Jones Lang LaSalle Inc (JLL) 2010 Q2 法說會逐字稿

Good day and welcome to the second quarter 2010 earnings release conference call for Jones Lang LaSalle Incorporated. Today's call is being recorded. Any statements made about future results and performance or about plans, expectations and objectives are forward looking statements. Actual results and performance may differ from those included in the forward-looking statements as a result of factors discussed in the Company's annual reports on form 10k for the year ended December 31, 2009. And in our other reports filed with the SEC. The Company disclaims any undertaking to update or revise any forward-looking statements.

A transcript of this call will be posted and available on the Company's website. A web audio replay will also be available for download. Information and the link can be found on the company's website. At this time, I would like to turn the call over to Mr. Colin Dyer, Chief Executive Officer for opening remarks. Please go ahead, sir

Thank you. Hello, everybody and thank you all for joining us for this review of our results for the second quarter and first half of 2010. With me on today's call here in Chicago is Lauralee Martin, our Chief Operating and Financial Officer. Lauralee will review our performance in detail in a few minutes.

To sum up, we are encouraged by our strong results and by the momentum which we've developed during the quarter. We reported net income of $32 million, or $0.72 per share for the quarter, compared with a net loss of $14 million for the second quarter of 2009. First half net income was $32 million, or $0.73 a share, compared with a net loss of $76 million one year ago. Revenue totalled $680 million for the quarter, and that's up 18% in U.S. dollar and local currency terms. First half revenue was $1.3 billion, an increase of 18% or 15% in local currency over the first half of 2009. I'll start off this morning with some comments on global real estate market conditions and Lauralee will then follow to cover up performance in these markets.

Earlier this month the IMF raised its forecast for global growth from 4.2% to 4.6%, indicating the global recovery remains on track. Economic policy is still promoting growth in most major economies, and corporate cash flows are strong.

Although there are differences in real estate markets from region to region, we do see the same general trends in our business. We've posted slides in the investor relations section of our website at JonesLangLaSalle.com for your reference. Slide three shows the Jones Lang LaSalle investment sales clock, which, as you know, we update each quarter. It's a snap shot of conditions in major markets around the world, which are in different stages of the real estate cycle.

As you can see in the second quarter of 2009, capital values were falling uniformly in almost all major real estate markets. A year later we see values increasing in many major markets and bottoming out in others. This trend has also progressed in quarter two as compared to quarter one, continuing the steady world wide cyclical recovery in real estate capital markets. Direct commercial real estate investment volumes stood at $66 billion, globally in the second quarter nearly double the volume of the market bottom one year ago.

In the Americas, transaction values increased 54% over first quarter totals and were four times higher than in the second quarter of 2009. European market volumes increased 15% over the first quarter, up 80% on a year ago. The rate of growth did slow in Asia Pacific during Q2, as volumes declined by about one-third as compared to the first quarter,but the total was nevertheless still up 21% over a year ago. With a number of large transactions pending and market fundamentals improving, we anticipate a renewed uptick in Asian volumes in the second half.

Large amounts of equity continued to target stabilized real estate investment in many parts of the word with the supply of equity exceeding the supply of assets coming to market. This has continued the downward pressure on yields across many major markets which we track. Open ended funds in the UK and Germany have attracted significant amount of equity for real estate investment, and in Asia pacific, the largest investors have been domestic, but foreign capital is also flowing into region. In the U.S. and Canada, institutional investors are again investing equity, targeting safe core properties.

Slide four tells a similar story about conditions in leasing markets world wide. Although the progress continues to trail the recovery in global investment sales. While fundamentals remain weak in Canada and the U.S., we do see indications of improve in demand. In fact, for the first time in ten quarters the U.S. office market posted its first quarter of positive net and absorption a modest 3.2 million square feet.

But across most of Europe, office vacancy rates are stabilizing, where in some markets they're declining, London and Paris. Paris, for example. Net absorption was positive for the fourth consecutive quarter, increasing by nearly 28 billion square feet. We're seeing a significant increase in the number of large tenants looking to lock in long-term leases at greatly reduced rents. Leasing markets in Asia's developing economies have seen a strong recovery since mid 2009, as rising corporate profits have increased demand for space in the region.

Net absorption across Asia pacific' s main office markets increased by about 10% in the second quarter and Singapore has joined the list of markets where rental growth has turned positive. In our other major market segments corporate outsourcing volumes continue to grow and inflows of institutional capital into real estate funds have continued to grow from the very low levels of half one 2009. So we're seeing a long awaited picture of leasing demand fundamentals turning positive, underpinning the yield CAP rate compression that we've been seeing investment sales markets world wide for the past year. So against that generally positive cyclical recovery as a background I'll now turn the call over to Lauralee.

Thank you, Colin. Good morning to everyone on the call. We've expanded the details of our results in both our press release and supplemental slides. As such I will not repeat those results in my comments, but instead will focus on the progress we continue to make against our 2010 priority. Our progress is summarized on slide 5. We demonstrated our increasing marketplace competitive strength, our double digit revenue growth across all our geographic segments. These results come from the successful integration of the mergers and acquisitions of the past few years, as well as continued key new hires and expanded product line capability.

Throughout the economic downturn, we cut non revenue costs aggressively and focused on protecting our market positions and our key transactive staffing. We've been able to reverse loss making positions from a year ago, most significantly anemia. For example, Russia has turned from a loss to a profit in the second quarter, and is strongly positioned competitively in this key recovering brick market. We're pleased to report significant increases in leasing, up 30% in local currencies, as we help clients consolidate and reposition their portfolios, lower their costs, or upgrade their space.

These activities to date have seen minimal benefit from client space expansions, due to the lack of job creation. Demonstrating we also have a key role to play in the real estate market correction and recovery. Capital markets and hotels revenue up 65% in local currency, was driven principally by local market investors and demand for core products with troubled assets from the bank still slow to come to market. As a reminder, we had much lower levels of activity in the first half of 2009 compared to the second half, which will make for more challenging comparables in the second half of this year, but momentum is clearly established.

A key priority has been to improve our operating margins by maintaining cost discipline as markets recover. We are now benefiting from increased productivity of our professional as transaction activities increase. Adjusting for restructuring charges, second quarter firm operating margins was 9% compared with 5.7% last year.

On the year to date basis, adjusted operating income margin was 6.4%, compared with 2.1% last year. Our cost increases in the quarter came principally from increased variable compensation, which we are delighted to see, as it rewards our people for their hard work and directly reflects our improved performance. Year to date our compensation to revenue ratio improved from 67.6% a year ago to 65.5% this year.

We are also very pleased to report that we will be making the first deferred earn out payments related to the sell back merger, for $78 million in the third quarter. Reaching this hurdle confirms the success of this merge, and we continue to be impressed with how well the teams work together and with the market share we are taking with our combined performance. Cost control also remains a key focus of our clients and our ability to add value and support to their goals is validated as we continue to expand our leadership position in the property and facility management outsourcing space.

During the second quarter, property and facility management revenue grew 15% on a local currency basis over last year. There were increases across all geographies, but particularly positive growth anemia, which increased 27% in local currency. Revenues from these services reached 26% of our total global revenue this quarter providing a strong annuity revenue base to our performance. We've added both nuance in the quarter and expanded our existing client relationships, which Colin will talk about shortly.

Furthermore, we are successfully leveraging our connection strategy to drive wins with new and existing clients in the project and development services market space, which we call PDF. We saw growth for this service anemia driven by investors seeking to upgrade properties for tenant demand and in Asia, particularly in India, driven by our technology clients expanding their back office and call center support facilities. Although PDF revenue was down n the Americas, our pipeline is picking up and we're seeing corporates beginning to open their Cap Ex budgets. Our priority for LaSalle investment management is to leverage our global scale. In the second quarter, assets under management, which is reported on a one quarter lag, declined due to both currency translations and asset sales. These reductions were partially offset by improved valuations, particularly in our securities business.

Looking forward, we expect a number of factors to impact both advisory fees and assets under management. On the positive side, our people in LaSalle have moved to the front foot and we continue to win takeover assignments for new and existing clients, including 700 million this quarter of a new separate account takeover. These successes are driven by our strong investment performance and reputation. As a result, LaSalle reported intensive fees of $1.7 million in the quarter, bringing the year to date total to $7.5 million.

Against these positive trends, sea reductions, asset dispositions, and a challenging environment for completing acquisitions will have an adverse impact on both advisory seeds and assets under management. As a result of these mixed dynamics, LaSalle is aggressively managing costs to protect their margins and operating income. We expect advisory seas and assets under management to remain relatively flat for the year, but then have a solid foundation for 2011 growth.

Finally, our balance sheet position is strong, compared with a year ago, we've reduced our debt by $134 million. Cash interest in the quarter was approximately $5 million, a 28% decrease from a year ago. And our leverage ratio of 1.9 times is down from the first quarter ratio of 2.26 times. This concludes my comments. Let me now turn the call back to Colin.

Thank you, Lauralee. To give you a sense of how we generated those second quarter results, here are a few examples of our recent business wins. In our corporate solutions business during the quarter, we won 12 new assignments, retained all nine contracts that came up for renewal, and expanded our relationships with another three clients. Our plant plan for additional new business remains strong and consistent with last quarter's levels.

Our new assignments include providing transaction management and lease administration services globally for a European multinational electronics company with an 80 million square foot portfolio. Slide six shows a few examples of additional outsourcing wins. In the Americas, city retained us in July to provide facilities management services for its 28 million square feet North America portfolio. In Amaya, Shell appointed it's primary provider of real estate advice and services across all European region and in the region to the work which we do for them already in Asia. Asia pacific, we were appointed by roll back of Scotland as an exclusive provider of services for its 2.5 million square foot portfolio in the region.

Turning to investment sales on the same slide six, you can see examples from all regions, including the $180 million sale of the iconic Evening Star building in Washington, D.C., the 212 million Euro sale of the International Centre (inaudible) tower in Vienna, its largest office building and the $140 million sale of UT Stockholm's 2.4 million square foot business park in Hangzhou, China. In Egypt, in a fast business return for our new Cairo office, we were appointed to sell the 125,000 square foot tower 47 building in the new Cairo business district.

As you can see from the slide, our global hotel transaction business continued to gain momentum during the quarter. Finally in the U.S., we worked with our partner REDC to complete the successful auction sale of $225 million of notes and bank-owned real estate. Examples of leasing and tenant representation transactions, which we completed during the quarter include a 226,000 square foot lease for Wal-Mart.com in San Bruno, Californiaand the lease of 186,000 square feet to shell in London on behalf of the Canary Wharf group.

And in Indonesia we represented the Martha Bank to lease 194,000 square feet in the largest leasing transaction in that country in several years. Finally, the U.S. general services administration awarded us a renewal of our national broker contract, which enables us to continue executing tenant representation services for the GSA's 184 million square foot portfolio across the U.S. In all of these examples, we were illustrating the growing health of markets around the world and the growing market share of our service business in those markets. LaSalle investment management has continued to take advantage of recovering investment markets.

During the quarter, LaSalle raised $900 million of net new capital commitments from institutional investors around the world for both public and private equity investments. This brings our year to date net capital rate to $4.3 billion. In addition to the tak eover of 1.7 billion pound royal mail pension fund separate account in the UK which we completed at the start of the quarter and noted in our last call, we all secured, as Lauralee mentioned a takeover of a $700 billion portfolio of a major U.S. public pension plan. LaSalle continues to focus on delivering optimal performance for its clients, as indicated by its out performance against many of the bench marks against which they're measured. Let's now turn to talk about forward market prospects.

In the global capital markets, where direct investment volumes totalled $130 billion for the first half, we anticipate full year volumes to be near $300 billion, 40% to 50% above last year's levels. We expect total transaction volumes in the Americas to increase by at least 80% over depressed 2009 levels to reach $80 billion to $85 for the full year. We anticipate European volumes to be up 35% on last year, reaching a 100 billion Euro mark, and in Asia pacific aggregate volumes could be around 30% higher this year. Financing rates for commercial real estate are likely to remain low for the rest of the year in the U.S., UK and Euro zone, where monetary tightening seems unlikely.

The debt markets have reopened in these countries, and borrowers' terms are steadily improving. In Asia, lending has continued to improve in most major markets. The banking system in Asia pacific is well capitalized, interest rates are rising, and the risks related to European debt have not curtailed lending in the region. Recovery in leasing market fundamentals will continue, as corporate confidence continues its improvement. More markets will be seeing higher demand and positive rental rate growth, led by Asia and South America and moving across Europe and the U.S. As we noted earlier, this will in turn bring up confidence in world investment sales markets.

Within the broad demand envelope, clients face consolidation and upgrading to better space at reduced rents will create a solid market activity for our firm through the second half. In institutional funds managements, clients at LaSalle investment management continue to maintain their long term allocations to real estate, funds are beginning to flow more strongly again after the recession, and we expect this trend to continue. We expect it to benefit disproportionately in this environment, having come through the recession with strong performance, leaving the LaSalle brand in excellent shape. The immediate challenges for LaSalle will be asset acquisition where markets are extremely competitive.

We'd like to close these calls by mentioning some of the awards and other forms of recognition that we've received from third parties during the quarter and which underscore our position as the leading real estate services and investment management firm. In the U.S. we were honored on both the east and the west coasts, winning a best place to work award in Washington, D.C. and also being named one of the best places to work in Los Angeles. In Germany, for the second year in a row, we were named top employer in the real estate business by the industry publication (inaudible). These best places awards reflect our ability to attract and maintain the best talent in the industry.

Our investment in energy efficiency and sustainability was acknowledged in London, where our upstream team lead the submission that earned a gold award in the mayor of London's green 500 awards. Australia's royal institute of chartered surveyors honored our retail team with the (inaudible) property award and also in Asia we won recognition from Proctor and Gamble in the region's two largest economies, in greater China our IFM team won the crystal trophy of appreciation, and in Japan just last week, we were awarded Proctor and Gamble's best partnership award for the second straight year.

So, to sum up, we're very pleased with our performance this quarter and indeed in the half year an we're looking ahead with confidence and optimism. We anticipate trading and investment markets broadly continuing to firm around the world and we continue to pick up market share. As our revenues increase and we con to control our costs, we're generating profitable growth and improved margins. Finally in closing, Lauralee and I want to thank our colleagues around the world, many of whom listen in to this call, for the great job they continue to do in the second quarter, the momentum for which they created positions us very well for the rest of the year. With that, let's move to questions. Operator, Would you please explain the QnA process.

Yes, sir. (Operator Instructions).

Your first question is from the line of Sloan Bohlen from Goldman Sachs

The first question on the profitability or better margins in the quarter. As we see revenues start to pick up or activity levels start to pick up, how should we be thinking about whether it's late half of this year or looking into the future, how some of those costs that were cut out of the business may come back?

Well, we've been very selective about the costs we've been putting back in. The costs we cut hard were our variable costs. We also cut people costs where we did not see markets recovering for an extended period of time, such as what we saw in Russia, such that we can already turn the corner, but do that with the leading market position there. So we will be careful on that, but I think that there's still a great deal of productivity in our people that is not yet coming through, particularly in our capital markets business all around the world, where the level of transactions that actually get done versus what is changed is still way below historic levels

Okay

We've laid out a long-term target for the firm of an operating income margin of 12%, which will be different around the globe, but clearly we still have a way to go to get that. It's not our view that we will probably get there this year, but later next year or beyond.

Okay. That's helpful. And then Lauralee, kind of maybe just reconcile the comments on assets under management in IM being I guess relatively flat for the year and maybe reconcile that with the amount of capital that was raised in the second quarter. I didn't quite understand

Well, there's two pieces. One is there's been a significant change in asset values because of currency impacts. We'll be putting out our new investor deck here shortly, which we provide in that appendix the value of the different assets under management, but if I look at our separate accounts, for example, at the end of the first quarter, we were $17.2 billion. We'll end up the second quarter on a lag of $16.8. A great deal of that is because of currency declines similar things in our funds business. So we are selling some assets, which will take that down, where we can take advantage of where markets have recovered for our clients and give them some performance and some cash back. And we are significantly below the acquisition level that we would have anticipated at this period of time, but again, we're being very careful with our client's money

Just mechanically, that $4.3 billion is not included in the assets under management until we actually invest it, often with debt added so it has a leveraged effect. But only on are the asset evaluations lagged, as Lauralee said, it hasn't come near our calculations yet.

Okay

Through the year and next year is when you'll really start to see the base level out.

Okay, great. And then just last question for Colin. As economic growth prospects maybe kind of tailed off in the second quarter relative to the first quarter, have you seen that impact any of the activity levels on the leasing side a little bit more is where we're concerned relative to asset sales?

No. You could fine tune, again concern about quarterly growth rates and economies as a whole. Our basic premise is that the trend for economic activity is still positive growth in all economies world wide. The rate of growth may go up to 30% in China, back to 10% next quarter, maybe 3.5% in the US one quarter, 2.5% next, butit's still the same directionally. It's that direction which is the more powerful impact on this recovery process that we've been describing.

So we can't fine tune exact rates by quarter, but we are just looking forward to seeing the same, anticipating the same trends as we speak. The only area where we saw any reduction in market activity was the investment sales in Asia pacific. That is the one, it's the most volatile region of the world and the most volatile market. What you saw there was after a very strong Q3 last year, Q4, Q1 this year, investors kind of just paused. They saw China taking liquidity out of the economy. They saw China trying to pause growth. They saw interest rates across the region rising andthey're just taking stock, but our sense is the sentiment is still good and they will be up again at the time second half of the year, as we said

Appreciate it. Thank you, guys.

Your next question is from the line of David Gold with Sid & Company.

Hi, good morning

Good morning

Just wanted to follow up for a little bit more color and investment management and a couple things. One, the comment in the release about lack of attractive assets at this moment versus the strength that we're seeing out there, or that you're seeing in your business on the transactional side. Is it more market specific? In other words, are the funds targeted to markets where the values just aren't attractive? What's sort of the disconnect there with the pickup in volume that you guys aren't seeing enough to do?

On the transaction advisory side, business is, as you saw, growing strongly. On the investment management side, we are acting as fiduciary for clients. What LaSalle is doing as a firm is being very careful and selective about investing in markets where the available of product is thin compared to the weight of money trying to buy and when prices are being bit up exceptionally quickly. So it's a question of being judicious in the investment choices we're making on behalf of their clients. We're not encouraging to chase up assets under management just for the sake of increasing that AUM number. It's about due cautious fiduciary behavior. I think the success of the policy is indicated with the references we've made against performances against bench marks.

Of the new mandates that we've been winning, there's a large focus on core and as Colin's comments early through the discussion, there's a lot of money chasing core assets. And core is good if you get the right cash flow and the right valuation increases. But if you overpay, there's not an ability to correct that appropriately for clients and, therefore, the fiduciary concern

Sure, sure. So what has to change? What you see changing there for more dollars to be able to be put to work, presumably if we're assuming that business is getting better and the values are coming back and maybe running away from us. What does it take for your folks to feel more comfortable putting that money to work?

Well, the first thing is, they're actually picking up and some of the mandates are taking over, whole sways of funded already been invested. So this is acquisition driven increase, which will come through over the quarters in the AUM number. We have stepped up our focus on our teams. The teams for the last year and a half have been heavily focused on what we call defense, making sure assets were properly managed, that value is being added to existing investments. And indeed the financing around investments was in good shape as values and financing levels shifted. We're through that phase now, we're refocusing the teams into a stronger acquisition mode. And as a result, we're seeing more deal flow just by paying more attention to the available product in the markets. I mean, our expectation too as markets return to the more normal transaction levels from the constricted levels we've seen, the availability of product would improve and that the LaSalle will see good opportunities in its markets for putting clients' money to work

Got you, that's helpful, I appreciate it. Two other quick ones. Can you comment a little bit on what you are seeing by way of liquidity, sounds like at least on the CMBS side things are easing out but still obviously nowhere near where they were in '07. The business that you're doing, can you speak to sort of financing trends and what you're seeing there?

You're right. CNBS markets very cautiouslyin transit, apparently coming back in Europe and the U.S.,very small volumes. That is another trend that will continue because there's clearly a demand by institution investors for stable cash flow, backed securities, transparencies watchward. In general, what we're seeing across Asia, Europe and now the U.S., too, is financing is coming back. We're seeing some multiple offers on behalf of clients.

We're looking to finance for them. Broad generalization, low to value ratios are creeping up through the 50s and 60s, sort of 60% 65% is available across Europe and the U.S. for good, stable assets. Spreads are coming in from sort of 300, 400 basis points back to 200, 300 basis points, so the markets are slowly normalizing. Providers have changed a little bit in Europe. Obviously the banks that suffered most severely in particularly Britain and Germany are very reluctant. You're seeing the emergence of other German providers, French and other continental banks moving into the markets

The other thing we might add, David, the transactions that are getting done are sort of the best properties which means they're the most attractive to the lenders. I think the test will be as the market place moves into a wider range of property choices, will the lenders move with them into that not as attractive space. And I think that's what everybody is watching for is, will the money be able to move with the markets?

Perfect. And then just one last quick one, Lauralee. The still back payment is not an earn out right? It's actually just deferred payment?

It's a contractual payment that could have been deferred if they didn't hit the performance hurdles,but they healthily missed them.

Perfect. Thank you, both.

Thank you, David.

Your next question is from the line of David Ridley-Lane, BOA.

What portion of your comp and benefits would you estimate are fixed at this time?

We don't really think in those terms, probably two-thirds.

Two-thirds. How would that compare sort of in normalized time back in 2006, say?

Well, the more robust the markets, the more variable pay we pay. So if we look at last year, it was a high proportionate piece of fixed versus variable. We're now seeing a more healthy trend come back. We hope to see that trend continue, but we have moved to more and more variable pay, and we think that's great for our people because they can make more money as the markets recover. But again, that will show up as a good thing in all of our ratios because it will be productivity relative to revenue, but good results for them.

Okay. And then I'm interested in the leasing trends in London and Singaporemarkets where the rents have gone on the property clock from bottoming out in the first quarter to rising in the second quarter. If you could just give us some color around the leasing results in those couple of markets, not just as a preview for what other markets will do when they shift as well.

The Hong Kong, for example, which turned positive in rental rate growth before Singapore,it was positive Q 1. We have the strongest quarter ever in Q1 this year in our Hong Kong business. When you see those markets turn, what happens is, the dynamic changes from sort of a standoff between tenants and owners to tenants realizing they have to move quickly to get back into markets, and they do the things we described,they consolidate, they take the need to the next cycle,and they go for expansion in space, particularly in Asia pacific. It's that same phenomenon in Singapore,it has driven our business levels and activity levels up.

Okay. And then maybe if I could ask one last one. The market has certainly pushed out the time before interest rates are expected to rise in the last couple of months for both the FED and the ECB. With the banks not really facing increases in funding costs until perhaps late 2011, what is going to trigger, or what could potentially trigger the sale of or restructuring of troubled assets from the banks into the markets?

I think the biggest factor will be that the reserve levels will move to matching the values of those properties in the markets, at which point in time, the banks will be encouraged to have their assets be the most productive assets. I think most of the banks have moved to that. You actually saw with earnings this particular quarter, banks lowering their reserve levels again, which is the first indication that they feel they're getting close to appropriate marks and therefore there's a reason to them clean up their balance sheets as well.

They played it very smartly by waiting and buying time. You see markets come back from this liquidity driven trough. With that process as Lauralee described, they see themselves coming out whole, they're liable to push these markets into market or be encouraged to do a refinance with existing ownership.

Okay. Thank you very much.

Okay. Just to confirm that question you asked earlier on, David, it's roughly, this stage of the cycle, one-third variable that the commissions in bonus two-thirds fixed. Had to go through the cycles. That will shift toward variable.

Your next question is from the line of Will Marks with JMP Securities.

Thank you. Good morning, Colin, good morning, Lauralee. First question is on the incentive fee. I think on the call, Lauralee, you mentioned incentive fees were $1.7 million but in the press release I thought I saw $3 million.

We'll check it. Next question?

Okay. Next question, can you just discuss CapEx? Maybe you can quantify I think it's $14 million number maybe year to date in the cash flow statement. What expectations are for the year?

Yeah. We've given guidance this year,we think that it will be about $50 million in total. Clearly at this pace, we're under that level of CapEx. We've remained very prudent around CapEx, and we continue to sort of split that between tentative improvement and technology.

Okay.

To answer the question on incentive fees.

Yes.

The number in the press release is transaction and incentive fees. So incentive fees were $1.7, and we do get paid for certain of our separate accounts when properties are bought, we have a transaction fee. We're hopeful that we can put more money to work, that that transaction - fee line has significant upside.

Okay. So in that line, that's transaction and incentive fees were $3.4million, $1.7 is basically half, is incentive, the other half is transaction?

Right.

Or maybe there's some other stuff in there, too.

Roughly. Roughly.

Okay.

I'm sorry, did I answer your CapEx completely? Year to date we've spent about $10 million of our number on IT and Telecom, and the balance of it has been on really lease holds.

Okay.

Yes. That answers the question. Thank you, a few other items. One, Colin, when you gave the capital markets business overview, or expectations for the full year, I gather you're talking about the industry and assuming that's the case, do you expect to be roughly in line with the industry or how should we look at it?

The record of the last two, three quarters as markets have recovered, we have either been in line or ahead of the overall industry picture.

Okay. Fair enough. And then question on two businesses that I feel like we don't spend that much time on. That's the advisory consulting and project and development, and maybe starting with advisory and consulting, and I think I'm just a little bit naive here. Can you explain maybe that business in a little more detail and why it appears to be lagging and exactly what you do in that business?

Well, it's a mixture of lots of things. The largest single element is probably our valuations business, which is world wide except for the Americas. And the way that has performed over the recession has really been satisfactory, being the margins around pressure, depending on region, generally they were under pressure, so we're seeing not only valuations coming back in terms of activity levels, but also pricing will begin to recover as well. They're all doing advisory work around portfolios, so for example, owners ofreal estate looking for advice on strategically what to do with their portfolios. Some of that work shifted to banks as their holdings became distressed and they were looking for consulting work there. We advise in other parts of that business for example, local governments, one example there.

Currently we're working heavily in London for the greater London government and the Olympic development corporation on the use and post games use of the Olympic site, same as we've done in Beijing, same as we've done in Sydney in previous games. In China and Beijing we're working with advising the Beijing government for what is called a financial streak, which is a large financial district development in the heart of Beijing. So there's advisory work on development. We do similar work for developers. We do a large amount of strategic consulting work for corporations around their use of space, what's called alternative space usage, in developing new methods of working, new space allocation, so on, so.

It's a large mixture of businesses. In general, what happens in there just broad brush of activity falls during a recession. That area slows, like our PDS work. It picks up post recession, but with something of a lag because capital spending budgets just pick up more gradually.

How would you describe the margins of that business? Are they more similar to a management fee margin or more similar to the transaction leasing and sales margin?

They're probably in the middle. They can vary around the world. But probably as a global blend, they're in the middle.

Okay, great. Then last question. I Don need much detail. I think I understand the business, the product and development side. You touched a little bit on this. Is that mostly tenants that are, while there's a pickup in leasing of space, tenants are more hesitant to spend money on greater improvement levels?

It's space build out is a large part of it. We also do multi sites. So for example, in the United States when the banks are expanding their branch system, that's a big part of our business. Clearly there's been a slowing of some of that activity starting to pick up again. But we'll do lots of different work around even just project managing certain things that happen. The examples I gave is there's been a tremendous pickup in call center activity and things like that in India. Again, as companies look at where they're going to see their growth opportunity, there's development and build out and we manage that.

We do work for corporations, putting caps together. Just been awarded a contract through a new modern art museum in Mumbai. It's very varied work. Generally follows the economic cycle.

Okay. Thank you very much.

Thanks, Will.

Your next question is from the line of Mike Mueller with JP Morgan.

Hi. Good morning. It's Ralph Davies on the line with Mike. Returning to LaSalle, I think you guys talked this morning about your advisory fee guidance being pretty much flat for the year. I was just trying to reconcile that with previous announcements about resetting fees. And I guess my question would be, how much UM growth are you guys needing to kind of off set the lower fees in the year, or are you comfortable with the mandates you've already described this morning in terms of meeting that number right now?

Well, one of the reasons we wanted to give you a look forward is to say we see all the ins and outs,that's sort of how we see it,that it will be flat for the year.

So we did announce in the first quarter that on a number of our funds where we were paid on commitments, we had gone back to our clients and said, we won't be paid unless the money is invested. So there was a piece of that we lost on a go forward basis. There is also the fact that a large amount of the mandates that we're winning are core mandates, which have lower advisory fees. On the other hand, they don't need to be staffed to the same level of sophistication and cost as that an opportunity fund or some of the more value creation intensive type assets take. So what we're trying to do effectively, and I think LaSalle's doing an excellent job, in matching the cost structure against the type of fees that we're earning andthere is a repositioning in that portfolio. But our job is to manage that operating income and then ultimately the growth on a go-forward basis.

Okay. But are you comfortable getting to that advisory fee number without further AUM growth, or are you kind of factoring in the growth?

There's been anticipation that we will put some of the commitment money to work throughout the year,which will increase assets under management. We've announced, as Colin said, the winning of those, a great deal, but what we also need to do is all put that money to work. It's a blend of our expectations of putting the money to work, the separate accounts that we've won that are assets under management immediately, the adjustments and the fees of the portfolios that we have on an existing basis and then just a look at all of those through the end of the year and the blending of that leads us to believe that will be about flat panned I know there's a lot of moving parts for you, which is why we gave you more guidance than we typically do.

Okay. Thanks. And then just wanted to touch on your leasing, particularly in the Americas. You posted 25% growth year over year for the quarter, and I'm just trying to reconcile that with the commentary we're getting from a lot of the U.S. riets, just in terms of hesitancy on the part of tenants to expand, going for more short-term leasing. I guess my question is, did the leasing growth relate primarily to the big wins that you guys talked about today coming off of the lower base, or are you benefiting from kind of the higher intensity that's being required right now from a number of the clients?

We did mention a number of large wins andwe are seeing counter intuitively almost some big requests for space in the major financial sectors around the world as they look through the short term to their needs for the full cycle. Specifically in the U.S., this year we saw a significant increase in small or medium size transaction bodies as compared to last year.

And when you audit all up, in the space above 25,000 square feet, 50,000 square feet in particular, we saw fairly flat total volume levels year on year. So a lot of it was about that middle market activity level stepping up. As Lauralee referred to, people consolidating space, moving around, taking better space for lower price, rather than net expansion at this stage. That will change, as confidence recovers further, as we've noted, corporate earnings are good and corporate confidence is picking up. The net required space will begin to recover and prove to be more healthy again.

I think also relative to your reit comment, trying to reconcile the reit comment. The reits have their exiting portfolio and how the market place reacts to that. We have a growing footprint of new markets, new brokers, expansions of services such as into industrial and retail and other things that are enabling us to get growth across a bigger market share and a bigger capability footprint as well. So I think there's a little bit of difference in the way we're looking at the two of those.

Okay. Thanks. Just finally, I know you have talked a bit about, or excuse me, you've announced some beefing up of your capital markets team in the Americas. I was wondering, could you talk about staffing levels there going forward and what your growth expectations are in terms of market share gains?

I think it would be easy to say we have some internal targets which we are working to,we have an internal plan which we're working to. But from the relatively low levels of activity, in U.S. capital markets, which we as a firm have, particularly as compared to our very large shares in Europe and Asia, we are adding people as quickly as we can. We're adding teams as quickly as we can. But we're doing it in our usual very selective ways, ensuring that we've got people who are not only high performers, in terms of producing revenue volumes, but all people who will fit and adapt to the culture of collaboration and cooperation which we have always promoted.

Thank you.

Your next question is from the line of Brandon Dobell with William Blair.

Hi,thanks. Lauralee, you were talking earlier about the variable compensation structure. You mentioned the overall comp revenue.

Could you speak up a little bit?

Sure.

That's great. Thank you.

in the context to the compensation comments you made earlier, I think it was Lauralee. I'm trying to get a feel of how we should think about the relevance of the historical compensation percentages to what the business may look like looking out this year and next year given the shift in the broker compensation structure, how good are say the numbers from 2004 and 2005 or 2005 or 2006, relative to what the business may look like, looking out a couple of years. A little more normal?

Yeah. I think it's going to be fairly variable. I think maybe what the heart of your question is we went form a base and a bonus to a commission in the U.S., which is a large part of at least the dynamic around that and one of the things we said through that was in a normal marketplace, there was no material difference between the way we paid and the way a broker shop paid on a commission basis. It was really a question of how and when and I would say that would still hold true.

Okay.

I would stay that still holds true, we are not anticipating that in totality there is a difference in before and now other than we can have a better handle on how productive our people are and have more real time ability to add as we grow and have immediate adjustment in how that growth impacts our compensation line.

Okay. And for a different perspective, the global outsourcing business for facilities management business, how should we think about margins there? Both in terms of where we are right now as well as the opportunity as that business scales. CB has talked about lowish double digits. Does that jive with how you think about it or is there structural differences, that it would make that kind of range.

We think of that as a low double digit margins across our business as a whole in FM. If there is however between very healthy in the U.S. to very healthy in Asia to searching for better health in Europe, so when you put all of that together, it is a better than low double digits margin. We are very happy with U.S. and Asia, we are working solidly to improve in Europe. To your question on volume, the U.S. is pretty mature and there won't be a very big effect or operational leverage there as volume grows, it will be better in Asia and it will be very good Europe as we grow that business.

Okay, that's helpful. And then you talk about productivity. I would imagine it is mostly on the brokerage side of the business. Any sense for us on some head count trends, comparing this quarter to last or this quarter to last year. Just to get a sense of how much the revenue growth is productivity driven versus picking up experienced brokers in the last twelve months or so.

We can give you, the U.S. is probably the easiest to track, and we added 89 brokers in the U.S. through the first part of year. Netting down to 51, so we continue to upscale and add to that.

The majority of what you seen in terms of the revenue growth in the quarter or half year is about the productivity point that was already referred to in her comments. You bring in brokers or producers from your outside and it takes them nine to eighteen months, depending on the sector, to cover costs and become net positive contributors, and by the way that is something you do on a continuous drip by drip basis, rather than spike your hiring the beginning of the cycle to catch a wave. It is much better in the policy to continue hiring people through the cycle. So the majority, looking back two quarters, has bee n productivity growth against Lauralee's comments, if you look forward to the short term it will continue to be that. With the 51 net we just hired in the U.S. will contribute in 2011 on.

And then final question for me. As we think about the pricing or commission structure in the brokers business, I guess I am focused more on leasing, has there been any change from New York's line, either the tenants representing or the corporate owner's, how they think about the right pricing structure or commission structure or that part of the business or is it just business as usual?

It's really recession. Owners have been more prepared to spend money to get people into their empty space or to keep them so the commissions for the people that are able to produce tenants have been actually quite good. So generally the overall brokerage fees have remained static, but some of the margin has shifted toward the tenant rep side and away from the leasing agency side, and I guess that would be the case worldwide. As the recession tips and becomes a bitter memory, markets become more balanced and that will shift back, but the overall picture remains pretty static.

Okay, thanks a lot.

There is a follow up question from the line of Will Marks with JMP Securities.

On the question and response of net 51 new brokers in the U.S., what is the attraction, I guess, this is an opportunity for you to toot your horn, going to work for you in terms are your offices, would you say, smaller of number, you are a bigger fish in a smaller pond, are the splits higher, any help there?

The splits are market competitive so that is not why people come. They come to us because they are attracted by what we call in broad terms the platform and that's a mixture of the brand, which is outstanding. It is a mixture of the collegial culture, which people, particularly if they had experience in other firms, really appreciate, and practically everybody that comes after a few months just confirms that was the reason they came and they found it. We work in the context as Lauralee says, we work heavily on connections and linking up offices and our people up and having them work cross regions and cross business lines and help each other, and particularly people that come from monoline or limited line service providers, the ability to offer a broad breath of services from our platform those nationally and internationally, whichever country they are based in is also a very attractive prospect for them in terms of keeping increasingly demanding clients, linked into them as their service providers. It is a combination of all of those reasons, I wouldn't say any one of them is compelling, the one we hear most frequently is the issue of collaboration.

Okay, thank you and then one final question just on acquisitions. I think you may have touched on it briefly, but you now have this balance sheet where you really need to take down your debt level. Maybe mention your goals with the balance sheet and then if you are evaluating a lot of acquisitions opportunities right now.

Well, I think the answer is we have not yet seen a lot out there in the marketplace in terms of acquisitions, that could change. We have been very focused on the cyclical recoveries in the markets, the opportunity that is there that it's extrordinare, our ability to grow organically in that, which benefits our existing employees as well as just the overall firm. You are correct, our balance sheet is very comfortable and in good order. We will use it appropriately at the right time and the right place, but it is our plan to also continue to have a very strong balance sheet because it is highly valued by our clients and our employees.

Okay, that is all for me, thank you.

Thank you, Will.

There are no further questions at this time.

Thank you operator, well with that we will draw things to a close. Thank you everybody for listening and for your further continued interest in Jones Lang LaSalle. We look forward to speaking with you again with the third quarter results later this year. Have a good day everyone.

Thank you for joining today's second quarter 2010 earnings release conference call for Jones Lang LaSalle Incorporated. You may now disconnect.