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 and six months ended June 30, 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 six months ended June 30, 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 early 2021, macroeconomic conditions influenced by the COVID-19 pandemic more notably impacted our operations compared with the current year. 28 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 June 30, 2022 and 2021, are not fully indicative of the results we expect to realize for the full fiscal year. 29 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. • EMEA: Europe, Middle East and Africa Consolidated Operating Results Three Months Ended June 30, Change in % Change in Local Currency ($ in millions) 2022 2021 U.S. dollars Markets Advisory $ 1,118.2 951.3 166.9 18 % 20 % Capital Markets 684.5 552.1 132.4 24 28 Work Dynamics 3,310.5 2,836.2 474.3 17 21 JLL Technologies 50.7 39.6 11.1 28 29 LaSalle 114.5 115.8 (1.3) (1) 5 Revenue $ 5,278.4 4,495.0 783.4 17 % 21 % Gross contract costs (3,128.4) (2,695.0) (433.4) 16 20 Net non-cash MSR and mortgage banking derivative activity (11.2) (5.7) (5.5) 96 94 Fee revenue $ 2,138.8 1,794.3 344.5 19 % 23 % Markets Advisory 855.8 711.0 144.8 20 23 Capital Markets 660.7 533.5 127.2 24 28 Work Dynamics 467.0 408.5 58.5 14 19 JLL Technologies 48.0 32.8 15.2 46 48 LaSalle 107.3 108.5 (1.2) (1) 5 Compensation and benefits, excluding gross contract costs $ 1,530.4 1,259.9 270.5 21 % 25 % Operating, administrative and other expenses, excluding gross contract costs 303.2 243.2 60.0 25 30 Depreciation and amortization 55.4 54.5 0.9 2 5 Restructuring and acquisition charges 25.9 18.1 7.8 43 43 Total fee-based operating expenses 1,914.9 1,575.7 339.2 22 26 Gross contract costs 3,128.4 2,695.0 433.4 16 20 Total operating expenses $ 5,043.3 4,270.7 772.6 18 % 22 % Operating income $ 235.1 224.3 10.8 5 % 6 % Equity earnings $ 53.6 40.8 12.8 31 % 31 % Adjusted EBITDA $ 359.0 332.4 26.6 8 % 10 % 30 Table of Contents Consolidated Operating Results (continued) Six Months Ended June 30, Change in % Change in Local Currency ($ in millions) 2022 2021 U.S. dollars Markets Advisory $ 2,117.7 1,744.0 373.7 21 % 24 % Capital Markets 1,285.1 963.8 321.3 33 37 Work Dynamics 6,344.1 5,534.3 809.8 15 18 JLL Technologies 100.1 83.0 17.1 21 21 LaSalle 232.8 207.0 25.8 12 18 Revenue $ 10,079.8 8,532.1 1,547.7 18 % 21 % Gross contract costs (6,032.9) (5,297.9) (735.0) 14 17 Net non-cash MSR and mortgage banking derivative activity (7.6) (15.4) 7.8 (51) (51) Fee revenue $ 4,039.3 3,218.8 820.5 25 % 29 % Markets Advisory 1,597.0 1,263.6 333.4 26 29 Capital Markets 1,252.2 926.7 325.5 35 39 Work Dynamics 877.5 772.0 105.5 14 17 JLL Technologies 93.3 62.7 30.6 49 50 LaSalle 219.3 193.8 25.5 13 19 Compensation and benefits, excluding gross contract costs $ 2,908.2 2,315.3 592.9 26 % 29 % Operating, administrative and other expenses, excluding gross contract costs 572.7 471.1 101.6 22 25 Depreciation and amortization 109.8 107.5 2.3 2 4 Restructuring and acquisition charges 45.4 35.3 10.1 28 31 Total fee-based operating expenses 3,636.1 2,929.2 706.9 24 27 Gross contract costs 6,032.9 5,297.9 735.0 14 17 Total operating expenses $ 9,669.0 8,227.1 1,441.9 18 % 21 % Operating income $ 410.8 305.0 105.8 35 % 37 % Equity earnings $ 72.1 89.3 (17.2) (19) % (19) % Adjusted EBITDA $ 632.6 522.5 110.1 21 % 23 % 31 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/loss on disposition reflects the gain or loss recognized on the sale or disposition of businesses. Given the low frequency of business disposals by the company historically, the gain or loss directly associated with such activity is excluded as it is not considered indicative of core operating performance. In the second quarter of 2022, the $7.5 million net loss on disposition included $10.5 million of loss related to the disposition of our Russia business, partially offset by a $3.0 million gain related to a disposition within JLL Technologies. In 2021, the $12.0 million gain related to a business disposition within JLL Technologies during the first quarter of 2021. 32 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 June 30, Six Months Ended June 30, (in millions) 2022 2021 2022 2021 Revenue $ 5,278.4 4,495.0 $ 10,079.8 8,532.1 Adjustments: Gross contract costs (3,128.4) (2,695.0) (6,032.9) (5,297.9) Net non-cash MSR and mortgage banking derivative activity (11.2) (5.7) (7.6) (15.4) Fee revenue $ 2,138.8 1,794.3 $ 4,039.3 3,218.8 Operating expenses $ 5,043.3 4,270.7 $ 9,669.0 8,227.1 Less: Gross contract costs (3,128.4) (2,695.0) (6,032.9) (5,297.9) Fee-based operating expenses $ 1,914.9 1,575.7 $ 3,636.1 2,929.2 Operating income $ 235.1 224.3 $ 410.8 305.0 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 June 30, Six Months Ended June 30, ($ in millions) 2022 2021 2022 2021 Net income attributable to common shareholders $ 193.9 200.0 $ 339.5 303.0 Add: Interest expense, net of interest income 15.7 10.6 25.9 21.0 Provision for income taxes 72.8 54.9 113.1 83.1 Depreciation and amortization (a) 54.4 54.5 108.8 107.5 EBITDA $ 336.8 320.0 $ 587.3 514.6 Adjustments: Restructuring and acquisition charges 25.9 18.1 45.4 35.3 Net loss (gain) on disposition 7.5 — 7.5 (12.0) Net non-cash MSR and mortgage banking derivative activity (11.2) (5.7) (7.6) (15.4) Adjusted EBITDA $ 359.0 332.4 $ 632.6 522.5 Net income margin attributable to common shareholders 3.7 % 4.4 % 3.4 % 3.6 % Adjusted EBITDA margin 16.5 % 18.5 % 15.5 % 16.2 % (a) This adjustment excludes the noncontrolling interest portion of amortization of acquisition-related intangibles which is not attributable to common shareholders. 33 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 June 30, Six Months Ended June 30, ($ in millions) 2022 % Change 2022 % Change Revenue: At current period exchange rates $ 5,278.4 17 % $ 10,079.8 18 % Impact of change in exchange rates 174.3 n/a 252.1 n/a At comparative period exchange rates $ 5,452.7 21 % $ 10,331.9 21 % Fee revenue: At current period exchange rates $ 2,138.8 19 % $ 4,039.3 25 % Impact of change in exchange rates 67.0 n/a 99.6 n/a At comparative period exchange rates $ 2,205.8 23 % $ 4,138.9 29 % Operating income: At current period exchange rates $ 235.1 5 % $ 410.8 35 % Impact of change in exchange rates 3.7 n/a 6.9 n/a At comparative period exchange rates $ 238.8 6 % $ 417.7 37 % Adjusted EBITDA: At current period exchange rates $ 359.0 8 % $ 632.6 21 % Impact of change in exchange rates 5.5 n/a 10.5 n/a At comparative period exchange rates $ 364.5 10 % $ 643.1 23 % 34 Table of Contents Revenue Year-over-year for the second quarter, we achieved strong revenue and fee revenue growth of 21% and 23%, respectively, substantially all of which was organic. Fee revenue growth versus the prior-year quarter was broad-based across all segments - most achieved increases of 20% of higher - led by Markets Advisory, up $144.8 million or 23%, and Capital Markets, up $127.2 million or 28%. In addition, annuity-based businesses continued to deliver solid fee revenue growth as Workplace Management within Work Dynamics, for example, grew 15%. LaSalle's increase in advisory fees for the quarter was mostly offset by lower incentive fees. The following highlights the proportion of consolidated top-line growth on a local currency basis, compared with the prior-year periods, by business line segment ($ in millions). Refer to segment operating results for further detail. For the first half of 2022, consolidated revenue and fee revenue increased 21% and 29%, respectively, compared with the prior year. The year-to-date fee revenue growth was also led by Markets Advisory, up $333.4 million or 29%, and Capital Markets, up $325.5 million or 39%. Work Dynamics delivered solid fee revenue growth of 17%, led by our corporate outsourcing business, Workplace Management. Higher advisory fees for the first half of 2022 outpaced the decline in incentive fees to drive fee revenue up 19% for LaSalle. Our consolidated fee revenue increased 19% in U.S. dollars (“USD”) and 23% in local currency for the second quarter of 2022, compared with 2021. Year-to-date, consolidated fee revenue increased 25% in U.S. dollars (“USD”) and 29% in local currency compared with last year. The quarter-to-date and year-to-date spreads were driven by the strengthening of the U.S. dollar against most major currencies, especially the British pound sterling, euro, Japanese yen and Australian dollar. 35 Table of Contents Operating Expenses Consolidated operating expenses were $5.0 billion for the second quarter, up 22% from 2021, and $9.7 billion for the first half of 2022, up 21%, while consolidated fee-based operating expenses were $1.9 billion for the second quarter, up 26% from the prior-year quarter, and $3.6 billion for the first six months, up 27%. The second quarter and first half of the year increases in fee-based operating expenses were primarily attributable to our Markets Advisory and Capital Markets segments, which each drove 35% of the overall increase on a local currency basis for the quarter (37% and 36%, respectively, year to date). Refer to the segment discussions for additional details. For the second quarter and first half of 2022, Restructuring and acquisition charges increased compared with the prior-year period, primarily due to post-acquisition and integration costs associated with business combinations that closed in the second half of 2021; refer to following table for further detail. Three Months Ended June 30, Six Months Ended June 30, (in millions) 2022 2021 2022 2021 Severance and other employment-related charges $ 8.3 (0.9) $ 11.6 0.9 Restructuring, pre-acquisition and post-acquisition charges 16.6 17.9 33.5 33.4 Fair value adjustments that resulted in a net decrease to earn-out liabilities from prior-period acquisition activity 1.0 1.1 0.3 1.0 Total restructuring and acquisition charges $ 25.9 18.1 $ 45.4 35.3 Equity Earnings The following details equity earnings by relevant segment. Refer to the segment discussions for additional details. Three Months Ended June 30, Six Months Ended June 30, (in millions) 2022 2021 2022 2021 JLL Technologies $ 44.7 16.2 $ 63.5 50.8 LaSalle 7.0 23.4 5.1 36.4 Other 1.9 1.2 3.5 2.1 Total equity earnings $ 53.6 40.8 $ 72.1 89.3 Other Income (Expense) Other income was $135.3 million and $135.5 million for the quarter and year ended June 30, 2022, compared with an expense of $0.2 million and income of $11.6 million for the comparable periods in 2021. During the second quarter of 2022, Other income included a $142.3 million gain by a consolidated variable interest entity in which we held no equity interest. This gain, therefore, is also included in net income attributable to noncontrolling interest, and as a result, there is no net impact to Net income attributable to common shareholders (or other measures like Adjusted EBITDA, Adjusted net income and Adjusted diluted earnings per share). Also in the second quarter of 2022, we recognized a $10.5 million loss related to the disposition of the Russia business. In 2021, a $12.0 million gain related to a business disposition within JLL Technologies during the first quarter. Income Taxes The provision for income taxes was $72.8 million and $113.1 million for the three and six months ended June 30, 2022, respectively, representing effective tax rates ("ETRs") of 17.8% and 19.1%, respectively. For the three and six months ended June 30, 2021, the provision was $54.9 million and $83.1 million, respectively, representing an ETR of 21.6% for both periods. The lower ETR, for both the second quarter and first half of 2022, resulted from (1) a reduction of a valuation reserve related to a capital loss carryover for which the full effect was recognized in the second quarter as a discrete item and (2) the removal of pass-through income from noncontrolling interests which is included in Income before income taxes and noncontrolling interest on the Statements of Comprehensive Income but excluded from the tax computation. 36 Table of Contents Net Income and Adjusted EBITDA Net income attributable to common shareholders for the three and six months ended June 30, 2022 was $193.9 million and $339.5 million, respectively, compared with $200.0 million and $303.0 million in the respective prior periods. Adjusted EBITDA was $359.0 million and $632.6 million for the second quarter and first half of 2022, compared to $332.4 million and $522.5 million in the prior-year periods. Net income attributable to common shareholders for the six months ended June 30, 2021 included a $3.0 million gain recognized on an asset sale within JLL Technologies and a $10.5 million loss on the disposition of our Russia businesses. This gain/loss on disposition activity is excluded from adjusted measures. Net income margin attributable to common shareholders for the second quarter (against Revenue) was 3.7%, compared with 4.4% in the prior-year quarter. Adjusted EBITDA margin for the second quarter, calculated on a fee-revenue basis, was 16.8% in USD (16.5% in local currency), compared with 18.5% in 2021. The net decrease in margin was primarily due to higher compensation expense - including higher commissions and increased headcount - as well as increased T&E and marketing expenses as business normalizes compared to a more heavily impacted prior-year quarter. These drivers more than offset the fee revenue growth. 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. Markets Advisory % Change Three Months Ended June 30, Change in in Local ($ in millions) 2022 2021 U.S. dollars Currency Revenue $ 1,118.2 951.3 166.9 18 % 20 % Gross contract costs (262.4) (240.3) (22.1) 9 12 Fee revenue $ 855.8 711.0 144.8 20 % 23 % Leasing 703.5 568.6 134.9 24 26 Property Management 122.2 114.7 7.5 7 10 Advisory, Consulting and Other 30.1 27.7 2.4 9 14 Compensation, operating and administrative expenses, excluding gross contract costs 722.3 599.6 122.7 20 23 Depreciation and amortization 17.3 16.7 0.6 4 6 Segment fee-based operating expenses (excluding restructuring and acquisition charges) 739.6 616.3 123.3 20 23 Gross contract costs 262.4 240.3 22.1 9 12 Segment operating expenses $ 1,002.0 856.6 145.4 17 % 20 % Equity earnings $ 0.4 0.1 0.3 300 % 200 % Adjusted EBITDA $ 134.0 113.9 20.1 18 % 20 % 37 Table of Contents Markets Advisory (continued) % Change Six Months Ended June 30, Change in in Local ($ in millions) 2022 2021 U.S. dollars Currency Revenue $ 2,117.7 1,744.0 373.7 21 % 24 % Gross contract costs (520.7) (480.4) (40.3) 8 11 Fee revenue $ 1,597.0 1,263.6 333.4 26 % 29 % Leasing 1,300.4 980.8 319.6 33 35 Property Management 240.8 229.0 11.8 5 8 Advisory, Consulting and Other 55.8 53.8 2.0 4 8 Compensation, operating and administrative expenses, excluding gross contract costs 1,355.0 1,086.1 268.9 25 27 Depreciation and amortization 34.4 32.6 1.8 6 8 Segment fee-based operating expenses (excluding restructuring and acquisition charges) 1,389.4 1,118.7 270.7 24 26 Gross contract costs 520.7 480.4 40.3 8 11 Segment operating expenses $ 1,910.1 1,599.1 311.0 19 % 22 % Equity earnings $ 0.9 0.5 0.4 80 % 60 % Adjusted EBITDA $ 245.2 179.9 65.3 36 % 38 % Markets Advisory revenue and fee revenue growth was led by Leasing, both on a year-to-date and quarter-to-date basis. Globally in Leasing, most major asset classes achieved double-digit growth compared with the comparable periods, with continued strength in industrial and strong momentum in the office sector. The U.S. contributed most significantly to the growth in Leasing, propelled by increases in deal size and volume. The increases in segment operating expenses and segment fee-based operating expenses for both the second quarter and first half of 2022, compared with the prior-year periods, were driven primarily by higher compensation costs. These incremental expenses were primarily due to revenue producers achieving higher commission tiers earlier in 2022 compared to 2021, which is a direct result of the 2022 revenue increases described above, as well as additional headcount to meet increased business demand. In addition, higher expenses were, in part, due to increased T&E and marketing costs as business activities normalize following the past couple years which were more heavily impacted by the pandemic. These drivers were partially offset by the timing of incentive compensation accruals, reflecting changes in annual incentive 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. Adjusted EBITDA margin for the quarter, calculated on a fee-revenue basis, was 15.7% in USD (15.6% in local currency), compared with 16.0% in 2021. The lower margin was largely attributable to the expense drivers noted above, which more than offset the increased revenue. 38 Table of Contents Capital Markets % Change Three Months Ended June 30, Change in in Local ($ in millions) 2022 2021 U.S. dollars Currency Revenue $ 684.5 552.1 132.4 24 % 28 % Gross contract costs (12.6) (12.9) 0.3 (2) 8 Net non-cash MSR and mortgage banking derivative activity (11.2) (5.7) (5.5) 96 94 Fee revenue $ 660.7 533.5 127.2 24 % 28 % Investment Sales, Debt/Equity Advisory and Other 528.0 413.4 114.6 28 31 Valuation Advisory 92.3 89.5 2.8 3 10 Loan Servicing 40.4 30.6 9.8 32 32 Compensation, operating and administrative expenses, excluding gross contract costs 534.7 412.4 122.3 30 34 Depreciation and amortization 15.4 16.7 (1.3) (8) (6) Segment fee-based operating expenses (excluding restructuring and acquisition charges) 550.1 429.1 121.0 28 32 Gross contract costs 12.6 12.9 (0.3) (2) 8 Segment operating expenses $ 562.7 442.0 120.7 27 % 32 % Equity earnings $ 0.6 1.4 (0.8) (57 %) (60 %) Adjusted EBITDA $ 126.7 120.8 5.9 5 % 8 % 39 Table of Contents Capital Markets (continued) % Change Six Months Ended June 30, Change in in Local ($ in millions) 2022 2021 U.S. dollars Currency Revenue $ 1,285.1 963.8 321.3 33 % 37 % Gross contract costs (25.3) (21.7) (3.6) 17 26 Net non-cash MSR and mortgage banking derivative activity (7.6) (15.4) 7.8 (51) (51) Fee revenue $ 1,252.2 926.7 325.5 35 % 39 % Investment Sales, Debt/Equity Advisory and Other 996.5 699.4 297.1 42 46 Valuation Advisory 175.4 166.7 8.7 5 11 Loan Servicing 80.3 60.6 19.7 33 32 Compensation, operating and administrative expenses, excluding gross contract costs 1,008.8 748.0 260.8 35 39 Depreciation and amortization 31.0 32.6 (1.6) (5) (4) Segment fee-based operating expenses (excluding restructuring and acquisition charges) 1,039.8 780.6 259.2 33 37 Gross contract costs 25.3 21.7 3.6 17 26 Segment operating expenses $ 1,065.1 802.3 262.8 33 % 37 % Equity earnings $ 1.4 1.8 (0.4) (22 %) (20 %) Adjusted EBITDA $ 244.9 179.9 65.0 36 % 39 % Capital Markets fee revenue growth for the quarter and first half of the year were broad-based, led by increases in debt advisory and investment sales. Within Investment Sales, Debt/Equity Advisory and Other, revenue from nearly all major asset classes grew compared with prior-year quarter, notably in the retail and residential sectors. Higher Loan Servicing revenue was attributable to (i) continued growth of the servicing portfolio, particularly under our Fannie Mae DUS license (comprising approximately 55% and 50% of the second quarter and first half of 2022 increases, respectively) and (ii) incremental prepayment fees. The increases in segment operating expenses and segment fee-based operating expenses for the second quarter and first half of 2022, compared with the comparable prior-year periods, were driven primarily by incremental headcount and higher commissions and an increase in T&E and marketing expenses. This was partially offset by reductions to other variable compensation plans as a result of changes to the commission structures. While not as impactful on the quarter-to-date performance, expenses for the first half of 2021 included a $13.8 million non-cash reduction to loan loss credit reserves, versus a comparable reduction of $2.8 million recorded this year. Adjusted EBITDA margin for the quarter, calculated on a fee-revenue basis, was 19.2% in USD (and 19.1% local currency), compared with 22.6% in 2021. The reduction in margin was primarily due to the expense drivers noted above, partially offset by incremental fee revenue. 40 Table of Contents Work Dynamics % Change Three Months Ended June 30, Change in in Local ($ in millions) 2022 2021 U.S. dollars Currency Revenue $ 3,310.5 2,836.2 474.3 17 % 21 % Gross contract costs (2,843.5) (2,427.7) (415.8) 17 21 Fee revenue $ 467.0 408.5 58.5 14 % 19 % Workplace Management 184.9 164.9 20.0 12 15 Project Management 214.9 184.5 30.4 16 22 Portfolio Services and Other 67.2 59.1 8.1 14 17 Compensation, operating and administrative expenses, excluding gross contract costs 410.3 357.0 53.3 15 20 Depreciation and amortization 17.0 16.8 0.2 1 6 Segment fee-based operating expenses (excluding restructuring and acquisition charges) 427.3 373.8 53.5 14 19 Gross contract costs 2,843.5 2,427.7 415.8 17 21 Segment operating expenses $ 3,270.8 2,801.5 469.3 17 % 21 % Equity earnings (losses) $ 0.9 (0.3) 1.2 400 % 467 % Adjusted EBITDA $ 57.6 51.2 6.4 13 % 13 % 41 Table of Contents Work Dynamics (continued) % Change Six Months Ended June 30, Change in in Local ($ in millions) 2022 2021 U.S. dollars Currency Revenue $ 6,344.1 5,534.3 809.8 15 % 18 % Gross contract costs (5,466.6) (4,762.3) (704.3) 15 18 Fee revenue $ 877.5 772.0 105.5 14 % 17 % Workplace Management 366.9 318.3 48.6 15 18 Project Management 390.6 347.7 42.9 12 17 Portfolio Services and Other 120.0 106.0 14.0 13 16 Compensation, operating and administrative expenses, excluding gross contract costs 785.9 695.7 90.2 13 17 Depreciation and amortization 33.5 33.0 0.5 2 5 Segment fee-based operating expenses (excluding restructuring and acquisition charges) 819.4 728.7 90.7 12 16 Gross contract costs 5,466.6 4,762.3 704.3 15 18 Segment operating expenses $ 6,286.0 5,491.0 795.0 14 % 18 % Equity earnings (losses) $ 1.2 (0.2) 1.4 700 % 673 % Adjusted EBITDA $ 92.8 76.1 16.7 22 % 21 % The revenue and fee revenue growth for Work Dynamics was led by the commencement of Workplace Management services for new client wins and expansion of existing mandates, predominantly in the United States. Project Management also meaningfully contributed to quarter and year-to-date growth and led second-quarter fee revenue growth for the segment, largely from higher project demand which is approaching pre-pandemic levels. The increases in segment operating expenses and segment fee-based operating expenses for the second quarter and first half of 2022, compared with the prior-year periods, were a product of incremental investments in people, specifically additional headcount and wage increases, to support current and future growth. Adjusted EBITDA margin for the quarter, calculated on a fee-revenue basis, was 12.4% in USD (11.9% in local currency), compared with 12.5% in 2021. The slight margin contraction was attributable to the expense drivers noted above, partially offset by revenue increases, both discussed above. 42 Table of Contents JLL Technologies % Change Three Months Ended June 30, Change in in Local ($ in millions) 2022 2021 U.S. dollars Currency Revenue $ 50.7 39.6 11.1 28 % 29 % Gross contract costs (2.7) (6.8) 4.1 (60) (61) Fee revenue $ 48.0 32.8 15.2 46 % 48 % Compensation, operating and administrative expenses, excluding gross contract costs (1) 79.7 50.5 29.2 58 60 Depreciation and amortization 3.9 2.2 1.7 77 79 Segment fee-based operating expenses (excluding restructuring and acquisition charges) 83.6 52.7 30.9 59 61 Gross contract costs 2.7 6.8 (4.1) (60) (61) Segment operating expenses $ 86.3 59.5 26.8 45 % 47 % Equity earnings $ 44.7 16.2 28.5 176 % 177 % Adjusted EBITDA $ 12.9 (1.5) 14.4 960 % 906 % 43 Table of Contents JLL Technologies (continued) % Change Six Months Ended June 30, Change in in Local ($ in millions) 2022 2021 U.S. dollars Currency Revenue $ 100.1 83.0 17.1 21 % 21 % Gross contract costs (6.8) (20.3) 13.5 (67) (67) Fee revenue $ 93.3 62.7 30.6 49 % 50 % Compensation, operating and administrative expenses, excluding gross contract costs (1) 156.1 101.0 55.1 55 55 Depreciation and amortization 7.7 5.1 2.6 51 52 Segment fee-based operating expenses (excluding restructuring and acquisition charges) 163.8 106.1 57.7 54 52 Gross contract costs 6.8 20.3 (13.5) (67) (67) Segment operating expenses $ 170.6 126.4 44.2 35 % 36 % Equity earnings $ 63.5 50.8 12.7 25 % 25 % Adjusted EBITDA $ 0.6 12.5 (11.9) (95) % (95) % (1) Included in Compensation, operating and administrative expenses for JLL Technologies is carried interest expense related to equity earnings of the segment. Such amounts were $9.8 million and $16.0 million for the three and six months ended June 30, 2022, respectively, and $4.6 million and $8.8 million for the three and six months ended June 30, 2021. For the second quarter and first half of 2022, JLL Technologies top-line growth included $8.3 million and $16.8 million, respectively, of incremental fee revenue from acquisitions closed in late 2021. Organic fee revenue against the comparable quarter and first six months increased approximately 22% and 24%, respectively, driven by new customers as well as growth from existing customers in software and solutions offerings. Equity earnings in both years were attributable to valuation increases to our investments in proptech funds and early to mid-stage proptech companies, primarily reflecting subsequent financing rounds at increased per-share values. The increases in segment operating expenses and segment fee-based operating expenses for the second quarter and first half of 2022, compared with the prior-year periods, were driven by incremental compensation related to recent acquisitions and the ramp up of operations for future growth, and higher T&E and marketing expenses. Adjusted EBITDA margin for the quarter, calculated on a fee-revenue basis, was 27.0% in USD (25.7% in local currency), compared with negative 4.6% in 2021. The margin expansion was due to higher equity earnings, partially offset by expense drivers noted above. 44 Table of Contents LaSalle % Change Three Months Ended June 30, Change in in Local ($ in millions) 2022 2021 U.S. dollars Currency Revenue $ 114.5 115.8 (1.3) (1) % 5 % Gross contract costs (7.2) (7.3) 0.1 (1) — Fee revenue $ 107.3 108.5 (1.2) (1) % 5 % Advisory fees 98.2 84.9 13.3 16 23 Transaction fees and other 8.1 8.4 (0.3) (4) 1 Incentive fees 1.0 15.2 (14.2) (93) (93) Compensation, operating and administrative expenses, excluding gross contract costs 86.6 83.6 3.0 4 12 Depreciation and amortization 1.8 2.1 (0.3) (14) (9) Segment fee-based operating expenses (excluding restructuring & acquisition charges) 88.4 85.7 2.7 3 11 Gross contract costs 7.2 7.3 (0.1) (1) — Segment operating expenses $ 95.6 93.0 2.6 3 % 10 % Equity earnings $ 7.0 23.4 (16.4) (70) % (70) % Adjusted EBITDA $ 27.8 48.0 (20.2) (42) % (42) % 45 Table of Contents LaSalle (continued) % Change Six Months Ended June 30, Change in in Local ($ in millions) 2022 2021 U.S. dollars Currency Revenue $ 232.8 207.0 25.8 12 % 18 % Gross contract costs (13.5) (13.2) (0.3) 2 3 Fee revenue $ 219.3 193.8 25.5 13 % 19 % Advisory fees 188.9 164.2 24.7 15 21 Transaction fees and other 25.2 14.4 10.8 75 85 Incentive fees 5.2 15.2 (10.0) (66) (65) Compensation, operating and administrative expenses, excluding gross contract costs 175.1 155.6 19.5 13 18 Depreciation and amortization 3.2 4.2 (1.0) (24) (21) Segment fee-based operating expenses (excluding restructuring & acquisition charges) 178.3 159.8 18.5 12 17 Gross contract costs 13.5 13.2 0.3 2 3 Segment operating expenses $ 191.8 173.0 18.8 11 % 16 % Equity earnings $ 5.1 36.4 (31.3) (86) % (86) % Adjusted EBITDA $ 49.1 74.1 (25.0) (34) % (31) % For both the second quarter and first half of 2022, LaSalle advisory fee growth was concentrated in core open-end funds, driven by strong capital raising and increases in fair value of assets under management over the trailing twelve months. Prior-year incentive fees, which did not reoccur in 2022, related to real estate dispositions on behalf of clients, predominantly in Asia Pacific. Current-quarter equity earnings included a loss of $1.9 million ($12.5 million loss year-to-date) due to negative share price movement for a co-investment in a LaSalle-managed publicly traded REIT in Japan, whereas the prior-year quarter reflected a $9.5 million gain ($10.1 million gain year-to-date) related to the same investment. In addition, equity earnings in the second quarter and first half of 2021 were meaningfully driven by the recovery of pandemic-driven valuation declines in 2020. The increases in segment operating expenses and segment fee-based operating expenses for the second quarter and first half of 2022, compared with the prior-year comparable periods, were primarily driven by incremental fixed compensation expense, partially offset by lower variable compensation expense associated with the decline in incentive fees. Adjusted EBITDA margin for the quarter, calculated on a fee-revenue basis, was 26.0% in USD (24.3% in local currency), compared with 44.2% in 2021. The margin contraction was primarily attributable to the decrease in equity earnings, which drove over 80% of the margin contraction, and lower incentive fees, partially offset by higher advisory fees and incremental advisory fee platform scale. As of June 30, 2022, LaSalle had $82.1 billion of AUM, an increase of 6% in USD (8% local currency) from $77.8 billion as of March 31, 2022. The AUM increase resulted from (i) $3.9 billion of acquisitions and (ii) $3.1 billion of net valuation increases, partially offset by (iii) $1.1 billion of dispositions and withdrawals and (iv) $1.6 billion of foreign currency decreases. 46 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 $539.4 million of cash in the first six months of 2022, compared with $246.1 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. This was partially offset by higher cash provided by earnings. Cash Flows from Investing Activities We used $63.1 million of cash for investing activities during the first six months of 2022, as compared to $213.8 million used during the same period in 2021. The decrease in cash used was driven by lower investment activity in less than wholly-owned entities as the year-over-year change in net investment activity (JLL Technologies and LaSalle) was largely flat. We discuss these drivers, along with other investing activities, individually below in further detail. Cash Flows from Financing Activities Financing activities provided $601.3 million of cash during the first six months of 2022, as compared to $314.7 million provided by financing activities during the same period in 2021. The net increase of $286.6 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 over $400 million of incremental share repurchases compared with the 2021. In addition, the cash outflow relating to noncontrolling interest distributions included a $142.3 million gain by a consolidated variable interest entity in which the company held no equity interest that was also distributed this quarter (The offset to this is included in cash provided by earnings). Debt Our $2.75 billion Facility matures on April 14, 2026 and bears a variable interest rate. As of June 30, 2022, we had outstanding borrowings under the Facility of $1,364.3 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 $1,581.9 million and $612.5 million (with average effective interest rates of 1.6% and 1.0%) during the three months ended June 30, 2022 and 2021, respectively, and $1,135.0 million and $399.6 million (with average effective interest rates of 1.4% and 1.0%) during the six months ended June 30, 2022 and 2021, respectively. In addition to our Facility, we had the capacity to borrow up to $52.1 million under local overdraft facilities as of June 30, 2022. We had Short-term borrowings (including financing lease obligations, overdrawn bank accounts and local overdraft facilities) of $128.3 million and $147.9 million as of June 30, 2022 and December 31, 2021, respectively, of which $4.1 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 June 30, 2022, we had a carrying value of $901.9 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 half of 2022 and 2021, funding of investments exceeded return of capital by $108.3 million and $63.9 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. In the prior year, JLL technologies funded a $45 million convertible note to Turntide Technologies. This activity was included within "Other" in the cash flow from investing activities. 47 Table of Contents Capital Expenditures Net capital additions for the six months ended June 30, 2022 and 2021 were $86.9 million and $69.8 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 proceeds related to consolidated VIEs in which we held no equity interest for the six months ended June 30, 2022 were $137.0 million, compared with net capital additions of $41.8 million during the prior-year period. The activity primarily relates to the acquisition of real estate (net of sales). The funding for, or distribution of, these investments (largely from employee-investors and related third-party debt) is included within financing activities. Business Acquisitions During the six months ended June 30, 2022, we paid $15.9 million for business acquisitions. This included $2.0 million of payments relating to acquisitions in 2022 and $13.9 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 $26.9 million as of June 30, 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 June 30, 2022, we had the potential to make earn-out payments for a maximum of $134.6 million on 18 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. Share Repurchase and Dividend Programs In February 2022, our Board of Directors authorized an additional $1.5 billion for the repurchase of our common stock in the open market and privately negotiated transactions. The number of shares repurchased and cash paid for repurchases is noted in the following table. Three Months Ended June 30, Six Months Ended June 30, ($ in millions) 2022 2021 2022 2021 Total number of shares repurchased (in 000's) 1,397.9 172.5 2,013.2 172.5 Total paid for shares repurchased $ 297.7 37.9 $ 447.7 37.9 As of June 30, 2022, $1,309.1 million remained authorized for repurchases under our share repurchase program. 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 June 30, 2022 and December 31, 2021, we had total cash and cash equivalents of $568.0 million and $593.7 million, respectively, of which approximately $446.8 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 June 30, 2022 and December 31, 2021. 48 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. 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. 49 Table of Contents