Cushman & Wakefield PLC

NYSE:CWK

Earnings Call Transcript 2021-Q3

[Operator]

00:05 Welcome to Cushman & Wakefield's Third Quarter Twenty Twenty One Earnings Conference Call. [Operator Instructions] It is now my pleasure to introduce Len Texter, Head of Investor Relations and Global Controller for Cushman & Wakefield. Mr. Texter, you may begin the conference.

[Len Texter, Head of Investor Relations and Global Controller]

00:45 Thank you, and welcome again to Cushman & Wakefield's third second quarter twenty twenty one 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. 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. These statements should be considered estimates only, and actual results may differ materially.

01:17 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 appendix of today's presentation. Also, please note that throughout the presentation, comparison and growth rates are to comparable periods of twenty twenty and are in local currency.

01:43 For those of you following along with the presentation, we will begin on Slide four and with that, I'd like to turn the call over to our Executive Chairman and CEO, Brett White. Brett?

[Brett White, Executive Chairman and Chief Executive Officer]

01:53 Thank you, Len, and thank you to everyone joining us today. Before we speak to the quarter, we have invited John Forrester, our current President and incoming CEO as of January first. To join us on the call today to provide some comments on our operations and performance for the quarter.

02:11 Following John's comments, Neil will provide additional detail on our financial results for the quarter. I'd like to once again say our incredibly talented team of Cushman & Wakefield professionals around the globe. We are proud of the hard work you perform every day to help our clients, but we are thrilled to see those efforts come through in another quarter of very strong results.

02:37 First half momentum continued in the third quarter with consolidated fee revenue of one point seven billion dollars improving twenty seven percent compared to prior year. Third quarter brokerage revenue, including our leasing and capital markets businesses, was up sixty four percent compared to a year ago and up ten percent versus twenty nineteen pre-COVID levels.

02:59 We continue to observe a sustainable recovery in capital markets and non-office leasing. As expected, office-leasing continues to lag other sectors. But we are continuing to see green shoot emerge each quarter, which I will touch on shortly.

03:15 Additionally, our recurring revenue streams in our PM/FM service lines continue to perform well with free revenue growth of five percent for the quarter, in valuation and other growth of eleven percent year-over-year. In the third quarter, we reported two nineteen million dollars of adjusted EBITDA which represents an adjusted EBITDA margin of twelve point nine percent. This improvement of adjusted EBITDA up eighty five percent and margin expansion of four zero five basis points year-over-year reflects the impact of stronger brokerage activity and savings generated from cost reduction actions.

03:56 On a year-to-date basis, comparing our results to twenty nineteen as a baseline, the business is well ahead of twenty nineteen levels as margins are more than one hundred and ninety basis points higher year to date. It's a tremendous accomplishment given the environment, but ultimately this has been and continues to be our goal.

04:17 There is significant operating leverage inherent in our model as we've experienced throughout the year. This quarter, we announced strategic partnerships with two industry leaders as we continue to build out our platform and service offerings for clients. First, we entered into an agreement to acquire a forty percent stake in Greystone agency, FHA and servicing businesses which will fully round out our service offering to investors in the U. S. multifamily sector.

04:49 Greystone is a top multifamily lender, including Fannie Mae, Freddie Mac and HUD. Given our client base, more direct access to a broad range of debt products for property acquisition, refinancing, and rehabilitation or new construction. We are very excited about this partnership and expect it will be immediately accretive to our operating results upon closing later this year. We will touch on some of the other specifics of the transaction a bit later.

05:19 Second, we have formed an exclusive strategic partnership with WeWork. Let me begin with the strategic rationale for the partnership. For years now, WeWork has been seeing as an innovator in our industry for two very good reasons. First, they have demonstrated an ability to create an experience the tenants are drawn to from office programming to amenities to workplace design.

05:46 Secondly, they have been a pioneer in using technology to efficiently manage that experience and the office space around it. Cushman & Wakefield has a deep history of operating buildings for the world's largest landlords and owners. And in solution and executing large scaled, facilities management outsourcing strategies on behalf of Fortune five hundred occupiers. Through this partnership, we will help scale WeWork tenant experience platform from beyond just their branded centers into the rest of the office market starting with our clients.

06:23 That’s only been a few weeks since announcing this partnership. We've already had a strong positive reaction from our clients, as managing employees in office experience is a top priority right now. John will share more details on how we expect this new offering will help differentiate Cushman & Wakefield with both investor and occupied clients.

06:45 We are confident partnering with industry leading firms like Greystone and WeWork. We'll continue to strengthen and differentiate Cushman & Wakefield as one of the premier commercial real estate platforms for both occupier and investors.

07:02 Before providing some market commentary, I'd like to make a few comments about the pandemic. The situation remains fluid and although the world is making progress towards its herd resiliency, the pandemic continues to disrupt economic activity in certain parts of the world. Despite the ongoing challenges presented by the pandemic, the commercial real estate sector has proven extremely resilient, generally every obstacle tone its way as evidenced by the strong performing property sectors.

07:34 The trends we experienced in our first half have continued their momentum into the third quarter. With substantial growth in industrial, data centers, multifamily and life sciences assets. In the third quarter, the U. S. Industrial sector absorbed one hundred and forty one million square feet of space and all-time record high. Year-to-date, the sector has absorbed three sixty six million square feet space, which is already higher than the previous peak in twenty eighteen.

08:06 The U. S. Capital market sector is also booming. According to Real capital Analytics, Third quarter property sales transactions registered at one hundred and ninety three billion dollars, which is an all-time high. Year-to-date, sales volumes totaled four sixty two billion dollars which again is a record setting pace.

08:28 This surgeon activity is being driven by different property types relative to past boom cycles. However, it is notable that investors are beginning to warm up to the office sector recovery as well. In the third quarter, office sale volume increased by nearly one hundred and forty percent relative to a year ago and office cap rates tightened by thirty basis points.

08:52 In terms of office leasing, as we have said before, this sector faces a prolonged recovery relative to other asset classes. Moreover, Delta clearly pushback some of the return to the office for some employees. That being said, green shoots continue to emerge each quarter, supporting our thesis that the office sector will fully recover from this event.

09:17 Gross leasing activity is picking up in virtually every market we track. Tour activity remains extremely robust. And as I said on past calls, that is a great leading indicator for future leasing, and we are observing businesses returning to signing longer term leases in fact, nearly seventy five percent of lease signed during the third quarter have been for more than five years, which is consistent with the pre-pandemic norms.

09:48 Finally, there is perhaps no single factor more important for office leasing than job creation, and that has been absolutely spectacular in this recovery cycle. The U. S. Kept two point nine million office jobs last spring and through August twenty twenty one two point three million dollars of those jobs have already been recovered.

10:10 At the current pace, we estimate the U. S. Will return to pre-pandemic peak levels of office employment by mid twenty twenty two. A little more than two years to full recovery. As a comparison, it took six years to fully recover from the great financial crisis.

10:32 I missed a fluid environment in ever changing requirements, a few things continue to be apparent. First, a recovery in office is inevitable based upon the behaviors we are seeing and second, companies require high quality service providers like Cushman & Wakefield now more than ever to help them navigate and develop their workplace strategies.

10:57 Before I turn the call over to our incoming CEO, John Forrester for few remarks, I'd like to quickly welcome our newest member of the Board of Directors Angela Sun. Angela is an accomplished executive who will add a unique perspective to our board given her diverse range of experiences across numerous sectors, including data and technology, financial services, government and healthcare. We are thrilled to have her on the board.

11:25 With that, I'd like to go ahead and hand the call over to John.

[John Forrester, CEO]

11:31 Thank you, Brett. I'm thrilled to be on the call today as our leadership transition approach is at the beginning of twenty twenty two. I'm pleased to report that the execution of our strategic realignment and multiyear transformation to become a leaner, more efficient and agile organization is well on-track. The actions taken across the entire platform have been material and impactful, allowing us to better serve our clients. Drive significant operating leverage and enhance our ability to generate cash to reinvest back into the business.

12:04 We're on track to achieve one hundred and twenty five million dollars of permanent savings this year and two fifty million permanent savings in total over the past two years. This focus on operational excellence and continued tight management of cost is driving performance improvement and meaningful margin expansion, which as you heard from Brett, now materially exceeds twenty nineteen levels through the first nine months of the year.

12:33 Today, we are well positioned to drive shareholder value through our scale. Significant operating leverage, our strong liquidity position and cash flow generation. We’ll continue to execute a disciplined capital employment framework, highlighted by the recently announced investments in Greystone and WeWork both strategic in growing high volume market penetration.

12:57 These partnerships will continue to strengthen and further differentiate our service offering. Going a little deeper into the WeWork partnership. We are now able to provide clients with expanded best in class office operations through the combination of WeWork proprietary hospitality, and technology enabled services together with Cushman & Wakefield industry leading assets and facilities management services. As Brett mentioned, in the time since the announcement, both firms have reported a positive reception from major institutional real estate owners and Fortune five hundred occupiers, leading to early opportunities for pilot programs.

13:37 As an example of the real estate investor opportunity, one of the largest institutional investors in the U. S. Historically use Cushman & Wakefield to perform asset services on a portion of their portfolio, along with the mix of third party flex space operators, many of whom who struggled through the pandemic. Today, this client is planning the consolidation of their service providers for the proposition of one seamless asset services and flex based solution. This of course is a highly replicable and scalable model.

14:10 Turning to the occupied opportunity, at the very top of the every corporate priority list today is managing the employee experience as workers returned to the office. Whilst Cushman & Wakefield has been a leader in serving the technology sector for many years. We're now seeing increased interest from other industries such as manufacturing and financial services as a result of our WeWork partnership. Particularly where facilities management is seen as a critical link in the employee experience relationship.

14:40 Finally, ESG is fast becoming a fundamental consideration in every real estate decision. For limited analysis highlights the growing focus on ESG investor choice as demonstrated by a seventeen percent increase in ESG commitments from closed private capital funds in twenty twenty. ESG assets now performing nineteen point three percent higher in terms of average market sale price compared to the non-ESG buildings and those more environmentally sound assets now consistently achieving higher rents when compared to their non-ESG counterparts.

15:20 Cushman & Wakefield intends to lead our industry in this area. As demonstrated by our science-based targets and net zero commitments announced in September. We are taking bold actions that will materially reduce our own environmental impact and also that of our clients. Our three sustainability targets include reducing absolute greenhouse emissions by fifty percent by twenty thirty engaging with our clients to set science-based targets by twenty twenty five and achieving net zero across our entire value chain by two fifty.

15:57 The response to the commitments we have made from our clients, investors and colleagues has been incredibly positive. And we are excited about the lasting impact this important work will have on our communities and the environment.

16:12 Before I hand over the call to Neil to take us through the financial performance for the third quarter, I'd like to echo our Brett sentiments on our team here at Cushman & Wakefield. Thank you all for your commitment and hard work. I'm proud of our singular client focus and the progress we have made as a company through the relentless execution throughout this year. Our expertise, market intelligence and thought leadership continue to be at the center of delivering exceptional outcomes for our clients every single day.

16:43 With that, I'd now like to turn the call over to Neil to discuss our financial performance. Neil?

[Neil Johnston]

16:49 Thank you, John, and good afternoon, everyone. We are very pleased with our financial results this quarter. We had strong revenue growth driven by recovering brokerage and significant margin expansion due to our operating efficiency initiatives. In addition, our strong balance sheet allowed us to make key strategic investments this quarter.

17:12 The revenue for the third quarter of one point seven billion dollars was up twenty seven percent an adjusted EBITDA of two nineteen million dollars was up one hundred and two million dollars as compared to twenty twenty. Our adjusted EBITDA margin of twelve point nine percent increased by more than four hundred basis points compared to a year ago. This increase was driven by strong brokerage which revenue growth of sixty four percent continued focus on execution of efficiency initiatives and disciplined cost management.

17:41 Additionally, operating cash flow of two fifty million year-to-date was driven by strong earnings and efficient management of working capital. Adjusted earnings per share for the quarter was zero point four eight dollars an increase of zero point three two dollars over prior year.

17:59 Taking a look at our fee revenue by service lines for the quarter, leasing and capital markets revenue increased forty one percent and one hundred eleven percent respectively. In capital markets, the environment remained favorable for capital investment as momentum continued since the end of twenty twenty, particularly in the Americas brokerage revenue exceeded pre-COVID levels by ten percent or when compared to third quarter of twenty nineteen.

18:24 Our non-office leasing sectors continue to demonstrate the financing amidst disruptions from delta, most notably within the industrial sector where we are seeing record levels of absorption. And obviously leasing, the trends of the recovery remained constant with amendment to end of twenty twenty two recovery, and as we have indicated for several quarters now, we are confident in that recovery given the following observations increases in gross leasing activity, robust tour activity and execution longer term leases that are consistent with pre-pandemic loans.

18:59 PM/FM and valuation in other service lines were up five percent and eleven percent respectively for the quarter. These businesses have proven to be incredibly resilient during the downturn and have continued to perform well and grow strongly over the past year. Within PM/FM facility services represents just on half of the fee revenue and generates solid cash flow on a stable revenue stream. Facility services was up mid-single digits in the third quarter, reflecting continued demand for COVID related continue services, principally in the Americas.

19:33 Turning to our financial results by segment, revenue in the Americas was up thirty three percent driven by leasing and Capital markets of forty five percent and one hundred and sixteen percent respectively. As equates to twelve percent growth in brokerage versus twenty nineteen pre-COVID levels.

19:50 Adjusted EBITDA of one hundred and sixty one million dollars was up almost eighty million dollars in the Americas segment, which was principally driven by stronger brokerage activity coupled with continued execution of cost savings initiatives.

20:03 EMEA and APAC both grew revenues thirteen percent versus prior, driven by brokerage up thirty nine percent and sixty percent respectively. In Emea, adjusted EBITDA of twenty nine million dollars up seventeen million versus prior year, while APAC adjusted EBITDA thirty million dollars was up six million dollars. Our financial position remains strong. We entered third quarter was two point two billion dollars of liquidity, consisting of cash hand of one point two billion dollars and availability on our revolving credit facility of one billion dollars. We had no outstanding borrowings on our revolver. Net leverage was two point eight times or a trailing twelve month basis at the end of the third quarter, down from four point three times, we reported at the end of twenty twenty and down from three point four times reported at the end of the second quarter.

20:54 We are well positioned to continue to find operations and investment in future created info M&A and broker onboarding opportunities. As you've heard, we've announced this a strategic joint venture of Greystone, which will combine to industry leaders with capital markets and lending capabilities in the market family space. The company will contribute five hundred million dollars or a forty percent stake in a joint venture upon closing later this year. We expect the joint venture to be accretive from both an adjusted EPS and adjusted EBITDA contribution basis with a contribution to EBITDA as that equates to a six to eight times EBITDA milestone based on historical performance.

21:36 Investment will be accounted for an equity level investment in our financial statements, which will reflect the impact of all revenue streams, including origination fees, MSR gains and servicing. As we finish up the year, we see a continuation of strong trends that we've seen all year. These trends combined with our strong performance in the third quarter results in us raising our expectation for both fourth quarter and the full year.

22:02 On full year, we now expect total consolidated revenue growth in the range of eighteen percent to twenty percent year-over-year with brokerage revenue growth of more than thirty five percent versus prior year. Our non-brokerage service lines anticipated to grow in the mid-single digits. As a result, the revenue growth and our performance on providing operating efficiencies, we now anticipate adjusted EBITDA for the full year to be in the range of eight hundred million dollars. This level of performance for the full year meaningfully emphasizes pre-COVID levels of twenty nineteen and represents more than one hundred basis points margin expansion. This is consistent with what we've have been saying, that assuming similar levels of brokerage activity is twenty nineteen impact of efficiency initiatives on our cost profile will drive a meaningful improvement in our margins.

22:54 With that, I'll turn the call back to the operator for the Q&A portion of today's call.

[Operator]

23:30 Thank you. [Operator Instructions] Our first question is from Anthony Paolone with JPMorgan. Please go ahead.

[Anthony Paolone, JPMorgan]

23:37 Great. Thank you. Appreciate the color and the margin context and the numbers that are shaking out there. I was wondering maybe if you could help with us thinking about where that goes over time and what headwinds make just to think about as we start thinking through twenty twenty two. It just seems like you've shaking out pretty high here in terms of the second and third quarter and even implicit it in what the fourth quarter number might be?

[Brett White, Executive Chairman and Chief Executive Officer]

24:08 Yes. Are you referring specifically to margin?

[Anthony Paolone, JPMorgan]

24:12 Yes.

[Brett White, Executive Chairman and Chief Executive Officer]

24:14 Okay. Let me take a quick shot and then I hand to Neil. So, the first thing I would say is a little history lesson, which is five years ago when we put the business together, we talked aspirationally with the time we were trading about seven point five percent to eight percent EBITDA margin we talked aspirational of someday trying to get the business to something in the mid eleven range, maybe high eleven range. And so, where we sit today, I would tell you has far exceeded that aspiration.

24:41 We feel that margins that we're producing now are really very, very strong margins for business of this mix and this sort and really pleased with where we've taken those over the past few years and specifically this year. But in terms of forecasting margin, I'll hand that to our CFO.

[Neil Johnston]

24:55 Yeah. as Brett said, exceptionally pleased with where margins have gone this year, we are not going to provide any guidance right now for twenty twenty two. What I will say is we do expect continued margin expansion. We'll get both organic margin expansion and inorganic from the acquisition of Greystone.

[Anthony Paolone, JPMorgan]

25:14 Okay. Great. That's helpful. And then second item just in terms of capital markets and how strong they have been in the U. S. Any thoughts on how much activity maybe just got bunched up or pulled forward as again to start to think about what next year might look like in just the sustainability about the -- sustainability of this clip of activity?

[Neil Johnston]

25:41 Sure. I think the easy answer would be this, which is we saw a rapid uptick in Capital Markets transaction activity fourth quarter last year. So, I think what we saw first quarter last year and probably first quarter this year, maybe a little bit in the second quarter, with some of that pent up demand from twenty twenty. But at this point, late in twenty twenty one it would be hard to imagine that what we're seeing today is structurally demand from over a year ago. It's just unlikely. I think what you are saying is really a result of the same story, we've seen the last five or six years, which is we're in a very, very low interest rate environment. Very, very low, yield environment and commercial real estate provides a terrific investment opportunity in asset class for investors searching for yield, So, we don't see anything in the answer this way. We don't see anything in the capital markets right now that would pretend a rapid slowdown in activity. But we see our improving fundamentals and dynamics support a growing business.

[Anthony Paolone, JPMorgan]

26:39 Okay. And then just last one if I could sneak in just you talked about the liquidity remain quite strong. Can you talk about if there's much appetite in using liquidity for your own stock or potentially using it as it relates to sponsor shares?

[Brett White, Executive Chairman and Chief Executive Officer]

26:59 Yes, and then we look constantly at all always wish to deploy capital. Certainly, buybacks are one of the areas that we do continue to look at. But we will evaluate that as we go forward and see whether that's the best way and which to deploy capital.

[Neil Johnston]

27:16 Okay. Thank you.

[Operator]

27:20 Our next question is from Stephen Sheldon with William Blair. Please go ahead.

[Unidentified Analyst]

27:27 Hi. This is actually [Indiscernible] But, yes. You mentioned that the Greystone JV should be immediately accretive to performance? Upon closing and I just want to ask, do you expect that to ramp at all? Or do you expect the full run rate EBITDA contribution upon closing? And then kind of a second part to that. In an environment that's still somewhat remote just would ask if you could talk a little bit about how you plan to effectively manage the integration of those operations between Greystone [Indiscernible]?

[Brett White, Executive Chairman and Chief Executive Officer]

28:07 Sure. So, first of all the integration side, what's really nice about this particular venture is that neither firm had what the other has. And so, the integration becomes very, very simple. There's no competition for space in the market. There's no competition for clients in fact is quite the opposite. I have the pleasure of this afternoon me [Indiscernible] who runs a great business and he's been out on the road talking to our people the last two weeks and his level of excitement enthusiasm around what's possible here on revenue synergies was terrific to see firsthand. So, the integration, this one is going to be very simple, very easy. And it's really, it's really a situation of more than anything else explaining to each firm's sales forces, how to work with the other, But again, no competition for space, no competition for clients. The business we gave you the multiple repaid on the business on historical profits you should expect. That multiple represents what we would bring to the business in the following year.

[Unidentified Analyst]

29:17 Okay. Okay. Thank you. And then one more, on the facilities management side, how much if you could quantify or just kind of frame how much of an impact wage inflation has had on the growth side and or the profit piece of the business. And if you could frame at all how much of those contracts our cost plus versus fixed price?

[Brett White, Executive Chairman and Chief Executive Officer]

29:47 I don't have the latter data point at hand and perhaps Neil can get that to you folks later. But I would tell you that when it comes to wage inflation in the facility management business, most of those contracts have wages built into the contracts, so we don't suffer profit diminish of wage inflation generally speaking in those contracts or their exceptions to that. I would answer the question a different way. Which is that business is a very strong grower for us at the moment. The profitability in that business in twenty twenty two should be greater than it was in twenty twenty one. So, all things taken together share gains, growth of contracts, services we can sell through to existing clients is covering what our wage inflation is expanding the business at the moment.

[Unidentified Analyst]

30:39 Okay, that's helpful. Thank you. I'll jump back.

[Operator]

30:45 Our next question is from Richard Hill with Morgan Stanley. Please go ahead.

[Richard Hill, Morgan Stanley]

30:50 Hey, good, good afternoon, guys. On your earnings deck, you highlighted some strong leasing levels were driven by the non-office sectors. I was hoping you can give some insights into width sectors drove that strength and then maybe any developments on the office leasing post quarter that you could provide some transparency on?

[Brett White, Executive Chairman and Chief Executive Officer]

31:11 Sure. And by the way, welcome to the call. I think this is your first time with it?

[Richard Hill, Morgan Stanley]

31:15 I was going to say first time call a long time listener, but I wasn't sure if you…

[Brett White, Executive Chairman and Chief Executive Officer]

31:22 Wrong show. Okay. Well, first, on the leasing numbers, a couple of things really, really interesting and encouraging around leasing at the moment. We're seeing very good improvement in the leasing numbers and almost every major market in the world right now. There are a few exceptions, countries that probably don't move the needle very much. But there's no doubt that we are now beginning to see cross the board improvement in the leasing fundamentals and actually in the leasing revenues that are coming through the business has compared to prior year. Certainly, this year and much of last year was a story of industrial. So, when you look across leasing revenues and this is true both here the United States, but also in Europe and in Asia. Industrial Logistics is the big driver at the moment. That should be very good news for investors because historically, it's been office. And so, what you're seeing here as leasing recovers and you're seeing here and these businesses to cover. Yeah, that recovery being driven by those food groups that historically were not the biggest needle movers. And so that upside that we think about coming years and coming quarters from office is yet to come. However, to your point or your question, we're seeing many, many green shoots in the office leasing sector specifically, I think most importantly, two things. First, and you heard this in the prepared comments. First, lease terms have now gone back to traditional norms. So, we're no longer in environment where people are going out to the market and kicking the can down the road year to wait and see what is going to happen. They're running traditional lease terms so five, seven, eight, ten years. And second thing that we're saying that we've seen this now for a couple of quarters is very, very strong to our activity. So that's the actual taking a tenant out into the marketplace and showing them buildings.

33:15 Think of that, it's probably a six to nine months, maybe a year lagging indicator to leasing revenues. It takes that long for a tenant, particularly a sizable tenant to start the toward process finest the face I want, negotiate a lease, get the lease signed and then we get our first payment. So, green shoots matter and they're very real. They're in the market, lead us to believe as Neil mentioned in his comments and I mentioned in mine, we're seeing good leasing recovery coming in twenty two and twenty twenty three.

[Richard Hill, Morgan Stanley]

33:47 Got it. And look, I want to ask some bigger picture questions here. Let me preference what I'm about to ask by saying we're pretty bullish on commercial real estate fundamentals right now. But with transaction volume standing above pre-COVID levels. One of the questions that we get asked from maybe more skeptical investors, is this just to pull forward given tax code changes. What are you hearing, what are you seeing, what are you hearing that would push back on that?

[Brett White, Executive Chairman and Chief Executive Officer]

34:17 Well, first and foremost, I would say that with a lot of the institutional investors, you have investing entities that don't pay tax. So, pension plans and so forth it's that's you're irrelevant to them. The activity in the marketplace right now. This is not what you saw in Q3 what you saw in Q2, I don't believe was a rush to the exit prior to a potential change in tax regime, and I'll go right back to the comments I made when Anthony asked a similar question, which is Commercial real estate every year is a more transparent asset class. Every year is a bigger asset class, every year you have more and more large institutions allocating, a higher percentage of their allocated capital into commercial real estate. All those are fairly structural fundamental dynamics to support investment in commercial real estate, now add into that. The environment we've been in the last few years with low rates and low yield. All those things together, as I mentioned to Anthony earlier, create a real perfect storm where commercial – high quality commercial real estate assets, are just very, very desirable to institutional investors. So, maybe I could be wrong on this, but my guess is you are not seeing any material increase in our trading volumes or the market trading volumes because of pending tax policy. There's certainly some of the margin but our biggest institutional investors, I really don't think this is a significant criteria for them on investing.

[Richard Hill, Morgan Stanley]

35:49 Yes. That's very helpful. I'm sorry for somewhat of a duplicate question to.

[Brett White, Executive Chairman and Chief Executive Officer]

35:51 Oh, that’s fine.

[Richard Hill, Morgan Stanley]

35:55 So just one quick other question. By our count is about two point five trillion dollars of commercial real estate mortgages maturing. Over the next five years. Are you seeing any pull forward of refinancing of those loans just to lock in the low rates? And I guess I'm ultimately asking, could that be an upside surprise to your earnings estimates?

[Brett White, Executive Chairman and Chief Executive Officer]

36:16 Yeah, not much. I think again, it's a massive asset class. You've characterized appropriately and accurately. I think people are refinancing when it's time to refinance. Rates are very good right now. I don’t look, whether we're at one point six five percent or two point one percent interest rates, we're at historical lows. And I think when people are looking at commercial real estate assets, I'm looking at refinancing or new financings, in that neighborhood in that zip code, people are very happy with rate. So, no, I don't think there's a lot of pull forward to try and capture forty bps of rate benefit over the next couple of years.

[Richard Hill, Morgan Stanley]

36:59 Great, guys. Congrats on a really nice quarter, and happy to be covering the stock. I jump back in the queue.

[Brett White, Executive Chairman and Chief Executive Officer]

37:05 Thanks, welcome.

[Operator]

37:08 Our next question is from Alex Kramm with UBS. Please go ahead.

[Alex Kramm, UBS]

37:13 Yes, hey, good evening, everyone. Just on the WeWork partnership, obviously this is a I guess preferred partnership on the facility management side, mostly, but just curious, I mean, you made an equity investment in them to what degree can you become a preferred partner elsewhere, for example, being the preferred leasing agent does so forth? Just curious of this, any other discussions or any other extensions already?

[Brett White, Executive Chairman and Chief Executive Officer]

37:43 Sure. Well, so, let me give you some data points on the WeWork relationship. And by the way, before I do, I just want to mention that our global president going to be CEO John Forrester, he is in the London at the moment just texted to me with a very good data point on the last question. Keep in mind that the capital markets growth numbers we're seeing are global, not just U. S. And of course, U. S. Is where the tax issue, the tax question relates. But globally, there is no impending tax change. So, John made a good point, which is keep in mind that this is just one geography as that issue. And so, thank you, John for that. On WeWork, let me just take you back a moment before I talk about FM and leasing. So, the WeWork venture is very, very important to us. It's very strategic to us. And let me explain to you very clearly why it is an exclusive venture between us and WeWork, where we are able to take the amazing technology and the amazing workplace experienced tools that we work just developed over the many last few years. And we are the only firm can take those tools in partnership with WeWork and deliver them to our largest corporate and institutional ownership customers. Now why does that matter? Today, our largest corporate outsourcing clients we will call our GOS clients, so these are multinationals with dozens if not hundreds of locations around the world. Those have bid out their work every four or, five years. And the largest of those transactions are needle movers for us on profitability. They matter a lot.

39:17 Those customers today, half of list for them and how they're going to decide, who they're going to hire. Two things are looking at among others, but are probably at the top of the list. First is how do you help us get our employees back in the office? What is that you know, what is it you can bring to us that is real knowledge and differentiated knowledge on what people like in the office. How do it make it excited to go back to where? I think we can all agree that both old WeWork and new WeWork, there was no firm probably better on the planet at figuring that out than they were So we're able to bring those experiences in those tools, those products and that knowledge to our clients an exclusive basis with WeWork. Secondly, is the technology around the workplace that we were developed. So, these very of very large corporate customers are asking us tell us exactly the analytical tools, the technology tools you have to help us better manage the workplace environment. We now read the only firm that can do this. We now can bring in their technology, their experience, their knowledge, their AI on behalf and to the benefit of our largest corporate customers. This is and we will be a clear differentiator for Cushman & Wakefield among the largest corporate outsourcing bids that will pitch. So very, very important to us. Those that ability to pitch these corporate clients in a differentiated way and win more of those big customers was driver reason number one around this partnership, number two was WeWork allows us to provide to our biggest institutional owner customers.

40:56 Office building owners, a white label cohort product that is I think recognized everyone is best in class. So again, we can bring to our customers something no one else can bring to them. What came along with it, which is snow on the mountain was, we are going to be doing a material amount of facility management work for WeWork in their facilities. So as WeWork has this massive footprint, of offices around the world. We'll be helping them for those offices and that will be a revenue stream. And then finally your question on leasing, we would certainly hope that as time goes on and this partnership continues to grow and evolve. Certainly, we have our aspirations to do all of WeWork business probably will never happen, but we'll certainly try. So, a lot of benefits of the WeWork relationship. First and foremost, our ability to differentiate Cushman & Wakefield in the eyes of our largest corporate and institutional ownership customers and second, business we can do for WeWork in their own facility.

[Alex Kramm, UBS]

41:56 Very good. Thank you. And then maybe this, maybe like a follow on to some degree on this one. But when you think about post COVID in terms of facilities and property management in general. What kind of changes and asks have you seen now? I think you've talked about a little bit in the past, but curious of how this business maybe different from a competitive environment or just from the surgeons provided in the future, and how that may change the growth rate in this business going forward. And if you could just remind us what kind of growth rates you think the business would have over the next few years, that would be helpful too. Thanks.

[Brett White, Executive Chairman and Chief Executive Officer]

42:38 Sure. John get ready because I want to come to you on the changes, we're seeing in the contract majors and FM/PM and what you think about the business long-term. But I would tell you that we've always talked about growth rates and FM/PM being mid-high-single digits. I think you can expect that to be the case for the foreseeable future. I think really issue about the business before I hand it over to John is particularly on the corporate occupier side, just this continued evolution of bigger and bigger contracts coming to market. And the larger those contracts become the fewer service providers can actually pitch them. And so, as I mentioned earlier with your question on WeWork, your ability to compete for and when these large corporate occupier – opportunities is a very, very big deal, something we think we're well positioned for. But John, would you want to take a shot at the changing where you see change in [Indiscernible] in the business?

[John Forrester, CEO]

43:37 No happy to, Brett. I just repeat first of all that our overall thesis is that over the next relatively short period, the office will return largely to the same level of overall utilization is before COVID. But within the building itself that we are already be able to see changes as to how the occupier needs to use that space. Top of list again as Brexit is the experience in a hybrid working environment. There won't be less office. It will be the office that has to do more to attract the employee into benefit from the collaboration and all of the issues that we very clearly saw in missing during COVID. So, we'll return to those overall long-term average fundamental growth rates in the amount of space. That the world needs and the growing amount of space of the world needs year-over-year.

44:32 Secondly, also got touched on this I expand little is this bundling of services in the outsourcing of the large corporate is itself a strong long-term growing trend and the definition of the bundle of services or the markets feel, what is the definition of a full service offering has changed over the last two years to now include a flex offering as part of the base ask in any outsource and again that's where we will benefit significantly from our exclusive partnership with WeWork.

[Alex Kramm, UBS]

45:11 All right, great. Thanks for the color.

[John Forrester, CEO]

45:12 Okay.

[Brett White, Executive Chairman and Chief Executive Officer]

45:13 Thanks, John.

[Operator]

45:21 [Operator Instructions] Our next question is from Patrick O'Shaughnessy with Raymond James. Please go ahead.

[Patrick O'Shaughnessy, Raymond James]

45:28 Hey, good evening. Not that you spoke to companies are starting to sign long-term leases again at a more rapid clip and the thinking about their office floor plan layouts and buildouts. Are you seeing any tangible evidence yet that square footage per employee is going to start pushing higher?

[Brett White, Executive Chairman and Chief Executive Officer]

45:47 That's a really good question, John, you want to take a shot at that and all.

[John Forrester, CEO]

45:51 I'm happy to take it up some data here at the iPad. I'm very happy to take, I have some data at handy. The world sort of really started bearing down on the amount of office space. It was offering to each employee over a very long period up to twenty ten bottomed out. Just after the GFC where we reached, it was felt to be a sustainable minimum of the amount of space you could happily give each employee in sort of a gateway city, high quality office building, but since twenty ten, it's been growing. You didn't need COVID to and its experiential requirement for the office space per employee to begin to grow out, because the more of talent really began way back at the emergency from GFC, so twenty ten onwards on the whole around about one percent every two to three years was added the amount of square footage per employee at a global level to cover all of the last few years push on the office space being a greater benefit and used to the employee in that more for talent. So, it's, I think we're going to see a continuation of that growth, which of course fundamentally drives a need for long-term more office space than the return, not just the pre-nineteen levels of office market performance, but growth thereafter.

[Patrick O'Shaughnessy, Raymond James]

47:30 Got it. Very helpful. Thank you.

[Brett White, Executive Chairman and Chief Executive Officer]

47:32 Thanks, John.

[Patrick O'Shaughnessy, Raymond James]

47:33 And then turning to Greystone, so you guys are buying forty percent of it now. Do you have a call option at some point to purchase the remainder if you feels appropriate down the road?

[John Forrester, CEO]

47:46 No, We don't have a call option in the agreement, but at the same time, you certainly look to be a key partner with Greystone and certainly invest of that opportunity, invest more if that opportunity does come up in the future.

[Patrick O'Shaughnessy, Raymond James]

48:03 All alright, perfect. Thank you.

[Operator]

48:07 This concludes the question-and-answer session. I would like to turn the conference back over to Brett White for any closing remarks.

[Brett White, Executive Chairman and Chief Executive Officer]

48:15 Great. Well, thanks everyone one for dialing and welcome our new analysts who's covering us, and we'll talk to you folks at the end of the fourth quarter. Have a good holiday season.

[Operator]

48:27 This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.