Jones Lang LaSalle Incorporated — FY 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. The filing is an annual report; selected fourth-quarter results are also summarized below. Amounts are in U.S. dollars unless stated otherwise.
Business context and reporting period
JLL provides commercial real estate services through the Americas, EMEA and Asia Pacific segments, and investment management through LaSalle. At year-end, it operated in more than 80 countries, employed approximately 82,000 people and managed about 4.6 billion square feet. LaSalle assets under management (AUM) were $58.1 billion.
Financial performance and liquidity
| Metric | FY 2017 | FY 2016 | Change or context |
|---|---|---|---|
| Revenue | $7,932.4 million | $6,803.8 million | Up 17% |
| Fee revenue, non-GAAP | $6,696.1 million | $5,756.8 million | Up 16% |
| Operating income | $536.9 million | $440.6 million | Up 22% reported; 17% in local currency |
| Net income attributable to common shareholders | $253.8 million | $317.8 million | Down 20% |
| Diluted EPS | $5.55 | $6.98 | Down from prior year |
| Adjusted EBITDA, non-GAAP | $760.0 million | $657.9 million | Up 16% reported; 13% in local currency |
| Adjusted EBITDA margin on fee revenue | 11.4% | 11.4% | Unchanged in U.S. dollars; 11.1% in local currency for 2017 |
| Cash from operating activities | $789.2 million | $214.5 million | Increase attributed to operating performance, working-capital management and lower incentive compensation payments |
| Cash and cash equivalents | $268.0 million | $258.5 million | At December 31 |
| Total debt | $752.7 million | $1,267.6 million | At December 31; no Facility borrowings at year-end |
Operating cash flow less reported capital expenditures of $151.4 million was approximately $637.8 million; this is a simple calculation, not a company-reported free-cash-flow measure. Investing activities used $166.7 million and financing activities used $623.5 million. JLL had a $2.75 billion unsecured revolving facility maturing in 2021, with $9.0 million of letters of credit outstanding at year-end. It issued €350 million of fixed-rate notes in 2017, using the proceeds to repay Facility borrowings. Moody’s and S&P ratings were investment grade with stable outlooks. Annual dividends declared were $0.72 per share, versus $0.64 in 2016.
Fourth-quarter results
Fourth-quarter revenue was $2,535.5 million, compared with $2,158.2 million in Q4 2016. Operating income was $292.2 million, versus $226.3 million. Net income attributable to common shareholders was $78.2 million, compared with $165.3 million, and diluted EPS was $1.71 versus $3.62. The 2017 quarter included the year-end tax charge described below.
Material changes versus the prior comparable period
- Real Estate Services revenue increased 18%; management cited double-digit growth in all three regions, with roughly two-thirds of the year-over-year increase attributed to organic growth. Property & Facility Management led growth, partly reflecting the Integral UK acquisition.
- Americas operating income rose to $341.3 million from $269.9 million, and Asia Pacific operating income rose to $114.6 million from $88.1 million. EMEA operating income fell to $54.0 million from $67.4 million; its margin was pressured by Integral-related contract losses, terminated contracts and integration spending.
- LaSalle revenue declined 13% to $355.3 million as lower incentive and transaction fees outweighed modest advisory-fee growth. AUM fell from $60.1 billion, principally reflecting dispositions and withdrawals, partially offset by acquisitions, valuation gains and foreign exchange.
- Equity earnings from real estate ventures increased to $44.4 million from $33.8 million. Adjusted EBITDA rose, while common-shareholder net income and EPS fell, primarily because of the 2017 tax charge.
- JLL slowed acquisition activity, completing five new acquisitions in 2017 compared with 28 in 2016, and said it was focusing on integrating prior acquisitions.
Outlook, commentary, risks and unusual items
- No specific numerical revenue, earnings or margin guidance is provided. The “Beyond” strategy emphasizes long-term growth, productivity, client service, and continued investment in technology, data and talent; JLL launched JLL Spark in 2017 to develop and invest in property technology.
- The 2017 tax provision was $267.8 million, including a provisional $141.3 million charge associated with U.S. tax reform, principally the transition tax on foreign earnings. The reported effective tax rate was 51.0%; excluding that charge, JLL reported 24.1%. The estimate remained subject to further review and could change.
- JLL expected adoption of ASC Topic 606 in 2018 to materially increase reported revenue and operating expenses as some client-reimbursed costs move to gross presentation. The company estimated approximately $6.1 billion of additional revenue and an equal increase in operating expenses in recast 2016 results; it expected no material impact to operating income from this presentation change.
- Material risks include economic and real estate-market cycles, transaction-volume volatility, fee and margin pressure, acquisition integration and earn-outs, foreign exchange, client or counterparty credit, cyber and data-security threats, regulation and tax changes, and natural disasters. Revenue and profits are seasonal, historically tending to rise through the year.
- Potential acquisition earn-out payments were up to $436.2 million, subject to performance conditions; unfunded co-investment commitments totaled up to $216.5 million. Ordinary-course litigation was disclosed, but management did not expect its resolution to materially adversely affect financial position, results or liquidity.
Important facts for investors to verify
- Review the final accounting for the $141.3 million tax-reform provision and its implications for 2018 tax expense and cash payments.
- Assess whether EMEA can improve Integral contract performance and margins, and whether LaSalle AUM and fee generation stabilize.
- Track cash conversion and working capital, particularly receivables, incentive-compensation timing and client-reimbursable costs.
- Confirm the realized cost and performance of technology investments, acquisition integration, potential earn-outs and co-investment commitments.
- Distinguish underlying operating trends from non-GAAP measures and the anticipated gross-presentation effects of ASC Topic 606.