Jones Lang LaSalle Inc (JLL) 2015 Q4 法說會逐字稿

Welcome to the fourth-quarter 2015 earnings conference call for Jones Lang LaSalle, Incorporated.

As a reminder, today's call is being recorded.

A transcript will be posted in the Investor Relations section at JLL.com.

Any statements made about future results and performance or about plans, expectations and objectives are forward-looking statements. Actual results and performance may differ from those included in the forward-looking statements, as a result of factors discussed in the Company's annual report on Form 10-K for the fiscal year ended December 31, 2014, and in our other reports filed with the SEC. The company disclaims any undertaking to publicly update or revise any forward-looking statements.

Now I will turn the call to Colin Dyer, Chief Executive Officer, for opening remarks.

Thank you. Hello everybody and welcome to this review of our 2015 results for both the fourth quarter and the full-year.

Christie Kelly, our Chief Financial Officer, joins us on today's call as usual and we also welcome Grace Chang our new Managing Director of Finance and Investor Relations. Grace comes to JLL from 20 years of US and international experience at GE where she held increasingly senior finance and real estate positions. She will lead our global corporate finance initiatives and serve as principal contact between JLL and the institutional investor community. If you have any difficult questions, please ask Grace.

Christie will review our financial performance in detail in a few minutes but let me begin by summarizing our results.

An excellent fourth quarter helped us complete another record year at JLL and LaSalle. Fee revenue totalled $1.7 billion for the quarter, 14% above the fourth quarter of 2014 in local currency terms. For the year, fee revenue increased 17% to $5.2 billion.

Adjusted net income was $206 million for the quarter, or $4.53 a share, up 14% from last year and that after a $0.42 negative currency impact. For the year adjusted net income totaled $455 million, or $10.01 per share, 26% higher than in 2014, again after a full here currency impact of $0.87.

We continued to grow through acquisition activity, closing or announcing 24 transactions during the year and our investment grade balance sheet will allow us to continue to grow through additional acquisitions and significant technology investments. Taken as a whole, we had a very strong quarter and year with broad-based double-digit fee revenue growth across all of our service lines for the year.

LaSalle Investment Management produced annual revenue growth of 16% in local currency and also generated significant equity earnings in 2015. To put the results in the context of market and economic conditions in 2015 the global economy continued to grow at 3%. Our own real estate markets all grew in local currency terms. For the detail, please see the slides that we have posted in the Investor Relations section of JLL.com.

Slide 2 shows 2015 activity in capital markets and leasing. Full year investment market volumes were $704 billion marginally below 2014 levels in US dollars. However, at constant currency rates investment volumes increased $765 billion, 8% ahead of 2014. Fourth quarter volumes were flat in local currency, but down 8% in dollars from the record final quarter of 2014.

The American market also reached a record $314 billion, 4% higher than 2014. Some momentum was lost in Q4, however, down 9% on the prior year. EMEA markets transacted $267 billion, which was 4% below 2014, but 14% higher if you translate that in Euro currency terms. Fourth quarter volumes were 2% below the prior year quarter in dollars, but up 12% in euros. Full year volumes in Asia Pacific fell 6% from 2014 to $124 billion, but that was up 3% in local currency terms. And despite the headlines fourth quarter transaction volumes in China reached $10.5 billion, 49% higher than the same quarter in 2014.

Strong demand for core assets continued to compress yields for cap rates. Prime yields across 21 major global office markets were 4.83% in the fourth quarter, 25 basis points lower than the prior year. Global office leasing volumes rose 14% in Q4 and 8% for the year. Asia Pacific rebounded with full year volumes up 19% over 2014, while Europe rose 13% and the US 2%.

Vacancy rates headed down with global office vacancies across 98 markets down 20 basis points in the quarter to 12.1%. Reflecting the vacancy trend, rental growth on prime office accelerated during the second half of 2015, the supply tightened and demand strengthened. Growth of 3.7% for the year across 26 major markets matched the 2014 levels.

To sum up a strong fourth quarter and full year in most real estate markets globally, demand for lease space was robust and broad-based. There are significant amounts of capital allocated to real estate, but not yet invested, so at this point we see the fourth quarter activity in investment sales as a hesitation, not the start of a trend. More on that later in today's call.

To discuss our own performance in this market environment, I will turn the call over to Christie.

Thank you, Colin, and welcome to everyone on our call.

I am pleased to report JLL's record top line and bottom line financial performance for 2015. As Colin mentioned, we delivered record earnings per share for the fourth quarter and full year despite continuing significant foreign exchange headwinds. Growth for the year was broad-based with double-digit increases in fee revenue across all service lines, geographic segments and LaSalle. For the year, we expanded margin on a local currency basis in all segments for the business and delivered strong results in the fourth quarter against outstanding performance in the fourth quarter of 2014.

We continue to invest in our people, technology, data and acquisitions to position the firm for long-term profitable growth. Our results reflect the benefits of investments we have made in our platform to continuously improve the quality and scope of our services for our clients, while building the long-term value of our Company. These results coupled with our long-term perspective translated into further strengthening of our investment grade balance sheet as S&P upgraded our credit ratings to BBB+ in July and during the last quarter, Moody's raised their BAA to ratings outlook to positive.

As Colin said, we finished the year with consolidated fee revenue of $5.2 billion, up 17% over last year and adjusted earnings per share of $10.01 up 26% over last year. For the quarter, we delivered consolidated fee revenue of $1.7 billion, up 14% over last year and adjusted earnings per share of $4.53, up 14% over last year. Operating margins in the quarter declined approximately 30 basis points to 16.6%, a constant rate, primarily due to the timing of technology and data investments made in alignment with our strategic plan.

Adjusted operating income margin calculated on a fee revenue basis increased 30 basis points to 11.2% for the year at constant rates. Adjusted EBITDA margin on a fee revenue basis increased 80 basis points to 14.6% for the year at constant rates. Our consolidated results reflect 13% incremental operating income margin to fee revenue for the year and fourth quarter at constant rates.

The increases in margin reflect many factors including the strength of our diverse global platform, high recurring profitable revenues and the productivity focus of our people.

These results also reflect our investment discipline, including the contributions of transaction professionals who we have added to the firm through acquisition activity and strategic hiring over the last several years. Additionally our LaSalle business consistently delivers above benchmark performance for clients, which in turn generates incentive fees and equity earnings from transaction activity within fund life cycles. We remain focused on balancing top line growth, platform investments and productivity to achieve incremental margin and earnings-per-share growth.

Our 17% consolidated fee revenue growth for the year on a local currency basis was broad-based across our geographic and service segments. Our revenue increase of 26% in product and develop services is the result of increased cross selling, as well as key acquisitions to enhance and expand our successful Tetris offering. Increased win rates investment in our people drove a 25% increase in capital markets and hotels revenue and a 13% growth in property and facility management.

LaSalle continued to strengthen its base, achieving a total of $5 billion in capital raised for 2015 and ending the year with $56.4 billion in assets under management. Our broad-based growth demonstrates the diversity of our offerings and our ability to serve both investors and occupiers and mixed in challenging markets.

Over the last 12 months we selectively expanded our Business through a combination of key strategic hires and acquisitions. As Colin said, we completed or announced 24 acquisitions in 2015, spanning from the US and Canada to the UK, Sweden, Poland, Germany, Turkey, South Africa, Australia and Japan. We added to both transaction and annuity-based revenues.

In the case of Corrigo software and services acquisition, we have also significantly enhanced our ability to connect owners and occupiers with service providers through cutting edge information technology. Our acquisition pipeline remains solid and contains transactions in alignment with our strategic priorities, financial discipline and culture.

We will begin our look at the segment specific results in the Americas where fee revenue is up 16% in local currency over 2014 and up 14% for the fourth quarter. We drove growth across virtually all business lines and geographies.

Leasing was up 14% for the year, 13% for the quarter, outperforming the overall market for both periods. Capital markets and hotels was up 25% for the year, 13% for the quarter, led by continued growth in productivity generally, another record year of performance in our hotels business and the acquisition of Oak Grove Capital that we completed in the fourth quarter.

Project and development services increased 20% over 2014, 21% for the quarter, as we continue to cross sell, drive new project wins and benefit from key strategic acquisitions. The rest of the Americas platform also made meaningful contributions to growth in 2015 with property and facility management up 14% for the year, driven by record levels of new business, as well as account expansions.

Operating income margin for the fourth quarter was 15.2% in local currency, compared to 15.6% last year. Excluding the timing of investments, primarily in technology and data, the operating income margin was in line with our strong fourth quarter 2014 performance. Operating income in the Americas grew 15% to $251 million for the year, up from $219 million a year ago, and operating income margin calculated on a fee revenue basis improved by 30 basis points over the same period to 10.7% in local currency.

The added scale and new services from the 11 acquisitions closed in the past 13 months including the transformative Oak Grove Capital and Corrigo deals together with investments in our platform and the talent of our people places us in a position of strength as our Americas business moves into 2016.

In EMEA, fee revenue across the region was up 20% in local currency over 2014 and up 13% for the fourth quarter. An excellent result against a robust fourth quarter of 2014. Project and development services fee revenue was 38% for the year and 57% for the quarter as we continued to win international mandates from European multi nationals and expand our Tetris bid out business both organically and from acquisitions such as Bluu in the UK.

Capital markets and hotels revenue was up 29% for the year, 11% for the quarter, with the most significant contributions from Germany, France, the UK, Sweden, Switzerland, and Poland as we continued to perform a buoyant, yet increasingly complex market environment. During the quarter, we did beginning to see a moderation in investment sales activity particularly in the UK. Overall, performance was strong throughout the region both in larger markets like the UK, Germany, and France, and also across the continent EMENA.

Adjusted operating income in the region increased 21% year-over-year to $146 million, up from $121 million. Adjusted income margin calculated on a fee revenue basis improved 140 basis points to 10.6% in local currency year-over-year. Our performance reflected capital markets incentive fees, continued strengthening of business lines through profitable organic growth, supplemented by acquisitions and a focus on technology as a key enabler of growth and productivity. In summary, we had an outstanding year in EMEA where all countries delivered growth over last year in terms of revenues and profits positioning us well throughout the region for 2016.

In Asia Pacific fee revenue across the region was up 17% in local currency over 2014 and up 14% for the fourth quarter against a market where China's economic slowdown rippled across the region. Leasing was up 13% for the year and 11% for the quarter with strong performance in Australia, China, Hong Kong, and India, offset by subdued performance in Singapore, Japan, and Indonesia. Asia Pacific's capital markets and hotels revenue for the year was up 15%, but down 12% in the quarter, which was slightly better than the overall market.

Our China and Australia capital markets business experienced weakness in the quarter, given uncertain market conditions in timing of transactions. But we are pleased that our APAC team nevertheless delivered significant out performance in capital markets for the year driven by Japan, Australia, and Southeast Asia.

Our business is naturally hedged to weather uncertainty in the investment sales market, since we generate more than 50% of our fee revenue in the region from our annuity businesses. Property and facility management revenue was up 17% for the year and 23% for the quarter with demand for these services growing steadily, as we see increases in both the quality of property stock and the growing propensity of regional and local aging companies to outsource.

Geographically, India performed well, taking advantage of an improved business environment and reinforcing our leading market share. Asia Pacific 's operating income margin grew 4%, 18% in local currency to $87 million for the year, up from $84 million a year ago and operating income margin increased by 10 basis points to 9.4% in local currency, calculated on a fee revenue basis, demonstrating the strength of our platform and navigating the region to deliver another excellent year versus record performance in 2014. In sum, our Asia Pacific business delivered robust 2015 performance, while confronting a mixed economic environment and continuing to profitably invest for the long-term, positioning us to enter 2016 as an even stronger business.

LaSalle had a strong year, delivering operating revenue increases of 16% for the year and 10% for the quarter over a tough 2014 comparable. LaSalle's results were driven by incentive fee performance in the second half of the year and also by the growth of its advisory fees, which were up 10% for the year and 9% for the quarter. LaSalle continued to focus on productivity as it generated a year-over-year increase of 4% in assets under management per employee. Further LaSalle raised $1.2 billion of new capital in the fourth quarter and grew assets under management by $2.8 billion during the year to $56.4 billion total that I mentioned a moment ago. LaSalle's incentive fees of $24 million in the fourth quarter brought the full year total to $124 million, the second highest annual total in LaSalle's history.

After two years of outsized results, the mature funds generating these strong incentive fees are nearing the end of their fund lives. As a result we expect incentive fees to moderate and equity earnings to reflect fair value movements and revert to a historical average.

With respect to our balance sheet and the strength our financial position, total net debt was $461 million at the end of the year, an increase of $298 million in the year, reflecting the pace of our continued investments and acquisitions. We benefited from the lower average borrowings on our credit facility, with $28.1 million in interest expense for the full year.

To sum up, we had an excellent quarter and year. We remain well-positioned for future growth in 2016 as we look to build on a successful 2015. I'd like to thank our colleagues around the world for the extraordinary work that delivers daily for our clients and our investors.

I'll now turn the call back over to Colin.

Thank you, Christie.

So to give you a sense of how we achieved these results, slide 3 offers a sample of recent business wins across service lines and geographies. In 2015 our corporate services businesses won 137 new assignments expanding existing relationships with another 75 clients and renewing 35 further contracts.

These 247 wins total nearly 905 million square feet of space across all regions. Our 2015 average win rate was 60% for new business, 79% for expansions and 83% for renewals. A highlight of the year came in December with the early renewal of our contract with HSBC, one of the world's largest banking and financial services institutions. We are now the bank's sole global outsourcing provider of integrated facility management services handling 97% of their 55 million square foot portfolio across 42 countries. We've also been appointed to provide management services globally for the Australian Department of Foreign Affairs and Trade with more than 1,000 properties in 76 countries. This brings the combined Austrian government port folio under our management to nearly 26 square feet.

Turning to the capital markets, you will see major transactions from Chicago to Hong Kong. Focusing on the deals we have highlighted in Europe, we are seeing a shift in business as investor appetite builds for large portfolio transactions. Examples of this include the 1 billion Euro Aqua portfolio which was a sale of 17 office assets across six countries and the Traction portfolio sale of 30 office properties across the continent.

These multi-asset multi-country deals are complex and few firms can compete effectively. Clients know that they need the best and most trusted advisors to succeed playing to our strength and driving our market share growth.

Our hotels business also had an excellent year with revenue up 15% in US dollars and 23% in local currency. Highlights included advising on the year's largest hotel transaction in San Francisco and in Hong Kong on the largest single asset transaction ever in Asia Pacific. Fourth-quarter leasing highlights including -- included an assignment from Blackstone Equity Office Properties for 2 million square feet of class A space in Dallas-Fort Worth and leasing 215,000 square feet for E&Y in Madrid.

We also won a 1.3 million square foot asset management and leasing appointment for a retail asset in Chengdu called Cannes Bay Impression. As I said earlier, Songjiang Investment had an excellent year with double digit revenue growth and healthy equity earnings from both valuation increases and asset dispositions.

We're also seeing robust monthly flows into LaSalle's retail investment fund, the Jones Lang LaSalle Income Property Trust whose gross asset value rose from $921 million to $1.5 billion over the course of the year. As Christie highlighted, throughout the year we continue to invest in businesses that expand our competitive reach and position globally. Adding to the 24 acquisitions closed or announced last year, we have completed three more in 2016 bringing the total investments in the 27 deals to $640 million.

Our acquisitions cover all regions and service lines in areas ranging from US transactions and from facilities management technology to Japanese retail to fit out services in the UK, Germany, and Poland. As I noted on past calls, we have acquire selectively, completing rigorous due diligence on finances, operating risk and strategic and cultural and client fit. We focus on high-margin opportunities, minimizing operational overlap that destroys value and we plan and manage integration very carefully. Thanks to our strong balance sheet, ample unused borrowing capacity and the full confidence of our partner banks, we can move quickly when we identify opportunities that meet our criteria. We are planning for continued M&A activity during the course of 2016.

Looking forward, despite the noise about oil, the Chinese economy, the range of other issues the IMF recently raised its 2016 global growth forecast to 3.4%, which maxes the Oxford economic figures which we consistently quote. So looking at our markets, JLL Research projects investment sales and leasing volumes to maintain a healthy pace throughout 2016. The noise in the news flow has produced more cautious investment sentiment at this point, but the amount of capital that continues to be allocated to real estate indicates there will be no reduction in underlying investment flows.

So we anticipate global volumes of around $725 billion or more, up 5% over 2015 levels in the global investment sales markets. Leasing markets continue to gain momentum and we expect global office volumes to increase by 5% over the 2015 levels. LaSalle is also positioned for continued growth in 2016. Strong competitors such as LaSalle with good investment performance will continue to attract and invest significant amounts of capital.

We are encouraged too by the continued corporate trend to outsourcing real estate services and by our outstanding success rates which I quoted earlier. So one month in, we are positive on prospects for the year, with underlying global growth outweighing recent concerns on the Chinese economy, stock market volatility, oil or security challenges.

Just pausing on China and given our leading market position we have a good perspective on what is going on there. The slow decline in manufacturing sector contrasts with continuing double-digit growth in the consumer and service sectors.

The move to services is benefiting our business as it tends to drive demand for office, retail, and warehouse space particularly in Tier One cities. The effect is less pronounced in our Tier Two city businesses, but overall our revenues in China continue to grow in 2015 and we expect the same in 2016.

Finally the actions we've taken in recent years reinforce the resilience of our Business. Along with double-digit revenue growth, we have steadily expanded margins, we have pursued strategic acquisitions to aggressively support our 2020 growth strategy. We have made significant investments in technology, with 5% of fee revenue being invested in that area in 2015. And we have made it a firm wide priority to improve productivity in all parts our Business.

We've continued to attract top professionals and teams to JLL and we have maintained the strongest investment grade balance sheet in our industry, so we are very well-positioned to continue building the long-term power of our operating platform and the long-term value of our Company.

So before Christie and I take your questions I would like to mention just a few of the awards that our colleagues at JLL and LaSalle earned last year. They are from our industry-leading position in real estate services and funds management. We were named the world's best property consultancy at the International Property awards. LaSalle was named Global Real Estate company of the year by the English States Gazette. We joined the list of World's Most Ethical Companies for the eighth consecutive year. We repeated as a member of the Global Outsourcings 100 list for the seventh consecutive year. We were named one of 100 Best Corporate Citizens in the US by the Corporate Responsibility Magazine. We earned a perfect score on the Human Rights Campaign Foundations 2015 Corporate Equality Index. The US Environmental Protection Agency gave us its 2015 Energy Star Sustained Excellence award and finally we were named to the Fortune World's Most Admired Companies' list and joined the Fortune 500.

So with that we will take your questions. Howard, could you please explain the Q&A process?

Yes, sir.

(Operator Instructions)

David Gold from Sidoti.

Good morning. Two questions for you. First one is broader.

Colin, in both your commentary and maybe some other conversations there's been talk about your view of how, let's say, the length of the cycle has been pushed out some. And was curious if you might be up to give us an update on that, and current thinking of what is the potential for this cycle, how long do you think it runs?

You had one questions or two, David?

That the first.

Gives us the second one and we'll --

The second one, ties in, although, it is probably a little easier. And that is, as we think about your commentary on equity earnings and incentive fees, I would love to gain a little more clarity there -- also the backdrop that, if we think about the commentary a year ago, at that point it was, you also used the word moderate on a combined basis for up almost 30% year-to-year. So I just want to get a sense there for, as you were thinking about it a year ago, what was, let's say, that much more different this year? And then how we should think about next year.

Okay. I will take the first half, which, as you say will lead meekly into the question on --.

It's probably really six questions (laughter) but --

Let's just talk around it.

We noted -- we have been thinking in terms of a cycle which will begin to peak in 2017 or 2018 for some time. So this puts this in the third to fourth quarter of a four-quarter game. Nothing has changed that point of view. We talked about, in this commentary, about some slowing of investment sales activities across most regions in quarter four of last year.

We also had said that our perspective at this stage is that, given the weight of money, both equity and debt, that's available to invest in real estate, and given the appetite for real estate is a relatively safe investment harbor, given the problems of the fixed income and equity sectors -- we would anticipate continued strong activity in the investment sales markets globally. Whether this is Q4 activity or an early warning of a moderation we don't know yet; we will judge that as we go through this year. But the underlining activity levels are strong in the investment sales markets.

The same comments apply in the leasing markets. We have talked about double-digit increases globally in volumes transacted last year. And for projections from both the IMF and our own forecasters around underlying global economic growth in the mid 3% of the world for this year, suggests that the economic cycle has got some way to run and that our own experience of our clients seem and continue to take more space for expansion of their businesses. But that trend is solid and will continue steadily into next year. So that's the way we see things at the moment. Our crystal ball is as clear as usual, but we are anticipating further growth in our business this year and we are certainly investing behind that.

Christie, perhaps you will take the question on the --

-- equity earnings and incentive fees. Sure, David.

So, as you know, it is tough to predict incentive fees and equity earnings. Where we are right now in the cycle in terms of the fund lives that are driving incentive fees, our expectation is that incentive fees, as I mentioned in my prepared remarks, will moderate in 2016. And I think probably the best gauge is to look at the performance for this year; and based on what we are seeing, will probably be 60% of what we brought in this year based on what we have view towards. We don't have view towards everything. And we do expect that it will be more front-end loaded this year.

As it relates to equity earnings, and again based on what we see, our expectation is that equity earnings will really revert more to our historical average, which is quite strong. But again, not to the tune of what we experienced in 2015. And the team is just doing an exceptional job -- acquisitions, dispositions, investments, and the like on behalf of our investors.

And just remind us where you see the historical average?

Of equity earnings?

Yes.

Yes. We are in that $25 million/$30 million range.

Perfect. Thank you both.

Thank you, David.

Mitch Germain from JMP Securities.

Good morning.

Colin, just trying to follow up with your comments on China -- and I appreciate the color. Maybe just talk about revenue mix in the region? Is it similar to broader Asia, where it is 50%-ish contractual and the rest is tied to transactions? Is that a good indication of where you guys get your revenues in that region?

In China?

Yes.

The regional numbers you quote are slightly different in China, where the balance is a bit less on annuity and a bit more on transactions.

And just your commentary suggesting that nothing is really slowing on the transaction side, correct?

No. As we said -- we are concentrated in the tier 1 cities. And what we have seen is the switch that is going on away from the traditional industrial base and toward services and technology companies. And the services and technology companies, intending to focus in the larger cities, as I made the comments about the demand for retail logistics and office space in those major cities, actually being quite robust. Where the stress in China is, in the peripheral tier 2 cities and then tier 3 cities, where the industrial base was focused and where you see a clear decline in activity. But it is working so far in our favor and of course we are market leaders there. We are strongly profitable in the region and we are continuing to grow and expand our teams.

Is there any change in availability of capital? From either the equity or lending side in that region?

No. There's been steady demand for investment-grade property in China. It's tending to switch more to local buyers, because insurance companies in particular are beginning to ramp up their purchases of investment grade property and there's been a bit less interest in international buyers in China. But the markets have been solid and, as we said, the fourth-quarter numbers were actually up 50% on the prior year. The availability of debt, again, for local transactions has been fine. They tend to -- Chinese buyers tend to buy with more equity and not as much debt as Western investors.

Great. Your outlook -- your market volume and outlook for 2016 -- just curious about EMEA? Is the flat capital markets and absorption -- is that a function of maybe a slowing in the UK? Or what is really kind of driving that? Because we are hearing indications are, that region still remains pretty robust from an investment and leasing perspective.

Yes, the UK was a bit slower in the fourth quarter last year, but it was more than balanced by Germany, in particular, and also France. And leasing in Paris was very robust in the fourth quarter. The prospects for this year -- Europe is continuing to pick up with slightly in its growth rates. Britain has been solid for a while, but Continental Europe numbers are beginning to pick up a bit more. And we are seeing just solid activity across the markets, across the whole of Western Europe. Eastern Europe has been fairly strong.

Russia remains a problem. We actually have made a profit in each of the last two years in Russia, but it is obviously, given the economic environment there, that is a challenge. Europe as a whole, we have been very pleasantly surprised by the continuing robustness of our business there, driven by -- actually, the business community is continuing to invest and continuing to gradually expand despite the flattish top line growth numbers in the economy as a whole. We have been continuing to take market share, we believe, across the region.

And to that point, Mitch, when we look at our capital markets results just as a point of reference, we were up 29% year on year versus a market that was up 14%, and that is against a backdrop of outstanding performance in 2014.

Got you. And then, last one from me.

Your willingness to invest in this market either from an M&A perspective or from a recruiting perspective -- could we see similar numbers that we approached in 2015? Or is there likely going to be a bit of a slow down here?

No, and our min set today is as confident and as robust with respect to hiring, with respect to M&A work, as it was a year ago. So I cannot predict how it will come out, because you tend to be responding to opportunities that you managed to unearth. We would expect similar pictures for the full year.

Thank you.

Thanks, Mitch.

Thank you. Brad Burke from Goldman Sachs.

Good morning.

Wanted to ask on the capital markets outlook; and I appreciate the detail on your outlook. But how much variability do you think you have around the forecast that you are giving for 2016? And whether any of the weakness that we are seeing in the CMBS markets in the US, whether that started to translate to weakness and appetite to complete new transactions?

Well, we made the comment about Q4 last year, investors being slightly more hesitant than they had been in prior quarters. We've also underpinned our thinking for the markets that will basically be at or slightly above 2015 levels into 2016. So I won't repeat that.

I think we will just watch this during the first quarter and half of the year. We see underlying interest in real estate from all sources. We talked to institutional investors and Asia-Pacific pension funds, for example, who are still raising the percentage allocation to real estate. And so the amount of money that is available to invest in real estate is undiminished. We will see how sentiment behaves in the first quarter and whether the point you make about the CMBS markets or other factors begin to weigh on investors' confidence. At this point the fundamentals point to continued robust markets at similar levels to 2015.

In terms of the willingness to invest incrementally in CRE, with the energy-sensitive economy -- specifically Canada, Norway, Middle East -- are you sensing any change in sentiment there in terms of how they are thinking about incremental investments in 2016?

I am not close enough to be able to answer that question with respect to the investment funds in those countries. Indications you have had, you've heard -- you've read, probably, that Saudi Arabia is disinvesting $60 billion to $80 billion from equity markets globally. So whether they are selling it is tending to be in areas where they can get rapid liquidity, and that wouldn't include real estate, because the times to yield the investments or to liquidate investments are obviously much longer. What I would say is, we've noticed across the industrial energy centers for Houston and Calgary, for example, within the North American continent, clear reduction in demand for leasing space, and with that reduction in appetite for investment sales in those markets. That is simply because the level of demand has come off so rapidly.

Okay. I appreciate that. And then just a follow up on M&A.

Christie, I think last time you had said that you be willing to eventually take the leverage on the balance sheet up to two times EBITDA. So just wanted to get an update whether that is still a level that you would eventually target? And then, also considering the weakness that we have seen in the public markets, whether you are starting to see any of that translate into lower multiples in the private markets when you're looking at incremental M&A opportunities?

In terms of leverage, Brad, we are committed to maintaining our investment-grade balance sheet and focused on structuring our transactions with sound financial discipline. So to that point, we will stay within the swim lanes of being investment grade; and so from the perspective of our net debt leverage right now to where we may be, suffice it to say that we are very focused on investment grade.

As it relates to transactions and multiples, we have been pretty consistent in terms of the transactions that we have executed. And really sticking to the guiding principles that Colin and the team have been executing for ten years at JLL. And to that point are multiple ranges within the six to eight. We are pretty consistent in that regard. We have got some transactions that are a little lower and some that are little higher; and then further to that we always look to structure our transactions with, on average, 2/3 up front and at least 1/3 deferred, and that deferral is tied to performance both from a revenue and profitability perspective. We are really focused on culture and doing integration well, as Colin noted. And so from the perspective of what we see in the private markets, we are not seeing that. But again we are very consistent about what we look to acquire.

Okay. I appreciate it. Thank you.

Thanks, Brad.

David Ridley-Lane from Bank of America Merrill Lynch.

Sure. I'm just curious on your thoughts around your real estate services business. Adjusted EBITDA margin, as you go into 2016, especially as the property and facilities management revenue sounds like it could exceed the growth rate of, say, the capital markets business, and the little bit of a negative mix shift there that could be weighing on margin expansion in 2016.

Sure, David. First of all, when we look at adjusted EBITDA margin, the performance and the robustness of the underlying revenues is exceedingly strong. And where we look at the annuity businesses and the response from the lack of volatility, while it is a lower-margin business than the transaction business is, it is actually a good mix, if you will. So we are looking to really lead our business to over 60% annuity-based income stream. And you can see that in the M&A transactions that we did. So I think we will see a leveling, yes, but I think it will also generate an even more robust recurring income platform for our firm and for our investors.

Got it. And did I hear -- Colin, did I hear you right, that 5% of fee revenue was invested in IT spending in 2015? I'm just wondering, is that operating costs?

Yes, it is a mixture of operating costs, capital investment, and acquisitions.

Got it. And then, on the IT operating costs -- as you look forward into 2016, was 2015 an unusually high year and we should expect the IT spending to come down? Or this is about the right pace for you to be focused on your long-term goals?

Well, our underlying spend in operating costs, we set a target of doubling that between 2012 and 2016. And we are on track to do that. We are actually proud of that, because that is a really clear indication of our commitment to invest in what's strategically a very important new aspect to our business, which is driving the way in which our basic business processes are being supported by technology, be it back office processes or, indeed, our interaction with our clients in the transactions and in the facilities business. It is right across the piece we are adding technology into our business mix. And so that drive to spend more is a drive to add more technology to our basic business processes.

The M&A work -- we bought a couple of businesses last year, in particular, Corrigo, which [sure play] technology company, and that is new for us. But what we are seeing across our markets is the affected technology impinging in the way in which we are operating our business for our clients and the way in which our clients want to interact with the markets. So Corrigo is a platform which brings subcontractors in a sort of semi-automated way into contact with ourselves and our clients, and we can use the preapproved suppliers on that platform to service our medium- and small-sized corporate clients more efficiently.

So you have got a lot going on in technology and data management. We've invested in a team of several dozen people whose sole role is to go around our business globally and all of our service lines, and organize and clean and filter our data so that it is on a uniform basis, and therefore can form a uniform and consistent information feed for the sorts of technology tools which we have been developing which I described a moment ago. So we've got a broad-based level of activity in both operational spend, acquisition, and capital expenditure in and around the technology sphere.

Got it. And maybe the last one from me.

I think last quarter you talked about watching closely the speed of transactions and the number of bidders on capital market transactions, and this quarter you did see some hesitations and pause. Was there any particular theme around that? And was that pause more around, say, obtaining debt financing, general pricing concerns, bid ask spreads? Any color that you could place on that would be very helpful. Thank you.

Yes, you can take the debt piece out of the equation. Debt is freely available and it is still fairly conservatively underwritten by [living] institutions. So no issue there.

What we did see is something of a cooling in demand at the high end, in particular, of investment sales markets, a bit more selective purchasing buyers, not chasing risk as much as they might have done earlier in the cycle. We saw transactions indeed tending to slow, and that is one of the reasons why Q4 was a little weaker, because we believe that lower transactions went through the year end and will continue to complete in Q1 of this year and certainly that will be the case for us.

And your point about the bid/ask spread is an interesting one as well, because sellers' expectations of price continue to push upward, whilst buyers' willingness to pay those continuing increased prices has become slightly more hesitant. So you put all of that together, and that is sort of the demand mix that is swirling around out there.

Come back to our other statement -- the amount of money, equity in particular, seeking to find its way into real estate is still robust. You take our own LaSalle business with $56 billion of assets under management and over $10 billion of funds available to invest in real estate. So, they won't invest that foolishly, but it is going to get invested over the next two to three years selectively in markets around the world, and that is typical of what you will see in other institutions and investment funds.

Thank you very much.

Thanks, David.

Thank you. Brandon Dobell from William Blair.

Thanks. Good morning, Colin. Good morning, Christie.

I wanted to focus a bit on incremental margins in the Americas and the EMEA. Maybe, Christie, if you could give some color on your level of satisfaction with how the year progressed, and how we should think about decrementals looking out 2016 and 2017 as well?

Sure. I think, first of all, Brad, in the Americas, that incremental margin performance for the year was outstanding. If we look at the positive incremental margin drivers in terms of volume across leasing, ISM business, capital markets -- I mean, we highlighted the outperformance as well in the hotels business -- so absolutely outstanding. When we take a look at the timing of the incremental investments in alignment with our strategic plan that Colin, for example, was highlighting, investments in areas such as [red], which is a real enabler and value-add contributor to our clients, I am exceedingly pleased with the margin performance in the business. So all in all, positive incremental margin drivers, reinvesting in the platform consistent with our strategic plan, coupled with some slight FX impact -- great job.

Okay.

As it relates to EMEA -- EMEA was up substantially year over year from an incremental margin perspective. We delivered, as I mentioned in my comments, outstanding performance including the impact of exchange. We've had significant productivity gains and nice volume mix. We've executed exceedingly well on capital markets transactions, driving incentive performance fees; and all the like, again, consistent with our strategic plan invested in the platform in areas of technology and our people to really drive productivity for the future. As it relates to future performance, we have got an excellent base going into 2016 and we have got excellent people behind us who are all working to drive performance on behalf of our clients and investors.

Should we see the same kind of headcount additions this year -- excluding M&A -- I recognize that is a little bit difficult to predict on a forward basis for how it adds to headcount. But across the transaction businesses, make sure we continue to see you guys pick up the people? Or is there a plan to act differently in 2016 versus 2015?

We are always welcoming exceptional performers around the globe. And to that point, our leasing and capital markets businesses consistently have added 5% to 10% around the globe, consistent with what we have done in years past. And as well, while bringing those folks in, we are driving incremental revenue per head 5% to 10% as well. So, fantastic performance as we welcome new producers into our business.

Okay. And then final one for me.

As you think about capital spending, recognizing there is a lot of components in that, in 2016 versus 2015? Or any kind of color on what we should think about for free cash flow in 2016 versus 2015 would be helpful? Thanks.

Sure, Brandon. Consistent with the last five years of our performance, our capital allocation strategy is centered around $0.50 to $0.55 on the dollar being allocated towards M&A; $0.27 to $0.37 allocated towards CapEx; another 10% to 11% in co-investment to support our investors in our LaSalle business; 5% dividends. For example, this year we had an 18% year-over-year increase in our dividends, reflecting the confidence in our cash flow. And I think you can expect more of the same from us in the future.

Okay. Great. Thanks a lot.

Thanks, Brandon.

Thank you. Michael Mueller from JPMorgan.

Okay. Great. Thanks. Just two quick questions.

First, for 2015 what was the total acquisition volume in terms of dollars for 2015, first? And then, secondly, thinking about EBITDA margins, do you think you are going to be able to improve those in 2016 on a year-over-year basis, just given the outlook laid out in the slide deck for cap markets and leasing? And then, just what the expectation is with incentive fees and gains relative to last year?

The sum spent last year was $604 million for M&A. That was referred to in our prepared remarks. As to the EBITDA margins, the market dynamics will be what they will be, and we have made comments on those earlier on. Continued predictable strong growth in leasing, and we are expecting capital markets to be at or around the same levels as 2015. But in addition to that, as we grow all our business, but as we are growing particularly in our annuity business, we are also driving for productivity gains across the platform. Christie referred to those. We have instilled a culture of productivity improvements across the business and so that covers a vast array of types of projects. Christie made care to have mentioned a few of them as a follow up here. But that will also help to continue this pace of drive to build at our margins down through the years.

Got it. Okay. That's helpful. Thank you.

Thanks, Michael.

Thank you. I would now like to turn the conference back over to Management for any closing remarks.

Thank you, Operator. With no further questions, we will end today's call. Thanks to everyone for participating and for your continued interest in JLL. And we look forward to speaking with you again at the end of the first quarter. Have a good day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone have a wonderful day.

Thank you.