Jones Lang LaSalle Incorporated — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. JLL provides commercial real estate services across the Americas, EMEA and Asia Pacific, and global investment management through LaSalle. The company reported operations in more than 80 countries and 93,400 employees. Figures below are in U.S. dollars unless stated otherwise.
Financial performance and liquidity
| Metric | 2019 | 2018 | Change / context |
|---|---|---|---|
| Revenue | $17.98 billion | $16.32 billion | Up 10% reported; 12% in local currency |
| Fee revenue (non-GAAP) | $7.14 billion | $6.49 billion | Up 10% reported; 12% in local currency |
| Operating income | $715.4 million | $706.9 million | Up 1% reported; 2% in local currency |
| Net income attributable to common shareholders | $534.4 million | $484.1 million | Up 10% |
| Diluted EPS | $10.87 | $10.54 | Up 3%; share issuance for HFF affected per-share growth |
| Adjusted EBITDA (non-GAAP) | $1.12 billion | $953.2 million | Up 17% reported; 18% in local currency |
| Adjusted EBITDA margin | 15.6% reported; 15.5% local currency | 14.7% | Expanded year over year |
| Operating cash flow | $483.8 million | $604.1 million | Down $120.3 million, largely due to higher tax payments |
| Cash and cash equivalents | $451.9 million | $480.9 million | Year-end balance |
| Total debt | $1.30 billion | $688.3 million | Increase primarily associated with HFF financing |
Investing activities used $1.05 billion, primarily reflecting acquisitions, including HFF; financing activities provided $584.6 million. JLL had a $2.75 billion revolving credit facility, with $525 million drawn at year-end and a May 2023 maturity. It reported investment-grade ratings of Baa1 from Moody’s and BBB+ from S&P and compliance with debt covenants. The company paid $0.86 per share in 2019 dividends and authorized a new $200 million share-repurchase program; no repurchases were made under the program during 2019.
Business results and material changes
- Real Estate Services revenue rose 11% reported (13% local currency), with growth across service lines. Property & Facility Management was the largest contributor to revenue growth; Capital Markets led fee-revenue growth.
- Americas revenue increased 17%; segment operating income rose 45%. Growth included HFF and strong leasing. Excluding HFF, Americas revenue and fee revenue grew 13% and 10%, respectively.
- EMEA revenue declined 1% reported but increased 4% in local currency. Segment operating income fell 39%, as weakness in higher-margin leasing and capital-markets activity weighed on results.
- Asia Pacific revenue increased 5% reported (8% local currency); segment operating income rose 13%. Capital Markets growth was partly offset by softer leasing in Hong Kong and China.
- LaSalle revenue declined 1% reported and fee revenue declined 2%. Higher advisory and transaction fees were offset by lower incentive fees following record 2018 results. AUM increased 12% reported to $67.6 billion.
- JLL acquired HFF on July 1, 2019, for total consideration of approximately $1.87 billion. HFF contributed $392.3 million of post-acquisition revenue and $86.7 million of segment operating income. The transaction substantially expanded Capital Markets, especially in the U.S.
Restructuring and acquisition charges increased to $184.4 million from $38.8 million, including $115.1 million related to HFF acquisition and integration. Interest expense rose to $56.4 million from $51.1 million as average facility borrowings increased. The effective tax rate fell to 22.9% from 30.4%; excluding adjustments related to U.S. tax legislation, rates were 23.5% and 23.7%, respectively.
Outlook, commentary and risks
Management described 2020 priorities as embedding recent organizational and technology changes and pursuing growth under its multi-year “Beyond” strategy. The filing provides no specific numerical revenue, earnings or margin guidance. Management expects significant HFF integration charges over the two years following the acquisition, including approximately $100 million of retention-award expense; additional integration costs were not quantified. JLL also planned to invest up to $100 million through JLL Spark venture funds and had invested approximately $34.4 million by year-end.
JLL highlighted exposure to economic and commercial real estate cycles, transaction volumes, competition and fee pressure, seasonality, currency fluctuations, and unpredictable LaSalle incentive fees and investment gains. Other material risks include acquisition integration, talent retention, cyber and data-protection incidents, client concentration and credit risk, regulatory and tax complexity, climate-related impacts, and refinancing or counterparty risk. The company reported ordinary-course litigation and claims, often insured subject to deductibles or limits, and stated that their ultimate resolution was not expected to materially affect financial position, results or liquidity. The filing also discusses Brexit-related uncertainty and health epidemics as general risks.
Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. HFF was excluded from the 2019 internal-control assessment under SEC rules. Critical audit matters included valuation of HFF customer-relationship intangibles, EMEA goodwill impairment analysis and audit evidence for income taxes. No EMEA goodwill impairment was recorded; estimated fair value exceeded carrying value by more than 35%.
Most important facts for investors to verify
- How much future growth and margin performance is organic versus attributable to HFF, and whether HFF integration costs and anticipated synergies develop as expected.
- Whether operating cash flow recovers from 2019’s decline and how working-capital needs, taxes and acquisition-related obligations affect liquidity.
- Whether EMEA’s lower transactional activity and reduced margins improve, and whether softer leasing conditions in parts of Asia Pacific persist.
- The sensitivity of LaSalle earnings to incentive-fee timing, fund dispositions, AUM flows and real estate valuations.
- Debt, potential earn-outs and investment commitments: JLL reported $148.4 million of accrued earn-outs, up to $268.9 million of maximum potential earn-outs, and $314.7 million of unfunded investment commitments.
- Developments in legal claims, DUS loan loss-sharing exposure, tax examinations and the key valuation assumptions identified as critical audit matters.