Fair Value Measurements

3 Months Ended

Mar. 31, 2019

6.	Fair Value Measurements

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

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

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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.

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

There were no significant transfers in or out of Level 1 and Level 2 during the three months ended March 31, 2019 and 2018. There have been no significant changes to the valuation techniques and inputs used to develop the recurring fair value measurements from those disclosed in our 2018 Annual Report.

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

	As of March 31, 2019
	Fair Value Measured and Recorded Using
	Level 1		Level 2		Level 3		Total
Assets
Available for sale securities:
Debt securities:
U.S. treasury securities	$	3,189	$	—	$	—	$	3,189
Debt securities issued by U.S. federal agencies		—		11,167		—		11,167
Corporate debt securities		—		27,041		—		27,041
Asset-backed securities		—		4,897		—		4,897
Collateralized mortgage obligations		—		2,237		—		2,237
Total available for sale debt securities		3,189		45,342		—		48,531
Equity securities		210,160		—		—		210,160
Warehouse receivables		—		1,548,249		—		1,548,249
Total assets at fair value	$	213,349	$	1,593,591	$	—	$	1,806,940
Liabilities
Interest rate swaps	$	—	$	736	$	—	$	736
Securities sold, not yet purchased		4,189		—		—		4,189
Total liabilities at fair value	$	4,189	$	736	$	—	$	4,925

	As of December 31, 2018
	Fair Value Measured and Recorded Using
	Level 1		Level 2		Level 3		Total
Assets
Available for sale securities:
Debt securities:
U.S. treasury securities	$	3,138	$	—	$	—	$	3,138
Debt securities issued by U.S. federal agencies		—		11,196		—		11,196
Corporate debt securities		—		27,201		—		27,201
Asset-backed securities		—		5,017		—		5,017
Collateralized mortgage obligations		—		2,224		—		2,224
Total available for sale debt securities		3,138		45,638		—		48,776
Equity securities		153,762		—		—		153,762
Warehouse receivables		—		1,342,468		—		1,342,468
Total assets at fair value	$	156,900	$	1,388,106	$	—	$	1,545,006
Liabilities
Interest rate swaps	$	—	$	1,070	$	—	$	1,070
Securities sold, not yet purchased		3,133		—		—		3,133
Total liabilities at fair value	$	3,133	$	1,070	$	—	$	4,203

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

									Total
									Impairment Charges
	Net Carrying Value		Fair Value Measured and						for the
	as of		Recorded Using						Three Months Ended
	March 31, 2019		Level 1		Level 2		Level 3		March 31, 2019
Other intangible assets	$	16,000	$	—	$	—	$	16,000	$	89,037

During the three months ended March 31, 2019, we recorded an intangible asset impairment of $89.0 million in our Real Estate Investments segment. Such impairment charge was included as a separate line item in the accompanying consolidated statements of operations.

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

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

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

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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.

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

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

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

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

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

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

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Senior Term Loans – Based upon information from third-party banks (which falls within Level 2 of the fair value hierarchy), the estimated fair value of our senior term loans was approximately $725.0 million at March 31, 2019 and $757.0 million at December 31, 2018. Their actual carrying value, net of unamortized debt issuance costs, totaled $744.0 million and $751.3 million at March 31, 2019 and December 31, 2018, respectively (see Note 9).

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Interest Rate Swaps – These liabilities are carried at their fair value as calculated by using widely-accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative.

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Senior Notes – Based on dealers’ quotes (which falls within Level 2 of the fair value hierarchy), the estimated fair values of our 4.875% senior notes and 5.25% senior notes were $634.8 million and $455.7 million, respectively, at March 31, 2019 and $616.4 million and $443.7 million, respectively, at December 31, 2018. The actual carrying value of our 4.875% senior notes and 5.25% senior notes, net of unamortized debt issuance costs as well as unamortized discount or premium, if applicable, totaled $593.0 million and $422.8 million, respectively, at March 31, 2019 and $592.8 million and $422.7 million, respectively, at December 31, 2018.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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