Jones Lang LaSalle Inc (JLL) 2006 Q1 法說會逐字稿

Good day, and welcome to the first quarter 2006 earnings release conference call for Jones Lang LaSalle Incorporated. Today’s call is being recorded.

Any statements made about future results and performance or about plans, expectations, and objectives are forward-looking statements. Actual results and performance may differ from those included in the forward-looking statements as a result of factors discussed in the Company’s Annual Report on Form 10-K for the year ended December 31st, 2005, and in other reports filed with the United States Securities & Exchange Commission. The Company disclaims any undertaking to update or revise any forward-looking statement.

A transcript of this call will be posted and available on the Company’s web site within two days of this call.

At this time, I’d like to turn the call over to Mr. Colin Dyer, Chief Executive Officer, for opening remarks. Please go ahead, sir.

Thank you, Operator. And good afternoon, ladies and gentlemen, and thank you for joining us for this review of our first quarter 2006 results. With me today in our London Office is Lauralee Martin, our Chief Operating and Financial Officer. Lauralee will discuss our financial performance in detail in just a moment. But, first, let me recap several highlights.

Revenues for the quarter totaled $337 million, a 40 percent increase from the first quarter a year ago, with all business segments reporting significant YOY growth. Operating income totaled $8.7 million, a $19 million increase from a year ago, and net income for the quarter totaled $4.6 million or $0.14 a share, compared to a net loss of $8.6 million or $0.27 a share in the first quarter of 2005.

These strong results are the products are three [forces]. Firstly, the impact of the investment in growth which we started to fund in 2005 and are continuing to make this year. Secondly, improved execution capabilities in many parts of our business. And, thirdly, the ongoing health of global real estate markets.

One final highlight, in mid April our Board of Directors declared a semiannual cash dividend of $0.25 per share which will be paid on Thursday, the 15th of June, to holders of record at the close of business on Monday, May 15th, 2006.

So, with that introduction, let me hand-over the call to Lauralee to describe our financial results in detail. Later, I will comment further on market conditions and our business operations.

Thank you, Colin. And good morning to everyone on the call.

As Colin has just highlighted, we are very pleased with the strong start to the year. Due to the seasonal nature of our business we have typically generated an operating loss in the first quarter; however, this year we’ve benefited from double-digit revenue growth across all segments, the Spaulding & Slye acquisition in the Americas and the strong performance of LaSalle Investment Management, our money management business.

We continue to benefit from the strength of the global real estate market, our effective execution of strategic initiatives, which included the acquisitions completed this quarter and the organizational changes made in the Americas. I will now review the specific results of our core business segments.

In the Americas revenues for the first quarter of 2006 increased by over 50 percent YOY to 113 million. The growth in our top line resulted in a $4.3 million improvement in operating income over the prior year. The acquisition of Spaulding & Slye contributed almost 50 percent of the total revenue growth this year, with the remaining half of the growth being driven organically.

We’re very pleased with the results of the Spaulding & Slye acquisition, as both the financial performance and the operational integration of the business are progressing according to our expectations. We advised on our 2005 fourth quarter call that we would provide additional information regarding the cost of this acquisition when finalized, such as the intangible asset amortization and transition costs.

The combination of amortization and compensation retention costs will be approximately $7 million in 2006, and we expect transition expenses to be approximately 2.5 million, of which we’ve spent 800,000. So, total expenses for the full year of 2006 will be $9.5 million. These costs will be included in the Americas segment operating income results.

We also began to see immediate benefits of the organizational changes made in the fourth quarter of last year. The Americas now manage their operations with a focus on geographies and clients versus their previous management by product line.

As a result, new business lines, namely markets and accounts, include the product lines of leasing, management, tenant representation, facility management, and project and development management services. Capital markets, public institutions, retail and our regional operations continue to remain separate product lines. Beginning this quarter our comments on results reflect this new organization structure.

In the fourth quarter of last year we discussed our disappointment with the lower activity levels of our tenant representation strategic alliances. It’s premature to claim a successful turnaround from our efforts we’ve been making to improve this part of our business, but we are very pleased with the revenue from our strategic alliance clients in the first quarter of 2006, almost doubled from the same period last year. These results came from a significant increase in the size of individual account revenues.

In 2006 ten different clients’ accounts have already generated revenues in excess of 400,000 versus only four in the comparable 2005 first quarter. This increase can be explained by delayed 2005 activity due to the distractions from both the Spaulding & Slye acquisition and the Americas reorganization, but, more importantly, now that the reorganization is complete the positive impact of its stronger focus on marketing our entire product line to these strategic alliance clients is being realized.

Lastly, our hotels business in the Americas had a very strong quarter, with revenues more than doubled over the prior year. The majority of the growth resulted from a number of significant transactions closing in the quarter, while the remaining growth was from the select service hotels acquisition completed in the second quarter of 2005.

In Europe revenues increased 32 percent in local currencies to $103 million, driving an improvement of over $3 million in operating income YOY. The increase in operating income was the result of significant markets in Continental Europe starting to recover.

Last year, as many of you may recall, the Easter holiday negatively impacted our first quarter and benefited the second quarter as transactions slipped over. Our second quarter this year will not have the comparable impact.

There has been significant growth in capital markets, agency leasing, and advisory services in our French, German, and English businesses. Revenues for these geographies increased 29 percent in U.S. dollars and contributed 90 percent of the region’s revenue growth.

The French business is off to a very robust start this year as revenues more than doubled since last year. We are also very pleased with the continued financial performance recovery being made in our German business, as our restructuring efforts and new management are realizing value from the investment interest that exists in the marketplace. Revenues in local currencies have increased 55 percent in the first quarter of 2006, compared to 2005.

In Asia-Pacific revenues increased 18 percent in U.S. dollars to 58 million, but a more robust 27 percent increase in local currencies. Asia-Pacific’s operating income performance was also stronger on a relative basis as the 2005 operating income included a $1.6 million credit from a litigation settlement. On a like-for-like performance basis operating income was up 2.7 million.

Geographically, growth in revenues was seen across the region. Our growth markets of China, Japan, Korea and India were up 38 percent in local currencies, while revenues in the core markets of Australia and Hong Kong had a solid 24 percent increase. The core markets’ revenue growth produced profits in the first quarter this year, compared to losses in the prior year.

LaSalle Investment Management’s most significant news for the quarter came when we and our longstanding client, CalPERS, announced that our joint venture, CalEast Global Logistics, had closed on a $3.4 billion acquisition and subsequent privatization of CenterPoint Properties Trust.

CenterPoint is ‘the’ largest industrial property company in the large $1.4 billion s.f. Chicago regional marketplace. The transaction, in which LaSalle also maintains a minority co-investment equity interest, resulted in significant onetime acquisition fees and annual ongoing advisory fees.

Incentive fees were approximately 11 million higher this quarter, primarily due to the complete liquidation of two funds during the quarter, namely the Medical Office Fund and Income and [Income and Growth II Fund]. The liquidation of these funds began in 2005 and have been contributing strong incentive fees to LaSalle Investment Management’s performance.

As indicated in the past, incentive fees vary from period to period due to both the performance of the underlying fund investments and the contractual timing of the measurement periods. In the second quarter of this year we are contractually due a significant growth incentive fee of approximately $60 million which will have a profit margin contribution of approximately 40 percent.

The contractual measurement period with our client ends on June 30th of this year. An interim value measurement was completed in 2002. The incentive fee recorded at that time was based on realized gains through the four-year period that ended and a portion of the unrealized gains.

The incentive fee to be measured at the end of the second quarter of this year will be dependent on the realized gains for the second four-year period and a true-up of the first four years. The significance of the fee with its associated team incentive and long-term compensation reward is due to both the outstanding performance for the client and the length of the performance period.

The ultimate fee will not be realized until after the second quarter and is dependent on third-party valuations that still remain to be completed. As the result, the fee when finally determined later this year may increase or decrease from the $60 million estimate.

It is not our practice to provide earnings guidance, and we are not deviating from our practice at this time. However, at the end of 2005 we advised we did not anticipate lower incentive fees in 2006 than earned in 2005, and in giving that advice considered this fee’s measurement date. Due to the growing awareness of the significant fee within our Firm, we are disclosing its potential to ensure that all investors have comparable information.

In summary, the Firm benefited from favorable market conditions, the effective execution of our strategies, and our globally diverse business platforms. We’re very excited about the acquisitions completed during the quarter and believe we are well positioned for the balance of the year.

This concludes my discussion of our first quarter results, and let me turn the call back to Colin.

Thank you, Lauralee.

In my opening comments, I mentioned how the ongoing strength in global real estate markets contributed to our first quarter performance. The global economy is expected to grow at 3.5 percent this year, roughly equal to that of 2005. And although oil prices and long-term interest rates are rising, commercial real estate pricing and leasing demand are not likely to slow. So much capital is looking to be put to work in real estate currently that it’s highly leveraged investors for [low leveraged buys] are taking their place.

As we reported in our recent research publication on global real estate capital, global capital [loans] hit a record high of $475 million in 2005, up over 21 percent over the previous year. Total transaction volume is expected to increase this year with cross-board activity in real estate continuing to grow at double-digit rates.

In leasing markets we expect job growth in key markets around the world will fuel strong office leasing activity. In the U.S. declining vacancy rates will contribute to rising office rental rates in cities ranging from Atlanta to Washington D.C., to New York and Los Angeles.

In Europe, take-up in the 24 cities in Jones Lang LaSalle’s European office mix was over 2.9 million square meters, that’s 31.2 million s.f., which is the strongest performance ever in a first quarter. The European office and its vacancy rates increased to 8.9 percent in the quarter, down from 9.7 percent a year ago. Whereas, in this European index grew by 5.5 percent over the year.

In Asia-Pacific the office market continues to be characterized by tight supply and met new demand, and little -- and strong net new demand in most markets. There was strong office leasing activity in Tokyo during the quarter, and in Hong Kong the supply of available office space continues to shrink with no new significant spots coming online in the next 18 months.

Against this background, our continued investments in growth and our focus on improving our ability to execute contributed to our first quarter results. But to put those results in context, I would like to give you some examples of the continuing progress we are making in each of our five strategic priorities, which are, as you may recall, strengthening our local and regional service operations, expanding our three global service delivery lines, corporate solutions, capital markets, and LaSalle Investment Management, and, finally, establishing world standard business operations in our Company.

Firstly, our local and regional service operations. The Firm’s financial performance depends very largely on the business resource and execute in more than 100 markets worldwide. Our collective strength in these markets also determines the effectiveness of our global service capabilities. So, here are some recent examples of successes in each of our regions.

In the Americas [President], the United States’ leading integrated healthcare organization, selected us to provide tenant representation, lease administration, and strategic consulting services for its 60 million s.f. portfolio. Our [presence] in the San Francisco office market contributed directly to this win. Also, in San Francisco, by the way, Jones Lang LaSalle was named one of the best places to work in the Bay area by the San Francisco Business Times.

We expanded our existing relationships with MMC Marsh, the global insurance consulting and investment management firm, which we already served in Europe and Asia-Pacific. This relationship now includes new assignments in San Paolo, Los Angeles, and thanks to our strength and presence in New England of our Spaulding & Slye merger, a large tenant representation assignment for [Boston].

As part of the Americas organizational changes, which Lauralee mentioned in her remarks, we are focused on strengthening our competitive position in each market where we choose to compete. In Washington D.C. we completed a 10-year 148,000 s.f. lease extension for the Law Firm of [Dow, Sloane and Albertson]. Our expanded relationship with the General Service Administration, Public Institution teamed with project and development services of the transfer of the Washington’s Walter Reed Medical Center from the U.S. Army to the GFA.

In New York the United Nations Development Corporation chose us to provide property management services at UNDC Plaza, a 1 million s.f. asset.

And, finally, Equity Office Properties awarded us leasing responsibility for properties that include 191 Peachtree in Atlanta and the New England Executive Park in Burlington, Massachusetts.

Turning now to Europe, during the first quarter we completed the largest ever single transaction in the City of London. On behalf of British Land we concluded the 527 million pound sale of Plantation Place, which comprises nearly 550,000 s.f. of office and retail space.

We extended our relationship with [Favor], the global travel services company, adding project and development services throughout the European region to the transaction and lease administration service, which we currently provide to them.

For [Atara], a major Finnish institution, our Pan-European capital markets team worked with the [Oridian] corporate finance to sell two office buildings in Helsinki for 45 million euros. That was our first office transaction in Finland.

Our French and German capital markets teams also recorded strong starts to the year with significant levels of [wins] in both countries. In Germany, for example, the team is currently working on six portfolios with the potential value of 1.5 billion euros.

Finally, our team in Russia has earned the ‘2006 Consulting Company of the Year’ title in the Moscow real estate awards.

In Asia-Pacific we were retained in China for [inaudible] management consultancy by [inaudible]. This is on the Hong Kong stock exchange, [inaudible] the world’s first listed REITS with assets in Mainland China.

In India we extended our relationship with Hewitt Associates, the global human resources outsourcing and consulting firm. We will provide facilities management services for Hewitt’s 400,000 s.f. Indian portfolio, which we expect to double within a year.

In Australia, our [inaudible] team was retained to advise onsite identification, feasibility and the option process and to conduct an exclusive pre-leasing project for a new 334,000 s.f. office development for the Australian Department of Agriculture.

And, finally, the Government of [Jubai] appointed us to advise on the planning and marketing of more than 1,500 acres associated with Jubai’s new mass transit system. The assignment which will be coordinated and led from our offices in Sydney and Singapore is one of the Firm’s largest ever consulting wins. Professionals in our Hong Kong, Taipei, Singapore, Sydney, London and Chicago, Washington, and New York Offices all worked collaboratively to secure the win. The Jubai Government indicated that our global service capabilities and experience in major consulting projects were key factors in its decision.

Our second major strategic priority is our global corporate solutions business, and our aim here is to build a truly global corporate solution service line and to be the dominant global real estate outsourcing provider for the large corporate relationships which we’ve assumed.

Earlier this year, as we mentioned on our last call, Sun Microsystems named us as the exclusive real estate service provider for Sun’s 17.3 million s.f. global portfolio, spread across 44 countries around the world.

Later in this first quarter we were also retained by another global technology leader, [Synopsis], which delivers semiconductor design software, intellectual property designed for manufacturing solutions and professional services around the world. We will provide project management, transaction, and lease administration services for the Company’s 2 million s.f. global portfolio.

We also have established a relationship with Schering-Plough, the global science based healthcare company. We will deliver transaction management, lease administration, and project and development services for Schering-Plough’s 13 million s.f. global portfolio.

Our third priority is our global capital markets business, and our aim here is to build the global market services lines around the world. Our international capital group, which was created last year, focused on harnessing cross-border capital to serve the international portfolio needs of our clients.

During its first quarter the group was responsible for the sale of the [Project Place], a 240,000 s.f. office building in Washington D.C., on behalf of a high net worth investor. The sale was completed for approximately $124 million.

One month into the second quarter our global capital markets team is engaged in a number of transactions which are either in the process of closing or remain confidential.

Jones Lang LaSalle hotels, another important part of our global capital markets business, was also very active during the quarter, completing the sale of the Westin Michigan Avenue in Chicago and the sale of two resort properties in Okinawa for a major U.S. client. Recently, hotels represented the seller in the disposition of the Four Seasons Hotel in Milan, which was sold for more than $200 million, a transaction that set the world record in terms of price per hotel room.

Our fourth strategic priority is to maximize value from LaSalle Investment Management, our global money management business. As Lauralee mentioned in her comments, the quarter’s major event is LaSalle’s completion with CalPERS of the acquisition of CenterPoint, a leading industrial property company in the Chicago regional market. CenterPoint specializes in [inaudible] typically inbound from Asia are transferred from railcar to trucks. And as a private company [inaudible] increase the level of [inaudible] activity in this market and pursue opportunities on a national basis.

The CenterPoint acquisition speaks directly to the same approach I mentioned at the start of today’s call. Acquisition and advisory fees related to the transaction contributed to LaSalle’s strong first quarter performance and the acquisition also increased [inaudible] by 3.4 billion for a total of over $34 billion.

In addition, LaSalle’s security business raised $225 million of new capital during the quarter, bringing our total global securities accounts to $1.5 billion.

Our fifth priority is to develop the world’s finest delivery platform for our businesses by focusing on two major objectives, continuing to strengthen our infrastructure, whilst also developing market leading technologies that directly benefit our clients.

We recently made an important advance in our client focused technology with the introduction of [OneView] by Jones Lang LaSalle, a new master platform for all client based technologies. OneView provides our clients with efficient new [user] spaces and improved product integration, organized into five service lines: projects, transactions, property management, lease administration, and account management.

The new platform enables clients to go to a single place to get whatever information they need about their real estate portfolio. Client interactions with our systems will be faster, more effective, and simpler than ever before, with a depth of analysis that is unmatched in the real estate industry today.

To conclude these remarks, I would say that we are very pleased with our performance in the first quarter, and I would also like to recognize the excellent performance of our staff around the world and the loyalty of our clients everywhere in achieving these results.

We reported strong growth across all of our business segments. The product of excellent execution, favorable market conditions, and our strategic investments in growth. And we are now focused on maintaining that momentum through the first half and the full year.

With the benefit of our globally diverse business platform and continued healthy real estate markets we are well positioned for the remainder of 2006.

We would now like to open the call for your questions, so, operator, would you please explain the process.

[OPERATOR INSTRUCTIONS.]

Your first question comes from Joel Gomberg from William Blair.

Thanks. Congratulations. Lauralee, can you…

Joel, we just lost you.

Can you hear me now?

Yes, we can hear you now.

All right. Can you break-out the Spaulding & Slye acquisition in terms of contribution for the quarter? Was it roughly about $50 million in revenues? Just to give us a little more break-down? And then what are the components?

Well, we don’t give specific details as to P&Ls of any part of our business, so what we’ve said was that 50 percent of our revenue growth in the Americas came from Spaulding & Slye. So, I can give you the growth piece of it.

If you will recall, I’ve now given you, a break-down at the expenses that specifically relate to the accounting of the transaction between the amortization of the intangibles, incentive costs, and transition, and obviously then the piece that would also be in there is interest so that isn’t recorded in the Americas’ operating results.

And the blend of all of those for the year we said that was how we got to the neutral or modestly accretive, until the point in time we pay-down the debt, and ultimately when, you know, obviously the transition will go away in year two. The majority of the intangible amortization is, therefore, a three-year period, then it drops in half, and it’s then, therefore, a period of time that will continue.

So, I can’t answer your question directly, Joel, but I think that gives you an idea. What I can also say is partly due to the Spaulding & Slye compensation model they are not as seasonal as our business, and, therefore, on an operating income basis do not generate a loss in the first quarter.

Okay, and then can you go through, once again, I realize that you said that 60 million will come in the second quarter but then there’s a tail to that in the third quarter, can you go over that again?

Yes. And it’s the complexity of income recognition. We are contractually due the fee on June 30th, however, the mechanics of the calculation require third-party appraisals, it requires that the index, again, which is measured also close on that date which is a period of time in the real estate industry, and then it needs, again, independent confirmation by outside accountants that all that calculation has been complete.

The estimate that we’ve given you, if you’ll recall, I went through the fact that we had an earlier measurement period in 2002. There are ongoing appraisals that are done for the client on a regular basis, and because of the appraisals that we know were there at the end of the year, also, how that performance falls against the index that we [guess] which we don’t think will have substantial material change, there is a requirement at that point in time that we will need to do a level of income recognition because of the known factors around that contractual due date.

Beyond those, again, are the appraisals on the entire portfolio which need to be updated from the last time they were done, as well as you’ll recall we did a significant acquisition for this client earlier, it was actually the middle of 2005, such assets which have now been in place for a period of time which have not been appraised subsequent to that.

So, all of those factors come into play such that there will be a true-up that will happen possibly in the third quarter, maybe not until the fourth quarter, depending on when all of those come into play.

So, I’m giving you a very complex answer which we will continue to work with our outside accountants on, but at this point in time there will be an income recognition event that will need to occur in the second quarter which at this point in time is an estimate.

So, perhaps in the next conference call you’ll be able to give us a little more detail on that?

Absolutely, because we will then be closer to either knowing the dates when all the outside events occur, as well as if we’re getting closer to a true-up number.

Okay. And then the last question, I know you’ve had a number of initiatives, you know, putting money back into the business. Where do you stand on those and your hiring for the year? And maybe you can give a sense of where headcount is first yearend and maybe a year ago?

Two or three things, Joel. First, we are continuing with our revenue investment program. Which, as we said to you the last call, we were planning to up from 9 to $1 million to somewhere close to 20 this year. And that money is going into, focused in certain geographies.

Russia, Japan and China, as we explained to you before, three of our significant growth countries, and they will be getting $3 to $4 million each in the course of this year. India we do not have any special plans for investment this year above and beyond ongoing operations there locally. So, that’s our investment spending for growth.

The second element is that there is a significant amount of hiring going on all around our businesses in all geographies currently. And the costs of doing that are rolled into the operating expenses, and you can see the way those numbers have progressed by region and that gives you a feel for the amount of investment that we’re doing, locally in businesses increasingly to drive our capacity and our ability to perform services for our clients.

In terms of number of employees this year, Lauralee has it?

Yes, if we kind of look at YOY and, again, there’s some nuances in the way we talked about our headcount. Fee earners are either those that are direct producers in the marketplace or that are specifically assigned into clients in particular around some of our business, like our facility management and our project and development management.

Our two biggest growth areas have been in the Americas, where that fee has gone up to a little over 40 percent YOY. In Asia-Pacific it’s up about 25 percent YOY. And then more in the single-digit growth in Europe and Asia-Pacific. So, clearly, we’re tracking revenues in much of those geographies, as well putting in some of the market leaders in terms of share and key product differentiators.

The final area for investment, Joel, is the [inaudible] platform we’ve referred to our aim to standards of service deliveries, and we’ll be putting significant [effort] into introducing and implementing software packages in the course of this year, to not only our infrastructure, you know, our business operating systems, but also our client facing technology, such as the OneView system that I described earlier.

Thanks a lot.

Your next question comes from David Gold from Sidoti.

Hi, good morning. Just a follow-on there a little bit. Lauralee, I’m not sure if you gave a number, but I guess at the end of last year you talked about wanting to put 20 million, or maybe it was Colin, you, 20 million plus to work this year in the investments. And I’m curious how much of that might have fallen out if you can quantify into the first quarter?

Well, we spent roughly through the year...

Yes, looking at our growth in expenses, particularly in areas like Asia-Pacific, where we’ve opened a number of offices, as well as built-up the infrastructure, and obviously in the Americas where you saw those monies going early into last year but continuing to grow that piece. And, also, LaSalle Investment Management, again, into their Asia operations. So, Colin’s answer on prorata I think is probably the best way to think about it.

So, say that again? Essentially, you know…

Because we’ve made the commitment to new offices, the technology, and the people, it’s going to be in our numbers. We put it in and really by the end of the fourth quarter of last year, so it’s going to start the year and be there on a pro rata basis throughout.

Okay, so, basically, you’re a quarter of the way through it?

Correct.

Okay. And then, you know, I guess sort of, maybe one of the bigger differences there is I remember last year first quarter you probably had done, say half a million of investing in anticipation of what was to happen.

And I guess kind of curious if there’s a difference now in terms of your outlook or how you’re running the business in an effort to maybe be closer to break-even or profitable in the first quarter?

Well, I think, firstly, to correct the first point, we probably spent less than a quarter in the first three months of last year. We had a very slow startup in our investment spend. But, no, we have not changed or adjusted the way in which we run the business year on year. We continue to drive forward with the goals to growth which we’ve described to you.

Okay, fair.

I think, David, just to maybe step-back, we still had operating losses in three service lines business. It’s not nearly to the extent that we have had in prior quarters, and the robustness of the revenues clearly contributed to that.

We went into profit because we found investment management, realized incentive fees earlier than we historically had, however, they were the continuation of what you saw happen in the third and fourth quarter of last year as we liquidated out the two funds that I described and completed that in the first quarter.

Right, I mean I was looking at it more from the perspective of taking out investment management, for that matter, you would have had a loss but it certainly would have been more modest than last year. But so fair.

Two other kind of minors. One, on the investment side I guess you said in the release you put about $4.5 billion to work, but it seems like the bulk of that was CenterPoint, and so just curious there about opportunities? It seems to me like the other billion it would be safe to guess you put that money to work in Asia?

Well, the bulk of the increase year on year. It is, indeed, CenterPoint acquisition, which we’re now managing on behalf of CalPERS. The money which we spent in the course of the first, or should we say invested in the first quarter of the year, we’ve given you a number for the amount going to the publicly traded securities, and this was $235 million.

And the remainder that has been money invested across all of our current lines and open funds, and we’re going to [inaudible] now because we are selling, as well as buying on a continuing basis. The geographies there are the U.S., Europe, and Asia-Pacific.

Okay fair. And just lastly, on the Spaulding & Slye progress, they’re presumably shouldn’t be – you would think it wouldn’t be that bad an integration, yet I guess they’re still a couple of million bucks of transition. If you can talk about sort of what’s left to be done?

We have not migrated all the systems, and we’re in the process of relocating space so that we can have our operations together jointly. And then there’s also retention bonuses to make sure that we get all that facilitated for those that will not be staying with us.

And operationally the [Boston] operations clearly we had a very small presence there. That seemed to integrate very quickly into the Spaulding & Slye organization. And that’s successful and posed us no problem.

Similar story in Washington, the teams have come together. As Lauralee said, in new space now. The teams have come together, and the business, the first business results are very encouraging, not only because of the internal transfer of information between the two legacy businesses in their local markets, but also increasingly business flowing into through Boston and Washington for the remainder of the LaSalle organization worldwide.

And as we stated when we announced the acquisition, we’ve begun to develop the Spaulding & Slye specialty areas of healthcare, of higher education, of legal office services, and look at building back commercially, a targeted away across our Americas organization. But all of those things are well underway. And I get into the Washington Office periodically, and I can tell you that the atmosphere and the buzz around there, particularly after getting everyone together in one building is palpable and it’s very encouraging.

Yes, sure. Very good. Thanks so much.

Right.

Your next question comes from William Marks from JMP Securities.

Great, thanks. Hello, Lauralee and Colin. Actually, a couple of questions. When on tax rate, Lauralee, going forward, we’ve been using 30 percent in our model. Should we -- any thoughts on that?

The tax rate that we have in the first quarter is consistent with what we booked for all of last year. I get my rounding wrong, but it’s roughly 26 percent, 25 to 27 percent, I think it is. And at this point in time that would be a good tax rate go-forward.

Great, okay. And sorry if I missed it, but share repurchase, have you commented at all on that?

We didn’t comment on it. We did [model] share repurchases in the first quarter. We still have our Board approval. We tend not to be as aggressive in that activity at the beginning of the year because we do increase our – we would be borrowing money to do so because we’re doing our bonuses and increasing our debt.

So, as we think of the tradeoff, we’ve typically done more of that in the second half of the year. But we still have the Board’s approval, and we continue to use that to offset the dilution of our various compensation plans that align our employees with our performance.

Can you give me a sense of how much is left in the program? Is it in the million and a half range?

I think it’s a touch less than that. I can get back to you with the specific number, but it’s over a million.

Okay, that’s fine. And then one general question, maybe you mentioned this, Colin. But we’re always trying to find something wrong, and virtually everything is right. But your management services line in Europe was down, can you just touch on that briefly?

Could you repeat that, Will?

So, it looked like the management services revenues were down in Europe?

Oh, yes, I can talk about that a little bit. Management services is, the largest component of that is generally in the property management area. And we have been very aggressive of making sure that our, number one, our property management business is focused on relationships with key clients and, also, that those relationships are profitable, so we’ve continued to hone that business.

So, we’re not unhappy with that decline, if we were to actually give you a P&L on it, the YOY performance on its contribution is up. So, versus in the U.S. we’ve had continued very rapid growth in our facility management business, and in Asia-Pacific in our property management business, as well, which is a very high growth business for us, both in the Hong Kong and Chinese marketplace.

Great. And one final question, you gave us some broader comments, but I’m really curious on the U.S. market, in particular, leasing activities. And it appears to be strong, from everything we hear. I mean are you seeing the same thing?

Yes, we are. The – we keep a sort of broad based index of vacancy rate across the U.S., and it peaked around 16 percent two years ago, and by our measures it’s down to around 13 percent and falling.

On an average basis across the major markets in the U.S. we see that trend of lower vacancy rates everywhere against the relatively, again, broadly generalizing a relatively low level of new product coming on to the market, [new states] coming on to the market, and a continued sustained level of demand from corporate for space. And we don’t see at this point anything which suggests that we are breaking that trend. The corporate demand and the economy in the U.S. continues to grow at a healthy rate.

Great, that’s perfect. Thanks, Colin. And thanks, Lauralee.

Your next question comes from [Rob Maiten] from [Snyder Capital].

Good morning.

Good morning.

Had a couple of questions on the incentive fees at LaSalle. The two, you mentioned the two funds that completed their liquidations in the quarter, can you tell me roughly what the size of those funds were at their peak, I guess, in terms of assets and equity?

Oh, I would want to get back to you on that specifically. The income and growth [to] fund would be a much smaller size, for example, in the [inaudible] growth fund that we have initiated more recently, just because of the market at that time. It was a fund that we went to the market with in the year, early 2000, but I can get you the size of that.

And the same thing with the medical office, it was a more of a boutique offering with its first round, and now with its second round it is much more significant. So, if I could get back to you on that, Rob?

The medical office fund was also about 2001, so both of those are now liquidated out which does give you sort of a picture of the life cycle of a fund.

What we have talked to you about is that as LaSalle Investment Management has added more funds to their product offer, it means that at any point in time we have more in the liquidation mode, such that we create a portfolio affect around the incentive fees.

Now, I say that as we obviously have the one very large fee coming up going forward, but which is an exception, but again generally speaking we want to build that bundle to be able to have a better kind of consistency of growth in it.

Okay. And you said that those two funds both started their liquidations in ’05. Was there any material amount of incentive fees from these two funds in ’05 or prior?

Yes, there was significant amounts. The majority of the income and growth II fund was in 2005 rather than 2006. The medical office was split about evenly.

Okay. Do you have an idea roughly in dollar amounts of what the incentive fees would have been over the life of those two funds? I don’t know if that’s…

I have a precise enough, but unfortunately I can’t disclose it to you.

Okay.

The two of those in 2006, the first quarter, were the substantial part of the income recognition that we’ve had.

Okay. And then just related to those funds, and I’m not sure I understand the mechanics completely, but I assume you had your usual equity participation’s on those. And I was thinking that you would have probably seen some equity income with the liquidations of those funds, but you actually had a slight loss there in the quarter. Am I looking at that the right way, or?

Yes, though, what happens is we recognize the equity gains and then at the very tail end of them really there’s a true-up with the incentive fees, so we would have had the equity gains in 2005.

Your comment, though, on the loss in the first quarter, the year before, 2005, we had a modest impairment. And we’ve talked about our accounting in the past. If we have an impairment valuation on a single asset we’re required to take that recognition at the time even though in the total fund we may have unrealized gains and the entire fund, you know, has profits in it.

The operating, the equity loss in the first quarter of 2006 was actually operating losses. And, again, we have participations in these various funds, and while the value is created in the individual assets it may be that the rental income does not cover their operating expenses and we would take our prorata share.

With the growth in both value add and opportunity funds we will have a larger percentage of our built operating losses. Ultimately those will be recovered when assets are exited, as well as with the gains.

You know, I think CenterPoint is a good example because CenterPoint is an opportunity to create tremendous value through the activities they do. That means we will have a portion, a modest portion because we have a very small ownership interest in them, of those operating losses. Ultimately we will have the gains as the assets are exited.

So, your observation is correct but it’s really more of the mechanics around just the way those are booked.

Okay. And then the separate account that you expect to generate the large incentive fee in the second quarter, can you give me a rough idea of either the current size or maybe average size over the eight years, if it’s changed a lot, of that separate account?

Over it’s life it has changed significantly. It’s been a billion dollars up to, you know, north of $3 billion. So, it’s sizable, and it’s also had a great deal of activity in it.

Okay. And you said there was a fee, a partial fee that was calculated at the midpoint, back in ’02. Can you tell us what the size of that was, or was it anywhere near, I guess it couldn’t have been anywhere near…

Well, it’s not nearly at this magnitude. Again, I can’t disclose the fee, the actual amount of that individual fee, though we can give you what our incentive fees for the year 2000, and I believe it was the more significant portion of that, 2002.

Okay. And then just my last question, in terms of the acquisition opportunity and environment for you guys, do you – is that still something that’s a big part of your strategy? Are there other, you know, material Spaulding & Slye type opportunities out there, or do you think it’s more to the smaller type things, like you had in the hotel area I guess last year?

Well, we’re currently focused, obviously, on the integration of the acquisition we have done, that’s the major kind of priority. But looking more broadly beyond that we are, we said we are open to developing our business along the guidelines which we’ve laid out, the strategic targets we’ve laid out. And so we’re open to acquisition activity.

And we have on an ongoing basis under review opportunities of small and medium size. We at this point wouldn’t I don’t think contemplate immediately another acquisition of the size of Spaulding & Slye, but certainly smaller ones will be on the agenda.

Okay. Thanks a lot.

Your next question comes from Jennifer Pinnick from Morgan Stanley.

Good morning. I have some more questions on the incentive fees. Seasonally these fees are typically a Q3 and Q4 event, and I’m trying to figure out to what extent these incentive fees that you’re posting in Q1 and Q2 are pulling from our estimates in Q3 or Q4, or are there other measurement periods or are funds coming due in Q3 and Q4 as in a typical seasonal pattern?

We will have some measurement periods that occur throughout the year for more separate accounts, so we’re anticipating those to not be material. The third and fourth quarter of last year were, again, principally the liquidation of a couple funds.

And as we go forward we would be advising you when we start to liquidate funds and tracking that activity, and once we start into the liquidation of a fund and clear the performance hurdle then from there on out we start to recognize incentive fees.

This particular year, again, we closed the two funds that we’ve talked about. We are not liquidating any other funds that in the balance of the year we’re anticipating would create those kind of fees.

So, our activities for the balance of the year is principally modest separate account recognitions, but the majority of it is the transaction we’ve pointed out to you. So, I guess a short way of that is we’re going to be very front-end loaded in our activity.

Would that go for equity gains, as well?

Yes.

And with the CenterPoint acquisition, can you talk a little bit about the management fee that you’ll garner? Is it in line with the average management fee you get for assets under management? Is it higher or is it lower?

It’s roughly in line with what a typical transaction would be for a separate account.

Okay. And it seems to be a fairly unique transaction. Would we be seeing more of these in the future, or is this sort of a onetime deal?

In the sense of [inaudible]?

Yes.

We, I guess it’s clearly an excellent opportunity or CalPERS and for ourselves to work with CenterPoint. We would not be closed to the opportunity of doing more of this sort of thing, but we have to do it in conjunction with our clients. So, it takes not only our own interest but also the clients’ interests to be aligned to make these sorts of moves, particularly on this scale.

But having gained experience with the CenterPoint transaction and confidence in doing major moves on the public market privatizing [inaudible] companies, that obviously gives us an experience base which we can use potentially in other transactions of a similar nature. In the U.S. or in other geographies.

Great, thank you very much.

Your next question comes from Michael Fox from JP Morgan.

Hi, good morning. I should – I just had two quick questions. You had some pretty positive comments on the overall industry. And with regard to the transactions that you expect to be up again in ’06, and you said that demand for real estate is likely not to slow, would you say that you expect the growth rates to continue at about the same rate, or any acceleration at all?

And then, second, the global capital that continues to flow into real estate, would you say that you get the sense from investors that that’s being driven by them getting to their target allocation or that they’re further increasing their target allocation and that’s what’s driving it? Thanks a lot.

Okay, let’s just repeat the question, and try to deal with them one by one. The first question was you asked whether we believe that transactions would be up for the rest of the year? Well, we haven’t said that.

We said simply that we’re looking at markets everywhere, the leasing markets or capital markets, investment, sale markets, which are healthy, and the strength of the trends continue to be strong and those trends have been in place now for perhaps 18 months, at least. At this point we see no [inaudible] which would suggest [inaudible] for investors, and the strengthening demand for space on the part of corporate users in the leasing market.

We didn’t comment on our rates of growth for the rest of the year. We’re very happy with the way the growth in the first quarter of this year. But as I think we told you this time last year, the first quarter of our year is the slowest quarter, and it’s not a good guide to the overall annual performance. Not necessarily a good guide to the overall annual performance.

As far as global capital flows go, yes they continue to be very strong, more than $75 million last year worldwide, with another healthy 20 percent growth in that number the previous year. We continue to see very strong but not very significant sums of money flowing into [inaudible] our investment advisory business in [inaudible], so our investment management business in LaSalle Investment Management.

We see no reduction in that pressure of money coming into the market. What’s driving it, you referred, Michael, to institutions raising their allocations of capital to [inaudible] we’ve typically heard institutions talking about doubling, so if they had 3, to 6%, and if they had 5, they’re moving sort of towards 10 in balanced portfolios.

What I can’t, clearly still on the path of moving those allocations up to the current levels. Whether they have moved them up further, whether there’s an increasing, the target levels are increasing further, I can’t tell you, but we just simply still see strong flows of capital into the industry.

Okay, great. Thanks a lot. Congratulations.

Thank you.

There are no further questions at this time.

Thanks, operator, for that.

Thank you, everybody, for your interest in Jones Lang LaSalle, and for joining us on the call this morning. We look forward to talking to you again for our second quarter results. Good-bye.

This concludes today’s teleconference. You may now disconnect.