What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-02 compared with 2023-08-03 · 138 added, 131 removed, 443 unchanged (38% 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, 2023, and our audited Consolidated Financial Statements, including the notes thereto, for the fiscal year ended December 31, 2022, which are included in our 2022 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, 2023, and our audited Consolidated Financial Statements, including the notes thereto, for the fiscal year ended December 31, 2022, which are included in our 2022 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, 2022.

There have been no material changes to these critical accounting policies and estimates during the six months ended June 30, 2023.

There have been no material changes to these critical accounting policies and estimates during the nine months ended September 30, 2023.

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.

Our results of operations and the variability of these results are significantly influenced by (i) macroeconomic trends, (ii) the geopolitical environment, (iii) the global and regional real estate markets and (iv) 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.

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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, 2023 and 2022 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, 2023 and 2022 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) 2023 2022 U.S.

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Operating income $ 119.1 202.6 (83.5) (41) % (39) %

Equity (losses) earnings $ (103.5) 53.6 (157.1) (293) % (293) %

Equity (losses) earnings $ (11.2) 0.5 (11.7) n.m.

Adjusted EBITDA $ 205.2 276.2 (71.0) (26) % (23) %

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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) 2023 2022 U.S.

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Adjusted EBITDA $ 430.3 908.8 (478.5) (53) % (52) %

Net (loss) income margin attributable to common shareholders (USD basis) (0.1) % 3.4 % (350) bps n/a

Net income margin attributable to common shareholders (USD basis) 0.4 % 3.1 % (270) bps n/a

Adjusted EBITDA margin (local currency basis) 8.3 % 14.9 % (670) bps (660) bps

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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 2023, the $1.8 million loss related to the disposition of a business in Markets Advisory.

In 2023, the $0.5 million net loss included $1.8 million of loss related to the disposition of a business in Markets Advisory, partially offset by a $1.3 million gain related to the disposition of a business in Markets Advisory and Capital Markets.

In 2022, the $7.5 million net loss included $10.5 million of loss related to the disposition of the Russia business, partially offset by a $3.0 million gain related to a disposition within JLL Technologies.

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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) 2023 2022 2023 2022

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Operating income $ 119.1 202.6 $ 286.1 613.4

Below is a reconciliation of Net income (loss) attributable to common shareholders to EBITDA and Adjusted EBITDA.

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

Below is a reconciliation of Net income attributable to common shareholders to EBITDA and Adjusted EBITDA.

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

(in millions) 2023 2022 2023 2022

Net income (loss) attributable to common shareholders $ 2.5 193.9 $ (6.7) 339.5

Net income attributable to common shareholders $ 59.7 140.2 $ 53.0 479.7

Interest expense, net of interest income 37.1 23.2 103.9 49.1

Income tax provision (benefit) 0.8 72.8 (1.5) 113.1

Income tax provision 14.5 42.3 13.0 155.4

Depreciation and amortization (1)

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Restructuring and acquisition charges 31.6 21.0 79.1 66.4

Net loss on disposition 1.8 7.5 1.8 7.5

Net (gain) loss on disposition (1.3) — 0.5 7.5

Net non-cash MSR and mortgage banking derivative activity 7.1 (5.2) 9.5 (12.8)

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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) 2023 % Change 2023 % Change

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At comparative period exchange rates $ 212.0 (23) % $ 436.2 (52) %

For the second quarter, revenue and fee revenue decreased 4% and 13%, respectively, compared with the prior-year quarter.

Businesses with resilient revenues continued to deliver fee revenue growth for the quarter, as JLL Technologies grew 18%;

Property Management, within Markets Advisory, grew 9%;

and Workplace Management, within Work Dynamics, grew 2%.

Consistent with the first quarter, economic headwinds and continued interest rate uncertainty adversely impacted most of our transaction-based businesses, notably Investment Sales and Debt/Equity Advisory within Capital Markets, Leasing within Markets Advisory, and Portfolio Services and Other within Work Dynamics.

However, Project Management, within Work Dynamics, was up 8% due to continued demand in several geographies.

LaSalle's double-digit top-line growth was attributable to higher incentive fees.

For the first half of 2023, consolidated revenue and fee revenue were down 2% and 14%, respectively, compared with 2022.

The year-to-date drivers of change between the two years were similar to the quarter-to-date drivers noted above.

For the third quarter, Revenue and fee revenue decreased 2% and 13%, respectively, compared with the prior-year quarter.

Businesses with resilient revenues continued to deliver fee revenue growth for the quarter, as Property Management, within Markets Advisory, grew 12%;

Workplace Management, within Work Dynamics, grew 5%;

and JLL Technologies grew 5%.

Consistent with the first half of the year, economic uncertainty and elevated interest rates along with geopolitical instability in several geographies adversely impacted most of our transaction-based businesses, notably Investment Sales and Debt/Equity Advisory within Capital Markets, and Leasing within Markets Advisory.

However, Project Management, within Work Dynamics, was up 8% due to continued project execution in several geographies, and Portfolio Services and Other within Work Dynamics benefited from outsized transaction activity in the current quarter.

The decline in LaSalle's revenue was largely due to the absence of incentive fees.

For the first nine months of 2023, consolidated Revenue and fee revenue were down 2% and 14%, respectively, compared with 2022.

The year-to-date drivers of change between the two years were similar to the quarter-to-date drivers noted above except for Portfolio Services and Other, which had a year-over-year drop in revenue for the first half of 2023 reflecting the general correlation to leasing activity.

The following highlights Revenue and fee revenue by segment, for the current and prior-year quarters ($ in millions).

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Our consolidated fee revenue declined 13% in U.S.

dollars (“USD”) and 13% in local currency for the second quarter of 2023, compared with 2022.

dollars (“USD”) and 13% in local currency for the third quarter of 2023, compared with 2022.

Year-to-date, consolidated fee revenue declined 14% in USD and 14% in local currency compared with last year.

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Operating Expenses

Consolidated operating expenses were $4.9 billion for the second quarter, down 2% from 2022, and $9.6 billion for the first half of 2023, up 1% from 2022, while consolidated fee-based operating expenses were $1.7 billion for the second quarter, down 11% from the prior-year quarter, and $3.3 billion for the first six months of 2023, down 9%.

The decrease in expenses was primarily attributable to our Capital Markets and Markets Advisory segments, partially offset by revenue-related expense growth in Work Dynamics and LaSalle.

The decline in JLL Technologies expense was associated with carried interest.

For the second quarter of 2023, Restructuring and acquisition charges decreased compared with the prior-year period, driven by a (i) less expense associated with M&A activities, (ii) lower severance and other employment-related charges from cost-out actions and (iii) expenses in the prior year associated with the disposition of our business in Russia;

Consolidated operating expenses were $5.0 billion for the third quarter, a slight decrease from the same period in 2022, and $14.6 billion for the first nine months of 2023, which was relatively flat to 2022, while consolidated fee-based operating expenses were $1.7 billion for the third quarter, down 11% from the prior-year quarter, and $4.9 billion for the first nine months of 2023, down 10%.

The decrease in fee-based operating expenses was primarily attributable to our Capital Markets and Markets Advisory segments, partially offset by revenue-related expense growth in Work Dynamics.

For the third quarter of 2023, Restructuring and acquisition charges increased compared with the prior-year period, driven by (i) higher severance and other employment-related charges from cost-out actions and (ii) expenses associated with rationalizing our real estate footprint in certain geographies;

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) 2023 2022 2023 2022

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Restructuring, pre-acquisition and post-acquisition charges 15.1 11.7 31.7 45.2

Fair value adjustments that resulted in a net (decrease) increase to earn-out liabilities from prior-period acquisition activity (0.6) 1.0 (0.6) 0.3

Total restructuring and acquisition charges $ 11.8 25.9 $ 47.5 45.4

Fair value adjustments that resulted in a net increase (decrease) to earn-out liabilities from prior-period acquisition activity 0.1 (0.1) (0.5) 0.2

Restructuring and acquisition charges $ 31.6 21.0 $ 79.1 66.4

Interest Expense

Interest expense, net of interest income, for the three and six months ended June 30, 2023 was $40.5 million and $66.8 million compared with $15.7 million and $25.9 million in the prior-year periods.

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

Interest expense, net of interest income, for the three and nine months ended September 30, 2023 was $37.1 million and $103.9 million compared with $23.2 million and $49.1 million in the prior-year periods.

The increase primarily reflected a higher effective interest rate on our facilities but also an increase in the average outstanding borrowings.

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

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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) 2023 2022 2023 2022

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Other 0.9 0.6 7.7 4.1

Total equity (losses) earnings $ (103.5) 53.6 $ (106.1) 72.1

Other (Expense) Income

Other non-operating expense was $1.2 million and $1.1 million for the three and six months ended June 30, 2023, compared with income of $135.3 million and $135.5 million for the comparable periods in 2022.

Equity (losses) earnings $ (11.2) 0.5 $ (117.3) 72.6

Other non-operating income was $3.0 million and $1.9 million for the three and nine months ended September 30, 2023, compared with income of $0.5 million and $136.0 million for the comparable periods in 2022.

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.

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

The income tax provision was $0.8 million for the three months ended June 30, 2023, while the income tax benefit was $1.5 million for the six months ended June 30, 2023, representing an effective tax rate ("ETR") of 21.0% for both periods.

For the three and six months ended June 30, 2022, the income tax provision was $72.8 million and $113.1 million, representing an ETR of 17.8% and 19.1%, respectively.

Net Income (Loss) and Adjusted EBITDA

Net income attributable to common shareholders was $2.5 million for the three months ended June 30, 2023, compared with $193.9 million in the prior-year quarter.

For the first half of 2023, net loss attributable to common shareholders was $6.7 million, compared with net income of $339.5 million in 2022.

Adjusted EBITDA was $116.1 million and $225.1 million for the second quarter and first half of 2023, compared with $359.0 million and $632.6 million in the respective prior-year periods.

Net income margin attributable to common shareholders for the second quarter was zero, compared with 3.7% in the prior-year quarter.

Adjusted EBITDA margin for the second quarter, calculated on a fee-revenue basis, was 6.3% in USD (6.2% in local currency), compared with 16.8% in 2022.

Approximately 740 basis points, or 70%, of the adjusted EBITDA margin contraction was driven by the change in equity earnings/losses, net of carried interest.

The residual decline was primarily due to lower transaction-based revenue, specifically Investment Sales, Debt/Equity Advisory, and Leasing.

In addition, recent cost reduction actions mostly offset investments to drive future growth.

The Income tax provision was $14.5 million and $13.0 million for the three and nine months ended September 30, 2023, representing an effective tax rate ("ETR") of 19.6% and 19.3%, respectively.

For the three and nine months ended September 30, 2022, the income tax provision was $42.3 million and $155.4 million, representing an ETR of 23.4% and 20.1%, respectively.

Net Income and Adjusted EBITDA

Net income attributable to common shareholders was $59.7 million for the three months ended September 30, 2023, compared with $140.2 million in the prior-year quarter.

For the first nine months of 2023, Net income attributable to common shareholders was $53.0 million, compared with $479.7 million in 2022.

Adjusted EBITDA was $205.2 million and $430.3 million for the third quarter and first nine months of 2023, compared with $276.2 million and $908.8 million in the respective prior-year periods.

Net income margin attributable to common shareholders for the third quarter was 1.2%, compared with 2.7% in the prior-year quarter.

Adjusted EBITDA margin for the third quarter, calculated on a fee-revenue basis, was 11.5% in USD (12.0% in local currency), compared with 13.5% in 2022.

Margin was impacted by lower transaction-based revenue and the change in Equity earnings/losses, net of carried interest.

Partially offsetting these items were benefits of recent cost reduction actions and lower variable compensation expense.

Segment Operating Results

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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 Capital Markets service offerings include investment sales, debt and equity advisory, value and risk advisory, and loan servicing.

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.

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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) 2023 2022 U.S.

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Segment operating expenses $ 923.0 998.5 (75.5) (8) % (8) %

Equity (losses) earnings $ (0.1) 0.4 (0.5) (125) % (97) %

Equity earnings (losses) $ 0.1 (0.2) 0.3 150 % 120 %

Adjusted EBITDA $ 85.1 132.1 (47.0) (36) % (33) %

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Markets Advisory (continued)

Six Months Ended June 30, Change in in Local

Nine Months Ended September 30, Change in in Local

($ in millions) 2023 2022 U.S.

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Adjusted EBITDA margin (USD basis) 12.4 %

The declines in Markets Advisory revenue and fee revenue, both on a year-to-date and quarter-to-date basis, were predominantly driven by Leasing, which continues to reflect (i) lower transaction volume across asset types, particularly in the office and industrial sectors, and (ii) a decrease in average deal size across most asset types, most notably in the U.S.

office sector.

Specific to the office sector, our change in Leasing was in line with trends in global market volumes as gross absorption fell 14% globally, according to JLL Research.

The decreases in Advisory, Consulting and Other, for both the quarter and first half of the year, were substantially driven by the absence of revenues associated with a business exited during the fourth quarter of 2022.

These decreases were partially offset by Property Management growth, which was primarily attributable to portfolio expansion in the Americas and incremental fees from interest-rate sensitive contract terms in the United Kingdom.

The net decreases in segment operating expenses and segment fee-based operating expenses for the quarter, compared with the prior-year quarter, were primarily due to lower commissions expense, correlated with the revenue decline, as well as lower incentive compensation expense, reflecting segment performance.

The second-quarter adjusted EBITDA margin contraction was predominantly attributable to the lower Leasing fee revenue, net of the decreased operating expenses noted above.

The declines in Markets Advisory revenue and fee revenue were largely driven by Leasing, both on a year-to-date and quarter-to-date basis, and reflected lower transaction volumes and a decline in average deal size across nearly all asset types, particularly in the office sector.

Continued economic uncertainty has delayed commercial real estate decision making, particularly for large-scale leasing actions.

The decreases in Advisory, Consulting and Other for the quarter and first nine months were substantially driven by the absence of revenues associated with a business exited during the fourth quarter of 2022.

Property Management achieved top-line growth for the quarter and year-to-date, primarily attributable to portfolio expansion in the Americas and incremental fees from interest-rate sensitive contract terms in the U.K.

The net decreases in segment operating expenses and segment fee-based operating expenses for the third quarter and first nine months of 2023 were primarily due to (i) lower commissions and other revenue-related expenses, (ii) lower incentive compensation expense, reflecting segment performance and (iii) cost containment measures.

The margin decrease was predominantly attributable to the lower Leasing fee revenue, net of the lower operating expenses noted above.

Capital Markets

Three Months Ended June 30, Change in in Local

Three Months Ended September 30, Change in in Local

($ in millions) 2023 2022 U.S.

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Investment Sales, Debt/Equity Advisory and Other 308.9 452.1 (143.2) (32) (33)

Valuation Advisory 86.6 92.3 (5.7) (6) (5)

Value and Risk Advisory 84.4 86.5 (2.1) (2) (4)

Loan Servicing 38.1 40.5 (2.4) (6) (6)

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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) 2023 2022 U.S.

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Investment Sales, Debt/Equity Advisory and Other 854.0 1,448.6 (594.6) (41) (41)

Valuation Advisory 163.6 175.4 (11.8) (7) (4)

Value and Risk Advisory 248.0 261.9 (13.9) (5) (4)

Loan Servicing 114.5 120.8 (6.3) (5) (5)

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Adjusted EBITDA margin (USD basis) 8.0 %

The lower Capital Markets revenue and fee revenue for the quarter and first half of the year reflected muted transaction volume compared with 2022.

This impact was most acute in Investment Sales and Debt/Equity Advisory, which experienced declines across all asset classes and most geographies compared with the prior-year quarter.

This outperformed global trends as second-quarter market volumes for investment sales were down 54% in USD (53% in local currency), according to JLL Research.

The net decline in Loan Servicing, both on a year-to-date and quarter-to-date basis, was attributable to lower prepayment fees (down $3.7 million for the quarter and $8.2 million for the first half of the year), as refinancing activity slowed over the last twelve months, mostly offset by continued growth in the portfolio originated under the Fannie Mae DUS program.

The net decreases in segment operating expenses and segment fee-based operating expenses for the quarter and first half of the year, compared with the prior-year periods, were almost entirely due to lower commissions expense, correlated with the decline in revenue, as well as lower incentive compensation expense, reflecting segment performance.

While not as impactful on the year-to-date performance, the change in the loan loss reserve was a $7.0 million negative impact (reflected in Operating, administrative and other expenses) to the current quarter, compared with last year.

The second-quarter adjusted EBITDA margin contraction was predominantly driven by the meaningful decline in fee revenue, net of the expense drivers noted above.

In addition, higher equity earnings, which are not expected to recur in future years, provided a modest performance boost for the current quarter.

The lower Capital Markets revenue and fee revenue continued to reflect the meaningful drop in transaction volumes compared with 2022, both on a year-to-date and quarter-to-date basis, as ample capital continues to remain heavily sidelined with economic and interest rate uncertainty.

This impact was most pronounced in Investment Sales and Debt/Equity Advisory, which experienced declines across nearly all asset sectors and geographies compared with the prior year.

Our performance outpaced broader market trends for the quarter and first nine months of 2023, as global market volumes for investment sales were down 46% in USD (48% in local currency) on a quarter-to-date basis, and 50% in USD (and local currency) on a year-to-date basis, according to JLL Research.

The decline in Loan Servicing was attributable to lower prepayment fees (down $3.8 million for the quarter and $12.0 million for the first nine months of the year), as refinancing activity slowed over the last twelve months, overshadowing continued growth in servicing fees from the portfolio originated under the Fannie Mae DUS program.

The net decreases in segment operating expenses and segment fee-based operating expenses for the quarter and first nine months of the year, against the comparative periods, were almost entirely due to lower revenue-related expenses, as well as lower incentive compensation expense, reflecting segment performance.

The margin reduction for the quarter was predominantly driven by lower Investment Sales and Debt/Equity Advisory revenue described above.

Work Dynamics

Three Months Ended June 30, Change in in Local

Three Months Ended September 30, Change in in Local

($ in millions) 2023 2022 U.S.

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Work Dynamics (continued)

Six Months Ended June 30, Change in in Local

Nine Months Ended September 30, Change in in Local

($ in millions) 2023 2022 U.S.

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Adjusted EBITDA margin (USD basis) 10.1 %

Work Dynamics revenue and fee revenue increases compared with the prior-year quarter were driven by strength in Project Management and modest growth in Workplace Management, partially offset by lower Portfolio Services and Other.

Project Management had continued demand in certain geographies, most notably Australia, France, MENA and the U.K.

for the second quarter (U.S., France, MENA and the U.K.

on a half-year view).

The decline in Portfolio Services revenue reflected the meaningful correlation between Portfolio Services and Leasing activity.

The increases in segment operating expenses and segment fee-based operating expenses for the first half of the year, compared with the prior-year period, were primarily due to revenue-related expense growth over the trailing twelve months and first-quarter 2023 contract losses (included in Operating, administrative and other expenses) related to certain Tetris contracts in Europe.

For the second quarter, compared with the prior-year quarter, continued investments in technology and headcount to support contract wins and a charge related to the final settlement associated with a legal claim drove the increases in segment operating expenses and segment fee-based operating expenses.

The net second-quarter adjusted EBITDA margin contraction was attributable to the decline in higher-margin Portfolio Services revenue and continued investments in technology and headcount to support future growth.

In addition, and partially offsetting these dilutive impacts, the prior-year margin reflected $4.1 million of net contract losses in Europe which did not recur this quarter.

Work Dynamics revenue and fee revenue growth was broad-based across service lines and included strong Project Management results from ongoing project execution in certain geographies, most notably the U.K., MENA, Italy and Southeast Asia for the third quarter (the United States, France, the U.K.

and MENA for the first nine months of 2023).

Portfolio Services outperformed the prior year quarter primarily due to one large transaction on behalf of a client in the United States;

the first half of the year was lower given the meaningful correlation with leasing activity.

Workplace Management continued to deliver growth, highlighted by the ramp-up of new, global client wins that began in the third quarter.

The increases in segment operating expenses and segment fee-based operating expenses for the third quarter and first nine months of 2023, compared with the prior-year periods, were primarily due to revenue-related expense growth over the trailing twelve months.

For the first nine months of 2023, contract losses in the first half of the year related to certain Project Management contracts in Europe also contributed to the expense growth.

These increases were partially offset with continued management of costs unrelated to revenue.

The net margin expansion in the current quarter was primarily attributable to the revenue growth, notably from Portfolio Services, together with continued cost management, both as described above.

JLL Technologies

Three Months Ended June 30, Change in in Local

Three Months Ended September 30, Change in in Local

($ in millions) 2023 2022 U.S.

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Adjusted EBITDA $ (8.7) (15.3) 6.6 43 % 44 %

Adjusted EBITDA margin (local currency basis) (186.9) % 27.0 % n.m.

Adjusted EBITDA margin (local currency basis) (15.5) % (29.0) % 1,340 bps 1,350 bps

Adjusted EBITDA margin (USD basis) (15.6) %

JLL Technologies (continued)

Six Months Ended June 30, Change in in Local

Nine Months Ended September 30, Change in in Local

($ in millions) 2023 2022 U.S.

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Equity (losses) earnings $ (102.0) 64.5 (166.5) (258) % (258) %

Adjusted EBITDA $ (118.5) 0.6 (119.1) n.m.

Adjusted EBITDA margin (local currency basis) (104.1) % 0.6 % n.m.

Adjusted EBITDA $ (127.2) (14.7) (112.5) (765) % (773) %

Adjusted EBITDA margin (local currency basis) (75.2) % (10.1) % (6,480) bps (6,510) bps

Adjusted EBITDA margin (USD basis) (74.9) %

(1) Included in Compensation and benefits expense for JLL Technologies is a reduction in carried interest expense of $10.0 million and $9.3 million for the three and six months ended June 30, 2023, respectively, and a carried interest expense of $9.8 million and $16.0 million for the three and six months ended June 30, 2022, related to Equity earnings of the segment.

The increases in JLL Technologies revenue and fee revenue over the prior-year quarter were primarily driven by growth in solutions and service offerings, largely from existing enterprise clients.

Equity losses for the quarter and first half of the year resulted from current-quarter valuation declines in JLL Technologies' investments due to subsequent financing rounds at decreased per-share values.

These equity losses were predominantly driven by two investments for which we previously recognized significant equity earnings.

A notable driver of the change in Segment operating loss is a $10.0 million reduction in carried interest expense this quarter ($9.3 million for the first half of the year) associated with the equity losses, compared with $9.8 million of incremental expense in the second quarter of 2022 ($16.0 million for the first half of 2022) associated with the equity earnings.

The second-quarter margin decline was entirely driven by the change in equity earnings/losses, net of carried interest, as fee revenue growth with recent cost reductions drove improvement in segment operating loss.

Three Months Ended June 30, Change in in Local

(1) Included in Compensation and benefits expense for JLL Technologies is a reduction in carried interest expense of $0.1 million and $9.4 million for the three and nine months ended September 30, 2023, respectively, and a carried interest expense of $0.6 million and $16.6 million for the three and nine months ended September 30, 2022, related to Equity earnings of the segment.

For the third quarter and first nine months of 2023, JLL Technologies revenue and fee revenue increased over the prior-year periods led by growth in solutions and service offerings, largely from existing enterprise clients.

Equity losses for the quarter and first nine months of 2023 resulted from valuation declines in JLL Technologies' investments due to subsequent financing rounds at decreased per-share values.

The most significant equity losses, recognized in the second quarter of 2023, were predominantly driven by two investments for which we previously recognized significant equity earnings.

The decrease in current-quarter segment operating expenses and segment fee-based operating expenses included an approximate $5 million reduction to incentive compensation expense, which related to true-ups based on performance achievement, and improved operating efficiencies.

Further driving a reduction in expenses for the first nine months of 2023, carried interest expense decreased $9.4 million (only $0.1 million in the third quarter) in response to the equity losses described above.

Margin improvement for the quarter was attributable to fee revenue growth and the expense drivers noted above, partially offset by the change in equity earnings/losses.

Three Months Ended September 30, Change in in Local

($ in millions) 2023 2022 U.S.

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Transaction fees and other 7.4 8.7 (1.3) (15) (14)

Incentive fees 35.8 1.0 34.8 n.m.

Incentive fees — 11.9 (11.9) (100) (105)

Compensation and benefits, excluding gross contract costs $ 63.2 78.7 (15.5) (20) % (21) %

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Segment operating expenses $ 86.8 102.1 (15.3) (15) % (17) %

Equity (losses) earnings $ (5.1) 7.0 (12.1) (173) % (172) %

Equity losses $ (9.1) (1.1) (8.0) (727) % (667) %

Adjusted EBITDA $ 16.9 22.8 (5.9) (26) % (28) %

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LaSalle (continued)

Six Months Ended June 30, Change in in Local

Nine Months Ended September 30, Change in in Local

($ in millions) 2023 2022 U.S.

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Adjusted EBITDA margin (USD basis) 17.6 %

For both the second quarter and first half of 2023, LaSalle revenue and fee revenue growth was driven by incentive fees earned on assets managed on behalf of clients, specifically in Japan and United States.

Specific to the quarter, the slightly lower advisory fees were the result of recent valuation declines impacting assets under management.

Advisory fees for the first six months were marginally up compared with 2022.

The equity losses on both a quarter-to-date and year-to-date basis were primarily attributable to net valuation declines in the co-investment portfolio.

For the second quarter and first half of 2023, this decline was partially offset by the co-investment in a LaSalle-managed publicly-traded REIT in Japan, which had a notable negative share price movement in the prior-year periods.

The increases in segment operating expenses and segment fee-based operating expenses for the second quarter and first half of 2023, compared with the prior-year periods, were primarily driven by higher variable compensation expense associated with the increased incentive fees.

The second-quarter adjusted EBITDA margin contraction was primarily attributable to the net equity losses, partially offset by higher incentive fees.

As of June 30, 2023, LaSalle had $78.2 billion of AUM, a decrease of less than 1% in both USD and local currency from $78.5 billion as of March 31, 2023.

The AUM change resulted from (i) $0.8 billion of dispositions and withdrawals, (ii) $0.5 billion of net valuation decreases and (iii) $0.1 billion of foreign currency increases, partially offset by (iv) $1.1 billion of acquisitions.

Subdued transaction volumes in the market contributed to the decrease in LaSalle transaction fees for both the quarter and first nine months as well as incentive fees for the third quarter.

For the first nine months of 2023, top-line growth was driven by incentive fees, specifically in Japan and United States.

Quarter-to-date and year-to-date, advisory fee performance remained resilient despite declines in real estate valuations over the trailing twelve months, impacting assets under management.

The equity losses on both a quarter and year-to-date basis were primarily attributable to net valuation declines in the co-investment portfolio.

For the first half of 2023, this decline was partially offset by the co-investment in a LaSalle-managed publicly-traded REIT in Japan, which had a greater negative share price movement in 2022.

Current-quarter segment operating expenses and segment fee-based operating expenses were lower than the prior-year quarter due to the absence of expenses associated with the loss of a client mandate in the U.K., as well as lower incentive compensation expense.

For the first nine months of 2023, this current-quarter decrease was largely offset by variable compensation expense associated with the higher incentive fees earned in the first half of 2023.

The third quarter margin decline was driven by the equity losses and an absence of incentive fees, partially offset by the expense drivers noted above.

As of September 30, 2023, LaSalle had $77.7 billion of AUM, a decrease of 1% in USD (with no change in local currency) from $78.2 billion as of June 30, 2023.

The AUM change resulted from (i) $0.7 billion of foreign currency decreases, (ii) $0.5 billion of net valuation decreases and (iii) $0.4 billion of dispositions and withdrawals, partially offset by (iv) $1.1 billion of acquisitions.

LIQUIDITY AND CAPITAL RESOURCES

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Cash Flows from Operating Activities

Operating activities used $479.3 million of cash in the first six months of 2023, compared with $539.4 million of cash used in operating activities during the same period in 2022.

The year-over-year decrease in cash used in operating activities was primarily due to (i) lower incentive compensation and commission payments in 2023, compared with 2022, (ii) incremental cash inflow associated with trade receivables and (iii) $98.5 million of lower cash taxes paid compared with last year.

Operating activities used $153.6 million of cash in the first nine months of 2023, compared with $401.9 million of cash used in operating activities during the same period in 2022.

The year-over-year decrease in cash used in operating activities was primarily due to (i) incremental cash inflow associated with trade receivables, (ii) lower incentive compensation and commission payments in 2023 and (iii) $157.3 million of lower cash taxes paid compared with last year.

This is partially offset by lower cash provided by earnings, largely attributable to the change in business performance for Capital Markets and Markets Advisory.

Cash Flows from Investing Activities

We used $160.7 million of cash for investing activities during the first six months of 2023, compared with $63.1 million used during the same period in 2022.

We used $220.4 million of cash for investing activities during the first nine months of 2023, compared with $147.8 million used during the same period in 2022.

The prior year included $132.4 million of net capital proceeds relating to less than wholly-owned subsidiaries that did not recur in 2023.

In addition, there were less net capital contributions to investments in the first half of 2023 compared with 2022.

In addition, net capital contributions to investments were lower in the first nine months of 2023 compared with 2022.

There was no such activity in the current year.

We discuss these drivers, along with other investing activities, individually below in further detail.

Cash Flows from Financing Activities

Financing activities provided $503.9 million of cash during the first six months of 2023, compared with $601.3 million provided during the same period in 2022.

The net decrease of $97.4 million in cash inflows from financing activities substantially driven by a decrease in net borrowings on our Facility.

This decrease in borrowings against the prior year was a product of lower incentive compensation payments in the first quarter of 2023 as well as less share repurchases in the first half of 2023 (refer to the Share Repurchases section below).

Finally, the 2022 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 in the first half of 2022 (offsetting the net capital proceeds from less than wholly-owned subsidiaries noted in cash flows from investing activities).

Financing activities provided $231.2 million of cash during the first nine months of 2023, compared with $500.5 million provided during the same period in 2022.

The net decrease of $269.3 million in cash inflows from financing activities was substantially driven by a decrease in net borrowings on our Facility.

This decrease in borrowings against the prior year was a product of less cash used in operating activities as well as lower share repurchases in 2023 (refer to the Share Repurchases section below).

Finally, the 2022 cash outflow relating to noncontrolling interest distributions included a $142.3 million gain by a consolidated variable interest entity in which we held no equity interest that was also distributed in the second quarter of 2022 (offsetting the net capital proceeds from less than wholly-owned subsidiaries noted in cash flows from investing activities).

Our $3.35 billion Facility matures on April 14, 2026 and bears a variable interest rate.

As of June 30, 2023, we had outstanding borrowings under the Facility of $1,840.5 million versus $1,213.8 million as of December 31, 2022.

The average outstanding borrowings under our credit facilities were $2,315.8 million and $1,581.9 million (with average effective interest rates of 5.9% and 1.6%) during the three months ended June 30, 2023 and 2022, respectively, and $2,019.5 million and $1,135.0 million (with average effective interest rates of 5.7% and 1.4%) during the six months ended June 30, 2023 and 2022, respectively.

We had Short-term borrowings (including financing lease obligations, overdrawn bank accounts and local overdraft facilities) of $112.1 million and $164.2 million as of June 30, 2023 and December 31, 2022, respectively.

In addition to our Facility, we had the capacity to borrow up to $53.8 million under local overdraft facilities as of June 30, 2023.

Outstanding borrowings, including the balance of the Facility and Short-term borrowings (financing lease obligations, overdrawn bank accounts and local overdraft facilities) are presented below.

(in millions) September 30, 2023 December 31, 2022

Outstanding borrowings under the Facility $ 1,600.0 $ 1,225.0

Short-term borrowings 117.6 164.2

In addition to our Facility, we had the capacity to borrow up to $52.9 million under local overdraft facilities as of September 30, 2023.

The following table provides additional information on our Facility and Uncommitted Facility, collectively.

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

($ in millions) 2023 2022 2023 2022

Average outstanding borrowings $ 2,011.9 1,599.8 $ 2,017.0 1,295.9

Average effective interest rate 6.1 % 3.2 % 5.8 % 2.2 %

We will continue to use the Facility for working capital needs (including payment of accrued incentive compensation), co-investment activities, share repurchases, capital expenditures and acquisitions.

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Investment Activity

As of June 30, 2023, we had a carrying value of $872.7 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 first half of 2023 and 2022, funding of investments exceeded return of capital by $53.5 million and $108.3 million, respectively.

As of September 30, 2023, we had a carrying value of $865.2 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 first nine months of 2023 and 2022, funding of investments exceeded return of capital by $65.3 million and $123.2 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, 2023 and 2022 were $88.2 million and $86.9 million, respectively.

Net capital additions for the nine months ended September 30, 2023 and 2022 were $137.7 million and $136.0 million, respectively.

Our capital expenditures in 2023 were primarily for purchased/developed software and leased office space improvements.

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 nine months ended September 30, 2022 were $132.4 million.

The distribution of proceeds from the sale of this investment (the initial acquisition of which was largely funded from employee-investors and related third-party debt) also occurred in 2022 and is included within financing activities.

Business Acquisitions

During the six months ended June 30, 2023, we paid $35.6 million for business acquisitions.

This included $13.6 million of payments relating to acquisitions in 2023 and $22.0 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.

During the nine months ended September 30, 2023, we paid $36.4 million relating to business acquisitions.

This included $13.6 million of payments associated with 2023 acquisitions and $22.8 million for deferred business acquisition and earn-out obligations for 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 $14.9 million as of June 30, 2023.

Deferred business acquisition obligations totaled $14.3 million as of September 30, 2023.

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, 2023, we had the potential to make earn-out payments for a maximum of $105.0 million on 16 completed acquisitions subject to the achievement of certain performance conditions.

As of September 30, 2023, we had the potential to make earn-out payments for a maximum of $103.8 million on 16 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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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) 2023 2022 2023 2022

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Total paid for shares repurchased $ 20.1 153.5 $ 40.1 601.2

As of June 30, 2023, $1,135.6 million remained authorized for repurchases under our share repurchase program.

As of September 30, 2023, $1,115.5 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, 2023 and December 31, 2022, we had total cash and cash equivalents of $402.5 million and $519.3 million, respectively, of which approximately $299.6 million and $400.8 million, respectively, was held by foreign subsidiaries.

As of September 30, 2023, and December 31, 2022, we had total cash and cash equivalents of $389.5 million and $519.3 million, respectively, of which approximately $301.7 million and $400.8 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, 2023 and December 31, 2022.

The assets of these countries aggregated to approximately 4% of our total assets as of both September 30, 2023, and December 31, 2022.

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