixed fee structures. We assess variable consideration on a contract by contract basis, and when appropriate, recognize revenue based on our assessment of the outcome (using the most likely outcome approach or weighted probability) and historical results, if comparable and representative. Using management assessment and historical results and statistics, we accelerate revenue if it is deemed probable there will not be significant reversal in the future.

Property Management

We provide property management services on a contractual basis for owners of and investors in office, industrial and retail properties. These services include construction management, marketing, building engineering, accounting and financial services. We are compensated for our services through a monthly management fee earned based on either a specified percentage of the monthly rental income, rental receipts generated from the property under management or a fixed fee. We are also often reimbursed for our administrative and payroll costs directly attributable to the properties under management. Property management services represent a series of distinct daily services rendered over time. The amount of revenue recognized is presented gross for any services provided by our employees, as we control them. We generally do not control third-party services delivered to property management clients. As such, we report revenues net of third-party reimbursements.

8


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

Global Investment Management

Our Global Investment Management business segment provides investment management services to pension funds, insurance companies, sovereign wealth funds, foundations, endowments and other institutional investors seeking to generate returns and diversification through investment in real estate. We sponsor investment programs that span the risk/return spectrum in: North America, Europe, Asia and Australia.  We are typically compensated in the form of a base management fee, disposition fees, acquisition fees and incentive fees in the form of performance fees or carried interest based on fund type (open or closed ended, respectively). For the base management fee, we typically satisfy the performance obligation as service is rendered over time pursuant to the series guidance.  For acquisition and disposition services, we typically satisfy the performance obligation at a point in time (at acquisition or upon disposition). For contracts with contingent fees, including performance fees, incentive fees and carried interest, we assess variable consideration on a contract by contract basis, and when appropriate, recognize revenue based on our assessment of the outcome (using the most likely outcome approach or weighted probability) and historical results, if comparable and representative. Revenue associated with performance fees and carried interest are typically constrained due to volatility in the real estate market, a broad range of possible outcomes, and other factors in the market that are outside of our control.

Development Services

Our Development Services business segment consists of real estate development and investment activities primarily in the United States to users of and investors in commercial real estate, as well as for our own account. We pursue opportunistic, risk-mitigated development and investment in commercial real estate across a wide spectrum of property types, including: industrial, office and retail properties; healthcare facilities of all types (medical office buildings, hospitals and ambulatory surgery centers); and residential/mixed-use projects. We pursue development and investment activity on behalf of our clients on a fee basis with no, or limited, ownership interest in a property, in partnership with our clients through co-investment – either on an individual project basis or through programs with certain strategic capital partners or for our own account with 100% ownership. Development services represent a series of distinct daily services rendered over time. Fees are typically payable monthly over the service term or upon contractual defined events, like project milestones. In addition to development fee revenue, we receive various types of variable consideration which can include, but is not limited to, contingent lease-up bonuses, cost saving incentives, profit sharing on sales and at-risk fees. We assess variable consideration on a contract by contract basis, and when appropriate, recognize revenue based on our assessment of the outcome (using the most likely outcome approach or weighted probability) and historical results, if comparable and representative. We accelerate revenue if it is deemed probable there will not be significant reversal in the future.

Accounts Receivable and Allowance for Doubtful Accounts

We record accounts receivable for our unconditional rights to consideration arising from our performance under contracts with customers. The carrying value of such receivables, net of the allowance for doubtful accounts, represents their estimated net realizable value. We estimate our allowance for doubtful accounts for specific accounts receivable balances based on historical collection trends, the age of outstanding accounts receivables and existing economic conditions associated with the receivables. Past-due accounts receivable balances are written off when our internal collection efforts have been unsuccessful. As a practical expedient, we do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised service to a customer and when the customer pays for that service will be one year or less. We do not typically include extended payment terms in our contracts with customers.

Remaining Performance Obligations

Remaining performance obligations represent the aggregate transaction prices for contracts where our performance obligations have not yet been satisfied. As of March 31, 2018, the aggregate amount of transaction price allocated to remaining performance obligations in our property leasing business represented less than 2% of our total revenue. We apply the practical expedient related to remaining performance obligations that are part of a contract that has an original expected duration of one year or less and the practical expedient related to variable consideration from remaining performance obligations pursuant to the series guidance. All of our remaining performance obligations apply to one of these practical expedients.

9


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

Contract Assets and Contract Liabilities

Contract assets represent assets for revenue that has been recognized in advance of billing the customer and for which the right to bill is contingent upon something other than the passage of time. This is common for contingent portions of commissions in brokerage and incentive fees present in various businesses. Billing requirements vary by contract but are generally structured around fixed monthly fees, reimbursement of employee and other third-party costs, and the achievement or completion of certain contingent events.

When we receive consideration, or such consideration is unconditionally due, from a customer prior to transferring services to the customer under the terms of the services contract, we record deferred revenue, which represents a contract liability. Such deferred revenue typically results from milestone payments pertaining to future services not yet rendered. We recognize the contract liability as revenue once we have transferred control of service to the customer and all revenue recognition criteria are met.

Contract assets and contract liabilities are determined for each contract on a net basis. For contract assets, we classify the short-term portion as a separate line item within other current assets and the long-term portion within other assets, long-term in the accompanying consolidated balance sheets.  Contract liabilities are classified as a separate line item within other current liabilities in the accompanying consolidated balance sheets.

Contract Costs  

Contract costs primarily consist of upfront costs incurred to obtain or to fulfill a contract. These costs are typically found within our Occupier Outsourcing business line. Such costs relate to transition costs to fulfill contracts prior to services being rendered.  Capitalized transition costs are amortized based on the transfer of services to which the assets relate which can vary on a contract by contract basis, and are included in cost of services in the accompanying consolidated statement of operations. For contract costs that are recognized as assets, we periodically review for impairment.

Applying the contract cost practical expedient, we recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that we otherwise would have recognized is one year or less.

Income Taxes

On December 22, 2017, the Tax Cuts and Jobs Act (Tax Act) was signed into law making significant changes to the Internal Revenue Code, including, but not limited to: (i) a U.S. corporate tax rate decrease from 35% to 21%, effective for tax years beginning after December 31, 2017; (ii) the transition of U.S. international taxation from a worldwide tax system to a territorial system; and (iii) a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), “Income Tax Accounting Implications of the Tax Cuts and Jobs Act,” which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. In March 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-05, “Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118,” which added SEC guidance related to SAB 118. Our provision for income taxes for 2017 included a provisional amount related to our estimate of the U.S. federal and state tax impact of the transition tax and other components of the Tax Act. In the first quarter of 2018, we obtained additional information affecting the provisional amount initially recorded for the transition tax. As a result, we recorded an immaterial adjustment to the transition tax in the tax provision for the three months ended March 31, 2018. Provisional amounts that have been recorded are based upon our best estimate of the impact of the Tax Act in accordance with our understanding of the Tax Act and the related guidance available. Additional work is necessary on the provisional amount related to the transition tax, which includes performing a more detailed analysis of historic foreign earnings and tax pools and potential corresponding adjustments.

 

See Note 2 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, 2017 for a summary of our other significant accounting policies.

 

10


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

3.

New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

The FASB previously issued five ASUs related to revenue recognition (“new revenue recognition guidance”). The ASUs issued were: (1) in May 2014, ASU 2014‑09, “Revenue from Contracts with Customers (Topic 606);” (2) in March 2016, ASU 2016‑08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net);” (3) in April 2016, ASU 2016‑10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing;” (4) in May 2016, ASU 2016‑12, Revenue from Contracts with Customers (Topic 606): Narrow-scope Improvements and Practical Expedients;” and (5) in December 2016, ASU 2016‑20, “Technical Corrections and Improvements to Topic 606, Revenue From Contracts with Customers.” As mentioned in Note 2, we adopted the new revenue recognition guidance in the first quarter of 2018 using the full retrospective transition method. This resulted in a cumulative adjustment of $94.6 million to the accumulated earnings balance reflected in the accompanying consolidated balance sheets at December 31, 2017, including an $87.9 million impact of adoption effective January 1, 2016 as well as the impact from restatements of full year statements of operations for the years ended December 31, 2017 and 2016 resulting in adjustments of $5.6 million and $1.1 million, respectively. The impact of the application of the new revenue recognition guidance resulted in an acceleration of revenues that were based, in part, on future contingent events. For example, some leasing commission revenues in various countries where we operate were recognized earlier. Under former GAAP, a portion of these lease commission revenues was deferred until a future contingency was resolved (e.g., tenant move-in or payment of first month’s rent). Under the new revenue guidance, our performance obligation will be typically satisfied at lease signing and therefore the portion of the commission that is contingent on a future event has been recognized earlier if deemed probable that there will not be significant reversal in the future. The acceleration of the timing of revenue recognition also resulted in the acceleration of expense recognition relating to direct commissions payable to brokers. In addition, the acceleration of these revenues and expenses resulted in an increase in total assets and liabilities to reflect contract assets and accrued commissions payable.

We evaluated the impact of the updated principal versus agent guidance on our consolidated financial statements.  Under former GAAP, certain third-party costs associated with our facilities and project management contracts were accounted for on a net basis because the contracts include provisions such as “pay when paid” that mitigate payment risk with respect to services provided by third parties to our clients.  Under the new revenue recognition guidance, control of the services before transfer to the client is the primary factor in determining principal versus agent assessments.  Payment risk is no longer a determining factor under Topic 606.  We have determined that we control the services provided by third parties on behalf of certain of our facilities and project management clients.  Accordingly, under the new guidance, we are accounting for the cost of services provided by third parties and the related reimbursement revenue on a gross basis.  

11


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

The following table presents the effects of the adoption of the new revenue recognition guidance on our consolidated balance sheet as of December 31, 2017 (dollars in thousands):

 

 

 

 

 

 

 

Adoption of new

 

 

 

 

 

 

 

 

 

 

 

revenue recognition

 

 

 

 

 

 

 

As Reported

 

 

guidance

 

 

As Adjusted

 

Receivables

 

$

3,207,285

 

 

$

(94,996

)

 

$

3,112,289

 

Contract assets

 

$

 

 

$

273,053

 

 

$

273,053

 

Total current assets

 

$

5,452,527

 

 

$

178,057

 

 

$

5,630,584

 

Other assets, net

 

$

422,965

 

 

$

56,509

 

 

$

479,474

 

Total assets

 

$

11,483,830

 

 

$

234,566

 

 

$

11,718,396

 

Accounts payable and accrued expenses

 

$

1,674,287

 

 

$

(100,615

)

 

$

1,573,672

 

Compensation and employee benefits payable

 

$

803,504

 

 

$

100,930

 

 

$

904,434

 

Accrued bonus and profit sharing

 

$

1,072,976

 

 

$

5,369

 

 

$

1,078,345

 

Contract liabilities

 

$

 

 

$

100,615

 

 

$

100,615

 

Total current liabilities

 

$

4,606,645

 

 

$

106,299

 

 

$

4,712,944

 

Deferred tax liabilities, net

 

$

114,017

 

 

$

33,201

 

 

$

147,218

 

Total liabilities

 

$

7,404,282

 

 

$

139,500

 

 

$

7,543,782

 

Accumulated earnings

 

$

3,348,385

 

 

$

94,622

 

 

$

3,443,007

 

Accumulated other comprehensive loss

 

$

(552,858

)

 

$

444

 

 

$

(552,414

)

Total CBRE Group, Inc. stockholders' equity

 

$

4,019,430

 

 

$

95,066

 

 

$

4,114,496

 

Total liabilities and equity

 

$

11,483,830

 

 

$

234,566

 

 

$

11,718,396

 

 

The following table presents the effects of the adoption of the new revenue recognition guidance on our consolidated statements of operations for the three months ended March 31, 2017 (dollars in thousands, except share amounts):

 

 

 

 

 

 

 

Adoption of new

 

 

 

 

 

 

 

 

 

 

 

revenue recognition

 

 

 

 

 

 

 

As Reported

 

 

guidance

 

 

As Adjusted

 

Revenue

 

$

2,981,204

 

 

$

1,069,762

 

 

$

4,050,966

 

Cost of services

 

$

2,087,079

 

 

$

1,059,398

 

 

$

3,146,477

 

Operating, administrative and other

 

$

606,231

 

 

$

395

 

 

$

606,626

 

Operating income

 

$

195,242

 

 

$

9,969

 

 

$

205,211

 

Income before provision for income taxes

 

$

182,776

 

 

$

9,969

 

 

$

192,745

 

Provision for income taxes

 

$

51,273

 

 

$

2,546

 

 

$

53,819

 

Net income

 

$

131,503

 

 

$

7,423

 

 

$

138,926

 

Net income attributable to CBRE Group, Inc.

 

$

129,597

 

 

$

7,423

 

 

$

137,020

 

Basic income per share

 

$

0.38

 

 

$

0.03

 

 

$

0.41

 

Diluted income per share

 

$

0.38

 

 

$

0.02

 

 

$

0.40

 

 

See Note 2 for further discussion of the effects of the adoption of ASU 2014-09 on our significant accounting policies.

12


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

In January 2016, the FASB issued ASU 2016‑01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.”  This ASU 2016-01 states that entities will have to measure equity investments (except those accounted for under the equity method, those that result in consolidation of the investee and certain other investments) at fair value and recognize any changes in fair value in net income. Under the new guidance, entities will measure equity investments in the scope of the guidance at the end of each reporting period. We will no longer be able to classify equity investments as trading or available for sale, and will no longer recognize unrealized holding gains and losses on equity securities previously classified as available for sale in other comprehensive income (loss). However, the guidance for classifying and measuring investments in debt securities and loans is unchanged.  We adopted ASU 2016‑01 in the first quarter of 2018, which resulted in a cumulative adjustment to accumulated earnings of $4.0 million on January 1, 2018, representing the accumulated unrealized gains (net of tax) reported in accumulated other comprehensive loss for available for sale equity securities on December 31, 2017.

In August 2016, the FASB issued ASU 2016‑15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.”  This ASU addressed eight specific cash flow issues with the objective of reducing the existing diversity in practice. We adopted ASU 2016‑15 in the first quarter of 2018.  This resulted in changes to our consolidated statement of cash flows included in the accompanying consolidated financial statements, including:

 

An accounting policy election was made in the first quarter of 2018 to classify distributions from all of our equity method investments based on the “nature of distribution method”. Under this approach, we classify the distributions based on the nature of the activities of the investee that generated the distribution.  This resulted in $9.1 million of distributions from equity method investments being reclassified from cash flows from investing activities to cash flows from operating activities for the first quarter of 2017;

 

 

Purchase price payments made related to acquisitions more than three months after the acquisition closed are to be reflected as cash flows from financing activities (assuming they do not exceed the amount recorded in the initial measurement period). If we record an increase to the estimated purchase price liability post-measurement period, then such increase (i.e. amounts we pay out above and beyond initial estimate of liability) would get recorded as an operating cash flow.  This resulted in $8.3 million of cash paid for acquisitions being reclassified from cash used in investing activities to cash used in financing activities for the first quarter of 2017;

 

 

Payments for debt prepayment or debt extinguishment costs, including third-party costs, premiums paid, and other fees paid to lenders that are directly related to the debt prepayment or debt extinguishment are to be reflected as cash used in financing activities. During the three months ended March 31, 2018, we paid a $20.0 million premium in connection with the early redemption of our 5.00% senior notes (see Note 8). Such premium has been reflected in cash used in financing activities in the consolidated statement of cash flows for the three months ended March 31, 2018.

In October 2016, the FASB issued ASU 2016‑16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.”  This ASU requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. We adopted ASU 2016-16 in the first quarter of 2018 and the adoption did not have any impact on our consolidated financial statements and related disclosures.

In November 2016, the FASB issued ASU 2016‑18, “Statement of Cash Flows (Topic 230): Restricted Cash.”  This ASU requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash. We adopted ASU 2016-18 in the first quarter of 2018 and, as a result, restricted cash has been included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.

In February 2017, the FASB issued ASU 2017‑05, “Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.”  This ASU clarifies that a financial asset is within the scope of Subtopic 610-20 if it meets the definition of an in substance nonfinancial asset and also defines the term in substance nonfinancial asset. We adopted ASU 2017-05 in the first quarter of 2018 and the adoption did not have a material impact on our consolidated financial statements and related disclosures.

13


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

Recent Accounting Pronouncements Pending Adoption

In February 2016, the FASB issued ASU 2016‑02, “Leases (Topic 842).” This ASU requires lessees to recognize most leases on the balance sheet as liabilities, with corresponding right-of-use assets. For income statement recognition purposes, leases will be classified as either a finance or operating lease in a manner similar to the requirements under the current lease accounting literature, but without relying upon the bright-line tests. This ASU is effective for annual periods in fiscal years beginning after December 15, 2018 and mandates a modified retrospective transition method for all entities. We plan to adopt ASU 2016‑02 in the first quarter of 2019 and are currently continuing to evaluate the magnitude of its impact on our consolidated financial statements by reviewing our existing lease contracts and service contracts that may include embedded leases.

In June 2016, the FASB issued ASU 2016‑13, “Financial Instruments – Credit Losses (Topic 326):  Measurement of Credit Losses on Financial Instruments.”  This ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those years, with early adoption permitted. We are evaluating the effect that ASU 2016‑13 will have on our consolidated financial statements and related disclosures.

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

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

In August 2017, the FASB issued ASU 2017‑12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.”  This ASU refines and expands hedge accounting for both financial and commodity risks. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. We are evaluating the effect that ASU 2017‑12 will have on our consolidated financial statements and related disclosures.

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 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 are evaluating the effect that ASU 2018‑02 will have on our consolidated financial statements and related disclosures, but do not expect it to have a material impact.

 

14


CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

4.

Warehouse Receivables & Warehouse Lines of Credit

 

Our wholly-owned subsidiary CBRE Capital Markets, Inc. (CBRE Capital Markets) is a Federal Home Loan Mortgage Corporation (Freddie Mac) approved Multifamily Program Plus Seller/Servicer and an approved Federal National Mortgage Association (Fannie Mae) Aggregation and Negotiated Transaction Seller/Servicer. In addition, CBRE Capital Markets’ wholly-owned subsidiary CBRE Multifamily Capital, Inc. (CBRE MCI) is an approved Fannie Mae Delegated Underwriting and Servicing (DUS) Seller/Servicer and CBRE Capital Markets’ wholly-owned subsidiary CBRE HMF, Inc. (CBRE HMF) is a U.S. Department of Housing and Urban Development (HUD) approved Non-Supervised Federal Housing Authority (FHA) Title II Mortgagee, an approved Multifamily Accelerated Processing (MAP) lender and an approved Government National Mortgage Association (Ginnie Mae) issuer of mortgage-backed securities (MBS).  Under these arrangements, before loans are originated through proceeds from warehouse lines of credit, we obtain either a contractual loan purchase commitment from either Freddie Mac or Fannie Mae or a confirmed forward trade commitment for the issuance and purchase of a Fannie Mae or Ginnie Mae MBS that will be secured by the loans. The warehouse lines of credit are generally repaid within a one-month period when Freddie Mac or Fannie Mae buys the loans or upon settlement of the Fannie Mae or Ginnie Mae MBS, while we retain the servicing rights. Loans are funded at the prevailing market rates. We elect the fair value option for all warehouse receivables. At March 31, 2018 and December 31, 2017, all of the warehouse receivables included in the accompanying consolidated balance sheets were either under commitment to be purchased by Freddie Mac or had confirmed forward trade commitments for the issuance and purchase of Fannie Mae or Ginnie Mae mortgage-backed securities that will be secured by the underlying loans.

 

A rollforward of our warehouse receivables is as follows (dollars in thousands):

 

Beginning balance at January 1, 2018

 

$

928,038

 

Origination of mortgage loans

 

 

3,132,008

 

Gains (premiums on loan sales)

 

 

13,308

 

Sale of mortgage loans

 

 

(2,896,873

)

Cash collections of premiums on loan sales

 

 

(13,308

)

Proceeds from sale of mortgage loans

 

 

(2,910,181

)

Net decrease in mortgage servicing rights included in warehouse receivables

 

 

(1,505

)

Ending balance at March 31, 2018

 

$

1,161,668

 

 

The following table is a summary of our warehouse lines of credit in place as of March 31, 2018 and December 31, 2017 (dollars in thousands):

 

 

 

 

 

 

 

March 31, 2018

 

 

December 31, 2017

 

 

 

 

 

 

 

Maximum

 

 

 

 

 

 

Maximum

 

 

 

 

 

Lender

 

Current

Maturity

 

Pricing

 

Facility

Size

 

 

Carrying

Value

 

 

Facility

Size

 

 

Carrying

Value

 

JP Morgan Chase Bank, N.A.

  (JP Morgan)

 

10/23/2018

 

daily one-month LIBOR plus 1.45%

 

$

1,000,000

 

 

$

815,266

 

 

$

1,000,000

 

 

$

192,180

 

JP Morgan

 

10/23/2018

 

daily one-month LIBOR plus 2.75%

 

 

25,000

 

 

 

2,578

 

 

 

25,000

 

 

 

5,800

 

Fannie Mae Multifamily As Soon  

  As Pooled Plus Agreement and  

  Multifamily As Soon As Pooled

  Sale Agreement (ASAP) Program

 

Cancelable

anytime

 

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

 

 

 

 

 

450,000