Jones Lang LaSalle Inc (JLL) 2011 Q2 法說會逐字稿

Good day, and welcome to the second quarter 2011 earnings release conference call for Jones Lang LaSalle, Inc. Today's call is being recorded.

Any statement made by 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, 2010. And in our other reports filed with the SEC, the Company disclaims answered 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, and hello to everybody joining us for this review of our results for the second quarter and first half of 2011. With me today on the call is Lauralee Martin, our Chief Operating and Financial Officer, and Lauralee will review our performance in detail in a few minutes.

To summarize our results, we were encouraged by another successful quarter of strong revenue growth. Second quarter revenue totaled $845 million, up 24% in US dollars and 17% in local currency terms, compared to the second quarter of 2010. Year-to-date revenue was $1.5 billion, an increase of 22% over the first half of 2010, or 17% in local currency terms. We report a net income of $44 million, or $0.99 per share for the quarter,up from $32 million, $0.72 per share for the second quarterof 2010. Adjusting for restructuring charges and other acquisition costs, net income was $50 million or $1.12 per share.

First half net income was $45 million, or $1.02 a share, compared to $32 million, $0.73 a share, oneyear ago. Adjusted net income was $51 million or $1.15 per share.

A highlight in the quarter was our successful completion of the merger with King Sturge, the highly regarded international property consulting firm, and joining forces with King Sturge makes us the clear industry leader in the UK and continental Europe, greatly enhancing our platform and our ability to provide clients with the best service in the region. In doing this, we welcome more than 1600 new colleagues to our combined firm and look forward to what we can achieve together going forward.

Before Lauralee discusses our results in detail, I would like to put them in context by looking at conditions in both the global economy and in real estate markets around the world. According to IHS Global Insight's latest projections, the global economy is expected to grow at 3.3% in 2011, and that is down marginally from earlier estimates. Growth in advanced countries is projected to average 2.2%, while most emerging economies continue to be strong and their growth is expected to average 6.5% this year. Broadly speaking, the multi-speed global recovery continues. However we have seen, Conference Week and recently, amongst our corporate and investor clients as concerns of finances in a number of countries, job growth and stagnation in certain economies, and political tensions in the Middle East have affected the mood of those businesses and consumers.

To give you a sense of the conditions in global markets we posted slides in the Investor Relations section of our website at www.joneslanglasalle.com. Slide 3 shows the Jones Lang LaSalle investment sales clock which we update each quarter, which is a picture of conditions in major markets around the world at different stages of the real estate cycle. You can see that in the second quarter of 2010 some investment sales markets were still finding the bottom of the cycle while more had begun to reflect rising capital values. One year later values are rising in most markets, and only a few major markets remain at the bottom of the cycle. Global direct commercial investment totaled more than $100 billion in the second quarter,50% higher than the second quarter of 2010. All these regions--all three regions registered dollar growth in market volumes compared to a year ago led by the Americas with a gain of 128%, to $49 billion, although that was obviously from a low base, while in Europe, year on year market volumes were up 18% in US dollar terms to $36 billion, but that meant they were flat in Euro terms. Volumes increased 11% in Asia to $19 billion but were also flat in local currency terms.

Compared to the first quarter of the year, America's volumes increased by 56%, but EMEA and Asia Pacific investment volumes were both down by 2% and 32% respectively. This is an unusual picture because the normal seasonal pattern is for Q2 volumes to exceed Q1 and it reflects the pause in sentiment I referred to a moment ago. Capital values for prime assets continue to grow strongly in top-tier office markets. increasing at an annual rate of 20% across 23 markets worldwide. The pace of growth is slowing, however, and yield compression disappears in most advanced markets, with a notable exception of the US.

Turning to slide four, you'll see a snapshot of conditions of leasing markets worldwide. It tells a similar story. The movements continue to lag the recovery in global investment sales. The strongest office leasing markets continue to be in Asia Pacific, where the highest growth in leasing volumes were in greater China and India. However, both Hong Kong and Sydney volumes were down by more than 50% in the second quarter from a year ago. In Europe Q2 leasing volumes were up 25% from a year ago, with 29 million square feet of take-up. Gross absorption in Jones Lang LaSalle US target markets was up 18% to 12 million square feet.

Office vacancy rates continue to trend down gradually from their third quarter 2010 peak. Our provisional global office vacancy rate across 94 major world cities now stands at 14%, down 0.005% from the peak of the third quarter of 2010. Vacancy rates are falling in all three regions, 17.2% in the US, and just over 10% in Asia Pacific and Europe. Rental growth on prime assets in top markets is at its strongest since the first quarter of 2008, averaging 11% year-over-year across 23 major world markets. The strongest growth has been in the BRICs, in Moscow, Beijing, and Sao Paulo, and rental growth is becoming entrenched broadly across the Pacific, in the US gateway cities, and selected European markets.

So with that broad market background I'll now turn the call over to Lauralee.

Thank you, Colin, and good morning to everyone on the call.

Similar to prior quarters I will focus on providing additional details of our quarterly performance and business highlights beyond what is covered in the press release. As Colin mentioned we're very pleased to report another quarter of solid revenue growth and performance across the vast majority of our service geographies, resulting in 24% consolidated revenue growth.

In the Americas region, quarterly revenues increased 18% to $348 million led by leasing and capital markets. Leasing was up 13% in the quarter, 22% year-to-date. In the second quarter our prior year revenue was a tough comparable due to several large leasing transactions that were completed. As a result, the 13% growth in the quarter is impressive after factoring in last year's strong performance.

While our overall performance was strong, our public institutions business line is experiencing softening revenue. This business has been driven by US government contract, where decisions are being delayed, are taking much longer to conclude given the budget and funding uncertainties that exist at the federal government level. We expect cost pressures at the federal government to continue, although other public sector clients such as state and local governments, universities, and non-profits should provide the business growth to offset these pressures. We have added sales and delivery teams into our local markets to better access this business.

We previously advised that we anticipated flat year over year margins in the Americas as we pursued market share expansion. In the quarter operating margins declined year over year in the Americas as we absorbed business wins and continued our aggressive sales activity. We anticipate the margins for the total year to continue to improve as we move through the second half of 2011, and be within 1% of what we achieved in 2010.

Concluding on a positive note, revenue in our capital markets and hotel businesses in the Americas more than doubled to $32 million from $14 million in the second quarter of 2010. We've been pleased at the expansion of our capital markets platform in the Americas was well timed to match the market's recovery. We're also encouraged by our recent business wins and in particular by the performance of the new hires who have joined our firm over the last 12 to 18 months.

Turning to EMEA -- Leasing revenue performance across the region was positive with an increase of 29% in the quarter to $61 million, while also picking up momentum from Q1. As we noticed previously, recovery across the region continues to vary by country. Revenue growth in capital markets across the region was soft, confidence as well as the availability of financing continues to be impacted by the eurozone debt uncertainty. Capital markets and hotels revenue was up 5% in local currency for the quarter, consistent with our year-to-date performance. We do have good work in hand in many of our markets and are cautiously optimistic that the transaction levels will pick up in the second half of the year.

Project and development services, or PDS, revenue was $46 million in the quarter, up 67%. Another strong quarter of revenue growth across the business line, which includes our fit-out business. As a reminder, the fit-out business includes subcontractor costs, which we account for on a gross basis, with offsetting amounts running through the range against operating expenses. In the second quarter these growths have increased more than $10 million over the prior year.

Finally in EMEA, as Colin said earlier, we're delighted to report the successful completion of the King Sturge merger this quarter. The transaction was completed on May 31 for $319 million, with half paid up front and remainder to be paid over five years. King Sturge adds approximately 1600 employees, 1300 of whom are based in the UK. The combined firm is the largest real estate service provider across the EMEA region, and there are a number of complementary service offerings that will allow us to bring significant benefits to our clients. We're off to a very good start in the hard work of integrating our two platforms, and we want to recognize our colleagues across the region who are committed to making this transaction a success.

Regarding the integration costs for King Sturge, we recognized about $6 million in the second quarter for transaction costs such as legal and professional fees, as well as staff retention. We estimate there will be about $25 million of integration costs,the majority of which will be recognized in the first 12 months as we transition IT and combine our offices. We also project $25 million of retention payments to King Sturge non-equity partners to be paid over 12 to 24 months. Although the King Sturge equity partners have agreed to allocate this amount of their purchase price for their colleagues, the accounting will show up as compensation expense on the Jones Lang LaSalle income statement. The expense of these payments will be spread roughly two-thirds over the upcoming 12 months, and one-third over the following 12-month period.

We have not yet finalized intangible valuations, but we recognized nearly $2 million amortization in the second quarter, which negatively impacted EMEA margins by approximately 75 basis points. Adjusting for the $2 million of amortization, our operating income margin in EMEA would have improved on a year over year basis. We anticipate a total remaining amortization of approximately $30 million. We will recognize half of this over the next 12 months, and it will run about $2 million annually after that. We will continue to separate these acquisition-related expenses out as we report our results.

The Asia Pacific region delivered outstanding performance in the quarter in both revenue and profit growth. Revenue across the region was up 39%, 26% in local currency, while operating income nearly doubled to $22 million compared to the prior year. Performance was driven by greater China, India, and Australia. We demonstrated our brand strength and delivered capabilities, winning significant new business in the quarter, and expanding relationships with domestic corporates particularly in India and China.

On a business-line basis performance was largely driven by improved transactional revenues. Capital markets and hotel revenues nearly doubled to $34 million from just over $17 million from the second quarter of last year. Leasing also increased significantly to $49 million from $36 million last year. Moreover, the region's annuity revenue stream from facility management continued to show strong improvement, and was up 25% in US dollars to $89 million, compared to last year.

We're also pleased with the solid quarterly performance from LaSalle Investment Management. Advisory fees increased to $65 million in the quarter, up from $56 million in the second quarter of 2010,principally as a result of higher assets and management in the public securities business. Fundraising activity was again strong as LaSalle raised $2.3 billion of net equity in the second quarter. $1.9 billion in the public securities business.

We recently announced the acquisition of Trinity Funds Management in Australia for approximately AUD9 million. Trinity will add $690 million of assets under management and give LaSalle instant credibility in Australia, which is a significant targeted market for us. In addition to the purchase price Trinity holds approximately AUD20 million of co-investment along sides its clients, which we will purchase as part of the transaction. We expect to close this transaction in the third quarter.

Looking forward we anticipate LaSalle will realize incentive fees in the second half of this year, driven by property sales and maturing funds that take advantage of the Asian market recovery. The timing and amount of these fees are difficult to forecast, but this is definitely a positive for our clients and our business.

In summary we are very satisfied with our performance this quarter. We've had another strong quarter of revenue growth. We have solid pipelines in hand and we reported significantly improved net income with the second quarter of last year. We're encouraged by the opportunities that will result from our recent acquisition in both EMEA and LaSalle and are upbeat about our potential in the second half of 2011 while still mindful of the uncertainty all global businesses are facing due to the inconsistent market recoveries and unclear government responses.

I will now turn the call back to Colin.

Thank you, Lauralee.

So now to give you a sense of our continued success in the second quarter, slide five shows a few examples of recent business wins. Starting with our global corporate outsourcing business, we won 20 new assignments during the quarter, renewed five contracts and expanded our relationships with another 12 clients. These numbers do not include activity in our local market level corporate solutions business, which focuses on mid-market corporate occupiers. We continue to gain momentum in the growth segment where we won 30 assignments totaling 75 million square feet of space to date this year.

Corporate solutions wins include, in the America, retention by the Apollo Group, leading in for-profit-higher education to provide them a range of services for their 8.5 million square foot American portfolio. In Europe, Doosan Power Systems, a leading provider of green technology products and services selected us as exclusive provider of real estate services for their 2.5 million square footglobal portfolio. And in Australia we won a three-year extension from the Department of Innovation, Industry, Science, and Research to provide services for its 1 million square foot portfolio.

Turning to first quarter investment sales activity, in the US we represented Pinchal & Co in the $240 million sale of a 19 building industrial portfolio. In London we advised on the UKP 288 million purchase of the Aviva Tower, and in Australia's largest agency-negotiated real estate transaction to date this year, we completed the $481 million sale of a 50% interest in Melbourne's Northland Shopping Center. You can also see examples of growing momentum in our global hotel business , where transactions included the sale of Morgans and Royalton Hotels in New York and the Ayers Rock resort in Australia.

The quarter's major leasing and tenant representation transactions and management assignments included representing Skadden Arps in Washington, where we helped the law firm consolidate its presence by transacting lease extensions in three buildings, and reducing its occupancy to 400,000 square feet from 450,000 square feet. In Germany we won the leasing assignment for the 1.1 million square foot Businesspark Kienberg in Berlin's new Willy Brandt-Brandenburg Airport. In Tokyo, Morgan Stanley awarded us its 350,000 tenant representation mandate, cementing our number one tenant representation in the large Tokyo market. In Singapore we completed a 300,000 square foot lease for Credit Suisse, consolidating three locations into one. And in Australia we were appointed to manage the Rialto Complex, the largest office tower in Melbourne.

Turning to LaSalle Investment Management, to date this year LaSalle has raised $3.8 billion in new equity, a figure which includes $2.4 billion of public equity capital. As Lauralee mentioned in her remarks, in mid-July we entered into a definitive agreement to acquire Australia's Trinity Funds Management, a profitable and highly respected investment manager based in Brisbane, Australia with about $690 million of assets under management. That will strengthen LaSalle's competitive position in a country where we see strong growth opportunities both for investing domestic capital within the country and exporting Australian capital to global real estate investment.

Around the world, LaSalle's clients are maintaining their long-term allocations to real estate, as LaSalle continues to focus on delivering excellent performance. This is reflected in the outperformance that shows with many of the benchmarks against which LaSalle is measured.

So let's now look ahead at the near term prospects in real estate markets.

First, in global capital markets, despite the quarter on quarter slow down which we can you in Europe and Asia Pacific, we are now forecasting full year 2011 investment volumes to exceed our original projection of $440 billion. Within this total, the pattern of growth in the capital markets has shifted from earlier this year. The recovery in US capital markets have been very strong, a momentum that is still building. This in addition to improving debt markets and--this, in addition to improving debt market liquidity and continued attractive spreads, at least until very recently, suggests the second half will be even stronger than the first six months of this year. So we've upgraded our full year forecast for the Americas from $155 billion of transactions to $175 billion, an 80% increase on 2010 levels.

In Europe by contrast Q1 momentum was not maintained in the second quarter in some key markets. And across the continent, the sovereign debt crisis is impacting investor appetite for risk. It's taking longer for larger deals to close, so while we continue to expect growth in European volumes in the second half, we've lowered our full year forecast from 30% to 25% growth year on year. As noted earlier, the pace of gross of capital values in prime assets is slowing with yield compression disappearing in markets and in this environment we expect additional that capital appreciation this year will be largely driven by rental growth.

In global leasing markets, with new deliveries at a cyclical low, we expect global vacancy rates to continue to decline by a further 50 basis points to 13.5% at the year end. Despite the economic concerns, rental growth prospects remain good in the top tier office markets with double digit increases expected in many markets with balance shifting in favor of landlords. In the funds management sector, investors are cautious about taking on high levels of leverage and are moving back into real estate, primarily through the core plus strategies or through REIT investments. The investment management industry continues to consolidate in the aftermath of the financial crisis, and managers like LaSalle, who demonstrated the ability to manage risk well and were totally transparent with clients during the downturn, are gaining share as investment performance continues to recover.

To close our remarks, however, we'd like to mention some of the awards we received which reflect our commitment to superior client service and our position as leader in real estate services and investment management. We won numerous awards of the 2011 Asia Property Awards -- first and foremost, we were named Best Property Consultant in the entire Asia Pacific region. At the property level, we won Best Property Consultancy awards for six Asian Pacific countries, and received highly commendable positions for another four markets. We were the first company in the program's history to win so many awards in a single year.

Early in July LaSalle investment management was named Property Management Manager of the Year in the European Pension Awards. And in the US we won Best Places to Work awards in Florida, and Los Angeles, Orange County, and San Diego. Finally in April we won Office Agency Team of the Year honors at the 2011 Property Week Awards in the UK. I think that's particularly appropriate, and a great illustration of the strategic rationale of our merger, that King Sturge was named Investment Agency Team of the Year at the same event.

So with that, let's move to questions. Operator, could you please explain the Q&A

(Operator Instructions). The first question comes from the line of Sloan Bohlen with Goldman Sachs.

Hi, good morning. First, just a question on the investment sales volume -- in the US can you give a little bit more color with regard to the strength there? Is it a matter of the amount of capital that's on the demand side of the equation, or are you seeing an increasing supply of what is available for sale and where is that market meeting itself?

I think all of the above.

The Asian and European investment sales markets, as you would have noticed from early quarterly calls which we held, recovered ahead of the US, unusually. And for whatever reason you saw the major cities in Europe and in Asia all picking up ahead of the major gateway European cities. The US recovery was later, and we're still in that early bounce phase of the US of markets recovering rapidly from the extraordinarily low positions that they had at the end of 2009. So that's the first effect. There is a lot of equity capital available in the US, and both domestic and international capital coming into the country, so the equity side is strong.

As I mentioned in my remarks, the debt markets have been easing, and the C&DS markets have been opening up again. We see $25 billion plus dollars of C&DS issued so far this year. Spreads have been coming down and loans have been available up to about 70% loan to value ratio levels again. You see the equity and the debt side easing up.

Then on the supply side the constraint which we saw throughout 2010 in many markets, including the US, that's also now easing. We're seeing more product coming to market both willingly but also increasingly in foreclosures and just sorting out of distressed financial structure around real estate. So all of those things are combining in the US to move the market forward strongly.

As we said we expect that picture to continue for the short term. The immediate sort of question mark around that picture would be what happens to the sovereign debt issue in Europe. It has some minor impact in the US, but certainly US government discussions which are ongoing this week could cause a significant slowdown if not resolved.

Colin, just maybe one more question on that topic -- you commented about spreads not compressing much more for a lot of the core assets. Can you reconcile that with where we should expect the incremental transaction volumes to come from? Meaning, should we expect secondary cities to be the area where we see more transactions going forward?

Well, the cap rates we said in the major cities are back in the five's in the US. You're talking east and west coast cities. What we're saying is that's not likely to move down very much. You wouldn't expect to see much capital appreciation through that effect.

What you're referring to transaction volumes, and we're expecting transaction volumes to step up in line with the effects that I described earlier on. That will be the major cities and core assets where that market has a huge amount of demand in it and relatively limited product supply. You can expect, as the recovery continues, to see the market spreading into the secondary cities and the suburban areas of the major cities. So the usual cyclical recovery process.

Another question for Lauralee -- I apologize if you guys had commented on this earlier. I jumped on late. With regard to the timing of expenses versus where we should see the operating leverage in the business for kick in, a lot of expense growth you talked about were set up to reap its gains in the second half of the year. Is that what we should expect? I don't know if you commented on what your margin expectations are throughout the full year, but at what point can we start to see those expense growth slow?

We had modest margin increase in Europe as we've seen that market selectively continue to improve. That's adjusting for the amortization piece of the King Sturge. We had a modest increase year over year in Europe. We had a very significant increase in Asia, so really the overall margin of the firm was impacted by the Americas.

We had said at the start of the year we were not choosing to have our margin grow in the Americas this year because we thought our best opportunity was to take advantage of this window of being able to grab talent, grab market share and so forth, and that would translate into better performance for us this year, and more importantly longer-term. So the long-term margin target for the US operating income margin is 12 to 14. We were just under that last year. So we were very close, which why we said we were comfortable going for market share versus pushing hard on margin.

We have, in fact, been aggressively taking advantage of that window. We added 60 net new leasing brokers. We've added 25 capital markets brokers. We've added in hotels, and we've also done some acquisitions, and some that have amortization of their pipelines runs through our margin as well. So we have had some year over year decline in the Americas.

But that window of being able to get the talent as the market picks up is closing. So we're happy with our decision to get it early in the year, to get it in that window. It will be harder and harder now to sort of grab that talent as they get pipelined particularly going into the end of year.

So we haven't changed our margin targets. But what I said was we could be as much as 1% less in the US than we were last year. We actually hope we can close that if all the production comes through, but we haven't changed our overall targets at all.

Okay, thank you, guys.

Thanks, Sloan.

The next question comes from the line of Joseph Dazio with JPMorgan.

Good morning, everyone. A couple of questions for Lauralee. First, do you have off the contribution of EBITDA from King Sturge this quarter?

The operating contribution, because obviously with the one-time charge that was negative on a GAAP basis, was pretty close to neutral. I can tell you it was modestly positive but not enough to say that it kicked into an earnings per share piece of it. They are a business that last year did about $260 million with revenue. Their year end on their books was the end of April. So their seasonal last quarter actually was very similar to our seasonal last quarter. That occurred right before our acquisition. We're actually coming into their low period as they build that back up.

We will not be changing their compensation programs. This year we'll just have a cut-off period that is shorter. That could change some year-end thinking and how that cycle works though at the moment we're not anticipating that. And then we will have new structures together going forward next year which will probably put them on a seasonal pattern similar to ours. Their revenue contribution in the month that we had them was only about $15 million. But we expect this year that you'll probably take that $260 million in at least the way we look at it, you'll probably do a straight line and less seasonality coming into it more strongly because of a change in behavior.

Great, thanks for that detail. Also, one other question, the facilities management business in EMEA was down a bit. Was there anything specific driving that?

We don't report that separately. Oh, I see, you're talking about in terms -- that's a combination of property management and facility management. And sometimes we will look at contracts and not be as pleased with looking at them on a renewal basis, so I would not take that as a negative.

Okay, and then.

It's not just the facility management. That clues includes our very large property management business in the UK as well as Germany, and some modest property management elsewhere.

In fact, part of the King Sturge business makes it a very robust property management business so expect that to be one of the lines that will pick up with King Sturge.

One last question to Colin, in your closing remarks you provide a lot of good detail in what you expect for investment sales margins in the US and EMEA. I wonder if you can go into more detail in Asia Pacific and in particular focus a bit on Japan. I don't know if it's a fair statement to say that the second quarter for that region was negatively impacted by everything that went on there. Do you expect that to pick up in the back half of the year, or are you expecting it to trend to be similar to EMEA?

Well, Asia Pacific has always been extraordinarily sensitive to sentiment. It's sentiment-driven, which is why it's very cyclical in its business patterns. The influences -- you will have seen from our remarks that the Q2 in Asia Pacific was down from Q1 and on last year.

When we talk to our regional people about that, they give us a number of reasons for it. The major one is sentiment because the Asians are looking at Europe and the US, and they are concerned at the impact of all the government debt issues, which the developed regions that we're dealing with, their concern is the impact that will have on global capital markets and therefore in Asia. So that's one impact.

The second impact is that India and China both have got significant inflationary pressures. You see the Indian government raise interest rates 15 times since March last year. The Chinese government has raised its interest rates six or seven times to try to choke off inflation in the commodity sector. But it's also having an effect of dampening availability of capital and price of capital into investment sales activity. You have got Australia doing the same thing to dampen part of its economy,the local market inflationary pressures which are also having an impact.

When you move specifically to Japan, the investment sales market in Japan was quite strong in Q1 with actually the momentum from deals negotiated last year continued. It has gone very flat in Q2 because those deals would have been originated in the back end of Q1 when activity slowed very significantly because of the tsunami. What we are hearing from our hotels group and our capital markets group in Japan is that activity is now picking up, pipeline is filling again, and the pipeline coming through domestic offers and buildings and interest in purchasing in both domestic and international capitals, so we expect that pipeline to pick up in the course of Q3 and Q4.

And just one clarification on Jones Lang LaSalle in Japan -- we talked about this when the tsunami did occur. The majority of our revenue is strongly annuity based. We have a large facility management contracts with significant Japanese corporates there. We have LaSalle Investment Management who has their logistics funds there and we also do a fair amount of property management. We have a good annuity base there and we're the leader in tenant representation. A lot of the capital markets activity is in Japan is controlled by the trust banks, and as Colin said, we're able to influence the international money that comes to Japan, and clearly would like to see the confidence of those investors into that marketplace pick up.

Okay, thank you very much.

The next question comes from the line of Will Marks with JPMorgan Securities.

Good morning, it's Will Marks with JMP.

We hope you haven't changed companies there.

No, I have not switched. Just a follow-up on the last question -- did you give an APAC forecast for capital markets growth?

We did. We said it would be up year on year from memory 20%. We'll check it out.

Okay.

And our GMP is coming out shortly that will cover all the markets.

Great, thank you.

In terms of the margin, you gave a little bit of an indication of what would happen in the Americas. I'm wondering if EMEA and APAC and investment management are trending better in terms of growth. Could we see offsetting margins there so that the overall margin actually grows in 2011?

That's a little more specific guidance than we normally give, but clearly we're pushing those other parts of the world to do both growth and margin given they're below the targets. Unless the confidence dramatically changes in Asia, the momentum is quite good.

Great, thank you for that.

Colin, you talked about in your opening remarks some recent weakness from clients on the leasing side, and Lauralee you mentioned the government in general. I'm wondering if you can be a little more specific on maybe markets, because your clocks don't really show aside from London and APAC markets, but we don't see slowing in leasing but there is chatter out there about New York and some other Americas markets where you're seeing slower leasing, so maybe you can be more specific.

We're thinking forward and the remarks are based largely on an environment where the US sorts out the budgetary challenge, and Europe gets to grips with and deals with the big economy issues as well -- maybe not resolving them completely, but at least in a way that settles the capital markets down. If either of those events don't happen, in other words, if we get a situation in the US where the budgetary ceiling is breached or there is no agreement, then you can expect capital markets to get skittish and business confidence to be impacted as a result. It's quite hard to predict how that will be, how that will come through. At this point we're saying those are things which still have to happen, and we're thinking forward on the basis of business as usual.

Under those circumstances what is you're seeing in leasing market demands worldwide pretty much reflect what is you know about the economies. Within Asia Pacific, it's India and China where business is booming and in my remarks you'll see Hong Kong and Australia activity levels actually decline a little. In Europe, the direct demand in France and Germany is still quite robust. It's been slowing significantly in Britain, which has got the economic issues which have been well publicized. And across the US we're seeing continued steady demand and stronger still in the gateway cities than the secondary cities, and still in our mind in a recovery mode.

Okay, great, thank you.

A couple of other quick things. First, any update on capex? Maybe what second half spending should be?

For the total year we had given you guidance of about $75 million. With the King Sturge we'll add probably another $10 million for that. So for the total year, about $85 million, and one second and I'll get you what we spent year-to-date. Year to date we've spent about $37 million.

Okay, final question on cash flow -- you gave in your slide deck a figure that shows flat operating cash flow year to date from last year roughly up slightly. Any comments on that, can we attribute that to what you said about just spending in advance of good revenue growth?

Hold one second.

Sure.

Give me one second, and we'll check that.

Well, there are two pieces. One is working capital. We did pay more bonuses, so you do have the impact of bonuses. But I think what you're actually talking about is total cash available. We did have some deferred acquisitions that we paid out in the second quarter. For example, we increased our ownership position of what we bought in India, and we also had some modest other acquisitional pieces.

So if we look at it, you know, our capex was higher than last year. Our acquisitions were up significantly,dividends modestly, and then the balance would be working capital with bonuses.

That's helpful, but the -- I was more referring to the specific line on slide 12, cash from earnings was $123 million versus $120 million from a year ago.

Yes, you are going to have some of the acquisition cash -- remember, our GAAP number versus our adjusted number, so if you think about that included in the GAAP is going to be the one-time cost relative to closing the King Sturge.

And that will fall into cash from earnings.

Yes it will, because cash from earnings is a GAAP basis. So if you look at the way we reported the adjusted differential that will get you the explanation for that.

Okay. Perfect.

And if you want to take it off line with us, we can walk you through it in greater detail.

Okay, I appreciate it. Thank you.

The next question comes from the line of David Ridley-Lane with Merrill Lynch.

Yes, so last quarter you detailed roughly $15 million non-recurring costs. I was just wondering was the increase that we saw ex-those costs sequentially in the second quarter, is that all recurring SG&A increase? Because it's a pretty big sequential increase -- or are there some additional non-recurring costs in the second quarter?

You're referring to the total dollar value of costs.

Yes.

Yes, they would step up quarter on quarter as we're adding people to our business in a way that Lauralee described. That will be across the entire business, but particularly in the US. There would also be the smaller acquisitions that we did in the past 12 months click into our cost basis.

Can I just clarify your question?Are you referring to in the first quarter, we highlighted $9 million of unusual items that we said that are not non-recurring, is that what you're referencing.

I'm referring to the one-time costs in the first quarter, backing those out, and then looking at the sequential increase, and it's a pretty big step up.

The $9 million was not in non-recurring. We highlighted it as unusual expenses that could not be carved out for non-recurring. The non-recurring in the second quarter are legitimate non-recurring items that relate specifically to the merger with King Sturge.

Okay.

A very different item. And relative to that $9 million, I can tell you we did not have any significant unusual items in the second quarter that would be in any way, shape, or form comparable to the first.

All right, and can you give us parameters around interest expense next quarter, given the additional debt and the renegotiations of the loans?

The balance that we have right now has covered the interest for the King Sturge first payment, that half payment. We will have deferred payments which we incur interest on. This month we'll be paying another installment for the Staubach acquisition which will transfer out deferred obligations where we accrete interest and put that in our bank line where we will pay cash interest. We'll have some movements back and forth in that. So our cash interest will go up very modestly, maybe $0.5 million, and our non-cash interest which we accrete will go down an equivalent amount.

So net-net on the income statement, net interest expense should be about where it was--

Not much different.

Okay, not much different. Thank you.

The next questions comes from the line of David Gold with Sidoti.

Good morning.

Good morning, David.

Just a couple of questions. On King Sturge, a couple of months in and presumably about a quarter of the integration charges that you sort pointed to -- can you give us an update where we are integration-wise?

Sure, broadly speaking across Europe, and that's where the bulk of the people are for King Sturge, you have to respect the national laws around the integration process of individuals. So these are labor laws and in general they require periods of consultation of 60 to 90 days, during whichyou're limited in the amount of true integration you can do both terms of citing rules and people in roles and responsibilities and so forth. So we're seeing that phase respecting the national labor laws.

As those periods burn off during the course of the summer we'll begin to move offices together. In fact, the first regional office move has taken place. We'll begin to consolidate national teams. We've got compensation systems, responsibilities and roles largely worked out in our own minds, and we'll begin to execute on those.

In general, as I've observed the groups working together, the teams are very compatible. As we always do, we made a very strong -- we did a lot of research around the cultural affinity of the two groups, because for us that's a very strong motivator for doing an acquisition, and the cultural line is not there, it's a demotivator. We don't do them. So we've got two groups that work well together. There is a great deal of professional respect on both sides, so we believe that will help with the integration process. And there is a general sense of excitement for the teams as they get together they can achieve more together than they can separately as both sets of clients can be exposed to the other company's services, and we can cross those services to the market as a whole.

Broadly speaking, positive, no loss of people so far. We don't expect indeed to see much of that. At this point nothing other than we're very comfortable with what is happening.

One broader question -- in your comments in the release you highlight the question in some of the geographies of economic growth and government finances and there is offset presumably or some optimism with the cyclical recovery. Broadly speaking, at what point should we be nervous that this slowdown in economic growth will hinder or impinge more broadly on the overall real estate cycle? At what point will those two connect and does it start to make you nervous?

Our basic view of the market as we said right at the beginning is that this global cyclical recovery which normally runs three, four, five years in some cycles is only about 18 months, 24 months old. So that recovery process is still intact. And it's the impact around uncertainty of government activity which is causing some lack of confidence in both investor and corporate clients. But the underlying tone is positive.

As far as we're concerned we're taking share, we're trading very well, and we are confident that unless there is a full global recession we can continue to show growth on the revenue line and on the profitability line through pretty much anything that these current market conditions throw at us. That means broadly based global recovery, some continuation around the confidence issue around government debt -- at this point we can see no signs of there being any trip in the real estate markets into a double-dip recession.

Perfect.

David, I think that we said it a couple of times but make maybe it didn't come through. If we look at our pipeline, we would feel really good. It's just that the concern that if something happens in the broader market, does that lack of confidence mean that that pipeline won't convert? That's why we're optimistic, but then have to put a little caution on it because we have seen what happens when confidence gets disrupted.

Yes, yes and presumably there were some signs -- not just confidence, to your point, there was some pausing, so to speak.

In certain areas, again, to Lauralee's point, the business we are seeing coming in, the pipelines we have in progress are robust. It's a funny sort of market dynamic at the moment. The numbers you can see are very good. We have got good forward looking pictures in the pipeline. It's the broad based concern amongst investors and corporate clients around what is happening to government finance. It's become stronger over the last three months.

Got you. Perfect. Thank you. Thank you both.

The next question comes from the line of Brandon Dobell from William Blair.

Hi, thanks.

Maybe you could update us on how you think about the back half for LIM. I know in the past quarters you have talked about some other funds being reset in terms of fees, capital given back and then obviously you've raised a decent amount of money but potentially at a lower fee given lower securities. How should we think about the back half of the year and the longer term of where all those things are starting to converge?

The nice thing about public securities you invest it instantly and an instant fee flow, which is very nice.

Right.

We've seen actually a good, an interesting flow of funds in from new sources. We're seeing some significant opportunities with government wealth funds, government funds. We're seeing high net worth family offices coming with funds to invest in real estate. We continue to take on business from existing clients, including a UKP400 million allocation just this week from an existing client in London. We're seeing continued business flowing from US teachers' funds, and the public securities money is coming in from a nice spread of geographies.

Broadly speaking, we're seeing good funds flow in. We've talked about some of the funds which to run off in the investment phase over the next few quarters. Broadly speaking for the second half of the year, if you put all that together in the mix we're expecting steady performance from LaSalle.

Okay, and Lauralee, I think throughout a couple of head count data points within the US business, a couple of questions there. One, I guess, trying to figure out if those were year over year or quarter on quarter. And maybe some sense of scale where you are now, especially in capital markets in the US from a head count point of view -- if you can compare it to where you were in 2007 or where you were at the bottom, just so we can get a sense of potential opportunity as business recovers.

Okay, for the year in capital markets we added about 25 producers, which that's net. So some out, some in, but net new. We added 40 last year, so that would say year over year we're up about 65 in capital markets.

Leasing in the quarter we added about 20, which brings us to 60 for the year. We added 75 last year . Our goal is to add -- to get another 30 by year end.

And then in hotels, which is also capital markets, we've added globally but specifically we've added 12 in the US. So that would mean if we put them together with the capital markets we'd be up just under 80 year over

Okay. That's definitely helpful.

In terms of the leasing pipeline, I guess I'm going to be coming in with a more qualitative question, in the US given what has been a lackluster couple of months for job creation, is the pipeline dependent on companies thinking they're going to see recovery in hiring? Does it not matter that much given that nobody's done anything for a couple of years, so they're still in demand even without major job creation?I'm trying to figure out how to look at the next two to four quarters if jobs remain lackluster in the US. Do you see that pipeline not converting in leasing, or it's not going to be as tied as one might suspect?

Well, the pipeline we have today are things that need to happen. I mean, you can have some extension in that where we might try to do -- you don't have to -- you probably have 12 months, 18 months flex on that.

Yes.

But these are where the client have already made a decision or is definitely considering a decision to do something we believe by the end of the year. So that would not require job creation in those decisions. Now, I guess if they totally lost confidence they would delay that decision and say, "Gee, I need to think about my existing employee base," but we haven't heard any indication that companies are talking about going backwards. It's just a question about their confidence about forward.

So for this year we remained, I would say, reasonably confident that things will get converted unless there is a disruption. Your longer term question is around job creation, I think, when you get into next year and beyond because we're dealing today with the normal lease terms of market consolidation decisions, portfolio repositionings, taking advantage of things such as Colin described in his comments about a major client reducing the amount of space they have and making those kinds of decisions. But that does not impact this year. That's a longer impact.

Okay, fair enough, thanks a lot. Appreciate it.

Your next question comes from the line of Eric Glover.

Good morning, I just wanted to go back to the King Sturge acquisition. Could you talk about why you think the transaction will be accretive to the higher end of your EMEA target range?

Two things. Number one, the margin that the business ran when they were independent, and the fact that there should be some benefits of scale as we're just bigger. Combination of the two of that feels pretty good to us.

The cost synergies.

Okay, can you provide more color on those potential cost synergies?

They are not large, but they'll be around back office -- sort of back office support functions, certainly not in the producer area.

And when would you expect to see the transaction actually be accretive? Would that be after the first year?

Yes, it could be modestly in the first year but definitely in the second year. We're targeting a modest accretion hopefully even this year, depending on how the seasonality of the business works. That's carving out the one-time charges which we did.

I commented on them in the call, but I thought it might be helpful because I went through them rather fast. The appendix pages of our deck with our earnings release on page 19 in the bottom, we give the specifics about what I mentioned. So there is a fair number of one-time charges that definitely come through in the first 12 months,still a fair amount into the first 24 months, but those are non-recurring, and the underlying business will be accretive as we think about next year for sure.

So finally, just I understand this -- the seasonality of their business, you think it will be similar to yours in 2012? However, for the remainder of this year should we just assume that roughly half of what their annual revenue will be will fall on the second half of your year?

Yes, if we compare it to the Staubach merger, Staubach ended their year in the middle of the year, and clearly our second quarter was their largest quarter with their year-end. They came onto our structures in the first year. They picked up a little bit of seasonality. I guess it sort of naturally happens because the teams integrate, and clearly by the second year we're fully on a seasonality that looks like Jones Lang LaSalle. We're expecting that to be very similar to the King Sturge. Clearly we'll have to experience it, but at this point in time I think considering about a half contribution of revenue is reasonable if not modestly conservative.

Okay, great, thank you.

The final question comes from the line of Bose George with KBW.

This is actually Ryan O'Steen on for Bose George. Just one quick one -- could you give any detail on the $4 million of equity earnings that you took this quarter? And then just your outlook for that line item?

Yes, two things, we normally have in the underlying equity portfolio because it had principally been co-investment into our funds which had largely been value-add and opportunistic. The operating expenses on that tend to run at a modest negative, sort of $1.5 million to $2 million a quarter. And then with normal property sales, wecan get that back to a neutral or a positive. We, in fact, have -- those portfolios are maturing so they are looking to be more income producing and then they actually move into having less than of an operating cost carry. That was one piece of it.

Then we're also starting to see properties actually being sold, particularly in Asia, with gains coming in. So we, in fact, had a property sale which had a $2.8 million gain which then got offset by still marks and other operating expenses which gave us the positive in the quarter.

I think you're referencing the swing to last year, which actually was the negative.

Yes.

So the year-over-year change was, in fact, in that $4 million range, but the actual number in the quarter was just a touch over $2 million. And we would use expect going forward that until we put more co-investment capital into value-add or opportunity, a lot of it right now will go into core product. So I mentioned the $20 million that will go into Trinity as co-investment capital, that is principally core product. So there will be that contribution as well as we do expect as we -- as I mentioned incentive fees potentially in the second half, that will come from liquidating portfolio where we also think there will be some equity gains.

Great. And do you have the dollar amount of writedowns or impairments this quarter?

I think it was about $800,000.

Very small.

Great. Thank you.

And there are no further questions.

Good, well thank you, operator. Thank you everybody for listening in to today's call, and for your interest in Jones Lang LaSalle. We look forward to speaking with you again regarding third quarter results shortly. Thank you very much.

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