Jones Lang LaSalle Inc (JLL) 2003 Q1 法說會逐字稿

Good day. Welcome to the Jones Lang LaSalle Incorporated, first quarter 2003 earnings release conference call. Today's call is being recorded. Any statements made about future results and performance, or about plans, expectations and objectives, or forward looking statements--actual results and performance may differ from those included in the forward-looking statements as a result of factors discussed in the company's annual report on form 10-K for the year ended December 31st, 2002. And in other reports filed with the S.E.C.. The company-disclaims any undertaking to update or revise any forward looking statement.

A transcript of this call will be posted and available on the company's web site within two days of this call. At this time, I would like to turn the call over to Mr. Chris Peacock, Chief Executive Officer for opening remarks. Please go ahead, sir.

Thank you for joining us for this review of our first quarter 2003 financial results. With me on the call today is Lauralee Martin, our CFO.

Let me begin by briefly summarizing the headlines for the first quarter under a number of key points. We have achieved our earnings target for the first quarter of 2003 in an exceptionally difficult business environment. This performance reflects our sustained focus on those areas that we are able to influence in order to deliver service to our clients and financial performance for our shareholders.

Our strategic investments in the growth of LaSalle Investment Management and in building our corporate solutions business globally, were key contributors to our performance in this quarter, while our capital markets business demonstrated solid performance, particularly in the European markets.

We are achieving our objectives in implementing the headcount reductions announced at the close of 2002, lowering the cost of doing business in operations with reduced near term growth potential in order to afford investment in areas demonstrating the capacity for growth during 2003 and '04.

European markets remain weak, while the outlook in Asian economies is clearly dependent on the duration and spread of the SARS epidemic.

Finally, despite these challenges, we continue to win major assignments, develop long-term alliance relationships, and dedicate our professional resources to delivering excellence in client service across the world.

After Lauralee talks about our financial results for the first quarter, and our outlook for the second quarter, I will review recent business highlights, and our performance in pursuing our strategic goals in 2003. Following that, we'll be pleased to take your questions. Let me now hand the call over to Lauralee to talk in detail about our financial performance.

Thank you, Chris. Net income for the quarter was a loss of $7.2 million, or 24 cents a share, as compared to the prior year loss of $4 million, or 13 cents a share. The quarter's results were at the favorable end of our previous guidance.

Let me start by comparing this quarter's loss of 24 cents to the first quarter of last year's loss of 13 cents. The 2002 results benefited from 3 cents from a cumulative catch-up for changes in accounting principles. The foreign exchange rate difference on our interest expense accounted for 1 cent of the negative year over year variance. Our approved tax rate, which will be beneficial for the whole year, at an additional negative variance of 2 cents, as we were in a loss position. And bonus increases that are principally due to timing add an additional 6 cents per share negative impact.

Given these explainable variances year to year, we feel pleased with the operating results for the first quarter. The results for the first quarter also included offsetting adjustments to our prior yearend restructuring charges. We had minor changes to our people assumptions, and a charge for excess space due to lower staff needs.

EBITDA was a positive $2.8 million despite the net loss for the quarter, demonstrating the cash-generating strength of the business model. With continued tight controls around capital expenditures, aggressive management of receivables, and strong management of our global tax position, we generated positive cash flows even after interest and tax. As a result of our strong cash flows, we reduced our credit facility by more than $35 million from the prior year. Our outstanding Euro bond offering showed an increase of $36 million on the balance sheet, but this increase was due to foreign exchange translation, not due to a change in our borrowing levels. Interest expense of $4.1 million with an increase of $200,000 year over year. But actually down $200,000 in local currency, reflective of the lower debt levels.

The cash generation capability of the firm's business model is very important for investors to appreciate. Particularly as we near the time mid next year when the Euro bonds may be called. The Euro bonds carry a 9% interest rate, while our credit facility today is priced at Libor plus 200 basis points.

After calling the bonds by using our credit facility, debt will be priced as a lower interest rate, and we will have maximum flexibility to continue to reduce debt aggressively.

As a reminder, we have paid down debt by almost $160 million in the last three years, and interest expense impacts our results by over 30 cents a share on an annual basis.

As I discuss our results, I will be referencing the impacts of foreign exchange changes year to year. Given the Euro is up over 21%, Sterling up over 10%, and the Australian dollar up over 15%, these are our most significant non-U.S. dollar currencies. The general impact of these currency changes is that both revenues and expenses will be reported in U.S. dollars higher than they would be in local currencies.

Total revenues for the firm were $185 million for the quarter. Up 10%, but up only 2% in local currencies. I will be discussing the regional segment results shortly, but we were very pleased to see an increase in revenues in the Americas. The first year over year increase since the fourth quarter of 2000. Offsetting the Americas increase was a continued decline in major markets of Europe, which are generally anticipated to lag in a U.S. economic recovery. Total expenses of $192 million increased $20 million, of which foreign exchange accounted for $14 million of the increase. Base compensation and benefits in local currencies increased less than 3%, as the benefit of the cost takeouts in 2002 were offset by the impact of the addition of our New York City expansion, which did not occur until the fourth quarter of last year, as well as expansions in north Asia and LaSalle Investment Management.

The goal of our downsizing at the end of last year was to provide the ability to continue to make the very key long-term growth investments while containing our base business costs against an anticipated slow revenue recovery.

Operating and administrative expense and local currency was flat. Additionally, a crude bonus in local currency was up year over year by $4 million, the majority of which was quarterly timing relative to last year. By the end of the year, the quarter to quarter bonus fluctuations will balance to the projected target bonus levels, adjusted for changes in performance against expectation.

Let me turn now to the segments. In the Americas, year over year revenues increased by over 6%. Due to increases in the project development business, and tenant representation group. This increase reflects the continued successful growth in alliance relationships, which is a strategic driver of our client service model.

Against the first quarter of the prior year, capital markets activities were down. We concluded several high profile transactions in the first quarter of last year, which were difficult to replicate, but we also saw a fair amount of transaction hesitation, given the war buildup and result in uncertainties at the time. We'll be watching pipelines carefully to see if activity returns to more normal levels.

Europe continued to experience the challenges of a declining economic environment. Revenues were up over $6 million, or 10%, but in local currencies were down almost $5 million. The declines continued to be in the key markets of Germany, Belgium, France, as well as in the English leasing market. We did have good performance in both the Spanish business and in the Netherlands.

European expenses were up $8 million. This increase was the result of a $10 million increase due to foreign exchange movement, offset by local lower expenses in local currencies. This performance was a combination of expense controls and improvement in bad debt expense.

Asia pacific saw relatively flat revenues year over year in local currencies. Expansion and investment in North Asia proved important as the year over year increases in Japan and China offset the declines in Hong Kong and Singapore. We expect these north Asian markets to continue to expand in 2003 and, in fact, anticipate that Japan will become our third largest market position in the region. We continue to see growth in the corporate solutions product offerings as multi-national see the Asia Pacific region as an opportunity for both low-cost operations and business growth. Expenses increase $3.7 million, with 2/3 of the increase due to foreign exchange and the balance reflected of the increased investment in north Asia. Although we do not know if SARS will significantly impact our results this year, we remain confident that we have positioned ourselves to respond and capitalize on the continuing corporate interest in the region.

LaSalle Investment Management revenues increased 28% year over year, 21% in local currencies. With the emphasis on increasing the predictable advisory fee component of the business, core advisory fees increased by 22% year over year. In fact, advisory fees have increased approximately 10 basis points as a percentage of assets under management since the end of 2001. These increases were achieved primarily in Europe and Asia Pacific.

On January 1st, $2.5 billion of assets was transferred internally as the European and owner occupied of Jones Lang LaSalle assumed responsibility for managing the client and their assets. This decision was due to the compensation and investor objectives which are focused on paying for transactional advice, not investment management advice. We believe this transfer will give better service to the client, due to management alignment, and potentially increase revenues for the firm as a result. The strength of recognizing the client needs, and responding, is a key strength of the firm. This is best represented by the joint service provided to Prupin [ph] where in the first quarter, the European owner and occupier team of retail markets helped with Prupin's acquisition of a retail property in central Paris, with LaSalle Investment Management providing ongoing asset management services.

Expenses for staff to service new funds closings offset half of the LaSalle Investment Management favorable increase in revenues. However, the majority of the required staffing is now in place, and revenue performance leverage should be achieved going forward. The challenge for LaSalle Investment Management in 2003 is investing a significant capital committed to them by investors last year. We face a tough investing market given high prices are still being demanded for properties against deteriorating yield fundamentals due to lower lease rates and declining occupancy. LaSalle Investment Management is very focused on ensuring that capital is invested appropriately to maintain their investment performance track record.

The business continues to be pleased with their activity levels in North Asia, where the investment opportunities remain solid. This is also a location where they can have a competitive advantage as they leverage off the local market skills of the owner and occupier businesses of Jones Lang LaSalle.

Now to look forward. As articulated previously, due to the seasonal nature of our business, with net income generated predominantly in the second half of the year, total earnings guidance will be given later in the year when we have a more predictable view of the economy and its impact on our global clients and markets. In the second quarter, we anticipate taking a one-time impairment charge for property management accounting system in Australia, which has proven too technically unstable to continue with further implementation. This impairment charge could be up to $4.5 million pretax. This is not a cash impact to the firm, as these costs were spent previously and capitalized. We are very disappointed to have this charge impact our GAAP performance for the year.

Operationally, for the second quarter, we remain prudently cautious. It's too early to call a turnaround in the Americas despite the first quarter revenue improvement. We continue to see economic challenges in Europe, and the impact of SARS in Asia Pacific is not easy to determine. However, we expect to be modestly profitable on an operating basis in the second quarter, which excludes the impairment charge in Australia.

With the conclusion of the financial overview, we again thank you for your continued interest in Jones Lang LaSalle, and I would now like to turn the call over to Chris Peacock, President and CEO.

Thank you, Lauralee. You've heard from Lauralee the details of our financial performance for the first quarter. Actually, as highlighted, this has been an encouraging start to the year, demonstrating disciplined management of controllable expenses throughout the business, and effective execution of investment activities in our strategic growth areas. In a few moments, I will describe some recent business successes in the pursuit of our strategic goals, but first I would like to briefly share our perspective on the market environments in which we are operating.

While it remains too early to call, U.S. markets seem to be experiencing increased activity levels as a number of tenants now seek to lock in lower rents for the future. Although real estate assets are unlikely to see a recovery before 2004, Jones Lang LaSalle should be a leading indicator of market recovery through our leasing activities.

In contrast, in European markets demand for office space remains soft, and vacancy rates are continuing to rise, demonstrated by high levels of vacant space controlled by tenants. With the results that European prime rents are 8.6% lower than a year ago. Offsetting the decline, real estate is benefiting from the strong flow of capital seeking alternative equity investments. Therefore, despite weakening market fundamentals, real estate in general has continued to see high capital flows as investors seek security, relative value versus other asset classes, and the opportunity to leverage investment with cheap debt, with particular focus on core quality assets. Causing fierce competition to scarce product. I will be discussing this further as I cover our capital markets business.

Turning to Asia Pacific, the phenomenal Chinese economic engine is still predicted to deliver growth this year of around 6%, though SARS is undoubtedly restricting the growth potential of the entire Asian economy, which GDP forecast that Singapore and Hong Kong already are materially downgraded. The long-term impact on the real estate market remains difficult to read, particularly regarding the inward investment to the region. In the short term, it's clear the transaction activity and decision making are significantly impaired by restrictions on travel.

The swift removal of uncertainty around the Iraqi war holds out some prospect for high economic growth in the balance of the year, with the U.S. leading and lifting the outlook for the global economy. Nevertheless, notable recovery in the occupational real estate market seems increasingly likely to be delayed into 2004.

In this challenging climate, I am pleased that the firm has continued to make progress towards our strategic goals, to driving growth and superior returns. In previous quarters, we have described in detail the success of our corporate solutions and investment management businesses in the delivery of their growth plans. That performance has continued into 2003.

Our corporate solutions business in the U.S. and Asia Pacific secured a substantial new tenant representation alliance with SEBO systems. In the U.S., we won major instructions or extensions from the Atlanta Symphony Orchestra, United States Air Force, Goldman Sachs, and McDonald's. While in Asia, our performance for DBS bank limited, in providing corporate client services in Singapore, led the bank to extend our relationship into Hong Kong. In Europe, we were appointed as real estate advisor to Honeywell where we occupy 600 square meters across the region, a key win for this growing operation.

In the first quarter, LaSalle Investment Management built on its 2002 capital raising success with a first close for the Canada income and growth fund, raising $95 million Canadian dollars and securing Canada's largest pension plan, TPP, as lead investor.

For our confidential clients in the U.S., we were attained to oversee the investment management of their 50% joint venture interest in a major regional shopping center valued at $500 million. While our U.S. private equity business completed $158 million of new industrial investment. Largely on behalf of Cal-East, an entity principally owned by Calpers [ph]. Calpers have further recognized our cross-border capability by broadening our mandate to include core investing in Mexico and Canada.

This quarter, I want to focus on the successful delivery of our growth strategy for capital markets, in particular on cross-border activity in Europe, where we have a market leading team of professionals covering our pan-European business as well as exceptionally strong local teams in each major market.

Starting first with our investment into new markets, Scandinavia is a key priority focus for the firm. Demonstrated by our increased investment to buying out our Swedish asset management services joint venture at the end of 2002. Capital markets business in this area is proving to be exciting, particularly the entry of investors from outside the Nordic region. Last quarter, we described our success in advising Germany's largest open-ended manager, Biecher, [ph] on its first acquisition in the Nordic region.

In the first quarter 2003, we made the first purchase in Sweden for the U.S. opportunity fund Blackstone, acquiring ten office properties for 230 million Euros from Skanska [ph], Scandinavia's largest construction company. We anticipate further large transactions by the year end.

Our capital markets teams further demonstrated their capability to execute cross-border successes in the UK and Netherlands on behalf of Italian, German, and Irish investors. For example, in its first UK acquisition outside London, Italy-based Nextra [ph] Imobilia [ph] bought an office building in Manchester for 36 million Euros. We advised Henderson global investors, who acted strongly on the acquisition. We advised AKSA investment managers Deutschland on their first acquisition in the Netherlands. And a new 27 Euro building in Amsterdam leased to WPP for ten years. On behalf of a private bank -- I'm sorry. A private client, we concluded the sale of offices in Amsterdam to bank of Ireland private banking limited for 32 million Euro.

As well as acting for investors, we continued to achieve strong results, acting on behalf of corporate clients. We completed the sale of a 227 million Euro portfolio of 16 office properties owned by Deutsche Telecom to Goldman Sachs. This was Deutsche Telecom's second real estate portfolio disposal. We also carried out the first, a 1.1 billion Euro portfolio, in 2000.

Finally, our corporate finance business, which competes with great effect against investment banks and boutique advisers, built further on its growing track record in corporate sales. It has been appointed by leading UK retailer Jay Simms VPLC, [ph] to advise on the sale of its subsidiary, J. Simms Redevelopments, Limited.

All of these investments in the first quarter illustrate the progress the firm is making in reinforcing our leadership as the chosen real estate adviser for substantial clients seeking to buy or sell assets within their own local markets and beyond. These transactions are clear evidence of our capability to build strong local relationships and at the same time operate at a regional and global level to find opportunities for our clients wherever they exist.

I would like to conclude by commenting on our outlook for the second quarter. As Lauralee has already described, we anticipate that the firm will achieve modest profitability in the second quarter, prior to the impairment charge we expect for the abandonment of our Australia property management systems investment. This underlying performance reflects the continued political and economic uncertainty across the world, particularly in Asia, and it's indeed dependent on no further material deterioration in these conditions.

Notwithstanding these market conditions, I strongly believe that the firm is making good and positive progress towards our long-term goals of delivering excellent service to our clients who are the best people in the industry, and achieving sustainable growth in returns for our shareholders. As is clear from the examples of first quarter success that I just described, this progress is reflected in the increasing quality of our client base as we establish alliances and new relationships with major investors and corporates. We continue to enjoy success in doing new business with the existing clients in new markets -- all for the provision of new services. Furthermore, through the joining together of cross-border teams, we're ensuring the service provided to our clients is of a consistent and seamless high standard.

Now, we would like to open the call for your questions. Operator, would you please explain the process.

In order to ask a question, please press star and the number 1 on your telephone pad. We'll pause for just a moment to compile the Q&A roster.

Your first question comes from Assish Penh [ph]

Good morning.

Good morning.

How are you doing?

Fine, thank you.

Just a couple of questions, Chris. The first, if you can -- for the coming year, if you can sort of highlight, say, a few areas of opportunity in terms of where you potentially could see growth come from. The environment remains pretty sort of uncertain and murky, but you know, what's -- what are you guys internally focusing on? For instance, I know, in the last couple of years, capital markets and investment management have been two areas. Can you sort of update us on that.

And, secondly, where do you think negative surprises could come from? What are the areas that are sort of looking to get weaker? That will be pretty helpful.

All right. Let me have a go at that. Yes, the key areas that we are investing in and continue to invest in, as you say, are our investment management business, and we've seen in the results I've just talked about here some of the benefits of that coming to the firm. And also, I talked there about our capital markets, as you mentioned.

You didn't talk so much, though, about corporate solutions, and we have been building our corporate solution capability, particularly here in Europe where historically it's been weak by comparison with the North American corporate solutions business. So those are our key areas that we continue to invest in.

As you know, last year we really began to expand our operations in New York, and that is a continuing process as well. As we continue to hire some excellent people to join our team there, and we're seeing great benefits coming from that.

Close to home on a geographic basis, I have evidence there of increased exciting business in Scandinavia, and that is, again, as we've -- as we develop our numbers there and built up our management business, we're seeing the whole range of new opportunities.

Other markets which are actually quite strong at the moment would be our Central and Eastern European markets. For example, Russia, for example or Moscow, I might highlight. Geographically, when you look at North Asia, we continue to grow our business in Japan, for example, at the moment, and I think I said it reflected to be our third largest market in Asia during the course of this year. So that would be another highlight. And there are good opportunities still to buy properties for our Asia recovery fund in that region.

So perhaps those are some of the stronger areas. You asked me about where we might get some surprises on the down side.

Now, obviously, everybody hates surprises, and therefore we're trying to look at those areas in advance. One of the big unknowns -- and I don't want to labor it, but I think it's a fair point to make, is the spread and depth and impact of SARS. And it really is so hard to predict if that's going to be a controlled sooner rather than later, but certainly the level of travel is down to a pretty minimum there, and that does impact on transactions being completed, et cetera. There are, obviously, weak markets, particularly here in Europe, and we've highlighted some of those. Germany continues to be a worrying aspect.

But I don't think I'd pick out any other areas of particular concern in terms of surprises coming, but I don't want to be complacent on that score either. These things, you know, tend to come out of the blue, as it were. I don't know if Lauralee wants to add any to that.

I think Chris covered most of the areas quite well. The only two things that I would emphasize in addition is that in LaSalle Investment Management, we do have some funds maturing, which means there's an opportunity for us to get equity gains off of our co-investment dollars, and that was not necessarily the case last year. And just to reinforce on the corporate solutions business, all last year we covered with you some very significant wins, and it really takes about six to nine months before they make money. And so all of those things we talked about last year are now realities coming in to year 2003 to help us, you know, meet the challenges of the environment.

Just a couple more questions. One, has visibility in Europe become any better?

Well, I think Europe's a very big place, and the several different markets within it. So I think to give a general statement there doesn't mean very much. Visibility in terms of where economies are going and therefore the likelihood of corporate movement and investor movement? Is that particularly the point?

Yeah, and in terms of leasing rates and stuff like that, you know. Vacancy rates, leading rates, et cetera.

Yes. The simple truth is -- and I think I referenced it earlier -- that while we may feel the bottom is being reached in these markets in America, I can't say the same with that degree of confidence when we look at different European markets. And I think what we do need to see is a bit of a bounce of confidence in America in the corporate market and see that reflect back here in Europe. The capital markets business is holding up, though, remarkably well with the pressure of money seeking to get into the investment markets there, in Europe, that is.

Just another question. I mean, just seeing the sort of comments from the travel crew, whereby it seems to me that the corporate solutions market might have, say, about a year or two back, seen some irrational pricing or not that profitable contracts. At least Trammel Crew's [ph] experience was that, and they've gone back and negotiated a bunch of those contracts. Are you seeing pricing become better or your negotiations with clients on these corporate solutions contracts improve over the last year or so?

Actually, we'll take this one as the last one, if I may. And then give some others a chance. I think that, as markets do toughen -- and, obviously, have done over that period -- none of the major firms are really willing to take on -- take on work of the kind of magnitude we're talking about unless fair margins can be established. And I'm sure all of us are very aware of that today, that it's about giving the right quality and value and service to clients rather than driving it purely -- purely on the fee margins. And we believe that that is the right basis to sell on and always have done.

Thank you very much.

Thank you.

Your next question comes from Sonia Vendor [ph].

Good afternoon. I'm calling from Deutsche Bank. One question, you mentioned the bonds at the beginning of the call. You actually intend to actually refinance them?

Could I just ask Lauralee to comment on that.

We have been, you know, pretty clear all along that our objective is to pay down debt. We think we generated an incredible amount of cash, and we don't need it for our growth and have used it to date to pay down our revolver, such that we use it, our revolver, very little.

In fact, we can call the debt next year. It's called at a premium, but even adding in the premium relative to the interest rate, it's easily a breakeven in less than a year. So that is our continued position to get to optimize that really financial trigger point that are make a meaningful difference in our financial results going forward.

Even if the current rate between dollar and Euro?

That is a good point, and let me also clarify that our credit facility is a multi-currency. So we would, in fact, refinance it with Euro into the credit facility, and that would not be an impact. Clearly, as we start to pay it down, that would be something we need to consider when we pay it down in the credit facility. But it would not be an impact relative to maturing on the bonds.

So in terms of the timing, it could be next 12 months, 18 months?

No decision, obviously, has been made yet, but we have the flexibility to call the bonds the middle of next year.

Middle of next year. And then my second question is more going back to the operations. In the previous call you mentioned basically, that although the market was still basically fragile in the U.S., it's obviously improving in this quarter. You mentioned that leases were still very short. What are they basically -- the average leases, are they improving? Are they actually lengthening a little bit? Especially for the U.S. market, I mean.

Excuse me if I'm wrong here, but I think the comment we made at the last related to smaller lease deals and having to do a lot more smaller lease deals to, as it were, keep pace. I think rather than the length of the lease. I may be wrong on that. I don't think the length of the lease is a key point here.

We did reference if there was a tendency to go shorter in the United States because the tenants wanted flexibility. I think it's an interesting question in the United States because now what you have are corporates looking at very favorable lease rates, where they would like to lock these in for an extended period of time, and landlords looking at very unfavorable lease rates that they don't want to lock in for a longer period of time. I think it will be interesting to see how that gets resolved.

Okay. No major change versus last year on those trends?

No.

Thank you.

Your next question comes from Will Marks.

Good morning, Chris and Lauralee. Actually, I just had a couple of quick questions. On the tax rate, do you see that something, that 34% is ongoing, even past 2003?

Our objective is to have a lower tax rate than that. We think that, with disciplined global tax management, a lower rate is achievable, and it's sustainable, and that would be our objective and we're moving towards that. But until we have that planning complete, we would not articulate a change.

Okay. On the guidance, can you comment at all on the full year as it relates to last year? Do you see any kind of improvement in total revenues, or do you expect the company to be more profitable this year than last year? Can you add any light to that?

I think the guidance we gave at the end of last year was that we were certainly setting our cap at -- trying to improve very much -- and when I say very much, trying to improve on last year. But we have consistently said that we think it's inappropriate in this environment to make -- be any more specific about that at this moment. We certainly intend to do so later in the year. Either at the end of this next quarter or into the third quarter as appropriate. As we see things. But we haven't changed our plan -- our plan here is to improve upon last year's earnings per share.

And just on the second quarter -- I don't want to really press this too much. But was your -- based on the first quarter, was -- do you see a change in the second quarter? In other words, did some things happen in the first quarter that you would have expected to take place in the second quarter?

I think there were some timing issues here, Lauralee. But would you like to comment on that?

I think your question is did we have second quarter move into first quarter so we had better performance? I would say not. We were pretty comfortable with the results of the first quarter relative to what we expected, and we just, you know, performed pretty consistently.

The second quarter, we do see a number of transactions that are scheduled for late in the quarter, and rather than anticipate those, we have been cautious around that, and that is reflected in our guidance, that they could be third quarter events rather than second.

Great. Okay. Thank you both.

Thank you.

Your next question comes from Joel Gomberg.

Thanks. Can you elaborate a little bit more on Asia and Asia Pacific? You know, the size of the loss this quarter, you know, we haven't seen that size of a loss out of that region. And could you elaborate a little bit more of where your business is -- the bulk of your business is coming from? Is it Singapore and Hong Kong? And why the loss was so large there?

Yes. I mean, traditionally, our major markets there have been Hong Kong and Singapore, both of which have, in fact, been affected quite strongly by the downturn in the region. So I think that we're relying more on the contribution that's being made from the emerging markets at this time, the kind of Korean, Japanese, for us emerging markets, as we grow our market share there, and indeed in China.

Some of the issues there that show a greater loss, I will reflect very much on us really wanting to be on the front foot in the region and investing further there in training for our people, marketing of our business. We felt that this was the right thing at this time to be doing. So quite a lot of that spent in the first quarter has come from those areas, investing frankly in the future.

Okay. And you put in -- you know, you restructured the region, I think last year, and how is that coming?

We structured the whole of Asia Pacific. From Japan through to Australia was one region instead of two separate sub-regions, as it were, and, that's coming on -- that's now operating very effectively. Of course, there are markets there that particularly lend themselves to pan-Asia Pacific management, for example, the corporate solutions business, as corporates don't really expect boundaries in that way, whereas a lot of markets are still local markets, particularly the leasing markets and the capital markets still tend to be local markets, on the other hand. So it's really a blend of getting the maximum and best out of running it as one region, particularly for the corporate solutions business, but not losing sight of the fact that real estate is still essentially a local business.

And switching gears on LaSalle Investment Management, you noted in the press release you had some fee for renegotiations. Could you elaborate a little bit on that. And, Lauralee, you talked about several funds maturing. You'll have some gains. Is that more fourth quarter events, and maybe you can elaborate on the magnitude of those gains.

Just taking the point about the fee negotiations. Historically, here in the UK, in fact, a number of our separate account clients we intended to serve them in a format that was not an annuity asset management percentage income for us, but more based on the transactions that we undertook on their behalf. And we changed those into more advisory fee formats, and that is the renegotiation that has been taking place, which, as I say, produces stronger annuity type income for us. And serves the client, we think, best as well.

So that was the issue there. And that has changed since the first quarter 2002 through to the first quarter 2003. I'll hand back to Lauralee to talk about the other point.

In regards to the equity gains, Joel, a number of the properties are being prepared or in fact, are out in the market, and it's really a question of finding the right buyers, the right price, and having those transactions materialize. So it's a little bit more difficult to predict. But I would guess you're most likely to see them in third and fourth quarter.

And then, finally, last question. How to characterize the pipeline for new outsourcing mandates and corporate solutions?

Well, I think very much they continue, and perhaps not surprisingly in this market. There are a number of RFPs out there at this time. So this is continuing, if you like, phenomena that we talked about before, and I wouldn't say that those marks slow down in that at the moment. So a good pipeline of potential business coming through, through there.

One of the areas I think that particularly is being driven still by North American multinationals, but we're beginning to see it take a little bit more hold in Europe and certainly taking hold, by the way, in Asia Pacific, in particular. But I think perhaps it's still a little disappointing as to the level of outsourcings in terms of percentage now of European multinationals, and we hope to see that grow as the market gets educated.

Thank you very much.

Your next question is a follow-up question from Assish Penh [ph].

Quickly two questions. First one, have you seen any change in the decision-making cycle for these outsourcing contracts or other businesses at the companies? You know, you'd seen people sort of defer decision making because of the economic uncertainty. How has that changed?

I wouldn't classify is as having changed on that basis. I think in the tougher environments, one of the purposes of outsourcing, of course, is to get better value for money. And what we are -- our service offering very much includes how best to streamline those businesses so that they work more effectively, but equally well, they cost the client less. So that's a pretty attractive thing in these markets.

Last question. Chris and Lauralee, can you talk a bit -- and you were sort of considering a further cost improvements in Europe in specific, if I remember correctly, when the year started and you were going to look at the operations with an eye to figuring that out. How's the progress there? Is there much scope for further cost improvements, or has the company already undertaken most of what was possible?

Well, as we said before, you know, it's particularly with the 18 different countries across Europe so that how it divides itself up, plus the kind of costs of reducing costs, as it were, in Europe, this is a stronger challenge than other parts of the world. But we absolutely -- we're absolutely continuing to look at streamlining our business in all ways we can. We've got no further plans, I can't say, at this time to, in effect, downsize, because the protection of our franchise, we see is extremely important to our business and continuing to build to service our clients at the highest level.

But, you know, in these markets -- and it doesn't justify the Europe -- but we continue to look very much at cost management as being something within our control, and therefore that we spend a lot of time on. But not to the effect that it reduces the quality of our service.

The only other thing I would add is that we did, with the start of the year in Europe, centralize the management of I.T. and our Telecom spend, where it had previously been pretty much decisioned at the local country level. It is now managed centrally, which allows us to look at broader contracts and purchase powers, et cetera. As well as we're evaluating how we can take advantage of procurement opportunities, again purchase power similar to what we've been able to achieve in the United States. So those are two initiatives, one which is in place and one that's being evaluated. And we will continue to move through many of the models that were put in place in the United States on how to maximize across locales as we look at Europe.

Thank you.

, Again, I would like to remind everyone, in order to ask a question, please press star and the number 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. At this time, there are no further questions. I would like to turn the call back over to Mr. Chris Peacock, Chief Executive Officer, for closing remarks.

Thank you, operator. As there aren't any more questions, we will draw this call to a close. Thank you, everyone, for participating today. We look forward to talking with you again after the second quarter. Thank you very much.

Thank you for participating in today's Jones Lang LaSalle, Incorporated, first quarter 2003 earnings release conference call. You may now all disconnect