You may have seen their "For sale" signs on property, now buy the stock!
Global real estate group Cushman & Wakefield (NYSE: CWK) is about to debut on the stock exchange following a big-ticket IPO. Should you bet the house on this new stock? Read on for my take.
Image source: Cushman & Wakefield.
The details
Cushman & Wakefield's IPO will have 45 million shares for sale. The stock's first day of trading is set for Friday, Aug. 3, and it should be listed on the New York Stock Exchange under the ticker symbol CWK. The shares are expected to be priced at $16 to $18 apiece in the IPO.
Big presence, big debt
Cushman & Wakefield is one of several global real estate companies that have grown to immense size via acquisitions and consolidation. Other notable players in this field that have gone the same route include CBRE Group (CBRE -0.39%) and JLL (JLL -0.26%).
Cushman & Wakefield operates in 70 countries around the world. It provides a broad menu of real estate services, from investing to property management.
Most of its revenue comes from the Americas. In terms of activity, Cushman & Wakefield relies on fee revenue generated by four business areas. To wit:
| Business Area | H1 2018 fee revenue | H1 2017 fee revenue | YoY change |
|---|---|---|---|
| Property, facilities and project mgmt. | $1.272 billion | $1.205 billion | 6% |
| Leasing | $796.0 million | $675.8 million | 18% |
| Capital markets | $415.1 million | $317.7 million | 31% |
| Valuation and other | $207.2 million | $206.6 million | <1% |
| TOTAL | $2.690 billion | $2.405 billion | 12% |
Source: Cushman & Wakefield IPO prospectus.
That growth in total fee revenue, unfortunately, was outstripped by 14% growth in total costs and expenses. The company's net loss for the first six months of 2018 was just over $124 million, although that was an improvement over the year-ago period's $167 million shortfall.
Meanwhile, the company's total debt amount is nearly $3.1 billion at the end of March, up from the $2.8 billion at the end of 2017.
This Fool's take
Cushman & Wakefield points to several key areas of growth it can capitalize on, including:
- Growth in tenant demand for outsourced real estate services.
- Increased institutional investor real estate ownership.
- Consolidation of service providers by large real estate groups.
- Growing complexity of real estate management.
Its global rivals have ridden these waves, plus the general surge of the American real estate market, and their stocks have been handsomely rewarded. CBRE Group has seen its stock rise by almost 70% over the past two years, while up-and-coming online real estate player Zillow Group (Z -0.46%) (ZG -0.69%) and JLL have advanced nearly as much.
CBRE Group and JLL have also been consistently profitable over the past few years, unlike the red ink-stained Cushman & Wakefield (Zillow, still a comparatively young company, posts annual losses). Meanwhile, the trio of CBRE Group, JLL, and Zillow has lower debt as a proportion of their annual revenue:
| Company | Debt, latest reported quarter | Latest annual revenue | Debt, as percentage of annual revenue |
|---|---|---|---|
| CBRE Group | $3.369 billion | $14.210 billion | 24% |
| JLL | $1.811 billion | $7.932 billion | 23% |
| Zillow Group | $390 million | $1.077 billion | 36% |
| Cushman & Wakefield | $3.067 billion | $6.924 billion | 44% |
Sources: The Wall Street Journal, Cushman & Wakefield IPO prospectus.
So for me, Cushman & Wakefield doesn't have a particular competitive advantage against global rivals like CBRE Group and JLL, plus it is loss-making. Meanwhile, young and hungry players like Zillow are nipping at the market. Cushman & Wakefield's stock might get a push from general bullishness on Big Real Estate as a sector, but I wouldn't bet on its shares popping to any great degree.
