Jones Lang LaSalle Inc (JLL) 2008 Q3 法說會逐字稿

Good day and welcome to the third-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 report on Form 10-K for the year ended December 31, 2007, and in our 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 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. Colin Dyer, Chief Executive Officer, for opening remarks. Please go ahead, sir.

Thank you, Elizabeth. Well, good morning, everybody, and thank you all for joining us for this review of our results for the third quarter and the first nine months of 2008. Joining me today here from Chicago is Lauralee Martin, our Chief Operating and Financial Officer, and Lauralee will shortly review our performance in detail.

To frame the discussion, however, here are a few highlights. Firstly, revenues for the quarter totaled $677 million, an 8% increase over the third quarter of 2007. Our year-to-date revenues reached $1.9 million, 6% above 2007. Net income totaled $15 million for the quarter, or $0.43 per diluted share of common stock. Net income for Quarter 3 2007 was $47 million, or $1.38 per share.

Net income year-to-date was $42 million, or $1.25 per share, compared to $152 million, or $4.50 per share, in the first nine months of 2007, a period which also included a significant advisory fee in our Hotels business. Finally, we announced that our Board of Directors has declared a semi-annual dividend of $0.25 per share of our common stock.

Now, despite an obviously weakening global economy the credit crunch has turned into a full-blown financial crisis, we did continue to grow our revenues, remain profitable, and take market share from competitors. Our Leasing and Tenant Representation business, LaSalle Investment Management, and our Global Corporate Solution businesses all grew positively in these challenging market conditions.

We are, however, not immune to economic trends and market conditions, and the major negative impact on commercial real estate continues to be declining capital markets activity worldwide. At the end of August, overall market transaction volumes were down 70% in the US, compared to a year ago; year-to-date market volumes in Europe are down more than 50% on 2007 levels; and capital markets activity continued to weaken in Asia Pacific during the quarter, down by some 70%. As Lauralee will explain, we outperformed in these declining markets.

Access to debt generally remains severely restricted, and together with the bid-ask spread between buyers and sellers, continues to inhibit deal flow. It is only large investment sales that are closing of well-capitalized equity buyers, reasonable amounts of assumable financing, very low loan-to-value financing, or no financing whatsoever. Even then, retrades are occurring at the 11th hour.

Buyers and sellers are likely to agree on pricing and return to the capital markets only when larger scale forced selling of distressed, overleveraged assets begin, and at least moderately functioning debt markets restarted. Lauralee will discuss the impact of these conditions on our Capital Markets business in her remarks.

The economic slowdown has also begun to affect global office markets as corporate occupiers seek to reduce staff and cut real estate costs. In the office leasing markets which we target in the US, gross absorption was down by nearly 13% year to date from 2007 to 2008. In Europe, gross takeup decreased by 8% in the first three quarters, compared to a year ago. And slowing conditions in the Asia-Pacific office sector also became more evident during the quarter. Many Asian markets are now also at or near the top of their rental cycle and a few, including Australia, Singapore and Tokyo, have moved to the down cycle.

As I said, our own Leasing business has proven to be extremely resilient in this environment, producing healthy results during the quarter, an indication that we continue to take market share from competitors. So for details on that and other aspects of our third-quarter and year-to-date performance, let me now turn the call over to Lauralee.

Thank you, Colin, and good morning to everyone on the call. To provide more visibility into our results, we have posted slides on the Investor Relations section of our website, www.joneslanglasalle.com, for your use and reference.

As an overall summary of the quarter's results, we continued to deliver financial performance by responding to our clients' needs and requirements, while also adapting our operations to what many are calling the most challenging environment that most businesses have faced in a generation.

Included in our results this quarter are intangible amortization charges and integration costs from our recent acquisitions, as well as a nonrecurring charge taken to commence the rightsizing of our global operations to what we now anticipate to be a longer time period before market recovery. I will discuss this morning -- excuse me, I'm losing my voice -- in the context of our four operating segments, our three geographic regions, LaSalle Investment Management, and our Money Management business.

First, in the Americas. Overall, revenue in the Americas increased 35% in the quarter, and 20% year-to-date. This strong performance benefited from our local market investments in revenue professionals, together with our recent Staubach acquisition. Leasing revenues were up 80% in the third quarter and 46% year-to-date as compared to 2007. Excluding the Staubach results, organic Leasing growth increased 10% for the quarter and 21% year-to-date.

Local market revenues were up 25% and Corporate Solutions revenues were up 30% year-to-date. Corporate Solutions is benefiting from Staubach Tenant Representation transactions, but we are also seeing growth in our facilities outsourcing business, which is up 57% over the previous year. Colin will discuss shortly the success of the Corporate Solutions business.

Capital Markets in the Americas, which had started to experience some increased activity in the first two months of the third quarter, particularly in Corporate Finance activity, saw significant transaction disruption with the financial events of September. As a result, America's Capital Markets revenue for the quarter was down 28% and 42% year-to-date.

Included in the Americas' third-quarter expenses were $8 million of intangible amortization from the Staubach acquisition and $2 million of integration costs. The amortizable intangible assets for the Staubach transaction have now been valued at $37 million. Of this amount, $28 million will amortize in the first 12 months ending June 2009, and the balance of the $9 million will amortize principally over the five-year period.

We continue to refine integration expense estimates, but we anticipate the $25 million estimate that we originally provided will be fairly accurate on a cash basis, although the amount to be charged to the P&L will be less than $10 million, with the majority of this to be completed by year end 2009.

The Staubach acquisition included $14 million of broker commissions, for which we received cash, and ordinarily would have recognized as revenue during the period if not for purchase accounting. These commissions otherwise would have aided $6.4 million of EBITDA and $4.6 million of net income to the quarter's results. You can find more detail on this on slide number 11 of the supplement.

To complete the Staubach transaction discussion, included in the firm's Global results for the quarter, is an interest charge of $1.2 million for one-time costs related to the transaction closing, and $4 million of non-cash interest related to the seller notes.

Turning now to EMEA, our leading Capital Markets position in the EMEA region is being severely impacted by the credit and liquidity challenges impacting trading and investing activities. Capital Markets revenue was down 47% in the quarter and 41% year-to-date.

As the liquidity and credit market challenges accelerated in this quarter, we have taken actions to bifurcate our Capital Markets strategy, not just in EMEA, but globally. Our strategy for normal client investing activity, meaning buying and selling advice for investor portfolio, is to assume the recovery will go slow and continue at abnormally low transaction levels into 2010. As a result, we are reducing staff to better match anticipated revenues.

Our strategy for business opportunity is to be well-positioned to assist in the market liquidity correction as the required global deleveraging process commences. We are being approached for advice from receivers, banks and overleveraged or liquidity-challenged investors and funds. As a result, we are redirecting our Capital Markets staff to focus on these opportunities.

Included in our third-quarter results is a restructuring charge for staff reductions of $8 million. We also anticipate an additional charge in the fourth quarter, which is yet to be determined, as we continue to evaluate each market and service line. The majority of the restructuring charge this quarter was taken in EMEA. We anticipate a cost recovery time of approximately nine months against this charge.

On a more positive note, we are pleased with our strategic acquisitions in EMEA. Retail markets, particularly High Street retail, have continued to perform. Retail is the focus of our three most recent EMEA acquisitions, Churston Heard in the UK, Kemper's in Germany, and Alkas in Turkey. Year-to-date, the impact of the EMEA acquisitions completed in the last 12 months is $63 million of revenue.

Turning to Asia-Pacific, the impact of the credit crisis is now undoubtedly global. Asia-Pacific Capital Markets' revenue was down 53% in the quarter and 43% year-to-date. Our strategy has shifted from one of positioning ourselves to invest clients' strong capital raises targeted at the region to now focusing on local needs of our clients. Our local market teams in Hong Kong and China demonstrated their leading positions with revenue up 19% and 39%, respectively, in the quarter.

Leasing in Asia continue to perform in the quarter, with revenue up 11% over the prior year and year-to-date 26%. The Management Services business in Asia, which we have strengthened as an annuity revenue stream for profit protection in a market slowdown, saw revenue increase 6% in the quarter and 20% year-to-date. Asia has quickly adjusted operating expenses to respond to the market slowdown, as expenses increased only 4% in the quarter on a year-over-year basis.

Turning now to LaSalle Investment Management, advisory fees increased 12% in the quarter and 25% year-to-date. The slowing year-over-year growth in the current quarter is due the commencement of fees on committed funds, principally starting in the third quarter of last year. LaSalle achieved incentive fees of $6 million in the quarter despite the challenges of reduced sales activities, demonstrating their continued performance for clients. Despite almost $20 billion of raised capital to invest, LaSalle has invested cautiously, investments for the first nine months of 2008 the $3.6 billion compared to $7.3 billion in 2007.

Finally, I will cover the balance sheet. We ended the quarter with $543 million drawn on our bank line, as compared to $442 million at the end of the second quarter. The increased amount was primarily a result of acquisition-related funding of over $130 million. Our bank line was renewed with the approval of the Staubach transaction, and increased in size during the third quarter from $575 million to $875 million. Our line is supported by a well-capitalized group of banks, with whom we have long-standing relationships.

We issued [100 million] of common stock as part of the Staubach transaction structure, consistent with our conservative balance sheet management. The Staubach deferred payments are recorded on our balance sheet, discounted to approximately $320 million. The earliest a cash payment is due is August 2010.

Our Board has declared a quarterly semi-annual dividend of $0.25 per share, which is at the same level we initiated a dividend in 2005. At commencement, our dividend strategy was to broaden our potential investor base to include those that require some level of dividend. As such, we initiated with a dividend of an approximately 1% return on an annual basis. The current declaration reflects our lower share price.

Jones Lang LaSalle is a business model characterized by strong cash generation. During the last three years, our priority use of cash has been organic growth, acquisitions and share repurchases. In this environment, our priority is to pay down debt and have the potential for share repurchases once we have better visibility on the economic environment.

In conclusion, we are very pleased with our results against a most challenging operating environment. We continue to demonstrate consistency to our strategy, but nimbleness and adjusting to the needs of our clients and opportunities within our markets. The Global franchise at Jones Lang LaSalle is strong and will continue to bring real value to our clients. Let me now turn the call back to Colin.

Thank you, Lauralee. We have both mentioned that our Global Corporate Solutions business, which delivers a range of occupier services to corporate clients, continues to make strong contributions to our results in the current climate. Confronted by slowing economies around the world, corporate occupiers in almost all industries are focused on reducing headcount and cutting costs in their operations, while increasing the flexibility of their real estate portfolios. Many are looking to us for advice and outsourcing services.

We believe that we are seeing a flight to quality, as clients only want to work with the most capable and financially stable firms. To date, in 2008, we have established 32 new contractual relationships, encompassing 165 million square feet of space with Corporate Solutions clients around the world. Of these, 11 are multi-regional relationships, plus another nine in the Americas, four in EMEA and eight in Asia Pacific. We have also expanded our relationship with 34 existing clients, and have won all 16 renewals that have come up this year on contracts which typically run for three- to five-year periods.

The investments which we made to build our Global Corporate Solutions platform have enabled us to capture this countercyclical annuity type business. Historically, these relationships have originated primarily in the US, where outsourcing activity remains high. In fact, through September, in our US facilities management business, revenues were up by more than 50% year-on-year. But we're now also seeing increasing interest in outsourcing and other corporate occupier services amongst multi-nationals in other regions, in particular in EMEA.

Our success in the corporate market is driven by more than our platform. Our people continue to build strong and enduring client relationships, and we are proud to say that Procter & Gamble this month named Jones Lang LaSalle one of its six suppliers of the year, an honor determined by quantitative and qualitative measures of superior performance, service and partnership. The six winners of this award were selected from the ranks of P&G's 80,000 suppliers from around the world, and we see this as a tremendous accolade from one of the world's leading consumer products companies.

We're also very pleased to report that just yesterday afternoon we signed a new three-year contract with Procter & Gamble that expands our existing relationship. In addition to providing facilities management services for office and technical centers globally, we will now be responsible for portfolio management, transaction management, broker services and lease administration and portfolio planning for Procter's 150 million square-foot global real estate portfolio. This award was very much assisted by the additional capabilities brought to our firm by our Staubach acquisition.

And we are also encouraged by the early performances of our other acquisitions which were made worldwide during the past year. They have already strengthened our performance during the global financial crisis by adding more local transactions to our portfolio, and that will prove relatively resilient compared to the larger transactions that were historically the core of our business. We continue to integrate these acquisitions into our global organization so that they will deliver full value through the downturn and then as markets recover.

So to sum up, as we look ahead to the end of the year and on to 2009, we are taking both offensive and defensive actions to respond to the slowing global economy. We have begun to take advantage of some opportunities created by the credit crisis. As an example, we are advising a financial institution on strategy and on the subsequent disposition of a $1 billion-plus loan portfolio, and we are providing receivership, management and leasing services for a portfolio of retail properties.

We have also established teams to help clients affected by specific needs created by the financial crisis. So, for example, we are looking at advising banks, insurance companies, merging with other institutions, financial institutions with challenged assets, receivership situations and services for lenders, and public sector entities dealing with assets that they have taken over.

We are also managing our costs relentlessly across our organization, taking advantage of every opportunity to reduce expenses in areas that do not harm client service capabilities or the firm's continued growth. We are carrying out selective staff reductions in business lines and geographies with difficult near- to mid-term prospects.

Finally, before opening the call to your questions, I want to mention one more piece of important news. Last week, we were very pleased to announce the election of Dr. DeAnne Julius to our Board of Directors. DeAnne is Chairman of the Royal Institute of International Affairs, also known as Chatham House, a leading London-based source of independent analysis, debate and ideas related to building a secure and prosperous world. She was a founding member of the monetary policy committee of the Bank of England, and DeAnne Julius currently sits on the boards of Roche, the global healthcare and pharmaceutical company, and BP, the global energy firm. She will provide us with valuable insights and expertise when she joins the Board on November 17, and we welcome DeAnne to Jones Lang LaSalle.

Looking forward then, we will maintain our commitment to controlling costs and to securing targeted increases in market share in today's exceptionally challenging markets. We are also being careful to protect our leadership positions in all our businesses, Capital Markets and Hotels included, to take advantage of market opportunities when they inevitably return.

Most importantly, we will continue to focus on our very first priority, which is delivering outstanding advice and service to our clients, who value our expertise and experience and are moving more than ever to quality suppliers in current markets.

So with that summary of our Quarter 3 trading, we would like to take your questions. Operator, would you please describe the process?

Yes, I will. (Operator Instructions) Vance Edelson, Morgan Stanley.

Hi. Thanks. Could you provide some additional color on how you are taking market share within the Leasing business? Is it mainly a flight to quality on the part of customers? Or can you point to specific moves on your part that you feel are adding to the growth there?

Thank you, Sam. Yes, there is, we believe, a move to quality players, by which we mean the larger operators' businesses with obviously clear name recognition and a strong brand, but also businesses with an international reach, as the leasing markets too become increasingly global in their access to clients.

The advantages which we believe we have, or the reasons which we believe which are driving the increase in market share, are several fold. Firstly, we have been adding, as we've been telling you for the last 18 months to 2 years, we have been adding leasing professionals across the business, both on our Tenant Rep and on the Leasing side of our activities, not just through acquisitions such as in the US and in Germany, with Kemper's, but also by individuals and teams who have been joining our organization. And these people are beginning to come onstream and provide revenue growth even in difficult markets.

We have changed the way in which we organize and manage our business in some areas, so we are seeing the ongoing benefits of the regional focus of our US operations in particular. We are also seeing the benefits of increasingly variable compensation structure, where the incentives for our operatives to perform is enhanced, because the rewards that they get for great performance are also equally enhanced.

The other point to mention probably is that we have, as a business, when we are working for investors on the leasing side, we have increased our access to corporate occupiers. Again, not just through the Staubach acquisition, but through our increasing activity with Tenant Representation work for corporations worldwide. So we can find better access to potential occupiers of leasing space.

So all of those things together, taken together, are helping to, we believe, enhance our business in the leasing area and grow our share of this market.

Okay, thanks for that. And on the outsourcing business, could you just describe the current competitive landscape? Do you feel like the business is, to some extent, yours for the taking or do you really have to battle it out to grow that business?

Oh, there are no free lunches. We are doing exceptionally well. Those numbers of increased revenues in the US of 15% just reflect, we think, an exceptionally strong performance.

We are seeing a lot of demand, first of all. The numbers of RFPs we are seeing and processing are at historically high levels. We continue to win 60% plus of our share of an RFP process. We think our advantage is -- some of them are similar to the points I mentioned in Leasing. But corporates want to work with the larger names, they want to work with companies with a global reach, such as we have. And we are linked up in such a way that we can provide common service standards to large corporations around the world. Witness our continued expansion of services with Procter, probably one of the most demanding clients in this sector.

But clients we also see are looking for a commitment to -- not only to the global platform, but also to our environmental skills and energy management skills, and we can provide those to them. And they are also looking increasingly to commitments to diversity. And they are looking at the strength of the finances of their outsourcing providers, and that is becoming an increasing differentiator, we believe, for our organization.

So again, taken all together, they are deriving an increase in our market position, which the numbers are demonstrating and we are very pleased with.

And Vance, probably the most important question is do we think that outsourcing will continue to grow. And the answer is yes, because we are seeing new industry sectors now evaluating that as a cost opportunity. So again, you are taking share from an insource in that case, because you are bringing value-add to it. But that allows you to have significant more industry space to play in.

Okay, I appreciate the color. Thanks.

David Gold, Sidoti.

Hi, good morning. A couple of questions. One, can you give a little bit more color on the headcount reduction or adjustments in EMEA? Essentially what business lines will be pulling out of there? And if they are -- presumably there are other potential thoughts on the table. Where else are we watching closely?

So far, it has been largely focused on the UK and Sweden. We have also done some reductions in Australia. But we've been attacking the issue on a broader basis around the world in various areas.

Firstly, support functions and just general administrative functions, where you look in markets like this at how tightly you are running operations. You look at holding hiring for a period of time. Particularly in the case of businesses where we are continuing to grow, that helps a lot with productivity improvements.

But we are also looking, as Lauralee mentioned, at rightsizing some of our more challenged areas. Clearly, the capital markets in many markets have suffered volume declines, activity declines. And although we are deflecting some people to some of the new areas which we mentioned, which are opening up directly as a result of the financial crisis, we are also looking at rightsizing teams, looking at performance, looking at support on those Capital Market teams.

But as we do so, we're looking to maintain our franchise players, as we call them, the key people who are driving revenues in all markets, good and bad. We are trying to ensure that we retain them, retain their motivation and continue to compensate them in satisfactory ways.

Got you. Okay, and then also, on the Leasing business, performance there was fairly strong. But I guess some incremental commentary that we have heard out there is that in many cases, some folks who are up for renewing leases may be delaying as much as they can, based on the perception that, at least domestically, costs -- or asking rates will go down as we enter the new year. Are you seeing those types of delay, or is the business sort of performing exactly as you would expect it to?

Well, renewals are renewals, and they generally happen contractually all around the world, whenever lease periods come to termination. So they tend to have to get done one way or another.

What we are seeing is people delaying decision-taking on expansion of space, consolidation actions, where they are perhaps moving out of lease properties earlier, and looking to sublease. We are seeing a general hesitancy amongst corporates to push ahead with projects, particularly where they involve capital expenditure. That doesn't mean to say that they will disappear altogether, but they are certainly delaying them, waiting for the environment to clarify, waiting for, we guess, confidence to return a little bit as well.

Yes, David, I think there is no question there is uncertainty in all businesses, which makes everybody think a little longer and harder about their decisions. What we are focused on is that clients that had been using our services for growth, financial institutions in particular, a lot of them now are clients that are merging with others. There is going to be huge portfolio rationalization, which is an expertise of ours, that then leads to either whether you need to sublease, whether you need to consolidate and so forth.

We are in a period of transition, but I think there is just so much transparency in the marketplace -- you can see it in every piece of data that you have -- that it's very hard for a landlord to be long in denial that they would rather have a tenant with a slightly lower rent than have the tenant go someplace else. And you are also seeing that landlords are realizing they need to be aggressive, because everybody is looking to protect income streams, values of the assets that they have.

So I think the closure time to get on to what needs to be done is going to start tightening, but definitely, decisions are harder to get done and a lot more work.

And just one last one, if I might. The plan to change the compensation in the Leasing business, is that still on pace for the beginning of the year?

Yes, we have already actually made a great deal of changes, but we will be fully done by then, yes.

Perfect. Thank you both.

Will Marks, JMP Securities.

Thank you. Good morning, Lauralee, Colin. Can you -- further on Leasing, I don't want too much commentary, because you've talked about it, but we've more been hearing about the past. And just looking ahead, is it actually possible to maintain growth in an environment where -- we've all done plenty of surveying of leasing brokers, and your average broker is going to make less in coming months than they did a year ago. So would it be possible to continue your growth if you stopped making acquisitions?

Well, if you start with the underlying leasing markets and say what is the background against which we are operating, job losses in the US have been in the stats for well over a year now -- or rather the decline in job growth. And the decline in space take-up, gross space take-up in the US has also been going on for over a year. Similar pictures in Europe, certainly, for 2008. So the market has been declining, and I think declining in overall square footage, square meterage sense, for well over a year.

So we have been picking up market share and growing our own volumes against these weak markets for a good period of time now. And so there is momentum in what we are doing in the things that I just described earlier on.

We are not planning to stop growing market share. Quite the opposite. We are not planning to -- on a cessation in growth in our Leasing revenues. But we recognize that as economies continue to be challenged around the world, as potentially as job losses continue, that it will get harder for us to grow.

So we will continue to drive ahead. We will continue to exploit the benefits that are coming from the cross-selling from the acquisitions and the extra services we are able to offer, lease [climbs] through the acquisitions we've made. We will continue to help the people we brought onstream in the last two years to grow their business contribution. But it will become more challenging as the recession -- presuming there is a recession -- continues to bite worldwide.

There is another -- just another aspect to it. It is this point of what does flight to quality mean? In easy markets, markets where there is a huge demand for space, it is relatively easy for any brokerage operation to find clients for available space. In markets that are difficult, where vacancy rates are rising, where rents are falling, landlords in particular are looking for quality names who have access to quality clients. And so there is a move towards larger players, such as ourselves, towards companies where the performance record was a strong performance record through cycles. So we believe that move towards better names and better franchises is part of this whole process.

Great. That's helpful. And further on the Leasing, with the move toward commissions, are you seeing any resistance or is it just the opposite? In terms of going to that platform, people that have been relying on the salary for years.

Well, I think you need to understand that Jones Lang LaSalle has in its organization really two different types of brokerage activities. One is strongly execution around our committed corporate clients. So, for example, to win Procter & Gamble, we know Procter & Gamble is going to have a certain amount of needs that need a high level of execution, but that business is now one. And so for those that are more comfortable not going on commission, they can be very effective executors around that, and they move into that side of our corporate activity.

For those that are very confident in their ability, their view is they can make more money with the leasing. So what it has done is it has really allowed us to have a good understanding of our talent base and let them pursue the part that they are most comfortable with. And because we have growth and success in both parts of this business, there is room for that decision to be made.

Great. That's helpful. And one final question on Capital Markets. You mentioned some signs of positive activity. Can you give us an idea of what fourth quarter '07 was like? Is this still a difficult comp? I know business had started to turn down at that point.

Yes, it had, Will. You're right. But it was still running on the momentum of the previous -- well, the first two quarters, in particular, of 2007. Because the initial credit crunch of the CMBS market imploded -- only really began to chip in from June/July 2007.

No, we think the numbers will continue to decline through -- comp numbers will continue to decline through the next two quarters, at least. But there will come a point in the middle of next year, presumably, where the declines we've seen to date have been so significant that the comps will actually get easier. And so we will see some sort of a bottoming, at least in numerical terms, of the market. Kind of as distress begins to kick in, as the equity rich players begin to trust pricing a little more and trust the bottom in the market, then things will move off the bottom.

But that is likely to be a slow process when it starts. We are not calling a time when it might start, but some sort of a bottoming in the course of 2009 is not unrealistic. But don't expect the volumes to come roaring back; there may be quite a nice bounce around some of the distressed assets. But on the broad-based volume of activity around the world, that will take, as Lauralee said, we believe into 2010 to get motoring.

Great. Thank you very much.

(Operator Instructions) Brandon Dobell, William Blair.

Thanks. I wanted to focus on the investment management segment for a second here. And maybe give us a sense of looking at the sequential declines in AUM and how we should use that as a guidepost for how to think about the revenue and profitability growth looking out the next several quarters. Is there a great correlation with what the AUM is doing compared to what we should think about for your revenues? Or is it just more of a timing issue and we should continue to see decent growth in the advisory fee side?

What we have happening is, really, the decline in the assets under management came from two places, the largest one of about $900,000 of it is coming from our public securities business, which has had fairly significant valuation impacts on a global basis.

The other place is also valuation. So we are not in any way losing relationships. It is the fact that assets are marked, and will be there. So those are modest impacts to advisory fees, because as you saw, we continued to grow advisory fees in the quarter.

What we do have is capital to deploy. Some of that is already in the fee structure because we are being paid on commitments, but we also have a fair amount of that that, as it comes into assets under management, will continue to grow that line. There, at the moment, is a challenge to capital raise. We have raised capital this year, but it's principally been in the first half of the year. And we are in the market with some ideas. I think the marketplace is looking for what is going to be the next great idea, whether it is a recovery fund or where the opportunities are going to be.

So our performance is the key to that. We continue to perform. We did have modest incentive fees this quarter, but they were based on exceeding performance that was required by our clients. And then, I guess, it will be the question of when the investor confidence comes back that they feel it is time to put the money out again.

Is it fair to assume in the context of Colin's commentary about kind of a bottoming process at some point in '09, that it might take you a couple quarters to see a real pickup in opportunities to put that equity capital to work? Or are you able to kind of frontload or front-end the general market return in Capital Markets just because you are -- different geographies and things like that?

Good question, Will, and it's one that exercises our investment management teams constantly, because obviously, they'd like to get on with investing. I think -- we were very impressed with the way in which they have backed off of investing for the back end of last and the early part of this year. Because they have seen the way the markets has developed, and as a fiduciary, they have had their clients' interest -- our clients' interest -- very much at the front of their minds, rather than investing for its returns' sake.

Having said that, they are beginning to see opportunities. They had been looking hard at London and the English market just before the October melt, and were seeing opportunities there. The real question is you have to look selectively. We obviously have a worldwide platform, and what's true in Korea is not necessarily true in Cincinnati. And so as we look around the world at the opportunities, even in these markets, they are seeing things which attract them and look interesting and they are doing deals, backed by the relationships they have -- solid, long-standing relationships -- with the financiers that they have in place.

The trick will be -- if you talk to our investment management people, they will say that somewhere in 2008 -- sorry, 2009, '10, you will hit what is called a vintage market for investment, where like 2001, 2002 was, where taking positions at that time will be very smart when looked back on from 2013, '14. And so they will be trying to invest as markets move towards the bottom, at bottom. Because once thing start to move again, there will be a lot of competition for assets again. And the kind of relatively easy discussions which buyers can currently have with sellers, a relatively uncompetitive environment for purchases, that could potentially change very quickly.

And switching gear a bit -- and thanks for the little more transparency on the acquisition impact -- if we exclude the impact of Staubach as we think about the potential for profits from the rest of the acquisitions, what should that trendline look like? Is their opportunity to really see a change in the profit contribution from the acquisitions the last 12 months? Or given the markets and the types of companies you acquire, should we kind of continue to assume kind of breakeven-ish results the next several quarters?

The acquisitions that have been made were businesses that were, generally speaking, about 20% margin businesses. And what we have in that beginning period of time is we have intangible amortization that, depending on the nature of the business, will burn off in 12 months, 18 months, sometimes a little bit longer. So we are moving through that part of their negative impact.

There is also the early integration costs that go on as we consolidate offices and put them on technology, et cetera. Again, we have burned through those pieces of it. So we expect them to be contributors. They may not be contributors at the 20% margin number in a slower marketplace. But with a 20% starting margin, they definitely have room to be contributors.

And Brandon, I will apologize for calling you Will (multiple speakers).

That's okay. Been called a lot worse than that.

Well. But Churston Heard, Kemper's and Staubach all have the characteristic which we referred to in the text earlier of being active in relatively smaller transactions. And those tend to have momentum to them during downturns than the larger transactions which the broader firm has been traditionally focused on.

And in particular, the retail markets, which is Churston Heard and Kemper's hunting ground, there is a countercyclical part to retail leasing, because retailers either go bust or examine their more marginal stores and tend to pull out of them. So you get a churn in retail space in malls during difficult retail trading times, which is just exactly what those businesses, Churston Heard and Kemper's, benefit from and build revenue around. So there is a countercyclical element to what they do as well.

And then final question for you. As you look across, in particular, I guess, in EMEA, but to a certain extent in the US, are you seeing a lot of competing firms, advisory firms, fall by the wayside? Has the market stress not lasted long enough to start putting firms out of business? Are you seeing interesting opportunities to pick off individual brokers from smaller firms who are starting to fail?

Just trying to get a sense for -- I know there is a flight to quality, but is it a severe flight to quality and we're going to see a much different landscape in a year or two? Or because these businesses are relatively variable cost that a lot of them can kind of limp along for a year and then still be there when times get better?

What we are seeing, Brandon, is people knocking at our door. We are seeing a lot of interest from relatively -- from very good quality individuals and teams, to join our firm. And we believe that is because we are sort of building market share in a relatively difficult environment. So that we do see very clearly.

As to our competitors, well, you know, you can read their numbers and look at their situation, at least those that are published. We are very cautious at this state of the cycle about further acquisitions. As Lauralee said, our focus is moving towards integrating what we have and our use of cash is moving towards other things than acquisitions at this point. So we are very cautious on that score. If we do see things which are compelling, we will obviously look at them, when we can still financially do so.

What I've discovered from other industries, by the way, is it takes businesses an awful long time to die, even in difficult markets. So we are not expecting our competitors to fall over in great numbers quickly.

Thank you very much.

Michael Mueller, JPMorgan.

Hi, good morning. A few things. First of all, following the disclosure in the presentation, can you provide what the Q4 '07 Capital Markets and Leasing revenue breakdowns were at this time?

We can. We are just looking for the numbers for you.

Okay.

We might -- could we maybe get back to you on that, Michael? We don't have those with us. But they are reported; you can clearly take the total year that was given before and back it out. But we will get it back to you.

Okay. Secondly, following up on the prior comments, Colin, about taking advantage of the global dislocation in terms of what is happening. How far away do you think you are in terms of getting, say, more assignments from banks, etc. for dealing with the deleveraging and the asset sales to the extent where it can potentially be meaningful to the P&L? Are you a few quarters away? And is it more driven by one region or are the discussions thus far a little more broad-based?

Well, I would say they are broad-based, if you think about just the activity in EMEA and the number of large banks there, or the stated needs for liquidations that are going on within AIG or Lehman or some of the others that need to liquidate assets. All of those have global assets. And we have significant relationships with them throughout our organization. So you are going to find that it comes from around the globe.

Getting an assignment and then the sort-through, I think, is the question that everybody is asking. How long before TARP in the US actually translates into banks lending money? You know, we are getting assignments. There is evaluations going on. There is request for services. But then you actually have to execute those transactions.

We would love to have that answer so we could give it to you, but what we do know is that the energy going into resolving this marketplace is very, very high.

Okay. You mentioned picking up square footage on Corporate Solutions. I mean, if we look at your year-end total square footage under management, I think it was about 1.25 billion square feet. How has that trended overall? Obviously, you picked up some in Solutions, but elsewhere?

Yes, it has on the Leasing and Management side as well. Don't have the numbers.

We don't have that yet.

But it has clearly picked up. We mentioned the European management, the Asian management business, on the owner side, US business is largely linked to a good extent, to the leasing activity, so it's picked up there as well. On our Corporate side, we mentioned the numbers for growth in footage. So it's growing everywhere.

Okay. And last question, any comments on Staubach thus far in terms of the expected EBITDA ramp-up and just how you are looking at that versus what you underwrote?

Well, I think just that at a very high level, if we take the amount of revenue they did in the third quarter, part which was on their own books and part which was on ours, and compare that to what they did a year ago, it was exactly the same. And we view that as a very good sign, because there was a whole lot of movement of people into new offices and learning new colleagues and adjusting to the fact that they were going to have a different name and go to market. So to be able to perform at that level through all that transition is very good. And in talking with them about what they have in their pipeline, they would say they have a record pipeline of transactions. So, that part of it has a tremendously good feel.

And I think that the most exciting thing in the piece that we didn't underwrite it, but we clearly talked about it, and it was also a motivating factor for Staubach joining Jones Lang LaSalle, is if the way we survive in the leasing markets is through market share, every trick, whether it's global or you can bring project management services to it or you can bring energy and sustainability practices to it, you can bring practice leads around industries, you can bring consulting services, or in fact, as you go into buildings, you can bring Capital Markets people to know what all those decisions mean, linking those all together brings a huge competitive advantage to the Staubach client base, and all of our ability to maximize that potential. And that is the focus of everybody right now.

Okay, thank you.

Will Marks, JMP Securities.

Thanks. I actually go by Brandon. Anyway, I had a question on the balance sheet. Can you just talk about what typically happens -- I assume that fourth quarter we can expect that to be paid down a little bit. Can you comment on that?

And then in light of first quarter, your debt level typically going up, I know you're not going to tell me exactly how much, but how should we be thinking about that in this coming year? Staubach, I would think, doesn't make that much of a difference, because they are all on commission. Your revenues have been up, though, so should we assume that your debt level goes up by more than it did last year?

Well, we had record bonuses last year. And unfortunately, I'm sorry to say we are not going to have record bonuses this year. So clearly, bonuses will reflect the performance.

We do normally, pay down debt into the fourth quarter, and that is our intention as we look forward. We do not have acquisitions on the horizon so that the uses of our capital, our remaining CapEx, the modest dividend that we have now declared, and there is just a few deferred payments from previous acquisitions. So we would be paying down the debt through the end of the year and actually into the first quarter, prior to bonuses being due.

We've also made a great deal of adjustment in the fact that a lot of our compensation has shifted to being paid more currently, as you pointed out with the commissions, so bonuses will be down significantly. It is clearly early to know how the whole year will play out, but our decisions have all been made around managing all of those factors to keep us in good stead relative to our debt.

Okay, great. And just my last question. On the operating expense line or operating, administrative and other, as you call it, for 2009, is there any way to give us some indication of what you expect? Is all the cost cutting you are doing going allow that to drop or be flat, or should we expect some growth? Even if it is just qualitative comments, I would appreciate it.

The op and admin line has in it -- probably the largest component would be our office leases. And so there is not a lot of flex in that decision that's there. The next largest one would be our technology and telecom, and there will be some variation in that line if we have lower staff levels.

The balance of it are things that we have more flexibility over, meaning travel, marketing, incremental expenses. And we have already aggressively cut back on anything that is not client- and revenue-focused. So we will continue that, but I don't think you're going to see dramatic differences in the op and admin line.

What will happen, Will, is that the rate of growth will slow and tend towards flat. Because it had been growing through '07, early '08, as we'd added people, teams, as we discussed earlier in the call, but also by the acquisitions that came into the firm. And clearly, that process slowed to the final acquisition coming in just in this quarter. So the comps will flatten out as we go through next year.

Great, thank you.

-- mechanically.

And at this time, I do show there are no further audio questions in queue. Mr. Dyer and Ms. Martin, do you have any closing remarks for your audience?

Well, thank you, operator. Thank you for all the questions. As we said earlier on, we are continuing to trade through Quarter 4 against relatively difficult market conditions, which we've described in some detail. Our intention remains the same, which is to grow the business selectively, consistent with our long-term goals. We are obviously controlling our costs aggressively, as we've described, and our aim is to continue to build share against weaker competition.

So we look forward to sharing the results of Quarter 4 with you all in January or February of 2009. So thank you, everybody, for your attention today.

Thank you. This concludes today's third-quarter 2008 earnings release conference call for Jones Lang LaSalle. You may now disconnect.