Jones Lang LaSalle Inc (JLL) 2012 Q4 法說會逐字稿

Good day, and welcome to the fourth-quarter 2012 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 10-K for the year ended December 31, 2011. And our other reports filed with the SEC, as well. The Company disclaims any undertaking to update or revise any forward-looking statements.

A transcript of this call will be posted and available on the Company's website. A web audio replay will also 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, operator. And hello to everyone joining this review of our fourth-quarter and full-year 2012 results. I'm in Chicago today, and Lauralee Martin is with us in our San Francisco office. As you may know, on January 1, Lauralee stepped into the role of America's CEO, taking over from Peter Roberts, who served in that position very successfully for 10 years. During which time we increased revenues six-fold in the region. Peter has now taken on new responsibilities as the Firm's Chief Strategy Officer. The search for Lauralee's replacement as CFO is well underway. And she has agreed to continue in the dual roles until the new CFO is onboard.

So, before Lauralee reviews our performance in detail, let me summarize our results. Gross revenues totaled $1.2 billion in the fourth quarter, a 9% increase in both US dollars and local currency from the fourth quarter of 2011. For the full-year, gross revenue reached $3.9 billion, up 10% in US dollars from 2011, 12% in local currency. Full-year adjusted net income was $245 million, or $5.48 a share, which is 13% higher than in 2011. Finally, during the fourth quarter we completed a $275 million 10-year bond issue, further strengthening our investment-grade balance sheet.

Revenue growth in the Americas was driven primarily by our property and facilities management business. And by our brokerage and capital markets business lines. Which both continued to take market share from competitors. Improved results in EMEA benefited from a strong finish to a year characterized by very difficult market conditions. Market share gains through the year, productivity improvements, and the full-year benefit of King Sturge contributed to these improved results.

In Asia-Pacific, our leasing and capital markets businesses also grew year on year. While market volumes and leasing activity were both down for the region as a whole. Again indicating increasing market share on our part. Meanwhile, our Asian corporate outsourcing business also had a very good year. At LaSalle Investment Management, our commitment to create strategic partnerships with major investors, along with continued investor support for the core investment products that are LaSalle's strengths, contributed to a solid year in our funds management business. So, taken together, we completed 2012 in a strong position and we think that that will contribute to continued growth in this coming year.

So let's first discuss market conditions. In 2012, global GDP grew by 2.6%, led by Asia-Pacific with 4.8% growth. While growth in North America was just above 2%, and Europe GDP was flat year on year. To summarize current conditions in global real estate markets, we've posted slides in the Investor Relations section of our website, JLL.com.

Slide 3 shows the Jones Lang LaSalle investment sales clock, which we update each quarter. It's a picture of conditions in major markets around the world which are at different stages of the real estate cycle. Capital values for prime offices in 24 major office markets continue to increase in 2012, up 3% for both the fourth quarter and the full year. Global investment sales volumes were up significantly in the fourth quarter to $147 billion, 24% higher than the fourth quarter of 2011. 2012 solid finish generated full-year investment sales volumes of $443 billion, slightly above 2011 levels. As the clock indicates, while capital values continued to increase in most major markets around the world, compared to the prior year, the rate of growth has slowed in a number of key markets.

Slide 4 summarizes conditions in major leasing markets around the world. Office leasing activity was subdued in 2012 with full-year gross leasing volumes down by about 20% on 2011, 20% lower in the US and down 9% in EMEA. The sharpest decrease, about 30%, was in Asia-Pacific. But this was against record 2011 results in that region. For the fourth quarter, take-up was down 22% globally year on year, and down 32% year on year in the US, driven by concerns over the impact of the fiscal cliff. Volumes were 1% lower in Europe and down 15% in select Asian markets.

The vacancy rates across 98 global markets remained stable in the fourth quarter at 13.2%, as vacancy declines in the US and Europe were offset by increases in Asia-Pacific. Prime rental growth slowed in the quarter, increasing 2.1% year on year. Our Beijing, Sao Paulo, Mexico City and San Francisco recorded the strongest rental growth in 2012. While demand falls saw prime rents decrease furthest in Hong Kong, Singapore, Paris, Madrid and Brussels. So with that general market background, I'll turn the call over to Lauralee to discuss our results in more detail.

Thank you, Colin, and good afternoon to everyone on the call. As Colin mentioned, we finished 2012 with a strong fourth quarter. We had another record-setting year of revenue, and drove a 13% adjusted earnings per share growth compared with last year. We've improved our transactional revenue performance, particularly in the Americas and Asia-Pacific, through investments and market share gains. And we're pleased with the improved margins in EMEA, reflecting early payback on the cost actions we've taken. We continued taking restructuring actions during the fourth quarter. Some of those related to the ongoing efforts to fully integrate the King Sturge merger. But we've also been aggressive in the areas of the business that are projected to remain economically challenged for an extended period of time. Approximately $8 million of the fourth quarter total of $13 million of restructuring charges was the result of those focused efforts.

Turning to our regional results, in the Americas, fee revenue increased 11% in local currency over 2011, with the largest nominal contribution coming from leasing. Our efforts continue to be focused on building market breadth and depth of services, and increasing our market share. We're pleased to report another quarter of improvement. Our fourth-quarter growth in leasing of 8% compares favorably to overall office leasing volumes, which were down 32%. Capital markets and hotels also finished with a strong fourth quarter. And delivered 25% growth for the full year compared with overall market investment volumes up only 11%.

There were two significant unusual compensation expense items, both of which were acceleration, not additional cost impacting our fourth quarter and full-year results in the Americas. Which resulted in a margin decline compared with a year ago. First, as we explained in the previous quarters, our results were impacted by our 2012 termination of the stock ownership plan, or what we call our SOP. Which in prior years facilitated payments of portions of bonus as restricted stock units that vested in future years. As a result of terminating this program, we recognized compensation expense in 2012 of just over $5 million that was non-incurred in 2011.

Second, we recognized an additional $5 million of compensation expense in the fourth quarter related to the acceleration of a $115 million of the final Staubach deferred payment. As part of this payment acceleration, the vast majority of Staubach shareholders who worked in the Firm extended their employment agreements with us. Again, both of these items are accelerations of expenses that would have been taken in 2013 or beyond. Absent the impact of the combined $10 million of accelerated expense items, our year-over-year EBITDA margins in the Americas would have been consistent with the prior year.

We're very proud of our results in EMEA against a down market. Full-year fee revenue increased 9% in local currency, with year-over-year growth across all business lines, led by project and development services. We continue to thrive in the larger, more stable markets across the region, that of England, France and Germany. And have taken actions to right-size those loss-making countries so that they are at a neutral to positive financial position. We've seen marked improvement from both MENA and the Netherlands over the course of the year, with each moving from a loss to a profit for the full year 2012. Even a margin calculated on a fee basis for the year increased 1.5 points to 8% in 2012, from 6.5% last year, with much of this attributable to an outstanding performance in the fourth quarter.

Fourth quarter EBITDA margin was 16.2%, up from 13.5% last year. We also had a very successful fourth quarter in Asia-Pacific, increasing both operating income and EBITDA margins by 1 full percentage point. Fee revenue across the region was up 11% in local currency, driven by 20% growth in the fourth quarter. We had particularly strong revenue in capital markets and hotels, resulting in 79% year-over-year local currency growth in the quarter. Indicating substantial market share gains, as overall market volumes were down 13%. This transactional revenue growth was broad-based across the region. But there were noteworthy increases in our hotels business, as well as in China and Singapore.

We're also seeing sustained growth across our annuity business in the region. Property and facility management fee revenue was up 13% in local currency for the year. We've announced several new corporate solutions wins in the fourth quarter across Asia-Pacific, which Colin will discuss shortly. You'll recall that we responded to inflationary pressures, primarily in China and India, with compensation increases in the first part of 2012. Beyond those market-driven actions, costs have been tightly controlled, given the political and economic uncertainty that emerged in the middle of the year. That cost discipline, coupled with the revenue performance, led to a very strong fourth-quarter result for the region.

LaSalle Investment Management had a solid performance for the year, with a mix of stabilized advisory fees and excellent incentive fees and equity earnings. Assets under management have remained relatively unchanged from a year ago. With assets from older funds being sold with good performance. And at the same time we've been actively pursuing capital-raising initiatives with separate accounts, strategic partnerships, and new commingled funds for future growth. In 2012, we recognized $24 million of equity earnings. And earned $23 million of incentive fees, demonstrating performance for clients. Although the availability of remaining assets for sale to achieve these high-margin fees are not expected to repeat at these levels in 2013.

Turning to the balance sheet, we had a highly successful and well received $275 million bond issuance. The 4.4% senior notes were sold to a diverse group of investors, and further strengthened our liquidity and balance sheet position. I mentioned we made a $115 million payment in the quarter to the majority of the Staubach shareholders who are with the Firm. And we also recognized additional earnout obligations to be paid in the first half of 2013. Bringing the total amount earned to $36 million. The earnout required compounded revenue growth over the last 4.5 years against an overall market that was down for a number of those years. The fact that we are making this earnout payment demonstrates the success of the merger.

To sum up, we had a very solid fourth quarter that fueled record-setting revenue in helping the earnings-per-share growth in the year. We took market share across the Americas, delivered margin expansion in EMEA, continued to grow our annuity revenue base in Asia-Pacific through the strength of our corporate solutions business. And benefited alongside our clients from the investment performance in LaSalle Investment Management.

Let me now turn the call back to Colin.

Thanks, Lauralee. Back to our slides. And slide 5 shows a few examples of recent wins across our business and geographies. In our corporate outsourcing business, we won nine new assignments in the fourth quarter, renewed 16 contracts, and expanded eight additional relationships. Full-year totals include 48 new relationships, 47 renewals and 39 expansions. These numbers do not include wins in our local market level corporate solutions business, which serves the needs of mid-market corporate clients. During the quarter we won 13 new assignments in this segment, representing more than 90 million square feet of space. For the year, we won 58 assignments, encompassing in total 180 million square feet.

In terms of specific wins in the corporate sector, just last week HSBC named us exclusive global facilities management provider for that bank's 58 million square foot portfolio. This massive expansion of our relationship with HSBC more than doubled the square footage we have managed for the bank. And the assignment represents the largest ever outsourcing of facilities management service to a single provider by a financial company. And follows an exhaustive and objective process by the bank to select a provider from amongst the industry's major players.

In the fourth quarter, our European facilities management team also secured a global contract with Nippon Sheet Glass, covering 500 sites in 30 countries worldwide. And demonstrating our growing presence in China's domestic market, we were appointed by SINOTRANS, a state-owned enterprise in shipping and logistics, to project manage their new 1 million square foot headquarters in Beijing.

Turning to our investment sales activity, in the Americas, we represented the seller in the sale of 540 West Madison, which is a 1.1 million square foot office tower in Chicago. The transaction was Chicago's largest office trade in 2012. In Switzerland's largest ever single asset real estate deal, we advised Credit Suisse on the $1.1 billion sale and leaseback of its Uetlihof building in Zurich. And in Australia, we represented McGrathNicol in a $260 million debt sale for a regional shopping center in Sydney.

Turning to major leasing and center representation transactions, and management assignments for the quarter, in the US we represented Wells Fargo on multiple leases totaling 480,000 square feet in Indianapolis St. Paul. Helping the bank consolidate and reduce its overall footprint in the process by 20%. In January, Scottish Widows Investment Partnership renewed and expanded our property management assignment for its GBP8.5 billion UK portfolio. And in the fourth quarter of the Barangaroo development in Sydney, we represented KPMG to secure a lease for 370,000 square feet of premium office space. While for the full year we leased nearly 1.3 million square feet of space at Barangaroo.

Turning to LaSalle Investment Management, LaSalle's position in core investment strategies remains strong in 2012. Although capital allocations remains slow for commingled funds. However, large institutional investors continue to seek significant single assets. And as I said in my opening remarks, LaSalle is addressing this market with its strategic partners program, forming partnerships with major investments to target specific strategies and assets. With its global presence and a great track record for complex transactions, LaSalle is well-positioned to bring opportunities from around the world to these clients. And has the talent and expertise to serve them successfully.

In addition, November saw the successful launch of the Jones Lang LaSalle income property trust, a non-listed REIT which owns and manages a diversified portfolio of high-quality income-producing properties. Merrill Lynch has been engaged to distribute the shares of JLLIPT.

So let's now turn our attention to 2013 and our near-term market outlook. In general, the economic recovery, which has been hesitant from a worldwide perspective, is set to continue. But we expect that it will pick up momentum as business confidence rises, driven by the understanding that the twin problems of US fiscal issues and the Euro breakup have been contained and can be managed. This means that, together with central bank easing and liquidity provision, they now represent much lower short-term risks to business and investment planning. Confidence is rising as a result. As you would have seen equity markets are broadly reflecting this sentiment.

Bank debt markets are healthy in Asia, and increasingly so across the Americas. While new providers of debt are showing interest in filling the gaps in Europe. Taken together, the economic outlook and general business confidence are more positive than 12 months ago. Our latest projections show 2013 global GDP growth of 2.5%. Asia-Pacific is expected to lead the way with a 4.5% growth, followed by the Americas at 2%, and Europe only marginally growing.

So what does this overall economic background mean for real estate markets? In investment sales markets, better than anticipated fourth quarter 2012 results indicate renewed momentum that will continue into this year. We project global investment volumes to increase by 10% to 15% in 2013, reaching in total between $450 billion and $500 billion worldwide. The strongest upside potential in this is in the Americas, where we expect transaction volumes to increase by 15% to 20%. We forecast that Europe will see a level of investment activity marginally below last year. But with upside potential there, as well, particularly in secondary markets. Asia-Pacific investment volumes are expected to increase by a healthy 15%.

Sustained investor interest in core products in major markets is likely to keep prime yields stable. And with this risk appetite improving, and pricing looking full for best assets, the cycle will progress to increasing interest in secondary markets. Leasing markets appear less resilient. Overall we expect 2013 global leasing volumes to rise less than 5% on 2012 levels. With the year's second half likely to be stronger than the first six months. US investment volumes are projected to grow by about 5%. Leasing activity in Europe is expected to be flat. And Asia-Pacific is anticipated to register a 5% to 10% decline in volumes. We expect the global office vacancy rate to continue to move lower this year to below 13% by year end, with the largest declines likely in the US. Prime rental growth is expected to match 2012 rates, between 2% and 3% as a global average, with most major markets registering single-digit rental growth this year.

Against this background we see opportunities for continued growth in our own business. In the Americas, thanks to our investments in transaction teams earlier in the cycle, we expect to see additional growth and market share gains in our leasing and capital markets businesses. And our corporate outsourcing services continue to gain momentum as we win major global contracts and new mid-market assignments. Our Asia-Pacific business is also entering 2013 in a much stronger shape than at the start of 2012. The market has equity to invest, and more of it is being directed into real estate. Debt is available from the banking system and confidence is improving in China thanks to the successful leadership transition and the reversal of successful anti-inflation credit controls.

In India, the government has reversed the 2011-2012 loss in business confidence by controlling inflation and picking up the stalled economic reform process with a vengeance. Recovery continues in Japan where the new economics represents the most comprehensive move yet to kill deflation and energize growth. And we see solid momentum in growth in Southeast Asian countries also. Given our leading positions in each of these markets, we approach 2013 with optimism for Asia-Pacific.

Economic and real estate market conditions in Europe are not expected to get worse this year but there will be some challenges. So continued proactive management, rather than improving market conditions, will drive our continuing growth in Europe. Europe will remain a two-speed market for both leasing and investment sales. Larger northern centers are moving along relatively well, while markets in southern Europe are obviously struggling. There will be continued significant interest among international investors in core assets, with many new buyers emerging from Asia. Prime locations remain key, and this plays to our market-leading positions in London, Paris, the major German cities, Central Eastern Europe and Russia.

In LaSalle's world, institutional investors are maintaining and, in many cases, increasing their allocations to real estate, attracted by returns that compare favorably to other investment options. In addition, the commingled funds sector, which I've noted was effectively shut down for the last four years, is showing very early signs of revising. Capital hasn't yet returned in substantial amounts but sentiment is improving. In this environment, we believe LaSalle Investment Management will continue to generate steady advisory fees by focusing on its core investment strategies. While also introducing new products like JLLIPT and attracting new capital sources with initiatives like its strategic partner program.

So, in closing, as on past calls, we like to close our comments by mentioning a few awards which reinforce our position as industry leader. And reflect our client service focus. Our fourth-quarter recognitions included three best property consultancy awards in the Southeast Asia property awards for Indonesia, the Philippines and for our hotel team in China. Intel's award for excellent service was presented to our facilities management team in Dalian in China. Three letting agents of the year awards were received at Belgium's expertise awards. The property consultant of the year was at the health investor awards in the UK. And in the US, best places to work awards in Chicago, Philadelphia, Tampa Bay and Florida.

So that is enough monologue. Let's now move to dialogue and take your questions. Operator, could you outline the Q&A process please?

(Operator Instructions)

Will Marks, JMP Securities.

I wanted to start out with a question on margins. I appreciate the color on the fourth quarter. Did you say anything about 2013? Or can you, just on expectations, whether it's Americas or global, if you expect the margins to improve?

We've showed -- if you add back the various points of correction which we mention, and include in that the accelerated amortization bonus payments and the Staubach compensation expense, which Lauralee mentioned, we did see an improvement in our overall operating margin on that adjusted basis in 2012. Both for the full year and for the fourth quarter. So, on a true apples-to-apples comparison basis, we are pleased with the progress we made. As Lauralee said, we were particularly pleased with the results in LaSalle and in EMEA for the year, where we showed good progress against, in EMEA's case, some particularly difficult background.

In an overall sense, we'd have hoped to see a little bit more progress in the Americas. Frankly, we were surprised at how weak the leasing markets were in the fourth quarter. So, we set the business up to handle bigger volumes than we saw in Q4. To the numbers we just mentioned, we did show growth, but against the market, it was down 30%. If the market in the US had been anything like normal, somewhere between plus or minus 10%, we believe we would have shown a nice performance on our margin, both in Q4 and the full year. So, a mixed bag there.

When we look forward, Will, we said before we're continuing to build and grow these margins. We believe we've been hitting the right things and doing the right things. So, the progress we showed last year we'd hope to see continued into next.

To take that a step further, you mentioned that $31 million is deferred acquisition obligation -- will be paid in the first half of 2013. That could be a pretty significant hit to margin. But you'll be disclosing when that's paid, I assume?

That's a balance sheet number, so there's no impact to margin for that. That's purchase price.

It will not -- okay.

That's correct.

But the $5 million from the quarter did impact the income statement, correct?

That is correct. When we set up the deferred payments, they were set up that we would accrete interest in. So, we've been accreting interest in at about a 6% level as it came due to maturity of that deferred payment. Because of the fact that, in fact, we exchanged that for some benefit in terms of employment, that changed interest into compensation. So, it would have been an interest expense in 2013. It moved into a compensation expense in 2012.

Okay. That's clear. Thank you. A question on investment management. Just as we start to look at the specific quarters of 2013, you had a really strong first quarter of 2012. And you implied we shouldn't expect that to be repeated. And it was something like a $0.50 EPS number. More normal years are single-digit EPS. I know you're not going to guide, but am I thinking about this correctly?

It would be significantly lower, yes. That's correct.

It was driven by incentive payments and equity earnings in Q1 and Q2?

Actually, I think it was quarter three when we sold the large portfolio in Asia.

Yes.

Okay. And just, my last question. Balance sheet typically does weaken in the first quarter because of bonus payments. Can you give us some indication of what we could see in the first quarter?

You are correct. We pay our bonuses in the first quarter. That being said, we also have pretty aggressive receivable collections in the first quarter off of our year-end numbers. We do --.

Typically it's $200 million --.

Yes. The balance sheet does have the accrued balances for compensation, if that's a helpful way for you to look at it.

Yes. I can look at that. Thank you. That's all for me.

It will be the regular cyclical pattern, Will. Seasonal, I should say, not cyclical.

Yes. If you look at the balance sheet, we had $30 million more of accrued compensation at the end of this year versus 2011. And you can look at last year's bonus levels and probably work through that.

Okay. That makes sense.

David Gold, Sidoti.

A couple of questions. One was, I wanted to get a sense of -- there's some talk out there, fourth quarter, particularly domestically, of some delays in deal activity on both sides -- leasing as well as a little bit of capital markets from the fiscal cliff issues that we had. And was curious if you can give a sense for, A, if that maybe weighed on your numbers a little bit in the fourth quarter. And, B, if, to the extent that's come back, if we might see some of that in the first quarter?

You're right in terms of the perverse and diverse impacts of the fiscal cliff issue. It looks as though it drove leasing volumes down, as uncertainty caused companies to wait to see what the implications of the fiscal cliff would be on overall demand. And it drove capital markets activity up. We think, perhaps, because people were trying to get out before any changes in tax regime.

So, you have this plus-40% in the market for investment sales, and minus-30% in the overall leasing activity markets. Against those numbers, we were very pleased with our performance in leasing because we went up 9%. As I said, in a regular market, that would have been a bigger growth, we believe. Whilst in capital markets, our growth was up in the 20%s. So, not quite as steeply as the market as a whole.

You would logically expect -- although this isn't a prediction -- but you would logically expect that with resolution of the fiscal cliff deal, you'll see some of the leasing activity, which might have taken place in Q4, come through in Q1. And, again, logically you'd expect that perhaps the capital markets market got ahead of itself, and there might be a little bit of a fallback in Q1. Having said that, there does seem to be a lot of momentum in the capital markets, as I reflected in my comments. So, it just may pick up where it left off.

Perfect. That's helpful. And then part two of that question; I know you don't typically offer guidance, but --.

We never offer guidance.

(laughter) Although years ago you might have. Following up a little bit on Will's question, even though last year was pretty strong with some one-times, if you will, as we think about this year with the momentum continuing, do we think about it more as a traditional nearly break-even first quarter? Or do you think we could have some upside from that continued momentum?

I think we'll leave you to draw your conclusions from the mixture of the comments and the numbers, and last year comparisons, David. What we try and do in the way we present our forward-market view, we try to do that as helpfully and comprehensively as possible for you. That's reflecting how we're thinking about the world we're trading in. And so, you can take those comments and spread them across our numbers and, as I said, draw your conclusions.

Perfect. One last -- presumably, as I think you said, the accelerated payment was a function of contract renewals. Can you give us a sense for, if it's out there, or if you can put out there, an average time period for the renewals? In other words, when's the next time you'll have to worry about that?

We haven't disclosed that, and we will not. But what we can say is that the acceptance rate, if you like, the willingness rate for people to sign on for longer periods, was extraordinarily high.

Got you. Okay. Thank you very much.

David, what we will say is they were to end mid '13. So, clearly, if that gives you an idea, it's got to be -- if it's worthwhile for us, that's when it would have been before.

Say that again. I'm sorry

The contract expiration would have been when the payment was to have been paid, which would have been July of 2013. So, obviously it's going to definitely move it out beyond this entire year period.

Right. Got you. Perfect. Thank you.

David Ridley-Lane, Merrill Lynch.

Wondering, on the restructuring actions that you've taken already in EMEA, what would be the full-year benefit that you would see in 2013?

Typically it's about an 18-month payback period for Europe.

Okay. And can you remind us the total restructuring charges taken in Europe for the full year?

Yes. I can get that for you. Just one second. For the entire period, 2012, we took $35 million.

Okay. Got it.

I was just going to say that was a combination of people actions. And then also we took pretty aggressive actions on lease consolidations and other things. So, those benefits feed in much more rapidly.

Got it. Okay. And then, you had a number of moving pieces. You've got the lower deferred acquisition payment, and then you also have a new bond. Any help you can give us on interest expense?

The Staubach payment interest was accreting in at a 6% rate. The bond interest will be at a 4.4% rate. Our revolving line of credit is really at an insignificant rate in the 1 percentage kind of range.

Okay. That's helpful. And then, are you seeing demand broaden out at all into secondary markets in the Americas capital markets business?

Just a little bit. It's a slow process because, particularly in the institutional investor class, they are really looking for security. They had far too much fun losing money in the great financial crisis to be too adventurous too quickly. But gradually as pricing creeps up in the most attractive sectors, and begins to look a little rich and full for many investors, we're seeing people look outside of the very highest-quality assets. That's inevitable when you see these sorts of activity volume growth that we've seen this year.

So, a normal cycle would see -- what are we, three years into a seven-year-ish cycle -- normal activity we would see, normal cyclical activity would see people move out along the risk curve, and move out along the quality curve, if you'd like, into secondary assets. But it's a slow process in the US. It's even slower in Europe.

Okay. All right. That's a little bit helpful -- or it sounds a little bit more optimistic in Americas, at least. And then, maybe I'll take one last cut at the margins. In 2012, this was a year where the SG&A growth was outpacing revenue. Would you expect 2013 to be a year where you see less SG&A costs come back in?

There were a couple of factors in 2012, which were important. We've mentioned these through the course of the year. One was that we made a very deliberate effort in Asia to increase salaries to compensate for some heavy inflationary pressures in India and China, which were causing us retention issues. That's one excess factor, certainly on a year-on-year basis comparison.

And the second was, we actually built our people base in the Asian region in expectation of faster growth than actually came through. Because Asia slowed, by markedly, through the Chinese and Indian factors that I referred to in my prepared comments. So, there was an exceptional backdrop in Asia. And as it turns out, the spurt at the year end, as confidence began to come back, helped us through that. But, nevertheless, we were running with a higher-cost base than we would normally have planned in Asia.

I made comments, as well, about the way that the Q4 numbers in the US came through in the leasing area at a slower level than we would have expected, given normal markets. And that was driven by this market depression due to the fiscal cliff issue, which we discussed a moment ago with David Gold's question. So, those things were attenuating issues or mitigating issues for the cost base in 2012.

Now, going into this next year, we've got no particular increases in cost base, such as the Asian ones I described. And that against a market which we believe, with the exception of some European countries, is feeling better than it did 12 months ago. So, if you put all that together, you can, again, draw some conclusions.

Okay. All right. And I lied -- one more. Given the cost restructuring actions that you've taken in EMEA, is there a range of revenue outcomes that could happen in EMEA where you would still be expecting margins to be up? For example, if revenues were down 5% in that segment, would you still expect margin expansion there?

I think the way I'd answer that is -- it depends on where revenues are down. Because clearly we've taken actions in places to adjust to where we think the markets are going to be. So, it's always that mix question. But we had a modest amount of revenue to help us in Europe this year. But clearly we made a dramatic improvement in the margin activity. So, we feel pretty good about where we are, unless markets take a big step back again.

Thank you very much.

Your hypothetical 5% rise is not just a geographical issue, it's also which service lines it impacts. A 5% reduction in capital markets business has a bigger impact than, for example, a 5% reduction in property management business, just because of the margin impact.

Brandon Dobell, William Blair.

I wanted to make sure I heard you correct, Colin, as you're going through the geographic expectations for the leasing business. I think you said EMEA flat, Americas up 5%, and APAC down 5% to 10%. But it also sounded like you expect to outperform those numbers. I'm just trying to make sure I heard that correctly.

Then also flip those back to, I think it's slide 7, with the rental values you guys have laid out for expectations for 2013.

Okay. Taking the leasing markets, first of all, we said overall leasing volumes to rise around 5%. So, not an overall terribly buoyant market. US volumes projected to be up about 5%. Europe flat, and Asia-Pacific 5% to 10% decline. You got the numbers more or less right.

Okay, that makes sense. That overall up 5% would be a combination of, let's call it, velocity and rental values. So, volume and price? Or is there some other factor we need to think about in terms of how to model your leasing revenues this coming year?

No, these volumes are square footage or square meters.

Okay, perfect.

So, the basic things. You throw against that the comments we made on the overall market price, and I think we said we expected, under our global basis, rental rates would increase by 2% to 3%.

Okay. Perfect. And it doesn't sound like we should anticipate any noticeable changes in headcount trajectory in any of the geographies based on the kind of growth rates you're expecting. But I just want to make sure that that's how we should think about it. Or if there's -- given the potential for secondary markets to improve this year -- if there's an eye towards adding some people in markets where you don't have a big enough presence, either in Americas or EMEA.

We take a very dissected view of what we do in adding people. So, if we see opportunities in the cities of Germany to add teams, and we think the market will be positive, then we will go ahead and do that. If we think that in some cities in the US, volumes and activity will be flat, then we'll just simply, in an overall sense, hold our numbers. We've taken an overall approach, which is, particularly at this time at the beginning of the year, we're looking to keep our costs and, therefore, our headcount tight. Watching for market developments and direction, and then we can move to our numbers rapidly in some areas such as project management, or property management, where we see new contracts and business coming through.

It's harder and slower in the transaction business areas where we have a different approach, which is to have a constant list, if you like, of people we have in mind to hire. Good operators in specific markets. And unless the market is actually turning down, we'll take the opportunity to hire those people as and when we can, as and when they are prepared to move from their existing employers.

Okay. That makes sense. And then maybe a couple for Lauralee. The year-on-year delta around stock compensation or incentive compensation on the compensation line, given that there was a step up -- it's a bit non-recurring -- how do we think about next year as a delta versus this year, modeling stock compensation? And then maybe even on a longer-term basis, is there a way we should think about it relative to either headcount growth or overall G&A expense that we can get a little more visibility into?

I think what you're referencing is the share ownership plan, our SOP program.

Correct.

And what you have there is a portion of the current-year bonuses would have been deferred. So, not in the expense of the current period. And then that amount would get amortized over a 30-month period. We now have two comparable years where there is not a deferral. There's a little bit of tail of amortization left from the prior 2011. But I would say, generally, for modeling purposes, I would look at it and say -- 2012 now can be used as a proxy.

Okay, perfect. And then final one for me, any thoughts on CapEx and co-investments in '13? Should we think about it like '12? Or is there going to be a step up in either one of those line items?

We had CapEx of about $80 million this year. We have some planned technology investments in 2013. So, we think that $80 million will go to about $90 million.

We actually had a robust co-investment outflow for LaSalle Investment Management. One of the most robust we've had in a long period of time -- over $105 million. We also had, because of the portfolios we sold, a lot of money coming back. So, net-net it was not that large of a number. I think about $27 million, if I remember correct.

I would say, we typically tell you net $40 million to $45 million, and I think that's probably a good place. If something were to change, we would advise you on a quarterly basis. But right now, I think that's probably a good number for modeling purposes. We were very pleased, by the way, with the money going out because it's the start of building that new portfolio, to get the potential for the co-investment fees, and building the portfolio. And obviously getting equity earnings, as well.

Okay. Thanks a lot.

Todd Lukasik, Morningstar.

Just on the leasing values, first of all. I think in recent years, maybe 2010, 2011, there was a feeling that some tenants may have tried to take advantage of the low lease rates at that time, coming out of the downturn, by renegotiating leases maybe a year or two, or perhaps even longer, before their existing leases expired. And I was just curious what your sense was for how that played out in 2012. And whether or not that phenomenon is still ongoing at all, or whether it's back to more of a normalized environment.

There was a little bit of that behavior, Todd, in earlier years. It didn't seem to impact 2012 too badly until we got to Q4. In other words, we were looking at fairly regular lease markets in the US until this big dip in Q4. So, I think it's one of those things, one of those phenomenons, which was a lot of talk and a lot of fear, but didn't seem to play out too much, in fact. And, of course, as we get into 2013, we are getting that much further away from those low and advantageous lease rates.

Right. Okay. And then, just on the drivers of your leasing revenue, and you talked about the square footage and the rents. Is there a third driver in terms of lease term? And if so, what do you see in terms of average lease term for leases today? Is it in line with what you would expect, or historical norms? Or are the lease terms getting longer or shorter?

There's two further factors. There's lease terms and then there's the percentage fee rate. You can take the latter as being flat year on year. Some places we're seeing a bit more competition than others. For example, Britain. And there's a lot of competition because there's such pressure in the market there, and middle-sized providers are fee-cutting in order to preserve, or try to preserve, some market position. In general, the rate is flat.

As for terms, they have tended to come in and be shorter at the bottom of the cycle when people are less confident and, therefore, want to take short renewals or just extensions. But as the cycle progresses, which is what we're seeing now, people take -- and confidence picks up -- people take longer lease terms. So, we're in an extending period, but this is not a dramatic impact.

Okay. And then, just last for me, congratulations, again, on the business wins. I was particularly curious, with regards to HSBC, if you'd be willing to disclose a number of viable competitive bids for that global business you won.

I wouldn't comment specifically on HSBC because that wouldn't be correct. But what typically would happen in those sorts of big global bids is that they will put an RFP out. That will be on a global scale. Not really more than five credible competitors, and not all of them will be equally credible. And typically they will go down through a process of elimination to four, and two, and then they can make a choice.

So, the final rounds tend to be two or three players. They rarely go beyond that because it gets to be a lot of work to a professional -- on the part of the client to do a professional job in evaluating more than that in the sort of detail we get into in those final rounds. But this, like many others, most others, was a very professionally run process. And it does take a lot of work on both sides, both the client and the providers.

Okay. Thanks. That color is very helpful. Thanks again.

Mike Mueller, JPMorgan.

Sticking with HSBC for a second, if we're looking at the geography of the portfolio, can you talk about how it's going to be divided up or split up between, say, the Americas, Asia-Pacific? Is it heavily skewed toward one region?

No. That's why they picked us. There's lots in America, there's lots in Europe, and there's lots in Asia. And we're good in all three. In fact, we seem to be the best in all three. So, that's why we were chosen. And we're very pleased to have been chosen. We now have to perform, of course.

Typically -- just to add some more financial color to it -- these contracts don't start making money for us immediately. They take a while to crank up. There's a period of investment, which can take up to a year. And then only beyond that do we start to see a gradual increase in returns, which improves during the course of the final years of the contract.

Okay, and then --

And I might add on that one, we currently, in the US, do HSBC's work. So, we've retained that business and are expanding it. And we'll have a broader reach in the Americas moving into South America. But, yes, Colin is correct, it's a global portfolio.

Got it. And what's the overall square footage base for the property and facilities management business?

Globally?

Yes.

2 billion.

Yes. That includes property. Are you looking for --?

Facilities management.

Just FM? You said property and facilities.

Yes, property and facilities. Yes, both.

Okay. We can provide you with the split between facilities, which is corporate work, and property, which tends to be investor work. But maybe not straightaway.

Okay. And then, going to the market share and leasing, particularly in the Americas, can you talk about what areas you were specifically doing significantly better than the market? Is it certain geographies, certain asset types, can it wrap? Just any areas there?

In terms of asset types, our core business has always been the office leasing market. That would be the most important. But we've had a policy of investment, both in the retail area and more recently in the industrial markets, not only within the US, but also worldwide. So, that's the comment. But it's overwhelmingly office-oriented still.

In terms of geographies, you can see our geographical footprint. The biggest cities we do -- obviously, we do the biggest proportion of our business. And within individual cities, such as Washington, we are market leaders. New York, we'll be number two or three. And so, you'll see us vying in those top -- somewhere in the top-three positions in all of the major markets we're represented.

Okay. Great. And the last question -- what was the trigger for the accelerated Staubach payment to happen in Q4 as opposed to just in August?

There clearly is some advantageous, for anyone receiving income in the United States, if it was done in 2012 versus '13. And for us to have an opportunity to give a benefit to our colleagues, and also have a benefit for the Firm, seemed to us like a very good option.

Okay. Great. Thank you.

And, additionally, we got, as a recognition of that commitment to us, we got this overwhelming confidence in extending the commitments from those people. So, it was a good two-way balance.

Okay. Thank you.

Will Marks, JMP Securities.

A couple of follow-ups. One, tax rate. Should we expect ongoing around 25%?

Yes.

Yes.

Okay. And then just lastly, I don't believe you mentioned this medium-term margin target, EBITDA margin target of 14% to 15%, although maybe it's in the slides. Any thoughts on that?

We've not changed the target, if that's the base of the question. And we've always said a great deal of when it would be achieved would be when we saw more normal markets. To Colin's comment on markets being down year on year, and leasing, that clearly slowed some of that achievement. But it doesn't change the fact that we're on track and are making productivity impact across the business as we get more normal markets.

And for us, Will, the most pleasing -- as I said, fully normalized, we did progress by 0.75 percentage points last year on an overall sense. But for us, the most pleasing one was to see 2 percentage points progress in Europe, which, by dint of its high cost of labor, its fragmented market structure because of the individual country fiscal and legal structures that you need to run, and the limited options for synergy, of the cost synergies across the geography, we were pleased to see that progress there. And we're trying to work hard to continue that momentum.

Okay. Great. Thank you.

And there are no further questions at this time.

Good. Thank you, operator, for your help. And thank you, everybody, for your interest in Jones Lang LaSalle. We look forward to seeing you in a couple of months at the end of our first quarter for our Q1 2013 results. I wish everybody a good evening.

Thank you for your participation, everyone. This does conclude today's conference call. You may now disconnect.