2014 Performance

JLL delivered overall excellent performance for 2014. The Company’s full year 2014 fee revenue reached a record $4.7 billion, an 18% increase over 2013. It reduced total net debt to $163 million from $437 million last year. This is the third consecutive year that the Company has reduced debt by more than $100 million while it continued to invest in the business and also increased its dividend. The Company reported GAAP net income of $386 million for the year, compared to $269 million in 2013, a 44% increase. Adjusting for the effect of restructuring and acquisition charges primarily associated with the King Sturge acquisition, its adjusted net income of $393 million was 37% higher than its adjusted net income in 2013 and 60% higher than 2012.

Each of the three Real Estate Services operating segments contributed to the results by increasing both its revenue and its operating income over the prior year.

  • Fee revenue for the Americas was $2.1 billion, an increase of 18% from 2013. Capital Markets & Hotels revenue increased 22%, driven by increases in real estate investment banking and multi family investment sales, as well as record performance in Hotels transactions. Project & Development Services revenue increased 20%, due to new client contract wins and expansions of existing relationships, driving growth in our Real Estate Services businesses. Leasing revenue grew 19%, reflecting out performance against market volumes in terms of gross absorption, which declined in the U.S. in 2014 as separately reported by JLL Research. Property & Facility Management fee revenue increased 13%, also driven by new client wins and expansions of existing relationships. Operating income was $219 million for 2014, compared with $184 million in 2013, and operating income margin calculated on a fee revenue basis was 10.4% for 2014 compared with 10.2% for 2013.
  • EMEA’s full year fee revenue was $1.3 billion, an increase of 17% from 2013. Capital Markets & Hotels revenue increased 23% in local currency, in line with market investment volume increases of approximately 25% as separate reported by JLL Research, with revenue increases driven by the U.K., Germany, France and Sweden. Property & Facility Management fee revenue increased 21% and Project & Development Services fee revenue increased 18%, each due to business wins from European multinationals and expansions of our Tetris fit out business. Leasing revenue grew 9%, in line with market volumes that increased by approximately 6% in Europe in 2014 as separately reported by JLL Research. Adjusted operating income, which excludes King Sturge amortization, was $123 million for the year, compared with $92 million in 2013. Adjusted EBITDA was $145 million for the year, compared with $110 million last year. Adjusted EBITDA margin calculated on a fee revenue basis was 11% for the year, compared with 9.8% in 2013.
  • Asia Pacific fee revenue grew to $909 million in 2014, an increase of 11% in local currency from 2013. Leasing fee revenue increased 23%, outperforming market volumes of 16% higher gross absorption in 2014 as separately reported by JLL Research. Property & Facility Management fee revenue increased 14%, with demand for services continuing to grow with increases in both the quality of property inventory in the region and in outsourcing by Asian companies. Capital Markets & Hotels revenue decreased 10% following a 54% increase in the prior year, but was up 5% in the fourth quarter. Operating income margin calculated on a fee revenue basis increased to 9.3% for 2014 from 9.1% in 2013.

LaSalle, our investment management business that constitutes our fourth operating segment, posted total revenue for 2014 of $415 million, up 46% in local currency from 2013. Advisory fees were $236 million for 2014, a 5% local currency increase from 2013. The movement in advisory fees was the result of adding new mandates and real estate funds, partially offset by portfolio sales. Equity earnings for the year ended December 31, 2014 were $47 million, a 51% increase in local currency as compared with the year ended December 31, 2013, driven by gains from disposition activity and from increases in asset values. Operating income was $132 million for the year ended December 31, 2014, resulting in an operating income margin of 31.8%, compared with $67.9 million and an operating income margin of 23.7% for the year ended December 31, 2013. In 2014, LaSalle’s capital raising momentum continued with $8.9 billion in equity commitments obtained during the year. Assets under management were $53.6 billion as of December 31, 2014, compared with $47.6 billion at December 31, 2013.

During 2014, JLL continued to win numerous awards that reflected the quality of the services it provides to our clients, the integrity of its people and its desirability as a place to work, including awards recognizing its (1) superior service to clients, (2) ethics program, (3) outsourcing capabilities, (4) consultancy capabilities, (5) “best place to work” environment and (6) environmental and energy management work for clients.

The following table illustrates the three year relationship between company performance and the compensation of our President and Chief Executive Officer. As indicated by the year over year percentage increase, CEO compensation has grown more slowly than the overall growth of the business as represented by basic earnings per share and adjusted net income. We selected earnings per share and adjusted net income because of their high correlation with creating shareholder value.

1) To determine the compensation of Named Executive Officers, the Committee has established a process that uses a variation of disclosed adjusted net income (as indicated above) that adjusts for significant restructuring charges only.

(2) Represents total direct compensation earned for year indicated, which will be different from the Summary Compensation Table for certain timing reasons indicated in the notes to the Table.

Return to shareholders

Total shareholder return for 2014, including the reinvestment of dividends, was 47%. JLL has consistently delivered value to shareholders over the past 5 years, with an annualized return of 24% versus an S&P 500 return of 16%, both with the reinvestment of dividends. A $1,000 investment in JLL’s common stock on December 31, 2009 would have grown more than a similar investment in the S&P 500 index, in each case with the reinvestment of dividends.

Highlights of compensation committee actions

The Summary Compensation Table indicates the specific amounts we paid to the Named Executive Officers in respect of their 2014 performance. Highlights from the decisions the Committee made with respect to their 2014 compensation include the following:

Base salaries

  • No increase to base salaries in local currencies in 2014. We have not raised base salaries in local currencies for over five years.

Annual incentives

  • The Committee determined that 24% of the 2014 annual incentive funding would be deferred and paid as restricted stock units to the Named Executive Officers. The remaining 76% was paid as current annual cash incentives. This provides an important link between annual incentives and the longer-term performance of the Company.
  • Comparing the total awards for the annual incentive plan versus the net income of the Company, the ratio of awards to net income has dropped each year since 2009. We have therefore continued to leverage the costs of our management team for the benefit of shareholders.

Long-term incentives

  • Performance on operating income, operating income margin, total shareholder return and G5 long-term objectives resulted in a total funding pool of $4.8 million, or 96% of target long-term incentive value. Of the $4.8 pool, $4.3 million was awarded to the Named Executive Officers.
  • We issued 49% of the long-term awards as restricted stock units and 51% in cash, all with three-year vesting for retention and incentive purposes.
  • Sustained performance is required for awards associated with operating income margin and operating income. With respect to the 2013 GEB Long-Term Incentive Plan, $717,000 was forfeited based on the operating income margin threshold not being met.

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