JONES LANG LASALLE INC 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements, including the notes thereto, for the three months ended March 31, 2022, and our audited Consolidated Financial Statements, including the notes thereto, for the fiscal year ended December 31, 2021, which are included in our 2021 Annual Report on Form 10-K, filed with the SEC and also available on our website ( www.jll.com ). You should also refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our 2021 Annual Report on Form 10-K. The following discussion and analysis contains certain forward-looking statements generally identified by the words anticipates, believes, estimates, expects, forecasts, plans, intends and other similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause JLL's actual results, performance, achievements, plans and objectives to be materially different from any future results, performance, achievements, plans and objectives expressed or implied by such forward-looking statements. See the Cautionary Note Regarding Forward-Looking Statements included within this section for further information. We present our quarterly Management's Discussion and Analysis in the following sections: (1) A summary of our critical accounting policies and estimates; (2) Certain items affecting the comparability of results and certain market and other risks we face; (3) The results of our operations, first on a consolidated basis and then for each of our business segments; and (4) Liquidity and capital resources. SUMMARY OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES An understanding of our accounting policies is necessary for a complete analysis of our results, financial position, liquidity and trends. See Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in our 2021 Annual Report on Form 10-K for a complete summary of our significant accounting policies. The preparation of our financial statements requires management to make certain critical accounting estimates and judgments that impact (1) the stated amount of assets and liabilities, (2) disclosure of contingent assets and liabilities at the date of the financial statements, and (3) the reported amount of revenue and expenses during the reporting periods. These accounting estimates are based on management's judgment. We consider them to be critical because of their significance to the financial statements and the possibility that future events may differ from current judgments or that the use of different assumptions could result in materially different estimates. We review these estimates on a periodic basis to ensure reasonableness. Although actual amounts likely differ from such estimated amounts, we believe such differences are not likely to be material. A discussion of our critical accounting policies and estimates used in the preparation of our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q can be found in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes to these critical accounting policies and estimates during the three months ended March 31, 2022. ITEMS AFFECTING COMPARABILITY Macroeconomic Conditions Our results of operations and the variability of these results are significantly influenced by (1) macroeconomic trends, (2) the geopolitical environment, (3) the global and regional real estate markets, and (4) the financial and credit markets. These macroeconomic and other conditions have had, and we expect will continue to have, a significant impact on the variability of our results of operations. In 2021, macroeconomic conditions influenced by the COVID-19 pandemic more notably impacted our operations compared with the current year. 25 Table of Contents Acquisitions and Dispositions The timing of acquisitions and dispositions may impact the comparability of our results on a year-over-year basis. Our results include incremental revenues and expenses following the completion date of an acquisition. Relating to dispositions, comparable results will include the revenues and expenses of recent dispositions and results may also include gains (losses) on the disposition. In addition, there is generally an initial adverse impact on net income from an acquisition as a result of pre-acquisition due diligence expenditures, transaction/deal costs and post-acquisition integration costs, such as fees from third-party advisors engaged to assist with onboarding and process alignment, retention and severance expense, early lease termination costs, and other integration expenses. For dispositions, we may also incur such incremental costs during the disposition process and these costs could have an adverse impact on net income. Equity Earnings and Incentive Fees Equity earnings may vary substantially from period to period for a variety of reasons, including as a result of: (1) gains (losses) on investments reported at fair value, (2) gains (losses) on asset dispositions, and (3) impairment charges. The timing of recognition of these items may impact comparability between quarters, in any one year, or compared to a prior year. LaSalle, our investment management business, is in part compensated through incentive fees where performance of underlying funds' investments exceeds agreed-to return hurdles. Depending upon performance, disposition activity and the contractual timing of measurement periods with clients, these fees can be significant and may vary substantially from period to period. The comparability of these items can be seen in Note 3, Business Segments, of the Notes to Condensed Consolidated Financial Statements and is discussed further in Segment Operating Results included herein. Foreign Currency We conduct business using a variety of currencies, but we report our results in U.S. dollars. As a result, the volatility of currencies against the U.S. dollar may positively or negatively impact our results. This volatility can make it more difficult to perform period-to-period comparisons of the reported U.S. dollar results of operations, because such results may indicate a growth or decline rate that might not have been consistent with the real underlying growth or decline rates in the local operations. Consequently, we provide information about the impact of foreign currencies in the period-to-period comparisons of the reported results of operations in our discussion and analysis of financial condition in the Results of Operations section below. Transaction-Based Revenue Transaction-based fees, which are impacted by the size and timing of our clients' transactions, from real estate investment banking, capital markets activities and other services within our segments, increase the variability of the revenue we earn. Specifically for LaSalle, we are compensated through incentive fees where performance of underlying funds' investments exceeds agreed-to benchmark levels. Depending upon performance, disposition activity, and the contractual timing of measurement periods with clients, these fees can be significant and vary substantially from period to period. The timing and the magnitude of these fees can vary significantly from year to year and quarter to quarter, and from region to region. Seasonality Historically, our quarterly revenue and profits have tended to increase from quarter to quarter as the year progresses. This is a result of a general focus in the real estate industry on completing or documenting transactions by calendar year end and the fact that certain expenses are constant through the year. In addition, this seasonality excludes the recognition of investment-generated performance fees as well as realized and unrealized co-investment equity earnings and losses (the timing of each of these can fluctuate based on a variety of factors). Generally, we recognize incentive fees when assets are sold, the timing of which is geared toward the benefit of our clients. In addition, co-investment equity gains and losses are primarily dependent on valuations of underlying investments, the direction and magnitude of changes to such valuations fluctuate based on a variety of factors. Non-variable operating expenses, which we treat as expenses when incurred during the year, are relatively constant on a quarterly basis. A significant portion of our Compensation and benefits expense is from incentive compensation plans, which we generally accrue throughout the year based on progress toward annual performance targets. This quarterly estimation can result in significant fluctuations in quarterly Compensation and benefits expense from period to period. Consequently, the results for the periods ended March 31, 2022 and 2021, are not fully indicative of the results we expect to realize for the full fiscal year. 26 Table of Contents RESULTS OF OPERATIONS In conjunction with our change in reporting segments, effective January 1, 2022, comparable period information has been recast to conform with current presentation. Definitions • Assets under management data for LaSalle is reported on a one-quarter lag. • n.m.: not meaningful, represented by a percentage change of greater than 1,000% favorable or unfavorable. Consolidated Operating Results Three Months Ended March 31, Change in % Change in Local Currency ($ in millions) 2022 2021 U.S. dollars Markets Advisory $ 999.5 792.7 206.8 26 % 28 % Capital Markets 600.6 411.7 188.9 46 49 Work Dynamics 3,033.6 2,698.1 335.5 12 14 JLL Technologies 49.4 43.4 6.0 14 14 LaSalle 118.3 91.2 27.1 30 34 Revenue $ 4,801.4 4,037.1 764.3 19 % 21 % Gross contract costs (2,904.5) (2,602.9) (301.6) 12 13 Net non-cash MSR and mortgage banking derivative activity 3.6 (9.7) 13.3 (137) (137) Fee revenue $ 1,900.5 1,424.5 476.0 33 % 36 % Markets Advisory 741.2 552.6 188.6 34 36 Capital Markets 591.5 393.2 198.3 50 54 Work Dynamics 410.5 363.5 47.0 13 15 JLL Technologies 45.3 29.9 15.4 52 52 LaSalle 112.0 85.3 26.7 31 36 Compensation and benefits, excluding gross contract costs $ 1,377.8 1,055.4 322.4 31 % 33 % Operating, administrative and other expenses, excluding gross contract costs 269.5 227.9 41.6 18 20 Depreciation and amortization 54.4 53.0 1.4 3 4 Restructuring and acquisition charges 19.5 17.2 2.3 13 19 Total fee-based operating expenses 1,721.2 1,353.5 367.7 27 29 Gross contract costs 2,904.5 2,602.9 301.6 12 13 Total operating expenses $ 4,625.7 3,956.4 669.3 17 % 19 % Operating income $ 175.7 80.7 95.0 118 % 122 % Equity earnings $ 18.5 48.5 (30.0) (62) % (62) % Adjusted EBITDA $ 273.6 190.1 83.5 44 % 47 % 27 Table of Contents Non-GAAP Financial Measures Management uses certain non-GAAP financial measures to develop budgets and forecasts, measure and reward performance against those budgets and forecasts, and enhance comparability to prior periods. These measures are believed to be useful to investors and other external stakeholders as supplemental measures of core operating performance and include the following: • Fee revenue and Fee-based operating expenses; • Adjusted EBITDA attributable to common shareholders ("Adjusted EBITDA") and Adjusted EBITDA margin; and • Percentage changes against prior periods, presented on a local currency basis. However, non-GAAP financial measures should not be considered alternatives to measures determined in accordance with U.S. generally accepted accounting principles (“GAAP”). Any measure that eliminates components of a company’s capital structure, cost of operations or investment, or other results has limitations as a performance measure. In light of these limitations, management also considers GAAP financial measures and does not rely solely on non-GAAP financial measures. Because our non-GAAP financial measures are not calculated in accordance with GAAP, they may not be comparable to similarly titled measures used by other companies. Adjustments to GAAP Financial Measures Used to Calculate non-GAAP Financial Measures Gross contract costs represent certain costs associated with client-dedicated employees and third-party vendors and subcontractors and are directly or indirectly reimbursed through the fees we receive. These costs are presented on a gross basis in Operating expenses with the equal amount of corresponding fees in Revenue. Excluding gross contract costs from both Fee revenue and Fee-based operating expenses more accurately reflects how we manage our expense base and operating margins and also enables a more consistent performance assessment across a portfolio of contracts with varying payment terms and structures. Net non-cash MSR and mortgage banking derivative activity consists of the balances presented within Revenue composed of (i) derivative gains/losses resulting from mortgage banking loan commitment and warehousing activity and (ii) gains recognized from the retention of MSR upon origination and sale of mortgage loans, offset by (iii) amortization of MSR intangible assets over the period that net servicing income is projected to be received. Non-cash derivative gains/losses resulting from mortgage banking loan commitment and warehousing activity are calculated as the estimated fair value of loan commitments and subsequent changes thereof, primarily represented by the estimated net cash flows associated with future servicing rights. MSR gains and corresponding MSR intangible assets are calculated as the present value of estimated net cash flows over the estimated mortgage servicing periods. The above activity is reported entirely within Revenue of the Capital Markets segment. Excluding net non-cash MSR and mortgage banking derivative activity reflects how we manage and evaluate performance because the excluded activity is non-cash in nature. Restructuring and acquisition charges primarily consist of (i) severance and employment-related charges, including those related to external service providers, incurred in conjunction with a structural business shift, which can be represented by a notable change in headcount, change in leadership or transformation of business processes; (ii) acquisition, transaction and integration-related charges, including fair value adjustments, which are generally non-cash in the periods such adjustments are made, to assets and liabilities recorded in purchase accounting such as earn-out liabilities and intangible assets; and (iii) other restructuring, including lease exit charges. Such activity is excluded as the amounts are generally either non-cash in nature or the anticipated benefits from the expenditures would not likely be fully realized until future periods. Restructuring and acquisition charges are excluded from segment operating results and therefore not a line item in the segments’ reconciliation to Adjusted EBITDA. Gain on disposition reflects the gain recognized on the sale of businesses. Given the low frequency of business disposals by the company historically, the gain directly associated with such activity is excluded as it is not considered indicative of core operating performance. In 2021, the activity related to a business disposition within JLL Technologies. 28 Table of Contents Reconciliation of Non-GAAP Financial Measures Below are reconciliations of (i) Revenue to Fee revenue and (ii) Operating expenses to Fee-based operating expenses. Three Months Ended March 31, (in millions) 2022 2021 Revenue $ 4,801.4 4,037.1 Adjustments: Gross contract costs (2,904.5) (2,602.9) Net non-cash MSR and mortgage banking derivative activity 3.6 (9.7) Fee revenue $ 1,900.5 1,424.5 Operating expenses $ 4,625.7 3,956.4 Less: Gross contract costs (2,904.5) (2,602.9) Fee-based operating expenses $ 1,721.2 1,353.5 Operating income $ 175.7 80.7 Below is (i) a reconciliation of Net income attributable to common shareholders to EBITDA and Adjusted EBITDA, (ii) the Net income margin attributable to common shareholders (measured on Revenue), and (iii) the Adjusted EBITDA margin (measured on fee-revenue and presented on a local currency basis). Three Months Ended March 31, ($ in millions) 2022 2021 Net income attributable to common shareholders $ 145.6 103.0 Add: Interest expense, net of interest income 10.2 10.4 Provision for income taxes 40.3 28.2 Depreciation and amortization 54.4 53.0 EBITDA $ 250.5 194.6 Adjustments: Restructuring and acquisition charges 19.5 17.2 Gain on disposition — (12.0) Net non-cash MSR and mortgage banking derivative activity 3.6 (9.7) Adjusted EBITDA $ 273.6 190.1 Net income margin attributable to common shareholders 3.0 % 2.6 % Adjusted EBITDA margin 14.4 % 13.3 % 29 Table of Contents In discussing our operating results, we report Adjusted EBITDA margins and refer to percentage changes in local currency, unless otherwise noted. Amounts presented on a local currency basis are calculated by translating the current period results of our foreign operations to U.S. dollars using the foreign currency exchange rates from the comparative period. We believe this methodology provides a framework for assessing performance and operations excluding the effect of foreign currency fluctuations. The following table reflects the reconciliation to local currency amounts for consolidated (i) Revenue, (ii) Fee revenue, (iii) Operating income, and (iv) Adjusted EBITDA. Three Months Ended March 31, ($ in millions) 2022 % Change Revenue: At current period exchange rates $ 4,801.4 19 % Impact of change in exchange rates 77.8 n/a At comparative period exchange rates $ 4,879.2 21 % Fee revenue: At current period exchange rates $ 1,900.5 33 % Impact of change in exchange rates 32.6 n/a At comparative period exchange rates $ 1,933.1 36 % Operating income: At current period exchange rates $ 175.7 118 % Impact of change in exchange rates 3.2 n/a At comparative period exchange rates $ 178.9 122 % Adjusted EBITDA: At current period exchange rates $ 273.6 44 % Impact of change in exchange rates 5.0 n/a At comparative period exchange rates $ 278.6 47 % 30 Table of Contents Revenue We achieved significant growth against the prior-year quarter in revenue, up 21% to $4.8 billion, and fee revenue, up 36% to $1.9 billion, substantially all of which was organic. The prior-year quarter was notably impacted by the COVID-19 pandemic, however, fee revenue increased 27% compared with the first quarter 2020. Fee revenue growth versus 2021 was broad-based across all segments, led by Capital Markets and Markets Advisory, up 54% and 36%, respectively. In addition to sustained momentum in transaction-based revenues, our annuity-based revenues continued to demonstrate stability, notably Workplace Management within Work Dynamics, which grew 20%. The following highlights the proportion of consolidated top-line growth, on a local currency basis, compared with the prior-year quarter, by business line segment ($ in millions). Refer to segment operating results for further detail. Our consolidated fee revenue increased 33% in U.S. dollars (“USD”) and 36% in local currency for the first quarter of 2022, compared with 2021. The spread for the first quarter was driven by the strengthening of the U.S. dollar against several major currencies, especially the British pound sterling, euro, and Australian dollar. Operating Expenses Consolidated operating expenses were $4.6 billion for the first quarter, up 19% from 2021, while consolidated fee-based operating expenses were $1.7 billion for the first quarter, up 29% from the prior-year quarter. The aforementioned increase in fee-based operating expenses was primarily attributable to our Markets Advisory and Capital Markets segments, which drove 39% and 37%, respectively, of the overall increase on a local currency basis. For the first quarter of 2022, Restructuring and acquisition charges increased compared with the prior-year period, primarily due to integration costs associated with business combinations that closed in the second half of 2021; refer to following table for further detail. Three Months Ended March 31, (in millions) 2022 2021 Severance and other employment-related charges $ 3.3 1.8 Restructuring, pre-acquisition and post-acquisition charges 14.2 9.5 Stock-based compensation expense for HFF retention awards 2.7 6.0 Fair value adjustments that resulted in a net decrease to earn-out liabilities from prior-period acquisition activity (0.7) (0.1) Total restructuring and acquisition charges $ 19.5 17.2 31 Table of Contents Equity Earnings For the first quarter of 2022, we recognized equity earnings of $18.5 million, compared with $48.5 million in the prior-year quarter. The 2022 activity comprised $18.8 million of equity earnings from JLL Technologies, partially offset by $1.9 million of equity losses from LaSalle. In the prior-year quarter, JLL Technologies and LaSalle recognized $34.6 million and $13.0 million of equity earnings, respectively. Refer to the associated segment discussions for additional detail. Income Taxes The provision for income taxes was $40.3 million for the first quarter 2022, representing an effective tax rate of 21.9%. For the prior-year quarter, the provision was $28.2 million, representing an effective tax rate of 21.6%. Net Income and Adjusted EBITDA Net income attributable to common shareholders for the three months ended March 31, 2022 was $145.6 million, compared with $103.0 million in the prior-year period. Adjusted EBITDA was $273.6 million for the first quarter of 2022, compared to $190.1 million in the prior-year period. Net income attributable to common shareholders for the three months ended March 31, 2021 included a $12.0 million gain recognized on the sale of a business as part of a broader investment made in Roofstock, a marketplace for investing in the single-family rental sector. This gain on sale is excluded from adjusted measures. Net income margin attributable to common shareholders for the first quarter (against Revenue) was 3.0%, compared with 2.6% in the prior-year quarter. Adjusted EBITDA margin for the first quarter, calculated on a fee-revenue basis, was 14.4% in USD and local currency, compared with 13.3% in 2021. The 110 basis points increase was primarily due to (i) the meaningful increase in fee revenue, especially from higher margin transaction-based businesses, and (ii) the timing of incentive compensation accruals reflecting changes in compensation plans from 2021 to 2022, which resulted in a lower percentage of expected full-year incentive compensation accrued this quarter compared with the prior year, partially offset by (iii) lower equity earnings and (iv) incremental expenditures to drive future growth, primarily compensation, T&E and marketing, as business operations continue to trend towards pre-pandemic levels. Segment Operating Results Effective January 1, 2022, we manage and report our operations as five business segments: Markets Advisory, Capital Markets, Work Dynamics, JLL Technologies, and LaSalle. Markets Advisory offers a wide range of real estate services, including agency leasing and tenant representation, property management, and advisory and consulting services. Our Capital Markets service offerings include investment sales, equity and debt advisory, loan servicing, and valuations. Our Work Dynamics business provides a broad suite of integrated services to occupiers of real estate, including facility and project management, as well as portfolio and other services. We consider "Property Management" to be services provided to non-occupying property investors and "Workplace Management" to be services provided to owner-occupiers. Our JLL Technologies segment offers software products, solutions and services, while LaSalle provides investment management services on a global basis to institutional investors and high-net-worth individuals. For segment reporting, (i) gross contract costs and (ii) net non-cash MSR and mortgage banking derivative activity are both excluded from revenue in determining Fee revenue. Gross contract costs are excluded from operating expenses in determining Fee-based operating expenses. In addition, our measure of segment results also excludes Restructuring and acquisition charges. 32 Table of Contents Markets Advisory % Change Three Months Ended March 31, Change in in Local ($ in millions) 2022 2021 U.S. dollars Currency Revenue $ 999.5 792.7 206.8 26 % 28 % Gross contract costs (258.3) (240.1) (18.2) 8 9 Fee revenue $ 741.2 552.6 188.6 34 % 36 % Leasing 596.9 412.2 184.7 45 46 Property Management 118.6 114.3 4.3 4 6 Advisory, Consulting and Other 25.7 26.1 (0.4) (2) 1 Compensation, operating and administrative expenses, excluding gross contract costs 632.7 486.5 146.2 30 32 Depreciation and amortization 17.1 15.9 1.2 8 9 Segment fee-based operating expenses (excluding restructuring and acquisition charges) 649.8 502.4 147.4 29 31 Gross contract costs 258.3 240.1 18.2 8 9 Segment operating expenses $ 908.1 742.5 165.6 22 % 24 % Equity earnings $ 0.5 0.4 0.1 25 % 19 % Adjusted EBITDA $ 111.2 66.0 45.2 68 % 70 % Markets Advisory fee revenue grew 36% compared with the prior year and 26% compared with the first quarter of 2020, which was only nominally impacted by the COVID-19 pandemic. Leasing drove the revenue and fee revenue growth versus 2021, led by the U.S. as both transaction size and volume increased. Globally, all major asset classes in Leasing experienced double-digit growth compared with the prior year, with continued strength in industrial and strong momentum in the office sector. The increases in segment operating expenses and segment fee-based operating expenses for the first quarter of 2022, compared with the prior-year period, were driven by higher T&E and compensation expenses, the latter of which was driven by additional headcount and wage inflation to meet increased business demand. Adjusted EBITDA margin for the quarter, calculated on a fee-revenue basis, was 15.0% in USD (14.9% in local currency), compared with 11.9% in 2021. The margin expansion was primarily due to the growth in Leasing revenue, which more than offset the expense drivers noted above. 33 Table of Contents Capital Markets % Change Three Months Ended March 31, Change in in Local ($ in millions) 2022 2021 U.S. dollars Currency Revenue $ 600.6 411.7 188.9 46 % 49 % Gross contract costs (12.7) (8.8) (3.9) 44 52 Net non-cash MSR and mortgage banking derivative activity 3.6 (9.7) 13.3 (137) (137) Fee revenue $ 591.5 393.2 198.3 50 % 54 % Investment Sales, Debt/Equity Advisory and Other 468.5 286.0 182.5 64 67 Valuation Advisory 83.1 77.2 5.9 8 12 Loan Servicing 39.9 30.0 9.9 33 33 Compensation, operating and administrative expenses, excluding gross contract costs 474.1 335.6 138.5 41 44 Depreciation and amortization 15.6 15.9 (0.3) (2) (1) Segment fee-based operating expenses (excluding restructuring and acquisition charges) 489.7 351.5 138.2 39 42 Gross contract costs 12.7 8.8 3.9 44 52 Segment operating expenses $ 502.4 360.3 142.1 39 % 42 % Equity earnings $ 0.8 0.4 0.4 100 % 120 % Adjusted EBITDA $ 118.2 59.1 59.1 100 % 104 % Capital Markets fee revenue increased 54% compared with the prior-year quarter and 42% compared with the first quarter of 2020, which was only nominally impacted by the pandemic. This fee revenue growth was highlighted by substantially higher investment sales and debt advisory transaction volumes in many geographies across the globe. Further, nearly all asset classes experienced growth compared with 2021, most meaningfully in residential and office. Higher Loan Servicing revenue was due to continued growth of the servicing portfolio over the trailing twelve months, particularly from loans originated under the Fannie Mae Delegated Underwriting and Servicing ("DUS") program. The increases in segment operating expenses and segment fee-based operating expenses for the first quarter of 2022, compared with the prior-year period, were driven by higher T&E and compensation expenses, the latter driven by additional headcount and wage inflation to meet increased business demand. Adjusted EBITDA margin for the quarter, calculated on a fee-revenue basis, was 20.0% in both USD and local currency, compared with 15.0% in 2021. The increase in margin was driven by the above-noted revenue growth drivers, which more than offset the increase in expenses. In addition, the increase was partially due to the timing of incentive compensation accruals as noted in the consolidated margin discussion. 34 Table of Contents Work Dynamics % Change Three Months Ended March 31, Change in in Local ($ in millions) 2022 2021 U.S. dollars Currency Revenue $ 3,033.6 2,698.1 335.5 12 % 14 % Gross contract costs (2,623.1) (2,334.6) (288.5) 12 14 Fee revenue $ 410.5 363.5 47.0 13 % 15 % Workplace Management 182.0 153.4 28.6 19 20 Project Management 175.7 163.2 12.5 8 11 Portfolio Services and Other 52.8 46.9 5.9 13 14 Compensation, operating and administrative expenses, excluding gross contract costs 375.6 338.7 36.9 11 13 Depreciation and amortization 16.5 16.2 0.3 2 4 Segment fee-based operating expenses (excluding restructuring and acquisition charges) 392.1 354.9 37.2 10 13 Gross contract costs 2,623.1 2,334.6 288.5 12 14 Segment operating expenses $ 3,015.2 2,689.5 325.7 12 % 14 % Equity earnings $ 0.3 0.1 0.2 200 % 346 % Adjusted EBITDA $ 35.2 24.9 10.3 41 % 38 % The increases in Work Dynamics revenue and fee revenue were led by Workplace Management, primarily from new client wins but also expansions of existing client relationships and particularly in the technology and public institutions sectors in the United States. Project Management growth was driven by the return to office movement and fewer pandemic restrictions in several geographies across the globe which drove increased project demand. The increases in segment operating expenses and segment fee-based operating expenses for the first quarter of 2022, compared with the prior-year period, were driven by investments in people, via additional headcount and increased wages, to support planned future growth. Adjusted EBITDA margin for the quarter, calculated on a fee-revenue basis, was 8.6% in USD (8.2% in local currency), compared with 6.9% in 2021. The margin increase was attributable to (i) the incremental revenue described above, (ii) the timing of incentive compensation accruals as noted in the consolidated margin discussion, and (iii) the absence of certain contract losses recognized in the prior-year quarter that did not reoccur in the current period. These drivers outpaced the aforementioned investment in people. 35 Table of Contents JLL Technologies % Change Three Months Ended March 31, Change in in Local ($ in millions) 2022 2021 U.S. dollars Currency Revenue $ 49.4 43.4 6.0 14 % 14 % Gross contract costs (4.1) (13.5) 9.4 (70) (70) Fee revenue $ 45.3 29.9 15.4 52 % 52 % Compensation, operating and administrative expenses, excluding gross contract costs (1) 76.4 50.5 25.9 51 51 Depreciation and amortization 3.8 2.9 0.9 31 32 Segment fee-based operating expenses (excluding restructuring and acquisition charges) 80.2 53.4 26.8 50 50 Gross contract costs 4.1 13.5 (9.4) (70) (70) Segment operating expenses $ 84.3 66.9 17.4 26 % 22 % Equity earnings $ 18.8 34.6 (15.8) (46) % (46) % Adjusted EBITDA $ (12.3) 14.0 (26.3) (188) % (184) % (1) Included in Compensation, operating and administrative expenses for JLL Technologies is carried interest expense of $6.2 million and $4.2 million for the first quarter of 2022 and 2021, respectively, related to equity earnings of the segment. JLL Technologies top-line growth included $8.5 million of incremental fee revenue from acquisitions closed in the second half of 2021. Organic fee revenue increased 24%, driven by new customers as well as growth from existing customers in our software and solutions offerings. Equity earnings in both years were due to valuation increases to our investments in proptech funds and early to mid-stage proptech companies, primarily reflecting subsequent financing rounds at increased per-share values. The increases in segment operating expenses and segment fee-based operating expenses for the first quarter of 2022, compared with the prior-year period, were driven by the ramp up of operations for future growth, including incremental compensation, T&E and marketing expenses. Adjusted EBITDA margin for the quarter, calculated on a fee-revenue basis, was a negative 27.2% in USD (negative 26.0% in local currency), compared with 46.8% in 2021. Approximately half of the margin contraction was attributable to lower equity earnings. The remaining margin dilution was largely driven by the expense drivers noted above, partially offset by higher fee revenue. 36 Table of Contents LaSalle % Change Three Months Ended March 31, Change in in Local ($ in millions) 2022 2021 U.S. dollars Currency Revenue $ 118.3 91.2 27.1 30 % 34 % Gross contract costs (6.3) (5.9) (0.4) 7 7 Fee revenue $ 112.0 85.3 26.7 31 % 36 % Advisory fees 90.7 79.3 11.4 14 18 Transaction fees and other 17.1 6.0 11.1 185 203 Incentive fees 4.2 — 4.2 n.m. n.m. Compensation, operating and administrative expenses, excluding gross contract costs 88.5 72.0 16.5 23 26 Depreciation and amortization 1.4 2.1 (0.7) (33) (32) Segment fee-based operating expenses (excluding restructuring & acquisition charges) 89.9 74.1 15.8 21 24 Gross contract costs 6.3 5.9 0.4 7 7 Segment operating expenses $ 96.2 80.0 16.2 20 % 23 % Equity (losses) earnings $ (1.9) 13.0 (14.9) (115) % (114) % Adjusted EBITDA $ 21.3 26.1 (4.8) (18) % (11) % LaSalle advisory fee growth was driven by strong capital raising over the trailing twelve months as well as valuation increases in assets under management ("AUM"). The increase in transaction fees was primarily due to a higher volume of asset acquisitions in Asia and Europe. Equity losses in the current quarter included a $10.6 million equity loss due to negative share price movement for a co-investment in a LaSalle-managed publicly-traded REIT in Japan. Equity earnings in the prior-year quarter were substantially driven by valuation increases on underlying real estate investments within LaSalle's co-investment portfolio as the estimated fair values improved following a notable decline in conjunction with the onset of the pandemic in 2020. The increases in segment operating expenses and segment fee-based operating expenses for the current quarter, compared with the prior-year quarter, were primarily driven by compensation expense related to the higher incentive fees, increased headcount, and wage inflation. Adjusted EBITDA margin for the quarter, calculated on a fee-revenue basis, was 19.0% in USD (19.9% in local currency), compared with 30.6% in 2021. The margin contraction was attributable to the change in equity earnings, partially offset by higher advisory and transaction fees. As of March 31, 2022, LaSalle had $77.8 billion of AUM, an increase of 2% in USD and local currency from $76.6 billion as of December 31, 2021. The AUM increase resulted from (i) $3.1 billion of acquisitions, (ii) $3.0 billion of net valuation increases, partially offset by (iii) $4.4 billion of dispositions and withdrawals and (iv) $0.5 billion of foreign currency decreases. 37 Table of Contents LIQUIDITY AND CAPITAL RESOURCES We finance our operations, co-investment activity, share repurchases, capital expenditures and business acquisitions with internally generated funds, borrowings on our Facility, and through issuance of Long-term debt. Cash Flows from Operating Activities Operating activities used $716.4 million of cash in the first quarter of 2022, compared with $461.8 million of cash used in operating activities during the same period in 2021. The increase in cash used in operating activities was primarily due to greater incentive compensation paid in 2022 compared with 2021, reflecting our performance in 2021 compared with 2020. This was partially offset by higher cash provided by earnings, driven by an increase in net income. Cash Flows from Investing Activities We used $94.0 million of cash for investing activities during the first quarter of 2022, as compared to $97.8 million used during the same period in 2021. The slight decrease in cash used was driven by lower investment activity in less than wholly-owned entities, partially offset by higher net capital additions. We discuss these drivers, along with other investing activities, individually below in further detail. Cash Flows from Financing Activities Financing activities provided $806.5 million of cash during the first quarter of 2022, as compared to $376.7 million provided by financing activities during the same period in 2021. The net increase of $429.8 million in cash inflows from financing activities is substantially driven by an increase in borrowings on our Facility. This increase resulted from higher cash outflows for operating activities, as discussed above, as well as incremental share repurchases compared with the prior year. Debt Our $2.75 billion Facility matures on April 14, 2026 and bears a variable interest rate. As of March 31, 2022, we had outstanding borrowings under the Facility of $1,113.7 million. As of December 31, 2021, we had outstanding borrowings under the Facility of $138.2 million. The average outstanding borrowings under the Facility were $683.2 million (with an average effective interest rate of 1.0%) and $184.4 million (with an average effective interest rate of 1.0%) during the three months ended March 31, 2022 and 2021. In addition to our Facility, we had the capacity to borrow up to $55.0 million under local overdraft facilities as of March 31, 2022. We had Short-term borrowings (including financing lease obligations, overdrawn bank accounts and local overdraft facilities) of $118.2 million and $147.9 million as of March 31, 2022 and December 31, 2021, respectively, of which $7.7 million and $9.2 million, respectively, were attributable to local overdraft facilities. Refer to Note 8, Debt, in the Notes to Condensed Consolidated Financial Statements for additional information on our debt. Investment Activity As of March 31, 2022, we had a carrying value of $785.3 million in investments, primarily related to investments by JLL Technologies in proptech funds and early to mid-stage proptech companies, and LaSalle co-investments. For the first quarter of 2022 and 2021, funding of investments exceeded return of capital by $30.9 million and $29.8 million, respectively. We expect continued investments by JLL Technologies as well as strategic co-investment opportunities with our investment management clients globally as co-investment remains an important foundation to the continued growth of LaSalle's business. See Note 5, Investments, in the Notes to Condensed Consolidated Financial Statements for additional information on our investment activity. 38 Table of Contents Share Repurchase and Dividend Programs In February 2022, our Board of Directors authorized an additional $1.5 billion for the repurchase of our common stock in the open market and privately negotiated transactions. The number of shares repurchased and cash paid for repurchases is noted in the following table. Three Months Ended March 31, ($ in millions) 2022 2021 Total number of shares repurchased (in 000's) 615.3 — Total paid for shares repurchased $ 150.0 — As of March 31, 2022, $1,606.8 million remained authorized for repurchases under our share repurchase program. Capital Expenditures Net capital additions for the three months ended March 31, 2022 and 2021, were $46.6 million and $34.6 million, respectively. Our capital expenditures in 2022 were primarily for leased office space improvements, hardware, and purchased/developed software. Investment Asset Activity of Consolidated Less Than Wholly-Owned Entities Net capital additions made by consolidated VIEs in which we held no equity interest for the three months ended March 31, 2022 and 2021 were $12.0 million and $37.2 million, respectively, primarily to acquire real estate (net of real estate sales). The funding for these investments (largely from employee-investors and related third-party debt) is included within financing activities. Business Acquisitions During the three months ended March 31, 2022, we paid $10.5 million for business acquisitions. This included $2.0 million of payments relating to acquisitions in 2022 and $8.5 million for deferred business acquisition and earn-out obligations related to acquisitions completed in prior years, which are primarily reflected in cash flows from financing activities. Terms for many of our past acquisitions have typically included cash paid at closing with provisions for additional deferred consideration and earn-out payments subject to certain contract requirements, including the passage of time and performance, respectively. Deferred business acquisition obligations totaled $27.1 million as of March 31, 2022. These obligations represent the current discounted values of payments due to sellers of businesses for which our acquisition had been completed as of the balance sheet date and for which the only remaining condition on those payments is the passage of time. As of March 31, 2022, we had the potential to make earn-out payments for a maximum of $143.0 million on 20 completed acquisitions subject to the achievement of certain performance conditions. Refer to Note 4, Business Combinations, Goodwill and Other Intangible Assets, in the Notes to the Condensed Consolidated Financial Statements for further information on Business Acquisitions. We will continue to consider acquisitions that we believe will strengthen our market position, increase our profitability, and supplement our organic growth. Repatriation of Foreign Earnings Based on our historical experience and future business plans, we do not expect to repatriate our foreign-sourced earnings to the United States. We believe our policy of permanently investing earnings of foreign subsidiaries does not significantly impact our liquidity. As of March 31, 2022 and December 31, 2021, we had total cash and cash equivalents of $575.8 million and $593.7 million, respectively, of which approximately $473.2 million and $487.9 million, respectively, was held by foreign subsidiaries. Restricted Net Assets We face regulatory restrictions in certain countries that limit or prevent the transfer of funds to other countries or the exchange of the local currency to other currencies. However, we generally face no such restrictions with regard to the use or application of funds for ordinary course business activities within such countries. The assets of these countries aggregated to approximately 4% of our total assets as of both March 31, 2022 and December 31, 2021. 39 Table of Contents CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This report, including this Management's Discussion and Analysis of Financial Condition and Results of Operations, contains “forward-looking statements” within the meaning of the federal securities laws. All such statements are qualified by this cautionary note, which is provided pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements may also be included in our other public filings, press releases, our website, and oral and written presentations by management. Statements in the future tense, and all statements accompanied by terms such as “believe,” “will,” “may,” “could,” “project,” “expect,” “estimate,” “assume,” “intend,” “anticipate,” “target,” “plan” and variations thereof and similar terms, are intended to be forward-looking statements. Such statements do not relate strictly to historical or current facts as they relate to our intent, belief and current expectations about our strategic direction, prospects and future results, and give our current expectations or forecasts of future events. This includes, but is not limited to, our expectations regarding the continuing impact of the COVID-19 pandemic on the economy as a whole, and/or related government and regulatory restrictions issued to combat the global pandemic, including any adverse changes in such restrictions that may impact us. Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or anticipated results. These risks and uncertainties are described in our Annual Report on Form 10-K for the year ended December 31, 2021 in Part I, Item 1A. Risk Factors and may also be described from time to time in our subsequent filings with the Securities and Exchange Commission. You should consider the limitations on, and risks associated with, forward-looking statements and not unduly rely on the accuracy of predictions contained in such forward-looking statements. The forward-looking statements in this report represent our estimates and assumptions only as of the date of this report. We do not undertake any obligation to update forward-looking statements to reflect events, circumstances, changes in expectations or the occurrence of unanticipated events after the date of those statements. 40 Table of Contents