Jones Lang LaSalle Inc (JLL) 2008 Q4 法說會逐字稿

Good morning; my name is Bradley and I will be your conference operator today. At this time I would like to welcome everyone to the Jones Lang LaSalle fourth-quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions). Thank you. Colin Dyer, you may begin your conference.

Thank you, Bradley. Good morning, everybody, and thank you all for joining us for this review of our results for the fourth quarter and of the full year for 2008. Joining me on today's call from Chicago is Lauralee Martin who, as you know, is our Chief Operating and Financial Officer. Lauralee is going to review our performance in detail in a few minutes, but to frame the discussion here are some highlights.

Our full year 2008 revenue was $2.7 billion equaling the 2007 total. Revenue for the fourth quarter was $797 million compared to $662 million for the fourth quarter of 2007. Net income was $84 million in 2008 or $2.44 per diluted share of common stock. Net income in 2007 was $256 million or $7.64 per share. And that figure in 2007 you'll remember included a significant advisory fee in our hotels business. Net income for the quarter totaled $41 million or $1.17 per share. Net income for Q4 2007 was $105 million or $3.16 per share.

Now we produced these results in a dismal economic and global real estate market in a quarter which saw major shocks to financial markets and to business confidence. The global economy contracted at an annualized rate of minus 2.9% in the quarter, the sharpest declined since the IMF started measuring global GBP in 1990.

The financial crisis has vastly reduced the availability of private credit around the world and has had a negative impact on all asset prices including commercial real estate. Preliminary data from Real Capital Analytics indicates that the value of commercial real estate transactions fell 80% in the fourth quarter compared to the year prior. And the total 2008 transaction volume was down 59% compared to 2007 levels.

Finally, office markets around the world are experiencing higher vacancy rates, lower leasing volumes, weak net absorption and negative rental growth. Our US target markets, or in our US target markets gross absorption was down 14% from 2007 to 2008 and in Europe 2008 gross take-up was 12% down on 2007 volumes. And these declines accelerated throughout the year into the fourth quarter.

So faced with these challenges we nevertheless maintained our revenue levels in 2008. We delivered a profitable fourth quarter and full year and continue to take market share from competitors across our businesses in the corporate service, leasing, capital markets and investment management markets. We did this by focusing very closely on our clients and on their needs and benefiting from the market's move to quality suppliers in troubled times.

We have also been working to take new opportunities which have been created by deteriorating markets. And finally and very importantly, we have focused closely on collecting our receivables and on reducing our cost base aggressively. So with that introduction, and to go into the details of our performance by region, let me 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. I will use the slides as the framework to discuss our results.

As covered by Colin, our 2008 GAAP net income was $84 million or $2.44 per share. Slide 2 provides a bridge from our reported GAAP earnings to our interested net income for 2008 of $127 million or $3.71 per share. We discussed in our third-quarter call purchase accounting rules for the Staubach acquisition prevent us from recognizing certain revenues related to what is referred to in the industry as second-half lease commissions.

For the year this totaled an exclusion of $21.6 million of revenues which would have contributed $7.3 million of net income. We did receive the cash from these commissions which benefit our debt paydown activity. We remain very pleased with the financial and operating benefits of this acquisition.

On a like-for-like basis, including the 11 days of the second half of 2008 when Staubach was not in our results, as well as including the second-half lease commissions, the Staubach organization achieved flat revenues year over year. This was accomplished despite the energy of the acquisition transition as well as the current more challenging market environment. Commencing in 2009 we will no longer be recording Staubach revenues separately.

In the fourth quarter we accelerated our staffing actions in response to the significant slowing global economy. For the year we have taken $23 million in severance costs and continue to achieve and expected payback period of six to nine months dependent upon global locations. These savings will benefit our 2009 performance.

Total restructuring charges in 2008 of $30.4 million on a pretax basis or $22.8 million after-tax included these severance costs, as well as $7 million of integration charges for the Staubach and Kemper's acquisitions.

Intangible amortization related to the Staubach and Kemper's acquisitions totaled approximately $18 million in the year or $13.2 million of net income, the majority of which related to the Staubach transaction. We project approximately $8 million of amortization from these two transactions in Q1 2009, $4 million in quarter two and less than $1 million per quarter in quarter three and beyond.

Slide 3 is the comparable bridge reconciliation I have just discussed, but for the fourth quarter's reconciliation.

Turning now to slides 4 and 5. Colin covered our full-year consolidated revenues, so let me talk for a moment about the three geographical segments on slides 4 and 5, as well as LaSalle Investment Management and detail on slides 10 and 11.

In the Americas revenue was up 22% for the year and 26% in the quarter, principally due to the addition of Staubach and the continued strength and growth of our Corporate Solutions business. Corporate Solutions' revenues increased 29% for the year and Colin will be highlighting some of the exciting new business wins shortly. Within this 29% growth is the performance of our integrated facilities management business which was up 61% over 2007. The financial benefit of this business is its consistent annuity core revenues.

We also had very strong growth, up 19%, in our Public Institutions business, which serves government and higher education entities. This is also a business where we expect continued strong growth in 2009 as the anticipated government stimulus programs develop. We also had solid growth in our Local Markets business up to 10% where we've added product and staffing (inaudible) and are taking market share.

In both EMEA and Asia-Pacific full-year revenues were adversely impacted not only by lower transaction levels but also by a dramatic weakening in the foreign currencies against the US dollar in the fourth quarter. In EMEA revenue was down 6% for the year, 5% in local currency, but down a dramatic 26% in the fourth quarter, although half of that or 13% if we looked at it in local currency. In Asia-Pacific revenues were down 11% for the year, 14% in local currency and then 15% in the fourth quarter but only 4% in local currency.

Aside from currency of the declining capital markets transaction level was the primary driver of results in both regions which is illustrated on slides 6 and 7. To offset capital market declines in Asia-Pacific we have been building our property management and facility management portfolios in the Asia-Pacific region to have a stronger base of annuity revenues against market declines. Property management was up 14% and facility management revenues were up 28%.

Looking at slides 6 and 7, capital markets and hotels remain down for the fourth quarter resulting in significantly lower revenues and each segment for the year. In addition to the lack of financing for most of 2008, investors have become extremely cautious about determining value, which slowed transaction volumes even further in the fourth quarter.

Against this challenging environment we've taken a number of actions. On the cost we've taken aggressive reductions in our staffing levels, which I'll cover in more detail in a few minutes. And on the revenue side we are focusing our energy on client needs, building a value recovery service offer, portfolio asset management capabilities in our hotel business and strong corporate finance capabilities in our capital markets group which Colin will cover shortly.

Moving to leasing on slides 8 and 9. In the Americas, as I mentioned, we were very pleased with the Staubach integration and performance since the transaction closed in July 2008. The addition of Staubach is driving not only our local market performance, but also contributing to new wins in our corporate solutions business in the Americas and globally.

Americas' leasing revenues excluding Staubach were up 9% for the year. Our leasing volumes for the year were up 22% in our tenant representation offer and 6% in agency. Full services declined in the fourth quarter as renewal decisions by tenants dropped dramatically, we have concerns over the rapid change in sentiment but are focused on new client wins, the potential created by client consolidation and the need to assist clients in portfolio subleasing and portfolio rationalization. As a cost buffer we've also completed our conversion to full commissions for leasing staff in 2009.

Outside of (technical difficulty) the slowdown in leasing also began to show in the fourth quarter but appeared worse than the underlying performance due to the dramatic and sudden strength of the US dollar. In EMEA leasing revenues were down 17% for the quarter in US dollars but only 8% in local currency. Additionally, this 8% decrease compared favorably to the overall market take-up in EMEA which was down 41% indicating that we continue to gain market share.

Asia Pacific leasing revenues were down 15% in local currency in the fourth quarter reflecting dramatic rental rate adjustments in markets such as Tokyo, Singapore, Hong Kong and Sydney. Most of these markets continue to have relatively strong property fundamentals in terms of occupancy, but the previous rapid space cost and price increases have dramatically reversed direction with occupier uncertainty.

Slides 10 and 11 covering LaSalle Investment Management. While advisory and transaction fees increased 9% for the year, those revenues decreased in the fourth quarter, reflective of declining values in the public securities business. While valuations have decreased in the securities business, a dynamic felt by nearly all equity money managers, we have had no [net] redemptions in our business which speaks to the quality of the team we have in place and their long-term track record.

Advisory fees will be under pressure in 2009 as portfolio values fall. To offset this we expect our solid track record and reputation to provide performance to appeal to investors that are evaluating their existing asset manager's capabilities and performance. We are seeing early signs measured by RFP requests that we will benefit from a flight to quality.

We were also pleased with $59 million in incentive fees in 2008, $26 million in the fourth quarter, but we recognize that it will be challenging to earn incentive fees in 2009 as values of property fall globally and transaction activity remains limited.

In our equity portfolio we had $5 million of impairment charges for the year. However, reflecting the size and the diversification of these investments, this charge was spread across 10 assets. $4 million of these charges was recognized in the fourth quarter.

Turning to slide 12, we've taken a number of measures to right size the business for the changing economic environment including taking $23 million in severance charges across the business, $15 million of these charges were recognized in the fourth quarter. These charges were incurred primarily in EMEA where we have our largest capital markets positions and where the transaction level decline came first and hardest.

To date we've completed the following staffing actions. Americas has reduced their capital market staff by 20%. With the strong growth in our corporate business the Americas has also been able to redeploy over 60 professionals to staff new account wins. EMEA started staff reductions in the third quarter and has now reduced staff levels by 10% across the region, however varying by country and service line. For example, a 16% reduction in capital markets staff and 12% in leasing.

Asia-Pacific has reduced staffing levels by 7% across the region, 8% across their capital markets teams. (technical difficulty) selected markets in Asia have chosen to take salary reductions in lieu of staffing cuts. Hotels reduced staff by 12% worldwide driven by a 30% reduction in the mature markets of the US, UK and Australia, offset why growth in staff for their annuity asset management service capabilities.

Since year end LaSalle Investment Management has now also taken actions to reduce its staffing levels by 7%. These severance costs will be incurred in the first quarter. Reducing staffing levels is always a very difficult decision that we do not take lightly. We evaluate these decisions in the context of making sure we maintain our ongoing client service delivery capabilities at the necessary level.

And finally on slide 13, our debt covenants. We already announced that we amended our credit agreements during the fourth quarter to create improved business flexibility and, among other things, to allow for the exclusion of severance charges from our calculated ratios. As you can see on slide 13, we increased our maximum allowable leverage ratio to 3.5 times. However, our calculated ratio at December 31 was significantly below that level at 2.24 times, a very positive outcome. Our cash interest coverage is a healthy 3.69 times against a minimum of two times.

While we didn't need to take this step with our banks, we wanted to maintain confidence with our clients and investors. We were pleased to have 100% consent from our bank group for our amendments and a very timely response to our request. We recognize 2009 will be a year of challenge, but we also expect it will bring opportunities for which we are well positioned. So let me now turn the call back to Colin to discuss these in more detail.

Thanks, Lauralee. As Lauralee said, despite the challenging market environment we continue to identify new opportunities and secure new clients and I want to give you a flavor of some examples of that. We've seen the greatest positive impact in our global corporate solutions business as corporate occupiers around the world have sought to reduce costs by outsourcing real estate activities to professional specialists.

In 2008 we signed contracts with 43 new clients representing 360 million square feet of space; we expanded existing relationships with 46 clients for 300 million square feet; and we renewed contracts with another 22 clients for 100 [million] square feet. So some examples of that -- in December IMS Health, the world leader in market intelligence to the pharma and healthcare industries, retained us for project management, tenant representation, lease administration and consulting services for their 1.75 million [feet portfolio].

In Asia-Pacific we renewed and expanded our outsourcing contract with EMC to cover transaction services, integrated facilities management and lease administration across the region. And at Philips Electronics we'll provide facilities management services for its 12 million square feet office and industrial portfolio in the USA.

We're also taking market share from competitors. In the US the combination of our new Staubach colleagues and our previous investments in local markets have generated substantial share gains in our [term] representation business. In one recent example a Staubach relationship supported by the credibility of our hotels business, led to Hilton Hotels asking us to relocate their headquarters from Los Angeles to the greater Washington, DC area and this parallels a previous assignment where we moved Volkswagen's US head office to Washington, DC also.

The acquisition of Kemper's in Germany and Churston Heard in the UK have significantly expanded our share of the European retail market with indications that although investment sales in retail assets are down the consumer recession is creating leasing churn and that is to our benefit.

We're also developing new products and services to address the evolving needs of our clients in tough markets. At LaSalle Investment Management we're seeing some institutions who are dissatisfied with their current managers inviting LaSalle to bid for their business. La Salle is also seeing interest from banks to advise on the strategic positioning of repossessed portfolios.

(technical difficulty) markets business we're providing a range of new value recovery services to clients around the world. We're advising a major US financial institution, for example, on strategy and the subsequent disposition of a $1.3 billion loan portfolio and we're selling a $250 million portfolio of notes backed by US assets which are now owned by a European financial institution.

We worked with a UK bank and accountants to complete the successful restructuring property investment group and we have also given property advice to the administrators of a (technical difficulty) for the extensive property portfolio in the US -- sorry, in the UK and continental Europe.

In Asia we're helping an insurance firm with due diligence for the acquisition of a property portfolio and are working with a turnaround management firm to review a portfolio of distressed assets in Thailand.

In the US we're providing receivership, management and leasing services for 14 retail assets spread across seven states while Jones Lang LaSalle Australia has been working through the sale of a troubled portfolio of shopping centers throughout 2008.

Our corporate capital markets professionals are seeing growing demand from corporate clients to raise capital through sale and lease back transactions across the world. And as hotel owners and operators struggle in the economic downturn, Jones Lang LaSalle is helping improve values with asset management services.

So that was a short series of examples (technical difficulty) in which we're targeting our services to emerging demand (technical difficulty) clients.

Looking forward to 2009, the IMF is predicting world economic growth of only one half of one percentage point and that will mean (technical difficulty) recession in the major developed economies. And so one month into the year our plans anticipate no immediate improvement in economic and real estate market conditions. We expect, for example, that leasing market volumes will trend downwards in line with the continued erosion of employment and broader business activity. And we expect the capital markets activities to be in line with the low levels seen in quarter four of 2008.

However, the worldwide repricing of real estate is beginning to attract capital into the asset class again. This repricing process is furthest along in the UK where pricing has fallen even to below replacement values and we expect it to pick up in other countries in 2009. The process will be accelerated as 2009's maturing debt forces seller motivation.

We are expecting to see continued strong demand for corporate real estate outsourcing. New investment activity among LaSalle's institutional clients, however, will be limited in the short term and driven partly by perceived opportunities relative to other asset classes.

In these markets we as a company are going to major on two priorities -- first, we will focus even more closely on current and prospective clients and on their changing needs which we've described. We will also redeploy people to meet those needs. We'll continue to doctor service offerings and develop additional new products and services to serve existing clients and establish new relationships. For LaSalle investment management this client focus will also include very rigorous management of clients' assets.

Secondly, we will continue the aggressive cost reductions which Lauralee has talked through where the guiding policy is to (technical difficulty) business to reflect market realities and to realign operations to meet new market opportunities.

2009 is going to be a challenging year for our industry and it will be more important than ever for us to operate in line with our key three core values. Those are -- working always in our clients' best interest; collaborating internally to get the best results for our clients; and doing everything we do with unquestioned integrity.

In hard times we believe that clients will migrate to these values and that's certainly going to contribute to building our competitive position throughout this downturn. So with that overview we would now like to open the call up to your questions. So, Bradley, would you please explain the process to everybody?

(Operator Instructions). Mark Biffert, Oppenheimer.

Good morning. Colin, a question for you on the advisory business that you had talked about. We've been hearing a lot about banks or lenders offering extensions on loans instead of taking back assets. And I'm wondering what you're hearing from your clients that you're dealing with and how does that delay your business and what are the opportunities or the catalysts that would drive the advisory as well as the outsourcing business as we look into 2009?

Good question, Mark, thank you. There's a broad range of responses from banks and financiers around the world. Let me give you a flavor. I talked about that shopping center portfolio in Australia which we've been trying to sell all year. That was an early foreclosure by banks against nonperforming loans or other loans which could not be refinanced. And I think what the banks have learned, and indeed the entire market learned, what that it's just very tough to sell assets into this market and it's very tough to sell them at anything like the prices people would hope to achieve.

So what we've seen is a general prudence on behalf of -- on the part of lending institutions to over hasty foreclosure and liquidation of assets. What you see is a range of activity, let's talk banks first, in general where loans are being serviced, in other words the interest costs are being covered from a cash flow of an asset or a portfolio of assets, the banks are very reluctant to foreclose on the basis of any other breaches in covenants.

So as long as there's cash flowing they're generally happy. And what we're seeing is the banks being fairly tolerant and working with their clients to -- borrowers to extend loan terms, to loosen covenants where appropriate, to be generally accommodating in order not to go down the route of putting assets into distressed markets.

Having said that, the rate of breach of covenants has been relatively slow in 2008 and that process could accelerate into 2009 and beyond. As will the phenomenon of debt needing to be rolled over and loans needing to be renewed. And those are likely to be obviously breakpoints which will cause lenders and borrowers to have to get together and work through new arrangements on loans.

So long answer, but the summary is lenders are being generally accommodating particularly when cash flow is still in tact. They are very reluctant to push assets out into distressed markets. However, we are seeing obviously -- I mean, obviously we will see into 2009 an uptick in that phenomenon of foreclosure on distressed assets.

Okay. And then in regards, partly in regards to that, the restructuring charges you had talked about and how you're aggressively cutting back to make sure you right size for the current market. I'm wondering, Lauralee, if you could provide some color in terms of additional costs that you expect to incur over the next few quarters. And then on the other side, where are you reallocating people to where maybe the services -- or for the debt advisory or the outsourcing services businesses that you can provide, how much of that can you move people into and save on?

We have completed pretty much most of our efforts in Europe which came in early and Asia Pacific. As I mentioned, LaSalle Investment Management did announce just this last week actions that they've taken. So we will have a charge against that in the first quarter. In the Americas we have continued to have a tremendous performance through the end of the year and business against our clients.

So as long as we have client wins we're going to be matching up against those opportunities. So for example, referencing the 60 professionals that we were able to redeploy. So I think the answer is what will come is going to be very much based on the economic environment that we're in. And we know we're going to need to be flexible about that.

Relative to pre-deployment, what we've done in our capital markets business is size them, as Colin said, to the economic environment we think is going to be here -- not a lot of activity at the beginning of the year and hopefully a pickup in the second. And for those that are here, they are very aggressive into advising clients with all the other services.

So we have a group of professionals that know value, they know how to work with who are the best buyers and where those buyers are going to come from. And all of that I think is very appealing to those that have problems that need to be solved. And so our people are pretty flexible and adaptable in order to be able to respond to that.

Okay. And then lastly, related to investment opportunities around the globe. Colin, you had mentioned the UK you're starting to see pricing below replacement cost. I'm just wondering what type of returns are your professionals targeting when they look at investing over the next six to 12 months.

Well, our investors in LaSalle Investment Management who are the only people that actively, on behalf of clients, make investments within our firm are being very cautious. Last year's investment levels were half of 2008, down to $4 billion, and the run rate currently is very much lower than that. But they are deploying money on behalf of clients and in the funds where they see exceptional opportunities. One example of that was a very high-classed asset, again, in this English market which seems to be opening up slightly early or it's corrected price wise slightly earlier than others.

One particular asset that I can think of which would have traded three years ago, two years ago at cap rates or yields of the low fives was traded at a yield of 8.25. And that figure of getting yield or cap rates above 8 seems to -- it's a very distressed level by recent market compressions so there aren't a lot of willing sellers at that level. But we do seem to be able to buy buyers for caliber assets in deep markets of those sorts of mid-sevens to mid-eight levels.

Those are not available yet in the US, so the correction, as we've referred to, has been faster in Britain and just parts of Europe than in the US. But we would expect -- as market prices continue to slide in the US, we would expect to see rates in the sevens, quality assets in North America too.

Okay, thank you.

Vance Edelson, Morgan Stanley.

Could you just update us on your progress realigning the capital markets team to have some members focus on the distressed market? How is that going? Do you think you're taking share there? And what activity levels -- what do activity levels look like in the distressed market? If you could just provide a little bit more color there. Thanks.

The distressed market is a sort of fabled market, it's obviously coming. But so far it has not been very rich. Although you could argue that practically any transactions done in current markets have got some element of distress to them. We tried to provide you with a flavor of the sorts of things we've been doing. And so if you reprise the script afterwards you'll see examples of that.

But it's a pretty new market in this cycle, so it's probably no more than six months old and hasn't got sufficient volume yet for us to talk about market shares and draw trends or even see who the major competitors are between investment banks who have been active with a lot of these portfolios on the way up to other advisory businesses in real estate specialization.

(inaudible) that it is growing, we've got all the necessary contacts into the major accountancy firms, we obviously know a lot of the banks because we were helping to arrange loans in the up markets and so we know of them and we know the people there. So we've built the necessary contacts and, as Lauralee has described, our capital markets people are pretty flexible and so we've been able to switch the number -- the necessary numbers across (inaudible) a small but growing market.

I might just add to Colin's comment. I think some of these institutions have taken very quick cost actions and maybe are going to wake up and realize that some of those cost actions they now don't have the staffing and talent that they need in order to resolve some of their problems even in some of the investment banks which have looked at real estate that it's going to be a while for them to be back in the transactional business, eliminated whole departments and all of a sudden how do I get the work done.

So I think what will be unique about this period of time is that a lot of what would have been solved on their own will end up being outsourced and that capability. So do Colin's point, what we have now is placeholders where we're helping people sort their problems, but then very quickly it's can we do the property management, can we do the leasing, can we do the capital markets? Because they're going to need to create value if they can't sell it or at least maintain value if they can't sell it. And it's that cycle of positioning that we want to get ourselves in the middle of.

And those comments can be repeated for another group of lenders because, by some calculations, 50% of the debt provided in 2005, '06 and '07 to finance capital markets transactions worldwide came from CMBS markets. And the special services to those markets are very small operations in terms of the numbers of people involved and they certainly don't have the skills to work through these sorts of issues.

So as the refinancing of those asset-backed securities in the real estate market begins to come through in volume in 2010, '11 and '12, we're going to see potentially a lot of activity with that market as well and we're interested to see how those special services are going to respond when borrowers of the original CMBS are unable to repay the loans and unable or find difficulty in rolling them into other forms of finance.

A sort of big question mark coming down the track as to how those CMBS holders will respond and there's certainly a very healthy market for us there to assist in their thinking.

Okay, got it. And in terms of the Corporate Solutions business, you mentioned you're taking share there. What does the competitive landscape look like? Is it a pricing game or is it strictly a matter of your capabilities and resources, would you say?

Pricing is one element of a multifaceted selection process and typically these RFPs run with advisors, run with procurement departments within organizations and they'll have a scorecard of 10 to dozens of factors which they take into consideration and wait -- which is priced. But very importantly in the whole consideration is how do they feel they match corporately, culturally with the organizations they're dealing with?

Do they believe the organization will be viable over a five-year plus horizon? These are five-year contracts and they don't want to get involved with people who are not going to be around in five years. And they're also obviously, while they're international corporations, looking at our international spread, our ability to service them across the world.

The biggest example we had last year of an extension of the relationship was from Procter and Gamble who extended our facilities management work which we've been doing with them for five years to transaction and lease administration, and that was a reflection of how they viewed our performance against those criteria that I just listed for you.

Okay, I appreciate it.

Will Marks, JMP Securities.

Thank you, good morning, Colin, good morning, Lauralee. First a question on the asset management. Can you give us a figure -- maybe you did and I missed it -- but what your AUM is right now?

Our assets under management in the way that we report it, and let me just clarify that -- we report our securities business current because it's obviously a public market place. And the separate accounts in the funds lag a quarter just because of the way the industry is able to report that. But we were at $46.2 billion at the end of the fourth quarter, that compared to $49.7 billion at the end of 2007.

The most dramatic decline was in the public securities business, that was $10.6 billion last year and it's now at $4.7 billion. As I said in my comments, we have not had net redemptions; this is clearly just a mark to market of what's happened in the REIT world. I think we, like all of you, are hoping that that number has seen a floor and maybe has some opportunity in '09.

Okay, great. And on the assets under management or on the equity yet to be invested, you've typically given -- and maybe it's in the investor presentation not the slideshow -- but the figure of how much money at the end of '07 -- I believe it was in the neighborhood of $20 billion of assets that could be purchased with the money you've raised. Can you update on what happened with that money and where we stand now?

Will, we will have that for you shortly, we're reworking that. The reason I say that is we have allowable leverage when we raise that equity money and that's how we reported buying power at its original point. We're realistic that allowable leverage isn't going to be realized in today's lending marketplace. So we are now going back and putting what do we think we could borrow if we were buying assets today and how much then can we buy. And we will have that for you within about a week's time.

Okay, thank you.

By the way, we still are very pleased that we have a sizable capability to put to work, but we're being patient.

Okay. Another question, I guess unrelated to asset management. On the G&A, I appreciate you giving all the detail on the job cuts or the job changes. And I'm trying to figure out how to model the two expense lines really or the comp and benefits and the operating expense line. And how should we think about the growth or decline? Is most of it tied to the operating expense line or any thoughts on how we should -- can look at those lines?

It's compensation. Yes, we've made good dents in our G&A, but again, it's rent, those are contractual. The places we can move the G&A are travel and marketing and IT and even IT has some limitations because it's predominantly telecom and systems. But it's compensation -- bonus levels are down, we've moved to variable comp and commissions and I think we put as much flexibility into our structures as we can.

The places -- when we've given you the cost savings and the six- to nine-month, we're very pleased because that was accomplished in the European platform which is a -- it's a much more difficult marketplace, as we've articulated before, to get savings quickly. But we were able to achieve six- to nine-month paybacks on base compensation there. So we will have lowered our base compensation and then we've also aggressively made sure that our variable compensation will flex to performance.

So the $23 million for example, that would be on the comp and benefit line?

That would be comp and ben, yes.

So I would think there would be opportunity on the operating expense line and there was a pretty significant growth in the fourth quarter. Is that something that is yet to come or --?

If you actually go into the individual regions, the principle place that grew was in the US because we added the Staubach organization. We actually were relatively flat in Asia and that was after growing the platform significantly. And we had decreases in Europe. So again, we've now absorbed all those acquisitions and pretty much flattened out our cost even with those in it by taking cost actions elsewhere.

Okay, great, very helpful. And I just have one other question. On the interest expense line, any thoughts on what we should be expecting this year given lower rates, but your renegotiated bank agreement?

Well, we're currently on our bank agreement at LIBOR plus 300, so that's helpful. And then we will have interest, as you know, coming into the P&L from the accretion of the Staubach deferred payments. They come in at a 6% rate, they're noncash but they do come through the interest line. And then we also have modest amounts from some of the other acquisitions as well. And if we look at our interest this year for 2008, $20 million of it was cash and the balance of it was noncash.

And that 6% from Staubach doesn't change?

No.

Computed and not paid.

Okay, that's all for me. Thank you.

Michael Mueller, JPMorgan.

Hi, a few questions here. First of all, going back to the AUM question. I know Lauralee said that the valuation will lag. So when Q1 is reported would -- all other things being equal would it be a lower number than the $46 million or is that what the number will be factoring in the lag?

That's a good question, Michael. I should have finished the story on all the components and we will have it in our investor deck when we file that. If we go to our separate accounts at the end of Q4 2007, they were 26.3; they declined to 23.3 at the end of 2008. They will have valuations that lag; the valuations that we've seen have come principally from our positions in the UK which adjusted pretty quickly. Generally speaking beyond that it goes much more slowly.

I think the question on that is how do we get paid? And it's not just a fee against assets under management. We have some accounts that just have an absolute contractual number and then it varies by incentive fees, but we'll have the contractual number. We have others that are based on the property NOI. So in many cases values have come through because of what's happened in the market, but the actual property performance hasn't changed at all. So as long as the occupancies are there and the leases are there and we manage the expenses aggressively we can buck that trend of any change in fees.

Our funds business was $12.8 billion at the end of last year and we were at $18.2 billion at the end of Q4. In that business we get our fees during the commencement period based on the committed amount and then when the commitment period expires we get paid on the value that's there. We're paid on the equity, so what we would really have in order for that amount to change there would have to be an impairment on that equity.

So again, there's less of an impact in that line. As we've mentioned, our growing it is more challenging because we're already getting paid in many cases on commitment amounts, so we'll grow the assets under management but won't get additional fees when that occurs. So it will be -- for those that we get paid as we invest it there will be an opportunity to earn more.

So we've got a fair amount more stickiness, if I summarize that, in our separate accounts and our funds and the variability comes in securities business. I guess we have to look to you whether you think we've hit the floor on that. But clearly that marketplace has been hit pretty hard on a global basis.

Okay. One other question relating to this before moving on. The $62 million that you reported in the fourth quarter for the advisory fees, is that a full quarter impact of reflecting these valuations that you talked about or, for example, does that just reflect partial valuation so the Q1 run rate, if you would, is going to be lower? Is that a good proxy for the go forward run rate all other things being equal?

The rate at which the valuation adjustments come through depends on the particular arrangement we have in any one fund or with any one client. So in other words, some clients may have annual revaluations, some funds may be quarterly revaluations. Therefore the number you saw for Q4 last year will reflect some downgrades in pricing in some accounts or some funds and in others none at all yet and that will still come. So it's a rolling process and you can't take your last quarter's number as a guide to the first quarter other than point of departure.

Okay, so it does seem like it could trend down beyond where the Q4 level was?

As valuations come through at lower levels and assuming we don't increase -- net net don't increase the funds under management by buying more and selling net less, then yes, that will trend down as valuations come through.

Okay, two other questions here. Colin, you mentioned in your comments capital markets business, you expected the low Q4 levels to continue into 2009. I just wanted to make sure you were talking about the year-over-year percentage declines, those types of declines, that was what you were referring to?

Yes. So to sort of seasonalize or deseasonalize the fourth-quarter picture which was down, depending on market, 60% to 80% from peak -- from the large peaks that we saw in 2007. Then you can expect -- we were expecting those sorts of volume levels to continue.

Now there are some interesting dynamics there because if you look at the English market where I was last week, the English businesses' Q4 numbers were within a percentage point identical in revenue terms to the prior year. Why? Because they've already seen a major part of their correction in capital markets in particular come through in the last quarter of 2007. So the comps perversely and to some extent will get easier as the year goes through.

Okay. And then going back to the expense question or the prior question. Maybe if we can attack this -- try to attack it differently. Lauralee, if we look at the margins, the bottom-line margins that you report, looking at the comp, the G&A as a percentage of revenues, it looks like if you go from '06 to '07 to '08 and Q4 '07 to Q4 '08, pretty stable in the Americas. When you go to the EMEA, Asia and LIM it looks like the margins were up 600 to 1000 basis points year over year.

I know you've talked about cost reductions. If we're thinking about this business from a margin perspective, what do you see happening as we move into 2009? Obviously it's going to be partially a function of revenues, but should we expect these margins to come in, to remain stagnant because all of a sudden the leasing trends are starting to drop off? How should we think about that expense margin?

Let's take it in pieces. If we look at the US, one of the benefits that we've had the most recent is that our capital markets business in the US is not of a size relative to all the rest of the business that it can have that much of an impact on the margins. That being said, we had been holding our capabilities really until August on the premise that markets were starting to improve. So we got a little bit surprised when the markets fell off, have actioned it since that period of time.

But net net we actually, because of that lost money in our capital markets business in the US, not a lot, but somewhat in 2008. We've now right sized to the levels that Colin talked about such that we can fix that margin drag. Now clearly it's how we grow the corporate business and all the other aspects of it and we'll have a lot more capability from the Staubach addition, because we only had them for half the year in the margins, that we will be working very hard to protect those margins.

EMEA is a big capital markets business for us and to have a very high margin business fade away in EMEA was quite impactful on the total market without as strong of a corporate business to back that up. That being said, we did make money in our capital markets business in Europe and with the actions that we've taken we anticipate that we'll have better margins in '09 with a reduced capability, but we're much better matched against the marketplace and what's going to happen.

And likewise the story in Asia-Pacific. We do have a much larger annuity business in Asia Pacific in property management and facility management and have been growing those, they don't have the same level of margin, but it does give us at least an annuity base to drive us through.

So that's not a good answer because there's a lot of market unknowns in there. But what we have done with our cost actions is basically say management is going to tell you what we think the revenues are and you need to size your business to those levels of revenues rather than hoping revenues are going to be there and worry about sizing later. So our focus is on getting margins back, trying to get ahead of market trends while we make sure that we at all times are able to service our clients.

Okay. So I mean, if we're looking -- just to try to frame this a little bit because the numbers can swing quite a bit -- if we're looking at EMEA where the past couple of years you've been 90%, 88% this year, 94%, Asia has gone from 87% to 97%. Is there an ideal target that you would like to be at?

Total cost. He's looking at the reverse.

Oh, okay.

Yes, and then also with LIM. I mean, how should we think about that with the AUM?

Well, we had articulated, and it's been before this decline, what we want our long-term margins to be and clearly we would like Asia to be 10% and we'd like EMEA to be 12% and we'd like the US to be north of that. It's tougher when you lose a big hunk of your revenue stream against that. But we've got to get ourselves positioned as the markets come back that we can achieve those and hopefully more.

With LaSalle Investment Management, we have positioned that business that it is a nice margin business on its annuity base. And the actions that LaSalle Investment Management took this first quarter on its costing is to protect that margin on its annuity base. We've always said that the incentive fees and the equity gains are gravy on top of that which reward us as well as our clients. And again, we will be striving to take the uninvested capital and get that back to work to have that be an enhancement in the future.

But what do we take out in terms of cost? We're not able to raise as much capital, we're not able to buy as many properties, all of those types of things to right size the business to have a margin. So the actions we've taken, and it's why we went back to our banks to have the flexibility to do that, is to make sure that we have strong profit margins and capabilities across the board in all of our business.

Okay. Okay, thank you.

To be clear on the way we're thinking about the future and without putting numbers behind it, we've talked about taking a review of revenue going forward as we work with the businesses on forward plans, a view of revenue which is realistic, that's to say pessimistic, if you like. But from that driving costs which are matched to those realistic revenue levels, but at the same time holding as much as we can with the productive teams in place.

Why are we doing that? Because these markets will eventually turn; the capital markets will turn at the point when credit markets open up again, and there are early signs of credit markets being more robust than there were certainly in October when there was a danger of a major meltdown. But we are seeing corporate credit markets coming back. We are seeing spreads coming in, for example, across Europe and the US. Small, but the trends are there.

When that happens and confidence begins to be restored against a market where there is distressed selling, capital markets transactions will pick up. Same with leasing, although the trend downwards in employment at the moment is clear. There will come a point when that will produce activity for us as we start to resort, restack and dispose of space for clients, and that will drive activity within our businesses. And the corporate market, we believe, at this point will continue to motor ahead. So that is in a broad sense the way we are looking at the business going forward.

David Gold, Sidoti.

Hi, good morning. Just to follow up, in your comments you'd spoken about cost cuts to reflect market realities. And just wanted to get a sense, do we think today that we are positioned for how you've laid out or how you think the year is, or is it more of an ongoing process and maybe quarter to quarter we continue to review that and cut further costs if necessary?

Well, Lauralee has talked about the G&A area, the traveling and the telephones and office space, and we obtusely --we have measures in place to attack that. On the costs -- sorry, on the employment cost side -- remember, we have a significant sum which goes into bonuses and commissions, and that obviously has got a dampening effect. It's a variable number, so that automatically corrects part of our labor cost above and beyond headcount number reductions.

As far as staffing goes, staffing levels, Lauralee made the point that we are -- these are difficult decisions. We are a people business, so we are very careful about whether and how we make staffing reductions, but we nevertheless have taken action. We've taken action at individual levels. We've taken action with broader reductions in forces, for example, in our English and selected European business.

But I characterize it as a rolling process, an ongoing process where we simply have to react to market realities and tailor the business accordingly.

So I guess that is more my question. My question is, are we in front of it at this point, or does it continue on a maybe reactive basis? In other words, do you think you've cut enough for the environment?

We will continue with the process of rolling reductions to size the cost base to what the market will allow us. We believe we are not behind the curve; we think we are about where we should be. Given that things are trying to balance off, which is obviously maintaining our profitability but also maintaining the teams so that the fee generated in particular, that we don't lose any people nor weaken the teams to the point where they are unable to operate in these markets, much less in recovering markets.

Perfect, perfect. And then one other question. I think one of you commented on maybe a stronger second half. I think one of the reports that came out from your research division said, say, three to four quarters before you really see some recovery from capital markets. Is that consistent with what you are expecting, or do you think it is sooner or later?

I think, David, it's going to be different in different parts of the world. The piece I think you are reflecting on is the US piece. If you were to go to the UK, they'd probably expect it to be a little bit earlier. Already they have had a much more dramatic and market visibility into that dramatic adjustment in prices. So there is less -- there is less issue around price discovery that you have in a market like the US where with no trading activity, it's very hard to decide what the right value is. So it will be different in different parts of the world.

Okay, but presumably, sort of broadly as you look at it, credit markets still remain pretty tight. Is that something that you guys, when you make your internal projections, are expecting to pick up two quarters from now or three quarters or one quarter, or not that simple?

Who knows; we don't. What we are doing is kind of, as we said, rightsizing the business for current markets, waiting. We are not anticipating a recovery and, therefore, holding more costs than we need to. We are not planning the business on a recovery; we are simply positioning ourselves for it.

But the rules of the road in this sort of an environment are to be as flexible as possible; flexible obviously in costs on the downside but also be ready to be flexible on the upside. In some ways, we'd like it to be soon, but it doesn't matter. We will continue to do the appropriate things around costs, around cash controls in the business, and we will manage the business for the environment we are in. And we will be ready for the pick-up when it comes.

Got you, perfect. Thank you both.

Stefan Mykytiuk, Pike Place Capital.

Good morning. Just a couple of questions, the incentive fee for '08, what was the actual -- you report the revenues, but what does that actually end up meaning in terms of EBITDA and EPS contribution?

Well, incentive fees generally track with our normal ratio of comp to revenues. So you are going to have something like 45% of that drop to the bottom line after various bonus pools and so forth.

Okay. So 45% to EBITDA, and then just tax effect it to get to the EPS?

Roughly.

Okay. And then the accrued bonus that is on the balance sheet, or the accrued compensation, is that mostly bonuses or is -- the $487 million, is that bonuses and commissions that were at year-end, or when does that get paid and what does that do to cash flow in the first part of the year?

It's going to be a mixture of base compensation that is owed. It's going to be a mixture of bonus; it's going to be a mixture of commission. So if we have leasing brokers that have earned that money in the fourth quarter, that is going to be accrued because it hasn't yet been paid.

Right, okay. Do you have it broken out, how much of that is the -- well, I guess it is all commission and accrued. I see what you are saying, okay. So that is kind of a rolling number then, as opposed to like -- you don't have this big lump at year-end like some of your competitors do?

Well, we had a large bonus accrual which we pay out in the course of the first and second quarter of the year, depending on the arrangement by country. If you look back historically, you can track that pattern in the balance sheet which we publish quarterly.

Okay, all right. Then did you give any sense of what -- I guess in terms of trends in the first quarter, you are saying the leasing trends are similar to what we saw in the fourth quarter. Is that a fair --?

I think it is way too early to know. I think clearly, the year-end activity I think was very much impacted by the large number of layoffs that were announced. For a corporation to make decisions on even extending their existing space is they are determining how many people they are going to have. The firming of budgets will be very helpful, I think, as corporates get into what their decisions will be. But that will all happen here in this first quarter of the year.

Okay. So you are still seeing a lot of indecision on the part of the lessee, and we'll just see how that works itself out as the year moves on?

Yes. I mean, quarter four last year was obviously a huge shock. It was worldwide, particularly for the Americas, which the corporate world had been less affected than the rest of the world and we have seen this effect. The question is, will that have been a shock when people recover and get on with business again, or will the general economic picture continue to decline. And we don't know that yet. As Lauralee said, we are one month into the quarter. We can't discern any trends other than, obviously, the general business sentiment remains fairly negative.

Right, okay. All right, thanks very much.

Brandon Dobell, William Blair.

Thanks, just a couple of quick ones. Lauralee, any expectation for capital spend in 2009 that we should think about?

We will have our CapEx be about half of last year's number. We were about $110 million in 2008. We'll probably be $60 million or so in 2009. We haven't yet finalized our budgets, but obviously, it's only necessary that will happen. We had a large CapEx in 2008 because of consolidations from our acquisitions.

And we also had some technology that we completed which we're very excited that is done; a global ISM system which we think is cutting edge for the industry, and a project management skills capability that is also there. But they are complete and now betted into our operations.

Our largest CapEx will be in the US where we complete the final portion of the consolidation of Staubach's offices in ours. Relative to the integration cost of that, there won't be a great deal of that that actually runs into the P&L. Most of it will be cash and through the balance sheet.

Okay, that is fair. As you think about commission rates on a real-time or go-forward basis, any changes you have seen from people, your customers? Are they paying you more because they know you can go get a better tenant, for example? Are you seeing some of the newer lines of business over in capital markets maybe offer higher commission rates because they are maybe more complex than what you have done historically? Just trying to get a sense of any changes directionally in commission trends, or if there are any.

Nothing consistent. It's various flavors. Some areas, when regular transactions competition can be intense, and so prices are getting bid down. On the other hand, we talked about the move to quality and the fact that many of our clients are looking for respecting the performance of organizations such as ourselves who are able to perform in difficult markets, find tenants or find buyers for assets.

In those cases, we see rates holding or even improving compared to previous figures. The newer business we described around distressed assets and large portfolio sales, that tends to be quite well remunerated because we are bringing specialty skills to special situations, [where like M&A] where it tends to have a life and fee structure of its own.

Okay. Jumping over to the expense side for a second; maybe a different way to ask this question for the 15th time for you guys. Is any way to scale the difference on the compensation line in the Americas, given the move from salary bonus structure to commission structure? Is it -- any sense of as a percentage of the revenues or a dollar figure, or scale it in some way relative to previous years; [comp] benefits in the Americas? It's just tough for us to get a handle on how much of a difference that's going to make for you guys.

I think, Brandon, that the issue isn't that when you get through the end of the year, that comp to revenue ratio is going to change. We always have said we were market for our employees. It was really a question of the timing and the mix of that, because we would accrue it as bonus and there would be true-ups.

What you are going to get is a much better matching of revenues to when that is actually paid. We hope that will level out some of our margins. At the end of the year, our expectation is it shouldn't change that because again, we've always felt we paid at the same level, just the methodology was different.

But clearly, we also think there is very good motivation that comes through when you have got that compensation, that there is an urgency around every single month and every single quarter, and that gets the energy into the salesforce.

One thing we have noticed is some of our competitors lowering the commission rates they pay to their people, early signs of that. We have not considered that at this point.

Okay, great. Thanks a lot.

Will Marks, JMP Securities.

I am actually all set, thank you.

There are no further questions at this time.

Okay. Thank you very much, everybody, and as ever if you have questions which you would like to address to us, then you can get to either of the participants on the call or [Jerem Ernesco], whom you all know here in Chicago.

I'd like to thank you for joining us today in large numbers, we have to say. And we would also like to thank you for your interest in Jones Lang LaSalle, and we look forward to speaking to you again at the end of the first quarter.

Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.