Jones Lang LaSalle Inc (JLL) 2008 Q2 法說會逐字稿

Good day, and welcome to the second quarter 2008 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 10-K for the year ended December 31, 2007, and in annual report -- 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. A web audio replay will also be available for download. Information and the link can be found on the company's website. At this time, I would like to turn the call over to Mr. Collin Dyer, Chief Executive Officer for opening remarks. Please go ahead, sir.

Thank you, operator and good morning everybody. Thank you all very much for joining this review of our results for quarter two and for the first half of 2008. Lauralee Martin, our Chief Operating and Financial Officer is with me today in Chicago, and during the call today we'll discuss our current market conditions, talk about the effect of those market conditions on our business, and describe how we are responding. Finally, Lauralee and I will be happy to answer your questions. Let's begin with a summary of a few headlines.

Second quarter revenues totaled $660 million, 2% below revenues for the second quarter a year ago. Year-to-date revenues were $1.2 billion, 5% above first half 2007 revenues. Net income for the second quarter totaled $24.5 million, or $0.73 per share compared to $77.9 million or $2.32 per share in the second quarter a year ago. Year-to-date net income was $27.4 million, or $0.82 per share, compared with $105 million or $3.12 per share for the first six months of 2007.

So to put these numbers into context, let's first visit current market conditions. While the economist intelligence units still expect world GDP to grow by 2.7% this year, slowing growth and financial market contraction continue to affect economies around the world. The credit crisis which began a year ago in the US has impacted virtually all financial sectors and economies to some degree. For commercial real estate, the major impact continues to be declining capital markets activity and much stricter debt financing, especially for large transactions. In the US, first half transaction volumes decreased by more than two-thirds from a year ago, while in a Europe, first half volumes sold by around a half from the same period in 2007. Asia-Pacific volumes showed wide divergences across the region, but in total, were level with last year for the quarter. However, the momentum declined falling 28% between the first and the second quarters of this year. This slowing transaction activity has been accompanied by a 15% to 25% price correction and a significant price disconnect remains as sellers, whose expectations have yet to adjust to the investment climate, hold assets rather than accept current pricing. At some point, that seller motivation will increase, which will result in a stalemate by creating transaction levels that trigger meaningful price discovery. That increase in motivation is likely to be precipitated by loans coming due on properties purchased in recent years at very high loan to value ratios and generous underwriting conditions on debt.

We are expecting -- sorry, we are beginning to see signs of forced or distressed sales and expect this trend to continue with equity investors reentering markets where there is restricted debt availability. The effects of the slowing global economy have also started to show in leasing markets. Tenant demand and leasing activities slowed as companies across the industry and across industry sectors delayed decision (inaudible). In our target markets in the US, leasing volumes declined by 13% in the first half of 2008, and we expect US companies to continue to be cautious on their business perspectives, but do not foresee occupancy declines matching the dramatic falloff seen in 2001. Lease expirations will be the primary driver of US demand for the rest of this year and active clients will see increased opportunities in most markets.

In Europe, overall occupier office demand has been resilient, but is beginning to slow with first half absorption 5.7% below last year's levels at 6.4 million square meters. We anticipate the total takeup for the year will be below 2007 levels, but vacancy rates are not expected to increase substantially, stabilizing the rental outlook for the remainder of the year. Absorption in the Asia-Pacific office sector for the first half was 2.7 million square meters, 24% above 2007 levels, but with indications of a weaker market in the second quarter. Fundamentals in Asia-Pacific remain sound with most markets operating at a historically low vacancy rates which coupled to high levels of corporate expansion demand have contributed to rapid rental appreciation. Moderate rental growth should continue over the short term in such markets as China, India, Singapore, Hong Kong and Australia, given tight ongoing market conditions.

So, looking at the impact of those market developments on Jones Lang LaSalle, overall, we've continued to outperform the market in all of our service sectors. In our capital markets business and in Jones Lang LaSalle hotels, our second quarter revenues were down 30% compared to 2007 and down 39% year-to-date, after correcting for the very large transaction fee earned in our Asia-Pacific hotel business in the second quarter of last year. Lauralee will go into greater detail in her remarks on the capital markets situation. Tight credit conditions and the disconnect between buyer and seller expectations have also reduced transaction levels in the global investment management business. However, institutional allocations to real estate are being maintained and LaSalle Investment Management delivered continued growth in its stable annuity based business during the quarter with assets under management growing further and our advisory fees increasing by around one-third for both the second quarter and the first half compared to 2007.

Our leasing business, which also exhibits annuity characteristics since tenants either renew leases or relocate when they expire, this area also continued to outperform the market globally. Compared to a year ago, our revenues increased by 23% in the quarter and 29% for the half year. The economic slowdown is boosting demand for real estate outsourcing and we are seeing this trend in our Global Corporate Solutions business both among financial services firms and also with other corporate occupiers. To date this year, we have won eight major multi regional assignments from clients which include Lenovo, Nokia and Boston Scientific. We have verbal awards on four additional new assignments. We have also retained all eight corporate solutions relationships which renewed so far this year. Finally, the firm's advisory business also saw excellent worldwide growth during this quarter as clients looked for expert advice from our professionals in a challenging real estate environment. So against that background, I would now like to turn the call over to Lauralee to discuss the details of our performance by service lines and the steps we're taking to respond to current market conditions.

Thank you Colin, and good morning to everyone. To provide more visibility into our business, we have posted slides on the Investor Relations section of our website under www.joneslanglasalle.com., which I will be referring to during my discussions of capital markets and hotels leasing and acquisition performance.

As Collin has mentioned, the current global credit market conditions have impacted the real estate sectors, investment sales, transactional activities to various degrees around the world. As a result, our performance has also been impacted. If you will now reference page four and five of the slides titled capital markets and hotels, for the first half of 2008, against a much higher level of market transaction decline, our overall capital markets revenue was down 30% in the quarter and 39% year-to-date. These decreases are broken down regionally as 40% for the quarter, 50% year-to-date in the Americas, 26% for the quarter, and 37% year-to-date in EMEA, and 30% and 33% respectively for the quarter and year-to-date in Asia-Pacific. It is too early for the lower quarter percentage declines to indicate trends are improving, but it is positive factor in a tough environment. As Colin has discussed, it is our view that healthy credit markets may not return for possibly an extended period of time. However, this does not mean that transactional activity will take as long to recover. The stress starting to appear for owners of property that are highly leveraged or have maturing debt should start to close the bid ask on asset prices. This will in turn start to create investment opportunities for cash buyers and opportunity funds with the potential for achieving their targeted return hurdles. Our plan is to maintain our market leading capital markets team substantially in place so that they will be ready to capitalize on this anticipated market potential and need. We have global and regional capital markets capabilities well qualified to assist our clients in resolving situations as well as realizing on opportunities.

Now if we could reference page six and seven, titled leasing. As Colin has covered, excluding capital markets, the remaining parts of the business continue to demonstrate solid growth. With revenue from leasing in total increasing 29% for the first half of 2008 over 2007. All of our regions contributed to this performance. Specifically worth noting in the Americas, total leasing revenue, which includes tenant representation services for occupiers as well as agency leasing for landlords, increased 17% in the quarter and 27% year-to-date. However, isolating US tenant representation, our revenue was up over 80% for the first half of 2008 compared to 2007. This level of activity supports the opportunity that we have targeted with the Staubach transaction. Turning now to pages eight and nine, covering LaSalle Investment Management. Advisory fees which are LaSalle Investment Management's core annuity revenues grew 32% for the second quarter and 33% year-to-date. While it's difficult to predict future sales activity in investment values, LaSalle Investment Management recognized $13 million of incentive fees this quarter from both asset sales and portfolio evaluations. These incentive fees reflect performance above investor hurdles for assets generally purchased in the 2002 to 2005 time period, and were achieved despite declines in the broader market asset prices. Assets under management increased 18% over 2007 or $8 billion to $54.1 billion. LaSalle is favorably positioned with committed capital to invest in a price adjusted opportunity marketplace and has invested $2.2 billion year-to-date.

Turning now to slide 10 on acquisitions. As mentioned on previous quarter earnings calls, acquisitions have an immediate impact on both revenues and operating expenses, with minimal benefit to the bottom line in the first year due to integration costs and amortization of intangibles from purchase accounting. Despite these costs, we are pleased that the acquisitions completed in the second half of 2007, as well as in the first half of this year, contributed EBITDA of $7 million in the second quarter, and almost $9 million for the first half of 2008. All acquisitions are substantially achieving our pro forma expectations. Year-to-date, we have incurred integration costs of $1.6 million amortization of $4.3 million, which has reduced operating income performance. The EBITDA contribution, however, is an indicator of the potential of these acquisitions. At the beginning of May, we completed the acquisition of Kempers Group that establishes Jones Lang LaSalle in the commercial real estate as the commercial real estate leader in Germany. After the initial month of integration activities, June's performance was in line with our pro forma expectations. Kempers is a commissioned compensation model business and as a result, the professionals are strongly motivated to get on with business and make the union work effectively.

On July 11, we completed the transaction to merge the Staubach company into our Americas operations. Integrations of operations, albeit in the very early stages, are going well. We are currently validating the financial model, project integration and intangible cost assumptions. We will report these costs and the impact on results as they occur in future quarters, separate from the core business performance. Additionally, the private placement shares, which are part of the initial payment, have been issued and will be outstanding in the third quarter share count. In relation to the acquisitions discussed, we amended and increased our credit facilities with our new borrowing capacity at $875 million, up from $575 million. The facilities are comprised of a $675 million revolver, and a new $200 million term loan with maturity dates of both facilities in June of 2012.

Turning to page 11 of the slides, covering cost initiatives, with today's more challenging operating environment, we are actively managing our cost base. We are aggressively managing discretionary spends such as T&E and internal meetings. We have a hiring freeze in most markets with replacement hires requiring regional management approval. We continue to redeploy resources from slowing to growth markets, such as from London to Russia and the Middle East. We have made selective staff reductions and we will continue to evaluate the need to take more action. We are moving to a more highly variable compensation structure in the Americas and our leasing business. This variability will become evident in our quarterly reporting. Both Kempers and Staubachs are already on commission plans. And finally, as part of our G5 world class business operations strategy, we are positioned to leverage our investments in systems in 2009. Asia-Pacific implemented the global finance and human resources system in July -- I'm sorry, in 2007, and this July, we centralized the finance operations for the UK and number of our other European countries, bringing on streaming new shared services operation based in Warsaw, Poland. Across EMEA, our human resources and our client relationship management functions are also being supported by our new PeopleSoft technology platform. Through the first half of 2008, we've incurred approximately $4 million of incremental expense to set up this FFO, impacting our cost negatively this year, and we will incur an additional $1 million in the second half. However, we will realize savings of nearly $2 million in 2009 and a run rate of $2.6 million of annual savings thereafter.

So in closing, given the challenges of the marketplace, we view this year as one of aggressive tactics in execution. However, the strength of our global footprint and service line diversification is showing its strength. As addressed by Colin, we remain committed to our long-term growth strategies in anticipation of serving the needs of our clients and the resulting profits that that will produce. Let me now turn the call back to Colin.

Thanks, Lauralee.

Summarizing the quarter, we continue to control costs rigorously with a range of internal control programs that Lauralee has described. Our healthy organic growth and strategic acquisitions, which are focused on leasing management and corporate service revenues are both providing a timely diversification to our capital markets and hotels business. We are focused on integrating the acquisitions so that they deliver full value as markets recover, and we are maintaining our strength in capital markets and hotels to take full advantage of that potential as markets recover. Most importantly, we continue to focus on our ultimate priority, which is delivering outstanding advice and service to our clients who value our expertise and experience more than ever in current market conditions.

Looking forward, we will maintain our commitment to controlling costs, to growing share, and improving our revenue generating power to emerge from this down cycle as an even stronger and more competitive company than we were when it began. Before taking your questions, I'd like to close with one final comment. We announced this month that Roger Staubach was named Executive Chairman of the Americas and has also been elected to our firm's board of directors. I would like to take this opportunity to welcome Roger to both roles and to say that we very much look forward to harnessing his considerable wisdom and experience in both roles as the years to come. With that, let me open the call to your questions. Operator, could you just explain to us the process.

(OPERATOR INSTRUCTIONS). We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Vance Edelson.

Hi, thanks a lot. On investment management with the $54 billion under management, how do you expect that to trend from here? What are the latest trends in capital raising, and should we expect a slowdown from here in the growth? Thanks.

Thanks, Vance. Firstly, the level of assets under management as we've described has risen again this quarter. As I said in my comments, we are talking on an ongoing basis to the major institutions who invest in LaSalle investment management funds, and their attitude currently is that they're continuing to maintain their allocations to real estate as a proportion of their overall investment funds. You have obviously what's called a denominator effect there. In other words, if 10% of their total funds under management are invested in real estate, but however, the total pie has decreased in size because of decreases in value in broader equity and other investment markets, then that can cause some pressure on the absolute dollar values. But currently, they're maintaining their overall percentage and dollar investments in real estate. Our own experience as we're in the market currently with a couple of funds, we are raising capital, we are seeing good response to our proposals. But investors in general are taking longer to confirm their positions and they're just being more cautious across the piece.

Okay. Thanks for that. And could you provide some insight on the geographic differences that you're seeing? So far Europe is doing better year-over-year than the US. Do you see Europe kind of getting worse, maybe following the same path as the US, getting worse before it gets better? Thanks.

Could you clarify getting better, in what piece of the market? Because at the moment, what we have is a market of wide divergence where some things are doing very well, and other parts like the capital markets is stressed. Could you just clarify so we make sure we answer the question you want us to.

Sure. More focused on the capital markets side, if you consider that the US was the starting point for much of the trouble, do you see Europe following in the same path going forward?

Yes, the US numbers, the drops in the headline numbers in the US are particularly spectacular ,partly because in the euphoria of Q1 2007, a number of the very large, very high priced deals got completed such as the equity office product sale and then resale. So there was a very high peak in the US in Q1 '07. So the headline falls in the US have been larger than the headline falls in Europe. Given that, as we said in the call, we've outperformed the markets in both geographies, in our own performance. We would plan and continue to aim to achieve that or continue with that performance in the quarters to come. I think what you can expect in an overall sense is that these markets are down by 50% or so, some more, some less, pricing is off as we said, depending on geographies by 15% to 25% from the very peak of the beginning of 2007. And in the very short term, those volumes are likely to be maintained at those levels.

Okay. That's helpful. And just one more for you. As you move to a more variable cost structure in an attempt to contain expenses, what are the employee response? Are they happy to go along with that, or are many of your competitors taking the same approach, would you say?

Well, it's a gradual evolution with us. We've always had an approach of relatively small fixed salaries and good markets in particular, relatively high bonuses. So we've had a leave which compensation structure in place across the firm anyway. What we're doing is as we -- particularly as we bring new acquisitions into the business, have new thinking and new approaches, we're learning from their methods of applying those compensation structures and then adapting them to the broader business. That's a process we do carefully, with due respect for people's individual conditions and their own considerations. But in general, we've done it. Because we handle it in a very careful way, people have understood what we're trying to do and respected it. And indeed in general, particularly in 2006 and 2007, as we've begun the process, their compensation benefited as a result.

I might add just one more piece of that. If you think about what we're trading off, I don't believe that we're much different in terms of total compensation for producers across the industry. Because if not, we wouldn't be able to attract the right kind of talent. It was really more how it's paid. With a bonus structure, that variable compensation that Colin mentioned is paid once a year, and so our individuals work all year and they -- at the end of -- three months after the close of the year they get the check for that. The trade-off to going more variable is that it's really, we pay you more often, so that frequency is the offset of waiting for an annual bonus and what it does, it's very real-time as to, are you making it or are you not. With the bonus, there is always the last quarter or another period of time where you're going to catch up and make it, whereas that real-time reminder of more frequency I think is the piece that is a attractive to producers, but I think it's also attractive on a financial model basis that you can see it immediately as the results come through.

This is to say too that one of the reasons why we're moving in this direction, why we did move in this direction, was that we've been hiring producers as you've seen in quite a robust way over the last two years. And in hiring in markets, you have to be able to talk to producers about the compensation potentially in a way they understand and are familiar with. We were finding our historical legacy methods of compensating which Lauralee described were not as attractive to producers as the more frequent highly geared variable version which we've also talked about. So to an extent, we moved that way in order to make ourselves competitive and attractive in the hiring market and we believe that the results in terms of the quality people we've been able to bring into the business and the results that are coming through in the increase in market share really across all activities justifies the course which we took.

Okay. I appreciate the color. Thanks.

Thank you.

Your next question comes from the line of Will Marks.

Good morning, Colin, good morning, Lauralee.

Hi, Will.

A few questions here. One, just a clarification. In the supplemental you mentioned -- you show, I think it's $49.7 million of expenses relating to acquisitions, and then in the press release, it's $53 million. Is the difference depreciation?

Yes, in the supplemental we worked off of EBITDA. So the answer is yes. What we wanted to show you in the supplemental is the cash contributions, but we've also given you enough information to be able to put it into an operating agenda.

Perfect. Okay. And second, on -- can you give us the current share count? I assume that with Staubach it was about 1.7 million shares issued, but maybe you could clarify that.

We are about 34 million shares to date, yes, 33,458 the quarter, 33,340 year-to-date, so a touch under that, so 33.5. The share count for the Staubach transaction has a range, depending upon where it -- where we are price-wise at the time that the shares become fully registered. So that share count can range between about 1.7 and 2.2. -- million shares.

When will they be fully registered?

The maximum time period is 75 days after the close, which was July 11. It could be sooner, if we get the audited statements and the pro formas completed. But the maximum period of time by SEC requirement is 75 days.

So the high end of that, the 2.2, I guess I'm confused on why there is a range. Is it set? Is that why? That would imply the stock drops off a cliff.

The $100 million price paid in stock was set at the close, July 11. However, depending on where share price movement comes between the time and when they can actually have those shares registered is a variable component.

Okay. Next question, on Staubach, you had, I believe, given it a trailing EBITDA number estimated for June. And I don't know if it was -- if that was an estimate. I believe we didn't know June at the time. Can you maybe confirm that?

The transaction was priced off of an estimate, which was $76 million, roughly. And we feel pretty good that they're going to perform in that range of numbers.

That was for the year ending June 30; is that right?

That's correct. That's why the transaction was priced off of visibility of what we could see in the pipeline through the end of June 30. We obviously closed July 11, so there's a period of time where you could actually validate that. But early validations make us very comfortable that our pricing was validated.

Great. And then one other question and then I'll move on. On the asset management side, the -- can you take that $54 billion give us approximate breakdown of how much of it are incentive fees tied to appraisals versus asset sales? Is it half the business? If half the properties are sold, they're incentive fees, the other half it's tied to annual appraisals? Is it three year appraisals? Any help in that regard would be appreciated.

In our investor deck we provide a breakdown of the types of funds that we manage and of the $54 billion, just under $19 billion is in our funds. Those all require asset sales. In our separate accounts, which is $25.5 billion, not all of those are eligible for incentive fees, but the incentive fees that we earn on an appraisal basis fall in that category. You'll recall the large fee that we had in 2006 came from an incentive fee and came from appraisals.

And are those incentive fees tied to annual appraisals typically, or are they often three year? Because that one was I believe a six year look back, something like that.

That was an eight year.

Eight year, okay.

And they vary. Some are annual. Some are every three years. Some are every five years. Depends on the contractual terms. And they're against an index, generally. So it's how we perform relative to the marketplace. So again, just to clarify, if the marketplace went down, but we went down less, we could still earn an incentive fee on the appraisal value method.

Okay. And lastly, on the equity earnings part of the investment management, a big drop in the quarter. I know it's not a large component of income, but is there any way to look out to guide us -- wrong word. I know you don't give guidance, but on that figure, could that improve from here?

The sequence of how the equity earnings work versus the way the incentive fees work on the fund, the majority of our co-investment capital is with our funds. There's a little bit elsewhere, but think of it as principally with our funds. The incentive fees are not earned until we pay back all the equity and cleared the hurdle rate, which means at the very tail end of a liquidation. That theory's different than our equity earnings, because the equity earnings go with each asset, just like our investors do. So the second -- the time period that an asset is start being sold, which could be quite early in the fund, if there is a gain on that property, then we in fact can have the equity earnings that go with that. So we -- as we sell properties, that's when you'll see those equity earnings. If we sell properties that are at the very tail end of a fund, meaning we're now into incentive fees, at that point in time, there's minimal, because it's now being translated into incentive fees.

Okay.

Is that helpful?

Yes, it's very helpful.

Look at our schedule where we are 100% committed, most likely we are not going to be earning much in terms of incentive fees. For the ones that are still being built up as to fully commitments, we are probably selling assets at the same time and that's where there would be opportunities for equity earnings.

Okay. Thank you. That's all for me.

Thanks, Will.

Next question comes from the line of David Gold.

Hi, good morning.

Good morning.

Couple of questions for you. First, on the expense reduction or cuts, safe to assume they are particularly on the staff reduction side, that that would largely be capital markets or are there other areas that are sort of on watch?

Just take the -- what we're doing, and Lauralee has laid out the list of the programs we have in place. What we're doing at this stage is controlling our level of expense and where we're seeing opportunities to reduce such as in travel and entertainment or in general operation of admin costs, we're doing that. We're also using natural turnover, natural weighage of people to reduce numbers, particularly in support and non-revenue generating functions which enables us to very low cost and with very low pain to reduce the numbers of people across a broad sweep of the business. But doesn't impact our ability to continue driving revenue growth. Our policy, therefore, is to continue to maintain our revenue generating activities, our revenue generating teams, and to lower the expenses around them. That's the case as well in capital markets, where we obviously see very significant reductions in activity. Our policy is not to hack those teams down, certainly not to bring them down if you like in line with reduction in overall market activity, but to maintain them, particularly the better performers, to ensure that we are directing bonus and compensation dollars towards the better performers and where we have performance issues, we're obviously using these sorts of markets to induce people to address those performance issues in whatever ways appropriate. But you also have to realize that we've got a very mixed bag here.

We're dealing in markets where they're down 80% and we're dealing in markets that are up 30% and some areas we're growing ourselves such as China, Russia, by 50% a year or more. So there is no single broad brush approach to cost control which we can dictate from the center of our business. That's not appropriate. The policy we're taking is to deal with each individual market area in a way that's appropriate to the way that market's performing and the way we're performing in those markets so that we continue to drive growth and value and build a competitive position in those areas of the business where we have access to that. And we're obviously tying down costs and controlling the business more tightly as is appropriate in down cycle in markets that are under stress.

Steven, I might just add one thing to that, because I did reference that we have made some targeted reductions. We have in two places, again, modest, one was in Australia where again, we saw that there wasn't as much work and, therefore, those are surrounding analyst type are probably not going to be needed for a period of time, but we're protecting, as Colin said, the high level market facers and the same thing was in our US hotels business, again, at the analyst level maintaining those client facing advisory positions to keep our market leading position.

Got you. That's helpful. And then also one other -- on the leasing business, you posted some pretty good strength there and I guess a competitor announced last night, pointed to quite a bit of weakness. Would you attribute the variance to market share gains that you're making or anything else that you're doing or any sort of insight there?

Well, the numbers would say that we're gaining market share. So assuming the numbers aren't lying, we would make that claim and we're pleased and proud of that. I think it's coming from two sources. Firstly, we have been hiring people, hiring revenue generators in the leasing area in the US and Europe and in Asia, really across our business, for the last two years. We're obviously being more cautious on that process currently. But in hiring people in, we're obvious bringing into the business new clients, new contacts in revenue generating capacity. And we believe what we're seeing is those people really ramping up and coming onstream, despite difficult markets and contributing to a very healthy growth in leasing activity, really around the world across the firm. That's one element of it.

The second element of it is we are seeing organic growth within, if you like, the pre-existing business as we incent people more powerfully, as we focus people, particularly in the Americas, on their local markets, moving away from national business lines for example. And as we see a phenomenon in the market of clients tending to migrate towards quality providers, safe providers if you like, in difficult markets. So we're seeing good organic growth from our existing revenue generator base as well. It's a mixture of those two things going on, we believe, in our business.

Got you. Very good. Thank you.

Thanks, David.

Your next question comes from the line of Michael Mueller.

Hi. Couple questions here. First of all, for the funds that you show as 100% committed, can you give us an idea as to what portion of those has been liquidated thus far?

We don't, unfortunately Michael, provide that guidance. What we have said is that they are generally in the period of time that as we sell the remaining assets, there will be incentive fees that come from them, and a part of the incentive fees this quarter did, in fact, come from that area.

Okay. Are there any known significant incentive fees for the third quarter at this point?

Not that we could give you advice on.

Okay. Couple of things on Staubach for a second. What is the interest rate you're going to be assuming for present value for GAAP earnings purposes.

6%.

6%. Okay, and then lastly, their revenue split from a quarterly basis, is it fairly similar to yours?

Actually they're proving -- they have proven that compensation motivation definitely determines quarterly earnings. Their largest quarter is in fact, the one that they ended with June 30. So their seasonal pattern, because their year end was June 30, really looked like our seasonal pattern. But -- so their slowest quarter will be this one we are currently entering, moving through the year.

Six month phase here.

Yes, it would be probably the best way to put it.

When that gets integrated in, do you think that seasonally changes and it mimics yours more?

We're evaluating whether it would have some value to us to move our tenant representation to their time period. While we have the rest of our business on different time periods, to maybe dilute some of the seasonality.

Okay. Thank you.

Thanks, Michael.

Your next question comes from the line of Robert Rigs.

Good morning. I was wondering if you could just touch on what you're seeing in terms of month to month momentum and sales to leasing across the geographies. Has it been pretty much a steady deterioration?

I think in the markets as a whole, that would be the case. Very broad brush, because you're dealing with everything from New York financial center to the Paris market, which is much more stable because it's more broadly based across all sorts of industry sectors. But in general, you're seeing a gradual slowing in the overall market conditions. Our performance has been pretty steady through that.

We do have exceptions in a sense that Hong Kong, for example, is going to have their record year ever and sees no change. Moscow and those markets is on an absolute tear. So it's the more mature markets where you have the impact of, first, the financial sector and then what rolls out of that versus what have you in some of the developing markets.

Okay. Great. And then touching on leasing, can you comment on the trends that you're seeing in terms of the sublease space and any rent pressure that that's causing?

Yes, the fundamentals in the leasing market, as we've sort of referred to have remained quite healthy. They started quite healthy going into this downturn. Why? Because there was a fairly sustained but not explosive level of demand from occupiers, space availability -- there was space availability but in general, vacancy rates were relatively low and at the same time, there was no -- again, on a worldwide basis, no large pulse of new development being delivered into office markets in particular. So you had a pretty stable sort of a market environment. As we've come into this year, and in general demand levels are already set across the mature markets have tended to ease off, there's still a decent level of demand by corporates. They're not cancelling their planning processes for their space demands. They're continuing to think things through, albeit the time horizons are stretching a little bit. But vacancy rates generally remaining low, because the demand for space is continuing at a decent level and there has been no mass delivery of new development property into major CBDs around the world. So overall, what that means is that whereas 12, 18 months ago the overall trend for rental rates around the world was growth in rental rates everywhere with a few exceptions such as Berlin or Frankfurt, that trend has turned around. In most market leasing rental rates have either stabilized or are declining gently, and there are some exceptions to that. Again, Moscow, Prague, Rio de Janeiro are examples for that. In general, there's no -- at this point, no rapid or broad declining rental rates.

Great, thank you.

Your next question is a follow-up question from the line of Will Marks.

Great. Thank you. On the leasing responses you gave earlier, you didn't mention, and I'm not sure if this is the case, but any difference in your type of leasing than, perhaps, other competitors, large and small. Is there any -- for example, do you -- is your focus on Fortune 500 companies, or do you have more retainer fees than others? Is there any additional information you would like to add?

Well, on the leasing side, remember, this is let's take the occupier and then we'll talk about the -- sorry, the investor side, then we'll talk about the occupier side. The investor side, the focus of our business traditionally and continues to be CBD, office markets. So we're dealing largely with quality buildings in the central business districts of major conglomeration and just as a very broad brush comment. As markets have slowed, be they investment or leasing markets, it's the peripheral markets, it's smaller cities, it's suburban markets that have suffered most and the central business districts have tended to hold their own better and then within those districts, we have always focused on quality assets, quality clients who own quality assets in our leasing activity. On the tenant representation side, and the comments we made and the numbers we gave you, group those two activities together. On a tenant representation side, we tend to work for large corporates, for good names. And again, those clients have been relatively consistent in their planning expansion process and their renewals, obviously carry on in the same way as others. So I think the overall comment I would make, Will, is that we tend to focus on quality assets in the major (inaudible) and quality clients and that, we believe, is part of the contribution to our real estate gain in market share.

Great. Thank you. And one other question, I guess for Lauralee. On your debt level, not that it's any large number in terms of any type of ratio, should we look at -- it's as high as it's ever been. I guess at this point in the year. From here on out. should we expect it to drop? Is there any chance to get to the zero number where you ended the last two years?

As a reminder, Will, the number at the end of the quarter does not have the Staubach payment to it. So first of all, that will be added. So the amount of debt repayment that we normally have in the third quarter will probably about offset what we had added to it. So --

You mean what you'll add to it with Staubach.

Correct. You won't see much of a change in the third quarter. We would expect in the fourth quarter we would have a seasonal decline. Given the transaction we did with Kempers, the Staubach, et cetera, we would not be looking at a zero. It's going to take us a while. That's one of the reasons we increased our capacity, in order to be very comfortable with our borrowing ability so we will have a higher balance than we did last year obviously at year end. Will then turn around and peak at March and then we'll look at reducing it going forward.

I may have missed a comment you've already made, but on future acquisitions, are you planning to slow the growth rate?

Yes. I mean, I think we did make that comment in the passing. But our focus is very much on integrating what we have acquired. We believe we bought some super companies, other acquisitions in a financial sense, we're very much merging them on the ground with our own teams and giving leadership roles to the best people in the combined operations. But our focus is very much on that work and that will take us the coming period to bid those businesses in and really exploit the revenue generating capacity from the acquisitions we made. We're very much on a slowed -- a much slower tempo in acquisitions, and I don't expect too many more to come through in the coming quarters.

Okay. And one final question, in terms of simply anniversarying the tough comps. Would you say that fourth quarter '07 -- I know things have become worse since then, but were you -- were your sales figures challenged, I guess I can look back at the press release, but I assume it was a little bit of a tough quarter, but not as bad as first quarter and second.

Are you saying quarter four oh, --

Sorry, '07. I'm wondering how much the weak sales environment impacted. I'm trying to figure out when you can start growing the capital markets business or when it stabilizes.

I was going to say, Will, in our investor relations stack we give you high level market activities across the world and the Americas second half, this is the total market, not Jones Lang LaSalle, was down 23% in the second half over the first half. So the US actually started in the second half of last year. Europe, in fact, was down 4% in '07 compared to 2006. So because the UK is such a big part of that marketplace, it actually started earlier. Asia was the one exception. So you might want to reference that. Also, you can work through, but we provide you our total year capital markets activities in our investor deck and we've now given you through the first half of the year. So that in fact, you can see that and look at it relative to the rest of the year.

Q4 '07 was well down on Q4 '06. But the decline in Q1 '08 on the previous year was more -- was even more severe. So we're coming to the point, we look at these market figures and we come to the point where potentially ,we could see some stabilization in the comp numbers in the third, probably fourth quarter of this year, Q1 next.

Perfect.

Somewhere in that period.

Thank you.

There are no further questions at this time.

Well, operator, with that, then, we'll draw this call to a close and I'd like to thank everybody for participating today and for your collective interest in Jones Lang LaSalle. We look forward to talking to you again at the end of the third quarter. Have a good day, everyone.

This concludes today's conference. You may now disconnect.