Securities and Exchange Commission
Washington, D.C. 20549
Annual Report Pursuant to Section 13 or 15(d) of the Securities Act of 1934
For the fiscal year ended
December 31, 2019
Commission File Number
Jones Lang LaSalle Incorporated
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
200 East Randolph Dr,
(Address of principal executive offices)
Registrant's telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock, par value $0.01
The New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yesx No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes oNox
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such period that the registrant was required to submit such files). Yesx No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth corporation (as defined in Rule 12b-2 of the Exchange Act).
Large accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
The aggregate market value of the voting stock (common stock) held by non-affiliates of the registrant as of the close of business on June 30, 2019 was $6,378,765,436.
The number of shares outstanding of the registrant's common stock (par value $0.01) as of the close of business on February 21, 2020 was 51,565,299.
Portions of the Registrant's Proxy Statement for its 2020 Annual Meeting of Shareholders are incorporated by reference in Part III of this report.
Jones Lang LaSalle Incorporated, incorporated in 1997, is a Maryland corporation. References to “JLL,” “the Company,” “we,” “us” and “our” refer to Jones Lang LaSalle Incorporated and include all of its consolidated subsidiaries, unless otherwise indicated or the context requires otherwise. Our common stock is listed on The New York Stock Exchange ("NYSE") under the symbol “JLL.”
JLL is a leading professional services firm that specializes in real estate and investment management. We shape the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $18.0 billion, operations in over 80 countries and a global workforce of over 93,000 as of December 31, 2019. We provide services for a broad range of clients who represent a wide variety of industries and are based in markets throughout the world. Our clients vary greatly in size and include for-profit and not-for-profit entities, public-private partnerships and governmental ("public sector") entities looking to outsource real estate services. Through LaSalle Investment Management, we invest for clients on a global basis in both private assets and publicly traded real estate securities.
We use JLL as our principal trading name. Jones Lang LaSalle Incorporated remains our legal name. JLL is a registered trademark in the countries in which we do business, as is our logo. In addition, LaSalle Investment Management, which uses LaSalle as its principal trading name, is a wholly-owned subsidiary of Jones Lang LaSalle Incorporated. LaSalle is also a registered trademark in the countries in which we conduct business, as is our logo.
We deliver an array of services across four business segments. We manage our Real Estate Services (“RES”) offerings across three geographic segments: (i) the Americas, (ii) Europe, Middle East and Africa ("EMEA"), and (iii) Asia Pacific, and we manage our investment management business globally as (iv) LaSalle Investment Management. In our Americas, EMEA and Asia Pacific segments, we provide a full range of leasing, capital markets, integrated property and facility management, project management, advisory, consulting, valuations and digital solutions services locally, regionally and globally. LaSalle is one of the world's largest and most diversified real estate investment management companies.
Our global platform and diverse service and product offerings position us to take advantage of the opportunities in a consolidating industry and to successfully navigate the dynamic and challenging markets in which we compete worldwide.
We began to establish our network of services across the globe through the 1999 merger of the Jones Lang Wootton companies ("JLW", founded in England in 1783) with LaSalle Partners Incorporated ("LaSalle Partners", founded in the United States in 1968 and incorporated in 1997). We have grown our business by expanding our client base and the range of our services and products, both organically and through a series of mergers and acquisitions. Our extensive global platform and in-depth knowledge of local real estate markets enable us to serve as a single-source provider of solutions for the full spectrum of our clients' real estate needs.
On July 1, 2019, we acquired HFF, Inc. ("HFF"), regarded as one of the premier capital markets advisors in the industry. The acquisition greatly expanded our ability to provide world-class capital markets services and expertise to our clients, in particular in the United States. In addition, we have the ability to offer our expanded services to legacy clients of HFF.
These acquisitions have given us additional share in key geographical markets, expanded our capabilities in certain service offerings and further broadened the global platform we make available to our clients.
For information on recent acquisitions, refer to Note 4, Business Combinations, Goodwill and Other Intangibles, of the Notes to the Consolidated Financial Statements, included in Item 8.
We are driven to shape the future of real estate for a better world. We do this by addressing the needs of real estate owners, occupiers and investors, leveraging our deep real estate expertise and experience to provide clients with a full range of services on a local, regional and global scale.
We offer our real estate services locally, regionally and globally to real estate owners, occupiers, investors and developers for a variety of property types, including:
Critical Environments and Data Centers
Hotels and Hospitality Facilities
Office (including Flex Space)
Industrial and Warehouse
Residential (Individual and Multifamily)
Retail and Shopping Malls
Logistics (Sort & Fulfillment)
Healthcare and Laboratory Facilities
We develop and activate technology to make real estate work for the long-term benefit of our people, clients and communities. Across our service lines, we offer and will continue to develop and invest in unique digital solutions and products that help us and our clients strategize, capture and analyze data, offer workplace technology and visualize real estate innovations. Refer to the Digital portion of our Strategic Framework section below for additional information about our digital agenda.
We believe our market reach and depth of service offerings strengthen the long-term value of the enterprise in a number of ways, including: (i) reducing the potential impact of episodic volatility or disruption in any specific region; (ii) enhancing the expertise of our people through knowledge sharing among colleagues across the globe; and (iii) allowing us to identify and quickly react to emerging trends, risks and opportunities.
The following reflects our revenue and fee revenue by service line for the year ended December 31, 2019:
To calculate fee revenue, we deduct directly reimbursed expenses from revenue and then exclude (i) net non-cash mortgage servicing rights and mortgage banking derivative activity and (ii) gross contract costs associated with client-dedicated labor, and third-party vendors and subcontractors. Refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for additional discussion of fee revenue, a non-GAAP measure, and reconciliation from the most comparable U.S. GAAP measure.
Real Estate Services: Americas, EMEA, and Asia Pacific
We organize our RES offerings into five major product service lines: (1) Leasing; (2) Capital Markets; (3) Property & Facility Management; (4) Project & Development Services; and (5) Advisory, Consulting and Other Services.
For the year ended December 31, 2019, our RES revenue and fee revenue was:
Our five RES service lines, and the services we provide within them, include:
Agency Leasing executes leasing programs, including marketing, on behalf of property owners (including investors, developers, property companies and public entities) to secure tenants and negotiate leases with terms that reflect our clients' best interests. In 2019, we completed approximately 15,200 agency leasing transactions representing 257 million square feet of space.
Tenant Representation establishes strategic alliances with occupier clients to help them evaluate and execute transactions to meet their occupancy requirements and ongoing real estate needs. We partner with clients to define space requirements, identify suitable alternatives, recommend appropriate occupancy solutions, and negotiate lease and ownership terms with landlords. Our involvement helps our clients reduce real estate costs, minimize occupancy risk, improve occupancy control and flexibility, and create more productive office environments. In 2019, we completed approximately 23,800 tenant representation transactions representing 639 million square feet of space.
Our agency leasing and tenant representation fees are typically based on a percentage of the value of the lease revenue commitment for executed leases, although in some cases they are based on a monetary amount per square foot leased.
2. Capital Markets serves our clients locally, regionally and globally by leveraging extensive knowledge of the commercial real estate markets and our fully-integrated capital markets platform to provide a broad array of advisory services, provided for substantially all real estate asset classes. Our services primarily include (ordered alphabetically):
● Debt placement
● Loan sales
● Equity placement
● Loan servicing
● Funds advisory
● M&A and corporate advisory
● Investment sales and acquisitions
In the U.S., we are an approved Freddie Mac, Fannie Mae and HUD/Ginnie Mae commercial multifamily lender and loan servicer. In addition, we are one of only 25 Fannie Mae Delegated Underwriting & Servicing ("DUS") lenders. Global capital and M&A and corporate advisory include sourcing capital, both equity and debt, derivatives structuring, and other traditional investment banking services designed to assist investor and corporate clients in maximizing the value of their real estate. To meet client demands for marketing and acquiring real estate assets internationally and investing outside of their home markets, our Capital Markets teams combine local market knowledge with our access to global capital sources to provide superior execution in raising capital for real estate transactions. By researching, developing and introducing innovative new financial products and strategies, Capital Markets is integral to the business development efforts of our other businesses.
Most of our revenues are in the form of fees, derived from the value of transactions we complete or securities we place. In certain circumstances, we receive retainer fees for portfolio advisory services. In addition, we also earn fees from commercial loan servicing activities.
During 2019, we provided capital markets services for approximately $278 billion of client transactions.
3. Property & Facility Management
Property Management provides on-site management services to real estate owners for office, industrial, retail, multifamily residential and specialty properties. We seek to leverage our market share and buying power to deliver superior service and value to our clients. Our extended delivery team includes our own personnel as well as third-party vendors and subcontractors, striving to maintain high levels of occupancy and tenant satisfaction while partnering with clients to reduce property operating costs. As of December 31, 2019, we provided on-site property management services for properties totaling approximately 3.5 billion square feet.
We typically provide property management services through an on-site general manager and staff. Our general managers are responsible for day-to-day property management activities, client satisfaction and financial results. We support them with regional supervisory teams and central resources in such areas as training, technical and environmental services, accounting, marketing, and human resources.
We are generally compensated based upon a percentage of cash collections on behalf of our clients or square footage managed; in some cases, management agreements provide for incentive compensation relating to operating expense reductions, gross revenue or occupancy objectives, or tenant satisfaction levels. Consistent with industry custom, management contract terms typically range from one to three years, although some contracts can be terminated at will at any time following a short notice period, usually 30 to 120 days, as is typical in the industry.
Integrated Facilities Management ("IFM") provides comprehensive facility management services to corporations and institutions that outsource the management of the real estate they occupy, typically those with large portfolios (usually over one million square feet) that offer significant opportunities to reduce costs, meet energy savings targets, improve service delivery and enhance end-user experience. Our IFM offering blends human, digital and experiential elements to help clients achieve optimal financial and operational results from their facilities, while also enhancing the experience and productivity of the end-user. Our extended delivery team includes our own personnel as well as third-party vendors and subcontractors who can meet clients' needs by providing consistent service delivery worldwide and a single point of contact from their real estate service providers. We tailor our service delivery to individual client needs by combining our large global platform with substantial local expertise.
Full-service IFM outsourcing: Day-to-day operations management of client site locations, delivered through a globally integrated platform with standardized processes. Facilities under management cover all real estate asset classes, including corporate headquarters, distribution facilities, hospitals, research & development facilities, data centers and industrial complexes. As of December 31, 2019, IFM managed approximately 1.5 billion square feet of real estate for our clients.
Digital IFM solutions: Technology is the backbone of our IFM offering. Facilities teams leverage advanced products to make faster and more informed decisions, manage compliance, and improve efficiency through automation, accountability, assets, and analytics - all while enhancing the experience of end-users. One example is Building Services Network, which provides facilities managers with access to a digital marketplace powered by our Corrigo platform for centralized repair, maintenance, and analytics - instantly connecting them with reliable, high-quality services at negotiated rates from handpicked vendors. We also provide technology-enabled predictive maintenance strategies and smart building technologies which can help extend the lifespan of costly equipment while preventing system failures.
Mobile engineering services: We provide mobile engineeringservices to clients with large portfolios of sites or where we have multiple clients in proximity to each other. This model reduces clients' operating costs by offering a single point of contact for services, bundling on-site services, leveraging resources across multiple accounts, and reducing travel time between sites.
IFM contracts are typically structured to include reimbursement for costs of client-dedicated personnel and third-party vendors and subcontractors in addition to a base fee and performance-based fees. Performance-based fees result from achieving quantitative performance measures and/or target scores on recurring client satisfaction surveys. IFM agreements are typically three to seven years in duration, although most contracts can be terminated at will by the client upon a short notice period, usually 30 to 60 days, as is typical in the industry.
4. Project & Development Services provides consulting, design, management and build services to tenants of leased space, owners in self-occupied buildings and owners of real estate investments, leveraging technology to drive outstanding service delivery. We bring a "life cycle" perspective to our clients, from consulting and capital management through design, construction and occupancy. In addition, we provide these services to public-sector clients, particularly to military and government entities, as well as educational institutions, primarily in the U.S. and to a growing extent in other countries. Predominantly in Europe, we provide design, fit-out and refurbishment services under the Tétris brand.
Our Project & Development Services business is generally compensated on the basis of negotiated fees as well as reimbursement of costs when we are principal to a contract (or client). Individual projects are generally completed in less than one year, but client contracts may extend multiple years in duration and govern a number of discrete projects.
Advisory and Consulting delivers innovative, results-driven real estate solutions that align with client business objectives. We provide clients with specialized, value-added real estate consulting services in such areas as technology implementation and optimization, mergers and acquisitions, asset management, occupier portfolio strategy, workplace solutions, location advisory, industry research, financial optimization strategies, organizational strategy and Six Sigma process solutions. Our professionals focus on translating global best practices into local real estate solutions, creating optimal financial and operational results for our clients across asset classes.
We typically negotiate compensation for Advisory and Consulting based on developed work plans that vary based on the scope and complexity of projects.
Valuations helps clients determine market values for office, retail, industrial, mixed-use and other types of properties. These services range from valuing a single property to a global portfolio with multiple property types. We conduct valuations for a variety of purposes supporting our clients, including acquisitions, dispositions, debt and equity financings, mergers and acquisitions, securities offerings (including initial public offerings) and privatization initiatives. Clients include occupiers, investors and financing sources from the public and private sectors.
We usually negotiate compensation for valuation services based on the scale and complexity of each assignment, and our fees typically relate in part to the value of the underlying assets.
We provide Energy and Sustainability Services to occupiers and investors to help them realize the positive impact of sustainability on their brand, financial statements and the environment. Our energy and sustainability accredited professionals worldwide assist clients to green their real estate portfolios, manage energy consumption and carbon footprint through sustainable operations, provide green building assessments, lead green retrofits/upgrades, and prepare corporate social responsibility and sustainability reports. The breadth of our expertise allows us to provide end-to-end services to all clients, regardless of their focus, from leasing to capital market transactions, and projects to facility management. We recognize and are fully behind the continued shift towards sustainability in our industry and believe our leadership positions us to be the best choice for our clients. Refer to our latest Global Sustainability Report, available on our website, for metrics on documented energy savings, reduction in greenhouse gas emissions and the work of our sustainability teams.
We have a variety of compensation models for Energy and Sustainability Services including those based on shared savings as well as a fee for service, depending on the scale and complexity of the project.
As a strategic partner of clients with a global footprint, Corporate Solutions brings together services across four of the five JLL service lines described above. Our global delivery platform enables consistent outcomes on both a local and global scale, and places us in a small cohort of competitors who can deliver on clients’ multi-service, multi-geography needs.
Rapid and complex change, including digitization, increasing regulation, globalization and evolving workforce demographics, have transformed the world of work. Organizations are realizing the potential for workplaces and real estate portfolios to help address broader business objectives, such as talent attraction, customer experience, employee productivity, financial performance and environmental sustainability (See Growth of Corporate Outsourcing in the Industry Trends section below). As clients buy with an increasingly global and/or multi-service mindset, they are looking to simplify and consolidate their supply chain with more integrated solutions. This puts Corporate Solutions in a unique position to help clients bring together their real estate ecosystem, simplify decision making and maximize value of their real estate investments.
While each client is unique, they are consistent in looking for real estate to enable business transformation around three key value levers, (1) driving data-driven decisions and digital transformation, (2) achieving operational excellence through improved productivity and financial performance, and (3) attracting and retaining key talent through an enhanced user experience.
Our offering addresses the entire life cycle, which we consider to include portfolio, capital and operations functions.
Portfolio. Through the nexus of services our Corporate Solutions business provides to clients, we gain deep knowledge and extensive data about their corporate real estate footprints, business strategies and organizational priorities. Combining this with the expertise we draw from our broader integrated global platform, we advise our clients about how to optimize their workplace strategies and occupancy planning efforts to improve utilization and ultimately enhance the productivity and well-being of those who use the space. More broadly, this advice may extend to our clients’ portfolio strategies, including location advisory, technology implementation and optimization, and options to add and integrate flexible space solutions. When evolution of strategies dictates change, our Corporate Solutions business partners work with other professionals throughout our organization to help clients execute leasing, acquisition and disposition strategies.
Capital. With the view workplaces are living environments that can help individuals, organizations and communities innovate and thrive, Corporate Solutions advises clients about how and when to make critical capital decisions to maximize the human and financial returns on portfolio investments. Our design & build professionals work alongside clients to capture and advance their organization’s brand identity, purpose and sustainability commitments through the design of space they occupy, including owned, leased, static and flexible environments. We then manage, and in some cases are responsible for, the successful completion of the fit-out activities to achieve their vision. Helping our clients manage the costs they incur to realize their space and location objectives is essential to that strategy. When capital decisions involve a change in location, our relocation management professionals facilitate smooth transitions.
Operations. IFM is our largest Corporate Solutions service offering. Composed of integrated, digitally-enabled and flexible services that blend human, digital and experiential elements, this offering helps clients drive enhanced value from their facilities by improving operational performance and the experience of employees and other users of the space. Most frequently, new client relationships are formed through IFM business wins, which we accomplish through transitions from other service providers or conversions from insourced real estate management models. In addition to maximizing efficiency and quality of service delivery, our digitally-enabled platform also provides clients with opportunities to tailor the balance of services we provide versus what they self-perform.
Data, Technology and Business Intelligence. Data and technology have become core to all clients’ workplace and business transformation agendas. Ahead of this trend, we built a comprehensive data and technology platform that underpins all of our offerings, helping clients make fast, informed decisions that enhance the performance of their workplaces, portfolios and people. Digital Solutions experts guide clients’ selection, implementation and management of real estate-related software and applications The Building Services Network opens new client segments by revolutionizing end-to-end facility repair and maintenance service delivery, using the Corrigo platform to find clients the best service providers.
Complementing our real estate services capabilities, our global real estate investment management business, LaSalle, is one of the world's largest managers of institutional capital invested in real estate assets and securities. We seek to establish and maintain relationships of trust with sophisticated investors who value our global platform and extensive local market knowledge. Our three strategic priorities:
Deliver superior risk-adjusted investment returns to our clients
Develop and execute investment strategies that meet the specific investment objectives of our clients
Deliver uniformly high levels of client service globally
LaSalle provides clients with a broad range of real estate investment products and services in the private and public capital markets. We design these products and services to meet the differing strategic, asset allocation, risk/return and liquidity requirements of our clients. The range of investment solutions includes private investments in multiple real estate property types, including office, retail, industrial, health care and multifamily residential, as well as investments in debt. We act either through commingled investment funds or single client account relationships ("separate accounts"). We also offer global indirect investments, primarily in private equity funds, joint ventures and co-investments, as well as publicly traded real estate investment trusts ("REITs") and other real estate equities. Where consistent with client requirements and market terms and conditions, LaSalle retains JLL to provide services to assets in LaSalle funds in the ordinary course of business.
We believe LaSalle's success is the product of our strong investment performance, research capabilities, experienced investment professionals, innovative investment strategies, global presence and coordinated platform, local market knowledge and strong client focus.
LaSalle launched its first institutional investment fund in 1979. We have invested, on behalf of clients, in real estate assets in 29 countries around the globe, as well as in public real estate companies traded on all major stock exchanges. LaSalle's assets under management ("AUM") of $67.6 billion, as of December 31, 2019, by geographic distribution and fund type is detailed in the following graphics ($ in billions).
In serving our investment management clients, LaSalle is responsible for the acquisition, financing, leasing, management and divestiture of real estate investments across a broad range of real estate property types.
Some investors prefer to partner with investment managers willing to co-invest their own funds to more closely align the interests of the investor and the investment manager. We believe our ability to co-invest alongside our clients' funds will continue to be an important factor in maintaining and improving our competitive position. As of December 31, 2019, we had a total of $321.7 million of co-investments, alongside our clients, in real estate ventures included in total AUM.
LaSalle is generally compensated for investment management services for private equity investments based on capital committed, invested and managed (advisory fees), with additional fees (incentive fees) tied to investment performance above benchmark levels. In some cases, LaSalle also receives fees tied to acquisitions, financings and dispositions (transaction fees). Separate account advisory agreements generally have specific terms with "at will" termination provisions, and include fee arrangements linked to the market value of the assets under management, plus incentive fees in some cases.
Our investment funds have various life spans, typically ranging between five and nine years, but in some cases they are open ended. In 2019, our open-ended funds grew 30% to represent approximately one-quarter of AUM.
Our long-term growth strategy is framed around four major macroeconomic trends we see affecting the real estate sector today, each with an estimated multi-year lifespan:
Rising investment allocations and globalization of capital flows to real estate
During the past decade, real estate has grown out of its previous 'alternative investment' classification to become a major defined asset class of its own, attracting a sustained long-term trend of rising investment allocations. Complementing that, we see sustained strong transaction volumes and increasing capital flows across borders and between continents, creating new opportunities for advisors and investment managers equipped to source and facilitate these capital flows and execute cross-border transactions. Our real estate investment expertise, linking seamlessly across the world's major markets, is ideally placed to support our clients' investment ambitions.
Growth in corporate outsourcing
While corporate outsourcing of real estate services still represents a relatively small proportion of the total commercial-built real estate worldwide, there has been a steady long-term trend towards outsourcing since the early 1990s, originally driven by U.S.-based corporations and has now become a global trend. An increasing number of large organizations are partnering with firms like JLL to improve their workplace efficiency and experiences, as well as seeking strategic portfolio advice to realize broader business objectives. We have a particular focus and expertise, supported by broad-based research and analysis on the future of work, in partnering with clients to optimize workplace design, space planning, management and supplies, with sustainability and positive human experience (for all employees, customers and communities) all as core objectives.
Historically, outsourcing clients’ primary focus was reducing cost and improving the operations of their portfolios. The convergence of the digital and physical worlds is driving increased demand for mobility, flexibility and enhanced experience, alongside traditional performance metrics. By focusing their own resources on core competencies and partnering with dedicated service providers to manage real estate strategy and activities, organizations are better positioned to advance their goals of financial and operational performance, talent attraction, customer experience, employee productivity and environmental sustainability.
These trends have increased the demand for global real estate services, including digitally-enabled and experience-focused solutions. Although some continue to unbundle and separate the sources of their real estate services, a growing proportion of medium-to-large commercial real estate services users continue to demonstrate an overall preference for working with single-source service providers or enterprise integrators to enable seamless management from a local to global level. In addition, public and other non-corporate users of real estate that require specific expertise to address unique industry regulations, including government agencies and health and educational institutions, are increasingly outsourcing real estate activities.
Offering a full range of services on this scale requires significant infrastructure investment, including digital applications, personnel training and industry vertical expertise. Smaller regional and local real estate service firms, with limited resources, are less able to make such investments. As a result, we believe there will continue to be significant growth opportunities for companies like ours that can provide consistent, integrated real estate products and services across many geographic markets, industries and types of clients. Our diverse outsourcing services, described above within Corporate Solutions, address clients' needs across the real estate life cycle and allow them to enable enterprise objectives through their real estate investments.
Growing urbanization continues to be a powerful global trend. In its latest World Urbanization Prospects report (May 2018), the United Nations Department of Economic & Social Affairs predicted 68% of the global population will live in urban areas by 2050, up from 55% as of the publication date (with total global population growth of just over 1% per year). More specifically, the international hub cities where we and our clients do a substantial majority of our business are thriving. This is another sustained trend that successfully overrides national and global political changes and uncertainties.
JLL has a well-established global research series - the City Momentum Index - exploring this and associated trends in more depth, including related dynamics in the way the world’s leading 130 emerging and established markets are growing, adapting and evolving.
4th Industrial Revolution
The 4th Industrial Revolution of technology, data and the rapid rise in applications of artificial intelligence ("AI") continues to change everything. However, there is currently no single technology disruptor positioned to dominate the real estate industry. Instead, thousands of start-ups, applications and concepts are vying to transform the marketplace. The challenge to innovate and maximize the potential benefits of new technology, data and AI uses is constant. At the heart of our Beyond strategy (discussed in detail below), supported by major ongoing investments and innovations, we continue to accelerate progress toward our goal of becoming the widely-recognized leading user of technology and data in real estate.
ORGANIZATIONAL PURPOSE & STRATEGIC FRAMEWORK
Our purpose, We shape the future of real estate for a better world, has strong and deep roots in our identity and history. During 2019 we set JLL’s organizational purpose into a short and memorable phrase, endorsed by our Global Executive Board (“GEB”) and Board of Directors. The CEO letter in our forthcoming annual report will expand on the central role and relevance of our organizational purpose in relation to our interactions with and responsibilities to all of our stakeholders as we move into this new decade.
Strongly aligned with our organizational purpose, our GEB established the broad framework for our Beyond strategy in 2016. This ambitious strategic vision aims to drive long-term sustainable and profitable global growth, incorporate transformational enhancements to our digital, data and AI capabilities, and complement our unwavering commitment to the highest standards of client service, teamwork, ethics and expertise.
Throughout 2017 and 2018, the GEB developed the specific initiatives, goals and investment priorities to support the Beyond strategic vision and led implementation of the foundational steps. Examples included the global alignment of our administrative functions (finance, legal, HR, IT/technology); completing transformational global platform enhancements for our Finance and Human Resources capabilities; establishing JLL Spark as a global proptech innovation business based in Silicon Valley and launching the JLL Spark Global Venture Fund including securing several subsequent proptech investments; launching our Achieve Ambitions brand identity and accompanying Achieve your ambitions employee value proposition; implementing a new consistent and transparent global career framework and launching a comprehensive single system supporting our human resources interactions for our global employee base; introducing CapForce, an advanced and globally integrated CRM system for our Capital Markets teams worldwide; and the launch of our new fully-integrated and wholly-redesigned global website us.jll.com.
This year, strong ongoing business performance enabled us to further accelerate our multi-year Beyond transformation. During 2019, we have reorganized our Corporate Solutions, Capital Markets and Valuation Advisory capabilities to be fully globally-aligned businesses. Such changes reflect the continuing evolution of client demand, increasingly looking for a seamless single-provider solution worldwide, and opportunities presented to us by new technology and data advances in our business. We also significantly strengthened our Capital Markets capabilities with our acquisition of HFF, propelling JLL into a clear leadership position among the world’s largest real estate capital advisors. Another key transformation was bringing together all of our internal and client-facing technology, data and AI operations into a globally-aligned group called JLL Technologies, headed by the co-CEOs of our JLL Spark business who both joined our GEB. We predict the creation of JLL Technologies will become apparent as a major growth driver for us over the medium term.
Having completed this comprehensive series of significant transformative steps over the past three years, we are focused on fully embedding these changes and leveraging the enhanced strengths of our platform to drive client service and further growth through 2020. We will continue to deliver on the key priorities within our multi-year Beyond strategic vision, which is summarized in following section.
Beyond: Our Strategic Vision for Long-Term Sustainable and Profitable Growth
We are a global leader in providing seamlessly integrated services and advice to international corporate and investor clients in all parts of the world. Our Beyond strategic vision sets ambitious goals for continued enhancements to our comprehensive service offering, attracting new talents and skills to our business, marshaling the best new technology and data analytics, and focusing our teams on truly understanding each client’s broader strategic needs. Our service offerings span the whole real estate life cycle, being consistently delivered to the highest quality and creating real value for our clients. Within our Beyond strategy, we are making significant ongoing investments in advanced client relationship management processes and tools, always with a core commitment to ensuring our own systems and structures never become an obstacle to assembling international and multidisciplinary teams tailored to meet each client’s requirements.
We continue to strengthen and expand awareness of our brand beyond the traditional real estate sector, with a focused goal in our Beyond strategicvision to reach more CEOs and other senior decision makers. Supporting this goal, we are an active strategic partner of the World Economic Forum and regular participant in its annual meeting in Davos and at other events. In January 2020, Fortune magazine again named JLL as one of the World’s Most Admired Companies (see below for further awards and recognition during the past year). As part of our Beyond strategy, we launched a new visual identity and brand positioning strategy centered on our Achieve Ambitions theme, which is relevant to all our clients and other stakeholders. Further, our leadership on embedding sustainability into our overall business conduct is increasingly central to our brand.
Technology is changing the definition of work: where we work, how we work, and what type of work we do. We are still in the early days of harnessing technology through digitization, data, analytics, AI and machine learning to deliver value for our clients, people and shareholders. JLL is embracing technology to meet the needs of clients today and anticipate the opportunities of tomorrow. Leading this technology transformation is core to our growth strategy and reflected in our significant investments:
Forming JLL Technologies in 2019 to align and expand our technology capabilities for our clients and our company. JLL Technologies will expand the suite of technology products and services to help our clients and global organization navigate key real estate needs, with a focus on increasing the value and liquidity of the world’s buildings, while improving the experiences of those who occupy them.
Transforming and enabling delivery of standardized services worldwide with a best-in-class technology foundation and an operational emphasis on data and analytics. This includes increasingly leveraging AI and machine learnings to drive insights, speed and accuracy. A notable example is our 2015 acquisition of Corrigo, which enables our facilities management business globally and continues to grow as a component of our integrated platform.
Expanding Digital Solutions, our global digital advisory and implementation services capability. Digital Solutions designs, integrates and implements innovative digital solutions for clients across industry types in the areas of integrated workplace management platforms, workplace experience, and smart buildings. In 2018, we nearly doubled the size of this team through the acquisition of ValuD, a leading provider of software integration and consulting services. This combined organization is bringing the next generation of technology to our clients.
Launching the JLL Spark Global Venture funds, with plans to invest up to $100 million in a number of “proptech” (property technology) early-stage companies, helping to drive innovation for JLL and its clients through cutting-edge products and improved service delivery and operations. Visit our website to see the full portfolio of investments.
These investments, along with digital enhancements in our internal platform and throughout our core service offerings, put us in position to extend our role as the digital leader in corporate real estate.
People are at the heart our business. We are committed to helping our people achieve their ambitions by enabling them to explore new opportunities, build expertise, create long-term careers, work with other talented people, and succeed through inclusion. Achieve your ambitions, our employee value proposition, articulates the key attractions and advantages of a career with JLL. We offer inclusive, collaborative and flexible working environments and an array of developmental and training opportunities. In 2019, we benefited from the first full year of operating our global career framework providing transparency and clarity on career paths, supporting succession planning and resource allocation, and allowing our people to explore a wide variety of new career opportunities within our organization, including internationally. We support career growth by providing guidance on globally-aligned leadership capabilities and offering formal mentoring and coaching programs. Our people, their skills and aspirations, and their commitment to a consistently high-performance culture and JLL’s core values are central to our ongoing success and sustained profitable growth.
All our people are committed to the core values of teamwork, ethics and excellence. These values are the foundation of our organization. Clients, employees, business partners and potential recruits are strongly attracted to these values and to our commitments to a sustainable future through Building a Better Tomorrow, our sustainability leadership ambition. This has earned us repeated recognition from organizations such as the Ethisphere Institute, which in 2019 named JLL as one of the World’s Most Ethical Companies for the 12th consecutive year. As discussed in more detail in Distinguishing Attributes and Competitive Differentiators, we achieved our existing multi-year sustainability targets for our own operations and, therefore, we are setting ambitious new medium-term goals, including a science-based target for carbon emissions reduction. These new targets will be published in our next annual Global Sustainability Report.
Our Beyond priorities for clients, people, values, digital and brand combine to provide an integrated strategic vision and platform for growth. This vision is supported by our commitment to enhance productivity in all operations, build margin and create the basis for long-term sustainable and profitable growth, which reward all our stakeholders, helping them achieve their ambitions.
We regularly reevaluate our strategic priorities to optimize sustainable and profitable long-term growth and on-going value creation for all our stakeholders. Our Beyond strategic vision and priorities for growth are built on our closely integrated platform, which combines deep local market knowledge with seamless advice and services tailored to each client’s specific needs.
SUSTAINING OUR ENTERPRISE: A BUSINESS MODEL THAT COMBINES DIFFERENT CAPITAL TO CREATE STAKEHOLDER VALUE
The built environment is estimated to account for more than 40 percent of global energy consumption and approximately one-third of the world's carbon emissions according to International Energy Agency's 2019 report Energy Efficiency.
Building a Better Tomorrow - our global sustainability strategy. Through the four pillars of Building a Better Tomorrow, depicted below, we work to shape the future of real estate for a better world. These pillars are underpinned by three foundations: (1) our commitment to the highest standards of corporate governance, (2) our efforts to drive sustainability thought leadership and (3) our commitment to deploying innovative, forward thinking solutions for ourselves and our clients. To ensure these efforts support our broader business strategy, Building a Better Tomorrow is an integral part of our long-term strategic vision, Beyond.
By addressing issues which materially affect our clients, investors, employees and communities, we drive positive change through our organization and more widely. In 2019, we again reviewed our most material issues and identified the top five environmental and social issues.
Energy consumption and emissions
Business ethics and integrity
Innovation and technology
Enhancing client sustainability through our services
We are in the process of setting ambitious new goals for JLL, rooted in the results of our materiality process. These goals will be covered in detail in the next annual Global Sustainability Report, due for publication in the summer of 2020 and available on our website.
Generating sustainable value for our clients. Through industry-leading strategies, tools and technologies, we partner with our clients to create and deliver solutions to achieve their sustainability goals. As their objectives expand to include a broader spectrum of services, our approach of embedding sustainability considerations across our service lines helps them own, occupy, invest in and develop healthier and more productive spaces.
Our expertise addresses the entire life cycle of a building - from its design and planning, through construction, occupation, management, refurbishment and sale. Our professionals offer advice on how sustainability considerations can be embedded at each of these stages to maximize value for our clients. Our property and asset management professionals, for example, embed sustainability criteria into our supply chain via contractor selection and the monitoring of sustainability performance against KPIs. We also support our clients’ data management and reporting requirements whether it be for frameworks such as 'GRESB', 'WELL' and 'LEED' or waste, water and utility information.
Our commitment to technological innovation extends to our sustainability service offering. We have developed a number of in-house technology platforms to help us deliver our clients’ sustainability objectives. For example, our Portfolio Energy and Environment Reporting System (PEERS) and the Energy and Sustainability Platform (ESP) reflect our commitment to investing in digital, data and information management platforms. By deploying flexible digital solutions, we are able to measure, manage and improve environmental impacts for the nearly 200,000 buildings included on these platforms.
Creating sustainable value for all our stakeholders
We have designed our business model to (i) create value for our clients, shareholders and employees, (ii) establish high-quality relationships with the suppliers we engage and the communities in which we operate, and (iii) respond to macroeconomic trends impacting the real estate sector. Based on our intimate knowledge of local real estate and capital markets worldwide, as well as our investments in thought leadership and technology, we create value for clients by addressing their real estate needs as well as their broader business, strategic, operating and longer-term sustainability goals.
We strive to create a healthy and dynamic balance between activities that will produce short-term value and returns for our stakeholders through effective management of current transactions and business activities, and investments in people (such as new hires), acquisitions, technologies and systems designed to produce sustainable returns over the long term.
"Thinking Beyond" our value creation model summarizes how we create value for our shareholders and our broader stakeholders. It starts with the capital resources - or inputs - we need to do business. We use these resources in the context of our mission and vision to deliver services - or outputs - for our clients through the business activities we manage.
We apply our business model to the resources and capitals we employ to provide services. We provide these services through our own employees and, where necessary or appropriate in the case of property and facility management and project and development services, through the management of third-party contractors. The revenue and profits we earn from those efforts are allocated among further investments in our business, employee compensation and returns to our shareholders. We are increasingly focused on linking our business and sustainability strategies to promote the goal of creating long-term value for our shareholders, clients, employees and the global community of which JLL is a part. These efforts help our clients manage their real estate more effectively and efficiently, promote employment globally and create wealth for our shareholders and employees. In turn, they allow us to be an increasingly impactful member of, and positive force within, the communities in which we operate.
We operate across a wide variety of highly competitive business lines within the commercial real estate industry globally. Our significant growth over the last decade, and our ability to take advantage of the substantial consolidation which has taken place in our industry, have made us one of the largest commercial real estate services and investment management providers on a global basis.
Since we provide a broad range of commercial real estate and investment management services across many geographies, we face significant competition at international, regional and local levels. We also face competition from companies who may not traditionally be thought of as real estate service providers, including institutional lenders, insurance companies, investment banking firms, investment managers, accounting firms, technology firms, software-as-a-service companies, firms providing co-working space, firms providing outsourcing services of various types (including technology, food service and building products), and companies that self-provide their real estate services with in-house capabilities.
DISTINGUISHING ATTRIBUTES AND COMPETITIVE DIFFERENTIATORS
We deliver exceptional strategic, fully-integrated services, best practices and innovative solutions for real estate owners, occupiers, investors and developers worldwide through an integrated wholly-owned global platform. These characteristics among others distinguish us from our competitors, drive service excellence and customer loyalty, and demonstrate our commitment to a sustainable future. While we face formidable competition in individual markets, the following are key attributes differentiating JLL for clients seeking real estate and investment management services across the globe.
Our focus on client relationship management to provide superior client service on a highly coordinated basis
Our globally-integrated business model with local market knowledge, including a highly diverse set of service offerings, enabling our ability to deliver expertise wherever our clients need it
Leadership in leveraging technology to enhance the services we provide our clients and the way we operate
The strength of our brand, including our reputation as an ethical organization
The strength of our financial position
Our sustainability leadership, with a sustainability strategy that addresses long-term financial, environmental, and social risks and opportunities for ourselves and our clients
The quality and worldwide reach of our industry-leading research function, enhanced by digital applications and our ability to synthesize complex information into practical advice for clients
Our employee engagement as well as our employee value proposition - Achieve your ambitions - which articulates what differentiates JLL as an employer
The quality of our internal governance and enterprise risk management, which clients can rely on over the long term
The following is a detailed discussion of these distinguishing attributes and competitive differentiators.
Client Relationship Management. Our clients are the center of our business model, and we enable superior service delivery through ongoing investments in the people, processes and tools that support client relationship management. As an example, CapForce, our sophisticated CRM tool, links all our capital markets business lines and activities around the world. Our goal is to provide each client with a single point of contact, an individual responsive to and accountable for all the activities we undertake for the client. We achieve superior client service through best practices in client relationship management, seeking and acting on regular client feedback, and recognizing each client's own specific definition of excellence. We also invest in developing the highest caliber talent dedicated to managing our client relationships through an employee compensation and evaluation system aligned with our global career framework and designed to reward client relationship building, teamwork and quality performance.
Our client-driven focus enables us to develop, sustain and grow long-term client relationships that generate repeat business and create recurring revenue sources. In many cases, we establish strategic alliances with clients whose ongoing service needs align with our ability to deliver fully integrated real estate services across multiple business units and locations.
Globally-Integrated Business Model. Through the combination of a wide range of high-quality, complementary services and their delivery at consistently high service levels globally, we develop and implement real estate strategies that meet the increasingly complex and far-reaching needs of our clients. With operations spanning the globe, we have in-depth knowledge of local and regional markets and can provide the full life cycle of real estate services around the world. This geographic coverage, combined with the ability and connectivity of our people, positions us to serve the needs of our multinational clients and manage the flow of investment capital on a global basis. This model enables cross-selling potential across geographies and service lines that will continue to develop new revenue sources and growth.
Technology Leadership. Our globally-coordinated investments in research, technology, data science and analytics, people, quality control and innovation, provide a foundation for us to develop, share and continually evaluate best practices across our global organization. In 2018, we launched our new global people information system across the globe. In 2019, we finished the implementation of the upgrade to our digitally integrated finance system. We have been acquiring and/or developing technology-enabled expertise, products and services to better serve our employees and clients.
We will continue to develop and deploy technology as well as online and social media applications to support our marketing and client development activities and to make our products and services increasingly accessible.
Brand. The combined strength of our JLL and LaSalle brands represents a significant advantage when we pursue new business opportunities and is also a major motivator for talented people to join our global brand. Large corporations, institutional investors and occupiers of real estate recognize our ability to create value reliably in changing market conditions, based on (i) evidence provided by brand perception surveys we have commissioned, (ii) extensive coverage we receive in top-tier business publications, (iii) awards we receive in real estate, sustainability, innovation, data/technology and ethics, as well as (iv) our significant, long-standing client relationships. Our reputation derives from our deep industry knowledge, excellence in service delivery, integrity and our global provision of high-quality, professional real estate and investment management services.
We believe in uncompromising integrity and the highest ethical conduct, where our Board of Directors and senior management lead by example. We are proud of the global reputation we have earned and are determined to protect and enhance it. The integrity our brand represents is one of our most valuable assets and a strong differentiator for JLL.
The JLL name is our primary trading name; Jones Lang LaSalle remains our legal name. Using the shorter JLL name facilitates its adaptation to different communication styles in different countries, languages and channels and especially to the use of digital and online channels for marketing and communications.
Financial Strength. Our broad geographic reach and the range of our global service offerings diversify the sources of our revenue, reducing overall volatility in operating a real estate services business. This further differentiates JLL from firms with more limited service offerings or that are only local/regional and must rely on fewer markets or services.
Confidence in the financial strength of long-term service providers is important to our clients, who require financial strength when they select real estate service providers. We focus on maintaining financial performance metrics, particularly our leverage and debt service coverage ratios, that support investment-grade financial ratings. We continue our long history of investment grade credit ratings from Moody’s Investors Service, Inc. ("Moody’s") and Standard & Poor’s Ratings Services ("S&P"). Our issuer and senior unsecured ratings as of December 31, 2019 are Baa1 from Moody’s and BBB+ from S&P. Accordingly, our ability to present a superior financial condition distinguishes us as we compete for business.
We have ample capacity to fund our business. Our primary source of credit liquidity is our unsecured credit facility (the "Facility") provided by an international syndicate of banks, which as of December 31, 2019 had a maximum borrowing capacity of $2.75 billion and a maturity date in May 2023.
Sustainability Leadership. With our global sustainability strategy - Building a Better Tomorrow - we are committed to new ways of partnering with our stakeholders to achieve shared ambitions for a sustainable future. As we noted earlier, the built environment is estimated to account for more than 40 percent of global energy consumption and approximately one-third of the world's carbon emissions according to International Energy Agency's 2019 report Energy Efficiency. Our vision is to make JLL a world-leading, sustainable professional services firm by creating spaces, buildings and cities where everyone can thrive. The world’s financial, social and environmental challenges demand a bolder response from businesses around the globe.
From serving our clients and engaging our people, to respecting natural resources in our workplaces and building community relationships, we are focused on what is good for both business and a sustainable future. This progressive approach increases value for all our stakeholders and leads to responsible investment decisions as well as healthier, safer and more engaged people. We are Building a Better Tomorrow everywhere we can.
Industry-Leading Research Capabilities. We invest in and rely on comprehensive research to support and guide the development of real estate and investment strategy for our clients. With nearly 580 research professionals who gather data and cover market and economic conditions around the world, we are an authority on the economics and market dynamics of commercial real estate. Research plays a key role in keeping colleagues throughout the organization attuned to important trends and changing conditions in world markets. We continue to devise and invest in new approaches through data science techniques and other technology to make our research, services and property offerings more readily available to our people and clients.
We believe our investments in research, technology, data science and analytics, people and thought leadership position JLL as a leading innovator in our industry. Our research initiatives investigate emerging trends to help us anticipate future conditions and shape new services to benefit our clients, which in turn help us secure and maintain profitable long-term relationships with the clients we target: the world's leading real estate owners, occupiers, investors and developers.
Employee Engagement. Based on input from our employees about our culture and what makes us stand out as an employer, we developed the employee value proposition - Achieve your ambitions - a shared framework to inspire talent to join us, engage our employees and celebrate the values and culture of JLL around the world. An integral part of our brand, it is our promise to our people - employees and candidates alike - and centers on five unique pillars, depicted in the following graphic.
Our goal-setting framework uses three categories of goals (clients, growth and people) that align our people’s efforts with enterprise-wide strategy throughout all levels of the organization and build focus and attention on our priorities. Ongoing employee feedback is important to the continued improvement of our organization and to harness this valuable feedback, we complete an employee survey three times each year.
Governance and Enterprise Risk Management. The Chairman of our Board of Directors is an independent Director and is separate from our CEO, who also serves as a Director. This structure together with our transparent senior management promotes an environment of best practices in corporate governance and controls. We believe these attributes allow us to infuse a culture of internal communication and connectivity throughout the organization.
Successful management of any organization's enterprise risks is critical to its long-term viability. We seek to promote, operate and continually improve a globally-integrated enterprise risk management model that optimizes our overall risk/reward profile through the coordinated and sophisticated interaction of business and corporate staff functions.
Awards. We won numerous awards and recognitions through January 2020 that reflect the quality of the services we provide to our clients, the integrity of our people and our desirability as a place to work. As examples, we were named:
A member of the Dow Jones Sustainability Index North America, for the fourth consecutive year
One of the World's Most Ethical Companies by the Ethisphere Institute, for the 12th consecutive year
An America's most JUST company on the Forbes' "JUST 100" list, for the fourth consecutive year
One of the World's Most Admired Companies by Fortune Magazine, for the third consecutive year
One of Working Mother's 100 Best Companies, for the third consecutive year
One of the Top 70 Companies for Executive Women by the National Association for Female Executives, for the fourth consecutive year
To the Human Rights Campaign Foundation's Corporate Equality Index, a benchmarking survey on corporate policies and practices related to LGBTQ workplace equality, with a perfect score, for the sixth consecutive year
One of the Global Outsourcing 100 by the International Association of Outsourcing Professionals, for the eleventh consecutive year
An Energy Star Sustained Excellence Award recipient, by the U.S. Environmental Protection Agency, for the eighth consecutive year
As a part of the Business Network and Framework Panel of the International Integrated Reporting Council ("IIRC"), we support the general principles designed to promote communications and integrated thinking about how an organization's strategy, governance and financial and non-financial performance lead to the creation of value over the short, medium and long term.
Components of Our Integrated Report. This Annual Report on Form 10-K focuses on our business strategy and our financial performance, including an attempt to illustrate how being a sustainable enterprise is integral to our success. Our citizenship and sustainability efforts for ourselves and our clients are reflected primarily in our annual Global Sustainability Report, available on our website. Our governance and remuneration practices are reported primarily in the Proxy Statement for our Annual Meeting of Shareholders. The mechanisms we use to make our clients comfortable with respect to our transparency and fair dealing are summarized in our Transparency Report. The behaviors and standards we expect of our employees and of the suppliers we engage for our own company and on behalf of clients are presented in our Code of Business Ethics and our Vendor Code of Conduct. Our Corporate Facts document is intended to provide an overall summary of the information we believe will be of primary interest to our different stakeholders.
Responsibility for Integrated Reporting. Our Finance and Legal functions are primarily responsible for the integrity of our integrated reporting efforts, collaborating in the preparation and presentation of this report and engaging our organization's leadership.
A large portion of our revenue is seasonal, which investors should keep in mind when comparing our financial condition and results of operations from quarter to quarter. 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 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 is inherently unpredictable. We generally recognize such performance fees and realized co-investment equity earnings or losses when assets are sold, the timing of which is geared toward the benefit of our clients. Non-variable operating expenses, which we treat as expenses when incurred during the year, are relatively constant on a quarterly basis.
The following table reflects our global headcount for reimbursable and non-reimbursable employees.
December 31, 2019
December 31, 2018
Professional non-reimbursable employees
Directly reimbursable employees
Directly reimbursable employees have costs which are fully reimbursed by clients, primarily in our Corporate Solutions business. Specifically, reimbursable employees include our property and IFM professionals as well as our building maintenance employees.
Our employees do not report being members of any labor unions, with the exception of approximately 2,800 property maintenance employees in the United States, 80% of whom are reimbursable. As of both December 31, 2019, and 2018, approximately 70% of our employees were based in countries other than the United States.
We regard our technology and other intellectual property, including our brands, as a critical part of our business.
We hold various trademarks, trade dress and trade names and rely on a combination of patent, copyright, trademark, service mark and trade secret laws, as well as contractual restrictions to establish and protect our proprietary rights. We own numerous domain names, have registered numerous trademarks, and have filed applications for the registration of a number of our other trademarks and service marks in the United States and in foreign countries. We hold the "Jones Lang LaSalle," "JLL" and "LaSalle Investment Management" trademarks and the related logos, which we expect to continue to renew, as necessary, to conduct the material aspects of our business globally. We own the rights to use the ".jll" and ".lasalle" top level domain names.
Although we believe our intellectual property plays a role in maintaining our competitive position in a number of the markets we serve, we do not believe we would be materially adversely affected by the expiration or termination of our trademarks or trade names or the loss of any of our other intellectual property rights other than the “JLL,” "Jones Lang LaSalle," “LaSalle,” and "LaSalle Investment Management" names, and our Design (Three Circles) mark that is also trademarked. Our trademark registrations have to be renewed every ten years. Based on our most recent trademark registrations, the JLL mark would expire in 2024, while the Jones Lang LaSalle name would expire in 2022 and the Design (Three Circles) mark would expire in 2021. Our LaSalle and LaSalle Investment Management marks will expire in 2026.
In addition to our trademarks and trade names, we also have proprietary technologies for the provision of complex services and analysis. We also have a number of pending patent applications in the U.S. to further enable us to provide high levels of client service and operational excellence. We will continue to file additional patent applications on new inventions, as appropriate, demonstrating our commitment to technology and innovation.
CORPORATE GOVERNANCE; CODE OF BUSINESS ETHICS; CORPORATE SUSTAINABILITY AND RELATED MATTERS
We are committed to the values of effective corporate governance, operating our business to the highest ethical standards and conducting ourselves in an environmentally and socially responsible manner. We believe these values promote the best long-term performance of JLL for the benefit of our shareholders, clients, staff and other constituencies.
Corporate Governance. We believe our policies and practices reflect corporate governance initiatives that comply with the listing requirements of the NYSE, the corporate governance requirements of the Sarbanes‑Oxley Act of 2002, U.S. Securities and Exchange Commission ("SEC") regulations, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the General Corporation Law of the State of Maryland, where we are incorporated.
Our Board of Directors ("the Board") regularly reviews corporate governance developments and modifies our Bylaws, Guidelines and Committee Charters accordingly. As a result, we have adopted the following corporate governance policies and approaches considered to be best practices in corporate governance.
Annual elections of all members of our Board
Annual "say on pay" votes by shareholders with respect to executive compensation
Right of shareholders owning 30% of the outstanding shares of our Common Stock to call a special meeting of shareholders for any purpose
Majority voting in Director elections
Separation of Chairman and CEO roles, with the Chairman serving as Lead Independent Director
Required approval by the Nominating and Governance Committee of any related-party transactions
Executive session among the Non-Executive Directors at each in-person meeting
Annual self-assessment by the Board and each of its Committees
Periodic assessment by our senior executive management of the operation of our Board
Code of Business Ethics. The ethics principles that guide our operations globally are embodied in our Code of Business Ethics, which applies to all employees of JLL and the members of our Board. The Code of Business Ethics is the cornerstone of our Ethics Everywhere Program, by which we establish, communicate and monitor the overall elements of our efforts. We are proud of, and are determined to protect and enhance, the global reputation we have established. As we operate in a service industry, the integrity our brand represents is one of our most valuable assets. For a number of years we have applied for and received Ethics Inside™ certification from NYSE Governance Services, a leading organization dedicated to best practices in ethics, compliance, corporate governance and citizenship. We believe it is the only available independent verification of a company's ethics program. As previously noted, we were named to Ethisphere Institute’s list of the World's Most Ethical Companies for the twelfth consecutive time in 2019. We also were recertified under the Ethics Inside program by the Ethisphere Institute.
We support the principles of the United Nations Global Compact, the United Nations Principles of Responsible Investing and, given our clients include a number of the major companies within the electronic industry, the Electronic Industry Code of Conduct. We are also a member of the Partnering Against Corruption Initiative sponsored by the World Economic Forum.
Vendor Code of Conduct. We expect each of our vendors, meaning any firm or individual providing a product or service to us, or indirectly to our clients as a contractor or subcontractor, will share and embrace the letter and spirit of our commitment to integrity. While vendors are independent entities, their business practices may significantly reflect upon us, our reputation and our brand. Accordingly, we expect all vendors to adhere to the JLL Vendor Code of Conduct, which we publish in multiple languages on our website. We continue to evaluate and implement new ways to monitor the quality and integrity of our supply chain. This includes developing means to efficiently survey and compare responses about the ethical environment and riskiness of current and potential suppliers we engage both for our own company and on behalf of clients.
Professional Standards Guide. Our guide to professional standards seeks to establish principles under which our people will perform services for clients. It is published on our website.
Corporate Sustainability. We encourage and promote the principles of sustainability everywhere we operate, seeking to improve the communities and environment in which our people work and live. We design our corporate policies to reflect the highest standards of corporate governance and transparency, and we hold ourselves responsible for our social, environmental and economic performance. We seek to incorporate sustainability practices and principles into our client investments and asset management. These priorities guide the interactions we have with our shareholders, clients, employees, regulators and vendors, as well as with all others with whom we come into contact. We recognize both the risks and opportunities presented by climate change and seek to address these impacts both in and beyond our business.
We also work to foster an environment which values the richness of our differences and reflects the diverse world in which we live and work. By cultivating a dynamic mix of people and ideas, we enrich our performance, the communities in which we operate, and the lives of our employees. We seek to recruit a diverse workforce, develop and promote exceptional talent from diverse backgrounds, and embrace the varied experiences of all our employees.
Corporate Political Activities. Our general approach is to not take positions as an organization on social or political issues or on political campaigns. Accordingly, our use of corporate funds or other resources for political activities has been negligible. From time to time, we may comment on proposed legislation or regulations that directly affect our business interests and therefore the interests of our shareholders. We may also belong to industry trade associations that do become involved in attempts to influence legislation in the interests of the industry generally.
COMPANY WEBSITE AND AVAILABLE INFORMATION
JLL's website address is www.us.jll.com. We use our website as a channel of distribution for company, financial and other information. Our website also includes information about our corporate governance. We intend to post on our website any amendment or waiver of the Code of Business Ethics with respect to a member of our Board or any of the executive officers named in our proxy statement.
On the Investor Relations page on our website, we make available our Annual Report on Form 10-K, our Proxy Statement on Schedule14A, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”). The SEC maintains www.sec.gov, containing annual, quarterly and current reports, proxy statements and other information we file electronically with the SEC.
We will also make the following materials available in print to any shareholder who requests them in writing from our Corporate Secretary at the address of our principal executive office set forth on the cover page.
In addition to the other information set forth in this report, you should carefully consider the following risks that based upon current knowledge, information and assumptions could materially adversely affect our business, financial condition and results of operations. Some of these risks and uncertainties could affect particular service lines or geographies, while others could affect all of our businesses. Although each risk is discussed separately, many are interrelated.
These risk factors do not identify all risks we face; our operations could also be affected by factors not presently known to us or that we currently consider to be not significant to our operations. Our business is also subject to general risks and uncertainties which broadly affect all companies.
General Overview. Our business environment is complex, dynamic and international. Accordingly, it is subject to a number of significant risks in the ordinary course of its operations. If we cannot or do not successfully manage the risks associated with the services we provide, our operations, business, operating results, reputation and/or financial condition could be materially and adversely affected.
One of the challenges of a global business such as ours is to determine in a sophisticated manner the critical enterprise risks that exist or may newly develop over time as our business evolves. We must then determine how best to employ reasonably available resources to prevent, mitigate and/or minimize those risks we identify as having the greatest potential to cause significant damage from an operational, financial, or reputational standpoint.
Starting in 2018, we have made enhancements to our enterprise risk management ("ERM") methodology across the globe. These enhancements were designed to (i) improve and align our understanding, as well as enhance our public disclosure, of the most material risks facing us, (ii) improve decision making in governance, strategy, objective setting and day-to-day operations, (iii) decide the actions necessary to mitigate any significant risks with the potential to cause financial or reputational harm to us, and (iv) assign priorities and ownership for purposes of executing those actions. Using this updated methodology, the top risks were communicated to the GEB, the Audit Committee and the rest of our Board of Directors. Our Board and its Committees take active roles in overseeing management's identification, disclosure and mitigation of enterprise risks. Our ongoing ERM efforts have significantly shaped the following risk factors and their discussion.
Categorization of Enterprise Risks. This section reflects our current views, as of the issuance of this report, concerning the most significant risks we believe our business faces, both in the short and long term. We do not, however, purport to include every possible risk from which we might sustain a loss. For purposes of the following analysis and discussion, we generally group the risks we face according to four principal categories:
Operational Risk Factors
Strategic Risk Factors
Legal and Compliance Risk Factors
Financial Risk Factors
We could appropriately place some of the risks we identify in more than one category, but we have chosen the one category we view as primary. We do not present the risks below in their order of significance, the relative likelihood we will experience a loss, or the magnitude of any such loss. Certain of these risks also may give rise to business opportunities for us, but our discussion of risk factors in Item 1A is limited to the adverse effects the risks may have on our business.
Operational Risk Factors
Operational risk relates to risks arising from systems, processes, people and external events that affect the operation of our businesses. It includes information management and data protection and security, including cyber security; supply chain and business disruption, including health and safety; and other risks, including human resources and reputation.
REPUTATIONAL AND BRAND RISKS.
The value and premium status of our brand is one of our most important assets. An inherent risk in maintaining our brand is that we may fail to successfully differentiate the scope and quality of our service and product offerings from those of our competitors, or that we may fail to sufficiently innovate or develop improved products or services that will be attractive to our clients.
The rapid dissemination and increasing transparency of information, particularly for public companies, increases the risks to our business that could result from negative media or announcements about ethics lapses or other operational problems, which could lead clients to terminate or reduce their relationships with us. As such, any negative media, allegations or litigation against us, irrespective of the final outcome, could potentially harm our professional reputation and damage our business. We are also subject to misappropriation of one of the names or trademarks we own by third parties that do not have the right to use them so they can benefit from the goodwill we have built up in our intellectual property; further, our efforts to police usage of our intellectual property may not be successful in all situations.
COMPETITION FOR TALENT WORLD-WIDE; SUCCESSION OF KEY LEADERS.
We depend, in large part, on the members of our senior management team who possess extensive knowledge and a deep understanding of our business and strategy, as well as the colleagues who are critical to developing and retaining client relationships. Our business depends on the continued availability of skilled personnel with industry experience and knowledge, including our senior management team and other key employees. If we are unable to attract and retain qualified personnel, or to successfully plan for succession of employees holding key management positions, our business and operating results could suffer. There is a further risk of losing talent (and intellectual property and client contacts) to competitors, particularly in the context of increased use of social media networks and transparency of employment information. There is also the risk of losing top producers who provide a material margin contribution. These risks increase as we continue to grow as an organization and increase the number of staff, which has expanded significantly over the past decade. There may also be an increase in recruitment and compensation costs. We and our competitors use equity incentives and bonuses to help attract, retain and incentivize key personnel. As competition is significant for the services of such personnel, the expense of incentives and bonuses may increase and we may be unable to attract or retain such personnel to the same extent we have in the past.
The challenge to find and retain sufficiently trained staff is world-wide, including within emerging markets, and as a result, increases the risk of performance for clients. In particular, in successful emerging markets such as India and China, attrition by highly informed and mobile staff is a challenge for all companies. Labor costs are rising in emerging economies and are expected to increase further. Corporate payrolls are likely to increase as greater competition for labor and social pressure to raise salaries in line with productivity growth cause even greater wage inflation. It is increasingly challenging to predict regional and national labor policies, as well as regulations. The potential indirect implications of these changes are difficult to assess.
THIRD PARTY SPEND MANAGEMENT AND HEALTH AND SAFETY RISK.
We rely on third parties, and in some cases subcontractors, to perform activities on behalf of our organization to improve quality, increase efficiencies, cut costs and lower operational risks across our business and support functions. We have instituted a Vendor Code of Conduct, which is published in multiple languages on our website, and which is intended to communicate to our vendors the standards of conduct we expect them to uphold. Our contracts with vendors also generally impose a contractual obligation to comply with our Vendor Code. In addition, we leverage technology at an increasing rate to help us better screen vendors, with the aim of gaining a deeper understanding of the risks posed to our business by potential and existing vendors. If our third parties do not have the proper safeguards and controls in place, or appropriate oversight cannot be provided, we could be exposed to increased operational, regulatory, financial or reputational risks. A failure by third parties to comply with service level agreements or regulatory or legal requirements in a high quality and timely manner, particularly during periods of peak demand for their services, could result in economic and reputational harm to us. In addition, these third parties face their own technology, operating, business and economic risks, and any significant failures by them, including the improper use or disclosure of our confidential client, employee or company information, could cause damage to our reputation and harm to our business.
Our contractors and their subcontractors are more integrated into our operations than ever before and, as a result, also involved in a significant proportion of the safety incidents we experience. Health and safety is a prominent part of our Beyond strategy, so we take steps to engage with our supply chain and improve our safety performance. This includes producing a dedicated Global Health and Safety Report detailing our approach to managing this important topic. Our goal is to ensure those we work and interact with are unharmed by our operations. We have a multi-disciplinary safety management structure, with executive sponsorship, aimed at managing existing and emerging health and safety risks, and achieving continuous improvement. However, despite investment in our safety platform, management systems and vendor due diligence program, additional efforts are necessary to ensure vendors are aware of our high health and safety expectations.
TECHNOLOGY AND INFORMATION SYSTEMS; MANAGEMENT OF DATA.
Our business is highly dependent on our ability to collect, use, store and manage organizational and client data. If any of our information and data management systems do not operate properly or are disabled, we could suffer a disruption of our businesses, liability to clients, loss of client data, loss of employee data, regulatory intervention, breach of confidentiality or other contract provisions, or reputational damage. These systems may fail to operate properly or become disabled as a result of events wholly or partially beyond our control, including disruptions of electrical or communications services, disruptions caused by natural disasters, political instability, terrorist attacks, sabotage, computer viruses, or problems with the internet, deliberate attempts to disrupt our computer systems through "hacking," "phishing," or other forms of cyber attack, or our inability to occupy one or more of our office locations. As we outsource significant portions of our information technology functions to third-party providers, such as cloud computing, we bear the risk of having somewhat less direct control over the manner and quality of performance.
We are exposed to the risk of cyber attacks in the normal course of business. In general, cyber incidents can result from deliberate attacks or unintentional events. We have observed an increased level of attention focused on cyber attacks that include gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption.
We have experienced various types of cyber attack incidents, which to date have been contained and have not been material to the organization as a whole. As the result of such incidents, we have continued to implement new controls, governance, technical protections and other procedures. We may incur substantial costs and suffer other negative consequences such as liability, reputational harm and significant remediation costs and cause material harm to our business and financial results if we fall victim to other successful cyber attacks.
The legislative and regulatory framework for privacy and data protection issues worldwide is rapidly evolving and is likely to remain fluid for the foreseeable future. We collect personally identifiable information ("PII") and other data as integral parts of its business processes and activities. This data is subject to a variety of U.S. and foreign laws and regulations, including oversight by various regulatory or other governmental bodies. Many foreign countries and governmental bodies, including the European Union, Canada, and other relevant jurisdictions where we conduct business, have laws and regulations concerning the collection and use of PII and other data obtained from their residents or by businesses operating within their jurisdictions. The European Union General Data Protection Regulation imposes stringent data protection requirements and provides significant penalties for noncompliance. New privacy laws will continue to come into effect around the world in 2020, with one of the most significant being the California Consumer Privacy Act on January 1, 2020. Any inability, or perceived inability, to adequately address privacy and data protection concerns, even if unfounded, or comply with applicable laws, regulations, policies, industry standards, contractual obligations, or other legal obligations (including at newly acquired companies) could result in additional cost and liability to us or company officials, damage our reputation, inhibit sales, and otherwise adversely affect our business.
CONCENTRATIONS OF BUSINESS WITH CORPORATE AND INVESTOR CLIENTS CAUSE INCREASED CREDIT RISK AND GREATER IMPACT FROM THE LOSS OF CERTAIN CLIENTS AND INCREASED RISKS FROM HIGHER LIMITATIONS OF LIABILITY IN CONTRACTS.
We value the expansion of business relationships with individual corporate clients and institutional investors because of the increased efficiency and economics (both to our clients and us) that can result from developing repeat business and performing an increasingly broad range of services for the same client. Having increasingly large and concentrated clients also can lead to greater or more concentrated risks of loss if, among other possibilities, such a client (i) experiences its own financial problems, which can lead to larger individual credit risks; (ii) becomes bankrupt or insolvent, which can lead to our failure to be paid for services we have previously provided or funds we have previously advanced; (iii) decides to reduce its operations or its real estate facilities; (iv) makes a change in its real estate strategy, such as no longer outsourcing its real estate operations; (v) decides to change its providers of real estate services; or (vi) merges with another corporation or otherwise undergoes a change of control, which may result in new management taking over with a different real estate philosophy or in different relationships with other real estate providers. In the case of LaSalle, concentration of investor clients can lead to fewer sources of investment capital, which can negatively affect assets under management in case a higher-volume client withdraws its funds or does not re-invest them. This is also the case within LaSalle's securities business and for JLL IPT, which are both dependent on the continued ability and willingness of certain brokerage firms to attract investment funds from their clients.
In addition, competitive conditions, particularly in connection with increasingly large clients, may require us to compromise on certain contract terms with respect to the payment of fees, the extent of risk transfer, or acting as principal rather than agent in connection with supplier relationships, liability limitations, credit terms and other contractual terms, or in connection with disputes or potential litigation. Where competitive pressures result in higher levels of potential liability under our contracts, the cost of operational errors and other activities for which we have indemnified our clients will be greater and may not be fully insured.
PERFORMANCE AND FIDUCIARY OBLIGATIONS UNDER CLIENT CONTRACTS; REVENUE RECOGNITION; SCOPE CREEP; RISING COST OF INSURANCE RESULTING FROM NEGLIGENCE CLAIMS; RESPONSIBILITY FOR SAFETY OF CONTRACTORS.
In certain cases, we are subject to fiduciary obligations to our clients, which may result in a higher level of legal obligation compared to basic contractual obligations. These relate to, among other matters, the decisions we make on behalf of a client with respect to managing assets on its behalf or purchasing products or services from third parties or other divisions within our Company. Our services may involve handling substantial amounts of client funds in connection with managing their properties or complicated and high-profile transactions. We face legal and reputational risks in the event we do not perform, or are perceived to have not performed, under those contracts or in accordance with those obligations, or in the event we are negligent in the handling of client funds or in the way in which we have delivered our professional services. The increased potential for the fraudulent diversion of funds from a "hacking" or "phishing" attack exacerbates these risks.
The precautions we take to prevent these types of occurrences, which represent a significant commitment of corporate resources, may nevertheless be ineffective in certain cases. Any increased or unexpected costs or unanticipated delays in connection with the performance of these engagements, including delays caused by factors outside our control, could have an adverse effect on profit margins.
If we perform services for clients beyond, or different from, what were originally contemplated in the governing contracts (known as "scope creep"), we may not be fully reimbursed for the services provided, realize our full compensation potential or our potential liability in the case of a negligence claim may not have been as limited as it normally would have been or may be unclear.
ABILITY TO CONTINUE TO MAINTAIN SATISFACTORY INTERNAL FINANCIAL REPORTING CONTROLS AND PROCEDURES.
If we are not able to continue to operate successfully under the requirements of Section 404 of the United States Sarbanes-Oxley Act of 2002, or if there is a failure of one or more controls over financial reporting due to fraud, improper execution or the failure of such controls to adjust adequately as our business evolves, then our reputation, financial results and the market price of our stock could suffer. We may be exposed to potential risks from this legislation, which requires companies to evaluate the effectiveness of their internal controls, and such internal control over financial reporting is subject to audit by their independent registered public accounting firm on an annual basis. We have evaluated our internal control over financial reporting as required for purposes of this Annual Report on Form 10-K for the year ended December 31, 2019. Our management concluded our internal control over financial reporting was effective as of December 31, 2019. Our independent registered public accounting firm has issued an unqualified opinion on the effectiveness of our internal control over financial reporting. However, there can be no assurance we will continue to receive an unqualified opinion in future years, particularly since standards continue to evolve and are not necessarily being applied consistently from one independent registered public accounting firm to another. If we identify one or more material weaknesses in our internal control over financial reporting in the future that we cannot remediate in a timely fashion, we may be unable to receive an unqualified opinion at some time in the future from our independent registered public accounting firm.
CORPORATE CONFLICTS OF INTEREST.
All providers of professional services to clients, including our Company, must manage potential conflicts of interest. This occurs principally where the primary duty of loyalty we owe to one client may potentially be weakened or compromised by a relationship we also maintain with another client or third party. Corporate conflicts of interest arise in the context of the services we provide as a company to our different clients. Personal conflicts of interest on the part of our employees are separately considered as issues within the context of our Code of Business Ethics. Our failure or inability to identify, disclose and resolve potential conflicts of interest in a significant situation could have a material adverse effect. In addition, it is possible that in some jurisdictions, regulations could be changed to limit our ability to act for certain parties where potential conflicts may exist even with informed consent, which could limit our market share in those markets. There can be no assurance potential conflicts of interest will not adversely affect us.
After reductions in the market values of the underlying properties, firms engaged in the business of providing valuations are inherently subject to a higher risk of claims with respect to conflicts of interest based on the circumstances of valuations they previously issued. Regardless of the ultimate merits of these claims, the allegations themselves can cause reputational damage and can be expensive to defend in terms of counsel fees and otherwise.
Strategic Risk Factors
Strategic risk relates to JLL’s future business plans and strategies, including the risks associated with: the global macro-environment in which we operate; mergers and acquisitions and restructuring activities; intellectual property; and other risks, including the demand for our services, competitive threats, technology and innovation, and public policy.
DISRUPTIVE TECHNOLOGIES, INNOVATION AND COMPETITION.
Mobile technologies and online collaboration tools are transforming how business gets done. Information technology has entered a “big data” era. The evolution of digital and information technology presents significant challenges for businesses and societies, which must find ways to capture the benefits of new technologies while dealing with the new threats those technologies present. Within the real estate services industry, managing big data is a critical competitive differentiator and we risk being surpassed if our peers leverage big data more effectively.
ABILITY TO PROTECT INTELLECTUAL PROPERTY; INFRINGEMENT OF THIRD-PARTY INTELLECTUAL PROPERTY RIGHTS.
Our business depends, in part, on our ability to identify and protect proprietary information and other intellectual property such as our service marks, domain names, client lists and information, business methods and technology innovations, and platforms we may create or acquire. Existing laws of some countries in which we provide or intend to provide services, or the extent to which their laws are actually enforced, may offer only limited protections of our intellectual property rights. We rely on a combination of trade secrets, confidentiality policies, non-disclosure and other contractual arrangements, and on patent, copyright and trademark laws to protect our intellectual property rights. In particular, we hold various trademarks and trade names, including our principal trade names, "JLL" and "LaSalle." If either of our registered trade names were to expire or terminate, our competitive position in certain markets could be materially and adversely affected. Our inability to detect unauthorized use (for example, by current or former employees) or take appropriate or timely steps to enforce our intellectual property rights may have an adverse effect on our business.
We cannot be sure the intellectual property we may use in the course of operating our business or the services we offer to clients do not infringe on the rights of third parties. Although, in order to mitigate the risk, we do obtain from the licensors representations and warranties, as well as indemnities, which they do not infringe. We may have infringement claims asserted against us or against our clients. These claims may harm our reputation, cost us money and prevent us from offering some services.
GENERAL ECONOMIC CONDITIONS AND REAL ESTATE MARKET CONDITIONS.
The success of our business is significantly related to general economic conditions. Further, our business and financial conditions correlate strongly to local, national and regional economic and political conditions or, at least, the perceptions of and confidence in those conditions.
We have previously experienced and expect in the future that we will be negatively impacted by periods of economic slowdown or recession and corresponding declines in the demand for real estate and related services. The global economic crisis during the 2007-2009 period was extraordinary for its worldwide scope, severity and impact on major financial institutions, as well as for the extent of governmental stimulus and regulatory responses. Since then, many of our markets have been affected generally by various economic uncertainties, among them: continued significant volatility in oil and commodity prices; the developing effects of climate change and severe weather; and the continued uncertainty on the direction of global tax policy.
In this environment, we have continued to grow our business largely by gaining market share and as the result of targeted acquisitions. It is inherently difficult for us to predict how these types of significant global forces will affect our business in the future and whether we will continue to be able to generate revenue growth to the same extent as we have in the past.
Negative economic conditions and declines in demand for real estate and related services in several markets or in significant markets could have a material adverse effect on our performance as a result of the following factors:
Decline in acquisition and disposition activity
Decline in real estate values and performance, leasing activity and rental rates
Decline in value of real estate securities
Cyclicality in the real estate markets; lag in recovery relative to broader markets
Effect of changes in non-real estate markets
POLITICAL AND ECONOMIC INSTABILITY AND TRANSPARENCY: PROTECTIONISM; TERRORIST ACTIVITIES; HEALTH EPIDEMICS.
Global events could affect our business. These include the possibility of protectionist economic policies of the United States or foreign governments, the escalation of terrorist attacks and their increasing unpredictability, health epidemics, changing immigration policies of the United States or foreign governments and the increasing globalization of our multinational clients, which creates pressure to further expand our own geographical reach into less developed countries.
We provide services in over 80 countries with varying degrees of political and economic stability and transparency. For example, within the past few years, certain emerging as well as mature countries in which we operate have experienced serious political and economic instability that will likely continue to arise from time to time. In recent years there have been significant political changes in several countries where we have significant operations, resulting in changes to financial, tax, tariffs, healthcare, governance, immigration and other laws that may directly affect our business and continue to evolve.
The withdrawal of the United Kingdom from the European Union on January 31, 2020 and the impact of the 2020 transition period as well as other aspects of the withdrawal may adversely affect business activity, political stability and economic conditions in the United Kingdom, the European Union and elsewhere. The economic conditions and outlook could be further adversely affected by (i) new or modified trading arrangements between the United Kingdom and other countries, (ii) the risk that one or more other European Union countries could come under increasing pressure to leave the European Union, or (iii) the risk the euro as the single currency of the Eurozone could cease to exist. Any of these developments, or the perception any of these developments are likely to occur, could significantly affect economic growth or business activity in the United Kingdom or the European Union, and could result in the relocation of businesses, cause business interruptions, lead to economic recession or depression, and impact the stability of the financial markets, availability of credit, currency exchange rates, interest rates, financial institutions, and political, financial and monetary systems. Any of these developments could affect our businesses, liquidity, results of operations and financial position.
Health epidemics that affect the general conduct of business in one or more urban areas (including as the result of travel restrictions and the inability to conduct face-to-face meetings), such as occurred in the past from influenza, or may occur in the future from other types of outbreak, can also adversely affect the volume of business transactions, real estate markets and the cost of operating real estate or providing real estate services.
REAL ESTATE SERVICES AND INVESTMENT MANAGEMENT MARKETS ARE HIGHLY COMPETITIVE.
We provide a broad range of commercial real estate and investment management services. There is significant competition on international, regional and local levels with respect to many of these services and in commercial real estate services generally. Depending on the service, we face competition from other real estate service providers, institutional lenders, insurance companies, investment banking firms, investment managers, accounting firms, technology firms, consulting firms, co-locating providers, temporary space providers and firms providing outsourcing of various types (including technology and building products), any of which may be a global, regional or local firm, and from firms that self-provide their real estate services with in-house capabilities.
Many of our competitors are local or regional firms. Although they may be substantially smaller in overall size than we are, they may be larger than we are in a specific local or regional market. Some of our competitors have expanded the services they offer in an attempt to gain additional business. Some may be providing outsourced facility management services to sell clients products that we do not offer. In some sectors of our business, particularly Corporate Solutions, some of our competitors may have greater financial, technical and marketing resources, larger customer bases, and more established relationships with their customers and suppliers than we have. Larger or better-capitalized competitors in those sectors may be able to respond faster to the need for technological change, price their services more aggressively, compete more effectively for skilled professionals, finance acquisitions more easily, develop innovative products more effectively, and generally compete more aggressively for market share. This can also lead to increasing commoditization of the services we provide and increasing downward pressure on the fees we can charge.
New competitors, or alliances among competitors that increase their ability to service clients, could emerge and gain market share, develop a lower cost structure, adopt more aggressive pricing policies, aggressively recruit our people at above-market compensation, develop a descriptive technology that captures market share, or provide services that gain greater market acceptance than the services we offer. Some of these may come from non-traditional sources, such as information aggregators or digital technology firms. To respond to increased competition and pricing pressure, we may have to lower our prices, loosen contractual terms (such as liability limitations), develop our own innovative approaches to mining data and using information, develop our own disruptive technologies, or increase compensation, which may have an adverse effect on our revenue and profit margins. We may also need to become increasingly productive and efficient in the way we deliver services, or with respect to the cost structure supporting our businesses, which may in turn require more innovative uses of technology as well as data gathering and data mining.
Our industry has continued to consolidate, and there is an inherent risk competitive firms may be more successful than we are at growing through merger and acquisition activity. While we have successfully grown organically and through a series of acquisitions, sourcing and completing acquisitions are complex and sensitive activities. Considering the continuing need to provide clients with more comprehensive services on a more productive and cost-efficient basis, we expect acquisition opportunities to continue to emerge. However, there is no assurance we will be able to continue our acquisition activity in the future at the same pace as we have in the past, particularly as we weigh acquisition opportunities against other potential uses of capital for technology and other investments in systems and human resources, as well as returning capital to shareholders.
Various factors may in some cases lead to a willingness on the part of a competitor to engage in aggressive pricing, advertising or hiring practices in order to maintain market share or client relationships. To the extent this occurs, it increases the competitive risks and the fee and compensation pressures we face, although ramifications will differ from one competitor to another given their different positions within the marketplace and their different financial situations.
We are substantially dependent on long-term client relationships and on revenue received for services under various service agreements. In this competitive market, if we are unable to maintain these relationships or are otherwise unable to retain existing clients and develop new clients, our business, results of operations and/or financial condition may be materially adversely affected. Weaknesses in the markets in which they themselves compete may lead to additional pricing pressure from clients as they themselves came under financial pressure.
THE SEASONALITY OF OUR REAL ESTATE SERVICES BUSINESS EXPOSES US TO RISKS.
Within our Real Estate Services business, our revenue and profits have historically grown progressively by quarter throughout the year mostly due to completing or documenting transactions by fiscal year-end and the fact that certain of our 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 co-investment equity gains or losses, each of which can be particularly unpredictable.
The seasonality of our business makes it difficult to determine during the course of the year whether planned results will be achieved, and thus to budget, and to adjust to changes in expectations. In addition, negative economic or other conditions that arise at a time when they impact performance in the fourth quarter, such as the particular timing of when larger transactions close or changes in the value of the U.S. dollar against other currencies occur, may have a more pronounced impact than if they occurred earlier in the year. To the extent we are not able to identify and adjust for changes in expectations, or we are confronted with negative conditions that disproportionately impact the fourth quarter of a calendar year, we could experience a material adverse effect on our financial performance.
Growth in our property management and integrated facilities management businesses and other services related to the growth of outsourcing of corporate real estate services has, to an extent, lessened the seasonality in our revenue and profits during the past few years. However, we believe some level of seasonality will always be inherent to our industry and outside of our control, as was the case in 2019.
RISKS INHERENT IN MAKING ACQUISITIONS AND ENTERING INTO JOINT VENTURES.
Historically, a significant component of our growth has been generated by acquisitions. Any future growth through acquisitions will depend in part on the continued availability of suitable acquisitions at favorable prices and with advantageous terms and conditions, which may not be available to us.
Acquisitions subject us to several significant risks, any of which may prevent us from realizing the anticipated benefits or synergies of the acquisition. The integration of companies is a complex and time-consuming process that could significantly disrupt the businesses of JLL and the acquired company such as: diversion of management attention, failure to identify certain liabilities and issues during the due diligence process, and the inability to retain personnel and clients of the acquired business. Since 2017, we intentionally reduced the pace of acquisitions to focus on the continued integration of companies we previously acquired. Notwithstanding that recent direction, we continue to look for outstanding acquisition opportunities, and on July 1, 2019 we completed the largest acquisition in our history by acquiring HFF, Inc.
To a much lesser degree, we have occasionally entered into joint ventures to conduct certain businesses or enter new geographies, and we will consider doing so in appropriate situations in the future. Joint ventures have many of the same risk characteristics as acquisitions, particularly with respect to the due diligence and ongoing relationship with joint venture partners, given each partner has inherently less control in a joint venture and will be subject to the authority and economics of the particular structure that is negotiated. Accordingly, we may not have the authority to direct the management and policies of the joint venture. If a joint venture participant acts contrary to our interests, it could harm our brand, business, results of operations and financial condition.
CO-INVESTMENT, INVESTMENT AND REAL ESTATE INVESTMENT BANKING ACTIVITIES.
An important part of our business strategy includes investing in real estate, both individually and along with our investment management clients. As of December 31, 2019, we have unfunded commitment obligations of up to $314.7 million to fund future co-investments. To remain competitive with well-capitalized financial services firms, we also may make merchant banking investments for which we may use our capital to acquire properties before the related investment management funds have been established or investment commitments have been received from third-party clients.
Certain service lines we operate have the acquisition, development, management and sale of real estate as part of their strategy. Investing in any of these types of situations exposes us to several risks.
Investing in real estate for the above reasons poses the following risks:
We may lose some or all the capital we invest if the investments underperform. Real estate investments can underperform as the result of many factors outside of our control, including the general reduction in asset values within a particular geography or asset class. Starting in 2007 and continuing through 2009, for example, real estate prices in many markets declined as the result of the significant tightening of credit markets and the effects of recessionary economies and significant unemployment. We had no notable impairment activity during the three years ended December 31, 2019. In contrast, as real estate investments benefited from favorable interest rate environments globally, and with continuing recovery in many of our markets, we recognized equity earnings, primarily from our co-investments, of $36.3 million, $32.8 million and $44.4 million for the years ended December 31, 2019, 2018, and 2017, respectively
We will have fluctuations in earnings and cash flow as we recognize gains or losses, and receive cash upon the disposition of investments, the timing of which is geared toward the benefit of our clients
We generally hold our investments in real estate through subsidiaries with limited liability; however, in certain circumstances, it is possible this limited exposure may be expanded in the future based on, among other things, changes in applicable laws. To the extent this occurs, our liability could exceed the amount we have invested
We make co-investments in real estate in many countries, and this presents tax, political/legislative, currency, and other risks as described elsewhere in this Item.
In certain situations, although they have been relatively limited historically, we raise funds from outside investors where we are the sponsor of real estate investments, developments, or projects. To the extent we return less than the investors' original investments because the investments, developments, or projects have underperformed relative to expectations, the investors could attempt to recoup the full amount of their investments under securities law theories such as lack of adequate disclosure when funds were initially raised. Sponsoring funds into which retail investors can invest, such as the investment funds sponsored by LaSalle, may increase this risk.
Legal and compliance risk relates to risks arising from the government and regulatory environment and action, and legal proceedings and compliance with integrity policies and procedures. Government and regulatory risks include the risk that government or regulatory actions will impose additional cost on us or cause us to have to change our business models or practices.
BURDEN OF COMPLYING WITH MULTIPLE AND POTENTIALLY CONFLICTING LAWS AND REGULATIONS AND DEALING WITH CHANGES IN LEGAL AND REGULATORY REQUIREMENTS.
We face a broad range of legal and regulatory environments in the countries in which we do business. Coordinating our activities to deal with these requirements presents significant challenges.
Changes in legal and regulatory requirements can impact our ability to engage in business in certain jurisdictions or increase the cost of doing so. The legal requirements of U.S. statutes may also conflict with local legal requirements in a particular country. Avoiding regulatory pitfalls as a result of conflicting laws will continue to be a key focus as non-U.S. statutory law and court decisions create more ambiguity. The jurisdictional reach of laws may be unclear as well, such as when laws in one country purport to regulate the behavior of our subsidiaries or affiliates operating in another country.
Identifying the regulations with which we must comply and then complying with them is complex. We may not be successful in complying with regulations in all situations, as a result of which we could be subject to regulatory actions and fines for non-compliance. We are also seeing increasing levels of labor regulation in emerging markets, such as China, which affect many of our businesses.
Our global operations must comply with all applicable anti-corruption laws, including the U.S. Foreign Corrupt Practices Act and the UK Bribery Act. These anti-corruption laws generally prohibit companies and their intermediaries from making improper payments or providing anything of value to improperly influence government officials or private individuals for the purpose of obtaining or retaining a business advantage. Such prohibitions exist regardless of whether those practices are legal or culturally expected in a particular jurisdiction. Although we have a compliance program in place designed to reduce the likelihood of potential violations of such laws, violations of these laws could result in criminal or civil sanctions and have an adverse effect on our reputation, business and results of operations and financial condition.
U.S. laws and regulations govern the provision of products and services to, and of other trade-related activities involving, certain targeted countries and parties. As a result, we have had longstanding policies and procedures to restrict or prohibit sales of our services into countries subject to embargoes and sanctions, or to countries designated as state sponsors of terrorism, such as Iran. In conjunction with such policies, we have also implemented certain procedures to evaluate whether existing or potential clients appear on the "Specially Designated Nationals and Blocked Persons List" maintained by OFAC.
Changes in governments or majority political parties may result in significant changes in enforcement priorities with respect to employment, health and safety, tax, securities disclosure and other regulations, which, in turn, could negatively affect our business.
LICENSING AND REGULATORY REQUIREMENTS.
The brokerage of real estate sales and leasing transactions; multifamily real estate lending; servicing and asset management; property management; construction; mobile engineering; conducting valuations; trading in securities for clients; and the operation of the investment advisory business, among other business lines, may require us to maintain licenses in various jurisdictions in which we operate and to comply with particular regulations. We believe licensing requirements, including protectionist policies which favor local firms over foreign firms, have generally been increasing in recent years. If we fail to maintain our licenses or conduct regulated activities without a license or in contravention of applicable regulations, we may be required to pay fines, return commissions or investment capital from investors or may have a given license suspended or revoked. Our acquisition activity increases these risks, because we must successfully transfer licenses of acquired entities and their staff, as appropriate. Licensing requirements may also preclude us from engaging in certain types of transactions or change the way in which we conduct business or the cost of doing so. In addition, because the size and scope of real estate sales transactions, the number of countries in which we operate or invest, and the areas we offer services have increased significantly during the past several years, both the difficulty of ensuring compliance with the numerous licensing regimes and the possible loss resulting from noncompliance, have increased.
With respect to our status as an approved lender for Fannie Mae, Freddie Mac and as a HUD-approved originator and issuer of Ginnie Mae securities (collectively the “Agencies”), we are required to comply with various eligibility criteria established by the Agencies, such as minimum net worth, operational liquidity and collateral requirements. In addition, we are required to originate and service loans in accordance with the applicable program requirements and guidelines established from time to time by the Agencies. Failure to comply with any of these program requirements may result in the termination or withdrawal of our approval to sell loans to the Agencies and service their loans.
To fund the Agency loans we originate, we require short-term funding capacity. As of December 31, 2019, we had $2,425.0 million of committed loan funding available through commercial banks. Consistent with industry practice, our existing warehouse facilities are short-term, requiring annual renewal. Although we believe our current warehouse facilities are sufficient to meet our current needs in connection with our participation in the Agency programs, in the event any of our warehouse lines are terminated or are not renewed, we may be unable to find replacement financing on favorable terms, or at all, and we might not be able to originate loans.
The regulatory environment facing the investment management industry has also grown significantly more complex in recent years. Countries are expanding the criteria requiring registration of investment advisors and funds, whether based in their country or not, and expanding the rules applicable to those that are registered, all to provide more protection to investors located within their countries. In some cases, rules from different countries are applicable to more than one of our investment advisory businesses and can conflict with those of their home countries. Although we believe we have good processes, policies and controls in place to address the new requirements, these additional registrations and increasingly complex rules increase the possibility violations may occur.
These risks also apply separately to the LaSalle-managed real estate investment trust we launched during 2012. That entity has registered the securities it is issuing with the SEC in the United States and is subject to regulation as a public company, albeit not one separately listed on a stock exchange.
Laws and regulations applicable to our business, both in the United States and in other countries, may change in ways that materially increase the costs of compliance. Particularly in emerging markets, there can be relatively less transparency around the standards and conditions under which licenses are granted, maintained, or renewed. It also may be difficult to defend against the arbitrary revocation of a license in a jurisdiction where the rule of law is less well developed.
As a licensed real estate service provider and advisor in various jurisdictions, we and our licensed employees may be subject to various due diligence, disclosure, standard-of-care, anti-money laundering and other obligations in the jurisdictions in which we operate. Failure to fulfill these obligations could subject us to litigation from parties who purchased, sold, or leased properties we brokered or managed, or who invested in our funds. We could become subject to claims by participants in real estate sales or other services claiming we did not fulfill our obligations as a service provider or broker. This may include claims with respect to conflicts of interest where we are acting, or are perceived to be acting, for two or more clients with potentially contrary interests.
POTENTIALLY ADVERSE TAX CONSEQUENCES; CHANGES IN TAX LEGISLATION, REGULATION AND TAX RATES.
We face a variety of risks of increased future taxation on our earnings as a corporate taxpayer in the countries in which we have operations. Moving funds between countries can produce adverse tax consequences. In addition, as our operations are global, we face challenges in effectively gaining a tax benefit for costs incurred in one country that benefit our operations in other countries.
Changes in tax legislation or tax rates may occur in one or more jurisdictions in which we operate that may materially impact the cost of operating our business. In December 2017, the U.S. government enacted comprehensive federal tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Act"). The Act included new limitations on business-related deductions and could increase the taxation of foreign earnings in the U.S., which could increase our future tax expense.
In addition, the potential exists for significant legislative policy change in the taxation of multinational corporations, as has recently been the subject of the Base Erosion and Profit Shifting project of the Organization for Economic Co-operation and Development, the European Union Anti-Tax Avoidance Directives, and legislation inspired or required by those initiatives. It is also possible that some governments will make significant changes to their tax policies in response to factors such as budgetary needs, feedback from the business community and the public view on applicable tax planning activities. Further, interpretations of existing tax law in various countries may change due to the regulatory and examination policies of the tax authorities and the decisions of courts.
We face such risks both in our own business and in the investment funds LaSalle operates. Adverse or unanticipated tax consequences to the funds can negatively impact fund performance, incentive fees and the value of co-investments we have made. We are uncertain as to the ultimate results of these potential changes or what their effects will be on our business.
ENVIRONMENTAL LIABILITIES AND REGULATIONS; CLIMATE CHANGE RISKS; AND AIR QUALITY RISKS.
Our operations are affected by federal, state and/or local environmental laws in the countries in which we operate, and we may face liability with respect to environmental issues occurring at properties we manage or occupy, or in which we invest. We may face costs or liabilities under these laws as a result of our role as an on-site property manager or a manager of construction projects. Our risks for such liabilities may increase as we expand our services to include more industrial and/or manufacturing facilities than has been the case in the past, or with respect to our co-investments in real estate as discussed above. Within our own operations, we face additional costs from rising energy costs which make it more expensive to power our corporate offices.
The impact of climate change presents a significant risk. Damage to assets caused by extreme weather events linked to climate change is becoming more evident, highlighting the fragility of global infrastructure. We also anticipate the potential effects of climate change will increasingly impact our own operations and those of client properties we manage, especially when they are in coastal cities.
We anticipate the potential effects of climate change will increasingly impact the decisions and analysis LaSalle makes with respect to the properties it considers for acquisition on behalf of clients, since climate change considerations can impact the relative desirability of locations and the cost of operating and insuring acquired properties. Future legislation that requires specific performance levels for building operations could make non-compliant buildings obsolete, which could materially affect investments in properties we have made on behalf of clients, including those in which we may have co-invested. Climate change considerations will likely also increasingly be part of the consulting work JLL does for clients to the extent it is relevant to the decisions our clients are seeking to make.
Around the world, many countries are enacting stricter regulations to protect the environment and preserve their natural resources. Firms also may face several layers of national and regional regulations. In Europe, the EU’s Environmental Liability Directive establishes a comprehensive liability standard, but individual EU countries may have stricter regulations. The risks may not be limited to fines and the costs of remediation. In Brazil, employees can risk jail sentences as well as fines in connection with pollution incidents. In April 2014, China passed the biggest changes to its environmental protection laws in 25 years, outlining plans to punish polluters more severely as leaders work to limit contaminated water, air and soil linked to economic growth and public health.
Declining air quality in major cities may have consequences for our business in various ways, including the need to respond to new regulations that affect the management of buildings, declines in the desire of investors or corporates to invest in or occupy properties in such cities, and our ability to retain staff in locations that may be relatively undesirable as places to live.
Financial risk relates to our ability to meet financial obligations and mitigate exposure to broad market risks, including volatility in foreign currency exchange rates and interest rates; credit risk; and liquidity risk, including risk related to our credit ratings and our availability and cost of funding.
DOWNGRADES IN OUR CREDIT RATINGS COULD INCREASE OUR BORROWING COSTS OR REDUCE OUR ACCESS TO FUNDING SOURCES IN THE CREDIT AND CAPITAL MARKETS.
We are currently assigned corporate credit ratings from Moody's and S&P based on their evaluation of our creditworthiness. As of the date of this filing, our debt ratings remain investment grade, but there can be no assurance we will not be downgraded or that any of our ratings will remain investment grade in the future. If our credit ratings are downgraded or other negative action is taken, we could be required, among other things, to pay additional interest on certain of our senior notes. Credit rating reductions by one or more rating agencies could also adversely affect our access to funding sources, the cost and other terms of obtaining funding as well as our overall financial condition, operating results and cash flow.
VOLATILITY IN TRANSACTIONAL-BASED REVENUE.
LaSalle's portfolio is of sufficient size to periodically generate large incentive fees and equity gains (losses) that significantly influence our earnings and the changes in earnings from one year to the next. Volatility in this component of our earnings is inevitable due to the nature of this aspect of our business, and the amount of incentive fees or equity earnings or losses we may recognize in future quarters is inherently unpredictable and relates to client needs, the market and other dynamics in effect at the time.
Where incentive fees on a given transaction or portfolio are particularly large, certain clients have attempted to renegotiate fees even though contractually obligated to pay them, and we expect this to occur from time to time in the future. Our efforts to collect our fees in these situations may lead to significant legal fees and/or significant delays in collection due to extended negotiations, arbitration or litigation.
We have business lines other than LaSalle that also generate fees based on the timing, size and pricing of closed transactions, and these fees may significantly contribute to our earnings and to changes in earnings from one quarter or year to the next. Volatility in this component of our earnings is inevitable due to the nature of these businesses and the amount of the fees we will recognize in future quarters is inherently unpredictable.
CURRENCY RESTRICTIONS AND EXCHANGE RATE FLUCTUATIONS.
We produce positive cash flows in various countries and currencies that can be most effectively used to fund operations in other countries or to repay our indebtedness, which is currently primarily denominated in U.S. dollars and euros. We face 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. We also face risks associated with fluctuations in currency exchange rates that may lead to a decline in the value of the funds earned in certain jurisdictions.
Although we operate globally, we report our results in U.S. dollars, and thus our reported results are impacted by the strengthening or weakening of currencies against the U.S. dollar. As an example, the euro and the pound sterling, each a currency used in a significant portion of our operations, have fluctuated notably in recent years. Our revenue from outside of the United States approximated 44% and 48% of our total revenue for 2019 and 2018, respectively. In addition to the potential negative impact on reported earnings, fluctuations in currencies relative to the U.S. dollar may make it more difficult to perform period-to-period comparisons of the reported results of operations.
We are authorized to use currency-hedging instruments, including foreign currency forward contracts, purchased currency options and borrowings in foreign currency. There can be no assurance hedging will be economically effective. We do not use hedging instruments for speculative purposes.
As currency forward and option contracts are generally conducted off-exchange or over-the-counter ("OTC"), many of the safeguards accorded to participants on organized exchanges, such as the performance guarantee of an exchange clearing house, are generally unavailable in connection with OTC transactions. In addition, there can be no guarantee the counterparty will fulfill its obligations under the contractual agreement, especially in the event of a bankruptcy or insolvency of the counterparty, which would effectively leave us unhedged.
INCREASING FINANCIAL RISK OF COUNTERPARTIES, INCLUDING REFINANCING RISK.
Unprecedented disruptions and dynamic changes in the financial markets, and particularly insofar as they have led to major changes in the status and creditworthiness of some of the world's largest banks, investment banks and insurance companies, among others, have generally increased the counterparty risk to us from a financial standpoint, including with respect to:
Obtaining new credit commitments from lenders
Refinancing credit commitments or loans that have terminated or matured according to their terms, including funds sponsored by our LaSalle which use leverage in the ordinary course of their investment activities
Engaging in hedging transactions
Maintaining cash deposits or other investments, both our own and those we hold for the benefit of clients, which are generally much larger than the maximum amount of government-sponsored deposit insurance in effect for a particular account
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
Our principal corporate holding company headquarters are located at 200 East Randolph Drive, Chicago, Illinois, where we currently occupy over 165,000 square feet of office space under a lease that expires in May 2032. Our regional headquarters for our Americas, EMEA and Asia Pacific businesses are located in Chicago, London and Singapore, respectively. We have 339 corporate offices worldwide located in most major cities and metropolitan areas as follows: 189 offices in 9 countries in the Americas (including 170 in the United States), 80 offices in 26 countries in EMEA, and 70 offices in 16 countries in Asia Pacific. In addition, we have on-site property and corporate offices located throughout the world. On-site property and facility management offices are generally located within properties we manage and are provided to us without cost.
ITEM 3. LEGAL PROCEEDINGS
We have contingent liabilities from various pending claims and litigation matters arising in the ordinary course of business, some of which involve claims for damages that are substantial in amount. Many of these matters are covered by insurance (including insurance provided through a captive insurance company), although they may nevertheless be subject to large deductibles or retentions, and the amounts being claimed may exceed the available insurance. Although the ultimate liability for these matters cannot be determined, based upon information currently available, we believe the ultimate resolution of such claims and litigation will not have a material adverse effect on our financial position, results of operations, or liquidity.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed for trading on the NYSE under the symbol "JLL." As of February 13, 2020, there were 500 shareholders of record of our common stock and more than 74,000 additional street name holders whose shares were held of record by banks, brokers and other financial institutions.
On December 13, 2019, we paid a semi-annual dividend of $0.43 per share of our common stock to holders of record at the close of business on November 15, 2019. We also paid a cash dividend of $0.43 per share of its common stock on June 14, 2019, to holders of record at the close of business on May 17, 2019. Dividend-equivalents in the same amounts were also paid simultaneously on eligible outstanding but unvested restricted stock units.
We paid our first cash dividend in October 14, 2005, and have paid semi-annual dividends each year since 2006. There can be no assurance future dividends will be declared since the actual declaration of future dividends and the establishment of record and payment dates remains subject to final determination by our Board of Directors.
We have made no share repurchases under our share repurchase program in 2019 or 2018.
P.O. Box 505000
Louisville, KY 40233
Equity Compensation Plan Information
For information regarding our equity compensation plans, including both shareholder approved plans and plans not approved by shareholders, see Part III, Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.
The following graph compares the cumulative 5-year total return to shareholders of JLL's common stock relative to the cumulative total returns of the S&P 500 Index, and a customized peer group comprising: 1) CBRE Group Inc. (CBRE), a global commercial real estate services company publicly traded in the U.S., 2) Cushman & Wakefield plc (CWK), a global commercial real estate services company publicly traded in the U.S., 3) Colliers International Group Inc. (CIGI), a global commercial real estate services company, traded in the U.S., and 4) Savills Plc. (SVS.L), a real estate services company traded on the London Stock Exchange. With the exception of Cushman & Wakefield, the following graph assumes the value of the investment in JLL's common stock, the S&P 500 Index, and the peer group (including reinvestment of dividends) was $100 on December 31, 2014. For Cushman & Wakefield, the $100 is assumed to be invested on August 2, 2018, the date of their initial public offering.
The following table sets forth our summary historical consolidated financial data. The information should be read in conjunction with Item 8. Financial Statements and Supplemental Data and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Year Ended December 31,
($ in millions, except share and per share data)
Statements of Operations Data:
Interest expense, net of interest income
Income before provision for income taxes and noncontrolling interest
Provision for income taxes
Net income attributable to noncontrolling interest
Net income attributable to the Company
Dividends on unvested common stock, net of tax
Net income attributable to common shareholders
Basic earnings per common share before dividends on unvested common stock
Dividends on unvested common stock, net of tax
Basic earnings per common share
Basic weighted average shares outstanding (in 000's)
Diluted earnings per common share dividends on unvested common stock
Dividends on unvested common stock, net of tax
Diluted earnings per common share
Diluted weighted average shares outstanding (in 000's)
($ in millions, except ratios and Assets under management)
Cash flows provided by (used in):
Assets under management (in billions) (3)
Total square feet under management
Balance Sheet Data:
Cash and cash equivalents
Total debt (4)
Deferred business acquisition obligations (5)
Total Company shareholders' equity
(1) Effective January 1, 2018 revenue has been accounted for in accordance with ASC Topic 606, Revenue from Contracts with Customers. While revenue in 2017 and 2016 has been re-stated in accordance with the new accounting guidance to align with re-stated periods on our Consolidated Statements of Comprehensive income, re-statement of 2015 was not required.
(2) We define EBITDA attributable to common shareholders ("EBITDA") as Net income attributable to common shareholders before (i) Interest expense, net of interest income, (ii) Provision for income taxes, and (iii) Depreciation and amortization. Although EBITDA is a non-GAAP financial measure, it is used extensively by management in normal business operations to develop budgets and forecasts as well as measure and reward performance against those budgets and forecasts, exclusive of the impact from capital expenditures, reflected through depreciation expense, along with other components of our capital structure. EBITDA is believed to be useful to investors and other external stakeholders as a supplemental measure of performance and is used in the calculation of certain covenants related to our revolving credit facility. However, this measure should not be considered an alternative to net income determined in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). Any measure that eliminates components of a company's capital and investment structure as well as costs associated with operations has limitations as a performance measure. In light of these limitations, management also considers results determined in accordance with U.S. GAAP and does not solely rely on EBITDA. Because EBITDA is not calculated under U.S. GAAP, it may not be comparable to similarly titled measures used by other companies.
Below is a reconciliation of our Net income attributable to common shareholders to EBITDA as presented in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Below is a reconciliation of our net cash provided by operating activities, the most comparable cash flow measure on the statements of cash flows, to EBITDA.
Year Ended December 31,
($ in millions)
Net cash provided by operating activities
Interest expense, net of interest income
Provision for income taxes
Change in working capital and non-cash expenses
(3) Assets under management represent the aggregate fair value or cost basis (where an appraisal is not available) of assets managed by LaSalle and is reported on a one quarter lag.
(4) Total debt includes long-term borrowings under the Facility and Long-term senior notes (net of debt issuance costs) and Short-term borrowings, primarily local overdraft facilities.
(5) Deferred business acquisition obligations include both the short-term and long-term obligations to sellers of business for acquisitions closed as of December 31, 2019, with the only condition on these payments being the passage of time. We include these obligations as debt in the calculation of our leverage ratio under the Facility.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 our 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 after Part IV, Item 15. Exhibits and Financial Statement Schedules.
We present our 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;
(3) Certain market and other risks we face;
(4) The results of our operations, first on a consolidated basis and then for each of our business segments; and
(5) 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. The preparation of our financial statements requires management to make certain critical accounting estimates and judgments that impact (i) the stated amount of assets and liabilities, (ii) disclosure of contingent assets and liabilities as of the date of the financial statements and (iii) the reported amounts 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 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 may differ from such estimated amounts, we believe such differences are not likely to be material. For additional detail regarding our critical accounting policies and estimates discussed below, see Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements, included in Item 8.
Our services are generally earned and billed in the form of transaction commissions, advisory and management fees, and incentive fees. Some of the contractual terms related to the services we provide, and thus the revenue we recognize, can be complex and so requires us to make judgments about our performance obligations and the timing and extent of revenue to recognize. In addition, a significant portion of our revenue represents the reimbursement of costs we incur on behalf of clients.
Business Combinations, Goodwill and Other Intangible Assets
Historically we have grown, in part, through a series of acquisitions. We account for business combinations using the acquisition method of accounting, which requires that once control is obtained, all of the assets acquired and liabilities assumed, including amounts attributable to noncontrolling interests, be recorded at their respective fair values as of the acquisition date. Determination of the fair values of the assets and liabilities acquired requires estimates and the use of valuation techniques when market values are not readily available.
For intangible assets, we generally use the income approach to determine fair value, which requires management to make significant estimates and assumptions. These estimates and assumptions primarily include discount rates, terminal growth rates, forecasts of revenue, operating income and capital expenditures. The discount rates reflect the risk factors, from the perspective of a market participant, associated with forecasts of cash flows.
In addition, terms for our acquisitions have frequently included cash paid at closing along with provisions for additional guaranteed future consideration and/or earn-out payments subject to certain contract provisions and performance. The additional guaranteed consideration, recorded as deferred business acquisition obligations on the Consolidated Balance Sheets, represents the current discounted value of payments to sellers of businesses for which our acquisition has closed as of the balance sheet dates and for which the only remaining condition on those payments is the passage of time.
Payment of earn-out consideration related to these acquisitions is contingent upon certain conditions being met. Earn-out liabilities are recorded at the acquisition date fair value. Adjustments to earn-out liabilities during the measurement period related to information known or available as of the acquisition date are reflected within Goodwill in the Consolidated Balance Sheets. Adjustments to earn-out liabilities in periods subsequent to the measurement period or related to information known or available after the acquisition date are reflected within Restructuring and acquisition charges on the Consolidated Statements of Comprehensive Income.
Although we believe our estimates of fair value are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on the determination of the fair value of the identified intangible assets acquired. Judgment is also required in determining the useful life of a finite-lived intangible asset.
Goodwill and Other Intangible Assets
Consistent with the services nature of the businesses we have acquired, the largest asset on the Consolidated Balance Sheets is goodwill. We do not amortize this goodwill; instead, we evaluate goodwill for impairment at least annually, or as events or changes in circumstances indicate the carrying value may be impaired.
In addition, we may record intangible assets as a result of acquisitions, which are primarily composed of customer relationships, management contracts and customer backlog, and are amortized on a straight-line basis over their estimated useful lives. We establish an intangible upon the sale of a warehouse receivable concurrent with the retention of its servicing rights and amortize the intangible over the estimated period net servicing income is projected to be received. We evaluate our identified intangibles for impairment at least annually, or as events or changes in circumstances indicate the carrying value may be impaired.
Investments in Real Estate Ventures
We invest in certain real estate ventures that primarily own and operate commercial real estate. Historically, these investments have primarily been co-investments in funds that LaSalle establishes in the ordinary course of business for its clients. These investments include non-controlling ownership interests generally ranging from less than 1% to 10% of the respective ventures. We account for these investments at fair value or under the equity method of accounting. Where applicable, we estimate fair value using the net asset value ("NAV") per share (or its equivalent) our investees provide. Critical inputs to NAV estimates include valuations of the underlying real estate assets and borrowings, which incorporate investment-specific assumptions such as discount rates, capitalization rates, rental and expense growth rates, and asset-specific market borrowing rates. For Investments in real estate ventures reported at fair value, our investment is increased or decreased each reporting period by the difference between the fair value of the investment and the carrying value as of the balance sheet date. We reflect these fair value adjustments as gains or losses on the Consolidated Statements of Comprehensive Income within Equity earnings.
We account for income taxes under the asset and liability method. We recognize deferred tax assets and liabilities for the expected future tax consequences attributable to (i) differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and (ii) operating loss and tax credit carryforwards. We measure deferred tax assets and liabilities using the enacted tax rates expected to apply to taxable income in the years in which we expect those temporary differences to be recovered or settled. We recognize into income the effect on deferred tax assets and liabilities of a change in tax rates in the period including the enactment date.
Because of the global and cross-border nature of our business, our corporate tax position is complex. We generally provide for taxes in each tax jurisdiction in which we operate based on local tax regulations and rules. Such taxes are provided on net earnings and include the provision for taxes on substantively all differences between financial statement amounts and amounts used in tax returns, excluding certain non-deductible items and permanent differences.
Our global effective tax rate is sensitive to the complexity of our operations as well as to changes in the mix of our geographic profitability. Local statutory tax rates range from 0% to 38.1% in the countries in which we have significant operations. 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.
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.
Our effective tax rates are presented in the following table. In addition, we present the rate excluding the provisional estimate and subsequent changes to that estimate relating to the transition tax component of the U.S. tax legislation passed in December 2017 commonly known as the Tax Cuts and Jobs Act ("the Act").
For the year ended December 31,
Effective tax rate
Effective tax rate excluding the impact of the transition tax
Very low tax rate jurisdictions (those with effective national and local combined tax rates of 25% or lower) providing the most significant contributions to our effective tax rate include: Hong Kong (16.5%), Singapore (17%), the United Kingdom (19%) and Saudi Arabia (20%).
Based on our historical experience and future business plans, we do not expect to repatriate our foreign source earnings to the U.S. As of December 31, 2019, we have therefore not provided for withholding tax, dividend distribution tax, capital gains taxes, or other taxes which could arise upon such distribution. We believe our policy of permanently reinvesting earnings of foreign subsidiaries does not significantly impact our liquidity.
We have established valuation allowances against deferred tax assets where expected future taxable income does not support their realization on a more-likely-than-not basis. We formally assess the likelihood of being able to utilize current tax losses in the future on a country-by-country basis, commensurate with the determination of each quarter’s income tax provision. We establish or increase valuation allowances upon specific indications the carrying value of a tax asset may not be recoverable. Alternatively, we reduce valuation allowances upon (i) specific indications the carrying value of the related tax asset is more-likely-than-not recoverable or (ii) the implementation of tax planning strategies which allow an asset we previously determined to be not realizable to be viewed as realizable.
The table below summarizes certain information regarding the gross deferred tax assets and valuation allowance.
($ in millions)
Gross deferred tax assets
The increase in gross deferred tax assets in 2019 was primarily the result of increases in deferred compensation accruals.
We evaluate our segment operating performance before tax, and do not consider it meaningful to allocate tax by segment. Estimations and judgments relevant to the determination of tax expense, assets, and liabilities require analysis of the tax environment and the future profitability, for tax purposes, of local statutory legal entities rather than business segments. Our statutory legal entity structure generally does not mirror the way we organize, manage, and report our business operations. For example, the same legal entity may include both LaSalle and RES businesses in a particular country.
As of December 31, 2019, the amount of unrecognized tax benefits was $78.2 million. We believe it is reasonably possible that matters for which we have recorded $32.0 million of unrecognized tax benefits as of December 31, 2019, will be resolved during 2020. The recognition of tax benefits, and other changes to the amounts of our unrecognized tax benefits, may occur as the result of ongoing operations, the outcomes of audits or other examinations by tax authorities, or the passing of statutes of limitations. We do not expect changes to our unrecognized tax benefits to have a significant impact on net income, the financial position, or the cash flows of JLL. We do not believe we have material tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.
NEW ACCOUNTING STANDARDS
Refer to Note 2, Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements, included in Item 8.
Our results of operations and the variability of these results are significantly influenced by (i) macroeconomic trends, (ii) the geopolitical environment, (iii) the global and regional real estate markets and (iv) 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.
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.
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: (i) gains (losses) on investments reported at fair value, (ii) gains (losses) on asset dispositions and (iii) impairment charges. The timing of recognition of these items may impact comparability between quarters, in any one year, or compared to a prior year.
The comparability of these items can be seen in Note 3, Business Segments, of the Notes to Consolidated Financial Statements, included in Item 8, and is discussed further in Segment Operating Results included herein.
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 rate of growth or decline that might not have been consistent with the real underlying rate of growth or decline 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 fees, that are impacted by the size and timing of our clients' transactions, from capital markets activities, leasing activities and other services within our RES business, 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 segment-to-segment.
The principal market risks we face due to the risk of loss arising from adverse changes in market rates and prices are:
•Interest rates on our unsecured credit facility (the "Facility"); and
•Foreign exchange risks.
In the normal course of business, we manage these risks through a variety of strategies, including hedging transactions using various derivative financial instruments such as foreign currency forward contracts. We enter into derivative instruments that are short-term in duration with high credit-quality counterparties and diversify our positions across such counterparties in order to reduce our exposure to credit losses. We do not enter into derivative transactions for trading or speculative purposes.
We centrally manage our debt, considering investment opportunities and risks, tax consequences, and overall financing strategies. Our overall interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. We are primarily exposed to interest rate risk on our Facility, which had a borrowing capacity of $2.75 billion as of December 31, 2019. The Facility consists of revolving credit available for working capital, investments, capital expenditures and acquisitions. Our average outstanding borrowings under the Facility during 2019 were $851.6 million, with an effective interest rate of 3.0%. We had $525.0 million of outstanding borrowings under the Facility as of December 31, 2019. The Facility bears a variable rate of interest that fluctuates based on market rates.
Our Notes, $275.0 million face value due in November 2022, bear interest at an annual rate of 4.4%, subject to adjustment if a credit rating assigned to the Notes is downgraded below an investment grade rating (or subsequently upgraded). Our €350.0 million face value of Euro Notes is split between €175.0 million due in June 2027 and €175.0 million due in June 2029, bearing interest at an annual rate of 1.96% and 2.21%, respectively. The issuance of the Notes and Euro Notes at fixed interest rates has helped to limit our exposure to future movements in interest rates.
We assess interest rate sensitivity to estimate the potential effect of rising interest rates on our variable rate debt. If interest rates were 50 basis points higher during 2019, our results would reflect an increase of $4.3 million to Interest expense, net of interest income.
Foreign exchange risk is the risk we will incur economic losses due to adverse changes in foreign currency exchange rates. Our revenue from outside of the U.S. approximated 44% and 48% of our total revenue for 2019 and 2018, respectively, as outlined in the table below. Operating in international markets means we are exposed to movements in foreign exchange rates, most significantly the British pound and the euro.
We mitigate our foreign currency exchange risk principally by (i) establishing local operations in the markets we serve and (ii) invoicing customers in the same currency as the source of the costs. The impact of translating expenses incurred in foreign currencies into U.S. dollars reduces the impact of translating revenue earned in foreign currencies into U.S. dollars. In addition, British pound and Singapore dollar expenses incurred as a result of our regional headquarters being located in London and Singapore, respectively, act as ongoing partial operational hedges against our translation exposures to those currencies.
We enter into forward foreign currency exchange contracts to manage currency risks associated with intercompany loan balances. Generally, the maturity of these contracts is less than 60 days. As of December 31, 2019, we had forward exchange contracts in effect with a gross notional value of $2.30 billion ($1.05 billion on a net basis). This net carrying gain is generally offset by a carrying loss in associated intercompany loans.
Although we operate globally, we report our results in U.S. dollars. As a result, the strengthening or weakening of the U.S. dollar in relation to currencies we are exposed to may positively or negatively impact our reported results. The following table sets forth the revenue derived from our most significant currencies.
Year Ended December 31,
($ in millions)
% of Total
% of Total
United States dollar
Hong Kong dollar
Had the British pound-to-U.S. dollar exchange rates been 10% higher throughout the course of 2019, we estimate our reported operating income would have increased by $3.9 million. Had euro-to-U.S. dollar exchange rates been 10% higher throughout the course of 2019, we estimate our reported operating income would have increased by $10.2 million. These hypothetical calculations estimate the impact of translating results into U.S. dollars and do not include an estimate of the impact a 10% increase in the U.S. dollar against other currencies would have on our foreign operations.
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 underlying valuations, 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.
Our operating expenses fluctuate with our revenue and general economic conditions including inflation. However, we do not believe inflation has had a material impact on our results of operations during the three-year period ended December 31, 2019.
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 the U.S. dollar equivalent value of 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.
Year Ended December 31, 2019 compared with Year Ended December 31, 2018