Item 2. Management’s Discussion and Analysis
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements, including the notes thereto, for the three and six months ended June 30, 2020 , and our audited Consolidated Financial Statements, including the notes thereto, for the fiscal year ended December 31, 2019 , which are included in our 2019 Annual Report on Form 10-K, filed with the SEC and also available on our website ( www.jll.com ). You should also refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our 2019 Annual Report on Form 10-K.
The following discussion and analysis contains certain forward-looking statements generally identified by the words anticipates, believes, estimates, expects, forecasts, plans, intends and other similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause JLL's actual results, performance, achievements, plans and objectives to be materially different from any future results, performance, achievements, plans and objectives expressed or implied by such forward-looking statements. See the Cautionary Note Regarding Forward-Looking Statements included within this section for further information.
We present our quarterly Management's Discussion and Analysis in the following sections:
(1)
A summary of our critical accounting policies and estimates;
(2)
Certain items affecting the comparability of results and certain market and other risks we face;
(3)
The results of our operations, first on a consolidated basis and then for each of our business segments; and
(4)
Liquidity and capital resources.
SUMMARY OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
An understanding of our accounting policies is necessary for a complete analysis of our results, financial position, liquidity and trends. See Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in our 2019 Annual Report on Form 10-K for a complete summary of our significant accounting policies.
The preparation of our financial statements requires management to make certain critical accounting estimates and judgments that impact (1) the stated amount of assets and liabilities, (2) disclosure of contingent assets and liabilities at the date of the financial statements, and (3) the reported amount of revenue and expenses during the reporting periods. These accounting estimates are based on management's judgment. We consider them to be critical because of their significance to the financial statements and the possibility that future events may differ from current judgments or that the use of different assumptions could result in materially different estimates. We review these estimates on a periodic basis to ensure reasonableness. Although actual amounts likely differ from such estimated amounts, we believe such differences are not likely to be material.
A discussion of our critical accounting policies and estimates used in the preparation of our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q can be found in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2019 . There have been no material changes to these critical accounting policies and estimates during the six months ended June 30, 2020 .
The following are the critical accounting policies and estimates discussed in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2019 :
•
Revenue Recognition;
•
Business Combinations, Goodwill and Other Intangible Assets;
•
Investments in Real Estate Ventures; and
•
Income Taxes.
In addition to the aforementioned critical accounting policies, we believe the calculation of our quarterly tax provision is critical to understanding the estimates and assumptions used in preparing the Condensed Consolidated Financial Statements in Item 1.
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Quarterly Income Tax Provision
We base our fiscal year estimated effective tax rate on estimates we update each quarter. Our effective tax rate for the six months ended June 30, 2020 was 17.1%, resulting in an effective tax rate of 10.0% for the second quarter of 2020. We provide for the effects of income taxes on interim financial statements based on our estimate of the effective tax rate for the full year, which we base on forecasted income by country and expected enacted tax rates; as required, we adjust for the impact of discrete items in the quarters in which they occur. We evaluate our estimated effective tax rate on a quarterly basis to reflect forecast changes in our geographic mix of income and legislative actions on statutory tax rates and other relevant matters effective in the quarter in which the legislation is enacted. Changes in the impact of the COVID-19 pandemic on our forecasted income may affect our forecasted full-year effective tax rate for the remaining interim quarters of 2020.
The geographic mix of our income can significantly impact our effective tax rate. Very low tax rate jurisdictions (those with effective national and local combined tax rates of 25% or lower) that provide the most significant contributions to our effective tax rate include: Hong Kong ( 16.5% ), Singapore ( 17% ), the United Kingdom ( 17.5% ) and Saudi Arabia ( 20% ). We do not project any other jurisdictions with effective rates of 25% or lower to materially impact our 2020 global effective tax rate.
ITEMS AFFECTING COMPARABILITY
Macroeconomic Conditions
Our results of operations and the variability of these results are significantly influenced by (1) macroeconomic trends, (2) the geopolitical environment, (3) the global and regional real estate markets, and (4) the financial and credit markets. These macroeconomic and other conditions have had, and we expect will continue to have, a significant impact on the variability of our results of operations. Specifically in 2020, we are experiencing the macroeconomic impact of the COVID-19 pandemic.
Acquisitions
The timing of acquisitions may impact the comparability of our results on a year-over-year basis. Our results include incremental revenues and expenses following the completion date of an acquisition. In addition, there is generally an initial adverse impact on net income from an acquisition as a result of pre-acquisition due diligence expenditures, transaction/deal costs and post-acquisition integration costs, such as fees from third-party advisors engaged to assist with onboarding and process alignment, retention and severance expense, early lease termination costs, and other integration expenses.
LaSalle Revenue
Our investment management business is, in part, compensated through incentive fees where performance of underlying funds' investments exceeds agreed-to benchmark levels. Depending upon performance, disposition activity, and the contractual timing of measurement periods with clients, these fees can be significant and vary substantially from period to period.
Equity earnings also may vary substantially from period to period for a variety of reasons, including as a result of: (1) gains (losses) on investments reported at fair value, (2) gains (losses) on asset dispositions, and (3) impairment charges. The timing of recognition of these items may impact comparability between quarters, in any one year, or compared to a prior year.
The comparability of these items can be seen in Note 4, Business Segments , of the Notes to Condensed Consolidated Financial Statements and is discussed further in Segment Operating Results included herein.
Foreign Currency
We conduct business using a variety of currencies, but we report our results in U.S. dollars. As a result, the volatility of currencies against the U.S. dollar may positively or negatively impact our results. This volatility can make it more difficult to perform period-to-period comparisons of the reported U.S. dollar results of operations, because such results may indicate a growth or decline rate that might not have been consistent with the real underlying growth or decline rates in the local operations. Consequently, we provide information about the impact of foreign currencies in the period-to-period comparisons of the reported results of operations in our discussion and analysis of financial condition in the Results of Operations section below.
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Transactional-Based Revenue
Transactional-based fees, that are impacted by the size and timing of our clients' transactions, from real estate investment banking, capital markets activities and other services within our RES businesses, and LaSalle, increase the variability of the revenue we earn. The timing and the magnitude of these fees can vary significantly from year to year and quarter to quarter, and from region to region.
Seasonality
Historically, our quarterly revenue and profits have tended to increase from quarter to quarter as the year progresses. This is a result of a general focus in the real estate industry on completing or documenting transactions by calendar year end and the fact that certain expenses are constant through the year. Historically, we have reported a relatively smaller profit in the first quarter and then increasingly larger profits during each of the following three quarters, excluding the recognition of investment-generated performance fees and realized and unrealized co-investment equity earnings and losses (each of which can be unpredictable). Generally, we recognize incentives fees when assets are sold, the timing of which is geared toward the benefit of our clients. In addition, co-investment equity gains and losses are primarily dependent on valuations of underlying investments, the direction and magnitude of changes to such valuations are not predictable. Non-variable operating expenses, which we treat as expenses when incurred during the year, are relatively constant on a quarterly basis. The COVID-19 pandemic may have a material impact on the historical seasonality of our revenue and profits.
A significant portion of our Compensation and benefits expense is from incentive compensation plans, which we generally accrue throughout the year based on progress toward annual performance targets. This quarterly estimation can result in significant fluctuations in quarterly Compensation and benefits expense from period to period. Consequently, the results for the periods ended June 30, 2020 and 2019 , are not fully indicative of the results we expect to realize for the full fiscal year.
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RESULTS OF OPERATIONS
Definitions
•
We define market volumes for Leasing as gross absorption of office real estate space in square feet for the U.S., Europe and selected markets in Asia Pacific. We define market volumes for Capital Markets as investment sales transactions globally.
•
Assets under management data for LaSalle is reported on a one-quarter lag.
•
MENA: Middle East and North Africa. Greater China: China, Hong Kong, Macau and Taiwan.
•
n.m.: not meaningful, represented by a percentage change of greater than 100% favorable or unfavorable.
Consolidated Operating Results
Three Months Ended June 30,
Change in
% Change in Local Currency
($ in millions)
2020
2019
U.S. dollars
Leasing
$
358.6
623.9
(265.3
)
(43
)%
(42
)%
Capital Markets
214.8
256.5
(41.7
)
(16
)
(15
)
Property & Facility Management
2,275.2
2,304.9
(29.7
)
(1
)
—
Project & Development Services
536.8
733.3
(196.5
)
(27
)
(25
)
Advisory, Consulting and Other
185.1
218.5
(33.4
)
(15
)
(13
)
Real Estate Services ("RES") revenue
$
3,570.5
4,137.1
(566.6
)
(14
)%
(12
)%
LaSalle
99.9
129.4
(29.5
)
(23
)
(22
)
Revenue
$
3,670.4
4,266.5
(596.1
)
(14
)%
(13
)%
Reimbursements
(1,841.9
)
(1,918.3
)
(76.4
)
(4
)
(3
)
Revenue before reimbursements
$
1,828.5
2,348.2
(519.7
)
(22
%)
(21
%)
Gross contract costs
(575.0
)
(713.4
)
138.4
(19
)
(17
)
Net non-cash MSR and mortgage banking derivative activity
(8.6
)
(4.8
)
(3.8
)
79
79
Fee revenue
$
1,244.9
1,630.0
(385.1
)
(24
)%
(22
)%
Leasing
343.8
605.8
(262.0
)
(43
)
(43
)
Capital Markets
199.4
241.3
(41.9
)
(17
)
(16
)
Property & Facility Management
287.9
290.8
(2.9
)
(1
)
1
Project & Development Services
178.6
210.0
(31.4
)
(15
)
(13
)
Advisory, Consulting and Other
140.2
158.8
(18.6
)
(12
)
(9
)
RES fee revenue
$
1,149.9
1,506.7
(356.8
)
(24
)%
(22
)%
LaSalle
95.0
123.3
(28.3
)
(23
)
(22
)
Compensation and benefits excluding gross contract costs
928.7
1,137.7
(209.0
)
(18
)
(17
)
Operating, administrative and other expenses excluding gross contract costs
228.9
275.8
(46.9
)
(17
)
(15
)
Depreciation and amortization
56.9
45.5
11.4
25
27
Total fee-based operating expenses
1,214.5
1,459.0
(244.5
)
(17
)
(15
)
Restructuring and acquisition charges
28.2
25.7
2.5
10
10
Gross contract costs
575.0
713.4
(138.4
)
(19
)
(17
)
Total operating expenses, excluding reimbursed expenses
$
1,817.7
2,198.1
(380.4
)
(17
)%
(16
)%
Operating income
$
10.8
150.1
(139.3
)
(93
)%
(94
)%
Equity earnings
$
14.7
10.2
4.5
44
%
44
%
Adjusted EBITDA
$
103.3
226.7
(123.4
)
(54
)%
(55
)%
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Consolidated Operating Results (continued)
Six Months Ended June 30,
Change in
% Change in Local Currency
($ in millions)
2020
2019
U.S. dollars
Leasing
$
851.0
1,101.8
(250.8
)
(23
)%
(22
)%
Capital Markets
557.1
450.0
107.1
24
25
Property & Facility Management
4,641.0
4,574.0
67.0
1
3
Project & Development Services
1,141.2
1,333.4
(192.2
)
(14
)
(13
)
Advisory, Consulting and Other
371.3
400.1
(28.8
)
(7
)
(5
)
Real Estate Services ("RES") revenue
$
7,561.6
7,859.3
(297.7
)
(4
)%
(2
)%
LaSalle
204.8
227.8
(23.0
)
(10
)
(9
)
Revenue
$
7,766.4
8,087.1
(320.7
)
(4
)%
(3
)%
Reimbursements
(3,704.9
)
(3,777.3
)
(72.4
)
(2
)
(1
)
Revenue before reimbursements
$
4,061.5
4,309.8
(248.3
)
(6
)%
(4
)%
Gross contract costs
(1,304.4
)
(1,356.0
)
51.6
(4
)
(2
)
Net non-cash MSR and mortgage banking derivative activity
(7.0
)
(4.7
)
(2.3
)
49
49
Fee revenue
$
2,750.1
2,949.1
(199.0
)
(7
)%
(5
)%
Leasing
819.0
1,067.2
(248.2
)
(23
)
(23
)
Capital Markets
533.5
426.1
107.4
25
26
Property & Facility Management
567.8
571.5
(3.7
)
(1
)
1
Project & Development Services
366.9
383.4
(16.5
)
(4
)
(3
)
Advisory, Consulting and Other
269.3
283.9
(14.6
)
(5
)
(3
)
RES fee revenue
$
2,556.5
2,732.1
(175.6
)
(6
)%
(5
)%
LaSalle
193.6
217.0
(23.4
)
(11
)
(10
)
Compensation and benefits excluding gross contract costs
1,993.0
2,095.7
(102.7
)
(5
)
(4
)
Operating, administrative and other expenses excluding gross contract costs
534.5
546.3
(11.8
)
(2
)
—
Depreciation and amortization
111.9
92.0
19.9
22
23
Total fee-based operating expenses
2,639.4
2,734.0
(94.6
)
(3
)
(2
)
Restructuring and acquisition charges
42.3
44.3
(2.0
)
(5
)
(5
)
Gross contract costs
1,304.4
1,356.0
(51.6
)
(4
)
(2
)
Total operating expenses, excluding reimbursed expenses
$
3,986.1
4,134.3
(148.2
)
(4
)%
(2
)%
Operating income
$
75.4
175.5
(100.1
)
(57
)%
(57
)%
Equity (losses) earnings
$
(13.6
)
15.2
(28.8
)
n.m.
n.m.
Adjusted EBITDA
$
198.9
322.1
(123.2
)
(38
)%
(38
)%
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Table of Contents
Non-GAAP Financial Measures
Management uses certain non-GAAP financial measures to develop budgets and forecasts, measure and reward performance against those budgets and forecasts, and enhance comparability to prior periods. These measures are believed to be useful to investors and other external stakeholders as supplemental measures of core operating performance and include the following:
(i) Fee revenue and Fee-based operating expenses;
(ii) Adjusted EBITDA attributable to common shareholders ("Adjusted EBITDA") and Adjusted EBITDA margin; and
(iii) Percentage changes against prior periods, presented on a local currency basis.
However, non-GAAP financial measures should not be considered alternatives to measures determined in accordance with U.S. generally accepted accounting principles (“GAAP”). Any measure that eliminates components of a company’s capital structure, cost of operations or investment, or other results has limitations as a performance measure. In light of these limitations, management also considers GAAP financial measures and does not rely solely on non-GAAP financial measures. Because our non-GAAP financial measures are not calculated in accordance with GAAP, they may not be comparable to similarly titled measures used by other companies.
Adjustments to GAAP Financial Measures Used to Calculate non-GAAP Financial Measures
Gross contract costs represent certain costs associated with client-dedicated employees and third-party vendors and subcontractors and are indirectly reimbursed through the fees we receive. These costs are presented on a gross basis in Operating expenses with the corresponding fees in Revenue before reimbursements. However, as we generally earn little to no margin on such costs, excluding gross contract costs from both Fee revenue and Fee-based operating expenses more accurately reflects how we manage our expense base and operating margins and also enables a more consistent performance assessment across a portfolio of contracts with varying payment terms and structures, including those with direct versus indirect reimbursement of such costs.
Net non-cash mortgage servicing rights ("MSR") and mortgage banking derivative activity consists of the balances presented within Revenue composed of (i) derivative gains/losses resulting from mortgage banking loan commitment and warehousing activity and (ii) gains recognized from the retention of MSR upon origination and sale of mortgage loans, offset by (iii) amortization of MSR intangible assets over the period that net servicing income is projected to be received. Non-cash derivative gains/losses resulting from mortgage banking loan commitment and warehousing activity are calculated as the estimated fair value of loan commitments and subsequent changes thereof, primarily represented by the estimated net cash flows associated with future servicing rights. MSR gains and corresponding MSR intangible assets are calculated as the present value of estimated net cash flows over the estimated mortgage servicing periods. The above activity is reported entirely within Revenue of the Capital Markets service line of the Americas segment. Excluding net non-cash MSR and mortgage banking derivative activity reflects how we manage and evaluate performance because the excluded activity is non-cash in nature.
Restructuring and acquisition charges primarily consist of: (i) severance and employment-related charges, including those related to external service providers, incurred in conjunction with a structural business shift, which can be represented by a notable change in headcount, change in leadership or transformation of business processes; (ii) acquisition, transaction and integration-related charges, including fair value adjustments, which are generally non-cash in the periods such adjustments are made, to assets and liabilities recorded in purchase accounting such as earn-out liabilities and intangible assets; and (iii) other restructuring, including lease exit charges. Such activity is excluded as the amounts are generally either non-cash in nature or the anticipated benefits from the expenditures would not likely be fully realized until future periods. Restructuring and acquisition charges are excluded from segment operating results and therefore not a line item in the segments’ reconciliation to Adjusted EBITDA.
Gain on Disposition reflects the net gain recognized on the sale of property management businesses in continental Europe. Given the low frequency of business disposals by the company historically, the gain directly associated with such activity is excluded as it is not considered indicative of core operating performance.
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Table of Contents
Reconciliation of Non-GAAP Financial Measures
Below are reconciliations of (i) Revenue to fee revenue and (ii) Operating expenses to fee-based operating expenses.
Three Months Ended June 30,
Six Months Ended June 30,
(in millions)
2020
2019
2020
2019
Revenue
$
3,670.4
4,266.5
$
7,766.4
8,087.1
Reimbursements
(1,841.9
)
(1,918.3
)
(3,704.9
)
(3,777.3
)
Revenue before reimbursements
1,828.5
2,348.2
4,061.5
4,309.8
Adjustments:
Gross contract costs
(575.0
)
(713.4
)
(1,304.4
)
(1,356.0
)
Net non-cash MSR and mortgage banking derivative activity
(8.6
)
(4.8
)
(7.0
)
(4.7
)
Fee revenue
$
1,244.9
1,630.0
$
2,750.1
2,949.1
Operating expenses
$
3,659.6
4,116.4
$
7,691.0
7,911.6
Reimbursed expenses
(1,841.9
)
(1,918.3
)
(3,704.9
)
(3,777.3
)
Operating expenses, excluding reimbursed expenses
1,817.7
2,198.1
3,986.1
4,134.3
Less: Gross contract costs
(575.0
)
(713.4
)
(1,304.4
)
(1,356.0
)
Fee-based operating expenses
$
1,242.7
1,484.7
$
2,681.7
2,778.3
Operating income
$
10.8
150.1
$
75.4
175.5
Below is (i) a reconciliation of Net income attributable to common shareholders to EBITDA and Adjusted EBITDA, (ii) the Net income margin attributable to common shareholders (measured on Revenue before reimbursements), and (iii) the Adjusted EBITDA margin (measured on fee-revenue and presented on a local currency basis).
Three Months Ended June 30,
Six Months Ended June 30,
(in millions)
2020
2019
2020
2019
Net income attributable to common shareholders
$
15.2
110.5
$
20.5
131.8
Add:
Interest expense, net of interest income
14.9
13.6
29.5
23.2
Provision for income taxes
1.5
36.2
6.5
35.5
Depreciation and amortization
56.9
45.5
111.9
92.0
EBITDA
$
88.5
205.8
$
168.4
282.5
Adjustments:
Restructuring and acquisition charges
28.2
25.7
42.3
44.3
Gain on disposition
(4.8
)
—
(4.8
)
—
Net non-cash MSR and mortgage banking derivative activity
(8.6
)
(4.8
)
(7.0
)
(4.7
)
Adjusted EBITDA
$
103.3
226.7
$
198.9
322.1
Net income margin attributable to common shareholders
0.8
%
4.7
%
0.5
%
3.1
%
Adjusted EBITDA margin
8.1
%
13.9
%
7.2
%
10.9
%
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In discussing our operating results, we report Adjusted EBITDA margins and refer to percentage changes in local currency, unless otherwise noted. Amounts presented on a local currency basis are calculated by translating the current period results of our foreign operations to U.S. dollars using the foreign currency exchange rates from the comparative period. We believe this methodology provides a framework for assessing performance and operations excluding the effect of foreign currency fluctuations.
The following table reflects the reconciliation to local currency amounts for consolidated (i) Revenue, (ii) Fee revenue, (iii) Operating income, and (iv) Adjusted EBITDA.
Three Months Ended June 30,
Six Months Ended June 30,
($ in millions)
2020
% Change
2020
% Change
Revenue:
At current period exchange rates
$
3,670.4
(14
)%
$
7,766.4
(4
)%
Impact of change in exchange rates
60.2
n/a
109.9
n/a
At comparative period exchange rates
$
3,730.6
(13
)%
$
7,876.3
(3
)%
Fee Revenue:
At current period exchange rates
$
1,244.9
(24
)%
$
2,750.1
(7
)%
Impact of change in exchange rates
19.7
n/a
37.7
n/a
At comparative period exchange rates
$
1,264.6
(22
)%
$
2,787.8
(5
)%
Operating Income:
At current period exchange rates
$
10.8
(93
)%
$
75.4
(57
)%
Impact of change in exchange rates
(1.8
)
n/a
(0.3
)
n/a
At comparative period exchange rates
$
9.0
(94
)%
$
75.1
(57
)%
Adjusted EBITDA:
At current period exchange rates
$
103.3
(54
)%
$
198.9
(38
)%
Impact of change in exchange rates
(1.2
)
n/a
0.5
n/a
At comparative period exchange rates
$
102.1
(55
)%
$
199.4
(38
)%
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COVID-19 Pandemic
The COVID-19 pandemic (the "pandemic") continued to disrupt our operations this quarter as lock-downs and building closures remained in place across the globe. Transaction-based services lines were most impacted as a result of delays to leasing and capital markets transactions. At the same time, our professionals across the globe, notably in Corporate Solutions and other annuity businesses, have expanded work with our clients to ensure continuity of critical operations, facilitate the rapid deployment of temporary medical facilities, and develop and implement safe return-to-work measures. In response to the pandemic's ongoing disruptions to revenue and business operations, we expanded cost mitigation efforts initiated in the first quarter across most operating expense categories. In addition, various government relief programs around the world provided grants/subsidies (approximately $28 million net benefit this quarter, focused in EMEA and Asia Pacific) as well as payment deferral opportunities for cash obligations such as payroll taxes and other social charges. These actions enhanced job retention and financial flexibility, positioning us to emerge from the pandemic with strength to capture significant market share.
Revenue
For the second quarter of 2020 compared with 2019 , consolidated RES revenue decreased 12% to $3.6 billion and consolidated RES fee revenue decreased 22% to $1.2 billion , a result of the pandemic's significant impact, especially on transaction-based service lines. The revenue and fee revenue declines were across all three geographic segments and in all service lines except Property & Facility Management, which delivered stable fee revenue driven by Corporate Solutions. Leasing experienced the most significant decrease in revenue ( 42% down year-over-year) against the backdrop of 50%+ declines in office market gross absorption in all three geographies for the second quarter (according to JLL Research). Capital markets investment sales market volumes fell by 60% globally (according to JLL Research); our Capital Markets results included $70.8 million of incremental revenue for the second quarter from the July 1, 2019 acquisition of HFF, Inc. ("HFF"). Geographically across service lines, Americas represented 52% of the RES fee revenue decline for the second quarter on a local currency basis; EMEA represented 31% and Asia Pacific represented 17%.
For the first half of 2020 , consolidated RES revenue decreased 2% to $7.6 billion and consolidated RES fee revenue decreased 5% to $2.6 billion . Overall, the impact of the pandemic on year-to-date revenue and fee revenue was less significant as many geographies were not meaningfully impacted by the pandemic until March. In addition, Capital Markets results included $215.2 million of incremental revenue for the first half of 2020 from HFF.
LaSalle delivered another quarter and half year of solid advisory fees, with an overall decline in revenue primarily due to expected lower incentive fees following a near-record 2019. Refer to the LaSalle segment results discussion for further discussion.
Our consolidated fee revenue decreased 24% in U.S. dollars (“USD”) and 22% in local currency for the second quarter of 2020 , compared with 2019 . The spread was driven by strengthening of the U.S. dollar against several major currencies, especially the British pound sterling, Australian dollar, euro, Indian rupee and Chinese yuan. The strengthening of the U.S. dollar against these currencies also drove the spread on year-to-date percentages.
Operating Expenses
In the second quarter of 2020 , consolidated operating expenses, excluding reimbursed expenses, were $1.8 billion , down 16% from 2019, and consolidated fee-based operating expenses, were $1.2 billion , down 15% from the prior-year quarter. For the second quarter, the decrease in fee-based operating expenses was driven by Americas (42% of the reduction on a local currency basis), EMEA (32%), Asia Pacific (22%) and LaSalle (5%). Restructuring and acquisition charges were up compared with the prior-year quarter, refer to following table for further detail, slightly offsetting the segments' lower expenses.
Three Months Ended June 30,
Six Months Ended June 30,
(in millions)
2020
2019
2020
2019
Severance and other employment-related charges
$
7.0
5.4
$
8.3
10.4
Restructuring, pre-acquisition and post-acquisition charges
20.6
6.0
41.6
13.9
Fair value adjustments that resulted in a net increase (decrease) to earn-out liabilities from prior-period acquisition activity
0.6
14.3
(7.6
)
20.0
Total restructuring & acquisition charges
$
28.2
25.7
$
42.3
44.3
37
Table of Contents
Included in the preceding table was $20.1 million and $41.1 million for the second quarter and first half of 2020 , respectively, of charges relating to the acquisition and integration of HFF. In the prior-year periods, such activity was $3.2 million and $9.7 million, respectively. Charges in 2020 include retention expense, early lease termination costs and other integration expenses, while charges in 2019 primarily included transaction/deal costs. Refer to Note 11, Restructuring and Acquisition Charges , in the Notes to the Condensed Consolidated Financial Statements for further information on Restructuring and acquisition charges.
Equity Earnings (Losses)
For the second quarter of 2020 , we recognized equity earnings of $14.7 million , compared with $10.2 million in the prior-year quarter. For the first half of 2020 , we recognized equity losses of $13.6 million , compared with earnings of $15.2 million in 2019 . The majority of the activity in all periods was attributable to LaSalle; refer to the LaSalle segment results discussion for additional details. In addition, $12.7 million of equity earnings were recognized in the first quarter of 2020 for the Americas segment and were substantially attributable to gains by consolidated variable interest entities in which the company held no equity interest. These gains are also reflected in net income attributable to noncontrolling interest and, therefore, had no impact to Net income attributable to common shareholders.
Income Taxes
The provision for income taxes was $1.5 million and $6.5 million for the three and six months ended June 30, 2020 , respectively, representing effective tax rates of 10.0% and 17.1%, respectively. For the three and six months ended June 30, 2019 , the provision was $36.2 million and $35.5 million , respectively, representing effective tax rates of 24.5% and 21.1%, respectively. The tax provision for the six months ended June 30, 2019 , included a $5.7 million discrete benefit due to a reduction to our reserve for uncertain tax positions during the first quarter of 2019. The lower effective tax rates in 2020 resulted from changes in the geographic distribution of pretax earnings compared to 2019 .
Net Income and Adjusted EBITDA
Net income attributable to common shareholders for the three and six months ended June 30, 2020 was $15.2 million and $20.5 million , respectively, compared with $110.5 million and $131.8 million in the respective prior-year periods. Adjusted EBITDA was $103.3 million and $198.9 million for the second quarter and first half of 2020 , respectively, decreases of 55% and 38% from the prior-year periods. Net income margin attributable to common shareholders for the second quarter (against Revenue before reimbursements) was 0.8% , compared with 4.7% in the prior-year quarter. Adjusted EBITDA margin for the second quarter , calculated on a fee-revenue basis, was 8.3% in USD ( 8.1% in local currency), compared with 13.9% in 2019 . The consolidated margin contraction was primarily due to the decline fee revenue, especially within transaction-based service lines, partially offset by the cost reduction initiatives and government relief programs noted above.
38
Table of Contents
Segment Operating Results
We manage and report our operations as four business segments. Our three geographic RES segments include Americas, EMEA and Asia Pacific. Our fourth segment is LaSalle, our investment management business.
Each geographic region offers our full range of real estate services, including tenant representation and agency leasing, capital markets, property management, facility management, project and development services, and advisory, consulting and valuation services. We consider "property management" to be services provided to non-occupying property investors and "facility management" to be services provided to owner-occupiers. LaSalle provides investment management services to institutional investors and high-net-worth individuals.
For segment reporting, (i) gross contract costs and (ii) net non-cash MSR and mortgage banking derivative activity are both excluded from revenue in determining "fee revenue". Gross contract costs are excluded from operating expenses in determining "fee-based operating expenses." In addition, our measure of segment results also excludes Restructuring and acquisition charges.
Americas - Real Estate Services
% Change
Three Months Ended June 30,
Change in
in Local
($ in millions)
2020
2019
U.S. dollars
Currency
Revenue
$
2,229.0
2,463.6
(234.6
)
(10
)%
(9
)%
Reimbursements
(1,345.0
)
(1,403.1
)
58.1
(4
)
(4
)
Revenue before reimbursements
$
884.0
1,060.5
(176.5
)
(17
%)
(16
%)
Gross contract costs
(192.3
)
(191.8
)
(0.5
)
—
2
Net non-cash MSR and mortgage banking derivative activity
(8.6
)
(4.8
)
(3.8
)
79
80
Fee Revenue
$
683.1
863.9
(180.8
)
(21
)%
(20
)%
Leasing
267.0
479.5
(212.5
)
(44
)
(44
)
Capital Markets
131.5
124.5
7.0
6
6
Property & Facility Management
147.3
115.8
31.5
27
29
Project & Development Services
91.1
99.7
(8.6
)
(9
)
(7
)
Advisory, Consulting and Other
46.2
44.4
1.8
4
5
Compensation, operating and administrative expenses excluding gross contract costs
613.0
721.9
(108.9
)
(15
)
(14
)
Depreciation and amortization
39.1
26.3
12.8
49
49
Segment fee-based operating expenses (excluding restructuring and acquisition charges)
652.1
748.2
(96.1
)
(13
)
(12
)
Gross contract costs
192.3
191.8
0.5
—
2
Segment operating expenses (excluding reimbursed expenses)
$
844.4
940.0
(95.6
)
(10
)%
(9
)%
Segment operating income
$
39.6
120.5
(80.9
)
(67
)%
(67
)%
Equity earnings
$
2.9
0.4
2.5
n.m.
n.m.
Adjusted EBITDA
$
74.0
142.1
(68.1
)
(48
)%
(48
)%
39
Table of Contents
Americas - Real Estate Services (continued)
% Change
Six Months Ended June 30,
Change in
in Local
($ in millions)
2020
2019
U.S. dollars
Currency
Revenue
$
4,752.1
4,713.7
38.4
1
%
1
%
Reimbursements
(2,738.5
)
(2,754.5
)
16.0
(1
)
—
Revenue before reimbursements
$
2,013.6
1,959.2
54.4
3
%
4
%
Gross contract costs
(405.1
)
(379.5
)
(25.6
)
7
9
Net non-cash MSR and mortgage banking derivative activity
(7.0
)
(4.7
)
(2.3
)
49
49
Fee Revenue
$
1,601.5
1,575.0
26.5
2
%
2
%
Leasing
672.6
857.1
(184.5
)
(22
)
(21
)
Capital Markets
378.1
224.2
153.9
69
69
Property & Facility Management
276.0
227.2
48.8
21
23
Project & Development Services
184.5
180.4
4.1
2
3
Advisory, Consulting and Other
90.3
86.1
4.2
5
6
Compensation, operating and administrative expenses excluding gross contract costs
1,410.5
1,345.0
65.5
5
5
Depreciation and amortization
76.5
53.6
22.9
43
43
Segment fee-based operating expenses (excluding restructuring and acquisition charges)
1,487.0
1,398.6
88.4
6
7
Gross contract costs
405.1
379.5
25.6
7
9
Segment operating expenses (excluding reimbursed expenses)
$
1,892.1
1,778.1
114.0
6
%
7
%
Segment operating income
$
121.5
181.1
(59.6
)
(33
)%
(33
)%
Equity earnings
$
15.6
0.1
15.5
n.m.
n.m.
Adjusted EBITDA
$
195.3
230.1
(34.8
)
(15
)%
(15
)%
The pandemic acutely affected the Americas transaction-based service lines in the second quarter of 2020. U.S. Leasing revenue reflected substantial declines in office, however, JLL outperformed market declines in second-quarter gross absorption. Strong growth in industrial partially offset the lower office leasing activity. For the first half of 2020, the decline in Leasing revenue was less significant as a result of our strong first quarter performance. Notably reduced investment sales and debt placement activity impacted Capital Markets second-quarter revenue. In addition, Capital Markets included $70.6 million of incremental revenue contributions from HFF for the second quarter ($73.2 million of fee revenue) and $211.5 million of incremental revenue contributions from HFF for the first half of 2020 ($216.6 million of fee revenue). Property & Facility Management achieved significant second-quarter and first half fee revenue growth driven by new client wins, Corporate Solutions client expansions and pandemic-response facility management projects.
The decrease in operating expenses and fee-based operating expenses for the second quarter of 2020 compared with 2019 primarily reflected lower variable expenses, partially offset by incremental expenses associated with HFF operations. For the first half of 2020, the increase in expenses compared with the prior year was primarily due to the incremental expenses associated with HFF operations, partially offset by the lower second-quarter variable expenses.
Substantially all of the $12.7 million in first-quarter 2020 equity earnings were attributable to gains by consolidated variable interest entities in which the company held no equity interest. Therefore, there was no impact to Adjusted EBITDA.
Adjusted EBITDA margin for the quarter, calculated on a fee-revenue basis, was 10.8% in USD and local currency, compared with 16.5% in 2019. The decline in profitability was primarily attributable to transaction-based service lines and the timing of incentive compensation expense accruals, partially offset by Property & Facility Management fee revenue growth. The current -quarter margin also reflected a strategic focus on job retention, positioning us to emerge from the pandemic with strength.
40
Table of Contents
EMEA - Real Estate Services
% Change
Three Months Ended June 30,
Change in
in Local
($ in millions)
2020
2019
U.S. dollars
Currency
Revenue
$
626.2
818.3
(192.1
)
(23
)%
(21
)%
Reimbursements
(168.8
)
(153.7
)
(15.1
)
10
13
Revenue before reimbursements
$
457.4
664.6
(207.2
)
(31
)%
(29
)%
Gross contract costs
(189.4
)
(284.7
)
95.3
(33
)
(31
)
Fee Revenue
$
268.0
379.9
(111.9
)
(29
)%
(27
)%
Leasing
45.5
64.0
(18.5
)
(29
)
(27
)
Capital Markets
46.3
73.4
(27.1
)
(37
)
(35
)
Property & Facility Management
66.2
101.3
(35.1
)
(35
)
(33
)
Project & Development Services
58.8
73.4
(14.6
)
(20
)
(18
)
Advisory, Consulting and Other
51.2
67.8
(16.6
)
(24
)
(22
)
Compensation, operating and administrative expenses excluding gross contract costs
292.4
369.9
(77.5
)
(21
)
(19
)
Depreciation and amortization
9.0
11.3
(2.3
)
(20
)
(17
)
Segment fee-based operating expenses (excluding restructuring and acquisition charges)
301.4
381.2
(79.8
)
(21
)
(19
)
Gross contract costs
189.4
284.7
(95.3
)
(33
)
(31
)
Segment operating expenses (excluding reimbursed expenses)
$
490.8
665.9
(175.1
)
(26
)%
(24
)%
Segment operating loss
$
(33.4
)
(1.3
)
(32.1
)
n.m.
n.m.
Equity losses
$
—
(1.1
)
1.1
n.m.
n.m.
Adjusted EBITDA
$
(23.7
)
9.6
(33.3
)
n.m.
n.m.
41
Table of Contents
EMEA - Real Estate Services (continued)
% Change
Six Months Ended June 30,
Change in
in Local
($ in millions)
2020
2019
U.S. dollars
Currency
Revenue
$
1,382.1
1,541.7
(159.6
)
(10
)%
(8
)%
Reimbursements
(351.6
)
(318.3
)
(33.3
)
10
13
Revenue before reimbursements
$
1,030.5
1,223.4
(192.9
)
(16
)%
(14
)%
Gross contract costs
(452.0
)
(527.4
)
75.4
(14
)
(12
)
Fee Revenue
$
578.5
696.0
(117.5
)
(17
)%
(15
)%
Leasing
92.5
114.5
(22.0
)
(19
)
(17
)
Capital Markets
115.1
133.0
(17.9
)
(13
)
(11
)
Property & Facility Management
144.1
196.3
(52.2
)
(27
)
(25
)
Project & Development Services
124.9
132.9
(8.0
)
(6
)
(4
)
Advisory, Consulting and Other
101.9
119.3
(17.4
)
(15
)
(12
)
Compensation, operating and administrative expenses excluding gross contract costs
614.2
704.1
(89.9
)
(13
)
(11
)
Depreciation and amortization
18.2
22.6
(4.4
)
(19
)
(17
)
Segment fee-based operating expenses (excluding restructuring and acquisition charges)
632.4
726.7
(94.3
)
(13
)
(11
)
Gross contract costs
452.0
527.4
(75.4
)
(14
)
(12
)
Segment operating expenses (excluding reimbursed expenses)
$
1,084.4
1,254.1
(169.7
)
(14
)%
(11
)%
Segment operating loss
$
(53.9
)
(30.7
)
(23.2
)
(76
)%
(76
)%
Equity losses
$
—
(1.0
)
(0.1
)
n.m.
n.m.
Adjusted EBITDA
$
(34.3
)
(8.6
)
(25.7
)
n.m.
n.m.
EMEA’s second-quarter 2020 revenue and fee revenue were meaningfully impacted by pandemic-related mandatory country shut-downs. Transaction-based revenues were significantly lower, especially in the UK and France. The decline in Property & Facility Management fee revenue was primarily due to (i) an approximately $20 million fee revenue decrease for the quarter in the UK mobile engineering business, a result of work delays from client office closures, and (ii) the absence of approximately $9 million of second-quarter 2019 fee revenue relating to property management businesses in continental Europe that were sold in late 2019 ($18 million for the first half of the year). Pandemic-driven work stoppages across EMEA more than offset continued growth in MENA within Project & Development Services fee revenue for the second quarter. The significant impact of the pandemic in the second quarter overshadowed our positive first-quarter performances in Project & Development Services and Capital Markets.
The decrease in operating expenses, excluding reimbursed expenses, and fee-based operating expenses, excluding restructuring and acquisition charges, for the second quarter of 2020 compared with prior-year quarter were primarily due to lower variable and revenue-related expenses as well as the impact of government relief programs (nearly $14 million).
Adjusted EBITDA margin for the quarter, calculated on a fee-revenue basis, was negative 8.8% in USD (negative 8.9% in local currency), compared with 2.5% last year. The decline in profitability resulted primarily from transaction-based revenue declines and losses recognized on three discrete contracts nearing completion or termination, partially offset by the impact of the government relief programs. These relief programs, many of which involved temporary furloughs that reduced costs while preserving jobs, helped us retain our ability to efficiently restore operations to pre-pandemic levels.
42
Table of Contents
Asia Pacific - Real Estate Services
% Change
Three Months Ended June 30,
Change in
in Local
($ in millions)
2020
2019
U.S. dollars
Currency
Revenue
$
715.3
855.2
(139.9
)
(16
)%
(13
)%
Reimbursements
(327.0
)
(359.6
)
32.6
(9
)
(6
)
Revenue before reimbursements
$
388.3
495.6
(107.3
)
(22
%)
(19
%)
Gross contract costs
(189.5
)
(232.7
)
43.2
(19
)
(16
)
Fee Revenue
$
198.8
262.9
(64.1
)
(24
)%
(22
)%
Leasing
31.3
62.3
(31.0
)
(50
)
(49
)
Capital Markets
21.6
43.4
(21.8
)
(50
)
(50
)
Property & Facility Management
74.4
73.7
0.7
1
5
Project & Development Services
28.7
36.9
(8.2
)
(22
)
(19
)
Advisory, Consulting and Other
42.8
46.6
(3.8
)
(8
)
(4
)
Compensation, operating and administrative expenses excluding gross contract costs
173.1
229.9
(56.8
)
(25
)
(22
)
Depreciation and amortization
7.0
6.4
0.6
9
12
Segment fee-based operating expenses (excluding restructuring and acquisition charges)
180.1
236.3
(56.2
)
(24
)
(21
)
Gross contract costs
189.5
232.7
(43.2
)
(19
)
(16
)
Segment operating expenses (excluding reimbursed expenses)
$
369.6
469.0
(99.4
)
(21
)%
(18
)%
Segment operating income
$
18.7
26.6
(7.9
)
(30
)%
(31
)%
Equity earnings
$
0.5
0.4
0.1
25
%
31
%
Adjusted EBITDA
$
26.1
33.6
(7.5
)
(22
)%
(23
)%
43
Table of Contents
Asia Pacific - Real Estate Services (continued)
% Change
Six Months Ended June 30,
Change in
in Local
($ in millions)
2020
2019
U.S. dollars
Currency
Revenue
$
1,427.4
1,603.9
(176.5
)
(11
)%
(8
)%
Reimbursements
(611.9
)
(700.7
)
88.8
(13
)
(9
)
Revenue before reimbursements
$
815.5
903.2
(87.7
)
(10
)%
(7
)%
Gross contract costs
(439.0
)
(442.1
)
3.1
(1
)
2
Fee Revenue
$
376.5
461.1
(84.6
)
(18
)%
(16
)%
Leasing
53.9
95.6
(41.7
)
(44
)
(42
)
Capital Markets
40.3
68.9
(28.6
)
(42
)
(40
)
Property & Facility Management
147.7
148.0
(0.3
)
—
3
Project & Development Services
57.5
70.1
(12.6
)
(18
)
(15
)
Advisory, Consulting and Other
77.1
78.5
(1.4
)
(2
)
2
Compensation, operating and administrative expenses excluding gross contract costs
341.1
421.0
(79.9
)
(19
)
(16
)
Depreciation and amortization
13.6
12.8
0.8
6
10
Segment fee-based operating expenses (excluding restructuring and acquisition charges)
354.7
433.8
(79.1
)
(18
)
(15
)
Gross contract costs
439.0
442.1
(3.1
)
(1
)
2
Segment operating expenses (excluding reimbursed expenses)
$
793.7
875.9
(82.2
)
(9
)%
(6
)%
Segment operating income
$
21.8
27.3
(5.5
)
(20
)%
(22
)%
Equity (losses) earnings
$
(0.2
)
0.7
(0.9
)
n.m.
n.m.
Adjusted EBITDA
$
35.5
40.9
(5.4
)
(13
)%
(13
)%
Asia Pacific's transaction-based revenue was substantially impacted by the pandemic. In particular, office leasing revenue was significantly lower, most notably in India, Australia and Greater China for both the second quarter and first six months of 2020. Capital Markets revenue declines were primarily realized in Australia and Singapore during the second quarter and Greater China for the first half of the year, reflecting the pause on deal activity, especially large transactions. Resiliency in Property & Facility Management fee revenue was driven by new client wins and expansion of existing mandates for Corporate Solutions as the business continued to deliver services to clients. Delays in project activity within Project & Development Services continued from the first quarter as a result of pandemic-driven office closures and work stoppages.
Segment operating expenses, excluding reimbursed expenses, and fee-based operating expenses, excluding restructuring and acquisition charges, for the second quarter first half of 2020 were lower compared with the prior-year periods due to reduced fixed and variable costs as well as the impact of grants and subsidies from certain government relief programs established in response to the pandemic.
Adjusted EBITDA margin for the quarter, calculated on a fee-revenue basis, was 13.1% in USD ( 12.6% in local currency), compared with 12.8% last year. The decline in transaction-based revenue was more than offset by lower operating expenses, which included nearly $14 million of net benefit from government relief programs. These programs required or supported the retention of employees which helped position us to emerge from the pandemic with strength.
44
Table of Contents
LaSalle
% Change
Three Months Ended June 30,
Change in
in Local
($ in millions)
2020
2019
U.S. dollars
Currency
Revenue
$
99.9
129.4
(29.5
)
(23
)%
(22
)%
Reimbursements
(1.1
)
(1.9
)
0.8
(42
)
(43
)
Revenue before reimbursements
$
98.8
127.5
(28.7
)
(23
)%
(22
)%
Gross contract costs
(3.8
)
(4.2
)
0.4
(10
)
(10
)
Fee Revenue
$
95.0
123.3
(28.3
)
(23
)%
(22
)%
Advisory fees
76.5
76.8
(0.3
)
—
1
Transaction fees & other
4.3
12.8
(8.5
)
(66
)
(66
)
Incentive fees
14.2
33.7
(19.5
)
(58
)
(58
)
Compensation, operating and administrative expenses excluding gross contract costs
79.1
91.8
(12.7
)
(14
)
(13
)
Depreciation and amortization
1.8
1.5
0.3
20
18
Segment fee-based operating expenses (excluding restructuring and acquisition charges)
80.9
93.3
(12.4
)
(13
)
(12
)
Gross contract costs
3.8
4.2
(0.4
)
(10
)
(10
)
Segment operating expenses (excluding reimbursed expenses)
$
84.7
97.5
(12.8
)
(13
)%
(12
)%
Segment operating income
$
14.1
30.0
(15.9
)
(53
)%
(54
)%
Equity earnings
$
11.3
10.5
0.8
8
%
6
%
Adjusted EBITDA
$
26.8
41.6
(14.8
)
(36
)%
(36
)%
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LaSalle (continued)
% Change
Six Months Ended June 30,
Change in
in Local
($ in millions)
2020
2019
U.S. dollars
Currency
Revenue
$
204.8
227.8
(23.0
)
(10
)%
(9
)%
Reimbursements
(2.9
)
(3.8
)
0.9
(24
)
(21
)
Revenue before reimbursements
$
201.9
224.0
(22.1
)
(10
)%
(9
)%
Gross contract costs
(8.3
)
(7.0
)
(1.3
)
19
18
Fee Revenue
$
193.6
217.0
(23.4
)
(11
)%
(10
)%
Advisory fees
158.5
150.6
7.9
5
6
Transaction fees & other
15.2
25.2
(10.0
)
(40
)
(39
)
Incentive fees
19.9
41.2
(21.3
)
(52
)
(52
)
Compensation, operating and administrative expenses excluding gross contract costs
161.7
171.9
(10.2
)
(6
)
(5
)
Depreciation and amortization
3.6
3.0
0.6
20
19
Segment fee-based operating expenses (excluding restructuring and acquisition charges)
165.3
174.9
(9.6
)
(5
)
(4
)
Gross contract costs
8.3
7.0
1.3
19
18
Segment operating expenses (excluding reimbursed expenses)
$
173.6
181.9
(8.3
)
(5
)%
(4
)%
Segment operating income
$
28.3
42.1
(13.8
)
(33
)%
(33
)%
Equity (losses) earnings
$
(29.0
)
15.4
(44.4
)
n.m.
n.m.
Adjusted EBITDA
$
2.4
59.9
(57.5
)
(96
)%
(96
)%
LaSalle's solid advisory fees for the second quarter and first half of 2020 reflected strong private equity capital raising over the trailing twelve months partially offset by valuation declines in assets under management ("AUM") during the second quarter. An outsized 2019 performance drove the expected decline in incentive fees.
Equity earnings in the second quarter of 2020 were substantially attributable to an increased share price of a co-investment in a LaSalle-managed publicly traded REIT in Japan. Equity losses for the first six months of 2020 were driven by decreases to the estimated fair value of underlying real estate investments within LaSalle's co-investment portfolio, a direct result of the pandemic's expected impact on real estate prices. This decrease was partially offset by the net year-to-date increase in the share price of the aforementioned co-investment in Japan.
Adjusted EBITDA margin for the quarter was 28.2% in USD ( 27.9% local currency), compared with 33.7% last year. The margin decline was largely attributable to the lower incentive fees.
AUM was $65.0 billion as of June 30, 2020 , a decrease of 6% in USD (down 4% in local currency) from $69.5 billion as of March 31, 2020 . The AUM decrease resulted from (i) $3.1 billion of dispositions and withdrawals, (ii) $1.9 billion of net valuation decreases, and (iii) $1.6 billion of foreign currency decreases, partially offset by (iv) $2.1 billion of acquisitions.
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LIQUIDITY AND CAPITAL RESOURCES
We finance our operations, co-investment activity, share repurchases and dividend payments, capital expenditures and business acquisitions with internally generated funds, borrowings on our Facility, and through issuance of Long-term debt.
Cash Flows from Operating Activities
Operating activities used $44.7 million of cash in the first six months of 2020 , compared with $483.1 million of cash used during the same period in 2019 . The substantial decrease in cash used by operating activities is driven by strong cash collection on trade receivables in the second quarter of 2020 and our participation in government relief programs this year (including deferral of payments to governments for payroll tax and other social charges). These items were partially offset by lower year-to-date net income as well as increased annual incentive compensation paid in the first quarter of 2020 compared with 2019.
Cash Flows from Investing Activities
We used $109.4 million of cash for investing activities during the first six months of 2020 , as compared to $141.7 million used during the same period in 2019 . The decrease in cash used was driven by an absence of business acquisitions and a decrease in acquisitions of investment properties (less than wholly-owned) this year, partially offset by net contributions to co-investments made in the first quarter of 2020. We discuss these key drivers individually below in further detail.
Cash Flows from Financing Activities
Financing activities provided $114.1 million of cash during the first six months of 2020 , as compared to $547.5 million provided by financing activities during the same period in 2019 . The net decrease of $433.4 million in cash flows from financing activities is substantially driven by greater net repayments on our Facility, the result of strong operating cash inflows during the second quarter of 2020.
Debt
Our $2.75 billion Facility matures on May 17, 2023 . As of June 30, 2020 , we had outstanding borrowings under the Facility of $700.0 million and outstanding letters of credit of $0.7 million . As of December 31, 2019 , we had $525.0 million of outstanding borrowings under the Facility and outstanding letters of credit of $0.8 million . The average outstanding borrowings under the Facility were $1,351.5 million and $661.1 million during the three months ended June 30, 2020 and 2019 , respectively, and $1,143.4 million and $436.3 million during the six months ended June 30, 2020 and 2019 .
In addition to our Facility, we had the capacity to borrow up to $81.2 million under local overdraft facilities as of June 30, 2020 . We had Short-term borrowings (including financing lease obligations, overdrawn bank accounts and local overdraft facilities) of $115.1 million and $120.1 million as of June 30, 2020 and December 31, 2019 , respectively, of which $14.7 million and $44.8 million , respectively, were attributable to local overdraft facilities.
We will continue to use the Facility for working capital needs (including payment of accrued incentive compensation), co-investment activities, dividend payments, share repurchases, capital expenditures and business acquisitions. See Note 9, Debt , in the Notes to Condensed Consolidated Financial Statements for additional information on our Facility, Long-term debt and Short-term borrowings.
Investment Activity
As of June 30, 2020 , we had a carrying value of $393.6 million in investments, primarily related to LaSalle co-investments in real estate ventures. For the six months ended June 30, 2020 , and 2019, funding of investments exceeded return of capital by $30.2 million , and $15.8 million , respectively. We expect to continue to pursue strategic co-investment opportunities with our investment management clients globally as co-investment remains an important foundation to the continued growth of LaSalle's business. In addition, we expect continued investments by JLL Spark venture funds.
See Note 6, Investments in Real Estate Ventures , in the Notes to Condensed Consolidated Financial Statements for additional information on our investment activity.
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Share Repurchase and Dividend Programs
On October 31, 2019, our Board of Directors approved a new share repurchase program (the "Program") authorizing the repurchase of up to $200 million of our common stock in the open market and privately negotiated transactions. During the three months ended June 30, 2020 we did not repurchase any shares; during the six months ended June 30, 2020 we repurchased nearly 188 thousand shares for $25.0 million. As of June 30, 2020 , $175.0 million remained authorized for repurchases under the Program. There were no shares repurchased in 2019 .
Capital Expenditures
Net capital additions for the six months ended June 30, 2020 and 2019 , were $77.3 million and $83.8 million , respectively. Our capital expenditures in 2020 were primarily for software, computer-related hardware, and improvements to leased office spaces.
In addition, net capital additions made by consolidated VIEs in which we held no equity interest for the six months ended June 30, 2020 and 2019 , were $7.7 million and $19.2 million , respectively, primarily to acquire real estate (net of real estate sales).
Business Acquisitions
During the six months ended June 30, 2020 , we paid $47.7 million for deferred business acquisition and earn-out obligations related to acquisitions completed in prior years, which are primarily reflected in cash flows from financing activities. Terms for many of our past acquisitions have typically included cash paid at closing with provisions for additional deferred consideration and earn-out payments subject to certain contract requirements, including the passage of time and performance, respectively. Deferred business acquisition obligations totaled $44.7 million as of June 30, 2020 . These obligations represent the current discounted values of payments due to sellers of businesses for which our acquisition had been completed as of the balance sheet date and for which the only remaining condition on those payments is the passage of time. As of June 30, 2020 , we had the potential to make earn-out payments for a maximum of $221.1 million on 44 completed acquisitions subject to the achievement of certain performance conditions. Refer to Note 5, Business Combinations, Goodwill and Other Intangible Assets , in the Notes to the Condensed Consolidated Financial Statements for further information on Business Acquisitions.
We will continue to consider acquisitions that we believe will strengthen our market position, increase our profitability, and supplement our organic growth.
Repatriation of Foreign Earnings
Based on our historical experience and future business plans, we do not expect to repatriate our foreign-sourced earnings to the United States. We believe our policy of permanently investing earnings of foreign subsidiaries does not significantly impact our liquidity. As of June 30, 2020 and December 31, 2019 , we had total cash and cash equivalents of $413.5 million and $451.9 million , respectively, of which approximately $324.9 million and $385.4 million, respectively, was held by foreign subsidiaries.
Restricted Net Assets
We face regulatory restrictions in certain countries that limit or prevent the transfer of funds to other countries or the exchange of the local currency to other currencies. However, we generally face no such restrictions with regard to the use or application of funds for ordinary course business activities within such countries. The assets of these countries aggregated to approximately 4% and 5% of our total assets as of June 30, 2020 and December 31, 2019 , respectively.
Off-Balance Sheet Arrangements
We have unfunded capital commitments to investment vehicles and direct investments for future co-investments, totaling a maximum of $338.5 million as of June 30, 2020 . See our discussion of unfunded commitments in Note 6, Investments in Real Estate Ventures , in the Notes to Condensed Consolidated Financial Statements.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report, including this Management's Discussion and Analysis of Financial Condition and Results of Operations, contains “forward-looking statements” within the meaning of the federal securities laws. All such statements are qualified by this cautionary note, which is provided pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements may also be included in our other public filings, press releases, our website, and oral and written presentations by management.
Statements in the future tense, and all statements accompanied by terms such as “believe,” “project,” “expect,” “estimate,” “assume,” “intend,” “anticipate,” “target,” “plan” and variations thereof and similar terms, are intended to be forward-looking statements. Such statements relate to our intent, belief and current expectations about our strategic direction, prospects and future results, and give our current expectations or forecasts of future events, including, but not limited to, our expectations regarding the potential impact of the COVID-19 outbreak and global pandemic; they do not relate strictly to historical or current facts. Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made.
Forward-looking statements are subject to certain risks, uncertainties, assumptions, and other factors that could cause actual results to differ materially from our historical experience and our present expectations or anticipated results. Some of these risks, uncertainties, assumptions, and other factors are described in our Annual Report on Form 10-K for the year ended December 31, 2019 in Part I, Item 1A. Risk Factors and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and may also be described from time to time in our subsequent filings with the Securities and Exchange Commission . You should consider the limitations on, and risks associated with, forward-looking statements and not unduly rely on the accuracy of predictions contained in such forward-looking statements. We do not undertake to update any forward-looking statements to reflect events, circumstances, developments, changes in expectations or the occurrence of unanticipated events after the date of those statements.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.