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Investing.com -- S&P Global Ratings has revised its outlook for real estate services firm, Cushman & Wakefield (NYSE:CWK), to stable from negative. This change is due to the company's growth in transactional revenue, including capital markets and leasing, and its debt reduction efforts through 2024 which have resulted in improved credit metrics. The credit ratings agency affirmed the issuer credit rating at 'BB-' and issue-level ratings at 'BB-' with a recovery of 55%, an increase from the previous recovery of 50%.
The revision in outlook reflects Cushman & Wakefield's continued improvement in its credit metrics, suggesting that it has a sufficient cushion for the current rating. This is based on the rebound in commercial real estate market activity, which saw a revival in the second half of 2024. After a decrease in leasing and capital markets fee revenues by 12% and 41% respectively in 2023, both of Cushman & Wakefield's transaction-related segments grew by 7% and 4% in 2024. The company's services business was down around 3% in 2024, primarily due to restructuring efforts, which included divesting a non-core asset for net cash proceeds of $123 million.
Despite the company's improved operations, S&P Global Ratings remains cautious of how the macroeconomic picture will shape up throughout the year, particularly in light of the uncertainties surrounding President Trump's trade policies. However, it is expected that Cushman & Wakefield will operate with S&P Global-adjusted debt to EBITDA of 4x-5x after exceeding 5x in 2023.
The company's debt to EBITDA fell below 5x after it benefited from a return of leasing and capital markets activity in the second half of 2024. The marginal growth from these businesses, along with the company's capital management efforts throughout the year, have positioned it to continue operating at below 5.0x leverage on a sustained basis.
S&P Global Ratings believes the commercial real estate services sector has passed the market bottom. However, the pace of recovery will depend on factors such as interest rate stability, investor sentiment, market liquidity, and business confidence. The ratings agency's base-case forecast assumes that Cushman & Wakefield's fee revenue will increase by low-single digits in 2025 and mid-single digits by 2026, led by capital markets and leasing businesses.
The company's capital management efforts throughout 2024 have resulted in an improved balance sheet. In 2024, Cushman & Wakefield focused on repaying and repricing its term loans due 2030, completing three repricings that resulted in 100 basis points of rate reductions, and a debt paydown of around $200 million. The company also repriced its $1 billion term loan due 2030 in the first quarter of 2025, lowering the applicable interest rate by 25 basis points.
S&P Global Ratings expects Cushman & Wakefield to maintain adequate liquidity, with sufficient capacity under its $1.1 billion revolving credit facility and cash on its balance sheet of $793 million as of December 31, 2024. In 2023, the company extended most of its maturities, and it does not have any significant near-term debt obligations.
The stable outlook reflects the expectation that Cushman & Wakefield will sustainably operate with a leverage of 4.0x-5.0x due to improved commercial real estate leasing and capital markets activity. The outlook also reflects the company's top three market position in commercial real estate services, sufficient liquidity to meet ongoing operational needs, and no near-term refinancing risk due to the company's capital management efforts.
S&P Global Ratings could lower the ratings over the next 12 months if operating performance significantly weakens such that leverage exceeds 5x on a sustained basis. Alternatively, the ratings could be upgraded over the next 12-18 months if the company operates with a leverage of 3.0x-4.0x on a sustained basis.
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