Earnings call: Cushman & Wakefield reports sustained growth in Q3 2024

Cushman & Wakefield (CWK), a leading global real estate services firm, reported continued growth in its Third Quarter 2024 Earnings Conference Call. CEO Michelle MacKay highlighted the company's success in achieving strategic goals, including a fourth consecutive quarter of year-over-year leasing growth and the first increase in Capital Markets revenue in the Americas since Q2 2022.

The firm is optimistic about the future, with expectations of further growth in leasing and Capital Markets revenues, as well as a focus on operational efficiency and cash flow management.



Key Takeaways



Cushman & Wakefield saw a 3% increase in fee revenue and a 13% rise in leasing revenue for Q3 2024.Adjusted EBITDA decreased by 5% to $143 million, influenced by service divestiture and higher compensation costs.The company extinguished $200 million in 2025 debt maturities six months ahead of schedule.A 20% year-over-year growth in Capital Markets revenue is anticipated for Q4 2024.The company remains committed to deleveraging and improving its balance sheet.



Company Outlook



Cushman & Wakefield raised its 2024 leasing revenue growth expectation to mid-single digits.A gradual recovery in Capital Markets is projected, with the Federal Reserve's rate cuts expected to normalize interest rates by late 2025.The company remains open to M&A opportunities, focusing on Advisory and Services.



Bearish Highlights



Adjusted EBITDA suffered a 5% decline due to a service divestiture and increased compensation costs.Property and project management sectors, especially in the multifamily segment, have shown slower growth.



Bullish Highlights



The company reported strong leasing revenue growth, particularly in the Americas (up 16%) and APAC (up 13%).Facilities management performance is up 7% year-to-date, contributing to optimism for mid-single-digit organic growth in Services by 2025.The global occupied services business is expected to have a positive long-term impact.



Misses



The company experienced a $20 million to $30 million headwind in Q3 from compensation expenses.



Q&A Highlights



Executives expressed confidence in the recovery of transaction activity and the potential for easing debt service challenges through future Federal Reserve rate cuts.The Greystone joint venture was acknowledged as facing current lending tightness, but with positive long-term potential in multifamily markets.Project delays in office space were attributed to subdued market conditions, not overarching themes, with expectations for future growth.





In conclusion, Cushman & Wakefield's Third Quarter 2024 Earnings Call reflected a company on a steady path of growth, with strategic initiatives in place to navigate market conditions and enhance profitability. The firm's focus on deleveraging and investment in its core business areas, coupled with favorable market expectations, position it well for continued success in the quarters ahead.



InvestingPro Insights





Cushman & Wakefield's (CWK) recent earnings call paints a picture of a company navigating challenges while positioning itself for future growth. This narrative is supported by several key metrics and insights from InvestingPro.

Despite the reported 5% decline in Adjusted EBITDA, InvestingPro data shows that CWK's EBITDA growth over the last twelve months as of Q2 2024 was actually 6.95%. This suggests that the company's overall trend in profitability remains positive, aligning with management's optimistic outlook.

The company's focus on deleveraging is reflected in InvestingPro's observation that CWK's liquid assets exceed short-term obligations. This financial stability provides a solid foundation for the company's growth initiatives and potential M&A activities in Advisory and Services segments.

InvestingPro Tips highlight that CWK is trading at a low EBITDA valuation multiple, which could indicate that the stock is undervalued relative to its earnings potential. This is particularly interesting given the company's raised expectations for leasing revenue growth and anticipated recovery in Capital Markets.

Moreover, CWK's net income is expected to grow this year, according to InvestingPro Tips. This projection aligns with the company's positive outlook on future performance, especially considering the anticipated 20% year-over-year growth in Capital Markets revenue for Q4 2024.

It's worth noting that CWK has seen a significant price uptick over the last six months, with InvestingPro data showing a 31.14% price total return. This performance reflects investor confidence in the company's strategic direction and growth potential.

For investors seeking a deeper understanding of CWK's financial health and market position, InvestingPro offers 14 additional tips, providing a comprehensive analysis to inform investment decisions.



Full transcript - Cushman & Wakefield plc (CWK) Q3 2024:





Operator: Good day and welcome to Cushman & Wakefield's Third Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Megan McGrath, Head of Investor Relations. Please go ahead.

Megan McGrath: Thank you and welcome to Cushman & Wakefield's third 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.cushmanwakefields.com. Please turn to the page in our presentation labeled cautionary note on forward-looking statements. 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. 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. And with that, I'd like to turn the call over to our CEO, Michelle MacKay.

Michelle MacKay: Thank you, Meghan. This quarter, we continued our track record of successful execution against our goals, driving top line growth in targeted investment areas, continuing to deliver strong free cash flow conversion and focusing on value creation through deleveraging and seeding for growth. This quarter also marks an inflection point across many areas of our business. Over a year ago, we began to make strategic targeted investments in leasing informed by our view on the most promising opportunities across asset classes and geographies. These investments have translated into clear and measurable results. The third quarter marks our fourth consecutive quarter of year-over-year leasing growth and our highest leasing growth since Q2 2022. We have also reported the first quarter of Capital Markets growth in the Americas since the second quarter of 2022. We are seeing a broadening of Capital Markets activities in the market and increased optimism amongst buyers and sellers. The Fed rate cut in September and actions by the Central Bank outside of the U.S. have been important first steps in the revitalization of the Capital Markets. The further easing of monetary policy should continue to catalyze growth in the coming quarters. We also achieved an important milestone in reducing our leverage. In October, we fully extinguished our roughly $200 million in 2025 debt maturities as we pledged to do well ahead of schedule. This was made possible by the outstanding work of our global teams to drive free cash flow. Solidifying our balance sheet and improving our cash flow were key early priorities in our strategy to position the company to take full advantage of future growth opportunities, and we executed on this priority six months ahead of plan. Looking forward, leverage reduction will continue to be an important part of our capital allocation strategy, but as we shared with you last quarter, we have already begun accelerating our growth investments as we pivot to more offense. Now I'll turn the call over to Neil for a review of the financials, and then I'll come back to share a bit more about how we are positioning strategically for the future.

Neil Johnston: Thank you, Michelle, and good afternoon, everyone. Our third quarter results highlight improved momentum in several areas of our brokerage business, as well as our continued commitment to strengthening the balance sheet and protecting margins as we accelerate our growth investments. Turning to our quarterly results, fee revenue for the third quarter increased by 3% year-over-year. Leasing revenue increased for the fourth consecutive quarter, and we experienced positive Capital Markets revenue growth in the Americas for the first time since the second quarter of 2022. Adjusted EBITDA of $143 million declined 5%, driven primarily by the impact of our recent service divesture, as well as roughly $20 million in higher compensation costs compared to the prior year. On a year-to-date basis, adjusted EBITDA of $360 million is up 1% versus last year. Adjusted EPS of $0.23 is $0.02 higher than last year, benefiting from interest and tax savings. Taking a closer look at our service line results, our Leasing business continues to perform at a high level, with revenue growth of 13% in the quarter. Leasing strength remains largely global in nature. Americas Leasing was up 16%, with double digit growth in both office and industrial. APAC Leasing grew 13%, driven primarily by strength in India and Japan. EMEA Leasing, while down 8% in the quarter, remains up 5% for the year, which we believe is indicative of a relatively stable market. In Capital Markets, we saw a return to growth in the Americas for the first time in nine quarters, with revenue up 2%. We experienced growth in office, industrial, and retail transactions during the quarter. Overall, sentiment has improved in the past several months, and while some market uncertainty persists, we feel confident that we've passed the floor in U.S. Capital Markets activity. Looking internationally, EMEA Capital Markets revenue declined 5%, as the market continues to experience some lumpiness on the road to recovery. Year-to-date EMEA Capital Markets revenue has grown 3%, as fundamentals continue to improve gradually. APAC Capital Markets revenue declined 44%, principally due to the deal timing and strong third quarter in the prior year. Our pipelines in this region remain strong, supported by positive secular trends, and we expect a rebound in activity for the region in Q4. Turning to Services, revenue growth was up 1%, excluding the impact of the divestiture, or down 2% as reported, in line with our expectations. In APAC, Services revenue increased by 6%, as facility services and project management in India and Australia continued their momentum, spurred by investment into the region. In EMEA, we've continued to focus on margin by restructuring our fixed price design and build business. Our transitional work on that business is essentially complete, and we expect a return to growth in the fourth quarter. In the Americas, Services revenue is up 3%, excluding the divestiture, or flat as reported. Facility services and property management grew, while project management declined, as office expansion and renovations continue to be delayed. We remain highly focused on re-accelerating growth in our Services platform in 2025. Turning to cash flow, free cash flow for the quarter was a versus $187 million versus $174 million in the third quarter of last year, our year-to-date free cash flow continues to compare favorably to 2023, improving by $146 million, and our trading 12-month free cash flow has grown by approximately $100 million. Our free cash flow improvements this year have enabled us to execute on our deleveraging plan well ahead of schedule, as well as begin incremental investments to accelerate growth for 2025 and beyond. During the quarter, we repaid $50 million of term loan debt due in 2025, and subsequent to quarter end, we repaid the remaining $48 million, fully extinguishing our 2025 maturities. We also completed another successful repricing of $1 billion of terminal debt due in 2030, lowering the applicable interest rate by 50 basis points. Lastly, moving to full year outlook. On the revenue side, we're raising our 2024 Leasing revenue growth expectation to mid-single digit growth from low to mid-single digit growth, primarily based on the third quarter's strong performance. We continue to expect Capital Markets revenue to improve sequentially and expect fourth quarter revenue growth of approximately 20%. In Services, we continue to forecast flat organic revenue growth in 2024 with a target of returning to mid-single digit growth in 2025. On cash flow, we expect to finish the year within our previously stated 30% to 40% free cash flow to EBITDA conversion target. For reference, that translates to a roughly 80% free cash flow to adjusted net income conversion. In conclusion, we are extremely pleased with our continued execution against our strategic priorities. At the beginning of the year, we outlined our 2024 financial strategy to reinvest cost savings into the business, protect margins, and position the company for growth. Year-to-date, adjusted EBITDA margins are up slightly, brokerage revenue is up 3%, and free cash flow has expanded by over $145 million. We completed three debt repricing this year and fully prepaid our 2025 debt maturities, solidifying our balance sheet as we focus the company on growth. With that, I'll turn the call back over to Michelle.

Michelle MacKay: Thanks, Neil. Many of you have asked for more detail on the outcomes of the strategic work we have engaged in over the past year. I thought I'd give a few examples to help demonstrate the drivers of our recent success as well as where we see opportunities. What you'll hear is that the themes of our work have been interconnectivity and rigor. And when we combined investment dollars with analytics, accountability, focus, and an empowered team, we are winning. For example, Our multi-market account team has seen incredible success this year. Partnering with our internal data analytics and Services teams to provide unmatched integrated services to mid-sized companies that are looking for advisory solutions and brokerage execution. Our RFPs are up over 50% in this year. Internally, part of our roughly $145 million improvement in free cash flow this year came from identifying opportunities to improve receivables collections. We created cross-functional brokerage and finance teams which broke down internal silos to get the work done. Additionally, we are making targeted investments to connect talent, data, and technology across our platform to drive both efficiencies and revenue opportunities. For example, we have identified opportunities for meaningful labor management improvements, especially in our Services businesses. Strengthening these capabilities allows us not only to better manage costs, but also enhance our global platform offerings. With a focus on talent, we have already achieved a 260 basis point improvement in top talent retention over the past year. Looking forward, our capital allocation priorities will be focused on three main categories. One, funding and fueling our brokerage business while leaning into the Capital Market's recovery. Two, re-accelerating Services revenue and profitability through organic investments and tuck-in acquisitions. And three, we will continue to deleverage opportunistically in balance with our growth objectives. As a company, we continue to mature. And with a more diligent and focused operational mindset, we are uncovering opportunities to fully optimize our operations and go-to-market strategies. This, in turn, is creating optionality for growth. And we are more energized than ever about where we can drive this business in the future. Now, I'll turn the call over to the operator for your questions. Operator?

Operator: [Operator Instructions] Our first question today is from Stephen Sheldon with William Blair.

Stephen Sheldon: Hey, thanks, and really nice results here. I wanted to start with a clarification question. On 20% growth for Capital Markets in the fourth quarter, is that year-over -year growth or sequential?

Neil Johnston: Yes, that's year-over -year growth, Stephen.

Stephen Sheldon: Okay, great, just wanted to make sure. And then in Services, I think you talked the last quarter about confidence about getting back to mid-single digit organic growth next year in 2025. So just curious, what's your level of confidence now? How has that changed? And what are some of the factors that investors should be thinking about that will help you get to drive that acceleration?

Neil Johnston: Sure, I'm happy to take that, Stephen. Look, we continue to feel very good about re-accelerating growth based on what we've seen in each of our businesses. The best way to think about it is to sort of break it up into each of the pieces, and that hopefully will help you understand exactly where you're working. So one of the key components is facilities management. This is our largest business in the APAC region and is, we are very strongly on a year-to-date basis, that's up 7% and that business continues to perform very well. We're expanding our client base there in all the regions and as an example, we have a largest facilities management provider in Singapore which is one of our key markets. If we look at our facilities services business, that too is growing. It's growing in the most single digits but we feel very confident we do grow that organically as we look forward. We've done a lot of work on establishing healthier contracts in that business and we started to feel the impact now and our business development pipeline there is strong. The other business that we are most excited about is our global occupied services business. That's had some really nice wins recently and we see a lot of potential in fully integrating our businesses with the GOS business. That business is more longer term so that will take longer to translate the wins into the positive revenue growth but certainly an area that we are very, very focused on and we see a nice growth path there. And then property management and project management, those have slowed a little bit more than expected this year. It's primarily in multifamily and it relates also to project management. The project management side of the business tends to be short of term in nature and so that will give us a lift as we start seeing stronger Leasing and Capital Markets and then our property management business is a business that has just been exceptionally well on the pipelines that are also good. So overall, we see tremendous opportunity in the Services business and as we look at pipelines, 2025 will be a key year for that growth to start happening.

Operator: The next question is from Ronald Kamdem with Morgan Stanley.

Ronald Kamdem: Hey, I had the same question on the Capital Markets’ 20% growth, maybe asking it a different way because I think it does imply some sort of re-acceleration here. Just what is it? Is it the pipeline? Is there a larger deal in there? Is there a geography? Just sort of any color on how one month into the quarter, that 20% sort of came about would be helpful.

Neil Johnston: Yes. So as we look at Capital Markets, we're looking at the pipeline, we're looking at basically the deals that are starting to come through. As you know, it takes sort of two to three months just for that business to really develop. And as we look at the building momentum there, we feel very good about what we see in all regions.

Michelle MacKay: And I would say, as we said in the past, we're expecting this to be a long multi-year recovery in Capital Markets, and our last earnings call, I referred to it as waterfall effects with the market producing more and more velocity and volume over time.

Ronald Kamdem: Okay, great. And then my second question was just going to be on sort of just looking for high-level commentary on the margins. You talked about sort of the mid-single digit Services growth and the Capital Markets recovery. Just high level, are you guys thinking about margins impact sort of any differently as those businesses were perform? Thanks.

Neil Johnston: Yes, sure. So, this year we've been very focused on protecting our margins as we sort of move through the recession. So as we came through the beginning of the year, we guided what we said was basically we were going to offset any inflation with cost out. We've now progressed from that. We started to see the business turn. We really feel like we're at the bottom of the cycle. And so we are at this point not giving any guidance on ‘25. But the way to think about the business is as the brokerage business comes back, the incrementals there are very strong. But those incrementals certainly in the near term will be slightly below what we've seen before as we reinvest in the business. And so once again, as we go into next year, certainly early on in the year, we'll defend our margins. But we'll also be looking to invest some of that opportunity to make sure that we are well positioned for growth. We think the cycle is going to be a long one. And so we want to be very, very well prepared for it as we go through the year.

Operator: The next question is from Anthony Paolone with JPMorgan.

Anthony Paolone: Thank you. Maybe Neil staying with you on the margin item. I have in my notes from last quarter that the third quarter numbers would be negatively impacted by some comp expenses on the margin side, I think to a tune of I think over 150 base points. Can you maybe help us just update like what the impact ended up being and how to think about 4Q in the full year at this point?

Neil Johnston: Yes, good question, Tony. So we guided to roughly $20 million to $30 million of headwind and we actually saw the low end of that $20 million and the teams did an excellent job of basically matching costs to ensure that we held large and we'll probably see a little bit more in Q4, not at the same level, probably in the $5 million to $10 million range, so not nearly as material for Q4.

Anthony Paolone: Okay, great. That's helpful. And then I guess on the Leasing side, going to like mid-single digits, if I just do some of the math there, it suggests that 4Q Leasing revenue would be up basically mid-single digits as well. And so I guess my question is, how should we think about maybe what normalization in Leasing looks like? Was the third quarter just outsized and that number comes down now or there is there more room to go just trying to put some brackets around that.

Neil Johnston: Yes. So Leasing, as you know, is a big part of our revenue. There's something which we feel which we've been saying now we got five quarters of strengths in Leasing. So it really drove great performance. The Americas alone were up 16%. We did have some big deals in the quarter which also helps and contributed and there is lumpiness as we go through the quarters. We've always said to look at an individual quarters probably not the way to look at it but really look over the longer run and so certainly feel good about how leasing revenue had grown.

Operator: The next question is from Michael Griffin with Citi.

Michael Griffin: Great, thanks. Just wanted to go back and get some more color kind of on the transaction activity and the market and what you're seeing. Can you give us a sense if maybe buyer and seller expectations are converging or if a lot of these deals are mainly kind of debt maturity and distress driven? And then I know that you noted in the release kind of about the Greystone joint venture, the volumes declining as a result of the tighter lending conditions. I would think that debt capital availability would be important if you're going to see increased transaction activity. So how do you kind of marry the expectation for a transaction activity pickup with what seems like some tightness in the in the debt markets.

Michelle MacKay: Okay. So I'm going to start with this and then I'll hand it over to Neil. In terms of market and market fundamentals, we continue to be optimistic about recovery. The Fed move in September was a really important first step for us. There is an enormous amount of pent-up demand waiting, and we believe we are positioned to exactly where we need to be to handle that. In the future, Fed rate cuts, which we know we probably have one coming this week, mean that floating rate debt going to continue to get cheaper. With all else equal, that should help some deals across the finish line, especially as we go into yearend and yearend pressure, and may help alleviate some others of debt service challenges that they've been having. And I think, most importantly, at least symbolically, the rate cut signals that better days are ahead for commercial real estate, because it means that policies become slightly less restrictive, which is a step forward to more supportive financial conditions for the economy, and by extension, more supportive conditions for Leasing and Capital Markets. And lastly, these incremental rate cuts, which we anticipate one in November and one in December, is going to help move some of the dried powder off the sidelines. Because again, it signals that commercial real estate sector is likely at the cut of the next growth cycle. And what we've seen is a real step forward in the investor mindset from risk off to risk on. And then, Neil, do you want to talk a little bit about Greystone?

Neil Johnston: Certainly happy to talk about Greystone and what we're seeing in the multifamily markets. Greystone, as a result of the change in lending policies at the GSEs, we have seen some tightness in lending in that space. But we've seen opportunity in multifamily. We basically had a very strong month of major originations in September. Greystone saw that. And so it signals that certainly there may be opportunity coming. At the same time, it's one month, and that's not a trend. So multifamily remains an area we're watching closely. We feel very good about it in the long run. It's a key strategic space for us. But certainly, we do expect a little bit of lumpiness as we move through the back of the year and into next year.

Michael Griffin: Thanks. I really appreciate the context there. And then, Michelle, just going to those three priorities you laid out kind of at the end of your prepared remarks, I appreciate kind of the additional insights there. But as you think about those three, I know you've done work on the leverage side really improving the balance sheet and cash flow. But if the first two priorities in terms of pivoting to growth are really what's going to be a catalyst, could you see leverage maybe stay elevated relative to the historical levels, if it makes sense to grow the enterprise?

Michelle MacKay: Yes, I don't anticipate increasing leverage. I would say that, just to give you a little more context around the capital allocation and I know that you all have been asking for more context for quite some time. I want to speak a bit about how we're changing the way that we're approaching investments here because it's not just about how we're allocating, it's about the way we're making decisions. So we spent the last year allocating our capital with what I'll call surgical precision, a practice that we're going to continue doing. And I've changed three components surrounding making investments here. I've changed the actual investment process, I've changed the criteria for investments, and I've changed the post-closed management of made investments. And now we're high on our list on our capital allocation is growth in global capital markets, an advisory on whole. And that's going to come in the form of adding to our talent pool and our systems with an eye to what the future holds for the industry, not what the past represents. Second in capital allocation, we're going to be making as you've seen us make the right long-term choices for our Services business to ensure continued growth. And we're not going to be patching things with band-aid to fix them. So I'm talking about some basic blocking and tackling here, labor management systems, instilling great operating practices, cross-pollinating best practices across Services business. And what you can see is that employing this very rigorous approach, the implications were very positive for our free cash flow already. And the third area, which is what's been the focus of this year, which you know well, is reducing leverage. And frankly, I think we hit it out of the park, starting that virtuous cycle of right sizing our leverage and as importantly reducing that cost. We were priced three times this year. And the great thing about having this as a target of our capital is that every time we execute here, you accomplish your goal with 100% certainty and you know exactly what the financial impact's going to be. But in no case do we foresee increasing our leverage as we're growing.

Operator: The next question is from Alex Kramm with UBS.

Alex Kramm: Yes, hey, good evening, everyone. Maybe you just touched upon this a little bit, but you made a comment earlier around on the servicing side, servicing side also being more focused on the margin if I heard you correctly. So can you just talk about what that entails? Is it gaining more scale? Is it maybe a little bit more focused on pricing? Is it maybe a change in competitive dynamic? Where do you think you can get margin upside in that business and how quickly do you think you can achieve that?

Neil Johnston: Yes, sure, Alex, that's a great question. We've been very focused on that over the past six months, particularly in the area where we had a design and build business, which is essentially a fix, where we have a lot of fix price contracts. We've looked at that business and we've said if we're not making money, we shouldn't be doing the work. And so in EMEA, you have seen Services down but I'll tell you that EBITDA related to that revenue has actually been up. That work is essentially complete, so you'll see growth started to happen in Europe but that was the one area and then within the US in a number of our Services businesses we've looked at our contracts and we've said profitability on those contracts is really critical. Most of the work is not done and we feel very pleased with the work we've done and we're now starting to once again really focus on the top line and that will lead to more accretive growth as we go forward.

Alex Kramm: Okay, great. And then just maybe coming back to capital allocation. I think in your prepared remark you mentioned M &A only in the context of the Services business, small tuck-ins I think, if I remembered you correctly, Michelle, but like you just also talked about the capital market advisory business, so is that also an area for M&A, or how do you think about M &A generally in particular, as you just said, leverage, probably, stay at these levels?

Michelle MacKay: Yes, the door's always open for M&A. It could be in Advisory or Services, but I think in particular with regard to Advisory for us right now, we are doing a lot of investing in the data and analytics, in the Capital Markets business in particular. And we're also on the hunt for new talent in Advisory as well.

Operator: The next question is from Peter Abramowitz with Jefferies.

Peter Abramowitz: Hi, thank you. I think in Neil's comments, he mentioned just some delays and things on the project management side, which I know tends to be a little bit sensitive to the macro and kind of confidence from customers there. So just want to ask, is there anything thematic that we should take away in what's been causing customers to delay those projects and how to think about when that might ease?

Neil Johnston: Yes, there's nothing, Peter, there is nothing really thematic there. We have just seen, particularly in the office space, some delays in build outs. It really is essentially we believe just a function of sort of a more subdued market. We feel like that tide is turning there. We are focused in that area, but we've just seen some projects that better be canceled, that are sort of a dent on that business. We feel confident going forward, and we're starting to see those pipelines build and projects get executed. But that really, there's nothing thematic. It really is just a function of the space we're in and some of the projects we were working on.

Peter Abramowitz: Okay. That's helpful. And then I think, Michelle, the term you've used is sort of a waterfall function in terms of the Capital Markets recovery. So you already would seem to be indicating a significant acceleration if you're expecting 20% in the fourth quarter. So I guess, should we expect potentially further acceleration as we get into 2025? I know one of your peers mentioned a week or two ago that they're sort of thinking about it as a gradual recovery. So just curious in that context, how you are thinking about 2025 from a Capital Markets perspective as you sort of fill out your budget and think about the year ahead.

Michelle MacKay: Yes. I mean, we've always talked about it as a gradual recovery. I've spoken quite often about how we invest in things over the long term and we expect a long-term recovery. So our base case, as it relates to Capital Markets assumes the Fed's going to continue to cut rates by 25 basis points in November and December, followed by gradual rate reductions, and so they bring that rate back down to around the 3% range toward the end of 2025. We also believe the 10-year yield is going to hover in this 4% to 4.5% range for the foreseeable future, putting a more normalized interest rate curve into place, which is all positive for CRE, but when you think about that, we're talking about that process happening over the next year.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Michelle McKay for any closing remarks.

Michelle MacKay: Thank you everyone for participating in our call today. And we look forward to speaking with you next quarter.

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

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Source: Investing.com