Jones Lang LaSalle Incorporated Q1 2009 Earnings Call Transcript

Apr.29.09 | About: Jones Lang (JLL)

Jones Lang LaSalle Incorporated (NYSE:JLL)

Q1 2009 Earnings Call Transcript

April 29, 2009 9:00 am ET

Executives

Colin Dyer – President and CEO

Lauralee Martin – CFO and COO

Analysts

William Marks – JMP Securities

Michael Mueller – JPMorgan

Mark Biffert – Oppenheimer & Co.

Brandon Dobell – William Blair & Company

Lynn Taylor [ph]

Vikram [ph] – Morgan Stanley

David Gold – Sidoti & Company

Operator

Good day and welcome to the 2009 earnings release conference call for Jones Lang LaSalle Incorporated. Today’s call is being recorded.

Any statements made about future results and performance or about plans, expectations, and objectives are forward-looking statements. Actual results and performance may differ from those included in the forward-looking statements as a result of factors discussed in the Company’s Annual Report on Form 10-K for the year ended December 31st, 2008, and in our other reports filed with the SEC. The Company disclaims any undertaking to update or revise any forward-looking statement.

A transcript of this call will be posted and available on the Company’s website. A Web audio replay will also be available for download. Information and the link can be found on the Company’s website.

At this time, I would like to turn the call over Mr. Colin Dyer, Chief Executive Officer for opening remarks. Please go ahead, sir.

Colin Dyer

Thank you, Ashley, and good morning. And thank you to analysts, investors, colleagues, and clients for joining us on this review of our first quarter results for 2009. With me on today’s call is Lauralee Martin, our Chief Operating and Financial Officer.

Let’s start with headlines for the quarter. Our revenue was $494 million, a 12% decrease in U.S. dollars from the first quarter of 2008, but only 1% decrease in local currencies. Our net loss was $61 million for the quarter or $1.78 per share. Adjusting for restructuring charges and non-cash charges, the loss would have been $16 million or $0.47 per share. EBITDA for the quarter was $11 million compared to $22 million in 2008.

Our first three months is traditionally loss-making and our slowest period of the year with revenue accelerating as the year progresses. This first quarter was accompanied by the worst market environment in memory, making our seasonal loss more pronounced than in previous years, and it was further exacerbated by one-time charges for impairments and restructuring.

There are some signs of confidence in the general world economy. Equity markets recovered in March, consumer confidence and credit conditions improved, and there is a sense of the recession bottoming out. Worldwide, REITs are up from their lowest by up to 50% and are beginning to attract equity and debt capital, again with $6 million being raised in the U.S. alone. But, to-date, we have seen little positive impact from this commercial real estate markets, which have continued to trade poorly around the world. I will talk more about that later in the call.

Despite this environment, several areas of our business have performed well. Successful integration of Staubach contributed to healthy revenue increases in the Americas and our Corporate Solutions business is emerging as the dominant platform, winning new outsourcing assignments in all regions. Our other annuity businesses are holding up well, both in Jones Lang LaSalle and in LaSalle Investment Management. And overall, we continue to gain share in all markets.

The downturn continues to impact most of our transaction based activity, however, with investment sales continuing their 18-month decline and after the defying markets for several quarters, our leasing activity is also declining in world markets, but less than the market as a whole.

We are responding to this situation aggressively, starting with costs. We have reduced personnel costs in all parts of our business to lower staffing concentrated in support areas, lower base salaries, and by adapting bonus plan and aligning them to current market conditions. These cuts extend to the independent members of our Board of Directors who have voluntarily reduced their compensation by 20% for a year.

We have also made organizational improvements, reorienting our staff solidly towards markets and externally focused activities and reassigning them to growth areas. We’ve also driven sales synergies from new acquisitions and attacked new segments, which again we’ll cover later.

Finally, just as we are active on the cost side, we are also managing our cash and balance sheet rigorously. And I will now hand over to Lauralee to discuss that and other financial and performance measures.

Lauralee Martin

Thank you, Colin, and good morning to everyone on the call. To provide more visibility into our results, we’ve posted slides on the Investor Relations section of our website, www.joneslanglasalle.com for your use and reference. I will be using this slide as the framework to discuss our results.

Turning to slide two, it provides a bridge from our GAAP reported loss to our adjusted net loss for the first quarter of 2009 of $16 million or $0.47 per share. We continue to take actions throughout the first quarter to appropriately size the business to current market conditions. In 2009, we’ve taken $17 million of restructuring charges, primarily severance related, with an anticipated pay back of three or six months. These charges combined with the actions taken in 2008 are expected to save approximately $100 million in compensation and benefit expenses.

We continue to take staffing actions and adjust compensation programs to align our cost structure to market conditions. I will spend more time on cost actions in a few minutes.

We recognized $28.9 million of non-cash co-investment impairment charges in the quarter, $24 million after tax, as a result of real estate asset value declines. Accounting rules require that impairments to value determined to be other than temporary be taken at the individual asset level, separate from the overall value of a funds’ performance. At the same time, these accounting rules do not allow us to recognize any unrealized increases in asset values for other assets in a fund. These impairments are non-cash charges and therefore do not impact our bank EBITDA. I will cover this in more detail in the LaSalle Investment Management performance discussion.

Amortization on intangibles related to Staubach and Kemper's acquisitions totaled approximately $7 million in the quarter or $6.1 million after tax. We are projecting less than $4 million more amortization for these two transactions for the remainder of 2009, with the majority of that, or $3 million expected in the second quarter.

Turning to slide, we reported nearly $11 million of EBITDA in the quarter after adjusting for the restructuring and non-cash co-investment charges, a positive sign in a challenging economic environment. At the EBITDA level, we’ve also seen improved year-over-year EBITDA performance in the Americas, Asia Pacific. For your reference, we’ve included a reconciliation from net income to EBITDA and to adjusted EBITDA in the back of the slide deck.

Turning to slide four, as Colin discussed, we are very pleased that our consolidated revenue is down only 1% in local currency. Details of revenue are on slide four. In the Americas, revenue was up 15% for the quarter, principally due to the addition of Staubach as well as the new wins in our Corporate Solutions business. Colin will be highlighting some of these new business wins shortly.

While we have an operating loss in the Americas this quarter this includes nearly $7 million of non-cash amortization on intangibles related to the Staubach acquisition. EBITDA was $11.4 million, an increase of over 50% as compared to last year’s $7.3 million, demonstrating the success of the Staubach merger.

In EMEA, first quarter revenue was significantly impacted by weakening foreign currencies against the U.S. dollar together with the decline in transactional business. Management services revenue, which is primarily annuity revenue, was down $3 million compared to the first quarter of 2008, but actually – 14% in locally currency. The highly transactional nature of revenue on our EMEA business particularly in capital markets in this weak environment resulted in a significant operating loss in the quarter.

The staffing actions we’ve taken and continue to take are most extensive in this region. When we complete our actions through the second quarter, we will have reduced staffing by more than 600 people. Despite the high cost typically associated with severance in EMEA, we’ve been able to move quickly and maintain an average pay back of seven months.

We were pleased with improved performance in Asia Pacific and in particular the annuity businesses in the region. The growth in our annuity revenue is more than offsetting declines in capital markets and leasing. First quarter revenue is down, but in local currency revenue is up 1% compared with the first quarter of 2008. Management services revenue is up 17% in U.S. dollars and 30% in local currency compared to last year. While transactional revenue continues to be impacted by the current operating environment, we take comfort in the fact that our annuity revenue is now more than two-thirds of our overall revenue in Asia Pacific.

Turning to slide five, capital markets and hotels remained down for the first quarter, resulting in significantly lower revenues in each segment for the year. Investors remain extremely cautious about determining value and lending conditions remain challenging, which continue to slow transaction volumes even further in the quarter.

On a positive, in the United Kingdom, which was the first market to experience transactional declines, our first quarter capital markets revenues were up 13% in local currency over the first quarter of 2008.

Moving to leasing on slide six, in the Americas, the Staubach integration and performance since the transaction closed in 2008 has been very positive and the Staubach and legacy Jones Lang LaSalle teams are now fully integrated from a reporting and client approach.

Americas’ first quarter leasing revenues were up 50% over the prior year with agency leasing revenue increasing 12% and the balance principally due to the Staubach merger. During the first quarter, we completed our conversion to full commission for nearly all leasing staff, decreasing the fixed compensation component in this business.

Outside of the Americas, the slowdown in leasing continues, but is also being adversely impacted by the sustained strength of the U.S. dollar. In EMEA, leasing revenues were down 35% for the quarter in U.S. dollars, but 20% in local currency. In Asia Pacific, leasing revenues were down 24% in local currency in the first quarter.

We understand the challenges facing us in emerging markets and that we must continue to take market share. We expect landlords who need to protect occupancy to give a listing to agents with the broadest market reach and that tenants will seek representatives who can provide both advice on their changing space needs and execution on sub leases, renewals, and consolidation. We believe that our enhanced market positions around the globe will benefit us with clients and our transition to a more variable compensation structure, particularly in the U.S. will provide profit protection in difficult markets.

Slide seven, LaSalle Investment Management, advisory fees were down 17% in the first quarter, but up 3% in local currency. Importantly, the first quarter advisory fees were stable relative to the fourth quarter of 2008.

We were pleased with the $5 million in incentive fees earned in the first quarter of the year, which were a result of meeting certain performance criteria against established benchmarks. We continue to recognize that it will be difficult to earn incentive fees in the remainder of the year as values of properties fall globally and transaction activity remains limited.

As I mentioned previously, LaSalle Investment Management’s results were impacted by non-cash co-investment impairment charges. The firm’s co-investments are made through two investment funds – LIC I and LIC II. LaSalle’s recent investor presentation to LIC investors, which includes the funds, indicates that although not achieving targeted returns in aggregate, investors will receive their co-investment back as well as a modest return.

The LaSalle Investment Management investment strategy has not been one of high leverage to achieve returns, with the bulk of their funds in core or plus and value-add parts of the risk spectrum. Future impairments will be dependant on performance at the individual asset level and therefore difficult to predict. But the business is aggressively working to stabilizing property performance, extending existing debt, and positioning assets for exit into a more orderly marketplace.

Our cost actions on slide eight, continuing our efforts from 2008, we’ve taken several measures to right-size the business for the changing economic environment, including taking $17 million in severance charges across the across the business in the first quarter. Since mid-2008, we’ve taken $47 million in restructuring charges with over 50% of those in EMEA, where we have our larges capital markets position. We continue to evaluate our cost against market conditions and are in process of taking further actions in the second quarter.

We’ve also taken an aggressive approach to managing discretionary spending. The actions we’ve taken are expected to result in $50 million of savings on a local currency basis in the operating and admin line. These costs have been primarily taken out of T&E, third party professional fees, marketing and training costs. We expect those savings to be partially offset by new gross facility management contracts and increased occupancy costs.

We’ve also reduced our planned capital expenditures and now anticipate $45 million or less in 2009, which includes the remaining consolidation of office space related to the Staubach merger.

Our Board declared a semi-annual dividend of $0.10 per share, reflecting our ongoing confidence relative to our bank covenants, and our philosophy that a dividend payer appeals to a broader investor base. The dividend is a reduction from our current dividend level of $0.25, which we believe is prudent in the current marketplace.

Turning to slide nine, and our debt covenants, our leverage ratio at quarter-end was 2.34 times, only slightly higher than at year-end, despite making significant cash incentive fee payments to our people in the quarter. We did defer a number of bonus payments into the second quarter to optimize our working capital position, but even without that deferral, our leverage would have remained below three times.

Our cash interest expense was $6.5 million in the quarter, just over half of the total interest expense of $12.8 million. Our cash interest coverage ratio for covenant purpose, which includes our rents, was a healthy 3.33 times while the coverage on a peer reported EBITDA to cash interest only basis was over seven times for the trailing 12 months.

We expect that improved seasonal performance in 2009 and our ongoing focus on the balance sheet will keep us in a good position relative to our covenants.

Let me now turn the call back to Colin to discuss global market conditions and some of the opportunities we are seeing.

Colin Dyer

Thank you, Lauralee. Looking in a more detail at the economic and market conditions, Global Insight reports the world economic growth turned negative in quarter four of 2008 and fell by 6% in Q4 and is expected to have contracted by an annualize 6.5% in the first quarter of this year. In the major economies where we operate, only India and China are still growing and few countries will turn positive before 2010.

While the broader credit markets did show signs of increased liquidity in Quarter one, the improvements have had almost no positive impact on commercial real estate transactions, which will need several more months of positive stock and credit market trends before confidence and credit continue to be restored – sorry, begin to be restored.

Public and private real estate equity investments returns continued to suffer during quarter one. Global real estate securities returned a negative 24% in the quarter following a 46% decline in 2008. Private equity real estate funds have seen underlying asset values in many markets decline by 20% to 40% from peak values with leverage exacerbating this effect in some cases.

Value declines will continue this year as underlying profit fundamentals weaken and this in turn will begin to drive a solid business for our value recovery services throughout the world.

Tenant demand is obviously contracting across the office, retail and industrial sectors. Employment is decreasing in all markets. Vacancy rates in offices around the world are rising and leasing volumes are falling typically by around 30% this sharply declining rents, as a result. Again, these developments are going to be driving new business to our advisory, asset management, and eventually to our transaction services.

Finally, financing issues are quickly choking new construction across the world’s commercial markets.

Looking by region, and starting with the Americas, U.S. transaction volume reached a new low in the quarter with preliminary data indicating just $8 billion of property being traded. This very light volume and the still unresolved bid half spread indicate cap rate expansion in primary markets of 200 basis points from peak and considerably more in secondary and tertiary markets. This slow emergence of stress is driving demand for our new value recovery services, of which more later.

U.S. office leasing decreased by 32% from the prior quarter and almost 45% from the first quarter of 2008. National vacancy rates in the U.S. reached 16.5%, up nearly 500 basis points from a year ago. Overall Class A segment effective rent have decreased by between 10% and 30% across the majority of the U.S. markets.

In this environment, we are generating considerable demand with corporate clients to proactively renegotiate and extend leases. And equally the commercial synergies from the Staubach merger are allowing us to better advise owners on available deals and drive new business across multiple business lines.

In Western Europe, primary office yields have increased between 50 and 150 basis points to 5.7% for the 12 months ending March, 2009, rising above their 20-year average of 5.4%. Yields shifted in Central and Eastern Europe in the same period by between 125 and 350 basis points, considerable movements. Across Europe as a whole, direct investment in the commercial real estate totaled €12 billion in the first quarter, a 30% fall from the previous quarter and 70% lower than Q1 2008.

However, we now do see interest in market that have already declined strongly such as Central London, which as Lauralee indicated, is attracting opportunity funds and international and private investors. Our U.K. transaction levels were up in the first quarter from Q1 2008 levels and in addition, total U.K. market transactions grew from quarter four 2008 to the first quarter of this year, an interesting development because quarter four is traditionally the year’s most active quarter while quarter one is typically the slowest.

Despite our cost measures, we have been careful to retain the key market team members to capture share in these recovering markets.

In European leasing, first quarter office take up volume has decreased by 37% from Q4 2008 and 40% from the first quarter of last year. The average European vacancy rate has reached 8.5% from 7.5% in the prior quarter and further increases are expected. Prime rents fell in Europe too across most markets led by Moscow, which was down 29% and London, down 21% from previous quarter.

Our own gain in market share has come from acquisitions, which we made in 2008 and by the growth in retailing leasing in the U.K. and Germany and clients move to higher quality in tough times.

In Asia Pacific, capital values continue to decline with quarterly yields easing an average of 80 to 90 basis points. The larges movement within Shanghai’s Pudong office market with yields up by 210 basis points during the quarter. Transaction volumes were down by approximately 65% in the region, a result of tight lending, lower future value expectations, and declining demand fundamentals. Our own capital markets revenue was down significantly less, only falling by 15% in local currency terms. So, once again, we picked up share.

Demand (inaudible) Asia Pacific office markets, vacancy rates rose, and rents declining throughout the quarter. Aggregate net absorption was down significantly from 650,000 square meter in Q4 2008 to 30,000 square meters in the first quarter of this year.

We have reoriented our Asian business in the light of these changes, making regional structural and country leadership changes, designed to drive clearer market focus in transactional and other business lines.

Across the world, we continue to achieve significant new business wins throughout the quarter. Here is a flavor. As corporate occupiers around the world seek to reduce costs by outsourcing real estate activities, our market-leading global Corporate Solutions platform continues to build its client list. During Q1, we secured 22 new Corporate Solutions clients, up from 14 new clients in the first quarter of 2008. I am proud that Iron Mountain, the world leader in record storage and data protection, has selected us as a partner to manage transactions across its 35 country global portfolio.

This is a major win for us in the industrial space and it’s the direct result of collaboration between former Staubach and Jones Lang LaSalle groups. In addition, the U.K. based AstraZeneca has awarded us a three-year contract as global real estate partner and preferred supplier for transactions. In Mexico, Grupo Salinas, which is a leading conglomerate, whose holdings include Banco Azteca and TV Azteca, have selected us for facilities management, call center services, and energy management services.

We also won facilities management assignments in the U.S. for the Amgen biotechnology company and for the SunTrust Bank. And across in Australia, Suncorp Bank has also selected us to provide facilities management, project, and transaction services.

At the same time, we’ve been expanding our corporate relationships during the quarter, adding facilities management services for Philips Electronics Asian or industrial portfolio, following their facilities management assignment in the Americas. In the U.S., T-Mobile has expanded our long term relationship. We will continue to provide retail site selection services, but also begin to deliver their facilities management, brokerage, project management, and strategic consulting services.

And finally, Microsoft awarded us facilities and project management and lease administration services in Latin America.

And in very late news, just last evening Eli Lilly & Company selected us as their 2009 Lilly Global Supplier Award winner, one of only 15 companies selected across their 10,000 suppliers worldwide. This is a tremendous recognition of our performance and along with Procter & Gamble’s similar recognition last year is a clear illustration of why we are leading the corporate outsourcing sector. And on the slide deck which Lauralee was using, you can see a partial list of these wins for the first quarter of this year.

In sustainability and in a ground-breaking contract, we were named project manager for the multi-year retrofit program at the Empire Stat Building. The aim of this project is to cut energy consumption by 38% to reduce the landmark building’s carbon emissions by 100,000 metric tons over the next 15 years. The program is unique in targeting an existing building for large scale savings, and is designed to inspire similar projects around the world. With increasing government regulation of carbon emissions and with older inefficient buildings far outnumbering newer energy efficient properties, we see growth in this work for our market-leading energy and sustainability services worldwide.

Let’s briefly cover some other deals starting with investment in sales. In Asia, we advised the Shanghai Lujiazui Finance and Trade Zone Development Corporation on the purchase of Shanghai Plaza with a value of $253 million. In London, we represented British Land in the £115 million sale of Triton Square office building to the tenant at the National Banco Santander.

We also represented British Land in a £588 million sale of a 50% interest in the Meadowhall shopping center. We represented Electronics for Imaging in the $138 million sale of corporate office properties in California. And our Bangalore team won a 750,000 square foot by mandate for Netadlink [ph], one of the world’s data management solutions provider.

And in Europe, our Hotels Group purchased the NH Frankfurt City Hotel in Germany for Deka Immobilien and sold the Capital France Hotel in Paris for Compagnie La Lucette. And the Etrusco Palace Hotel in Tuscany for Sogefin SpA,

In agency leasing, we acted for British Land to lease 200,000 square feet of office space in the city to the Bank of Tokyo, the biggest deal to date this year in that market. And we won a new leasing mandate for a 460,000 square feet shopping center in Levest [ph] in Central Russia, signing up tenants, which include Carriefour [ph] as an anchor.

We were named sole leasing agent for Intercontinental Tower, a large scale commercial complex in shanghai that includes an intercontinental hotel, apartments, and Class A offices with 850,000 square feet of lettable space.

In Paris, our tenant and rep business advised Credit Agricole’s IT arm on the 150,000 square feet office leasing project. And in China, Axis [ph] China region and Citibank both appointed us as exclusive representatives for their portfolios in Hong Kong and Kowloon.

Finally, in New York, we represented Wanton Industrial [ph] on a lease of the 190,000 square feet China Center in the Freedom Tower in lower Manhattan.

Turning to LaSalle Investment Management, LaSalle is successfully managing its way through the current markets with a strong focus on its clients’ needs and on maintaining it’s excellent banking relationships worldwide and on driving its core asset management skill set.

Confirming its reputation for leadership, LaSalle won the Private Equity Real Estate Global Firm of the Year Award for 2008d, the only industry award nominated and voted on by the private real estate equity professionals around the world.

At the same time, LaSalle is seeing dramatic changes in its competitive set. Recent announcement and market developments indicate that a number of competitive platforms are either in difficulty or are considering exiting the real estate sector entirely. Some never built a solid base of annuity revenues or pursued over ambitious investment strategies. The operations of others were simply not core to their parent financial institutions. And as Lauralee observed, the fact that we were able to maintain annuity type advisory revenue and earn incentive fees during the quarter is proof of LaSalle’s underlying strength and resilience.

We also continued to serve the changing needs of the clients with value recovery services for stressed market conditions. In New York, during the quarter, our loan sales advisory experts closed on $57 million in note sales for Morgan Stanley, including mortgage loans secured by retail property in New York and nationwide self-storage portfolios.

In Dallas, we are providing receivership services for a 100,000 square foot office complex and we were responsible for directing use of the asset until a resolution is achieved between the lender and borrowers, conducting due diligence, leasing management and ultimately sale processes.

Jones Lang LaSalle Hotels is providing investment advisory and asset management services to bondholders on the foreclosed Renaissance Grand & Suites hotel in St. Louis.

And I hope that gives you a flavor of some of the ongoing successful wins, which we have completed during the quarter and illustrate the way in which we are adapting our business to this changing world environment.

Before taking questions, I want just to mention Ming Lu, who will be standing for election as a Director at our annual meeting in May. Ming is based in Hong Kong and is a partner with KKR, where he focuses on entire Asia Pacific region. His expertise in private equity and his management experience across Asia will be very valuable to both Jones Lang LaSalle and LaSalle Investment Management, and we will be delighted to have in on board.

At the same time, two current directors will not stand for re-election. Henri-Claude de Bettignies is retiring from Board service and Alain Monie will be devoting his full attention to his very considerable other Board responsibilities.

I would like to thank both Henri-Claude and Alain for their 14 years of combined service and their considerable contributions to our firm.

Finally, we were honored in the quarter with three awards that reflect and confirm our cultural and ethical values. CRO Magazine names us to its 100 Best Corporate Citizens List for the second year running. Fortune selected us for the second consecutive year to its list of the World’s Most Admired Companies. And we’ve also been named for the second year in a row for the Ethisphere Institute’s World’s Most Ethical Companies List. There are – we are one of only 99 companies around the world to receive this award and the only real estate firm to be so honored.

So, give the industry charges this year, it’s more important than ever that we continue to live up to the core values that lead this rewards recognized. We are always working on our clients’ best interest. We are collaborating and working as teams to get the best results for our clients. And in all our work we are acting with unquestioned integrity. We will also be continuing to focus in this environment on the two operational priorities, which we set up earlier this year, firstly, continuing the aggressive cost reductions, which Lauralee described, sizing our business to reflect market realities and realigning our operations for new market opportunities.

And secondly, we will be focusing even more closely than ever on current and prospective clients and their changing needs and in LaSalle’s case a laser like focus on asset management.

So, with that we would now like to open the call for your questions Ashley [ph] would you please explain the process to everybody? Operator?

Question-and-Answer Session

Operator

(Operator instructions) And the first audio question comes from Will Marks with JMP.

William Marks – JMP Securities

Thank you, good morning, Lauralee. Good morning, Colin.

Colin Dyer

Very well..

William Marks – JMP Securities

I had a few questions, first of all on Staubach, can – you did give a figure of – on the U.S. leasing side I guess it was without Staubach or the agency revenues were up 12%, but that doesn’t give us an indication of Staubach. Can you break that out at all?

Lauralee Martin

We are now managing Staubach and the U.S. as integrated teams assigned to clients, so we no longer have it separate. However, what we can tell is if we were to compare the Staubach pro forma adding to the Jones Lang LaSalle pro forma for the prior year period, the combined brokerage operations would be down about 30%. If we did the combined organizations in totality, our combined revenues would be down about 20%.

William Marks – JMP Securities

So, if you – just to clarify – if you took the two businesses together on a same store basis – ?

Lauralee Martin

That’s correct. In other words, if we took their results in the first quarter of last year when they were not a part of us, use the pro forma year-over-year hypothetically, brokerage should be down about 30%, revenues would be down about 20%.

William Marks – JMP Securities

And so what’s the difference between the brokerage and the revenues?

Colin Dyer

The revenues would be for the total business.

Lauralee Martin

Right. It’s – Staubach as well as us do a great deal more than just brokerage.

William Marks – JMP Securities

Right, okay, got it. Right.

Lauralee Martin

They have a capital markets business, some project management, some consulting, et cetera, and obviously we have those parts of our business as well.

William Marks – JMP Securities

And when you say brokerage, you are talking about sales and leasing even though there is not much sales relative to leasing?

Lauralee Martin

Leasing.

William Marks – JMP Securities

It’s just leasing?

Lauralee Martin

Just leasing.

William Marks – JMP Securities

Okay. And then you had a study outside of these special leases an Americas Research study that showed leasing in the Americas is down 48%. So, I assume that – and then that’s not you, that’s the industry I assume, this means you’ve stolen some market share.

Colin Dyer

Correct.

William Marks – JMP Securities

Okay. On – is there anyway you can tell us what –

Colin Dyer

You used the wrong word, Will, we actually earned market share.

William Marks – JMP Securities

Okay.

Colin Dyer

By virtue of superior management, superior focus on margin, markets, and the fact that clients, as we had said a couple of times, do seem to be moving towards quality supplier. Sorry to –

William Marks – JMP Securities

Okay and fair enough. And so whether on leasing, can you tell us the percentage of leasing revenues globally that’s from renewals or an approximate figure?

Lauralee Martin

It’s – that is not as transparent, globally. We will say that in the U.S., particularly when you look at agency that number that we gave is strongly driven by renewals.

William Marks – JMP Securities

Okay. And then last question, on the balance sheet, can you tell me how much second quarter – how much you expect your debt to increase or what do you expect the bonus comp to be in the second quarter based on the – ?

Lauralee Martin

We paid about – we’ve already paid it. Now we paid about $200,000 of additional bonus compensation after the close and as I referenced in my comments, if we would have paid that in the first quarter we would have still been less than three times on our EBITDA coverage.

William Marks – JMP Securities

Okay, so the…

Lauralee Martin

Now, this was prudent cash management not to have a really high peak and better mange our interest expense. As you can see, we’ve been very focused all the way through on optimizing cash and the balance sheet.

William Marks – JMP Securities

Great. Thank you very much.

Operator

The next question is from Michael Mueller with JPMorgan.

Michael Mueller – JPMorgan

Hi, a couple of follow-ups on those. First of all, for the $200 million in bonus comp, was that expensed in the first quarter and just being paid in the second quarter or will it be expensed in the second quarter as well?

Lauralee Martin

It was expensed in 2008.

Michael Mueller – JPMorgan

Okay, okay.

Lauralee Martin

That was compensation earned in the year 2008, which we normally pay –

Michael Mueller – JPMorgan

Pay in Q1.

Lauralee Martin

So, we have it in the first quarter. In this particular year, we spread that out over a longer period of time.

Michael Mueller – JPMorgan

Okay, okay, great. And then going back to the question about – excuse me, bit of cold here – the Staubach revenues being down 30%, was that Staubach down a year-over-year 30% or Staubach and JLL rolled up down 30% year-over-year?

Lauralee Martin

If you create hypothetical pro forma as if Staubach was a part of the organization of Jones Lang LaSalle starting January 1st, okay, of 2008, and then during 2009, brokerage meaning leasing was down about 30%. Total revenues down about 20%.

Michael Mueller – JPMorgan

Okay.

Colin Dyer

The point is< Michael, as you know I have said earlier, we are running them together this year. So, can't split out this year’s numbers between the two legacy business. We have them combined. Obviously, the year before we do.

Michael Mueller – JPMorgan

Yes, got that, thank you. Thank you for the clarification. And then a couple of other questions here, Colin, I mean your comments about leasing volumes being down about 30% as well as market rentals coming down, can you give us a little bit of insight in terms of what you are seeing so far? We were a third of the way through the second quarter. Would you characterize the leasing environment as stabilizing as getting a little bit worse than Q1? Can you give us a little bit of directional sense?

Colin Dyer

Well, firstly just remember the leasing markets in some countries, starting with the U.S. have been declining since mid-2007 in activity levels. So, this is not a new trend. As I said in my remarks we actually picked up share right through Q3 of last year such that they were showing positive numbers on our comparables for leasing activities before acquisitions. That’s the impact of quarter four. Economic environment last year throughout the world took the leasing markets down more sharply and that eventually has come through to us in many places across the world now as I remarked. Our perception of this is that with the general trend of leasing activities being down 30% year-on-year we were not expecting that to get any better in comparable terms very quickly, although in capital markets you will get to a point through this cycle when the comparables get easier, just simply by the mechanics how the numbers work. But the drivers in leasing obviously are economic activity in general followed by job creation or the reverse, which then in turn drives the need for space. So, new demand is driven by those fundamentals.

Michael Mueller – JPMorgan

Okay.

Colin Dyer

And they are not in and of themselves improving in a very short term. What does happen in these markets is that activity gets delayed. People push decisions back, obviously particularly on the corporate occupier side or they renew for very short terms. So, you tend to get a kind of backing up of activity and I’d say across the world our pipeline of discussions on leases, particularly on the corporate side, the occupier side, is actually quite healthy. It’s completing those transactions and getting them across the line, but for challenge as confidences ebbed

Michael Mueller – JPMorgan

Okay. And just to clarify, this 30 – when you threw the 30% number out, that is a volume number that’s not a revenue number. It’s – it doesn’t factor in market share. This is – you are just talking about the general market volume of transactions, is that correct?

Colin Dyer

Correct, correct.

Michael Mueller – JPMorgan

Okay. And then last question, may be going to cost-cutting, Lauralee you talked quite a bit about that, I was wondering, can I know the disclosure on I guess on the P&L how you break out the various expense line items and then if we go to the segment reporting and the press release where you break it up based on the regions, I mean is it possible to give us a sense, if we just look at the fixed cost per region, if we go to Americas, EMEA, Asia, and regardless of whether you have $1 of revenue of $100 million of revenue, what the embedded fixed cost run rate is in the various regions post everything that’s been going on? Is it possible to get some sort of break up for that or a ballpark?

Lauralee Martin

Well, I think there is two components of fixed compensation, one would be base compensation, which we are a people business, so compensation is our principal factor, and so what we have been doing is going very hard at that fixed cost component of base compensation, which is where we’ve come up with the $100 million annualized savings based on the actions that we’ve taken or that are in process. Now, in addition to that, we have variable comp and clearly that will do what it’s going to do based on profit and sales performance.

In our operating and admin cost, the largest component of our fixed cost is our various space offices around the world and then would be our technology as well. And we don’t disclose those numbers, but those are pretty much fixed unless we take actions such as we recently announced in the U.K. where we have because we have less people in our headquarters building at Hanover Square have subleased a significant portion of that and we’ll start to reduce those costs going forward. So the piece that’s variable, which I did discuss, which is travel and living and marketing, et cetera, is where we have the $50 million of projected savings. But, I can tell you where we are making the savings, but we don’t disclose those individual line items in more detail than what we do between comp and then all other.

Michael Mueller – JPMorgan

Okay. That’s helpful. Thank you.

Operator

The next question comes from the line of Mark Biffert with Oppenheimer.

Mark Biffert – Oppenheimer & Co.

Good morning. Just added to that, Lauralee, I just wanted to know, I mean when you look at what you’ve cut there announced the day you had mentioned that you could potentially make further cuts if business doesn’t rise. So, how much of what you have currently in your staff assumes a turnaround say in 2010 and if you don’t see things improving, you could see further cuts before the end of this year?

Lauralee Martin

We are in process of making further cuts in the second quarter, which does get us to that $100 million. At that point in time we think we’ve pretty much sized the business for what it looks like it’s going to be doing this year. Clearly, the world is in a fluid state, and we would have to evaluate that going forward, but with the balance of the aggressive actions that will be finished in the second quarter, and sort of the pipelines of activities that we have in our various businesses and portfolios around the world, we think we are pretty close to a good level.

Colin Dyer

To give you a feel, Mark, for the sorts of things that are happening and this around the world we obviously are taking numbers down and we’ve given you a feel for the numbers in headcount terms. But we are seeing voluntary and involuntary salary reductions, base salary reductions. We are seeing groups taking unpaid leave. And by the way all of these we are encouraging as well as have seen people volunteer. We are changing the structure of bonus, our bonus plans around the world, putting in some cases more cost in but changing the way in which money flows through into those bonus schemes.

All of this reflecting the general market environment and what we are seeing throughout the business is – whilst no one enjoys doing this and people obviously don’t have – can enjoy having their salaries reduced, there is a wide level of understanding that the economic environment is such that these are necessary actions and indeed actions, which we are seeing in other companies in the real state sector a more broadly. So, we are using a wide range of tools to effect the reductions that Lauralee talked about. And we will continue with them, if markets worsen. If they don’t and we see the environment stabilizing at the levels we planned, then we will be in a good shape.

Mark Biffert – Oppenheimer & Co.

Okay. And then with all of these changes that you’ve made, what are your – how has that affected your debt reduction targets for 2009 and 2010?

Mark Biffert – Oppenheimer & Co.

Well, our primary use of cash is to pay down our debt. We have been very aggressive now on our CapEx where we’ve reduced that number down to – where we expect it to be about $45 million. The excess cash there will flow to paying down our debt. We’ve reduced our dividend. The excess cash will flow to paying down our debt. We clearly have stepped out of the acquisition mode and so we’ll not have those outflows. So, the priority is to pay down debt. We’ve said that we are comfortable with our covenants as we look out across the year and so the combination of all the actions, we think, puts us in a good play.

Mark Biffert – Oppenheimer & Co.

Okay. And then, previously, Lauralee, you had mentioned that the U.K. was a market that typically money moves to first and Colin you had mentioned that you are starting to see some transactions there. I am just wondering how are the buyers in this market financing them and what are the cap rates that you are seeing in that market that they are buying at?

Colin Dyer

Financing is very – where they are taking debt, it’s generally coming from relationship banks that the purchasers have been dealing with for a long time. And as an illustration of that, LaSalle Investment Management has refinanced over $1 billion of debt over the last year, all of it with banks with whom they have ongoing multi-year relationships. So, that’s generally coming from banks. It’s obviously at lower levels. The spreads are up in the 300 plus basis points loan to value ratios, as I mentioned. The buyers are private individuals, some foreign interest. I have an email this morning from a – one of our China offices where a Corporation in China is looking to buy amongst others in London, most other cities in London. And we are seeing the transactions take place at cap rates or yields, which for – if you take the Central London Class A office market, they are in the high sixes and low sevens. And if you go out a little further into sort of regional or inner regional shopping centers around London, we’ve heard of transactions in the low eights cap rates. So, they are out in basis points terms by a couple of hundred basis points from the peak values, which represents 40% plus correction.

Lauralee Martin

And I also suggest if you go to our website with our research, we provide very good research on markets globally and the U.K. is obviously one of those markets that’s highlighted.

Mark Biffert – Oppenheimer & Co.

Okay, thanks.

Operator

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

Brandon Dobell – William Blair & Company

Thanks. As you looked a the first quarter performance, what stuck out as you as either kind of positive or negative developments beyond the usual kind of narrow range of expectations you would have going into it? And then kind of in relation to that, does it change how you think about the pace of some sort of let’s call it a recovery, but then maybe too strong a word, but a recovery in kind of general activity within the investment sales business, globally.

Colin Dyer

Well, let’s take the positives. Obviously, as Lauralee even said to annuity based businesses, which are property management, our facilities management, our corporate outsourcing work, we are strong. Our leasing, and even our capital markets outperformed markets as a whole although the numbers were down. So, in relative terms even if the numbers are revenue declines performed better than markets we believe. We are pleased, again, as Lauralee said, with the performance of Staubach in the U.S. in general and that integration process is driving up lots of opportunities for new business. We are seeing the teams working well together. We are seeing lots of cross-selling initiatives being moved out into the market. And we were relatively pleased with Asia Pacific as performance improvement year-on-year again in some very tough markets.

And obviously we have work to do in Europe and that’s – we’ve discussed that fairly extensively in our comments today.

Brandon Dobell – William Blair & Company

Okay.

Colin Dyer

In terms of recovery, we – you don’t hear us making overly optimistic noises about recovery. We are seeing some signs of improvement in the general business environment. Credit markets have eased. Capital is being raised again. We are not planning the business on that. We are planning for markets to hold at their current relatively muted levels, which will give us a seasonal recovery, but we are not going back to 2007 any time soon. But should markets recover and as they recover, we’ve got the teams in place we believe and most of the key people resources to drive revenue growth at or ahead of market recovery rates.

Brandon Dobell – William Blair & Company

Okay. In the Corporate Solutions business, how shall we think about these recent deals from a pricing perspective or opportunity for increased scope? Are they better deals for you guys than you’ve seen in the past or is the macro environment driving more pressure on the pricing side?

Colin Dyer

Well, if you take the marginal wins, the 22 deals I referred to as having – 22 wins in the first quarter of this year, that’s against 14 last year.

Brandon Dobell – William Blair & Company

Right.

Colin Dyer

The revenue potential on an annualize basis is more than double. So, if you look at the marginal wins, they are higher quality, higher total revenue potential business. As to the performance of the rest of the portfolio, it increased as well overall in the quarter by small single figure amounts. We are seeing in general corporates engaging us more frequently on pricing and on costs because – and the part of the reason they outsource their real estate transaction or the real estate activities is to take their costs down with all company departments under pressure. They are asking us to look at the cost base. But we do that collaboratively with them and in general it doesn’t affect our margins too much.

Brandon Dobell – William Blair & Company

As you look at the overall competitive environment, a lot of firms are talking about having issues. Are you in a position to be a net hirer, no, not through acquisition, but just replacing existing talent on the broker side or is it a spot in the market where you feel a little bit nervous making those kinds of moves?

Colin Dyer

Well, we obviously need to be consistent internally as an organization. So, whilst you are taking down the numbers and employees, and imposing difficult measures on people’s income, it’s – we are not going on any wholesale hiring process. But we are seeing a couple of things. First of all, from where I talked about our corporate business, our property management, we would need even more hands and legs in those areas. So, we are already moving people across in that business or we are hiring selectively, externally. And that process will continue as long as we see those markets moving positively. We are also seeing a lot of – we are getting a lot of calls from teams who would like to join our platform and in particular I can just think of one group of ten people who joined us in New York recently. They are market leader, leading transactors, independent rep space. And they have come across from another organization. And we will be foolish as a business with our eye on our overall long term plan to continue to grow our share and develop our position in the market, we’d be foolish at this point in the market when there are so many good people on offer, not to entertain those conversations and in the very selectively high groups.

Brandon Dobell – William Blair & Company

And that’s another question for the value recovery opportunity or value recovery business opportunity you see out there. Any sense of how big that is, how should we think about where those revenues might show up? I am just trying to get a sense of – if that could be a real contributor to the overall story or is it just – it’s a nice minor offset to the overall transaction velocity?

Colin Dyer

Okay. Well I will kick off with the opportunity, first of all. We – it’s very broad around the world. It’s very – it’s also nascent. It’s not really got underway yet. You may have seen some stats recently they have around the world. $150 billion of real estate assets are in some form of stress and that’s growing by sort of tens of billions of dollars by quarter. What we are generally seeing is that banks and financial institutions and securitized lenders are being – are slow, can't lead to move to anything like foreclosure, but they are moving towards taking control and hoping to administer real estate. And that brings us in all sorts of ways from LaSalle being invited to look at overall portfolios, to us advising, as I described, on portfolio strategy, asset management, leasing work, and eventual sales. But our sense is that it’s – so it’s worldwide, but our sense is also – it’s broad across our types of business lines. It is not just an investment sale activity. That will come eventually. But banks and other institutions are reluctant to sell into these markets and they are trying to hold and work through the problems. So our services click in. The asset management level, property management, and eventually we believe we’ll get through to transaction work.

Brandon Dobell – William Blair & Company

Right.

Colin Dyer

As to the potential size of it, Lauralee?

Lauralee Martin

Yes, I think, Brandon, I think everybody is trying to figure out how they are going to deal with what is real stress in the marketplace. If we look at sort of the fourth quarter, we could count the fees that we got from that on a hand and it’s around anything very exciting.

Brandon Dobell – William Blair & Company

Yes.

Lauralee Martin

That is starting to change. I mean everything grow from a very small base. But now the number of discussions going on in the first quarter with the discussion that fees just is moving up pretty rapidly. I think the important thing is we are in on it early. I think that to Colin’s point there is a recognition that what it hopes to be a quick, I will get in there and move your asset for you isn’t going to happen. This is going to be a need to have more order. So we will probably work through this with the full life cycle, asset management fees, leasing, property management, and ultimately there will be a capital market demand. But I think it will be that the continuum of that process first before the market determines how to deal with its stress.

Colin Dyer

It is obviously for us quite a shift in some areas of the business in client set, enough Spanish business (inaudible) Q4 last year. They plant to move in from investment companies and REITs to banks and insurance companies.

Lauralee Martin

Well, in many cases we are talking to governments who are now owners.

Brandon Dobell – William Blair & Company

Alright.

Lauralee Martin

One of the finest banks. So, it’s a different world out there. It needs to be sorted.

Colin Dyer

We do see some differences in behavior. Lauralee has mentioned the governments. In some countries, the U.S., Germany, and Britain, for example, banks are currently just waiting for clarification of the government regulations around the various schemes that are being put in place to compensate the losses on real estate. So that’s holding things up. Weaker banks are obviously very reluctant to foreclose unless the government takes (inaudible) in place. In other parts of the world, where banks did not get too far (inaudible) extended derivative state, economy is still strong, we are seeing more rapid and aggressive action, notably in Asia to move on assets, which are under water. So, it’s a very big difference so in the behavior of the lending institutions around the world.

Brandon Dobell – William Blair & Company

Okay. Great. Thanks a lot.

Operator

The next question is from Lynn Taylor [ph] with (inaudible).

Lynn Taylor

Thanks, good morning. And recognizing your business is seasonal, how do you look at your ramp into the second and third quarters compared to prior year’s? Is it about the same pace or do you seeing it a little worse than that?

Lauralee Martin

We are seeing a larger pipeline probably pretty much across the board. So if you go to our corporate outsourcing, the number of RFPs are double. If you go into even our leasing pipelines, we’ve got largest kind of work-in-process maybe will be moved through those differently and a lot of capital market mandates as well. The big difference is trying to determine will the trigger pulled, when will they happen, how quickly they happen? So we do what we call auth adjust our work-in-process to get a look at the world. We’ve calibrated down that auth adjustment just that it’s just going to be a whole lot harder. The fact that the pipelines are so large and continue to get larger tell us it’s – it is like a dam building up at some point in time actions will need to be taken. But again it’s the confidence and the clarity on what decisions should be taken that is making that translation more difficult to predict.

Colin Dyer

And to cover the points, so I will repeat the point we’ve made earlier. Some areas of our business like property management, facilities management are not as cyclical, anyway. And they are continuing to grow strongly.

Lynn Taylor

Great. Thank you.

Operator

The next question is from Vance Edelson with Morgan Stanley.

Vikram – Morgan Stanley

Hi this is Vikram [ph] in for Vance. I just had a couple of question, one was on management services. I believe project and development service is about 19% or 20% of total revenues. I am just wondering if you can give us a sense of what areas in there are more susceptible to the current environment and then how does that percent look across the regions?

Lauralee Martin

Well, the biggest factor impacting the project and development business is the availability of capital and CapEx dollars. So when owners of real estate are stressed relative to their debt, the question is how do they get the dollars to attract the tenants or to do the build out and the tenants are also not finding the dollars to do their own build-outs. So you are getting that attention in the marketplace and actually owners that have CapEx dollars have a competitive advantage. So, any place were there it’s CapEx stressed is more difficult and we’ve done some rightsizing very quickly in that space where we are focused on is where there is a quick pay back. There is a quick pay back if we worked your energy services people in terms of project work that gives them quick energy pay back. So, everything is about managing cash flows at the client level and us reorienting our people into that and that’s what we are going to need to do. But the biggest piece of the business that has impacted short term is what relates to leasing and CapEx availability.

Vikram – Morgan Stanley

And would that be an issue more in the U.S. compared to the – some of the other regions?

Colin Dyer

It is the bigger business for us in the U.S. than in any other region. But in terms of its impact, this whole global crisis has been virtually that, it’s been global and the impact has been very similar in terms of timing. And also percentage of activity reductions, as I hope we’ve tried to illustrate, has been very similar around the world. So, similar percentages, but it all leads to larger business for us within the U.S.

Lauralee Martin

Yes I think – I just say, your point around the world, we bought a project management business in France and they have reoriented themselves into the investor space where the investors do have capital improvement dollars to attract tenants. And they are actually up significantly over last year. And we are also seeing a fair amount of work in our India business where again as companies look to costing, moving things into India makes sense. So, in that market, we are seeing an increase. But to Colin’s point, we have a bigger business in the U.S. and so the offsets don’t quite make that a perfect trade-off.

Vikram – Morgan Stanley

Okay thanks. And, Colin, you mentioned in an interview recently that you expect India to double over the next couple of years and I am just sort of wondering I know the annuity business is strong across Asia. What – and just from a positioning perspective, what are you doing in particularly in India and China, some of the larger regions in Asia, to gain share in the other parts of the business?

Colin Dyer

The comment was that I expected our – India as a proportion of our total revenues to sort of double from 2% to 3% to 4% to 6%. And in fact, during the quarter, for example, our revenues in India increased by about 15% and went from 2.5% to 3.5% of our total revenues already. And so that’s sort of – that is in progress just by the momentum we have in our Indian business. But the – if you look at India and China, in particular, those two large economies, as I said, is still growing, of the order of 5% to 7%. And compare that to Western Europe and the U.S., which are declining by 5% to 7%. So, you’ve got inherently more dynamic environments. We have been growing there rapidly, not only by acquisitions, but by organic investment as well. And the comments really reflect our continued intention to invest for growth and build in those markets then over time India and China both will be a larger proportion of total world GDP as they will be a larger proportion of our business. And we superbly placed in both economies to pick up that growth over the next 10 years.

Vikram – Morgan Stanley

Okay. Thank you.

Operator

The next question is from Will Marks with JMP.

William Marks – JMP Securities

Thanks. Just quick a couple of follow-up questions. In LaSalle Investment Management I think you mentioned, Lauralee, that you expect – or values haven’t fallen below what people pay. Is that correct or – I am trying to get a sense, do you expect any writedowns?

Lauralee Martin

My comments I think, which you are referencing is to LIC I and LIC II. The firm co-invests alongside our clients and the reason I talk about us being an investor alongside then we exactly are that because it’s a fiduciary role that LaSalle plays to their clients first and we invest to show our backing of those activities. What I said is relative to those funds and the review that we have had as an investor is, we will be getting our original capital back and a return on it though not at the targeted level when we made the investments. And that’s in aggregate.

William Marks – JMP Securities

Okay, fair enough. And then as we think about the values of the – of your overall LIM business, it’s reflected in – when you report the quarter, and the total amount under management, correct?

Colin Dyer

The ongoing valuations of the portfolio are reflected in that AUM number. We are valuing most – all funds and most individual accounts on a quarterly basis. So, there is some lag obviously between our AUM and actual current market conditions.

William Marks – JMP Securities

But most of the assets are appraised or valued on the quarterly basis?

Colin Dyer

Correct.

William Marks – JMP Securities

Okay, great. And just one final question. On departure, I know it’s not the best time to leave a job without anything else in front of you, but are you seeing any kind of departures in investment sales or other areas, people just leaving the business because it’s such a challenge right now?

Colin Dyer

Well, Lauralee and I were both a little worried about the way you were going, Will. No, this is not an environment where people are taking risks with their careers and generally I think you will find people staying in their jobs. In our particular case, a couple of – one interest staff – we have in Asia Pacific, traditionally in larger countries seen 25%-30% turnover rates. But that’s down into the sort of 15%-20% as the economic environment (inaudible) on there as well. But the way our professionals view the business, and this is the way they talk to us about the firm, the way they talk about the firm at the moment is that if you’ve got to be on any ship in an environment like this, this is the best ship to be on. We – that’s reflecting our relative performance, our relative gain in share. It reflects what our clients are telling our people. It reflects their own overall confidence in themselves and their colleagues. And in that that environment, therefore, they are finding very few reasons to be tempted to work for anybody else. And do we are seeing very low levels of voluntary departures by people.

William Marks – JMP Securities

Thank you.

Colin Dyer

Which is very pleasing and I think a great accolade to the culture of the business.

William Marks – JMP Securities

Okay, thank you.

Operator

The next question is from David Gold with Sidoti.

David Gold – Sidoti & Company

Hey, good morning. Slight name change. That was Dave Gold.

Colin Dyer

Hi Dave.

David Gold – Sidoti & Company

I suppose it’s close enough. How are you, Colin? So, just more broadly and I caught I guess some of this in the comments, I was hoping you can put it in a little bit better perspective. I guess looking at the moves that you’ve made in the first quarter by way of the deferring the bonuses to the second quarter and the dividend reduction and given the cushion that you had in the first quarter between that and your covenants, really, how should we think about and is it really just about being conservative and managing cash flow a little more aggressively or is there an expectation there potentially that things could get worse from here?

Lauralee Martin

Well, the bonus deferral was clearly to better manage interest expense, not just to better manage cash flows. And we didn’t move it by a dramatic amount. It was a few weeks. But even still we think that is just a better cash management and it goes along with the fact that as we move more to commissions, we just pay people out in a much more regular basis, so we don’t have a dramatic deferral. It all gets paid at one point in time in the year.

The dividend reduction, we just think it’s prudent, but we do feel very strongly that companies should be dividend payers. We appeal to global investors who feel that that is critical in thinking about a company. And long term it will be our objective to move back up to a higher return through that cash flow need.

David Gold – Sidoti & Company

Okay. And then just one other. If I remember, the covenants relief that was negotiated, that runs through the third quarter and then we go back to three in a quarter, is that right?

Lauralee Martin

There is pieces of it. The actual carve-outs go through the end of the year. The leverage ratio is through the end of the third quarter, you are correct. So there is different pieces, but the carve-outs go through the full year.

David Gold – Sidoti & Company

I see. So, essentially the calculation will be the same to year-end, but we just shift from 3.5 to 3.25?

Lauralee Martin

Correct.

David Gold – Sidoti & Company

Perfect. Thank you both.

Colin Dyer

Thank you, David.

Operator

And there are no further questions at this time.

Colin Dyer

Okay, well thank you, operator. As there are no further questions, we’ll wrap up for the day. Thank you all for participating and for your interest in Jones Lang LaSalle. We look forward to speaking to you again following our second quarter results. Good day, everybody.

Operator

Thank you, ladies and gentlemen. This does conclude today’s conference call. You

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