Jones Lang LaSalle Inc (JLL) 2002 Q3 法說會逐字稿

Good day and welcome to this Jones Lang LaSalle, Inc. third-quarter 2002 earnings release Conference Call. Today's call is being recorded. Any statements made about future results and performance and 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 ending December 31, 2001. And in our other reports filed with the SEC. The company disclaims any undertaking to update or revise any forward-looking statements. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Chris Peacock, Chief Executive Officer. Please go ahead, sir.

Thank you for joining us for this review of our third-quarter 2002 financial results. With me on the call today are Peter Roberts, our Chief Operating Officer and LauraLee Martin, our CFO.

I'll begin the call with highlights for the third quarter ending 30th of September and the review of the likely outturn for the year and Lauralee will cover our financial results in greater detail and Peter will talk about current economic continues and recent wins in our business segments. And finally, of course, we will take your questions.

First, let me briefly review our results. In the third quarter, we recorded net income of 10.2 million dollars or 32 cents per share. Excluding expenses associated with the expansion of our New York business, our earnings of 35 cents were at the low end of the range of our expectations. Results compare favorably with the prior year's third-quarter gap net loss of $2.6 million or 21 cents per share. Revenues in the quarter of $207 million were down 5% in U.S. dollars and almost 9% in local currency compared to the same period last year. This performance reflects the continuation of tough global economic conditions and reducing levels of business confidence that have been the hallmark of first nine months of the year.

Our achievement in reaching our earnings guidance range under these conditions underlines our continued focus on tight expense controls and the benefit of actions we took last year to size the organization for the then expected 2002 market environment.

Our business plan for this year was based on a broad spread of economic opinion, general market conditions would be improving in the second half of the year and that by now business confidence would be returning. As have been evidenced by the continuing fall of equity markets, this has not been the case, and we are not yet seeing any measurable improvements in global economic or market conditions. The fourth quarter typically represents the peak of business activity as clients move to complete transactions before the end of the year.

Performance in July and August continue to provide comfort that our expectation for some improvement later in the year was realistic; however, in September, a number of major transactions were postponed or, indeed, cancelled. As we moved through the final quarter of the year, our reading of the market is that client confidence is weak, and the usual desire to expedite transaction it is diminished. Caution and hesitation are the prevailing moods in many key markets, which extends or postpones decision making by occupiers and investors.

In these circumstances, we believe that the downward pressure on revenue in current market conditions will be greater than we can expect to offset to cost reductions and new business wins. Consequently, we are reducing our earnings guidance, including the impact of our New York expansion to a range of between $1 and $1.20, down from $1.50 to $1.55. This wide range of guidance, directly reflects the difficulty in this environment of accurately predicting the timing of client commitments and resulting transactions. And, also, our wish to adopt a cautious and conservative approach. I firmly believe that Jones Lang continues to build market share in these top conditions.

We are winning both the high proportion of major transaction instructions and long-term corporate advances that are coming to the market. We have also continued to focus our resources on the key strategic growth areas of capital markets and investment management. Both of which are delivering solid results.

My confidence that we are building our market leadership and will continue to do so is based on the knowledge that we took strong steps to prepare for this year and are well-placed continue to adapt and grow in line with market conditions as they unfold. Shareholders can be assured that we will remain focused on delivering EPS growth in 2003 and in the absence of revenue growth, will make the necessary changes to our cost structures to achieve that goal. I've initiated an immediate review of all areas of our costs, which will be incorporated in our 2003 plan and earnings guidance.

I want to express very clearly that, not withstanding current market conditions, we remain fully committed to building Jones Lang LaSalle's long-term future of the expert and strategic advisor to the leading owners, occupiers and investors around the world. Cost reduction steps to be taken in the short term will not threaten that goal. We will continue to attract, develop, and retain the best people to build our competitive advantage.

As you will hear from Peter, our business successes during the third quarter do indeed validate the focus on key strategic priorities. The repeated examples of plants relying on our locally-grounded real estate expertise, combined with our investment and capital market acumen around the globe are clear illustrations of our capacity to drive increasing value from the firm's platform. That's value for our clients and for Jones Lang LaSalle.

New relationships and sophisticated solutions to real estate challenges will not always produce immediate feeds in the current economic environment but they do represent the bedrock of our future growth as clients recognize the value of our people, our technology and our research and consulting capabilities can indeed deliver.

Finally, I would like to comment on our announcement that our board has given approval to the repurchase of up to 1 million shares. This is to offset shareholder dilution from our employee share ownership plans. We continue to feel strongly about our employees being part of the ownership the firm and, therefore, driving its success. In this environment, more than ever, we need our employees committed to our clients and our firm's performance. Bonus payments for over 700 of our most senior staff include between 10 and 20% of their bonus paid in restricted stock with vesting periods. As this is a noncash expense to the firm, we believe the good use of success firm cash is to buy the market share's equivalence to offset this dilution. Now I would like to turn the call over to Lauralee Martin for a more detailed review of our financial results.

Thank you, Chris. As covered by Chris, net income in the quarter was 10.2 million, 32 cents a share which included after-tax cost for our New York expansion of $1.1 million or 3 cents a share. PreNew York, we end 35 cents at the bottom of our second-quarter guidance range of 35 to 45 cents. In the quarter, our investment management business performed at lower expectations, but we were very disappointed by the results of our owner and occupier businesses. More importantly, these results are now impacting our view of the full year.

At August month's end, we anticipated being on track to be in the mid-to higher end of our guidance range for the quarter. And we were only modestly concerned for the full year. To provide perspective before I go into the results, I think a few minutes on our forecasting methodology is important. As we get the backdrop to the dramatic change in sentiment we see in our clients.

Each quarter, we forecast both the next quarter and the total year. At that time, we have fairly clear visibility for the next three months and its indication of trending for the balance of the year. For three months out, we know what is contractual in our management fee businesses and have a calendar of anticipated capital markets and leasing transactions, which we report as implementation fees. For these transactions, we do what we call an odds adjustment, which is a weighted probability based on factors such as: The transaction is complete but has remaining conditions for fee payment, contracts have been exchanged, but the transaction still needs completion, terms have been agreed, or only instruction has been received. This methodology has been fairly predictive for us in the past.

In the month of September, however, we saw significant transactions, particularly in Europe, which we would have odds adjusted to the high end, yet delayed or in a couple of cases fall out. For example, in France, an exclusive 40,000-meter leasing deal fell out at the last minute as the clients' existing landlord significantly reduced rent to keep the tenant. Impacting the quarter by 2 cents a share.

In capital markets, a sudden tightening of bank credit delayed the closing of a transaction worth 1.5 cents. Additionally demonstrating the increasing complexity of transactions, in Warsaw for an approximately 2 cents per share impact, due to SAB-101 income recognition requirements, the transaction cannot be recognized this year as there are still certain conditions for completion.

There is a greater concern by our clients, both corporate and investors, about economic conditions leading them to postpone making the longer-term decisions around real estate. What I would now like to do is give more color around the revenue's dynamic for both the quarter and the year. Revenues for the quarter at $207 million were down $11 million or 5% from the prior year. Year-to-date revenues of $560 million were down $58 million or 9%. Excluding the favorable impact of foreign exchange. Revenue declines were 9% and 11% for the quarter and year. Clearly, these challenging revenue shortfalls are difficult to attempt to upset with operating expense reductions.

Here are a few more examples of market dynamics, but this time in the Americas. Our most significant declines in revenue have been in leasing, both for investors and for corporate. In 2001, our America's tenant representation group which serves corporate clients had completed 538 transactions totaling just 10 million square feet by this time of year. This year, we have completed 739 transactions, which is an increase of 37% to get to the same 10 million square feet that we had done last year. Clearly, we are working harder, strengthening our relationships with our clients, but without the benefits of increased revenues.

As I mentioned earlier, making up declines of revenue in the magnitude of 58 million is a challenge. That being said, we achieved very significant expense reductions and are on track to exceed our goal of a cost-run rate reduction of more than $50 million. Expenses in the third quarter were down only 4 million or 2%. But year to date, they are down 53 million dollars or 9%.

In the third quarter, we had bonus accrual catch-up, as well as the impact of the weakening U.S. dollar. Excluding the impact of foreign exchange, cost reductions were almost 6% for the quarter and 10% year to date. Taking the quarter's base compensation savings of $6.5 million and operating at administrative cost savings of $6 million, preforeign exchange, annualizes to a savings of $50 million, which was our commitment for cost takeouts this year. Included in our third-quarter numbers, and anticipated in the total year is a sustainable effective tax rate of 36%.

In addition, during the quarter, we realized a tax benefit of $1.8 million related to 2002 restructuring expenses that we had not been able to realize tax benefits on. We have now taken appropriate actions that these costs are allowable. I would like to now turn to our segment performance. The Americas revenues were down $8 million or 10% for the quarter. And down 33 million or 16% for the year. As discussed earlier, the biggest declines are in the transaction leasing businesses. We have also seen a decline in project and development revenues of over 30% or $11 million as state buildouts relates to leasing levels.

However, as a good example of our focus on profits, we have actually increased the dollar margin on this business by $1.6 million, despite the $11 million revenue decline. This focus on streamlining cost structures positions for accelerated profits when normal activity levels return. As with the second quarter, the Americas revenue decline was mostly offset with cost savings. For the quarter, expenses were down $6 million, 9%. Year to date expenses down $40 million or 19%. Both the quarter and the year to date include $1.7 million for the expansion of New York, indicating the actual expense year-over-year savings are even more significant.

As we have explained in the past, bonus accruals make it hard to compare expenses year over year. In the case of the Americas, bonus expense is now only down 2.6 million for the year to date, as compared to last year. Year to date, despite the very significant revenue declines, operating income in the Americas is $7 million, favorable to last year. Europe for the quarter flat revenues compared to the prior year; however the local currency it was down 8%.

As mentioned earlier, the surprise for the firm in the third quarter came from the dramatic continental Europe slowdown in September. France and Spain experienced very strong July and August performance but expected deal delay and fallout in September. Year to date, the weakest year-over-year performance has been in Germany and Belgium with England having mixed results showing strength in their capital markets business but not sufficient to offset the slowness in the leasing markets. Office vacancy rates have now doubled year over year in the major markets of London, Frankfurt and Paris. These will be future revenues to capture as markets correct, but the impact today is negative.

European expenses in the quarter were up over the prior year by $3 million or 4%, but are down $9 million or 4% year to date. Expenses declined 3% and 7% in local currencies for the quarter and year. For Europe, bonus expense is $3 million and $8 million less than last year for the quarter and year. Contrary to the Americas where significant revenue shortfalls were anticipated in the revised cost structure, Europe is challenged by a less flexible expense model due to pro employee labor laws and country infrastructures. For the revenue declines it is currently experiencing. We are evaluating how to address this in our 2003 planning process.

Operating income was down 3.4 million for the quarter, and 11.8 million year to date. Asia-Pacific revenues which had shown an improving trend in the second quarter also changed negatively in the third quarter. Revenues were down $2 million for the quarter, while year to date, they are down only $600,000. The revenue declines continue to come from the core markets of Hong Kong, Singapore, and Australia, while Japan and Korea continue to show strong year-over-year growth.

Operating expenses year to date in Asia are down 3%. Operating income for the quarter is down $500,000 and from the prior year has improved year to date by $2.6 million, but it is still in a loss position. Despite this loss position from sustained Asian economic issues, our global clients continue to reinforce our positions in this part of the world are a key factor in their decision to select us as a service provider.

LaSalle Investment Management was a bright spot in the quarter. Revenues were flat for the quarter year over year, which is a real accomplishment as last year included a large incentive fee and equity earnings of more than $14 million from a disposition of a hotel investment. In 2002, we also had two strong incentive fees, as well as revenues associated with additional fund closings. Year-to-date revenues remain down 5% due to equity earnings in a prior year period.

Expenses in the quarter were flat as compensation cost increases were offset by a $2 million reduction in bad debt expense. Operating income for the quarter of $11.1 million was down $1.8 million and down $2.6 million for the year. Again, mostly due to the prior year having a significant equity gain. EBITDA for the quarter was $27 million, compared to the prior year $14 million. We believe, however, it is more important to look at free cash flow, which also adjusts for interest expense and taxes. Two uses of cash that we are aggressively managing.

Year-to-date cash flows are $46 million, compared to the prior year-to-date of $49 million. Adjusting this $46 million for co-investments and Cap Ex principally technology, we still have a strong excess cash position of $22 million. As we go into the fourth quarter with is our largest cash-generating quarter. We have used these cash flows to aggressively pay down debt and strengthen the balance sheet. Our balance sheet shows funded debt down $35 million, which is the foreign exchange impact on our euro bonds adjusted to be comparable.

Funded debt is in fact down $48 million. We remain comfortable with all of our bank covenants. We also continue to emphasize tight control over receivables, which for the quarter had an average phase outstanding of 75 days versus the prior year of 79 days. This completes my comments on the third-quarter results. In previous guidance, we prefaced that our assumption was a slow worldwide economy through the third quarter of this year with a modest recovery in the fourth quarter.

We are now anticipating an extended recovery period in 2003. The impact to the firm is that our normally highest revenue and highest margin fourth quarter will not be performing at expected levels. Which significantly impacts the total year results. Our expectation for the balance of the year reflect strong concerns around the impact of the continued slow world economies on our clients, with a consequent adverse impact on our revenues.

As such as Chris said, we are lowering both our expectation of earnings for the year as well as giving wide guidance around performance reflecting the uncertainty decision behaviors of our client as they respond to the challenges the environment. We are increasing our aggressive focus on cost but do not feel it will be sufficient to offset revenue shortfalls in the fourth quarter. Our revised guidance for the year, including New York, is $1 to $1.20, which compares unfavorably into our previous guidance of $1.50 to $1.55. Despite our disappointment in the outlook for the year, I want to conclude by saying, we remain profitable and are generating positive cash flows.

Our balance sheet and our financial position is strong. We are committed to earnings per share growth in 2003 and as such, we will be aggressively re-evaluating all of our cost structures in anticipation of a slow revenue environment into 2003. Now I would like to turn the call over to Peter Roberts to cover market wins against our key business strategy.

Thanks, Lauralee. For the next few minutes I will touch on current economic and market conditions around the world and give you an overview of recent activity resulting from two of our key strategic priorities. As Chris mentioned, our global research team anticipates no material change in global economic conditions over the balance of the year. Business confidence remains weak around the world, under pressure from substantially reduced growth expectation, stock market turbulence, the prospect of war in Iraq and continued corporate mistrust.

In Europe, equity markets in the third quarter posted their largest declines since the 1987 crash. GDP growth estimates for the major world economies in the latter part of 2002 have fallen by as much as a third from consensus forecasts at the beginning of the year. The prospect for sustained recovery is unclear, with timing very much influenced by the unknown impacts of the developing situation in Iraq. Lowered business confidence is reflected in the performance of most major property markets across the world where vacancy rates continuing to increase in both downtown and suburban office markets during the quarter.

In some office markets, rates are already at or above levels last recorded during the downturn of the early 1990s. Across most major markets, demand side weakness for commercial space persists with office absorption rates substantially below historic averages. In spite of these challenges, the real estate capital markets do provide one or two bright spots. Continued lower interest rates and equity market volatility are keeping demand for real estate investment high in Europe with sale prices and volumes remaining healthy in spite of the pressure on occupancy and rent levels.

In North America, demand for well-located, well-leased prime property also remains strong, with multiple bidders for individual assets fitting this profile. The attraction of real estate as a less volatile asset class is being enhanced in this market and institutions are increasing their allocation to real estate although falling stock values have offset these increased allocations. In addition low-interest rates and positive leverage combine to provide individual debt-driven investors. Despite these limited bright spots, the underlying diminish confidence levels, and ongoing certain conditions impact our business through delayed decision-making and transaction activity, slowing dramatically or being placed on hold.

That gives you a brief overview of the economic context in which we are operating. Our response to these challenge conditions are to focus on driving our strategic priorities, to capitalize on our competitive advantages.

In the first two quarters, I spent a significant amount of time underscoring the new opportunities that the focus on growing our corporate solutions business was generating. This quarter, I would like to focus on two other strategic priorities involving the global flow of capital. Growing our capital markets business and capitalizing on our global investment management program, LaSalle Investment Management. I believe substantial opportunity existing to grow, initiate and create higher-margin business by combining the depth of our property experience, grounded in local markets, with the financial expertise resident in our capital market groups around the world. The growing success of our retail capital markets business in Europe underscore this is opportunity.

Our European retail and leisure teams have resulted on sale transactions so far this year with cumulative market value of more than $2 billion. This track record includes acting for clients on 35% of the major Shopping Center transactions in the UK this year. In addition, the performance that underlies this market share helped us win the recent mandate to sell two UK retail portfolios valued in excess of $500 million on behalf of a major global financial institution.

In a further example of our capital market success, our corporate finance team in the UK has recently been appointed as M and A advisors in Real Track Development Limited. The property development arm of rail track group. Rail track Group PLC selected us in a major competition due to the unique combination of our corporate finance and property expertise, determining that Jones Lang LaSalle was best suited to maximize the value received from the sale of this company. In Asia, acting as he exclusive financial advisor for Imperial Parking Limited, we successfully negotiated a transaction enabling parking to expand in Asia. The transaction involved two stages. The acquisition by Deutsche Bank real estate of a 49% interest in Imperial Parking Hong Kong, as well as the formation of a joint venture to acquire income parking real estate in Asia.

Again there are transaction highlights the value of combining our special financial capabilities with our core advisory research and property expertise. It also highlights the value our global platform. Imperial Parking Hong Kong is an affiliate of CML global capital limited of Canada and we combine resources from Canadian, Singapore and Hong Kong offices in servicing this Canadian-based client and its Hong Kong affiliate. Those examples provide a sense of the progress we are making in leveraging our financial expertise to drive our capital market strategies forward.

Now I would like to turn to our investment management business where our strategic objective is to grow our global real estate investment management business to enable our clients to achieve their real estate objectives and maximize their risk adjusted returns in the most efficient manner around the world. In our private equity co-mingled fund business, Jones Lang LaSalle investment management had additional closing for Asia funds and LaSalle growth fund.

Significant new investment valued at $1.5 billion will be possible given these successes. During the formation of the fund, LaSalle Investment Management developed a total of nine new international client relationships, each of which represent significant commitments to cross border real estate investment strategies. In another confirmation of the platform, Prudential property investment managers has selected LaSalle Investment Management to advise on its global property investment program.

We have been awarded private equity investment mandates for Asia-Pacific and Continental Europe where the firm will be the sole advisor on behalf of PRUPIM. Further, LaSalle Investment Management will advise PRUPIM [Phonetic] in the United States. The total investment value of these three mandates equals approximately $1.2 billion pounds.

Finally, LaSalle Investment Management also has secured a substantial new separate account mandate for investment across Europe. This mandate comes from another institutional investor here wishes to capitalize on private equity investment opportunities in a region outside of its homeland. These examples give you a quick look at the growing results driven by two of our key strategic priorities. Our people around the world continue to work hard in all our businesses to attract new clients while increasing the scope of existing long-term relationships. Now we would like to open the call for your questions. Operator, would you please explain the process?

Are you ready for questions?

Yes, operator, if you could explain the process, that would be great.

The question-and-answer section will be conducted electronically. If you would like to ask a question, do so by pressing the Starkey followed by the digit 1 on your touch-tone telephone. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, to ask your question, please press star followed by the digit 1 on your touch-tone phone. We will pause for just a moment. We'll take our first question from Mack Ostower with Morgan Stanley.

Good morning, LauraLee, can you comment on what your EPS forecast implies for the balance sheet at year end. What will that look like?

I am not quite sure I understand your question.

Just comment on debt levels at your end.

Oh, okay. We made a debt commitment that we would pay debt down by $20 million. In fact, we have exceeded that to date. So we are comfortable that we have met all the targets going forward. We do produce, as you know, Matt, most of our cash in the fourth quarter. We didn't give you new EBITDA numbers, but if you were to look at them, there is sort of about $110 million. What we have done is in managing our cash, significantly reduced our capital expenditure projections. We had originally talked to you about sort of $25 million, and it will now be more in the sort of $17 million to $18 million range. Receivables are well managed. We are not obviously producing the same amount of cash from earnings, but we are managing that cash very carefully that we still feel very good about the balance sheet. Does that address your question?

Absolutely. And then just two other questions. You talked about the potential for future cost cuts. Can you elaborate at all on that?

Well, I think, Matt -- it's Chris here. We are obviously starting that process at this time, and doing a thoroughgoing process across the world. It really is premature to give any details on it at this time. But we are, as we said on the call, we are committed to growth in 2003, and just looking forward at revenues. It's hard to see that we can expect much improvement on this year on that footing with the current business climate. So we think we can bring efficiencies to bear that will enable us to get that growth.

Okay. Great. And then finally on a transactional side of the business, obviously business is trend down here and continues to be weak. Are you able to measure at all your market share? As it relates to transactional side of the business?

Are you, Matt, particularly talking about in the states? You said over there. Is that question related to there or much more widely?

Well, actually, I am interested, in particular, given the disappointments in Europe whether market shares suffered there but I would be curious to hear whatever numbers do you have.

Right. I think the first thing to say is, unfortunately, this is not a perfect market with those statistics readily available, and a great deal of real estate transactions take place equally between principles or off market. So actually being precise on these things is difficult, I am afraid. I can -- I can say to you, and this is anecdotely on that basis that looking at market share, certainly you have mentioned Europe there, in terms of transactional business or, indeed, corporate business, I believe our market share is continuing to rise. But that is, I am afraid, anecdotal. I turn to Peter Roberts just to talk about the States on that.

One thing just to add on Chris's comment, Matt. A lot of times, you know, people track their own market stats focused on their strategic objectives. So, as you know, our strategy is not focused on volume, it's focused on acting for major corporates and major investors. So as an example, in the city of London, one thing we track is major leasing transactions over 50,000 square feet. And this year, we have acted for either Corporates or Owners on over 60% of the major leasing transactions in the city. So I -- in general, I think my perspective is far less a problem of market share as it is of overall volume. I mean, take up -- just to give you an example in London, it is going to be probably 40% of the average over the last five to seven years. And so it's just -- it's a matter of pace. And I think it is the same -- same type of scenario in the States.

Great. Thank you very much.

Next we will hear from Bala Rakmarshena.

Good afternoon, from Morgan Stanley in London. A couple of questions. I first wanted to understand the European revenues and the operating income a little better. It looks like if you look at the U.S. revenues, the numbers are down, which makes sense, and the operating income is down. If you look at Europe, the numbers are pretty much flat in terms of revenues and operating income came down substantially. If you can get into the detail of how these numbers will look on a local currency basis, revenues and costs, just to see if we are successful in reducing our cost phase in line with our revenue reduction or not.

I think, Balar, I will ask LauraLee to answer that question, but I think she did address certainly in her comments earlier, I think we have a lot of back noise from you wherever you are at the moment, but she did address some of those, but I will ask her to talk a bit more about the suspects.

You are correct, Bob, if you look at the dollar for the financial statements, it looks like we are not making any progress because, in fact, it shows expenses are up in the quarter and modestly down for the year. But if we remove the foreign exchange impact, expenses were down 3% so you can actually see a 7% swing due to currency, and then down 7% for the year. So 3% for the year swing just for currency. So the answer is, yes, we have taken out significant costs in Europe as well, but just not to the level that the revenues have gone down.

Okay. And, in terms of the business in general, I was expecting the business to slow down at some stage because I guess in the last few quarters, myself and a number of people were quite surprised to see, you know, how resilient the business has been. I think you have done a pretty good job of taking the costs out and I think now the decline in revenues is running ahead of the cost reduction. Considering that real estate typically lags the economy and we really need to start to see some growth in jobs and overall sentiment, et cetera, is it realistic to expect improvement in the first half of next year or should we really be looking for pick up in the second half?

Well, I think, Bela, taking that one, we are not projecting at this moment the improvement in the first half of next year in terms of revenue and business intensity if you like at that time. Obviously a lot will depend on confidence and how this general business confidence and how that goes forward. We are not making that assumption ourselves, and indeed I am not making the assumption at this moment that in the second half of the year that we have seen anything to get excited about, and that's why we are talking about looking and revisiting our cost structure to make sure that the growth that we generate is promulgated on that basis of forward-looking revenue. So that's where we are coming from.

Okay. And final question. On the capital expenditure number, Lauralee gave a new guidance of 17 to 18 for Cap Ex. Does that include the core investments or is that excluding the core investments?

LauraLee, will you take that?

That excludes the core investments. We expect co-investments to be slightly under $20 million for the year.

Okay. And just finally, as a follow-up to your debt reduction target answer. Your target was to reduce debt by $20 million. You have done a better job. You have reduced it by $35 million. Does that mean that we will give up $15 million of that by the end of the year or should we assume that worse case, that pretty much stays where it is by the end of the year, assuming you don't get major cash flows in the fourth quarter -- major cashflows in the fourth quarter.

We are positive cash in the fourth quarter, so it is not our intention to change what we have accomplished so far.

Okay. Looking at the credit ratios, you are still sort of seven times covered and less than two times leverage is pretty substantial from a credit perspective. Do you think the weakness we have seen in the market delay your plan for additional leveraging in the next year?

We will obviously be looking carefully at our cash flows for the year. Our intention is to stay profitable which also means that we are strongly cash positive. And at which case we would continue to pay down debt. It is our plan to be well-positioned so that we have flexibility if we choose to relative to our euro debt to look at a better capital structure for the firm.

Okay. Thanks a lot.

Next we will clear from Claire Campbell from ICD.

Hi, can you comment on your bank covenants in terms of what covenants you have and what level of headroom you think you might be at year end?

Yes, I will ask LauraLee to take that.

Thanks.

The answer is, we have lots of room in our covenants. It may be I will have to call you back off line to get you the full details, but we -- we have liquidity ratios. We have multiples of debt EBITDA to debt. And all of those were extremely comfortable. There is no risk in those covenants this year.

That's great. Thanks.

Press star followed by the digit 1. Will Marks with JMP Securities.

Hello LauraLee, Chris and Peter. A few quick questions. Lauralee, can you clarify that co-investment question. Is that the net number slightly under $20 million of real estate investments this year?

That's correct. It's the net number.

And do you anticipate going forward to be at these levels? I think you at one time said roughly $25 million or was that just this year?

Are you referencing just co-investments?

Ah, yes.

The answer is that our forecast over the next three years ought to run between $20 million and $30 million a year on co-investment capital out.

Okay. What does that typically represent as a percentage of -- of your clients' investments.

In our funds, about 5%.

Okay. The only other question I have is in your financials, the -- should we really be looking closely at this -- at this adjusted number? I guess when -- one way to ask that would be this charge for -- for New York. Is that taken out of this adjusted number?

The charge --.

-- that came to the 27 cents for the quarter.

No, New York is fully in the GAAP numbers.

I am sorry, on the --.

And the adjusted.

And the adjusted? Okay.

Right.

And so -- and what is the best way to think about the adjusted? I know you list some notes, but I am a little bit confused if this is really the key number to be looking at. I mean, I would think it would be that 27 cents and it looks like there is 3 cents from that charge roughly? So maybe the adjusted would be more like 30 cents if you are not including that New York?

No, the main difference between GAAP and adjusted relates to the tax item that I talked about, the $1.8 million.

Right.

And that's because the original charge on that was made through adjusted. And so, therefore, it needs to be reported that same way. Excluded from adjusted and, therefore, is excluded again.

Okay. Fair enough. Thank you.

Next we will hear from Joel Gomberg from William Blair.

Thanks. Chris, can you talk a little bit more about hiring in New York and then given the amount you spent for the people there relative to the current environment and, perhaps, upsetting the balance within your internal organization. And then, also, within that release, you talked about a potential sale of a business, which I don't think happened, but could you talk about the status of that?

Right. Good morning. Starting with New York, we stated that -- a long time that is clearly a key global market, and Jones Lang LaSalle, our strength within it has been, perhaps, a weakness particularly for our American business, but also, frankly, on the referencing of business that comes out from major corporates in New York to the rest of the world. It has been an area we wanted to beef up our business. We had a golden opportunity with Peter and his people to bring them on board, high level of skills to boost particularly our leasing and management business in New York, but also on the back of that, we believe we will also be very good for our general corporate business, our Corporate solutions business and indeed for our capital markets.

We are delighted, not withstanding the market conditions prevailing across the -- America and New York as well. We are never less delighted to have that team on board. They have integrated exceptionally well and it is even better than I hoped it might be at this time. And we are already seeing very much the benefits coming through to the bottom line. It's -- we said right at the outset, it becomes really accretive after the first year, and then we see that accretiveness growing year on year from that period on. I think in terms you made some reference there to perhaps causing some imbalance within our business. And I am not -- not clear what you mean by that, because the renumeration formula that we have adopted for our people across the world, indeed, and this now applies to our team very much in New York is still a salary and team bonus format rather than commission format and that remains.

And then the potential sale of the business? What is the status of that?

Yes, I mean, the status is that is not proceeding. There was an opportunity that we investigated, and we mentioned at that time. It didn't come to fruition. We are perfectly comfortable with that position that was more opportunistic than anything else and it might have been worth doing it on certain conditions that were not prevailing and we are very much back to full integration of that business within the firm. So it's -- it's not an ongoing situation.

Okay. Last question. You know, you -- you added a number corporate, new corporate clients this year, especially in the outsourcing area and Microsoft, et cetera. Could you comment on the pipeline of those type of opportunities. Have they fallen off, you know, with the decline in business confidence, et cetera?

Sure, I might ask Peter to take that one.

All right, Joel. Our -- I think our focus on the corporate pipeline is basically in line with all our other corporate clients. I do believe that from a transactional standpoint, all corporations, including the new ones are taking longer. And delaying long-term commitments to real estate. On the other hand, for those corporate clients that are not -- that not include annuity-type fees, our expectations for the year and the pipeline are on budget and are on target. So to the extent that they include a transactional component, all of our corporate clients, I believe, are experiencing the kind of delays that the new ones are. The new ones are experiencing the same ones as all. And the annuities side, those tend to be management-focused and those continue up pace.

Thanks.

As a reminder, please press star followed by the digit 1 to take a question. Take a question from John from Goldman Sachs.

Yes, good morning. One question regarding your share repurchase program. Can you tell us over what period of time would you hope to complete that by?

Yes. LauraLee, would you like to take that?

Yes. We plan to do it on a programmatic basis, which, basically following the rules of the New York stock exchange. Right now that means we can buy approximately 300,000 shares between now and the end of the year.

And given that it's primarily intended to address shares associated with compensation, which is presumably annual, would you hope to complete the full million within 12 months?

Yes.

Okay, thank you.

We will take a question from Sonya Vandorf with Deutsche Bank.

One question, at the risk of being a bit simplistic, could you give us sort of a percentage as part of your management services revenue, what is actually long-term revenue, IE management fees over 12 months and what is basically short-term transactional base.

Now that's -- are you asking that question on a global basis or more related to the Americas market?

Well, more Americas, but -- what -- whatever you can give us basically.

Well, in the Americas market, the leasing and management runs together in that. So, therefore, it is perhaps a slightly easier question to answer there. But even that, on the break-down basis -- is it the percentage of our management properties which have contracts running for more than 12 months, is that what you are asking?

Yeah. Basically what -- basically what the management contract that basically lasts slightly over a month -- or a year, or a year or longer?

Well, Sonya, this is Peter Roberts. I don't have a precise breakdown for you, but let me give you some sense of what businesses are in that line. In that line, we have our property management for third-party investors. The market convention typically for those type of contracts is that they have 30-day cancellation clauses. And so that tends to be market practice for the U.S. and so, the factual answer to your question would be that for that piece of it, none of it is. However, I don't have any specifics easily at hand and our loss of clients on that type of contract is minimal unless they sell the building. The other type of contract in this is revenue source. The other two relate primarily to corporate, and that would be managed -- management of occupied facilities, as well as managed management, move management, buildout management, refurbishment and those sort of things. Corporate contracts typically have a longer break period because they relate to outsourcing, and the taking on of resources in there. And, again, I don't have a specific breakdown on those but they tend to have longer lead times and therefore are more secure.

All right. The proportion of those last three versus property management in general?

I don't have the figure -- figures at my fingertips, I can get back to you with it if you would like.

Okay. All right, thank you very much.

We will get back to you on that one.

Okay, thank you.

Thank you.

Operator: There are no further questions at this time. A replay of today's presentation can be heard starting today at 11:00 a.m. central time and ending November 14th at midnight. The dial-in numbers are toll-free 888-203-1112. And 719-457-0820, reference number 543956. Those numbers again are toll-free, 888-203-1112, and 719-457-0820. At this time, I would like to turn the call back over to Mr. Chris Peacock. Please go ahead, sir.

Thank you, operator, as there are no more questions, we will draw this call to a close. Thank you everyone for participating today and we look forward to talking to you again after the fourth quarter. Thank you

That concludes today's conference call, thank you for your participation.