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Jones Lang LaSalle: Over the Worst?

By Lee Samaha - Apr 28, 2016 at 3:37PM

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The commercial real estate services company got hit with the turbulence in credit markets earlier in the quarter.

From the JLL Investor Relation site

Given the considerable anxiety expressed by widening credit spreads at the start of the year, the first-quarter results from commercial property services company Jones Lang LaSalle (JLL 0.60%) were pretty solid. In addition, the market no longer fears commercial property Armageddon via the credit markets -- the company's stock has rallied more than 7% in the last month. That said, what can investors glean from the first-quarter results?

Jones Lang LaSalle's first quarter: The raw numbers
The best way to look at the company's results is to split its real estate services (RES) into geographic regions and then compare adjusted EBITDA with the remaining LaSalle investment management business. For reference, RES comprises a mix of services that rely on transactions (such as leasing and capital markets) and services that don't (property and facility management, project and development services, etc.) -- a point I will return to later.


Adjusted EBITDA (millions)


RES Americas



RES Europe, Middle East, Africa

($4.4) (290%)

RES Asia Pacific

$2 (75%)

LaSalle Investment Management

$34.4 21%


$84.5 (5.9%)

Data source: Jones Land LaSalle presentations.

The turbulence in equity and credit markets at the start of the year clearly had an effect on the commercial property. For example, global investment sales were down 14% in the first quarter, but Jones Lang LaSalle did relatively better in only suffering a 3% decline in investment sales. It was a similar story with leasing, whereby market leasing volumes declined 1%, but the company's increased 6%.

What happened in the quarter
Essentially, the quarter started off with very difficult conditions that got better as the months progressed. CEO Colin Dyer discussed the issue on the earnings call, saying, "As we predicted on our February call, this to be a pause, not a trend. Equity market started to rebound in mid-February, Chinese economy has stabilized and the slide in oil prices was arrested."

The one remaining fly in the ointment is the so-called Brexit referendum, in which the U.K. will vote on whether to remain or exit from the European Union. The vote takes place on June 23, and fears over an exit caused Britain to be the only country (aside from Russia) in Europe to suffer a revenue decline in the quarter -- "around 10%," according to Dyer.

End-market conditions in 2016
Aside from the Brexit issue, CFO Christie Kelly argued that the company would "go into the second quarter with improved market conditions." Nevertheless, management took down full-year guidance for two key market indicators.

  • Industry full-year capital market sales volumes are now expected to be down 5% compared to a previous range of flat to negative 5%.
  • Full-year gross absorption (percentage of commercial real estate leased in a period) is now expected to be flat to 5% compared to a previous estimate of 5%.

Moreover, observant readers will note (see table above) the importance of real estate services in the Americas to JLL's profitability, and there is a cause for concern. Specifically, management significantly reduced its full-year expectations for capital market sales volumes in the Americas. Three months ago management forecast an increase of 5% to 10%, but now the forecast is for flat to negative 5%.

The weakening outlook for transaction volumes -- particularly in the Americas -- is probably the reason why management highlighted its ability to diversify revenue streams, particularly from activities that don't require transactional volume. But will it be enough?

Looking ahead
The company outperformed the market in the first quarter and investors will be hoping for more of the same going forward. The Americas region is the key to the company's prospects and investors will be hoping that institutional investors continue to favor commercial real estate as an asset class. Meanwhile, any improvement in the economy is likely to feed into a pick-up in rents and leasing activity, and conversely any negative news on credit markets or global growth could weigh heavily on the stock.

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