Jones Lang LaSalle Incorporated — Q3 2022 Form 10-Q
Business context and reporting period. This unaudited filing covers the three and nine months ended September 30, 2022, compared with the same 2021 periods. JLL provides commercial real estate services and investment management. Effective January 1, 2022, it reorganized reporting into five global business segments; prior-period segment results were recast. Reported revenue includes substantial reimbursed client costs, so fee revenue is a useful supplemental measure of underlying service revenue.
Financial results
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | $5.18 billion, up 6% reported and 10% in local currency | $15.26 billion, up 14% reported and 17% in local currency |
| Fee revenue | $2.05 billion, flat reported and up 4% in local currency | $6.09 billion, up 16% reported and 19% in local currency |
| Operating income | $202.6 million, down 31% | $613.4 million, up 3% |
| Net income attributable to common shareholders | $140.2 million; diluted EPS $2.88 | $479.7 million; diluted EPS $9.65 |
| Adjusted EBITDA | $276.2 million, down 22% | $908.8 million, up 4% |
| Adjusted EBITDA margin on fee revenue | 13.5% in U.S. dollars; 13.3% in local currency | 14.8% |
In Q3, common-shareholder net income margin was 2.7%, versus 4.9% a year earlier. Management attributed the lower adjusted margin primarily to weaker Capital Markets activity, higher compensation, and increased travel and marketing expenses. For the first nine months, net income attributable to common shareholders declined 11%, despite higher revenue and Adjusted EBITDA.
Segment performance
- Markets Advisory: Q3 fee revenue rose 4% in local currency, while Adjusted EBITDA fell 8% in local currency. Year-to-date fee revenue and Adjusted EBITDA increased 19% and 18%, respectively, in local currency.
- Capital Markets: Q3 fee revenue fell 5% and Adjusted EBITDA fell 37% in local currency, as rising rates and economic uncertainty weighed on transactions. Year-to-date fee revenue rose 21% and Adjusted EBITDA 6% in local currency.
- Work Dynamics: Q3 fee revenue increased 14% and Adjusted EBITDA 38% in local currency, supported by Workplace Management and Project Management. Year-to-date fee revenue rose 16% and Adjusted EBITDA 26% in local currency.
- JLL Technologies: Q3 fee revenue grew 54% in local currency, but Adjusted EBITDA was a loss of $15.3 million. Year-to-date fee revenue rose 51%; Adjusted EBITDA was a loss of $14.7 million, compared with $1.8 million of income in 2021.
- LaSalle: Q3 fee revenue increased 3% in local currency, but Adjusted EBITDA fell 35%, reflecting lower incentive fees and equity results. Assets under management were $81.7 billion at September 30.
Cash flow, debt and liquidity
- Cash flow: Operating activities used $401.9 million in the first nine months, compared with $210.3 million provided in 2021. JLL cited higher incentive compensation payments, net reimbursable outflows and cash taxes, partly offset by higher earnings. Investing activities used $147.8 million; financing activities provided $500.5 million.
- Cash and liquidity: Cash and cash equivalents were $489.4 million at September 30, down from $593.7 million at year-end 2021. Cash, cash equivalents and restricted cash totaled $728.8 million. The revolving credit facility’s capacity was increased to $3.35 billion; it matures April 2026.
- Debt: Total debt was $2.17 billion, versus $956.4 million at year-end 2021. Credit-facility borrowings were $1.59 billion, up from $138.2 million. JLL redeemed $275 million of 4.4% notes due November 2022. Higher average borrowings and interest rates increased Q3 net interest expense to $23.2 million from $9.6 million.
- Capital returns and investment: JLL repurchased 2.92 million shares for $601.2 million during the first nine months; $1.16 billion remained authorized. Net capital additions were $136.0 million. Investment commitments could total $352.5 million, although $60.3 million related to a terminated fund was not expected to be called.
Changes, outlook and risks
- Q3 transaction-based businesses faced pressure from sharp interest-rate increases and changing economic sentiment. Management reported lower deal volume in most Leasing asset classes and lower Capital Markets transaction volumes; global Q3 investment-sales market volume was down 24% in U.S. dollars, according to JLL Research.
- Annuity-based services remained comparatively resilient: Q3 Workplace Management revenue grew 19% and Property Management revenue 12% in local currency, according to management.
- Management did not provide specific financial guidance in the supplied filing text. It noted that results are seasonal, transaction and incentive-fee revenue can fluctuate substantially, and interim results are not necessarily indicative of full-year results.
- Foreign exchange was a notable headwind to reported growth. Currency translation reduced equity by $327.6 million in the first nine months and contributed to accumulated other comprehensive loss of $723.0 million at September 30.
- Unusual items included a $142.3 million gain at a consolidated variable-interest entity in Q2, offset by an equivalent amount attributable to noncontrolling interests and with no net impact on common-shareholder income; a $10.5 million loss on disposal of the Russia business; and a $3.0 million JLL Technologies asset-disposal gain.
- Key exposures include economic and real estate market conditions, interest-rate and foreign-exchange movements, transaction volumes, investment valuations, and potential litigation. The filing states JLL was in compliance with debt covenants and expects ordinary-course litigation not to materially affect its financial position, results or liquidity, while noting claims may exceed insurance coverage.
Most important facts for investors to verify
- Whether weaker Q3 Capital Markets and Leasing activity persists, and how it affects fee revenue and margins.
- Whether fee-revenue growth in Work Dynamics and Markets Advisory can continue to offset cost inflation and higher compensation.
- Facility borrowing levels, variable-rate interest costs, covenant headroom and liquidity needs, given the increase in debt and negative operating cash flow.
- The quality and variability of JLL Technologies and LaSalle investment earnings, incentive fees, investment valuations and unfunded commitments.
- The effects of foreign-exchange movements and share repurchases on reported results, equity and per-share measures.