Jones Lang LaSalle Incorporated — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; comparisons are with Q1 2018 unless stated otherwise. JLL provides commercial real estate services through its Americas, EMEA and Asia Pacific Real Estate Services (RES) segments, and LaSalle Investment Management.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Total revenue | $3.821 billion | $3.555 billion |
| Revenue before reimbursements | $1.962 billion | $1.891 billion |
| Fee revenue (non-GAAP) | $1.319 billion | $1.282 billion |
| Operating income | $25.4 million | $53.8 million |
| Net income attributable to common shareholders | $21.3 million | $40.3 million |
| Diluted EPS | $0.46 | $0.88 |
| Adjusted EBITDA (non-GAAP) | $95.4 million | $107.7 million |
| Adjusted EBITDA margin on fee revenue | 7.2% in USD; 7.0% in local currency | 8.4% |
| Cash used in operating activities | $551.5 million | $258.6 million |
- Revenue grew 7% in USD and 11% in local currency; fee revenue rose 3% in USD and 6% in local currency. Foreign exchange reduced reported growth.
- Operating income fell 53% in USD. Higher fee revenue was outweighed by higher operating costs, $18.6 million of restructuring and acquisition charges versus $0.7 million, and lower equity earnings from real estate ventures ($5.0 million versus $13.6 million).
- At March 31, cash and cash equivalents were $389.5 million, down from $480.9 million at year-end; restricted cash was $195.7 million. Current assets were $5.028 billion and current liabilities $4.212 billion.
- Total debt was $1.293 billion, including $525 million outstanding under the revolving credit facility, $119.3 million of short-term borrowings and $664.1 million of long-term debt. Warehouse facilities of $477.2 million are separately reported as liabilities and are backed by warehouse receivables. The $2.75 billion facility matures in May 2023; JLL reported compliance with debt covenants.
- Operating lease accounting adoption added $592.1 million of right-of-use assets and $667.9 million of lease liabilities to the balance sheet. Prior-year periods were not restated.
Segment trends and material changes
- Americas RES: Fee revenue increased 15% in local currency. Leasing and Property & Facility Management contributed to growth; Capital Markets declined. Adjusted EBITDA rose to $88.0 million from $67.7 million.
- EMEA RES: Fee revenue declined 3% in local currency, largely reflecting weaker Capital Markets and other transactional activity. Adjusted EBITDA was a loss of $18.2 million, versus a loss of $7.4 million.
- Asia Pacific RES: Fee revenue increased 8% in local currency, led by Property & Facility Management and Project & Development Services. Adjusted EBITDA increased to $7.3 million from $5.0 million.
- LaSalle: Fee revenue declined 14% in local currency, primarily because incentive fees fell 76% after strong prior-year performance; advisory fees grew. Adjusted EBITDA was $18.3 million versus $42.4 million. Assets under management were $64.3 billion, up 6% in USD from December 31, 2018.
Outlook, risks, contingencies and unusual items
- JLL provided no quantified earnings or revenue guidance. Management cautioned that Q1 is not indicative of full-year results: revenue and profits have historically increased as the year progresses, while transaction timing, incentive fees, co-investment valuations and incentive compensation can cause substantial quarterly variation.
- Management attributed the increase in operating cash use mainly to higher annual incentive compensation payments and EMEA accelerating certain trade-payable payments ahead of a new financial system implementation.
- JLL completed two strategic acquisitions in the quarter and reported a March 18, 2019 merger agreement involving HFF, Inc. The filing text provided here does not give clear transaction terms or expected financial effects. The 2019 acquisition purchase-price allocations remained preliminary.
- Potential earn-out payments across 54 acquisitions had a maximum undiscounted amount of $376.4 million, subject to performance conditions and expected over as long as six years. Unfunded real estate investment commitments totaled $245.6 million.
- Under its Fannie Mae DUS lending arrangements, JLL had $8.6 billion of funded and sold loans subject to loss-sharing, with a $17.5 million loan-loss accrual. No loan losses were incurred in the quarter. JLL also disclosed ordinary-course litigation; management did not expect its ultimate resolution to materially adversely affect financial position, results or liquidity.
- Variable-rate debt creates interest-rate exposure; management estimated a 50-basis-point increase in short-term rates would add $0.3 million to Q1 interest expense. Foreign-currency movements also affect reported results. JLL cited economic and geopolitical conditions, real estate and credit markets, competition, litigation, and regulation among factors that could affect results.
- After quarter-end, JLL announced a $0.43-per-share cash dividend, payable June 14, 2019. Management stated future dividends remain subject to Board approval. Disclosure controls were concluded effective, and no material changes to risk factors were reported.
Important facts for investors to verify
- Whether RES growth and Americas margin improvement can offset continuing weakness in EMEA and transaction-sensitive Capital Markets.
- The timing and magnitude of LaSalle incentive fees, co-investment valuation changes, and deferred compensation expense.
- Working-capital cash use, liquidity available under the revolving facility, and the distinction between corporate debt and warehouse financing.
- The final terms, completion status and financial impact of the HFF merger agreement, as well as acquisition earn-out and integration exposure.
- Potential outcomes of litigation and DUS loan-loss exposure, together with the assumptions supporting related accruals.