Jones Lang LaSalle Inc (JLL) 2009 Q3 法說會逐字稿

Good day and welcome to the third quarter 2009 earnings release conference call for Jones Lang LaSalle Inc. 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, 2008, 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, operator. Hello, everybody, and thank you for joining us for this review of our results for the third quarter and first nine months of 2009. Joining me on today's call is Lauralee Martin, our Chief Operating and Financial Officer. Lauralee will review our performance in detail in the few minutes, but first here are some highlights.

We reported net income of $20 million for the third quarter, that is $0.46 per share. Adjusting this for restructuring and certain non-cash co-investment charges, net income would have been $27 million or $0.61 per share. Year-to-date we reported a net loss of $56 million or $1.50 a share. Adjusting again for restructuring and co-investment charges, year-to-date net income would have turned positive to $15 million or $0.40 per share.

Revenue for the third quarter was $595 million, a 12% decrease in US dollars from quarter three 2008 and a 9% decline in local currency. Revenue for the first nine months of the year was $1.7 billion, down 12% from 2008 and down 6% in local currencies. Adjusted EBITDA was $66 million for the third quarter. Year-to-date adjusted EBITDA was $126 million.

At the end of the quarter the outstanding balance on our long-term credit facilities was $292 million, a $106 million reduction from the second quarter and the product of strong cash flow generation, reduced capital spending, and aggressive working capital management. Finally, we announced that our Board of Directors has declared a semiannual dividend of $0.10 per share of our common stock.

Before Lauralee reviews the numbers in greater detail let's look at the current economic and real estate environment. The global economy is now in recovery as economies around the world emerge slowly from the great recession. IHS Global Insights forecasts positive third-quarter growth in most of the G20 countries due in large part to record government and central bank stimulus packages. However, forecasts do not anticipate more robust broad-based growth emerging until late 2010 or 2011.

Commercial real estate; as in many economic sectors, market activity will be picking up unevenly from severely reduced levels and so market conditions in our sector differ significantly today by sector and by geography. In general, though, people are more optimistic now than at any time in the past 24 months.

Investment sales markets in many countries are anticipating a recovery and are beginning to find the bottom in pricing and transaction volumes. Parts of Asia and Europe, for example, are moving up from price and activity lows. Cap rates fell by up to 50 basis points in Asia Pacific and 25 basis points in Europe during the third quarter for assets with reliable cash streams.

European and Asian banks are beginning to lend with greater confidence. But at the same time, however, the limited availability of products is slowing sales activity in some recovering markets. The US remains the exception to this picture of slow improvement with activity levels still declining.

In Europe direct commercial real estate investment volumes totaled $19 billion in the third quarter increasing by around a third off of very low levels. In Asia Pacific data from Real Capital Analytics indicates that overall direct commercial investment volumes increased by about 20% above the second quarter, also from depressed levels.

US transaction volumes continued at an anemic pace in the quarter with $10.5 billion in value traded during the period. And although this did represent a 13% increase on an even weaker Q2 volumes, with banks still reluctant to originate new loans in this sector a sustainable upturn is unlikely to appear even in leading markets until 2010.

In global leasing markets building supply is generally stable, but demand fundamentals for real estate continue to point down in most areas. Although the pace of decline is slowing, with the exception of the few global centers leasing activity has not found a bottom in either pricing or demand. We anticipate the bottoming of leasing activity in the first half of next year in Asia and in parts of Europe and late in the second half of 2010 in the Americas.

Summarizing this picture then, markets are beginning to stabilize although this is not yet showing through in the top line for property services. So in this environment how have we responded? Well, we have sized our business to current market conditions. We continue to grow our market-leading corporate outsourcing business.

LaSalle Investment Management is protecting values in its portfolios, focusing on its clients, maintaining a healthy advisory fee margin. Our value recovery services are supporting banks, public institutions, and other clients with distressed real estate asset sales around the world. We are continuing to build our strategically important businesses in China and India, and we are using our financial strength and balance sheet to protect key people and attract new talent to our firm.

We look at each of these areas in greater detail during today's call, but with that let me first turn the call over to Lauralee.

Thank you, Colin, and good morning to everyone on the call. As with our previous calls, we have posted slides on the Investor Relations section of our website, www.JonesLangLaSalle.com, for your reference. I will use these slides as the framework to discuss our quarterly results. Also included in the appendix of those slides are year-to-date comparisons beginning on slide 10.

Turning to slide two we are very pleased that GAAP net income improved to $19.8 million in the third quarter as compared to $15 million in the third quarter of 2008. Our earnings per share improved to $0.46 as compared to $0.43 in the prior year despite the new shares issued in our equity offering. The reconciliation in the bottom portion of the schedule provides a bridge from our reported GAAP net income to our adjusted net income of $26.6 million for the third quarter of 2009 or $0.61 per share.

The dollar amount of our adjustments has gone down from both third quarter of last year and previous quarters this year as most of our restructuring actions have now been taken. We did take an additional $4.2 million of restructuring charges in the third quarter, $3.6 million after tax mostly related to severance. We also recognized $3.7 million of non-cash co-investment impairment charges in the third quarter, $3.2 million after tax as a result of real estate valuations related to our co-investments in LaSalle Investment Management funds.

These charges are significantly below those taken in the two previous quarters this year as valuations have started to stabilize. These impairments do not impact our bank EBITDA ratios as they are non-cash charges.

Turning to slide three, adjusted EBITDA was $66.2 million for the third quarter compared with adjusted EBITDA of $72.6 million in the third quarter of 2008. The comparison of adjusted EBITDA by segment shows strong performance in the Americas and Asia Pacific supported by our corporate outsourcing business and the addition of the Staubach organization in the Americas.

EMEA experienced the most significant decrease compared with the other sections, primarily due to significantly lower transaction levels in both capital markets and leasing. We are realizing the run rate cost savings that we projected would result from our restructuring actions and we are also benefiting from a significant reduction in our discretionary spend. These savings have been partially offset by new growth facility management contracts.

Slide four shows our third-quarter revenue compared with the third quarter of 2008. Overall revenue was down 12% or 9% in local currency, primarily due to the decline in transaction levels. Capital markets and hotels revenue was down 34% in the quarter, 30% in local currency, and leasing was down 6% in the quarter or 4% in local currency. I will cover these in more detail on slides five and six, but I would like to spend a few minutes focusing on each of our segments.

Beginning with the Americas revenue was $239 million, down 6% for the quarter. The largest percentage declines are in capital markets and our project and development business, which were down 62% and 39%, respectively. These declines were partially offset by a 23% increase in leasing. We are extremely proud of our combined organizations' performance with the Staubach merger and the strength of our leasing team especially in the current global economic downturn.

The Americas operating income this quarter was $29.3 million, nearly 75% higher than the third quarter of 2008 and was achieved despite a $13 million revenue decline. Savings in the compensation line due to our restructuring actions and a real focus on reducing discretionary spending contributed to the increase.

In EMEA third-quarter revenue was $154 million, down 26% compared with last year. Economic pressure across the region continued to stress our transaction-based businesses. The most substantial year-over-year decline was in Russia where we have experienced significantly reduced activity. In 2008 Russia made up 9% of EMEA's total year revenue, but on a year-to-date basis this year Russia is only 3% of EMEA's revenue.

We have taken aggressive cost actions to appropriately size the business to now be profit neutral to positive going forward. But we have also protected our market-leading position, which is over 50% in this important market, while competitors have been forced to close their operations.

Management services revenue was up 2% compared with the third quarter of 2008 and up 10% in local currency. Operating expenses for the region were $158 million in the quarter, down 22% from 2008 in US dollars and down 14% in local currency. The third quarter expenses included incentive compensation for those businesses that move from a year-to-date loss position to a year-to-date profit.

The inclusion of incentive compensations in the quarter we view as a very positive sign that are transactors in certain businesses and geographies are experiencing improved seasonal revenue performance while operating with within a right-sized expense base.

Third-quarter revenue in Asia Pacific was up 5% in local currency. The quality of the income continues to improve and our annuity-based revenue was up 18% in local currency compared with the third quarter of 2008. This annuity revenue along with closing a few large transactions and an ongoing focus on cost contributed to third-quarter operating income of $7.1 million compared to a breakeven third quarter 2008.

On slide five capital markets and hotels activity remained at very low levels throughout the third quarter resulting in significantly lower revenue. We have taken the most significant restructuring actions in our capital markets group and have appropriately sized the business for the current environment while staying well-positioned for any uptick in activity. We are seeing increasing pipelines globally for our value recovery services business, but this has not yet translated into meaningful revenue contributions.

Asia Pacific was a bright spot in the quarter with year-over-year increase of 8% in local currency as we began to see some increased activity in Australia and Singapore. On slide six the Staubach merger continues to be very positive for the firm. Leasing was up 23% from the third quarter of 2008 in the Americas.

As the merger was finalized on July 11, 2008, the prior-year quarter results exclude approximately $11 million of revenue earned by Staubach prior to that date. Including that $11 million in the 2008 results leasing revenue would have increased 11% from the third quarter of 2008, a strong combined performance of our teams in increasingly difficult leasing markets.

Leasing revenue declined in both EMEA and Asia Pacific compared with the third quarter of 2008. In EMEA leasing revenue was down 37% in local currency. In Asia Pacific leasing revenue was down 19% in local currency in the third quarter. While there is activity and transactions are closing, they are at reduced values as rental rates continue to fall.

We have provided additional information about our management services revenue on slide seven including a breakdown of property and facility management and project and development services revenue. Focusing on the annuity revenue in management services, our property and facility management and related activities grew 18% in the quarter as new business wins in our corporate outsourcing business continued. Colin will be discussing many of these wins shortly.

Our project and development services offering is down 23% in local currency, offsetting the growth in property and facility management and resulting in a zero net increase in management services revenue across the Company. As our corporate and investor clients have reduced capital expenditures, our revenue has declined accordingly.

We are growing our energy and sustainability services, our project and development services offer, with the increasing sustainability agendas of our clients. They are realizing that they can achieve payback on their capital expenditures through energy and environmental conservation.

On slide eight we have provided detail of LaSalle Investment Management's revenue. Our advisory fees of $61 million in the quarter were down 10% in local currency compared to a year ago. We have reported approximately $60 million of advisory fees each quarter this year demonstrating the stability of this revenue despite valuation decline impacts and market fee pressures that persist. We recognized nearly $4 million of incentive fees in the third quarter mainly due to the liquidation of a matured fund.

Excluding impairments for the quarter, LaSalle Investment Management's operating income margin was well over 20%. Assets under management rose slightly from the second quarter to $37.6 billion driven by valuation recoveries in our public securities portfolio. We have taken steps to stabilize portfolio debt and maximize property cash flow for our clients.

Turning to slide nine and our balance sheet and cash flow, in the third quarter we paid down $106 million on our credit facilities as a result of our strong cash flow from operations and reduced spending. The debt on our credit facilities at September 30 was $292 million and we remain comfortably within our covenant limit. Consistent with our normal seasonal patterns we expect further debt repayment in the fourth quarter.

The debt repayment achieved in the third quarter demonstrates the powerful cash-flow-generating ability of the firm, even in the current environment where underlying real estate markets are still generally quite weak.

So in summary, we are pleased with our improved earnings performance compared to the third quarter of 2008. We are realizing the benefits of our restructuring and cost actions that we are well-positioned with our strong balance sheet to be a competitive winner in this marketplace.

Let me turn the call back to Colin to discuss some of our recent wins and accomplishments.

Thank you, Lauralee. To give you a sense of how well our colleagues are performing in the current business climate, we will now give you further detail on market conditions and some examples of our recent business successes.

Activity in our global corporate solutions business continued to gain momentum in the third quarter. Corporate occupiers see outsourcing as an effective strategy for controlling costs and right-sizing their real estate operations and they view Jones Lang LaSalle as the preeminent global provider for these services.

To date in 2009 the number of relationships we have established with new clients is up 10% year-on-year. We have won 79 relationships in all, including 35 wins from new clients plus 24 expansions on existing relationships and 20 contract renewals. Our pipeline remains strong.

Leveraging our industry expertise and focus on biopharma, banking, technology, and manufacturing we have recently secured two major wins with leading biopharma companies for global transaction services. We have expanded our presence in the manufacturing center through two multi-region wins, including Volkswagen. We have gained market share in the technology segment through expansion with ACS and Sabre, and we continue to maintain our leadership position in the banking industry through growth with existing clients like Bank of New York Mellon and new relationships with clients such as KeyBanc.

In the Americas we expanded with Diageo adding facilities management and lease administration to our existing project management activities for Diageo's 9-million square foot US portfolio. The MITRE Corporation, a not-for-profit public interest company, selected us as exclusive real estate partner for its 3.2 million square feet office, research, and critical data centers.

In Europe, as we noted on our last call, Whirlpool added lease auditing services to our responsibilities in the region early in the quarter. And as I mentioned a moment ago, Bank of New York Mellon awarded us lease administration and facilities management responsibilities for 1.2 million square feet of space.

In Asia Pacific we were selected to provide tenant representation and transaction management for Virgin Blue across our network in Australia, New Zealand, and the Pacific Islands. And in China a major investment bank chose us for facilities management in its 150,000 square-foot portfolio in Beijing and Shanghai.

Turning to investment sales, activity in this market began to stabilize and in Europe and Asia volumes rose in the quarter as the investment sales market anticipates demand recovery well ahead of fundamentals. Banks in Asia and Europe are lending to property again and loan-to-value ratios are creeping up and spreads are creeping down. In the US we were retained by [AXA Noble] to market an eight-building office and R&D center in New Jersey and we represented [Prei] to sell a two-building campus in Washington, DC.

Turning to Europe we remained at the top of the UK investment agents league listing for the total value of transactions completed to date this year in the UK. In England we sold the Prince Bishops Shop Durham shopping center for Black Rock for GBP60 million and we advised the Global Infrastructure Partnership in its successful bid to purchase Gatwick Airport from BAA for GBP1.5 billion.

In Germany we acted for [Vivico Real Estate] in Berlin selling the [Reumsherhoff] building for EUR50 million. And in the Netherlands we advised a European investor on the EUR115 million sale of a headquarters building in The Hague.

In Asia Pacific we worked for the seller on six floors in Singapore's Prudential office tower which transacted for $71 million, the largest transaction and the highest price per square foot for office product in Singapore this year. In Hong Kong we represented Merrill Lynch selling three retail properties for $200 million, the largest single transaction in Hong Kong this year.

So some indications for you of the international deals that are being done in otherwise quiet investment sales markets.

Jones Lang LaSalle Sallmanns, our Chinese-based valuations group, continues to take advantage of the IPO revival in greater China. In market capitalizations Sallmanns has advised on more than half of the 39 IPOs completed in China this year. One example of that, we valued the assets for Metallurgical Corporation of China which raised more than $5 billion.

In leasing and tenant representation we continued to gain share, but with weak market demand fundamentals market activity is broadly still falling worldwide. Office vacancy rates rose to near 10% across Europe, near 20% across the US, and in a range of 20% to 40% anticipated in the major Chinese cities. Rental rates stabilized between quarter two and quarter three in Europe, Asia, and even in the US indicating the beginnings of a steadying market. However, growth in concessions and allowances meaning that effective rents are still falling.

While net and gross absorption were both down across all US markets year-on-year, our US agency leasing footage transacted was up 15% in the quarter and our tenant representation volume increased by 20% as Lauralee alluded to. This remarkably strong performance reflects our successful integration of the 2008 Staubach merger.

Some examples of lease action, we completed two large transactions for Kaiser Permanente during the quarter -- renewing their corporate headquarters in Oakland, California, and securing 200,000 square feet of new space in Washington, DC. In Europe we won a 65,000-square-foot mandate for GDF Suez Paris and negotiated a 65,000-square-foot office space for Ernst & Young in Budapest.

There is activity in Dubai where we acquired 39,000 square feet of space for the Supreme Group and that was the largest office deal this year. In Australia we completed the largest lease deal in Brisbane in three years, 160,000 square feet for the Queensland Department of Environment and Resource Management.

In China Vestas, the leading supplier of wind power solutions, retained us to renew and double its Beijing office occupancy. In Singapore we won 100,000 square foot tenant representation assignments for both Aviva and Dell. While in India we represented Unitech Wireless for leases in Delhi and Bangalore which totaled 85,000 square feet.

At LaSalle Investment Management we remained focused on two key priorities. The first is protecting and improving asset level performance in the face of continued distress in global investment markets. To this end we have renegotiated over $3 billion of bank lines over the last 18 months, primarily refinancing along with some new debt on individual assets. This activity is with lenders with whom we have carefully maintained excellent relationships. No properties have been surrendered to lenders.

We have also begun buying and selling profitably in the recovering UK market and beginning to move to a measured buying stance in Europe and Asia.

The second priority for LaSalle is maintaining open and frequent communications with investors. We are viewed as performing amongst the best managers in the crisis and have been recognized for it with several Euromoney Awards, which I will discuss in a moment. More practically, we have also been rewarded with more investment dollars.

So that even in today's challenging climate LaSalle has raised over $3 billion of capital this year through its commitments in public and private equity and $1.5 billion of that sum raised in the third quarter. $1.1 billion of year-to-date total was from private equity from three co-mingled funds and three separate accounts in North America and the UK. A major US state pension plan is also in the final stages of retaining LaSalle for one additional major mandate which we will discuss in more detail on our next call.

As the broader capital and asset markets recover, indications are that real estate will continue to hold its place in institutional investment strategies and that LaSalle's performance will see it continue to gain in reputation and in market share.

In distressed market conditions we continue to grow our value recovery services for public and private entities and we are beginning to see meaningful activity in this emerging sector. These integrate multiple services from portfolio and valuation advice, asset management and leasing to investment sales, all tailored to individual and client situations.

Some examples of this work, in Asia Pacific our Australia retail investment team represented the properties receiver in the sale of Underwood Marketplace in Queensland to an offshore investor for $47 million. And in Japan we are asset manager and sole agent for a foreclosed portfolio of five retail assets now owned by a global investment bank. In the US with growing numbers of owners, banks, and services needing to liquidate property efficiently we launched a JV with a real estate disposition LLC for a sophisticated online auction platform to market commercial property and notes.

A word on people. As we begin to look forward to recovering real estate markets we are aware of the challenges of retaining and attracting the best staff. And so to that end we are actively engaged in staying close to our key teams and individuals across the business and using our financial strength to make sure that we are paying for demonstrated performance. And we are targeting those in the organization who will also be driving future growth. Finally, we are also using our funds very selectively to attract talented market leaders and teams to our firm.

Business development also remains high on our agenda and we are continuing to invest to respond to client needs and capture new business opportunities. So, for example, we recently decided to establish an office in Cairo, our first in Africa, and this is scheduled to open early in 2010.

As we continue to invest for growth in key Asian markets, relocating Jeff Jacobson, CEO of LaSalle Investment Management, to Singapore from London, reflects the potential which we see in the region. China's decision to allow domestic financial institutions to invest in real estate for the first time opens exciting new opportunities in that key market for Jones Lang LaSalle.

I would like to finish by mentioning several major awards which we have earned in the quarter. We won top honors in the prestigious Euromoney Real Estate Awards for 2009. Euromoney polls real estate developers, advisors, financial institutions, investors, and users worldwide to affect its award winners -- to select its award winners.

The result was that, as I mentioned a moment ago, LaSalle Investment Management won three Euromoney awards -- for best investment manager overall and for best investment manager in both the direct and indirect investment categories. So great accolades. Jones Lang LaSalle was awarded best global advisor and consultant, and also won the top awards for global agency, global transaction execution, global corporate real estate services, and for global research.

We also received top regional Euromoney awards in the Asia, Western Europe, Nordic, Baltic, and Emerging Europe categories.

In the UK in early October we were the only real estate company named to the Times '50 places where women want to work' list and that was the fourth year running that we have been recognized for our commitment to be the employer of choice in this industry, attracting and retaining top diverse talent whatever the market conditions.

So summing up, the global economic recovery is underway and the pace of declining commercial real estate transaction is slowing or bottoming. Some commercial real estate markets and sectors are seeing improved investment trading activity, but most markets continue to contend with weakened fundamentals. And the improving sentiment has yet to translate into improving revenues.

In this environment we have strengthened our competitive advantage. We have sized our business to market conditions and we will continue to maintain rigorous cost control. We have worked to retain our key talent we are focused externally on servicing current clients and on taking market share.

Our balance sheet is in good order and we continue to grow share in our market-leading corporate outsourcing business, and we are providing value recovery services to financial institutions and public agencies around the world. Finally, LaSalle Investment Management has bedded down its portfolio, is maintaining good operating margins and cash flow, and indeed attracting new capital. All-in-all then we are very well-positioned to take advantage of the real estate recovery as it begins to develop into 2010.

In closing, Lauralee and I would like to express our heartfelt thanks to all of our colleagues listening on the call for producing these results and for positioning us so well for the next phase in the economy. So let's move to questions. Julie, would you tell us how it works, please?

(Operator Instructions) Mark Biffert, Oppenheimer.

Good morning. Colin, I was wondering if you can expand on your thoughts for each of the segments or sectors. And EMEA obviously was weak. It sounds like you think that EMEA is kind of at a trough right now and that you think that it should recover in the fourth quarter and possibly the first half of next year. You see an improved performance, is that correct?

You referred to all regions and sectors. We have given you a fair amount of detail, but just a quick summary.

Asia we are pleased with. We have been reducing costs as we have across the business. What we are seeing there is the beginnings of some recovery and confluence of activity, probably leading the regions around the world in terms of economic recovery, both broad economy and the real estate sector.

In Europe we have, as we have explained on previous calls, taken aggressive cost-cutting measures. We have sized the business down to a level which is, we believe, right for the recovery as it gathers pace into 2010. The teams which we have in place, particularly in the capital markets business, have been severely reduced.

We do not intend further major cost cuts in Europe. We think we have gotten to levels which are sustainable over the next phase of the cycle. We want to maintain the key revenue-generating skills which we have in place and we believe that the sizing of the business which we have carried out in Europe has achieved that.

By the way, we have not limited our European or any of our businesses in terms of the restructuring spend which we budgeted for them. They have spent the levels they believe appropriate to size the business correctly.

In the US the business has maintained a robust quarter three. Markets are still headed downwards in terms of leasing demand, but as we described we have countered that trend and produced significant share growth in our leasing activity. Our corporate business continues to grow strongly as that corporate market has grown throughout the recession. And although capital markets in the US are at horribly weak levels, it always was a relatively small proportion of our US business and of course it has become even smaller through this part of the cycle.

La Salle; really strong annuity-based flows in our advisory income stream. Again, we have sized the business down. We have reduced the cost base. We are comfortable with where we are at.

So I guess the fourth quarter then -- I am just wondering, given the bad fourth quarter of last year, is it your anticipation that you can beat the fourth quarter of last year or do better than the fourth quarter of last year?

Well, as you know, Mark, we don't give guidance. But what we are pleased with is we are seeing sequential quarterly improvements in our operations this year. Clearly, our people have been working very hard because they are appropriately aligned to give the best performance we can in the fourth quarter.

Okay. And then you talked a little bit about maintaining people. I am just wondering if you are seeing opportunities for acquisitions in the various markets that you are at.

We have throughout the recession, as we have said on multiple calls. We have had conversations with groups and individuals. We have hired very selectively. For example, our team in London which looks after bankruptcy work came over, eight or 10 of them, from one of our competitors in quarter one this year.

But we are being very selective. Obviously at this point in the cycle lots of people are dissatisfied with their prior employers and looking to move. We have been entertaining those conversations but just taking people on in very selective ways.

Okay, thanks.

Kevin Dougherty, Bank of America.

Great. Thanks, guys. I wanted to see first if you can just talk a bit more about your expectations for a continued share gain in this environment I guess given how much progress you have made to date. And maybe if you could just touch on the different business lines and where you might see some of the biggest opportunities for further share gains?

I think the general competitive environment that we see is that whilst some of our stronger competitors maintain strength and are doing well we do see medium and small competitors suffering. And Lauralee referred to one closure in Moscow. We have seen other closures in Spain through some of our European competitors.

In general, what the clients are doing is looking to move to reliable quality names which they can trust to perform for them in difficult markets. That is the move to quality, if you like. And in particular in investment management and in the corporate business sector they are looking very hard at the balance sheet strength of the people they are trusting their assets or their individuals to for a three- to five-year horizon.

In that respect our balance sheet, as Lauralee has referred to, has been strong through the recession and we strengthen it further in quarter two with the moves we made. And it's providing us a very significant competitive help as we deal, again, in particular with corporates and institutional investors.

Kevin, I might add just one thing to it. I think that the culture of Jones Lang LaSalle, which we have been able to maintain even with the acquisitions that we have done, is really one that leverages the client and these multiple pieces of services that come out of a relationship. Being able to drive that through our international desk globally, to drive that from our positions that we have built up with our strategies over the last three years in our local markets to go global and global to go local there is going to be a real ability to demonstrate the strength of that platform in terms of taking share as well.

So it isn't just in one product. It really runs across the gamut of what we do.

Okay, that is helpful. Then maybe just as a follow-up. If we look at the discretionary cost savings that you were anticipating this year, could you talk about maybe what percent of that is likely to come back as conditions improved? I know you mentioned some kind of uptick in the incentive comp here. But I am just trying to get a sense of some of those cost saving activities what might have been viewed as more of a permanent reduction and what might come back?

Well, the incentive comp will come back we hope real quick with the recovery. That is just a good thing. We love paying people incentive comp. It's broadly related to revenue and it drives our profitability.

As for other discretionary costs, there will be some which will come back with increased activity. Some of our T&E, for example, travel and entertainment, has got a strong linkage. And, again, it's a good thing when we see that ticking up we will be generally encouraged.

But we will be holding down -- through 2010 we will be holding down our discretionary costs in a very severe way because we believe it's the key to continuing to drive the bottom line recovery in markets, which although they are showing some signs of life are really not showing a consistent, strong uptick here in the levels of activity available.

And I think the other factor which is going to be determined largely by the marketplace is when our people can operate at a better efficiency level. They are doing every transaction two or three times in order to get them through the lines. So that productivity is really key.

So as Colin says we will be watching our expense dollars carefully, but what we will really want to do is get the efficiency and productivity out of every expense dollar we put back in the system.

Okay. If I can just get one last one in. You mentioned continued debt repayment, particularly as you move into a seasonally stronger fourth quarter for free cash flow. Could you talk about what we might expect relative to the repayment we saw in the quarter?

It's clearly the repayment comes off the prior-year quarter's receivables because that is what we are doing is we are collecting them and then managing to spend against that, which as we have built up receivables that continues to be the case. So you are not going to see probably a whole lot more in the fourth quarter than what you saw in the third quarter principally because it's sort of a similar quarter in terms of receivables.

It's really the first quarter when we get our seasonal spike in the fourth quarter where it goes up even more. But it should be a good, solid level because we have no plans to increase CapEx or OpEx in any material way from what we have done this quarter.

Okay, great. Thank you.

Sloan Bohlen, Goldman Sachs.

Good morning. Colin, just to start with if you could maybe provide a little bit more color on the $1.5 dollars that was raised in the quarter for investment management? Are you seeing a lot of that? Is foreign capital trying to take advantage of the weak dollar or --? And maybe if you could give us some color on what return expectations are.

In general, let's talk about the market as a whole. Money is flowing back into real estate funds, whether it's British trusts, whether it's German open-ended funds, money is flowing back into real estate. The public is looking at real estate and seeing we think it is an opportunity for further capital gains after the pick up that the stock markets have had.

So there is generally across the world a relatively positive attitude towards real estate. When it comes to institutions we have obviously seen some poor returns over the last 18 months, two years from the investment management industry as a whole. But the general attitude is they understand why that has happened. That markets across the world have taken a hammering and real estate has been no exception to that.

And so they have been looking at their managers and trying to differentiate between the good and the less good, between those who have been transparent and those who have been less transparent through this last 24-month period. And they have been making their dispositions and allocations accordingly.

When it comes to the institutional market from who we raised the bulk of our capital for LIM, they have been so far this year very reluctant to begin putting new dollars out to investment. That is beginning to change because those particulars, for example, pension funds, insurance organizations with a steady inflow of dollars can only hold up in investing for so long. So they are beginning to put dollars back out into the market.

They have reinvested or they have put dollars into the equity sector and had good gains from there. They are now seeing as a result of the gains in the equity sector and their increased funds flow into there that the real estate sectors are becoming underweight compared to the ideal allocations. And they are beginning to open up and put money back into real estate.

So in our case the money which we have raised has flowed significantly into the public institutions -- sorry, the public equity sector. We have seen significant upticks in the amount under management in that sector and we have received pieces of capital from both US public pension funds and European institutions. Those have been the principal sources of the new capital which we have seen.

Okay. And is it fair to say that for the capital raised for actual asset investment is there a disproportionate amount that is being raised for distressed opportunities or is it pretty much still just the same type of value-add type of return expectations?

With what we have been raising it has principally at this point in time gone into our securities business with some funds in, such as Canada and Mexico. I think there will be capital raised going forward in some of those areas, but we currently have a solid capital raise for opportunity funds, particularly into Asia, that is still capital we can spend.

The new capital that is flowing into private equity is generally quite conservative across the market and so is looking less for opportunistic returns from, for example, development or value-add plays and more for investment in core assets with a steady cash flow. Where the perception is that those core assets will also see significant value increases over the coming period given the level to which they have been beaten down in price over the last 18 months.

Okay. And then if I could just one quick one on leasing. Lauralee I can't remember if you guys provide what the leasing year-over-year revenue growth would have been ex-Staubach?

Well, ex-Staubach we don't do that because we have now merged them together. What we do do is talk about the pro forma as if we were together. So, for example, in the third quarter I mentioned the 11% number. On a year-to-date basis we would be down 11%.

Okay. All right, I must have missed that. And then maybe if you can just provide an update on (multiple speakers) I am sorry.

Give you that number in just a second.

Okay.

It would be down 28% for the year-to-date.

Okay. And then with that in mind, could you maybe give us an update on where we are with regard to the earn-out hurdles for Staubach and when those -- I think it was $114 million worth of payments that were tied to that?

Well, I think there is two pieces. The earn out is way out, so that is -- it's awful early to be talking about that since we are only a year into a five-year deal structure. We do have a payment that we put in as a current liability that would be a year from now. There is an ability for that to be delayed if they don't hit the numbers that are there.

As you know, we have put it into current. We will be absolutely delighted to pay it, but it's early in that process but we are very pleased with it. How well the teams are working together and the share that they are taking in terms of their performance.

All right. Thank you, guys.

Vance Edelson, Morgan Stanley.

Thanks. First, just back on your appetite for M&A, you mentioned as it relates to your market share gains that some competitors are a bit on the ropes now. Any thoughts on whether that might make this a better time than normal to pursue acquisitions as opposed to '06 to '08 when prices were high? And perhaps this is even a limited window of opportunity that you should be taking advantage of, especially when your balance sheet is getting stronger. Any thoughts there?

We have obviously had those thoughts. In general, our position as we stated it in the prior parts of the call is that we like hiring individuals and teams at this point in the cycle. We are getting a good flow of people coming to talk to us and we are indeed even approaching some people on that basis.

I think the challenge with some of the competitors, and we talked more about the medium and small competitors, as you have stated were not faring so well. But it's -- what we have done in our acquisition policy is acquire successful businesses. We have viewed ourselves as being a successful culture and we have tried to always be acquiring other businesses which were showing success. The reason for that is that you get two businesses that are feeling good about each other coming together.

If we are in a position of acquiring businesses which are suffering, then you are bringing quite often problems into the business. You are bringing sometimes cultural issues, but most of all you a bringing a mismatching confidence and morale. And we are very hesitant about that.

So whilst it might be a good time economically to do it, we are just very cautious about the sorts of businesses that are available and the sorts of states they are in at this point in the cycle.

Okay, got it. And then, second, given the recent pickup in activity -- you are beginning to invest in people and perhaps acquire some teams if it makes sense, but it sounds like you are largely right-sized at this point given the environment. How about on the outsourcing side? Given the expansion there and the wins you outlined and the strong pipeline that you mentioned, is there any elevated need to hire there?

Yes, and it has been selective. We have referred on previous calls to the way we have transferred people across from areas that are not doing so well, markets that are not doing so well into the corporate business. We have added people to the corporate business. And so when you look at our overall expense level reduction that net of increases in some areas such as the corporate outsourcing business.

Again, we are selective. At this point in the cycle you can hire people well. But it fits with our policy, which we have maintained through the recession, of growing where we needed to and downsizing in very targeted ways in countries and business sectors where we saw market demand falling away sharply.

Okay. And just one more question. With the capital markets activity picking up very recently it sounds like there is certainly some strength beyond the normal seasonal factors. Could you offer any insight into the balance there? Has seasonality been much of a factor versus past years?

It's difficult to tell. You see upticks of, for example, up to 50% in some European markets, about a third across Europe as a whole, but the markets are at such low levels that one or two transactions make a big impact. So I think our conclusion at the moment is that year-on-year it's still sort of the numbers are down big, tens of percentage points.

Quarter-to-quarter we are beginning to see stability and recovery, particularly in Asia and parts of Europe. Not yet much in the US. And that sort of suggests that we are beginning to see a bottom, but it's not a solid kind of a trend of turning and recovery yet. It's just an indicator. We find that encouraging, but it's not enough to start building business plans around it.

Okay. That is helpful, thanks.

(Operator Instructions) David Gold, Sidoti.

Good morning. Just a couple of small things. One, in the past you have given some metrics as to cost cuts, say year to date. Curious if, A), you can update on that and, B), from here on out if there is sort of more in the plan or should we largely be done with the restructuring costs?

If we take -- I am going to work on base compensation, David, because I think we have talked about the discretionary piece. But if we look at what we have done so far we have taken severance of a little over $31 million this year where we expect to have savings of over $130 million. So that brings us cumulative savings to just under $145 million on a run rate basis.

So that is a payback of about five months period of time on a global basis with the longest being EMEA which runs about seven months and the balance of the region sort of running three to four. So we have continued, I think, to spend that money wisely and get appropriate savings for them.

Can you go over with me -- I think in the past, maybe I am wrong, you have broken down in the $145 million number basically how much of that is sort of cost reduction and how much of it is, let's say, tightening on spend, T&E, things of that ilk.

No, this number is just comp.

Pure comp.

In addition to that our discretionary savings have been over $50 million on a run rate basis.

And you did ask me a question of further severance. We will probably take a number sort of comparable to what we took in the third quarter in the fourth quarter as we just sort of wind down the last pieces of what has already been put into place.

Got you.

Absent any new lurch downward in the global economy, we are sort of done with the big things.

Got you. Perfect, and then one other. Colin, as we sort of think about the broader world a couple of things. One, on credit markets I guess incrementally you are hearing a little bit by way of insurance companies actually easing. Just curious if you can comment on that -- or easing on standardization (inaudible) so things are getting a little easier there as far as lending.

Two, essentially longer-term what do you think it takes to get to those next steps of the 2010 recovery? Is it easing in the credit markets, is it the economic uptick that you are looking to or some combination thereof?

To take your bank question, it varies around the world. In general, Asian banks were not too badly hit by the whole downturn, which was sharp but short for them. And in particular Australia, India, and Chinese banks are in great shape. The Chinese economy, the Chinese government is pumping credit into the economy at a rapid rate and that is actually causing asset prices to move up very sharply. That is happening in and around China so Hong Kong residential prices are up over a third this year as the spillover from Chinese liquidity goes out into Asia.

In Europe, the French and German banks are in generally good shape except for the German mortgage banks, but they are lending again. And so, surprisingly, are the UK banks who have found ways of cordoning off their bad loans and we see prepared to lend in measured ways.

The big area where nothing much is happening in the banking market -- you mentioned insurance companies, but it's just not making the difference -- but the banks in the US are still pretty much closed for business. If you can give a term sheet it has got all sorts of conditions. It doesn't last very long and it has got big spreads on it. So our debt people are not very enthusiastic about short-term prospects in US bank lending.

What gets us going again in 2010, two things really. The capital markets revival or bottoming and gradual revival in summer as we have previously described is a trading reaction. It's a trading anticipation of broader recovery we believe. As such it's subject to the vagaries of all trading moves. In other words, it could turn back again if people lose confidence in an impending recovery.

But in general, if that confidence remains intact and if the world economy continues to edge upwards then we would expect to see Asia leading Europe, leading the US in terms of recovery in the capital market and investment sales transactions in 2010.

As to the leasing that is all dependent on the economy. What we have said consistently is that leasing market demand picks up about 12 to 18 months after the bottoming of the broader economic cycle. So assuming that bottomed in April 2009, then expect somewhere between April and the fourth quarter of next year to see the leasing market demand begin to pickup on a broader scale across the world.

Okay. And then just for a second, to the extent that you think that we see recovery in the US or the Americas that is second half of 2010, you basically don't have baked into there an expectation of credit markets opening backup?

The recovery in the second half of 2010 will probably be in leasing demand. It's probable that the capital markets, so investment sales, will anticipate that as it's done in the rest of the world. So if you take the rest of the world as a template and apply it to the US then you could expect capital markets investment sales to pick up perhaps in the early part of next year.

Credit markets; as the banks begin to deal with their issues, we have seen them move through their credit card, through their residential lending. It's clear that the commercial mortgage sector in the piece they are dealing with last, but there are indications that they are beginning to take that on now.

Got you. Okay, thank you both. That is helpful.

Will Marks, JMP Securities.

Good morning, Colin. Good morning, Lauralee. The first question I had was on your balance sheet in the current liabilities you referred to the deferred business acquisition obligations, I believe, but also that the short-term borrowings figure is up significantly. Can you comment on that?

A couple of things, are you talking about E&R countries? Is that specifically what --?

On the balance sheet in current liabilities there is a short-term borrowings figure that looks like -- unless I am reading this wrong -- is --.

No, you have got it. What we do is we have been very efficient at managing our countries cash because we have both our bank lines as well as lines in our countries. And so because we at the end of the quarter can't get the cash out of those countries as quickly as we would like because of repatriation rules we use the balance sheets locally.

And so you will see that we have been running a little more cash on the balance sheet and a little more liabilities, and that is really using those balance sheets of the countries very effectively. So we would have done that. We probably would have left more cash and not been able to get the cash out of the countries and run up the balance sheet more centrally, but we think this is a more optimal way to do it.

Okay, great. And then on a related note, just interest expense in general went way up during the quarter and you are paying down debt. Is there any -- can you help us a little bit and think about what the interest expense line does going forward?

Good observation. The cash interest in the quarter was $6 million; the balance of it was non-cash. We did do a catch-up adjustment on an acquisition relative to minority interest, which because of the way the transaction is structured the minority interest actually gets paid as a non-cash interest through the balance sheet. And that adjustment was $2.8 million.

So the current interest is, in total, is not reflective of our run rate. But our cash interest is, at $6 million, is down from the prior quarter which was $8 million.

If we are trying to do maybe a simple ratio of the cash interest plus the interest on the deferred business obligations, you would --?

For this quarter I would sort of just back out about $2.5 million.

About $2.5 million, you are right. Okay.

(multiple speakers) It will run its way normal from here on out.

Perfect, okay. And then I noticed that the third quarter versus the second quarter that the EBITDA declines were fairly similar but the EPS decline was much less in the third quarter versus the second. I am trying to figure out exactly how you were able to improve or how to show much less of an EPS decline?

You know, I think what I would like to do is take that off line and get back to you. It's a tough one to do the math while we are online. We would be more than happy to go through that. And are you talking about basic EBITDA or adjusted EBITDA, because --?

Adjusted EBITDA.

Yes, because I think it's probably going to run into what is excluded and what is not relative for the banks.

Okay, that is fine. Last question is on US leasing. You have talked a lot about this, but I am curious on the third quarter you certainly -- you grew -- when taking into account Staubach you were able to grow US leasing revenues and clearly that was not the case with competition, at least in terms of my channel checks.

Maybe you could tell us how many US offices you have, have you added people. I know it's probably a combination of adding people and doing more business because of your corporate account deal flow. But any incremental thought would be appreciated.

Well, I think the answer is we have added staff. I don't have them in front of me but we have added capabilities in industrial, in healthcare. We have gone deeper into our local markets where we have been able to pick up people. So there is no question we have added staff.

The other thing is we are comparing to a quarter that for the Staubach organization would have been a weaker quarter for them because their year-end, if you will recall we told you was June 30. And so it means that they would have their big fourth quarter and then their third quarter, which we are now comparing to, is always their lowest quarter. We now have them on our systems and our structures, so they are going into our seasonality but we are comparing to last year's results under their seasonality.

Okay, that is really helpful. Thank you. My final question is on just looking out on Americas leasing. What I have found from talking to people is that over the last nine, 12 months there has been a lot of leases that have been signed are short-term in nature as those companies are concerned about the economy, which would lead to lower commissions.

Should that be a benefit in 2010 versus 2009? Should that be offset by lower rental rates which also drive commissions? Any thoughts there?

You have seen all the factors working the wrong way. In the last 12, 18 months in the US people have been delaying renewals to the last minute. They have been renewing for short-term as you described. They have been downsizing and they have been paying lower rental rates so all the factors that go into the calculation of our fees have been headed the wrong way.

Some of that will begin to unwind as we move into 2010. Obviously any short-term leases taken for a year or so will either get renewed or will be put on to longer leases back to normal. What we are not seeing yet is any bottoming in rental rates in the US, so the net numbers are still declining. So that doesn't get, show return.

But what we are seeing amongst companies is an increased willingness to take decisions. One of the big factors that contributed to the slowdown and reduction in activity from Q3, Q4 last year through to Q2 this year was a complete reluctance on the part of companies to take decisions unless they absolutely had to.

World confidence is recovering. I wouldn't say investment budgets are recovering yet, but confidence is coming back. This earnings season where we have seen a lot of companies coming in ahead of consensus and ahead of prior-year numbers will only help with the recovery, that process of recovery and confidence.

So all those things put together you will begin to see we think a turn in confidence. You will begin to see short-term leases unwinding and being extended for longer periods. The rates are still declining and that is going to take a little while to bottom. Put it all together and that is what we think about 2010 in the US.

Okay, great. Thank you. That is all for me.

Nick Pirsos, Macquarie.

Good morning. At this point I just have one question and will circle back off-line. As markets begin to recover, Asia in particular, would you anticipate a reinvesting in the business in 2010 or more leveling off at existing levels?

Reinvesting in our business?

Yes.

Well, we have been investing through -- cautiously as I have said -- through the cycle in hiring new people. So whilst we have been paying restructuring costs for sectors where we were seeing extreme loss of activity or where we were over staffed given market conditions, we have been selectively hiring in other areas where we have seen market growth. And in that context China and India have continued to perform well with revenues either flat or indeed up quarter-by-quarter over the last -- right through the recession really.

So we will be looking to continue to invest in growing people in those markets, but that will be it for now because we are just still very cautious about our overall market environment as we move into 2010. As we said, there is some fragility both in the capital market and some in leasing trends. We would like to see a sustained picture before we start to reinvest on any scale.

Great. Thank you.

Michael Mueller, JPMorgan.

This is Mike Lewis on Mike's line actually. Most of my questions have been answered at this point, but I just wanted to get your thoughts on kind of a wave of debt maturities for real estate coming up, especially 2011, 2012 as we look out. Do you think that kind of gets the transactions market going again?

We hear a lot about pretend and extend. Do you think maybe that is more subdued than a lot of people think? And then related to that what does this kind of wave of debt maturities maybe mean for your value recovery business?

Well, I think there are two pieces of those debt maturities. There clearly is the bank piece, which is a substantial piece, and that is where you hear a lot of the blend and extend and delay and pray and so forth. The CMBS markets will start to have an accelerated maturities now. Some people are somewhat optimistic that those are the loans that were originated when there was still some degree of rationality in the marketplace and then that will build as it goes forward.

But clearly that is going to put some more stress on the system. I think it's one of the expectations that we have had for building our value recovery service that there in fact will need to be a great deal of sorting and resulting activity that comes out of that. And it will definitely require the marketplace to get much more realistic about really what they are dealing with, which some would say hasn't occurred so far.

Thank you.

The vast majority of what has to be refinanced is with the banks, sort of 80%. And so far at least they have rearranged. They have, if not forgiven, they have at least allowed forbearance on loans and they have just found ways of rolling these things forward and refinancing. So we will see how that pattern evolves and whether they can continue to try to do that into 2010 and beyond.

Brandon Dobell, William Blair.

Thanks. I won't torture you too much more here, but one quick one related to a previous question around investment management. Are you guys seeing opportunities to go raise capital with the same economics to LaSalle Investment Management as you saw previously, i.e., seeing kind of impaired interest opportunities, I assume transaction fee opportunities, getting paid for mining the money versus putting it to work? Or are the economics different these days?

I think that is the question that is to be answered, Brandon. There hasn't been a lot of capital raised, but there is no question that investors are challenging whether the fee structures promoted the results and the behaviors that they had hoped that it would.

Clearly probably the most vulnerable piece of that is being paid on commitments, because if you want someone -- it's how do I think about my money and it being out. And yet they are struggling with they want people to be cautious so they don't want to get the money out there quickly. So anytime you start to solve one piece you are unsolving another and I think it's in negotiations as funds will start to get raised.

Okay. And in related way, as you look at the commission structures on both the capital markets side as well as the leasing side and even perhaps in the corporate services side, any pushback from your clients in terms of commission structures? I know there is going to be different leasing commissions on different lengths of terms. But in terms of the base commission schedule that you guys have, any changes to the good or the bad based on what you are seeing in the different marketplaces?

Broadly they have been under some pressure across the piece during the downturn, but it varies by sector. Quite a lot of pressure in capital markets, investment sales fees.

In the leasing markets, if you are doing the leasing, the pressures -- the fees have been under pressure. If you are bringing clients, if you are bringing tenants as a tenant rep, there has been some indication that the fees have actually been maintained or even increase slightly because it is a buyers market. So bringing the buyer is well rewarded.

Okay. (multiple speakers) I am sorry.

The overall effect has been down. And, again, that is something which as markets bottom will also begin to bottom.

Right. And then final question, Lauralee, in the past you have talked about opportunities in investment management to consolidate some of the weaker or underperforming players. Any movement from that perspective in that trend? Maybe not necessarily for (inaudible) in particular. But do you see much consolidation going on or is there just too much uncertainty about asset values right now to try and value the managers?

Yes, I would say that there is an awful lot of uncertainty. The piece that is still out there that has some noise around it is where limited partners are unhappy with their general partner, want to think about removing them, and then how is that done and how is that done for the benefit of their portfolio. But, again, these are things that are playing themselves out.

Okay. Great, thanks a lot.

I am showing there are no further questions at this time. Do you have any further remarks?

Thank you, operator. If there are no further questions, we will draw today's call to a close. Thanks to everybody for joining us and for your interest in Jones Lang LaSalle. We look forward to talking with you again during the fourth-quarter results announcement at the end of January.

Thank you very much and have a good day, everyone.

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