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Jones Lang LaSalle Incorporated (NYSE:JLL)

Q3 2013 Earnings Call

October 28, 2013 6:00 pm ET

Executives

Colin Dyer - Global Chief Executive Officer, President, Director and Chief Executive Officer of Americas

Christie B. Kelly - Chief Financial Officer

Analysts

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

David Gold - Sidoti & Company, LLC

David Ridley-Lane - BofA Merrill Lynch, Research Division

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Mitchell B. Germain - JMP Securities LLC, Research Division

Whitney Stevenson - JMP Securities LLC, Research Division

Todd Lukasik - Morningstar Inc., Research Division

Operator

Good day, and welcome to the Third Quarter 2013 Earnings Release Conference Call for Jones Lang LaSalle Incorporated. Today's call is being recorded.

Any statements made about future results and performance or about plans, expectations and objectives are forward-looking statements. Actual results and performance may differ from those included in the forward-looking statements as a result of factors discussed in the company's annual reports on Form 10-K for the year ended December 31, 2012, and in our other reports filed with the SEC. The company disclaims any undertaking to update or revise any forward-looking statements.

A transcript of this call will be posted and available on the company's website. A web audio replay will also be available for download. Information 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.

Colin Dyer

Thank you, operator. Good evening, everybody, and welcome to this review of our results for the third quarter and the first 9 months of 2013. Christie Kelly, our Chief Financial Officer, joins me on today's call. Christie will review our performance in detail in a few minutes.

First, however, I'd like to summarize the quarter where we delivered strong fee revenue gains, increased adjusted net income and improved adjusted operating income margins year-on-year. Fee revenue totaled $889 million for the third quarter and that's 15% above the third quarter for 2012. Year-to-date, fee revenue reached $2.7 billion, which is 9% higher than the same period a year ago. Adjusted net income was $67 million in the third quarter, a 22% increase from quarter 3 2012. Year-to-date adjusted net income totaled $135 million, a 5.5% higher number than the first 9 months of last year.

Our Board of Directors also declared a dividend of $0.22 per share, and that's semi-annual dividend. And we renewed and increased the capacity of our long-term credit facility at more favorable pricing, which combined with our strong balance sheet, gives us the financial power and flexibility to continue to invest robustly in the growth of our firm.

Let's turn to market conditions. We produced these results in an environment which is broadly similar to that, which we've seen in recent quarters, generally improving market conditions in most parts of the world. You'll find additional information on the slides posted on our Investor Relations section at jll.com.

We still see world economic growth accelerating from 2.4% this year to 3.3% next year. This sentiment is making its way through the markets around the world, as seen in growing confidence amongst investors and to a growing extent, corporate occupiers.

As Slide 3 demonstrates, global capital markets continue to expand strongly during the quarter, with market volumes reaching $140 billion, which is 41% ahead of quarter 3 totals a year ago. Year-to-date market volumes totaled $366 billion, which is 21% ahead of last year.

While still lagging in the capital markets, global leasing activity is now slowly improving, due primarily to higher leasing turnover in the United States and selected Asian markets. Leasing volumes for the quarter were up 5% compared to the third quarter of 2012, while year-to-date volumes were flat compared with the first 9 months of 2012, so a continuation of the generally positive trends in real estate markets worldwide that we've seen in recent quarters. So to give you a sense of how we performed under these conditions, I'll turn the call over to Christie.

Christie B. Kelly

Thank you, Colin. And good afternoon and evening to everyone on our call. As Colin mentioned, our consolidated results for the third quarter, again, reflect our ability to produce profitable revenue growth. While the economic backdrop this quarter was clouded by the recent U.S. budget issues that had a modest impact on the global outlook, this has had no noticeable impact on our business to date. Our performance continues to reflect the contrasting market conditions between capital markets and leasing, where strong capital markets are supported by low interest rates, while leasing is impacted by large corporates globally, being financially cautious as well as focused on space optimization versus expansion.

Although we are beginning to see leasing activity slowly improve, primarily due to higher activity in the U.S., it is still lagging capital markets activity.

Our 15% fee revenue growth on a local currency basis over the third quarter of 2012 demonstrates the strength of our platform as well as the ability of our business to grow share profitably across varied markets globally. For perspective, we have grown our revenue at a 14% compounded rate for the past 10 years, driven by improved share in our local and regional markets as well as in our national and global service lines. We have achieved this long-term success with a combination of M&A activity and organic growth, leveraging the expertise of our people, and the strength of our JLL brand to win new clients and expand existing relationships. For the third quarter, specifically, we grew Capital Markets & Hotels revenue by 46% and leasing by 8%, demonstrating our ability to continue to capture share.

Additionally, we continued to grow our annuity real estate services businesses, such as Property & Facility Management, where fee revenue was up 17% in the quarter. Our LaSalle Investment Management business continued its momentum, achieving $900 million in additional capital raise.

Overall, the ongoing investments we have made in our platform has bolstered our ability to increase revenue in key markets, while achieving profitable market share growth consistently, year in and year out for our investors. We are focused on balancing top line growth, platform investments and productivity to achieve incremental margin and earnings per share growth.

Overall, adjusted operating margin was 9.4% for the quarter, an increase of 140 basis points from last quarter, with contributions from all geographies and an increase of 110 basis points from 8.3% last year, driven by performance in EMEA and Asia-Pacific, which I will discuss in more detail in a moment. Bottom line, we increased adjusted earnings per share by 21% from third quarter last year to $1.49 per share.

In the Americas, 19% growth in Capital Markets & Hotels revenue for the quarter was driven by strength in investment sales, primarily for office and retail, as well as increase productivity by producer. Leasing revenue was up 9% for the quarter, with secondary markets driving the majority of growth, followed by solid performance in most primary markets.

Property & Facility Management fee revenue growth of 18% was driven by the successful on boarding of new Corporate Solutions clients. We also closed 2 acquisitions in the third quarter, Means Knaus Partners and Capital Realty, which add to our Property Management business and reflect our commitment to invest in this service line. Overall, we delivered 11% fee revenue growth across the Americas compared with last year.

Operating income for the Americas, calculated on a fee-revenue basis, was 9.9% compared with 8.7% last quarter and 10.4% last year. Solid growth and positive operating leverage across U.S. business lines during the quarter were offset by continually challenging market conditions in Brazil and by delayed deal timing in Mexico. Excluding Latin America, the America's operating income margin increased by 20 basis points compared with last year.

In EMEA, each business line produced substantial revenue growth, contributing to an overall increase in fee revenue of 24% in the quarter led by Capital Markets & Hotels, with a 61% increase in revenue on a local currency basis from last year, with the most significant increases in the U.K., France, the Netherlands and Poland.

Property & Facility Management fee revenue growth of 15% was driven primarily by the U.K. business. Leasing revenue increased 10% despite declining market activity. Adjusted operating income grew to $18 million in the quarter from $5 million a year ago. Adjusted operating income margin on a fee-revenue basis, excluding King Sturge amortization, nearly tripled to 7% from 2.4%.

Our result is -- our performance is the result of focusing on both strong top line growth and margin expansion. We managed the significant increase in transaction activity with continued disciplined management of the cost base.

In Asia-Pacific, fee revenue growth of 19% came from performance that was generally strong across business lines. Capital Markets & Hotels led with revenue growth of 56%, which was broad-based across a number of different countries. Property & Facility Management continued its steady delivery of annuity revenue with a 16% increase. Leasing revenue was up 4% on a local currency basis from last year, with the higher volume of small deals reflecting greater transaction activity coming from local clients rather from multinationals. Operating income grew to $19 million in the quarter, up from $12 million a year ago, again, a result of both solid revenue growth and margin expansion.

We continue to make selective, strategic investments to strengthen our long-term position in the region while maintaining prudent cost discipline. LaSalle Investment Management continue its capital raise momentum from the first half of the year, bringing its year-to-date capital raise to $3.3 billion. A critical driver of LaSalle's success is strong investment performance, which has resulted in not only above benchmark track records in key markets over the years, but also the ability to retain long-term clients and attract new investors.

During the quarter, we added approximately $2.1 billion to assets under management through acquisitions and net valuation increases, offset by $1.7 billion of dispositions and net foreign currency movements. Advisory fees of $55 million were consistent with the second quarter. Incentive fees added $9.3 million of revenue during the quarter, with the most significant contributions coming from North America. Disposition activity and positive fair value adjustment drove healthy equity earnings of $6.6 million for the quarter.

With respect to our investment grade balance sheet and the strength of our financial position, we renewed our long-term credit facility at the beginning of October, expanding capacity from $1.1 billion to $1.2 billion, extending the maturity to October 2018 and improving our pricing. This was all done with the cooperation and partnership of a great bank group that knows our firm well and continues to support our strategic focus on profitable growth. We are committed to maintaining our investment grade rating, continuing to demonstrate financial strength and providing premium, operational performance to our investors and our clients.

Our third quarter financial results were strong. Our colleagues around the world continue to demonstrate our ability to drive profitable growth, increase margin performance and build on our financial strength. We earned these results by attracting top new clients to the firm, while continuing to provide great service to existing relationships. Our growing market position, solid annuity revenue growth and focus on converting our pipelines puts us on track for a strong fourth quarter finish to 2013.

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

Colin Dyer

Thank you, Christie. So looking at some representative business wins for the quarter. Slide 4 lists a few recent wins across our different service lines and geographies.

In our corporate outsourcing business, we've won 34 new assignments so far this year, expanded existing relationships with 17 other clients and renewed 13 contracts. While respecting client confidentiality, I can report we've recently been retained by 2 global financial services firms, 1 for transaction management and lease administration on its 15 million square foot portfolio and a second for facility management of its 27 million square foot portfolio in the Americas and Asia-Pacific, and a global IT firm has chosen us for facility management of its 2.2 million square foot portfolio worldwide.

We also continued to record positive results in our local market level Corporate Solutions business, which focuses on mid-market corporate occupiers. In the first 9 months of this year, we've won 39 assignments, totaling 92 million square feet of space.

Turning to investment sales transactions. In the U.S., we completed the $300 million sale of an ownership interest in a portfolio on behalf of ECHO Realty. In Poland, we advised Allianz on the EUR 412 million acquisition of Silesia City Center, the largest transaction in Central and Eastern Europe so far this year. And in Japan, we sold a portfolio of 7 logistics properties on behalf of Global Logistic Properties for $277 million.

Third quarter leasing tenant representation and property and asset management transactions included in Midtown Manhattan in New York, helping Nordstrom secure the location for its first department store in the city, 285,000 square feet in a new development scheduled to open in 2018. And in Moscow, we leased 90,000 square feet to open a new department store for international retailer Debenhams, both transactions represent the strategic investments we've made to grow our retail business globally. In Shanghai, we were selected to provide property management services for the 1.1 million square foot Aurora Plaza office tower in Pudong.

Finally, LaSalle Investment Management. LaSalle's strong performance for its clients contributed to substantial capital allocations from investors. As Christie noted, LaSalle has raised $3.3 billion of capital year-to-date, including $900 million in the third quarter, as institutional investors continue to allocate funds to investors that they trust.

Looking ahead, Slide 5 shows our full year projections for global investment sales and leasing markets. We're planning on a fourth quarter capital markets volume being on a par with the strong quarter 4 2012 totals. This will lead full year global investment sales volumes up 10% to 15% on 2012 and probably, exceeding $500 billion.

Looking ahead to 2014, our preliminary forecasts indicate continued positive momentum in capital markets, with global volumes growing by 10% for the full year. Global leasing markets will be flat year-on-year in 2013, with increased activity in the U.S., offset by a flat or negative gross absorption in Europe and Asia-Pacific. In 2014, however, we expect growth to revive, more corporate occupiers shift their sights from consolidation to growth and expansion. We see full year gross absorption rising by 5% to 10% above 2013 levels.

In real estate investment management, we anticipate that capital inflows to managers will strengthen through the end of the year, and investors continue to allocate funds to real estate and prove willing to take on additional risk in search of higher returns. We expect that trend also to continue into next year.

In terms of our own outlook for the full year, we're 1-month into our final and traditionally, most profitable quarter. We are seeing continued positive momentum in all parts of the business. We also expect this trend to continue into next year, with markets continuing to improve and momentum continuing to build. There is a strong sense of optimism and confidence in our staff worldwide, and we'll continue to take market share and grow profitable new business opportunities.

As we work to finish 2013 successfully and position the firm for continued growth next year, we are also focused on longer-term growth. As I said in my introductory remarks, our new credit facility and strong balance sheet give us the ability to invest strategically for the future. Whether that takes the form of M&A activity or capital investments or current investments with clients of LaSalle, we can move quickly on growth opportunities when we identify them.

Over the past 18 months, we have also developed a globally integrated strategic plans -- plan, which positions us for growth through to the end of this decade. This has had broad involvement of dozens of senior leadership and included an intense assessment of future client needs, changing market conditions and competitive dynamics. Using those insights, we've developed and are now implementing longer-term strategic plans for all of our core service lines. We have also considered the resources, which were made to succeed with those strategies, talent and human capital, for example, productivity measures to protect and expand margins and investment in data and technology tools to equip our professionals to serve clients and compete successfully. To leverage all the activities, we are also continuing to connect our people and business operations even more effectively across service lines and geographies.

And finally, we've projected and secured, as I've said, the financial resources we need to drive revenue and capital expenditure over this long-time frame. The result is plans which are broadly shared across the organization and we strive strong, short-term performance, while at the same time planning and investing in future growth.

One final operational note. As you know, I recently stepped personally in to lead our Americas business. This is a temporary move intended to ensure continuity in a management group that has seen several changes of people and roles over the last year. We are also waiting the transfer of John Forrest into the Americas from Asia on the 1st of January, and he'll be leading the Americas Corporate Solutions business.

We have a very strong and successful competitive position in the Americas, clear long-term plans for continued investments in growth and exceptionally strong leadership, from which we will complete the Americas leadership changes early next year.

So before taking your questions, I'd like to mention some of the independent honors we've received during the third quarter, honors which illustrate the quality and dedication of our people and our commitment to superior client service, and they reinforce our reputation as a leader in real estate services and investment management. So selecting a few examples: Procter & Gamble has announced just today that we've won the P&G Supplier of the Year Award, and that's the third time we've been awarded that honor. In the U.S., we were recognized as one of the nation's most innovative users of information technology by being selected for the InformationWeek 500 list. Among the many awards we received at the Euromoney Awards, we were named Best Global Agency and Letting Advisor. And the head of our business in Thailand, Suphin Mechuchep was named CEO of the Year at the 2013 CEO Thailand Awards. This honor -- this award honors the best CEO in the entire Thai business community, not just the real estate sector. So many congratulations to Suphin.

And finally, in closing, I want to recognize another willing colleague or ex-colleague, Lauralee Martin. I'd like to thank Lauralee, one more time, for all of her contributions and commitment to Jones Lang LaSalle over the last decade. We wish her great success in her new role as CEO at HCP, and we really look forward to maintaining our relationship with them there.

So with that, let's now take your questions. Operator, perhaps you'd explain the process for us.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Brandon Dobell with William Blair.

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

I wonder if we could focus on -- I guess, first, the different cost lines this quarter. Great leverage in the comp and benefits line, but then the opposite thing happened on the OpEx line. Maybe is there anything particular -- I guess, that drove either the kind of outperformance or underperformance relative to what you thought? What happened with this kind of new growth? And then, I guess, as a follow on, how should we think about those 2 lines acting as you move into '14, given your outlook for the transaction businesses?

Christie B. Kelly

I think, Brandon, just to jump in there first. If you take a look at the OpEx lines and compare year-over-year as a percentage of fee revenue, we actually went down 100 basis points and probably one of the things just to think a little bit about is, first of all, when you take a look at fixed costs, fixed costs are up on a facilities basis just minutely, at 2% and the real growth driver there is in IT, which is up 8% year-over-year, as a result of the investments that we are making in our platforms specifically in IT to further drive our productivity and better our customer experience. If you take a look at variable, variable is up slightly really to fund our pipeline furiously [ph], as we drive into the fourth quarter.

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

Okay, so it doesn't sound like there's anything in particular -- I guess, comps and benefit was on a -- based on a fee-revenue basis that was necessarily strange. I just want a better course. I think we've seen in, I don't know, several years the percentage of sales basis, so is that a -- can you guys continue to do that? Or is there something in this quarter that was particularly strong for you guys?

Christie B. Kelly

No, I think it really is the result of a number of investments and productivity initiatives and all of the work from the folks around the globe really executing on the plan.

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

Okay. And then, if you can give us some kind of market outlook for investment sales and capital markets as well as leasing -- any thought on kind of what a big picture would look like for Property & Facilities Management or the project management kind of industry or your expected growth next year?

Colin Dyer

Well, project management broadly follows, kind of, corporate investment confidence, and so as we've commented, corporates do feel as though they're moving ahead with more resolution than they have in recent years, actually, the last 2 years. We've seen that in the uptick in leasing activities. So I'd expect the project and development business to show stronger trends next year than we've seen this year. And you see it picking up quarter-by-quarter during the year. Property Management business will continue to grow organically, rapidly in Asia and we bundled our facility management in there, as well. There's rapid organic growth in Asia; in Europe and the U.S. it's a combination of market share growth, and we mentioned the Means Knaus and Capital Partners acquisitions in the U.S. That's us driving share gains through selected acquisitions. And additionally in Europe, we'll see facilities management pick up on an organic basis, because as we've mentioned on several calls, the European corporates are becoming more prone to outsourcing their real estate management. So the number of drivers there which we would expect to see continued healthy growth in the facility and property management area.

Operator

Your next question comes from the line of David Gold with Sidoti.

David Gold - Sidoti & Company, LLC

Let's see. Couple of quick ones. First, I guess, if we go back to the second quarter, there was -- one of the issues that we ran into was some delayed revenue from -- if I remember right, some outsourced or some larger outsourced contracts. It looks like presumably that revenue started to flow. Can you give a sense for -- if those contracts turned -- if the revenue was sufficient to turn the contracts profitable just yet, A, and B, the timeline for the revenue to flow in, in its entirety.

Colin Dyer

Okay. You're right we hit -- we had -- the P&L was hit Q2 this year with a couple, in particular, 2 big start-ups, where we saw the cost coming in before the revenues and therefore, it did affect profitability in a negative way. As you've correctly observed, that's beginning to reverse itself, they're not profitable yet, but they're getting that way. And they certainly will be in the -- from Q1 of next year. So that's the timeline really for turning those 2 major accounts profitable. We have accounts coming in all the time. So there's constant flow of us front loading costs to put in structures in advance of revenues. It's just that there were 2 particularly bulky ones in Q2 this year.

David Gold - Sidoti & Company, LLC

Sure. Sure. Okay, perfect. And then, part 2. On the leasing side of the world, one can get a sense there -- you're notably more optimistic there than you've been and obviously -- and the results are improving as well, but curious if you can give us a sense for where the optimism is coming from? Is it just economic data, is it client inquiries or third quarter performance or a mix of all of that?

Colin Dyer

It's -- certainly the economic forecasts, as I've mentioned in the preamble, of generally being revised on the upside. That's for the U.S., for Europe. I think Brazil and Argentina are the only places that feel like they're going the other way -- India as well. But that excepted, China, the Southeast Asian countries are all showing increases in forecasts for economic growth for next year. So those are positive background, that's positive background material. What we're seeing in more concrete terms is a steady increase in the -- in market activity, in leasing across Europe and America, in particular. And you've seen in our own numbers, they're picking up as well from negatives to neutral, and now positive growth in leasing activity across major centers, and we just see that -- put it all together and listening to our calls from clients; calls are [ph] more about expansion getting through that process of delay and short-term renewals and into sort of back into business, as usual, as their confidence grows back again, put it all together and that's the reason for our optimism.

Operator

[Operator Instructions] Your next question comes from the line of David Lane with Bank of America Merrill Lynch.

David Ridley-Lane - BofA Merrill Lynch, Research Division

As we're modeling, thinking about 2014, it would be helpful to review, if you could, maybe the one-time costs that you had in 2013 related to the costs from the outsourcing contracts. And maybe, if you think it's sizable enough to call out from Brazil as well?

Colin Dyer

We've talked -- I think Brazil was an indication -- if Brazil had been removed from our results in 2012 and 2013, our margins in the Americas would actually have gone up. So that may be an indicator to you -- to the scale of the -- it had gone up about to a positive margin expansion -- expansion of about 0.2 or 20 percentage -- 20 basis points year-on-year. As for the cost of start-up of contracts, we haven't split those out, and I don't think we would want to start to do that now. But be aware, they are significant enough for us to have mentioned.

Christie B. Kelly

I think though, David, the only thing I'd say there, though, is just in comparison to just the magnitude of our business overall. It's not material in the whole scheme of things. So as you're looking to second quarter and if you're keying off year-over-year, just be aware that there was an impact there off a little over 50, 60 basis points.

David Ridley-Lane - BofA Merrill Lynch, Research Division

Got it. Okay. And then in the LaSalle business. Is 2014 a bigger year or a smaller year for fund closures or asset sales than 2013. I'm just wondering if the headwinds for assets under management growth ease next year?

Colin Dyer

No. I think it's broad -- I'd say at the moment, it's broadly neutral. I mean you don't win mandates until you win them, and you don't close funds until you close them and in the current market, for fundraising, closing these funds is pretty hard work. What we have -- would expect to see is in broad terms, the funds raised would balance the funds outflow, at least balance funds outflow. The other aspect of the equation, which is worth taking into account in terms of what's the assets under management, because that's the balance of funds in/funds out. And then the investments that we have -- the pace of our actual investments. And there, we're finding some interesting dynamics, because the move of the investment community has had into quality assets means that finding stable cash-producing core assets is getting harder and harder. So we, in common with many other investors, are moving out to a little bit along the risk curve to development of work, to work to assets where more value needs to be added in order to produce interesting investment returns and the investment returns we're targeting. So the investment pace is going to be a challenge in the course of 2014. You heard the numbers, in terms of the total markets for investment sales. So far this year, will cap -- will top $500 billion for the year as a whole. That demand is only going to get stronger, so it will be a lot of money chasing assets in 2014.

David Ridley-Lane - BofA Merrill Lynch, Research Division

Got it. And then I do get this question occasionally from investors side. I thought I'd give you an opportunity to respond. Do you think any of the recent slowing growth in leasing has anything to do with secular drag from corporate occupiers operating with less square footage per employee?

Colin Dyer

Yes, for sure. There is a trend -- you called it secular, I think we'll see whether how long it remains a trend. But in the U.S., Europe, in particular this trend of densification which comes in various forms. I mean, less square foot per person, smaller cubes, if you want to put it that way, is one version of it. But so also is working in what's called alternative work styles, where spaces are much less assigned to one individual and telling is more prevalent, breakout spaces, huddle spaces become part of the total mix, and it turns out that, that combination is actually more efficient in use of space than the traditional style office or cubing. All these trends are tending to work together. And to an extent, they've been one of the reasons why the demand for leased office space has been comparatively slow to pick up in this post recovery -- post-recession recovery period, one of the aspects, not the only driver. But we actually like that trend. We think it's a change which we can help to educate our corporate clients with. We certainly earn a lot of money advising them on just those trends. But it has another interesting effect, which is that, as it were, demand from just gross brute office space, accrued office space, it tends to be attenuated by these densification strategies. So the demand for high-quality office space actually goes up, and what gets dropped is the lower grade and peripheral space and high-quality office space is just our sweet spot around the world. Sorry for the long answer. But it's a very interesting area.

Operator

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

Michael W. Mueller - JP Morgan Chase & Co, Research Division

A couple of questions. First of all, I was wondering if you could talk a little bit about the process of rolling out into more of the secondary markets that I think you touched on a little bit here but you talked about it more last call. Just how far through that process are you? And is it predominantly in the Americas where it's occurring?

Colin Dyer

We are not rolling out in a huge way, beyond our traditional core of major city centers. If anything, we're tending to increase our presence and grow market share in the major centers. Having said that, there are some areas of our business where we are expanding our footprint. And we are looking at ways of servicing our corporate clients across Africa because we just cannot avoid the fact that there is a demand there for real estate services in Africa, and the big corporations are now moving into Africa with some resolution and there are clients. So we are working out ways of servicing them there in an efficient, safe and cost-effective way. We're also expanding our industrial footprint, that's to say, the work we do for distribution companies worldwide. And there we do need to be in places like Rotterdam, Long Beach and nearer -- closer to the port areas than the traditional city center, CBD office space. So those are some of the trends which have led us to what you might call secondary centers.

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Okay, but it's not -- if you're looking in the U.S., opening new offices in, say, more in the middle of the country, as opposed to the New Yorks; the San Frans.

Colin Dyer

No [indiscernible]. I mean, at some point in our future development that we did talk about the long-term that is an opportunity for us. We see it as an opportunity. But we've chosen not to focus on that area at this point.

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Okay, and one last question. If we're thinking about the capital markets business. Are you seeing at this point a greater mix of revenues coming in from non-core transactions generating the revenues?

Christie B. Kelly

No. No, we're not, Michael. We're seeing core transactions driving our performance. And to that point, we're seeing in terms of the number of transactions, year-over-year the size of those transactions increase and we're also penetrating major markets around the world.

Operator

Your next question comes from the line of Whitney Stevenson with JMP Securities.

Mitchell B. Germain - JMP Securities LLC, Research Division

It's Mitch here with Whitney. Just back to the office efficiency discussion, Colin. Are we seeing -- you mentioned U.S. and Europe, are we seeing similar trends in secondary markets as well?

Colin Dyer

Office densification or alternative work ...

Mitchell B. Germain - JMP Securities LLC, Research Division

Yes, exactly. More collaborative work environment and less square footage per employee, are we seeing something similar in the secondary markets?

Colin Dyer

There's a pressure on space. If you think a suburban office campuses, I mean there's a lot of space in those, typically in those places. So there's been traditionally less pressure in those areas. But there's also -- generally, so that, that's sort of economic point whereas in city centers, New York, London, Paris. Yes, of course, people are very focused on the -- just the sheer accrued [ph] cost per -- of per square foot. But there's a generational thing at work here, too, where you're seeing the latest generation in employees coming into the workforce so that those between 25 and 35 are much more oriented towards this looser arrangement of working space, looser working -- so they can form teams and reform teams according to what they're actually working on. They like to be able to work in Starbucks. They like to be able to work in the coffee shop. They like to be able to work in the corridors. So they've got a different approach to the sort of space they require. And when you're talking about our corporate clients trying to attract those sorts of employees, they're paying attention to those trends, and they're trying to organize their office space in such a way that it's attractive to draw in and then retain those sorts of employees. That trend also, is an overlay to this sort of the pressure on the cost per square feet.

Mitchell B. Germain - JMP Securities LLC, Research Division

So it seems like it's pretty broad. When you look at potentially renewals...

Colin Dyer

It's coming more broadly, I mean. This is a trend not a mass -- a massive impact at the moment. It's just a trend.

Christie B. Kelly

And Mitch, I would also say that would be for Class A, secondary market, suburban office space.

Mitchell B. Germain - JMP Securities LLC, Research Division

Understood. When you look at renewals, possibly as a percentage of the leasing that you did in the quarter, curious about what that percentage is and maybe if you can compare that to historical levels. It seems like it's up. I know we're seeing a lot of cautiousness from occupiers. Maybe what that level is versus historical and maybe, the last peak and trough if you can give that comparison?

Colin Dyer

Yes, we don't track it systematically. What we can say is what we have noticed is that the average size of lease transaction across the U.S. has been increasing and the term [indiscernible] indicates to us that the larger corporates now are getting on with taking space or renewing space whereas they have been significantly holding back in the early part of this year.

Mitchell B. Germain - JMP Securities LLC, Research Division

Right. I think Whitney has one.

Whitney Stevenson - JMP Securities LLC, Research Division

I just wanted to ask, I think you mentioned in the prepared remarks that you saw more productivity from your domestic brokers. And I was wondering, first, if that's across both leasing and sales. And then also, if you can give a little color around how you measure the increase in productivity, if that's just bigger deal sizes and thus, more revenue per transaction or if you're actually seeing more transactions?

Christie B. Kelly

Sure, Whitney. I'll start and I then know Colin will have some remarks in this regard. But first of all, we're seeing it across-the-board in terms of leasing as well as in our capital markets group. And we measure productivity based on production per head, and then we also base line in terms of comp per revenue dollars and margin per head as well.

Colin Dyer

Those trends have all been moving in the right direction.

Operator

[Operator Instructions] Your next question comes from the line of Todd Lukasik with Morningstar.

Todd Lukasik - Morningstar Inc., Research Division

Just a question. You mentioned the acquisitions in the quarter. I don't know if I missed this or not. But did you disclose the impact on growth, either overall or in any of the specific business lines where they were?

Christie B. Kelly

We did not, Todd, and not that it was a big secret or anything, this is really just been going along with the strategic focus that Colin's been executing in terms of the smaller more focused bolt-on transactions by market.

Todd Lukasik - Morningstar Inc., Research Division

Okay. And was the biggest impact of that in America's Property & Facility Management business?

Christie B. Kelly

Yes, it was, Todd.

Todd Lukasik - Morningstar Inc., Research Division

Okay. Okay. And then I think you mentioned an expectation for a 2014 positive absorption on the leasing side of 5% to 10%. I'm just curious if you expect it to kind of fall out the way it did this year with Americas, the strongest; and Asia-Pacific, the weakest; and EMEA, somewhere between or whether or not you expect those impacts to shift in 2014?

Colin Dyer

No. That's exactly what we're expecting. It's looking very much like that this quarter and we're expecting that trend to continue. Reason, Europe's still picking up growth. I mean you can't call it spectacular yet, but it's enough to drive some growth in leasing activity. Asia, not so yet. The Asian -- the larger Asian economies are still trying to find a way out of the funk they've been in the last 12 months or so. China, beginning to find some trends, but India is still going backwards. And Asia, significantly to Australia, has been a weak market. Rental rates are declining across all of the major cities and sort of absorption has been negative. Net absorptions have been negative across those major cities. Combination of the financial services pressures, which we've seen across the world hitting Sydney and Melbourne and then the whole minerals and primary resources sector impact of slowing growth across Asia.

Todd Lukasik - Morningstar Inc., Research Division

Okay. And do you expect Asia to be positive in the leasing side next year? Or could it be negative again?

Colin Dyer

Yes, I know, we expect it to be positive, but only just...

Todd Lukasik - Morningstar Inc., Research Division

Okay. And last question for me, you mentioned the investments for future growth. I'm wondering about 2014, I don't know if you want to talk about this in detail or not yet, but just with regards to those investments in the context of potentially expanding margins or should we be thinking about them being large enough to be flat to down next year instead?

Colin Dyer

They'll have no margin -- differential margin impact compared to '13, because we'll spend roughly the same percentage of revenue next year as we did this year, as we did the year before, as we've done every year except in the midst of the recession. We continue to invest at the same rate in the redevelopment and growth of the business.

Operator

And there are no further questions at this time.

Colin Dyer

Okay. Well, thank you, everybody. Since there are no further questions, we'll finish today's call. Thanks again for participating, and we look forward to speaking to you all at the end of the fourth quarter. Have a good evening.

Operator

Thank you for participating in today's conference call. You may now disconnect.

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Source: Jones Lang LaSalle Incorporated Management Discusses Q3 2013 Results - Earnings Call Transcript

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