Jones Lang LaSalle Incorporated (JLL) Q1 2011 Earnings Report, Transcript and Summary

Good day, and welcome to the First Quarter 2011 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, 2010, and in our other reports filed with the SEC. The company disclaims any undertaking to update and revise any forward-looking statements. A transcript of this call will be posted and available on the company's website. A web audio replay will also be available for download. Information and the link can be found on the company's website. At this time, I would like to turn the call over to Mr. Colin Dyer, Chief Executive Officer, for opening remarks. Please go ahead, sir.

Thank you very much, operator. Hello, everybody. Thank you again for joining us for this review of our results for the first quarter of 2011. With me today in a wet and windy Chicago is Lauralee Martin, our Chief Operating and Financial Officer, and in a moment she's going to review our financial performance in detail. First, let me give you the headlines for the quarter. Our revenues totaled $688 million, which is up 18% from the first quarter of 2010 and that's a 16% increase in local currency. Net income was $1.5 million or $0.03 per share compared to $200,000 or $0.01 per share in the first quarter of 2010. Our pipelines are growing steadily across the businesses and across all geographies. Our Board of Directors have declared a semi-annual dividend of $0.15 per share of our common stock, and that's up from $0.10 per share in the prior period. To put the results, which we'll talk about shortly in context, let's first look at conditions in the global economy and our real estate markets around the world. The world economy is expected to grow at around 3.5% in 2011 and 4% in 2012 and that's according to Global Insight. Annual GDP growth is expected to be 2.1% in developed countries and 6.4% in emerging countries, which include the BRICs. So despite political turmoil in the Middle East; sovereign debt problems in Europe and to an extent, the U.S.; and the devastating effects of Japan's earthquake, tsunami and nuclear crises, the multi-speed global recovery continues. To give you a sense of conditions in key real estate markets, we've posted slides in the Investors Relationship section of our website, www.joneslanglasalle.com. Slide 3 shows the Jones Lang LaSalle investment sales clock, which we update for you each quarter. It provides a picture of conditions in major markets around the world at different stages of the real estate cycle. You can see that in the first quarter of 2011, values are rising in most markets with the pace of growth even beginning to slow in just a few. Our preliminary figures indicate that global investment volumes totaled just under $94 billion in the first quarter, which is up substantially from the first quarter of 2010. Capital values for prime real estate assets continue to increase strongly in many top-tier office markets, increasing at an annual rate of over 20% across the 22 largest markets worldwide, but with significant regional differences. The downward shift in prime yields has showed significantly during the past 2 quarters, however, as rental growth replaces yield shift the key driver of capital appreciation. Turning to Slide 4, you'll see a snap shot of conditions in leasing market worldwide, which tells a similar story, but progress here continues to lag the recovery in global investment sales. The strongest office leasing markets continue to be in Asia Pacific, but first quarter regional net absorption increased by 30% year-over-year. We did see a pause in the European office market growth with net absorption down 20% on the first quarter of 2010. Office vacancy rates continue to trend down gradually from that early 2010 peak and our provisional global office vacancy rate across 104 cities now stands at 14%, down 1.5% from the first quarter of 2010. Regional vacancy rates vary from 16.8% in the Americas, 10.9% in Asia Pacific and 10.3% in Europe. Rental growth on prime assets in top markets is at its strongest since the first quarter of 2008, averaging 8% year-over-year across 22 major world markets. The strongest growth has been in Hong Kong, Singapore, Shanghai, São Paulo and Moscow. Rental growth is also returning to some central business district office markets in the U.S., notably Washington, D.C. and San Francisco. But for most office markets worldwide, rental stabilization is now the main theme. So with that general background, I'll now pass the call over to Lauralee.

Thank you, Colin and good morning to everyone on the call. Similar to previous quarters, I will not repeat the financial results as outlined in the earnings release but, rather, will focus on a handful of key items that impacted the quarter's results. Overall, we were pleased that our strong revenue growth continued, and importantly our pipelines are ahead of where they were a year ago. The increase in our expenses was driven by certain unusual items that we explained in our earnings release. Given the seasonal nature of our profits, these items have a pronounced impact in the quarter but they will be insignificant as the year plays out. Together, the unusual items totaled more than $9 million and directly impacted our operating income. Excluding the unusual items, our operating income margin was consistent with the first quarter last year and our EBITDA margin would have shown improvement. While we are not designating these items as restructuring, they are unusual in nature and we are disappointed in our margins this quarter because of them. Also affecting the quarter was a decision to hold regional business meetings to kick off and accelerate our strategic plans and goals for the year, meetings that have not been held for 2 years due to the downturn. The impact of these meetings was approximately 1% of revenue but already, we are seeing the benefits of improved business going into the second quarter. The meeting cost, taken together with the unusual items, reduced our operating margin just under 2.5%. We continue to be committed to our medium-term operating income margin objective of 12%, or an approximate 15% EBITDA margin. Further, we have very positive revenue trends in each of our regions that I'd like to talk now about briefly. In the Americas, revenue increased 26% from the first quarter of 2010, for $288 million. The most significant increase was in Leasing, which grew 35% or $37 million to nearly $144 million. In the quarter, we hired 41 net new brokers, 21 of whom are in our Industrial business lines. We continue to expand our market positions and capabilities as our powerful platform continues to attract top talent. We recently completed the acquisition of Keystone Partners in North Carolina, which will also contribute to continued momentum in our Brokerage business. Capital Markets & Hotels revenue more than doubled from last year to $20 million of revenue in the first quarter. We incurred approximately $3 million of accounting-accelerated compensation expense related to acquisitions that normally would be amortized over a 3- to 5-year period. You will notice new account lines on the balance sheet this quarter, for warehouse receivables and warehouse facilities that resulted from our acquisition of Primary Capital Advisers in Atlanta, which provides us the capability to offer our clients agency financing. This acquisition nicely complements our existing Capital Markets service offerings and allows us to expand our multifamily service, adding the origination and servicing of multifamily mortgages. While operating expenses have increased for the Americas in total, the increases are primarily variable in nature and attributable to higher revenue-generating activities and future business prospects. Revenue in EMEA increased 11% from the first quarter last year, largely in our Project & Development Services or PDS business lines. PDS includes our Tetris fit-out business, where the accounting required subcontractor costs be included as a revenue gross-up. These gross-ups also contributed to increased operating expenses. Overall, while total EMEA operating expenses increased $20 million, or 13%, compared with the first quarter of 2010, more than $8 million of the total was due to higher subcontractor cost pass-throughs. Europe remains in a variable state of economic recovery, which is reflected in our transactional revenue results. There are some countries still producing strong results and with quality pipelines and importantly, the large markets such as Germany, England and France. But with such varied recovery to date on a country-by-country basis, the transactional results reflected in the region, taken as a whole, are mixed. Looking ahead our pipelines are strong and we've selectively added revenue producers to take advantage of markets as they recovered more broadly across the region. In our Asia-Pacific region, revenue increased 22% in the quarter with growth across all business lines. There were notable increases in India, Singapore and Greater China, which includes China, Hong Kong, Macau and Taiwan, driven by $4 million of leasing revenue increase. There were smaller yet meaningful increases in Korea and New Zealand. Looking at business line results, Property & Facility Management was up $16 million and PDF was up $7 million. Like in EMEA, subcontractor costs are reflected in revenue and expenses of Asia-Pacific's PDF and Facility Management business, dependent upon the contract terms. Across these two business lines, there's nearly $8 million of vendor cost pass-throughs included in the year-over-year growth of revenue and expenses. Total operating expenses increased 23% for the year, inclusive of these charges. We want to publicly recognize both Jones Lang LaSalle and LaSalle Investment Management colleagues, who are tackling the significant challenges imposed on them by the tragedy in Japan while still continuing to strongly support our clients and our investors. In the quarter, we had minimal financial impact to the firm's results and, although early to determine, we do not expect the total year to be different. Included in the firm's results was a JPY 100 million or $1.3 million contribution to the Japanese Red Cross relief efforts. LaSalle Investment Management had a solid quarter with revenue up 9% compared with the first quarter of 2010. Advisory fees were up 5%, due in part to favorable valuation increases in the Securities business. Our 2011 net equity commitments raised in the quarter totaled $1.5 billion, including $1 billion in new and expended separate account mandate. Assets under management rose to $43 billion at the end of the first quarter from $41.3 billion at December 31, 2010. LaSalle's investment performance continues to exceed most benchmarks. The firm's balance sheet remains strong. Cash flow activity during the period was broadly consistent with historical first quarter activities, driven by cash payments of annual incentive compensations. Our net bank debt and total net debt, which includes the deferred acquisition obligations, have decreased significantly from the first quarter last year and we remain well-positioned to take advantage of market opportunities in a continually consolidating industry. Let me now turn the call back to Colin, who will discuss some of our recent business wins.

Thank you, Lauralee. So to give you a sense of how we generated our first quarter results, Slide 5 shows a few examples of recent new business wins. Starting with our global large Corporate Outsourcing business, we won 12 new assignments during the quarter, renewed 7 contracts and expanded our relationship with 3 other clients. Our pipeline for additional new business remains strong and consistent with last year's levels. Some selected corporate solution wins include in the Americas, Belk, the major retail chain, who retained the facilities management and global engineering services with its 28 million square foot portfolio across 16 states in the Southeastern USA. Canada and Europe retained us as a preferred provider for strategic consulting, valuation and transaction management services. Across in China, we were appointed facilities manager for the 883,000 square foot FedEx Pacific logistics hub in Guanzhou. The Australian Customs Service awarded us a 3-year contract to manage its 2.9 million square feet portfolio and these totals and selected wins do not include activity in our U.S. Market Corporate Solutions business, which areas focuses on relationships with mid-market corporate occupiers, and supporting these client needs in transaction management, project management, lease administration and consulting services. During the first quarter alone, we won 15 new assignments, totaling nearly 30 million square feet of space in this rapidly expanding segment. Turning to the first quarter investment sales activities, in the Americas, we completed the $460 million sale of a 8-property multi-family residential portfolio in the suburbs of Washington D.C. In Mexico City, our tenant rep and Capital Markets team joined by their Corporate Solutions colleagues in Germany, executed a $100 million sale and lease back transaction for Nestlé's new regional headquarters. In the U.K., we advised Hermès on the GBP 235 million sale of 20 Gresham Street and just last week, we represented a confidential Asian client in the GBP 288 million acquisition of the Aviva Tower in the city of London. In Singapore, we advised on $800 million of transactions, the majority of large buildings sold there to date this year. And in Beijing, we advised on the sale of the 410,000 square foot Mapletree Tower, Beijing's largest office transaction facilitated by a third-party agent since the beginning of 2010. Among the Leasing and tenant representation transactions, which we completed during the quarter, again in Washington, D.C., we represented the Piedmont Office Realty Trust in the 600,000 square foot lease renewal of the NASA headquarters. In Moscow, we were appointed exclusive marketing and leasing agent for the 2.6 million square foot Aviapark shopping and entertainment center and in Germany, we advised syncreon on leasing 215,000 square feet of logistics and office space to Garbe Logistics. Turning to Asia-Pacific. In Singapore's largest leasing transaction to date this year, we represented Credit Suisse to secure a new 300,000 square-foot lease and anchor tenancy status at One at Changi City. And also in Singapore, or largest ever property and asset management win in Southeast Asia, we won the mandate for Asia Square, a new 2.65 million square foot mixed use development in the center of Singapore. What Lauralee mentioned in her comments, of the $1.5 billion in net new equity raised by LaSalle Investment Management in this first quarter, about 2/3 of the total came from separate account mandates with most of the rest placed in corporate securities. The separate accounts included about $600 million from 2 new separate accounts in Europe, and $400 million from 2 expanded relationships, one in the U.S. and the other also in Europe. La Salle's plans are clearly maintaining the long-term allocation to real estate, and LaSalle is continuing to focus on delivering excellent performance as indicated by its out performance against many of the benchmarks against which they are measured. In other first quarter highlights, we welcomed 2 new members to the firm's Board of Directors, Hugo Bagué and Martin Nesbitt. Hugo is Group Executive for Rio Tinto with overall responsibility for Human Resources, Health & Safety, Communities and Corporate Communications. Marty is President and CEO of PRG Parking Management, a Chicago-based owner and operator of off-airport parking facilities, which he conceived and co-founded. We're fortunate to have 2 individuals with such strong credentials and experience joining our Board of Directors. We also pursued our policy of expanding our global footprint in response to new business opportunities and client needs. We moved into 2 new countries during the quarter, opening our first office in Switzerland with the acquisition of Zurich-based Sal Oppenheimer. And we established a presence in the newest member of the BRIC countries, South Africa, with the acquisition of Johannesburg-based Bradford and McCormack Associates. We also expanded our leading presence in India and China, opening new offices in our Aminabad in India and Chongqing in China. In line with our policy, all of these new offices are fully owned by Jones Lang LaSalle. Looking forward, prospects are encouraging across most of our world markets. In investment sales, we now think that based on current momentum and existing transactions, our preliminary forecast of $380 billion to $400 billion dollars of total annual investment volumes should be revised upwards to more than $440 billion, 35% to 40% above 2010, and that represents the highest total since 2007. Also, as rental growth on prime assets accelerates, stronger capital appreciation is expected to occur in most top-tier office markets for the rest of the year. Hong Kong, Moscow, Washington D.C. and San Francisco are projected to show the highest capital value growth in 2011. In global Leasing markets, subdued development activity in North America and Europe is going to help further erode vacancy rates throughout the year. But with Asia Pacific approaching the peak of its development cycle, the vacancy rate in that region is probably going to increase modestly in 2011. As we noted earlier, the rental growth on prime assets in top markets is at its strongest since early 2008 and with a limited supply of quality space and strong occupier demand, rental growth is expected to continue accelerating in the course of this year. In the funds management sector, we believe institutional investors in commercial real estate will, as I described earlier, continue to increase their capital allocations to the asset class. And finally, while the world is rightly focused on the humanitarian toll extracted by the devastating natural disasters and political unrest that have occurred in the past year, it's obvious that these events are having little or no impact on overall economic activity in the world. Many Middle Eastern and North African markets, locally, are clearly struggling. For example, our office in Cairo, however, is now seeing renewed interest in activity among multinational corporations who want to be on the front foot and be prepared for potential growth following upcoming Egyptian elections. Japan anticipates no economic growth this year because of the disruptions to trade and manufacturing caused by the earthquake, tsunami and nuclear crisis. The reconstruction efforts are expected to produce low GDP growth of 3.6% next year and the government has already announced a $50 billion down payment for those activities. As already mentioned, as a firm, we are confident about the resilience and recovery of the Japanese economy and we'll be investing in it. Just recently, in fact, LaSalle Investment Management announced a $170 million investment in a logistics development project in Japan. And as Lauralee said, we both want to extend our special thanks to our 600 colleagues at Jones Lang LaSalle and LaSalle Investment Management in Japan for the tremendous efforts they're making to get the country, our plants and our firm solidly back into business. So to close our remarks, as is our custom, we'd like to mention some of the awards which we've received and, which reflect our commitment to superior client service and to our position as leader in real estate services and investment management. During the first quarter, and for the fourth consecutive year, the Ethisphere Institute selected Jones Lang LaSalle as one of 110 leading global corporations to be named as one of the world's most ethical companies. And the U.S. Environmental Protection Agency has named us ENERGY STAR partner of the year for 2011, the third time we've earned this honor. And we were named the Fortune's list of the World's Most Admired Countries (sic) [Companies] and for the third year in a row, were selected as one of the World's 100 Top Outsourcing Providers by the International Association of Outsourcing Professionals. In the Asia Retail Congress, we won the prestigious International Property Consultancy of the Year award for the third consecutive year and we won 5 categories of the Property Council of Australia's Retail Awards. In the U.K., we won Office Agency Team of the Year honors in the 2011 Property Week's Awards. And in Russia, for the sixth consecutive year, we're named Consultant of the Year in the 2011 Commercial Real Estate awards. So with that list of wins, outlook on current business circumstances and some accolades, we'll now move on to questions. So operator, could you please explain the Q&A process?

[Operator Instructions] And your first question comes from the line of Sloan Bohlen.

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

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

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

Both the costs, the margins, which we showed in this quarter in these results, were actually slightly ahead of what we had expected in our budgeting and planning process for the full year. So when we talk about being comfortable and confident for the full-year outlook, we're saying that against background of having planned for these sorts of levels of results, which means to say we expected to be investing the cost, which we invested in producers and any other underlying business footprint and expanding our office space and so forth, and we also planned for the business meetings, which Lauralee described, which we held for the first time in several years. So all of that's quite within what we planned before and as I've said, we're entirely comfortable on the basis of this first quarter with our overall thinking for the year, our confidence in our pipeline and so on. So this is the first quarter and as we constantly said each year, it's by margin our weakest quarter. If you go back to Q4 last year, we produced something like 40% of our total net income in that last 3 months of the year, that's our seasonal pattern. So we don't feel overly concerned with the position of the margins in this quarter and it is consistent with building towards the full year and towards those 15% EBITDA margin targets, which you've described.

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

Yes, the numbers I gave were total market figures. They were not intended to be estimates of our revenue or the volume of transactions that we're involved in. They're intended -- they're for our researchers and they're estimates of the strength for the total world market. So we talked about 35% to 40% growth in transaction volumes and investment sales, that's global, that includes everything in commercial real estate worldwide. The reason for that uptick is firstly Q1 activity and capital markets was stronger than we had estimated, so that sort of flows through the full year and a basis of that is, there is increased transaction activity and the a pricing has moved up as well. So you've got the double effect and more being sold and pricing moving up. It feels compressed. We’ve said that is still going quite strongly in some markets, but it's beginning to tail off, for example, London, Paris, New York, Washington and reaching mid to low 5 on quality asset in terms of cap rates and so that's the moment we'll pause but we do see, as we described the start stronger underlying trend in rental rates and so that in itself will, against the fixed cap rate level, drive up transaction values. So a number of virtuous things happening together which causes to uplift that estimate.

And your next question comes from the line of Michael Muller [JP Morgan Chase]. Joseph Dazio - JP Morgan Chase & Co: Its Joe Dazio here, a question about the regional business meetings going forward and more of a normalized market environment, would you expect those to occur annually or a little bit less than that?

Every couple of years. We will skip next year and do it probably again in 2013. Yes, the U.S. does hold an annual business meeting and that will continue next year but the other regions do not. I'm afraid prior to our Investment Management business, which will not hold a meeting next year. Joseph Dazio - JP Morgan Chase & Co: And then also, a question on the Leasing business. I know Colin, you touched on it a little bit but looking specifically at the Americas, how do you look at kind of growth as you move through the rest of the year, given that it would seem like comps probably will be a little bit tougher from where they were Q1 a year ago. So you do think that 35% up in Q1 might be a little bit tough to repeat as the year progresses?

Well, we were very pleased with that, obviously, because that's a strong performance. We're pleased with our leasing activity, across the U.S. It maybe because again is it's the lowest quarter of the year in the market, in terms of the whole. It may be kind of an outlier on the upside, but if you just step back from the number, there's nothing in the commentary, which we've given you, nothing that we can see, which suggests any break or change in what we've been describing for years, a normal cyclical upswing. So across Leasing, across Capital Market activity, across rental pricing, we're seeing a solid global underlying upturn in activity and pricing. The one exception to that, I commented on in the commentary was Europe, where we did see what we've described as a pause in activity and Leasing in Europe, but just this quarter. We don't think it's underlying. Our pipelines are strong. There's some big transactions coming through in the course of the rest of the year. We can't say exactly where they'll fall. So we just believe this quarter was a sort of what you get in a normal cyclical process.

And your next question comes from the line of Will Marks [JMP Securities].

I have a question on the cash or rather the net debt repayment you put in your slideshow presentation of $184 million. That number trailing 12 months was $250 million at the end of 2010 and can you maybe comment on why it would be declining?

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

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

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

So the dividend -- the total cash cost of the dividend is sort of $7 million to $8 million a year.

Speaking of acquisitions, do you care to quantify that? I know it's fairly nominal but the acquisitions to date, the cost or maybe they'll be in you Q.

In this quarter? I mean, it's a mixture of some revenue cost which go through P&L and the capital cost but it's all up about $30 million.

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

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

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

Yes.

Yes.

And what is that approximate base, the number of brokers in the U.S.?

It's about 1,000.

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

And on adding new brokers, I assume there's nominal costs. You generally have the space for it, and there's not typically -- word from your mouth, not typically upfront payments to these brokers?

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

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

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

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

And I was also wondering if you could talk a little bit about market trends in, say, the middle markets or smaller property types within the U.S.

Beginning to pick up. We talked a little earlier about the typical shape of the cyclical recovery. It starts with the best assets in the biggest cities and then it filters out from there or trickles out from there. So the less good assets in the big cities and then it goes up in the secondary markets. What's happened to the comments I made earlier is that the cap rate compression in the big and best assets has been really quite remarkably fast coming out of the recession, such that you've got, as I said, in the major cities, cap rates back in the 5s, low-5s even. We're hearing high fours in some places and so against that, investors looking for yield are already moving out along the risk curve and risk means secondary assets or it means smaller markets. And so selectively, we're seeing investors going out, investing in stable assets, in lesser markets, financing harder for that. So that's a slow process. They're investing -- it will value-added investors in kind of half finished development deals with the financings coming to difficulties as you're seeing those sort of trends emerging. But it's a process rather than an event, and I'd say it's going to be ongoing in the course of this year and next.

And your next question comes from the line of a David Ridley-Lane [Bank of America Merrill Lynch].

What drove the acceleration in projects in Development Services? And can you just remind us, given some rough idea of the type of -- revenue by type of work you're doing there?

Yes, the driver in the European theater was very simply a policy decision to expand our French business, which we already described, Tetris, into other geographies, so Belgium, Italy, we're looking at England, Germany and Russia to further expand that. And its work is largely around -- well has been traditionally largely around investor, driven to that work and now they're transferring that across to corporate fit-out work as well. Mostly in assets that we ourselves would be involved, with Leasing or investment sales. It's part of the linked and bundled set of services around the real estate markets. So that's been one driver and we're pleased with progress there and it's come out as largely being driven by our French business. Across the U.S., Lauralee, you want to comment on that?

It's just a strong recovery in CapEx spend and helping retailers reposition their storefronts, et cetera, to be more competitive. It goes with our tenant work with our Leasing markets. And in my comment on Asia, which has been very strong as well, we've seen tremendous growth in India as really the corporate activity is looking at that marketplace as being very cost competitive, very talent-rich in terms of the disciplines that go into to the outsourcing marketplace. And we really have a market reputation as doing very quality work in that marketplace and so, therefore, pickup pretty much all the major corporate work, not just multinational but now local Indian multinationals. Just to clarify, depending upon the contract terms, and Tetris is one of those and some of the work in India, we are required to gross up what is called the vendor spend because we're managing it. The underlying contracts underneath our work and so we did highlight the year-over-year part of the growth of that comes from that. It shows up because there's been such a robustness of growth in both of these markets on more of a steady state as you run off a contract and get a new one and you won't be seeing that level of dynamics. But even without that, we had a very strong growth in both of those markets and business we're very pleased with it. It almost is an annuity like because of the contract that runs for a 3- to 6-month period of time with a nice margin on it.

Just clarify that, that's not a change in accounting rules, you've always had to do that just to yell out the projects in this work?

That's correct.

And just a rough breakout by the type of work you're doing. If you could put in, say, 2 or 3 buckets?

If you take the sort of drivers and coming from that angle, yes, the rule effects we'll be seeing or have seen since quarter 4 last year, is particularly large corporations, regaining our confidence and beginning to invest again. And they're investing in the space context, which is what we're describing here in the developed markets such as the U.S. and Europe, in consolidation, moving down from 3 offices to 1, just sort of rearranging their floor space. There's some maintenance which has been delayed, which is catch-up maintenance work, there's some refitting of tired space where people have put that off for a couple of years and that's happening now as well. So in the developed markets, it's largely that sort of internal spend. In the developing markets, to Lauralee's description of India, you can say the same for China and Brazil, Russia as well even. You're seeing the investment by local and international corporations for growth and we are developing, we are benefiting from both types of growth because in China, 50% of our revenues is with local corporates and 50% international and in India, it's even more focused towards domestic corporations. So there is a sort of sense of the different types of work we're doing and it's largely fit-out work. There is some base construction management which we do but it's largely fit-out work.

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

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

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

You'd see almost nothing in the quarter because there's generally a lag on that.

Your next question comes from the line of Tim O'Connor [ph] .

So you mentioned the uptick in capital markets clienteles that impacted your IM business and are you finding places to put the capital to work?

Yes. If we have the hunt for it. The sort of take it easy pickings and high quality assets of low prices were very short-lived as the recession ended, and so our investment sales business is having to work hard to find good acquisitions. That being said, in the quarter, our total acquisitions were around $1.5 billion, so that will raise net-net, and it's spread pretty evenly around the world with some [indiscernible] some in the U.S. Probably it's about 40% of that total. So due to that, we have to unfold them. We're seeing, in particular, our Asian businesses looking out along the risk curve and moving into development activities again, moving opportunistically at the situations where the other survivor, sort of the capital survivor, is distressed over where the equity in a platform or the investors in the platform want to see changes in their in-structures and managers and so were having opportunities, seeing opportunities to move into that. But it's -- as the total level activity in the capital markets picks up, as we described, so there's also numbers that we sort of forecast for the year. That's a good healthy market with a lot of transactional volume and depth of activity. The challenges, there's a lot of equity supported by increasing allowance of debt, we're looking to get into, particularly quality real estate. They're attractive asset class we've seen, as we said, the institutional investment community at least maintaining or sometimes stepping up proportions investment real estate and as the equity markets have recovered, just keeping those proportions in line as we've been seeing that more dollars flowing into the rest of the markets. So it all feels pretty healthy at the moment and the challenge is finding good quality deals at decent prices.

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

We've been hiring in the major economies, France, Germany, England, which is really [ph] going to make a big difference. We are very cautious about who and how we hire everywhere in the world, obviously, particularly in those economies because of the labor law factors you mentioned. But as the business is growing, we right size the business through the recession. We took the numbers across Europe down between 10% and 15% by country and -- restate that, we took our labor costs down by 10% to 15%. Some of that sacrifice, and a good deal of it was reduction in core performers. But we kept our teams together and we've seeing as the European markets picked up by 20-plus percent last year and the 13% we saw this year, we've seen productivity improvements but we've also seen the opportunities to hire good people, again focused on those major economies.

And then last one, do you see tax rates drifting upward especially with the momentum in U.S. leasing as it becomes a bigger share?

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

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

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

That's more complicated because you have to get geography by geography in order to sort it out but let's try some sort of broad pictures. In the emerging economies, you've got a huge strength the closer you get to the consumers, so lots of strength in the multifamily construction and sales and leasing. And there's good strength in China and India and retail again, and distribution to domestic retail. So those exit [ph] is quite strong. Again in developed economies, just as you awaited money, now domestic money, trying to get into real estate means that they also got quite good performance in the office sectors as well. And in China, just as an example, cap rates for good city-center office buildings were in the 2's or 3's as local domestic investors are moving in heavily and, frankly, out-pricing international capital. You move to the more developed economies where across Europe and the U.S., in general, the consumer has not opened his pocketbook early in the recovery and there's still a good deal of apprehension. Then the retail sector has been generally not as strong, higher in demand for space, you're seeing 8% vacancies across U.S. malls in total and relatively slack demand for investment sales in retail. And the same would go across good parts of Europe. In contrast to that, the city center, office markets in the big gateway cities has shown a very rapid recovery and there's a lot of demand for that space and as I said earlier the cap rates there are back the 5s and even the high 4s. So beyond that, you really have to go market by market and we'll be very happy off-line if you want to get some more color on that to either provide you with written detail or talk you through it. We produce quarterly, a global market perspective and that's about to come out in the next few days. It's a sort of 50-page document, which covers these [ph] issues around the world in both the Leasing and Capital Markets and again if you get on to Joe Romanesco [ph] in our Investor Relations department, we'll make sure you get that if don't already have yourself on the circulation list.

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

And your next question comes from the line of Bose George [Keefe, Bruyette & Woods]. Bose George - Keefe, Bruyette, & Woods, Inc.: So I just have a question on your acquisition of Primary Capital, the multifamily originator. I think it's -- the focus there is Freddie Mac. Do you wonder if you already had a Fannie Mae capacity? And also can you just discuss the synergies between having a bigger mortgage capacity and a poor brokerage business and whether we'll see more focused net area?

The answer is, it is a Freddie. We do not have a Fannie capacity. We really felt that Freddie was the best structure for what we wanted to accomplish in the multifamily space and it really is principally around capital for that product type. The synergies for -- are that our capital market teams have access to broad base of investors, have access to a broad base of products and going back and forth around that means that just our reputation and credibility goes up across the board. So it's really responding to what our clients asked us for. In terms of as they think about their asset diversification and their portfolios and being ready and able to serve. We have expanded our debt capability as you know, we did acquisitions at the end of last year in that capability, so that we we're able to bring the debt, at the same time, we're able to help the seller get a better price for their asset and bring the synergy around them. So it is, it's a cohesive connection of the service offer in that space. Bose George - Keefe, Bruyette, & Woods, Inc.: Okay, great. Thanks. And just the Fannie versus Freddie distinction, as you earlier just said, Freddies are more sort of A-type properties, is that the main difference?

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

[Operator Instructions]

Well it sounds operator as though we're through with the question phase and if there are no more questions showing?

And there are no questions from the phone lines.

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

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