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Is Jones Lang Lasalle a Buy?


Sep 10, 2020 by Marc Rapport

No faceless conglomerate, Jones Lang Lasalle (NYSE: JLL) has a 250-year history and a football legend who formerly served as its executive chairman. By its own description, Chicago-based JLL buys, builds, occupies, and invests in industrial, commercial, retail, residential, and hotel real estate. Tracing its roots to 1760s London, JLL's current iteration is the result of a 1999 merger of Jones Lang Wootton and LaSalle Partners, followed by the purchase of The Staubach Company in 2008.

Legendary quarterback Roger Staubach became JLL's executive chairman Americas at that time, a role he's held until 2018 as JLL grew into a global leader among public brokerages and real estate and investment management.

The Fortune 500 company now operates in more than 80 countries and, as of June 30, has a global workforce of nearly 93,000 people.

So, is JLL a buy among commercial real estate stocks that include such stout competition as CBRE (NYSE: CBRE)?

Still making money, just not as much

In their second-quarter earnings call, JLL President/CEO Christian Ulbrich noted the pandemic led to a 60% drop in its office leasing market and that consolidated revenue fell 13% and fee revenue dropped 22% from the second quarter of 2019.

But the company did make money, just not as much, according to its second-quarter report. Adjusted net income totaled $37 million for the quarter and adjusted diluted earnings per share totaled $0.71, down fully 75% from the year-ago quarter.

Six-month comparisons show recovery in consolidated income as JLL reported $7.8 billion in revenue in the first six months of 2020, down only 4% from 2019. But adjusted net income at $20.5 million is still down 84% from the $131.8 million recorded in the first two quarters last year. Adjusted diluted earnings per share also were down 69% from 2019, from $3.84 then to $1.20 now.

"Leasing and capital markets were the most severely impacted service lines as the pace of transactional activity slowed as investors were sidelined due to travel restrictions, mounting uncertainty and rising economic headwinds," Ulbrich said in the earnings call. "Activity in April and May was ahead of our expectations, driven by a strong pre-COVID pipeline."

Synergies in cross-selling and driving down debt

Ulbrich said the company has realized $28 million in synergies from its mid-2019 purchase of capital markets services firm HFF for $1.8 billion. The COVID-19 lockdown actually helped speed the integration.

"Our teams have been focused on identifying cross-selling opportunities, learning from each other and enhancing our superior technology platform," the CEO said. "We continue to be bullish on the strategic rationale of the transaction, the potential for even more meaningful cross-selling opportunities, and our glide path to establishing the premier capital markets platform within the industry."

Driving down debt but a dipping EBITDA margin

The company, with a market cap of about $5.3 billion, also significantly reduced its debt to $1.1 billion as of June 30 and it reduced cash used by operating activities to $44.7 million for the first half of 2020, compared with $483.1 million last year.

"Driving a $450 million reduction to net debt this quarter reinforced our financial strength and liquidity," CEO Ulbrich said in the second-quarter earnings news release. "We are well-positioned to withstand the impact of the pandemic and then resume our growth journey."

Cash used by operating activities was $44.7 million for the first half of 2020, compared with $483.1 million used in the prior year. But the company said adjusted EBITDA margin for the quarter, calculated on a fee-revenue basis, was 28.2% compared with 33.7% last year.

Pandemic-induced office use changes

Even so, JLL deserves consideration now based on its strong record, diversified income stream, resiliency, and potential for growth.

The company's CEO says his global operation's skill set plays directly into the changing office space and use requirements companies face worldwide because of the coronavirus plague.

"This change may mean an increase in space and investment required, which is obviously advantageous for JLL as there are very few companies who can credibly deliver the design, identify the space and the fit-out of the office of the future anywhere in the world in best quality with the highest governance and ethics," Ulbrich said in the earnings call.

"Office space will play an even greater role in driving corporate well-being and productivity," Ulbrich said, "and JLL will continue to win market share over the long term. Similarly, despite the short-term uncertainty, real estate will remain an attractive asset class for investors and their capital."

If you buy that, consider buying this stock.

Depressed stock price offers some incentive, and maybe a dividend will reappear

JLL is going to have to rally mightily to reach the $18.0 billion in revenue it posted in 2019. And the last dividend it paid was $0.43 a share at the end of last year, a performance that had grown nearly every year since 2005.

But since this is more of a growth, or at least buy-and-hold, consideration, it's worth noting here that JLL closed at $103.03 per share on Sept. 4 after swooning to just below $80 a share in March and early April as the pandemic took hold.

Its 52-week high is $178.55 and its trailing 12-month (TTM) price/earnings ratio of a modest 12.57% both seem to indicate room to grow. If the dividend should, that would make JLL an even more attractive buy.

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Marc Rapport has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.