Q2 2022 Jones Lang LaSalle Inc Earnings Call
Estimates.
<unk> $380 billion of available capital yet to be deployed globally and the commercial real estate space.
Pockets of fluid and speak to our spreads have widened and price adjustments occur across asset classes.
Investors are undertaking greater price discovery and in some cases, extending the timeline to close deals.
This presents the greatest risk to the second half of the year as the timing of deal closures can fluctuate.
Taking a look at different asset classes.
Industrial and multifamily have slowed slightly from what were historically elevated levels.
In multi family investments are factoring in lower rental growth rate as the outlook for future inflation moderates.
In addition, underwriting standards are becoming more restrictive as lenders adjust to a higher interest rate environment.
Retail and hotels performed well in the second quarter as these asset classes continue their recovery from that make levels Lopes.
Astro Striction east consumers are spending more on services and travel which has supported the growth of both the retail and hotel sector.
On the leasing side global volumes across all asset types was up 20% year over year in the second quarter.
U S office leasing activity for the second quarter was in line with the first quarter.
Occupy us become more cautious Amit.
Economic uncertainty.
The flight to quality, it's unabated as companies look to upgrade their space in an effort to attract employees back to the office.
This has resulted in the average lease term remaining flat at just over eight years.
In the industrial market demand continues to outpace supply, causing rents to remain elevated and vacancy rates to stay under 2% in many markets around the globe.
In some markets the lack of available quality space has led to a softening in demand as companies are forced to evaluate their longer term industrial needs.
In Asia Pacific leasing volumes vary by geography.
<unk>, Australia, Singapore showed strengths, while Lockdowns in China limited transaction volumes.
On average office re entry in Asia Pacific is ahead of other regions boding, well for future leasing activity in the region.
Europe sentiment is mixed.
Geopolitical and economic growth concerns weighing on the number of leasing inquiries.
In certain markets best in class assets continued to perform well with <unk>.
Rising rental rates and increased levels of competition for space.
Let's now shift our attention to gel else performance for the quarter.
Second quarter revenue rose, 21% to $5 3 billion in U S dollars and fee revenue increased 23% to $2 $1 billion in local currency.
Nearly all of which was okay.
Fee revenue growth was led by our markets advisory and capital markets businesses.
Adjusted EBITDA for the quarter was $359 million, an increase of 10% from the prior year and our adjusted EBITDA margin was 16, 5% in local currency.
Adjusted net income totaled $222 million for the quarter adjusted diluted earnings per share.
Total of 48 U S dollars and increase of 9% from the prior year.
Our capital allocation strategy remains unchanged.
We will first reinvest in the business to drive future growth, both organically and through selective M&A, while also returning capital to shareholders.
During the second quarter, we were opportunistic with our share repurchase program, returning close to 300 million.
In U S dollars to shareholders.
This represents an increase in repurchase activity versus prior quarters, as we weigh all investment opportunities against our return hurdles.
We will continue to be disciplined in our approach to capital allocation.
Utilizing the strength of our balance sheet and the meaningful amount of cash that our business generates to balance investing in the business and returning cash to shareholders.
I will now turn the call over to Karen who will provide further detail on our results for the quarter.
Thank you Christian.
The double digit topline growth across nearly all business lines in the second quarter. Despite a less constructive macro backdrop is reflective of our increasingly resilient and diversified global platform as well as the quality of our people and strength of our client relationships.
The 18, 5% adjusted EBITDA margin, we reported a year ago, but well above our pre pandemic margin and not reflective of a fully normalized cost basis.
As a professional services firm with a focus on long term growth and value creation investing in our people products and initiatives to improve efficiency remains one of our most important priority.
These investments represented a key driver of the 200 basis point decline in our adjusted EBITDA margin from a year ago to 16, 5%.
The expected return of T any and marketing expenses and headwinds from the portfolio valuation reversal benefit a year ago, where other primary drivers of the margin decline.
Despite the decline our adjusted EBITDA margin is still comfortably above pre pandemic levels for the quarter and on a year to date basis.
Notwithstanding the current macroeconomic environment and geopolitical backdrop, we have conviction in our ability to capitalize on the many growth opportunities. We see ahead and expect to operate within our 16% to 19% adjusted EBITDA margin target range for the full year.
In line with our capital allocation priority, we used our healthy cash flow generation over the trailing 12 months and investment grade balance sheet to repurchase nearly $300 million of share during the quarter.
Moving to a detailed review of operating performance.
Everyone that variances are against the prior year period in local currency unless otherwise noted.
Beginning with markets advisory.
Leasing led the segment with fee revenue growth of 26%.
The growth was broad based across regions and concentrated in the office and industrial sectors.
Office sector fee revenue growth outpaced the global office market volume by approximately 500 basis points.
Industrial sector fee revenue growth remained strong up 37%. So the growth rate continued to moderate from peak levels as anticipated given tight supply.
Global industrial market activity declined from a year ago.
With macro conditions and COVID-19 restrictions bearing across region leasing fee revenue growth was most notable in the Americas up 26% and EMEA up 42%, while Asia Pacific grew 8%, despite a greater pandemic impact.
We saw a significant increase in transaction volume and size globally, including an approximate 30% increase in the average transaction size in the U S versus a year ago.
Property management fee revenue growth accelerated to 10% from single digits in the first quarter in part due to inorganic contributions from our 2021 strategic joint venture in the U S.
The leasing market overall remains active.
Apply in demand vary by asset class and geography as.
As an example, our U S leasing pipeline continues to increase with the growth in the industrial and retail sector pipeline, partially offset by a modest decline in the office sector pipeline employers continue to evaluate their workplace strategies and real estate footprint as well as the potential impacts of the macroeconomic environment, creating demand for our advisory.
Sort of thing.
As indicated by occupancy rate and rental rate growth disparity, we continue to see a flight to quality as occupiers shift to new <unk> class a space with the amenities and sustainability profile needed to attract employees back to the office.
This plays to <unk> strength, given our specialization in class a space, which has the best long term prospects and comprises the majority of our leasing season I don't know.
Markets Advisory adjusted EBITDA margin declined 40 basis points from a walk out to 15, 6% as higher Commission expense continued investment in talent to meet increased business demand and expected return of T&D expense more than offset higher fee revenue and changes in our incentive compensation program.
To better align with business performance.
The increase in commission expense was in part due to regional business market and brokers, achieving higher commission tiers earlier than last year.
Moving now to our capital market segment.
Despite the shifting macro environment and central bank actions globally, which have caused some pause to transaction activity.
Fee revenue growth was strong up 28%.
The growth was broad based led by debt advisory and investments out.
Nearly all major asset classes exhibited growth, notably in our retail land and residential sectors.
Growth in the industrial sector moderated but remained in the double digits.
After three quarters of growth in the office sector fee revenue related to office declined slightly from a year earlier.
Investment sales debt and equity advisory fee revenue grew 31% driven primarily by higher average daily volume and average fee.
Fee revenue from U S investment advisory salads grew about 45% and use debt and equity advisory increased approximately 50%.
Notably EMEA investments debt and equity advisory fee revenue grew 13%.
Asia Pacific declined 25% on a tough comparison quarter and softness in the industrial sector.
Our loan servicing business maintained strong momentum with fee revenue up 32% driven by gains in our servicing portfolio, particularly from Fannie Mae origination as well as incremental prepayment fee.
As we look towards the rest of this year, the global capital markets investment debt and equity advisory pipeline is up 30% compared with this time last year.
Our liquidity remained solid and dry powder is at near record levels. The combination of interest rates inflation and a changing geopolitical environment.
Fluids closing rates and transaction timing.
Capital markets adjusted EBITDA margin declined 350 basis points from a year ago to 19, 1%.
Higher Commission expense and the continued return of TNT and marketing expenses more than offset the strong revenue growth productivity gains and a reduction in other variable compensation plan.
Moving now to work dynamics fee revenue grew 19% with double digit growth across business lines.
Both our annuity and transactional revenue streams within this segment had strong momentum globally.
Project management fee revenue growth accelerated to 22% from 11% in the prior quarter as clients are resuming project related work across all regions.
Yeah.
Client wins and global contract expansion, particularly in the Americas drove 15% fee revenue growth in workplace management.
The work dynamics adjusted EBITDA margin declined 60 basis points from a year ago.
Driven primarily by investments in our people as well as products and services development, including sustainability.
Moving next to <unk> technology.
Fee revenue inclusive of M&A grew 48%.
Large enterprise clients were the primary driver of 22% organic growth.
It is important to note that <unk> technologies also influences the fee revenue growth across shale all through the differentiated capability that delivers.
We continue to invest in our technology team and platform, which we believe will further differentiate our suite of services Sckalor recurring revenue business line and create long term value.
Hey, Joel I'll technologies, adjusted EBITDA margin improved from a year earlier and higher equity earnings, which more than offset continued investment in people and platform both organically and through acquisition.
Turning to Lasalle.
A change in the market sentiment through the quarter led to a slowing in capital raising and asset deployment as the months progressed during the quarter.
<unk> capital deployment and valuation markup over the past 12 months drove a 12% increase in assets under management and translated to 23% advisory fee revenue growth, mostly within our core open end funds.
Lower equity earnings were primarily due to the absence of the valuation reversal benefit a year ago, and an approximate $11 million adverse swing in our fair value Mark of our publicly traded Jay Lee.
Which more than offset modest gain on the remainder of the co investment portfolio.
The increase in advisory fee revenue and incremental platform scale were more than offset by the lower equity earnings and lower incentive fees, resulting in a decline in Lasalle adjusted EBITDA margin.
Shifting now to an update on our balance sheet and capital allocation.
As of June 30 liquidity stood at $1 9 billion.
Reported net leverage was 1.0 time.
<unk>, a strong foundation to execute on our strategic priorities.
Our net leverage is just above the midpoint of our target leverage range and up from <unk> six times, a year earlier, primarily on incremental investments in our business and share repurchases.
We continue to invest in our business to further differentiate our capabilities and better serve our clients while also repurchasing our shares.
All centered on driving long term growth and value creation.
Nearly $300 million of share repurchases in the quarter brought our trailing 12 month repurchases to approximately $750 million and drove a 6% reduction in our quarter end share count from a year earlier and a 3% decline from the first quarter.
We expect to continue repurchasing shares on both programmatic and opportunistic basis over the remainder of the year with the amount dependent on a host of factors, including other potential investment opportunities.
Approximately $1 3 billion remained on our share repurchase authorization as of June 30.
Looking ahead, we anticipate revenue growth rate to moderate from the pace of the second quarter due to the combination of the strong growth seen in the back half of 2021 as well as the somewhat less constructive macroeconomic backdrop.
We continue to enhance the resiliency of our organization and are constantly refining and investing in our operating model to position us for long term profitable growth.
Echoing christian's comments I'd like to thank my <unk> colleagues for their relentless effort that combined with our differentiated operating platform and corporate culture are paramount to our client success and generating long term value for all stakeholders.
Kristian back to you.
Thank you Kevin.
Since we spoke last quarter.
Global economic prospects have softened, Amit rising interest rates and inflationary pressures.
Within our industry the economic environment has caused investors to become more cautious and in certain instances has delayed the closing timeline for transactions.
Still the tailwind supporting our industry remain intact.
Labor markets continued to perform well and unemployment rates are low.
Sufficient liquidity in the market and a significant amount of capital yet to be deployed in the commercial real estate space.
Once investors gain comfort with the future path of interest rates, we expect this capital to drive an acceleration in capital markets activity.
In addition, a record number of lease expirations will occur in the coming years supporting future leasing activity.
These factors combined with the resiliency of our industry bodes well for long term growth prospects.
I'm confident that <unk> is well positioned to take advantage of these growth opportunities.
Operator, please explain the Q&A process.
Yeah.
As a reminder, if you'd like to ask a question today that star followed by one on your telephone keypad now.
Okay.
Good morning, everybody Robyn a slight issue.
Okay.
Okay.
Sorry. Your first question comes from Patrick O'shaughnessy from Raymond James Patrick. Please go ahead.
Hey, good morning.
Sure.
Follow up on some of your commentary on the pipelines it sounds like in both leasing as well as capital markets.
The pipelines are good it's just a matter of timing and some of the market turbulence might lead to deals getting pushed into 2023 that otherwise would have gotten done in the back half of 2022 am I kind of interpreting your comments correctly there.
Yes, it's Christian here.
Yeah directly yes.
I think we should be more focused and with regards to that question deals being pushed out on the capital market side.
Chris obviously, the it's much more flexibility for deals to be pushed out on the leasing side.
If there is a maturity on your on your lease agreement you have to make a call you can kick the can down the road and only tried to.
<unk> believes for another.
Short period of time before you take the major decision, but you have to take a decision so.
We are very focused on watching our capital markets pipeline.
Uh huh.
Deals being delayed and and does that mean delayed by a quarter or does it mean that they are really being pushed out.
That's helpful. Thank you.
Angello technologies, obviously, a pretty sizable equity earnings gain in the second quarter can you characterize that.
With a little more detail and then what's your outlook in terms of equity earnings.
For that segment for the duration of the year I think in particular given that it seems like investment in the property tax space has quieted down a little bit.
Sure. This is Karen I can provide some more color on that so within the quarter. We saw both valuation increases and decreases across the portfolio. So it is a diversified portfolio and we saw both directions happening.
Looking out.
For the remainder of the year, we're not going to put a specific forecast on valuation, but have been carefully monitoring monitoring the portfolio companies.
And feel reasonably good about where they stand right now in terms of cash on hand of an ability to continue to move forward and grow their businesses in this environment.
Okay.
Great. Thank you and then last one from me.
Your tax rate was a little bit lower this quarter. What do you guys currently expects for the full year effective tax rate.
Yeah. So it was a bit lower this quarter at around 17, 8% and year to date. It brings it to 19, 1% that was really due to a noncontrolling interest transaction and a benefit of a loss carryover we utilize in the second quarter. So it doesn't reflect what we expect for the full year. If you look.
Out for full year 2022 at this stage, we're anticipating around 22% for the full year or thereabouts kind of in that range.
Thank you.
The next question is from Anthony <unk> from J P. Morgan Anthony. Please go ahead.
Great. Thank you.
My first question relates to your comments about hiring and compensation and commissions and some of the cost in the system. Just wondering if you could talk more about your decision to to hire and do these things into a slowing environment and what that might specifically mean to margins as we think.
The second half of the year.
Okay.
Yeah. So we did mention a number of different things as it relates to comp.
Compensation and benefits overall in terms of movement in the quarter.
Largely the primary comment was around investments in people and hiring and so as we thought about lapping.
Lapping a year ago to today, we did not have a stabilized cost basis to support the level of growth that we saw and on a sequential basis. When we can kind of rung out of the pandemic in the second quarter of 2021. So we were hiring both to meet the demand that we saw coming at us at that over the last 12 months from <unk>.
Our clients in that in that we anticipate for the future.
Looking ahead, we will definitely be focused on.
Keeping a close eye in terms of the macroeconomic environment looking at our pipelines more broadly and and.
And hiring.
In accordance with what we see in terms of the outlook and our long term prospects. We certainly are taking.
A more prudent look in certain areas of our business, but there is other.
Areas. We are now is a good time to hire talent in Newark, and our marketing by more than a little bit more uncertainty that will be taking a balanced view and looking forward as I mentioned working.
Working to operate our business within our <unk>.
Margin range of 16% to 19% taking into account.
More fluid macro environment.
Got it on the commission side you'd mentioned for instance in capital markets some of the year over year margin declines being.
Brokers hitting.
Certain business levels that gave them higher sports at Sam's.
We go into the back half of this year and you see capital markets.
Negative or revenue down year over year does that mean.
Do those splits go back down or how does it work on the commission side or to Rishi margins improve in the fourth quarter, if its a tough comp year over year.
Yeah. So the impact here, we're talking about that I, specifically called out within our markets business in leasing where we had a higher level of volumes and larger average deal sizes in the second quarter as <unk> as compared to a year ago.
In that quarter and so once these are calculated by individual brokers that really has to do with the mix of different markets and then transaction sizes that happened in the types of transaction sizes and types in the market that brokers cover they cover different specials.
Specialized typically in different areas.
Areas of the market and so as the second half of the year unfold. If a broker has already achieved their certain fear that yet that will continue but we're looking at that what the mix is and so as I mentioned before it's really are we had larger deal volume and particularly in the second quarter. So will.
We'll be watching how that unfolds.
Good from here.
Okay, and then just last one for me.
The capital market side, the comment about the pipeline being 30% larger than it was a year ago.
I mean, how good a predictor has that been in the past for sure.
Capital markets revenue in the next quarter or can we see a <unk>.
Positive capital markets comp on revenue or because of that stat or like how do we dialed that into our thank you.
I wouldn't narrow it down so the way you just described.
The pipeline describes.
The pipeline and it gives an indication around the rough timing, but not quarter over quarter.
As I said earlier, what we are watching at the moment casually is.
To what degree are.
Deals being pushed out because of the current uncertainty.
The pipeline indicates that people are still.
Highly committed to invest further money into real estate.
But that may be that they are pushing it out a couple of quarters or it may be that they will only push it out.
Maybe into the fourth quarter. So don't take it that is we have a 30% higher pipeline, but you can see.
A significant increase in our capital markets revenue in the third quarter that is not what this pipeline is indicating but what is this indicating is that there's a very significant amount of fresh money waiting at the sight line to be invested into real estate and I think one important.
Point to consider is that this very high inflation rate, which we have around the globe is expensive for money, which is waiting waiting to be invested and soda ash.
Yes.
Very strong motivational aspect to make the extra effort to file.
And the right assets to invest that money rather than having it.
Uninvested off the sidelines.
Okay I understand thank you.
The next question is from China, the liter from Goldman Sachs Suddenly. Please go ahead.
Yes.
Hi, Good morning. Thank you for taking my question. This is going to be a continuation of some of the themes that have been touched.
With previous questions here as we think about the reality of a potentially tougher economic backdrop ahead could you. Please talk about what levers do you have to pull on cost given you just made these incremental investments in head count and other.
Buckets.
Sure.
So in terms of the leverage we can pull we are already starting to pull some of them as it relates to.
Looking at more limitations on future growth and investment in certain areas of our business certainly we demonstrated during the COVID-19 environment that we can pull levers and pull back significantly on spending and so they can start with <unk>.
Specific variable expenses, such as <unk> and marketing and then go into more constraints on hiring I would also remind everybody that a significant portion of our compensation structure is really tied to variable compensation expense and so there is a natural fluctuation that will happen there.
As it relates to our performance over the course of the year based on how things manifest in the second half.
Yes.
Thank you for that.
My second question would be on Lasalle. So AUM, obviously grew nicely I think it was five 5% Q on Q.
You've talked about continued interest from investors how should we think about the back half of BR in any mark to market risk within that.
If you could also give any color on unit transaction fees and incentives.
Within Lasalle.
Yeah. So just taking a step back on Lasalle broadly one thing I'd want to highlight is there are a lot of movement going on within Lasalle and so just wanted to reiterate the point that we had 23% growth year over year for the quarter and our advisory fee business and so.
The more modest growth that we saw in Lasalle overall compared to other business lines was really related to a decline in incentive fees.
And the incentive fees as I've mentioned on previous calls really can vary from year to year. They range anywhere from 40 million to $240 million of our analyst day.
Eight to 10 year period, we do expect that this year will be closer to the lower end.
Of this of the spectrum in range for our incentive fee as it relates to equity earnings there. The important call out is that we had a nice.
Valuation increases broadly across the portfolio, we were lapping a quarter, where we had the reversal of COVID-19 valuation declines in 2020 in the second quarter of 2021, so on a comparative basis. It doesn't look as strong and then we also had fluctuations in our J REIT, which I mentioned.
Where we had.
A big increase in <unk> and then a.
The smaller change in Q2 of this year.
Understood.
Just.
Just if you could perhaps Karen give us any insight into individual markets across Europe . You gave this color on Germany and UK last quarter wondering what are you seeing in those markets right now. Thank you so much.
You mean.
Color with regards to the capital markets environment are you still.
Focusing on Lasalle.
Oh, no I am talking about capital markets. Thank you.
Okay sorry.
Lifting.
If you if you look at the state of the World.
<unk>.
It is a situation where probably the whole world is choppy and not the best situation from a geopolitical environment, but there are some relative with us in that.
In those circumstances and there some relative losers and it's probably fair to say that.
Europe , and especially continental Europe or more in.
In the bucket of the relative losers.
And therefore, if we were to kind of pick our hour.
That's where we will see.
The strongest capital market activity, you've got will certainly be the U S.
And in some Asian markets.
And the European markets will be more muted.
And the next couple of months I don't know whether that is what you were trying to get out to you.
Yes.
Exactly that thank you question appreciate it.
The next question comes from Jade Rahmani from <unk>. Please go ahead.
Thank you very much.
The comment on the pipelines is somewhat in contrast to what some other contacts.
And public companies have.
Mentioned, so just to put a finer point on expectations. So that we're not projecting anything overly.
Optimistic or at least where we're realistic.
You expect positive year on year growth in capital markets, the comps are pretty challenging with.
With revenues up 87% year on year in the third quarter, a 21, 51% year on year in the fourth quarter of 'twenty, one so reasonable can be modeling something.
And in the way of perhaps seven 5% to 15% year on year declines.
I know you might not specify the number but just.
Just on that.
Expectation.
We are servicing our clients and so we will we are currently spending a lot of time.
To talk to our clients to understand what their plans are for the third and the fourth quarter I think it's fair to say that especially for the U S market I. Just stated that we believe that the U S market will perform the strongest of all our markets, but even for the U S market, we expect slightly muted.
Activity until after Labor day, and then the Big question is how is the market returning especially for the fourth quarter and that is highly dependent on.
What our clients.
We will do.
In the fourth quarter and so.
I won't make.
A clear prediction, whether we will beat last year or not.
On that question, but overall.
Yes.
The 30% pipeline is demonstrating.
A very strong interest to invest money into real estate.
And as I said earlier that May shift.
By some time a quarter or two.
But it doesn't go away from our.
Conviction.
People want to get that money into real estate.
Yes, and Jamie.
And I know Youre looking for something more specific in terms of the percentage which is.
We're not going to quantify at this stage, but what I can do is provide some more color just on what we're seeing in the market and our clients' behavior.
Which will hopefully help frame how you think about the forecasting so broadly speaking and these are from recent conversations with clients across the U S.
Market.
Investors are trying to price and the impact of two different risks right inflation risk and the risk of recession in trying to think about the level of risk premium that they need.
For those different.
Risks on the horizon.
There has been some pricing reductions that have come in so far largely due to negative leverage and then the moderating rent growth Judy.
Due to these recession fears and so people are pricing things and they're working through what are my expectation and then working through the bid ask spread out there as different groups of investors take a different approach.
Everything investors shake out into two different buckets Theres a group that is still remaining active thing actually.
My modeling in my assessment and relative to where we were in my words I was trying to transact before and was enabled tail because certain asset classes.
Such as multifamily industrial we're really.
To perfection.
This feels okay to meet him again kind of continue to invest in.
In certain areas and then we're also seeing increased capital looking to get into the credit market.
And broadly speaking than another group of investors that are really waiting and saying I want to see a bit more out there in terms of what's going to happen I really want to look at how some of these bid ask spreads shake out by geography by property type or by asset type and so those are the two different groups and so it is not.
We're seeing some decline.
In volumes, but it's not completely coming to a screeching halt. So I think that's the important thing is it's difficult to see but we're seeing the pipelines drove for any Christian mentioned right at that longer term medium term, we think is a positive.
Hopefully a little bit more of that.
Color is helpful. As you as you think about what to put in for the second half of the year.
Thanks for that and on the leasing side are you seeing.
Occupiers increasingly hesitant to commit to obligations.
And make decisions right now and so is there a behavior in which they're signing short term extensions and waiting to have some more macro uncertainty.
So within leasing literally two different growth scenarios.
The office leasing in the industrial leasing, let's start with the office leasing and then remind.
To remind me if I forget to talk about industrial so on the office side right. We still saw growth in volumes year over year of around 20% globally and if you think about what types of transactions are happening, it's really across three different buckets you have the lease expirations that are happening right.
Decision needs to be taken of transactions to occur the second bucket would be <unk>.
For good reason is looking to expand and take action on our portfolio and our footprint to do something differently for various reasons and then the third would be for batteries and that their need to downsize now put more space on the market.
And and make some changes for more negative outlook and so I would say that second bucket is the one where we're definitely seeing.
Some more pullback in hesitation in people, taking wait and see but the first and the third bucket right something typically needs to happen there and so it's just a matter of timeline.
And expectations there one interesting thing also to call out in our pipelines as we look at.
Overall leasing if you think about the build out required for spaces in some of the supply chain.
Issues that are happening around the world, we are encouraging our clients to get out there sooner take decision sooner because theres a longer period of time before you can actually.
Build and you build out your space and move them than there might have been historically, so thats a little color on the office side.
On the industrial side, we have seen slowing globally in terms of the volumes.
There is a largely still a desire by many clients to continue to look at that.
Our distribution logistics facilities right in the context of that supply chain risks that are now front of mind for people, but there's definitely a lack of supply there.
And we've mentioned this before that we expected the growth to moderate in industrial but there has been certain markets that are sub 2% vacancy and so rents are still going up but there's just not as many transactions that can happen.
So theres, great two different stories, depending on which property type youre looking at here.
Thanks, very much joelle technology side, it is a bit of a black box for investors to understand so.
Any any further clarity or resources in terms of understanding what drives that would be helpful. I believe that the carrying value is now.
Excess of $500 million, you said, which is up from $300 million.
So clearly all of that was not an income statement.
Valuation change, but in terms of the adjusted EBITDA is that all should we assume primarily noncash.
And do we expect breakeven adjusted EBITDA going forward.
Yeah. So there's a few different two different things I would say as you think about that <unk> can manage LTE technology segment and to repeat the point I said earlier, which is our elements within our technology team and effort within the business line that we're driving growth in other business lines as a result of those.
But within that segment, what we're specifically reporting our two things one is the.
Our investment side of it within the prop tech space, which you referenced and much closer in terms of our equity earnings and the team that's responsible for overseeing.
And then the segment and then there's the other side, where we have.
Software and services that we're selling to our clients and technology consulting and advisory.
Within that space and so a small segment today, but growing and very good demand.
Clients.
For advice and services as it relates to the rapidly changing world and in our industry as it relates to prospect.
And so you are asking for what should we expect going forward.
<unk> equity earnings this will fluctuate quarter to quarter based on valuation because we said this quarter right. It was up overall, despite some write downs for certain.
Companies in the portfolio and then on the other side of the business, where we're really.
The revenue generating side of the business, we're going to continue to invest in talent and product and people there we see significant opportunity going forward.
And that takes.
Investment in order to scale, the ability to deliver to clients more broadly and so we're probably seeing great demand and we don't expect that to moderate and we will continue to continue to invest in talent will certainly be looking at an overall again in the context of this segment in the overall context of the business what does that do to our profit.
Ability and margin within the target that we're working towards on a full year basis.
Okay.
Okay. So it sounds like absent valuation gains, which we from our vantage point are unable to.
There still is some cash burn in that space due to the investment which would make sense at this stage of scale.
Yeah at this stage for for where where we are in the.
Maturity and growth cycle, Yes, we will continue to.
Tend to have.
Some cash some cash right now.
Thank you very much for taking the questions.
The next question comes from Stephen Sheldon with William Blair. Steven. Please go ahead.
Hey, good morning, everyone. This is actually Matt <unk> on for Stephen. Thank you for taking my questions was wondering if you can expand on some of the demand trends youre seeing across class, a b and C office space and the expectation for those trends over time and as a second part to that.
<unk> do you think some of the less popular office space, maybe repurpose for alternative uses and could that potentially create some opportunities within your project management service line.
Yeah. Thanks for the question.
Certainly we're seeing some really interesting trends there so let me.
Let me speak specifically to the statistics that we have in the U S market, which we'll get some good direction. So.
In the second quarter, the vacancy rate for office overall increased by 30 basis points to 18, 9% within that.
We saw the vacancy holding firm for class a buildings actually we've tried to cut it even by age of some of these buildings so anything deliver before 2015.
They can see what's holding firm at 16, 5%, but it's continuing to increase for older stock. So it was 19% for the older stock. So that's one kind of sort of agent building and then if we look at just broadly class a space versus class B and C space and what happened in terms of the negative absorption and the occupancy loss in the quarter. It was.
<unk> in the class BMC stock because class B and C. They contributed almost 70% of the negative net absorption despite comprising just over 40% of the overall inventory. So we certainly see it come through the numbers in our conversations with clients were seeing that as well in terms of their.
Intentions in terms of the quality of the space that they are looking to take now they may be looking to take less space overall, if theyre going to make some changes in their portfolio, but they are looking for higher quality space.
Which we're seeing.
<unk> kind of rental rate holding there and good momentum.
Expect to see that continue that trend to continue in the future based on conversations with our clients and what we're seeing in our data so far.
Yeah.
Sure.
Okay got it that's helpful. And then just to clarify do you think considering that theres that flight to quality that over time some of the less desirable class B and C office property could potentially be repurposed for another use beyond office and is that something the project management service.
Line could benefit from the redesign of that office space to something else.
The short answer is yes, and yes.
Those buildings will eventually be either repurposed or taking down and you will see new developments, maybe incomplete completely different asset classes.
And.
Yes, we we will believe that this is a key driver.
Future demand for other service lines.
But I think you should put it into context of the whole meat.
To.
Be aware of climate change and the investments being needed to reduce the carbon footprint of buildings, we have pretty strict regulation, especially in New York, but also in many other places around the world and that will also drive very significant investment into refurbishment.
Buildings.
Great. Thank you that was very helpful context.
Nothing further in the Cura president, but as a reminder, the stocks look I wanted to ask a question.
Okay.
As we have no further questions I'll hand back to the management team for any closing remarks.
Thank you operator.
Further questions, we will close today's call on behalf of the entire gel L team. We thank you all for participating on the call today.
Kevin and I look forward to speaking with you again following the third quarter. Thank you.
This concludes today's call. Thank you very much for your attendance you may now disconnect your lines.
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