Oct 29, 2008
Executives
Colin Dyer - CEO Lauralee Martin - CO and FO
Analysts
Vance Edelson - Morgan Stanley David Gold - Sidoti Will Marks - JMP Securities Brandon Dobell - William Blair Michael Mueller - JPMorgan
Operator
Welcome to the third 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 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, 2007 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, Elizabeth. Thank you for joining us for this review of our results for the third quarter and the first nine months of 2008.
Joining me today here from the Chicago is Lauralee Martin, our Chief Operating and Financial Officer and Lauralee will shortly review our performance in detail. To frame the discussion however, here are a few highlights.
Firstly, revenues for the quarter totaled $677 million, an 8% increase over the third quarter of 2007. Our year-to-date revenues reached $1.9 million, 6% above 2007.
Net income totaled $15 million for the quarter, or $0.43 per diluted share of common stock. Net income for quarter three 2007 was $47 million or $1.38 per share.
Net income year-to-date was $42 million, or $1.25 per share, compared to $152 million, or $4.50 per share, in the first nine months of 2007, a period which also included a significant advisory fee in our hotels business. Finally, we announced that our Board of Directors have declared a semi-annual dividend of $0.25 per share of our common stock.
Now despite an obviously weakening global economy, the credit crunch has turned into a full blown financial crisis. We did continue to grow our revenues, remained profitable and take market share from competitors.
Our Leasing and Tenant Representation business, LaSalle Investment Management, and our Global Corporate Solution businesses all grew positively in these challenging market conditions. We are, however, not immune to economic trends and market conditions, and the major negative impact on commercial real estate continues to be declining capital markets activity worldwide.
At the end of August, overall market transaction volumes were down 70% in the US, compared to a year ago. Year-to-date market volumes in Europe are down more than 50% on 2007 levels, and capital markets activity continue to weaken in Asia Pacific during the quarter, down by some 70%.
As Lauralee will explain, we outperformed in these declining markets. Access to debt generally remains severely restricted, and together with the bid/ask spread between buyers and sellers continues to inhibit deal flow.
It's only large investments sales that are closing and well capitalized equity buyers, reasonable amounts of assumable financing, very low loan-to-value financing or no financing whatsoever. Even then, re-trades are occurring at the 11th hour.
Buyers and sellers are likely to agree on pricing and return to the capital markets only when larger scale forced selling of distressed overly reversed assets begins and at least moderately functioning debt markets have restarted. Lauralee will discuss the impact to these conditions on our capital markets business in her remarks.
The economic slowdown has also begun to affect global office markets, as corporate occupiers seek to reduce staff and cut real estate costs. In the office leasing markets, which we targeted in the US, gross absorption was down by nearly 13% year-to-date from 2007 to 2008.
In Europe, gross take-up decreased by 8% in the first three quarters, compared to a year ago and slowing conditions in the Asia Pacific office sector also became more evident during the quarter. Many Asian markets are now also at or near the top of their rental cycle and a few including Australia, Singapore, and Tokyo have moved to the down cycle.
As I said, our own leasing business that has proven to be extremely resilient to this environment, producing healthy results during the quarter, an indication that we continue to take market share from competitors. So for details on that and other aspects of our third quarter and year-to-date performance, let me now turn the call over to Lauralee.
Lauralee Martin
Thank you, Colin, and good morning to everyone on the call. To provide more visibility into our result, we have posted slides on the investor relations section of our website, www.joneslanglasalle.com for your use and reference.
As an overall summary of the quarter's results we continue to deliver financial performance by responding to our client's needs and requirements. We are also adapting our operations to what many are calling the most challenging environment that most businesses have faced in a generation.
Included in our results this quarter are intangible amortization charges and the integration costs from our recent acquisitions, as well as non-recurring charge taken to commence to right sizing of our global operations to what we now anticipate to be a longer time period before market recovery. In the context of our four operating segments, I will review our three geographic regions, LaSalle Investment Management and Money Management business.
First, in the Americas, overall revenue in the Americas increased 35% in the quarter and 20% year-to-date. This strong performance benefited from our local marketing investments and revenue professionals together with our recent Staubach acquisition.
Leasing revenues were up 80% in the third quarter and 46% year-to-date, as compared to 2007. Excluding the Staubach results, organic leasing growth increased 10% for the quarter and 21% year-to-date.
Local market revenues were up 25% and corporate solution revenues were up 30% year-to-date. Corporate Solutions is benefiting from Staubach Tenant Representation transaction, but we are also seeing growth in our facilities outsourcing business which is at 57% over the previous year.
Colin will discuss shortly the success of the Corporate Solutions business. Capital markets in the America, which has started to experience some increased activity in the first two months of third quarter, particularly in corporate finance activity, saw significant transaction disruption with the financial events of September.
As a result, Americas' capital markets revenue for the quarter was down 28% and 42% year-to-date. Included in the Americas third quarter's expenses were $8 million of intangible amortization from the Staubach acquisition and $2 million of integration costs.
The amortizable intangible assets for the Staubach transaction have now been valued at $37 million. Of this amount, $28 million will amortize in the first 12 months ending June 2009, and the balance of the $9 million will amortize principally over the five-year period.
We continue to refine the integration expense estimates, but we anticipate the $25 million estimate that we originally provided will be fairly accurate on a cash basis, although the amount to be charged to the P&L will be less than $10 million with the majority of this to be completed by year end 2009. The Staubach acquisition included $14 million of broker commissions for which we received cash and ordinarily would have recognized as revenue during the period, if not for purchase accounting.
These commissions, otherwise, would have added $6.4 million of EBITDA and $4.6 million of net income to the quarter's results. You can find more detail on this on slide number 11 of the supplement.
To complete the Staubach transaction discussion, included in the firms global results for the quarter, is an interest charge of $1.2 million for one-time costs related to the transaction closing and $4 million of non-cash interest related to the seller notes. Turning now to EMEA.
Our leading capital markets position in the EMEA region is being severely impacted by the credit and liquidity challenges impacting trading and investing activity. Capital markets revenue was down 47% in the quarter and 41% year-to-date.
As the liquidity and credit market challenge is accelerated in this quarter, we have taken actions to bifurcate our capital market strategy not just in EMEA but globally. Our strategy for normal client investing activity meaning buying and selling advice for investor portfolio is to assume the recovery will be slow and continue at abnormally low transaction levels into 2010.
As a result, we are reducing staff to better match anticipated revenue. Our strategy for business opportunity is to be well positioned to assist in the market liquidity correction, as the required global de-leveraging process commences.
We are being approached for advice from receivers, banks and over leveraged or liquidity challenged investors and firms. As a result, we are redirecting our capital markets staff to focus on these opportunities.
Included in our third quarter results is the restructuring charge for staff reduction of $8 million. We also anticipate an additional charge in the fourth quarter, which is yet to be determined, as we continue to evaluate each market and service line.
The majority of the restructuring charge this quarter was taken in EMEA. We anticipate a cost recovering time of approximately nine months against this charge.
On a more positive note, we are pleased with our strategic acquisitions in EMEA. Retail markets, particularly high street retail, has continued to perform.
Retail is the focus of our three most recent EMEA acquisitions, Churston Heard in the UK, Kemper's in Germany and Alkas in Turkey. Year-to-date, the impact of the EMEA acquisitions completed in the last 12 months is $63 million of revenues.
Turning to Asia Pacific. The impact of the credit crisis is now undoubtedly global.
Asia Pacific capital markets revenue was down 53% in the quarter and 43% year-to-date. Our strategy has shifted from one of positioning ourselves to invest client strong capital raises targeted at a region to now focusing on local needs of our clients.
Our local market teams in Hong Kong and China demonstrated their leading position, with revenue up 19% and 39% respectively in the quarter. Leasing in Asia continues to perform in the quarter, with revenue up 11% over the prior year and year-to-date 26%.
The Management Services business in Asia, which we have strengthened as an annuity revenue stream for profit protection in a market slowdown, saw revenue increase 6% in the quarter and 20% year-to-date. Asia has quickly adjusted operating expenses to respond to the market slowdown, as expenses increased only 4% in the quarter on a year-over-year basis.
Turning now to LaSalle Investment Management. Advisory fees increased 12% in the quarter and 25% year-to-date.
The slowing year-over-year growth in the current quarter is due to the commencement of fees on committed funds, principally starting in the third quarter of last year. LaSalle achieved incentive fees of $6 million in the quarter, despite the challenges of reduced sales activity, demonstrating their continued performance for clients.
Despite almost $20 billion of raised capital to invest, LaSalle has invested cautiously. Investments for the first nine months of 2008 were $3.6 billion, compared to $7.3 billion in 2007.
Finally, I will cover the balance sheet. We ended the quarter with $543 million drawn on our bank lines, as compared to $442 million at the end of the second quarter.
The increased amount was primarily a result of acquisition-related funding of over $130 million. Our bank lines was renewed with the approval of the Staubach transaction and increased in size during the third quarter from $575 million to $875 million.
Our line has supported by a well capitalized group of banks, with whom we have long-standing relationship. We issued $100 million of common stock as part of the Staubach transaction structure, consistent with our conservative balance sheet management.
The Staubach deferred payments are recorded on our balance sheet discounted to approximately $320 million. The earliest cash payment is due this August 2010.
Our Board has declared a quarterly semi-annual dividend of $0.25 per share, which is at the same level we initiated a dividend in 2005. At commencement, our dividends strategy was to broaden our potential investor base to include those that require some level of dividend.
As such, we initiated with a dividend of an approximately 1% return on an annual basis. The current declaration reflects our lower share price.
Jones Lang LaSalle's business model characterize by strong cash generation. During the last three years, our priority is to cash has been organic growth, acquisition and share repurchases.
In this environment, our priority is to pay down debt and have the potential for share repurchases once we have better visibility on the economic environment. In conclusion, we are very pleased with our results against the most challenging operating environment.
We continue to demonstrate consistency to our strategy but nimbleness and adjusting to the needs of our clients and opportunities within our markets. The global franchise of Jones Lang LaSalle is strong and will continue to bring real value to our clients.
Let me now turn the call back to Colin.
Colin Dyer
Thank you, Lauralee. We have both mentioned the Global Corporate Solutions business which delivers a range of occupied services to corporate clients, continues to make strong contributions to our results in the current climate.
Confronted by slowing economies around the world, corporate occupiers in almost all industries are focused on reducing headcount and cutting costs in their operations while increasing the flexibility of their real estate portfolios. Many are looking to us for advice and outsourcing services.
We believe that we are seeing a flight to quality, as clients only want to work with the most capable and financially stable firms. To-date in 2008, we have established 32 new contractual relationships, encompassing 165 million square feet of space with Corporate Solutions clients around the world.
Of these 11 are multi-regional relationships, plus another nine in the Americas, four in EMEA and eight in Asia Pacific. We have also expanded our relationship with 34 existing clients and won all 16 renewals that have come up this year on contracts, which typically run for three to five year periods.
The investments which we made to build our global Corporate Solutions platform have enabled us to capture this countercyclical annuity type business. Historically, these relationships have originated primarily in the US, while outsourcing activity remains high.
In fact through September in our US facilities management business, revenues were up by more than 50% year-on-year. But we are now also seeing increasing interest in outsourcing and other corporate occupied services amongst multinationals in other regions, in particular, in EMEA.
Our success in the corporate market is driven by more than our platform. Our people continue to build strong and enduring client relationships, and we are proud to say that Procter & Gamble this month named Jones Lang LaSalle one of its six suppliers of the year, an honor determined by quantitative and qualitative measures of superior performance, service and partnership.
The six winners of this award were selected from the ranks of P&G's 80,000 suppliers from around the world, and we see this as a tremendous accolade from one of the world's leading consumer products companies. We are also very pleased to report that just yesterday afternoon, we signed a new three-year contract with Procter & Gamble that expands our existing relationship.
In addition to providing facilities management services for office and tactical centers globally, we will now be responsible for portfolio management, transaction management, broker services and lease administration and portfolio planning for Procter's 150 million square foot global real estate portfolio. This award was very much assisted by the additional capabilities brought to our firm by our Staubach acquisition.
We are also encouraged by the early performances of our other acquisitions which we made worldwide during the past year. They have already strengthened our performance during the global financial crisis by adding more local transactions to our portfolio, and that will prove relatively resilient compared to the larger transactions that were historically the core of our business.
We continue to integrate these acquisitions into our global organization so that they will deliver full value through the downturn and then as markets recover. So to sum up, as we look ahead to the end of the year and onto 2009, we are taking both offensive and defensive actions to respond to the slowing global economy.
We have begun to take advantage of some opportunities created by the credit crisis. As an example, we are advising a financial institution on strategy and on the subsequent disposition of a $1 billion plus loan portfolio and we are providing with receivership, management and leasing services for portfolio of retail properties.
We have also established teams to help clients affected by specific needs, created by the financial crisis. So for example, we are advising, we are looking at closing banks and insurance companies merging with our institutions, financial institutions, with challenged assets, receivership situation and services for lenders and public sector entities dealing with assets that they have taken over.
We are also managing our costs relentlessly across our organization. This includes taking advantage of every opportunity to reduce expenses in areas that do not harm client service capabilities or the firms continued growth.
We are carrying selective staff reductions in business lines and geographies with difficult, near-to-mid term prospects. Finally before opening the call to your questions, I want to mention one more piece of important news.
Last week, we were very pleased to announce the election of Dr. DeAnne Julius to our Board of Directors.
DeAnne is Chairman of the Royal Institute of International Affairs, also known as Chatham House, a leading London-based source of independent analysis, debates, and ideas related to building a secure and prosperous world. She was a founding member of the Monetary Policy Committee of the Bank of England and DeAnne Julius currently sits on the boards of Roche, the global healthcare, pharmaceutical company and BP, the global energy firm.
She will provide us with valuable insights and expertise when she joins the board on November 17th, and we welcome DeAnne to Jones Lang LaSalle. Looking forward then we'll maintain commitment to controlling costs and to securing targeted increase in market shares in today's exceptionally challenging markets.
We are also being careful to protect our leadership positions in all our businesses, capital markets and hotels included to take advantage of market opportunities when they inevitably return. Most importantly, we will continue to focus on our very first priority, which is delivering outstanding advice and service to our clients, who value our expertise and experience and are moving more than ever to quality suppliers in current markets.
So, with that summary of our quarter three trading, we would like to take your questions. Operator, would you please describe the process.
Operator
(Operator Instructions). Your first question comes from the line of Vance Edelson with Morgan Stanley.
Vance Edelson - Morgan Stanley
Could you provide some additional color on how you are taking market share within the leasing business, is it mainly a flight to quality on the part of customers? Or can you point to specific moves on your part that you feel are adding to the growth there?
Colin Dyer
Thank you. Yes, there is we believe a move to quality players, by which we mean the larger operators businesses with obviously clear name recognition and a strong brand, but also businesses with international reaches, the leasing markets too become increasingly global in their access to clients.
The advantages which we believe we have or the reasons which we believe which are driving the increase in market share are several-fold. Firstly, as we have been telling you for the last 18 months to two years, we have been adding leasing professionals across the business, both on our tenant rep and on our leasing.
On the leasing side of our activities, not just through acquisitions such as in the US and in Germany with Kemper's, but also by individuals and teams have been joining our organization and these people are beginning to come on stream and provide revenue growth even in difficult markets. We have changed the way in which we organize and manage our business in some areas, but we have seen the ongoing benefits of the regional focus of our US operations, in particular.
We are also seeing the benefits of increasingly variable compensation structure where the incentives for our operatives to perform is enhanced because the rewards that they get for great performance and also equally enhanced. The other point to mention probably is that we have, as a business, when we are working for, investors on the leasing side, we have increased our access to corporate occupiers, again, not just through the Staubach acquisition but through our increasing activity with Tenant Representation work for corporations worldwide.
So we can find better access to potential occupiers of leasing space. So all those things together, taken together are helping to, we believe enhance our business in the leasing area and grow our share of this market.
Vance Edelson - Morgan Stanley
Okay. Thanks for that.
On the outsourcing business, could you just describe the current competitive landscape? Do you feel like the business is, to some extent, yours for the taking?
Or do you really have to battle it out to grow that business?
Colin Dyer
There are no free lunches. We are doing exceptionally well.
Those numbers have increased revenues in the US to 50%. Just reflect, what we think, an exceptionally strong performance.
We are seeing a lot of demand. First of all, the numbers of RFPs we are seeing and processing are say historically high levels.
We continue to win 60% of our share of the RFP process. We think our advantages, some of them are similar to the points I mentioned in leasing, but corporate wants to work with the larger names.
They want to work with companies with a global reach such as we have and we are linked up in such way that we could provide a common service standards to large corporations around the world, witnessed our continued our expansion of services with Procter, probably one of the most demanding clients in this sector. The clients we also see are looking for a commitment to not only to the global platform, but also to environmental skills and energy management skills and we can provide those to them.
They are also looking increasingly to commitments to diversity and they are looking at the strengths of the finances of their outsourcing providers. That's becoming an increasing differentiator we believe for our organization.
So again taken altogether, they are driving and increasing our market position which the numbers they are demonstrating and we are very pleased with.
Lauralee Martin
Vance probably the most important question is, do we think that outsourcing will continue to grow? And the answer is, yes.
Because we are seeing new industry sectors now evaluating that as a cost opportunity, so again you are taking share from an in-source in that case because you are bringing value add that allows you to have significant more industry space to plan.
Vance Edelson - Morgan Stanley
Okay. I appreciate the color.
Thanks.
Operator
Your next question comes from the line of David Gold with Sidoti.
David Gold - Sidoti
Couple of questions. One, can you give a little bit more color on the headcount reduction or adjustments in EMEA?
Essentially what are the signs you are pulling out of there and if there, presumably there are other potential thoughts on the table, what were else we are watching closely?
Colin Dyer
So far, it's been largely focused on the UK and Sweden. We've also done some reductions, but we've been attacking the issue on a broader basis around the world in various areas.
Firstly, support functions and just general and administrative functions where you look in markets like this, at how tightly you're running operations, you look at some, at holding hiring for a period of time particularly in the case of businesses where we are continuing to grow, that helps a lot with productivity improvements. But we're also looking, as Lauralee mentioned, at right sizing some of our more challenged areas, clearly the capital markets and many markets have been suffered volume declines, activity declines, although we're deflecting some people to some of the new areas which we mentioned which are opening up directly as a result of the financial crises.
We're also looking at right sizing teams, looking at performance, looking at support on those capital market teams. But as we do so we are looking to maintain our franchise players as we call them, the key people who are driving revenues in all markets good and bad.
We're trying to ensure that we retain them, retain their motivation and continue to concentrate them in satisfactory ways.
David Gold - Sidoti
Got you. Okay.
Also on the leasing business. Performance there was fairly strong, but I guess some incremental commentary that we heard out there is that in many cases some folks who are up for renewing leases may be delaying as much as they can based on the perception that at least domestically, cost or asking rates will go down as we enter the new year.
Are you seeing those types of delays or is the business sort of performing exactly as you had expected there?
Colin Dyer
Well, renewals are renewals, and they generally happen contractually all around the world whenever lease period comes termination. So they tend to have to get done one way or another.
What we are seeing is people delaying decision taking on expansion space, consolidation actions where they perhaps moving out of lease properties earlier and looking to sublease. We are seeing a general hesitancy amongst corporates to move push ahead with projects particularly where they involve capital expenditure.
It doesn't mean to say that they will disappear all together but they are certainly delaying them, waiting for the environment to clarify, and confidence to return a little bit as well.
Lauralee Martin
Yes, David, I think there is no question as uncertainty in August business which makes everybody think a little longer and harder about their decisions. What we are focused on is that clients that had been using our services for growth, financial institutions in particular, a lot of them now are clients that are merging with others.
There is going to be huge portfolio rationalization, which is an expertise of ours that then leads to either whether you need to sublease, whether you need to consolidate and so forth. We are in a period of transition, but I think there is just so much transparency in the marketplace, you can see it in every piece of data that you have, that it's very hard for a landlord to be long in denial that they would rather have a tenant with (inaudible) or ramp than have the tenant go some place else.
And you are also seeing that landlords have realizing they need to be aggressive because everybody is looking to protect the income streams, values of the assets that they have. So I think the closure time to get on to what needs to be done is going to start tightening.
But definitely decisions are harder to get done and a lot more work.
David Gold - Sidoti
One last one if I might. The plan to change the composition in the leasing business is that's the lumpiest for at the beginning of the year?
Lauralee Martin
Yes. We've already actually made a great deal of changes that we will be fully done by then, yes.
David Gold - Sidoti
Perfect. Thank you, both.
Colin Dyer
Okay. Thanks, David.
Operator
Your next question comes from the line of Will Marks with JMP Securities.
Will Marks - JMP Securities
Can you talk further on leasing, I know it is too much time because you've talked about it but we've more been hearing about the past and just looking ahead. Is it actually possible to maintain growth in an environment where more than plenty of surveying of leasing brokers and your average brokers are going to make less in coming months than you did year ago.
So would it be possible to continue your growth if you've stopped making acquisitions?
Colin Dyer
Well, if you stop at the underlying leasing markets and say what's the background against which we are operating, I think job losses in the US has been in the stats for well over a year now, or rather than declining job growth and the decline in space take-up, where space in the US has also been going on for over a year. Similar pictures in Europe certainly for 2008.
So the market has been declining, I think declining at an overall square footage, square meterage sense for well over a year. So we've been picking up market share and growing our own volumes against these weak markets for a good period of time now.
So there is momentum in what we are doing in the things that I just described earlier on. We are not planning to stop growing market share, quite the opposite.
We are planning on a cessation in growth in our leasing revenues, but we recognize that as economies continue to be challenged around the world, as potentially as job losses continue, that it will get harder for us to grow. So, we'll continue to drive ahead, we'll continue to exploit the benefits that are coming from the cross selling from the acquisitions and the extra services we are able to offer, lease clients through the acquisitions we've made.
We'll continue to help the people we've brought on stream in the last two years to grow their business contribution, but it will become more challenging as recession, presuming there is a recession continues to bite world wide. There is just another aspect to it.
It's a point of, what is flight to quality mean in easy markets, markets where there is a huge demand for spaces, relatively easy for any brokerage operation to find clients for available space. In markets that are difficult where vacancy rates are rising, where rents are falling, landlords in particular are looking for quality names who have access to quality clients, and so there is a move towards larger players such as ourselves, towards companies with a performance record which with a strong performance record through cycles.
We believe that move towards better names and better franchises is part of this whole process.
Will Marks - JMP Securities
Great. That's helpful.
Further on the leasing with the move towards commissions, are you seeing any resistance or is it just the opposite in terms of going to that platform, people that have relied on a salary for years?
Lauralee Martin
I think you need to understand that Jones Lang LaSalle has in its organization really two different types of brokerage activities. One is strongly execution around our committed corporate clients.
So for example, to win Proctor & Gamble, we know that they have a certain amount of needs that need a high level of execution, but that business is now one. And so for those that are more comfortable not going on commissions they can be very effective executors around that and they move in to that side of our corporate activity.
For those that are very confident in their ability, their view is they can make more money with the leasing. So what it has done is it has really allowed us to have a good understanding of our talent base and let them pursue the part that they are most comfortable with and because we have growth and success in both parts of those businesses, there is room for the decision to be made.
Will Marks - JMP Securities
Okay, great. That's helpful.
One final question on capital markets. You mentioned some signs of positive activity.
Can you give us an idea of what fourth quarter '07 was like; is this still a difficult comp I know business had started to turn down at that point?
Colin Dyer
Yes, it had, well, you are right, but it was still running on the momentum of the previous. Well, the first two quarters, in particular, of 2007 because the initially credit crunch in [CMS] market imploded only really, we've to chip in from June-July 2007.
No, we think the numbers will continue to decline through, the comp numbers will continue to decline through the next two quarters at least. But they will cover point in the middle of next year presumably where the declines we have seen to-date have been so significant that the comps will actually get easier.
So we will see some sort of a bottoming at least in numerical terms of the market and as distressed begins to kick in as the equity rich players began to trust pricing a little more and trust bonded in the market, the things will move on to the bottom. But that was likely to be a slow process when it's start calling a time when it might start, but some sort of a bottoming in the course of 2009 is not unrealistic but don't expect the volumes to come roaring back to may be quite a nice balance around some of the distressed assets but on broad-based volume and activity around the world that will take as Lauralee said, we believe into 2010.
Will Marks - JMP Securities
Great, thank you very much.
Operator
(Operator Instructions). Your next question comes from the line of Brandon Dobell with William Blair.
Brandon Dobell - William Blair
Hi, thanks. I wanted to focus on the Investment Management segment for a second here and maybe give us a sense of looking at the sequential declines in AUM and how we should use that as a guide for us we had to think about the revenue and profitability growth looking out the next several quarters.
Is there great correlation with what the AUM is doing, kind of what we should think about for your revenues, or is it just more of a timing issue and we should continue to see using growth in the advisory fees side?
Lauralee Martin
What we have happening is decline in the assets under management came from two places, the largest one about 900,000 of it is coming from our public securities business which has had fairly significant valuation impact on a global basis. The other place is also valuation, so we're not in any way losing relationships.
It's the fact that assets are marked and will be there. So that it's built modest impacts to advisory fees because as you saw we continued to grow advisory fees in the quarter.
What we do have is capital to deploy. Some of that is already in the fee structure because we are being paid on commitments, but we also have a fair amount of that that as it comes in to assets under management, we will continue to grow that line.
There, at the moment, is a challenge to capital raise. We have raised capital this year but it's principally been in the first half of the year and we are in the market with some ideas, I think the marketplace is looking for what's going to be the next great idea, whether it's a recovery fund or where the opportunities are going to be.
So our performance is the key to that. We continue to perform.
We did have modest incentive fees this quarter, but they were based on exceeding performance that was required by our clients and then, I guess it will be the question of when the investor confidence comes back that they feel it's time to put the money out again.
Brandon Dobell - William Blair
Is it fair to assume in the context of Colin's commentary about kind of a bottoming process at some point in '09, that it might take you a couple of quarters to see a real pickup in opportunities to put that equity capital to work? Or are you able to front load or front end the general market return in capital markets, just because you are being in different geographies, things like that?
Colin Dyer
Good question, Will, and it's one that exercises our investment management teams constantly because obviously they like to get on with investing. I think we are very impressed with the way in which they have backdrop of investing for the backend of last and the early part of this year because they have seen the way the markets have developed and as a fiduciary they've had their clients interest, our clients interest very much at the front of their mind as rather than investing for its own sake.
Having said that, they are beginning to see opportunities, they have been looking hard at London and the English market just before the October melt on the same opportunities there. The real answer to your question is you have to look selective, we obviously have a worldwide platform and what's true in Korea is not necessary true in Cincinnati.
So as we look around the world of the opportunities, even these markets are seeing things which attract them and look interesting and they are doing deal backed by the relationship they have, solid long-standing relationships with the financiers they have in place. The trick will be, if you talk to our investment management people, they will say that someone in 2008, sorry 2009-10 you will hit what's called a vintage market for investment bit like 2001-2002 was where taking positions at that time will be very smart when look back on from 2013-14.
So they will be trying to invest as markets move towards the bottom, at bottom because once things start to move there will be a lot of competition for assets again and kind of relatively easy discussion which buyers can currently have with sellers a relatively uncompetitive environment for purchases that will potentially change very quickly.
Brandon Dobell - William Blair
Okay. Switching gears a bit and thanks for the little more transparency in acquisition impact.
If we exclude the impact of Staubach, as we think about the potential for profits from the rest of the acquisitions. What should that trend line look like, is there opportunity to really see a change in the profit contribution from the acquisition in the last 12 months or given the markets and the types of companies you acquired, should we continue to assume a breakeven issue results the next several quarters?
Lauralee Martin
The acquisitions that have been made were businesses that were generally speaking about 20% margin businesses.
Brandon Dobell - William Blair
Okay.
Lauralee Martin
What we have in that beginning period of time is we have intangible amortization that depending on the nature of the business will burn off in 12 months, 18 months, sometimes a little bit longer. So we're moving through that part of the negative impact.
There's also the early integration costs that go on as we consolidate offices and put them on technology etcetera. Again, we've burned through those pieces of it.
So we expect them to be contributors. They may not be contributors at the 20% margin number in a fuller marketplace.
Brandon Dobell - William Blair
Right.
Lauralee Martin
With the 20% starting margin, they definitely have room to be contributors.
Brandon Dobell - William Blair
Right.
Colin Dyer
But Churston Heard, Kemper's and Staubach, all have the characteristic which we referred to in the text earlier of being active in relatively smaller transactions and those could tend to have more momentum to them during downturns in the larger transactions which the broader term has been traditionally focused on. In particular the retail markets which is Churston Heard and Kemper's hunting ground.
There is a countercyclical part to retail leasing, because retailers either burst or examine their marginal stores and tend to pull out of them. So you get a churn in retail spaces in malls during difficult retail trading times which is just exactly what those businesses just had in Kemper's benefit from and revenue around, so there is countercyclical element to what we do as well.
Brandon Dobell - William Blair
Final question for you, if you look across in particular I guess in EMEA but to certain extent in the US. Are you seeing a lot of competing firms, advisory firms, fall other wayside as a market stretch not lasted long enough to start putting firms out of business?
Are you seeing interesting opportunities to pick up individual brokers or small firms that are starting to fail? Just trying to get sense for, I know this doesn't flight to quality but is it a severe flight to quality and are we going to much of the landscape in a year or two or because this business has relatively variable cost and lot of them kind of limp along for a year and still be there when times get better?
Colin Dyer
What we are seeing Brandon is people knocking at our door. We are seeing a lot of interest for relatively, from very good quality individuals and teams to join our firm and we believe that because with sort of building much sharing relatively difficult environment.
As to our competitors, well, you can read their numbers and look at their situation. At least those are that are published.
We are very cautious at this stage of the cycle about further acquisition as Lauralee said. Our focus is moving towards integrating what we have by use of cash is moving towards other thing than acquisitions at this point.
So we are very cautious on that score. We do see things which compelling.
We will obviously look at them and we can still financially do so. What I discovered from other industries by the way is it takes businesses an awful long time to die even in difficult markets.
So we are not expecting our competitors to fall over in great numbers quickly.
Brandon Dobell - William Blair
Thank you very much.
Operator
Your next question comes from the line of Michael Mueller with JPMorgan.
Michael Mueller - JPMorgan
A few things. First of all, following the disclosure in the presentation, can you provide what the Q4 '07 capital markets and leasing revenue breakdowns were at this time?
Colin Dyer
We are just looking for the numbers for you.
Michael Mueller - JPMorgan
Okay.
Lauralee Martin
We might. Could we maybe get back to you on that, Michael?
Michael Mueller - JPMorgan
Sure.
Lauralee Martin
We don't have, but they are reported. I mean you can clearly check this total year that we've given before and back it out, but we will get it back to you.
Michael Mueller - JPMorgan
Okay. Secondly, following up on the prior comments, Colin about the taking advantage of the global dislocations in terms of what's happening.
I mean how far away do you think you are in terms of getting say more assignments from banks etcetera for dealing with the de leveraging in the asset sales to the extent where you can potentially be meaningful to the P&L. Are you a few quarters away and is it more driven by one region or are the discussions less far are a little more broad-based?
Lauralee Martin
Well, I would say they are broad-based if you think about just the activity in EMEA and the number of large banks there or the stated needs for liquidation that are going on within AIG or Lehman or some of the others that need to liquidate assets. All of those have global assets and we have significant relationships with them throughout our organization.
So you are going to find that it comes from around the globe. Getting an assignment and then the sort through I think is the question that everybody is asking, how long before TARP in the US actually translates into banks funding money.
We are getting assignments. There are evaluations going on with a request for services, but then you actually have to execute those transactions.
We would love to have that answer so we could give it to you, but what we do know is that the energy going in to resolving this marketplace is very, very high.
Michael Mueller - JPMorgan
Okay. You mentioned picking up square footage on Corporate Solutions.
If we look at your year end total square footage under management, I think it was about a billion in the quarter square feet. How has that trended overall, obviously you picked up some in Solutions, but elsewhere?
Colin Dyer
Yeah, it has on the Leasing and Management side as well. I don't have the numbers.
Lauralee Martin
Yeah, we don't have that yet.
Colin Dyer
But it has clearly picked up. We mentioned the European Management, the Asian Management business on the owner side, US business is largely linked to a good extent to the leasing activity so it's picked up as well.
On our corporate side, we mentioned the numbers for growth in footage, so it's growing everywhere.
Michael Mueller - JPMorgan
Last question. Any comments on Staubach thus far in terms of the expected EBITDA ramp up and just how are you looking at that versus what you underwrote?
Lauralee Martin
I think just at a very high level, if we take the amount of revenue they did in the third quarter, part of which was on their own books and part which was on ours, and compare that to what they did a year ago, it was exactly the same, and we view that as a very good sign because there was a whole lot of movement of people into new offices and learning new colleagues and adjusting to the fact that they were going to have a different name and go to market. So to be able to perform at that level through all that transition it is very good, and in talking with them about what they have in their pipeline, they would say they have a record pipeline in transaction.
So that part of it has a tremendously good feel, and I think that the most exciting thing in the piece that we didn't underwrite it but we clearly talked about it and it was also a motivating factor for Staubach (inaudible). If the way we survive in the leasing market is as true market share, every trick, whether it is global or you can bring project managers’ services tools, or you can bring energy and sustainability practices to it, you can bring practice leads around industry, you can bring consulting services or in fact as you go into buildings, you can bring capital markets people to know what all those decisions mean.
Linking those all together brings a huge competitive advantage to the Staubach client base and all of our ability to maximize that potential and that is the focus of everybody right now.
Michael Mueller - JPMorgan
Okay. Thank you.
Operator
Your next question comes from the line of Will Marks with JMP Securities
Will Marks - JMP Securities
Thanks. I actually go by Brandon.
Anyway I had a question on the balance sheet. Can you just talk about, what typically happened to, I assume that fourth quarter we can expect that's to be paid down a little bit, can you comment on that?
In light of the first quarter your debt level typically going up, I know you are not going to tell me exactly how much. But how should we be thinking about that in this coming year, Staubach I would think doesn't make that much of a difference because they are on all commission.
Your revenues have been up though, so it should we assume that your debt levels goes up by more than it did last year.
Lauralee Martin
We had record bonuses last year and unfortunately, I'm sorry to say we're not going to have record bonuses this year. So, clearly bonuses will reflect the performance.
We do normally pay down debt into the fourth quarter and if that's our intention as we look forward, we do not have acquisitions on the horizon. So the uses of our capital, our remaining CapEx, the modest dividend that we've now declared and there is just a few deferred payments from previous acquisitions.
So we would be paying down the debt through the end of the year and actually it's into the first quarter prior to bonuses being due. We've also made a great deal of adjustment in the fact that a lot of our compensation has shipped to being pay more currently as you pointed out with the commissions.
The bonuses will be down significantly. It's clearly early to know how the whole year will play out, but our decisions have all been made around managing all of those factors to keep us in good stead, relative to our debt.
Will Marks - JMP Securities
Okay, great. My last question on the operating expense line or operating administrative in other ways to call it, for 2009, is there any way to give us some indication of what you expect, is all the cost cutting you are doing can allow that to drop or be flat or should we expect some growth even if it's just qualitative comments?
I'd appreciate it.
Lauralee Martin
The op and admin line has been probably the largest component would be our office leases and so there is not a lot of flex in that decision, that's there. The next largest one would be our technology and telecom and there will be some variation in that line if we have lower staff levels.
The balance of it are things that we have more flexibility over, meaning travel, marketing, incremental expenses and we had already aggressively cut back on anything that is not client and revenue focused. So we will continue that, but I don't think you are going to see dramatic differences in the op and admin line.
Colin Dyer
What will happen, Will, is that the rate of growth will slow and tend towards flat because it has been growing through some of earlier wages. We have added people, teams, as we discussed earlier in the call but also by the acquisitions that came in to the firm.
Clearly that process slowed to the final acquisition coming in just in this quarter. So the comps will flat out as we go through next year.
Will Marks - JMP Securities
Great. Thank you.
Operator
And at this time, I do show there are no further audio questions in queue. Mr.
Dyer and Ms. Martin, do you have any closing remarks for your audience?
Colin Dyer
Well, thank you, operator. Thank you for all the questions.
We said earlier on we are continuing to trade through quarter four against a relatively difficult market conditions which we described in some detail. Our intention remains the same which is to grow the business selectively consistent with our long term goals.
We are obviously controlling our costs progressively as we have described and are able to continue to build share against major competition. So we look forward to sharing the results of quarter four with you all in January-February of 2009.
So thank you, everybody, for your attention today.
Operator
Thank you. This concludes today's third quarter 2008 earnings release conference call for Jones Lang LaSalle.