Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

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

For the quarterly period ended June 30, 2012

 

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

For the Transition Period from             to             

Commission File Number 001 – 32205

CBRE GROUP, INC.

(Exact name of Registrant as specified in its charter)

 

Delaware   94-3391143

(State or other jurisdiction of

incorporation or organization)

  (I.R.S. Employer Identification Number)

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)  

(Former name, former address and

former fiscal year if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  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 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.

The number of shares of Class A common stock outstanding at July 31, 2012 was 328,219,385.

 

 

 


Table of Contents

FORM 10-Q

June 30, 2012

TABLE OF CONTENTS

 

           Page  
PART I—FINANCIAL INFORMATION   

Item 1.

   Financial Statements   
   Consolidated Balance Sheets at June 30, 2012 (Unaudited) and December 31, 2011      3   
   Consolidated Statements of Operations for the three and six months ended June 30, 2012 and 2011 (Unaudited)      4   
   Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2012 and 2011 (Unaudited)      5   
   Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011 (Unaudited)      6   
   Consolidated Statement of Equity for the six months ended June 30, 2012 (Unaudited)      7   
   Notes to Consolidated Financial Statements (Unaudited)      8   

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      39   

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk      63   

Item 4.

   Controls and Procedures      64   
PART II—OTHER INFORMATION   

Item 1.

   Legal Proceedings      66   

Item 1A.

   Risk Factors      66   

Item 6.

   Exhibits      67   

Signatures

     69   

 

2


Table of Contents

CBRE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

 

    June 30,
2012
    December 31,
2011
 
    (Unaudited)        
ASSETS    

Current Assets:

   

Cash and cash equivalents

  $ 731,202      $ 1,093,182   

Restricted cash

    64,328        67,138   

Receivables, less allowance for doubtful accounts of $38,770 and $33,915 at June 30, 2012 and December 31, 2011, respectively

    1,092,964        1,135,371   

Warehouse receivables

    423,681        720,061   

Trading securities

    79,115        151,484   

Income taxes receivable

    48,414        —     

Prepaid expenses

    110,538        111,879   

Deferred tax assets, net

    173,211        168,939   

Real estate under development

    37,426        30,617   

Real estate and other assets held for sale

    13,667        26,201   

Available for sale securities

    2,068        2,790   

Other current assets

    52,084        42,385   
 

 

 

   

 

 

 

Total Current Assets

    2,828,698        3,550,047   

Property and equipment, net

    299,310        295,488   

Goodwill

    1,816,040        1,828,407   

Other intangible assets, net of accumulated amortization of $237,295 and $194,982 at June 30, 2012 and December 31, 2011, respectively

    784,779        794,325   

Investments in unconsolidated subsidiaries

    210,115        166,832   

Real estate under development

    7,813        3,952   

Real estate held for investment

    432,585        403,698   

Available for sale securities

    55,136        34,605   

Other assets, net

    141,919        141,789   
 

 

 

   

 

 

 

Total Assets

  $ 6,576,395      $ 7,219,143   
 

 

 

   

 

 

 
LIABILITIES AND EQUITY    

Current Liabilities:

   

Accounts payable and accrued expenses

  $ 496,127      $ 574,136   

Compensation and employee benefits payable

    399,216        398,688   

Accrued bonus and profit sharing

    284,729        544,628   

Securities sold, not yet purchased

    63,833        98,810   

Income taxes payable

    —          28,368   

Short-term borrowings:

   

Warehouse lines of credit

    417,245        713,362   

Revolving credit facility

    52,838        44,825   

Other

    4,692        16   
 

 

 

   

 

 

 

Total short-term borrowings

    474,775        758,203   

Current maturities of long-term debt

    68,060        67,838   

Notes payable on real estate

    139,410        146,120   

Liabilities related to real estate and other assets held for sale

    6,939        21,482   

Other current liabilities

    45,369        42,375   
 

 

 

   

 

 

 

Total Current Liabilities

    1,978,458        2,680,648   

Long-Term Debt:

   

Senior secured term loans

    1,584,774        1,615,773   

11.625% senior subordinated notes, net of unamortized discount of $10,253 and $10,984 at June 30, 2012 and December 31, 2011, respectively

    439,747        439,016   

6.625% senior notes

    350,000        350,000   

Other long-term debt

    57        59   
 

 

 

   

 

 

 

Total Long-Term Debt

    2,374,578        2,404,848   

Notes payable on real estate

    243,334        206,339   

Deferred tax liabilities, net

    158,707        148,969   

Non-current tax liabilities

    86,062        79,927   

Pension liability

    60,627        60,860   

Other liabilities

    239,687        220,389   
 

 

 

   

 

 

 

Total Liabilities

    5,141,453        5,801,980   

Commitments and contingencies

    —          —     

Equity:

   

CBRE Group, Inc. Stockholders’ Equity:

   

Class A common stock; $0.01 par value; 525,000,000 shares authorized; 328,219,385 and 327,972,156 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively

    3,282        3,280   

Additional paid-in capital

    908,657        882,141   

Accumulated earnings

    527,347        424,499   

Accumulated other comprehensive loss

    (184,424     (158,439
 

 

 

   

 

 

 

Total CBRE Group, Inc. Stockholders’ Equity

    1,254,862        1,151,481   

Non-controlling interests

    180,080        265,682   
 

 

 

   

 

 

 

Total Equity

    1,434,942        1,417,163   
 

 

 

   

 

 

 

Total Liabilities and Equity

  $ 6,576,395      $ 7,219,143   
 

 

 

   

 

 

 

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

 

3


Table of Contents

CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except share data)

 

    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2012     2011     2012     2011  

Revenue

  $ 1,601,117      $ 1,422,218      $ 2,951,106      $ 2,607,323   

Costs and expenses:

       

Cost of services

    908,143        839,822        1,695,699        1,553,577   

Operating, administrative and other

    482,377        432,856        923,099        809,881   

Depreciation and amortization

    38,336        25,385        84,793        48,563   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    1,428,856        1,298,063        2,703,591        2,412,021   

Gain on disposition of real estate

    439        6,027        1,248        7,999   
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    172,700        130,182        248,763        203,301   

Equity income from unconsolidated subsidiaries

    2,609        17,068        16,995        32,247   

Other (loss) income

    (2,104     —          4,484        —     

Interest income

    1,585        1,902        3,888        4,570   

Interest expense

    44,411        34,216        88,392        67,934   
 

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before provision for income taxes

    130,379        114,936        185,738        172,184   

Provision for income taxes

    54,780        46,336        80,193        69,742   
 

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

    75,599        68,600        105,545        102,442   

Income from discontinued operations, net of income taxes

    —          6,267        —          16,911   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    75,599        74,867        105,545        119,353   

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

    (274     13,644        2,697        23,761   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to CBRE Group, Inc.

  $ 75,873      $ 61,223      $ 102,848      $ 95,592   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

       

Income from continuing operations attributable to CBRE Group, Inc.

  $ 0.24      $ 0.19      $ 0.32      $ 0.30   

Income from discontinued operations attributable to CBRE Group, Inc.

    —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to CBRE Group, Inc.

  $ 0.24      $ 0.19      $ 0.32      $ 0.30   
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding for basic income per share

    320,852,344        317,698,275        320,761,873        317,133,967   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

       

Income from continuing operations attributable to CBRE Group, Inc.

  $ 0.23      $ 0.19      $ 0.32      $ 0.30   

Income from discontinued operations attributable to CBRE Group, Inc.

    —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to CBRE Group, Inc.

  $ 0.23      $ 0.19      $ 0.32      $ 0.30   
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding for diluted income per share

    326,081,681        324,093,042        325,910,274        323,510,069   
 

 

 

   

 

 

   

 

 

   

 

 

 

Amounts attributable to CBRE Group, Inc. shareholders

       

Income from continuing operations, net of tax

  $ 75,873      $ 61,223      $ 102,848      $ 95,592   

Income from discontinued operations, net of tax

    —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 75,873      $ 61,223      $ 102,848      $ 95,592   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

 

4


Table of Contents

CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in thousands)

 

    Three Months  Ended
June 30,
    Six Months Ended
June 30,
 
    2012     2011     2012     2011  

Net income

  $ 75,599      $ 74,867      $ 105,545      $ 119,353   

Other comprehensive (loss) income:

       

Foreign currency translation (loss) gain

    (40,181     15,550        (21,659     45,545   

Unrealized losses on interest rate swaps and interest rate caps, net

    (5,614     (7,833     (4,360     (6,777

Unrealized (losses) gains on available for sale securities, net

    (1,100     89        (186     183   

Other, net

    333        909        (167     323   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive (loss) income

    (46,562     8,715        (26,372     39,274   

Comprehensive income

    29,037        83,582        79,173        158,627   

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

    (857     14,116        2,310        24,591   
 

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to CBRE Group, Inc.

  $ 29,894      $ 69,466      $ 76,863      $ 134,036   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

 

5


Table of Contents

CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

 

     Six Months Ended
June 30,
 
     2012     2011  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income

   $ 105,545      $ 119,353   

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

    

Depreciation and amortization

     84,793        49,088   

Amortization of financing costs

     4,643        3,241   

Gain on sale of loans, servicing rights and other assets

     (43,776     (25,437

Net realized and unrealized gains from investments

     (4,484     —     

Gain on disposition of real estate held for investment

     —          (19,695

Equity income from unconsolidated subsidiaries

     (16,995     (32,247

Provision for doubtful accounts

     6,842        6,830   

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

     22,606        21,292   

Incremental tax benefit from stock options exercised

     (861     (14,495

Distribution of earnings from unconsolidated subsidiaries

     8,017        11,855   

Tenant concessions received

     8,428        11,807   

Purchase of trading securities

     (121,412     —     

Proceeds from sale of trading securities

     125,412        —     

Proceeds from securities sold, not yet purchased

     86,059        —     

Securities purchased to cover short sales

     (73,250     —     

Decrease in receivables

     17,010        4,131   

Increase in prepaid expenses and other assets

     (10,831     (4,523

(Increase) decrease in real estate held for sale and under development

     (9,378     32,525   

Decrease in accounts payable and accrued expenses

     (47,455     (34,955

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

     (284,895     (256,597

Increase in income taxes receivable/payable

     (62,527     (28,245

Increase in other liabilities

     5,721        400   

Other operating activities, net

     (871     (718
  

 

 

   

 

 

 

Net cash used in operating activities

     (201,659     (156,390
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Capital expenditures

     (38,705     (47,148

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

     (183     (41,075

Contributions to unconsolidated subsidiaries

     (48,518     (17,094

Distributions from unconsolidated subsidiaries

     11,583        34,988   

Net proceeds from disposition of real estate held for investment

     —          109,667   

Additions to real estate held for investment

     (2,562     (6,315

Proceeds from the sale of servicing rights and other assets

     13,490        11,416   

Decrease in restricted cash

     2,909        3,974   

Decrease in cash due to deconsolidation of CBRE Clarion U.S., L.P. (see Note 3)

     (73,187     —     

Other investing activities, net

     1,626        (704
  

 

 

   

 

 

 

Net cash (used in) provided by investing activities

     (133,547     47,709   
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Proceeds from senior secured term loans

     —          400,000   

Repayment of senior secured term loans

     (33,966     (19,000

Proceeds from revolving credit facility

     23,222        744,733   

Repayment of revolving credit facility

     (15,230     (652,000

Proceeds from notes payable on real estate held for investment

     4,515        3,551   

Repayment of notes payable on real estate held for investment

     (9,727     (91,471

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

     6,146        1,665   

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

     (1,394     (26,594

Proceeds from short-term borrowings

     4,683        —     

Proceeds from exercise of stock options

     3,137        4,858   

Incremental tax benefit from stock options exercised

     861        14,495   

Non-controlling interests contributions

     15,909        8,630   

Non-controlling interests distributions

     (24,080     (30,679

Payment of financing costs

     (55     (18,454

Other financing activities, net

     (58     (91
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (26,037     339,643   

Effect of currency exchange rate changes on cash and cash equivalents

     (737     14,573   
  

 

 

   

 

 

 

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

     (361,980     245,535   

CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD

     1,093,182        506,574   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, AT END OF PERIOD

   $ 731,202      $ 752,109   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

    

Cash paid during the period for:

    

Interest

   $ 81,320      $ 68,221   
  

 

 

   

 

 

 

Income tax payments, net

   $ 143,350      $ 95,744   
  

 

 

   

 

 

 

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

 

6


Table of Contents

CBRE GROUP, INC.

CONSOLIDATED STATEMENT OF EQUITY

(Unaudited)

(Dollars in thousands)

 

    CBRE Group, Inc. Shareholders              
    Class A
common
stock
    Additional
paid-in
capital
    Accumulated
earnings
    Accumulated
other
comprehensive
loss
    Non-controlling
interests
    Total  

Balance at December 31, 2011

  $ 3,280      $ 882,141      $ 424,499      $ (158,439   $ 265,682      $ 1,417,163   

Net income

    —          —          102,848        —          2,697        105,545   

Stock options exercised (including tax benefit)

    4        3,994        —          —          —          3,998   

Compensation expense for stock options and non-vested stock awards

    —          22,606        —          —          —          22,606   

Foreign currency translation loss

    —          —          —          (21,272     (387     (21,659

Unrealized losses on interest rate swaps and interest rate caps, net

    —          —          —          (4,360     —          (4,360

Unrealized losses on available for sale securities, net

    —          —          —          (186     —          (186

Contributions from non-controlling interests

    —          —          —          —          15,909        15,909   

Distributions to non-controlling interests

    —          —          —          —          (24,080     (24,080

Deconsolidation of CBRE Clarion U.S., L.P. (see Note 3)

    —          —          —          —          (91,580     (91,580

Other

    (2     (84     —          (167     11,839        11,586   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2012

  $ 3,282      $ 908,657      $ 527,347      $ (184,424   $ 180,080      $ 1,434,942   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

7


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The accompanying consolidated financial statements of CBRE Group, Inc., a Delaware corporation (which may be referred to in these financial statements as the “company”, “we”, “us” and “our”), have been prepared in accordance with the rules applicable to Form 10-Q and include all information and footnotes required for interim financial statement presentation, but do not include all disclosures required under accounting principles generally accepted in the United States (GAAP) for annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments, except as otherwise noted) considered necessary for a fair presentation have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, and reported amounts of revenue and expenses. Such estimates include the value of real estate assets, accounts receivable, investments in unconsolidated subsidiaries and assumptions used in the calculation of income taxes, retirement and other post-employment benefits, among others. These estimates and assumptions are based on management’s best judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including consideration of the current economic environment, and adjusts such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.

The results of operations for the three and six months ended June 30, 2012 are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2012. The consolidated financial statements and notes to consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2011, which contains the latest available audited consolidated financial statements and notes thereto, which are as of and for the year ended December 31, 2011.

2. New Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 Accounting Standards Codification (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.

 

8


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

3. REIM Acquisitions

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 (collectively referred 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). We completed the REIM Acquisitions in order to significantly enhance our ability to meet the needs of institutional investors across global markets with a full spectrum of investment programs and strategies.

We secured borrowings of $800.0 million of term loans to finance the REIM Acquisitions (see Note 10). Of this amount, $400.0 million was drawn on June 30, 2011 to finance the CRES portion of the REIM Acquisitions, which closed on July 1, 2011. On August 31, 2011, we drew down the remaining $400.0 million, part of which was used to finance the ING REIM Asia portion of the REIM Acquisitions, which closed on October 3, 2011, and the remainder, along with cash on hand and borrowings under our revolving credit facility, was used to finance the ING REIM Europe portion of the REIM Acquisitions, which closed on October 31, 2011.

The following represents a summary of the purchase price for the REIM Acquisitions (dollars in thousands):

 

Purchase of CRES on July 1, 2011

   $ 324,072   

Purchase of CRES co-investments on July 1, 2011

     58,566   

Purchase of ING REIM Asia on October 3, 2011

     45,315   

Purchase of ING REIM Europe on October 31, 2011

     442,543   
  

 

 

 

Total purchase price

   $ 870,496   
  

 

 

 

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. As of June 30, 2012, there is a possibility of an additional closing of approximately $80 million and co-investments of up to $20 million in the future related to our acquisition of ING REIM Europe.

In connection with our acquisition of CRES, we acquired CRES co-investments from ING in three funds (CRES Funds) for an aggregate purchase price of $58.6 million, which has been included above. We determined that the CRES Funds were not variable interest entities and accordingly determined the method of accounting based upon voting control. The limited partners/members of the CRES Funds lack substantive rights that would overcome our presumption of control. Accordingly, we began consolidating the CRES Funds as of the acquisition date of July 1, 2011. Included in the consolidation of the CRES Funds on July 1, 2011 was $182.9 million of non-controlling interests. In connection with the REIM Acquisitions, we also acquired three ING REIM Asia co-investments from ING for an aggregate amount of $13.9 million on October 3, 2011 and several ING REIM Europe co-investments, including one for $7.4 million on October 31, 2011, and nine additional co-investments for an aggregate amount of $34.8 million during the six months ended June 30, 2012.

 

9


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

In January 2012, one of the CRES Funds (CBRE Clarion U.S., L.P.) was converted to a registered mutual fund, the CBRE Clarion Long/Short Fund (the Fund). As a result of this triggering event, we determined that the Fund became a variable interest entity and that we were not the primary beneficiary. Accordingly, in the first quarter of 2012, the Fund was deconsolidated from our consolidated financial statements and we recorded an investment in available for sale securities of $14.3 million. No gain or loss was recognized in our consolidated statement of operations as a result of this deconsolidation. We continue to act as the Fund’s adviser, make investment decisions for the Fund and review, supervise and administer the Fund’s investment program.

The preliminary purchase accounting adjustments related to the REIM Acquisitions have been recorded in the accompanying consolidated financial statements. The excess purchase price over the estimated fair value of net assets acquired has been recorded to goodwill. Given the complexity of the transaction, the calculation of the fair value of certain assets and liabilities acquired, primarily income tax items, is still preliminary. The purchase price allocation is expected to be completed as soon as practicable, but no later than one year from the acquisition date.

Unaudited pro forma results, assuming the REIM Acquisitions had occurred as of January 1, 2011 for purposes of the 2011 pro forma disclosures, are presented below. They include certain adjustments for the three and six months ended June 30, 2011, including $6.4 million and $12.8 million, respectively, of increased amortization expense as a result of intangible assets acquired in the REIM Acquisitions, $8.0 million and $16.2 million, respectively, of additional interest expense as a result of debt incurred to finance the REIM Acquisitions, the removal of $5.1 million and $12.7 million, respectively, of direct costs incurred by us and ING related to the REIM Acquisitions, and the tax impact of the pro forma adjustments. These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what operating results would have been had the REIM Acquisitions occurred on January 1, 2011 and may not be indicative of future operating results (dollars in thousands, except share data):

 

     Three  Months
Ended

June 30, 2011
     Six  Months
Ended

June 30, 2011
 

Revenue

   $ 1,505,281       $ 2,767,756   

Operating income

   $ 147,274       $ 236,242   

Net income attributable to CBRE Group, Inc.

   $ 69,938       $ 112,692   

Basic income per share

   $ 0.22       $ 0.36   

Weighted average shares outstanding for basic income per share

     317,698,275         317,133,967   

Diluted income per share

   $ 0.22       $ 0.35   

Weighted average shares outstanding for diluted income per share

     324,093,042         323,510,069   

4. Variable Interest Entities (VIEs)

A consolidated subsidiary (the Venture) in our Global Investment Management segment has sponsored investments by third-party investors in certain commercial properties through the formation of tenant-in-common limited liability companies and Delaware Statutory Trusts (collectively referred to as the Entities) that are owned by the third-party investors. The Venture also has formed and is a member of a limited liability company for each property that serves as master tenant (Master Tenant). Each Master Tenant leases the property from the Entities through a master lease agreement. Pursuant to the master lease agreements, the Master Tenant has the power to direct the day-to-day asset management activities that most significantly impact the economic performance of the Entities. As a result, the Entities were deemed to be VIEs since the third-party investors holding the equity investment at risk in the Entities do not direct the day-to-day activities that most significantly impact the

 

10


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

economic performance of the properties held by the Entities. An additional Entity was consolidated during the six months ended June 30, 2012. The related real estate assets held for investment were $26.5 million, nonrecourse mortgage notes payable were $15.9 million and non-controlling interests were $10.7 million as of June 30, 2012.

The Venture has made and may continue to make voluntary contributions to each of these properties to support their operations beyond the cash flow generated by the properties themselves. As of the most recent reconsideration date, such financial support has been significant enough that the Venture was deemed to be the primary beneficiary of each Entity. During both the six months ended June 30, 2012 and 2011, the Venture funded $0.2 million of financial support to the Entities.

Operating results relating to the Entities for the three and six months ended June 30, 2012 and 2011 include the following (dollars in thousands):

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
         2012             2011              2012             2011      

Revenue

   $ 3,720      $ 7,253       $ 6,594      $ 15,818   

Operating, administrative and other expenses

   $ 2,359      $ 4,373       $ 4,025      $ 8,088   

Income from discontinued operations, net of income taxes

   $ —        $ 6,267       $ —        $ 16,911   

Net (loss) income attributable to non-controlling interests

   $ (1,170   $ 4,091       $ (2,017   $ 13,068   

Investments in real estate of $86.5 million and $61.3 million and nonrecourse mortgage notes payable of $77.2 million ($17.2 million of which is current) and $60.9 million ($1.2 million of which is current) are included in real estate held for investment and notes payable on real estate, respectively, in the accompanying consolidated balance sheets as of June 30, 2012 and December 31, 2011, respectively. In addition, non-controlling interests of $10.8 million and $1.6 million in the accompanying consolidated balance sheets as of June 30, 2012 and December 31, 2011, respectively, are attributable to the Entities.

We hold variable interests in certain VIEs in our Global Investment Management and Development Services segments which are not consolidated as it was determined that we are not the primary beneficiary. Our involvement with these entities is in the form of equity co-investments and fee arrangements.

As of June 30, 2012 and December 31, 2011, our maximum exposure to loss related to the VIEs which are not consolidated was as follows (dollars in thousands):

 

     June 30, 2012      December 31, 2011  

Investments in unconsolidated subsidiaries

   $ 46,490       $ 15,483   

Available for sale securities

     14,363         —     

Other assets, current

     3,016         —     

Co-investment commitments

     7,303         37,019   
  

 

 

    

 

 

 

Maximum exposure to loss

   $ 71,172       $ 52,502   
  

 

 

    

 

 

 

 

11


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

5. Fair Value Measurements

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

 

   

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

 

   

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

 

   

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

There were no significant transfers in and out of Level 1 and Level 2 during the three and six months ended June 30, 2012 and 2011.

The following tables present the fair value of assets and liabilities measured at fair value on a recurring basis as of June 30, 2012 and December 31, 2011 (dollars in thousands):

 

     As of June 30, 2012  
     Fair Value Measured and Recorded Using         
         Level 1              Level 2              Level 3          Total  

Assets

           

Available for sale securities:

           

U.S. treasury securities

   $ 10,378       $ —         $ —         $ 10,378   

Debt securities issued by U.S. federal agencies

     —           3,158         —           3,158   

Corporate debt securities

     —           8,782         —           8,782   

Asset-backed securities

     —           5,534         —           5,534   

Collateralized mortgage obligations

     —           3,325         —           3,325   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total debt securities

     10,378         20,799         —           31,177   

Equity securities

     26,027         —           —           26,027   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale securities

     36,405         20,799         —           57,204   

Trading securities

     79,115         —           —           79,115   

Warehouse receivables

     —           423,681         —           423,681   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets at fair value

   $ 115,520       $ 444,480       $ —         $ 560,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Securities sold, not yet purchased

   $ 63,833       $ —         $ —         $ 63,833   

Interest rate swaps

     —           47,024         —           47,024   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities at fair value

   $ 63,833       $ 47,024       $ —         $ 110,857   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

12


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

     As of December 31, 2011  
     Fair Value Measured and Recorded Using         
         Level 1              Level 2              Level 3          Total  

Assets

           

Available for sale securities:

           

U.S. treasury securities

   $ 6,838       $ —         $ —         $ 6,838   

Debt securities issued by U.S. federal agencies

     —           6,024         —           6,024   

Corporate debt securities

     —           9,969         —           9,969   

Asset-backed securities

     —           5,226         —           5,226   

Collateralized mortgage obligations

     —           3,037         —           3,037   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total debt securities

     6,838         24,256         —           31,094   

Equity securities

     6,301         —           —           6,301   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale securities

     13,139         24,256         —           37,395   

Trading securities

     151,484         —           —           151,484   

Warehouse receivables

     —           720,061         —           720,061   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets at fair value

   $ 164,623       $ 744,317       $ —         $ 908,940   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Securities sold, not yet purchased

   $ 98,810       $ —         $ —         $ 98,810   

Interest rate swaps

     —           39,872         —           39,872   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities at fair value

   $ 98,810       $ 39,872       $ —         $ 138,682   
  

 

 

    

 

 

    

 

 

    

 

 

 

Fair value measurements for our available for sale securities are obtained from independent pricing services which utilize observable market data that may include quoted market prices, dealer quotes, market spreads, cash flows, the U.S. treasury yield curve, trading levels, market consensus prepayment speeds, credit information and the instrument’s terms and conditions.

The trading securities and securities sold, not yet purchased are primarily in the United States (U.S.) and are generally valued at the last reported sales price on the day of valuation or, if no sales occurred on the valuation date, at the mean of the bid and asked prices on such date.

The fair values of the warehouse receivables are calculated based on already locked in security buy prices. At June 30, 2012 and December 31, 2011, all of the warehouse receivables included in the accompanying consolidated balance sheets were either under commitment to be purchased by Freddie Mac or had confirmed forward trade commitments for the issuance and purchase of Fannie Mae mortgage backed securities that will be secured by the underlying warehouse lines of credit. These assets are classified as Level 2 in the fair value hierarchy as all inputs are readily observable.

The valuation of interest rate swaps is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate forward curves. To comply with the provisions of Topic 820, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable

 

13


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. In conjunction with our adoption of ASU 2011-04, we made an accounting policy election to measure the credit risk of our derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio. Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. However, as of June 30, 2012, we have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 in the fair value hierarchy.

There were no significant non-recurring fair value measurements recorded during the three and six months ended June 30, 2012 and 2011.

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

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

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

Short-Term Borrowings: The majority of this balance represents our revolving credit facility and our warehouse lines of credit outstanding for CBRE Capital Markets. Due to the short-term nature and variable interest rates of these instruments, fair value approximates carrying value.

Senior Secured Term Loans: Based upon information from third-party banks (which falls within Level 2 of the fair value hierarchy), the estimated fair value of our senior secured term loans was approximately $1.6 billion at June 30, 2012. Their actual carrying value totaled $1.7 billion at June 30, 2012 (see Note 10).

11.625% Senior Subordinated Notes: Based on dealers’ quotes (which falls within Level 2 of the fair value hierarchy), the estimated fair value of our 11.625% senior subordinated notes was $499.1 million at June 30, 2012. Their actual carrying value totaled $439.7 million at June 30, 2012.

6.625% Senior Notes: Based on dealers’ quotes (which falls within Level 2 of the fair value hierarchy), the estimated fair value of our 6.625% senior notes was $371.4 million at June 30, 2012. Their actual carrying value totaled $350.0 million at June 30, 2012.

Notes Payable on Real Estate: As of June 30, 2012, the carrying value of our notes payable on real estate was $389.5 million (see Note 9). These borrowings mostly have floating interest rates at spreads over a market rate index. It is likely that some portion of our notes payable on real estate have fair values lower than actual carrying values. Given our volume of notes payable and the cost involved in estimating their fair value, we determined it was not practicable to do so. Additionally, only $13.6 million of these notes payable are recourse to us as of June 30, 2012.

 

14


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

6. Investments in Unconsolidated Subsidiaries

Investments in unconsolidated subsidiaries are accounted for under the equity method of accounting. Combined condensed financial information for these entities is as follows (dollars in thousands):

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2012     2011     2012      2011  

Global Investment Management:

         

Revenue

   $ 200,895      $ 158,903      $ 371,615       $ 299,155   

Operating income (loss)

   $ 170,322      $ (8,636   $ 159,848       $ (43,298

Net income (loss)

   $ 93,872      $ (20,102   $ 137,078       $ (70,267

Development Services:

         

Revenue

   $ 23,659      $ 28,167      $ 41,640       $ 47,581   

Operating income

   $ 6,048      $ 37,424      $ 32,480       $ 76,797   

Net (loss) income

   $ (981   $ 26,689      $ 19,971       $ 59,131   

Other:

         

Revenue

   $ 38,456      $ 32,417      $ 69,977       $ 66,802   

Operating income

   $ 4,682      $ 4,643      $ 7,729       $ 8,433   

Net income

   $ 5,533      $ 4,640      $ 8,649       $ 8,499   

Total:

         

Revenue

   $ 263,010      $ 219,487      $ 483,232       $ 413,538   

Operating income

   $ 181,052      $ 33,431      $ 200,057       $ 41,932   

Net income (loss)

   $ 98,424      $ 11,227      $ 165,698       $ (2,637

Our Global Investment Management segment involves investing our own capital in certain real estate investments with clients. We have provided investment management, property management, brokerage and other professional services in connection with these real estate investments on an arm’s length basis and earned revenues from these unconsolidated subsidiaries. We have also provided development, property management and brokerage services to certain of our unconsolidated subsidiaries in our Development Services segment on an arm’s length basis and earned revenues from these unconsolidated subsidiaries.

7. Real Estate and Other Assets Held for Sale and Related Liabilities

Real estate and other assets held for sale include completed real estate projects or land for sale in their present condition that have met all of the “held for sale” criteria of the “Property, Plant and Equipment” Topic of the FASB ASC (Topic 360) and other assets directly related to such projects. Liabilities related to real estate and other assets held for sale have been included as a single line item in the accompanying consolidated balance sheets.

 

15


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Real estate and other assets held for sale and related liabilities were as follows (dollars in thousands):

 

     June 30, 2012      December 31, 2011  

Assets:

     

Real estate held for sale (see Note 8)

   $ 13,123       $ 21,833   

Other current assets

     282         531   

Other assets

     262         3,837   
  

 

 

    

 

 

 

Total real estate and other assets held for sale

     13,667         26,201   

Liabilities:

     

Notes payable on real estate held for sale (see Note 9)

     6,727         20,453   

Accounts payable and accrued expenses

     96         891   

Other current liabilities

     60         8   

Other liabilities

     56         130   
  

 

 

    

 

 

 

Total liabilities related to real estate and other assets held for sale

     6,939         21,482   
  

 

 

    

 

 

 

Net real estate and other assets held for sale

   $ 6,728       $ 4,719   
  

 

 

    

 

 

 

8. Real Estate

We provide build-to-suit services for our clients and also develop or purchase certain projects which we intend to sell to institutional investors upon project completion or redevelopment. Therefore, we have ownership of real estate until such projects are sold or otherwise disposed. Certain real estate assets secure the outstanding balances of underlying mortgage or construction loans. Our real estate is reported in our Development Services and Global Investment Management segments and consisted of the following (dollars in thousands):

 

     June 30, 2012      December 31, 2011  

Real estate included in assets held for sale (see Note 7)

   $ 13,123       $ 21,833   

Real estate under development (current)

     37,426         30,617   

Real estate under development (non-current)

     7,813         3,952   

Real estate held for investment (1)

     432,585         403,698   
  

 

 

    

 

 

 

Total real estate (2)

   $ 490,947       $ 460,100   
  

 

 

    

 

 

 

 

(1) Net of accumulated depreciation of $47.5 million and $40.7 million at June 30, 2012 and December 31, 2011, respectively.
(2) Includes balances for lease intangibles and tenant origination costs of $8.4 million and $1.8 million, respectively, at June 30, 2012 and $8.7 million and $2.0 million, respectively, at December 31, 2011. We record lease intangibles and tenant origination costs upon acquiring real estate projects with in-place leases. The balances are shown net of amortization, which is recorded as an increase to, or a reduction of, rental income for lease intangibles and as amortization expense for tenant origination costs.

 

16


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

9. Notes Payable on Real Estate

We had loans secured by real estate, which consisted of the following (dollars in thousands):

 

     June 30, 2012      December 31, 2011  

Current portion of notes payable on real estate

   $ 139,410       $ 146,120   

Notes payable on real estate included in liabilities related to real estate and other assets held for sale (see Note 7)

     6,727         20,453   
  

 

 

    

 

 

 

Total notes payable on real estate, current portion

     146,137         166,573   

Notes payable on real estate, non-current portion

     243,334         206,339   
  

 

 

    

 

 

 

Total notes payable on real estate

   $ 389,471       $ 372,912   
  

 

 

    

 

 

 

At both June 30, 2012 and December 31, 2011, $11.2 million of the non-current portion of notes payable on real estate and $2.4 million of the current portion of notes payable on real estate were recourse to us, beyond being recourse to the single-purpose entity that held the real estate asset and was the primary obligor on the note payable.

10. Debt

Since 2001, we have maintained credit facilities with Credit Suisse Group AG (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.

As of June 30, 2012, our Credit Agreement 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 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.

 

17


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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 June 30, 2012 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 June 30, 2012 and December 31, 2011, we had $52.8 million and $44.8 million, respectively, of revolving credit facility principal outstanding with related weighted average interest rates of 3.7% and 4.3%, respectively, which are included in short-term borrowings in the accompanying consolidated balance sheets. As of June 30, 2012, 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 June 30, 2012 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 June 30, 2012 and December 31, 2011, we had $288.8 million and $306.3 million, respectively, of tranche A term loan facility principal outstanding, $277.3 million and $285.1 million, respectively, of tranche A-1 term loan facility principal outstanding, $294.7 million and $296.3 million, respectively, of tranche B term loan facility principal outstanding, $396.0 million and $398.0 million, respectively, of tranche C term loan facility principal outstanding and $396.0 million and $398.0 million, respectively, of tranche D term loan facility principal outstanding, which are included in the accompanying consolidated balance sheets.

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 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 three and six months ended June 30, 2012 and 2011. We recorded net losses of $9.2 million and $7.1 million, respectively, during the three and six

 

18


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

months ended June 30, 2012 and $13.2 million and $11.5 million, respectively, during the three and six months ended June 30, 2011 to other comprehensive loss in relation to these interest rate swap agreements. As of June 30, 2012 and December 31, 2011, the fair values of these interest rate swap agreements were reflected as a $47.0 million liability and a $39.9 million liability, respectively, and were included in other long-term liabilities in the accompanying consolidated balance sheets.

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.

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 11.13x for the trailing twelve months ended June 30, 2012 and our leverage ratio of total debt less available cash to EBITDA was 1.76x as of June 30, 2012.

11. Commitments and Contingencies

We are a party to a number of pending or threatened lawsuits arising out of, or incident to, our ordinary course of business. 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.

We had outstanding letters of credit totaling $16.6 million as of June 30, 2012, 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 July 2013.

We had guarantees totaling $33.3 million as of June 30, 2012, 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 $33.3 million primarily consists of guarantees related to our defined benefit pension plans in the United Kingdom (U.K.) (in excess of our outstanding pension liability of $60.6 million as of June 30, 2012), 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 represents guarantees of obligations of unconsolidated subsidiaries, which expire at varying dates through May 2014, 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 June 30, 2012, 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

 

19


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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.

In January 2008, CBRE Multifamily Capital, Inc. (CBRE MCI), a wholly-owned subsidiary of CBRE Capital Markets, Inc., entered into an agreement with Fannie Mae, under Fannie Mae’s DUS Lender Program (DUS Program), to provide financing for multifamily housing with five or more units. Under the DUS Program, CBRE MCI originates, underwrites, closes and services loans without prior approval by Fannie Mae, and 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 $4.3 billion at June 30, 2012. Additionally, CBRE MCI has funded loans under the DUS Program that are not subject to loss sharing arrangements with unpaid principal balances of approximately $514.0 million at June 30, 2012. 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 June 30, 2012 and December 31, 2011, CBRE MCI had $6.5 million and $4.6 million, respectively, of cash deposited under this reserve arrangement, and had provided approximately $8.0 million and $6.4 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 $254.7 million (including $164.2 million of warehouse receivables, a substantial majority of which are pledged against warehouse lines of credit and are therefore not available to Fannie Mae) at June 30, 2012.

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 5.0% of the equity in a particular fund. As of June 30, 2012, we had aggregate commitments of $30.3 million to fund future co-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 June 30, 2012, we had committed to fund $15.5 million of additional capital to these unconsolidated subsidiaries.

 

20


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

12. Income Per Share Information

The following is a calculation of income per share (dollars in thousands, except share data):

 

    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2012     2011     2012     2011  

Computation of basic income per share attributable to CBRE Group, Inc. shareholders:

       

Net income attributable to CBRE Group, Inc. shareholders

  $ 75,873      $ 61,223      $ 102,848      $ 95,592   

Weighted average shares outstanding for basic income per share

    320,852,344        317,698,275        320,761,873        317,133,967   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

  $ 0.24      $ 0.19      $ 0.32      $ 0.30   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2012     2011     2012     2011  

Computation of diluted income per share attributable to CBRE Group, Inc. shareholders:

       

Net income attributable to CBRE Group, Inc. shareholders

  $ 75,873      $ 61,223      $ 102,848      $ 95,592   

Weighted average shares outstanding for basic income per share

    320,852,344        317,698,275        320,761,873        317,133,967   

Dilutive effect of contingently issuable shares

    3,520,310        4,040,084        3,376,807        3,776,379   

Dilutive effect of stock options

    1,709,027        2,354,683        1,771,594        2,599,723   
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding for diluted income per share

    326,081,681        324,093,042        325,910,274        323,510,069   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

  $ 0.23      $ 0.19      $ 0.32      $ 0.30   
 

 

 

   

 

 

   

 

 

   

 

 

 

For the three and six months ended June 30, 2012, 47,974 and 43,494 contingently issuable shares, respectively, were excluded from the computation of diluted earnings per share because their inclusion would have had an anti-dilutive effect. For the three and six months ended June 30, 2012, options to purchase 103,423 shares of common stock were excluded from the computation of diluted earnings per share because their inclusion would have had an anti-dilutive effect.

For the three and six months ended June 30, 2011, options to purchase 55,587 shares of common stock were excluded from the computation of diluted earnings per share because their inclusion would have had an anti-dilutive effect.

 

21


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

13. Pensions

We have two contributory defined benefit pension plans in the U.K., which we acquired in connection with previous acquisitions. Our subsidiaries based in the U.K. maintain the plans to provide retirement benefits to existing and former employees participating in these plans. 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 U.K.

Net periodic pension cost consisted of the following (dollars in thousands):

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
         2012             2011             2012             2011      

Interest cost

   $ 3,898      $ 4,209      $ 7,758      $ 8,322   

Expected return on plan assets

     (3,635     (4,337     (7,234     (8,573

Amortization of unrecognized net loss

     587        345        1,168        682   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic pension cost

   $ 850      $ 217      $ 1,692      $ 431   
  

 

 

   

 

 

   

 

 

   

 

 

 

We contributed $1.4 million and $2.9 million to fund our pension plans during the three and six months ended June 30, 2012, respectively. We expect to contribute a total of $5.9 million to fund our pension plans for the year ending December 31, 2012.

14. Discontinued Operations

In the ordinary course of business, we dispose of real estate assets, or hold real estate assets for sale, that may be considered components of an entity in accordance with Topic 360. If we do not have, or expect to have, significant continuing involvement with the operation of these real estate assets after disposition, we are required to recognize operating profits or losses and gains or losses on disposition of these assets as discontinued operations in our consolidated statements of operations in the periods in which they occur. Real estate operations and dispositions accounted for as discontinued operations for the three and six months ended June 30, 2011 were reported in our Global Investment Management segment as follows (dollars in thousands):

 

     Three Months  Ended
June 30,
     Six Months  Ended
June 30,
 
     2011      2011  

Revenue

   $ 1,355       $ 2,385   

Costs and expenses:

     

Operating, administrative and other

     852         1,234   

Depreciation and amortization

     234         525   
  

 

 

    

 

 

 

Total costs and expenses

     1,086         1,759   

Gain on disposition of real estate

     6,601         17,638   
  

 

 

    

 

 

 

Operating income

     6,870         18,264   

Interest expense

     603         1,353   
  

 

 

    

 

 

 

Income from discontinued operations, before provision for income taxes

     6,267         16,911   

Provision for income taxes

     —           —     
  

 

 

    

 

 

 

Income from discontinued operations, net of income taxes

     6,267         16,911   

Less: Income from discontinued operations attributable to non-controlling interests

     6,267         16,911   
  

 

 

    

 

 

 

Income from discontinued operations attributable to CBRE Group, Inc.

   $ —         $ —     
  

 

 

    

 

 

 

 

22


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

15. Industry Segments

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 segment is our largest segment of operations and provides a comprehensive range of services throughout the U.S. and in the largest regions of Canada and key markets in Latin America. The primary services offered consist of the following: real estate services, mortgage loan origination and servicing, valuation services, asset services and corporate services.

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

Our Global Investment Management business provides investment management services to clients seeking to generate returns and diversification through direct and indirect investments in real estate in North America, Europe and Asia.

Our Development Services business consists of real estate development and investment activities primarily in the U.S.

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

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2012      2011      2012      2011  

Revenue

           

Americas

   $ 1,014,193       $ 897,828       $ 1,859,519       $ 1,647,943   

EMEA

     248,244         261,087         445,630         466,055   

Asia Pacific

     201,245         188,546         368,446         349,046   

Global Investment Management

     119,674         57,554         244,874         107,876   

Development Services

     17,761         17,203         32,637         36,403   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,601,117       $ 1,422,218       $ 2,951,106       $ 2,607,323   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2012      2011      2012      2011  

EBITDA

           

Americas

   $ 149,318       $ 115,375       $ 250,555       $ 193,503   

EMEA

     15,745         21,375         8,648         24,381   

Asia Pacific

     23,316         17,437         25,599         29,879   

Global Investment Management

     20,674         2,470         55,267         8,460   

Development Services

     2,762         9,438         12,269         22,916   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 211,815       $ 166,095       $ 352,338       $ 279,139   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

23


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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 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.

 

24


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Net interest expense has been expensed in the segment incurred. Provision for (benefit of) income taxes has been allocated among our segments by using applicable U.S. and foreign effective tax rates. EBITDA for our segments is calculated as follows (dollars in thousands):

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2012     2011     2012     2011  

Americas

        

Net income attributable to CBRE Group, Inc.

   $ 60,664      $ 52,015      $ 94,231      $ 81,524   

Add:

        

Depreciation and amortization

     19,485        14,831        37,811        27,662   

Interest expense

     35,363        25,740        70,964        51,572   

Royalty and management service income

     (7,241     (6,895     (13,858     (13,515

Provision for income taxes

     41,964        30,951        63,717        49,327   

Less:

        

Interest income

     917        1,267        2,310        3,067   
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

   $ 149,318      $ 115,375      $ 250,555      $ 193,503   
  

 

 

   

 

 

   

 

 

   

 

 

 

EMEA

        

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

   $ 8,313      $ 10,541      $ (1,063   $ 10,392   

Add:

        

Depreciation and amortization

     3,202        2,253        6,493        4,515   

Interest expense

     2,095        18        4,563        157   

Royalty and management service expense

     3,176        3,422        5,784        6,153   

Provision for income taxes

     3,544        5,248        2,134        3,788   

Less:

        

Interest income

     4,585        107        9,263        624   
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

   $ 15,745      $ 21,375      $ 8,648      $ 24,381   
  

 

 

   

 

 

   

 

 

   

 

 

 

Asia Pacific

        

Net income attributable to CBRE Group, Inc.

   $ 10,804      $ 6,186      $ 7,669      $ 9,087   

Add:

        

Depreciation and amortization

     2,814        1,988        5,553        3,971   

Interest expense

     1,203        809        2,064        1,229   

Royalty and management service expense

     4,034        3,239        7,996        6,846   

Provision for income taxes

     4,834        5,745        2,835        9,535   

Less:

        

Interest income

     373        530        518        789   
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

   $ 23,316      $ 17,437      $ 25,599      $ 29,879   
  

 

 

   

 

 

   

 

 

   

 

 

 

Global Investment Management

        

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

   $ (1,925   $ (9,777   $ 1,666      $ (12,232

Add:

        

Depreciation and amortization (1)

     10,054        3,405        29,279        7,191   

Interest expense (2)

     7,460        5,688        13,819        10,453   

Royalty and management service expense

     31        234        78        516   

Provision for income taxes

     5,293        3,093        10,945        2,933   

Less:

        

Interest income

     239        173        520        401   
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA (3)

   $ 20,674      $ 2,470      $ 55,267      $ 8,460   
  

 

 

   

 

 

   

 

 

   

 

 

 

Development Services

        

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

   $ (1,983   $ 2,258      $ 345      $ 6,821   

Add:

        

Depreciation and amortization

     2,781        3,142        5,657        5,749   

Interest expense

     2,939        2,753        5,911        6,240   

(Benefit of) provision for income taxes

     (855     1,299        562        4,159   

Less:

        

Interest income

     120        14        206        53   
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

   $ 2,762      $ 9,438      $ 12,269      $ 22,916   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

25


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

 

(1) Includes depreciation and amortization related to discontinued operations of $0.2 million and $0.5 million for the three and six months ended June 30, 2011, respectively.
(2) Includes interest expense related to discontinued operations of $0.6 million and $1.4 million for the three and six months ended June 30, 2011, respectively.
(3) Includes EBITDA related to discontinued operations of $0.8 million and $1.9 million for the three and six months ended June 30, 2011, respectively.

16. Guarantor and Nonguarantor Financial Statements

The following condensed consolidating financial information includes:

(1) Condensed consolidating balance sheets as of June 30, 2012 and December 31, 2011; condensed consolidating statements of operations for the three and six months ended June 30, 2012 and 2011; condensed consolidating statements of comprehensive income for the three and six months ended June 30, 2012 and 2011; and condensed consolidating statements of cash flows for the six months ended June 30, 2012 and 2011, of (a) CBRE Group, Inc. as the parent, (b) CBRE Services, Inc. (CBRE) as the subsidiary issuer, (c) the guarantor subsidiaries, (d) the nonguarantor subsidiaries and (e) CBRE Group, Inc. on a consolidated basis; and

(2) Elimination entries necessary to consolidate CBRE Group, Inc. as the parent, with CBRE and its guarantor and nonguarantor subsidiaries.

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

 

26


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JUNE 30, 2012

(Dollars in thousands)

 

    Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Current Assets:

           

Cash and cash equivalents

  $ 5      $ 94,893      $ 283,381      $ 352,923      $ —        $ 731,202   

Restricted cash

    —          4,855        26,046        33,427        —          64,328   

Receivables, net

    —          —          458,953        634,011        —          1,092,964   

Warehouse receivables (a)

    —          —          423,681        —          —          423,681   

Trading securities

    —          —          96        79,019        —          79,115   

Income taxes receivable

    7,679        10,196        —          33,039        (2,500     48,414   

Prepaid expenses

    —          2,229        44,660        63,649        —          110,538   

Deferred tax assets, net

    —          —          144,473        28,738        —          173,211   

Real estate under development

    —          —          —          37,426        —          37,426   

Real estate and other assets held for sale

    —          —          —          13,667        —          13,667   

Available for sale securities

    —          —          2,068        —          —          2,068   

Other current assets

    —          —          35,172        16,912        —          52,084   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Assets

    7,684        112,173        1,418,530        1,292,811        (2,500     2,828,698   

Property and equipment, net

    —          —          203,117        96,193        —          299,310   

Goodwill

    —          —          1,005,003        811,037        —          1,816,040   

Other intangible assets, net

    —          —          517,518        267,261        —          784,779   

Investments in unconsolidated subsidiaries

    —          —          119,532        90,583        —          210,115   

Investments in consolidated subsidiaries

    1,627,847        2,089,599        1,216,333        —          (4,933,779     —     

Intercompany loan receivable

    —          1,613,525        700,000        —          (2,313,525     —     

Real estate under development

    —          —          —          7,813        —          7,813   

Real estate held for investment

    —          —          4,007        428,578        —          432,585   

Available for sale securities

    —          —          52,280        2,856        —          55,136   

Other assets, net

    —          45,270        48,166        48,483        —          141,919   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

  $ 1,635,531      $ 3,860,567      $ 5,284,486      $ 3,045,615      $ (7,249,804   $ 6,576,395   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Current Liabilities:

           

Accounts payable and accrued expenses

  $ —        $ 9,609      $ 117,950      $ 368,568      $ —        $ 496,127   

Compensation and employee benefits payable

    —          626        241,146        157,444        —          399,216   

Accrued bonus and profit sharing

    —          —          165,375        119,354        —          284,729   

Securities sold, not yet purchased

    —          —          —          63,833        —          63,833   

Income taxes payable

    —          —          2,500        —          (2,500     —     

Short-term borrowings:

           

Warehouse lines of credit (a)

    —          —          417,245        —          —          417,245   

Revolving credit facility

    —          10,214        —          42,624        —          52,838   

Other

    —          —          16        4,676        —          4,692   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total short-term borrowings

    —          10,214        417,261        47,300        —          474,775   

Current maturities of long-term debt

    —          46,000        —          22,060        —          68,060   

Notes payable on real estate

    —          —          —          139,410        —          139,410   

Liabilities related to real estate and other assets held for sale

    —          —          —          6,939        —          6,939   

Other current liabilities

    —          —          43,480        1,889        —          45,369   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Liabilities

    —          66,449        987,712        926,797        (2,500     1,978,458   

Long-Term Debt:

           

Senior secured term loans

    —          1,329,500        —          255,274        —          1,584,774   

11.625% senior subordinated notes, net

    —          439,747        —          —          —          439,747   

6.625% senior notes

    —          350,000        —          —          —          350,000   

Other long-term debt

    —          —          —          57        —          57   

Intercompany loan payable

    380,669        —          1,863,652        69,204        (2,313,525     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Long-Term Debt

    380,669        2,119,247        1,863,652        324,535        (2,313,525     2,374,578   

Notes payable on real estate

    —          —          —          243,334        —          243,334   

Deferred tax liabilities, net

    —          —          143,425        15,282        —          158,707   

Non-current tax liabilities

    —          —          81,426        4,636        —          86,062   

Pension liability

    —          —          —          60,627        —          60,627   

Other liabilities

    —          47,024        118,672        73,991        —          239,687   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities

    380,669        2,232,720        3,194,887        1,649,202        (2,316,025     5,141,453   

Commitments and contingencies

    —          —          —          —          —          —     

Equity:

           

CBRE Group, Inc. Stockholders’ Equity

    1,254,862        1,627,847        2,089,599        1,216,333        (4,933,779     1,254,862   

Non-controlling interests

    —          —          —          180,080        —          180,080   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Equity

    1,254,862        1,627,847        2,089,599        1,396,413        (4,933,779     1,434,942   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities and Equity

  $ 1,635,531      $ 3,860,567      $ 5,284,486      $ 3,045,615      $ (7,249,804   $ 6,576,395   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) Although CBRE Capital Markets is included among our domestic subsidiaries, which jointly and severally guarantee our 11.625% senior subordinated notes, our 6.625% senior notes and our Credit Agreement, a substantial majority of warehouse receivables funded under the Bank of America (BofA), Fannie Mae As Soon As Pooled (ASAP) Program, Kemps Landing Capital Company, LLC (Kemps Landing), JP Morgan Chase Bank, N.A. (JP Morgan) and TD Bank, N.A. (TD Bank) lines of credit are pledged to BofA, Fannie Mae, Kemps Landing, JP Morgan and TD Bank, and accordingly, are not included as collateral for these notes or our other outstanding debt.

 

27


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2011

(Dollars in thousands)

 

    Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Current Assets:

           

Cash and cash equivalents

  $ 5      $ 298,370      $ 375,176      $ 419,631      $ —        $ 1,093,182   

Restricted cash

    —          4,845        21,827        40,466        —          67,138   

Receivables, net

    —          —          405,902        729,469        —          1,135,371   

Warehouse receivables (a)

    —          —          720,061        —          —          720,061   

Trading securities

    —          —          83        151,401        —          151,484   

Income taxes receivable

    15,526        6,879        —          3,669        (26,074     —     

Prepaid expenses

    —          —          46,040        65,839        —          111,879   

Deferred tax assets, net

    —          —          143,065        25,874        —          168,939   

Real estate under development

    —          —          —          30,617        —          30,617   

Real estate and other assets held for sale

    —          —          —          26,201        —          26,201   

Available for sale securities

    —          —          2,790        —          —          2,790   

Other current assets

    —          —          26,468        15,917        —          42,385   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Assets

    15,531        310,094        1,741,412        1,509,084        (26,074     3,550,047   

Property and equipment, net

    —          —          202,674        92,814        —          295,488   

Goodwill

    —          —          1,004,875        823,532        —          1,828,407   

Other intangible assets, net

    —          —          510,219        284,106        —          794,325   

Investments in unconsolidated subsidiaries

    —          —          105,664        61,168        —          166,832   

Investments in consolidated subsidiaries

    1,432,638        1,832,044        1,211,409        —          (4,476,091     —     

Intercompany loan receivable

    —          1,490,897        700,000        34,378        (2,225,275     —     

Real estate under development

    —          —          693        3,259        —          3,952   

Real estate held for investment

    —          —          4,007        399,691        —          403,698   

Available for sale securities

    —          —          34,605        —          —          34,605   

Other assets, net

    —          49,389        48,603        43,797        —          141,789   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

  $ 1,448,169      $ 3,682,424      $ 5,564,161      $ 3,251,829      $ (6,727,440   $ 7,219,143   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Current Liabilities:

           

Accounts payable and accrued expenses

  $ —        $ 11,674      $ 151,260      $ 411,202      $ —        $ 574,136   

Compensation and employee benefits payable

    —          626        208,692        189,370        —          398,688   

Accrued bonus and profit sharing

    —          —          308,748        235,880        —          544,628   

Securities sold, not yet purchased

    —          —          —          98,810        —          98,810   

Income taxes payable

    —          —          54,442        —          (26,074     28,368   

Short-term borrowings:

           

Warehouse lines of credit (a)

    —          —          713,362        —          —          713,362   

Revolving credit facility

    —          10,098        —          34,727        —          44,825   

Other

    —          —          16        —          —          16   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total short-term borrowings

    —          10,098        713,378        34,727        —          758,203   

Current maturities of long-term debt

    —          46,000        —          21,838        —          67,838   

Notes payable on real estate

    —          —          —          146,120        —          146,120   

Liabilities related to real estate and other assets held for sale

    —          —          —          21,482        —          21,482   

Other current liabilities

    —          —          39,885        2,490        —          42,375   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Liabilities

    —          68,398        1,476,405        1,161,919        (26,074     2,680,648   

Long-Term Debt:

           

Senior secured term loans

    —          1,352,500        —          263,273        —          1,615,773   

11.625% senior subordinated notes, net

    —          439,016        —          —          —          439,016   

6.625% senior notes

    —          350,000        —          —          —          350,000   

Other long-term debt

    —          —          —          59        —          59   

Intercompany loan payable

    296,688        —          1,928,587        —          (2,225,275     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Long-Term Debt

    296,688        2,141,516        1,928,587        263,332        (2,225,275     2,404,848   

Notes payable on real estate

    —          —          —          206,339        —          206,339   

Deferred tax liabilities, net

    —          —          135,500        13,469        —          148,969   

Non-current tax liabilities

    —          —          77,595        2,332        —          79,927   

Pension liability

    —          —          —          60,860        —          60,860   

Other liabilities

    —          39,872        114,030        66,487        —          220,389   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities

    296,688        2,249,786        3,732,117        1,774,738        (2,251,349     5,801,980   

Commitments and contingencies

    —          —          —          —          —          —     

Equity:

           

CBRE Group, Inc. Stockholders’ Equity

    1,151,481        1,432,638        1,832,044        1,211,409        (4,476,091     1,151,481   

Non-controlling interests

    —          —          —          265,682        —          265,682   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Equity

    1,151,481        1,432,638        1,832,044        1,477,091        (4,476,091     1,417,163   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities and Equity

  $ 1,448,169      $ 3,682,424      $ 5,564,161      $ 3,251,829      $ (6,727,440   $ 7,219,143   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) Although CBRE Capital Markets is included among our domestic subsidiaries, which jointly and severally guarantee our 11.625% senior subordinated notes, our 6.625% senior notes and our Credit Agreement, a substantial majority of warehouse receivables funded under the Kemps Landing, JP Morgan, TD Bank, Fannie Mae ASAP Program and BofA lines of credit are pledged to Kemps Landing, JP Morgan, TD Bank, Fannie Mae and BofA, and accordingly, are not included as collateral for these notes or our other outstanding debt.

 

28


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 2012

(Dollars in thousands)

 

    Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Revenue

  $ —        $ —        $ 947,080      $ 654,037      $ —        $ 1,601,117   

Costs and expenses:

           

Cost of services

    —          —          569,854        338,289        —          908,143   

Operating, administrative and other

    10,293        1,369        223,005        247,710        —          482,377   

Depreciation and amortization

    —          —          22,298        16,038        —          38,336   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    10,293        1,369        815,157        602,037        —          1,428,856   

Gain on disposition of real estate

    —          —          —          439        —          439   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

    (10,293     (1,369     131,923        52,439        —          172,700   

Equity income (loss) from unconsolidated subsidiaries

    —          —          3,161        (552     —          2,609   

Other income (loss)

    —          —          997        (3,101     —          (2,104

Interest income

    —          23,585        726        1,384        (24,110     1,585   

Interest expense

    —          35,943        22,797        9,781        (24,110     44,411   

Royalty and management service (income) expense

    —          —          (8,551     8,551        —          —     

Income from consolidated subsidiaries

    82,334        90,950        18,498        —          (191,782     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before (benefit of) provision for income taxes

    72,041        77,223        141,059        31,838        (191,782     130,379   

(Benefit of) provision for income taxes

    (3,832     (5,111     50,109        13,614        —          54,780   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    75,873        82,334        90,950        18,224        (191,782     75,599   

Less: Net loss attributable to non-controlling interests

    —          —          —          (274     —          (274
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to CBRE
Group, Inc.

  $ 75,873      $ 82,334      $ 90,950      $ 18,498      $ (191,782   $ 75,873   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

29


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 2011

(Dollars in thousands)

 

    Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Revenue

  $ —        $ —        $ 834,952      $ 587,266      $ —        $ 1,422,218   

Costs and expenses:

           

Cost of services

    —          —          502,310        337,512        —          839,822   

Operating, administrative and other

    9,437        1,701        231,817        189,901        —          432,856   

Depreciation and amortization

    —          —          14,320        11,065        —          25,385   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    9,437        1,701        748,447        538,478        —          1,298,063   

Gain on disposition of real estate

    —          —          —          6,027        —          6,027   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

    (9,437     (1,701     86,505        54,815        —          130,182   

Equity income from unconsolidated subsidiaries

    —          —          11,979        5,089        —          17,068   

Interest income

    —          26,492        400        2,039        (27,029     1,902   

Interest expense

    —          25,979        27,656        7,610        (27,029     34,216   

Royalty and management service (income) expense

    —          —          (7,988     7,988        —          —     

Income from consolidated subsidiaries

    67,158        67,906        15,327        —          (150,391     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before (benefit of) provision for income taxes

    57,721        66,718        94,543        46,345        (150,391     114,936   

(Benefit of) provision for income taxes

    (3,502     (440     26,637        23,641        —          46,336   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income from continuing operations

    61,223        67,158        67,906        22,704        (150,391     68,600   

Income from discontinued operations, net of income taxes

    —          —          —          6,267        —