Jones Lang LaSalle Inc (JLL) 2014 Q2 法說會逐字稿

Good day, and welcome to the second-quarter 2014 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 10-K for the year ended December 31,2013, 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'd like to turn the call over to Mr. Colin Dyer, Chief Executive Officer, for opening remarks. Please go ahead, sir.

Thank you, Operator. Good evening, everybody, and thank you for joining us to review our results for the second quarter and first half of 2014. With me on today's call is Christie Kelly, our Chief Financial Officer, and Christie will review details of our performance in a few minutes.

But first, to summarize our results, we produced record second-quarter fee revenue of $1.1 billion, which is 18% higher than the second quarter of last year. Year-to-date fee revenue increased to just under $2 billion, a 16% increase.

Adjusted net income reached $76 million in the quarter, or $1.68 per share, which is up 46% from the $52 million, $1.15 a share, in the second quarter of last year. First-half adjusted net income totaled $94 million, or $2.07 per share, compared with $68 million, or $1.50 a share, in the first half of 2013.

We saw margin expansion in all three of our geographical segments, even as we continue to invest in targeted growth across the Firm's global platform. And LaSalle Investment Management assets under management reached $50 billion during the quarter, the highest level since 2008.

So all in all, a very good quarter and first half as markets and business segment sentiment continue to improve and business investment increased in much of the world.

So let's start with those market trends. Conditions in the global economy and in real estate markets worldwide continued to develop in a positive direction. Economic growth remains steady, with world GDP currently forecast to increase by 3% in 2014. That's down marginally from earlier projections but still matching last year's growth rate.

Asia-Pacific remains the fastest growing region. We achieved the expansion close to 5% expected this year. The Americas and Europe are each anticipated to grow by 1.6%.

Strong second-quarter earnings growth have been [in] US-based companies, is an indication of broad-based, increasing business confidence, and business and consumer confidence indices internationally continue to give positive readings.

Turning to the real estate markets, please see the slide which we posted in the investor relations section of JLL.com. Slide 3 summarizes trends in capital markets and leasing volumes.

Global investment sales volumes continued their rise, totaling $158 billion for the quarter, which is a 28% increase from the second quarter of 2013. Investment sales volumes maintained their momentum in the Americas and EMEA, while Asia-Pacific did not keep pace with last year's high-level activities. The region's second-quarter volumes of $32 billion were 2% below the same period a year ago.

In Europe, investors sustained their activity across geographies and investment sectors with second-quarter market volumes of $59 billion, almost 50% above last year's second quarter. In the Americas, second-quarter volumes of $67 billion were 30% up on a year ago, with the US remaining the main driver of increased investment activity.

Prime yields compressed further across the world's major markets. Strong office demand pushed down yields in several US cities -- for example, by 20 basis points in Chicago and Boston and by 10 basis points in New York and Los Angeles. Yields remain stable in the major European markets, but with further compression in the smaller markets, by five basis points in Brussels, for example, and 25 basis points in a rapidly recovering Madrid. Most Asia-Pacific markets showed stable prime yields, though strong investor demands saw yields reduced by 10 basis points in Tokyo and 25 basis points in Sydney.

Capital values on prime office assets across 25 major world markets grew by 8.8% year on year, which is the strongest movement in two years.

I mentioned earlier that business confidence is showing solid improvement across the world. This is reflected in office leasing, which further strengthened globally, so leasing markets now show the positive momentum which we've been seeing in investment sales for some time. Activity is still uneven, but gross absorption increased by 5% globally in the quarter compared to the second quarter of last year, reaching its highest level in more than two years.

Asia-Pacific recorded the highest growth with activity 20% above a year ago. Europe was up 11% year on year, with the strongest activity in London and Paris. And in the US, gross absorption was flat year on year, but momentum there is building, with second-quarter activity up by more than 6% on Q1.

As further evidence of market direction, office vacancy rates across 98 global markets declined by 20 basis points on last year to 13.1%. Vacancies were down by 40 basis points in the Americas to 15.5%. Vacancies stood at 11.5% in Asia-Pacific, their lowest level in more than a year. And in Europe, the vacancies rates stood unchanged at 9.7%. Finally, as you can see on slide 15 of our deck, rental rates are now growing in almost all markets internationally, which is further encouragement for corporate rental activity.

We currently see no business reasons why these positive market trends which I've covered should not continue for the balance of this year at least. So with that generally encouraging background, I'll turn the call over to Christie to discuss our performance against this market environment.

Thank you, Colin, and welcome to everyone on the call. As Colin mentioned, we had strong performance for the second quarter and first half of 2014. Moving to the quarter performance, we delivered record second-quarter fee revenue results. Notably, we increased adjusted net income earnings per share 46% over last year. Our performance again was broad-based, demonstrating the strength of our globally diverse, profitable, growth-oriented firm.

Our strength starts with our brand and our people, who remain focused on our clients and investors. Our results were delivered within an improving market, where we have seen leasing build momentum for three quarters and begin to exhibit the trends we have seen in capital markets for some time.

Our previous acquisitions, such as Staubach, King Sturge and Tetris, among many others, are now generating impressive organic growth. We see the real benefits of these transactions in our results, particularly in the Americas leasing business and across all of EMEA's service lines. These transactions, large and small, were successful because we chose our acquisition partners carefully. We structure our transactions for financial success, based upon performance, and execute integrations well to ensure that we realize growth over the long term.

Our consolidated results demonstrate our ability to perform for our clients and to consistently produce profitable revenue growth while investing in our business.

As Colin noted in his introduction, adjusted earnings per share were $1.68 for the quarter, an increase of 46% over 2013, calculated on adjusted net income of $76 million. We had record consolidated second-quarter fee revenue of $1.1 billion, an increase of $178 million, or 18%, in local currency compared to second quarter last year. Again, all three of our geographic segments had healthy year-over-year increases in revenue growth and profitability across varied markets globally.

Our revenue increase of 23% in leasing demonstrates our ability to continue to capture share, and reflects the improving momentum in global leasing markets of an estimated 5%.

We also delivered another quarter of approximately 20%-plus growth in our annuity businesses, including property and facility management and project and development services. Capital markets and hotels revenue increased 12% on a local currency basis, led by a very strong quarter in EMEA.

We delivered these results while continuing to selectively invest in and profitably grow our capital markets business in alignment with our strategic plans. Our LaSalle Investment Management business generated healthy advisory fee growth and continued its successful capital-raising track record in the second quarter, raising $1.4 billion of equity commitments.

Adjusted operating income margin, calculated on a fee revenue basis, increased 100 basis points to 9% for the quarter, compared with 8% for the second quarter last year. Adjusted EBITDA margin also increased 100 basis points to 12.2%.

We expanded margin in all three regions while continuing to invest in our business. For example, we have selectively added more than 10% to capital market staffing over the past 12 months, executed through both hiring and acquisitions. In addition, we are continuously focused on driving productivity initiatives to capture margin-enhancing opportunities. We have approximately 70 initiatives in process, ranging from small, [quick-link] projects to larger, longer-term efforts designed to further enhance margin performance as well as our client experience.

We will begin our look at the segment results with the Americas, where second-quarter fee revenue increased 22% in local currency over second quarter 2013. Growth in our business was partially driven by gains in leasing, which had a 26% fee revenue increase despite black market volumes. We also had a 21% fee revenue increase in property and facility management and a 23% increase in project and development services.

The growth in project and development services was driven by strong performance in Latin America, especially in Brazil and Mexico, and also in a number of our US markets, where we are benefitting from cross-selling throughout our platform.

Our corporate solutions business continued to win new assignments and increase the scope of relationships with longstanding clients. Revenues for capital markets and hotels in the Americas was up 13% in local currency. Excluding our debt business in the Americas, which was lower primarily due to transaction timing, our capital markets revenue increased 31%. Our pipeline of activity remains strong for the remainder of the year.

From an investment perspective, over the last 12 months, the Americas has added 35 teams across the business as we continue to grow share and strengthen our platform. Overall, significant operating leverage was driven by the Americas' healthy, balanced top-line growth across the region and business segments, but experienced fee-based operating income margin increases of 80 basis points from second quarter last year to 9.5% and adjusted EBITDA margin increases of 70 basis points from last year to 12.2%.

We continue to plan for future growth in the Americas by capitalizing on our strong brand and our financial strength to invest strategically, increase productivity and enhance our talented and diverse workforce that provides the best insights and service for our clients and solid returns for our shareholders.

In our EMEA business, second-quarter fee revenue increased 24% in local currency over second quarter 2013, and was broad-based across service lines and countries. EMEA's leasing revenue for the quarter was up 7% in local currency, and capital markets and hotels was up 38%.

Capital markets and hotels performance was bolstered by the continuing momentum across European investment markets. In the UK and France, volumes picked up in the second quarter after a slower first quarter. Germany also achieved strong year-over-year performance. Property and facility management fee revenue for the second quarter increased 35% in local currency, and project and development services fee revenue increased 16%.

EMEA's adjusted operating income margin, which excludes King Sturge amortization, improved 240 basis points year over year to 8%, while the adjusted EBITDA margin improved 210 basis points year over year to 9.8%. This underlying operating improvement reflected the positive impact of businesses turning to profit or being pruned, as well as the strength of our performance in the majority of our markets.

We were pleased to complete our acquisition with Tenzing in Sweden during the quarter, giving us a leading capital markets business in the fourth-largest investment market in Europe. The sentiment across EMEA business remains positive, despite inherent risks pertaining to geopolitical issues in the region.

Moving on to Asia-Pacific business, second-quarter fee revenue increased 8% in local currency over 2013. Asia-Pacific leasing revenue for the quarter was up 27% in local currency and outpaced the overall market, which was up 20%. Overall domestic demand in Asia for leasing services remained strong, especially in China and Singapore.

Capital markets and hotels revenue for the quarter was down 29% in local currency, after being up 74% in second quarter 2013 versus 2012. Market activity levels in the region are expected to recover in the second half of the year, and our capital markets pipelines remain solid. Property and facility management fee revenue for the second quarter increased 17% in local currency, and project and development services fee revenue increased 12%.

Asia-Pacific second-quarter operating income margin increased 90 basis points to 7.4% this year, and the adjusted EBITDA margin also increased 90 basis points to 8.9%. In a quarter where capital markets volumes were down, this impressive margin expansion in Asia-Pacific demonstrates the benefits of both our diverse platforms, including a strong corporate solutions business, and the success of the ongoing productivity initiatives that our people are implementing.

LaSalle Investment Management had a strong quarter, with increases in both advisory fees and incentive fees as well as equity earnings compared to a year ago. Capital values are rising in most areas, which is leading to accelerated and higher sales prices that generate incentive fees and equity earnings.

The business reached $60 million of advisory fees during the quarter as a result of strong investment performance in Asia-Pacific, and we also generated $6 million of incentive fees. We see potential for additional incentive fees being realized as mature funds continue to liquidate over the next several quarters.

This quarter, LaSalle also executed acquisitions of $1.7 billion, in comparison to disposition activity of $1.1 billion, to drive assets under management to $50 billion.

Regarding our investment-grade balance sheet, Standard & Poor's recently improved its outlook on our investment-grade rating to positive. We continue to benefit from both a lower cost of debt after we renewed our bank credit facility in October 2013 and lower average borrowing, which resulted in the reduction of net interest expense from $9 million in the second quarter of last year to $7.7 million this year. We plan to continue operating with low leverage and a strong balance sheet.

To sum up, we had a strong second quarter. Thank you to our people for delivering these results and for creating this momentum. As Colin will now explain, we remain positive about the outlook for our business as we go into the second half of the year.

I'll now turn the call back over to Colin.

Thank you, Christie. If we turn now to selected business wins for the second quarter, slide 4 shows a few examples from across our geographies and service lines. In corporate outsourcing, we won 10 new assignments during the quarter and renewed or expanded 10 more.

Corporate wins included a major facilities management assignment from RBS in the Americas, one in Australia, five JLL service lines worked together on a project for AstraZeneca. We represented the biopharma company in the sale of its headquarters in Sydney, and negotiated the pre-commitments for a new head office to replace it.

We once again grew our local market corporate solutions business, which serves corporate clients who purchase real estate services locally. To date this year, we've won 32 assignments in this growth segment totaling 65 million square feet of space.

Turning to investment sales in the second quarter, in the US we completed the $350 million sale of 225 Bush Street in San Francisco, the market's largest office sale since 2012. In Ireland, we sold a portfolio of three Dublin assets for EUR375 million. And in Taiwan, we completed the sale of 85,000 square feet of retail space in International Square for $132 million, which was Taiwan's largest retail transaction in the first half of the year.

Leasing, tenant representation and management transactions completed during the quarter included assisting Volkswagen to identify the best location for a new $1billion dollar manufacturing plant in Eastern Europe. JLL teams from the US and Europe worked together to identify Poland as the preferred candidate. We also negotiated local and state incentives on behalf of our client.

In China, we were appointed joint office leasing agent for Shanghai Tower, a 6.2 million square foot mixed use development and the world's top 10 tallest building. And in the Middle East, we were selected to manage the 380,000-square-foot Hilal Tower in Abu Dhabi's financial district. And wins like this remind us of the value of persevering in markets which fall into difficult times, while maintaining and supporting our teams while continuing to serve our clients.

LaSalle Investment Management had a very strong second quarter, as Christie said, raising $1.4 billion of equity investment. This brought year-to-date commitments to $2.3 billion. Investors are continuing to increase their allocations to real estate and to move further out along the risk curve in pursuit of attractive returns. As I mentioned earlier, LaSalle Investment Management's assets under management reached $50 billion by the end of the quarter.

Turning to M&A activity, over the last several months, in addition to Tenzing in Sweden, which Christie mentioned, we also acquired CLEO Construction Management, a US leader in healthcare project management, and YY Property Solutions, a leading Kuala Lumpur transaction and advisory business, which reestablished our presence in Malaysia after an absence of more than a decade.

Looking forward, slide 3 shows our full-year projections for global investment sales and leasing market activity. Thanks to increasing equity allocations, further improvements in debt markets and a very healthy transaction pipeline, we now expect investment volumes to reach $700 billion for the full year, 20% above 2013 levels. Our latest forecast shows volumes rising 25% in the US, 15% in Europe and 10% in selected Asia-Pacific markets. We project capital values on current assets to be up 7% for the year, with the largest increases in US gateway markets.

Leasing volumes are recovering steadily, and occupy [sentiment] continues to improve, but we've yet to see a real breakthrough in demand levels, so we project the full-year leasing volumes to increase by about 5% over 2013 levels. The greatest increase will come in Asia-Pacific at 15% to 20%, with gross absorption rising about 5% in Europe and flat to 5% growth in the US. Improving business segment will also continue to have a positive impact on our project and development services businesses.

In funds management, we expect the current trends to continue, with capital flows growing as investors increase their real estate allocations. We expect that a relatively small group of major investment managers, LaSalle included, will attract most of this investment capital.

Looking at our own prospects for the year, our outlook remains positive. In addition to the market prospects, which I've described, our own pipelines are strong and our business strategy is paying off in the form of robust and broad-based growth.

Looking to the longer term, our improved S&P outlook indicates we have the financial strength and flexibility to continue to invest in growth. This will come through hiring and retaining top talent, through capital investments, including IT, through co-investments with LaSalle clients and continuing M&A activity.

Our confidence around our long-term prospects also stems from a stable and experienced management team, a consistent strategy, strong governance, a powerful set of Company values and the best people in our industry, and I would like to thank all of my colleagues worldwide for their performance this year. So for the short and long term, we're optimistic about our prospects.

Before opening the call to your questions, I want just to mention a couple of representative awards which our colleagues received from industry groups and independent third parties. These reflect and confirm our position as industry leader in real estate services and investment management.

During the quarter, we were voted Best Real Estate Employer in Germany for the third consecutive year by Immobilien Zeitung. In the Asia-Pacific property awards, we were named Best Property Consultant in China, Hong Kong, India, Indonesia, Japan, the Philippines and Singapore. And in the US, we were awarded Best Place to Work honors in Dallas and the San Francisco Bay area.

So with that summary of the first half -- sorry, the second quarter and first half, let's now turn to your questions. Operator, will you please explain the Q&A process?

(Operator Instructions). David Gold, Sidoti.

So a couple of questions for you. First, as we look at business broadly and we think about capital markets, which has been strong for some time, and we think about the leasing business, which started picking up presumably late last year, I wanted to see if you could give some additional color. I know you said pipelines were strong and holding, but if there's any additional color you can give as to confidence in both sustainability of the pickup for capital markets and then what you see -- on the leasing side, what it takes to get that to the next level.

Well, let's start with the capital markets area. I mean, we made the comments -- some of these comments, which I'll make in answer to your questions -- we made some of them in the bodies within the text, which we've just read. But the capital markets demand levels seem to be high and sustained, and we see no sign of any reduction in demand. We're seeing multiple bids on any transactions, which we put out. We're seeing extreme disappointment on the part of under-bidders, which sort of makes them more determined to go around again.

We talked about the level of allocation on the part of institutions to real estate as part of their alternative strategy is rising. We see no sign of that changing. And if you put that strong equity demand together with the increasing levels of international capital flow, we're seeing those rising up to the same levels as you saw in the last cycle, 50% or so of overall investment in real estate in cross-border money.

You put that together in turn with the ever-improving levels of debt availability as banks improve their balance sheets globally, as they get more confident and indeed as competition amongst them to put money out increases, and that brings spread in and it loosens, again, the covenants which we see on loans into deals. You put it all together, and there's really no sign of any end to the strong demand which we're seeing in the capital markets globally.

As far as the leasing markets go, David, we have been waiting for confidence to recover for some time. You'll recall a year ago, year and a half ago, the markets were spooked by the last throes of the euro crisis, by the fiscal cliff issues in the US. Those have evaporated, those issues, and have not been replaced, so far at least, by concerns around political and warfare issues around the world.

But quite to the contrary, we see corporate confidence recovering. We made comments about the levels of earnings amongst US corporates being strong this quarter once again. You are well aware of the amount of capital and the amount of cash which is being held on corporate balance sheets around the world. It's at record highs.

But what we are seeing amongst our clients is a willingness to gradually move away from a phase of total concentration on costs to a phase where they're actually thinking about building and expanding and driving revenues again.

In addition, the comment I made about the increase in rental rates in every major market around the world, that's also encouraging corporates to say -- hey, if we don't move pretty soon, we're going to be faced with higher rental rates and decreasing amounts of available space. And so for us, that means that the beginning -- the momentum which we're now seeing in the leasing markets is likely to continue with good levels of demand on the corporate side and rental rates rising against the background of relatively constrained supply of new product into the market.

So long answer to a couple short questions, but I hope that's helpful.

It sure is. Thanks. And then, getting at a different [spot,] can you give some sense of what you're seeing out there on the acquisition front? Presumably, a couple of small ones you've done, but has pricing ticked up dramatically, and would you do something bigger if you found something at presumably -- where the pricing metrics met your discipline?

Well, you're right, we've done a few acquisitions where the opportunities fit with our -- fit culturally and fit with our strategic aims. What we didn't mention were the acquisitions we looked at and rejected, some because we didn't like the economics, to your point. But we are looking at lots of opportunities.

It's a very active M&A market. You can see that in the broader sweep of business where the level of activity is growing across many sectors. So there's a lot of opportunity out there. We are being picky around particularly the cultural fit and around pricing. And if we have anything that we like to -- which we particularly like, we wouldn't hesitate to do it against our requirements around the economics.

Very good. Thank you.

Brad Burke, Goldman Sachs.

I wanted to talk on asset management. Clearly, an impressive quarter for AUM growth, so I just wanted to gauge how you're thinking about the fundraising pipeline. And then looking at the advisory fees as a percentage of AUM, it looks like there was a nice uptick. So also wondering whether you're seeing a better mix in the fees of the funds that you're raising.

The pipeline for -- as we mentioned a couple of times in the prepared remarks, the pipelines are strong in that the institutional sector is continuing to allocate more money into alternatives as a group and within that to real estate. That's across the sweep of the international and the institutional investment community, and indeed sovereign wealth funds.

You saw, perhaps, Norges' announcement a couple weeks ago their commitment to invest a whole lot more into the real estate markets globally. So no change in that trend in our pipelines in terms of the discussions that we have under way are continuing strongly. You'll recall that as well as the $2 billion to $3 billion we've raised this year so far, we raised over $7 billion at LaSalle last year, so close to $10 billion in 18 months.

As to the fees rate, in general, what we've been raising in the funds area, where we've been raising funds, we've been able to more or less maintain the historical fee levels that we've seen in the past. Where fees have become tighter has been in the individual mandates which we've taken from clients, and they have been a larger proportion of the mix.

So over the last two to three years, you have seen our fees as a percentage of assets under management come down. And we expect that trend to stabilize at this point. You've made the comment that you're seeing that stabilizing now. We expect that to stabilize and bottom out around now and then, hopefully, continue to move off of that bottom in the coming quarters.

Okay.

And Brad, this is Christie. The only thing I would add to that is just in terms of capital raised and where we're sourcing capital. Just looking at where we've been for the quarter, round numbers -- 60% of that raise has come from Asia, and about 35% from EMEA, and the remainder from the US. And then as it relates to the fee performance, that's been pretty stable thanks to the hard work of our team.

Okay, that's helpful. And then the investments that you're making in the business -- and I know they weighed on margins in the first quarter. I assume that you continued at a pretty steady pace in the second quarter from where you were in the first quarter, so I'm curious if, one, that's the case, and then, two, what the margin growth would have been had you not been making these investments in the second quarter of 2014.

Well, Brad, we've been making those investments -- revenue investments for ten years. There's nothing new about it. So it's the same -- if you like, it's the same level of pressure on our margins quarter in, quarter out, year in, year out. If you said -- what if we stopped it? What would that do? Well, it would certainly raise our margins by at least 50 basis points. Our own estimates are between 70 and 100 basis points.

And I would agree with that, too. I mean, we've been tracking it, 2013 and then through the 2014, pretty closely, and we have upticked a bit to the 70 to 100 basis points, as Colin mentioned.

Okay, that's helpful. Thank you.

David Ridley-Lane, Bank of America.

A question on your leasing business. You're massively out-performing year to date and gaining market share in the US. I'm just wondering about what you think about the factors that are driving that outperformance, and how sustainable is that over the course of the next, say, six to 12 months?

Well, we're pleased with it. It's a mixture of factors. Interestingly, we saw roughly the same level of increase in the major cities as we saw in secondary markets. I think it's up 20% in the major cities and 25% in what we call secondary markets, So it's very similar performance across the scale of markets that we're in in the US.

What's driving it? Well, a number of factors. Firstly, as we mentioned, we've been hiring steadily and consistently, bringing in teams to strengthen our business and improve our service to clients across all markets and opening the odd new market as we go. The teams, as we come onstream, take 12, 18 months to get up to normal running speeds, so as we're bringing them on, those that have joined in the last two years are still raising the levels of productivity.

And then, of course, as markets improve, the existing teams who have been in situ for a time are able to really capitalize from the strong position which we have and pick up market share as markets improve.

If you add to that the improved rental rates that you're seeing, that's obviously helping to drive our own revenue, as is the increasing length of leases that you see in markets as markets are gaining confidence and recover. So you put all these factors together, and that's the reason why we're seeing this above-market rate of growth. We wouldn't see any reason at this point to expect that -- not to expect that rate of market grown share gain to continue.

And I think the only thing I would add to that, David, is the fact that we've been preparing for this for quite some time. We're always in the market looking for the best teams and planning where we've got the opportunity, for example, to infill or to put more talent out to drive profitable performance for our shareholders. We track it. We really work on ensuring that when we bring new people in, that we are averaging up and improving their performance in terms of revenue per head. And we watch it, we monitor it, we coach it, and it's something that we are very focused on now and for the future.

Got it. Okay. And then competitors spoke about tougher market conditions for advisory and valuation work this year. I'm just wondering, are you seeing similar trends, and is this something you're concerned about for your advisory and consulting service line?

I don't know what that comment particularly was exactly referring to.

I think they were referring to loan workouts coming to an end here in the US in particular.

Okay. Well, they may have been referring to valuation work, which we do really very little of that in the US, so that would not be a factor for us.

Yes, we really don't do valuation work in the US.

Correct. And as for advisory work in general, our advisory work for our corporate clients has been strong. We've continued to do their workouts. But you're correct, they have been declining as the distress gets worked through the [pipeline.] But in general, our consulting and advisory business for both our investors and our corporate clients has been growing strongly, so we have no concerns about that area.

Great. And maybe a question -- how much of an impact on your business would rising US interest rates have? I know your US mix in capital markets is only about a third of the total or so, so it's pretty good geographic diversification. But I was just sort of wondering your thoughts on, if we do start to see rates pick up, what that might do to the capital markets environment.

Yes, our perspective on that is -- first of all, you hit it. We've got geographic diversification, we've got business sector diversification, and we've got a nice majority of our revenue source tied to annuity-based income versus capital markets. We've done sensitivities. We've analyzed it, and our best guesstimate is that as long as rate increases are steady and moderate and the market is not surprised, that there won't be any significant pullback on capital markets.

However, we do view that if rates move in chunks of 100 basis points, 150 basis points, like we saw in October of 2011, that would cause the market pause for concern.

You add into that the fact that, as we mentioned, we're seeing now real rental growth across all markets. 4% was the number we mentioned for the global average for major cities. That means that investors can underwrite an improvement in their cash flows, which -- and they can do that with some certainty now, and that will counterbalance any negative impact of interest rates on the loan parts of the capital [spent].

That all makes sense. And then a last one for me. Adjusted EBITDA margins are up about 50 basis points year to date. Is 2014 shaping up to be sort of an average year for you in terms of what you're targeting for margin expansion annually going forward?

I'll jump in there and then see if Colin's got any further comments, since I've been asked this for about a year now. But my perspective on that is that as we look forward, that the year will chalk up to be an average year. But when I say average, I mean based on us focused on driving profitable growth and really managing our business for incremental margin improvement.

To add my ten years' experience, then, in the Firm, Christie, the other element here is the cyclical nature of the markets which we're in. And we're still, obviously, seeing cyclical improvements across leasing and capital markets in particular. That looks as though it'll continue.

And what we see when markets rise cyclically in this way is that our margins continue to improve. Ao as this cycle continues to build, so our margins build with it. That's just market driven. And as Christie said, we are now working hard on the productivity side to improve and we add further fuel to that fire of improved margin.

All right. Thank you very much.

Thank you.

Mitch Germain, JMP Securities.

Just sticking with that productivity -- the margin, you talked about those productivity initiatives. I think you mentioned, Christie, 70. I'm curious. I mean, how -- where were -- was that 70 maybe at the start of your tenure, and how much has been added? And then is this something that you're going to continue to update us on as this progresses over the next couple of years?

So first, just to set the stage a little bit, our business has really focused on productivity for quite some time. It's part of our DNA. And I would say over the past year, we have really worked to elevate and heighten and, if you will, bring the game up based on our people's capabilities, and we have operating rigor around the productivity initiatives now.

We have certain initiatives that are focused based on where we view the key levers to be and price, improving process productivities through simplification as well as further improving revenue per head, as I mentioned before, or revenue per revenue generator. And so we're focused on key projects that align around those levers. And I think, yes, the productivity initiatives will continue, because I mentioned -- as I mentioned, it's part of what we do every day. We'll just keeping getting better at it.

Great. Thank you.

Brandon Dobell, William Blair.

I want to focus on the property facilities management business for a little bit. As you guys are out pitching for new business or talking to the customers about renewals, maybe a sense of how broad those discussions are about different service lines, different competencies now as opposed to, I don't know, six or 12 months ago. Are you seeing customers embracing a broader potential array of services from you guys, even at first conversations? And are you having same or more or less success on renewals, trying to get a broader list in front of your potential customers?

Brandon, the easiest one is renewals, because we're sort of 95% on those.

Yes.

And once you are the incumbent, I think you can generally retain the business, and that's very broadly been the case down through the years and nothing much has changed there. As to the tenor of the conversations -- and I'm talking facility management for corporate first -- the trend over the last decade as you see more and more procurement people show up in discussions, tThat has not changed a lot.

What we are seeing is that they have less preponderance in the final decision. And that, in turn, means that price is slightly less relevant and the other parts of what you might call the balanced scorecard come into play. So in particular, the satisfaction of the individual employee in clients' companies is taken into account. And in some cases, companies have made choices on price and that's proven to be something they've regretted. And so we're seeing a slight -- I'd [typify] it as a slight swing back towards a more balanced quality as well as price evaluation in the services that are being bid out.

As far as the numbers of services go, it's all over the place still, no real change in that from those doing global RFPs for single service on a global basis to those breaking up five services by four regions and bidding out each one individually. And each individual company makes its decision on what it wants to do, depending largely on their level of centralization, decentralization and their level of alignment that they have within their own individual businesses.

Some occasions -- we've learned to recognize these now -- we're actually used as the unifying catalyst where businesses are highly decentralized. That's to say they have their own local rules and central management would like to change that, and they kind of use us to impose global standards. Those are a two-edged sword. On the one hand, they're fantastic, the interesting challenges. On the other hand, they can be incredibly difficult to execute because you're working against entrenched behaviors in clients. So I hope that gives you a feel for what's happening on the corporate side.

On the property side, that's the [investor] management part of the business, we have seen great success in the US in particular this year. We've been much more focused around selling those services harder, around linking up with our investment salespeople. And of course that's a growing part of our US business in order to enhance our access to new buildings, and we've worked generally harder at retaining buildings that get sold and where our management is under risk.

Okay.

The only thing, too, I would add to that is if you take a look at some very important survey statistics out there, specifically the Watkins survey and the Kingsley Associates survey, we scored overall customer satisfaction to be the best, in relation to the Watkins survey, or one of the top 2005 to 2013. And then in the Kingsley Associates survey, we also score above the Kingsley index, which drives that renewal rate that Colin was mentioning -- very highly correlated.

And then further that, there are a couple recent quotes from our corporate clients around why JLL -- top talent, comprehensive service delivery platforms, service aligns with our business, seamless service delivery, aligned and connected across services and regions, and a trusted advisor and partner, just to give you a little flavor.

Okay, thanks. That's helpful. Maybe, Christie, back to your -- I guess your comment about DNA around productivity. If you were to compare, I guess, your visibility or the buy-in from the local market managers on driving margin expansion or just better profitable growth now versus a year ago or maybe the first couple quarters that you were at JLL, what kind of order of magnitude kind of change have you seen in your ability to dig into the numbers, control the numbers, get buy-in from the people who are on the ground running the different offices?

I think, Brandon, I've been really trying to get out and visit our major markets, and I pretty much, this first year, managed to get to a little over 50% of them. And with that, when I first started talking about productivity, I said we've been at this for a long time. It's something that's part of our DNA. If you go to the Atlanta office, our team has a productivity room as well as innovation. And whether you're in Atlanta or whether you're in Beijing or whether you're in Sao Paulo or Warsaw, our people talk about productivity and they talk about innovation and they talk about how to drive superior customer service.

So that operational excellence piece is no new news. But I think what we've done is what I said before, is just become even better at it and really captured the ability to quantify and then have, if you will, process discipline around what we're doing even just a little bit more. And so it gives us visibility and transparency into where we think there are major levers to move on behalf of our clients and our shareholders as well as our people. So more to come. It's exciting, and folks are energized about it.

Okay. And then a final one for me, going back to the adding people thesis here. So then, you continue to add people at a pretty consistent clip. Has the amount of churn -- take the GE approach and trim off the bottom performers on a consistent basis. Has the amount of churn out of people that the organization feels just aren't out to par, up to snuff -- has that picked up, or has that been pretty consistent?

It's been pretty consistent, Brandon. I mean, as Colin mentioned, we're very selective about who we bring in, and then further to that, we are very disciplined about managing our performers from, if you will, the bottom quartile and getting them over the median. And so our productivity in terms of revenue per head really points to that. And as well, part of the key value, outside of integrity, in our firm is collaboration, and our folks work to make sure that they as a team bring that overall productivity up and, at the end of the day, increase the size of the pie.

Okay.

A couple numbers for you -- a couple of numbers for you, Brandon. Our voluntary turnover in the US is 8%, and that's very low for a services firm. We've added about 10% to our brokerage community in capital markets globally, as I think Christie mentioned, this year -- sorry, over the past year, and about 5% to our leasing professionals globally. Those are the numbers for you.

If you want a qualitative comment, as the markets have gotten more competitive and actually as markets become richer in terms of where we get to in the cycle, we have seen an increase in competitors calling our people. Despite that, we've kept turnover -- voluntary turnover low, as I described. And similarly, we're finding it more expensive to hire people away in the markets where we -- where we're trying to do that. So it's a market in which retention around employment and the price of employment is certainly increasing.

Okay, great. Very helpful. Thanks.

And Brandon, there's one thing, too, I just want to leave you with in terms of this discussion as well as productivity, is that when I said it's all about growing the pie, I want to emphasize that it's not about cost take-out at JLL. It's about revenue enhancements as well as margin -- incremental margin improvement. So it's a very different way to think about it.

Right. Okay, makes sense. Thanks.

Thanks, Brandon.

(Operator Instructions). Michael Mueller, JPMorgan.

You just answered my question about headcount, but I do have one more. I was wondering, can you elaborate a little bit more on the debt placement impact in the quarter? And then do you see that playing out again in Q3 and Q4?

Debt placement -- do you mean --

(Inaudible) the capital markets growth in the Americas.

It's just simply that the availability of debt is just getting easier. It's, again, a cyclical thing. The banks came out of the crisis in 2008 with all doors locked, and there was no debt to be had even in the US. The US market debt -- sorry, the US banks compared to their European colleagues would cover their capital bases comparatively quickly. But since then, we've seen a -- so since then, we've seen a gradual steady improvement in the availability of debt, so liquidity.

We've seen other providers of debt, such as private equity funds and insurance companies, come into the markets and, to some extent, withdraw again as the margins got squeezed. But we've seen this process of banks, as their confidence and their availability of capital rose and the competition between them increased -- we've seen banks make more debt available at lower spreads, so spreads coming in from -- over the last 12 months, went down from 250 to 125 basis points or lower. And we've seen them loosen the covenants, the terms around the loans they're giving. So put it all together and there is adequate debt available -- more than adequate debt available within the US market.

Those same comments would apply to Europe, but more -- but the process has been slower. But that, too, debt is now pretty freely available for well-underwritten transactions. Asia-Pacific really didn't have a great debt problem. The banks were very robust right through the crisis and came out strongly. So that's a sort of world feel for the situation.

Got it.

And I'll just, Michael, loop that back to our business. So in relation to my comments for the Americas, I would just -- with all of the backdrop that Colin's given, is just say that we don't expect that to repeat and it was more around timing and we've got a strong pipeline.

Got it. Okay, that was it. Thank you.

There are no further questions at this time.

Okay. Well, thank you, Operator. With that, we'll end today's call by thanking everybody for joining us. Thank you for your interest in JLL. We look forward to speaking with you again at the end of the third quarter. Have a good evening, everyone.

Bye.

This concludes today's conference call. You may now disconnect.