Jones Lang LaSalle Incorporated — FY 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011; filed February 27, 2012. This is an annual report, not a standalone fourth-quarter filing. JLL provides commercial real estate services across the Americas, EMEA and Asia Pacific, and global real estate investment management through LaSalle Investment Management.
Financial performance and liquidity
| Metric | FY 2011 | FY 2010 | Change |
|---|---|---|---|
| Revenue | $3,584.5 million | $2,925.6 million | +23% reported; +19% local currency |
| Operating income | $251.2 million | $260.7 million | -4% |
| Operating margin | 7.0% | 8.9% | Down about 1.9 percentage points |
| Net income attributable to JLL | $164.4 million | $153.9 million | +7% |
| Diluted EPS | $3.70 | $3.48 | +6% |
| Net cash from operations | $211.3 million | $384.3 million | Down $173.0 million |
| Cash and cash equivalents at year-end | $184.5 million | $251.9 million | Down $67.4 million |
| Total debt | $528.1 million | $226.2 million | Up $301.9 million |
Operating expenses rose 25% to $3.33 billion, faster than revenue. They included $56.1 million of restructuring and acquisition charges, mainly related to King Sturge integration. Net interest expense declined to $35.6 million from $45.8 million. JLL reported EBITDA of $338.8 million, a non-GAAP measure.
Operating cash flow fell principally because receivables increased with late-year revenue growth; the filing cites a $136 million year-over-year increase in receivables in its cash-flow discussion. Investing activities used $389.3 million, including $251.8 million for acquisition payments and $91.5 million of net capital additions. Financing activities provided $110.5 million. Cash decreased by $67.4 million over the year.
At year-end, JLL had $463 million outstanding on its $1.1 billion unsecured revolving facility, maturing in June 2016, and $65.1 million in short-term borrowings. The filing says the company was in compliance with its debt covenants and considered available facilities and operating cash flow adequate for current needs. The balance sheet showed current assets of $1.30 billion and current liabilities of $1.35 billion.
Business and segment developments
- Americas: Revenue increased 21% to $1.53 billion; operating income rose 10% to $162.7 million. Full-year operating margin declined to 10.7% from 11.8%.
- EMEA: Revenue increased 34% to $973.7 million, including King Sturge. Operating income rose to $27.9 million from $19.6 million; adjusted margin excluding King Sturge intangible amortization was 4.0%, versus 2.7%.
- Asia Pacific: Revenue increased 20% to $816.5 million; operating income rose 34% to $66.2 million. Full-year margin increased to 8.1% from 7.3%.
- LaSalle Investment Management: Segment revenue increased 12% to $275.5 million, and operating income rose to $57.0 million from $38.4 million. Assets under management reached $47.7 billion, up from $41.3 billion.
JLL completed King Sturge and eight other acquisitions during 2011, alongside additional acquisition activity; acquisition cash payments totaled approximately $252 million. King Sturge added about 1,400 employees and materially expanded EMEA operations. Total square feet under management rose to approximately 2.10 billion from 1.78 billion. Total headcount increased to about 45,500 from 40,300.
Outlook, risks and unusual items
- The filing provides no specific numerical revenue or earnings guidance. Management described ongoing uncertainty in global markets, with particular concern about European sovereign-debt and bank liquidity challenges, uneven economic recovery, and economic conditions in the United States and Asia.
- Management identified opportunities from corporate outsourcing, global capital flows and industry consolidation, while noting that competitive pressures have weighed on fees in some service lines. The company anticipated net co-investment funding of $40 million to $50 million in 2012.
- Key exposures include cyclical real estate transaction and leasing activity, seasonal earnings concentration in the second half, foreign-currency movements, variable investment-management incentive fees, and clients’ ability to pay or retain JLL. Many service contracts can be canceled on 30 to 60 days’ notice.
- Acquisition integration and obligations are notable: deferred acquisition obligations were $299.1 million on the balance sheet; potential earn-outs on 14 acquisitions had a maximum amount of $156.6 million, subject to performance conditions. The King Sturge purchase-price allocation was not final at year-end.
- Other financial commitments include $593.0 million of minimum lease payments and $69.7 million of defined-benefit plan obligations in the contractual-obligations table. The filing separately describes callable commitments to unconsolidated ventures; amounts depend on the commitment structure and should be reviewed in the notes.
- JLL reported $6 million of its share of real estate venture impairment charges in 2011, down from $14 million in 2010. Pending ordinary-course litigation may involve substantial claims, but management did not expect the ultimate resolution to materially adversely affect financial position, results or liquidity.
JLL paid dividends of $0.30 per share in 2011; future dividends remain at the board’s discretion. KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether revenue growth, particularly in EMEA, reflects sustainable organic expansion after separating King Sturge and currency effects.
- Why operating income and operating margin declined despite 23% revenue growth, including the effects of compensation, acquisition integration and reimbursable contract costs.
- Whether the increase in receivables and fall in operating cash flow were temporary timing effects, and how collections and working capital develop.
- The final King Sturge purchase-price allocation, integration progress, and timing and amount of deferred acquisition payments and contingent earn-outs.
- Facility capacity and covenant headroom, alongside co-investment funding needs and other commitments to unconsolidated ventures.
- LaSalle’s assets-under-management trends and the potential volatility of incentive fees, real estate venture results and investment impairments.