What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-02 compared with 2022-08-03 · 135 added, 117 removed, 424 unchanged (37% of the section changed)

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 ).

The following discussion and analysis should be read in conjunction with the Condensed Consolidated Financial Statements, including the notes thereto, for the three and nine months ended September 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.

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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.

There have been no material changes to these critical accounting policies and estimates during the nine months ended September 30, 2022.

ITEMS AFFECTING COMPARABILITY

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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.

Consequently, the results for the periods ended September 30, 2022 and 2021 are not fully indicative of the results we expect to realize for the full fiscal year.

RESULTS OF OPERATIONS

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Consolidated Operating Results

Three Months Ended June 30, Change in % Change in Local Currency

Three Months Ended September 30, Change in % Change in Local Currency

($ in millions) 2022 2021 U.S.

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Consolidated Operating Results (continued)

Six Months Ended June 30, Change in % Change in Local Currency

Nine Months Ended September 30, Change in % Change in Local Currency

($ in millions) 2022 2021 U.S.

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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.

In 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, both during the second quarter.

In 2021, $12.0 million of the activity related to a business disposition within JLL Technologies during the first quarter and $0.4 million related to a sold business within Markets Advisory in the third quarter.

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,

Three Months Ended September 30, Nine Months Ended September 30,

(in millions) 2022 2021 2022 2021

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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,

Three Months Ended September 30, Nine Months Ended September 30,

($ in millions) 2022 2021 2022 2021

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Restructuring and acquisition charges 21.0 15.6 66.4 50.9

Net loss (gain) on disposition 7.5 — 7.5 (12.0)

Net (gain) loss on disposition — (0.4) 7.5 (12.4)

Net non-cash MSR and mortgage banking derivative activity (5.2) (28.1) (12.8) (43.5)

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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,

Three Months Ended September 30, Nine Months Ended September 30,

($ in millions) 2022 % Change 2022 % Change

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At comparative period exchange rates $ 284.8 (19) % $ 927.1 6 %

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%.

For the third quarter, revenue and fee revenue were up 10% and 4%, respectively, compared with the prior-year quarter;

over 85% of the increase in fee revenue was organic.

Our annuity-based businesses continued to deliver solid fee revenue growth as Workplace Management, within Work Dynamics, grew 19% and Property Management, within Markets Advisory, grew 12%.

Transaction-based businesses, specifically Capital Markets and Leasing, within Markets Advisory, experienced challenges from the sharp increases in interest rates and swift changes in economic sentiment across the globe.

Continued growth in LaSalle advisory fees for the quarter was largely offset by lower incentive fees.

For the first nine months of 2022, we achieved strong revenue and fee revenue growth of 17% and 19%, respectively, compared with the prior year, substantially all of which was organic.

The year-to-date fee revenue growth was led by Markets Advisory, up $344.3 million or 19%, and Capital Markets, up $265.4 million or 21%.

Work Dynamics delivered solid fee revenue growth of 16%, 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.

Higher advisory fees outpaced the drop in incentive fees to drive fee revenue up 13% for LaSalle.

The following highlights the proportion of consolidated top-line growth on a local currency basis, compared with the prior year, by business line segment ($ in millions).

Refer to segment operating results for further detail.

Our consolidated fee revenue was flat in U.S.

dollars (“USD”) and grew 4% in local currency for the third quarter of 2022, compared with 2021.

Year-to-date, consolidated fee revenue increased 16% in U.S.

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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).

Consolidated operating expenses were $5.0 billion for the third quarter, up 13% from 2021, and $14.6 billion for the first nine months of 2022, up 18%, while consolidated fee-based operating expenses were $1.9 billion for the third quarter, up 9% from the prior-year quarter, and $5.5 billion for the first nine months, up 20%.

Third quarter increases in fee-based operating expenses were primarily attributable to our Markets Advisory and Work Dynamics segments, which drove 35% and 31% of the overall increase on a local currency basis for the quarter, respectively.

Year to date, Markets Advisory and Capital Markets were responsible for 37% and 32% of the overall increase, respectively.

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;

For the third quarter and first nine months of 2022, Restructuring and acquisition charges increased compared with the prior-year period, primarily due to severance and other employment-related charges;

refer to following table for further detail.

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in millions) 2022 2021 2022 2021

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Restructuring, pre-acquisition and post-acquisition charges 11.7 14.4 45.2 47.8

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

Fair value adjustments that resulted in a net (decrease) increase to earn-out liabilities from prior-period acquisition activity (0.1) — 0.2 1.0

Total restructuring and acquisition charges $ 21.0 15.6 $ 66.4 50.9

Interest Expense

Interest expense, net of interest income, for the three and nine months ended September 30, 2022 was $23.2 million and $49.1 million, respectively, compared with $9.6 million and $30.6 million in the respective prior periods.

The increase reflected an increase in the average outstanding borrowings as well as a higher effective interest rate on our Facility.

Refer to the Liquidity and Capital Resources section for additional details on our Facility.

Equity Earnings

The following details equity earnings by relevant segment.

The following details equity earnings (losses) by relevant segment.

Refer to the segment discussions for additional details.

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in millions) 2022 2021 2022 2021

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Total equity earnings $ 0.5 17.4 $ 72.6 106.7

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.

Other income was $0.5 million and $136.0 million for the quarter and nine months ended September 30, 2022, compared with $1.3 million and $12.9 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.

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.

Also in the second quarter of 2022, we recognized a $10.5 million loss related to the disposition of our Russia business.

In 2021, we recognized a $12.0 million gain related to a business disposition within JLL Technologies during the first quarter.

The provision for income taxes was $42.3 million and $155.4 million for the three and nine months ended September 30, 2022, respectively, representing effective tax rates ("ETRs") of 23.4% and 20.1%, respectively.

For the three and nine months ended September 30, 2021, the provision was $65.3 million and $148.4 million, respectively, representing an ETR of 21.6% for both periods.

The lower ETR for the first nine months of 2022 was partially attributable to 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.

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.

Net income attributable to common shareholders for the three and nine months ended September 30, 2022 was $140.2 million and $479.7 million, respectively, compared with $237.2 million and $540.2 million in the respective prior periods.

Adjusted EBITDA was $276.2 million and $908.8 million for the third quarter and first nine months of 2022, compared to $352.0 million and $874.5 million in the prior-year periods.

Net income attributable to common shareholders for the nine months ended September 30, 2022 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 business.

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.

Net income margin attributable to common shareholders for the third quarter was 2.7%, compared with 4.9% in the prior-year quarter.

Adjusted EBITDA margin for the third quarter, calculated on a fee-revenue basis, was 13.5% in USD (13.3% in local currency), compared with 17.2% in 2021.

The decrease in margin against an outsized prior-year performance was primarily due to lower Capital Markets revenue coupled with higher compensation expense and incremental T&E and marketing expenses.

The higher compensation expense reflected increased headcount and wage inflation over the trailing twelve months as well as higher commissions associated with the strong year-to-date Leasing revenue growth and changes to Capital Markets variable compensation structures.

Refer to the segment operating results commentary for additional detail.

Segment Operating Results

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Markets Advisory

Three Months Ended June 30, Change in in Local

Three Months Ended September 30, Change in in Local

($ in millions) 2022 2021 U.S.

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Segment operating expenses $ 998.5 948.2 50.3 5 % 9 %

Equity earnings $ 0.4 0.1 0.3 300 % 200 %

Equity (losses) earnings $ (0.2) 0.1 (0.3) (300) % (275) %

Adjusted EBITDA $ 132.1 149.2 (17.1) (11) % (8) %

Markets Advisory (continued)

Six Months Ended June 30, Change in in Local

Nine Months Ended September 30, Change in in Local

($ in millions) 2022 2021 U.S.

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Adjusted EBITDA $ 377.3 329.1 48.2 15 % 18 %

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.

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.

In the third quarter, Markets Advisory achieved modest revenue and fee revenue growth following a strong prior-year quarter.

Leasing results were mixed as broad-based growth in the office sector across geographies and an over $30 million outsized non-office transaction in the U.S.

were largely offset by declines in industrial and retail.

While average deal size again increased this quarter, particularly in office, deal volume fell in substantially all asset classes.

For the first nine months, all major asset classes, except retail, achieved double-digit growth compared with 2021, led by office and industrial, driven by a strong first half of 2022.

Average year-to-date deal size in the U.S.

increased across all major asset classes while deal volume fell year over year in all major asset classes except office, which increased.

The Americas, with both organic and inorganic contributions, led the increase in Property Management fee revenue for the third quarter and first nine months of the year.

The increases in segment operating expenses and segment fee-based operating expenses for both the third quarter and first nine months of 2022, compared with the prior-year periods, were mostly attributable to higher compensation costs.

These incremental expenses were primarily due to (i) leasing brokers achieving higher commission tiers earlier in 2022 compared to 2021, which correlates to the 2022 year-to-date revenue growth, and (ii) additional headcount over the last twelve months to meet increased business demand.

Specifically for the third quarter, higher compensation expense was partially due to the timing of bonus accruals year-over-year, however, this was not a driver of year-to-date expense movement.

In addition, increased T&E and marketing costs, reflecting more normalized business activities following the past couple years which were more heavily impacted by the pandemic, contributed to higher expenses compared with the prior-year periods.

Adjusted EBITDA margin for the quarter, calculated on a fee-revenue basis, was 15.6% in USD (15.8% in local currency), compared with 17.8% in 2021.

The lower margin was largely attributable to the expense drivers noted above, which more than offset the increased revenue.

The lower margin was primarily driven by the expense drivers noted above, which outpaced the fee revenue growth.

Capital Markets

Three Months Ended June 30, Change in in Local

Three Months Ended September 30, Change in in Local

($ in millions) 2022 2021 U.S.

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Capital Markets (continued)

Six Months Ended June 30, Change in in Local

Nine Months Ended September 30, Change in in Local

($ in millions) 2022 2021 U.S.

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Adjusted EBITDA $ 328.1 318.3 9.8 3 % 6 %

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.

The slight drop in third-quarter Capital Markets revenue and fee revenue was primarily driven by lower Investment Sales and Equity Advisory fees as rising interest rates and economic uncertainty impacted transaction volumes and elongated the deal-cycle time.

Globally, market volumes of third-quarter investment sales were down 24% in USD (18% in local currency) according to JLL Research.

An outstanding first half of 2022 drove broad-based year-to-date Capital Markets fee revenue growth, led by Investment Sales and Debt Advisory activity.

Higher Loan Servicing revenue for both the three- and nine-month periods were attributable to continued growth of the servicing portfolio, particularly under our Fannie Mae DUS license.

For the third quarter of 2022, segment operating expenses and segment fee-based operating expenses were largely flat as variable compensation expenses were slightly lower, a product of lower third-quarter revenue, offset by higher T&E and marketing expenses.

For the first nine months of 2022, compared with the comparable prior-year period, expense growth was primarily driven by (i) wage inflation and incremental headcount over the last twelve months, (ii) higher year-to-date commissions, reflecting changes to the incentive compensation structure in 2022, and (iii) an increase in T&E and marketing expenses.

The increase in commissions was partially offset by reductions to other variable compensation plans as a result of changes to the commission structures.

In addition, expenses for the first nine months of 2021 included a $13.8 million non-cash reduction to loan loss credit reserves, versus a comparable reduction of $2.6 million recognized this year.

Adjusted EBITDA margin for the quarter, calculated on a fee-revenue basis, was 14.4% in USD (14.3% in local currency), compared with 21.7% in 2021.

The margin contraction was primarily due to the decline in fee revenue and expense drivers noted above.

Work Dynamics

Three Months Ended June 30, Change in in Local

Three Months Ended September 30, Change in in Local

($ in millions) 2022 2021 U.S.

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Segment operating expenses $ 3,254.1 2,939.9 314.2 11 % 16 %

Equity earnings (losses) $ 0.9 (0.3) 1.2 400 % 467 %

Equity earnings $ 0.1 0.3 (0.2) (67) % (52) %

Adjusted EBITDA $ 53.4 37.7 15.7 42 % 38 %

Work Dynamics (continued)

Six Months Ended June 30, Change in in Local

Nine Months Ended September 30, Change in in Local

($ in millions) 2022 2021 U.S.

11 unchanged sentences

Segment operating expenses $ 9,540.1 8,430.9 1,109.2 13 % 17 %

Equity earnings (losses) $ 1.2 (0.2) 1.4 700 % 673 %

Equity earnings $ 1.3 0.1 1.2 n.m.

Adjusted EBITDA $ 146.2 113.8 32.4 28 % 26 %

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.

The increases in Work Dynamics quarter-to-date and year-to-date fee revenue were driven by Workplace Management and Project Management.

New client wins and the expansion of existing global mandates drove the growth in Workplace Management, whereas Project Management saw continued momentum in project demand across the three- and nine-month periods in the return-to-office movement and fewer pandemic-driven restrictions.

The increases in segment operating expenses and segment fee-based operating expenses for the third quarter and first nine months of 2022, compared with the prior-year periods, were primarily due to revenue-related compensation expense increases to support the revenue growth and incremental T&E and marketing expenses.

Adjusted EBITDA margin for the quarter, calculated on a fee-revenue basis, was 11.8% in USD (10.9% in local currency), compared with 9.0% in 2021.

The slight margin contraction was attributable to the expense drivers noted above, partially offset by revenue increases, both discussed above.

The margin expansion was attributable to the fee revenue growth described above and cost management strategies, partially offset by incremental T&E and marketing expenses.

JLL Technologies

Three Months Ended June 30, Change in in Local

Three Months Ended September 30, Change in in Local

($ in millions) 2022 2021 U.S.

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JLL Technologies (continued)

Six Months Ended June 30, Change in in Local

Nine Months Ended September 30, Change in in Local

($ in millions) 2022 2021 U.S.

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(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.

Three Months Ended June 30, Change in in Local

Such amounts were $0.6 million and $16.6 million for the three and nine months ended September 30, 2022, respectively, and $0.7 million and $9.5 million for the three and nine months ended September 30, 2021, respectively.

For the third quarter and first nine months of 2022, JLL Technologies top-line growth included $9.2 million and $26.0 million, respectively, of incremental fee revenue from acquisitions closed in late 2021.

Organic fee revenue against the comparable quarter and first nine months increased approximately 28% and 25%, respectively, driven by new customers as well as growth from existing customers in software and solutions offerings.

Equity earnings in both years were primarily attributable to valuation increases to our investments in early to mid-stage proptech companies as well as proptech funds, primarily reflecting subsequent financing rounds at increased per-share values.

In the third quarter of 2022, valuation increases were more modest and were largely offset by valuation declines related to a handful of investments.

The increases in segment operating expenses and segment fee-based operating expenses for the third quarter and first nine months 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, coupled with higher T&E expenses.

Adjusted EBITDA margin for the quarter, calculated on a fee-revenue basis, was negative 29.0% in USD (negative 30.1% in local currency), compared with negative 31.1% in 2021.

The slight margin improvement was driven by fee revenue growth, largely offset by lower equity earnings and incremental compensation related to the continued ramp up of operations to support future growth.

Three Months Ended September 30, Change in in Local

($ in millions) 2022 2021 U.S.

11 unchanged sentences

Segment operating expenses $ 102.1 102.5 (0.4) — % 9 %

Equity earnings $ 7.0 23.4 (16.4) (70) % (70) %

Equity (losses) earnings $ (1.1) 8.4 (9.5) (113) % (114) %

Adjusted EBITDA $ 22.8 37.4 (14.6) (39) % (35) %

LaSalle (continued)

Six Months Ended June 30, Change in in Local

Nine Months Ended September 30, Change in in Local

($ in millions) 2022 2021 U.S.

13 unchanged sentences

Adjusted EBITDA $ 71.9 111.5 (39.6) (36) % (33) %

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.

For both the third quarter and first nine months of 2022, LaSalle achieved strong advisory fee growth, concentrated in core open-end funds and driven by strong capital raising and increases in fair value of assets under management over the trailing twelve months.

Lower incentive fees, which related to real estate dispositions on behalf of clients, were attributable to greater economic uncertainty, which slowed transaction activity.

The current quarter's equity losses and the low equity earnings for the first nine months of 2022, were largely attributable to a negative share price movement for a co-investment in a LaSalle-managed publicly traded REIT in Japan as the remainder of the co-investment portfolio was largely flat.

In addition, equity earnings in the third quarter and first nine months of 2021 were meaningfully driven by the recovery of pandemic-driven valuation declines recognized in 2020.

The net increases in segment operating expenses and segment fee-based operating expenses for the third quarter and first nine months of 2022, on a local currency basis and compared with the prior-year periods, were primarily driven by incremental compensation expense, notably expenses associated with the loss of a client mandate in the UK to right-size the advisory fee platform.

Adjusted EBITDA margin for the quarter, calculated on a fee-revenue basis, was 19.7% in USD (19.0% in local currency), compared with 30.3% 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.

The decline in margin was primarily driven by lower equity earnings and incentive fees, and the net expense drivers noted above.

As of September 30, 2022, LaSalle had $81.7 billion of AUM, a change of less than 1% in USD (increase of 4% in local currency) from $82.1 billion as of June 30, 2022.

The AUM change resulted from (i) $3.5 billion of foreign currency decreases and (ii) $1.0 billion of dispositions and withdrawals, partially offset by (iii) $3.2 billion of acquisitions and (iv) $0.9 billion of net valuation increases.

LIQUIDITY AND CAPITAL RESOURCES

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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.

Operating activities used $401.9 million of cash in the first nine months of 2022, compared with $210.3 million of cash provided in operating activities during the same period in 2021.

This change in cash flows from operating activities was primarily due to greater incentive compensation paid in 2022, compared with 2021, a higher a net outflow related to changes in net reimbursable receivables/payables balances, and an incremental $108.0 million of cash paid for taxes, 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 used $147.8 million of cash for investing activities during the first nine months of 2022, as compared to $316.0 million used during the same period in 2021.

The decrease in cash used was driven by the year-over-year change in investment activity by less than wholly-owned entities as the year-over-year change in net investment activity (JLL Technologies and LaSalle) was marginal.

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.

Financing activities provided $500.5 million of cash during the first nine months of 2022, as compared to $39.3 million provided during the same period in 2021.

The net increase of $461.2 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).

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.

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 first nine months of 2021.

The offset to this is included in cash from investing activities, specifically investment activity by less than wholly-owned entities.

On August 31, 2022, we executed Amendment No.

4 ("Amendment No.

4") to the Credit Agreement which increased the borrowing capacity of our Facility from $2.75 billion to $3.35 billion.

Our Facility matures on April 14, 2026 and bears a variable interest rate.

As of September 30, 2022, we had outstanding borrowings under the Facility of $1,587.9 million versus $138.2 million at December 31, 2021.

The average outstanding borrowings under the Facility were $1,599.8 million and $497.1 million (with average effective interest rates of 3.2% and 1.0%) during the three months ended September 30, 2022 and 2021, respectively, and $1,295.9 million and $432.5 million (with average effective interest rates of 2.2% and 1.0%) during the nine months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022, we redeemed all of our outstanding 4.4% Senior Notes due November 2022.

The redemption price for the notes was equal to the $275.0 million principal amount plus accrued and unpaid interest on the Notes.

In addition to our Facility, we had the capacity to borrow up to $50.1 million under local overdraft facilities as of September 30, 2022.

We had Short-term borrowings (including financing lease obligations, overdrawn bank accounts and local overdraft facilities) of $244.2 million and $147.9 million as of September 30, 2022 and December 31, 2021, respectively, of which $26.1 million and $9.2 million, respectively, were attributable to local overdraft facilities.

Refer to Note 9, 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.

As of September 30, 2022, we had a carrying value of $890.9 million in investments, primarily related to investments by JLL Technologies in early to mid-stage proptech companies as well as proptech funds, and LaSalle co-investments.

For the nine months ended September 30, 2022, and 2021, funding of investments exceeded return of capital by $123.2 million and $93.2 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.

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Capital Expenditures

Net capital additions for the six months ended June 30, 2022 and 2021 were $86.9 million and $69.8 million, respectively.

Net capital additions for the nine months ended September 30, 2022 and 2021 were $136.0 million and $111.6 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 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.

Net capital proceeds related to consolidated VIEs in which we held no equity interest for the nine months ended September 30, 2022 were $132.4 million, compared with net capital additions of $53.8 million during the prior-year period.

The activity primarily relates to the acquisition of real estate (net of sales).

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Business Acquisitions

During the six months ended June 30, 2022, we paid $15.9 million for business acquisitions.

During the nine months ended September 30, 2022, we paid $21.6 million for business acquisitions.

This included $5.7 million of payments relating to acquisitions in 2022 and $15.9 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.

Deferred business acquisition obligations totaled $27.9 million as of September 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.

As of September 30, 2022, we had the potential to make earn-out payments for a maximum of $136.6 million on 18 completed acquisitions subject to the achievement of certain performance conditions.

Refer to Note 5, Business Combinations, Goodwill and Other Intangible Assets, in the Notes to the Condensed Consolidated Financial Statements for further information on Business Acquisitions.

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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,

Three Months Ended September 30, Nine Months Ended September 30,

($ in millions) 2022 2021 2022 2021

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Total paid for shares repurchased $ 153.5 149.9 $ 601.2 191.0

As of June 30, 2022, $1,309.1 million remained authorized for repurchases under our share repurchase program.

As of September 30, 2022, $1,155.6 million remained authorized for repurchases under our share repurchase program.

Repatriation of Foreign Earnings

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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.

As of September 30, 2022 and December 31, 2021, we had total cash and cash equivalents of $489.4 million and $593.7 million, respectively, of which approximately $380.5 million and $487.9 million, respectively, was held by foreign subsidiaries.

Restricted Net Assets

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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.

The assets of these countries aggregated to approximately 4% of our total assets as of both September 30, 2022 and December 31, 2021.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis