Business context and reporting period
Jones Lang LaSalle Incorporated (JLL) filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2023. JLL provides commercial real estate services through Markets Advisory, Capital Markets, Work Dynamics, JLL Technologies and LaSalle. The company notes that transaction activity and seasonality can make interim results unrepresentative of full-year performance.
Financial performance
Amounts are in millions of U.S. dollars, except per-share data and percentages.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $5,111.4 | $5,177.5 | $14,879.4 | $15,257.3 |
| Operating income | $119.1 | $202.6 | $286.1 | $613.4 |
| Net income attributable to common shareholders | $59.7 | $140.2 | $53.0 | $479.7 |
| Diluted EPS | $1.23 | $2.88 | $1.10 | $9.65 |
| Adjusted EBITDA | $205.2 | $276.2 | $430.3 | $908.8 |
| Adjusted EBITDA margin on fee revenue | 11.5% | 13.5% | 8.2% | 14.9% |
Q3 revenue declined 1% in reported dollars and 2% in local currency; fee revenue fell 13%. For the first nine months, revenue declined 2% and fee revenue 14%. Q3 operating income fell 41%, and nine-month operating income fell 53%. Adjusted EBITDA declined 26% in Q3 and 53% year to date. Q3 net income margin attributable to common shareholders was 1.2%, versus 2.7% a year earlier.
Cash flow and liquidity: Operating activities used $153.6 for the first nine months, compared with $401.9 used in 2022. Investing activities used $220.4; financing activities provided $231.2. Cash, cash equivalents and restricted cash ended the period at $593.6, including $389.5 of unrestricted cash and $204.1 of restricted cash. Cash and cash equivalents were $519.3 at December 31, 2022.
Debt: Total debt was $2,078.5 at September 30, 2023, up from $1,750.8 at year-end 2022. This included $1,600.0 drawn on the $3.35 billion revolving credit facility, which matures April 2026, and $574.9 of warehouse facilities. The facility’s September pricing was adjusted SOFR plus 0.98%; average effective borrowing rate was 6.1% for Q3 versus 3.2% a year earlier. JLL reported compliance with debt and warehouse covenants and investment-grade ratings of Baa1 and BBB+.
Material changes and segment trends
- Markets Advisory: Q3 revenue fell 11%; leasing weakness drove the decline, while Property Management grew 13%. Nine-month Adjusted EBITDA was $256.1, down 32%.
- Capital Markets: Q3 revenue fell 27%; nine-month revenue fell 34%, reflecting lower investment sales and debt/equity advisory activity. Nine-month Adjusted EBITDA declined 70% to $97.0.
- Work Dynamics: Q3 revenue grew 7% and fee revenue 10%, supported by Workplace Management, Project Management and Portfolio Services. Nine-month Adjusted EBITDA was $143.5, down 2%.
- JLL Technologies: Q3 fee revenue grew 6%, and its Adjusted EBITDA loss narrowed to $8.7. Nine-month equity losses were $102.0, mainly from lower valuations in two investments, contributing to a $127.2 Adjusted EBITDA loss.
- LaSalle: Q3 revenue fell 12%, including no incentive fees versus $11.9 a year earlier. Nine-month revenue rose 3%, but Adjusted EBITDA fell 15% to $60.9. AUM was $77.7 billion at September 30, down 1% from June 30 in reported dollars.
Outlook, risks and unusual items
- No specific full-year revenue or earnings guidance is provided in the filing. Management cites economic uncertainty, elevated interest rates and geopolitical instability as pressures on transaction-based businesses; it expects these conditions to continue affecting results. Management also says annual results may differ from interim trends because of seasonality, transaction timing and incentive-fee variability.
- Management attributes resilient growth to property/workplace management, project execution and technology services. Cost reductions and lower variable compensation partly offset weaker transaction revenue; restructuring and acquisition charges were $79.1 for the nine months, versus $66.4 in 2022.
- Equity losses were $117.3 for the first nine months, versus equity earnings of $72.6 in 2022. The 2023 result was driven principally by JLL Technologies investment valuation declines and LaSalle co-investment valuation losses. The prior-year comparison also included a $142.3 gain at a consolidated variable-interest entity allocated to noncontrolling interests, with no net impact on common shareholders’ income.
- JLL had $376.1 of maximum potential unfunded investment commitments: $361.9 for LaSalle and $14.2 for JLL Technologies. It does not expect a call on $60.3 of the LaSalle amount, though it remains contractually obligated.
- Under the Fannie Mae DUS program, loans subject to loss-sharing arrangements had $20.5 billion of aggregate unpaid principal. Related guarantee obligations were $31.1 and the contingent loan-loss reserve was $24.8; no loan losses were incurred in the first nine months.
- JLL is involved in ordinary-course litigation, some involving substantial damage claims; management does not expect ultimate resolution to materially adversely affect financial position, results or liquidity. The filing reports no material change to previously disclosed risk factors and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether transaction volumes, particularly leasing and investment sales/debt advisory, recover or remain constrained by rates and uncertainty.
- Whether JLL Technologies’ investment valuations stabilize after the substantial year-to-date equity losses.
- Cash conversion and working-capital needs, including incentive compensation payments, alongside facility utilization and higher borrowing costs.
- LaSalle incentive-fee timing, co-investment valuations and AUM trends.
- Potential cash calls on investment commitments, acquisition earn-outs and DUS loss-sharing exposure.
- The assumptions behind non-GAAP Adjusted EBITDA and fee-revenue measures when comparing performance with GAAP results or other companies.