Jones Lang LaSalle Incorporated — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. JLL provides real estate services and investment management. The filing notes that results are typically seasonally lower in the first quarter and are not necessarily indicative of full-year results.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 / prior date |
|---|---|---|
| Total revenue | $4.096 billion | $3.821 billion; up 7% reported, 9% in local currency |
| Revenue before reimbursements | $2.233 billion | $1.962 billion; up 14% reported, 15% in local currency |
| Fee revenue | $1.505 billion | $1.319 billion; up 14% reported, 15% in local currency |
| Operating income | $64.6 million | $25.4 million |
| Net income attributable to JLL / common shareholders | $5.3 million; diluted EPS $0.10 | $21.3 million; diluted EPS $0.46 |
| Adjusted EBITDA and margin | $95.6 million; 6.4% of fee revenue | $95.4 million; 7.2% |
| Cash used in operating activities | $546.1 million | $551.5 million |
| Cash and cash equivalents at period end | $720.7 million | $451.9 million at Dec. 31, 2019 |
| Total debt, excluding warehouse facilities | $2.220 billion | $1.297 billion at Dec. 31, 2019 |
| Credit facility borrowings | $1.450 billion | $525.0 million at Dec. 31, 2019 |
Operating cash outflow reflected working-capital needs, including annual incentive compensation payments. Financing activities provided $883.3 million, primarily reflecting increased facility borrowings. Investing activities used $90.5 million. JLL also had $936.6 million outstanding under warehouse facilities, separately reported from the debt total above. The $2.75 billion revolving facility matures in May 2023; JLL reported compliance with debt covenants and investment-grade ratings.
Total assets were $13.901 billion and total equity was $5.029 billion at March 31, 2020. The current-period foreign-currency translation loss was $143.4 million, reducing company shareholders’ equity and contributing to accumulated other comprehensive loss of $571.2 million.
Material changes and segment results
- Revenue growth was led by Capital Markets, including revenue from the 2019 HFF acquisition, and by Property & Facility Management. RES fee revenue increased across all service lines, with Americas contributing more than the total net growth.
- Americas RES: Fee revenue rose 30% in local currency; segment operating income was $81.9 million versus $60.6 million. Results included a $30.6 million noncash increase in credit reserves related to loan-loss sharing.
- EMEA RES: Fee revenue was up 1% in local currency. Segment operating loss narrowed to $20.5 million from $29.4 million.
- Asia Pacific RES: Fee revenue declined 7% in local currency, with pandemic-related disruption to transactional services in Greater China and Japan. Segment operating income was $3.1 million versus $0.7 million.
- LaSalle: Revenue increased 8% in local currency, led by advisory fees, but equity losses were $40.3 million versus $4.9 million of equity earnings a year earlier, largely reflecting lower estimated real estate investment values. AUM was $69.5 billion, up 1% in local currency from year-end.
Despite higher operating income, common-shareholder net income declined, reflecting equity losses, higher expenses and other period-specific effects. LaSalle’s investment losses and the Americas credit-reserve increase were notable noncash pandemic-related charges.
Outlook, risks and unusual items
- JLL gave no quantified earnings or revenue guidance in the supplied filing text. Management said it was monitoring pandemic effects on transactional services, potential additional noncash charges and possible delays in client payments, and had implemented discretionary cost-mitigation measures.
- Offices in China began closing in January; by the end of March, over 90% of office-based corporate employees globally were working remotely. Management reported the most significant operating effects in locations with longer pandemic duration.
- Adoption of the expected-credit-loss accounting standard on January 1, 2020 reduced retained earnings by $14.9 million. The loan-loss guarantee reserve was $45.7 million at quarter-end.
- Fair-value investments in real estate ventures declined $35.2 million during the quarter. Management also recorded a $36.3 million aggregate reduction to reported NAV for certain investments in response to changed market conditions.
- As of March 31, JLL had maximum potential unfunded investment commitments of $309.0 million and a maximum $254.0 million of earn-out payments potentially payable over time, subject to performance criteria.
- Litigation arose in the ordinary course of business; JLL said it could not determine ultimate liability but did not expect resolution to materially adversely affect financial position, results or liquidity. The filing reported no material change to previously disclosed risk factors.
- Effective April 1, the CEO and Global Executive Board waived 50% of their base salaries for the remainder of 2020; directors waived 50% of cash retainer fees for the same period.
Important facts for investors to verify
- How COVID-19 affects subsequent-quarter transaction volumes, client collections and the need for additional credit reserves or investment markdowns.
- Whether HFF-related growth and Americas performance can offset weakness in other regions and transactional service lines, and how margins develop.
- Facility utilization, refinancing and covenant headroom, particularly given the increase in revolver borrowings and the separate warehouse funding exposure.
- The assumptions underlying LaSalle investment valuations, the $45.7 million loan-loss guarantee reserve and the $309.0 million unfunded investment commitments.
- Cash-flow seasonality and working-capital requirements, including incentive compensation and the timing of payments and collections.
- Potential acquisition integration costs, earn-out payments and remaining share-repurchase authorization; $175.0 million remained under the repurchase program at quarter-end.