Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the G.O. Q1 to 2020 earnings Conference call.
At this time, all participants are in listen only mode.
After the speakers presentation, there will be your question answer session to ask your question. During this session you will need to press star one on your telephone keypad. If you require any further assistance. Please press star zero. Thank you I would now like turn the call over to your speaker today Christian.
Is that kind of managing director corporate finance and Investor Relations with GE Oh. Please go ahead Sir.
Thank you and good morning.
Welcome to our first quarter 2020 conference call for Jones Lang Lasalle incorporated.
Earlier. This morning, we issued our earnings release, which is available on the Investor Relations section of our website along with the slide presentation intended to supplement our prepared remarks.
Please visit IR dot JLL dot com.
During the call, we will reference certain non-GAAP financial measures, which we believe provide useful information for investors.
We include reconciliations of non-GAAP financial measures the gap in our earnings release in supplemental slides.
As a reminder, today's call is being webcast live and recorded.
A transcript of this conference call will also be posted on our website.
Any statements made about future results and performance plans expectations and objectives are forward looking statements.
Actual results in performance may differ from those forward looking statements as a result to factors discussed in the annual report on form 10-K of the fiscal year ended December 31, 2019, and another reports filed with the FCC.
The company disclaims any undertaking to publicly update or revise any forward looking statements.
And with that I would like to turn the call over to Christian Ulbrich, Our President and Chief Executive Officer for opening remarks.
Thank you Chris.
Good morning, and welcome to all of you joining us today, well this revenue or first quarter results in detail unprecedented times.
Before we dealt into all financial performance for the quarter I.
I would like to take a moment to offer our sympathy and support to all of those scrapping touched by the pandemic.
Well, though on behalf of every one of JLL I would like to extend our tremendous gratitude to the health care walk us first responders and everyone on the flunked line up this crisis.
Well the cobot 19 pandemic moves around the world. We are JLL continued to focus on what matters most.
That is keeping our employees safe and productive supporting our communities and serving our clients.
In responding to the pandemic, we're partnering with clients and communities in many ways from local efforts to support health care operations, including rapid deployment temporary facilities to participation in global collaborative project.
Among the global projects being coordinated by the World Economic Forum.
Dissipating alongside many other global businesses in West Cobot action pencil.
The impact of the pandemic has truly been profile.
And then Chris sponsors required across the globe.
And to generate cessation of activity, who all aspects of business.
Effects of the pandemic on our company well initially concentrated in parts of China in January.
In late two weeks spreading across a multitude of service flights and regions throughout the world.
It's likely that this crisis will have significant repercussion on the global economy and on our industry, which will go well beyond this year.
We at the earliest dependent developed and pull blessed across the world.
Okay, So lumpy world, helping our clients prepare respond we care about and we match in the future.
For instance, we read the tea deployed practical matches to support health and safety in the wide range of his central facilities, continuing to operate who looked on pages.
In addition, we're pop that was clients in developing taleb strategies and plans. So we opening and gearing up operations once locked down faces a east.
I can illustration of this our global corporate solutions business has to date launch 22, new products designed to help clients navigate the pandemic crisis.
Well not the most critical central Texas of course, it's helped out.
We have continued to perform facilities management services <unk> biotech clients that are working to develop a cobot 19 vaccine, helping them run a peak safety and performance if they anticipate moving to 24 seven operations.
We have being involved in various capacities in creating temporary hospital facilities.
Well the more you have been instrumental in ensuring many mission critical deals executed.
That's it facilitating warehouse space for storing medical supplies and equipment as pocket. The cobot 19 response.
Turning to our people we are following government and World Health organization advice and guidelines in order to protect employees and prevent the spread of the cobot 19 infection.
We had great pool for the investments we've made in our technology platform over the past several years, which in April over 90% of our office stuff to work safety from the homes by the end of March is limited impact in productivity.
With regard to macroeconomic and real estate fundamentals for that fills quarter global economic growth came to an abrupt halt in the first quarter, making the first quarter contraction in the global economy in 11 years.
Office leasing activities across all the regions softened as deals would be late.
And in some cases canceled for the market down 22% for the quarter.
Investment sales activity sold noticeable drop as well, particularly much the market down 5% for the quarter.
Areas it by the pandemic first experience greater declines than those impacted NATO.
Despite the uncertainty of the depth and duration of the crisis, we remain optimistic about the long term prospects of the commercial real estate industry.
So the crisis will fall season ever to be rethinking of many aspects of our world.
The call function of commercial real estate will still be necessary.
And investors will continue to see real estate as an attractive investment for capstone.
Our global food service platform and deep expertise positions us, particularly well in these uncertain times, that's a pretty firm pop not as real estate investments in occupier it value agent optimize their real estate assets and look to experience and trusted heads.
We expect a negative impact to our top line bottom line and free cash flow across all operating segments for the full year as the pandemic unfolds.
I was strategic priorities for the fiscal year is to focus on liquidity cash flow and prudently manage our operating in investment spend to ensure we have the operating flexibility to effectively navigate through this crisis.
We acted early and decisively to adjust our cost base.
The sent the right tone from the top all colleagues off the go public sector before have cup that base salaries from April onwards by 50% for the rest of the year.
And many of our senior leaders around the World have also kept all the club Pops up that base compensation.
In consideration of the voluntary compensation reduction offered by many of our employees. The significant actions, we're taking on our operating costs, including our colleagues who have been and will be impacted during this crisis, we have decided to suspend our dividend payment to shareholder until we have.
I have visibility on how the world our clients and therefore, our business will be impacted.
While we are currently in a strong financial position the economic and so Cyto challenge. The world is facing is extra ordinary and unprecedented and all leading companies have to be mindful about the totality of all of the actions.
What about backdrop I will now provide a brief overview of our first quarter financial performance.
Were pleased to report solid start to the year.
Consolidated revenue rose, 9% to 4.1 billion and fee revenue increased 15% to 1.5 billion in local currency.
Revenue gains were led by continued strong performance in our Americas capital markets property and facility management and project and development services businesses.
We achieved record first quarter performance in our real estate services business, that's south assets under management reached 69.5 billion.
Adjusted net income totaled 25.8 million for the quarter and adjusted diluted earnings per share totaled 49 cents most impacted by noncash items. That's definitely will provide further commentary on shockey.
Turning to Egypt, as we continue to successfully integrate the business and specifically the overall Americas in EMEA capital markets business performed well despite the softening conditions in March.
We have made excellent progress on realizing cost synergies for the first nine months.
Our revenue synergy targets would be certainly impacted in the near term by the pandemic, but we remain very confident in the long term potential to drive significant incremental revenue across a multitude of service life.
During the first quarter, we executed on our goal of utilizing a portion of the 200 million share repurchase authorization, but our board approved in the first quarter 29 team by completing 25 million of share repurchases.
Obviously, we are old supposing any further share repurchases in the near term.
Oh, we will hear from Stephanie for some color and detailed on the first quarter financials.
Thank you Christian and welcome to everyone on our call.
Our first quarter performance is a reflection of our global footprint and our diversified business lines in the context of the spread of Cobot 19.
As Christian mentioned, the pandemic impacted China for almost a full quarter, well southeast Asia and southern Europe felt significant impact throughout March.
Transactional activity in the U.S. decline progressively and the latter part of March and continued into April due to the spread of depend dynamic.
We're pleased with a solid start in the first quarter 2020.
We achieved record consolidated revenue and fee revenue, increasing 9% and 15% respectively.
Real estate services fee revenue grew 16%, reflecting organic growth at 5% and 11% attributable to M&A.
Increases were achieved across all service lines led by the continued strength in the Americas.
CHF acquisition, which closed in July 2019.
Implemented organic gains and reflects ongoing integration success.
As a reminder, we report service fine and segment results in local currency unless otherwise noted.
Leasing fee revenue grew 4% for the quarter driven by the continued strength in the Americas.
This was especially noteworthy considering global office leasing volumes declined significantly.
Her perspective, the market dropped 28% compared to first quarter 2019.
Our capital markets fee revenue increased 82% against first quarter 2019.
Reflecting RESILIA an excellent progress on H. affects integration.
Excluding the impact of HFSA capital markets delivered 3% organic fee revenue growth.
Corporate solutions fee revenue grew 6% for the quarter.
Given by facility management win and expansions in the Americas and Asia Pacific.
Project on development services contributed to the growth, albeit slower in Asia Pacific.
We provided additional information on adjusted EBITDA on slide 11 of the supplemental materials and I will touch upon the highlights.
Adjusted EBITDA margin calculated on a fee revenue basis was 6.4% for the quarter compared with 7.2% in the prior year.
Strong organic gains in real estate services and margin accretion from the acquired HIV business were more than offset by the impact of two notable noncash charges that directly resulted from the pandemic.
In the Americas, we increased loan loss reserve for our multifamily business by 31 million.
And Lasalle results reflect a 40 million net valuation decline in our co investment portfolio.
Behind these two noncash charges had a 430 basis point impact to margin.
Or 89 cents per share.
Turning to debt management and liquidity.
Our balance sheet remains strong we maintain our investment grade balance sheet to ensure sufficient liquidity and operational flexibility.
Total net that was 1.5 billion at the ended the quarter, representing an increase of 650 million from year end.
The quarterly increase against your N reflects the annual timing of variable compensation paid related to 2019 performance.
Net debt to trailing 12 month adjusted EBITDA was 1.4 times and we have no debt maturities until 2022.
That's Christian noted, we have and will continue to strategically apply cost mitigation actions to fortify our strong financial foundation in support of our long term growth.
First we have reduced operational expenses through significant reductions in discretionary spending across the board, including marketing training occupancy and professional fees, while ensuring our employees have the proper technology and equipment to work efficiently from home.
A dedicated investments made in our scale ERP systems are reaping benefits.
It is important to note that we have variable portion of compensation, such as commissions and discretionary bonuses that naturally flex and follow financial performance, most notably in our leasing and capital markets businesses in the Americas.
Second we're actively managing our cash and liquidity position to preserve our solid financial foundation, the direct focus on our cash conversion.
Third we have reduced in deferred investments capital expenditures in certain office move.
We will not undermine our long term growth potential so we're being targeted strategic with these decision.
Moving to our reporting segment.
First quarter fee revenue in the Americas increased 30% over the prior year.
Both was led by capital markets and broad based organic gains of 9% reflecting increases across all service lines.
Despite a tough prior year comp of 29% growth leasing fee revenue grew an impressive 8% and the first quarter.
Market volume declines in office retail and residential sectors were more than offset by strength in industrial and logistics.
The pandemic, it's highlighting the critical importance of supply chain.
It creates demand in the industrial sector that research indicates could fare better during and post the recovery from the pandemic.
For the first quarter industrial sector represented approximately one quarter of our leasing fee revenue.
Capital markets fee revenue was up 147% for the quarter.
Both was led by Hfive, which contributed 143 million a fee revenue.
Organic growth was 4% driven by investment sales.
2019 market momentum carried into January and February but contracted in March as the pandemic moved across the U.S.
Americas adjusted EBITDA margin was 13.2% for the quarter.
80 basis point improvement year on year reflects strong performance and was largely split between HFSA and organic gains.
No. The results include a 31 million noncash increased to loan loss reserve for Fannie Mae multi family loan.
Turning to EEMEA total fee revenue increased 1% compared with first quarter 2019.
Organic fee revenue growth was 3% driven by capital markets and project can development services.
EMEA leasing fee revenue declined 4% for the quarter.
Despite improved Brexit sentiment in the UK, the pandemic stalled activity and much of the region and place many transactions on hold.
EMEA capital markets fee revenue was up an impressive 19% for the first quarter, reflecting double digit growth and our largest markets.
UK had a strong quarter due in part to a softer 2019 that was impacted by Brexit uncertainty.
In addition, Germany delivered solid results as did France, which closed several large transaction.
Projects in development services increased 14% due to expansions of existing mandates in Mena.
Property and facility management fee revenue decreased 16%, primarily due to the divestiture of our property management businesses in Continental Europe during the second half of 2019th.
Adjusted EBITDA margin was negative 2.9% an improvement of 290 basis points year on year, primarily a result of strong growth in the higher margin capital markets business.
Moving to Asia Pacific This segment, which saw the most pronounced pandemic impact.
Fee revenue declined 7% over first quarter 2019.
The decline primarily reflected pandemic driven locked down that negatively impacted transaction.
Leasing fee revenue declined 30% and capital markets declined 23%.
We saw lower investment sales across all countries, except Australia.
In China, the nation wide Lockdown paused transaction well in Hong Kong. The market was further impacted by the pandemic following the political unrest in the second half of 2019.
Real estate services fee revenue in greater China declined 15%.
The most notable decline occurred in our transactional businesses as leasing and investment sale stalled.
Property and facility management as well as advisory and consulting revenues were up double digit showing resilience despite the locked down.
For prospective greater China comprised about 5% of 29 team total ARIA fee revenue.
Asia Pacific Justice EBITDA margin was 5.2% for the quarter.
150 basis point improvement year on year, primarily from government relief programs and aggressive cost mitigation plan.
Turning to our investment management business without all fee revenue increased 6% for the quarter.
Advisory fees grew 12%, marking the fifth consecutive quarter of double digit growth.
Well Sal adjusted EBITDA margin was negative 24.3%.
The continued expansion of annuity margins with more than offset by a 40 million noncash charge related to net valuation declines in our co investment portfolio.
From an incentive fee perspective, the first quarter activity of 6 million is indicative of a full year run rate, although the facing by quarter could vary.
To summarize in Q1, we achieved solid underlying performance with fee revenue growth across all service lines and margin expansion despite emerging global headwind.
The depth and duration of the pandemic will be the biggest single factor impacting our full year results.
Given the current lack of visibility and the wide range of potential outcomes for the year. We are withdrawing our 2020 organic fee revenue and adjusted EBITDA targets previously communicated in February of this year.
In closing I would like to thank our talented team for their remarkable dedication and continuous contributions to our clients as we navigate through these uncertain times together.
Across the World JLL employees are adapting admirably to the challenge is being presented by the pandemic and a rising to the occasion.
We believe our culture shines in these moments and our long term beyond strategy Global full service platform strong balance sheet and best in industry talent enable us to successfully navigate through these disruptions during this unprecedent period.
I will now turn the call back to Christian for final remarks.
Christian.
Thank you Stephanie.
Now looking up the outlook for the rest of 2020.
We're pleased to enter the second quarter in a strong positions.
Momentum within our corporate solutions business continued as we made strides with new mandates and renewals.
Our leasing in capital markets business World record highs when the pandemic made its way across the world.
Long history of JLL has taking us too many difficult periods.
No the extent of the market decline on the back off this crisis aesynt previous market downturns, we expect to win this proportionate market share, which would caution the impact on our financial performance.
Depth and duration of the impact on so, but I will short term assumptions. So Q2 in Q3, that's difficult quarters across all service lines and geographies.
In addition to considering the short term impacts we are mindful open longer term implications, we're taking a fresh look up the longer term macro trends stuff happening supporting growth within the global real estate sector for several years.
We believe these trends grossing corporate real estate outsourcing rising capital allocations to real estate, increasing urbanization and the tech drifting false industrial Revolution will continue to be strong drivers for our sector and our strategic vision for years to come no doubt all of these trends.
We'll be impacted there will be adjustments, but they will continue to drive so longer term gross.
We believe a fifth macro trends has even though that's a major driver within the real estate industry.
Staying ability.
This trend will benefit from an even stronger focus on corporate social responsibility post pandemic driven in part by greater awareness of the fragility of our society and ecosystem.
Well I listen that knowledge global leader and sustainability services and the clause.
And we continue investing and building those capability consistent with our corporate purpose shaping the future of real estate for better Walt.
Moreover, we are determined to play in exome flu pop in the way, we manage our own operations. Despite all the short term attention to the impact of the pandemic.
And we would be like it's got the sign space target initiative approved elds ambitious target for 68% reduction in our carbon emissions by 2038 inline with our commitment to the Paris climate agreements.
We're also very proud open many awards and recognitions, we receipts, including being named for the 13 Seer as one of the 2020, he's world's most ethical companies wanting a place on the Bloomberg gender equality index and recognition by the human rights campaign and hopes for our commitment to diversity and.
Inclusion.
The close these remarks, I want to and by expressing my gratitude to the entire CIT L. team, who have witnessed significant upheavals and the personal and professional lives over the past several weeks as a result of these pandemic.
Yes have continued to work diligently and support each other and our clients who these flying circumstance.
Well the history of our company.
L. has shown a remarkable capacity to successfully navigate food troubling times and delivered excellent results for all of our stakeholders over the longer term.
Twentytwenty will be a challenging idea for not only our business, but the world overall.
The temporally might take longer than many would like.
Nonetheless, we will continue to execute against our previously stated 2025 long term goals targets, we remain confident in the strength and resiliency off the JLL platform and our ability to manage effectively in an environment filled with on so.
Operator, please explain the Q in a process.
As a reminder to ask a question you will need to press star one on your telephone keypad to withdraw your question press the pound or hash key.
Your first question comes from Anthony Polyones from Jpmorgan. Your line is open.
Uh Huh [noise] excuse me. Thank you I guess my first question then I can you give us any color on how April looked and what you're looking at internally or whether its surveying brokers or data to could get some handle on why.
Two two in Threeq, you can actually you know work out today.
Yes.
Hi, Tony This is Stephanie.
So I think you heard and Christians remarks, we have seen obviously, a very strong performance sitting in our.
Leasing in brokerage business, particularly notable in the Americas that we had seen.
As a pandemic levels across a softening in that business and consistent with the market volume.
We don't have any further information to give you right now what I can say is that in terms of our Q1 results, particularly in the Americas.
Where we saw strength was particularly in our industrial business and no one the pandemic there's been a lot of.
Demand on the supply chain. So we're very pleased with our performance and that a specific sector and which we have about a 25% of artful Americas.
So those two.
Okay, I think better I think you know cut out on the tailwind, but I guess, maybe asked a little bit differently. If we look back at the GFC and what happened to leasing in sales I mean, it took a period of time for things Garden Warren, but do you think that that you were to them.
Magnitude would you be looking out into more compressed period of time does this go around.
[noise], Tony its Christian I would caution to compare that to you see to the current situation. The GE Si was predominantly causing all creating a lack of trust in the financial stability of banks, whereas we are currently pace for the virus.
Which leads people to be afraid about that personal health and that helps up that'd be loved ones not as creating an enormous amount of uncertainty.
So the way that will impact the global economy, and therefore than our claims which then comes down to us it's still very clear all of the big differences.
Within our business compared to two times in 2008 2009, the industry has bifurcated in a way that you have a couple of companies who are predominantly doing that business as strategic topped out to their clients and less so was hawk business and those.
Strategic relationships kind of.
Continuing to operate in good ended that times and so the overall resilience offer business like ours compared to 12 years ago is significantly higher just due to these intense client relationships.
Okay, and then just a follow up on that Christian you'd mentioned that all your business lines were would be negatively impacted here can you talk a little bit more specifically about corporate solutions and that seemed to show a very good organic growth and the first quarter what were.
Good.
What are the levers to that that would that would bring that number down in this environment like is there transactional piece or you know what are the puts and takes there that we should be watching for.
Well as you already noted it is very much down to the question whether something is related to try to actual revenues all what we would called annuity revenues corporate solutions is is a hat line pose serious health services, which include transactional services like the Salem.
He's backup corporate headquarters building down to a very annuity type services like facilities management.
And and that's where you kind of a half the differences and the impact our facility management businesses incredibly resilient and within that uncertainty management business.
The engineering pop is the most resilient slinky that is not as a rolling.
With many climbs up the moment because the maintenance all big equipment is being done early because the premises maybe they can't until the impact of that in maintenance is is not as drastic yes. It will see when they run a full scale.
But then on the other hands you hop discretionary services, which people, but just pause to kind of presume a form the liquidity. So overall, we do not expect a massive impact on our pulp it solutions business, but again, it's old down to the question how long this pandemic will prevail if it ends in a couple of months.
That will be probably not any impact on our business. If it continues for 18 24 months at some point in time longwall companies will be caution that along their liquidity.
Okay, and then just last one for me you'd mentioned the benefit to industrial and supply change from the way. The world is moving technologically can you comment on any thoughts you might have with work from home and and the impact long term on on the office business.
Well.
Well I, there's a lot of opinions or to be red Oh. They are a lot of opinions to be rent on what impact work from home will have longer Tom on on the commercial real estate business and especially on the office footprint.
I would caution everybody to two tool to many conclusions at this point.
The crisis like base to work from home is it's easy because the alternatives is not to work at all.
But if we are back to a very normal in buying them and then you will see the difference in productivity and I'm not talking about technology a company like ours has no issue an old two cents, 90% of older people into a home office technology will brilliantly, but still be into action was your colleagues.
Be the Inspirationally youre getting when you're working in an office is driving better results compared to people sitting at home and so for most global companies working from home was something which was quite normal before we had lots of people working from home tops off the weak and then the.
Came to the office all they bought traveling so we will go back to that but I don't expect a massive massive shift from.
People in an office to working from home in the future everybody has seen no doubt it can work in that it is helpful. But they also have launch.
Very immediately the negative the negative aspects from working from home and so I think we should we should see people be very happy to come back to the office releasing the latest survey amongst alone employees and less than 5%. We're keen to work only from home I'm the vice.
Last majority wants to get back into the office and half the flexibility to work sometimes from home.
Okay. Thank you for that.
Your next question comes from change room Romani from KBW. Your line is open.
Thank you very much and a nice to hear from everybody hope, they're all doing well one past hopefully a basic question, although I recognize the uncertainties, but do you think the company overall will will remain profitable for say the next two to three quarters.
[noise] Hi, Jay this is Stephanie so.
Obviously as you saw as we went through that you see the company remains.
Strong and profitable business inside this pandemic is nothing like that but we're doing everything obviously to manage the business.
Or the quality side or expense side everything that is discretionary obviously maintained that profitability I think what's important to emphasize it's up a portion of our businesses annuity based in the portion of transaction days since you heard from Christian on our corporate solutions business. There are areas of our business that continues.
To amplify and there are other ones, which we've prepared remarks on that are softening and it's happening in different parts around the globe. China went first so you're seeing in Asia Pacific. The most of my answers have impact on our topline, but you've also seen margins continued to improve so if you look at our EBITDA was.
Well I think that's the best customers right now of how we're planning to run the business through covert if you exclude the one off but two charges.
That I've mentioned, you'll see that margins have expanded across all the businesses.
Okay now there's no doubt this crisis will have an impact on the bottom line.
And so I'm sure you know back.
Yes of course, I mean, we are assuming about 35% declines in leasing volumes and something similar in capital markets [noise].
On the liquidity side the during the financial crisis. The company maintain positive cash flow from operations I'm do you expect that to be the case as well [noise].
Again, you know the visibility is it's very poor going forward.
And so I I would like to refrain from commenting on on that we see what we see in April.
And and and you'll see how close quarter. When you first quarter went well and and we are still smiling Oh, all the time being on on May fits and what's happening over the next couple of months, we don't know, but we will do our belly best to keep this company on that.
Excellent level and financial strengths as it has being in the past [noise].
And currently I believe there was 1.3 billion of available borrowing capacity on the credit facility, which matures and 2023 is is that correct.
That's correct yeah. So we have about a 50% utilization as of Q1 of our credit facility and our leverage ratio is about where we had expected. It's a 1.4, which is slightly elevated over prior year, but that's due to the it's a kept that that we have taken on.
Have you been in touch with ratings agencies at all.
I believe the company will be able to maintain investment grade status.
So we're in constant contact with the rating agencies as normal course of business JD is as you can imagine and in that sense, we're running the business accordingly monitoring and frightening profitability cash flow and making all the discretionary choices.
That are that are available to you. So we maintain a strong investment grade balance sheet and that remains our focus is unchanged to applicable.
Okay I wanted to ask about the two noncash charges.
The multifamily credit loss reserves.
Did you apply eight through cycle methodology, so that this.
This loss reserve pulls forward.
Sure losses that have yet to impact the multifamily market. So [noise].
This loss reserves could be sufficient to cover save the next one and a half years of potential loan defaults to to the extent there are.
Or would you expect to be booking ongoing reserves on a quarterly basis.
Hi, David it's happening. So I think you said that right. There's a 31 million non cash reserve first of all and it's our expected you of those loan loss, that's exactly related to only the covert 19 pandemic. So it is the estimation.
Never future losses at this time [noise].
Okay. So that would be nonrecurring its you know in and my modeling I'd been assuming a gradual increase in delinquencies triggering loss reserves not not a one time charge.
So this is just sorry. This is our expected view of the future losses for related to our multifamily exposure will certainly reexamining and all the factor throughout the year. If we do in normal course of business and if we need to make adjustments will do that that's a further type.
Thank you for taking the questions.
Your next question comes from Josh Lammers from William Blair. Your line is open.
Hey, good morning, Thank you.
You touched on it a bit but just in thinking about the that's I'm contracts or more specifically the fixed price that some contracts wondering what's the potential funding cost overruns and any of the regions and maybe specifically in India.
And then I also wanted to ask about the revenue run off from the sale the up some business in that region recorder and whether it's similar to what you called out in the fourth quarter just wanted to make sure at my baseline for that business working had thanks.
Yes, I'm, taking the pills part of the question I'm. The second part I will hand over to Stephanie.
I'm not quite sure what do you mean waste was a cost over runs I mean.
You can imagine we very very.
Pool actively.
Dealing with our clients and helping them pool this crisis and.
As I said those relationships tend to be very strategic relationships are very much on and popping up basis, and and whatever we do which goes beyond our contractual obligations, we usually get paid for that and everything else is inline with our.
Oh, a estimated cost to so so I'm not quite sure whether the is any issue, which you're raising.
Yeah No. It was just and reference you know you had mentioned in your prepared remarks, I think that and there was kind of a near term increase in.
In facilities cleaning preparation and increase in engineering costs and so the question is just related to.
Whether or not you expect a you know in fixed price contracts for there to be a higher than planned.
Labour costs, which could negatively impact margins.
Oh, Okay got it and no because when when clients have in their contracts out there facilities up being cleaned once a day and they move over to three times. A day then they would pay for the additional training requirements, which offers he we will pass through to our sub provide us as we do not deliver the cleaning out.
Cells, but you know this this hasn't been this hasn't been an issue over the last a couple of weeks, if there's anything which has a which we have been confirmed which was that clients have asked us whether we cook recuse, sometimes the scope of contractual work or within the contract.
Because premises, where an abuse anymore, but that is such a minimal scale that it is offset by additional requirements by other clients.
Okay.
It's not so I'll take the second part of your question about the European divestiture of our property asset management business. So I think in Q4, we mentioned that it had a 7 million dollar impact on revenue. So for Q1, it's about $9 million.
If you think about or PS revenue growth rate.
The decline in 16% if you adjust for that it would have a decline fatalities.
No that's helpful things.
And then again you mentioned a bit in your prepared remarks, but I'm wondering if the current environment creates the opportunity for.
[noise] expanded infill or redevelopment projects to pick up maybe later in the year end to remain at a sustainably higher rate and then whether or not you know JLL has the capacity to take on those additional projects and I'm just thinking about.
That kind of like industrial retrofitting office refitting this kind of stuff in order to.
To create a home more space this environment.
Or to like a sort of reset or any of these properties a to operate in a post covert world.
Sure I mean, but it's obviously one off all the opportunities coming to us we already engage with lots of our clients around the re opening up this space and as you know when in Asia Pacific Many many.
Spaces are already fully running again and we're starting to reopen now spaces in Europe again, so that is part of our services. We as we said well you have created at 22 different products in our corporate solutions business around health and wellness space optimization.
Turning and overall building office operations, which we have launched over the last couple of weeks and our teams are up very busy delivering that and so with all the negativity coming from the pandemic. They out obviously also business opportunities for companies like ours, who have the Cup pass.
The t. and the knowledge and and suddenly be ability to move the experience, which we are making in Asia Pacific to the other regions and bring that best practice across to help companies to get back to productivity as quickly as possible.
Okay. Thank you and asking for me.
I'd say the following the Lockdowns in January in China.
Got Lasalle could close its first stealing our mid April.
So of operations resumed in in a path to a somewhat normal course, a and should we expect.
But you can tell what should we expect to similar timeline. Another reason in other regions.
First of all operations have not resumed ER as to pre crisis levels not at all.
No trunks exit if you talk about capital markets from actions most of the capital markets transactions, which half being.
Closed in late March all which have been closed in April or May have shrunk actions first half being pre negotiated pre cobot.
And so we'll.
T two and to really understand how the capital markets business on the investment sale, but it will perform are locked down environment and salty opt.
This is still out there and we can't give you enough evidence on on that yet.
What do you see in China. The moment Dot the is a lot of interest to two we stopped or activities developers are coming back them, they're looking for advice fall for new developments, because there's a lot of encouragement by the government to stop a new developments.
And it is is obviously old so discussions in interest around executing capital markets trumps actions, but.
What's most important is that the buyers and sellers find can you kind of match on on price expectations. I mean, there will be an impact on pricing and this is something which will take time until both sides feel comfortable with was pricing again, and so that will that world that will take a bit.
Time, a couple of months.
Okay. Thank you.
[noise]. Your next question comes from Michael Hunk from Bank of America. Your line is open.
Yeah. Thank you very much arms good morning, everyone. After all doing well.
A few if I could your earlier comments that you wouldn't compare the current situation to the global financial crisis would love to hear some worth talking some of the differences or you know that you're seeing there [noise].
And your expectations and what I'm, probably going I'm getting that here as you know obviously visibilities low for everyone. You went off trying to model on Wall Street and looking at your 2020.
Consensus EPA asking about a $3.50 standard deviation no I'm certainly contribute without being low on the street <unk> once again very little information for off so any incremental thoughts you can get when the comparison with the GFC, yeah, I'm kind of what you're seeing with the I'm kind of what that with it.
Back and leasing and capital market activity would be helpful.
Well again this the GFC I can only repeat myself was a lack of trucks in the financial stability of banks. So what have to be done was too.
I get that trust back into the market and then the economy was well starting to develop again.
Here, we have a virus, which is affecting people personally so what is needed east that people have to confidence that the helps it's not exposed and I guess.
At the end of the day for most people that would mean they are waiting for the vaccine to feel really comfortable at yet and we don't know when that will be delivered and the big difference of the time hauls every business was continuing to operate a many people in a in a more muted a fashion, but every.
He was operating we didnt have any lockdowns of buildings or anything like that.
At the moment, we have still most of the countries who operate.
In in the Lockdown mode and that as a massive difference and therefore it is very hard to make any comparisons between the two.
You know I think we all have to be a little bit patients and C. B the real impact on the economy going forward, what I can assure you that.
We are fully operational as an organization. So every client demand which is out there we can cover.
There's all kinds of technology being used to to help deliver deals on the leasing and on the capital market side. When you look up the leasing side to help the pool.
Spectrum, all three years, so I mean renewals will happen anyway, because people will have to remove space. They may take a little bit less but they will we knew this space in principle. So that piece will continue and then usually kind of that the strategic deals I know, if I have decided but I want to move like a major location into it.
Different location those deals tend to continue they will be slowed but they tend to continue what is mainly impacted all the time being is kind of to smaller things companies. It's planned for taking additional flaw additional 10% of space. They.
Kind of push that out.
Because they want to see how the economy's developing but anything with your strategic tends to happen, but slightly below that that's just on the leasing side.
On the capital markets side as I said earlier.
It is still the need to find the new kind of matching price between buyers and sellers. It's not that nothing is happening, obviously DAP transactions happening, but at a much slower rate than we would have seen before the ur cobot crisis, and and so that will take time until people have to.
Confidence that they think that this is the right price to buy off to sell.
Are understood I appreciate additional commentary and also understand their shapiro afraid as more of a more of a demand shark this time that than the GRC.
It's tough step down the income statement a little bit you know can you can you frame. It you know how she bought the incremental margin in the business or for every dollar coming out of the top line how much of that is going to translate you believe into EBITDA.
So we don't see a different versus the GFC into the situation. We're in on how things translates through our business.
So in terms of our most profitable business line.
Our capital markets and leasing businesses.
And you know, we balanced the portfolio with Lasalle and corporate solutions. So there hasn't been a fundamental shifts in that regard all the businesses are driving profitable growth and margin expansion I think you can see that in the past quarters a result.
Additionally, what we're obviously very focused on continue to be laser focused on particularly during the pandemic crisis is on cash conversion, so making sure that were being very prudent and thoughtful and getting or get sensitive to convert a continuing to convert productively. So we can manage obviously its cash flow through through this pandemic.
Uh huh.
And with one more if I could place I really appreciate the time today, you mentioned renewals you know obviously, a large part of your leasing business. Maybe just remind me first of all you know what percentage of revenue each quarter comes from renewals you know and then second.
Are you seeing you know customers reach out proactively asking about blend and extend and the current environment or or was it too early for that right now.
There is obviously, what you cold blend and extend a quite a bit because if you. If you really don't know whether you're calling me is moving and what that does to your business. They are a lot of claims who need to make a decision on that lease contracts, who are just trying to kind of.
Pushed that out and ask for 12 months or 24 months renewal before they make a longer term commitment and so that is happening I don't have any statistic on hand or how much of that.
It is it's part of our portfolio all revenues, which we're bringing on the leasing side.
The renewable business and its appease the slightly different market by market you have markets where.
There's very little to be coming to us for just renewals and you'll have markets, where the fee levels for yields are very similar to two the fee levels for for any new contract, but I think it's that just say generally speaking a brand new contract is more profitable for US then just.
Renewal business.
Okay. Thank you off the time today and hope you all well.
Your next question comes from Patrick O'shaughnessy from Raymond James Your line is open.
Hey, good morning.
How much of your for FY bit expense base, just naturally going to variable and then fluctuate along with revenues up my move up or down.
Hi, Patrick to.
That is the difference between the G.S. here now that our business has certainly become even more oriented towards variable and flexing your question. So.
As we've grown the business and the leasing and the capital markets face that gives us obviously that flexibility. So limit business is good obviously works on the business has obviously a softening then our comp base or fixed and variable companies. You know reflects that so we don't give details.
On that specifically, but you can see in our.
Financials on the PML that we've made a lot of progress continuing in Q1 to improve our compensation expense as a percentage of our total fee revenue growth and so we've actually improved about 200 basis points.
Hi year on year, if you compare so rather than it was certainly outperform accompany that makes sense and we'll continue to obviously utilize the way that our business model with structure throughout the Promomats thing.
Okay.
I think that not paying that June dividends saves you guys roughly 25 million in cash given the relatively modest cash savings and generally negative investor perceptions that typically stem from dividend reductions can you walk through your rationale on this a bit more.
Patrick first of all we don't have many people and I was stock where in our stock because I have a dividend what dividend was in percentage terms very small.
And and as I said early.
While we are in a very strong financial position.
The economic M. sites or challenge the world is facing it's just unprecedented.
And and.
We strongly believe that whole leading companies have to be mindful about their actions and we believe that for us paying a dividend would not be the right message with regards to all our stakeholders you're right that 20.
The 25 million to pick your number.
It's not very MACI real for us, but when you see how people are suffering.
Across the countries, where we do business in it is not sending the right message.
Okay, and then last one from me.
Any initial thoughts on what coven 19 means for the industry.
[laughter] really viable business model do think in a post coking 19 world.
Well I guess or you are talking about the flex space industry and and co working is an element of the flex space industry and it's very important to make that differentiation because when you talk about flex space, the flexibility which has been off.
Yes.
Implied that he's obviously, something which people will value even more going forward. If youre comes in a situation where you want to we open your offices, none of those offices, where we opened up full capacity.
Because you will need more space for everybody to kind of keep their social distancing rules in place and so you either keep a majority off your employees out of the offices or you are starting to enhance your office footprint by by picking up some flex space.
So there's an element of the flex space industry, which will probably once we are starting to reopen businesses and once the economy is starting to pick up but actually have a great business going forward now the co working piece was a different element because co working usually means that you will.
People sitting next to you, which you don't know when that May change during the day several times and so what was very cool before may not feel about safe and healthy going forward and sold that we'll certainly see an impact so a lot of those players to position themselves predominantly as co working.
Play as well probably position themselves going full but more as like space provide us and so.
Let's see how that is playing out for the time being the demand for space from those companies has obviously true up very significantly, but I'm quite optimistic that overall industry has a role to play but they will have to adjust their business model to to deliver that.
Comfort and stuff Trust, which all the use us off of space, whether it's your old space or whether its flex space are looking forward to feel comfortable in that environment.
Great I appreciate it thank you.
And your final question today comes from Jade Rahmani from KBW. Your line is open.
Thank you very much in terms of business resiliency just wanted to ask if you could comment on leasing if you expect leasing ordinary course renewals to continue to take place if the if those contracts can be executed without any in person.
Resins, and secondly on debt placement, if you expect ordinary course debt maturities, which totals for the industry around 350 billion per year to to be able to get refinanced.
And finally valuation appraisal if that can also be done via desktop.
[noise] yeah, Okay, I take all three of those as I said renewals will take place, it's not an issue too to do renewals Oh, and so that is continuing.
On the debt side for the time beings as you probably wouldn't know better than I do the debt markets a pretty healthy there was a bit of that kind of a little stumble up the beginning but now everything is pretty much back in line, we even see CMBS coming back in so we have the most.
Only we have no reason to believe that are these renewals will not take place obviously once we see pricing to readjust.
I mean that that are kind of the leverage ratios a changing for plus some healthy steel studs, but there is a market for all of it and and and so we we will see that as part of our business in capital markets going forward, which is probably even.
More resilient than than a plane investment sales over the next one or two quotas and the last one on valuation I think in valuations.
You have to be very precise all these monthly or quarterly Autohop annual though annual evaluations they can albeit on desktop.
So they will continue and we see a very very strong demand for those I mean.
Even.
Those times, you usually have a higher.
Because the question on who is delivering devaluation.
Becomes or higher importance in more challenging time spent in brilliant times and and dock usually favors jail ill.
Well, we will see an impact on valuation is kind of one of trunk action that valuations if that less trunks action. This then there's less need for valuation and so it depends a little bit on there on the business mix country by country. We have some countries and I will put full you who have.
Actually gross and that valuation business and we have other countries, who see the impact of less transactions happening, but overall this is a pretty stable business for us.
Thank you very much.
There are no further questions at this time I'll turn the call back over to the presenters.
Thank you well with no pullback questions, we will close today's call. Thank you for participating.
I mean, I look forward to speaking to you again, following the second quarter Oh, well. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Yes.
Yes.
[music].