Jones Lang LaSalle Inc (JLL) 2006 Q2 法說會逐字稿

Welcome to the second 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 reports on form 10k or the year ended December 31, 2005 and in our other reports filed with the SEC. The company disclaims any undertaking to update or revise any forward-looking statements. A transcript of this call will be posted and available on the company’s website within two days of this call.

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

Thank you, operator and good morning, ladies and gentlemen and thank you for joining me today on this review of our results for the second quarter and first half of 2006. With me on today’s call is Lauralee Martin, our chief operating and financial officer. Lauralee will discuss aspects of our financial performance in a moment and then I will discuss market conditions and reports on our continued investments in growth for Jones Lang LaSalle. Finally, Lauralee and I will be happy to take your questions.

To frame this morning’s discussion, let me first review several highlights. Revenues in all of our operating segments increased significantly for both the second quarter and the first half of 2006. Second quarter revenues totaled $510 million, an increase of $185 million or 57% in U.S. dollars and 58% in local currencies, compared to the second quarter a year ago. For the first half of this year, revenues totaled $847 million, up $282 million or 50% in U.S. dollars and 53% in local currencies, compared to the first half of 2005’s revenue.

Net income for the second quarter totaled $66.2 million or $1.94 per share of common stock. Net income for the same period in 2005 was $24.8 million or $0.74 per share. A significant contributor to the year-on-year increase was a $109.5 million incentive fee earned from a single client by our money management business, LaSalle Investment Management.

Net income for the first half was $70.8 million or $2.08 per share which compares to net income of $16.2 million or $0.48 per share for the first six months of last year. Three general trends contributed to these strong results. Firstly, global real estate markets continued to be healthy. Secondly, in this strong market environment, we have continued to strengthen our competitive position by investing in people and infrastructure right across our business. The investments we have already made contributed to these current results. As we will furthermore continue to invest to further advance that trend in the coming months.

Finally, as the incentive fee above illustrates so well, LaSalle Investment Management continues to perform at a very high level and grow at a very rapid pace. Before I turn the call over to Lauralee, let me also mention the fact that we are very pleased to declare and pay semi-annual dividends of $0.25 per share here in the quarter - Lauralee?

Thank you, Colin and good morning to everyone on the call. As Colin has just highlighted, we’re very pleased with the strong results so far this year. Our results benefited from the significant incentive fee earned by LaSalle Investment Management but more importantly, and as an indication of long-term, consistent growth, we also achieved healthy increases in our top line across all our global segments and are achieving the financial objectives we set for the Spaulding and Sly acquisition.

You have our earnings release and shortly, Colin will be highlighting the important accomplishments in our investor and occupier service segments across the globe, as well as LaSalle Investment Management. As such, I will not repeat these discussions, but rather focus on two themes for future profit performance.

This first is the long-term potential for incentive fees earned by LaSalle Investment Management and the second will be an overview of the infrastructure investment now being aggressively rolled out to cost effectively support our growing operation.

I’ll start with LaSalle Investment Management. LaSalle’s research-driven investment approach, together with its successful execution around acquired assets has driven strong growth in assets under management and accompanying advisory fees. These features of our investment management platform, excellent research and execution have also generated outstanding investment performance for our clients, which is rewarded by the firm sharing in this out-performance to incentive fee. LaSalle’s investment approach is based on strategic research focused on early identification of real estate opportunities and trends around the globe. This research enables us to identify and with our strong platform, pursue product opportunities ahead of our competitors. With our strong relationships with investors, built on our global distance approach and performance track record, we can quickly raise capital for research-driven offerings and then expeditiously invest to maximize market trends. LaSalle’s successful performance for our clients is the result of proactive asset management which includes decisions regarding leasing, financing and most critically, when to dispose of assets to achieve top value.

An example of this performance is evidenced in this quarter’s significant incentive fee. For this key client, our leadership into product surrounding their industrial property investment program such as early investments into on-airport logistic facilities, truck terminals and development initiatives has resulted in performance significantly above their benchmark. These activities have been further advanced with the recent acquisition of CenterPoint which extends this strategic research as we gained access to not only an attractive warehouse portfolio in the rapidly emerging inter-modal logistics industry, but also the capabilities to extend the portfolio nationally. We anticipate that this CenterPoint investment will be rewarded in the future measurement period for the client.

The incentive fee from this client exceeded our expectations as the independent appraisals received this quarter recognized the broader market’s interest and acceptance of the product value that has been created. These are values we knew had been created but had anticipated a longer time period to achieve recognition. Although it will be difficult to replicate the magnitude of this fee, we have developed a portfolio of assets under management with the potential for significant incentive fees in the future. Incentive fees are inherently unpredictable because in our funds, the fees are driven by the timing of asset sales in the portfolio and income recognition starts once the investor return hurdles are met and for separate accounts with incentive fees, the fees are calculated using a wide range of client-agreed benchmarks at predetermined measurement periods.

Again, as an example, the incentive fee this quarter is a fee from a separate account with an eight-year measurement period. An inner measurement was completed in 2002 with the final measurement at June 30, 2006. The final measurement was dependent on appreciation for the second four-year period with a true-up for the 2002 measurement. This portfolio will be measured again for an incentive fee in five years.

We are focused on building an assets under management portfolio that provides strong-based annuity income but also can produce incentive fee revenue every year. In fact, many of our clients require that our fee structure include an incentive fee component to assure alignment of our interests with theirs. Currently, we have incentive fee potential in 18 co-mingle funds with asset buying power of $18 billion for which we have profit-sharing potential between 10% and 30% over benchmark and we also have 18 separate account clients with nearly $14 billion in assets under management whose fee structures include the potential for incentive fees.

The investments made by our funds and on behalf of separate account clients are diversified by investment style ranging from core from value add to opportunistic assets and by geographies as they are spread across the globe. Additional details of this portfolio will be available in our updated investor presentation on our website.

The second theme I’d like to discuss today is our commitment to enhance systems and processes globally to achieve a world-class standard for a cost-effective infrastructure. Our goal is to equip our people with the processes, systems and resources they need to create sustainable value for our clients worldwide. We have earmarked approximately $47 million for capital expenditures to be spent between 2005 and 2008 for various projects to achieve this goal. The impact of this spending on our income statement has already begun this year with the expected crossover of operating costs to cost efficiencies and savings starting in 2008. One of our efforts under way is to replace 22 financial and 14 HR systems with a single, integrated global platform for all finance and HR activities. We intend to leverage the new platform to standardized global processes and significantly improve cost efficiencies. The global platform will allow us to provide consolidated management reporting and to centralize services. With such best practice benefits as global information on clients around the world, including client profitability reporting, as well as robust information about our employees who are our number one assets in serving clients.

We have commenced the roll-out process in Asia Pacific with five countries to be consolidated with the U.S. from both finance and HR by year end. We are also implementing a shared services operation to test the leveraging of resources around administrative finance and HR functions. We continue to develop and implement a range of clients facing IT tools and systems which are proving to be a differentiator in the RSP [wins] decision process. For example, one view which is our client dashboard tool consolidates information from multiple systems, both our systems and those of our clients, to track performance of all aspects of a client’s real estate portfolio. This integration capability enables building real estate performance into the client’s own corporate metrics. This robust level of management information is a proven benefit to clients in reducing their cost of real estate spending.

For our outsource facility clients, we’ve introduced a global accounts payable system that allows our client processing centers to pay real estate-related invoices for global clients active in markets around the world. Importantly, with this payment capability comes the knowledge of category spends in vendors which can significantly enhance client procurement savings. The system has the ability to process 20 languages and currencies which enable both local and global client teams to manage budgets and suppliers comprehensively. The system also has improved controls and helps to support Sarbanes-Oxley compliance for clients.

In our project management business, our new one-view project system enables robust multi-project activity management and controls. The robust growth in our U.S. project management business where there system is being rolled out demonstrates the impact of powerful technology tools that serve the client. The operating expense impact this year of these infrastructure initiatives will be between $5 million and $6 million. This amount is in addition to our planned market investment spending of approximately $20 million. Through the first half of the year, we’ve spent $7 million of this combined spend of $25+ million.

In summary, we’ve been focused on growing our business using our competitive advantages in effective execution of our strategies across our global platform opportunities. We are taking advantage of the current favorable real estate environment while we position ourselves to perform consistently in the future. This concludes my discussion. Let me turn the call back to Colin.

Thank you, Lauralee. Let me first offer a few comments about market conditions around the world. The world economy remains on track to grow at around 3.5% in 2006, around the same rate within 2005. We expect that the current economic environment will continue to benefit real estate globally, keep transaction activity high. The record cross-border sales transaction levels reached in 2005 should be surpassed in 2006 as investors seek higher return opportunities outside of their home economy. Domestic leasing and investment sales transaction volumes also remain high in most countries.

Real estate capital flows remain high, although in the U.S., real estate transaction volume did decline slightly in the second quarter, compared to a year ago. That said, new capital continues to flow into U.S. real estate at an extremely high right. Interest in office properties has remained robust, up 17.5% over the second quarter a year ago.

Europe interest rate increases have not yet had any perceptible effect on transaction volumes in part because of continuing strong demand from non-debt-driven investors. In Asia Pacific, lease market capitalization topped $50 billion at the end of June with almost $30 billion of that amount coming from Japan alone, another $8 billion from Singapore. It’s the second largest [weak] market.

Global occupy markets are also healthy in the U.S. strong corporate earnings and healthy balance sheets continue to drive business expansion during the quarter, fuelling positive net absorption across office markets. Chicago, New York, Los Angeles and Washington, D.C. experienced the highest overall net absorption.

Office vacancy rates continue to grow in most U.S. markets, although only slightly ahead of the rate of inflation. New York, Los Angeles, San Francisco and once again, Washington, D.C. are all experiencing upward pressure on office rental rates at a faster rate than the national average.

Over in Europe, office vacancy rates currently average around 9% across the region where vacancy is particularly low in Moscow with under 2%. The highest vacancy rates are in Amsterdam, Frankfurt and Stockholm, all of which are still above 50%.

Fourth run quarter growth and rental rates for prime office space averaged around 2% in major European markets with the highest growth rate in Dublin with 9%, Madrid, 7%, London’s west end at 6% and [Dutrest and Warsaw] at 5% each. In Asia Pacific, strong global economic growth is producing solid tenant amount in the Australian office markets and elsewhere in the region, global and regional growth continue to support office markets across the Asian region characterized by its pipe supply and robust amount of expansion. On balance then conditions in global real estate markets continue to be very favorable for our business.

In addition, strong markets signal a good time to invest in growth. To drive future growth, we continue, as a business, to invest across our operations, focusing on five major areas. They are firstly, strengthening our local and regional service operations, expanding our three global service delivery lines, global corporate solutions, global capital markets and LaSalle Investment Management and finally, we are establishing the world standard for client service delivery in our infrastructure.

I’m going to focus these further comments on the first four items because Lauralee has already covered the fifth priority in her comments. Firstly, then the local and regional service operations. Our global service capabilities and much of our total revenue and profits are produced by our people in markets around the world. To continue to grow, we continue to invest in these local and regional markets and in the talented people who work for us there. In the Americas, our investment in Spaulding and Sly is generating results which are well in line with our expectations. We are beginning to realize synergies from our combined operations in New England and in Washington, D.C.

In Boston, for example, in the first quarter, we were awarded the leasing assignment Seaport Center, a 465,000-square-foot office building and one leasing and management responsibility for 99 I Street, a 730,000-square-foot office park. In Washington, Jones Lang LaSalle was named Leasing Agent for Republic Place, a 215,000-square-foot office building at 1776 I Street and for 1250 I Street, another 173,000-square-foot office property.

During the first - sorry, during this quarter, we also invested in our U.S. capital markets business, adding multi-family investment sales to our capabilities. We hired a team of two experienced professionals in south Florida, who are developing a strategic, multi-family program while also handling investment transactions in Florida, one of the top five growth markets for residential real estate in the U.S.

Our Americas hotel business recorded a very strong second quarter performance. Our select service division which focuses on transactions in the rapidly-expanding mid-tier segment of the hotel industry played an important role in delivering these results. We established our presence in this market a year ago with another growth investment, the acquisition of Thomson Calhoun Fair.

In a different segment of the U.S. hotel market, we arranged sale and buyer’s financing of the Hualalai Resort, Hawaii’s most exclusive master plan resort community. It’s centerpiece is the Four Seasons Hualalai Resort, an irreplaceable, trophy asset. With a total capitalization of nearly $1 billion, this transaction ranks as one of the largest deals in U.S. history, U.S. hotel history. Our hotel group and real estate - America’s real estate investment banking team collaborated on the transaction.

Turning to Europe, in the UK, we completed the acquisition of Rogers Chapman, a specialist real estate advisory firm with a particularly strong market position in the west of London and the Thames Valley. The move helps us achieve greater market penetration and improve our client delivery service level. Our new colleagues from Rogers Chapman have already begun to contribute to our business. Regis, a global provider of outsource office space, recently expanded our relationship, adding the role of UK real estate advisor to our existing responsibilities as advisor on the company’s portfolio and acquisition program in the rest of Europe. The pursuit of the new business was led by one of our new colleagues from Rogers Chapman.

In another UK investment, we acquired the Litman partnership, a specialist planning business to advance our strategy of building a market leading, UK planning and development business. The Litman partnership is currently advising on one billion pounds’ worth of development business in the retail, residential and mixed-use sector.

Elsewhere in Europe during the quarter, we invested in new offices in [unintelligible], in Spain, in the Ukraine capital of Kiev and in our [unintelligible], the capital of [unintelligible]. In addition, to meet the needs for additional space in London, we are currently planning or finalizing plans to open a third major office in Canary Wharf.

In other second quarter highlights from Europe, in the Netherlands, UBS global asset management rewarded us a leasing instruction in The Hague for nearly 280,000 square feet, part of the [unintelligible] head office complex. In Poland, we [unintelligible] and the acquisition of the metropolitan complex in central Warsaw. The metropolitan is a mixed-use asset totaling nearly 400,000 square feet.

Moving to Asia Pacific, we continue to invest in growth markets in the region. Since establishing our first office in mainland China, in Shanghai in 1994, we have steadily expanded our presence to our current total of offices in 17 Chinese cities. Most recently, our team in Shangdu moved into a new office in Plaza Central, the first single-owner, Class A building in the city’s central business district where we are also the leasing agent. Shangdu is the Capital of Szechwan province, the rapidly-growing gateway to Western China.

Our operating license in Vietnam was recently approved and we now have a managing director and team on the ground in Ho Chi Minh City. In India, a consortium of Jones Lang LaSalle and PricewaterhouseCoopers was selected as financial consultant of a 2010 commonwealth games and deli. Here, we’ll provide development planning and exposal advisory of services of a games village.

In Indonesia, we were awarded management and leasing responsibilities at Grand Indonesia, a new mixed-use development in Jakarta that will combine the City’s tallest office tower with a shopping mall, entertainment facility, high-end residential tower and a five-star hotel. We will be providing property management services for the shopping mall and leasing and management services for the office tower.

Our second major investment priority is to continue to build our global corporate solutions business. We intend to remain the leading supplier of corporate real estate services for medium and large companies worldwide, including multi-nationals, large regional companies and medium and large national firms. During this past quarter, Experian, the global provider of information solutions and analytics appointed the company’s real estate provider across Asia Pacific and Europe, excluding the UK. We will provide tenant representation and project and facilities management services for Experian.

We also expanded our relationship in the quarter with Nortel. We already provided transaction services to this global communications company in Asia Pacific and as a result of this win, we will also deliver transaction services and integrated facilities management services in Europe as well.

Our third investment priority is to become the world leader in global real estate capital flows. In pursuit of this goal, we formed the International Capital Group a year ago. This is a dedicated team of all very experienced and senior professionals from our firm who focus their time exclusively on serving the international portfolio needs of clients with large investment allocations and global investment horizons. Second quarter wins in which the International Capital Group played a role, confirmed the value of this investment. In the U.S., for example, we completed the $79 million sale of New York’s historic Scriber Building on behalf of the Benetton Family of Italy.

In Chicago, we represented MetLife and [Gino] Asset Finance in the $255 million sale of One Financial Place. The one million-square-foot, Class A office park. In Europe, the International Capital Group represented four client [unintelligible] real estate in the sale of three portfolios in Germany. In property retail portfolio, office portfolio consisted of four properties and the logistics portfolio of 11 billion. The combined sale prices for the three transactions totaled more than 927 million Euro.

In Asia, we represented [unintelligible] Teller Group on the disposal of [unintelligible] Towers, a two-tower, 320,000-square-foot office building in a prime location in Bangkok central business district. The $18 million sale price has a record with a Bangkok office market.

Our global hotels business was also very active during the quarter. In addition to the Hualalai transaction mentioned earlier, we represented intercontinental hotels in the sale of seven trophy hotels in Europe and in New Zealand, we represented the Carlton Group Hotels in the sale of Carlton’s Hotel Auckland and the Abacus Property Group - sorry, who the Abacus Property Group of Australia.

Our third global service line is LaSalle Investment Management. LaSalle is already a successful global business and as you heard earlier in today’s call, has achieved really exceptional results to date this year. LaSalle’s assets under management currently $37 billion, a figure which includes $6.7 billion in our fast-growing public securities business. By the end of the second quarter, we had raised $2.2 billion in capital, substantially above our original mid-year target.

Despite the highly competitive global buying environment, our capital placement activities have proceeded as planned with year-to-date global investments totaling $6.4 billion, including the CenterPoint transaction. Investments in Asia total approximately $1 billion so far this year and include our first acquisition in greater China.

During the quarter, we launched new continental European property fund in partnership with Morley and Management. This fund named Uncle Plus is a new open-ended vehicle which will invest across continental Europe. We also continue to deliver strong investment performance to our clients and our private equity business, our competent performance in each region exceeded developed benchmarks and our global public equity business, our performance for the three, five and ten-year periods now exceed industry benchmarks.

But to sum up strong global market conditions support our prospects for additional success across our service lines. That success enables us to keep investing in the future growth of the firm and finally, we believe that our growth initiatives will improve our competitive position and strengthen our business for the long term. So, with these comments, we would now like to take your questions. Operator, would you please explain the process?

[OPERATOR INSTRUCTIONS] Your first question comes from the line of Matt Litfin.

Hi, good morning.

Good morning.

Congratulations on a solid quarter. Question on your systems investments. Basically, my question is, what’s driving this? Is it that you can afford to do this because of the strong results this year or do you feel like these investments would have to be made either way? In other words, I’m asking why now?

I think the answer to both those questions is a yes. Our strong performance enables us to pay for them but quite honestly, the success of the growth around the firm means that number one, we want to connect it more tightly and the robustness of the activities requires a much larger level of processing to deal with it than what you have when activity levels are lower. If you think of the number of countries we’ve added and offices that we’ve added and the fact that historically, the financial systems were done really locally and then connected, it means that we can’t drive to the first quartile of finance costs or HR costs and also, we can’t drive to the level of compliance standards that we’ve set for ourselves on a growth path, in terms of Sarbanes-Oxley and consistency.

So, yes, we need to be cause of our success and we can also pay for it and our view is that we will be very well positioned within a short period of time which then allows us to drive infrastructure costs down because of those successful investments on a go-forward basis.

Matt, I’d also add that we first announced our intention to make these investments about 18 months ago and so we’ve been planning for the intervening period but what we’re describing now is very much us getting deep into the implementation phase. So, this isn’t about we just had a good quarter, so we started investing in infrastructure. It’s been a planned thing for a period of time.

That’s helpful. I had an unrelated follow-up on Rogers Chapman and about the acquisition market generally and globally. What trends are you seeing acquisition pricing and where do we stand today, in terms of EBITDA multiples and the industry versus historical trends?

Well, I think the answer is to most markets today is they’re probably at the high end of the their historical trends principally because of the performance levels of these firms. Our process has been very disciplined. There is a price that we feel we can pay, number one, to achieve the required return on equity hurdles to have them be accretive to EPS and have them be synergistic to our own operations and we’ve been successful at that. We have announced with Spaulding and Sly that that was bought at a price to a discount of EBITDA multiple and we continue to have that as a factor, as we look at other acquisitions, including the Rogers Chapman.

Okay, thank you.

As to the sort of things we’re buying, we’ve been clear about our five major priority areas, in terms of where we’re investing strategically, so acquisition - and the acquisitions we make fit with those strategic priorities and we’re open, at this point, to look at further acquisitions generally, in size small to medium inside.

Great, thank you.

Your next question comes from the line of David Gold.

Hi, good morning.

Good morning, David.

If possible, I wanted to see if you have a little bit more help on the incentive fee side, just understanding that. I guess if we go back a quarter in telegraph about a $60 million number with a 40% margin and I’m just kind of curious on two things. One, it looks to me like that 40% number might be a little low, given that it was so much bigger. Can you help us with that a little bit?

Sure. First of all, it will stay about the 40% number and for a number of different factors. The client puts in place a team sharing and that is just a percentage of the revenue and so as the fee goes up, that percentage stays in tact. We also have a number of plans that are long-term, relative to the management because this is a long-cycle business that this will feed into as well as the overall business performance. So, the 40% roughly is still valid.

So, is that what you truly experienced on that one? Was it 40%?

With rounding - because there’s a mathematical of lots of different compensation programs but you’re going to be within that range.

Okay and just, yeah, based on the upsize profitability with business, from a distance, it looked like it might have been closer to 45 [unintelligible]. So, for 40 for sale, fair and I guess you could go over a little bit - this was not the normal - your normal measurement periods are a little shorter than eight years, right?

Yes and this did have an interim measurement period at the four-year mark.

And but the $109 million or so, the next - that’s done for the year. The next true-up isn’t for a couple of years, so we’re, you know, in other words, I thought you had mentioned that it could be - it was subject to an additional true-up.

It still needs to be audited. We’re not expecting that the audit will be anything materially different from that which is why we’ve focused on the appropriate recognition. The next measurement period for the client will be five years from now.

Okay and then I guess if you could add a little bit more color as to presumably, one would think you guys would have a pretty good handle on you know, sort of on the performance over the years and just, you know, how it was just so much more profitable.

Yes, I’d be very happy to do that. We’ve repositioned that portfolio on behalf of the client both through some successful dispositions which was part of the true-up as we looked at it because when you’re actually then make the sales, that confirms what might have been in the previous appraisal amount. Additionally, there’s been a number of large acquisitions.

We’ve talked about those in previous quarters where fees have made for the acquisitions. In the early research and particularly things like the - in [Carmack] investor portfolio and some of those other things that are in the more industrial space that we were leading, in terms of the research, we knew the value was going to be there. We didn’t expect that we could get as much verifications through the appraisal process as what ultimately happened. So, it was more that we were expecting that a piece of that would roll into the next period rather than being able to be recognized in this period. The marketplace clearly has recognized our research and that is very good for our client because it meant that the appraisals came in significantly higher on those properties, in particular, and then our incentive fee is a sharing of the value that we’ve created for the client.

Okay, all right. That’s helpful and just one other minor on incentive fees. Are there any other big ones on the pipe for this year?

We would expect some modest additional activity through the balance of the year but unless there is an acceleration of active dispositions, we would not expect any large ones.

Okay, all right and then if I can, for one second, just shift over to Asia, margin there even excluding that litigation settlement was off a little bit year to year - and I know you’re making some investments there - was curious on your thinking as to, you know, when we might see a return to margin growth, so to speak.

We’re expecting a fairly healthy year from Asia Pacific.

Yeah, what we’ve done, David, is you can hear the number of offices we’ve added, for example, that Colin described and that clearly adds space, technology, telecomm, as well as we significantly added, in some of the large markets in Asia, like a Shanghai, teams of quality people there that respond to what is very robust activity in the marketplace. So, because we tend to be back-ended on revenue, those investments are in and clearly deteriorate the margin.

To Colin’s point, we expect that we’re going to have a strong year end and you know, whether we’ll get it all in the fourth quarter or it starts rolling into the next year, will be a little bit dependent upon market transactions but we’re very comfortable that the investments we’re making will have margin and profit growth for the future.

Very good. Thank so much to both of you.

Thanks, David.

Your next question comes from the line of Jennifer Pinnick.

Good morning.

Good morning.

The $7 million of the $25 million of intended spending for growth, where’s it been spent so far and can you also remind us of the magnitude of investment spending in last year’s first half for comparison purposes?

Oh, gosh, it’s been spent across the broad seas of our businesses with no particular regional emphasis. We’ve mentioned our growth market where we’ve been investing particularly heavily across parts of the U.S. The investment sales business in Moscow, in India and China and Japan and so the investment funds have been spread broadly across our worldwide portfolio of activities and [unintelligible] focus, it’s been in the areas of - where we see rapid, long-term economic growth in emerging markets.

We’re a little bit behind in the sort of paces. [We’re] on an even-paced basis for the year. Our figure for last year in total was just under $20 million but I can’t tell you how much we’ve spent at the half year.

Last year was a little bit under $5 million.

Okay.

Your next question comes from--.

--Oh, I have a follow-up - I’m sorry.

Okay.

Of the remaining $18 million, how do you expect that to play out in Q3 and Q4?

The infrastructure spend tends to be pretty even and that’s about a third of the spend because it’s very much a process spend, so you can predict it. The in-the-market spends are really as quickly as we can add people because that’s the majority of the spend. So, where we’ve aggressively invested into our capital markets activity, our goal capital markets activity, you know, we need to get the people. It’s the cost to bring them on board. So, it will back end a little bit, which is what you’re seeing in that piece of the spend because that’s about two-thirds of the spend that we’ve had so far and clearly, the majority of that spend is still to come.

The way we think about this investment spend is particularly around people. The first year, there’s a cost to have them in our system. They’ll produce some level of revenue but not nearly to the cost to bringing them on board or their compensation in that year. In the next period of time, sort of 12 months later, they pay for themselves, so it’s relatively margin neutral. They might have a small margin positive and then after that, they perform at the margin of our business. So, investments last year made - which in total, were a little under 10 - this year, are principally in that margin-neutral stage. Our new investments are in the margin-negative stage and then as we build forward, they move into the margin-positive stage. Does that help answer the question?

Yes, it does. Can you also discuss the competition for talent and pay packages, perhaps any sort of cost inflation you’re seeing there?

Well, you can imagine that with the real estate markets being as we described them, which is healthy to robust around the world, there is significant competition for quality talent, quality specialists in all of our markets worldwide; be it investment sales, be it our agency, leasing business, asset management business, or hotels operation, for example. There’s significant competition for talent. That means that we, ourselves, are subject to attack, as it were, for - by our competitors and our quality people are subject to potentially attractive offers to move away and to counter that, we work very hard within the business on ensuring that we are - we provide an attractive work environment, we provide an attractive work culture, so our people want to stay with us and we also ensure that particularly our top professionals and compensated at a level which makes them difficult for other market actors to hire away.

Conversely, we, ourselves, obviously, are in the market constantly hunting for talent. We are growing our business at double-digit rates across all activities across the world, so we are hungry for good people. We generally find that we are an attractive place to work. Our reputation is high worldwide. The balance is talent is flowing into the business and not out of the business. So, we say we’re doing - we are an attractive place to work.

As far as what we offer people to join us, apart from working for the top real estate advisory business and the top investment management business in the real estate market around the world, at least in our estimation, we offer them market-competitive packages but what we will not do is pay at excessive rates which we don’t intend to sustain with those people what would stress our existing internal compensation structure.

Thanks and the last one is can you quantify the cost savings from the $5 million to $6 million of investments that you expect to receive perhaps on an annual basis in ’08 and beyond?

I think that’s it’s a little premature but I can talk to you about it, in terms of our targets and percentages. If we were to look at our finance costs on a global basis, we would put ourselves in the third quartile of performance and for a footprint of ours, it would be difficult probably to be in the top quartile just because the number of products and geographies that we serve but we clearly should be in the second quartile and that is worth probably about a percent of revenue.

If we then take the same thing into HR, you’re not going to have quite those dynamics but you’re still going to have about a half a percentage of revenue, if you look at global metrics. The other piece of that is what we do know will come out of compliance costs is for those of you that probably get more information than you want to hear about Sarbanes-Oxley, it does require that certifications be made around processes and whenever those processes are different, it means that you have to handle them separately because if a system is there, it has to have its own verifications for - distinctly, versus if you have one system, you can do it across the globe. So, this will be able to allow us to do everything centrally, even to have to have our outside auditors do a great deal of their verification from a central location, seeing it all online because it will be built into the system.

So, that’s a long answer that probably says it’s worth, you know, somewhere 1.5%+ of revenue on a sustained basis.

Thank you.

Your next question comes from the line of William Marks.

Hi. Yes, good morning, everyone. Okay, so I had a couple of questions. One on the way this - the incentive fee is put on your financials. It looks like it’s being held as a receivable. Is that correct?

That is correct because we bill the client and then we need to collect it. So, at this point in time, there’s accounting recognition. We bill the client and then the funds will come in. So, yes, it is a receivable.

At what point will the funds come in would you expect?

The answer is contractually, they’re not required to make the cash payment until the audit is complete, which would probably be late third quarter to early fourth quarter, however, our discussions with the client are such that we believe that we will receive a fair portion of that payment prior to that, just because of the recognition around it.

That’s fair.

So, we expect to receive some level of cash this quarter that we’re currently in.

And this would be the main reason, it seems like you have a much higher current account surplus than normal. Is that correct?

That’s correct. There’s two large components. One is that particular receivable and I’m not sure if you’re doing a date sales outstanding calculation or not but because we now have Spaulding and Sly in our numbers on a receivable basis but we don’t yet have them in the 12-month revenue calculations against that. You do get some uplift because of that as well, just in doing the math.

Okay, thank you and speaking of Spaulding and Sly, my next question relates to - I know you made comment on the call about business seems to be going well there. It does seem like, as a percentage - I know you - I don’t think you’ve given guidance or you gave any revenue number of what Spaulding and Sly is supposed to do or what it has done in the past but it seems like it would be heavily weighted for the second half, their business. Is that correct?

Actually, Spaulding and Sly is not as seasonal as our business. I think part of that is their significant operations in the D.C. market and their work around government and life sciences and some of those businesses. There is some second-half increase in activity, as there is in our entire industry, but not to the extent of the Jones Lang LaSalle legacy operations relative to those.

The other thing I would remind you is that they have a commission program and so you get a more even spreading of their contributions to our actual operating income margins versus the base bonus of the Jones Lang LaSalle model.

Okay, I think that’s good but I guess, if I looked at the numbers, I think you’re giving us the revenue numbers for Spaulding and Sly by saying the percentage of the growth in the Americas revenues and so I believe that if you add the first two quarters together, it’s around $40 million and based on what you paid, $150 million up front and then more later, that seems like a - if it’s not that seasonal, it seems like a fairly low revenue number. Is this a much higher margin business than your normal business? I feel like I was projecting higher revenues than we’re getting from that business.

I think a couple of answers. You do have some seasonality so you can’t just double it, but not to the extent of Jones Lang LaSalle’s fourth quarter. It’s more evenly spread.

Okay.

And the second answer is it is a healthy margin business because of the product types that it’s in. We did talk a little bit about that when we did the acquisition and we can go through it with you again but the answer is yes, they run a nice, healthy margin business between their leasing, their capital markets activities and their project and development business.

Okay, great and one other question - and I don’t want to beat a dead horse on that $25 million but I just want to confirm something. Is all that, in terms of your investment spending, is all that on the income statement? Is any of that capitalized? And then in addition, should we - what should our assumption be for CapEx for the company?

Three questions there. First of all, the numbers we gave you in the $25 million is an apex number. When I talk you about the three-year spend relative to infrastructure, for example, that $47 million, that is a CapEx spend that will be spread throughout the three-year period. We had earlier, at the start of the year, given a CapEx guidance this year for about $70 million which has in it a number of larger items. One is our headquarters building here in Chicago where we have extended and signed a lease and our rebuilding our space here as really a showcase for our alternative workplace design consulting practice for our business and the business that we sell to our clients is the best way to optimize your real estate. But the CapEx that goes with that is healthy and we also will have CapEx in the announced UK activities going to Canary Wharf, as well as some of our headquarters buildings there.

So, we’ll be spending probably about $75 million in CapEx this year which is a combination of our technology and then the other large piece of it is around space movement that are being made, we think, again, at a good time in the market, positioning us for the future to have the best in that spend-class category as well.

And when will that drop, that $75 million next year or any--?

--Yes, it would come down significantly because of the large amount of spend that we have this year for both resold improvements and the furniture to fixtures that go with that.

Of our CapEx to date, which is about $29 million, $15 million of that relates to lease holds and lease hold improvement activity.

And none of it relates to real estate investment spending, right? That’s separate.

That is separate. We did have an increase this quarter. We’ve reached, really, a high for us in terms of our co-investment activity with our clients, it’s $114 million. The largest portion of the increase that came in this quarter related to our co-investment with our client relative to the CenterPoint transaction.

Okay, great. That’s very helpful. Thank you, Lauralee.

Your next question comes from the line of Christopher [Merrillton].

Yes, hi there. I just wondered whether I could ask Colin and Lauralee on Europe. Could you just give a little bit more detail about the momentum - you mentioned Germany and France both strong [unintelligible] and intense level of profitability there and second, just follow up on that. Could you just give a little bit more detail about the UK, just like the surprise to see [the impact] on the quarter it’s at because of some [unintelligible], that’d be very kind.

Okay, Europe continues, in our estimation, the markets continue to be healthy on the investment sales side. You’ve seen the total of investment sales to pick up healthily year on year again. Leasing across the European market is also on the increase. The volume of leasing transactions, as corporates, generally are feeling confident and as economies continue to pick up their growth rates - general comments across Europe.

In terms of specific economies, yes, France and Germany are recovering very nicely. In both cases, our capital markets investment sales business have been strong in both countries. Our eastern European business has been combined Moscow, Russia and Central Eastern Europe, have also had a strong - are showing strong growths in the quarter. Britain has had a relatively black quarter. You should look at the half-year numbers because we had across in Europe, indeed across the whole of Europe, a movement of [unintelligible] between the first and second quarters between 2005 and 2006. But in general, the picture of sort of the British market, the English market remains robust and we’re confident for healthy growth for the full year.

So, if one was to take the 11% growth, say for the UK, year over year, for the first half, that would be - you’d accept that [unintelligible] for the rate going forward?

Well, we wouldn’t comment on specifics but recall what I said that we expect a good level of growth in the British market.

Okay and just to the level of specifically on Germany where, if I’m right, I think profitability levels are [unintelligible] by historical standards. Are you seeing that pick up significantly?

Yes. You’ll recall that we installed a new country manager in Germany in April 2005 and he has made a significant difference in re-energizing the business. We have recently hired in a new head of our capital markets investment sales business who is a gentleman whose worked with us previously and has returned to Jones Lang LaSalle Germany after a period in Spain and similarly, we’re reinforcing the business and has continued, indeed, in the first half of this year with the final part of changing some of the - from the full [unintelligible] of senior people in the company.

The markets themselves are healthy in Germany, in particular, in the investment sales area where the period of very low levels of investment sales which surrounded the drop-in values in German real estate has ended and you heard us refer to some of the portfolio sales we’re carried out in Germany on behalf of some of our German clients in very big sales in the course of this year. So, there’s been a significant boost particularly in the investment sales line in our German business.

Okay, that’s great. Thanks.

Your next question comes from the line of Rich Wilson.

Hi. Congratulations on a good quarter. Just a question on the Americas division - I’ve read in the press release that you had a 59% increase in transactional revenue, however, I presume Spaulding and Sly is in there and obviously, there’s - I think, in general, the Americas transactional revenues have a heavy concentration towards tenant rep. So, my question is, if you X out all of the above, what is actual investment sales/agency leasing on an organic basis? What’s it growing in Q2 relative to, let’s say, a year ago and indeed, the first quarter?

I think probably the best way to answer that is just the mix of Spaulding and Sly’s transaction activity looks relatively similar to our U.S. activity, so the - kind of the relationship in growth that we gave you on the total not exactly hold true but barely hold true. What we had in terms of leasing transactional activity in the first quarter was a couple of things.

Our tenant representation business, our Alliance clients have been performing at an extraordinary level. A couple things, last year, we were disappointed with that level of activity as a number of our clients either were in the middle of consolidations or had delayed some of their space decisions and that has now been realized. So, we’re benefiting from that, some of which are large transactions in the first half of the year and you know, I think the other piece is the move to the markets approach to business that was done in the Americas which means that we’re starting to see that success of that re-orientation as we get activities in those local markets at a more robust level.

So, we are very pleased with the year-over-year performance and actually the movement continued in our core operations even without the Spaulding and Sly and obviously, they’re a nice, healthy addition.

And just to be clear, investment sales, would that be up on the year-over-year basis and on a sequential basis or is the gradual slow-down that has been very well telegraphed, is that continuing or is the slow-down not so gradual with investment sales?

Our investment sales business is up year on year.

Is up year on year?

Yeah, the reference to slow down was the point I made about the market as a whole where we said that, in a slight decline in the levels of investment sales in the second quarter, year on year.

Right.

But our business was up which by deduction means we took market share.

Okay. Okay, thank you.

Your next question comes from the line of Rob [Smaten].

Good morning.

Good morning.

Good morning.

Just had a question or two or margins and the investor and occupier services area. You talked about a lot of the drivers here but they’re, you know, they were down in each region in the quarter and kind of mixed year to date. I’m just wondering if you have a sense - and I know the fourth quarter is the big factor for those areas but do you have a sense with all the spending initiatives that you have going on, do you think you can still see some margin growth in these areas for the full year or do you think we may be flat to down because of some of the growth initiatives you have going on?

We’re expecting - we explained to you some of the factors which, for example, the way we accrue our bonuses, which in a very conservative approach, could cause the margins to be visually depressed in the first and second quarters in the way you’ve described. Our expectation for the full year, as we’ve indicated, is that we expect our margins to be robust and we are confident on the picture for the full year.

Okay, thank you.

Your next question comes from the line of Will Marks.

Yes, I just - a couple of follow-ups. On share repurchase, have I missed something? Have you commented on that?

I didn’t. We did a modest amount of share repurchase. We purchased 155,000 shares in the quarter which brings our year-to-date amount to 280,000 shares.

And can you give an average cost?

I can. Year to date, it’s just a touch over $20 million.

And how much is left in the program and do you plan to stay active?

We still have 900,000 shares left in the program. We’re not as aggressively buying, as you can see by the numbers year to date, as we have in the past, principally because we constantly evaluate how to optimize the use of our cash and at the moment, we’ve been focused on the opportunity of either the acquisitions we’ve done like a Rogers Chapman, the co-investment capital for LaSalle Investment Management that significantly grows our assets under management, as well as looking at the CapEx spending for some of our infrastructure programs.

So, we will continue to use our program opportunistically but probably not just because of the cash evaluation as aggressively as in the past.

Okay and on the [unintelligible], is that on - did you ever give the size of the portfolio where you took the $109.5 million fee just asset value?

No, we have not.

Okay and then just lastly - you may have mentioned this as well but you’ve had the last two quarters have been a decline on the management services in Europe and I’m forgetting why that revenue has been declining.

Yes, there’s a very specific reason. We had a management contract in our Swedish business that had gone back some five years, the terms and economics of which we were not happy with. We have exited the majority of that contract and restructured the remaining part of it that we have, so what you have is the decline in the revenue but in fact, the profitability of it, as it flows into our operations is actually up.

Great. That’s perfect. Thank you very much, Lauralee.

At this time, there are no questions.

Thank you, operator. Since we have no further questions, then we’ll conclude today’s call. I’d like to thank everybody who participated and for your continued interest in Jones Lang LaSalle. We look forward to speaking to you again at the end of the third quarter. Good-bye for now.

This concludes today’s conference call. You may now disconnect.