Jones Lang LaSalle Incorporated (JLL) — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods. Amounts are in U.S. dollars. JLL provides commercial real estate services through Markets Advisory, Capital Markets, Work Dynamics, JLL Technologies and LaSalle.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | $5.053B | $5.278B | $9.768B | $10.080B |
| Fee revenue (non-GAAP) | $1.847B | $2.139B | $3.431B | $4.039B |
| Operating income | $149.2M | $235.1M | $167.0M | $410.8M |
| Net income (loss) attributable to common shareholders | $2.5M | $193.9M | ($6.7M) | $339.5M |
| Diluted EPS | $0.05 | $3.90 | ($0.14) | $6.75 |
| Adjusted EBITDA (non-GAAP) | $116.1M | $359.0M | $225.1M | $632.6M |
- Q2 revenue fell 4% and fee revenue fell 13% year over year; first-half revenue declined 3% and fee revenue 15% in reported U.S. dollars. Management reported first-half fee revenue down 14% in local currency.
- Q2 Adjusted EBITDA margin was 6.3% of fee revenue, versus 16.8% a year earlier. Management attributed about 70% of the contraction to the change in equity earnings and losses, net of carried interest; lower transaction-based revenue was also a factor.
- Equity losses were $103.5M in Q2 and $106.1M for the first half, versus equity earnings in the prior-year periods. JLL Technologies’ investment valuation declines were the principal driver. LaSalle also reported co-investment valuation losses.
- Interest expense, net, rose to $40.5M in Q2 and $66.8M in the first half, from $15.7M and $25.9M, respectively, reflecting higher rates and average borrowings.
Segment trends and material changes
- Markets Advisory: Q2 revenue declined 8% and Adjusted EBITDA declined 26%. Lower Leasing activity—especially office—was partly offset by 7% growth in Property Management fee revenue.
- Capital Markets: Q2 revenue declined 35% and Adjusted EBITDA declined 72%, as Investment Sales and Debt/Equity Advisory activity weakened. Management said global investment sales market volumes fell 54% in U.S. dollars; JLL’s decline was less severe.
- Work Dynamics: Q2 revenue increased 2%, with fee revenue up 2%; Adjusted EBITDA was down 2%. Project Management growth offset lower Portfolio Services and Other.
- JLL Technologies: Q2 fee revenue rose 18%, but segment Adjusted EBITDA was a loss of $105.2M, primarily reflecting investment valuation losses.
- LaSalle: Q2 revenue rose 26%, including higher incentive fees; Adjusted EBITDA increased 7%. Co-investment losses weighed on results. AUM was $78.2B at June 30, down slightly from $78.5B at March 31.
Q2 2022 included a $142.3M gain in a consolidated VIE in which JLL held no equity interest. The gain was allocated to noncontrolling interests and had no net impact on income attributable to JLL common shareholders.
Cash flow, debt and liquidity
- Operating activities used $479.3M of cash in the first half, compared with $539.4M used in 2022. Investing activities used $160.7M, versus $63.1M; the prior-year period included $137.0M of net proceeds from less-than-wholly-owned subsidiaries. Financing activities provided $503.9M, versus $601.3M.
- Cash and cash equivalents were $402.5M at June 30, compared with $519.3M at year-end. Cash, cash equivalents and restricted cash totaled $613.7M at period end, including $211.2M of restricted cash.
- Total debt was $2.333B, including $1.841B drawn on the $3.35B revolving credit facility; the facility matures in April 2026. The facility’s June 30 pricing was adjusted Term SOFR plus 0.99%. JLL also had $941.8M outstanding under warehouse facilities, which are primarily secured by related warehouse receivables.
- Average credit-facility borrowings were $2.316B in Q2, at a 5.9% average effective rate, versus $1.582B and 1.6% a year earlier. JLL reported compliance with debt covenants and investment-grade ratings of Baa1 and BBB+.
- JLL estimated that a 50-basis-point increase in short-term rates during 2023 would add $5.0M of interest expense for the first half. It had $1.136B remaining under its share repurchase authorization at June 30.
Outlook, risks and other matters
- The filing gives no specific numerical earnings or revenue guidance. Management noted that interest-rate uncertainty and economic headwinds continued to pressure transaction-based businesses, while demand in certain annuity-like and project management services remained more resilient.
- Management cautioned that real estate transaction timing, incentive fees, investment valuations, foreign exchange and seasonality can cause significant period-to-period volatility; first-half results are not necessarily indicative of full-year results.
- Potential maximum earn-out payments were $105.0M across 16 acquisitions, subject to performance conditions and expected over as long as five years. JLL also disclosed $324.1M of maximum potential unfunded LaSalle investment commitments and $14.9M for JLL Technologies.
- JLL is involved in ordinary-course litigation, including claims that may be substantial and could exceed insurance coverage; management did not expect the ultimate resolution to materially adversely affect its financial position, results or liquidity. DUS loan loss-sharing exposure covered loans with $19.9B of unpaid principal; no loan losses were incurred in the first half.
- JLL completed the KCA acquisition in Q2 for $13.6M cash plus the fair value of its prior 50% interest; purchase accounting remained preliminary. Management reported effective disclosure controls and no material changes to previously disclosed risk factors.
Investor verification priorities
- Assess whether Capital Markets and Leasing transaction activity and fee revenue stabilize, and whether Work Dynamics and Property Management growth continues.
- Review the valuation assumptions and subsequent performance of JLL Technologies investments, given their material effect on equity earnings and reported profit.
- Track variable-rate borrowing levels, interest expense, warehouse-facility maturities and liquidity, including the distinction between unrestricted and restricted cash.
- Evaluate the sustainability and timing of LaSalle incentive fees, co-investment valuations and the reported AUM trend.
- Monitor earn-out obligations, investment commitments, DUS loss-sharing exposure and litigation developments.
Adjusted EBITDA and fee revenue are non-GAAP measures; consult the filing’s reconciliations when comparing them with GAAP results or other companies.