Q3 2019 Earnings Call
Good morning at this time I would like to welcome everyone to the Jones Lang Lasalle incorporated third quarter earnings Conference calls for your information at this conference call is being recorded all lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session. If he would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If he would like to withdraw your question press the pound Keith. Thank you I would now like to turn the conference over to Kristen Executive managing director of Investor Relations. Please go ahead. Thank you.
And good morning, and welcome to our third quarter 2019 conference call for Jones Lang Lasalle incorporated.
Earlier. This morning, we issued our earnings release, which is available on the Investor Relations section of our website along with the slide presentation intended to supplement our prepared remarks.
He says it I, our dot JLL dot com.
During the call, we will reference certain non-GAAP financial measures, which we believe provide useful information for investors.
We include reconciliations of non-GAAP financial measures to GAAP earnings release and supplemental slide.
As a reminder.
Today's call is being webcast live and recorded.
A transcript of this conference call will also be posted on our website.
Any statements made about future results in performance plans expectations and objectives are forward looking statements.
Actual results and performance may differ from those forward looking statements as a result of factors discussed in the annual report on Form 10-K of the fiscal year ended December 31st 2018, and another reports filed with the FCC.
The company disclaims any undertaking to publicly update or revise any forward looking statements.
With that I would like to turn the call over to Christian Ulbrich, Our President and Chief Executive Officer for opening remarks.
Thank you Chris.
I like to welcome everyone to this review of our results for the third quarter first nine months of 29 team.
Definitely playing our CFO will shift details of our performance following my introductory remarks.
In summary, we had an excellent third quarter JLL was very strong gross in fee revenue adjusted EBITDA and adjusted earnings per share all increasing by double digit percentage.
D. written you'd totaled $1.8 billion for the quarter.
16% increase in local currency above the third quarter yet.
Adjusted EBITDA reached $300 million for the quarter compared with two on up 34 million told us a year ago, a 29% increase in local currency.
And it's just a diluted earnings totaled $3.52 per share, 18% higher in local currency than in Q3 2018.
These excellent results products strong organic growth combined with robust performance from our recent HM.
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Our performance into context real estate fundamentals are solid Amy cautious bill but backdrop.
Recurring theme of slowing gross is reflected in the global GDP forecast, 2.9% for 29 team still relatively healthy, but you know the levels of recent gifts.
With regard to the real estate market conditions like three shows activity in global investment volumes and leasing gross absorption.
Mobile investment volumes increased 13% in the quarter, bringing year to date totaled $205 billion level with the same period in 2018.
The volume of yet to be deployed capital helped by funds near all time highs investors. So increasingly cautious in selective remain keen to act just the sector.
Leasing volumes remain healthy doing to caught up on have started to slow totaling one on the 11 million square feet across 96 major markets.
Global office vacancy rate, it's down to 10.7 person.
A new low point in this cycle.
Prime office rental gross loans to 3.7 to seven year on year.
Turning back to our own performance and before Stephanie takes us through the detailed financial review.
I'd like to give you an update on the Hfive acquisition, which closed at the beginning of the third quarter.
We realized strong performance from HF F. It's dose quarter since the acquisition as most our JLL and new HMS colleagues came together quickly and focus on executing our combined gross plans.
Well the quota.
S.P. revenue increased double digits compared to the same period in 2018.
Continuing its strong first half 2019 performance.
We're encouraged by the integration progress we estimate.
I'm, finding our capital markets footprint has been highly complementary.
The acquisition has been excellent strategic fit significantly strengthening our existing capital markets expertise.
Yeah, now able to provide hfs clients with access to jail Elks full suite of global real estate services together.
Yep, that's and able to achieve accelerated gross.
Creation of a stronger talent base and capabilities platform is driving more cross selling opportunities than we initially expected.
In support of our beyond strategy to be a lead on technology and data on real estate, we recently announced the formation of JLL technologies.
This new division comprises more than 2005, one that's highly talented technologists.
Expands our technology and digital initiatives to meet future moccasin client needs and dissipating opportunities to reshape the future work and to build environment.
Media Shaw and you saw no no found Magellan Spock in 2017 will lead the second phase of our technology transformation and join our global executive.
Talking about our technology Road map provides me with a great opportunity to shift your shareholder returns.
Sison with our capital allocation strategy all sounds like does has authorized a semi annual dividend.
43 cents per share a 5% increased from 2018.
In addition, the board has authorized in U 200 million dollar share repurchase program be placing a program that has been dahlman for more than a decade.
Our strong financial performance and cash flow generation allows us to continue to drive strategic disciplined investments and the business to support long term profitable gross while also returning capital to shareholders through dividends and share repurchases. These actions from our confidence in the business.
Outlook and reflect our long term commitment to being good stewards of capital, while maintaining an investment grade credit profile now we will turn to Stephanie for more detailed comments on our performance.
Thank you Christian and welcome everyone on our call.
I'm excited to share the details of our continued strong momentum.
We delivered another quarter of record revenue.
Driven by solid real estate services.
Organic performance.
Combined with double digit growth from our recent H. affects acquisition on an adjusted basis, we had healthy organic margin expansion.
And they too fast with accreted in its first full quarter post acquisition before we start into more specific a quick reminder, that we report percentage changes in local currency unless otherwise noted.
Overall fee revenue increased a record 16% compared with third quarter 2018, and grew 12% year to date.
For the quarter the growth was led by area, which improved 22% and whether it's all a positive contributions from all service line.
Solid organic growth of 8% and the Hfive acquisition HFI revenue for the quarter was 186 million, reflecting a 15% increase compared with the same period and 2018.
And our Lasalle business, we continue to successfully scale our platform.
Driving double digit growth in annuity revenues and achieving record private equity margin. The combined results contributed to an impressive third quarter adjusted EBITDA margin of 16.5% organic gains for most notable in leasing and project in development services led by the Americas and Asia Pacific.
Segment, our capital markets business reflected strong organic growth of 12% for the quarter corporate solutions achieved double digit fee revenue growth in both the third quarter and year to date and is on track to continue that momentum for the full year 2019, as I noted adjusted EBITDA margin calculated on a fee revenue.
Actually offset by 70 basis point impact from expected lower incentive fees Atlas out incremental investments will pivot away from global ERP related spend with the completion of the multiyear rollout of our financial ERP and HR system, the new systems in place represent drivers a future productivity.
And efficiencies as we scale the business toward our beyond 2025 target turning to debt management total net debt was 1.5 billion at quarter end, reflecting an increase from second quarter 2019 of 589 million, an up 784 million year on year, the increase was driven.
By our reach at that transaction structured as a combination of shares in cash financed through our credit facility consistent with the acquisition net debt to adjusted EBITDA levels increased to 1.5 times for the third quarter, we had to prioritize timely de leveraging and continue to affirm our commitment to maintaining an IND.
I think grade credit profile moving to our second that result, America's fee revenue increased 35% in Q3, and 21% year to date, excluding the impact from HFSA gross was a solid 12% organic growth was broad based with double digit growth in leasing project in development services and.
Capital market capital market fee revenue grew nearly three times for the quarter based business combined with the newly acquired HSS business generated double digit growth with strong performance across debt placement and investment sale as Christian mentioned earlier, the integration, where they took that it's going well and we are encouraged by the.
Strong performance in the first three month, we have made good progress and identifying and realizing a portion of the synergies within the first 90 days and they're on track to achieve our stated targeted annual run rate EBITDA synergies of 28 million in the first Hoffman and 60 million over two to three years so far we've.
I'm working to consolidate our JLL and Hfs offices across 22, U.S. location to co locate our team and we have eliminated duplicative public company costs.
Started to bring our expanded capabilities to clients and the feedback has been overwhelmingly positive real estate owners increasingly looking for partners, who can help them become more efficient and leverage technology to lower their cost and impact on the environment. They seek to create work spaces that energize and motivate their employees and want to partner to bring testing.
Class execution to all aspects of the sale and our financing process, our ability to comprehensively addressed the needs of our client speaks to the power of our combined platform in terms of continued M&A. We recently announced the completion of the pellets on commercial real estate acquisition, a market leader in agency lease.
Thing and property management based in Texas moving to leasing.
Our momentum continued as our business realized a fifth consecutive quarter of double digit growth fee revenue grew 12% for the quarter and 18% year to date driven by larger deals with continued strength in the industrial and technology sector. We continue to make significant gains in bringing value added expert.
She used to our client projects in development services grew 22% and advisory and consulting delivered 9% for the quarter.
Adjusted EBITDA margin was 19.2% for the quarter and 16% year to date, the 320 basis points of margin expansion for the quarter with evenly balanced between positive service mix from organic gain in our higher margin transactional businesses and the contribution from HFSA.
Turning now to EEMEA fee revenue increased 6% in the third quarter and 2% year to date. This resilient segment saw solid growth in annuity businesses. Despite the impact from sluggish performance in the UK and slower economic growth in Germany, France continued to perform well with fee revenue growth of 18%.
For the quarter, reflecting strength in capital market for the quarter adjusted EBITDA margin was 6.2% an increased 50 basis points year on year.
Moving now to Asia Pacific, where performance continued to be solid fee revenue increased 7% over 2018, an 8% increase year to date in the third quarter. All service lines grew with the exception of leasing leasing fee revenue declined 12% for the quarter and was flat year to date market gross absorption was down in the core.
Peter driven by a combination of economic uncertainty delaying deals and the impact from tight vacancy conditions in some markets. In addition, the segment faced a challenging lap against third quarter 2018 result.
Which was up 35%.
Capital markets fee revenue increased 35% for the quarter, an 11% year to date compared with 2018, driven primarily by the growth in Japan and larger deals in greater China corporate solutions fee revenue improved 14% in Q3, and 70% year to date propelled by strong win rate and.
Both with existing clients.
To EBITDA margin was 14% for the quarter, a 280 basis point improvement year on year.
The expansion reflected positive service mix from organic growth in capital markets.
Find with improved profitability and corporate solutions.
Turning now to our investment management business.
The south fee revenue declined 36% for the quarter and 10% year to date.
Primarily result of lapping near record incentive fees earned in the third quarter 2018.
For the quarter incentive fees declined by 78 million compared to a year ago due to fewer material asset disposition advisory fees, which serve as an annuity measure to the underlying health of the investment management business grew an impressive 19% for both the quarter end here to date growth with primary.
We achieved from capital raising and deployment in Lasalle margin accretive core open end funds across the globe.
Equity earnings for the quarter were 15 million.
Predominantly driven by that valuation increases in Asia Pacific South adjusted EBITDA margin was 34.3% for the quarter 90 basis point decrease year on year.
The margin performance reflects the expected decline in incentive fees, partially offset by both strong equity earnings and achieving record private equity margin.
For the third quarter, the south assets under management was 67.8 billion.
Our ability to grow at U.M. organically remained strong and concentrated and scalable higher margin products.
For the first nine months Lasalle incentive fees were 59 million.
Exceeding the full year target range of 30 to 50 million.
The timing of incentive fees tends to be hard to predict and not fully in our control.
As you look into the remainder of the year, our pipeline or fix a few sizable transactions that could benefit fourth quarter results.
In summary, the results for the quarter were stellar and a representation of our strong market presence along with the anticipated benefits from the transformational h. at that acquisition, we are well positioned to deliver our 2019 target of 6% to 8% organic fee revenue growth and our real estate services.
We look forward to a strong finish to the year as we enter our seasonably high quarter for both earnings and cash generation and.
Now back to Christian for closing remarks.
Christian.
Thank you Stephanie.
The third quarter, we generated very strong performance both from a top line revenues and a margin perspective to capitalize on a favorable environment was strong fundamentals across most geographies and business segments and our efforts to increase operational efficiency appealing fruit.
In addition, the age of half acquisition, it's already accretive to our results.
Summary, we're pleased with the progress Jen has made most of the third quarter and first nine months of 29 team.
And now expect or 29 team consolidated adjusted EBITDA margin.
To be already within our long term stated target range, 14% to 16%.
Close those he passed remarks I.
I would like to mention some awards and achievements.
Relative to our global sustainability initiatives.
When name to the Dow Jones sustainability Index for North America for the fourth consecutive year.
He became the first you people can be consultancy to commit to the World Green building Council net zero carbon building commitment.
Lastly, well the exemplifying JLL leadership and sustainability, we recently signed on as official support over the past falls on climate related financial disclosures Tc if <unk>.
Yeah, that's a cold or D. C. F. D. Further illustrates our commitment to try and stone C. Four key stakeholders from both the risks and opportunities related to climate change.
Finally, I would like to recognize and think all of our people around the world for continuing to so our clients shareholders Enchant L. So well.
Now, let's take your questions operator would you piece explain to you in a process.
[noise] certainly at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we'll pause for just a moment to compiled the county roster.
Your first question comes from the line of Anthony Palone with JP Morgan Your line is open.
Okay. Thank you excuse me my first question is on H., how fast can you talk about whether the personal decision jewel completed on both sides and whether the.
People part of the integration is done.
Sure on teammates Christian.
You know the integration has been going so far extremely well be overall run through all that will take a couple of more kratos, but obviously the people decisions are being dealt with right up the stock. So I would say, we're probably 95% Donald duck.
And you know we are very much driven by what our clients expect from Austin the feedback from the clients has been really strong Oh, there's an overwhelming support from our client base and up then leads you back to the people decisions and so Uh huh.
That's gone much smoother than we expected or originally and and you can see that into performance all off the legacy JLL business as well as the legacy HF business.
Okay, and then on the revenue synergy side I think the calling that was made about more cross selling opportunities to be a little more specific in terms of where the revenue synergies are emerging in the deal.
Well, what do you see that you know what about food services also we are able to provide no legacy HFSA clients was services, which they used to buy elsewhere. So we have one property management mandates from HM.
Flying but also the other way around clients, which we have served extremely well on the leasing side on our side any capital markets work to us which is executed by former aegis F colleagues and so this kind of going back and forth between the different service lines.
Cost being much stronger than we have put into our plans and is this great momentum around that.
Okay and then last question for me on the leasing side.
I know its third quarter of 18 years, like 16% growth and that moved down to six or it could that you've had a string of really strong quarters and so the comps get tougher here as we start to think about fourth quarter. The comp, it's even tougher yet how should we think about.
Leasing.
During the fourth quarter or maybe the next few quarters, just coming off with some really strong numbers.
Well I mean, all leasing business is the largest of all leasing business is clearly in the U.S. and the U.S. leasing business has grown into third quarter still double digit was 12%, which is excellent that that the work in hand, we see is still incredibly strong and as a tremendous.
Momentum if you if you move into the other two regions you can really I'll take the areas, which are which are much lower than in previous quarter that is first and foremost in EMEA. It's the UK where are the UK is really slow on the leasing site.
That is something which doesn't come after a surprise to us.
But if you if you cut out the U.S.K. over all the leasing market in Europe is still relatively strong we have delivered gross in Germany, and we have delivered signet, but double digit growth in Germany on the leasing side and double digit growth in France, if you move down to.
Hey pack. It is it's predominantly greater China, which is which is slowing down on on the leasing side.
In the quarter, we still see kind of growth opportunities there, but it is it's more muted then in the previous quarters, but if we if we bring that back to.
To our overall performance and leasing what is really super relevant floss is the Americas, and particularly the U.S. and the U.S. is still storming ahead. So overall, we are still pretty confident about our leasing business going into the fourth quarter.
Okay. Thank you for the car.
Your next question comes from the line of Jade Rahmani with KBW. Your line is they'll fan.
Thanks, very much but just a quick follow up to the last question can you quantify the percentage of business.
The JLL does in terms of maybe as a percentage of fee revenue or EBITDA in the UK and in China can you give each of those separately.
[noise] overhauling the leasing environment.
Just overall because I think it's definitely been you know the greater international mix, it's been a an overhang on JLL stock. So I think it'd be helpful to have those two numbers.
[noise], knowing ore grade up Shine Oh <unk> revenue is is significantly below I know, it's fixed the sense, if I'm, not mistaken and and or the the majority of that business is annuities Dod revenue.
And so even.
Even a slight downturn wrong.
Okay, all the gross and the Alt a slight decrease off the gross numbers with China is showing.
What filter through to our business up such small numbers that it wouldn't really be noticeable than our overall accounts.
Because the annuity business, obviously, we'll continue to perform a nicely and it's still growing and it's the drugs actually grows is slightly muted we wouldn't really see that in the bottom line. So I wouldn't get a at least we we're not getting overly concerned about dot and I don't think you show.
On on the UK side.
This is already in our business I mean, the situation around Brexit in the uncertainty, which which we which we see around Brexit has been there now for the last couple of quarters. So in our own planning we have beaten Oh.
Our revenue for cost in the UK pretty much every quarter and that the cat has been kicked down the road once again with the election coming up in December is again, something which doesn't really console and allows us to be precise on that question I don't know what that's definitely can ship in here on.
What you paid us.
As an overall fee revenue I don't have done he Oh wait let me see it is no I don't have it he on hand, so Stephanie you want to chip in.
Sure changed its definitely Hello, so the UK is a little less than 15% of our business overall, that's the broad stroke, but within that as Christian said. So you know the leasing business is soft and that's the demonstrative decline in our leasing overall performance in EMEA, but as you all.
Here capital markets for example performed well in the UK. So it is UBS sounds portfolio in that regard.
The 15% is fee revenue Frank.
Revenue on our total yeah, so comparable to that China statistic, we just gave.
The China statistic was below 6% and UK is 15% right correct Yep, they're both based on total fee revenue.
Got it okay I'm on the Hfs deal in terms of you're saying, you're saying you're seeing better cross selling opportunities any specific areas. You could point out is that leasing yeah, having HF capital markets brokers team up with a jails leasing folks or is it perhaps.
Fannie Mae license, which Hfpef never a previously had in the GRC multifamily business.
Well the letter we kind of had an hour plans putting precise he forecasted what that will do to us. So there is no big dip swings.
With regards to our expectations well, we TV outperforming our own expectations. This on the leasing side and on the property management side and on the project management side. So as I said Oh, we are winning we are winning business and our property management from <unk> capital markets.
Flying, which which is beyond our expectations and [noise].
We are winning more business on the capital markets site was was jail l. legacy leasing flying so but most of these areas. We had they know what for cost not there will be some some cross selling opportunity, but the cross selling opportunities significantly exceeding our expectations.
And we see that momentum as it's moving forward into the fourth quarter and into the into the first quarters of 2020.
In terms of the consolidated margin outlook, you said, you're already going to be in 2019 within the 14% to 16% range. Then you mentioned some positive initiatives on the ERP side do you expect to increase that target and when would you provide that.
Oh for time being we out very very happy that we have to achieve that target range already so early that wasn't really what we thought what happened when we announced those target in targets in 27 team for the time being we're sticking to those targets and we see how we are moving into two.
2020, and and and see how 2020 comes it comes by and and if there's a need to kind of I'll come back to that target. We will do so the cause of 2020.
And just last question how are you thinking about the company's resiliency and potential performance in a recession is this something that discussions are increasing on in terms of with respect to the board.
And how are you thinking about balance sheet leverage relative to that discussion with the HFT largely finance using a credit facility.
Well I will take the first part of the question I'll leave the second part of the question for Stephanie I mean, first and foremost they use a lot of noise in the world and and and that noise is kind of increasing now the talk about it.
Potential global recession at the moment the world economic growth is still kind of 2.9% that is less than it was in previous years, but it's still little <unk>, 3%. So we shouldn't dismiss that.
The macroeconomic environment for our industry continues to be really really positive and and that whole trend of opened his Asian is continuing and it's very advantageous for our business. The same is true for corporate real estate outsourcing and the allocation of capital.
Into real estate as an asset class and so well ask the question is whether a slightly decreasing GDP development outpaces, those macro trends, which particularly your bread event for our industry and I can only see that for the time being the work in hand, we have.
Just had a record high I said that already up the I'll be until the second quarter that the work in hand is that a record high moving into the third quarter and you see now the results. We see the same situation now moving into the fourth quarter that we have a tremendous book of work and so we are well.
Looking to deliver what our clients expect us to do and we lets called song about out being hit by any kind of a decline in the and the global economic outlook over the next couple of quarters.
[noise] Jade I'll take that second part of your question regarding the leverage so in Q3 with the age effect that we took on which is about 840 million for the total deal. We're landing at about a one point fivex. So that's slightly above our typical levels, which is exactly what we expect.
Good going into the transaction. So we're prioritizing debt de leveraging so we'll be doing that we're very pleased with the profitability curve that we've had as well as the cash flow generation. So we expect to get back down to levels that are largely inline with what we have historically been throughout.
The next four quarter.
Thank you very much.
Your next question comes from the line of Stephen Sheldon with William Blair. Your line is open.
Good morning, and congrats on the results.
First wanted to ask about technology investments, you're showing our yes tech investments as a slight boost to margins this quarter.
In the waterfall and I believe that's normally been a drag although clearly clearly a moderating drag but can you maybe talk some about what's driving the benefit this quarter.
Hi, Stephen its Stephanie sure Yeah. It is it is showing as a benefit this quarter, it's really a reflection of our ERP execution. So we're coming to the Finalization of that program Workday, you recall with a global rollout and now Peoplesoft has been concluded so that.
Really just a spend reduction that you're showing if you kind of compare that to where we were last year Q3 that was about a 90 basis point drag. So that's exactly what we expected to see to your second point, we still are very much heavily focused on technology relate.
<unk> spend heavy in the client facing and in the innovation space. So we don't expect this type of picture to be repeated going forward into 2020 as we have then fully cycled those large on ERP investments, we kind of except to be about 50 50 balanced on tech investments overall law.
Long term and non tech investments.
Okay. That's helpful. And then they wanted to ask you know I guess on the ERP still how far along the are you in terms of standardizing your operations kind of around those systems or are we still in the early innings of seen some of those cost efficiencies. This that maybe you'll be able to realize we start to leverage those systems more just any detail there.
Well.
The feel tunnel toss was to roll out globally consistent systems.
And what's now being worked on and that will continue to be the case for the next couple of years to really leverage those systems. So we have lots of plan moving on to kind of take advantage and really.
Use the scale, which we are for the first time really able to take advantage off and so we will hope to see fill the productivity increases over the next couple of years to calm and that is giving us a lot of confidence with regard to any kind of March and resilience going forward.
Good.
Okay got it and then I guess, just you know I you know given the strong margin performance year to date and kind of related to the prior two questions. Just how are you thinking about incremental investments in technology at this point, especially with the new structure for JLL technologies Rolling jail spark underneath that are you planning to maybe ramp those a little bit more.
And reinvesting some of the upside you've seen from the efficiency initiatives.
Yeah, exactly I mean, this whole idea of bringing a JLL technologies all under the leadership of me he and his shy is there to minimize the application and complexity you know what technology and accelerate the development of a unified data platform and then really unlocking before.
That's an richness of our real estate knowledge and data and termed up into into real great benefit for our clients with new apps and digital tools and the efficiencies. We are gaining on our ERP side, a little dot advantage will be we will use to two toned down into income.
Increased investment into client facing picking all let's see I mean does what was the whole game plan and and I can tell you. We're very proud that we achieved the rollout of dot ERP platform because it allows us to focus even more now on on the Cline site with our technology activities.
Great. Thank you appreciate the color.
Your next question comes from the line as Patrick O'shaughnessy with Raymond James Your line is open.
Hey, good morning, I want to start with a question on your full year outlook for.
America's real estate investment sales volumes, a year to date it looks like Americas investment sales volumes were up about 9% full year, you're expecting flat. So that would imply I think a pretty big negative number in the fourth quarter. I'm curious if you can provide some color on kind of what is going into the outlook and then I guess unrelated note.
Did you guys see some pull forward in the third quarter from sales activity that you would've otherwise thought would have been in the fourth quarter.
Well first of all would be movies data points I always like to caution a little bit up there at all just the things are falling into that into those research data the way kind of public salsas and doing it and how we're doing it and there's a there's a slight difference.
Two it we have always been quite cautious with our outlook around the capital markets volume environment, and and we'd probably all still quite cautious with that we have being positively surprised by the strong re bounce off the volumes in the third quarter.
And and hopefully there's more opportunity to be surprised in the fourth quarter.
Well, what the second part of your question say that again.
Did you see any pull forward in the third quarter. If you put up pretty good third quarter capital markets result was so much strength maybe activity that you would have previously thought would have closed during the fourth quarter.
No not really I mean, the only thing I would say about the fourth quarter. If you if you.
Remind yourself off the very very strong performance Hfts F. had in the fourth quarter 2018, that's a really tough comparison going forward for the fourth quarter, but we haven't really seen any kind of pull forward deals as I said the work in hand, we see and that is not only in our leasing business, but that is.
Also drove our capital markets business is very very strong enough record levels and so if that translates the way it has been translating in the past a we're pretty confident around it but as you know drugs actions or a pretty kind of odd that they come in all they don't come into the quarter and so they have.
As always some risk around that but.
All the time being we expect the fourth quarter to perform as a typical fourth quarter and on the transaction side the tends to be a very strong quarter always.
Great and then your property in facilities management growth on a local currency basis. This is globally.
All right it to 4% year over year in the third quarter that was down from I think 8% year over year in the second quarter.
Is there anything going on there that you would call out that would can explain some of that deceleration.
Well one one small aspect is that we are we're putting the facilities management and the property management business together.
And you May have noted that we have sold our property management business in Europe .
Over the course of the third quarter on where handing over the first couple of countries to the bio and so that has a small impact on that if you just look at Iowa facility management business that continues to grow very nicely and we continued to see Oh yeah.
On a gross debt, which isn't that double digit area.
Okay, Great and the last one from me what are you gonna see not there right now in the co working space in terms of either contributing to a positive backdrop or maybe some incremental headwinds as co working might show some signs of slowing down.
Well I mean, obviously dot dot flex space has taken a lot of attention over the last couple of weeks they have being.
There has been quite relevant for the additional gross in the leasing market and and Flex office space is probably at the moment somewhere between 2% to 4% off the total office.
Inventory in the in the U.S.
8000 provide us out they are somewhat more prominent than others I appreciate that but a big chunk off does take up has been for all those provida brought coming from all those providers, who are getting less attention in the press and there will be a lot of opportunity for them.
Due to continue that gross as you know I I think I said that earlier this year and flex space that that business model is something which is here to state, it's and it's and it's an offering which is really advantageous for our corporate clients. They.
Enjoy dot dot flexibility, which is up there and that will continue to be the case and and we see we see ongoing opportunities for us to self those flex space operators with our with our services and that won't be much change to that just be.
Also about recent noise in that industry.
Great. Thank you.
Your next question comes from the line F., Jason Weaver with Compass point Your line is open.
Hi, Good morning, first I wanted to touch on with each other up now and there can you comment on the composition of America's capital markets revenues.
Really the proportion of investment sales versus sort of financing driven.
Revenue.
[noise], it's it's pretty much balance the to all investment sales and the debt placement is kind of the majority of the business and they have pretty much. The same portion and then and then the other areas all of our business is then my.
Much smaller, especially the b equity placement and the loan sales.
I mean, this is obviously something which is very relevant for us going forward because if I. If I move just quickly to the UK in an environment, where the owner so buildings in the UK, a unwilling to kind of lower the price expectations, whereas the by us how.
Habit ambition to kind of Oh, I get a premium for buying into the UK market in that political uncertainty the transaction volumes into you pay half have being down very very significantly H.I.S.K. with a very strong debt business in the UK.
And if you don't sell at some point in time, you have to refinance which is very attractive enough interest rate environment at the moment and so that debt business is probably something which will show more rose not only in the U.S., but also in the UK. Another area. So if the world when volumes on on.
The investment sales side, maybe slightly muted a in a in a more in a more critical environment.
Thank you and then can you just talk about what the current proportion of sort of overall brokerage driven revenues that are being driven by European them, and Pds client base and whether you're seeing that accelerate.
I didn't get that you were paying a little bit say that again, what what Paul pop.
Excuse me the current proportional brokerage revenues that are being driven by a property management and project development services client.
Sorry, I don't have that detached how much of that if it's driven by those clients. You know we are very proud off a one JLL approached or clients and so we are trying to all our so this isn't a in a very holistic approach, but I don't have any statistic.
Got hand, how much of those revenues on LG, writing from from facility management clients a project management clients.
Okay fair enough and it would just one more point on jades question for Stephanie, possibly a with the sheer Bob buyback authorized does this change the calculus on the <unk> priority for leverage reduction at this point in the cycle [noise].
[noise] Hi, Jason no. It doesn't I think in my prepared remarks, I said that we're gonna be prioritizing de leveraging we believe our capital allocation strategy. You know, it's a very healthy balance between focusing in on prioritizing investments within the business for long term growth and then returned to shareholders. So we haven't area.
<unk> dividend policy, but you know I'm since 2005, and the share repurchases are and amplification of how we're feeling about the strength of the business going forward. So we think that that's the right thing to do that prioritization on the I took that we'll continue to be right in front of the line. So.
Well. Thank you that's it that's it for me congratulations on the quarter.
Thank you. Thank you.
Your next question comes from the line as Mitch Germain with JMP Securities. Your line is open.
Thank you.
Stephanie in your remarks, you mentioned a few sizable transactions was that's specific to Lasalle or is that just the pipeline in general for broker.
Good morning match, it was specific to Lasalle speaking to those incentive fees.
So you know as you know this area is [noise].
Difficult to predict and that's not one that we you know spend are able to predict accurately, but we do see upside potential in the fourth quarter. Its nothing that we can really give any further color on at this time, but we wanted to obviously put that in our prepared remarks that there could be potential.
Sizable transaction in play.
Hitting right so.
Okay, and then Christian last quarter, you had mentioned the pipelines in EMEA and Asia Pacific in terms of you know feeling like I think it was specific to capital markets activity was increasing somewhat consistent with with the results today curious as to where that stands is are we seeing you know look a little bit.
More of a rebound as well in the fourth quarter.
Well in Asia, we have really made progress.
And so we are pretty confident around that going forward with regard to EMEA I think I already mentioned in this coal volumes in the UK are very much down because of that kind of I would call it expectation from the sellers who feel.
Very comfortable with that portfolios when you look out there that the rental levels. The in London. They are extremely high they have grown quite significantly over the last two years. So the cash flow for the Ono sort of all of space is is still excellent. So they have no reason.
In two to sell that buildings or below that price expectations, whereas many by US believed that they should get a kind of an additional premium for stepping into that market. So we believe that in the UK volumes, a will continue to be muted, but it is already within our plan.
And so there's no negative surprise for us coming the other market, which is and I think I mentioned up before which is slightly muted is Germany.
For different reasons or you don't levels are extremely low and and and people are slightly more cautious how they enter that market up this point what is going extremely well is France.
We have tremendous growth in France, and the overall mood in France is very very strong and and we also see some other markets being particularly strong Oh, we have new buyer groups coming into European markets, which used to only into the UK, which are now moving across the continent.
One to mention is the Korean capital is very very strong in eastern Europe now so for the fourth quarter out a we continue to see a very good working hand in our capital markets business with the copper yet I just made around the UK in Germany.
Thank you I know you mentioned HF was accretive in the third quarter, one was that inline with expectation and then the second part of my question is obviously you also mentioned the cross sell opportunity is better than you thought.
But there's been no change to your near term or long term margin forecast, just kind of curious where that stands as well.
Well, that's you know Mitch we all pretty experienced in integrating acquired businesses and so.
We we tried to plan as precise as we can when we do those type of deals now. This one is obviously a deal which is clearly standing out by many kind of criterias.
And so we were cautious in Iowa.
In our comments to the market when we announced the deal with regards to the cross selling and so we are we're very happy to see that the film cost a combined quarter when betta frankly than we expected. It went better for two reasons first of all the performance all the hfive like.
Yes. He colleagues has been absolutely Stella, but also we will probably a little bit positive surprise that our own legacy teams performed so well in the third quarter, you always expect some distraction and so we're very proud that they would totally focused on our clients.
And continued to do well their best up with regards to cross selling that was something where we were really really cautious in predicting how quickly and to what extent that will come now would went extremely well be close the reaction from our clients was so positive and so that is probably something.
Same which will help us to continue to show really really strong performance in that number I'm sure you, even if and we're not predicting that but even if the markets would to be slightly more muted there's quite a lot of caution, though for us to to deal with that because of the.
Better opportunities around cross selling with other service lines.
Oh, Great last one from me and I think you just hit on my question, which was with regards to the legacy America's capital markets JLL employees.
Honestly it seems like the integration was occurring throughout the quarter and is still occurring.
In terms of what the team will look like do you think that organic growth you know given you know kind of the where the staffing levels are heading is sustainable in the Americas region, you know considering kind of where the staff is the staffing is heading.
You know, we always very very keen to increase the productivity of our brokers and to increase the revenue per head and obviously when you do a deal like that.
That is quite a lot of work to do because people are coming in in different locations, sometimes there's still opportunity for four more headcount in another locations. It has become a a bit more crowded, but as I said early on this call. It has been going really well according to.
Our expectations and assay Penny matching we plan that will be some attrition around that topic.
But it has been going really well and so.
On the people site, we will be kind of back to normal course of business now very soon and we'll focus again on where our growth opportunities in 2020, So I think on that and the Moshe will be a very much behind us pretty soon wed will.
Continued to be keeping us busy or is the integration on the technology site, bringing old systems together and those type of things, but that takes time, you can't do that overnight.
Thanks, Congrats on the quarter.
Thank you Mitch Thank you.
Your next question comes from the line of Ryan Tomasello with KBW. Your line is open.
Good morning, everyone. Thanks for taking the questions here.
Christian I just was hoping you can provide us with some additional color on how the underlying businesses a JLL spark are performing.
For example, you know do you have any stats on what the percentage of jealous client bases, that's actually utilizing those technologies and some capacity and how that compares and then secondly, as it relates to.
The broader JLL technologies group longer term, how how do you see that group of all evolving and are there any other large initiatives youre contemplating housing. There. In addition to just JLL spark and some of the other internal technology development initiatives you referenced.
Sure I mean first of all I would like to reinforce that shallows Bach was.
A very important activity for us in the past to get deeply into the <unk> world.
But as compared to the overall all activities, we had on the technology side. It was a very small activity and also a small activity with regard to capital allocation, bringing now all technology activities under one roof is always viewed.
Completely different ballgame, I mean, we're talking about more than two and a half thousand people who are working within now what technology areas and the amount of capital allocation is very significant we see a lot of opportunity to increase now our our attention.
To create client facing a applications, a which which I'll really changing the experience of our clients a and as I said earlier I wish I wish our platform technology being rolled out as a lot of capacity which will.
Be able to move into client facing activities over the next one to two years a as they roll off the platform implementation. So we have tremendous hopes and ambitions around that whole topic I'm technology is changing the build environment.
And we want to be leading around that topic.
And then.
I'm just lastly, as it relates to one of the earlier questions.
On co working can you say how much co working in flexible office.
Contributed to year over year growth in jail, those leasing business in the quarter and year to date.
And secondly, I was wondering if you actually view, we works potential pullback in the more market actually as an opportunity for JLL, meaning you know is that a an opportunity for companies like JLL to release space that we work is vacating or release these spaces, where we work might be backing away from previous commitments.
On the spaces.
You know what I think that the whole discussion around we work is it's slightly overstating the importance to the market.
They have been very very important to make flex space, something which is on kind of on everybody's mind and the opportunities, which that service offering is providing to to occupy us.
But as I said earlier that more than 8000 flex based companies out there and if one is is having to kind of we adjust their business model going forward that doesn't mean that it has a massive impact of that or two that overall industry.
And and coming to jail, we have taking our past share in leasing space to flex space operators in the past a couple of years and we will continue to take our fair share I don't think that.
Or any kind of space, we is potentially one company will not sign up for will actually bring back to the market will have any significant impact to chair. The l. I mean, the beauty of our business model is that frankly, no single client is it material component of jail.
Revenue and we work is no exception to that.
Fair enough and just do you have a specific number on how much co working overall not just be work, but just the overall segment contributed to the leasing businesses growth.
During the quarter.
To be honest I don't have that I've had which already has an answer to your question. It is not big enough that somebody would provide me the number of all of that area. We don't we don't pull it out as a separate piece off of Klein group Floss a it it's just part of our our gross.
Which you see in our leasing business.
Got it thanks for taking the questions.
There are no further questions at this time I will now turn the call back over to management for closing remarks.
Excellent. Thank you well with no further questions I think we can close today's call. Thank you for participating and Stephanie and I look forward to speaking with you again following the fourth quarter.
Thank you again for Europe .
Calling into that call here.
This concludes today's conference call you may now disconnect.