Jones Lang LaSalle Inc (JLL) 2007 Q2 法說會逐字稿

Good day and welcome to the second quarter 2007 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 statement as a result of factors discussed in the Company's annual report on Form 10-K for the year ended December 31, 2006, and in other reports filed with the SEC. The Company disclaims any undertaking to update or revise any forward-looking statement. A transcript of this call will be posted and available on the Company's Web site 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. Good morning, everybody, and thank you for joining this review of our results for the second quarter and first half of 2007. With me on today's call is Lauralee Martin, our Chief Operating and Financial Officer. Lauralee will discuss our financial performance in detail in a moment, and then I will discuss market conditions and report on our continued investments in growth at Jones Lang LaSalle. Finally, Lauralee and I will be happy to take your questions.

To start, let me give you some headlines. All of our segments delivered strong operating results in the second quarter. Quarter-two revenues totaled $676 million, a 33% increase compared to the second quarter a year ago. Year-to-date revenues were $1.2 billion, a 38% increase over first half 2006 revenues. Net income for the second quarter totaled $77.9 million, or $2.32 a share, compared to $65.7 million, or $1.94 per share in the second quarter a year ago. Year-to-date net income was $105.2 million, or $3.12 per share, up from $70.3 million, or $2.08 per share for the first six months of 2006.

So for more background on these numbers, let me now turn the call over to Lauralee.

Thank you, Colin, and good morning to everyone on the call. As Colin has just highlighted, our record results for both the second quarter and first half of the year confirm by performance our growth investment decisions of the past several years. Our three regional segments had strong top-line growth, the results of continued healthy market conditions, and the timing and size of the transactions that closed in our services businesses in the quarter. LaSalle Investment Management continued their outstanding performance, benefiting from both capital raised activity and investment performance. In the Americas, operating income for the second quarter of 2007 was 19.1 million compared with 7.7 million a year ago, with significant operating margin improvement year-over-year for both the second quarter and year-to-date.

Since late last year, we have maximized market consolidation activity by adding almost 80 strategic market hires. The excitement and the energy of our people in building stronger positions in each of our targeted markets has resulted in healthy client and business wins. Despite the increase in organic growth investment spend for new staff, we again benefited from an increased number of large transactions in the second quarter as compared to a year ago, which has enabled us to maximize productivity and, therefore, cover both these increased costs while also enhancing margins.

This quarter we closed 12 transactions greater than 1 million, compared to only three in the second quarter of last year. Our transaction pipelines indicate continued short-term growth, while our recent global and regional client wins in the United States, which Colin will cover shortly, indicate stronger longer-term growth, as these have yet to be fully transitioned into our financial performance.

As we highlighted in our press release, we have achieved strong performance advances in capital markets, which is rounding out our global offer in response to the increasing cross-border investment activities. Last year, due to large staff increases, we were in a loss position in capital markets in the United States at the end of the first half of the year, while this year we have healthy double-digit margins and are exceeding our internal plan.

In EMEA, operating income for the second quarter was 15.2 million compared to 5.3 million a year ago, and for the first half of 2007 was nearly 30 million, compared to operating income of less than 1 million in the first half of 2006. The strong 2007 results were mainly due to the growth in our capital markets volume across the region, which resulted in revenue increasing nearly 80% for the first half of 2007, and up 45% for the second quarter compared to 2006.

Capital market volumes in the European markets overall increased at a rate of approximately 8%, indicating that we have captured an increased market share as a result of the success of our regional and global teams. We've added almost 100 capital markets fee earners in EMEA in the last 12 months, with the additions coming from both market hires and acquisitions. Our leasing and tenant representation volumes continued to grow, led by growth in the UK. We have increased the size of our teams throughout the EMEA region by approximately 110 compared to this time last year. Total market take-up was relatively flat for the first half 2006 to 2007; however, our volume of transactions increased over 20% during the same period.

During the quarter, two acquisitions were completed in EMEA, a project and development business in England, and Troostwijk Makelaars, which will give us a dominant position in the Netherlands. The results and integration of the acquisitions completed in the region in both 2006 and the first quarter are performing in line with our expectations. These acquisitions have added to year-over-year revenue growth by approximately 5%; however, the contribution to the bottom-line is minimal to date due to the impact of purchase accounting. We are expecting more significant operating income contributions to commence next year.

In Asia-Pacific, our operating income for the second quarter increased to 44 million in 2007 from 3 million last year. As mentioned in the press release, the regional results were driven by a significant hotels transaction advisory fee on the sale of a portfolio of 13 assets in Japan for ANA. Excluding the hotels transaction, the Asia-Pacific region accelerated its momentum with very strong growth in revenue, together with a strong improvement in margins, as the platform built starts to be supported by the strength of the scale in revenues. In particular, we had robust transactional growth across the key geographies. Regional and international investors accelerated their cross-border activities and interest in the region, and our teams were prepared to respond, completing over 130 capital market transactions in Asia-Pacific, excluding hotels, worth 2.6 billion through the first half of the year.

LaSalle Investment Management, our leading global real estate money management business, completed another strong quarter of capital raised, capital investment and investment performance. During the quarter, LaSalle raised 2.8 billion of equity, bringing the year-to-date total to over 4.2 billion. Global securities accounted for 2 billion of the raise, with almost 35% of this amount being raised from new accounts. The balance of the capital raised continued to reflect investors' strong interest in Asia, where we are in the market with two funds. We are also anticipating to be oversubscribed for funds for both the South American fund as well as a value fund in the United States. LaSalle's investor client base is strongly institutional, and they continued to demonstrate interest in real estate as an asset class, as well as seeking to (technical difficulty) their investment allocations.

La Salle has invested 3.4 billion of capital on behalf of clients so far this year, with nearly two-thirds being invested in the second quarter. The pace of investments has been increasing throughout the year, and with less market pressure on asset prices, we expect the investment activity to increase, as pipelines are strong.

Advisory fee, the core revenues which provide a solid annuity, grew over 26% for the quarter and 33% year-to-date over 2006. The continued growth in advisory revenues was driven by healthy increases in assets under management, which increased to 45.8 billion at the end of the second quarter, an increase of 26% from 2006, together with a market willingness to pay on fund commitments.

Incentive fees were nearly 30 million for the quarter and 52 million for the first half of 2007, as several funds that have exceeded their hurdle rates continued to liquidate. We still have assets remaining to liquidate in these funds, but we do not expect incentive fees in the second half to match the first half-year's performance. The Firm continues to build a portfolio able to generate recurring incentive fees, although the amount and the timing of the fees will continue to be highly variable by period.

With regard to our balance sheet capability, we amended our revolving credit facility in the second quarter, improving our pricing while also increasing our borrowing capacity to 575 million. During the quarter we generated EBITDA of 123 million, bringing our year-to-date EBITDA to 175 million, a 15% EBITDA margin. The primary uses of cash this year have been acquisition activity at 67 million and CapEx of 45 million, as we continue to expand offices and invest in technology.

In line with the Firm's strategy, the aggressive investments we've made over the last two years have started to have positive results. However, we don't expect the full impact to profits until 2008 and 2009. In conclusion, we remain focused on growing the business, servicing existing clients, winning new client opportunities, and expanding our markets and product capabilities.

This concludes my discussion. Let me now turn the call back to Colin.

Thank you, Lauralee. First, then, let me comment on market conditions around the world.

Estimates of 2007 world GDP growth range from 3 to 3.5%, a slight slowdown from 2006. Growth is expected to total 2 to 2.5% in the U.S. this year, 2.6% in the Eurozone, and between 11 and 12% in India and China.

In the capital markets, our research indicates that global direct investment in real estate totaled a record $382 billion in the first half of 2007, a 17% increase over the first half of 2006. Investments grew 32% in the Americas, 8% in Europe, and 12% in Asia-Pacific. Globally, we continue to see large amounts of capital targeting real estate, although investors are becoming increasingly selective about markets.

U.S. debt markets have been unsettled, but a great deal of debt is still available for financing transactions. Treasury yields have risen, spreads have widened, and underwriting standards have tightened, leading to restrictions on the number and aggressiveness of leveraged bidders. We are seeing some edging down in top asset pricing, some slowing in execution, and a move away from lower-quality assets. But transaction volumes have not been noticeably impacted.

UK capital markets continue to trade at record volumes, but sentiment is weakening in the face of 7% borrowing costs funding [sub-5%] prime yields. Overall we expect that global capital markets will remain strong for the remainder of 2007.

Both leasing and corporate markets continue to be robust everywhere. U.S. leasing activity increased during the second quarter, as overall absorption in the markets we cover was 8 million square feet, up from 5 million square feet in quarter one. Nationwide central business district rents grew 7%, while suburban rents increased by 2%.

In Europe, leasing volumes reached nearly 65 million square feet in the first half, 2% higher than record 2006 first-half levels. Prime rents continued to rise in the second quarter, with Moscow, London, Paris, Stockholm and Madrid recording the greatest gains.

Asia-Pacific office markets generally saw firm rates and low vacancies in quarter two, with continued strong demand in Tokyo, Hong Kong, Singapore, Sydney and Shanghai.

On balance then, conditions in global real estate markets continue to be favorable for our business.

In these healthy markets, we continue targeted investments in growth across operations, focusing on five areas -- strengthening our local and regional service operations; expanding our three global service delivery lines of global corporate solutions, global capital markets, and LaSalle Investment Management; and finally, establishing the world standard for client delivery service.

Firstly, then, our local and regional service operations. Our financial performance is based on the business we execute in more than 450 markets worldwide. Our collective strength in these markets also determines the effectiveness of our global service capabilities. In the Americas during the first half, we established relationships with seven new corporate clients, and earlier in the third quarter with ING North American Insurance Company as well. In addition to this, we have been retained for all 12 of the relationships that have come up for renewal in 2007.

Earlier this month, First Republic Group Realty selected our retail group as leasing and managing agent for its portfolio of 11 regional malls and shopping centers in the Southeast. Throughout the U.S. we now lease more than 100 retail properties, representing 47.3 million square feet of space.

In Dallas, we secured 13 new leasing assignments totaling 4.5 million square feet in quarter two. In Boston, we represented an affiliate of The Blackstone Group in the sale of Russia Wharf, a historic 2.2-acre mixed-use development in Boston's financial district. Prior to the sale, we also advised Equity Office on the same development.

Finally, for the second year in a row, Jones Lang LaSalle was named one of the best places to work in the San Francisco Bay Area by American City Business Journal.

In EMEA, our first month of combined operations with Troostwijk Makelaars in the Netherlands saw us win two leasing assignments, representing more than 1 million square feet of space. Our capital markets team there secured a number of portfolio sales instructions, and in mid June closed the sale of a $414 million portfolio.

Earlier this month, we also secured Moscow's biggest office deal of the year, representing capital partners to lease 194,000 square feet of office space to Procter & Gamble in the metropolis complex of a prominent new city development.

In the UK, we were recently named joint letting agent on the Canary Wharf Estate, replacing a competitor at London's most prominent office and retail campus. According to our client, our international breadth of coverage contributed to this significant win.

Our German capital markets team was also retained to market an office property portfolio valued at nearly $2.8 billion on behalf of (inaudible).

So far we have opened four new offices in EMEA in Bucharest, Istanbul, Helsinki and Abu Dhabi, following the 2000 acquisition -- 2006 acquisition in Dubai.

Moving across to Asia-Pacific, in June we combined our operations in India with Trammell Crow Meghraj to form Jones Lang LaSalle Meghraj, making us the largest commercial real estate provider in India. Our Hong Kong and Mainland Chinese teams collaborated to secure an agreement with KPMG to represent them in real estate for all of Greater China.

In Korea, we were appointed the strategic real estate services partner for Gale International on the Songdo City development, which will essentially be a new city near the Seoul airport.

In Singapore, our Asia capital markets team represented SEB Asset Management on the off-market acquisition of Robinson 77, formerly the Singapore Airlines building, for $346 million.

And in India, we were retained for project management services by Standard Chartered Bank in five cities across India, and by Merrill Lynch for a pan-India mandate. We also opened new offices this year in Sapporo, Japan and in Hanoi, Vietnam.

Our second priority is to continue to build our global corporate solutions business. We intend to be the leading supplier of corporate real estate services to medium and large companies worldwide. During the quarter we expanded our relationship with CA, formerly Computer Associates, building on our five-year relationship in which we have provided tenant representation and leased administration services to the leading IT software provider. We will also deliver global facilities management services for CA. We also won a renewal with another leading technology company.

To date in the third quarter, we have secured another three multi-region assignments, including United Health Group, an innovative leader in health and well being, and GlaxoSmithKline, the global pharmaceutical company. UHG selected us as real estate provider -- service provider for its owned and leased portfolio of approximately 13 million square feet of office property. The relationship, which we won from a competitor, includes facility management, occupancy planning, lease administration, project management, transaction management, and other real estate consulting services. GlaxoSmithKline, in turn, renewed and expanded our relationship in all three regions, reducing the company's service providers from three to two for its 750-property, 80 million-square foot global portfolio.

Our third growth priority is to build the leading global capital markets platform. In June, one of the largest U.S. metropolitan land sales, Clise Properties selected Jones Lang LaSalle to sell 12 acres in Downtown Seattle. The buildout of this enormous city footprint is likely to exceed $7 billion. Our U.S. capital markets team will be supported by their colleagues in London, Dubai, Sydney and Hong Kong. And once again, our client said that we were retained because of our knowledge of and access to investors and developers around the world, and our expertise with similar high-profile projects.

In addition to the record-breaking sale of the ANA hotel portfolio in Japan, which Lauralee mentioned, Jones Lang LaSalle Hotels also arranged the largest single-asset hotel transaction to date in 2007, which was the $575 million sale of the Makena resort in Hawaii.

The fourth strategic priority is to support additional growth and maximize value from LaSalle Investment Management, our global money management business. LaSalle's assets under management increased to nearly $46 billion at end of the second quarter, 26% higher than a year ago. Our second-quarter performance was very favorable across our private equity mandates, with some volatility in public equity business, the result of the recent market sell-off.

For the one-year period ending March, the majority of our co-mingled funds and separate accounts continued to exceed industry benchmarks. Individual asset sales worldwide generally exceeded our pricing forecast, producing strong performance and incentive fees.

LaSalle also received three top industry awards during the quarter. We were named best investment manager in voting conducted by pension funds and consultants active in the European real estate industry. We were awarded fund manager of the year by Money Management, for the [SG Hitchcock] LaSalle global listed property securities trust, and our Kodak pension plan team in the UK was named top performing fund by Estates Gazette Interactive.

Our fifth strategic priority is to develop world-standard business delivery platforms in our business by continuing to strengthen our infrastructure, while also developing market-leading technology that directly benefits our clients. During the quarter we completed the implementation of our global finance and HR system across all of Asia-Pacific, with the exception of Australia, and we have begun the first phase planning for the same projects in EMEA.

Before concluding this morning, let me share two additional highlights with you. Environmental sustainability is emerging as a business priority for both corporate occupiers and investors in real estate. To maintain our leading position in serving their environmental needs, we have created a new global service offering which we have called Energy & Sustainability Services, which brings together existing sustainability capabilities, and will also develop and introduce new services.

Underscoring our leadership position, in June our firm was honored as a 2007 Star of Energy Efficiency by the Alliance to Save Energy, the leading public policy organization dedicated to energy efficiency. Earlier this year we were named a 2007 Energy Star Partner of the Year by the U.S. EPA.

Finally, we recently welcomed a new member to our board of directors -- David Rickard, the Executive Vice President and Chief Financial Officer and Chief Administrative Officer of CVS Caremark Corporation, the leading provider of prescriptions and related healthcare services with nearly $44 billion in 2006 revenues. David will also join our audit committee and the nominating and governance committees. He is a world-class executive whose financial, transactional and administrative experience will complement the expertise of our already excellent board. And since CVS itself operates more than 6000 stores, David will also bring the perspective of a major user of real estate. We are very fortunate to have him as a director of our firm.

So to sum up, our very strong results for the quarter and half year were the product of the hard work and collaboration of all of our people and our continued strategic investments in the business. Our globally diverse business platforms and service lines position us well for the remainder of 2007.

We would now like to take your questions. Operator, perhaps you would please explain the process.

(OPERATOR INSTRUCTIONS). Mike Fox, J.P. Morgan.

Congratulations on another very strong quarter. Colin, thanks a lot for all the color on the state of the overall market. I was wondering if you can talk a little bit about -- you guys seem pretty confident in the back half of '07. Just given what is going on in the debt market in the U.S., can you talk about what gives you guys the confidence that the market is staying pretty strong, and that the volume of transactions is going to stay relatively high?

Our comments -- remember we're a global business. So our comments about the strength of the forward picture relate to our view of the world as a whole. And as a general comment, and Lauralee made this point quite strongly, we see ourselves in markets generally firm around the world, have been firm, and are feeling good in both leasing and capital market transactions. We see ourselves gaining share, and that's the result of the targeted investments we've been making right around the world and right across our platform. So we have momentum in the business, first of all.

We also see our pipelines for the remainder of the year -- remember, a good part of transactional work has a number of months of leadtime to it, so we can have a good feel for what's coming down the pike. When we look specifically at the U.S., the comments that we made on the debt market -- and you've picked up on them -- obviously, there's been a lot of turmoil. And what we said in our comments here was that there had been, obviously, an edging up in rates and some widening in spreads, just raising the cost of debt. Credit providers are tightening their underwriting, and (inaudible) like 10-year interest-only loans are now not available, generally speaking, in the real estate markets. So the number of people who are able to enter into bidding with highly leveraged financing structures has reduced. And that's taken some of the frost out of the pricing in the U.S. market.

That being said, there is still lots of equity queuing up to get into real estate in the U.S. and worldwide. We see it in our investment management business. And those equity players are really quite relieved at having, if you like, a better run at assets without the same level of competition by extremely debt-driven players.

So, put it all together, there's lots of interest in real estate by the equity-driven institutions with whom we, obviously, do the majority of our business in both LIM and the major part of the Firm. No lack of interest (inaudible) no slacking off in interest in getting into real estate. And that's the basis of our relatively confident stance.

Thanks for all the detail. With regard to the margins, you guys had some pretty impressive margin expansion across virtually all your segments. Is this something that is really -- you guys have turned the corner, and we should expect, maybe not to the same extent, but some pretty healthy margin expansion in the second half? And then with regard to that, can you talk about some of the productivity gains that you're seeing from the new brokers that you hired within the last six to nine months, and if you think at this point they are fully productive, or there's still an additional ramp, especially in the U.S. capital markets?

I think relative to -- let me take, first of all, the new hires and productivity. Our view is that it takes 12 to 18 months for a full contribution out of new hires, not because they're not capable, but they've left some of their clients behind and need to reestablish their positions. That productivity tends to come a little bit quicker in capital markets. And I gave you some statistics on just the turn we've seen in that business year-over-year, partly because of the profiling of the deals we're getting, which then makes all the brokers more productive, and the fact that the energy that then comes to our positioning in the marketplace means that the new hires can be more productive quickly. So capital markets feels pretty good. Relative to leasing, it takes a little bit longer. So we would not yet consider them productive.

Overall, what we have is higher productivity in our core business. The clients we've won already, there have been larger transactions, which make that core business more productive, and that is paying for the additional new hires that we've put into the U.S.

If we look across Europe, they've had such an uplift -- and I would say Asia as well -- uplift in market activity that as we put the new hires in, there is transactions waiting for them because our own staff really didn't have the capacity to fill it. So there is definitely productivity coming into those parts of the world.

So, we have added more to the U.S. staff. There's no question that they will not be fully productive this year. But the core business is at this point in time paying for that, and we feel good about the energy that's coming into all of the market positions that we have that just generally increases the number of transactions that will come to us through increased market share. And that's the natural translation into margins.

Okay. But with regard to margin, is this something that we should expect going forward? Or do you think that this was a little bit better than what we could expect in the second half? Or do you think that really, just given that productivity isn't even ramp up yet, that if we look out over a couple years, this is just a preview of what's to come?

I would put it as a preview in Europe and Asia specifically, which is in line with the guidance that we've given you so far. We have had a more accelerated pace of activity into the first half, but we always see more productivity in the second half of the year around our margins. So Asia and Europe definitely are moving forward, with the exception of hotels in the Asian market; I'm talking about the core business. And the U.S., I think we've had a really healthy start to the year. That's been good margin expansion. As it continues, you'll see further in that. But we do have the additional investments in there that, we think, is the right thing to have done to enhance our market position. So a lot of it just depends on how the balance of the year plays out there.

With regard to Asia-Pacific and the large ANA transaction, can you give us any type of color on how big it was, just so we can see how strong the core business in Asia-Pacific was, even without that?

Unfortunately we cannot due to client confidentiality. But as I said in my words around the quarter, the revenue growth was at a pace stronger than what we saw in the first quarter in the core business, and the margins were up significantly in the second quarter over the first quarter. So the momentum in the core business is definitely stronger.

Thanks a lot, and congratulations again.

Jennifer Pinnick, Morgan Stanley.

Following up on the Asia-Pacific business, does this one large transaction -- does this pull forward earnings from the second half, or should we see second-half earnings comparable over last year's second-half earnings?

This is a distinct transaction in Asia-Pacific, and the core business should continue to follow seasonal patterns and momentum that's been building.

Albeit that the -- clearly, the reputation -- the enhancement of our reputation through being involved in such a large and prestigious transaction should help to draw attention of other large investors and occupiers to our firm's services.

Sure. And then, is there any way to dissect which is -- the growth that you're getting is from industry, and which is coming from the investments you've made over the past couple of years? (multiple speakers)

I was going to say the market share dynamics would be the investments, and we've given you some highlights on those. We have -- if you look at our acquisitions, which is another piece of our investments, all last year we gave you the impact of Spaulding & Slye as a contribution into the Americas. And now they're, obviously, integrated with the bigger platform. I gave you for EMEA, which is where we have been the most aggressive this year on acquisitions, that the year-over-year impact to revenue is 5% growth.

Our acquisitions, generally, are neutral to modestly accretive in their first year because of purchase accounting, and then go into contributions in the second half. So because most of those were done very late last year and early into this year, the contributions of those will come in in '08 and even more in '09. So that would be investment dynamics. So I would look at share increases, which we've talked about, and acquisition impacts, as to what will happen to us going forward. And then the balance would be the industry.

And you continue to investment spend this year, even though you're not quantifying it. Can you perhaps tell us where you're spending your dollars?

You're right; we are continuing to invest into the acquisition investments we've laid out for you $67 million so far this year. We continue to invest in revenue spend. It's probably sub-1% of our revenues across our business, but in a very targeted way. In other words, we're hiring in specifically skilled teams in specific cities within the U.S. to build our market positions. We're hiring in teams within, for example, London and Paris, to build our leasing capital markets capabilities. We're building our Asian capital markets teams as well. So [it's targeted] hiring specific individuals of small teams, and the intention is to build our market positions or add new skills to the existing business base.

Jeff Kessler, Lehman Brothers.

A quick question on the EMEA operating margins being down a little bit. Was that due to continued investment in building up the management and outsourcing business there? Or were there other factors involved?

The year-on-year number is up significantly, as you'll notice. You're probably referring to the quarter one to quarter two, where there's a very slight dip. And the reason for that was in quarter one, which is a small quarter in revenue terms for us, we had a very large German transaction, which we highlighted in quarter one, and which gave, if you like, an early boost to the margin in EMEA. What you're seeing in quarter two and the half to date is what we believe is the underlying rate.

And for (multiple speakers)

As I talked about in my comments, if we look at the capital markets growth in EMEA, the quarter was 45, while the year-to-date was north of 70%. So you can see that transaction in those volume growths.

Q3 and Q4, seasonally, the numbers -- the margin numbers for your entire company, should we expect continued, I would say (inaudible) typical seasonality in these businesses? Or will they be affected by some other possible large transactions?

The margin (multiple speakers)

I know you're not going to predict the large transaction, but what I'm trying to get to is your core, if you will -- want to call it your "core margins" as you move forward.

The stronger half-two margins are driven by, obviously, the stronger half-two revenues, which is the basis for the seasonality in the business that you likely referred to. We have at this point no reason to believe that the usual seasonality pattern won't continue to come through on the revenue line. How we translate that to the margins will depend, of course, on our performance, and we'll leave you to make that judgment.

One final attempt at maybe getting some more granularity on the transaction that you announced. I know this is going to be tough. But in general, the transaction fee ranges -- you can be anywhere from 3 or 4 basis -- 3 or 400 basis points down to 20 or 30 basis points. I'm just wondering if you could perhaps give us some idea of where on the scale it might fall.

Unfortunately we cannot. We've talked about it as a transaction advisory fee, which means that it's not a straight capital markets transaction, that in fact we provided a lot more service to the client. So unfortunately, that's all we can advise you.

Well, I tried. I think that's about it. Thank you.

David Gold, Sidoti.

Just a question on incentive fees going forward and sort of how to think about -- I guess, looking at the slide in your presentation, from everything we know, I guess, this year has been real good from the winding down of, say -- if I remember right it was the '02 Asia-Pacific fund. And -- so as we wind that down and sort of progress, would it be fair to think that -- certainly, you commented over the next few months you think it would be lesser, but over next year, you might see a smaller contribution from incentive fees before maybe re-accelerating in '09, just based on having raised a lot less money, say, in '03, and then picking back up in '04.

You're into '08 now, David.

Yes. Into '08 versus '09. In other words, as the funds sort of end their lives and you pick up your share.

There always is the lives that go on in shares. And clearly, you know that we raised -- we upped the scale of fund-raising activity starting in '04, which clearly needed a longer period of time to mature. We've continued to see an acceleration of performance achieved through more quick transformation in the assets just because of the nature of the market, which has accelerated some things even more than what we thought into this year. So I think the question will be how the market behaves going forward, whether things get pushed out to get more value or get moved in to get more value. Clearly, people are focused on returns.

We're also seeing other dynamics in the market that come out of how investors want to extend lives of their investments, given if they get the money back, that's great, but then they have the problem of putting it back to work again. So for example, we had done work for a client in Asia-Pacific where we converted a separate account into an open-end fund. Normally that would have gone away, and instead what we did is received an incentive fee, and were able to turn around and put it to work to have opportunities for incentive fees again. So, the creativity of our people relative to returns for investors also means that those flow into us.

So I guess I would focus you back to '07, first of all, and we did say the second half would be modestly, probably, less than our first-half performance, because we have liquidated, or have the primary parts of those funds liquidated. We do have checkpoints on a lot of our separate accounts that occur in the fourth quarter, and those will depend on where the markets are and our performance against them at that period of time. So again, we get a bundling of not just from our funds, but we also get it from our incentive accounts, I mean our separate accounts. So that increasing portfolio is significant, and our goal is to provide as much annuity performance for you as we can in that incentive capability.

Okay. Fair. One other for you, Lauralee. (inaudible) think about CapEx, I guess you've said at times that you were looking to a budget this year of 80 to 90 million, which seems like where you're running. How much of that should we think about as sort of leasehold to sort of '07 money versus what we might think you might need to spend, or might project to spend in '08?

We have talked about the significant platform that we put out in terms of the money that we're spending. And of the number to date, almost 28 million of that 45 would be into what I would call FF&E and leasehold. And then if you add into that, really, the infrastructure that goes with that in terms of telecoms and so forth, it will go up again significantly. So those are investments that have really grown the platform, but would not be replicated at that level going forward next year. We'd like to see our CapEx be running more in the 40 to $45 million on an annual basis, and would anticipate moving to that level probably sometime '08 or thereafter.

Will Marks, JMP Securities.

The Asia-Pacific, the ANA fee is kind of baffling. And I wonder even if we knew what it was, if it would actually help us. Your numbers seem to be so staggering every quarter. It is confusing. You mention it three times in the press release, and I could see how it would have maybe a meaningful impact on the bottom-line if it's a very high margin fee. But you grew transaction fees in Asia by 350% in the second quarter, and maybe 35% in the first quarter. And so, I can't understand how this would be that meaningful to the top-line. Anyway, I just want to make it clear why I think we are all confused, and (inaudible) give us guidance for the Company (multiple speakers)

We would love to be able to help you with your discomfort or confusion. We have said that we are bound by client confidentiality on this, quite strictly bound by what we can say on this transaction. And we have said as much as the client was prepared to allow us to say. I think suffice it to say, really, it was exceptionally a complex deal. The relationship with ANA had been built over a number of years, right through this decade indeed. And as Lauralee mentioned, we provided much more than just a broker service; we provided, firstly, a restructuring of that business area, bringing the international hotels group into partnership with ANA before the transaction was put into the market, which added significant value to the client's overall take on the deal. You should view it as an exceptionally fine piece of work with an exceptionally attractive revenue contribution to the Firm. But really, the critical thing about the performance from the Firm this quarter and this half is that the underlying business revenue growth is strong, the margin growth is there, you can see it, and of course the profitability is growing as a result.

I'll drop that subject. Thank you for that additional color. On the balance sheet, Lauralee, it looks like your net debt compared to 2Q '06 is about $150 million lower, I believe. And I know that last year you had Spaulding & Slye. Any comments on that and how it relates to share repurchase? I don't recall if you commented at all on did you buy back any stock during the quarter?

We did not buy back any stock during the quarter, principally because we put the cash to use for pretty aggressive acquisition activity as well as CapEx. We still have our authorization. We still plan to be back in the market for the balance of this year, so you will see us continue with share buybacks. We also -- in the credit facility, we do benefit from the fact that we still have a fair amount of our employees that are on bonus. And so, although we accrue the bonus into that amount, it's not paid until '08 now, as you know. And that will impact the timing of revenues that would pay down the credit facility versus bonuses that would be paid next year.

Okay. But your comment on aggressive activity doesn't seem to match the much cleaner balance sheet compared to a year ago, and I don't know if that's positive or negative. But I think about you have this great opportunity to buy back stock and perhaps to invest more. Is your debt level where you want it to be? I think Colin has commented in the past on there is a safe level of debt.

As I mentioned, we've taken our borrowing capacity up to 575 million. We are comfortable putting more money on the balance sheet with leverage. We're always making the trade-off of if we're borrowing at the time versus buying back stock, and the different pieces of that -- and on a technical basis, because we had awareness of our -- of the fee this year for the ANA transaction, we were not comfortable that it would be appropriate for us to be in the market at that time, just based on lawyers' advice.

Great. My final question. You talked about increasing employee headcount. I know -- I believe it was the end of '06 you gave an actual percentage number. Maybe if you can update on that, perhaps how many employees you have today versus a year ago.

We can do that, although when we give you employees, there's a whole mixture of are they on clients, in which case they are reimbursed, and it doesn't necessarily give you the color that I think you're looking for. What I tried to do in each of our areas was talk about the key market movers that we have. So I gave you additions in the U.S. I gave you additions in capital markets and leasing in EMEA and so forth. So I don't necessarily think a headcount year-over-year is going to help you. If I look at -- we're about 9500 what we classify as professionals worldwide, and we were just under 8000 a year ago. But again, you're going to have a lot of professionals that are on accounts that are reimbursed, so that when you think about it, I think, what you're really looking for is capital markets, leasing and so forth, which hopefully I gave you color on year-over-year.

Perfect. Congratulations on the amazing quarter.

David Boardman, Wachovia Securities.

Just a quick question on the European markets. With interest rates moving up over the last couple quarters here, and expected to move higher, I was just wondering what are investors thinking about right now in the market there? And with volumes in Europe below where volumes are in Asia-Pacific and in the U.S., what's your feeling on that market as interest rates continue to increase there?

You heard our comments on the total investment in real estate worldwide. The European numbers were $157 billion of investment this quarter -- sorry -- this half year, and that compares to 151 million last year first half. So about a 5 percentage point increase year-on-year. So the market is still very strong. It's still rising. And you heard Lauralee's reference to our extremely strong growth in capital markets transaction business. So we've picked up a larger share of that business thanks to our focus on Pan-European international capital movements within that geography.

Splitting it down, what we see is that in London -- the London market is one of the three major markets in Europe -- in London we see definite softening of sentiment. The interest rate rises in London have been stronger than they have been -- or in the British markets, stronger than they have been in the Eurozone. And pricing has similarly in Central London got down to cap rates or yields in the 3 to 4 percentage point range, where investors are effectively pricing in a lot of rental growth. That rental growth is coming through. But nevertheless, investors putting together the debt picture with an overall level of caution. Investors are less enthusiastic about the London market than they have been over the two previous years. There's still a significant volume of transactions coming through. We would expect London's volumes this year to be very similar to last, and our business there to be up within that.

Across Europe, we've seen very strong growth continuing in Germany, with some large portfolio transactions, which we've taken care of. Same story in Paris. Same story in Moscow. So markets continuing in a healthy way. But as interest rates edge up, they're beginning to have the same effect as in the U.S., where debt-driven or heavily debt-funded buyers are less present in the market, which takes some of the enthusiasm and some of the [pop-up] pricing.

Is it fair to say on the margin more global investors are focusing now on Asia-Pacific versus the U.S. and EMEA?

I don't think it's any more than we've seen over the past couple of years. It's been a gradual trend increasing in -- gradual increasing trend in the proportion of investment in real estate that is cross-border. And that's risen from about 25% in 2003 to around 45% or more of global investment in real estate is cross-border investment. So that trend is continuing.

In our particular case, Lauralee mentioned we have two funds currently out in the market. And we see very strong demand, or very strong interest by European and US-based investors in those funds. And we're looking at levels of oversubscription. So the [queue] is there, and it's strong to get into Asia-Pacific. But again, it reflects a similar picture to what we're seeing internationally. Money is trying to move across border, and there's still a lot of equity -- a lot of equity trying to get into real estate in every market.

Going back to the margin, I believe, last quarter you explicitly said you expect to hit the low-end of your 10 to 12 range by the end of 2007 in EMEA, and you expect to keep it equal to or better in the Americas region versus 2006. That still stand?

We've said that, in terms of the U.S., that we were going to add staff. But we felt that we could manage that in at least the margins of last year, if not improving. And in EMEA, we hope to get close to the low-end of the bottom range. And as you can see, we're making very significant progress.

Last question on the ANA deal. Sorry to beat a dead horse, but I just wondered -- is it fair to say that possibly there was revenue in this quarter that was taking into account activities that have gone on over a longer timeframe? And was there any potential incentive fee and such in this transaction?

No. This was, as Lauralee said, a onetime transaction, very clearly falling into this quarter. And there was no roll-up of revenue from previous or future quarters. That's not allowed, and we wouldn't do that. It's a very clearly defined point. The fee was triggered by the deal, and the date of the deal is on record.

Jeff Kessler, Lehman Brothers.

Just a quick follow-up on investable funds and the asset class. I was in London last week, and I guess I was running into some of the same feelings that the market was getting much more into balance, that the returns that investors were expecting were becoming more moderated. And I'm wondering, given that you do have a worldwide portfolio here, and you have already discussed this question a little bit, are there certain markets where you believe another 30, 40 basis points might begin to tip those markets down? Or are you reasonably satisfied at this point, particularly in EMEA, that your diversification is going to offset that? Because again, in touring London and parts of Madrid and Paris, it did appear that there were some parts of the market where returns were beginning to fall.

By 30, 40 basis points, you mean an uptick of that level in lending costs?

Yes.

Remember our business -- the advisory part of our business is driven by volume, by transaction volume principally. So the absolute level of pricing in markets is, obviously, important for sentiment. But we are driven, and we pay close attention to the volumes, which is why those numbers we referred to earlier on, the total invested in commercial real estate worldwide, those are the numbers which really are the indicators of the overall market for our transaction, our capital markets transaction business worldwide.

What we see everywhere, and it includes London, which is the most extreme case, is that while sentiment might be switching a little bit on the absolute levels of pricing, the volumes of transactions are still holding up. And that's because there is -- the institutions in particular, the well-funded large clients with which we do the majority of our business, are still very interested in fulfilling their increased allocations into the real estate markets. So they are still queuing up to put money into these markets everywhere.

The slight sentiment change you referred to is about the level of debt-driven people, the number of debt-driven people chasing transactions. And as our London people would say, instead of eight offers on any particular piece of real estate, there might now be five. So it's a question of just an effect of the margin rather than a fundamental impact right throughout these markets. The markets are still deep, they're still strong, and we're still seeing a lot of transaction volume coming through.

Will Marks, JMP Securities.

Just a quick question. I may have missed it. You are not showing currency impact this quarter. Can you just explain why? Thank you.

It did not have a significant impact. I think overall around the globe, it was about $0.04 of our earnings favorable. It was due to the immateriality of it. It wasn't that significant.

(OPERATOR INSTRUCTIONS). There are no further questions at this time.

Operator, thank you very much for that. With that we will conclude today's call. I would like to thank everybody for their continued interest in Jones Lang LaSalle, and we look forward to speaking to you again at the end of our third quarter. Good bye, everybody.