Chicago-based Jones Lang LaSalle, Incorporated (JLL) is a leading full-service real estate firm that provides corporate, financial, and investment management services. The company caters to corporations and other real estate owners, users, and investors worldwide. A broad real estate product and service range, and extensive knowledge of domestic and international real estate markets, enable Jones to operate as a single-source provider of real estate solutions. The company has approximately 160 offices worldwide in about 450 cities and 50 countries.
The company divides its business into two primary segments: Investor and Occupier Services (IOS), and Investment Management (IM). The IOS segment is sub-divided into three geographic regions, the Americas (30% of IOS revenue), EMEA (Europe, Middle East, Africa), (34%) and Asia Pacific (36%). The IOS division contributed approximately 87% of total revenue in the 3rd quarter of 2007. These units collectively manage owned or leased real estate in international locations, represent tenants for the acquisition and disposition of properties, provide leasing to agencies, service corporate properties, manage property, and provide valuation services.
The IM division, with nearly $47 billion under management at the end of the 3rd quarter, provides real estate investment-management services, mainly to institutions, corporations, and affluent individuals. During the 3rd quarter, this division raised $3.7 billion of equity. In the first nine months of 2007, the division has raised $7.9 billion. Revenue increased 27% in the quarter to $82.3 million versus 3Q 2006. Revenue increases were driven by the company's annuity businesses, which continue to increase due to fund inflows. Advisory fees for the 3rd quarter stood at $63.6 million, versus $45.6 million in 3Q 2006. The increase in Advisory fees can be attributed to increases in asset under management, which grew by 18% vs. 3Q 2006. Transaction services reported revenue of $9.3 billion, up significantly from $4.2 million in the year earlier quarter. The IM division made $3.9 billion of investments on behalf of its clients during the 3rd quarter. Overall, operating income in the IM segment stood at $28.1 million versus $10.1 million in 3Q 2006. Its prominent customers include the New York City Metropolitan Transportation Authority, Microsoft, and Procter & Gamble. The company runs its global investment management business under the LaSalle Investment Management brand. Jones Lang LaSalle usually invests its clients' funds in publicly traded securities of REITs, and via acquisitions and/or development of private real estate.
JLL again reported good quarterly results, as 3Q revenues increased in most of the company's business lines. Revenue in the 3rd quarter was $624 million, an increase of 35% from the prior year quarter. Revenue gains were driven primarily by strong growth in the Asia Pacific and EMEA regions. The company attributed the solid all round performance to good market conditions and timing of transactions. In addition, the investments that JLL made during the last two years have started yielding favorable results.
Revenue from the Americas was up 25% year-over-year to $188 million in the 3rd quarter, aided by a 40% y/y increase in Account Management. JLL continues to expand its corporate client roster, which led to increases in Account Management revenues. In addition, Capital Markets in the Americas division reported a healthy 41% y/y increase vs. 3Q 2006. The company benefited from large transactions in capital local markets. This increase in capital market activity can be attributed to increases in investment activity across various geographical regions.
Revenue from EMEA increased 33% y/y to $225 million, driven by growth in both Transaction Services (up 33%) and Management Services (up 36%). Transaction Services growth can be attributed to revenue increases in Advisory Services and Agency Leasing which reported y/y revenue growth of 68% and 55% respectively for the 3rd quarter vs. the prior year periods. In addition, y/y revenue increased 11% in the Capital Markets division of EMEA in the 3rd quarter. All of the company's regions in EMEA reported increases from the year earlier quarter, which is a good sign that real estate fundamentals remain strong around the globe. England, Germany and Russia were the best performing regions with y/y revenue increases of 23%, 100% , and 44%.
3Q revenue in the Asia-Pacific region increased 71% y/y to $131 million, with Management Services up 77% and Transaction Services up 64% over the comparable period last year. The company's Japanese, Indian, Korean, and Chinese markets (growth markets) more than doubled revenue in the quarter vs. 3Q 2006, while the core Asian markets, including Australia, Hong Kong and Singapore, reported a 48% increase in revenue.
Overall operating income for JLL increased to $64.5 million in the 3rd quarter, significantly up from $37.2 million in 3Q 2006. In the first three quarters of 2007, operating income increased 55% to $202 million compared to the first three quarters of last year. IOS operating income was $41.3 million, as compared to $27.8 million in 3Q 2006. Operating income increased in all of the company's geographic regions Americas (25% increase 3Q 2007 vs. 3Q 2006), EMEA (4%), and Asia/Pacific ($6.8 million gain vs. $1.8 million loss).
We expect continued revenue increases across all segments in 2008. Given the continued solid supply of investment capital and increased demand for commercial space (in the growing economies), the company anticipates higher real estate transaction volumes in 2008. After a strong showing in 2007, leasing volumes in office markets in Western Europe and Asia are expected to strengthen further in 2008.
The company is growing organically and via acquisitions. In the 2nd quarter, the company made two acquisitions in EMEA. This includes the acquisition of KHK group, project development services companies in England, which will help the company expand its business in the UK. The other 2Q acquisition was Troostwijk Makelaars, an independent property advisory company in Netherlands, which will help the company expand in this region. More recently, JLL acquired an investment and leasing company in Stuttgart, Germany, which will add to the company's growing presence in this country. In addition, JLL recently acquired Corporate Realty Advisors, a North Carolina tenant rep and advisory firm and an industrial services firm in New Jersey. In December, the company announced the acquisition of The Standard Group, a retail advisory firm in Chicago.
The company will continue to target strategic acquisitions to gain market share and drive growth. The strategy has helped the company add immediate scale in key international markets. JLL will continue to spend significant dollar amounts in the coming years upgrading IT infrastructure. The company estimates that it will spend about $47 million on these initiatives through 2008. The expenditures will create cost efficiencies in HR and financial reporting which should create material cost savings as the new systems are implemented. In addition, the company is spending on client based IT systems, which will continue to differentiate the company from smaller regional competitors.
As interest in real estate remains high among investors, we expect funds under management to continue growing at a healthy pace in 2008. In the company's latest global real estate capital report, JLL reported that global direct investment in real estate was $682 billion in 2006, up 38% from 2005. Particularly strong were non-US real estate investments, and cross border investments represented 42% of the total according to the company's latest report. We expect total transaction activity to increase by 10% in 2008, which will further drive activity at JLL. Although, there is a real risk that the slowdown in the credit markets could put a damper on new global real estate investment, as it becomes harder to finance deals. This is a real risk, although, the problems in the credit markets have not yet begun to affect results at JLL and transactional activity is still high in major markets across the world.
U.S. companies continue to offshore tasks overseas to India and China. We believe that Jones Lang is uniquely positioned to capture the increasing demand for space, be it call-centers, manufacturing and distribution facilities, or office space, via its brokerage services and capital markets operations in these countries. Additionally, China continues to be the best growth market in the world and China should continue to outpace the world in economic expansion. With very little infrastructure in the country to support expected growth, we believe demand for real estate services should be increasing long-term as the building boom continues in China. Moreover, the company is seeing strong transaction-based fee growth, particularly in its hotel business, and that should continue into 2008, as interest rates remain low for most Asia/Pacific countries. We particularly like prospects in the Japanese market, where transaction volume should increase. In 2006, the company purchased Rogers Chapman, a specialist real estate advisory firm in London. This gives JLL a better footprint in one of the world's hottest real estate markets.
The U.S. economy is expected to grow slowly in 2008 at an estimated rate of 2-2.5%. Real estate fundamentals might begin to slow down, with the broad based housing correction and credit tightening related to sub-prime and Alt A loans. Although, in the commercial sector, valuations have not fallen significantly as cap rates have remained stable in most markets. In the best markets, i.e. Washington D.C., New York City and California, cap rates continue to drift downward and are still at historical lows. In an extremely competitive and complex global real estate environment, demand for the company's wide array of services will continue to improve, as there is still plenty of global capital putting money into all real estate sectors