Jones Lang LaSalle Incorporated Management Discusses Q2 2013 Results - Earnings Call Transcript

Jul.30.13 | About: Jones Lang (JLL)

Jones Lang LaSalle Incorporated (NYSE:JLL)

Q2 2013 Earnings Call

July 30, 2013 6:00 pm ET

Executives

Colin Dyer - Global Chief Executive Officer, President and Director

Christie B. Kelly - Chief Financial Officer

Analysts

David Gold - Sidoti & Company, LLC

David Ridley-Lane - BofA Merrill Lynch, Research Division

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

Todd Lukasik - Morningstar Inc., Research Division

Operator

Good day, and welcome to the Second Quarter 2013 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 results of factors discussed in the company's annual reports on form 10-K for the year ended December 31, 2012, and in our other reports filed with the SEC. The company disclaims any undertaking to update or revise any forward-looking statements.

A transcript of this call will be posted and available on the company's website. A web audio replay will also be available for download. Information and the link can be found on the company's website. At this time, I would like to turn the call over to Mr. Colin Dyer, Chief Executive Officer, for opening remarks. Please go ahead, sir.

Colin Dyer

Thank you, operator. Hello, everybody, and thank you for joining us for this review of our results for the second quarter and first half of 2013. I'm delighted to introduce to you today Christie Kelly, who joins me on the call. She is our new Chief Financial Officer. Some of you may have already talked to Christie or have known her from her previous role of CFO at Duke Realty, and we're very pleased to have Christie with us. She will review our performance in detail in a few minutes, but first to summarize our results, we recorded healthy revenue gains in the quarter in what continues to be a cautious, but increasingly optimistic market environment. Second quarter fee revenue totaled $908 million, up 7% from the second quarter of 2012. Year-to-date fee revenue increased to $1.7 billion, 7% higher than the first half of last year.

For the quarter, we reported adjusted net income of $52 million or $1.15 a share compared with $51 million or $1.13 a share 1 year ago. First half adjusted net income was $68 million or $1.50 a share compared to $73 million or $1.63 a share 1 year previously.

To put the results into a broader context, let's look, as we customarily do, conditions in global economies and real estate markets. According to IHS Global Insight, GDP is set to increase globally by 2.4% in 2013, down marginally from their earlier projections for the year. Regional forecasts predict 1.6% growth in North America, no growth in Europe and 4.7% growth across Asia-Pacific. Projections for next year, however, show an improving trend, with 3.4% global growth projected with regional projections indicating rates of 2.7% in North America, 1.2% in Europe and 5.4% in Asia-Pacific. So there appears to be a significant shift developing in global sentiment as hope builds for increasing growth in the developed world in particular.

As we've noted on previous calls, to understand how these trends are affecting real estate markets it helps to look more closely at conditions within the region. Asia-Pacific continues to drive global growth [indiscernible] contending with the weak commodity market and higher GDP [indiscernible] economics is boosting GDP, in China [indiscernible] currency, high inflation and low growth. The eurozone is contending with ongoing fiscal tightening, private sector deleveraging and the impact of record unemployment. Central and Eastern European economies are also being constrained as a result. The growth is expected across Scandinavia, and expectations for the U.K. are improving. The U.S. is witnessing rising consumer confidence and related gains in the housing and broader industry sectors.

Cutting across all regions and also reflected in our own business, we did see a hesitant quarter in each of the BRIC countries. This will not affect their long-term growth prospects nor will it affect our commitment to those countries. The biggest issue in real estate markets worldwide is the continuing disconnect between the leasing and capital markets activity. In the slides that we posted on our Investor Relations section of our website, jll.com, Slide 3 highlights the distinction. Capital markets are performing well as a substantial way of capital allocated to commercial property investments more than offsets worries about fiscal tightening -- sorry, about tightening monetary policy. Debt is increasingly available, including across Europe, and our capital markets businesses are outperforming these already generally positive markets.

Leasing markets on the other hand remained generally weak as hesitant corporate occupiers facing slow revenue growth continue to defer occupancy decisions. In capital markets worldwide, investment volumes reached $121 billion in the second quarter, 10% above 2012 levels. Year-to-date, market volumes increased 12% over the first half of last year to a total of $225 billion.

In the quarter, prime office yields in 25 major markets declined by an average of 5 basis points globally to 5.7% compared with the first quarter of 2012. The greatest compressions were in Mexico City, down 50 basis points; Madrid, down 30 basis points; and Toronto, at 20 basis points.

Leasing data tells a different story. Gross absorption globally declined 5% compared with the second quarter of 2012, but decreasing by 25% year-on-year in some Asia-Pacific markets and 3% in both the U.S. and Europe. Vacancy rates across 98 world markets edged up by 10 basis points year-on-year to around 13% in the second quarter, largely driven by increases in Asia-Pacific and Latin America. The Americas vacancy rate fell 30 basis points to 15.9%, while Europe was down 10 basis points to 9.7% and Asia-Pacific vacancy rate rose to 11.8% in the quarter, up 180 basis points, as a result of a short-term supply and demand imbalance in secondary Chinese cities.

So for a sense of how these differing conditions in leasing capital markets worldwide affected our own results, I'll turn the call over to Christie.

Christie B. Kelly

Thank you, Colin, and good afternoon to everyone on the call. As Colin mentioned, consolidated results for the second quarter reflect our ability to achieve healthy revenue growth in what continues to be a cautious, increasingly optimistic market environment. Our performance also reflects the differing market conditions between capital markets and leasing. The capital markets continuing to be supported by low interest rates and leasing impacted by caution of large corporates globally. The 7% fee revenue growth on a local currency basis over a strong second quarter in 2012 demonstrated the strength of our platform and our continued ability to capture share across varied real estate markets globally.

Specifically, we grew Capital Markets & Hotels revenue by 37% across markets where overall volumes were up only 10% on average. And we kept leasing revenue steady against markets where gross absorption actually declined 5% on average. Additionally, we continue to steadily grow our annuity real estate services businesses such as Property & Facility Management, where fee revenue was up 8% in the quarter as property owners and corporate occupiers continue to look to us for outsourced real estate solutions.

Our LaSalle Investment Management business also had an excellent second quarter 2013 hitting $1.8 billion in capital raised. This reinforces the business' foundation from which to grow AUMs and annuity income.

Overall, we are seeing the investments in hiring and our platform translate to increased transaction volume and are focused on containing fixed operating costs while maintaining the variable costs that are key to converting our healthy pipeline. Our positive fee revenue growth did not translate to immediately into increased operating margin performance, primarily as a result of muted high profit revenue in BRIC countries, as well as start-up activities on new facility management contract, which I will discuss in more detail at the segment level.

In the Americas, strength in office investment sales, multifamily financing and real estate investment banking services, which are all well dispersed across U.S. markets drove the 27% increase in capital markets revenue in the quarter. U.S. Leasing delivered its growth in both primary markets where we have very strong and established market position, as well as in the secondary markets where we have focused our recent investments to gain share, demonstrating balanced performance against an otherwise down market. The results in both of these businesses outpace market volumes, and we continue to be positive about our transaction pipeline.

The U.S. transaction performance was offset by slowing in Latin America, particularly Brazil. Our businesses in Brazil and Mexico had a strong comparable quarter in Q2 2012, coupled with an overall deceleration in leasing during the first half of 2013. The outlook for Mexico remains positive, but Brazil less so. We are watching developments in Brazil and have reduced our cost base there to be in line with lower anticipated activity.

In Property & Facility Management, in addition to growing revenue from existing clients, we are winning large new facility management assignments, but the transition period before these assignments generate revenue in the second half of the year requires upfront staffing and resources. Looking forward, transaction pipelines in the Americas are healthy. We're managing developments in Brazil, and we'll continue to actively manage our cost base to drive performance.

In EMEA, growth in the U.K. and France drove the 28% increase in Capital Markets & Hotels revenue in the quarter, and we also saw increases in trading activity primarily in Spain. In leasing, Russia and Germany were outsized contributors to the 20% revenue growth delivered in the second quarter 2012 as significant year-over-year decreases in second quarter 2013.

In project and development services, our Tetris fitout business continues to grow and is expanding this offering to provide services for hotels and retail clients. With respect to expenses in the region, we have been actively managing our cost base in the business. Our EMEA operating margins are up significantly for the first half of 2013 versus 2012, reflecting our upbeat performance and flat overall markets.

In Asia-Pacific, revenue grew -- growth of 14% for the quarter was led by both 74% transactional growth in Capital Markets & Hotels, well above market volume increases of 18% and by annuity growth in Property & Facility Management of 14%. Leasing revenue was down 10%, but outperformed market volumes that were down 25% across the region, reflecting broad-based hesitancy among corporate clients to make space decisions.

With respect to operating income in Asia-Pacific, the strong performance in capital markets was offset by the decline in leasing, coupled with slow corporate client decision-making and a slightly lower profit contribution from India and China, given the mix of business growth in these countries. We will continue to drive revenue with continued active cost management as we invest in growth throughout the region.

Moving to LaSalle Investment Management, LaSalle's strong capital raise during the quarter is a real milestone in our company and a sign of confidence in the firm on the part of our investors. Our roll forward of AUM from first quarter to second quarter 2013 include a capital investments of $2.7 billion and dispositions of $2.8 billion. Advisory fees continue to be stable and consistent with recent prior periods. And the $9.7 million of equity earnings for the quarter reflects continued positive investment performance for our clients. While our growth remains healthy, we will continue to manage through the mixed environments in our segments by responding to the condition specific to each. Indicative of some of our recent efforts were restructuring acquisition charges of $6.6 million in the quarter, which included employee termination costs related to position eliminations in EMEA and the Americas in addition to the wind down of integration costs from the King Sturge acquisition. We will continue to work balanced investments and growth opportunities in our business while proactively managing the cost base in alignment with market movement.

With respect to our financial position, we reduced our net debt in the quarter and are committed to maintaining our investment grade balance sheet. In total, we are well positioned with our balance sheet and have good revenue momentum going into the second half of the year.

I just like to share from a personal perspective that I'm absolutely thrilled to have joined the firm and look forward to working with my new colleagues, our clients, as well as our investor and analyst community. I'll now turn it back over to Colin who will share some highlights of our recent business wins.

Colin Dyer

Thanks, Christie, and we share your happiness [indiscernible]. Turning to our business wins for the quarter. Slide 4 shows a few examples of recent wins across businesses and geographies. In our corporate outsourcing business, we won 27 new assignments in the first half, expanded our relationship with 4 more clients and renewed 9 contracts. One major renewal was with Shell, for services in the clients 80 million-square-foot portfolio across EMEA, Asia-Pacific and Latin America. An important new assignment boosting our broadest strategic push into Canada involve the full outsourcing of facility management, projects, transactions, lease administration and strategic consultant for Canada Post Corporation's 17.5 million square foot national portfolio. We also saw good activity in our local market level Corporate Solutions business, which focuses on mid-market corporate occupiers. Today this year we won 28 new assignments, totaling more than 58 million square feet of space.

Turning to investment sales. We closed the $260 million sale of 350 Madison Avenue in Manhattan on behalf of Kensico Partners -- Properties. Our U.K. corporate finance team supported by both our U.S. health care capital markets and U.K. health care advisory teams completed a GBP 300 million restructuring for Myriad Health Care, one of the UK's largest health care providers. In Australia, the AUD $458 million Australian sale of Rain Square in Perth was the largest single asset sale in that city's history. Second quarter leasing tenant rep and property and asset management transactions included the property management assignment for Prudential Plaza in Chicago, 2 office towers totaling 2.2 million square feet of space. In Russia's largest ever industrial agency deal, the leasing assignment for the 775,000 square foot Logo Park North in Moscow. And in Australia, the management assignment from QIC for a 7 building office portfolio in Brisbane, which encompassed 1.6 million square feet.

LaSalle Investment Management completed a very promising second quarter, marked by strong capital influence across geographies, investment cycles, styles and client segments. As Christie noted in her remarks, LaSalle raised $1.8 billion of capital in the second quarter, bringing first half totals to $2.4 billion, indicating a steady return of institutions to their most trusted managers.

Several closings were completed in the quarter, including a second close for La Salle real estate debt strategists, a European debt fund and the first close for La Salle's Asia opportunity fund for our Pan-Asian opportunity fund. And just a few days ago LaSalle added another $400 million to its year-to-date capital raise with the final closing of the La Salle Japan Logistics Refund, our logistics and development and management fund in Japan. These are significant developments in the steady recovery of LaSalle's position post the great financial crisis with the interest in the Asia platform being particularly satisfactory.

LaSalle's assets under management totaled $46.3 billion at the end of the second quarter.

Looking forward, Slide 5 shows our full year projections for global investment sales and leasing markets. Once again, distinctions between the 2 are clear. With the first half yielding $225 billion in investor activity. We expect full year market volumes of between $450 billion and $500 billion, an increase of 5% to 10% over last year. With captivating forces at work, we do not anticipate that the upward trend in rates will have a significant effect on transaction volume, but could actually enlarge the market by pushing investors further out along the risk curve in search of yield.

We anticipate that capital values will increase by 3% to 4% year-on-year, an indication of further market strength. We expect the leasing markets will be flat year-on-year. That's an improvement on first half totals with modest growth of 0% to 5% in U.S., flat in Europe and Asia-Pacific, down 10% to 15%.

In the funds management area, we believe that capital flows will continue to strengthen in the second half of the year as investors continue to allocate funds to real estate.

Turning then to the outlook for our own business. It's clear that the cyclical recovery in real estate activity is progressing globally. This, together with stable to improving short-term market prospects, means that we're approaching the seasonally stronger second half of the year with confidence. We believe that our operating structure and competitive position remains strong, and we will continue to invest prudently in growing our market share and increasing our operational productivity.

So before we take your questions, I want to mention a few of the independent awards, which we received during the quarter. Not only do they reflect the quality of our people, but also our commitment to client service, reinforcing our reputation as leader in real estate services and investment management. And I'll focus this time just on Asia-Pacific. At the International Property Awards in Asia-Pacific, we won 11 awards, including Five Star Best Property Consultancy awards with Singapore, Thailand and Indonesia. In Australia, the Royal Institute of Chartered Surveyors named as the #1 Retail Sales Agent and #1 Hotel and Leisure Sales Agency. And in India's Royalty Plus Excellence Awards, our own Gagan Singh was celebrated as Female Real Estate professional of the year. Not only do such awards illustrate our business success, but they also underscore the professionalism and higher ethical standards, which we so value. That helps us continue building our profitable and sustainable business enterprise for all of our stakeholders. So with that, we'll now take your questions. Operator, perhaps you would please explain the Q&A process.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question is from David Gold with Sidoti.

David Gold - Sidoti & Company, LLC

Just a couple of follow-up questions for you. First, can you give a little bit more color? Obviously, a number of outsources or successful outsources they have burdened us with costs in the second quarter. Was curious if you can give some color: A, on order of magnitude, how much of the incremental cost is related to that and part 2, what type of revenue might we expect as we start to ramp up in the third quarter from these outsources?

Colin Dyer

Yes, it was a particularly -- we're very pleased to have one, but it was particularly lumpy quarter where we had to start-ups on 4 big mandates, which were focused in the U.S. and Asia-Pacific with a little bit of Europe. And together, they ran into several million dollars of start-up costs. We won't specify more accurately on that. And as we said in the prepared notes from Christie, they were focused on the Americas and Asia-Pacific. So good that we have them. It's all in Q1. We probably slightly underestimated the impact of the start-up process, but we're through -- we're working our way through that and expecting a positive contribution as the year progresses.

David Gold - Sidoti & Company, LLC

Okay. So if we look at -- the variance between, say, my estimate and what you reported, a fairly large -- much higher on the operating expense side. And I guess as you explained in the release, it breaks down between those corporate outsourcing client costs and the variable comp increase. So I guess another way to ask is, if we look at the big jump there, how much of it relates to the corporate outsource versus the variable comp? And maybe another way to put it is, how big of a surprise was the incremental cost here? And I guess lastly, if I can pile them on, when we think about the second half of the year, so presumably, I guess that's to say the revenue will at least offset the incremental cost in the second half and do we get some catch-up?

Colin Dyer

Well, I'll answer that by reading the release again, David. But to summarize, I think where you'd find us sort of do an evaluation or a reconciliation of your numbers. I haven't got the detailed breakdown of how you got that but important...

David Gold - Sidoti & Company, LLC

But I'm pretty close to The Street.

Colin Dyer

Yes. But in broad terms, the pickup which we saw in capital markets was offset by the BRIC point that we made, which was a general reduction in profitability from Brazil, Russia, India and partly China. So those 2 kind of were a wash. The 2 items then, which took us down by -- for our year-on-year by about 100 basis points, we're leasing on PDS [ph], which relatively underperformed and the Corporate Solutions impact, which we just discussed. So there's the reconciliation year-on-year to our numbers.

David Gold - Sidoti & Company, LLC

Got you. Okay. And then one other, more broadly. When we think about the impact -- Jones Lang is picking up ground, particularly on the capital market side, impressively relative to the market. What's the secret sauce on that, is it -- I mean just pure market gains at hires or is there something more that you've done during the downturn that basically is getting in those outsized market share gains?

Colin Dyer

There is between the regions, David, the story in the U.S. is as we said consistently for the last few years a strategic decision to build the capital markets business, which is -- let's call it the same caliber as our European Asian businesses where we in those cases are leaders in those regions. It'll take us a while to get there, but we've been investing behind that, adding people. And the process of adding people is now beginning to build momentum, and that's attracting new business. And the way capital markets works, as you do deals, you become noticed, you get credibility and you get offered new deals, and so it builds in an exponential sort of way and momentum is picking up. So it's one phenomenon. In Europe and Asia, we've always been strong. We obviously in Europe added the King Sturge's capital markets business to our European capabilities. So there was acquisition-driven growth there, but the phenomenon that we believe is slightly different. But in those markets, there's a lot of international capital flowing, particularly into London or Paris, but also into Singapore, Hong Kong and the major Asian centers. That money is flowing in through a larger international players and that obviously is our sweet spot, and we are very well linked to our European players who are moving capital to Asia, U.S. and Asian money in particular that's headed for Europe. So that's another phenomenon. And the third factor in Europe is that although it is a sellers market, particularly for good quality assets, we see sellers increasingly looking for really high quality execution. And so they're moving towards the better brand names and moving towards particularly the companies that can put them in touch with international capital for the very large deals, which have got some very strong pricing attached to them. So put that all together, that's an explanation across the world of why we believe we're picking up share.

Operator

Your next question is from David Ridley-Lane with Bank of America.

David Ridley-Lane - BofA Merrill Lynch, Research Division

I'm going to be rather boring, I guess. So looking at the adjusted operating margin in the press release, and that excludes the gross contract cost from both revenue and expenses, that was down 100 basis points year-over-year in the second quarter. I'm just wondering, given how strongly the capital markets revenue has grown, I'm surprised that BRIC revenue declines were significant enough to offset all of that positive momentum. Are there other factors that are kind of dragging profitability?

Colin Dyer

Yes, the BRIC revenue decline was positive. It was -- more accurately stated as profitability decline, which was a mixture of yes, revenue, but other factors such as margin shifts, drop in leasing business in those countries, and a short-term, we believe, uptick in bad debts in 1 or 2 of the geographies. Yes it was sufficient to reverse the margin increment for the capital markets improvement as you pointed out.

David Ridley-Lane - BofA Merrill Lynch, Research Division

Okay. And then in gauging that margin impact from the upfront costs, I mean 1 year ago the gross contract cost were $69 million. This quarter, they're $81 million. So it's up 17% or so. And then you compare that against property and facilities management fee revenue growth, that's only 8%. So I guess what you would say is, not to put words in your mouth, but if the gross contract cost had grown 8% instead of 17%, that would have been what you would have otherwise expected excluding these 4 large deals, is that the right way to think about it?

Colin Dyer

Not quite, because the gross contracts accrue during the year, and they are driven by people costs, which until we've been adding people to our employee base, those people costs are, both in our employee base in numbers, but also in the cost base of those cost base or those cost to simply pass through by us to the flag subcontractors. So -- because that fee -- because the revenue from the gross contract has been growing faster than the fee-based revenue growth, that's the reason for the uptick in the growth -- as you said, the faster growth in the gross contract number.

David Ridley-Lane - BofA Merrill Lynch, Research Division

Okay. All right and then just in the timing of when these contracts, 4 large deals turn profitable, I mean you would expect that to be occurring right now in the third quarter?

Colin Dyer

Yes. Normally, that's sort of 3 to 6 month ramp-up time with these contracts. These will be more like 6 to 9. From Q3 onwards, we expect them to move into profitability. What happens typically is that we staff up, put in place, for example, a regional structure in Europe for one European FMCG manufacturer I can think of, and that if the contract delays coming on stream for reasons of the client being unable to move quickly enough, we have the costs, but we are unable to get going with the client and generate the revenue. So it's a confluence of a number of those circumstances, which cause that.

David Ridley-Lane - BofA Merrill Lynch, Research Division

Okay. So we could see one more quarter of adjusted EBITDA margin decline year-over-year in the third quarter then?

Colin Dyer

Yes. So that's -- so as I suspect it will burn off more slowly, by Q4 it should be coming through nicely.

David Ridley-Lane - BofA Merrill Lynch, Research Division

And is the expectation still to have -- adjusted EBITDA margin expansion in 2013?

Colin Dyer

Well, we don't make comment on that subject. We have said you are...

David Ridley-Lane - BofA Merrill Lynch, Research Division

Can't blame me for trying.

Colin Dyer

Yes. Our goal is to continue maintaining and expanding those margins, but we are not making a comment for the rest of this year.

Operator

Your next question is from Michael Mueller with JPMorgan.

Michael W. Mueller - JP Morgan Chase & Co, Research Division

I guess, taking in that line of questioning, is the -- just focusing in on the expense side putting the revenues aside for a minute. Is the ramp-up in those costs, was it completed in the second quarter or is there still a ramp-up in cost occurring in the third quarter as well for those 4 contracts that you were talking about?

Colin Dyer

That's done. So that's the running rate on the cost side.

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Okay. And then switching gears for a second. Can you talk a little bit about the idea of building out, is it just capital markets to go after more secondary market businesses looking at leasing, is it just capital markets, I mean how significant of a buildout could that be, how far into that process are you?

Colin Dyer

It's not in the U.S. and it's a continuation of the process we have described to you. I'll just describe to you building that capability across the U.S. When we say primary markets, we are talking initially about the top sort of 7 U.S. cities, the cities beyond that, which we're referring to as we grow our capability basing, for example, Denver or Atlanta or Houston. So these are still very significant cities. We're not headed into the smaller Mid-eastern -- Midwestern cities and sort of dilute our activity. We're very focused on the major renovations. We have a lot of runway if you look at our market share. It's still sub 10%, so we have a lot of space to grow into.

Michael W. Mueller - JP Morgan Chase & Co, Research Division

So you're -- when you think of those target markets, you're very early in this process?

Colin Dyer

Yes. Again, you look at our relative share in that particular sector in the U.S. and this is a multiyear activity.

Operator

[Operator Instructions] Your next question is from Brandon Dobell with William Blair.

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

Just want to focus, not surprising on costs just for a second here. It sounds like from the remarks that we shouldn't expect any kind of, I don't know, reversion or reversal on the fixed cost side of the business, sounds like from kind of people and office and space perspective you feel pretty good with investments you've made i.e. you haven't overreached the markets in any of those geographies.

Colin Dyer

No. I'll take 2 of those points, so the office space and general fixed operating costs were both top 3% growth. The growth in costs, which you've been referring to, has been the variable cost, which have been around 10%. And if you have to pick it, you'll take the variable because the variable and you can -- you need to dial them back quickly. But also, they're generally indicative of people traveling and spending marketing dollars, for example, in anticipation of businesses building, and that's our read of the way that those numbers have grown.

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

Okay. So it sounds like from a, I guess, a headcount point of view or headcount using dollars to grow their opportunities, second half kind of pace of expense growth should mirror the first, obviously taking out the expenses related to those contracts that we talked about, but just from outside of that, that makes sense?

Colin Dyer

That does -- done some restructuring as you will have heard from the call. We've put another $5 million, $6 million into restructuring. It's spread partly in the Americas, Brazil we mentioned. Some of it's been in the U.K. and that's in line with our policy of not taking a one size fits all to cost control where we see businesses that need cost improvement or some restructuring activities as of local market circumstances, we mentioned Brazil then we take action. We don't hesitate. There's no problem in doing that. What we do not see and we don't anticipate at this stage any need to make a more broad-based cost reduction activity. We believe our operating and cost structure is correct for the market because we believe the cyclical opportunities are intact, and we believe that the short-term market prospects are good, so we should see good return on those people costs that we put into the business.

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

And then final one for me. Looking at Slide 5, the capital markets volumes and leasing volumes. I guess the predictions -- or projections for 2013, maybe some sense of your confidence around the different edges of those growth rate, so on the leasing side do you think there's more forces at work that push that better than flat or is the rest of that slides below that, given some of the dynamics going on in macroeconomy stronger than the rest it would be better than flat?

Colin Dyer

Yes. Well, if you look at the full year, the full-year picture is more positive than the half year we've just had, so we are expecting a better second half performance in leasing, broadly across markets. Why do we say that? In the Americas, there are some real indicators. We're seeing more visits by prospective clients to space. And I know some of the market information aggregate are seeing that. We're also sensing more confidence in corporate America. And certainly, the activity in the industry, generally speaking, is up year-on-year. In Europe, this is not a broad-based comment. This will be focused on Paris, London, in our case, Russia, where we're expecting to see some good improvement and Germany still seems to be picking up and recovering further. Asia is selected markets, not Australia, because that feels to us like it's going to continue to struggle with the commodity issue, which is China linked, but we believe that a better picture could show through, and we're seeing that in the major centers of Hong Kong, Tokyo and Singapore. So it's very selective around markets, but we just feel the general tone is more positive and we've been picking that up not just from our researches who put these numbers together independently and objectively from market data, but also from our own internal reviews of the quarter's operating activity, and we obviously look forward and talk to people about their view on the markets. The capital markets picture, it's really a continuation of what we've seen. And so whether we get 5% or 10% growth for the full year on a 10% half 1, it's really more of the same, driven by the same phenomena we've seen lots across border capital looking for high quality assets in the major European and U.S. cities, international moneys gaining confidence and flowing across border. Generally, low level of interest rates still in good availability on debt in the U.S., Europe having change from Asia where it's always been available. I think the phenomenon of what'll happen around the interest rate cycle I commented on, we see it not impacting the weight of equity, which is looking at real estate. The world that we saw just a few weeks ago had no impact on equity's interest in real estate. But if the interest rates do rise against compressing yields in the better markets, as I said that's likely to push people out along the risk curve and we're seeing secondary cities open up across the U.S., we're seeing interest in Spain, in -- secondary in assets in Spain for the first time in several years, people we believe will go outlong the risk curve for yield and that would perhaps enlarge the market from what's been very focused around low risk assets in major centers.

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

And then final one, just numbers question. As we think about capital needs of the business this year as a combination of kind of traditional CapEx plus co-investments, how should we expect things to play out?

Christie B. Kelly

Yes, I think, Brandon, as we take a look at that, capital needs for the business are primarily centered around investments that we're making in IT to really drive productivity for our platform.

Operator

[Operator Instructions] You have a follow-up question from David Ridley-Lane with Bank of America.

David Ridley-Lane - BofA Merrill Lynch, Research Division

Can you just review the numbers for La Salle in terms of the capital raise and the dispositions on the quarter, and then maybe give a couple of thoughts on what you're expecting in the back half?

Colin Dyer

Well, we'll repeat the numbers we've mentioned. Capital raise for the quarter was $1.8 billion, again broad-based came from Korean sources. It came from European doctors, retirees funds in Germany. It came from U.S. institutions. We're picking up money from retail investors through Merrill Lynch product. So there's a broad-based capital raise. And I said it was very encouraging that is being aimed at our platform on a global basis. So the Asia funds that we mentioned, the European debt fund, which is an opportunistic fund, our U.S. value-added fund as well, so really broad-based sourcing and destination of capital. You add that to the $400 million we raised in -- just post year-end and the $1 million or so in the first quarter, the total capital raised at the end of July is about $3.4 billion, and that's equity, not debt. So add debt to that and we're back into a $5 billion to $6 billion of spending power, which is very satisfactory. And it's a big change from the last 2 to 3 years where we've seen obviously institutions being very hesitant about putting money out into real estate beyond very, very safe core product where we've seen them staying close to home, and that's changing as well. So it's all in all a good picture for LaSalle in terms of the capital raise. And as I said, for me having seen this film through from good times through the recession to now, it really marks a turning point in LaSalle Investment Management's position. In particular, the money flowing into Asia is very heartening, because that have been the area that we were most concerned about losing position in. In terms of the acquisitions and debt dispositions, they were about a wash at $2.75 billion, and there was a $1.3 billion year-over-year foreign exchange impact, which was actually a reduction. So I hope the numbers tally for you. If they don't, we'll be happy to square them for you offline, David.

Operator

Your next question is from Todd Lukasik with MorningStar.

Todd Lukasik - Morningstar Inc., Research Division

Just to follow up on LaSalle Investment Management, I guess, given the backdrop in commercial real estate value and fund flows over the past few years I guess I would have expected to do a bit better over that time frame than it has. And you just talked about the success that you guys are having recently with fund flows, but are there any other major drivers on that business that you'd like to highlight. I guess, what's your expectation for organic growth in revenue and EBITDA for that particular business line?

Colin Dyer

Well looking back, Todd, over the last 4 years. One of the phenomena about the Investment Management business in real estate is that it gives into recession about 1.5 years after the advisory business, and it comes out about 2.5 to 3 years later. And this was a particularly bad recession. The reason for that is it take institutions a while to re-base their allocations to rethink their preferences by sector and obviously go for liquid sectors and make a lot of money real fast in REITs and equities early on in the cycle, and they put their money into the longer-term private equity real estate sector rather slowly and after they've seen a more price maturity in the liquid sectors of their investment base. So that's some of the forces that have been at work. And the money that's been flowing into real estate over the last 2 to 3 years and you've heard the numbers from us growing from a low of a couple of hundred million -- billion dollars in 2009, 2010 to the current $450 million, $500 million, that has been money, which has been nimble, been able to move quickly, has been sovereign wealth from Asia, some of it has been institutions investing directly and some of it has been legacy money in private equity funds being put to work in recovering market conditions. So now finally, we're seeing institutions move more decisively back into funds, you can track in the period [ph] numbers as well where they're showing similar signs of life. And we are seeing flowing back into the funds across all investment styles now, so they've got the confidence to go out along the risk curve and give us money to do opportunity fund in Asia, value-added fund in Japan logistics and that's a heartening change because they were very risk-averse up until a quarter or 2 ago, and we're seeing also individual mandates being awarded more in the core area, particularly in the U.S. and Europe where we have excellent businesses and excellent track records, broadly then for the balance of the year, we expect to see continued good inflows of funds. I'd be surprised, but pleased they're at the same levels as we saw in this quarter, but that phenomenon of that trend seems now to be set and we are planning on it. We would expect to see continued balance between acquisitions and disposals, so -- and we'll build the acquisition pipeline of the funds to invest growth during this year and next. In terms of incentive fees, we've had some of those in the first quarter and half of the year. We have a couple of funds maturing in the second half year. So we'll be in the way potentially of the opportunities you earn in incentive fees, but there is always such a last-minute thing depending on the values of the final acquisitions -- sorry, the final asset disposals in these funds that is really very hard to predict.

Todd Lukasik - Morningstar Inc., Research Division

And in terms of fund flows, I mean it sounds like high single-digit or maybe even low double-digit rates of growth, and assets under management might be possible on an annual basis. I mean is that something that has potentially a multi-year run to it or is that something that you think is more of a short-term catch-up at this point?

Colin Dyer

No. You'll see if you look back through the valuations, it's been fairly steady around the mid-40s, but that was against the background of relatively modest funds inflow from new investments. As that funds inflow picks up, as we see continuing reevaluations of the existing portfolio, I'd expect to see that number grow initially slowly. So it's not going to go gangbusters, but it will grow single figures then move into double figures in the course of next year of growth in assets under management. That's without acquisitions. And as we said before, we have been open to acquiring portfolios and platforms in the asset management area.

Operator

[Operator Instructions]

Colin Dyer

It sounds as though the question flow has dried up.

Operator

That is correct, sir. Do you have any closing comments today?

Colin Dyer

Nothing with great substance. I just like to thank everybody for their participation. We are available for questions if you have any, and we look forward to speaking with you again following our third quarter results. Thank you very much and have a good evening, everyone.

Operator

Thank you, everyone, for joining today's conference. You may now disconnect.

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Jones Lang LaSalle (JLL): Q2 EPS of $1.15 misses by $0.27. Revenue of $989.4M misses by $5.83M. (PR)