Cushman & Wakefield plc (CWK) Q4 2018 Earnings Report, Transcript and Summary

Welcome to the Cushman & Wakefield's Fourth Quarter 2018 Earnings Conference Call. [Operator Instructions] It is now my pleasure to introduce Bill Knightly, EVP of Investor Relations and Treasurer for Cushman & Wakefield. Mr. Knightly, you may begin your conference.

Thank you, and welcome, again, to Cushman & Wakefield's Fourth Quarter 2018 Earnings Conference Call. Earlier today, we issued a press release announcing our financial results. This release can be found on our Investor Relations website, along with today's presentation pages that you can use to follow along. 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 may refer to non-GAAP financial measures as outlined by SEC guidelines. Reconciliations of GAAP to non-GAAP are found within the financial tables of our earnings release in appendix of today's presentation. I'd like to remind you that the company uses fee revenue, adjusted EBITDA, adjusted earnings per share and local currency to improve comparability of current results and to assist our investors in analyzing the underlying performance of our business. You will find definitions of these non-GAAP financial measures and other more detailed financial information in the tables of today's earnings release and the Form 10-K. 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 Executive Chairman and CEO, Brett White.

Thank you, Bill, and thank you all for joining us today. I'd like to begin this call by reminding everyone of our growth priorities and areas of focus as we continue to build one of the leading global commercial real estate services companies. These include: a focus on revenue and share growth due to delivery of differentiated and best-in-class service to our clients, strategic recruiting and infill M&A to continue to expand our strong global platform, continuing to leverage our strength in our large and growing recurring revenue businesses and continuing to grow margin through operational discipline. When we review our performance against these measures, 2018 was an outstanding year. For the full year 2018, we saw strong growth at the top and bottom lines. Growing fee revenue by 12% and adjusted EBITDA by 26%, setting all-time highs in both. These results were led by notable performance in our capital markets and leasing service lines. Adjusted EBITDA, at $659 million, was above the high-end of our guidance range. In the fourth quarter, we grew fee revenue by 10% over a very strong 2017 fourth quarter. Duncan will speak to the results in the fourth quarter in more detail later. We also made significant progress on our stated goal to expand margin. Our full year adjusted EBITDA margin was 11.1%, which is an increase of 115 basis points year-over-year. Since 2014, we have grown margins by almost 400 basis points, and we continue to prioritize margin expansion as a key strategic objective across all of our businesses. In addition to our strong financial performance, 2018 was marked by many other notable highlights. As most of you know, in 2018, after more than a century of private ownership, Cushman & Wakefield successfully transitioned to a publicly traded company, with one of the leading IPOs in 2018. This transition had a transformative impact on the business, adding robust financial strength and liquidity. Our leading global brand continues to resonate in the marketplace, earning strong third-party recognition in 2018, including being named the #2 global commercial real estate brand by the Lipsey company, receiving top honors for real estate outsourcing by IAOP, and we were named the #1 commercial real estate adviser in the world by Euromoney. In 2018, Cushman & Wakefield was also recognized as a great place to work by top publications, such as Forbes. We're proud of these designations and hold them as proof that we are delivering on the promise we make each day to our many stakeholders around the world. We were very active in strategic recruiting throughout the year. Top theaters in major markets around the world continue to be drawn to our platform and culture. And as a result, in 2018, we saw strong share gains in many of our businesses around the world. This was very evident in our capital market service line, which saw impressive share creation. For example, in 2018, we ranked third overall in larger U.S. sales, representing a 32% increase in market share year-over-year. In addition to holding the #1 position in New York investment sales for the second year in a row, our gains were balanced across multiple gateway markets and asset types. Furthermore, we continue to expand our global platform through infill M&A and completed 6 acquisitions in the year across nearly all segments. Most recently, we acquired Quality Solutions, Inc., QSI, to expand our facility management capabilities across North American markets through a supplier network at more than 50,000 qualified facilities contractors. At an approximately $250 million investment, this was one of the larger acquisitions we've made in the past few years. And we did so because it aligns very well with our stated priority to continue growing our recurring revenue PMFM service lines. There's also natural alignment with our existing Global Occupier Services business, which will integrate our existing platform and newly expanded supply chain to better serve our occupier clients. It's a business we're very excited about. In the fourth quarter, we continued to win new business due to our leading position, scale and ability to serve clients around the world. Global Occupier Services finished the year with a strong win rate, as large corporates continue to consolidate providers and outsource real estate services to Cushman & Wakefield. Representative assignments from the fourth quarter included a reappointment as the sole facilities management provider for Royal Mail Group's portfolio of nearly 32 million square feet in the United Kingdom. And the renewal of a 5-year full-service contract for global communications technology company Avaya that includes strategic consulting, transaction management, project and development services and facilities management across our multimillion square foot portfolio in more than 50 countries. Finally, a new contract for Pearson Education, a multinational publishing company, was a good example of our brokerage business creating opportunities for our recurring revenue businesses. Pearson is a client that we represented in a one-off lease transaction. Introduction by one of our brokerage teams to our FM group led to us being awarded a facilities management contract across Pearson's multimillion square foot portfolio. Similarly, our facilities services business, which we call C&W Services, had a good year renewing their client accounts at a rate of more than 90%, while continuing to win new business, like a recent 13.5 million square foot portfolio mandate for Boston Properties across North America. As I mentioned earlier, our capital markets and leasing businesses had outstanding performances in 2018. Recent marquee assignments in the fourth quarter included the biggest single retail asset trade in Europe in 2018, which was a disposal of one of Europe's largest shopping centers, approximately 1 million square feet in Helsinki, Finland. Exclusive marketing for the Coca-Cola Company at the landmark asset 711 Fifth Avenue in New York. The new international headquarters for Facebook, Cushman & Wakefield represented Facebook in their occupancy of an 870,000 square-foot 14-acre campus in Dublin, the largest single-leasing space by an occupier ever in Ireland. Representation of Brookfield in the sale of 10 and 12 Shelley Street in Sydney, which is one of the biggest capital markets deals in Australia in 2018. And finally, the disposal of a 12-property retail portfolio for Link REIT, a $1.53 billion sale in Hong Kong. Now turning to Page 6. You'll see a dashboard on the global real estate market, which continues to read favorable for commercial real estate services. These are among the primary metrics we monitor to assess commercial real estate supply and demand, and to provide a foundation for our business forecast. First, you'll see that demand for real estate remains strong. Global GDP remains solid. The IMF is currently forecasting global GDP growth at 3.5% and 3.6% for 2019 and 2020, respectively. In the U.S., strong employment levels continue to create demand for office space, and we see conditions overall in the U.S. economy very favorable for real estate services. We watch status for APAC and EMEA, recognize moderate risk in China and continued uncertainty due to Brexit. Client metrics are overall unpaid for demand. Regional variations and local market dynamics aside, we think demand and supply metrics look broadly balanced for 2019, which will lead to continued rent growth. Capital Markets remain very active. U.S. sales volume in the fourth quarter grew 20% over the same period in 2017 and full year volume in 2018 is at a near record high. Fundraising for commercial real estate investment remains robust and dry powder is at a record high as 2019 begins. In summary, industry fundamentals continue to be favorable, and we entered 2019 with an optimistic bias. We're very pleased with our performance this year. 2018's strong revenue growth continued through the fourth quarter, demonstrating that commercial real estate markets remain healthy and conducive to revenue, EBITDA and margin growth for Cushman & Wakefield. We're making excellent progress on our financial, operational and growth objectives and plan to translate that momentum into another successful year in 2019. Duncan Palmer, our Chief Financial Officer, will now discuss our financial results and share more on our outlook and guidance for the year.

Thanks, Brett, and good afternoon, everyone. To start, let's turn to Page 8, which summarizes our key financial data for the full year and the fourth quarter. As Brett said, we continue to deliver strong operating results. Today, we reported 2018 full year fee revenue of nearly $6 billion, an increase in local currency of 12% compared to 2017. We reported strong growth across each of our 3 segments. Full year adjusted EBITDA was $659 million, a 26% increase from 2017 and above the high end of our guidance range. Our full year adjusted EBITDA margin of 11.1% represents a 115 basis point increase from 2017. We are very pleased with these results. The increase in margin was driven by the strong conversion of revenue growth across our service lines and our continued focus on cost efficiency, partly offset by higher year-over-year bonus accruals. We are very focused on increasing margins across our businesses and we believe that we continue to have many opportunities to do this in the future. Fourth quarter fee revenue was nearly $1.8 billion, an increase in local currency of 10% over the same period in 2017. Adjusted EBITDA for the fourth quarter was $236 million, a 9% decrease from the same period in 2017. Adjusted EBITDA margin declined 300 basis points in the quarter to 13.4%. As we have discussed before, 2017 was an unusual year in that adjusted EBITDA in the third quarter was unusually weak and in the fourth quarter, exceptionally strong. You will recall that margins for the third quarter of 2018 were up by 400 basis points. So with the fourth quarter results, overall margins were flat for the second half of the year. We had anticipated the effect of 2 discrete items in our guidance. Without these items, margins in the second half would have increased by over 100 basis points, in line with the margin improvement for the full year. First, in the second half of 2018, we experienced significantly higher bonus accruals, reflecting our strong performance against financial targets in the year compared to a weaker performance in 2017. Second, in the fourth quarter of 2017, we have a nonrecurring benefit of about $10 million arising from actions we took in our EMEA business to eliminate a pension liability, which was material to margins in the quarter in that segment. In summary, our strong execution generated significant growth in fee revenue, adjusted EBITDA and adjusted EBITDA margin. We will continue to focus on margin accretion from revenue growth and cost efficiency going forward. Full year adjusted EPS was $1.67 and fourth quarter adjusted earnings per share was $0.59. Moving on to Pages 9 and 10. We generated fee revenue growth of 12% and 10% for the full year and fourth quarter respectively, with strong growth in all segments. Looked at by service line, our leasing and capital markets businesses generated strong growth in 2018, led by the Americas and APAC. Our property facilities and project management service line, which we call PMFM, representing about half of our fee revenue, grew 6% for the year and 7% for the quarter. Facility services represent about half of this service line's 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 with, on average, low-single-digit annual growth. Fee revenue growth in facility services was down 1% for the full year but ended the year with strong momentum reporting 4% growth in the fourth quarter. The rest of our PMFM service line, which comprises our occupier outsourcing, property management and project management operations, grew double digits in 2018 and high single digits in the fourth quarter. Excluding facility services, we expect continued strong revenue growth in this service line overall in 2019. With that, we will start a more detailed review of our segments, starting with the Americas on Page 11. Performance across our Americas market was strong as we grew fee revenue 13% for the full year and 10% in the fourth quarter. Our growth was driven by capital markets, which was up 32% for the full year and 27% for the fourth quarter. And by leasing, which was up 19% for the full year and 9% for the fourth quarter. Within our Americas PMFM service line, our facility services operations represent a little over half of our fee revenue and facility services fee revenue was up 3% in 2018. The rest of the PMFM service line grew mid-single digits on a full year basis and declined in the low single digits in the fourth quarter. We expect strong growth in this service line in 2019. Our valuation and other businesses returned to growth in Q4. Americas adjusted EBITDA was up 31% for the year. Adjusted EBITDA margin for the Americas for the year was 11.1%. This represents an improvement of 155 basis points versus the same period in 2017. Adjusted EBITDA and adjusted EBITDA margin accretion have been driven by the strong performance, particularly in our capital markets and leasing service lines as well as management's continued focus on operating efficiency. For the fourth quarter, Americas margin was 11.8%. Margins were up year-over-year, in the second half, by 70 basis points and over 150 basis points, excluding the impact of higher bonus accruals. Moving onto EMEA on Page 12. Fee revenue increased 11% for the full year and 9% for the fourth quarter. This was driven by double-digit growth in our PMFM and capital markets service lines. Our PMFM service line in EMEA represents less of our overall segment than in the other 2 regions that grew 27% for the year. Capital Markets grew 11% for the year and 23% for the quarter. Leasing grew 2% for the year, but declined 7% in the fourth quarter. Leasing was up 4% for the second half of the year and capital markets 18% as the overall market remains healthy. Valuation and other has grown 5% for the year and 2% in the quarter. Margins declined in the segment, both for the full year and the fourth quarter, principally due to the discrete pension benefit experienced in 2017. Now for our Asia-Pacific segment on Page 13. Fee revenue grew 9% for the full year and 13% for the fourth quarter. Leasing and capital markets, and valuation and other, all grew very strongly for the full year, growing 17%, 38% and 21%, respectively. PMFM represents roughly 2/3 of the fee revenue for the segment. The facility services business in APAC declined for the full year and the fourth quarter owing to a change in the revenue accounting treatment of a contract in Australia with no impact to adjusted EBITDA. Excluding this discrete item, PMFM grew 8% for the full year and 13% in the fourth quarter. Facility services operations in APAC were about flat for the full year and fourth quarter, and the rest of the PMFM service line grew high double digits for the full year and low teens for the fourth quarter. The strong revenue performance across the region drove a 35% increase in adjusted EBITDA for the year. Margin for the full year increased by 190 basis points, driven by revenue growth and cost efficiencies. In the fourth quarter, adjusted EBITDA margin of 11.1% declined versus the fourth quarter of 2017, driven by higher bonus accruals. Margins, overall, in the second half of the year were flat. Now I'd like to cover our full year guidance. Turning to Page 14, in summary, we are delighted with the performance of our businesses in 2018. The overall global economy continues to be conducive to growth across our businesses. Our momentum is strong, and we expect to continue to grow profitably in 2019. We would expect to grow margins through the contribution of incremental revenue and our continued focus on operating efficiency. We have grown adjusted EBITDA margins almost 400 basis points over the past 4 years and see continued opportunity to improve margins going forward. In 2019, we expect margins to improve for the year as a whole, but at a lower rate of increase than we saw in 2018. We expect 2019 adjusted EBITDA to be in the range of $685 million to $735 million. Our adjusted effective tax rate was 23% in 2018, and we would expect it to be at or around this rate in 2019. The cash tax rate was significantly lower at 13% and we expect cash taxes to be lower than our adjusted effective tax rate for several years, improving our after-tax free cash flow conversion. We expect our interest rate on gross debt in 2019 to be around 6%. Overall, the amount of add-backs to arrive at adjusted EBITDA in 2018 was in line with our expectations, which we provided on the second quarter call. As we've said previously, 2018 was the last year of new non-recurring Cushman-integration and IPO-related cost. As expected, we settled the cash deferred payment obligation of $128 million at the end of the year. We expect to continue to maintain our strong financial position. Our net leverage ratio at the end of 2018 was 2.7x and we had $1.7 billion of available liquidity. We anticipate net leverage in the mid-2s as our business grows going forward. With that, I'll turn the call back to the operator for the Q&A portion of today's call.

[Operator Instructions] Your first question comes from the line of Vikram Malhotra from Morgan Stanley.

Congrats on a strong top line for 4Q. Just thinking more about on the expense side for 4Q into '19. So I know you had baked in a lot of the discrete items into guidance. But it just seems like some of the cost items were higher than at least we were anticipating. So I'm wondering if you can maybe walk us through and give us more color on if there was anything that drove costs higher. And how should we think about the -- your comments around margin growth into '19 in terms of magnitude?

Sure, Vikram, it's Brett. Thank you for the question. I'll turn the question over to Duncan but before I do, just a couple quick comments. First of all, as you saw, the full year 2018 numbers were really remarkable. We're very, very pleased with our performance. And as Duncan mentioned in his scripted comments, results in Q4 on the EBITDA line were really due to some discrete items that will not repeat. But with that, Duncan, I'll turn it over to you.

Yes, so -- thanks, Brett. Yes, so 2 or 3 things about the year and about the cost run rate in terms of '19 that you talked about. I mean, generally speaking, I mean, the year was great from a cost efficiency point of view. We benefited not only from the flow through of incremental revenue in the year, which was very strong, but we also benefited from cost efficiency in the year. So actually our costs -- our run rate cost are in great shape in the fourth quarter. And really the effect on margin in the fourth quarter, as I mentioned, was all about these discrete items. The pension benefit that we had in 2017 in the fourth quarter in Europe, which was about $10 million, which really had a big impact on the compare there. And then the bonus year-over-year, we had a weaker-than-target performance in '17, stronger-than-target performance in '18, and a lot of that ended up in the fourth quarter, as we knew it would. So we factored both those things into our guidance range and actually in the fourth quarter. As you mentioned, thanks for mentioning it, the revenue performance in the fourth quarter was maybe a little stronger than we thought it might be in our guidance range, and so we came in on top of guidance, and that's kind of the story.

Ah, okay, yes, so the revenue -- the top line was -- okay, that makes sense. And then just to follow on. You had a -- obviously, a great '18 and the setup for '19 macro-wise looks pretty positive. But if you look specifically for Cushman, you've made investments over the last 2 years in New York, in parts of Australia, L.A. Can you maybe just walk us through for '19, given it's sort of a tough year, a tough comp. Where do you expect sort of the most incremental progress, maybe by business line or geography?

Sure. Let me start by saying that as we enter 2019, trends we saw in the business in 2018 remain in full force and effect. So as you referenced, the overall market place looks very favorable for commercial real estate services, and our bias is for a very positive year. We have lots of opportunities to grow both top line and bottom line. We've talked about this on prior calls and on some of our meetings with investors. I would just point to a few items. First is, you referenced investments we've made in discrete markets and that's exactly right. We set a strategy in place, now a bit over 4 years ago, to build a market-leading mobile platform. That work is about now completed. Yet, there remain areas of, what we call, white space in a variety of markets, either in individual service lines or in the overall market itself. The results that we saw in 2018 were really strong evidence that those investments have paid off. For example, you may recall that both Duncan and I have mentioned before that we had a specific objective of growing our market share, becoming a preeminent player in the capital markets business globally. I think we can consider that job completed and extremely well done, and those numbers now are coming through the P&L. We talked about strengthening our Southern California business. And I can tell you that, in both Los Angeles, Orange County and San Diego, our leasing and capital markets growth rates were some of the highest we had anywhere in our global platform. But nonetheless, there still remain terrific opportunities for us to lean into areas that can take investment either through the recruiting of great people or through infill M&A. And we intend to remain very focused in that area as well. You heard us talk about the QSI acquisition. This is a very strong enabler to our facility management business here in the U.S. and there are other great opportunities like that, that we watch very carefully every day. So we're quite excited about the opportunity to grow top line that way. And the last thing I'll mention on the bottom line is that we continue to find interesting areas to drive efficiency in the organization. And as Duncan has mentioned many times, our focus on cost discipline and growing margins is unabated.

Your next question comes from line of Anthony Paolone from JPMorgan.

So I just wanted to follow up to the prior question on margins, revenue growth in 2019. So if I just take the midpoint of your EBITDA guidance, and you mentioned that, that margin should go up in '19, but not as much they did in '18. So if I just go to like the mid- to high 11s, let's say, on margin, it implies about maybe 2% or so revenue growth. So where I guess -- is that just, a, is I guess the math right? Is that just being conservative? Because it sounds like the outlook is pretty good for the business lines.

I'll let Duncan take a stab at that and I'll jump in if I have anything to add.

Yes, so in 2018 obviously we had a great year, top line and bottom line. We've added, as I think I said on the call, about 400 basis points of margin over the last few years and I don't think -- and we've said this several times, I would be expecting to do that every year. So generally speaking, I would expect margin accretion, we're very focused on it. But at a lower level, we're not particularly guiding to exactly what that will be. We do have opportunities both on the cost side but also we expect to see some revenue drop through as well, and obviously we'll get some benefit from the infill M&A that we've done and continue to do. So those things will drive it. The actual balance of what it'll be during the year, a bit early to tell yet. As you know, it's going to be our practice to provide guidance on the year-end call and also to update on the Q3 call, if there's an update to provide. And as revenue trends and as our business develops over the year, we'll see how that all plays out. At this stage, I think we're comfortable in saying that we should see some pretty good growth in EBITDA and I expressed the range there and that -- and we'll also see some accretion to margin. So yes, that will back into some revenue. I wouldn't sort of tie it altogether in, sort of, any particular outlook for revenue that we're guiding to, we're really not guiding to revenue, but we are seeing good momentum in the end of 2018. And frankly, in the early weeks of 2019 that's continuing too. So momentum is good and we should expect to see some pretty good growth, as I said, in EBITDA.

The only thing I'd add to that is that -- just keep in mind the 2018 at a 12% top line number is remarkable growth. We're certainly not projecting you 12%. I can assure you we're also not projecting to 2%.

Okay, that's real helpful. And then just my follow-up question. In terms of thinking about free cash flow in 2019, can you just go through your priorities in terms of what's due with any retained earnings? And how that ties with maybe what you're seeing out there in terms of infill opportunities versus recruiting versus other debt paydown perhaps?

Sure. I'll let Duncan take that.

Yes, thanks. So as you know -- and we said -- and we have a consistent attitude to this. We generate good free cash flow. We're going to convert -- we're very good at cash tax rate, as I've said before, so we can convert quite well to free cash flow. In terms of sort of doing -- investing in the business, we would expect to be putting a decent amount of our free cash flow into infill and into recruitment, into adding opportunities. There won't be any new cash integration. We kind of made that very clear, that's kind of the end of that, it was kind of '18; however, I would say that obviously we have made one very significant use of free cash flow right at the beginning of the year, which is the purchase of QSI, which was around about $250 million. So you should be thinking that obviously is going to be one of the major uses of cash in the year and represents probably the largest infill, if you like, that we've done. But absent that, I would expect to see -- we did 6 deals I think last year and that's sort of in the zone of what we might see. And so I would expect no change really in our philosophy in terms of how to deploy capital. We see good returns, good opportunities to invest in the business, good opportunities to invest in infill and that will continue.

The only thing I'd add to that to just support what Duncan said is that we are seeing in the market place right now a more rational market for recruiting, which is good news, I think, for us and frankly, for everybody. We have this outsized opportunity compared to our peers. We believe we can both recruit and conduct infill M&A to the white space we've spoken about before. We're seeing in the M&A market for the infill size deals, a bit of compression in the purchase multiples, which is good news as well. And we intend to take advantage of both of those dynamics.

Your next question comes from the line of Stephen Sheldon from William Blair.

I guess, just first, I appreciate the detail on QSI. Was just curious if you could help us frame, I think you said it was $250 million purchase price. Can you help us frame how big that is from a revenue and adjusted EBITDA contribution standpoint? And then also maybe talk a little bit more about what that added strategically to your facility management operations?

Why don't I take the latter half, and I'll let Duncan take the first part of your question on the numbers. QSI is a market-leading firm that provides a big enhancement to our U.S. facilities management business, 50,000 folks in the vendor-managed network. And so these are folks who actually go out and perform the services, add buildings for our facilities management customers. By the way, all of the 3 firms that are engaged in facilities management use folks like this. This firm, in particular, was extremely attractive to us on a number of levels. First, culturally, we felt it was a excellent fit with our U.S. FM platform and leadership. These folks have been talking for quite some time. Second, it fit our footprint very elegantly and we were very pleased with that. And third, we underwrote this business very carefully and had a very, very good integration plan, which is now in full force in effect and going very, very well. Duncan?

Yes, on the numbers. It's early days in QSI. I think it's a great opportunity, it's largely -- it's all recurring revenue so that's going to be -- that's attractive to us. It probably will end up being a deal that's sort of at the higher end of our multiples range we talked about, partly because of the nature of the revenue and the attractiveness of the cash flow streams that therefore come in. There will be an integration. That integration will probably take -- probably substantially complete by the end of the year, and we should see it, therefore, be a contributor there in a material way. So that's going to be good. I would say that -- maybe to give you some color, in 2018, I would say, over time, we sort of said that infill might be, on average, roughly 1/3 of the revenue growth we see in 2018, it's probably a little less actually. So if that 12% is probably a little less than 1/3, it turned out to be infill in 2018. But in 2019, partly driven by QSI, I would probably expect revenue growth to be probably a little more than 1/3 generated by infill, including QSI. So without giving you specific guidance on the EBITDA contribution and revenue, I hope that was useful.

That was very helpful, appreciate that. And then I guess, second, how do you think about -- you talked about this maybe a little bit. But how are you thinking about your ability to grow in 2019 in both leasing and capital markets, just given the top comparisons from the really strong performance in those businesses in 2018? Is there room for productivity to go higher here? Or would growth mostly be dependent upon continuing to add to headcount and doing infill M&A?

We have a lot of room to grow with the folks that we have in place right now. Keep in mind that we have been on a fairly aggressive hiring posture now for 3 years. And in the leasing business and the capital markets business, the tail revenues stay with the prior firm, and it takes a while for these individuals to contribute their revenues to the firm they joined, which in this case is Cushman & Wakefield. So that lift will continue from folks that we hired in 2018 and late 2017. We are, every day, becoming a stronger business globally in capital markets and leasing. And as we become a stronger business and our brand gets recognized as #1 or #2 in many of the major world markets, we will just win more share and we are winning more share. Then add to that, finally, the fact that rents will be increasing in 2019. Right now the projection is that U.S. rents will increase by 2.1% in the year, which is an automatic lift to our commission income. So we feel quite good about the position of our global leasing and capital markets businesses. We will be continuing to hire in those businesses and those will be the dynamics that increase revenue in those 2 business lines.

[Operator Instructions] Your next question comes from the line of David Ridley-Lane from Bank of America.

I wanted to ask a bit about the industry dynamics of the FM business, where you've obviously -- you made a pretty nice infill acquisition there. Renewal rates in that FM business, I think, you said 90-plus percent, if I'm right. How do you win new business? Is this a marketplace where you're still seeing people -- new logos, people who haven't outsourced ever before? Where do you think you are in the stage of evolution on that particular service line?

Sure, great question, and it's a question we hear quite often. First of all, where are we in the evolution corporate outsourcing? There are all types of numbers that you'll hear in the marketplace. I think that we would probably land on that question by saying that something in the neighborhood of 40%, 45% of what could be outsourced among major U.S. multinational corporates has been outsourced, maybe a bit less than that. And we're still, I think, in relatively early days of seeing the full potential of what could be put into the services fee bucket for the firms that do this work. As it pertains to the types of clients from whom we are receiving RFPs, it's a mixture of both. We're seeing second-, third-, fourth-generation rebids on existing large contracts. We're also seeing entrants into the marketplace who have not outsourced their work before. I would think the -- if I were to weight those on percentages, there's more firms either rebetting or expanding the scope of services that they are bidding, coming into marketplace under our new entrants. But nonetheless, there are definitely new entrants in the marketplace. And for us, we really like the position we are in at the moment as it pertains to the corporate outsourcing world for a couple of reasons. First is, there is a redistribution of share occurring in the corporate outsourcing market, which is occurring simple because Cushman & Wakefield today is a firm that is absolutely capable of responding to any RFP anywhere in the corporate outsourcing world and that wasn't the case 5 years ago. So corporates like the idea of having competition among the bidders in their work. They like the idea of spreading the work among more than 1 or 2 firms and so we provide, in our view, 1/3 highly competitive very viable choice for those corporate outsources. And then I'd say that among the 3 firms that do the majority of this work, we all have areas where we are particularly good, we're very strong, we have areas where we might not be the best in the marketplace. And we will win those -- high percentage of those bids that come out in those particular verticals. For us, for instance, we have a particular expertise for large technology firms and we spend a lot of time doing work for some of the biggest names in global technology space. So we feel good about the market place, we feel good about the dynamics that support our growth in that market.

Your next question comes from the line of Doug Harter from Crédit Suisse.

Brett, just following up on one of the comments you just made about the competitive nature. Can you talk about sort of price competition that you're seeing in kind of -- on bidding for or fee pressures as you're bidding for new contracts?

Sure. In the -- we were referring specifically to the very large corporate outsourcing world. And I would say that in that space, the price pressure and the price compression in that space has occurred, but I would say, for all intents and purposes, is over. Why is that? A couple of reasons. First of all, the way these bids are now run, the criteria for awarding the bid is very much as much about your specific capabilities in that particular space, that particular industry type as it is anything else. And I think corporates have come to the conclusion that they need their vendors to make a reasonable profit on the work they are doing and continue investing those contracts, and they need vendors who are providing a unique and differentiated service for the work that they need conducted on their behalf. So when we are out in the marketplace, competing for these contracts, quite frankly, price is more or less well known as bidding gets going. It isn't something -- there's not a lot of examples I could give you where you see competitors beating each other up and trying to find the lowest possible price due to work. It's very much about trying to differentiate the services you're offering to those clients against the products and services that they need.

Your next question comes from the line of Mitch Germain from JMP Securities.

Duncan, did you quantify the impact of those items on EBITDA? If you did, I apologize, I missed it.

Yes, I -- well, I didn't specifically quantify them in dollar terms. I think I actually mentioned that the EMEA at one time, it was -- sort of in pension benefit in Q4 '17, it was about $10 million in round numbers. And then the -- I think I said in the second half of the year, had we not had the discrete items, the bonus and the pension effect in EMEA instead of flat margins roughly over the second half of the year, we'd been up over 100 basis points. So that kind of gives you -- that probably gives you enough to kind of quantify to the extent that you want to do so.

And was this a onetime or could this be based on your financial performance next year, something that impacts your numbers again?

Well, I think what you should think of it is in 2017, our financial results versus our bonus targets were low and therefore the accrual for bonus was low in 2017. In 2018 our financial performance by any measure was high and better than our financial targets and that means the bonus accrual was higher, therefore the -- you had a 2/3 area like a sort of -- to '17 below, '18 high number, right? And a lot of that shows -- was showed up in the accruals made in the second half of the year, particularly in the fourth quarter, and we knew that, that's what we've been able to build into our guidance.

If you don't mind, I can sneak one more in. A lot of your peers have been investing a lot of money in productivity measures, specifically technology. Seems like you guys have a bit of a different approach. Is anything changing with regards to the way that you believe technology will evolve and impact the business going forward?

Yes, our thesis on the manner in which we utilize and invest in technology has not changed. We believe that the business has been transformed through technology today, more than at any other time in my history in the industry. That being said, we do not believe that purchasing technology companies and building large proprietary platforms is a wise use of our capital. Our belief is that a great technology today can be outdated and out of use tomorrow. And therefore, being able to -- very carefully and with the possible adviser survey, the property technology markets to identify those technologies. To best allow us to create more efficiency in our organization, make our people better at what they do and provide a differentiated service to their clients and technologies that we bring to the clients, those are things that we are very careful about and watch, and bring on board every single day. And we like the idea that we can shift a technology platform or a system very, very quickly, without worrying about the fact we may have spent hundreds of millions of dollars buying it a year before. So these hasn't changed, we like where we sit, I mentioned earlier one of our most successful verticals in corporate outsourcing, our large technology companies, who seem to feel that the platform that we provide, the way in which we use technology is very, very good for what they need from us. So we see that as a validation of our strategy.

And there are no further questions at this time. I would now like to turn the call back to Brett White for closing comments.

Great. Well, I want to thank everyone for their time this afternoon, I do want to congratulate you, we didn't have a single question on co-working. I'm sure we'll get that next quarter. We look forward to talking to you in 3 months. Thank you.

This concludes today's conference call. You may now disconnect.