Shares of commercial real estate services companies Jones Lang LaSalle Inc. and CB Richard Ellis Group fell on Wednesday after reporting first-quarter results that fell short of Wall Street expectations.
While the companies stressed that the first quarter is the weakest quarter of the year, investors were unforgiving for the results reported late Tuesday.
Jones Lang LaSalle’s shares were down 7.5 percent to $99 in afternoon trading on Wednesday, while CB Richard Ellis stock was down 6 percent at $26.84, both among the top percentage losers on the New York Stock Exchange.
Investors had high hopes for these companies, pinning their optimism on a rebound in the commercial real estate sector. They had driven up Jones Lang LaSalle’s stock 8.7 percent since March 1 and CB Richard Ellis shares by 14 percent.
The real estate services companies have added employees in anticipation of a recovery in global commercial real estate, and their costs were reflected in the quarterly earnings.
"It’s difficult to perfectly manage the capital structure of those companies because they are adding people," said Ian Goltra, lead portfolio manager with Forward Management. "Those people will create a return on investment, and that will take time. In the interim, you have a cuing up of expenses, and you can’t predict the timing of revenue."
Forward Management is short the stocks of both companies, as a hedge against its property investments.
After the close of the market on Tuesday, Jones Lang LaSalle reported a net profit of 3 cents per share, well under the 31 cents a share analysts on average had forecast, according to Thomson Reuters I/B/E/S. The company attributed the miss to about $9 million on extraordinary charges, which included $3 million in accelerated compensation that would normally be spread out over five years.
Jones Lang’s extraordinary charges also included $1.3 million in contributions to relief efforts following Japan’s earthquake and tsunami.
CB Richard Ellis reported earnings, excluding items, of 13 cents a share, a penny above the average of analysts’ forecasts, but its revenue of $1.19 billion missed the average forecast for $1.27 billion.
"While the company did report fairly strong revenue growth, revenues actually missed our expectations — particularly in the leasing business," JP Morgan analyst Anthony Paolone wrote in a research note.
CB Richard Ellis affirmed its earlier forecast for the year for earnings in the range of 95 cents to $1.05 per share, still below the $1.12 per share analysts expected.
S&P Equity Research raised its rating on CB Richard Ellis to a "buy" from a "hold."
