Q1 2020 Earnings Call

Greetings and welcome to the CDR <unk> first quarter conference call.

At this time, all participants are in listen only mode.

Brief question answer session will follow formal presentation.

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As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Christenberry, <unk> Vice President corporate finance.

Thank you you may begin.

Good morning, everyone and welcome to theories first quarter 2020 earnings conference call.

Earlier today, we issued a press release announcing our financial results and it is posted on the Investor Relations page of our website <unk> Dot com along with a presentation slide deck, but 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 follows.

First I'll provide an overview of our financial results for the quarter Nicked bought the one Dick our president and CEO and we have burns our CFO will discuss our first quarter result in more detail.

After these comments, we'll open up the call for your question.

Before I begin I'll remind you that this presentation contains forward looking statements that involve a number of risks and uncertainty.

Examples of these statements include our expectations regarding <unk> future growth prospects operation Marketshare capital deployment acquisition integration financial performance and 2020 outlook, including the impact of coded 19 and on the other statements regarding batteries that are not historical fact.

We urge you to consider these factors 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 estimates only and certain factors may affect us in the future and could cause actual results could differ materially from those expressed in these forward looking statements.

For a full discussion of the risks and other factors that may impact. These forward looking statements. Please refer to this morning's earnings release and her most recent annual and quarterly report filed on form 10-K imports 10-Q, respectively.

Schedules, giving us flexibility to bring back staff as needed when business activity resumes.

The coming quarters will no doubt be challenging for our industry.

In light of how suddenly in severely.

Economic growth has collapsed we are taking actions to mitigate the impact across every part of our business.

Which Leo will cover in her remarks, notably we moved 100 per cent of our people who work from C.B. area offices in the U.S. to working from home on the night of March 13th.

The seamless transition confirmed the scale ability of our digital and technology infrastructure and the adaptability of our workforce.

Every substantial downturn creates fundamental changes in the way that commercial real estate is designed developed financed and used.

I will sitefive examples that occurred in the aftermath of the great financial crisis.

First.

E. Commerce catalyze day sharp increase in warehouse and logistics space utilization.

Second demand exploded for institutionally managed multifamily housing.

Third the growth of real estate outsourcing accelerated as companies pursued greater cost deficiencies fourth and increased emphasis on the office occupancy experience drove demand for leasing and related projects services.

And finally property ownership became much more institutional with well capitalised investors, depending on third party firms to manage lease value finance and Monetizes. These assets.

Seabury benefited in a big away from each of these trends, which taken together had a major impact on our decade long record of robust growth.

Covert 19 is likely to bring about equally powerful changes to our sector and we believe seabury is again well positioned for our industries next evolution.

Given our strong balance sheet and industry, leading market position.

We are poised to withstand the negative impacts of covert 19, well also remaining very focused on identifying and capitalizing on potential longterm growed catalysts that will emerge from this crisis.

With that alternative call over to Leo.

Thanks.

Turning aside.

Advisory services segment Griffey revenue about 5% well adjusted EBITDA wrote nearly 11% advisory adjusted even a margin on C. revenue increased 100 basic plane to 17.5%.

<unk>.

Consecutive quarter of year over year margin expansion.

For most of our markets coded 19 did not have the material in half until mid March.

In January and February R.U.S. sales and leasing businesses posted healthy game.

But revenue decline by mid teens in March.

In April U.S. sales and leasing revenue declined over 40%.

From April 2019 level.

Across the rest of our transactional business declines were more muted due to its diversified geographic footprint.

In response to these trends, we have taken decisive action to temporarily lower costs within our transactional business through furloughed non revenue generating stuff as well as rigid non essential cop, such as promotional and travel and entertainment expenses.

Despite these late quarter pressured revenue growth for our property sales business rose by 12 per cent during Q1, which with a new all time high for C., Barry and first quarter property sales revenue.

Growth with led by North Asia as strength in Japan, offset weakness in greater China, and in Continental Europe, where our largest Marcus France, and Germany deliver double digit retinue game.

In the U.S. property sales revenue was up 3%.

The increase with tempered by a decline an average steel side.

During the quarter and continuing the trend we saw him or in late 2019 leasing revenue slips by 2% on both a global basis and in our largest market the U.S.

This decline was blackberries have comparisons with Q1 2019, when we think growth with more than 20 per cent globally, and 28% and the U.S.

Like the prior to quarters activity with co working providers lowered U.S. leasing grow by about 3%.

Certain advisory segment revenues were less impacted by coven, 19, and Q1, including our alone servicing valuations and property management businesses.

During the quarter. These lines of business is accounted for approximately 22% of the advisory segment revenue.

And delivered 8% revenue growth.

Turning to slide nine our global workplace solution segment grew gross and feed revenue by approximately 18 and 17% respectively.

Revenue rose, 20% and facilities management, and nearly 16% and project management.

We had our best quarter ever for contract renewal with a rate that was once again over 90% and we secured new business with large high quality clients and the transportation logistics and life Sciences sectors.

Adjusted EBITDA with flat with the prior year period, that's primarily reflected a write down of receivables due to a contract element with a client which reduce the adjusted EBITDA margin for the segment by 110 basis points.

There are also some other items such as the shift to lower margin facilities management and covered related expenses that also weighed on the margin.

Since the emergence of covert 19, R.G.W.S. team has been highly focused on helping our clients navigate the challenging situation and enhancing our learn <unk> long term partnership, which Bob we'll discuss in his closing remarks.

Turning to slide 10, but now look at our real estate investments segment, where adjusted EBITDA fell 56% year over year to $38 million.

This primarily with driven by a 27 million dollar decline and co investment return provided by our public Securities business.

Reflecting the sharp equity market fell off at the end of the quarter.

We also faced a tough comparison for large development asset sales, which were particularly strong and Q1 2019.

Activity and our development business started 2020 strong was several deal, which we had expected to close and Lake you for being completed within the first 30 days of beer.

Later in the quarter and partially attributable to the early impacts of covert 19 without further delays and development transaction.

Part in ladies declines were partially offset by our investment management business, which stock continued growth and recurring revenue, which fine 7% over prior year and contributed 20 million and adjusted EBITDA over 50% of the segments total in the quarter.

Finally investment in the startup of our enterprise focused flexible works based business Honda subtracted about 9 million from adjusted heated Duff.

Looking at Slide 11, let's now I'll take a look at our 2020 Alex.

Given the uncertainty caused by covert 19, we have withdrawn our explicit E.P.S. guidance for the year and we'll instead provide qualitative commentary for each of our business segments.

And advisory we expect a significant dropping revenue from our two largest business line leasing and property sales that little outpaced the decline and economic activity.

As I highlighted previously April sales and leasing revenue in the U.S. contracted severely and the timing of a la city of any recovery, it's highly dependent on the trajectory of that containment of covert 19, as well as the recovery of consumer and business sentiment.

Additionally, while our businesses geographically diverse the U.S. and U.K. comprise more than 70% of our globally thing and property sales revenue in 2019.

We also expect loan origination volumes to decline due to continued economic uncertainty, which will weigh on loan servicing revenue.

We will also need to support modest liquidity requirements necessitated by the G.S.C.'s rent forbearance.

Specifically for Fannie Mae, which comprises about 12% of our loan servicing portfolio.

Thus far.

The minimum number of borrowers have been approved for forbearance and this has not had a material impact on our business to date.

Lastly, about two thirds of the cost of sales in our advisory business is variable in nature as conditions decline in step with transaction volume.

They should help to support our margins in this segment as cost of sales comprise the majority of our total cost and advisory.

Moving to G.W.S., where revenue is generated from multi year contract.

We expect that segment to be relatively resilient and continue to expect positive revenue growth, albeit at a rate lower than are original expectation as a pandemic creates pressure is not seen in previous downturns largely stemming from logistical challenges.

Our expectations for growth in G.W.S. reflect the in your impact of our new business secured in 2019, which is being partially offset by the operational challenges and onboarding new clients as a result of the current shelter and placed orders.

In addition, we're absorbing certain coven 19 costs within our G.W.S. business to ensure we're fully prepared to support our clients as they reopened their business location.

In addition, well infrequent we have experience business up that on certain G.W.S. client account.

Given the slower pace of gross expected in 2020, we're focused on improving our business prophecies to ensure we are ready to accelerate grow when business conditions rebound.

We continue to believe that are outsourcing businesses position to benefit from challenging economic condition offering clients more efficient and cost effective facilities solution.

We expect project management, which comprises about 12% of our G.W.S. segment revenue to senior term pressures as clients to lay some work.

Looking at <unk>. We believe this business segment is positioned to perform more resiliently than in previous recessions, our development business isn't a relatively strong position with conservatively finance projects stable equity partner and a pipeline that is heavily weighted toward or industrial and logistics projects.

As well as office properties that are about 80 per cent prelease.

Nonetheless, the pace of development asset disposition will continue to slow in the near term as we and our equity partners are not under pressure to monotype assets quickly.

Revenue and adjusted EBITDA in investment management is highly recurring as I mentioned earlier, and we expect the impact of co investments to ease over time as we reduce our exposure to publicly traded security.

As you would expect we've also started to incur costs directly attributable to the coven 19, pandemic, which totaled around 3 million and coupon.

These costs are expected to increase as we prepare offices for the return of our employee incur incremental compensation for certain employees required to work on site and enhance safety training.

Lastly, we believe we are well positioned to take advantage of the dislocation and the flexible work based market and have positioned Hannah to serve enterprise client that desire private work spaces.

However in the short term, we will slow the pace of expected Honda unit openings in 2020 until we have more clarity around coven 19 impact on occupier demand.

Turning to slide 12, our financial position as strong. We ended Q1 with just 0.6 turns of leverage liquidity of 3.4 billion no debt maturities until 2023, and an investment grade credit rating.

Are significant balance sheet flexibility provides us a solid foundation from which to execute our strategy.

In 2020 or capital allocation will continue to prioritize internal investments and our platform and people to drive superior Klein outcomes and long term growth.

Or emanate strategy is focused on enhancing and differentiating or capabilities globally, and we believe the coven 19 crisis, maybe to unique and compelling opportunity.

Finally, we may utilize our share repurchase program to continue offsetting the impact of our stuff based compensation program.

And on a more opportunistic basis, if we believe our stock presents and attractive investment compared with other discretionary uses.

Well the current situation is highly uncertain, we're confident that we've enhance the resiliency of our business and our capital structure to build upon or industry leadership position.

In addition, our senior leadership team is taking decisive action to identify opportunities to further differentiate see Barry and position the business to accelerate once we are more certain.

Of an economic recovery.

With that I'll ask you to turn just by 13 as Bob provides a few closing though.

Thanks, Leo before we conclude this morning's call I'll pick a few minutes to highlight ways that <unk> business activities for clients.

Are producing social good.

We know this is of great importance to many of our shareholders because they tell us so on a regular basis.

And with the covert 19 pandemic the need has never been more urgent.

She buried teams around the world have been going to extraordinary links to serve our clients as they react to the demands of covert 19.

In Spain, our team work with our client the hospital Belmore to convert the hotel Barcelona princes.

To an extension of the hospital.

The 363 room field Hospital opened on April 1st and serves more than 200 covert 19 patients.

She marries onsite technicians provided essential maintenance and installation services to keep the field hospital running.

In the U.K., we supported or client National exhibition center in the creation of its Birmingham Nightingale Field Hospital.

For covert 19 patients.

The first phase of the hospital opened on April 16th.

Or team deliver to central materials in services and provides ongoing maintenance of the hospital.

In the Atlanta or project management team worked with our client Piedmont health care to move up the opening of the patient floors in a new building under construction by more than three months to create more capacity is the hospital prepared for potentially higher admissions due to covert night too.

While many of our people have been working remotely we have some 40000 professionals like the ones highlighted here, who have been working at client locations to keep properties operational and a central projects moving forward.

They're among the unsung heroes of the covert 19 crisis, and we salute them.

We also recognize that covert 19 has cause significant hardship for some of our seabury people.

In response, we have set aside $5 million of or more than 15 million dollar covert 19 relief fund to help colleagues who have fallen on hard times.

The funds remaining $10 million is dedicated to support regional and local organizations.

That are alleviating covert nineties worst effects around the world.

It's part of our commitment to looking out for one another as well as for our communities.

Without operator will open the lines for questions.

Thank you we will now be conducting a question and answer session. If you would like to ask the question. Please press star one on your telephone keypad.

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Thank you are first question comes from a line of Anthony of all along with J.P. Morgan. Please proceed with your question.

Yeah, I think you're in good morning, everyone.

My first question is for Bob You mentioned, you know when you come out of things like there's there's always big changes can you give us any initial thoughts on what you think maybe the potential positive as well as the potential negative implications for your business long term or.

I bet you see right now.

I can't Tony So I'm going to start with industrial space clearly, we we have a very big industrial business, we develop but we sell it we manage it we finance it.

And everything that's a about covert 19, it's driving me commercial derive the use of industrial space and that'll be an opportunity. We think multi family will continue to grow around the world, we develop but we finance it.

We sell it and we've got this new business in the U.K. that well in the short run is under pressure Telford because of what's going on there's gonna be a real.

Cuellar push for institutionally managed to multi family there [noise].

Office space is going to be a little confusing in the short run.

There's going to be a lot of discovery about working from home versus working in offices are our best guess is that there'll be more working from home and less dense use of office lots of services provided to get to that state of affairs and you know sometimes when you can't figure out what's gonna happen you look for clues, we think a good and now.

Energy is what happened in the last three years.

For covert 19, when there was an intense move toward alternative workplace in office space around the world and one of the big.

Concerns about that was did occupiers, we're gonna be able to use.

65, 70, 75% of the space that they had previously occupied that in fact happened.

But it also created for ourselves in our competitors one of the biggest opportunities we've seen in years as there was a lot of opportunity to do <unk>, new leasing reconfigure space et cetera. So we're gonna watch what happens with our office space. We also think there's going to be something that goes on in the middle between what happens at home and what.

It happens in Multitenant buildings with flux base, it's not going to be co working as we've known it with a membership type circumstances, but we think suites type high quality.

Real data security very professionally managed is going to be quite attractive to some subset of occupiers as they serve there are people working from home maybe smaller populations permanent populations in offices and our haunt a product. We think is well positioned to take advantage of that if that happens.

We very much like the positioning of that product, which is sweets oriented. So those are some of the things that could happen there will be other things out sourcing will almost inevitably a accelerate because of the intense focused on cost control corporations have we will benefit from that.

So we're watching all these things and there'll be some things happen that we can't see as we sit here right now.

Okay. Thank you for that.

And on the outsourcing side, you gave a little collar on on just potential your pressure points there but.

I think <unk> well not business still grows in 2020 or.

They're just too many no pressure points at this point for that for that to to go up.

So Tony easily we're not giving explicit guidance around to even for the business, but I would say that we do expect just given a tail end of.

A new contract wins from 2019, we do believe revenue will grow I think we're just being cautious given the fact that the operational conditions that exist around covert 19 in our desire to manage and be prepared to accelerate out of this we may take on some costs that otherwise we would not have and so we just want to have the ability to manage through the cinema.

Agile way than I think yeah, if we.

If we committed today that he but it would probably wouldn't be able to do though.

Okay, and then a classroom permit the G.S. your business or more specifically Sadie stuff you mentioned, maybe some some capital needs in the near term.

You put any numbers around that and also whether or not it started to take any wizard shredded potential loscher right.

Sure. So maybe just to start with the Cecil adoption at one one we did increase our reserve for our loan losses by about 15 million as of one one and that's on the balance sheet. We did take an incremental 5 million dollar reserve on top of that through the piano and so you'll see that and our results.

We have not normalized for that.

But fanny as it relates to the the loneliness reserves and any potential funding for forbearance is fairly minimal we actually have a very strong portfolios loans in that part of our business and and we don't see that as having a material impact on our overall cash position.

Okay got it thank you.

Our next question comes from the line of Jason Green with Evercore I.S.I. Please proceed with your question.

[noise]. Good morning. Thank you on the shelves when you're using said you're being down 40% in April just curious what activity you're still seen in the marketplace and specifically what was activity like for new leases an asset sales.

So I'll take sales and I'll I'll, let I'm about to speak to leasing activity, but with respect to sales. There were certainly some assets that were in the pipeline where turns had already been set and so certain activity has come through.

You know with respect to industrial and logistics that continues to be an asset class, where we're seeing strength and activity continues the issue first slowing down that has been the primary hurdle for folks has been around inspections on site tours and and those are things that we would expect ash.

Shelter and place orders are lifted we would be able to address and in addition, we'd be as technology to provide more virtual visual access to space. So that folks can continue doing diligences needed.

You know Jason as it relates to leasing it's really a a similar scenario to what Lisa <unk> or what we had described for sales first of all is heavily impacted by the fact that you can't get out and show space Nobody's figured out how to get around that yet and then we won't course, we've only been out it for a couple of month.

So we completed transactions that were in the pipeline and we of course have a significant base of our transactions that are renewals and I think historically, that's been about 30% of our leasing so that continued but there is there is definitely a big impact on leasing when you can't go.

Look at the space and when people just have huge uncertainty in general about how long. This coven 19 thing is going to go.

So we saw the downward pressure to <unk> to the degree that lead to describe the it was you know down 40% and.

We're going to wait and see how that plays out from here.

<unk> and then maybe just on the capital allocation sides, good about $50 million repurchases and a quarter and you're sitting about 20% below where he repurchasers shares I guess, you we expect that you're still in the market for your shares given that price decliners thinking you change since repurchased <unk>.

Sure. So the the 25 one plan that we had in place in Q1 was designed really to take take advantage of volatile markets and I certainly think the the volatility that we saw was more pronounced than what we had expected when the plan was put in place and so it would actually executed fairly quickly in in March so.

As a result of that we typically for our Programatic I'm sure a purchase program, which effectively upset offsets are stock based compensation expense look to do that over the course, there and we'll continue to evaluate that for Q2 I would just say, we're putting a premium on liquidity, we believe the visibility that we'll have into the.

The second half of the year as the next two months unfold will be critical to our assessment in terms of future opportunity for capital allocation the deployment over our access.

Liquidity and so we are going to take a pause just in q. to to ensure that we're able to have that visibility and how the the year unfolds and little up to reassess.

Guest.

Oh, Thank you very much.

Oh next question come through line of Josh Lamers with William Blair. Please receiving your question.

Thanks, you get boring.

Wanting to touch on G.W.S., you notice <unk> implementation delays with them sort of a fine over the near term.

So I'm wondering if you also expect any.

You know the impersonal restrictions park presently to limit any new quite sales as well or to what extent are able to currently bid on new.

New contract strings time.

So we're actually seeing those proposals and R.S.P. processes continue you know, we're having daylong scoping sessions with clients I presume, but it becomes more complicated when they're sheltering place orders so that our teams can't get out and actually fully implement the onboarding of those new accounts. So we aren't.

Being a slowdown in terms of discussions or activity as it relates to bring on we're assessing new client R.S.P.'s or expansion or scope discussions. It really is just the operational complexity of us not being mobile.

Yeah.

Thanks, and then I understand that you know as a more recently the focus is going to be on liquidity, but you know to start the year you made a series of some smaller hot hardline S.M. acquisitions, and so I'm just wondering if the current environment has changed your emanates strategy and whether or not you're getting more in bones from a certain service line versus another.

<unk> strategy really hasn't changed like everything else, we're doing it's kind of slowed down in the immediate period that we're going through his people try to figure out what they're going to do with their businesses et cetera people are very preoccupied by and distracted by code 19, no matter what else we would.

Say, it's just the fact, they are preoccupied and distracted, but our strategy for emanate remains the same and we see the same kind of opportunities. We saw before we'll probably because of the relevant relative strength of our balance sheet in some pressure that people might be under we could see more opportunities, but the way you should think about.

<unk> strategies to look at the Telford deal. It was an opportunity to take advantage of the brand. We have the capabilities. We have the balance sheet. We have to go into a market were we hadn't been before and build a capability that was very much in line with.

Secular trend, where we had a lot of knowledge, a lotta market presence and other things and it was it was a great size bet for us with the assumption adept $440 million and it may or business materially stronger you should expect to see us do that a cross or three segments going forward and we're not pushing.

The one segment more or less than the others were asking each of them to look for opportunities to build their business with them and they were those businesses. We buy can do more on the C.B. already platform than they could do on their own or on another platform were encouraged that those opportunities will arise.

Sure.

Last me for me I'm wondering if you're seen any increase competition with them the commercial mortgage space.

You know you participate in front of the refinance activity.

And Additionally has has a dropping mortgage rates recently I guess you know the the the rates on some of this paper or is it cause single acquitted you to dry up within the C.N.B.S. market are you still see activity either.

So we aren't seeing a real shift in terms of the competitive landscape on the mortgage origination front we are.

We have a significant position as it relates to origination for the G.S.C.'s and that is certainly been a major part of our underlying.

The S.F. business, but from A.C.M.B.S. perspective, the G.S.C.'s have liquidity role to play in the market and so we're continuing to see them provide liquidity, what we are seeing though is.

Are higher are more restrictive covenants around underlying liquidity reserves for borrowers and so that is flowing somebody activity, but overall I would say C.N.B.S. has been fairly.

Moderate are modest and new S.U.N., just as a market has begun to stabilize so we're not seeing a significant it's not really coming from a competitive.

Environment change, it's really just the overall availability of lending liquidity.

Okay. Thank you.

As a reminder, if you would like to ask the question Press Star one on your telephone keypad.

Next question comes from a line of Jade Romani with K.B.W. Please proceed with your question.

Thanks, very much nice to hear from all of you and hope everyone the safe and healthy.

Starting with liquidity I was wondering if you believe the 331 cash position to be sufficient or do you anticipate in the near term drawing down any additional reserves on the <unk> revolver.

So we we believe our liquidity as a sound position to maintain a the liquidity includes our cash balances and we may increase that slightly over time, but you're not going to C.S. preemptively drive down significantly under our revolver as we have a very strong bank group, we feel confident that they will be there for us.

And we don't think it's prudent to go ahead and and draw down at this time, we have our largest caches to the year in Q1, we've gotten through that and we typically see cash fell to the rest of the year. So we'll continue to manage our cash flows with a very significant focus on working capital we had a really good.

Quarter from overall working capital trends and that was really as a result of our leadership team and our management being highly focused on that we're working through some additional processing system enhancements to make that more structured and systematic and so I think we're integrate position from an overall liquidity standpoint, and a and don't see any need to.

Increase our cash position at this time.

Okay. So only revolver there are no approvals that you think could be subject to any market changes based on if the environment or to further deteriorate shape. For example in July when unemployment insurance runs out if if there's a further down kick in and economic trench.

Yeah.

Okay.

With respect to cash flow from operations, just looking back historically doing most of the financial crisis. The company remains in a positive cash generation and it sounds like you expect that to be the case just your comments on cash flow for the rest of the year being positive.

Yeah. So again, we're not giving a quantitative guidance, but I can tell you qualitatively. We are highly focused on receivable as we're focused on managing working capital closely we recognize that you know that is certainly a key component of getting through and this uncertain time and so our our finance organization.

And our business leadership are partnering together to make sure that that that level of focus and importance as being placed.

On that.

I was wondering if you were seeing any green shoots in early may there's been some positive commentary in for example, the affordable housing space about a recent uptick in rent collections wondering if you're seeing any green shoots across other aspects of the business.

We're monitoring a lot of different factors I think from May it's just a little too early to declare any specific trend as being one to emerge. So at this point I'll I'll shy away from specifically addressing any specific items from may but we are certainly watching an external as well as internal factors to give us.

More confidence in terms of certain trends that maybe evolving towards near term resolution of the current environment.

Okay.

They.

Monkey family loan loss reserves. He noted 5 million dollar increase in the reserves post the initial Cecil reserves as a result of <unk>, which seems somewhat modest and I was wondering if you anticipate you know sequential increases in reserves going forward.

As perhaps the full potential economic impact becomes more clear.

So we've spent an an incredible amount of time on our Loanloss reserve position, we feel very good about where we are that is certainly something that will grow over time as our long book increases we have a very solid base of loans that we currently I'm, having that <unk> portion of our overall portfolio a they have a strong debt service.

Coverage ratio for about 1.9, we have a strong oh learn to value of about 65%. So we feel very good about where we are from a reserve perspective, I think if you could go back to the G.F.C. and assume the default levels that occurred then we we have a reserve that would be positioned in excess of what the law.

This would accumulate to be at the G.F.C. level. So we feel very good about where we are from an overall perspective, we've also seen very limited.

Requests for forbearance, we've seen less than 1% of what could be required to find request to be funded so far. So again I think we feel very very good about where we are and that the the quality of the one book that we're we're currently sitting with today isn't a solid position.

Okay.

Turning to G.G.W.S. I was wondering if you could comment the customer that made the decision to move management in house is that a one off situation look what kind of a property type and customer wasn't bad and what shows the just the customers thinking.

Sure. It was a portion of the contracts it wasn't the full relationship it was a a retail client and it was one that was using our facility source platform. So we are you know very focused on making sure that we continue to invest in facility source to make sure that we have the appropriate technology platform. Another <unk>.

<unk> of the on demand model position to serve the needs of all of our clients. I think that's was just a very unique case again. This is not happen previously where there may have just been some disconnect in terms of what our client wanted and and and how it was executed and so we're taking you know this time.

Particularly given the slower environment as it relates to onboarding clients really focus on improving processes and making sure we're making those investments to really come out of this in a stronger position.

Thanks, and lastly, I wanted to ask about Hon. If you could quantify the I'm getting amount of investment touching made particularly what's currently on the balance sheet and if there's any risk of impairment or write down of that going forward does the outlook for flux workspace may change or maybe you could contrast.

<unk> business to other co working business models.

Yeah <unk> this Bob are.

Or.

Expense for Honda last year was around $40 million I believe this year, we're going to bring that down some because we slowed the rate <unk> upon which were adding new haunt us we thought we'd get to 20. This year will probably get to 10 in terms of the prospects for that I mentioned earlier, we think that.

Haunted gives us a very good option on what might happen in the flex space market. We do believe the flex based market is gonna be real it's going to be important to landlords. We're spending a lot of time with our big occupiers, we know they're gonna want.

Some of that capability in their portfolio, it's gonna be different than what most of the flux space more market has been historically much of its been around the membership model individuals are small groups in shared space Hanukkah from day, one has been a sweets product haunted from day, one has been higher quality less Dan.

<unk>.

Very strong on data security, we think it's a product that I'm very likely could play quite well going forward of course, we're going to have to watch and see what happens. We also believe that there's a real chance and we're in discussions with some landlords on this that landlords that want to control flex space in their own buildings.

Quality flex Bayes sweets oriented we're going to want to have somebody white label that for them because they do not want to try to build the infrastructure themselves to operate it. They just they aren't going to have the scale to do that so we're hopeful that that could be one of the good opportunities for us coming out of the covert 19 situation.

Thank you very much for the components.

Oh next question comes from line of Mikes sunk with Bank of America Merrill Lynch. Please proceed with your question.

Oh, good morning, Guy Angela's out on from like falling from B.. They I think so much for taking a question couple if I may 1st what have you seen with transaction Bayes activity since the end no one q. any color, where you've seen so far and another thing is well per cent <unk> would you say of the deal.

Being cancelled thanks.

So we're still assessing the the overall pipeline. So I would say post Q1, I can't speak to the specific percentage that have been cancelled because some may just be on.

But overall in in the U.S. as I mentioned in my prepared remarks, we had about a 40% decline and overall transaction revenue.

In across early thing and sales business.

Across the rest of the world's because we do have a highly diversified footprint Mia and a pack some markets are coming back on line, So north Asia seeing strength, whereas we certainly thoughts and softness <unk> not at such an extreme extent as the U.S., but a softer environment and continental Europe in the U.K.. So I would just say it.

It's a bit of a mixed bag outside of the U.S., but we certainly thoughts a significant reduction on the transactional side in the U.S. and really it's hard to tell how many of them are truly cancelled because many clients. At this point are still contemplating whether move is going to be once they see greater transparency around how the economy.

And and they are coming out of the Kobe situation.

I think so much one more if I could one assumptions you use in.

<unk>.

Well again, it goes back to the probability of Los associated with the overall transaction. So when we look at the loan loss, we have assessed our view on the overall default rates the quality of the portfolio our forecast in terms of.

You're lying gross and the the the underlying growth of the [noise] property and otherwise based on what is sitting in their loan portfolio. At this time, so because as I said before we have about a 1.9 D.S.R.D.S.T.R. coverage ratio for the loans that are in that portfolio as well.

As a very low and to value we feel very good about the underwriting standards and the quality that fits in those portfolios today and so we feel very good about where we are relative to our position.

Thanks, so much for taking the question.

Thank you we have reached the end of the question and answer session I would now like to turn the floor bag over to management for closing comments.

Thanks every one for joining us stay healthy and we look forward to being with you at the end of the second quarter when we talk again.

Ladies and gentlemen.

Concludes today's teleconference. You may disconnect. Your lines. This time. Thank you for your participation and have a wonderful day.

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