Cohen & Steers, Inc. (NYSE:CNS) Q4 2023 Earnings Call Transcript

Cohen & Steers, Inc. (NYSE:CNS) Q4 2023 Earnings Call Transcript January 25, 2024

Cohen & Steers, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Cohen & Steers Fourth Quarter and Full Year 2023 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded Thursday, January 25th, 2024. I would now like to turn the conference over to Brian Heller, Senior Vice President and Corporate Counsel of Cohen & Steers. Please go ahead.

Brian Heller: Thank you and welcome to the Cohen & Steers fourth quarter and full year 2023 earnings conference call. Joining me are our Chief Executive Officer, Joe Harvey, our Chief Financial Officer, Matt Stadler, and our Chief Investment Officer, Jon Cheigh. I want to remind you that some of our comments and answers to your questions may include forward-looking statements. We believe these statements are reasonable based on information currently available to us, but actual outcomes could differ materially due to a number of factors, including those described in our accompanying third quarter earnings release and presentation, our most recent annual report on Form 10-K, and our other SEC filings. We assume no duty to update any forward-looking statement.

Further, none of our statements constitute an offer to sell or the solicitation of an offer to buy the securities of any fund or other investment vehicle. Our presentation also contains non-GAAP financial measures, referred to as-adjusted financial measures, that we believe are meaningful in evaluating our performance. These non-GAAP financial measures should be read in conjunction with our GAAP results. A reconciliation of these non-GAAP financial measures is included in the earnings release and presentation to the extent reasonably available. The earnings release and presentation, as well as links to our SEC filings are available in the Investor Relations’ section of our website at www.cohenandsteers.com. With that, I’ll turn the call over to Matt.

Matt Stadler: Thank you, Brian. Good morning everyone. Thanks for joining us today. As on previous calls, my remarks this morning will focus on our as-adjusted results. A reconciliation of GAAP to as-adjusted results can be found on Pages 19 and 20 of the earnings release and on Slides 17 through 20 of the earnings presentation. Yesterday, we reported earnings of $0.67 per share compared with $0.79 in the prior year’s quarter and $0.70 sequentially. Revenue was $119 million for the quarter compared with $125.5 million in the prior year’s quarter and $123.6 million sequentially. The decrease in revenue from the third quarter was primarily attributable to lower average assets under management across all three types of investment vehicles.

Our effective fee rate was 57.7 basis points in the fourth quarter compared with 57.6 basis points in the third quarter. Excluding fourth quarter performance fees of $1.3 million and third quarter performance fees of $1.2 million, our effective fee rate would have been 57 basis points for both quarters. Operating income was $41.3 million in the quarter compared with $50.9 million in the prior year’s quarter and $43.9 million sequentially, and our operating margin decreased to 34.7% from 35.5% last quarter. Expenses decreased 2.5% from the third quarter, primarily due to lower compensation and benefits and a decrease in distribution and service fees, partially offset by higher G&A and an increase in depreciation and amortization. Driven by the year-over-year decline in operating results, employee compensation and benefits was $3.5 million lower in the fourth quarter when compared with the third quarter.

This was primarily due to a reduction in incentive compensation to reflect actual amounts expected to be paid. We always take a deliberate approach to setting year-end compensation in order to balance employee retention with results to shareholders. For the year, our compensation to revenue ratio was 40.65%, 15 basis points higher than last quarter’s guidance of 40.5%. The decrease in distribution and service fees was primarily due to lower average assets under management in US open-end funds. With respect to G&A, you will recall that the third quarter included a one-time adjustment that reduced the estimated accrual for the costs associated with the completed implementation of our new trade order management system to reflect the actual amount paid.

The sequential increase in G&A was primarily driven by this third quarter adjustment. For the year, G&A was $55 million compared with $52.6 million in 2022. The 4.6% year-over-year increase was lower than the 5% to 7% guidance we provided last quarter. And finally, as expected, we began depreciating and amortizing fixed assets and leasehold improvements in December, when we moved into our new corporate headquarters. This accounts for the majority of the sequential increase in depreciation and amortization expense. Our effective tax rate, which was 25.88% for the quarter included an adjustment to bring the full year rate to 25.4%, an increase of 15 basis points from last quarter’s guidance of 25.25%. The higher effective rate was primarily due to increases in certain non-deductible items.

Page 15 of the earnings presentation sets forth our cash and cash equivalents, corporate investments in US treasury securities and liquid seed investments for the current and trailing four quarters. Our firm liquidity totaled $318.8 million at year-end compared with $279.9 million at the end of last quarter, and we have not drawn on our $100 million revolving credit facility. Assets under management were $83.1 billion at December 31, an increase of $8 billion or 10.6% from September 30. The increase was due to market appreciation of $9.6 billion, partially offset by net outflows of $935 million and distributions of $717 million. For the full year, assets under management increased $2.7 billion or 3.4% from December 2022. The increase was due to market appreciation of $7.5 billion, partially offset by net outflows of $2 billion and distributions of $2.8 billion.

Joe Harvey will be providing an update on our flows and institutional pipeline of awarded unfunded mandates. Let me briefly discuss a few items to consider for 2024. As a result of the projected increase in revenue resulting from year-end assets under management being approximately 4% above 2023’s average assets under management, combined with a disciplined approach towards managing both new and replacement hires, all things being equal, we expect that our compensation to revenue ratio in 2024 will decrease to 20.5% from the 40.5% from the 40.65% recorded in 2023. We expect G&A to increase 5% to 7% from the $55 million recorded in 2023. Part of the projected increase stems from the previously mentioned third quarter adjustment to reduce the estimated accrual for the costs associated with the implementation of our trade order management system.

Excluding that adjustment, we would expect G&A to increase 3% to 5%. The majority of the increase is due to costs associated with the relocation of our London and Tokyo offices, as well as higher technology costs and client-related travel and entertainment expenses. As noted earlier, the fourth quarter included one month of depreciation and amortization associated with the move into our new corporate headquarters this past December. For 2024, we expect depreciation and amortization expense to approximate $9 million. We expect that our effective tax rate will remain at 25.4%. And finally, in late December, a large institutional client informed us that as part of a revision to their strategic asset allocation program, they will be exiting several asset classes, listed reads among them.

The client’s $1.5 billion global real estate account was terminated on January 3. Given its size, the account had a lower-than-average base fee with a performance fee component. Now, I’d like to turn it over to our Chief Investment Officer, Jon Cheigh, who will discuss our investment performance.

Jon Cheigh: Thank you, Matt, and good morning. Today, I’d like first to cover our performance scorecard. Second, summarize the fourth quarter market environment for our asset classes. And last, I’d like to provide our latest investment viewpoint on real estate. Where are we in the correction phase, the relationship between listed and private performance? And what might surprise listed real estate investors in the future. Turning to our performance scorecard. For the fourth quarter, 35% of our AUM outperformed its benchmark, a slight drop from last quarter’s 39%. When compared with 2023 as a whole, however, 85% of our AUM outperformed versus 74% in 2022, which shows year-over-year improvement. It is important to note that any short-term quarterly fluctuations are just that short term.

And we believe that longer-term track records are the most important to clients. Core preferreds notably has now outperformed for three straight quarters after a pullback in the first quarter of last year. Of our core nine strategies, seven outperformed in 2023 with our core preferred strategy and international real estate being the exceptions. AUM outperformance over the past three and five years remains outstanding at 96% and 97%, respectively. Within our core strategies for the second quarter in a row, relative performance was led by our low-duration preferred strategy, which outperformed by 130 basis points, bringing 2023 full year outperformance to 190 basis points. This was followed by global listed infrastructure, which had outperformance of 110 basis points and 100 basis points over the same time periods.

From a competitive perspective, 94% of our open-end fund AUM is rated four or five-star by Morningstar, which is up from 88% last quarter. Shifting to the current market environment, the fourth quarter represented a decided turning point for markets with global equities up 11.4% and global bonds up 8.1%. Our expectation has been that very hot inflation would moderate and that we are nearing the end of the tightening cycle and the eventual pivot to an easing cycle given that our asset classes like listed real estate and preferreds were hurt by tightening, we have been quite vocal that we expect strong recoveries as the pivot occurs. US-listed REITs, our largest asset class returned nearly 18% in the fourth quarter, outperforming US equities and significantly outperforming US private real estate, which fell 5% as preliminarily measured by the NCREIF ODCE appraisal-based index.

This stark contrast in performance is to be expected as listed real estate leads private in both downturns and recoveries due to its liquidity and real-time pricing. We believe listed real estate prices have bottomed and the asset class has entered a new return cycle. Conversely, we believe the reported private real estate market will not bottom until the middle to end of 2024. I will speak more on this important topic later. Real assets moved higher during the period with interest rates and credit spreads continuing to play an outsized role. Global real estate led the way for the reasons I mentioned earlier, the ECB joined the Fed pausing rate hikes in October for the first time in 15 months. Commodities, which led real assets during the third quarter, trail to end the year as the petroleum complex fell on a combination of higher OPEC plus production, strong non-OPEC supply growth and softer global demand.

Listed infrastructure surged by nearly 11% during the quarter with all sub-sectors rising. Tower companies posted the strongest gains buoyed by falling interest rates, healthy earnings reports and shareholder activism. Gains in midstream energy were more modest, however, on concerns about weakness in global energy commodity prices. Lastly, our core preferred security strategy returned 7.2% during the quarter, beating its benchmark by nearly 40 basis points. Preferreds rallied as a combination of slowing inflation and economic optimism supported both rate and credit sensitive fixed income classes. In addition, new issuance of preferreds picked up late in the year amid the improved environment. Most of the activity was in Europe with contingent capital securities issuance totaling about $10 billion in November alone, including the first new UBS contingent capital security since the bank’s merger with Credit Suisse in March.

The new supply was easily absorbed by healthy demand for above average income in both the US and Europe and demonstrated confidence in banks, the financial system and the so-called CoCo structure. On an organizational level, we recently announced Bill Scapell, the Head of our Fixed Income and Preferred securities team will retire on August 1 after more than 20 years of leadership and dedicated service to Cohen & Steers. Bill joined us in 2003 to launch our Preferred Securities business, and he and the team have built a great long-term investment track record that has made Cohen & Steers a market leader in preferred securities. We want to thank Bill for his investments and client success and as importantly, his legacy of building a great team that will take us forward into the future.

We also announced that we’ll be promoting Elaine Zaharis-Nikas, the Head of Fixed Income and Preferred Securities on April 1. We believe there is no one better than Elaine, either at CNS or in the preferred securities industry to succeed build after more than 20 years of partnership and mentorship. After announcing Elaine’s promotion last week, the feedback from our client base has been extremely positive, given Elaine’s experience, tenure and reputation at Cohen & Steers. Shifting gears. Today, I wanted to provide our view on real estate. First, after a share price decline in US REITs of almost 40% since the end of 2021, we believe that listed real estate prices have bottomed. Inflation and interest rates have peaked. Yes, rental growth will likely be slower in 2024 than 2023 both rents will reaccelerate once the slowing effects of tightening abate.

In our experience, asset markets put in a low at moments of greatest uncertainty. In our view, the peak in interest rates has paved the way for sustainable bottom in listed real estate prices. For example, our research has shown an average 12-month forward return of 18.1% for US REITs following the end of a Fed rate hiking cycle. In contrast, thus far, private real estate has fallen nearly 20%, and we believe will likely drop another 5 percentage to 10 percentage points in 2024 and potentially into early 2025. This magnitude of private CRE decline has only occurred twice in the past 40 years, in the early 1990s, after the savings and loan crisis, and in the wake of the 2008-2009 global financial crisis. We believe this is a setup for strong vintage year return potential for two types of buyers; private players with fresh capital and few legacy issues; and the listed REIT market.

This disconnect between listed and private markets may seem counterintuitive. To reiterate what we have published in our research and stated multiple times, this dynamic is the norm. Listed markets typically bottom 6 months to 12 months in advance of the private market. This is critical because it means a compelling buying window should open for listed REITs, where both their cost of debt and equity capital should enable them to take advantage of acquisitions. In the low interest rate world of the last decade, the highest leverage buyer, typically, private equity was the marginal buyer. In this higher cost of capital world, we believe listed companies will be able to take advantage of distress and re-priced assets over the next 12 months to 24 months, which can drive earnings and NAV growth.

The last point on the cycle that I believe is important to understand is the positive impact of higher interest rates on medium-term real estate fundamentals. Credit still remains tighter than it was, and this has and will have the most acute impact on construction loans and smaller private developers. The pullback will impact construction activity, small business and local GDP. But over a full cycle, this means less supply, less overbuilding and more discipline, which will be a positive for rental growth and asset values on a three to five year horizon. We already see the benefits of this begin to play out in industrial, apartments and self-storage in the second half of this year as we’ve now been in a title tighter capital environment for nearly two years.

We believe this REIT acquisition opportunity, plus the benefits of much lower supply are a potential underappreciated but meaningful tailwind for the REIT market and investors. With that, let me turn the call over to Joe.

Joe Harvey: Thank you, Jon, and good morning. Today, I’ll put a wrapper on 2023, review our business trends, then talk about priorities for 2024. The fourth quarter was dynamic. The majority of it steeped in the higher for longer interest rate psychology, which transitioned to anticipation of a peak in the interest rate cycle, driving appreciation into year-end. Our AUM ended 2023 at $83.1 billion compared with $75.2 billion in the prior quarter and $80.4 billion to begin the year. Reflected in our year-end AUM, both the listed real estate and listed infrastructure asset classes appreciated towards the end of the quarter, outperforming the S&P 500. Preferred’s performed in line with treasuries and high yield. Our relative investment performance remained strong and business activity continues to improve.

We feel good about the corporate infrastructure investments we made last year and look forward to helping clients navigate the next phase of macroeconomic regime change in 2024. Looking at firm-wide flows, we had net outflows of $935 million in the fourth quarter, bringing total 2023 net outflows to $2 billion and organic decay rate of 2.5% for the year. For the quarter and year, open-end funds drove the outflows with $504 million out in the fourth quarter and $1.7 billion out for the year. Tax loss harvesting drove redemptions in several strategies. Preferred strategies were the largest driver of outflows totaling $340 million in the quarter and $1.9 billion for the year and were mostly from open-end funds. The high interest rate environment throughout the year and the mini banking crisis in the first half of the year helped explain the preferred outflows, which have persisted for eight quarters.

Another driver of Q4 outflows was global and international real estate with $384 million out. Recapping the client segment flows in Q4. In addition to open-end fund net outflows of $504 million, advisory had $30 million out, sub-advisory ex Japan had $220 million out and Japan sub-advisory had $169 million out. By strategy, the outflows were 41% attributable to global real estate 36% attributable to preferred and 19% attributable to US real estate. Delving a bit deeper into the sources of these flows, US open-end funds had $450 million out with our real estate securities fund CSI, accounting for $213 million and our low duration preferred fund, LPX, accounting for $106 million. While LPX’s 2023 performance was strong, its flows continued to be challenged by the comparable yield of risk-free treasury bills in the low 5% zone.

We also saw outflows from model-based portfolios and defined contribution or DCIO. Non-US funds had modest inflows of $26 million. Advisory had two new accounts fund totaling $183 million, offset by 7 terminated accounts totaling $190 million. All of the terminated accounts were due to strategic asset allocation eliminations by clients. In sub-advisory, we had one large outflow of $273 million from a global real estate client and a multi-strategy account, where a majority of the allocation will be maintained, but a portion will be replaced by a tactical portfolio overlay. Japan sub-advisory broke its positive trend over the past couple of quarters with $169 million in outflows due to profit taking and the delayed implementation of Japan’s new retirement program called the new Nippon Individual Savings Account or NISA.

In order to participate in the program, our partner, Iowa, has been adding baby fund vehicles attached to their existing funds we sub-advise. Our one unfunded pipeline increased to $1.2 billion at year-end compared with $784 million at the end of the third quarter. Tracking the changes from last quarter, $283 million funded into three accounts, $770 million was added to the pipeline from seven mandates and $60 million was removed from two mandates both in the EMEA and the region that have been on pause long enough for us to assume they will not fund. The seven new mandates are dispersed across five strategies with the majority in global and international real estate. Consistent with the trend in the back half of 2023, overall prospect activity continues to improve as expectations for a shift in Fed policy provide more confidence in asset allocation decisions.

We continue to see adoption of listed real estate strategies, listed infrastructure and multi-strategy real asset portfolios. At the same time, certain clients are above their target allocations when looking at listed and private weightings combined and sometimes we’ll trim listed to get back to target. Now I’d like to share some of the things we are focused on in 2024. First, and always, our investment performance is number one on the list. Our performance relative to our benchmarks remain strong and will enable us to compete well for mandates. Our percent of AUM outperforming at 96% for three years and 97% for five years supports my optimism. We can always be better, though, our average excess returns over three years has softened to 173 basis points, but our alpha for five years continues to be quite strong at 266 basis points.

With Jon Cheigh, turning the leadership of listed real estate to Jason Yablon, Jon will be able to spend more time focusing on strategies where we need to bolster our excess returns. In global portfolios, which includes real estate, infrastructure and preferred strategies, we’ll continue to expand our investment universes. This is especially important as the global geopolitical order shifts, and as companies seek equity from the public markets. We look forward to Elaine Zaharis-Nikas leadership of the preferred team and the team’s continuation of our long-term performance. We believe that positive new return cycles have commenced for both listed real estate and preferreds. As such, we see alpha opportunities particularly as REITs begin to attract additional capital to acquire properties from sellers contending with tighter credit and refinancing conditions, and as potentially stiffer regulatory capital requirements could push banks to issue more preferreds.

Another priority is to help our clients navigate the next phase of regime change with research and education. There is approximately $7.6 trillion sitting in money funds globally, of which $6 trillion is in the U.S. Once the Fed commences easing, more of that money will be looking for a new home. We continue to optimize our distribution resources and prioritize relationships with investors who are most inclined to allocate to our asset classes through active management. In the wealth channel, we will continue to shift resources to the independent registered investment adviser and family office markets, which have the highest growth rate in AUM and are more predisposed to using active management. With private real estate, we have a broader lineup of real estate strategies with which combined with our asset allocation and advisory capabilities, we believe will be interest — of interest to the RIA and family office markets.

In Japan, we are cautiously optimistic on the government’s desire to upgrade the asset management industry to provide better strategies, vehicles and governance in order to increase the investment of cash sitting on the sidelines, especially in retirement accounts. Asia ex Japan is a priority, reflecting the emerging demand we see for our asset classes, and as reported last quarter, we have opened our Singapore office with institutional and wholesale sales professionals to capitalize on this opportunity. Our real estate franchise continues to get stronger. On the listed side, we continue to expand our capabilities and universe of investments, including private companies, CMBS and use of derivatives depending on the strategy. In private real estate, we recently announced our first investment for Cohen & Steers Income Opportunities REIT, also known as CNS REIT.

The property is a Dallas shopping center named the Marketplace at Highland Village. Highland Village was identified through a programmatic joint venture with the Sterling organization and was acquired based upon an investment thesis that a lack of new construction is driving strong fundamentals for certain shopping centers, which we believe are mispriced. Partnering with best-in-class operators like Sterling, a national shopping center operator or, in other cases, a regional or local specialist is a key element of CNS REIT’s portfolio construction strategy that we have seen work well with listed REITs over the long-term. We hope to announce more strategic partnerships for CNS REIT in the future. Another differentiating feature of CNS REIT is our focus on smaller to middle market properties.

Now that CNS REIT is operational, we are transitioning from seed capital raising to engaging the RIA market and the gatekeepers at regional broker-dealers and wirehouses. On prior calls, we’ve said that we are waiting to deploy our seed capital for CNS REIT until private market prices correct to reflect the changes in the debt markets. Last quarter, we said we were about halfway through the process. With inflation declining, bond yields likely having peaked and with a bottoming signal from the REIT market, we believe this is an opportune time to initiate the investment phase for CNS REIT. It remains to be seen how long the repricing and debt refinancing process will take. Based on the magnitude of dollars and properties involved, it likely won’t be on a short time line, and a longer process may extend the window for our private strategies as well as the listed REITs in our portfolios to make investments priced in the new regime.

We also recently announced an asset allocation advisory capability for real assets, centered around an interactive allocation tool, we call the Real Estate Compass and supported by research and insights from our strategist, Jeff Palmer and multi-strategy investing and Rich Hill in private real estate. We believe these capabilities will support wealth firms as they seek to increase allocations to alternatives including real estate and client portfolios. Finally, we continue to work on strategies and research and development, which starts with a compelling investment idea but overlays the governance of commercialization within a reasonable time frame. We decided to liquidate a multi-strategy income fund with $35 million in AUM, after concluding that the target market would rather allocate directly to each of the underlying strategies.

We continue to develop other strategies and explore what markets and vehicles would be attractive to investors. Favorites include the future of energy, global preferreds and opportunistic infrastructure strategy, natural resource equities and next-generation real estate, among others. We believe innovation is a critical element to maintaining and enhancing our listed real asset market position and brand. Some of these initiatives will require incremental headcount. On the whole, incremental headcount will be modest and any more would be driven by an improving organic growth environment. I will close by congratulating Bill Capell, the Head of our preferred team on his retirement later this year. Bill is a great investor and we’ve delivered strong results for clients over the years.

We have high confidence in Lane in carrying his legacy forward. Thank you for listening. Julianne, could you please open the lines for questions?

Operator: [Operator Instructions] Our first question will come from John Dunn from Evercore ISI. Please go ahead. Your line is open.

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Q&A Session

John Dunn: Thank you. Could you maybe talk a little more about your kind of instincts on gross sales and redemptions in 2024 for US REITs and preferred in the wealth channel, given where we are with rate expectations? What have you seen in past cycles, how people react?

Joe Harvey: Well, we’ve — both Jon and I have articulated with the near pivot and the Fed policy is an important catalyst for changing sentiments around REITs and preferreds. We’ve seen that in prior cycles. And as we noted, we expect new return cycles to continue for both of those asset classes. Toward the end of the year last year, we saw some in the wealth channel, some tax loss selling, which is to be expected. We’ve seen a couple of those investors already come back. And I would say we’re not going to talk about our flows so far this year until we report our first month early in February, the tone has changed and is positive.

John Dunn: Got you. Maybe on Japan, there was kind of a delayed response July distribution cut then we had big pop in REITs and for 4Q, presumably generating some gains. But do you think this time around, if the typical cycle is six to nine months of outflows, do you think this time around could be shorter than that?

Joe Harvey: I think it’s really, really difficult to predict flows anywhere but particularly in Japan. Relative to your comment around the distribution cut last year, we had a very, very short period of redemptions and then the inflows resumed, and what happened going into the end of the year, as I mentioned, was more around tax planning and positioning around the NISA program. So again, it’s really hard to predict in the flows in Japan. As I’ve said on the past couple of quarters, we really like the activity from our partner, Daiwa in terms of doing marketing campaigns and education, and we’re fully supporting them on that front. And longer-term, this program around rejuvenating the asset management industry to try to get more capital that’s sitting in cash invested, and it’s a lot of money, Japan is a big market. That’s something that I’m very cautiously optimistic about.

John Dunn: Thank you.

Operator: Our next question comes from Adam Beatty from UBS. Please go ahead. Your line is open.

Adam Beatty: All right. Thank you and good morning. Appreciate Jon’s comments on the dynamics in the real estate market and the outlook. Wondering, as a follow-up, if maybe you could try and parse out a little bit, the trajectory and maybe historical experience around fundamentals versus valuation. We’ve obviously seen some recovery in valuation so far. But you mentioned that there might be some lagged effects in fundamentals in terms of rent growth or what have you. So just wondering, at this point, how you see those playing out and kind of the timing that you would expect? And also, assuming we’ve got peak rates at this point, which seems pretty reasonable. How important are rate cuts versus a plateau from here? Thank you.

Jon Cheigh: Okay. Adam, this is Jon. Those are good questions. So first, what drives real estate values, of course, it’s a combination of cost of capital, supply and demand because, of course, supply and demand to your point, they drive the fundamental side of the equation. We had a big peak to trough decline in REITs of 40%. And to your point, I think that was primarily about a sharp, if you will, of cost of capital expectations. And so what we’ve seen in terms of the Fed pivoting from either concerns about overtightening or just staying much higher for much longer to more of a normalization that really, in the short run, that’s a solution for the cost of capital side. We just had a GDP print this morning. We see that GDP as reported was something like 3.3%.

But that being said, we’re definitely seeing slowing in fundamentals. Some of that’s on the demand side and some of that’s been on the supply side. The former high flyers are places like industrial and apartments where rents were growing a lot 12 to 24 months ago, and now they’re just starting to normalize. So I think in terms of the equation, in terms of the Fed’s actions, it’s a big, huge relief on cost of capital and eventually availability of capital, which will be a big driver. And there’ll be a slowing of fundamentals from what I would call 18 months ago, the best fundamentals in my career to be more like average fundamentals over the next 12 months and then probably improving fundamentals to better-than-average fundamentals 24, 36 months or so.

But look, this is where the public market, of course, we’re a discounting mechanism. We are that voting machine. And so I think the market is going to get ahead of both of those ideas that interest rates are lower, discount rates are lower — and eventually a reacceleration fundamental will be around the corner.

Adam Beatty: Okay. Yes. Very helpful. Now I appreciate the distinction between sort of decelerating — normalizing versus really slowing below long-term trend or what have you. So that’s excellent. And then just on geography like many who follow CNS, I’m more familiar with US markets, but just wondering how you would compare the situation in US with Europe right now. Thanks.

Joe Harvey: Well, so generally, globally, there’s about what interest rate cycle going on. I mean Japan is a little bit different. China is a little bit different. But I’d say besides that, for the most part, developed central banks, they were tightening, and now they’re pausing and somewhere along the way, they’ll probably be cutting. So I think whether it’s Europe or Australia, there’s a bit of a global rate cycle. I’d say from the fundamental side, fundamentals in other parts of the globe were never as hot and strong as the US. So again, if US fundamentals were the strongest I’ve seen in 20-some-odd years, and now they’re decelerating. Europe and Asia were never quite that strong. So, I think they’re still getting the relief from lower interest rates, but they never had that upside beta on fundamentals and frankly, they’re not having the same kind of deceleration.

I think again, every market is going to be a bit different, but I think the dynamics in Europe are similar as the US, but maybe even more so, European markets were up 20-some-odd they’re up more than US REITs in the fourth quarter because of this idea of a peak in the rate hiking cycle. So, we’re very optimistic on both international markets as well as US markets.