Feb 3, 2010
Executives
Colin Dyer – President and CEO Lauralee Martin – CFO and COO
Analysts
Kevin Doherty – Bank of America/Merrill Lynch Sloan Bohlen – Goldman Sachs Michael Mueller – JP Morgan David Gold – Sidoti Vikram Malhotra – Morgan Stanley Will Marks – JMP Securities Brandon Dobell – William Blair
Operator
Good day and welcome to the fourth quarter 2009 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, 2008 and in our other reports filed with the SEC.
The company disclaims any undertaking to update or revise any forward-looking statement. A transcript of this call will be posted and available on the company’s website.
A web audio replay will also be available for download. Information and the link can be found on the company’s website.
At this time, I like to turn the call over Mr. Colin Dyer, Chief Executive Officer for opening remarks.
Please go ahead, sir.
Colin Dyer
Thank you operator. Hello everybody, thanks for joining us for this review of our results for the fourth quarter and full year of 2009, and also upfront I have a cold and I apologize for any unusual noises on the line.
With me today on the call is Lauralee Martin, our Chief Operating and Financial Officer. Lauralee will review our performance in detail in a few minutes, but to summarize, we are very pleased with our quarterly adjusted earnings per share of $1.44 and our fourth-quarter revenues of $815 million compared to $797 million in 2008.
For the full year, adjusted EPS was $1.75 a share, while revenue was $2.5 billion. These results are due in large part to the range of actions that we have taken during the past two years to right size our business during the great recession and the worst market conditions in memory.
We protected our business, held on to our best people, grown our market positions and taken market share in virtually every area where we can measure it. We have also cut costs substantially, while continuing to attract talented new producers to our firm, so that we are well positioned to take advantage of the coming recovery.
Finally, we strengthened our balance sheet and we are particularly pleased to have only $175 million of outstanding debt at year-end. While institutional investors remain cautious, LaSalle Investment Management has continued to raise investment capital, attracting over $4 billion of net new equity for the year 2009.
Before we get to Lauralee’s review of operations, I'm just going to spend a few minutes talking about quarter four market conditions. A year ago, real estate markets were universally bad.
Today the situation we see is stabilizing, and we are even beginning to see signs of recovery in some areas. We do see a very mixed situation in markets worldwide from strong growth in Hong Kong to continued declines in Russia.
With different markets at very different stages of the cycle, there is no simple description that covers all markets. So we will try to describe some common themes to you.
In general, investment sales are anticipating a recovery, while leasing markets driven by supply demand fundamentals are still lagging. We have posted slides on the investor relations section of our website www.joneslanglasalle.com for your reference.
Slide three shows the Jones Lang LaSalle investment sales clock, which offers a snapshot of conditions in major markets at different stages of the cycle. As the graphic indicates in the fourth quarter of 2008, capital values were falling virtually uniformly in all major real estate markets.
As the global rule of the thumb, values declined by 40% to 50% from their 2007 peaks, and transaction activity slowed by 70% to 90%. A year later in quarter four 2009 declines in value were slowing in all markets and prices were beginning to recover in some, including Hong Kong, Shanghai, Beijing, London and Seoul with additional markets nearing the bottom of the cycle.
By the year end, cap rates in London and Hong Kong had compressed by 200 to 300 basis points from their worst levels. Leading the European recovery, investment sales in London bounced hard and fast.
This activity has been driven by foreign investors attracted by cheap assets and weak sterling in a historically liquid market. In retrospect, the market appears to have decided that the 50% fall from peak values was an overreaction.
Once investors started to anticipate recovery markets bounced back quickly to correct the oversold position. Beyond London, Asian cities in red on your graphic are generally leading the way back in pricing and activity, followed by some European markets in blue, with the US markets in black continuing to lag.
The result is that world cities are in a vastly different stage from continued declines to selective recovery. If you will turn to slide four, you will see that the situation is less encouraging in leasing markets worldwide.
As another global rule of the thumb, rents have fallen by roughly a third from their peaks and leasing activity has also declined by around 33%. Rental rates and leasing volumes continued to fall year-on-year in quarter four.
Viewed on quarter-to-quarter basis, the rate of decline is now slowing. It is interesting that in general, the same cities are leading the way back in leasing activity as in the investment sales markets.
The trends in investment sales and leasing markets affect those of our advisory transaction business and obviously also the environment in which LaSalle Investment Management operates. Finally, the corporate outsourcing market has continued to grow during the last half year, and we have continued to gain share in that market across all regions.
So with that as market background, I will now turn the call over to Lauralee.
Lauralee Martin
Thank you Colin, and good morning to everyone on the call. If you will refer to the slides Colin mentioned, we have provided both the fourth quarter and full-year financial information in a similar format to past quarters.
Instead of walking through each page, I would like to focus on our 2009 financial scorecard on slide 5. Earlier this year, we projected that we would reduce 2009 discretionary spending for the overall firm by $50 million in local currencies.
We in fact overachieved that target and reduced these costs by more than 70 million. Calculated on a local currency basis, these savings represent a 33% year-over-year reduction coming principally from travel entertainment, professional fees, marketing and training expenses.
We took actions across all of our businesses in each region of the world, and are proud of the focused efforts by our people to take action early and maintain that cost discipline throughout the year. The reduction in discretionary spending together with staff reductions globally, reduced our cost base and allowed us to deliver an adjusting operating income margin of 6.6% for the year, which was consistent with 2008, despite significant revenue declines in our higher margin transaction businesses.
We are pleased with this profit performance for the year against the severe market deterioration we face. I say pleased, but not entirely satisfied, which I will touch on with our 2010 priorities in a few moments.
In terms of revenue performance, our corporate solutions businesses capitalized on our market leading positions and delivered strong growth in annuity revenues. We secured over 75 new wins and expansions resulting in an additional 170 million square feet under management.
Colin will discuss a few of our recent corporate solutions wins shortly. Throughout the year, we strengthened our financial position, our successful equity rates in June along with our strong cash generation and disciplined capital spending contributed to $334 million net bank debt reduction for the year.
Despite the global economic downturn, we maintained our investment grade ratings. These ratings are important proof points to our clients who selected as long-term partners, our banks who continue to be great supporters of the firm, and our employees who want to work for a financially strong company.
If you will now turn to slide six, I will focus on some highlights in each of our reporting segments. Our America's leasing results, which include both agency and tenant representation transactions now reflect a complete year of the fully integrated Staubach merger.
Leasing was up 20% in the fourth quarter demonstrating the strength and momentum of our combined organization as we capitalized on the market place adjusting leases to the new occupier needs and market realms. The Americas also completed its conversion to a full commission leasing model.
With that flexible model, there are successfully upgrading talents, adding market leading brokers, replacing less productive brokers and adding brokers and new product capabilities such as industrial for a net new ad of 35 brokers. Our success in expanding our corporate outsourcing business is proven by our property and facilities management revenue being up 25% for the quarter, 15% for the year providing a solid and predictable annuity revenue base going forward.
On a less positive note, our capital markets business in the Americas suffered from record low market activity levels during the year. We have made significant cost cuts to right size the business to current market conditions and to improve profit performance in 2010.
In EMEA, 2009 was a financially challenging year due to the significantly reduced transaction activity in the marketplace. We took early decisive action to stabilize our businesses in developing markets such as Russia and Dubai, which proved most challenged by the economic downturn.
Despite aggressive downsizing, we have been able to maintain a dominant market presence, while some of our competitors have been forced to close their doors. As several of the mature markets look to have a slower recovery horizon, we did take additional severance actions in the fourth quarter to be better positioned for 2010.
Across the region, we anticipate really 60 million in annualized base compensation savings, while still achieving a seven-month payback on the restructuring cost we have incurred. We have begun to see markets stabilize in select countries.
In France, although overall 2009 capital market volumes were down 40% compared to 2008, we are very proud of our capital markets’ team who doubled their market share to nearly 20% of volume transacted and moved to a number one position from number three in 2008. We are also pleased to have market share gains in the UK where property values are beginning to show first signs of recovery resulting in a pickup in our capital markets activity.
In Asia-Pacific, aggressive government stimulus programs helped certain transactional markets recover late in the year. We leveraged our prior year’s investments in China, resulting in 20% year-over-year revenue growth in the country.
We successfully grew our annuity revenue across the region achieving a 50% revenue mix in 2009, up from approximately 40% in 2008. Our property and facility management businesses grew 30% for the year, 16% in the fourth quarter as a result of an extended capital corporate outsourcing presence and particularly good growth in Australia.
Our focus on rightsizing our cost base also contributed significantly to the improved profit performance for the year. LaSalle Investment Management maintained its advisory revenue at $60 million for the quarter, and continued to deliver a healthy margin on that annuity stream.
Unfortunately, their portfolio was not immune to worldwide valuation declines, and we took clearly 50 million of impairments during the course of the year. We believe impairments are largely behind the business, though we could experience some additional charges in 2010 as markets continued to correct themselves.
In a very challenging year for raising real estate capital, using their reputation for core and value investment performance, LaSalle successfully raised over 4 billion of net equity across their broad capabilities, gaining commitments in separate accounts, funds and public securities. Investments, however, were limited during the year as LaSalle remained conscious in the midst of market uncertainty.
Turning to the next slide, as we conclude 2009 and look ahead to 2010, we expect as Colin has covered that economic recovery will vary country by country, market by market and even product by product. Against this outlook, we are solidly positioned to react and capitalize as opportunities unfold.
We will continue to focus on maintaining our cost discipline, while selectively adding and upgrading talent to build our global capabilities and grow market share. We will continue to build our annuity revenue growth momentum and expand our leadership position in the corporate solutions space.
We plan to leverage LaSalle Investment Management’s global scale and buying power to grow our position in the market, while delivering performance for our clients. Let me now turn the call back to Colin to discuss some of our recent wins and accomplishments.
Colin Dyer
Thanks Lauralee. And just to add to the point Lauralee made about our number one position in capital markets in France.
We heard this morning we also gained that position in the UK market as well. So, well done to our European capital market teams.
To give you a sense of the opportunities in today's markets and to show how well our people are taking advantage of them, slide eight shows examples of recent business successes in our corporate solutions business. Highlighting a few of these wins, Cisco Systems renewed and expanded our global partnership.
We also established new multiregional relationships with JDS Uniphase, AstraZeneca and SAP. There was a landmark early in January, when we were awarded our biggest ever corporate win in Asia-Pacific.
Telstra, Australia's leading telecom company awarded us a long-term contract to manage their portfolio of 27 million square feet across Australia. Turning to investment sales in slide nine, in Asia-Pacific we closed the year’s largest transaction in Japan, and probably the world, with the acquisition of Pacific Century Place in Tokyo.
We also advised on the largest transaction in Australia in more than a decade, the 685 million Australian dollar sales of RBS Tower and Auroro Place in Sydney. In Europe, we advised on the sale of the Silverburn Shopping Centre in Glasgow for just under 300 billion pounds sterling, our German and pan-European teams advised on the sale of the A10 Shopping Centre south of Berlin and that was for €200 million.
In the US during the fourth quarter, we represented Brandywine Realty in the sale of two class A office buildings in New Jersey for $85 million. You may notice a reappearance of more and more sizeable transactions than we have seen in previous quarters, a sign of market activity.
On slide 10, you will see highlights of our leasing and tenant representation business, including being appointed by the Metallurgical Corporation of China as the sole leasing agent for its 600,000 square foot landmark office building in Beijing. We also valued MCC's portfolio when it was IPOed last year.
Our market leading India operation won more than 1.3 million square feet of tenant representation and project management work for clients including Deutsche Bank, Lenovo, Sony, Mercedes Benz and Exxon Mobil. In EMEA, our Czech office recently acted for PSJ in the country's largest deal of 2009 leasing 290,000 square feet at Main Point in Karlin.
In the US, two years after relocating United Airlines headquarters facility in Chicago, we completed the largest relocation in Chicago history by relocating United's operation facility to 460,000 square feet in the Willis Tower, formerly the Sears Tower. And in New York, we represented the landlord as law firm Paul, Weiss, renewed its lease of 1285 Avenue of the Americas.
It was the largest lease transaction in Manhattan for Class A office space last year. So, these are indications of our clients getting back to business again and spending to their limits of their budgets.
As we mentioned in our last call, early in the fourth quarter LaSalle Investment Management launched the LaSalle Property Fund, an institutional open-ended fund that will invest in core assets in the US. Anchored by a major state public pension plan, the fund quickly raised 1.5 billion dollars in equity.
This same public pension plan also retained LaSalle in 2009 for a second mandate funding of $200 million to advise on a number of the pension funds special situation investments. We expect this fund that is the openhanded fund, to grow significantly over the coming years.
For the first time in many quarters, we believe that the forward market picture offers some clarity. And so what we are now going to do is attempt to give you some indications of our markets around the world.
Starting with investment sales, currently, there is plenty of equity in world markets and bank financing is beginning to be selectively available again. Generally, investment sales continue to anticipate broader recovery in fundamentals by some 12 to 18 months.
Looking regionally, investor sentiment is fast improving in Asia Pacific, although 2010 transaction activity will still be below 2008 levels. Cap rates will stabilize in 2010, with some markets already having reached bottom and others doing so early in the year.
Prices in mainland China and Hong Kong are rebounding driven by global investors selling to local buyers and by freely available credit despite the Bank of China’s recent tightening. Volumes will rise everywhere in Asia, except in Japan in 2010 and transaction levels could be up by 40%.
In Europe, we have a two tier investment market in prospect this year. Cap rates will continue to compress with the best markets like London and Paris seeing continued movement in values due to lack of stock.
Nonprime markets will remain relatively weak with pricing reflecting the weak fundamentals more accurately than in prime markets. In 2010, transaction volumes are expected to increase by at least 20% in Europe.
There will be more limited, more transparent CMBS issuance that we saw at the end of 2009, and banks will be lending cautiously on core space. Recovery in the Americas is expected to follow the pattern seen in other regions, but just lagging by 6 to 9 months.
Indicators suggest that investment sales volume will begin to increase in leading US cities during the second quarter of 2010 with sales and transaction activity overall expected to increase 50% for the full year, although that obviously is of a very low base. We anticipate a tentative return of conservatively based CMBS issuance, helping real estate finance and refinance with volumes totaling less than $30 billion for the year.
Cap rates should be firmer and prices more transparent as we progress through the first half. And finally, continued dislocation in the US banking system will continue to restrict real estate finance more than in other regions.
In leasing markets, on the demand side companies have liquidity, corporate confidence is recovering and companies are beginning to take decisions again. Supported by an improved operating environment and greater economic certainty, corporate occupiers will begin to take decisions on their space needs and they will likely spend to the limits of capital and expense budgets in 2010.
Employment is just now beginning to bottom out worldwide. Net leasing declines will continue in Europe with rents falling or at best holding in key markets as occupiers remain in cost-cutting mode.
Exceptions to this will include firming leasing market activity and pricing in West London and in Paris. However, office vacancy rates generally will not peak until late 2010 at the earliest.
Stabilization and return to genuine demand growth in US leasing markets is not expected before 2011. The picture for corporate outsourcing is encouraging.
Our pipeline as an indicator is just as strong now as it was a year ago, and we are pursuing the same number of opportunities. We also found that in 2009, average revenue per new business contract was nearly 60% higher than in 2008 a further encouraging trend.
In global investment markets, we see institutional money flowing back into stable income producing core assets in most parts of the world. This is being driven by relatively attractive yields, compared to other investment classes, and by institutions maintaining their allocations to real estate.
And we give you that summary of world markets to give you a feel as to how we are thinking about the planning process in our business in 2010. So given how varied market conditions are, we have three operational priorities and Lauralee referred to these.
First, continued caution everywhere. Second, as we have described, we will continue our approach to tailoring the management of our business to conditions in individual sectors, geographic markets and product lines.
And finally, we will continue to take actions, which will build our margins and our market share. In closing, as always I will talk about awards and recognitions just one this time, but a very important one.
In November, Procter & Gamble named us their supplier of the year. That is one of seven firms to win the honor out of their 80,000 suppliers worldwide.
This is the second consecutive year that we have received this distinction, and it was also the second year in a row that we were recognized with the corporate supplier excellence award by Procter & Gamble. So to conclude, markets overall are finding a bottom and have definitely improved over quarter four 2008.
We sense the tone shifting from defense to offense and we are ready for that. We will continue to focus on cost, perfecting the savings we generated through the downturn and using them to invest in select priorities during the recovery.
Finally, this morning Lauralee and I would like to thank all of our people, many of whom listen into this call. We would like to thank them one more time for the terrific job they did last year, because through their contributions and sacrifices through the year, they positioned our firm for a bright 2010.
So, now let us move to questions. Operator, could you explain the process please.
Operator
(Operator instructions) You have a question from the line of Kevin Doherty with Bank of America/Merrill Lynch.
Kevin Doherty - Bank of America/Merrill Lynch
Great. Thank you.
I guess just the first one question on margins, the adjusted EBITDA contracted year-over-year with about 2% revenue growth this quarter, but if I look back in 3Q, margins actually expanded year-over-year on a 12% decline in revenues. So I just want to see if you can sort of reconcile that, and just talk about how we should think about leveraging the model going forward, assuming we continue to see, you know, call it modest revenue growth over the rest of the year?
Lauralee Martin
Kevin that is an excellent question. I think one of the difficulties is that, we're getting different rates of recovery across our lines of businesses, and so you are not getting a complete expansion, which would give you more of a predictable margin expansion.
So depending on which parts of the world, you know, that will come through very nicely or different product types it will come through nicely as well. We did have parts of the world, particularly if you think about Asia, where we saw a very nice recovery in the fourth quarter, where all a sudden bonus pools that may have been fairly minimal will all of a sudden come into a funding capability, and even some of those dynamics in Europe.
So you are going to get some movements that are not our normal quarterly progression, and unfortunately we still have parts of the world in the recovery, where we had little to no improvement, capital markets, for example, we did not say improvement in the US. We have not seen improvement in some of the developing worlds like Russia.
And so there is a lot of mix change in there. We do believe that as the world gets into a more stable and improving environment across the board, the leveraging will come through.
We have worked hard on the cost models, and moving our compensation structures as well such that the benefits of the market recovery will be showing in the financial results.
Kevin Doherty - Bank of America/Merrill Lynch
Okay, I appreciate that and then maybe just switching to the revenue which came in, I think much stronger than the Street was looking for. Could you just maybe talk about what you viewed as being the biggest surprises maybe relative to your internal expectations, and then how does that reconcile as you look out over the rest of the year relative to maybe what you thought a quarter or two ago?
Colin Dyer
Kevin, it is nice to be in that phase of the cycle, where the surprises are on the upside, and that is an interesting indicator we thought from where we actually are. I suppose the biggest surprise to us was the Asia number, which came through very strongly as you will see.
I wouldn't use the word shock, but it was close, and just I think it just reflects the points we are making in the market, comments not only for Q4 last year, but also the forward picture, just how strong Asia is recovering, and it feels like a V shape recovery in Asia, whatever it is in the rest of the world. And if you talk to our businesses in India, China and across the region, in Australia they are seeing a very strong bounce in confidence against the market where the banking system is in great shape, and where they are generating now an internal demand to add to a small bounce back in the excellent demand from Western countries.
So that -- it is the Asian region, which really surprised us most on the upside. We are pleased too with the strength of the American business, the way that came through nicely in the fourth quarter.
Kevin Doherty - Bank of America/Merrill Lynch
Okay, and then maybe just a last question, can you talk about your comfort level with the leverage ratio of the company as it stands right now, and what would be your priorities for continued debt repayment over the rest of the year. Thank you.
Lauralee Martin
Well, we're very, very comfortable with where we are financially. We ended up with only our term debt at the end of the year, very strong pay down in the fourth quarter on a cash basis.
We do pay our bonuses in the first quarter. So our debt will go up again.
But we are extremely comfortable in our ratios, and we did raise equity as you know in June, because at that time the world seemed very, very uncertain, and we are still very pleased that we did that. But we would have been able to have stayed within our covenant ratios even without that, which gives you an idea of the strength of where we are today.
And again the investment grade ratings, we think that is an external statement of our financial strength as well.
Kevin Doherty - Bank of America/Merrill Lynch
Okay. Thanks for taking my questions.
Colin Dyer
A pleasure.
Operator
Your next question comes from the line of Sloan Bohlen with Goldman Sachs.
Sloan Bohlen - Goldman Sachs
Hi, good morning. Just a question, hoping you could expand a little bit on your comment on margin, I'm sorry on growth and market share, and specifically with the growth in the US leasing, just wondering if you can maybe touch on how much of that was new business through the integration of the Staubach acquisition and how much of that was just a pickup in activity?
Colin Dyer
Well, the market from my memory the market overall was down by about 20% in the regions that we were present, and recall year-over-year we are up by a similar figure. So we picked up a significant share we believe.
The markets clearly are not very active. So you will have to say that that is the benefit of the result of a benefit of hard work of our people.
And we believe an increasing level of revenue synergies between the legacy, Staubach and the legacy Jones Lang LaSalle businesses. They learned to work together and benefit from each other’s skill.
Sloan Bohlen - Goldman Sachs
Okay, then maybe switching gears, if you could talk a little bit about the fundraising environment for investment management, can you talk a little bit about maybe how coinvestment levels or what investors are requiring has changed versus through the last cycle, and kind of as a follow on to that where your balance sheet kind of allows you to coinvest going forward as you grow that business?
Lauralee Martin
Well, I think the capital that we raised this year, we raised really across the board. We raised some securities that doesn't require coinvestment capital.
We raised in separate accounts. We in fact put cap coinvestment against that that is principally core asset classes that we're doing.
So, we did not have a difference in historical coinvestment as we did that activity, and then we have done a small amount of funds as well, again I would say the more typical coinvestment that went against that. I think it is a little early to really know exactly how that marketplace is going to play through.
I think probably more likely that pressure is going to be on fees and structures of how advisors get paid when the market becomes more robust. We were pleased that we raised $4 billion in a very difficult -- net, that is a net number.
We actually on a growth basis raised more than that dollars and in all three categories of which we provide advisory advice.
Sloan Bohlen - Goldman Sachs
Okay, and maybe just a broader comment about the equity that is out there looking for opportunities, do you get the sense that most of it is chasing core products or maybe is there a split between those that are chasing core versus value add. Just trying to get a sense of how that can play out in the sales market.
Colin Dyer
Whether you are talking institutional investors or individual, sort of REIT style investors. People got so badly burnt and shocked by what happened over the last 18 months, two years that the appetite, where there is appetite for equity is towards the core lower risk end of the curve in general.
So it is a case of the institutional investors. To add to the point Lauralee made, investors without -- sort of with endowments, for example, who don't have a regular strong steady cash flow currently aren’t looking to put money out in any asset classes, because they have -- with their sort of limited overall pie they are kind of recovering from what has happened in the last two years, but where we see for example, pension funds who have got a steady inflow of cash, and therefore have a need to continue to place investments.
There is a market there, they are being cautious on illiquid sectors and going for liquid sectors for preference. But nevertheless, as I said in the earlier remarks, our sense is that real estate is holding its allocation, and therefore what you will see is that money coming into real estate gradually finding its way back into the real estate sector.
Sloan Bohlen - Goldman Sachs
Okay, thank you. I appreciate it.
Operator
Your next question comes from the line of Michael Mueller with JP Morgan.
Michael Mueller - JP Morgan
Hi, good morning. Colin, first of all, going back to your comments at the tail end, where you are talking about the different regions and specifically the capital markets’ activities and their expectations for 2010.
Was that -- where there general overall transactional comments relating to the market or was that a little more focus towards JLL in terms of we think revenues could be x.
Colin Dyer
Well, they were market comments. As you know, we don't make specific forecasts about our own position.
But take my point that I also made that that is the context in which we are thinking about our business.
Michael Mueller - JP Morgan
Sure. Okay.
Secondly, maybe translating that a little bit too leasing, can you talk a little bit about the leasing business, because and if we take a look at the comps, and I know the Americas is little different, because of Staubach, but if we take a look at what the year-over-year local currency comps were for Q3 to Q4, it was some pretty significant improvement that you saw in Europe and saw in Asia. Can you talk a little bit about what follow-through you are seeing thus far in 2010, does it feel like those Q4 numbers were little bit more of a blip or it was a real pickup in business not just kind of bumping up against better comps?
Colin Dyer
Well, the year-on-year numbers from 4Q last year to 4Q 2008 were down. We see the return of decline is slowing.
That is the first point to make, but quarter two numbers are up indeed, but that we have to take with some caution because those are regular annual seasonal trends that you see with the fourth quarter in the year in practically all of our activities always shows a either strong or even storming up-tick on Q3. So you have to look at it, you have to combine those two together and take a view through them.
As to what was driving that. I've made the comments on the market as a whole.
Our clients are regaining confidence and whether it is undertaking decisions. That doesn’t mean they are expanding.
It means, they are saying well, okay, we now see our forward picture. We know what space we will need.
We can start to consolidate. We can start to lengthen leases.
And in some cases, they are expanding and so you know, you see some major banks you had difficulties in, major financial centers out looking for hundreds of thousands of square feet of space currently, simply because they want to consolidate and get to a lower cost base in a more rational organization. And I think that trend is going to continue, a trend of more decision, more decisiveness, more action on the path of the customers in this market.
And also I wouldn’t comment on the first 33 days of this year, our sense is that that trend, this is a broad market comment, it is a broad cyclical trend comment, that trend is likely to continue through the year.
Michael Mueller - JP Morgan
Okay, switching gears for a second and looking --
Lauralee Martin
One more comment. You know, if we look back on comparable, probably the two devastating quarters were the fourth quarter of last year and then the first quarter of this year.
So the fourth quarter of '08, which is what our comparable is in the first quarter of '09 and then the second half of the year has started to see that confidence that Colin is talking to. So, we have the seasonal piece in there and then we also have some abnormal quarters that we are comparing to and we'll probably have one more of those until it starts to look like, you know, a relatively normal sequence of marketplace events.
Michael Mueller - JP Morgan
Okay, and switching gears for a second, the facility management property management growth, can you talk a little bit about some of the drivers behind that, and put some numbers out, maybe for example the 25% growth and 20% growth. Today you have x number of clients compared to last year, was this number of clients.
Was there a difference in pricing? I mean, just put some parameters behind it in terms of what's driving the growth?
Colin Dyer
Well, what's driving the growth is the same as the dynamic this has been driving that part of the market through the recession, which as people are looking -- companies are looking to lower their cost base by putting that facilities out to professional management. Same logic as you see in information technology, and that coupled with a trend towards the non-US part of the market, that's to say Europe and Asia-Pacific also picking up this corporate trend.
So we have talked about the Telstra win in Australia. We had several large new pieces of business across Asia-Pacific that with international banks and with US multinationals, but also we are seeing European companies.
A couple of big Dutch institutions that I can think of just now and French organizations we're talking to as well, looking to follow the same trend and professionalize the management of their facilities. So that is the general background in terms of numbers.
As we’ve already said, we secured more than 75 new wins and expansions last year, and that gave us an additional 170 million square feet under management, and that adds to our total of 1.4 billion of total feet under management.
Michael Mueller - JP Morgan
Okay, and last question. I mean, can you talk a little bit about, I guess when we take a look at by geographic region and segment, including investment management margin expectations for '10 versus '11, and I know you don't put guidance out there and I appreciate that, but I mean, are you operating under the scenario where you think the expense ratios are comparable or if we see the pickup in capital markets activity you're talking about, you know, it may be a good scenario is that margins improved by a couple of hundred basis points.
I mean, can you kind of frame out what you think the base case is and you know, the high end and low end?
Lauralee Martin
Well, I think that we are below the margins of our historical business, and we are below the margins that we targeted for you in the past, particularly if you think about EMEA, where we are significantly under historical margins. The answer to how those come back will be the pace of the market recovery.
If we think about the US, we are you know, very pleased with the dynamics happening in the leasing markets and in the annuity businesses, but our capital markets business is not a contributor at this point in time. EMEA being strongly transactional both on leasing and capital markets, definitely not conforming at an -- on a normal trend line.
You don't have to go back to the peak, but just a normal trend line as well as it's having a couple of really tough developing markets that we've identified throughout the year, such as Russia, where we've had actually you know, fairly extensive losses than of now because of rightsizing it brought it back to an operating expense level where we can you know, perform at a breakeven or better, even if the market doesn't improve. So I'd love to give you an answer but it's really the pace and it's the pace that where it happens, which is really the message we're trying to say.
This is not an even recovery globally, country, product line, but each of our businesses have been charged that we've got a good cost structure now, and we expect as your markets come back to normal to get to historical margins if not better margins than what we've had in the past.
Michael Mueller - JP Morgan
Okay. Appreciate it.
Thank you.
Operator
Your next question comes from the line of David Gold with Sidoti.
David Gold - Sidoti
Hi, good morning. I was hoping, Lauralee you could frame out a little bit more of the cost cuts.
So essentially I guess you know, we are told between discretionary and sort of non-discretionary, I guess we have about $170 million or so in ’09, and I guess just wanted to get a better sense for as business recovers, as revenue recovers, how much of that presumably needs to come back, you know, obviously scale of those revenues comes back versus how much of it sort of cost cuts of us being say more efficient and you know, haven't changed the model a little bit.
Lauralee Martin
Well, everything has been leaned down, but there is no question that when business activity picks up people travel more to go see clients. They entertain more because they can translate that entertainment into revenues very quickly.
There will be a certain amount of professional fees that come back, for example, in LaSalle Investment Management as the lawyers prepare fund documents and things like that. So it was taken out more dramatically than what it will come back, but there is no question that you'll want to see some increase in those expense lines because that's a good sign that in fact there will be revenue growth and then a leveraging of that business as we go forward.
David Gold - Sidoti
Okay, so I mean I guess is there a good way to think about that you know, by way of, in other words maybe 20% of it is you folks being more efficient than, you know, sort of the rest of it, you know, a function of business coming back or you know, can you sort of give some sense of you know, gates around that or, I know it's hard.
Lauralee Martin
Well, we watch -- probably the best way to describe, we watch our total compensation cost to revenue quite tightly, and clearly we’ll be watching that very closely as we think about where we want to put people back in. So, you know, and then people drive every part of our business.
So if you add a person you know, then you need technology support and there is some travel that goes with them, but various parts of our business such as most of our facilities that in fact you know, we will crowd people back in and get leveraging around that until it goes through. So, at the end of the day, where people business stated, you know, we're going to watch the productivity of our people and then manage that as aggressively as we can.
David Gold - Sidoti
Okay. Anyway, that's helpful, and just one other, positively surprised by the facilities side of EMEA, between project development and facilities management.
I'm just, you know, curious if you can comment if there's anything sort of specific, any large projects in there or is it really --
Lauralee Martin
Well, actually there is. We made an acquisition in France that is a project in development business that has performed extraordinarily well, and actually is one of the contributors to the market share gains that we talked about in France, because we have successfully been integrating the products, which is really a theme of Jones Lang LaSalle, and I think in our uniqueness is going to market that we integrate the different services that we have and the combination of those become more appealing to the marketplace.
So we've had a healthy growth in that business even though activity levels have been down. We been able to adapt to the owners as they want to make their space more attractive, and then if the occupiers come in, be able to provide them the service around their new space.
David Gold - Sidoti
Perfect, perfect. Very much appreciated.
Thank you both.
Colin Dyer
Thanks David.
Operator
Your next question comes from the line of Vikram Malhotra with Morgan Stanley.
Vikram Malhotra - Morgan Stanley
Hi, thank you. Colin, just one question looking at your priorities for 2010, you mentioned one of the priorities is to build annuity revenue.
I'm just wondering are there any particular regions that you'd like to focus as you mentioned Europe is lot of transaction activities. Is that a region you're focusing on to build the annuity base?
Colin Dyer
Yes is the answer. We've done a very good job in Asia-Pacific of building corporate business, annuity base business around our facilities, management and property management for investors, and that's a model which we are working on bolstering.
We already have those activities in Europe. We are bolstering our corporate business in Europe, and we've been investing behind them.
Vikram Malhotra - Morgan Stanley
Okay, thanks. And just one follow-up, just related to you've seen some strength in some of the leasing markets.
I know it's still lagging, but how would you -- would you or you like to see an impact on the project development side of outsourcing, as you know, as things pickup, especially Q4 has seen a pickup in leasing because that is likely to flow through over the next couple of quarters?
Colin Dyer
Couple of quarters may be a little optimistic from a project development side. It does follow obviously up-tick in leasing activity does drive some more project work, but the delays you know, could be up to a year is our sense.
Vikram Malhotra - Morgan Stanley
Okay, thanks. Thank you very much.
Operator
Your next question comes from the line of Will Marks, JMP Securities.
Will Marks - JMP Securities
Thank you. Good morning Colin, good morning Lauralee.
Colin Dyer
Hi.
Will Marks - JMP Securities
I want to ask first on your comments regarding capital markets growth in 2010, I thought I heard you say that with activity can be up 40% that still below 2008 levels?
Colin Dyer
Yes, that was for Asia Pacific, well I think.
Will Marks - JMP Securities
Okay, and just in looking at, I mean, that would put, I know you're referring to the market in general, but it seems to me that that would put, 40% growth would put you well above JLL well above 2008 levels, and it is just that you perform so much above the market in 2009.
Colin Dyer
Again that comment was aimed at the Asia-Pacific region. You know, we think that the rates of growth will vary by market.
The biggest jump we said was about 50% in the US market. That's of a small US number this year in terms of total market, but our representation in the US is obviously very small as well.
So that you know, won’t move a big needle. The critical thing for us is what happens in Europe and there we said, you know, the market could move up 20%.
There is a mixture of things that what's happened in London is the volumes have been quite strong, same as Paris this year, we picked up as we described earlier, significant market share in those tough but recovered markets, but with the lack of available product to be sold in London in particular, Paris as well, as sellers wait for the market recovery, and further the actual volumes and transactions could sort of stabilize in those markets, but then gradually the pickup spreading around Germany, Holland and other parts of northern Europe. So there are lots of moving pieces there, and what we try to do is just say our researchers are saying indicatively, we believe that the total European market will be up.
It will be in the order of 20%.
Will Marks - JMP Securities
Okay.
Colin Dyer
These with having gained market share in 2009.
Will Marks - JMP Securities
Great, okay. Thank you, and next question was -- that I have is really on the operating expense line and I'm wondering that the one number that really, you know, all sorts of great positive figures, but the one that kind of surprising was the operating, administrative and other line of $184 million for the fourth quarter and it was a big jump as it normally is over the previous three quarters.
There is also a big jump over fourth quarter ’08, and then we have been seeing that number declining and I realize your revenues have turned the corner, but is there anything in that number that you know, one-time or is this a run rate going forward?
Lauralee Martin
Actually in that number Will and it is geography as we normally do, we establish reserves for any form of bad debt in our operation. This, the last two years actually have been very abnormally challenging years in that area, whether it has been landlords that find themselves in financial difficulties, and then all of a sudden decide not to pay or can't pay or developing markets such as Russia or the Middle East, where either they can't pay or have a different view of debt obligations, then maybe other parts of the world.
So we did take additional reserves in the fourth quarter for that on a year-over-year basis, and we disclosed all this in the K, when you are able to see the schedules on our reserves, but if we look at it, fourth quarter over fourth quarter that was about $9 million on a variance. It gives offset in compensation almost completely, because unfortunately for our colleagues if their revenues aren’t collected they don't get paid.
It doesn't completely true up if you are in a country such as Russia, where there is no compensation in terms of bonuses to get it back, but most of it gets adjusted back. So you'll see there is also little bit of a percent improvement in the compensation in the fourth quarter that you know, really shows that geographic movement, if that's helpful.
Will Marks - JMP Securities
Yes.
Lauralee Martin
We think that at this point these are receivables that are significantly earlier in the year, and our people are extremely careful as they go forward because the pain it puts in their personal pocket book as to who they do business with and how quickly that money gets collected such that we think that this should not be a big issue going forward.
Will Marks - JMP Securities
Okay, and if we think about this is supporting on guidance, so answer it however you want, but the first three quarters you know, $138 to $148 million average and if we look ahead, it seemed that your revenues grow, your operating and administrative line will grow a little bit that I mean, getting back to that $184 million number should we expect to see that in the first three quarters of next year or anything close to that.
Lauralee Martin
You know, well, it is hard for me to give you that answer on a dollar basis even if we did give guidance, because we tend to manage things on a relationship to revenue and that is how it correlates generally. So, you know, they're going to have movement around things like travel and entertainment.
You're probably not going to have as much movement around things like training. That will continue to be slow until, you know, with us doing what we need to do but not excessive.
So there'll be movements in it, but clearly we will be managing that line in totality very aggressively as Colin and I have said throughout this call, as we go forward and the instructions to our people worldwide is you know, we really want to hold expenses very close to flat in those categories. We will revisit those as we see revenues take their course whether that's first quarter or second quarter, and then determine you know, where we have more confidence in terms of being able to commit to expanding those areas.
Will Marks - JMP Securities
Okay, thank you. Let me ask just a couple of other quick questions hopefully, you mentioned that you'll have your normal increase in debt level in the first quarter.
How should we think about that relative to first quarter of ’09, and I assume, I think you paid bonuses little bit later in ‘09 than normal, is that going to happen in 2010?
Lauralee Martin
No, we will be paying bonuses in the first quarter and we do -- you can see our accrued compensation on the balance sheet. So you can see it's fairly comparable to last year, and then so we will be paying out that compensation offset by normal receivable collection, which will obviously result in the net number.
We will continue to be aggressive on our Capex expenses. You know, we were just under $45 million this year.
We sort of plan to be about the same kind of number next year, and coinvestment, it takes us LaSalle Investment Management invest, but they have been cautious in that. So although we hope to see that money go out during the course of the year, it's probably going to be toward the second half rather than the beginning unless they see more opportunity coming through quickly.
Will Marks - JMP Securities
And you do have -- I saw that there is a short term liability, the deferred business obligation of $106 million. So that's the money that you'll pay to Staubach?
Lauralee Martin
Yes, we have our first installment for the Staubach transaction that we hope to pay in July, August.
Will Marks - JMP Securities
Okay, and just one final question on the discussion in Calpers [ph] about the east [ph] portfolio. Can you just -- can you quantify the size of that, and I realize that you probably not willing to give that much information, but if you can tell us a little bit what's going on with Calipers and east?
Lauralee Martin
Yes. Calpers has been very public that they are reviewing all of their large advisors, and we are a large advisor.
So, yes we like the others are under review. Calpers has also requested that their advisers make no comment during the review about that review, and so therefore we can't make a comment.
Relative to Jones Lang LaSalle, however, on a financial basis, unfortunately the evaluation changes that have occurred in the portfolio have resulted in us already having lower advisory fees in our operating results for you know, at least the, you know, the second half of the year, and historically this has been an account where our biggest opportunity incentive fees, as you know, we received a large incentive fee in 2006. Relative to incentive fees across the board, we've advised that we don't expect incentive fees of any magnitude in probably any other account for a period of time until we see marketplaces stabilize and improve.
So I guess that sort of a comment that says that financially you know, it's already hit, the majority of it has already hit our financial results in what you're looking at.
Will Marks - JMP Securities
Okay, thanks Lauralee.
Operator
Your next question comes from the line of Brandon Dobell with William Blair.
Brandon Dobell - William Blair
Hi thanks. You’ve talked a little bit about the outsourcing business relative to 2008, and the average and new deal size being up I think 60%.
Following on that comment, have you seen an increase or a decrease, I guess in terms of leveraging those outsourcing agreements into follow-on business and transaction management, other sales or leasing, or are you seeing a greater tie between different parts of the business, and if you could compare that kind of now to where you were in 2008 that will be kind of helpful, thanks.
Colin Dyer
Thanks Brandon. There are a couple of trends we are seeing.
Firstly, as we said the overall size is going up. One of the reasons for that is that the trend back towards global outsourcing although away from just regional outsourcing or national outsourcing.
The drivers of that are an increasing realization by companies, who are multinational and international businesses, but if they are going to get into trouble with outsourcing to save money, then the ultimate way of saving is to have a uniform system and uniform provider around the world giving standardization, easy comparability of results, and a more even process throughout the business, and it's a lot easier to deliver that when dealing with one global provider as opposed to two or three, and then when you get to that position the market gets quite small.
So we think those are some of the drivers for the reasons that we've been seeing such good trading in that area and at the moment we see no reasons for a break in that trend, either in the market nor our own performance. Absolute point you made about other services, you know, whenever we go into a new account, we often will go in for long service.
I mean, it may be facilitated; maybe transactions on a worldwide basis, but of course, once we are there we then work to expand the relationship with that client, and we believe that is in our interest, obviously, but it is also in the client's interest because we have great confidence in the quality of our services across the whole platform and across all of our service ranges. So, yes, we then start to move it up and increase the number of Xs we have in the boxes against that client and so we'll move from facilities to projects, transactions to lease management to portfolio advice, and we have no set pattern for that.
It just depends on how we stop the decline.
Brandon Dobell - William Blair
Okay. Shifting gears a bit fourth-quarter leasing, any sense of how much of the performance, although strength in the quarter was either kind of a catch up or let's get things done before year-end or is that a true you know, kind of shift in confidence is driving that kind of a higher sustainable base level of activity?
Colin Dyer
I think all of the above, more confidence, higher base level. There was no urgency at the end of ‘08 to get anything done.
People were absolutely like rabbits in the headlight with a freight train coming down the line. And nobody was taking a decision in capital markets, in corporate leasing space.
We had a complete freeze of the market for six months Q4 08 to Q1 09. The big difference is people are now taking decisions.
Sort of will allow [ph] the results coming through pretty well in all perspectives. They've managed to get the liquidity sorted out and people are moving on, and working on how to get back to normal business again.
So that's a big driver and that enables to become an unusual year-end pressure to come back into the market to get things done on the ‘09 budgets. Within that we've seen Americas resurgency in the large transactions, and that took, that was responsible for a healthy proportion of what we did in the US, and you know, that is encouraging too because it means that the larger deals, which requires more confidence to do are also back in the market.
Brandon Dobell - William Blair
Okay, and then finally just a couple of housekeeping one. Lauralee, how should we think about D&A and tax rate for 2010, general comments there…
Lauralee Martin
The depreciation level in the fourth quarter is you know, fairly close to a run rate as it points. I think you're aware the maturity of the Staubach amortization fell off midyear.
There still is some that's going to run through, but it's a modest number and it runs for a period of time and the balance and the depreciation tends to be in our technology areas, and we will have sort of a normal run rate there. The tax rate in the fourth quarter did increase to about a 23% level due to the nice results in the fourth quarter coupled with really a significant change in mix about where things happened.
We have guided that you know, a more normal run rate for us is in that 25% range. I would guess in 2010, we'll run between a 20% and 25% run rate.
It's still to be determined when we see where our income around the world comes from and how that blends.
Brandon Dobell - William Blair
Okay, great.
Colin Dyer
Brandon, you are going to have trouble if you associate Lauralee with housekeeping.
Brandon Dobell - William Blair
Well, not a good way to put it.
Colin Dyer
So, better choice of words next time.
Brandon Dobell - William Blair
It will be noted, thank you.
Colin Dyer
Are there any more questions operator?
Operator
There are no further questions.
Colin Dyer
Okay. Well, we’ll respect your time and draw the events to a close today.
Thanks everybody for joining us on the call and for your interest in Jones Lang LaSalle. We are very much looking forward to speaking to you again at the end of the first quarter.
Thank you everyone.
Operator
This concludes today's conference call. You may now disconnect.