# Cushman & Wakefield Ltd. (CWK) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Cushman & Wakefield Ltd.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1628369/000162836922000011/cwk-20211231.htm
Accession: 0001628369-22-000011
Filing date: 2022-02-25
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/CWK/
All MD&A years: /company/CWK/mda/
Next year: /company/CWK/mda/fy2022/ (FY 2022)

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and related notes included elsewhere in this Annual Report on Form 10-K.

As discussed in “Cautionary Note Regarding Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may materially differ from those discussed in such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified below and those discussed in “Risk Factors” in Part I, Item 1A in this Annual Report. Our fiscal year ends December 31. With respect to presentation, all statements asserting an "increase" or "decrease" relate to changes from prior applicable periods of comparison.

Overview

Cushman & Wakefield is a leading global commercial real estate services firm with an iconic brand and approximately 50,000 employees led by an experienced executive team. We operate from over 400 offices in approximately 60 countries, managing over 4.8 billion square feet of commercial real estate space on behalf of institutional, corporate and private clients. We serve the world's real estate owners and occupiers, delivering a broad suite of services through our integrated and scalable platform. Our business is focused on meeting the increasing demands of our clients through a comprehensive offering of services including Property, facilities and project management, Leasing, Capital markets and Valuation and other services.

Outlook and Recent Developments

In December 2021, we finalized our strategic investment of $500 million in Greystone, a leading commercial real estate finance company, acquiring a 40% interest in Greystone's Agency, FHA and Servicing businesses. This investment expands our presence in the multifamily sector and enables us to deliver best-in class advisory services and capital solutions to existing, joint and new clients of both firms nationwide. We expect this to be immediately accretive to our operating results.

In October 2021, we made a strategic investment of $150 million in WeWork, one of the leading global flexible space providers. This exclusive partnership is intended to provide clients with best-in class office operations by combining WeWork's proprietary hospitality and technology-enabled services with Cushman & Wakefield's industry leading asset and facilities management services.

Additionally, over the past two years, in connection with our strategic realignment of the business and other operating efficiency initiatives, we have: (1) streamlined the organization to better align with our service model, (2) enhanced our nimbleness and speed in the marketplace, (3) improved the efficiency of our operating units, and (4) optimized the business functions and back office.

Highlights from fiscal year 2021:

•Revenue of $9.4 billion was up 20% (18% local currency) from 2020. Service line fee revenue of $6.9 billion was up 26% (24% local currency) versus prior year as a result of the recovery in Leasing and Capital Markets.

•Net income and earnings per share for 2021 were $250.0 million and $1.12, respectively.

•Adjusted EBITDA was $886.4 million, up 76% (73% local currency). Adjusted EBITDA margin of 12.9% expanded nearly 365 basis points from the prior year.

•Achieved $125 million of gross savings in 2021 from operating efficiency initiatives.

•Generated strong cash flow from operations of $549.5 million for the year.

Impact of COVID-19

The ongoing presence of COVID-19 continues to present significant risks to the Company. Countries around the world continue to deploy public health and safety protocols by instituting quarantine measures, mandating business and school closures or restricting travel, all of which continue to impact the Company's operations. Our clients, and our employees who support them, have had to navigate an extremely fluid and ever-changing environment. The commercial real estate sector has shown resiliency during the pandemic, and we continue to see encouraging signs

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of recovery, as revenue across all segments and service lines increased as compared to 2020, including brokerage where revenue in 2021 exceeded pre-pandemic levels (2019). The extent to which the COVID-19 pandemic may impact our operations and financial results in the future will depend on evolving factors that we may not be able to accurately predict, including the duration and scope of the pandemic and any further governmental actions or restrictions around the world.

Overall, we believe that we have sufficient liquidity to satisfy our working capital and other funding requirements with internally generated cash flows and, as necessary, cash on hand and borrowings under our revolving credit facility, despite any uncertainty that persists related to the COVID 19-pandemic. As discussed in “Liquidity and Capital Resources” below, the Company had liquidity of approximately $1.8 billion as of December 31, 2021, comprising of cash and cash equivalents of $0.8 billion and an undrawn revolving credit facility of $1.0 billion.

The Company continues to monitor the circumstances and may take actions that could affect our business operations and performance. These actions may result from requirements mandated by federal, state or local authorities or that we determine to be in the best interests of our employees, customers, and shareholders. The circumstances surrounding COVID-19 at a global level remain fluid, and the potential for an adverse impact on the Company will continue as COVID-19 continues to impact economic activity in the United States and in other countries. Refer to Part I, Item 1A. “Risk Factors” for further information.

Critical Accounting Policies and Estimates

Our Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), which requires us to make estimates and assumptions that affect reported amounts. The estimates and assumptions are based on historical experience, current facts and circumstances, and on other factors that we believe to be reasonable. Actual results may differ from those estimates and assumptions. We review these estimates on a periodic basis to ensure reasonableness. We have identified all significant accounting policies in Note 2: Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements. The following are the critical accounting policies where estimates and assumptions could materially affect the application of the policies.

Revenue Recognition

Revenue is recognized upon transfer of control of promised services to clients in an amount that reflects the consideration the Company expects to receive in exchange for those services, in accordance with Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("Topic 606"), The Company enters into contracts and earns revenue from its Property, facilities and project management, Leasing, Capital markets and Valuation and other service lines. Revenue is recognized net of any taxes collected from customers.

A performance obligation is a promise in a contract to transfer a distinct service or a series of distinct services to the client and is the unit of account. A contract’s transaction price is allocated to each performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Most service offerings are provided under agreements containing standard terms and conditions, which typically do not require any significant judgments about when revenue should be recognized. A limited number of recurring revenue arrangements and certain non-recurring revenue arrangements contain multiple performance obligations. The Company allocates the contract’s transaction price to each performance obligation using the best estimate of the standalone selling price of each distinct service in the contract. The timing and amount of revenue recognition in a period could vary if different judgments were made.

Business Combinations, Goodwill and Other Intangible Assets

We account for business combinations using the acquisition method of accounting, which requires that once control is obtained, all the assets acquired and liabilities assumed, including amounts attributable to non-controlling interests, be recorded at their respective fair values as of acquisition date. Determination of the fair values of the assets and liabilities acquired requires estimates and the use of valuation techniques when market values are not readily available. Any excess of the cost of the business combination over the fair value of the net assets acquired is recognized as goodwill on the Consolidated Balance Sheets.

Goodwill is not amortized, but rather tested for impairment at least annually, typically in the fourth quarter. The Company will test more frequently if there are indicators of impairment or whenever business and economic circumstances change, suggesting the carrying value of goodwill may not be recoverable. These indicators may include sustained significant decline in our share price and market capitalization, a decline in our expected future cash flows, or a significant adverse change in legal factors or in the business climate, among others.

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The Company performs impairment reviews at the reporting unit (“RU”) level. U.S. GAAP defines an RU as a component of an operating segment if the component constitutes a business, for which discrete financial information is available, and segment management regularly reviews the operating results of that component.

When evaluating these assets for impairment, the Company may first perform a qualitative assessment to determine whether it is more likely than not that the RU is impaired. If the Company does not perform a qualitative assessment, or if the Company determines that it is not more likely than not that the fair value of the RU exceeds its carrying amount, then the goodwill impairment test becomes a quantitative analysis. If the fair value of an RU is determined to be greater than the carrying value of the RU, goodwill is recoverable, and no further testing is necessary. If the fair value of a reporting unit is less than the carrying value, a goodwill impairment loss is recognized for the amount that the carrying amount of the RU, including goodwill, exceeds its fair value, limited to the total amount of the goodwill allocated to the reporting unit.

In determining the fair value of our RUs, the Company uses a discounted cash flow (“DCF”) model based on our most current forecasts. The Company discounts the related cash flow forecasts using the weighted average cost of capital method at the date of evaluation. Preparation of forecasts and selection of the discount rate for use in the DCF model involve significant judgments, and changes in these estimates could affect the estimated fair value of one or more of our RUs and could result in a goodwill impairment charge in a future period. We also use market multiples which are obtained from quoted prices of comparable companies to corroborate our DCF model results. The combined estimated fair value of our reporting units from our DCF model often results in a premium over our market capitalization, commonly referred to as a control premium. We believe the implied control premium determined by our impairment analysis is reasonable based upon historic data of premiums paid on actual transactions within our industry.

In 2021 and 2020, we performed our goodwill impairment evaluation over five reporting units, resulting in no impairment charges as the estimated fair value of each reporting unit exceeded its carrying value.

Finite lived intangible assets, such as customer relationships, are recognized through acquisitions and subject to amortization. The Company assesses, at least quarterly, qualitative indicators related to our finite lived intangible assets to determine if any events or circumstances indicate the carrying amount of the finite lived intangible is not recoverable. In the event certain circumstances indicate potential recoverability issues, a quantitative test is performed to determine whether the carrying amount exceeds its fair value, which is calculated as the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the finite lived intangible. If the Company is required to record impairment charges in the future, they could materially impact our results of operations. No material impairment charges related to finite lived intangible assets have been recorded for the years ended December 31, 2021 and 2020.

For additional discussion on goodwill and other intangible assets, see Note 6: Goodwill and Other Intangible Assets in the Consolidated Financial Statements.

Contingencies

The Company defines a contingency as an existing condition that involves a degree of uncertainty as to a possible gain or loss that will ultimately be resolved when future events occur (or fail to occur). Under U.S. GAAP the Company is required to establish reserves for loss contingencies when the loss is probable and reasonably estimable. Furthermore, the Company must assess the likelihood of material adverse judgments or outcomes, as well as potential ranges and probability of losses. The Company determines the amount of reserves required, if any, for contingencies after diligently analyzing items individually. The required reserves may change due to new developments in each period. The Company does not recognize gain contingencies until the contingency is resolved completely and amounts due are probable of collection.

For additional discussion on contingencies, see Note 16: Commitments and Contingencies in the Consolidated Financial Statements.

Income Taxes

Income taxes are accounted for under the asset and liability method in accordance with ASC 740, Income Taxes. The carrying values of deferred income tax assets and liabilities reflect the application of our income tax accounting policies and are based on management’s assumptions and estimates about future operating results and levels of taxable income, and judgments regarding the interpretation of the provisions of current accounting principles.

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Deferred tax assets are reduced by valuation allowances if, based on the consideration of all available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized. Considerations with respect to the realizability of deferred tax assets include the period of expiration of the deferred tax asset, historical earnings and projected future taxable income by jurisdiction as well as tax liabilities for the tax jurisdiction to which the tax asset relates. Significant management judgment is required in determining the assumptions and estimates related to the amount and timing of future taxable income. Valuation allowances are evaluated periodically and will be subject to change in each future reporting period as a result of changes in various factors.

The Company bases the carrying values of liabilities and assets for income taxes currently payable and receivable on management’s interpretation of applicable tax laws and also incorporates management’s assumptions and judgments about using tax planning strategies in various taxing jurisdictions. Using different estimates, assumptions and judgments in accounting for income taxes, especially those that deploy tax planning strategies, may result in different carrying values of income tax assets and liabilities and changes in our results of operations.

For additional discussion on income taxes, see Note 12: Income Taxes in the Consolidated Financial Statements.

Items Affecting Comparability

When reading our financial statements and the information included in this Annual Report, it should be considered that we have experienced, and continue to experience, several material trends and uncertainties that have affected our financial condition and results of operations and that could affect future performance. We believe that the following material trends and uncertainties are important to understand the variability of our historical earnings and cash flows and any potential future variability.

Macroeconomic Conditions

Our results of operations are significantly impacted by economic trends, government policies and the global and regional real estate markets. These include the following: overall economic activity; changes in interest rates; the impact of tax and regulatory policies; changes in employment rates; level of commercial construction spending; the cost and availability of credit; the impact of the COVID-19 global pandemic; demand for commercial real estate; and the geopolitical environment.

Our operating model helps to partially mitigate the negative effect of difficult market conditions on our margins as a substantial portion of our costs are variable compensation expenses, specifically commissions and bonuses paid to our professionals in our Leasing and Capital market service lines. Nevertheless, adverse economic trends could pose significant risks to our operating performance and financial condition.

Acquisitions

Our results include the incremental impact of completed transactions from the date of acquisition, which may impact the comparability of our results on a year-over-year basis. Additionally, there is generally an adverse impact on net income for a period of time after the completion of an acquisition driven by transaction-related and integration expenses. We have historically used strategic and in-fill acquisitions and joint ventures to add new service capabilities, to increase our scale within existing capabilities and to expand our presence in new or existing geographic regions globally. We believe that strategic acquisitions and partnerships will increase revenue, provide cost synergies and generate incremental income in the long term.

Seasonality

A significant portion of our revenue is seasonal, especially for service lines such as Leasing and Capital markets. This impacts the comparison of our financial condition and results of operations on a quarter-by-quarter basis. Generally, our industry is focused on completing transactions by calendar year-end with a significant concentration of activity in the last quarter of the calendar year while certain expenses are recognized more evenly throughout the calendar year. Historically, our revenue and operating income tend to be lowest in the first quarter, and highest in the fourth quarter of each year. The Property, facilities and project management service line partially mitigates this intra-year seasonality, due to the recurring nature of this service line, which generates more stable revenues throughout the year.

International Operations

Our business consists of service lines operating in multiple regions inside and outside of the U.S. Our international operations expose us to global economic trends as well as foreign government tax, regulatory and policy measures.

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Additionally, outside of the U.S., we generate earnings in other currencies and are subject to fluctuations relative to the U.S. dollar ("USD"). As we continue to grow our international operations through acquisitions and organic growth, these currency fluctuations, most notably the Australian dollar, euro and British pound sterling, have the potential to positively or adversely affect our operating results measured in USD. It can be difficult to compare period-over-period financial statements when the movement in currencies against the USD does not reflect trends in the local underlying business as reported in its local currency.

In order to assist our investors and improve comparability of results, we present the year-over-year changes in certain of our non-GAAP financial measures, such as Fee-based operating expenses and Adjusted EBITDA, in "local" currency. The local currency change represents the year-over-year change assuming no movement in foreign exchange rates from the prior year. We believe that this provides our management and investors with a better view of comparability and trends in the underlying operating business.

Key Performance Measures

We regularly review a number of metrics to evaluate our business, measure our progress and make strategic decisions. The measures include Segment operating expenses, Fee-based operating expenses, Adjusted EBITDA, Adjusted EBITDA margin and local currency. Certain of these metrics are non-GAAP measures currently utilized by management to assess performance, and we disclose these measures to investors to assist them in providing a meaningful understanding of our performance. See "Use of Non-GAAP Financial Measures" and "Results of Operations" below.

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Use of Non-GAAP Financial Measures

We have used the following measures, which are considered "non-GAAP financial measures" under SEC guidelines:

i.Segment operating expenses and Fee-based operating expenses;

ii.Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") and Adjusted EBITDA margin; and

iii.Local currency.

Our management principally uses these non-GAAP financial measures to evaluate operating performance, develop budgets and forecasts, improve comparability of results and assist our investors in analyzing the underlying performance of our business. These measures are not recognized measurements under GAAP. When analyzing our operating results, investors should use them in addition to, but not as an alternative for, the most directly comparable financial results calculated and presented in accordance with GAAP. Because the Company’s calculation of these non-GAAP financial measures may differ from other companies, our presentation of these measures may not be comparable to similarly titled measures of other companies.

The Company believes that 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. The measures eliminate the impact of certain items that may obscure trends in the underlying performance of our business. The Company believes that they are useful to investors, for the additional purposes described below.

Segment operating expenses and Fee-based operating expenses: Consistent with GAAP, reimbursed costs for certain customer contracts are presented on a gross basis in both revenue and operating expenses for which the Company recognizes substantially no margin. Total costs and expenses include segment operating expenses as well as other expenses such as depreciation and amortization, integration and other costs related to merger, pre-IPO stock-based compensation, acquisition related costs and efficiency initiatives. Segment operating expenses includes Fee-based operating expenses and Cost of gross contract reimbursables.

We believe Fee-based operating expenses more accurately reflects the costs we incur during the course of delivering services to our clients and is more consistent with how we manage our expense base and operating margins.

Adjusted EBITDA and Adjusted EBITDA margin: We have determined Adjusted EBITDA to be our primary measure of segment profitability. We believe that investors find this measure useful in comparing our operating performance to that of other companies in our industry because these calculations generally eliminate integration and other costs related to merger, pre-IPO stock-based compensation, unrealized (gains) / losses on investments, acquisition related costs and efficiency initiatives and other items. Adjusted EBITDA also excludes the effects of financings, income tax and the non-cash accounting effects of depreciation and intangible asset amortization. Adjusted EBITDA margin, a non-GAAP measure of profitability as a percent of revenue, is measured against service line fee revenue.

Local currency: In discussing our results, we refer to percentage changes in local currency. These metrics are calculated by holding foreign currency exchange rates constant in year-over-year comparisons. Management believes that this methodology provides investors with greater visibility into the performance of our business excluding the effect of foreign currency rate fluctuations.

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Results of Operations

In accordance with Item 303 of Regulation S-K, the Company has excluded the discussion of 2019 results in “Management's Discussion and Analysis of Financial Condition and Results of Operations”, as this discussion can be found in our 2020 Annual Report on Form 10-K filed with the SEC under "Management's Discussion and Analysis of Financial Condition and Results of Operations".

The following table sets forth items derived from our Consolidated Statements of Operations for the years ended December 31, 2021 and 2020 (in millions):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","2020","% Change in USD","% Change in Local Currency"],["Revenue:"],["Property, facilities and project management","$","3,185.4","","$","2,969.7","","7","%","6","%"],["Leasing","1,843.4","","1,275.6","","45","%","43","%"],["Capital markets","1,350.2","","769.7","","75","%","74","%"],["Valuation and other","512.1","","450.8","","14","%","10","%"],["Total service line fee revenue(1)","6,891.1","","5,465.8","","26","%","24","%"],["Gross contract reimbursables(2)","2,497.6","","2,377.9","","5","%","4","%"],["Total revenue","$","9,388.7","","$","7,843.7","","20","%","18","%"],["Costs and expenses:"],["Cost of services provided to clients","$","4,950.8","","$","4,077.4","","21","%","18","%"],["Cost of gross contract reimbursables","2,497.6","","2,377.9","","5","%","4","%"],["Total costs of services","7,448.4","","6,455.3","","15","%","13","%"],["Operating, administrative and other","1,226.7","","1,120.8","","9","%","13","%"],["Depreciation and amortization","172.1","","263.6","","(35)","%","(36)","%"],["Restructuring, impairment and related charges","44.5","","57.1","","(22)","%","(24)","%"],["Total costs and expenses","8,891.7","","7,896.8","","13","%","11","%"],["Operating income (loss)","497.0","","(53.1)","","n.m.","n.m."],["Interest expense, net of interest income","(179.5)","","(163.8)","","10","%","8","%"],["Earnings from equity method investments","21.2","","8.3","","n.m.","n.m."],["Other income, net","1.2","","32.0","","(96)","%","(94)","%"],["Earnings (loss) before income taxes","339.9","","(176.6)","","n.m.","n.m."],["Provision for income taxes","89.9","","43.9","","105","%","24","%"],["Net income (loss)","$","250.0","","$","(220.5)","","n.m.","n.m."],["Adjusted EBITDA","$","886.4","","$","504.3","","76","%","73","%"],["Adjusted EBITDA margin(3)","12.9","%","9.2","%"]]
[[/GREPCENT_TABLE]]

n.m. not meaningful

(1) Service line fee revenue represents revenue for fees generated from each of our service lines

(2) Gross contract reimbursables reflects revenue from clients which have substantially no margin

(3) Adjusted EBITDA margin is measured against Total service line fee revenue

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Adjusted EBITDA is calculated as follows (in millions):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","2020"],["Net income (loss)","$","250.0","","$","(220.5)"],["Add/(less):"],["Depreciation and amortization","172.1","","263.6"],["Interest expense, net of interest income","179.5","","163.8"],["Provision for income taxes","89.9","","43.9"],["Unrealized loss on investments(1)","10.4","","\u2014"],["Integration and other costs related to merger(2)","32.4","","64.0"],["Pre-IPO stock-based compensation(3)","5.4","","19.2"],["Acquisition related costs and efficiency initiatives(4)","140.4","","154.1"],["Other(5)","6.3","","16.2"],["Adjusted EBITDA","$","886.4","","$","504.3"]]
[[/GREPCENT_TABLE]]

(1) Represents an unrealized loss of $21.0 million related to our investment in WeWork, offset by unrealized gains of $10.6 million on other fair value investments during the year ended December 31, 2021. No unrealized gains or losses were recorded in the year ended December 31, 2020.

(2) Integration and other costs related to merger include certain direct and incremental integration and restructuring efforts.

(3) Pre-IPO stock-based compensation represents non-cash compensation expense associated with our pre-IPO equity compensation plans. Refer to Note 13: Stock-Based Payments of the Notes to the Consolidated Financial Statements for the year ended December 31, 2021 for additional information.

(4) Acquisition related costs and efficiency initiatives reflect costs incurred to implement operating efficiency initiatives to allow the Company to be a nimbler and more agile partner to its clients, as well as incremental costs related to in-fill M&A.

(5) Other includes COVID-19 related items including contributions to the Global Employee Assistance Fund and preparation costs for employee return to office, which totaled $5.6 million and $15.6 million for the years ended December 31, 2021 and 2020, respectively.

Below is a summary of Total costs and expenses (in millions):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","2020"],["Americas Fee-based operating expenses","$","4,281.8","","$","3,423.3"],["EMEA Fee-based operating expenses","864.7","","792.9"],["APAC Fee-based operating expenses","891.8","","763.1"],["Cost of gross contract reimbursables","2,497.6","","2,377.9"],["Segment operating expenses:","8,535.9","","7,357.2"],["Depreciation and amortization","172.1","","263.6"],["Integration and other costs related to merger(1)","32.4","","64.0"],["Pre-IPO stock-based compensation(2)","5.4","","19.2"],["Acquisition related costs and efficiency initiatives(3)","139.6","","176.6"],["Other(4)","6.3","","16.2"],["Total costs and expenses","$","8,891.7","","$","7,896.8"]]
[[/GREPCENT_TABLE]]

(1) Integration and other costs related to merger include certain direct and incremental integration and restructuring efforts.

(2) Pre-IPO stock-based compensation represents non-cash compensation expense associated with our pre-IPO equity compensation plans. Refer to Note 13: Stock-Based Payments of the Notes to the Consolidated Financial Statements for the year ended December 31, 2021 for additional information.

(3) Acquisition related costs and efficiency initiatives reflect costs incurred to implement operating efficiency initiatives to allow the Company to be a nimbler and more agile partner to its clients, as well as incremental costs related to in-fill M&A.

(4) Other includes COVID-19 related items including contributions to the Global Employee Assistance Fund and preparation costs for employee return to office, which totaled $5.6 million and $15.6 million for the years ended December 31, 2021 and 2020, respectively.

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Year ended December 31, 2021 compared to year ended December 31, 2020

Revenue

Revenue was $9.4 billion, an increase of $1,545.0 million or 20% compared to the year ended December 31, 2020. We generated strong revenue growth across all service lines including brokerage where revenue exceeded pre-pandemic levels. Revenue growth in Capital markets and Leasing of $580.5 million and $567.8 million, respectively, reflects the recovery of brokerage activity, particularly in the Americas led by the logistics and multifamily sectors. Revenue growth in Property, facilities and project management, Gross contract reimbursables and Valuation and other of $215.7 million, $119.7 million, and $61.3 million, respectively, reflects the continued stability of the business, along with owners and occupiers' reliance on and confidence in the Company’s industry leading capabilities and thought leadership during the pandemic recovery. Geographically, Americas, EMEA and APAC contributed 85%, 9% and 6%, respectively, of the consolidated revenue growth.

Costs of services

Costs of services of $7.4 billion increased $993.1 million or 15% compared to the year ended December 31, 2020. Cost of services provided to clients increased 18% on a local currency basis principally due to higher variable costs including commissions, annual bonuses for non-fee earners and direct labor, and higher compensation costs overall, as a result of the recovery of brokerage activity. Cost of gross contract reimbursables increased 5% driven by the continued stability and growth in our Property, facilities and project management service line. These increases were partially offset by operating efficiency initiatives. Total costs of services as a percentage of total revenue were 79% for 2021 as compared to 82% for 2020.

Operating, administrative and other

Operating, administrative and other expenses of $1.2 billion increased by $105.9 million compared to the year ended December 31, 2020, principally due to higher compensation costs and annual bonuses for non-fee earners. This increase was partially offset by operating efficiency initiatives. Overall, as a percentage of total revenue, operating, administrative and other costs were 13% for 2021 as compared to 14% for 2020.

Depreciation and amortization

Depreciation and amortization of $172.1 million decreased $91.5 million compared to the prior year due to the complete amortization of certain merger-related customer relationship intangibles that occurred in the third quarter of 2020.

Restructuring, impairment and related charges

Restructuring, impairment and related charges were $44.5 million, a decrease of $12.6 million or 22% compared to the year ended December 31, 2020. Severance and employment-related charges taken in connection with the Company's operating efficiency initiatives and strategic realignment of the business declined from the prior year by $29.6 million, partially offset by an increase in impairment charges of $15.2 million.

Interest expense, net

Net interest expense was $179.5 million, an increase of $15.7 million or 10% compared to the year ended December 31, 2020 primarily due to the issuance of the 2020 senior secured notes in the second quarter of 2020 and lower interest income in 2021.

Earnings from equity method investments

Earnings from equity method investments of $21.2 million increased by $12.9 million compared to the year ended December 31, 2020, due to the performance of our joint venture with Vanke Service in APAC, and earnings recognized from our joint venture with Greystone in the Americas which was finalized in December 2021.

Other income, net

Other income, net of $1.2 million decreased $30.8 million compared to the prior year. In 2020, we recognized a gain of $36.9 million as a result of the formation of the Cushman & Wakefield Vanke Service joint venture in APAC, which was partially offset by losses incurred from the disposal of holding companies in connection with the Company's strategic realignment of the business. In 2021, other income reflects dividend income partially offset by a net unrealized loss on fair value investments of $10.4 million.

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Provision for income taxes

Provision for income taxes for 2021 was $89.9 million on the earnings before income taxes of $339.9 million. For 2020, the provision for income taxes was $43.9 million on a loss before income taxes of $176.6 million. The increase in tax expense from the prior year was primarily driven by higher pre-tax earnings, as well as the impact of benefits from establishing a valuation allowance in 2020.

Net income and Adjusted EBITDA

Net income of $250.0 million principally reflects the improvement of brokerage activity as Leasing and Capital markets revenue increased 43% and 74% on a local currency basis, respectively. Revenue in Property, facilities and project management and Valuation and other also increased by 6% and 10%, respectively.

Adjusted EBITDA of $886.4 million increased by $382.1 million or 73%, on a local currency basis, primarily due to the impact of revenue growth in all service lines, particularly Leasing and Capital markets, and $125 million of savings generated by operating efficiency initiatives. As a result, Adjusted EBITDA margin, measured against service line fee revenue of 12.9% for the year ended December 31, 2021, increased 365 basis points as compared to 9.2% in the year ended December 31, 2020.

Segment Operations

We report our operations through the following segments: (1) Americas, (2) Europe, Middle East and Africa ("EMEA") and (3) Asia Pacific ("APAC"). The Americas consists of operations located in the United States, Canada and key markets in Latin America. EMEA includes operations in the United Kingdom, France, Netherlands and other markets in Europe and the Middle East. APAC includes operations in Australia, Singapore, China and other markets in the Asia Pacific region.

For segment reporting, Service line fee revenue represents revenue for fees generated from each of our of service lines. Gross contract reimbursables reflect revenue paid by clients which have substantially no margin. Our measure of segment results, Adjusted EBITDA, excludes depreciation and amortization, as well as integration and other costs related to merger, pre-IPO stock-based compensation, and other items.

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Americas Results

The following table summarizes our results of operations by our Americas operating segment for the years ended December 31, 2021 and 2020 (in millions):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","2020","","% Change in USD","% Change in Local Currency"],["Revenue:"],["Property, facilities and project management","$","2,221.9","","$","2,047.6","","","9","%","8","%"],["Leasing","1,392.8","","942.6","","","48","%","47","%"],["Capital markets","1,110.9","","589.9","","","88","%","88","%"],["Valuation and other","193.7","","166.8","","","16","%","16","%"],["Total service line fee revenue(1)","4,919.3","","3,746.9","","","31","%","31","%"],["Gross contract reimbursables(2)","2,096.0","","1,960.2","","","7","%","7","%"],["Total revenue","$","7,015.3","","$","5,707.1","","","23","%","23","%"],["Costs and expenses:"],["Americas Fee-based operating expenses","$","4,281.8","","$","3,423.3","","","25","%","25","%"],["Cost of gross contract reimbursables","2,096.0","","1,960.2","","","7","%","7","%"],["Segment operating expenses","$","6,377.8","","$","5,383.5","","","18","%","18","%"],["Adjusted EBITDA","$","647.0","","$","326.5","","","98","%","98","%"],["Adjusted EBITDA Margin(3)","13.2","%","8.7","%"]]
[[/GREPCENT_TABLE]]

(1) Service line fee revenue represents revenue for fees generated from each of our service lines

(2) Gross contract reimbursables reflects revenue from clients which have substantially no margin

(3) Adjusted EBITDA margin is measured against Total service line fee revenue

Americas: Year ended December 31, 2021 compared to year ended December 31, 2020

Americas revenue was $7.0 billion, an increase of $1,308.2 million or 23% from the prior year. Revenue across all service lines increased, led by growth in Capital markets of 88% and Leasing of 48%.

Fee-based operating expenses of $4.3 billion increased 25% principally due to higher variable costs including commissions, direct labor and compensation associated with service line fee revenue growth. Fee-based operating expenses as a percentage of Total service line fee revenue was 87% in 2021 compared to 91% in 2020.

Adjusted EBITDA of $647.0 million increased $320.5 million or 98%, and resulted in margin expansion of 445 bps, driven by strong brokerage activity, as well as savings generated from operating efficiency initiatives.

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EMEA Results

The following table summarizes our results of operations by our EMEA operating segment for the years ended December 31, 2021 and 2020 (in millions):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","2020","","% Change in USD","% Change in Local Currency"],["Revenue:"],["Property, facilities and project management","$","370.3","","$","375.6","","","(1)","%","(5)","%"],["Leasing","246.5","","193.8","","","27","%","23","%"],["Capital markets","168.8","","125.5","","","35","%","32","%"],["Valuation and other","190.9","","170.8","","","12","%","7","%"],["Total service line fee revenue(1)","976.5","","865.7","","","13","%","9","%"],["Gross contract reimbursables(2)","136.6","","101.2","","","35","%","30","%"],["Total revenue","$","1,113.1","","$","966.9","","","15","%","11","%"],["Costs and expenses:"],["EMEA Fee-based operating expenses","$","864.7","","$","792.9","","","9","%","5","%"],["Cost of gross contract reimbursables","136.6","","101.2","","","35","%","30","%"],["Segment operating expenses","$","1,001.3","","$","894.1","","","12","%","8","%"],["Adjusted EBITDA","$","117.9","","$","77.5","","","52","%","50","%"],["Adjusted EBITDA Margin(3)","12.1","%","9.0","%"]]
[[/GREPCENT_TABLE]]

(1) Service line fee revenue represents revenue for fees generated from each of our service lines

(2) Gross contract reimbursables reflects revenue from clients which have substantially no margin

(3) Adjusted EBITDA margin is measured against Total service line fee revenue

EMEA: Year ended December 31, 2021 compared to year ended December 31, 2020

EMEA revenue was $1.1 billion, an increase of $146.2 million or 15%. Setting aside the favorable impact of foreign currency of $31.9 million or 4%, EMEA revenue grew by 11% on a local currency basis. This growth was principally driven by Capital markets and Leasing, which increased 32% and 23%, respectively, on a local currency basis.

Fee-based operating expenses of $864.7 million increased 5% on a local currency basis principally due to higher variable costs including direct labor and compensation associated with service line fee revenue growth. Fee-based operating expenses as a percentage of Total service line fee revenue was 89% in 2021 compared to 92% in 2020. This decline was principally driven by savings generated from operating efficiency initiatives.

Adjusted EBITDA of $117.9 million, an increase of $40.4 million or 50% on a local currency basis, reflects the impact of revenue growth in Capital markets and Leasing, as well as savings generated from operating efficiency initiatives.

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APAC Results

The following table summarizes our results of operations by our APAC operating segment for the years ended December 31, 2021 and 2020 (in millions):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","2020","","% Change in USD","% Change in Local Currency"],["Revenue:"],["Property, facilities and project management","$","593.2","","$","546.5","","","9","%","3","%"],["Leasing","204.1","","139.2","","","47","%","41","%"],["Capital markets","70.5","","54.3","","","30","%","27","%"],["Valuation and other","127.5","","113.2","","","13","%","8","%"],["Total service line fee revenue(1)","995.3","","853.2","","","17","%","12","%"],["Gross contract reimbursables(2)","265.0","","316.5","","","(16)","%","(22)","%"],["Total revenue","$","1,260.3","","$","1,169.7","","","8","%","2","%"],["Costs and expenses:"],["APAC Fee-based operating expenses","$","891.8","","$","763.1","","","17","%","12","%"],["Cost of gross contract reimbursables","265.0","","316.5","","","(16)","%","(22)","%"],["Segment operating expenses","$","1,156.8","","$","1,079.6","","","7","%","2","%"],["Adjusted EBITDA","$","121.5","","$","100.3","","","21","%","15","%"],["Adjusted EBITDA Margin(3)","12.2","%","11.8","%"]]
[[/GREPCENT_TABLE]]

(1) Service line fee revenue represents revenue for fees generated from each of our service lines

(2) Gross contract reimbursables reflects revenue from clients which have substantially no margin

(3) Adjusted EBITDA margin is measured against Total service line fee revenue

APAC: Year ended December 31, 2021 compared to year ended December 31, 2020

APAC revenue was $1.3 billion, an increase of $90.6 million or 8%. Setting aside the favorable impact of foreign currency of $61.9 million or 6%, APAC revenue grew by 2% on a local currency basis. Leasing, Capital markets, and Valuation and other growth of 41%, 27% and 8%, respectively, on a local currency basis, was partially offset by a decline in Gross contract reimbursables of 22% on a local currency basis.

Fee-based operating expenses of $891.8 million increased 12% on a local currency basis principally due to higher variable costs including direct labor and compensation associated with service fee line revenue growth in Leasing and Capital markets, as well as the impact of a reduction of grants and subsidies received from governmental relief programs. Fee-based operating expenses as a percentage of Total service line fee revenue was 90% in 2021 compared to 89% in 2020.

Adjusted EBITDA of $121.5 million increased $21.2 million or 15% on a local currency basis, due to the impact of revenue growth in Leasing and Capital markets, as well as savings generated from operating efficiency initiatives.

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Liquidity and Capital Resources

Our primary sources of liquidity are cash flows from operations, available cash reserves and debt capacity under our available credit facilities. Our primary uses of liquidity are operating expenses, acquisitions, investments, and debt payments.

While the continued impacts of COVID-19 remain uncertain, we believe that we have maintained sufficient liquidity to satisfy our working capital and other funding requirements, including capital expenditures, and expenditures for human capital and contractual obligations, with internally generated cash flow and, as necessary, cash on hand and borrowings under our revolving credit facility. We continually evaluate opportunities to obtain, retire or restructure credit facilities or financing arrangements for strategic reasons or obtain additional financing to fund investments, operations and obligations, as we have done in the past, to further strengthen our financial position.

We have historically relied on our internally generated cash flow to fund our working capital needs and ongoing capital expenditures on an annual basis. Our internally generated cash flow is seasonal - typically lowest in the first quarter of the year, when revenue is lowest, and greatest in the fourth quarter of the year, when revenue is highest. The seasonal nature of our internally generated cash flow can result in a mismatch with funding needs, which we manage using available cash on hand and, as necessary, borrowings under our revolving credit facility.

In the absence of a large strategic acquisition or other extraordinary events, we believe our cash on hand, cash flow from operations and availability under our revolving credit facility will be sufficient to meet our anticipated cash requirements for the foreseeable future, and at a minimum for the next 12 months. We may seek to take advantage of opportunities to refinance existing debt instruments, as we have done in the past, with new debt instruments at interest rates, maturities and terms we consider attractive.

As of December 31, 2021, the Company had $1.8 billion of liquidity, consisting of cash and cash equivalents of $0.8 billion and our undrawn revolving credit facility of $1.0 billion.

The Company's amounts outstanding under its 2018 First Lien Loan and its 2020 Notes were $2.6 billion and $0.6 billion, respectively, as of December 31, 2021, which net of cash and cash equivalents of $0.8 billion, provided for a net debt position of approximately $2.4 billion. The increase in net debt of approximately $310.8 million from December 31, 2020 principally reflects normal annual bonus payments in March of 2021, acquisitions completed this year and funding of the Company’s strategic realignment and operating efficiency initiatives.

Our level of indebtedness increases the possibility that we may be unable to pay the principal amount of our indebtedness and other obligations when due. In addition, we may incur additional debt from time to time to finance strategic acquisitions, investments, joint ventures or for other purposes, subject to the restrictions contained in the documents governing our indebtedness. If we incur additional debt, the risks associated with our leverage, including our ability to service our debt, would increase. See "Risk Factors" included in Item 1A. Despite our current indebtedness levels, we and our subsidiaries may still be able to incur substantially more debt, which could further exacerbate the risks associated with our substantial leverage.

As a professional services firm, funding our operating activities is not capital intensive. Total capital expenditures for the year ended December 31, 2021 were $53.8 million.

The Company is also party to an off-balance sheet A/R Securitization arrangement whereby it continuously sells trade receivables to an unaffiliated financial institution, which has an investment limit of $125.0 million. Receivables are derecognized from our balance sheet upon sale, for which we receive cash payment and record a deferred purchase price receivable. As of December 31, 2021, the Company had no outstanding balance drawn on the investment limit. The A/R Securitization terminates on August 20, 2022, unless extended or an earlier termination event occurs. Refer to Note 19: Accounts Receivable Securitization of the Notes to the Consolidated Financial Statements for further information.

Debt obligations. Our 2018 Credit Agreement requires quarterly principal payments equal to 0.25% of the aggregate principal amount, and matures in August 2025. As of December 31, 2021, the 2018 Credit Agreement bears interest at a variable interest rate of 1-month LIBOR plus 2.75%. As of December 31, 2021, the effective interest rate of the 2018 Credit Agreement was 3.1%. Because the 2018 Credit Agreement bears interest at a variable interest rate, the amount of expected future annual interest payments cannot be determined. Our 2020 Notes bear interest at a rate of 6.75% per annum, and expected annual interest payments would be approximately $43.9 million until the notes mature in May 2028.

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Lease obligations. Our lease obligations primarily consist of operating leases of office space in various buildings for our own use. As of December 31, 2021 the Company had operating lease obligations of $501.8 million, with $130.4 million due within 12 months. Refer to Note 15: Leases of the Notes to the Consolidated Financial Statements for further discussion.

Defined benefit plan obligations. Benefits to be paid out by our defined benefit plans will be funded from the assets held by these plans. If the assets these plans hold are not sufficient to fund these payments, we will fund the remaining obligations through available cash. We have historically funded pension costs as actuarially determined and as applicable laws and regulations require. We expect to contribute to our defined benefit pension plans in 2021. Refer to Note 11: Employee Benefits of the Notes to the Consolidated Financial Statements for further discussion.

Deferred and earn-out obligations. Our material cash requirements require long-term liquidity to facilitate the payment of obligations related to acquisitions. For the year ended December 31, 2021, we paid $7.0 million in cash consideration for our various acquisitions, net of cash acquired. Acquisitions are often structured with deferred and/or contingent payments in future periods that are subject to the passage of time, achievement of certain performance metrics and/or other conditions. As of December 31, 2021, the maximum potential payment for earn-outs was $27.5 million, subject to the achievement of certain performance conditions. The timing and amount of related payments cannot be determined due to their nature as estimates or outcomes having connection to future events. As of December 31, 2021, we had accrued total deferred consideration and contingent earn-outs payable of $8.9 million in Accounts payable and accrued expenses and $31.4 million in Other non-current liabilities in the accompanying Consolidated Balance Sheets.

Income tax liabilities. As of December 31, 2021, our current and non-current tax liabilities, including interest and penalties, totaled $140.4 million. Of this amount, we can reasonably estimate that $105.1 million 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 remaining $35.3 million.

Historical Cash Flows

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["Cash Flow Summary","2021","2020"],["Net cash provided by (used in) operating activities","$","549.5","","$","(38.2)"],["Net cash used in investing activities","(749.5)","","(257.8)"],["Net cash (used in) provided by financing activities","(65.8)","","571.9"],["Effects of exchange rate fluctuations on cash, cash equivalents and restricted cash","(8.0)","","15.9"],["Total change in cash, cash equivalents and restricted cash","$","(273.8)","","$","291.8"]]
[[/GREPCENT_TABLE]]

Operating Activities

We generated $549.5 million of cash from operating activities during the year ended December 31, 2021, an increase of $587.7 million compared to the year ended December 31, 2020, driven by an increase in net income of $470.5 million, primarily driven by increased demand for transactions services in the Company's brokerage service lines, as well as lower costs associated with the Company's strategic realignment of the business, principally severance related charges. For the year ended December 31, 2021 we used net working capital for operations of $35.8 million, as increases in accounts receivable and contract assets were partially offset by increases in accounts payable and accrued expenses, accrued commissions and accrued annual bonuses for non-fee earners.

Investing Activities

We used $749.5 million in cash for investing activities during the year ended December 31, 2021, which primarily reflects our strategic investments in Greystone and WeWork of $500 million and $150 million, respectively, and capital expenditures of $53.8 million.

Financing Activities

We used $65.8 million in cash for financing activities during the year ended December 31, 2021, a change of $637.7 million from the prior year, primarily driven by net proceeds generated from the issuance of the 2020 Notes.

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Indebtedness

Refer to Note 10: Long-Term Debt and Other Borrowings and Note 9: Derivative Financial Instruments and Hedging Activities of the Notes to the Consolidated Financial Statements for further discussion.