Jones Lang LaSalle Inc (JLL) 2016 Q2 法說會逐字稿

Good morning, and welcome to Jones Lang LaSalle's Incorporated second-quarter 2016 earnings conference call. For your information, this conference is being recorded.

I would now like to turn the conference over to your host, Grace Chang, Managing Director of Investor Relations. Please go ahead.

Thank you, operator. Good morning, and welcome to the second-quarter 2016 earnings conference call for Jones Lang LaSalle Incorporated. As a reminder, today's call is being recorded. A transcript will be posted in the investor relations section at JLL.com.

Any statements made about future results and performance or about plans, expectations and objectives are forward-looking statements. Actual results and performance may differ from those included in the forward-looking statements as a result of factors discussed in the Company's annual report on Form 10-K for the fiscal year ended December 31, 2015 and in other reports filed with the SEC. The Company disclaims any undertaking to publicly update or revise any forward-looking comment.

Now with that, I would like to turn the call over to Colin Dyer, Chief Executive Officer, for opening remarks.

Thank you, Grace, and welcome to everybody joining today's review of our results for the second quarter and first half for 2016. With me today is Christie Kelly, our CFO, who will review our financial results in detail in a few minutes. Also with us is Christian Ulbrich, who became President of JLL on June 1 this year.

After an outstanding seven years leading our EMEA region, Christian has spent the last two months getting more deeply familiar with our colleagues in the Americas and Asia Pacific. So, welcome to your new position, Christian, and to these quarterly calls. We are very happy to have you as President of the Company.

With Christians promotion, his role as head of Europe was taken by Guy Grainger. And in Asia-Pacific, Anthony Couse replaced Alastair Hughes, who retired. The transitions have been well-planned and seamless, and shareholders should be impressed with the depth and experience of our senior management team and indeed of our leadership development process which underpinned these changes.

To summarize our performance, we produced a strong second quarter and first half despite pronounced uncertainty and anxiety in Europe created by political and security challenges. We saw a record second-quarter revenue. First [quarter] revenue of $1.6 billion was a 17% increase on the second quarter a year ago, while fee revenue increased 14% to $1.3 billion. For the first half, revenue was a record $2.9 billion, up 14% from the prior year.

Fee revenue reached $2.5 billion, an 11% increase on the first half of 2015. Adjusted net income for the quarter totaled $88 million, or $1.93 per share, compared with $93 million for the same period a year ago. First-half adjusted net income was $125 million, or $2.75 per share, and that compared with $137 million last year.

We continued through the quarter to invest in strategic growth and just yesterday announced the close of our acquisition of Integral UK Limited. Integral is the UK's leading provider of mechanical and electrical property maintenance. And by joining forces, JLL becomes one of the largest mobile engineering service providers for property worldwide.

Finally, during the quarter, we expanded our credit facility to $2.75 billion, with improved pricing and maturity extended out to 2021.

To put our results into some context, let's first look at real estate market conditions globally. And since it's been on the minds of many, I will start with Brexit. In the weeks following the UK vote to leave the European Union, there has been no shortage of opinion and commentary about its potential impact. But here are four headlines from our own researchers, clients and business leaders.

Firstly, to date, the impact of Brexit has been limited largely to UK investment sales and leasing activities. We anticipate that capital market activity in the UK will rebound once buyers and sellers can agree on pricing. That could happen relatively quickly. Leasing recovery may take longer since corporate occupiers will hesitate to make occupancy decisions until the politics of Brexit have been clarified -- such things as passporting, employee rights to work outside of their native country and so forth. As I said, that may take some time.

In our own UK business, we expect the revenue impact from capital markets and leasing activity to be offset by our acquisitions and by the continued growth of other business lines such as corporate solutions, project and development services, and consulting.

The second point we want to make is that we have no indication that Brexit has impacted markets outside of the UK -- not in Europe, the Americas, nor Asia-Pacific.

Thirdly, Brexit will not materially affect the Integral business which, unlike investment sales and many leasing transactions, generates annuity-like revenue. The maintenance requirements of owners and occupiers who are Integral clients should not change as a consequence of the vote to exit the EU.

And finally, the LaSalle Investment Management has not suffered major Brexit-related problem. LaSalle is not exposed to the redemption issues that open-ended UK property firms have had to deal with. The investments that LaSalle manages in the UK are primarily held in separate accounts representing pension funds, sovereign wealth funds and other long-term institutional investors. They are typically in core assets with low leverage. And as such, they are unlikely to be sold and capital reallocated elsewhere.

Just focusing on LaSalle globally, it had an excellent quarter. Assets under management increased globally to a record $59 billion, while revenue increased 29% from the second quarter a year ago. And LaSalle's superior performance for clients generated significant incentive fees.

Institutional investors continue to view the real estate market as an attractive asset class to invest in as compared to other alternatives. And although they are more cautious post-Brexit, they are still looking to invest, and we remain confident about LaSalle's prospect.

Looking globally across our markets, the world's leading commercial real estate markets have weathered the year's political and economic issues quite well, even as investors and corporate occupiers strike a more cautious tone. We see no catalyst for a breakdown in fundamentals. Indeed, we anticipate the slow economic growth environment to continue to contribute to an extended cycle and a flight to quality in which gateway markets and prime properties can be expected to continue to outperform.

The slides that we posted in the investor relations section of JLL.com summarize current market conditions. Slide 6 shows the state of the overall global capital markets. Total second-quarter market volumes were $155 billion, 8% below the second quarter of 2015. While JLL's own Capital Markets and hotels revenue was flat with last year.

Yields for prime assets continued to compress in several markets including Brussels, Frankfurt, Los Angeles, Mumbai and Seoul. Overall leasing markets were down 7% in the quarter compared to the second quarter a year ago, whilst JLL's leasing revenue was up a healthy 10% compared to that same quarter.

With healthy demand and restrained new product delivery, office supply continued tighten and the global office vacancy rate fell by 10 basis points to 12.1% in the quarter. That is the lowest level since the fourth quarter of 2008. And prime office rents in 28 major markets rose by an average of 5.1% year on year in the quarter.

So to summarize, in this market environment we continue to pursue our long-term strategy of investing in growth. And even with lower capital markets and leasing market activity, our own pipelines are active and healthy, beating the trend of the overall markets. We continue to monitor market conditions and new developments for the year near to medium term, translating the information into superior advice for our clients. And historically, we have seen clients gravitate to JLL in uncertain times to take advantage of just that experience and advice which we offer them.

To discuss our performance in detail, I will hand over to Christie.

Thank you, Colin, and welcome to everyone on our call. As Colin mentioned, we had strong performance for the second quarter, with double-digit revenue growth across our diversified service segments and LaSalle, as well as solid adjusted operating income performance.

Our positive results were driven by an increased proportion of our growth from recurring business and also strong incentive fees at LaSalle. These results were partially offset by a slowdown in transactional business, particularly in the UK. We also continue to make longer-term investments in technology, data and our people, which we see translating to increased business wins and improved productivity.

We remain focused on containing fixed operating and administrative costs while managing the variable costs that are key to converting our pipeline. Our performance demonstrates the diversity and strength of our global platform and our people who are dedicated to delivering our investor and corporate occupier clients within a cautious, slower-growth market environment.

As noted earlier, we finished the second quarter with record consolidated revenue of $1.6 billion, up 19% over the prior year, and fee revenue of $1.3 billion, up 15% over the prior year, both on a local currency basis. Adjusted earnings per share for the quarter was $1.93 on adjusted net income of $88 million. All three geographic segments delivered year-over-year growth for the quarter and first half, led by our recurring business.

Property and facility management grew 17% for the quarter, up 16% year to date, with both growth rates nearly twice as large as the second quarter and first half of 2015. Project and development services grew 30% for the second quarter and 32% year to date. Advisory and consulting grew 14% for the second quarter and year to date. When combined, revenues from these businesses generated 72% of the second-quarter real estate services growth and 80% of the year-to-date real estate services growth. The most notable increases came from the Americas and EMEA.

Turning to the transaction business, leasing revenues, a good portion of which are recurring, grew 10% for the quarter and 8% year to date on a local currency basis, outperforming the market in all three of our geographic segments. Our outperformance reflects our team's ability to maintain clients and capture market share against an overall market decline of 7% in growth absorption volume.

For the quarter, capital markets and hotels revenue growth was flat year over year. We performed exceptionally well when stacking up our group results against a 33% prior-year growth comparable and an 8% decline in overall global transaction volumes. Our team continued to work double-time on buy-and-sell-side transactions to execute on behalf of our clients.

Our LaSalle business posted another quarter of outstanding revenue growth of 56%, driven by incentive fees generated from asset sales within maturing funds as well as a notable 12% expansion of recurring advisory fees at record margins.

Adjusted operating income margin calculated on a fee revenue basis was 9% for the quarter at constant rates. This was essentially on par with the prior year, as recurring business growth outpaced the slower growth of our higher-margin capital markets business, particularly within EMEA. Our margins also reflected transaction timing coupled with increasing technology and data investments for future growth and productivity.

Adjusted EBITDA margin on a fee revenue basis was 11.6% for the quarter on a constant currency basis. This was a decrease of 160 basis points relative to the second quarter of 2015, primarily due to higher equity earnings in the prior period.

Over the midterm, we expect our margin profile to continue to reflect outpaced growth of our recurring business together with investments in technology and data projected to pay off over the longer term.

A cornerstone of our growth strategy has been investment through M&A. For 2016 through today, we have closed 21 business acquisitions, most recently including Integral UK, which Colin said is a transformative recurring revenue opportunity that will continue to expand our EMEA integrated facilities management platform. Since 2015, we have complemented our organic growth with 41 acquisitions of various sizes across geographies and diversified service offerings in alignment with our strategic plan and financial discipline.

We have focused on primary areas of opportunity and integration success factors including fit on cultural values. Our M&A transactions have been identified and supported by our leadership in an effort to expand our global footprint, local expertise and profitability on behalf of our clients, people and investors.

Since 2015, and including our Integral transaction, our M&A activity represents a total valuation of $1.2 billion, where over 70% of these acquisitions contribute to the recurring revenue base of our business. Additionally, our M&A activities make up 50% of our first-half revenue growth. And, based upon early returns, we continue to see that our approach constitutes one of the best uses of capital for the benefit of our shareholders.

To support our growth and investment-grade balance sheet, we continue to proactively manage our low leverage and liquidity position. Given recent market conditions, we saw an opportunity to further strengthen our financial position. To that end, as Colin said, we expanded our credit facility from $2 billion to $2.75 billion and extended the maturity date through June 2021 with improved pricing. Our balance sheet at the end of second quarter reflects total net debt of $1 billion, an increase of $30 million from the first quarter of this year and $480 million from the second quarter of the prior year as a result of our acquisitions and continued investments.

We remain focused on generating accretive results and free cash flow from our business to maintain our low leverage profile and investment-grade rating. To this point, I am pleased to note that in July, our Company's credit rating was reaffirmed as BBB+ stable outlook by Standard & Poor's.

We will now turn our review to the segment results, beginning with the Americans, where second-quarter fee revenue increased 16% in local currency over second-quarter 2015. Capital markets generated double-digit growth in the quarter of 20% year over year in local currency, reflecting the acquisition of Oak Grove multi-family finance business during the fourth quarter last year, as well as an overall market share gain. Our leasing business grew by 14% over the prior year, particularly notable given the total US leasing market decline of 7% in growth absorption volume. Our outperformance was driven by impressive growth in the Southwest, Northwest and Midwest markets as well as a steady expansion across sectors including industrial and retail. Property and facility management, project and development services, and advisory consulting all turned in impressive double-digit revenue growth for the quarter of 15%, 27% and 18% respectively, driven by progress on insightful data and service-based solutions delivered to our clients.

Canada also continued to generate broad-based growth. M&A spanning several product lines made up 46% of fee revenue growth for the quarter, with the remainder being organic growth driven by positive momentum with renewals, new business wins and key client expansions fueled by cross-selling initiatives. Our teams continue to build on their robust pipeline across various markets while executing well-thought-out integration plans for our acquisitions.

Adjusted operating margin for the quarter was 7.4% on a fee revenue basis, down 130 basis points from the prior year. This was driven by a shift in business mix towards recurring revenue as well as a slowdown in transaction velocity and activity levels. Additionally, our continued platform and technology investments represent 30 basis points of margin as we position ourselves for long-term growth.

Client feedback indicates that our emphasis on technology and commitment to safety, productivity and teamwork continues to set us apart. As the environment creates challenges, we are focused on collaborating to provide the best solution for our clients.

Turning to EMEA, our business results in the first half of this year reflect the combination of a shift in business mix with stronger relative recurring revenue growth, slower transactions due to market uncertainty and pullback, as well as tough comps from the prior year. Having said that, total revenues for the quarter grew $64 million, or 19% in local currency, and fee revenue grew by $6 million, or 5% year over year for the quarter. Leasing revenue in the quarter was up 1% on a year-over-year basis. This is notable given tough comps from the prior year as well as an overall market decline of 3% in gross absorption volume.

Excluding the UK, our leasing activity grew by 7% in the region, reflecting upbeat sentiment and quote unquote business as usual on the continent with favorable performance from France, MENA and Ireland. Capital markets performance consistent with general market overtones reflects the near-term slowdown in transaction activity, particularly in the UK. Revenues in the second quarter declined by 14% year over year in local currency, impacted by the political context in the UK, the timing of transactions in Germany and outsized prior-year performance of 38% growth.

We had strong performance otherwise, with particularly excellent results in France, Switzerland, Sweden, Poland and our corporate finance group.

Shifting gears, new client wins and an acquisition in Germany drove the 22% increase in our property and facility management business. Projects and development services grew fee revenue 46% this quarter, reflecting strong organic growth in France and MENA, as well as continued performance from acquisitions related to our Tetris branded fit-out business, specifically in Poland, Germany and the UK.

This quarter, EMEA region delivered adjusted operating margins of 6.2%, down 390 basis points from the prior year in local currency. The margin performance in the quarter was attributed to business mix as recurring revenues more than offset the decline in capital markets due to the significantly slower transaction pace in the UK. The strategic importance of our balanced business mix is highlighted as growth in corporate clients and other non-transactional work such as Tetris and valuation more than offset the slower pace of some key investment and leasing markets.

Looking ahead, the ripple effect of the Brexit referendum and volatility in some markets will impact the rest of the year, particularly in the UK.

Our people are actively and creatively looking for ways that will help our clients deal with the situation, in some cases by taking advantage of reduced asset pricing and in the process of mitigating the downward pressure on our UK results.

Moving on to Asia-Pacific, total revenues grew by $43 million, or 18% in local currency. Fee revenue grew by $25 million, or 13% in local currency. Leasing revenue across Asia for the second quarter grew by 4% year over year in local currency, outperforming the total market that was down 16%. Our results were underpinned by exceptional performance overall and substantially driven by Hong Kong, Japan and Singapore. Financial and technology firms were key demand drivers across many office markets. Capital markets and hotels saw revenues grow by 6% in local currency, driven by several key hotel transactions across the region, including a significant Singapore office transaction. This activity collectively resulted in a significant outperformance versus a market that was down 8% as we continued to capture share in our capital markets business as well as our leasing business.

Another highlight across our Asia-Pacific segment was the continued double-digit revenue growth of our property and facility management, project and development services, and advisory and consulting businesses, with increases of 17%, 12% and 24%, respectively.

Adjusted operating margins of 7.1% for the second quarter were essentially flat over the prior period, primarily driven by one-time items regarding a regional conference where we welcomed our new Asia-Pacific CEO, Anthony Couse, as well as investments in technology, teamwork and our talent.

LaSalle Investment Management had an excellent quarter and first half of the year, with outperformance on many levels, as Colin mentioned in his highlights. Second-quarter advisory fees grew 12% in local currency, in line with increasing assets under management that grew to a new record high of $59 billion. Significant incentive fees earned in the quarter reached $52 million, attributable to the well-timed execution of asset sales that delivered superior risk-adjusted return to clients. Incentive fees and equity earnings for the remainder of the year will moderate as La Salle builds on a new series of funds.

Adjusted operating margin, excluding equity earnings being calculated on a fee revenue basis, was 29.4% for the quarter, compared with 15.1% in the prior quarter. The margin expansion was largely driven by incentive fees as well as continued efforts to expand margins on recurring advisory fees, resulting in 250 basis points of expansion compared with a full-year 2015 margin. LaSalle continues to add to its dry powder, with $2.1 billion of new equity raised in the quarter.

In response to suggestions from our investors and analysts, we have published a new supplemental information presentation where we provide additional color about our Company. We hope you find these recent changes informative and look forward to your continued feedback.

In closing, our teams around the world have continued to execute exceptionally well on behalf of the Company as we proactively work together with existing and new clients to navigate through this period of uncertainty. We are confident in the future, based on our long track record of strong performance.

And I will now turn the call over to Christian.

Thank you, Christie. Slide 16 shows a few of our recent business wins across service lines and geographies. To date in 2016, our corporate services business has won 73 new assignments, expanded existing relationships with another 40 clients and renewed 20 contracts. These 133 wins totaled 287 million square feet across all regions and represent 70% overall win rate.

One notable expansion was Property NSW, Australia's largest state government portfolio. We have been retained for facilities management, leasing and lease administration services across more than 1,200 leased and owned assets totaling more than 20 million square feet. We increased the scope of our involvement from 40% to 100% of the portfolio, and our RED technology platform was identified as a key reason for the win.

Turning to capital markets, second-quarter highlights included the $2.45 billion sale of Asia Square Tower 1 in Singapore, which Christie referred to. This is the largest-ever single building transaction in Asia-Pacific. And in the UK, we advised on the sale of 6 Bevis Marks in the city of London for GBP220 million.

Key leasing transactions included winning leasing, management, and project and development services responsibilities to reposition 353 Sacramento in San Francisco. Our approach focused on proposing a total brand overhaul for the building, even to the point of changing the building entrance to another street so that the rebranded property will have a new address, 288 Battery. And we closed JLL's biggest-ever leasing transaction in Germany, the consolidation of CRX Insurance Rhineland operations and a new 646,000-square-foot development in Cologne.

As Colin mentioned in his opening remarks, we continue to invest strategically in businesses that expand our service capabilities and geographical reach. The 21 transactions we have completed this year have a total valuation of nearly $640 million.

Looking ahead, how do we see real estate markets performing to end of the year? First, despite Brexit and terrorism-related security concerns in some countries, global GDP continues to be projected to equal last year's 3% levels, increasing to 3.4% in 2017. So, economic fundamentals remain positive. However, increased caution among both investors and corporate occupiers will certainly affect full-year volumes. We now see global market investment sales down by 10% to 15% compared with 2015 to about $600 billion. But even at this level, that translates to one of the most active years since we started recording global transactional activity in 2003.

Our latest projection for full-year leasing volume shows them finishing 2016 flat to 5% lower than last year at about 420 million square feet. Volumes are still expected to be at the second-highest level since 2008.

So, as we have said today, we remain optimistic about our own outlook in this environment. We are taking market share from competitors. We continue to be an active consolidator in our industry. We are benefiting from the ongoing corporate trend to outsource real estate services. LaSalle is extremely well-positioned for delivering further growth and ongoing impressive profitability.

We are very pleased with the significant investments we have made and will continue to make into technology, diversity, risk management and the JLL brand.

Finally, I would like to mention a few of the awards our colleagues at JLL and LaSalle earned during the second quarter. Honors like these reflect our industry-leading position in real estate services and investment management. We were named to the Fortune 500 for the second consecutive year. We were selected as one InformationWeek elite 100 companies for the fifth straight year. Colin Dyer was named one of 50 highest-rated CEOs by Glassdoor and one of corporate real estate's best bosses by Real Estate Forum. CR Magazine selected us as one of the 100 best corporate citizens.

In Russia, we won Consultant of the Year titles at both the Moscow and the St. Petersburg CRE awards. We received a total of 15 awards of the International Property Awards, Asia-Pacific, including five-star best property consultant for China, Hong Kong, India, Indonesia, Japan and South Korea. And our annual report to shareholders, whose theme was JLL knows tech, won a Gold award from the League of American Communication Professionals. Thanks and congratulations to all of our people who contributed to these awards and to the excellent client service and operations that produce them.

I will turn back the call to Colin.

Thank you, Christian. Before taking questions on the call, a few items about our Board of Directors. Bridget Macaskill joined the Board on the first of July. Bridget is the nonexecutive chairman of First Eagle Holdings Incorporated and serves as senior advisor to First Eagle Investment Management and to its Board. Until this year, she was President and CEO of First Eagle, which has $94 billion in assets under management. Prior to joining First Eagle in 2009, Bridget served as Chief Operating Officer, President and Chief Executive Officer and Chairman of the Oppenheimer Funds Incorporated. Bridget will serve on the James Lang LaSalle Board's audit committee and its nominating and governance committees.

In addition, Ann Marie Petach, who joined the Board in 2015, has been appointed Chairman of the audit committee. Anne Marie is an audit committee financial expert for the purposes of SEC rules.

So, we're very fortunate to have these two very talented women as members of our Board. Anne Marie has already proven herself to be a valuable contributor to Board activities and discussions, and she will continue to promote the highest levels of corporate governance in her new role. Bridget is a highly respected leader in the investment management sector who will bring new perspectives and expertise to what is already a very strong Board. With her appointment, four of our nine independent directors are women.

As a final note, last week JLL issued its new sustainability report, where we announced the new name of our global program. It's called Building a Better Tomorrow. The report, which you can find on our website, reaffirms our commitment to sustainability and the tangible way the firm is delivering positive financial, environmental and social results for all of our stakeholders. It highlights the way we are continuously investing to adapt and grow JLL to ensure that we sustain our business over the very long term.

So with that review, we will now take your questions. Operator, could you please explain the process?

(Operator Instructions) Brandon Dobell.

Wanted to focus first, I guess, just on Integral. How do we think about the impact -- since it was a pretty sizable acquisition, the impact on the different revenue lines with EMEA in the back half of the year?

I think, Brandon, just from the perspective of the impact, we can expect that you will see that in the facilities management business, and, essentially from a revenue perspective, picking up a good 25% to 30% on the UK revenue line on a gross basis.

Got it. On a gross basis? Okay, perfect. And then, second, given the good capital raise in LaSalle this quarter and what's a pretty big dry powder number, maybe some color or commentary on, I guess, a couple things. Where are you finding the most traction, raising new equity? And it seems like that's one of the bigger dry powder numbers I've seen in a while. So what does that -- does that tell us anything about the markets, what the team at LaSalle is seeing? Is there any particular, I guess, reason for holding out on putting that capital to work, or is it more just the usual process of putting that much money to work in these markets?

Well, the capital is coming from multiple sources. We continue to see inflows into our Japanese funds, which are invested in global securities. We see continued inflow in through the retail distribution system into our JLLIPT fund (technical difficulty). As we've mentioned on the call, we expect Brexit -- continued strong investment from institutional clients through separate accounts in Europe and in the US. So there are multiple sources. The single theme is that we are (technical difficulty) at 1.3% or 1.4% and German rates less than 0.5% for the same period or even negative to shorter periods. Real estate yields at 4% to 5%, even for the best asset in gateway cities, show a really good yield pickup for institutional investors. So they are increasing their allocation for the sector, alternatives as a whole and, within that, to real estate. There is no change, there's no abatement in that trend.

With respect to the dry powder, which is of the order of $10 billion, you've heard us talk about the market uncertainty in Britain which is making trading there on the buy or sell side a little difficult. So there's some pricing clarity.

But generally globally, markets are liquid, deals are getting done. They may be taking a little longer, particularly as financing -- finance resources take a little bit of a longer look at underwriting, pressure from the regulators globally. So the markets are healthy including (inaudible) very nicely.

We have no trouble -- we will have no trouble spending that capital, but we will do it wisely and continue to do it in the best interest, obviously, of our clients.

Okay. And then final one for me, I think Christie, it felt like your comments about margins -- that we should expect, I guess, a continuation of the near-term pressure just given the mix change but also the investments in tech and people and systems and things like that. Is that a fair way to characterize the back half of the year should look? And I know there's going to be incentive fees that muck that answer up a little bit. But comparing the back half of this year to the back half of last year, should we see continued pressure on a geographic basis given those factors you mentioned?

Yes, I think, Brandon, a couple of things. First of all, we don't give forward guidance. But I think looking back, what you can note is that we have increased margins effectively and consistently over the past five years, with the growth in both our transactions business as well as recurring business.

As you can see reflected in the mix, you can see our margins moderate. And that is good news. I wouldn't call it pressure. I would call it great balance representing the diversification of our portfolio, both from a transaction and recurring perspective. So, with that, I think that we are really pleased with the performance and also the investments that we are making and the payoff that we are seeing from a growth perspective in revenue as well as the benefits from a productivity perspective

Okay, great. Thanks. Appreciate it.

Mitch Germain.

Colin, you mentioned some caution with regards to the leasing markets in the UK post-Brexit. Curious if there's been a drafting impact across broader Europe after the vote. And does this maybe create opportunity for leasing away from the UK?

Christian?

Not really notable at the moment. What happens is people are -- were shocked at first sight. And then within a couple of days, people adapt, and it is more or less business as usual on the continent. There has been a lot of press attention to who will be the winners of that Brexit. I would like to answer there cannot be any winners of that Brexit. But there are clearly some cities who are trying to get a bit of attention from that situation. First of all, it will be Dublin. But most of the buildings have to be built because there is no vacancy in class A quality in Dublin. And then there might be a bit of spillover towards Frankfurt and Paris. But I think none of those will offset the potential hesitation we see in the London market to sign up for long-term leases at the moment.

So we have to take the Brexit as it is. It is creating a bit of uncertainty. But, on the other hand, we shouldn't overplay it.

Great. Thanks, Christian. And then the last one for me Christie, we are at about one -- I think it's -- looking at the leverage, which pro forma leverage -- and 1.4 times, sorry. Which pro forma leverage and the year -- and where does your appetite to continue to invest today versus maybe waiting for some cash flow to help bring that leverage level down a bit post-Integral?

Yes, Mitch, I think we've got a really healthy leverage profile. And when we take a look at the balance of the investments together with M&A activity, the cash flow coming from that M&A activity, we are well in alignment with our fantastic investment-grade balance sheet and managing our leverage to under 2.

And we're seeing no lack of opportunities to make further consolidation investments along the lines that we described in the prepared remarks to expand our geographical or service line footprint. So with the balance sheet that Christie has described and the capacity we have, we will continue to be picky about what we acquire. But those opportunities are there and they are abundant at this point in the cycle.

And Colin, has there been any change in the pricing environment?

It has tended to -- as you go through the cycle, pricing tends to get higher. So we've seen some of that. That has caused us to back away a little a little bit, particularly as our PE fell back through the reaction to -- or the anticipation of Brexit in particular during Q1 and Q2. So we have been more cautious on pricing, I would say. What we do do is where we see something that is just really strategic, an example would be the Corrigo acquisition in the US which brought a whole layer of technology into our business, which we believe is strategically necessary -- we will stretch a little bit on that. But otherwise, with pricing, we are looking at deals with very much an eye on own market cap and market valuation and being suitably cautious.

Thank you.

Marc Riddick.

I wanted to get a sense of whether or not the activities over the last few months, either pre- or post-Brexit, had led to any changes in your views on where we are in the cycle or maybe -- perhaps maybe confirmed where you felt we were already.

I said in my remarks that, interestingly, this cycle seems to be elongating beyond where one might have expected. The interest rates -- take a few of the factors that you watch. Interest rates have not come off the floor. That often helps to bring a cycle to a close. There is plenty of confident but quite sensible equity in the market. So there's no slacking in the level of demand that I described. Institutional investors' attitude to real estate was giving them a very significant uptick on the risk-free rate that they are looking at.

We don't see over-construction because construction lending has been restricted through this cycle because banks have been better regulated. So there's the pipeline of product to come through and destroy the dynamics of the supply/demand equation.

So, all those things argue for a continuation of a very steady, low, low, low sort of an environment. Not spectacular growth, but that may also be helping to just elongate the cycle. So as we sit today, we can't see what factor will trigger the cycle to come to an end at this point.

Okay, great. Thank you.

The level of equity which is chasing product and the -- probably after the Brexit, even prolonged period of very low interest rates will certainly help to get that to -- to keep that cycle moving. As Colin said, not in an overly impressive way, but it will continue to go down the way it has been.

And on the corporate side, the overall increased level of uncertainty is pushing corporate to think even harder about how they can manage their costs. And it will continue to drive the outsourcing trend, especially in the two regions, EMEA and Asia-Pacific, where the outsourcing is still a bit lagging behind the Americas.

Okay. Thank you very much.

Jade Rahmani.

The decline in global tenant demand that you predict in your forecast slides -- outlook slides, can you just give a little more color on the regional drivers and if that's a moderation in your expectations from when you last provided the guidepost slides?

Yes, it's a very slight moderation. You are going from flat to down 5%, which is almost within the margin of error of these sorts of researcher forecasts, which they can compile bottom up from our businesses in countries around the world independent of any input from us. And what it reflects is just a general broad continuation of this 3% global GDP growth. If you look at those growth rates, the Americas are in the 2 to 3 percentage points; Europe is in the one to 2 percentage point range, with Britain falling back into that range now. And Asia-Pacific is at 5 percentage point growth. So in broad terms, that level of economic activity is what drives the fundamental demands.

The individual markets around the world are city-specific and show very different dynamics. But in general what we can say is that the level of vacancies in office around the world is low, driven by a significant demand; as I described, the low levels of replenishment and building in this cycle. So you can expect to see, as we described in our slides, in all but a few markets, continued rental growth across all major cities in the world. The only exceptions are the areas of significant problems -- Moscow; Buenos Aires; Perth, Australia, because of the oil and commodities bust; and (inaudible) London for the reasons that Christian has described.

Christian, anything to add to those comments on rental dynamics?

No, not really, to be honest. You know, I think it's understandable that there is a bit of hesitation when there are so many concerning factors out there. But as Christie has said, our leasing revenues have an element of recurring, because you can only wait for so long until you take your decision when your lease is coming to an end. And so that period of hesitation will only last for some time, and that's why we are still predicting the second best year since 2008. So we are -- we shouldn't complain here. We are at a very high level.

And in terms of the leasing business, what percentage overall of leases typically do renew?

That depends, market by market. You have markets where you have very long leases like in the UK, and you have markets where you tend to have much shorter leases. So my best guess is that you can say that a lease renews about every seven to eight years on average across the markets.

Yes, they will reset at three-year intervals in France, and they will reset with pricing annually in Britain with upward-only leases. You'll get all sorts of different terms within the US markets.

So if you say -- your question is do people tend to stay where they are or do they tend to move. Just overwhelmingly, people tend to renew their leases and stay where they are. With expansion or contraction or, as in our case in Chicago, by moving around floors and moving to different floor plates as their requirements change.

Can you give any color on the equity income, other income and noncontrolling interest line items?

Just that from the perspective of equity income data, this is really being driven by our LaSalle business.

And the other income line and noncontrolling interest -- the other income, I think, was a new line item, and the non-controlling interest did spike upward.

Yes. So, from the other income perspective, that represents an employee managed fund for which we do not consolidate. We do consolidate, and we just wanted to carve it out on the other income line because we don't control it.

Okay. Given what looks like a more moderate outlook in your slides and your view on the cycle, can you give any color on where you think the most attractive M&A opportunities are in terms of business line and perhaps region? And also whether at this point it might make sense to pivot toward a stock buyback, which would be highly accretive given where your stock is trading.

Well, we, first of all, are seeing M&A opportunities right across our business. As I said earlier on, this is the point in the cycle where sellers are happy to sell because they believe pricing is fair. Buyers, such as ourselves, have cash in confidence. So it's a liquid market currently across the world. There are no regions where you can say that there is no M&A to be done. Albeit, the historical patterns that do apply of there being lots of possibilities for consolidation in the US and in Western Europe, but very much fewer opportunities in Asia and in the preponderance of developing markets across that region where the industry is relatively immature.

So we're seeing it across all geographies. We are seeing it across all types of business lines from capital markets and debt, as we described. The Oak Grove capital acquisition late last year in the technology driven corporate solutions business areas such as Corrigo and indeed investment -- sorry, in leasing businesses in Europe and Asia-Pacific. We have also purchased and are looking at other valuation businesses. So across the broad sweep of what we do, there's plenty of M&A available.

As to the choice between the use of -- how we use our capital, we obviously keep an eye on the options for stock repurchases. We don't believe there as accretive -- anywhere near as accretive as the returns that we can achieve from the M&A work that we do. But we keep our eye on that as an option with the Board.

Thank you very much for taking my questions.

Brad Burke.

Nice quarter. Christie, I appreciate the color on M&A and driving 50% of the growth. And considering that you are closing Integral in the third quarter, any sense of the EBITDA tailwinds due to M&A in the back half of the year?

Specifically, no, Brad. We had some really nice contributions to offset the service mix on the benefit from a margin perspective with M&A, both for the quarter and year to date. And we're expecting that we see some really nice accretion coming through to mirror the revenue performance. So, as you know, we don't give forward guidance. But suffice it to say that we have chosen our acquisitions very selectively both from an accretion perspective together with an integration and cultural fit perspective. So we are very pleased, and we expect these to continue to fuel growth, continued together with our organic profile. So, very pleased going forward.

Okay. And sticking with the margin comment, the Americas margins fee revenue basis declined by 1.2% in the quarter. And considering the mix in the strong growth in leasing and capital markets, I thought that was a little surprising. Is there anything choppier that we ought to be thinking about that wouldn't recur as we go forward?

I think a couple of things, Brad, just to put into perspective. Last year's second quarter, the Americas capital markets transaction business did exceedingly well. And to that point, we have a little bit of a mix shift in the outperformance given the Oak Grove transaction. So with that, we don't have as much throughput from a transactional margin perspective in the Americas in the second quarter.

All that being said, we've got to remember the seasonality in our business and the fact that things from a transaction perspective, just given some of the uncertainty, and the like buy/sell transactions coming together have been a bit slower even though our team is working double time. So we will see how that transpires here going forward for the second half of the year. But the team has got a lot of work in hand.

Okay. And then last one -- I appreciate the additional detail that you gave in the supplemental on FX impacts to EPS. It looks like you've had a $0.05 tailwind in each of the last two quarters. And as you are looking at spot rates now, any sense of how that $0.05 number is going to trend over the next couple quarters?

We're expecting, if you took 2015, Brad, for it to be pretty consistent, but then, if you will, impacted by seasonality.

Okay. I appreciate it. Thank you very much.

David Ridley-Lane.

You have made a number of technology and data investments between your internal RED platform, Corrigo and now the SCI global occupiers benchmarking business. Maybe taking a step back, are these investments intended to increase your competitive position within the outsourcing industry, or are you looking to create standalone subscription revenue streams around these?

I will take that question. It's Christian. I think as other industries, our industry is moving very rapidly into that technology space. And so we all have to be very focused on that topic and clearly would like to create a position where we are standing out. But I have confidence that all our competitors will go down the same route. So we are extremely pleased with these acquisitions and with all the activities we have been pursuing over the last couple of years on the technology side.

All our service lines are massively changing with regards to the usage of technology. So we get proposals from the different business heads across the regions with new ideas, how we can use technology to increase productivity or to develop a competitive edge in that specific service.

Yes, I mean broadly, David, any company in an industry that isn't spending incrementally more on technology is a company that is not investing well for its future. And that applies in real estate as much as any other sector. Maybe real estate has been a little bit late in coming to this digitization process, but it is coming, and quite quickly.

And that's why we have been talking consistently over the last few years about the level of our spend, in organizing our data, in expanding our base business systems, but also our client-facing technology systems, because it is a medium, long-term strategic imperative to do that. We are very pleased with the progress that we've been making. We like to think -- we have good reason to think that we are ahead of most of others in the industry. We certainly believe we're spending, as a proportion of our total revenue, at market-leading levels.

Understood. And then on the Integral acquisition, should we expect it to have a similar gross to fee revenue proportions as your existing property and facilities management?

Hi, David. It's Christie. No, it's a gross business. So, you will see it all come through on the gross revenue line.

Did you get that?

Yes, I'm just sort of --

Our facility business is a mixture of gross and net fee revenue. This business is measured entirely on gross. So as compared to our broader business, it has a slightly more diluted margin number.

Understood. Okay. And then --

A good-quality margin, continuous, reliable annuity type margin with good growth behind it as well.

Got it. Understood. All right. Thank you very much.

Peter Siciliano.

I was looking on your outlook I was looking at your outlook chart on the top of page 6 there for capital markets. And maybe you already explained this and I just missed it, but you show how overall in the market was down 8% in the quarter, but you guys are only down 1%. You strongly outperformed in Americas and Asia-Pac. But in EMEA, it shows the quarter was actually flat. So I was wondering is that actually true? And if it was, then why did you guys underperform so much down minus 17%?

Well, these quarterly views are obviously impacted by deal closing of some major transactions. And what we had in EMEA, we had a very strong deal pipeline in the UK which was getting on hold due to the vote in June. And since that has been behind us, we have seen most of these deals closing now in the month of July.

So I would call it more coincidence than underperformance. We had a similar challenge in Germany where we had a couple of very large deals which didn't close before the end of the quarter, but closed then in July. So we are very happy with our capital markets business in EMEA, and we see an incredibly strong pipeline, and that goes across the board.

I just heard this morning that even our Russian business is doing better than they planned at the beginning of the year because they are -- with that low yield environment, especially the sovereign wealth funds are looking desperately for higher-yielding properties and have stepped into several new transactions in the Russian market.

Okay. Thank you.

I think, Peter, the only thing I would add, too, is, excluding the UK, we are up 6% overall. We have to remember, too, the tough comps from last year.

So that number overall, that's minus 17%, would be plus 6%, not including the UK?

That's correct.

Okay. All right. Thank you.

Thank you. Showing no additional questions in the queue, I would like to turn the conference now back over to management for any closing remarks.

Well, thank you, operator, and thank you all for joining Christie, Christian and myself today. And thanks for your continued interest in our Company. And we of course look forward to speaking with you again following the third-quarter results. Have a good day, everyone.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone have a wonderful day.