Jones Lang LaSalle Incorporated — 2022 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2022, not a standalone fourth quarter. JLL provides global commercial real estate services and investment management through Markets Advisory, Capital Markets, Work Dynamics, JLL Technologies and LaSalle. It reported operations in more than 80 countries and approximately 103,300 employees. Prior-period segment results were recast to reflect the reporting structure effective January 1, 2022.
Key financial results
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $20.862 billion | $19.367 billion | +8% reported; +11% in local currency |
| Fee revenue (non-GAAP) | $8.302 billion | $8.018 billion | +4% reported; +7% in local currency |
| Operating income | $868.1 million | $1.044 billion | -17% |
| Net income attributable to common shareholders | $654.5 million | $961.6 million | -32% |
| Diluted EPS | $13.27 | $18.47 | Down |
| Adjusted EBITDA (non-GAAP) | $1.247 billion | $1.497 billion | -17% reported; -14% in local currency |
| Adjusted EBITDA margin on fee revenue | 15.0% | 18.7% | Down 3.7 percentage points |
| Operating cash flow | $199.9 million | $972.4 million | Down $772.5 million |
Fee revenue excludes gross contract costs and specified non-cash mortgage servicing rights and mortgage banking activity; it is not a GAAP measure. Management attributed lower earnings and margin primarily to a $158.4 million decline in equity earnings, higher fixed compensation and wage inflation, increased travel and marketing, and technology investment. Net interest expense rose to $75.2 million from $40.1 million as average borrowings and borrowing rates increased. The effective tax rate was 20.2%, compared with 21.6%.
Segment highlights
- Markets Advisory: Fee revenue rose 8% in local currency; Adjusted EBITDA was $527.5 million, down 3% reported. Leasing was strong in the first half but weakened amid second-half market uncertainty.
- Capital Markets: Fee revenue was flat in local currency and Adjusted EBITDA fell 18% reported to $444.0 million. Higher loan-servicing and valuation fees were offset by weaker investment sales and debt advisory activity.
- Work Dynamics: Fee revenue grew 15% in local currency and Adjusted EBITDA increased 26% reported to $230.1 million, supported by workplace and project management growth.
- JLL Technologies: Fee revenue grew 47% in local currency, while Adjusted EBITDA was a loss of $50.9 million, versus income of $53.4 million. Equity earnings declined to $46.6 million from $140.7 million.
- LaSalle: Fee revenue increased 1% in local currency, but Adjusted EBITDA fell 44% reported to $96.6 million, mainly due to lower incentive fees and equity earnings. AUM was $79.1 billion at year-end, up 15% in local currency.
Cash flow, debt and liquidity
Operating activities generated $199.9 million of cash, versus $972.4 million in 2021. JLL cited higher commission and incentive-compensation payments, lower cash earnings and $59.0 million more cash taxes as key factors. Investing activities used $243.1 million, including $205.8 million of capital expenditures; financing activities used $13.1 million. Cash and cash equivalents were $519.3 million at year-end, with a further $226.7 million classified as restricted cash.
Total debt reported was $1.751 billion, including $1.214 billion drawn on the revolving credit facility. The facility’s maximum capacity was increased to $3.35 billion and it matures in April 2026; JLL reported covenant compliance. The company also had €350 million of fixed-rate notes due in 2027 and 2029. It redeemed $275 million of 4.4% notes due in 2022. Separate warehouse facilities had $455.3 million outstanding, primarily funding mortgage loans held for sale. Investment-grade ratings were Baa1 from Moody’s and BBB+ from S&P.
Material changes and unusual items
- Revenue rose, but second-half 2022 results faced rising interest rates and economic uncertainty. Management reported that global investment-sales market volumes fell 58% in U.S. dollars in the fourth quarter and 19% for the full year, according to JLL Research.
- JLL recorded $150.3 million of other income, including a $142.3 million gain on sale of investments in a consolidated variable-interest entity. The related gain was allocated substantially to noncontrolling interests; net income attributable to noncontrolling interests was $138.9 million.
- Restructuring and acquisition charges increased to $104.8 million from $84.7 million, including $44.5 million of severance and other employment-related charges as cost-mitigation actions were taken late in 2022.
- JLL repurchased approximately 2.923 million shares for $601.2 million; $1.156 billion remained authorized at year-end. It paid no dividends in 2022 or 2021.
- Foreign currency translation reduced reported results; revenue outside the United States represented approximately 41% of total revenue.
Outlook, risks and contingencies
The filing provides no numerical earnings or revenue guidance. Management emphasized long-term growth opportunities in outsourcing, real estate technology and sustainability, and stated it anticipated an upswing in real estate transaction volumes following repricing. It also described near-term uncertainty: higher rates and weaker economic sentiment had already slowed transaction-based businesses.
Principal risks include recession and real estate-market weakness; volatile transaction fees and investment valuations; wage and other inflation; foreign-exchange and variable-rate debt exposure; competition and technology disruption; cybersecurity and data privacy; talent retention; and regulatory, climate and environmental matters. JLL noted that its historical pattern of lower first-quarter revenue and profit was disrupted in the second half of 2022.
Unfunded investment commitments totaled up to $349.1 million. Under the Fannie Mae DUS program, loans subject to loss-sharing arrangements had an aggregate unpaid principal balance of $18.3 billion; JLL generally shares about one-third of incurred losses, subject to a cap, and reported no loan losses for 2022. Pending ordinary-course litigation includes substantial claims, but management did not expect the ultimate resolution to materially adversely affect financial position, results or liquidity. The filing also reports $75.1 million of unrecognized tax benefits and says changes are not expected to have a significant financial impact.
KPMG issued unqualified opinions on the financial statements and internal control over financial reporting; management concluded controls were effective at December 31, 2022.
Important facts for investors to verify
- Whether transaction activity and Capital Markets and Leasing fees recover after the sharp second-half slowdown.
- How much the decline in Adjusted EBITDA reflects recurring operating pressures versus volatile equity earnings, incentive fees and other investment-related items.
- Revolving-facility usage, interest costs, covenant headroom and liquidity needs, given the increase in borrowings and lower operating cash flow.
- The valuation assumptions and performance of JLL Technologies investments, LaSalle co-investments and LaSalle AUM.
- The timing and funding of up to $349.1 million in unfunded investment commitments, and potential exposure under DUS loss-sharing arrangements and litigation.
- Comparability of non-GAAP fee revenue and Adjusted EBITDA with GAAP results and with measures used by other companies.