We have recently upgraded our long-term recommendation for Jones Lang LaSalle Incorporated (JLL), a leading real estate investment trust (:REIT), from Neutral to Outperform as we anticipate it to perform well above the broader market.
Jones Lang reported record revenues in 2011 with strong performances across all business segments and geographic regions except the LaSalle Investment Management segment. In addition, the company reduced its net debt position by over $180 million in 2011, driven by strong cash flows generated from operations and modest cash outflows due to disciplined capital expenditures, effective tax management and low cash interest expense associated with reduced borrowing levels. We remain bullish on the company and expect it to continue its growth momentum in the coming quarters as well.
Chicago-based Jones Lang 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 about 200 corporate offices across the globe, Jones Lang operates in more than 1,000 locations in 70 countries. Jones Lang is an industry leader in property and corporate facility management services, with a portfolio of approximately 2.1 billion square feet worldwide. LaSalle Investment Management, the company’s investment management business, is one of the largest and most diverse in the real estate sector with nearly $47.7 billion of assets under management.
Jones Lang continually invests in industry-leading research to identify emerging trends and anticipate future conditions to respond to the shifting market and business trends of its clients. This enables the company to develop new investment products and services tailored to the specific investment goals and objectives of its clients, thereby maintaining profitable long-term relationships during challenging market conditions. The company also has a strong balance sheet that provides it with an operating flexibility to protect and enhance market positions.
However, Jones Lang depends on a vibrant global real estate market to fuel its growth engine. Although global real estate fundamentals are gradually picking up, transaction volumes are yet to reach its pre-recession peak values. The Real Estate Services business segment is also cyclical in nature and experiences fluctuations in revenue and operating margins. This, in turn, could negatively affect the long-term earnings expectations of the company.
Presently, Jones Lang has a Zacks #1 Rank translating into a short-term Strong Buy rating. However, we have a Neutral recommendation and a Zacks #3 Rank (short-term Hold rating) for NorthStar Realty Finance Corp. (NRF), one of the peers of Jones Lang.
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