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Jones Lang LaSalle (NYSE:JLL)

Q4 2010 Earnings Call

February 2, 2011 9:00 am ET

Executives

Colin Dyer – Chief Executive Officer

Lauralee Martin – Chief Financial Officer

Analysts

Bose George – KBW

Sloan Bohlen – Goldman Sachs

Will Marks – JMP Securities

David Gold – Sidoti & Company

Brandon Dobell – William Blair

Michael Mueller – JP Morgan

Operator

Good day and welcome to the Fourth Quarter 2010 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, 2009 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 a 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 very much, Operator. Hello to everybody and thank you for joining this review of our results for the fourth quarter and full year of 2010. Lauralee Martin, our Chief Operating and Financial Officer is with me, and in line with our prudent and cost-sighted approach to planning, we left Chicago before the storm and we’re pleased to be talking to you today from Atlanta in Georgia. And when I get through with the initial market summary, she is going to cover our performance in detail, and that in a few minutes.

To summarize the year, we are very pleased and encouraged with our results. Record 2010 revenues of $2.9 billion drove the full-year net income of $154 million or $3.48 per share. Adjusting for certain charges, net income would have been $166 million or $3.77 per share. In addition, our strong cash flows and disciplined cost management enabled us to reduce our net debt position by $250 million in 2010 to $273 million at the year end.

So as the numbers show, we finished the year in very good shape and we’re positioned for continued growth and strong performance in 2011. Margin improved across all of our operating segments. We expanded our Americas market positions. EMEA finished the year with positive operating income, and in Asia Pacific we recorded solid growth in annuity and transaction revenue. And finally, LaSalle Investment Management continued to raise investment capital throughout 2010, attracting $5 billion of net new equity for the year.

Turning our attention to global markets, conditions continued to improve in most parts of the world. The global economy has finally moved towards a more sustainable economic recovery, although still at different speeds in different markets. Private consumption and manufacturing are picking up around the world, so growth is no longer totally dependent on government spending. The latest forecasts from Global Insight show the global economy growing at 3.7% in 2011, reflecting the two-speed recovery. Advanced economies are anticipated to grow by 2.3% while emerging markets are expected to grow by 6.4%.

We are seeing that same multi-speed recovery in our real estate markets. We’ve posted slides for you on the Investor Relations section of our website at joneslanglasalle.com for your reference. If you’re looking at those slides, Slide 3 shows the Jones Lang LaSalle investment sales clock which gives you a snapshot of conditions in major markets at different stages of the real estate cycle. You can see that in the fourth quarter of 2009, some markets had begun to reflect rising capital values while most others were still finding the bottom of the cycle. A year later at the end of last year, values are rising in virtually all markets around the world. Capital values for prime assets are growing strongly in top tier office markets as yields have fallen, with values up 20% annually and with some CBD office markets achieving growth as high as 50%.

Full-year transaction volumes totaled $319 billion, 50% higher than 2009 levels. In the Americas, the recovery in capital markets continued and in fact accelerated during the fourth quarter. Investment volumes of hotel, industrial, office and retail assets totaled $38 billion for the quarter, a 150% increase from the fourth quarter of 2009. Full-year volumes more than doubled to $97 million in the U.S. from 2009’s cyclical low of $45 billion.

Our preliminary numbers indicate that direct investment into commercial real estate in EMEA rose by 61% to €36 billion in the fourth quarter, and full-year volume was at €102 billion, a 45% increase on 2009.

In Asia Pacific, quarter four investment volumes totaled $25 billion, up 32% from quarter four 2009, while full-year volumes reached $85 billion, a 29% increase on 2009.

Turning to Slide 4, we see a similar trend in office leasing. Markets around the world—sorry, we see a similar trend in office leasing markets around the world, although progress here still lags the recovery in the global capital markets. Leasing volumes are increasing worldwide driven by more optimistic business sentiment and strong corporate balance sheets. In Asia Pacific, net office absorption more than doubled in 2010 and European leasing volumes increased by one-third over 2009 with a positive net result absorption returning to the U.S.

In the U.S., net absorption gains continued in Q4, accounting for more than half of the year’s total net absorption of 13.4 million square feet. While New York and Washington D.C. have been the leading markets in absorption, two-thirds of U.S. markets finished 2010 with occupancy gains, indicating that the recovery is now broadening out.

In EMEA, office leasing volumes also rose in the fourth quarter with more than 32 million square feet let, a 17% increase on the prior quarter, and the overall take-up for 2010 reached 114 million square feet, increasing 32% from 2009. Net absorption was positive for the sixth consecutive quarter with occupied stock increasing by nearly 13 million square feet, driven largely by activity in London, Paris, and Moscow.

In Asia Pacific, aggregate net absorption in the tier one markets we cover was nearly 55 million square feet for the year, more than double 2009 levels. So all in all, a more synchronized recovery in markets globally, particularly in many of the larger markets, and with some positive outlook as well.

So with that, I’ll turn the call over to Lauralee.

Lauralee Martin

Thank you, Colin, and good morning to everyone on the call. Similar to previous quarters, I will not repeat the financial results available in the press release or the supplemental slides. I will focus instead on full-year revenue and expense trends as we look forward to 2011. Details of our results for 2010 can be found on Slide 5.

As Colin discussed, we are very proud of our 2010 record revenue of $2.9 billion. The 18% increase over 2009 was driven by strong transactional revenue improvement in our leasing and capital markets businesses as markets recovered, as well as solid growth in our annuity businesses, both of which benefit from expanded market share positions.

Leasing revenue was up 216 million, an increase of 27% in local currency with healthy contributions from all of our regions, but with the most significant contribution coming from the Americas. Capital markets and hotels revenue was up 102 million, an increase of 51% in local currency again from contributions from each of our regions but also a solid recovery in our leading global hotels business.

We invested in these businesses throughout 2010 by adding strong market hires in anticipation of capturing market improvements, and these actions are rapidly paying off. We also continued to demonstrate steady annuity revenue growth led by our property and facility management businesses which were up 11% in local currency year-over-year.

Our compensation to revenue ratio for 2010 was 64.9%, an improvement from 65.5% in 2009, benefiting from our moves to more variable compensation and improved productivity in our transactors. We also continued our disciplined expense management, achieving leverage across our fixed cost base. As a result, we made significant improvements in both operating income and EBITDA margins on a full-year basis in all regions, as well as in LaSalle Investment Management.

For the consolidated firm, full-year adjusted operating income margin was 9.1%, up from 6.6% last year; and our full-year adjusted EBITDA margin was 11.5%, up from 9.6%.

Our Americas region delivered very strong results for the year with performance contribution from all business lines. Full-year revenue across the region was up 22% led by the success of our leasing business. Leasing revenue increased 28% or $140 million to $638 million for the year, demonstrating the success of the Staubach merger as well as organic growth efforts in local markets and new products such as industrial.

We saw significant productivity gains from our brokers and have been actively adding talent on an ongoing basis with more than 70 new broker adds in 2010.

Capital markets revenue more than doubled in the year to 84 million with strong revenue growth in both investment sales and in our real estate investment banking. We expect our high-impact hires in 2010, as well as this year’s recently announced additions in our hotels business, together with the broadly improving market conditions to provide continued momentum into 2011 for the Americas capital markets.

We’re very pleased with an 11.8% operating income margin for the year across the Americas, up from 8.4% in 2009, with a full-year EBITDA margin up 14.6%.

Turning now to EMEA, revenue across EMEA increased 17% in local currency in 2010 driven by improved transactional revenue. We protected our market positions through the downturn and saw the benefits of this commitment as well as the benefits of our investments in our retail capabilities where we have strongly advanced our market positions, both locally and across Europe. Capital markets and hotels was up 37% in local currency for the year with good momentum in the fourth quarter as revenue increased 41% compared with the fourth quarter of 2009.

We expanded our successful fit-out business, Tetris, to Belgium, England and Italy in 2010 and now have capabilities in five countries including France and Spain. In addition to improved transactional revenue for the year, our operating and administrative expenses remain tightly controlled which further contributed to our improved operating performance.

The larger markets of England, France and Germany are now 9 to 12 months into a cyclical recovery with steady transactional improvement and growth in annuity business; however, the smaller markets across continental Europe and MENA still appear to be bottoming and were a drag on performance in margin for the year. Looking forward to 2011, in addition to strengthening property fundamentals in most major markets, our leading retail market positions, and expanded corporate solutions client base, and the continued export of Tetris to other EMEA countries, we expect improving revenue opportunities for the region and continued improvement in margin.

Asia Pacific revenue was up 17% in local currency in 2010 led by transactional revenue improvement but also continued steady growth in our annuity businesses, as well as strong performances in project and development services. We added more than 50 million square feet under management in 2010 to our property management portfolio, an increase of over 10%, and won significant new and expanded opportunities in corporate solutions including large Asia Pacific-based multinational clients such as Telstra and Infosys.

We were pleased that we maintained our leadership position with our important U.S.-based multinational clients, but our success in winning new business, in particular with locally-based Chinese and Indian companies, positions us strongly for the anticipated growth in the region. Operating income margin was 7.3 for the year, and our EBITDA margin was 8.2%.

Turning to LaSalle Investment Management, we completed our second-best year of capital raising in LaSalle’s history with over $5 billion of net capital raised in 2010. We have always emphasized that investment performance drives success in this business, and the performance summary on Slide 12 highlights why LaSalle had such a strong capital raising year in 2010 despite the impact of the global financial crisis on real estate returns.

In 2010, advisory fees were 238 million for the year, a 3% decrease in local currency from 2009. Although CalPERS remains an investor in our fund, our separate account relationship ended on December 1. New wins during 2010 and LaSalle’s attractive platform for investors as we seek takeover account opportunities will help offset the reduction in advisory fees from this client.

As we highlighted last quarter, our Asia funds will convert in the middle of 2011 to advisory fees paid on invested, not committed, capital. The business is focused on replacing these lost fees through capital raise efforts for the next phase of these funds as investors have been pleased with our management and communication to them through the downturn. The business goal is to maintain a stable advisory fee base similar to our 2010 level.

There were modest levels of transaction incentive fees in 2010; however, transaction fees increased slightly in the fourth quarter, reflective of increased investment activity which should also increase in 2011. Also in the fourth quarter, operating income was negatively impacted by above normal professional fees related to a transaction pursuit. If these expenses were excluded, the business operated at its typical margin levels in the quarter. Excluding the impact of impairments, full-year operating income margin for LaSalle was 19.1% for the full-year 2010 compared with 17.6% in 2009, indicating the stability of this business’ performance.

Finally, our balance sheet remains a solid foundation for our business with 2010 generating strong cash from our earnings. We repaid 250 million of net debt over the course of the year, slightly less than our total remaining net debt position, demonstrating how well positioned we are to respond to market opportunities and a continuing consolidating industry.

Looking ahead to 2011, our primary uses of cash will be to make the second payment to the Staubach company shareholders in August for $156 million and to co-invest alongside our LaSalle clients for growth of the business. We expect capital spending, particularly IT, to return to more normal levels after two years of managed low capital expenses.

In conclusion, we are proud of our balance sheet strength and our investment-grade ratings.

Let me now turn the call back to Colin so he can discuss some of our wins in the quarter.

Colin Dyer

Thank you, Lauralee. To give you a sense of the opportunities in today’s markets and how our people are taking advantage of them, Slide 6 in your deck shows examples of recent business successes across our business’ regions. Let’s start with our corporate solutions business.

We won 60 new assignments in 2010, expanded our relationship or renewed with an additional (audio interference) clients. In the fourth quarter, a major international bank headquartered in Europe selected us to provide a range of services for its multimillion square foot global portfolio. AT&T Mobility awarded us a contract to provide maintenance management and mobile engineering services for an Americas portfolio of approximately 2,300 retail sites. We created a partnership with Beaumont Hospitals in Detroit to supply a range of services across the Hospital system’s 8.5 million square feet portfolio. Beaumont is now our largest healthcare client and our partnership also gives us access to new expertise and capabilities in the healthcare sector. IPG selected us to provide transaction management and other services across its 3 million square foot EMEA portfolio. In Asia Pacific, Standard Charter Bank named us as a transaction services provider for its 16 million square foot global portfolio, and are SCB’s exclusive provider in Taiwan, Singapore, India, parts of Korea, and all of Europe, and will provide services in all other parts of the world as well.

Moving to investment sales and other capital markets activities, our fourth quarter achievements included the sale and acquisition financing of 353 North Clark in Chicago. We advised Vasakronan on Sweden’s largest ever single asset real estate transaction, the €483 million acquisition of a whole city center block in Stockholm. We completed the year’s largest industrial portfolio sale in Australia, a $230 million transaction for Colonial First State property. And finally, hotel transactions closed during the quarter included the Hotel de (inaudible) in Paris and the (inaudible) in Thailand.

Examples of significant fourth quarter leasing, tenant representation and property management accomplishments included the following. On behalf of Navistar Inc., our tenant industrial capital markets project and development services and our business and economic incentives team all collaborated to complete the acquisition of a new 1.2 million square foot corporate headquarters in suburban Chicago. In London, we were appointed joint leasing agents for the Shard, a 595,000 square foot development which when completed will be Europe’s tallest building. In Asia Pacific, Orchard Funds Management awarded us the year’s biggest property and asset management appointment in Australia, a 4.3 million squarer foot portfolio. And the Supertech group, a major Indian developer, assigned us property management responsibilities for Supertech Emerald Court, a 1 million square foot residential asset in Noida, near Delhi.

These examples do not capture another positive trend we’re seeing in our Asia Pacific business, winning business from rapidly expanding local companies and government agencies in China, India, and other major emerging markets. Many of the names are not recognized outside the regions, but these are organizations with big plans, lots of assets, and both within and outside their countries they are on an expansion path.

As I mentioned earlier, LaSalle Investment Management raised capital steadily through 2010 as LaSalle’s client’s maintained their long-term allocation to real estate and continued to show confidence in LaSalle. LaSalle is focused on delivering optimal performance for its clients as indicated by its outperformance against many of the benchmarks against which they are measured. At year-end, assets under management stood at more than $41 billion.

Let’s now take a quick look forward to market prospects for 2011. We expect the current momentum in global investment markets to continue through the year with global volumes projected to exceed $380 billion, up 20 to 25% on 2010 levels. In the Americas, transaction volumes are anticipated to reach at least $135 billion, a 40% increase on 2010. In Asia Pacific, we expect that 2011 investment volumes will be at least $100 billion, a 15 to 20% growth on last year; and on EMEA, we see direct commercial real estate transaction volumes continuing to rise, although at a slower pace – 10 to 15% compared to the 45% growth level we saw in 2010.

In global leasing markets, new office supply is trending down and that should help erode vacancy rates throughout the year. Rental growth on prime assets in top markets is at its strongest since early 2008 and the dwindling supply of quality space coupled with strong occupy demand is expected to keep the pace of rental growth accelerating.

Asian markets, notably Hong Kong, Singapore, and Shanghai continue to lead the way while London, Moscow, Paris and Stockholm are showing the strongest growth in Europe. We are also seeing signs of growth returning to some core CBD office markets in the U.S., including notably Washington D.C. and San Francisco.

In the funds management arena, we see institutional investors in commercial real estate holding or even increasing their capital allocation to the asset class. Real estate’s relatively high income component, diversification benefits, and inflation hedging capabilities are attractive to institutional investors who need to fund obligations, such as their pensions, on a regular basis. Real estate is currently offering a relatively high yield compared to other asset classes given the low interest rate environment. All of these factors, we believe, will be positive for LaSalle Investment Management as they seek to place capital for their clients this year.

So to close our remarks this morning, we would like, as we customarily do, to name some of the awards and other forms of recognition that we’ve received and which reflect both our commitment to superior client service and our position as leader in real estate services and investment management. Proctor and Gamble awarded us its Top Global Performing Partners Excellent Award for 2010. In India, we won all four awards at Mumbai’s Property World Awards, earning Advisor of the Year honors in commercial, residential, retail, and hospitality asset classes. In the Australia Awards for Excellence, one of our colleagues was named the Australian Facility Manager of the Year, and we also won the state and federal governments’ Excellence Award.

We earned Best Places to Work honors in 11 U.S. markets including here in Atlanta, but also Los Angeles and Washington D.C., and the same honors in Spain, Germany, and Ireland. We were named Best Consultancy in Saudi Arabia and Dubai at the 2010 Bloomberg Pan-Arabian Property Awards. At the 2010 Euro Money Real Estate Awards, we won Best Advisor and Consultancy Firm in central and eastern Europe, Italy, Russia, Turkey, and in Mexico as well. And LaSalle Investment Management, I’m proud to say, was named Best Investment Manager globally and Best Investment Manager in Asia in the Euro Money Awards.

And just last week, the London office marketplace analysis confirmed that we were the number one leasing agent in London for the period of last year, filling more then 4.8 billion square feet of space to capture a 28% share of the market.

So to conclude and summarize, we were very pleased with our 2010 performance and with momentum we’re carrying into the new year. We see continued recovery in markets globally, particularly in the larger markets; and we will focus on growth and on expanding our operating income margins throughout 2011. We think our competitive platform gives us a solid foundation in this environment. Whilst we face many high-quality competitors, we believe we have a unique set of attributes that makes us the best choice for clients seeking real estate and investment management services. We have the size and the scale of resources necessary to provide whatever services they need, wherever they need it.

The connectivity and collaboration among our people is unparalleled, which means that we can marshal those resources to deliver the greatest possible value and results wherever they’re required. And we have the strongest financial position in our industry, which means that we will be here for the long haul to support our clients.

So with that, we will move on to questions; and Operator, perhaps you could explain the question and answer process, please.

Question and Answer Session

Operator

At this time, ladies and gentlemen, if you would like to ask a question please press star then the number one on your telephone keypad. We’ll pause for just a moment to compile the Q&A roster.

Your first question comes from the line of Bose George with KBW.

Bose George – KBW

Good morning. I had a question about the leasing activity. Obviously, the revenue—the growth is very impressive. I’m just curious if some of that could be seen as a catch-up from people who did shorter term leases in 2009 and now are coming back to extend. Is there any to sort of quantify if that’s a part of it?

Colin Dyer

It’s certainly a part of it. We can’t quantify it for you, but clearly during the period of the downturn, companies big and small went for short-term renewals and short-term rollovers and were reluctant to take long-term commitments. What we’ve seen in the course of last year worldwide, and I’d say quarter four in the U.S. with the last sort of major economy to start doing this, we saw big companies and then smaller companies begin to realize that the tenant market would be coming to an end at some point; that the best space in particular would become scarce. We saw them growing in confidence. We saw them looking forward for longer time periods in their planning; and indeed, taking commitments on a more normalized basis to the space requirements. I think that trend is clear. It’s well set, and as I said in the comments, we think it will continue through 2011. The corporate market – and those are our ultimate tenants in everything we do – has clearly regained its confidence through the latter half of last year.

Bose George – KBW

Okay, great. And just one other thing – the exhibits you have on Page 3 and 4 are very helpful. I’m curious how those trends compare to what you’re seeing in more second tier cities, or is that kind of incorporated into that as well?

Colin Dyer

No. It’s a good comment. These are the sort of city center CBD values in big cities. What you see – and these would be Class A properties. What you see within those cities is Class B property in city centers or suburban markets will be lagging their city center colleagues, as will secondary cities across countries. So for example, if you’re in France, Paris has been recovering healthily in the leasing markets for close on a year now; but if you’re in (inaudible) or Toulon or Toulouse, it’s going to be a while before it gets going again. So you’ve got that effect of the train is led by the major markets and the secondary markets follow up. And the same thing applies in capital markets to leasing markets, albeit as we’ve seen through this recovery, capital markets are out ahead anticipating the fundamentals.

Bose George – KBW

Great. Thanks a lot.

Operator

Your next question comes from the line of Sloan Bohlen with Goldman Sachs.

Sloan Bohlen – Goldman Sachs

Hi, good morning. Colin, maybe could you give us a little color on the differential between the leasing performance in Europe versus the other markets, just whether there was just a pause there; or maybe if you could provide color on the difference?

Colin Dyer

No, I think what you’re seeing across the piece is just a steady recovery. We tried to characterize some of the numbers in the sort of broad annual figures. But when you get those recoveries, you get quarters where it goes slightly faster than others; but the trend is just solidly upward so I don’t think you should read too much into the detail of one individual region and one individual quarter. Just focus on the broad trend.

Sloan Bohlen – Goldman Sachs

Okay. And then just in general as we think for 2011 about the growth in leasing, it sounded like you’re focused a little bit on rent growth. Are you still expecting a large part of the revenue growth to come from renewals still, or is new absorption going to be driving the line item a little bit more next year?

Colin Dyer

Renewals is sort of base, Sloan. There will be some new absorption probably everywhere. The (inaudible) space to be absorbed, because all corporations had sort of downsized in the recession and didn’t quite get the space downsized to the extent they downsized people, and so the first trend is that they’ll fill back into that space, and then from there you get positive net absorption which again we’re seeing across Europe and the U.S. again. And then you get into this virtuous circle. We’d been in a vicious circle where all of the things I’d mentioned were going the wrong way; but now you’ve got a virtuous circle where the number of square meters increase, the price per square meter increases, and our fee generally tends to trend up because the fee pressure comes off as markets recover. So you get a sort of triple uptick in activity for us.

Sloan Bohlen – Goldman Sachs

Okay. And then just a question on the capital markets growth, specifically in the U.S. – is there a way, or do you have a sense of splitting out what portion was driven by the hotel activity versus just broader commercial real estate activity?

Colin Dyer

We’ve got those numbers, not to hand, but in general what we saw last year was a very low base. The hotel capital markets activity worldwide really bloomed and peculiarly it had gone back to such low levels. And of course as we talk about recovery in occupation and rental rates, hotels go down real fast but they come up very quickly as well; and so people saw occupancy rates and room rates recovering quickly across the hotel markets, and that drove a lot of capital into the sector.

Sloan Bohlen – Goldman Sachs

Okay. And then just one last question and I’ll hop off – obviously, there was some rumor about the ING portfolio and potentially you guys looking at that. Could you maybe just comment (1) on that situation, and then just in general where you guys are focused in terms of adding incremental growth on your current platform for 2011?

Colin Dyer

Well, we are focused on the organic - firstly and foremost, as we were in the last cycle – on organic growth because that’s the fundamental base for building our business, and if we can keep that up into double figures, we’ll be very happy. You drive it through obviously productivity increase, of which there’s somewhere to go from our existing base, that as Lauralee said, we’ve hired 70 brokers in the U.S. just last year. We continue to add individuals across our platform worldwide. You heard us comment that the recovery is broad across all our service lines, so wherever we can see the opportunity for hiring good people, we will do that.

We’ve also embarked again in a small way on acquisitions, and we mentioned a couple of those; so that’s healthy that that’s getting underway in the course of this year. And again, we’ll do that as we will grow people in our investment management as well as our advisory businesses.

As to the transaction you—or hypothetical transaction you referred to, we don’t comment on whether we looked at any one individual transaction. What we do is look at every opportunity and we will (inaudible) it against a number of criteria. They have to fit, obviously in any acquisition, in our overall strategic goals. They have to very importantly fit with our culture and our clients’ needs; and then the issues of ethics and integrity are also sort of paramount in the way we judge businesses, and that will (inaudible) even get to our financial hurdles. So we’ll continue with that fairly rigorous approach to evaluating acquisitions.

Sloan Bohlen – Goldman Sachs

Okay, helpful. Thank you very much.

Operator

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

Will Marks – JMP Securities

Thank you. Good morning, Colin. Good morning, Lauralee. I first wanted to ask just about cash flow and was there any—the ability to pay down—reduce net debt by 250 million, going forward in 2011 – was there any kind of anomaly in 2010 or if you do have some EBITDA or operating income growth, should we see a growing level of cash flow as well?

Lauralee Martin

I think I understood your question in that. There was no anomalies in 2010. I mean, we give you the difference between our adjusted and our non-adjusted, but that was very nominal and insignificant. We had tight CAPEX controls internally and managed those, I think, very well through the downturn; and we’ll have some return of IT, as I mentioned, but nothing that I would say is unusual, and we’re looking forward to putting more money out in LaSalle Investment Management. But our cash flow will grow with the performance of the business, and we’re very excited about that.

Will Marks – JMP Securities

Okay, great. And then in terms of putting that money to work, I saw that there was a deal, maybe small, in Atlanta; and I know this question was kind of asked about specific deals, but are you—would you say you’re looking more closely than ever at acquisitions right now, and are there good opportunities?

Colin Dyer

I’d say that probably in comparison to the last cycle, we’re probably earlier because we have that experience going through 2005, successfully acquiring 30-plus companies. We know how to do it. We’ve got a good deal of confidence in our ability. And our people are sensitized to it, whereas back in 2004/05, we had to sort of get people familiar and comfortable, and teach them how to evaluate these acquisitions because very many of them, you know, arise on the ground locally, and it’s important that our people around the world understand (a) that we’re interested in doing them, and (b) how to pick up the initial conversations.

Lauralee Martin

I think one of the things that you’ve seen us do very successfully is take an opportunity and then leverage it with the platform, whether you see really what we said would happen with the strength of the Staubach brokerage organization into the corporate, so then us being able to push all the products across our platform; and now international, which is very exciting. But subtle examples would be in our industrial, where we did a small acquisition and then levered it across organically, going from really no position in industrial three years ago to where we can claim a top position in the top most important—eight most important industrial markets in the U.S.

Another example will be this recent transaction into the hospital space. We know we can take our skill set and leverage it into new sectors and opportunities, and that’s where we’re going to be looking and targeting. But as Colin said, it’s a consolidating industry, and that is going to cause others to look at our platform as the opportunity that describes just what I talked about. So that will be our focus.

Will Marks – JMP Securities

Okay, great. Thanks. A few other things – you mentioned that the loss of the direct CalPERS as of December 1. One, is that one reason for the decline, albeit slight, in advisory fees? And two, the net capital change, I believe had been 5 billion or slightly (audio interference) in the third quarter and was still 5 billion at the end of fourth. So did you replace that?

Lauralee Martin

The assets under management that we’ve reported – we report on a lag, a one quarter lag; however, we’ve adjusted for CalPERS so CalPERS is in those numbers, and so yes, we’ve been able to replace. Some of that is value increases, if you think about our security systems coming back; and some of it is just success that we’ve had in takeovers and other opportunities.

The answer on fees is that that is a part of that impact in the fourth quarter, and we’ve said we’ve been managing our business really around margins, looking a fee structures and the type of resources we need to put against that; and we’ll continue to do that going into 2010.

Colin Dyer

And we’ll—you know, we’ve certainly in prior comments that we’ve raised in 2010 5 to $6 billion in investment management business, and it surprised me at how strongly we were able to raise that money. And it came during the middle of a period, or the end of a period when the LPs worldwide virtually lost money, and we’re very hesitant and cautious in reinvesting in real estate. But we had one or two in particular very major votes of confidence by institutions that only just got to know us as well as some increases in allocations from existing clients. And what it said to me was that we’ve got a very strong performance record firstly, but momentum for organic growth and organic additions to our capital base in LaSalle which will continue on in through 2011 and beyond.

Will Marks – JMP Securities

Okay, thanks. Just one other question – I did a quick calculation just looking at your 2007, 2008 and added on Staubach, and it looks like your leasing revenues globally are above where you were then slightly, which I think in looking at competitors, you’ve stolen market share and others are probably still down 10 or 15% from the peak, as Colin calculated. Can you talk about just—particularly, let’s just focus on U.S. leasing and stealing market share. Have you taken it from larger players in particular, anyone—is there anything that we can learn from this?

Colin Dyer

Well, we’ll go with your numbers since they sound okay to me.

Will Marks – JMP Securities

Okay, thank you.

Colin Dyer

They come from you, not me. So our sense through the recession – I think you heard us say this during the various calls we did in 2009 and ’10 – our sense was that through the recession, we did take share and we took it pretty much globally, as far as we could measure it, everywhere. And our analysis of why was that during that period of difficulty, such business as there was came to us because people were looking for reliability, quality, and if you like, the brand name. And so probably during that period, some of the smaller players would have lost share, and medium-sized players as well, moving towards the larger end of the market. Now that argument will probably cease to be as compelling in the course of 2010, but nevertheless that momentum has been maintained and I think our image of good work has carried on.

Now of course, within that, we added teams during the back end of the recession in London. We did acquisitions across Asia; and of course the Staubach merger in the U.S. And our sense is that we’ve only just begun to reap the full fruits of that acquisition where our former Staubach colleagues are able to cross-sell business to our effective worldwide platform and into other services in the U.S. And vice versa, we’re now credible in the U.S. market to do tenant work and rep work for corporate clients. And we said all through, that held up very well during the recession given where it could have been, but it’s certainly going to continue to pay dividends as we pick up into the growth phase again.

Will Marks – JMP Securities

Great. Okay, thank you very much.

Operator

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

David Gold – Sidoti & Company

Hi, good morning. Just a couple of quick ones. One is on the money that was raised – I think the note was about 3 billion put to work during the quarter. Can you give us a sense for where that money is being put to work? This is on the LaSalle Investment Management side.

Colin Dyer

Broadly, I think the larger piece went to Asia. In fact, we’ll give you the numbers – 1.3 billion to Asia, 1.1 billion to Europe, and 0.8 in the U.S. And the reason why that’s pleasing is actually the Asian markets recovered earlier, and Europe was next and the U.S. was next. So we’re very much tracking—here in our investment activity, we’re investing as the markets start to turn and grow again.

David Gold – Sidoti & Company

Perfect.

Colin Dyer

It also illustrates, if you like as well, the power of that platform we have globally with that spread of activity, in particular in emerging markets in Asia.

David Gold – Sidoti & Company

Okay. And then by way of comp expense, can you give a little bit more sense—one of, I guess, your competitors on the record a couple months ago, putting out a number of, say, how much of the cost cuts that were done during the downturn, how much of that will need to return as the business—as growth returns, whether it would be by way of travel or some of the other cuts that were done. Can you give a sense for as you think about it—obviously you were pretty aggressive on taking costs out of the business on the way down. How should we think about both comp and expenses on the way up?

Lauralee Martin

Well we will look forward to our transactors making a lot more money as markets improve, but that’s variable compensation and will have relationships to revenue. So the way we manage the businesses is against revenue on the variable costs to make sure that it’s in line with productivity and results, and then the fixed expenses we manage very aggressively. They’re going to more our space, our technology, those type of expenses; and we think very prudently about them before we take the step-ups in what we need for growth of the business. So it’s—expenses will come back but we manage against a margin.

David Gold – Sidoti & Company

So presently that translates to margins at least holding, if not improving?

Lauralee Martin

Yes. As you know, we’ve articulated a medium term goal of a 12% global operating income margin, and we need to increase from where we are today to get back there.

David Gold – Sidoti & Company

Okay. Perfect. And then just one last – Lauralee, you’d commented on CAPEX returning towards more traditional levels. Do you have a target in mind for this year?

Lauralee Martin

Yeah, we were—it will probably be more like about $25 million high – 20, $25 million high in all of our CAP expenses than what we had this year. So it’s still going to be very reasonable and nothing that would be an issue against our cash.

Colin Dyer

(Audio interference) and IT costs with expensive offices is used to (audio interference) you saw we opened in Zurich - that was an acquisition - Vancouver also, I think, as well. So there’s some small scale opening work but the bulk of that investment will go into our IT (inaudible).

Lauralee Martin

Yeah, we had spent on CAPEX just under $50 million in 2010. It was just under 40 million in 2009, and we would be more in the $75 million range.

David Gold – Sidoti & Company

Perfect. Perfect. Thank you both.

Operator

Your next question comes from the line of Brandon Dobell with William Blair.

Brandon Dobell – William Blair

Good morning. Wanted to focus on the property facility management service line for a second. Maybe some color on the fourth quarter growth in the Americas and EMEA, just to get into context of the last couple quarter which were quite strong. Any comment on how we should think about the drivers for the fourth quarter slowdown, as well as what the near-term outlook may be?

Lauralee Martin

Well, they tend to come lumpily, so you have a big win and it moves. And so sometimes quarter to quarter isn’t probably the best way to think about that business. Bu you’ll see that we’ve got—what I would like to do is sort of look at the total year and look at the fourth quarter—or look at the quarters that are in there. But across the board it’s still very, very solid. The strongest growth we’ve had, really, has been in Asia Pacific where we have a very brilliant property management business as well as our multinational facility management business, and then obviously in the U.S. in both.

Brandon Dobell – William Blair

Okay, so a continuation of the average growth, especially in the Americas and Asia Pac, shouldn’t be out of the question. So taking away how strong or weak the fourth quarter was on a relative basis to previous quarters, a decent continuation of the full-year growth rate seems out there?

Lauralee Martin

Yeah, I would say on our facility management business, the pipeline continued to be very full and our win rate stays very high, so there’s no reason that momentum should not be good.

Colin Dyer

And we talked about the win rates in renewals in the corporate sector for the facilities management work during the prepared remarks.

Brandon Dobell – William Blair

Okay. And then Colin, you mentioned an expectation for 40% growth in the transaction business in the Americas in 2011 from a market perspective. Perhaps any color behind some of the assumptions for that – does that include a recovery in the CBS markets, sustained low rates? Just, I guess, some ideas on how you guys came to that general conclusion would be great.

Colin Dyer

Yeah, if our forecast feels—who have actually heard traditionally on the cautious side in upswings, and it’s after a 100% increase in the Americas this year. Just in general across the world, we toned down, if you like, our growth expectations in Asia and in Europe because they came out early cycle and were ahead of the U.S. We still think the U.S. market activity level has got some rebuilding to do, which is why it’s relatively speaking double the growth rate of Europe and Asia. And that’s the biggest single difference – it’s the cyclical pattern being just delayed in the U.S. compared to Europe and the Asia Pacific region.

We see nothing at this point which will break the momentum of uptick in activity levels. There is a lot of refinancing. This is—2011 is the start of the big refinancing boom with 250 to $300 billion to be refinanced in the U.S. Two-thirds of that is with banks. One-third is the CMBS market. That flips over those proportions to the other way around in 2016, so there’s an ongoing four to five-year refinancing challenge.

That’s going to have two impacts – first of all, it will throw out increasingly, we believe, distressed assets because now the banks have got capacity to deal with them with their capital bases sort of repaired. But also it’s going to crowd out some of the financing available for new transactions inevitably as the capital available is limited.

The CMBS market is coming back. I think last year about 10 billion was issued, with something like that preplanned for the first quarter of this year already, so we see that market coming back. We all agree that it will have changed – it will be more transparent, more cautiously underwritten than in the previous cycle. So there’s all sorts of things conspiring together there to be good, and I guess the only thing which would be a negative potential as we look forward would be the interest rate factor. You can clearly see it rising in Asia to choke off the inflationary trend there. It’s beginning to perhaps come through in Europe where five-year money’s gone from sort of sub-100 basis points to 150 basis points over the last few months, and that’s potentially just pre-assuaging some inflation there. It’s not yet here in the U.S. but it could come in the course of a year, and that just will pressure the current—for the moment, even Grade A property’s got a 3, 400 basis point risk premium over long-term risk-free money. If that gets compressed with interest rate rises, we could see some hesitancy in the market; but no signs yet.

Lauralee Martin

And Brandon, just relative to the start of your comment on the U.S., I think you know this but I’d just like to reconfirm it. We have, contrary to the previous cycle, this time around we not only have greater investment sales, we have debt capabilities, we have agency debt capabilities, we have work-out debt capabilities; so we’ve put in place all of the requirements to really feed our performance into the U.S. market uptick, which we’re quite excited about.

Brandon Dobell – William Blair

Fair enough. One final expense, kind of leveraging, I think, off of one of the previous questions about compensation expense. You know, for the couple years since we’ve had—a couple years in a row of a good market, and with the changes that will come on the comp line from a bigger contribution from Staubach and the changes in some geographies from bonus and salary to a more variable comp level, how do we think about the comp line acting over the course of a couple of years of good results, because I wouldn’t take ’08 and ’09 as a good benchmark. So if we think about how useful 2010’s numbers were as a predictor, and how should we think about ’11 and ’12 on that comp line? How do we think about that in a relative historical context, or how to model that?

Lauralee Martin

Well, we’re pretty pleased with the level of percentage on sort of a sustainable basis in 2010. It reflects where we want to be in some markets, and it’s a little higher than where we want to be in others. So if we take parts of Europe, where we still have countries that have not benefited from coming out of the downturn, those ratios will get better. But we’re also expecting there will be some pressures in the high inflation markets, like in China and India where they haven’t had increases for a number of years, and our talent is viewed as the best in the industry. So we know we’re going to have some pressures there; but with all that give and take, we think we can manage ourselves with a number that is pretty close to the 2010. We’d like to strive for a little bit better, but what we really are going to get our leverage is now off the production that comes off of those resources all around the world, which are incredibly important to us because people make our business.

Brandon Dobell - William Blair

Okay, that’s helpful. Thanks a lot.

Operator

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

Michael Mueller – JP Morgan

Yeah, hi. Good morning. Following up on the operating expense margin from a little while ago – so the 12% target, I think that translates into about a 14 to 15% EBITDA margin target. I just want to make sure that that is correct. And number two, can you just talk about the various targets by region, because obviously the margins are quite different when you go from the Americas down to Asia, to EMEA, et cetera.

Lauralee Martin

Yeah, first of all you do have it correct. We typically run a difference of 2 to 3% operating income margin to EBITDA margin. So that is accurate if you go back in our history. Just as a profile, in 2007 our EBITDA margin for the total firm was 14.7; our operating income margin was 11.9, so to put it in perspective. At the moment, I would say the place we are most off of our target goal is in EMEA, so clearly that has a lot of ways to come back; and with transactions, that’s going to typically be sort of a 10-plus operating income margin. Asia has a blend of annuity and transaction, so a lot of it will be the mix. So again, they’re going to be 10-plus. And LaSalle Investment Management is below its historic margin level a little bit on a steady state, but quite a bit when you add in incentive fees which in a normal business environment, there’s going to be consistent incentive fees—a little volatility in there, but enough of a global portfolio that we have incentive fees on a regular basis.

So the performance improvement is going to come principally from EMEA, LaSalle Investment Management in that order, and then Asia, and then just continually across the globe as we put it all together for improvement.

Michael Mueller – JP Morgan

Okay. And when you were talking about 10%-plus for EMEA and Asia, those were operating margins, not EBITDA margins. Is that correct?

Lauralee Martin

Yes.

Michael Mueller – JP Morgan

Okay. Okay, thank you.

Operator

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

Will Marks – JMP Securities

Thanks. A few follow-up questions. Lauralee, on the tax rate, is there an approximate figure we can expect going forward?

Lauralee Martin

We had said to you at the start of the year that we look to manage in sort of a 23 to 25% range. We had been for the first three quarters running at the low end of that. With the very strong U.S. performance, that drove us slightly into a higher tax jurisdiction globally, so we rose to 24%. So somewhere between 23 and 25 is still a very good range; and then it’s a question of where the income falls.

Will Marks – JMP Securities

Okay. And on the broker hiring in the U.S. of 70, was that a net number? If not, what is—

Lauralee Martin

That was a net number.

Will Marks – JMP Securities

That was a net number. Okay. And what is the total number of brokers in the U.S. that we can compare that to?

Colin Dyer

We can’t—

Lauralee Martin

You know what, we’ll have to ask them. I mean, the Staubach forces were 700 that were added to ours at the time, but I don’t know the answer to that.

Will Marks – JMP Securities

Okay. And do you have an approximate—

Lauralee Martin

Actually, (talkover). We’re just under 1,000 brokers.

Will Marks – JMP Securities

Just under 1,000. Okay.

Lauralee Martin

And by the way, that is up more than 2% over our 2007 level, so.

Will Marks – JMP Securities

Okay, great. And then on—someone was asking earlier about the move from salary bonus to commission. Of your brokers around the world of sales and leasing agents, what percent would you say are salary plus bonus versus commission, if you care to comment on that?

Lauralee Martin

Well, most of Europe is still salary/bonus, though we have commissions in a few parts of the world – Germany, France; and we have blended commission/bonus that we’ve been moving to that at least sort of moderates that in the U.K., and looking at some other markets. In Asia, we have a fair amount of commission in India and New Zealand, but a lot of the other parts of the world are principally base and bonus.

Will Marks – JMP Securities

Okay, great. And just one final question – typically in the first quarter, your net debt level goes up by, I don’t know, 50 to a couple hundred million dollars. Can we expect to fall in that range this year?

Lauralee Martin

Well, we will be paying bonuses, so that it will be the bonus levels that will drive that. And also, a little bit different is we also pay commissions very timely, so we had very strong performance in December from the commissioned brokers and those will be paid—actually, have been paid already in January. So it will go up. I would say it’s probably more going to be a couple hundred million, but it depends on just receivable collections and so forth.

Will Marks – JMP Securities

Okay, great. Thank you very much.

Operator

At this time, there are no further questions.

Colin Dyer

Well thank you, Operator. With no further questions, we’ll draw today’s call to a close. I’d like to thank everybody for joining us, for your interest in the firm, and we look forward to speaking with you again at the end of the first quarter.

Operator

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

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