Commercial real estate company Jones Lang LaSalle (JLL 0.93%) followed rival CBRE Group, Inc (CBRE) in releasing a bumper set of earnings on Wednesday. CBRE beat analyst estimates and raised full-year earnings guidance in its results presentation, but the standout numbers came from Jones Lang LaSalle. Let's take a look at why the market got so excited by the earnings report.
Jones Lang LaSalle's third-quarter results
The company reports out of two activities, namely real estate services -- property and facility management, project development services, and advisory services (or RES) -- and LaSalle Investment Management (advisory fees). To put it into context, RES generated around 70% of adjusted EBITDA in the first nine months, with LaSalle Investment Management producing the remaining 30%.
LaSalle tends to generate higher margin; for example, it produced adjusted EBITDA margin of nearly 41% in the third quarter compared to RES's adjusted EBITDA margin of around 9%. However, as you can see below, RES was the standout performer in the quarter.
|
Revenue |
% Change in US Dollars |
% Change in Local Currency | |
|---|---|---|---|
|
Real Estate Services |
1367.1 |
12% |
19% |
|
LaSalle Investment Management |
134.2 |
-6% |
3% |
Data source: Jones Lang LaSalle Presentations.
Currency effects reduced growth, but overall revenue still came in with a 9.9% improvement -- 19% in local currency -- compared to the same period last year. Adjusted EPS increased 11%, to $2.52, in the quarter.
It was a similar story at rival CBRE Group, where overall revenue increased 19% -- 26% in local currency -- while adjusted EPS increased 28%. Furthermore, CBRE management felt confident enough in the market backdrop in order to raise its full-year guidance range by $0.10, from $2.00 to $2.10. What would Jones Lang LaSalle management say?
Gross absorption estimates improved
I always like to follow the changes in the full-year gross absorption forecast from Jones Lang LaSalle. Now, I know what you're thinking, but you'd be wrong: It's not that complicated. Gross absorption simply refers to the percentage of total commercial real estate space leased during a specific period.
If the gross absorption number is increasing, then leasing market activity is increasing, and the company should see a boost in demand for its RES. Let's take a look at how Jones Lang LaSalle has adjusted its full-year forecast as the year has developed.
As you can see in the table below, management significantly increased its full-year forecast for gross absorption in Europe and Asia in the third quarter -- a sign that global leasing market activity is trending stronger.
|
Change in FY 15 Forecast |
Q4 14 |
Q1 15 |
Q2 15 |
Q3 15 |
|---|---|---|---|---|
|
Americas (U.S. Only) |
~5% |
0-5% |
0-5% |
0-5% |
|
EMEA (Europe only) |
0-5% |
Flat |
Flat |
5%-10% |
|
Asia Pacific (selected markets) |
~15% |
15% |
15%-20% |
25% |
|
Total |
~5% |
0-5% |
0-5% |
5%-10% |
Data source: Jones Lang Lasalle Presentations.
Looking ahead
Both companies released excellent results, and indicated that, even while other areas of the economy are weaker, the commercial real estate market is doing fine. CBRE raised full-year guidance, while Jones Lang LaSalle raised its forecast for gross absorption -- a key marker for leasing market activity.
Jones Lang LaSalle CEO Colin Dyer claimed the company had "excellent momentum" going into 2016, and investors will want to see if this holds into the New Year.
