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Jones Lang LaSalle Incorporated (NYSE:JLL)

Q1 2012 Earnings Call

May 01, 2012 6:00 pm ET

Executives

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

Lauralee E. Martin - Chief Operating Officer, Chief Financial Officer, Executive Vice President, Director, Chairman of Global Operating Committee, Member of the Global Executive Steering Committee and Member of Global Executive Committee

Analysts

David Gold - Sidoti & Company, LLC

William C. Marks - JMP Securities LLC, Research Division

David Ridley-Lane - BofA Merrill Lynch, Research Division

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

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

Todd Lukasik - Morningstar Inc., Research Division

Operator

Good day, and welcome to the First Quarter 2012 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 report on Form 10-K for the year ended December 31, 2011, 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, and hello to everybody. Thank you for joining us for this review of our results for the first quarter of 2012. Lauralee Martin, our Chief Operating and Financial Officer is with me today in Los Angeles, and in a few minutes, she'll review our financial performance in detail. First of all, a few headlines. Our revenue totaled $813 million for the quarter, an 18% increase from the first quarter of 2011, and we were pleased with the broad geographical spread of growth across all of our reporting segments. Adjusted net income was $22 million, or $0.50 per share compared with $1 million, or $0.03 per share in the first quarter of last year.

Adjusted operating income margin improved in all operating segments and on a consolidated basis, the overall margin improved to 3.4% from 1.9% last year. And our Board of Directors has declared a semiannual dividend of $0.20 per share of our common stock, which is up from $0.15 per share previously.

To put these very encouraging results in context, here is a look at conditions in different economies and real estate markets around the world. The global economy continues to move forward, with growth driven by improving conditions in the U.S., and in emerging economies and by injections of liquidity in the Eurozone, rising equity markets, and strengthening business and consumer sentiments. According to the latest forecasts from the IMF, the global economy will grow by 3.5% in 2012, down marginally from 2011. Annual GDP growth is expected to be 1.4% in advanced economies, and 5.7% in emerging and developing countries. For largest economies, the IMF forecasts 2.1% growth for the U.S., 8.2% in China, and 2% in Japan.

To summarize conditions in key real estate markets, we've posted in the Investor Relations section of our website, joneslanglasalle.com, some slides, which we'll now review. Slide 3 shows the Jones Lang LaSalle Investment sales club, depicting capital values in major world markets at different stages of the real estate cycle. Despite our positive stance on global growth this year, our figures indicate a relatively quiet first quarter, with direct investments into real estate, totaling $77 billion globally, 21% below the first quarter of 2011.

We predict that volumes will pick up during the year, and total around $400 billion by year end, or about the same as last year. You'll see that year-on-year, capital values are still growing in virtually all major markets, although the pace of that growth has been -- has begun to slow in a number of them. Prime office yields have remained stable in most major global markets, the result of attractive spreads and continued investor demand for high-quality well-linked assets. We have seen some yield compression in Hong Kong and Singapore, while in the U.S., yields temporary softened in New York, Washington D.C. and Chicago.

Turning to Slide 4. You'll see a picture of conditions in leasing markets worldwide. Compared to a year ago, growth in rental values has began to slow in a number of markets, and values have actually begun to fall in Singapore and Hong Kong. In Asia Pacific, leasing activity decreased during the quarter, due to corporate caution and slow economic growth, with net absorption falling by 50% quarter-on-quarter, and year-on-year to around 600,000 square meters. Gross leasing volumes fell by about 30% quarter-on-quarter, and in Europe, gross pickup in the first quarter totaled 2.3 million square meters, 15% below the first quarter of 2011.

Absorption in the U.S. remained positive, but was 23% the quarter one -- below the quarter one 2011 levels. These declines may be explained in part by tenants delaying decision on space during the fourth quarter of 2011, at the peak of concerns on euro-related issues. Those delayed decisions may have had an impact on the first quarter of 2012 market volumes. Office vacancy rates continued to trend down during the quarter, with vacancy rates across 94 global markets now standing at 13.4%, its lowest level in more than 2 years. Regional rates vary from 16.4% in the Americas to 10.2% in Asia, and 9.9% in Europe.

Rental growth on prime assets in cold markets also slowed during the quarter, growing 0.4% across 90 major world markets, compared to 0.9% growth in the fourth quarter of 2011. The majority of major global office markets registered modest or unchanged prime rental growth, whilst the strongest growth was seen in Beijing and São Paulo. So all in all, an ongoing but rather hesitant recovery and a relatively slow start to the year. But as Lauralee will now tell you, in this environment we continue to gain market share, posting double-digit growth in all 3 of our geographic segments and across all of our real estate service business lines. Lauralee?

Lauralee E. Martin

Thank you, Colin, and also, good afternoon to everyone on the call. To add to Colin's comments, we feel good about our start to the year. We saw a strong performance across all segments of our business in the seasonally slow first quarter, which resulted in 18% revenue growth, improved operating income margins, and $22 million of adjusted net income. We generated this performance despite declines in transactional activity in many significant markets around the globe.

As noted in our earnings release, and as we've discussed in our quarterly calls for the last year, we continue to seek strong growth in property and facility management and project and development services. These are business lines we value for the consistency of their annuity revenues. However, many of these client assignments required growth accounting under U.S. GAAP. This accounting requires that vendor and [indiscernible] contractor costs are included in both revenues and expenses. With our focus on cost discipline and increasing our margins, we've broken out these costs in our results to show their impact. Transactional activity such as capital markets and leasing are not impacted by this accounting, and the accounting also does not impact our profits. We've defined revenues excluding these growth contract costs as fee revenue.

In the Americas, fee revenue increased 15% from the first quarter of 2011, to $327 million. The most significant increases were in Capital Market, up 41%; and in property and facility management, up 32%. These strong increases demonstrating that we are achieving payback on the investments we've made in people staffing and in our platform. The 5% increase in leasing revenue reported in the quarter, follows a 35% year-over-year increase in the first quarter 2011, and well outpaced the year-over-year change in market volumes, indicating additional market share gains.

Moving to EMEA. Fee revenue increased 31% in local currency from the first quarter last year, driven by significant increases across most service lines. We had a strong quarter in France, with significant revenue increases in leasing, Capital Markets, and in our [indiscernible] business, which is reflected in our project and development services business line. The King Sturge acquisition has been integrated and is performing well, particularly where it was historically stronger in England and in Central and Eastern Europe.

Looking forward, our pipelines are strong, particularly in England and in Germany, and we remain focused on managing the cost space across the region, and achieving the savings expected from our cost sections taken over the last 9 to 12 months.

In our Asia-Pacific region, fee revenue increased 14% in local currency over the prior year. Colin mentioned that transaction activity across the region's broader marketplace fell significantly compared to the first quarter of 2011, as economic growth by country was mixed. Despite these conditions, we achieved leasing revenue growth of 12%, and growth in capital markets and hotels revenue of 19%. This growth was achieved by the success in the local marketplace with local clients, which filled the voids of lower international client activity levels. Also, the 12% increase in property and facility management, fee revenue reflects continued expansion of our high-quality platform, serving corporate occupiers.

LaSalle Investment Management generated significant profits in the quarter, with total segment revenue up 24%, driven by a $5 million increase in incentive fees, primarily from a Canadian fund, and $14 million more in equity earnings than in the prior year, driven by a gain on the largest portfolio of sale in Asia Pacific in the quarter. We will lose the advisory fee income from this portfolio of approximately $1.7 million per quarter until we successfully rebuild assets under management with new investment. However, we are anticipating a significant incentive fee from this portfolio sale later in the second half of this year to more than offset the short-term financial impact. Assets under management remained steady from the prior quarter at $47 billion. In total, LaSalle Investment Management continues to deliver leading investment performance, demonstrated solid capital raise abilities and provides a steady base of advisory fees.

With respect to our financial position, the firm's balance sheet remains investment-grade. Cash flow activity during the period was broadly consistent with historical first quarter activities, driven by cash payments for annual incentive compensation. Interest expense was down to $7 million in the quarter, and we're happy to be in a position to increase our semiannual dividend to $0.20 per share.

In summary, we're pleased with our first quarter results. We continued to take market share, we continued to enhance our operating and financial position, and we are well-prepared to continue increasing the strength of our business in 2012. Let me turn the call back to Colin, who will discuss some of our recent business wins.

Colin Dyer

Thanks, Lauralee. So let's look at some of those business wins to give you a sense of how we generated our first quarter results. We were obviously pleased with our business generating momentum, and Slide 5 shows a few examples of recent new assignments. Starting with our global corporate outsourcing business, we won 30 new assignments during the quarter, renewed 8 contracts, and expanded our relationship with another 12 clients. And our local market level corporate business, which services mid-market corporate clients, one business totaling 36 million square feet of space, from 14 further clients.

Our corporate solutions wins included a new assignment from Ericsson, to provide project management services for the telecommunications companies, 26 million square foot global office portfolio.

Looking at first quarter investment sales activity, in the largest ever single-asset property deal in the Netherlands, we advised Philips on a EUR 425 million sale of their High Tech Campus in Eindhoven. Major leasing and tenant representation assignments completed during the quarter included a 355,000 square foot lease in Dublin from Merck/Schering-Plough. LaSalle Investment Management continued to deliver strong performance for its clients during the quarter, generating healthy incentive fees and equity earnings for our firm, as Lauralee has described.

LaSalle has invested approximately $1 billion to date this year on behalf of clients, exceeding its total for the first quarter of 2011. LaSalle is also actively marketing and raising capital for a number of new products for investments in the U.S., Europe and Asia. Capital raising for commingled funds is beginning to become easier, and we believe this will also add to LaSalle's ongoing success in winning single-client mandates.

Looking forward, we anticipate that prospects will continue to improve the different speeds in most markets. As I said earlier, we believe that the investment sales volumes will increase during the year to reach levels similar to 2011 totals, approximately $400 million. The weighted capital dedicated to real estate remains strong and further inflows are expected from other asset classes. We expect prime yields, or cap rates, to remain relatively stable for the remainder of 2012, so any further capital appreciation will echo rental growth rather than further yield shift. Most major office markets are expected to continue to record positive rent and capital growth in the range from 0% to 10%. Outperformers showing 10%-plus capital appreciation includes: Beijing, São Paulo, San Francisco and Toronto.

Full year lease volumes will be slightly lower than 2011, down 5% to 10% in Asia-Pacific and Europe, and flat in the U.S. In the funds management sector, the institutional investor community is committing new capital-only cautiously to real estate, and LaSalle remains focused on raising new capital for its funds and winning new individual client mandates.

To close our remarks, we like to talk about some of the awards we've received, which reflect our commitment to superior client service, and our position as leader in real estate services and investment management. So already in 2012, we were named one of the World's Most Ethical Companies for the fifth consecutive year. In the U.K., we topped the Estate Gazette's 2011 league table for both -- most letting agent and most active investment agent. We were named best medium-size company in Ireland by the Irish Independent newspaper. In Russia, we won Consultant of the Year 2012 honors, the eighth time in 9 years that we've received this award. The Asia retail Congress named us International Property Consultant Of The Year for the fourth consecutive year, and in India, we were honored as Property Consultant Of The Year in both commercial and residential segments. General Motors awarded us its Supplier of the Year Award for the fifth consecutive time, and we've seen that client, obviously, through bad times and now into better times, and we've received the U.S. EPA's Energy 2012 ENERGY STAR Sustained Excellence Award.

Looking ahead, our 12 priorities will continue to be strong net income growth through market share gains, improved margins, and increased productivity. So with that summary, we'll move to questions. Operator, would you please explain the Q&A process?

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of David Gold.

David Gold - Sidoti & Company, LLC

A couple of questions for you. One, making impressive headway, obviously, by way of market share, and I guess we can see that, presumably, a couple of different ways. But I was curious -- 2 things: One, how do you think about or measure that? And two, what do you sort of do to continue down that road? Or has the hard work basically been done already as far, as adding and now, is it just productivity increasing?

Colin Dyer

The hard work is never done, David. But with the way we measure it, first of all, we presage all these remarks with the comments about market developments. And I think what you heard on the call this afternoon, was us describing markets which in Q1, were broadly down in both leasing and capital markets activity across all 3 major world regions and against that, you obviously heard our own numbers, which indicated market share gains. We have some competitive metrics we could compare with other published numbers in different regions around the world, and so those 2 together are the basic stats that we use to make those statements. In terms of how we've achieved it, well, there's obviously a mixture of some small acquisitions, some medium-sized acquisitions in there, one in particular, obviously. We've been adding numbers of people, teams, individuals around the world, and particularly, transaction activities, and those teams, as they become more productive through the sort of initial 12, 24 months with the firm begin to contribute significantly to revenue. Add to that the fact we just seem to be ongoing as a consolidator in the industry, and clients do seem to be moving that business towards a small number of large providers of services, and you draw out of that together the picture we've described.

David Gold - Sidoti & Company, LLC

Okay, that's helpful. But prospectively going forward, I mean, on a couple of fronts: One, I would love thoughts on continuation and making progress. And two, presumably, I mean, you're very clear about the climate, certainly changing, maybe it's just that the margin were changing for the worse a little bit, or slowing a little further. What do you do differently from here?

Colin Dyer

Well, I'll just comment in the market, and then Lauralee will pick up on the things that we do from here, as you put it. What we tried to describe to you is a world in which the economies seem to be gradually picking up across the U.S. and continue to grow in Asia. So 2 or 3 major regions, at least are in reasonably good shape, and have some momentum to the underlying economies. Europe is a mixed bag, with some strength in Northern Europe, the Baltics, Russia, and parts of Eastern Europe, and obviously, the well-advertised issues in Southern Europe. But overall, the economic picture is one of fairly steady growth, and we took the IMS number of around 3.5% as a kind of measure. That's real economic growth world-wide, and that underpins the basis of our activity. We also described on top of that, real estate markets which have been progressing in a-- what we believe is a pretty predictable cyclical upswing, albeit that this first quarter, we saw some hesitancy and some issues around activity, probably driven by the confidence phenomena I've described where Q4 last year, investors and users of real estate were all hesitant around the issues, which were being experienced in Europe and around the euro. And decisions, we believe, got delayed and that had a sort of knock-on effect into Q1 this year. So we're feeling sort of, okay, about the prospects for economic growth and real estate market growth. The fact there's been a hesitant first quarter in the markets, not with us. We believe you can look through that.

Lauralee E. Martin

And David, where we focused our investment strategically have been were we really have sort of wide-open opportunity to take share. So for example, in the United States, we moved aggressively into the tenant rep space with the Staubach acquisition. But subsequent to that, we've been focusing on opportunities in industrial, and now in the agency leasing where we have much smaller market shares. So again, it's an easier place to move in terms of advancing share, just like the U.S. capital markets. If we go to Europe, where we have a very strong capital markets and agency position, we've been aggressively focused on the corporates, and also on the retail business. And if we go into Asia, what we've done is now look into the next tier of cities, in India or China to own that new piece of share as those markets, overall, grow. And the last piece, I would say, in our corporate solutions business, we've been always very aggressive in the big multinational corporates but as they've been much more cost-focused, we've directed ourselves into the middle-market corporates, and have been very successful in winning that next round of companies that are coming up. So the investments have been strategically targeted in the areas where we see maybe an easier way to take share, and a big opportunity to take share, and we don't -- even though markets are slowing, that market share opportunity is still wide open.

David Gold - Sidoti & Company, LLC

Got you, perfect. And just one last, if I can, Lauralee, while I have you. The incentive fees that you referenced for later in the year, possible to give us a sense for how significant that can be?

Lauralee E. Martin

Well, they'll be double-digit, low-double digits. But the reason there's a delay is it's all-around income recognition, there's still all the balance of the contingencies with the closing of that. So it will be third or fourth quarter of the year, but that was the portfolio where we performed very well for the clients and they and we will be rewarded as a result for that.

Operator

Your next question comes from the line of Will Marks.

William C. Marks - JMP Securities LLC, Research Division

I wondered, just ask to you about the change -- and it seems like you had fairly positive or, at least, neutral comments related to global economies between, let's say, February when you last reported, and today. But the statistics or the figures you gave were worse than February, meaning, leasing volumes. You said flat pretty much in all regions on the last call and now, you're saying 5% to 10% decline in EMEA and APAC. And then for -- on your tables and capital markets or commercial real estate investment, you're showing greater declines in-- I believe in APAC and EMEA than you did in the past, too. So has there been some weakening there?

Colin Dyer

Well, you're probably reading from the tables and got exact facts. But to my mind, I don't think we changed a huge amount. We said last quarter, that leasing will be slightly up in Asia, down in Europe, and up slightly in the U.S. We've kind of showed you that a little bit, but simply based on the actual outcome for Q1 for the market stats as a whole.

William C. Marks - JMP Securities LLC, Research Division

Okay, fair enough. On the Americas, or let's say, U.S. leasing, it's just a big area for you, you talked a little bit about the -- I think, the absorption, it's something like negative 20%. Your Americas leasing figure grew about 5%, and CBs grew in the low single-digits. And I only point both of you out because you're too very big players in that business, and I'm wondering who you're -- you're obviously both gaining market share. Can you just talk a little bit about, you're doing a lot of hiring, I mean -- or kind of comment really on what they're doing, but who is suffering in this environment?

Colin Dyer

Well, one can only imagine, it's the smaller and medium-sized players. And that, we don't have any prospective on, Will. But I don't know what they are, and the markets numbers are what they are. They may get adjusted slightly, but it's clear that -- I mean, the phenomenon I described a little earlier on, is an ongoing consolidation process in the industry, and how has that been characterized in the last few months? Well, one, the medium to large- sized national player had a significant financial issue, has lost significant numbers of people, and got very close to bankruptcy. And that has an impact on business activity. I don't know what their numbers were and how much business they lost, but it from that scale of medium-sized player on down, one would imagine, where market share or markets activities are being lost.

William C. Marks - JMP Securities LLC, Research Division

Okay. And then on margins, a year ago, I think, it was the first 3 quarters of 2011, you showed year-over-year margin declines, and it picked up in the fourth quarter, and excellent quarter this quarter. Are some of those issues behind us? I think part of the problem, or one of the issues was just all the new hiring hadn't played out in terms of additional revenues, can you just comment on that?

Lauralee E. Martin

Yes, and we had taken on a number of large accounts, and we were working through that. We feel pretty good now that things are stabilized in that regard and the extra resources to get that in order are moving through. If you take each of the various regions, we made a lot of moves with the benefits of King Sturge to be able to take advantage of scale, and that's helped Europe. The Americas, as I mentioned in terms of the contracts, and Asia has just continued to stay very diligent about all its costs. So we have a cost focus, not one that's going to cut back service to the clients, or one that is not going to continue to keep us in a leadership position in terms of investments. But we think we're spending those investment dollars smartly, and you're starting to see all those paybacks.

Colin Dyer

So I think we described in Q1, Will -- sorry, on the Q4 call in the beginning of February, that we are being very careful on hiring, until at least we could see the results of the end of quarter one. So when you put that extreme care on hiring together with the sort of activity level increases that we've seen, you get generally beneficial effect on margin.

Operator

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

David Ridley-Lane - BofA Merrill Lynch, Research Division

Several large European banks have exited commercial real estate lending altogether. Do you foresee buyers having greater difficulty in getting financing for European capital markets' transactions in 2012?

Colin Dyer

Yes, it's a challenge at the moment. European, Euro-based banks have exited, for example, Russia and good parts of Eastern Europe, where they were building businesses. So that's created challenges in those areas. They've reduced their lending or stopped it altogether within the Euro zone, and indeed, those European banks that have set up shops in America, many of them are crimping there, real estate lending or have, indeed, pulled out altogether, leaving the portfolios behind which they're beginning, as you said, attempting to deal with or sell. Against that, we've seen other providers of real estate finance moving, in particular, in Europe. The investment banks, to an extent, insurance, companies, private equity funds, are all providing alternative sources of finance. The difference being they're generally charging 100 or 150 basis points higher than the sort of lending we've seen from banks sources. So it is a challenge. In general, deals are getting done. There's been more use of equity, sort of in -- and waiting for subsequent refinancing, there's been the use of these alternative sources of funding. But it's undoubtedly been part of the reason why there's been a lower level of activity in Europe.

David Ridley-Lane - BofA Merrill Lynch, Research Division

Okay. And then I'm just sort of looking at the difference between total property and facility management revenue growth and the fee growth. Does this suggest you're doing different types of work recently, or maybe what explains that difference?

Lauralee E. Martin

It is the type of contract that is done, whether it ends up being a gross accounting or a net accounting. We've been doing gross accounting principally, for a long period of time in Asia and in Europe. The U.S. left so just because of market nuances, but there are times where the growth account is the desire of the client and also, there is an opportunity for us to many times, with really good management out of that, have the absolute profit that we make off of that be, actually, higher, even though the -- if you didn't separate out the various portions of that gross accounting versus the amount of money that comes to us, it would look like a lower margin. So because of that, we felt it was good to expose that to you, and it also shows that there's significant opportunity for us to continue to grow that business globally.

Colin Dyer

In addition that, within the Americas, we had a very nice bump in our property management activity in the quarter, year-on-year. So that explains that rather, it partly explains a rather large uplift in the Americas.

David Ridley-Lane - BofA Merrill Lynch, Research Division

Okay, great. Great. And then just one housekeeping. What was the approximate benefit from King Sturge in the quarter?

Lauralee E. Martin

We no longer can separate that, because we've so integrated it in really, all parts of the world. I would -- I believe that if we were to be able to put their numbers with our numbers, which we can't do perfectly because they have a different year end, that we would have probably had flat revenue growth in Europe, versus the uplift from the benefit of the acquisition.

Operator

[Operator Instructions] And your next question comes from the line of Brandon Dobell.

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

I wonder if we could focus for a second on the property and facility management. You gave us some good, I guess, kind of outlook comments about the capital markets or transaction businesses, but should we expect any directional change or kind of magnitude change in the growth, I guess, particularly in Asia Pac and the Americas looking out? Those 2 for those -- that segment, sorry.

Lauralee E. Martin

Our pipelines are as strong, if not stronger, than last year. So obviously, you've got to convert the pipelines into wins, but we continue to win at the pace we always have. So we remain very optimistic about the business.

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

And as those deals have on-boarded, I guess, especially through '10 and '11, have you seen a kind of follow-on revenue, especially in leasing that you would have expected to see from those transactions, or given all the noise in the economy, has it been slower to pull-through?

Colin Dyer

Well, you can see our leasing numbers have been quite robust. So whatever's going on in the broader leasing markets, we were succeeding in building our leasing revenues. Some of that undoubtedly, would have been driven in the U.S. in particular, by the linkage with property management. A proportion of our U.S. property management has leasing attached, but not all of it. But that extra, those extra property management wins which we had, would have helped that overall picture, the leasing activity picture. What we don't do and can't do for you on the call, Brandon, is to break that out. If you'd like us to try that, we'll do it next time. Again, it will -- a little bit of a joke...

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

I know it's definitely challenging thing to do, I realize that. And I want to go back, I think, maybe just 2 questions ago, to make sure I understand, you've got to slowdown hiring a little bit in-- I guess, in the context of trying to get a better idea of how the first quarter played out from a transaction kind of volume perspective, and how the year would play out. Given what you know now and the slight tweaks you made to, let's call it, geographic growth rates, should we expect the pace of broker additions to pick back up? Or do you think that the market is just not robust enough in some areas, I guess in the U.S. in particular, to resume the kind of pace, or even close to the pace of hiring you had going on last year?

Colin Dyer

Well, as we said on previous calls, we were trying to hire early in the cycle, and we believe we were successful in doing that. We do that for a couple of reasons. First of all, the economics work well for us because we then [ph] have the benefit of those people through the better parts of the cycle. But they also work because earlier in the cycle, brokers don't have as much vested interest in that prior place of employment with deals that are in the pipeline. As things done at the moment, we feel obviously, with these Q1 numbers, a little better about our prospects for the year because we've just seen a good performance in the first quarter, and so we'd be tempted to move ahead a little more aggressively with hiring against that. It's also clear that in the U.S. in particular, the market has got tougher for hiring brokers. It's just got more price competitive.

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

Okay. And then final question for me, we saw some pretty good results out of HFF today in their debt origination business. I know you guys have a small capability there, but what are the thoughts on that market opportunity as you look out to the next couple of years? And do you think you can build that internally or do you have to go get some people? Or is that a business you think you don't need to be in, given the relative size and scale of the capital markets business in the U.S.?

Colin Dyer

Well, from the comments I just made about debt availability in Europe, it sure is an opportunity in the European theater, and we've been building that capability, specifically around the former head of our German business who's moved across to run what we call corporate finance in Europe. So yes, in Europe we are building currently, organically, if there's an opportunity to change that approach, then we may look at that. Within the U.S., we already have the capability, and we've been building it, it's not the size of HFF, obviously, but we've been building it steadily, but the real opportunity for short-term to help clients is in Europe.

Operator

And your next question comes from the line of Michael Mueller.

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

2 questions. First of all, Lauralee, I think you mentioned there was about $1.7 million of fee income associated with the Japan fund that you sold. Was any of that recognized in the first quarter, or can you give us a sense of how much of that still has to come out of the run rate?

Lauralee E. Martin

It would be moving at -- that's about $1.7 million a quarter going forward, until we rebuild the asset levels. But like I said, because we're getting -- we got equity earnings and we will get an incentive fee, which is the normal churn in the fund, that's what you want to do. When you get the return for the client, you want to execute, get paid and have that sale, that's a normal cycle. But we pretty much have the transaction in most of the quarter, most of the first quarter. So it's going forward.

Colin Dyer

You recall in my comments, I said we were raising funds, commingled funds in the U.S., Europe and Asia. And that Asian comment was with respect to, as Lauralee said, replacing that fund with a follow-on version.

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

Okay, great. And secondly, remember this time last year, expenses ticked up, and it was a function of-- I don't know if the correct term is conferences, but you had bunch of meetings, pulling people in from the different regions that were impacting the first quarter earnings, and the expense margins. Did that occur this year, or is that something that is more of a every other year event?

Colin Dyer

Yes, you're right. We were buzzing around the world, Lauralee and I, in Q1 last year, doing conferences, internal conferences. You're right, and many hundreds of people came together in various areas. We didn't have a repeat in Europe or the U.S -- or Asia. We did in the U.S., where it's actually a big sales meeting, and very productive.

Operator

[Operator Instructions] And your next question comes from the line of Todd Lukasik.

Todd Lukasik - Morningstar Inc., Research Division

Just a quick question with revenues up in real estate services, it's 17%, 18%, is it generally fair to assume that overall headcount also grows sort of in that sort of a range?

Colin Dyer

No, way less than that. We'll try to dig out the numbers, if we can. But there's a big productivity boost there, partly us taking the shares, structuring, and partly the ongoing cyclical recovery which I described in my comments. So it's a -- the headcount growth will be significantly below that.

Todd Lukasik - Morningstar Inc., Research Division

Okay, great. Yes, I'd be interested in that, maybe I will follow-up later with Lauralee. And then just with regards to the net and the gross accounting for revenue, can you just remind us what your long-term expectations or goals are in terms of margins, operating margins or EBITDA margins on a net basis?

Colin Dyer

Yes. Our margin figures have not changed. Lauralee?

Lauralee E. Martin

Operating income target for the firm is 12% which, depending on the acquisition activity, is sort of 14.5% to 15% EBITDA. And then they run in a range for the various businesses, with the highest above that being the Americas.

Colin Dyer

12% to 14%.

Lauralee E. Martin

Yes, 12% to 14%. Europe actually being 8% to 10%, and then Asia being 10% to 12%, and LaSalle Investment Management running in the 20s.

Todd Lukasik - Morningstar Inc., Research Division

Okay. And do you think about those on a net basis?

Lauralee E. Martin

Yes...

Colin Dyer

Against the net revenue numbers.

Operator

We have no further questions at this time, sir.

Colin Dyer

Okay, well, thank you, operator. We will finish today's call, and I'd like to thank everybody on the call for your interest in Jones Lang LaSalle, and we'll look forward to speaking with you again, following the second quarter's earnings. Good evening.

Operator

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

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