Jul 31, 2008
Operator
Good day and welcome to the Second Quarter 2008 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 objective 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 Form10-K for the year ended December 31, 2007 and in annual report or 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 good morning everybody. Thank you all very much for joining this review of our results for quarter two and for the first half of 2008.
Lauralee E. Martin, our Chief Operating and Financial Officer is with me today in Chicago and during the call today we'll discuss our current market conditions, talk about the effect of those market conditions on our business, and describe how we are responding.
Finally Lauralee and I will be happy to answer your questions. Let's begin with the summary of a few headlines.
Second-quarter revenues totaled $660 million, 2% below revenues for the second quarter a year ago. Year-to-date revenues were $1.2 billion, 5% above first half 2007 revenues.
Net income from the second quarter totaled $24.5 million or $0.73 per share compared to $77.9 million or $2.32 per share in the second quarter a year ago. Year-to-date net income was $27.4 million, or $0.82 per share, compared with $105 million or $3.12 per share for the first six months of 2007.
So to put these numbers into context, let's first visit current market conditions. While the economist intelligent units still expects world GDP to grow by 2.7% this year, slowing growth and financial market contraction continue to effect economies around the world.
The credit prices, which began a year ago in the U.S., have impacted virtually all financial centers and economies to some degree. For commercial real estate, the major impact continues to be declining capital market's activity and much strict to debt financing, especially for large transactions.
In the U.S., first half transaction volumes decreased by more than two-thirds from a year ago while in Europe first half volumes fell by around a half from the same period in 2007. Asia Pacific Volumes showed wide divergence here across the region but in total were level with last year for the quarter.
However the momentum declined falling 28% between the first and the second quarters of this year. This slowing transaction activity has been accompanied by 15% to 25% price correction and a significant price disconnect remains as sellers whose expectations have yet to adjust to the investment climate hold assets rather than accept current pricing.
At some point that seller motivation will increase, which will result to still might made by in creating transaction levels to trigger meaningful price discovery. That increase in motivation is likely to be precipitated by loans coming due on properties purchased in recent years at very high level to value ratios and to generous underwriting conditions on debt.
We are expecting... sorry, we are beginning to see signs of forced or distressed sales and expect this trend to continue with equity investors re-entering markets, where there is restricted debt availability.
The effects of the slowing in global economy have also started to show in leasing markets. Tenant demand and leasing activities slowed as companies across the industry and across industry sectors delayed decisions taken.
In our target markets in the U.S., leasing volumes declined by 13% in the first half of 2008 and we expect U.S. companies to continue to be cautious on their business perspectives, but do not foresee occupancy declines matching the dramatic fall off seen in 2001.
Lease explorations will be the primary driver of U.S. demand for the rest of this year.
And active clients will see increased opportunities in most markets. In Europe, overall occupy office demand has been resilient, but is beginning to slow, with first half absorption 5.7% below last year's levels at 6.4 million square meters.
We anticipate the total take-up for the year will be below 2007 levels, but vacancy rates are not expected to increase substantially stabilizing the rental outlook for the reminder of the year. Absorption in the Asia-Pacific office sector for the first half was 2.7 million square meters, 24% above 2007 levels, but with indications of a weaker market in the second quarter.
Fundamentals in Asia-Pacific remains sound with most markets operating at historically low vacancy rates, which coupled to high levels of corporate expansion demand have contributed to rapid rental appreciation. Moderate rental growth should continue over the short-term in such markets as China, India, Singapore, Honk Kong, and Australia, given tight ongoing market conditions.
So looking at the impact of those market developments on Jones Lang LaSalle, overall we have continued to out perform the market in all of our service sectors. In our capital markets business and in Jones Lang LaSalle hotels; our second quarter revenues were down 30% compared to 2007 and down 39% year-to-date after correcting for the very large transaction fee earned in our Asia-Pacific hotel business in the second quarter of last year.
Lauralee will go into greater detail in her remarks on the capital market situation. High credit conditions and the disconnect between buyer and seller expectations have also reduced transaction levels in the global investment management business.
However institutional allocations to real estate are being maintained and LaSalle Investment Management delivered continued growth in its stable annuity based business during the quarter with assets from the management growing further and our advisory fees increasing by around one third for both the second quarter and the first half compared to 2007. Our leasing business which also exhibits annuity characteristics in tenants either renew leases or relocate when they expire, this area also continued to outperform the market globally.
Compared to a year ago, our revenues increased by 23% in the quarter and 29% for the half year. The economic slowdown is boosting demand for real estate outsourcing and we're seeing this trend in our Global Corporate Solutions business both on a financial services front and also with other corporate occupiers.
To date this year, we have won 8 major multi-regional assignments from clients which include Lenovo, Nokia, and Boston Scientific. We have verbal awards on four additional new assignments.
We have also retained all 8 corporate solutions relationships, which renewed so far this year. Finally, the firms advisory business also saw excellent worldwide growth during this quarter.
This plan has looked for expert advice from our professionals in the challenging real estate environment. So against that background I would now like to turn the call over to Lauralee to discuss the details of our performance by service lines and the steps we're taking to respond to current market conditions.
Lauralee E. Martin
Thank you Colin and good morning to everyone. To provide more visibility into our business, we have posted slides on the Investor Relations section of our website under www.joneslanglasalle.com which I will be referring to during my discussion of capital markets and hotels, leasing and acquisition performance.
As Colin has mentioned, the current global credit market conditions have impacted the real estate sectors investment sales, transactional activities to various degrees around the world. As a result our performance has also been impacted.
If you will now reference to page 4 and 5 of the slides titled capital markets and hotels. For the first half of 2008 against a much higher level of market transaction decline, our overall capital markets revenue was down 30% in the quarter and 39% year-to-date.
These decreases are broken down regionally as 40% for the quarter, 50% year-to-date in the Americas, 26% for the quarter, and 37% year-to-date in EMEA, and 30% and 33% respectively for the quarter and year-to-date in Asia-Pacific. It is too early for the lower quarter percentage declines to indicate trends are improving, but it is a positive factor in a tough environment.
As Tom has discussed, it is our view that healthy credit markets may not return for possibly an extended period of time. However, this does not mean that transactional activity will take us long to recover.
The stress starting to appear for owners of property that are highly leveraged or have maturing debt, just start to close the bid out on asset prices. This too in turn start to create investment opportunities for cash buyers and opportunity funds with the potential for achieving their targeted return hurdle.
Our plan is to maintain our market leading capital market's team substantially in place, since they would be ready to capitalize on this anticipated market potential and need. We have global and regional capital markets capabilities well qualified to assist our clients in resolving situation as well as realizing on opportunities.
Now if we could reference page 6 and 7 titiled leasing, as Tom has covered excluding capital markets, the remaining parts of the business continue to demonstrate solid growth with revenues from leasing in total increasing 29% for the first half of 2008 over 2007. All of our regions contributed to this performance.
Specifically worth noting in the Americas, total leasing revenue which includes tenant representation services for occupiers; as well as agency leasing for landlords increased 17% in the quarter and 27% year-to-date. However, isolating U.S.
tenant representation, our revenue was up over 80% for the first half of 2008 compared with 2007. This level of activity supports the opportunities that we have targeted with the Staubach transaction.
Turning down to pages 8 and 9 covering LaSalle Investment Management; Advisory fees which our LaSalle Investment Management's core Annuity revenue grew 32% for the second quarter and 33% year-to-date. While difficult to predict future sales activity and investment values, LaSalle Investment Management recognize $13 million of incentive fees this quarter, from both assets sale and portfolio evaluation.
These incentives fees reflect performance above investor hurdles for assets generally purchased in the 2002 to 2005 time period and were achieved despite declines in the broader market asset prices. Assets under management increased 18% over 2007 or $8 billion to $54.1 billion.
LaSalle is favorably positioned with committed capital to invest in a price adjusted opportunity market place, and has invested $2.2 billion year-to-date. Turning now to slide 10 on acquisitions.
As mentioned on previous quarter earnings call acquisitions have an immediate impact on both revenues and operating expenses with minimal benefit to the bottom line in the first year due to integration cost and amortization of intangibles from purchase accounting. Despite these costs, we are pleased that the acquisition is completed in the second half of 2007; as well as in the first half of this year contributed EBITDA of $7 million in the second quarter and almost $9 million for the first half of 2008.
All acquisitions are substantially achieving our pro forma expectations. Year-to-date, we have incurred integration cost of $1.6 million and amortization of $4.3 million, which has reduced operating income performance.
The EBITDA contribution however is an indicator of the potential of these acquisitions. At the beginning of May, we completed the acquisition of Kemper's Group that establishes Jones Lang LaSalle in the commercial real estate, as the commercial real estate market leader in Germany.
After the initial month of integration activity, June performance was inline with our pro forma expectations. Kemper's is a commission compensation model business.
And as a result, the professionals are strongly motivated to get on with business and make the union work effectively. On July 11th, we completed the transaction to merge the Staubach company into our Americas operations Integrations of operations albeit in the very early stages, are going well.
We are currently validating the financial model project in integration and intangible cost assumptions. We will report these costs and the impact on results as they occur in future quarters separate from the core business performance.
Additionally, the private placement shares which are part of the initial payment have been issued and will be outstanding in the third-quarter share count. In relation to the acquisitions discussed we amended and increased our credit facilities with our new borrowing capacity at $875 million up from $575 million.
The facilities are comprised of a $675 million revolver and a new $200 million term loan with maturity date of both facilities in June of 2012. Turning to page 11 of the slide covering cost initiatives.
With today's more challenging operating environment, we are actively managing our cost base. We are aggressively managing discretionary spend such as P&E and internal meetings.
We have a hiring fee in most markets with replacement hires requiring regional management approval. We continue to redeploy resources from flowing to growth markets such as from London to Russia and the Middle East.
We have made selective staff reductions and we will continue to evaluate the need to take more actions. We are moving to a more highly variable compensation structure in the Americas in our leasing business.
This variability will become evident in our quarterly reporting. Both Kemper's and Staubach are already on commission plans.
And finally as part of our G5 world class business operation strategy, we are positioned to leverage our investments and system in 2009. Asia-Pacific implemented the global finance and human resources system in 2007.
And this July we centralized the finance operations for the UK and in a number of our other European countries bringing on stream a new shared services operations based in Warsaw, Poland. Across EMEA our human resources and our client relationship management functions are also being supported by our new PeopleSoft technology platform.
Through the first half of 2008, we've incurred approximately $4 million of incremental expense to set up this FSO impacting our cost negatively this year. And we will incur an additional $1 million in the second half.
However, we'll realize savings for nearly $2 million in 2009 and a run-rate of $2.6 million of annual savings thereafter. So in closing, given the challenges that the marketplace leaves you this year is one of aggressive tactics and execution.
However, the strength of our global footprint and service line diversification is showing its strength. As addressed by Colin, we remain committed to our long term growth strategies in anticipation of serving the needs of our clients and the resulting profits that that will produce.
Let me now turn the call back to Colin.
Colin Dyer
Thanks, Lauralee. So summarizing the quarter, we continue to control cost rigorously with a range of internal control programs that Lauralee has described.
Our healthy organic growth and strategic acquisitions, which are focused on leasing ads management to corporate service revenues are both providing at finding diversification to our capital markets and hotels business. We are focused on integrating the acquisitions, so that they deliver full value as markets recover.
And we are maintaining our strength in capital markets and hotels to take full advantage of their potential as markets recover. Most importantly, we continue to focus on our ultimate priority, which is delivering outstanding advice and service to our clients; who value our expertise and experience more than ever in current market conditions.
Looking forward, we will maintain our commitment to controlling costs, to growing share, and improving our revenue generating power to emerge from this down cycle... I mean even stronger and more competitive company than we were when it began.
Before taking your questions, I'd like close with one final comment, we announced this month that Roger Staubach was named Executive Chairman of the Americas and has also been elected to our firms Board of Directors. I would like to take this opportunity to welcome Roger to both roles and to say that we very much look forward to harnessing his considerable width of experience in both roles in the years to come.
So, with that let me open the call to your questions. Operator could you just explain to us the process.
Question And Answer
Operator
[Operator Instructions]. Your first question comes from the line of Vance Edelson.
Vance Edelson
Hi, thanks a lot. On investment management with the $54 billion under management; how do you expect that to trend from here, what are the latest trends in capital raising and should we expect a slowdown from here on the growth side?
Colin Dyer
Thanks Vance. Firstly, the level of assets under management as we've described has risen again this quarter.
As I said in my comments, we are talking on an ongoing basis to the major institutions who invest in LaSalle Investment Management Funds and their attitude currently is that they're continuing to maintain their allocations through real estate as a proportion of their overall investment funds. You have obviously what's called the denominator effect there, in other words it's 10% of their total funds under management invested in real estate but however the total pie has decreased in size because of decreases in value and broader equity in other investment market and that can cause some pressure on the absolute dollar values.
But currently they are maintaining overall percentage and dollar investments in real estate. Other than experience we're in the market currently with couple of funds.
We are raising capital, we are seeing good response to our proposals; but investors in general are taking longer to confirm their position and they are just being more cautious across the piece.
Vance Edelson
Okay, thanks for that. And could you provide some insight on the geographic differences that you are seeing.
So far Europe is doing better year-over-year than the U.S. Do you see Europe kind of getting worst maybe following the same path as the U.S.
getting worse before it gets better, thanks?
Lauralee E. Martin
Could you clarify getting better in what piece of the market because at the moment what we have is a market of wide diversions where some things are doing very well and other parts like the capital market is stressed, could you just clarify if we make sure we answer the question you want to.
Vance Edelson
Sure, so more focused on the capital market side if you consider that the U.S. was the starting point for much of the trouble, do you see Europe following in the same path going forward?
Colin Dyer
The U.S. numbers, the drops in the headline numbers in the U.S.
are particularly spectacular probably because in the euphoria of Q1 2007 a number of the very large, very high price deals got completed such as the equity of its products sale and then resale. So there was a very high peak in the U.S.
in Q1 '07. So headline falls in the U.S has been larger than the headline falls in Europe.
Given that, as we said in the call we've outperformed the markets in both geographies in our own performance. And we would plan and continue to try to achieve that or continue with that performance in the quarters to come.
I think what you can expect overall Vance is that these markets are down by 50%, also some more some less, pricing is off as we said depending on geographies by 15% to 25% from the very peaks at the beginning of 2007. And in the very short-term, those volumes are likely to be maintained at those levels.
Vance Edelson
Okay. That's helpful and then just one more for you, as you move to a more variable cost structure, in an attempt to contain expenses, what is the employee response, are they happy to go along with that or are many of your competitors taking the same approach, would you say?
Colin Dyer
Well, it's a gradual evolution with us. We've always had an approach on relatively small, fixed salaries and good market in particular relatively high both.
So we've had a leave which compensation structure in place across the firm anyway. And what we're doing is as we...
particularly as we bring you acquisitions into the business, we have new thinking and new approaches. We're learning from their methods of applying those compensations structures and then adapting them to the broader business.
That's a purchase we do a carefully, with due respect for people's individual conditions and their own considerations. But in general, we've done it and we totally handled it in a very careful way.
People have understood what we're trying to do and respected it. And indeed in general, particularly in 2006 and 2007 as we began the process their compensation benefited as a result.
Lauralee E. Martin
I might add just one more piece to that Vance. If you think about what we're trading on, I don't believe that we're much different in terms of total compensation for our producers across the industry, because if not we wouldn't be able to attract the right kind of top talent.
It was really more, how it is paid with the bonus structure that variable compensation that Colin mentioned is paid once a year. And so, our individuals work all year and they at the end of...
just three months after the close of the year, they get to check for that. The tradeoff to going more variable is that it's really we pay you more often.
So that frequency is the offset of waiting for an annual bonus. And what it does, it's very real time as to, are you making it or you're not.
With the bonus there is always the last quarter or another period of time where you are going to catch up and make it worse. That real time reminder of more frequency I think is the piece is attractive to producers.
But I think it's also attractive on a financial model basis that you can see it immediately as the result comes through.
Colin Dyer
But just to say to it; one of the reasons why we're moving in this direction, while we did move in this direction was that we've been hiring producers as you are seeing in quite a robust way over the two years. And in hiring in markets you have to be able to talk to producers about the compensation potential in a way they understand and they are familiar with and we would finding that our historical legacy messages compensating which Lauralee described.
Well, not attractive to producers as the more frequent highly get variable version which we've also talked about. And so to an extend we moved that way in order to make ourselves competitive and attractive in the hiring market and we believe that the results in terms of the quality people we've been able to bring it to business and the results for the coming through in the increase in our market share really across all activities justifies the course which we took.
Vance Edelson
Okay, I appreciate the color. Thanks.
Colin Dyer
Thank you.
Operator
Your next question comes from the line of Will Marks.
William Marks
Hi. Good morning Colin, good morning Lauralee.
Colin Dyer
Hi Will.
William Marks
Few questions here, just a clarification, in the supplemental you mentioned, excuse me, you showed, I think it's $49.7 million of expenses relating to acquisitions and then in the press release it's $53 million, is the difference depreciation?
Lauralee E. Martin
Yes, in the supplemental we worked off of EBITDA. So, the answers is yes.
What we wanted show you in the supplemental is the cash contributions but we've also given you enough information to be able to put it into an operating agenda.
William Marks
Alright, Okay. And second on, can you give us the current share account, I assume that with Staubach it was about 1.7 million shares issued but maybe, if you could clarify that?
Lauralee E. Martin
We are about 34 million shares today. Yes, 33.458 in the quarter 33.340 year-to date, so a touch under that, so it's 33.5.
The share count for the Staubach transaction has a range depending upon were it ends... where we are price wise at the time that the shares become fully registered.
So, that share count can range between about 1.7 million and 2.2 million shares.
William Marks
When will that be fully registered?
Lauralee E. Martin
The maximum time period is 75 days, after the close which was July 11th. It could be sooner if we get the audited statements and the pro formas completed but the maximum period of time by SEC requirement is 75 days.
William Marks
So the high end of the 2.2, I guess I'm confused on why there is a range, is it set, is that why, I mean we done... off the cliff?
Lauralee E. Martin
The $100 million price paid in stock was debt at the close July 11th. However, depending on where share price movements come between the time and when they can actually have those shares registered is a variable component.
William Marks
Okay. Next question on Staubach, you had, I believe, given a trailing EBITDA number estimated for June and I don't know if that was an estimate, I believe we didn't know June at the time.
Can you maybe confirm that?
Lauralee E. Martin
The transaction was priced off of an estimate which was $76 million roughly and we feel pretty good that that they're going to perform in that range of number.
William Marks
But that was for the year ending June 30th, is that right?
Lauralee E. Martin
That's correct. So, that's why the transaction was priced off of visibility of what we could see in the pipeline through the end of June 30th.
We obviously closed July 11th, so there is a period of time where you could actually validate that. But early validations make us very comfortable that our pricing was validated.
William Marks
Okay, great. And then one other question, and then I'll move on.
On the asset management side, can you take that 54 billion and give us approximate breakdown of how much of it are incentive fees tied to appraisals versus asset sales? If half the business...
if half the properties have sold their incentive fees, the other half it's tied to annual appraisals, is it three year appraisals, any help in that regard would be appreciated?
Lauralee E. Martin
In our investor deck we provide a breakdown of the types of funds that we manage and of the $54 billion, just under $19 billion is in our funds. Those all require asset sales.
In our separate accounts which is $25.5 billion, not all of those are eligible for incentive fees but the incentive fees that we earn on an appraisal basis fall in that category. You'll recall the large fee that we had in 2006 came from an incentive fee and came from appraisals.
William Marks
And are those incentive fees tied to annual appraisals typically? Are they often three years?
Because that one was, I believe, a six year look back something like that.
Lauralee E. Martin
That was an 8 year.
William Marks
8 year, okay.
Lauralee E. Martin
And they vary, some are annual, some are every three years, some are every five years, depends on the contractual terms and they are against an index generally. So, it's how we perform relative to the marketplace.
So, again just to clarify, if the marketplace went down but we went down less, we could still earn an incentive fee on the appraisal that's our value method.
William Marks
Okay. And lastly, on the equity earnings part of investment management, big drop in the quarter, I know it's not a large component of income, but is there anyway to look out to guide us, strong words, I know you don't give guidance but on that figure, could that improve from here.
Lauralee E. Martin
The sequence of how the equity earnings work versus the way the incentive fees work on the funds and the majority of our co-investment capital is with our fund. There is a little bit elsewhere, but think of it as principally with our funds.
The incentive fees are not earned until we've paid back all the equities and cleared the hurdle rate which means at the very tail-end of liquidation. That's very different than our equity earnings, because the equity earnings go with each assets just like our investors do.
So, the second... by the time period that an asset is start being sold which could be quite be early in the fund, if there is a gain on that property then we in fact can have the equity earnings that go with that.
So, as we sell properties, that's when you'll see those equity earnings. If we sell properties that are at the very tail-end of a fund, meaning we're now into incentive fee, at that point in time there's minimal because it's now being translated into incentive fees.
William Marks
Okay.
Lauralee E. Martin
Is that helpful still?
William Marks
Yes, it's very helpful.
Lauralee E. Martin
You can just look at our schedule where we are 100% committed. Most likely we are not going to be earning much in terms of incentive fees, for the one that are still being, feel dropped [ph] as to fully commitments, we are probably selling assets at the same time.
And that's where there would be opportunities for equity earnings.
William Marks
Okay. Thank you.
That's all from me.
Colin Dyer
Thanks Will.
Operator
Next question comes from the line of David Gold.
David Gold
Hi. Good morning.
Colin Dyer
Good morning.
David Gold
A couple of questions for you. First, on the expense reduction or cuts, is it safe to assume there particularly on the safe reduction side that that would largely be capital markets or are there other areas that are sort of on watch?
Colin Dyer
Let's just take the... what we're doing, Lauralee has laid out the list of the programs we have in place.
What we're doing at this stage is controlling our level of expense. And where we are seeing opportunities to reduce such as in travel and entertainment or in general operational of admin costs, we're doing that.
We're also using natural turnover, natural wastage of people to reduce numbers particularly in support and non-revenue generating functions which enables us to very low cost and with very low pain to reduce the numbers of people across a broad suite of the business but doesn't impact our ability to continue driving revenue growth. Our policy therefore is to continue to maintain revenue generating activities, our revenue generating teams, and to lower the expenses around them.
That's the case as well in capital markets, where we obliviously see very significant reductions in activity. Our policy is not to hack those teams down, and certainly not to bring them down if you like inline with the reduction overall market activity just to maintain them particularly the better performance to ensure that we are directing a bonus in compensation dollar towards the better performance and where we have performance issues we're obviously using these sorts of markets to induce people to address those performance issues in whatever way it's appropriate.
But you also have to realize that we've got a very mixed bag here. We're dealing in markets where they down 80% and we're dealing in markets that are up 30% and then some areas where growing ourselves such as China and Russia by 50% year or more.
So there is no single broad brush approached to cost control which we can dictate from the center of our business. That's not appropriate, so the policy we're taking is to deal with each individual market area in the way that's appropriate to way that market is performing and the way we're performing in those markets so that we continue to drive growth and value and build a competitive position in those areas of the business where we have access to that.
And we're obviously turning down costs and controlling the business more tightly as is appropriate in down cycle in markets that are under stress.
Lauralee E. Martin
StevenI might add, just one thing to that. Because I did reference that we have made some targeted reduction.
We have in two places, again modest. One was in Australia where again we saw that, there wasn't that much work.
And therefore those surrounding analyst type positions are probably not going to be needed for a period of time, but we're protecting as Colin said that the high level market base there and the same thing was in our U.S. Hotels business.
Again, at the analyst level, maintaining those clients facing advisory positions to keep our market leading position.
David Gold
Got you. It's helpful.
And then also one other... on the leasing business you posted pretty good strength there and I guess your competitors announced last night point or two quite a bit of weakness.
Would you attribute the variance to market share gains that you're making or anything else that you're doing or any sort of insight there?
Colin Dyer
Well, the numbers would say that we're getting market share. So, assuming the numbers aren't lying, we would make that claim and we're pleased and proud of that.
I think it's coming from two sources, firstly, we have been hiring people, hiring revenue generated in the leasing area in the U.S., in Europe, and in Asia really across our business for the last two years; we're obviously being more cautious on that process currently. But in hiring people in, we're obviously bringing into the business new clients, new contacts and revenue generating capacity and we believe what we are seeing is those people really ramping up and coming on stream despite difficult markets and contributing to a very healthy growth in leasing activity really around the world across the firm.
That's one element of it. The second element of it is that we are seeing organic growth within if you like the preexisting business, as we can send people more powerfully as we focus people particularly in Americas on their local markets moving away from national business lines for example.
And as we see a phenomena in the market of clients tending to migrate towards quality providers, fixed providers if you like in difficult markets. So we are seeing good organic growth from our existing revenue generator base as well.
There is a mixture of those two things going on we believe in our business.
David Gold
Got you, very good, thank you.
Colin Dyer
Thanks David.
Operator
Your next question comes from the line of Michael Mueller.
Michael Mueller
Hi. Couple of question here, first of all for the funds that you show as 100% committed can you give us an ideas as to what portion of those has been liquidated thus far?
Lauralee E. Martin
We don't unfortunately Michael provide that guidance. What we have said is that they are generally in the period of time as we sell remaining assets there will be incentive fees that comes from them and part of the incentive fees this quarter did in fact come from that area.
Michael Mueller
Okay. Are there any known significant incentive fees for the third quarter at this point?
Lauralee E. Martin
Not that we can give you advice on?
Michael Mueller
Okay,couple of things on Staubach for a second. What is the interest rate that you are going to be assuming for the present value of the debt or GAAP earnings purposes?
Lauralee E. Martin
6%.
Michael Mueller
6%, okay. And then lastly your revenue split from a quarterly basis, is it fairly similar to yours?
Lauralee E. Martin
Actually, they are proving... they have proven that compensation motivation definitely determines quarterly earnings.
Their largest quarter is in fact the one that they ended with June 30th. So there we see similar pattern because their year-end was June 30th, really look like our seasonal patterns.
But, so their slowest quarter will be this one we are currently entering, moving through the year.
Michael Mueller
Six months face shift.
Lauralee E. Martin
Yeah, it will be probably the best way to put it.
Michael Mueller
Okay. When that gets integrated and, do you think that seasonality changes and it makes yours more?
Lauralee E. Martin
We're evaluating whether it would have some value to our... to move our tenant representation to their time period, while we have the rest of our business on different time periods to maybe dilute some of the seasonality.
Michael Mueller
Okay, thank you.
Colin Dyer
Thanks Michael.
Operator
Your next question comes from the line of Robert Riggs [ph]
Unidentified Analyst
Good morning, I was wondering if you could just touch on what you're seeing in terms of month-to-month momentum in sales to leasing across the geographies, has it been pretty much a steady deterioration?
Colin Dyer
I think in the markets as a whole that would be the case, very broad brushed because you are dealing with everything from New York Financial Center to the Paris market which is much more stable because it's more broadly based across all sorts of industry sectors. But in general you are seeing a gradual slowing in the overall market conditions.
Our performance has been pretty steady through that.
Lauralee E. Martin
We do have exceptions in the sense that Hong Kong for example is going to have their record year ever and sees no change. Moscow and those markets is on a output tier.
So it's the more mature markets where you have the impact, first the financial sector and then what rolls out of that versus what you have in some of the developing markets.
Unidentified Analyst
Okay, great. And then touching on leasing; can you comment on the trends that you are seen in terms of subleased space and any brand pressure that that's causing?
Colin Dyer
Yes. The fundamentals in the leasing market that must be sort of referred to have remained quite healthy.
They started quite healthy getting into this downturn. Why, because there was a fairly sustained but not explosive level of demand from occupiers, space availability, there was space availability but in general vacancy rates were relatively low.
At the same time there was no... again on a worldwide basis no large pulse of new development being delivered into office markets in particular.
So you have a pretty stable sort of a market environment. As we've come into this year, general demand levels have slowly set across the mature markets have tended to ease off.
There is still a decent level of demand by corporate, they are not canceling that, their planning processes for their space demand they are continuing to think things through albeit the time horizons are stretching a little bit. But vacancy rates generally remaining low because the demand for space is continuing at a decent level and there has been no mass delivery of new development property in to major CBDs around the world.
So, overall what that means is that where as 12-18 months ago the overall trend for rental rates around the world was growth in rental rates, everywhere with a few exceptions such as Baleno Frankfurt, that trend just turned around. In most market, leasing rental rates have either stabilized or are declining gently.
And there are some exceptions to that. Again, Moscow, Rio de Janeiro are the example of that.
In general, there is no... at this point no rapid or broad decline in rental rates.
Michael Mueller
Great. Thank you.
Operator
Your next question is a follow-up question from the line of William Marks.
William Marks
Great. Thank you.
On the leasing responses you gave earlier, you didn't mentioned and I am not sure if this is the case but any difference in your type of leasing than perhaps other competitors, large and small. Is there any...
for example, is your focus on Fortune 500 companies, or do you have more retainer fees than others, is there any additional information like that?
Colin Dyer
Well on the leasing side. I remember this is the occupier...
sorry, the investor side and then we'll talk about the occupier side. Investor side, the focus of our business, traditionally and continues to be CBD office markets.
So we're dealing largely with quality buildings in the central business districts of major conglomerations. And just as a very broad brush comment, as markets have slowed be the investment or leasing markets, it's the peripheral markets.
It's smaller cities, it's suburban market that has suffered most and the central business districts have tended to hold their own better. And then within those districts we've always focused on quality assets, quality clients who run quality assets in our leasing activity.
On the tenant representation side, and the comments we've made and the number we gave you, group those two activities together. On tenant representation side, we tend to work for large corporate for good names.
Again those clients been relatively consistent in their planning and expansion process and their renewals obviously carry on in the same way as others. So I think the overall comment I will make well is a that we tend to focus on quality assets in the major collaborations and quality clients and that we believe is part of the contribution to our relative gain in the market share.
William Marks
Great. Thank you.
And one other question. I guess for Lauralee, on your debt level, not that it's any large number in terms of any type ratio, should we look at its high as its ever been I guess at this point of the year, from hereon out should we expect it to drop, is there any chance to get to this zero number where you ended the last few years?
Lauralee E. Martin
Well, as a reminder Will the number at the end of the quarter does not have stop-up payment in it. So first of all that will be added.
So the amount of debt repayment that we normally have in the third quarter will probably about offsets what we've added to it.
William Marks
You mean what you'll add to it with Staubach.
Lauralee E. Martin
Correct, so you won't see much of a change in the third quarter. We would expect in the fourth quarter that we will continue to have a seasonal decline.
Given the transaction we do with Kemper's, the Staubach etcetera, we would not be looking at a zero. It's going to take us a while, that's one of the reasons we increased our capacity in order to be very comfortable with our borrowing abilities.
So we will have a higher balance than we did last year obviously at year end. We'll then turnaround and peak in March and then we will be looking at reducing it going forward.
William Marks
Okay, and I may have missed a comment you have already made on future acquisitions, are you planning to slow the growth rate.
Colin Dyer
Yes, I think we did make that comment in passing, but our focus is very much on integrating what we have acquired. We believe we bought some super companies although the acquisition in the financial centre is very much merging them on the ground with our own team and giving leadership roles to the best people in the combined operations.
But our focus is very much on that work and that will take us in the coming period to bet those businesses in and really exploit the revenue generating capacity from the acquisitions we make. So we are very much on a slow...
a much slower tempo in acquisitions, and I don't expect too many more to come through in the coming quarters.
William Marks
Okay. And then one final question in terms of simply anniversaring the three tough comps, would you say that fourth quarter '07, I know things have become more since then, but were you...
were your sales figures challenged, I guess I can look back at the press release, but I assume it was a little bit of a tough quarter, but not as bad as first quarter and second?
Colin Dyer
Are you saying quarter four.
William Marks
Sorry, '07. I'm wondering how much the weak sales environment impacted.
I guess that, I'm trying to figure out when you can start growing the capital market's business or when it stabilizes?
Lauralee E. Martin
You can say Will in our Investor Relation deck, we give you high level market activities across the world and the Americas second half, this is the total market not jumbling of some, was down 23% in this second half over the first half. So the U.S.
actually started in the second half of last year. Europe in fact, was down 4% in '07 compared to 2006.
So, because the UK is such a big part of that market place, it actually started earlier. Asia was the one exception.
So, you might want to reference that. Also you can work through, but we provide you our total year capital market's activities in our Investor deck and we've now given you through the first half of the year.
So, in fact you can see that and look at it relative to the rest of the year.
Colin Dyer
Q4 of '07 was well down on Q4 '06. But the decline in Q1 '08, on the previous year was even more significant.
So we're coming to the point. We'll look at these market figures.
We're coming to the point where potentially we could see some stabilization in the comp numbers in the third, probably fourth quarter this year with Q1 next.
William Marks
All right. Thanks.
Colin Dyer
Somewhere in that period.
William Marks
Thank you.
Operator
There are no further questions at this time.
Colin Dyer
Well, operator, with that then we'll draw this call to a close and I'd like to thank everybody for participating today and for your collective interest in Jones Lang LaSalle. We look forward to talking to you again at the end of the third quarter.
Have a good day everyone.
Operator
This concludes today's conference. You may now disconnect.