Jones Lang LaSalle Inc (JLL) 2004 Q4 法說會逐字稿

Welcome to the fourth quarter 2004 earnings release conference call for Jones Lang LaSalle, Inc. [OPERATOR INSTRUCTIONS]

Any statements made about future results and performance or about plans, expectations and objectives are 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 ending December 31st, 2003, and in our other reports filed with the SEC. The company disclaims any undertaking to update or revise any forward-looking statements.

A transcript of this call will be posted and available on the company's website within two days of this call.

At this time, I would like to turn the call over to Mr. Colin Dyer, CEO, for opening remarks. Please go ahead, sir.

Good morning and thank you for joining us for this review of our fourth quarter 2004 financial results. My name is Colin Dyer, CEO of Jones Lang LaSalle, and with me on the call today is Lauralee Martin, who has recently been appointed COO in addition to her continuing role as CFO. I am delighted that Lauralee has accepted this additional responsibility, which will be central to the execution of our growth strategy moving forward. I'll talk more about that later on-- later on in the call.

In a moment, Lauralee will talk about our performance in the 2004 fourth quarter and full year. Let me start, however, by reviewing some of the headlines of our financial performance.

Relative to 2003, revenues for the fourth quarter in local currency rose by 23 percent and for the full year by 17 percent, reflecting client confidence in market conditions and our service delivery. Net income of $1.52 per share for the quarter and $1.96 per share for the full year substantially exceeded 2003 performance, demonstrating our success in leveraging revenue growth to drive profitability in favorable market conditions. Revenue, profitability and margins all improved in all four segments of our business.

After Lauralee has described our results in more detail, I will comment further on market conditions and our immediate priorities for the strategic direction of the business in 2005. So let me now hand the call over to Lauralee.

Thank you, Colin, and good morning to everyone on the call. Net income for the year of $64.2 million or $1.96 per diluted share, which includes the early euro bond redemption costs of 26 cents per share, compared very favorably to the 2003 results of $36.1 million or $1.12 per share. This strong performance was achieved by executing across four key areas.

First, our strategic decision to maintain leadership positions by retaining staff during the more recent more challenging economic period in local markets globally proved valid. We were able to leverage increased market transaction activity into successful profit performance once economic conditions improved. Specifically, we achieved both strong revenue and profit contributions from the core markets of England, France and Hong Kong.

Second, the firm's strategic investments performed and delivered both growth and profits. In particular, our investments in New York, Eastern Europe, India, China and Japan drove year-over-year revenue and profit contributions.

Third, we capitalized on our performance for clients, that of achieving above-target investment returns. This strong performance translated into an extraordinary level of incentive fees and equity gains in LaSalle Investment Management. We also had a record year in our global hotels business where our number one market share position resulted in large mandates.

Fourth, our focus on achieving a strong balance sheet and solid financial fundamentals, measured by a significant reduction of debt, continued strong operating and free cash flow generation and improving operating margins, verified the quality of our business model.

I would now like to review with you the specific results of our business segments.

In the Americas revenues increased 20 percent in the fourth quarter, 18 percent for the total year. Significant contributors to the revenue growth were our New York operations, our real estate occupier services business, which was marketed as corporate solutions, the Americas hotel business, as well as the non-U.S. businesses in Canada, Mexico and South America.

In 2002 we advised shareholders that an acquisition of a team of people in New York cost 7 cents per share against that year's earnings performance as our investments generally impact operating expense in the current year. Our reason for the strategic investment was not only the expansion of our position in the large New York market place, but also the benefit globally for our capital markets and corporate solutions businesses due to the large number of multi-nationals and large investors headquartered there. The success of this initiative was achieved and delivered in 2004 as New York revenues were up almost 90 percent year-over-year and the operating income contribution exceeded our pro formas.

Corporate solutions continued to demonstrate solid growth with the strongest performance from the annuity revenue business of facility management and from our public institutions group that provides services to the U.S. Army and Air Force around their housing privatization initiatives. The solid performance from markets outside of the United States, namely Canada and South America, came from supporting client expansion and, in Mexico, where we are providing services to LaSalle Investment Management who has made a significant investment in the market on behalf of clients.

In Europe, revenues continued to be driven by strong capital markets activity, particularly transactions with cross-border capital flows. The leasing markets in Paris and London also demonstrated a pick up in activity that contributed to growth.

Our strategic investments in the markets of Eastern Europe continued to perform and show strength in both revenue and profit contributions. We took a $4.5 million restructuring charge in the quarter to better to position our German business and several of the Northern European businesses whose markets continue to stay at low activity levels.

In Asia, our commitment to the potential of the region was rewarded this year. Operating income for the year was $6 million as compared to the prior year loss of $2.7 million. Strategic investments in the growth markets of India, Japan and China performed strongly for the quarter and the full year.

The Asian hotels business, particularly in the core market of Australia, had a very strong year as asset trading activities were at a high level. Also the large core market of Hong Kong, where we have the market leadership position, realized increased activity levels from the market recovery.

LaSalle Investment Management completed the year with an exceptional performance. Continued robust investor interest in real estate as an asset class continued to drive the sale of assets on behalf of clients. As a result, we have had consistent equity earnings throughout the year, totaling almost $17 million.

Please note that our press release corporate financials no longer report equity earnings as revenue but are now reported below interest as equity and earnings from unconsolidated ventures. We will continue to provide this information in the segment discussion for investment management due to the integral role co-investment capital plays in the business growth of assets under management.

During the quarter sale of an asset in the Income and Growth II fund triggered the incentive fee performance hurdle for the entire fund, which was a significant contributor to the quarter's incentive fees of $15.7 million and the total year of $20 million. This level of incentive fees is above ordinary levels as this fund is currently expected to significantly outperform the fund's return targets.

The business continued to grow annuity advisory fees, which were up 12 percent for the quarter and 9 percent year-to-date. In addition to this strong financial performance, several strategic successes were achieved. The business now has in place six alliances with institutions around the globe focused on the retail investor base. Retail funds raised in 2004 alone were $500 million. LaSalle Investment Management provides the asset management services for these alliances.

Additionally, the strategic investments made in the last four years to expand into Asia-Pacific have now been proven with over $1 billion of assets under management. Moreover, new funds in the capital raise and closing process will contribute additional buying power for that region of another $3.5 billion.

On the corporate level, interest expense for the quarter was only $820,000 compared to $4.1 million in the prior year. This is a result of both lower debt levels and because our debt is now financed in our bank facility at a rate of LIBOR plus 1.25. Net debt is down to only $29 million, an almost $120 million reduction from the prior year. Debt will increase in the first quarter following bonus payments, but with debt at this low level our cash flow focus going forward will be to optimize strategic growth investments, continue with our approved stock repurchase program and allow management and our board to evaluate the potential for paying dividends.

Our effective tax rate for the year was reduced to 25.4 percent, a level which we believe is sustainable.

This concludes my discussion of our 2004 results. Looking ahead to 2005, consistent with prior years we are not giving full-year guidance. The transactional nature of a large part of our service offering, as well as the seasonal nature of the business, which back-ends the majority of the firm's profits into the fourth quarter makes it premature to predict the operating environment at this time. We also caution against assuming that sales of assets from our investment management business will result in equity earnings and incentive fees at the levels seen in 2004.

We do plan to continue our strategic investing for future growth, the successes of which I've described today, and to also expand such investments, given the momentum of opportunity we see in the global markets and service lines. Strategic investments have a short-term negative impact on earnings but provide accelerated growth for the future.

Let me now turn the call back to Colin.

Thank you, Lauralee. Before we move to invite your questions, I want to comment briefly on market conditions around the world and share with you the strategic priorities which we are already pursuing in 2005 to deliver world-class service to clients and to build our competitive advantage.

As I described in our last call, the real estate capital markets continue to provide a positive environment for growth. Real estate remains an attractive and, indeed, favored investment class, with investment activity reaching record levels in 2004 and showing early signs of maintaining that momentum through the early part of 2005.

Leasing markets are continuing to strengthen in volume with weak but improving net absorption and early signs of rental recovery in a limited number of important markets. Importantly these positive market conditions are being enjoyed across all three regions in which our businesses operate, contributing to the consistent improvement and results that Lauralee has just described.

Also during our last call, I shared some of my early impressions of Jones Lang LaSalle and identified the principal strengths of the business and the exciting growth opportunities that are facing us. Three months on we start 2005 with a clear and ambitious growth strategy which we-- which will increase our competitive advantage as the leading global real estate services and money management firm and will continue to drive performance for our clients and for our shareholders.

Jones Lang LaSalle is uniquely positioned with a balanced global platform of more than 100 offices which we own and operate across the major markets of the world. This provides a local platform for service delivery and a close alignment of our people, values and client service culture, all of which form the bedrock of our firm. Positive market conditions around the world that I have just described provide an ideal opportunity to build on this local strength.

As you have heard from Lauralee, the financial discipline has now almost eliminated the firm's debt and that places us in an exceptionally strong position to invest and to grow through hiring talented professionals, improving our business infrastructure and putting our capital to work through co-investment.

Our growth strategy for the next five years has five parts to it. Firstly, we're going to invest in our local market operations to achieve top 3 positions in each of the markets where we provide services. From this strong local platform, we intend to develop 3 market-leading global service lines building on our existing core strengths -- investment management, capital markets and corporate solutions, which is our occupier services business.

LaSalle Investment Management already operates as a global business. Our focus will be on consolidating its position as the leading non-bank real estate money management firm, expanding the scope and scale of its investment platform, particularly in Asia, and putting in place the capital and resources needed to sustain the impressive growth you have already seen.

Our capital markets business is in the forefront of international investment across borders, particularly in Europe where more than half of our business is cross-border. We are clear leaders in this European market. We're investing to raise our capabilities in all three regions by dedicating specific resources to invest-- to represent both sell-side and buy-side clients seeking to trade outside of their home markets.

Finally, in corporate solutions we see daily increasing demands for seamless international service delivery from clients in all regions. It's clear that the key to winning and retaining business from the world's leading corporations is the ability to consistently meet their service needs to the same exacting standards everywhere in the world and to have an operational platform which can do so cost effectively. We have the service capabilities and the client relationships to build a truly global service line and we are investing now to achieve this.

The success of this strategy, local market strength and our 3 global service lines, will depend, in turn, on our ability to transform our business infrastructure, systems and processes and to set the world standard for client service delivery. Lauralee has accepted responsibility for delivering this goal in her new additional role as our global COO. It represents a significant challenge in a business with such a wide scope of services and geographical spread, but the potential rewards to our clients and shareholders are substantial and we have great internal expertise in implementing operational best practices, in outsourcing services where appropriate, and in consolidating resources to maximize service and efficiency.

We look forward to reporting to you on our progress and successes in pursuing this growth strategy in future calls. This is a long-term commitment to a clear and sustainable path. It has the full support of our board and is led by our-- and is led with full support from our senior leadership and Lauralee and I will actively be engaged in describing this strategy to our clients, shareholders and employees in the coming weeks and months.

At this point we would like to open the call for your questions. So please, operator, would you explain the process?

[OPERATOR INSTRUCTIONS] Joel Gomberg, William Blair.

I was just looking for a little more detail on your spending initiatives in 2005 by region. And then if you could, walk through what your capital expenditures were in 2004 and what you expect them to be in 2005?

Sure. Let me start with our capital expenditures. In 2004 we were about $28 million, of which about $18.5 million of that was in technology. Our plan for 2005 is to move that up to about $44 million, of which technology would be double the level in 2004. And it really relates to two things -- the expansion into Asia, specifically areas like China, where we want to make sure that we have leading edge technology and also the implementation of what Colin described to moving to the global standard for a service delivery platform, which is also a technology investment.

And in terms of revenue expenditures, Joel, additional points to mention, we have, as Lauralee said, geographically a clear focus on the growth markets in India and China. We have been investing in reshaping and restructuring some of our businesses in Europe as the European economies have been slower to pick up than the economies in Asia and the U.S. And we have invested in two areas of service delivery. We've put additional people into the global capital markets business in line with the strategy that I've described and we've been investing in software solutions and systems in the corporate solutions business.

So there's a broad spread of investment activity going on.

I would just add for 2005, Joel, we are in the process with our board of reviewing our budgets for final sign-off and it would be our intent to give you more color on the investments and what we expect to achieve from them, starting with our first quarter call and then rolling it throughout the year.

OK. Could you talk a little more about strategic alliances, what you added in the past year, the outsourcing opportunities, the backlog? And if you-- I think it's been almost a year since the P&G deal was done. Could you give some perspective on how that's performed, profitability-wise? And then with the merger of Gillette, do you see an opportunity of doing more there?

First of all, with the-- some of the alliances, Joel, we have been working with a number of service providers internationally who have skills in markets where-- where we can work with them to access new client bases, specifically global IT providers with whom we have also client-- both a client and a supplier relationship. And we have-- we're moving towards completing alliances of that sort in both Europe and in the U.S.

We have, additionally, been looking at ways of rapidly expanding our ability to provide corporate services, working with people who are skilled in handling large numbers of people and working with those companies to approach markets and to service them.

And then if I could add just a couple more, Joel, I mentioned LaSalle Investment Management now has 6 alliances for raising retail capital and that's been extraordinary. We raised almost $1 billion in total but half a billion in 2004. Those retail partnerships really cover the globe, both for direct investment into real estate, as well as into securities.

The partnerships that we have right now are with Barclays in the UK, with U.S. Trust in the United States, with Meese-Pearson (ph), with S.G. Hitchcock (ph), with Nikko Securities and with Seligman. So we think that that is an excellent way for us to expand our mandate of funds under management.

In regards to your question on Procter & Gamble, you're aware we can't disclose the profitability, but what I can disclose is we have met our internal pro formas relative to the delivery of that account. We have been working with them on their Wella acquisition but we would not be able to comment, nor would we know at this point in time anything in regards to Gillette.

OK. And your thoughts on the dividend right now, Lauralee?

I'll take that one, Joel, just for convenience. It's premature for us to comment any-- to any further extent that Lauralee did already in her conversation. We'll be talking to the board on the subject and if we have anything to say we'll communicate that to you in a future earnings call.

David Gold, Sidoti & Company.

A couple of questions for you. One, now I know you mentioned on the investments maybe you'd be in a better position to quantify a little bit better as we get to first quarter, but can you give us some sense, maybe order of magnitude, of how significant things could be?

Well, clearly, it's always a balance of delivering to our shareholders acceptable growth and how much you invest so that growth is always at an accelerated pace in the future. And that really was the dialogue we're going through now in terms of investing, which of them have very quick paybacks, which of them have longer paybacks. But we are, obviously, making the balance with shareholders' interests in mind.

OK. So it's still to be sort of firmed up, but--?

Yes. I mean, David, our intention is to give you a way to think about each of those investments. We will report to you a quantum as we've committed, what we've, then, done against it and how we think it's performing. But, again, because we have not yet had a full sign-off by our board it would be-- we can't disclose that at this time.

OK. All right, fair. And then on the incentives and the equity earnings, clearly '04 was an extremely strong year, but as we start to think about that on a normalized basis, from here my sense is -- and maybe you can sort of give some insight -- thinking being-- I think that as you look at '03 would you look at that as more of a more normalized year? I mean, I think it's probably somewhere in between, but I'd like to get your sense on that.

Let me break it down into two pieces. Let's first look at the equity earnings. We have just a little under $75 million worth of co-investment capital currently on our balance sheet that is invested alongside our clients. The target for those funds is to achieve, on average, sort of a 12 to 15 percent return and that portfolio at any point in time is a blend of a lot of different co-investments that have done over a period of time and into maturity of funds.

We are at a fairly mature basis that we can start to have a level of predictability and annuity around that so it-- you always get delightful surprises like we did in 2004. But if you think about that $75 million and say I should be getting 12 to 15 percent return on that, that gives you an expectation of normalized equity earnings, give or take market trends.

If we move to incentive fees, the incentive fee portfolio-- We have been advising that we have been repositioning the business to have a very good balance between a predictable annuity stream that is deserving of a high multiple and then an enhancement of incentive fees. And, again, we've been building that back from where we had some pretty significant incentive fees but then we would wait for the next time for that to perform.

And, again, we've now built up a portfolio. So if we look at it, yes, the level we had in 2004 was much too high. The level in 2003, we believe, it was still at an early state of that maturity. So it's a number somewhat in between that.

As I think about the 2004 results, I believe that the extraordinary piece of the results was probably about 30 to 35 cents a share.

For 2004, 35 cents just on the incentive side or combined?

No, no. The combination of equity earnings and incentive fees that I would consider off of that business the benefit of very strong performance on their behalf.

OK. All right, so you're saying as a total number 35 cents.

Correct.

That's the quantum of the extraordinary as opposed to the underlying.

OK. All right. So essentially just the upside. All right, fair. And then just lastly there's obviously some tremendous cash flow during the year and the one, I guess, downside of that is it looks from here -- without the full numbers I can't quite tell -- but it looks like on the co-investment side you didn't do as much as you probably would have liked.

What's sort of-- is that sort of fair-- a fair statement, number one? And then number two, what kind of held you back in the fourth quarter?

Well, I think that the-- there's two components. One, we received a lot more cash back than what was anticipated and that is reflective of the equity earnings and the incentive fees that you've seen. In regards to monies going out, we didn't invest quite as much as what we would have liked to, but we're seeing that pipeline build up, particularly in Asia where we think that we will start to now see that reverse.

We've been optimistic in the last couple years, so I don't want to be bold that we're going to get it this year, but we are targeting to have a net of dollars out and dollars coming back in 2005 between $25 and $35 million.

Got you. And that would be heavily weighted towards Asia, you think from here?

Yes. We currently have one fund that is getting ready to close and another fund that's being marketed, both of which we're very excited about because of investor interest and really the major leadership it will give us in that market place and we will have co-investment with both of those.

Matt Ostrower, Morgan Stanley.

I'm just wanting to get a little bit color. I know on your last call you talked a little bit how transactions from asset sales had driven the U.S. a bit more and in Europe you were seeing more, I believe, on the brokerage side, leasing side. Can you sort of characterize things again that way and, in particular, you just went through in the investment management business what amount of EPS, effectively, was extraordinary. Is there-- are there some transactions here in the-- on the owner and occupier services side that you would also describe as extraordinary?

Well, let's just, Matt, do a quick thumbnail sketch of some of the trends worldwide. The U.S. market, our strength was driven by our corporate services business and the strength of our hotel business, which is, indeed, a positive factor in all of the geographies. As I said, the U.S. leasing market is firming and performed well, but the other areas were stronger.

In Europe we see leasing markets firming in most areas exception of a few cities like Frankfurt and Brussels, but London and Paris performing very well. But overall, the European business is strongly driven by transactions by investment capital flows, as I described earlier on. So our capital markets business was particularly strong in Europe.

In Asia-Pacific, once again, hotels did very well and we see firming rental trends in most of our Asia-Pacific areas and the same phenomenon you see worldwide at the moment of large sums of money flowing into investment properties. So those, in headline terms, are the trends which drove our business around the world.

Are you at all able to characterize, at least on the owner and occupier services side are you at all able to characterize your growth, quantify how much of it came from asset sales type business, whether that's on the hotel or just conventional sale of assets, versus the leasing business?

Let me take a crack at that, because I know you're concern, Matt, is that the capital markets property values are very robust and if that turns will the leasing markets pick up to offset that?

Right.

First of all, Colin's comment on the corporate solutions side in the United States means that that very much is driven by the-- a lot of the either facility management growth or the advisory advice that we give to corporates around their space. So I think we've definitely seen that activity level by corporates grow in the U.S.

In Europe where, as Colin described, we have a very strong capital markets business, as we look at the absolute dollar growth year-over-year we are about half capital markets and then half leasing and advisory, which would tell, I think, that's a nice balance of increase. It's not that one is dominating over the performance, one over the other.

And when you get to Asia-Pacific, again, we've had very strong growth in the corporate side because of the outsourcing trend in India where we're going to be providing project and development and facility management, into China where we're doing a tremendous growth in advisory and property management. The-- the one place where we would say that we've seen an extraordinary level of capital markets activity because trading is so high is in hotels.

Colin mentioned in the United States. I also mentioned in Asia-Pacific. If there was one place we would say that that's probably above normal market activity levels, it's-- it would be hotels.

That being said we not only had the leading market position, but we absolutely secured it at an even-higher level in 2004 so that is an extraordinarily strong business and hotels, quite honestly, are expanding around the world as investors see new opportunities in markets like a Moscow and the Middle East and China.

So hopefully that answers your question.

Yes. I guess just one followup on the hotels. Can you give a general sense, how impactful is that, I guess? How big is that-- how big of an impact did it have this quarter?

It's been consistent all year, so it's-- I would not say the quarter was anything much different than what we've had with performance solidly each quarter.

Leo Harmon, Fiduciary Management.

Congratulations, Lauralee, on your new position.

Thank you.

I was calling-- I wanted to-- Most of my questions have been asked. I wanted to know what types of trends you all were seeing on the transaction side in relationship to who are net buyers and who are net sellers and whether or not you're seeing REITs and private REITs as net buyers on the transaction side?

Well, the first part of your question was about the overall trends and you can pretty much say that everywhere in the world we are seeing strong demand for assets. We see capital-- cap rates falling everywhere, continuing to fall. There really isn't a region of the world which isn't experiencing strong demand and strong investment activity.

As to which areas-- which buyers are net absorbers of product at this point, the REITs worldwide are investing, continuing to invest and gaining share of total assets owned in all markets where they're operating. We also see German funds who have been previously confined to Germany opening up their horizons and, in fact, beginning to sell down in Germany, which is opening that market up to foreign capital, and making deals interesting to foreign capital. But they're moving some of their financial resources into Europe-- the rest of Europe and, indeed, beyond with particular interest in the U.S., Mexico and Asia-Pacific.

Terrence Marks (ph), JMP Securities.

It's Will Marks. Just a couple of quick questions here. I just want to be clear on the earnings for the year. It looks like, if you take out the charge for the debt and other one-time it was about $2.28. Does that sound right?

That sounds right.

OK. And then you're saying that about 30 to 35 cents from the investment management business was, maybe, non-recurring income for them?

Correct.

OK. So that, I would think, gives us a good number to work off of for 2005, right? That's kind of what we should use as our base?

It's a way of calculating a base.

Right. OK. Now, next question, on the bonus. What should we be looking at in terms of the position-- I guess your net debt position after paying out the bonus, excluding how you actually perform in the first quarter?

Lauralee, do you want to take that?

Well, I think what you're asking is that-- what we normally have, and you can see it on the balance sheet, is in terms of accrued compensation. We'll pay bonuses and generally in the first and second quarter we don't produce enough cash to pay that all currently so we use the line of debt that we have to pay for that. So we would be, then, paying that down in the second half of the year.

Obviously, we paid down debt $120 million this year. So we can quickly go through the debt into a positive position and that's why we're focused on the other uses of the money.

OK.

The sorts of areas we'll be using the money are also the obvious. In an operational sense we'll be investing capital, we'll be investing revenue in opportunities. We'll put some into co-investment and, potentially, into small acquisitions which are easily absorbed and which are in line with our overall strategic approach.

On a financing sense, [inaudible] sense, we will be using funds, obviously, to continue our share buy-back program and we had a discussion earlier on the possibility of a dividend. So there are the usual sources and uses of cash.

But did the $44 million of CapEx guidance, that includes all the spending-- the programs you talked about but anything else? I guess it does not include investments in co-investments. Is that correct?

No, co-investments would be separate from that number.

But the $44 million does include all the spending you discussed around the world?

That includes anything that would be capitalized.

OK.

So if it's expensed investing, no. That would come through normal operations.

Well, I would think your-- based on '04 numbers that cash flow should be, after spending that $44 million you're still going to have a significant amount of cash flow and you, in the past, have said that you would like to offset the dilution from stock options with share repurchase. Should I expect that to continue?

Yes. Just as clarification, we don't use stock options. We only use restricted stock.

OK.

And the largest amount that comes out for employees as ownership in Jones Lang LaSalle is in the bonuses of the top 700-some employees, a percentage of that, which ranges between 10 and 20 percent, is, in fact, held back, invested in Jones Lang LaSalle stock with a vesting and an uplift. And that's what we choose to buy back to make sure that shareholders are not diluted by that. At the same time, we know that it very much aligns the leadership of our company with the firm's objectives.

We do have our share buy-back program in-- approved by the board. We bought about 1.6 million shares in 2004. So we would continue to be aggressive as we saw cash flow available and our ability to use the normal activity of our stock to buy back those shares.

OK. Just kind of wrapping all that up, I'm still a little confused. It seems like you're going to have a lot of cash flow or at least we think you're going to have a lot of cash flow and so looking ahead, should we assume that you're going to-- is there more debt to actually pay down that-- or is it going to be a combination of a few different things?

You can work the numbers, Will, and I think you were working them there very quickly in your head. If we continue, obviously, to generate cash in the way we've done in 2004 through 2005, then quite mechanically, that level of debt is likely to disappear. The thing that would change that would be the extent to which we choose to invest in the core areas that I described -- capital spending, revenue spending, co-investment and, potentially, small acquisitions. And the choices we make in those areas we haven't finalized yet. And, indeed, there'll be opportunistic things which will arise, I'm sure, during the year.

Then in addition to that we have the opportunity to continue with our share repurchase scheme and to consider a dividend, as we described. But if you do the sums and work out what it do on a gross basis, where we end up will depend on the choices we make in those six areas of use of funds.

[OPERATOR INSTRUCTIONS] Rob Maton, Schneider Capital.

I just had a question about margins in the different regions. You had improvement in all three of the regions in the year, but Europe and Asia-Pacific are still significantly lower than the Americas. I'm just wondering if you could talk a little bit about why that is and what the potential is for those other two regions to close the gap and maybe include the impact going forward from the restructuring in that answer?

Well, the background to how we got here, as it were, is the economic and, therefore, the real estate cycles in those three areas. Clearly, the U.S., which had a difficult period early this century has come back very nicely over the last 18 months.

Their cycle is, as is often the case, somewhat ahead of Europe and our sense in Europe is that, as I've described earlier, the leasing markets are beginning to recover. There's a firming up of leasing rates in-- across Europe as a whole with obviously initial firm strength in Britain coming through. So the cycle, the underlying cycle of the real estate markets is lagging in Europe but to our sense it's beginning to pick up again.

We have invested, as we said, in Europe to restructure several countries, including Sweden, Germany, Holland and Spain. We've put funds into those four regions to adapt the cost base and get ourselves set for good operational leverage as markets recover. Clearly we have expectations and hopes to bring those margins up further in the coming years and that'll be just the combination of local market trends and our continuing action to improve our profitability.

Asia-Pacific is somewhat different. Economically picked up somewhere, starting behind the U.S. or ahead of Europe, but there was, has been a significant level of spare capacity in the markets in which we operate in those areas and, therefore, firming of rates, leasing rates, is slower and we're beginning to see that come through currently.

So the ambition there, also in Asia-Pacific is to continue with the vigorous restructuring we've had underway in the last couple of years and where we're beginning to see the fruits now coming through and we will drive those business areas for growth as the Asian markets, themselves, pick up.

OK. Do you have an estimate of savings going forward from the restructuring charge that you took in the quarter?

I think the best way to think about it is restructuring typically is people and what we-- what we looked at was revenues were down and so what we wanted to do is take out cost that were there to produce revenues that really wouldn't-- the market wouldn't have the capacity to deliver to us.

So you really only get like a one-for-one savings, but-- and when you think about the bottom line, it's more that we've avoided going backwards because the revenues that would be associated with those costs we don't think will be there.

OK. And then I just had a couple questions on LaSalle. I was wondering if you could talk a little bit about the operating leverage in that business? Is it pretty similar to the leasing and investment sales side where you have higher-- much higher bonuses that are paid out? I guess I was thinking that particularly the incentive fees and equity earnings would have much higher operating leverage, but it looked like the expense increase you had there was about what you would expect for leasing or investment sales type of-- type of model.

When we look at incentive fees, the market structure on incentive fees that is really pretty much mandated by investors is that the team of people working on those portfolios will have what are called team shares that only trigger when, in fact, they hit and, therefore, share in the amount over and above the for-return that you have. If you think about what we had in the fourth quarter with the one large incentive fee transaction, what it did is it accelerated all the activity to that point such that it was a catch up of the team share piece against the performance to that date. Now, going forward, as incentive fees are earned, it would be at that normal percentage that comes out of incentive fees.

Generally, the market requirements around incentive fees is that team shares are about 25 percent.

OK. And then on the equity earning side, is there any expense offset to that? Or--?

The equity earnings are, really, investments made by the firm. So it's separate from the business, per se, although the business manages it on behalf of the firm. And so it would come into the total firm's performance and then how bonuses would fall through that, but not specifically at the business level, just generally in terms of the performance.

OK. And then could you just tell us what your-- where your overall assets under management are now and kind of how the-- how the growth rate has been for that? Because I know you've talked before about how there's pressure, downward pressure, because you're selling a lot of assets into a strong market. But maybe tell us what your growth rate's been there and then what kind of the prospects are for continuing to grow the assets and the-- and those more annuity-type fees that are related?

Assets under management -- right now we're a little over $24 billion, but it-- they're really reported on a quarter lag. So the growth that-- or the-- what the activity levels in the fourth quarter we wouldn't see until next quarter. But this number's been growing at a nice rate throughout the year.

We had advised investors that we had been growing assets but at the same time repositioning and exiting some level of relationships that were not profitable for us. So that's one of the reasons that you haven't seen quite as much growth until just this most recent year.

The growth growing forward I described to you the activity going on in Asia where definitely we're going to see a strong growth in assets under management. We've also had excellent growth in Mexico and Canada. So I think we'll continue to see that go forward.

Quite excitedly, we've also won a number of mandates from separate accounts. So at this point in time I think you should expect healthy growth in assets under management.

Congratulations on a great quarter.

At this time there are no further questions.

Operator, well, thank you for that. At this point, then, we will draw this call to a close. I'd like to thank everyone for participating today and for your interest in Jones Lang LaSalle. We look forward to talking to you again after the first quarter results. Have a good day.

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