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Jones Lang Lasalle (NYSE:JLL)

Q3 2011 Earnings Call

November 03, 2011 9:00 am ET

Executives

Colin Dyer - Global Chief Executive Officer, President, Chairman of Global Executive Committee and Director

Lauralee E. Martin - Chief Operating Officer, Chief Financial Officer, Executive Vice President, Director, Chairman of Global Operating Committee, Member of the Global Executive Steering Committee and Member of Global Executive Committee

Analysts

Eric Prouty - Canaccord Genuity, Research Division

Sloan Bohlen - Goldman Sachs Group Inc., Research Division

David Gold - Sidoti & Company, LLC

William C. Marks - JMP Securities LLC, Research Division

Joseph C. Dazio - JP Morgan Chase & Co, Research Division

David Ridley-Lane - BofA Merrill Lynch, Research Division

Operator

Good day, and welcome to the Third Quarter 2011 Earnings Release Conference Call for Jones Lang LaSalle Inc. Today's call is being recorded.

Any statement made about future results and performance or about plans, expectations and objectives are forward-looking statements. Actual results and performance may differ from those included in the forward-looking statements as a result of factors discussed in the company's annual report on Form 10-K for the year ending December 31, 2010, 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 to everybody joining us for a review of our third quarter and year-to-date results. Our Chief Operating and Financial Officer, Lauralee Martin, is here with me today in Chicago, and she'll be reviewing our performance in detail in a few minutes.

Firstly, to summarize our results. In the third quarter, we've reported adjusted net income of $50 million, and that's $1.12 per share, which is a 30% increase over the same period a year ago. Year-to-date adjusted net income was $101 million or $2.27 per share, which is a 25% increase on the first 9 months of 2010. Third quarter revenue, was $903 million a 28% increase in US dollars, 23% in local currency from the third quarter last year. And revenue totaled $2.4 billion for the first 9 months of the year, which is 24% increase, 90% in local currency. And our Board of Directors has declared a $0.15 per share dividend.

So in addition to this healthy revenue and earnings picture, we did continue to make selective strategic investments in profitable growth. In Asia Pacific, we became the leading real estate services firm in Indonesia, the world's fourth most populous country, with the acquisition of Procon, a top competitor in an active emerging market. And in October, we acquired DST International in Singapore, both as part of our plan to establish full complementive high-end residential property services in the regions.

Both acquisitions build on the leadership position, with we've earned in other key Asian markets such as China and India, and support our aim to establish the firm as the clear industry leader in all of the high-growth Asia Pacific economies. Also in October, we established a market-leading presence in the U.S. Pacific Northwest by merging with Pacific Real Estate Partners.

In EMEA, we're making good progress with the King Sturge integration combining offices quickly, so the mixed teams of former King Sturge and legacy Jones Lang LaSalle colleagues are now located and working together to service our clients. We can see our market leadership reflected in such industry rankings as property [indiscernible] UK investment agents table where we're now far and away the #1 in UK property sales.

And finally on the acquisition front, LaSalle Investment Management transition and -- finally on the acquisition front at LaSalle Investment Management, transition and integration activities following our acquisition of Trinity Funds Management in Australia are progressing on schedule. Lauralee will share details in her comments that Trinity is part of our push to expand and deepen LaSalle's global access to and distribution of real estate investment capital.

To put our results in context and summarize current conditions in global real estate markets, we've posted slides in the investor relations sector of our website joneslanglasalle.com.

Slide 3 shows the Jones Lang LaSalle investment sales clock, which we update quarterly. It's a snapshot chart of conditions in major markets around the world at different stages of the real estate cycle. Capital values for prime offices continue to grow in virtually all major markets during the third quarter, increasing by 14% year-on-year across 23 major world markets. Global investment sales volumes held steady during the quarter totaling just under $100 billion, about the same as in quarter 2 with 36% higher than in quarter 3 2010. Market volumes in the Americas at $37 billion were down by 24% from a very strong second quarter with most of the pullback in secondary markets, while the appetite for core assets, particularly in major markets, remain strong.

Year-on-year market volume gains were impressive in the Americas, up 56% from the third quarter of 2010. Investment volumes in the European markets were also strong with $41 billion transacted during the quarter, a 15% increase on quarter 2, and a 38% increase above a year ago.

And in Asia-Pacific, transaction volumes totaled $21 billion, a 13% increase over the second quarter and 7% of our Q3 2010 levels. Prime office yields held steadily in most major global markets during the third quarter, thanks to attractive spreads and continued robust investor demand for high-quality well assets.

Moving to Slide 4, which summarizes conditions in major leasing markets around the world. Sentiment was cautious in global office markets during the quarter with U.S. office leasing activity weakening down 26% year-on-year. In Europe, leasing volumes remain relatively stable with notably strong activity in Paris, Germany and many Central and Eastern European office markets. Office leasing activity was also stable across most of Asia Pacific and particularly markets dominated by domestic corporations. Vacancy rates continue to move downwards worldwide to 13.8% across 94 global markets, the lowest level in 2 years. The Americas and Asia Pacific reported the largest of these declines. Prime rents continue to grow. Our global office index, which attracts the rental performance of prime office space across 81 major markets, increased by 1.1% in quarter 3, slowing marginally from 1.6% in the second quarter, but up 5.5% on the year.

Echoing the comments which we made during our second quarter call, it is clear that concerns about the Eurozone debt crisis and the pace of global economic growth did make corporate occupiers and real estate investors more cautious during quarter 3. Nevertheless, our business, capital markets and our leasing activities continue to grow during the quarter, and we saw improved performance in our Asia Pacific business and at LaSalle Investment Management. As one of our colleagues put it, sentiment may be soft, but our numbers are solid.

I should add that our strong business results are thanks entirely to the incredible contributions of our people around the world. And Lauralee and I want to thank them for their efforts. We currently owe a very special debt to our colleagues in Thailand, who continue to serve their core clients while battling the floods, which is devastating their country. So to discuss these results in more detail, I'll turn the call over to Lauralee.

Lauralee E. Martin

Thank you, Colin, and good morning to everyone on the call. As Colin mentioned, we're pleased to report another quarter of very solid performance across the vast majority of our service lines and geographies, which resulted in 28% revenue growth and 30% adjusted net income growth as a consolidated company. In the Americas region, quarterly revenue increased 22% to $379 million in comparison to last year. This growth was broad-based as each of the leasing, capital markets and Property & Facility Management were significant contributors to the growth. The 22% growth in leasing revenue outpaced broader market-leasing volumes. And the 44% quarter-over-quarter and 79% year-over-year increases in our Capital Markets and Hotels revenue continue to reflect the successful expansions of our Capital Market's platform in the Americas. Furthermore, transaction pipelines for both leasing and capital markets continue to look good heading into the remainder of the year. Year-over-year margin comparisons in the Americas continue to be negative as the business upgrades its service delivery capability. But we remain on track to achieve our goal of having a margin to be down no more than 1% from last year. Our progress is demonstrated by a sequential quarterly revenue growth of 9%, which delivered a sequential 20% operating income growth excluding equity earnings.

Turning to a EMEA. Our acquisition of King Sturge has compensated for year-over-year market pressures, and we are realizing the benefit of their positive impact on the revenues across the region. The acquisition contributed approximately $60 million of revenue in the quarter across service lines with the most significant impact seen in capital markets.

The region's 2011 operating income and operating income margin improved, excluding the impact of the $5 million of intangible amortization from the King Sturge acquisition. Our market cost presence is largest in those countries best position to manage through the current market challenges, that being the UK, France and Germany. But recovery across the region continues to vary by country. While market recoveries remain challenged, we are looking more aggressively at synergy opportunities to take additional cost out of the business as a supplement to our acquisition immigration action.

Regarding the integration of King Sturge and Jones Lang LaSalle platform, which continues to go quite well, we recognized approximately $16 million in the quarter for staff retention, lease exits and some severance and other transaction costs. Of the $16 million, $6 million was part of the purchase price, which the King Sturge partners paid as retention to their non-equity partners, but is accounted for on our books as part of the transaction costs.

Turning to Asia Pacific. The Asia Pacific region delivered solid performance in the quarter in both revenue and profit growth. Revenue across the region was up 22%, 12% in local currency, while operating income increased to $14 million from $7 million in the prior year. Revenue growth was balanced among leasing transactions and annuity-like revenue streams from Property & Facility Management. Our improved results benefited from continued strength in operating performance driven by our teams across greater China and India. Asia Pacific increased operating income and EBITDA margins by 250 and 180 basis points, respectively, from the third quarter of 2010 to the third quarter of 2011. And while quarterly margins declined between the second and third quarters, this follows the same seasonal pattern between the second and third quarters of last year. We expect Asia Pacific to continue to perform well over the balance of the year.

LaSalle Investment Management delivered significant increases in both revenue and profitability in the quarter driven by higher incentive fees from the sale of properties and maturing funds, as our team delivered investment performance to clients. Advisory fees were $59 million in the quarter and $185 million year-to-date maintaining an annuity run rate similar to the prior quarters and last year. We delivered this solid performance against the expiration of investment periods for 2 large funds in Asia towards the beginning of the quarter.

Regarding our public securities business, while there has been general market talks related to Japanese investment flows, we have seen less than 2% withdrawal from our securities business over the last month, which translates to roughly $1 million of the firm's annualized revenue. LaSalle continues to prove its competitive strength with a track record of investment performance and increased it's year-to-date capital raise to nearly $5 billion of net equity. The acquisition of Trinity Funds Management during the quarter with an additional $700 million of assets under management is providing LaSalle with credibility in Australia and, importantly, access to Australian investors, who expect -- we expect to benefit from La Salle's global capability.

We continue to maintain our investment grade balance sheet and are benefiting from the resulting low interest expense. We have reduced our year-to-date interest expense to $27 million from $35 million a year ago. And in the third quarter, our cash interest was less than $4 million. In the third quarter, we made our second installment payment to Staubach for $150 million. The non-cash interest expense to this payment had an interest rate of about 6%, which is now funded on our credit facility at an interest cost of under 2%. We also repaid net debt during the quarter, funded the Trinity acquisition in Australia, and co-invested just over $45 million, about half of which was related to Trinity, and the rest were assets as we felt [ph] against new rounds of fundraising.

Our balance sheet strength remains a differentiator within our clients and an important priority for us. In summary, we are pleased with our performance this quarter. We've produced another strong quarter of gross and revenue and adjusted earnings per share, and we have solid pipelines in hand in the face of inconsistent markets.

I'll now turn the call back to Colin.

Colin Dyer

Thank you, Lauralee. So if you now turn to Slide 5, you'll see a few examples of recent business wins. In our corporate outsourcing business, we won 15 new assignments during the quarter, renewed 9 contracts, and expanded our relationship with 9 further clients. These totals do not include activity in our local market level Corporate Solutions business which serves the needs of mid-market corporate clients. In quarter 3, we won 11 new assignments, totaling 37 million square feet of space in this growing business area. In terms of specific corporate wins, we renewed, expanded and won new business from HSBC in all 3 of our global regions. We renewed our service contract in the U.S., expanded the relationship to include the bank's trading portfolio, and HSBC also selected us to serve as strategic property partner in the Middle East, North Africa and across the whole of Asia Pacific. Also, adding to my earlier comments of our growth prospects in Indonesia and our recent acquisition there during the quarter, we won facilities management assignments for the 2 million square feet portfolio of Pertamina's Indonesian government-run oil and gas company.

Turning to investment sales activity. In the U.S., we closed the $144 million sale and also arranged $123 million of financing for 1700 Market Street in Philadelphia. In the largest investment transaction to date this year in the city of London, we advise legal and general on the 350 -- sorry, GBP 305 million acquisition of the Rolls building. And in Australia, we acted for Abacus structure of US $628 million joint venture with the Hartman [ph] Group. The quarter's major leasing and tenant representation transactions and management assignments included representing MetLife in the U.S. for 276,000 square feet of lease in Lower Manhattan. In Europe, we represented AXA to lease 538,000 square feet in the capital in Brussels. And in Japan, AIG Edison Life awarded us the management assignment for 1.9 million square feet of portfolio of office buildings.

Moving next to LaSalle Investment Management. As Lauralee mentioned, LaSalle has raised nearly $5 billion in net new equity to date in 2011. Assets under management now total $48 billion up from $41 billion at the start of the year. Investors are maintaining their allocations to real estate, but are focusing on core strategies and on real estate securities, both of which play to LaSalle's strengths. Managers such as LaSalle with proven performance, who are stable and have a strong platform will continue to gain market share in this environment. And as for the Trinity acquisition, we will continue to strengthen LaSalle's ability to attract and invest capital globally.

So let's now look forward to consider the near-term outlet -- outlook in real estate markets. Our current projections for 2011 direct real estate investment volumes indicate a range of $400 billion to $440 billion for the full year, and that will be up 25% from last year's $320 billion. Globally we expect hiring, yields and cap rates to remain broadly stable with some tendency of weakness in those euro markets where sentiment is poor.

In global leasing markets, 2012 net absorption levels in Asia Pacific will be positive despite some softer demand. In Europe, we expect -- we project overall leasing volumes in 2012 to run about the same level as this year. And in the U.S., the pullback in sectors such as finance and government do point to lower leasing market volumes over the next few quarters even though other sectors, including technology and energy, continue to register strong positive activity.

Rental growth expectations for 2012 remain positive with most major office markets expected to register at least single-digit growth over the next year. However, Hong Kong and Singapore, where growth has been long and strong, may see some softening in rentals.

To sum up, global real estate market fundamentals are probably now on a firmer footing than for several years. Prime western real estate -- prime western leasing markets are fairly tight with no major oversupply looming. There is substantial equity capital looking for real estate. And with healthy balance sheet, corporations are well placed to make capital investments. We would expect a cyclical recovery reflected in our quarter 3 numbers to continue unless the Eurozone debt situation further damages business confidence.

In our own business, we continue to keep a careful watch on market conditions, and we are focusing closely on managing our costs effectively. But we also continue to see healthy pipelines, we're clearly gaining share, and were investing judiciously in productive resources. Our fourth quarter is typically our strongest, so we are approaching the end of the year with some confidence.

We like to close these remarks by mentioning some of the awards we've received and which reflect our client service focus and reinforce our leading position in real estate services and investment management. In the prestigious 2011 Euromoney Real Estate Awards, which are voted on by clients and by industry peers, we won a host of global, regional and country awards, 64 in all. They included, Top Global Real Estate Advisor and Consultant Worlwide; #1 Overall Advisor in Asia, Central and Eastern Europe and the Middle East and North Africa; and Top Advisor and Consultant in the Global Research and Valuation Categories, so some very comprehensive wins. So with that, we'll now move to your questions. And, operator, would you please explain the procedure?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes the line of Sloan Bohlen.

Sloan Bohlen - Goldman Sachs Group Inc., Research Division

Just a question, Lauralee. I'm not sure if you can do this, but we were wondering if you could break out the numbers for EMEA x the King Sturge acquisition, just to try to get a sense of what the same-store growth would've been in different segments?

Lauralee E. Martin

What we did is we provided you the revenue, which is about $60 million, and then we provided you that the change in the gross accounting for our Property & Facility Management was about $10 million. So if you actually look at the balance, it was not very robust. That's the best way I would put it. So we're extraordinary pleased that we got the timing right on King Sturge. It's filling in some of the holes. And we think if the markets continue to recover, we'll just take advantage of all that consolidated position.

Sloan Bohlen - Goldman Sachs Group Inc., Research Division

Okay. Is it fair to say that the $60 million, it tilted towards capital markets more than it is leasing?

Lauralee E. Martin

Yes. The strongest position is in capital markets.

Sloan Bohlen - Goldman Sachs Group Inc., Research Division

Okay. All right, switching gears maybe a little bit. Colin, you talked a little bit about Asia potentially maybe looking slower next year. And it sounds more like it's tougher comps over some very strong years we've had recently. But can you maybe talk about the potential for slower growth rate in China? What impact that may have in your different regions in Asia?

Colin Dyer

China actually had a very strong quarter, 20% plus growth numbers in revenue. The general market position in Asia is interesting. You're right, they had an early strong bounce coming out of recession, leading the world, you'll recall. But from quarter 2 onwards, our sense has been that the Asian market operators have become very sensitive to what's going on in Europe. And in fact, the first time we've heard noise about Europe affecting investor sentiment was from our Asian people in the course of quarter 2. And it's that Asian phenomenon, where the investors and corporates there just have always been extremely sensitive to market conditions. So they go hard when conditions are good, and they slam on the brakes when things are poor. You've had that traditional cyclicality particularly in the major centers of Hong Kong and Singapore where money flows and business flows are so volatile.

So what you've got there, at the moment, is a basic underlying strength of economic growth across the region, including India and China -- we'll come back to that. But with this kind of worry around what the implications for the world financial systems and therefore for Asia of whatever happens in Europe.

On China and India, what you've seen there is the government through the Central Banks reining in or trying to rein in the rate of inflation. Principally, in foodstuffs, because they're concerned about inflation hitting the popular or the mass markets and they are affecting people's income levels of the max level of markets. And so they've been raising interest rates to choke off inflation, and that had an impact on the cost of availability of capital in the board of business sectors.

But this -- so far, at least, as I just reflected on China with 20% plus growth rates for us in the quarter. It really hasn't had a marked impact on activity. We're still seeing good strong pipelines in both leasing and capital markets in our broader management business. And still so far we can't see anything that would indicate that, that rate of business growth and, really, economic growth would be negatively impacted. Like everything else in the world, we get the point [ph] everyone's watching Europe. Sentiment is sensitive to that.

Sloan Bohlen - Goldman Sachs Group Inc., Research Division

Okay. And maybe just one last question. Coming back to Europe, Lauralee, you hinted at taking a look at some costs. Maybe could you talk a little bit more or elaborate on what your view is as to what you could do for cost and how we should take a look at how to see that in your numbers?

Lauralee E. Martin

We're currently working through the integration of the big King Sturge acquisition, which is basically around central costs, which will happen here in the fourth quarter. But as we go in to our budget process, which is now going to commence, clearly everybody's going to take their outlook, going to take a look at what they think their opportunities are. And that's really determine how aggressive -- we need to think about cost as we look at next year.

Sloan Bohlen - Goldman Sachs Group Inc., Research Division

Okay. And that's outside of the King Sturge acquisition or just -- it sounds more that it's kind of tied to what level of activity you guys are projecting in Europe.

Lauralee E. Martin

It would be across-the-board.

Colin Dyer

Yes. It will be a stronger focus on the cost growth in Europe. We were anticipating further growth in the revenue line. It's just a question of tightening up the control of the cost side.

Sloan Bohlen - Goldman Sachs Group Inc., Research Division

Okay. And is there a good target that we should look for, whether it be your EBITDA margins? Or how we should think about how you're thinking about trying to manage at least some target?

Lauralee E. Martin

We manage both to the operating margin and the EBITDA margin. If we look at the third quarter, and exclude the King Sturge acquisition, which really impacted Europe about 2% on the actual number, so they would have been up sequentially over last year. They would have been 6.2 versus last year's 4.4. So they're clearly focused on margin as well, and we will be looking at -- we have not backed down from our medium-term targets anywhere in the business.

Operator

Your next question comes the line of David Gold.

David Gold - Sidoti & Company, LLC

I was curious if you could give a little bit more color sort of the upbeat or the confident fourth quarter outlook as far as pipelines and then -- and conversations that you're having with clients. Basically, sort of give some color around that as to -- obviously, we've just come out of a tough period were you performed well. But basically it sounds like we don't see much anything being pushed off into -- not anything, but much being pushed off into next year so to speak.

Colin Dyer

Well, we're very careful about forward-looking statements, and so we've given you as much as we can give you on the position. Pipelines are good and strong. It is our strongest fourth quarter, and we're feeling good about it in terms of how we get from here to there as it were. Pipelines are strong, but we'll be watching very closely the rate of closure of transactions both in the leasing and the capital markets area. It's obvious that in Europe, in particular, secondary markets, it's becoming harder to close transactions as debt availability is reduced with the banks deleveraging and shrinking their own balance sheets. But transactions are getting closed, people are finding access to debt to to match up with a very considerable levels of equity that is still there. So we just anticipate that there will be a normal closure rate, and these pipelines will be converted into revenue in the normal healthy way. And that's the basis of the statements that we've made.

Lauralee E. Martin

Just also, David, capital markets is the one place where things can change rather quickly. But as you know, we've significantly reduced -- we haven't, the market has -- the percentage of that is a total of our revenue, and the balance of that revenue when it's in the pipeline. It's pretty hard to slow a leasing transaction when you're this deep into the process and so forth. Part of it is what we've done with the mix of revenues, more annuities, knowing those pieces of it, and even on the capital market side seeing that places where we might have thought it would drop off haven't focused on distressed debt and the core markets -- it still is performing pretty well.

Colin Dyer

I'll use your question to expand a little bit on sentiments. I've said in the Q2 call, the basic mindset of investors and corporates at the moment is they want to move forward. They are not looking to go into a recessionary lockdown. They are looking to move forward. And what's, if anything, restraining them and causing them to be cautious is the whole situation around Europe. Fortunately the U.S. has, kind of, gotten better that it was in the summer with the debt crisis, at least for the short term, put aside. But the European situation is certainly getting investors and corporates pause for thought. If that were removed, I think we'll be in a very strong market position across corporate and investor markets worldwide. It's just the uncertainty that's holding -- and the news flow which flips around on a daily basis which is holding people back.

Nevertheless, even in that environment, we produced the revenue growth that we did, so in a way, you can see that we -- I think in many cases business people have sort of gotten used to what's happening. It's getting cause to be cautious, but they are finding ways to move forward, and that's reflective of sort of the growth numbers that we've produced.

David Gold - Sidoti & Company, LLC

Got you. Okay. And just one other if I may. As you comment in the release on market share gains and I was curious if you could add a little bit there -- what geographies you see that. And then also if you can give a sense of where is it coming from, larger competitors or smaller competitors or somewhere in between?

Colin Dyer

It's across all geographies and most business lines. The thinking with an ongoing process, which is not a short-term thing, it's a whole decade-long process of consolidation, which is not just people buying people in our industry, it's client seeking advice from bigger and more professional firms on a continuous basis, which is why the you're seeing the big growing -- the larger firms growing and smaller firms, particularly, the middle-sized smaller firms having difficulties.

If you add to that the increasing cross-border nature of many transactions where investors and the corporates both are looking for service providers who can deal with them across multiple geographies in a consistent way, that also helps to the process of market share gain. And you can -- if you want to look for the, sort of, the negative side of the whole picture, you can see some very large competitors in both the U.S. and in Europe, who have very large and public issues around their potential for continuity. And that's also obviously driving business and operators towards our platform.

So you put it all together and you can do a side-by-side with the published numbers from some of our competitors and see some share gain against that as well. That's the basis for our statement.

Operator

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

David Ridley-Lane - BofA Merrill Lynch, Research Division

Advisory fees as a percentage of assets was a bit behind this quarter. I think Advisory fees were down year-over-year. What drove that?

Lauralee E. Martin

I'm sorry, could you please say that one more time? I didn't quite understand that.

David Ridley-Lane - BofA Merrill Lynch, Research Division

Sure. In LaSalle Asset Management, Advisory fees were down year-over-year, I believe, in the third quarter.

Lauralee E. Martin

As I said in my comments and actually we've been advising every quarter on our call that we have 2 -- we had 2 maturing funds, and they did in fact mature at the beginning of this quarter where we were earning Advisory fees on committed amounts, and we've obviously released those committed amounts with the funds now maturing. So we've said that our goal was to actually maintain to a level in totality the last year, and we've proven to do better than that. So we're very pleased with where we're going, and we're making that up really by growing the assets under management elsewhere.

Relative to those 2 funds, we are back now out in the market in capital raise mode. And clearly we'll be -- hopeful to be announcing success at that probably in the first quarter of next year.

David Ridley-Lane - BofA Merrill Lynch, Research Division

Okay. And I think your assets under management are reported with a one quarter lag.

Lauralee E. Martin

That's correct.

David Ridley-Lane - BofA Merrill Lynch, Research Division

Can you give us a rough ballpark for the size of this?

Colin Dyer

The total assets under management was $48 billion as mentioned in the end of Q2. The Securities business net marks on a daily basis, so that's the end exception. That'll be end of Q3 number. So we've been -- in addition to the capital raising for funds, we've been out bringing in new clients with some significant mandates from both new clients and in large mandates from existing clients on both sides of the Atlantic.

David Ridley-Lane - BofA Merrill Lynch, Research Division

Okay. And how does your outlook impact your own appetite for acquisitions, going forward?

Colin Dyer

Pretty much as we laid it out, I think. We said that we are positive. We like our earnings. We've got a great balance sheet with significant capacity for the debt if we choose to use it. We are, yes, looking at acquisitions. We've continued to invest in external growth. We'll continue to do that, but we're being very duly cautious about what's happening in the world as a whole.

And so when we think about our forward planning, we are ensuring that our balance sheet can take some very significant stress test, which we applied to it. And so those stayed very well clear of our covenant ceilings in any forward cash planning.

David Ridley-Lane - BofA Merrill Lynch, Research Division

All right. And then -- I know you're hesitant to give forward outlook, but for the Americas adjusted EBITDA margin to down 100 basis points in the fourth quarter. If you look out past the fourth quarter '11, is 2012 going to be kind of a year of flattish margins or could we see potential leverage in that region?

Lauralee E. Martin

Our goal is to get to medium-term margin. And that business has done a combination of -- it had lot of growth and a lot of investments this year. This is proving that they're getting performance on all of that. And so you can see that we're now translating that into sequential better operating margins. Planned to do that in the fourth quarter and get to our medium-term market -- margin as soon as possible.

Operator

Your next question comes from the line of Joseph Dazio.

Joseph C. Dazio - JP Morgan Chase & Co, Research Division

On the leasing launch, particularly in the U.S., I'm wondering if you could tie together the comment about the pipeline looking really strong with -- I think you guys mentioned that in 2012, you could see volumes down a little bit due to, I guess, [indiscernible] slow down. Do you think there's any shot that the fourth quarter of '11 could see some declines? If I recall correctly, I think fourth quarter '10 was a pretty strong quarter. Or you think you have enough visibility such that you'll still see some growth in volumes there year-over-year?

Colin Dyer

Leaving the market aside, our visibility on pipelines in the leasing area in the U.S. gives us confidence that we'll see growth year-over-year. How much? We want [ph] venture to say at the moment. We clearly have our plans, but we won't them out there. As to the market as a whole, we'd like to comment about 2012, which given the season starts now [ph] this picture of hesitancy in the government sectors which had been previously strong in the financial sector which has shown some bounce over the bottom. That's temporary at least come to a whole, but there are other sectors that still continue to move ahead strongly. We mentioned tech, advertising is another. So it's a -- the market as a whole will be determined by the balance of the activity in those sectors. But our numbers, our own position, we feel pretty good about.

Joseph C. Dazio - JP Morgan Chase & Co, Research Division

Okay. And then really quickly on the acquisitions in the quarter, particularly those in Asia and then I guess the Pacific Northwest, is there any detail that you guys would be comfortable sharing there in terms of just order and magnitude and I guess business concentrations?

Lauralee E. Martin

Well, they're all modest, so that's why you don't see the numbers. I would say the one we talked about, the residential businesses, it's very modest in size, very important strategically. King Sturge entered us into the high-end resi market in London, which is very much a global activity and, particularly, with sources coming out of the Asia market.

So to connect our already good flow there and add to that was really the importance of that strategic position as well as in making sure King Sturge continues to be better and more successful with us than they were on their own. So small but strategically important. Again, we talked about the Procon. It's a smaller market, so it's a smaller acquisition, but it made us the market leader by quite a large amount. And the Pacific Northwest is probably the larger in terms of all those, still very modest. But focus test on that Northwest corridor picking up Seattle and Portland that gets into the ports and logistics, the tech space and all of that. But again, closes out the strategic pieces that our clients tell us are so important to them, but all relatively modest.

Colin Dyer

Modest in Lauralee's definition means sub-$25 million revenue.

Operator

Your next question comes from the line of Will Marks.

William C. Marks - JMP Securities LLC, Research Division

First I want to ask, the $60 million from King Sturge, do you have a comparable number for last year?

Lauralee E. Martin

It was about flat, which we view as very positive given the disruption of sort of coming in, joining us and all those things. So they clearly have not disappointed us when we think about we purchased a trailing EBITDA, and we continue to have that be delivered to us.

William C. Marks - JMP Securities LLC, Research Division

Okay, great. And then in terms of the King Sturge integration cost in the fourth quarter, what should we expect? And anything next year?

Lauralee E. Martin

Yes, again, we have most of the amortization rolling off, sort of, by third quarter of next year. There will be a tail after that. We're going to have some severance that will now be done mostly in the fourth quarter. We've given you the $25 million number, so we're sort of $16 million into that of which -- we've given you a $50 million number including the King Sturge's piece and our piece. Of the $25 million, $16 million that we talked about to date, $5 million of that -- I'm sorry, $6 million of that was actually into the King Sturge's $25 million. So you can take the $9 million that we have into our $25 million and sort of get an idea of what's still left, most of which we'd like to get down sort of by the middle of next year.

William C. Marks - JMP Securities LLC, Research Division

Okay. And then on the balance sheet, can you break down that you have deferred business obligations? How much of that is King Sturge versus Staubach?

Lauralee E. Martin

King Sturge acquisition was a little over $300 million, of which we paid half upfront. So that -- and Staubach has a remaining $150 million. And then the balance of those are a series of other acquisitions that we've done because our pattern is to have a deferred amount to really keep retention and focus of the people that come across.

William C. Marks - JMP Securities LLC, Research Division

And those are discounted back, correct?

Lauralee E. Martin

Yes, that is correct. And then they accrete in until the point in time that they're paid. So we talked -- I talked about the 6% interest rate that we had on the Staubach transaction. Because of where interest rates are today, the King Sturge is actually lower at a 4% level. So again, they get adjusted, but all of them tend to be higher than the cost on our own credit line.

William C. Marks - JMP Securities LLC, Research Division

A few other things. Do you break down anywhere the LaSalle Investment Management transaction fees versus incentive fees?

Lauralee E. Martin

We didn't, but of the number, I can tell you about $15 million of it was incentive fees, and the balance of it was transaction fees.

William C. Marks - JMP Securities LLC, Research Division

Americas hiring in the past 2 quarters -- you've given some numbers to show your -- how many people you've hired. Can you expand on that?

Lauralee E. Martin

In terms of brokers?

William C. Marks - JMP Securities LLC, Research Division

In terms of brokers.

Lauralee E. Martin

It's a relative modest number, Will, at this point in the year. A combination of getting late in the year -- and brokers at this point in time are going to hang on to -- and finish up their year.

William C. Marks - JMP Securities LLC, Research Division

And on a related note, would the general slowdown in hiring potentially lead to a better margin. I know you kind of gave some margin outlook in the Americas, but on a maybe global basis, is that a reason for margin improvement in the future?

Colin Dyer

It's clearly a reason for us to be confident. We know we could pull the eagles there [ph], because we're looking at strong growth. And you can't produce this growth rates without having some cost to the business. I think the question is getting the balance right between how the costs come in and how we respond to the demand growth.

But clearly we can attenuate that back. And to the extent we feel the markets are growing -- our markets -- our revenue performance is about to grow less strongly, we'll dial it back across regions. But just at the moment, the happy position we're in is that with that strong top line, we're able to simply apply the breaks to growth in cost, as opposed having to remove cost which is a much harder activity.

And I should say that as we look at that, we're not taking a blanket across-the-world approach, one-size-fits-all. We're looking by country, by business line, and how we should be setting ourselves up for 2012, which is our customary approach.

William C. Marks - JMP Securities LLC, Research Division

A couple of other things. One, the cash flow in the quarter looks as if it were -- as if it's lower than 3Q '10. Is that right? [indiscernible]

Lauralee E. Martin

Very good observation, Will. It's interesting. The last day of the quarter happened to be the last day of the month, and so we had an unusual payroll run that in the Americas and, I'm sure if we went to country by country, probably around the world. So -- which means we'll get the benefit of that in the fourth quarter just because of the timing of that. So we had one additional payroll run that is normally not in a quarter.

William C. Marks - JMP Securities LLC, Research Division

So without that, you think there would have been cash flow growth?

Lauralee E. Martin

Significant, yes.

William C. Marks - JMP Securities LLC, Research Division

Okay. And then just my final question. On -- it kind of has to do with market share, I think. I look at your reports that you put out for your clients, I know they're not really for Wall Street that public reports on. For example, you have a U.S. report that showed the U.S. leasing and I think it is volumes down 26% in the third quarter. And it's an industry note and yet your leasing was up 20-plus percent. And some of that's just revenue versus volume, and some of it's market share. But maybe you could just talk a little bit about the differences, and also as it ties to -- when you discuss 2012. I know you're talking about the industry in volumes and -- could higher rents and more square footage take in impact things as well?

Colin Dyer

First of all, a drop we've noted in the report was around office, and our numbers are a mixture of office and residential and retail and industrial, so different market sectors.

In addition to which, we are focused in, obviously, better markets, so we tend to be in the larger markets. And so the number that you quoted was our number for the Americas as a whole. And we did say, that, that drop has been concentrated in the non-top markets, secondary and tertiary cities and secondary and tertiary districts in cities. And so when you get to the better end of the concentration, the bigger cities where we tend to operate, the picture was more positive. So that's point 1 in terms of a market background.

And point 2 , we believe we're still taking share. And those numbers would tend to support that belief. That's the basis on which make that statement.

As to the outlook, the general comments I made around sentiments on business apply to the U.S. If you put a hierarchy of how people seem to be affected, the Europeans are obviously -- European business people are obviously most impacted by what's going on. They're living it on a daily basis. The U.S. and Asia less so because it's observation from a distance, but they tend to get on with things. So we feel fairly good about business sentiment next year, unless things take another big strike downwards. And we've made the comments about the sectors in the U.S. market, office market in particular, which we believe will grow and those [ph] which will be pressured around Wall Street and Washington.

Operator

Your next question comes from the line of Eric Prouty.

Eric Prouty - Canaccord Genuity, Research Division

Just a couple of quick questions going back to Europe. Could you do a scene, kind of, sector or end market analysis over Europe as you did in the U.S. where you're seeing strength and weakness from an end market standpoint?

Colin Dyer

Again, we made some reference in the script to some of the things we're seeing. In general, if you take some of the biggest single market in Europe, which is London, you'll see rent going up and you'll see vacancy rates extremely low in the West End. But when you get to -- which a broad market with a broader base of demand. When you get to the city, there are levels of vacancy and there are some softness in the rental picture because the demands there is less strong. Same in the investment sales side of that particular market. They've got a lot of demand, lots of bids on [ph] properties offered in the West End. And you've got significantly less interest in city properties at this particular point. And again these sentiments can bounce around quite rapidly. Get outside of those 2 markets, and things drop off pretty rapidly in the rest of the English market. As if you go to Paris, you'll see quite strong demand and quite strong capital market activity. Not [ph] outside of Paris it's slower. Germany is fairly broad in terms of demand in both sectors. And then we mentioned strength in Eastern Europe, the Nordics and Russia, which is going very strongly in both investment sales and demand for space.

Those comments are mostly office-based comments. I haven't got anything in like that sort of detail to give you in the industrial retail sector.

Eric Prouty - Canaccord Genuity, Research Division

Great. And then maybe also just a little bit of commentary on -- it doesn't sound like you've seen anyone pushing off projects or whatnot, so are we not building up any potential pent-up demand if the European debt crisis gets solved? Or do you think there's a little bit of hesitancy out in the market that could get released?

Colin Dyer

It could be a little bit of a sort of a small wave of activity, which people have held back on, both in Asia and the U.S. That could be a much larger wave potentially in Europe where we've seen some drops in demands quarter-on -- year-on-year. But if you want my personal opinion, don't hold your breath and expect the European crisis to get solved anytime soon. It could take again many quarters of activity. And if you talk your banking analyst friends about what's happening in the banking markets in Europe, that's a quite interesting conversation.

Operator

And there are no further questions at this time.

Colin Dyer

Okay. Well, thank you, operator, and thank you to everybody who listened in today for your interest in the company. We look forward to talking to you in 2012 about our fourth quarter results. Thank you very much.

Operator

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

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