Cushman & Wakefield, the world's third-largest commercial real estate brokerage, said sharp declines in leasing and capital markets transactions caused by higher interest rates and economic uncertainty led to a quarterly loss.
The Chicago-based company also joined larger rival CBRE Group Inc. in pushing back its projection for a major recovery in the commercial property industry until at least the second half of 2024.
Cushman on Monday reported a $33.9 million loss for the third quarter in part because of its accelerated efforts to refinance and pay down debt this year, as well as further declines in its revenue from real estate fees. That compares with a quarterly profit of $23.9 million in the year-earlier third quarter.
The company's real estate fee revenue declined 11% in the quarter compared to the year-earlier period, including a 33% drop in real estate sales and other capital markets activity and a 16% decline in leasing income.
Total revenue decreased 9% to $2.3 billion in the quarter as valuations declined 17% and property, facilities and project management income remained flat in the quarter from the year-earlier period.
“We made significant progress transforming our capital stack as we refinanced $1.4 billion of our 2025 term loans,” CEO Michelle MacKay told analysts during her second earnings call since taking over Cushman's helm in July. “The initial move pushed out maturities and will reduce the company’s leverage by approximately $200 million in 2025.”
MacKay also said Cushman is ahead of schedule in cutting $130 million from travel and other expenses this year following a full review of its operations over the past few months. The company cut more than $98 million in the first nine months and did not announce any additional reductions on Monday.
"It’s true that uncertainties remain, and we saw the transaction market take another pause in mid-August when rates moved higher," MacKay said. "But even as transaction markets were idled during the quarter, we were not. We believe that this sharpened focus on the optimal balance between reducing debt and accelerating growth will be a long-term driver for shareholder value. The final stage in our road map is all about sustainable long-term growth."
Global investment bank Morgan Stanley last week cut its estimates for Cushman & Wakefield’s adjusted earnings for full-year 2023 and scaled back its expectations of an increase next year, based on lower-than-expected capital markets income.
Morgan Stanley reduced Cushman’s projected adjusted earnings before interest, taxes, depreciation and amortization for 2023 by more than 10% to $541 million because “the commercial real estate transaction recovery has disappointed” this year, equity analyst Ronald Kamdem said in a research note.