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.

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?

01:53 hank 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 and 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. 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…

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.…

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 Fee revenue for the third quarter of one point seven billion dollars was up twenty seven percent and adjusted EBITDA of two ninety 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 resiliency amidst disruptions from delta, most notably within the industrial sector where we are seeing record levels of absorption. In office leasing, the trends of the recovery remained constant with amendment to end of twenty twenty two recovery, and…

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

23:37 Great. Thank you. I 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 may exist to think about as we start thinking through twenty twenty two. It just seems like you've shaken out pretty high here in terms of what the second and third quarter and even implicit in what the fourth quarter number might be?

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

24:12 Yes.

24:14 Okay. Let me take a quick shot then I hand it to Neil. 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, at the time, we were trading about seven point five percent, eight percent EBITDA margin. We talked aspirationally of someday trying to get the business to something in the mid-eleven range, maybe high-eleven range. Where we sit today, I would tell you has far exceeded that aspiration. 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.

24:55 Yeah. Tony, 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.

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?

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. I think what we saw fourth quarter last year and probably first quarter this year, maybe a little bit in the second quarter, was some of that pent up demand from twenty twenty. 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 seeing 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. Maybe to 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 in dynamics support a growing business.

26:39 Okay. And then just last one if I could sneak in, 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?

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.

27:16 Okay. Thank you.

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

27:27 Hi, this is actually (Patrick McClee) [ph] on for Steven. You mentioned that the Greystone JV should be immediately accretive to performance upon closing. I just wanted to ask, do you expect that to ramp at all, or do you expect the full run rate EBITDA contribution upon closing? Then a second part to that, in an environment that's still somewhat remote, I just would ask if you could talk a little bit about how you plan to effectively manage the integration of those operations between Greystone and Cushman.

28:07 Sure. First of all, the integration side. What's really nice about this particular venture is that neither firm had what the other has, so the integration becomes very, very simple. There's no competition for space in the market. There's no competition for clients. In fact, it's quite the opposite. I had the pleasure this afternoon to meet with Steven Rosenberg here in New York, who runs the Greystone business, and he's been out on the road talking to our people the last two weeks. His level of excitement, enthusiasm around what's possible here on revenue synergies was terrific to see first-hand. The integration, this one is going to be very simple, very easy. 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 we paid on the business on historical profit, you should expect that multiple represents what we would bring through the business in the following year.

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?

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.

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

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

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?

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

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

31:22 Wrong show. Okay. Well, first on the leasing numbers, a couple of things really interesting and encouraging around leasing at the moment. We're seeing very good improvement in the leasing numbers in 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 across the board improvement in the leasing fundamentals and actually in the leasing revenues that are coming through the business as compared to prior year. Certainly, this year, and much of last year, was a story of industrial. When you look across leasing revenues, and this is true both here in 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. What you're seeing here, as leasing recovers, and you're seeing here as these businesses recover, is that recovery being driven by those food groups that historically were not the biggest needle movers. That upside that we think about in coming years and coming quarters from office is yet to come. However, to your point, or to your question, we're seeing many, many green shoots in the office leasing sector, specifically, and 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. We're no longer in an environment where people are going out to the market and kicking the can down the road a year to wait and see what is going to happen. They're writing traditional lease terms, so five, seven, eight, ten years. The second thing that we're seeing, and we've seen this now for a couple of quarters is very, very strong tour activity. 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.

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?

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, picture plans and so forth, that's irrelevant to them. The activity seen 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. 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, it's 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 that 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 yields. All those things together, as I mentioned to Anthony earlier, create a real perfect storm where high-quality commercial real estate assets are just very, very desirable to institutional investors. Maybe I could be wrong on this, but my guess is you're not seeing any material increase in our trading volumes or the market's trading volumes because of impending 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.

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

35:51 Oh, that’s fine.

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?

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.

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

37:05 Thanks, welcome.

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

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?

37:43 Sure. Well, first, let me give you some data points on the WeWork relationship. By the way, before I do, I just want to mention that our global President, soon to be CEO, John Forrester, who's in London at the moment, just texted 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. John made a good point, which is keep in mind that this is just one geography that has that issue, so thank you, John, for that. On WeWork, let me just take you back a moment before I talk about FM and Leasing. The WeWork venture is very, very important to us. It's very strategic to us. 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 experience tools that WeWork has developed over the many last few years, and we are the only firm that 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, what we call our GOS clients, so these are multinationals with dozens, if not hundreds, of locations around the world. Those folks bid out their work every four or five years. The largest of those transactions are needle movers for us on profitability. They matter a lot. Those customers today, top of list for them and how they're going to decide who they're going to hire, two things they are looking at…

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.

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?

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.

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

45:12 Okay.

45:13 Thanks, John.

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

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?

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

45:51 I'm very happy to take it. I have some data at hand. 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, it bottomed out just after the GFC where we reached a, what was felt to be a sustainable minimum of the amount of space you could happily give each employee in a sort of a gateway city, high-quality office building. Since twenty ten, it's been growing. It didn't need COVID and its experiential requirements for the office space per employee to begin to grow out, because the war 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.

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

47:32 Thanks, John.

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?

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.

48:03 All alright, perfect. Thank you.

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.

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.

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