Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 2.75M
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11: R2 Consolidated Balance Sheets (Unaudited) HTML 175K
12: R3 Consolidated Balance Sheets (Unaudited) HTML 50K
(Parenthetical)
13: R4 Consolidated Statements of Comprehensive Income HTML 124K
(Unaudited)
14: R5 Consolidated Statement of Changes in Equity HTML 151K
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15: R6 Consolidated Statements of Cash Flows (Unaudited) HTML 140K
16: R7 Interim Information HTML 26K
17: R8 New Accounting Standards New Accounting Standards HTML 21K
18: R9 Revenue Recognition Revenue Recognition (Notes) HTML 55K
19: R10 Business Segments HTML 137K
20: R11 Business Combinations, Goodwill and Other HTML 106K
Intangible Assets
21: R12 Investments HTML 63K
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Registrant's telephone number, including area code:
i(312)
i782-5800
Former
name, former address and former fiscal year, if changed since last report: Not Applicable
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
iCommon
Stock, par value $0.01
iJLL
iThe New York Stock Exchange
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes☑ No ☐
Indicate by check mark whether the registrant
has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer,""accelerated filer,""smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
iLarge
accelerated filer
☑
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging growth company
i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐ No ☑
The number of shares outstanding of the registrant's common stock (par value $0.01) as of the close of business on October 31, 2022 was i47,462,564.
Trade
receivables, net of allowance of $i72.8 and $i67.6
i1,912.5
i2,004.1
Notes
and other receivables
i377.9
i389.3
Reimbursable
receivables
i1,840.5
i1,734.5
Warehouse
receivables
i671.9
i822.3
Short-term
contract assets, net of allowance of $i2.5 and $i2.5
i369.9
i343.1
Prepaid
and other
i707.8
i500.7
Total
current assets
i6,369.9
i6,387.7
Property
and equipment, net of accumulated depreciation of $i955.8 and $i909.1
i731.5
i740.0
Operating
lease right-of-use assets
i776.6
i723.4
Goodwill
i4,454.8
i4,611.6
Identified
intangibles, net of accumulated amortization of $i423.6 and $i340.1
i861.6
i887.0
Investments,
including $i786.7 and $i639.6 at fair value
i890.9
i745.7
Long-term
receivables
i306.0
i316.4
Deferred
tax assets, net
i249.6
i330.8
Deferred
compensation plan
i520.2
i528.8
Other
i217.5
i233.6
Total
assets
$
i15,378.6
i15,505.0
Liabilities
and Equity
Current liabilities:
Accounts payable and accrued liabilities
$
i858.4
i1,262.8
Reimbursable
payables
i1,309.4
i1,350.0
Accrued
compensation and benefits
i1,512.0
i2,029.5
Short-term
borrowings
i244.2
i147.9
Current maturities of long-term debt, net of debt issuance costs
of $i— and $i0.3
i—
i274.7
Short-term
contract liabilities and deferred income
i221.0
i208.2
Short-term
acquisition-related obligations
i45.2
i45.8
Warehouse
facilities
i685.0
i795.7
Short-term
operating lease liabilities
i147.8
i153.8
Other
i380.7
i218.1
Total
current liabilities
i5,403.7
i6,486.5
Credit
facility, net of debt issuance costs of $i12.1 and $i11.8
i1,587.9
i138.2
Long-term
debt, net of debt issuance costs of $i1.3 and $i1.4
i341.5
i395.6
Deferred
tax liabilities, net
i199.6
i179.7
Deferred
compensation
i483.6
i525.4
Long-term
acquisition-related obligations
i59.3
i66.3
Long-term
operating lease liabilities
i739.5
i714.4
Other
i554.1
i577.7
Total
liabilities
i9,369.2
i9,083.8
Redeemable
noncontrolling interest
i7.2
i7.8
Company
shareholders' equity:
Common stock, $i0.01 par value per share, i100,000,000
shares authorized; i52,085,128 and i52,076,800 shares issued; i47,516,574
and i50,024,139 outstanding
i0.5
i0.5
Additional
paid-in capital
i2,034.5
i2,053.7
Retained
earnings
i5,415.6
i4,937.6
Treasury
stock, at cost, i4,568,554 and i2,052,661 shares
(i950.9)
(i406.3)
Shares
held in trust
(i5.1)
(i5.2)
Accumulated other comprehensive loss
(i723.0)
(i395.4)
Total
Company shareholders’ equity
i5,771.6
i6,184.9
Noncontrolling
interest
i230.6
i228.5
Total equity
i6,002.2
i6,413.4
Total
liabilities, redeemable noncontrolling interest and equity
$
i15,378.6
i15,505.0
See
accompanying notes to Condensed Consolidated Financial Statements.
(1)
AOCI: Accumulated other comprehensive income (loss)
(2) NCI: Noncontrolling interest (3) Excludes net loss attributable to redeemable noncontrolling interest of $0.1 million for both the three months ended September 30, 2022 and June 30, 2022.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1.iINTERIM
INFORMATION
Readers of this quarterly report should refer to the audited financial statements of Jones Lang LaSalle Incorporated ("JLL," which may also be referred to as "the Company" or as "we,""us" or "our") for the year ended December 31, 2021, which are included in our 2021 Annual Report on Form 10-K, filed with the United States Securities and Exchange Commission ("SEC") and also available on our website (www.jll.com), since we have omitted from this quarterly
report certain footnote disclosures which would substantially duplicate those contained in such audited financial statements. You should also refer to the "Summary of Critical Accounting Policies and Estimates" section within Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and to Note 2, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements in our 2021 Annual Report on Form 10-K for further discussion of our significant accounting policies and estimates.
Our Condensed Consolidated Financial Statements as of September 30, 2022, and for the periods ended September 30, 2022 and 2021, are unaudited. In the opinion of management, we have included all adjustments (consisting solely of normal
recurring adjustments) necessary for a fair presentation of the Condensed Consolidated Financial Statements for these interim periods. We have also reclassified certain prior year amounts to conform to the current presentation, specifically the incorporation of directly reimbursed expenses within Compensation and benefits, and Operating, administrative and other on our Condensed Consolidated Statements of Comprehensive Income, compared with its historical separate presentation.
Historically, our quarterly revenue and profits have tended to increase from quarter to quarter as the year progresses. This is the result of a general focus in the real estate industry on completing transactions by calendar year end, while certain expenses are recognized evenly throughout the year. Growth in our Property Management and Workplace Management businesses as well as other annuity-based services has, to an extent, lessened the seasonality
in our revenue and profits during the past several years. Within our Markets Advisory and Capital Markets segments, revenue from transaction-based activities is driven by the size and timing of our clients' transactions and can fluctuate significantly from period to period. Our LaSalle Investment Management ("LaSalle") segment generally earns investment-generated performance fees on clients' real estate investment returns when assets are sold, the timing of which is geared toward the benefit of our clients, as well as co-investment equity gains and losses, primarily dependent on underlying valuations.
A significant portion of our compensation and benefits expense is from incentive compensation plans, which we generally accrue throughout the year based on progress toward annual performance targets. This process can result in significant fluctuations in quarterly compensation and benefits expense from period to period.
Non-variable operating expenses, which we recognize when incurred during the year, are relatively constant on a quarterly basis.
We provide for the effects of income taxes on interim financial statements based on our estimate of the effective tax rate for the full year, which we base on forecasted income by country and expected enacted tax rates. As required, we adjust for the impact of discrete items in the quarters in which they occur. Changes in the geographic mix of income can impact our estimated effective tax rate.
As a result of the items mentioned above, the results for the periods ended September 30 are not fully indicative of what our results will be for the full fiscal year.
Change in Reporting Segments
Effective January 1, 2022,
we changed from our geographic-centric Real Estate Services segments of Americas, EMEA and Asia Pacific to global business line segments of Markets Advisory, Capital Markets, Work Dynamics and JLL Technologies. Our real estate investment management business, LaSalle, continues as a reporting segment. As our segment financial results are presented on this global business line view, the comparable period has been recast to align with the new reporting structure. Refer to Note 3, Revenue Recognition, and Note 4, Business Segments, for additional information, including detail financial information, on our segments.
In September 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2022‑04, Liabilities-Supplier Finance Programs (Subtopic 450-50): Disclosure of Supplier Finance Program Obligations,
which requires entities that use supplier finance programs in connection with the purchase of goods and services to disclose the key terms of the programs and information about their outstanding obligations at the end of the reporting period. The guidance is intended to address requests from stakeholders for information about an entity’s use of supplier finance programs and their effect on the entity’s working capital, liquidity and cash flows. This ASU is effective for annual and interim periods beginning after December 15, 2022, with early adoption permitted. We do not expect the new guidance to have a material impact to our financial statements and related disclosures.
3.iREVENUE
RECOGNITION
We earn revenue from the following services (segments are bolded).
•Markets Advisory
◦Leasing
◦Property Management
◦Advisory, Consulting and Other
•Capital Markets
◦Investment Sales, Debt/Equity Advisory and Other
◦Loan Servicing
◦Valuation Advisory
•Work Dynamics
◦Workplace
Management
◦Project Management
◦Portfolio Services and Other
•JLL Technologies
•LaSalle
Markets Advisory
Leasing
Leasing revenue is earned from brokerage commissions as we represent tenants and/or landlords in connection with real estate leases. Our performance obligation is to facilitate the execution of a lease agreement, which is satisfied at a point in time, upon lease execution. Generally, we are either entitled to the full consideration upon lease execution or in part upon lease execution with the remainder upon the occurrence of a future event outside
of our control (e.g., tenant occupancy, lease commencement, or rent commencement). The majority of the events that preclude our entitlement to the full consideration upon lease execution are considered to be “normal course of business” and, therefore, do not result in a constraint upon the recognition of revenue. In the infrequent instance our fee entitlement in a contract with a customer is predicated on the occurrence of a future event(s) uncertain of occurring, we constrain the recognition of revenue until the uncertainty is resolved or the future event occurs.
Property Management
Property Management provides on-site day-to-day real estate management services for owners of office, industrial, retail, multifamily residential and various other types of properties, representing a series
of daily performance obligations delivered over time. Pricing is generally in the form of a monthly management fee based upon property-level cash receipts, square footage under management or some other variable metric.
Although we are principal in limited situations, we generally act as agent on behalf of our Property Management clients in relation to third-party vendors and subcontractors engaged to deliver operational services to our clients' properties. In these situations, we arrange, but do not control, the services provided by third party vendors and subcontractors prior to the transfer of the services to the client. As a result, the third-party costs incurred on behalf of clients, along with the corresponding revenue, are presented net on our Condensed Consolidated Statements of Comprehensive Income.
Advisory, Consulting and Other includes a variety of different service offerings, whereby our performance obligation is to provide services as specified in the contract. Occasionally, our entitlement to consideration is predicated on the occurrence of an event such as the delivery of a report for which client acceptance is required. However, except for event-driven point-in-time transactions, the majority of services provided within this service line are delivered over time due to the continuous transfer of control to our clients.
Capital Markets
Investment Sales, Debt/Equity Advisory and Other
We
provide brokerage and other services for capital transactions, such as real estate sales or loan originations and refinancing. Our performance obligation is to facilitate the execution of capital transactions, and we are generally entitled to the full consideration at the point in time upon which our performance obligation is satisfied, at which time we recognize revenue. In addition, revenue related to mortgage servicing rights ("MSR" or "MSRs") and loan origination fees are reported within Investment Sales, Debt/Equity Advisory and Other.
Loan Servicing
We service substantially all the loans we originate and sell, and service loans we did not originate but subsequently acquire the rights to service. We obtain a periodic fee for each loan we service based on a proportion of the cash collections.
Capital Markets revenue
excluded from the scope of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ("ASC Topic 606")
Our mortgage banking and servicing operations, comprised of (i) all Loan Servicing revenue and (ii) activities related to MSRs and loan origination fees (included in Investment Sales, Debt/Equity Advisory and Other), are not considered revenue from contracts with customers, and accordingly are excluded from the scope of ASC Topic 606. Such out-of-scope revenue is presented below.
i
Three
Months Ended September 30,
Nine Months Ended September 30,
(in millions)
2022
2021
2022
2021
Revenue excluded from scope of ASC Topic 606
$
i76.1
i102.3
$
i222.6
i235.9
/
Valuation
Advisory
Valuation Advisory service offerings include (but are not limited to) asset appraisal, business valuation, property tax advisory, complex litigation, and environmental property consulting. Our performance obligation is to provide services as specified in the contract and our pricing is negotiated based on the scale and complexity of each assignment. Typically, our entitlement to consideration is predicated on the occurrence of an event such as the delivery of an appraisal or report for which client acceptance is required.
Workplace Management, previously referred to as Integrated Facilities Management (IFM), provides comprehensive, on-site day-to-day real estate management services to corporations and institutions across a broad range of industries that outsource the management of the real estate they occupy, representing a series of daily performance obligations delivered over time. Pricing generally includes a management fee and, in many instances, an incentive fee or other form of variable consideration.
Although we may act as agent on behalf of our clients with respect to certain mandates, we generally act as principal for our Workplace Management contracts with respect to third-party vendors and subcontractors engaged to deliver
operational services to our clients' facilities. In these situations, we control the services provided by such third-party vendors and subcontractors prior to the transfer of the services to the client. As a result, the third-party costs incurred on behalf of our clients, along with the corresponding reimbursement revenue, are presented gross on our Condensed Consolidated Statements of Comprehensive Income.
Project Management
Project Management, previously referred to as Project & Development Services, provides short-term construction-related services ranging from development and design to general contracting and project management for owners and occupiers of real estate. Depending on the terms of our engagement, our performance obligation is either to arrange for the completion of a project or to assume responsibility for completing a project on behalf of a client. Our obligations
to clients are satisfied over time due to the continuous transfer of control of the underlying asset. Therefore, we recognize revenue over time, generally using input measures (e.g., to-date costs incurred relative to total estimated costs at completion).
Typically, we are entitled to consideration at distinct milestones over the term of an engagement. For certain contracts where we assume responsibility for completing a project, we control the services provided by third-party vendors and subcontractors prior to transfer of the assets to the client. In these situations, the third-party costs incurred on behalf of clients, along with the associated reimbursement revenue, are presented gross on our Condensed Consolidated Statements of Comprehensive Income. In contrast, where we act as agent on behalf of clients, third-party costs incurred
and the associated revenue are presented net on our Condensed Consolidated Statements of Comprehensive Income.
Portfolio Services and Other
Portfolio Services and Other includes a variety of different service offerings, including advising clients on how to optimize their workplace strategies and occupancy planning efforts, and overall portfolio strategy management and administration for our clients. Our performance obligation is to provide services as specified in the contract. For event-driven point-in-time transactions, we record revenue when our performance obligation is complete, such as the delivery of a report where client acceptance is required, whereas revenue is recorded over time for services with a continuous transfer of control to our clients.
JLL
Technologies
JLL Technologies offers multiple cloud-based software solutions that generate value for investors and businesses by enabling higher-quality decision-making through improved data and analytics. We recognize cloud-based software revenue over time commensurate with the length and terms of the contract. In addition, we offer professional services such as program and project management, implementation and support, managed services, and advisory services. We recognize professional services revenue at the time our performance obligation is satisfied.
LaSalle
LaSalle provides real estate investment management services to clients and generally earns consideration in the form of advisory fees, transaction fees and incentive fees. Typically,
our performance obligation is to manage clients’ capital for a specified period of time and is delivered as a series of daily performance obligations over time. Revenue recognition for transaction and incentive fees is generally constrained until all contingencies have cleared due to the possibility of a significant reversal until completion of the events necessary to realize the associated consideration. Substantially all incentive fees recognized as revenue were previously constrained.
Contract assets and liabilities - Our contract assets, net of allowance, are included in Short-term contract assets and Other assets and our contract
liabilities are included in Short-term contract liabilities and deferred income on our Condensed
Consolidated Balance Sheets. The majority of contract liabilities are recognized as revenue within 90 days. iSuch
contract assets and liabilities are presented below.
Remaining
performance obligations - Remaining performance obligations represent the aggregate transaction price for contracts where our performance obligations have not yet been satisfied. As of September 30, 2022, the aggregate amount of transaction price allocated to remaining performance obligations represented less than i5% of our total revenue. In accordance with ASC Topic 606, excluded from the aforementioned
remaining performance obligations are (i) amounts attributable to contracts expected to be completed within 12 months and (ii) variable consideration for services performed as a series of daily performance obligations, such as facilities management, property management, and LaSalle contracts. Contracts within these businesses represent a significant portion of our contracts with customers not expected to be completed within 12 months.
4. iBUSINESS
SEGMENTS
On February 28, 2022, we announced a new organizational structure that became effective on January 1, 2022. Under the new structure, we organize our operations around, and publicly report our financial results on, five global business segments:
(1) Markets Advisory,
(2) Capital Markets,
(3) Work Dynamics,
(4) JLL Technologies, and
(5) LaSalle.
Markets Advisory offers a wide range of real estate services, including agency leasing and tenant representation, property management, advisory, and consulting services. Capital Markets service offerings
include investment sales, equity and debt advisory, loan servicing, and valuation advisory. 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. Our JLL Technologies segment offers software products, solutions and services, while LaSalle provides investment management services on a global basis to institutional investors and high-net-worth individuals.
We allocate all indirect expenses to our segments, other than interest and income taxes, as nearly all expenses incurred benefit one or more of the segments. Allocated expenses primarily consist of corporate functional costs across the globe, which we allocate to the business segments using an expense-specific driver-based methodology.
Adjusted EBITDA does not include (i) depreciation and amortization,
(ii) restructuring and acquisition charges, (iii) interest expense, net of interest income, (iv) provision for income tax, (v) gain on disposal and (vi) net non-cash MSR and mortgage banking derivative activity which are otherwise included in Net income on the Condensed Consolidated Statements of Comprehensive Income.
The Chief Operating Decision Maker ("CODM") of JLL measures and evaluates the segment results based on Adjusted EBITDA for purposes of making decisions about allocating resources and assessing performance. Our CODM is not provided with total asset information by segment and accordingly does not measure or allocate resources based on total assets information. Therefore, we have not disclosed asset information by segment.
Summarized financial information by business segment is as follows.
Three
Months Ended September 30,
Nine Months Ended September 30,
(in millions)
2022
2021
2022
2021
Markets Advisory
Leasing
$
i703.3
i694.9
$
i2,012.6
i1,683.9
Property
Management
i377.8
i351.3
i1,126.5
i1,046.7
Advisory,
Consulting and Other
i30.4
i33.7
i90.1
i93.3
Revenue
$
i1,111.5
i1,079.9
$
i3,229.2
i2,823.9
Depreciation
and amortization(a)
$
i16.6
i16.4
$
i50.0
i49.0
Equity
(losses) earnings
$
(i0.2)
i0.1
$
i0.7
i0.6
Adjusted
EBITDA
$
i132.1
i149.2
$
i377.3
i329.1
Capital
Markets
Investment Sales, Debt/Equity Advisory and Other
$
i465.0
i554.7
$
i1,490.8
i1,286.8
Valuation
Advisory
i89.7
i87.1
i268.7
i258.2
Loan
Servicing
i40.5
i38.5
i120.8
i99.1
Revenue
$
i595.2
i680.3
$
i1,880.3
i1,644.1
Depreciation
and amortization
$
i15.2
i15.1
$
i46.2
i47.7
Equity
earnings
$
i0.7
i1.3
$
i2.1
i3.1
Adjusted
EBITDA
$
i83.2
i138.4
$
i328.1
i318.3
Work
Dynamics
Workplace Management
$
i2,429.1
i2,138.4
$
i7,183.5
i6,294.0
Project
Management
i748.3
i707.8
i2,115.4
i1,877.4
Portfolio
Services and Other
i112.4
i114.2
i335.0
i323.3
Revenue
$
i3,289.8
i2,960.4
$
i9,633.9
i8,494.7
Depreciation
and amortization
$
i17.6
i16.9
$
i51.1
i49.9
Equity
earnings
$
i0.1
i0.3
$
i1.3
i0.1
Adjusted
EBITDA
$
i53.4
i37.7
$
i146.2
i113.8
JLL
Technologies
Revenue
$
i56.5
i38.8
$
i156.6
i121.8
Depreciation
and amortization
$
i3.7
i2.2
$
i11.4
i7.3
Equity
earnings
$
i1.0
i7.3
$
i64.5
i58.1
Adjusted
EBITDA
$
(i15.3)
(i10.7)
$
(i14.7)
i1.8
LaSalle
Advisory
fees
$
i102.6
i97.3
$
i302.8
i270.4
Transaction
fees and other
i10.0
i10.2
i37.4
i28.9
Incentive
fees
i11.9
i22.3
i17.1
i37.5
Revenue
$
i124.5
i129.8
$
i357.3
i336.8
Depreciation
and amortization
$
i1.6
i2.2
$
i4.8
i6.4
Equity
(losses) earnings
$
(i1.1)
i8.4
$
i4.0
i44.8
Adjusted
EBITDA
$
i22.8
i37.4
$
i71.9
i111.5
(a)
This adjustment excludes the noncontrolling interest portion of amortization of acquisition-related intangibles which is not attributable to common shareholders.
The following table is a reconciliation of Adjusted EBITDA to Net income attributable to common shareholders.
Three
Months Ended September 30,
Nine Months Ended September 30,
(in millions)
2022
2021
2022
2021
Adjusted EBITDA - Markets Advisory
$
i132.1
i149.2
$
i377.3
i329.1
Adjusted
EBITDA - Capital Markets
i83.2
i138.4
i328.1
i318.3
Adjusted
EBITDA - Work Dynamics
i53.4
i37.7
i146.2
i113.8
Adjusted
EBITDA - JLL Technologies
(i15.3)
(i10.7)
(i14.7)
i1.8
Adjusted
EBITDA - LaSalle
i22.8
i37.4
i71.9
i111.5
Adjusted
EBITDA - Consolidated
$
i276.2
i352.0
$
i908.8
i874.5
Adjustments:
Restructuring
and acquisition charges
$
(i21.0)
(i15.6)
$
(i66.4)
(i50.9)
Net
gain (loss) on disposition
i—
i0.4
(i7.5)
i12.4
Net
non-cash MSR and mortgage banking derivative activity
i5.2
i28.1
i12.8
i43.5
Interest
expense, net of interest income
(i23.2)
(i9.6)
(i49.1)
(i30.6)
Provision
for income taxes
(i42.3)
(i65.3)
(i155.4)
(i148.4)
Depreciation
and amortization(a)
(i54.7)
(i52.8)
(i163.5)
(i160.3)
Net
income attributable to common shareholders
$
i140.2
i237.2
$
i479.7
i540.2
(a)
This adjustment excludes the noncontrolling interest portion of amortization of acquisition-related intangibles which is not attributable to common shareholders.
5.iBUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE ASSETS
2022 Business Combinations Activity
During
the nine months ended September 30, 2022, there were no material acquisitions. We paid $i15.9 million for deferred business acquisition and earn-out obligations for acquisitions completed in prior years.
2021 Business Combinations Activity
During the nine months ended September 30, 2022, we made no adjustments to our preliminary allocation of the
purchase consideration for certain acquisitions completed in 2021. As of September 30, 2022, we have completed our analysis to assign fair values to all the identifiable intangible and tangible assets acquired as of September 30, 2021.
Number of acquisitions with earn-out payments subject to the achievement of certain performance criteria
i18
i19
Maximum
earn-out payments (undiscounted)
$
i136.6
i149.9
Short-term
earn-out liabilities (fair value)(1)
i27.4
i39.0
Long-term
earn-out liabilities (fair value)(1)
i49.2
i45.1
(1)Included in Short-term and Long-term acquisition-related obligations on the Condensed Consolidated Balance Sheets.
/
Assuming the achievement of the applicable performance criteria, we anticipate making these earn-out payments over the next five years. Refer to Note 8, Fair Value Measurements, and Note 11, Restructuring and Acquisition Charges, for additional discussion of our earn-out liabilities.
In conjunction with our new organizational structure described more fully in Note 4, Business Segments, we reassessed our reporting units as of January 1, 2022, and reassigned goodwill to reflect our new segment structure using a relative fair value allocation approach. Under this methodology, the fair value of each impacted reporting unit was determined using a combination of the income approach and the market approach, and this resulting relative fair value was used to reassign the balance of goodwill.
We considered the change to our reportable segments a triggering event requiring the testing of our goodwill for impairment as of January 1, 2022. We performed a quantitative test relying on the discounted cash flow (“DCF”) method, an income approach,
in determining the estimated fair value of our reporting units. Our DCF analysis relied on significant judgements and assumptions in determining the inputs, specifically, forecasted revenue growth, forecasted profitability margin, and the discount rate used to present value the estimated future cash flows. Our analysis indicated that no impairment existed as the estimated fair value of each of our reporting units exceeded its respective carrying value.
Goodwill and unamortized intangibles as of September 30, 2022 consisted of: (1) goodwill of $i4,454.8
million, (2) identifiable intangibles of $i816.7 million amortized over their remaining finite useful lives, and (3) $i44.9
million of identifiable intangibles with indefinite useful lives that are not amortized. Notable portions of our goodwill and unamortized intangibles are denominated in currencies other than the U.S. dollar, which means a portion of the movements in the reported book value of these balances is attributable to movements in foreign currency exchange rates.
i
The following table details, by reporting segment, movements in goodwill.
(1)
Included in this amount for MSRs was $i22.5 million relating to prepayments/write-offs due to prepayments of the underlying obligation for which we assumed, acquired or retained the servicing rights.
(2) Amortization of MSRs is included in Revenue within the Condensed Consolidated Statements of Comprehensive Income.
(1)
Included in this amount for MSRs was $i15.4 million relating to prepayments/write-offs due to prepayments of the underlying obligation for which we assumed, acquired or retained the servicing rights.
(2) Amortization of MSRs is included in Revenue within the Condensed Consolidated Statements of Comprehensive Income.
Approximately
90% of our investments, as of September 30, 2022, are (i) investments by JLL Technologies in early to mid-stage proptech companies as well as proptech funds, or (ii) direct investments in i55 separate property or commingled funds, where we co-invest alongside our clients and for which we also have an advisory agreement. The remaining 10% of our investments, as of September 30, 2022, were attributable to investment vehicles that use our capital and outside capital primarily
provided by institutional investors to invest, generally, in certain real estate ventures that own and operate real estate. Of our investments attributable to investment vehicles, the majority was invested in LaSalle Investment Company II ("LIC II"), in which we held an effective ownership interest of i48.78%.
We have maximum potential unfunded commitments to direct investments or investment vehicles of $ii352.5/
million as of September 30, 2022. Of this amount, while we remain contractually obligated, we do not expect a call on the $i60.3 million relating to our investment in LIC II as its fund life terminated in January 2020.
We evaluate our less-than-wholly-owned investments to determine whether the underlying entities are classified as variable interest entities ("VIEs"); we assess each identified VIE to determine whether we are the primary beneficiary. We have
determined that we are the primary beneficiary of certain VIEs and accordingly, we have consolidated such entities. The assets of the consolidated VIEs are available only for the settlement of the obligations of the respective entities and the mortgage loans of the consolidated VIEs are non-recourse to JLL.
Mortgage
indebtedness (included in Other liabilities)
i113.6
i107.5
Total
liabilities
i116.3
i109.6
Members' equity (included in Noncontrolling interest)
i107.1
i103.0
Total
liabilities and members' equity
$
i223.4
i212.6
/
i
Three
Months Ended September 30,
Nine Months Ended September 30,
(in millions)
2022
2021
2022
2021
Revenue
$
i4.6
i3.4
$
i13.2
i8.9
Operating
and other expenses
(i6.2)
(i4.3)
(i17.9)
(i11.0)
Net
gains on sale of investments(1)
i—
i—
i142.3
i—
Net
(loss) income
$
(i1.6)
(i0.9)
$
i137.6
(i2.1)
(1)
The gain was included in Other income (expense) on the Condensed Consolidated Statements of Comprehensive Income.
/
We allocate the members' equity and net income (loss) of the consolidated VIEs to the noncontrolling interest holders as Noncontrolling interest on our Condensed Consolidated Balance Sheets and as Net income (loss) attributable to noncontrolling interest in our Condensed Consolidated Statements of Comprehensive Income, respectively.
Impairment
There were no significant other-than-temporary impairment charges on investments for the nine months ended September 30, 2022 and 2021.
Fair
Value
We report a majority of our investments at fair value. For such investments, we increase or decrease our investment each reporting period by the change in the fair value and we report these fair value adjustments in our Condensed Consolidated Statements of Comprehensive Income within Equity earnings. iThe table below shows the movement in our investments reported at fair value.
(in
millions)
2022
2021
Fair value investments as of January 1,
$
i639.6
i340.3
Investments
i140.3
i148.9
Distributions
(i29.9)
(i46.6)
Change
in fair value, net
i65.2
i100.8
Foreign
currency translation adjustments, net
(i28.5)
(i5.7)
Fair
value investments as of September 30,
$
i786.7
i537.7
See
Note 8, Fair Value Measurements, for additional discussion of our investments reported at fair value.
As
of September 30, 2022, we had $i99.9 million of unamortized deferred compensation related to unvested RSUs and PSUs, which we anticipate recognizing over varying periods into 2026.
8.iFAIR
VALUE MEASUREMENTS
We measure certain assets and liabilities in accordance with ASC 820, Fair Value Measurements and Disclosures, which defines fair value as the price that would be received for an asset, or paid to transfer a liability, in an orderly transaction between market participants on the measurement date. In addition, it establishes a framework for measuring fair value according to the following three-tier fair value hierarchy:
•Level 1 - Quoted prices for identical assets or liabilities in active markets accessible as of the measurement date;
•Level 2 - Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
•Level
3 - Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
Our financial instruments include Cash and cash equivalents, Trade receivables, Notes and other receivables, Reimbursable receivables, Warehouse receivables, restricted cash, contract assets, Accounts payable, Reimbursable payables, Short-term borrowings, contract
liabilities, Warehouse facilities, Credit facility, Long-term debt, and foreign currency forward contracts. The carrying amounts of Cash and cash equivalents, Trade receivables, Notes and other receivables, Reimbursable receivables, restricted cash, contract assets, Accounts payable, Reimbursable payables, contract liabilities, and the Warehouse facilities approximate their estimated fair values due to the short-term nature of these instruments. The carrying values of our Credit facility and Short-term borrowings approximate their estimated fair values given the variable interest rate terms and market spreads.
We estimated the fair value of our Long-term
debt, including its current portion, as $i325.1 million and $i687.2 million as of September 30, 2022 and December
31, 2021, respectively, using dealer quotes that are Level 2 inputs in the fair value hierarchy. The carrying value of the short-term portion of our Long-term debt as of December 31, 2021 was $i274.7 million, net of $i0.3
million of debt issuance costs. We retired this debt during September 2022. The carrying value of the long-term portion was $i341.5 million and $i395.6 million, as of September
30, 2022 and December 31, 2021, respectively, which included debt issuance costs of $i1.3 million and $i1.4 million
as of September 30, 2022 and December 31, 2021, respectively. See Note 9, Debt, for additional discussion of the redemption of our Long-term debt.
Investments at Fair Value - Net Asset Value ("NAV")
We report a significant portion of our investments at fair value. For such investments, we increase or decrease our investment each reporting period by the change in the fair value and we report these fair value adjustments in our Condensed Consolidated Statements of Comprehensive Income within Equity earnings.
For a subset of our investments reported at fair value, we estimate the fair value using the NAV per share (or its equivalent) our investees provide. Critical inputs to NAV estimates included valuations of the underlying real estate
assets and borrowings, which incorporate investment-specific assumptions such as discount rates, capitalization rates, rental and expense growth rates, and asset-specific market borrowing rates. We did not consider any adjustments to NAV estimates provided by investees, including adjustments for any restrictions to the transferability of ownership interests embedded within investment agreements to which we are a party, to be necessary based upon (i) our understanding of the methodology utilized and inputs incorporated to estimate NAV at the investee level, (ii) consideration of market demand for the specific types of real estate assets held by each venture and (iii) contemplation of real estate and capital markets conditions in the localities in which these ventures operate. As of September 30, 2022 and December 31, 2021, investments at fair value using NAV were $i279.5
million and $i251.6 million, respectively. As these investments are not required to be classified in the fair value hierarchy, they have been excluded from the following table.
During
the second quarter of 2022, certain investments previously reported as NAV investments were reclassified as Level 3 within the fair value hierarchy. Prior period amounts within the fair value table below have been reclassified to reflect the current period presentation. iThe following table categorizes by level in the fair value hierarchy the estimated fair value of our assets and liabilities measured at fair value on a recurring basis.
We
classify one investment as Level 1 in the fair value hierarchy as quoted price are readily available. We increase or decrease our investment each reporting period by the change in the fair value of the investment. We report the fair value adjustments in our Condensed Consolidated Statements of Comprehensive Income within Equity earnings.
Investments classified as Level 3 in the fair value hierarchy represent investments in early-stage non-public entities where we elected the fair value option. The carrying value was deemed to approximate fair value for the majority of these investments due to the proximity of the investment date or date of most recent financing raise to the balance sheet date as well as consideration of investee-level performance updates. To the extent there are changes in fair value, a result of pricing in subsequent funding rounds or changes in business strategy, for example, we recognize such changes through
Equity earnings.
We regularly use foreign currency forward contracts to manage our currency exchange rate risk related to intercompany lending and cash management practices. We determine the fair values of these contracts based on current market rates. The inputs for these valuations are Level 2 inputs in the fair value hierarchy. As of September 30, 2022 and December 31, 2021, these contracts
had a gross notional value of $i1.73 billion ($i1.10 billion on a net basis) and $i2.61
billion ($i1.51 billion on a net basis), respectively.
We record the asset and liability positions for our foreign currency forward contracts based on the net payable or net receivable position with the financial institutions from which we purchase these contracts. The $i14.1
million asset as of September 30, 2022 was composed of gross contracts with receivable positions of $i16.9 million and payable positions of $i2.8
million. The $i34.7 million liability as of September 30, 2022 was composed of gross contracts with receivable positions of $i0.2
million and payable positions of $i34.9 million. As of December 31, 2021, the $i15.9
million asset was composed of gross contracts with receivable positions of $i19.2 million and payable positions of $i3.3
million. The $i0.8 million liability as of December 31, 2021 was composed of gross contracts with receivable positions of $i0.2
million and payable positions of $i1.0 million.
As of September 30, 2022 and December
31, 2021, all of our Warehouse receivables were under commitment to be purchased by government-sponsored enterprises ("GSEs") or by a qualifying investor as part of a U.S. government or GSE mortgage-backed security program.
Deferred Compensation Plan
We maintain a deferred compensation plan for certain of our U.S. employees that allows them to defer portions of their compensation. We recorded this plan on our Condensed Consolidated Balance Sheet as of September 30, 2022 as Deferred compensation plan assets of $i520.2
million, long-term deferred compensation plan liabilities of $i477.2 million, included in Deferred compensation, and as a reduction of equity, Shares held in trust, of $i5.1
million. We recorded this plan on our Condensed Consolidated Balance Sheet as of December 31, 2021 as Deferred compensation plan assets of $i528.8 million, long-term deferred compensation plan liabilities of $i513.0
million, included in Deferred compensation, and as a reduction of equity, Shares held in trust, of $i5.2 million.
Earn-Out Liabilities
We classify our earn-out liabilities within Level 3 in the fair value hierarchy because the inputs we use to develop the estimated fair value include unobservable inputs. See Note 5, Business Combinations, Goodwill and Other Intangible Assets, for additional discussion of our earn-out liabilities.
Mortgage
Banking Derivatives
Both our interest rate lock commitments to prospective borrowers and forward sale contracts with prospective investors are undesignated derivatives and considered Level 3 valuations due to significant unobservable inputs related to counterparty credit risk. An increase in counterparty credit risk assumptions would result in a lower fair value measurement.
The
tables below present a reconciliation for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3).
We review our investments, except those investments otherwise reported at fair value, on a quarterly basis, or as otherwise deemed necessary, for indications of whether we may be unable to recover the carrying value of our investments and whether such investments are other-than-temporarily impaired. When the carrying amount of the investment is in excess of the estimated future undiscounted cash flows, we use a discounted cash flow approach or other acceptable method to determine the fair value of the investment in computing the amount of the impairment. Our determination of fair value primarily relies on Level 3 inputs. We did not recognize any significant investment-level impairment losses during either of the nine months ended September 30, 2022
or 2021. See Note 6, Investments, for additional information, including information related to impairment charges recorded at the investee level.
Long-term
senior notes, i4.4%, face amount of $i275.0, due November 2022, net of debt issuance costs of $i—
and $i0.3
i—
i274.7
Total
short-term debt
$
i244.2
i422.6
Credit
facility, net of debt issuance costs of $i12.1 and $i11.8
i1,587.9
i138.2
Long-term
senior notes, i1.96%, face amount of €i175.0, due June 2027, net of debt issuance costs of $i0.6
and $i0.6
i170.8
i197.9
Long-term
senior notes, i2.21%, face amount of €i175.0, due June 2029, net of debt issuance costs of $i0.7
and $i0.8
i170.7
i197.7
Total
debt
$
i2,173.6
i956.4
/
Credit
Facility
On June 16, 2022, we executed Amendment No. 3 ("Amendment No. 3") to the Second Amended and Restated Multicurrency Credit Agreement dated as of June 21, 2016 (as amended, the "Credit Agreement") with a syndicate of lenders. The features of the Credit Agreement, as amended, provide for (i) Greenhouse Gas Emissions KPI to align with the World Green Building Council ("WGBC") Commitment to reach net zero by 2030 and (ii) incorporates the Adjusted Term Secured Overnight Financing Rate ("SOFR") successor rates for USD and other currency borrowings. On August 31, 2022, we executed Amendment No. 4 ("Amendment No. 4") to the Credit Agreement which increased the borrowing capacity from $i2.75 billion
to $i3.35 billion. The maturity date of April 14, 2026 and covenants were unchanged by the amendments.
Pricing on the unsecured revolving credit facility (the "Facility") ranges from Adjusted Term iSOFR
plus 0.875% to 1.35%, with pricing as of September 30, 2022 at Adjusted Term iSOFR plus i0.94%. In addition to outstanding borrowings under the Facility presented in the
above table, we had outstanding letters of credit under the Facility of $ii0.7/
million as of both September 30, 2022 and December 31, 2021.
i
The following tables provides additional information on our Facility.
Three
Months Ended September 30,
Nine Months Ended September 30,
($ in millions)
2022
2021
2022
2021
Average outstanding borrowings under the Facility
$
i1,599.8
i497.1
$
i1,295.9
i432.5
Effective
interest rate on the Facility
i3.2
%
i1.0
%
i2.2
%
i1.0
%
/
We
will continue to use the Facility for, but not limited to, business acquisitions, working capital needs (including payment of accrued incentive compensation), co-investment activities, share repurchases and capital expenditures.
In addition to our Facility, we have the capacity to borrow up to an additional $i50.1
million under local overdraft facilities. Amounts outstanding are presented in the debt table above.
As of September 30, 2022, we redeemed all of our outstanding i4.4% Senior Notes due November 2022 (the "Notes"). The aggregate outstanding principal amount of the Notes was $i275.0
million. The redemption price for the Notes was equal to 100% of the principal amount of the Notes redeemed, plus accrued and unpaid interest.
As of September 30, 2022, our issuer and senior unsecured ratings are investment grade: Baa1 from Moody’s Investors Service, Inc. and BBB+ from Standard & Poor’s Ratings Services.
Covenants
Our Facility and senior notes are subject to customary financial and other covenants, including cash interest coverage ratios and leverage ratios, as well as event of default conditions. We remained in compliance with all covenants as of September 30, 2022.
(1)
In the third quarter of 2022, JLL extended the Warehouse facility; previously, the facility had a maturity date of September 19, 2022.
(2) In the third quarter of 2022, JLL extended the Warehouse facility and amended the interest rate; previously, the facility had a maturity date of September 16, 2022 and an interest rate of LIBOR plus 1.30%.
(3) In the third quarter of 2022, JLL extended the Warehouse facility and amended the interest rate; previously the facility had a maturity date of July 30, 2022 and an interest rate of LIBOR plus 1.60%.
(4) As Soon As Pooled ("ASAP") funding program.
/
We
have lines of credit established for the sole purpose of funding our Warehouse receivables. These lines of credit exist with financial institutions and are secured by the related warehouse receivables. Pursuant to these facilities, we are required to comply with certain financial covenants regarding (i) minimum net worth, (ii) minimum servicing-related loans and (iii) minimum adjusted leverage ratios. We remained in compliance with all covenants under our facilities as of September 30, 2022.
We are a defendant in various litigation matters arising in the ordinary course of business, some of which involve claims for damages that are substantial in amount.
Professional Indemnity Insurance
In order to better manage our global insurance program and support our risk management efforts, we supplement our traditional insurance coverage for certain types of claims by using a wholly-owned captive insurance company. The level of risk retained by our captive insurance company, with respect to professional indemnity claims, is up to $10.0 million per claim, inclusive of the deductible. We contract third-party insurance companies to provide coverage of risk in excess of this amount. When a potential loss event occurs,
we estimate the ultimate cost of the claim and accrue the amount in Other current and long-term liabilities on our Condensed Consolidated Balance Sheets when probable and estimable. In addition, we have established receivables from third-party insurance providers for claim amounts in excess of the risk retained by our captive insurance company. In total, these receivables were $ii22.5/
million as of both September 30, 2022 and December 31, 2021 and are included in Notes and other receivables and Long-term receivables on our Condensed Consolidated Balance Sheets.
i
The following table shows the professional indemnity accrual activity and related payments.
Delegated
Underwriting and Servicing ("DUS") Program Loan Loss-Sharing
As a participant in the DUS program, we retain a portion of the risk of loss for loans that are originated and sold under the DUS program. Net losses on defaulted loans are shared with Fannie Mae based upon established loss-sharing ratios. Generally, we share approximately one-third of incurred losses, subject to a cap of 20% of the principal balance of the mortgage at origination. As of September 30, 2022 and December 31, 2021, we had loans subject to such loss-sharing arrangements with an aggregate unpaid principal balance of $i17.0
billion and $i15.4 billion, respectively.
For all DUS program loans with loss-sharing obligations, we record a non-contingent liability equal to the estimated fair value of the guarantee obligations undertaken upon sale of the loan, which reduces our gain on sale of the loan. Subsequently, this liability is amortized over the estimated life of the loan and recognized as Revenue on the Condensed Consolidated Statements of Comprehensive Income. As of September 30,
2022 and December 31, 2021, the loss-sharing guarantee obligations were $i26.9 million and $i24.6 million, respectively, and are included in Other liabilities on our Condensed Consolidated Balance Sheets.
There were no loan losses incurred during the nine months ended September 30, 2022 and 2021.
The loss-sharing aspect of the program represents an off-balance sheet credit exposure. We record a separate contingent reserve for this risk calculated on an individual loan level. As of September 30, 2022 and December 31, 2021, the loan loss guarantee reserve was $i20.3
million and $i22.9 million, respectively, and is included within Other liabilities on our Condensed Consolidated Balance Sheets.
Restructuring and acquisition charges include cash and non-cash expenses. Cash-based charges primarily consist of (i) severance and employment-related charges, including those related to external service providers, incurred in conjunction with a structural business shift, which can be represented by a notable change in headcount, change in leadership, or transformation of business processes, (ii) acquisition, transaction and integration-related charges, and (iii) other restructuring, including lease exit charges. Non-cash charges include (i) stock-based compensation expense for retention awards issued in conjunction with the HFF, Inc. ("HFF") acquisition and (ii) fair value adjustments to earn-out liabilities relating to prior-period acquisition activity. iRestructuring
and acquisition charges are presented in table below.
Three Months Ended September 30,
Nine Months Ended September 30,
(in millions)
2022
2021
2022
2021
Severance
and other employment-related charges
$
i9.4
i1.2
$
i21.0
i2.1
Restructuring,
pre-acquisition and post-acquisition charges
i11.4
i11.2
i39.5
i32.6
Stock-based
compensation expense for HFF retention awards
i0.3
i3.2
i5.7
i15.2
Fair
value adjustments to earn-out liabilities
(i0.1)
i—
i0.2
i1.0
Restructuring
and acquisition charges
$
i21.0
i15.6
$
i66.4
i50.9
We
expect nearly all expenses related to (i) severance and other employment-related charges and (ii) restructuring, pre-acquisition and post-acquisition charges as of September 30, 2022 will be paid during the next twelve months.
For
pension and postretirement benefits, we report amounts reclassified from AOCI relating to employer service cost in Compensation and benefits within the Condensed Consolidated Statements of Comprehensive Income. All other reclassifications relating to pension and postretirement benefits are reported within Other income.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in
conjunction with the Condensed Consolidated Financial Statements, including the notes thereto, for the three and 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. Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our 2021 Annual Report on Form 10-K.
The
following discussion and analysis contains certain forward-looking statements generally identified by the words anticipates, believes, estimates, expects, forecasts, plans, intends and other similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause JLL's actual results, performance, achievements, plans and objectives to be materially different from any future results, performance, achievements, plans and objectives expressed or implied by such forward-looking statements. See the Cautionary Note Regarding Forward-Looking Statements included within this section for further information.
We present our quarterly Management's Discussion and Analysis in the following sections:
(1)A summary of our critical accounting policies and estimates;
(2)Certain
items affecting the comparability of results and certain market and other risks we face;
(3)The results of our operations, first on a consolidated basis and then for each of our business segments; and
(4)Liquidity and capital resources.
SUMMARY OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
An understanding of our accounting policies is necessary for a complete analysis of our results, financial position, liquidity and trends. See Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in our 2021 Annual Report on Form 10-K for a complete summary of our significant accounting policies.
The
preparation of our financial statements requires management to make certain critical accounting estimates and judgments that impact (1) the stated amount of assets and liabilities, (2) disclosure of contingent assets and liabilities at the date of the financial statements, and (3) the reported amount of revenue and expenses during the reporting periods. These accounting estimates are based on management's judgment. We consider them to be critical because of their significance to the financial statements and the possibility that future events may differ from current judgments or that the use of different assumptions could result in materially different estimates. We review these estimates on a periodic basis to ensure reasonableness. Although actual amounts likely differ from such estimated amounts, we believe such differences are not likely to be material.
A discussion of our critical accounting policies and estimates used
in the preparation of our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q can be found in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes to these critical accounting policies and estimates during the nine months ended September 30, 2022.
ITEMS AFFECTING COMPARABILITY
Macroeconomic Conditions
Our results of operations and the variability of these results are significantly influenced by (1) macroeconomic trends,
(2) the geopolitical environment, (3) the global and regional real estate markets, and (4) the financial and credit markets. These macroeconomic and other conditions have had, and we expect will continue to have, a significant impact on the variability of our results of operations. In early 2021, macroeconomic conditions influenced by the COVID-19 pandemic more notably impacted our operations compared with the current year.
The timing of acquisitions and dispositions may impact the comparability of our results on a year-over-year basis. Our results include
incremental revenues and expenses following the completion date of an acquisition. Relating to dispositions, comparable results will include the revenues and expenses of recent dispositions and results may also include gains (losses) on the disposition. In addition, there is generally an initial adverse impact on net income from an acquisition as a result of pre-acquisition due diligence expenditures, transaction/deal costs and post-acquisition integration costs, such as fees from third-party advisors engaged to assist with onboarding and process alignment, retention and severance expense, early lease termination costs, and other integration expenses. For dispositions, we may also incur such incremental costs during the disposition process and these costs could have an adverse impact on net income.
Equity Earnings and Incentive Fees
Equity earnings may vary substantially from period
to period for a variety of reasons, including as a result of: (1) gains (losses) on investments reported at fair value, (2) gains (losses) on asset dispositions, and (3) impairment charges. The timing of recognition of these items may impact comparability between quarters, in any one year, or compared to a prior year.
LaSalle, our investment management business, is in part compensated through incentive fees where performance of underlying funds' investments exceeds agreed-to return hurdles. Depending upon performance, disposition activity and the contractual timing of measurement periods with clients, these fees can be significant and may vary substantially from period to period.
The comparability of these items can be seen in Note 4, Business Segments, of the Notes to Condensed Consolidated Financial Statements and is discussed further in Segment Operating Results included herein.
Foreign
Currency
We conduct business using a variety of currencies, but we report our results in U.S. dollars. As a result, the volatility of currencies against the U.S. dollar may positively or negatively impact our results. This volatility can make it more difficult to perform period-to-period comparisons of the reported U.S. dollar results of operations, because such results may indicate a growth or decline rate that might not have been consistent with the real underlying growth or decline rates in the local operations. Consequently, we provide information about the impact of foreign currencies in the period-to-period comparisons of the reported results of operations in our discussion and analysis of financial condition in the Results of Operations section below.
Transaction-Based Revenue
Transaction-based fees, which are impacted by the size
and timing of our clients' transactions, from real estate investment banking, capital markets activities and other services within our segments, increase the variability of the revenue we earn. Specifically for LaSalle, we are compensated through incentive fees where performance of underlying funds' investments exceeds agreed-to benchmark levels. Depending upon performance, disposition activity, and the contractual timing of measurement periods with clients, these fees can be significant and vary substantially from period to period. The timing and the magnitude of these fees can vary significantly from year to year and quarter to quarter, and from region to region.
Seasonality
Historically, our quarterly revenue and profits have tended to increase from quarter to quarter as the year progresses. This is a result of a general focus in the real estate industry on completing or documenting
transactions by calendar year end and the fact that certain expenses are constant through the year. In addition, this seasonality excludes the recognition of investment-generated performance fees as well as realized and unrealized co-investment equity earnings and losses (the timing of each of these can fluctuate based on a variety of factors). Generally, we recognize incentive fees when assets are sold, the timing of which is geared toward the benefit of our clients. In addition, co-investment equity gains and losses are primarily dependent on valuations of underlying investments, the direction and magnitude of changes to such valuations fluctuate based on a variety of factors. Non-variable operating expenses, which we treat as expenses when incurred during the year, are relatively constant on a quarterly basis.
A significant portion of our Compensation and benefits expense is from incentive compensation plans, which we generally
accrue throughout the year based on progress toward annual performance targets. This quarterly estimation can result in significant fluctuations in quarterly Compensation and benefits expense from period to period. Consequently, the results for the periods ended September 30, 2022 and 2021 are not fully indicative of the results we expect to realize for the full fiscal year.
In
conjunction with our change in reporting segments, effective January 1, 2022, comparable period information has been recast to conform with current presentation.
Definitions
•Assets under management data for LaSalle is reported on a one-quarter lag.
•n.m.: not meaningful, represented by a percentage change of greater than 1,000% favorable or unfavorable.
Management uses certain non-GAAP financial measures to develop budgets and forecasts, measure and reward performance against those budgets and forecasts, and enhance comparability to prior periods. These measures are believed to be useful to investors and other external stakeholders as supplemental measures of core operating performance and include the following:
•Fee revenue and Fee-based operating expenses;
•Adjusted EBITDA attributable to common shareholders ("Adjusted EBITDA") and Adjusted EBITDA margin; and
•Percentage changes against prior periods, presented on a local currency basis.
However,
non-GAAP financial measures should not be considered alternatives to measures determined in accordance with U.S. generally accepted accounting principles (“GAAP”). Any measure that eliminates components of a company’s capital structure, cost of operations or investment, or other results has limitations as a performance measure. In light of these limitations, management also considers GAAP financial measures and does not rely solely on non-GAAP financial measures. Because our non-GAAP financial measures are not calculated in accordance with GAAP, they may not be comparable to similarly titled measures used by other companies.
Adjustments to GAAP Financial Measures Used to Calculate non-GAAP Financial Measures
Gross contract costs represent certain costs associated
with client-dedicated employees and third-party vendors and subcontractors and are directly or indirectly reimbursed through the fees we receive. These costs are presented on a gross basis in Operating expenses with the equal amount of corresponding fees in Revenue. Excluding gross contract costs from both Fee revenue and Fee-based operating expenses more accurately reflects how we manage our expense base and operating margins and also enables a more consistent performance assessment across a portfolio of contracts with varying payment terms and structures.
Net non-cash MSR and mortgage banking derivative activity consists of the balances presented within Revenue composed of (i) derivative gains/losses resulting from mortgage
banking loan commitment and warehousing activity and (ii) gains recognized from the retention of MSR upon origination and sale of mortgage loans, offset by (iii) amortization of MSR intangible assets over the period that net servicing income is projected to be received. Non-cash derivative gains/losses resulting from mortgage banking loan commitment and warehousing activity are calculated as the estimated fair value of loan commitments and subsequent changes thereof, primarily represented by the estimated net cash flows associated with future servicing rights. MSR gains and corresponding MSR intangible assets are calculated as the present value of estimated net cash flows over the estimated mortgage servicing periods. The above activity is reported entirely within Revenue of the Capital Markets segment. Excluding net non-cash MSR and mortgage banking derivative activity reflects how we manage and evaluate performance because the excluded activity is non-cash in nature.
Restructuring
and acquisition charges primarily consist of (i) severance and employment-related charges, including those related to external service providers, incurred in conjunction with a structural business shift, which can be represented by a notable change in headcount, change in leadership or transformation of business processes; (ii) acquisition, transaction and integration-related charges, including fair value adjustments, which are generally non-cash in the periods such adjustments are made, to assets and liabilities recorded in purchase accounting such as earn-out liabilities and intangible assets; and (iii) other restructuring, including lease exit charges. Such activity is excluded as the amounts are generally either non-cash in nature or the anticipated benefits from the expenditures would not likely be fully realized until future periods. Restructuring and acquisition charges are excluded from segment operating results and therefore not a line
item in the segments’ reconciliation to Adjusted EBITDA.
Gain/loss on disposition reflects the gain or loss recognized on the sale or disposition of businesses. Given the low frequency of business disposals by the company historically, the gain or loss directly associated with such activity is excluded as it is not considered indicative of core operating performance. In 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 $0.4 million related to a sold business within Markets Advisory in the third
quarter.
Below
is (i) a reconciliation of Net income attributable to common shareholders to EBITDA and Adjusted EBITDA, (ii) the Net income margin attributable to common shareholders (measured on Revenue), and (iii) the Adjusted EBITDA margin (measured on fee revenue and presented on a local currency basis).
Three Months Ended September 30,
Nine Months Ended September 30,
($ in millions)
2022
2021
2022
2021
Net
income attributable to common shareholders
$
140.2
237.2
$
479.7
540.2
Add:
Interest expense, net of interest income
23.2
9.6
49.1
30.6
Provision
for income taxes
42.3
65.3
155.4
148.4
Depreciation and amortization(a)
54.7
52.8
163.5
160.3
EBITDA
$
260.4
364.9
$
847.7
879.5
Adjustments:
Restructuring
and acquisition charges
21.0
15.6
66.4
50.9
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)
Adjusted
EBITDA
$
276.2
352.0
$
908.8
874.5
Net income margin attributable to common shareholders
2.7
%
4.9
%
3.1
%
4.0
%
Adjusted
EBITDA margin
13.3
%
17.2
%
14.8
%
16.6
%
(a) This adjustment excludes the noncontrolling interest portion of amortization of acquisition-related intangibles which is not attributable to common shareholders.
In discussing our operating results, we report Adjusted EBITDA margins and refer to percentage changes in local currency, unless otherwise noted. Amounts presented on a local currency basis are calculated by translating the current period results of our foreign operations to U.S. dollars using the foreign currency exchange rates from the comparative period. We believe this methodology provides a framework for assessing performance and operations excluding the effect of foreign currency fluctuations.
The following table reflects the reconciliation to local currency amounts for consolidated (i) Revenue, (ii) Fee revenue, (iii) Operating income, and (iv) Adjusted EBITDA.
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 $265.4 million or 21%. Work Dynamics delivered solid fee revenue growth of 16%, led by our corporate outsourcing business, Workplace Management. Higher advisory fees outpaced the drop in incentive fees to drive fee revenue up 13% for LaSalle.
The following highlights the proportion of consolidated top-line growth on a local currency basis, compared with the prior year, by business line segment ($ 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. dollars (“USD”) and 19% in
local currency compared with last year. The quarter-to-date and year-to-date spreads were driven by the strengthening of the U.S. dollar against most major currencies, especially the British pound sterling, euro, Japanese yen and Australian dollar.
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 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 September 30,
Nine Months Ended September 30,
(in millions)
2022
2021
2022
2021
Severance and other employment-related charges
$
9.4
1.2
$
21.0
2.1
Restructuring,
pre-acquisition and post-acquisition charges
11.7
14.4
45.2
47.8
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 (losses) by relevant segment. Refer to the segment discussions for additional details.
Three
Months Ended September 30,
Nine Months Ended September 30,
(in millions)
2022
2021
2022
2021
JLL Technologies
$
1.0
7.3
$
64.5
58.1
LaSalle
(1.1)
8.4
4.0
44.8
Other
0.6
1.7
4.1
3.8
Total
equity earnings
$
0.5
17.4
$
72.6
106.7
Other Income
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 our Russia business. In 2021, we recognized a $12.0 million gain related to a business disposition within JLL Technologies during the first quarter.
Income Taxes
The provision for income taxes was $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 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 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.
Effective January 1, 2022, we manage and report our operations as five business segments: Markets Advisory, Capital Markets, Work Dynamics, JLL Technologies, and LaSalle.
Markets Advisory offers a wide range of real estate services, including agency leasing and tenant representation, property management, and advisory and consulting services. Our Capital Markets service offerings include investment sales, equity and debt advisory, loan servicing, and valuations. Our Work Dynamics business provides a broad suite of integrated services to occupiers of real estate, including facility and project management, as well as portfolio and other services. We consider "Property Management" to be services provided to non-occupying
property investors and "Workplace Management" to be services provided to owner-occupiers. Our JLL Technologies segment offers software products, solutions and services, while LaSalle provides investment management services on a global basis to institutional investors and high-net-worth individuals.
For segment reporting, (i) gross contract costs and (ii) net non-cash MSR and mortgage banking derivative activity are both excluded from revenue in determining Fee revenue. Gross contract costs are excluded from operating expenses in determining Fee-based operating expenses. In addition, our measure of segment results also excludes Restructuring and acquisition charges.
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 primarily driven by the expense drivers noted above, which outpaced the fee revenue growth.
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.
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
margin expansion was attributable to the fee revenue growth described above and cost management strategies, partially offset by incremental T&E and marketing expenses.
(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 $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.
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 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.
We finance our operations, co-investment activity, share repurchases, capital expenditures and business acquisitions with internally generated funds, borrowings on our Facility, and through issuance of Long-term debt.
Cash Flows from Operating Activities
Operating activities used $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 $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 $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 first nine months of 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 from investing activities, specifically investment activity by less than wholly-owned entities.
Debt
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.
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.
See Note 6, Investments, in the Notes to Condensed Consolidated Financial Statements for additional information on our investment activity. In the prior year, JLL technologies funded a $45 million convertible note to Turntide Technologies. This activity was included within "Other" in the cash flow from investing activities.
Capital Expenditures
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 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). The funding for, or distribution of, these investments (largely from employee-investors and related third-party debt) is included within financing activities.
Business
Acquisitions
During the 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 $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 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.
We will continue to consider acquisitions that we believe will strengthen our market position, increase our profitability, and supplement our organic growth.
Share Repurchase and Dividend
Programs
In February 2022, our Board of Directors authorized an additional $1.5 billion for the repurchase of our common stock in the open market and privately negotiated transactions. The number of shares repurchased and cash paid for repurchases is noted in the following table.
Three Months Ended September 30,
Nine Months Ended September 30,
($
in millions)
2022
2021
2022
2021
Total number of shares repurchased (in 000's)
909.2
658.9
2,922.4
858.9
Total paid for shares repurchased
$
153.5
149.9
$
601.2
191.0
As
of September 30, 2022, $1,155.6 million remained authorized for repurchases under our share repurchase program.
Based on our historical experience and future business plans, we do not expect to repatriate our foreign-sourced earnings to the United States. We believe our policy of permanently investing earnings of foreign subsidiaries does not significantly impact our liquidity. As of 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
We face regulatory restrictions in certain countries that limit or prevent the transfer of funds to other countries or the exchange of the local currency to other currencies. However, we generally face no such restrictions with regard to the use or application of funds for ordinary course business activities within such countries. The assets of these countries aggregated to approximately 4% of our total assets as of both September 30, 2022
and December 31, 2021.
This report, including this Management's Discussion and Analysis of Financial Condition and Results of Operations, contains “forward-looking statements” within the meaning of the federal securities laws. All such statements are qualified by this cautionary note, which is provided pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements may also be included in our other public filings, press releases, our website,
and oral and written presentations by management.
Statements in the future tense, and all statements accompanied by terms such as “believe,”“will,”“may,”“could,”“project,”“expect,”“estimate,”“assume,”“intend,”“anticipate,”“target,”“plan” and variations thereof and similar terms, are intended to be forward-looking statements. Such statements do not relate strictly to historical or current facts as they relate to our intent, belief and current expectations about our strategic direction, prospects and future results, and give our current expectations or forecasts of future events. Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
MARKET AND OTHER RISK FACTORS
Interest Rates
We assess interest rate sensitivity to estimate the potential effect of rising short-term interest rates on our variable-rate debt. If short-term interest rates were 50 basis points higher during 2022 on our variable-rate debt, our results would reflect an increase of $4.9 million to Interest expense, net of interest income, for the nine months ended September 30, 2022.
Foreign Exchange
The following outlines the significant functional currencies of our revenue, highlighting where exposure to movements in foreign
exchange impact our operations in international markets.
(1) No other functional currency exceeds 5% of total revenue.
To show the impact foreign currencies have on our results of operations, we present the change in local currency for revenue and operating
expenses on a consolidated basis and by operating segment in Management's Discussion and Analysis of Financial Condition and Results of Operations included herein. For additional detail of the impact of foreign exchange rates on our results of operations, see Management's Discussion and Analysis of Financial Condition and Results of Operations included herein.
We enter into forward foreign currency exchange contracts to manage currency risks associated with intercompany lending and cash management practices. See Note 8, Fair Value Measurements, in the Notes to the Condensed Consolidated Financial Statements for further discussion of our forward contracts.
Item 4. Controls and Procedures
The Company has established disclosure controls and procedures to ensure material information relating to the Company, including its consolidated subsidiaries, is made known to the officers who certify the Company's financial reports and to the other members of senior management and the Board of Directors.
Under the supervision and with the participation of the Company's management, including our Chief Executive Officer
and Chief Financial Officer, we conducted an evaluation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures were effective as of the end of the period covered by this report. There were no changes in the Company's internal control over financial reporting during the quarter ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
We are a defendant or plaintiff in various litigation matters arising in the ordinary course of business, some of which involve claims for damages that are substantial in amount. Many of these litigation matters are covered by insurance (including insurance provided through a captive insurance company), although they may nevertheless be subject to large deductibles and the amounts being claimed may exceed the available insurance. Although we cannot determine the ultimate liability for these matters based upon information currently available, we believe the ultimate resolution of such claims and litigation will not have
a material adverse effect on our financial position, results of operations or liquidity.
Item 1A. Risk Factors
There have been no material changes to our risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information about our purchases of equity securities that are registered by us pursuant to Section 12 of the Exchange Act during the quarter ended September
30, 2022.
Period
Total number of shares purchased
Weighted average price paid per share
Total number of shares purchased as part of publicly announced plan
Approximate dollar value of shares that may yet be purchased under the plan (in millions)
Amendment No. 4 to the Second Amended and Restated Multicurrency Credit Agreement, dated as of August 31, 2022, among Jones Lang LaSalle Finance B.V., the Guarantors party thereto, the Lenders party thereto, and Bank of Montreal, as Administrative Agent
(Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K dated August 31, 2022 (File No. 001-13145))
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its
XBRL tags are embedded within the Inline XBRL document
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 2nd day of November, 2022.
