Jones Lang LaSalle Incorporated (JLL) Q1 2010 Earnings Report, Transcript and Summary

Good day, and welcome to the First Quarter 2010 Earnings Release Conference Call for Jones Lang LaSalle Inc. [Operator Instructions] 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 year ended December 31, 2009, and our report filed with the SEC. The company disclaims any undertaking or update of any revised forward-looking statement. 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 statements. Please go ahead, sir.

Thank you, operator. Hello, everybody, and thanks for joining us for this review of our results for the first quarter of 2010. With me today on today's call is Lauralee Martin, our Chief Operating and Financial Officer. And Lauralee will review our performance in detail in a few minutes. And as I sit today on the 43rd floor of our office building in Chicago, it's a bright spring day, and that's pretty much how we feel about our Q1 results. Summing up the quarter, we were encouraged by reporting adjusted earnings per share of $0.14, which compares with a loss of $0.65 per share in the first quarter of 2009. Our revenues totaled $581 million, up 18% for the same period a year ago and 12% in local currency. Adjusted EBITDA was $37 million, up from $11 million in Q1 2009. And finally, we announced that our Board of Directors has declared a semiannual dividend of $0.10 per share of our common stock. A few comments, first of all, on conditions in global real estate markets will help us put these numbers into context. We posted slides in the Investor Relations section of our website, joneslanglasalle.com, for your reference. Slide 3 shows the Jones Lang LaSalle investment sales clock, which, as you know, we update each quarter. It provides a picture of conditions in major markets around the world at the different stages of the real estate cycle. As you can see in the first quarter of 2009, capital values were falling uniformly in almost all major real estate markets globally. One year later, and with remarkable speed, we see values increasing in major Asian markets and select European and American cities, but with very different drivers and dynamics between the countries and cities. In debt capital markets, banks with exposure to commercial real estate loans continue to work with owners to modify loans and prevent foreclosures wherever possible. However, today, we are seeing debt activity increasing across the world as more organizations expect healthy economic growth, which make real estate lending a profitable prospect again on a risk-adjusted basis. Debt financing emerged strongly in Asia at the end of 2009, but securitized debt has yet to make any meaningful comeback in developed countries. Equity capital raising is evident across all three regions, boosting the volume of funds targeting real estate. Competition for a limited supply of prime product in all core markets is driving up capital values and encouraging some investors to move into second-tier markets and value-added opportunities. With Asia, and particularly China, Hong Kong and Taiwan leading the way, direct commercial real estate investment volumes totaled $63 billion globally in the first quarter, and that's 57% of our quarter one 2009 levels. In Europe, capital from pension funds and insurance companies is targeting high-quality, well-located assets. And in London, Paris, prime yields have fallen and second-tier cities are also starting to see yield compression as investors are forced to look further in stable Tier 1 core assets. In the U.S., yields are well-located in leased properties and top-tier markets have been compressed to very low levels with the depth of supply driving this effect. Turning to Slide 4, you'll see a snapshot of conditions in leasing markets worldwide. It tells a similar story, but clearly, leased markets progress continues to lag the recovery in global investment sales. Leasing property markets in Asia as developing economies have seen a strong recovery since mid-2009 when rental rates hit their cyclical lows. In most of the Americas, rents are still falling and vacancy rates continue to rise. With the exception of London, rental rates in most European cities also continue to fall. At the same time, leasing activity has begun to pick up, not only in Asia but in several core markets in Europe and the U.S. as well, presaging a gradual return to rental growth. In general, recovery in Asia-Pacific is leading Europe and Latin America, and those in turn are generally leading the U.S. So with that background, I'll turn the call over to Lauralee.

Thank you, Colin, and good morning to everyone on the call. I will focus my comments this morning on the progress we are making on our 2010 priority. These are the priorities we discussed with you as we closed out our 2009 results and which are summarized on Slide 5. Before we look at this year's priorities, I want to note that, last year, we said we were managing our aggressive cost take-out so that we would be solidly positioned to take full advantage of the opportunities that would come when markets recovered and could therefore further advance our market share and leadership positions. As markets are beginning to show recovery, in the first quarter, we saw revenue growth in each region and in nearly all our product lines, but particularly in Leasing, up 21% in local currency and Capital Markets, up 68% in local currency. We noted in our last quarter call that our first quarter performance would be measured against a relatively-easy comparable due to the low market activity last year at this time. Although we are very pleased with our performance around the globe, these year-over-year growth increases are not indicative of growth rate expectations as we move through the year. One of our most important 2010 priority is to continue to build our annuity revenue and expand our leadership position in the outsourcing facility management space. We've continued to increase the number of our corporate client relationships, which Colin will talk about shortly. During the first quarter, Property & Facility Management revenue grew 13% on a local-currency basis over last year, driven by particularly-strong performance in the Americas, which was up 34%. Another priority is to add and upgrade talent to increase market share and expand our expertise in new product lines, such as healthcare, retail and industrial. In the Americas, where our focus has been on both leasing and capital markets, we recently added a strong debt market capability. In EMEA, while our first opportunity is to see improved productivity of our existing people as transaction activity returns, we are adding to our capabilities in tenant representation, serving the occupier market and also in our Retail business lines. In Asia-Pacific, our focus is to continue to increase our market position in the key markets of Australia, India and China. Our priority for LaSalle Investment Management is to leverage our global scale. Colin will discuss LaSalle's strong start to the year in both equity raising and securing new separate account mandates, positioning us for growth in assets under management. Steep pressure is being felt throughout the industry. As a result, we made pricing concessions in certain of our Asia-Pacific funds which caused the sequential decline in Advisory fees in the first quarter. LaSalle has focused on building and maintaining long-term relationships with its clients, which means close communication of investment performance but also modification decisions where appropriate. We continue emphasis on maintaining a healthy margin on our Advisory fee revenue by managing expenses tightly. Our focus on cost discipline is a theme across the firm. On a year-over-year basis, we now see the benefit from our transition to more variable compensation model. This transition helped us generate a modest profit in a traditionally loss-making first quarter as composition was tied more closely to revenue. Offsetting this, however, after two years of salary freezes, and in some markets also salary reductions, we are experiencing compensation pressures, most notably in the emerging markets such as India and China. We will be reinstating salaries that were reduced during the downturn. And in select markets, we will make additional adjustments as necessary to retain our high-quality staff. We are now seeing the benefits of our cost actions in the most impacted markets during the downturn as we experienced year-over-year performance improvement in the large and important markets such as Germany, Russia and in our Hotels business, most notably in Asia-Pacific. Operating and administrative expenses are being tightly controlled, with the modest increases due to added accounts in Property Management and Corporate Facility Outsourcing. Finally, regarding our balance sheet position. We are pleased that our debt-reduction efforts reduced our cash interest in the quarter to less than $4 million, a 41% decrease from a year ago. We are comfortable with our leverage ratio of 2.26x, and expect over the longer term we will target that ratio to be no more than 2x our bank EBITDA. Today, we have the financial flexibility to selectively invest in hiring, to make targeted acquisitions and to co-invest to support LaSalle Investment Management's capital-raising activities. That concludes my financial comments, so let me turn the call back to Colin.

Thank you, Lauralee. So to give you all the sense of how we generated our first quarter results, here are just a few examples of recent new business wins, and they're on Slide 6, starting with our excellent Corporate Outsourcing business. During the quarter, we won eight new corporate assignments, we retained all six contracts that came up for renewal and we expanded our relationship with a further three clients. Our pipeline for additional business remains strong and consistent with last year's levels. A few examples, we signed a new agreement with ANZ Banking Group which renews our Australian outsourcing relationship that forms the basis for expanding services in Asia, Europe and America with that client. Earlier this month, Vodafone selected us as preferred supplier for real estate services in Germany, Turkey, Spain and Portugal. In India, we were retained by Wipro Technologies to deliver facilities management services for its 2.3 million square foot portfolio in Bangalore, Mysore and Mumbai. We were also retained by Dassault Systemes to provide a range of services through North and South America. Turning to investment sales, earlier this month, we advised Corio on the EUR 1.3 billion acquisition of the multi-portfolio shopping centers in Germany, Spain and Portugal. This is one of the largest ever retail properties transactions, and by margin, our largest of the quarter. In the U.K., we acted for Allied London Properties in the GBP 183 million sale of 3 Hardman Street in Manchester. We represented Leighton Properties in the AUD 94 million sale of South Tower in Brisbane. In the U.S., we closed the sale of the office building at 1450 Frazee Road in San Diego. And in India, Mumbai International Airport Ltd. awarded us a new transaction advisory and capital raising mandate. MIAL plans to modernize the airport and create an integrated mixtures facility with hospitality, office, retail and entertainment facilities on its 200-acre site. This exciting mandate follows our successful capital-raising efforts from the New Delhi International Airport development. And the global hotels transaction market, as Lauralee said, has come back to life. And Jones Lang LaSalle hotels represented Leeward Strategic Properties Inc. in the $63 million sale of the Marriott Downtown in Los Angeles. Among the leasing and tenant representation transactions we completed during the quarter was a 1.2 million square foot office and lease restructure for KBR in Houston. In Chicago, we represented UBS in the renegotiation and reconfiguration of 400,000 square feet at the UBS Tower. We leased 90,000 square at Access Capital building in Brussels to the European Commission. In Tokyo, we represented Microsoft in the consolidation and relocation of its Japan headquarters into 400,000 square feet in Shinagawa Grand Central Tower. And finally, in India, in the largest transaction in the Bangalore CBD in the past two years, we represented Citrix to lease 130,000 square feet in the Prestige Dynasty building. During the quarter, LaSalle Investment Management continued to take advantage of opportunities coming out of the economic downturn, attracting $3.4 billion of net new capital commitments from institutional investors around the world. That total will be reflected in LaSalle's assets under management figures as it's invested this year and next. It includes additional capital commitments for two of LaSalle's private equity funds, as well as additional commitments from long-standing separate accounts clients based in the U.K. and U.S. This reflects not only LaSalle's success, but also importantly, the continued commitment of institutional investors to direct investment in the real estate asset class. Finally, that total value of the commitments received in the quarter included the largest portfolio takeover in our history, the raw mail pension funds separate account in the U.K., as well as the second new investment mandate for a premier U.K. pension fund. And early in April, LaSalle announced the final closing of LaSalle Canada Income & Growth Fund III, raising approximately $230 million, which with leverage will create total potential buying power of more than $550 million. Looking ahead at market prospects around the world, an abundance of capital from an increasingly broad-based investors points to an upward trend in global real estate volumes and to a continued broad firming trend in pricing. For the year, we project that for the market as a whole, world direct commercial real estate investment will increase by 35% to 45%. In Asia-Pacific, rising investment sales volume is being supported by a spreading improvement in demand fundamentals in recovering leasing markets. In the Europe and the U.S., volume is expected to increase this year despite continued slow pace in the recovery in the leased market demand fundamentals and the tight supplies of core market. The Southern European euro crisis is clearly a negative for our prospects. Bond market weakness raises the risk-free rates of returns severely in the countries directly affected, and to a lesser extent, across all euro zone countries. This will negatively influence market prospects for pricing and transaction volumes across continental Europe. In the leasing markets, as I just said, we expect overall volumes to rise slowly but with Asia outpacing Europe and the U.S. as the region's economy grows between 5% and 6%. Demand focus on better quality space should see rents moving ahead even where headline vacancy is still at double-digit levels. So much for market prospects. In closing, we typically inform you of awards and recognitions we received during the quarter which illustrate our position as the leading real estate services and investment management firm. In mid-March, Private Equity Real Estate Magazine named us Europe Broker of the Year for 2009. And just last night in London, we were awarded Investment Agency Team of the Year in the U.K. Property Awards. General Motors named us 2009 Supplier of the Year, marking the third consecutive year in which we receive this award. GM noted that they, and I quote, "Suppliers recognized this year have risen above and beyond the call during one of the most challenging years in GM's history." In other awards, we were also named for the third year running to the Ethisphere Institute's Annual World's 100 Most Ethical Companies, and the U.S. Environmental Protection Agency named us 2010 Energy Star Partner of the Year. The International Association of Outsourcing Professionals selected us its Global Outsourcing 100 list. This is also the third time we won this award, and we're now the highest-ranked real estate services firm of the five on their list. So summing up, we are seeing renewed confidence in markets around the world and among our own clients who we would very much like to thank for their loyalty and trust. This confidence is opening up new opportunities on multiple fronts for us. And so in this environment, we're tackling the future with optimism. And with the clear business priorities that Lauralee discussed, we're driving to create our own opportunities. But obviously, we remain alert and responsive to market risks such as the current euro situation. Finally, Lauralee and I both want to thank all of our colleagues across the world for the impressive job that they did in this first quarter. They have every right to feel very proud of the difficult work that they have done over the recession, and it's really pleasing to see them rewarded with such a healthy first quarter. The revenue momentum that they are creating builds up the share gain of the last two years and positions us well through the rest of the year. So let's now move to questions. Operator, would you please explain the Q&A process?

[Operator Instructions] Your first question comes from the line of Sloan Bohlen with Goldman Sachs.

Colin, if we could start on your outlook for investment sales. And I guess getting comfortable with the number of being up 35% to 45% globally, do you think that's more a reflection of how much capital would be actionable at today's pricing? Or more comment about, I guess, maybe not the stress is the right word, about more product that comes to market and sellers feeling, willing to sell?

The supply demand equation currently is as ever complex. On the supply side, there is a gradual opening of distressed sales, particularly in Europe, less in the U.S. and hardly toward Asia where there hasn't been very much distress. And so that's beginning to put a little more product on to the market. The supply, however, is constrained, particularly of high-quality assets, because in general, investors who own assets that are not feeling particularly pressured to sell have a prospect at this point of continued rising prices. So every month or quarter, they hold an asset is likely to produce a better return in the market. So the supply side, they are necking those two out, we feel is fairly constrained. And my comments about the U.S. price and cap rate compression, having gone so quickly for high-quality assets is a reflection of that depth in supply. On the demand side, there's just tons of money everywhere. And if the supply side was freed up, those numbers will be an awful lot higher, frankly. The money is coming from institutional investors. As I described, it's coming from private -- from so many wealth funds, it's coming from the Middle East and Asia, it's coming from private individuals as well. And the private equity funds are also back in the market. LaSalle is moving off defense and into offense of picking up assets again. And as both the other thing just to note in that overall picture is that whereas coming out of the recession, everyone was very risky of us and just targeting stable core assets in nice, safe, big-city CBDs, but frankly, moving off of that base quite quickly because of the lack of availability to meet the funds that are there trying to pressure into the market. So long answer, but it's quite a complex situation. And of course, as I said in the comments, the dynamics are very different in practically every city around the world.

Lauralee, could you maybe elaborate a little bit on the cost structure shift, just where that was done and what business lines?

I think you're referencing the more variable competition, a reference. Well, we had moved throughout last year in the Americas to a commission model in our leasing businesses first and concluded that in our Capital Markets business. So we have a much more line-of-sight commission model in the U.S. which is working very well for us as these markets recover and very well as we identify top talent that wants to be part of our firm and likes that form of compensation structure. Throughout the firm, beyond that, we've done modest changes to commissions in other parts of the world, though generally in Europe and Asia, we are more a based in Bonus business as we are in our Corporate Solutions business. But I think, even there, what you're seeing in the benefits of our compensation to revenue ratios in the first quarter is where we had businesses that were in significant loss-making modes last year, think about Capital Markets around the world where we had a great deal of staff that we were paying but without deals happening. And as transactions come back, the revenue ratios against those compensation numbers are getting to be much more in line.

I don't wanna try and stick you through the number, but in terms of -- if we think about it maybe in terms of margin, if all else was held equal, what did that do on average, I guess, to margins in those types of businesses?

Well, if you look at against last year, we were a little over 2.5x better on a comp to revenue ratio. Part of that is the shift to commission where you clearly have only compensation coming in where revenue was produced in our leasing businesses. And than again, the piece set is around productivity. We will give some of that back as we move through the year, because in a normal marketplace we were not out of line with compensation for our people, it was really a question of when that compensation was booked. But we do anticipate an improvement over last year in that ratio because of the fact we will have transactors now in some of those, again, loss-making areas and improvement in Capital Markets that will be back to productivity.

I guess the $3.4 billion in new equity, are you earning fees on that or none until it's invested?

This year, not until that's invested.

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

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

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

Maybe more of a modeling question, you touched on this briefly, but as we think about the compensation benefit cost, they had become somewhat more variable, although you are adding some salary cost back into the business. How do we think about the leverage opportunity on that line item relative to the operating admin and other cost line item?

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

But maybe we can think overall that we'd expect more leverage in that compensation benefit line, we finished with a rebound relative to the operating admin and other?

That's correct.

And then somewhat related to that, you mentioned some comments about your staffing needs in different geographies. We tend to think that the sales sort of pay for themselves, but at what point would you start to have to add really more support staff into the cost structure?

First, as I already said on the revenue-generating side, there is a well of untapped productivity gains as people have been kind of having to spin wheels because markets went up completing deals over the last couple of years. So that will give us a good bounce there. We will continue to hire individuals in a targeted way to add top producers to the mix. And of course, very many of the poor producers have left the firm during the recession. On the support side, it's our aim to hold our support costs tightly under control through the growth phase in the market upswing. So expect to see productivity improvements in our support structure as well.

Your next question comes from the line of Michael Mueller with JPMorgan. Michael Mueller - JP Morgan Chase & Co: In terms of the incentive fees that were booked in the quarter, can you give us a little more color on them? And is there any visibility to additional fees being booked throughout the year?

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

Your next question comes from the line of David Gold with Sidoti. David Gold - Sidoti & Company, LLC: One, on the comment of reinstating reduced salaries, an effort to retain. Can you speak about which markets in particular you're focused there? And then also, to the extent there are areas that you're hiring, a little bit more on that, where we need to add folks and how we're attracting in this environment and in those areas?

Well, without giving commitment and kindly to our people, in selective ways across parts of the business, we saw salary reductions in parts of the U.K. business, selected countries in Europe, Japan in a very real way, across the U.S. as well. And it was variable by level or by area of business. And so, as Lauralee said, we will selectively restore those as the health of our individual business lines or country performance picks up. As to hiring -- and there is the ongoing issue of catch up as it were for salary freezes, and that's particularly an issue in the high turnover economies, India, China. Typically, you see in all sorts of industry 20% to 30% annual turnover rates. And we obviously always have always aimed to outperform that and show lower rates of turnover. And we will be aiming to maintain that by appropriate salary adjustments. As the hiring, I think we've both made comments on that. We're not in a mood where we feel pressured to go out and hire a large numbers of people. We think there's a significant uptick in productivity available across our transactional businesses, in particular, our Corporate business, less so because we've been growing healthily and adding people through the downturn. But in the transactional area where individuals in particular are coming to see us, as well as us targeting them, we will talk to them. And if there's a meeting of minds at attractive economics for both sides, then we will move ahead and hire people. David Gold - Sidoti & Company, LLC: And on attracting folks, just when -- I guess it's a tough one to talk about I guess if it's not a fair question, but does that become more a function of, say, better splits from some of your competitors or some more about the platform overall?

I believe that we pretty much all paid comparable. The industry is -- you have a difficulty staying out of line very long and be successful. So we believe it's platform. And if someone has the tools to compete more successfully and they're high producer anyhow, that's very appealing. I think you're aware that our fifth G that we added to our growth strategy is connections. And one of the things that we found is how powerful connecting into the platform has been for our various offers. And the clients are increasingly sophisticated and understand if a tenant is looking for space, they want more than leasing advice. They want someone that can tell them about the capital stock of the building and the health of the owner. They want someone to be able to give them project management advice as to how efficient the building is being run and what that's going to mean relative to their expenses. They're going to want to talk to our energy and sustainability people about how green it's going to be perceived, so that they can put that in their own metrics. So you can't just sell your expertise on your own anymore. It takes a machine.

David, to all the principal things that people joining us say they want is to just to be part of our collaborative culture where we work as teams and we work across business lines. As Lauralee has described, across increasingly, across geographies, across continents to produce excellent outcomes for our clients. And that collaborative culture is a unique feature of our business. David Gold - Sidoti & Company, LLC: Lauralee, if we go back I guess a year ago, one of the things that we were doing was cutting the discretionary spend, if you will. We cut back there pretty dramatically. Are we at a point do you think where we bring back some of that, or is still sort of too early?

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

And it may have a -- in the same fold as before, the expenditure that was appropriate in 2008 and '07. We might want to spend those dollars differently to support and develop the business in 2011, 2012. So we were thinking about the sorts of expenditure that we need to add back in as well. David Gold - Sidoti & Company, LLC: On the write-downs, can you speak about the geographies those were related to?

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

Your next question comes from the line of Vikram Malhotra with Morgan Stanley.

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

Well, let me take those questions a piece. First of all, if we look at EMEA, EMEA clearly had a much better quarter than last year. Relative to Colin's comments, it isn't in all places. We saw the biggest performance increase in the U.K. which is further advanced in the recovery. We also saw a nice increase, though off of a extraordinarily low basis, in Germany and Russia where that modest uptick year-over-year in revenues then combined with very aggressive cost cuts, improved their bottom line year-over-year performance. But that wasn't enough to get us into a profit mode for that business in the first quarter and they're not on a commission model generally, so that my earlier comments on the overall firm don't apply there. I think the other comment I would make on Europe is we're actually very pleased with this last year because the markets -- we accrued no bonus in the first quarter in Europe and we were able to accrue bonus in Europe, and that is incredibly positive for our people. It's incredibly important for retention and motivation, and it means that, that bonus is going to be more evenly spread this year and hopefully higher because of the results that they'll bring in, whereas last year our bonus was very, very back-ended in that part of the world. And you asked for long-term targets. I mean, long-term targets, we tend to focus on operating income because we include depreciation and amortization in that because we view that our technology in many cases keeps our clients, is a competitive advantage with our clients, and so that's in that line item. But our long-term target on operating income is to exceed; 12%, and that's global so it's going to be weighted around the world, but that's our long-term target.

If you look back to the last cycle, the U.S. have a different cost structure, so that will be a benefit as well going forward?

Correct. We would believe that the U.S. would get back to historical margin percentage.

And second question really was on -- Colin, you mentioned in the U, s., there's a activity. I'm just wondering -- I just want to get your thoughts on we've seen some yield compression. There is more talk of rates eventually going up this year, possibly next year. I just wanted to get your sense of how you think the stressed transactions will trend in the U.S. over the next couple of quarters.

Well, upwards. But what we say is that the trickle will become a small stream and then a small river, but it's not going to be a flood. The banks are showing and indeed the special services now increasingly in the CMBS markets where the stress as all capital structures are no longer functioning. They're all showing a remarkable degree of patience and creativity in extending loans and in sort of giving full variance to lenders, albeit that we see them increasingly staffing up to handle the issues. We see them increasingly taking over the control of properties where the equities have been wiped out. So the market is growing, but it's just not at this stage, a flood. So just gradual growth I think in that market. On the comments I made earlier about the paucity of supply, just do still apply. There's just not a lot of new front on the market. And the transaction levels are still very low. So while we talk about some spectacular cap rate compressions, we found very few deals. So the market is still very thin.

Lauralee, you mentioned, given the cost structure, the balance sheet, you are now poised to look at selective hiring, acquisitions and just going to business. I'm just wondering in terms of acquisition, are there any particular regions or businesses that sort of you'd look to augment in the coming quarters?

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

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

First question I have is on tax rate. It seemed like a fairly low tax rate during the quarter. How should we be thinking about that going forward?

Yes, Will, we said we would sort of be in the mid-lows, so that's sort of in between 20% and 25%. We expect it to start to be where we are this time, and that's about at 23% and think we can maintain that.

I want to ask you about Staubach, and maybe you commented on this side as well. But as we approach the first payment, which I know can be deferred for a year, any thoughts on that, or can you comment?

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

It looks like there's some other business obligations that were moved in the current in addition to that, is that related to Kemper's?

No, our Meghraj transaction in India, we did up our ownership percentage in that. And we also had a remaining payment for Spaulding & Slye that we paid out.

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

Well, Lauralee made the point that the valuations that we do generally quarterly within the funds are turning and we're seeing some restoration of that significant value drop. And rather we mark-to-market from $54 billion roughly down to the high 30s during the recession. So this could be a good way to come back to that, but we are seeing that cycle turn and then increase. I talked to you about the net funds as rate during the quarter, that's obviously there to be invested. But we've also got an additional sort of $8 billion or so of spending with leverage, which is sort of leftover from 2007, 2008, 2009, capital raises and which wasn't spent during the core part of the recession. That adds up to a lot of fire power in LaSalle's portfolio. And the challenge that they now have is to get out and invest that if we're moving obviously from defense value protection, renegotiation of asset financing in 2008 and 2009 to back on the acquisition trail again. And they have, I'm pleased to report, begun to produce some and they complete good acquisitions across the globe. Interestingly, as I've said too, the market as a whole has moved quickly away from core and so has LaSalle. And they're beginning to see that sweet spot of investment in value add. And even development-opportunistic projects also begin to pick up again. So the challenge we have within LaSalle is to pick up the rate of investment in a market that's only making product available at a relatively constrained pace, but not fully engaged on the job. And they've switched back their depot on to acquisition mode again, and we're selected the hiring there as well.

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

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

Yes, it's one quarter behind.

So when we know that the REIT market has been up since the beginning of the year, so I guess that bodes well for that area. Just final question on asset management, there's been a lot of press lately. In fact today, about doubling the U.S. pension funds, I guess doubling their allocations this year. How do you look at in terms of positioning? Is there any kind of ranking in terms of your brand or how well you've done with pension funds or others? I know you're one of the stronger brands, but any comments would be appreciated.

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

[Operator Instructions] Your next question comes from the line of Brandon Dobell with William Blair. Brandon Dobell - William Blair & Company L.L.C.: I'm just asking about capital allocation this year. how should we think should we think about the use of cash, CapEx, debt paydown, interest payments? how should we think about how you're going to allocate the capital this year?

Yes. Our CapEx spend will be continued to be pretty constraint, probably in the $50 million range. Clearly, we've declared what is a very modest dividend, but that gives you an indication there. LaSalle Investment Management will be the primary user for our co-investments. And the pace of that will be dependent on their ability to invest capital. So that's a little bit difficult to get one's hands around. But we did do about $10 million in the first quarter. So maybe 4x that or on the touch more, hopefully, would be good. I doubt we're going to get much back. Normally, we give you a net number. But pretty much today, it will be gross. so I would expect that would be 40 to 50. And again, we'd like to see that more so. And the balance of that is, hopefully, the Staubach earnout. I mean the next payment where that will be deferred and just modest other potential acquisitions after that. Brandon Dobell - William Blair & Company L.L.C.: And then in terms of the Investment Management business, is this quarter's Advisory revenue number a decent run rate? I guess, I'm trying to gauge the impact of the change in fees offset by capital raise as you get to what should be a more, I guess, sustainable level for the Advisory.

Well, I think for this year, we found really kind of the floor in the accounts that we have. As we are able to bring the capital on board that Colin discussed which will most likely be in the second half of the year, we'll see benefits from that. If our Security business grows, we're very quickly get a benefit from that. So we'll be focused on moving that number up rather than seeing more pressure down this year. Brandon Dobell - William Blair & Company L.L.C.: And in terms of a structural expenses for you business, it sounds like beyond the personnel moves here and there, still pretty tight strings on discretionary. Any material plans for kind of office or space expansion or extra technology and P&L spending we should be aware of that would k industry of change of how I think about the cadence of the expense line during the year?

No, I would not say anything material. I would make a comment. We did have a modest restructuring charge in the first quarter. And I'm anticipating that with some of the -- we still have Staubach integration accounting that we can do relative to some of that and some other things that we still think are appropriate for getting the business in line; that on a total year basis, we could be as high as $10 million of restructuring. We'd like to manage it lower than that but could be as high as $10 million. That wouldn't be clearly up in admin line, the highlighted with the goal of having a benefit long-term in be up in admin line.

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

I just had a question about the kind of the Investment Management business and the kind of plays into the overall Capital Markets business. But obviously, you guys have been successful raising capital in your Investment Management business. And a lot of firms have raised a lot of money to buy distressed properties and things like that. What are you seeing to be the catalyst will be to put the money to work? And can you just talk about -- obviously, you guys and everyone else wants to put it to work at the most attractive price as possible. But things have probably moved up quicker than some people would have expected. Can you talk about the balance and maybe what's going to cause that money to go from the sidelines to being invested?

Well, we didn't raise any specifically debt-oriented funds, many did. But we do have a latitudes within many of our funds to buy so-called distressed. I won't repeat what I said. There just hasn't been a lot of it. Your comment on the speed of recovery took, I think, the market as a whole by surprise and sort of period when distressed good assets can be both purchased at distressed prices lasted a couple of microseconds in those steep markets. And things have moved very quickly. I think the basic lesson or message for the supplier, their capital into those funds is that if your manager is going to do a good job for you as act as a responsible producer, as LaSalle always does, for example, then a level of patience will be in order, which perhaps wasn't anticipated 12 months ago. And that patience will be because if our manager is going to be selective in this acquisitions and if it's going to put that money to use in a responsible way for a good return over the lack of investment or the fund, then the pace of investment will just be constrained and not that's just driven by the market economics I referred to earlier where supply in particular is constrained across the world. So I think patience is one issue. And we are seeing in almost the conversation we're having with investors, they're around the LIFO funds, whether they should be extended and generally we're finding the confidence that investors have in us yields you to agreement on those sort of extensions. But that gives you a feel for some of the dynamics that are in play.

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

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

The comments we made earlier on that, in particular, Spanish and our Italian business are obviously close to the eye of the storm currently. But if you add up our Spanish, Portuguese and Italian businesses together, they're less than 10% of our European revenue. And that's including everything they do, not just the transactional piece. I would expect that the Capital Markets are going to come to or supply to get to the real estate parts. And Capital Markets are going to be very constrained until this is sorted out in those economies. And the prices of debt in Italy and Spain are going to be moving up with the spreads, not perhaps as high as the Greek levels of sort of 800 basis points, 1,000 basis points above the German bond of reference point. But there's certainly going to be a 200, 300 basis points of spare. And that's going to lower the attractiveness of real estate as an investment clause for the period of time that those spreads stay blown out because they're reference points for the capitalist banks as a whole. Now before you get to the issue of confidence, which obviously will have gone very quickly, again in those markets close to the core. The broader question which we haven't looked is towards that grazed the cost of capital throughout the euro zone because obviously, the paying here is eventually going to be spread across the stronger as well as the weaker countries as they come to the rescue of the euro as a whole. And that's before you get to the question of, again, confidence for investment in those economies. For our own individual businesses as further aspect which is that as we are now looking at a profitable year in Europe, those problems will be translated back at potentially a lower euro dollar rate than we had anticipated and that we've seen in previous years. So that's a few kind of dynamics of it all.

And we're not economists, John, but I think that we have a very large presence in the U.K. And money has been fleeing to the UK, but it's been attractive to the U.K., on the continent. And that maybe an offset to some of that in a sense that our U.K. business will remain strong, if not, even find more strength.

And the U.K. business represents approximately what percentage of your overall European business?

About 40%.

And we have no further questions at this time.

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

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