Al Gore’s Hedge Fund Adds to Jones Lang LaSalle

Jones Lang LaSalle Incorporated (NYSE:JLL) is a $3.2 billion market cap manager of real estate and investments. The company’s real estate services, which operate globally, range from agency leasing to property and facilities management to consulting and valuation services. In Jones Lang LaSalle’s second quarter ending June 30th of this year, it reported that while revenue had increased 9% compared to the same period in 2011 its comprehensive income had been slightly negative compared to a $59 million gain the previous year. This loss was primarily driven by foreign currency adjustments, but net income (which excludes these adjustments) decreased as well as compensation and other expenses outpaced revenue in terms of growth. For the first half of 2012, Jones Lang LaSalle also saw its comprehensive income weighted down by currency factors, but over this longer period net income and revenue were both up compared to a year ago. On a geographic basis, revenues and operating income have been doing well in the Americas and even in EMEA; it is Asia-Pacific and restructuring charges, along with the company’s investment management division in the case of the second quarter, which have been negatively impacting earnings.

David Blood

Generation Investment Management, which was founded in 2004 by former Goldman Sachs Asset Management head David Blood and former Vice-President Al Gore, had reported 1.9 million shares of Jones Lang LaSalle Incorporated in its portfolio at the end of June. This figure was up 13% from the end of March, and according to 13F filings was Generation’s seventh largest holding. In August, the fund increased its stake further to 2.3 million shares; since this gave Generation 5.3% of the company’s shares outstanding, it filed a 13G with the SEC to disclose its investment (find more stock picks from Generation Investment Management).

Generation’s increased stake also pulls it past John W. Rogers’s Ariel Investments to become the largest hedge fund holder of the stock according to our database of 13F filings. Ariel had been reducing its position this year but had still owned 2.1 million shares at the end of last quarter (see more stocks owned by Ariel Investments). Chuck Royce’s Royce & Associates was another large investor in Jones Lang LaSalle, reporting ownership of 1.6 million shares at the end of June (research more of the fund’s favorite stocks).

Jones Lang LaSalle trades at 19 times trailing earnings, which while not too attractive from a value perspective does not seem too high a price either. Wall Street analysts expect EPS growth from the stock both over the rest of 2012 and through 2013, with 2013’s earnings per share expected to be 17% above this year’s. Taking that prediction at face value, the forward P/E is 11; however, we wouldn’t set quite as high targets for earnings growth. A bullish case for the stock should probably point to the moderate valuation based on trailing earnings and note that even slow growth should push the stock price up in the future. Also, as might be expected for a firm exposed to real estate, Jones Lang LaSalle Incorporated is highly correlated with broader market movements at a beta of 2.

The closest comp for Jones Lang LaSalle is CBRE Group (NYSE:CBG). CBRE has a similar profile to Jones Lang LaSalle in quantitative terms: it trades at 23 times trailing earnings, and with analyst expectations of strong growth it trades at 12 times forward earnings estimates. Considering that its business has been improving recently- it reported double-digit growth rates in both revenue and earnings in its most recent quarter compared to a year earlier- it likely deserves a somewhat higher multiple than Jones Lang LaSalle does. We would also compare the company to two other companies in the property management industry, Granite Real Estate (NYSE:GRP) and Acadia Realty Trust (NYSE:AKR). These companies are smaller and have seen large decreases in earnings recently, yet trade at fairly high trailing multiples: 27 and 47, respectively. We would certainly prefer Jones Lang LaSalle or CBRE two these peers at current prices, but aren’t sure we agree with the sell-side’s growth estimates. Overall, we would pass on all of these companies.

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