Q2 2020 CBRE Group Inc Earnings Call

[music].

Hello, and welcome to the CBR <unk> second quarter 2020 conference call. At this time, all participants are any listen only mode. If anyone should require operator assistance. During the conference. Please press star zero under telephone keypad.

A question answer session will follow the formal presentation. As a reminder, this conference is being recorded its my pleasure for local over to Christopher <unk>, Vice President Investor Relations in corporate Finance. Please go ahead.

Good morning, everyone and welcome to <unk> second quarter 2020 earnings Conference call.

Earlier today, we issued a press release announcing our financial results and posted it 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 materials.

Our agenda for this morning's call will be a solid burst I'll provide an overview our financial results for the quarter that Bob Sulentic, our president and CEO and we just burns our CFO will discuss our second quarter results in more detail. After their 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 uncertainties.

Samples of these statements include our expectations regarding <unk> future growth prospects operation Marketshare capital deployment acquisition integration financial performance in 2020 outlook, including the impact of Kobin 19 at any other statements regarding matters 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 deep and should be considered estimates only certain factors may affect us in the future and could cause actual results to differ materially from those expressed in these forward looking statements for.

Well discussion of the risks and other factors that may impact. These forward looking statements.

Please refer to this morning's earning release and our most recent annual and quarterly report filed on form 10-K, and form 10-Q, respectively.

We have provided reconciliations of adjusted EPS adjusted EBITDA fee revenue and certain other non-GAAP financial measures included in our remarks to the most directly comparable GAAP measures together with explanations of these measures in the appendix of the presentation slide deck no. Please turn to slide four of our presentation, which highlights our financial results.

For the second quarter of 2020.

Total revenue in fee revenue fell about 6% and 21% respectively, driven by declines in advisory and our yard.

Our revenue coupled with $25 million of incremental coded related costs in a $16 million donation to the company's coded relief on cost adjusted EBIT Dr. fell 43% overall adjusted EPS for the quarter was 35 cents, including the negative impact of around 10 cents attributable to the kobin related expenses and relief.

Indonesian now for insights on the quarter and our longer term outlook. Please turn to slide six and I will turn the call over to Bob.

Thanks, Christian and good morning, everyone.

As expected covert 19 took a toll on our performance in the second quarter with impacts helped across every part of our business. However, the overall impact was cushioned by our diverse business mix, particularly the sustained growth of our contractual businesses over the past decade.

We also benefited from early moves to reduce our expense base.

Process that is continuing and strengthened our financial position and cash flow generation. Despite the ongoing challenges from the pandemic.

Double digit adjusted EBITDA growth in our global workplace solutions segment demonstrated the resiliency of a business.

That occupier clients increasingly rely on in good times in bad Toronto essential operations and drive critical cost efficiencies.

Since the global financial crisis, other parts of our business have become more resilient as well.

For example, our U.S. development business is expected to earn twice as much both this year and next as it did at the peak of the last market cycle.

This reflects greater emphasis on core product development, particularly industrial and multifamily projects.

Along with an emphasis on fee development.

We have built a 245 billion dollar loan servicing portfolio that adds growing recurring revenue to our capital markets offerings.

We are large originators for Freddie and Fannie which are expected to match last year's loan volumes this year.

And we're positioned to capture a significant share of their business.

Our investment management business grew nicely in the quarter today. It earns a significant majority of its adjusted EBITDA from recurring asset management fees.

This business continues to raise new capital at a brisk pace. So the revenue base should grow.

Like any major crisis, Coburn will have near term and long term effects on our sector and how we serve clients in the near term, we've seen precipitous drop in leasing and sales activity.

Investment capital is moved to the sidelines as investors to begin the process of price discovery.

Occupiers are hesitant to make long term decisions amid the uncertainty, preferring short term lease renewals where possible.

Our ongoing interaction with major occupier clients has given us insight into their current thinking.

Three distinct trends are emerging first most companies will give their employees greater flexibility to choose between working in the office and working from home.

Second the physical office will remain vitally important in these hybrid work models, particularly and fostering culture in collaboration and attracting talent.

Third the decades long densification trend is likely to reverse mitigating some of the effects on office demand associated with more remote working.

The pandemic has elevated the importance of the workplace strategy.

Corporate agendas now more than ever clients will need to strategic insight DAPL advice and reliable execution that CB Ari and our people are best positioned to provide.

We have built the company for opportunities like this and intend to capitalize on it.

Now I'm going to turn the call will really a who will take you through the second quarter.

Thanks, Bob.

Turning to slide eight our advisory services segment fee revenue and adjusted EBITDA fell about 31% and 60% respectively.

As expected significant weakness in our high margin, but cycle sensitive sales and leasing businesses drove the decline.

Our advisory adjusted EBITDA margins fell to around 10%, which was impacted by revenue compression about 8 million an incremental covered related expenses and 11 million for the company's donation to our covered really stand.

Together these items reduced the advisory margin approximately 140 basis points in the quarter.

Global leasing revenue declined about 38%.

A pandemic negatively impacted our largest markets in the quarter in the U.S. Continental Europe, and the UK, which collectively comprise over 80% of global leasing revenue decreased 43%, 25% and 20% respectively.

Greater China, which comprise more than 3% of global leasing this quarter achieved 14% growth following a 26% decline in Q1.

Well there was pressure across all property types in the quarter industrial was resilient with leasing revenue declining just 10%.

We saw similar pattern in property sale with global revenue down, 48% and declines of 26% in Continental Europe, 51% in the U.S. and 76% in the UK.

Notably, we improved our U.S. market position significantly with 160 basis point share gain or 17.6% share for the quarter is 860 basis points more than our closest competitor like.

Like leasing we saw rebound in greater China with property sales climbing, 46% after decreasing over 70% in Q1.

Commercial mortgage revenue fell 28% as most capital sources pulled back from lending.

We did however, see an increase in activity from bank with a strong appetite for office and industrial projects.

The song of credit markets that began in the second quarter has extended into July.

Other advisory services business lines were less impacted by Coca during the quarter Advisory property and project management revenue fell about 8% driven by the temporary shutdown of construction activity and reduced spending on capital projects.

Hi, ration revenue fell about 12% with modest growth in EMEA and our apacs market.

Finally loan servicing revenue grew 15% as our portfolio reached 245 billion.

Our multifamily properties, which comprise nearly half of our global servicing portfolio and more than two thirds anywhere is proving to be resilient during the pandemic.

We have just a handful of London forbearance and have not received a new request since may [noise].

Turning to slide nine our global workplace solutions segment saw a lighter than usual revenue performance, but strong growth and profitability.

Facilities management, which accounts for more than 85% of the segments fee revenue and there's a contractual business saw a 7% growth.

This was offset by more technically sensitive project management and transaction services, which together posted a 33% fee revenue decline.

Even with lower contributions from these higher margin revenue sources, and 17 million incurred for coal would related expenses and 3 million for the Covenant relief Fund GW S. as adjusted EBITDA margin on fee revenue expanded more than 170 basis point to 15.4%.

Leading to adjusted EBITDA growth of more than 11%.

This is the highest quarterly margin ever for the GW Es business and our performance was driven by proactive cost management.

We sustained a high contract renewal rate in the quarter and the new business pipeline continued to increase from year end level.

Covert logistical challenges continue to hamper and prolong the can the contracting and onboarding processing yet after a pause at the onset of the cobot crisis companies are beginning to move ahead without hurting plan as they seek to capture efficiencies and a constrained economic environment.

GW asked is also a well diversified business serving clients across a wide array of property type and industries, including many deemed essential during the current crisis.

We're very proud of the work or GW S. team continues to do supporting our clients.

During this challenging time.

Turning to slide 10, our real estate investment segment adjusted EBITDA came in at 18 million down 41%. It included incremental cobot expenses, and they're really fun donation allocation, which together totaled about $2 million.

Investment management with a standout performer with adjusted EBITDA rising 62%.

That's reflected strong growth in recurring asset management fees.

Hey, when increasing 3 billion from a year earlier period as well as higher carried interest in co investment return, partially offset by lower acquisition incentive and dispositions eat.

Our focus on core and core plus strategy is highly advantageous and the current environment capital raising remained elevated totaling 11.4 billion over the past 12 months.

As Bob mentioned U.S. development is well positioned entering the downturn.

Although adjusted EBITDA fell about 55%. This was largely due to deal timing, we continue to be optimistic about second half performance as or in process activities stands at 13.7 billion.

About half of that activity is comprised of redevelopment and build to suit and the remaining assets are well capitalized with strong equity partners.

Our development business in the UK incurred and adjusted EBITDA loss of 11 million during the period.

This loss is largely attributable to transitory operational challenges due to covert 19, including temporary construction stoppages and other challenges as well as constrained sales activity.

We expect performance to improve now that construction and commercial activities have largely resumed.

Lastly, the 9 million adjusted EBITDA loss in our enterprise focus co working solution Huh was in line with Q1 performance.

Hi, this results in the period were impacted by mandated shutdowns and elevated cost to ensure the safety of occupancy as DNS reopened.

Let's now take a look at our 2020 outlook on slide 11.

Given the continued uncertainty about covered nineteens trajectory and its impact on the broader economy, we will again refrain from providing explicit EPS guidance.

However, we will discuss our expectations for the remainder of 2020 in detail.

Starting with the advisory services segment, where our revenue decline was shallower than we expected in the second quarter. We now expect the recovery in our transaction businesses to be more gradual and drawn out.

We expect revenue declines in Q3 in Q4 to be similar to that Q2 with relatively better performance outside of the Americas.

Sales and leasing revenue well off significantly in the quarter benefited from robust pipelines built before the co the crisis.

Future performance is highly dependent on pipeline replenishment and we're tracking signed confidentiality agreements and other leading indicators to inform our expectations for the remainder of the year.

For the rest of the advisory business combined we expect a mid to high single digit revenue decline.

Variable cost, which comprise about half of our advisory cost structure are expected to decline a bit more than overall revenue, we anticipate a modest mid single digit decreased and advisory fixed costs.

As it typically takes longer for our actions in this area to show an impact.

Moving to GW S., we expect gross revenue to rise in the mid single digit and fee revenue in the mid to high single digits.

Gross.

In contractual facilities management revenue offsetting and expect to define and GW as transaction revenue.

As a result of disciplined cost management. We also expect to achieved modest margin expansion, which will drive high single digit adjusted EBIDTA growth.

This growth rate includes an expected headwind from covered related items in the mid single digit range.

Our outlook is also premised on slower growth in facilities management revenue as we faced tough compares in Q3 and Q4 when facilities management achieved growth of 15, an 18% respectively.

Our first half results benefited from the high level of client Onboarding in late 2019 that drove the strong prior year growth rate.

Simultaneously, while the logistical challenges contracting and Onboarding clients are slowly receding, we did not bring on new clients. During the first half at the same pace as last year.

This is expected to weigh on growth in Q3 in Q4, and we would expect growth to resume to double digit level. Once these new client transition delayed are they.

Looking at our <unk>.

We continue to believe our core legacy business line Global investment management, and U.S. development are well positioned for the current environment and we anticipate more resilient performance than during the last downturn.

And investment management, we expect adjusted EBITDA growth in the mid teens range as higher recurring adjusted EBITDA is offset by lower contributions from net promoter as dispositions flow and lower co investment returns.

We expect U.S. development to contribute similar adjusted EBITDA as in 2019 as investors continue to have an appetite for high quality assets.

At present, nearly 80% of are in process portfolio is comprised of health care industrial and multifamily properties and office properties, there at least 90% leased.

We expect UK multifamily residential development to generate sequentially improved adjusted EBITDA in each of the remaining quarters and be about breakeven for the year.

Construction resumed during may and we remain confident in the long term trajectory of this business given the housing shortage in the UK and our robust pipeline of new projects.

Similarly, we continue to believe in a long term rationale for our investment in Honda, but expect to incur a larger adjusted EBITDA loss in 2020 than in the prior year.

This is primarily the result of additional units being brought online and 2020 as well as revenue delays due to covert 19 related shutdown and longer new unit development period.

Longer term, we see an opportunity for accelerated transition to an asset light indefinite model, partly catalyzed by dislocations in the flex based market.

Turning to slide 12, our financial position has continued to strengthen despite the challenges of coven 19.

We ended Q2 with just 0.6 turns of leverage down 0.2 turns from a year ago, and 3.5 billion of liquidity an increase of half a billion from the year ago period.

In addition, we have no debt maturing until 2023.

Given the uncertainty around the viruses trajectory and its impact on economic activity, we will continue to prioritize liquidity over discretionary capital deployment.

Once we have more confidence and an economic recovery, we will resume deploying discretionary capital inline with our capital allocation strategy.

In the meantime, we're continuing to prioritize investments in our people and platform and selective M&A.

A key focus will be companies that enhance the diversification of our surface offerings and resiliency of the overall business by increasing the scale of less cyclical business line.

Finally, we view our share price is highly attractive at current levels and could resume repurchases when appropriate if we are unable to identify suitable improperly priced acquisition opportunities.

Well the environment remains highly uncertain, we're confident that our business and our capital structure, our position to not only whether the challenges presented by cobot that build on our industry leadership position and maximize long term earnings growth.

With that I'll ask you to turn to slide 13, as Bob provides a few closing thoughts.

Thanks live the certainly has been a trying time for everyone and we're proud of how are people, who helped our clients in our company.

To navigate the covert 19 crisis.

In addition to the challenges of Coburn 19 recent months have also seen significant social unrest here in the U.S.

Which is called attention to the racial inequality in injustice that have persisted in our society for too long.

It is also highlighted the need for better progress on diversity and inclusion within corporate America.

From speaking with many of you we know that this topic is extremely important to our shareholders and you expect us to address it.

So I'll take a few moments to tell you where we are.

We've made progress with diversity and inclusion on several fronts. For example, since 2015, we have meaningfully increased diversity on both our board of Directors and management Executive Committee and put more women into key leadership roles. These are important gains that we are proud of at the same time, we must.

Due more to improve ethnic diversity at our company.

Particularly within our management and brokerage ranks.

As a challenge we are focused on an actively addressing.

Last month, we appointed our first cheap diversity officer, Tim Newsman, who has long been a senior leader at CBS sorry.

Tim has joined the 12 member Global Executive Committee that is responsible for running or company.

Report directly to me, we intend to give Tim the necessary resources in support to accelerate our progress on diversity and inclusion.

This is a priority for me personally as well as for the company.

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

Well they'll be conducting your question answer session. If you got to be placing the question could you. Please press star one under telephone keypad approximation told will indicate your line is in the question Q you may prove start to if you like to remove your question from the Q4 participants using a speaker equipment it may be necessary to pickup the handset.

Before press Star one one moment, please what we pull for questions.

First question to me is coming from if we pull from JP Morgan. Your line is now lives.

Hi, Thank you and good morning.

I think one of the call mention the deck was a run flexibility that.

That folks are looking for and wondering if part of that.

You could talk to whether you're seeing 10 inch doing more short term renewals or looking for shorter leases or just.

You know in seeking flexibility during things actually potentially reduce never commission parts in the near term.

Yeah, Tony in the short term tenants are definitively.

Trying to make short term decisions given all the uncertainty that everybody's faced with what we've learned and we have confidence about is the following and we've spent a lot of time weve surveyed our big clients you everybody knows the number of clients we have relationships with so this is what we know there will be more flexibility.

To do hybrid working going forward, there, but we'll be more work from home.

There will also be a big focus on the office on an enduring basis, something like 80% of the big clients. We surveyed said that the office will be has important.

Or almost as important as it was historically and by the way that answer came in the midst of the Kobin crisis and all that goes with the coven crisis.

The other thing we know is that space will be de Densified and so the net net of what will happen is yes, there will be more work from home there'll be less people in the office, but almost everybody will be back in the office in a less dense format. That's will play out in the long run in the short run people are trying to avoid making decisions till they have more clarity on what's going to happen.

Cobot 19.

Okay. Thank you for that and then a question on cost savings can you talk about.

You know, where where you're making those changes are you can they stick launch activity starts to come back just how to think about that and then all show the coated.

<unk> expenses that you called out in the second quarter sounds like some of those went into a fund but I'm just wondering if there's more of that common say threeq or fourq you.

Sure Anthony if we add the I would start with I thought your last part of your question <unk>. Those are primarily costs in the quarter that I won't recur unless we have significant resumption of lockdowns. So those are really onetime costs. We may have some going into the second half of the air but I don't think they'll be at the same level.

That we saw in Q1 Q2.

And then with respect to cost savings, we are actively assessing the cost structure within the business. We want to make sure that we are structured to meet the demand environment that will.

Evolves coming out of the current crisis and so that is something that we certainly are looking out and expect to address over the next quarter to too and we'll certainly be able to provide more color on that when we come back and speak with you another quarter.

Okay, and then just last question.

On the GRC business I have you seen any need or material amount. So PNR that you all had to expand without aren't getting money in the door I think those topic, maybe last quarter, just curious as to what the update as they are what you're seeing now.

We are not seeing any material amount to forbearance request, we've actually not received one since may.

And even I think it was not material.

Okay.

Thank you.

Thank you. Your next question. Please tell me from Jade Rahmani from KBW. Your line is not a lot.

Thank you very much for taking the questions and good to hear from albeit I was wondering in terms of the transaction outlook. What key factors in your mind would drive an increase in terms of investor confidence in terms of tenant confidence in their ability to consummate.

And new transactions.

So there are certainly elements around the environment with respect to.

The covered vaccine and the ability for investors to have confidence around the economic recovery that will come out of that I think that is critical to we're gaining confidence I'm part of the price discovery, that's going on right now I think starts with seeing a recovery on the leasing side to really build confidence.

On the Investor side.

So we need to see really where that equilibrium shakes out. We certainly are seeing activity continue and it's not as severe as we had expected as I said in my remarks, but I think it'll be really critical too.

Began to see leasing decisions on a larger scale basis.

Particularly on the large leasing transactions the the place where we've seen <unk>. The most significant decline is on those large.

Transactions, we still have actually seen a high volume of transactions, but on a relative basis, they've been on a smaller set of or a smaller sized deals.

So I think we really need to see confidence can background leasing that will lead to more.

The strong and confident underwriting behind our investor clients, and I think that will lead to better capital markets performance Ginger.

Are you seeing any corporate occupiers contemplate a strategy is where they are going to be looking at satellite offices, a suburban offices.

And curtail their footprint and gateway markets.

We've seen.

Some of our big occupier clients try to figure out whether or not.

Satellite formats are going to work for them almost nobody has made a definitive decision to move in that direction.

And again I think this is the circumstance where now people are really trying to figure out. How this is all going to play out before they make definitive decisions.

But there isn't a lot of evidence yet that that satellite model is going to be prominent.

And are you seeing companies make decisions to cancel or delayed plans.

Are you seeing an uptick in cancellations.

The cancellations of leases or.

Hi, good contracts that were in process, but not not fully consummated.

Yeah, I think the bottom line is everybody's trying to not make long term decisions now and they're generally willing to make short term decisions by the way, they're not making long term decisions to give up or take space in either direction.

And in Gateway markets have you seen pressure in office rents are you seeing office rents beginning to decline at this point.

There hasn't been enough big deal gateway transactions to draw conclusions in that regard I mean literally we are in an environment where people are in the wait and see mode.

You know renewals are generally happening where they've been happening at.

And just finally in the multifamily space, where she Barry is a major lender to Fannie Mae Freddie Mac could you give any insight as to how investors in that space or looking at the risk to the outlook, particularly in the U.S. based on a potential reduction and not the government stimulus programs.

So the for the G.S. ease the multi family businesses, one that's highly profitable and from a risk perspective performed incredibly well on a relative basis to the single family business that they run so from our perspective multi family provides a much more affordable and cost effective way for occupants to maintain ownership of property.

So we actually believe at the multifamily or we believe it the multifamily business under the GRC is is one that will be enduring and and resilient through this cycle.

Thank you very much.

Thank you. My next question today is coming from Steve Sockwell from Evercore ISI. Your line is now lives.

Oh, Thanks, Bob I wanted to maybe go back to comment you made about that do Densification and maybe just help us think through you guys do a lot of work with tenants in kind of laying out space you know how much more space do you think overtime those tenants could take and you know the offset would be letting people work from home.

So when you kind of those two out you know do you think what kind of flat down or up or kind of on space needs moving forward.

Yeah, I wish I could be more definitive Steve here, Here's generally what happens though.

And by the way this was happening before cobot.

You look at the percentage of your people that are in the office at any given point in time.

And then you had a buffer on top of that and you tend to size to that amount of space. So that's probably going to come down. Some if if you know 10 or 15 or 20% of people are going to work a couple of days from home a week that number will come down some but the amount of space per person.

Is going to go up meaningfully I mean offices had gotten pretty dance.

Going into covert 19, and that trend has been going on for years and years, we don't know exactly where that's going to play out.

But it could offset most of the downward pressure in the in what we're seeing from people working from home by the way I'll give you my personal view on this from having talked to a lot of clients I think the certainty about people working from home to some degree.

Is at least as high as everybody says it is.

I think the certainty about people coming back to the office is higher than the headlines out there today, because it's exciting to give a new headline to talk about all the productivity of working from home. But then you go talk to executives that run businesses that have to deal with Onboarding, new people moving managers around oversee new people training people.

Dealing with collaboration dealing with creativity and what you hear is we've got to get people back to the office. So I think both of those trends have high certainty more working from home and the importance of the office going further going forward and maybe they'll offset each other the actual math hasn't sorted out yet.

Okay. Thanks, I guess second question would just be around the on a business and we've seen sort of a big change and kinda we work in co working in general.

How are you just sort of looking at that business and you know what's the expectation moving 40 are you is excited about that business, where do you think you know that's got kind of a slower ramp to roll out and and you know what did you see on the utilization from.

Well were shut down right. So utilization is you know you can you can't get any read on utilization.

But from day, one Honda was a suites model.

It was a model that was oriented toward institutional occupiers strong focus on data security.

Strong focus on a very professionally managed environment and here's here's what it does for occupiers that we believe we'll make it had.

An important concept going forward.

It allows you to the flexibility moving out quickly without capital expenditures. It allows you the flexibility to assemble teams in a in a particular market or a different market for relatively short periods of time by the way not months, but years short and instead of five years, a year or two years, we believe that.

We'll be at least as important going forward as it was before cobot 19.

We are excited about the Honda model, we are anticipating that it will be more of a service provider model and that the landlords will actually own the units going forward.

There was a move in that direction anyway. So we think strategically Honda was oriented toward a market that we're going to see post covert 19, and about 2.2 thirds of the clients we surveyed suggested that.

[noise] co working although that they're going to call it flexible space going forward will be.

Significant part of what they do and their utilization of space in the future.

Okay, and I guess last question Lisa you made a comment about sort of preserving liquidity over discretionary capital spending, but then you said your share prices attractive.

But you didnt buyback any stock in the quarter. So I'm, just sort of try and kind of reconcile some of those comments and you know what would give you the confidence to buy back shares.

At these levels.

That comment was really around liquidity is really focused on the current environment, Steve as we think about our capital allocation policy in process and overall strategy. We ultimately see first you invest into our business our platform insured scalable ensure we have the right factory setting for operation. We then.

Look at how do we add capabilities to our existing lines of business or potentially add new capabilities that will serve our clients in the most effective in value creative way and ultimately if those investment opportunities are capped or our I'm exhausted and we don't see anything that's a attractive.

On the horizon, our next lever.

For us within the capital allocation strategy is our buyback.

Now that is something that we consider in the context of a more normalized environment.

And we want to make sure that we use our buyback and a framework within a framework that is cognizant of our current leverage in the overall economic environment and so my comments were meant to imply within our current capital allocation strategy in a normal environment, we would actually be in the market from a share repurchase perspective, but given the importance that were.

Placing on liquidity today because of the uncertainty around coven, we are taking a more conservative approach and therefore preserving capital we believe that moments and times like this can create incredible opportunities for investments that wouldn't otherwise present themselves and so we want to make sure that we aren't getting ahead of ourselves and and.

Using our more normalized normal economic environment capital allocation strategy too early and so was really providing you context that we're still committed to that that strategy. Once we have conviction that the recovery isn't site.

Okay. Thanks, that's it for me.

Thank you next question today is probably from Stephen Sheldon from William Blair. Your line is not a lot.

Hi, Thanks.

On the new business pipeline and GW at our sound like that's going to continue to expand nicely here. So I guess.

Is there anyway to quantify how much improvement you've seen the pipeline there over the last few quarters and just some more detail on the types of client clients in the arrangements, where you're kind of seeing traction right now.

So the GW Es business the pipeline is actually up double digit from a year ago period.

We're seeing activity across many different sectors life Sciences.

TNT industrial so I think overall, we're seeing lots of opportunities across many different areas of our client base, they're pretty similar to what we saw last year, but certainly the pipeline is up I would add the pipeline continues to grow its just the period of transition from when we signed a contract to then go into full trend.

Addition, though that's the part that has presented a challenge for US just in terms of.

Driving growth out of that pipeline, we certainly arent seeing a lack of interest in our service offerings. It's just.

You know we're in a moment of a crisis and there's a bit of a a pause in terms of decisions that are being made not just on our leasing and advisory business, but also within our occupier outsourcing.

Outsourcing business. So as soon as we begin to see momentum convert from that pipeline into transitions and ultimately allow us to begin.

The timing those new outsourcing contracts.

I think that business will be back on its normal double digit trajectory going forward.

Got it and then with within investment sales I guess, if theres still lot of price discovery going on.

Have you seen any convergence broadly and bid ask spreads, especially with more economic data point dependent I began that could be used in underwriting.

And Additionally, what trends are you seeing in terms of distressed sale activity a mother back over the next few quarters.

So in terms of bid ask you're right I think going back to my earlier comments, we certainly believe that leasing a resumption of large transaction large leasing transactions will help drive confidence within our capital markets business, a and particularly the large.

Our key transactions, we have seen some trade.

EMEA APAC, we're certainly doing much better relative to the U.S. from that perspective, and so from from where we sit today I wouldn't say that we believe that there is.

Hi, competence, we as I said in my prepared remarks, we expect the second half to be a continuation for our transaction businesses of what we saw on Q2, it's just uncertain given all of the cobot related issues. If we do see a second wave whether or not.

There will be an opportunity for more price discovery with respect to distressed sales there are some but I I would say investors are being very patient I think it's important to remember that coming into the public health crisis.

This was not a and over.

Stretched industry from an underwriting perspective, there was discipline on cap rates were strong and it.

Wasn't a situation, where there was over leverage and and significant.

Bubble like activity. So we feel really good that owners and our owners of properties today are sitting there and have the ability to be patient and not and can weather.

This crisis.

Makes sense. Thank you.

Thank you. My next question today is coming from local phone for Bank of America. Your line is alive.

Yeah. Thank you very much anymore.

Thank you for the qualitative guidance actually very helpful. When I understand your comment about the linkage between.

Leasing in sales activity, but just so I understand that so.

We're assuming based on headlines that.

Properties jump again.

Susan till sometime in 2021, it's fair to assume your baseline into that these trends continue well into 2021.

It's really too early to speak to and again, we're just providing qualitative guidance were 20 because of the uncertainty around the economic outlook and how that relates to the current covance environment I'm, we're watching so many different indicators across the disease, the macroeconomic landscape and within commercial real estate as an industry.

And as we get more conviction that the how that will lead into 2021 and the business trends will certainly provide that color. Michael I think it's just too early to say, how it will trend how it will translate.

Today.

Okay, and then on the on the relatively strong trends in Germany.

In Mexico.

So you see continuing through the remainder of a year or reasonably though.

Change direction.

There was there were some a marquee asset transactions that happened in and our Germany business I would say, China certainly was a resumption of activity post the locked down you know that certainly was a bright spot for the quarter, but I think those markets are smaller we tend to see more volatility in it.

Form into those markets and I would say just pointing to our broader statements around how we but how we believe the second half will play out we think that our international businesses will likely be a bit stronger just because we do have that diversification, whereas in the U.S.. We certainly have a strong belief that it will be more muted environment.

And what are your comment on price discovery against that.

Implies that people are clean tend to eight or at least paying attention to.

You know to cap rates available assets.

If that is true Europe early conversations with potential investors can you give us the color on.

Spread it today, let's say cap rates were.

3% for an asset last year.

Where is that potential did today.

Again, there haven't been enough transactions to really give you a strong conviction to to lead to strong conviction on my part that I can answer that question with any certainty.

I would just say that there are certainly our investors who are watching closely what's happening and all the markets. I think there are opportunities for domestic capital, where you know cross border capital may be constrained due to travel restrictions.

That's correct presents unique opportunities for pension and other funds, who may have historically been you know sitting on the sidelines because the level of competition from foreign capital.

That gives them pretty unique opportunities for investors and market to capitalize on distressed sales if there if they're presenting themselves, but I would just say the volume of activity. It's just not sufficient enough for us to be able to say today, what the bid ask is.

And then one more I said please.

We're assessing the cost structure, sorry, I didnt hear any any target range for cost savings do you have a target range for cost savings.

We certainly do but I don't Wanna get ahead of ourselves I think from from my perspective sitting here today, it's important for us to take a step back and look at the done the overall demand environment, that's developing as it relates to all the different lines of businesses that we currently operate and make sure that the business and the the cost structure that we have going into 2021 is rightsized.

And so I don't want to jumped any conclusions as to what that will look like because we are watching several indicators in several trends develop but we certainly are actively assessing opportunities across the platform to make sure that we are rightsizing the business from a fixed cost perspective, as we head into the second half of the earned 21.

Okay. Thank you.

Thank you we showed about question answer session well, that's a trigger for back over to management for any further closing comments.

Thanks, everyone for being with US and we'll talk to you at the end of the third quarter.

Thank you that does conclude today's teleconference. You may disconnect. Your lines is timing of a wonderful day, we thank you for your participation today.