Jones Lang LaSalle Inc (JLL) 2011 Q1 法說會逐字稿

Good day and welcome to the first quarter 2011 earnings release conference call for Jones Lang LaSalle Incorporated. Today's call is being recorded.

Any statements made about future results and performance are about planned expectations and objective forward-looking statements. Actual results and performance may differ from those including in the forward-looking statements as a result of factors discussed in the Company's annual reports on Form 10-K for the year-ended December 31st 2010,and in other reports filed with the SEC. The Company disclaims any undertaking to update a revised any forward-looking statements. A transcript of this call will be posted and available on the Company's website. A web audio replay will be available for download. Information and the link can be found on the Company's website. At this time I would like to turn the call over to Mr. Colin Dyer, Chief Executive Officer, for opening remarks. Please go ahead, sir.

Thank you very much, operator. Hello everybody. Thank you again for joining us for this review of our results for the first quarter of 2011. With me today in a wet and windy Chicago is Lauralee Martin, our Chief Operating and Financial Officer and in a moment she's going to review our financial performance in detail.

First let me give you the headlines for the quarter. Our revenues totalled $688 million which is up 18% from the first quarter of 2010 and that's a 16% increase in local currency. Net income was $1.5 million or $0.03 per share compared to $200,000 or $0.01 per share in the first quarter of 2010. Our pipelines are growing steadily across the businesses and across all geographies.

Our board of directors has declared a semi-annual dividend of $0.15 per share of our common stock and that's up from $0.10 per share in the prior period.

To put the results which we will talk about shortly in context, let's first look at conditions in the global economy and our real estate markets around the world. The world economy is expected to grow at around 3.5% in 2011 and 4% in 2012 and that's according to Global Insight. Annual GDP growth is expected to be 2.1% in developed countries and 6.4% in emerging countries which include the BRICS. So despite political turmoil in the Middle East, sovereign debt problems in Europe and to an extent the US, and the devastating effects of Japan's earthquake, tsunami and nuclear crisis, the multi-speed global recovery continues.

To give you a sense of conditions in key real estate markets we've posted slides in the Investor Relationship section of our website www.joneslanglasalle.com. Slide three shows the Jones Lang LaSalle investment sales clock which we update for you each quarter. It provides a picture of conditions in major markets around the world of different stages of the real estate cycle. You can see that in the first quarter of 2011 values are rising in most markets with the pace of growth even beginning to slow in just a few. Our preliminary figures indicate that global investment volumes totalled just under $94 billion in the first quarter, which is up substantially from the first quarter of 2010. Capital values for prime real estate assets continue to increase strongly in many top tier office markets, increasing at an annual rate of over 20% across the 22 largest markets worldwide but with significant regional differences. The downward shift in prime yields has showed significantly during the past two quarters, however, as rental growth replaces yield shift of the key driver of capital depreciation.

Turning to slide four you will see a snapshot of conditions in leasing markets worldwide which tells a similar story. Progress here continues to lag the recovery in global investment sales. The strongest office leasing markets continue to be in Asia-Pacific with first quarter regional net absorption increased by 30% year-over-year. We did see a pause in the Europe growth, with net absorption down 20% on the first quarter of 2010.

Office vacancy rates continue to trend down gradually from that early 2010 peak and our provisional global office vacancy rate across 104 cities now stands at 14%, down 0.5% from the first quarter of 2010. Regional vacancy rates vary from 16.8% in the Americas, 10.9% in Asia-Pacific and 10.3% in Europe.

Rental growth on prime assets in top markets is at its strongest since the first quarter of 2008, averaging 8% year-over-year across 22 major world markets. The strongest growth has been in Hong Kong, Singapore, Shanghai, Sao Paulo and Moscow. Rental growth is also returning to some central business district office markets in the US,notably Washington, DCand San Francisco. But for most office markets worldwide, rental stabilization is now the main theme.

So with that general backgrounds I'll now pass the call over to Lauralee.

Thank you, Colin and good morning to everyone on the call.

Similar to previous quarters, I will not repeat the financial results as outlined in the earnings release, but rather will focus on a handful of key items that impacted the quarter's results. Overall we were pleased that our strong revenue growth continued, and importantly our pipelines are ahead of where they were a year ago. The increase in our expenses was driven by certain unusual items that we explained in our earnings release. Given the seasonal nature of our profits, these items had a pronounced impact in the quarter but they will be insignificant as the year plays out. Together the unusual items totalled more than $9 million and directly impacted our operating income. Excluding the unusual items our operating income margin was consistent with the first quarter last year and our EBITDA margin would have shown improvement. While we are not designating these items as restructuring, they are unusual in nature and we are disappointed incompetent our margins this quarter because of them.

Also affecting the quarter was a decision to hold regional business meetings to kick off and accelerate our strategic plans and goals for the year --meetings that have not been held for two years due to the downturn. The impact of these meetings was approximately 1% of revenue, but already we are seeing the benefits of improved business going into the second quarter. The meeting costs, taken together with the unusual items, reduced our operating margin just under 2.5%. We continue to be committed to our medium term operating income margin objective of 12% or an approximate 15% EBITDA margin. Further, we have very positive revenue trends in each of our regions that I would like to talk now about briefly.

In the Americas, revenue increased 26% from the first quarter of 2010 to $288 million. The most significant increase was in leasing which grew 35%, or $37 million, to nearly $144 million. In the quarter we hired 41 net new brokers, 21 of whom who are in industrial business line. We continue to expand our market positions and capabilities as our powerful platform continues to attract top talent. We recently completed the acquisition of Keystone Partners in North Carolina, which will also contribute it continued momentum in our brokerage business. Capital markets and hotels revenue more than doubled from last year, to $20 million of revenue in the first quarter. We incurred approximately $3 million of accounting-accelerated compensation pension related to acquisitions that normally would be amortized over a three to five year period.

You will notice new account lines on the balance sheet this quarter for warehouse receivables and warehouse facilities that resulted from our acquisition of Primary Capital Advisors in Atlanta which provides us the capability to offer our clients agency financing. This acquisition nicely complements our existing capital markets service offering and multi-family service, adding the origination and servicing of multi-family mortgages.

While operating expenses interest increased for the Americas in total the increases are primarily variable in nature and attributable to higher revenue generating activity and future business prospects.

Revenue in EMEA increased 11% from the first quarter last year, largely in our project and development services, or PDS business lines. PDS includes our Petrus spinoff business, where the accounting required subcontractor costs to be included as a revenue gross-up. These gross-ups also contributed to increased operating expenses. Overall while total EMEA operating expenses increased $20 million or 13% compared with the first quarter of 2010, more than $8 million of the total was due to higher subcontractor costs pass-throughs.

Europe remains in a variable state of economic recovery which is reflected in our transactional revenue results. There are some countries still producing strong results and with quality pipelines and importantly the large markets such as Germany, England and France. But with such varied recovery to date on a country by country basis, the transactional results reflected in the region taken as a whole are mixed. Looking ahead our pipelines are strong, and we have selectively added revenue producers to take advantage of markets as they recover more broadly across the region.

In our Asia-Pacific region, revenue increased 22% in the quarter with growth across all business lines. There were notable increases in India, Singapore, and greater China which includes China, Hong Kong, Macau and Taiwan, driven by $4 million of leasing revenue increase. There were smaller yet meaningful increases in Korea and New Zealand.

Looking at business line results, property and facility management was up $16 million and PDS was up $7 million. Like in EMEA, subcontractor costs are reflected in revenue and expenses of Asia-Pacific's PDS and facility management business dependent upon the contract terms. Across these two business lines there is nearly $8 million of vendor cost pass-throughs included in the year-over-year growth of revenue and expenses. Total operating expenses increased 23% for the year inclusive of these charges.

We want to publicly recognize both Jones Lang LaSalle and LaSalle Investment Management colleagues who are attacking the significant challenges imposed on them by the tragedy in Japan,while still continuing to strongly support our clients and our investors. In the quarter we had minimal financial impact to the firm's results, and although early to determine, we do not expect the total year to be different. Included in the firm's results was a 100 million yen or $1.3 million contribution to the Japanese Red Cross relief efforts.

LaSalle investment management had a solid quarter, with revenue up 9% compared with the first quarter of 2010. Advisory fees were up 5% due in part to favorable valuation increases in the securities business. Our 2011 net equity commitments raised in the quarter totalled $1.5 billion, including $1 billion in new and expanded separate account mandates. Assets under management to $43 billion at the end of the first quarter from $41.3 billion as of December 31st, 2010. LaSalle's investment performance continues to exceed most benchmarks.

The firm's balance sheet remains strong, cash flow activity during the period was broadly consistent with historical first quarter activities, driven by cash payments of annual incentive compensation. Our net bank debt and total net debt, which includes the deferred acquisition obligations, have decreased significantly from the first quarter last year. And we remain well positioned to take advantage of market opportunities in a continually consolidating industry.

Let me now turn the call back to Colin, who will discuss some of our recent business wins.

Thank you Lauralee.

So to give you a sense of how we generated our first quarter results, slide five shows a few examples of recent new business wins. Starting with our global large corporate outsourcing business, we won 12 new assignments during the quarter, renewed seven contracts, and expand our relationship with three other clients. Our pipeline for additional new business remains strong and consistent with last year's levels. Some selected Corporate Solution wins include in the Americas Belk, the major retail chain, who retained our facilities management and mobile engineering service for its 28 million square foot portfolio across 16 states in the southeast in the USA. Cannon Europe retained us as a preferred provider for strategic consulting, valuation, and transaction management services.

Across in China, we were appointed facilities manager for the 883,000 square foot FedEx Pacific logistics hub in Guangzhou. The Australian Customs Service awarded us a three year contract to manage its 2.9 million square feet portfolio, and these totals and selected wins do not include activity in our US Corporate Solutions -- Market Corporate Solutions business which area focuses on relationships with mid-market corporate occupiers in supporting these client needs and transaction management, project management, lease administration and consulting services. During the first quarter alone we won 15 new assignments totaling nearly 30 million square feet of space in this rapidly expanding segment.

Turning to the first quarter investment sales activities -- in the Americas, we completed the $460 million sale of an eight-property multi-family residential portfolio in the suburbs of Washington, DC. In Mexico City, our Tenant Rep and Capital Markets team joined by their Corporate Solutions colleagues in Germany executed a $100 million sale and leaseback transaction for Nestl's new regional head quarters. In the UK we advised Herms on the GBP 235 million sale of 20 Grisham Street. And just last week, we represented a confidential Asian client in the GBP 288 million acquisition of the Aviva Tower in the City of London. In Singapore we advised on $800 million of transactions, the majority of the large buildings sold there to date this year. And in Beijing we advised on the sale of 410,000 square feet Maple Tree Tower, Beijing's largest office transaction facilitated by a third-party agent since the beginning of 2010.

Among the leasing and tenant representation transactions which we completed during the quarter, again in Washington, DC, we represented the Piedmont Office Realty Trust in the 600,000 square foot lease renewal of the NASA headquarters. In Moscow, we were appointed exclusive market and leasing agent for the 2.6 million square foot Avia Park shopping and entertainment center, and in Germany we advised Syncreon on leasing 215,000 square feet of logistics and office space to Garbe Logistics.

Turning to Asia-Pacific -- in Singapore's largest leasings transaction to date this year, we represented Credit Suisse to secure a new 300,000 square foot lease and anchor tenancy at ONE@ Changi City, and also in Singapore, our largest ever property and asset management win in southeast Asia, we won the mandate for Asia Square, a new 2.65 million square foot mixed use development in the center of Singapore.

As Lauralee mentioned in her comments, of the $1.5 billion in net new equity raised by LaSalle Investment Management in this first quarter, about two-thirds of the total came from separate account mandates with most of the rest placed in public securities. The separate accounts included about $600 million from two new separate accounts in Europe and $400million from two expanded relationships -- one in the US and the other also in Europe. LaSalle's clients are clearly maintaining their long-term allocation to real estate and LaSalle is continuing to focus on delivering excellent performance as indicated by our performance against many of the benchmarks against which they are measured.

In our first quarter highlights we welcomed two new members to the firm's Board of Directors Hugo Bagu and Martin Nesbitt. Hugo is Group Executive for Rio Tinto with overall responsibility for human resources, health and safety, communities and corporate communications. Marty is President and CEO of PRG Parking Management, a Chicago based owner and operator of airport parking facilities which he conceived and co-founded. We're fortunate to have two individuals with such strong credentials and experience joining our Board of Directors.

We have also pursued our policy of expanding our global footprint in response to new business opportunities and client needs. We moved into two new countries during the quarter, opening our first office in Switzerland in the acquisition of Zurich-based Sal, Oppenheim, and we established a presence in the newest mechanic of the BRIC countries, South Africa, with the acquisition of Johannesburg-based Bradford and McCormack Associates. We also expanded our leading presence in India and China opening new offices in Ahmedabad in India and Chongqing in China. In line with our policy all of these new offices are fully owned by Jones Lang LaSalle.

Looking forward, prospects are encouraging across most of our world markets. In investment sales we now think that based on current momentum and existing transactions, our preliminary forecast of $380 billion to $400 billion of total annual investment volumes should be revised upwards to more than $440 billion, 35% to 40% above 2010 and that represents the highest total since 2007. Also, as rental growth on prime assets accelerates, stronger capital preparation is expected to occur in most top tier office markets for the rest of the year. Hong Kong, Moscow, Washington, DC, and San Francisco are projected to show the highest capital value growth in 2011.

In global leasing markets subdued development activity in North America and Europe is going to help further erode rent vacancy rates throughout the year. But with Asia-Pacific approaching the peak of its development cycle the vacancy rate in that region is probably going to increase modestly in 2011.

As we noted earlier, rental growth on prime assets in top markets is at its strongest since early 2008, and with a limited supply of quality space and strong occupier demand, rental growth is expected to continue accelerating in the course of this year. In the property management sector, we believe institutional investors in commercial real estate will, as I described earlier, continue to increase their capital allocations to the asset class. And finally while the world has rightly focused on the humanitarian toll extracted devastating natural disasters and political unrest that occurred in the past year, it's obvious that these events are having little or no impact on overall economic activity in the world. Many Middle Eastern and north African markets locally are clearly struggling. For example, our office in Cairo however is now seeing renewed interest and activity among multinational corporations who want to be on the front foot and prepare far potential growth following upcoming Egypt elections.

Japan anticipates no economic growth this year because of the destruction to trade and manufacturing caused by the earthquake, tsunami and nuclear crisis. But reconstruction efforts are expected it produce real GDP growth of 3.6% next year, and the government has already announced a $50 billion down payment for those activities. As Lauralee mentioned as a firm we are confident about the resilience and recovery of the Japanese any and will be investing in it. Just recently in fact LaSalle Investment Management announced a $170 million investment in a logistics development project in Japan. And as Lauralee said we both want to extend our special thanks to our 600 colleagues at Jones Lang LaSalle and LaSalle Investment Management in Japan for the tremendous efforts they are making to get the country, our clients, and our firm solidly back into business.

So to close our remarks, as is our custom, we would like to mention some of the awards which we have received and which reflect our commitment to superior client service and to our position as leader in real estate services and investment management.

During the first quarter and for the fourth consecutive year, the Ethosphere Institute selected Jones Lang LaSalle as one of 110 leading global corporations to be named as one of the world's most ethical companies. In the US -- in the US Environmental Protection Agency has named us ENERGY STAR Partner of the Year for 2011, the third time we've earned this honor. And we were named to Fortune's list of the world's most admired countries[sic], and for the third year in a row, selected as one of the word's 100 top outsourcing providers by the International Association of Outsourcing Professionals.

In the Asia Retail Congress we won the prestigious International Property Consultancy of the Year award for the third consecutive year and we won five categories of the Property Council of Australia's retail awards. In the UK, we won Office Agency of the Year honors in the2011 Property Week awards, and in Russia for the sixth consecutive year, were named Consultant of the Year in the 2011 Commercial Real Estate awards.

So with that list of wins, outlook on current business circumstances, and some accolades,we'll now move on to questions. So operator, could you please explain the Q&Aprocess.

(Operator Instructions). And your first question comes from the line of Sloan Bohlen.

Good morning. Colin and Lauralee, I'm wondering if maybe you could of reconcile -- obviously some of the margin hit in the first quarter was due either to pull forward for some hiring expenses and obviously strategically you're trying to grow in markets like the US. Maybe if you could reconcile the 15% EBITDA margin target with how you're looking to expand market share in those markets at the same time.

Well, generally as we add people there is a slight reduction until they get completely up to being productive, but we do look at that because there's a -- when there is enough momentum in the core, the incremental costs don't make that material of a difference, and clearly in the totality of the year they would make almost none. It's really I think the reflection in the first quarter is when we typically don't make meaningful money and so any adjustments there show up more dramatically. I think is your comment specifically on compensation?

Well, I think more we're trying to get a sense of the pacing of hiring and how we should think about the impact for the first quarter and is it an overextended impact this quarter versus what we should see in the back end of the year?

Both the costs that the margins which we have shown in this quarter and these results were actually slightly ahead of what we had expected in our budgeting and planning process for the full year. So when we talk about being comfortable and confident for the full year outlook, we're saying that against the background of having planned for these sort of levels of results -- which means to say we expected to be investing the costs in which we've invested in producers in the underlying business footprint and expanding our office space on so forth. And we also planned for the business meetings which Lauralee described which we held for the first time in several years. So all of that's quite within what we planned for. And as I said we're entirely comfortable on the basis of this first quarter with our overall thinking for the year of confidence in our pipeline and so on.

This is the first quarter, and as we constantly say each year, it's by margin our weakest quarter. If go to back to Q4 last year we produced something like 40% of our total net income in the last three months of the year. That's our seasonal pattern. So we don't feel overly concerned with the position of the margins in this quarter, and it is consistent with building towards the full year and towards those 15% EBITDA margin targets which you've described.

Okay. Switching gears, Colin, maybe your comments on sort of your raised guidance for sales volumes for the year. Is that a comment based more on volume or on asset value preparation or does some of the hiring and increased market share add to that estimate as well?

Yes. The numbers I gave were total market figures. They were not intended to be estimates of our revenue or the volume transactions that we're involved in. They're from our research and they are estimates of the strength of total world market because we talk about 35% to 40% growth in transaction volumes and investment sales. That's global. That includes everything in commercial real estate worldwide.

The reason for that uptick is firstly Q1 activity Capital Markets was stronger than we had estimated so that sort of flows through to the full year. And the basis of that we have increased transaction activity and the pricing is moved up as well. So you've got a double effect of more being sold and pricing moving up as yields compress we said that is still going quite strongly in some markets but it's beginning to tail off. For example, London, Paris, New York, Washington are reaching mid to low 5s in quality assets in terms of cap rates and so that for the moment will pause, but we do see as I described a stronger underlying trend in rental rates, and so that will in itself was against the fixed cap rate that will drive up transaction values. There are a number of virtuous things happening together which caused us to uplift that estimate.

Okay. Thank you, guys.

And your next question comes from the line of Michael Mueller.

Good morning, guys. It's Joe Dazio here.

Question about the regional business meetings going forward in more of a normalized apartments environment, would you expect those to occur annually or a little bit less than that?

Every couple of years. We will skip next year and do probably again 2013. Yes. The US does holds an annual business meeting and that will continue next year, but the other regions do not. The same for our investment management business, which will not holds a meeting next year.

Okay. Great. Thanks for that.

And then also question on the leasing business. I know Colin you touched on it a little bit -- but looking specifically at the Americas, how do you look at growth as we move to the rest of the year given that it would seem like comps maybe a little bit tougher from where they were Q1 a year ago? So do you think that 35% up in Q1 might be a little bit tough to repeat as the year progresses?

We were very pleased with that obviously because that's a strong performance and we're pleased with our leasing activity across the US. It may be because, again, it's the slowest quarter of the year in the market in terms of a whole. It may be kind of an outlier on the upside. But if you just step back from the number, there's nothing in the commentary which we've given you, nothing that we can see which suggests any break or change in what we've been describing for a year as a normal cyclical upswing. So across leasing, across capital markets activity, across rental pricing, we're seeing a solid global underlying upturn in activity in pricing.

The one exception to that I commented on in the commentary was Europe, where we did what we described as a pause in activity leasing in Europe just this quarter. We don't think it's underlying. Our pipelines are strong with some big transactions coming through in the course of the rest of the year. We can't say exactly where they will fall. So we just believe this quarter was a sort of pause or gap in the normal cyclical process.

Okay. Great. Thank you very much.

And your next question comes from the line of Will Marks.

Thank you, good morning, Colin, good morning Lauralee. I have a question on the cash flow -- rather the net debt repayment you put in your slideshow presentation of $184 million. That number, trailing 12 months, was $250 million at the end of 2010. Can you maybe comment on why it would be declining?

Well, we did pay larger bonuses, and so as you look at that -- which we are pleased to do because our people have had a couple of years of very depressed compensation -- so it would principally be because of that, but it's compensation well earned and now we're getting back to more normal bonus levels. But we will also have stronger cash flows as a consequence as well.

And would you expect the number to be absent any acquisitions or higher dividend would you expect that net debt repayment for 2011 or just the cash to be stronger than 2010?

Yes. I mean you know we expect the cyclical recovery in our performance. Clearly every time that occurs there's stronger cash flows, and we continue to be very disciplined on the management of it. So at this point in time the primary uses of capital are acquisition activity where we have it, and it's been modest though very nice with some of the transactions that I talked about and Colin talked about,debt pay down and then the modest use of cash so far that's come out of pro investment for LaSalle Investment Management which we do expect to start increasing as the buying pace picks up.

The total cash cost of the dividend is sort of $7 million, $8 million a year.

Okay.

Not a huge (inaudible).

Speaking of acquisitions do you care to quantify -- I know it's fairly nominal but the acquisitions to date the cost or maybe it will be in your Q.

In this quarter it's a mixture of some revenue cost that's gone through P&L and capital cost, but it's all up about $30 million.

Okay. And then lastly from me is on just new hiring -- you seem to have stolen market share and I'm wondering how much of this is better production from your people or new hiring and maybe if you can quantify it all? You have done this I think in the past of how many people you have added if there's anything like that you can say for the quarter.

Well, in the US we did add net 41 new brokers. Around the world we've added people as well. It's a little bit harder to get to that number around the globe, but we've added in Europe and in Asia, particularly in the growth markets of India and China we've added fairly significantly and the revenue more than supports that on a year-over-year basis and profits.

And the 41 new brokers, that was just in the first quarter?

Yes.

And what was the approximate base, the minimum number of brokers in the US?

It's about a thousand.

Okay. Great.

So that says you're getting a stronger sort of operational leverage effect from productivity improvements than you are from adding numbers.

And then on adding new brokers, I assume there's nominal costs. You generally have the space for it and there's not typically up front payments to these brokers?

Modest up front,if just a bill through the transition of leaving pipelines behind and coming over to us. If it's in offices as hires, you're correct, it's an incremental modest amount with basically technology and so forth. If we do an actual acquisition like we did in South Africa or Switzerland, there we picked up an entire fully functioning office so in that case you will get really the average of the margins in those business coming in, but you also immediately get pipeline.

Okay. That's all for me. Thank you.

Thanks, Will.

And your next question comes from the line of Eric Glover.

Hi. Good morning.

Morning, Eric.

I was wondering if you guys could comment on your energy and sustainability services -- how has that performed in the quarter and what's your outlook for the year is in that segment of your business?

I think in the energy and sustainability world, not to put it together, but it's become such an integrated part of our offer as we think about whether it's our PDS work. So if you think the work we do in Petrus, it's automatic for them to think about retrofitting space and also doing it in an environmental way. Our energy management business continues to grow. What we're very excited about now across the world is the work we're starting to do in alternative energies, solar. We've had a track record in wins advising on most of the wind farms off of Scotland but now we're pecking up advisory work on solar across Europe and across the US, and are shortly about to announce some exciting new work with clients. So it's a growing part of the business, but I would describe it as more and more a requirement to do business in our space which is why we've invested in the expertise that we have.

Okay. Great. And then I was also wondering if you could talk a little bit about market trends and say the middle markets or smaller property types within the US.

Beginning to pick up. You know, we told you earlier about the typical shape of the cyclical recovery. It starts with the best assets in the biggest cities and then it filters out from there it trickles out from there. So the less good assets in the big cities and then it goes out to the secondary markets. What has happened to comments I made earlierthe cap rate compression in the big and best assets has been really quite remarkably fast coming out of the recession, such that you've got as I said in the major cities cap rates back in the fives, low fives even, we're hearing high fours in some places.

So against that, investors looking for yield are already moving out along the risk curve and risk means secondary assets or it means smaller markets. And so selectively we're seeing investors going out investing in stable assets in lesser markets, financing is harder for that so that's a slower process. They're investing in, value add investing in kind of half finished develop deal where the financing has come into difficulties and so you are seeing those sort of trends emerging. But it's a process rather than an event and I would say it's going to be ongoing in the course of this year and next.

Okay. Thank you.

And your next question comes from the line of David Ridley-Lane.

Sure. What drove the acceleration in project development services? And can you just remind us, give us some rough idea of the type of revenue by type of work you're doing there.

Yes. The driver in the European theater was very simply a policy decision to expand our French business which Lauralee described, Petrus, into other geographies to Belgium, Italy. We're looking at England, Germany, Russia to further expand that. And its work is largely around -- well, has been traditionally largely and investor driven work and now they're transferring that across to corporate work as well often with assets we have ourselves been involved with leasing or investment sales. So it's part of a linked and bundled set of services around the real estate markets.

So that's been one driver. And we're pleased with progress there. And its come out of largely be driven by our French business. Across the US -- Lauralee, do you want to comment on that?

Well, it's just a strong recovery in capex spend and helping retailers reposition their store fronts, et cetera, to be more competitive. It goes with our tenant work with our leasing markets. And I might comment on Asia which has been very strong as well. We've seen tremendous growth in India as really the corporate activity is looking at that marketplace as being a very cost competitive, very talent-rich in terms of the disciplines that go into the outsourcing marketplace. And we really have a market reputation as doing very quality work in that marketplace, and so therefore pick up pretty much all the major corporate work, not just multinationals but now local Indian multinationals.

Okay. And just sort of --

And just to clarify there is -- depending upon the contract terms and Petrus is one of those in some of the work in India, we are required to gross up the what is called the vendor spend because we're managing it, the underlying contracts underneath our work and so we did highlight the year-over-year part of the growth that comes from that. It shows up because there's just been such a robustness of growth in both of these markets. I'm more of a steady state as you run off contract and get a new one in you won't be seeing that level of dynamic, but even without that we had very strong growth in both of those markets and business we're very pleased with. It almost is an annuity like because it's a contract that runs for a three to six month period of time with a nice margin on it.

Just to clarify that's not a change in accounting rules -- you've always had to do that hit just you have a lot of projects this in this quarter?

That's correct.

Okay and then just a rough break out by the type of work you're doing if you could put it in say two or three buckets?

Oh, if you take the sort of drivers and come at it from that angle -- in an overall sense we're seeing since Q4 last year is particularly large corporations regaining their confidence and beginning to invest again. And they're investing in the space context, which is what we are describing here, in the developed markets such as the US and Europe in consolidation moving down from three offices to one, just sort of rearranging their floorspace. There's some maintenance which has been delayed which is catch-up maintenance work. There's some refitting of space where people have put that off for a couple of years an that's happening now as well. So in the developed markets it's largely that sort of internal spend.

In the developing markets, to Lauralee's description of India -- you can say the same with China, Brazil, Russia as well, even -- you are seeing the investment by local and the national corporations for growth. And we are developing, we are benefiting from both types of growth because in China 50% of our revenues is with local corporates and 50% internationals and in India it's even more focused towards domestic corporations. So there's a sort of sense of the different types of the work we are doing. And it is largely fit-out work. There is some construction management which we do, but it's largely fit out work.

Okay. Great. And then the -- if you think about the trajectory of SG&A as a percentage of revenue in 2011, you had such great leverage in 2010, what's your sense of SG&A as a percentage of revenue as you go through this year on a year-over-year basis?

Well, if we just look at the first quarter, what we would call our fixed costs of our office, our technology and those, we had a very healthy improvement and we would continue to leverage those lines. Clearly unusual items made it a little hard to work through that improvement. The biggest piece of the variable expense change was in travel and also in marketing. As markets recover you do spend in order to get ahead of that revenue growth opportunity and then you get to a steady state with that. So we have jumped ahead in order to have the revenues for the year. But we would expect that to fall back to a normal level and continue to be an area that we can leverage. So net I wouldn't expect a big -- I would not expect an increase in our OEO and we would continue to drive that down as part of our overall margin goals.

Okay. Alright. That's very helpful. If I could just sneak in one more. If you add up all the acquisitions made in the quarter did that add up to 1% of your revenue growth or is that still sort of around down to zero?

You would see almost nothing in the quarter because --

Okay.

it's generally a lag on that.

Okay. Perfect. Thank you.

Thank you.

And your next question comes from the line of Tim O'Connor.

Hi, guys. So you mentioned the uptake in capital markets volume. How has that impacted your IM business and are you finding places to put capital to work?

Yes. You have to hunt it. The days of easy pickings and high quality assets at low prices were very short lived as the recession ended. And so our investment sales business is having to work hard to find good acquisitions. That being said, in the quarter our total acquisitions were around $1.5 billion so about what we raised net-net and it spread pretty evenly around the world with some emphasis on the US. The US took about 40% of that total. So deal there, you have to hunt for them.

We're seeing in particular our Asian businesses looking out along the risk curve and moving into development activities. Again, moving opportunistically to situations where the owners have either the capital is either distressed or where the equity in a platform -- the investors in a platform want to see changes in structures and managers and so we've been hiring opportunities seeing opportunities to move into that. But it's -- as the total level of activity in the capital markets picks up as we described, to the sort of numbers that we have forecast for the year then that's a good healthy market with lots of transactional volume and depth and activity.

The challenge is that there's a lot of equity supported by increasing amounts of debt looking to get into particularly quality real estate. That's an attractive asset class. we've seen as we seen the institutional investment community at least maintaining and sometimes stepping up proportions invested in real estate and as the equity markets have recovered just keeping those proportions in line has seen net more dollars flowing into the real estate market. So it all feels pretty healthy at the moment and indeed the challenge is finding deals at decent prices.

Okay. You also mentioned some broker hiring in Europe. Where are you hiring brokers? And are you having any difficulty sort of the rightsizing the business with stronger labor laws there in the areas where you're not hiring?

We've been hiring in the major economies -- France, Germany, England, which are the three that make the big difference. We are very cautious about who and how we hire everywhere in the world, obvious particularly in those economies because of the labor law factors you have mentioned. But as the business has grown I mean we rightsized the business in the recession. We took the numbers across Europe down between 10% and 15% by country and we stayed there. We took our labor costs down by 10% to 15%. Some of that was salary sacrifice, and a good deal of it was reduction in poor performers. But we kept our teams together and we have seen as the European market has picked up by 20 plus% last year and the 13% we saw this year. We've seen productivity improvements, but we've also seen the opportunities to hire good people again focused on those major economies.

Okay. And then is last one -- do you see tax rates drifting upward with especially with the momentum in US leasing as it becomes a bigger share?

We still think that we can manage for the year at about a 25% tax rate.

Okay. Thanks, guys.

Thank you.

And your next question comes from the line of David Ridley-Lane.

Sure. Just one more follow-up. You gave some nice color on leasing by geography. Could I beg you for some color on leasing by property type, retail, office and so forth?

That's more complicated because you have to go geography by geography in order to sort it out, but let let's try some sort of broad pictures.

In the emerging economies you've got a huge strength the closer you get to the consumer. So there's lots of strength in multi-family construction and sales and leasing. And there's good strength in China, India and retail again and distribution to domestic retail. Those are quite strong.

Again developed economies, just the sheer weight of money now domestic money trying to get into real estate means that you've got quite good performance in the office sector as well. And in China just as an example cap rates for good city center office buildings are in the twos and threes as local domestic investors are moving in heavily and frankly outpricing International capital. If you move to the more developed economies where across Europe and the US in general the consumer has not opened his pocketbook early in the recovery and there is still a good deal of apprehension, then the retail sector has been generally not as strong either in demand for space so you are seeing 8% vacancies across US malls in total and relatively slack demand for investment sales in retail and the same would go across good parts of Europe.

In contrast to that is the city center office markets in the big gateway cities has shown a very rapid recovery, and there is a lot of demand for that space as I said earlier the cap rates there are back in the high fours and -- sorry -- the fives and even the high fours. But you really have to go market by market and we would be very happy offline if you want to get some color on that to either provide you with written detail or talk you through it.

Okay. Thank you very much.

By the way, we produce quarterly global market perspective and that's about to come out in the next few days. It's a sort of 50 page document which covers these issues around the world in both the leasing and capital markets and again if you get onto Joe Romanesko in our Investor Relations department we'll make sure you get that if you don't already have yourself on the circulation list.

Actually if I could add one more thing, if you go -- not to put in an ad for Apple -- but if you are iPad or iPhone user if you go to the Apple store and get the JLL app, which is a free app and download it, you will have instant access on a ready basis to all of our research, news, market trends, green blogs, et cetera, et cetera on a very current and real-time basis. It's a lot of fun, too.

And your next question comes from the line of Bose George

Hi good morning. I just had a question on your acquisition of Primary Capital. That's the multi-family originator. I think it's the focus there is Freddie Mac. I was wondering if you already had a Fannie Mae capacity. And also can you just discuss the synergies between having a bigger mortgage capacity in the core brokerage business and you know whether we'll see more focus in that area.

The answer is it is a Freddie. We do not have a Fannie capacity. We really felt that Freddie was the best structure for what we wanted to accomplish in the multi-family space, and it really is principally around capital for that product type.

The synergies for us are that our capital markets teams have access to a broad base of investors, they have access to a broad base of products and going back and forth around that means that just our reputation and credibility goes up across the board. So it's really responding to what our clients asked us for in terms of as they think about their asset diversification and their portfolios and being ready and able to serve.

We have expanded our debt capability. As you know we did acquisitions at the end of last year and that capability so that we're able to bring the debt at the same time we're able to help a seller get a better price for their asset and bring the synergy around them. So it is a cohesive connection of the service offer in that space.

Okay the great. Thanks. And just the Fannie versus Freddie distinction is really just that Freddies are sort of more A type properties? Is that the main difference?

You know you're now out of my element. We can get you in touch with our experts though and they can answer that.

Okay. Thanks very much.

(Operator Instructions).

What stopped operator is though we're through the question phase and if there are no more questions showing --

And there are no questions from the phone line.

Okay with that we'll finish today's call. And I would like to thank you all again for participating and for your interest in Jones Lang LaSalle and obviously we'll be speaking to you again at the end of the second quarter. Have a good day, everyone.

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