Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Jones Lang LaSalle Incorporated (NYSE:JLL)

Q2 2012 Earnings Call

July 31, 2012 6:00 pm ET

Executives

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

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

David Gold - Sidoti & Company, LLC

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

William C. Marks - JMP Securities LLC, Research Division

David Ridley-Lane - BofA Merrill Lynch, Research Division

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

Todd Lukasik - Morningstar Inc., Research Division

Operator

Good day and welcome to the Second Quarter 2012 Earnings Release Conference Call for Jones Lang LaSalle Incorporated. Today's call is being recorded.

Any statements made about future results and performance, or about plans, expectations and objectives are forward-looking statements. Actual results and performance may differ from those included in the forward-looking statements as a result of factors discussed in the company's annual reports on Form 10-K for the year ended December 31, 2011, 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, and hello, welcome to everyone joining this review of our results for the second quarter and first half of 2012. Joining me on the call today in Washington D.C. is Lauralee Martin, our Chief Operating and Financial Officer. Lauralee will review our performance in detail for you in a few minutes.

To summarize our results, we recorded a steady performance in a cautious market environment. Second quarter revenue totaled $921 million, up 9% in U.S. dollars and 13% in local currency from the second quarter of 2011. Year-to-date revenue increased to $1.7 billion, 13% higher than the first 6 months of 2011 and a 16% increase in local currency terms. For the quarter, we reported adjusted net income of $51 million, or $1.13 per share, compared with $50 million or $1.12 a share 1 year ago. First half adjusted net income was $73 million, or $1.63 a share, compared with $51 million or $1.15 per share for the first 6 months of 2011.

Before Lauralee discusses those results in detail, let me first put them in context by talking about conditions in the global economy and in real estate markets in particular around the world. Prospects for growth in the global economy weakened during the second quarter, as U.S.-earned problems in particular continued to weigh. According to IHS Global Insight, the global economy is now expected to grow 2.4% in 2012, marginally below earlier estimates. As deleveraging continues, growth in advanced economies is expected to be 1.3% for the year. Prospects for emerging markets are lower than last year, but growth is still projected to be at 5% year-on-year.

Turning to global real estate markets, the investment market rebounded in the second quarter following a relatively quiet first quarter, and office leasing activity also improved seasonally, compared with the first 3 months of the year. Both, however, are being affected by caution driven by economic concerns so the tone of the market is less confident than 6 months ago.

To summarize conditions in global real estate markets, we've posted slides in the Investor Relations section of our website, joneslanglasalle.com. Slide 3 shows the Jones Lang LaSalle investment sales clock, which depicts capital values in major world markets at different stages of the real estate cycle. Global investment volumes reached $108 billion for the second quarter, up 24% from $87 billion in the first quarter of the year, with all 3 regions seeing a seasonal rise in transactional activity.

Year-on-year, however, second quarter volumes were down 9% of the Americas and 7% in Europe. Asia Pacific volumes increased by 30% year-on-year, led by Japan, where investment sales activity was up by nearly 300% of a back of a recovery from the March 2011 tsunami. For the first half of 2012, however, Asia Pacific volumes were flat year-on-year.

Capital values on prime assets rose across 25 major office markets and increased at an annualized rate of 5.4% at the end of the second quarter. Rates of annual capital value growth have been gradually slowing from 18.1% 1 year ago, to 12.6% 6 months ago, and 7.7% 3 months ago. We believe that by the end of 2012, year-on-year capital value growth will be in the region of 3% to 4%.

Turning to Slide 4, we see a picture of conditions in leasing markets worldwide. Office leasing activity improved in all regions during the second quarter compared to the first, but year-on-year, second quarter volumes were 11% lower in the U.S. and down 14% in Europe. Our second quarter leasing revenues increased 9% year-on-year in the U.S. and 10% in Europe increasing -- indicating continued market share gains.

Office vacancy rates continued to decline, the global office vacancy rate across 94 world markets now stands at 13.3%, down from 14% a year ago. Regional vacancy rates range from 16.2% in the Americas, to 9.8% in Europe, and 10.4% across Asia Pacific. The sharpest fall in vacancy were recorded in BRIC markets, Beijing, Moscow and São Paulo. Prime rents across 25 major office markets increased by 0.4%, a marginal increase on the first quarter's 0.1% growth. Beijing continued to show the strongest quarter-on-quarter rental growth at 8.8% while San Francisco with 6.8% led North American markets. Modest growth was recorded in Tokyo, Los Angeles, New York, Chicago and Tokyo. By contrast Hong Kong and Singapore continued to register rental declines and rents also fell in Washington D.C., Madrid, Paris and São Paulo.

So all in all, a hesitant economic environment contributing to cautious market sentiment. Nevertheless, Lauralee will now explain our new business pipelines remain healthy and our results indicate that we continue to take market share from competitors.

So with those opening remarks, I'll turn the call to Lauralee.

Lauralee E. Martin

Thank you, Colin. And good afternoon and evening to everyone on the call. As Colin mentioned, our consolidated results for the second quarter demonstrated the firm stability in the midst of a hesitant economic environment. We grew fee revenue by 11% on a local currency basis over a strong 2011 second quarter. We had solid performance from each of our annuity businesses in our real estate service segments across the globe.

The investments we have made in our platform over the last several years increased transactional revenue in key markets. Significant improvement in operating income and EBITDA margins in EMEA reflect more efficient performance and the cost takeouts we completed in prior periods. In total, we are well-positioned with our balance sheet and our year-to-date results to have a productive second half of the year.

In the Americas, fee revenue increased 13% in local currency from the second quarter of 2011. The most significant local currency increases were in Capital Markets, up 37%, and in Property & Facility Management, up 15%. These increases demonstrate continued achievement and pay back on the hiring decisions we have made. The 10% local currency increase in Leasing revenue reported in the quarter compared favorably with year-over-year decreases in the overall office market volumes, indicating we have continued to make market share gains. Operating income and EBITDA margins for the quarter each increased by 50 basis points on a fee revenue basis. Looking forward, transaction pipelines in America are still healthy and we will continue to manage our cost base in recognition of the market risk.

In EMEA, fee revenue increased 23% in local currency from the second quarter last year, with significant contributions across all service lines and from many countries. Strength in transaction pipeline such as we highlighted in England and in Germany last quarter are beginning to convert to revenue, though markets remain challenging and uncertain. The benefits of the cost takeouts actions we've taken over the last year or so can be seen contributing to margin improvements.

And given market dynamics, we have continued to take cost actions in the region beyond those anticipated in the King Sturge merger. Of the $17 million of restructuring and acquisition charges recorded in the quarter, roughly 1/2 related to the merger retention in IT costs that we discussed previously and the balance related to more recent decisions to rationalize office space and headcount in the region in order to reduce our cost base going forward.

In Asia Pacific, fee revenue increased 1% in local currency in the second quarter and increased 6% year-to-date. Our annuity businesses Property & Facility Management and Project & Development Services, both produced double-digit fee revenue growth in local currency in the quarter, reflecting continued expansion of our high-quality platform for corporate occupiers, both local and international, while providing a steady base of annuity income for our results in the region.

Transactional revenue in Leasing and Capital Markets declined against a very strong second quarter 2011 that was well above our normal seasonality. To refresh to last year, our Q2 2011 Capital Markets revenue in the region grew 71% in local currency over the Q2 2010 driven by our Hotels business, making it a challenging comparable to this year. The subsequent quarter 3 and quarter 4 revenues were lower, demonstrating the quarter 2 2011 seasonal deviation.

International client activity levels in the transaction markets continued to be lower than in prior years, but we are offsetting this slowdown with success in local markets, with local clients, several of whom Colin will highlight shortly. LaSalle Investment Management completed a relatively quiet quarter in terms of transaction fee and incentive fee activity, but maintained advisory fees in line with the first quarter of 2012 levels despite the significant Asia Pacific portfolio sale in quarter 1. Looking ahead, additional incentive fees in the low double digits of millions are anticipated during the third quarter after finalizing all calculations related to the first quarter portfolio sale in Asia.

In total, the second quarter results reflect a baseline level of activity to be expected from LaSalle Investment Management with future enhancements to be results to be driven by its capital raisabilities and continued delivery of its leaning investment performance. With respect to the firm's financial position, we paid down debt in the quarter. We've continued to reduce our interest expense against the prior year and we've maintained our investment grade rating, all of which reflect the continued discipline management of our balance sheet. Combined with second quarter results, which reflect solid growth in our annuity businesses, increase in market share and focused management of our expense base, this demonstrates stability and positions us to continuing -- to continue increasing the strength of our business in 2012.

Let me now turn the call back to Colin to discuss some of our recent business wins.

Colin Dyer

Thank you, Lauralee. Turning to Slide 5. This shows a few examples of new business wins, which contributed to our second quarter's results. Beginning with our global corporate outsourcing business, we've won 28 new assignments to date this year expanded our relationship with a further 21 clients and renewed 22 contracts.

Three of our largest long-term clients, Procter & Gamble, BBVA Compass and Bank of America extended their relationships with us during the quarter, validating our leadership position in the corporate outsourcing market, which itself continues to grow with European corporates now increasingly embracing the outsourcing trend.

Activity in our local market level Corporate Solutions business, which focuses on mid-market corporate occupiers also continued to grow. To date this year, we've won 29 new assignments, totaling nearly 60 million square feet of activity. In second quarter investment sales activities, we represented the New York branch of Eurohypo to close the sale of $760 million in loans, secured by a portfolio of office, retail, industrial and mostly multifamily assets in major markets across the USA.

Major leasing, tenant representation and property and asset management wins in the quarter included being selected for asset management services at the 930,000 square foot Mori Asset tower in Shanghai, expanding our relationship with a Korea-based Mori Asset. The new assignment underscores our growing success of providing services within the region to major Asian companies.

During the second quarter, LaSalle Investment Management was focused on new capital raising efforts with investors who are increasingly favoring individual mandates and tailored advice over co-mingled fund vehicles. LaSalle's assets under management were in line with the previous quarter at $47 billion.

Looking ahead to the second half of the year, we anticipate continued caution amongst investors and corporate tenants. We do see some bright spots, however. For example, while first half investment sales volumes were 7% below the first half of 2011, we project year-end volumes for markets as a whole to exceed $400 billion broadly matching 2011 levels. Even if investor sentiment has seesawed in the first 6 months of the year, we continued to see serious interest in quality real estate assets globally, with prime yields still looking attractive compared to many other assets -- to many other asset classes and our pipelines worldwide are generally robust.

While relocations and consolidations continued to support leasing activity, cautious corporate occupiers and weak job growth are expected to contribute to reduced leasing volumes for the year, at around 10% below 2011 levels. In the U.S., demand, driven by the technology and energy sectors in Western and Southern U.S. markets, is being offset by weakness in the financial and government sectors in the East.

Central and Eastern Europe contained the regions most dynamic leasing markets, but Europe's 2 largest markets, London and Paris, remains subdued. Current forecast see growth tick up regions -- tick up in the region for 2012 to be around 10% lower than 2011. And in Asia Pacific, we expect overall leasing demand also doing 10% below the level of last year.

Asia presents a good example of the very market conditions we're seeing this year. The region as a whole continues to generate positive growth, but the picture is very different on a country by country basis. China's growth is slower than 1 year ago, but at a government projected 7.8% this year, still very healthy. Domestic consumer spending is partly compensating for challenges to the countries export sector. The greatest uncertainty in the region, however, life in India, were slower export growth and investment spending, coupled with domestic policy uncertainties are constricting growth. And you'll see today, 640 million people without electricity in the Russia.

In the funds management sector, institutional investors continued to commit new capital to real estate in a careful and focused way. In this environment, LaSalle Investment Management will remain focused on raising capital and winning new mandates this year. As a firm, we continue to concentrate on converting our business pipelines, recording additional market share gains, while maintaining continued cost disciplines and increasing our productivity.

To close these remarks, we'd like to introduce some of the awards we've received, which reflect our commitment to client service and our leadership position in real estate services and investment management. During the quarter, we were named to the Global Outsourcing 100 for the fourth consecutive year, Diversity MBA Magazine recognized us as 1 of the 50 out front companies for diversity leadership. We moved to the top of Europe's annual Top Brokers list published by PropertyEU. In Germany we were voted the top real estate sector employer in Immobilien [indiscernible] annual survey. We were named Russia's consultant of the year for the eighth time in 9 years. We received a total of 12 awards in the International Property Awards Asia Pacific, including Best Property Consultancy awards in 9 country markets.

We were ranked the #1 in investment brokerage in Asia Pacific in 2011 and recently released data from -- according to recently released data from Real Capital Analytics. And finally, we won the Superbrands award in Thailand for the fifth consecutive year, the only real estate services firm to receive Superbrand status.

So with that, let's now move on to your questions. Operator, would you please explain the Q&A process.

Question-and-Answer Session

Operator

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

David Gold - Sidoti & Company, LLC

I was hoping you could speak a little bit more on the Americas. The only significant change if you will, in your projections is for the Americas to be down 10% from -- and from what you were thinking previously. And I was curious, I know you commented that the government was a part of it, but can you give some more color around that, is it only government, or are there other areas where we've seen similar slowing?

Colin Dyer

Well, as -- as we've heard from the Feds with 1.5% GDP growth we're not really creating any jobs in the U.S. So just broadly, there's a relatively low level of office demand, space demand as a whole in U.S. markets within that, as you said the tech section, the energy sector has been showing positive absorption and growing this space, North and East, the government is focused around D.C. who's been a problem all year, but the financial services sector is clearly also still contracting. And that's hitting particularly the New York markets.

David Gold - Sidoti & Company, LLC

Okay. And then one other -- on the cost adjustments taken in the region, is that something -- are we largely through it or is it more sort of office rationalization and what not to be done there, should we expect continued restructuring charges from it?

Lauralee E. Martin

Well, the cost piece was in Europe, David, and we still have, through the end of the year, a little over $5 million of retention between their people and our people. So that's just with our original plans and we still have another $1.5 million to $2 million of IT still part of our original plans. The big change has been the -- some of the segments we've taken this quarter and some of the previous that was over and above for the region and then lease activity. I think we're through almost all the lease activity. There could be $1 million or $2 million more by the end of the year but other than that, we're pretty much through it. Summing that up, it means it could be sort of total $7 million, $8 million between now and the end of the year for still King Sturge and those activities.

David Gold - Sidoti & Company, LLC

Combined?

Lauralee E. Martin

Yes.

David Gold - Sidoti & Company, LLC

Okay. And then just one last, if I might. Curious from essentially on market share perspective, the comment on market share gains, is that largely -- is that entirely looking at the declines on the markets versus your growth? Or are there some other metrics that you can point to there?

Colin Dyer

No, it’s either our own research numbers on the market, total market stats or numbers from independent groups we referenced RCA going through the text of our script. So it's a mixture of the 2 and it’s our own performance relative to market performance.

Operator

Your next question is from and Brandon Dobell with William Blair.

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

I wanted to ask about the leasing business, I guess in particular in the Americas and EMEA and the tie between property management and leasing. So is there a way to think about how the leasing business has acted in recent quarters if you take out the tie between those 2 different segments? Deals done for properties that you're manning, or I guess even deals done that investment management has another purview?

Lauralee E. Martin

You're referencing most of the Americas, Brandon?

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

Yes, I guess Americas and EMEA, in particular those 2. But yes.

Lauralee E. Martin

Well I guess first of all, of our leasing, we are still predominantly on the occupiers side. So if we look at last year, we were about, 15 plus percent agency and the balance occupiers. So in that sense, most of our leasing has been driven really by either growing into the agency side or the fact that we've just been expanding our market share and the tenant wrap. I would say generally speaking in Europe, they're pretty detached in terms of leasing and property management it's just sort of not market practice that it ties that closely together, so it's a different model. The growth that you're seeing in our Property & Facility Management is primarily coming from our corporate side, which would be the Facility Management side.

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

Okay, fair enough. Then as we think about second half margins in the Americas, combination of the headcount and marketing [indiscernible] and things like that. Did the first part of the year play out like you thought it would as you stood there back on the either third or fourth quarter calls from an expense point of view. Are you happy with where you are right now or has the market not cooperated from a revenue point of view so you take a kind of second view with how the Americas cost structure looks?

Lauralee E. Martin

No, I think we're pretty happy with our cost structure. We tend to have more seasonality in our margins, so that each progressive quarter, the incremental contribution comes through with the strongest in the fourth quarter and we're ahead of last year, so each quarter we were ahead and year-to-date we're ahead. So we expect to continue to make nice progress barring a disruption in the marketplace, but we think we're on track.

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

And then as you look at the EMEA pipeline and the transaction businesses, as you finished out the quarter, how do you characterize I guess both the pipeline as well as the mood around the pipeline in EMEA, heading into the third quarter?

Colin Dyer

I think you can take 3 cuts of that. The moving Europe is sort of universally hesitant and that's you'd expected is undeniable. The numbers we're actually producing are really better than the mood would suggest. And we're pleasantly surprised with that, but we're pleased with that momentum is in our business and we expect that momentum to continue. The pipelines are actually even stronger but the challenge or the question is at what pace will the pipeline be converted? Because pipelines times velocity is the actual revenue number. And the signs of the velocity is the challenge that people are hesitant in getting on the signing leases. They are hesitant at completing transactions and due diligence is taking longer and they're being more careful. But we expect with good solid pipelines in both transaction -- both transactional business areas to see decent second half trading.

Operator

Your next question is from Will Marks with JMP Securities.

William C. Marks - JMP Securities LLC, Research Division

A couple of quick questions, just to avoid reading the transcript, I may have missed -- I know I missed -- you said leasing volumes for the industry is down 10% in Americas and U.S., what was in EMEA?

Colin Dyer

Year-to-date is about the same.

William C. Marks - JMP Securities LLC, Research Division

About the same, okay. Any expectation for about the same, for the full year?

Colin Dyer

We think -- yes, you could be slightly more optimistic -- our focus is actually slightly more optimistic for the full year. In fact, I misspoke our numbers. The market for the year-to-date is down 14% in EMEA, we expect the full year to be down about 10%. So a slight improvement on the performance to date.

William C. Marks - JMP Securities LLC, Research Division

Lauralee, did you say King Sturge remaining integration cost is $7 million to $8 million? Is that the $7 million to $8 million you...

Lauralee E. Martin

Yes, that's correct, with about half of that being the severance, which is being paid by them and some to our employees. And then we have IT just wrapping up and we may have a touch more lease exits.

William C. Marks - JMP Securities LLC, Research Division

My only other question really is on margins. Last year, at around this time, or maybe it was a quarter later, you started talking a little bit about your goals for the margin for the year, and maybe in the context of that 14% to 15% medium-term target for EBITDA margin; one, does your new accounting or your change in compensation structure impact that medium-term target? And 2, how should we be looking at this full year? Last year you were around 11%. Could this year be a flat year, which would actually be an up year if you took out those additional costs?

Lauralee E. Martin

What you're referencing is our elimination, what we call our share ownership plan out of our bonuses, which is really a timing. So, no, it does not change our targets. It will have a modest impact for this year. What we said is you can kind of look at what the number was last year, which was give or take about $10 million and what will happen is we won't have that amortized spending because next year, we'll have another year where we won't have a deferral, but we'll have less of an amortization by the time we get out into the third year, there's no impact. And relative to the benefit of shareholders, it significantly lowers the dilution. So, therefore, ultimately it’s a benefit to shareholders overall. So it doesn't change our medium targets, there will be an impact this year. We're driving hard to not have an impact as materially and get close to our goals. I know a lot of it depends on how the economy supports activities in the balance of the year.

William C. Marks - JMP Securities LLC, Research Division

Does -- you provided additional disclosure on the margin for some of your management services this quarter, which is helpful, but that's not a sign that there's any change in terms of margin goals, is it?

Colin Dyer

No, we're not signaling any change in our commitment to the margin goals for the business for the medium-term goals, which we've set out.

William C. Marks - JMP Securities LLC, Research Division

Okay, and just a final question on that, what does medium-term mean in terms of timeframe?

Lauralee E. Martin

Well, we had set it out to be a normal market, that has been a little bit harder to find. So what we've said is we've been driving very nicely in the Americas and Asia. We have not yet had a recovery in Capital Markets in Europe, which is a big piece of it, but we haven't slowed our activities there, taking advantage of scale with the combination of the King Sturge and our operations in London in particular, but in other parts of Europe. So we're driving through that but there's no question some of it is impacted by a still significantly below normal level of Capital Markets.

William C. Marks - JMP Securities LLC, Research Division

Okay. And actually my final, final question, on looking at the third and fourth quarters individually, is there 1 quarter that faces an easier comp than the other?

Lauralee E. Martin

I think other than the second quarter that we had in EMEA last year, which was fairly abnormal in pretty much all the areas but particularly in Capital Markets, we generally had a seasonal trend that was pretty consistent, in EMEA and the Americas. What we will have in EMEA is, in the second half of the year, a true like-for-like because we will now have -- the King Sturge came in as of June. So the second half will be a like-for-like, but everything else was a normal seasonal, I would say the U.S. was normal seasonal, and the balance of Asia last year was a normal seasonal when you kind of just draw a line through it. So I don't think there's anything that you'd want to call out.

Operator

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

David Ridley-Lane - BofA Merrill Lynch, Research Division

I have a bit of a hypothetical question. If you were to see a change in sentiment for whatever reason in EMEA, at what point would -- in the second half, at what point would it be kind of too late for you to receive the benefit in terms of Capital Market transactions and Leasing transactions in 2012. So for instance, if things got better in September and October, would that lead to better fourth quarter volumes, or would that change in sentiment, it would just be too late in the year to really get deals signed?

Colin Dyer

Well, it's encouraging, David, that you think a change of sentiment could be in a positive direction, most commentators are the other way up. But I share your point of view that its very interesting that Europe is trading as well as it is, not just for us, but the markets as a whole seem to be holding up, business is carrying on. And I think what's happened is what the business world has begun to get used to the uncertainty they're dealing with so whilst numbers are not euphoric in many markets, people are getting on with life. So if you go back to our comments on pipelines, we're really pleasantly surprised with the pent up activities that is there. And this sentiment point you referred to is the entire issue because if the sentiment turns bullish then we could see quite sharp uptick in activity and on the reverse is also true and the velocity will slow even further. But any time before the Capital Markets activity, anytime before September, October, you could see transactions which are underway suddenly accelerate and complete by year end. It's hard to get through from a standing start, a transaction in 3 months, so most of these activities are kind of underway in some form or other. So they're not, sentiment goes bullish, we're not starting from a standing start. But it's very finely balanced at the moment and you make a good point that it could be positive as well as negative.

David Ridley-Lane - BofA Merrill Lynch, Research Division

And then at least relative to my estimates, I was a bit surprised in the comp and benefits line, there was about 100 basis points of leverage in the first quarter. It was flattish in the second quarter. Would you expect to see leverage on that line in the second half?

Colin Dyer

If you even those 2 out, it's 50 basis points of leverage and I think that makes the point, but year-to-date we're doing pretty well and this first half is relative to the cost base slightly stronger than the second half, you seasonally start the second quarter if you seasonally adjust, we're very happy with where we are for the first half and we'd expect that leverage to be continued into the second half of the year.

Lauralee E. Martin

And remember we did have about $4 million that feeds into the comp line in the year-over-year comparison and actually, was somewhat of a reversal of the first quarter when we changed our shared ownership program that would feed into that. So you need to look at that with that adjustment, which again is the timing, it's not a long-term change in how we pay anybody.

Operator

Your next question is from Michael Mueller with JPMorgan.

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

I think in the press release, you referenced a tougher comp in Asia Pac as being part of the reason why the Capital Markets business was down significantly. Number one, can you kind of remind us what it was if there was something very chunky that pushed last year's up, specifically? And then, outside of that tougher comp, just how did you look at the business that quarter? Does it feel like in the market share gains you were thinking about coming through the expenses? I mean just how would you size it up outside of just bumping up against the tougher comp?

Lauralee E. Martin

Well let me just give you the data, because you can pull it from our slides, and this is going from Q1 2011 through for Capital Markets in Asia. So Q1 was 17.7, Q2 was 33.8, Q3 was 21.3 and Q4 was 22. So when we got to Q1 of this year, it was 21.6 and now this year Q2, 23.8. So you can see there was a real seasonal deviation in the second quarter of 2011, and we had some significant hotels activity in that quarter. Our Hotels business globally, has seen that -- just the dynamics of hotels in general are improving, the RevPAR's and so forth. They have -- all of our businesses talk about having very strong pipelines and are feeling quite confident about the second half of year. Again, barring some confidence change. But again, I think there was that significant change in them, or significant amount of activity in the second quarter of 2011 .

Colin Dyer

With respect to market share in Asia, which I think you referenced specifically, we'd expect for the full year to see continued growth in our market share across both Capital Markets and leasing activity. We are in Asia -- we have in Asia, raised salaries and that's a deliberate managerial decision to ensure that we retain our good staff, and so that year-on-year raise in the cost base and we also, in the second half of last year, continue to hire people. And so that well be in the cost base for the second half. And whilst we stopped hiring for the balance of this year, nevertheless, those 2 factors will weigh in half 2, but we expect, on balance, the growth, which we are expecting to see in our revenue line for the remainder of this year, to balance those expense increases. And we'd expect to see a full year, which is roughly comparable with last year in Asia Pacific.

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

And then thinking about investment volumes and we've seen a lot of impact from just core product trading hands, but are you seeing signs that there's a pickup occurring in middle markets to non-prime markets at this point?

Colin Dyer

Not really, it's very marginal. There's a lot of talk about -- if you were a real estate professional investor and you see Europe in the -- cap rates in the 4 and 5, it does make people start thinking about moving to secondary markets, be they secondary asset category or secondary pitches in suburbs. And some of the more opportunistic investors are beginning to go out along that particular path along the risk curve. But in general the bulk of money, certainly for institutional investors, from high net worth across regions, is looking for secure safe cash flows and they're seeing 4% and 5% yield, cash cap rates is actually pretty darn good compared to the 1, 2s and 3s they're getting from bond yields. So it's a comparative play still and we talked in our prepared remarks about further continued cap rate compression towards the year end or be it much less steeply than we've seen in the last few quarters. So attractive markets for core, lots of demand for core assets and supply generally limited because sellers have got little attractive reinvestment option for their money and the secondary markets beginning to pick up and confidence has to recover, broadly speaking, a little more before you see a real solid move towards secondary markets.

Operator

Your next question is from Todd Lukasik with Morningstar.

Todd Lukasik - Morningstar Inc., Research Division

The first one I may have missed. I was wondering if you gave the estimated organic growth rate for EMEA absent King Sturge.

Lauralee E. Martin

We didn't. We are very merged now, but we try to recreate a like-for-like. If we looked at sort of them and us prior to being together, we think we would be -- would have been down approximately 5% in revenue.

Todd Lukasik - Morningstar Inc., Research Division

Okay, and would that be on a U.S. dollar basis, or local?

Lauralee E. Martin

Yes.

Todd Lukasik - Morningstar Inc., Research Division

My other question was just, I was just wondering if you could give sort of an updated view on what I'd call debt driven sort of property sales. So a few years ago, I think, there may have been a feeling that as loans that were made on purchases at peak prices at high loan to values came due, but they may be either non-refinanceable in the current environment, is that something that's playing out or is that something that still may play out in the future quarters? Or given lending practices, or maybe the rise on asset values something that's likely to not play out?

Colin Dyer

All of the above. I mean every single permutation combination you can think of. In Asia there isn't really much, you're talking about the step -- distressed driven by financing structures put in place in better years, it wouldn't be very much of an issue in there, across Asia. Within Europe, there's everything happening because you've got some countries where the banks have got sufficient capital and the government's have got sufficient regulatory authority to push them to start taking write-downs on debt structures, which were put in place in better times, in Germany, some are France, but you've read what's happening in Spain, the banks unable to deal with the real estate issues there. Continued progress in Ireland is being stymied by a total level of debt between the banks and the country. And the country of course, owns that. So you've got, certainly there's still levels of distress in here. It's really the pace of dealing with it is very variable. And where it's being dealt with, some of it's extended some it's new debt with haircuts, some of it's debt taking possession of the asset and refinancing or selling as all sorts of permutations going on. And generally, the pace is not as rapid as everyone always thought 3 years ago, in the depths of the recession when recovery was beginning. Same comment in America, it's a controlled process. Can still being kicked down the road through refinancing and haircuts, but it’s not the principal driver of activity in the market still.

Todd Lukasik - Morningstar Inc., Research Division

Okay, but it sounds like it maybe something that could contribute to a larger degree in the future?

Colin Dyer

Yes, albeit that the financial markets are continuing to sort of gradually heal and in doing so, that capacity to refinance is improving and they're also continuing to discover new ways of handling these distressed structures when they do come due.

Operator

[Operator Instructions]

Colin Dyer

It sounds like we're through, operator.

Operator

That's correct, we have no further questions.

Colin Dyer

Okay. Well with no further questions, let's conclude the call. Thank you, everyone, for participating and for your interest in Jones Lang LaSalle. We look forward to talking to you again following the third quarter results. Thank you and good evening.

Operator

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

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Jones Lang LaSalle Incorporated Management Discusses Q2 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts