Jones Lang LaSalle Incorporated — FY 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016; this annual filing also reports fourth-quarter results. JLL provides global real estate services through the Americas, EMEA and Asia Pacific segments, and investment management through LaSalle. It completed 28 acquisitions during 2016.
Financial performance and position
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Revenue | $6.804 billion | $5.966 billion |
| Fee revenue (non-GAAP) | $5.757 billion | $5.165 billion |
| Operating income | $440.6 million | $529.8 million |
| Net income attributable to common shareholders | $317.8 million | $438.4 million |
| Diluted EPS | $6.98 | $9.65 |
| Adjusted EBITDA (non-GAAP) | $657.9 million | $742.3 million |
| Cash from operating activities | $214.5 million | $375.8 million |
| Cash and cash equivalents at year-end | $258.5 million | $216.6 million |
| Total debt at year-end | $1.268 billion | $561.1 million |
- Revenue rose 14% in U.S. dollars (17% in local currency); fee revenue rose 11% (14% in local currency). Acquisitions contributed more than $470 million of incremental fee revenue.
- Common-shareholder net income margin fell to 4.7% from 7.3%; adjusted EBITDA margin on fee revenue was 11.4% in U.S. dollars (11.1% in local currency), versus 14.4% in 2015.
- Investing activities used $802.0 million, including $483.9 million for acquisitions and $216.2 million in capital expenditures. Financing activities provided $636.4 million, mainly reflecting increased borrowings.
- The $2.75 billion revolving credit facility had $925.0 million outstanding at year-end; the company also had $275.0 million of senior notes bearing 4.4% interest and due in 2022. JLL reported compliance with facility covenants. Ratings were BBB+ (stable) from S&P and Baa2 (positive) from Moody’s.
- LaSalle assets under management were $60.1 billion, up 7% from 2015; it raised $5.1 billion in net capital. JLL managed approximately 4.4 billion square feet of real estate.
Material changes versus 2015
- Despite higher revenue, operating income fell 17% and adjusted EBITDA fell 11% in U.S. dollars. Higher acquisition-related costs, technology investment and other expenses more than offset growth.
- Net income attributable to common shareholders declined $120.6 million. LaSalle equity earnings fell to $31.5 million from $70.1 million, principally because 2015 included gains on legacy investment dispositions that did not recur at similar levels.
- LaSalle incentive fees decreased 22% to $95.9 million as comparable fund disposition activity was lower. Advisory fees increased 7%.
- EMEA operating income declined 45% to $79.1 million. The UK capital markets slowdown following the Brexit vote, lower leasing activity, nonrecurring 2015 performance fees and a change in service mix contributed to weaker profitability; Integral acquisition revenue also increased the segment’s scale.
- Debt increased as JLL funded acquisitions and capital expenditures. Operating cash flow declined, partly due to working-capital needs and higher incentive-compensation payments.
Outlook, commentary and risks
- The filing gives no specific numerical financial guidance. Management describes a strategy focused on sustainable growth, productivity, technology and data capabilities, client service and selective acquisitions.
- Management reported resilient leasing markets and a fourth-quarter pickup in global investment-market momentum, but cited political and economic uncertainty, including Brexit, higher U.S. interest rates, currency movements, China’s slowdown, commodity volatility and geopolitical risks.
- Key business risks include cyclical real estate transaction activity, fee and margin pressure, competition, acquisition integration and retention, seasonal earnings patterns, cyber and data-security incidents, talent retention, foreign-exchange exposure, and client or counterparty credit risk. A material share of client contracts may be terminable on short notice.
- Unusual and comparability items include $68.5 million of restructuring and acquisition charges, including $20.5 million of due-diligence and integration costs and a $6.5 million write-off of an indefinite-lived intangible. Net non-cash mortgage servicing rights and mortgage banking derivative activity contributed $23.5 million to reported revenue.
- Potential acquisition earn-outs totaled up to $435.0 million, with $229.6 million recorded at fair value. Unfunded co-investment commitments were $208.6 million. These amounts are not all immediate cash obligations.
- JLL said pending ordinary-course litigation was not expected, based on information available, to materially affect financial position, results or liquidity. The filing does not quantify a clear maximum exposure for all claims.
Important facts for investors to verify
- Reconcile reported revenue with fee revenue: fee revenue is a non-GAAP measure that excludes gross contract costs and net non-cash mortgage servicing and derivative activity.
- Assess whether acquisition-driven growth can translate into improved margins and cash generation, particularly in EMEA and LaSalle.
- Review acquisition integration, goodwill and intangible-asset valuations, and the timing and performance conditions attached to earn-outs.
- Monitor debt, working capital and liquidity needs alongside the $208.6 million of unfunded co-investment commitments and the company’s acquisition plans.
- Evaluate exposure to Brexit-related market changes, interest rates, currency fluctuations and LaSalle’s variable incentive-fee and investment earnings.
- Note that KPMG gave unqualified opinions on the financial statements and internal control over financial reporting; management excluded 2016 acquisitions representing $787 million of assets and $388 million of revenue from its internal-control assessment.