# CBRE GROUP, INC. (CBRE) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from CBRE GROUP, INC.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1138118/000113811824000006/cbre-20231231.htm
Accession: 0001138118-24-000006
Filing date: 2024-02-20
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/CBRE/
All MD&A years: /company/CBRE/mda/
Previous year: /company/CBRE/mda/fy2022/ (FY 2022)
Next year: /company/CBRE/mda/fy2024/ (FY 2024)

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

The following discussion provides an analysis of the company’s financial condition and results of operations from management’s perspective and should be read in conjunction with the consolidated financial statements and related notes included in this Annual Report. Discussion regarding our financial condition and results of operations for the year ended December 31, 2022 and comparisons between the years ended December 31, 2022 and 2021 are included in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the company’s 2022 Annual Report filed with the SEC on February 27, 2023.

Overview

CBRE is the world’s largest commercial real estate services and investment firm (based on 2023 revenue). We serve clients through three business segments – Advisory Services, Global Workplace Solutions (GWS) and Real Estate Investments (REI) – which are described in “Item 1. Business.” We generate revenue from both stable, resilient sources (large multi-year portfolio and per-project contracts) and non-recurring sources, including commissions on transactions. Our revenue mix has become more weighted towards resilient revenue sources, particularly occupier outsourcing, and our dependence on cyclical property sales and lease transaction revenue has declined. Transactional revenue and earnings within our Advisory Services segment (notably property sales and leasing) have historically been highest in the year’s fourth quarter due to the focus on completing transactions prior to year-end. However, our consolidated results have become less seasonal in recent years, as our reliance on transactional revenue has decreased.

Business Environment

The operating environment for commercial real estate was significantly challenged in 2023. Markedly higher borrowing and constricted capital availability, particularly following the regional bank failures in March, depressed commercial real estate investment and financing and inhibited our ability to harvest gains from our real estate development and investment management portfolios. Real estate leasing markets were negatively impacted by economic uncertainty and the slow progress of company return-to-office plans, which resulted in reduced office demand, higher space availability and generally lower market rents. Demand for industrial space was firmer but down from record levels of recent years and an increase in new construction pushed up vacancy rates. Persistent inflation across the economy also 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 contractual provisions in some parts of our business provide some protection against inflation.

Results of Operations

The following presents highlights of CBRE’s performance for the year ended December 31, 2023:

[[GREPCENT_TABLE]]
[["Revenue","","Net Revenue (1)","","GAAP Net Income"],["$31.9B","","$18.3B","","$986M"],["3.6%","","(2.7)%","","(30.0)%"],["Core EBITDA (1)","","GAAP Earnings Per Share (EPS)","","Core EPS (1)"],["$2.2B","","$3.15","","$3.84"],["(24.5)%","","(26.6)%","","(32.5)%"]]
[[/GREPCENT_TABLE]]

The real estate capital markets environment weighed on our business performance in 2023, particularly the transactional business lines within Advisory Services and Real Estate Investments segments, which are sensitive to market cycles. While overall net revenue fell 3%, our resilient business lines (including the entire GWS business, property management, loan servicing, asset management fees and valuations), together, grew net revenue at a 10% clip(1). These business lines are well-positioned for growth across market cycles. On the other hand, revenue from the transactional components of our business (sales, leasing, mortgage origination, carried interest and incentive and development fees) slumped 21% last year, but are poised to resume strong growth when the market cycle turns.

________________________________________________________________________________________________________________________________________

(1)See Non-GAAP Financial Measures section in Item 7 of this Annual Report.

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Despite the year’s challenges, we invested approximately $961.3 million in share buybacks (repurchasing approximately 7,867,348 shares), infill M&A and other strategic investments, while ending the year below the midpoint of our target leverage range, giving us substantial liquidity to finance future growth.

The following table sets forth items derived from our consolidated statements of operations for the years ended December 31, 2023 and 2022 (dollars in millions):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2023","","2022"],["Revenue:"],["Net revenue:"],["Facilities management","$","5,806","","","18.2","%","","$","5,137","","","16.7","%"],["Property management","1,840","","","5.8","%","","1,777","","","5.8","%"],["Project management","3,124","","","9.8","%","","2,735","","","8.9","%"],["Valuation","716","","","2.2","%","","765","","","2.5","%"],["Loan servicing","317","","","1.0","%","","311","","","1.0","%"],["Advisory leasing","3,503","","","11.0","%","","3,872","","","12.6","%"],["Capital markets:"],["Advisory sales","1,611","","","5.0","%","","2,523","","","8.2","%"],["Commercial mortgage origination","424","","","1.3","%","","563","","","1.8","%"],["Investment management","592","","","1.9","%","","595","","","1.9","%"],["Development services","360","","","1.1","%","","515","","","1.7","%"],["Corporate, other and eliminations","(17)","","","(0.1)","%","","(16)","","","(0.1)","%"],["Total net revenue","18,276","","","57.2","%","","18,777","","","60.9","%"],["Pass through costs also recognized as revenue","13,673","","","42.8","%","","12,051","","","39.1","%"],["Total revenue","31,949","","","100.0","%","","30,828","","","100.0","%"],["Costs and expenses:"],["Cost of revenue","25,675","","","80.4","%","","24,239","","","78.6","%"],["Operating, administrative and other","4,562","","","14.3","%","","4,649","","","15.1","%"],["Depreciation and amortization","622","","","1.9","%","","613","","","2.0","%"],["Asset impairments","\u2014","","","0.0","%","","59","","","0.2","%"],["Total costs and expenses","30,859","","","96.6","%","","29,560","","","95.9","%"],["Gain on disposition of real estate","27","","","0.1","%","","244","","","0.8","%"],["Operating income","1,117","","","3.5","%","","1,512","","","4.9","%"],["Equity income from unconsolidated subsidiaries","248","","","0.8","%","","229","","","0.7","%"],["Other income (loss)","61","","","0.2","%","","(12)","","","0.0","%"],["Interest expense, net of interest income","149","","","0.5","%","","69","","","0.2","%"],["Write-off of financing costs on extinguished debt","\u2014","","","0.0","%","","2","","","0.0","%"],["Income before provision for income taxes","1,277","","","4.0","%","","1,658","","","5.4","%"],["Provision for income taxes","250","","","0.8","%","","234","","","0.8","%"],["Net income","1,027","","","3.2","%","","1,424","","","4.6","%"],["Less: Net income attributable to non-controlling interests","41","","","0.1","%","","17","","","0.1","%"],["Net income attributable to CBRE Group, Inc.","$","986","","","3.1","%","","$","1,407","","","4.6","%"]]
[[/GREPCENT_TABLE]]

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Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

We reported consolidated net income of $985.7 million for the year ended December 31, 2023 on revenue of $31.9 billion as compared to consolidated net income of $1.4 billion on revenue of $30.8 billion for the year ended December 31, 2022.

Revenue rose by $1.1 billion, or 3.6%, for the year, led by a 13.4% increase in the GWS segment, which benefited from new client wins, contract expansions, and in-fill acquisitions. Advisory Services segment revenue decreased by 14.0%, as macroeconomic uncertainty and high interest rates, curbed property leasing, sales and financing activity. These economic conditions also impacted the timing and value of asset and fund monetization in the REI segment, where revenue declined 14.2%. Foreign currency translation was a 0.5% drag on revenue, reflecting weakness in the Canadian dollar, Argentina peso and Australian dollar, partially offset by strength in the euro.

Cost of revenue increased by $1.4 billion, or 5.9%, during the year, due to higher costs associated with our GWS segment given the growth. Cost of revenue declined in our Advisory Services and REI segments, reflecting the variable nature of much of these segments’ costs. Foreign currency translation had a 0.5% benefit to total costs. Cost of revenue as a percentage of revenue increased to 80.4% in 2023 as compared to 78.6% in 2022, largely due to a shift in revenue mix toward the GWS segment, which generally has lower gross margin. In addition, certain charges associated with our cost reduction and efficiency initiatives also contributed to an increase in cost of revenue this year.

Operating, administrative and other expenses decreased by $87.5 million, or 1.9%, for the year, driven by lower incentive compensation in the REI segment, reflecting the overall decline in revenue. In addition, we recorded approximately $185.9 million related to Telford Homes’ fire safety remediation charges in 2022 that did not recur in 2023. GWS incurred higher infrastructure costs in support of revenue growth. Other factors weighing on expenses in 2023 include efficiency and cost reduction charges, increased professional fees associated with various capital allocation opportunities, certain legal settlement charges and higher bad debt expenses. Foreign currency translation had a 0.3% benefit on operating expenses for the year. Operating expenses as a percentage of revenue decreased to 14.3% from 15.1% in 2022, mainly due to GWS revenue outpacing operating expense growth and the Telford Homes fire safety remediation charges in 2022.

Depreciation and amortization expense increased by $8.9 million, or 1.4%, during the year, due to continued investment in capital assets and depreciation and amortization associated with fixed assets and intangible assets acquired as part of in-fill acquisitions. These increases were partially offset by lower amortization expense compared with 2022, when loan payoffs in our Capital Markets loan servicing business increased amortization.

We did not record any asset impairments in 2023 versus $58.7 million in 2022, including $10.4 million related to our exit of the Advisory Services business in Russia; $26.4 million for non-cash goodwill impairment and $21.9 million for non-cash trade name impairment both related to Telford Homes in our REI segment. The Telford Homes charges were attributable to the effect of elevated inflation on construction, materials and labor costs, which reduced profitability because sales prices for the build-to-rent developments were fixed at the time the developments were sold to a long-term investor.

Gain on disposition of real estate decreased by $216.9 million in 2023. Economic uncertainty and higher interest rates constrained asset sales in the REI segment compared with significant gains in 2022.

Equity income from unconsolidated subsidiaries increased by $19.3 million, or 8.4%, in 2023, reflecting improved equity pickups and fair value adjustments in our non-core investment portfolio this year. This was partially offset by lower equity earnings associated with property sales reported in our REI segment.

Other income on a consolidated basis was $60.8 million in 2023 versus a loss of $11.9 million in 2022. Current-year activity primarily includes a one-time gain of approximately $34.2 million associated with remeasuring an investment in an unconsolidated subsidiary to fair value as of the date the remaining controlling interest was acquired. In addition, we also recorded approximately $6.0 million in gain upon conversion of a debt security and net favorable fair value adjustments of $7.6 million on securities portfolio owned by our wholly-owned captive insurance company during the year. Losses in 2022 were primarily due to sales of certain marketable equity securities.

Consolidated interest expense, net of interest income, increased by $80.2 million, or 116.3%, in 2023, reflecting higher interest rates, increased borrowings on the revolving credit facilities, the issuance of new senior notes in the second quarter and borrowings on senior term loans in the third quarter of this year.

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Our provision for income taxes on a consolidated basis was $249.5 million for the year ended December 31, 2023 as compared to $234.2 million in 2022. Our effective tax rate increased to 19.5% in 2023 from 14.1% in 2022. The increase is primarily due to the one-time benefit in 2022 related to the outside basis differences recognized as a result of a legal entity restructuring.

The Organization for Economic Co-operation & Development (OECD) Pillar Two Model Rules established a minimum global effective tax rate of 15% on country-by-country profits of large multinational companies. European Union member states along with many other countries adopted or expected to adopt the OECD Pillar Two Model effective January 1, 2024 or thereafter. The OECD and other countries continue to publish guidelines and legislation which include transition and safe harbor rules. We continue to monitor new legislative changes and assess the global impact of the Pillar Two Model Rules. Based on our initial assessment we anticipate Pillar Two top-up taxes to be immaterial.

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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. 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, 2023 and 2022 (dollars in millions):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2023","","2022"],["Revenue:"],["Net revenue:"],["Property management","$","1,840","","","21.7","%","","$","1,777","","","18.0","%"],["Valuation","716","","","8.4","%","","765","","","7.7","%"],["Loan servicing","317","","","3.7","%","","311","","","3.2","%"],["Advisory leasing","3,503","","","41.2","%","","3,872","","","39.2","%"],["Capital markets:"],["Advisory sales","1,611","","","19.0","%","","2,523","","","25.5","%"],["Commercial mortgage origination","424","","","5.0","%","","563","","","5.7","%"],["Total segment net revenue","8,411","","","99.0","%","","9,811","","","99.3","%"],["Pass through costs also recognized as revenue","88","","","1.0","%","","72","","","0.7","%"],["Total segment revenue","8,499","","","100.0","%","","9,883","","","100.0","%"],["Costs and expenses:"],["Cost of revenue","5,147","","","60.6","%","","5,980","","","60.5","%"],["Operating, administrative and other","2,076","","","24.4","%","","2,055","","","20.8","%"],["Depreciation and amortization","289","","","3.4","%","","311","","","3.1","%"],["Asset impairments","\u2014","","","0.0","%","","10","","","0.1","%"],["Total costs and expenses","7,512","","","88.4","%","","8,356","","","84.5","%"],["Operating income","987","","","11.6","%","","1,527","","","15.5","%"],["Equity income from unconsolidated subsidiaries","4","","","0.0","%","","15","","","0.1","%"],["Other income","46","","","0.5","%","","1","","","0.0","%"],["Add-back: Depreciation and amortization","289","","","3.4","%","","311","","","3.1","%"],["Add-back: Asset impairments","\u2014","","","0.0","%","","10","","","0.1","%"],["Adjustments:"],["One-time gain associated with remeasuring an investment in an unconsolidated subsidiary to fair value as of the date the remaining controlling interest was acquired","(34)","","","(0.4)","%","","\u2014","","","0.0","%"],["Costs associated with efficiency and cost-reduction initiatives","72","","","0.9","%","","46","","","0.5","%"],["Segment operating profit and segment operating profit on revenue margin","$","1,364","","","16.0","%","","$","1,910","","","19.3","%"],["Segment operating profit on net revenue margin","","","16.2","%","","","","19.5","%"]]
[[/GREPCENT_TABLE]]

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Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Revenue decreased by $1.4 billion, or 14.0%, in 2023 with declines across most lines of business, except property management and loan servicing. Sales revenue fell 36.2%, mortgage origination revenue decreased 24.7%, leasing revenue declined 9.5%, and valuation revenue dropped 6.3%. A stressed lending environment made it difficult to access capital at a reasonable cost, thereby constraining capital markets activity. Property management revenue was up 3.5% due to new clients and expanded opportunities with existing clients, mainly in the U.S. Loan servicing revenue was up 1.9% given growth in the servicing portfolio, which closed 2023 at an all-time high of $410 billion. Our Americas and Europe, Middle East and Africa (EMEA) regions were more affected by the macroeconomic conditions than Asia-Pacific (APAC), where performance matched the prior year. Foreign currency translation was a 0.5% drag on revenue in 2023, primarily driven by weakness in the Japanese yen, Australian dollar and Canadian dollar, partially offset by strength in the euro.

Cost of revenue decreased by $833.1 million, or 13.9%, in 2023 primarily due to our variable compensation structure, which saw commission expense fall in line with lower sales and leasing revenue. Foreign currency translation had a 0.5% positive impact on cost of revenue, while as a percentage of revenue, cost of revenue remained relatively flat at approximately 60% for both years. This was due to a shift in revenue composition whereby high-margin capital markets revenue decreased while lower-margin property management and loan servicing revenue increased.

Operating, administrative and other expenses increased by $21.2 million, or 1.0%, in 2023. This slight increase resulted from employee separation benefits and lease termination charges, certain legal settlement charges, and increased bad debt expense, partially offset by lower incentive compensation expense and fixed costs that declined as a result of cost saving actions. Foreign currency translation had a 0.3% benefit on total operating expenses during the year ended December 31, 2023.

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, 2023, MSRs contributed to operating income $83.8 million of gains recognized in conjunction with the origination and sale of mortgage loans, offset by $144.0 million of amortization of related intangible assets. For the year ended December 31, 2022, MSRs contributed $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. The decrease in gains was associated with lower origination activity given the higher cost of debt.

Other income was $46.2 million in 2023 versus $1.4 million in 2022. Current-year activity primarily includes a one-time gain of approximately $34.2 million associated with remeasuring an investment in an unconsolidated subsidiary to fair value as of the date the remaining controlling interest was acquired.

Depreciation and amortization expense decreased mainly due to lower amortization expense compared with 2022, when loan payoffs in our Capital Markets loan servicing business increased amortization.

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Global Workplace Solutions

The following table summarizes our results of operations for our Global Workplace Solutions (GWS) operating segment for the years ended December 31, 2023 and 2022 (dollars in millions):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2023","","2022"],["Revenue:"],["Net revenue:"],["Facilities management","$","5,806","","","25.8","%","","$","5,137","","","25.9","%"],["Project management","3,124","","","13.9","%","","2,735","","","13.8","%"],["Total segment net revenue","8,930","","","39.7","%","","7,872","","","39.7","%"],["Pass through costs also recognized as revenue","13,585","","","60.3","%","","11,979","","","60.3","%"],["Total segment revenue","22,515","","","100.0","%","","19,851","","","100.0","%"],["Costs and expenses:"],["Cost of revenue","20,345","","","90.4","%","","17,948","","","90.4","%"],["Operating, administrative and other","1,242","","","5.5","%","","1,080","","","5.4","%"],["Depreciation and amortization","262","","","1.2","%","","253","","","1.3","%"],["Total costs and expenses","21,849","","","97.1","%","","19,281","","","97.1","%"],["Operating income","666","","","2.9","%","","570","","","2.9","%"],["Equity income from unconsolidated subsidiaries","1","","","0.0","%","","1","","","0.0","%"],["Other income","2","","","0.0","%","","7","","","0.0","%"],["Add-back: Depreciation and amortization","262","","","1.2","%","","253","","","1.3","%"],["Adjustments:"],["Integration and other costs related to acquisitions","23","","","0.1","%","","40","","","0.2","%"],["Costs associated with efficiency and cost-reduction initiatives","52","","","0.3","%","","28","","","0.1","%"],["Segment operating profit and segment operating profit on revenue margin","$","1,006","","","4.5","%","","$","899","","","4.5","%"],["Segment operating profit on net revenue margin","","","11.3","%","","","","11.4","%"]]
[[/GREPCENT_TABLE]]

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Revenue increased by $2.7 billion, or 13.4%, in 2023, driven by new clients and expansion of services to existing clients, augmented by in-fill acquisitions. Foreign currency translation had a 0.5% drag on revenue in 2023, primarily driven by weakness in the Argentina peso and Canadian dollar partially offset by strength in the euro.

Cost of revenue increased by $2.4 billion, or 13.4%, in 2023, driven by higher pass-through costs and increased professional compensation. Foreign currency translation had a 0.5% benefit on total cost of revenue in 2023. Cost of revenue as a percentage of revenue remained flat at 90.4% in 2023 and 2022 primarily due to an increase in project management revenue, which generally has higher margins, partially offsetting the impact of higher pass-through costs.

Operating, administrative and other expenses increased by $161.1 million, or 14.9%, in 2023. The increase is due to higher compensation expense, higher infrastructure costs supporting business growth, charges associated with the integration of acquisitions and expenses from acquired entities. In addition, the GWS segment incurred approximately $51.6 million in charges related to employee separation benefits, lease and contract termination costs, up from $27.9 million in 2022. Foreign currency translation had a 0.5% benefit on total operating expenses in 2023.

Depreciation and amortization expense increased by $9.2 million, or 3.6%, in 2023 due to continued investment in technology.

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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, 2023 and 2022 (dollars in millions):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2023","","2022"],["Revenue:"],["Investment management","$","592","","","62.1","%","","$","595","","","53.6","%"],["Development services","360","","","37.9","%","","515","","","46.4","%"],["Total segment revenue","952","","","100.0","%","","1,110","","","100.0","%"],["Costs and expenses:"],["Cost of revenue","186","","","19.5","%","","322","","","29.0","%"],["Operating, administrative and other","784","","","82.4","%","","1,082","","","97.5","%"],["Depreciation and amortization","15","","","1.6","%","","16","","","1.5","%"],["Asset impairments","\u2014","","","0.0","%","","49","","","4.4","%"],["Total costs and expenses","985","","","103.5","%","","1,469","","","132.4","%"],["Gain on disposition of real estate","27","","","2.9","%","","244","","","22.0","%"],["Operating loss","(6)","","","(0.6)","%","","(115)","","","(10.4)","%"],["Equity income from unconsolidated subsidiaries","216","","","22.6","%","","380","","","34.3","%"],["Other income (loss)","\u2014","","","0.0","%","","(1)","","","(0.1)","%"],["Add-back: Depreciation and amortization","15","","","1.6","%","","16","","","1.5","%"],["Add-back: Asset impairments","\u2014","","","0.0","%","","49","","","4.4","%"],["Adjustments:"],["Carried interest incentive compensation reversal to align with the timing of associated revenue","(7)","","","(0.8)","%","","(4)","","","(0.4)","%"],["Impact of fair value adjustments to real estate assets acquired in the Telford acquisition (purchase accounting) that were sold in period","\u2014","","","0.0","%","","(5)","","","(0.5)","%"],["Costs associated with efficiency and cost-reduction initiatives","21","","","2.3","%","","12","","","1.1","%"],["Provision associated with Telford\u2019s fire safety remediation efforts","\u2014","","","0.0","%","","186","","","16.8","%"],["Segment operating profit and segment operating profit on revenue margin","$","239","","","25.1","%","","$","518","","","46.7","%"]]
[[/GREPCENT_TABLE]]

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Macroeconomic conditions had a significant impact on the REI segment. Less available and more expensive debt capital constrained asset and fund monetization and our ability to source new debt capital to fund development projects. Revenue decreased by $157.8 million, or 14.2%, in 2023, largely driven by fewer asset sales, primarily in our international development services markets, and lower development and construction management fees, as well as lower incentive fees. Foreign currency translation had a negligible impact on total revenue during the year ended December 31, 2023.

Cost of revenue decreased by $136.3 million, or 42.3%, in 2023. Cost of revenue as a percent of revenue declined to 19.5% in 2023 from 29.0% in 2022, reflecting a higher proportion of revenue coming from the investment management line of business which has no associated cost of revenue. This was partially offset by cost overruns on certain U.K. residential construction projects. Foreign currency translation had a negligible impact on total cost of revenue during the year ended December 31, 2023.

Operating, administrative and other expenses decreased by $297.8 million, or 27.5%, in 2023 due to lower incentive compensation expense and $185.9 million estimated provision related to Telford Homes’ fire and building safety remediation work in 2022, which was not repeated this year. Foreign currency translation had a 0.2% benefit on total operating expenses in 2023.

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Equity income from unconsolidated subsidiaries decreased by $164.8 million, or 43.3%, in 2023 primarily due to lower net sales of our equity interests to our joint-venture partners on development projects. Gain on disposition of real estate decreased by $216.9 million in 2023 due to fewer sales of consolidated development projects compared with a significant number of such sales, primarily land sales, in 2022.

A roll forward of our assets under management (AUM) by product type for the year ended December 31, 2023 is as follows (dollars in billions):

[[GREPCENT_TABLE]]
[["","Funds","","Separate Accounts","","Securities","","Total"],["Balance at December 31, 2022","$","66.2","","","$","73.2","","","$","9.9","","","$","149.3"],["Inflows","4.2","","","6.4","","","1.2","","","11.8"],["Outflows","(3.1)","","","(4.2)","","","(2.1)","","","(9.4)"],["Market (depreciation) appreciation","(2.0)","","","(2.6)","","","0.4","","","(4.2)"],["Balance at December 31, 2023","$","65.3","","","$","72.8","","","$","9.4","","","$","147.5"]]
[[/GREPCENT_TABLE]]

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, 2023 and 2022 (dollars in millions):

[[GREPCENT_TABLE]]
[["","Year Ended December 31, (1)"],["","2023","","2022"],["Elimination of inter-segment revenue","$","(17)","","","$","(16)"],["Costs and expenses:"],["Cost of revenue (2)","(3)","","","(11)"],["Operating, administrative and other","460","","","432"],["Depreciation and amortization","56","","","33"],["Total costs and expenses","513","","","454"],["Operating loss","(530)","","","(470)"],["Equity income (loss) from unconsolidated subsidiaries","27","","","(167)"],["Other income (loss)","13","","","(19)"],["Add-back: Depreciation and amortization","56","","","33"],["Adjustments:"],["Integration and other costs related to acquisitions","39","","","\u2014"],["Costs incurred related to legal entity restructuring","13","","","13"],["Costs associated with efficiency and cost-reduction initiatives","14","","","32"],["Segment operating loss","$","(368)","","","$","(578)"]]
[[/GREPCENT_TABLE]]

________________________________________________________________________________________________________________________________________

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

(2)Primarily relates to inter-segment eliminations.

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Core corporate

Operating, administrative and other expenses for our core corporate function were approximately $458.7 million in 2023, an increase of $28.6 million, or 6.7%. This was primarily due to higher professional fees as we explored various capital allocation opportunities and compensation expenses associated with certain roles that were embedded within the business segments last year but were moved to Corporate this year. This was partially offset by lower stock-based compensation expense this year.

Other income was approximately $7.6 million in 2023 versus a loss of $12.2 million in 2022. This is primarily comprised of net 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 in 2022.

Other (non-core)

We recorded equity income of approximately $27.5 million in 2023 versus a loss of $167.3 million in 2022. This reflects improved equity pickups and fair value adjustments in our non-core investment portfolio.

We recorded other income of $5.1 million in 2023 versus a loss of $6.6 million in 2022. Last year’s loss mainly resulted from realized losses on sale of marketable securities.

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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 2024 include up to $319.9 million of anticipated capital expenditures, net of tenant concessions. During the year ended December 31, 2023, we incurred $293.2 million of capital expenditures, net of tenant concessions received. As of December 31, 2023, we had aggregate future commitments of $180.4 million related to co-investments funds in our Real Estate Investments segment, $128.0 million of which is expected to be funded in 2024. Additionally, as of December 31, 2023, we are committed to fund additional capital of $230.1 million and $73.9 million to consolidated and unconsolidated projects, respectively, within our Real Estate Investments segment. As of December 31, 2023, we had $3.7 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 in-fill acquisitions) and have not sought other external sources of financing to help fund these requirements. In the absence of extraordinary events, large strategic acquisitions or large returns of capital to shareholders, 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. 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.

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, 2023 and 2022, we had accrued deferred purchase consideration totaling $530.2 million ($264.1 million of which was a current liability) and $574.3 million ($117.3 million of which was a current liability), respectively, which was 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.

Lastly, as described in Note 16 of the Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report, in November 2021, our board of directors authorized a 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, 2023, we repurchased 7,867,348 shares of our Class A common stock with an average price of $82.59 per share using cash on hand for an aggregate of $649.8 million. As of December 31, 2023, we had $1.5 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.

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As more fully described in Note 22 of the Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report, on March 16, 2023, Telford Homes entered into a legally binding agreement with the U.K. government, under which Telford Homes will (1) take responsibility for performing or funding 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 the government-sponsored Building Safety Fund (BSF) and Aluminum Composite Material (ACM) Funds or reimburse the government funds for the cost of remediation of in-scope buildings.

We had an estimated liability of approximately $192.1 million (of which $82.2 million was current) and $185.9 million (of which $51.6 million was current) as of December 31, 2023 and 2022, respectively, related to the remediation efforts. We did not record any additional provision during the year ended December 31, 2023, as the above balance remains our best estimate of future losses associated with overall remediation efforts. We did not have any significant cash outflows related to this work in 2023.

The estimated remediation 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, individual remediation requirements for each building, the time required for the remediation to be completed, 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. We will continue to assess new information as it becomes available during the remediation process and adjust our estimated liability accordingly.

Historical Cash Flows

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Operating Activities

Net cash provided by operating activities totaled $479.9 million for the year ended December 31, 2023, a decrease of $1.1 billion as compared to the year ended December 31, 2022. The primary driver was significantly lower earnings this period, down approximately $400.0 million as compared to last year due to stressed macroeconomic conditions. The other key drivers that contributed to the higher usage were as follows: (1) net outflow associated with net working capital; the net working capital change was mainly due to lagged collection of receivables, higher outflow related to net bonus payments due to overall decrease in bonus expense recorded in 2023 as compared to 2022, compensation and other employee benefits this year, (2) certain non-cash charges (such as lower share-based compensation expense in 2023, net realized gain recorded on our equity and available for sale debt portfolio, net gain recorded upon acquisition of the remaining interest in a previously unconsolidated subsidiary) that contributed to the net outflow this year, and (3) lower net equity distribution from unconsolidated subsidiaries, mainly in REI where less available and more expensive debt capital constrained asset and fund monetization. These were partially offset by lower MSR revenue, which are non-cash in nature, recorded in current year as compared to prior year.

Investing Activities

Net cash used in investing activities totaled $681.0 million for the year ended December 31, 2023, a decrease of $151.4 million as compared to the year ended December 31, 2022. This decrease was primarily driven by lower net contributions to unconsolidated subsidiaries due to constrained funding and monetization of real estate projects, as compared to the year ended December 31, 2022, and a net investment in View the Space, Inc. (VTS) last year that did not recur this year. This was partially offset by higher capital expenditures compared to 2022 as we continue to invest in our platform and infrastructure, higher spend on in-fill acquisitions, and net outflows associated with our consolidated real estate projects, during this period as compared to the year ended December 31, 2022.

Financing Activities

Net cash provided by financing activities totaled $153.4 million for the year ended December 31, 2023 versus a net outflow of $1.8 billion for the year ended December 31, 2022. The increased inflow was primarily due to the net proceeds of $975.2 million from the issuance of our 5.950% senior notes, lower stock repurchase activities, and net inflows from issuance of new senior term loans and payment of prior euro term loan this period as compared to the same period last year. This was partially offset by $110.8 million in increased outflow related to acquisitions where cash was paid after 90 days of the acquisition date and net outflows related to our short-term borrowings.

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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, 2023 (dollars in millions):

[[GREPCENT_TABLE]]
[["","","Payments Due by Period"],["Contractual Obligations","","Total","","Less than 1 year"],["Total gross long-term debt (1)","","$","2,855","","","$","9"],["Short-term borrowings (2)","","682","","","682"],["Operating leases (3)","","2,204","","","239"],["Financing leases (3)","","317","","","38"],["Total gross notes payable on real estate (4)","","38","","","8"],["Deferred purchase consideration (5)","","537","","","268"],["Total contractual obligations","","$","6,633","","","$","1,244"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","Amount of Other Commitments"],["Other Commitments","","Total","","Less than 1 year"],["Self-insurance reserves (6)","","$","180","","","$","180"],["Tax liabilities (7)","","55","","","24"],["Co-investments (8) (9)","","254","","","202"],["Letters of credit (8)","","237","","","237"],["Guarantees (8) (10)","","206","","","206"],["Telford\u2019s fire safety remediation provision (11)","","192","","","82"],["Total other commitments","","$","1,124","","","$","931"]]
[[/GREPCENT_TABLE]]

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 the Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report.

________________________________________________________________________________________________________________________________________

(1)Reflects gross outstanding long-term debt balances as of December 31, 2023, assumed to be paid at maturity, excluding unamortized discount, premium and deferred financing costs. See Note 11 of the Notes to 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 $965.6 million of interest payments, $144.8 million of which will be made in 2024.

(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 the Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report.

(3)See Note 12 of the Notes to 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, 2023 (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 3.00% to 9.00% at December 31, 2023.

(5)Represents deferred obligations, excluding contingent considerations, 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, 2023 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, 2023 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, 2023, 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, 2023, the total amount of gross unrecognized tax benefits totaled $413.5 million. Of this amount, we expect an insignificant amount of cash settlement in less than one year. See Note 15 of the Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report.

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

(9)Includes $180.4 million to fund future co-investments in our Real Estate Investments segment, $128.0 million of which is expected to be funded in 2024, and $73.9 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 $230.1 million as of December 31, 2023.

(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.

(11)See Note 22 of the Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report.

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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 10, 2023, CBRE Group, Inc., CBRE Services, Inc. (CBRE Services) and Relam Amsterdam Holdings B.V., a wholly-owned subsidiary of CBRE Services, entered into a new 5-year senior unsecured Credit Agreement (the 2023 Credit Agreement) maturing on July 10, 2028, which refinanced and replaced the previous credit agreement. The 2023 Credit Agreement provides for a senior unsecured term loan credit facility comprised of (i) tranche A Euro-denominated term loans in an aggregate principal amount of €366.5 million and (ii) tranche A U.S. Dollar-denominated term loans in an aggregate principal amount of $350.0 million with weighted average interest rate of 5.8% as of December 31, 2023, both requiring quarterly principal payments beginning on December 31, 2024 and continuing through maturity on July 10, 2028. The proceeds of the term loans under the 2023 Credit Agreement were applied to the repayment of all remaining outstanding senior term loans, approximately $437.5 million, under the previous credit agreement, the payment of related fees and expenses and other general corporate purposes.

The term loan borrowings under the 2023 Credit Agreement are guaranteed on a senior basis by CBRE Group, Inc. and CBRE Services.

On June 23, 2023, CBRE Services issued $1.0 billion in aggregate principal amount of 5.950% senior notes due August 15, 2034 (the 5.950% senior notes) at a price equal to 98.174% of their face value. The 5.950% senior notes are unsecured obligations of CBRE Services, senior to all of its current and future subordinated indebtedness, but effectively subordinated to its current and future secured indebtedness (if any) to the extent of the value of the assets securing such indebtedness. The 5.950% senior notes are guaranteed on a senior basis by CBRE Group, Inc. Interest accrues at a rate of 5.950% per year and is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2024. The amount of the 5.950% senior notes, net of unamortized discount and unamortized debt issuance costs, included in the accompanying consolidated balance sheet was $973.7 million at December 31, 2023.

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. 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 $490.4 million and $489.3 million at December 31, 2023 and 2022, 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 of each year. 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 $597.5 million and $596.4 million at December 31, 2023 and 2022, respectively.

The indentures governing our 5.950% senior notes, 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.

Our 2023 Credit Agreement is fully and unconditionally guaranteed by CBRE Group, Inc. and CBRE Services. Our Revolving Credit Agreement, 5.950% senior notes, 4.875% senior notes and 2.500% senior notes are fully and unconditionally guaranteed by CBRE Group, Inc.

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Combined summarized financial information for CBRE Group, Inc. (parent) and CBRE Services (subsidiary issuer) is as follows (dollars in millions):

[[GREPCENT_TABLE]]
[["","December 31,"],["","2023","","2022"],["Balance Sheet Data:"],["Current assets","$","7","","","$","9"],["Non-current assets (1)","1,733","","","13"],["Total assets (1)","1,740","","","22"],["Current liabilities","$","48","","","$","206"],["Non-current liabilities (2)","2,994","","","1,805"],["Total liabilities (2)","3,042","","","2,011"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2023","","2022"],["Statement of Operations Data:"],["Revenue","$","\u2014","","","$","\u2014"],["Operating loss","(1)","","","(3)"],["Net (loss) income","(70)","","","6"]]
[[/GREPCENT_TABLE]]

________________________________________________________________________________________________________________________________________

(1)Increase in non-current assets is due to legal entity restructurings that were executed at December 31, 2023.

(2)Includes $932.5 million and $719.3 million of intercompany loan payables to non-guarantor subsidiaries as of December 31, 2023 and 2022, respectively. All intercompany balances and transactions between CBRE Group, Inc. and CBRE Services have been eliminated.

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.

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 not to exceed $300.0 million in the aggregate.

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

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, 2023, $10.2 million (£8.0 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.

Subsequent Event

On February 5, 2024, we announced a definitive agreement to acquire J&J Worldwide Services, a leading provider of engineering services, base support operations and facilities maintenance for the U.S. federal government, from Arlington Capital Partners, a private investment firm. The consideration consists of (i) an initial purchase price of $800 million, payable in cash at closing of the acquisition, plus (ii) a potential earn-out of up to $250 million, payable in cash in 2027 contingent on the acquired business meeting certain performance thresholds. Closing of the acquisition is expected to occur in Q1 2024, subject to obtaining applicable regulatory clearances and the satisfaction of other customary closing conditions.

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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 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.

Goodwill and Other Intangible Assets

As of December 31, 2023, our consolidated balance sheet included goodwill of $5.1 billion and other intangible assets of $2.1 billion.

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. 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 test goodwill and other intangible assets deemed to have indefinite lives as of the beginning of the fourth quarter of each year and more frequently if events and circumstances indicate the potential for impairment is more likely than not. We have the option to perform a qualitative assessment with respect to any of our reporting units and indefinite-lived intangible assets 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 the fair value of a reporting unit or indefinite-lived intangible asset is less than its carrying amount before applying the quantitative impairment test. Our procedures under qualitative tests include assessing our financial performance, macroeconomic conditions, industry and market considerations, various asset specific factors and entity specific events. If we determine that a reporting unit’s goodwill or an indefinite-lived intangible asset may be impaired after utilizing these qualitative impairment analysis procedures, we are required to perform a quantitative impairment test. When performing a quantitative test, we use a discounted cash flow approach to estimate the fair value of our reporting units and indefinite-lived intangible assets. 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 these fair values and the relative size of our goodwill and indefinite-lived intangible assets, if different assumptions and estimates were used, it could have an adverse effect on our impairment analysis.

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We did not incur any impairment losses as a result of our 2023 annual impairment tests, as it was determined that it is more likely than not that the estimated fair values of our reporting units and indefinite-lived intangible assets were substantially in excess of their carrying values as of December 31, 2023. Additionally, we do not believe that the estimated fair values of our reporting units or indefinite-lived intangible assets are at risk of decreasing below their carrying values in the next twelve months. For additional information on 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.

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, 2023 and 2022 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.

Telford Fire Safety Remediation

As of December 31, 2023, the company had an estimated liability of $192.1 million on the balance sheet which represents management’s best estimate of future losses associated with overall remediation efforts. It includes amounts that the U.K. government has already paid or quantified through the Building Safety Fund and estimates developed by Telford’s internal team and/or third-party experts for the remaining in-scope buildings. The estimates were developed using the best available data, including (i) industry data, (ii) fire safety assessments (also known as PAS assessments and include fire risk appraisal of external wall construction) which identified remediation work to be performed on specific buildings, and (iii) bids from subcontractors. We applied an inflation factor to account for uncertainty in completion of remediation activities which could take an extended period of time to complete, an estimate of direct costs associated with an internal team dedicated to this remediation, and a contingency to account for unknown remediation costs. Inherent uncertainties exist in such evaluations primarily due to its subjective, highly complex nature and other unknowns such as individual remediation requirements, time required for remediation, and cost of materials and resources amongst others. We will continue to assess new information as it becomes available during the remediation process and adjust our estimated liability accordingly.

See Note 22 of the Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report for further information.

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.

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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.

Non-GAAP Financial Measures

Net revenue, segment operating profit on revenue margin, segment operating profit on net revenue margin, core EBITDA, core adjusted net income and core earnings per diluted share (or core EPS) 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, core adjusted net income and core EPS 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, core adjusted net income and core earnings per share (or core EPS) as indicators of the company’s operating financial performance. Core EBITDA and core adjusted net income exclude 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, efficiency and cost-reduction initiatives, integration and other costs related to acquisitions, provision associated with Telford’s fire safety remediation efforts, a one-time gain associated with remeasuring an investment in an unconsolidated subsidiary to fair value as of the date the remaining controlling interest was acquired, fair value changes on certain non-core non-controlling equity investments, non-cash depreciation and amortization expense related to certain assets attributable to acquisitions and restructuring activities and related impact on income taxes and non-controlling interest. 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.

Core EBITDA, core adjusted net income and core EPS are not intended to be measures of free cash flow for our discretionary use because they do not consider certain cash requirements such as tax and debt service payments. This 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 and core EPS as significant components when measuring our operating performance under our employee incentive compensation programs.

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Core EBITDA is calculated as follows (dollars in millions):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2023","","2022"],["Net income attributable to CBRE Group, Inc.","$","986","","","$","1,407"],["Net income attributable to non-controlling interests","41","","","17"],["Net income","1,027","","","1,424"],["Adjustments:"],["Depreciation and amortization","622","","","613"],["Asset impairments","\u2014","","","59"],["Interest expense, net of interest income","149","","","69"],["Write-off of financing costs on extinguished debt","\u2014","","","2"],["Provision for income taxes","250","","","234"],["Carried interest incentive compensation reversal to align with the timing of associated revenue","(7)","","","(4)"],["Impact of fair value adjustments to real estate assets acquired in the Telford acquisition (purchase accounting) that were sold in period","\u2014","","","(5)"],["Costs incurred related to legal entity restructuring","13","","","13"],["Integration and other costs related to acquisitions","62","","","40"],["Costs associated with efficiency and cost-reduction initiatives","159","","","118"],["Provision associated with Telford\u2019s fire safety remediation efforts","\u2014","","","186"],["One-time gain associated with remeasuring an investment in an unconsolidated subsidiary to fair value as of the date the remaining controlling interest was acquired","(34)","","","\u2014"],["Net fair value adjustments on strategic non-core investments","(32)","","","175"],["Core EBITDA","$","2,209","","","$","2,924"]]
[[/GREPCENT_TABLE]]

Core net income attributable to CBRE Group, Inc. stockholders, as adjusted (or core adjusted net income), and core EPS, are calculated as follows (in millions, except share and per share data):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","","2022"],["Net income attributable to CBRE Group, Inc.","","$","986","","","$","1,407"],["Plus / minus:"],["Carried interest incentive compensation reversal to align with the timing of associated revenue","","(7)","","","(4)"],["Impact of fair value adjustments to real estate assets acquired in the Telford acquisition (purchase accounting) that were sold in period","","\u2014","","","(5)"],["Costs incurred related to legal entity restructuring","","13","","","13"],["Integration and other costs related to acquisitions","","62","","","40"],["Costs associated with efficiency and cost-reduction initiatives","","159","","","118"],["Provision associated with Telford\u2019s fire safety remediation efforts","","\u2014","","","186"],["One-time gain associated with remeasuring an investment in an unconsolidated subsidiary to fair value as of the date the remaining controlling interest was acquired","","(34)","","","\u2014"],["Net fair value adjustments on strategic non-core investments","","(32)","","","175"],["Non-cash depreciation and amortization expense related to certain assets attributable to acquisitions","","167","","","166"],["Asset impairments","","\u2014","","","59"],["Write-off of financing costs on extinguished debt","","\u2014","","","2"],["Tax impact of adjusted items, tax benefit attributable to legal entity restructuring, and strategic non-core investments","","(82)","","","(254)"],["Impact of adjustments on non-controlling interest","","(33)","","","(40)"],["Core net income attributable to CBRE Group, Inc., as adjusted","","$","1,199","","","$","1,863"],["Core diluted income per share attributable to CBRE Group, Inc., as adjusted","","$","3.84","","","$","5.69"],["Weighted average shares outstanding for diluted income per share","","312,550,942","","327,696,115"]]
[[/GREPCENT_TABLE]]

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Net revenue and gross revenue from resilient business lines is calculated as follows (dollars in millions):

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","","2022"],["Net revenue from resilient business lines"],["Facilities management","","$","5,806","","","$","5,137"],["Property management","","1,840","","","1,777"],["Project management","","3,124","","","2,735"],["Valuation","","716","","","765"],["Loan servicing","","317","","","311"],["Asset management fees (1)","","539","","","536"],["Total net revenue from resilient business lines","","12,342","","","11,261"],["Pass through costs also recognized as revenue","","13,673","","","12,051"],["Total revenue from resilient business lines","","$","26,015","","","$","23,312"]]
[[/GREPCENT_TABLE]]

________________________________________________________________________________________________________________________________________

(1)Asset management fees is included in Investment management revenue.

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