Form 10-K
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

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)
11150 Santa Monica Boulevard, Suite 1600
Los Angeles, California
  90025
(Address of principal executive offices)   (Zip Code)

(310) 405-8900

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

 

Name of Each Exchange on Which Registered

Class A Common Stock, $0.01 par value   New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

N.A.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

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  x    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  x    No  ¨.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K.    ¨

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

Large accelerated filer x   Accelerated filer ¨   Non-accelerated filer ¨   Smaller reporting company ¨

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

As of June 30, 2011, the aggregate market value of Class A Common Stock held by non-affiliates of the registrant was $8.2 billion based upon the last sales price on June 30, 2011 on the New York Stock Exchange of $25.11 for the registrant’s Class A Common Stock.

As of February 13, 2012, the number of shares of Class A Common Stock outstanding was 327,949,512.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the registrant’s 2012 Annual Meeting of Stockholders to be held May 8, 2012 are incorporated by reference in Part III of this Annual Report on Form 10-K.

 

 

 


Table of Contents

CBRE GROUP, INC.

 

ANNUAL REPORT ON FORM 10-K

 

TABLE OF CONTENTS

 

         Page  

PART I

  

Item 1.

  Business      1   

Item 1A.    

  Risk Factors      9   

Item 1B.

  Unresolved Staff Comments      22   

Item 2.

  Properties      23   

Item 3.

  Legal Proceedings      23   

Item 4.

  Mine Safety Disclosures      23   
PART II   

Item 5.

  Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities      24   

Item 6.

  Selected Financial Data      26   

Item 7.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      28   

Item 7A.

  Quantitative and Qualitative Disclosures About Market Risk      60   

Item 8.

  Financial Statements and Supplementary Data      63   

Item 9.

  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure      145   

Item 9A.

  Controls and Procedures      145   

Item 9B.

  Other Information      146   
PART III   

Item 10.

  Directors, Executive Officers and Corporate Governance      146   

Item 11.

  Executive Compensation      146   

Item 12.

  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters      146   

Item 13.

  Certain Relationships and Related Transactions, and Director Independence      147   

Item 14.

  Principal Accountant Fees and Services      147   
PART IV   

Item 15.

  Exhibits and Financial Statement Schedules      147   

Schedule II—Valuation and Qualifying Accounts

     148   

Schedule III—Real Estate Investments and Accumulated Depreciation

     149   

SIGNATURES

     153   


Table of Contents

PART I

 

Item 1. Business

 

Company Overview

 

CBRE Group, Inc., a Delaware corporation formerly known as CB Richard Ellis Group, Inc., (which may be referred to in this Form 10-K as the “company”, “we”, “us” and “our”) is the world’s largest commercial real estate services firm, based on 2011 revenue, with leading full-service operations in major metropolitan areas throughout the world. We offer a full range of services to occupiers, owners, lenders and investors in office, retail, industrial, multi-family and other types of commercial real estate. As of December 31, 2011, we operated more than 300 offices worldwide, excluding affiliate offices, with approximately 34,000 employees providing commercial real estate services under the “CBRE” brand name, investment management services under the “CBRE Global Investors” brand name and development services under the “Trammell Crow” brand name. Our business is focused on several competencies, including commercial property and corporate facilities management, occupier and property/agency leasing, property sales, valuation, real estate investment management, commercial mortgage origination and servicing, capital markets (equity and debt) solutions, development services and proprietary research. We generate revenues from contractual management fees and on a per project or transactional basis. Our contractual, fee-for-services businesses, which generally involve facilities management, property management, mortgage loan servicing and investment management, represented approximately 39% of our 2011 revenue.

 

During the year ended December 31, 2011, we generated revenue from a well-balanced, highly diversified base of clients that includes approximately 80 of the Fortune 100 companies. We estimate that the following client types accounted for the highest proportion of revenue in 2011:

 

   

corporations (42%);

 

   

insurance companies and banks (17%); and

 

   

pension funds and advisors (9%).

 

The following client types accounted for the remainder of our revenue:

 

   

real estate investment trusts, or REITs, (8%);

 

   

individuals and partnerships (7%);

 

   

government agencies ( 6%); and

 

   

other (11%).

 

Property owners, occupiers and investors continue to consolidate their service needs with fewer providers, and are awarding their business to firms that have strong capabilities in leading markets and the ability to provide a complete range of services. We believe we are well positioned to capture a growing and disproportionate share of the business being awarded as a result of these trends.

 

In 2011, we were the highest ranked commercial real estate services company among the Fortune Most Admired Companies, and achieved the highest brand reputation ranking among all commercial real estate companies in a survey of Wall Street Journal subscribers. Since 2006, we have been the only commercial real estate services company included in the S&P 500. In every year since 2008, we have been the only commercial real estate services firm to be included in the Fortune 500. Additionally, the International Association of Outsourcing Professionals has included us among the top 100 global outsourcing companies across all industries for five consecutive years, including in 2011, when we ranked 6th overall and were the highest ranked commercial real estate services company.

 

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CBRE History

 

CBRE marked its 105th year of continuous operations in 2011, tracing our origins to a company founded in San Francisco in the aftermath of the 1906 earthquake. Since then, we have grown into the largest global commercial real estate services firm (in terms of 2011 revenue) through organic growth and a series of strategic acquisitions, including the December 2006 purchase of Trammell Crow Company, which significantly deepened our outsourcing service offerings, and the 2011 REIM Acquisitions described below.

 

In 2011, we completed a series of strategic transactions with Netherlands-based ING Group N.V. and its affiliates (ING), which bolstered our global real estate investment management business. We acquired substantially all of ING’s Real Estate Investment Management (REIM) operations in Europe and Asia, and its U.S.-based global real estate listed securities business, Clarion Real Estate Securities (CRES), for over $810 million in cash (which we refer to as the REIM Acquisitions). In addition, we acquired co-investment interests totaling approximately $80 million.

 

These former ING businesses are now part of our independently operated Global Investment Management segment, which conducts business through our indirect wholly-owned subsidiary, CBRE Global Investors. The REIM and CRES businesses are highly complementary, with little overlap in client base and different investment strategies. CBRE Global Investors has traditionally focused on value-add funds and separate accounts. The REIM and CRES businesses have primarily focused on core funds and global listed real estate securities funds, except in Asia, where REIM manages value-add and opportunistic funds. The combined entity provides us with a significantly enhanced ability to meet the needs of institutional investors across global markets with a full spectrum of investment programs and strategies. As of December 31, 2011, CBRE Global Investors’ assets under management, or AUM, totaled $94.1 billion, which includes AUM acquired in the REIM Acquisitions.

 

The REIM Acquisitions were completed during 2011 as follows:

 

Closing Date

   Business Acquired    Purchase Price      Co-investment Amount  

July 1

   CRES    $ 323.9 million       $ 58.6 million   

October 3

   REIM Asia    $ 45.6 million       $ 13.9 million   

October 31

   REIM Europe    $ 442.5 million       $ 7.4 million   

 

We have also historically enhanced and complemented our global capabilities through the acquisition of regional and specialty-niche firms that are leaders in their areas of concentration or in their local markets, including regional firms with which we had previous affiliate relationships. These “in-fill” acquisitions remain an integral part of our long-term strategy. CBRE Group, Inc., formerly CB Richard Ellis Group, Inc., was incorporated on February 20, 2001, and changed its name to CBRE Group, Inc. effective October 3, 2011.

 

Our Regions of Operation and Principal Services

 

CBRE Group, Inc. is a holding company that conducts all of its operations through its indirect subsidiaries. CBRE Services, Inc., our direct wholly-owned subsidiary, is also generally a holding company and is the primary obligor or issuer with respect to most of our long-term indebtedness.

 

We report our operations through the following segments: (1) Americas, (2) Europe, Middle East and Africa, or EMEA, (3) Asia Pacific, (4) Global Investment Management and (5) Development Services.

 

Information regarding revenue and operating income or loss, attributable to each of our segments, is included in “Segment Operations” within the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and within Note 21 of our Notes to Consolidated Financial Statements, which are incorporated herein by reference. Information concerning the identifiable assets of each of our business segments is also set forth in Note 21 of our Notes to Consolidated Financial Statements, which is incorporated herein by reference.

 

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The Americas

 

The Americas is our largest business segment, comprised of operations throughout the United States and Canada as well as key markets in Latin America. Our operations are largely wholly-owned, but also include independent affiliated offices, which license the use of the “CBRE” and “CB Richard Ellis” names in their local markets in return for payments of annual royalty fees to us and an agreement to cross-refer business between us and the affiliate.

 

Most of our operations are conducted through our indirect wholly-owned subsidiary CBRE, Inc. Our mortgage loan origination, sales and servicing operations are conducted exclusively through our indirect wholly-owned subsidiary operating under the name CBRE Capital Markets and its subsidiaries. Our operations in Canada are conducted through our indirect wholly-owned subsidiary CBRE Limited. Both CBRE Capital Markets and CBRE Limited are subsidiaries of CBRE, Inc.

 

Our Americas segment accounted for 62.2% of our 2011 revenue, 62.9% of our 2010 revenue and 62.3% of our 2009 revenue. Within our Americas segment, we organize our services into the following business areas:

 

Advisory Services

 

Our advisory services businesses offer occupier/tenant and investor/owner services that meet the full spectrum of marketplace needs, including (1) real estate services, (2) capital markets and (3) valuation. Our advisory services business line accounted for 34.5% of our 2011 consolidated worldwide revenue, 35.0% of our 2010 consolidated worldwide revenue and 30.8% of our 2009 consolidated worldwide revenue.

 

Within advisory services, our major service lines are the following:

 

   

Real Estate Services. We provide strategic advice and execution to owners, investors and occupiers of real estate in connection with leasing, disposition and acquisition of property. Our years of strong local market presence have allowed us to develop significant repeat business from existing clients, including approximately 53% of our revenues from existing U.S. real estate sales and leasing clients in 2011. This includes referrals from our contractual fee-for-services businesses, such as facilities and property management, mortgage loan servicing and investment management provided by CBRE Global Investors. Our real estate services professionals are particularly adept at aligning real estate strategies with client business objectives, serving as advisors as well as transaction executors. We believe we are a market leader for the provision of sales and leasing real estate services in most top U.S. metropolitan statistical areas (as defined by the U.S. Census Bureau), including Atlanta, Chicago, Los Angeles, Miami, New York and Philadelphia.

 

Our real estate services professionals are compensated primarily through commission-based programs, which are payable upon completion of an assignment. Therefore, as compensation is our largest expense, this cost structure gives us flexibility to mitigate the negative effect on our operating margins during difficult market conditions. Due to the low barriers to entry and significant competition for quality employees, we strive to retain top professionals through an attractive compensation program tied to productivity. We believe we invest in greater support resources than most other firms, including professional development and training, market research and information, technology, branding and marketing. We also foster an entrepreneurial culture that emphasizes client service and rewards performance.

 

We further strengthen our relationships with our real estate services clients by offering proprietary research to them through our commercial real estate market information and forecasting unit, CBRE Econometric Advisors (CBRE-EA). This group provides data and analysis to its clients in various formats, including market outlook reports for the office, industrial, hotel, retail and multi-housing sectors, covering more than 125 metropolitan areas in the United States and Canada.

 

   

Capital Markets. We offer clients fully integrated investment sales and debt/equity financing services under the CBRE Capital Markets brand. The tight integration of these services fosters collaboration between our investment sales and debt/equity financing professionals, helping to meet the marketplace

 

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demand for comprehensive capital markets solutions. During 2011, we concluded more than $61.4 billion of capital markets transactions in the Americas, including $41.5 billion of investment sales transactions and $19.9 billion of mortgage loan originations and sales.

 

We believe our Investment Properties business, which includes office, industrial, retail, multi-family and hotel properties, is the leading investment sales property advisor in the United States, with a market share of approximately 16% in 2011. Our mortgage brokerage business originates, sells and services commercial mortgage loans primarily through relationships established with investment banking firms, national banks, credit companies, insurance companies, pension funds and government agencies. In the United States, our mortgage loan origination volume in 2011 was $16.5 billion, representing an increase of approximately 72% from 2010. Approximately $6.2 billion of loans in 2011 were originated for federal government sponsored entities, most of which were financed through revolving credit lines dedicated exclusively for this purpose. We substantially mitigate the principal risk associated with loans financed through these credit lines by either obtaining a contractual purchase commitment from the government-sponsored entity or confirming a forward-trade commitment for the issuance and purchase of a mortgage-backed security that will be secured by the loan. We advised on the sale of approximately $2.8 billion of mortgages on behalf of financial institutions in 2011, compared with $4.5 billion in 2010. In 2011, GEMSA Loan Services, a joint venture between CBRE Capital Markets and GE Capital Real Estate, serviced approximately $103.6 billion of mortgage loans, $57.7 billion of which related to the servicing rights of CBRE Capital Markets.

 

   

Valuation. We provide valuation services that include market value appraisals, litigation support, discounted cash flow analyses and feasibility and fairness opinions. Our valuation business has developed proprietary technology for preparing and delivering valuation reports to our clients, which we believe provides us with an advantage over our competitors. We believe that our valuation business is one of the largest in the industry. During 2011, we completed over 34,000 valuation, appraisal and advisory assignments.

 

Outsourcing Services

 

Outsourcing commercial real estate services is a long-term trend in our industry, with corporations, institutions, public sector entities, health care providers and others seeking to achieve improved efficiency, better execution and lower costs by relying on the expertise of third-party real estate specialists. Our outsourcing services primarily include two major business lines that seek to capitalize on this trend: (1) corporate services and (2) asset services. Agreements with our corporate services clients are generally long-term arrangements and although they contain different provisions for termination, there are usually penalties for early termination. Although our management agreements with our asset services clients generally may be terminated with notice ranging between 30 to 90 days, we have developed long-term relationships with many of these clients and we continue to work closely with them to implement their specific goals and objectives and to preserve and expand upon these relationships. As of December 31, 2011, we managed approximately 1.4 billion square feet of commercial space for property owners and occupiers, which we believe represents one of the largest portfolios in the Americas. Our outsourcing services business line accounted for 27.7% of our 2011 consolidated worldwide revenue, 27.9% of our 2010 consolidated worldwide revenue and 31.5% of our 2009 consolidated worldwide revenue.

 

   

Corporate Services. We provide a comprehensive suite of services to corporate users of real estate, including transaction management, project management, facilities management, strategic consulting, portfolio management and other services. Our clients are leading global corporations, health care providers and public sector entities with large, geographically-diverse real estate portfolios. Project management services are typically provided on a portfolio-wide or programmatic basis. Facilities management involves the day-to-day management of client-occupied space and includes headquarter buildings, regional offices, administrative offices and manufacturing and distribution facilities. We identify best practices, implement technology solutions and leverage our resources to control clients’ facilities costs and enhance the workplace environment. We enter into multi-year, multi-service outsourcing contracts with our clients, but often also provide services on a one-off assignment or a

 

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short-term contract basis. The long-term, contractual nature of these relationships enables us to devise and execute real estate strategies that support our clients’ overall business strategies. Revenues for project management include fixed management fees, variable fees, and incentive fees if certain agreed-upon performance targets are met. Revenues may also include reimbursement of payroll and related costs for personnel providing the services. Contracts for facilities management services are typically structured so we receive reimbursement of client-dedicated personnel costs and associated overhead expenses plus a monthly fee, and in some cases, annual incentives if agreed-upon performance targets are satisfied.

 

   

Asset Services. We provide property management, construction management, marketing, leasing, accounting and financial services on a contractual basis for income-producing office, industrial and retail properties owned by local, regional and institutional investors. We provide these services through an extensive network of real estate experts in major markets throughout the United States. These local office teams are supported by a strategic accounts team whose function is to help ensure quality service and to maintain and expand relationships with large institutional clients, including buyers, sellers and landlords who need to lease, buy, sell and/or finance space. We believe our contractual relationships with these clients put us in an advantageous position to provide other services to them, including refinancing, disposition and appraisal. We typically receive monthly management fees for the asset services we provide based upon a specified percentage of the monthly rental income or rental receipts generated from the property under management, or in certain cases, the greater of such percentage fee or a minimum agreed-upon fee. We are also normally reimbursed for our administrative and payroll costs, as well as certain out-of-pocket expenses, directly attributable to the properties under management.

 

Europe, Middle East and Africa (EMEA)

 

Our Europe, Middle East and Africa, or EMEA, segment, operates in 44 countries with operations primarily conducted through a number of indirect wholly-owned subsidiaries. The largest operations are located in France, Germany, Italy, the Netherlands, Russia, Spain and the United Kingdom. Our operations in these countries generally provide a full range of services to the commercial property sector. Additionally, we provide some residential property services, primarily in France, Spain and the United Kingdom. Within EMEA, our services are organized along the same lines as in the Americas, including brokerage, investment properties, corporate services, valuation/appraisal services, asset management services and facilities management, among others. Our EMEA segment accounted for 18.2% of our 2011 revenue, 18.3% of our 2010 revenue and 19.6% of our 2009 revenue.

 

In France, we believe we are a market leader in Paris and also have operations in Aix in Provence, Bagnolet, Bordeaux, Lille, Lyon, Marseille, Montreuil, Montrouge, Neuilly Sur Seine, Saint Denis and Toulouse. Our German operations are located in Berlin, Cologne, Düsseldorf, Frankfurt, Hamburg, Munich and Stuttgart. Our presence in Italy includes operations in Milan, Modena, Rome and Turin. Our operations in the Netherlands are located in Amsterdam, Almere, the Hague, Hoofddorp and Rotterdam. Our operations in Russia consist of an office in Moscow. In Spain, we provide full-service coverage through our offices in Barcelona, Madrid, Marbella, Palma de Mallorca and Valencia. We are one of the leading commercial real estate services companies in the United Kingdom. We have held the leading market position in investment sales in the United Kingdom in each of the past five years, including in 2011. In London, we provide a broad range of commercial property real estate services to investment and corporate clients, and held the leading market position for space acquisition in 2011 for the second year in a row. We also have regional offices in Birmingham, Bristol, Jersey, Leeds, Liverpool, Manchester, Sheffield and Southampton as well as offices in Aberdeen, Belfast, Edinburgh and Glasgow managed by our U.K. team.

 

We also have affiliated offices that provide commercial real estate services under our brand name in several countries throughout Europe, the Middle East and Africa. Our agreements with these independent offices include licenses to use the “CBRE” and “CB Richard Ellis” names in the relevant territory in return for payments of annual royalty fees to us. In addition, these agreements also include business cross-referral arrangements between us and our affiliates.

 

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Asia Pacific

 

Our Asia Pacific segment operates in 13 countries with operations primarily conducted through a number of indirect wholly-owned subsidiaries. We believe that we are one of only a few companies that can provide a full range of real estate services to large corporations throughout the region, similar to the broad range of services provided by our Americas and EMEA segments. Our principal operations in Asia are located in China, Hong Kong, India, Japan, Singapore and South Korea. In addition, we have agreements with affiliate offices in the Philippines, Thailand, Vietnam, Cambodia and Malaysia that generate royalty fees and support cross-referral arrangements similar to our EMEA segment. The Pacific region includes Australia and New Zealand, with principal offices located in Adelaide, Brisbane, Canberra, Melbourne, Sydney, Perth, Auckland, Wellington and Christchurch. Our Asia Pacific segment accounted for 13.4% of our 2011 revenue, 13.1% of our 2010 revenue and 12.6% of our 2009 revenue.

 

Global Investment Management

 

Operations in our Global Investment Management segment are conducted through our indirect wholly-owned subsidiary CBRE Global Investors, LLC and its global affiliates, which we also refer to as CBRE Global Investors. CBRE Global Investors 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. It sponsors investment programs that span the risk/return spectrum across three continents: North America, Europe and Asia. In some strategies, CBRE Global Investors and its investment teams co-invest with its limited partners. Our Global Investment Management segment accounted for 4.9% of our 2011 revenue, 4.2% of our 2010 revenue and 3.4% of our 2009 revenue. We anticipate this percentage will increase notably in 2012, reflecting a full year of revenue contribution in 2012 from the REIM Acquisitions, which closed in multiple stages during the second half of 2011.

 

CBRE Global Investors’ investment programs are organized into four primary categories, which include direct real estate investments through separate accounts and sponsored equity and debt funds as well as indirect real estate investments through listed securities and multi manager funds of funds. The investment programs cover the full range of risk strategies from core/core+ to opportunistic. Operationally, a unique investment team executes each investment program within these categories, with the team’s compensation being driven largely by the investment performance of its particular strategy/fund. This organizational structure is designed to align the interests of team members with those of the firm and its investor clients/partners and to enhance accountability and performance. Dedicated teams are supported by shared resources such as accounting, financial controls, information technology, investor services and research. CBRE Global Investors has an in-house team of research professionals who focus on investment strategy, underwriting and forecasting, based in part on market data from our advisory services group.

 

CBRE Global Investors closed approximately $4.2 billion and $4.1 billion of new acquisitions in 2011 and 2010, respectively. It liquidated $3.1 billion and $2.2 billion of investments in 2011 and 2010, respectively. Assets under management have increased from $10.0 billion at December 31, 2001 to $94.1 billion at December 31, 2011, representing an approximately 25% compound annual growth rate.

 

As of December 31, 2011, our portfolio of consolidated real estate held for investment consisted of one industrial property and three multi-family/residential properties, all located in the United States. Included in the accompanying consolidated statements of operations were rental revenues (which are included in revenue) and expenses (which are included in operating, administrative and other expenses) relating to our operational real estate properties, excluding those reported as discontinued operations, of $29.6 million and $13.3 million, respectively, for the year ended December 31, 2011, $41.6 million and $22.4 million, respectively, for the year ended December 31, 2010, and $6.6 million and $2.7 million, respectively, for the year ended December 31, 2009.

 

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Development Services

 

Operations in our Development Services segment are conducted through our indirect wholly-owned subsidiaries Trammell Crow Company, Trammell Crow Services, Inc. (both of which merged into Trammell Crow Company, LLC effective January 1, 2012) and certain of its subsidiaries, providing development services primarily in the United States to users of and investors in commercial real estate, as well as for its own account. Trammell Crow Company pursues 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); higher education facilities (primarily student housing); and residential/mixed-use projects. Our Development Services segment accounted for 1.3% of our 2011 revenue, 1.5% of our 2010 revenue and 2.1% of our 2009 revenue.

 

Trammell Crow Company acts as the manager of development projects, providing services that are vital in all stages of the process, including: (i) site identification, due diligence and acquisition; (ii) evaluating project feasibility, budgeting, scheduling and cash flow analysis; (iii) procurement of approvals and permits, including zoning and other entitlements; (iv) project finance advisory services; (v) coordination of project design and engineering; (vi) construction bidding and management as well as tenant finish coordination; and (vii) project close-out and tenant move coordination.

 

Trammell Crow Company may pursue development and investment activity on behalf of its user and investor clients (with no ownership), in partnership with its clients (through co-investment—either on an individual project basis or through a fund or program) or for its own account (100% ownership). Development activity in which Trammell Crow Company has an ownership interest is conducted through subsidiaries that are consolidated or unconsolidated for financial reporting purposes, depending primarily on the extent and nature of our ownership interest.

 

Trammell Crow Company has established several commingled investment funds to facilitate its pursuit of opportunistic and value-added development and investment projects. In addition, it seeks to channel a large part of its development and investment activity into programs with certain strategic capital partners.

 

As of December 31, 2011, our portfolio of consolidated real estate consisted of land, industrial, office and retail properties and mixed-use projects. These projects are geographically dispersed throughout the United States, except for one project, which is located in Canada. Included in the accompanying consolidated statements of operations were rental revenues (which are included in revenue) and expenses (which are included in operating, administrative and other expenses) relating to these operational real estate properties, excluding those reported as discontinued operations, of $41.1 million and $20.7 million, respectively, for the year ended December 31, 2011, $46.9 million and $24.6 million, respectively, for the year ended December 31, 2010, and $53.3 million and $31.6 million, respectively, for the year ended December 31, 2009.

 

At December 31, 2011, Trammell Crow Company had $4.9 billion of development projects in process. Additionally, the inventory of pipeline deals (those projects we are pursuing, which we believe have a greater than 50% chance of closing or where land has been acquired and the project construction start is more than twelve months out) was $1.2 billion at December 31, 2011.

 

Competition

 

We compete across a variety of business disciplines within the commercial real estate industry, including commercial property and corporate facilities management, occupier and property/agency leasing, property sales, valuation, real estate investment management, commercial mortgage origination and servicing, capital markets (equity and debt) solutions, development services and proprietary research. Each business discipline is highly competitive on an international, national, regional and local level. Although we are the largest commercial real estate services firm in the world in terms of 2011 revenue, our relative competitive position varies significantly across geographies, property types and services. Depending on the geography, property type or service, we face

 

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competition from other commercial real estate service providers, including outsourcing companies that traditionally competed in limited portions of our facilities management business and have recently expanded their offerings, in-house corporate real estate departments, developers, institutional lenders, insurance companies, investment banking firms, investment managers and accounting and consulting firms. Some of these firms may have greater financial resources than we do. Despite recent consolidation, the commercial real estate services industry remains highly fragmented and competitive. Although many of our competitors are local or regional firms and are substantially smaller than us, some of these competitors are larger on a local or regional basis. We are also subject to competition from other large multi-national firms that have similar service competencies to ours, including Cushman & Wakefield and Jones Lang LaSalle as well as national firms such as Grubb & Ellis.

 

Seasonality

 

A significant portion of our revenue is seasonal, which can affect an investor’s ability to compare our financial condition and results of operations on a quarter-by-quarter basis. Historically, this seasonality has caused our revenue, operating income, net income and cash flow from operating activities to be lower in the first two quarters and higher in the third and fourth quarters of each year. Earnings and cash flow have historically been particularly concentrated in the fourth quarter due to investors and companies focusing on completing transactions prior to calendar year-end. This has historically resulted in lower profits or a loss in the first quarter, with revenue and profitability improving in each subsequent quarter.

 

Employees

 

At December 31, 2011, we had approximately 34,000 employees worldwide, excluding affiliate offices, approximately 40% of which are in our outsourcing business and are fully reimbursed by our clients. At December 31, 2011, 771 of our employees were subject to collective bargaining agreements, most of whom are on-site employees in our asset services business in New York, New Jersey, Illinois and California. We believe that relations with our employees are generally good.

 

Intellectual Property

 

We hold various trademarks and trade names worldwide, which include the “CBRE” name. Although we believe our intellectual property plays a role in maintaining our competitive position in a number of the markets that we serve, we do not believe we would be materially, adversely affected by expiration or termination of our trademarks or trade names or the loss of any of our other intellectual property rights other than the “CBRE,” “CB Richard Ellis” and “Trammell Crow” names. With respect to the CBRE and CB Richard Ellis names, we have processed and continuously maintain trademark registrations for these service marks in the United States and the CBRE and CB Richard Ellis related marks are in registration or in process in most foreign jurisdictions where we conduct significant business. We obtained our most recent U.S. trademark registrations for the CBRE and CB Richard Ellis related marks in 2005, and these registrations would expire in 2015 if we failed to renew them.

 

We hold a license to use the “Trammell Crow” trade name pursuant to a license agreement with CF98, L.P., an affiliate of Crow Realty Investors, L.P., d/b/a Crow Holdings, which may be revoked if we fail to satisfy usage and quality control covenants under the license agreement.

 

In addition to trade names, we have developed proprietary technologies for the provision of complex services through our global outsourcing business and for preparing and developing valuation reports for our clients through our valuation business. We also offer proprietary research to clients through our CBRE-EA research unit and we offer proprietary investment structures through CBRE Global Investors. While we seek to secure our rights under applicable intellectual property protection laws in these and any other proprietary assets that we use in our business, we do not believe any of these other items of intellectual property are material to our business in the aggregate.

 

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Environmental Matters

 

Federal, state and local laws and regulations in the countries in which we do business impose environmental liabilities, controls, disclosure rules and zoning restrictions that impact the ownership, management, development, use, or sale of commercial real estate. Certain of these laws and regulations may impose liability on current or previous real property owners or operators for the cost of investigating, cleaning up or removing contamination caused by hazardous or toxic substances at a property, including contamination resulting from above-ground or underground storage tanks or the presence of asbestos or lead at a property. If contamination occurs or is present during our role as a property or facility manager or developer, we could be held liable for such costs as a current “operator” of a property, regardless of the legality of the acts or omissions that caused the contamination and without regard to whether we knew of, or were responsible for, the presence of such hazardous or toxic substances. The operator of a site also may be liable under common law to third parties for damages and injuries resulting from exposure to hazardous substances or environmental contamination at a site, including liabilities arising from exposure to asbestos-containing materials. Under certain laws and common law principles, any failure by us to disclose environmental contamination at a property could subject us to liability to a buyer or lessee of the property. Further, federal, state and local governments in the countries in which we do business have begun enacting various laws, regulations, and treaties governing environmental and climate change, particularly for “greenhouse gases,” which seek to tax, penalize, or limit the release of those “greenhouse gases.” Such regulations could lead to increased operational or compliance costs over time.

 

While we are aware of the presence or the potential presence of regulated substances in the soil or groundwater at or near several properties owned, operated or managed by us, which may have resulted from historical or ongoing activities on those properties, we are not aware of any material noncompliance with the environmental laws or regulations currently applicable to us, and we are not the subject of any material claim for liability with respect to contamination at any location. However, these laws and regulations may discourage sales and leasing activities and mortgage lending with respect to some properties, which may adversely affect both us and the commercial real estate services industry in general. Environmental contamination or other environmental liabilities may also negatively affect the value of commercial real estate assets held by entities that are managed by our investment management and development services businesses, which could adversely impact the results of operations of these business lines.

 

Availability of this Report

 

Our internet address is www.cbre.com. On the Investor Relations page on our Web site, we post the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission, or SEC: our Annual Report on Form 10-K, our Proxy Statement on Schedule 14A, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. All such filings on our Investor Relations web page are available to be viewed on this page free of charge. Information contained on our Web site is not part of this Annual Report on Form 10-K or our other filings with the SEC. We assume no obligation to update or revise any forward-looking statements in the Annual Report on Form 10-K, whether as a result of new information, future events or otherwise, unless we are required to do so by law. A copy of this Annual Report on Form 10-K is available without charge upon written request to: Investor Relations, CBRE Group, Inc., 200 Park Avenue, New York, New York 10166.

 

Item 1A. Risk Factors

 

Set forth below and elsewhere in this report and in other documents we file with the SEC are risks and uncertainties that could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this report and other public statements we make. Based on the information currently known to us, we believe that the matters discussed below identify the most significant risk factors affecting our business. However, the risks and uncertainties we face are not limited to those described below. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business.

 

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The success of our business is significantly related to general economic conditions and, accordingly, our business could be harmed by an economic slowdown and downturn in commercial real estate asset values, property sales and leasing activities.

 

Periods of economic weakness or recession, significantly rising interest rates, declining employment levels, declining demand for commercial real estate, falling real estate values, or the public perception that any of these events may occur, may negatively affect the performance of some or all of our business lines. These economic conditions can result in a general decline in acquisition, disposition and leasing activity, as well as a general decline in the value of commercial real estate and in rents, which in turn reduces revenue from property management fees and commissions derived from property sales, leasing, valuation and financing, as well as revenues associated with development activities. In addition, we could experience a reduction in the amount of fees we earn in our Global Investment Management business if our assets under management decrease or those assets fail to perform as anticipated. These conditions can lead to a decline in property sales prices as well as a decline in funds invested in existing commercial real estate assets and properties planned for development.

 

Our development and investment strategy often entails making relatively modest investments alongside our investor clients. Our ability to conduct these activities depends in part on the supply of investment capital for commercial real estate and related assets. During an economic downturn, investment capital is usually constrained and it may take longer for us to dispose of real estate investments or selling prices may be lower than originally anticipated. As a result, the value of our commercial real estate investments may be reduced and we could realize losses or diminished profitability. In addition, economic downturns may reduce the amount of loan originations and related servicing by our commercial mortgage brokerage business.

 

Performance of our asset services line of business partially depends upon the performance of the properties we manage because our fees are generally based on a percentage of aggregate rent collections from these properties. The performance of these properties may be impacted by many factors which are partially or completely outside of our control, including (i) real estate and financial market conditions prevailing generally and locally, (ii) our ability to attract and retain creditworthy tenants, particularly during economic downturns; and (iii) the magnitude of defaults by tenants under their respective leases, which may increase during distressed conditions.

 

During 2008 and 2009, credit became severely constrained and prohibitively expensive and real estate market activity contracted sharply in most markets around the world as a result of the global financial crisis and the deep economic recession. These adverse macro conditions impacted real estate services companies like ours by significantly hampering transaction activity and lowering real estate valuations. Similar to other commercial real estate services firms, our transaction volumes fell during 2008 and most of 2009, and as a result, our stock price declined significantly. If the economic and market conditions that prevailed in 2008 and 2009 were to return, our business performance and profitability could again deteriorate.

 

Adverse developments in the credit markets may harm our business, results of operations and financial condition.

 

Our Global Investment Management, Development Services and Capital Markets (including investment property sales and debt and equity financing services) businesses are sensitive to credit cost and availability as well as marketplace liquidity. Additionally, the revenues in all of our businesses are dependent to some extent on the overall volume of activity (and pricing) in the commercial real estate market.

 

Disruptions in the credit markets may adversely affect our business of providing advisory services to owners, investors and occupiers of real estate in connection with the leasing, disposition and acquisition of property. If our clients are unable to procure credit on favorable terms, there may be fewer completed leasing transactions, dispositions and acquisitions of property. In addition, if purchasers of real estate are not able to procure favorable financing resulting in the lack of disposition opportunities for our funds and projects, our

 

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Global Investment Management and Development Services businesses will be unable to generate incentive fees and we may also experience losses of co-invested equity capital if the disruption causes a permanent decline in the value of investments made.

 

In 2008 and 2009, the credit markets experienced a disruption of unprecedented magnitude. This disruption reduced the availability and significantly increased the cost of most sources of funding. In some cases, these sources were eliminated. While the credit market has shown signs of improving since the second half of 2009, liquidity remains constrained and it is impossible to predict when the market will return to normalcy. This uncertainty may lead market participants to continue to act more conservatively, which may amplify decreases in demand and pricing in the markets we serve.

 

Our debt instruments impose operating and financial restrictions on us and, in the event of a default, all of our borrowings would become immediately due and payable.

 

Our debt instruments, including our credit agreement, impose, and the terms of any future debt may impose, operating and other restrictions on us and many of our subsidiaries. These restrictions affect, and in many respects limit or prohibit, our ability to:

 

   

plan for or react to market conditions;

 

   

meet capital needs or otherwise restrict our activities or business plans; and

 

   

finance ongoing operations, strategic acquisitions, investments or other capital needs or to engage in other business activities that would be in our interest, including:

 

   

incurring or guaranteeing additional indebtedness;

 

   

paying dividends or making distributions on or repurchases of capital stock;

 

   

repurchasing equity interests;

 

   

the payment of dividends or other amounts to us;

 

   

transferring or selling assets, including the stock of subsidiaries;

 

   

creating liens; and

 

   

entering into sale/leaseback transactions.

 

Our credit agreement currently requires us to maintain a minimum coverage ratio of EBITDA (as defined in the credit agreement) to total interest expense of 2.25x and a maximum leverage ratio of total debt less available cash to EBITDA (as defined in the credit agreement) of 3.75x. Our ability to meet these financial ratios can be affected by events beyond our control, and we cannot give assurance that we will be able to meet those ratios when required. For example, we experienced a decline in EBITDA during the economic downturn in 2008 to 2009, which negatively impacted our minimum coverage ratio and maximum leverage ratio. However, we significantly reduced our cost structure during 2008 and 2009, and, as a result of these cost reductions as well as renewed growth in our business, we are well within compliance with the minimum coverage ratio and the maximum leverage ratio under our credit agreement. Our coverage ratio of EBITDA to total interest expense was 15.0x for the year ended December 31, 2011 and our leverage ratio of total debt less available cash to EBITDA was 1.53x as of December 31, 2011. We continue to monitor our projected compliance with these financial ratios and other terms of our credit agreement.

 

A breach of any of these restrictive covenants or the inability to comply with the required financial ratios could result in a default under our debt instruments. If any such default occurs, the lenders under our credit agreement may elect to declare all outstanding borrowings, together with accrued interest and other fees, to be immediately due and payable. The lenders under our credit agreement also have the right in these circumstances to terminate any commitments they have to provide further borrowings. If we are unable to repay outstanding

 

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borrowings when due, the lenders under our credit agreement will have the right to proceed against the collateral granted to them to secure the debt, which collateral is described in the immediately following risk factor. If the debt under our credit agreement were to be accelerated, we cannot give assurance that this collateral would be sufficient to repay our debt.

 

If we fail to meet our payment or other obligations under our credit agreement, the lenders under such credit agreement could foreclose on, and acquire control of, substantially all of our assets.

 

Our credit agreement is jointly and severally guaranteed by us and substantially all of our domestic subsidiaries. Borrowings under our credit agreement are secured by a pledge of substantially all of the capital stock of our U.S. subsidiaries and 65% of the capital stock of certain non-U.S. subsidiaries. In addition, in connection with any amendment to our credit agreement, we may need to grant additional collateral to the lenders. If we are unable to repay outstanding borrowings when due, the lenders under our credit agreement will have the right to proceed against this pledged capital stock and take control of substantially all of our assets.

 

Our substantial leverage and debt service obligations could harm our ability to operate our business, remain in compliance with debt covenants and make payments on our debt.

 

We are highly leveraged and have significant debt service obligations. We established new term loans totaling approximately $800.0 million under our credit agreement in 2011 to finance the REIM Acquisitions. As of December 31, 2011, our total debt, excluding notes payable on real estate and warehouse lines of credit (both of which are generally nonrecourse to us), was approximately $2.5 billion. For the year ended December 31, 2011, our interest expense was approximately $150.2 million. Our level of indebtedness increases the possibility that we may be unable to generate cash sufficient to pay when due the principal of, interest on or other amounts due in respect of our indebtedness. 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. If we are required to seek an amendment to our credit agreement, our debt service obligations may be substantially increased.

 

Our debt could have other important consequences, which include, but are not limited to, the following:

 

   

a substantial portion of our cash flow from operations is used to pay principal and interest on our debt;

 

   

our interest expense could increase if interest rates increase because the loans under our credit agreement generally bear interest at floating rates;

 

   

our leverage could increase our vulnerability to general economic downturns and adverse competitive and industry conditions, placing us at a disadvantage compared to those of our competitors that are less leveraged;

 

   

our debt service obligations could limit our flexibility in planning for, or reacting to, changes in our business and in the commercial real estate services industry;

 

   

our failure to comply with the financial and other restrictive covenants in the documents governing our indebtedness could result in an event of default that, if not cured or waived, results in foreclosure on substantially all of our assets; and

 

   

our level of debt may restrict us from raising additional financing on satisfactory terms to fund strategic acquisitions, investments, joint ventures and other general corporate requirements.

 

From time to time, Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., rate our significant outstanding debt. These ratings and any downgrades thereof may impact our ability to borrow under any new agreements in the future, as well as the interest rates and

 

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other terms of any future borrowings, and could also cause a decline in the market price of our Class A common stock in addition to our outstanding debt instruments.

 

We cannot be certain that our earnings will be sufficient to allow us to pay principal and interest on our debt and meet our other obligations. If we do not have sufficient earnings, we may be required to seek to refinance all or part of our existing debt, sell assets, borrow more money or sell more securities, none of which we can guarantee that we will be able to do and which, if accomplished, may adversely impact our stock price.

 

We have limited restrictions on the amount of additional recourse debt we are able to incur, which may intensify the risks associated with our leverage, including our ability to service our indebtedness.

 

Subject to the maximum amounts of indebtedness permitted by our credit agreement covenants, we are not restricted in the amount of additional recourse debt we are able to incur in connection with the financing of our development activities, and we may in the future incur such indebtedness in order to decrease the amount of equity we invest in these activities. Subject to certain covenants in our various bank credit agreements, we are also not restricted in the amount of additional recourse debt CBRE Capital Markets may incur in connection with funding loan originations for multi-family properties having prior purchase commitments by a government sponsored entity.

 

If we experience defaults by multiple clients or counterparties, it could adversely affect our business.

 

We could be adversely affected by the actions and deteriorating financial condition and results of operations of certain of our clients or counterparties if that led to losses or defaults by one or more of them, which in turn, could have a material adverse effect on our results of operations and financial condition.

 

Any of our clients may experience a downturn in their business that may weaken their results of operations and financial condition. As a result, a client may fail to make payments when due, become insolvent or declare bankruptcy. Any client bankruptcy or insolvency, or the failure of any client to make payments when due, could result in material losses to our company. A client bankruptcy would delay or preclude full collection of amounts owed to us. Additionally, certain corporate services and property management client agreements require that we advance payroll and other vendor costs on behalf of clients. If such a client were to file bankruptcy or otherwise fail, we may not be able to obtain reimbursement for those costs or for the severance obligations we would incur as a result of the loss of the client.

 

The bankruptcy or insolvency of a significant counterparty (which may include co-brokers, lenders, insurance companies, hedging counterparties, service providers or other organizations with which we do business), or the failure of any significant counterparty to perform its contractual commitments, may result in disruption to our business or material losses to our company.

 

Our goodwill and other intangible assets could become further impaired, which may require us to take significant non-cash charges against earnings.

 

Under current accounting guidelines, we must assess, at least annually and potentially more frequently, whether the value of our goodwill and other intangible assets has been impaired. Any impairment of goodwill or other intangible assets as a result of such analysis would result in a non-cash charge against earnings, which charge could materially adversely affect our reported results of operations, stockholders’ equity and our stock price. For example, due to the severe market downturn and credit crisis, we determined in December 2008 that the negative impact of the global economic slowdown and resulting decline in our stock price represented an adverse change in our business climate, requiring us to undertake an interim evaluation of our goodwill and other intangible assets for impairment. As a result, we incurred charges of $1.2 billion in connection with the impairment of goodwill and other non-amortizable intangible assets during the year ended December 31, 2008. A significant and sustained decline in our future cash flows, a significant adverse change in the economic environment, slower growth rates or if our stock price falls below our net book value per share for a sustained period, all could result in the need to perform additional impairment analysis in future periods. If we were to conclude that a future write-down of goodwill or other intangible assets is necessary, then we would record such additional charges, which could materially adversely affect our results of operations.

 

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Our success depends upon the retention of our senior management, as well as our ability to attract and retain qualified and experienced employees (including those acquired through acquisitions).

 

Our continued success is highly dependent upon the efforts of our executive officers and other key employees, including Brett White, our Chief Executive Officer. Mr. White and certain other key employees are not parties to employment agreements with us. We also are highly dependent upon the retention of our property sales and leasing professionals, who generate a significant amount of our revenues, as well as other revenue producing professionals. The departure of any of our key employees (including those acquired through acquisitions), or the loss of a significant number of key revenue producers, if we are unable to quickly hire and integrate qualified replacements, could cause our business, financial condition and results of operations to suffer. In addition, the growth of our business is largely dependent upon our ability to attract and retain qualified support personnel in all areas of our business, including brokerage and property management personnel. Competition for these personnel is intense and we may not be able to successfully recruit, integrate or retain sufficiently qualified personnel. We use equity incentives to help retain and incentivize our key personnel. Any significant decline in, or failure to grow, our stock price may result in an increased risk of loss of these key personnel. If we are unable to attract and retain these qualified personnel, our growth may be limited and our business and operating results could suffer.

 

Our international operations subject us to social, political and economic risks of doing business in foreign countries.

 

We conduct a significant portion of our business and employ a substantial number of people outside of the United States and as a result, we are subject to risks associated with doing business globally. During 2011, we generated approximately 41% of our revenue from operations outside the United States. With the REIM Acquisitions, the footprint of our Global Investment Management business has significantly expanded, particularly in Europe and Asia. Additional circumstances and developments related to international operations that could negatively affect our business, financial condition or results of operations include, but are not limited to, the following factors:

 

   

difficulties and costs of staffing and managing international operations among diverse geographies, languages and cultures;

 

   

currency restrictions, transfer pricing regulations and adverse tax consequences, which may impact our ability to transfer capital and profits to the United States;

 

   

arbitrary adverse changes in regulatory or tax requirements;

 

   

the responsibility of complying with multiple and potentially conflicting laws, e.g., with respect to corrupt practices, employment and licensing;

 

   

the impact of regional or country-specific business cycles and economic instability, particularly in Europe, which has seen a developing crisis in sovereign debt, and which could be further significantly and adversely impacted if the Euro were to fail as a single currency;

 

   

greater difficulty in collecting accounts receivable in some geographic regions such as Asia, where many countries have underdeveloped insolvency laws;

 

   

a tendency for clients to delay payments in some European and Asian countries;

 

   

political and economic instability in certain countries; and

 

   

foreign ownership restrictions with respect to operations in countries such as China.

 

Although we maintain anti-corruption and anti-money laundering compliance programs throughout the company, violations of our compliance programs may result in criminal or civil sanctions, including material

 

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monetary fines, penalties, equitable remedies (including disgorgement), and other costs against us or our employees, and may have a material adverse effect on our reputation and business.

 

We have committed additional resources to expand our worldwide sales and marketing activities, to globalize our service offerings and products in selected markets and to develop local sales and support channels. If we are unable to successfully implement these plans, maintain adequate long-term strategies that successfully manage the risks associated with our global business or adequately manage operational fluctuations, our business, financial condition or results of operations could be harmed.

 

Our revenue and earnings may be adversely affected by foreign currency fluctuations.

 

Our revenue from non-U.S. operations is denominated primarily in the local currency where the associated revenue was earned. During 2011, approximately 41% of our revenue was transacted in foreign currencies, the majority of which included the Euro, the British pound sterling, the Canadian dollar, the Chinese yuan, the Hong Kong dollar, the Japanese yen, the Singapore dollar, the Australian dollar and the Indian rupee. With the closing of the REIM Acquisitions, our Global Investment Management business now has a significant amount of Euro-denominated assets under management as well as associated revenue and earnings in Europe, which has seen a developing crisis in sovereign debt resulting in a notable drop in the value of the Euro against the U.S. dollar. Fluctuations in foreign currency exchange rates may result in corresponding fluctuations in our assets under management, revenue and earnings.

 

Over time, fluctuations in the value of the U.S. dollar and the Euro relative to the other currencies in which we may generate earnings could adversely affect our business, financial condition and operating results. 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 and the Euro may make it more difficult to perform period-to-period comparisons of our reported results of operations.

 

From time to time, our management uses currency hedging instruments, including foreign currency forward and option contracts and borrows in foreign currencies. There can be no assurance that these hedging instruments will be available when needed. Additionally, economic risks associated with these hedging instruments include unexpected fluctuations in inflation rates, which impact cash flow, and unexpected changes in the underlying net asset position.

 

Our growth has benefited significantly from acquisitions, which may not be available in the future or perform as expected.

 

A significant component of our growth has occurred through acquisitions, including our acquisition of the Trammell Crow Company in December 2006 and the REIM Acquisitions that we completed in the second half of 2011. Any future growth through acquisitions will be partially dependent upon the continued availability of suitable acquisition candidates at favorable prices and upon advantageous terms and conditions, which may not be available to us, as well as sufficient liquidity and credit to fund these acquisitions. We may incur significant additional debt from time to time to finance any such acquisitions, subject to the restrictions contained in the documents governing our then-existing indebtedness. If we incur additional debt, the risks associated with our leverage, including our ability to service our then-existing debt, would increase. In addition, acquisitions involve risks that business judgments concerning the value, strengths and weaknesses of businesses acquired will prove incorrect. Future acquisitions and any necessary related financings also may involve significant transaction-related expenses, which include severance, lease termination, transaction and deferred financing costs, among others.

 

We have had, and may continue to experience, difficulties in integrating operations and accounting systems acquired from other companies. These challenges include the diversion of management’s attention from other

 

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business concerns and the potential loss of our key employees or those of the acquired operations. The integration process itself may be disruptive to our business as it requires coordination of geographically diverse organizations and implementation of new accounting and information technology systems. We believe that most acquisitions will initially have an adverse impact on operating and net income. Acquisitions also frequently involve significant costs related to integrating information technology, accounting and management services and rationalizing personnel levels. As with prior material transactions, we expect to incur significant integration expenses associated with the REIM Acquisitions in 2012 and beyond.

 

The anticipated benefits of the REIM Acquisitions may not be realized as we contemplated.

 

We completed the REIM Acquisitions with the expectation that such acquisitions would result in various benefits, including, among others, enhanced revenues and margins, a strengthened market position, cross-selling opportunities and operating efficiencies. Achieving the anticipated benefits of the REIM Acquisitions will be subject to a number of uncertainties, including whether we successfully integrate the business being acquired, achieve expected synergies, and realize accretive benefits in the timeframe anticipated. Failure to achieve these anticipated benefits could result in increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy, which could materially impact our financial condition and operating results.

 

Our revenue, net income and cash flow generated by our Global Investment Management business can vary significantly as a result of market developments.

 

With the completion of the REIM Acquisitions, our Global Investment Management business has significantly increased and become more globally diverse. With the addition of the REIM funds, a substantial part of our fees are more recurring in nature. However, the revenue, net income and cash flow generated by our Global Investment Management business are all somewhat variable, primarily due to the fact that management, transaction and incentive fees can vary as a result of market movements from one period to another.

 

The pace at which the real estate markets worldwide turned from positive to negative starting in 2007 and continuing into 2009 is an example of the market volatility to which we are subject and over which we have no control. The underlying market conditions, decisions regarding the acquisition and disposition of fund and separate account assets, and the specifics of client mandates will cause the amount of asset management, transaction and incentive fees to vary from one product to another.

 

A substantial part of our fees are based upon the value of the assets we manage and if asset values deteriorate our asset management fees will decline as a result. Our acquisition and disposition fees can decline as a result of delay in the deployment of capital or limited market liquidity. We also earn incentive fees tied to portfolio performance, which fees may decline if there is a downturn in real estate markets and we fail to meet benchmarks or absolute return hurdles. Finally, during periods of economic weakness or recession, existing and prospective clients in our Global Investment Management business may be less able or willing to commit new funds to real estate investments, which are inherently less liquid than many competing investment classes, thereby inhibiting the ability of our Global Investment Management business to raise new funds. Additionally, investors with open commitments to provide additional investment could become less able or willing to honor their financial commitments and seek to renegotiate the terms of their commitments or the fees that they are obligated to pay. To the extent that clients in our Global Investment Management business seek to avoid paying fees they are obligated to pay, or seek to avoid deploying capital that has been committed, we could experience a rapid decrease in collection of fees and interruptions to our client relationships and business.

 

Our real estate investment and co-investment activities subject us to real estate investment risks which could cause fluctuations in earnings and cash flow.

 

An important part of the strategy for our Global Investment Management business involves investing our capital in certain real estate investments with our clients and there is an inherent risk of loss of our investments.

 

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As of December 31, 2011, we had committed $59.4 million to fund future co-investments, all of which is expected to be funded during 2012. In addition to required future capital contributions, some of the co-investment entities may request additional capital from us and our subsidiaries holding investments in those assets. The failure to provide these contributions could have adverse consequences to our interests in these investments, including damage to our reputation with our co-investment partners and clients, as well as the necessity of obtaining alternative funding from other sources that may be on disadvantageous terms for us and the other co-investors. Participating as a co-investor is a very important part of our Global Investment Management business, which would suffer if we were unable to make these investments. Although our debt instruments contain restrictions that limit our ability to provide capital to the entities holding direct or indirect interests in co-investments, we may provide this capital in many instances.

 

Selective investment in real estate projects is an important part of our Development Services business strategy and there is an inherent risk of loss of our investment. As of December 31, 2011, we had approximately 45 consolidated real estate projects with invested equity of $26.9 million and $13.6 million of notes payable on real estate that are recourse to us (in addition to being recourse to the single-purpose entity that holds the real estate asset and is the primary obligor on the note payable). In addition, at December 31, 2011, we were involved as a principal (in most cases, co-investing with our clients) in approximately 45 unconsolidated real estate subsidiaries with invested equity of $52.3 million and had committed additional capital to these unconsolidated subsidiaries of $14.4 million. We also guaranteed notes payable of these unconsolidated subsidiaries of $1.4 million, excluding guarantees for which we have outstanding liabilities accrued on our consolidated balance sheet.

 

During the ordinary course of our Development Services business, we provide numerous completion and budget guarantees requiring us to complete 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. While we generally have “guaranteed maximum price” contracts with reputable general contractors with respect to projects for which we provide these guarantees (which are intended to pass most of the risk to such contractors), there can be no assurance that we will not have to perform under any such guarantees. If we are required to perform under a significant number of such guarantees, it could harm our business, results of operations and financial condition.

 

Because the disposition of a single significant investment can impact our financial performance in any period, our real estate investment activities could increase fluctuations in our net earnings and cash flow. In many cases, we have limited control over the timing of the disposition of these investments and the recognition of any related gain or loss, or incentive participation fee.

 

Poor performance of the investment programs that our Global Investment Management business manages would cause a decline in our revenue, net income and cash flow and could adversely affect our ability to raise capital for future programs.

 

In the event that any of the investment programs that our Global Investment Management business manages were to perform poorly, our revenue, net income and cash flow could decline because the value of the assets we manage would decrease, which would result in a reduction in some of our management fees, and our investment returns would decrease, resulting in a reduction in the incentive compensation we earn. Moreover, we could experience losses on co-investments of our own capital in such programs as a result of poor performance. Investors and potential investors in our programs continually assess our performance, and our ability to raise capital for existing and future programs and maintain our current fee structure will depend on our continued satisfactory performance.

 

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We are subject to substantial litigation risks and may face significant liabilities and damage to our professional reputation as a result of litigation allegations and negative publicity.

 

As a licensed real estate broker, we and our licensed employees are subject to regulatory due diligence, disclosure and standard-of-care obligations. Failure to fulfill these obligations could subject us or our employees to litigation from parties who purchased, sold or leased properties that we or they brokered or managed. We could become subject to claims by participants in real estate sales, as well as building owners and companies for whom we provide management services, alleging that we did not fulfill our regulatory and fiduciary obligations.

 

In addition, in our property management business, we hire and supervise third-party contractors to provide construction services for our managed properties. While our role is limited to that of an agent for the owner, we may be subject to claims for construction defects or other similar actions.

 

The advice we render in our financial advisory business and the investment decisions we make in our Global Investment Management business and the activities of our investment banking and investment management professionals for or on behalf of our clients may subject them and us to the risk of third-party litigation. Such litigation may arise from client or investor dissatisfaction with the performance of our programs and a variety of other litigation claims, including allegations that we improperly exercised judgment, discretion, control or influence over client investments or that we breached fiduciary duties to clients.

 

To the extent investors in our programs suffer losses resulting from fraud, gross negligence, willful misconduct or other similar misconduct, investors may have remedies against us, our investment programs or funds or our employees under the federal securities law and state law. Moreover, we are exposed to risks of litigation or investigation by investors and regulators relating to allegations of our having engaged in transactions involving conflicts of interest that were not properly addressed.

 

Some of these litigation risks may be mitigated by our self-insurance programs or by the commercial insurance we maintain in amounts we believe are appropriate. However, in the event of a substantial loss, our insurance coverage and/or self-insurance reserve levels might not be sufficient to pay the full damages. Further, the value of otherwise valid claims we hold under insurance policies could become uncollectible in the event of the covering insurance company’s insolvency, although we seek to limit this risk by placing our commercial insurance only with highly-rated companies. Any of these events could negatively impact our business, financial condition or results of operations.

 

We depend on our business relationships and our reputation for integrity and high-caliber professional services to attract and retain clients across our overall business, as well as investors for our Global Investment Management business. As a result, allegations by private litigants or regulators of conflicts of interest or improper conduct by us, whether the ultimate outcome is favorable or unfavorable to us, as well as negative publicity and press speculation about us or our investment activities, whether or not valid, may harm our reputation and damage our business prospects both in our Global Investment Management business and our other global businesses. In addition, if any lawsuits were brought against us and resulted in a finding of substantial legal liability, it could materially, adversely affect our business, financial condition or results of operations or cause significant reputational harm to us, which could materially impact our business.

 

Our joint venture activities involve unique risks that are often outside of our control which, if realized, could harm our business.

 

We have utilized joint ventures for commercial investments and local brokerage and other affiliations both in the United States and internationally, and we may acquire minority interests in other joint ventures in the future. In many of these joint ventures, we may not have the right or power to direct the management and policies of the joint ventures and other participants may take action contrary to our instructions or requests and against our policies and objectives. In addition, the other participants may become bankrupt or have economic or other business interests or goals that are inconsistent with ours. If a joint venture participant acts contrary to our interest, it could harm our brand, business, results of operations and financial condition.

 

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We have numerous significant competitors and potential future competitors, some of which may have greater financial and operational resources than we do.

 

We compete across a variety of business disciplines within the commercial real estate services industry, including commercial property and corporate facilities management, occupier and property/agency leasing, property sales, valuation, real estate investment management, commercial mortgage origination and servicing, capital markets (equity and debt) solutions, development services and proprietary research. Although we are the largest commercial real estate services firm in the world in terms of 2011 revenue, our relative competitive position varies significantly across geographies, property types and services. Depending on the geography, property type or service, we face competition from other commercial real estate service providers, including outsourcing companies that traditionally competed in limited portions of our facilities management business and have recently expanded their offerings, in-house corporate real estate departments, developers, institutional lenders, insurance companies, investment banking firms, investment managers, and accounting and consulting firms. Some of these firms may have greater financial resources than we do. In addition, future changes in laws could lead to the entry of other competitors, such as financial institutions. Although many of our competitors are local or regional firms and are substantially smaller than us, some of these competitors are larger on a local or regional basis. We are also subject to competition from other large national and multi-national firms that have similar service competencies to ours. In general, there can be no assurance that we will be able to compete effectively, to maintain current fee levels or margins, or maintain or increase our market share.

 

A significant portion of our operations are concentrated in California and our business could be harmed due to the ongoing economic downturn in the California real estate markets.

 

During 2011, approximately 10% of our revenue was generated from transactions originating in California. As a result of the geographic concentration in California, the economic downturns in the California commercial real estate market and particularly in the local economies in San Diego, Los Angeles and Orange County could harm our results of operations and disproportionately affect our business as compared to competitors who have less or different geographic concentrations.

 

We operate in many jurisdictions with complex and varied tax regimes. Changes in tax rules or the outcome of tax assessments and audits could cause an adverse effect on our results.

 

We operate in many jurisdictions with complex and varied tax regimes, and are subject to different forms of taxation resulting in a variable effective tax rate. In addition, from time to time we engage in transactions that involve different tax jurisdictions. Due to the different tax laws in the many jurisdictions where we operate, we are often required to make subjective determinations. The tax authorities in the various jurisdictions where we carry on business may not agree with the determinations that are made by us with respect to the application of tax law. Such disagreements could result in disputes and, ultimately, in the payment of additional funds to the government authorities of foreign and local jurisdictions where we carry on business, which could have an adverse effect on our results of operations. In addition, changes in tax rules or the outcome of tax assessments and audits could have an adverse effect on our results in any particular quarter.

 

Our estimate of tax related assets, liabilities, recoveries and expenses incorporates assumptions. These assumptions include, but are not limited to, the tax laws in various jurisdictions, the effect of tax treaties between jurisdictions, taxable income projections, and the benefits of various restructuring plans. To the extent that such assumptions differ from actual results, we may have to record additional income tax expenses and liabilities.

 

We are subject to the possibility of loss contingencies arising out of tax claims, assessments related to uncertain tax positions and provisions for specifically identified income tax exposures. There are currently tax audits ongoing in certain of the jurisdictions in which we operate. There can be no assurance that we will be successful in resolving potential tax claims that arise from these audits. We have recorded provisions on the basis of the best current understanding; however, we could be required to book additional provisions in future periods

 

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for amounts that cannot be assessed at this stage. Our failure to do so and/or the need to increase our provisions for such claims could have an adverse effect on our financial position.

 

If the assets in our defined benefit pension plans are not sufficient to meet the plans’ obligations, we may be required to make cash contributions to it and our liquidity may be adversely affected.

 

Our subsidiaries based in the United Kingdom maintain two contributory defined benefit pension plans to provide retirement benefits to existing and former employees participating in the plans. With respect to these plans, our historical policy has been to contribute annually, an amount to fund pension cost as actuarially determined and as required by applicable laws and regulations. Our contributions to these plans are invested and, if these investments do not perform in the future as well as we expect, we will be required to provide additional funding to cover any shortfall. The underfunded status of our defined benefit pension plans included in pension liability in the accompanying consolidated balance sheets, which are incorporated herein by reference, was $60.9 million and $40.0 million at December 31, 2011 and 2010, respectively. If the assets in our defined benefit pension plans continue to be insufficient to meet the plans’ obligations, we may be required to make substantial cash contributions preventing the use of such cash for other purposes and adversely affecting our liquidity.

 

If we fail to maintain and protect our intellectual property, or infringe the intellectual property rights of third parties, our business could be harmed and we could incur financial penalties.

 

Our business depends, in part, on our ability to identify and protect proprietary information and other intellectual property (such as our service marks, client lists and information, business methods and research). Existing laws, or the application of those laws, of some countries in which we operate may offer only limited protections for our intellectual property rights. We rely on a combination of trade secrets, confidentiality policies, non-disclosure and other contractual arrangements, and on patent, copyright and trademark laws to protect our intellectual property rights. Our inability to detect unauthorized use or take appropriate or timely steps to enforce our rights may have an adverse effect on our business.

 

We cannot be sure that the intellectual property that we may use in the course of operating our business or the services we offer to clients do not infringe on the rights of third parties, and we may have infringement claims asserted against us or against our clients. These claims may harm our reputation, cost us money and prevent us from offering some services.

 

Confidential intellectual property is increasingly stored or carried on mobile devices, such as laptop computers, which makes inadvertent disclosure more of a risk in the event the mobile devices are lost or stolen and the information has not been adequately safeguarded or encrypted.

 

If we fail to comply with laws and regulations applicable to us in our role as a real estate broker, mortgage broker, property/facility manager or developer, we may incur significant financial penalties.

 

We are subject to numerous federal, state, local and non-U.S. laws and regulations specific to the services we perform in our business, as well as laws of broader applicability, such as tax, securities, environmental and employment laws. Brokerage of real estate sales and leasing transactions and the provision of property management and valuation services require us to maintain applicable licenses in each U.S. state and certain non-U.S. jurisdictions in which we perform these services. If we fail to maintain our licenses or conduct these activities without a license, or violate any of the regulations covering our licenses, we may be required to pay fines (including treble damages in certain states) or return commissions received or have our licenses suspended or revoked. In addition, our indirect wholly-owned subsidiary, CBRE Global Investors, is subject to laws and regulations as a registered investment advisor and compliance failures or regulatory action could adversely affect our business. As the size and scope of commercial real estate transactions have increased significantly during the past several years, both the difficulty of ensuring compliance with numerous licensing regimes and the possible loss resulting from non-compliance have increased. Furthermore, the laws and regulations applicable to our

 

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business, both within and outside of the United States, also may change in ways that increase the costs of compliance or prevent us from providing certain types of services in connection with certain transactions or clients.

 

We may be subject to environmental liability as a result of our role as a property or facility manager or developer of real estate.

 

Various laws and regulations impose liability on real property owners or operators for the cost of investigating, cleaning up or removing contamination caused by hazardous or toxic substances at a property. In our role as a property or facility manager or developer, we could be held liable as an operator for such costs. This liability may be imposed without regard to the legality of the original actions and without regard to whether we knew of, or were responsible for, the presence of the hazardous or toxic substances. If we fail to disclose environmental issues, we could also be liable to a buyer or lessee of a property. If we incur any such liability, our business could suffer significantly as it could be difficult for us to develop or sell such properties, or borrow funds using such properties as collateral. Additionally, liabilities incurred to comply with more stringent future environmental requirements could adversely affect any or all of our lines of business.

 

Cautionary Note on Forward-Looking Statements

 

This Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. 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 Annual Report on Form 10-K to identify forward-looking statements. Except for historical information contained herein, the matters addressed in this Annual Report on Form 10-K 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:

 

   

integration issues arising out of the REIM Acquisitions and other companies we may acquire;

 

   

costs relating to the REIM Acquisitions and other businesses we may acquire;

 

   

the sustainability of the recovery in our investment sales and leasing business from the recessionary levels in 2008 and 2009;

 

   

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 impacting the value of real estate assets, inside and outside the United States, particularly Europe, which is experiencing a sovereign debt crisis;

 

   

continued high levels of, or increases in, unemployment and general slowdowns in commercial activity;

 

   

variations in historically customary seasonal patterns;

 

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the impairment or weakened financial condition of certain of our clients;

 

   

client actions to restrain project spending and reduce outsourced staffing levels as well as the potential loss of clients in our outsourcing business due to consolidation or bankruptcies;

 

   

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

 

   

foreign currency fluctuations;

 

   

our ability to attract new user and investor clients;

 

   

our ability to retain major clients and renew related contracts;

 

   

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

 

   

trends in pricing for commercial real estate services;

 

   

changes in tax laws in the United States or in other jurisdictions in which our business may be concentrated that reduce or eliminate deductions or other tax benefits we receive;

 

   

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

 

   

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

 

   

our exposure to liabilities in connection with real estate brokerage and property management activities;

 

   

the ability of our Global Investment Management segment to realize values in investment funds sufficient to offset incentive compensation expense related thereto;

 

   

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

 

   

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

 

   

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

 

   

the other factors described elsewhere in this Form 10-K, included under the headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” and “Quantitative and Qualitative Disclosures About Market Risk.”

 

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 1B. Unresolved Staff Comments

 

Not applicable.

 

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Item 2. Properties

 

We occupied the following offices, excluding affiliates, as of December 31, 2011:

 

Location

   Sales Offices      Corporate Offices      Total  

Americas

     152         2         154   

Europe, Middle East and Africa (EMEA)

     91         1         92   

Asia Pacific

     87         1         88   
  

 

 

    

 

 

    

 

 

 

Total

     330         4         334   
  

 

 

    

 

 

    

 

 

 

 

Some of our offices that contain employees of our Global Investment Management or our Development Services segments also contain employees of our other business segments. Often, the employees of these segments occupy separate suites in the same building in order to operate the businesses independently with standalone offices. We have provided above office totals by geographic region and not listed all of our Global Investment Management and Development Services offices to avoid double counting.

 

In general, these leased offices are fully utilized. The most significant terms of the leasing arrangements for our offices are the length of the lease and the rent. Our leases have terms varying in duration. The rent payable under our office leases varies significantly from location to location as a result of differences in prevailing commercial real estate rates in different geographic locations. Our management believes that no single office lease is material to our business, results of operations or financial condition. In addition, we believe there is adequate alternative office space available at acceptable rental rates to meet our needs, although adverse movements in rental rates in some markets may negatively affect our profits in those markets when we enter into new leases. We do not own any offices, which is consistent with our strategy to lease instead of own.

 

Item 3. Legal Proceedings

 

We are a party to a number of pending or threatened lawsuits arising out of, or incident to, our ordinary course of business. Our management believes that any losses in excess of the amounts accrued arising from such lawsuits are remote, but that 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 in excess of that anticipated by management.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

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PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Stock Price Information

 

Our Class A common stock has traded on the New York Stock Exchange under the symbol “CBG” since June 10, 2004. The applicable high and low prices of our Class A common stock for the last two fiscal years, as reported by the New York Stock Exchange, are set forth below for the periods indicated.

 

     Price Range  

Fiscal Year 2011

   High      Low  

Quarter ending March 31, 2011

   $ 27.97       $ 20.29   

Quarter ending June 30, 2011

   $ 29.88       $ 22.45   

Quarter ending September 30, 2011

   $ 26.29       $ 12.30   

Quarter ending December 31, 2011

   $ 19.61       $ 12.51   

Fiscal Year 2010

             

Quarter ending March 31, 2010

   $ 16.22       $ 12.05   

Quarter ending June 30, 2010

   $ 17.98       $ 13.52   

Quarter ending September 30, 2010

   $ 19.00       $ 12.81   

Quarter ending December 31, 2010

   $ 21.53       $ 17.14   

 

The closing share price for our Class A common stock on December 30, 2011, as reported by the New York Stock Exchange, was $15.22. As of February 13, 2012, there were 356 stockholders of record of our Class A common stock.

 

Dividend Policy

 

We have not declared or paid any cash dividends on any class of our common stock since our inception on February 20, 2001, and we do not anticipate declaring or paying any cash dividends on our common stock for the foreseeable future. We currently intend to retain any future earnings to reduce debt and finance future growth. Any future determination to pay cash dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements and other factors that the board of directors deems relevant. In addition, our ability to declare and pay cash dividends is restricted by the credit agreement governing our revolving credit facility and senior secured term loan facilities.

 

Recent Sales of Unregistered Securities

 

None.

 

Issuer Purchases of Equity Securities

 

None.

 

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Stock Performance Graph

 

The following graph shows our cumulative total stockholder return for the period beginning December 31, 2006 and ending on December 31, 2011. The graph also shows the cumulative total returns of the Standard & Poor’s 500 Stock Index, or S&P 500 Index, in which we are included, and an industry peer group.

 

The comparison below assumes $100 was invested on December 31, 2006 in our Class A common stock and in each of the indices shown and assumes that all dividends were reinvested. Our stock price performance shown in the following graph is not indicative of future stock price performance. The peer group is comprised of the following publicly traded commercial real estate services companies: Grubb & Ellis Company and Jones Lang LaSalle Incorporated. These two companies represent our primary competitors that are publicly traded with business lines reasonably comparable to ours.

 

LOGO

 

*$100 invested on 12/31/06 in stock or index-including reinvestment of dividends.

 

Fiscal year ending December 31.

 

Copyright© 2012 Standard &Poor’s, a division of The McGraw-Hill Companies Inc. All right reserved. (www. researchdatagroup.com/S&P. htm)

 

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Item 6. Selected Financial Data

 

The following table sets forth our selected historical consolidated financial information for each of the five years in the period ended December 31, 2011. The statement of operations data, the statement of cash flows data and the other data for the years ended December 31, 2011, 2010 and 2009 and the balance sheet data as of December 31, 2011 and 2010 were derived from our audited consolidated financial statements included elsewhere in this Form 10-K. The statement of operations data, the statement of cash flows data and the other data for the years ended December 31, 2008 and 2007, and the balance sheet data as of December 31, 2009, 2008 and 2007 were derived from our audited consolidated financial statements that are not included in this Form 10-K.

 

The selected financial data presented below is not necessarily indicative of results of future operations and should be read in conjunction with our consolidated financial statements and the information included under the headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K.

 

     Year Ended December 31,  
     2011 (1)     2010     2009     2008     2007  
     (Dollars in thousands, except share data)  

STATEMENTS OF OPERATIONS DATA:

          

Revenue

   $ 5,905,411      $ 5,115,316      $ 4,165,820      $ 5,128,817      $ 6,034,249   

Operating income (loss)

     462,862        446,379        241,842        (788,469     698,971   

Interest income

     9,443        8,416        6,129        17,762        29,004   

Interest expense

     150,249        191,151        189,146        167,156        162,991   

Write-off of financing costs

     —          18,148        29,255        —          —     

Income (loss) from continuing operations

     240,435        141,689        (27,638     (1,076,489     399,746   

Income from discontinued operations, net of income taxes

     49,890        14,320        —          26,748        5,308   

Net income (loss)

     290,325        156,009        (27,638     (1,049,741     405,054   

Net income (loss) attributable to non-controlling interests

     51,163        (44,336     (60,979     (37,675     14,549   

Net income (loss) attributable to CBRE Group, Inc.

     239,162        200,345        33,341        (1,012,066     390,505   

EPS (2):

          

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

          

Income (loss) from continuing operations attributable to CBRE Group, Inc.

   $ 0.73      $ 0.61      $ 0.12      $ (4.86   $ 1.70   

Income from discontinued operations attributable to CBRE Group, Inc.

     0.02        0.03        —          0.05        0.01   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to CBRE Group, Inc.

   $ 0.75      $ 0.64      $ 0.12      $ (4.81   $ 1.71   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted income (loss) per share attributable to CBRE Group, Inc. shareholders

          

Income (loss) from continuing operations attributable to CBRE Group, Inc.

   $ 0.72      $ 0.60      $ 0.12      $ (4.86   $ 1.65   

Income from discontinued operations attributable to CBRE Group, Inc.

     0.02        0.03        —          0.05        0.01   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to CBRE Group, Inc.

   $ 0.74      $ 0.63      $ 0.12      $ (4.81   $ 1.66   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares:

          

Basic

     318,454,191        313,873,439        277,361,783        210,539,032        228,476,724   

Diluted

     323,723,755        319,016,887        279,995,081        210,539,032        234,978,464   

STATEMENTS OF CASH FLOWS DATA:

          

Net cash provided by (used in) operating activities

   $ 361,219      $ 616,587      $ 213,645      $ (130,373   $ 648,210   

Net cash used in investing activities

     (480,255     (62,503     (119,362     (419,009     (284,421

Net cash provided by (used in) financing activities

     711,325        (784,222     476,768        373,959        (277,253

OTHER DATA:

          

EBITDA (3)

   $ 693,261      $ 647,467      $ 372,079      $ 457,021      $ 834,264   

 

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     As of December 31,  
     2011      2010      2009      2008      2007  
            (Dollars in thousands)         

BALANCE SHEET DATA:

              

Cash and cash equivalents

   $ 1,093,182       $ 506,574       $ 741,557       $ 158,823       $ 342,874   

Total assets

     7,219,143         5,121,568         5,039,406         4,726,414         6,242,573   

Long-term debt, including current portion

     2,472,686         1,428,322         2,120,803         2,077,421         1,788,726   

Notes payable on real estate (4)

     372,912         627,528         551,277         617,663         466,032   

Total liabilities

     5,801,980         4,055,773         4,255,111         4,380,691         4,990,417   

Total CBRE Group, Inc. stockholders’ equity

     1,151,481         908,215         629,122         114,686         988,543   

 

Note: We have not declared any cash dividends on common stock for the periods shown.

(1) In 2011, we completed a series of strategic transactions with Netherlands-based ING Group N.V. and its affiliates (ING). We acquired substantially all of ING’s Real Estate Investment Management (REIM) operations in Europe and Asia, and its U.S.-based global real estate listed securities business, Clarion Real Estate Securities (CRES), for over $810 million in cash (which we refer to as the REIM Acquisitions). In addition, we acquired co-investment interests totaling approximately $80 million. The results for the year ended December 31, 2011 include the operations of CRES, ING REIM Asia and ING REIM Europe from July 1, 2011, October 3, 2011 and October 31, 2011, respectively, the dates each respective business was acquired.
(2) EPS represents earnings per share. See Earnings Per Share information in Note 18 of our Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report.
(3) Includes EBITDA related to discontinued operations of $14.1 million, $16.4 million, $16.9 million and $6.5 million for the years ended December 31, 2011, 2010, 2008 and 2007, respectively.

 

EBITDA represents earnings before net interest expense, income taxes, depreciation and amortization. Our management believes EBITDA is useful in evaluating our operating performance compared to that of other companies in our industry because the calculation of EBITDA generally eliminates the effects of financing and income taxes and the accounting effects of capital spending and acquisitions, which would include impairment charges of goodwill and intangibles created from acquisitions. Such items may vary for different companies for reasons unrelated to overall operating performance. As a result, our management uses EBITDA as a measure to evaluate the operating performance of our various business segments and for other discretionary purposes, including as a significant component when measuring our operating performance under our employee incentive programs. Additionally, we believe EBITDA is useful to investors to assist them in getting a more complete picture of our results from operations.

 

However, EBITDA is not a recognized measurement under U.S. generally accepted accounting principles, or GAAP, and when analyzing our operating performance, readers should use EBITDA in addition to, and not as an alternative for, net income as determined in accordance with GAAP. Because not all companies use identical calculations, our presentation of EBITDA may not be comparable to similarly titled measures of other companies. Furthermore, EBITDA is not intended to be a measure of free cash flow for our management’s discretionary use, as it does not consider certain cash requirements such as tax and debt service payments. The amounts shown for EBITDA also differ from the amounts calculated under similarly titled definitions in our debt instruments, which are further adjusted to reflect certain other cash and non-cash charges and are used to determine compliance with financial covenants and our ability to engage in certain activities, such as incurring additional debt and making certain restricted payments.

 

EBITDA is calculated as follows (dollars in thousands):

 

     Year Ended December 31,  
     2011      2010      2009      2008     2007  

Net income (loss) attributable to CBRE Group, Inc.

   $ 239,162       $ 200,345       $ 33,341       $ (1,012,066   $ 390,505   

Add:

             

Depreciation and amortization (i)

     116,930         108,962         99,473         102,909        113,694   

Goodwill and other non-amortizable intangible asset impairment

     —           —           —           1,159,406        —     

Interest expense (ii)

     153,497         192,706         189,146         167,805        164,829   

Write-off of financing costs

     —           18,148         29,255         —          —     

Provision for income taxes (iii)

     193,115         135,723         26,993         56,853        194,255   

Less:

             

Interest income (iv)

     9,443         8,417         6,129         17,886        29,019   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

EBITDA (v)

   $ 693,261       $ 647,467       $ 372,079       $ 457,021      $ 834,264   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

  (i) Includes depreciation and amortization related to discontinued operations of $1.2 million, $0.6 million, $0.1 million and $0.4 million for the years ended December 31, 2011, 2010, 2008 and 2007, respectively.
  (ii) Includes interest expense related to discontinued operations of $3.2 million, $1.6 million, $0.6 million and $1.8 million for the years ended December 31, 2011, 2010, 2008 and 2007, respectively.
  (iii) Includes provision for income taxes related to discontinued operations of $4.0 million, $5.4 million, $6.0 million and $1.6 million for the years ended December 31, 2011, 2010, 2008 and 2007, respectively.
  (iv) Includes interest income related to discontinued operations of $0.1 million and $0.01 million for the years ended December 31, 2008 and 2007, respectively.
  (v) Includes EBITDA related to discontinued operations of $14.1 million, $16.4 million, $16.9 million and $6.5 million for the years ended December 31, 2011, 2010, 2008 and 2007, respectively.
(4) Notes payable on real estate disclosed here includes the current and long-term portions of notes payable on real estate as well as notes payable included in liabilities related to real estate and other assets held for sale.

 

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Overview

 

We are the world’s largest commercial real estate services firm, based on 2011 revenue, with leading full-service operations in major metropolitan areas throughout the world. We offer a full range of services to occupiers, owners, lenders and investors in office, retail, industrial, multi-family and other types of commercial real estate. As of December 31, 2011, we operated more than 300 offices worldwide, excluding affiliate offices, with approximately 34,000 employees providing commercial real estate services under the “CBRE” brand name, investment management services under the “CBRE Global Investors” brand name and development services under the “Trammell Crow” brand name. Our business is focused on several competencies, including commercial property and corporate facilities management, occupier and property/agency leasing, property sales, valuation, real estate investment management, commercial mortgage origination and servicing, capital markets (equity and debt) solutions, development services and proprietary research. We generate revenues from contractual management fees and on a per-project or transactional basis. Since 2006, we have been the only commercial real estate services company included in the S&P 500. In every year since 2008, we have been the only commercial real estate services firm to be included in the Fortune 500. Additionally, the International Association of Outsourcing Professionals has included us among the top 100 global outsourcing companies across all industries for five consecutive years, including in 2011 when we ranked 6th overall and were the highest ranked commercial real estate services company. In 2011, we were the highest ranked commercial real estate services company among the Fortune Most Admired Companies, and achieved the highest brand reputation ranking among all commercial real estate companies in a survey of Wall Street Journal subscribers.

 

When you read our financial statements and the information included in this section, 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, the cost and availability of credit and the impact of tax and regulatory policies. Periods of economic weakness or recession, significantly rising interest rates, declining employment levels, decreasing demand for real estate, falling real estate values, or the public perception that any of these events may occur, will negatively affect the performance of some or all of our business lines. From late 2007 through 2009, the severe global economic downturn and credit market crisis had significant adverse effects on our operations by depressing transaction activity, decreasing occupancy and rental rates, sharply lowering property values and restraining corporate spending. These trends, in turn, adversely affected our revenue from property management fees and commissions derived from property sales, leasing, valuation and financing, and funds available to invest in commercial real estate and related assets. These negative trends began to reverse in 2010 and 2011 as commercial real estate markets improved in step with the stabilization and recovery of global economic activity.

 

Weak economic conditions from late 2007 through 2009 also affected our compensation expense, which is structured to generally decrease in line with a fall in revenue. Compensation is our largest expense and the sales and leasing professionals in our largest line of business, advisory services, generally are paid on a commission and bonus basis that correlates with our revenue performance. As a result, the negative effect of difficult market conditions on our operating margins was partially mitigated by the inherent variability of our compensation cost structure. In addition, at times when negative economic conditions are particularly severe, as they were in 2008 and 2009, our management has moved decisively to improve operational performance by lowering operating expenses through such actions as reducing discretionary bonuses, curtailing capital expenditures and adjusting overall staffing levels, among others. As general economic conditions and our performance improved, we began

 

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to restore certain of these expenses in 2010 and 2011. Notwithstanding the ongoing market recovery, a return of adverse global and regional economic trends remains one of the most significant risks to the performance of our operations and our financial condition.

 

Economic conditions first began to negatively affect our performance in the Americas, our largest segment in terms of revenue, beginning in the third quarter of 2007. The effects became more severe as the decline in economic activity (particularly in the United States) accelerated throughout 2008 and most of 2009. The global capital markets disruption in late 2008, in particular, caused a significant and prolonged decline in property sales, leasing, financing and investment activity that adversely affected all our business lines. Commercial real estate fundamentals began to stabilize in early 2010 and to improve later that year following a return to positive economic growth in the United States. The recovery continued at a slow pace in 2011, as vacancy rates dipped moderately, rental rates stabilized or edged up slightly, credit became more readily available and property sales and leasing activity increased. However, market activity has remained well below levels experienced in 2006 and 2007.

 

In Europe, weakening market conditions first began to manifest in the United Kingdom in late 2007 and in countries on the continent in early 2008. The major European economies also fell into recession in 2008, which deepened and persisted through 2009. Economic activity improved in 2010, but began to wane again in the second half of 2011, due to the effects of the European sovereign debt crisis. As a result, economic growth in Europe lagged behind other parts of the world in 2011. While rents essentially remained flat in 2011, leasing velocity slowed in many major markets in Europe. Investment sales in Europe were adversely affected by the financial crisis in late 2008 and most of 2009. Larger markets like London and Paris showed strong increases in investment sales starting in late 2009, but activity reached a plateau across most of Europe in 2011.

 

Real estate markets in Asia Pacific were also affected, though generally to a lesser degree than in the United States and Europe, by the global credit market dislocation and economic downturn. This resulted in lower investment sales and leasing activity in the region in 2008 and most of 2009. Transaction activity revived significantly in late 2009, reflecting strong economic growth, and improved through 2010 and most of 2011. However, the improvement began to slow in the later stages of 2011, due to heightened concerns about how the European sovereign debt crisis and tepid U.S. economic growth would affect the region’s economies.

 

Beginning in late 2007, deteriorating conditions also adversely affected real estate investment management and property development activity, as property values declined sharply, and both financing and disposal options became more limited. However, market conditions for these businesses improved as financing and investment sales markets recovered in late 2010 and 2011.

 

The further recovery of our global sales, leasing, investment management and development services operations depends on continued improvement in market fundamentals, including solid economic growth and sustained, strong job growth; stable and healthy global credit markets; and increased business and investor confidence.

 

Effects of Acquisitions

 

Our management historically has made significant use of strategic acquisitions to add new service competencies, to increase our scale within existing competencies and to expand our presence in various geographic regions around the world. In December 2006, we acquired the Trammell Crow Company (the Trammell Crow Company Acquisition), our largest acquisition to date, which deepened our outsourcing services offerings for corporate and institutional clients, especially project and facilities management, strengthened our ability to provide integrated management solutions across geographies, and established resources and expertise to offer real estate development services throughout the United States.

 

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On February 15, 2011, we announced that we had entered into definitive agreements to acquire the majority of the real estate investment management business of Netherlands-based ING Group N.V. (ING) for approximately $940 million in cash. The acquisitions included substantially all of ING’s Real Estate Investment Management (REIM) operations in Europe and Asia, as well as substantially all of Clarion Real Estate Securities (CRES), its U.S.-based global real estate listed securities business (collectively referred to as ING REIM). On February 15, 2011, we also announced that we expected to acquire approximately $55 million of CRES co-investments from ING and potentially additional interests in other funds managed by ING REIM Europe and ING REIM Asia. Upon completion of the acquisitions, which we refer to as the REIM Acquisitions, ING REIM became part of our Global Investment Management segment (which conducts business through our indirect wholly-owned subsidiary, CBRE Global Investors, an independently operated business segment). The ING transaction is highly complementary, with little overlap in client base and different investment strategies. CBRE Global Investors has traditionally focused on value-add funds and separate accounts. ING REIM has primarily focused on core funds and global listed real estate securities funds, except in Asia, where ING REIM manages value-add and opportunistic funds. The combined entity provides us with a significantly enhanced ability to meet the needs of institutional investors across global markets with a full spectrum of investment programs and strategies.

 

On July 1, 2011, we completed the acquisition of CRES for $323.9 million and CRES co-investments from ING for an aggregate amount of $58.6 million. On October 3, 2011, we completed the acquisition of ING REIM Asia for $45.6 million and three ING REIM Asia co-investments from ING for an aggregate amount of $13.9 million. On October 31, 2011, we completed the acquisition of ING REIM Europe for $442.5 million and one co-investment from ING for $7.4 million. Our initial estimate of $940 million in total purchase price for the REIM Acquisitions has been reduced by approximately $47 million for certain fund and separate account management contracts that were not acquired and for certain balance sheet adjustments. There is a possibility of an additional closing of approximately $80 million and co-investments of up to $68 million in the future related to our acquisition of ING REIM Europe.

 

As of December 31, 2011, CBRE Global Investors’ assets under management, or AUM, totaled $94.1 billion, which includes AUM acquired in the REIM Acquisitions. 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 material assets under management consist of:

 

  a) 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

 

  b) 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 program.

 

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.

 

Strategic in-fill acquisitions have also played a key role in expanding our geographic coverage and broadening and strengthening our service offerings. From 2005 to 2008, we completed 58 in-fill acquisitions for an aggregate purchase price of approximately $592 million. Because of the economic downturn, no acquisitions

 

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were completed in 2009 and 2010, except for a small niche industrial practice in the United Kingdom acquired in the second quarter of 2010 and a small commercial property asset management and consultancy services firm in Hong Kong acquired in the fourth quarter of 2010. During the year ended December 31, 2011, we completed five in-fill acquisitions, including a valuation business in Australia, a retail property management business in central and eastern Europe, our former affiliate company in Switzerland, a retail services business in the United Kingdom and a shopping center management business in the Netherlands. The companies we acquired have generally been quality regional firms or niche specialty firms that complement our existing platform within a region, or affiliates in which, in some cases, we held an equity interest. As market conditions continue to improve, we believe acquisitions may once again serve as a growth engine, supplementing our organic growth.

 

Although our management believes 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, our management also believes that most acquisitions will initially have an adverse impact on our operating and net income, both as a result of transaction-related expenditures, which 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. For example, through December 31, 2011, we incurred $258.9 million of transaction-related expenditures and integration costs in connection with our acquisition of Trammell Crow Company in 2006. In addition, through December 31, 2011, we incurred $70.2 million of transaction-related expenditures and integration costs in connection with the REIM Acquisitions. As with prior material acquisitions, we anticipate incurring significant integration expenses associated with the REIM Acquisitions in 2012 and beyond. We expect the total (pre-tax) transaction costs relating to the REIM Acquisitions, including retention and integration costs, to be approximately $150 million.

 

International Operations

 

As we 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 management team generally seeks to mitigate our exposure by balancing assets and liabilities that are denominated in the same currency and by maintaining cash positions outside the United States only at levels necessary for operating purposes. In addition, from time to time we enter into foreign currency exchange contracts to mitigate our exposure to exchange rate changes related to particular transactions and to hedge risks associated with the translation of foreign currencies into U.S. dollars.

 

With the closing of the REIM Acquisitions, our Global Investment Management business now has a significant amount of Euro-denominated assets under management as well as associated revenue and earnings in Europe, which has seen a developing crisis in sovereign debt resulting in a significant drop in the value of the Euro against the U.S. dollar. Fluctuations in foreign currency exchange rates may result in corresponding fluctuations in our AUM, revenue and earnings.

 

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 and Euro 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 may adversely affect our future financial condition and results of operations. Our management routinely monitors these risks and related costs and evaluates the appropriate amount of resources to allocate towards business activities in foreign countries where such risks and costs are particularly significant.

 

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Leverage

 

We are highly leveraged and have significant debt service obligations. As of December 31, 2011, our total debt, excluding our notes payable on real estate and warehouse lines of credit (both of which are generally nonrecourse to us), was approximately $2.5 billion.

 

Our level of indebtedness and the operating and financial restrictions in our debt agreements place constraints on the operation of our business. Although our management believes that long-term indebtedness has been an important lever in the development of our business, including facilitating our acquisition of Trammell Crow Company and the REIM Acquisitions, the cash flow necessary to service this debt is not available for other general corporate purposes, which may limit our flexibility in planning for, or reacting to, changes in our business and in the commercial real estate services industry. Our management seeks to mitigate this exposure both through the refinancing of debt when available on attractive terms and through selective repayment and retirement of indebtedness.

 

Critical Accounting Policies

 

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

 

Revenue Recognition

 

In order for us to recognize revenue, there are four basic criteria that must be met:

 

   

existence of persuasive evidence that an arrangement exists;

 

   

delivery has occurred or services have been rendered;

 

   

the seller’s price to the buyer is fixed and determinable; and

 

   

collectability is reasonably assured.

 

Our revenue recognition policies are consistent with these criteria. The judgments involved in revenue recognition include understanding the complex terms of agreements and determining the appropriate time to recognize revenue for each transaction based on such terms. Each transaction is evaluated to determine: (i) at what point in time revenue is earned, (ii) whether contingencies exist that impact the timing of recognition of revenue and (iii) how and when such contingencies will be resolved. The timing of revenue recognition could vary if different judgments were made. Our revenues subject to the most judgment are brokerage commission revenue and incentive-based management and development fees.

 

We record commission revenue on real estate sales generally upon close of escrow or transfer of title, except when future contingencies exist. Real estate commissions on leases are generally recorded in revenue when all obligations under the commission agreement are satisfied. Terms and conditions of a commission agreement may include, but are not limited to, execution of a signed lease agreement and future contingencies including tenant occupancy, payment of a deposit or payment of a first month’s rent (or a combination thereof). As some of these conditions are outside of our control and are often not clearly defined, judgment must be exercised in determining when such required events have occurred in order to recognize revenue.

 

A typical commission agreement provides that we earn a portion of a lease commission upon the execution of the lease agreement by the tenant and landlord, with the remaining portion(s) of the lease commission earned at a later date, usually upon tenant occupancy or payment of rent. The existence of any significant future

 

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contingencies results in the delay of recognition of corresponding revenue until such contingencies are satisfied. For example, if we do not earn all or a portion of the lease commission until the tenant pays its first month’s rent, and the lease agreement provides the tenant with a free rent period, we delay revenue recognition until rent is paid by the tenant.

 

Property management revenues are generally based upon percentages of the revenue or base rent generated by the entities managed or the square footage managed. These fees are recognized when earned under the provisions of the related management agreements.

 

Investment management fees are based predominantly upon a percentage of the equity deployed on behalf of our limited partners. Fees related to our indirect investment management programs are based upon a percentage of the fair value of those investments. These fees are recognized when earned under the provisions of the related investment management agreements. Our Global Investment Management segment also earns performance-based incentive fees with regard to many of its investments. Such revenue is recognized at the end of the measurement periods when the conditions of the applicable incentive fee arrangements have been satisfied and following the expiration of any potential claw back provision. With many of these investments, our Global Investment Management team has participation interests in such incentive fees, which are commonly referred to as carried interest. This carried interest expense is generally accrued for based upon the probability of such performance-based incentive fees being earned over the related vesting period. In addition, our Global Investment Management segment also earns success-based transaction fees with regard to buying or selling properties on certain funds and separate accounts. Such revenue is recognized at the completion of a successful transaction and is not subject to any claw back provision.

 

We earn development and incentive development fees in our Development Services segment. Development fees are generally based on a percentage of a defined cost measure and are recognized at the lower of the amount billed or the amount determined on a straight-line basis over the development period. Incentive development fees are recognized when quantitative criteria have been met (such as specified leasing or budget targets) or, for those incentive fees based on qualitative criteria, upon approval of the fee by our clients. Certain incentive development fees allow us to share in the fair value of the developed real estate asset above cost. This sharing creates additional revenue potential to us with no exposure to loss other than opportunity cost. Our incentive development fee revenue is not recognized to the extent that such revenue is subject to future performance contingencies, but rather once the contingency has been resolved. The unique nature and complexity of each incentive fee requires us to use varying levels of judgment in determining the timing of revenue recognition.

 

In establishing the appropriate provisions for trade receivables, we make assumptions with respect to future collectability. Our assumptions are based on an assessment of a customer’s credit quality as well as subjective factors and trends, including the aging of receivables balances. In addition to these assessments, in general, outstanding trade accounts receivable amounts that are more than 180 days overdue are evaluated for collectability and fully provided for if deemed uncollectible. Historically, our credit losses have generally been insignificant. However, estimating losses requires significant judgment, and conditions may change or new information may become known after any periodic evaluation. As a result, actual credit losses may differ from our estimates.

 

Principles of Consolidation

 

The accompanying consolidated financial statements include our accounts and those of our majority-owned subsidiaries, as well as variable interest entities, or VIEs, in which we are the primary beneficiary. The equity attributable to non-controlling interests in subsidiaries is shown separately in our consolidated balance sheets included elsewhere in this filing. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

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Variable Interest Entities

 

Our determination of the appropriate accounting method with respect to our VIEs, including co-investments with our clients, is based on Accounting Standards Update, or ASU, 2009-17, “Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.” This ASU incorporates Statement of Financial Accounting Standards, or SFAS, No. 167, “Amendments to FASB Interpretation No. 46(R),” issued by the Financial Accounting Standards Board, or FASB, in June 2009. The amendments in this ASU replace the quantitative-based risks and rewards calculation for determining which reporting entity, if any, has a controlling financial interest in a variable interest entity with a primarily qualitative approach focused on identifying which reporting entity has both (1) the power to direct the activities of a variable interest entity that most significantly impact such entity’s economic performance and (2) the obligation to absorb losses or the right to receive benefits from such entity that could potentially be significant to such entity. The entity which satisfies these criteria is deemed to be the primary beneficiary of the VIE.

 

We determine if an entity is a VIE based on several factors, including whether the entity’s total equity investment at risk upon inception is sufficient to finance the entity’s activities without additional subordinated financial support. We make judgments regarding the sufficiency of the equity at risk based first on a qualitative analysis, then a quantitative analysis, if necessary.

 

We analyze any investments in VIEs to determine if we are the primary beneficiary. We consider a variety of factors in identifying the entity that holds the power to direct matters that most significantly impact the VIE’s economic performance including, but not limited to, the ability to direct financing, leasing, construction and other operating decisions and activities. In addition, we also consider the rights of other investors to participate in policy making decisions, to replace the manager and to sell or liquidate the entity.

 

We also have several co-investments in real estate investment funds which qualify for a deferral of the newer qualitative approach for analyzing potential VIEs. We continue to analyze these investments under the former quantitative method incorporating various estimates, including estimated future cash flows, asset hold periods and discount rates, as well as estimates of the probabilities of various scenarios occurring. If the entity is a VIE, we then determine whether we consolidate the entity as the primary beneficiary. This determination of whether we are the primary beneficiary includes any impact of an “upside economic interest” in the form of a “promote” that we may have. A promote is an interest built into the distribution structure of the entity based on the entity’s achievement of certain return hurdles.

 

We consolidate any VIE of which we are the primary beneficiary (see Note 4 of the Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report) and disclose significant VIEs of which we are not the primary beneficiary, if any, as well as disclose our maximum exposure to loss related to VIEs that are not consolidated. We determine whether an entity is a VIE and, if so, whether it should be consolidated by utilizing judgments and estimates that are inherently subjective. If we made different judgments or utilized different estimates in these evaluations, it could result in differing conclusions as to whether or not an entity is a VIE and whether or not to consolidate such entity.

 

Limited Partnerships, Limited Liability Companies and Other Subsidiaries

 

If an entity is not a VIE, our determination of the appropriate accounting method with respect to our investments in limited partnerships, limited liability companies and other subsidiaries is based on voting control. For our general partner interests, we are presumed to control (and therefore consolidate) the entity, unless the other limited partners have substantive rights that overcome this presumption of control. These substantive rights allow the limited partners to remove the general partner with or without cause or to participate in significant decisions made in the ordinary course of the entity’s business. We account for our non-controlling general partner investments in these entities under the equity method. This treatment also applies to our managing member interests in limited liability companies.

 

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Our investments in unconsolidated subsidiaries in which we have the ability to exercise significant influence over operating and financial policies, but do not control, or entities which are variable interest entities in which we are not the primary beneficiary are accounted for under the equity method. Accordingly, our share of the earnings from these equity-method basis companies is included in consolidated net income. All other investments held on a long-term basis are valued at cost less any impairment in value.

 

Our determination of the appropriate accounting treatment for an investment in a subsidiary requires judgment of several factors, including the size and nature of our ownership interest and the other owners’ substantive rights to make decisions for the entity. If we were to make different judgments or conclusions as to the level of our control or influence, it could result in a different accounting treatment. Accounting for an investment as either consolidated or using the equity method generally would have no impact on our net income or stockholders’ equity in any accounting period, but a different treatment would impact individual income statement and balance sheet items, as consolidation would effectively “gross up” our income statement and balance sheet. If our evaluation of an investment accounted for using the cost method was different, it could result in our being required to account for an investment by consolidation or by the equity method. Under the cost method, the investor only records its share of the underlying entity’s earnings to the extent that it receives dividends from the investee; when the dividends received by the investor exceed the investor’s share of the investee’s earnings subsequent to the date of the investor’s investment, the investor records a reduction in the basis of its investment. Under the cost method, the investor does not record its share of losses of the investee. Conversely, under either consolidation or equity method accounting, the investor effectively records its share of the underlying entity’s net income or loss, or its guarantees of the underlying entity’s debt.

 

Under either the equity or cost method, impairment losses are recognized upon evidence of other-than-temporary losses of value. When testing for impairment on investments that are not actively traded on a public market, we generally use a discounted cash flow approach to estimate the fair value of our investments and/or look to comparable activities in the marketplace. Management judgment is required in developing the assumptions for the discounted cash flow approach. These assumptions include net asset values, internal rates of return, discount and capitalization rates, interest rates and financing terms, rental rates, timing of leasing activity, estimates of lease terms and related concessions, etc. When determining if impairment is other-than-temporary, we also look to the length of time and the extent to which fair value has been less than cost as well as the financial condition and near-term prospects of each investment.

 

Goodwill and Other Intangible Assets

 

Our acquisitions require the application of purchase accounting, which results in tangible and identifiable intangible assets and liabilities of the acquired entity being recorded at fair value. The difference between the purchase price and the fair value of net assets acquired is recorded as goodwill. In determining the fair values of assets and liabilities acquired in a business combination, we use a variety of valuation methods including present value, depreciated replacement cost, market values (where available) and selling prices less costs to dispose. We are responsible for determining the valuation of assets and liabilities and for the allocation of purchase price to assets acquired and liabilities assumed.

 

Assumptions must often be made in determining fair values, particularly where observable market values do not exist. Assumptions may include discount rates, growth rates, cost of capital, royalty rates, tax rates and remaining useful lives. These assumptions can have a significant impact on the value of identifiable assets and accordingly can impact the value of goodwill recorded. Different assumptions could result in different values being attributed to assets and liabilities. Since these values impact the amount of annual depreciation and amortization expense, different assumptions could also impact our statement of operations and could impact the results of future impairment reviews.

 

The majority of our goodwill balance has resulted from our acquisition of CBRE Services, Inc, or CBRE, in 2001 (the 2001 Acquisition), our acquisition of Insignia Financial Group, Inc., or Insignia, in 2003 (the Insignia

 

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Acquisition), the Trammell Crow Company Acquisition in 2006 and the REIM Acquisitions in 2011. Other intangible assets that have indefinite estimated useful lives and are not being amortized include certain management contracts identified in the REIM Acquisitions, a trademark, which was separately identified as a result of the 2001 Acquisition, as well as trade names separately identified as a result of the Insignia Acquisition and REIM Acquisitions. The remaining other intangible assets primarily include customer relationships, management contracts and loan servicing rights, which are all being amortized over estimated useful lives ranging up to 20 years.

 

We are required to test goodwill and other intangible assets deemed to have indefinite useful lives for impairment annually or more often if circumstances or events indicate a change in the impairment status. The goodwill impairment analysis is a two-step process. The first step used to identify potential impairment involves comparing each reporting unit’s estimated fair value to its carrying value, including goodwill. We use a discounted cash flow approach to estimate the fair value of our reporting units. Management 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. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill is considered to not be impaired. If the carrying value exceeds estimated fair value, there is an indication of potential impairment and the second step is performed to measure the amount of impairment. The second step of the process involves the calculation of an implied fair value of goodwill for each reporting unit for which step one indicated impairment. The implied fair value of goodwill is determined similar to how goodwill is calculated in a business combination, by measuring the excess of the estimated fair value of the reporting unit as calculated in step one, over the estimated fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. Due to the many variables inherent in the estimation of a business’s fair value and the relative size of our goodwill, if different assumptions and estimates were used, it could have an adverse effect on our impairment analysis.

 

Our annual assessment of goodwill and other intangible assets deemed to have indefinite lives has historically been completed as of the beginning of the fourth quarter of each year. When we performed our required annual goodwill impairment review as of October 1, 2011, 2010 and 2009, we determined that no impairment existed as the estimated fair value of our reporting units was in excess of their carrying value, after recording significant impairments during the year ended December 31, 2008 as described in prior disclosures.

 

Real Estate

 

As of December 31, 2011, the carrying value of our total real estate assets was $460.1 million (6.4% of total assets). The significant accounting policies and estimates with regard to our real estate assets relate to classification and impairment evaluation, cost capitalization and allocation, disposition of real estate and discontinued operations.

 

Classification and Impairment Evaluation

 

With respect to our real estate assets, the “Property, Plant and Equipment,” Topic of FASB Accounting Standards Codification, or ASC, or Topic 360, establishes criteria to classify an asset as “held for sale.” Assets included in real estate held for sale include only completed assets or land for sale in its present condition that meet all of Topic 360’s “held for sale” criteria. All other real estate assets are classified in one of the following line items in our consolidated balance sheet: (i) real estate under development (current), which includes real estate that we are in the process of developing that is expected to be completed and disposed of within one year of the balance sheet date; (ii) real estate under development (non-current), which includes real estate that we are in the process of developing that is expected to be completed and disposed of more than one year from the balance sheet date; or (iii) real estate held for investment, which consists of land on which development activities have not yet commenced and completed assets or land held for disposition that do not meet the “held for sale” criteria.

 

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Real estate held for sale is recorded at the lower of cost or estimated fair value less cost to sell. If an asset’s fair value less cost to sell, based on discounted future cash flows, management estimates or market comparisons, is less than its carrying amount, an allowance is recorded against the asset. Determining an asset’s fair value and the related allowance to record requires us to utilize judgment and estimates.

 

Real estate under development and real estate held for investment are carried at cost less depreciation, as applicable. Buildings and improvements included in real estate held for investment are depreciated using the straight-line method over estimated useful lives, generally up to 39 years. Tenant improvements included in real estate held for investment are amortized using the straight-line method over the shorter of their estimated useful life or the terms of the respective leases. Land improvements included in real estate held for investment are depreciated over their estimated useful lives, up to 15 years.

 

When indicators of impairment are present, real estate under development and real estate held for investment are evaluated for impairment and losses are recorded when undiscounted cash flows estimated to be generated by an asset or market comparisons are less than the asset’s carrying amount. The amount of the impairment loss is calculated as the excess of the asset’s carrying value over its fair value, which is determined using a discounted cash flow analysis, management estimates or market comparisons. Impairment charges of $1.7 million, $24.6 million and $28.8 million were recorded for the years ended December 31, 2011, 2010 and 2009, respectively. In addition, during the years ended December 31, 2011, 2010, and 2009, we also recorded provisions for loss on real estate held for sale of $2.6 million, $2.3 million and $3.9 million, respectively.

 

We evaluate each of our real estate assets on a quarterly basis in order to determine the classification of each asset in our consolidated balance sheet. This evaluation requires judgment by us in considering certain criteria that must be evaluated under Topic 360, such as the estimated time to complete assets that are under development and the timeframe in which we expect to sell our real estate assets. The classification of real estate assets determines which real estate assets are to be depreciated as well as what method is used to evaluate and measure impairment. Had we evaluated our assets differently, the balance sheet classification of such assets, depreciation expense and impairment losses could have been different.

 

Cost Capitalization and Allocation

 

When acquiring, developing and constructing real estate assets, we capitalize costs. Capitalization begins when we determine that activities related to development have begun and ceases when activities are substantially complete and the asset is available for occupancy, which are timing decisions that require judgment. Costs capitalized include pursuit costs, or pre-acquisition/pre-construction costs, taxes and insurance, interest, development and construction costs and costs of incidental operations. We do not capitalize any internal costs when acquiring, developing and constructing real estate assets. We expense transaction costs for acquisitions that qualify as a business in accordance with the “Business Combinations” Topic of the FASB ASC, or Topic 805. Pursuit costs capitalized in connection with a potential development project that we have determined based on our judgment not to pursue are written off in the period that such determination is made. A difference in the timing of when this determination is made could cause the pursuit costs to be expensed in a different period.

 

At times, we purchase bulk land that we intend to sell or develop in phases. The land basis allocated to each phase is based on the relative estimated fair value of the phases before construction. We allocate construction costs incurred relating to more than one phase between the various phases; if the costs cannot be specifically attributed to a certain phase or the improvements benefit more than one phase, we allocate the costs between the phases based on their relative estimated sales values, where practicable, or other value methods as appropriate under the circumstances. Relative allocations of the costs are revised as the sales value estimates are revised.

 

When acquiring real estate with existing buildings, we allocate the purchase price between land, land improvements, building and intangibles related to in-place leases, if any, based on their relative fair values. The fair values of acquired land and buildings are determined based on an estimated discounted future cash flow

 

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model with lease-up assumptions as if the building was vacant upon acquisition. The fair value of in-place leases includes the value of lease intangibles for above or below-market rents and tenant origination costs, determined on a lease by lease basis using assumptions for market rates, absorption periods, lease commissions and tenant improvements. The capitalized values for both lease intangibles and tenant origination costs are amortized over the term of the underlying leases. Amortization related to lease intangibles is recorded as either an increase to or a reduction of rental income and amortization for tenant origination costs is recorded to amortization expense. If we use different estimates in these valuations, the allocation of purchase price to each component could differ, which could cause the amount of amortization related to lease intangibles and tenant origination costs to be different, as well as depreciation of the related building and land improvements.

 

Disposition of Real Estate

 

Gains on disposition of real estate are recognized upon sale of the underlying project. We evaluate each real estate sale transaction to determine if it qualifies for gain recognition under the full accrual method. This evaluation requires us to make judgments and estimates in assessing whether a sale has been consummated, the adequacy of the buyer’s investment, the subordination or collectability of any receivable related to the purchase, and whether we have transferred the usual risks and rewards of ownership to the buyer, with no substantial continuing involvement by us. If the transaction does not meet the criteria for the full accrual method of profit recognition based on our assessment, we account for the sale based on an appropriate deferral method determined by the nature and extent of the buyer’s investment and our continuing involvement. In some cases, a deferral method could require the real estate asset and its related liabilities to remain on our balance sheet until the sale qualifies for a different deferral method or full accrual profit recognition.

 

Discontinued Operations

 

Topic 360 extends the reporting of a discontinued operation to a “component of an entity,” and further requires that a component be classified as a discontinued operation if the operations and cash flows of the component have been or will be eliminated from the ongoing operations of the entity in the disposal transaction and the entity will not have any significant continuing involvement in the operations of the component after the disposal transaction. As defined in Topic 360, a “component of an entity” comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. Because each of our real estate assets is generally accounted for in a discrete subsidiary, many constitute a component of an entity under Topic 360, increasing the likelihood that the disposition of assets are required to be recognized and reported as operating profits and losses on discontinued operations in the periods in which they occur. The evaluation of whether the component’s cash flows have been eliminated and the level of our continuing involvement require judgment by us and a different assessment could result in items not being reported as discontinued operations.

 

Income Taxes

 

Income taxes are accounted for under the asset and liability method in accordance with the “Accounting for Income Taxes,” Topic of the FASB ASC, or Topic 740. Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax basis of assets and liabilities and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured by applying enacted tax rates and laws and are released in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are provided against deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized.

 

Accounting for tax positions requires judgments, including estimating reserves for potential uncertainties. We also assess our ability to utilize tax attributes, including those in the form of carryforwards, for which the benefits have already been reflected in the financial statements. We do not record valuation allowances for

 

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deferred tax assets that we believe will be realized in future periods. While we believe the resulting tax balances as of December 31, 2011 and 2010 are appropriately accounted for in accordance with Topic 740, as applicable, the ultimate outcome of such matters could result in favorable or unfavorable adjustments to our consolidated financial statements and such adjustments could be material. See Note 16 of the Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report for further information regarding income taxes.

 

Unremitted earnings of subsidiaries outside the United States, which have been, or are intended to be, permanently invested aggregated approximately $1.1 billion at December 31, 2011. Presently, we have not recorded an associated deferred tax liability. These earnings may become taxable upon a payment of a dividend or as a result of a sale or liquidation of the subsidiaries. At this time, we do not have any plans to repatriate income from our foreign subsidiaries, however, to the extent that we are able to repatriate such earnings in a tax efficient manner, or in the event of a change in our capital situation or investment strategy that such funds became needed for funding our U.S. operations, we would be required to accrue and pay U.S. taxes to repatriate these funds. Cash and cash equivalents owned by non-U.S. subsidiaries totaled $210.3 million at December 31, 2011.

 

Results of Operations

 

The following table sets forth items derived from our consolidated statements of operations for the years ended December 31, 2011, 2010 and 2009:

 

     Year Ended December 31,  
     2011     2010     2009  
     (Dollars in thousands)  

Revenue

   $ 5,905,411         100.0   $ 5,115,316        100.0   $ 4,165,820        100.0

Costs and expenses:

             

Cost of services

     3,457,130         58.5        2,960,170        57.9        2,447,885        58.8   

Operating, administrative and other

     1,882,666         31.9        1,607,682        31.4        1,383,579        33.2   

Depreciation and amortization

     115,719         2.0        108,381        2.1        99,473        2.4   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     5,455,515         92.4        4,676,233        91.4        3,930,937        94.4   

Gain on disposition of real estate

     12,966         0.2        7,296        0.1        6,959        0.2   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     462,862         7.8        446,379        8.7        241,842        5.8   

Equity income (loss) from unconsolidated subsidiaries

     104,776         1.8        26,561        0.5        (34,095     (0.8

Other income

     2,706         0.1        —          —          3,880        0.1   

Interest income

     9,443         0.2        8,416        0.2        6,129        0.1   

Interest expense

     150,249         2.6        191,151        3.7        189,146        4.6   

Write-off of financing costs

     —           —          18,148        0.4        29,255        0.7   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before provision for income taxes

     429,538         7.3        272,057        5.3        (645     (0.1

Provision for income taxes

     189,103         3.2        130,368        2.5        26,993        0.6   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     240,435         4.1        141,689        2.8        (27,638     (0.7

Income from discontinued operations, net of income taxes

     49,890         0.8        14,320        0.2        —          —     
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     290,325         4.9        156,009        3.0        (27,638     (0.7

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

     51,163         0.8        (44,336     (0.9     (60,979     (1.5
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to CBRE Group, Inc.

   $ 239,162         4.1   $ 200,345        3.9   $ 33,341        0.8
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA (1)

   $ 693,261         11.7   $ 647,467        12.7   $ 372,079        8.9
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA, as adjusted (1)

   $ 802,635         13.6   $ 681,343        13.3   $ 453,884        10.9
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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(1) Includes EBITDA related to discontinued operations of $14.1 million and $16.4 million for the years ended December 31, 2011 and 2010, respectively.

 

EBITDA represents earnings before net interest expense, income taxes, depreciation and amortization, while amounts shown for EBITDA, as adjusted, remove the impact of certain cash and non-cash charges related to acquisitions, cost containment and asset impairments. Our management believes that both of these measures are useful in evaluating our operating performance compared to that of other companies in our industry because the calculations of EBITDA and EBITDA, as adjusted, generally eliminate the effects of financing and income taxes and the accounting effects of capital spending and acquisitions, which would include impairment charges of goodwill and intangibles created from acquisitions. Such items may vary for different companies for reasons unrelated to overall operating performance. As a result, our management uses these measures to evaluate operating performance and for other discretionary purposes, including as a significant component when measuring our operating performance under our employee incentive programs. Additionally, we believe EBITDA and EBITDA, as adjusted, are useful to investors to assist them in getting a more complete picture of our results from operations.

 

However, EBITDA and EBITDA, as adjusted, are not recognized measurements under U.S. generally accepted accounting principles, or GAAP, and when analyzing our operating performance, readers should use EBITDA and EBITDA, as adjusted, in addition to, and not as an alternative for, net income as determined in accordance with GAAP. Because not all companies use identical calculations, our presentation of EBITDA and EBITDA, as adjusted, may not be comparable to similarly titled measures of other companies. Furthermore, EBITDA and EBITDA, as adjusted, are not intended to be measures of free cash flow for our management’s discretionary use, as they do not consider certain cash requirements such as tax and debt service payments. The amounts shown for EBITDA and EBITDA, as adjusted, also differ from the amounts calculated under similarly titled definitions in our debt instruments, which are further adjusted to reflect certain other cash and non-cash charges and are used to determine compliance with financial covenants and our ability to engage in certain activities, such as incurring additional debt and making certain restricted payments.

 

EBITDA and EBITDA, as adjusted for selected charges are calculated as follows:

 

    Year Ended December 31,  
    2011     2010     2009  
    (Dollars in thousands)  

Net income attributable to CBRE Group, Inc.

  $ 239,162      $ 200,345      $ 33,341   

Add:

     

Depreciation and amortization (1)

    116,930        108,962        99,473   

Interest expense (2)

    153,497        192,706        189,146   

Write-off of financing costs

    —          18,148        29,255   

Provision for income taxes (3)

    193,115        135,723        26,993   

Less:

     

Interest income

    9,443        8,417        6,129   
 

 

 

   

 

 

   

 

 

 

EBITDA (4)

  $ 693,261      $ 647,467      $ 372,079   

Adjustments:

     

Integration and other costs related to
acquisitions

    68,788        7,278        5,617   

Cost containment expenses

    31,139        15,291        43,565   

Write-down of impaired assets

    9,447        11,307        32,623   
 

 

 

   

 

 

   

 

 

 

EBITDA, as adjusted (4)

  $ 802,635      $ 681,343      $ 453,884   
 

 

 

   

 

 

   

 

 

 

 

  (1) Includes depreciation and amortization related to discontinued operations of $1.2 million and $0.6 million for the years ended December 31, 2011 and 2010, respectively.

 

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  (2) Includes interest expense related to discontinued operations of $3.2 million and $1.6 million for the years ended December 31, 2011 and 2010, respectively.
  (3) Includes provision for income taxes related to discontinued operations of $4.0 million and $5.4 million for the years ended December 31, 2011 and 2010, respectively.
  (4) Includes EBITDA related to discontinued operations of $14.1 million and $16.4 million for the years ended December 31, 2011 and 2010, respectively.

 

Year Ended December 31, 2011 Compared to Year Ended December 31, 2010

 

We reported consolidated net income of $239.2 million for the year ended December 31, 2011 on revenue of $5.9 billion as compared to consolidated net income of $200.3 million on revenue of $5.1 billion for the year ended December 31, 2010.

 

Our revenue on a consolidated basis for the year ended December 31, 2011 increased by $790.1 million, or 15.4%, as compared to the year ended December 31, 2010. This increase was primarily driven by higher worldwide sales (up 24.2%), leasing (up 9.5%) and outsourcing (up 15.0%) activity. Also contributing to the increase was revenue of $84.6 million attributable to the REIM Acquisitions in the current year. Foreign currency translation had a $143.8 million positive impact on total revenue during the year ended December 31, 2011.

 

Our cost of services on a consolidated basis increased by $497.0 million, or 16.8%, during the year ended December 31, 2011 as compared to the year ended December 31, 2010. Our sales and leasing professionals generally are paid on a commission basis, which substantially correlates with our transaction revenue performance. Accordingly, the increase in transaction revenue led to a corresponding increase in commission accruals. Higher salaries and related costs associated with our global property and facilities management contracts also contributed to the increase in cost of services in the current year. Additionally, included in cost of services for the year ended December 31, 2011, were cost containment expenses of $20.0 million relating to severance costs incurred to calibrate our staffing levels to the current market environment. Foreign currency translation had an $81.7 million negative impact on cost of services during the year ended December 31, 2011. Cost of services as a percentage of revenue increased to 58.5% for the year ended December 31, 2011 from 57.9% for the year ended December 31, 2010, primarily driven by higher commission tranches achieved in the current year as a result of the increased transaction revenue and the aforementioned cost containment expenses.

 

Our operating, administrative and other expenses on a consolidated basis increased by $275.0 million, or 17.1%, during the year ended December 31, 2011 as compared to the year ended December 31, 2010. The increase was primarily driven by higher payroll-related costs, including bonuses, which resulted from our improved operating performance and the REIM Acquisitions. Operating expenses for the year ended December 31, 2011 also included $66.7 million of transaction and integration costs incurred in connection with the REIM Acquisitions. Foreign currency translation had a $44.2 million negative impact on total operating expenses during the year ended December 31, 2011. Operating expenses as a percentage of revenue increased to 31.9% for the year ended December 31, 2011 from 31.4% for the year ended December 31, 2010, primarily driven by the aforementioned costs incurred relative to the REIM Acquisitions.

 

Our depreciation and amortization expense on a consolidated basis increased by $7.3 million, or 6.8%, for the year ended December 31, 2011 as compared to the year ended December 31, 2010. This increase was primarily attributable to higher amortization expense relative to intangibles acquired in the REIM Acquisitions and other in-fill acquisitions completed in the current year. The increase in amortization expense was partially offset by lower depreciation expense partially stemming from property dispositions in our Global Investment Management and Development Services segments in the current year.

 

Our gain on disposition of real estate on a consolidated basis was $13.0 million for the year ended December 31, 2011 as compared to $7.3 million for the year ended December 31, 2010. These gains primarily resulted from activity within our Development Services segment.

 

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Our equity income from unconsolidated subsidiaries on a consolidated basis increased by $78.2 million, or 294.5%, for the year ended December 31, 2011 as compared to the year ended December 31, 2010. This increase was primarily driven by higher equity earnings associated with gains on property sales within our Development Services segment in the current year. Also contributing to the increase were lower impairment charges reported by our Global Investment Management segment in the current year.

 

Our other income on a consolidated basis was $2.7 million for the year ended December 31, 2011 and was reported within our Global Investment Management segment. This income primarily represented net realized and unrealized gains and losses related to trading securities, which we acquired in our acquisition of CRES in the current year.

 

Our consolidated interest income increased by $1.0 million, or 12.2%, as compared to the year ended December 31, 2010. This increase was mainly driven by higher interest income reported in our Americas segment in the current year.

 

Our consolidated interest expense decreased by $40.9 million, or 21.4%, during the year ended December 31, 2011 as compared to the year ended December 31, 2010. The decrease was primarily due to lower interest expense associated with our credit agreement due to debt repayments made in the second half of 2010 and lower interest rates resulting from our refinancing activities in the fourth quarter of 2010. The lower interest expense more than offset the increase in interest expense attributable to additional borrowings made to finance the REIM Acquisitions and the new British pound sterling A-1 term loan facility entered into in the current year. This overall net decrease was also partially offset by interest expense incurred related to the $350.0 million of 6.625% senior notes issued on October 8, 2010.

 

Our provision for income taxes on a consolidated basis was $189.1 million for the year ended December 31, 2011 as compared to $130.4 million for the year ended December 31, 2010. Our effective tax rate from continuing operations, after adjusting pre-tax income to remove the portion attributable to non-controlling interests, increased to 44.8% for the year ended December 31, 2011 as compared to 40.5% for the year ended December 31, 2010. The changes in our provision for income taxes and our effective tax rate were primarily the result of a significant increase in income reported in the current year and a change in our mix of domestic and foreign earnings (losses). In addition, certain of the transaction costs incurred in connection with the REIM Acquisitions in the current year were non-deductible.

 

Our consolidated income from discontinued operations, net of income taxes, was $49.9 million for the year ended December 31, 2011 as compared to $14.3 million for the year ended December 31, 2010. The income in the current year was reported in our Global Investment Management and Development Services segments and mostly related to gains from property sales, which were largely attributable to non-controlling interests. The income in the prior year was reported in our Development Services segment and mostly related to gains from property sales.

 

Our net income attributable to non-controlling interests on a consolidated basis was $51.2 million for the year ended December 31, 2011 as compared to a net loss attributable to non-controlling interests of $44.3 million for the year ended December 31, 2010. This activity primarily reflects our non-controlling interests’ share of income and losses within our Global Investment Management and Development Services segments.

 

Year Ended December 31, 2010 Compared to Year Ended December 31, 2009

 

We reported consolidated net income of $200.3 million for the year ended December 31, 2010 on revenue of $5.1 billion as compared to consolidated net income of $33.3 million on revenue of $4.2 billion for the year ended December 31, 2009.

 

Our revenue on a consolidated basis for the year ended December 31, 2010 increased by $949.5 million, or 22.8%, as compared to the year ended December 31, 2009. This increase was primarily driven by higher

 

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worldwide sales (up 51.5%), leasing (up 29.3%) and outsourcing (up 8.5%) activity. Foreign currency translation had a $44.1 million positive impact on total revenue during the year ended December 31, 2010.

 

Our cost of services on a consolidated basis increased by $512.3 million, or 20.9%, during the year ended December 31, 2010 as compared to the year ended December 31, 2009. As previously mentioned, our sales and leasing professionals generally are paid on a commission and bonus basis, which substantially correlates with our revenue performance. Accordingly, the increase in revenue led to a corresponding increase in commission and bonus accruals. In addition, commission reinstatements contributed to the increase. Higher salaries and related costs associated with our property and facilities management contracts also contributed to an increase in cost of services in 2010. Foreign currency translation had a $31.0 million negative impact on cost of services during the year ended December 31, 2010. Cost of services as a percentage of revenue decreased from 58.8% for the year ended December 31, 2009 to 57.9% for the year ended December 31, 2010. This decrease was primarily the result of the strong improvement in overall revenue and a shift in the mix of revenue, with transaction revenue comprising a greater portion of the total than in 2009.

 

Our operating, administrative and other expenses on a consolidated basis increased by $224.1 million, or 16.2%, during the year ended December 31, 2010 as compared to the year ended December 31, 2009. The increase was primarily driven by higher payroll-related costs, including bonuses, which resulted from our improved operating performance as well as the restoration of salaries to pre-recession levels in the third quarter of 2010 and substantially restored bonus target levels in the fourth quarter of 2010. Also contributing to the increase was higher carried interest incentive compensation expense accruals and increased marketing and travel costs in support of our growing revenue in 2010. Foreign currency translation had a $10.8 million negative impact on total operating expenses during the year ended December 31, 2010. Operating expenses as a percentage of revenue decreased to 31.4% for the year ended December 31, 2010 from 33.2% for the year ended December 31, 2009, reflective of our cost containment efforts during the recessionary period of 2008 and 2009 as well as the strong improvement in overall revenue.

 

Our depreciation and amortization expense on a consolidated basis increased by $8.9 million, or 9.0%, for the year ended December 31, 2010 as compared to the year ended December 31, 2009. This increase was primarily attributable to higher depreciation expense within our Global Investment Management segment driven by the consolidation of several assets due to the adoption of ASU 2009-17 in 2010.

 

Our gain on disposition of real estate on a consolidated basis was $7.3 million and $7.0 million for the years ended December 31, 2010 and 2009, respectively. These gains resulted from activity within our Development Services segment.

 

Our equity income from unconsolidated subsidiaries on a consolidated basis was $26.6 million for the year ended December 31, 2010 as compared to an equity loss from unconsolidated subsidiaries of $34.1 million for the year ended December 31, 2009. The increase in equity income in 2010 was primarily driven by higher equity earnings associated with gains on property sales within our Development Services segment and higher equity earnings in our Global Investment Management segment largely resulting from a fund liquidation. Also contributing to the variance were lower impairment charges associated with equity investments in our Development Services and Global Investment Management segments in 2010.

 

Our consolidated interest income was $8.4 million for the year ended December 31, 2010, an increase of $2.3 million, or 37.3%, as compared to the year ended December 31, 2009. This increase was mainly driven by higher interest income reported in our Asia Pacific segment, which resulted from the final measurement of a deferred purchase obligation related to the purchase of remaining non-controlling interests in our subsidiary in India.

 

Our consolidated interest expense increased by $2.0 million, or 1.1%, during the year ended December 31, 2010 as compared to the year ended December 31, 2009. The increase was primarily due to higher interest

 

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expense associated with the $450.0 million of 11.625% senior subordinated notes issued in June 2009 and increased interest expense reported by our Global Investment Management segment mainly resulting from the consolidation of several assets due to the adoption of ASU 2009-17 in 2010. These increases were largely offset by lower interest expense associated with our credit agreement.

 

We wrote off $18.1 million and $29.3 million of financing costs during the years ended December 31, 2010 and 2009, respectively. In connection with the new credit agreement we entered into on November 10, 2010, we wrote off financing costs of $16.7 million during the year ended December 31, 2010. In addition, in October 2010, we wrote off $1.4 million of unamortized deferred financing costs in connection with debt repayments made. In connection with the March 24, 2009 amendment and restatement of our previous credit agreement, we wrote off financing costs of $29.3 million during the year ended December 31, 2009.

 

Our provision for income taxes on a consolidated basis was $130.4 million for the year ended December 31, 2010 as compared to $27.0 million for the year ended December 31, 2009. Our effective tax rate from continuing operations, after adjusting pre-tax income (loss) to remove the portion attributable to non-controlling interests, decreased to 40.5% for the year ended December 31, 2010 as compared to 44.7% for the year ended December 31, 2009. The changes in our provision for income taxes and our effective tax rate were primarily the result of a significant increase in income reported in 2010 as well as a change in our mix of domestic and foreign earnings (losses).

 

Our consolidated income from discontinued operations, net of income taxes, was $14.3 million for the year ended December 31, 2010. This income was reported in our Development Services segment and mostly related to gains from asset dispositions.

 

Our net loss attributable to non-controlling interests on a consolidated basis was $44.3 million for the year ended December 31, 2010 as compared to $61.0 million for the year ended December 31, 2009. This activity primarily reflects our non-controlling interests’ share of losses within our Global Investment Management and Development Services segments.

 

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Segment Operations

 

We report our operations through the following segments: (1) Americas, (2) EMEA, (3) Asia Pacific, (4) Global Investment Management and (5) Development Services. The Americas consists of operations located in the United States, Canada and key markets in Latin America. EMEA mainly consists of operations in Europe, while Asia Pacific includes operations in Asia, Australia and New Zealand. The Global Investment Management business consists of investment management operations in North America, Europe and Asia. The Development Services business consists of real estate development and investment activities primarily in the United States. The following table summarizes our revenue, costs and expenses and operating income (loss) by our Americas, EMEA, Asia Pacific, Global Investment Management and Development Services operating segments for the years ended December 31, 2011, 2010 and 2009:

 

     Year Ended December 31,  
     2011     2010     2009  
     (Dollars in thousands)  

Americas

            

Revenue

   $ 3,673,681        100.0   $ 3,217,543        100.0   $ 2,594,127        100.0

Costs and expenses:

            

Cost of services

     2,325,964        63.3        2,015,360        62.6        1,649,535        63.6   

Operating, administrative and other

     898,675        24.5        821,391        25.5        707,135        27.3   

Depreciation and amortization

     62,238        1.7        60,663        1.9        56,883        2.1   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

   $ 386,804        10.5   $ 320,129        10.0   $ 180,574        7.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA (1)

   $ 462,167        12.6   $ 389,991        12.1   $ 248,238        9.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EMEA

            

Revenue

   $ 1,076,568        100.0   $ 936,581        100.0   $ 818,136        100.0

Costs and expenses:

            

Cost of services

     638,351        59.3        545,354        58.2        483,885        59.1   

Operating, administrative and other

     351,304        32.6        302,573        32.3        265,667        32.5   

Depreciation and amortization

     10,945        1.0        9,519        1.1        11,158        1.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

   $ 75,968        7.1   $ 79,135        8.4   $ 57,426        7.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA (1)

   $ 87,527        8.1   $ 89,407        9.5   $ 66,545        8.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Asia Pacific

            

Revenue

   $ 788,754        100.0   $ 669,897        100.0   $ 524,308        100.0

Costs and expenses:

            

Cost of services

     492,815        62.5        399,456        59.6        314,465        60.0   

Operating, administrative and other

     212,548        26.9        197,912        29.5        155,136        29.6   

Depreciation and amortization

     9,654        1.3        8,419        1.3        8,726        1.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

   $ 73,737        9.3   $ 64,110        9.6   $ 45,981        8.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA (1)

   $ 82,226        10.4   $ 70,857        10.6   $ 53,900        10.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Global Investment Management

            

Revenue

   $ 290,065        100.0   $ 215,631        100.0   $ 141,445        100.0

Costs and expenses:

            

Operating, administrative and other

     313,120        107.9        177,662        82.4        119,878        84.8   

Depreciation and amortization

     21,271        7.4        13,968        6.5        4,901        3.4   

Gain on disposition of real estate

     345        0.1        —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

   $ (43,981     (15.2 )%    $ 24,001        11.1   $ 16,666        11.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA (1) (2)

   $ (14,772     (5.1 )%    $ 48,556        22.5   $ 4,112        2.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Development Services

            

Revenue

   $ 76,343        100.0   $ 75,664        100.0   $ 87,804        100.0

Costs and expenses:

            

Operating, administrative and other

     107,019        140.2        108,144        142.9        135,763        154.6   

Depreciation and amortization

     11,611        15.2        15,812        20.9        17,805        20.3   

Gain on disposition of real estate

     12,621        16.5        7,296        9.6        6,959        7.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

   $ (29,666     (38.9 )%    $ (40,996     (54.2 )%    $ (58,805     (67.0 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA (1) (3)

   $ 76,113        99.7   $ 48,656        64.3   $ (716     (0.8 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

See Note 21 of the Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report for a reconciliation of segment EBITDA to the most comparable financial measure calculated and presented in accordance with GAAP, which is segment net income (loss) attributable to CBRE Group, Inc.

 

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(2) Includes EBITDA related to discontinued operations of $4.0 million for the year ended December 31, 2011.
(3) Includes EBITDA related to discontinued operations of $10.1 million and $16.4 million for the years ended December 31, 2011 and 2010, respectively.

 

Year Ended December 31, 2011 Compared to Year Ended December 31, 2010

 

Americas

 

Revenue increased by $456.1 million, or 14.2%, for the year ended December 31, 2011 as compared to the year ended December 31, 2010. This improvement was primarily driven by higher sales, leasing and outsourcing activity as well as increased commercial mortgage brokerage revenue. Foreign currency translation had a $22.7 million positive impact on total revenue during the year ended December 31, 2011.

 

Cost of services increased by $310.6 million, or 15.4%, for the year ended December 31, 2011 as compared to the year ended December 31, 2010, primarily due to increased commission expense resulting from higher sales and lease transaction revenue. Higher salaries and related costs associated with our property and facilities management contracts also contributed to an increase in cost of services in the current year. Additionally, included in cost of services for the year ended December 31, 2011, were cost containment expenses of $8.1 million relating to severance costs incurred to calibrate our staffing levels to the current market environment. Foreign currency translation had a $13.2 million negative impact on cost of services during the year ended December 31, 2011. Cost of services as a percentage of revenue increased to 63.3% for the year ended December 31, 2011 from 62.6% for the year ended December 31, 2010, primarily due to higher commission tranches achieved in the current year as a result of the increased transaction revenue and the aforementioned cost containment expenses.

 

Operating, administrative and other expenses increased by $77.3 million, or 9.4%, for the year ended December 31, 2011 as compared to the year ended December 31, 2010. The increase was primarily driven by higher payroll-related costs, which resulted from increased headcount and improved operating performance. Also contributing to the increase in the current year were increased legal accruals as well as higher marketing and travel costs in support of our growing revenue. Foreign currency translation had a $5.8 million negative impact on total operating expenses during the year ended December 31, 2011.

 

EMEA

 

Revenue increased by $140.0 million, or 14.9%, for the year ended December 31, 2011 as compared to the year ended December 31, 2010, driven by higher outsourcing activities throughout the region, and increased leasing activity, led by France, Germany, the Netherlands and the United Kingdom. Foreign currency translation had a $55.8 million positive impact on total revenue during the year ended December 31, 2011.

 

Cost of services increased by $93.0 million, or 17.1%, for the year ended December 31, 2011 as compared to the year ended December 31, 2010, driven by higher salaries and related costs associated with our property and facilities management contracts. Also contributing to the increase was higher costs related to increased headcount resulting from select hiring in 2010 and early 2011. Additionally, included in cost of services for the year ended December 31, 2011, were cost containment expenses of $8.7 million relating to severance costs incurred in the fourth quarter of 2011 to calibrate our staffing levels to the current market environment. Foreign currency translation had a $32.3 million negative impact on cost of services during the year ended December 31, 2011. Cost of services as a percentage of revenue increased to 59.3% for the year ended December 31, 2011 from 58.2% for the year ended December 31, 2010, primarily driven by the aforementioned cost containment expenses incurred and a slight shift in our business mix more towards outsourcing services in the current year.

 

Operating, administrative and other expenses increased by $48.7 million, or 16.1%, for the year ended December 31, 2011 as compared to the year ended December 31, 2010, driven by higher payroll-related costs largely resulting from additions to headcount and higher marketing and travel costs in support of our growing revenue in the current year. Foreign currency translation had a $16.3 million negative impact on total operating expenses during the year ended December 31, 2011.

 

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Asia Pacific

 

Revenue increased by $118.9 million, or 17.7%, for the year ended December 31, 2011 as compared to the year ended December 31, 2010, primarily due to higher outsourcing activity in Asia, most notably in India and China, increased leasing activity, particularly in China, and higher sales activity, led by Australia and China. Foreign currency translation had a $61.6 million positive impact on total revenue during the year ended December 31, 2011.

 

Cost of services increased by $93.4 million, or 23.4%, for the year ended December 31, 2011 as compared to the year ended December 31, 2010, driven by higher salaries and related costs associated with our property and facilities management contracts, increases in headcount throughout the region and higher commission expense resulting from increased transaction revenue. Foreign currency translation had a $36.2 million negative impact on cost of services during the year ended December 31, 2011. Cost of services as a percentage of revenue increased to 62.5% for the year ended December 31, 2011 as compared to 59.6% for the year ended December 31, 2010, primarily driven by additions to headcount.

 

Operating, administrative and other expenses increased by $14.6 million, or 7.4%, for the year ended December 31, 2011 as compared to the year ended December 31, 2010. This increase was primarily due to foreign currency translation, which had an $18.0 million negative impact on total operating expenses during the year ended December 31, 2011. This increase was partially offset by lower legal fees incurred in the current year.

 

Global Investment Management

 

Revenue increased by $74.4 million, or 34.5%, for the year ended December 31, 2011 as compared to the year ended December 31, 2010. This was largely driven by increased revenue of $84.6 million as a result of the REIM Acquisitions and higher incentive fees in the current year. These increases were partially offset by lower carried interest revenue of $18.3 million. Foreign currency translation had a $3.7 million positive impact on total revenue during the year ended December 31, 2011.

 

Operating, administrative and other expenses increased by $135.5 million, or 76.2%, for the year ended December 31, 2011 as compared to the year ended December 31, 2010. This increase was primarily driven by an increase in costs attributable to the REIM Acquisitions, including transaction and integration costs. Foreign currency translation had a $4.1 million negative impact on total operating expenses during the year ended December 31, 2011.

 

Development Services

 

Revenue was relatively consistent at $76.3 million for the year ended December 31, 2011 versus $75.7 million for the year ended December 31, 2010, with higher project management and incentive fees mostly offset by lower rental income as a result of property dispositions.

 

Operating, administrative and other expenses decreased by $1.1 million, or 1.0%, for the year ended December 31, 2011 as compared to the year ended December 31, 2010. Higher bonuses largely stemming from property sales in the current year were more than offset by lower impairment charges related to real estate assets and notes receivable incurred in the current year as well as lower property operating expenses as a result of the property dispositions noted above.

 

As of December 31, 2011, development projects in process totaled $4.9 billion and the inventory of pipeline deals totaled $1.2 billion, both unchanged from year-end 2010.

 

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Year Ended December 31, 2010 Compared to Year Ended December 31, 2009

 

Americas

 

Revenue increased by $623.4 million, or 24.0%, for the year ended December 31, 2010 as compared to the year ended December 31, 2009. This improvement was primarily driven by higher sales and leasing activity as well as increased commercial mortgage brokerage and outsourcing activity. Foreign currency translation had a $30.1 million positive impact on total revenue during the year ended December 31, 2010.

 

Cost of services increased by $365.8 million, or 22.2%, for the year ended December 31, 2010 as compared to the year ended December 31, 2009, primarily due to increased commission expense resulting from higher sales and lease transaction revenue. In addition, commission reinstatements contributed to the increase. Higher salaries and related costs associated with our property and facilities management contracts also contributed to an increase in cost of services in 2010. Foreign currency translation had an $18.3 million negative impact on cost of services during the year ended December 31, 2010. Cost of services as a percentage of revenue decreased to 62.6% for the year ended December 31, 2010 from 63.6% for the year ended December 31, 2009 primarily due to the increase in overall revenue and a shift in the mix of revenue, with transaction revenue comprising a greater portion of the total than in 2009.

 

Operating, administrative and other expenses increased by $114.3 million, or 16.2%. The increase was primarily driven by higher payroll-related costs, including bonuses, which resulted from our improved operating performance as well as the restoration of salaries to pre-recession levels in the third quarter of 2010 and substantially restored bonus target levels in the fourth quarter of 2010. Also contributing to the increase were higher marketing and travel costs in support of our growing revenue. Foreign currency translation had a $7.8 million negative impact on total operating expenses during the year ended December 31, 2010.

 

EMEA

 

Revenue increased by $118.4 million, or 14.5%, for the year ended December 31, 2010 as compared to the year ended December 31, 2009. This increase was primarily attributable to higher sales, leasing and outsourcing activities, particularly in France, Germany, Spain and the United Kingdom. Foreign currency translation had a $37.1 million negative impact on total revenue during the year ended December 31, 2010.

 

Cost of services increased by $61.5 million, or 12.7%, for the year ended December 31, 2010 as compared to the year ended December 31, 2009. This increase was primarily driven by higher salaries and related costs associated with our property and facilities management contracts. Also contributing to the increase was higher commission and bonus expense resulting from increased transaction revenue. Foreign currency translation had an $18.8 million positive impact on cost of services during the year ended December 31, 2010. Cost of services as a percentage of revenue decreased to 58.2% for the year ended December 31, 2010 from 59.1% for the year ended December 31, 2009, primarily driven by the increase in overall revenue and a shift in the mix of revenue, with transaction revenue comprising a greater portion of the total than in 2009.

 

Operating, administrative and other expenses increased by $36.9 million, or 13.9%, for the year ended December 31, 2010 as compared to the year ended December 31, 2009. This increase was primarily driven by higher bonus accruals, which resulted from our improved operating performance, and higher marketing and travel costs in support of our growing revenue. Higher bad debt provisions in 2010 also contributed to the variance. Foreign currency translation had a $10.2 million positive impact on total operating expenses during the year ended December 31, 2010.

 

Asia Pacific

 

Revenue increased by $145.6 million, or 27.8%, for the year ended December 31, 2010 as compared to the year ended December 31, 2009. This revenue increase was primarily driven by higher sales, leasing and outsourcing activity, particularly in Australia, China, India and Singapore. Foreign currency translation had a $52.6 million positive impact on total revenue during the year ended December 31, 2010.

 

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Cost of services increased by $85.0 million, or 27.0%, for the year ended December 31, 2010 as compared to the year ended December 31, 2009. This increase was primarily driven by higher salaries and related costs associated with our property and facilities management contracts. Also contributing to the increase was higher commission expense resulting from increased transaction revenue. Foreign currency translation had a $31.5 million negative impact on cost of services during the year ended December 31, 2010. Cost of services as a percentage of revenue was relatively consistent at 59.6% for the year ended December 31, 2010 versus 60.0% for the year ended December 31, 2009.

 

Operating, administrative and other expenses increased by $42.8 million, or 27.6%, for the year ended December 31, 2010 as compared to the year ended December 31, 2009. This increase was primarily due to higher operating costs, including payroll-related, travel and marketing costs, which were driven by revenue increases and our continuing efforts to grow our business in this region. Also contributing to the increase was higher bonus expense, which resulted from our improved operating performance. Foreign currency translation had a $13.7 million negative impact on total operating expenses during the year ended December 31, 2010.

 

Global Investment Management

 

Revenue increased by $74.2 million, or 52.4%, for the year ended December 31, 2010 as compared to the year ended December 31, 2009. This was largely due to an increase in rental revenue driven by the consolidation of several assets due to the adoption of ASU 2009-17 in 2010. Excluding the impact of this adoption, revenue increased by $39.7 million, primarily due to $19.9 million of carried interest revenue from a fund liquidation in 2010 and higher acquisition fees resulting from increased capital deployment. Foreign currency translation had a $1.5 million negative impact on total revenue during the year ended December 31, 2010.

 

Operating, administrative and other expenses increased by $57.8 million, or 48.2%, for the year ended December 31, 2010 as compared to the year ended December 31, 2009. This increase was primarily driven by higher carried interest incentive compensation expense accruals for dedicated Global Investment Management executives and team leaders with participation interests in certain real estate investments under management, which totaled $19.0 million for the year ended December 31, 2010 versus a net reversal of $9.6 million in 2009. Also contributing to the increase in total operating expenses was a $20.9 million impact from the adoption of ASU 2009-17 and higher bonus expense resulting from our improved operating performance. Foreign currency translation had a $0.5 million positive impact on total operating expenses during the year ended December 31, 2010.

 

Total AUM as of December 31, 2010 amounted to $37.6 billion, up 8% from year-end 2009.

 

Development Services

 

Revenue decreased by $12.1 million, or 13.8%, for the year ended December 31, 2010 as compared to the year ended December 31, 2009 primarily due to lower construction revenue and development fees, both driven by the continuation of weak market conditions.

 

Operating, administrative and other expenses decreased by $27.6 million, or 20.3%, for the year ended December 31, 2010 as compared to the year ended December 31, 2009. This decrease was primarily driven by lower impairment charges related to real estate assets and notes receivable in 2010. Also contributing to the decrease in 2010 was a reduction in payroll-related costs largely resulting from cost containment efforts, lower property operating expenses as a result of property dispositions, and lower job construction costs, which correlated with the above-mentioned construction revenue decrease. These decreases were partially offset by higher bonus accruals resulting from improved business performance primarily from gains on property sales in 2010.

 

Development projects in process as of December 31, 2010 totaled $4.9 billion, up $0.2 billion from year-end 2009. The inventory of pipeline deals as of December 31, 2010 stood at $1.2 billion, up $0.3 billion from year-end 2009.

 

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Liquidity and Capital Resources

 

We believe that we can satisfy our working capital requirements and funding of investments with internally generated cash flow and, as necessary, borrowings under our revolving credit facility. Our expected capital requirements for 2012 include up to $170 million of anticipated net capital expenditures, including requirements associated with the REIM Acquisitions. As of December 31, 2011, we had committed to fund $14.4 million of additional capital to unconsolidated subsidiaries within our Development Services business, which we may be required to fund at any time. Additionally, as of December 31, 2011, we had aggregate commitments of $59.4 million to fund future co-investments in our Global Investment Management business, all of which is expected to be funded in 2012. In recent years, the global credit markets have experienced unprecedented tightening, which could affect both the availability and cost of our funding sources in the future.

 

On February 15, 2011, we announced that we had entered into definitive agreements to acquire the majority of the real estate investment management business of Netherlands-based ING for approximately $940 million in cash. The acquisitions included substantially all of the ING REIM operations in Europe and Asia, as well as substantially all of CRES, its U.S.-based global real estate listed securities business. On February 15, 2011, we also announced that we expected to acquire approximately $55 million of CRES co-investments from ING and potentially additional interests in other funds managed by ING REIM Europe and ING REIM Asia. On July 1, 2011, we acquired CRES for $323.9 million and CRES co-investments from ING for an aggregate amount of $58.6 million, using borrowings from our tranche D term loan facility under our credit agreement to finance these transactions. On October 3, 2011, we acquired ING REIM’s operations in Asia for $45.6 million and three ING REIM Asia co-investments from ING for an aggregate amount of $13.9 million, using borrowings from our tranche C term loan facility under our credit agreement to finance these transactions. On October 31, 2011, we completed the ING REIM Europe portion of the REIM Acquisitions, acquiring ING REIM’s operations in Europe for $442.5 million and one co-investment from ING for $7.4 million, using borrowings from our tranche C term loan facility under our credit agreement, cash on hand and borrowings under our revolving credit facility to finance these transactions. Our initial estimate of $940 million in total purchase price for the REIM Acquisitions has been reduced by approximately $47 million for certain fund and separate account management contracts that were not acquired and for certain balance sheet adjustments. There is a possibility of an additional closing of approximately $80 million and co-investments of up to $68 million in the future related to our acquisition of ING REIM Europe.

 

During 2003 and 2006, we required substantial amounts of equity and debt financing to fund our acquisitions of Insignia and Trammell Crow Company. In the past two years, we also conducted two debt offerings. The first, in 2009, was part of a capital restructuring in response to the global economic recession, and the second, in 2010, was to take advantage of low interest rates and term availability. Absent extraordinary transactions such as these and the equity offerings we completed during the unprecedented global capital markets disruption in 2008 and 2009, we historically have not sought external sources of financing and have relied on our internally generated cash flow and our revolving credit facility to fund our working capital, capital expenditure and investment requirements. In the absence of such extraordinary events, our management anticipates that our cash flow from operations and our revolving credit facility would be sufficient to meet our anticipated cash requirements for the foreseeable future, but at a minimum for the next 12 months.

 

As evidenced above, from time to time, we consider potential strategic acquisitions. We believe that any future significant acquisitions that we may make most likely would 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 find acquisition financing on favorable terms, or at all, in the future if we decide to make any further material acquisitions.

 

Our long-term liquidity needs, other than those related to ordinary course obligations and commitments such as operating leases, generally are 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

 

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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 repayment of obligations under our pension plans in the United Kingdom. Our subsidiaries based in the United Kingdom maintain two contributory defined benefit pension plans to provide retirement benefits to existing and former employees participating in the plans. With respect to these plans, our historical policy has been to contribute annually, an amount to fund pension cost as actuarially determined and as required by applicable laws and regulations. Our contributions to these plans are invested and, if these investments do not perform in the future as well as we expect, we will be required to provide additional funding to cover any shortfall. During 2007, we reached agreements with the active members of these plans to freeze future pension plan benefits. In return, the active members became eligible to enroll in the CBRE Group Personal Pension Plan, a defined contribution plan in the United Kingdom. The underfunded status of our defined benefit pension plans included in pension liability in the accompanying consolidated balance sheets was $60.9 million and $40.0 million at December 31, 2011 and 2010, respectively. We expect to contribute a total of $5.2 million to fund our pension plans for the year ending December 31, 2012.

 

On June 10, 2009, we completed the sale of 13,440,860 shares of our Class A common stock through a direct placement to Paulson & Co. Inc., which raised approximately $97.6 million of net proceeds. On June 11, 2009, we completed the sale of 5,682,684 shares of our Class A common stock through an at-the-market offering program, which raised approximately $48.8 million of net proceeds. The net proceeds from these offerings were used for general corporate purposes, including the repayment of some of our outstanding indebtedness under our previous credit agreement.

 

In November 2009, we completed the sale of 28,289,960 shares of our Class A common stock pursuant to an at-the-market offering program, which raised approximately $293.8 million of net proceeds. We used the proceeds from the offering for general corporate purposes, including the repayment of debt.

 

Historical Cash Flows

 

Operating Activities

 

Net cash provided by operating activities totaled $361.2 million for the year ended December 31, 2011, a decrease of $255.4 million as compared to the year ended December 31, 2010. The decrease in cash provided by operating activities in the current year was primarily due to higher bonuses, commissions and income taxes paid in the current year. These items were partially offset by an increase in bonus accruals in the current year, activity associated with securities acquired in our acquisition of CRES, a greater decrease in real estate held for sale and under development in the current year and a greater increase in receivables in the prior year.

 

Net cash provided by operating activities totaled $616.6 million for the year ended December 31, 2010, an increase of $402.9 million as compared to the year ended December 31, 2009. The increase was primarily due to improved operating performance, higher net payments to vendors and to employees under our deferred compensation plan in 2009 and an increase in commission, bonus and income tax accruals in 2010. These items were partially offset by a greater increase in receivables and higher bonuses paid in 2010.

 

Investing Activities

 

Net cash used in investing activities totaled $480.3 million for the year ended December 31, 2011, an increase of $417.8 million as compared to the year ended December 31, 2010. The increase was primarily driven by cash paid for the REIM Acquisitions and higher capital expenditures in the current year. These increases were partially offset by net proceeds received from the disposition of real estate held for investment and higher distributions received from investments in unconsolidated subsidiaries in the current year.

 

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Net cash used in investing activities totaled $62.5 million for the year ended December 31, 2010, a decrease of $56.9 million as compared to the year ended December 31, 2009. The decrease was primarily driven by higher net proceeds received in 2010 from the disposition of real estate held for investment and from the sale of servicing rights and other assets. A decrease in restricted cash and lower contributions to investments in unconsolidated subsidiaries along with higher distributions received from investments in unconsolidated subsidiaries in 2010 also contributed to the decrease. These decreases were partially offset by the use of more cash in 2010 for capital expenditures and earn out payments associated with in-fill acquisitions.

 

Financing Activities

 

Net cash provided by financing activities totaled $711.3 million for the year ended December 31, 2011 as compared to net cash used in financing activities of $784.2 million for the year ended December 31, 2010. The increase in cash provided by financing activities was primarily due to net proceeds from senior secured loans in the current year to finance the REIM Acquisitions and the new British pound sterling A-1 term loan facility entered into in the current year versus significant net repayments of our senior secured term loans in the prior year. These items were partially offset by higher net repayments of notes payable on real estate within our Development Services segment and greater distributions to non-controlling interests in the current year.

 

Net cash used in financing activities totaled $784.2 million for the year ended December 31, 2010 as compared to net cash provided by financing activities of $476.8 million for the year ended December 31, 2009. The sharp decrease in cash provided by financing activities was primarily due to higher net repayments of our senior secured term loans in 2010 as well as proceeds received in 2009 in connection with equity offerings and the issuance of our 11.625% senior subordinated notes. Also contributing to the decrease were higher net repayments of notes payable on real estate within our Development Services segment in 2010. These decreases were partially offset by proceeds received in 2010 from the issuance of our 6.625% senior notes.

 

Summary of Contractual Obligations and Other Commitments

 

The following is a summary of our various contractual obligations and other commitments as of December 31, 2011:

 

    Payments Due by Period  

Contractual Obligations

  Total     Less than
1 year
    1 – 3 years     4 – 5 years     More than
5 years
 
    (Dollars in thousands)  

Total debt (1)

  $ 3,230,889      $ 826,041      $ 144,714      $ 715,118      $ 1,545,016   

Operating leases (2)

    1,094,966        177,416        287,315        216,420        413,815   

Pension liability (3) (4)

    60,860        60,860        —          —          —     

Notes payable on real estate (recourse) (5)

    13,643        2,460        11,183        —          —     

Notes payable on real estate (non recourse) (5)

    359,269        143,496        93,889        107,076        14,808   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Contractual Obligations

  $ 4,759,627      $ 1,210,273      $ 537,101      $ 1,038,614      $ 1,973,639   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    Amount of Other Commitments Expiration  

Other Commitments

  Total     Less than
1 year
    1 – 3 years     4 – 5 years     More than
5 years
 
    (Dollars in thousands)  

Letters of credit (2)

  $ 16,570      $ 16,570      $ —        $ —        $ —     

Guarantees (2) (6)

    43,687        43,687        —          —          —     

Co-investments (2) (7)

    73,808        73,808        —          —          —     

Non-current tax liabilities (8)

    —          —          —          —          —     

Other (9)

    51,825        51,825        —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Other Commitments

  $ 185,890      $ 185,890      $ —        $ —        $ —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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(1) See Note 13 of our Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report. Figures do not include scheduled interest payments. Assuming each debt obligation is held until maturity, we estimate that we will make the following interest payments (dollars in thousands): 2012—$132,108; 2013 to 2014—$254,447; 2015 to 2016—$235,468 and thereafter—$157,500. The interest payments on the variable rate debt have been calculated at the interest rate in effect at December 31, 2011.
(2) See Note 14 of our Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report.
(3) See Note 15 of our Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report.
(4) Because these obligations are related, either wholly or partially, to the future retirement of our employees and such retirement dates are not predictable, an undeterminable portion of this amount will be paid in years one through five.
(5) See Note 12 of our Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report. Figures do not include scheduled interest payments. The notes (primarily construction loans) have either fixed or variable interest rates, ranging from 1.85% to 8.75% at December 31, 2011. In general, interest is drawn on the underlying loan and subsequently paid with proceeds received upon the sale of the real estate project.
(6) Due to the nature of guarantees, payments could be due at any time upon the occurrence of certain triggering events including default. Accordingly, all guarantees are reflected as expiring in less than one year.
(7) Includes $59.4 million related to our Global Investment Management segment, all of which is expected to be funded in 2012 and $14.4 million related to our Development Services segment (callable at any time).
(8) As of December 31, 2011, our current and non-current tax liabilities, including interest and penalties, totaled $92.4 million. We are unable to reasonably estimate the timing of the effective settlement of tax positions.
(9) Represents outstanding reserves for claims under certain insurance programs, which are included in other current and other long-term liabilities in the consolidated balance sheets at December 31, 2011 set forth in Item 8 of this Annual Report. Due to the nature of this item, payments could be due at any time upon the occurrence of certain events. Accordingly, the entire balance has been reflected as expiring in less than one year.

 

Significant Indebtedness

 

Our level of indebtedness increases the possibility that we may be unable to generate cash sufficient to pay when due the principal of, interest on or other amounts due in respect of our indebtedness and other obligations. 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.

 

Since 2001, we have maintained credit facilities with Credit Suisse Group AG, or CS, and other lenders to fund strategic acquisitions and to provide for our working capital needs. On November 10, 2010, we entered into a new credit agreement (as amended, the Credit Agreement) with a syndicate of banks led by CS, as administrative and collateral agent, to completely refinance our previous credit facilities. On March 4, 2011, we entered into an amendment to our Credit Agreement to, among other things, increase flexibility to various covenants to accommodate the REIM Acquisitions and to maintain the availability of the $800.0 million incremental facility under the Credit Agreement. On March 4, 2011, we also entered into an incremental assumption agreement to allow for the establishment of new tranche C and tranche D term loan facilities. On November 10, 2011, we entered into an incremental assumption agreement led jointly by HSBC Bank USA, N.A. and J.P. Morgan Securities LLC to allow for the establishment of a new tranche A-1 term loan facility, which also reduced the $800.0 million incremental facility under the Credit Agreement.

 

Our Credit Agreement currently provides for the following: (1) a $700.0 million revolving credit facility, including revolving credit loans, letters of credit and a swingline loan facility, maturing on May 10, 2015; (2) a $350.0 million tranche A term loan facility requiring quarterly principal payments, which began on December 31, 2010 and continue through September 30, 2015, with the balance payable on November 10, 2015; (3) a £187.0 million (approximately $300.0 million) tranche A-1 term loan facility requiring quarterly principal

 

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payments, which began on December 30, 2011 and continue through March 31, 2016, with the balance payable on May 10, 2016; (4) a $300.0 million tranche B term loan facility requiring quarterly principal payments, which began on December 31, 2010 and continue through September 30, 2016, with the balance payable on November 10, 2016; (5) a $400.0 million tranche C term loan facility requiring quarterly principal payments, which began on September 30, 2011 and continue through December 31, 2017, with the balance payable on March 4, 2018; (6) a $400.0 million tranche D term loan facility requiring quarterly principal payments, which began on September 30, 2011 and continue through June 30, 2019, with the balance payable on September 4, 2019 and (7) an accordion provision which provides the ability to borrow additional funds under an incremental facility. The incremental facility is equivalent to the sum of $800.0 million and the aggregate amount of all repayments of term loans and permanent reductions of revolver commitments under the Credit Agreement. However, at no time may the sum of all outstanding amounts under the Credit Agreement exceed $2.95 billion. On November 10, 2011, we utilized the incremental facility to issue the tranche A-1 term loan facility.

 

In regards to the tranche C and tranche D term loan facilities, we had up to 180 days from the date we entered into the related incremental assumption agreement to draw on these facilities during which period we were required to pay a fee on the unused portions of each facility. On June 30, 2011, we drew down $400.0 million of the tranche D term loan facility to finance the CRES portion of the REIM Acquisitions, which closed on July 1, 2011. On August 31, 2011, we drew down $400.0 million of the tranche C term loan facility, part of which was used to finance the ING REIM Asia portion of the REIM Acquisitions, which closed on October 3, 2011. The remaining borrowings were used to finance the acquisition of ING REIM’s operations in Europe, which closed on October 31, 2011.

 

The revolving credit facility allows for borrowings outside of the U.S., with sub-facilities of $5.0 million available to one of our Canadian subsidiaries, $35.0 million in aggregate available to one of our Australian and one of our New Zealand subsidiaries and $50.0 million available to one of our U.K. subsidiaries. Additionally, outstanding borrowings under these sub-facilities may be up to 5.0% higher as allowed under the currency fluctuation provision in the Credit Agreement. Borrowings under the revolving credit facility as of December 31, 2011 bear interest at varying rates, based at our option, on either the applicable fixed rate plus 1.65% to 3.15% or the daily rate plus 0.65% to 2.15% as determined by reference to our ratio of total debt less available cash to EBITDA (as defined in the Credit Agreement). As of December 31, 2011 and 2010, we had $44.8 million and $17.5 million, respectively, of revolving credit facility principal outstanding with related weighted average interest rates of 4.3% and 3.5%, respectively, which are included in short-term borrowings in the consolidated balance sheets set forth in Item 8 of this Annual Report. As of December 31, 2011, letters of credit totaling $17.2 million were outstanding under the revolving credit facility. These letters of credit were primarily issued in the normal course of business as well as in connection with certain insurance programs and reduce the amount we may borrow under the revolving credit facility.

 

Borrowings under the term loan facilities as of December 31, 2011 bear interest, based at our option, on the following: for the tranche A and A-1 term loan facilities, on either the applicable fixed rate plus 2.00% to 3.75% or the daily rate plus 1.00% to 2.75%, as determined by reference to our ratio of total debt less available cash to EBITDA (as defined in the Credit Agreement), for the tranche B term loan facility, on either the applicable fixed rate plus 3.25% or the daily rate plus 2.25%, for the tranche C term loan facility, on either the applicable fixed rate plus 3.25% or the daily rate plus 2.25% and for the tranche D term loan facility, on either the applicable fixed rate plus 3.50% or the daily rate plus 2.50%. As of December 31, 2011 and 2010, we had $306.3 million and $341.3 million, respectively, of tranche A term loan facility principal outstanding and $296.3 million and $299.2 million, respectively, of tranche B term loan facility principal outstanding, which are included in the consolidated balance sheets set forth in Item 8 of this Annual Report. As of December 31, 2011, we also had $285.1 million of tranche A-1 term loan facility principal outstanding and $398.0 million of both tranche C and tranche D term loan facilities principal outstanding, which are included in the consolidated balance sheets set forth in Item 8 of this Annual Report.

 

In March 2011, we entered into five interest rate swap agreements, all with effective dates in October 2011, and immediately designated them as cash flow hedges in accordance with FASB ASC Topic 815, “Derivatives

 

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and Hedging.” The purpose of these interest rate swap agreements is to hedge potential changes to our cash flows due to the variable interest nature of our senior secured term loan facilities. The total notional amount of these interest rate swap agreements is $400.0 million, with $200.0 million expiring in October 2017 and $200.0 million expiring in September 2019. There was no hedge ineffectiveness for the year ended December 31, 2011. As of December 31, 2011, the fair values of these interest rate swap agreements were reflected as a $39.9 million liability and were included in other long-term liabilities in the consolidated balance sheets set forth in Item 8 of this Annual Report.

 

The Credit Agreement is jointly and severally guaranteed by us and substantially all of our domestic subsidiaries. Borrowings under our Credit Agreement are secured by a pledge of substantially all of the capital stock of our U.S. subsidiaries and 65.0% of the capital stock of certain non-U.S. subsidiaries. Also, the Credit Agreement requires us to pay a fee based on the total amount of the revolving credit facility commitment.

 

On October 8, 2010, CBRE Services, Inc. (formerly known as CB Richard Ellis Services, Inc.), or CBRE, our wholly-owned subsidiary, issued $350.0 million in aggregate principal amount of 6.625% senior notes due October 15, 2020. The 6.625% senior notes are unsecured obligations of CBRE, senior to all of its current and future subordinated indebtedness, but effectively subordinated to all of its current and future secured indebtedness. The 6.625% senior notes are jointly and severally guaranteed on a senior basis by us and each subsidiary of CBRE that guarantees our Credit Agreement. Interest accrues at a rate of 6.625% per year and is payable semi-annually in arrears on April 15 and October 15, having commenced on April 15, 2011. The 6.625% senior notes are redeemable at our option, in whole or in part, on or after October 15, 2014 at a redemption price of 104.969% of the principal amount on that date and at declining prices thereafter. At any time prior to October 15, 2014, the 6.625% senior notes may be redeemed by us, in whole or in part, at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest and an applicable premium (as defined in the indenture governing these notes), which is based on the present value of the October 15, 2014 redemption price plus all remaining interest payments through October 15, 2014. In addition, prior to October 15, 2013, up to 35.0% of the original issued amount of the 6.625% senior notes may be redeemed at a redemption price of 106.625% of the principal amount, plus accrued and unpaid interest, solely with the net cash proceeds from public equity offerings. If a change of control triggering event (as defined in the indenture governing our 6.625% senior notes) occurs, we are obligated to make an offer to purchase the remaining 6.625% senior notes at a redemption price of 101.0% of the principal amount, plus accrued and unpaid interest. The amount of the 6.625% senior notes included in the consolidated balance sheets set forth in Item 8 of this Annual Report was $350.0 million at both December 31, 2011 and 2010.

 

On June 18, 2009, CBRE issued $450.0 million in aggregate principal amount of 11.625% senior subordinated notes due June 15, 2017 for approximately $435.9 million, net of discount. The 11.625% senior subordinated notes are unsecured senior subordinated obligations of CBRE and are jointly and severally guaranteed on a senior subordinated basis by us and our domestic subsidiaries that guarantee our Credit Agreement. Interest accrues at a rate of 11.625% per year and is payable semi-annually in arrears on June 15 and December 15. The 11.625% senior subordinated notes are redeemable at our option, in whole or in part, on or after June 15, 2013 at 105.813% of par on that date and at declining prices thereafter. At any time prior to June 15, 2013, the 11.625% senior subordinated notes may be redeemed by us, in whole or in part, at a price equal to 100% of the principal amount, plus accrued and unpaid interest and an applicable premium (as defined in the indenture governing these notes), which is based on the present value of the June 15, 2013 redemption price plus all remaining interest payments through June 15, 2013. In addition, prior to June 15, 2012, up to 35.0% of the original issued amount of the 11.625% senior subordinated notes may be redeemed at 111.625% of par, plus accrued and unpaid interest, solely with the net cash proceeds from public equity offerings. In the event of a change of control (as defined in the indenture governing our 11.625% senior subordinated notes), we are obligated to make an offer to purchase the remaining 11.625% senior subordinated notes at a redemption price of 101.0% of the principal amount, plus accrued and unpaid interest. The amount of the 11.625% senior subordinated notes included in the consolidated balance sheets set forth in Item 8 of this Annual Report, net of unamortized discount, was $439.0 million and $437.7 million at December 31, 2011 and 2010, respectively.

 

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Our Credit Agreement and the indentures governing our 6.625% senior notes and 11.625% senior subordinated notes contain numerous restrictive covenants that, among other things, limit our ability to incur additional indebtedness, pay dividends or make distributions to stockholders, repurchase capital stock or debt, make investments, sell assets or subsidiary stock, create or permit liens on assets, engage in transactions with affiliates, enter into sale/leaseback transactions, issue subsidiary equity and enter into consolidations or mergers. Our Credit Agreement also currently requires us to maintain a minimum coverage ratio of EBITDA (as defined in the Credit Agreement) to total interest expense of 2.25x and a maximum leverage ratio of total debt less available cash to EBITDA (as defined in the Credit Agreement) of 3.75x. Our coverage ratio of EBITDA to total interest expense was 15.0x for the year ended December 31, 2011 and our leverage ratio of total debt less available cash to EBITDA was 1.53x as of December 31, 2011. We may from time to time, in our sole discretion, look for opportunities to reduce our outstanding debt under our Credit Agreement and under our 6.625% senior notes and 11.625% senior subordinated notes.

 

From time to time, Moody’s Investor Service, Inc., or Moody’s, and Standard & Poor’s Ratings Services, or Standard & Poor’s, rate our senior debt. Neither the Moody’s nor the Standard & Poor’s ratings impact our ability to borrow under our Credit Agreement. However, these ratings may impact our ability to borrow under new agreements in the future and the interest rates of any such future borrowings.

 

We had short-term borrowings of $758.2 million and $471.4 million with related average interest rates of 2.9% and 2.8% as of December 31, 2011 and 2010, respectively, which are included in the consolidated balance sheets set forth in Item 8 of this Annual Report.

 

On March 2, 2007, we entered into a $50.0 million credit note with Wells Fargo Bank for the purpose of purchasing eligible investments, which include cash equivalents, agency securities, A1/P1 commercial paper and eligible money market funds. The proceeds of this note are not made generally available to us, but instead deposited in an investment account maintained by Wells Fargo Bank and used and applied solely to purchase eligible investment securities. This agreement has been amended several times and currently provides for a $40.0 million revolving credit note, bears interest at 0.25% and has a maturity date of December 31, 2012. As of December 31, 2011 and 2010, there were no amounts outstanding under this note.

 

On March 4, 2008, we entered into a $35.0 million credit and security agreement with Bank of America, or BofA, for the purpose of purchasing eligible financial instruments, which include A1/P1 commercial paper, U.S. Treasury securities, GSE discount notes (as defined in the credit and security agreement) and money market funds. The proceeds of this loan are not made generally available to us, but instead deposited in an investment account maintained by BofA and used and applied solely to purchase eligible financial instruments. This agreement has been amended several times and currently provides for a $5.0 million credit line, bears interest at 1% and has a maturity date of February 28, 2013. As of December 31, 2011 and 2010, there were no amounts outstanding under this agreement.

 

On August 19, 2008, we entered into a $15.0 million uncommitted facility with First Tennessee Bank for the purpose of purchasing investments, which include cash equivalents, agency securities, A1/P1 commercial paper and eligible money market funds. The proceeds of this facility are not made generally available to us, but instead are held in a collateral account maintained by First Tennessee Bank. This agreement has been amended several times and currently provides for a $4.0 million credit line, bears interest at 0.25% and has a maturity date of August 4, 2012. As of December 31, 2011 and 2010, there were no amounts outstanding under this facility.

 

Our wholly-owned subsidiary, CBRE Capital Markets, has the following warehouse lines of credit: credit agreements with JP Morgan Chase Bank, N.A., or JP Morgan, BofA, TD Bank, N.A., or TD Bank, and Kemps Landing Capital Company, LLC, or Kemps Landing, 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 multi-family loans.

 

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On November 15, 2005, CBRE Capital Markets entered into a secured credit agreement with JP Morgan to establish a warehouse line of credit. Effective October 12, 2010 through January 10, 2011, the warehouse line of credit was temporarily increased from $210.0 million to $250.0 million. Effective November 22, 2010 through February 1, 2011, the warehouse line of credit was temporarily increased further from $250.0 million to $300.0 million. This agreement has been amended several times and currently provides for a $210.0 million senior secured revolving line of credit, bears interest at the daily LIBOR plus 2.50% and has a maturity date of September 28, 2012.

 

On April 16, 2008, CBRE Capital Markets entered into a secured credit agreement with BofA to establish a warehouse line of credit. This agreement has been amended several times and currently provides for a $125.0 million senior secured revolving line of credit, bears interest at the daily one-month LIBOR plus 2.0% with a maturity date of May 30, 2012.

 

In August 2009, CBRE Capital Markets entered into a funding arrangement with Fannie Mae under its Multifamily As Soon As Pooled Plus Agreement and its Multifamily As Soon As Pooled Sale Agreement, or ASAP Program. Under the ASAP Program, CBRE Capital Markets may elect, on a transaction by transaction basis, to sell a percentage of certain closed multifamily loans to Fannie Mae on an expedited basis. After all contingencies are satisfied, the ASAP Program requires that CBRE Capital Markets repurchase the interest in the multifamily loan previously sold to Fannie Mae followed by either a full delivery back to Fannie Mae via whole loan execution or a securitization into a mortgage backed security. Under this agreement, the maximum outstanding balance under the ASAP Program cannot exceed $150.0 million and, between the sale date to Fannie Mae and the repurchase date by CBRE Capital Markets, the outstanding balance bears interest and is payable to Fannie Mae at the daily LIBOR rate plus 1.35% with a LIBOR floor of 0.35%.

 

On December 21, 2010, CBRE Capital Markets entered into a secured credit agreement with TD Bank to establish a warehouse line of credit. Effective October 13, 2011, the warehouse line of credit was increased from $75.0 million to $100.0 million. The secured revolving line of credit bears interest at the daily one-month LIBOR plus 2.0% with a maturity date of May 31, 2012.

 

On December 21, 2010, CBRE Capital Markets entered into an uncommitted funding arrangement with Kemps Landing providing CBRE Capital Markets with the ability to fund Freddie Mac multi-family loans. Effective September 13, 2011, the maximum outstanding balance allowed under this arrangement was increased from $200.0 million to $300.0 million and on October 4, 2011, was further increased to $500.0 million. The outstanding borrowings bear interest at LIBOR plus 2.75% with a LIBOR floor of 0.25% and the agreement expires on December 19, 2012.

 

During the year ended December 31, 2011, we had a maximum of $747.2 million of warehouse lines of credit principal outstanding. As of December 31, 2011 and 2010, we had $713.4 million and $453.8 million of warehouse lines of credit principal outstanding, respectively, which are included in short-term borrowings in the consolidated balance sheets set forth in Item 8 of this Annual Report. Additionally, we had $720.1 million and $485.4 million of mortgage loans held for sale (warehouse receivables), which substantially represented mortgage loans funded through the lines of credit that, while committed to be purchased, had not yet been purchased as of December 31, 2011 and 2010, respectively, and which are also included in the consolidated balance sheets set forth in Item 8 of this Annual Report.

 

Pension Liability

 

Our subsidiaries based in the United Kingdom maintain two contributory defined benefit pension plans to provide retirement benefits to existing and former employees participating in the plans. The underfunded status of our defined benefit pension plans included in pension liability in the consolidated balance sheets set forth in Item 8 of this Annual Report was $60.9 million and $40.0 million at December 31, 2011 and 2010, respectively. We expect to contribute a total of $5.2 million to fund our pension plans for the year ending December 31, 2012.

 

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Off-Balance Sheet Arrangements

 

We had outstanding letters of credit totaling $16.6 million as of December 31, 2011, 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. These letters of credit are primarily executed by us in the ordinary course of business and expire at varying dates through December 2012.

 

We had guarantees totaling $43.7 million as of December 31, 2011, 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 operating leases. The $43.7 million primarily consists of guarantees related to our defined benefit pension plans in the United Kingdom (in excess of our outstanding pension liability of $60.9 million as of December 31, 2011), which are continuous guarantees that will not expire until all amounts have been paid out for our pension liabilities. The remainder of the guarantees mainly represent guarantees of obligations of unconsolidated subsidiaries, which expire at varying dates through November 2013, as well as various guarantees of management contracts in our operations overseas, which expire at the end of each of the respective agreements.

 

In addition, as of December 31, 2011, we had numerous completion and budget guarantees relating to development projects. These guarantees are made by us in the ordinary course of our Development Services business. Each of these guarantees requires 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 have “guaranteed maximum price” contracts with reputable 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.

 

From time to time, we act as a general contractor with respect to construction projects. We do not consider these activities to be a material part of our business. In connection with these activities, we seek to subcontract construction work for certain projects to reputable subcontractors. Should construction defects arise relating to the underlying projects, we could potentially be liable to the client for the costs to repair such defects, although we would generally look to the subcontractor that performed the work to remedy the defect and also look to insurance policies that cover this work. While there can be no assurance, we do not expect to incur material losses with respect to construction defects.

 

In January 2008, CBRE Multifamily Capital, Inc., or CBRE MCI, a wholly-owned subsidiary of CBRE Capital Markets, Inc., entered into an agreement with Fannie Mae, under Fannie Mae’s Delegated Underwriting and Servicing Lender Program, or 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 in selected cases, 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 $3.5 billion at December 31, 2011. Additionally, CBRE MCI has funded loans under the DUS Program that are not subject to loss sharing arrangements with unpaid principal balances of approximately $518.1 million at December 31, 2011. CBRE MCI, under its agreement with Fannie Mae, must post cash reserves under formulas established by Fannie Mae to provide for sufficient capital in the event losses occur. As of December 31, 2011 and 2010, CBRE MCI had $4.6 million and $2.2 million, respectively, of cash deposited under this reserve arrangement, and had provided approximately $6.4 million and $4.0 million, respectively, of loan loss accruals. Fannie Mae’s recourse under the DUS Program is limited to the assets of CBRE MCI, which totaled approximately $180.6 million (including $106.6 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 December 31, 2011.

 

An important part of the strategy for our Global Investment Management business involves investing our capital in certain real estate investments with our clients. These co-investments typically range from 2.0% to

 

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5.0% of the equity in a particular fund. As of December 31, 2011, we had aggregate commitments of $59.4 million to fund future co-investments, all of which is expected to be funded in 2012. In addition to required future capital contributions, some of the co-investment entities may request additional capital from us and our subsidiaries holding investments in those assets and the failure to provide these contributions could have adverse consequences to our interests in these investments.

 

Additionally, an important part of our Development Services business strategy is to invest in unconsolidated real estate subsidiaries as a principal (in most cases co-investing with our clients). As of December 31, 2011, we had committed to fund $14.4 million of additional capital to these unconsolidated subsidiaries, which may be called at any time.

 

Seasonality

 

A significant portion of our revenue is seasonal, which can affect an investor’s ability to compare our financial condition and results of operations on a quarter-by-quarter basis. Historically, this seasonality has caused our revenue, operating income, net income and cash flow from operating activities to be lower in the first two quarters and higher in the third and fourth quarters of each year. Earnings and cash flow have historically been particularly concentrated in the fourth quarter due to investors and companies focusing on completing transactions prior to calendar year-end. This has historically resulted in lower profits or a loss in the first quarter, with revenue and profitability improving in each subsequent quarter.

 

Inflation

 

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

 

New Accounting Pronouncements

 

In December 2010, the FASB issued ASU 2010-29, “Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations.” ASU 2010-29 specifies that when a public company completes a business combination, the company should disclose revenue and earnings of the combined entity as though the business combination occurred as of the beginning of the comparable prior annual reporting period. The update also expands the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, non-recurring pro forma adjustments directly attributable to the business combination included in the pro forma revenue and earnings. The requirements of ASU 2010-29 are effective for business combinations that occur on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. We adopted this ASU during the year ended December 31, 2011 (see Note 3 of the Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report) and do not believe the adoption of this update had a material impact on the disclosure requirements for our consolidated financial statements.

 

In April 2011, the FASB issued ASU 2011-03, “Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements.” ASU 2011-03 specifies when an entity may or may not recognize a sale upon the transfer of financial assets subject to repurchase agreements. That determination is based, in part, on whether the entity has maintained effective control over the transferred financial assets. The requirements of ASU 2011-03 will be effective for the first interim or annual period beginning on or after December 15, 2011, with early adoption prohibited. We do not believe the adoption of this update will have a material effect on our consolidated financial position or results of operations.

 

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” These amendments were issued to provide a consistent definition of fair value and ensure that the fair value

 

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measurement and disclosure requirements are similar between GAAP and International Financial Reporting Standards, or IFRS. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements, particularly for level 3 fair value measurements. This ASU is effective for interim and annual periods beginning after December 15, 2011, with early adoption prohibited. We do not believe the adoption of this update will have a material effect on our consolidated financial position or results of operations.

 

In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This ASU eliminates the option to report other comprehensive income and its components in the statement of changes in stockholders’ equity and requires an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement or in two separate but consecutive statements. In December 2011, the FASB issued ASU 2011-12, “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. This ASU defers indefinitely certain requirements from ASU 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. ASU 2011-05 and ASU 2011-12 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted, and requires retrospective application for all periods presented. We elected to adopt these ASUs early and have provided the components of net income and the components of other comprehensive income in two separate but consecutive statements in the consolidated financial statements set forth in Item 8 of this Annual Report. We do not believe the adoption of these updates had a material impact on the disclosure requirements for our consolidated financial statements.

 

In September 2011, the FASB issued ASU 2011-08, “Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment. This ASU gives companies the option to perform a qualitative assessment to first assess whether the fair value of a reporting unit is less than its carrying amount. If an entity determines it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. We do not believe the adoption of this update will have a material impact on the disclosure requirements for our consolidated financial statements.

 

In December 2011, the FASB issued ASU 2011-10, “Property, Plant, and Equipment (Topic 360): Derecognition of in Substance Real Estate—a Scope Clarification.” This ASU requires that a reporting entity that ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt would apply FASB ASC Subtopic 360-20, Property, Plant, and Equipment—Real Estate Sales, to determine whether to derecognize assets and liabilities of that subsidiary. ASU 2011-10 is effective prospectively for a deconsolidation event that takes place in fiscal years, and interim periods within those years, beginning on or after June 15, 2012. We do not believe the adoption of this update will have a material effect on our consolidated financial position or results of operations.

 

In December 2011, the FASB issued ASU 2011-11, “Balance Sheet (Topic 210): Disclosures About Offsetting Assets and Liabilities.” This ASU adds certain additional disclosure requirements about financial instruments and derivative instruments that are subject to netting arrangements. ASU 2011-11 is effective for fiscal years, and interim periods within those years, beginning after January 1, 2013, with retrospective application required. We do not believe the adoption of this update will have a material impact on the disclosure requirements for our consolidated financial statements.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

 

Our exposure to market risk 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 the “Derivatives and Hedging” Topic of the Financial Accounting Standards Board (FASB)

 

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Accounting Standards Codification (ASC) (Topic 815) 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

 

During the year ended December 31, 2011, approximately 41% of our business was transacted in local currencies of foreign countries, the majority of which includes the Euro, the British pound sterling, the Canadian dollar, the Chinese yuan, the Hong Kong dollar, the Japanese yen, the Singapore dollar, the Australian dollar and the Indian rupee. We attempt to manage our exposure primarily by balancing assets and liabilities and maintaining cash positions in foreign currencies only at levels necessary for operating purposes. Fluctuations in foreign currency exchange rates affect reported amounts of our total assets and liabilities, which are reflected in our financial statements as translated into U.S. dollars for each financial reporting period at the exchange rate in effect on the respective balance sheet dates, and our total revenue and expenses, which are reflected in our financial statements as translated into U.S. dollars for each financial reporting period at the monthly average exchange rate. During the year ended December 31, 2011, foreign currency translation had a $143.8 million positive impact on our total revenue and a $125.9 million negative impact on our total costs of services and operating, administrative and other expenses.

 

We routinely monitor our exposure to currency exchange rate changes in connection with transactions and sometimes enter into foreign currency exchange swap, option and forward contracts to limit our exposure to such transactions, as appropriate. In the normal course of business, we also sometimes utilize derivative financial instruments in the form of foreign currency exchange contracts to mitigate foreign currency exchange exposure resulting from intercompany loans, expected cash flow and earnings. Included in the consolidated statement of operations set forth in Item 8 of this Annual Report were charges of $1.5 million and $1.0 million for the years ended December 31, 2011 and 2010, respectively, resulting from net losses on foreign currency exchange option agreements. As of December 31, 2011 and 2010, we did not have any foreign currency exchange contracts outstanding.

 

Interest Rates

 

We manage our interest expense by using a combination of fixed and variable rate debt. Excluding notes payable on real estate, our fixed and variable rate long-term debt at December 31, 2011 consisted of the following (dollars in thousands):

 

Year of Maturity

  Fixed Rate     LIBOR
+ 2.25%
(1)
    LIBOR
+ 3.25%
(1)
    LIBOR
+ 3.50%
(1)
    (2)     (3)     Total  

2012

  $ 66      $ 56,788      $ 7,000      $ 4,000      $ 713,362      $ 44,825      $ 826,041   

2013

    59        58,604        7,000        4,000        —          —          69,663   

2014

    —          64,051        7,000        4,000        —          —          75,051   

2015

    —          285,497        7,000        4,000        —          —          296,497   

2016

    —          126,371        288,250        4,000        —          —          418,621   

Thereafter

    789,016        —          378,000        378,000        —          —          1,545,016   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 789,141      $ 591,311      $ 694,250      $ 398,000      $ 713,362      $ 44,825      $ 3,230,889   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted Average Interest Rate

    9.4     2.8     3.5     3.8     2.8     4.3     4.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Consists of amounts due under our senior secured term loan facilities.
(2) Consists of amounts due under our warehouse lines of credit as follows (dollars in thousands): $357,457 at daily LIBOR + 2.75% with a LIBOR floor of 0.25%; $197,533 at daily Chase-London LIBOR + 2.50%; $63,653 at daily one-month LIBOR + 2.00%; $56,574 at daily LIBOR + 1.35% with a LIBOR floor of 0.35% and $38,145 at daily one-month LIBOR + 2.00%.
(3) Consists of amounts due under our revolving credit facility as follows (dollars in thousands): $20,893 at LIBOR + 1.85%; $17,478 at Australia Bill Rate + 1.85% and $6,454 at New Zealand Bill Rate + 1.85%.

 

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We utilize sensitivity analyses to assess the potential effect of our variable rate debt. If interest rates were to increase by 10.0% on our outstanding variable rate debt, excluding notes payable on real estate, at December 31, 2011, the net impact of the additional interest cost would be a decrease of $7.8 million on pre-tax income and a decrease of $7.8 million on cash provided by operating activities for the year ended December 31, 2011.

 

Based upon information from third-party banks, the estimated fair value of our senior secured term loans was approximately $1.7 billion at December 31, 2011. Based on dealers’ quotes, the estimated fair values of our 6.625% senior notes and 11.625% senior subordinated notes were $364.9 million and $504.3 million, respectively, at December 31, 2011.

 

In March 2011, we entered into five interest rate swap agreements, all with effective dates in October 2011, and immediately designated them as cash flow hedges in accordance with Topic 815. The purpose of these interest rate swap agreements is to hedge potential changes to our cash flows due to the variable interest nature of our senior secured term loan facilities. The total notional amount of these interest rate swap agreements is $400.0 million, with $200.0 million expiring in October 2017 and $200.0 million expiring in September 2019. There was no hedge ineffectiveness for the year ended December 31, 2011. As of December 31, 2011, the fair values of these interest rate swap agreements were reflected as a $39.9 million liability and were included in other long-term liabilities in the consolidated balance sheets set forth in Item 8 of this Annual Report.

 

We also have $372.9 million of notes payable on real estate as of December 31, 2011. These notes have interest rates ranging from 1.85% to 8.75% with maturity dates extending through 2023. Interest costs relating to notes payable on real estate include both interest that is expensed and interest that is capitalized as part of the cost of real estate. If interest rates were to increase by 10.0%, our total estimated interest cost related to notes payable would increase by approximately $1.9 million for the year ended December 31, 2011. From time to time, we enter into interest rate swap and cap agreements in order to limit our interest expense related to our notes payable on real estate. If any of these agreements are not designated as effective hedges, then they are marked to market each period with the change in fair value recognized in current period earnings. The net impact on our earnings resulting from gains and/or losses on interest rate swap and cap agreements associated with notes payable on real estate has not been significant.

 

We also enter into loan commitments that relate to the origination or acquisition of commercial mortgage loans that will be held for resale. Topic 815 requires that these commitments be recorded at their fair values as derivatives. The net impact on our financial position and earnings resulting from these derivatives contracts has not been significant.

 

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Item 8. Financial Statements and Supplementary Data

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AND FINANCIAL STATEMENT SCHEDULES

 

     Page  

Report of Independent Registered Public Accounting Firm

     64   

Consolidated Balance Sheets at December 31, 2011 and 2010

     66   

Consolidated Statements of Operations for the years ended December 31, 2011, 2010 and 2009

     67   

Consolidated Statements of Comprehensive Income (Loss) for the years ended December  31, 2011, 2010 and 2009

     68   

Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009

     69   

Consolidated Statements of Equity for the years ended December 31, 2011, 2010 and 2009

     70   

Notes to Consolidated Financial Statements

     71   

Quarterly Results of Operations (Unaudited)

     144   

FINANCIAL STATEMENT SCHEDULES:

  

Schedule II—Valuation and Qualifying Accounts

     148   

Schedule III—Real Estate Investments and Accumulated Depreciation

     149   

 

All other schedules are omitted because they are either not applicable, not required or the information required is included in the Consolidated Financial Statements, including the notes thereto.

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Board of Directors and Stockholders

CBRE Group, Inc.:

 

We have audited the accompanying consolidated balance sheets of CBRE Group, Inc. (the Company) and subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of operations, comprehensive income (loss), cash flows and equity for each of the years in the three-year period ended December 31, 2011. In connection with our audits of the consolidated financial statements, we also have audited the related financial statement schedules. We also have audited the Company’s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these consolidated financial statements and financial statement schedules, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules and an opinion on the Company’s internal control over financial reporting based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

CBRE Group, Inc. acquired certain real estate investment management businesses from ING Group N.V. during 2011(“Acquired Business”) as defined in Note 3 to the consolidated financial statements, and management excluded from its assessment of the effectiveness of CBRE Group, Inc’s internal control over financial reporting as of December 31, 2011, the Acquired Business’s internal control over financial reporting associated with total assets of $1.4 billion and total revenues of $84.6 million included in the consolidated financial statements of

 

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CBRE Group, Inc. and subsidiaries as of and for the year ended December 31, 2011. Our audit of internal control over financial reporting of CBRE Group, Inc. also excluded an evaluation of the internal control over financial reporting of the Acquired Business.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CBRE Group, Inc. and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. Also in our opinion, CBRE Group, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

/s/ KPMG LLP

 

Los Angeles, California

February 29, 2012

 

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CBRE GROUP, INC.

 

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

 

     December 31,  
     2011     2010  
ASSETS     

Current Assets:

    

Cash and cash equivalents

   $ 1,093,182      $ 506,574   

Restricted cash

     67,138        52,257   

Receivables, less allowance for doubtful accounts of $33,915 and $33,272 at December 31, 2011 and 2010, respectively

     1,135,371        940,167   

Warehouse receivables

     720,061        485,433   

Trading securities

     151,484        —     

Prepaid expenses

     111,879        96,951   

Deferred tax assets, net

     168,939        112,304   

Real estate under development

     30,617        —     

Real estate and other assets held for sale

     26,201        16,295   

Available for sale securities

     2,790        3,018   

Other current assets

     42,385        47,871   
  

 

 

   

 

 

 

Total Current Assets

     3,550,047        2,260,870   

Property and equipment, net

     295,488        188,397   

Goodwill

     1,828,407        1,323,801   

Other intangible assets, net of accumulated amortization of $194,982 and $166,295 at December 31, 2011 and 2010, respectively

     794,325        332,855   

Investments in unconsolidated subsidiaries

     166,832        138,973   

Deferred tax assets, net

     —          10,320   

Real estate under development

     3,952        112,819   

Real estate held for investment

     403,698        626,395   

Available for sale securities

     34,605        31,936   

Other assets, net

     141,789        95,202   
  

 

 

   

 

 

 

Total Assets

   $ 7,219,143      $ 5,121,568   
  

 

 

   

 

 

 
LIABILITIES AND EQUITY     

Current Liabilities:

    

Accounts payable and accrued expenses

   $ 574,136      $ 445,337   

Compensation and employee benefits payable

     398,688        346,539   

Accrued bonus and profit sharing

     544,628        455,523   

Securities sold, not yet purchased

     98,810        —     

Income taxes payable

     28,368        18,398   

Short-term borrowings:

    

Warehouse lines of credit

     713,362        453,835   

Revolving credit facility

     44,825        17,516   

Other

     16        16   
  

 

 

   

 

 

 

Total short-term borrowings

     758,203        471,367   

Current maturities of long-term debt

     67,838        38,086   

Notes payable on real estate

     146,120        154,213   

Liabilities related to real estate and other assets held for sale

     21,482        12,152   

Other current liabilities

     42,375        15,153   
  

 

 

   

 

 

 

Total Current Liabilities

     2,680,648        1,956,768   

Long-Term Debt:

    

Senior secured term loans

     1,615,773        602,500   

11.625% senior subordinated notes, net of unamortized discount of $10,984 and $12,318 at December 31, 2011 and 2010, respectively

     439,016        437,682   

6.625% senior notes

     350,000        350,000   

Other long-term debt

     59        54   
  

 

 

   

 

 

 

Total Long-Term Debt

     2,404,848        1,390,236   

Notes payable on real estate

     206,339        461,665   

Deferred tax liabilities, net

     148,969        —     

Non-current tax liabilities

     79,927        78,306   

Pension liability

     60,860        40,007   

Other liabilities

     220,389        128,791   
  

 

 

   

 

 

 

Total Liabilities

     5,801,980        4,055,773   

Commitments and contingencies

     —          —     

Equity:

    

CBRE Group, Inc. Stockholders’ Equity:

    

Class A common stock; $0.01 par value; 525,000,000 shares authorized; 327,972,156 and 323,594,919 shares issued and outstanding at December 31, 2011 and 2010, respectively

     3,280        3,236   

Additional paid-in capital

     882,141        814,244   

Accumulated earnings

     424,499        185,337   

Accumulated other comprehensive loss

     (158,439     (94,602
  

 

 

   

 

 

 

Total CBRE Group, Inc. Stockholders’ Equity

     1,151,481        908,215   

Non-controlling interests

     265,682        157,580   
  

 

 

   

 

 

 

Total Equity

     1,417,163        1,065,795   
  

 

 

   

 

 

 

Total Liabilities and Equity

   $ 7,219,143      $ 5,121,568   
  

 

 

   

 

 

 

 

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

 

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CBRE GROUP, INC.

 

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except share data)

 

    Year Ended December 31,  
    2011     2010     2009  

Revenue

  $ 5,905,411      $ 5,115,316      $ 4,165,820   

Costs and expenses:

     

Cost of services

    3,457,130        2,960,170        2,447,885   

Operating, administrative and other

    1,882,666        1,607,682        1,383,579   

Depreciation and amortization

    115,719        108,381        99,473   
 

 

 

   

 

 

   

 

 

 

Total costs and expenses

    5,455,515        4,676,233        3,930,937   

Gain on disposition of real estate

    12,966        7,296        6,959   
 

 

 

   

 

 

   

 

 

 

Operating income

    462,862        446,379        241,842   

Equity income (loss) from unconsolidated subsidiaries

    104,776        26,561        (34,095

Other income

    2,706        —          3,880   

Interest income

    9,443        8,416        6,129   

Interest expense

    150,249        191,151        189,146   

Write-off of financing costs

    —          18,148        29,255   
 

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before provision for income taxes

    429,538        272,057        (645

Provision for income taxes

    189,103        130,368        26,993   
 

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

    240,435        141,689        (27,638

Income from discontinued operations, net of income taxes

    49,890        14,320        —     
 

 

 

   

 

 

   

 

 

 

Net income (loss)

    290,325        156,009        (27,638

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

    51,163        (44,336     (60,979
 

 

 

   

 

 

   

 

 

 

Net income attributable to CBRE Group, Inc.

  $ 239,162      $ 200,345      $ 33,341   
 

 

 

   

 

 

   

 

 

 

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

     

Income from continuing operations attributable to CBRE Group, Inc.

  $ 0.73      $ 0.61      $ 0.12   

Income from discontinued operations attributable to CBRE Group, Inc.

    0.02        0.03        —     
 

 

 

   

 

 

   

 

 

 

Net income attributable to CBRE Group, Inc.

  $ 0.75      $ 0.64      $ 0.12   
 

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding for basic income per share

    318,454,191        313,873,439        277,361,783   
 

 

 

   

 

 

   

 

 

 

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

     

Income from continuing operations attributable to CBRE Group, Inc.

  $ 0.72      $ 0.60      $ 0.12   

Income from discontinued operations attributable to CBRE Group, Inc.

    0.02        0.03        —     
 

 

 

   

 

 

   

 

 

 

Net income attributable to CBRE Group, Inc.

  $ 0.74      $ 0.63      $ 0.12   
 

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding for diluted income per share

    323,723,755        319,016,887        279,995,081   
 

 

 

   

 

 

   

 

 

 

Amounts attributable to CBRE Group, Inc. shareholders

     

Income from continuing operations, net of tax

  $ 233,517      $ 191,466      $ 33,341   

Income from discontinued operations, net of tax

    5,645        8,879        —     
 

 

 

   

 

 

   

 

 

 

Net income

  $ 239,162      $ 200,345      $ 33,341   
 

 

 

   

 

 

   

 

 

 

 

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

 

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CBRE GROUP, INC.

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands)

 

     Year Ended December 31,  
     2011     2010     2009  

Net income (loss)

   $ 290,325      $ 156,009      $ (27,638

Other comprehensive (loss) income:

      

Foreign currency translation (loss) gain

     (24,165     (229     34,607   

Unrealized (losses) gains on interest rate swaps and interest rate caps, net of $16,278 and $25 income tax benefit and $5,911 income tax for the years ended December 31, 2011, 2010 and 2009, respectively

     (23,623     706        8,925   

Unrealized holding gains on available for sale securities, net of $42 income tax, $128 income tax benefit and $1,680 income tax for the years ended December 31, 2011, 2010 and 2009, respectively

     77        637        1,685   

Pension liability adjustments, net of $6,639 income tax benefit, $6,800 income tax and $12,440 income tax benefit for the years ended December 31, 2011, 2010 and 2009, respectively

     (19,088     17,953        (31,995

Other, net

     2,022        1,602        (1,890
  

 

 

   

 

 

   

 

 

 

Total other comprehensive (loss) income

     (64,777     20,669        11,332   
  

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     225,548        176,678        (16,306

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

     50,223        (44,142     (59,983
  

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to CBRE Group, Inc.

   $ 175,325      $ 220,820      $ 43,677   
  

 

 

   

 

 

   

 

 

 

 

 

 

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

 

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CBRE GROUP, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

 

     Year Ended December 31,  
     2011     2010     2009  

CASH FLOWS FROM OPERATING ACTIVITIES:

      

Net income (loss)

   $ 290,325      $ 156,009      $ (27,638

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

      

Depreciation and amortization

     116,930        108,962        99,473   

Amortization and write-off of financing costs

     7,453        29,013        38,384   

Write-down of impaired real estate and other assets

     4,337        27,147        38,550   

Gain on sale of loans, servicing rights and other assets

     (74,449     (65,855     (30,010

Net realized loss from investments

     917        —          —     

Net change in unrealized gains from investments

     (3,623     —          —     

Gain on interest rate swaps

     —          —          (3,880

Gain on disposition of real estate held for investment

     (41,805     (21,248     (2,721

Equity (income) loss from unconsolidated subsidiaries

     (104,776     (26,561     34,095   

Provision for doubtful accounts

     9,754        4,661        9,226   

Compensation expense related to stock options and non-vested stock awards

     44,327        46,801        37,925   

Incremental tax benefit from stock options exercised

     (14,936     (5,380     (1,586

Distribution of earnings from unconsolidated subsidiaries

     20,794        33,874        13,509   

Tenant concessions received

     45,751        4,608        3,611   

Purchase of trading securities

     (144,919     —          —     

Proceeds from sale of trading securities

     219,739        —          —     

Proceeds from securities sold, not yet purchased

     197,595        —          —     

Securities purchased to cover short sales

     (189,456     —          —     

Increase in receivables

     (123,669     (180,129     (13,379

Decrease in deferred compensation assets

     —          —          221,317   

(Increase) decrease in prepaid expenses and other assets

     (13,238     (5,520     20,045   

Decrease in real estate held for sale and under development

     84,731        26,457        2,946   

(Decrease) increase in accounts payable and accrued expenses

     (62,850     45,145        (11,306

Increase (decrease) in compensation and employee benefits payable and accrued bonus and profit sharing

     81,380        277,529        (37,551

Decrease in income taxes payable/receivable

     (4,891     142,090        72,276   

Increase (decrease) in other liabilities, including deferred compensation liabilities

     15,940        17,239        (250,270

Other operating activities, net

     (142     1,745        629   
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     361,219        616,587        213,645   

CASH FLOWS FROM INVESTING ACTIVITIES:

      

Capital expenditures

     (147,980     (68,464     (28,200

Acquisition of Clarion Real Estate Securities and substantially all of the ING Group N.V.
operations in Europe and Asia (collectively the REIM Acquisitions), including net assets
acquired, intangibles and goodwill, net of cash acquired

     (580,895     —          —     

Acquisition of businesses (other than the REIM Acquisitions), including net assets acquired,
intangibles and goodwill, net of cash acquired

     (49,790     (70,390     (30,670

Contributions to unconsolidated subsidiaries

     (51,463     (37,510     (47,402

Distributions from unconsolidated subsidiaries

     109,547        22,843        9,232   

Net proceeds from disposition of real estate held for investment

     231,678        76,504        3,408   

Additions to real estate held for investment

     (15,473     (16,551     (26,656

Proceeds from the sale of servicing rights and other assets

     27,035        28,944        12,283   

(Increase) decrease in restricted cash

     (1,696     4,047        (10,543

Other investing activities, net

     (1,218     (1,926     (814
  

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (480,255     (62,503     (119,362

CASH FLOWS FROM FINANCING ACTIVITIES:

      

Proceeds from senior secured term loans

     1,100,739        650,000        —     

Repayment of senior secured term loans

     (47,503     (1,693,110     (432,000

Proceeds from revolving credit facility

     1,032,624        106,759        800,928   

Repayment of revolving credit facility

     (1,005,132     (110,657     (772,721

Proceeds from 6.625% senior notes

     —          350,000        —     

Proceeds from 11.625% senior subordinated notes, net

     —          —          435,928   

Proceeds from notes payable on real estate held for investment

     10,300        20,631        16,690   

Repayment of notes payable on real estate held for investment

     (186,636     (81,906     (7,185

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

     8,454        3,671        63,040   

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

     (79,271     (14,341     (46,642

Repayment of short-term borrowings and other loans, net

     —          (6,048     (4,310

Proceeds from issuance of common stock, net

     —          —          440,173   

Proceeds from exercise of stock options

     7,136        2,401        15,443   

Incremental tax benefit from stock options exercised

     14,936        5,380        1,586   

Non-controlling interests contributions

     10,231        29,172        21,348   

Non-controlling interests distributions

     (129,686     (11,406     (13,496

Payment of financing costs

     (24,738     (34,430     (39,402

Other financing activities, net

     (129     (338     (2,612
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     711,325        (784,222     476,768   

Effect of currency exchange rate changes on cash and cash equivalents

     (5,681     (4,845     11,683   
  

 

 

   

 

 

   

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     586,608        (234,983     582,734   

CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD

     506,574        741,557        158,823   
  

 

 

   

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, AT END OF PERIOD

   $ 1,093,182      $ 506,574      $ 741,557   
  

 

 

   

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

      

Cash paid (received) during the period for:

      

Interest

   $ 138,035      $ 169,410      $ 168,577   
  

 

 

   

 

 

   

 

 

 

Income tax payments (refunds), net

   $ 189,917      $ (11,499   $ (48,355
  

 

 

   

 

 

   

 

 

 

 

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

 

69


Table of Contents

CBRE GROUP, INC.

 

CONSOLIDATED STATEMENTS OF EQUITY

(Dollars in thousands, except share data)

 

    CBRE Group, Inc. Shareholders              
                            Accumulated other
comprehensive (loss)
             
    Shares     Class A
common
stock
    Additional
paid-in
capital
    Accumulated
(deficit)
earnings
    Minimum
pension
liability
    Foreign
currency
translation
and other
    Non-
Controlling
Interests
    Total  

Balance at December 31, 2008

    262,336,032      $ 2,623      $ 285,825      $ (48,349   $