JONES LANG LASALLE INC quarterly report, Q3 FY2021

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Jones Lang LaSalle Incorporated — Q3 2021 Form 10-Q

Reporting period: Three and nine months ended September 30, 2021. Unaudited interim results. Unless stated otherwise, amounts are in U.S. dollars.

Business context and results

JLL provides real estate services through the Americas, EMEA and Asia Pacific segments, and investment management through LaSalle. Consolidated revenue includes reimbursed client expenses; revenue before reimbursements and fee revenue are useful complements when assessing underlying activity.

  • Q3: Revenue was $4.889 billion, up 23% year over year; revenue before reimbursements was $2.805 billion, up 34%; fee revenue was $2.073 billion, up 46% (45% in local currency).
  • Nine months: Revenue was $13.421 billion, up 14%; revenue before reimbursements was $7.442 billion, up 21%; fee revenue was $5.333 billion, up 28% (25% in local currency).
  • Q3 earnings: Operating income was $292.9 million versus $154.9 million; net income attributable to common shareholders was $237.2 million versus $131.9 million; diluted EPS was $4.57 versus $2.52.
  • Nine-month earnings: Operating income was $597.9 million versus $230.3 million; net income attributable to common shareholders was $540.2 million versus $152.4 million; diluted EPS was $10.35 versus $2.92.
  • Adjusted EBITDA and margin: Q3 Adjusted EBITDA was $352.0 million, up 44%; margin was 17.1% on a local-currency basis versus 17.2%. Nine-month Adjusted EBITDA was $874.5 million, up 98%, with a 16.6% margin versus 10.6%.

Segments and material changes

  • Growth was led by transaction-based Leasing and Capital Markets as activity recovered. Q3 consolidated Leasing revenue increased 72% and Capital Markets increased 102%; fee-revenue growth was broad-based across regions.
  • Americas was the largest contributor: Q3 segment income rose to $285.6 million from $140.0 million; nine-month income was $637.2 million versus $277.1 million.
  • EMEA remained loss-making: Q3 segment loss was $10.3 million versus $1.9 million; nine-month loss narrowed to $45.8 million from $55.8 million.
  • Asia Pacific Q3 segment income fell to $20.9 million from $35.8 million despite higher revenue; nine-month income rose to $75.2 million from $57.4 million.
  • LaSalle Q3 segment income was broadly flat at $29.7 million. Nine-month income increased to $88.9 million from $28.8 million, including a turnaround in equity earnings. AUM reached a record $74.7 billion, up from $73.4 billion at June 30, 2021.
  • Equity earnings were $106.7 million for the first nine months versus $1.4 million a year earlier, substantially reflecting fair-value gains on investments, including JLL Technologies and LaSalle co-investments.

Cash flow, balance sheet and liquidity

  • Nine-month operating cash flow was $210.3 million, down from $363.1 million, primarily due to receivables growth and timing of tax and other payments; investing used $316.0 million versus $124.2 million.
  • Cash and cash equivalents were $535.9 million at September 30, 2021, versus $574.3 million at year-end 2020. Cash, cash equivalents and restricted cash totaled $756.1 million, including $220.2 million restricted.
  • Total debt reported in the debt note was $1.008 billion, versus $755.3 million at year-end. This includes $2.266 billion of warehouse facilities, substantially associated with warehouse receivables of $2.294 billion. Credit-facility borrowings were $225 million gross ($212.2 million net of issuance costs); the $2.75 billion revolver matures in April 2026. The company reported covenant compliance and investment-grade ratings.
  • Shareholders’ equity was $5.856 billion. JLL repurchased 858,900 shares for $191.0 million during the first nine months; $409.0 million remained authorized at September 30.
  • Investments in real estate ventures were $646.6 million, including $537.7 million reported at fair value. Maximum potential unfunded investment commitments were $315.9 million.

Outlook, commentary and risks

  • The filing provides no quantified earnings or revenue guidance. Management said COVID-19-related conditions had affected historical seasonality and could continue to do so during the remainder of 2021; results through September were not necessarily indicative of full-year results.
  • Management described continued recovery in transaction-based activity. It also noted rising expenses as prior-year temporary savings, including government relief, receded and the company invested in people and technology. Transaction activity, incentive compensation and LaSalle performance fees can make quarterly results volatile.
  • Q3 Adjusted EBITDA margin was nearly flat overall year over year, but regional trends diverged: Americas margin expanded, while EMEA and Asia Pacific margins declined.
  • Risks include pandemic and macroeconomic conditions, real estate and credit-market changes, transaction timing, foreign exchange, investment valuations and litigation. The company reported ordinary-course litigation, some involving substantial claims; it believes resolution will not materially adversely affect financial position, results or liquidity, but outcomes cannot be determined with certainty.
  • Other notable items: a $12.0 million nine-month gain on a business disposition was excluded from Adjusted EBITDA; Skyline AI was acquired in Q3, with $22.2 million cash paid at closing and $31.3 million contingent earn-out consideration initially recorded. No significant investment-level impairment losses were reported for the nine-month period.

Important facts for investors to verify

  • How much of earnings growth is recurring operating improvement versus fair-value investment gains and the $12.0 million disposition gain.
  • Whether receivables collection and operating cash conversion improve, given lower nine-month operating cash flow despite substantially higher earnings.
  • The composition and refinancing or funding risks of debt, especially warehouse facilities, and the relationship between warehouse receivables and borrowings.
  • Whether EMEA can return to profitability and whether Asia Pacific margins recover as transaction volumes and expenses evolve.
  • Exposure and potential funding needs from the $315.9 million of unfunded investment commitments, acquisition earn-outs and litigation or guarantee obligations.
  • How COVID-19, foreign exchange and real estate valuation changes affect transaction activity, seasonality and reported results.