CBRE GROUP, INC. (CBRE) FY 2022 MD&A

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide the reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity and certain other factors that may affect future results. This MD&A should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report. Discussion regarding our financial condition and results of operations for the year ended December 31, 2021 and comparisons between the years ended December 31, 2021 and 2020 is included in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the company’s 2021 Annual Report filed with the SEC on February 28, 2022.

Overview

We are the world’s largest commercial real estate services and investment firm, based on 2022 revenue, with leading global market positions in our leasing, property sales, occupier outsourcing and valuation businesses. As of December 31, 2022, the company has approximately 115,000 employees (excluding Turner & Townsend employees) serving clients in more than 100 countries.

We provide services to real estate investors and occupiers. For investors, our services include capital markets (property sales and mortgage origination), mortgage sales and servicing, property leasing, investment management, property management, valuation and development services, among others. For occupiers, our services include facilities management, project management and transaction (property sales and leasing) and consulting services, among others. We provide services under the following brand names: “CBRE” (real estate advisory and outsourcing services); “CBRE Investment Management” (investment management); “Trammell Crow Company” (primarily U.S. development); “Telford Homes” (U.K. development); and “Turner & Townsend Holdings Limited” (Turner & Townsend).

We generate revenue from stable, recurring sources (large multi-year portfolio and per project contracts) and from cyclical, non-recurring sources, including commissions on transactions. Our revenue mix has become heavily weighted towards stable revenue sources, particularly occupier outsourcing, and our dependence on cyclical property sales and lease transaction revenue has declined. We believe we are well-positioned to capture a substantial and growing share of market opportunities at a time when investors and occupiers increasingly prefer to purchase integrated, account-based services on a national and global basis.

In 2022, we generated revenue from a highly diversified base of clients, including more than 95 of the Fortune 100 companies. We have been an S&P 500 company since 2006 and in 2022 we were ranked #126 on the Fortune 500. We have been voted the most recognized commercial real estate brand in the Lipsey Company survey for 22 years in a row (including 2022). We have also been rated a World’s Most Ethical Company by the Ethisphere Institute for nine consecutive years (including 2022, the most recent year the award has been announced), and included in the Dow Jones World Sustainability Index for four years in a row and the Bloomberg Gender-Equality Index for four years in a row (including 2023).

Critical Accounting Policies and Estimates

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

Revenue Recognition

To recognize revenue in a transaction with a customer, we evaluate the five steps of the Accounting Standards Codification (ASC) Topic 606 revenue recognition framework: (1) identify the contract; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations and (5) recognize revenue when (or as) the performance obligations are satisfied.

Our revenue recognition policies are consistent with this five step framework. Understanding the complex terms of agreements and determining the appropriate time, amount, and method to recognize revenue for each transaction requires significant judgement. These significant judgements include: (i) determining what point in time or what measure of progress depicts the transfer of control to the customer; (ii) applying the series guidance to certain performance obligations satisfied over

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time; (iii) estimating how and when contingencies, or other forms of variable consideration, will impact the timing and amount of recognition of revenue and (iv) determining whether we control third party services before they are transferred to the customer in order to appropriately recognize the associated fees on either a gross or net basis. The timing and amount of revenue recognition in a period could vary if different judgments were made. Our revenues subject to the most judgment are brokerage commission revenue, incentive-based management fees, development fees and third party fees associated with our occupier outsourcing and property management services. For a detailed discussion of our revenue recognition policies, see the Revenue Recognition section within Note 2 of the Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report.

Business Combinations, Goodwill and Other Intangible Assets

Our acquisitions require the application of purchase accounting, which results in tangible and identifiable intangible assets and liabilities of the acquired entity being recorded at fair value. The difference between the purchase price and the fair value of net assets acquired is recorded as goodwill. Deferred consideration arrangements granted in connection with a business combination are evaluated to determine whether all or a portion is, in substance, additional purchase price or compensation for services. Additional purchase price is added to the fair value of consideration transferred in the business combination and compensation is included in operating expenses in the period it is incurred. In determining the fair values of assets and liabilities acquired in a business combination, we use a variety of valuation methods including present value, depreciated replacement cost, market values (where available) and selling prices less costs to dispose. We are responsible for determining the valuation of assets and liabilities and for the allocation of purchase price to assets acquired and liabilities assumed.

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

We are required to test goodwill and other intangible assets deemed to have indefinite useful lives for impairment at least annually, or more often if circumstances or events indicate a change in the impairment status, in accordance with ASC Topic 350, “Intangibles – Goodwill and Other” (Topic 350). We have the option to perform a qualitative assessment with respect to any of our reporting units to determine whether a quantitative impairment test is needed. We are permitted to assess based on qualitative factors whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the quantitative goodwill impairment test. If it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we would conduct a quantitative goodwill impairment test. If not, we do not need to apply the quantitative test. The qualitative test is elective and we can go directly to the quantitative test rather than making a more-likely-than-not assessment based on an evaluation of qualitative factors. When performing a quantitative test, we use a discounted cash flow approach to estimate the fair value of our reporting units. Management’s judgment is required in developing the assumptions for the discounted cash flow model. These assumptions include revenue growth rates, profit margin percentages, discount rates, etc. Due to the many variables inherent in the estimation of a business’s fair value and the relative size of our goodwill, if different assumptions and estimates were used, it could have an adverse effect on our impairment analysis.

For additional information on business combinations, goodwill and intangible asset impairment testing, see Notes 2 and 9 of the Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report.

Income Taxes

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

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Accounting for tax positions requires judgments, including estimating reserves for potential uncertainties. We also assess our ability to utilize tax attributes, including those in the form of carryforwards, for which the benefits have already been reflected in the financial statements. We do not record valuation allowances for deferred tax assets that we believe will be realized in future periods. While we believe the resulting tax balances as of December 31, 2022 and 2021 are appropriately accounted for in accordance with Topic 740, as applicable, the ultimate outcome of such matters could result in favorable or unfavorable adjustments to our consolidated financial statements and such adjustments could be material.

Our future effective tax rate could be adversely affected by earnings being lower than anticipated in countries that have lower statutory rates and higher than anticipated in countries that have higher statutory rates, changes in the valuation of our deferred tax assets or liabilities, or changes in tax laws, regulations, or accounting principles, as well as certain discrete items.

See Note 15 of the Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report for further information regarding income taxes.

Contingencies

Pursuant to ASC Topic 450, we evaluate whether any existing conditions existed as of the financial statement issuance date which may result in a loss contingent upon one or more future events occurring or not occurring. Assessing contingent liabilities involves significant judgment. If the assessment indicates that a loss is probable and the amount is reasonably estimable, we accrue an estimated liability in our financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability and an estimate of the range of potential losses, if determinable and material, would be disclosed. We determine the amount of estimated liability to accrue, if any, after thorough evaluation of key information available that could impact the size and timing of the potential loss on a case-by-case basis. Given the significant judgment involved with such estimates, the potential liability may change in the future as new information becomes available. We do not recognize gain contingencies until the contingency is completely resolved and the associated amounts are probable of collection.

See Notes 13 and 22 of the Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report for further information regarding Commitments and Contingencies and Telford Fire Safety Remediation, respectively.

Investments in unconsolidated subsidiaries – fair value option

We have elected the fair value option for certain of our investments in non-public entities to align with our strategy for these investments. Such investments without readily determinable fair values are classified as Level 3 in the fair value hierarchy. We estimate the fair market value on a recurring basis using significant unobservable inputs which requires judgment due to the absence of market prices or similar assets in active markets. In determining the estimated fair value of these investments, we utilize appropriate valuation techniques including discounted cash flow analyses and Monte Carlo simulations. Key inputs to the discounted cash flow analyses include projected cash flows, terminal growth rate, and discount rate. Key inputs to Monte Carlo simulations include stock price, volatility, risk free rate, and dividend yield.

Changes in the fair value of equity investments under the fair value option are recorded as Equity income from unconsolidated subsidiaries in the Consolidated Statements of Operations.

New Accounting Pronouncements

See New Accounting Pronouncements discussion within Note 3 of the Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report.

Seasonality

In a typical year, a significant portion of our revenue is seasonal, which an investor should keep in mind when comparing our financial condition and results of operations on a quarter-by-quarter basis. Historically, our revenue, operating income, net income and cash flow from operating activities have tended to be lowest in the first quarter and highest in the fourth quarter of each year. Revenue, earnings and cash flow have generally been concentrated in the fourth calendar quarter due to the focus on completing sales, financing and leasing transactions prior to year-end. The sharp rise in interest rates to combat inflation and resultant economic uncertainty may cause seasonality to deviate from historical patterns.

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Inflation

Our business was affected by high inflation in 2022. Most notably, the central banks’ moves to tame high inflation by rapidly raising interest rates sharply increased the cost of debt and dramatically constrained its availability, resulting in a significant decline in sales and financing transaction activity throughout the year’s second half. In addition, rising price levels across the economy required us to increase compensation expense to retain top talent and our development businesses incurred higher input costs for construction materials. On the other hand, we believe that parts of our business have protections against inflation. The company continues to monitor inflation, monetary policy changes in response to inflation and potentially adverse effects on our business.

Items Affecting Comparability

When you read our financial statements and the information included in this Annual Report, you should consider that we have experienced, and continue to experience, several material trends and uncertainties (particularly those caused or exacerbated by Covid-19) that have affected our financial condition and results of operations that make it challenging to predict our future performance based on our historical results. We believe that the following material trends and uncertainties are crucial to an understanding of the variability in our historical earnings and cash flows and the potential for continued variability in the future.

Macroeconomic Conditions

Economic trends and government policies affect global and regional commercial real estate markets as well as our operations directly. These include overall economic activity and employment growth, with specific sensitivity to growth in office-based employment; interest rate levels and changes in interest rates; the cost and availability of credit; and the impact of tax and regulatory policies. Periods of economic weakness or recession, significantly rising interest rates, fiscal uncertainty, declining employment levels, decreasing demand for commercial real estate, falling real estate values, disruption to the global capital or credit markets, or the public perception that any of these events may occur, will negatively affect the performance of our business.

Compensation is our largest expense and our sales and leasing professionals generally are paid on a commission and/or bonus basis that correlates with their revenue production. As a result, the negative effects on our operating margins during difficult market conditions, such as the environment that prevailed in the early months of the Covid-19 pandemic, are partially mitigated by the inherent variability of our compensation cost structure. In addition, when negative economic conditions have been particularly severe, like during the Covid-19 pandemic, we have moved decisively to lower operating expenses to improve financial performance. We began efforts in 2022 and will continue to reduce expenses in 2023 in light of the intensifying macroeconomic challenges, including rapidly rising interest rates to combat inflation. Additionally, our contractual revenue has increased primarily as a result of growth in our outsourcing business, and we believe this contractual revenue should partially offset the negative impacts that macroeconomic deterioration could have on other parts of our business. We also believe that we have significantly improved the resiliency of our business by expanding the business strategically across asset types, clients, geographies and lines of business. Nevertheless, adverse global and regional economic trends will pose significant risks to the performance of our consolidated operations and financial condition.

Effects of Acquisitions and Investments

We have historically made significant use of strategic acquisitions to add and enhance service capabilities around the world. On November 1, 2021, we acquired a 60% controlling ownership interest in Turner & Townsend Holdings Limited (Turner & Townsend). Turner & Townsend is a leading professional services company specializing in program management, project management, cost and commercial management and advisory services across the real estate, infrastructure and natural resources sectors, and is consolidated and reported in our Global Workplace Solutions segment.

Strategic in-fill acquisitions have also played a key role in strengthening our service offerings. The companies we acquired have generally been regional or specialty firms that complement our existing platform, or independent affiliates, which, in some cases, we held a small equity interest.

During 2022, we completed eleven in-fill acquisitions: four in the Global Workplace Solutions segment and seven in the Advisory Services segment.

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We believe strategic acquisitions can significantly decrease the cost, time and resources necessary to attain a meaningful competitive position – or expand our capabilities – within targeted markets or business lines. In general, however, most acquisitions will initially have an adverse impact on our operating income and net income as a result of transaction-related expenditures, including severance, lease termination, transaction and deferred financing costs, as well as costs and charges associated with integrating the acquired business and integrating its financial and accounting systems into our own.

Our acquisition structures often include deferred and/or contingent purchase consideration in future periods that are subject to the passage of time or achievement of certain performance metrics and other conditions. As of December 31, 2022, we have accrued deferred purchase and contingent considerations totaling $574.3 million, which is included in “Accounts payable and accrued expenses” and in “Other long-term liabilities” in the accompanying consolidated balance sheets set forth in Item 8 of this Annual Report.

We believe there are attractive companies that do not fit seamlessly into our services offering but that would benefit from an investment from and strategic partnership with us. These benefits include for our company, more tools and services with which to meet our clients’ needs, and for the companies with which we partner, more sales channels and faster growth. During 2022, we made a $100.7 million investment in VTS, a technology company that helps leasing agents better serve property owners and enables property managers to create more engaging experiences for building tenants. Also, during 2022, we made an incremental investment of $100 million in Industrious, a leading provider of premium flexible workplace solutions in the U.S., bringing our current non-controlling ownership stake to approximately 45%. During 2021, our company-sponsored SPAC merged with and into Altus Power, Inc. (Altus), which trades on the NYSE under the symbol “AMPS”. We have approximately 15.5% common shares ownership in AMPS at December 31, 2022.

International Operations

We conduct a significant portion of our business and employ a substantial number of people outside the U.S. As a result, we are subject to risks associated with doing business globally. Our Real Estate Investments business has significant euro and British pound denominated assets under management, as well as associated revenue and earnings in Europe. In addition, our Global Workplace Solutions business also derives significant revenue and earnings in foreign currencies, such as the euro and British pound sterling. Our business has been significantly impacted this year by the sharp appreciation of the U.S. dollar against these and other foreign currencies. Further fluctuations in foreign currency exchange rates may continue to produce corresponding changes in our AUM, revenue and earnings.

Our businesses could suffer from the effects of public health crises (such as the ongoing Covid-19 pandemic), geopolitical events (such as the war in Ukraine) or economic disruptions (or the perception that such disruptions may occur), rapid changes in interest rates, liquidity, the macroeconomic backdrop or regulatory or financial market uncertainty.

During the year ended December 31, 2022, approximately 43.3% of our revenue was transacted in foreign currencies. The following table sets forth our revenue derived from our most significant currencies (dollars in thousands):

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(1)Approximately 48 currencies comprise 7.2% of our revenue for the year ended December 31, 2022, and approximately 48 currencies comprise 7.0% of our revenue for the year ended December 31, 2021.

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Although we operate globally, we report our results in U.S. dollars. As a result, the strengthening or weakening of the U.S. dollar may positively or negatively impact our reported results. For example, we estimate that had the British pound sterling-to-U.S. dollar exchange rates been 10% higher during the year ended December 31, 2022, the net impact would have been a decrease in pre-tax income of $24.1 million. Had the euro-to-U.S. dollar exchange rates been 10% higher during the year ended December 31, 2022, the net impact would have been an increase in pre-tax income of $14.8 million. These hypothetical calculations estimate the impact of translating results into U.S. dollars and do not include an estimate of the impact that a 10% change in the U.S. dollar against other currencies would have had on our foreign operations.

Fluctuations in foreign currency exchange rates may result in corresponding fluctuations in revenue and earnings as well as the assets under management for our investment management business, which could have a material adverse effect on our business, financial condition and operating results. Due to the constantly changing currency exposures to which we are subject and the volatility of currency exchange rates, we cannot predict the effect of exchange rate fluctuations upon future operating results. In addition, fluctuations in currencies relative to the U.S. dollar may make it more difficult to perform period-to-period comparisons of our reported results of operations. Our international operations also are subject to, among other things, political instability and changing regulatory environments, which affect the currency markets and which as a result may adversely affect our future financial condition and results of operations. We routinely monitor these risks and related costs and evaluate the appropriate amount of oversight to allocate towards business activities in foreign countries where such risks and costs are particularly significant.

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Results of Operations

The following table sets forth items derived from our consolidated statements of operations for the years ended December 31, 2022 and 2021 (dollars in thousands):

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Net revenue, segment operating profit on revenue margin, segment operating profit on net revenue margin, core EBITDA and consolidated adjusted EBITDA are not recognized measurements under accounting principles generally accepted in the United States, or GAAP. When analyzing our operating performance, investors should use these measures in addition to, and not as an alternative for, their most directly comparable financial measure calculated and presented in accordance with GAAP. We generally use these non-GAAP financial measures to evaluate operating performance and for other discretionary purposes. We believe these measures provide a more complete understanding of ongoing operations, enhance comparability of current results to prior periods and may be useful for investors to analyze our financial performance because they eliminate the impact of selected costs and charges that may obscure the underlying performance of our business and related trends. Because not all companies use identical calculations, our presentation of net revenue, core EBITDA and consolidated adjusted EBITDA may not be comparable to similarly titled measures of other companies.

Net revenue is gross revenue less costs largely associated with subcontracted vendor work performed for clients and generally has no margin. Segment operating profit on revenue margin is computed by dividing segment operating profit by revenue and provides a comparable profitability measure against our peers. Segment operating profit on net revenue margin is computed by dividing segment operating profit by net revenue and is a better indicator of the segment’s margin since it does not include the diluting effect of pass through revenue which generally has no margin.

We use core EBITDA and consolidated adjusted EBITDA as indicators of consolidated financial performance. Consolidated adjusted EBITDA represents earnings before the portion attributable to non-controlling interests, net interest expense, write-off of financing costs on extinguished debt, income taxes, depreciation and amortization, asset impairments, adjustments related to certain carried interest incentive compensation expense (reversal) to align with the timing of associated revenue, fair value adjustments to real estate assets acquired in the Telford acquisition (purchase accounting) that were sold in the period, costs incurred related to legal entity restructuring, integration and other costs related to acquisitions, costs associated with efficiency and cost-reduction initiatives, and a provision associated with Telford’s fire safety remediation efforts. Core EBITDA removes from adjusted EBITDA the impact of fair value changes on certain non-core non-controlling equity investments that are not directly related to our business segments as these could fluctuate significantly period over period and also net gain on deconsolidation upon merger of the SPAC with and into Altus Power, net of associated costs, in 2021. We believe that investors may find these measures useful in evaluating our operating performance compared to that of other companies in our industry because their calculations generally eliminate the effects of acquisitions, which would include impairment charges of goodwill and intangibles created from acquisitions, the effects of financings and income taxes and the accounting effects of capital spending.

Consolidated adjusted EBITDA and core EBITDA are not intended to be a measure of free cash flow for our discretionary use because they do not consider certain cash requirements such as tax and debt service payments. These measures may also differ from the amounts calculated under similarly titled definitions in our credit facilities and debt instruments, which are further adjusted to reflect certain other cash and non-cash charges and are used by us to determine compliance with financial covenants therein and our ability to engage in certain activities, such as incurring additional debt. We also use core EBITDA as a significant component when measuring our operating performance under our employee incentive compensation programs.

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Consolidated adjusted EBITDA and core EBITDA are calculated as follows (dollars in thousands):

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Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

We reported consolidated net income of $1.4 billion for the year ended December 31, 2022 on revenue of $30.8 billion as compared to consolidated net income of $1.8 billion on revenue of $27.7 billion for the year ended December 31, 2021.

Our revenue on a consolidated basis for the year ended December 31, 2022 increased by $3.1 billion, or 11.1%, as compared to the year ended December 31, 2021. Although revenue increased across all three of our segments, Global Workplace Solutions segment (GWS) revenue growth was the main driver. Revenue in our GWS segment increased by $2.8 billion or 16.1% as compared to 2021 primarily due to an increase in the project management revenue stream which also now reflects a full year contribution from our Turner & Townsend partnership, supplemented by modest growth in our facilities management business. Advisory Services revenue increased by $307.7 million, or 3.2%, mainly due to growth in leasing, property management and valuation, offset by challenges experienced by our capital markets (sales and commercial mortgage origination) business. Revenue in the Real Estate Investment segment was relatively flat as higher asset management fees driven by asset appreciation were offset by lower carried interest revenue and decreased development and construction revenue. Foreign currency translation had a 4.2% negative impact on total revenue during the year ended December 31, 2022, primarily driven by weakness in the British pound sterling, euro and Japanese yen.

Our cost of revenue on a consolidated basis increased by $2.7 billion, or 12.3%, during the year ended December 31, 2022 as compared to the same period in 2021. This increase was primarily due to higher costs associated with our Global Workplace Solutions segment given the growth in our facilities management and project management businesses, including full year contribution from Turner & Townsend, and higher commission expense associated with our Advisory Services segment primarily due to growth in our leasing business. Foreign currency translation had a 4.1% positive impact on total cost of revenue during the year ended December 31, 2022. Cost of revenue as a percentage of revenue increased slightly from 77.8% for the year ended December 31, 2021 to 78.6% for the year ended December 31, 2022, mainly due to significant growth in the sales and leasing businesses earlier in the year leading to higher commission payouts.

Our operating, administrative and other expenses on a consolidated basis increased by $575.3 million, or 14.1%, during the year ended December 31, 2022 as compared to the same period in 2021. The increase was primarily due to an increase in compensation and benefits for support staff given the expansion of the overall business, travel and entertainment related expenses during the first half of the year, provision related to Telford Home’s building and fire safety remediation work, and charges associated with efficiency and cost reduction initiatives as compared to the same period in 2021. In addition, the current year also included operating expenses from our Turner & Townsend business. This increase was partially offset by lower overall incentive compensation in the current year as compared to the prior year. Foreign currency translation also had a 4.6% positive impact on total operating expenses during the year ended December 31, 2022. Operating expenses as a percentage of revenue increased slightly to 15.1% for the year ended December 31, 2022 from 14.7% for the year ended December 31, 2021.

Our depreciation and amortization expense on a consolidated basis increased by $87.2 million, or 16.6%, during the year ended December 31, 2022 as compared to the same period in 2021. This increase was primarily attributable to amortization of backlog and customer relationship intangibles from the acquisition of Turner & Townsend, with minimal comparable activity in the prior period.

Our asset impairments on a consolidated basis totaled $58.7 million during the year ended December 31, 2022. We recorded $10.4 million in asset impairment related to our exit of the Advisory Services business in Russia; $26.4 million and $21.9 million of non-cash goodwill impairment and trade name impairment charges, respectively, in our Real Estate Investment segment related to Telford Homes. The charges are attributable to the effect of elevated inflation on construction, materials and labor costs, which will reduce Telford Homes’ profitability because the sales prices for the build-to-rent developments are fixed at the time the developments are sold to a long-term investor. This resulted in a need to impair the above assets due to an expected reduction in cash flows and profitability. We did not record any asset impairments during the year ended December 31, 2021.

Our gain on disposition of real estate on a consolidated basis increased by $173.4 million during the year ended December 31, 2022 as compared to the same period in 2021 due to significant gains associated with certain property sales on consolidated deals within our Real Estate Investments segment.

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Our equity income from unconsolidated subsidiaries on a consolidated basis decreased by $389.7 million, or 63.0%, during the year ended December 31, 2022 as compared to the same period in 2021, primarily driven by a lower equity pickup and net negative fair value adjustment in our non-core investment portfolio this year. In addition, we recorded higher equity earnings associated with property sales reported in our Real Estate Investments segment last year as compared to this year.

Our other losses on a consolidated basis were $11.9 million for the year ended December 31, 2022 versus other income of $203.6 million for the same period in the prior year. In the prior year we recorded a non-cash gain of $187.5 million as part of the deconsolidation of CBRE Acquisition Holdings, Inc. (CBAH) upon its merger with and into Altus Power, Inc.

Our consolidated interest expense, net of interest income, increased by $18.6 million, or 37.0%, for the year ended December 31, 2022 as compared to the same period in 2021. This increase was primarily due to interest expense related to deferred purchase consideration associated with the Turner & Townsend acquisition and interest expense associated with the net borrowings on the revolving credit facilities.

Our provision for income taxes on a consolidated basis was $234.2 million for the year ended December 31, 2022 as compared to $567.5 million for the same period in 2021. Our effective tax rate decreased from 23.6% for the year ended December 31, 2021 to 14.1% for the year ended December 31, 2022. The decrease is primarily due to the outside basis differences recognized as a result of a legal entity restructuring.

On August 16, 2022, the Inflation Reduction Act (IRA), a budget reconciliation package that contained legislation targeting energy security and climate changes, healthcare and taxes, was signed into law. With respect to corporate-level taxes, the IRA included a 1% excise tax on stock buybacks and a 15% minimum corporate minimum tax (CAMT) based on financial statement income of certain U.S. companies that meet the $1 billion profitability threshold criteria, effective after December 31, 2022. We continue to evaluate the impact of the legislation and forthcoming administrative guidance and regulations to our financial statements and results of operations.

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Segment Operations

We organize our operations around, and publicly report our financial results on, three global business segments: (1) Advisory Services; (2) Global Workplace Solutions; and (3) Real Estate Investments. We also have a Corporate and other segment. Corporate primarily consists of corporate overhead costs. Other consists of activities from strategic non-core non-controlling equity investments and is considered an operating segment but does not meet the aggregation criteria for presentation as a separate reportable segment and is, therefore, combined with Corporate and reported as Corporate and other. It also includes eliminations related to inter-segment revenue. For additional information on our segments, see Note 19 of the Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report.

Advisory Services

The following table summarizes our results of operations for our Advisory Services operating segment for the years ended December 31, 2022 and 2021 (dollars in thousands):

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Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Revenue increased by $307.7 million, or 3.2%, for the year ended December 31, 2022 as compared to the year ended December 31, 2021 driven by growth in leasing, valuation and property management, offset by a significant decline in capital markets (property sales and commercial mortgage origination) business. Leasing revenue increased 17.1%, primarily due to an uptick in office and industrial sectors in the U.S. Our valuation revenue was up 4% driven by increased revenue per assignment and higher demand given the market conditions, mainly in the U.S. and U.K. markets. We also experienced an increase in our property management business in the Americas due to client wins. The above growth was partially offset by a drop in sales revenue and commercial mortgage origination revenue, mainly in the Americas region. The current macroeconomic and fiscal environment has put significant stress on the lending market making it difficult to access capital at a reasonable cost. Sales activity remained strong in the EMEA and APAC region, growing at 4% and 13%, respectively, on a local currency basis. Foreign currency translation had a 3.5% negative impact on total revenue during the year ended December 31, 2022, primarily driven by weakness in the euro, British pound sterling and Japanese yen.

Cost of revenue increased by $337.7 million, or 6.0%, for the year ended December 31, 2022 as compared to the same period in 2021, primarily due to increased commission expense resulting from higher sales generated earlier in the year and an overall increase in leasing revenue. Foreign currency translation also had a 3.3% positive impact on total cost of revenue during the year ended December 31, 2022. Cost of revenue as a percentage of revenue increased to 60.5% for the year ended December 31, 2022 from 58.9% for the same period in 2021. This was due to a shift in the composition of total revenue where high margin debt origination revenue decreased as a percentage of total revenue this year versus the same period last year and also due to growth in sales revenue in the earlier part of the year triggering higher commissions for certain producers.

Operating, administrative and other expenses increased by $169.2 million, or 9.0%, for the year ended December 31, 2022 as compared to the year ended December 31, 2021. This increase was primarily due to severance expense incurred under the cost savings initiatives, an increase in travel and entertainment expenses during the first half of the year, support staff compensation and related benefits, employee recruitment and temporary help related charges, partially offset by lower incentive compensation expense, as compared to the year ended December 31, 2021. Foreign currency translation also had a 4.6% positive impact on total operating expenses during the year ended December 31, 2022.

In connection with the origination and sale of mortgage loans for which the company retains servicing rights, we record servicing assets or liabilities based on the fair value of the retained mortgage servicing rights (MSRs) on the date the loans are sold. Upon origination of a mortgage loan held for sale, the fair value of the mortgage servicing rights to be retained is included in the forecasted proceeds from the anticipated loan sale and results in a net gain (which is reflected in revenue). Subsequent to the initial recording, MSRs are amortized (within amortization expense) and carried at the lower of amortized cost or fair value in other intangible assets in the accompanying consolidated balance sheets. They are amortized in proportion to and over the estimated period that the servicing income is expected to be received. For the year ended December 31, 2022, MSRs contributed to operating income $134.1 million of gains recognized in conjunction with the origination and sale of mortgage loans, offset by $163.7 million of amortization of related intangible assets. For the year ended December 31, 2021, MSRs contributed $185.1 million of gains recognized in conjunction with the origination and sale of mortgage loans, offset by $172.3 million of amortization of related intangible assets. The decline was associated with lower origination activity given the higher cost of debt.

Equity income from unconsolidated subsidiaries decreased by $10.1 million, or 40.8%, for the year ended December 31, 2022 compared to the same period in the prior year, due to a lower net fair value adjustment on one of our strategic non-controlling equity investments.

Depreciation expense was up by $5.7 million, or 4.5%, due to accelerated depreciation expense associated with certain cost savings initiatives. Amortization expense during the year ended December 31, 2022 decreased by $6.2 million, as compared to the same period in 2021, primarily due to lower amortization on the MSRs.

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Global Workplace Solutions

The following table summarizes our results of operations for our Global Workplace Solutions operating segment for the years ended December 31, 2022 and 2021 (dollars in thousands):

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Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Revenue increased by $2.8 billion, or 16.1%, for the year ended December 31, 2022 as compared to the year ended December 31, 2021. The increase was primarily attributable to growth in our project management line of business, supplemented by moderate growth in facilities management revenue. We recorded approximately $1.3 billion in revenue from Turner & Townsend during the year with only two months of activity in the prior comparable period. Excluding Turner & Townsend, revenue rose nearly 9.5% with project management up 21.1% due to certain large projects and focused growth initiatives. Foreign currency translation had a 4.4% negative impact on total revenue during the year ended December 31, 2022, primarily driven by weakness in the British pound sterling and euro.

Cost of revenue increased by $2.3 billion, or 15.0%, for the year ended December 31, 2022 as compared to the same period in 2021, driven by higher revenue leading to higher pass through costs and increased professional compensation. In addition, we recorded cost of revenue incurred by Turner & Townsend for the year ended December 31, 2022 with only two months of such activity in the prior comparable period. Foreign currency translation had a 4.2% positive impact on total cost of revenue during the year ended December 31, 2022. Cost of revenue as a percentage of revenue decreased slightly to 90.4% for the year ended December 31, 2022 from 91.2% for the same period in 2021, primarily due to an increase in project management revenue which generally has higher margins.

Operating, administrative and other expenses increased by $241.4 million, or 28.8%, for the year ended December 31, 2022 as compared to the year ended December 31, 2021. Compensation expense increased due to severance expense incurred under the costs savings initiatives and investment in new roles to drive business growth. We also recorded higher travel and entertainment expenses during the first half of the year, incentive compensation expense, and employee recruitment costs. In addition, we recorded operating expenses incurred by Turner & Townsend for the year ended December 31, 2022 with only two months of such activity in the prior comparable period. Foreign currency translation also had a 5.0% positive impact on total operating expenses during the year ended December 31, 2022.

Depreciation and amortization expense increased by $94.3 million, or 59.4%, during the year ended December 31, 2022 as compared to the same period in 2021. This increase was primarily attributable to amortization of backlog and customer relationship intangibles from the acquisition of Turner & Townsend, with minimal comparable activity in the prior period.

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Real Estate Investments

The following table summarizes our results of operations for our Real Estate Investments (REI) operating segment for the years ended December 31, 2022 and 2021 (dollars in thousands):

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Revenue increased by $17.9 million, or 1.6%, for the year ended December 31, 2022 as compared to the year ended December 31, 2021, primarily driven by an increase in investment management fees supported by net growth in assets under management, offset by lower carried interest revenue, and lower real estate sales, development and construction management fees, in our development business, primarily in the U.K. Foreign currency translation had a 6.7% negative impact on total revenue during the year ended December 31, 2022 primarily driven by weakness in the British pound sterling and euro.

Cost of revenue decreased by $27.3 million, or 7.8%, for the year ended December 31, 2022 as compared to the year ended December 31, 2021. Cost of revenue as a percent of revenue was 29.0% for the year ended December 31, 2022 as compared to 32.0% for the year ended December 31, 2021. This was mainly due to a change in composition of overall revenue. Revenue from investment management, which has no associated cost of revenue, contributed 53.6% to total segment revenue as compared to 50.9% last year. Foreign currency translation had a 9.1% positive impact on total cost of revenue during the year ended December 31, 2022.

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Operating, administrative and other expenses increased by $185.9 million, or 20.7%, for the year ended December 31, 2022 as compared to the same period in 2021. We recorded an estimated provision of $185.9 million related to fire and building safety remediation work that our Telford Homes business will undertake based on the pledge signed in the second quarter of 2022. Additionally, we noted an increase in overall compensation, including severance expense related to cost savings initiatives, higher travel and entertainment expenses during the first half of the year, partially offset by lower overall incentive compensation. Foreign currency translation had a 6.5% positive impact on total operating expenses during the year ended December 31, 2022.

Equity income from unconsolidated subsidiaries decreased by $174.8 million, or 31.5%, during the year ended December 31, 2022 as compared to the same period in 2021. Gain on disposition of real estate increased by $173.4 million for the year ended December 31, 2022 as compared to the same period in 2021. This was primarily due to the composition of the portfolio, deal structures, and timing.

A roll forward of our AUM by product type for the year ended December 31, 2022 is as follows (dollars in billions):

AUM generally refers to the properties and other assets with respect to which we provide (or participate in) oversight, investment management services and other advice, and which generally consist of real estate properties or loans, securities portfolios and investments in operating companies and joint ventures. Our AUM is intended principally to reflect the extent of our presence in the real estate market, not the basis for determining our management fees. Our assets under management consist of:

•the total fair market value of the real estate properties and other assets either wholly-owned or held by joint ventures and other entities in which our sponsored funds or investment vehicles and client accounts have invested or to which they have provided financing. Committed (but unfunded) capital from investors in our sponsored funds is not included in this component of our AUM. The value of development properties is included at estimated completion cost. In the case of real estate operating companies, the total value of real properties controlled by the companies, generally through joint ventures, is included in AUM; and

•the net asset value of our managed securities portfolios, including investments (which may be comprised of committed but uncalled capital) in private real estate funds under our fund of funds investments.

Our calculation of AUM may differ from the calculations of other asset managers, and as a result, this measure may not be comparable to similar measures presented by other asset managers.

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Corporate and Other

Our Corporate segment primarily consists of corporate overhead costs. Other consists of activities from strategic non-core non-controlling equity investments and is considered an operating segment but does not meet the aggregation criteria for presentation as a separate reportable segment and is, therefore, combined with our core Corporate function and reported as Corporate and other. The following table summarizes our results of operations for our Corporate and other segment for the years ended December 31, 2022 and 2021 (dollars in thousands):

_______________

(1)Percentage of revenue calculations are not meaningful and therefore not included.

(2)Primarily relates to inter-segment eliminations.

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Core corporate

Operating, administrative and other expenses for our core corporate function remained relatively flat at approximately $430.0 million during the year ended December 31, 2022, as compared to $427.6 million for the prior year. This was primarily due to severance charges associated with efficiency and cost reduction initiatives, partially offset by lower stock compensation and bonus expense as compared to the prior period. In addition, operating expenses associated with our sponsorship of CBRE Acquisition Holdings, Inc. (now known as Altus Power, Inc.) up until its merger with and into Altus on December 9, 2021 were also recorded in this segment.

Other loss was approximately $12.2 million for the year ended December 31, 2022 versus an income of $7.1 million in the same period last year. This is primarily comprised of net unfavorable activity related to unrealized and realized gain/loss on equity and available for sale debt securities owned by our wholly-owned captive insurance company. These mark to market adjustments were in a net unfavorable position this year compared to the prior year.

Other (non-core)

We recorded equity loss of approximately $167.3 million for the year ended December 31, 2022 from unfavorable fair value adjustments related to certain non-core investments as compared to a $36.9 million positive fair value adjustments last year.

We recorded other loss of $6.6 million which is mainly due to realized losses on sale of marketable securities this year. In the prior year, we recorded income of $198.7 million, mainly due to a non-cash gain of $187.5 million as part of the deconsolidation of CBAH upon its merger with and into Altus.

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Liquidity and Capital Resources

We believe that we can satisfy our working capital and funding requirements with internally generated cash flow and, as necessary, borrowings under our revolving credit facilities. Our expected capital requirements for 2023 include up to approximately $326.8 million of anticipated capital expenditures, net of tenant concessions. During the year ended December 31, 2022, we incurred $248.5 million of capital expenditures, net of tenant concessions received. As of December 31, 2022, we had aggregate future commitments of $106.9 million related to co-investments funds in our Real Estate Investments segment, $47.3 million of which is expected to be funded in 2023. Additionally, as of December 31, 2022, we are committed to fund additional capital of $81.0 million and $85.9 million to consolidated and unconsolidated projects, respectively, within our Real Estate Investments segment. As of December 31, 2022, we had $3.5 billion of borrowings available under our revolving credit facilities (under both the Revolving Credit Agreement, as described below, and the Turner & Townsend revolving credit facility) and $1.3 billion of cash and cash equivalents.

We have historically relied on our internally generated cash flow and our revolving credit facilities to fund our working capital, capital expenditure and general investment requirements (including strategic in-fill acquisitions) and have not sought other external sources of financing to help fund these requirements. In the absence of extraordinary events or a large strategic acquisition, we anticipate that our cash flow from operations and our revolving credit facilities would be sufficient to meet our anticipated cash requirements for the foreseeable future, and at a minimum for the next 12 months. Given compensation is our largest expense and our sales and leasing professionals are generally paid on a commission and/or bonus basis that correlates with their revenue production, the negative effect of difficult market conditions is partially mitigated by the inherent variability of our compensation cost structure. In addition, when negative economic conditions have been particularly severe, we have moved decisively to lower operating expenses to improve financial performance, and then have restored certain expenses as economic conditions improved. We may seek to take advantage of market opportunities to refinance existing debt instruments, as we have done in the past, with new debt instruments at interest rates, maturities and terms we deem attractive. We may also, from time to time in our sole discretion, purchase, redeem, or retire our existing senior notes, through tender offers, in privately negotiated or open market transactions, or otherwise.

In March 2021, we took advantage of favorable market conditions and low interest rates and conducted a new issuance for $500.0 million in aggregate principal amount of 2.500% senior notes due 2031. On November 23, 2021, we redeemed the $300.0 million aggregate outstanding principal amount of our tranche A term loan facility due 2024 in full. We funded this redemption using cash on hand.

As noted above, we believe that any future significant acquisitions we may make could require us to obtain additional debt or equity financing. In the past, we have been able to obtain such financing for material transactions on terms that we believed to be reasonable. However, it is possible that we may not be able to obtain acquisition financing on favorable terms, or at all, in the future.

Our long-term liquidity needs, other than those related to ordinary course obligations and commitments such as operating leases, are generally comprised of three elements. The first is the repayment of the outstanding and anticipated principal amounts of our long-term indebtedness. If our cash flow is insufficient to repay our long-term debt when it comes due, then we expect that we would need to refinance such indebtedness or otherwise amend its terms to extend the maturity dates. We cannot make any assurances that such refinancing or amendments would be available on attractive terms, if at all.

The second long-term liquidity need is the payment of obligations related to acquisitions. Our acquisition structures often include deferred and/or contingent purchase consideration in future periods that are subject to the passage of time or achievement of certain performance metrics and other conditions. As of December 31, 2022 and 2021, we had accrued deferred purchase consideration totaling $574.3 million ($117.3 million of which was a current liability) and $630.1 million ($32.0 million of which was a current liability), respectively, which was included in “Accounts payable and accrued expenses” and in “Other liabilities” in the accompanying consolidated balance sheets set forth in Item 8 of this Annual Report.

Lastly, as described in Note 16 of the Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report, in 2019, our board of directors authorized a program for the repurchase of up to $500.0 million of our Class A common stock over three years (the 2019 program). During the first quarter of 2022, we fully utilized the remaining capacity under the 2019 program and repurchased 615,108 shares of our Class A common stock with an average price of $101.88 per share using cash on hand for $62.7 million.

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In November 2021, our board of directors authorized a new program for the company to repurchase up to $2.0 billion of our Class A common stock over five years, effective November 19, 2021 (the 2021 program). In August 2022, our board of directors authorized an additional $2.0 billion, bringing the total authorized repurchase amount under the 2021 program to a total of $4.0 billion. During the year ended December 31, 2022, we repurchased 22,275,498 shares of our Class A common stock with an average price of $80.74 per share using cash on hand for $1.8 billion under the 2021 program. As of December 31, 2022 and February 16, 2023, respectively, we had $2.1 billion and $2.0 billion of capacity remaining under the 2021 program.

Our stock repurchases have been funded with cash on hand and we intend to continue funding future repurchases with existing cash. We may utilize our stock repurchase programs to continue offsetting the impact of our stock-based compensation program and on a more opportunistic basis if we believe our stock presents a compelling investment compared to other discretionary uses. The timing of any future repurchases and the actual amounts repurchased will depend on a variety of factors, including the market price of our common stock, general market and economic conditions and other factors.

As more fully described in Note 22 of the Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report, following a request by the U.K. government to the majority of significant residential developers within the U.K. including Telford Homes, Telford Homes signed the U.K. government’s non-binding Fire Safety Pledge (the “Pledge”) on April 28, 2022. The Pledge states that subject to entering into mutually acceptable legally binding agreements with the U.K. government, Telford Homes will (1) take responsibility for performing or funding self-remediation works relating to certain life-critical fire-safety issues on all Telford Homes-constructed buildings of 11 meters in height or greater in England constructed in the last 30 years (in-scope buildings) and (2) withdraw Telford Homes-developed buildings from certain government-sponsored building safety funds or reimburse the government funds for the cost of remediation of in-scope buildings.

We believe there is a potential risk of loss attributable to past events, including as a result of retrospective changes in building fire-safety regulations, under the Pledge, and also under existing contracts and/or the U.K.’s Building Safety Act of 2022 (BSA) or its Defective Premises Act of 1972 (DPA). The estimated costs for in-scope buildings are subjective, highly complex and dependent on a number of variables outside of Telford Homes’ control. These include, but are not limited to, the time required for the remediation to be completed, the size and number of buildings that may require remediation, cost of construction or remediation materials, availability of construction materials, potential discoveries made during remediation that could necessitate incremental work, investigation costs, availability of qualified fire safety engineers, potential business disruption costs, potential changes to or new regulations and regulatory approval.

As a result of signing the Pledge, the introduction of the BSA, the extension of liability under the DPA, and the potential for us to be required to pay for remediation under any definitive agreements that may be negotiated by the parties under the Pledge or under existing legal contracts, we recorded charges of approximately $138.9 million and $185.9 million for the three months and twelve months ended December 31, 2022, respectively. Of the $185.9 million in estimated liability as of December 31, 2022, approximately $51.6 million was recorded as a current liability in “accounts payable and accrued expenses” and the remaining was recorded as non-current in “other liabilities” in the accompanying consolidated balance sheets. Although the foregoing includes significant subjective judgments, management believes that there is enough information to reasonably estimate the potential liability. The potential liability and number of buildings affected may change as new information becomes available and full cost estimates are assessed and tendered for each building, which is anticipated to be a lengthy process due to the various steps required to fully remediate. We will continue to assess new information as it becomes available and adjust our estimated liability accordingly. For more information, see “Telford Fire Safety Remediation” in Note 22 of the Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report.

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Historical Cash Flows

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Operating Activities

Net cash provided by operating activities totaled $1.6 billion for the year ended December 31, 2022, a decrease of $735.1 million as compared to the year ended December 31, 2021. The primary drivers that contributed to the decline were as follows: (1) lower operating performance and (2) the net cash outflow associated with net working capital increased in the current year as compared to last year by approximately $992.9 million. This was primarily due to (i) higher outflow related to net bonus payments, compensation and other employee benefits, (ii) increased issuance of incentive compensation in the form of producer based loans, and (iii) timing of certain cash tax payments and refunds. This change in working capital was partially offset by lower outflow associated with accounts receivable, prepaids and contract assets. Additionally, we had lower distribution of equity income from unconsolidated subsidiaries; a decline in tenant concessions received in the current year; lower net inflows related to mortgage loan activities and associated warehouse line of credit draws.

Investing Activities

Net cash used in investing activities totaled $832.5 million for the year ended December 31, 2022, a decrease of $448.4 million as compared to the year ended December 31, 2021. This decrease was primarily due to the Turner & Townsend transaction in 2021 as compared a to lower volume of acquisitions in the current year. This was partially offset by the following outflows: a $100.7 million investment in VTS during 2022; higher capital expenditures to support the growth in business; and higher net contributions to unconsolidated subsidiaries.

Financing Activities

Net cash used in financing activities totaled $1.8 billion for the year ended December 31, 2022, an increase of $1.3 billion as compared to the year ended December 31, 2021. The increased usage during the year was primarily due to $1.9 billion used to repurchase shares of our common stock as compared to $368.6 million in the prior year; as well as net inflows in the prior year from issuance and settlement activities associated with our long term debt thus increasing the year over year usage. This was partially offset by (i) $151.4 million in net proceeds from our revolving credit facility received this year as compared to last year, (ii) payment of $205.1 million for redemption of non-controlling interest for CBAH and (iii) payment of deferred underwriting costs related to CBAH’s initial public offering in the prior year with no comparable activity in the current year.

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Summary of Contractual Obligations and Other Commitments

The following is a summary of our various contractual obligations and other commitments as of December 31, 2022 (dollars in thousands):

The table above excludes estimated payment obligations for our qualified defined benefit pension plans. For information about our future estimated payment obligations for these plans, see Note 14 of our Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report.

_______________

(1)Reflects gross outstanding long-term debt balances as of December 31, 2022, assumed to be paid at maturity, excluding unamortized discount, premium and deferred financing costs. See Note 11 of our Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report. Figures do not include scheduled interest payments. Assuming each debt obligation is held until maturity, we estimate that we will make $205.1 million of interest payments, $51.1 million of which will be made in 2023.

(2)The majority of this balance represents our warehouse lines of credit, which are recourse only to our wholly-owned subsidiary CBRE Capital Markets, Inc. (CBRE Capital Markets) and are secured by our related warehouse receivables. See Notes 5 and 11 of our Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report.

(3)See Note 12 of our Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report.

(4)Reflects gross outstanding notes payable on real estate as of December 31, 2022 (none of which is 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), assumed to be paid at maturity, excluding unamortized deferred financing costs. Amounts do not include scheduled interest payments. The notes have either fixed or variable interest rates, ranging from 2.25% to 7.50% at December 31, 2022.

(5)Represents deferred obligations related to previous acquisitions, which are included in accounts payable and accrued expenses and other long-term liabilities in the consolidated balance sheets at December 31, 2022 set forth in Item 8 of this Annual Report.

(6)Represents outstanding reserves for claims under certain insurance programs, which are included in other current and other long-term liabilities in the consolidated balance sheets at December 31, 2022 set forth in Item 8 of this Annual Report. Due to the nature of this item, payments could be due at any time upon the occurrence of certain events. Accordingly, the entire balance has been reflected as expiring in less than one year.

(7)As of December 31, 2022, we have a remaining federal tax liability of $54.8 million associated with the Transition Tax on mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. We are paying the federal tax liability for the Transition Tax in annual interest-free installments over a period of eight years through 2025 as allowed by the Tax Act. The next installment is due in 2024 for the 2023 fiscal year.

In addition, as of December 31, 2022, our gross unrecognized tax benefits, totaled $391.4 million. Of this amount, we can reasonably estimate that none will require cash settlement in less than one year. We are unable to reasonably estimate the timing of the effective settlement of tax positions for the gross amount. See Note 15 of our Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report.

(8)See Note 13 of our Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report.

(9)Includes $106.9 million to fund future co-investments in our Real Estate Investments segment, $47.3 million of which is expected to be funded in 2023, and $85.9 million committed to invest in unconsolidated real estate subsidiaries, which is callable at any time. This amount does not include capital committed to consolidated projects of $81.0 million as of December 31, 2022.

(10)Due to the nature of guarantees, payments could be due at any time upon the occurrence of certain triggering events, including default. Accordingly, all guarantees are reflected as expiring in less than one year.

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Indebtedness

We use a variety of financing arrangements, both long-term and short-term, to fund our operations in addition to cash generated from operating activities. We also use several funding sources to avoid becoming overly dependent on one financing source, and to lower funding costs.

Long-Term Debt

On July 9, 2021, CBRE Services, Inc. (CBRE Services) entered into an additional incremental assumption agreement with respect to its credit agreement, dated October 31, 2017 (such agreement, as amended by a December 20, 2018 incremental term loan assumption agreement, a March 4, 2019 incremental assumption agreement and such July 9, 2021 incremental assumption agreement, collectively, the 2021 Credit Agreement) for purposes of increasing the revolving credit commitments previously available under the 2021 Credit Agreement by an aggregate principal amount of $350.0 million.

On May 21, 2021, we entered into a definitive agreement whereby our subsidiary guarantors were released as guarantors from the 2021 Credit Agreement.

On December 10, 2021, CBRE Services and certain of the other borrowers entered into a first amendment to the 2021 Credit Agreement which (i) changed the interest rate applicable to revolving borrowings denominated in Sterling from a LIBOR-based rate to a rate based on the Sterling Overnight Index Average (SONIA) and (ii) changed the interest rate applicable to revolving borrowings denominated in Euros from a LIBOR-based rate to a rate based on EURIBOR. The revised interest rates described above went into effect on January 1, 2022.

On August 5, 2022, CBRE Group, Inc., as Holdings, and CBRE Global Acquisition Company, as the Luxembourg Borrower, entered into a second amendment to the 2021 Credit Agreement which, among other things (i) amended certain of the representations and warranties, affirmative covenants, negative covenants and events of default in the 2021 Credit Agreement in a manner consistent with the new 5-year senior unsecured Revolving Credit Agreement (as described below), (ii) terminated all revolving commitments previously available to the subsidiaries of the company thereunder and (iii) reflected the resignation of the previous administrative agent and the appointment of Wells Fargo Bank, National Association as the new administrative agent (the 2021 Credit Agreement, as amended by the first amendment and second amendment is referred to in this Annual Report as the 2022 Credit Agreement).

The 2022 Credit Agreement is a senior unsecured credit facility that is guaranteed by CBRE Group, Inc. As of December 31, 2022, the 2022 Credit Agreement provided for a €400.0 million term loan facility due and payable in full at maturity on December 20, 2023. The $300.0 million tranche A term loan facility that was also covered under this agreement was repaid on November 23, 2021. In addition, a $3.15 billion revolving credit facility, which included the capacity to obtain letters of credit and swingline loans and would have terminated on March 4, 2024, was also previously provided under this agreement and was replaced with a new $3.5 billion 5-year senior unsecured Revolving Credit Agreement entered into on August 5, 2022 (as described below).

On March 18, 2021, CBRE Services issued $500.0 million in aggregate principal amount of 2.500% senior notes due April 1, 2031 (the 2.500% senior notes) at a price equal to 98.451% of their face value. The 2.500% senior notes are unsecured obligations of CBRE Services and are guaranteed on a senior basis by CBRE Group, Inc. Interest accrues at a rate of 2.500% per year and is payable semi-annually in arrears on April 1 and October 1 of each year, beginning on October 1, 2021. The amount of the 2.500% senior notes, net of unamortized discount and unamortized debt issuance costs, included in the accompanying consolidated balance sheet was $489.3 million and $488.1 million at December 31, 2022 and 2021, respectively.

On August 13, 2015, CBRE Services issued $600.0 million in aggregate principal amount of 4.875% senior notes due March 1, 2026 (the 4.875% senior notes) at a price equal to 99.24% of their face value. The 4.875% senior notes are unsecured obligations of CBRE Services and are guaranteed on a senior basis by CBRE Group, Inc. Interest accrues at a rate of 4.875% per year and is payable semi-annually in arrears on March 1 and September 1. The amount of the 4.875% senior notes, net of unamortized discount and unamortized debt issuance costs, included in the accompanying consolidated balance sheet was $596.4 million and $595.5 million at December 31, 2022 and 2021, respectively.

The indentures governing our 4.875% senior notes and 2.500% senior notes contain restrictive covenants that, among other things, limit our ability to create or permit liens on assets securing indebtedness, enter into sale/leaseback transactions and enter into consolidations or mergers.

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On May 21, 2021, all existing subsidiary guarantors were released from their guarantees of our 2022 Credit Agreement, 4.875% senior notes and 2.500% senior notes. Our 2022 Credit Agreement, Revolving Credit Agreement, 4.875% senior notes and 2.500% senior notes remain fully and unconditionally guaranteed by CBRE Group, Inc. Combined summarized financial information for CBRE Group, Inc. (parent) and CBRE Services (subsidiary issuer) is as follows (dollars in thousands):

_______________

(1)Includes $719.3 million of intercompany loan payables and $25.3 million of intercompany loan receivables from non-guarantor subsidiaries as of December 31, 2022 and 2021, respectively. All intercompany balances and transactions between CBRE Group, Inc. and CBRE Services have been eliminated.

(2)Amounts include activity related to our subsidiaries that were still listed as guarantors for the period presented.

For additional information on all of our long-term debt, see Note 11 of the Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report.

Short-Term Borrowings

On August 5, 2022, we entered into a new 5-year senior unsecured Revolving Credit Agreement (the “Revolving Credit Agreement”). The Revolving Credit Agreement provides for a senior unsecured revolving credit facility available to CBRE Services with a capacity of $3.5 billion and a maturity date of August 5, 2027. Borrowings bear interest at (i) CBRE Services’ option, either (a) a Term SOFR rate published by CME Group Benchmark Administration Limited for the applicable interest period or (b) a base rate determined by reference to the greatest of (1) the prime rate determined by Wells Fargo, (2) the federal funds rate plus 1/2 of 1% and (3) the sum of (x) a Term SOFR rate published by CME Group Benchmark Administration Limited for an interest period of one month and (y) 1.00% plus (ii) 10 basis points, plus (iii) a rate equal to an applicable rate (in the case of borrowings based on the Term SOFR rate, 0.630% to 1.100% and in the case of borrowings based on the base rate, 0.0% to 0.100%, in each case, as determined by reference to our Debt Rating (as defined in the Revolving Credit Agreement)). The applicable rate is also subject to certain increases and/or decreases specified in the Revolving Credit Agreement linked to achieving certain sustainability goals.

The Revolving Credit Agreement requires us to pay a fee based on the total amount of the revolving credit facility commitment (whether used or unused). In addition, the Revolving Credit Agreement also includes capacity for letters of credit of an outstanding aggregate amount of $300.0 million.

As of December 31, 2022, $178.0 million was outstanding under the Revolving Credit Agreement. No letters of credit were outstanding as of December 31, 2022. As of February 16, 2023, $438.0 million was outstanding under the Revolving Credit Agreement. Letters of credit are issued in the ordinary course of business and would reduce the amount we may borrow under the Revolving Credit Agreement.

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In addition, Turner & Townsend maintains a £120.0 million revolving credit facility pursuant to a credit agreement dated March 31, 2022, with an additional accordion option of £20.0 million. As of December 31, 2022 and February 16, 2023, respectively, $31.9 million (£26.3 million) and $31.6 million (£26.3 million) was outstanding under this revolving credit facility and bears interest at SONIA plus 0.75%.

We also maintain warehouse lines of credit with certain third-party lenders. For additional information on all of our short-term borrowings, see Notes 5 and 11 of the Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report.