Jones Lang LaSalle Inc (JLL) 2010 Q1 法說會逐字稿

Good day, and welcome to the first quarter 2010 earnings release conference call for Jones Lang LaSalle Incorporated. Today's call is being recorded. 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 10K for the year ended December 31, 2009.

In our report filed with the SEC, the Company disclaims any undertaking or update of any revised forward-looking statements. A transcript of this call will be posted and available on the Company's Web site. A web audio replay will also be available for download. Information and a link can be found on the Company's Web site. At this time, I would like to turn the call over to Mr. Colin Dyer, Chief Executive Officer for opening statements. Please go ahead, sir.

Thank you, operator. Hello, everybody. And thanks for joining us for this review of our results for the first quarter of 2010. With me today on today's call is Lauralee Martin, our Chief Financial and Operating Officer, and Lauralee will review our performance in detail in a few minutes. As we sit today on the 43rd floor of our office building in Chicago, it's a bright spring day, and that's pretty much how we feel about our Q1 results. Summing up the quarter, we were encouraged by reporting adjusted earnings per share of$ 0.14, which compares with a loss of $0.65 per share in the first quarter of 2009. Our revenues equaled $581 million, up 18% for the same period a year ago and 12% in local currency. Adjusted EBITDA was $37 million, up $11 million from Q1 in 2009. And finally we announced that our board of directors has declared a semiannual dividend of $0.10 per share of our common stock.

A few comments, first of all, on conditions in the global real estate markets will help us put these into contexts. We posted slides in the investor relations section of our Web site, Jones Lang LaSalle Incorporated.com for your reference. Slide three shows the Jones Lang LaSalle investment sales club, which as you know we update each quarter. It provides a picture of conditions in major markets around the world of the different stages of the real estate cycle. As you can see in the first quarter of 2009, capital values were falling uniformly in almost all major real estate markets globally. One year later and with remarkable speed, we see values increasing in major Asian markets and select European and American cities, but with very different drivers and dynamics between the countries and cities.

In debt capital markets, banks with exposure to commercial real estate loans continue to work with owners to modify loans and prevent foreclosures wherever possible. However, today we are seeing debt activity increasing across the world as more organizations expect healthy economic growth which make real estate lending a profitable prospect again on a risk-adjusted basis. Debt financing emerged strongly in Asia at the end of 2009, but securitized debt has yet to make any meaningful comeback in developed countries. Equity capital raising is evident across all three regions, boosting the volume of funds targeting real estate. Competition with a limited supply of prime product in all core markets is driving up capital values and encouraging some investors to move into second markets and value added opportunities. With Asia and particularly China, Hong Kong, and Taiwan leading the way, direct commercial real estate investment volumes $63 billion globally in the first quarter, and that's 57% of our quarter one 2009 levels.

In Europe capital from pension funds and insurance companies is targeting high-quality, well-located assets. And in London, Paris prime yields are fallen and second-tier cities are also starting to see the compression as investors are forced to look further and stable tier one assets. In the US yields on well located properties in top-tier markets have been compressed to very levels with the dearth of supply driving this effect. Turning to slide four, you'll see a snapshot of conditions in leasing markets worldwide. It tells a similar story, but clearly leased markets progress continues to lag the recovery in global investment sales. Leasing property markets in Asia's developing economies have seen a strong recovery since mid-2009, when rental rates hit their cyclical lows.

In most of the America's, rents are still falling and vacancy rates continue to rise. With the exception of London, rental rates in most European cities also continue to fall. At the same time, leasing activity has begun to pick up, not only in Asia, but in several core markets in Europe and the US as well. A gradual return to rental growth. In general recovery in Asia-Pacific is leading Europe and Latin-America and those in turn are generally leading the US. So with that background, I'll turn the call over to Lauralee.

Thank you, Colin and good morning to everyone on the call. I will focus my comments this morning on the progress we are making on our 2010 priorities. These are the priorities we discussed with you as we closed out our 2009 results and which are summarized on slide 5. Before we look at this year's priorities, I want to note that last year we said we were managing our aggressive cost take out so that we would be fully able to take full advantage of the opportunities that would come when markets recovered, and could therefore further advance our market share and leadership positions. As markets are beginning to show recovery in the first quarter, we saw revenue growth in each region and in nearly all our product lines.

But particularly in leasing, up 21% in local currencies, and capital markets, up 68% in local currencies. We noted in our last quarter call that our first quarter performance will be measured against a relatively easy comparable, due to the low market activity last year at this time. Although we are very pleased with our performance around the globe, these year over year growth increases are not indicative of growth rate expectations as we move through the year. One of our most important 2010 priorities is to continue to build our annuity revenue and expand our leadership position in the outsourcing facility management space. We've continued to increase the number of our corporate client relationships, which Colin will talk about shortly. During the first quarter, property and facility management revenue grew 13% on a local currency basis over last year.

Driven by particularly strong performance in the Americas, which was up 34%. Another priority is to add and upgrade talent to increase market share and expand our expertise in new product lines, such as health care, retail, and industrial. In the Americas, where our focus has been on both leasing and capital markets, we recently added a strong debt market capability. In EMIA, our first opportunity is to see improved productivity of our existing people as transaction activity returns, we are adding to our capabilities in tenant representation, serving the occupier market, and also in our retail business lines. In Asia-pacific, our focus is to continue to increase our market position in the key markets of Australia, India, and China. Our priority for LaSalle Investment Management is to leverage our global scale.

Colin will discuss LaSalle's strong start to the year in both equity raising and securing new separate account mandates, positioning us for growth in management. The pressure is being felt throughout the industry. As a result, we made pricing concessions in certain of our Asia-pacific funds, which caused the sequential decline in advisory fees in the first quarter. LaSalle has focused on building and main maintaining long-term relationships with its clients, which means close communication of investment performance, but also modification decisions where appropriate.

We continue our emphasis on maintaining a healthy margin on our advisory fee revenue, by managing expenses tightly. Our focus on cost discipline is a theme across the firm. On a year over year basis, we now see the benefit from our transition to more variable compensation models. This transition helped us generate a modest profit in a traditionally loss-making first quarter, as compensation was tied more closely to revenue. Offsetting this, however, after two years of salary freezes, and in some markets also salary reductions, we are experiencing compensation pressures most notably in the emerging markets such as India and China. We will be reinstating salaries that were reduced during the downturn and in select markets we will make additional adjustments as necessary to retain our high-quality staff.

We are now seeing the benefits of our cost actions in the most impacted markets during the downturn, as we experienced year over year performance improvement in the large and important markets such as Germany, Russia, and in our hotels business, most notably in Asia-pacific. Operating and administrative expenses are being tightly controlled with the modest increases due to added accounts in property management and corporate facility outsourcing. Finally, regarding our balance sheet position, we are pleased that our debt reduction efforts reduced our cash interest in the quarter to less than $4 million. A 41% decrease from a year ago. We are comfortable with our leverage ratio of 2.26 times, and expect over the longer term we will target that ratio to be no more than two times our bank EBITDA. Today we have the financial flexibility to selectively invest in hiring, to make targeted acquisitions, and co-invest to support LaSalle's management capital raising activities. That includes my financial comments. So let me turn the call back to Colin.

Thank you, Lauralee. So give you all a sense of how we generated our first quarter results, here are just a few examples of recent new business wins and they're on slide 6, starting with our excellent corporate outsourcing business. During the quarter, we won eight new corporate assignments. We retained all six contracts that came up for renewal, and we expanded our relationship with further three clients. A pipeline to additional business remains strong and consistent with last year's levels. A few examples, we signed a new agreement with AND banking group, which we use as our Australian outsourcing relationship that forms the basis for expanding services in Asia, Europe, and America with that client. Earlier this month, voter phones selected us as a preferred supplier for real estate services in Germany, turkey, Spain, and Portugal.

In India, we were retained by Winpro technologies to deliver facilities management services for its 2.3 million square foot portfolio in Bangalore, Mysore, and Mumbai. We were also retained by Daso System, to provide a range of services through North and South America. Turning to investment sales, earlier this month we advised Coreo on the $1.3 billion Euro acquisition of the multi-portfolio shopping centers in Germany, Spain, and Portugal. This is one of the largest ever retail property transactions, and by a margin, our largest of the quarter. In the UK we acted for allied London properties in the 183 million-pound sale of three Hardman Street in Manchester. We represented Latein Property in the $94 million Australian dollar sale of South Tower in Brisbane. In the US, we closed the sale of the office building at 1450 Phrasy road in San Diego.

And in India, Mumbai International Airport Limited awarded us a new transaction advisory and capital raising mandate. MIAL plans to modernize the airport and create an integrated mixed-use facility with hospitality, office, retail, and entertainment facilities on the 200-acre site. This exciting mandate follows our successful capital raising efforts for the New Delhi International Airport development. And the Global Hotel's transaction market, as Lauralee said, has come back to life and Jones Lang LaSalle Incorporated hotels represented Leewoods Strategic Properties Incorporated in the $63 million sale of the Marriott downtown in Los Angeles. Among the leasing and tenant representation transactions we completed during the quarter, was a 1.2 million square foot office and lease restructure for KBR in Houston.

In Chicago ,we represented UBS in the renegotiation and reconfiguration of 400,000 square feet of the UBS tower. Released 90,000 square feet at Access Capital building in Brussels to the European commission. In Tokyo, we represented Microsoft in the consolidation and relocation of its Japan headquarters, into 400,000 square feet in the Grand Central Tower, and finally in India, in the largest transaction in the Bangalore CBD in the past two years, we represented Critics to release 130,000 square feet in the prestige Dynasty building. During the quarter, LaSalle investor management continued to take advantage of opportunities coming out of the economic downturn, attracting $3.4 billion of net new capital commitments from institutional investors around the world. That total will be reflected in LaSalle's assets under management figures as it's invested this year and next.

It includes additional capital commitments for two of LaSalle's private equity funds, as well as additional commitments from long standing separate account clients based in the UK and US. This reflects not only LaSalle's success, but also importantly, the continued commitment of institutional investors to direct investment in the real estate asset class. Finally, that total value of the commitments received in the quarter, included the largest portfolio takeover in our history, the Roll Mel pension fund separate in the UK, as well as the second new investment mandate for a premium UK pension fund. Early in April, LaSalle announced the closing of LaSalle Canada growth fund three, raising approximately $230 million, which was leveraged will create total potential buying power of more than $550 million. Looking ahead at market prospects around the world, an abundance of capital from an increasingly broad-base of investors points to an upward trend in global real estate volumes and to a continued broad firming trend in pricing.

For the year, we project that for the market as a whole world direct commercial real estate investment will increase by 35% to 45%. In Asia-Pacific, rising investment sales volume is being supported by a spreading improvement in demand fundamentals in recovering leasing markets. In the Europe and the US, volume is expected to increase this year, despite continued slow pace in the recovery in lease market demand fundamentals and the types of core market. The southern Europe Euro crisis is clearly a negative for our prospects. Bond market weakness raises the risk free rate of return severely in the country's directly affected, and to a lesser extent across all Euro zone countries. This will negatively influence market prospects for pricing and transaction volumes across continental Europe.

In leasing markets, as I just said, we expect overall volumes to rise slowly, but with the Asia outpacing Europe and the US as the region's economy grows between 5% and 6%. Demand focused on better quality space should see rents moving ahead, even where headline vacancy is still at double Digit levels. So much for market prospects. In closing, we typically inform you of awards and recognitions we receive during the quarter and which illustrate our position as the leading real estate services and investment management firm. In mid-March, private equity real estate magazine named us Europe broker of the year for 2009 and just last night in London, we were awarded investment agency team of the year honors in the UK property awards. General motors named us 2009 supplier of the year, marking the third consecutive year in which we've received this award. GM noted that, and I quote, "Suppliers recognize this year have risen above and beyond the call during the most challenging years in GM history." In other awards, we were also named for the third year running to the Episphere Institute for the world's 100 most ethical companies and the US Environmental Protection Agency named us 2010 energy star partner of the year.

The international Association of Outsourcing Professionals selected us for its global outsourcing 100 list, this is also the third time we've won this award, and it's also and we're the highest ranked real estate services firm of the five on their list. So summing up, we are seeing renewed confidence in markets around the world and among our own clients, who we would very much like to thank for their loyalty and trust. This confidence is opening up new opportunities on multiple fronts for us. And so in this environment, we're tackling the future with optimism and with a clear business priorities that Lauralee discussed, we're driving to create our own opportunities. But obviously we remain alert and responses to market risks, such as the current Euro situation.

Finally, we both want to thank all of our colleagues across the world for the impressive job that they did in this first quarter. They have every right to feel very proud of the difficult work that they have done over the recession, and it's really pleasing to see them rewarded with such a healthy first quarter. The revenue momentum that they are creating builds off the share gain of the last two years, and positions us well through the rest of the year. So let's now move to questions. Operator, would you please explain the question and answer process

(Operator Instructions) We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Sloan Bohlen with Goldman Sachs.

Good morning. Thank you. Colin, if we could start on your outlook for investment sales and getting comfortable with the number being up 35% to 40% globally. Do you think that's more of a reflection of how much capital will be actionable at today's pricing or more a comment about, maybe not the stress is the right word, but more product that comes to market sellers feeling willing to sell?

The supply/demand equation currently is as ever complex. On the supply side, there is a gradual opening of distressed sales, particularly in Europe, less in the US, and hardly at all in Asia, where there hasn't been very much distress. And so that's beginning to put a little more product onto the market. The supply, however, is constrained particularly of high-quality assets, because in general investors whose own assets and are not feeling particularly pressured to sale have a prospect of continuing rising prices. So, you know every month or quarterly they hold an asset, is likely to produce a better return in the market. So the supply side, netting those two out, we feel is fairly constrained. And my comments about the US price cap rate compression haven't gone so quickly for high quality assets is a reflection of the dearth of supply.

On the demand side, there's just tons of money everywhere. If the supply side was freed up, those numbers will be an awful lot higher, frankly. The money is coming from institutional investors as I described. It's coming from wealth funds, it's coming from the Middle East and Asia. It's coming from private individuals as well. And the private equity funds are also back in the market as LaSalle is moving off defense and into offense and picking up assets again. I suppose the other thing, just to note in that overall picture, is that whereas coming out of the recession everyone was risk adverse and just targeting stable core assets in nice, safe, big city CBD's, they're frankly moving off that base quite quickly because of the lack of availability to meet the funds that are there trying to pressure into the market. So long answer, but it's quite a complex situation. Of course as I said in the comments, the dynamics are very different from practically every city around the world.

That's great. Appreciate the color. Just two quick ones for Lauralee. Lauralee, could you elaborate a little bit on the cost structure shift, just where that was done and what business lines.

I think you're referencing the more variable compensation?

Exactly.

Well, we had moved throughout last year in the Americas to a commission model. In our leasing businesses first and concluded that in our capital markets business. So we have a much more line of sight commission model in the US, which is working very well for us as these markets recover and very well as we identify top talent that wants to be part of our firm and likes that form of compensation structure. Throughout the firm, beyond that, we've done modest changes to commissions in other parts of the world. Though generally in Europe and Asia.

We are more baits and bonus business as we are in our corporate solutions business. But I think even there, what you're seeing and the benefits of our compensation to revenue ratios in the first quarter is, where we had businesses that were in significant loss-making modes last year, think about capital markets around the world, where we had a great deal of staff that we were paying, but without deals happening. As transactions come back, the revenue ratios against those compensation numbers are getting to be much more in line.

Okay. I don't want to try and stick you to a number. But if we think about it in maybe terms in margin, if all else was held equal, what did that do on average to margins in those types of business?

Well, if you look at against last year, we were a little over two and a half times better on comp to revenue ratio. Part of that is a shift to commission, where you only have compensation coming in, where revenue is produced in our leasing businesses. And then again, the piece that is around productivity. We will give some of that back as we move through the year, because in a normal marketplace, we were not out of line with compensation for our people. It was really a question of when that compensation was booked. But we do anticipate an improvement over last year in that ratio, because of the fact we will have transactors now in some of those again loss-making areas and improvement in capital markets that will be back to productivity.

Thanks. That's very helpful. Just one last one. On the $3.4 billion in new equity, are you earning fees on that or not until it's invested?

This year not until that's invested.

Okay. All right. Thank you.

Your next question comes from the line of Kevin Dougherty with Bank of America.

Great. Thank you. I guess maybe just first on the outlook. Lauralee, you mentioned the revenue trajectory wouldn't be as sustainable as what we saw in the first quarter. But as we look out over the next couple of quarters, you have relatively similar comps. I just want to see if you can comment on how we think about the growth potential?

Well, our largest year over year was clearly in capital markets with local currency increase of 68%. 55% of that in Europe. Colin has given you kind of the market dynamics for the year, and those would be more in line with the way we would think about where it's going to settle out as we go through. Clearly there was very little that happened at all, not that there's a lot still happening in the capital markets still in the first quarter. But there definitely was an almost nonexistent comparable in that part of the business. In our leasing businesses, you saw the trajectory through the year. It clearly got much more confident in the second half and particularly with a very robust fourth quarter. As we get to more difficult comps, against we were up 21% in local currency across the board, with some pretty healthy increases again against that. So it will be more difficult when we get to the fourth quarter. But to your point, we had still pretty low comps in the second quarter as confidence was very low. So it will be the second half of the year where they'll be more difficult to beat.

Okay. Makes sense.

The growth rate.

Okay. And then maybe more of a modeling question. You touched on this briefly. But as we think about the compensation benefit costs, they've become somewhat more variable. Although you're adding some salary costs back into the business. How do we think about the leverage opportunity on that line item relative to the operating admin and other cost line item.

Well, again we do expect an improvement in that ratio over last year. And that's principally because we're going to have much more productive sales people. So, it will move through the year. But by the time we get to the end of the year, it will be an improvement year-over-year.

Okay. But we can think overall that we'd expect more leverage than that compensation benefit line, at least initially with the rebound relative to the operating admin, and others?

That's correct.

And then similarly related to that. You mentioned some comments about your staffing needs and different geographies. We tend to think that the sales folks sort of pay for themselves. But at what point will you start to have to add really more support staff into the cost structure?

Well, firstly, as we said on the revenue generating side, there's a well of uncapped productivity gains. People have been kind of having to spin wheels, because markets were not completing deals over the last couple of years. So that will give us a good bounce there. We will continue to hire individuals in a targeted way to add top producers to the mix. Of course, very many of the poorer producers have left the firm during the recession. On the support side, it's our aim to hold our support costs tightly under control through the growth phase in the market upswing. So expect to see productivity improvements in our support structure as well.

Okay. Thanks for taking my questions.

Thanks, Kevin.

Your next question comes from the line of Michael Mueller with JP Morgan.

Hi. Just one other question. In terms of the incentive fees that were booked in the quarter, can you give us a little more color on them and is there any visibility to additional fees being booked throughout the year?

They were for a separate account, were measured against basically comparable performance and that was the reason we had incentive fees. We do consolidate that line with transaction fees and incentive fees, but the majority of that line was the incentive fee. Incentive fees will happen if we again can beat benchmarks or in some of our remaining funds that had mostly liquidated prior to the downturn, where we were in profit mode, is we can sell assets, there will be additional amounts. As we've said, they'll be pretty modest, just given the environment that we've gone through.

Okay. That's it. Thank you.

Thank you.

Your next question comes from the line of David David Gold with Sidoti.

Hi, morning.

Good morning, David.

Just a couple of questions. One, on the comment of reinstating reduced salaries, in an effort to retain, can you speak about which markets in particular you're focused there and also to the extent there are areas that you're hiring a little bit more on that where we need to add folks and how we're attracting in this environment and in those areas.

Well, without giving commitments internally to our people, in selective ways across parts of the business, we saw sudden reductions in parts of the UK business, selected countries in Europe, Japan, in a very real way, across the US as well. And it was variable by level and by area of business. And so as Lauralee said, we will selectively restore those as the health of our individual business lines or country performance picks up. As to hiring, and there is the ongoing issue of catch-up as it were for salary freezes, and that's particularly an issue in the high turnover economies India, China typically you see in our sorts of industry, 20% to 30% annual turnover rates.

And we obviously have always aimed to outperform that and show lower rates of turnover. And we'll be aiming to maintain that by appropriate salary adjustments. As to hiring, we've both made comments on that. We're not in a mood where we feel pressure to go out and hire large numbers of people. We think there's a significant uptick in productivity available across our transactional businesses in particular. Our corporate business less so because we've been growing healthfully and adding people throughout the downturn. But in the transaction area, where individuals, in particular, coming to see us, as well as us targeting them, we will talk to them. And if there's an attractive meeting of minds, an attractive economics for both sides, then we will move ahead in a heartbeat.

Okay. And attracting folks at this point it's a tough one to talk about online. So maybe it's not a fair question. But I was going to say, does that become more a function of better splits than some of your competitors or to know the platform overall?

I believe that we pretty much all pay comparable. The industry is, you have difficulty staying out of line very long and be successful. So we believe it's a platform. And if someone has the tools to compete more successfully and they're a high producer anyhow, that's very appealing. I think you're aware that our fifth G that we added to our growth strategies is connections. One of the things that we found is how powerful connecting into the platform has been for our various offers.

And the clients are increasingly sophisticated and understand if a tenant is looking for space, they want more than leasing advice. They want someone that can tell them about the capital stack of the building and the health of the owner. They want someone to be able to give them project management advice as to how efficient the building is being run. And what that's going to mean relative to their expenses. They're going to want to talk to our energy and sustainability people about how green it's going to be perceived, so that they can put that in their own metrics. You can't just sell your expertise on your own anymore, it takes a machine.

David, all of the principal things that people joining us say they want, is just to be part of our collaborative culture, where we work as teams and we work across business lines, as Lauralee has described, and across increasingly across geographies, across continents to produce excellent outcomes for our clients and the collaborative culture is a unique feature of our business.

Okay. That's helpful. Just one or two other quick ones. Lauralee, if we go back a year ago, one of the things that we were doing was cutting the discretionary spending, if you will. We cut back there pretty dramatically. Are we at a point where we bring back some of that or is it still too early?

Well, travel is going to come back as business picks up. It's just we pitched more business, we need to meet clients. So there is a correlation of that expense line to revenue. We will selectively bring back marketing. We have trained our people throughout the downturn, but not as robustly as we would like to do. So things like training will come back. But the places we're bringing them back is where we think they're going to enhance our revenue production. So, it's thought through and it's targeted and it's with expectations. So we're thinking about the sorts of expenditure that we need to ride back in as well.

And it may not be in the same form as before because thy expenditure of it was appropriate in 2007, 2008. We might want to spend those dollars differently to support and develope the business in 2011 and 2012. So we're thinking about the sorts of expenditure that we need to ride back in as well.

Okay. And just one last one, if I might. On the write downs, can you speak about the geographies those were related to?

Mostly in Asia. But we said that we're through most of those revaluations. But as the markets move through with new leasing rates and so forth, or tenants are lost or whatever, you need to do that on an asset by asset basis and if you'll recall the accounting, it's always the down. You can't take any offsets for the ups. So there will be continued selective write downs, but we feel at a good point right now that in our funds, we found a floor in many cases and we're seeing an improvement in the overall fund values. So I think it's not indicative of performance at this point in time. It's more the accounting.

Got you. Perfect. Thank you both. That's helpful.

Thank you.

Your next question comes from the line of Vick (Ramahaltro) with Morgan Stanley.

Hi. Thank you. Congratulations, Lauralee, on the good results and the whole team as well. Colin, as well.

Thank you.

the first question is related to the margins in EMEA. I may have missed this. Was there any one one-time costs in EMIA, and sort of what are the plans for improving that region? And just related to that, I believe, if I remember correctly, earlier you might have given a couple of years ago sort of long-term margin targets. Could you give some sense of how you see the regions moving, absolute basis or relative?

Well, let me take those questions in pieces. First of all, if we look at EMEA, EMEA clearly had a much better quarter than last year, relative to Colin's comments. It isn't in all places. We saw the biggest performance increase in the UK, which is further advanced in the recovery. We also saw a nice increase, though off of extraordinarily low basis, in Germany and Russia, where that modest uptick year-over-year in revenues then combined with very aggressive cost cuts, improved their bottom line year-over-year performance.

But that wasn't enough to get us into a profit mode for that business in the first quarter, and they're not on a commission model, generally so that my earlier comments on the overall firm don't apply there. I think the other comment I would make on Europe is, and we're actually very pleased with this. Last year, because of the markets, we accrued no bonus in the first quarter in Europe. And we were able to accrue bonus in Europe and that is incredibly positive for our people. It's incredibly important for retention and motivation. And it means that the bonuses are going to be more evenly spread this year and hopefully higher, because of the results that they'll bring in. Where as last year our bonus was very, very back ended in that part of the world.

Okay. Thanks. And then just on the --

You asked for long-term targets.

Yes.

We tend to focus on operating income, because we include depreciation and amortization in that, because we view that our technology in many cases keeps our clients in a competitive advantage with our clients, so that's in that line item. But our long-term target on operating income is to exceed 12%, and that's global so it's going to be weighted around the world. But that's our long-term target.

If you look back to the last cycle, the US has a different cost structure, so that will be a benefit as well going forward?

Correct. We would believe that the US would get back to a historical margin percentage.

Okay. Great. And second question really was on, Colin, you mentioned in the US, distress activity. I just wanted to get your thoughts, we've seen some yield compression, there is more talk of rates eventually going up this year, possibly next year. Just wanted to get your sense of how you think distress transactions will trend in the US over the next couple of quarters.

Well, outputs of what we said is the trickle will become a small stream and then a small river, but it's not going to be a flood. The banks are showing and indeed, the special services are increasingly in the CMBS markets, where distresses, capital markets are no longer functioning. They're all showing remarkable degree of patience and creativity in extending loans and then sort of giving forbearance to lenders. Al be it, we see them increasingly stepping up to handle the issues. We see them increasingly taking over the control of properties where the equity has been wiped out. So the market is growing. But it's just not at this stage a flood. So just gradual growth I think in that market. The comments I made earlier about the supply, just do still apply. Just not a lot of new product on the market. Indeed, the transaction levels have still been very low. As we talk about some spectacular cap rate compressions, we've done very few deals. So the market is still very thin.

Okay. Great. And just last question. Lauralee, you mentioned, given the cost structure, the balance sheet, you are now poised to look at selective hires, acquisitions and just growing business. I'm just wondering if terms of acquisitions, are there any particular reasons or any businesses that sort of you'd look to augment in the coming quarters?

Well, it will be selective. I think the best way to think about it is, we want something that sort of moves the needle. That it really matters. We feel very good about the 33 acquisitions we did over the last period and are very focused on maximizing the market share and the capabilities that they gave us. We do believe that there will be some things that will show themselves. But we're going to be very selective in terms of our pursuit.

Okay. Great. Thanks a lot.

Your next question comes from the line of Will Marks with JMP Securities.

Thank you. Good morning, Colin and Lauralee. The first question I have is on tax rate. It seemed like a fairly low tax rate during the quarter. How should we be thinking about that going forward?

Yeah, will, we said we would sort of be in the low, mid-lows so that sort of in between 20% and 25%. We expect to sort of be where we are this time and that's about a 23%. I think we can maintain that.

Thank you. And I wanted to ask you about Staubach, and maybe a comment, I might have missed that as well. As we approach the first payment, which I know can be deferred for a year. Any thoughts on that or can you comment?

Well, the calculation isn't done until the end of the second quarter. So it, it's not here yet to be determined. We did move it at the end of last year into a current liability. And are fully prepared to pay for it and we have plenty of capacity to do so. We're actually quite excited to pay it.

Okay. And it looks like there's some other business obligations that were moved into current in addition to that. Is that related to Kemper's?

No. Our Met Raj transaction in India, we did on an ownership percentage in that. And we also had a remaining payment for Spalding and Sly that we paid out.

Great. If we look at the asset management side, you gave some detail on bringing fees down in certain areas. If we could look ahead a little bit, I guess as a projection. I mean, do you fully expect to be at a higher level of assets under management by year end, or do you think further mark downs could make it difficult to grow?

Well, Lauralee made the point that the valuations that we do quarterly within the funds are turning. And we're seeing some restoration of that significant value drop. Remember we mark to market from $54 billion roughly down to the high 30s during the recession. So clearly a good way to come back there. But we are seeing that cycle turn and increase. I talked to you about the net funds raised during the quarter. That's obviously there to be invested. But we've also got an additional sort of $8 billion or so of spending with leverage, which is sort of left over from the 2007, 2008, 2009 capital raises and wasn't spent during the core part of the recession. That adds up to a lot of fire power in LaSalle's portfolio.

And the challenge that they now have is to get out and invest that as we move obviously from defense, value protection, renegotiation of asset financing in 2008 and 2009 to back on the acquisition trail again. And they have pleased to report they've begun to produce some and complete, some good scitions across the globe. Interestingly as the market as a whole has moved quickly away from LaSalle and they're beginning to see their sweet spot in development and opportunistic projects also beginning to pick up again. So, the challenge we have within LaSalle is to pick up a rate of investment, in a market that's only making products available at a relatively constrained pace. But they're fully engaged on the job. They've switched their people back onto acquisition mode again, and we're selectively hiring there as well.

Well, I might add, our public securities business that sort of at its peak was a $10 billion business, we're up over 50% from a year ago, being just touch over $7 billion. But still down 30% from that peak. And that's an opportunity as the marketplace recovers and we continue to have capital flows come into that. But I think it gives you some idea of the potential. But clearly timing and how the markets fare is a big factor in how that growth comes through.

Is that $7 billion as of year-end, is it a quarter behind?

Yes. It's one quarter behind.

One. Okay. So we know the read market has been up since the beginning of the year. So I guess that bodes well for that area. Just final question on asset management. There's been a lot of press today, in fact doubling the US pension funds, doubling their allocations this year. How do you look at in terms of positioning? Is there any kind of rankings in terms of your brand, or how well you've done with pension funds and others? I know you're one of the stronger brands. Any comments would be appreciated.

Well, we haven't reviewed it recently. But kind of picking order of assets management as of 2008, if you'd like toward the ends of the cycle, had held constant for several years. We were about number five or six in that order. Above us was some famous names and you all know how some of them have fared. There have been some very serious problems in the sort of one to five group and a few successes as well. So I think the general impression we have from our clients is that our brand in asset management has distinctively improved during the recession. And that number, which we gave you funds, which we raised during the first quarter, I think is the best indication of that improvement in brand value. Because in a market that's obviously still been very hesitant to put money out, a lot of trust has been destroyed across the asset management business. The fact that we're raising those sorts of sums of money I think speaks to the esteem which LaSalle is held by clients around the world.

Great. Thank you very much.

Thanks, . Thanks,

Your next question comes from the line of Brandon Dobell with William Blair & Company.

Thanks. Lauralee, in terms of capital allocation this year, how should we think about cash from operations?

I'm sorry, Brandon. I can barely hear you. Could you repeat that.

Sure. Just asking about capital allocations this year. Should we think will CapEx, debt pay down, the payments. How should we think about allocating the capital this year?

Yeah. Our CapEx will be continued to be pretty constrained, probably in the $50 million range. We've declared a very modest dividend. But that gives you an indication there. LaSalle Investment Management will be the primary user to our co-investments, and the pace of that will be dependent on their ability to invest capital. So that's a little bit difficult to get ones hands around, though we did do about $10 million in the first quarter. So maybe four times that or touch more hopefully would be good. I doubt we're going to get much back. Normally we give you a net number, but pretty much today it would be gross. I would expect that would be 40 to 50, and again we'd like to see that more so. And the balance of that is hopefully the Staubach earn out, in the next payment that will be deferred and just modest other potential acquisitions after that.

Okay. And then in terms of the investment management business, is this quarter's advisory be revenue number a decent run rate or, I'm trying to gauge the impact of the change that the fees offset by capital rates to get to, what should be a more sustainable level for the advisory.

Well, I think for this year, we've found really kind of the floor in the accounts that we have. We will, as we are able to bring the capital on board that Colin discussed, which will most likely be in the second half of the year, we'll see benefits from that. If our security business grows, we very quickly get a benefit from that. So we'll be focused on moving that number up, rather than seeing more pressure down this year.

And in terms of a kind of structural expenses for your business. It sounds like beyond the personnel moves here or there, still pretty tight purse strings on discretionary. Any material plans for kind of office or space expansion or extra technology and P&L spending, that we should be aware of, which would change how we think about the cadence of the expense lines during the year?

No, I would not say anything material. I would make a comment. We did have a modest restructuring charge in the first quarter.

Right.

And I'm anticipating that with some of the, we still have Staubach integration accounting that we can Do relative to some of that. And some of other things that we still think about appropriate for getting the business in line that on a total-year basis, we could be as high as $10 million of restructuring. We would like to manage it lower than that, but it could be as high as $10 million.

Great.

That wouldn't be in the admin line.

Right.

It would be highlighted with a goal of having a benefit long-term in the outer loop and Admin line.

All right.

Your next question comes from the line of Michael Fox with Park City Capital.

Good morning, guys. Thanks for talking my call.

Good morning.

Thanks for all of the color on the market earlier in the call. I just had a question about the kind of the investment management business and it kind of plays into the overall capital markets business. Obviously you guys have been successful raising capital in the investment management business and a lot of firms have raised a lot of money to buy the distressed properties and things like that. What do you think the catalyst will be to put the money to work? And can you just talk about, obviously you guys and everyone else wants to put it to work at the most attractive prices possible. But things have probably moved up quicker than some people probably would have expected. Can you just talk about the balance, and what's going to cause the money to go from the sidelines to being invested?

Well, we didn't raise any specifically debt-oriented funds, many did. But we do have latitude within many of our funds to buy so called distressed, I won't repeat what I said, there just wasn't been a lot of it. Your comment on the speed of the recovery took the market by whole as surprise. So the period when distressed, good assets can be purchased at distressed prices lasted a couple of microseconds in most deep markets and things have moved very quickly. I think the basic lesson for or the basic message for the suppliers of capital in those funds, is that if your manager is going to do a good job for you and act as a responsible producary, as LaSalle has always done, for example, then a level of patience will be in order, which perhaps wasn't anticipated 12 months ago.

And that patience will be because if our managers are going to be selective in his acquisitions, and if it's going to put that money to use in a responsible way for a good return over the life of the investment or the fund, then the pace of investment will just be constrained. And that's just driven by the marker dynamics I referred to earlier, where supply in particular is constrained across the world. So, I think patience is one issue. And we are seeing, amongst the conversations we're having with investors there around the life of funds, where they should be extended and generally we're finding the confidence that investors have in us, yields to agreement on those sorts of extensions. But that gives you a feel for some of the dynamics that are sort of in play.

Great. Thanks a lot.

Your next question comes from the line of John Miller with Aerial Investments.

Hi. Congratulations on the solid quarter.

Good morning, John.

Good morning. Given the crisis in Greece, what impact, if any, should we expect for that to have on your European business?

The comments we made earlier on that in particular our Spanish and our Italian business are obviously close to the eye of the storm currently. But if you add up our Spanish, Portuguese, and Italian businesses together, they're less than 10% of our European revenue, and that's including everything they do, not just the transactional piece. I would expect that the capital markets are going to come to, or supply the debt to the real estate parts of the capital markets are going to be very constrained until this is sorted out in those economies and the prices of debt in Italy and Spain are going to be moving up with the spreads, not perhaps as high as the Greek levels of sort of 800 basis points, 1,000 basis points, above the German bond reference point. But certainly going to be 200, 300 basis points of spread.

And that's going to lower the attractiveness of real estate as an investment class for the period of time that those spreads stay blown out, because they're reference points for the capital stack as a whole. That's before you get to the issue of confidence, which obviously will have gone very quickly. Again in those markets close to the core. The broader question, which we haven't looked at, to what extent to raise the cost of capital throughout the Euro zone, because obviously the pain here is eventually going to be spread across the stronger, as well as the weaker countries as they come to the rescue of the Euro as a whole. And that's before you get to the question of, again confidence from investment in those economies. For our own individual businesses, the further aspect which is that as we're now looking at a profitable year in Europe, those problems will be translated back at potentially a lower Euro dollar rate than we had anticipated and seen in previous years. Those are a kind of few dynamics of it all.

And we're not an economist, John. But I think we have a very large presence in the UK. And money has been, I don't want to say fleeing to the UK, but it's been attractive to the UK on the continent, and that may be an offset to some of that in the sense that our UK business will remain strong if not even find more strength.

If they get a government.

Okay. That's helpful of the UK business represents what percentage of your overall European business?

About 40%.

Okay. Thank you.

Thank you.

And we have no further questions at this time.

Okay. Well, thank you, everybody for all of those questions. We'll draw things to a close. Thanks for your interest in Jones Lang LaSalle and we look forward to speaking with you again after the second quarter and we'll see how the European sovereign debt crisis has evolved. Thanks everybody.

This does conclude today's call. You may now disconnect.