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Item 2. Management’s Discussion and Analysis

2021-05-06 compared with 2020-11-02 · 176 added, 284 removed, 256 unchanged (64% of the section changed)

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 nine months ended September 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 ).

The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements, including the notes thereto, for the three months ended March 31, 2021, and our audited Consolidated Financial Statements, including the notes thereto, for the fiscal year ended December 31, 2020, which are included in our 2020 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.

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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, 2020.

There have been no material changes to these critical accounting policies and estimates during the nine months ended September 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;

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.

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 nine months ended September 30, 2020 was 16.2% , resulting in an effective tax rate of 16.0% for the third 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 remainder 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 ( 19% ) 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.

There have been no material changes to these critical accounting policies and estimates during the three months ended March 31, 2021.

ITEMS AFFECTING COMPARABILITY

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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, we are experiencing the macroeconomic impact of the COVID-19 pandemic.

In 2020 and the three months ended March 31, 2021, macroeconomic conditions influenced by the COVID-19 pandemic impacted the historical seasonality of our revenue and profits and may continue to do so during the remainder of 2021.

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

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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.

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 September 30, 2020 and 2019 , are not fully indicative of the results we expect to realize for the full fiscal year.

Consequently, the results for the periods ended March 31, 2021 and 2020, are not fully indicative of the results we expect to realize for the full fiscal year.

RESULTS OF OPERATIONS

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Consolidated Operating Results

Three Months Ended September 30,

% Change in Local Currency

($ in millions)

Three Months Ended March 31, Change in % Change in Local Currency

($ in millions) 2021 2020 U.S.

Leasing $ 449.5 492.4 (42.9) (9) % (10) %

Capital Markets 320.4 342.3 (21.9) (6) (9)

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Real Estate Services ("RES") revenue $ 3,945.9 3,991.1 (45.2) (1) % (4) %

LaSalle 91.2 104.9 (13.7) (13) (16)

Revenue $ 4,037.1 4,096.0 (58.9) (1) % (4) %

Reimbursements (1,907.5) (1,863.0) (44.5) 2 —

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Gross contract costs (677.2) (729.4) 52.2 (7) (11)

Net non-cash MSR and mortgage banking derivative activity

Net non-cash MSR and mortgage banking derivative activity (9.7) 1.6 (11.3) n.m.

Fee revenue $ 1,442.7 1,505.2 (62.5) (4) % (7) %

Leasing 429.5 475.2 (45.7) (10) (11)

Capital Markets 305.3 334.1 (28.8) (9) (11)

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RES fee revenue $ 1,357.4 1,406.6 (49.2) (3) % (6) %

LaSalle 85.3 98.6 (13.3) (13) (17)

Compensation and benefits excluding gross contract costs $ 1,072.2 1,064.3 7.9 1 % (2) %

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Depreciation and amortization 53.0 55.0 (2.0) (4) (6)

Total fee-based operating expenses

Restructuring and acquisition charges 17.2 14.1 3.1 22 21

Gross contract costs

Total operating expenses, excluding reimbursed expenses

Operating income

Equity earnings

Adjusted EBITDA

Consolidated Operating Results (continued)

Nine Months Ended September 30,

% Change in Local Currency

($ 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 1,371.7 1,439.0 (67.3) (5) (7)

Restructuring and acquisition charges

Gross contract costs 677.2 729.4 (52.2) (7) (11)

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Operating income $ 80.7 64.6 16.1 25 % 23 %

Equity (losses) earnings

Equity earnings (losses) $ 48.5 (28.3) 76.8 n.m.

Adjusted EBITDA $ 190.1 95.6 94.5 99 % 96 %

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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;

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

Fee revenue and Fee-based operating expenses;

Adjusted EBITDA attributable to common shareholders ("Adjusted EBITDA") and Adjusted EBITDA margin;

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.

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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.

Gain on Disposition reflects the gain recognized on the sale of a business within Americas.

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(in millions) 2021 2020

Revenue $ 4,037.1 4,096.0

Reimbursements

(1,907.5) (1,863.0)

Revenue before reimbursements 2,129.6 2,233.0

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Net non-cash MSR and mortgage banking derivative activity (9.7) 1.6

Fee revenue $ 1,442.7 1,505.2

Operating expenses $ 3,956.4 4,031.4

Reimbursed expenses

(1,907.5) (1,863.0)

Operating expenses, excluding reimbursed expenses 2,048.9 2,168.4

Gross contract costs

(677.2) (729.4)

Fee-based operating expenses $ 1,371.7 1,439.0

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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 September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(in millions) 2021 2020

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Depreciation and amortization 53.0 55.0

EBITDA $ 194.6 79.9

Restructuring and acquisition charges 17.2 14.1

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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 September 30,

Nine Months Ended September 30,

($ in millions)

Three Months Ended March 31,

($ in millions) 2021 % Change

At current period exchange rates $ 4,037.1 (1) %

Impact of change in exchange rates

Impact of change in exchange rates (110.2) n/a

At comparative period exchange rates $ 3,926.9 (4) %

At current period exchange rates $ 1,442.7 (4) %

Impact of change in exchange rates

Impact of change in exchange rates (40.5) n/a

At comparative period exchange rates $ 1,402.2 (7) %

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At current period exchange rates $ 80.7 25 %

Impact of change in exchange rates

Impact of change in exchange rates (1.3) n/a

At comparative period exchange rates $ 79.4 23 %

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At current period exchange rates $ 190.1 99 %

Impact of change in exchange rates

Impact of change in exchange rates (2.6) n/a

At comparative period exchange rates $ 187.5 96 %

COVID-19 Pandemic

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

As with the second quarter, 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 meaningfully expanded both fixed and variable cost mitigation efforts.

With actions taken through October, we reduced fixed costs by approximately $135 million on an annualized basis, primarily compensation and benefits expense.

In addition, our expense management actions delivered nearly $120 million of non-permanent cost savings this quarter (over $240 million year-to-date), including $34 million related to various government relief programs around the world ($67 million year-to-date).

These non-permanent savings represent costs likely to return in future periods as business volumes recover.

For the third quarter of 2020 compared with 2019 , consolidated RES revenue decreased 12% to $3.9 billion and consolidated RES fee revenue decreased 24% to $1.3 billion , a result of the pandemic's significant impact, especially on transaction-based service lines.

For the first nine months of 2020 , consolidated RES revenue decreased 6% to $11.4 billion and consolidated RES fee revenue decreased 12% to $3.9 billion .

The revenue and fee revenue declines were across all three geographic segments and in all service lines except Property & Facility Management, which delivered steady fee revenue driven by our property management and Corporate Solutions teams.

Capital Markets experienced the most significant decrease in third-quarter revenue, down 43% over the prior-year quarter, in line with the decline in investment sales market volumes globally according to JLL Research.

Capital Markets year-to-date results included $215.2 million of incremental revenue from the first six months of 2020 related to HFF compared with the prior-year period due to the July 1, 2019, timing of the acquisition.

Leasing was down 30% for the quarter and 25% for the first nine months, compared with the prior-year periods, against the backdrop of an over 45% decline in global office market gross absorption for the third quarter (over 40% year-to-date) according to JLL Research.

Geographically across service lines, Americas represented 65% of the RES fee revenue decline for the second quarter on a local currency basis;

EMEA represented 22% and Asia Pacific represented 13%.

Refer to the segment results discussion for further details.

LaSalle achieved solid advisory fee growth for the quarter and year-to-date, compared with 2019.

The overall decline in revenue for the first nine months was primarily due to expected lower incentive fees following a near-record 2019.

Refer to the LaSalle segment results discussion for further discussion.

The continued impact of the COVID-19 pandemic (the "pandemic") contributed to lower consolidated RES revenue, down 4% to $3.9 billion, and fee revenue, down 6% to $1.4 billion, compared with the prior-year quarter, as strong growth in Asia Pacific was more than offset by declines in Americas and EMEA.

Notably, the consolidated RES revenue decreases in transaction-based service lines were less significant than the trailing three quarters, with encouraging economic indicators present in many geographies.

Corporate Solutions continued to deliver stable fee revenue performance as strength in facilities management offset a decrease in Project & Development Services.

Geographically across service lines, EMEA represented 60% of the RES revenue decline for the first quarter on a local currency basis, Americas represented 54% and Asia Pacific partially offset these decreases.

With respect to RES fee revenue, Americas represented nearly all of the decline for the first quarter on a local currency basis, as growth in Asia Pacific offset the decline in EMEA.

Refer to the segment results discussion for further detail.

LaSalle revenue decreased 16% compared with the prior-year quarter.

Refer to the LaSalle segment discussion for further detail.

Our consolidated fee revenue decreased 4% in U.S.

dollars (“USD”) and 23% in local currency for the third quarter of 2020 , compared with 2019 .

dollars (“USD”) and 7% in local currency for the first quarter of 2021, compared with 2020.

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

dollar against several major currencies, especially the British pound sterling, euro and Australian dollar.

Our consolidated fee revenue decreased 13% in USD and 12% in local currency for the nine months ended September 30, 2020, compared with the prior year.

The strengthening of the U.S.

dollar against the Indian rupee, Australian dollar and Chinese yuan drove the spread on year-to-date percentages.

Operating Expenses

In the third quarter of 2020 , consolidated operating expenses, excluding reimbursed expenses, were $1.9 billion , down 19% from 2019, and consolidated fee-based operating expenses, were $1.3 billion , down 24% from the prior-year quarter.

For the third quarter, the decrease in fee-based operating expenses was driven by Americas (64% of the reduction on a local currency basis), EMEA (20%) and Asia Pacific (16%).

Restructuring and acquisition charges were down compared with the prior-year periods;

In the first quarter of 2021, consolidated operating expenses, excluding reimbursed expenses, were $2.0 billion, down 9% from 2020, and consolidated fee-based operating expenses, were $1.4 billion, down 7% from the prior-year quarter.

For the first quarter, the decrease in fee-based operating expenses was driven by Americas (97% of the reduction on a local currency basis).

Americas results reflected an $8.1 million non-cash reduction to loan loss credit reserves, compared with a $30.6 million increase in reserves during the prior-year quarter.

Restructuring and acquisition charges increased compared with the prior year;

refer to following table for further detail.

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(in millions) 2021 2020

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Restructuring, pre-acquisition and post-acquisition charges 15.5 21.0

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

Fair value adjustments that resulted in a net decrease to earn-out liabilities from prior-period acquisition activity (0.1) (8.2)

Total restructuring & acquisition charges $ 17.2 14.1

Included in the preceding table was $13.8 million and $55.2 million for the third quarter and first nine months of 2020 , respectively, of acquisition and integration charges relating to HFF.

In the prior-year periods, such activity was $60.1 million and $69.8 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 as well as retention and severance expense, early lease termination costs and other integration expenses.

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.

Portion of total restructuring & acquisition charges related to the acquisition and integration of HFF $ 11.5 21.3

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

Equity Earnings

For the third quarter of 2020 , we recognized equity earnings of $15.0 million , compared with $17.1 million in the prior-year quarter.

For the first nine months of 2020 , we recognized equity earnings of $1.4 million , compared with earnings of $32.3 million in 2019 .

LaSalle was a key driver of activity in all periods;

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 which were substantially attributable to gains by consolidated variable interest entities in which we held no equity interest.

These gains are also reflected in net income attributable to noncontrolling interest and, therefore, had no impact to our Net income attributable to common shareholders.

The provision for income taxes was $25.7 million and $32.2 million for the three and nine months ended September 30, 2020 , respectively, representing effective tax rates of 16.0% and 16.2% , respectively.

For the three and nine months ended September 30, 2019 , the provision was $42.1 million and $77.6 million , respectively, representing effective tax rates of 24.5% and 22.9%, respectively.

The tax provision for the nine months ended September 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 .

For the first quarter of 2021, we recognized equity earnings of $48.5 million, compared with equity losses of $28.3 million in the prior-year quarter.

Valuation increases of JLL Technologies' investments contributed $34.7 million this quarter, reflecting progress in the strategy to invest in early-stage proptech companies;

refer to the Americas segment discussion for additional detail.

In addition, substantially all of the $12.7 million of equity earnings in the Americas segment in 2020 were attributable to gains by consolidated variable interest entities in which we held no equity interest;

these gains are also reflected in net income attributable to noncontrolling interest and, therefore, have no impact to net income attributable to common shareholders.

LaSalle recognized $13.0 million of equity earnings in 2021, compared with $40.3 million of equity losses last year.

Refer to the LaSalle segment discussion for additional detail.

The provision for income taxes was $28.2 million for the three months ended March 31, 2021, representing an effective tax rate of 21.6%.

For the three months ended March 31, 2020, the provision was $5.0 million, representing an effective tax rate of 22.0%.

Net Income and Adjusted EBITDA

Net income attributable to common shareholders for the three and nine months ended September 30, 2020 was $131.9 million and $152.4 million , respectively, compared with $128.9 million and $260.7 million in the respective prior-year periods.

Adjusted EBITDA was $243.6 million and $442.5 million for the third quarter and first nine months of 2020 , respectively, decreases of 19% and 29% from the prior-year periods.

Net income margin attributable to common shareholders for the third quarter (against Revenue before reimbursements) was 6.3% , compared with 5.1% in the prior-year quarter.

Adjusted EBITDA margin for the third quarter , calculated on a fee-revenue basis, was 17.2% in USD ( 17.4% in local currency), compared with 16.5% in 2019 .

The net margin expansion was primarily driven by cost mitigation efforts, including government relief programs, partially offset by net dilution from RES, reflecting the decline in fee revenue, specifically transactional service lines.

Net income attributable to common shareholders for the three months ended March 31, 2021 was $103.0 million, compared with $5.3 million in 2020.

Adjusted EBITDA was $190.1 million for the first quarter of 2021, an increase of 96% from the prior-year period.

Net income attributable to common shareholders in 2021 included a $12.0 million gain recognized on the sale of a business as part of a broader investment made in Roofstock, a marketplace for investing in the dynamic single-family rental sector.

This gain on sale is excluded from adjusted measures.

Net income margin attributable to common shareholders for the first quarter (against Revenue before reimbursements) was 4.8%, compared with 0.2% in the prior-year quarter.

Adjusted EBITDA margin for the first quarter, calculated on a fee-revenue basis, was 13.2% in USD (13.4% in local currency), compared with 6.4% in 2020.

The net margin expansion was primarily due to the year-over-year non-cash changes in LaSalle equity earnings and loan loss credit reserves discussed above.

Remaining margin expansion was driven by JLL Technologies' investments as well as strong contributions from Asia Pacific, partially offset by a decline in EMEA.

Refer to the segment operating results discussions for additional detail.

Segment Operating Results

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Americas - Real Estate Services

Three Months Ended September 30,

($ 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 and acquisition charges)

Gross contract costs

Segment operating expenses (excluding reimbursed expenses)

Equity earnings

Segment income

Adjusted EBITDA

Americas - Real Estate Services (continued)

Nine Months Ended September 30,

($ in millions)

Three Months Ended March 31, Change in in Local

($ in millions) 2021 2020 U.S.

dollars Currency

Revenue $ 2,443.9 2,523.1 (79.2) (3) % (3) %

Reimbursements (1,385.7) (1,393.5) 7.8 (1) (1)

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Gross contract costs (215.8) (212.8) (3.0) 1 2

Net non-cash MSR and mortgage banking derivative activity

Net non-cash MSR and mortgage banking derivative activity (9.7) 1.6 (11.3) n.m.

Fee revenue $ 832.7 918.4 (85.7) (9) % (9) %

Leasing 351.4 405.6 (54.2) (13) (14)

Capital Markets 206.6 246.6 (40.0) (16) (16)

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Segment operating expenses (excluding reimbursed expenses) $ 947.7 1,047.7 (100.0) (10) % (10) %

Equity earnings

Equity earnings $ 34.5 12.7 21.8 n.m.

Segment income $ 145.0 94.6 50.4 53 % 53 %

Adjusted EBITDA $ 169.0 121.3 47.7 39 % 39 %

Similar to the second quarter, the pandemic negatively affected the Americas transaction-based service lines this quarter.

Although U.S.

Leasing revenue for the quarter reflected a notable decrease in office leasing activity, we again outperformed substantial market declines in gross absorption.

Continued strong growth in industrial partially offset the reduced activity in office.

For the first nine months of 2020, Leasing fee revenue reflected factors largely consistent with the third-quarter drivers and also included our strong first-quarter performance.

Notably lower investment sales and debt placement activity led to a decline in Capital Markets revenue for the quarter.

Year-to-date, Capital Markets included $211.5 million of incremental revenue contributions from HFF from the first six months of 2020 ($216.6 million of fee revenue).

Property & Facility Management achieved significant revenue and fee revenue growth for the third quarter and first nine months of 2020 driven by new property management and CS clients as well as expansions of existing CS client relationships.

The decrease in operating expenses and fee-based operating expenses for the third quarter of 2020 compared with 2019 primarily reflected lower fixed and variable expenses associated with both cost mitigation actions taken in 2020.

For the first nine months of 2020, the decrease in expenses was less in magnitude compared with the third quarter alone primarily due to the incremental expenses in the first six months of 2020 associated with HFF operations (HFF was acquired July 1, 2019).

The pandemic continued to negatively impact the Americas transaction-based service lines, although the decline in U.S.

Leasing was notably less significant than recent quarters.

Continued growth in industrial partially offset a decline in office leasing activity, however, U.S.

office leasing again outperformed market gross absorption, which was down 45% according to JLL Research.

Lower investment sales and debt placement activity drove the decline in Capital Markets revenue while our multifamily business continued to deliver stable revenue performance.

Strong revenue and fee revenue growth in Property & Facility Management was attributable to new client wins and expansions of existing Corporate Solutions client relationships.

Equity earnings were entirely driven by valuation increases to JLL Technologies' investments, a reflection of subsequent financing rounds at increased per-share values for certain investments.

In the prior year, equity earnings were largely attributable to gains by consolidated variable interest entities in which the company held no equity interest, and therefore, these gains had no net impact to Adjusted EBITDA.

The decreases in segment operating expenses and segment fee-based operating expenses for the first quarter of 2021 compared with 2020 were driven by savings resulting from cost mitigation efforts during the trailing twelve months and lower revenue-related expenses.

Adjusted EBITDA margin for the quarter, calculated on a fee-revenue basis, was 20.3% in USD and in local currency, compared with 13.2% in 2020.

An estimated $56 million of non-permanent cost savings, including government relief programs, coupled with growth in Property & Facility Management more than offset the decline attributable to transaction-based service lines.

The equity earnings noted above and year-over-year change in loan loss credit reserves substantially drove the margin expansion.

The residual nominal improvement reflected cost mitigation savings noted above which offset the impact of lower revenue.

EMEA - Real Estate Services

Three Months Ended September 30,

($ 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 and acquisition charges)

Gross contract costs

Segment operating expenses (excluding reimbursed expenses)

Equity earnings

Segment (loss) income

Adjusted EBITDA

EMEA - Real Estate Services (continued)

Nine Months Ended September 30,

($ in millions)

Three Months Ended March 31, Change in in Local

($ in millions) 2021 2020 U.S.

dollars Currency

Revenue $ 716.2 755.9 (39.7) (5) % (12) %

Reimbursements (153.4) (182.8) 29.4 (16) (23)

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Gross contract costs (251.3) (262.6) 11.3 (4) (11)

Fee revenue $ 311.5 310.5 1.0 — % (7) %

Leasing 50.3 47.0 3.3 7 (1)

Capital Markets 70.3 68.8 1.5 2 (5)

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Segment operating expenses (excluding reimbursed expenses) $ 598.6 593.6 5.0 1 % (6) %

Equity earnings (losses)

Adjusted EBITDA

EMEA’s revenue and fee revenue continued to be impacted by the pandemic this quarter.

Transaction-based revenues for the third quarter were meaningfully lower, especially in Germany, the UK and France;

however, our Leasing outperformed the drop in market gross absorption.

The declines in Property & Facility Management fee revenue, compared with the prior-year periods, were primarily due to (i) approximately $11 million lower fee revenue this quarter in our UK mobile engineering business ($31 million year-to-date) and (ii) the absence of approximately $9 million of prior-year fee revenue relating to property management businesses in continental Europe that were sold in late 2019 ($27 million year-to-date).

The decreases in operating expenses, excluding reimbursed expenses, and fee-based operating expenses, excluding restructuring and acquisition charges, compared with the prior-year periods were primarily due to lower variable and revenue-related expenses as well as the benefit from government relief programs ($4 million for the third quarter and $18 million year-to-date).

In addition, the impact of cost mitigation actions taken in 2020 was more prominent this quarter.

Adjusted EBITDA margin for the third quarter, calculated on a fee-revenue basis, was 2.4% in USD ( 2.7% in local currency), compared with 6.1% in the prior-year quarter.

The decline in profitability resulted primarily from transaction-based revenue declines, partially offset by an estimated $23 million of non-permanent cost savings, including government relief programs.

Equity earnings $ — — — n.m.

Segment loss $ (35.8) (20.5) (15.3) 75 % 69 %

Adjusted EBITDA $ (24.8) (10.6) (14.2) n.m.

EMEA’s revenue and fee revenue in 2021 continued to be affected by the pandemic, compared with the prior-year quarter which had not yet been meaningfully impacted.

Transaction-based revenues were largely stable as significant growth in certain geographies, highlighted by Switzerland, was offset by geographies that experienced more restrictive lock-down measures, such as Germany and the UK.

Lower activity in our fit-out business and significant prior-year project activity in MENA that did not recur this quarter primarily drove the decline in Project & Development Services.

A decrease in fee revenue from the UK mobile engineering business impacted Property & Facility Management.

The decreases (in local currency) in segment operating expenses and segment fee-based operating expenses, compared with the prior-year quarter, were primarily due to savings resulting from cost mitigation efforts during the trailing twelve months and lower revenue-related expenses, partially offset by a contract loss in our UK mobile engineering business.

Adjusted EBITDA margin for the first quarter, calculated on a fee-revenue basis, was negative 8.0% in USD (negative 8.4% in local currency), compared with negative 3.4% in the prior-year quarter.

The decline in revenue as well as the above-noted contract loss contributed to the lower margin performance, more than offsetting the cost mitigation expense savings.

Asia Pacific - Real Estate Services

Three Months Ended September 30,

($ 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 and acquisition charges)

Gross contract costs

Segment operating expenses (excluding reimbursed expenses)

Equity earnings

Segment income

Adjusted EBITDA

Asia Pacific - Real Estate Services (continued)

Nine Months Ended September 30,

($ in millions)

Three Months Ended March 31, Change in in Local

($ in millions) 2021 2020 U.S.

dollars Currency

Revenue $ 785.8 712.1 73.7 10 % 3 %

Reimbursements (366.9) (284.9) (82.0) 29 19

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Gross contract costs (205.7) (249.5) 43.8 (18) (21)

Fee revenue $ 213.2 177.7 35.5 20 % 12 %

Leasing 27.8 22.6 5.2 23 16

Capital Markets 28.4 18.7 9.7 52 39

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Segment operating expenses (excluding reimbursed expenses) $ 402.1 424.1 (22.0) (5) % (10) %

Equity earnings

Segment income

Adjusted EBITDA

Consistent with the second quarter, Asia Pacific's transaction-based revenue was meaningfully impacted by the pandemic this quarter.

Capital Markets third-quarter revenue reflected a shift in deal activity away from large transactions.

For the quarter, the declines were most notable in Japan and Greater China;

year-to-date, Singapore also experienced a notable decline.

Leasing fee revenue improved from the second quarter as office leasing activity increased.

Property & Facility Management revenue and fee revenue demonstrated continued resiliency as property management and CS teams partnered with clients to execute on enhanced facilities management and reentry plans.

Segment operating expenses, excluding reimbursed expenses, and fee-based operating expenses, excluding restructuring and acquisition charges, for the third quarter and first nine months 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 (approximately $15 million for the third quarter and $35 million year-to-date).

Equity earnings (losses) $ 1.0 (0.7) 1.7 n.m.

Segment income $ 17.8 2.4 15.4 n.m.

Adjusted EBITDA $ 25.0 9.4 15.6 n.m.

Asia Pacific's double-digit fee revenue increase reflected strong growth in transaction-based revenue along with continued stability in Corporate Solutions.

An increase in large-deal transactions, particularly in Singapore and Australia, drove revenue expansion in Capital Markets.

Growth in Leasing was led by a pick-up in office volumes, especially in Greater China.

Significant growth in valuations services, notably in Greater China and Australia, led Advisory, Consulting and Other.

Higher segment fee-based operating expenses, compared with 2020, was primarily attributable to revenue-related expense increases, partially offset by savings resulting from cost mitigation efforts during the trailing twelve months.

Lower segment operating expenses, compared with last year, was due to a decrease in gross contract costs.

Adjusted EBITDA margin for the quarter, calculated on a fee-revenue basis, was 11.7% in USD (11.3% in local currency), compared with 5.3% last year.

Asia Pacific's margin expansion was driven by an estimated $35 million of non-permanent cost savings, including government relief programs, which more than offset the decline attributable to transaction-based revenue.

Three Months Ended September 30,

($ 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 and acquisition charges)

Gross contract costs

Segment operating expenses (excluding reimbursed expenses)

Equity earnings

Segment income

Adjusted EBITDA

LaSalle (continued)

Nine Months Ended September 30,

($ in millions)

The significant margin expansion was attributable to growth in transaction-based revenue and expense savings noted above.

Three Months Ended March 31, Change in in Local

($ in millions) 2021 2020 U.S.

dollars Currency

Revenue $ 91.2 104.9 (13.7) (13) % (16) %

Reimbursements (1.5) (1.8) 0.3 (17) (24)

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Gross contract costs (4.4) (4.5) 0.1 (2) (3)

Fee revenue $ 85.3 98.6 (13.3) (13) % (17) %

Advisory fees 79.3 82.0 (2.7) (3) (8)

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Segment operating expenses (excluding reimbursed expenses) $ 83.3 88.9 (5.6) (6) % (9) %

Equity (losses) earnings

Segment income

Adjusted EBITDA

LaSalle achieved solid advisory fee growth for the third quarter and first nine months of 2020, driven by strong private equity capital raising over the trailing twelve months.

An outsized 2019 performance drove the expected decline in incentive fees during the first nine months of 2020.

Equity earnings in the third 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 nine 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 29.5% in USD ( 29.3% local currency), compared with 34.5% last year.

The margin decline was attributable to lower Equity earnings (approximately a 600 basis point impact on margin), partially offset by improved profitability of LaSalle's annuity revenues (Advisory fees plus Transaction fees).

AUM was $65.7 billion as of September 30, 2020 , an increase of 1% in USD and local currency from $65.0 billion as of June 30, 2020 .

The AUM increase resulted from (i) $1.4 billion of acquisitions and (ii) $0.5 billion of foreign currency increases, partially offset by (iii) $1.0 billion dispositions and withdrawals and (iv) $0.2 billion of net valuation decreases.

Equity earnings (losses) $ 13.0 (40.3) 53.3 n.m.

Segment income (loss) $ 19.4 (26.1) 45.5 n.m.

Adjusted EBITDA $ 20.9 (24.4) 45.3 n.m.

Lower LaSalle advisory fees were largely attributable to pandemic-driven valuation declines in assets under management over the trailing twelve months.

Transaction and Incentive fees reflected decreased acquisition/transaction activity in 2021.

Equity earnings in the current quarter were substantially driven by increases to the estimated fair value of underlying real estate investments within LaSalle's co-investment portfolio.

In the prior year, equity losses were largely driven by the pandemic's impact on real estate prices which drove lower estimated fair values within the portfolio.

The decreases in segment operating expenses and segment fee-based operating expenses, compared with the prior-year quarter, was driven by lower revenue-related variable expenses.

Adjusted EBITDA margin for the quarter was 24.5% in USD (24.7% local currency), compared with negative 24.8% last year.

Margin improvement was attributable to the year-over-year change in equity earnings, partially offset by lower revenue.

AUM was $70.9 billion as of March 31, 2021, an increase of 3% in USD (no change in local currency) from $68.9 billion as of December 31, 2020.

The AUM increase resulted from (i) $1.9 billion of foreign currency increases, (ii) $1.1 billion of acquisitions, and (iii) $0.9 billion of net valuation increases, partially offset by $1.9 billion dispositions and withdrawals.

LIQUIDITY AND CAPITAL RESOURCES

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Cash Flows from Operating Activities

Operating activities provided $363.1 million of cash in the first nine months of 2020 , compared with $251.5 million of cash used during the same period in 2019 .

The substantial change in cash flows from operating activities is driven by strong cash collection on trade receivables in the last six months 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 in 2020 as well as increased annual incentive compensation paid in the first quarter of 2020 compared with 2019.

Operating activities used $461.8 million of cash in the first three months of 2021, compared with $546.1 million of cash used during the same period in 2020.

The decrease in cash used was primarily due to less incentive compensation paid in 2021, compared with 2020, a result of 2020 business performance compared with 2019.

This was partially offset by lower collections of trade receivables, reflecting higher revenue in 2019 compared with 2020.

Cash Flows from Investing Activities

We used $124.2 million of cash for investing activities during the first nine months of 2020 , as compared to $994.1 million used during the same period in 2019 .

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

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

We used $97.8 million of cash for investing activities during the first three months of 2021, as compared to $90.5 million used during the same period in 2020.

The slight increase in cash used was driven by an increase in acquisitions in investment properties (less than wholly-owned), partially offset by a decrease in net capital contributions to real estate ventures and lower capital expenditures in 2021.

We discuss these key drivers individually below in further detail.

Cash Flows from Financing Activities

Financing activities used $243.8 million of cash during the first nine months of 2020 , as compared to $1,194.6 million provided by financing activities during the same period in 2019 .

The net decrease of $1,438.4 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 and third quarter of 2020.

In 2019, financing activities was substantially driven by the increase in the outstanding borrowings on our Facility to fund the cash consideration for acquisitions.

Financing activities provided $376.7 million of cash during the first three months of 2021, as compared to $883.3 million provided by financing activities during the same period in 2020.

The net decrease of $506.6 million in cash flows from financing activities is substantially driven by a decrease in borrowings on our Facility.

The borrowings on our Facility in the first quarter fund seasonal liquidity needs, specifically annual incentive compensation payments made in the first quarter, which were notably lower in 2021 as discussed in the cash flows from operating activities section above.

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

As of September 30, 2020 , we had outstanding borrowings under the Facility of $400.0 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 $758.9 million and $1,408.5 million during the three months ended September 30, 2020 and 2019 , respectively, and $1,014.3 million and $763.9 million during the nine months ended September 30, 2020 and 2019 .

In addition to our Facility, we had the capacity to borrow up to $85.9 million under local overdraft facilities as of September 30, 2020 .

We had Short-term borrowings (including financing lease obligations, overdrawn bank accounts and local overdraft facilities) of $106.4 million and $120.1 million as of September 30, 2020 and December 31, 2019 , respectively, of which $12.2 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.

As of March 31, 2021, we had outstanding borrowings under the Facility of $350.0 million and outstanding letters of credit of $0.7 million.

As of December 31, 2020, we had no outstanding borrowings under the Facility and outstanding letters of credit of $0.7 million.

The average outstanding borrowings under the Facility were $184.4 million and $935.2 million during the three months ended March 31, 2021 and 2020.

In addition to our Facility, we had the capacity to borrow up to $63.4 million under local overdraft facilities as of March 31, 2021.

We had Short-term borrowings (including financing lease obligations, overdrawn bank accounts and local overdraft facilities) of $90.6 million and $62.0 million as of March 31, 2021 and December 31, 2020, respectively, of which $16.0 million and $12.0 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, share repurchases, capital expenditures and 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.

On April 14, 2021, we renewed our Facility and extend its maturity date to April 2026.

See Note 13, Subsequent Events, in the Notes to Condensed Consolidated Financial Statement for additional information about the Amendment.

Investment Activity

As of September 30, 2020 , we had a carrying value of $389.6 million in investments, primarily related to LaSalle co-investments in real estate ventures.

For the nine months ended September 30, 2020 , and 2019, funding of investments exceeded return of capital by $32.7 million , and $41.2 million , respectively.

As of March 31, 2021, we had a carrying value of $545.1 million in investments, primarily related to LaSalle co-investments in real estate ventures and investments by JLL Technologies in early-stage proptech companies.

For the three months ended March 31, 2021, and 2020, funding of investments exceeded return of capital by $29.8 million, and $40.6 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.

In addition, we expect continued investments by JLL Technologies.

See Note 6, Investments in Real Estate Ventures, in the Notes to Condensed Consolidated Financial Statements for additional information on our investment activity.

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 September 30, 2020 we repurchased approximately 258,000 shares for $25.0 million;

during the nine months ended September 30, 2020 we repurchased nearly 446,000 shares for $50.0 million.

As of September 30, 2020 , $150.0 million remained authorized for repurchases under the Program.

There were no shares repurchased in 2019 .

On February 21, 2021, our Board of Directors authorized an additional $500.0 million for the repurchase of our common stock in the open market and privately negotiated transactions.

During the three months ended March 31, 2021 we did not repurchase any shares.

During the three months ended March 31, 2020 we repurchased nearly 188,000 shares for $25.0 million.

As of March 31, 2021, $600.0 million remained authorized for repurchases under our share repurchase program.

Capital Expenditures

Net capital additions for the nine months ended September 30, 2020 and 2019 , were $112.5 million and $131.1 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 nine months ended September 30, 2020 and 2019 , were $10.2 million and $67.6 million , respectively, primarily to acquire real estate (net of real estate sales).

Net capital additions for the three months ended March 31, 2021 and 2020, were $34.6 million and $44.4 million, respectively.

Our capital expenditures in 2021 were primarily for leased office spaces improvements and purchased/developed software.

Investment Asset Activity of Less Than Wholly-Owned Entities

Net capital additions made by consolidated VIEs in which we held no equity interest for the three months ended March 31, 2021 and 2020, were $37.2 million and $3.2 million, respectively, primarily to acquire real estate (net of real estate sales).

Business Acquisitions

During the nine months ended September 30, 2020 , we completed no new acquisitions and paid $58.5 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.

During the nine months ended September 30, 2019, we paid $789.2 million for business acquisitions, predominantly relating to the acquisition of HFF in the third quarter of 2019, and $59.9 million for deferred business acquisition and earn-out obligations related to acquisitions completed in prior years.

During the three months ended March 31, 2021, we paid $26.4 million for business acquisitions.

This included $0.2 million of payments relating to acquisitions in 2021 and $26.2 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 $37.2 million as of September 30, 2020 .

Deferred business acquisition obligations totaled $26.9 million as of March 31, 2021.

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 September 30, 2020 , we had the potential to make earn-out payments for a maximum of $221.3 million on 42 completed acquisitions subject to the achievement of certain performance conditions.

As of March 31, 2021, we had the potential to make earn-out payments for a maximum of $157.8 million on 24 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.

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We believe our policy of permanently investing earnings of foreign subsidiaries does not significantly impact our liquidity.

As of September 30, 2020 and December 31, 2019 , we had total cash and cash equivalents of $440.0 million and $451.9 million , respectively, of which approximately $351.7 million and $385.4 million, respectively, was held by foreign subsidiaries.

As of March 31, 2021 and December 31, 2020, we had total cash and cash equivalents of $456.6 million and $574.3 million, respectively, of which approximately $375.4 million and $445.2 million, respectively, was held by foreign subsidiaries.

Restricted Net Assets

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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 September 30, 2020 and December 31, 2019 , respectively.

The assets of these countries aggregated to approximately 4% of our total assets as of March 31, 2021 and December 31, 2020.

Off-Balance Sheet Arrangements

We have unfunded capital commitments to investment vehicles and direct investments for future co-investments, totaling a maximum of $338.8 million as of September 30, 2020 .

We have unfunded capital commitments to investment vehicles and direct investments for future co-investments, totaling a maximum of $309.9 million as of March 31, 2021.

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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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.

Such statements do not relate strictly to historical or current facts as they 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.

This includes, but is not limited to, our expectations regarding the potential impact of the COVID-19 outbreak and the efficacy of vaccines and therapeutics on reducing the spread of the virus, as well as any further impacts to us, the economy as a whole, and/or related government and regulatory restrictions issued to combat the global pandemic, including any adverse changes in such restrictions that may impact us.

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 quarters ended March 31, 2020 and June 30, 2020, and may also be described from time to time in our subsequent filings with the Securities and Exchange Commission.

Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or anticipated results.

These risks and uncertainties are described in our Annual Report on Form 10-K for the year ended December 31, 2020 in Part I, Item 1A.

Risk Factors 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.

We do not undertake any obligation to update forward-looking statements to reflect events, circumstances, changes in expectations or the occurrence of unanticipated events after the date of those statements.

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-Q

Item 2. Management’s Discussion and Analysis