Q4 2024 Cushman & Wakefield PLC Earnings Call

Operator: Good day and welcome to Cushman & Wakefield's 4th Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Good day, and welcome to Cushman, and Wakefield fourth quarter 'twenty 'twenty four earnings conference call all participants will be in listen only mode.

Speaker Change: You need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on a touch down south to withdraw. Your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Megan Mcgrath.

Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded.

Megan Mcgrath: I would now like to turn the conference over to Megan McGrath, Head of Investor Relations. Please go ahead.

Megan Mcgrath: <unk> head of Investor Relations. Please go ahead.

Megan Mcgrath: Thank you and welcome to Cushman & Wakefield's fourth quarter 2024 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.cushmanwakefield.com.

Megan Mcgrath: Thank you and welcome to Cushman and Wakefield fourth quarter 'twenty 'twenty four earnings conference call.

Megan Mcgrath: Earlier today, we issued a press release announcing our financial results for the period.

Megan Mcgrath: This release, along with today's presentation can be found on our Investor Relations website at IR deck Cushman Wakefield dotcom.

Megan Mcgrath: Please turn to the page in our presentation labeled Cautionary Note on Forward-Looking States. Today's presentation contains forward looking statements based on our current forecast and estimates of future events. These statements should be considered estimates only and actual results may differ materially.

Megan Mcgrath: Please turn to the page in our presentation label cautionary note on forward looking statements.

Megan Mcgrath: Today's presentation contains forward looking statements based on our current forecasts and estimates of future events.

Megan Mcgrath: These statements should be considered estimates only and actual results may differ materially.

Megan Mcgrath: 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 the financial tables of our earnings release and the appendix of today's presentation. Also, please note that throughout the presentation, comparisons and growth rates are to the comparable periods of 2023 and in local currency unless otherwise stated.

Megan Mcgrath: During today's call, we will refer to non-GAAP financial measures as outlined by SEC guidelines.

Megan Mcgrath: Reconciliations of GAAP to non-GAAP financial measures definitions of non-GAAP financial measures and other related information are found within the financial tables of our earnings release and the appendix of today's presentation.

Megan Mcgrath: Also please note that throughout the presentation comparisons and growth rates are to the comparable periods of 2023 and in local currency unless otherwise stated.

Michelle Mackay: With that, I'd like to turn the call over to our CEO, Michelle MacKay. Thank you, Megan, and good morning to everyone, and thank you for joining us today. We concluded 2024 with unparalleled momentum, reporting our highest capital markets revenue growth since the first quarter of 2022, and another robust quarter of leasing growth. Our services business is now solidified and invigorated, poised to reaccelerate and further supported by investments going into the platform this year. 2024 produced one of the highest free cash flow conversion percentages in the history of the company, and that positions us well to pursue top tier talent, invest in our services business, and execute on our growth plan inclusive of M&A.

Megan Mcgrath: With that I'd like to turn the call over to our CEO Michelle Mackay.

Speaker Change: Thank you Megan and.

Michelle Mackay: And good morning to everyone and thank you for joining us today.

Michelle Mackay: We concluded 2024 with unparalleled momentum reporting our highest capital markets revenue growth since the first quarter of 2022, and another robust quarter of leasing Glenn.

Michelle Mackay: Our services business is now solidified and invigorated poised to Reaccelerate and further supported by investments going into the platform. This year.

Michelle Mackay: One is 24 produced one of the highest free cash flow conversion percentages in the history of the company and that positions us well to pursue top tier talent investing in our services business and execute on our growth plan inclusive of M&A.

Michelle Mackay: We've developed a strategy that includes a commitment to delivering progressively improving earnings growth over the next several years. As of now, the macroeconomic environment as it pertains to property is largely favorable. The economy is growing. Creating jobs. Corporate profits are healthy. Odds of a recession have receded. All of these factors have created a healthy backdrop for leasing. and our own performance confirms that leasing has momentum as we have now had five straight consecutive quarters of year-over-year leasing revenue growth. For capital markets, we are observing early stages of a recovery. For two years, the market was largely recalibrating to higher interest rates.

Michelle Mackay: We developed a strategy that includes a commitment to delivering progressively improving earnings growth over the next several years.

Michelle Mackay: As of now the macro economic environment as it pertains to property largely favorable.

Michelle Mackay: The economy is growing creating jobs corporate profits are healthy odds of a recession have receded.

Michelle Mackay: All of these factors have created a healthy backdrop for leasing.

Michelle Mackay: And our own performance confirms that leasing has momentum as we have now had five straight consecutive quarters of year over year leasing revenue growth.

Michelle Mackay: For capital markets, we are observing early stages of a recovery.

Michelle Mackay: For two years, the market was largely recalibrating to higher interest rates.

Michelle Mackay: That was the hardest part, but now we are largely past that. Property values have corrected. Central banks have begun reducing rates. Debt costs and availability of debt have improved because lenders are sensing the inflection. and buyers and sellers are proving that they can do deals in this environment as evidenced by our Q4 performance.

Michelle Mackay: That was the hardest part.

Michelle Mackay: But now we are largely past that.

Michelle Mackay: Property values have corrected central banks have begun reducing rates.

Michelle Mackay: Cost and availability of debt have improved because lenders are sensing the inflection.

Michelle Mackay: And buyers and sellers are proving that they can do deals in this environment as evidenced by our Q4 performance.

Michelle Mackay: For our 2025 outlook, we expect leasing revenue growth to remain solid. We continue to observe green shoots in office, return to offices gaining momentum, net absorption is improving, and nearly half of the markets that we track registered positive absorption in Q4, and a healthy pipeline of expiring leases will create steady deal flow. Industrial is normalizing, but its growth engines of e-commerce, consumer spending, third-party logistics, and supply chain optimization remain strong. In capital markets, we are not calling for a hockey stick recovery because interest rates will more than likely remain high in this cycle. The Fed funds rate isn't likely going to be zero again, and the 10-year yield isn't going to be two again, so we won't get the frenzied activity that we did coming out of COVID.

Michelle Mackay: For our 2025 outlook, we expect leasing revenue growth to remain solid.

Michelle Mackay: We continue to observe green shoots in office returned to office is gaining momentum net absorption is improving and nearly half of the markets that we track registered positive absorption in Q4, and a healthy pipeline of expiring leases will create steady deal flow.

Michelle Mackay: Industrial is normalizing, but its growth engines of E Commerce consumer spending third party logistics and supply chain optimization remains strong.

Michelle Mackay: Yeah.

Michelle Mackay: In capital markets, we are not calling for a hockey stick recovery because of interest rates will more than likely remain high in the cycle.

Michelle Mackay: The fed funds rate isn't likely going to be zero again, and the 10 year yield isn't going to be too good.

Michelle Mackay: So we won't get the frenzy of activity that we did coming out of Covid.

Michelle Mackay: But based on what we're observing and if current trends hold, we will likely get a good bounce in 2025 as confidence in our sector continues to grow. We believe that we are in the early innings of a multi-year upcycle in commercial real estate, and so we are accelerating investments across our platform in 2025. The cyclical uplifts combined with the work that we are doing to accelerate profitable growth and our continued commitment to improving our balance sheet makes this an exciting time to be a Cushman and Wakefield.

Speaker Change: But based on what we're observing and if current trends hold we will likely get a good bounce in 2025 its confidence in our sector continues to grow.

Speaker Change: We believe that we are in the early innings of a multiyear up cycle in commercial real estate and so we are accelerating investments across our platform in 2025.

Speaker Change: [laughter] cyclical uplift combined with the work that we're doing to accelerate profitable growth and our continued commitment to improving our balance sheet makes this an exciting time to be at Cushman and Wakefield.

Michelle Mackay: I want to thank our teams across the globe for an exceptional 2024 and for driving us forward with our new vision. to be known as the premium brand in the industry and to set the standard across the built environment for problem solving through exceptional advice and execution of services.

Speaker Change: I want to thank our teams across the globe for an exceptional 2024 and for driving us forward with our new vision.

Speaker Change: To be known as the premium brand in the industry and to set the standard across the built environment for problem solving through exceptional advice and execution of services.

Neil Johnston: Now let me hand the call over to Neil to review our financial performance. Thanks, Michelle, and good morning, everyone. In 2024, we achieved our financial objectives of improving free cash flow, protecting margins, and fortifying our balance sheet. We strengthened our financial foundation to lay the groundwork for sustainable long-term growth. For the full year, fee revenue of $6.6 billion was up 1%, and adjusted EBITDA expanded 3% to $582 million. Our EBITDA margin improved by 10 basis points to 8.8%. Adjusted EPS was $0.91, up 8% from last year, setting the base for future growth. We delivered $167 million of free cash flow for the year, $66 million higher than 2023, and improved conversion as a percentage of adjusted net income to 79%.

Neil: Now, let me hand, the call over to Neil to review our financial performance.

Neil: Thanks, Michelle and good morning, everyone.

Neil: In 'twenty 'twenty, four we achieved our financial objectives of improving free cash flow protecting margins and fortifying our balance sheet.

Neil: We strengthened our financial foundation to lay the groundwork for sustainable long term growth.

Neil: For the full year fee revenue of $6 6 billion was up 1% and adjusted EBITDA expanded 3% to $582 million.

Neil: EBIT margin improved by 10 basis points to eight 8%.

Neil: Adjusted EPS was <unk> 91 up.

Neil: Up 8% from last year setting the base for future growth.

Neil: We delivered 167 million of free cash flow for the $66 million higher than 2023 and improved conversion as a percentage of adjusted net income to 79%.

Neil Johnston: Our strong cash flow enabled us to pay $200 million of our 2025 term loan ahead of schedule. We also lowered our borrowing costs through four term loan repricings over the past year. We close the year with $793 million in cash and cash equivalents and $1.9 billion in total liquidity. Our leverage ratio improved to 3.8 times from 4.3 times at the end of 2023.

Neil: Cash flow enabled us to pay $200 million of our 2025 term load ahead of schedule. We also lowered our borrowing costs through for term loan re pricings over the past year.

Neil: We closed the year with $793 million in cash and cash equivalents and $1 9 billion in total liquidity.

Leverage ratio improved to three eight times from four three times at the end of 2023.

Neil Johnston: Before providing our 25-hour outlook, I'll give some details on our quarterly results. 4QV revenue of $1.9 billion increased by 4%, building on the momentum we drove in the third quarter. Underlying the 14% growth in brokerage revenues, capital markets revenue was up 36% globally, exceeding our guidance as the environment for transactions continued to strengthen. and our leasing business delivered another strong quarter up 7%. Adjusted EBITDA of $222 million, increased 6% as the double-digit improvement in brokerage revenue was balanced against the ramp-up in growth investments we discussed last quarter, and a $7.5 million decrease in earnings from equity method investments.

Neil: Before providing our 25 outlook I'll give some details on our quarterly results for Q3 revenue of $1 9 billion increased by 4% building on the momentum we drove in the third quarter.

Neil: Underlying the 14% growth in brokerage revenues capital markets revenue was up 36% globally exceeding our guidance as the environment for transactions continued to strengthen.

Neil: And our leasing business delivered another strong quarter up 7%.

Neil: Adjusted EBITDA of $222 million increased 6% as the double digit improvement in brokerage revenue was balanced against the ramp up in growth investments, we discussed last quarter and a $7 5 million decrease in earnings from equity method investments for.

Neil Johnston: For the full year, earnings from equity method investments declined $21 million, primarily attributable to reduced transaction volumes in our Greystone joint venture, driven by tighter lending conditions in 2024.

Neil: For the full year earnings from equity method investments declined $21 million, primarily attributable to reduced transaction volumes in our greystone joint venture driven by tighter lending conditions in 2024.

Neil Johnston: Moving to service-wide performance for the quarter. Beginning with leasing, America's leasing remains a key area of strength, growing 12% in Q4, the second straight quarter of double-digit growth. Demand was solid across deal sizes and asset classes, particularly in office, as tenants continue to seek out high-quality spaces. We expect continued strength in 2025 supported by a resilient U.S. economy and increased return to office trends. APAC leasing was stable in Q4, with strong results in Australia and India, offsetting challenges in China. Our strong market positioning in India positions us to benefit from the country's rapid economic growth, expected to be among the highest globally over the next decade.

Neil: Moving to service line performance for the quarter, beginning with leasing Americas leasing remains a key area of strength growing 12% in Q4, the second straight quarter of double digit growth.

Neil: Demand was solid across deal sizes and asset classes, particularly in office as tenants continue to seek out high quality spaces.

Neil: We expect continued strength in 2025 supported by a resilient U S economy and increased return to office trends.

Neil: APAC leasing was stable in Q4 with strong results in Australia, and India offsetting challenges in China.

Neil: Our strong market positioning in India positions us to benefit from the country's rapid economic growth expected to be among the highest globally over the next decade.

Neil Johnston: Lastly, EMEA leasing contracted 15% in Q4, due to a tough comparison against last year's 13% growth.

Neil: Lastly, EMEA leasing contracted 15% in Q4 due to a tough comparison against last year's 13% growth.

Neil Johnston: Capital markets rebounded strongly in Q4. America's capital markets revenue rose 33%, fueled by industrial deals and strong office activity. EMEA increased 20%, led by France and Eastern Europe. APAC improved 92%, driven by Japan and Australia, reflecting the benefits of our investments in the region. In services, while 2024 was a year of restructuring, focused on improving margins and setting up future profitable growth, fourth quarter service revenues grew 1%, excluding the impact of the non-core divestiture earlier in the year. America's services revenue increased 3% in Q4, excluding the divestiture, driven by property management and facilities management. APAC services declined 7% due to prior year one-time project revenue, but ended the year up 3%.

Neil: Capital markets rebounded strongly in Q4 Americas capital markets revenue rose, 33% fueled by industrial deals and strong office activity EMEA.

Neil: EMEA increased 20% led by France, and Eastern Europe.

Neil: Pac improved 92% driven by Japan, and Australia, reflecting the benefits of our investments in the region.

Neil: In services, while 2024 was a year of restructuring focused on improving margins and setting up the future profitable growth fourth quarter service revenues grew 1%, excluding the impact of the non core divestiture earlier in the year.

Neil: America services revenue increased 3% in Q4, excluding the divestiture driven by property management and facilities management.

Neil: So this is declined 7% due to prior year onetime project revenue, but ended the year up 3%.

Neil Johnston: EMEA services returned to growth in the fourth quarter, rising 1% as we completed margin improvement transitions and refocused on growth, especially in design and build.

Neil: EMEA services returned to growth in the fourth quarter rising, 1% as we completed margin improving transitions and refocused on growth, especially in design and build our services platform is a key investment focus in 2025.

Neil Johnston: Our services platform is a key investment focus in 2025. Moving now to our outlook, we enter 2025 with a stronger capital structure, lower interest expense, solid cash reserves, and clear capital allocation priorities. Last year, we outlined our plan to increase investment spending while continuing to de-lever over time. Strong Q4 results and positive market conditions reinforce our confidence that transaction volumes have stabilized, making this the right time for long-term investment. For 2025, we aim to accelerate services growth, targeting a run rate of mid-single-digit top-line growth by mid-year, with steady progress throughout the year. We expect leasing growth to remain strong in the mid-single-digit range, supported by resilient global economies and durable secular tailwinds in office and industrial.

Neil: Moving now to our outlook, we enter 2025 with a stronger capital structure lower interest expense solid cash reserves.

Neil: Capital allocation priorities.

Neil: Last year, we outlined our plan to increase investment spending while continuing to delever over time strong Q4 results and positive market conditions reinforce our confidence that transaction volumes stabilized, making this the right time for long term investments.

Neil: For 2025, we aim to accelerate services growth targeting a run rate of mid single digit top line growth by midyear with steady progress throughout the year.

Neil: We expect leasing growth to remain strong in the mid single digit range supported by resilient global economies and durable secular tailwind in office and industrial.

Neil Johnston: We expect full-year capital markets growth to accelerate in 2025 from the mid-single-digit rate we reported for the full year 2024, with the magnitude of the acceleration dependent on interest rate volatility, investor sentiment, and continuing availability of capital. On the cost front, we'll carefully balance increased investment spend with a focus on long-term returns and value creation. As we have previously stated, we anticipate our incremental investments to be a near-term headwind to margin improvements, especially in seasonally lower volume quarters. As a result, we expect the first quarter margin to be relatively flat versus the prior year.

Neil: We expect full year capital markets growth to accelerate in 2025 from the mid single digit rate, we reported for the full year of 2024 with the magnitude of the acceleration dependent on interest rates volatility investor sentiment and continuing availability of capital.

Neil: On the cost front, we will carefully balance increased investment spend with a focus on long term returns and value creation.

Neil: As we have previously stated we anticipate incremental investments to be a near term headwind to margin improvements, especially in seasonally lower volume quarters.

Neil: As a result, we expect first quarter margin to be relatively flat versus the prior year.

Neil Johnston: In closing, we are pleased with our strong quarterly performance and remain confident in our financial plan. We expect to achieve improved earnings per share growth in 2025 compared to 2024, driven by our core business strength and disciplined execution. The investments we are making now will fuel sustainable growth, with even stronger earnings growth anticipated in 2026 and 2027, delivering greater value for our shareholders.

Neil: In closing we are pleased with our strong quarterly performance and remain confident in our financial plan, we expect to achieve improved earnings per share growth in 2025, compared to 2024, driven by our core business strength and disciplined execution.

Neil: The investments we are making now will fuel sustainable growth with even stronger earnings growth anticipated in 2026, and 2027 delivering greater value for our shareholders.

Michelle Mackay: With that, I'll turn the call back over to Michelle.

Michelle Mackay: I'll turn the call back over to Michelle.

Michelle Mackay: Thank you, Neil. In speaking to capital allocation, our investment and growth strategy is a multifaceted, layered approach aimed at driving steady expansion in EPS. Each layer of growth builds and complements the other. Layer one is talent. As we stated in last quarter's call, we have seen significant increase in Talk to Your Talent retention over the past year due to intentional actions that we have taken to retain our best and brightest. Additionally, you can also see publicly that we are recruiting significant new talent to the firm, and this process has been ongoing in earnest since the fall.

Neil: Neil.

Neil: Speaking to capital allocation, our investment and growth strategy is a multi faceted layered approach aimed at driving steady expansion in EPS.

Neil: Each layer of growth build and complements the other.

Neil: Layer one talent.

Neil: As we stated in last quarters call, we have seen significant increase in top tier talent retention over the past year.

Neil: Due to intentional actions that we've taken to retain our best and brightest.

Neil: Additionally, you can also see publicly we're recruiting significant new talent to the firm and this process has been ongoing in earnest since the ball.

Michelle Mackay: For example, Miles Treaster, our new head of U.S. capital markets, has already brought in 10 new capital markets teams in the past four months alone. Layer 2 is funding steady organic expansion. This is growth that is deliberate, gradual, and achieved through internal efforts rather than external acquisitions or major investments. It reflects our focus on leveraging our existing platform by improving efficiency, nurturing customer relationships, and enhancing core competencies over time. Due to our scale and global footprint, we have considerable opportunity here to expand within what we already have. And Layer 3 is strategic tuck-in growth. This is an ongoing commitment to small-scale acquisitions that complement the core business or expands us into closely related areas, targeting steady and synergistic growth.

Neil: For example miles Treaster, our new head of U S capital market has already brought in some new capital market.

Neil: Last four months alone.

Neil: Layer to its funding steady organic expansion.

Neil: This is worth but it's deliberate gradual and achieved through internal efforts rather than external acquisitions or major investments.

Neil: It reflects our focus on leveraging our existing platform by improving efficiency nurturing customer relationships and then he same core competencies over time.

Neil: Due to our scale and global footprint, we have considerable opportunity here to expand within what we already have.

Neil: And layer three strategic tuck in growth.

Neil: This is an ongoing commitment to small scale acquisitions that complement our core business or expands us closely related areas.

Neil: Targeting steady and synergistic growth.

Michelle Mackay: We are looking at acquisitions that have low integration risk with appropriate reliance on cost synergies to achieve underwriting goals. Within each growth layer, we are already actioning multiple options and will continue to add to the pipeline in 2025. We believe this plan provides the pillars for attainable, accretive, and progressive long-term growth.

Neil: We are looking at acquisitions that have low integration risk with appropriate relying on cost synergies to achieve underwriting goals.

Neil: Within each group layer, we are already actioning multiple options and we'll continue to add to the pipeline in 2025.

Neil: We believe this plan provides the pillars for attainable accretive and progressive long term growth.

Operator: Let me now hand back the call to the operator for questions. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. We ask that you limit yourself to one question and one follow-up.

Speaker Change: Let me now hand back the call to the operator for questions.

Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and he would like to withdraw your question. Please press Star then two.

Speaker Change: We ask that you limit yourself to one question and one follow up at this time, we will pause momentarily to assemble our roster.

Operator: At this time, we will pause momentarily to assemble our rosters.

Speaker Change: Yes.

Stephen Sheldon: The first question comes from Stephen Sheldon with William Blair. Please go ahead.

Speaker Change: The first question comes from Stephen Sheldon with William Blair. Please go ahead.

Stephen Sheldon: Hey, good morning. Thanks for taking my question. first Is there any rough framework you can provide for how we should be thinking about margins for the full year 2025? I appreciate the commentary that margins will be flat year-over-year in the first quarter, but it just seems like there are a lot of moving pieces this year between reinvestments across the business and some of the initiatives that, Michelle, you talked about, and then clearly assumptions on the transactional uplift given the high incremental margins there.

Stephen Sheldon: Hey, good morning, Thanks for taking my questions.

Speaker Change: First.

Speaker Change: I guess is there a rough framework you can provide for how we should be thinking about margins for the full year 2025, yeah. I appreciate the commentary that margins will be flat year over year in the first quarter, but it just seems like there are a lot of moving pieces. This year between reinvestment across the business and some of the initiatives that Michelle you talked about and then.

Speaker Change: Clearly assumptions on the transactional uplift.

Speaker Change: High incremental margins there.

Stephen Sheldon: Any reframeworks for how we should be thinking about March. full year would be would be helpful.

Speaker Change: Any rough framework for how we should be thinking about margins full year would be would be helpful.

Neil Johnston: Thanks for the question, Stephen. Yes, to your point, we are going to have some pressure on margin given the amount of investments that we're going to be making over the course of the year that are in the best long-term interest of the company and its performance.

Speaker Change: Thank you for the questions Stephen Yes to your point, we are going to have some pressure on margin given the amount of investments that we're going to be making over the course of the year that are in the best long term interest of the company and its performance, but let me give you a little more guidance around that clarity.

Neil Johnston: So let me have Neil give you a little more guidance around that for clarity.

Neil Johnston: Yeah, sure, Stephen. So what we've given you is a framework around how we're thinking about revenue. And then what we're going to do is balance investment spend with our growth. As always, we see about 45% of our revenue in the first half with 55% in the second half.

Speaker Change: Yes, sure Steven So what we've given you is a framework around how are we thinking about revenue.

Speaker Change: And then what are we going to do is balance investment spend without growth.

Speaker Change: As always we see.

Speaker Change: 45% of our revenue in the first half with 55 in the second half. So the first quarter margin guide that is our smallest quarter and that's why you're seeing that in Washington State.

Neil Johnston: So the first quarter margin guide, that is our smallest quarter. And that's why you're seeing the flat margins there.

Stephen Sheldon: What we committed to as a management team in 2025 is really delivering accelerating earnings growth, not just this year, but in the following years. So we expected a minimum to up pace the 2024's 8% EPS growth and we'll really balance investment depending on what we see primarily of capital markets during the year. Okay, got it.

Speaker Change: What we committed to as a management team in 2025 is really delivering accelerating earnings growth.

Speaker Change: Not just not just this year, but in the following years. So we expected a minimum pace between three force EPA, 8% EPS growth.

Speaker Change: And we're really balanced investment depending on what we see primarily capital markets during the year.

Speaker Change: Okay got it and maybe just on that.

Stephen Sheldon: And maybe just on that... I think with the commentary, you're expecting acceleration versus 2024 in capital markets. Can you just talk some about what you're seeing in the pipeline? And then any color on how activities may be fared in the first six, seven weeks or so of 2025, I guess, has the fourth quarter momentum continued at least into the early part of the year? We saw a bit of a pause in January in our in our execution pipeline is really strong, but specific to us, what we're starting to see is more of the institutional investor coming to us.

Speaker Change: I think with it with the commentary you're expecting acceleration versus 2024 and capital markets can you just talk some about what you're seeing in the pipeline.

Speaker Change: And then any color on how activity is maybe faired in the first six seven weeks or so of 2025, I guess has the fourth quarter momentum continued at least into the early part of the year.

Speaker Change: We saw a bit of a pause in January in our in our execution pipeline is really strong but specific to us what we're starting to see is more of the institutional investors are coming to us and we recently executed on a $950 million refinancing, which I would.

Neil Johnston: And we recently executed on the nine hundred and fifty million dollar financing, which I would say is probably one of the larger deals that we've done in the history of the company. So we're seeing a shift in the makeup and the composition of our pipeline in particular, which we have a lot of strength in the middle market and capital markets, which people tend not to talk about as much. But now we're starting to see a stronger mix into that institutional player as we work on and invest in our institutional capital markets platform.

Speaker Change: It's probably one of the larger deals that we've done in the history of the company. So we're seeing a shift in the makeup and the composition of our pipeline in particular, which we have a lot of strength in the middle market and capital markets, which people tend not to talk about as much but now we're starting to see a stronger mix into that institutional player as we.

Speaker Change: Work on and invest in our institutional capital markets platform.

Stephen Sheldon: Got it. Yeah, that's great to hear.

Speaker Change: Got it yeah, that's great to hear.

Stephen Sheldon: That's exciting.

Stephen Sheldon: Maybe just one quick last quick one just in services appreciate the commentary about getting mid to mid single digit growth by mid year, I guess, how should we think about growth in the first half, then, you know, with what you're seeing, you know, wouldn't be fair to think you'd be flat to low single digits first half, just any any color on what the what the services trajectory could look like to get back to that mid single digits by mid year.

Speaker Change: Sorry.

Speaker Change: Then maybe just one quick last quick one just in services I appreciate the commentary about getting to mid single digit growth by mid year, I guess, how should we be thinking about growth in the first half then.

Speaker Change: What you're seeing and it wouldn't be fair to think you would be flat to low single digits first half just any any color on what the what the services.

Speaker Change: Trajectory could look like to get back to that mid single digits by midyear.

Neil Johnston: Sure, Stephen. Yeah, when you think about our services business, it'll be a story of sort of gradual improvement as we go through the year. What we are committed to is getting back to that mid-single-digit growth rate by mid-year, and certainly for the back half of the year. We started to see some good progress, you know, but it's slow. 80% of our services business comes from, you know, sort of recurring contracts. Starting to see some nice wins, which will certainly help the back half of the year, especially in our global occupier services business and in our property management business.

Stephen Sheldon: Sure Steven Yeah. When you think about our services business it'll be a story of sort of gradual improvement as we go through the year.

Stephen Sheldon: What we are committed to getting back to that mid single digit growth rate mid yeah, I'm searching for the back half of the year, we're starting to see some good progress.

Stephen Sheldon: But it's just it's slow 80% of our services business comes from recurring contracts.

Stephen Sheldon: Starting to see some nice wins, which will certainly help the back half of the year, especially in our global occupier services business and in our property management business, but 20% is project management.

Neil Johnston: But 20% is project management, and so that's the part where once we start seeing momentum, that'll pick up quite quickly, but it will take a while.

Stephen Sheldon: That's the part where once we start seeing momentum that will pick up quite quickly, but it will take a while.

Neil Johnston: You know, in EMEA, we have finished a lot of the reconfigurations, so expect stronger growth there. APAC is certainly a very strong services market. And in the Americas, you saw that both in our facility services business and in our property management business, both of those returned to growth in the fourth quarter, so expect some good things there.

Stephen Sheldon: In EMEA, we had finished a lot of the reconfiguration. So expect stronger growth. There APAC is certainly a very strong services market in the Americas.

Stephen Sheldon: You saw that both in our facility services business and in our property management business. Both of those are tied to growth in the fourth quarter. So I expect some good things there.

Stephen Sheldon: All right, good to hear, thank you.

Stephen Sheldon: Alright, good to hear thank you.

Anthony Paolone: The next question comes from Anthony Paolone with J.P. Morgan, please go ahead.

Speaker Change: The next question comes from Anthony payload <unk> with J P. Morgan. Please go ahead.

Anthony Paolone: Thank you and good morning. First question is on the leasing outlook, where you said mid-single digits growth, and I was wondering if you can give us a little bit more detail and thoughts around where you see it stronger or weaker, both by property type and perhaps geography.

Anthony Payload: Thank you and good morning.

Anthony Payload: First question is on the leasing outlook, where he said mid single digits growth and I was wondering if you can give us a little bit more detail and thoughts around where you see it stronger or weaker both by property type and perhaps geography.

Michelle Mackay: Okay, good morning, Tony.

Speaker Change: Okay. Let me good morning, Tony Let me give you a little context around what we're seeing in the office leasing and can you talk about markets after that.

Michelle Mackay: Let me give you a little context around what we're seeing in the office leasing, and we can talk about markets after that. In office, net absorption is improving, and Q4 was one of the strongest quarters of demand since the pandemic. Nearly half of the markets we tracked registered positive absorption. And an important data point is that subleased space is peaked and is trending lower, indicating businesses are taking back space and using it again. The return to office is quite clearly trending higher. The list of companies mandating three, four, five days a week is growing. But anyway, it's absolutely trending to more in-office attendance and the quality bias remains high, which means higher rent.

Speaker Change: In office net absorption is improving in Q4 was one of the strongest quarters of demand.

Speaker Change: Right.

Speaker Change: Early half of the market markets, we track registered positive absorption.

Speaker Change: And an important data point is the sublease space has peaked and is trending lower indicating businesses are taking back space and using it again.

Speaker Change: Turn to office is quite clearly trending higher once the company's mandating 345 days a week.

Speaker Change: <unk> is growing.

But anyway, it's absolutely trending more in office attendance and the quality bias remains high which means higher rents.

Michelle Mackay: And industrial, it's still normalizing from record demand coming out of the pandemic, but it's still healthy. Net absorption there is still positive. Vacancy is going a bit higher, but in some ways that's okay because during the pandemic and post the pandemic, there were 15 to 20% rent growth rates that were not sustainable. And the market on whole in industrial logistics needed more space options. But those long-term engines remain strong, as I mentioned in my script, e-commerce, consumer spending on goods. population growth and onshoring. And then if we reflect on particular markets where we saw strength and net absorption over the course of the year, Brooklyn, New York is a standout, Tampa is a standout, Baltimore is a standout, Nashville is a standout.

Speaker Change: In industrial it's still normalizing from record demand coming out of the pandemic, but it's still healthy.

Speaker Change: Net absorption there is still positive they can see as buying a bit higher but in some ways. That's okay. Because during the pandemic and post pandemic, there were 15% to 20% rent growth rates that were not sustainable and the market on whole and industrial logistics needed more space option.

Speaker Change: The long term engines remains strong as I mentioned in my script E Commerce consumer spending on bid.

Speaker Change: Population growth and onshoring.

And then if we were flex on particular markets, where we saw strength in net absorption over the course of the year Brooklyn, New York as the standout campus a standout Baltimore's a standout Nashville stand out.

Michelle Mackay: In other areas of the country, in the U.S. in particular, where they're still making progress in absorption is obviously San Francisco, Dallas, D.C.

Speaker Change: Other areas of the country in the U S in particular, where theres still making progress in absorption.

Speaker Change: It's obviously San Francisco Dallas D. C. These are all examples of really strong historical.

Michelle Mackay: These are all examples of really strong historical markets that still need to do a bit more in terms of absorbing.

Speaker Change: Markets that still need to do a bit more in terms of absorbing.

Anthony Paolone: Great, thank you.

Speaker Change: Great. Thank you.

Anthony Paolone: And then my second question relates to the investments you're making into the business and the recruiting efforts. It is pretty noticeable from the outside to see what you all have been doing. And you mentioned just the investments, creating some margin headwinds. So I was wondering if you could just talk about how it works. Like, is it that you give new recruits higher splits or guarantees? Just wondering, you know, what creates the margin headwind when you go out and, you know, add producers Understood.

Speaker Change: And then my second question relates to the investments, you're making into the business and the recruiting efforts. It is pretty noticeable from the outside to see what you all have been doing and you mentioned just the investments, creating some margin headwind. So I was wondering if you could just talk about how it works right is it that you give new recruits higher spreads or garen.

Speaker Change: I was just wondering what creates the the margin headwind when you go out and.

Speaker Change: Add add producers.

Michelle Mackay: It's not quite that narrow, Tony, because we're investing in the three buckets that I outlined in the script, talent being one of them. But when we talk about investments in our organic growth to increase market share in sectors or geos, to capture more of the market, to improve client retention, and build infrastructure, that's where we're talking about putting some pressure directly on margins.

Speaker Change: Understood.

Stephen Sheldon: Not quite that narrow Tony because we're investing in the three buckets that I outlined in the script talent being one of them.

Stephen Sheldon: When we talk about investments in our organic growth to increase market share in sectors or <unk> to capture more market to improve client retention and build infrastructure. That's what we're talking about putting some pressure directly on margins.

Stephen Sheldon: Okay I understand thank you.

Anthony Paolone: Thank you.

Jay: Thanks Jay.

Julian Bluin: The next question comes from Julian Bluin with GS, please go ahead. Hello, Julian. Your line is live. You're on the question...

Speaker Change: The next question comes from Julian Blue and with G. S. Please go ahead.

Jay: Okay.

Jay: Hello, Julien Your line is live your on the question queue.

Julian Bluin: Hi, can you hear me? Yep, we can hear you. Yes. Okay, great.

Julien: Hi can you hear me.

Speaker Change: Yep, we can hear you, yes, okay, great on the industrial front I wanted to dig into some of those comments.

Julian Bluin: On the industrial front, I wanted to dig into some of those comments. You know, I was wondering, is there any signs maybe from occupiers or buyers of sort of taking a step back to assess trade policy uncertainty before making decisions? I'm just sort of wondering if that's been part of the slower execution year to date, you sort of noted on the capital market side.

Speaker Change: I was wondering is there any signs maybe from occupiers are buyers of sort of taking a step back to assess trade policy uncertainty.

Speaker Change: Before making decisions I'm, just sort of wondering if that's been part of the slower execution year to date, you sort of noted on the capital market side.

Michelle Mackay: Specifically, Julianne, and welcome Julianne, I believe this is your first call with us. Really in terms of industrial, it's too early to draw any definitive conclusions. The policy situation remains fluid and unpredictable and we're studying it, our clients are studying it, but there's a lot we don't know in terms of precise timing and scope of things like tariffs and how policy is going to change and how it will impact property. Having said that on whole, property has proven throughout history and many administrations that it can navigate these changes. And importantly, as we're a global business, policy changes that negatively impact one market could positively impact another.

Speaker Change: Specifically Julian and welcome Julian I believe this is your first call with us.

Speaker Change: Really in terms of industrial it's too early to draw any definitive conclusions.

Speaker Change: Policy situation remains fluid and unpredictable and we're studying it our clients are studying it but there's a lot. We don't know in terms of precise timing and scope of things like tariffs and how policy is going to change and how it will impact property having.

Speaker Change: Having said that one hole.

Speaker Change: Property has proven throughout history in many administrations that it can navigate these changes.

Speaker Change: And importantly, as we're a global business policy changes that negatively impact one market could positively impact another.

Michelle Mackay: And remember that in terms of our own position through all of this, we're an advisory business. In times of uncertainty, people need solutions, which means they're bringing us in to help solve. That could mean expansion, contraction, build out, relocation, any of these things.

Speaker Change: Remember that in terms of our own position to all of this we're an advisory business in times of uncertainty people need solutions, which means they're bringing us in to help solve that could mean expansion contraction buildout relocation any of these things.

Julian Bluin: got it. That's very helpful.

Speaker Change: Got it that's very helpful.

Michelle Mackay: And maybe touching on sort of the strength, the really impressive strength you saw in the capital markets business in the fourth quarter, maybe specifically looking at APAC, you noted strength in Japan and Australia. I just want to get a sense of how sustainable you feel those sort of trends that we saw in the fourth quarter could be sort of going into 2025. Yeah, those are very strong markets for us. But also because they were markets where we made investments in late 2022. And so we're seeing the fruits of our labor with regard to those markets in particular, bringing in capital markets expertise.

Speaker Change: And maybe touching on sort of the strength the really impressive strength you saw in the capital markets business in the fourth quarter, maybe specifically looking at APAC, you noted strength in Japan, and Australia I just wanted to get a sense of how sustainable you feel those are the sort of trends that we saw in the fourth quarter.

Speaker Change: Could be sort of going into 2025.

Speaker Change: Yeah, those are very strong markets for us, but also because they were markets, where we've made investments in late 2022.

Speaker Change: And so we're seeing the fruits of our labor with regards to those markets in particular in bringing in capital markets expertise.

Julian Bluin: Okay, great.

Speaker Change: Okay, great. Thank you so much.

Julian Bluin: Thank you so much.

Michael Griffin: Again, if you have a question, please press star then 1. Our next question comes from Michael Griffin with Citi.

Speaker Change: Again, if you have a question. Please press Star then one.

Speaker Change: Our next question comes from Michael Griffin with Citi. Please go ahead.

Michael Griffin: Please go ahead. Great, thanks. Michelle, I want to go back to your comments just around transaction activity and expectations for the year. Obviously, it seems like we're in this higher-for-longer rate environment. It doesn't seem like the Fed's going to cut this year, at least as it stands right now.

Michael Griffin: Great. Thanks, Michel I want to go back to your comments just around transaction activity and an expectation for the year. Obviously it seems like we're in this higher for longer rate environment. It doesn't seem like the fed's going to cut this year at least as it stands right. Now. So you know as you think about the outlook what is the key.

Michael Griffin: So as you think about the outlook, what is the catalyst for incremental transaction activity? Is it debt maturity driven? Are sellers finally capitulating on price? What's going to get that engine to start picking back up?

Michael Griffin: Catalyst for incremental transaction activity is it debt maturity driven or are sellers finally, capitulating on price whats going to get that engender start picking back up.

Michelle Mackay: Okay, I'm going to give you our perspectives and our thesis around this. We've been projecting and continue to project. that the stage is being set for steady expansion in capital markets activity. And frankly, that is a healthier path for the market than the originally anticipated hockey stick recovery. And let me give you some data around your question and in support of that thesis. What we see is that cap rates have largely recalibrated, which means that leverage is neutral to positive on most assets, which means the levered player can come back into the capital markets world.

Michael Griffin: Okay.

Michael Griffin: To give you our perspective and our thesis around that.

Michael Griffin: We've been projecting and continuing to project.

Michael Griffin: That the stage is being set for steady expansion in capital markets activity.

Michael Griffin: And frankly that is a healthier path for the markets than the originally anticipated hockey stick recovery.

Michael Griffin: Let me give you some data around your question and then supported that thesis what.

Michael Griffin: What we see is that cap rates are largely we calibrated, which means that leverage is neutral to positive on most assets, which means the levered players can come back into the capital markets World.

Michelle Mackay: DBD office fixed rate borrowing on average is around 7%. But the cap is around $8.25. Industrial is averaging around $6.50 on cap rate basis, mid to high $5.00 on financing costs.

Michael Griffin: EBV office fixed rate borrowing on averages around 7%.

Michael Griffin: Cap is around eight in a quarter industrial is averaging around six and a half on cap rate basis.

Michael Griffin: Mid to high fives on financing cost multifamily remains neutral cap rates and borrowing costs and theres still a lot of work to do in that particular sector.

Michelle Mackay: Multifamily remains neutral, cap rate to borrowing costs, but there's still a lot of work to do in that particular sector.

Michael Griffin: Great, that's some helpful context. And then maybe just one kind of following up on the theme within office. Clearly, leasing has continued to improve there. I think the general understanding is that's mainly for kind of the top tier, higher quality buildings.

Michael Griffin: Great. That's that's some helpful context, and then maybe just one kind of following up on the theme within office clearly leasing has continued to improve there I think the general understanding is that's mainly for kind of the top tier higher quality buildings, but in <unk>.

Michelle Mackay: But in markets that continue to show strength, maybe like New York, as an example, have you started to see a spillover effect into maybe lower tier, lower price point buildings that are seeing incremental leasing demand as a result of kind of the market's improvement? Yeah, you're spot on with that one. The quality basis remains, high quality office remains in high demand, and there's not enough of it. And the construction pipeline over the past several years has been lean, the lowest in over a decade. So the new space is leased up pretty much and the demand is trickling down to the next best thing.

Michael Griffin: <unk> that continue to show strength, maybe like New York as an example have you started to see a spillover effect into you know maybe lower tier or lower price point buildings that are seeing incremental leasing demand as a result of kind of the market's improvement.

Michael Griffin: Yeah, you're spot on with that one the quality basis remain high quality office remains in high demand and there is not enough of it and the construction pipeline over the past several years, it's been lean the lowest in over a decade.

Michael Griffin: So the new space is leased up pretty much and the demand is trickling down to the next best thing.

Michael Griffin: Great, that's it for me.

Michael Griffin: Great. That's it for me thanks for the time.

Operator: Thanks for the time. Seeing that there are no further questions in the queue, this concludes our question and answer session.

Speaker Change: Seeing that there are no further questions in the queue. This concludes our question and answer session I would like to turn the conference back over to Michelle Mackay for any closing remarks.

Michelle Mackay: I would like to turn the conference back over to Michelle MacKay for any closing remarks. Thank you everyone and we look forward to speaking to you again after first quarter earnings.

Speaker Change: Thank you everyone and we look forward to speaking to you again after our first quarter earnings.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.