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Executives

Colin Dyer – President and CEO

Lauralee Martin – CFO and COO

Analysts

Sloan Bohlen – Goldman Sachs

Bose George – KBW

Michael Mueller – JP Morgan

David Gold – Sidoti & Company

William Marks – JMP Securities

Brandon Dobell – William Blair & Co.

David Ridley-Lane – Bank of America

Ralph Davies – JP Morgan

Jones Lang LaSalle Incorporated (JLL) Q3 2010 Earnings Call Transcript October 27, 2010 9:00 AM ET

Operator

Good day and welcome to the third quarter 2010 earnings release conference call for Jones Lang LaSalle Incorporated. Today’s call is been recorded. Any statements made about future results and performance or about plans, expectations and objectives are forward-looking statements. Actual results and performance may differ from those included in the forward-looking statements as a result of factors discussed in the company’s annual reports on Form 10-K for the year ended December 31, 2009 and in our other reports filed with the SEC.

The company disclaims any undertaking to update or revise any forward-looking statements. A transcript of this call will be posted and available on the company’s website. A web audio replay will also be available for download. Information and the link can be found on the company’s website.

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

Colin Dyer

Thank you operator. Hello everybody, and thank you all for joining us for this review of our results for the third quarter and the first nine months of 2010. With me today in Chicago is Lauralee Martin, our Chief Operating and Financial Officer.

To summarize this quarter, the market recovery we have talked about on our first and second quarter calls continues around the world, market growth rates are becoming more stable, although at difference speeds in different geographies. While everyone would like the pace to be quicker, it does look to be a steady, healthy growth trend.

We, as a firm, continue to invest in growing market share in this environment, and during the quarter saw healthy revenue growth in both our transactional and annuity businesses. In the third quarter we reported net income of $37 million. That is or $0.84 a share and that compares with $20 million or $0.46 a share for the same period one year ago.

Year-to-date net income was $69 million or $1.57 per share compared with a net loss of $56 million or $1.50 a share for the first nine months of 2009.

Revenue for the third quarter was $708 million compared with $595 million in the third quarter of last year.

Revenue totaled $2 billion for the first nine months of 2010 compared with $1.7 billion, one year ago, an 18% increase, or 17% in local currency. And finally, our board of directors was pleased to declare a dividend of $0.10 per share of our common stock.

I will comment on conditions in global real estate markets first, and then Lauralee will discuss our performance in these markets. The latest forecasts from Global Insight indicate the global economy will grow 3.7% this year. Asia-Pacific, excluding Japan, is expected to grow at a healthy 8.2%, Japan at 2.7%, the Eurozone 1.5%, and the US 1.6%. We are seeing a similar trend of hierarchy in our real estate markets.

Returning to those markets, we posted slides in the investor relations section of our public website, JonesLangLaSalle.com.

Slide 3 shows the Jones Lang LaSalle investment sales clock, which we update quarterly. The clock summarizes conditions in major markets at different stages of the real estate cycle. As you can see in the third quarter of 2009, capital values were falling in most major real estate markets. One year later, the images reversed with values rising in most markets or bottoming out in the remainder.

Total global commercial real estate investment reached $132 billion in the first-half of this year, compared with $76 billion in the first half of 2009. Preliminary figures indicate that the third quarter global volumes stood at $69 million, virtually unchanged from quarter two. Cross-border volumes are up everywhere, accounting for 43% of transaction volumes, nearly back to the 45% level that we saw at the peak of the previous cycle, and confirming this continual globalization of real estate capital flows.

In the US, capital market momentum continued to build with third-quarter volumes reaching nearly $24 billion, and year-to-date transaction volume was approximately $58 billion, 78% higher than the same period in 2009. Preliminary figures indicate that investment volumes in Europe fell by 12% during the quarter 21 million euros, which is a 5% increase on Q2 2009.

Asia-Pacific provisional figures indicate that aggregate volumes increased by 12% on the quarter to approximately $18 million, with cross-border activity increasing more rapidly at 23% compared to the second quarter, and a total of $5 billion.

All this means that a significant weight of equity capital is still targeting prime assets across all sectors, and with the low supply of high quality assets to meet the investor demand, prime yields are continuing to compress. Prime capital values are rising most notably in many of the world’s top office markets, which have risen by 30% to 50% over the past year in the major cities of London, Washington DC, Paris, Shanghai and Hong Kong.

Moving to slide 4, this tells a similar story about conditions in leasing markets worldwide although the progress here continues to trail the recovery in global capital markets. The US saw the second consecutive quarter of positive absorption with 8.8 million square feet of occupancy gains across the 41 markets that we cover. The gains shifted year-to-date absorption to positive for the first time in 2007, with net absorption totaling 5.5 million square feet.

In Europe, net absorption was positive for the fifth consecutive quarter with occupied stock across the region increasing by 900,000 square meters. The total was driven largely by increases in the major cities, London, Paris and Moscow.

In Tier 1 markets, which we monitor in Asia Pacific, aggregate net absorption totaled 1.5 million square meters in the quarter, and that is a 27% increase compared to the second quarter. Leasing demand continued to improve in most Asian markets due to relocations, upgradings and expansion at both multinational and domestic firms resumed healthy hiving levels across the regions.

These generally positive trends in leasing are putting steadily more tension into the leasing market demand and pricing, inducing companies who have delayed acting to more ahead and secure forward space requirements. This in turn is underpinning the growth that we have seen in the capital values of commercial real estate over the last 18 months.

So against this generally positive cyclical recovery as background, I will turn the call over to Lauralee.

Lauralee Martin

Thank you Colin, and good morning to everyone on the call. Similar to previous quarters I will not repeat the financial results available in the press release and supplemental slides, but will focus instead on the progress we continue to make against our 2010 priority, which we have outlined on slide 5.

First, we continue to make progress in growing our market share. For the past two quarters, we have discussed transaction activity increasing in the market, and how we’re capitalizing on these opportunities around the globe. This quarter continues that trend. Leasing revenue was up by more than 20% in each of our regions this quarter, with the most significant percentage increase in EMEA, up 42% in local currency compared with the year ago.

The Americas also had a strong quarter in leasing, up 38% compared to the third quarter of 2009 (inaudible). Asia, which emerged from the downturn in the third quarter of last year, has a more normal comparable, still reported a solid increase of 21% in local currency, 27% in US dollars. Project and Development Services, or what we call PDS, benefited from increased CapEx availability by investors in EMEA, by business outsourcing expansion in India, as well as growth in the industrial, logistics and healthcare sectors in the United States.

We are also pleased with our cross selling efforts to new and existing clients for this service, furthering our internal G5 goals, which we call connections. In the third quarter of 2010, PDS revenue was up 25% on a global basis. There was a large increase in our PDS revenue in our Asia-Pacific region, up 69% from the third quarter of 2009, which was driven by corporate outsourcing expansion, but also included about $6 million of revenue from growth contracts, where reimbursed costs are included as both revenue and expenses. Adjusting for the impact of the growth contracts, PDS was still up more than 25% in Asia.

Earlier this year, we committed to improving our operating margins and maintaining cost discipline through the market recovery. We have demonstrated margin enhancements throughout 2010, including in the third quarter. Adjusting for restructuring charges, third quarter firm operating margin was 8.8% with an EBITDA margin of 10.9%, compared with 8.2% and 9.8% respectively last year.

On a year-to-date basis, adjusted operating income margin was 7.2% compared with 4.3% last year. Our third-quarter compensation to revenue ratio was 65.4% compared with 63.8% in the third quarter of 2009, and 64.4% in the second quarter of this year. The increase reflects the impact of several significant new client wins in our corporate solutions that require startup hiring and transition costs in the third quarter in advance of their revenue generation to begin the fourth quarter, as well as the timing of incentive compensation accruals, which in the United States in 2009 were heavily backed ended into the fourth quarter due to the late market recovery.

On a year-to-date basis, we have seen improvement from 2009, with the comp to revenue ratio at 65.4% for the first nine months of 2010, down from 66.3% in 2009, and we expect our full-year ratio to improve further against both the current year-to-date percentage and the full year 2009 percentage.

We have also reduced our operating and administrative costs by 1.5% of revenue in the quarter and 1% on a year-to-date basis compared to last year, demonstrating disciplined management of our controllable expenses. Cost control also remains a key focus of our clients, and our ability to add value and support their goals is validated as we continue to expand our leadership position in both property and facility management outsourcing space.

During the third quarter, property and facility management revenue grew 10% over last year on a local currency basis, driven by a 20% increase in the Americas. We are pleased that we reported increases in each of our geographical regions, and that revenue from these services continues to be between 25% and 30% of overall firm revenue providing a strong annuity revenue base to our performance.

Increased revenue, of course, is driven by implementing new wins and expansions, which Colin will discuss shortly. Our priority for LaSalle Investment Management continues to be leveraging our global scale. In the third quarter, we reach $5.3 billion of net capital raise on a year-to-date basis, including one billion in the third quarter, reflecting investor confidence and our strong reputation in the market.

We have invested $2.5 billion year-to-date on behalf of our clients, $1.7 billion of those investments were made in the third quarter, mostly into funds where we’re filling commitments, so minimal increase to our advisory fees. This was our strongest capital investing quarter of the year. Our advisory fees have remained relatively steady this year, as our account takeover success has offset asset dispositions and value declines.

For 2011, our advisory fees will continue under pressure, as investors continue to review relationships and challenge fee structures. Specifically, the investment periods for two large funds in Asia are scheduled to end midyear, and will most likely expire with uninvested committed capital from which we are currently being paid advisory fees. We will be commencing new ramps of capital rates in the fund series [ph], but as the market has moved such that new fee structures are more focused on funds invested, this will delay replacing these currencies.

The positive aspect is that we will also be resetting investment hurdles to increase our ability to again earn incentive fees on the new funds going forward. We do expect that this pressure will be partially offset by investment activity in newly established funds, and as we are accelerating investment in several of our funds in separate accounts pay acquisition fees.

We continue to be very pleased with the annuity and margin contribution of this business to our overall performance. Finally, our balance sheet position remains very solid. We recently renewed our unsecured credit facility with our bank group, increasing our capacity from 840 million to 1.1 billion, and extending the maturity from June 2012 to September 2015. The new facility is priced at LIBOR plus 2.25, bringing our all in interest rates to approximately 2.5%.

With increasing acquisition opportunities starting to emerge or expected to emerge in the marketplace, we feel strongly positioned to capitalize on our leadership business position to ramp such opportunities.

Let me now turn the call back to Colin, so he can discuss some of our wins in the quarter.

Colin Dyer

Thank you Lauralee. Referring back to the slides, slide 6 shows a few examples of key business wins, which contributed to our third quarter and ongoing results. Let us start with our global corporate solutions business. So far this year, we have 38 new assignments, expanded our relationship with another 22 clients and renewed 21 additional contracts. And on the wins, Sony Electronics retained us to provide facilities management services for its 6 million square foot portfolio, in Europe, Middle East, Africa and in Asia Pacific.

In the US, we mentioned the Citi an International Paper assignments, which we were awarded earlier in the quarter on our last call. In addition, Spanish owned [ph] BBVA Compass Bank renewed and expanded their relationship with us. We are also pleased that BBVA Compass is a new member of our relationship bank group, and participated in the recent renewal and expansion of our credit facility that Lauralee just referred to.

In EMEA, Stanley Black & Decker selected us for transaction management on its 8 billion square foot portfolio, and additional corporate solution wins included a major contract with the Austrian Federal Police, and a facilities management mandate from Tyco Electronics in China.

Turning to investment, sales and other capital market activities, our range of accomplishments included securing $158 million in senior debt financing for the Sheraton Chicago Hotel and Towers; acting for Rockspring in the 223 million euro acquisition of a 51% stake in the O'Parinor Shopping Centre, outside Paris; completing the $473 million sale of a portfolio of 4 Direct Factory Outlets in Australia; and amongst hotel transactions closed during the quarter, those included the Royal Palm, South Beach in Florida; The Lutetia, in Paris; the IBIS Bencoolen, in Singapore; and that last was the largest singular asset transaction recorded to date this year in Asia Pacific.

Examples of leasing and tenant transactions, which we concluded in this increasingly active market include a long term 320,000 square foot lease of office, technology, lab and data center space with Dassault Systèmes American campus in Massachusetts. In EMEA, our Turkish Retail business continued to gain momentum winning three large leasing assignments, and two management contracts across Turkey. And in Taiwan, we completed the 420,000 square foot relocation of HiTi Digital.

Finally, Jones Lang LaSalle Sallmanns, our valuation business in Asia Pacific, completed a four year assignment for the Agricultural Bank of China. We valued more than 325 million square feet of space for this bank’s $22 billion partial initial public offering. That is the biggest IPO ever anywhere.

LaSalle Investment Management continued to raise capital strongly during the quarter. As already mentioned, total new commitments for the year reached $3.5 billion in the third quarter, as LaSalle’s plants maintained both their long-term allocation to real estate and their confidence in LaSalle as an investment manager. LaSalle’s assets under management now stand at $40 billion, and although the pace of acquisitions is picking up in each quarter, the immediate challenge is to complete asset acquisitions in a market where pricing is still attractive compared to long run averages, where the market as I said earlier is extremely competitive for assets.

Let us now look forward and consider prospects for the remainder of the year. In capital markets globally, significant volumes of equity capital will continue to chase prime assets, making further yield compression likely across a broad range of markets. However, the lack of prime product over the short term will continue to constrain investment volumes. We now expect total transaction activity to reach $275 billion to $300 billion for the full year, and we expect a pick up in the pace of sales from distressed financing structures.

Full-year transaction volumes in Asia-Pacific are expected to increase 15% to 25% over 2009 levels, while in Europe volumes are expected to rise around 30% year-on-year, and in the Americas approximately 90% over 2009. DC market demand fundamentals will continue to recover through year-end with corporate occupiers exhibiting greater confidence and scaling back on their cost-cutting activities.

Domestic companies and multinationals are also expanding in emerging markets, and particularly in Asia Pacific, the corporate priorities do however continue to reflect objectives to occupy efficient, cost effective and sustainable space. Shortage of high quality supply is becoming a challenge for corporates in some Asia Pacific and European markets. Return of landlord favorable conditions in these markets is likely to force the hands of occupiers as they plan forward with more confidence, and see consolidation for expansion space.

In the institutional funds management area, we expect capital to continue to flow into real estate, in part because many institutions who are listed earlier, are maintaining their commitment to real estate, are currently under allocated to the asset class. We are also seeing institutional investors begin to consolidate their real estate portfolios, moving away from the spread of smaller managers assembled over the last cycle, and moving towards larger managers. This is obviously a trend, which we expect to benefit LaSalle.

We like to conclude our remarks by mentioning some of the awards and other forms of recognition that we have received, which underscore our position as the leading real estate services and investment management firm. Starting with LaSalle Investment Management, in September we received two honors in the prestigious Euromoney awards, being named Best Investment Manager globally, and Best Investment Manager in Asia.

In the US, we earned the Best Places to Work honors in Atlanta, Orange County, California and Phoenix, and in EMEA we won places on Best Employer lists in Spain, Germany, and Ireland. In the 2010 RFP Asia awards for excellence, for outstanding individual and business equipment and the Project Manager of the Year awards were given to two of our colleagues, and we received the Property Council of Australia’s 2010 Property Business of the Year Award for the Australian continent.

We won the Best Real Estate Consultancy Firm of the Year award in India, and just last night were named Best Property Consultant in the Middle East and North Africa. Finally, Procter & Gamble awarded us its Top Global Performing Partners Excellence Award.

So to sum up this morning, we are very pleased with our performance for the third quarter and the first nine months of 2010. We anticipate the markets will continue to strengthen steadily around the world this year, and we will continue to invest behind our business to gain market share and generate profitable new growth and improved margins.

And in closing, Lauralee and I, as is customary, would like to thank and congratulate our colleagues around the world for the outstanding work which they have continued to do throughout the quarter. We think they are the best in the business, and their understanding of their market and ability to deliver excellent service to our clients’ positions us well for the remainder of the year.

So with that we will move to your questions. So, operator would you please explain the procedure to the callers.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from the line of Sloan Bohlen with Goldman Sachs.

Sloan Bohlen – Goldman Sachs

Hi, good morning guys. Colin, just first on your outlook commentary for capital markets, the growth rate by segments or by geography that you gave, are those growth rates for Jones Lang LaSalle or for the broader market overall?

Colin Dyer

Those are numbers for the broad market.

Sloan Bohlen – Goldman Sachs

Okay. All right. And just to your comment on expecting more distress, could you maybe elaborate on why you believe that with happen now?

Colin Dyer

Distress is a phenomenon largely confined to Europe and the US. There was a little bit in Asia and Japan that really hasn’t started to move yet, but what we are seeing in particular in Europe is banks in Germany and the UK beginning now to move on the, as I call them, distressed financing structures. For a long time they kind of waited and held off, and moved the problem down through time. That has been possible because of the backing the banks have had from the governments, but also more recently from the capital markets with equity injections. So they have been able to buy themselves time, and they have also benefited from the gradual recovery, which we have discussed in the course of this morning’s presentation with the prices of the underlying assets.

So it has been broadly a good thing to do. But what we are seeing now is a mixture of banks feeling better having dealt with some of the more immediate problems in other sectors, pressure from regulators and the past year’s time beginning to help them with the process of moving some of the assets to foreclose or lead to action on the financing structures. And it is a trend we are beginning to see just in this last quarter picking up momentum. So we expect that to continue for the rest of the year.

Sloan Bohlen – Goldman Sachs

Okay. And do you guys have a sense for I know real capital analytics in the US has a view on what the opportunity set or what the distress pool is here in the US, do you have a sense for what it could be in Europe too?

Colin Dyer

We haven’t got those numbers. the focus of the distress is around the German mortgage banks Hypothekenbanken [ph], and the Landesbanken, and it is in the portfolios of particularly the RBS and Lloyds in Britain. There is less distress around other countries, the Dutch and French banks are in reasonably good shape, but it is the German and the English banks, in particular around those two groups that I described where the bulk of the activity will emerge.

Sloan Bohlen – Goldman Sachs

Okay. And then if I can just one quick modeling question for Lauralee, just on the revenue impact for the wins in the third quarter that caused the expense to pick up, could you give us a sense of what the revenue impact could be in the fourth quarter that should come from those?

Lauralee Martin

I can’t disclose the revenue, but maybe I can take your question, because I know we have had a number of dial [ph] in the call already asked the question either in their written documents or by phone, if we look at the components that I talked about that impact our comp to revenue ratio, and just take the US. And if you look at last year, we didn’t really have seasonal margin expansion in the US last year with almost flat third-quarter to fourth-quarter, which is not normal for our business. And it was because of that tremendous delay in the uptick of results and then a catch up in compensation approval in the fourth quarter, we think that the impact in the US, and again it is not apples to apples, but roughly was about 1.5% of a comp to revenue for that timing.

And then if we look at sort of the advancements that we are doing for a couple of large accounts, it is about 70-ish basis points. These are in the US. So you end up with just a little over let us say 2 to 2.25 kind of impact on the margin, but it is right in the compensation ratios. If you then translate that to the globe, it gets you just close to 1%, and then if you think about the rest of the world, which is bonus to largely on forms of profit share and participation, and look at where we were in Europe at this time last year, which was loss of 26 million versus today about a breakeven, which means we are now into profits, which our people can get bonus on, which we’re delighted about.

And in Asia, we were in profits last year, but we are obviously significantly advanced against that again in terms of any seasonality. That is why we do have some comparables when people are going from third quarter to third quarter that don’t make sense, and we therefore feel comfortable as we get through the year that we’re going to continue to advance our margins and all of our ratios in terms of productivity, if that is helpful.

Sloan Bohlen – Goldman Sachs

That is very helpful. All right. Thank you guys.

Operator

Your next question comes from the line of Bose George with KBW.

Bose George – KBW

Hi, good morning.

Colin Dyer

Good morning.

Bose George – KBW

Your capital deployment was up pretty meaningfully this quarter, and I was just wondering what changed this quarter in terms of investment opportunities that you guys are seeing in the markets?

Colin Dyer

Yes, you are referring to the LaSalle business, obviously.

Bose George – KBW

Yes.

Colin Dyer

We have – right through the turmoil of the last 18 months, obviously respected primarily the needs of our clients and LaSalle as a fiduciary was very cautious, obviously during the downward spiral in pricing, not to put money out and see value decline immediately.

If the markets turned around, it depends on the geographies, and let us say 12 months ago average across the world they have been turning the acquisitions activity on again, and gradually increasing the pace of the investment as confidence in pricing and markets has recovered. You know, we have referred to the ways in which these activity levels have picked up, for example, an 80% increase in the US year-on-year, and that reflects increased availability of good stock and attractive pricing, in the process saw better stock coming into the market, more confidence around pricing. It just meant that the pace of activity has increased gradually quarter-on-quarter throughout this year. And we expect to see that pace of investment activity continue through Q4 this year.

Again as pricing picks up, as markets get more liquid again around the world and move from the primary markets to some of the secondary or B markets, we will expect to see more and more product becoming available, and therefore more and more opportunities to invest.

Bose George – KBW

Great, thanks. And just, last quarter you had commented that the transactions that were taking place broadly were just for the best properties, and are you seeing that broadening, or is that kind of still the same.

Colin Dyer

Yes, that is a cyclical trend, which you see in every cycle, initial transaction are for the very best high quality assets, because people feel safest buying those, and bottom of the market, you typically have a buyer’s market. But as the pace of activity picks up, as the free availability of top-quality assets declines, because the stock gets turned and used up, then activity and money begins to spread out to secondary assets or less good assets in major city centers, if we are dealing with office stock. But also activity moves to B and eventually C location.

I would say that the movement is still cautious. We are seeing, just take example of Washington DC, you are seeing more activity in the suburban areas, where it is confined solely to the centre of the city up until Q1, Q2 this year. That is now spreading out. We’re beginning to see activity moving across secondary cities in Britain and Germany for example, and across secondary cities in China. So it is spreading out, but it is not really rapid at this stage, but it is just part of the constant recovery cycle.

Bose George – KBW

Great. Thank you.

Operator

Your next question comes from the line of Michael Mueller with JP Morgan.

Michael Mueller – JP Morgan

Hi, good morning.

Colin Dyer

Good morning.

Michael Mueller – JP Morgan

A question on advisory fees [ph], Q3 was considerably above the Q2 level, AUM went up. Just putting aside what could happen to the funds, the large funds I believe you said in Asia that are going to expire mid next year, does the Q3 revenue fully reflect what's been put to work in terms of the capital put to work, the AUM, is that a good run rate or is it theoretically going to be a little bit higher moving forward into the fourth quarter.

Colin Dyer

I think you made the point Michael, you made the point that a lot of the fees that we earn are based on commitment fees. In other words, once the fund size is established, the fee flow is fixed whether the money is invested or not. So to the extent the fund is put to work in the quarter don't earn any extra revenues from capital put to work. But on some accounts, there are small transaction fees.

Lauralee Martin

Yes, I mean, I commented that a lot of the money that we invested this quarter was against those commitments. We don’t get more fees, so what happens is relative to those ultimately expiring and not getting funded, it is incredibly important for protecting those fees, and our people are being very careful in their fiduciary role to invest cautiously.

There is a great deal of concern by investors that their commitments are out there, and they see advisors going to burn through those for the sake of getting that money out. And after discussions with them, what we have really said is we will fiduciary spend that, we might get that pieces of it, we probably won’t. But we are immediately going to be back in raising capital from you for the next round, so that those of you that are liquid that like what we’re doing can come right back in. Those of you that need to manage your own flows of capital, we got a good relationship, because of how we respected that.

So we will be looking for you at the fund after that, and net-net there will be a little transition through there. It keeps investor relations. It does allow us to reset hurdles, or incentive fees, which is important for our people, and we think net-net, it is just the best thing for the business. So, short term we are feeling those commitment fees, so we protect that amount, and it is really going to be the opportunities that our people see in the marketplace in the next nine months, as to how that goes forward.

Colin Dyer

To pick up on the points we alluded to during the initial presentation, in general, we are seeing institutions maintain or even increase their allocations to real estate. And that is new in this cycle. In previous cycles, they have often said, well I have got burnt in real estate, I will pull back. We haven’t seen that at all. And the effect of the relatively stronger recovery in equity markets has meant that they become relatively under allocated to real estate given their target.

So that is one reason we are seeing money continue to or now starting again to flow back into real estate. The flows initially have been from institutions who themselves have inward cash flows. If you think of insurance companies and pension funds, with constant inward fund flows. We are not yet seeing it from the endowments, the ones that ran into the real liquidity crunch and are still working through frankly some of those historic legacy commitments.

And the other interesting indicator, which we hear from the industry as a whole is around open-ended funds, where our open-ended funds, in particular the US one is immature, it is not spent yet. So there is no queue to get in or out, we are at the point of beginning to invest. But for those funds that are mature, the talk in the industry is for exit queues, which were quite significant a year ago, who in many cases flipped to queues of people to get in. So, the world is turned if you like, and the confidence on the part of institutions in general for investment flows into real estate is recovering.

Michael Mueller – JP Morgan

Okay. And last question, looking again at that increase in advisory fees from Q2 to Q3, was there one particular product that drove a good chunk of the increase, or was it very broad-based, was it more securities oriented, direct oriented?

Colin Dyer

That was a significant piece into the securities business, it has been all year. But initially we have seen funds money part of that total 5.3 billion for the year was our open-ended fund, which from memory is $1.7 billion of that.

Lauralee Martin

(inaudible)

Colin Dyer

(inaudible) fund as well in Europe is 12.3 billion. So there are separate accounts. There is an open ended fund in those securities. It is very broadly based across the geographies and across the stars of investment.

Michael Mueller – JP Morgan

Okay, great. Thank you.

Operator

Your next question comes from the line of David Gold with Sidoti & Company.

David Gold – Sidoti & Company

Hi, good morning.

Colin Dyer

Good morning David.

David Gold – Sidoti & Company

Just a couple of questions, one just going back to the strong quarter that you had for putting money to work LaSalle Investment Management, I am curious if you can give some sense, a quarter ago, I guess the commentary was as a fiduciary you were somewhat concerned about valuations, and what not of opportunities. So just curious if the change there is more pricing has come in some or improved or is it more a function of the confidence that you now have?

Colin Dyer

It is the confidence David. If you take our investment people, a year ago they were all doing what we call defense. In other words, working, scurrying to ensure that leasing levels stayed up in assets, renegotiating lease contracts, working heavily with banks on funding structures around individual asset financing. And those people within our funds and individual investment accounts were working hard in just defending position of the assets, which we had on our books.

And they did that very well, and we’re seeing very little, if you like, asset get back across the whole of your sales portfolio. Really it is less than 5 assets. I think it is less than (inaudible) that ends up back with finance. So we have done an extraordinarily good job in that. As markets recovered and they could move away from defense, the acquisition teams will be going to work again. They are being very careful and selective, as we described last quarter, and they continue to be that.

But the fact that more of our people are now working in that area, that confidence has recovered. That markets are increasingly liquid, I mean there are volume increases we have talked about in capital markets, reflect increasing activities across the field. All of that represents a steady sensible build into strong markets, buying into strength.

David Gold – Sidoti & Company

Okay. It is helpful. And then just one other, Lauralee, you commented on putting capital to work potentially on the acquisition front, just curious if you can add some more color there, particular spots that you have in mind, or is it more a function of opportunity?

Lauralee Martin

Well, we articulated our five growth strategies, and clearly in the last round, we put a lot of effort into local markets. And I’m sure that this time around, at least we are seeing bubbling up around the world. There will be opportunities again though we feel uniquely positioned after what we did last time. Our corporate business continues to be – demonstrated its success in winning new clients and we’re hearing more and more about what they want in some of the more technical areas of that business, and that is an area we might look at.

And clearly, we have talked about the regulatory changes that are going to impact potentially asset management businesses that are held by financial institutions, and whether that pops up any ideas or opportunities as well. So, those three areas are very important to our business, and our growth, and we will see what we can find.

David Gold – Sidoti & Company

Got it. So, presumably you are taking say a more aggressive stance than let us say 3 or 6 months ago towards actually seeking out acquisitions?

Colin Dyer

Yes.

David Gold – Sidoti & Company

Okay.

Colin Dyer

And clearly the market for acquired business is moving up again. We’re looking to put themselves on the block as the value of corporation recovers.

David Gold – Sidoti & Company

Sure. Perfect. Thank you.

Operator

Your next question comes from the line of William Marks with JMP Securities.

William Marks – JMP Securities

Thank you. Good morning, Colin and Lauralee. First question on Colin, your mention of 30% growth in investment sales in EMEA for the industry that would imply for you specifically a strong pickup in the fourth quarter versus the third. I know you are not guiding for you, but is there something – was there a temporary slowdown in EMEA in the third quarter, and expect to pick up in the fourth?

Colin Dyer

Yes, the strong markets we have seen in EMEA during the last quarter of last year and first couple of quarters of this year did pause, and we think it was a twofold effect. I mean this is market psychology. So this is very soft stuff, but we think there were two main effects. One, a lot of work had been done, a lot of business has been pushed through pipelines in the first couple of quarters, and it was kind of a little bit of pause or indigestion at that point, people took stock. And secondly there was obviously lots of nervousness around the euro and the European debt and currency situations around the peripheral markets, Ireland, Portugal, Spain and Greece.

And the impact of that took some time to work through in investor confidence, but in the course of the Q1, Q2 problems that they had, it slowed up the level of all activity and that came through in Q3. It does seem to us that that pause has been kind of worked through. We are seeing good pipelines. Certainly the confidence that the euro won’t be sort of terminally impacted by what is going on in the peripheral economies seems to have passed and confidence is recovering there.

So both on the sentiment area and the confidence in the European economies as a whole, things do seem to be picking up again. So, we expect a reasonably healthy fourth quarter of activity fairly broadly based across big European economies.

William Marks – JMP Securities

Okay. That is helpful.

Lauralee Martin

We also do think that we are well positioned against. As Colin mentioned, a great deal of that is cross-border capital flows, and that has always been the strength of the capital markets business both locally, but across the region in Europe. So if you look at what the market did in Europe, which was down third quarter from second quarter, we were only down just a little under 3%, which was much less than the market because we picked up on the international flows.

William Marks – JMP Securities

Okay. That makes sense. Thank you. Another question, just on the your discussion Lauralee on the margin, and why flat margin, or why the margins were what they were in the third quarter, I guess net-net, does this imply that the fourth quarter does have some margin upside versus the fourth quarter of 2009?

Lauralee Martin

Well, I think the answer is, margin upside definitely as we think about third quarter going into the fourth quarter, much more into seasonality than we had last year. If you think about what again I said in the US, which is a big part of our business today, over 40%, the margin third quarter to fourth quarter last year was almost flat.

So the firm will have some benefit as we get a more normal seasonal trend, and now comparing on a revenue basis a more normal year-over-year comparable as well instead of unusual activities.

William Marks – JMP Securities

Okay. Now, I think that is fair. Thank you. A couple of other things, one, just broadly, who do you look at the fourth quarter of ’09 revenues versus fourth quarter of 2010 in light of you really had three fairly easy comps for the first three quarters of this year, and then things seem to have picked up a little bit. Certainly, you have posted total revenue growth, positive number in the fourth quarter of ’09. So, you call that a tough comp.

Colin Dyer

Wouldn’t say tough. It is obviously picking up from the floor that we were on in the first quarters of 2009. But as Lauralee said, we think the seasonal pattern which we see every year will be repeated again this year in Q4, and generally by a wide margin, our strongest quarter.

William Marks – JMP Securities

Okay.

Lauralee Martin

And other than sort of an early recovery in capital markets in the UK, capital markets still was at a relatively low level in the fourth quarter of last year. Not that it is robust today. I mean if we look at it we can see just overall Europe. In the third quarter we were still down over 20% revenues if we went back to 2007, but every time there is a pickup in capital markets we start closing that gap. And I think there is just a nice continuation of healing progress in that part of the business.

Colin Dyer

If you look at the comps, back to 2007, you will see our US numbers are above that because we had been additional impact of Starbucks revenues, but Europe we still have some way to go to catch back to those historical revenue levels, to the point Lauralee just made.

William Marks – JMP Securities

Okay, thanks. And one final question, somewhat tied to what you just said about Starbucks, I was doing a calculation and noticed that based on year-to-date and assuming halfway decent fourth quarter, it looks like if you combine your ’07 leasing revenues for your Americas – or for the total company in 2007 and Starbucks, you will be actually close to meeting those numbers in 2010. And then would it have to be an indication of stolen market share, can you just address that, how have you been able to – how are you going to actually hit peak revenues in leasing, kind of a softball question I guess, in 2010 versus 2007, is it hiring new people, more production per person?

Colin Dyer

We are up about in the US 60 net new brokers. The growth is much higher than that, but we continue to upscale the productivity. Last year that would have been a net 35 approximately. So clearly we have continued to add. But more importantly we have continued to upscale the capabilities, and I think probably the more valuable piece of that is it has been added in places we weren’t before.

So new markets that we weren’t in, a lot of adds into industrial, I talked about our PDS wins, but that really comes out of the referrals because we now have a couple of hundred industrial brokers that are referring logistics and distribution, and those kind of activities into our PDS business which then make the leasing brokers more productive, because then they can take back benefits to clients. We have been making inroads into health care. So again life sciences, healthcare, new opportunities there. So yes, it is definitely market share.

Colin Dyer

And I know the concrete example, specific to real estate, in general, you will recall that we have been working for Procter & Gamble for 6 or 7 years in the services management project, advisory, lease administration space. We didn’t do the transactions because we couldn’t deliver in the US, while just 1.5 year ago we picked up in the US transaction, global transaction business, but the US piece in particular, and that is specific. The general point is we are now able to service our big corporate solutions clients’ kind of representation needs in the US in a credible way that we couldn’t really do before Starbucks. So another example of the cross sell picking up share.

William Marks – JMP Securities

Okay. That is all from me. Thank you guys.

Colin Dyer

Thanks for this helpful question.

Operator

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

Brandon Dobell – William Blair & Co.

Hi, thanks. I wanted to follow up on the corporate services business to get a little better sense of I guess the marketplace and how these new contracts are being structured with the same kind of attractive ROIs that you have seen historically or is it just more (inaudible) and a pass through in timing versus any kind of structural changes of those contracts that you saw this quarter?

Lauralee Martin

It isn’t a structural change Brandon. We have now we believe the market leading practice and a service we call Mobile Engineering, which is really a way that we can service the distribution branches, if you think banks, or stores if you think retail, or all sorts of other things. And we have had several significant wins in that area, and it is one of the fastest growing parts of our business.

But it does require us to increase the number of trucks, and increase the number of engineers, which we feel very comfortable doing because we have the contract in hand that we have the complete line of sight so that makes that a very nice margin business for us. So not a contract change. It is really expanding and again a new growth opportunity for the firm.

Brandon Dobell – William Blair & Co.

So, should we expect to see more of this type of commentary in the next couple of quarters as it becomes a bigger part of the revenue stream?

Lauralee Martin

No, it was just the absolute size of the couple of wins we were talking about that are really transformative. One is particularly significant.

Brandon Dobell – William Blair & Co.

Okay. Fair enough. And then kind of a different take on the capital deployment question, have you seen expectations from, are there teams that you are talking to about recruiting over or potential sellers, are you seeing those expectations for valuations or their work changed in the last 3 or 6 months given the sustained recovery in capital markets and leasing, or still application, low enough that you think you could still get ROIs on those capital deployments.

Colin Dyer

Well, if we can’t ROIs on hiring individuals, we will find companies, then we won’t do them. We are looking for accretion from usually 9 to 12 months in, because it is that period of time that people take to re-establish their contacts and get business running again. Yes, of course, as you get through the cycle people tend to be keen to move to the bottom of the cycle. It gets more challenging as you move up, and in the top people are generally pretty happy with where they are.

But this is still a good market we are finding for bringing people in. We have got a policy of building our capital markets business Asia and in the US. We have been customarily selective about who we bring in. But we have got a clear plan and we were sitting on pace for that plan in both geographies, but we do it in a way that when you bring teams in, you know than you got to make it attractive for them to come, but you have got to be sure of two other things.

First is that they want to come because they find that the platform and our values in operation attractive and fitting with their beliefs. Because you also got to respect the people who are also with us – already with us, and not create too large a set of disparities between the existing and the new people. So there are a lot of things to balance that. But we are still hiring and it is still a market where we can hire.

Brandon Dobell – William Blair & Co.

Shifting a little bit over to EMEA, if you compare the structure of that organization now relative to the different revenue drivers, how should we think about the margin trajectory there, is it different personnel structure, office structure deal, you have got more margin potential there than you had three or four years ago, or has the mix of business changed into more corporate services, so that you feel that those historical margin trajectories are (inaudible)?

Colin Dyer

A couple of things playing at the same time there. Yes, we have been deliberately growing the corporate solutions business. And that has an annuity aspect to it. It has a steady margin, but it is generally an attractive margin, which generally structurally lower than the numbers we see from our big transaction businesses in the leasing and capital markets.

So yes, there is growth there and a mix improvement we hope in favor of corporate solutions, and that is where we are driving that business. But we have also referred to the cyclical recovery in our capital markets, our leasing businesses, that has been strong in this year to date. And as those businesses continue to pick up, again it is straight cyclical recovery with market share increase on our part.

That will enrich the margins from the current position that we are at. And if you look back to 2007, 2006 you will see the sorts of numbers we made back then.

Brandon Dobell – William Blair & Co.

And final question, just to confirm that, I want to make sure I understand your comments on seasonality in the business these days. It doesn’t sound like you expect any real change in what historical seasonal patterns would look like from Q3 to Q4 in terms of revenue contributions from different geographies, or is there something else going on, exclusive of LIM [ph] of the transaction businesses. And do you think that would skew seasonality of the share?

Lauralee Martin

No, right now it feels like we’re moving into more normal seasonal patterns. Pipeline indicates that people are getting ready for a big year-end and that it feels like it is into a continuing good market recovery.

Brandon Dobell – William Blair & Co.

Fair enough. Thanks a lot.

Operator

Your next question comes from the line of David Ridley-Lane with Bank of America.

David Ridley-Lane – Bank of America

Sure. Can you quantify sort of the Asian transaction volumes that was delayed here in the third quarter, or can you give a little bit more color about the deceleration in Asia?

Lauralee Martin

Yes, I would more put into the fact that it is hard to compare. Normally Q2 and Q3 in Asia are sort of the same. And I think what we saw was something sort of accelerated into Q2, and then there was a kind of low in July and into August, where there was nervousness in that marketplace, which then sort of slowed the pace, then moved towards the end of the year.

Right now about 47% of the business – the revenue we have in Asia Pacific is annuity. It is property management and facility management. And so when you have a few lumpy transactions, you feel it a lot more in those current quarters. But we look at it and say, I think you could read too much into it by just focusing on a couple of million dollars in those two quarters versus the general trend than feels good, and then moving forward into the fourth quarter, we had our board meeting in China.

We felt very good about the energy in China, and what is going on there, and even the regulatory changes that could mean good things for real estate over there in terms of insurance company being able to put money into property. And I personally was just in India and that just feels like just a good solid recovery. So, I would say the fundamentals in Asia are sound, and they are if anything moving away from trying to let the rest of the world sort of make them volatile. They are moving towards having their own economies of strength.

David Ridley-Lane – Bank of America

Okay. And just one follow-up question, given the commentary around acquisition, can you remind us what your debt-to-EBITDA comfort range is including the cash owed on the Starbuck acquisition?

Lauralee Martin

We are an investment grade company, who takes a great deal of pride in that. So as you kind of think through a cycle that sort of says you are very comfortable in sort of a 2.5 EBITDA range. You can move around that, but ultimately you want to see is vision that is sort of in the immediate that you can come back to that level. That being said, our EBITDA grows on a continuous basis.

The banks clearly recognize that in terms of capacity, and when we count that we do count that all of our debt. So, we paid down debt in the second quarter, and that was even after – we paid down bank debt and that was after using the bank debt to pay the Starbuck debt. So we are in a good place.

David Ridley-Lane – Bank of America

All right. Thank you very much.

Operator

Your next question comes from the line of Ralph Davies with JP Morgan.

Ralph Davies – JP Morgan

Hi, good morning. Just following on in terms of LaSalle, I think I know you talked about the two funds Asia, where you are earning fees on invested capital. I was just wondering, can you quantify globally how much capital you are earning fees that is not invested presently, maybe how that compares historically?

Lauralee Martin

We don’t disclose that.

Colin Dyer

It is in the order of $1 billion to $2 billion I would say, probably on the low side of that 1 to 2 range.

Ralph Davies – JP Morgan

And guess my – and would that be kind of – I guess how would that compare historically then?

Colin Dyer

Well, historically, with the two Asia funds, 4, 5 year funds with a three-year investment period. So if you go back three years, they would have had considerably more to be invested on which we were earning revenues, because it was committed. As we worked through the investment phase, then those numbers have come down. So the numbers I have given you are lower than they would have been 2 to 3 years ago.

Ralph Davies – JP Morgan

Got it. And then I know you have talked previously, or you talked on the call about kind of emerging investment opportunities across the investment spectrum. I guess, I’m just wondering in terms of that on invested capital, how much flexibility in terms of those managed do you have to invest in maybe kind of secondary opportunities or secondary assets.

Colin Dyer

I mean, our investment style is clearly stated on each fund, and it is agreed with individual clients where we have individual mandates. And so we at LaSalle keep strictly within the agreed investment style. Of those two funds, for example, in Asia Lauralee referred to, one is a logistics fund. So it invests in logistics development and semi-stabilized developments, and the other is an opportunity fund. And they both are operating within those same styles.

As you go out to market at this point in the cycle, although our skills are recognized in those two areas, and we will certainly be raising funds in those two areas again to match those styles, there is a level of conservatism in the institutional world, which has been born of the burns that many of them suffered over the last 2 and 3 years, which means that currently there is a tendency for core to be more in favor. That style we can invest in too, particularly in the US and Europe. So, we can match styles to the changes in market needs. But within a fund that has been launched there is an agreed mandate and we stick within that.

Ralph Davies – JP Morgan

Thank you.

Operator

Your next question comes from the line of William Marks with JMP Securities.

William Marks – JMP Securities

Hi, thanks. One question, can you remind us of your – what you have left on your share repurchase program, and if you have any interest in buying it at current prices, especially in light of at least some degree of a sell-off today?

Lauralee Martin

Well, we have to check that. If I recall, it was about 2 million shares give or take. And we had some conditions around not being able to do that until we get the recent modification with our bank lines. So, clearly the benefit of our bank line besides reduced pricing was much better covenant relief around all sorts of things that being one of them.

We have just completed that. We normally look at how we think about capital structure as we go into our budget plans for next year, and what we think the opportunities are. I will say that we will be weighing that against what we see are market opportunities for business growth against just buying back shares. But we always give that careful consideration as we think of all of our uses of capital.

William Marks – JMP Securities

Great. Thank you.

Operator

At this time, there are no further questions.

Colin Dyer

Well, thank you operator, and thanks to everyone on the call for joining us. Thanks for your continued interest in Jones Lang LaSalle, and as ever we look forward to speaking to you again of our next quarter results at the end of January. Thank you very much.

Operator

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

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