Jones Lang LaSalle 4Q15 Earnings Call Notes

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Jones Lang LaSalle’s (JLL) CEO Colin Dyer on Q4 2015 Results

The noise has produced more cautious sentiment, but capital continues to be allocated to real estate

“looking at our markets, JLL research projects investment sales and leasing volumes to maintain a healthy pace throughout 2016. The noise in the news flow has produced more cautious investment sentiment at this point, but the amount of capitals that continues to be allocated to real estate indicates there’ll be no reduction in underlying investment flows.”

China is being boosted by growth in consumer and service sectors, which is good for us

“on China and given our leading market position, we have a good perspective on what’s going on there. The slow decline in manufacturing sector contrasts with continuing double-digit growth in the consumer and service sectors. The move to services is benefitting our business as it tends to drive demand for office, retail and warehouse space, particularly in tier one cities. The effect is less pronounced in our tier two city business, but overall, our revenues in China continue to grow in 2015 and we expect the same in 2016.”

We think the cycle peaks in ’17 or ’18, nothing has changed that point of view

“We’ve been thinking in terms of a cycle which will begin to peak in ‘17 or ‘18 for some time. So this puts us in the sort of third to fourth quarter of a four-quarter game. Nothing has changed that point of view.”

Given the amount of money that’s available to invest in real estate, there’s relatively safe harbor in real estate

“given the weight of money of both equity and debt that’s available to invest in real estate and given the appetite for real estate, there’s a relatively safe investment harbor given the problems of the fixed income and equity sectors.”

Stress in China is in the tier two and three cities

“No. As I said, I mean, we’re concentrated in the tier one cities and tier two cities. And what we’ve seen is that the, I mean, the switch that’s going on away from the traditional industrial base and towards services and technology companies. And the services and technology companies are intending to focus in the largest cities as I made the comments about the demand for retail, logistics and office space in those major cities actually being quite robust. Where there’s stress in China is in the peripheral tier two cities and in the tier three cities where the industrial base was focused and where you see a clear decline in activity. But it’s working so far in our favor and of course we’re the market leaders there. We are strongly profitable in the region and we’re continuing to grow and expand our teams.”

Investors were slightly more hesitant in Q4, but we also see underlying interest in real estate from all sources

“we’ve made the comment about Q4 last year being – investors being slightly a little more hesitant than they had in prior quarters. We’ve also underpinned our thinking for markets that will basically be at or slightly above 2015 levels in 2016. So I won’t repeat that. I think we’ll just watch this during the first quarter and a half of the year. We see underlying interest in real estate from all sources. We talk to institutional investors, any specific pension funds, for example, who are still raising the percentage allocation to real estate.”

At this point the fundamentals remain robust

“And for the amount of money that’s available to invest in real estate is undiminished. We’ll see how sentiment behaves in the first quarter and whether the point you make about the CMBS markets or other factors begin to weigh on investors’ confidence. But at this point, the fundamental point to continued robust market, it’s similar levels to 2015.”

There’s been a clear reduction in demand for leasing space in energy centers

“we’ve noticed across the energy centers like Houston and Calgary, for example, within the North American continent, clear reduction in demand for leasing space and with that, a reduction in appetite for investment sales in those markets simply because the level of demand has come off so rapidly.”

Debt is still freely available. Saw a cooling of demand at the high end in particular

“Yes, you can take the debt piece out of the equation. Debt is freely available and it’s still fairly conservatively underwritten my lending institutions. So no issue there. What we did see is something of a cooling in demand at the high-end, in particular, our investment sales markets, a bit more selective purchasing, buyers not chasing risk as much as they might have done earlier in the cycle. We saw transactions indeed tending to slow and that’s one of the reasons why Q4 was a little weaker because we believe that a lot of transactions went through the year end and we’ll continue to complete in Q1 of this year.”

Sellers’ expectations of price have continued to push upwards whilst buyers’ have become more hesitant

“And your point about the bid-ask spread is an interesting one as well because sellers’ expectations of price have continued to kind of push upwards whilst buyers’ willingness to pay those continuing increased prices have become slightly more hesitant. So when you put all that together and that’s sort of the demand mix that’s swirling around out there.”

The amount of money trying to find its way to real estate is still robust

“Come back to our other statement, the amount of money, equity in particular, seeking to find its way into real estate is still robust. If you take our own LaSalle business, the 56 billion of assets under management and over $10 billion of funds available to invest in real estate. So they won’t invest that foolishly but it’s going to get invested over the next two, three years selectively in markets around the world”