Q4 2019 Earnings Call

[music].

Greetings and welcome to the CBR <unk> fourth quarter, two dozen Nike Inc. earnings Conference call. At this time all participants are in listen only mode. A question and answer session Buffalo the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded I would now like to turn the conference over to Brad Burke Senior Vice President corporate Finance and Investor Relations for CB Ari.

Thank you you may begin.

[music].

Good morning, everyone and welcome to see berries fourth quarter 2019 earnings conference call I'm pleased to introduce Kristen parents, who join Seabury in October as Vice President Investor Relations in corporate Finance. Many of you have already met or interacted with breast and Chaucer as your primary point of contact with the company.

Chris then we'll also post our earnings calls so I'm pleased to turn the call over to her Chris.

Thanks, Brad earlier today, we issued a press release announcing our financial results and its posted on the Investor Relations page of our website <unk> Dot com along with a presentation slide deck that you can use to follow along with our prepared remarks as well as an excel file that contains additional supplemental material.

Our agenda for this morning's call will be as follow Bert I'll provide an overview of our financial results for the quarter.

Bob Dylan, Dick our President and Chief Executive Officer, and yesterday, our Chief Financial Officer will discuss our fourth quarter results in more detail.

After these comments well open up the call for your question.

Before I begin I'll remind you that this presentation contains forward looking statement that involve a number of risks and uncertainties. Examples of these statements include our expectations regarding <unk> future growth momentum operations Marketshare business outlook capital deployment acquisition integration.

In financial performance, including our 2020 outlook and any other statements regarding matters that are not historical fact, we urge you to consider these doctors and remind you that we undertake no obligation to update the information contained on this call to reflect subsequent events or circumstances.

You should be aware that these statements should be considered after Mr. <unk> and certain factors may affect us in the future and could cause actual results to differ materially from those expressed in these forward looking statement.

For a full discussion of direct and other factors that may impact. These forward looking statements. Please refer to this morning's earnings press release and our most recent annual and quarterly report filed on form 10-K, and form 10-Q, respectively. We have provided reconciliations of adjusted <unk> adjusted EBITDA Sea Ray.

Revenue and certain other non-GAAP financial measures include isn't my remark to the most directly comparable GAAP measures along with explanations of these measures in the appendix of the presentation slide deck no. Please turn to slide four of our presentation, which highlights our financial results for the fourth quarter of 2019.

Fourth quarter adjusted earnings per share was up 9% to 132 on revenue growth of 13% in fee revenue growth of 8% for the full year revenue and adjusted EBITDA that new milestones for the company at $23.9 billion and $2.1 billion respectively.

Adjusted EPS for 2019 rose, 13% to 371.

Now.

For an update on our business fundamentals, please turn to slide six and I will turn the call over to Bob.

Thank you Christian and good morning, everyone as you've seen Seabury ended 2019 with solid growth.

Lighting, the benefits of our diverse business and resulting in our 10th consecutive year of double digit adjusted earnings per share growth.

Our fourth quarter performance was led by very strong property sales, particularly in the U.S. UK and Continental Europe.

This performance has extended into 2020 as investors continue to believe commercial real estate is attractive relative to other asset classes.

Growth was also very strong and our occupier outsourcing business global workplace solutions, where our scale and increasingly differentiated capability enables us to capture a growing share of this expanding market.

This is particularly true regarding global multi service opportunities.

Leasing declined year over year, partially offsetting the gained in sales and outsourcing.

However, it is notable that Q4 2019 was the second largest leasing quarter in the history of our company trailing only 2018 fourth quarter.

We remain optum optimistic on leasing growth in 2020, although we will have challenging comparisons in the years first half.

Our view is informed by a survey of our top leasing clients, who indicated they intend to lease slightly more space. This year.

Then in 2019.

The contribution from our real estate investment segment was down due largely to a delay in the timing of certain large asset sales.

Several of these assets have already been sold in the first quarter.

We expect 2020 to be a solid year for asset sales in this business with our development activity.

Record levels.

We continue to see a backdrop that supports strong business performance.

Well, we are closely watching the potential impact of ongoing risks, particularly the Corona virus, we expect global economic growth to be on par with 2019 based on what we know today.

With this in mind, we expect that macro conditions.

And our ability to take market share.

Should drive our 11th consecutive year of solid double digit adjusted earnings per share growth in 2020.

Leo will describe our 2020 outlook in detail actually after she reviews, the quarter's performance and our financial position Liam.

Thanks, Bob.

Turning to slide eight our advisory services segment grew fee revenue about 3% over the prior year period, while adjusted EBITDA rose over 4%.

Positive operating leverage drove our fifth consecutive quarter of margin expansion in our advisory business with adjusted EBITDA margin on fee revenue, increasing 30 basis 0.2 approached 21 person.

Excluding the impact of Oh, MSR gain which can fluctuate significantly in any given quarter, our advisory margins expanded by nearly 90 basis point.

Performance was driven by notable strength in EMEA and to a lesser degree Asia Pacific.

Revenue growth was led by global property sale, which grew 21%, resulting in new quarterly and annual revenue records for property sale.

Strong growth was achieved in most parts of the world led by the United Kingdom up 44%.

Continental Europe up, 34%, which was driven by double digit growth in our largest markets in the region, France, and Germany, and the United States, which was up over 20%.

We continue to benefit from market share expansion and for the full year 2019, we gained nearly 120 basis points of share in the U.S. According to real capital analytics.

Our fourth quarter U.S. property sales activity it was notably robust for large transaction with sales to over 100 million up 88% compared to last year.

We also saw broad based growth across property types with office industrial and hotel transaction, Oh, increasing significantly.

Commercial mortgage origination revenue declined 15% as a result at slower activity from the government sponsored enterprises earlier in the year prior to the formation of the new cap, which as expected impacted transaction revenue in the fourth quarter origination with other lending sources, notably private equity.

Got fun and insurance companies continue to increase.

At the outset of 2020 debt capital remains plentiful at attractive rates from a variety of capital sources, including government sponsored enterprises, which an actively returned to the market.

Our loan servicing portfolio ended the year at 230 billion up over 19% from year end 2018.

As expected leasing activity decelerated sequentially in Q4 with leasing in our advisory business down nearly 7%, which compares with a record quarter in Q4 2018, when leasing revenue rose over 25%.

Leasing revenue and our largest market the U.S. declined by about 10% driven by a particularly tough prior year comparisons, which saw growth of nearly 33% and the lagging impact of a slight macroeconomic deterioration that occurred earlier in 2019.

In addition, prior year growth included a benefit of about 6% from M&A activity and we did not see a similar benefit in the current years fourth quarter.

Lastly, co working adversely impact everything growth by about 3%.

Similar level to that of the third quarter of 2018.

Turning to slide nine our global workplace solutions segment grew gross and fee revenue by approximately 19% and 13% respectively.

Strong revenue growth combined with focused cost discipline drove adjusted EBITDA growth of nearly 24% on over 120 basis points of margin expansion.

Notably margins improved on a year over year basis across all three lines of business.

So with these management project management and transaction services.

Occupier demand for multiple services remains robust with new contract encompassing our full suite of services accounting for 40% of the new business secured in the fourth quarter as measured by EBITDA.

And one prominent example, we extended our relationship with Mark the U.S. based pharmaceutical company.

We had been providing facilities management and project management services in Europe and have now added facilities management in the U.S. in Latin America, and expanded into transactions and other real estate services globally.

The GW S. new business pipeline also remained strong as we kick off 2020.

This pipeline is dominated by well known companies with complex worldwide requirements that are well served by a globally integrated from like Seabury.

Slipping to slide 10, let's now take a look at our real estate investment segments.

The 9 million year over year decline and this segment's adjusted EBITDA stem primarily from certain large asset sales and the development and investment management doesn't have the shifting from the fourth quarter 2019 to early 2020. This shift resulted in about 18 million of adjusted EBITDA moving from the fourth quarter of.

2019 to the first quarter of 2020.

Several of these deals have subsequently closed at valuations in line with previous underwriting assumption.

Investments in the start up of our flexible workspace business. Hana also contributed about 8 million to the adjusted EBITDA decline.

We opened our first three Honda units in 2019, and we expect 15 to 20 units to be opened by the end of 2020.

We're pleased with the reception to Honda and believe we are well suited to operate flexible work spaces for institutional property owners, given our credit worthiness and the secular growth of agile work work spaces.

We are pursuing a variety of deal structure, including traditional leases and see these structures moving towards a partnership.

Management agreements or other asset light structures overtime.

For the quarter, we had an adjusted EBITDA contribution of about 11 million consistent with our underwriting assumptions from Telford huh. The UK multifamily development business, we acquired in October 2019.

Our results also included about 98 and revenue related to Telford the integration of this business is proceeding as expected.

And we remain excited about the opportunity this acquisition affords us to expand our successful development business into EMEA.

This is especially true given the improved assessment, we are seeing in the UK, which reduced uncertainty now that they have formally withdrawn from the you.

As expected the U.S. development business improved in Q4, compared with Q3, despite the impact of some deal slippage into the first quarter up 2020, and we're continuing to transact styles that previously anticipated valuation levels.

In addition, underlying market trends remain strong as evidenced by our in process portfolio and pipeline together, reaching new record levels at year end 2019 with her in process activity, increasing by 2.1 billion, while the pipeline increased 2.3 billion of which more than 65% of the increase with a true.

We've been able to Telford.

And investment management, we raised 13 billion in capital during 2019, well AOL increased by more than 6 billion in the quarter to nearly 113 billion.

Both our capital raising a total <unk>, our new records for the business.

Importantly investment management revenue, excluding carried interest which is largely recurring fee based revenue climbed to approximately 395 million for the year.

[noise] this drove the contribution from recurring adjusted EBITDA within the Ari I'd business to over 40% of this segment's full year total adjusted EBITDA.

Turning to our outlook for 2020 on slide 11, we anticipate another year solid growth for Seabury, given our current expectation of that continued appeal of commercial real estate relative to other asset classes and are cautiously optimistic view, the GDP will expand versus 2019.

We also expect the diversity of our revenue across lines of business, our client base and geography, it will be supportive of our growth and 2020.

Advisory services be revenue is expected to increase and the mid single digit range driven by growth of a similar range in both leasing and capital markets.

This outlook reflects the tough comparisons we will face in the first half of the year and the activity we've seen so far and 2020.

It also reflects a subdued set of expectations for the APAC region, primarily China as a result of the impact from krona virus.

For the global workplace solutions segment, we anticipate fee revenue rising in the low double digit percentage range, we expect to renew and or expand around 90% of our expiring contracts consistent with our historical average.

Given the strong growth weve been delivering in the segment and the highly differentiated platform theory offers to our outsourcing clients, we expect to be increasingly focused on profitability.

As a result, we expect to continued to be selective going forward about the accounts, we are willing to service and how we design our commercial approach to them.

Continuing on slide 12, we expect solid adjusted EBITDA growth from our advisory and GW West segments and project adjusted EBITDA from our ARIA I segment will increase significantly to around 250 million in part due to the previously discussed shifted certain asset sales into 2020 weeks.

Back the contribution from area to be roughly equally weighted between the first and second half of the year as compared to 2019 when over two thirds of this segment's adjusted EBITDA contribution was recorded in the first half of the year.

This also includes an expected 20 million contribution from the Telford acquisition, which we anticipate will be roughly offset by or incremental investment and Honda.

As we ramp up Hannah our Opex investment for 2020 should be approximately 40 million would almost half attributable to non cash rent expense.

We also expect the quarterly had when caused by it to abate over the course the year as occupiers are drawn to our high quality works basis, resulting in revenue growth.

In light of all of these factors and our expectations for below the line item. We expect full year 2020 adjusted earnings per share in the range of four or five to 425.

This isn't the case anticipated growth of around 12% at the midpoint of our range, which if a change would be our 11th consecutive year, a double digit adjusted EPS growth I.

I would also note that given the cadence of growth achieved in 2019, we would expect 2020 adjusted EPS growth to be higher in the second half than in the first half with around 60% of total EPA has to be generated in the second half of 2020.

Turning to slide 13, our long track record of delivering solid growth across our key financial metrics has been supported by our capital allocation process.

During 2019, we deployed nearly 930 million of capital.

This includes about 272 million for Capex net of tenant confession of which about half with discretionary in nature and largely attributable to investments made to enhance the value of the seabury digital pop farm through enablement Capex.

This discretionary amount also includes just over 28 million of Capex to support the launch of Huh.

Well, we expect the investment per unit to decline and 2020 total capex related to Honda should increase to bid to between 60 to 70 million as we get more units up and running.

We also spent over 500 million for acquisitions, mostly for Telford as well as for infill M&A.

And 145 million for share repurchases, including 51 million in Q4 at an average price that's $50 an 85 cents.

[noise], while supporting these investments we also lowered net leverage by nearly point to turn and ended the year with significant balance sheet capacity.

The investments we made during 2019 are part of our long term commitment to enhance the resiliency of our business, while extending our leadership position within the commercial real estate services industry.

In fact since the last cyclical peak, we have reduced our net leverage by 1.3 times, while simultaneously increasing the diversification of our revenues and our exposure to less cyclical businesses, primarily through investments in our outsourcing business.

This combined with our healthy balance sheet should afford us the ample capacity to take advantage of any potential market dislocation that may occur our financial position is unrivaled by our peers and will enable us to opportunistically invest and enhancing our capabilities and extending our long term growth trajectory across all parts of the economic.

Cycle.

Finally, we have added free cash flow to our earnings release disclosures internally, we are continually continually focusing on optimizing our existing business and evaluating new investments on their ability to accelerate growth, while expanding our future cash flow.

We believe our ability to grow cash flow, while pursuing strong top and bottom line growth helped drive returns for shareholders and given this we believe it it's important to actively report on free cash flow on a regular basis.

With that I'll ask you to turn to slide 14, as Bob provides a few closing thoughts.

Thank you Leo before we take your questions I'd like to briefly comment on CB Aries efforts around environmental sustainability. Since this is a subject that we are hearing about increasingly from our shareholders.

Seabury has long been at the forefront of sustainability issues in our sector.

With responsibility for managing nearly 7 billion square feet of space around the world, We're very well positioned to have an impact on sustainability.

And we've been doing just that for some time.

We have registered more than 5600 U.S. properties in the energy Star program and have completed more than 1000 lead certifications on behalf of our clients.

In our own workplaces, we pledged in 2016 to reduce greenhouse gas emissions by 30% by the year 2025.

We're well on our way to exceeding this goal with emissions already down 28%.

The strides we're making have resulted in see berries inclusion in indexes that benchmark sustainability performance such as the Dow Jones World sustainability in index and the foot see for good index. Most recently barron's named US 13, most sustainable company out of 1000 major.

Yes companies that were evaluated reflecting our leading performance on a variety of environmental social and governance metrics.

We look forward to update in the market in May when we publish our annual corporate responsibility report.

With that operator, we'll open the lines for questions.

Thank you at this time will be indicating a question and answer session. If you'd like to ask a question. Please press star one I knew telephone keypad a confirmation total indicate your line is in the question Q.

Even if I start to if you'd like to remove your question from the Q for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

First question comes from the line of Jason Green with Evercore ISI. Please proceed with your question.

Good morning, I, just don't kroner virus, which seems to be front of mind for everybody right now I know what might be too early but what are you seeing from a sales and receive perspective and regions or countries that have had issues with the cronto virus and then to the extent possible. What's your expectation for how this will flow through to the real estate sales market moving forward.

Jason This Bob we have not seen a big impact outside of China. So far this year, but were like everybody else. We're watching this very close we were concerned as it spreads.

And if it if it becomes a bigger issue in the economy. In General then of course, it will impact our business, but we don't have a point of view about this that's different than what you're reading in the papers by others.

Got it and then on the U.S. sales being up 18% were there any specific regions or asset classes that captured an outsized allocation of those revenues.

Sure Jason actually as in terms of U.S. capital markets, we saw broad based activity really across almost every sector office industrial.

Were very strong so overall I would say quite quite of a good quarter and I'm, probably only area of weakness with retail.

Got it and then.

Just the last one for me just given co working impacted leasing adversely by 3% in the quarter is that something we should expect over the next three quarters, roughly a 3% headwind just considering the first three quarters of the year didn't really have any slowdown in co working we see.

We saw that 3% last quarter. So I'd say, there's probably about two more quarters left in terms that headwind for leasing.

Okay. Thank you very much.

Thank you.

Thank you. Our next question comes on line of Anthony Paolone with JP Morgan. Please proceed with your question.

Yes. Thank you just a follow up on the virus impact.

So can you just give us a little bit more detail like or.

Or employees working from home are you seeing lease signings, just get pushed out or or sales closings pushed out like what is the day to day effect and the places where we're extremely most abroad.

Sure Anthony with respect to the day to day impact. It really is a more of a supply issue I would say demand continues to be there. We have people who are very active they're working remotely and it's really about being able to get out and perform for example, diligence on property I, if we have sales and the transaction pipeline.

And.

Things like that it's not that we're seeing that demand go away. It's just there's there's a bit of pause with respect to people actually being able to sue physical activity on the ground, but we continue to see a very strong overall environment in terms of a asset allocations continuing to flow into real estate, particularly given there are strong position on a relative basis too.

In a broader equities and other asset classes. So we still feel very good about the overall real estate market and the demand drivers there.

Did you all portion of the activity into two age when you talked about the growth being a little more second half for the year loaded I know you I know, there's comps and things like that involved but is there any of that just related to the pushing back activity because because of those I.

I think you're right I think this is we likely want paid in Q1, it'll be more of a Q2 event and we have reflected some of that expectation in our exit and our international growth.

Within the advisory segment.

But we don't guide to quarterly numbers. So other than just letting you know that we do expect this year to be more backend loaded I think that's probably the extent to which we can give you color.

Okay, and then the UK and general Europe capital market trends were were very strong.

Is that mainly a comp matter for Fourq, you or how should we think about that part of the world.

And even more broadly and and Twentytwenty.

So we saw the fourth quarter strength really coming in I guess, a handful of key markets really our largest markets and.

In Continental Europe, as well as the UK I think in the fourth quarter, we certainly saw I'm a bit of resumption of activity. After the the UK you know exited the you I think I was just an overhang on the market and we certainly saw activity pick up in a very healthy way and I do think we took share in terms of overall capital markets activity.

In the UK as well as across Europe, and we just had really strong results, primarily in France, Germany, and Spain. So I'm, just a really nice quarter from our team from a capital markets perspective there.

Right and then just last question on on Telford or did you said 20 million dollar EBITDA contribution and.

In 120, which would put the multiple you know over 20 times.

How we should think about the economics about or rewards no actually there. There's a there's a slight differences in terms of got first cash with respect to how you would see those numbers come through given it is a development business, we actually on a cash basis think it was more of a 10 times deal. It's just with respect to the timing of.

The divestitures for the development pipeline.

Okay, great. Thank you.

Thank you. Our next question comes the line of microphone with Bank of America. Please proceed with your question.

Yeah, Hi, good morning, Thank you for the question.

Just a couple [laughter] So bank of America, we cut our on global GDP forecast. This morning down to 2.8, so just hoping to get your commentary on the correlation of your business to potentially lower GDP growth.

Versus you know things like rape seed capital flows. So that's the that's the first question.

Sure I would go back to their continued to be very strong fundamentals around real estate as an asset class. It continues to be very attractive on a relative basis and so while there are a drivers that influence <unk> as a result of overall GDP activity I would just point to the fact that on a relative basis real estate is.

It's quite an attractive asset class for investors and we aren't seeing that demand go away.

I think that's probably.

And then on me I'm on the mortgage sorry, you know obviously that would have a pull back from the G.S. season in second half a 2019 properly this uncertainty there or what's your expectation for activity in 2020.

Yeah, I think they as I noted in my prepared remarks, we had expected there to be a pull back from the geographies and the second half of 2019 and that was really it was a result of their reformer on the cap that were put in place and since then we've seen a normalization of activity around that that part of our business and in fact, you know very strong amount of.

Demand coming out of the Jesse.

And then last one if I could just stop me if any commentary on strength or weakness that a customer verticals in terms of leasing activity you're saying.

Yeah, Mike This is Bob Oh, Hey, Bob.

Good good how are you very good. Thank you. Good we continue to see real strength and leasing from technology companies and.

And we see real shrink from distribution oriented companies in E. Commerce. So those are the most notable areas to strengthen our leasing business.

Great. Thank you very much gosh the time.

Thank you. Our next question comes from line Stephen Sheldon with William Blair. Please proceed with your question.

Hi, good morning.

You talked about GW asked renewals trending in line with historical averages. It this year, but I think you may have also said something about walking away from certain contracts can you talk about that dynamic if I heard that correctly and I guess some detail on situations on what you might be making that decision.

Sure and then some of those situations, where we don't participate those are RFP is that may not be related to existing contracts that were though we are currently managing so it really is about bringing a continuous amount of discipline a two hour sales pipeline in process. It really again goes back to get.

And the fact that we have the most globally integrated platform across commercial real estate services. We are in a position to be able to bring a wealth of suite of its really a comprehensive suite of solutions for our clients and as a result, Anna we believe we can provide better service and a higher quality experience for them from a facility.

Management perspective, and so we're just being very cognizant of that and making sure that as we do pursue new accounts that we're very disciplined in terms of making sure that we aren't overextending, where we don't need to.

Got it that's helpful online on the hotter rollout seems like you're going to push the pedal more there this year with.

15, 20 locations opened by year end I think you said you'd only expect a drag of about 20 million in 2020 from this expansion on the profit side. So wanted to ask about that can you can you maybe help frame what revenue contribution you're roughly expecting this year and how unit economics may trend, especially with the different structure.

Sure sure you're at least considering.

Sure in terms of Honda overall, we are expecting that to be a further drag on 2020 numbers. However, we do have the expectation of a ramp up as activity in the second half of the year that will vary depending on the ultimate type of transactions that come through the pipeline.

Other it's a lease a management agreement are a partnership let's say all in in terms of revenue you know, we expect there to be.

Around 30 million a revenue from Honda and not in 2020, and and again that will ramp into the second half of the are there really isn't much of that in the first huh.

Great. Thank you.

Thank you. Our next question comes from the line of Jade Rahmani with KBW. Please proceed with your question [laughter]. Thank you very much when you think about the guidance how much risk do think there is from Corona virus I'm somewhat surprised you are willing to provide guidance at this point.

Given how much uncertainty there there is an hour could potentially impact transaction.

Well again, I think it's important to remember that a significant portion of our business is indicated through a very strong pipeline and as I said in the beginning demand from our clients both on the outsourcing as well as the transactional side of our business continues to be very strong we're not seeing today any money.

Sure ill pull back as it relates to the broader sentiment from our client base.

As a result of Cronto virus now we are being cautiously optimistic that that will continue but we certainly will will provide an update on our next earnings call with respect to that.

Okay, turning to the APAC region is China.

China, approximately 4% fee revenue and is it reasonable to expect that half of that is property management and the other half advisory services.

And then can you also give an update as to what's going on in Japan, where I believe its prime Minister just requested all schools to be shut it for the next 30 days.

Our biggest Japan as a market for she Barry.

So in terms of China, China is only about 50 basis points of our EBITDA in 2020, So again, a very small amount of our current and expected activity for the year and Japan as though it's only around one one half percent so relative to our overall business.

Those are very small component.

[noise] and a pack as a whole is about 16% or so fee revenue.

Maybe half of that as a contribution to EBITDA. So what are the other major impact markets.

So you have a Australia, South Korea, Singapore.

India.

Has there been any impact to those markets.

I'm not material as I said demand continues to be there, we really see this as a more of an issue around execution. If there are necessary kind of in person diligence activities that need to happen, but again with technology. We think that we can leverage that to continue to move transaction to the pipeline we don't think.

It'll come to a standstill.

And touching on EMEA has there been any impact for example, Italy and perhaps some other western European markets are seeing cases, and there is a decline in activity reports on Midland is that the streets are basically empty. So just wondering if there's any impact and Italy and other.

<unk>.

<unk>.

<unk> not to date. So we continue to watch that Italy again is less than you know with about 60 basis points of our total EBITDA for the year. So weve, a very again very diversified global presence and so again, we have large multinationals as our client base. We are in over 100 countries around the world and so.

While the majority of that continues to reside in the U.S. and we are growing or contracted revenue base. We do have some pockets of our business that are in areas that have initially then a hot spots of concern as it relates to the current a virus, but we're not seeing that flow through to our pipeline as a negative impact.

Okay, turning to leasing I wanted to ask if there any markets, where you're seeing any changes in behavior from VC funded companies that are facing pressure for increased discipline around capital spending I've heard anecdotally some cases to sublease space increasing.

New York and San Francisco, So one it is checking on that.

Yeah, Jay we we did a survey of our.

Big leasing clients in January and talked and sought information on a number of topics most notably our what markets. They were interested in leasing in a in 2020 in the top markets, where New York San Francisco, Los Angeles in Chicago, So we're not seeing weakness.

Since sentiment from our leasing clients in those markets at this time.

Okay.

Wanted to touch on the GAAP tax rate, if you could give any additional clarity around what.

What drove that Theres some disclosure in the press release.

Let's see if you could provide additional color.

Sure we completed a restructuring of some of our international financing entities that resulted in our ability to recognize that benefit as it relates to our tax rate and a 2019, we expect that to provide some additional benefit and 2020 and 20.

21, and that will flow through from a cash perspective over the next let's say 18 to 24 month.

Should we be thinking about a lower tax rate from an adjusted earnings perspective for 2020 were at a modeling about 23%.

Think it's going to be about the same from 2019.

Okay slightly down from that yeah on an adjusted.

Exactly.

And I want to to also asking about the material weakness disclosure in EMEA.

I'm, just not not sure what what caused that and what the impact was if you could.

No I clarity. So we did identify the material weakness in our GW S. EMEA business, which is about 5% of our overall consolidated EBITDA. What's important to note is that there wasn't a material misstatement in our financials management identified the issue and has identified the causes just the rapid growth.

That business has experience than we need to put in stronger controls and reinforces support for that part of our business. It's just become much broader a complex than than it was 18 to 24 months ago that as an isolated issue. It's something that you know we have a unique system in place there that will work on upgrading and so those remediations.

Already underway and we feel very good about being able to get that behind us.

Okay, and lastly, I just wanted to ask about the M&A outlook and specifically if their business lines that you believe seabury would benefit from increased scale I would imagine that leasing capital markets and property management are already functioning at full scale. So those business lines wouldn't necessarily benefit.

From a economies of scale perspective.

Well, it's important to note that we believe there's lots of headroom for growth along all our business lines. So you wouldn't.

Well, let me said differently, we wouldn't be surprised and you shouldn't be surprised to see us do acquisitions in any part of our business. We have a very active program our leaders around the world and across our lines of business are always looking for acquisition opportunities that will improve our ability to deliver to our clients and of course, when we do.

Those acquisitions, they help us with scale, we don't start with scale as the parameter were after and every once in awhile will do one of these transformational acquisitions. If we find the right thing. So our strategy around M&A has not changed and we think our opportunity to potentially grow any part of our business remains.

And intact as it relates to M&A.

Thank you for taking the questions.

Thank you.

Thank you, ladies and gentlemen, as a reminder, if he'd like to join the question Q. Please press star one on your telephone keypad.

Our next question comes from line of Jason Weaver with Compass point. Please proceed with your question.

Hey, good morning, and congratulations on rounding out another strong year in 2019, I just had a couple of questions starting with leverage down considerably at point Fourx now does that reflect more on your conservatism up the outlook moving forward and or a lack of attractive acquisition scale size acquisition opportunities in the marketplace.

I wouldn't say that certainly our leverage is a in a very positive <unk> relatively strong position for the business and we continue to look at allocating capital just as we did last year, we spent nearly $1 billion a we invest in our existing business, we invested in it in M&A and we also thought too.

Buyback some shares from the markets.

Principally to offset the dilution from dotcom, so well continue to look at following that same capital allocation plan. We believe we're very well positioned if we see opportunities in the market. Both in terms of investing in M&A as well as any potential dislocation and in terms of valuation from our shares.

That we can step in and meaningful role on both sides just to continue to enhance our ability to grow earnings per share on a go forward basis.

Okay. Thank you and the adjusted EBITDA margins on the global workplace solutions doesn't seem reasonably strong versus peers I know that there's some differences and structure in accounting treatment out there and I know you're also getting more selective in your customer pursuits, but any comment on whether you can expect that level profitability be sustainable on a go forward base.

Yes.

Yeah, I mean, that's really a top focus of our teams within the GW Es segment. If you want to look at a pure comp on a gross margin basis. That's another way that you can look at it and I think on a relative basis. You know we continue to see improvements on a gross margin.

Gross EBITDA margin basis as well so yes, we believe we'll continue to drive that margin.

Improvement and not and that is a top focus for that group this year.

Okay. Thank you for taking my question.

Thank you ladies and gentlemen, this concludes our question and answer session I'll turn the floor back to Mr. Schlundt Dick for any final comments.

Thanks, everyone for being with US today, and we look forward to talking to you again, when we report our first quarter results.

Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.