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CBRE, JLL Report Stronger Than Expected Year-End Results Driven by Robust Leasing and Sales

The Number #1 and #2 Largest Global CRE Services Companies Reported Earnings that Beat Analyst Expectations for the Quarter
February 9, 2018
CBRE Group President and CEO Bob Sulentic, left, and JLL Chief Executive Christian Ulbrich.

The number #1 and #2 largest global CRE services companies reported strong financial results and robust leasing and sales activity in the fourth quarter of 2017 in quarterly conference calls with investors this past week. Both CBRE Group Inc. (NYSE: CBG) and Jones Lang LaSalle (NYSE: JLL) reported earnings that beat analyst expectations for the quarter.

CBRE on Thursday posted double-digit revenue growth of around $4.3 billion in the fourth quarter of 2017, largely reflecting commissions from robust leasing activity as well as revenue from its expanding third-party facility and property management services. That exceeded the Wall Street consensus estimate of just over $4 billion, and beat the $3.8 billion total for the same period in 2016.

For its part, JLL reported 18% revenue growth in the fourth quarter, well above the mid-single-digit estimate by equity analysts, largely attributed to a nearly 30% increase in capital markets activity and a 20% bump in leasing. JLL reported that fee revenue topped $2.2 billion for the quarter, 18% above the prior year.

CBRE Bullish on Outlook for Outsourcing

CBRE President and CEO Bob Sulentic said the Americas property sales and leasing businesses both "meaningfully outperformed the broader market in 2017."

The CBRE chief executive described the macroeconomic environment as “a supportive backdrop for our business, and we continue to operate within an industry poised for long-term growth.” He attributed the bullish outlook for his firm to several factors, including growing acceptance among major occupiers of an outsourcing model for property, facilities, construction and project management services.

Occupier outsourcing has been a particular bright spot for the company, generating a growing stream of recurring income since CBRE’s $1.5 billion acquisition of Johnson Controls Inc.’s Global Workplace Solutions business in 2015.

Other growth drivers cited by CBRE on the call included increasing capital allocation to CRE by institutional investors, and ongoing consolidation within the CRE services sector, which has shrunk the middle market as the largest global companies swallow up competitors and harvest their talent.

CBRE's performance exceeded the expectations discussed on the third-quarter earnings call, led by occupier outsourcing and leasing fee revenue growth of 17% and 11%, respectively, Sulentic noted.

All three of CBRE’s global regions produced double-digit total revenue growth in the fourth quarter. Leasing revenue from the Americas rose 12%, with strong performance in the U.S., Brazil and Canada.

JLL Expecting Higher Management Fees from Recent Contract Wins

JLL also outperformed on global leasing and absorption and investment sales volume trends, although JLL executives expect projected 2018 revenue growth to be closer to the mid-to-high single digits.

However, even with weaker global trends expected this year, the company should be able to deliver solid top-line growth across its businesses, said William Blair analyst Stephen Sheldon.

"One disappointing aspect [over] the last few quarters has been the slowdown in property/facilities management in both the Americas and EMEA," Sheldon said. "However, (JLL) management sounded confident that trends could improve, driven by contract wins in 2017."

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