Earnings Call Transcript - JLL Q1 2020

Operator, Operator

Ladies and gentlemen, thank you for standing by and welcome to the JLL Q1 2020 Earnings Conference Call. At this time all participants are in a listen-only mode. Thank you. I would now like to turn the call over to your speaker today, Chris Stent, Executive Managing Director, Corporate Finance and Investor Relations at JLL. Please go ahead, sir.

Chris Stent, Executive Managing Director, Corporate Finance and Investor Relations

Thank you, and good morning. Welcome to our first quarter 2020 conference call for Jones Lang LaSalle Incorporated. Earlier this morning, we issued our earnings release which is available on the Investor Relations section of our website, along with the slide presentation intended to supplement our prepared remarks. Please visit ir.jll.com.

Christian Ulbrich, CEO

Thank you, Chris. Good morning and welcome to all of you joining us today for this review of our first quarter result in these unprecedented times. Before we delve into our financial performance for the quarter, I would like to take a moment to offer our sympathy and support to all of those who have been touched by the pandemic. Further, on behalf of everyone at JLL, I would like to extend our tremendous gratitude to the healthcare workers, first responders and everyone on the front lines of this crisis. While the COVID-19 pandemic moves around the world, we at JLL continue to focus on what matters most, and that is keeping our employees safe and productive, supporting our communities, and serving our clients. In responding to the pandemic, we are partnering with clients and communities in many ways from local efforts to support healthcare operations, including rapid deployment of temporary facilities to participation in global collaborative projects. Among the global projects being coordinated by the World Economic Forum, we are participating alongside many other global businesses in WEF's COVID Action Platform. The impact of the pandemic has truly been profound. The government responses required across the globe and a general cessation of activity through all aspects of business. The effects of the pandemic on our company were initially concentrated in parts of China in January, and in the later weeks spreading across a multitude of service lines and regions throughout the world. It is likely that this crisis will have significant repercussions on the global economy and on our industry, which will go well beyond this year.

Stephanie Plaines, CFO

Thank you, Christian and welcome to everyone on our call. Our first quarter performance is a reflection of our global footprint and our diversified business lines in the context of the spread of COVID-19. As Christian mentioned, the pandemic impacted China for almost the full quarter, while Southeast Asia and Southern Europe felt significant impact throughout March. Transactional activity in the U.S. declined progressively in the latter part of March and continued into April due to the spread of the pandemic. We are pleased with the solid start in the first quarter 2020. We achieved record consolidated revenue and fee revenue increasing 9% and 15% respectively. Real estate services fee revenue grew 16% reflecting organic growth of 5% and 11% attributable to M&A. Increases were achieved across all service lines led by the continued strength in the Americas. The HFF acquisition which closed in July 2019 complemented organic gains and reflects ongoing integration success. As a reminder, we report service line and segment results in local currency unless otherwise noted. Leasing fee revenue grew 4% for the quarter driven by the continued strength in the Americas. This was especially noteworthy considering global office leasing volumes declined significantly. For perspective, the market dropped 28% compared to the first quarter 2019. Our capital markets fee revenue increased 82% against the first quarter 2019 reflecting resilience and excellent progress on HFF integration. Excluding the impact of HFF, Capital Markets delivered 3% organic fee revenue growth. Corporate Solutions fee revenue grew 6% for the quarter driven by facility management wins and expansions in the Americas and Asia Pacific. Project & Development Services contributed to the growth albeit slower in Asia Pacific. We provided additional information on adjusted EBITDA on Slide 11 of the supplemental materials and I will touch upon the highlights. Adjusted EBITDA margin calculated on a fee-revenue basis was 6.4% for the quarter compared with 7.2% in the prior year. Strong organic gains in Real Estate Services and margin accretion from the acquired HFF business were more than offset by the impact of two notable non-cash charges that directly resulted from the pandemic.

Christian Ulbrich, CEO

Thank you, Stephanie. Now looking at the outlook for the rest of 2020. We are pleased to enter the second quarter in a strong position. Momentum within our Corporate Solutions business continued as we made strides with new mandates and renewals. Our Leasing and Capital Markets business were at record highs when the pandemic made its way across the world. A long history of JLL has taken us through many difficult periods. We don't know the extent of the market decline on the back of this crisis, but as in previous market downturns, we expect to win a disproportionate market share, which should cushion the impact on our financial performance. The depth and duration of the impact are uncertain, but our short-term assumptions show Q2 and Q3 as difficult quarters across all service lines and geographies. In addition to considering the short-term impacts, we are mindful of the longer-term implications. We have taken a fresh look at the longer-term macro trends that have been supporting growth within the global real estate sector for several years. We believe these trends of growth in corporate real estate outsourcing, rising capital allocations to real estate, increasing urbanization, and the tech-driven industrial revolution will continue to be strong drivers for our sector and our strategic vision for years to come. No doubt all of these trends will be impacted and there will be adjustments, but they will continue to drive our longer-term growth. We believe a fifth macro trend has emerged as a major driver within the real estate industry: sustainability. This trend will benefit from an even stronger focus on corporate social responsibility post-pandemic, driven in part by greater awareness of the fragility of our society and ecosystem. JLL is an acknowledged global leader in sustainability services and advice, and we continue investing and building those capabilities consistent with our corporate purpose of shaping the future of real estate for a better world. Moreover, we are determined to play an exemplary part in the way we manage our own operations despite all the short-term attention to the impact of the pandemic. To that end, we were delighted that the science-based target initiative approved JLL's ambitious target for a 68% reduction in our carbon emissions by 2038 in line with our commitment to the Paris Climate Agreement. We are also very proud of the many awards and recognitions we received, including being named for the 13th year as one of 2020's World's Most Ethical Companies, earning a place on the Bloomberg Gender-Equality Index and recognition by the Human Rights Campaign and Forbes for our commitment to diversity and inclusion. To close these remarks, I want to end by expressing my gratitude to the entire JLL team, who have witnessed significant upheavals in their personal and professional lives over the past several weeks as a result of this pandemic, yet have continued to work diligently and support each other and our clients through these trying circumstances. Throughout the history of our company, JLL has shown a remarkable capacity to successfully navigate through turbulent times and deliver excellent results for all of our stakeholders over the longer term. 2020 will be a challenging year for not only our business but the world overall. Recovery might take longer than many would like. Nonetheless, we will continue to execute against our previously stated 2025 long-term growth targets. We remain confident in the strength and resiliency of the JLL platform and our ability to manage effectively in an environment filled with uncertainty. Operator, please explain the Q&A process.

Operator, Operator

Your first question comes from Anthony Paolone from JPMorgan. Your line is open.

Anthony Paolone, Analyst

Excuse me. Thank you. I guess my first question is can you give us any color on how April looked and what you're looking at internally whether it's surveying brokers or data to get some handle on what 2Q and 3Q can actually work out today?

Stephanie Plaines, CFO

Hi, Tony, this is Stephanie. So I think you heard in Christian's remarks we have seen obviously a very strong performance to date in our leasing and brokerage business particularly notable in the Americas, but we have seen as the pandemic rolls across a softening in that business and you see that with the market volume. So we don't have any further information to give you right now. What I can say is that, in terms of our Q1 results particularly in the Americas where we saw strength was particularly in our industrial business. And as you know in a pandemic, there's been a lot of demand on the supply chain. So we were very pleased with our performance in that specific sector, which we have about 25% of our total Americas leasing exposed to.

Anthony Paolone, Analyst

Okay. I think you may have cut out on the tail end. But I guess, maybe asked a little bit differently, if we look back at the GFC and what happened to leasing and sales I mean, it took a period of time for things to unwind. But do you think that that's the order of magnitude we could be looking at in a more compressed period of time this go around?

Christian Ulbrich, CEO

Tony, it's Christian. I would caution to compare the GFC to the current situation. The GFC was predominantly causing or creating a lack of trust in the financial stability of banks, whereas we are currently faced with a virus which leads people to be afraid about their personal health and the health of their beloved ones. That is creating an enormous amount of uncertainty. And so the way that will impact the global economy and therefore then our clients, which then comes down to us, is still very unclear. One of the big differences is within our business compared to the times in 2008, 2009, the industry has bifurcated in a way that you have a couple of companies that are predominantly doing their business as strategic partners to their clients and less so with across the business. And those strategic relationships are kind of continuing to operate in good and in bad times. And so the overall resilience of a business like ours compared to 12 years ago is significantly higher, just due to these enhanced client relationships.

Anthony Paolone, Analyst

Okay. As a follow-up, Christian, you mentioned that all your business lines would be negatively affected. Can you provide more details specifically about Corporate Solutions? It showed strong organic growth in the first quarter. What factors might lead to a decline in that number in the current environment? Are there transactional elements, or what should we be monitoring in this regard?

Christian Ulbrich, CEO

Well. As you already noted, it is very much down to the question, whether something is related to transactional revenues or what we would call annuity revenues. Corporate Solutions is the headline for a series of services which include transactional services like the sale and leaseback of a corporate headquarter or a corporate building, down to very annuity-type services like facility management. And that's where you kind of have the differences and the impact. Our facility management business is incredibly resilient. And within that facility management business, the engineering part is the most resilient. Frankly, that is growing with many clients at the moment because the maintenance of big equipment is being done early, because the premises may be vacant. And so the impact of that in maintenance is not as drastic as it would be when they run at full scale. But then on the other hand, you have discretionary services which people would just pause to kind of preserve on their liquidity. So overall we do not expect a massive impact on our Corporate Solutions business. But again, it's all down to the question of how long this pandemic will prevail. If it ends in a couple of months, there will be probably no impact on our business. If it continues for 18, 24 more months, at some point in time more and more companies will be cautious around their liquidity.

Anthony Paolone, Analyst

Okay. And then just last one for me. You mentioned the benefit to industrial and supply chains from the way the world is moving technologically. Can you comment on any thoughts you might have with work from home and the impact long term on the office business?

Christian Ulbrich, CEO

There are many opinions regarding the long-term impact of working from home on the commercial real estate sector, specifically the office market. It's important not to jump to conclusions at this stage. During a crisis, working from home is feasible because the alternative is not working at all. However, in a return to normalcy, the differences in productivity will become evident. I'm not referring to technology, as our company effectively transitioned 90% of our staff to remote work using technology. Still, the face-to-face interactions and inspiration gained from working in an office produce better results than working from home. For most global companies, remote work was quite common even before the crisis, with many employees splitting their time between home and the office or traveling. We will revert to that model, but I do not anticipate a significant transition from office work to remote work in the future. While it has been demonstrated that working from home can be effective and beneficial, employees have also quickly recognized its drawbacks. Most people will likely be eager to return to the office. A recent survey of our employees revealed that fewer than 5% preferred to work exclusively from home, while the majority expressed a desire to return to the office with the ability to occasionally work from home.

Anthony Paolone, Analyst

Okay. Thank you for that.

Operator, Operator

Your next question comes from Jade Rahmani from KBW. Your line is open.

Jade Rahmani, Analyst

Thank you very much. And nice to hear from everybody, I hope you are all doing well. I wanted to ask hopefully a basic question, although I recognize the uncertainties. But do you think the company overall will remain profitable, for say the next two to three quarters?

Stephanie Plaines, CFO

Hi, Jade, this is Stephanie. So, obviously, as you saw as we went through the GFC, the company remained strong and profitable. As Christian said this pandemic is nothing like that. But we are doing everything, obviously, to manage the business. Our liquidity side or expense side everything that is discretionary to obviously maintain that profitability. I think what's important to emphasize is that a portion of our business is annuity based and the portion is transaction based. As you heard from Christian on our Corporate Solutions business there are areas of our business that continue to amplify and there are other ones, which we've prepared the works on that are softening. And it's happening in different parts around the globe. China went first. So you're seeing in Asia Pacific the most demonstrative impact on our top line. But you've also seen margins continue to improve. So if you look at our EBITDA results, I think that's the best testament right now of how we're planning to run the business through COVID. If you exclude the one-off two charges that I've mentioned, you'll see that margins have expanded across all of the businesses.

Christian Ulbrich, CEO

Okay. There is no doubt this crisis will affect our bottom line, and I'm sure you are aware of that.

Jade Rahmani, Analyst

Yes, of course. I mean, we are assuming about 35% declines in leasing volumes and something similar in capital markets. On the liquidity side, during the financial crisis the company maintained positive cash flow from operations. Do you expect that to be the case as well?

Christian Ulbrich, CEO

Again, the visibility is very poor going forward. And so I would like to refrain from commenting on that. We see what we see in April and you see how our first quarter went. First quarter went well and we are still smiling for the time being on May 5th. And what's happening over the next couple of months, we don't know. But we will do our very best to keep this company on that excellent level and financial strength as it has been in the past.

Jade Rahmani, Analyst

And currently, I believe there's $1.3 billion of available borrowing capacity on the credit facility, which matures in 2023. Is that correct?

Stephanie Plaines, CFO

That's correct, Jade. Yeah. So we have about 50% utilization as of Q1 of our credit facility. And our leverage ratio is about where we had expected. It's a 1.4, which is slightly elevated over prior year, but that's due to the HFF debt that we have taken on.

Jade Rahmani, Analyst

Have you been in touch with ratings agencies at all? And do you believe the company will be able to maintain investment-grade status?

Stephanie Plaines, CFO

So we're in constant contact with the rating agencies as normal course of business, Jade, as you can imagine. And in that sense we're running the business accordingly monitoring and driving profitability, cash flow, and making all the discretionary choices that are available to us. So we maintain a strong investment-grade balance sheet and that remains our focus. It's unchanged through the COVID pandemic.

Jade Rahmani, Analyst

Okay. I wanted to ask about the two noncash charges. On the multifamily credit loss reserve, did you apply a through-cycle methodology so that this loss reserve pulls forward future losses that have yet to impact the multifamily market? So this loss reserve could be sufficient to cover say the next 1.5 years of potential loan defaults to the extent there are, or would you expect to be booking ongoing reserves on a quarterly basis?

Stephanie Plaines, CFO

Hi, Jade. This is Stephanie. So I think you said that right. So there's a $31 million noncash reserve versus of all and it's our expected view of those loan losses that's exactly related to only the COVID-19 pandemic. So it is the estimation of our future losses at this time.

Jade Rahmani, Analyst

Okay. So that would be nonrecurring. In my modeling I've been assuming a gradual increase in delinquencies triggering loss reserves not a one-time charge.

Stephanie Plaines, CFO

This is our expected view of future losses related to our multifamily exposure. We will reexamine this and all related factors throughout the year as part of our normal business process. If adjustments are necessary, we will make them at a later time.

Jade Rahmani, Analyst

Thank you for taking the questions.

Operator, Operator

Your next question comes from Josh Lamers from William Blair. Your line is open.

Josh Lamers, Analyst

Hi, good morning. Thank you. You touched on it a bit, but just in thinking about the FM contracts, probably more specifically the fixed-price FM contracts. Wondering what's the potential for any cost overruns in any of the regions and maybe specifically in EMEA? And then I also wanted to ask about the revenue runoff from the sale of the FM business in that region in the quarter, and whether it's similar to what you called out in the fourth quarter I just want to make sure I have my baseline for that business looking ahead. Thanks.

Christian Ulbrich, CEO

Josh, I'm taking the first part of the question, and the second part I will hand over to Stephanie. I'm not quite sure what you mean with cost overruns. I mean as you can imagine we are very, very proactively dealing with our clients and helping them through this crisis. And as I said those relationships tend to be very strategic relationships, very much on a partner basis. And whatever we do which goes beyond our contractual obligations we usually get paid for that, and everything else is in line with our estimated cost to serve. So, I'm not quite sure whether there is any issue, which you are raising there.

Josh Lamers, Analyst

Yeah. No, it was just in reference. You had mentioned in your prepared remarks, I think, that there was kind of a near-term increase in facilities cleaning preparation, an increase in engineering costs. And so the question was just related to whether or not you expect in fixed-price contracts for there to be a higher than planned labor cost, which could negatively impact margins.

Christian Ulbrich, CEO

Okay, understood. No, when clients include in their contracts that their facilities are to be cleaned once a day, and they require cleaning two or three times a day, they will incur additional charges for those extra cleaning requirements, which we will pass on to our subcontractors since we do not conduct the cleaning ourselves. However, this has not been a concern over the past few weeks. We have been approached by some clients asking if we could lower the scope of contracted work due to their facilities not being used as much. Nevertheless, this is on such a small scale that it is balanced out by increased requirements from other clients.

Stephanie Plaines, CFO

Okay. And Josh, I'll take the second part of your question about the European divestiture of our property asset management business. So I think in Q4, we mentioned that it had a $7 million impact on revenue. So for Q1, it's about $9 million. If you think about our PSM revenue growth rate, we had a decline in EMEA of 16%. If you adjust for that it would have a decline of about 8%.

Josh Lamers, Analyst

No, that's helpful. Thanks. And then again, you mentioned a bit in your prepared remarks, but I'm wondering if the current environment creates the opportunity for expanded infill or redevelopment projects to pick up maybe later in the year and to remain at a sustainably higher rate. And then whether or not JLL has the capacity to take on those additional projects. And I'm just thinking again about kind of industrial retrofitting, office refitting, this kind of stuff in order to create a more spacious environment or to, like I said, reset any of these properties to operate in a post-COVID world.

Christian Ulbrich, CEO

Sure. This is clearly one of the opportunities we have. We are already working with many of our clients as they begin to reopen their spaces. In the Asia Pacific region, many locations are fully operational again, and we are starting to reopen spaces in Europe as well. This is part of our services. We have developed 22 different products in our Corporate Solutions business focused on health, wellness, space optimization, and overall building and office operations, which we launched over the past few weeks, and our teams are actively delivering those. Despite the challenges posed by the pandemic, there are also business opportunities for companies like ours that have the capacity and expertise. We can transfer the experiences we've gained in the Asia Pacific region to other areas and implement best practices to help companies return to productivity as swiftly as possible.

Josh Lamers, Analyst

Okay. Thank you. And then last one from me. I said that following the lockdowns in January in China that LaSalle had closed its first deal around mid-April. So have operations resumed in APAC to a somewhat normal course? And should we expect – again, best you can tell, but should we expect a similar timeline in other regions?

Christian Ulbrich, CEO

First of all, operations have not resumed as to pre-crisis levels, not at all. If you talk about capital markets transactions, most of the capital markets transactions which have been closed in late March or which have been closed in April or May are transactions which have been pre-negotiated pre-COVID. And so, the ability to really understand how the capital markets business on the investment sales side will perform in a locked-down environment and shortly after this is still out there and we can't give you enough evidence on that yet. What you see in China at the moment, that there is a lot of interest to restart activities. The developers are coming back and they are looking for advice for new developments because there's a lot of encouragement by the government to start new developments. And there is obviously also discussions and interest around executing capital markets transactions. But what's most important is that buyers and sellers find a new kind of match-on-price expectations. I mean, there will be an impact on pricing and this is something which will take time until both sides feel comfortable with pricing again. And so, that will take a bit of time, a couple of months.

Josh Lamers, Analyst

Okay. Thank you.

Operator, Operator

Your next question comes from Michael Funk from Bank of America. Your line is open.

Michael Funk, Analyst

Thank you very much. Good morning, everyone. I hope you're all doing well. I would like to hear more about your earlier comments regarding the differences between the current situation and the global financial crisis, as well as your expectations. It seems that visibility is low for everyone, including us on Wall Street. I noticed that your 2020 consensus EPS is around a $3.50 standard deviation. I acknowledge that I’m contributing to that as a lower estimate on the Street. However, we have very little information, so any additional insights you can provide on how the current situation compares to the global financial crisis, as well as your observations on the reduction in leasing and capital market activity, would be greatly appreciated.

Christian Ulbrich, CEO

The financial crisis was primarily fueled by a lack of trust in the stability of banks. To restore that trust in the market was essential for the economy to start improving. Currently, we are facing a virus that directly impacts people's lives. It's crucial for individuals to feel confident in their health and safety. For many, this means waiting for a vaccine before they feel truly comfortable again, and we cannot predict when that will arrive. During the previous crisis, businesses continued to operate, albeit in a more subdued manner, and there were no lockdowns. In contrast, most countries we work in are currently under lockdown, which creates a significant difference. This makes it challenging to draw comparisons between the two situations. Patience is necessary as we observe the actual economic impact going forward. I want to assure you that our organization remains fully operational and is equipped to meet client demands. We are utilizing various technologies to facilitate transactions in leasing and capital markets. On the leasing front, renewals will still occur because businesses need to maintain their space, although they may reduce their size slightly. Strategic decisions, like relocating major offices, continue to happen, although with some delays. What is mostly affected right now are smaller plans, such as companies looking to expand by an additional 10% of space, as they are hesitant until they better understand how the economy will progress. In capital markets, there is still a need to establish a fair price between buyers and sellers. Transactions are occurring, but at a significantly lower volume compared to before the COVID crisis. Confidence is needed before people feel secure in their buying or selling decisions.

Michael Funk, Analyst

Understood. I appreciate the additional commentary and also recognize that this is more of a demand shock this time compared to the global financial crisis. I just looked further down the income statement. Can you explain the incremental margin in the business? For every dollar coming in from the top line, how much do you think will convert into EBITDA?

Stephanie Plaines, CFO

So, we don't see a difference versus the GFC and to the situation we're in, on how things translate through our business. So in terms of our most profitable business lines is our capital markets and leasing businesses. And we balance the portfolio with LaSalle and our Corporate Solutions. So there hasn't been a fundamental shift in that regard. All the businesses are driving profitable growth and margin expansion. I think you can see that in the past quarter's results. Additionally, what we're obviously very focused on and continue to be laser-focused on particularly during the pandemic crisis is on cash conversion. So making sure that we're being very prudent and thoughtful in getting our DSOs and DPOs to convert continuing to convert exactly so that we can manage this cash flow through this pandemic crisis.

Michael Funk, Analyst

And one more if I could please and I really appreciate the time today. You mentioned renewals, obviously, a large part of your leasing business. Maybe just remind me first of all what percentage of revenue each quarter comes from renewals? And then second are you seeing customers reach out proactively asking about blend and extend in the current environment, or is it too early for that right now?

Christian Ulbrich, CEO

There is obviously what you call blend and extend quite a bit. Because if you really don't know where the economy is moving and what that does to your business there are a lot of clients who need to make a decision on their lease contracts who are just trying to kind of push that out and ask for 12 months or 24 months renewal before they make a longer-term commitment. And so that is happening. I don't have any statistics at hand how much of that is part of our portfolio or our revenues which we are bringing in on the leasing side. The renewal business is obviously slightly different market-by-market. You have markets where there is very little fees coming to us for just renewals. And you have markets where the fee levels for renewals are very similar to the fee levels for any new contract. But I think it's fair to say generally speaking a brand-new contract is more profitable for us than just renewal business.

Michael Funk, Analyst

Okay. Thank you all for time today and hope you are all well.

Operator, Operator

Your next question comes from Patrick O'Shaughnessy from Raymond James. Your line is open.

Patrick O'Shaughnessy, Analyst

Hey. Good morning. How much of your fee-based expense base is naturally going to be variable and then fluctuate along with revenues that might move up or down?

Stephanie Plaines, CFO

Hi, Patrick. So that is a difference between the GFC and now that our business has certainly become even more oriented towards variable and flexing to your question. So as we've grown the business in the leasing and the capital markets space that gives us obviously that flexibility. So when the business is good, obviously, it works on the business as obviously, a softening then our comp base our fixed and variable comp base reflect that. So we don't give details on that specifically. But you can see in our financials on the P&L that we've made a lot of progress continuing in Q1 to improve our comp-and-ben expense as a percentage of our total fee revenue growth. And so we've actually improved that 200 basis points year-on-year if you compare. So revenue is certainly outpacing the comp-and-ben expense. And we'll continue to obviously utilize the way that our business model is structured throughout the pandemic period.

Patrick O'Shaughnessy, Analyst

Okay. I think that not paying that June dividend saves you guys roughly $25 million in cash. Given the relatively modest cash savings and generally negative investor perceptions that typically stem from dividend reductions can you walk through your rationale on this a bit more?

Christian Ulbrich, CEO

Well, Patrick. First of all, we don't have many people in our stock who are in our stock because of our dividend. Our dividend was in percentage terms very small. And as I said earlier while we are in a very strong financial position, the economic and societal challenge the world is facing is just unprecedented. And we strongly believe that all leading companies have to be mindful about their actions. And we believe that for us paying a dividend would not be the right message with regards to all our stakeholders. You're right that the $25 million to take your number is not very material for us but when you see how people are suffering across the countries where we do business in it is not sending the right message.

Patrick O'Shaughnessy, Analyst

Okay. And then last one from me. Any initial thoughts on what COVID-19 means for the industry? And is it still a viable business model do you think in the post-COVID-19 world?

Christian Ulbrich, CEO

Well, I guess, you're talking about the flex space industry and co-working is an element of the flex space industry and it's very important to make that differentiation. Because when you talk about flex space, the flexibility which has been offered by that is obviously something which people will value even more going forward. If you are currently in a situation, where you want to reopen your offices, none of those offices will reopen at full capacity, because you will need more space for everybody to kind of keep the social distancing rules in place. And so you either keep a majority of your employees out of the office or you are starting to enhance your office footprint by picking up some flex space. So there is an element of the flex space industry, which will probably once we are starting to reopen businesses and once the economy is starting to pick up, we'll actually have a great business going forward. Now the co-working piece was a different element because co-working usually means that you have people sitting next to you which you don't know when that may change during the day several times. And so what was very cool before may not feel that safe and healthy going forward and so that will certainly see an impact. So a lot of those players who positioned themselves predominantly as co-working players will probably position themselves going forward more as flex space providers. And so let's see how that is playing out for the time being. The demand for space from those companies has obviously dropped very significantly. But I am quite optimistic that the overall industry has a role to play but they will have to adjust their business model to deliver that confidence, that trust which all the users of space, whether it's your own space or whether it's flex space are looking for to feel comfortable in that environment.

Operator, Operator

And your final question today comes from Jade Rahmani from KBW. Your line is open.

Jade Rahmani, Analyst

Thank you very much. In terms of business resiliency, I just wanted to ask if you could comment on leasing, if you expect leasing ordinary course renewals to continue to take place. If those contracts can be executed without any in-person presence. And secondly on debt placement, if you expect ordinary course debt maturities which total for the industry around $350 billion per year to be able to get refinanced. And finally, valuation appraisal, if that can also be done via desktop?

Christian Ulbrich, CEO

Yes. Okay. I take all three of those. As I said, renewals will take place. It's not an issue to do renewals and so that is continuing. On the debt side, for the time being, as you probably will know better than I do, the debt markets are pretty healthy. There was a bit of a kind of a little stumble at the beginning but now everything is pretty much back in line. We even see CMBS coming back in. So we – at the moment we have no reason to believe that these renewals will not take place. Obviously, once we see pricing readjust that may mean that that kind of the leverage ratios are changing for some of these deals. But there is a market for all of it. And so we will see that as part of our business in capital markets going forward, which is probably even more resilient than plain investment sales over the next one or two quarters. And the last one on valuation. I think in valuations you have to be very precise. All these monthly or quarterly or half annual or annual valuation, they can all be done desktop. So they will continue and we see a very, very strong demand for those. I mean, it's even in those times you usually have a higher demand because the question on who is delivering the valuation becomes of higher importance in more challenging times than in brilliant times and that usually favors JLL. Where we will see an impact on valuations is kind of one-off transaction less valuations. If there are less transactions then there is less need for valuation. And so it depends a little bit on the business mix country-by-country. We have some countries in our portfolio, who have actually growth in their valuation business and we have other countries who see the impact of less transactions happening. But overall, this is a pretty stable business for us.

Jade Rahmani, Analyst

Thank you very much.

Operator, Operator

There are no further questions at this time. I'll turn the call back over to the presenters.

Christian Ulbrich, CEO

Thank you. Well, with no further questions, we will close today's call. Thank you for participating. Stephanie and I look forward to speaking to you again following the second quarter. Stay well. Thank you.

Operator, Operator

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