Jones Lang LaSalle Incorporated (JLL) — FY2020 Form 10-K
Reporting period: Year ended December 31, 2020. JLL is a global commercial real estate services and investment management firm operating in more than 80 countries, with approximately 90,800 employees. Its businesses comprise Real Estate Services (Americas, EMEA and Asia Pacific) and LaSalle Investment Management.
Financial performance
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Revenue | $16.59 billion | $17.98 billion | Down 8% |
| Fee revenue (non-GAAP) | $6.13 billion | $7.14 billion | Down 14% |
| Operating income | $559.1 million | $715.4 million | Down 22% |
| Net income attributable to common shareholders | $402.5 million | $534.4 million | Down 25% |
| Diluted earnings per share | $7.70 | $10.87 | Down 29% |
| Adjusted EBITDA (non-GAAP) | $859.6 million | $1.12 billion | Down 23% in reported dollars |
| Adjusted EBITDA margin | 14.0% in reported dollars; 13.9% local currency | 15.6% | Down |
| Cash from operating activities | $1.115 billion | $483.8 million | More than doubled |
Net income margin attributable to common shareholders was 4.5%, versus 5.3% in 2019, measured against revenue before reimbursements. The effective tax rate was 20.2%, compared with 22.9%.
Cash, debt and liquidity
- Cash and cash equivalents were $574.3 million at year-end, up from $451.9 million. Cash, cash equivalents and restricted cash totaled $839.8 million.
- No borrowings were outstanding under JLL’s $2.75 billion revolving credit facility at year-end; it matures in May 2023. Total debt, including short-term borrowings and long-term notes, was $755.3 million net of debt issuance costs.
- Long-term notes included $275 million due in 2022 and €350 million of notes due in 2027 and 2029. JLL reported investment-grade ratings of Baa1 from Moody’s and BBB+ from S&P and compliance with debt covenants.
- Operating cash flow benefited from strong receivables collections, pandemic-related government programs and deferral opportunities, and lower cash taxes. Investing activities used $170.6 million; financing activities used $771.2 million, including $525 million of net credit-facility repayments and $100 million of share repurchases.
Material changes and business drivers
- COVID-19 materially reduced transaction activity, especially in Leasing and Capital Markets, and disrupted Project & Development Services. Global office gross absorption fell more than 40%, according to JLL Research.
- Real Estate Services revenue declined 7% and fee revenue declined 14%. Leasing fee revenue fell 26%; Capital Markets fee revenue fell 11%; Property & Facility Management fee revenue grew 1%; Project & Development Services fee revenue fell 10%.
- LaSalle revenue fell 20%, mainly because incentive fees declined to $41.5 million from $138.4 million after unusually strong 2019 performance. LaSalle also recorded equity losses of $12.4 million, versus equity earnings of $33.3 million in 2019. Assets under management rose 2% in U.S. dollars to $68.9 billion.
- Segment income was $554.9 million in Americas, a loss of $16.0 million in EMEA, $116.4 million in Asia Pacific, and $54.2 million at LaSalle. EMEA and LaSalle were particularly affected by weaker activity and lower transaction-related earnings.
- JLL achieved nearly $330 million in non-permanent cost savings, including $80 million from government programs; management said these savings are likely to reverse as conditions recover. Cost reductions partly offset lower fee revenue.
Outlook, risks and unusual items
The filing provides no quantified earnings or revenue guidance. Management said the duration and ultimate financial effects of COVID-19 remained uncertain, making near- to medium-term performance difficult to estimate. It expects the pandemic’s effects to depend on the duration of disruptions and related government measures.
- Principal risks include ongoing pandemic effects on real estate markets and transactions, economic and geopolitical uncertainty, foreign currency movements, competition and fee pressure, talent retention, cybersecurity and data privacy, third-party and health-and-safety risks, and regulatory and tax complexity.
- JLL recognized a net $21.6 million increase in Americas loan-loss credit reserves related to pandemic conditions. LaSalle adjusted investment valuations and recorded lower co-investment earnings. JLL also reported $142.4 million of restructuring and acquisition charges, including $75.9 million related to HFF integration.
- Pending ordinary-course claims and litigation include potentially substantial asserted damages. JLL stated that, based on information available, their resolution is not expected to materially adversely affect financial position, results or liquidity; insurance may be subject to deductibles or limits.
- JLL repurchased nearly 897,000 shares for $100 million in 2020 and paid no dividends. In February 2021, the Board authorized an additional $500 million for repurchases, alongside $100 million remaining under the prior program.
- Auditors issued unqualified opinions on the financial statements and internal control. The audit identified EMEA goodwill impairment testing and evidence supporting income tax expense as critical audit matters; the EMEA reporting unit’s estimated fair value exceeded carrying value by more than 20% in the annual test.
Key facts investors should verify
- Whether transaction volumes, Leasing and Capital Markets fee revenue, and EMEA profitability recover, and how much of the reported cost savings return.
- Whether the elevated operating cash flow is sustainable, given the contribution from collections, tax timing and government programs.
- LaSalle’s incentive-fee pipeline, investment valuations and AUM trends, including the effect of dispositions and withdrawals.
- Debt maturity and refinancing plans, warehouse-facility availability, and the $320.7 million of unfunded investment commitments.
- Potential credit losses, litigation and insurance exposure, and the sensitivity of EMEA goodwill and global tax balances to future assumptions.
- Non-GAAP reconciliations: fee revenue and Adjusted EBITDA exclude specified items and may not be comparable with similarly titled measures at other companies.