Jones Lang LaSalle Inc (JLL) 2014 Q1 法說會逐字稿

Good day, and welcome to the first quarter 2014 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 reports on form 10-K for the year ended December 31st, 2013, and in our other reports filed with the SEC. The company disclaims any undertaking to update or revise any forward-looking statements.

A transcript of this call will be posted and available on the company's website. A web audio replay will also be available for download. Information on 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. Hello, everybody, and thank you for joining this review of our results for the first quarter of 2014. I'm in Switzerland today, attending a meeting with various clients, including Procter and Gamble, a valued and long-time client of our firm. Christie Kelly, our CFO, is joining me from Chicago, and Christie will discuss details of our financial performance in a couple of minutes.

But let me begin, as I usually do, with a few headlines. Our fee revenue in the quarter reached $878 million, 13% higher than the first quarter of last year. Adjusted net income totaled $17 million, and that's $0.39 a share, which compares with $16 million or $0.36 a share a year ago. And our Board of Directors has announced a 5% increase in our semiannual dividend. And that's up to $0.23 per share, which indicates our confidence in the firm's continuing growth and cash generation.

Revenue growth in all three regions was driven primarily by strong performances in Leasing and by growth in our Property and Facility Management and Project and Development Services businesses. Our first quarter capital markets growth slowed year-on-year following a very active close to 2013, but strong investment sales pipelines indicate that this is a timing issue and not a trend.

LaSalle Investment Management continued to attract capital from institutional investments, and after raising $7 billion in 2013, saw nearly $1 billion of equity commitments during this first quarter. LaSalle also has a very good pipeline for the second quarter.

Conditions in the global economy and in real estate markets continued their broadly positive trend. In addition to my comments here, you will find more detailed information on the slides posted in the Investor Relations section at JLL.com. The steady economic recovery remains on track and is now into its fifth year. Global GDP is expected to grow by 3.4% this year and by 3.8% in 2015. Regionally we forecast 5% growth in Asia/Pacific, 2.9% growth in the Americas, and 1.5% in Europe this year.

Turning to global real estate markets, as you'll see on slide three, investment sales volumes continue to build and we're up 28% over the last 12-month period. And in the first quarter, market volumes totaled $136 billion. The wave of capital targeting real estate continues to push up prices, with capital values on prime assets in 25 major markets increasing by more than 8% year-on-year. Prime office yields continue to compress in major cities, like London, Paris, and Tokyo.

While leasing market activity, measured by gross absorption, remain flat, we think that many markets have turned the corner. Growing market optimism and evidence of increased occupier activity offer strong evidence of the shift. In the US during the quarter, demand was more evenly distributed across markets, and shortages of Grade A space are boosting occupancy in Grade B space.

European leasing volumes were marginally below the first quarter of last year, but solidly in line with the region's five-year average. Most West European leasing markets saw increased activity from a year ago, but volumes in central and Eastern Europe declined by 22%, heavily impacted by reduced corporate activity in Moscow. First quarter leasing volumes in Asia-Pacific were up a healthy 21% year-on-year .

Rental rates increased in all three regions for the first time since the first quarter of 2012. Asking rents grew by 4.2% in the US, 1.1% in Asia-Pacific, while European rental growths were moved positive for the first time in two years, increasing by just under 1%. In general, then, the first quarter produced a solid start to the year for commercial real estate, capital markets remain strong, while leasing gained momentum on the back of renewed business confidence and investment.

So for our performance, I'll turn the call over to Christie.

Thank you, Colin. Good morning and good afternoon to everyone on our call. As Colin mentioned, we had a solid first quarter to start out the year. We delivered record first quarter fee revenue results and strong fee revenue growth. Notably, we increased adjusted net income and achieved our third highest adjusted earnings per share ever for a first quarter period. Our performance was broad-based, reflecting the market dynamics of the last two quarters where we have seen an improvement in occupier sentiment further supporting investor decision-making.

Our consolidated results demonstrate our ability to produce profitable revenue growth while consistently investing in our business for long-term benefit. We delivered these results within a global economy that continues to improve steadily, particularly in developed economies, overshadowed by emerging risks elsewhere and continuing challenges.

As Colin noted in his introduction, adjusted earnings per share were $0.39 for first quarter 2014, an increase of 8% over 2013, calculated on adjusted net income of $17 million. Consolidated fee revenue was $878 million for first quarter 2014, up 13% over last year on a local currency basis. All three of our geographic segments demonstrated our ability to deliver healthy year-over-year increases in revenue performance across varied markets globally.

Our revenue increase of 18% in Leasing demonstrates our ability to continue to capture market share and reflects the improving momentum in leasing markets, led by the US. The Capital Markets and Hotels decrease of 6% versus first quarter 2013 primarily reflects EMEA's year-over-year impact of Russia versus a strong comparable quarter in 2013, as well as a general slowing of investment volumes in APAC regions for the first quarter after a very active fourth quarter.

We continued to grow our annuity real estate services businesses, such as Property and Facility Management, where fee revenue was up 20% in the quarter versus first quarter 2013.

Our LaSalle Investment Management business continued the momentum of robust capital raise in 2013 and also benefited from equity earnings in the first quarter of 2014. We continue to make investments in our platform to drive growth and enhance our client experience. We also are focusing on productivity enhancements to increase revenue in key markets while achieving improved long-term profitability.

Adjusted operating income margin, calculated on a fee revenue basis, was 2.4% for the quarter, compared with 3.1% first quarter last year. This decrease is primarily driven by Russia and investments in our platform, which impacted our quarterly performance by approximately 130 basis points. We remained focused on balancing topline growth, platform investments and productivity to achieve incremental margin and earnings per share growth.

We'll start our look at the segment results with the Americas, where first quarter fee revenue increased 20% on a local currency basis over 2013. Growth was driven by a 24% increase in local currency and Leasing, and a 21% increase in local currency in Property and Facility Management. We had positive growth in US Leasing despite a decline in overall market volume activity. And our Corporate Solutions Business continued to win new assignments and increased the scope of relationships with long-standing clients.

Revenue in Capital Markets and Hotels in the Americas was up 4% against a very strong first quarter 2013, which was 39% higher than first quarter 2012. Excluding our debt business in the Americas, our Capital Markets revenue increased 19%.

The Americas' operating income margins were down slightly, while adjusted EBITDA margins were up 20 basis points during the quarter. The operating margin decline primarily resulted from the shift in revenue mix to more Property and Facility Management revenue and less Capital Markets revenue, as well as our ongoing platform investments. We continue to both invest in future growth for the Americas while also focusing on productivity and cost discipline to drive incremental full-year margin and long-term profitable growth

In our EMEA business, fee revenue grew $23 million or 6% in local currency. Russia's contribution to operating income for the quarter was down $5.4 million year-on-year against a strong first quarter of 2013. Property and Facility Management and Project and Development Services both had double-digit fee revenue growth in local currency for the quarter.

EMEA's Leasing revenue was up 6% and Capital Markets and Hotels saw a decrease in revenue compared to a strong first quarter 2013, which was 50% higher than the first quarter 2012. The decrease in Capital Markets and Hotels revenue is primarily due to Russia, which for context represented 4% of our total EMEA revenue and 1% of our total firm revenue for the 2013 year.

Excluding the impact of Russia, our EMEA operating income margins improved 120 basis points from the first quarter of last year. This underlying operating improvement reflected the positive impact of turning to profit or pruning loss-making businesses, as well as the strength of our performance in a majority of the markets in which compete.

Our EMEA business outlook for the year remains positive as we capitalize on improving economic and real estate fundamentals, continue to effectively drive efficiency through productivity combined with technology investments, and seek M&A opportunities to supplement long-term profitable growth.

Moving on to our Asia-Pacific business, fee revenue across the region was up 11% in local currency over 2013. Property and Facility Management fee revenue grew 17% in local currency, continuing the sustained growth in this annuity revenue base. Leasing revenue grew 5% in local currency, slower than overall market volume growth due to a number of deals that moved into the second quarter, an indication that good business momentum continues.

Our Capital Markets and Hotels revenue was down 7% in the quarter, favorably comparing to a 15% decline in overall investment market volumes against record 2013 levels. The Asia-Pacific operating income margins decreased slightly from both the shift in revenue mix to more property and facility management revenue and lower Capital Markets and Hotels revenue, combined with our ongoing investments for the future in the region.

The outlook for the year in our Asia-Pacific business remains positive, given improving market sentiment and our continued focus on productivity and cost control.

LaSalle Investment Management deployed capital into prudent acquisitions and maintained ongoing disposition activity to generate incentive fees and equity earnings, as fees for the quarter decreased slightly from a year ago with the wind down of legacy funds in 2013 being offset by new mandates and acquisitions. Incentive fees were over $3 million for the quarter, a slight increase from a year ago. Equity earnings for the quarter were just under $9 million, driven by gains from disposition activity and value increases.

Our long-term view for LaSalle is upbeat, as we continue to focus on outstanding investment performance for clients, successfully leveraging our current scale, and further improving productivity across our platform.

If I could now turn briefly to our consolidated income statement results under GAAP. First quarter includes two offsetting non-cash purchase accounting items from prior years' acquisition activity, with no effect to net income. These items are more fully explained in Footnote Four of our press release. Importantly, our effective tax rate of approximately 25%, excluding these items, is more representative of our continuing effective tax rate going forward.

Regarding the strengthening of our investment grade balance sheet; we reduced total net debt by $139 million, compared with a year ago, reflecting our strong cash-generating business model. Favorable pricing on our debt and lower debt levels resulted in a decrease in net interest expense from $7.9 million in the first quarter last year to $6.6 million this quarter. In addition, we announced a semi-annual dividend of $0.23 per share, which is a 5% increase from the December 2013 dividend and reflects our confidence in the business.

To sum it up, we had a strong first quarter and start to the year. I'll now turn the call back over to Colin.

Thank you, Christie. So turning to some business wins for the first quarter, on slides you'll see a recent activity from across our different service lines and geographies. In our corporate outsourcing business, we won 11 new assignments in the quarter, expanded five relationships, and renewed another eight contracts. You'll see on the slide that they range from Scania and Credit Suisse to Volkswagen and Godrej & Boyce.

We also continued to build our Local Market Corporation Solutions Business, which serves corporate clients who purchase real estate services locally. During the quarter we won 14 assignments, covering 31 million square feet of space in this rapidly growing segment.

Finally, in the fourth quarter of 2013, when JPMorgan Chase selected JLL for outsourcing services, the bank also named us its global provider for technology and application services. Our JLL technology platform has now been fully implemented in every country in which JPMC operates, meeting their very stringent security and compliance standards, and is being used by every service provider for the bank's global portfolio.

Turning to investment sales transactions completed in the quarter, in New York we advised on the $105 million sale of 12 East 88th Street, which is a pre-war apartment building which will be converted to high-end condominiums. In Spain, we represented UBS in the EUR61 million acquisition of the Urbil shopping center in San Sebastian and have signed a renewed -- both of which are a sign of renewed investor activity in Southern Europe.

In Australia, we completed the sale of a 50% interest in 1 William Street in Brisbane, and that for AUD395 million. And when this development is completed in 2016, the building will be the city's largest office property.

In leasing representation of management transactions completed during the quarter, those included a 750,000 square foot build-to-suit headquarters lease in the Chicago suburbs for Zurich American, 108,000 square foot lease for Nestle in Warsaw, and a 210,000 square foot lease on behalf of Deloitte in Hong Kong. And finally, JLL is the proud partner of Toyota in their consolidation and relocation of their North American headquarters to Texas, a transaction which was announced on Monday.

As I said earlier, LaSalle Investment Management continued to attract capital in the first quarter, building on its strong relationship with the leading institutional investors globally. This confirms that those investors are continuing to target commercial real estate by partnering with trusted and top-performing advisers. LaSalle's active under management stood at $848 billion at the end of March. And clearly with these commitments at hand, we have significant investment funds to deploy.

Looking forward, Slide three summarizes our full year projections for global investment sales and leasing volumes. In the capital markets, we are maintaining our forecasts for market volumes of $650 billion for the year, and that's a 15% increase. In addition, the momentum we see currently among our investors, combined with increasing numbers of large single and portfolio assets on the market, confirm this expected growth. And the distinct improvement in occupied sentiment, which we've recently seen, is also feeding investment momentum.

We're forecasting single digit growth in capital values in most major office markets this year. This will largely be due to rental growth with yields remaining generally flat. The largest increases in values will be in Tokyo, New York, San Francisco, and the City of London, and Madrid will bounce back strongly this year after several very slow years.

With economic fundamentals and corporate sentiment improving, gross leasing volumes will increase by 5% to 10% this year. We'll see the greatest growth in Asia-Pacific, rising between 10% and 15% and overall vacancy is expected to decline only marginally as occupiers continue to release space back into the markets and development pipelines, delivering increasing levels of new stock. Rents on prime assets currently growing by about 2% annually, are expect to increase to 4% a year by the end of 2014.

LaSalle Investment Management sees institutional investors continuing to allocate capitol to commercial real estates throughout the year. With attractive deals being more and more difficult to find, however, investors are going to be accepting greater risk, lower returns, or some combination of the two as they pursue their investment goals.

Turning to our own prospects for the year, our outlook remains positive for 2014. As markets improve, we continue to see very healthy momentum across our business. Our clients are generally more confident and optimistic about the future than they have been for several years. We have the financial strength to maintain our long-term policy of investing revenue, both in our business infrastructure and for growth, and to invest capital through M&A, capital investment, and co-investments alongside LaSalle's clients.

And the final news item; during the quarter we shortened our name to JLL, which is more memorable, visible, and easier to understand, particularly for international markets. It's well suited to the digital and mobile technologies, which we are increasingly relying upon. And since many people already know us as JLL, it simply reflects reality and allows us to go to market with a single unified identity.

Our legal name is still Jones Lang LaSalle and LaSalle Investment Management also retains its identity. It is important to know that while our name has evolved, it will not be accompanied by a change in policies, cultures or values, which remain constant; values of superior client service, teamwork and collaboration, and adhering to the highest ethical standards.

And so before we take your questions, I want to mention a few of the awards which we received recently from industry groups and independent third parties, honors which reflect the values that I just mentioned and confirm our position as leader in real estate services and investment management. So during the quarter, we were selected as one of the World's Most Ethical Companies for the seventh consecutive year by the Ethisphere Institute, we were named the Global Outsourcing 100 list for the sixth straight year. The US EPA awarded us 2014's Energy Star Partner of the Year and Sustained Excellence awards, and Information Week Magazine named us to its Elite 100 list of Innovative Companies in Technology.

And so with that, we'll be happy to take your questions. Operator, would you please explain the process?

(Operator Instructions). Your first question comes from the line of David Gold of Sidoti. Your line is open.

Hi, good morning. A couple of quick points of follow-up. First, Colin, you spoke a little bit on the leasing as evidenced of their pickup, and we've certainly some of it in the numbers with, as you say, some delay in the second quarter. But I'm curious if you can give some additional color on the evidence that you're seeing? Is it as simple as pipeline buildup or inquiries, or is there more to it?

You can take both of those and bank them. We have a solid pipeline across both our leasing portfolio and our tenant rep activity, I think Christie referred to those. We're seeing actual quarter activity levels in Leasing which are either at the same level as last year, or in the case of Asia-Pacific, up over 20%. And that's the kind of market -- it's a backward looking stance to market dynamic which we haven't seen for a couple of years. And in particular, not last year during the periods of US fiscal cliff and Euro crisis which spilled over from 2012.

We're seeing more inquiries, more showings. We've had, for example, here a group of our corporate clients meeting in Switzerland and they reflect that same sentiment, that they internally are increasing looking -- increasingly looking to growth as well as cost saving and productivity measures. So those are some of the kind of things that we're seeing and hearing.

As to which cities are likely to be concerned, we think across Asia -- across the US, first of all, as I've referred to it in my remarks, the levels of demand are broadening out from the tech-driven San Francisco Silicon Valley initial burst of activity we saw. And we're seeing now activity in Salt Lake City, Atlanta, Los Angeles growing. Across Asia, Korea had a strong Q1, Manila is also showing growth -- and these have been pretty quiet markets for the last couple of years. And in Europe, we saw significant uptick in activity in Paris, which had been very muted for awhile, and London continues to be a strong and robust market.

I'd say the only negative on the whole situation, and we referred to that a couple of times, was Moscow, and that's producing a little bit of hesitancy across parts of Eastern Europe as well as people just sort of watch and evaluate the situation. So it's a generally broad trend across the world and all the indicators we use back it up.

Perfect. That's helpful. And then second, with values picking up, can you give us a sense, it might not be easy, but would we expect to see higher equity earnings this year, given that the pickup in values presumably pushes some realization there?

Hi there, David, how you been?

Doing well, yourself?

Good, thanks. Equity earnings, as you know, they're very difficult to predict. We have a couple of things in the pipeline that we're working. But we'll see if that translates to equity earnings performance through the year or if it's something that materializes into 2015.

Got you. Okay. But directionally, would it be safe to assume that the pickup in values -- essentially, if value is stepping up, that there'd be more sales out of your portfolio?

Yes, that's safe to assume, David.

Okay. And then just one last, Christie, while I have you; on the investment side, just thinking about the rest of the year by way of -- you called out in the release some recruitment IT and data, just curious how we should think about further investments for this year? Would it be at a stepped up level or are we in the end of that?

No, I think you can expect from our business, David, for the long-term consistent investment in the platform. We stepped up a bit as it relates to IT and big data, in terms of looking towards the benefit of our clients. But specifically as we pegged that 70 to 80 basis points -- is pretty much the norm for our business, give or take.

Perfect. Thank you both.

Thanks, David.

Your next question comes from the line of David Ridley-Lane of Merrill Lynch. Your line is open.

I was just wondering, is there anything unusual in the gross margin? It was a lot better year-over-year. Any color on that?

David, this is Christie. There's nothing unusual in the gross margin, no.

Okay.

And I think just from a run rate perspective, the one piece that we're seeing, we had really positive incremental margin drivers associated with the volume performance and the productivity initiatives in our business. And that's even on top of the investments impact in our platform for our strategic initiatives, IT, people, et cetera. Yes, the only negative, really, is Russia.

Got it.

And that's also, David, I'd say too, given the fact first quarter, as well, in 2013 -- we had a very strong comp coming out of Russia.

Okay. And then how much spare capacity do you have in your US leasing staff, given the strong results this quarter? Are you going to be needing to hire brokers to meet that demand? Or can you mostly leverage the existing headcount?

No, we think there's a good deal of capacity. We are continuing to hire. We had a net, from memory, 30 hires in the first quarter of this year. But you have to remember, last year we saw very flat markets and so we think there's quite a lot of activity in the pipeline. There's -- the deal size is beginning to pick up again. We expect that fees which hadn't slipped too far on the tenant rep side will continue to harden and they'll be more incentive attached to them as well. So the outlook market for the tenant rep market is very positive.

In particular, as we're predicting across all of our geographies, an increase in the total volumes transacted in the markets of the US, we're predicting a 5% to 10% growth. And overall, globally, 5% to 10% globally as well. So the activity levels -- the underlying activity levels in the market are up and generally we pick up many points of market share over and above that.

Got it. Okay.

I'll just step in there, too, David, because a couple of things -- from a recruiting perspective, we're out everyday, recruiting the best in the market. And specifically, too, we're really focused on driving productivity and revenue per producer. So with those marks, in terms of where we've been year-over-year, we're not only attracting top talent but we're increasing our productivity with that top talent, too.

Sounds good. If I could maybe read between the lines here, you're predicting strong capital markets gains in Madrid. I know Russia is a weak spot, but as you look out in 2014, could Spain be an offsetting positive, with potentially more distressed selling in that market?

It could be. We saw Ireland recovering from its problems quite strongly last year. So I'd expect the same pattern to be repeated. So yes, it could be an offsetting situation. Q1, as we said, was strong for Russia last year and so a good deal of the annual profits were actually produced in quarter one. So indeed they could be healthy offsets. We don't necessarily -- we don't understand yet what will happen in Russia and how much impact that will have on general business confidence, not only there but across eastern Europe. We're not worried about it but we're watching it.

Thank you very much.

It doesn't help, by the way, that we're market leaders in Russia. It doesn't help that we're market leaders in Russia, which means we're unduly impacted.

Your next question comes from the line of Mitch Germain of JMP Securities. Your line is open.

Good morning.

Hi there, Mitch.

Hey there, Christie. You mentioned renewed sales activity in some parts of Europe. Curious, is that local investors or is it cross-regional investment that's driving that demand?

In the recovering southern European countries, it's been international capital of a more risk-seeking kind, there's been private equity -- we've been showing private equity around Spanish opportunities for the last 12, 18 months. And the two deals that I referred to in my script were both from capital as well. So it's overwhelmingly at this point -- is foreign capital.

Great. And I know you guys were a little quieter on the acquisition front. I'm curious, just maybe some commentary on the overall environment. And are there any specific deals or any specific business lines that you're looking to strengthen here in the coming quarters?

Yes, well, the world has gone mad this quarter, or at least this week, certainly in the farmer sector and we have [Geo doing also] in France. But we've been continuing to look at acquisitions. We must have processed a dozen this first quarter already. I think there's a general sense of people are for sale. There is a supply and there's a demand and there's a reasonable level of balance of deals to be done, with the exception of the investment manning sector, which remains incredibly deal-free, the entity level at least.

So we're looking, we're evaluating. But we have, as you know, very high standards, starting with strategic and financial fit, but then this important matching of values, which means that anything we look at that to pass quite a few tests. So we continue to look, we're not -- we haven't got a budget we've got to burn through. When we see opportunities that fit the template, then we'll not hesitate to move forward. There have been a number of smaller deals through the quarter, groups of ten or 20 people coming in as an entity. We did a small bit in Paris with a supply chain management company, for example, a supply chain management advisory company last month. So those sorts of deals have continued through the quarter.

Great. Just -- go ahead, Christie, sorry.

So the only thing I was going to add to that is, just as a part of our regular business process, we're always looking at opportunities. And from that perspective, we've got a keen eye, and we are consistently working that through with our leadership team.

Got you. Last one for me and I don't want to -- I just want to circle back. We did see a decline in your forecast for 2014 market volumes, capital markets, and then gross absorption leasing for Europe. Is that attributed to some of the noise in Russia right now? Is that really what's driving that decline?

Principally. Plus we had a pretty strong run through the last two years. And so there's a level of caution there, an awful lot has transacted. But Russia has certainly had a dampening effect on, as we said, Eastern Europe and Russia itself. Nothing fundamental, no big strike on the part of the equity community. No lack of availability of debt. It's simply our evaluation of the margin.

Appreciate it.

Your next question comes from the line of Brad Burke of Goldman Sachs. Your line is open.

Hey, good morning, guys, just sticking with the Russia theme. So obviously Q1 2013 looks like it was a really good quarter for Russia. And presumably you're expecting to see continued weakness in that market for at least the foreseeable future. So I'm just wondering how the comps are going to trend for the remainder of 2014 versus 2013, specifically as it relates to Russia?

It's hard to call. You shouldn't forget -- after you have a couple of good years, you tend to forget that Russia, as with the other bricks, is a developing country. And they have just switched back right. And so the overall long-term trend is for growth. Our overall long-term position is to continue to grow in that market. You do get short-term issues which impact that growth and throw the business off trend lines significantly. And so we are watching Russia. We are not, at this stage, overly concerned. We certainly haven't been cutting back on staff and we haven't been hiring, either. But we'll see, we'll just have to wait and see how long this thing lasts.

As we said, as Christie said, it represents a very small proportion of -- less than 5% of Europe's revenue, which is a vanishingly small proportion of our total revenue. So it's not going to have a major overall impact at the year-end when our three big quarters or second, third, and fourth quarter, when they come in, they will dwarf any impact from Russia. But just in Q1, because of the big comps last year, it had a disproportionate impact.

Okay, so the comps were disproportionately high in Q1.

That's right.

That's right, Brad.

And then I was reading -- it looks like you didn't bid for a renewal of what would seem like a pretty big Facilities Management contract with Citi. So I'm just wondering whether you could add more color on whether you're seeing more competition for less favorable contracts? Or if this was an one-off kind of event? Or should I read it that the market is so strong that you're comfortable walking away from business when you don't like the margin?

Well, we qualify our opportunities to bid and we bid on roughly two-thirds of the opportunities put to us and we win roughly two-thirds of those. That's our batting rate. But in that pre qualification process, we look at a lot of things, including the prospects for profitability on the individual opportunity being presented to us. We look at client approach, we look at whether clients can deliver the business opportunity that they're asking us to RFP on, because there are often lots of internal political issues. We also look at our own resources and the competition for those resources, in particular in this case within the banking sector. And we pull all that together and just form a judgment on whether we choose to bid or not. And so the Citibank situation went through all of those processes and we came out with the no bid decision.

Okay. That's helpful.

I should mention, by the way, we did bid on parts of the original activity and we did -- we have picked up that business in South America. It's not a blanket, though, it was just a selective.

Okay. And then just the last one, looking at the operating and admin costs, it looks like as a percentage of fee revenue, that was up slightly year-over-year, realize you're also making investments during the first quarter. So I wanted to know how you think about these costs trending, considering that you do have strong growth in fee revenue. Would you eventually expect to see some leverage on these costs in 2014? Or is there going to be more investment going forward to offset any fixed cost leverage that we might expect?

So, Brad, yes, we absolutely do view that we will gain leverage on these costs. In terms of fixed costs, we are gaining leverage on those costs, given the volume profile. And in terms of variable costs, they are up, but are up commensurate with the pipelines and really look towards the growth profile in the business.

Okay. I appreciate. That's helpful. Thank you.

Yes, thanks, Brad.

Your next question comes from the line of Michael Mueller of JPMorgan. Your line is open.

Great. Thanks. You touched on Russia a few times. If we're looking at that, what is the Russian impact in EMEA? How much of that is just capital markets versus other parts of the business as well?

In Q1 it was principally capital markets because the big comp last year was a capital markets comp. Just generally what we're hearing from our business there is that it is impacting leasing activity as well, corporates are less active in seeking out new space. And so there's kind of just a wait-and-see attitude. Again, prior comments on how long it will last, we don't know. We're not taking any drastic measures at this stage, but we're watching it very carefully.

Okay. The but the revenue split is predominantly in capital markets in a normalized year?

No, no, no. It's very much a balanced business. It just happened take this Q1 issue was a big -- was focused in capital markets. Through the balance of the year, we would expect -- in a normal year to be doing, yes, capital markets business, but a significant amount of leasing, consulting work is also a big part of our business there as people find their way into the market and understand how the real estate market works.

Got it. Okay. And then I think you said in the Americas -- you said for capital markets, excluding the debt business, you're up 19%, was that is correct?

That's correct, Michael.

Okay. And how much of the business -- that business overall is generally tied to the debt market? And what specifically kind of drove it this quarter, drove that change?

Specifically --

I'm going to --

I was just going to say, Michael, that from a capital markets perspective, the banking and structured capital business really had a strong comp last quarter of last year. And so that was part of the differential, and in the market stats, the debt numbers aren't included. So when you take a look at our stats versus the market, it's appropriate to back that out and really look to the 19%.

Got it. Okay. And last question for me. Thinking about the outsourcing business, how do you look at the penetration of that business today? And how does that vary by region?

This is sort of not a quarterly question, more of an annual or longer term question. The outsourcing activity -- outsourcing markets are most mature in the US because it's been underway in the real estate sector for 15 to 20 years. The last ten years or so have seen significant growth and maturing of the outsourcing business in Asia-Pacific, and I'm referring to companies domiciled in these areas, so Asia-Pacific domiciled businesses, all the Asian subsidiaries of major corporations, have given us good growth and outsourcing for the last decade. Europe is really a very recent phenomenon. It's post great financial crisis when corporations started to learn from their subsidiaries abroad in many cases and adopted the outsourcing approach to real estate after -- business areas as well. So that is the least mature and that's where perhaps there is the most growth opportunity.

When you say which regions offer the most growth opportunity in absolute dollars, it's probably Europe and the US in similar measure. Because although it is more mature in the US, a number of corporations would still have to go down this track or the extra business that any one corporation can offer us as it gets -- as it outsources more and more services, that is a large number because of the scale of the market. And Europe's growth -- it's a big mature continent there's lots of big corporations but they've only just started down this track. So there's a good deal of opportunity, to our mind, everywhere.

Okay. Thank you.

Thanks, Michael.

Your next question comes from the line of Keane McCarthy of William Blair. Your line is open.

Hi, guys, thanks for taking my question. Just to go back to the market growth rates as it relates to the US leasing market, and maybe this is semantics if you could help me parse it out, but I think previously it was the Americas or the US was expected, from the absorption trend, were expected to increase somewhere between five and ten. And I think this quarter you've kind of ratcheted that down to five. I was hoping you could walk us through that a little bit.

Yes, it's -- I just think our people perhaps got a lit more cautious about the pace of the uptick. I think we've been expecting, from the depths of Q2, Q3 last year, going into Q4, we expected the uptick to be faster and stronger everywhere. As we've got into it, we can now see positive momentum. We described it -- in the numbers of market activity show it with the US in the quarter around break even or slight negatives on year-over-year activity. But as we get closer, our views as to how fast it will turn up have moderated a little bit. So that ten has indeed come down to five for the US.

Okay. And then maybe with, obviously some rent growth adding a couple points, probably, kind of makes the overall market in that high single digit range? Is that fair to say?

The market for fees, if you like, yes. Because if we get a 5% growth in volume and a fee kicker as well because rental rates go up, then your high single digits is what the market will offer us. We would expect to pick up share on those sorts of numbers.

Sure. Okay. And not to bead a dead horse, but transitioning back to Europe. Outside of the central Eastern European issues with Russia noise, I'm just curious how London is performing versus some of the other Western European markets?

London remains the -- certainly in real estate terms, remains the strongest market for us and for everybody else. I think the other European markets are following -- we had a particularly strong quarter in Germany and Germany itself had a particularly strong quarter. But I think France is coming along as well. What the European corporates would say is that you can point to Eastern Europe and you can point to the lack of performance of European countries and you can point to some continued -- levels of continuing economic weakness, but basically European corporations are growing in confidence. They're getting back to doing business. And they're focusing on the positives rather than the negatives.

And so if you put it all together, despite the things you can worry about from the point of view of European corporate leaders, this is as good a set of circumstances as they've been looking at around their business for, let's say, since 2006, 2007, with positive growth everywhere. And none of the European countries, with the exception of Russia, possibly are in recession. You've got good levels of world growth, recorded numbers which were up on the last time we quoted those numbers. So there's good global demand for services in businesses originating in Europe. And the levels of consumer and business confidence are rising.

So put it all together and despite the fact that it's a slow growth continent, confidence is up. And frankly, nowhere is confidence higher and nowhere are growth rates higher than in London and the UK. So London is performing strongly. Our French business is continuing to pick up market share and doing very solid business in good markets -- or in a good market around Paris. And the German businesses continue to do well also in an economy which is also doing relatively strong growth rates by European standards.

Sure. Okay. That's helpful. And then just the final one for me. Could you remind us again, your multi-family exposure in the US?

Not large. We have a multi-family activity. It probably is, on an annualized basis, represents about 20% of our -- including debt, of our overall $200 million or so of US capital markets activity.

Yes, that's exactly right, Keane. It's smaller.

Okay. Thank you.

There are no further questions in queue at this time, I turn the call back to Mr. Dyer for any closing comments.

Thank you, Operator, and thank you, everybody, for joining us on the call today and for your interest in the company. We'll look forward to speaking with you again at the end of quarter two. Good day and thanks for joining us.

Ladies and gentlemen, this concludes today's conference call, you may now disconnect.