Jones Lang LaSalle Incorporated (JLL) Q2 2010 Earnings Report, Transcript and Summary

Good day and welcome to the Second Quarter 2010 Earnings Release Conference Call for Jones Lang LaSalle Incorporated. Today’s call is been recorded. Any statements made about future results and performance or about plans, expectations and objectives or forward-looking statements. Actual results and performance may differ from those included in the forward-looking statements as a result of factors discussed in the company’s annual report on form 10-K for the year ended December 31, 2009 and in our other reports filed with the SEC. The company disclaims any undertaking to update or revise any forward-looking statements. A transcript of this call will be posted and available on the company’s website. A web audio replay will also be available for download. Information on the link can be found on the company’s website. At this time I would like to turn over the call to Mr. Colin Dyer, Chief Executive Officer, for opening remarks. Please go ahead sir.

Thank you. Hello everybody and thank you all for joining us for this review of our results for the second quarter and first half of 2010. With me on today’s call here in Chicago is Lauralee Martin, our Chief Operating and Financial Officer, and Lauralee will review our performance in details in a few minutes. To sum up, we are encouraged by our strong results and by the momentum which we’ve developed during the quarter. We reported net income of $32 million or $0.72 per share for the quarter compared with a net loss of $14 million for the second quarter of 2009. First half net income was $32 million or $0.73 per share compared with a net loss of $76 million one year ago. Revenue totaled $680 million for the quarter and that is up 18% in US dollar and local currency terms. First half revenue was $1.3 billion, an increase of 18% or 15% in local currency over the first half of 2009. I’ll start off this morning with comments on global real estate market conditions and Lauralee will then follow to cover our performance in these markets. Earlier this month the IMF raised its forecast for global growth from 4.2 to 4.6% indicating that the global recovery remains on track. Economic policy is still promoting growth in most major economies and corporate cash flows are strong. Although there are differences in real estate markets from region to region, we do see the same general trends in our business. We’ve posted slides in the investor relations section of our website, that’s joneslanglasalle.com for your reference. Slide 3 shows the Jones Lang LaSalle investment sales clock which as you know we update it each quarter. It’s a snapshot of conditions in major markets around the world which are at different stages of the real estate cycle. As you can see in the second quarter of 2009, capital values were falling uniformly in almost all major real estate markets. A year later, we see values increasing in many major markets and bottoming out in others. This trend has also progressed in quarter two as compared to quarter one, continuing the steady worldwide cyclical recovery in real estate capital markets. Direct commercial real estate investment volumes stood at $66 billion globally in the second quarter, nearly double the volume of the market bottom one year ago. In the Americas, transaction volumes increased 54% over the first quarter totals and were four times higher than in the second quarter of 2009. European market volumes increased 15% over the first quarter, up 80% on a year ago. The rate of growth did slow in Asia pacific during Q2 as volumes declined by about 1/3 as compared to the first quarter. But the total was nevertheless still up 21% over a year ago. With a number of large transactions pending and market fundamentals improving, we anticipate renewed uptake in Asian volumes in the second half. Large amounts of equity continue to target the stabilized real estate invest in many parts of the world, with the supply of equity exceeding the supply of assets coming to market. This has continued to put pressure on yields across many major markets we track. Open ended funds in the UK and Germany have attracted significant amounts of equity for real estate investment and in Asia Pacific, the largest investors of the domestic -- foreign capital is flowing into the region. In the US and Canada institutional investors are again investing equity targeting safe core properties. Slide 4 tells a similar story about conditions in leasing markets worldwide or the progress continues to trail the recovery in global investment sales. While fundamentals remain weak in Canada and the US, we do see indications of improving demand. In fact for the first time 10 quarters, the US office markets posted its first quarter of positive net absorption, a modest 3.2 million square feet. But across most of Europe, office vacancy rates are stabilizing while in some markets they are declining; London and Paris for example. Net absorption was positive for the fourth consecutive quarter, increasing by nearly 28 million square feet. We are seeing a significant increase in the number of large tenants looking to lock in long term leases at greatly reduced rents. Leasing markets in Asia developing economies have seen a strong recovery since mid 2009 as rising corporate profits have increased demand for space in the region. Net absorption across Asia Pacific’s main office markets increased by about 10% in the second quarter and Singapore has joined the list of markets where rental growth has turned positive. In our other major market segments, corporate outsourcing volumes continue to grow and in flows of institutional capital into real estate funds have continued to grow from very low levels of half one 2009. So we are we seeing a long awaited picture of leasing demands fundamentals turning positive and the penny of a yield cap rate compression that we’ve been seeing in investment sales markets worldwide for the past year. So against that generally positive cyclical recovery at the background, I’ll now turn the call over to Lauralee.

Thank you Colin and good morning to everyone on the call. We’ve expensed the details of our results in both our press release and supplemental slides. As such I will not repeat those results in my comments but instead will focus on the progress we continue to make against our 2010 priority. Our progress is summarized on slide five. We demonstrated our increasing market place competitive strength by our double digit revenue growth across all our geographic segments. These results come from the successful integration of the mergers and acquisitions for the past few years well as continued key new hires and expanded product line capability. Throughout the economic downturn, we cut non revenue cost aggressively and focused on protecting our market position and our key transactor staffing. We’ve been able to reverse loss making provisions from a year ago most significantly anemia. For example Russia has turned from a loss to a profit in the second quarter and is strongly positioned competitively in this key recovering market. We are pleased to report significant increases in leasing, up 30% in local currency as we help clients to consolidate and reposition their portfolio, lower their cost or upgrade their space. These activities to date have seen minimal benefits from client phase expansions due to the lack of job creation. Demonstrating we also has a key role to play in the real estate market corrections and recovery. Capital markets and hotels revenue up 65% on local currency was driven principally by local market investors and demand for products with troubled assets from the bank still flow to come to market. As a reminder, we had much lower levels of activity in the first half of 2009 compared with the second half which will make for more challenging comparables in the second half of this year but momentum is clearly established. A key priority has been to improve our operating margins by maintaining cost discipline as markets recover. We are now benefiting from increased productivity of our professionals as transaction activities increase. Adjusting for restructuring charges, second quarter’s firm operating margin was 9% compared with 5.7% last year. On a year to date basis, adjusted operating income margins was 6.4% compared with 2.1% last year. Our cost increases in the quarter came principally from increased variable compensation which we are delighted to see as a reward to our people for their hard work and directly with what our through improved performance. The other day our compensation to revenue ratio improved from 67.6% a year to 65.5% this year. We are also very pleased to report that we will be making the third earn out payment related to Salback Merger. The $78 million in the third quarter. Reaching these totals confirms the success of this merger and we continue to be impressed with how the teams continue to work together and with the market share we are taking with our performance. Cost control also remains the key focus of our clients and I believe to add value and support to their goals to validate it as we continue to expand our leadership position and the property and facility management offering space. During this second quarter property and facility management revenue grew 15% on a local currency basis over last year. They were increases across all geographies but particularly positive in India which increased 27% in local currencies. Revenue from these services reached 26% of our total global revenue this quarter surviving a strong and annuity revenue base to our performance. We’ve added both new in some quarter from the quarter and expanded our existing client relationship which Colin will talk about shortly. Furthermore we are successfully leveraging our connection strategy to drive new and existing client in the projects in development services market space which we call PDS. We saw growth for the service in India driven by investors seeking to upgrade properties for tenant demand and in Asia particularly in India driven by our technology clients expanding their back office and call center support facilities. Although PDS revenue in the amounts of our pipeline is picking up and we are seeing corporate beginning to reopen their CapEx budgets. Our priorities are with sound distant management is to leverage our global scale. In the second quarter assets under management which if recorded on a one quarter lag declined in to both currency translation and sale. These reductions were partially offset by improved evaluation particularly in our security business. Looking forward, we expect a number of factors both advisory [indiscernible] and assets under management. On a positive side our people on the south have moved to the front foot and we continue to win take over assignment for new and existing clients including $700 million this quarter of a new separate account takeover. This successor are driven by our strong investment performance and reputation as a result the LaSalle reported incentive fees are $1.7 million in the quarter bringing the year to date total to 7.5 million. Again see positive trends reduction, assets dispositions and a challenging environment for proceeding acquisition and a challenging environment for proceeding acquisition we’ll have an adverse impact on both designs received and assets under management. As a result of these mixed dynamics LaSalle managing cost to protect their margins and operating incomes. We expect advisory speed and assets under management to remain relatively flat for the year. But then have a solid foundation for 2011 growth. Finally our balance sheet position is strong compared with a year ago we have reduced our debt by $134 million. Cash interest in the quarter was approximately $5 million a 28% decrease from a year ago and our leverage ratio of 1.9 times is down from the first quarter ratio of 2.26 times. This concludes my comments let me turn the call back to Colin.

Thank you Lauralee. Just to give you a sense of how we generated the second quarter results. Here are just a few examples of how we generated the second quarter results. Here are just a few examples of our recent business win. In our corporate solutions during the quarter we won 12 new assignments retained all vying contracts that came up for renewal and expanded our relationships with another 3 clients. Apart from applying for new business remained strong and consistent with last quarter’s levels. Our new assignments include providing transaction management and lease administration globally for a European multinational company electronics company with an 80 sq ft portfolio. Slide 6 shows a few examples of additional outsourcing wins in the America’s Citi retained us in July to provide sensitive management services for it 28 million sq ft. North American portfolio. In a mere shall appoint to this primary provider of real estate price services across all European region and in the region to work do for them already in Asia. Asian Pacific we were appointed by Royal Bank of Scotland as an exclusive provider of services for its 2.5 million sq ft portfolio. Turning to investment sales, on the same slide, you can see examples from all regions including the $180 million of the iconic Evening Star building in Washington DC. The 212 million Euro sale of the Internationale [indiscernible] Indiana it’s largest office building and a $140 million sale of UT Starcom’s 2.4 million sq ft business park in Hang Zhou China. In Egypt in a fast business return for our new Cairo office we were appointed to sell the 125,000 sq ft Tower 47 building in the new Cairo business district and as you can see from the slide our, global hotel transaction business continued to gain momentum during the quarter. Finally in the US we worked with our partner REDC to complete the successful auction sale of $225 million of notes and bank loan real estate. Examples of the leasing and tenant representation that we completed in the quarter included 2266 thousand lease for Walmart.com in Sam Bruno California and the lease of 186,000 sq ft to Shell in London on behalf of the Canary Wolf Group and in Indonesia we represented Tomata Bank to lease 194,000 sq ft in the largest leasing transaction in that country for several years. Finally the US general service administration awarded us a renewal of our national brokerer contract which enables us to continue executing tenant representation services from the GSA’s 184 million portfolio across the US. With all these examples we are illustrating the growing health of markets around the world and the growing market share of our service business in those markets. The [indiscernible] asset management has continued to take advantage of recovering investment markets. During the quarter the seller raised $900million of net new capital commitments from institutional investors around the world for both public and private equity investments. This brings our year to date to $4.3 billion. In addition to a takeover of 1.7 billion pound [indiscernible] pension fund separate account in the UK we completed in the start of the quarter and noted in the last call. We also secured as Lauralee the takeover of $700 Million portfolio for a major public pension plan. LaSalle continues to focus on delivering optimum performance for its clients and indicated by our performance against many of the bench marks against which they are measured. Let’s now turn to talk about forward market prospects. In the global capital markets where direct investment volumes totaled $130 billion for the first half we anticipate full year volumes to be near $300 billion 40 to 50% above last year levels. We expect total transaction volumes in the Americas to increase at least by 80% over the past 2009 levels to reach 80 to 85 billion dollars for the full year. We anticipate European volumes to be up 35%on last year reaching the 100 billion Euro mark and in Asia Pacific aggregate volumes could be higher this year. Financing rates for commercial real estate are likely to remain low for the rest of the year in the US, UK and Euro zone where monetary tightening seems unlikely. The tech markets have reopened in these countries and in Burrows terms are steadily improving. In Asia lending has continued to improve in those major markets. The banks consistent in Asia pacific is well capitalized is well rising and the risks related to the European debt have not curtailed lending in the region. Recovering in leasing markets fundamental will continue as corporate confidence continues its improvement. More markets will be seen higher demand and positive rental growth lead by Asian and South American and moving across Europe and the US. As we noted earlier this will in turn [indiscernible] confidence in world investment sales markets. Within the broad demand envelope client’s space consolidation and upgrading to better space and reduced rents will create solid market activity to our firm through the second half. In institutional funds management clients at LaSalle investment management continue to maintain their long term allocations to real estate funds are beginning to flow more strongly again after the recession and we expect this trend to continue. We expect to benefit this proportionately in this environment having come through the recession with strong before leaving the LaSalle brand in an excellent shape. The immediate challenges for LaSalle will be an aphid acquisition where markets are extremely competitively. We would like to close these calls by mentioning some of the awards and forms of recognitions from third parties during the quarter which underscore our position as the leading real estate services and investment management. In the US we were awarded both in the East and West coast winning a best place to work in Washington D.C and also been named been on of the best place to work in the Los Angeles. In Germany for the second year in a row we were named top employer in the real estate business by the industry publication Mobilian Title. These best places awards reflect our ability to attract and maintain the best talent in the industry. Our investment in energy efficiency and sustainability was acknowledged in London where our upstream team lead the submissions then a Gold Award in the mayor of London’s Green 500 awards. Australia’s Royal Institute of Childhood Surveyor honored our retail team with [indiscernible] award and also in Asia we won recognition from proctor and Gamble in its two largest economies in greater China our [indiscernible] Team won PNG’s Crystal trophies of appreciation and in Japan just last week we were awarded Proctor and Gamble best partnership award for the second straight year. So to sum up we are very pleased with our performance this quarter and indeed in the half year and we are looking ahead with confidence and optimism. We anticipating trailing and investment markets broadly continuing to travel around the world and we continue to pick up market share. As our revenues increase and we continue to control our costs we are generating profitable growth and improved margins and finally, in closing, Lauralee and I want to thank our colleagues around the world many who have listened to this call for the great jobs that they continue to do in the second quarter. The momentum which they’ve created positions us very well for the rest of the year. So with that, let’s move to questions and [indiscernible] would you please explain the Q&A process

Yes sir. (Operator instructions) And the first question is from the line of Sloan Bohlen from Goldman Sachs Group

Hey good morning guys the first question is just on the profitability or better margins of the quarter as we see revenue start to pick up or activity level start to pick up how should we be thinking way half this year or looking in the future how some of those cost that were cut out of the business come back?

Well we have been very selective about the cost we’ve been putting back in there is cost cut hard were available cost and also our people did not see markets recovering for an extended period of time such as what we saw in Russia such that we can already turn the corner but do that with a market leading position. so we will be careful on that but I still think there is a great deal of productivity in our people that is not yet coming through particularly in our capital markets business all around the world where the level of transaction that actually gets done versus what is chased is still way below historic levels. We have laid down a long term target for the firm of an operating income margin of 12% which will be different around the globe. But clearly we still have a way to get that it’s not our view to that we will probably get there this year but later next year or beyond.

OK and then Lauralee. Maybe just reconcile the comments on I guess assets under management and I am being [indiscernible] relatively flat for the year and maybe reconcile that with the amount of capital that was raised in the quarter that I didn’t quite understand.

Well there is two pieces on is there is been a significant change in asset value because of currency impact. We will be putting out our new investor desk here shortly which we have provided in appendix the value of the different assets and look at the different of the value assets under management. For example if you look at our separate accounts for example at the end of the first quarter we were at 17.2 billion we will end up the second quarter on a lag of 16.8 and a great deal of that is because of currency decline. Similar things in our funds business. So we are selling some assets which will take that down but we can take advantage of where the markets have recovered and give our clients some performance and cash back. But we are significantly below the acquisition level that we would have anticipated at this period of time but again we are just been careful with our client’s money.

Just mechanically that $4.3 billion is not included in the assets on the management often until we invest it often with debt habits that have leverage effects how long are the assets evaluation lagged as Laura said this hasn’t come anywhere close to our calculations yet. Ok I see. Through the year and next year is when you will start to see the base level. Ok great. And this last question for Colin. As economic growth prospects maybe kind of [indiscernible] in the second quarter it became the impact any of the activity levels you I guess on the leasing side a little more concern relative to [indiscernible] some sales.

You can fine tune and I think get all concerned totally growth rates in whole. Our basic promise is that the trend for economic activity is still positive growth in all the companies worldwide and maybe the growth may go up to 13% in China and maybe a 21/1% in the US 1 quarter in the in the next. But it is still the same direction and it is that direction which is the more powerful impact on this recovery process that we have fine tune but we are anticipating the same trends as we speak. The only area that we saw reduction in market activity was in investment sales that is in Asia Pacific. That is the most volatile region in the world and the most volatile market and what you saw right there was after a very strong Q2 and Q3. For China if you are taking liquidity in the economy they saw China trying to pull its growth they saw interest rates in the region rising and they are just taking stock but out sentiments are that it is still good we will be off again in the next [indiscernible] that we spend.

Thanks guys I really appreciate it.

Your next question is from the line of David Gold with Sidoti & Company David Gold - Sidoti & Co.: Hi good morning. I wanted to follow up a bit more color on the [indiscernible] management and I guess a couple of things one the commentary release about the lack attractive assets at the moment and the strength that we are seeing and out there that you are seeing your business on a transactional side. Is it more market specific in other words are the funds targeted to the markets aren’t just attractive. What is the connect there in volume but you guys are not seeing enough to do.

It’s a question of the transaction and advisory side. On the investment management side we are acting as the redusary for the clients and what we are doing as a firm is being very careful and selective about investing in markets which are where they are available if your products is thin from comparative on what they want to buy and if prices are being bid up quickly so it’s a question of been judicious on behalf of their clients. They are certainly not we are not encouraging to chase up assets on the management just for the sake of adding [indiscernible] behavior and I think that is indicated as success for our policy indicated with the references we’ve made to the performance benchmarks.

And even of the new mandate we have been winning there is a large focus on core early to the discussions there is a lot of money chasing core aspects and core is good when you have the right cash flows and the right evaluation increase. But if you overpay there is not an ability to correct that appropriate for the clients and therefore [indiscernible] their concerns. David Gold - Sidoti & Co.: So what do you see changing there for dollars be put to work presumably the business is getting better and the values are coming back and maybe you are on your ways from us what does it takes for you guys be more comfortable to put that money to work?

Well the first thing is that there are actually picking up and some of these mandastesare taking over [indiscernible] funds already been invested and the driven to increase which will come through over the quarters. We have stepped up our focus on our teams. Our teams for the last year and half have been heavily focused on what we’ve called descent making sure that assets were being properly managed and that value was being added [indiscernible] shifted. We are through with that phase now and we are refocusing the teams in to a more acquisition mode and a result we are seeing more deals flow just by just paying more attention to the market but at our expectations to as market return to normal transaction levels from the constricted levels that we see and the availability of the product will improve and that the LaSalle good opportunities in it’s market for putting clients money to work. David Gold - Sidoti & Co.: Thank you I appreciate it. Two other quick ones can you comment a little bit and what you have seen and by way of liquidity? It sounds like at least from the CMBS side things are easing out, but still obviously nowhere near where they were in 07’. The business that you are doing -- can you speak to sort of financing trends and what you see in there?

You are right, the CMBS market is very cautiously in transit, apparently are coming back in Europe and the US very small volumes. That is another trend that will continue because there’s clearly a demand via institutional investors to stable cash flow, backed securities; transparency is the watch word. In general, what we are seeing across Asia, Europe and now the US too is financing is coming back. We’re seeing sort of multiple office on behalf of clients, so we are looking to finance for them, broad generalization, the loan to value ratios are creeping up through the 50’s and 60’s and sort of 60-65% is available across Europe and the US, so good stable assets. Spreads are coming from sort of 3-400 bases point back to 2-300 bases points. So the market is slowly normalizing, the providers have changed a little bit in Europe, obviously the banks could have suffered more severely in -- particularly Britain and Germany are very reluctant but you’ve seen the emergence of other German providers, French and other continental banks moving into the markets.

The other thing we might add David is the transactions are getting down are sort of the best properties which means they are the most attractive to the lenders. I think the test will be as the marketplace moves into a wider range of properties choices where the lenders move with them into that not as attractive space, and I think that’s what everybody is watching for, is will the money be able to move with the markets? David Gold - Sidoti & Co.: Perfect, and then one just last quick one literally, the stall back payment is not an earning right, it’s actually just a differed payment?

It’s the contractual payment that could have been differed if they didn’t hit the performance totals, but they [helplessly] met them. David Gold - Sidoti & Co.: Perfect, thank you both.

Thank you, David.

The next question is on the next line of David David Ridley-Lane, BoA David Ridley-Lane - Bank of America/Merrill Lynch: Hi, what portion of your company benefits would you estimate as fixed at this time?

We don’t really think of those terms -- probably 2/3. David Ridley-Lane - Bank of America/Merrill Lynch: And how will that compare to sort of in a normalized time back in 2006?

Well, the more robust the markets, the more variable pay we pay, so if we look at last year, it was a high proportionate piece of fixed versus variable. We are now seeing a more healthy trend come back, we hope to see that trend continue, but we have moved to more and more variable pay and we’ll -- we think that’s great for our people because they can make more money and as the markets recover, but again, that will show up as a good thing in all of our ratios because it will be productivity relative to revenue but good result to them. David Ridley-Lane - Bank of America/Merrill Lynch: Okay, and then I’m interested in the leasing terms in London and Singapore markets where the rents have gone on the property clock from bottoming down in the first quarter to rising in the second quarter, if you could just give us some color around the leasing results in those couple of markets, just as a preview for what other markets will do perhaps when they shift as well.

Well Hong- Kong for example which turned positive in rental rate growth before Singapore, it was positive in Q1. We had the strongest quarter ever in quarter one this year in our Hong Kong business. So when you see those markets turn, what happens is the dynamic changes from a sort of standoff between tenants and owners to tenants who realize they have to move quickly to get back in the markets, and they do the things we’ve described; they consolidate, they take the larger floor place to fix their needs for the next cycle and they go for expansioning space specifically in Asia Pacific. The same phenomenon in Singapore it just has driven our business levels and activities level up. David Ridley-Lane - Bank of America/Merrill Lynch: Okay and then maybe if I could ask one last one, the market has certainly pushed out the time before interest rates are expected to rise in the last couple of months for both the Fed and the ECD, and with the banks not really safe in increase is in funding cost until perhaps late 2011, what is going to trigger or what could potentially trigger the sale or restructuring of troubled assets from the banks into the markets?

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

We’ve played it very smartly but by waiting and buying time. We see markets come back from this liquidity-driven drop, so with that process that Lauralee described, they see themselves coming out whole, they’ll push these -- they’ll however push these assets in the market or they’re being encouraged to do a refinance with existing ownership. David Ridley-Lane - Bank of America/Merrill Lynch: Thank you very much.

Okay, and just to confirm that the question you asked earlier on David, it’s roughly at this stage of the cycle 1/3 variable commissions and bonus through such states as you get through the cycle, as Lauralee said, that will shift towards variable.

Your next question is from the line of William Marks with JMP Security

Well thank you, good morning Tom, and good morning Lauralee. First question is on the incentive fee Lauralee, I think on the call you mentioned incentive fees were 1.7 million but in the press release I thought I saw 3 million.

We’ll check it, next question.

Okay, next question on -- can you just discuss CapEx, may be you can quantify, I think it’s a $14 million number, maybe year to date in the cash flow statement, what expectations are for the year?

Yeah, we’ve given guidance this year, we think that it will be about 50 million in total. Clearly at this pace, we are under that level of CapEx. We’ve remained very prudent around CapEx and we continue to sort of put that between kind of improvements and technology. To answer the question on incentive fees, well the number in the press release is transaction and incentive fees, so incentive fees are 1.7 and we do get paid for certain of their separate accounts when properties are bought, we have a transaction fee. We are hopeful that we can put my money to work, that that transaction fee line has significant upside

Okay, so in that line that’s transaction and incentive fees was 3.4 million, 1.7 is basically half incentive, the other half is transaction or maybe there are some stuff --

Yeah, roughly.

Okay.

Did I answer your CapEx completely? Year to date we’ve spent about 10 million of our number on IT and Telecom and the balance of it has been on leasehold.

Okay yeah, that answers the question thank you. A few other items; one, Colin, when you gave the capital markets business overview or expectations for the full year, I got to hear you talking about the industry and assuming that’s the case, do you expect to be roughly in line with the industry or how should we look at it?

The record of the last [three] quarters have markets that have recovered; we’ve been either in line or a head of the overall industry picture.

Okay fair enough, and then question on two businesses that I feel like we don’t give that much time on and that’s the advisory consulting and projects and development and maybe starting with advisory and consulting and I think I am just a little bit naïve here. Can you explain maybe that business in to a little more detail and why it appears to be lagging and exactly what you do in that business?

Well, it’s a mixture of lot’s of bits of things, the largest single element is probably our valuations business which is worldwide except for the Americas and with that as performed over the recession has really been very satisfactory, will be that margins are under pressure depending on region. Generally, they were under pressure and so we are seeing not only valuations coming back in terms of activity levels but also pricing will begin to recover as well. There’s been in there also advisory work around portfolios, so it’s a double reach; owners of real estate looking for advice on strategically what to do with their portfolios. Some of that work shifted to banks as the holdings became distressed and they were looking for consulting work there. We advised in other part of that business. For example local government one example and currently we are working heavily in London for the London Government and the Olympic Development Co-operation on the use and the post games use of the Olympic site same as we’ve done in Beijing, same as we’ve done in Sydney in previous games in China, in Beijing we are working advising the Beijing government on what’s called the financial theme to the large financial district development in the heart of Beijing. And then advisory work on development. We do similar work for developers and we do a large amount of strategic consulting work for corporations around their useless space, what’s called alternative space usage in developing new methods of working, new space allocations and so on so it’s a large mixture of business. In general, what happens in there just broad brush -- because activities fall during recessions. That area slows like our PDF work, it picks up post-recession but with something of a lag because capital and spending budgets just pick up more gradually.

And how would you describe the margins of that business, is it more similar to management fee margin or more similar to just one of the transactions we are seeing in sales margin?

It’s probably in the middle; they can vary around the world but probably as a global blend, that is in the middle.

Okay great, and last question I don’t need as much details because I think I understand the business; the project and the development side. Is that -- you touched a little bit on this but is that just mostly tenants that are -- well it is a pick-up in leasing of space, tenants are more hesitant to spend money on greater improvement levels?

Yeah, [space filled out] is a large part of it. We also do multi-site so for example in the United States when the banks are extending their branch system, that’s a big part of our business, so [indiscernible] slowing, some of that activity is starting to pick up again, but we’ll do lots of different work around even just project managing certain things that happen. The examples I gave is there’s been a tremendous pick-up in call center activity and things like that in India. Again, if companies look at where they’re going to see their growth opportunity, there’s development and build down and we manage that.

We have campus work for corporations where we are putting campuses together, we just a bit awarded a contract for a new modern art museum in Mumbai, it’s very worth; general following as you said the economic cycle.

Okay, thank you very much.

Thanks Will.

Your next question is from Mike Mueller with JP Morgan.

Hi good morning, it’s Ralph Davis on the line with Mike, returning to Lasalle, I think you guys talked this morning about your advisory fee guidance being pretty much flat for the year and I was just trying to reconcile that with previous announcements about resetting fees and I guess my question will be how much AUM growth are you guys needing to kind of offset the lower fees in the year or are you already kind of comfortable with them as you’ve already kind of described this morning in terms of meeting that number right now?

One of the reasons we wanted to give you a look forward is to say we see all the ins and outs, that’s sort of how we see it; that it will be flat for the year. We did announce on the first quarter that on a number of our funds where we were paid on commitments. We had gone back to our clients and said we won’t be paid unless the money is invested. So there was a piece of that that we lost on a go forward pace. There is also the fact that a large amount of the mandates that we are winning are co-mandates which have lower advisory fees. On the other hand, they don’t need to be staffed because of the same level of sophistication and cost that an opportunity fund or some of the more value creation intensive type assets take so the -- what we are trying to do effectively, and I think Lasalle is doing an excellent job is matching the cost structure against the type of fees that we are earning and there is the repositioning in that portfolio. But our job is to manage that operating income and then ultimately to growth on a go forward basis. Marks William – JMP Securities: Okay, but just are you comfortable getting to that advisory fee number without further AUM growth or are you kind of factoring in AUM growth?

There is anticipation that we will put some of the commitment money to work throughout the year which will increase asset under management. We’ve announced dis- (call breaks)- and said that the winning of those are of a great deal but we need to do is also put that money to work. So it’s a blend of our expectation to put in money to work. The separate accounts that we’ve won that are assets under management immediately, the adjustments in the fees of the portfolios that we have on an existing pace and then just to look at all of those through the end of the year and the blending of that leads us to believe that that will be about flat and I know there is a lot of moving parts for you which is why we gave you more guidance than we typically do. Marks William – JMP Securities :

That’ll change as companies recover further -- if corporate earnings are good and corporate confidence is picking. The net required for new space will begin to recover and prove to be more healthy again.

I think also relative to your [reek] -- kind of reconcile the reek comment. The reek have their existing portfolio and how the marketplace reacts to that. We have a growing footprint of new markets, new brokers, expansions of services such as into industrial and retail and other things that are enabling us to get growth across a bigger market share and a bigger capability footprint as well. So I think there is a little bit of difference in the way we are looking at the two of them Marks William –JMP Securities: Okay, thanks and just finally, I know you’ve talked a bit about more -- excuse me, you’ve announced some beefing up of your capital markets team in the Americas and I was wondering could you talk about, I guess, staffing levels there going forward and what are your growth expectations are in terms of market share?

I think -- we have some internal projects which we are working to. We have an internal plan which we are working to but some are relatively low levels of activity in US capital markets which we as a firm have, particular if compared to our very large shares in Europe and Asia. We are adding people as quickly as we can, we are adding teams as quickly as we can but we are doing it in our usual very selective ways ensuring that we’ve got people who are not only high performers in terms of producing revenue volumes but also people who will sit and adapt to the culture of collaboration and co-operation which we have always promoted.

Thank you

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

Hi thanks, earlier -- you were talking earlier about the available compensation structures you mentioned -- the overall structure of revenue

Hey Brandon could speak up a little bit Brandon Dobell –William Blair: Sure

That’s great, thank you Brandon Dobell –William Blair: In the context to the compensation comments you were making earlier, I think [indiscernible] I’m trying to get a feel for how we should think about the relevance of the historical compensation percentages to what the business may look like looking out this year and next year given the shift in broker compensation structure, how good or let’s say the numbers from 04 and 05 or 05 and 06 relative to what the business may look like looking out a couple years when things are a little more normal.

Yeah I think it’s going to be fairly variable. I think may be one of the part of your questions is we went from a base and a bonus to a commission in the US, which is a large part of at least the dynamic around that and one of the things that we said through that was in a normal marketplace there was no material difference between the way we paid and the way a broker shop paid on a commission basis. It was really a question of how and when. Brandon Dobell – William Blair: Okay

And I would say that it still hopes through, we are not anticipating that in totality, there is a difference between before and now other than we can have a better handle on how productive our people are and have more real permeability to add as we grow and have a mediate adjustment in how that growth impact our compensation line. Brandon Dobell – William Blair: Okay, then from a different perspective the global outsourcing business or facilities management business, how should we think about the margins there, both in terms of kind of where we are right now as well as the opportunity of that business scale? Phoebe has talked about kind of low-ish double digit. Does that [indiscernible] about how you think about it or is a structural differences that it would make that -- from that kind of range?

We think of that as a low double digit margins across our business as a whole in essence. It varies however between very healthy in the US to -- healthy in Asia to searching for better health in Europe and -- when you put all that together, it’s a better than low double digits margin. We may have to review it. In Asia, we’re working solidly to improve in Europe. And to your question on volume, the US is pretty mature and there won’t be a big effect; operational leverage there is volume growth. It will be better in Asia and it will be very good in Europe as we grow that business.

Okay, that’s helpful. And then you talked about productivity. I would imagine it’s mostly on the brokerage side of the business. Any sense for us on kind of some head count trends comparing this quarter to last or this quarter to last year just to get a sense of how much the revenue growth is productivity driven versus picking up experienced brokers in the last 12 months or so?

We can give you the US as probably the easiest trends, and we added, I think, 89 brokers in the US through this first part of the year, netting down to 51. So we continue to upscale and add to that.

The majority of what you’ve seen in terms of the revenue growth in this quarter or half year is about the productivity point that Lauralee referred to in her comment. You bring in brokers or producers from the outside. It takes them 9 to 18 months, depending on the sector, to cover costs and become net positive contributors, and by the way, that’s something you do on a continuous drip by drip basis rather than spike your hiring just at the beginning of the cycle to catch a wave. It’s much better than the staff policy to continue hiring people through the cycle, so the majority, looking back 2 quarters has been productivity growth and again, in Lauralee’s comments, if you look forward to the short term, it’ll continue to be the -- as if you were [indiscernible] and the US will contribute in 2011 onwards.

Okay, and then final question for me. As we think about the pricing or commission structures of the brokerage business, I guess I’m focused more on leasing, is it of any change you’re your clients, either the tenants representing or the corporate owners, how they think about the right pricing structure or commission structure for that part of the business or is it pretty much, I guess, business as usual?

It’s -- until the recession, owners have been more prepared to spend money to get people into their empty space or to keep them. The commissions for the people they’re able to produce tenants have been actually quite good, so generally, the overall brokerage phase remains static but some of the margin is shifted towards the tenant website and away from the leasing agency side, and I guess that is the case worldwide. As the recession becomes a memory, markets become more balanced, that will shift back. But the overall picture remains pretty static.

Okay, great. Thanks a lot.

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

On the -- question in response of a net 51 in new brokers in the US, what is your -- the attraction, I guess, an opportunity for you -- going to work for you in terms of are your offices, when you say smaller in number, you’re a bigger fish in a smaller pond or this split’s higher, any help there?

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

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

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

Okay, that’s all for me. Thank you.

Thank you, Will.

There are no further questions at this time.

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

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