Cushman & Wakefield PLC

NYSE:CWK

Earnings Call Transcript 2020-Q1

[Operator]

Welcome to Cushman & Wakefield's First Quarter 2020 Earnings Conference Call. [Operator Instructions] It is now my pleasure to introduce Len Texter, Head of Investor Relations and Global Controller for Cushman & Wakefield. Mr. Texter, you may begin the conference.

[Len Texter, executive]

Thank you, and welcome to Cushman & Wakefield's First Quarter 2020 Earnings Conference Call. Earlier today, we issued a press release announcing our financial results for the period. This release can be found on our Investor Relations website along with today's presentation that you can use to follow along. These materials can be found at ir.cushmanwakefield.com.

Please turn to the page labeled forward-looking statements. Today's presentation contains forward-looking statements based on our current forecast and estimates of future events. These statements should be considered estimates only, and actual results may differ materially.

During today's call, we will refer to non-GAAP financial measures as outlined by SEC guidelines. Reconciliations and definitions of GAAP to non-GAAP financial measures can be found within the financial tables of our earnings release and appendix of today's presentation.

Also, please note that throughout the presentation, comparison and growth rates are to comparable periods of 2019 and are in local currency. For those of you following along with our presentation, we will begin on Page 5.

And with that, I'd like to turn the call over to our Executive Chairman and CEO, Brett White.

[Brett White, executive]

Thank you, Len, and thanks to you all for joining us today. This call is going to be a bit different than most earnings calls that we conduct. Some metrics and information we typically provide have little value at the moment, in particular, prior quarter data as an indicator of future performance. Other metrics we don't usually discuss have significant importance at the moment. So we're going to cover those matters we think matter most. In our Q&A session, you are, of course, welcome to ask whatever you like, and we will answer what we can.

I want to begin today by recognizing and thanking our many thousands of Cushman & Wakefield colleagues who have shown a level of bravery and courage, commitment to their jobs and our clients which, frankly, is beyond anything any of us could have expected. While most of us spent the past almost 2 months in our homes with our families, these thousands of employees went to work each and every day, taking care of the 5 billion square feet of buildings we maintain on behalf of our many clients. Some of these facilities, such as New York-Presbyterian Hospital, were in the very epicenters of the worst this pandemic has brought to bear on the world. To each and every one of you, on behalf of our clients and every one of your 53,000 colleagues here at Cushman & Wakefield, thank you. You are an example for us all and your bravery and commitment will never be forgotten.

I can speak from experience that sound advice and an ability to solve problems in a challenging and uncertain time is a critical differentiator to our clients. I believe this crisis will ultimately drive an increasing volume of activity to the big 3 firms: CBRE, JLL and Cushman & Wakefield, which each possess unique capabilities to serve clients in these unsettled times. In addition, we believe this pandemic will further accelerate the differentiation between these 3 large global firms and the rest.

Perhaps most encouraging to us has been the differentiation we have achieved here at Cushman & Wakefield, among the big 3 due to our generally acknowledged global leadership position on the complex topic of how the global workforce returns to the workplace. 2 weeks ago, we hosted a webcast to walk landlord and occupier clients through best practices from our almost 300-page manual on reopening the workplace. We expected a few hundred people on the call. And instead, we had over 12,000 callers, representing over 8,000 companies. And of course, many of these companies and callers were likely current clients of our competitors who ended up turning to Cushman & Wakefield for advice and counsel.

Despite the economic slowdown, there is still much work to be done. Businesses continue to run. Buildings are still operational and in need of maintenance, sanitation and cleaning. And when the time comes, many places of work will reopen, resuming business in an environment that would feel like anything but normal. We have remained agile in our response to the pandemic and are uniquely positioned to lead recovery readiness efforts for our clients. We're applying our learnings from our experience in China, where we completed moving 10,000 companies and nearly 1 million people back into 800 million square feet of buildings we manage in China. And we are using those insights and best practices to provide our clients customizable, cost-effective solutions for returning to work.

Additionally, we formed the Recovery Readiness Task Force of our top experts to lead the development of best practices, products and partnerships to prepare clients for post-COVID-19 recovery and the eventual return to the workplace.

From our earliest days of creating the new Cushman & Wakefield, we built this firm on the learnings from the past and specifically, the learnings from the downturns of 2000 through 2002 and then the global financial crisis in 2008 through 2010. We focused on building a firm with a large amount of recurring revenues, strong liquidity and a senior management team that have been battle tested to the best and the worst our industry has faced. Because of this, we built ample liquidity, including cash on our balance sheet and a large revolver, which we have expanded over time. We did this so that when a black swan event occurs as they will and do, we not only do not need to worry about liquidity issues, we have surplus liquidity, which we can deploy towards accretive and attractive investments.

Finally, as we have clearly stated from our very first roadshow, we focus on operating margins and in turn, expense management as a day-to-day practice. All of this, put us in a somewhat unique position in late March when the scale of this pandemic became clear. We had also just completed most of the actions related to our November 2019 strategic realignment and efficiency program, where all the cost reductions are expected to be permanent. So while other firms are only recently beginning their plans on austerity, we began our plans months before the market turned down.

And as I mentioned above, because this team has led 3 of the largest firms in this industry, the playbook on additional temporary and permanent cost reductions is well-known by us all and was implemented immediately. These reductions cover all the usual categories and span across the organization. These 2 large actions, the 2019 strategic realignment program and the additional austerity program, are anticipated to have an annual impact of over $400 million. Although there will be some ramp-up over time, we expect the impact of these actions to be significant in the second quarter. These benefits are in addition to the expected reduction in fee-earner variable compensation expense and the reduced spend on materials, subcontractors and direct-to-client labor that follow from lower revenue.

In addition, we immediately adjusted our models on company performance. At Cushman & Wakefield, we run 3 models annually for the firm. Our downside case has always been built on metrics that approximated a rough midpoint between the GFC and the downturn of 2000 and 2002. Our base case is always our annual operating plan. And while our upside case isn't much of a focus, in good years, it does set a range of possibilities should markets perform better than expectation. We manage liquidity always against our downside case and our day-to-day expense and capital allocation against our base case. So when the downturn hit in March, we simply adjusted these models down.

While we are not going to share the specific inputs to these models, we will say that the downside model sets a low point that we feel will not be hit. Think of it as a stress test of performance, cash flow and liquidity. So our playbook is fairly simple. Test liquidity against a worst-case scenario that has a low chance of occurring, manage the business against a lower base case, hope for a more optimistic upside case to occur but never ever count on it. To put it clearly, we have a formula for financially managing our business that we feel is a distinct differentiator and competitive advantage for our company. Our approach is scientific, data-driven and conservative.

With that, let me speak again to our firm's liquidity. At the end of the first quarter, we had around $1.4 billion in liquidity on our balance sheet and recently expanded our revolver to $1 billion and repriced our term loan saving over $13 million in annual interest expense.

In summary, Cushman & Wakefield is a much stronger company than it or our 2 largest peers were in the global financial crisis with more than ample liquidity and a diversified revenue base weighted towards recurring revenues.

Now I'll give some color on overall business activity and client engagement over the past month. First, let me begin with our biggest business by revenue, which is our property facilities and project management business, or PM/FM, which represents almost half of our overall revenues. As many of you know, the services that comprise most of this segment are, in many cases, essential and required as part of the operation of a commercial building. For example, cleaning, security and building maintenance are all functions that are required of building owners at all times.

Additionally, as you know, these services are executed on a contracted basis with highly visible revenue streams. To date, we have seen no negative material change on the renewal rates on contracts with our PM/FM clients. And in fact, Cushman & Wakefield is working with many of our larger global occupier services clients on strategic space planning for a return to work for their employees as quarantine restrictions around the world begin to lift.

Our next largest business is our leasing service line, which accounts for approximately 30% of our total fee revenue. As we have noted in the past, we believe approximately 3/4 of aggregate leasing volume is represented by renewals of current leases. We have cited this in the past as have our competition to note that a significant portion of our overall leasing volume is highly visible in nature. Across our leasing business, we have seen deals that were in process slow but not stopped. And some deals, large and small, continue to be completed.

In periods of uncertainty, clients often prolong lease renewal decisions, which could delay but rarely cancel transactions. We can say with certainty that our leasing professionals remain in active dialogue with both real estate owners and occupiers on deals, both for renewal and for new long-term space planning requirements.

Lastly, let me speak to our capital markets and our valuation service lines, which represent the smallest proportion of our total revenue at roughly 15% and 8%, respectively. In the short term, we expect capital markets revenues to be more impacted than leasing. We expect the second quarter to have the most significant impact on our capital markets business in terms of year-over-year decline with some sort of recovery in relative terms during the rest of 2020 and beyond.

Now to give you some context on how recent events have impacted our results, let me provide some color on trends in the first quarter. I'll begin by saying that our PM/FM and Valuation service lines all performed strongly over the first quarter. Leasing showed some weakness in March, but we were also covering a very strong first quarter 2019 for leasing, both in the Americas and globally. Roughly half of the 2% decline in our first quarter revenues was driven by the deconsolidation of our PM/FM revenues in China as a result of setting up the Vanke joint venture. However, the joint venture was accretive to EBITDA in the quarter. Duncan will speak to this impact in more detail.

Our brokerage businesses, after a solid start to the year, experienced sharp declines in March. Leasing revenue in March declined 28%, and capital markets was down about 13% for the month. Certainly a precursor for steeper declines to come. PM/FM, including the impact of the Vanke joint venture, and Valuation and other were up mid-single digits over last year in March.

Finally, before I turn the call to Duncan to detail our financials, let me speak briefly to our 2020 outlook. As you saw from our earnings release, we are withdrawing our full year guidance, given the lack of visibility to revenues. What we can provide are the following expectations: First, not surprisingly, we expect the second quarter to experience the sharpest relative decline in revenues versus prior year, especially in our brokerage service lines. We would expect the impact of capital markets to be higher than leasing in the short term. And we expect PM/FM to remain relatively stable during 2020. However, there is some room for optimism that the declines in future quarters will be less, although at this time, we do not know how this will play out. We can't tell exactly what the depth of the decline in revenues will be or how revenue trends will impact our mix, but as a rule of thumb and given our diversified business mix and decisive cost actions, we would expect the [ EBIT ] decline in 2020 as a percent of our fee revenue decline to be in the mid-20% range. We are confident in our company, our employees and our ability to serve our clients no matter what the coming months may bring. Our actions have been fact-based and decisive, and our financial strength is not in doubt. Our senior executive team has extensive experience in managing through downturns, and Cushman & Wakefield will continue to play a strong leadership role in helping our clients and our industry manage through this period and into recovery.

And with that, let me turn the call to Duncan to discuss our financial results in more detail. Duncan?

[Duncan Palmer, executive]

Thanks, Brett, and good afternoon, everyone. Before covering our first quarter results and the trends we are experiencing in the business, I want to expand on a couple of items that Brett mentioned.

First, liquidity. Our financial position is strong. We ended the first quarter with $1.4 billion of liquidity, consisting of cash on hand of $380 million and a revolving credit facility of $1.0 billion. We had no outstanding borrowings on our revolver. We completed our IPO with a very strong financial position. And since then, we have enhanced our liquidity, most notably by increasing the capacity of our revolver to $1 billion late last year.

Our liquidity position has been built to be more than adequate to fund our operational requirements and an economic downturn impacting our results. We, therefore, view part of our liquidity is available to fund investments such as infill M&A in the consolidating industry, and we have seen in the past that such opportunities can come along at any time.

In response to the current economic crisis, we have built several scenarios of the impact on our business in the short to medium term. These are updated with new data and assumptions on a regular basis. It is our belief based on our current scenarios that we have ample liquidity to withstand the impact of the current economic outlook. Furthermore, although we have suspended almost all investment in the short term, we will stand ready to take advantage of attractive opportunities should they arise, provided that our scenarios continue to be supportive. We would consider adding additional debt capital to further enhance our liquidity position to support our financial flexibility if markets become attractive.

I would remind you that the period-end financial leverage covenant is only applicable to the company if we exceed $408 million of borrowings on our revolving credit facility, that is 40% of the borrowing capacity, which we also don't expect to occur.

Second, cost actions. On our year-end earnings call in February, we announced actions focused on strategically realigning our business. A significant pillar of this was focused on driving operating efficiencies in both employee and nonemployee costs. By the end of March, we had completed a substantial portion of these actions, which we confidently expect to produce benefits starting in the second quarter, ramping through -- throughout 2020 and reaching full run rate benefit in the first half of 2021.

As you would expect from us, as soon as it became apparent that the COVID pandemic would impact our businesses outside of China, we developed plans and took actions to reduce costs over and above our previously disclosed program. These have included an almost total reduction in travel and entertainment and events, reduced spend on third-party suppliers, imposition of furloughs and part-time work schedules in impacted businesses and executive and staff compensation cuts. Taken together, we expect that our cost actions will exceed $400 million in annualized impact and that the impact discretely in the second quarter will be more than $75 million.

In addition, we will, of course, see a lot of cost come out as revenues decline across different service lines and geographies. These will include broker commissions, fee-earner profit shares, direct client labor and materials and third-party subcontractor costs. We have also taken steps to reduce our capital and other investment spend. We are not currently investing in infill M&A as no attractive targets are currently available, although we did announce 4 deals early in the first quarter pre-crisis with substantially all the capital deployed in PM/FM service lines.

With that backdrop, on Page 8, we summarize our key financial data for the first quarter. Fee revenue of $1.3 billion was down approximately $52 million or 2% as compared to last year. Over half of this decline was attributable to the deconsolidation of our PM/FM business in China as a result of the joint venture we formed with Vanke Services. On 6th of January 2020, the company formed a new asset services joint venture with Vanke Service, a leading Chinese real estate provider. This joint venture has more than 1,000 commercial property and facility management projects in over 80 cities across Greater China, with more than 20,000 employees. The company owns a 35% interest in this joint venture and accounts for its investments using the equity method of accounting. This JV was accretive to adjusted EBITDA in the quarter.

In the first quarter, PM/FM growth was in the mid-single digits, including the impact of the Vanke JV. This growth as well as our growth in our Valuation and other services line helped to offset weakness in our brokerage businesses, where leasing was down 18% and capital markets 4% versus prior year.

First quarter adjusted EBITDA of $70 million was down 19% as compared to prior year, primarily due to lower leasing and capital markets fee revenues, most notably in March, partially offset by the early impact of some of our cost reductions.

Moving on to Pages 9 and 10, where we show fee revenue growth rates by segment and by service line. As I mentioned, our leasing and capital market service lines were down 18% and 4%, respectively, for the quarter. This decline was driven by activity in the month of March and largely in our Americas and EMEA segments. Globally, leasing was down 28% in the month of March. Similarly, capital markets was down 13% globally in the month of March, principally in our EMEA and APAC regions. Offsetting these trends was growth in our PM/FM service line. Within PM/FM, facility services represents just under half of this service line's fee revenue. In facility services, we typically self-perform or subcontract a variety of services through our major operations in both the Americas and APAC. This business generates solid cash flow on a stable revenue stream and on an annualized basis, typically has low single-digit growth.

Fee revenue growth in facility services was 8% for the first quarter, driven by new business wins and expanded scope in some contracts. The rest of our PM/FM service line, which comprises our occupier outsourcing, property management and project management operations grew at a low single-digit rate and a low double-digit rate, excluding the impact of the revenue contributed to the joint venture in China.

With that, we will start a more detailed review of our segments, starting with the Americas on Page 12. Fee revenue in our Americas segment was down 1% for the quarter, lower leasing activity, down 20%, was partially offset by PM/FM, capital markets and valuation and other, which were up 9% and 5% and 7%, respectively. In our leasing business, we lapped a very strong quarter in 2019, in which first quarter growth was 21%. Substantially all of the decline in leasing revenue was in March.

Within our Americas PM/FM service line, our facilities services operations represent a little over half of our fee revenue. Facility services fee revenue was up low double digits from growth at existing clients and new business wins. The rest of the PM/FM service line grew at a high single-digit rate.

Growth in capital markets of 5% was principally driven by the continued momentum of recent broker investments that began positively impacting our results in the fourth quarter last year. Americas adjusted EBITDA of $64 million was down 8%, primarily due to the impact of lower brokerage revenue.

Moving on to EMEA on Page 13. Fee revenue increased 5%, led by double-digit growth in our PM/FM service lines, which was up 25% as well as our valuation and other service line, which was up 6%. Partially offsetting these trends were our capital markets and leasing service lines, which were down 16% and 14%, respectively. Adjusted EBITDA was a loss of $3 million, a deterioration of $3 million, principally due to lower brokerage revenue in March.

Now for our Asia Pacific segment on Page 14. Fee revenue was down 14%, principally due to the impact of the joint venture formation in China as well as lower leasing and capital markets activity of 12% and 42%, respectively. Capital markets was down primarily due to a slowdown in activity in Hong Kong. Putting aside the impact of the joint formation in China, PM/FM grew roughly at a high single-digit rate for the quarter. PM/FM represents roughly 2/3 of the fee revenue for the segment. Facilities services operations in APAC were down 5%.

Adjusted EBITDA of $10 million was down 44% for the quarter, primarily due to the impact of lower brokerage revenue.

Turning now to Page 15. In summary, the COVID-19 pandemic has disrupted global economic activity on an unprecedented scale. The near-term business outlook environment remains highly uncertain and we have limited line of sight to revenue trends, especially in our brokerage business. As such, we are withdrawing our guidance for 2020. We expect the most severe year-over-year declines to be in the second quarter as the trend we saw in March in our global brokerage service lines continues. The order of magnitude of the decline is unclear, but we would generally expect the decline in capital markets to be higher than that in leasing. Based on various economic forecasts, we would expect the degree of year-over-year brokerage revenue declines in later quarters to be less severe than that in the second. PM/FM represents roughly half of our total revenue and is expected to be relatively stable during 2020.

As you can imagine, it is hard to predict the trajectory of revenue with all that is going on. However, using our different scenarios and baking in the significant cost actions we have taken to mitigate the revenue declines we expect to see in the near to medium term, we think that as a rule of thumb adjusted EBITDA could decline in 2020 as a percentage of fee revenue decline by an amount in the mid-20s. This depends on a variety of factors, as you can imagine, including the severity of revenue declines, timing of a recovery and the mix of businesses affected over time. As Brett said, you can be confident that whatever the pandemic outcome and economic impact, we will continue to focus on the welfare of our employees, supporting our clients, the financial strength of our company and our profitability, both in 2020 and for the long term.

And with that, I'll turn the call back to the operator for the Q&A portion of today's call.

[Operator]

[Operator Instructions] Your first question comes from the line of Anthony Paolone from JPMorgan.

[Anthony Paolone, analyst]

Okay. My first question relates to the cost savings and the EBITDA margin brackets you gave -- I appreciate the incremental margin in the mid-20s that you highlighted. How do we think about the cost savings and whether that's kind of loaded into using that as a bracket? Or is that phasing in of the $400 million kind of separate from that?

[Brett White, executive]

I'm going to let -- Anthony, this is Brett. Before I turn the call to Duncan, I do want to mention that during our prepared comments, we got some notes that we were not coming through clearly on this line. We apologize for that. I just want to remind everyone, Anthony, on the call that our script will be posted on our IR website in just a few minutes. So again, apologize for the quality of the phone call. Duncan, I'll let you handle that question.

[Duncan Palmer, executive]

Yes. Thanks, Anthony. So yes, the answer is it's all in, right? So that -- we talked about the annualized basis of $400 million of savings. That is included then in that sort of mid-20s rule of thumb. So that is after taking account of those cost reductions.

[Anthony Paolone, analyst]

Okay. And then how much -- like that $400 million, like how much did you end up spending? Or do you anticipate spending to achieve that? And is it the kind of number that should stick? Like, for instance, if you had done that, I don't know, 18 months ago, would you've just added that amount of money to your 2019 EBITDA? Like how should we think about that?

[Brett White, executive]

Duncan?

[Duncan Palmer, executive]

Well, yes, it's a mix of things, right? So if you go back, remember on our Q4 earnings call and Investor Day, we talked about the permanent cost reductions we're doing as part of the strategic realignment. And I think we made disclosure of what we expect there's kind of the cost to achieve for that to be in the 8-K around about that time. I've forgotten exactly what we disclosed around that. But it was a significant amount of money according to sort of achieve those savings, as you might expect, severance and things of that nature. A lot of the savings we're now putting in place in response to the crisis we faced, it includes things like reducing travel and entertainment, reducing events.

I think I went through a list of furloughs and staff compensation cuts and part-time work. And so there isn't actually, frankly, a great deal of cost to achieve associated with a lot of that. On the other hand, it's some of those costs are the kind of costs that are somewhat activity driven. So as activity returns, some of those costs might come back. So a little bit of that is directly in response to the fact that we're running essentially a business that's facing lower revenue so we're responding to that. So it's a different nature of cost. So it's less of a -- it's a different sort of cost action in that respect.

[Anthony Paolone, analyst]

Okay. And then just last question for me. Can you give some sense as to how much of sales and leasing for you all is driven by, say, the office business versus industrial versus, say, retail?

[Brett White, executive]

Sure. I'll be happy to handle that. So if you look at the company, and I'll just give you Americas because that's by far the biggest business. About 56% is office; 18% industrial; a very small amount, 6% is retail; 5% is land; and then about 15% would be multifamily sales.

[Anthony Paolone, analyst]

And those numbers are for the Americas, just so you know.

[Brett White, executive]

Yes.

[Operator]

Your next question comes from the line of Vikram Malhotra from Morgan Stanley.

[Vikram Malhotra, analyst]

I just wanted to clarify on the cost. I guess maybe just stepping back, could you give us a sense if we look at sort of cost of services and the G&A. Can you give us a sense of truly what is sort of variable? I mean commissions obviously move. But I know there are differences by geography, where maybe there's a more fixed pay versus commission in, say, Asia or parts of Asia. So can you give us a rough sense, if you just break it out percentage-wise, like truly what is variable versus what is fixed? And then apart from just natural cost coming down because of lower activity, what other steps can you take assuming you just see depressed activity for a prolonged period this year?

[Brett White, executive]

Duncan, why don't you hit the regional -- hit the question on the regional commission rate. Have you want to hit that? I'll take the second piece.

[Duncan Palmer, executive]

Yes. So obviously, a lot of the disruption we're expecting to see this year is going to be around brokerage service lines. And brokerage service line compensation does vary, as you mentioned, by region, by business, and it does vary a bit in the U.S. It's substantially all commission-based systems. So obviously, those commissions come down as revenue comes down. It's essentially a variable cost. In Europe and certain parts of Asia, there's a profit share-type arrangement for a lot of the fee owners. So again, as profit essentially gets reduced by lower revenue. We would expect profit share to be reduced as well. So that's kind of a variable -- it doesn't come down as much as revenues, it comes down with sort of profit that they share in. So that's how that gets reduced, but obviously, that's going to get reduced substantially as revenue comes down.

And then there are other commission arrangements, different kinds of arrangements, some salary and bonus type arrangements, rather smaller in nature. But generally speaking, those people who are kind of facing brokerage type revenues and reductions in that brokerage type revenue we might expect to see then that, that kind of cost is going to come out with that revenue, right? And then obviously, we have some other costs in our PM/FM service lines, a lot of PM/FM is going to be, frankly, fairly stable over the year, but there will be some pockets where it goes up, so pockets where it goes down. In the areas where it's coming down, there's a lot of direct client labor. There'll be consumable products. There'll be passed-through labor, third-party labor that's passed through. So that's all going to come out when the revenue comes out. So that kind of -- there's a lot of cost depending on how much revenue comes out. There'll be a lot of direct cost comes out with that.

When it comes to the cost actions we're taking, with respect to the $400 million of annualized savings we talked about, that is all coming out of what you might think of as fixed in the context if it's not variable, right? Now some of it's -- some of it's semi fixed, some of it is sort of fixed, right? So obviously, there's a lot less activity around marketing, around travel and entertainment, around events. I mean one could think of some of that as coming out, one could think of that as activity-driven and somewhat semi-variables, semi-fixed in nature. But that's coming out as part of that $400 million of annualized we're talking about.

[Brett White, executive]

Just on the things you do as -- if this becomes a more prolonged event, first, I got to say, just to add on to Duncan's comments, even in those jurisdictions where we have fee earners paid salary and then a profit share south, what they do there is they will move those salaries down as well. So each region -- they certainly don't move in lockstep, and I can't tell you that 50% of every brokerage dollar is going to go away. That is a case in the U.S., actually more than that. But in Europe, for instance, they will move down salaries on fee earners just as if it were a bit of a commission. So these numbers are very, very significant. Not -- we're not going to give you numbers because we don't know if they'll be in that bucket because they depend on revenue decline. But certainly, you could imagine that bucket being equal to or greater than the $400 million we talked about in explicit cost actions.

And then as you think about duration here, we have already -- through the work that we started in November of 2019, we already -- and to our great benefit, already did a very significant realignment of the company. That work is not done. There are many more projects associated with that project that we expect to commence and complete over the next couple of years regardless of the duration of this downturn.

So the point I'm trying to make you is this, is that we have always been -- and you know this, we have always been very, very vigilant around running this business with a proper cost structure, and that is going to be the case, good market and bad. So whether the duration of this downturn is 2 quarters or 8 quarters, our efforts around those cost-management issues are going to be relatively the same. Certainly, last point I'll make, if the world went to hell in a hand basket, like it did in the GFC, there are a number of other measures that you can take that are temporary. But at the moment, we don't see that as being the case.

[Vikram Malhotra, analyst]

Okay. Fair enough. And then I guess just -- you talked -- I mean, you mentioned, and I guess in the release also that you're well prepared to eventually take advantage of any opportunities that may arise when they do arise in terms of M&A. Can you maybe just give us a little bit more color in terms of priorities by maybe businesses, business types? What would you be focused on, let's just say, 6 months from now, so coming out of this, and you're looking to grow externally?

[Brett White, executive]

Sure. Well, there's -- it's a great question, and it's a bit of a complex answer. So let me first begin by saying that our priorities for the company have not changed. And we have been very focused, as you know, on continuing to build out, first, our recurring revenue business lines such as Property management and facilities management. And certainly, if a high-quality property management business came to market today or in 6 months or in a year, we'd be very interested in that business regardless of market cycle. But then there are opportunities that are generational. And I remember when I was running another firm in this industry back in the GFC, we got through the GFC and put a lot of work into that. And shortly after we began coming out of GFC, a generational opportunity arose, which was the Dutch government asking ING to dispose of their real estate investment management business, which managed $65 billion of AUM.

We did not expect to see that coming ever. It was an opportunity that was very attractive to us, and it transformed the asset management business at that other firm. So it's impossible to say what will come from this downturn. If anything, the longer the downturn lasts, the more opportunities will come from distress. If it's a fairly short downturn, maybe very few. Certainly, the distress would come from the usual places. So businesses in our industry that are only capital markets businesses are going to get hammered. And those businesses, we don't know what capital markets revenues are going to do. But certainly, at least for a short period of time, they could be very, very low. So we're watching those.

Businesses that don't have a lot of recurring revenue, so brokerage companies that are in the marketplace, they're going to feel the pain much, much worse than the big 3 firms. Well, we'll be watching those firms carefully. But the primary priorities for the company haven't changed. We love the recurring revenue businesses, we would be interested in asset management. If something particularly attractive came at great pricing, probably won't, but you never know. And then if there's real distress in the marketplace, and we can buy very cheaply, some folks that are on the ropes, we would look at those probably across all of our business lines.

[Vikram Malhotra, analyst]

Great. And then just last one, if I may. It's an early debate and one which will probably take a while to play out. But this whole work-from-home experience and the potential impact to how people and employers use their office space and maybe impacts the property management. Just any early or high-level thoughts based on conversations you may have had with some of your key tenants?

[Brett White, executive]

Sure. So it's interesting, Vik, this is a very fluid conversation. I would tell you that in the early days, all of 6, 7 weeks ago, many companies and many CEOs were talking about the fact that they were surprised at how well they were able to operate their companies with all of their employees or most of their employees working from home, which then led to the immediate, I think, visceral reaction of gee, if this works this well this way, why don't I leave some of these people at home and cut my footprint." That conversation has changed demonstrably. It's changed for a couple of reasons.

The first is that as those same CEOs and those same businesses begin to work with their real estate department internally or advisers like us, what they realized was it to create the -- an acceptable floor plan in 2 weeks or 3 weeks from now, they can't accommodate half of their current employees. I have one CEO tell me, he's said, Brett -- of a very large bank. He's said, "Brett, right now, our math, our people tell us, we would need to double our global print to put people in our firm back to work." He said we're not going to do that. We say we may have to take additional space, and we're looking at some of the vacant WeWork space and some other things. But what we're going to do is rotate our employees through the building, and we may have no more than 25% or 30% of our workforce in a building at any given time, but very few of that workforce will be at home permanently. I think that is analogous to what generally people are talking about in the market.

Certainly, we have all learned over the last 8 weeks that the productivity of people at home right now is much higher, I think, than any of us thought it would be. But I do not believe that it's fundamentally changed the view of large corporations that there are very big benefits and larger benefits to the synergy of having people work in the same proximity, the synergy that comes from that. My guess is that you will see an incremental impact on office usage. I think it will be in the single digits. But what we are going to see is a very, very different way in which that space gets used. The number of people that are in that space at any given time, those things are changing for sure.

[Operator]

Our next question comes from the line of Josh Lamers from William Blair.

[Joshua Lamers, analyst]

So obviously, the impact of COVID on leasing and sales was felt in APAC for most of the quarter. So I'm wondering if you would say that the results there is sort of a good proxy for sales and leasing outlook in other regions? Or is there a difference in maybe product diversification or regional coverage that would cause the difference in results there versus other countries or regions?

[Brett White, executive]

I'm sorry. So you're asking -- I'm sorry, you're asking did -- ask the question again. I'm not sure I'm following.

[Joshua Lamers, analyst]

Yes. Yes. Yes. So just to put it more basically. Just wondering if we can use kind of APAC sales and leasing results, as sort of a guide or proxy for other regional outlooks in the coming quarters? Or whether there's a difference in product exposure, property exposure or regional coverage in that region that might cause a difference in results?

[Brett White, executive]

Yes. I think...

[Duncan Palmer, executive]

Do you want me to take that?

[Brett White, executive]

Sure. Go ahead.

[Duncan Palmer, executive]

So I think where you're going is, if China is recovering first, maybe we can use that as a future indicator of what might happen in the rest of the world. Is that kind of the question?

[Joshua Lamers, analyst]

Well, the results that was sort of -- that were experienced in the first quarter, right, recognizing that China, for the most part, APAC in general, COVID impacted results there throughout the first quarter as opposed to just the tail end of March where it was felt in the Americas. So I'm just wondering again, I know it's probably too early to tell, but just trying to get a gauge for maybe how pipelines look for leasing and sales on the region and so on?

[Duncan Palmer, executive]

So yes. Okay. So I'll give -- I'll chip in and Brett can chip in. I think look, so APAC in Q1 in leasing capital markets, I don't think you should really read across too much. One of the big impacts, for example, in Q1, in APAC in capital markets is that last year, we had an incredibly strong Hong Kong Q1. And obviously, Hong Kong doesn't [indiscernible] COVID has gone through a lot of disruption in the second half 2019 and that obviously has disrupted capital markets in the first quarter on a relative basis to the first quarter of last year. So I don't really think you can read across too much in terms of trends in leasing capital markets as to what they'll be.

Having said that, I think what we said about trends in the world generally in leasing and capital markets probably apply to all regions, at least in the short term, which is we're expecting to see Q2 be a bad quarter in terms of like comping to last year, it got a really severe downturn with what's going on in GDP. And we would expect that to be probably most of it in the second quarter, probably also to be a decline in the third quarter, but maybe slightly less. So right now, I think we're expecting Q2 to be really bad, worse than we saw in March in -- generally speaking, I think it's fair to say in April, we also saw trends probably 40% plus globally in leasing and capital markets decline versus last year. I think that's probably reflective of some of the trends we saw -- seen this month, which obviously is worse than we saw in March. So that's probably a better data point for you.

Now you mentioned about APAC in Q1, I know you're referring to brokerage, but just to make sure you understand one of the reasons -- probably the only reason really why Property and facilities management looks like it was down is because of the Vanke JV. And as we said in the script, actually, if you excluded that, Property and facilities management in the first quarter was up probably in the high single digits.

[Brett White, executive]

Yes. The only thing to add to that. I think it'd be more helpful -- by the way, that's exactly right. Duncan, gave you a great look into APAC. What I would -- if you were me, I were building models and trying to figure out the shape of this downturn and recovery. You're going to be far better served looking at the available public data for CBRE and JLL 2008 through 2010. And where I would point you to would be the sequential declines in investment property sale revenues and leasing revenues over that period of time. And here's -- first of all, no one knows what second quarter is going to look like. And certainly, no one knows what, third, fourth quarter and the next year's first few quarters will look like.

At the moment, I think there is a decent consensus view, which, again, could change tomorrow, that the depth of this downturn across those same business lines and all the business lines that these businesses carry could be similar, but the duration should be much shorter. So that downturn in GFC at 7 quarters of sequential capital markets declines, you had 6 quarters of sequential leasing declines. We don't, at the moment, see that in this downturn. We see something materially shorter than that. But the sequential quarter-over-quarter declines or year-over-year declines by quarter of those revenue lines, there's not a lot of justification to think that leasing is going to behave much differently. Capital markets this time around could do better because of the massive amount of stimulus in the system which has created liquidity. And also, the banking system right now is in terrific shape. We don't have a seizure of the global capital markets like we did then.

[Joshua Lamers, analyst]

Sure. All right. Well, thank you very much for the response. And then just quickly, you touched on the expanded conversations that you're having with owners and occupiers. And so I'm just wondering if you can comment on a bit more on what you're seeing as far as top of the funnel lead generation in the outsourcing business? And is there any way for you to frame that level of increased demand relative to kind of past couple of quarter growth or prior growth experience?

[Brett White, executive]

I think the way to -- it's very hard to do that, but I can at least give you some guidepost. What tends to happen in a downturn like this is that there's very little churn in those contracts. Think about it this way, if you're -- pick your favorite owner and you have a property management contract with your provider that is coming up for a relook in July, it's not likely you're going to change providers. It's just not now. Also, in the property management space, most of those contracts tend to turn over when a building sells. And so for a while, it's not going to be much of that either.

So what does that mean? It means that contract loss by the big players, the big 3, should be quite low. However, if you're a big building owner or if you're a large corporation, there's hired firm for facilities management or property management. And let's say you didn't hire one of the big 3. And now you're looking at smaller, less well capitalized firms, it's not unlikely that you might make a change now, and there's always a flight to quality in these downturns. That's why I referenced at the beginning of our call tonight, there is always a flight to quality. And then there will be those firms that look to cut costs by outsourcing for the first time.

And that really answers your question, which is we're going to see, I believe, over the next -- as this plays out, a change of contracts from smaller, less well-capitalized competitors to the big 3, we're going to see very little churn in our contracts and theirs and we will likely see some providers begin to outsource some components of their footprint for the first time. Our people at the moment -- look, we're still at lock at home, right? So really, there's very little going on in conversations around letting out new business. But as the days go on, as people get back into the offices, we should be able to give you a better answer on that on the next quarter's call.

[Operator]

[Operator Instructions] Your next question comes from the line of Doug Harter from Crédit Suisse.

[Douglas Harter, analyst]

Obviously, knowing that kind of the EBITDA number is kind of uncertain at this point. But I guess, how should we think about cash flow and kind of the differences between EBITDA and cash flow for the remainder of the year?

[Brett White, executive]

Duncan?

[Duncan Palmer, executive]

That's a good question. So we'll try to help you with -- on EBITDA -- I start with EBITDA. We try to help you with an EBITDA, which is obviously a big driver of cash flow is with that decremental, and we don't really know what revenue is going to do, but we're trying to give you some sensitivity for how you can think about that. In terms of how to go from that to free cash flow or the elements of cash flow, generally speaking, working capital in the company is -- goes up with revenue. So guess what? Working capital goes down when revenue goes down. So we should see across the year, working capital as a source generally speaking, of cash flow.

We've cut down CapEx, capital expenditures from our normal 1% to 1.5% of revenue. That's obviously been cut to the barebones now. Many things that are absolutely central being done. So I would expect that to be less than usual. We've also -- we're currently suspended in because there's no attractive targets in infill M&A. So we're not respending money on investment right now, which is obviously a reasonably significant amount of cash flow that we normally spend. Our interest rate expense, we reduced that from last year. I think from memory about like $13 million by repricing our debt in January by 50 basis points, and we would expect cash taxes this year to be quite a lot less than we otherwise would have seen given the profit before tax is probably going to be less. So generally speaking, those are all helps.

The other thing we're seeing is there are a lot of benefits coming through just in terms of schemes that governments around the world are putting in place that help companies to get different deductions and mainly on the tax side and payroll tax type side, where there's been different countries around the world have provided incentives and benefits and stuff, which is able -- companies are able to take advantage of.

So generally speaking, I would say that there's -- while the EBITDA is a primary driver, obviously, of cash flow, a lot of things we're taking action on in terms of all those items I just mentioned are sources. So it actually ameliorates the impact on cash flow for the year, which I think is one of the reasons why in all our scenarios we feel very comfortable that we have ample liquidity and really not seeing that as being a particularly big driver this year from a sort of a liquidity point of view. And it gives us a lot of confidence that we can continue to see that as a source of financial strength going forward.

[Douglas Harter, analyst]

Great. And just is there any kind of M&A that you had kind of previously announced that still will need to be kind of paid for, that hasn't already closed? Just anything else on cash usage from that perspective?

[Duncan Palmer, executive]

Not really. No, we always have a little bit of deferred consideration from prior years. In our deals, we typically do a lot of deals where there's maybe earn-outs or deferred consideration, there might be some of that this year, but not in a very material context.

[Operator]

There are no further questions at this time. Mr. Brett White, I turn the call back over to you.

[Brett White, executive]

Thank you very much. I appreciate everyone calling in. We look forward to talking to you in 3 months. Hopefully, we'll have a lot more data and insights at that time. Everyone stay well and stay safe.

[Operator]

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.