Friday, November 9, 2007

Commercial Real Estate’s Best Operator

I sold this company several months ago at it’s peak, around $125, not because I was worried about its performance or high valuation, but just to raise cash and reduce my equities position. Since that time I’ve watched it trend down to the $85 range even as it reported record earnings and doubled it’s semi-annual dividend. The worry is evidently its involvement in real estate. Specifically, that commercial real estate will be the next shoe to fall in the credit crisis.
Commercial could be next. Values have risen and buildings were subject to some of the same shoddy lending and securitization as home mortgages. Big commercial and investment banks have been active in this segment of the CDO market and there isn’t much reason to expect that they maintained discipline here when they sure couldn’t on the consumer side.
So, while JLL operates in this marketplace, it doesn’t lend, securitize, insure, or own real estate for it’s own account. It operates as a service company for owners of, and investors in, commercial real estate. It helps in the sale, acquisition, management, and investment in commercial properties worldwide. It’s business is nicely spread between those segments and also nicely represented in all areas of the globe. It’s foreign earnings benefit from the stronger foreign currencies and increase eps. Like an investment bank, JLL is a people talent business. It’s main assets ride up and down on the elevator daily and are the true value of the company.
JLL earns a superior ROE, has virtually no leverage, and sells for a modest multiple of cashflow for a growth company. If commercial craters next, many companies will come to JLL to find a solution for their problem.
It’s share price may continue downward if the market swoons. But if the market stages a late year rally, it will rise quickly and significantly. I’ve gotten back in this name as I think that even in down markets there will be winners and i believe JLL is likely to be one.

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