Business context and reporting period
Jones Lang LaSalle Incorporated (JLL) provides commercial real estate services through the Americas, EMEA and Asia Pacific segments, and investment management through LaSalle. This 10-K reports the year ended December 31, 2013; fourth-quarter results are included below. JLL reported a global platform of more than 200 offices, approximately 52,700 employees and $47.6 billion of LaSalle assets under management (AUM).
Financial performance and position
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Revenue | $4.462 billion | $3.933 billion |
| Fee revenue | $4.027 billion | $3.640 billion |
| Operating income | $368.8 million | $289.4 million |
| Net income attributable to common shareholders | $269.5 million | $207.6 million |
| Diluted EPS | $5.98 | $4.63 |
| Cash from operating activities | $293.2 million | $327.7 million |
Reported revenue grew 13% and fee revenue increased 11%; fee revenue growth was 12% in local currency. Operating income rose 27% and diluted EPS rose 29%. Operating margin on reported revenue was approximately 8.3% versus 7.4%; management reported adjusted fee-based operating margin of 9.7% versus 9.3%, excluding restructuring and acquisition charges and specified amortization. Net interest expense was $34.7 million, and the effective tax rate was 25.2%.
Fourth-quarter revenue was $1.509 billion, operating income $195.8 million, net income available to common shareholders $147.2 million and diluted EPS $3.26. The comparable 2012 quarter recorded revenue of $1.249 billion, operating income of $150.9 million, common net income of $106.8 million and diluted EPS of $2.38.
At year-end, cash and cash equivalents were $152.7 million; total debt was $454.5 million, comprising $155.0 million under the revolving facility, $275.0 million of senior notes and $24.5 million of short-term borrowings. The company had approximately $1.0 billion of additional capacity under its $1.2 billion revolving facility, maturing October 2018, and reported compliance with debt covenants. Current assets of $1.724 billion exceeded current liabilities of $1.658 billion. Total assets were $4.597 billion and total liabilities $2.407 billion.
Operating cash flow declined $34.5 million year over year, primarily as receivables grew faster alongside higher revenue. Capital expenditures were $110.7 million. Cash dividends were $0.44 per share for 2013; no shares were repurchased under the repurchase program during 2013.
Material changes versus the prior year
- Capital Markets & Hotels fee revenue increased 40% in local currency, supported by stronger transaction volumes; global investment sales volumes rose 21%.
- Property & Facility Management fee revenue rose 14% in local currency, reflecting outsourcing wins. Leasing fee revenue increased 5% despite cautious corporate occupiers and subdued leasing markets.
- Fee revenue increased in all three RES regions in local currency. EMEA operating income rose to $89.3 million from $54.3 million; Americas operating income increased to $184.0 million from $167.1 million; Asia Pacific operating income increased to $77.3 million from $65.3 million.
- LaSalle segment revenue was broadly flat in local currency; lower incentive fees offset by higher equity earnings. AUM rose to $47.6 billion from $47.0 billion, and LaSalle raised $7.0 billion of capital.
- Restructuring and acquisition charges fell to $18.3 million from $45.4 million. Total debt decreased to $454.5 million from $476.2 million, while cash from operations decreased.
Outlook, commentary, risks and unusual items
Management described continued growth opportunities from global outsourcing, capital flows, market consolidation and its Strategy 2020 initiatives, including investment in technology, talent, productivity and risk management. The filing does not provide specific numerical earnings or revenue guidance. Management noted that capital markets were strong while corporate leasing demand remained cautious, and that fee pressure and currency movements could affect results.
Key risks include real estate and macroeconomic cycles, transaction-volume volatility, competition and pricing pressure, seasonality, currency exposure, client cancellations and collections, and the ability to retain staff and integrate acquisitions. Foreign operations generated 56% of 2013 revenue. The company reported $6.5 million of impairment charges on its share of real estate venture assets; further impairments remain possible. It also disclosed $190.3 million of maximum unfunded co-investment commitments, excluded from its contractual-obligations table.
JLL disclosed that a U.K. subsidiary received approximately £3,500 in revenue and £1,153 in net profit for property-rating valuation services connected with property owned by the National Iranian Oil Company and affiliates on OFAC’s sanctions list. The company said the work was inadvertent, terminated services, and submitted an initial voluntary disclosure to OFAC. Pending ordinary-course litigation is not expected by management to materially affect financial position, results or liquidity, though claims may exceed insurance. KPMG issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether revenue and margin growth can continue, particularly if transaction markets weaken or occupier leasing remains subdued.
- Receivables and cash conversion: trade receivables rose to $1.238 billion from $996.7 million, while operating cash flow declined.
- Debt covenant headroom, variable-rate borrowing exposure, and the timing and amount of acquisition-related obligations and potential earn-outs.
- LaSalle’s AUM, capital raising, incentive-fee variability and co-investment commitments, including the $190.3 million maximum unfunded commitments.
- Outcome and any regulatory consequences of the voluntary OFAC disclosure, alongside the status of litigation, insurance coverage and tax examinations.