Solid consolidated revenue growth
Strong EMEA performance driven by King Sturge merger and market leadership positions
Continued improved performance in the Americas
Net debt repayment of $66 million during the second quarter
See Financial Statement Notes 1-3 following the Financial Statements in this News Release.
"We produced solid second-quarter and year-to-date results in a cautious market environment," said Colin Dyer, President and Chief Executive Officer. "We continue to take market share and maintain tight cost discipline as we enter the important second half of the year," Dyer added.
Consolidated revenue grew 9 percent for the quarter, 13 percent in local currency. Capital Markets & Hotels revenue grew 17 percent in local currency during the quarter with strong growth in the Americas and EMEA, partially offset by a decline in Asia Pacific where comparable revenue for Hotels in the second quarter of 2011 was particularly robust. Leasing revenue increased 10 percent in local currency driven by 20 percent growth in EMEA and 10 percent growth in the Americas. Despite slower transactional revenue in Asia Pacific during the quarter, the region's annuity revenue from Property & Facility Management built over the last several years has resulted in a stable base profit performance. LaSalle Investment Management's advisory fees were lower compared with the second quarter of 2011, impacted by the sale of a fund in Asia in the first quarter and the reduction of other funds in 2011, but were consistent with the first quarter of 2012.
A portion of the consolidated revenue growth in the quarter resulted from new and expanded contracts in the Property & Facility Management and Project & Development Services ("PDS") business lines for which U.S. GAAP gross accounting is required. Gross contract costs1, which are included in both revenue and expenses, totaled $69 million in the second quarter of 2012, compared with $50 million in the second quarter last year. Excluding these costs from revenue and operating expenses more accurately reflects how the firm manages its expense base and its operating margins. On a fee revenue basis, consolidated firm revenue grew 11 percent in local currency, to $852 million, compared with the same period last year.
Consolidated year-to-date revenue rose to $1.7 billion, 13 percent higher than the first six months of 2011, 16 percent in local currency. Fee revenue for the first six months of 2012 was $1.6 billion, an increase of 11 percent, 14 percent in local currency.
Operating expenses, excluding restructuring and acquisition charges, were $847 million for the quarter, an increase of 9 percent, 13 percent in local currency, compared with $774 million in 2011. The increase was driven by higher compensation resulting from increased headcount over the prior year, principally due to the King Sturge merger, as well as higher variable compensation resulting from improved transactional revenue. Compensation expense was impacted by the firm's previously disclosed decision to eliminate its Stock Ownership Program ("SOP") which resulted in approximately $4 million more compensation expense during the quarter. Total operating expenses were also driven by increased variable costs to support client wins and to continue building the firm's pipeline for 2012. Fee-based operating expenses1, excluding restructuring and acquisition charges, were $778 million for the quarter, an increase of 7 percent in U.S. dollars and 11 percent in local currency, compared with $724 million in the second quarter of 2011.
Second-quarter results included $17 million of restructuring and acquisition charges, primarily related to integration costs for the second-quarter 2011 acquisition of King Sturge as we finalize merging operations and lease exit costs as we consolidate office space in EMEA. Second-quarter results also included $2 million of intangibles amortization related to the acquisition.
For the year to date, fee-based operating expenses excluding restructuring and acquisition charges were $1.5 billion, an increase of 11 percent from last year, 13 percent in local currency. Operating income margin year-to-date calculated on fee revenue was 6.4 percent, compared with 5.9 percent last year.
Balance Sheet and Net Interest Expense
The firm's net debt position, which includes deferred acquisition obligations, decreased by $66 million during the second quarter to $802 million. Net interest expense was $7.5 million, down from $9.6 million in the second quarter of 2011. On a year-to-date basis, net interest expense was $14.9 million, down $2.7 million compared with 2011, reflecting continued disciplined management of the firm's investment-grade balance sheet.
Business Segment Performance Highlights
Americas Real Estate Services
Second-quarter revenue in the Americas region was $408 million, an increase of 18 percent in U.S. dollars over the prior year; on a fee revenue basis, revenue increased 12 percent compared with the prior year. The growth was broad-based across Leasing, which increased 9 percent in U.S. dollars despite overall office leasing volumes dropping 11 percent in the United States; Capital Markets & Hotels, which increased 34 percent in U.S. dollars; and Property & Facility Management, which increased 13 percent in U.S. dollars on a fee revenue basis in the quarter. Revenue in Latin America increased, notably due to improved performance in Mexico compared with the second quarter of 2011. Year-to-date fee revenue for the Americas was $716 million, an increase of 13 percent in U.S. dollars from $633 million last year.
Operating expenses were $370 million in the second quarter, a 17 percent increase in U.S. dollars over the prior year. Fee-based operating expenses increased 11 percent in U.S. dollars over the second quarter of 2011. The year-over-year increase was due to higher fixed compensation costs associated with a larger employee base, as well as higher commission expenses related to improved Leasing and Capital Markets & Hotels revenue and the impact of the SOP elimination. Americas operating income improved to $38 million for the quarter, up from $32 million in 2011. Operating income margin, calculated on a fee revenue basis, improved to 9.9 percent in 2012 compared with 9.4 percent in 2011.
EBITDA for the quarter ended June 30, 2012, was $49 million, compared with $42 million in 2011. EBITDA margin calculated on a fee revenue basis was 12.6 percent for the second quarter compared with 12.1 percent for the second quarter last year.
Year-to-date fee-based operating expenses for the first half of the year were $665 million, compared with $592 million in 2011, a 12 percent increase in U.S. dollars. Operating income margin for the first half of 2012 calculated on a fee revenue basis was 7.0 percent, compared with 6.5 percent last year.
EBITDA for the first six months was $71 million, compared with $61 million in 2011. EBITDA margin calculated on a fee revenue basis was 9.9 percent for the first half of 2012 compared with 9.6 percent for the first half of last year.
EMEA Real Estate Services
EMEA's revenue in the second quarter of 2012 was $249 million, an increase of 14 percent, 24 percent in local currency, and revenue growth on a fee revenue basis was 23 percent in local currency. Leasing and Capital Markets & Hotels revenues were up 20 percent and 39 percent in local currency, respectively, and all service lines benefited from the successful King Sturge merger. On a country basis, there was strong revenue growth from the UK, Germany and Russia compared with the second quarter of 2011. Year-to-date fee revenue was $409 million, an increase of 19 percent, 26 percent in local currency.
Operating expenses, which include $2 million of King Sturge intangibles amortization, were $236 million for the second quarter, an increase of 12 percent from the prior year, 20 percent in local currency. Operating expenses also include nearly $4 million of additional gross contract costs related to the PDS business line compared with the second quarter of 2011. Fee-based operating expenses increased 11 percent over the second quarter of 2011, 19 percent in local currency. The year-over-year increase was primarily due to increased compensation and operating costs after last year's merger. On a fee revenue basis, EMEA's adjusted operating income margin, which excludes the King Sturge intangibles amortization, was 6.6 percent in the second quarter compared with 4.1 percent in 2011.
EBITDA was $19 million, compared with $12 million in the second quarter of 2011. EBITDA margin calculated on a fee revenue basis was 8.4 percent for the second quarter compared with 6.2 percent for the second quarter last year.
Year-to-date fee-based operating expenses were $407 million, compared with $349 million in 2011. Included in operating expenses was $4 million of intangibles amortization compared with $2 million in the first six months of 2011. Adjusting for the intangibles amortization related to the merger, operating income margin calculated on a fee revenue basis was 1.5 percent, compared with an operating loss of 1.5 percent in 2011.
EBITDA for the first six months was $14 million, compared with $4 million in 2011. EBITDA margin for this period calculated on a fee revenue basis was 3.5 percent, compared with 1.1 percent in the first half of 2011.
Asia Pacific Real Estate Services
Revenue in Asia Pacific was $205 million in the second quarter of 2012, a decrease of 5 percent, though flat in local currency; however, on a fee revenue basis, revenue increased 1 percent in local currency. Stable annuity revenue growth across the Property & Facility Management business line, up 12 percent on a fee revenue basis, has protected the region against transactional revenue volatility. Revenue in the larger markets of Australia and China remained consistent with second-quarter 2011 levels. Capital Markets & Hotels revenue increased over the first quarter of 2012, but was down compared with a very robust second quarter for Hotels in 2011. Year-to-date fee revenue increased to $345 million, up 5 percent, 6 percent in local currency.
Operating expenses were $191 million for the second quarter, a decrease of 1 percent in U.S. dollars but an increase of 3 percent in local currency. Operating expenses included $21 million of gross contract costs, down from $25 million in the second quarter last year. Fee-based operating expenses for the second quarter rose 2 percent, 5 percent in local currency, due primarily to a higher number of employees compared with a year ago. Asia Pacific's fee-based operating income margin for the quarter was 7.2 percent, down from 11.4 percent a year ago.
The region's EBITDA for the quarter was $17 million, compared with $25 million in 2011. EBITDA margin calculated on a fee revenue basis was 9.0 percent, compared with 13.1 percent for the second quarter last year.
Fee-based operating expenses on a year-to-date basis were $325 million, compared with $303 million in 2011. Operating income margin for the first six months was 5.8 percent, compared with 8.2 percent last year, the decline due principally to the reduction in transaction activity that earns high margins.
EBITDA for the first six months was $27 million, compared with $33 million in 2011. EBITDA margin calculated on a fee revenue basis was 7.7 percent, compared with 10.1 percent in the first half of 2011.
LaSalle Investment Management
LaSalle Investment Management's second-quarter advisory fees were $57 million, down 12 percent in U.S. dollars and 9 percent in local currency. While advisory fees were flat compared with the first quarter of 2012, the year-over-year decline was driven primarily by the sale of a large fund in the first quarter of 2012 and the reduction of other funds in 2011. Year-to-date revenue was $139 million, comprised principally of advisory fees, but also including $9 million of incentive fees and $12 million of equity earnings, both of which were earned primarily in the first quarter.
Assets under management remained steady at $47 billion as of June 30, 2012. EBITDA was $11 million, compared with $16 million for the second quarter of 2012. EBITDA margin was 17.8 percent for the second quarter compared with 23.9 percent for the second quarter last year. Year-to-date EBITDA was $38 million, a margin of 27.5 percent, compared with $26 million, a 19.6 percent margin, in the first half of 2011.
Summary
The firm completed the first half of the year with solid performance in an increasingly cautious economic environment. Consolidated revenue growth was generated in both transactional and annuity business lines. Though market growth has slowed in many geographies, the firm remains well-positioned for continued leadership as it leverages its global footprint.
About Jones Lang LaSalle
Jones Lang LaSalle /quotes/zigman/162927/quotes/nls/jll JLL -3.36% is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2011 global revenue of $3.6 billion, Jones Lang LaSalle serves clients in 70 countries from more than 1,000 locations worldwide, including 200 corporate offices. The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 2.1 billion square feet worldwide. LaSalle Investment Management, the company's investment management business, is one of the world's largest and most diverse in real estate with $47 billion of assets under management. For further information, please visit our website, www.joneslanglasalle.com .
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Statements in this press release regarding, among other things, future financial results and performance, achievements, plans and objectives may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance, achievements, plans and objectives of Jones Lang LaSalle to be materially different from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include those discussed under "Business," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Quantitative and Qualitative Disclosures about Market Risk," and elsewhere in Jones Lang LaSalle's Annual Report on Form 10-K for the year ended December 31, 2011, and in the Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, and in other reports filed with the Securities and Exchange Commission. Statements speak only as of the date of this release. Jones Lang LaSalle expressly disclaims any obligation or undertaking to update or revise any forward-looking statements contained herein to reflect any change in Jones Lang LaSalle's expectations or results, or any change in events.
Conference Call
The firm will conduct a conference call for shareholders, analysts and investment professionals on Tuesday, July 31 at 6:00 p.m. EDT.
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Supplemental Information
Supplemental information regarding the second-quarter 2012 earnings call has been posted to the Investor Relations section of the company's website: www.joneslanglasalle.com .
Conference Call Replay
Available: 7:00 p.m. EDT Tuesday, July 31 through 11:59 p.m. EDT August 7 at the following numbers:
Web Audio Replay
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If you have any questions, email Jones Lang LaSalle's Investor Relations department at JLLInvestorRelations@am.jll.com.
