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Item 7. Management’s Discussion and Analysis

2021-02-18 compared with 2020-02-27 · 199 added, 426 removed, 410 unchanged (60% of the section changed)

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(5) Liquidity and capital resources.

In this Item, we discuss results for the years ended December 31, 2020 and 2019 and the comparison between these years.

Discussions of results for the year ended December 31, 2018 and comparisons between 2019 and 2018 results 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 .

SUMMARY OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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In addition, a significant portion of our revenue represents the reimbursement of costs we incur on behalf of clients.

Business Combinations, Goodwill and Other Intangible Assets

Business Combinations

Historically we have grown, in part, through a series of acquisitions.

We account for business combinations using the acquisition method of accounting, which requires that once control is obtained, all of the assets acquired and liabilities assumed, including amounts attributable to noncontrolling interests, be recorded at their respective fair values as of the acquisition date.

Determination of the fair values of the assets and liabilities acquired requires estimates and the use of valuation techniques when market values are not readily available.

For intangible assets, we generally use the income approach to determine fair value, which requires management to make significant estimates and assumptions.

These estimates and assumptions primarily include discount rates, terminal growth rates, forecasts of revenue, operating income and capital expenditures.

The discount rates reflect the risk factors, from the perspective of a market participant, associated with forecasts of cash flows.

In addition, terms for our acquisitions have frequently included cash paid at closing along with provisions for additional guaranteed future consideration and/or earn-out payments subject to certain contract provisions and performance.

The additional guaranteed consideration, recorded as deferred business acquisition obligations on the Consolidated Balance Sheets, represents the current discounted value of payments to sellers of businesses for which our acquisition has closed as of the balance sheet dates and for which the only remaining condition on those payments is the passage of time.

Payment of earn-out consideration related to these acquisitions is contingent upon certain conditions being met.

Earn-out liabilities are recorded at the acquisition date fair value.

Adjustments to earn-out liabilities during the measurement period related to information known or available as of the acquisition date are reflected within Goodwill in the Consolidated Balance Sheets.

Adjustments to earn-out liabilities in periods subsequent to the measurement period or related to information known or available after the acquisition date are reflected within Restructuring and acquisition charges on the Consolidated Statements of Comprehensive Income.

Although we believe our estimates of fair value are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates.

Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on the determination of the fair value of the identified intangible assets acquired.

Judgment is also required in determining the useful life of a finite-lived intangible asset.

Goodwill and Other Intangible Assets

Consistent with the services nature of the businesses we have acquired, the largest asset on the Consolidated Balance Sheets is goodwill.

We do not amortize this goodwill;

We do not amortize goodwill;

instead, we evaluate goodwill for impairment at least annually, or as events or changes in circumstances indicate the carrying value may be impaired.

In addition, we may record intangible assets as a result of acquisitions, which are primarily composed of customer relationships, management contracts and customer backlog, and are amortized on a straight-line basis over their estimated useful lives.

We establish an intangible upon the sale of a warehouse receivable concurrent with the retention of its servicing rights and amortize the intangible over the estimated period net servicing income is projected to be received.

We establish an intangible upon closing on the sale of a mortgage loan we originated, referred to as a warehouse receivable, concurrent with the retention of its servicing rights and amortize the intangible over the estimated period net servicing income is projected to be received.

We evaluate our identified intangibles for impairment at least annually, or as events or changes in circumstances indicate the carrying value may be impaired.

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Critical inputs to NAV estimates include valuations of the underlying real estate assets and borrowings, which incorporate investment-specific assumptions such as discount rates, capitalization rates, rental and expense growth rates, and asset-specific market borrowing rates.

In circumstances where the NAV provided by the investee has a reporting date different than ours or when the NAV is not calculated consistent with U.S.

GAAP measurement principles, we adjust the NAV accordingly.

For Investments in real estate ventures reported at fair value, our investment is increased or decreased each reporting period by the difference between the fair value of the investment and the carrying value as of the balance sheet date.

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Our effective tax rates are presented in the following table.

In addition, we present the rate excluding the provisional estimate and subsequent changes to that estimate relating to the transition tax component of the U.S.

In addition, we present the rate excluding the subsequent changes to the provisional estimate relating to the transition tax component of the U.S.

tax legislation passed in December 2017 commonly known as the Tax Cuts and Jobs Act ("the Act").

For the year ended December 31,

2020 2019 2018

Effective tax rate 20.2 % 22.9 % 30.4 %

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Valuation allowance 71.4 70.4

The increase in gross deferred tax assets in 2019 was primarily the result of increases in deferred compensation accruals.

The increase in gross deferred tax assets in 2020 was primarily the result of increases in compensation accruals in certain jurisdictions.

We evaluate our segment operating performance before tax, and do not consider it meaningful to allocate tax by segment.

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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, macroeconomic conditions influenced by the COVID-19 pandemic impacted our operations.

The timing of acquisitions may impact the comparability of our results on a year-over-year basis.

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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.

LaSalle Revenue and Equity Earnings

Our investment management business is, in part, compensated through incentive fees where performance of underlying funds' investments exceeds agreed-to return hurdles.

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:

(i) gains (losses) on investments reported at fair value, (ii) gains (losses) on asset dispositions and (iii) impairment charges.

Equity earnings also may vary substantially from period to period for a variety of reasons, including as a result of (i) gains (losses) on investments reported at fair value, (ii) gains (losses) on asset dispositions and (iii) impairment charges.

The timing of recognition of these items may impact comparability between quarters, in any one year, or compared to a prior year.

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Our average outstanding borrowings under the Facility during 2020 were $865.1 million, with an effective interest rate of 1.6%.

We had $525.0 million of outstanding borrowings under the Facility as of December 31, 2019 .

We had no outstanding borrowings under the Facility as of December 31, 2020.

The Facility bears a variable rate of interest that fluctuates based on market rates.

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We assess interest rate sensitivity to estimate the potential effect of rising interest rates on our variable rate debt.

If interest rates were 50 basis points higher during 2019 , our results would reflect an increase of $4.3 million to Interest expense, net of interest income.

If interest rates were 50 basis points higher during 2020, Interest expense, net of interest income, would have been $4.3 million higher.

Foreign Exchange

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As of December 31, 2020, we had forward exchange contracts in effect with a gross notional value of $2.34 billion ($1.42 billion on a net basis).

This net carrying gain is generally offset by a carrying loss in associated intercompany loans.

The corresponding net carrying gain is generally offset by a carrying loss in associated intercompany loans.

Although we operate globally, we report our results in U.S.

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Year Ended December 31,

($ in millions)

($ in millions) 2020 % of Total 2019 % of Total

United States dollar $ 9,457.8 57.0 % $ 10,054.9 55.9 %

Euro 1,350.6 8.1 1,507.7 8.4

British pound 1,341.1 8.1 1,514.8 8.4

Australian dollar 876.1 5.3 924.5 5.1

Indian rupee 524.5 3.2 651.8 3.6

Hong Kong dollar 512.2 3.1 533.8 3.0

Chinese yuan 473.1 2.9 505.9 2.8

Canadian dollar 432.6 2.6 435.5 2.4

Japanese yen 257.9 1.6 349.4 1.9

Singapore dollar 246.6 1.5 309.2 1.7

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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.

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 throughout 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).

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Non-variable operating expenses, which we treat as expenses when incurred during the year, are relatively constant on a quarterly basis.

In 2020, macroeconomic conditions influenced by the COVID-19 pandemic impacted the historical seasonality of our revenue and profits.

Our operating expenses fluctuate with our revenue and general economic conditions including inflation.

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RESULTS OF OPERATIONS

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 Leasing as gross absorption of office real estate space in square feet for the U.S., Europe and select markets in Asia Pacific.

We define market volumes for Capital Markets as the U.S.

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Year Ended December 31, 2020 compared with Year Ended December 31, 2019

Year Ended December 31,

% Change in Local Currency

($ in millions)

Year Ended December 31, Change in % Change in Local Currency

($ in millions) 2020 2019 U.S.

Leasing $ 1,884.2 2,524.0 (639.8) (25) % (25) %

Capital Markets 1,407.4 1,542.2 (134.8) (9) (9)

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Real Estate Services ("RES") revenue $ 16,168.1 17,457.1 (1,289.0) (7) % (7) %

LaSalle 421.8 526.1 (104.3) (20) (20)

Revenue $ 16,589.9 17,983.2 (1,393.3) (8) % (8) %

Reimbursements 7,689.8 7,952.6 (262.8) (3) (3)

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Gross contract costs (2,703.2) (2,870.2) 167.0 (6) (6)

Net non-cash MSR and mortgage banking derivative activity

Net non-cash MSR and mortgage banking derivative activity (66.6) (21.2) (45.4) n.m.

Fee revenue $ 6,130.3 7,139.2 (1,008.9) (14) % (14) %

Leasing 1,817.8 2,455.7 (637.9) (26) (26)

Capital Markets 1,309.2 1,477.5 (168.3) (11) (12)

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RES fee revenue $ 5,729.6 6,636.3 (906.7) (14) % (14) %

LaSalle 400.7 502.9 (102.2) (20) (21)

Compensation and benefits excluding gross contract costs $ 4,277.1 4,922.7 (645.6) (13) % (13) %

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(i) Fee revenue and fee-based operating expenses

(ii) Adjusted EBITDA and Adjusted EBITDA margin, and

(ii) Adjusted EBITDA and Adjusted EBITDA margin

(iii) Percentage changes against prior periods, presented on a local currency basis

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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.

These costs are presented on a gross basis in Operating expenses with the equal amount of corresponding fees in Revenue before reimbursements.

Consistent with our treatment of directly reimbursed expenses, 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 net servicing income is projected to be received.

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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 non-cash fair value adjustments to assets and liabilities recorded in purchase accounting such as earn-out liabilities and intangible assets;

and (iii) lease exit charges.

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 non-cash fair value adjustments to assets and liabilities recorded in purchase accounting such as earn-out liabilities and intangible assets and (iii) 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 a business in the Asia Pacific reporting segment in 2018.

Given our low frequency of business disposals historically, we exclude the gain directly associated with such activity as it is not considered indicative of core operating performance.

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.

Reconciliation of Non-GAAP Financial Measures

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(in millions) 2020 2019

Revenue $ 16,589.9 17,983.2

Reimbursements

(7,689.8) (7,952.6)

Revenue before reimbursements 8,900.1 10,030.6

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Net non-cash MSR and mortgage banking derivative activity (66.6) (21.2)

Fee revenue $ 6,130.3 7,139.2

Operating expenses $ 16,030.8 17,267.8

Reimbursed expenses

(7,689.8) (7,952.6)

Operating expenses, excluding reimbursed expenses 8,341.0 9,315.2

Gross contract costs

(2,703.2) (2,870.2)

Fee-based operating expenses $ 5,637.8 6,445.0

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Depreciation and amortization 226.4 202.4

EBITDA $ 788.6 952.9

Restructuring and acquisition charges 142.4 184.4

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Year Ended December 31,

($ in millions)

($ in millions) 2020 % Change

At current period exchange rates $ 16,589.9 (8) %

Impact of change in exchange rates

Impact of change in exchange rates 10.7 n/a

At comparative period exchange rates $ 16,600.6 (8) %

At current period exchange rates $ 6,130.3 (14) %

Impact of change in exchange rates

Impact of change in exchange rates (10.3) n/a

At comparative period exchange rates $ 6,120.0 (14) %

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At current period exchange rates $ 559.1 (22) %

Impact of change in exchange rates

Impact of change in exchange rates (10.2) n/a

At comparative period exchange rates $ 548.9 (23) %

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At current period exchange rates $ 859.6 (23) %

Impact of change in exchange rates

Impact of change in exchange rates (10.1) n/a

At comparative period exchange rates $ 849.5 (24) %

Consolidated revenue and fee revenue both increased 12% over the prior year to $18.0 billion and $7.1 billion , respectively.

Consolidated RES revenue and RES fee revenue both increased 13% from 2018, with broad-based growth achieved in all service lines.

From a service line perspective, consolidated RES revenue growth was led by Property & Facility Management (38% of the growth), with notable contributions from Project & Development Services (27% of the growth) and Capital Markets (21% of the growth).

For consolidated RES fee revenue, growth was led by Capital Markets (52% of the growth), Leasing (23% of the growth) and Project & Development Services (11% of the growth).

The Capital Markets growth was due predominantly to the acquisition of HFF, Inc.

("HFF"), almost entirely reflected in the Americas segment.

HFF contributed $392.3 million of revenue ($394.9 million of fee revenue), subsequent to the July 1, 2019 acquisition.

Refer to Note 4, Business Combinations, Goodwill and Other Intangibles , of the Notes to the Consolidated Financial Statements, included in Item 8, for further information on the HFF acquisition.

Geographically, the increase in consolidated RES fee revenue comprises 90% from our Americas segment, 8% from Asia Pacific and 2% from EMEA.

The following highlights the proportion of our RES service line consolidated fee revenue growth, compared with 2018, by notable segment.

Refer to segment operating results for further discussion.

Leasing - Americas drove growth, partially offset by EMEA and Asia Pacific

Capital Markets - Americas (99%) and Asia Pacific (10%), partially offset by EMEA

Property & Facility Management - EMEA (56%), Americas (30%) and Asia Pacific (14%)

Project & Development Services - Americas (55%), EMEA (25%) and Asia Pacific (20%)

Advisory, Consulting and Other - Americas (50%), EMEA (27%) and Asia Pacific (23%)

LaSalle revenue was largely flat to 2018 as significant growth in advisory and transaction fees was offset by expected lower incentive fees compared to the record 2018 performance.

Our consolidated revenue and fee revenue both increased 10% in U.S.

COVID-19 Pandemic

The COVID-19 pandemic (the "pandemic") disrupted our operations in 2020, most significantly in transaction-based service lines.

Offices in China began closing in January and by the end of March, over 90% of JLL's office-based employees across the globe were working remotely.

At the same time, our personnel across the globe, notably in Corporate Solutions and other annuity businesses, partnered with clients to ensure continuity of operations in response to the evolving conditions as well as develop and implement safe return-to-work measures.

In response to the pandemic's sustained disruptions to revenue and business operations, we implemented various cost mitigation actions.

Specifically, our expense management actions delivered nearly $330 million of non-permanent cost savings this year, including $80 million from various government programs implemented around the world in response to the challenging conditions created by the pandemic.

These non-permanent savings represent costs likely to return in future periods as the macroeconomic environment recovers.

In addition, the macroeconomic impact of the pandemic resulted in certain non-cash charges in 2020, including a net $21.6 million increase to loan loss credit reserves in Americas and a $45.7 million year-over-year decline in LaSalle's equity earnings.

Consolidated RES revenue decreased 7% to $16.2 billion and consolidated RES fee revenue decreased 14% to $5.7 billion, compared with 2019, a result of the pandemic's significant impact, especially on transaction-based service lines.

The declines were across all geographic segments and all service lines except Property & Facility Management, which grew modestly in 2020, primarily attributable to strength in the U.S.

offsetting declines in EMEA while Asia Pacific was stable year over year.

Leasing experienced the most significant year-over-year decrease in revenue (25%) and fee revenue (26%), against the backdrop of an over 40% decline in global office market gross absorption for the year, according to JLL Research.

Capital Markets included $215.2 million of incremental revenue from HFF in the first half of 2020 ($220.2 million of fee revenue) due to the July 1, 2019, timing of our acquisition.

HFF contributions are almost entirely within the Americas segment.

Organic Capital Markets fee revenue was down 27% compared with 2020, reflecting the sharp year-over-year drop in global market volumes.

Geographically across service lines, Americas represented nearly half of the year-over-year RES fee revenue decline on a local currency basis;

EMEA represented 32% and Asia Pacific 20%.

Refer to segment operating results discussion for further detail.

The decline in LaSalle revenue was substantially due to expected lower incentive fees compared to an exceptional 2019.

Solid advisory fee performance reflected strong capital raising during the year.

Refer to the LaSalle segment results discussion for further detail.

Our consolidated revenue and fee revenue decreased 8% and 14%, respectively, in both U.S.

dollars and on a local currency basis for 2020, compared with 2019.

The spread was driven by strengthening of the U.S.

dollar against most major currencies, especially the British pound sterling, euro, Australian dollar, and Chinese yuan.

The absence of a spread between U.S.

dollars and local currency was driven by a strengthening of the U.S.

dollar against the Indian rupee, Australian dollar and Canadian dollar, offset by a modest weakening of the U.S.

dollar against the British pound sterling and euro.

Operating Expenses

In 2019, consolidated operating expenses, excluding reimbursed expenses, increased 14% to $9.3 billion .

Consolidated fee-based operating expenses, were $6.4 billion in 2019, a 13% increase from prior year.

The increase in expenses was primarily attributable to Americas, which represented 67% of the increase in fee-based operating expenses on a local currency basis, driven by incremental expenses from post-acquisition HFF operations.

In addition, Restructuring and acquisition charges represented 19% of the increase, primarily due to HFF-related acquisition and integration costs;

refer to the following table and commentary below for further detail.

In 2020, consolidated operating expenses, excluding reimbursed expenses, decreased 10% to $8.3 billion.

Consolidated fee-based operating expenses, were $5.6 billion in 2020, down 13% from prior year.

The lower expenses were primarily attributable to Americas, which represented 39% of the decrease in fee-based operating expenses on a local currency basis - Asia Pacific represented 28%, EMEA 21%, and LaSalle 7%.

Amounts received from government COVID-related programs were presented as reductions to Compensation and benefits expense.

In addition, Restructuring and acquisition charges represented 5% of the overall decrease;

refer to the following table and commentary below for additional detail.

Year ended December 31,

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Restructuring, pre-acquisition and post-acquisition charges 88.2 124.9

Fair value adjustments that resulted in a net increase to earn-out liabilities from prior-period acquisition activity

Fair value adjustments that resulted in a net (decrease) increase to earn-out liabilities from prior-period acquisition activity (14.8) 28.4

Total restructuring & acquisition charges $ 142.4 184.4

Of the current-year Restructuring, pre-acquisition and post-acquisition charges, $115.1 million was associated with the acquisition and integration of HFF.

These charges included transaction/deal costs, retention and severance expense, early lease termination costs, and other integration expenses.

Portion of total restructuring & acquisition charges related to the acquisition and integration of HFF $ 75.9 115.1

Charges associated with the acquisition and integration of HFF included transaction/deal costs, retention and severance expense, early lease termination costs, and other integration expenses.

The increase in severance and other employment-related charges, compared with 2019, reflected notable cost mitigation actions taken across the globe in response to the pandemic.

Interest Expense

Interest expense, net of interest income, for 2019 was $56.4 million , up from $51.1 million in 2018.

The increase reflects an increase in the average outstanding borrowings, primarily attributable to cash drawn to acquire HFF, as well as a higher effective interest rate on our Facility.

The average outstanding borrowings under our Facility increased from $364.1 million , with an average effective interest rate of 2.9% , during 2018, to $851.6 million , with an average effective interest rate of 3.0% , in 2019.

Interest expense, net of interest income, for 2020 was $52.8 million, down from $56.4 million in 2019.

The decrease was driven by a lower effective interest rate on our Facility.

The average outstanding borrowings under our Facility increased slightly from $851.6 million, with an average effective interest rate of 3.0%, during 2019, to $865.1 million, with an average effective interest rate of 1.6%, in 2020.

Equity Earnings

Equity earnings increased from $32.8 million in 2018 to $36.3 million in 2019.

Substantially all of the activity in each year was attributable to LaSalle;

refer to the LaSalle segment results discussion for additional details.

Provision for Income Taxes

Equity earnings decreased from $36.3 million in 2019 to $8.0 million in 2020.

LaSalle is a key driver of activity in both years;

refer to the LaSalle segment results discussion for additional detail.

In addition, $12.7 million of equity earnings were recognized in the first quarter of 2020 for the Americas segment, substantially attributable to gains by consolidated variable interest entities in which JLL 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.

The provision for income taxes was $106.9 million and $159.7 million for the years ended December 31, 2020 and 2019, respectively, representing effective tax rates ("ETR") of 20.2% and 22.9%, respectively.

In both years, there was a change in the estimated liability associated with the transition tax from the U.S.

Tax Cuts and Jobs Act of 2017.

In 2019, excluding the $4.3 million benefit from this change in estimate, the ETR was 23.5% .

In 2018, excluding the $47.0 million additional charge from this change in estimate, the ETR was 23.7%.

Refer to the Income Tax discussion in the Summary of Critical Accounting Policies and Estimates and Note 8, Income Taxes , of the Notes to Consolidated Financial Statements, included in Item 8, for a further discussion of our effective tax rate.

In 2019, there was a change in the estimated liability associated with the transition tax from the Act;

excluding the $4.3 million benefit from this change in estimate, the ETR was 23.5%.

Refer to the Income Tax discussion in the Summary of Critical Accounting Policies and Estimates and Note 8, Income Taxes, of the Notes to Consolidated Financial Statements, included in Item 8, for a further discussion of our ETR.

Net Income and Adjusted EBITDA

Net income attributable to common shareholders was $402.5 million for the year, or $7.70 per diluted common share, compared with $534.4 million for 2019, or $10.87 per diluted common share.

The July 2019 issuance of 5.7 million shares in conjunction with the HFF acquisition increased the weighted average shares outstanding, impacting the year-over-year growth of earnings per share.

Adjusted EBITDA increased 18% from the prior year to $1,116.1 million in 2019.

Net income margin attributable to common shareholders was 5.3% in 2019, equivalent to the prior year.

The July 2019 issuance of 5.7 million shares in conjunction with the HFF acquisition increased the weighted average shares outstanding in 2020, compared with 2019, impacting earnings per share.

Adjusted EBITDA decreased 24% from the prior year to $859.6 million in 2020.

Net income margin attributable to common shareholders was 4.5% in 2020, down from 5.3% in the prior year.

Adjusted EBITDA margin, calculated on a fee revenue basis, was 14.0% in USD for 2020 (13.9% in local currency), compared with 15.6% last year.

The profitability improvement and margin expansion primarily reflected contributions from organic RES growth and HFF, which facilitated net incremental investments in growth initiatives.

The 160 basis-point net reduction was driven by (i) lower transaction-based revenues in RES, (ii) the year-over-year differential in LaSalle incentive fees and equity earnings and (iii) the non-cash charge to increase loan loss credit reserves, partially offset by savings from cost mitigation actions.

Segment Operating Results

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We define "property management" to be services we provide to non-occupying property investors and "facility management" to be services we provide to owner-occupiers.

Operating income represents total revenue less direct and allocated indirect expenses.

We allocate all indirect expenses to our segments, other than interest and income taxes, as nearly all expenses incurred benefit one or more of the segments.

Allocated expenses primarily consist of corporate global platform overhead, which we allocate to the business segments based on the budgeted operating expenses of each segment.

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 excludes Restructuring and acquisition charges.

Americas - Real Estate Services

Year Ended December 31,

($ in millions)

Reimbursements

Revenue before reimbursements

Gross contract costs

Net non-cash MSR and mortgage banking derivative activity

Capital Markets

Property & Facility Management

Project & Development Services

Advisory, Consulting and Other

Compensation, operating and administrative expenses excluding gross contract costs

Depreciation and amortization

Segment fee-based operating expenses (excluding restructuring & acquisition charges)

Gross contract costs

Segment operating expenses, excluding reimbursed expenses

Segment operating income

Equity earnings

Adjusted EBITDA

Americas revenue and fee revenue increases were broad-based across all service lines, highlighted by Capital Markets.

The Capital Markets growth was driven by HFF contributions in the six months following our acquisition;

HFF revenue and fee revenue was $383.7 million and $386.3 million, respectively, reflecting strong contributions from debt placement.

Leasing achieved outstanding revenue performance across several U.S.

markets and all major asset classes, with larger average deal sizes in 2019.

In addition, Project & Development Services fee revenue growth was due to new project wins in the U.S.

and expanded assignments with Corporate Solutions clients.

Excluding contributions from HFF, segment revenue and fee revenue growth for the year was strong at 13% and 10%, respectively.

The increase in segment operating expenses, excluding reimbursed expenses, and segment fee-based operating expenses in 2019 was primarily attributable to incremental expenses associated with the first two quarters of HFF operations and revenue-related expense growth.

Adjusted EBITDA margin, calculated on a fee revenue basis, was 18.4% in USD and local currency in 2019, compared with 16.3% in 2018.

The increase in segment operating income and adjusted EBITDA, as well as over 200 basis point margin expansion, primarily reflected the significant growth in our higher margin transactional businesses, approximately half of which was from HFF contributions, and cost management initiatives.

EMEA - Real Estate Services

Year Ended December 31,

($ in millions)

Reimbursements

Revenue before reimbursements

Gross contract costs

Capital Markets

Property & Facility Management

Project & Development Services

Advisory, Consulting and Other

Compensation, operating and administrative expenses excluding gross contract costs

Depreciation and amortization

Segment fee-based operating expenses (excluding restructuring & acquisition charges)

Gross contract costs

Segment operating expenses, excluding reimbursed expenses

Segment operating income

Equity losses

Adjusted EBITDA

EMEA revenue and fee revenue had slight growth in 2019, highlighted by Property & Facility Management and Project & Development Services.

New client wins and expansion of mandates with Corporate Solutions clients drove Property & Facility Management revenue and fee revenue increases.

Solid performance in Project & Development Services was led by MENA.

The decreases in Capital Markets and Leasing were primarily due to declines in the UK.

Geographically across service lines, fee revenue growth was led by MENA, France and Poland, with notable offsets in the UK and Germany.

The increase in segment operating expenses, excluding reimbursed expenses, and segment fee-based operating expenses primarily reflected revenue-related expense growth and investments in our people.

Adjusted EBITDA margin, calculated on a fee revenue basis, was 5.5% in USD for the year (5.4% in local currency), compared with 7.7% in 2018.

The margin contraction was most attributable to the notable decrease in higher-margin transactional revenues.

Asia Pacific - Real Estate Services

Year Ended December 31,

($ in millions)

Reimbursements

Revenue before reimbursements

Gross contract costs

Capital Markets

Property & Facility Management

Project & Development Services

Advisory, Consulting and Other

Compensation, operating and administrative expenses excluding gross contract costs

Depreciation and amortization

Segment fee-based operating expenses (excluding restructuring & acquisition charges)

Gross contract costs

Segment operating expenses, excluding reimbursed expenses

Segment operating income

Equity earnings

Adjusted EBITDA

Asia Pacific's solid 2019 growth in revenue and fee revenue was highlighted by Capital Markets, primarily due to increased transactions in Japan, Singapore and Australia.

Project & Development Services growth was driven by Corporate Solutions project wins across several geographic markets.

The decline in leasing reflected a softer fourth quarter as market conditions in Hong Kong and China more than offset growth in other markets, specifically India.

Geographically across service lines, the increase in fee revenue was led by Japan, India and Australia, with offsets from Greater China.

The increases in segment operating expenses, excluding reimbursed expenses, and segment fee-based operating expenses was primarily attributable to revenue-related expense growth.

Adjusted EBITDA margin, calculated on a fee revenue basis, was 14.4% in USD for 2019 (14.3% in local currency), compared with 13.2% in 2018.

The margin expansion reflected the net increase in transactional revenues and improved margin contribution from continued cost discipline.

Year Ended December 31,

($ in millions)

Reimbursements

Revenue before reimbursements

Gross contract costs

Advisory fees

Transaction fees & other

Incentive fees

Compensation, operating and administrative expenses excluding gross contract costs

Depreciation and amortization

Segment fee-based operating expenses (excluding restructuring & acquisition charges)

Gross contract costs

Segment operating expenses, excluding reimbursed expenses

Segment operating income

Equity earnings

Adjusted EBITDA

LaSalle revenue and fee revenue reflected significant growth in advisory and transaction fees, more than offset by expected lower incentive fees following the record prior-year performance.

Strong private equity capital raising during the year drove over half of the growth in advisory fees with the balance attributable to assets under management ("AUM") from recent acquisitions.

Outstanding incentive fees in both years were driven by real estate dispositions on behalf of clients, primarily in Asia Pacific.

Incentive fees in 2019 marked the second highest levels of the decade, following only 2018.

Equity earnings in 2019 were primarily driven by net fair value increases for a LaSalle-managed publicly traded real estate investment trust in Japan.

The year-over-year increases in segment operating expenses, excluding reimbursed expenses, and segment fee-based operating expenses, was driven by higher deferred compensation expense related to the record incentive fee performance in 2018, partially offset by a decrease in the current portion of variable compensation expense.

Adjusted EBITDA margin, calculated on a fee revenue basis, was 29.9% in USD ( 30.0% in local currency) for 2019, compared with 31.7% in 2018.

The decline in margin is driven by lower incentive fees, partially offset by enhanced productivity of the asset management platform.

As of December 31, 2019, LaSalle had $67.6 billion of AUM, an increase of 12% in USD (13% in local currency) from $60.5 billion as of December 31, 2018.

The net increase in AUM during the year resulted from (i) $7.2 billion from the recent Aviva and Latitude transactions, (ii) $11.3 billion of acquisitions and (iii) $3.4 billion of net valuation increases, partially offset by (iv) $13.8 billion of dispositions and withdrawals and $1.0 billion of foreign currency decreases.

Year Ended December 31, 2018 compared with Year Ended December 31, 2017

Year Ended December 31,

($ in millions)

Capital Markets

Property & Facility Management

Project & Development Services

Advisory, Consulting and Other

Real Estate Services ("RES") revenue

Reimbursements

Revenue before reimbursements

Gross contract costs

Net non-cash MSR and mortgage banking derivative activity

Capital Markets

Property & Facility Management

Project & Development Services

Advisory, Consulting and Other

RES fee revenue

Compensation and benefits excluding gross contract costs

Operating, administrative and other expenses excluding gross contract costs

Depreciation and amortization

Total fee-based operating expenses

Restructuring and acquisition charges

Gross contract costs

Total operating expenses, excluding reimbursed expenses

Operating income

Equity earnings

Adjusted EBITDA

Reconciliation of Non-GAAP Financial Measures

Below are the reconciliations of (i) Revenue to fee revenue and (ii) Operating expenses to fee-based operating expenses.

Year Ended December 31,

($ in millions)

Reimbursements

Revenue before reimbursements

Gross contract costs

Net non-cash MSR and mortgage banking derivative activity

Operating expenses

Reimbursed expenses

Operating expenses, excluding reimbursed expenses

Gross contract costs

Fee-based operating expenses

Operating Income

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).

Year Ended December 31,

($ in millions)

Net income attributable to common shareholders

Interest expense, net of interest income

Provision for income taxes

Depreciation and amortization

Restructuring and acquisition charges

Gain on disposition

Net non-cash MSR and mortgage banking derivative activity

Adjusted EBITDA

Net income margin attributable to common shareholders

Adjusted EBITDA margin

The following table reflects the reconciliation to local currency amounts for consolidated (i) Revenue, (ii) fee revenue, (iii) Operating income and (iv) Adjusted EBITDA.

Year Ended December 31,

($ in millions)

At current period exchange rates

Impact of change in exchange rates

At comparative period exchange rates

At current period exchange rates

Impact of change in exchange rates

At comparative period exchange rates

Operating income:

At current period exchange rates

Impact of change in exchange rates

At comparative period exchange rates

Adjusted EBITDA:

At current period exchange rates

Impact of change in exchange rates

At comparative period exchange rates

Consolidated revenue and consolidated fee revenue for 2018 were $16.3 billion and $6.5 billion , respectively, both increases of 13% from prior year.

Annual RES revenue growth was substantially all organic and reflected contributions from all three RES segments.

From a service line perspective, Property & Facility Management led RES revenue growth for the year (58% of the growth) with notable contributions from Leasing and Project & Development Services.

LaSalle revenue increased 49% from 2017, driven by record incentive fee performance from real estate dispositions on behalf of clients.

The increase in RES fee revenue was led by Leasing, which represented 55% of the growth, with Property & Facility Management and Project & Development Services each representing nearly 20% of the service-line growth.

Capital Markets fee revenue decreased 2% from 2017 as declines in Asia Pacific and EMEA more than offset growth in Americas.

Geographically, the increase in consolidated RES fee revenue comprises 71% from our Americas segment, 19% from EMEA, and 10% from Asia Pacific.

Consolidated revenue and fee revenue growth in Property & Facility Management was primarily due to incremental revenue from the Americas (over two-thirds of the service-line revenue growth and nearly half of the fee revenue growth), specifically Corporate Solutions, as well as Asia Pacific.

For Leasing, Americas represented approximately three-fourths of both the revenue and fee revenue growth on a local currency basis.

EMEA drove nearly two-thirds of the revenue increase in consolidated Project & Development Services and nearly half the fee revenue increase.

Our consolidated revenue increased 13% in both U.S.

dollars and on a local currency basis for 2018, compared with 2017;

consolidated fee revenue increased 13% in both U.S.

dollars and on a local currency basis.

A strengthening of the British pound and euro against the U.S.

dollar was offset by the weakening of the Australian dollar and Indian rupee in relation to the U.S.

Operating Expenses

In 2018, consolidated annual operating expenses increased 12% to $8.4 billion from last year.

Consolidated fee-based operating expenses, were $5.8 billion in 2018, an 11% increase from the prior year.

The growth in expenses corresponded with the respective revenue and fee revenue growth and also reflects increased investments in people as well as technology and platform initiatives.

In addition, depreciation and amortization expense increased 11% year-over-year to $186.1 million in 2018.

This increase was due to incremental depreciation expense primarily from an increase in technology-related capital expenditures recently placed into service.

Amortization expense attributable to acquisition-related intangible assets decreased 6% compared with 2017.

Restructuring and acquisition charges were $38.8 million for the year, compared with $30.7 million in 2017.

Charges in 2018 included (i) $25.5 million of severance and other employment-related charges incurred with respect to headcount reductions or other activities considered to represent structural changes to our local, regional and/or global business operations, (ii) $5.9 million of costs incurred for pre-acquisition due diligence and post-acquisition integration activities, a result of our recent increase in acquisition activity and (iii) $7.4 million of net non-cash fair value adjustments relating to net increases to earn-out liabilities that arose from prior-period acquisition activity.

Comparatively, charges in 2017 included (i) $21.6 million of severance and other employment-related charges, (ii) $7.2 million of costs incurred as part of pre-acquisition due diligence and post-acquisition integration activities and (iii) $1.9 million of net non-cash fair value adjustments relating to net increases to earn-out liabilities.

Interest Expense

Interest expense, net of interest income, for 2018 was $51.1 million , up from $56.2 million in 2017.

A decline in the outstanding average borrowings, partially offset by a higher effective interest rate on our Credit Facility was the largest driver of the decrease in net interest expense compared with 2017.

The average outstanding borrowings under our credit facility decreased from $888.5 million, with an effective interest rate of 2.0%, during 2017 to $364.1 million , with an effective interest rate of 2.9% in 2018.

Deferred acquisition obligations, which are recorded at present value in purchase accounting with subsequent accretion reflected within Interest expense, net of interest income, decreased from $81.9 million as of December 31, 2017 to $62.3 million as of December 31, 2018.

This decrease was the result of payments made in 2018 relating to acquisitions in prior years and contributed to the decrease in annual net interest expense.

Equity Earnings

Equity earnings increased from $44.4 million in 2017 to $32.8 million in 2018.

Substantially all of the activity in each year was attributable to LaSalle;

refer to the LaSalle segment results discussion for additional details.

Provision for Income Taxes

The provision for income taxes was $214.3 million in the current year, reflecting a consolidated ETR of 30.4% .

The current year provision reflects a $42.0 million decrease from 2017, where the ETR was 47.8% .

In 2017, the provision included an additional expense of $125.9 million which represented (i) our provisional estimate of the transition tax on deemed repatriated earnings of foreign subsidiaries ("transition tax") and (ii) the net remeasurement of U.S.

deferred tax assets and liabilities in response to the U.S.

tax legislation enacted in December 2017.

In 2018, we did not anticipate a significant true-up to the provisional estimate of the transition tax until the fourth quarter, when our interpretation of U.S.

Department of Treasury guidelines released during that period resulted in the recognition of an additional $47.0 million predominantly related to the transition tax.

Excluding the additional expense related to the U.S.

tax legislation, our consolidated ETR was 23.7% in 2018 and 24.4% in 2017.

Net Income and Adjusted EBITDA

Net income attributable to common shareholders was $484.1 million for the year, or $10.54 per diluted common share, compared with $276.0 million for 2017, or $6.03 per diluted common share.

Net income margin attributable to common shareholders was 5.3% in 2018, up from 3.5% in the prior year.

Adjusted EBITDA, which increased 25% from the prior year, was $953.2 million this year.

Adjusted EBITDA margin, calculated on a fee revenue basis, was 14.7% in USD ( 14.9% in local currency), compared with 13.4% last year.

The margin expansion and improvement in adjusted EBITDA were primarily due to (i) our RES businesses, most notably Americas and EMEA and (ii) LaSalle incentive fees, partially offset by incremental investments in platform and transformation initiatives.

In addition, our measure of segment results, Segment income, excludes Restructuring and acquisition charges.

Americas - Real Estate Services

Year Ended December 31,

($ in millions)

Year Ended December 31, Change in in Local

($ in millions) 2020 2019 U.S.

dollars Currency

Revenue $ 10,005.2 10,578.9 (573.7) (5) % (5) %

Reimbursements (5,643.5) (5,857.8) 214.3 (4) (3)

1 unchanged sentence

Gross contract costs (842.5) (800.2) (42.3) 5 7

Net non-cash MSR and mortgage banking derivative activity

Net non-cash MSR and mortgage banking derivative activity (66.6) (21.2) (45.4) n.m.

Fee revenue $ 3,452.6 3,899.7 (447.1) (11) % (11) %

Leasing 1,403.7 1,912.1 (508.4) (27) (26)

Capital Markets 881.3 888.7 (7.4) (1) (1)

7 unchanged sentences

Segment operating expenses, excluding reimbursed expenses $ 3,825.8 4,109.7 (283.9) (7) % (6) %

Segment operating income

Equity earnings (losses)

Equity earnings $ 19.0 1.7 17.3 n.m.

Segment income $ 554.9 613.1 (58.2) (9) % (9) %

Adjusted EBITDA $ 626.6 719.4 (92.8) (13) % (13) %

Americas revenue and fee revenue increases were broad-based across all service lines.

Property & Facility Management contributed over 60% of the growth in revenue.

Leasing led the segment fee revenue growth as outstanding performance in the New York, Mid-Atlantic and Midwest U.S.

markets drove outperformance against U.S.

office market gross absorption, as reported by JLL Research.

In addition to brokering more leases year over year, average deal size also increased.

The growth in Property & Facility Management fee revenue reflected the ramp-up of new client wins and expansions of existing facility management relationships with Corporate Solutions clients.

Our multifamily and debt placement services drove Capital Markets fee revenue growth.

The increase in segment operating expenses, excluding reimbursed expenses, and segment fee-based operating expenses in 2018 was attributable to (i) expenses which directly correlate to the revenue growth noted above, and (ii) incremental strategic investments in platform and technology transformation programs, partially offset by cost management initiatives.

Americas transaction-based service lines were negatively affected by the pandemic.

Leasing revenue reflected a substantial decrease in office volumes (office gross absorption down 47% compared with 2019, according to JLL Research), the industrial sector achieved significant growth.

Full-year Capital Markets included $211.5 million of incremental revenue contributions in the first half of 2020 from HFF ($216.6 million of fee revenue) with organic fee revenue down 25% for the year.

Lower investment sales and debt placement activity drove this organic decline, partially offset by notable growth in multifamily origination and servicing fees.

Property & Facility Management achieved significant revenue and fee revenue growth for the year driven by new property management and Corporate Solutions clients as well as expansions of existing Corporate Solutions client relationships.

The decrease in segment operating expenses, excluding reimbursed expenses, and segment fee-based operating expenses, compared with 2019, was primarily due to the decline in revenue-related expenses and an estimated $153 million of non-permanent cost savings achieved in 2020.

Adjusted EBITDA margin, calculated on a fee revenue basis, was 18.1% in USD and local currency in 2020, compared with 18.4% in 2019.

The increase in segment operating income and adjusted EBITDA, as well as margin expansion, reflect Leasing revenue growth and yields from cost management initiatives, partially offset by the incremental investments noted above.

The modest margin contraction was attributable to the decline in transaction-based revenue, largely offset by cost mitigation actions and growth in Property & Facility Management fee revenue.

EMEA - Real Estate Services

Year Ended December 31,

($ in millions)

Year Ended December 31, Change in in Local

($ in millions) 2020 2019 U.S.

dollars Currency

Revenue $ 3,092.8 3,470.7 (377.9) (11) % (12) %

Reimbursements (708.3) (709.7) 1.4 — (1)

1 unchanged sentence

Gross contract costs (1,005.0) (1,104.2) 99.2 (9) (10)

Fee revenue $ 1,379.5 1,656.8 (277.3) (17) % (18) %

Leasing 239.2 295.7 (56.5) (19) (21)

Capital Markets 313.7 391.5 (77.8) (20) (22)

7 unchanged sentences

Segment operating expenses, excluding reimbursed expenses $ 2,400.5 2,714.0 (313.5) (12) % (12) %

Segment operating income

Equity earnings

Equity losses $ — (1.0) 1.0 n.m.

Segment (loss) income $ (16.0) 46.0 (62.0) n.m.

Adjusted EBITDA $ 27.3 91.7 (64.4) (70) % (79) %

EMEA revenue and fee revenue growth in 2018 was led by Project & Development Services and Property & Facility Management.

Geographically, growth in the segment was led by the UK, Middle East & North Africa ("MENA") and France.

Project & Development Services fee revenue growth was driven by our Tetris fit-out business, primarily in Continental Europe, and projects in MENA.

The increase to Property & Facility Management fee revenue was driven by the stabilization of our Integral business in the UK;

2017 included additional gross contract costs associated with the $20 million of contract losses discussed last year.

Capital Markets fee revenue declines partially offset growth across the other services lines as notable growth in France and Portugal were overshadowed by decreases in Switzerland - attributable to an outsized 2017 transaction - Germany and the UK.

The increase in segment operating expenses, excluding reimbursed expenses, and segment fee-based operating expenses reflects revenue-related expense growth, partially offset by an $11.0 million year-over-year improvement in the bad debt provision, primarily associated with Integral.

EMEA's revenue and fee revenue were significantly impacted by the pandemic in 2020.

Capital Markets revenue declines were most pronounced in the second and third quarters of 2020, compared with the prior-year quarters;

several geographies, including the UK, reflected resiliency and some recovery during the fourth quarter.

While depressed office market volumes drove lower Leasing revenue, strength in the industrial sector partially offset this impact.

The year-over-year decline in Property & Facility Management fee revenue was primarily driven by (i) approximately $52 million of lower fee revenue in our UK mobile engineering business, largely the result of pandemic-driven work delays from client office closures, and (ii) the absence of approximately $30 million of prior-year fee revenue relating to property management businesses in continental Europe that were sold in late 2019.

Geographically across service lines, lower fee revenue was most notable in the UK, Germany and France.

The decrease in segment operating expenses, excluding reimbursed expenses, and segment fee-based operating expenses was primarily due to lower revenue-related expenses and nearly $70 million of non-permanent cost savings, including benefits recognized as reductions to operating expenses from various government COVID-related programs.

Adjusted EBITDA margin, calculated on a fee revenue basis, was 2.0% in USD for the year (1.4% in local currency), compared with 5.5% in 2019.

The stabilization of Integral, including the reduction on bad debt expense, and growth in Project & Development Services primarily drove margin expansion and the improvement in EMEA operating performance.

The decline in Segment income and Adjusted EBITDA as well as the margin contraction were driven by lower transaction-based revenue and losses on certain contracts, partially offset by cost mitigation actions and a net reduction to the allowance for bad debts.

Asia Pacific - Real Estate Services

Year Ended December 31,

($ in millions)

Year Ended December 31, Change in in Local

($ in millions) 2020 2019 U.S.

dollars Currency

Revenue $ 3,070.1 3,407.5 (337.4) (10) % (10) %

Reimbursements (1,333.2) (1,377.2) 44.0 (3) (3)

1 unchanged sentence

Gross contract costs (839.4) (950.5) 111.1 (12) (11)

Fee revenue $ 897.5 1,079.8 (182.3) (17) % (17) %

Leasing 174.9 247.9 (73.0) (29) (30)

Capital Markets 114.2 197.3 (83.1) (42) (43)

7 unchanged sentences

Segment operating expenses, excluding reimbursed expenses $ 1,621.9 1,903.0 (281.1) (15) % (14) %

Segment operating income

Equity earnings $ 1.4 2.3 (0.9) (39) % (38) %

Segment income $ 116.4 129.6 (13.2) (10) % (12) %

Adjusted EBITDA $ 144.9 155.5 (10.6) (7) % (9) %

Property & Facility Management drove nearly three-fourths of the increase in Asia Pacific revenue.

Leasing led fee revenue growth for the segment, primarily from office and industrial sectors in Greater China, Australia and Japan.

Project & Development Services growth was driven by Australia, while Property & Facility Management fee revenue growth was attributable to both new business and expansion of existing client mandates.

Geographically across service lines, the increase in fee revenue was led by Greater China, Australia and Singapore.

The increases in segment operating expenses, excluding reimbursed expenses, and segment fee-based operating expenses reflect revenue-related expense growth, increased investments in people, and higher than anticipated costs on certain client assignments in the first half of 2018.

Consistent with the other geographic segments, Asia Pacific's transaction-based revenue was meaningfully impacted by the pandemic.

Capital Markets revenue declines were most prominent in Singapore, Greater China and Japan, reflecting a significant decline in market volumes and shift in deal activity away from large transactions.

Lower Leasing fee revenue was largely due to declines in office leasing volumes, notably in Greater China, Australia and India.

Pandemic-driven office closures and work stoppages throughout 2020 resulted in delays to project activity within Project & Development Services.

By contrast, resiliency in Property & Facility Management was driven by property management and Corporate Solutions teams, who partnered with new and existing clients to execute on enhanced facilities management in an increasingly complex environment brought on by the pandemic.

The decrease in segment operating expenses, excluding reimbursed expenses, and segment fee-based operating expenses was primarily attributable to lower revenue-related expenses and approximately $96 million of non-permanent cost savings, including over $50 million from government COVID-related programs.

Adjusted EBITDA margin, calculated on a fee revenue basis, was 16.1% in USD for 2020 (15.9% in local currency), compared with 14.4% in 2019.

The margin contraction reflects lower Capital Markets revenue and the expense items noted above.

Year Ended December 31,

($ in millions)

The margin expansion reflected the non-permanent cost savings noted above partially offset by the decline in transaction-based revenue.

Year Ended December 31, Change in in Local

($ in millions) 2020 2019 U.S.

dollars Currency

Revenue $ 421.8 526.1 (104.3) (20) % (20) %

Reimbursements (4.8) (7.9) 3.1 (39) (40)

1 unchanged sentence

Gross contract costs (16.3) (15.3) (1.0) 7 7

Fee revenue $ 400.7 502.9 (102.2) (20) % (21) %

Advisory fees 320.7 314.2 6.5 2 1

6 unchanged sentences

Segment operating expenses, excluding reimbursed expenses $ 350.4 404.1 (53.7) (13) % (14) %

Segment operating income

Equity earnings

Equity (losses) earnings $ (12.4) 33.3 (45.7) n.m.

Segment income $ 54.2 147.4 (93.2) (63) % (64) %

Adjusted EBITDA $ 60.8 150.4 (89.6) (60) % (60) %

LaSalle revenue and fee revenue growth were driven by record incentive fee performance from real estate dispositions on behalf of clients, predominantly in Asia Pacific.

Continued expansion of private equity mandates drove solid growth in advisory fees;

the prior year included approximately $7 million of catch-up advisory fees earned as a result of new investor commitments in previously established funds.

Equity earnings both years were primarily driven by net valuation increases for investments in Europe and Asia.

For 2018, equity earnings also included gains on the sale of legacy investments.

The year-over-year increases in segment operating expenses, excluding reimbursed expenses, and segment fee-based operating expenses, reflect the current portion of higher variable compensation expense due to additional incentive fees.

The related deferred compensation expense will be recognized in future periods.

Compared with 2019, expected lower incentive fees substantially drove the decline in LaSalle revenue and fee revenue.

The prior year achieved the second highest incentive fee performance of the previous decade, following only 2018.

Incentive fees in both years were driven by real estate dispositions on behalf of clients, primarily in Asia Pacific and North America.

Stable advisory fee performance reflected strong private equity capital raising over the year, which more than offset limited valuation declines in assets under management ("AUM").

As a direct result of the pandemic's expected impact on real estate prices, we recognized equity losses this year to reflect decreases to the estimated fair value of underlying real estate investments within LaSalle's co-investment portfolio.

This drove the majority of the decline in equity earnings, compared with 2019.

In addition, over 40% of the decline was attributable to a lower year-over-year increase in the share price of a co-investment in a LaSalle publicly traded real estate investment trust in Japan.

The year-over-year decrease in segment operating expenses, excluding reimbursed expenses, and segment fee-based operating expenses, was driven by (i) a decrease in the current portion of variable compensation expense related to the decline in incentive fees and (ii) the impact of cost mitigation actions, partially offset by higher deferred compensation expense related to the exceptional incentive fee performance in prior years.

Adjusted EBITDA margin, calculated on a fee revenue basis, was 15.2% in USD (15.1% in local currency) for 2020, compared with 29.9% in 2019.

The margin expansion was attributable to the incremental contribution from incentive fees, which more than offset the notable margin impact of reduced equity earnings.

AUM were $60.5 billion as of December 31, 2018, an increase of 4% in USD (6% in local currency) from $58.1 billion as of December 31, 2017.

The net increase in AUM during the year resulted from $9.0 billion of acquisitions and $4.5 billion of net valuation increases, partially offset by $10.1 billion of dispositions and withdrawals, and $1.0 billion of foreign currency decreases.

The margin decline was primarily attributable to the change in equity earnings (approximately three-quarters of the margin contraction) and expected lower incentive fees.

As of December 31, 2020, LaSalle had $68.9 billion of AUM, an increase of 2% in USD (down 1% in local currency) from $67.6 billion as of December 31, 2019.

The net increase in AUM during the year resulted from (i) $10.1 billion of acquisitions and (ii) $1.8 billion of foreign currency increases, partially offset by (iii) $10.2 billion of dispositions and withdrawals and (iv) $0.4 billion of net valuation decreases.

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 from our credit facilities, and through issuance of our Long-term senior notes.

Cash Flows from Operating Activities

During 2019 , cash flows provided by operating activities was $483.8 million , compared to $604.1 million in 2018 .

The decrease in cash provided was primarily driven by higher tax payments, mostly to settle obligations from previous years.

In addition, cash outflows relating to our acquisition and integration of HFF was largely offset by cash flows from post-acquisition operations.

During 2018 , cash flows provided by operating activities were $604.1 million , a decrease of $194.6 million from $798.7 million in 2017 .

The decrease in cash provided by operating activities was driven by (i) an increase in reimbursable receivables net of reimbursable payables, reflecting growth of our outsourcing and project management businesses, (ii) net working capital changes as a result of our operational expansion, and (iii) the results of implementing certain working capital management initiatives, including revamped cash collection efforts and payment term governance in 2017.

This was partially offset by the $212.2 million year-over-year increase in Net income.

Operating activities provided a record $1,114.7 million of cash in 2020, compared with $483.8 million in 2019.

The substantial increase in cash flows from operating activities was driven by strong cash collection on receivables, participation in government COVID-related programs this year (including payment deferral opportunities for government cash obligations) and lower cash taxes paid in 2020, compared with 2019.

These items were partially offset by lower net income this year as well as increased annual incentive compensation paid in the first quarter of 2020 compared with 2019.

Cash Flows from Investing Activities

In 2019 , we used $1,049.7 million for investing activities, a $769.3 million increase from the $280.4 million used in 2018 .

The increase in cash used was driven predominately by payments for business acquisitions, specifically HFF, as well as net capital additions of property and equipment (including acquisitions of investment properties by consolidated less-than-wholly-owned subsidiaries).

We discuss these key drivers individually below in further detail.

In 2018 , we used $280.4 million for investing activities, a $109.6 million increase from the $170.8 million used in 2017 .

This increase was primarily driven by higher payments relating to business acquisitions and net capital additions of property and equipment (including acquisition of investment properties by consolidated less-than-wholly-owned subsidiaries), partially offset by net capital contribution/distribution activity related to co-investments in real estate ventures.

We used $170.6 million of cash for investing activities during 2020, compared with $1,049.7 million used in 2019.

The significant decrease in cash used was primarily driven by an absence of business acquisitions in 2020 (HFF, Inc.

was acquired in July 2019) and a decrease in net acquisitions of investment properties (less than wholly-owned) this year.

We discuss these key drivers individually below in further detail.

Cash Flows from Financing Activities

Net cash provided by financing activities was $584.6 million in 2019 , compared with $141.3 million used in 2018 .

The net change of $725.9 million in cash flows from financing activities is substantially driven by the increase in the outstanding borrowings on our Facility to fund the cash consideration for acquisitions, discussed in detail below.

Net cash used by financing activities was $141.3 million in 2018 , compared with $623.5 million used in 2017.

This net decrease of $482.2 million reflects net payments made in 2017 to reduce the outstanding balance on our Facility to zero as of December 31, 2017 .

As the Facility was also zero as of December 31, 2018 , cash used by financing activities in 2018 was lower, but reflected the continued strong cash flows from operations.

Financing activities used $771.2 million of cash during 2020, compared with $584.6 million provided by financing activities during 2019.

The significant year-over-year change in cash flows from financing activities is substantially driven by $525.0 million of net repayments on our Facility this year, compared with $525.0 million of net borrowings in 2019, reflecting outstanding operating cash flows generated during 2020 and cash consideration needs in 2019 for acquisitions, respectively.

Our $2.75 billion Facility matures on May 17, 2023.

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 .

As of December 31, 2020, we had no outstanding borrowings under the Facility 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 $865.1 million and $851.6 million during the years ended December 31, 2020 and 2019, respectively.

The notable increase in our average borrowings was driven by approximately $840 million of net cash outflows in the third quarter of 2019 for the July 1, 2019 HFF acquisition, net of repayments from operating cash inflows during the second half of 2019.

In addition to our Facility, we had the capacity to borrow up to an additional $64.7 million under local overdraft facilities as of December 31, 2020.

We had Short-term borrowings (including capital lease obligations, overdrawn bank accounts and local overdraft facilities) of $62.0 million and $120.1 million as of December 31, 2020 and 2019, respectively, of which $12.0 million and $44.8 million as of December 31, 2020 and 2019, 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 acquisitions.

We will continue to use the Facility for working capital needs (including payment of accrued incentive compensation), co-investment activities, share repurchases, capital expenditures and acquisitions.

See Note 10, Debt, of the Notes to Consolidated Financial Statements, included in Item 8, for additional information on our Facility, Short-term borrowings and Long-term debt.

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As of December 31, 2020, we had $430.8 million of total Investments in real estate ventures, primarily related to LaSalle co-investments.

In addition, since 2018, we have invested in a number of early-stage property technology companies through our JLL Spark Global Venture funds.

In 2019 and 2018, funding of co-investments exceeded returns of capital by $23.9 million and $6.9 million , respectively.

In 2017, return of capital exceeded funding by $4.6 million .

In addition, since 2018, we have invested in a number of early-stage proptech (property technology) companies through our JLL Spark Global Venture funds.

In 2020 and 2019, funding of investments exceeded returns of capital by $38.8 million and $23.9 million, respectively.

We expect to continue to pursue strategic co-investment opportunities with our investment management clients across the globe as co-investment remains an important foundation to the continued growth of LaSalle's business.

Separately, we plan to invest up to $100 million via our JLL Spark Global Venture funds and have invested approximately $34.4 million through December 31, 2019.

In addition, we expect continued investments by our JLL Spark funds.

See Note 5, Investments in Real Estate Ventures, of the Notes to Consolidated Financial Statements, included in Item 8, for additional information on our co-investment activity.

Share Repurchase and Dividend Programs

On October 31, 2019, our Board of Directors approved a new share repurchase program (“New program") authorizing the repurchase of up to $200 million of our common stock in the open market and privately negotiated transactions.

The New program affirms confidence in our business outlook and our long-term commitment to maintaining investment grade credit ratings.

The New program cancels and replaces the existing share repurchase program.

We have not made any share repurchases since 2007.

Our Board declared and we paid total annual dividends and dividend-equivalents of $0.86, $0.82 and $0.72 per common share in 2019 , 2018 and 2017 , respectively, including a semi-annual cash dividend of $0.43 per share in the fourth quarter of 2019 .

There can be no assurance dividends will be declared in the future since the actual declaration of future dividends and the establishment of record and payment dates remains subject to final determination by our Board of Directors.

Share Repurchases

On October 31, 2019, our Board of Directors approved a new share repurchase program (the "Program") authorizing the repurchase of up to $200.0 million of our common stock in the open market and privately negotiated transactions.

During the year ended December 31, 2020 we repurchased nearly 897,000 shares for $100.0 million.

As of December 31, 2020, $100.0 million remained authorized for repurchases under the Program.

There were no shares repurchased in 2019.

Capital Expenditures

Capital expenditures, excluding those made by a consolidated VIE in which we held no equity interest, were $187.8 million , $161.9 million and $151.4 million in 2019 , 2018 and 2017 , respectively.

Capital expenditures, excluding those made by a consolidated VIE in which we held no equity interest, were $149.4 million and $187.8 million in 2020 and 2019, respectively.

Our capital expenditures are primarily for purchased and developed software, computer hardware and improvements to leased office space.

The increase of capital expenditures compared with 2018 is primarily due to year-over-year increases in payments for leasehold improvements and purchased computer hardware.

The increase from 2017 to 2018 was primarily due to year-over-year increases in purchased and developed software as well as computer hardware.

Net property acquisitions and capital expenditures made by consolidated VIEs in which we hold no direct equity interest were $79.2 million , $14.3 million and $2.3 million in 2019 , 2018 and 2017 , respectively.

The decrease of capital expenditures compared with 2019 is primarily due to lower computer hardware and software expenditures, reflecting cash preservation decisions we made during the pandemic.

In addition, property acquisitions and capital expenditures, net of proceeds from distributions, made by consolidated VIEs in which we hold no direct equity interest were net proceeds of $1.0 million in 2020 and net acquisitions of $79.2 million in 2019, primarily to acquire real estate.

Refer to Note 5, Investments in Real Estate Ventures, of the Notes to the Consolidated Financial Statements, included in Item 8, for further information on our consolidated VIE investments.

Business Acquisitions

In 2019 , we paid $906.0 million for business acquisitions.

This included $801.3 million of net cash payments relating to 2019 acquisitions, predominantly the HFF acquisition, and $104.7 million for deferred business acquisition and earn-out obligations related to acquisitions completed in prior years.

The net cash paid for acquisitions compares to the $173.6 million paid in 2018 and the $69.4 million paid in 2017.

In 2020, we paid $67.7 million for deferred business acquisition and earn-out obligations related to acquisitions completed in prior years.

This activity is included in cash flows from operating and financing activities.

The net cash paid for acquisitions compares with $906.0 million paid in 2019, predominantly for the HFF acquisition.

Terms for our acquisitions have typically included cash paid at closing with provisions for additional consideration and earn-out payments subject to certain contract provisions and performance.

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As of December 31, 2020, we had $85.7 million accrued for potential earn-out payments, of a potential maximum of $199.2 million (undiscounted), subject to the achievement of certain performance conditions.

These earn-outs will come due at various times over the next six years, assuming the achievement of the applicable performance conditions.

These earn-outs will come due at various times over the next five years, assuming the achievement of the applicable performance conditions.

We will continue to consider acquisitions we believe will strengthen our market position, increase our profitability and supplement our organic growth.

Refer to Note 4, Business Combinations, Goodwill and Other Intangibles , of the Notes to the Consolidated Financial Statements, included in Item 8, for further information on business acquisitions.

Refer to Note 4, Business Combinations, Goodwill and Other Intangible Assets, of the Notes to the Consolidated Financial Statements, included in Item 8, for further information on business acquisitions.

Repatriation of Foreign Earnings

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The following table summarizes our minimum contractual obligations as of December 31, 2020.

($ in millions)

PAYMENTS DUE BY PERIOD

CONTRACTUAL OBLIGATIONS

LESS THAN 1 YEAR

MORE THAN 5 YEARS

(in millions) PAYMENTS DUE BY PERIOD

CONTRACTUAL OBLIGATIONS TOTAL LESS THAN 1 YEAR 1-3 YEARS 3-5 YEARS MORE THAN 5 YEARS

Debt obligations $ 761.2 56.8 275.0 — 429.4

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Vendor and other purchase obligations 187.6 82.6 87.7 17.3 —

Total $ 2,250.9 396.8 748.0 275.5 830.6

Debt Obligations.

As of December 31, 2019 , we had $525.0 million outstanding borrowings under our Facility;

As of December 31, 2020, we had no outstanding borrowings under our Facility;

we had outstanding borrowings of $12.0 million under our local overdraft facilities and $44.8 million related to overdrawn bank accounts.

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The maximum amount of the potential earn-out payments was $199.2 million as of December 31, 2020.

We anticipate these earn-out payments will come due at various times over the next six years assuming the achievement of the applicable performance conditions.

We anticipate these earn-out payments will come due at various times over the next five years assuming the achievement of the applicable performance conditions.

Lease Obligations .

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We are not able to predict if, when, or in what amounts such capital calls will be made, and therefore we exclude such commitments from the above table.

For additional information on the contractual obligations presented above, see our discussion in Note 4, Business Combinations, Goodwill and Other Intangibles , Note 5, Investments in Real Estate Ventures , Note 7, Retirement Plans , Note 10, Debt and Note 11, Leases , in the Notes to Consolidated Financial Statements, included in Item 8.

For additional information on the contractual obligations presented above, see our discussion in Note 4, Business Combinations, Goodwill and Other Intangible Assets, Note 5, Investments in Real Estate Ventures, Note 7, Retirement Plans, Note 10, Debt and Note 11, Leases, in the Notes to Consolidated Financial Statements, included in Item 8.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis