Q4 2021 Cushman & Wakefield PLC Earnings Call
Yeah.
Welcome to Cushman, and Wakefield fourth quarter, 2021 earnings conference call.
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After the Speakers' remarks.
There will be a question and answer session.
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It's now my pleasure to introduce Len Texter head of Investor Relations.
The controller and Chief Accounting officer for Cushman and Wakefield Mr sector.
You May now begin your conference.
Thank you and welcome again to Cushman and Wakefield fourth quarter 2021 earnings Conference call earlier today, we issued a press release announcing our financial results for the period. This release along with today's presentation can be found on our Investor Relations website at IR Dot Cushman Wakefield dotcom.
Please turn to the page labeled forward looking statements. Today's presentation contains forward looking statements based on our current forecasts and estimates of future events.
<unk> should be considered estimates only and actual results may differ materially.
During today's call, we will refer to non-GAAP financial measures as outlined by SEC guidelines reconciliations of GAAP to non-GAAP financial measures definitions of non-GAAP financial measures and other related information are found within our financial tables of our earnings release and appendix of today's presentation.
Also please note that throughout the presentation comparison and growth rates are to comparable periods of 2020 and are in local currency.
Those of you following along with our presentation, we'll begin on page four and with that I'd like to turn the call over to Brett White, our executive Chairman.
Right.
Thank you Lynn.
And thank you to everyone joining us today.
Joining me. This afternoon is John Forrester, our CEO as of January 1st Kevin Thorpe, Our Chief economist, who will provide some commentary on the macro economic environment and Neil Johnson, Our CFO , who will review our financial results for the quarter and full year, along with our outlook for 2022.
To begin I want to thank our team of Cushman and Wakefield professionals around the world.
2021 was another unpredictable year and their resilience and ability to serve our clients in a fluid time has been truly outstanding.
As a result of their amazing efforts, we delivered record results in 2021.
We grew our fee revenue to $6 $9 billion up 24% over last year.
Delivered record adjusted EBITDA of $886 million.
73% over last year.
And expanded our margins by 365 basis points to 12, 9%.
Brokerage was a source of strength as momentum throughout the year continuing to build with the recovery.
Revenue growth in our brokerage businesses improved 55% over last year and was even 6% ahead of 2019 pre COVID-19 levels.
In addition to our solid financial results 2021 was the Europe continued investment in our platform.
We made strategic investments in Graystown, and we work for them.
Riding us with key capabilities in multifamily debt origination servicing and workplace solutions.
Finally, operating cash flow of $550 million further strengthened our strong balance sheet and positions us well for future growth.
Before handing the call over to John .
It has truly been an honor to be the CEO and lead this company over the past six years.
When I stepped into the CEO role my objective was to lead our business through a period of rapid growth and transformation I.
I am very proud of what we've been able to accomplish.
From the formation of a new player in the global commercial real estate space.
So taking the company public in 2018 and to where we are now as an industry leader.
Today Cushman <unk> Wakefield is recognized as a leading global real estate services company with a comprehensive service offering that delivers exceptional value for both investors and occupiers.
Our global platform is poised for continued sustainable growth and success.
I have the utmost confidence in John .
Our leadership team and our 50000 employees around the world.
I congratulate John on his well deserved appointment as CEO and.
And I wish him continued success I.
I look forward to working with him in my role as executive Chairman in this exciting chapter.
Chapter.
And with that ill.
I'll turn the call over to our new CEO , John Forrester John .
Thank you for the kind words Brett.
As I've transitioned into the CEO role over the past few months.
Stepped into leading a world class real estate services company enjoying significant momentum in the global operating environment with material tailwind.
Of course, I am thrilled to have the opportunity to lead cushman and Wakefield as the new CEO .
Like to thank Brad for his contribution and contribution over the past six years, as chairman and Chief Executive Officer.
It's been an honor to work and learn alongside him.
Thanks to Brad's vision and leadership Cushman <unk> Wakefield has never been better positioned to take increasing market share and leadership in what remains in many sectors a fragmented market.
I look forward to continuing to work with Brent as he transitions into his role as executive Chairman.
Before getting into the results, let me start with a few observations on the current operating environment and the path ahead for Cushman <unk> Wakefield.
First the market for commercial real estate services remains strong and growing.
As I said at the outset, the raw material tailwind present that will power the largest full service companies in our sector through the coming period.
Kevin thought will provide a more detailed picture on these market tailwind is later in the call.
But in particular I would highlight three particularly significant conditions.
The power continued growth.
The other growing volume of capital flowing into the real estate sector.
By secular trends seeking out assets to deliver competitive and attractive investor returns.
The data illustrating the return to growth in office leasing and the momentum in corporate outsourcing with major occupies in all sectors now building key supplier relationships on a global scale.
I've always believed and staying close to the voice of our customer and that talent.
And I've traveled wildly over recent months physically as well as virtually totally to our largest clients and working directly with our industry, leading talent and I'm happy to reinforce.
But our existing strategy and priorities remain not only sound, but other more appropriate to address the opportunities, we face and to grow our company and create value and generate strong returns.
I'll focus and commitment to operational excellence and deficiency.
Which has resulted in savings of $125 million this year and $250 million over the past two years has never been clearer.
Over the past two years, we have realigned the business through four strategic transformation initiatives.
Firstly streamlining the organization to better match, our occupier and Investor Service model.
Enhancing our agility by organizing our services by sector.
By geography.
By materially improving the operating efficiency of our business units and finally, optimizing the functions that support and guide the company.
This relentless focus on improvement is now transitioning into how we deliver our services to clients.
We will use our scale to help generate greater internal operating leverage and deploy technology to make cushman and Wakefield the easiest company to work with the declines.
<unk> four is an employee.
This together with our ongoing strategic focus of growing capacity and capabilities and the largest and highest growth sectors.
Let's put it in a strong position to again capture market share in 2022 and beyond.
As an example.
<unk> of that growth focus.
In our last earnings call, we highlighted our strategic acquisition of a 40% stake in gravestones agency, FHA and servicing businesses, which will fully round out our service offering to investors in the U S multifamily sector.
In the full year 2021, the multifamily asset class drove 41% of U S capital market volumes, which resulted in $335 billion total volume up 74% since 2019.
In addition, we announced and completed the formation of a key strategic partnership with we work that we believe will further strengthen strengthen and differentiate our global platform, particularly in the occupier outsourcing and the portfolio of property management sectors. Further penetrating these two large and high value markets.
With that let me turn to our results.
Fourth quarter was a record quarter for the company with strong topline growth across all service lines and segments.
The commercial real estate sector is continuing to show tremendous resiliency to the pandemic as evidenced by the profound recovery we've experienced throughout the year.
Both fourth quarter, and full year brokerage revenue, including our leasing and capital markets businesses.
<unk> 2019 pre pandemic levels.
Whilst the strength of our performance was broad based the recovery was most profound in our capital markets portfolio, particularly across the Americas in nearly every city.
Overall liquidity and appetite for commercial real estate from investors remains at all times harm at all time highs and growing.
The recurring revenue streams of our property and facilities management service lines also continued to display strength with high single digit growth in the fourth quarter.
We've been heavily focused on growing our facilities management business over the past several years building a strong platform to serve the largest clients. We've continued to win increasingly large complex national and global multi service mandates as a result of our continued investment and increasing scale in this business.
Adjusted EBITDA for the fourth quarter of $348 million brought full year adjusted EBITDA to $886 million both records for the company.
The execution of our strategic realignment and multiyear transformation has had a profound impact on the profitability of our company as the broader brokerage market continues to rebound, resulting in record margins.
Looking forward, our strategic roadmap is not changing.
Our focus on efficiently delivering a complete suite of global core services and solutions to owner and occupier clients around the world, which in turn will deliver material shareholder value.
Our four strategic pillars will continue to guide how we run the business.
Through client Centricity, a relentless operational excellence being a leading people and talent platform and increasingly leveraging our data with analytics that provide unique insight and value.
And with growing residents Cushman <unk> Wakefield is set on a path to be a leader in the area of ESG now a fundamental consideration and real estate decision, making.
To that end, we are taking bold action that will materially reduce our own environmental impact and also that of our clients with our previously announced science based targets of net zero commitments.
We are committed to making a meaningful impact for our people.
Clients, our shareholders and the community communities in which we operate around the world.
I am optimistic for the year ahead confident in our strategy and the commitment of our teams across the world to continue to drive value for our clients and shareholders every day.
And with that I'd now like to turn the call over to Kevin to discuss our macroeconomic outlook.
Kevin.
Thanks, John 2021 was clearly a strong rebound year for the commercial real estate sector and importantly, what we learned last year is that the commercial real estate sector and the economy in general are both becoming increasingly resilient to the pandemic as we all know last year featured new waves and variance.
Year went on it became apparent that the commercial real estate sector is becoming less disrupted by these waves.
Evidenced by the increasingly strong performance throughout the year.
Looking ahead, the economic outlook remains strong U S. Real GDP grew by a preliminary estimate of five 7% in 2021 and is forecast to grow at a healthy rate of 4% in 2022.
These growth rates are significantly above the pre pandemic average and are anticipated to be among the strongest back to back growth years growth rates ever recorded.
The global economy is projected to have grown by a similar amount five 9%. According to the international Monetary fund the growth in 2022 expected to registered in the mid fours as we know historically GDP has been a solid predictor for the commercial real estate sector. When the economy grows at a healthy rate it typically means more jobs.
More leasing more capital markets deals more buildings to manage giving us conviction on our strong outlook for property in 2022.
Lastly, we continue to monitor the impact of elevated inflation and other downside risks. However, I would emphasize that the commercial real estate sector has been successfully navigating these challenges for several months, which again speaks to the sector's resiliency. Additionally, we are monitoring the federal reserve and interest rate movements, but here it is.
Emphasize that even with a 10 year treasury yield drifting higher interest rates still remain low and below pre pandemic levels are still half the historical average, making spreads still attractive in the commercial real estate sector.
Turning to the property sectors are stronger economic backdrop has shifted most sectors from recovery to growth of course, the performance varies greatly depending on geography product type and other factors, but overall the commercial real estate sector has momentum going into 2022, one of the clearest bright spots in the commercial real estate sector space.
<unk> continues to be the industrial logistics sector in the U S. The industrial market ended the year with record setting demand outpacing supply such that they can see is now below 4% for the first time ever.
Net absorption in 2021 was 533 million square feet and just for context prior to last year. The industrial sector had never absorbed 400 million square feet of space in the calendar year, So 500 million square feet is truly astonishing like.
Likewise, we continue to observe very robust demand for data centers life Sciences self storage in apartments and these strong trends are expected to continue in 2022 retail and office continue to lag behind in their recovery, but there are also many encouraging signs, indicating that the worst is over and the recovery is well underway for instance.
Last year, we saw the U S retail sector surpassed 37 million square feet of net absorption, which was the best year since 2017.
On the office side gross leasing activity trended higher every quarter in 2021 tour activity continues to rebound and net absorption is turning positive and an increasing number of markets importantly, the office employment recovery has been very robust in this cycle. The U S has created $3 4 million off.
This job since the nadir of the COVID-19 recession and has already returned to pre pandemic peak levels of employment. So for context. It took six years to fully recover all the jobs jobs loss from the great financial crisis in this cycle. It took less than two years and so when businesses do get back even with a more agile workforce.
For us we are confident that the office sector will continue on its path to recovery and lastly capital markets continue to demonstrate tremendous resiliency and momentum according to real capital analytics U S fourth quarter property sales registered at $326 billion.
Up 97% compared to a year ago, setting a new fourth quarter record for the full year 2021 sales volume of all commercial real estate property types totaled $809 billion.
Which is 35% higher than the previous record set in 2019, so clearly the commercial real estate sector remains an attractive asset class for investors as demand drivers remain favorable and fund raising remains aggressive as it sits at near record levels.
While there are still uncertainties remaining as the pandemic continues to play out if the virus and the economy follow the most probable script and there are strong reasons to continue to be optimistic for a strong performance in the commercial real estate sector and with that I'd like to turn the call over to Neil Neil.
Thanks, Kevin and good afternoon, everyone.
We are very pleased with our financial performance for both the fourth quarter and full year of 2021 strong revenue growth combined with the execution of our operating efficiency initiatives drove record adjusted EBITDA growth and margins. In addition, strong operating cash flow and further strengthen our balance sheet, resulting in improved leverage and continuing strong.
Liquidity.
For the fourth quarter fee revenue surpassed $2 2 billion, an increase of 35%, resulting in $348 million of adjusted EBITDA or about $150 million more than the fourth quarter of 2020.
Adjusted EBIT margin of 15, 7% increased by 365 basis points compared to prior year, driven by brokerage revenue growth of 72% and the benefit of operating efficiency initiatives.
Adjusted earnings per share for the quarter was <unk> 94.
An increase of 51% of the prior year.
For the full year, we generated fee revenue of $6 9 billion, an increase of 24%.
And adjusted EBITDA of $886 million, an increase of 73% over prior year.
Strength of our brokerage business, which grew 55% coupled with a strong execution of operating efficiency initiatives and disciplined cost management led to adjusted EBIT margin of 12, 9% a year over year increase of 365 basis points and an increase of over 150 basis points compared to.
2019.
As a result of our strong earnings.
And efficient management of working capital, we delivered $550 million of operating cash flow for the full year adjust.
Adjusted earnings per share for the year was $2 <unk> up from 81 in the prior year.
Taking a look at our fee revenue by service line in the fourth quarter in leasing and capital markets revenue increased 65% and 80% versus prior year, respectively leasing exceeded pre pandemic levels for the quarter with fee revenue, increasing 5% over the fourth quarter of 2019.
Non office leasing reflects the continued momentum and strength in the industrial and logistics sectors.
We also saw continuing improvements in the office sector, which Kevin already touched on.
And capital markets volumes reached record levels with fee revenue growth of 54% compared to pre pandemic levels in the fourth quarter of 2019, largely driven by the Americas segment and nearly every property sector.
The environment for capital investments continues to be favorable with no signs of slowing momentum.
Pms and valuation and other service lines were up 7% and 11% respectively for the fourth quarter.
<unk> service lines have been a source of ongoing stability with plenty of growth of 6% year over year, which is a clear reflection of the resilience and commitment of our facility services at facilities management teams.
<unk> facility services represents just under half of our PM FM fee revenue and generate solid cash flow on a very stable revenue stream, which was up mid single digits for the full year, reflecting continued demand for COVID-19 related deep cleaning services principally in the Americas.
Turning to our financial results for the quarter by segment, our Americas segment was positively impacted by the strong rebound in brokerage leasing and capital markets revenues improved, 76% and 93% respectively year over year, which equates to 35% growth in brokerage revenue versus 2019.
Pandemic levels.
Together with our operating efficiency initiatives resulted in a record level of adjusted EBITDA in the Americas for the fourth quarter.
We recorded $251 million of adjusted EBITDA, an improvement of $124 million versus prior year.
In EMEA and APAC, we generated adjusted EBITDA of $55 million, and 41 million, respectively, which represents an increase of 36% and 48% respectively versus the fourth quarter of 2020.
This performance reflects strong revenue growth of 14% and 26% respectively led by brokerage activity with fee revenue improved 35% in EMEA and 50% in APAC for the fourth quarter.
Our financial position remains strong we ended the fourth quarter with $1 8 billion of liquidity consisting of cash on hand of 771 billion in availability on our revolving credit facility of $1 billion.
We had no outstanding borrowings on our revolver.
Net leverage was two eight times at the end of the year down from four three times, we reported at the end of 2020.
We are well positioned to continue to fund operations and invest in future accretive infill M&A and broker onboarding opportunities, while maintaining optionality within our capital allocation framework.
In December we closed on a strategic joint venture with Greystone contributing $500 million for a 40% stake we expect the joint venture to be accretive on both an adjusted EPS and adjusted EBITDA contribution basis with a contribution to EBITDA that equates to a six to eight times EBITDA multiple based on historical performance.
The investment will be accounted for as an equity method investment in our financial statements, which will reflect the impact of all revenue streams, including origination fees MSR gains and servicing fees.
The impact of Greystone to our 2021 full year and fourth quarter was immaterial given the timing of the close.
Looking forward.
We expect the strong momentum experienced in our business this year, particularly in logistics and multifamily to continue in 2022 as well as continuing improvement of the office and retail sectors.
In Q4, both leasing and capital markets revenues with back above 2019 levels with capital markets experiencing significant growth of 54% over 2019.
We expect this growth momentum to continue in 2022 and are anticipating year over year brokerage revenue growth in the upper single digits.
Consistent with pre pandemic historical growth rates.
On a non brokerage service lines, we anticipate continued revenue growth in the mid single digits in line with last year.
As we look forward, we are focused on continuing to drive efficiency and cost savings, while balancing investments to drive profitable growth.
Results were aiming for an adjusted EBITDA margin improvement of approximately 100 basis points year over year, including contributions from our greystone joint venture.
For the year, we expect our adjusted effective tax rate to be in the range of 27% with an adjusted cash tax rate slightly below our adjusted ETR.
Overall with the momentum we are seeing in all segments and service lines of our business. Our focus on profitable growth continued disciplined cash management and investment we are well positioned to continue to drive significant value for shareholders.
With that ill turn the call back to the operator for the Q&A portion of today's call operator.
Yeah.
Thank you very much.
At this time, we will be conducting a question and answer session.
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One moment, please while we poll for questions.
We have our first question from the lineup Anthony <unk> with J P. Morgan. Please go ahead.
Alright, great. Thank you.
My first question relates to brokerage revenue growth in 2022. It seems like leasing has a lot of runway to go and so I'm wondering what you think the puts and takes are to this upper single digit revenue outlook.
Might be for your system, and what might keep that from being higher.
Let's let John take that.
Hi, Tony.
We see relatively positive outcomes in all sectors as you said the continuing growth in <unk>.
Logistics and multifamily life Sciences strong momentum.
Unlikely to duplicate what we saw in Q4, but still strong.
We're very positive about.
The continued rebound in offices now moving strongly through green shoots all of the data sets that we watch.
And as Kevin mentioned is actually a bottoming out in some growth non retail so combined.
We do see a good outlook for <unk>.
The brokerage market, but we're taking it one quarter at a time sort of the recovery.
Through growth.
Okay, and then on the expense side, you had mentioned I think it was $125 million that you expect to see.
I think thats in 2022, I believe but I was just curious if there if you're starting to see any cost returning faster than expected or cost pressures from inflation anywhere in the system.
Yes sure Tony.
$125 million.
In 2021 as we go into 2022, we will clearly be focused on costs.
But not to that same extent.
Some of the factors we considered as we looked at 2022 are considering as we do expect inflation, but the good news is the business has a natural hedge against inflation.
The area that we focused on around inflation is really just on non fee earners in the salaries there that could go up and other considerations.
<unk>, we do have the.
The final piece of the savings as a result of Covid coming back in.
So things like travel.
Then offsetting that as I say, a continued focus on permanent cost out. So those are some of the factors that weigh in as we look to expenses next year.
Okay, and then last one just on the.
Investment side can you talk about just your appetite to do transactions and what the pipeline or activity levels look like right now.
Sure John I'll take that.
2020 wellness was all the questions.
A big year for our acquisitions most of that we spent in any single year since.
The organization together so.
We are focused on.
Performance and success of what we did in 2021, and we will remain opportunistic.
Both around value.
In fact across the whole piece in 2022.
As we said in the prepared remarks.
<unk> built a fully diversified geography sector and service line.
But there are still significantly fragmented markets out there both in the brokerage and in recurring revenue lines. So I won't.
State any specific areas at this time, because as I say space on value and opportunity.
But we are ready to execute.
At the right time on the right assets.
Charlie to John's comments here. So 2021, it was a year, where I think all the peer group talked about lofty valuations and difficulty in finding high quality permit.
Is emblematic of where we go around M&A, so that was a deal.
All that was specific to a vertical various operators to for a long time.
We were able because of our platform led offer.
Chris I was looking for in a partner we want to get a deal done at a highly accretive value.
It will add value.
To our platform and synergies to our multifamily.
<unk> professionals, so where are we going to lookout for great deals like that but we're very careful around valuation and our ability to integrate I think.
O'malley debt, where delta in a marketplace, where opportunities exist and we're going to pursue them as John mentioned with vigor.
Great. Thanks for the help.
Okay.
Thank you.
Anyone who wishes to ask a question you May press star and one on do you touched on phone right now.
Your next question from the line of Stephen Sheldon with William Blair. Please go ahead.
Hi, This is Patrick mckelvey on for on for Stephen Just a couple of quick ones. So first could you talk about how youre thinking about the integration of Greystone and how do you plan to incentivize your brokers to work closely with that team and those officers. Thanks.
Yes, I'm going to let John take that I'll make a quick comment upfront, which is great for the acquisition stands on its own.
Some very very powerfully if we never did a single deal between our investment property professional and progressed on plan for now of course, we're highly focused on that but that is snow on the mountain.
John I'll, let you talk a little bit about how the integration of it.
It looked like the joint venture it doesn't actually come with a need to build our cost platform and then process.
Revenues off of what we are seeing already.
These days.
We are disciplined company.
The offering to the market.
And by our teams jointly.
He has proven extremely attractive and we are taking market share at this point.
The offering.
The acquisition provides to our existing multifamily business, particularly in the costal markets areas that strengthens our ability to penetrate.
Capital markets stock, both equity and debt.
As we ended up into the capabilities and knowledge, we get from the Pinnacle acquisition now nearly three years ago, which makes us the largest player in the full service multifamily market gives us a pretty powerful offering to clients and as I said that the motivation is actually more of what we're already doing and taking market share.
And we've got a very aggressive.
Colleagues, who are burdensome on delivering the best as they come in those markets.
And we are seeing it as I say, we are seeing it now.
And just Patrick I'll, just underscore what John said so.
Typically our investment property professional and multifamily archive.
They needed and wanted.
Answer that we were able to provide.
This acquisition, so we don't need to provide incentives for people to do business together they were crying for it and this makes US John well said this gives them a round of toolkit, which they could use a service our clients retain their most valuable clients do more business with them.
Yeah.
Got it that's really helpful. Thank you and then another one quickly so on the Pms side of things.
It's my understanding that.
An increase in transactional activity, so asset sales kind of create an opportunity for for contract wins and I wanted to ask if you can talk a little bit about how that transactional activity trending up it's impacted your ability to.
To win clients in that space.
Well again, I'll, let John get into detail here, but I would think about it this way, which is every time, we transact with a new client as an opportunity for us to cross sell into that client additional value add services and there is no place for that you see that more prevalent.
Within our leasing brokerage business, where our folks are out there working with the customer that customer tells them that in addition to this large lease we're doing it.
We're looking at an outsource requirement for the U S. <unk> are outsourced professionals real efficiency business for John John can speak very specifically to health increased transaction activity gives us more visibility and more clients.
There is a lot of the process to improve all positive tailwind for an organization like Cushman <unk> Wakefield as a full service business, we have no interruption in our engagement with the clients as they seek all of the services around the asset.
So that's been part of our strategy of build out.
Think about the capital markets volumes rising and therefore more deals in the market.
I wanted to find out actually joined Colgate joined the pandemic.
There was actually quite a low level of.
Or churn in the mandate to buildings and facilities contracts et cetera, there was quite a low level versus historic levels.
<unk>.
Renewals are on.
So it was a very robust period for us.
Taking market share on top of that added to our overall volume growth.
Coming out of the pandemic and looking at the capital markets trading as Brent says every deal is an opportunity for us to either so more to an existing client or.
Get a new relationship with a new client.
Good point again to the multifamily perspective full service starting to built out because we can now go to.
And equity declines are a buyer.
The family asset provides debt servicing clients refinanced the asset we can manage the asset we can reposition the asset.
Thats something.
As part of our long term strategy of building out in those largest and fastest growing sectors.
Pardon me.
One of the training.
Growth areas in the return to the office of course is going to be project management, because ultimately whether you believe offices gets back to its full amount.
<unk> or not doesn't really matter to how we drive revenue because it's the journey and the churn.
To get to whichever portfolio already occupy it needs to get to and we're already seeing quite a lot of capex going into office space, certainly more than 12 months and 24 months ago as occupies seek to reposition the office somewhere attractive and certainly more attractive than being at home. So there's quite a lot.
Tailwind factors out there that are dry.
Giving volume volume across the full sector.
Our full service model.
Understood. Thank you all for for the color and congrats on a strong end of the year.
Thank you.
Thank you to ask a question about Spence My press Star one on you touched on phones.
We have a next question from the line of Richard Hill with Morgan Stanley . Please go ahead.
Hi, everyone, congratulations on the great quarter and year.
Jose Herrera on for Rich just a quick question regarding commercial real estate fundamentals for 'twenty two.
Some some good insight into that but just curious on until end rents for for the market.
What do you think could drive that guide for the commercial real estate market down.
Regarding any risks and then potentially anything to the high end that could surprise.
Thank you.
Yes, so we have Kevin.
On the line, our chief economist to talk to the question of what macro could be out there.
The market, which I think is actually very low risk at the moment.
Also I think perhaps more importantly could drive performance above estimated levels. Currently so Kevin you want take a shot at that yeah sure certainly so.
Of course, there is.
Political risks that's forming.
With Russia, Ukraine.
That relates to oil.
I would say just.
In my view, it's really too soon.
Say precisely how that constantly impacted property sector, there's actually a couple a couple of points I'd make on that so I think it's important.
Speaking to that downside risk to no commercial real estate is not the stock market the stock market subject to these while daily swings real estate is not real estate is more grounded in and local economic fundamentals and generally has a longer investment horizon, alright with valuation supported by long term leases.
Interest rates remain very low and it's actually possible. This conflict conflict could drive interest rates, even lower making spreads even more attractive could actually drive demand for core real estate up.
There is the risk of elevated energy prices again that does in some way linked to the conflict certainly European countries are more exposed to some of the economic ties with Russia.
We'll have to see kind of where what happens with oil and gas and other raw materials and see how that feeds through to inflation, but as as I believe it was Neil or John pointed out we all know commercial real estate does performed well during periods of elevated inflationary environment is a hedge to a degree on inflation.
And I feel good about the fundamentals I think what's really important is that.
To focus on the secular trends and the momentum that's been building across the commercial real estate sector.
In areas.
And our resilient in some ways to be whether it's interest rate movements inflation geopolitical events and I can point to a couple of things the industrial sector, which we talked about in E. Commerce is gaining share as people climb up the online learning curve, that's clearly fueling demand for warehouse space in last mile the multifamily.
Sector very much a growth area people need a place to live regardless of geopolitical inflation interest rate movements demographics still very favorable fueling demand there.
Excess savings has sort of been glossed over in recent weeks, but excess savings as this as savings on top of savings really.
Indicating very strong consumer demand, particularly for experiential retail concepts.
And finally, the pandemic being perhaps perhaps were officially that's.
Officially fading in the rearview mirror boosting the return to office right. So there's always downside scenarios you could create dark really dark scenarios that it might be in the commercial real estate sector is positioned really well I think to handle a lot of these challenges and headwinds.
Hopefully that helps.
Yes definitely.
Kevin Thank you.
Thank you Mr Hill.
Do you have any further questions.
No that's all thank you.
Yeah.
Right.
Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session and I'd like to turn the call back to Brett White for closing remarks.
To you Sir.
Thanks, everybody.
Appreciate your support right here in 2021 looking forward to another great year. This year, we'll talk to you in another quarter.
Thank you.
Ladies and gentlemen. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
Okay.
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Yes.
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