Jones Lang LaSalle Incorporated — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. Unaudited results; comparisons are with Q1 2013 unless otherwise noted. JLL provides real estate services across the Americas, EMEA and Asia Pacific, and investment management through LaSalle.
Financial performance and liquidity
| Metric | Q1 2014 | Q1 2013 / comparison |
|---|---|---|
| Revenue | $1,037.4 million | $856.0 million; up 21% in U.S. dollars and 22% in local currency |
| Fee revenue | $877.8 million | $780.5 million; up 13% in local currency |
| Operating income (loss), reported | $(15.3) million | $20.1 million |
| Operating income before restructuring and acquisition charges | $20.7 million | $23.3 million |
| Net income attributable to JLL | $15.9 million | $13.2 million |
| Diluted EPS | $0.35 | $0.29 |
| Net cash used in operating activities | $(263.4) million | $(301.5) million |
| Cash and cash equivalents, March 31 | $140.1 million | $152.7 million at December 31, 2013 |
| Credit facility borrowings, March 31 | $443.0 million | $155.0 million at December 31, 2013 |
Other debt included $275 million of senior notes due 2022 and $16.8 million of short-term borrowings. The $1.2 billion revolving facility matures in 2018, with $734.4 million of borrowing capacity at quarter-end. JLL reported covenant compliance. Total current assets were $1,665.1 million and current liabilities were $1,281.1 million.
Investing activities used $39.3 million, including $33.3 million of capital additions and $9.2 million for acquisitions. Financing activities provided $290.1 million, primarily reflecting credit facility activity. Cash declined by $12.6 million during the quarter.
Material changes and segment results
- Fee revenue growth was led by Leasing (+18% in local currency), Property and Facility Management (+20%), and Project and Development Services (+14%). Capital Markets and Hotels declined 6% in local currency.
- The reported operating loss reflects $36.0 million of restructuring and acquisition charges, versus $3.2 million a year earlier. Of the 2014 amount, $34.5 million was an indemnification-asset write-off, offset by recognition of an equal previously unrecognized tax benefit; management said this had no net-income impact. Excluding the charges, operating income declined from $23.3 million to $20.7 million.
- Equity earnings from real estate ventures increased to $8.9 million from $5.5 million, primarily due to asset-sale gains and value increases. Net income also reflected a $29.1 million income-tax benefit; excluding the related indemnification-asset tax item, management reported an estimated 25% effective tax rate.
- Americas: Fee revenue rose 20% in local currency to $406.5 million; operating income was $17.0 million versus $14.7 million.
- EMEA: Fee revenue rose 6% in local currency to $234.0 million; operating loss widened to $4.9 million from $1.6 million. Lower Russia contribution reduced operating income by $5.4 million year over year.
- Asia Pacific: Fee revenue rose 11% in local currency to $173.6 million; operating income declined to $1.1 million from $2.4 million.
- LaSalle: Segment revenue rose 11% in local currency to $72.6 million and operating income rose 20% in local currency to $16.4 million. Assets under management were $48.0 billion; LaSalle raised $930 million of equity commitments in the quarter.
Outlook, risks and unusual items
- No specific full-year revenue or earnings guidance is provided. Management cautions that first-quarter results are not indicative of full-year performance: revenue and profits historically build through the year, while incentive compensation, transactions, performance fees and asset-sale gains can make quarterly results uneven.
- Management cited macroeconomic, geopolitical, real estate and credit-market conditions; transaction timing; foreign exchange; interest rates; competition; litigation; and changes in legislation or regulation as factors that could affect results. Foreign markets generated 58% of revenue in Q1 2014. The company uses foreign-exchange forwards and reported no material net-income impact from their revaluation.
- Maximum unfunded commitments to co-investment vehicles and funds were approximately $204.8 million at March 31. Potential earn-out payments on 13 acquisitions totaled up to $32.3 million, subject to performance conditions; deferred acquisition obligations were $136.0 million.
- JLL reported ordinary-course litigation and said, based on available information, its resolution was not expected to materially adversely affect financial position, results or liquidity. Some claims may exceed insurance or be subject to substantial deductibles.
- After quarter-end, the board declared a semi-annual dividend of $0.23 per share, payable June 13, 2014. Future dividends remain subject to board approval.
Important facts for investors to verify
- How much of the revenue growth reflects durable, recurring service fees versus transaction activity, currency effects and gross contract-cost presentation.
- The underlying operating trend after separating the $34.5 million indemnification-asset write-off and related tax benefit from reported results.
- Whether operating cash flow and working capital improve after seasonal first-quarter incentive-compensation payments.
- How higher revolving-credit-facility borrowings, co-investment commitments and acquisition obligations affect leverage and liquidity.
- LaSalle’s ability to sustain fundraising and investment performance, and the timing and variability of future incentive fees and asset-sale gains.