Jones Lang LaSalle Inc (JLL) 2004 Q1 法說會逐字稿

Good day and welcome to the first quarter 2004 earnings release conference call for Jones Lang LaSalle Inc. Today's call is being recorded. Any statements made about future results or performance or about plans, expectations, and objectives are forward-looking statements. Actual results and performance may differ from those included in the forward-looking statements as a result of factors discussed in the Company's annual report on Form 10-K for the year ended December 31st, 2003, and in other reports filed with the SEC. The Company disclaims any undertaking to update or revise any forward-looking statements. A transcript of this call will be posted and available on the Company's web site within two days of this call.

At this time, I would like to turn the call over to Mr. Stuart Scott, Chairman, for opening remarks. Please go ahead, Sir.

Thank you for joining us for this review of our first quarter 2004 financial results. I'm speaking to you today from Europe and joining me on the call from Chicago is Lauralee Martin, our CFO.

Let me start by briefly reviewing the headlines for our first quarter.

We achieved earnings in line with our expectations for the quarter exceeding our first quarter 2003 performance. In local currencies, our revenues were 9 percent higher than in 2003, reflecting stronger operating performance in all segments of the business. High cash generation continued to strengthen our balance sheet, resulting in net borrowings excluding the effect of foreign exchange which were 69 million lower than in 2003.

After Lauralee talks about our financial results for the first quarter and our outlook for the second quarter I will comment briefly on market conditions and our progress pursuing our strategic goals in 2004. Following that, we'll be pleased to take your questions. Let me now hand over the call to Lauralee.

Thank you Stuart and good morning to everyone on the call.

As covered by Stuart we're very pleased to start the year with improved revenues and solid operating results in all of our segments as compared to the first quarter of last year. This morning, I will first start by covering these individual operating segments and then I'll discuss the consolidated results of the firm.

In the Americas, revenues increased year over year 7 percent. We had solid performance in many of our transaction businesses, particularly leasing, which was up more than 20 percent, hotels and capital markets. We also had strong growth in our public institutions products which is part of our Project & Development business as we continue to expand services to universities as well as to the Army and the Air Force. We added to our retail management portfolio by entering into a strategic alliance with L & H Real Estate Group which added some 16 retail properties to our managed portfolio as well as several key new clients securing our position as the largest third party manager of regional shopping centers in the United States.

Expenses continue to be aggressively managed and as a result, operating income improved by 700,000 to a loss of only 900,000. Europe continued to experience a mixed economic environment as its operating backdrop. However we were very pleased with the solid year-over-year improvement in the English business and the hotels business as well as good performance in France, Central Europe markets, and Belgium.

Revenues also benefited from several corporate finance transactions expected in the fourth quarter of last year that slipped into this year's first quarter. Offsetting these positives, Germany and The Netherlands continued to contend with challenging markets.

Looking at the product mix in Europe, leasing showed a modest improvement over the prior year, a real positive for improved outlook in 2004. And capital markets continue to show strength. Offsetting these positives was a decline in management service fees as we continue to challenge the profitability of all relationships and services. Expenses increased principally due to the timing of bonus compensation driven by stronger revenues in the first quarter. As a result, operating income was a modestly higher loss of 1.9 million versus the prior year loss of 1.4 million.

Asia-Pacific in the first quarter had an operating loss of 4.6 million as compared to a loss of 5.2 million in the prior year. Our patience in the region is beginning to show positive returns as we saw strong year-over-year revenue growth of 14 percent in Hong Kong and 200 percent revenue growth in India, although from a small base, as well as solid performance in Japan, Singapore, and Korea.

Our commitment to the global integrated corporate solutions outsourcing product is paying off. The integrated global platform for service delivery is a compelling part of our client-value proposition so investment in the Asia-Pacific market is critical to our success.

Our objective is to break even on this investment in Asia this year and be positioned for solid profit growth going forward. Our core operations of Australia were flat in comparable currencies to last year on a revenue basis but we continue to manage expenses tightly to improve performance in this more mature market.

LaSalle Investment Management continued to execute against its financial strategy of increasing the annuity revenue category of advisory fees which were up 18 percent over the prior year. The business continued to take advantage of strong real estate markets by selling assets on behalf of their clients. As a result, the firm benefited from increased equity earnings of 1.6 million with an associated reduction in co-investment capital (technical difficulty) from the year end.

Part of our business strategy is to use co-investment capital to accelerate growth in assets under management. As such we anticipate increasing our co-investment outstanding balance by between $30 and $40 million by year end. Expenses for the group were up 13 percent year over year; however the pace of increase continues to moderate as the global platform is substantially complete.

Operating income was 2.7 million as compared to the prior year of 1.4 million.

The firm, overall, reported a net loss of 6.1 million or 20 cents per share in the quarter as compared to the prior year loss of 7.2 million, or 24 cents per share. Revenues for the quarter totaled 223 million, an increase of 18 percent in U.S. dollars and 9 percent in local currencies.

Operating expenses were 227 million up 17 percent in U.S. dollars but only 7 percent in local currencies. The effective tax rate for the quarter was 28 percent as compared to 34 percent in 2003.

Since we were in a loss position, the improved effective tax rate negatively impacted the first quarter comparison by 2 cents per share but will result in a financial benefit for the full year.

Interest expense was slightly lower than last year due to lower borrowing levels. We typically draw on our bank line in the first quarter to make annual bonus payments. This year, we not only had adequate cash to pay bonuses but we also ended with cash of $23 million. We have notified the trustee of our 9 percent Euronotes that we plan to redeem the entire 165 million Euro issue in June. In anticipation in April we closed a 325 million three-year unsecured revolving credit facility.

This agreement amended our existing 225 million facility at improved covenant terms as well as a 37 1/2 basis point improvement in pricing with initial pricing starting at LIBOR plus 1 1/2.

During the quarter, we repurchased just under 300,000 shares of our stock under our Board-approved 1.5 million share repurchase program. This repurchase program is used principally to offset dilution from employee compensation plans. We plan to continue to repurchase program this quarter with the end of our trading blackout period.

This concludes my discussion of our first quarter results. Our results continue to have a seasonal character with the first quarter typically a loss and the majority of profits occurring in the second half of the year. As a result, we will not be giving full year guidance for 2004.

In the second quarter, the costs associated with the retirement of the Euronotes are expected to be approximately $11.5 million, dependent upon exchange rates at the time. As a result, despite the fact we anticipate a modest operating profit from operations in the second quarter, the overall results for the second quarter will be a GAAP net loss.

Let me now turn the call back over to Stuart. (MULTIPLE SPEAKERS)

Before we take your questions let me talk briefly about market conditions around the world and about a number of highlights in our business during the quarter that demonstrate real success in our global strategy.

As expected, the U.S. economy continues to accelerate with consumer spending in business investment stronger than at any time in the last three years. Importantly, this has recently begun to be reflected in job growth. Although office vacancy rates remain high leasing activity continues to improve steadily across most markets with an evidence of occupiers taking advantage of low lease rates to upgrade the quality of their space.

Despite early signals of interest rate rises to come, transaction volumes in the capital markets are up over 30 percent from a year ago, as investors of all types remain extremely active.

Asia continues to enjoy strong economic growth riding on a sustained momentum from India and China, with Japan and Hong Kong additionally showing evidence of healthy recovery in recent months. As in the U.S., office take up is improving as corporate occupiers upgrade and expand their space requirements. In India outsourcing and offshoring activity is accounting for up to 80 percent of office demand.

Australian economic growth, though more muted than Asia, remains robust with improving signals from the office of industrial sectors. The European economy, overall, remains stable but subdued with strength in the UK, Spain, and Sweden offset by weakness in the core Continental economies of Germany, France, Italy and The Netherlands. In Germany, rising unemployment and falling business confidence have reversed some of the improvements seen in late 2003.

Overall growth remains hampered by the strength of the Euro though this has held down interest rates sustaining high activity levels in the capital markets.

For western Europe vacancy rates continue to rise in the first quarter and rents continue to fall though at a slower pace. On the positive side, Central European growth continued ahead of the record take-up levels in 2003 and across the region, retail demand remained strong.

In this generally improving market environment, I am once again delighted that our businesses in all regions are securing major instructions and continuing to build client relationships that will deliver sustained growth.

I want to comment briefly on a sample of our successes in the first quarter that demonstrate our achievements in pursuing growth and establishing the firm as the chosen real estate expert to leading clients around the world.

First, the Port Authority of New York and New Jersey has selected Jones Lang LaSalle to provide a broad range of real estate advisory services related to the redevelopment of the World Trade Center Complex, which includes transportation, infrastructure, retail and occupancy planning.

LaSalle investment management achieved several exciting milestones in the quarter, pursuing strategies to broaden its platform across the world in order to access the best investment opportunities for our clients. The final close of the Canadian Income and Growth Fund exceeded our expectations, raising $268 million Canadian of capital giving us -- giving the fund buying power of $536 million Canadian.

In Japan a new alliance formed with a major Japanese institution is accessing retail capital for investment in publicly traded REIT shares in North America, western Europe and Asia-Pacific with very encouraging early results raising over 90 million in the first 11 days after launch.

5 million Mexico on behalf of CalPERS. We have announced a joint venture with Vesta, an industrial real estate specialist, for the investment of $50 million over the next three years. We fully expect to see several further investments to expand LaSalle's platform in Mexico in the near future.

In Asia-Pacific in addition to multiple successes in the key growth markets of India and China, the firm secured its first property management instruction in Japan for a Class A property in the central business district winning a prestigious management instruction after a tough competition from the Yumato (ph) Life Company.

In Europe a key investment focus has been consolidating and expanding our capital markets leadership in the fast-growing investment markets of Central and Eastern Europe. In the first quarter, we made acquisitions in Austria and the Czech Republic and sales in Poland and Russia totaling more than 420 million. All were cross-border and, together, spanned the office, warehousing, retail, leisure and hotel sectors. The largest transaction was for Rodamco Europe, a Dutch property of European scale in the retail sector. And we advised on the acquisition for EUR270 million or $324 million of a 90 percent stake in Austria's second largest shopping center, the 112,000 square meter Donauzentrem (ph) in Vienna.

These are some of the prestigious assignments and instructions secured by our firm during the quarter which underpin our pursuit of growth and earnings in market share in 2004. As Lauralee has explained we remain cautiously optimistic about the remainder of the year and are confident that we will have further success to report at the half-year.

Now we would like to open the call for your questions. Operator, will you explain the process?

+++ q-and-a.

(OPERATOR INSTRUCTIONS)

David Gold with Sidoti & Co.

Lauralee, excuse me, you spoke a little bit when you talked about Europe about some corporate financing transactions that had sort of slipped from the fourth quarter. Were those transactions significant? How should we look at that for modeling purposes?

There's always a tendency to have a lot of activity in the fourth quarter with some transactions moving over into the first quarter. I wouldn't say they were material but we did have a modest benefit in Europe when you think that were up 9 percent year-over-year. In the first quarter of last year we didn't have quite that level of rollover.

Okay, fair and also while I have you if you can speak a little bit to the jump year-to-year and working capital in the first quarter if there's anything in there. Obviously without the benefit of the full statement it's a little hard from here but --?

Well we can talk just briefly about how we've used our cash. We did spend on a CapEx basis about 3.9 million and you know that's sort of in line with usually the first quarter's on the lower end of our total year guidance which we've given as sort of a 25 million quarter but that's just a normal activity level. We did receive co-investment capital back through LaSalle Investment Management. And we also had strong performance in our accounts receivable. Again they are going to be higher in the first quarter when we've had a much stronger year-end activity in 2003 so you will see an increase in accounts receivable balance. But that's really reflective of the performance of the firm together with some impact on that from 4X foreign exchange year-over-year.

Okay, that makes sense and then, Stuart, if you could would you be kind enough to give an update on the CEO search if anything -- if there's anything you can say at this moment?

All we can say is that we are encouraged by the sort of rich field of excellent candidates, internal and external. And that the process is continuing with great vigor and it's still our objective by midsummer to be able to identify our new CEO.

(OPERATOR INSTRUCTIONS) Joel Gomberg with William Blair.

Lauralee, could you expand a bit on your comment here in the property management business? You know as more buyers are looking to self manage how that affected results, your square feet under management? And then wouldn't that have an impact on your leasing businesses well?

I think that's a good question. The consolidation if you think about the U.S. has really been going on since the growth in the REIT activity. More and more of them are taking their property management in-house. However offsetting that we had historically looked at property management as the lead to get the leasing business and in fact wouldn't take on property management assignments without the leasing. Today, it's a different scenario. They are happy to do their property management but they are equally happy to give us leasing assignments without us having the property management. So, that's been the change in the mix of the business. It's a higher margin for us to have that leasing and we've just been working through that.

So what you're going to get is maybe a different dynamic in terms of revenue growth but not, necessarily, a bottom line deterioration.

Okay and then, the last question has to do with the P&G transaction. Was there any impact? Didn't that start at the beginning of the year?

Really it's starting just about now. We just completed the remaining transition in the first quarter. And so we will be out of the transition period going forward. That transaction is priced with a modest base fee and then another level of incentive fee on top of that so you will see more of that as we get further into the contract and then the savings fee on top of that. So it will be more back ended at the completion of the first year.

Thank you.

At this time, there are no further questions. Mr. Scott, are there any closing remarks?

No, Operator, and if there are no more questions we will draw this call to a close. And thanks to you all for participating today. We look forward to talking to you again after the second quarter.

Thank you. This concludes today's first quarter 2004 earnings release conference call for Jones Lang LaSalle Inc. You may now disconnect.