February 13, 2015 Jones Lang LaSalle Inc. Current Recommendation SUMMARY DATA NEUTRAL Prior Recommendation Underperform Date of Last Change 11/07/2013 Current Price (02/12/15) $160.97 Target Price $169.00 52-Week High $160.97 52-Week Low $115.20 One-Year Return (%) 33.56 Beta 1.77 Average Daily Volume (sh) 356,969 Shares Outstanding (mil) 45 Market Capitalization ($mil) $7,244 Short Interest Ratio (days) 2.74 Institutional Ownership (%) 92 Insider Ownership (%) 1 Annual Cash Dividend $0.50 Dividend Yield (%) 0.31 5-Yr. Historical Growth Rates Sales (%) 15.8 Earnings Per Share (%) 23.1 Dividend (%) 24.0 using TTM EPS 18.5 using 2015 Estimate 18.1 using 2016 Estimate 16.4 Zacks Rank *: Short Term 1 3 months outlook 2 - Buy * Definition / Disclosure on last page (JLL-NYSE) SUMMARY Risk Level * JLL s fourth-quarter 2014 adjusted earnings per share comfortably beat the Zacks Consensus Estimate and came well above the year-ago quarter figure. Solid fee revenue growth across all segments drove the growth momentum. Consolidated fee revenue increased 15.4% from the prior-year quarter. We believe that strength in the company s Leasing and Property & Facility Management lines as well as LaSalle Investment Management business would help it ride on the growth trajectory. Further, the company s strategic investments and manageable debt position augur well, going forward. Yet, rising expenses, stiff competition and uneasiness in certain global economies may restrict any robust growth tempo. Low, Type of Stock Large-Blend Industry Real Estate Ops Zacks Industry Rank * 182 out of 267 ZACKS CONSENSUS ESTIMATES Revenue Estimates (In millions of $) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) 2013 856 A 989 A 1,107 A 1,509 A 4,461 A 2014 1,037 A 1,277 A 1,366 A 1,749 A 5,429 A 2015 957 E 1,162 E 1,202 E 1,889 E 5,210 E 2016 5,607 E Earnings Per Share Estimates (EPS is operating earnings before non-recurring items, but including employee stock options expenses) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) 2013 $0.36 A $1.15 A $1.49 A $3.33 A $6.33 A 2014 $0.39 A $1.68 A $2.31 A $4.30 A $8.68 A 2015 $0.60 E $1.93 E $2.03 E $4.31 E $8.87 E 2016 $9.81 E Projected FFO Growth - Next 5 Years % 11 2015 Zacks Investment Research, All Rights reserved. www.zacks.com 10 S. Riverside Plaza, Chicago IL 60606
OVERVIEW Chicago-based Jones Lang LaSalle, Incorporated is a leading full-service real estate firm that provides corporate, financial and investment management services to corporations and other real estate owners, users, and investors worldwide. A broad real estate product and service range, and extensive knowledge of domestic and international real estate markets enable the company to operate as a single-source provider of real estate solutions. With over 230 corporate offices across the globe, JLL operates in over 80 countries. The company is an industry leader in property and corporate facility management services, with a worldwide portfolio of approximately 3.4 billion square feet. JLL divides its business into two primary segments: Real Estate Services (RES) and Investment Management (IM). The RES segment is subdivided into three geographic regions the Americas, EMEA (Europe, the Middle East, Africa) and the Asia Pacific. The company offers leasing, capital markets and hotels, property and facility management, project and development services and advisory, consulting and other services, both locally and globally under its Real Estate Services segment. The IM division is referred to as LaSalle Investment Management and provides real estate investmentmanagement services to institutional and retail investors, including high-net-worth individuals. It is one of the world s largest managers of institutional capital invested in real estate assets and securities. LaSalle managed $53.6 billion of real estate assets as of Dec 31, 2014. REASONS TO BUY JLL has a broad range of real estate product and services as well as an extensive knowledge of domestic and international real estate markets, enabling it to operate as a single-source provider of real estate solutions. In 2014, the company generated record fee revenue of $4.7 billion, reflecting an 18% year-over-year increase in local currency. Moreover, in its Property Management business, the company enjoys scale in key markets including Australia, China, Germany, U.K. and the U.S. With a worldwide portfolio of approximately 3.4 billion square feet, JLL is an industry leader in property and corporate facility management services, while its investment management business is one of the largest and most diverse in the real estate sector, with assets under management amounting to $53.6 billion. JLL is focused on increasing its market share and improving productivity across the firm. It continues to invest strategically so as to capitalize on market consolidations. JLL s superior operating platform and market share expansion have helped it achieve strong growth as well as a decent cash level. Over 2003 2013, the company has achieved more than a four-fold increase in fee revenue, sevenfold in adjusted operating income and eight-fold in market cap. Further in 2014, fee revenues and adjusted operating income moved up 16.8% and 31.1%, respectively, from that of 2013, keeping the growth momentum alive. During 2003 2013, JLL reported compounded annual revenue growth of 16%, reflecting 12% organic growth and 4% contribution from mergers and acquisitions. In 2014, the company completed 10 acquisitions. These included Cover Point food service consulting company for expansion in UK, Novo Interior in Portugal, WA Ellis - a specialist west London residential agency firm in valuation, the Henry Butcher company in Malaysia and Presser Portland - a specialist in tenant representation and corporate services firm in Oregon. Such strategic acquisitions are expected to render JLL adequately capable of capitalizing on an improving market environment. JLL has an investment grade balance sheet with a manageable debt position. Driven by its solid cash generation capabilities, the company also reduced its net debt to $163 million from the year-ago quarter figure of $437 million. Moreover, in Dec 2014, Standard & Poor s raised JLL s investment- Equity Research JLL Page 2
grade rating to BBB. Armed with a solid balance sheet and healthy debt position, we believe the company remains well poised to continue its growth momentum, and has the wherewithal to carry on with investments in growth drivers, going forward. Moreover, ushering in good news for its shareholders, the company, concurrent with the third-quarter earnings release, increased its semiannual dividend by 9% to $0.25 per share. This reflects the company s confidence in its cash generation potentials, boosting investors confidence in the stock. REASONS TO SELL JLL faces stiff competition from international, regional and local players in the market, due to which it has to continually invest in value drivers that act as key differentiators. Moreover, the company significantly depends on long-term client relationships and on revenues received for services under various service agreements. However, several of these deals can be terminated by the clients for any reason with as little as 30 to 60 days notice. In the past, global real estate markets were considerably affected by the financial disruption and global recession that occurred during 2008 and 2009. As a consequence, the volume and pace of commercial real estate transactions constricted; while in many countries and markets, real estate pricing and leasing fell materially. The weakness led to additional pricing pressure from cashstrapped clients. Though, given the globally low interest, markets have consequently stabilized and improved, we anticipate a recovery in interest rates in the long term which may lower the growth tempo of the commercial real estate sector and negatively impact JLL s business activities. Moreover, though leasing market in Asia Pacific is recovering, the pace remains sluggish. Given its international presence, JLL often faces unfavorable foreign currency movements, impacting its top-line growth. The Real Estate Services business segment is also cyclical in nature and experiences fluctuations in revenues and operating margins. This, in turn, could negatively affect the long-term earnings expectations of the company. RECENT NEWS JLL Beats Q4 Earnings on Improved Fee Revenue Feb 3, 2015 JLL reported encouraging fourth-quarter 2014 adjusted earnings of $4.30 per share. Results comfortably beat the Zacks Consensus Estimate of $3.84 per share and came in well above the year-ago quarter figure of $3.33. During the reported quarter, revenues totaled around $1.75 billion, well ahead of the Zacks Consensus Estimate of $1.56 billion and up 15.9% year over year. Consolidated fee revenue increased 15.4% from the prior-year quarter to $1.56 billion, driven by revenue growth in Real estate and LaSalle Investment Management segments. As a result, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) came in at $297 million, reflecting a year-over-year increase of 29.1%. Adjusted operating income margin (calculated on a fee-revenue basis) increased to 16.9% in the quarter from 14.8% in the prior-year quarter. In 2014, JLL reported adjusted earnings of $8.69 per share. Results surpassed the Zacks Consensus Estimate of $8.22 as well as the prior-year figure of $6.32. Full year 2014 revenues came in at around $5.43 billion, well ahead of the Zacks Consensus Estimate of $4.66 billion and up 21.7% year over year. Equity Research JLL Page 3
Quarter in Detail Geographically, fee revenues from the Americas amounted to $688.4 million, denoting a year-over-year increase of 13.8%. Fee revenues in the EMEA (Europe, the Middle East and Africa) region increased 16.6% from the prior-year quarter to $475.1 million; while in the Asia-Pacific region it rose 11.5% year over year to $302.5 million. Moreover, revenues from LaSalle Investment Management segment increased 29.7% year over year to $98.7 million. At the end of fourth-quarter 2014, assets under management totaled $53.6 billion, up from $53 billion in the prior-quarter end. Liquidity JLL exited 2014 with cash and cash equivalents of $250.4 million, up from $152.7 million at year-end 2013. Backed by solid cash generation capabilities, the company significantly reduced its net debt to $163 million from $437 million in the year-ago period. Dividend Update On Oct 29, 2014, JLL announced a semi-annual dividend of $0.25 per share on its common stock. The dividend was paid on Dec 15, 2014, to shareholders of record as of Nov 14. Equity Research JLL Page 4
VALUATION The shares of JLL currently trade at 18.1x the Zacks Consensus Estimate for 2015, a 9.0% discount to the industry average. On a price-to-book basis, the shares trade at 2.8x, a 22.2% discount to the industry average. Therefore, the valuation looks attractive both on a P/E and price-to-book basis. Our six-month target price of $169.00 equates to 19.1x the Zacks Consensus Estimate for 2015. Combined with a semi-annual dividend of $0.25 per share, this price target implies an expected total return of 5.1% over that period. This is consistent with our Neutral recommendation on the shares. Further, the stock currently carries a Zacks Rank #2 (Buy). Key Indicators F1 F2 Est. 5-Yr FFO Gr% P/CF 5-Yr High 5-Yr Low Jones Lang LaSalle Inc. (JLL) 18.1 16.4 11.0 14.6 18.5 33.9 12.3 Industry Average 19.9 17.5 14.3 24.2 35.1 67.9 16.0 S&P 500 16.5 15.4 10.7 15.1 19.0 19.4 12.0 CBRE Group, Inc. (CBG) 18.0 16.0 12.6 14.0 20.5 42.2 14.0 Leju Holdings Limited (LEJU) 10.9 8.4 39.2 N/A N/A N/A N/A Realogy Holdings Corp. (RLGY) 26.5 18.9 13.4 15.0 35.5 34.4 19.1 City Developments Limited (CDEVY) 15.8 N/A 16.0 10.3 15.2 16.8 11.9 TTM is trailing 12 months; F1 is 2015 and F2 is 2016, CF is operating cash flow P/B Last Qtr. P/B 5-Yr High P/B 5-Yr Low ROE D/E Last Qtr. Div Yield Last Qtr. EV/EBITDA Jones Lang LaSalle Inc. (JLL) 2.8 2.9 1.4 15.4 0.1 0.3 14.1 Industry Average 3.6 3.6 3.6 17.5 0.7 1.3-2.2 S&P 500 5.3 9.8 3.2 25.5 2.1 Equity Research JLL Page 5
Earnings Surprise and Estimate Revision History Equity Research JLL Page 6
DISCLOSURES & DEFINITIONS The analysts contributing to this report do not hold any shares of JLL. The EPS and revenue forecasts are the Zacks Consensus estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personal views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the securities it covers. Outperform- Zacks expects that the subject company will outperform the broader U.S. equity market over the next six to twelve months. Neutral- Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelve months. Underperform- Zacks expects the company will under perform the broader U.S. Equity market over the next six to twelve months. The current distribution of Zacks Ratings is as follows on the 1121 companies covered: Outperform - 15.3%, Neutral - 76.9%, Underperform 7.2%. Data is as of midnight on the business day immediately prior to this publication. Our recommendation for each stock is closely linked to the Zacks Rank, which results from a proprietary quantitative model using trends in earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. In determining Risk Level, we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on each stock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5 th group has the highest values and are designated High Risk. Designations of Below-Average Risk, Average Risk, and Above-Average Risk correspond to the second, third, and fourth groups of stocks, respectively. Coverage Team QCA Lead Analyst Analyst Copy Editor Content Ed. Reason 11C Kalyan Nandy Moumita C. Chattopadhyay Sanjoy De Anuja Mitra Moumita C. Chattopadhyay Earnings Equity Research JLL Page 7