Grace Chang - IR Christian Ulbrich - CEO Christie Kelly - CFO.

Anthony Paolone - J.P. Morgan David Ridley-Lane - Bank of America Jade Rahmani - KBW Mitch Germain - JMP Securities Stephen Sheldon - William Blair Patrick O’Shaughnessy - Raymond James Marc Riddick - Sidoti.

Thank you for standing by. Welcome to Jones Lang LaSalle Incorporated's Fourth Quarter 2017 Earnings Conference Call. For your information, this conference call is being recorded. I would now like to turn the conference over to Grace Chang, Managing Director of Investor Relations. Please go ahead..

Thank you, Operator. Good morning, and welcome to our fourth quarter 2017 conference call for Jones Lang LaSalle Incorporated. Earlier this morning, we issued our earnings release, which is available on the Investor Relations section of our Web site, jll.com, along with a slide presentation intended to supplement our prepared remarks.

During the call, we will reference certain non-GAAP financial measures, which we believe provide useful information for investors. We include reconciliations of non-GAAP financial measures where appropriate to GAAP in our earnings release and supplemental slides. As a reminder, today's call is being webcast live and recorded.

A transcript of this conference call will also be posted on our Web site. 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 forward-looking statements as a result of factors discussed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and in other reports filed with the SEC. The company disclaims any undertaking to publicly update or revise any forward-looking comments.

And with that, I would like to turn the call over to Christian Ulbrich, our Chief Executive Officer, with opening remarks..

Thank you, Grace, and welcome to everyone joining today's review of our 2017 results for the fourth quarter and full-year. Our CFO, Christie Kelly, is also with us. Christie will discuss our financial results in detail in a few minutes, but first let me summarize our performance.

We delivered record double-digit revenue growth for both the quarter and the year. Fee revenue reached $2.2 billion for the quarter, 18% above the fourth quarter of 2016, thanks to broad based growth in Real Estate Services revenue and in particular outstanding performance in our capital markets and leasing businesses.

In addition, LaSalle delivered solid advisory fees and equity earnings. For the year, fee revenue increased 16% to $6.7 billion. Adjusted net income was $226 million for the quarter, compared with $180 million for the same period in 2016. Full-year adjusted net income totaled $419 million, up from $370 million a year ago.

Adjusted diluted earnings per share reached $4.92 for the quarter and $9.16 per share for the year. Adjusted EBITDA totaled $360 million for the quarter, up from $286 million a year ago, and $760 for the full-year compared with $658 million in 2016.

And we are particularly pleased with the improvements in working capital and reduction of our net debt position last year. Above all, we achieved these results while continuing to make substantial investment in our data and technology agenda. To put our results in context, the global economy grew up 3.6% annually last year, up from 3% in 2016.

Global real estate transaction volumes grew to $228 billion in the fourth quarter, 10% above the same period in 2016. This brought full-year volumes to $698 billion, 6% higher than a year ago.

Despite everything going on the in the world investors clearly remained confident about real estate performance, and many continue to increase their allocations to real estate. Capital values for prime assets in 26 major office markets worldwide increased 6% for the year.

Eight of these markets recorded double-digit growth for 2017, the result of steady income growth and yield compression. Hong Kong, Stockholm, Sidney, and Frankfurt top the list. Prime office yields overall were virtually unchanged in the fourth quarter, but office yields in Europe did continue to compress, falling below 4% for the first time in years.

Global office leasing markets finished the year on a strong note with $118 million square feel leased in the fourth quarter, the highest quality volume since 2007. This brought full-year leasing volumes to $438 million square feet, 4% above 2016 levels.

The global office vacancy rate fell to 11.9% in the fourth quarter, demonstrating the capacity of the market to absorb additional space. And rents for prime offices in 26 major markets grew 4.1% for the full-year, the highest rate since 2011.

In this environment our capital markets and leasing businesses both outperformed the broader market for both the quarter and the full-year. For details see slice six in the supplemental information document on the Investors site at jll.com. So, all in all, a very positive year for commercial real estate and for JLL.

We believe these conditions will continue into 2018, which I will talk about later in the call, but now let's turn the Christie for her comments and our performance in this market environment..

Thank you, Christian. And welcome to everyone on our call. Christian provided the headline summary of our results for the fourth quarter and year. So I will move directly to the details of our performance. We had a strong finish to 2017 with the fourth quarter, always our most important, contributing to record fee revenue.

As Christian mentioned, for the full-year we achieved consolidated local currency fee revenue growth of 16%, of which 10% was organic and 6% was attributable to M&A. The year's Real Estate Services fee revenue growth reflect double-digit expansion of our transactional and annuity businesses across all geographic segments.

This robust top line growth, together with productivity initiatives contributed to a 13% increase in total consolidated adjusted EBITDA for the year. Additionally, we generated $790 million of operating cash flow, reducing net debt by $547 million.

We achieved a net debt to adjusted EBITDA of 0.8 times, a significant improvement compared to 1.7 times at year-end in 2016. For the quarter, we had local currency fee revenue growth of 14%, and adjusted EBITDA growth of 22%.

This was largely the results of organic growth in Leasing and Capital Markets across all geographies, which contributed 70% of the quarter's fee revenue growth. Turning to specific consolidated service line highlights, all JLL leasing revenue increased 15% for the full-year, and 20% for the fourth quarter.

The full-year growth was substantially organic, led by the Americas which accounted for nearly 80% of the increase. Strong organic growth was also driven by larger than average deal size as well as leasing related to Corporate Solutions' clients and market share gains across all regions.

JLL Capital Markets fee revenue growth of 18% for the full-year and 35% for the quarter was primarily organic. We also benefited from geographic and product diversification.

To illustrate and recap overall market conditions for 2017, investment sales market volume in EMEA and APAC increased by double digits, while the Americas declined by 12% as shown on slide six of our supplemental slides.

Our diversified Capital Markets offering in the U.S., which now include the significant multi-family in debt [ph] business helped grow revenue despite the decline in U.S. investment sales market volumes. On a full-year basis, our Americas region performed exceptionally well, with Capital Markets fee revenue growth of 13%.

Asia Pacific significantly outperformed market volumes driven by strong performance around the region, and most notably in Japan and Singapore. We also saw the benefit of a recovering U.K. market, combined with strong growth in Germany and Switzerland.

Our Property and Facility Management fee revenue grew 25% for the full-year, and 3% for the quarter, driven substantially by the Integral acquisition as well as organic growth in Asia Pacific.

Together with ancillary services such as Leasing, Project & Development Services, Advisory and Consulting, Corporate Solutions grew 31% for the year and 9% for the quarter. Project & Development Services fee revenue grew 16% for the year and 14% for the quarter across all regions. For the full-year, organic growth represented 85% of the increase.

Our advisory and consulting business grew approximately 20% for the full-year and 15% for the quarter. The Americas contributed over 60% to the full-year growth, primarily due to valuation related acquisitions and strong organic gains related to acquisition previously integrated into our platform.

Adjusted EBITDA margin for the full-year calculated on a fee revenue basis was flat to last year. Our full-year margin waterfall at actual currency rate as shown on page seven of our supplemental slide, reflects an organic mix improvement of 75 basis point.

To provide a bit more color on the 75 basis points, it represents a combination of 155 basis points primarily from strong growth in transactional businesses partially offset by an 80 basis point impact related to Integral due to factors I will discuss in a minute.

Year-on-year, our overall positive service mix and organic gains fully offset margin pressures related to, first,10 basis points for anticipated reduced incentive and transactional fees at LaSalle. Second, 25% basis points for continued investments in technology, data, and platform improvements.

Third, 20 basis points related to M&A, primarily driven by seven additional months of Integral operations. And finally, 20 basis points for EMEA primarily associated with continued investment in our corporate solutions outsourcing business along with cost associated with the wind down of non-core U.K. business as previously reported.

For the fourth quarter, consolidated adjusted EBITDA margin expanded 100 basis points at actual currency rate. The improvement was largely driven by a positive service mix primarily due to growth in higher margin businesses such as leasing and capital market and increased LaSalle equity earnings.

We had organic gains in transactional businesses across all regions, but most notably in the Americas. For the quarter, we did not have an incremental dilution related investments in technology and data. As mentioned last quarter, we continue to make additional investments into our outsourcing platform in EMEA.

Our margins were diluted by the prolonged Integral integration including the technology upgrade together with service mix challenges primarily related to the cancellation of loss making contract. Neither of which, materially impacts the strategic benefits we believe are driving from Integral acquisition.

Turning to capital allocation in our investment grade balance sheet, at the beginning of 2017, our capital allocation strategy was to reduce M&A while increasing investments in technology, data and our platform and increasing our cash flow generation. Our balance sheet reflects total net debt of $586 million as of December 31, 2017.

A decrease of $427 million or 42% from the third quarter, and $547 million lower than at December 31, 2016. This primarily reflects strong business performance and improvements in working capital management.

For the year, we generated approximately $520 million of cash flow from earnings and additional $270 million from improved working capital which allowed us to reduce debt significantly. As we move forward, we will maintain our focus on a disciplined allocation strategy, working capital management, and cash flow generation.

Turning to segment results, we provide results on a local currency basis with the exception of capital markets which we state in U.S. dollar to align with industry research data. Full-year fee revenue in the Americas increased 15% over 2016 and 17% for the fourth quarter.

Organic growth for the year across all service lines was 12%, representing approximately 80% of the increase. For the quarter, we achieved all growth organically nearly 80% of the quarter’s increase attributable to capital markets and leasing. The region had strong adjusted EBITDA margin expansion for the year and quarter.

Our leasing revenue grew 16% for the full-year and 23% for the quarter compared with total quarterly market growth absorption of 6%. Quarterly growth was driven by favorable market conditions in the Midwest, Atlanta, and in Northwest which were strong markets throughout 2017.

Our average deal size for the quarter was up more than 30%, helping drive exceptional performance. Capital markets fee revenue grew 13% for the full-year and 20% for the quarter contrasted with a 15% fourth quarter reduction in investment sales market volumes.

Our growth in the quarter was driven by investment sales particularly in industrial and hotel and by growth in debt placements.

Property and facility management fee revenue grew 4% for the full-year and 1% for the quarter, the results of pursuit cycle time and timing of wins towards the end of the year as well as the further evolution of service offerings. We successfully penetrated the untapped market of diverse services at smart buildings, and facility flats.

As mentioned at our investor day, corporate solutions is more than just property and facility management. In 2017, the corporate solutions business grew fee revenue by approximately 14%, highlighted by organic gains across all services and especially significant leasing deals.

Project and Development services fee revenue grew 16% for the year and 11% for the quarter. The majority of the growth was organic and attributable to expanded mandate with existing clients and new wins from the corporate solutions and local markets businesses. Advisory consulting revenue grew 43% for the full-year and 23% for the quarter.

The majority of the growth was attributable to acquired U.S. valuation businesses and a few other acquisitions as well as organic growth and revenue from technology solutions. Adjusted EBITDA margin for the full-year in the Americas was 13.3% on a fee revenue basis, up a 130 basis points from last year.

Expansion was driven by positive performance from organic gains across the business and operational cost management. Slightly offsetting these were investments in our ERP system upgrade and other technology and data investments. Turning to EMEA, full-year revenue grew 29% and 13% for the fourth quarter.

Both increases reflect impressive growth in leasing and capital market. And on a full-year basis, the benefit of seven months of incremental fee revenues from the Integral acquisition.

For the year and quarter, EMEA’s margin performance was largely impacted by the Integral losses discussed previously as well as continued Integral integration cost and investments we made into the EMEA facility’s management platform. These items overshadowed the region’s good performance which was primarily driven by growth in transaction businesses.

EMEA excluding Integral had 12% fee revenue growth for the year and 18% for the quarter. EMEA leasing revenue grew 11% for the full-year and 10% for the quarter compared with 16% growth in overall fourth quarter market growth absorption.

The quarter’s activity level reflected deal timings as full-year performance was consistent with general market condition. For the quarter, we saw good performance in the U.K. office and industrial sectors as the market bounced back post the Brexit announcement. And Germany and France continued to show strength.

Capital market fee revenue for the full-year grew 21% and 42% for the quarter against fourth quarter market investment sales volume growth of 31%. For the quarter, revenue growth was largely led by favorable market conditions in the U.K. where revenue was up 54%.

Our outperformance against the quarter’s market volume was led by continental Europe where our revenue was up 35% versus market investment sales volumes that were up 20%. Our volume reflects several large transactions in France and notable strength in Germany and Switzerland.

Property and facility management fee revenue for the full-year grew 69% but was nearly flat for the quarter. Integral accounted for the majority of the full-year growth. The performance for the quarter was muted due to the previously mentioned contract losses and business mix headwinds.

We anticipate stronger organic growth for Integral in 2018 as we win new business and continue to improve operation. Projects and development services fee revenue increased 13% for the full-year and 21% for the quarter. The quarter’s growth was all organic, primarily driven by our Tetris business in France.

Advisory and consulting revenue grew 10% for the full-year and 9% for the quarter. The quarterly growth was all organic driven primarily by state. The EMEA region delivered an adjusted EBITDA margin of 4.4% for the year, a decline of 250 basis points from 2016.

Solid growth in transactional businesses across a number of countries, most notably in the U.K., was more than offset by Integral, and other plans EMEA IFM Investments. Moving to Asia-Pacific, full-year revenue grew 14% and 18% for the fourth quarter.

For the year, transactional business performance combined with double-digit annuity business growth created a perfect opportunity to gain scale and improve profitability across all businesses. The region had strong adjusted EBITDA margin expansion for the year and quarter.

Leasing revenue grew 9% for the full-year and 18% for the quarter, in contrast to an overall fourth quarter market gross absorption decline of 26%. The outside fourth quarter growth was driven by Hong Kong, India, and Japan.

Capital markets revenue grew 27% for the year, and a remarkable 50% for the quarter against fourth quarter investment sales market volume growth of 16%. Japan and Singapore drove most of the upside in the quarter.

A highlight in Asia-Pacific continues to be the strength of organic fee revenue growth in property and facility management, projects in development, and advisory consulting services with full-year increases of 11%, 23%, and 11% respectively.

Annuity businesses have been the fastest growing services in Asia-Pacific for the past two years at increasingly accretive margins. Full-year adjusted EBITDA margin was 11%, up 120 basis points compared with last year. Margins expanded due to transaction business growth, and annuity business economies of scale, as well as cost management initiatives.

Overall, we had great top-line and bottom-line performance across the APAC regions. LaSalle Investment Management delivered solid performance for the full-year with total revenue of $355 million, and equity earnings of $41 million.

The 12% revenue decline against the prior year was a direct result of anticipated lower incentive and transaction fees, which collectively declined by $57 million against prior year.

For the quarter, total revenue declined by 11% due to incentive fees being down $15.5 million against the fourth quarter 2016, but we saw a double-digit increase in advisory fees primarily due to fees earned from new equity commitments on established funds.

Equity earnings for the full-year were up $9.6 million or 30% and up $6.2 million for the quarter, primarily the result of net valuation increases across our co-investment portfolio. The most notable valuation increases have been Europe and Asia.

As a reminder, nearly 90% of our co-investment portfolio today is influenced by fair value accounting, and therefore, changes in valuation up or down are reflected in earnings. Assets under management declined by 5% to $58.1 billion compared with December 31, 2016.

The net decrease reflects $13.1 billion of dispositions and withdrawals, which more than offset the impact of increases related to acquisitions, net valuation increases, and foreign exchange. As we move into 2018, we know that current real estate capital flows into LaSalle favor private over public equity.

This occurred throughout 2017 and is likely to continue. We closed 2017 with global securities representing 17% of the assets under management versus 26% at the end of 2016. Assets under management by geography is diversified, with roughly one-third in the Americas, one-third in the U.K., and the remainder in Continental Europe and Asia.

Capital raising remains active as LaSalle raised $2.2 billion of new capital in the quarter and $4.8 billion for the year, primarily from private equity. LaSalle has $9.2 billion in dry powder to deploy with after the acquisition plans across all regions.

Approximately, half of the dry powder related to commingled funds already accruing advisory fees, and will contribute to assets under management as the capital is deployed. LaSalle's full-year adjusted EBITDA margin, including equity earnings calculated on a fee revenue basis was 28.3%, compared to 28.5% in 2016.

The margin decline was driven by the anticipated reduction in incentive and transactional fees, partially offset by higher equity earnings and record annuity margin. As noted in our third quarter earnings call, beginning with the first quarter 2018 we will reflect the adoption of ASC 606; the new GAAP revenue recognition standard.

We expect this change to result in a material increase in the gross revenue and associated pass-through expenses we show from our annuity businesses. Using full-year 2016 as an example associated gross revenue and pass-through expenses would both increase by approximately $6 billion.

For comparability and ease of translation into the new standard, we will restate 2016 and 2017 results in accordance with ASC 606 requirements. Look for more information on the change in our 10-K and other communications over the coming months.

In addition to ASC 606 upcoming changes, the other notable impact to our results relates to an increased income tax expense of $141.3 million as a result of the new tax legislation in the U.S. passed at the end of December.

The additional tax expense represents our provisional estimate for the tax on deemed repatriated earnings of foreign subsidiaries and re-measurement of U.S. deferred tax assets. The quarter-to-date and year-to-date impact on diluted earnings per share is $3.09, with no impact to adjusted diluted earnings per share.

Going forward, we do not expect any material impact to our effective tax rate over the near-term and see potential benefits over the longer term. And now back to Christine for closing remarks..

Thank you, Christie. Slide 22 lists a few of our recent business wins across service lines and geographies. In our Corporate Solutions business last year, we won 185 new assignments, expanded existing relationships with another 70 clients, and renewed 50 contracts.

These 305 wins totaled just over 1 billion square feet across all regions, and represent a 70% overall win rate for new business expansions and renewals. And one highlight, we expanded our relationship with IBM, adding facilities management responsibility for 27 million square feet of space in 220 locations across the United States.

This adds to our existing facilities management contract with IBM for 16.5 million square feet of space in Asia-Pacific. Representative wins in capital markets included, representing Amway in a long-term sale and leaseback in Tokyo between Amway Japan affiliate and the Blackstone Group.

The transaction achieved Amway's financial objectives marked Blackstone’s first core investment in Japan, and it's the largest office transaction in Shibuya submarket to-date this year.

The $220 million redevelopment of the Dime Savings Bank building in New York, and the SEK4 billion, that's about $500 million, financing of residential real estate of D. Carnegie in Sweden.

In Leasing and Management activity, we completed the largest lease signed in Houston in 2017, a 369,000 square feet lease extension for the Transcontinental Gas Pipeline Company at the Williams Tower.

Leasing 118,000 square feet of space in Paris to Bank of America, we represented the landlord post-MO, and for rework the lease for the entire China Overseas International Center, a new 291,000 square foot building in Shanghai. It was 2017's largest leasing transaction in Shanghai Central Business District.

LaSalle Investment Management closed two funds during the fourth quarter. LaSalle real estate debt Strategies III, which closed in November at $1.1 billion, and LaSalle Income & Growth Fund VII, which closed at $511 million.

I have been participating in the World Economic Forum for many years now and I have never experienced such a broad-based optimism on the economic outlook and on business leaders' confidence. Global GDP is expected to continue to grow this year, rising by an estimated 3.9%.

The flipside of this positive economic outlook is an expectation of slightly accelerated increases in interest rates. Currently, our researches are forecasting that, in 2018, global investment sales volumes will soften by 5% to 10% to about $650 billion for the year. Still investors continue to want to access the sector.

Some are looking at new strategies with a greater focus on debt financing, M&A, and alternative sectors. Single-asset transactions may start to decline, but the search for yields will continue. Our researches anticipate that global leasing volumes will total more than 430 million square feet, down marginally from 2017 levels.

We remain confident about our own business prospects in this environment. You will find our 2018 business outlook on slide nine. Consistent with the longer term 2025 targets we spoke about our recent investors day, we are expecting mid to high single-digit growth in fee revenue this year, and a 10% to 12% adjusted EBITDA margin.

Slide nine also lists some of our key priorities for 2018.

We intent to leverage our Corporate Solutions for more profitable growth, expand our Capital Markets capabilities across the capital stack, continue to invest in technology, and continue to transform the global JLL platform to increase the operational efficiency and take a very rigorous approach to capital allocation.

To close our prepared remarks for this call, we'd like to mention just a few of the awards and honors our people have earned. In the fourth quarter, we were named one of America's 100 Most Just Companies by Forbes Magazine and JUST Capital.

We earned our fourth consecutive perfect score on the Human Rights Campaign Foundation's Corporate Equality Index. We [technical difficulty] Office Agency of the Year and Investment Agency of the Year, the Central and Eastern Europe Investment & Green Building Awards.

In Shanghai, our JLL office was awarded WELL Platinum Certification, only the third office in the world to earn this level of certification from the International WELL Building Institute. And in January, we were named to Fortune's list of the World's Most Admired Companies. Congratulations to everyone who made these and other awards possible.

And thanks to all our people around the world for continuing to serve our clients and JLL so well. So let's take your questions. Operator, will you explain the process..

[Operator Instructions] Our first question comes from the line of Anthony Paolone with J.P. Morgan. Your line is open..

Thank you, and very nice quarter..

Thanks, Anthony..

I'll start with I guess one of the areas where Christian left off, how do you tie an outlook where leasing activity is down globally with, I guess, the comments at Davos and in a global economic picture that's pretty strong?.

That's a great question. I mean, the outlook which was painted at Davos was really strong, and you kind of wonder whether it was a bit over the top. I mean leasing take-up is a reality check.

And it's a reality check not only with regards to the overall sentiment which is amongst corporates, it's also a reality check about availabilities and what people think about future employment.

So we had an exceptional strong year with regards to the leasing volumes in 2017 pretty much across the board, and which was then topped by a very, very, very strong fourth quarter. So even if kind of leasing volumes for next year we believe will be slightly down they will be still at a very, very strong level.

And so I think you can bring the comments from Davos and the research forecast from our own people in line..

Okay, thanks for that. And then I have a question, you talked through some of the components of your organic growth, and one of them I think was just picking up more activity from your outsourcing clients in other parts of the business. Just wondering, that seemed like a very strong move.

Are you all doing something different there to better penetrate that client base or what's happening? Because that seemed to be, if I heard your comments right, it seemed to be a big part of the pickup in, like, leasing and some other areas?.

Well, I mean, obviously I have to say to you that we believe that we are delivering outstanding quality to our clients, and so that should be rewarded with a growing market share going forward. On top of that, I think what we see is that our clients tend to get bigger and bigger.

And the more our clients are growing the more they will revert back to the leaders in the real estate industry when they have real estate needs. So the overall trend of consolidation which you see is a trend which is favoring the leaders of the industries you are addressing.

And so that is one other reason, over and above the quality that we are de-levering, that we are benefiting and taking more market share year by year..

Okay. And just last question, can you spend a minute on the M&A backdrop in what you're seeing right now in terms of just potential volume of business. Do you like the deals that you're seeing? And maybe a view of whether you think you'll spend more or less money on M&A in 2018 versus 2017..

Well, I mean, we are looking at quite a lot of deals. And I think the picture we are seeing is a bit of a reflection of what you see in the public markets. It's a bit more mixed; it's a more volatility in it in the sense that some of the deals we are seeing are becoming more attractive again.

And we believe people are getting more realistic about their price expectations. And that may be driven that people are getting maybe slightly nervous that we are peaking the cycle, and they still want to sell before the cycle turns. And others are still asking for outrageous multipliers where we are not willing to play.

So it's obviously hard to give you a forecast whether we will have more M&A in 2018 than in 2017. We will continue to be very, very rigorous in our approach of assessing these opportunities.

But overall, as I said, we see more interesting deals on our table, and so I wouldn’t be surprised if we have a bit of a pickup compared to 2017, where we were extremely small in our M&A activity..

Okay. Thank you, and nice quarter again..

Thank you..

Thanks, Anthony..

And our next question comes from the line of David Ridley-Lane with Bank of America. Your line is open..

Sure, thank you..

Hi there, David..

Hi.

Within the kind of normalized volumes of LaSalle of $20 million in equity earnings and $40 million for incentive fees, as you look forward into 2018, is there any reason to believe that they would be kind of above or below the normal kind of historical run rate for the business?.

Hi there, David. Yes, so just from the perspective of historical run rates, as you know, incentive fees and equity earnings are extremely difficult to forecast. And Jeff addressed that as well very nicely at our investor day.

But just for modeling purposes, I would suggest that you put incentive fees at our five-year historical norm, which is now in the $70 million to $80 million range, and keep equity earnings at $20 million..

Understood. And then on EMEA margins, I think on the call you were suggesting that some of the Property and Facilities Management investments and the Integral integration costs kind of continue on into early 2018. Do they continue on through the full-year or is this more of a few more months.

Just wondering how long those investments will be a drag on margins..

Yes, I think from the perspective of EMEA, you know, David we don’t give guidance. But as you can imagine, the team is working really hard to integrate and realize the benefits of the Integral acquisition. That's going to be ongoing throughout 2018.

And we'll have more to report as we go through second quarter for the second-half of the year and let you know where we are..

Okay. And last one from me, within Property and Facilities Management wondering about pipeline for deals there, and whether or not you would expect a stronger organic trend in 2018 versus 2017. Thanks..

We had very strong year in 2017 in winning new contracts. And there is a general trend that companies are keen to do more outsourcing and to reduce their number of providers.

So without going into too much detail about the immediate coming quarters, the overall trend is very healthy for that business segment, and it is a very important business segment for us going forward..

Okay. Thank you very much..

Thanks, David..

Our next question comes from the line of Jade Rahmani with KBW. Your line is open..

Thanks very much.

In terms of 2018 goals, what do see as the greatest opportunities for growth? Could you perhaps highlight a couple of areas of focus, whether it be geography or specific to business lines?.

Well, we continue to believe that the U.S. business is offering us a tremendous growth potential. We still have areas in our services where we see that our fair share of the business should be significantly higher going forward. And that will be an area of focus.

And as we alluded to earlier, we are able to take an ideal market share of the overall growth rates in the market. The other area is what we just talked about, the IFM business or what we call the overall corporate solutions business, there is a very strong macro trend there.

And we believe that we will be one of the best beneficiaries of that macro trend. So from that end we are quite positive about our outlook going forward with these two business areas..

And within the U.S.

would you say the growth potential would lie in growing the Capital Markets offering, both the investment sales and debt placement?.

Yes, when you look where we are in the ranking on the investment sales side we have room to grow there. We are very strong on the multi-family side and on the debt side, but on investment sales we have room to grow.

But overall, that the broad sense of definition how we define capital markets offers still a very strong growth potential, not only in the U.S., also when you look at Asia Pacific. Historically we have been very, very strong in that segment in EMEA. And we are working hard to get to the same level of market share in the other two regions..

And does the U.S. leasing market share, is it greater -- does JLL have greater market share in U.S.

leasing than in Capital Markets?.

Yes, much greater. I mean this is our powerhouse, our U.S. leasing and tenant rep business, and it continues to grow much stronger than the market is offering. And I have no reason then to believe that this will continue..

In terms of the fourth quarter acceleration in revenue growth, were there any deals that had delayed closings earlier in the year or anything that represented a pull forward from 2018 as a result of higher anticipated interest rates, or do you think that this represents a reacceleration in these businesses?.

I don’t think that it had anything to do with interest rates. I think what has happened is that people were really, really keen to close their deals in December. And at the end of the day, you can have a nice kind of setup as a service provider and with outstanding people servicing clients.

But then you need clients who are willing to drive some urgency into closing those deals. And that is what happened in December, there was massive urgency in closing those deals. Now, your question is does that mean that we pulled deals which we expected to close in Q1 into December. Yes, in fact that happened.

There were a couple of deals which we expected to close in the first quarter which closed actually in the fourth quarter. But on the other hand, we still have a massive momentum going forward. There is still an overhang of capital which tries to get into the real estate sector and into good investment. There aren't just enough willing sellers..

And that urgency to close by your end, what was that a function of, the competitive environment or capital deployment targets?.

That is very often just psychology, you know. You talk to your peers and your peers are talking about closing a deal, and then you want to close the deal. I can't give you a credible answer. Maybe the U.S.

tax reform has driven a little bit more kind of momentum that people were thinking, "Listen, this will give another boost into 2018 and '19, we'd rather close that deal now than wait," but you know, this is speculation. It was a great quarter. It was stronger than we expected to close in December, but the momentum continues..

And could you make any comment on how -- you're saying the momentum continues. It sounds like the market volatility over the last few days and couple of weeks hasn’t had an impact in terms of investor sentiment.

Is that a fair statement?.

Well, that would be too quick. I mean we had market volatility predominantly on Friday, Monday, and Tuesday. And today is Wednesday. I don’t know whether that will have an impact on our clients in closing deals. I think people are getting used to a pretty challenging overall environment.

I mean, when you think about the political issues and kind of trouble in the world which is out there you could argue it's surprising that the market sentiment is so strong. I think people are really getting used to compartmentalizing the world and focus on what they want to get done.

And so, I don’t want to speculate whether the last three days will have an impact or not..

Okay, thanks very much for taking the questions..

Thanks, Jade..

Pleasure..

And our next question comes from the line of Mitch Germain with JMP Securities. Your line is open..

Hi, Mitch..

Christian, I think you mentioned mid to high single-digit fee revenue growth. I'm curious if you could attribute that to your major business lines.

Is that going to be somewhat consistent or are you guys predicting some possibly on the lower end versus others in the higher end?.

Mitch, that's a very detailed question. I think that our Capital Markets business has the opportunity to be slightly higher than that. And I would hope that our Corporate Solutions IFM business will be slightly higher than that. And then to get to the number we have forecasted you need a couple of areas which will be slightly lower than that..

That's great….

And Mitch and you'll recall. Mitch, we don’t give guidance..

Understood, and I appreciate that color. Christian, you've talked about diversifying your offerings across capital markets, and I know that you've got the GSE business that you brought on a couple of years ago. And I know you guys are good in hotels.

Maybe if you could, in debt placement, if you could maybe just provide some context as to the areas that you're focusing in on trying to improve as you look to build that business out even further..

Mitch, we are working to be a one-stop shop around the whole capital stack. And what we have seen in 2017 again is when people feel very comfortable with their real estate portfolio they won't necessarily sell. But at the end of the day they may want to kind of refinance, they want to get some equity out and restructure their money in the deal.

And so there's always something to do. And historically, our industry was coming only from the investment sales side, and has moved over the last 10 years to be a full service provider, and we try to lead in that sector, and that's where we see tremendous growth..

Got you, that's helpful.

Moving over to Integral -- and I appreciate the transparency you guys provided this quarter on some of the I don’t want to call them challenges but some contract losses, and I am just curious was that part of your original underwriting or did this come up as a bit of a surprise to you?.

From the perspective of the original underwriting, Mitch, we had forecast the loss of some higher margin business that we thought would be cancelled as I communicated last quarter, but just given the economic backdrop in the U.K., there has been some challenges with large construction related clients and just the overall industry segment which has had some follow-on or ripple effect into our Integral business.

So we proactively moved forward, canceled the contract. And now, we are focused on winning new business, integrating the business, and moving on for 2018..

Great. That’s helpful..

And Mitch, if you will have followed the press -- you will have followed the press that some of big players in that sector, or in that adjacent sector have come into real trouble, and we are not completely unaffected by that because in some cases we were sub-providers to them..

Got you. I have seen some of that. Last question, I wanted to shift over to LaSalle. And I have noticed that your dry powder up pretty significantly. And I know you’ve got -- you’ve had pretty consistent levels of capital raising.

Is here -- is some of that a function of the inability to find the targeted returns that your team is looking for? And I know that you guys somewhat laid out that in your investor day.

Given the current pricing environment, is that kind of delaying your ability to put some of that dry powder to work?.

Well, Mitch, if you kind of take very simple description of what is currently happening in the market is that many owners of real estate don’t want to sell because they are comfortable with that portfolio. And the ones who want to sell only want to sell it if they get really a top, top price.

And on the buy side, you have a lot of dry powder but people don’t want to make a mistake that they are buying at the peak of the cycle and overpaying at the peak of the cycle. And so, sometimes it’s quite hard to bring the seller and the buyer together. And when LaSalle is a buyer, then they are the ones who are thinking we don’t want to overpay.

And so, they are very cautious in deploying the money of our investors. And that is the reason why you see this massive dry powder at LaSalle. But you see that was pretty much every professional fund manager that they have massive dry powder at the moment because they are cautious to deploy that money..

Great. Thank you. And once again, great quarter..

Thanks, Mitch..

Thank you..

Our next question comes from Stephen Sheldon with William Blair. Your line is open..

Yes, thanks..

Hi, Stephen..

Great result -- hi..

Thanks..

First, kind of great results in both capital markets and leasing across the regions; I was just curious how trends I guess in those businesses progressed throughout the quarter. I think you mentioned December was strong on the capital market side.

But just was it steady throughout or did you see activity build throughout the quarter and kind of continue into first month or so here in 2018?.

As I said, the momentum is still very strong. And so, irrespective of the last three days of volatility in the public markets and I don’t know whether that will have an impact as I said earlier. We are seeing our teams being incredibly busy from the first day of the New Year on.

There wasn’t any break [technical difficulty] and hopefully that will continue..

Okay. That’s helpful. And then, you gave great detail about revenue exposure to FX trends and filings, but wanted to get an update on the potential margin impact as we look at 2018 just from the weakening of the U.S. dollar.

Could that become a headwind to margins as we think about this year?.

Stephen, I think, we don’t forecast rates or anything like that. But I think that if you just look at the major bank together with the spot rate, I mean you can continue to project strong Euro. And, I would really expect just more of the same in terms of the impact on our result as you look forward for your modeling purposes.

Not material at this point..

Okay, thanks..

You bet..

Our next question comes from the line of Patrick O’Shaughnessy with Raymond James. Your line is open..

Hey, so you spoke about your average deal size being a fair amount larger in the fourth quarter.

Do you think there is something structural with that, or is that just a relatively unique event during the fourth quarter?.

I think that is something which we see on a regular basis in the fourth quarter that big deals tend to take a bit longer until they close, but then everybody wants to close them in the fourth quarter. So, I think that is just a regular trend every year and that was maybe slightly more pronounced in the first quarter of 2017 than before.

But, I wouldn’t read too much into that..

Got it. And then, going back to Integral.

So we assume at this point that kind of the customer runoff or in those loss making contracts that was all completed during the fourth quarter? And presumably they will return to growth in the first quarter of 2018?.

Yes, Patrick, yes. For the most part, yes, and we are focused on growth in 2018 in integrating the business. And as I mentioned before, to completing our technology upgrade for the team..

Great. Thanks. And then last one from me, obviously we are still only little bit more than a month into the year, but long-term rates have risen pretty remarkably.

I think you touched on this a little bit earlier, but how had the nature of your conversation with clients changed if at all given this deepening on the yield curve and the long-term rates moving up?.

I think with regards to interest rates, it’s all about expectations. As long as that rise in interest rates is in line with expectations, it doesn’t really impact the outlook for our business because we still have to accept that the absolute level of interest rates in a long-term comparison is very low.

And real estate is still super attractive as an investment class. The only thing which is sometimes or can be a bit disturbing is if we have unexpected spike. And that’s what you saw a little bit hitting the RIET market not only in the U.S. when people were thinking, oh, it’s now going faster.

But I think, overall, it’s nothing which is really of concern to us..

Great. Thank you very much..

Thanks, Sheldon..

And next question is from -- sorry about that. Our next question is from Marc Riddick with Sidoti. Your line is open..

Hi, good morning..

Hi, Marc..

Wanted to touch base, I wasn’t sure if you would gone over this. So if I missed this, forgive me. But I wanted to touch base on forward looking thoughts around our comfort level of debt. And I know in the past you have stressed investment grade rating in and of course, a target -- a ballpark target I believe of around a couple of turns.

So, I just want to get your thoughts, given where the levels are now, if those thoughts are updated? Thank you..

Oh, yes, thanks Marc. Just overall from a strategic perspective, we are very focused on managing our business for the long-term at net debt to EBITDA of under 2, maintaining our investment grade rating.

And as you could see with the focus coming off of the acquisitions that we did, really driving cash flow generation, and really remaining focused on discipline working capital. So you are going to see more of the same in 2018..

Okay, great. Thank you very much..

Thanks, Marc..

I am not showing any further questions, so I will now turn call back over to management for closing remark..

Okay, thank you. With no further questions, we will close today’s call. Thank you for participating and for your continued interest in JLL. We look forward to speaking with you again following the first quarter. Thanks..

Ladies and gentlemen, this does conclude the program. You may now disconnect. Everyone have a wonderful day..