Q2 2023 Jones Lang LaSalle Incorporated Earnings Call
Thank you for standing by my name is Ian and I will be your conference operator today.
At this time I would like to welcome everyone to the queue to 2023 J L. L earnings Conference call.
All wines have been placed on mute to prevent any background noise at the speaker's remarks, there will be a question and answer session.
If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again press Star one.
Thank you.
Scott I'd a burger.
Head of Investor Relations you May begin your conference.
Thank you and good morning, welcome to the second quarter.
23 Rd conference call for Jones Lang Lasalle incorporated.
Earlier this morning.
Our earnings release.
Along with a slide presentation in itself violent intended to supplement our prepared remarks.
These materials are available on the Investor Relations section of our website.
Please visit I R Dot J O L Dot com.
During the call and then our slide presentation and accompanying an excel file.
Certain non-GAAP financial measures.
Which we believe provide useful information for investors.
We include reconciliations of non-GAAP financial measures to gap in our own.
Release and slide presentation.
As a reminder of today's call is being webcast live and recorded.
A transcript and a recording of this conference call will be posted to our website.
Any statements made about future results and performance plans expectations and objectives are forward looking statements.
Actual results and performance may differ from those forward looking statements.
Salt of factors discussed in our annual report on Form 10-K for the fiscal year December 31st 2022.
And then other reports filed with the S E C.
The company disclaims any undertaking to publicly update I'll revise any forward looking statements.
I will now turn the call over to Christian would break a president and Chief Executive Officer for opening remarks.
Thank you Scott.
Hello, and thank you all for joining our second quarter 20 twenty-three earnings call.
Conditions impacting global real estate markets were largely unchanged in the second quarter.
The consistent tone coming from the U S. Federal reserve with regards to inflation and the interest rate tightening cycle has kept real estate markets muted.
Overall higher cost of capital.
Lending standards and elevated price uncertainty has limited transaction volumes.
During the second quarter.
Through our Brazilian business lines, while also effectively managing for the industry wide slowdown in investment sales and teasing activity.
To put this into perspective.
Mobile commercial real estate investments totaled $139 billion in the second quarter.
A year over year decline of 53% According to J L. L research this.
Second quarter decline in investment dollars, what's in line with the deceleration seen over the last two quarters, which would support the view that the market has found its bottom with regards to transaction volumes.
The leasing site.
And for the global office market was down 14% year over year in the second quarter.
Calling to jail that research.
Occupiers continued to have a cautious outlook on the macroeconomic environment and as a result.
Standing that timeline to make decisions.
Large scale leasing activity remain slower than normal, but it's showing signs of improvement with second quota activity.
Sequentially from the first quarter.
Global office, they can see rates modestly, 215.6% in the second quarter compared to 14.4% last year.
Asia Pacific Giesecke volumes remain stable compared with last year, but volumes declined in both Europe and the U S.
Demand, particularly in the U S continues to be focused on high quality and sustainable spaces in prime locations.
These types of best in class assets have proven to be much more resilient than the overall market was rental gross remaining.
Positive despite the slow down in office leasing activity.
We are observing culprit shedding lower quality space, while also directing employees to return to the office at least three days, a week, which is leading to peek occupancy rates at or near capacity in high quality buildings for many of our clients.
As a reminder, a significant percentage of jail office leasing fee revenues comes from transactions in these high quality or class a buildings.
Turning to the industrial sector global leasing activity moderated the second quarter.
Asia Pacific showed positive net absorption during the quota why gross leasing volumes in the U S and Europe Sloat.
Overall market fundamentals in the industrial sector remain healthy was low vacancy rates and positive trental gross in many markets.
The industrial sector has grown to become one third of our total leasing fee revenue and we expect growth in this asset class to continue in the coming years.
The hotel and retail sectors have benefited from healthy consumer spending on experiences and services.
Bound in international travel has also boosted the hotel and retail markets globally, particularly in the tourist car doors of Europe and Asia Pacific.
Over all these macro an industry specific trends are playing out largely as we expected when the heat begin.
We had forecasted a slightly stronger advancement of transactions in the second quarter.
Can't Trust, our resilient business lines collectively deliver positive feed revenue closed during the second quarter.
I liked it by gross and our property management workplace management and technology business line.
Besides business performed well given the decline in real estate asset values and incentive fees were better than expected demonstrating diversification and strengths of this portfolio.
Before I tell them to call over to Karen who will share more detail on the <unk> I want to touch on the jail all technologies segment.
While it is the smallest of our five business segments the value. It brings to all of our company and our clients are substantial.
The cough this business is our billed by partner and best strategy.
Which we spoke about it I would invest the briefing last fall.
Perfect example of this strategy coming to life is B, a I power platform, our capital markets team is using to identify analyzed and sauce pipeline opportunities.
Earlier, this week, I, which L. L technologies team took this one step further with the unveiling of jail L. C. P T.
Q of generate takes a I model for commercial real estate that we build in house.
Our teams are beginning to use this new tool to provide clines with even better insights into the current market.
He said just a few examples of projects.
Technology team is working on that we believe will translate into longterm shareholder value, especially when you consider the texture of the transformation that is playing out in the commercial real estate sector.
Part of our strategy as investments in Proptech companies that a physician to dry further efficiencies or in some cases disrupt the commercial real estate industry.
As a reminder of the three main reasons, we invest in these companies first to enable our business was technology tools that will drive gross and improve productivity.
To gain insight into technology that will potentially disrupt the industry and and form on the strategic direction.
While we have a disciplined approach to these investments venture capital invested in is subject to increased volatility during economic cycles. As a result, we have to be comfortable with equity gains and losses associated with these investments.
And the second quarter hour they'll technologies investment portfolio generated a non cash equity loss.
Primary resulted from two companies raising capital and downright ones.
This would also has came after approximately $200 million of gains of the past few years.
Four years valued at 1.2 times, the original investment amount of $405 million.
Today, we have built out of material for Ya that includes more than 50 companies and why we will continue to invest in property companies.
The amount of incremental investments will be notably less than <unk> 40 years <unk>.
A medium term outlook remains healthy for many of the companies we have invested in and we are focused on bringing the strategic benefits of these investments to our company and clients.
With that I will now turn the call over to Karen will provide more detail on our resolves for the quarter.
Thank you Christian.
Before I begin a reminder, that variances are against the prior year period in local currency unless otherwise noted.
Overall, I'm pleased with our fundamental operating performance and a quarter, which was consistent with the trends of the past two quarters.
Particularly considering the continuation of the challenging market backdrop Christian described.
At the same time, we are making good progress on a number of important fronts, including improving working capital efficiency, reducing fixed costs.
Handling the resiliency of our global platform.
<unk> the cross our business, we remain focused on delivering a high level of client survey and capturing a significant market opportunity to drive both near term and long term growth profitability and cash flow.
At the consolidated level.
Quarter fee revenue with $1.8 billion.
A 13% decline from in your earlier.
Adjusted EBITDA totaled $116 million down, 68% and reflected emergent at 6.2% compared with 16.8% a year ago.
A 137 million dollar adverse non-cash change in our equity earnings <unk> carried interest accounted for over 70% of the margin reduction.
Deanna equity lost headwinds the lower margin with predominantly due to the decline in fee revenue in our investment sale that inequity advisory and leasing business lines.
Our ongoing cost reduction actions, mostly upset investments in that business made over the past 12 months to drive future growth.
Just the diluted EPS 50 cents reflected the equity losses higher interest expense and lower contribution from our transactional business lines.
Beginning with markets advisory, 13% decline in segment, Steve Avenue, with mainly due to a contraction and leasing activity.
Most notably in the Americas and <unk>.
Lifting fee of Avenue declined 16% filing a 24% growth rate in the prior year quarter.
Both the office and industrial sector saw materials fee revenue decline.
<unk> grew modestly in comparison.
Transaction volumes declined across asset type, especially in the office and industrial sectors. While average deal side also decreased across must appetite, particularly in the U S industrial sector.
The decline in our second quarter office sector Fever Avenue, which largely in line with the 14 per cent contraction in global office leasing volume According to jail out research.
And the industrial sector fee revenue declined 26%, which compares favorably with a 34 per cent decrease in global industrial market activity According to jail or research.
The contraction and industrial sector leasing activity is consistent with the expectation given in tight supply insignificant crowd seeing over the past several years.
Is Christian described we continue to see more sustained leasing demand for high quality assets, which represents the majority of our business.
A global growth leasing pipeline continues to hold up which gives us optimism for continued sequential improvement in a rabbit.
However, the tastes of acceleration is uncertain considering the economic backdrop.
Also within markets Advisory property management fee revenue grew 9%.
Charitable in part to portfolio expansions in the Americas and incremental fees from interest rate sensitive contracts in the UK.
The decline in advisory consulting and other fee revenue, primarily due to the absence of revenues associated with the exit of a business that we previously announced in the fourth quarter of last year.
The market advisory second quarter, adjusted EBITDA margin contraction, which primarily due to lower listing fee revenue.
Shifting to our capital market segment.
The market conditions Christian described or a key factor in a 34% decline in second eighth Avenue.
The contraction is off a strong second quarter of 2022 growth rate of 24 per cent.
Global investment <unk> Avenue, which accounted for approximately 35% a stagnant field Avenue.
45%.
The decline was across most geography as an asset classes and compares favorably with a 53% decline in the global sales volume Christian reference.
Growth and evaluation Advisory Steve Avenue in Asia Pacific with more than offset by declines in the Americas in India, leading to a five per cent reduction in a total valuation advisory receive Avenue.
Alright loan servicing fee of Avenue, 3% and approximately $4 million, a blower prepayment fees, which masked about 7% growth of recurring servicing fees.
The rise in interest rate had slowed early refinancing activity, which generates prepayment fees.
The underlying growth of the servicing fees was driven by growth and understanding a portfolio.
The capital market adjusted EBITDA margin contraction with predominantly driven by lower fee revenue and the impact of a 7 million dollar adverse change in our bone loss credit reserve, partially off that five $5 million of equity earnings, which we do not expect to recur.
Detrimental margin within capital markets with in line with our expectations considering the differences in geographic compensation structures. The loan offered there have been packed and other discrete items.
Our investment in capital markets talent and platform over the past several years position us to capitalize on a rebound in transaction volume.
Looking ahead of global capital markets investment thousand debt and equity advisory pipeline is building at a slower rate than historical trends in a typical year and it's down mid 20th percentage compared with this time last year.
While we do see early signs of improving activity, particularly within the U S.
The amount and pizza revenue growth through the remainder of the year will be heavily influenced by the factors impacting your timing and closing right Christian described moving.
Moving next to work dynamics.
See revenue growth of three per cent with led by continued strength in project management, partially offset by lower portfolios services and other fee revenue.
The 8% increase in project management fee revenue growth as a result of notable demand in Australia, France, the middle East and the U K.
The moderate two per cent growth and workplace management on the back.
<unk>, 12% growth of your earlier with mostly due to timing a new contract revenue.
The slowdown in leasing activity, particularly in the Americas continued to adversely impact portfolio services fee revenue growth and a quarter.
The decline in higher margin portfolio services revenue and continued investments in technology and head count to support future growth drove the contraction and work dynamics adjusted EBITDA margin.
We are pleased with the underlying performance of our work dynamics business <unk>.
Confident in a segments growth and margins trajectory over the coming years.
Continue to see salad, new style trends and strong contract renewal and expansion rate.
Revenue from the new workplace management contract from Fortune 100 companies to be secured earlier. This year will begin to ramp as the year progresses and support third momentum into 2024.
Our pipeline continues to build as the demand for professional management of corporate real estate increases.
We remain focused on adding further project management mandates and that's the solid demand trends globally. Despite the moderating economic backdrop.
Turning to J a lot of technology.
D revenue grew 18% is existing large enterprise clients continue to increase the utilization of our platform, including our leading solutions and services offerings.
We also saw strong retention rates of jail, all technologies largely recurring revenue base.
Indicative of our focused on segment profitability jail, all technologies fee based operating expenses, excluding carried interest were consistent with a year earlier, despite the strong revenue growth.
This corridor non-cash equity losses related to our investment portfolio totaled $104 million, which reversed approximately half of the equity games, we had recognized over the past several years.
The combination of the sea revenue growth and incremental operating efficiency gains drove an improvement in jail all technologies adjusted EBITDA margin that was masked by the 129 million dollar adverse swaying in equity earnings Medicare of interest.
As Christian mentioned, our portfolios now more mature and we had been scaling back our investments and prop tech companies over the last 18 months.
Here today 2023 investments are approximately 50 per cent lower than the first half of 2022.
We will continue to invest in project companies that meet our strategic priorities.
Now <unk>.
<unk> earned an asset managed on behalf of clients, notably in Japan, I mean, United States drove 28% fee revenue growth.
Advisory fee revenue declined three per cent, primarily on the impact of recent valuation declines of our assets under management.
<unk> capital deployment with largely offset by the reduction in valuation bleeding to assets under management that was consistent with a year earlier.
Given me evolving market environment, New capital deployment continues to be subdued, thereby impacting transaction revenues compared to the prior year.
Moderating asset valuations drove a 12 million dollar adverse change in equity earnings from the prior year.
The reduction in the style that Jested EBITDA margin was largely due to the change in equity earnings partially offset by higher incentive for Ya.
Shifting to free cash flow.
Net inflow in the corner with nearly $200 million.
Proximately is $60 million higher than a year earlier.
Incremental cash inflow from that reimburse the bulls and trade receivable drove an improvement and networking capital, which more than off that lower cash from earnings.
The lower cash from earning this was largely due to the decline in capital markets and markets Advisory business performance.
Cash flow conversion is a high priority and we remain focused on improving our working capital efficiency.
Turning to our balance sheet and capital allocation.
June 30th reported that leverage with 2.3 times up from 1.0 time that your earlier, primarily due to lower free cash flow over the trailing 12 months and the adverse impact of the non-cash equity losses.
The equity losses net of carried interest over the trailing 12 months had a 0.3 times adverse impact on our second quarter reported in that leverage ratio.
Liquidity position remains solid totaling $1.9 billion at the end of the second quarter, including $1.5 billion of Undrawn credit facility capacity.
Regarding our capital allocation priority prioritizing deleveraging our balance sheet in the near term, while continuing to selectively to play capital towards growth initiatives and repurchasing shares.
We repurchased $20 million during the second quarter and are on pace to repurchase enough shares to off that's dot com solution. This year.
As long as leverage remains elevated share repurchases are likely to be modest.
Looking further out the amount of share repurchases will be dependent on their performance of our business, particularly cash generation and the macroeconomic outlook.
Before closing I'd like to provide an update on our longterm operating efficiency improves Nichols.
As of the end of July .
Of which $170 million is expected to be realized in 2023.
Importantly, we continue to opportunistically invest in areas that we believe have attractive growth and returned prospects across our business.
We previously articulated consolidated adjusted EBITDA margin target for 14% to 16%, which assumed a minimal equity earnings and a recovery in the second half of the year.
With secular industry Talon very much intact and our investments in our people and platform. We are confident in her prospects of gaining share and growing our business at a rate, which meaningfully exceeds global G. D. P.
Christian back to Ya.
Thank you Karen.
Looking ahead inflation peaked earlier this year and is now on a swift downward trajectory wished interest rates in the U S nearing the top of the cycle.
Did you say market conditions remain mixed it's interest rate volatility and wider than normal <unk> continued to create uncertainty.
As we look up the investment sales landscape. We believe there are reasons for optimism.
Trust markets have developed more certainty over the expected future moves from the U S that a result.
Second credit spreads have started to type.
Hoping to make <unk> more predictable and the bid ask red has begun to network.
Fundraising for the second quarter was up the highest level in the last year and Mendoza active in appropriately priced assets.
In addition, our conversation was clines indicate a desire to Trans Act.
There's no lack of dry powder.
This is supported by the fact that there has been a sequential uptick in bidding activity since the low seen earlier this year.
Weighing these different aspects, we still lean towards notable <unk> interests actually activity. This fall.
The investments we have made over the past several years to diversify our business up paying dividends.
S O one more recurring business lines continue to perform well and provide a stable running space during the current downturn.
The structural changes we have made to the business a couple of years ago continued to allow us to take further crossed out and will lead to an even more resilient platform.
Downturns, often presented great opportunities to invest in our business and we have been doing this over the last several months adding.
Heading brokerage teams in select markets that will position us to take advantage of the recovery when it transpires.
Now more than ever our clients are relying on our global scale and one jail L approached by clear and insightful guidance.
The minutes should the current market environment.
Before I close I would like to thank each of our employees for the hard work and commitment to serving our clients.
Operator, please explain the Q&A process.
At this time I would like to remind everyone in order to ask a question press star. So the number one on your telephone keypad. Once again that is star followed by the number one will pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Steven Sheldon with William Blair. Please go ahead.
Just curious we can get some more detail on the two assets the drove that equity right down and just generally how are some of the assets within their performing relative to your expectations and.
And and especially are there are there assets that are doing, particularly well and especially those some of those that you own outright would just love to get more detail I guess under the Hood there.
Sure first of all you know venture capital portfolio, we don't own anything completely where you're always shop or whether to some small propulsion engage companies.
The two companies, which created the predominant part of those losses.
Two Oh blah blah.
<unk> one of them.
Actually doing fine, but had the bad luck that they were running out of cash in an environment, which just has very very new to it evaluations and so.
They successfully raised equity and we expect them to perform well going forward.
The other one choose to take this environment.
Although there was no need for liquidity, but they saw a very.
Attractive opportunity to raise equity now and and use that liquidity to accelerate.
Yeah gross potential we choose not to participate although the company is too well that's our exposure to the company it was.
Speaking nothing there was no need for us to participate.
We are very happy with that portfolio. It is.
<unk> used the products they are creating a well used within our nature clients and.
And the performance has been very strong in the past. So what we have now pop you gave them up in the valuation is the appreciation we have recognized over the previous yes, and so we see that as a normal situation. When you invest into venture capital there was a very strong optical.
Valuations over multiple ears, and now we have seen over the last couple of quarters.
Valuations have come down.
And and now we we were hit by the <unk>.
Companies, who have to raise equity in that environment or choose to waste equity in that environment.
Got it that's helpful and it was a follow up you know.
Just just generally on the outlook for capital markets activity over the rest of the year given what you're seeing I think I think you said Christian that you think capital markets activity seems likely to pick up this fall, but it is.
Is it also fair to say that that isn't necessarily included in the guidance commentary here and that you laid out for the low end of the 14 per cent to 60 per cent ranch just wanted to.
Yeah can I drill down I definitely those two comments.
So first of all we want to stay away on giving a prediction on the overall capsule markets environment.
And what are applying for telling us what they still want to do this year that provides us with a confidence that we should see notable uptick in the capital markets activity towards the end of the C. The last couple of months of the year and that.
Uptake is included when we talk about the full cost that we are expected to achieve the lower end of our marching guidance excluding equity earnings.
Okay, great. Thank you.
Our next question comes from the line of Anthony Polony with J P. Morgan. Please go ahead.
Yeah. Thank you I'm just following up on <unk> question, just on the second half a modest ramp that you needed to see for.
Lower end of your margin guidance does that give me just trying to put some brackets around does that mean, the fourth quarter fee revenue for jerrold overall needs to be up.
You know a little bit of raw like just any just broad comments on that.
Well, that's a very relative description you up a little bit or whatever it will be up against last year and our own predictions.
That's a performance than last year.
Okay, and then just in terms of the 25 goals that you're sticking to hear how would you characterize just getting there by Cher versus just what the overall market needs to to be like two to achieve that.
Well I mean, I'll 2025 financial targets.
Flight medium term March and expansion.
And we were confident that we can achieve the Martian expansion predominantly based on the organizational changes, we have made which allow us to streamline our platform and reduce our cost base.
And at the same time, we have made strategic investments.
Position us to grow our market share.
And and <unk>.
In line with what we predicted around 2025 now is the market where to stay exactly.
As it is in the first two quarters of this year than it would become really tough to get to those matson targets.
So we are seeing coming into the <unk>.
Market development over the next 24 months, we are pretty confident that we can achieve those 2025 targets based on these.
<unk> and cost savings and the investments, which we have taken.
Okay.
And then just <unk>, if I can maybe for care of the.
You seem like you have some working capital benefits from receivables and just the the reimbursements do you think that something that's gonna help boost free cash flow for the full year or is this something that's just you know it could unwind in the second half just quarter to quarter volatility of those receivables and reimbursement.
Yeah, maybe I first take a step back and just highlight that those working capital outcomes actually offset the decline in earnings. So as we think about the full year free kassala outcomes.
Certainly very dependent on what happens from an earnings perspective, and the expected recovery and pick up in a transaction volumes overall.
Outside of that there are a number of puts and takes that will impact the full year final outcome <unk> as he talked out in the past writes collections.
Aren't working capital drag from new contract wins tax payments, having a bit of a talented untalented from lower incentive compensation payments compared to prior year. So alright number of moving pieces, the largest of which will be <unk>. The impact of earnings and then we are highly focus on working capital and continuing to drive.
Outcomes there.
Okay. Thank you.
Our next question comes from the line of Michael Griffin.
Which city.
Your Windows opened.
Great. Thanks, I just wanted to go back to the comment you haven't been released about credit spreads.
Kind of asset price will be new address Christian I know you kind of touched on this briefly but do you have a sense of how much more of those spreads need to narrow are aware asset prices need to adjust to to kind of pick up on that transaction activity.
Well, we actually see spreads narrowing already and we have seen for many assets prices to come down and so activity is is starting to grow as we speak so we're not expecting any kind of <unk> <unk>.
Changes in the trench line, it's an ongoing kind of slice. It just me which is taking place.
Asset classes, we we are very close to where it needs to go for the current interest rate environment, and and <unk> and other asset classes. So some more rooms for is to really unlock more transactions, but it's not that we are expecting.
Massive difference in that trend line in order to get to the uptake. We believe that we are seeing today will lead already to the uptick in the last couple of months.
Great. Thanks, and then maybe just saw on kind of markets and regions are are you seeing any difference in performance from transaction activity would be at a pack Amy America doesn't mean anything we should read into there.
Yeah. So you can expect that the north American market will come out.
Quickest from that.
Dale environment on the transactional site.
Regards to euro that will drag along over several more quarters until we see significant activity uptake smart all the same across Europe . The UK will go.
Early then the continent and Asia Pacific is it's very hard to talk about because we we always talk about that reach in Asia Pacific, but the situation and the different nature countries. There is.
Mentally different to each other so we have a completely different situation. Japan, then we haven't shine <unk>, Australia and was versus other markets, where all the environment. If we could bring it all together the the environment there is slightly better than than the other two regions and therefore, the it's not that much uptake to be expect.
It because it didn't go that far down anyway, but for us the most relevant Mark is obviously the U S and the U S market is the market, where you see kind of most like coming back now over the next couple of months.
Once again, if you would like to ask a question. Please press star followed by the number one on your telephone keypad.
Our next question comes from Jade Rahmani with K B W.
Your line is open.
Thank you very much on the jailer technology side.
Have you taken a holistic approach across the entire portfolio not just the two companies that did follow on fundraising I mean, I think the entire proptech spaces undergoing a rethink.
As you know a lot of these businesses had very optimistic business plans and now in this current environment, they really have to prove their mettle.
You have to prove the value of the technology and wondering also if you could comment on the broker adoption rates.
At J O L or wherever you're trying to market. Those technologies are the catching on is the business gaining traction.
You know I think investors are wondering if there's gonna be more shoes to drop in this segment.
Sure, let me start off with repeating.
Repeating once again, the three reasons beyond the financially tomes that we.
We invest in property companies. It's first of all to enable our business was technology tools that will drive gross and improve productivity secondly to provide clients with best in class technology solutions.
To gain insights into technology that could potentially disruptive our industry and therefore is very important for developing.
And always revisiting our strategy.
And those two or three reasons has proven to be very ballot and it is across all those aspects, which you just mentioned it is about adoption of products within our broker community and and the and we start to provide information that we already provided that lost.
<unk> that our capital markets business is using an a I power platform to identify analyze and solve pipeline opportunities and last quarter. We mentioned that approximately 20% of all the pipeline needs are being sauce from this tool, which we are using this was originally.
<unk> a venture capital investment into the company with one of our early funds.
Later on then pull up the complete company.
It is with our own technology platforms and that has led to the product and.
And we have multiple examples of products, which are used within our teams, but also very much used by our clients.
Change for our clients or for our brokers and for all people and so this is.
An incredible closeness of understanding the underlying situation here. We are just not we're not buying just into a hope of something that we have very early proof points before we do those investments, but doesn't protect us from.
Downright S. We have just witnessed over the last quarter, but overall, we are very confident about our portfolio.
Thank you and in terms of modeling you know estimates for the company.
There's two main areas that are somewhat opaque.
The first is the equity income within jail L technology. So the approach that I've taken.
As of last quarter, you had 490 million of carrying value and I just assume a return on invested capital of around 8% for 2024, and 11% next year, which generates around $40 million to $50 million of income. So that's approach number one and so you know we would need to reduce that for 90 million.
Dollars by the charge this quarter and then the other uncertainty would be on the south side.
No incentive fees I guess, we just look back historically taken average and think about you know a shape of recovery, but is there any more definition you could provide around how we should think about those you know modeling the equity income in jail, all technologies, and then thinking about a recovery in the incentive fees.
Sure I mean again Andre L. L. T. I am I mean, I'm fully aware, we are fully aware of that that doesn't make it easy for you to model the situation.
You should take comfort that as we said we have a very mature portfolio now and we.
Reducing our new capital allocation too.
Tech Arena S. Karen I alluded to not because we don't believe in as we very much believe in it but we are doing it now for five years and we we are starting to see now opportunities to recycle existing investments and.
Therefore, not every new investment has to be funded by new capital.
On the South side I leave that question to Karen.
Sure. So <unk> on the style incentive fees just to recap where we are your to date.
We have earned $39 million and we do expect some further fees in the second half of the year, but there'll be minimal and you should think about 2023 as as as having recognize a significant majority of what we expect for the year.
I'm looking for right. These are as you see relatively lumpy and they do vary based on the timing of certain valuation measurements within a separate accounts and <unk> as well as the market environment and kind of vintage of those funds over the last several years right. The range has been as well with four.
A million dollars to his matches over $200 million again based on what's happening where I'm expecting to be at the lower end of the range. This year and will and wait to see what we believe will happen in 2024, as we get closer to some return to trans.
And is it fair to measure those incentive fees relative to the amount of co investment capital. The company has or no total funds under management and assume some kind of conversion ratio.
Just as a sanity check to make sure those you know forecasts a reasonable.
Yeah, that's a great question, they're not specifically necessarily tied to where we've co invested in that portfolio and we we do or an incentive fees on areas, where we have.
We don't have co investment, let me get some thought around how we can be more specific over a multiyear period to get a little bit more of a kind of banter of where that can shake out I. Appreciate that question, you're you're asking on this point bullets will do a little bit more work and and come back.
Thank you very much.
There are no further questions at this time Christian I will turn the call back over to you.
Sure well if there are no further questions and I'd like to thank everybody for all the interest in J L. L. We will talk to you again and I caught up from now thank you all.
This concludes today's conference call you may now disconnect.
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