Q4 2020 Jones Lang LaSalle Inc Earnings Call
[music].
Good morning at this time I would like to welcome everyone to the Jones Lang Lasalle incorporated fourth quarter earnings Conference call.
On your information this conference call is being recorded.
All lines have been placed on mute to prevent any background noise. After.
After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad.
If you would like to withdraw your question press the pound key.
I would now like to turn the conference over to Chris Stent Executive managing director of Investor Relations. Please go ahead.
Thank you and good morning Walt.
Welcome to our fourth quarter 2020 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.
Please visit IR Dot J L L 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 in our earnings release and presentation.
As a reminder, today's call is being webcast live and recorded.
The transcript of this conference call will also be posted on our website.
Any statements made about future results and 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 2020, and another reports filed with the SEC.
The company disclaims any undertaking to publicly update or revise any forward looking statements.
I will now turn the call over to Christian Ulbrich, our President and Chief Executive Officer for opening remarks.
Thank you Chris.
Welcome to our fourth quarter of coal.
Overall I'm extremely pleased with how our team across the world of formed in 2020, providing exceptional service to our clients while successfully navigating the pandemic related challenges and delivering solid results for all our stakeholders.
Our fiscal year was capped off by a better than expected performance in the fourth quarter, which is a testament to the growing strength of our platform.
While we remain cautious about the first half of 2021 given.
Given the extent of uncertainty related to the pandemic.
Proud of jazz execution for unique year in 2020.
Before turning to the market environment and our financial performance.
I wanted to briefly explain how some of the strategic investments made prior to 2020 supported us to successfully navigate this past year.
Our technology investment and finance and HR ERP systems, and the migration of all geographies and business lines into one accounting system provided management much better visibility into our working capital position, while we were able to significantly improve.
Our receivables collections.
The enhanced cash generation.
The emphasize enough how vital this was to effectively manage our overall liquidity repaying debt ahead of schedule and continuing to invest to drive future growth.
Secondly, the investment in our capital markets platform, while we also integrated our colleagues from HFF allowed us to share of client information seamlessly and promote cross selling throughout the organization.
This has been the strong contributor to our success in 2020 also evidenced by our fourth quarter performance and the Americans couple of market relative to the overall market.
We will continue to invest in superior technology tools, and leveraging our data to further enhance our value proposition for customers and differentiate us from the competition and ultimately create value for shareholders.
In 2020, we also accelerated the organizational transformation initiated in January 2019, who the appointment of new global and regional leadership roles. So all of that enhancing the global integration of our services and expertise.
It's also important to note that we are focused on helping our clients planned debt transitioned to a post pandemic environment leveraging of our thought leadership to advice on the future work the changing role of the office and the evolution of cities.
Turning to the market environment.
The development of administration of vaccines in the fourth quarter marked the first steps in our long March toward a post pandemic environment.
While the second half of 2020 sold the beginning signs of recovery. Many countries are witnessing record breaking levels of new cases.
Significant uncertainty will continue to weigh on the overall recovery as the world waits for widespread immunization to an extent that will bring the pandemic under control and further bolstered the economic development.
Relative to the global office leasing market July research.
Research reported that the activity of the fourth quarter was down 43% from a year earlier the <unk>.
I did state so a much sharper decline compared to the other regions with activity down 53%.
EMEA and Asia Pacific record of decreases in the activity of 39% of 25% respectively relative to last year.
They can see rates increased across all regions of the fourth quarter with the global vacancy rate of 12, 9% the highest level since 2014.
Global capital markets continue to recover from the shop from traction we call. It early in the year as declines in the investment sales decelerated in the fourth quarter led by a robust rebound in activity in the Americas and large European market.
Despite the challenges throughout the year the besides its actions undertaken by our team as well as the overall resilience of our platform in April J L. L to deliver solid results for the year.
Consolidated revenue fell 8% to $16 6 billion and fee revenue declined 14% to $6 1 billion in local currency.
We recorded adjusted EBITDA of 860 million of decline of 24% from the prior year and adjusted diluted earnings per share of $9 46, which we presented the decline of 34% from the prior year.
It is worth noting that despite the challenges of 2020, we were able to achieve the full year of 14% adjusted EBITDA margin, which is within our long term target range of 14% to 16%. We also generated a record $1 1 billion in operating cash flow. The testament of the strength of our business model and the ability.
To navigate the downturn.
Turning our attention to our fourth quarter performance consolidated revenue fell 12% to $4 8 billion and fee revenue declined 19% to two build yet in local currency.
Adjusted EBITDA of one of $17 million, we presented the decline of 18% from the prior year, although adjusted EBITDA margin increased 50 basis points of $21 three.
<unk>, 3% as reported driven by cost mitigation initiatives and some government COVID-19 programs.
The net income totaled 276 million for the quarter and adjusted diluted earnings per share totaled $5 in 2019.
As I alluded to on the third quarter earnings call capital markets transaction volumes, especially in the Americas came back faster than leasing as investors began to adapt to the current environment and put capital to work.
Logistics of multifamily housing continued to demonstrate resiliency however, the.
All of our transactional pipelines are building the market remains uncertain in the near term and activity has not yet normalized.
2020, the key priority of management has been a revenue and corresponding refinement of our capital allocation strategy.
Our strategy is underpinned by a framework that considers allocation across three main pillars.
Maintaining an investment grade balance sheet.
<unk> future growth through organic and inorganic investments in the business and returning cash to shareholders.
Our commitment to an investment grade balance sheet enables access to the capital markets throughout the cycle.
We repaid the debt associated with the HFF transaction, one quarter earlier than expected, which speaks to our diligent cash management and operational focus on.
What kind of approach is to operate within the reported net leverage range of <unk> five to one point on a quarter types.
<unk> that there may be periods outside of this range due to seasonality and other short term factors.
The strength of our balance sheet and the ability to generate meaningful cash flows enable us to reinvest significantly into our business.
Funding initiatives that will drive profitable organic growth and attractive returns on capital and that are aligned with our beyond 2025 goals remains the main priority for J L. L.
This includes technology investments, which we believe it's a significant differentiator for <unk>.
M&A will continue to be an avenue of rose from <unk> in a consolidating industry.
We will strategically evaluate opportunities as they arise.
There are no gaps in our portfolio. So our bar is high.
Any opportunity must meet our already rigorous standards the.
Typically they must be value accretive acquisitions.
Appropriate the price half of strong cultural and strategic fit and generate a return on invested capital of at least 12%.
Over the long term, we are committed to returning approximately 20% of our free cash flow to shareholders.
The percentage will vary year to year, depending on the investment opportunities we identify.
Before 2020, our primary method of returning cash has been through a dividend.
During 2020, we made the decision to shift our primary distribution method to share repurchases due to the increased flexibility and attractive market conditions.
We evaluate share repurchases the same way, we evaluate an acquisition or investment by analyzing capital invested and the expected returns.
We expect to earn a higher return on repurchasing <unk> shares then we will allocate capital accordingly.
Our 2020 repurchase activity was reflective of this approach, we repurchased $100 million worth of shares on an average price of $111.
For perspective, this is slightly more than twice the amount we returned to shareholders by of dividends in 2019.
We have 100 million remaining on our existing repurchase authorization and the board of directors recently authorized an incremental 500 million share repurchase program for a total of $600 million.
I will now turn the call over to Karen who will provide further detail on the results for the fourth quarter and full year.
Thank you Christian.
Our overall fourth quarter performance exceeded the upper end of our expectations driven largely by capital markets.
I'll briefly highlight two notable items that speak to our cautious optimism for 2021, particularly the second half of the year.
First the year over year real estate services fee revenue percentage decline in the fourth corner improve modestly versus the third quarter indicative of solid performance of Americas capital markets.
Our continued focus on capital and operating efficiency, coupled with the earnings once again of yielded strong cash generation in the corner, which we used to fully pay down our revolving credit facility and return an additional $50 million of cash to shareholders via repurchases.
Moving to a detailed review of operating performance I'll remind everyone net variances are against the prior year period in local currency unless otherwise noted.
Our transactional leasing and capital markets businesses reflected the ongoing uncertainty regarding the evolution of the pandemic and its impact on decision, making by corporate occupiers and investors.
We are encouraged by the trends on our pipelines and recent performance in both service lines, we expect transactional activity to remain subdued over the near term before picking up on the second half of the year with leasing lagging capital markets.
Fourth quarter capital markets fee revenue declined 15% from 2019, a market improvement from the 43% decline in the third quarter. The improvement was broad based across our geographic segments and service offerings.
The resiliency of our multifamily business and notable improvement in our America's investment and debt advisory businesses speaks to the breadth and strength of our platform as well as synergies from the HFF acquisition.
It is also worth noting that we decreased our loan loss credit reserves in the Americas by $9 million.
Partly offsetting the $31 million charge, we took on the first quarter.
I'd like to highlight one of many examples that demonstrate the power and cross selling opportunities of our combined J L. L HFF capital markets platform.
The salon financing of the iconic Transamerica Pyramid center in San Francisco for $650 million and $390 million, respectively. During the fourth quarter.
Despite the pandemic the expanded channel all HFF footprint drove the strong and diverse bidder pool ultimately securing of joint venture partnership between the domestic and cross border buyer.
In addition to representing the seller carrying the buyers and arranging the financing.
<unk> will retain the property management and project and development services contracts and successfully secured the leasing mandate during the sales process.
Looking at the global capital markets environment investment sales dropped 21% in the quarter and 28% for the year. According to J a lot of research.
Of the secular trend of increasing capital allocations to commercial real estate remains evident activity remained somewhat muted as investors continue to adjust valuations on pricing to reflect the current environment.
However, we saw an even more broad based tightening of the bid ask spreads than the prior quarter, particularly for higher quality assets and resilient sectors, such as the industrial and logistics and the U S multifamily.
Turning to our 2021 capital markets outlook, our pipeline is reasonably consistent with our 2020 capital markets geographic revenue mix and is well distributed across sectors.
We see a high degree of resilience and residential and industrial and logistics, which are expected to continue that momentum in 2021.
Our pipeline, coupled with improving liquidity in the market gives us confidence in generating growth in capital markets fee revenue in 2021.
The renewed lockdowns and the economic uncertainty do present headwinds, particularly for the first half of the year.
Consolidated leasing fee revenue declined 28% compared with the prior year quarter of <unk>.
The improvement from the 30% decline in the third quarter as clients continue to delay of significant decisions regarding future real estate strategies.
Our investments in our higher growth asset classes of industrial supply chain life Sciences, and data centers continue to provide partial offset to ongoing softness in the office sector.
Looking at the leasing market environment global activity continued to modestly recover from midyear lows driven mostly by smaller transactions.
Global office leasing volumes declined 43% in the fourth quarter compared with the 46% decline in the third quarter.
And the U S office market shorter terms and renewals have been preferred by occupiers.
And offices across major U S cities. We saw continued declines in net effective rents, which may eventually spur activity.
Our U S. Gross leasing pipeline has improved from mid year lows and is up 5% year over year there'll be emphasized the closing rates and timing remain highly uncertain.
Based on our leasing pipeline and our overall view of the market. We expect leasing activity to remain tempered in the first half of the year before of gradually starting to recover in the back half of the year.
Property and facility management remains a growth area, driven largely by new business wins and contract extensions in the Americas as corporate occupiers and investors CCAR services due to increased building management standards.
Our corporate solutions business fee revenue declined 7% in the quarter of strong growth in Americas facility management was more than offset by ongoing headwinds in our project and development services and the UK mobile engineering businesses we.
We continue to be encouraged by the secular outsourcing trend, especially as clients increasingly seek our sustainability consulting services.
Lasalle quarterly and full year comparisons were impacted by outsized incentive and transaction fees in 2019.
Advisory fees were resilient for the full year within a backdrop of continued capital racing.
Coming off a record $8 billion of capital raised in 2019, Lasalle raised $6 $1 billion in 2020, demonstrating the capital continues to flow to the investment managers with proven track records.
Lasalle assets under management grew about $3 billion from the prior quarter $2 $69 billion.
For 2021, we anticipate around $25 million of incentive fees with very little in the first quarter.
Now I'll provide some details around our cost mitigation actions.
Consistent with my statements on the third quarter call, we expect $135 million of annualized fixed cost savings from actions taken in 2020.
It is important to note that we see opportunities in the current environment and we will continue to invest for growth.
For the full year 2020, non permanent cost savings totaled about $330 million, including about $85 million in the fourth quarter.
Major items that benefited our full year profitability included approximately $250 million of cost mitigation savings and TNT marketing and other expense areas and $80 million of government Covid relief programs.
Just under half of the $330 million of savings will not be repeated in 2021 as they represent the finite actions, including government programs and temporary reductions to compensation of benefits.
The remainder of the non permanent savings in 2020 are likely to return gradually as business volumes recover.
Often precede the revenue generation for example, marketing expenses.
Considering our cost saving initiatives business mix and growth initiatives, we expect to operate within our 14% to 16% long term adjusted EBITDA margin target range in 2021 and the years ahead.
However, due to timing of expenses on the length of the sales cycle, particularly in the more transactional businesses, we expect adjusted EBITDA growth to lag fee revenue growth this year.
As we gain more visibility into the trajectory of the recovery as the year unfolds, we will provide more details on our 2021 and expectations.
Shifting now to an update on our balance sheet and our thoughts on capital structure and efficiency.
The sequential improvement in earnings our enhanced focus on improving asset efficiency and modest capex and investment spending allowed us to reduce net debt by $560 million in the quarter, which ended the year at $192 million.
At the end of December reported leverage with 0.2 times down from 0.8 times at the end of September.
And we had $3 $3 billion of liquidity, including full availability of our $2 $7 billion revolving credit facility.
As Christian mentioned, we are targeting a reported net leverage ratio of <unk> five to 1.25 times over the long term.
Though there may be variances due to operational seasonality as well as timing of business reinvestment M&A and share repurchases.
We are very focused on continuing to improve our capital efficiency, which was a key factor in our strong cash generation and debt reduction in the quarter and full year of despite the operating environment.
Looking ahead to the full year 2021, we are encouraged by our pipeline and the momentum in our business and anticipate our business will grow this year.
However, the seasonality of our business and the recent renewed lockdowns across the world create considerable uncertainty across the entire industry.
King of premature to provide fee revenue and profitability targets for the year at this time.
We currently anticipate progressive improvement in the second half of the year.
But much will depend on the evolution of the pandemic the <unk>.
Of vaccinations and economic activity globally.
Long term, we remain focused on achieving our 2025 beyond targets, we have a steadfast commitment to meeting the evolving needs of our clients people and broader community.
This coupled with our constant efforts to improve both our operating and capital efficiency position.
Positions us to improve our returns and free cash flow Consequently, generating significant stakeholder value in the years ahead.
Back to Christian the for further remarks.
Thank you Kevin.
With the distribution of vaccine the general sentiment supports of meaningful recovery in 2021, with some analysts forecasting global economic growth in excess of 5% much of it coming in the second half of the year.
Our people are committed to aligning with our clients' objectives and providing advice about how to navigate the transition ahead.
As corporate occupiers begin to re imagine the future of work they will rely on best in class two of his lifestyle L to help them with this transition.
Additionally.
We will be working closely with our investor line and leverage the firm's broader perspective to provide necessary insights.
As we enter 2021.
We remain focused on achieving our long term priorities.
So we are mindful of the near term challenges and uncertainty that remains.
To see the considerable opportunities in front of us.
While maintaining financial discipline and important to long term sustainable growth.
Summary, I am pleased with the way that <unk> was able to navigate such total in trying times of the past year.
The results that we were able to achieve would not have been possible without the commitment and relentlessness of our employees as well as the resilience of the communities within which we operate.
On <unk>, we are committed to our stated purpose of shaping the future of real estate for a better world.
Cognizant of the important role that we play in today's challenging in the evolving environment.
We are well positioned to deliver on our purpose.
<unk> thought leadership, the strong growth in our sustainability services.
And our ability to bring to market differentiating technology products.
I am confident in our ability to generate long term profitable sustained growth and shareholder value.
Operator.
Please explain the Q&A process.
Certainly at this time I would like to remind everyone in order to ask the question Press Star then the number one on the telephone keypad.
So just a moment to compile the Q&A roster.
Yeah.
Your first question comes from the line of Anthony <unk> from J P. M Securities LLC. Your line is open.
Alright, Thanks, and hi, everybody.
My first question I guess for Karen can you maybe walk us through some of the building blocks are related to your comment about adjusted EBITDA are lagging revenue growth in 2021, I just want to understand I guess, how the the.
Of the permanent and temporary cost saves play into that as well, it's like your margin target.
Sure Hi, Tony Good morning.
So yes, there's a lot there are a lot of.
Moving pieces as it relates to comparing in 2022 2021 from a margin profile perspective.
The first just to reiterate we did deliver within the 14% to 16% range in 2020, despite significantly reduced fee revenues over the course of the year will be focused on top line growth going into 2021, and so due to timing of expenses and the length of the sales cycle our margin growth.
The lag fee revenue growth in 2021, we noted that we took significant cost actions in 2020 some of those were.
The non permanent and those comprised 330 million in total over the course of the year roughly half of those well were discrete items and one of the non repeat in 2021, and the remainder will be coming back more gradually as business volumes recover.
We also have some level of headwind within that.
Related to the you know the government programs, which are part of that.
On the other element of 2020 of that will repeat in 2021, where the fixed reductions of 135 million debt. We have taken actions on those on over the course of the year. We mentioned on last quarter approximately a third of that total came through our 2020 numbers and the remainder of that will be.
Realized in 2021, and so high level you had those moving pieces as it relates to the expenses, but we'll be.
Moving to drive future growth and we'll be reinvesting.
And our people.
Over the course of the year.
Okay, I mean, I think part of the digest some of those.
Puts and takes but just to be clear do you think your margins improve like within that 14 to 16 band over 2020 and 2021.
Yeah.
And we'll expect the margin growth to lag the fee revenue growth over the course of 2021.
Did you mean the <unk>.
Margin growth or the adjusted EBITDA.
Sure.
Growth from just getting hung up on adjusted EBITDA.
Okay.
Okay.
And then just separately on the different topic can you talk about just what's happening on the outsourcing side and you'd mentioned in your comments.
Some of the Rfps in the in the backlog it sounded like it was pretty good but just interested in hearing what occupies youre doing occupiers are doing with their their footprints from weather.
Even if you have contracts to continue to run their space, whether any of that is shrinking or theyre looking at the at.
At their footprints as a way to save money.
Hi, Anthony it's Christian good morning.
The outsourcing business is continue to.
Perform really well.
The medium term, we expect that to benefit from Covid environment.
Because it becomes a.
Very evident for corporates, who haven't outsourced yet that in this environment to really deliver the health and wellbeing of the employees.
It is very hard to self perform that so we see that outsourcing trend to increase.
And so on and this is one of the businesses, which all of which have performed really well in 2020.
And they will continue to perform.
Very strongly going forward.
Okay, and then last question from me.
The back of the envelope it seems like between free cash flow and debt capacity staying within your IAG.
Credit.
Targets you'd have about $1 billion or so of liquidity here you outlined the stock buyback, but just what what are the prospects for putting capital to work on.
On the investment side and potential acquisitions or other investments.
Yeah.
Well.
First of all we are very pleased that we are on such a strong and comfortable position to start 2021, we see very significant.
Organic growth potential in 2021.
And we are.
Counting all of you alluded to we are very focused now to regain that strong top line growth rate, which then.
<unk> thousand two of our overall profit.
Over the course of the year.
With regards to the salary perhaps is we view the share repurchase exactly the thing we view any investment we make here.
Assessment of where we believe we can create.
More value of our shareholders.
On the M&A for on it.
We are.
So the open to M&A.
But as has the kind of path.
On a very rigorous.
And we have a full scale business all around the globe that on any holds which we need to cover.
And therefore.
Oh for the placebo.
We have future.
Pursuing any specific targets there.
And the context, we can also see that share repurchase program, which has been approved by our board of directors.
Okay. Thank you.
Your next question comes from the line of Stephen Sheldon from William.
William Blair Your line is open.
Hi, good morning.
On the continued stabilization in capital markets activity curious, what you are seeing particularly in the off the sub sector.
So on the visibility you have what trends are you seeing in the how investors and owners of our underwriting office investment sales given some continued questions about corporate demand on the leasing side over the next few years.
Yes I.
I mean capital markets.
Yeah.
It's a combination of feeling in various asset classes. As you know we are operating in all of the different asset classes and clearly.
Of the opposite sex.
One of those areas, which was more influence without pandemic than for example residential on logistics.
We still see a very strong demand for the best.
Building some of the best locations.
That is one of the reasons for that.
There'll be strong uptake of the capital markets business overall in the fourth quarter, but for those buildings.
The carnival.
Like the next top.
Ours are more question marks around the rent roll.
Is still hesitation out there about what is the right rental levels for those type of buildings going forward on that.
Obviously, it's been reflected.
Some times in there.
The GAAP between booked more by us and what sell us what's the.
To see around pricing, so that will continue to be.
Hesitancy in the office sector going into 2021.
As I said that it's only.
That is only apply to those buildings, which have some question marks around the location of around the quality of the building from around the rent roll.
Yeah.
Got it Thats helpful.
And then wanted to ask about technology I guess, how is the pandemic changed your technology roadmap looking out over the next few years are there areas, where you may ramp investments more into areas like.
Broker productivity tools are more tenant facing technology solutions and the the.
The property and facilities management, just curious how youre thinking about tech investments at this point.
Well as you know we have been very focused on that over the last couple of years and the invested quite strongly into the area.
From our point of view of this is one reason why we were able to deliver on.
Such a resilient performance in 2020.
Especially now a couple of markets business, where we have run on on one global.
The system.
We were able to really.
Take advantage of that and then those areas, which you just mentioned to be able to run virtual tours for the.
Leasing space is also something where we have.
The number of tools out there and and what we have seen during the pandemic how clients have been getting used to run those structural true to us and feel pretty comfortable with it. So what we believe is that this is something where we're the market will.
Just.
Obviously much quicker than without the pandemic.
And we believe that we are providing our brokers with the leading tools in the market and we will take benefit of that should be reflective of the ongoing growing off of the market share.
Great. Thank you.
Your next question comes from the line of Jade Rahmani from <unk> W. Your line is open.
Thank you very much on nice to hear from all of you.
Just a clarifying question.
Youre, saying that growth.
Growth in adjusted EBITDA will lag growth in fee revenue by implication that should suggest that the margin would decline.
At your slides you show that the adjusted EBITDA margin for 2020 came in at 13, 9% and you are saying that for 2021 and you would expect to be within the 2014 60, 16% long term target range. So with respect of the 13, 9% that was generated.
In 2020 do you expect the 2021, adjusted EBITDA margin to be higher than that.
Similar to that or lower than that.
Yeah, Hi, Jay Good morning, we don't we don't give specific guidance I can reiterate the comments I made before around our overall cost structure, if that would be helpful.
Perhaps clarify something clarified the thing.
Well I guess I was just.
Thinking that if adjusted EBITDA and the dollars would grow slower than fee revenue that would imply some modest margin pressure, which could be a time lag.
Lack of doctors that are correct and sort of a patient.
We're talking about percentage growth.
Okay. So the percentage growth okay.
That's helpful.
Turning to the capital markets outlook.
Youre, saying that youre cautious in the first half presumably most of that relates to the first quarter because the pandemic really unfolded starting in March is that a correct interpretation.
Well first of all.
You shouldn't bring it down precisely to the months, where the pandemic started because.
First of all of its got it at different times in the world the sales.
Quarter on Asia was wholly completely hit by the pandemic and secondly Ah.
Lot of the capital markets transactions, which we realized.
In the second quarter with deals, which were kind of the path sites have all taken.
Total plays due diligence at all taking place.
Before the pandemic hit those markets and we are now moving into of them into a situation where all three of the site visits can only take place if the pandemic allows that there isn't any deal out there where those things the due diligence on all of those topics have been done.
Pre pandemic.
So I would caution to kind of think that this is.
A one on one kind of correlation between what the pandemic dust and run the business is picking up again I think it looks that to say is that we are overall.
Much more positive about the types of market outlook.
Then we off of the leasing outlook will be especially for the office of <unk> outlook for the reasons.
You alluded to there is a lot of.
Interest from investors to get into real estate and two.
The stable income streams.
So the.
The fourth quarter recovery of the capital markets business is showing a bit of the trend going forward that kept the markets will flow.
And the recovery and the DC markets will follow later on.
Think of lot of investors are interested in the property type mix.
If you could give any color for the capital markets.
The business.
What percentage of industrial what percentage is multifamily.
Office Hotel et cetera, I think that would help investors understand the resilience of those businesses you definitely did callout industrial and multifamily is performing it is more resilient. So some of your peers have provided that mix breakout I think that would be helpful.
Yes, I mean, we have.
What we have seen in 2020 is that the office sector, which was historically by far our largest sector has declined pretty significantly.
In our own and our own revenue terms roughly 30%.
Same is true for retail.
Whereas the industrial sector.
The <unk>.
Creased by about 30% within our own business.
And so.
Residential was about was about flat.
For us year over year.
And we have now the situation that within all of.
Our residential revenues on.
Hi.
Then our office revenues.
And industrial kind of now very close to offices.
Over the course of of 2021, you will see that the office sector.
So strong.
Rebound again.
So that it will become a very.
Strong follow on to our residential revenues, but this mix in the different asset classes.
Something which we are very proud of because it has created that.
Enormous resiliency in our capital markets revenue mix to the different type of services.
Operating well investment advisory is the largest of the debt advisory business. It's also.
Very very strong sector for us.
And then the equity advisory.
And I know that HFF is starkly sorry go ahead.
It's just going to I believe part of your question was trying to get at what is the current percentage of mix by property type within capital markets like if you're interested in that in isolation for 2024 overall office, where the approximately a quarter of our total revenues industrial is about 20% and residue.
The out 35%.
And that includes the.
Investment advisory and debt advisory pieces of the capital markets business.
Okay.
Yes, I think that's a that is helpful.
I know that Hff's historically was.
At the higher end of the average deal size with the.
I think around the 35 to 40 million of average transaction size that would seasonally increase throughout the year and one of your peers has highlighted the strength in the.
The category of deals below $10 million.
And in an absolute transaction size was wondering if that.
If that area of the business is as potentially targeted as something you're interested in growing and if perhaps you might be in per share what percentage would fall in that sub 10 million or perhaps of $5 million.
The transaction category.
Well as you know we are very focused on on transactions and the higher side.
Fields HFF, that's why it was such a strong fit to J L. L and also.
We believe that we are certainly leading on on.
On cross regional deals.
The question around the smallest sector, what do you say below 10 or even below 5%.
That is something which which is.
Nothing we're gel has been very focused on in the past.
And.
And certainly of sector, which.
Will it be.
Going forward, a very strong technology support to run at the profitable sector for whoever is focusing on that sector.
Thank you for taking the questions go ahead.
Just kind of add to that as well, we haven't seen a significant decline in overall.
Transaction size, if that's what you're questioning in terms of how we're looking at the recovery in our capital markets volume.
Okay.
Thank you very much.
Yeah.
Your next question comes from the line of Rick Skidmore from Goldman Sachs. Your line is open.
Thank you and good morning.
Christian in your prepared comments you mentioned the no gaps in the portfolio and that the bar is high for external growth.
Do you think about external growth of their businesses or geographies that need greater scale or has the scale sufficient such that that external growth will be more about just being opportunistic as you go forward.
<unk>.
Yes.
Well I mean, when you look at the size of the different economies. We are active in than what will come for the growth in our our Asia business.
Especially in China and Japan.
But we don't recommend that debt will be supported by any type of M&A, but that is part of what Ken was mentioning we are very focused on on driving investments into our business for organic growth.
And so that's that's one of the law.
Key focus areas.
With regards to M&A.
<unk>.
With such a full size.
Size food scale platform of shell has.
There may be more of the Adjacencies.
Which are of interest to us.
Going forwards.
But again.
We see so much opportunity to grow organically.
Especially post pandemic 2021 is the year, where you can really move on the organic side very strongly and that is that is certainly.
A more cash.
Amphibole way of growth and trying to do any type of M&A at this point in time.
Yeah.
Great. Thank you and the one follow up question separate topic just on the office side. What are your clients seeing are doing from an office of office usage office layout perspective.
And is that helping to grow that advisory consulting side of the business.
Yeah, I mean, what we see from our clients.
Everything up at the moment, we have the full spectrum, we have clients, where the adds a significant push back into the office and they are focused.
The focus is to really improve the health and well being of the employees in the office that they all feel very comfortable there.
We have the complete other spectrum of clients, who don't want their employees back into the office and they ask us to help them to make sure that the health and wellbeing of the employees is net when they work from home.
As you know the Hell a lot of people, who don't have of proppant desk at home and the right sales and all of those type of things. So we have the full spectrum.
Yeah.
So personally I think that.
Although that may sound, a bit counter intuitive the knee.
Need for advice has only grown on the back of the pandemic and advice is what we are providing to our clients and therefore of the <unk>.
End of the day.
We won't see going forward some type of a hybrid situation, where we are.
Lawyers allowed the people to work literally from everywhere and.
Some employers will focus really strongly that they should come as often as possible into the office and other employers.
Make any kind of statement of roundup, theyre comfortable with where the people want to work from but what they all happened common they have to provide a really.
Safe environment for the employees, the health and well being of Super important.
And that is where we can provide lots of advice to them.
Thank you.
Your next question comes from the line of Michael Funk from Bank of America. Your line is open.
Great. Thank you very much good morning, everyone.
Good morning, So a couple of couple of if I if I could so the first one is really on elasticity of demand.
Office leasing.
And just wanted to get a sense of.
If you believe that lower effective rents will attract more interest in office leasing or if there were some other variables of that.
Net potential tenants are looking at that could delay that recovery.
Well if you if you push kind of the <unk>.
And to decide when people will be pretty much vaccinated, which is which of the precondition to get office occupancy really up again.
Sure you will have.
You won't see an hour.
Papers, which we provide the.
The global vacancy rate is increasing and then on the backlog that when they can see rates on moving up rents.
We'll feel some pressure what you usually see is that enough.
Very successful companies, who are keen to offer the employee space in the best locations and the best buildings and so the moment others will open up that space.
There are companies, who will move into those type of buildings and frankly that doesn't really neat.
A major decline in rental levels for those couple of buildings and medium term.
I wouldn't expect that to happen, but the best buildings.
Get a lot of pressure, where you see pressure coming in at the moment, you're moving slightly away from the best locations of the best buildings. There you will see.
More pressure and that will become more attractive to go into those type of buildings and usually you see then.
People companies from even less good buildings, and even less port locations moving into those type of buildings, So where that all ends is that's the least attractive buildings and the least attractive areas.
They will become vacant and two degree obsolete and will be repurposed for something else. So there is a lot of movement on the back of those type of.
Economic developments, which we have seen in 2020.
And that will kind of show its way.
Starting in 2021 and moving forward over the next couple of years that Youll see quite a lot of movement.
Within the different buildings from the different types of companies.
No. That's great. Thank you I appreciate the color and maybe two if I could on capital markets. I know you mentioned the prepared remarks that there is a tightening of the bid ask spread.
The prior quarter was that the bid coming up.
Or was that the assets coming down the tightened that spread.
All of it goes both ways depends on how attractive the building.
When you say on a on a Brent you price building with the long lease with an outstanding tenant there wasn't any reason to.
To bring your <unk> down in fact, we saw some tightening on yields on those type of buildings and in many instances that when when the building lease more room for interpretation on how it will perform over the coming couple of years because of of.
Lease contracts.
Coming to an end.
The question marks what is the right rental level for those type of buildings.
Those are the ones, where you probably have to get the asked price a little bit down to tightened that spread so the eight.
No.
Simple answer to that of this is why it is helpful to have the adviser when youre selling of buying a building.
Sure understood and one more if I if I could please.
Clearly very very strong capital markets activity and <unk>. When there is a normal seasonality to the business based on the funnel that you talked about earlier do you expect seasonality in 2021 of <unk> to <unk> to be similar to prior periods or is there a reason to believe.
That it will look different.
No I wouldn't know why it's sort of different we always have got seasonality.
And that the fourth quarter is always the strongest in the third quarter is always the second strong days.
We expect the same to be the case the phase.
Any kind of of.
Probably I would make about 2021, it's all down to the sales quarter.
Because.
Europe is in a pretty strong lockdown.
Make a lot of site visits at the moment.
<unk> due diligence is the.
The level of international travel for the international investors, if they don't have people on the ground.
And so we're all looking forward to a higher rate of vaccination of around the globe the.
The amount of money, which is trying to get into into into these assets is the.
Very very strong and so we may see a slightly slower Q1 than usual, but that will be then probably picked up in Q2 and Q3 again.
Great. Thank you very much of the time.
Pleasure.
There are no further questions at this time I will turn the call back over to management for closing remarks.
Well. Thank you operator with no further questions, we will close today's call on.
On behalf of the entire channel L team. We thank you all for participating on the call. This morning, Kevin and I look forward to speaking with you again following the first quarter.
This concludes today's conference call you may now disconnect.
Okay.
[music].
Your line.