Jones Lang LaSalle Incorporated (NYSE: JLL) — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are primarily with 2022. JLL is a global commercial real estate services and investment management company operating in more than 80 countries, with 106,100 employees. Its five segments are Markets Advisory, Capital Markets, Work Dynamics, JLL Technologies and LaSalle.
Financial performance
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $20.761 billion | $20.862 billion | Down 0.5% |
| Fee revenue (company-defined non-GAAP) | $7.403 billion | $8.302 billion | Down 11% |
| Operating income | $576.5 million | $868.1 million | Down 34% |
| Net income attributable to common shareholders | $225.4 million | $654.5 million | Down 66% |
| Diluted EPS | $4.67 | $13.27 | Down 65% |
| Adjusted EBITDA (company-defined non-GAAP) | $736.7 million | $1.247 billion | Down 41% |
| Operating cash flow | $575.8 million | $199.9 million | Up $375.9 million |
Net income margin attributable to common shareholders was 1.1%, versus 3.1% in 2022. Adjusted EBITDA margin, calculated on fee revenue, was 10.0%, versus 15.0%. The filing attributes the margin decline mainly to a $245.1 million year-over-year swing in equity earnings and lower transaction-based revenue.
- Segment revenue: Markets Advisory $4.122 billion (down 7%); Capital Markets $1.778 billion (down 29%); Work Dynamics $14.131 billion (up 7%); JLL Technologies $246.4 million (up 15%); LaSalle $483.7 million (up 2%). Work Dynamics generated about 68% of consolidated revenue.
- Cash flow and investment: Investing activities used $290.4 million; financing activities used $374.3 million. Capital expenditures were $186.9 million. Cash and cash equivalents were $410.0 million at year-end, down from $519.3 million.
- Liquidity and debt: Corporate liquidity was $3.1 billion, defined by JLL as cash plus available capacity under its unsecured facility. The $3.30 billion facility matures in November 2028; year-end borrowings were $625.0 million gross ($610.6 million net of issuance costs). Total debt reported on the balance sheet was $1.538 billion, including short-term borrowings and long-term notes; warehouse facilities of $662.7 million are separately reported and principally fund related mortgage receivables. JLL remained in compliance with debt covenants and held investment-grade ratings of Baa1 (Moody’s) and BBB+ (S&P).
- Interest and tax: Net interest expense rose to $135.4 million from $75.2 million; the average effective rate on credit-facility borrowings increased to 5.9% from 2.9%. The effective tax rate fell to 10.2% from 20.2%, primarily due to lower pretax earnings and geographic income mix.
Material changes and notable items
- Transaction-sensitive businesses weakened as higher interest rates, uncertainty and wider bid-ask spreads delayed real estate decisions. Capital Markets investment sales and debt/equity advisory fee revenue fell 35%; Markets Advisory leasing fee revenue fell 15%.
- Resilient service lines partly offset those declines: Property Management grew 11%, Workplace Management 7%, and JLL Technologies fee revenue 16% (local-currency growth rates where stated in the filing). Work Dynamics Adjusted EBITDA rose 15%.
- JLL Technologies recorded $177.0 million of equity losses, versus $46.6 million of equity earnings in 2022, reflecting fair-value declines in proptech investments. LaSalle recorded $24.7 million of equity losses, primarily from co-investment valuation declines.
- LaSalle AUM declined 7% to $73.9 billion, reflecting $5.7 billion of dispositions and withdrawals and $4.0 billion of net valuation decreases, partly offset by acquisitions and currency. Under a revised industry-aligned definition to be used in 2024, 2023 AUM would have been $89.0 billion.
- 2022 included a $142.3 million gain on sale in a consolidated variable-interest entity, reported in other income; this makes year-over-year net income comparisons less directly indicative of recurring operations.
- JLL issued $400 million of 6.875% senior notes due 2028 and used proceeds to reduce facility borrowings. Share repurchases fell to $62.0 million from $601.2 million; no dividends were paid in 2023 or 2022.
- In February 2024, SEC staff objected to JLL’s “fee revenue” and “fee-based operating expenses” non-GAAP measures as historically adjusted for gross contract costs. JLL said it would stop referencing both measures beginning with first-quarter 2024 reporting and was reviewing revised disclosures.
Outlook, risks and contingencies
The filing provides no quantitative earnings or revenue guidance. Management describes long-term opportunities in outsourcing, technology, sustainability and real estate services, and says its balance sheet supports selective acquisitions. Near-term results remain exposed to uncertain transaction timing and real estate markets; management noted that high rates and economic uncertainty disrupted usual seasonality in 2022 and 2023.
- Key risks include continued weakness in investment sales, financing and leasing; interest-rate and credit-market volatility; lower office demand from hybrid work; pressure on commercial property values; inflation and foreign-exchange movements; and competition and fee pressure.
- Other material risk areas include cybersecurity and data privacy, reliance on vendors, talent retention, acquisitions and co-investments, conflicts or fiduciary claims, climate-related obligations and global regulatory, tax and geopolitical developments. JLL reported past cyber incidents but said none had materially affected operations or clients to date.
- JLL had up to $354.6 million of unfunded investment commitments. DUS loan loss-sharing exposure covered $20.8 billion of unpaid principal; no loan losses were incurred in 2023. The company reported ordinary-course litigation and said its resolution was not expected to materially affect financial position, results or liquidity, based on information available.
- The company committed to reduce absolute Scope 1, 2 and 3 emissions 51% by 2030 and 95% by 2040, from a 2018 baseline; failure to meet targets or evolving disclosure requirements could create financial and reputational risks.
Investor verification priorities
- Check the full financial statements and cash-flow details, including the distinction between operating cash generation, restricted cash and reported corporate liquidity.
- Assess whether the weak transaction-based businesses recover and whether resilient Work Dynamics and Property Management growth can sustain margins.
- Review JLL Technologies and LaSalle investment valuations, the assumptions behind fair-value estimates, and the updated LaSalle AUM definition.
- Track debt costs, facility utilization, refinancing needs, warehouse funding, and the ability to maintain covenant compliance and investment-grade ratings.
- Review JLL’s replacement for the fee revenue and fee-based operating expense measures after the SEC staff objection; those historical non-GAAP figures are company-defined and should not be treated as GAAP measures.
- Read the complete notes for tax judgments, investment commitments, contingencies and risk disclosures. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting as of December 31, 2023.