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 September 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 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 October 31, 2012 was 329,232,692.

 

 

 


Table of Contents

FORM 10-Q

September 30, 2012

TABLE OF CONTENTS

 

           Page  
PART I—FINANCIAL INFORMATION   

Item 1.

   Financial Statements   
   Consolidated Balance Sheets at September 30, 2012 (Unaudited) and December 31, 2011      3   
   Consolidated Statements of Operations for the three and nine months ended September 30, 2012 and 2011 (Unaudited)      4   
   Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2012 and 2011 (Unaudited)      5   
   Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011 (Unaudited)      6   
   Consolidated Statement of Equity for the nine months ended September 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      65   

Item 4.

   Controls and Procedures      66   
PART II—OTHER INFORMATION   

Item 1.

   Legal Proceedings      67   

Item 1A.

   Risk Factors      67   

Item 6.

   Exhibits      68   

Signatures

     70   

 

2


Table of Contents

CBRE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

 

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

Current Assets:

   

Cash and cash equivalents

  $ 776,260      $ 1,093,182   

Restricted cash

    64,600        67,138   

Receivables, less allowance for doubtful accounts of $37,421 and $33,915 at September 30, 2012 and December 31, 2011, respectively

    1,127,992        1,135,371   

Warehouse receivables

    465,794        720,061   

Trading securities

    97,059        151,484   

Income taxes receivable

    85,935        —     

Prepaid expenses

    103,794        111,879   

Deferred tax assets, net

    172,287        168,939   

Real estate under development

    41,833        30,617   

Real estate and other assets held for sale

    52,504        26,201   

Available for sale securities

    1,083        2,790   

Other current assets

    48,134        42,385   
 

 

 

   

 

 

 

Total Current Assets

    3,037,275        3,550,047   

Property and equipment, net

    334,860        295,488   

Goodwill

    1,845,387        1,828,407   

Other intangible assets, net of accumulated amortization of $255,929 and $194,982 at September 30, 2012 and
December 31, 2011, respectively

    769,640        794,325   

Investments in unconsolidated subsidiaries

    214,231        166,832   

Real estate under development

    10,992        3,952   

Real estate held for investment

    360,040        403,698   

Available for sale securities

    54,769        34,605   

Other assets, net

    141,583        141,789   
 

 

 

   

 

 

 

Total Assets

  $ 6,768,777      $ 7,219,143   
 

 

 

   

 

 

 
LIABILITIES AND EQUITY    

Current Liabilities:

   

Accounts payable and accrued expenses

  $ 515,369      $ 574,136   

Compensation and employee benefits payable

    387,416        398,688   

Accrued bonus and profit sharing

    353,048        544,628   

Securities sold, not yet purchased

    44,829        98,810   

Income taxes payable

    —          28,368   

Short-term borrowings:

   

Warehouse lines of credit

    458,306        713,362   

Revolving credit facility

    72,658        44,825   

Other

    16        16   
 

 

 

   

 

 

 

Total short-term borrowings

    530,980        758,203   

Current maturities of long-term debt

    71,060        67,838   

Notes payable on real estate

    154,676        146,120   

Liabilities related to real estate and other assets held for sale

    43,902        21,482   

Other current liabilities

    42,976        42,375   
 

 

 

   

 

 

 

Total Current Liabilities

    2,144,256        2,680,648   

Long-Term Debt:

   

Senior secured term loans

    1,574,661        1,615,773   

11.625% senior subordinated notes, net of unamortized discount of $9,871 and $10,984 at September 30, 2012 and December 31, 2011, respectively

    440,129        439,016   

6.625% senior notes

    350,000        350,000   

Other long-term debt

    6,710        59   
 

 

 

   

 

 

 

Total Long-Term Debt

    2,371,500        2,404,848   

Notes payable on real estate

    168,010        206,339   

Deferred tax liabilities, net

    163,341        148,969   

Non-current tax liabilities

    85,084        79,927   

Pension liability

    61,823        60,860   

Other liabilities

    255,657        220,389   
 

 

 

   

 

 

 

Total Liabilities

    5,249,671        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; 329,161,194 and 327,972,156 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively

    3,292        3,280   

Additional paid-in capital

    940,940        882,141   

Accumulated earnings

    567,056        424,499   

Accumulated other comprehensive loss

    (170,856     (158,439
 

 

 

   

 

 

 

Total CBRE Group, Inc. Stockholders’ Equity

    1,340,432        1,151,481   

Non-controlling interests

    178,674        265,682   
 

 

 

   

 

 

 

Total Equity

    1,519,106        1,417,163   
 

 

 

   

 

 

 

Total Liabilities and Equity

  $ 6,768,777      $ 7,219,143   
 

 

 

   

 

 

 

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

 

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Table of Contents

CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except share data)

 

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2012     2011     2012     2011  

Revenue

  $ 1,557,147      $ 1,534,463      $ 4,508,253      $ 4,141,786   

Costs and expenses:

       

Cost of services

    915,245        894,607        2,610,944        2,448,184   

Operating, administrative and other

    482,362        469,138        1,405,461        1,279,019   

Depreciation and amortization

    40,102        31,308        124,895        79,871   

Non-amortizable intangible asset impairment

    19,826        —          19,826        —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    1,457,535        1,395,053        4,161,126        3,807,074   

Gain on disposition of real estate

    3,983        3,595        5,231        11,594   
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    103,595        143,005        352,358        346,306   

Equity income from unconsolidated subsidiaries

    2,875        6,714        19,870        38,961   

Other income (loss)

    151        (5,809     4,635        (5,809

Interest income

    1,895        2,493        5,783        7,063   

Interest expense

    43,651        39,080        132,043        107,014   
 

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before provision for income taxes

    64,865        107,323        250,603        279,507   

Provision for income taxes

    22,160        47,290        102,353        117,032   
 

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

    42,705        60,033        148,250        162,475   

Income from discontinued operations, net of income taxes

    —          —          —          16,911   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    42,705        60,033        148,250        179,386   

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

    2,996        (3,774     5,693        19,987   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to CBRE Group, Inc.

  $ 39,709      $ 63,807      $ 142,557      $ 159,399   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

       

Income from continuing operations attributable to CBRE Group, Inc.

  $ 0.12      $ 0.20      $ 0.44      $ 0.50   

Income from discontinued operations attributable to CBRE Group, Inc.

    —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to CBRE Group, Inc.

  $ 0.12      $ 0.20      $ 0.44      $ 0.50   
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding for basic income per share

    322,331,850        318,867,447        321,289,017        317,718,150   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

       

Income from continuing operations attributable to CBRE Group, Inc.

  $ 0.12      $ 0.20      $ 0.44      $ 0.49   

Income from discontinued operations attributable to CBRE Group, Inc.

    —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to CBRE Group, Inc.

  $ 0.12      $ 0.20      $ 0.44      $ 0.49   
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding for diluted income per share

    327,309,341        323,714,703        326,380,448        323,584,637   
 

 

 

   

 

 

   

 

 

   

 

 

 

Amounts attributable to CBRE Group, Inc. shareholders

       

Income from continuing operations, net of tax

  $ 39,709      $ 63,807      $ 142,557      $ 159,399   

Income from discontinued operations, net of tax

    —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 39,709      $ 63,807      $ 142,557      $ 159,399   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

 

4


Table of Contents

CBRE GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(Dollars in thousands)

 

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2012     2011     2012     2011  

Net income

  $ 42,705      $ 60,033      $ 148,250      $ 179,386   

Other comprehensive income (loss):

       

Foreign currency translation gain (loss)

    15,422        (67,922     (6,237     (22,377

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

    (1,938     (16,285     (6,298     (23,062

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

    323        (49     137        134   

Other, net

    (164     1,508        (331     1,831   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

    13,643        (82,748     (12,729     (43,474

Comprehensive income (loss)

    56,348        (22,715     135,521        135,912   

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

    3,071        (5,785     5,381        18,806   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

  $ 53,277      $ (16,930   $ 130,140      $ 117,106   
 

 

 

   

 

 

   

 

 

   

 

 

 

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)

 

     Nine Months Ended
September 30,
 
     2012     2011  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income

   $ 148,250      $ 179,386   

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

    

Depreciation and amortization

     124,895        80,396   

Amortization of financing costs

     7,135        5,141   

Non-amortizable intangible asset impairment

     19,826        —     

Write-down of impaired real estate

     —          1,625   

Gain on sale of loans, servicing rights and other assets

     (71,969     (50,913

Net realized and unrealized (gains) losses from investments

     (4,635     5,809   

Gain on disposition of real estate held for investment

     (1,539     (20,383

Equity income from unconsolidated subsidiaries

     (19,870     (38,961

Provision for doubtful accounts

     5,305        6,996   

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

     37,867        32,866   

Incremental tax benefit from stock options exercised

     (167     (15,266

Distribution of earnings from unconsolidated subsidiaries

     11,124        15,441   

Tenant concessions received

     16,140        38,669   

Purchase of trading securities

     (172,200     (63,449

Proceeds from sale of trading securities

     160,029        156,876   

Proceeds from securities sold, not yet purchased

     126,675        108,206   

Securities purchased to cover short sales

     (134,696     (90,364

Increase in receivables

     (2,345     (35,810

Increase in prepaid expenses and other assets

     (8,840     (15,561

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

     (8,637     25,502   

Decrease in accounts payable and accrued expenses

     (47,990     (32,471

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

     (231,961     (160,634

Increase in income taxes receivable/payable

     (81,526     (30,449

Increase in other liabilities

     8,549        5,856   

Other operating activities, net

     644        (4,384
  

 

 

   

 

 

 

Net cash (used in) provided by operating activities

     (119,936     104,124   

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Capital expenditures

     (80,587     (95,398

Acquisition of Clarion Real Estate Securities, including net assets acquired, intangibles and goodwill, net of cash acquired

     —          (215,865

Acquisition of businesses (other than Clarion Real Estate Securities), including net assets acquired, intangibles and goodwill, net of cash acquired

     (17,595     (49,790

Contributions to unconsolidated subsidiaries

     (55,000     (22,245

Distributions from unconsolidated subsidiaries

     14,655        42,048   

Net proceeds from disposition of real estate held for investment

     32,200        115,514   

Additions to real estate held for investment

     (5,783     (7,454

Proceeds from the sale of servicing rights and other assets

     23,930        16,958   

Decrease (increase) in restricted cash

     3,698        (328,344

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

     (73,187     —     

Other investing activities, net

     4,157        (1,965
  

 

 

   

 

 

 

Net cash used in investing activities

     (153,512     (546,541

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Proceeds from senior secured term loans

     —          800,000   

Repayment of senior secured term loans

     (51,032     (30,500

Proceeds from revolving credit facility

     41,270        993,733   

Repayment of revolving credit facility

     (15,230     (967,414

Proceeds from notes payable on real estate held for investment

     4,652        5,697   

Repayment of notes payable on real estate held for investment

     (36,613     (98,964

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

     14,711        4,684   

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

     (7,625     (26,594

Proceeds from exercise of stock options

     16,401        7,059   

Incremental tax benefit from stock options exercised

     167        15,266   

Non-controlling interests contributions

     15,956        9,400   

Non-controlling interests distributions

     (29,211     (90,584

Payment of financing costs

     (199     (22,150

Other financing activities, net

     (1,022     (112
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (47,775     599,521   

Effect of currency exchange rate changes on cash and cash equivalents

     4,301        (1,084
  

 

 

   

 

 

 

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

     (316,922     156,020   

CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD

     1,093,182        506,574   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, AT END OF PERIOD

   $ 776,260      $ 662,594   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

    

Cash paid during the period for:

    

Interest

   $ 102,973      $ 79,077   
  

 

 

   

 

 

 

Income tax payments, net

   $ 180,911      $ 144,877   
  

 

 

   

 

 

 

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

 

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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

    —          —          142,557        —          5,693        148,250   

Stock options exercised (including tax benefit)

    13        16,555        —          —          —          16,568   

Compensation expense for stock options and non-vested stock awards

    —          37,867        —          —          —          37,867   

Foreign currency translation loss

    —          —          —          (5,925     (312     (6,237

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

    —          —          —          (6,298     —          (6,298

Unrealized gains on available for sale securities, net

    —          —          —          137        —          137   

Contributions from non-controlling interests

    —          —          —          —          15,956        15,956   

Distributions to non-controlling interests

    —          —          —          —          (29,211     (29,211

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

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

Other

    (1     4,377        —          (331     12,446        16,491   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2012

  $ 3,292      $ 940,940      $ 567,056      $ (170,856   $ 178,674      $ 1,519,106   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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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 nine months ended September 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.

 

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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

   $ 332,916   

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

   $ 879,340   
  

 

 

 

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 September 30, 2012, there is a possibility of an additional closing of approximately $80 million and further 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 $35.2 million during the nine months ended September 30, 2012.

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

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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 purchase accounting for the CRES and ING REIM Asia portions of the REIM Acquisitions has been finalized. The preliminary purchase accounting adjustments related to the ING REIM Europe portion of the REIM Acquisitions has 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. 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 nine months ended September 30, 2011, including $3.3 million and $16.1 million, respectively, of increased amortization expense as a result of intangible assets acquired in the REIM Acquisitions, $2.5 million and $18.7 million, respectively, of additional interest expense as a result of debt incurred to finance the REIM Acquisitions, the removal of $14.9 million and $27.6 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

September 30, 2011
     Nine Months
Ended
September 30, 2011
 

Revenue

   $ 1,593,226       $ 4,360,982   

Operating income

   $ 158,192       $ 394,434   

Net income attributable to CBRE Group, Inc.

   $ 73,291       $ 185,983   

Basic income per share

   $ 0.23       $ 0.59   

Weighted average shares outstanding for basic income per share

     318,867,447         317,718,150   

Diluted income per share

   $ 0.23       $ 0.57   

Weighted average shares outstanding for diluted income per share

     323,714,703         323,584,637   

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 economic performance of the properties held by the Entities. 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

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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.

An additional Entity was consolidated during the nine months ended September 30, 2012. The related real estate assets held for investment were $26.3 million, nonrecourse mortgage notes payable were $15.8 million and non-controlling interests were $10.6 million as of September 30, 2012.

During both the nine months ended September 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 nine months ended September 30, 2012 and 2011 include the following (dollars in thousands):

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
         2012             2011             2012             2011      

Revenue

   $ 3,791      $ 7,055      $ 10,385      $ 22,873   

Operating, administrative and other expenses

   $ 2,121      $ 4,057      $ 6,146      $ 11,689   

Income from discontinued operations, net of income taxes

   $ —        $ —        $ —        $ 16,911   

Net (loss) income attributable to non-controlling interests

   $ (887   $ (1,914   $ (2,904   $ 11,154   

Investments in real estate of $85.7 million and $61.3 million and nonrecourse mortgage notes payable of $77.4 million ($17.1 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 September 30, 2012 and December 31, 2011, respectively. In addition, non-controlling interests of $9.9 million and $1.6 million in the accompanying consolidated balance sheets as of September 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 September 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):

 

     September 30,
2012
     December 31,
2011
 

Investments in unconsolidated subsidiaries

   $ 48,309       $ 15,483   

Available for sale securities

     14,205         —     

Other assets, current

     3,099         —     

Co-investment commitments

     7,649         37,019   
  

 

 

    

 

 

 

Maximum exposure to loss

   $ 73,262       $ 52,502   
  

 

 

    

 

 

 

 

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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 nine months ended September 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 September 30, 2012 and December 31, 2011 (dollars in thousands):

 

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

Assets

           

Available for sale securities:

           

U.S. treasury securities

   $ 9,834       $ —         $ —         $ 9,834   

Debt securities issued by U.S. federal agencies

     —           2,210         —           2,210   

Corporate debt securities

     —           9,001         —           9,001   

Asset-backed securities

     —           5,307         —           5,307   

Collateralized mortgage obligations

     —           2,931         —           2,931   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total debt securities

     9,834         19,449         —           29,283   

Equity securities

     26,569         —           —           26,569   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available for sale securities

     36,403         19,449         —           55,852   

Trading securities

     97,059         —           —           97,059   

Warehouse receivables

     —           465,794         —           465,794   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets at fair value

   $ 133,462       $ 485,243       $ —         $ 618,705   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Securities sold, not yet purchased

   $ 44,829       $ —         $ —         $ 44,829   

Interest rate swaps

     —           50,199         —           50,199   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities at fair value

   $ 44,829       $ 50,199       $ —         $ 95,028   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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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 September 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

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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 credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. In conjunction with our adoption of ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” 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 September 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.

The following non-recurring fair value measurements were recorded during the three and nine months ended September 30, 2012 and 2011 (dollars in thousands):

 

     Net Carrying  Value
as of
September 30, 2012
     Fair Value Measured and Recorded Using      Total Impairment
Charges for the
Three and Nine Months
Ended

September 30, 2012
 
          Level 1              Level 2              Level 3         

Other intangible assets

   $ —         $ —         $ —         $ —         $ 19,826   
              

 

 

 

 

     Net Carrying  Value
as of
September 30, 2011
     Fair Value Measured and Recorded Using      Total Impairment
Charges for the
Three and Nine Months

Ended
September 30, 2011
 
            Level 1              Level 2              Level 3         

Investments in unconsolidated subsidiaries

   $ 22,054       $ —         $ —         $ 22,054       $ 4,601   

Real estate

   $ 31,619       $ —         $ —         $ 31,619         1,625   
              

 

 

 

Total impairment charges

               $ 6,226   
              

 

 

 

Other Intangible Assets

During the three and nine months ended September 30, 2012, we recorded a non-amortizable intangible asset impairment of $19.8 million in our EMEA segment. This non-cash write-off related to the discontinuation of the use of a trade name in the United Kingdom (U.K.).

Investments in Unconsolidated Subsidiaries

During the three and nine months ended September 30, 2011, we recorded write-downs of $4.6 million, of which $4.5 million was reported in our Global Investment Management segment and $0.1 million was reported in our Development Services segment. These write-downs were primarily driven by a decrease in the estimated holding period of certain assets.

All of our impairment charges related to investments in unconsolidated subsidiaries were included in equity income from unconsolidated subsidiaries in the accompanying consolidated statements of operations. When we

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

performed our impairment analysis, the assumptions utilized reflected our outlook for the commercial real estate industry and the expected impact on our business. This outlook incorporated our belief that market conditions deteriorated and that these challenging conditions could persist for some time.

Real Estate

During the three and nine months ended September 30, 2011, we recorded a $1.3 million provision for losses on real estate held for sale. This charge reduced the carrying value of certain assets to their fair value, less cost to sell, primarily due to reduced expected selling prices resulting from continued challenging market conditions. In addition, during the three and nine months ended September 30, 2011, we recorded an impairment charge of $0.3 million related to real estate held for investment, the majority of which was attributable to non-controlling interests. This investment write-down was attributable to slower than expected leasing.

All of our impairment charges related to real estate were included in operating, administrative and other expenses in the accompanying consolidated statements of operations within our Development Services segment. If conditions in the broader economy, commercial real estate industry, specific markets or product types in which we operate worsen, we may be required to evaluate additional projects or re-evaluate previously impaired projects for potential impairment. These evaluations could result in additional impairment charges, which may be material.

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 September 30, 2012, which approximates their carrying value at September 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 $495.1 million at September 30, 2012. Their actual carrying value totaled $440.1 million at September 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 $383.3 million at September 30, 2012. Their actual carrying value totaled $350.0 million at September 30, 2012.

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Notes Payable on Real Estate: As of September 30, 2012, the carrying value of our notes payable on real estate was $365.6 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 September 30, 2012.

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
September 30,
    Nine Months Ended
September 30,
 
     2012     2011     2012     2011  

Global Investment Management:

        

Revenue

   $ 209,747      $ 144,728      $ 581,362      $ 443,883   

Operating loss

   $ (3,776   $ (88,371   $ (10,663   $ (131,669

Net income

   $ 101,655      $ 157,754      $ 71,998      $ 87,487   

Development Services:

        

Revenue

   $ 24,554      $ 38,235      $ 66,194      $ 85,816   

Operating income

   $ 4,216      $ 8,218      $ 36,696      $ 85,015   

Net (loss) income

   $ (1,540   $ (2,463   $ 18,431      $ 56,668   

Other:

        

Revenue

   $ 41,930      $ 54,300      $ 111,907      $ 121,102   

Operating income

   $ 5,249      $ 9,655      $ 12,978      $ 18,088   

Net income

   $ 5,276      $ 9,840      $ 13,925      $ 18,339   

Total:

        

Revenue

   $ 276,231      $ 237,263      $ 759,463      $ 650,801   

Operating income (loss)

   $ 5,689      $ (70,498   $ 39,011      $ (28,566

Net income

   $ 105,391      $ 165,131      $ 104,354      $ 162,494   

During the three and nine months ended September 30, 2011, we recorded non-cash write-downs of investments of $4.6 million within our Global Investment Management and Development Services segments. See Note 5 for additional information.

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.

 

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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):

 

     September 30, 2012      December 31, 2011  

Assets:

     

Real estate held for sale (see Note 8)

   $ 49,562       $ 21,833   

Other current assets

     891         531   

Property and equipment, net

     235         —     

Other assets

     1,816         3,837   
  

 

 

    

 

 

 

Total real estate and other assets held for sale

     52,504         26,201   

Liabilities:

     

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

     42,904         20,453   

Accounts payable and accrued expenses

     798         891   

Other current liabilities

     88         8   

Other liabilities

     112         130   
  

 

 

    

 

 

 

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

     43,902         21,482   
  

 

 

    

 

 

 

Net real estate and other assets held for sale

   $ 8,602       $ 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):

 

     September 30, 2012      December 31, 2011  

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

   $ 49,562       $ 21,833   

Real estate under development (current)

     41,833         30,617   

Real estate under development (non-current)

     10,992         3,952   

Real estate held for investment (1)

     360,040         403,698   
  

 

 

    

 

 

 

Total real estate (2)

   $ 462,427       $ 460,100   
  

 

 

    

 

 

 

 

(1) Net of accumulated depreciation of $42.0 million and $40.7 million at September 30, 2012 and December 31, 2011, respectively.
(2) Includes balances for lease intangibles and tenant origination costs of $8.3 million and $1.6 million, respectively, at September 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.

During the three and nine months ended September 30, 2011, we recorded a $1.3 million provision for losses on real estate held for sale within our Development Services segment. In addition, during the three and nine months ended September 30, 2011, we recorded an impairment charge of $0.3 million related to real estate held for investment. See Note 5 for additional information.

 

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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):

 

     September 30, 2012      December 31, 2011  

Current portion of notes payable on real estate

   $ 154,676       $ 146,120   

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

     42,904         20,453   
  

 

 

    

 

 

 

Total notes payable on real estate, current portion

     197,580         166,573   

Notes payable on real estate, non-current portion

     168,010         206,339   
  

 

 

    

 

 

 

Total notes payable on real estate

   $ 365,590       $ 372,912   
  

 

 

    

 

 

 

At September 30, 2012 and December 31, 2011, $13.5 million and $2.4 million, respectively, of the current portion of notes payable on real estate and $0.1 million and $11.2 million, respectively, of the non-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 September 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. 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.

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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 September 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 September 30, 2012 and December 31, 2011, we had $72.7 million and $44.8 million, respectively, of revolving credit facility principal outstanding with related weighted average interest rates of 3.3% and 4.3%, respectively, which are included in short-term borrowings in the accompanying consolidated balance sheets. As of September 30, 2012, letters of credit totaling $17.3 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 September 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 September 30, 2012 and December 31, 2011, we had $280.0 million and $306.3 million, respectively, of tranche A term loan facility principal outstanding, $279.3 million and $285.1 million, respectively, of tranche A-1 term loan facility principal outstanding, $294.0 million and $296.3 million, respectively, of tranche B term loan facility principal outstanding, $395.0 million and $398.0 million, respectively, of tranche C term loan facility principal outstanding and $395.0 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 nine months ended September 30, 2012 and 2011. We recorded net losses of $3.2 million and $10.3 million, respectively, during the three and nine months ended September 30, 2012 and $27.5 million and $39.1 million, respectively, during the three and nine months ended September 30, 2011 to other comprehensive loss in relation to these interest rate

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

swap agreements. As of September 30, 2012 and December 31, 2011, the fair values of these interest rate swap agreements were reflected as a $50.2 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 10.19x for the trailing twelve months ended September 30, 2012 and our leverage ratio of total debt less available cash to EBITDA was 1.74x as of September 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 $16.9 million as of September 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 $32.4 million as of September 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 $32.4 million primarily consists of guarantees related to our defined benefit pension plans in the U.K. (in excess of our outstanding pension liability of $61.8 million as of September 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 September 2015, 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 September 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 business. Each of these guarantees requires us to complete construction of the relevant project within a specified

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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 $4.9 billion at September 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 $544.2 million at September 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 September 30, 2012 and December 31, 2011, CBRE MCI had $7.5 million and $4.6 million, respectively, of cash deposited under this reserve arrangement, and had provided approximately $9.2 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 $299.7 million (including $203.6 million of warehouse receivables, a substantial majority of which are pledged against warehouse lines of credit and are therefore not available to Fannie Mae) at September 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 September 30, 2012, we had aggregate commitments of $33.1 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 September 30, 2012, we had committed to fund $15.5 million of additional capital to these unconsolidated subsidiaries.

12. Income Per Share Information

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

 

    Three Months Ended
September 30,
    Nine Months Ended
September 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

  $ 39,709      $ 63,807      $ 142,557      $ 159,399   

Weighted average shares outstanding for basic income per share

    322,331,850        318,867,447        321,289,017        317,718,150   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

  $ 0.12      $ 0.20      $ 0.44      $ 0.50   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

    Three Months Ended
September 30,
    Nine Months Ended
September 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

  $ 39,709      $ 63,807      $ 142,557      $ 159,399   

Weighted average shares outstanding for basic income per share

    322,331,850        318,867,447        321,289,017        317,718,150   

Dilutive effect of contingently issuable shares

    3,377,782        3,125,397        3,377,132        3,559,385   

Dilutive effect of stock options

    1,599,709        1,721,859        1,714,299        2,307,102   
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding for diluted income per share

    327,309,341        323,714,703        326,380,448        323,584,637   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

  $ 0.12      $ 0.20      $ 0.44      $ 0.49   
 

 

 

   

 

 

   

 

 

   

 

 

 

For the three and nine months ended September 30, 2012, 2,261,549 and 2,257,069 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 nine months ended September 30, 2012, options to purchase 103,423 shares of common stock were also excluded from the computation of diluted earnings per share because their inclusion would have had an anti-dilutive effect.

For the three and nine months ended September 30, 2011, 547,434 and 11,880 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 nine months ended September 30, 2011, options to purchase 132,749 and 55,587 shares, respectively, of common stock were also excluded from the computation of diluted earnings per share because their inclusion would have had an anti-dilutive effect.

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
September 30,
    Nine Months Ended
September 30,
 
         2012             2011             2012             2011      

Interest cost

   $ 3,869      $ 4,182      $ 11,627      $ 12,504   

Expected return on plan assets

     (3,597     (4,295     (10,831     (12,868

Amortization of unrecognized net loss

     582        343        1,750        1,025   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic pension cost

   $ 854      $ 230      $ 2,546      $ 661   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

We contributed $1.5 million and $4.4 million to fund our pension plans during the three and nine months ended September 30, 2012, respectively. We expect to contribute a total of $6.0 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 nine months ended September 30, 2011 were reported in our Global Investment Management segment as follows (dollars in thousands):

 

Revenue

   $ 2,385   

Costs and expenses:

  

Operating, administrative and other

     1,234   

Depreciation and amortization

     525   
  

 

 

 

Total costs and expenses

     1,759   

Gain on disposition of real estate

     17,638   
  

 

 

 

Operating income

     18,264   

Interest expense

     1,353   
  

 

 

 

Income from discontinued operations before provision for income taxes

     16,911   

Provision for income taxes

     —     
  

 

 

 

Income from discontinued operations, net of income taxes

     16,911   

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

     16,911   
  

 

 

 

Income from discontinued operations attributable to CBRE Group, Inc.

   $ —     
  

 

 

 

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.

 

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CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

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
September 30,
     Nine Months Ended
September 30,
 
     2012      2011      2012      2011  

Revenue

           

Americas

   $ 996,380       $ 954,213       $ 2,855,899       $ 2,602,156   

EMEA

     228,737         275,958         674,367         742,013   

Asia Pacific

     199,950         208,055         568,396         557,101   

Global Investment Management

     114,306         77,426         359,180         185,302   

Development Services

     17,774         18,811         50,411         55,214   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,557,147       $ 1,534,463       $ 4,508,253       $ 4,141,786   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2012     2011      2012      2011  

EBITDA

          

Americas

   $ 128,749      $ 126,156       $ 379,304       $ 319,659   

EMEA

     (8,141     21,089         507         45,470   

Asia Pacific

     16,448        21,817         42,047         51,696   

Global Investment Management

     22,658        6,154         77,925         14,614   

Development Services

     3,839        3,776         16,108         26,692   
  

 

 

   

 

 

    

 

 

    

 

 

 
   $ 163,553      $ 178,992       $ 515,891       $ 458,131   
  

 

 

   

 

 

    

 

 

    

 

 

 

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

However, EBITDA is not a recognized measurement under 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.

 

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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
September 30,
    Nine Months Ended
September 30,
 
     2012     2011     2012     2011  

Americas

        

Net income attributable to CBRE Group, Inc.

   $ 48,403      $ 54,908      $ 142,634      $ 136,432   

Add:

        

Depreciation and amortization

     20,744        15,855        58,555        43,517   

Interest expense

     35,403        30,197        106,367        81,769   

Royalty and management service income

     (6,921     (7,188     (20,779     (20,703

Provision for income taxes

     32,283        34,196        96,000        83,523   

Less:

        

Interest income

     1,163        1,812        3,473        4,879   
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

   $ 128,749      $ 126,156      $ 379,304      $ 319,659   
  

 

 

   

 

 

   

 

 

   

 

 

 

EMEA

        

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

   $ (17,893   $ 3,929      $ (18,956   $ 14,321   

Add:

        

Depreciation and amortization

     3,181        3,191        9,674        7,706   

Non-amortizable intangible asset impairment

     19,826        —          19,826        —     

Interest expense

     2,175        30        6,738        187   

Royalty and management service expense

     3,182        3,507        8,966        9,660   

(Benefit of) provision for income taxes

     (13,473     10,680        (11,339     14,468   

Less:

        

Interest income

     5,139        248        14,402        872   
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

   $ (8,141   $ 21,089      $ 507      $ 45,470   
  

 

 

   

 

 

   

 

 

   

 

 

 

Asia Pacific

        

Net income attributable to CBRE Group, Inc.

   $ 10,001      $ 6,585      $ 17,670      $ 15,672   

Add:

        

Depreciation and amortization

     2,905        2,979        8,458        6,950   

Interest expense

     1,124        1,395        3,188        2,624   

Royalty and management service expense

     3,704        3,468        11,700        10,314   

(Benefit of) provision for income taxes

     (1,182     7,550        1,653        17,085   

Less:

        

Interest income

     104        160        622        949   
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

   $ 16,448      $ 21,817      $ 42,047      $ 51,696   
  

 

 

   

 

 

   

 

 

   

 

 

 

Global Investment Management

        

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

   $ 291      $ (17   $ 1,957      $ (12,249

Add:

        

Depreciation and amortization (1)

     10,524        6,281        39,803        13,472   

Interest expense (2)

     7,162        4,097        20,981        14,186   

Royalty and management service expense

     35        213        113        729   

Provision for (benefit of) income taxes

     4,966        (4,156     15,911        (1,223

Less:

        

Interest income

     320        264        840        301   
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA (3)

   $ 22,658      $ 6,154      $ 77,925      $ 14,614   
  

 

 

   

 

 

   

 

 

   

 

 

 

Development Services

        

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

   $ (1,093   $ (1,598   $ (748   $ 5,223   

Add:

        

Depreciation and amortization

     2,748        3,002        8,405        8,751   

Interest expense

     2,691        3,361        8,602        9,601   

(Benefit of) provision for income taxes

     (434     (980     128        3,179   

Less:

        

Interest income

     73        9        279        62   
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

   $ 3,839      $ 3,776      $ 16,108      $ 26,692   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

25


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

 

(1) Includes depreciation and amortization related to discontinued operations of $0.5 million for the nine months ended September 30, 2011.
(2) Includes interest expense related to discontinued operations of $1.4 million for the nine months ended September 30, 2011.
(3) Includes EBITDA related to discontinued operations of $1.9 million for the nine months ended September 30, 2011.

16. Guarantor and Nonguarantor Financial Statements

The following condensed consolidating financial information includes:

(1) Condensed consolidating balance sheets as of September 30, 2012 and December 31, 2011; condensed consolidating statements of operations for the three and nine months ended September 30, 2012 and 2011; condensed consolidating statements of comprehensive income (loss) for the three and nine months ended September 30, 2012 and 2011; and condensed consolidating statements of cash flows for the nine months ended September 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 SEPTEMBER 30, 2012

(Dollars in thousands)

 

    Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Current Assets:

           

Cash and cash equivalents

  $ 228      $ 50,186      $ 394,973      $ 330,873      $ —        $ 776,260   

Restricted cash

    —          4,863        27,352        32,385        —          64,600   

Receivables, net

    —          —          478,366        649,626        —          1,127,992   

Warehouse receivables (a)

    —          —          465,794        —          —          465,794   

Trading securities

    —          —          107        96,952        —          97,059   

Income taxes receivable

    13,060        15,382        —          61,765        (4,272     85,935   

Prepaid expenses

    —          627        40,037        63,130        —          103,794   

Deferred tax assets, net

    —          —          144,473        27,814        —          172,287   

Real estate under development

    —          —          —          41,833        —          41,833   

Real estate and other assets held for sale

    —          —          —          52,504        —          52,504   

Available for sale securities

    —          —          1,083        —          —          1,083   

Other current assets

    —          —          30,418        17,716        —          48,134   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Assets

    13,288        71,058        1,582,603        1,374,598        (4,272     3,037,275   

Property and equipment, net

    —          —          228,124        106,736        —          334,860   

Goodwill

    —          —          1,004,312        841,075        —          1,845,387   

Other intangible assets, net

    —          —          524,401        245,239        —          769,640   

Investments in unconsolidated subsidiaries

    —          —          123,914        90,317        —          214,231   

Investments in consolidated subsidiaries

    1,710,681        2,249,957        1,228,713        —          (5,189,351     —     

Intercompany loan receivable

    —          1,590,015        700,000        —          (2,290,015     —     

Real estate under development

    —          —          798        10,194        —          10,992   

Real estate held for investment

    —          —          4,006        356,034        —          360,040   

Available for sale securities

    —          —          51,817        2,952        —          54,769   

Other assets, net

    —          43,161        56,041        42,381        —          141,583   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

  $ 1,723,969      $ 3,954,191      $ 5,504,729      $ 3,069,526      $ (7,483,638   $ 6,768,777   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Current Liabilities:

           

Accounts payable and accrued expenses

  $ —        $ 28,060      $ 136,902      $ 350,407      $ —        $ 515,369   

Compensation and employee benefits payable

    —          626        210,559        176,231        —          387,416   

Accrued bonus and profit sharing

    —          —          210,700        142,348        —          353,048   

Securities sold, not yet purchased

    —          —          —          44,829        —          44,829   

Income taxes payable

    —          —          4,272        —          (4,272     —     

Short-term borrowings:

           

Warehouse lines of credit (a)

    —          —          458,306        —          —          458,306   

Revolving credit facility

    —          10,496        —          62,162        —          72,658   

Other

    —          —          16        —          —          16   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total short-term borrowings

    —          10,496        458,322        62,162        —          530,980   

Current maturities of long-term debt

    —          46,000        2,403        22,657        —          71,060   

Notes payable on real estate

    —          —          —          154,676        —          154,676   

Liabilities related to real estate and other assets held for sale

    —          —          —          43,902        —          43,902   

Other current liabilities

    —          —          41,000        1,976        —          42,976   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Current Liabilities

    —          85,182        1,064,158        999,188        (4,272     2,144,256   

Long-Term Debt:

           

Senior secured term loans

    —          1,318,000        —          256,661        —          1,574,661   

11.625% senior subordinated notes, net

    —          440,129        —          —          —          440,129   

6.625% senior notes

    —          350,000        —          —          —          350,000   

Other long-term debt

    —          —          6,652        58        —          6,710   

Intercompany loan payable

    383,537        —          1,830,761        75,717        (2,290,015     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Long-Term Debt

    383,537        2,108,129        1,837,413        332,436        (2,290,015     2,371,500   

Notes payable on real estate

    —          —          —          168,010        —          168,010   

Deferred tax liabilities, net

    —          —          148,012        15,329        —          163,341   

Non-current tax liabilities

    —          —          79,731        5,353        —          85,084   

Pension liability

    —          —          —          61,823        —          61,823   

Other liabilities

    —          50,199        125,458        80,000        —          255,657   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities

    383,537        2,243,510        3,254,772        1,662,139        (2,294,287     5,249,671   

Commitments and contingencies

    —          —          —          —          —          —     

Equity:

           

CBRE Group, Inc. Stockholders’ Equity

    1,340,432        1,710,681        2,249,957        1,228,713        (5,189,351     1,340,432   

Non-controlling interests

    —          —          —          178,674        —          178,674   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Equity

    1,340,432        1,710,681        2,249,957        1,407,387        (5,189,351     1,519,106   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities and Equity

  $ 1,723,969      $ 3,954,191      $ 5,504,729      $ 3,069,526      $ (7,483,638   $ 6,768,777   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(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 JP Morgan Chase Bank, N.A. (JP Morgan), TD Bank, N.A. (TD Bank), Capital One, N.A. (Capital One), Fannie Mae As Soon As Pooled (ASAP) Program and Bank of America (BofA) lines of credit are pledged to JP Morgan, TD Bank, Capital One, Fannie Mae and BofA, 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 SEPTEMBER 30, 2012

(Dollars in thousands)

 

    Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Revenue

  $ —        $ —        $ 940,373      $ 616,774      $ —        $ 1,557,147   

Costs and expenses:

           

Cost of services

    —          —          568,573        346,672        —          915,245   

Operating, administrative and other

    14,452        1,778        224,740        241,392        —          482,362   

Depreciation and amortization

    —          —          23,343        16,759        —          40,102   

Non-amortizable intangible asset impairment

    —          —          —          19,826        —          19,826   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    14,452        1,778        816,656        624,649        —          1,457,535   

Gain on disposition of real estate

    —          —          —          3,983        —          3,983   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

    (14,452     (1,778     123,717        (3,892     —          103,595   

Equity income (loss) from unconsolidated subsidiaries

    —          —          3,142        (267     —          2,875   

Other income (loss)

    —          —          201        (50     —          151   

Interest income

    —          23,673        789        1,098        (23,665     1,895   

Interest expense

    —          35,822        23,046        8,448        (23,665     43,651   

Royalty and management service (income) expense

    —          —          (8,366     8,366        —          —     

Income (loss) from consolidated subsidiaries

    48,779        57,520        (10,264     —          (96,035     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before (benefit of) provision for income taxes

    34,327        43,593        102,905        (19,925     (96,035     64,865   

(Benefit of) provision for income taxes

    (5,382     (5,186     45,385        (12,657     —          22,160   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    39,709        48,779        57,520        (7,268     (96,035     42,705   

Less: Net income attributable to non-controlling interests

    —          —          —          2,996        —          2,996   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

  $ 39,709      $ 48,779      $ 57,520      $ (10,264   $ (96,035   $ 39,709   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

29


Table of Contents

CBRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011

(Dollars in thousands)

 

    Parent     CBRE     Guarantor
Subsidiaries
    Nonguarantor
Subsidiaries
    Elimination     Consolidated
Total
 

Revenue

  $ —        $ —        $ 889,381      $ 645,082      $ —        $ 1,534,463   

Costs and expenses:

           

Cost of services

    —          —          531,466        363,141        —          894,607   

Operating, administrative and other

    12,272        3,027        244,144        209,695        —          469,138   

Depreciation and amortization

    —          —          19,458        11,850        —          31,308   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    12,272        3,027        795,068        584,686        —          1,395,053   

Gain on disposition of real estate

    —          —          2,814        781        —          3,595   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

    (12,272     (3,027     97,127        61,177        —          143,005   

Equity income (loss) from unconsolidated subsidiaries

    —          —          7,174        (460     —          6,714   

Other loss

    —          —          12