JONES LANG LASALLE INC 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements, including the notes thereto, for the three 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. Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our 2020 Annual Report on Form 10-K. The following discussion and analysis contains certain forward-looking statements generally identified by the words anticipates, believes, estimates, expects, forecasts, plans, intends and other similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause JLL's actual results, performance, achievements, plans and objectives to be materially different from any future results, performance, achievements, plans and objectives expressed or implied by such forward-looking statements. See the Cautionary Note Regarding Forward-Looking Statements included within this section for further information. We present our quarterly Management's Discussion and Analysis in the following sections: (1) A summary of our critical accounting policies and estimates; (2) Certain items affecting the comparability of results and certain market and other risks we face; (3) The results of our operations, first on a consolidated basis and then for each of our business segments; and (4) Liquidity and capital resources. SUMMARY OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES An understanding of our accounting policies is necessary for a complete analysis of our results, financial position, liquidity and trends. See Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in our 2020 Annual Report on Form 10-K for a complete summary of our significant accounting policies. The preparation of our financial statements requires management to make certain critical accounting estimates and judgments that impact (1) the stated amount of assets and liabilities, (2) disclosure of contingent assets and liabilities at the date of the financial statements, and (3) the reported amount of revenue and expenses during the reporting periods. These accounting estimates are based on management's judgment. We consider them to be critical because of their significance to the financial statements and the possibility that future events may differ from current judgments or that the use of different assumptions could result in materially different estimates. We review these estimates on a periodic basis to ensure reasonableness. Although actual amounts likely differ from such estimated amounts, we believe such differences are not likely to be material. A discussion of our critical accounting policies and estimates used in the preparation of our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q can be found in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2020. There have been no material changes to these critical accounting policies and estimates during the three months ended March 31, 2021. ITEMS AFFECTING COMPARABILITY Macroeconomic Conditions Our results of operations and the variability of these results are significantly influenced by (1) macroeconomic trends, (2) the geopolitical environment, (3) the global and regional real estate markets, and (4) the financial and credit markets. These macroeconomic and other conditions have had, and we expect will continue to have, a significant impact on the variability of our results of operations. 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. 24 Table of Contents Acquisitions The timing of acquisitions may impact the comparability of our results on a year-over-year basis. Our results include incremental revenues and expenses following the completion date of an acquisition. In addition, there is generally an initial adverse impact on net income from an acquisition as a result of pre-acquisition due diligence expenditures, transaction/deal costs and post-acquisition integration costs, such as fees from third-party advisors engaged to assist with onboarding and process alignment, retention and severance expense, early lease termination costs, and other integration expenses. LaSalle Revenue Our investment management business is, in part, compensated through incentive fees where performance of underlying funds' investments exceeds agreed-to benchmark levels. Depending upon performance, disposition activity, and the contractual timing of measurement periods with clients, these fees can be significant and vary substantially from period to period. Equity earnings also may vary substantially from period to period for a variety of reasons, including as a result of: (1) gains (losses) on investments reported at fair value, (2) gains (losses) on asset dispositions, and (3) impairment charges. The timing of recognition of these items may impact comparability between quarters, in any one year, or compared to a prior year. The comparability of these items can be seen in Note 4, Business Segments, of the Notes to Condensed Consolidated Financial Statements and is discussed further in Segment Operating Results included herein. Foreign Currency We conduct business using a variety of currencies, but we report our results in U.S. dollars. As a result, the volatility of currencies against the U.S. dollar may positively or negatively impact our results. This volatility can make it more difficult to perform period-to-period comparisons of the reported U.S. dollar results of operations, because such results may indicate a growth or decline rate that might not have been consistent with the real underlying growth or decline rates in the local operations. Consequently, we provide information about the impact of foreign currencies in the period-to-period comparisons of the reported results of operations in our discussion and analysis of financial condition in the Results of Operations section below. Transactional-Based Revenue Transactional-based fees, that are impacted by the size and timing of our clients' transactions, from real estate investment banking, capital markets activities and other services within our RES businesses, and LaSalle, increase the variability of the revenue we earn. The timing and the magnitude of these fees can vary significantly from year to year and quarter to quarter, and from region to region. Seasonality Historically, our quarterly revenue and profits have tended to increase from quarter to quarter as the year progresses. This is a result of a general focus in the real estate industry on completing or documenting transactions by calendar year end and the fact that certain expenses are constant through the year. Historically, we have reported a relatively smaller profit in the first quarter and then increasingly larger profits during each of the following three quarters, excluding the recognition of investment-generated performance fees and realized and unrealized co-investment equity earnings and losses (each of which can be unpredictable). Generally, we recognize incentives fees when assets are sold, the timing of which is geared toward the benefit of our clients. In addition, co-investment equity gains and losses are primarily dependent on valuations of underlying investments, the direction and magnitude of changes to such valuations are not predictable. Non-variable operating expenses, which we treat as expenses when incurred during the year, are relatively constant on a quarterly basis. 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. 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 March 31, 2021 and 2020, are not fully indicative of the results we expect to realize for the full fiscal year. 25 Table of Contents RESULTS OF OPERATIONS Definitions • We define market volumes for Leasing as gross absorption of office real estate space in square feet for the U.S., Europe and selected markets in Asia Pacific. We define market volumes for Capital Markets as investment sales transactions globally. • Assets under management data for LaSalle is reported on a one-quarter lag. • MENA: Middle East and North Africa. Greater China: China, Hong Kong, Macau and Taiwan. • n.m.: not meaningful, represented by a percentage change of greater than 100% favorable or unfavorable. Consolidated Operating Results Three Months Ended March 31, Change in % Change in Local Currency ($ in millions) 2021 2020 U.S. dollars Leasing $ 449.5 492.4 (42.9) (9) % (10) % Capital Markets 320.4 342.3 (21.9) (6) (9) Property & Facility Management 2,414.0 2,365.8 48.2 2 (1) Project & Development Services 551.8 604.4 (52.6) (9) (12) Advisory, Consulting and Other 210.2 186.2 24.0 13 8 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 — Revenue before reimbursements $ 2,129.6 2,233.0 (103.4) (5) % (8) % Gross contract costs (677.2) (729.4) 52.2 (7) (11) Net non-cash MSR and mortgage banking derivative activity (9.7) 1.6 (11.3) n.m. 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) Property & Facility Management 304.7 279.9 24.8 9 5 Project & Development Services 170.1 188.3 (18.2) (10) (13) Advisory, Consulting and Other 147.8 129.1 18.7 14 9 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) % Operating, administrative and other expenses excluding gross contract costs 229.3 305.6 (76.3) (25) (27) Depreciation and amortization 53.0 55.0 (2.0) (4) (6) Restructuring and acquisition charges 17.2 14.1 3.1 22 21 Total fee-based operating expenses 1,371.7 1,439.0 (67.3) (5) (7) Gross contract costs 677.2 729.4 (52.2) (7) (11) Total operating expenses, excluding reimbursed expenses $ 2,048.9 2,168.4 (119.5) (6) % (9) % Operating income $ 80.7 64.6 16.1 25 % 23 % Equity earnings (losses) $ 48.5 (28.3) 76.8 n.m. n.m. Adjusted EBITDA $ 190.1 95.6 94.5 99 % 96 % 26 Table of Contents Non-GAAP Financial Measures Management uses certain non-GAAP financial measures to develop budgets and forecasts, measure and reward performance against those budgets and forecasts, and enhance comparability to prior periods. These measures are believed to be useful to investors and other external stakeholders as supplemental measures of core operating performance and include the following: a. Fee revenue and Fee-based operating expenses; b. Adjusted EBITDA attributable to common shareholders ("Adjusted EBITDA") and Adjusted EBITDA margin; and c. Percentage changes against prior periods, presented on a local currency basis. However, non-GAAP financial measures should not be considered alternatives to measures determined in accordance with U.S. generally accepted accounting principles (“GAAP”). Any measure that eliminates components of a company’s capital structure, cost of operations or investment, or other results has limitations as a performance measure. In light of these limitations, management also considers GAAP financial measures and does not rely solely on non-GAAP financial measures. Because our non-GAAP financial measures are not calculated in accordance with GAAP, they may not be comparable to similarly titled measures used by other companies. Adjustments to GAAP Financial Measures Used to Calculate non-GAAP Financial Measures Gross contract costs represent certain costs associated with client-dedicated employees and third-party vendors and subcontractors and are indirectly reimbursed through the fees we receive. These costs are presented on a gross basis in Operating expenses with the 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 that net servicing income is projected to be received. Non-cash derivative gains/losses resulting from mortgage banking loan commitment and warehousing activity are calculated as the estimated fair value of loan commitments and subsequent changes thereof, primarily represented by the estimated net cash flows associated with future servicing rights. MSR gains and corresponding MSR intangible assets are calculated as the present value of estimated net cash flows over the estimated mortgage servicing periods. The above activity is reported entirely within Revenue of the Capital Markets service line of the Americas segment. Excluding net non-cash MSR and mortgage banking derivative activity reflects how we manage and evaluate performance because the excluded activity is non-cash in nature. Restructuring and acquisition charges primarily consist of: (i) severance and employment-related charges, including those related to external service providers, incurred in conjunction with a structural business shift, which can be represented by a notable change in headcount, change in leadership or transformation of business processes; (ii) acquisition, transaction and integration-related charges, including fair value adjustments, which are generally non-cash in the periods such adjustments are made, to assets and liabilities recorded in purchase accounting such as earn-out liabilities and intangible assets; and (iii) other restructuring, including lease exit charges. Such activity is excluded as the amounts are generally either non-cash in nature or the anticipated benefits from the expenditures would not likely be fully realized until future periods. Restructuring and acquisition charges are excluded from segment operating results and therefore not a line item in the segments’ reconciliation to Adjusted EBITDA. Gain on Disposition reflects the 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. 27 Table of Contents Reconciliation of Non-GAAP Financial Measures Below are reconciliations of (i) Revenue to fee revenue and (ii) Operating expenses to fee-based operating expenses. Three Months Ended March 31, (in millions) 2021 2020 Revenue $ 4,037.1 4,096.0 Less: Reimbursements (1,907.5) (1,863.0) Revenue before reimbursements 2,129.6 2,233.0 Adjustments: Gross contract costs (677.2) (729.4) 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 Less: Reimbursed expenses (1,907.5) (1,863.0) Operating expenses, excluding reimbursed expenses 2,048.9 2,168.4 Less: Gross contract costs (677.2) (729.4) Fee-based operating expenses $ 1,371.7 1,439.0 Operating income $ 80.7 64.6 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 March 31, (in millions) 2021 2020 Net income attributable to common shareholders $ 103.0 5.3 Add: Interest expense, net of interest income 10.4 14.6 Provision for income taxes 28.2 5.0 Depreciation and amortization 53.0 55.0 EBITDA $ 194.6 79.9 Adjustments: Restructuring and acquisition charges 17.2 14.1 Gain on disposition (12.0) — Net non-cash MSR and mortgage banking derivative activity (9.7) 1.6 Adjusted EBITDA $ 190.1 95.6 Net income margin attributable to common shareholders 4.8 % 0.2 % Adjusted EBITDA margin 13.4 % 6.4 % 28 Table of Contents In discussing our operating results, we report Adjusted EBITDA margins and refer to percentage changes in local currency, unless otherwise noted. Amounts presented on a local currency basis are calculated by translating the current period results of our foreign operations to U.S. dollars using the foreign currency exchange rates from the comparative period. We believe this methodology provides a framework for assessing performance and operations excluding the effect of foreign currency fluctuations. The following table reflects the reconciliation to local currency amounts for consolidated (i) Revenue, (ii) Fee revenue, (iii) Operating income, and (iv) Adjusted EBITDA. Three Months Ended March 31, ($ in millions) 2021 % Change Revenue: At current period exchange rates $ 4,037.1 (1) % Impact of change in exchange rates (110.2) n/a At comparative period exchange rates $ 3,926.9 (4) % Fee revenue: At current period exchange rates $ 1,442.7 (4) % Impact of change in exchange rates (40.5) n/a At comparative period exchange rates $ 1,402.2 (7) % Operating income: At current period exchange rates $ 80.7 25 % Impact of change in exchange rates (1.3) n/a At comparative period exchange rates $ 79.4 23 % Adjusted EBITDA: At current period exchange rates $ 190.1 99 % Impact of change in exchange rates (2.6) n/a At comparative period exchange rates $ 187.5 96 % 29 Table of Contents Revenue 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 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. Operating Expenses 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 March 31, (in millions) 2021 2020 Severance and other employment-related charges $ 1.8 1.3 Restructuring, pre-acquisition and post-acquisition charges 15.5 21.0 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 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 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. 30 Table of Contents Income Taxes 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 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 We manage and report our operations as four business segments. Our three geographic RES segments include Americas, EMEA and Asia Pacific. Our fourth segment is LaSalle, our investment management business. Each geographic region offers our full range of real estate services, including tenant representation and agency leasing, capital markets, property management, facility management, project and development services, and advisory, consulting and valuation services. We consider "property management" to be services provided to non-occupying property investors and "facility management" to be services provided to owner-occupiers. LaSalle provides investment management services to institutional investors and high-net-worth individuals. For segment reporting, (i) gross contract costs and (ii) net non-cash MSR and mortgage banking derivative activity are both excluded from revenue in determining "fee revenue". Gross contract costs are excluded from operating expenses in determining "fee-based operating expenses." In addition, our measure of segment results also excludes Restructuring and acquisition charges. 31 Table of Contents Americas - Real Estate Services % Change 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) Revenue before reimbursements $ 1,058.2 1,129.6 (71.4) (6) % (6) % Gross contract costs (215.8) (212.8) (3.0) 1 2 Net non-cash MSR and mortgage banking derivative activity (9.7) 1.6 (11.3) n.m. 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) Property & Facility Management 146.5 128.7 17.8 14 14 Project & Development Services 81.3 93.4 (12.1) (13) (13) Advisory, Consulting and Other 46.9 44.1 2.8 6 6 Compensation, operating and administrative expenses excluding gross contract costs $ 698.8 797.5 (98.7) (12) % (12) % Depreciation and amortization 33.1 37.4 (4.3) (11) (11) Segment fee-based operating expenses (excluding restructuring and acquisition charges) 731.9 834.9 (103.0) (12) (12) Gross contract costs 215.8 212.8 3.0 1 2 Segment operating expenses (excluding reimbursed expenses) $ 947.7 1,047.7 (100.0) (10) % (10) % Equity earnings $ 34.5 12.7 21.8 n.m. n.m. Segment income $ 145.0 94.6 50.4 53 % 53 % Adjusted EBITDA $ 169.0 121.3 47.7 39 % 39 % 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. 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. 32 Table of Contents EMEA - Real Estate Services % Change 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) Revenue before reimbursements $ 562.8 573.1 (10.3) (2) % (9) % 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) Property & Facility Management 77.0 77.9 (0.9) (1) (8) Project & Development Services 59.2 66.1 (6.9) (10) (16) Advisory, Consulting and Other 54.7 50.7 4.0 8 — Compensation, operating and administrative expenses excluding gross contract costs $ 336.4 321.8 14.6 5 % (2) % Depreciation and amortization 10.9 9.2 1.7 18 11 Segment fee-based operating expenses (excluding restructuring and acquisition charges) 347.3 331.0 16.3 5 (2) Gross contract costs 251.3 262.6 (11.3) (4) (11) Segment operating expenses (excluding reimbursed expenses) $ 598.6 593.6 5.0 1 % (6) % Equity earnings $ — — — n.m. n.m. Segment loss $ (35.8) (20.5) (15.3) 75 % 69 % Adjusted EBITDA $ (24.8) (10.6) (14.2) n.m. 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. 33 Table of Contents Asia Pacific - Real Estate Services % Change 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 Revenue before reimbursements $ 418.9 427.2 (8.3) (2) % (8) % 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 Property & Facility Management 81.2 73.3 7.9 11 4 Project & Development Services 29.6 28.8 0.8 3 (4) Advisory, Consulting and Other 46.2 34.3 11.9 35 24 Compensation, operating and administrative expenses excluding gross contract costs $ 189.1 168.0 21.1 13 % 5 % Depreciation and amortization 7.3 6.6 0.7 11 4 Segment fee-based operating expenses (excluding restructuring and acquisition charges) 196.4 174.6 21.8 12 5 Gross contract costs 205.7 249.5 (43.8) (18) (21) Segment operating expenses (excluding reimbursed expenses) $ 402.1 424.1 (22.0) (5) % (10) % Equity earnings (losses) $ 1.0 (0.7) 1.7 n.m. n.m. Segment income $ 17.8 2.4 15.4 n.m. n.m. Adjusted EBITDA $ 25.0 9.4 15.6 n.m. 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. The significant margin expansion was attributable to growth in transaction-based revenue and expense savings noted above. 34 Table of Contents LaSalle % Change 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) Revenue before reimbursements $ 89.7 103.1 (13.4) (13) % (16) % 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) Transaction fees & other 6.0 10.9 (4.9) (45) (47) Incentive fees — 5.7 (5.7) (100) (100) Compensation, operating and administrative expenses excluding gross contract costs $ 77.2 82.6 (5.4) (7) % (10) % Depreciation and amortization 1.7 1.8 (0.1) (6) (10) Segment fee-based operating expenses (excluding restructuring and acquisition charges) 78.9 84.4 (5.5) (7) (10) Gross contract costs 4.4 4.5 (0.1) (2) (3) Segment operating expenses (excluding reimbursed expenses) $ 83.3 88.9 (5.6) (6) % (9) % Equity earnings (losses) $ 13.0 (40.3) 53.3 n.m. n.m. Segment income (loss) $ 19.4 (26.1) 45.5 n.m. n.m. Adjusted EBITDA $ 20.9 (24.4) 45.3 n.m. 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. 35 Table of Contents LIQUIDITY AND CAPITAL RESOURCES We finance our operations, co-investment activity, share repurchases and dividend payments, capital expenditures and business acquisitions with internally generated funds, borrowings on our Facility, and through issuance of Long-term debt. Cash Flows from Operating Activities Operating activities used $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 $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 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. Debt Our $2.75 billion Facility matures on May 17, 2023. 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 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 Technologies. See Note 6, Investments in Real Estate Ventures, in the Notes to Condensed Consolidated Financial Statements for additional information on our investment activity. 36 Table of Contents Share Repurchase and Dividend Programs 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 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 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 $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 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. We will continue to consider acquisitions that we believe will strengthen our market position, increase our profitability, and supplement our organic growth. Repatriation of Foreign Earnings Based on our historical experience and future business plans, we do not expect to repatriate our foreign-sourced earnings to the United States. We believe our policy of permanently investing earnings of foreign subsidiaries does not significantly impact our liquidity. As of 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 We face regulatory restrictions in certain countries that limit or prevent the transfer of funds to other countries or the exchange of the local currency to other currencies. However, we generally face no such restrictions with regard to the use or application of funds for ordinary course business activities within such countries. The assets of these countries aggregated to approximately 4% 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 $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. 37 Table of Contents CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This report, including this Management's Discussion and Analysis of Financial Condition and Results of Operations, contains “forward-looking statements” within the meaning of the federal securities laws. All such statements are qualified by this cautionary note, which is provided pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements may also be included in our other public filings, press releases, our website, and oral and written presentations by management. Statements in the future tense, and all statements accompanied by terms such as “believe,” “project,” “expect,” “estimate,” “assume,” “intend,” “anticipate,” “target,” “plan” and variations thereof and similar terms, are intended to be forward-looking statements. Such statements 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 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 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. 38 Table of Contents