Earnings Call: Q3 2018

Nov 13, 2018

Welcome to Cushman and Wakefield's Third Quarter 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer It is now my pleasure to introduce Bill Knightly, EVP of Investor Relations and Treasurer for Cushman and Wakefield. Mr. Knightly, you may begin your conference. Thank you, and welcome again to Cushman and Wakefield's Q3 2018 earnings conference call. Earlier today, we issued a press release announcing our financial results. This can be found on our Investor Relations website along with today's presentation pages that you can use to follow along. The 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 as estimates only and actual results may differ materially. During today's call, we may refer to non GAAP financial measures as outlined by the SEC guidelines. Reconciliations of GAAP to non GAAP are found within the financial tables of our earnings release and appendix of today's presentation. 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 thanks everyone for joining us today. In recent months, we have discussed with you a number of initiatives we are pursuing as we continue to expand on our position as one of the leading vertically integrated global commercial real estate services firms. These include a focus on revenue and share growth through the delivery of differentiated and best in class services to our clients strategic recruiting and infill M and A to continue to expand on our strong global platform continuing to leverage our strength in our large and growing recurring revenue businesses and a focus on growing margin through our proven cost discipline. I'm pleased to report that we are executing at a very high level against each of these priorities and more. In the quarter, we experienced double digit fee revenue growth of 18% and adjusted EBITDA growth of 77%. These results came from a balanced strong performance across our geographic segments and service lines with particularly notable 34% growth in Capital Markets and 32% growth in Leasing Globally. On a year to date basis, fee revenue grew 13% and adjusted EBITDA grew 61%. In the quarter year to date, we also made significant progress on our goal to expand margin. Our 3rd quarter adjusted EBITDA margin was 11.9%, which is an increase of 400 basis points year over year. Year to date, our adjusted EBITDA margin is 10.1%, representing an increase of 300 basis points over the same period in 2017. While we are very pleased with our current performance, we are equally as focused on future growth through both infill M and A strategic recruiting across key service lines and markets. In the Q3, we were very active on both fronts and I'll share just a few examples with you. We acquired the commercial property arm of Sherry Fitzgerald Group in Ireland and a prominent valuations business in Australia. We also made continued investments in growing our recurring revenue businesses of property, facilities and project management with acquisitions of a leading design and build practice in the Netherlands and a highly specialized facility services business in the U. S. That focuses on clean rooms and controlled environments. These examples illustrate our opportunity to grow our business by filling white space in our service platform, allowing us to serve new clients while offering more services to existing clients. In the Q3, we also saw continued evidence of our ability to win new business due to our leading position scale and ability to service clients with large complex needs around the world. Our corporate outsourcing business, which we call Global Occupier Services, has seen an increase in its win rate this year as more corporates continue to outsource real estate services and continue to choose Cushman and Wakefield. Some representative client wins include large outsourcings for Avnet in Asia Pacific and expansion of FM Services for long term client Humana and continued outsource and expansion with 1 of the largest tech firms in the U. S. Similar examples of outsourcing wins in our facility services business include a 12,000,000 square foot portfolio for Cadillac Fairview and a renewal of our contract for Boston Logan International Airport. As I mentioned previously, our capital markets and leasing businesses are growing significantly this year. Marquee assignments in the Q3 included representation of the buyer of 2 large Japanese logistic facilities, which is one of Japan's largest industrial deals in 2018 representation of Microsoft and its Canadian headquarters lease in downtown Toronto and representation of Teva Pharmaceuticals in a 345,000 Square Foot lease in Parsippany, New Jersey. Now turning to Page 6, you'll see an outlook on the global real estate market, which continues to be very supportive of our industry and our business. Real estate fundamentals also continue to be very strong, notwithstanding stock market volatility, trade tensions and rising interest rates. Investment volumes are expected to be higher than 2017 with still historically low interest rates and leasing fundamentals remain robust globally. So to summarize, along with this continued supportive external environment, we're very pleased with how our business is performing. October continued the strong momentum we've experienced throughout 2018. Based on this and our view on the macroeconomic environment, we will be raising guidance for full year 2018, which Duncan will address in a moment in his comments. We're making good progress on our financial, operational and strategic growth objectives. Clients, top talent and organizations interested in joining our platform are drawn to our brand, our momentum and our culture. It continues to be a very exciting time to be at Cushman and Wakefield. With that, I'd like to turn the call over to Duncan, who will discuss our financial results and outlook in more detail. Duncan? Thanks, Brett, and good afternoon, everyone. Before I renew the financial data for the Q3 of 2018, 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'll find definitions of these non GAAP financial measures and other more detailed financial information in the tables of today's news release and the Form 10 Q. With that, let's start on Page 8, which summarizes our key financial data for the Q3 and year to date. Our performance year to date has been excellent. In the 3rd quarter, we reported even higher year over year growth than we saw in the first half of the year in both fee revenue and adjusted EBITDA. We're on track to deliver a year of very strong adjusted EBITDA growth, and I'll discuss our full year guidance later in my remarks. Today, we reported Q3 2018 fee revenue of $1,500,000,000 an 18% increase over the same period in 2017. Year to date fee revenue was $4,200,000,000 a 13% increase compared with the year to date 20 17. Adjusted EBITDA for the 3rd quarter was $179,000,000 a 77% increase over the same period in 2017. Adjusted EBITDA margin grew 400 basis points in the quarter to 11.9%. Year to date adjusted EBITDA was $424,000,000 61% higher than 2017. Our adjusted EBITDA margin year to date of 10.1% represents a 300 basis point increase from 2017. Margin expansion for the quarter year to date were driven by strong performance in our capital markets and leasing service lines and our continued focus on operating efficiency. 3rd quarter adjusted earnings per share was $0.45 As a reminder, in the Q3, we successfully refinanced our debt facilities. We issued $2,700,000,000 of 1st lien debt with a 7 year maturity and completed a new revolving credit facility for $810,000,000 with a 5 year maturity. We also paid off our 2nd lien. We expanded our receivable securitization facility to $125,000,000 from $100,000,000 and we have fixed our interest rate exposure for the near term. We ended the Q3 with over $1,700,000,000 in available liquidity and our balance sheet is strong. Year to date adjusted EPS was 1.02 2% both the Q3 and year to date is an 800 basis point reduction versus last year's rate of 30%, driven primarily by the U. S. Tax Act. Moving on to Page 9, where we show our fee revenue growth in local currency by segment. The Americas grew 20% for the quarter and 14% year to date. EMEA grew 21% for the quarter 12% year to date and APAC grew 11% for the quarter 8% year to date. We'll discuss the drivers of growth for each segment shortly. On Page 10, we show our growth rates on a local currency basis for our 4 service lines: Our property, facilities and project management service line, which we call PMFM, has represented almost half of our fee revenue over the past 12 months. PMFM grew 8% for the quarter and 5% year to date. Within PMFM, our facility services operations represent a little over half of the fee revenue. In facility services, we typically self perform a variety of services for our clients, and we have major operations in both the Americas and APAC. As we mentioned before, Facility Services is a great business for us with very sticky revenue, but typically this business has an annual growth rate in the low single digits. For the quarter, Facility Services is up 1% and on a year to date basis Facility Services is down 2%. Excluding a change in revenue accounting treatment related to a contract in APAC, Facility Services is up 3% for the quarter and is flat year to date. The rest of the PMFM service line, which includes our occupier outsourcing and property management operations, has grown in the mid teens so far in 2018. Our leasing and capital market service lines have shown significant growth this year, led by the Americas and APAC. Valuation and other has grown in both APAC and EMEA in 2018, but this has been more than offset by a decline in revenue in the Americas in this service line. With that, we will start a more detailed review of our segments starting with the Americas on Page 11. Americas fee revenue grew 20% for the 3rd quarter and 14% year to date. Our strong growth was driven by leasing, which is up 34% for the 3rd quarter and 25% year to date and by Capital Markets, which is up 42% for the 3rd quarter and 34% year to date. Performance was strong across our Americas markets. Within our Americas PMFM service line, our facility services operations represent a little over half of our fee revenue and facilities services revenue has been up 1% so far in 2018. The rest of the PMFM service line has grown double digits on a year to date basis. Year over year decline in valuation and other was mainly driven by a contract that ended in mid-twenty 17 in the valuation business. Americas adjusted EBITDA was up 69% for the 3rd quarter and 56% year to date, primarily driven by a strong top line performance as well as by operating efficiency. Adjusted EBITDA margin in the Americas through the 1st 3 quarters was 10.9%. This represents an improvement of about 300 basis points versus the same period in 2017. Margin accretion has been driven by the strong performance in our capital markets and leasing service lines as well as continued focus on operating efficiency. Moving on to EMEA results on Page 12, fee revenue increased 21% for the 3rd quarter and 12% year to date. This represents a strong performance in the quarter across our service lines. Our PMFM service line in EMEA represents less of our overall segment fee revenue than in the other two regions, but has grown strongly in the first half of the year, up 33% for the 3rd quarter and 27% year to date. Leasing grew 25% in the 3rd quarter, bringing the year to date growth to 7%. Capital Markets has grown 10% growth in the 3rd quarter and 3% year to date. Valuation and Other has grown 11% in the 3rd quarter and 7% year to date. Overall, our EMEA business had a strong 3rd quarter with adjusted EBITDA up 126%, resulting in the business being up 76% for the year. Margin has increased 2 40 basis points year to date, a result of strong top line growth and a continued focus on operating efficiency. Now for our Asia Pacific segment on Page 13, where fee revenue grew 11% for the 3rd quarter and 8% year to date. Leasing, Capital Markets and Valuation and Other all grew strongly for the 3rd quarter year to date. PMFM represents about 2 thirds of the fee revenue for the segment. And as I mentioned on our last call, the Facility Services business in APAC declined in the first half owing to a change in the revenue accounting treatment of a contract in Australia. The impact of the accounting change to fee revenue has been $23,000,000 year to date and is expected to be about $30,000,000 for the full year with no impact on adjusted EBITDA. Excluding this discrete item, PMFM grew 5% for the year to date with the facility services operations in APAC being about flat and the rest of the PMFM service line growing in the high teens. The strong revenue performance across the region has driven a 69% increase in adjusted EBITDA for the 3rd quarter and 77% year to date. Margin year to date has increased by over 300 basis points. Now I'd like to cover our full year guidance. Turning to Page 14. In summary, we are very pleased with the performance of our businesses this year and we continue to be very excited about the progress we are making. The business environment for our markets continues to support healthy growth. Momentum continues to be strong and we expect to finish the year showing significant year over year growth in both fee revenue and adjusted EBITDA. 4th quarter historically the strongest quarter of the year and we would expect that this will be the case again this year. We expect 2018 adjusted EBITDA to be between $630,000,000 $650,000,000 reflecting the strong market fundamentals. We will provide 2019 full year guidance on our Q4 earnings call. Right now, based on a continuation of growth in our markets, we expect to grow both fee revenue and adjusted EBITDA across our segments in 2019. And with that, I'll turn the call back to the operator for the Q and A portion of today's call. And your first question comes from the line of Anthony Paolone from JPMorgan. Your line is open. Yes. Thank you. Good evening and very nice quarter. My first question is just on the full year guidance. If we look at what you've done year to date and back into implicitly what that's saying about adjusted EBITDA for 4Q, it suggests it's down 19% year over year. Can you talk about why that might be and whether the 3rd quarter strength was pulled forward a bit? Duncan. Yes, Duncan. So yes, obviously, we've seen strong momentum this year in the 1st 3 quarters. We also, if you recall, in the Q4 of last year, saw a very, very strong performance. And for example, we saw, I think, our leasing business grow 30% in the Q4 last year, whereas I think it was rather weak in the Q3. So I think that sort of shape of last year and the shape of this year are a bit different. So I think in terms of sort of as we look out towards the Q4 this year and the full year, we expect it to be a very strong year over year EBITDA growth. We're always certainly seeing very good business momentum in our business and it continues to be very strong. What I think is we look back at last year's Q4, it was a very, very strong Q4 and that's kind of reflected in our guidance. Okay. So but I mean is it at this point, I mean it's kind of the middle of November, are you playing it conservatively at this point or from what you could see booked in your system, it's just simply going to be a down year over year quarter in Q4? Yes. I mean, it's as you'd appreciate, an awful lot of our revenue and EBITDA actually shows up in the last 2 months of the year. So we don't have like a sort of complete knowledge of that right now. An awful lot of it shows up in the last quarter, as you know. And we did see good momentum, as I talked about actually in October. So I don't think it's we're losing momentum by any means and certainly the business momentum in the overall business environment is very strong. Okay. And then in the Q3, if you just look at the year over year incremental margin, EBITDA margin, it was about 30%, 32%, somewhere in that ballpark. I mean, any sense as to how much of that was from cost initiatives versus just simply a lot of strength in the higher margin leasing and capital markets piece of the business? Yeah, it's a great question. I mean, I think, as you know, we're very, very focused on operating efficiency and continue to be so this year. And there has been some benefit from some of the projects we've been executing there. But I would say probably on a year to date basis of the overall margin expansion we've seen, which was several hundred basis points, I think it was like 300 year to date. I think I'd probably say the majority of that came from strong growth in the higher calorie service lines, particularly Capital Markets and Leasing across our divisions, right. So it's the broad nature of that strength that has given rise to that margin expansion. Okay. And then just last question maybe for Brett. You've been around for a while and you guys had particularly strong leasing results in the last couple of quarters, but your peers have also had some pretty good leasing results. Just curious from a more cyclical and fundamental point of view, any thoughts on the cycle and beyond the wins that you all have had? And what do you see driving sort of the strength and the ability to sustain it on the leasing side? Right. So on the leasing side, I would say 1st and foremost, what we look to and I'm sure you do as well is what independent third parties are prognosticating forecasting about rents going forward. And I'll just use U. S. Office as a proxy for the market. And when you look at the respected third parties that are out there, all the brand names that you and I track, all of them are forecasting U. S. Office rents to be up in 2019 2020. That to me is a very important data point because it speaks to so many of the sub drivers behind the strength of this current expansion. I think that for all of us, we fight the data with instinct, but I have to tell you that it's very, very difficult right now to find data points really anywhere throughout our business or that we can read about the folks who are tracking that would imply anything other than a healthy commercial real estate market in 2019. Okay. Thanks. And again, great job. Thank you. Your next question comes from the line of Vikram Malhotra from Morgan Stanley. Your line is open. Thanks for taking the questions and congrats again on a strong top line across the board. Just maybe on that topic, you've made some key hires in a couple of different regions, West Coast, parts of Australia, obviously New York. You've had good traction. Can you just give us some more color and anecdotes on kind of how you're sort of winning businesses post these key hires? And in the same vein, where else do you really on the leasing and capital market side, where else do you still need to beef up? It's a very good question. So I would say that at this point, it would be a fair it would be a fair observation to say that the platform as it pertains to transaction professionals is built. As we look across the business, there are no markets where we have what I would consider to be a large gap from where we'd like to be in terms of headcount of professionals or productivity professionals. With that being said, some of the markets we talked about in the past are markets that we're focused on. So for instance, we are rapidly and fairly aggressively scaling up our transaction professionals business in Asia Pacific, so Australia, New Zealand, to some extent, in Singapore, to some extent in Japan. Those are areas where we certainly have room to grow. In the U. S, I've mentioned before, we'd like to see our market position in Los Angeles be better than it is today. It's a very good business in Los Angeles, but could be bigger and better. Dallas is another market where we're quite focused right now. But I would say that we're with the hires we've made the last two and a half years, particularly on the capital markets side, we have an A team across the board. The people that we've brought on in New York and Atlanta and Dallas and the West Coast, the past 2 years are the best of breed. They're working, integrating exceptionally well, with our existing folks in the business. And a lot of the upside we see in our numbers right now is not the direct production of those people we hired, but rather the transfer of business and client work from those people to other people already existing in the business. That's exactly why we focused on this sort of producer. That makes sense. Just 2 other quick ones for me. Maybe just on the integration expenses, could you just give us a sense, obviously, there's been it's rendering at a high level in 2018. And I'm not sure I know you're not going to give us guidance right now, but just from a trajectory standpoint, can you give us sort of a broad sense of where the integration expenses would trend going into next year? Yes. I mean, on the last call, if you recall, we provided, I think, a projection of all those line items going out, I think, to 2019. And so I think that we sort of provided in some detail in the last call. I'll refer you back to that. I think in the quarter, I mean, the biggest expenses we were sort of adding back there, we're not really from an integration point of view as much from a sort of like 2 or 3 buckets I'd probably bring attention to. 1 is cost associated with the IPO, which kind of goes through that line, but not really integration from that point of view. There was a material amount of cost added back as a one time item related to the IPO. There continues to be add backs, as I've discussed before, or amortization of broker related compensation that was linked to the original mergers of the deals as we also talked about before. And then there were some other so much smaller items that related to sort of residual projects. But those are probably the 2 biggest buckets in the Q3. And again, we integration is essentially over. And for next year, as you go back and take a look, the biggest items going to next year will continue to be the sort of tail of that broker amortization. But beyond that, there'll be no real integration costs getting added back next year. So just and just to clarify this, all the smaller kind of infill M and A, that shouldn't have any material change from what you projected last quarter? Not materially, no. Okay. And then just last one, any were you guys surprised any sort of opportunities you can call out from Amazon's decision across 3 cities? Are we surprised? I think it's been fun watching the search process unfold. I thought it was I thought they played it really well. So Nashville is going to get a service center. You've got D. C. Area picking up a big HQ2. You've got New York picking up some great work there. So for us, was it surprising? Sure. No one knew where they're going to end up. I think everyone had a hunch it would be 1, if not 2 of those cities. What does it mean to our business? Look, anytime we see a large occupier like Amazon continue to expand, continue to put large centers of people into urban areas like this. It's just very good news for the industry. In particular, I would say the site that they chose in the D. C. Area is particularly interesting because it is a collection of buildings that I think we're not receiving the kind of attention that other projects in the area were. So it takes out of the market a large amount of inventory that might have had a little bit more difficult time being leased up. So that's a net positive for the market and for everybody. But it was it's great to see and it's just all good news. Great. Thank you. Your next question comes from the line of Alex Kramm from UBS. Your line is open. Yes. Hey, good evening, everyone. Just coming back to, I guess, Brad's comment about how the environment continues to be pretty solid and you obviously mentioned that for 2019 you continue to expect decent growth across the business. Maybe just to turn this around given that the stock market is obviously not agreeing with you. I mean, where are you seeing more uncertainty in your business when you look, I guess, globally or by business line? I mean, anything that where you're starting to see any sort of cracks that you point out? Or are you pretty positive across the board? It's I learned a long time ago not to pay a lot of attention to the stock market. I don't know what the stock market is telling us and everyone else other than it's volatile. But the things that we pay a lot of attention to are a collection of data metrics, econometrics that we know best forecast the health or not of our industry and our business. And we look across those metrics. Zari covered the metrics we watch, the kind of metrics we watch on rental rate, which of course is underpinned by construction product coming to market and absorption. I look at the capital markets, which is an important business for us and for our primary competitors. Sales volumes through the first half of 2018 were up 13% over 2017. Cap rates are steady. So cap rates certainly aren't telling us anything to be worried about. Yields and the delta in yields are all very, very positive right now. So we're seeing when you look at the financing markets and you look at the prices that people are paying for buildings, even though interest rates have moved up, it hasn't seemed to have any impact really on cap rates or on velocity of transactions in the marketplace. I think one of the reasons for that by the way is essentially to note that debt funds have the total amount of capital in debt funds and dry powder in debt funds has doubled over the last 2.5 years now $40,000,000,000 of raised capital in the debt fund space. And that debt fund space is another alternative for buyers to turn to, to finance all or part of their purchase transactions. So the things we watch, we watch GDP. As you know, the IMF is predicting strong GDP growth for the next 2 years globally and in most major markets. We watch vacancy rates. We watch rental rate projections. Those are all quite positive right now. We watch new construction. There are very, very few markets right now that one could point to for the primary food groups that we operate in that are overbuilt. In fact, it'd be hard to pick 1 at the moment. And we watch just the pricing of product and price remains rational and continuing to incrementally improve. So areas we'd be worried about right now, I have to be honest with you, I suppose the places we're watching a bit more carefully might be the UK. And the UK, with still an uncertain outcome on Brexit is certainly a question mark. But think of this, even with the uncertainty that's been around Brexit now for what going on 2 years, with an outcome that is not yet completely known. And U. K. Leasing, so take U. K. Leasing market is up 10% year to date for and much, much more strongly that for the quarter. You look at capital markets up 13% in the quarter, 5% year to date. So even in the U. K. Where you have a macro uncertainty, you see healthy transaction volumes. So all that to say, as we look around the major markets that we operate in, it's difficult at the moment to find a market that has anything obvious going on that is particularly worrisome. All right. Thanks for that color. And then secondly, pretty quickly, I think you mentioned yourself in your prepared remarks that in EMEA, you continue to be pretty underrepresented in PFPM, although that business has been growing nicely. Any updated thoughts in terms of scaling that business up inorganically? Is that a big focus or, yes, I guess on that question? Yes. So we've talked about and Duncan has talked quite a bit about our priorities around capital allocation and we're very thoughtful around that. As it pertains to infill M and A or even larger M and A for that matter, there's no doubt that we have a bias towards recurring revenue businesses and we've made it, I hope, clear and you just referenced it that in EMEA, both in the recurring revenue businesses, but in general, We feel we're underrate given the strength of this platform and the size of our businesses in other geographies. So we are always interested in high quality businesses that meet those metrics in our screening metrics for capital allocation and certainly EMEA and recurring revenue businesses in EMEA are high on the list. Now that being said, EMEA is a tough place to do M and A. It is a place that you must be careful because of the labor laws and the cost of integration and we are very careful in EMEA. But if and when we find high quality opportunities there, we'll move on You know from our call in Q2 and the roadshow that we've made a series of recurring revenue acquisitions in EMEA. The last year and a half has well gone exceptionally well for us and we're on the lookout for more like that. Great. And then just one quick one to finish here. Given that it's a few months since the IPO now and clearly last minute you got that Vanky investment. Just wondering if now that you've hopefully spent more time with these guys, if there's anything that come out of this already? And in particular, wondering, I think they recently launched kind of like a subsidiary around property management services. So to what degree is this something where you can partner with them? Or are they actually competing with you to some degree? So any color there would be helpful. Yes. In China, there is not a Venky does not have a competitive property management business per se. We've been talking to them a lot about lots of opportunities for us to work together with them. We have a team there actually at the moment working with them on a variety of interesting areas to work together in and outside China. I suspect that in the coming months and years, we will have an ever more deep and powerful relationship with Venky, who is a very important client to us in China. I have nothing there to announce and there's nothing I don't think that is imminent to be announced. But we are absolutely working with them real time, full time to explore opportunities for these two firms to work together. Very good. Thank Your next question comes from the line of Stephen Sheldon from William Blair. Your line is open. Hi. First, wanted some color on maybe the expected impact of operating efficiencies heading into 2019. You've said this year's margin expansion has been heavily driven by the mix shift more towards higher margin transaction activity and less of a benefit from operating efficiency. So just qualitatively, how are you thinking about potential operating efficiencies heading into 2019? And maybe some color on whether we should expect them to have a bigger or smaller impact than in 2018? Yes. This is Brett. Let me take a kind of a macro stab at this as far as I'm capable and then hand it to the expert, which is Duncan. But first and foremost, I would just say this. I think that and we've talked about this in the past. I think generally speaking, this industry is pretty inefficient when it comes to managing businesses and focusing on operating efficiency. And we see that as very low hanging fruit and something that we're good at and something that we intend to be very focused on year in, year out in this business. We have a variety of project teams who spend all of their time looking at ways to use technology, looking at ways to do other things to make this business more efficient and to increase margin. It's something that is a relentless focus for us. But let me turn to Duncan to talk a little bit about next year and how he thinks about that opportunity. Thanks, Brett. So as you know, and I think we talked about this quite a lot during the IPO process. We had a lot of work during the integration in terms of driving operating efficiencies. And I think we drove the order of 80 basis points or 90 basis points per year on average sort of over those that 2014 to 2017 period. 2018, we continued to sort of look for operating efficiency. Obviously, we have big margin expansion this year and it's been a factor of not only of the mix, but also we have driven some operating efficiency, which has been important to us. And we will continue to look for opportunities to drive operating efficiency every year. We do think that's partly due to the scale of our business and partly due to the opportunities we have as we bring on infill M and A, there's opportunities for us to drive operating efficiencies across our platform. We do operate at lower rates and margin rates in some of our peers, which in fact for us is an opportunity through scale to sort of pick up margin every year and we'll continue to drive that in our operating plans across our service lines, across in our operating plans for next year. And it will be part of when we provide guidance for next year, it will be part of what we look to provide the guidance for next year. I think just to add a comment to Duncan's comments, one thing we're very proud of both in 2017 and in particular in 2018 is the entire industry is seeing great lift in transaction revenues, but the lift we're seeing in margin is unlike any firm in this industry right now. So the operating efficiency component of that lift is very real. And while there's no doubt that the growth in leasing and capital markets are very, very supportive of this margin expansion, it would be a mistake not to also conclude that operating efficiency is driving a material piece of that as well. Got it. That's very helpful. Can you maybe provide the expected impact of ASC 606 in the Q4 to adjusted EBITDA? I think you had originally targeted roughly a $15,000,000 benefit this year. So through 3Q, we're a little ahead of that at roughly 19.5 So will ASC 606 be a drag then in the 4th quarter? Or is the benefit this year just trending a little higher than you'd originally expected? I suspect it's I wouldn't say it's going to be in any way a drag because it's for us because we haven't recast historical financials. It's a benefit towards for us in every period. So it will continue to be a benefit for us in the Q4 as well. It probably is running, I think, a little higher than we'd originally thought it would be. It's definitely I think it's on Page 20. I would refer you to that in terms of the appendix to our earnings deck in terms of what it has been year to date. It's been about $24,000,000 $25,000,000 of fee revenue in the Q3 and about $50,000,000 year to date. It's been about $9,000,000 of EBITDA in the Q3 and about $20,000,000 year to date. And because of the relatively heavy amount of leasing in the Q4 versus the other quarters, I would expect to maybe run a little higher than those rates in the 4th quarter simply because the 4th quarter is the largest quarter in leasing, and that's where a lot of that benefit comes from in terms of change versus last year. But we I would expect to see a benefit in the 4th quarter and probably bigger in the run rate level than the average of the last three quarters. Got it. Thank you. And your next question comes from the line of Mitch Germain from JMP Securities. Your line is open. Good evening. Brett, I'm curious about your thoughts around the M and A market. Obviously, you guys continue to find these smaller infill deals. And obviously, there was a bit of pause in the market a couple of years ago as pricing and expectations seem to ratchet a bit higher. It seems that I guess our diligence has suggested pricing has gotten a bit more reasonable here. I'd love to get some thoughts around what you're seeing? So in the M and A market, we do benefit, I think a bit unusually from our peer group in the sense that I think we're seen as a good home for businesses that are looking to roll up into a strong global platform. That's for the reasons we discussed before, which is there are instances where we can onboard a business into ours and they can come in and fill an area of white space that we had available. So we tend to get, if not first look, we're definitely in the first group of looks that those firms pursue when they think about trading. And I would say without exaggeration, probably more often than not, we are first look. We have opportunities that continue to come to us where we're able to work with them exclusively before and make a decision whether we're going to pursue them or not before they go to the market. We like that a lot. We have opportunities that come through auction, but we tend again to be a firm that folks, if all things were equal, the folks tend to want to be with for the reasons that I just mentioned. As it pertains to pricing, it really depends on the geography and the business line. There are certain business lines where things look pretty rich to us. There are other business lines that for us are very, very reasonably priced. We have lots of synergy with a lot of the companies, expense synergies, a lot of companies we look at and our pro synergy multiples are many, many times usually mid single digit. So in the market today, we find we tend to have a bit less competition, some of the higher quality transactions because frankly we can fit them in a bit better than others can. We see plenty of well priced, reasonably priced, fairly priced businesses who I think have concluded for all the reasons we've talked about for 20 years that competing as a single market or a single business line firm is just too hard. And being part of a powerful global platform like Cushman and Wakefield is a great place for those people and their clients to live in the future. And there's nothing to market right now on the M and A side that would indicate to me the price is going up. I think to your point, if anything, we're seeing a bit more reasonable multiples on a lot of the a lot of projects we're working on. If I my understanding in terms of the Facilities Management business is a lot of customers now are looking rather than just having 1 provider, multiple providers, maybe it's by geography or other certain criteria, is that providing your firm an avenue of expansion, organic growth? Or is it is there any other phenomenon that you think is really positioning you guys to continue to grow that business line? Yes. Well, you have it right. So it is it would be unusual, it would be anomalistic for a major corporate to have a single provider for their corporate real estate outsourcing projects. The biggest corporations, many of them tend to divide up the business by geography or by service line or by both. Because of the platform that we have created here at Cushman and Wakefield, strength of the business, the geographic footprint, the broad capabilities of services, we're now one of those 3 firms that is almost always bid. And I would say in most cases, 2 or 3 of those firms are going to pick up some component of the business. Certainly, there are outsourcing contracts that goes single provider. But if I look at our largest contracts, in many, many of them, we're sharing to work with others. So think of it this way. I think that because Cushman and Wakefield, now almost 3 years ago emerged on the scene with a platform, a service array, a quality of service delivery that simply just didn't exist in the market 4 5 years ago, there is a redistribution of existing share and we are benefiting from that. If I could ask one more. If we potentially see a slowdown in some of the major metros, New York or whatever, How do you think Cushman is positioned in some of the secondary markets? Good question. Krishman and Wakefield is a so we have hundreds of let me answer it this way. We have hundreds of offices around the world and I would say that we have a strong presence in all of the major cities. Let's count that as the top 50 major markets around the world, but we have a strong presence in probably the next 150 cities beyond that. So our business for better or for worse is a diversified business. We believe it's important to be able to capture share and quality business in Cincinnati and Cleveland just as it is in New York and Chicago. And frankly, many times the secondary markets are higher margin markets than are some of the major markets. And as you well know, some of the largest, the Fortune 500 companies in the U. S. Are located in secondary markets. So these are important businesses and markets for us. We're well allocated through our footprint to I think, a good number of the secondary markets around the world that are important. You look at our presence in Eastern Europe, we've got a dozen offices in Eastern Europe and cities that produce very good business, have terrific clients we do business with around the world and produce very good margin work for us. Thank you. And your next question comes from the line of David Ridley Lane from Bank of America. Your line is open. Sure. Good evening. So within the Facilities Management, the self performed business, is there any follow on benefit from the faster growth you have in the other side of the house, property management? Do you often get assignments when in the self perform work when you win the broader mandate? Or does kind of low single digit growth feel like a continuing trend? There is no doubt that this opportunity you just described may be one of the lowest hanging fruit we have in this company. We have not done near enough, a good enough job in having those businesses work together to feed each other. And that is something we are very focused on right now. We ought to see in the long run down the road, we ought to see half of the organic growth in our self perform business come from the property management business or the large corporate outsourcing business that we have and a material piece of those businesses, corporate outsourcing, property management ought to come from the self performance business. It's not something that these businesses in the past focused on. It's something we are very focused on and we expect to see really good results out of the very, very intense efforts we have in that area underway right now. And there are no further questions at this time. I will turn the call back over to Brett White for some closing remarks. Terrific. Well, thanks everyone for your time tonight. It's one of those