It's bagging the big game that keeps Jones Lang LaSalle atop NREI's Top Property Manager list. It's latest coup: In June, the giant Chicago-based real estate services firm — with 735 million sq. ft. under management at the end of 2002 — agreed in principal to a five-year, $700 million global facilities management and project management contract with Procter & Gamble.
The mega-deal, which was scheduled to be finalized by mid-June, covers all of P&G's owned and leased corporate real estate around the world — some 13.8 million sq. ft. in 60 countries. As a result, Jones Lang LaSalle's total square footage under management will increase to nearly 750 million sq. ft.
“This is a marquee deal,” says Joel Gomberg, equity analyst with William Blair & Co. in Chicago. “Procter & Gamble is a sophisticated multi-national corporation.” Jones Lang LaSalle competed against three other companies — Dallas-based Trammell Crow Co., Los Angeles-based CB Richard Ellis and Milwaukee-based Johnson Controls Inc. — for the P&G deal, according to Gomberg.
The P&G deal represents several firsts for Jones Lang LaSalle. It covers the most countries and involves the most employees, says Peter Roberts, CEO of the Americas at Jones Lang LaSalle. But it does not represent the most square footage under management. A 2001 deal with Bank of America for the management of 30 million sq. ft. holds that title.
Jones Lang LaSalle has secured several large property management contracts over the last four or five years. In addition to the P&G and Bank of America deals, the company signed a five-year agreement with Motorola Inc. in March 2002 to manage 12.5 million sq. ft. of Motorola's larger facilities in the U.S.
Not Immune to Market Conditions
Despite these wins, the global economic slowdown has severely affected the brokerage business and the company has had to tighten its financial belt.
Jones Lang LaSalle has announced two rounds of job cuts, amounting to 13% of its global workforce at a cost of $61 million. The last announcement was made in January 2003. It affected 300 employees worldwide, or 4% of the company's workforce.
Jones Lang LaSalle doesn't break out its property management business in its financial statements. But it announced revenues of $185.1 million in the first quarter of 2003, compared with $167.8 million in the first quarter of 2002 — an increase of 10%. The continued business slump in Europe and Asia has been offset by an improvement in the Americas, according to analysts.
As of June 16, the stock price for Jones Lang LaSalle (NYSE:JLL) registered $17.02, down significantly from the 52-week high of $24.80, but above the 52-week low of $12.90.
The stock price is rebounding from its low in February 2003, assures Michael Gallo, managing director at San Francisco-based JMP Securities LLC. “Investors are beginning to buy into the JLL story,” he said. “They think the company has seen the worst of its problems and has adjusted its cost structure. When the economy rebounds, we estimate earnings to jump 20% at the end of 2004 compared with 2003.”
However, Jones Lang LaSalle is not out of the woods just yet. In May, William Blair & Co. lowered its estimate for the company's earnings per share (EPS) for 2003 from to $1.15 to $1, citing uncertain economic conditions, weak commercial real estate fundamentals and increasing concerns about the SARS (Severe Acute Respiratory Syndrome) virus in Asia. “We believe any meaningful recovery in commercial real estate activity and JLL's business operating environment is still a ways off, meaning at least 2004,” wrote Gomberg.
Tussle For No. 1
The pending merger between CB and Insignia/ESG means that Jones Lang LaSalle's stronghold on the No.1 spot on the survey is in jeopardy. CB came in second place in this year's survey with 705.7 million sq. ft. under management at the end of 2002. Insignia/ESG ranked No. 6 with 251 million sq. ft. The newly combined entity will manage nearly 1 billion sq. ft. of space.