Q2 2024 Jones Lang LaSalle Inc Earnings Call
Good day and welcome to the Q2 2024 JLL Earnings Conference Call. All lines have been placed on mute to prevent any background noise.
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Operator: Earnings Conference Call. All lines have been placed on mute to prevent any background noise.
Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you'd like to withdraw your question, please press star 1 again. For operator assistance throughout the call, please press star zero. And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Scott Einberger, Head of Mercer Relations, to begin the conference. Scott, over to you.
Operator: After the speaker's remarks, there will be a question-and-answer session. If you would like to ask questions during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. For operator assistance throughout the call, please press star zero.
After the speaker's remarks, there will be a question and answer session.
If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad.
If you would like to withdraw your question, please press star 1 again.
Operator: And finally, I would like to advise all participants that this call is being recorded. Thank you.
For operator assistance throughout the call, please press star zero. And finally, I would like to advise all participants that this call is being recorded. Thank you.
Scott Einberger: I'd now like to welcome Scott Einberger ahead of Mr. Relations to begin the conference. Scott, over to you.
I'd now like to welcome Scott Einberger, Head of Mercer Relations, to begin the conference. Scott, over to you.
Scott Einberger: Thank you and good morning. Welcome to the second quarter 2024 earnings conference call for Jones Lang LaSalle Incorporated. Earlier this morning, we issued our earnings release, along with a slide presentation and Excel file intended to supplement our prepared remarks. These materials are available on the Investor Relations section of our website; please visit ir.jll.com. During the call and in our slide presentation in an accompanying Excel file, we referenced certain non-GAAP financial measures, which we believe provide useful information for investors.
Scott Einberger: Thank you and good morning. Welcome to the second quarter 2020 for earnings conference call for Jones Lang LaSalle Inc. Earlier this morning, we issued our earnings release along with a slide presentation and Excel file intended to supplement our prepared remarks. These materials are available on the Investor Relations section of our website. Please visit IR.JLL.com. During the call and in our slide presentation and a companion Excel file, we reference certain non-GAAP financial measures, which we believe provide useful information for investors. We include reconciliation of non-GAAP financial measures to GAAP in our earnings release and slide presentation.
Scott Einberger: Thank you and good morning. Welcome to the second quarter 2024 earnings conference call for Jones Lang LaSalle Incorporated. Earlier this morning, we issued our earnings release, along with a slide presentation and Excel file intended to supplement our prepared remarks.
These materials are available on the Investor Relations section of our website.
please visit IR.jll.com.
During the call and in our slide presentation in an accompanying Excel file, we referenced certain non-GAAP financial measures, which we believe provide useful information for investors.
We include reconciliations of non-GAAP financial measures to GAAP in our earnings release and slide presentation. As a reminder, today's call is being webcast live and recorded. A transcript and recording of this conference call will be posted to our website.
Scott Einberger: As a reminder, today's call is being webcast live and recorded. A transcript of the recording of this conference call will be posted to our website.
Scott Einberger: We include reconciliations of non-GAAP financial measures to GAAP in our earnings release and slide presentation. As a reminder, today's call is being webcast live and recorded. A transcript and recording of this conference call will be posted on 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 as a result of factors disclosed in our annual report on Form 10-K for the fiscal year ending December 31, 2023, and in other reports filed with the SEC. The company disclaims any undertaking to publicly update or revise any forward-looking statement. I will now turn the call over to Christian Ulbrich, our President and Chief Executive Officer, for opening remarks.
Scott Einberger: Any statements made about future results in performance, plans, expectations, and objectives are forward-looking statements. Actual results in performance may differ from those forward-looking statements. As a result, a factor is disclosed in our annual report, unformed 10-K, for the fiscal year December 31, 2023, and in other reports filed with the SEC. The company disclaims any undertaking to publicly update or revise any forward-looking statements.
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 as a result of factors disclosed in our annual report on Form 10-K for the fiscal year December 31, 2023, and in other reports filed with the SEC.
The company disclaims any undertaking to publicly update or revise any forward-looking statements.
Christian Ulbrich: I will now turn the call over to Christian Ulbrick, our president and chief executive officer, for opening remarks. Thank you, Scott.
Christian Ulbrich: I will now turn the call over to Christian Ulbrich, our President and Chief Executive Officer, for opening remarks.
Christian Ulbrich: Thank you, Scott. Hello, and welcome to our second quarter 2024 earnings call. JLL's second quarter financial results reflected the strengths of our resilient business lines, as well as solid performance across our transactional businesses. I'm very pleased with our ability to continue to improve the efficiency of our operating model, which, combined with revenue growth in the quarter, drove increased profitability. Looking first at the global real estate market backdrop, while risks remain, investor sentiment is more positive at mid-year compared to late 2023, supported by the expectation of an easing monetary policy in many large markets.
Christian Ulbrich: Hello and welcome to our second quarter 2020 for our next call. JLL's second quarter financial results reflected the strengths of our resilient business lines, as well as solid performance across our transactional businesses. I'm very pleased with our ability to continue to improve the efficiency of our operating model, which, combined with the revenue growth and the quarter growth, increased profitability. Looking first at the global real estate market backdrop, by risk-remain, investment sentiment is more positive at mid-year compared to late 2023, supported by the expectation for easing monetary policy in many large markets. In the second quarter, global commercial real estate investment was down 1% year over year in local currency, reaching $155 billion, according to JLL research.
Christian Ulbrich: Thank you, Scott. Hello and welcome to our second quarter 2024 earnings call.
Christian Ulbrich: JLL's second quarter financial results reflected the strengths of our resilient business lines as well as solid performance across our transactional businesses.
Christian Ulbrich: I'm very pleased with our ability to continue to improve the efficiency of our operating model, which combined with revenue growth in the quarter, drove increased profitability.
Looking first at the global real estate market backdrop, while risks remain, investor sentiment is more positive at mid-year compared to late 2023, supported by the expectation for easing monetary policy in many large markets.
Christian Ulbrich: In the second quarter, global commercial real estate investment was down 1% year-over-year in local currency, reaching $155 billion, according to JLL Research. However, investment volumes in EMEA and Asia Pacific posted modest gains during the quarter, an early signal for growth. In the U.S., activity declined 3% year-over-year in the second quarter.
Speaker Change: In the second quarter, global commercial real estate investment was down 1% year-over-year in local currency, reaching $155 billion, according to JLL Research.
Christian Ulbrich: Investment volumes in the media at Asia-Pacific hosted modest gains during the quarter, and early signals for growth. In the US, activity declined 3% year over year in the second quarter. A wider than normal bit of spread remains, but has been improving as real estate markets globally have underground significant price adjustments from peak 2022 level. That market conditions continue to improve, as well as origination volume stabilized and pricing declines. Lambda confidence remains varied and is strongest for in-demand sectors such as logistics, living, and grocery, and cut retail.
Christian Ulbrich: Investment volumes in EMEA and Asia-Pacific posted modest gains during the quarter, an early signal for growth.
Christian Ulbrich: In the U.S., activity declined 3% year-over-year in the second quarter. A wider-than-normal bid-ask spread remains but has been improving as real estate markets globally have undergone significant price adjustments from peak 2022 levels.
Christian Ulbrich: A wider-than-normal bid-ask spread remains but has been improving as real estate markets globally have undergone significant price adjustments from peak 2022 levels. Debt market conditions continue to improve as origination volumes stabilize and pricing declines. Lambda confidence remains varied and is strongest for in-demand sectors such as logistics, living, and grocery, and country.
Christian Ulbrich: Debt market conditions continue to improve as well, as origination volumes stabilize and pricing declines.
Speaker Change: Lambda Confidence remains varied and is strongest for in-demand sectors such as logistics, living, and grocery and cut retail.
Christian Ulbrich: Turning to office leasing, activity continues to strengthen from subdued 2023 levels during the second quarter. Building office leasing volumes increased 10% year-over-year according to JLR Research. Performance was mixed across geographies, with an improving economic outlook and stabilizing hybrid work policies contributing to increases in the US and Europe, while volumes were slightly lower in Asia-Pacific, amid cost concerns and limited available space in several key markets. The number of large lead transactions continue to improve in the quarter, but is still well below pre-pandemic levels. The global vacancy rate increased higher to 16.6%, rising by 10 basis points sequentially across all three regions.
Christian Ulbrich: Turning to office leasing, activity continued to strengthen from subdued 2023 levels during the second quarter. Globally, office leasing volumes increased 10% year-over-year, according to JLL Research. However, performance was mixed across geographies, with an improving economic outlook and stabilizing hybrid work policies contributing to increases in the U.S. and Europe, while volumes were slightly lower in Asia-Pacific amid cost concerns and limited available space in several key markets. The number of large lease transactions continued to improve in the quarter, but it's still well below pre-pandemic levels. The global vacancy rate inched higher, to 16.6%, rising by 10 basis points sequentially across all three regions. New groundbreakings have fallen to the lowest level on record in the U.S. and in Europe.
Christian Ulbrich: Turning to office leasing. Activity continued to strengthen from sub-June 2023 levels during the second quarter.
Speaker Change: Globally, office leasing volumes increased 10% year-over-year, according to JLL Research.
Christian Ulbrich: Performance was mixed across geographies, with an improving economic outlook and stabilizing hybrid work policies contributing to increases in the US and Europe , while volumes were slightly lower in Asia-Pacific amid cost concerns and limited available space in several key markets.
Christian Ulbrich: The number of large lease transactions continued to improve in the quarter, but it's still well below pre-pandemic levels.
Speaker Change: The global vacancy rate inched higher to 16.6%, rising by 10 basis points sequentially across all three regions.
Christian Ulbrich: New groundbreakings have fallen to the lowest level on record in the US and Europe; supply is expected to slow in 2025. New deliveries will remain a vast historic averages in Asia-Pacific to meet current demand. On the industrial side, global activity remains subdued in the second quarter as occupiers are still cautious and looking to increase utilization of space leasing during the pandemic before committing to new deals. Rental growth remains positive, but is beginning to plateau, given an elevated level of supply. A bright spot has been the communications and technology sector, where average leasing sizes have more than doubled as large tech companies take space to support data center operations.
Speaker Change: New groundbreakings have fallen to the lowest level on record in the U.S. and in Europe . Supply is expected to slow in 2025. New deliveries will remain above historic averages in Asia Pacific to meet current demand.
Christian Ulbrich: Supply is expected to slow in 2025, but new deliveries will remain above historic averages in Asia-Pacific to meet current demands. On the industrial side, global activity remains subdued in the second quarter as occupiers are still cautious and looking to increase utilization of space leased during the pandemic before committing to new deals.
Speaker Change: On the industrial side, global activity remains subdued in the second quarter as occupiers are still cautious and looking to increase utilization of space leased during the pandemic before committing to new deals.
Christian Ulbrich: Rental growth remains positive, but is beginning to plateau, given the elevated level of supply. A bright spot has been the communications and technology sector, where average prices have more than doubled as large tech companies take space to support data center operations. Despite a slower start to 2024 across many markets, demand for high-quality space with sustainable solutions and automated technology is expected to drive long-term growth. Finally, in the retail sector, consumer spending remains resilient, driving demand for the limited amount of space in prime locations.
Speaker Change: Rental growth remains positive, but is beginning to plateau, given an elevated level of supply.
Speaker Change: A bright spot has been the communications and technology sector, where average lease
Speaker Change: Slices have more than doubled as large tech companies take space to support data center operations.
Christian Ulbrich: Despite its lower start to 2024 across many markets, demand for high quality space with sustainable solutions and automated technologies is expected to drive long-term growth.
Speaker Change: Despite a slower start to 2024 across many markets, demand for high-quality space with sustainable solutions and automated technology is expected to drive long-term growth.
Christian Ulbrich: Finally, in the retail sector, consumer spending remains resilient, striving demand for the limited amount of space and prime locations.
Speaker Change: Finally, in the retail sector, consumer spending remains resilient, driving demand for the limited amount of space in prime locations.
Christian Ulbrich: Turning to jail, else results for the quarter. We continue to focus on growing our resilient business lines as part of our strategy to further diversify our revenue base and reduce earnings volatility. Collectively, our resilient revenue base grew 16%, led by our workplace management and property management businesses. We have a long runway for growth in these business lines. As we continue to scale our global platform, we were able to leverage our existing cost-based and drive margin expansion. Our transactional revenues increased by 5% of the quarter, led by growth in leasing, where our US office leasing revenue was up double digits for the second quarter in a row.
Christian Ulbrich: Turning to JLL's results for the quarter, we continue to focus on growing our resilient business lines as part of our strategy to further diversify our revenue base and reduce earnings volatility. Collectively, our resilient revenue base grew 16%, led by our workplace management and property management businesses. We have a long runway for growth in these business lines. As we continue to scale our global platform, we are able to leverage our existing cost base and drive margin expansion.
Speaker Change: Turning to JLL's results for the quarter, we continue to focus on growing our resilient business lines as part of our strategy to further diversify our revenue base and reduce earnings volatility.
Speaker Change: Collectively, our resilient revenue base grew 16% led by our workplace management and property management businesses.
Speaker Change: We have a long runway for growth in these business lines.
Speaker Change: As we continue to scale our global platform, we were able to leverage our existing cost-based and drive margin expansion.
Christian Ulbrich: Our transactional revenues increased by 5% in the quarter, led by growth in leasing, where our U.S. office leasing revenue was up double digits for the second quarter in a row. Investment sales revenue is also showing year over year growth, as the green shoots we spoke about earlier this year are translating to additional client engagement. Investments we have made in this part of our business are generating higher quality leads for our brokers and supporting above market growth.
Speaker Change: Our transactional revenues increased by 5% in the quarter, led by growth in leasing, while our U.S. office leasing revenue was up double digits for the second quarter in a row.
Christian Ulbrich: Investment sales revenues also showing year-over-year growth, as the green shoots we spoke about earlier this year are translating to traditional client engagements. Investment we have made in this part of our business are generating higher quality leads for our brokers and supporting above market growth rates. Our focus on cost management and operating efficiency is paying dividends, with its trusted habitat growth, meaningfully exceeding revenue growth in the first six months of the year.
Speaker Change: Investment sales revenue is also showing year-over-year growth as the green shoots we spoke about earlier this year are translating to additional client engagements.
Speaker Change: Investments we have made in this part of our business are generating higher quality leads for our brokers and supporting above-market growth rates.
Christian Ulbrich: Our focus on cost management and operating efficiency is paying dividends, with adjusted EBITDA growth meaningfully exceeding revenue growth in the first six months of the year. With that, I will now turn the call over to Karen, who will provide more detail on our results for the quarter. Thank you, Christian.
Speaker Change: Our focus on cost management and operating efficiency is paying dividends, with adjusted EBITDA growth meaningfully exceeding revenue growth in the first six months of the year.
Karen Brennan: With that, I will now turn the call over to Karen, who will provide more detail on our results for the quarter. Thank you, Christian. Before I begin, a reminder that variances are against the prior year period and local currency, unless otherwise noted. Overall, I am pleased with our operating performance in the quarter, with continued strength in our resilient revenues and an acceleration in transactional revenue growth. In addition, our ongoing focus on enhancing the operating efficiency of our platform is reflected in our improved profitability, free cash flow, and leverage ratio. The investments we are making in our business are aimed at further differentiating JLO services, enabling us to deliver superior value to our clients and drive long-term stakeholder values.
Karen: With that, I will now turn the call over to Karen, who will provide more detail on our results for the quarter. Thank you, Christian. Before I begin, a reminder that variances are against the prior year period and local currency, unless otherwise noted.
Karen: Before I begin, a reminder that variances are against the prior year period and local currency unless otherwise noted. Overall, I'm pleased with our operating performance in the quarter, with continued strength in our resilient revenues and an acceleration in transactional revenue growth. In addition, our ongoing focus on enhancing the operating efficiency of our platform is reflected in our improved profitability, free cash flow, and leverage ratio. The investments we are making in our business are aimed at further differentiating JLL services, enabling us to deliver superior value to our clients and drive long-term stakeholder value.
Karen: Overall, I am pleased with our operating performance in the quarter, with continued strength in our resilient revenues and an acceleration in transactional revenue growth.
Karen: In addition, our ongoing focus on enhancing the operating efficiency of our platform is reflected in our improved profitability, free cash flow, and leverage ratio.
Speaker Change: The investments we are making in our business are aimed at further differentiating JLL services, enabling us to deliver superior value to our clients and drive long-term stakeholder value.
Karen Brennan: At the consolidated level, revenue increased 12% to $5.6 billion in the quarter, led by 19% growth in workplace management and a 13% increase in project management, both within Work Dynamics, as well as 8% growth in property management and a 5% increase in leasing, both within Market Advisory. The revenue growth, along with the benefits of our cost reduction, for the primary drivers of the 11% increase in adjusted EBITDA to $246 million, and the 23% increase in adjusted diluted EPS to $2.55. Other notable items impacting profitability in the quarter included the positive impact of the year-over-year timing of incentive compensation accruals, as well as headwinds from $18 million of expenses associated with the repurchase of loans, lower incentive activity within the sale compared with the prior year, and $12 million year-over-year increase in carried interest expense related to JLO's technologies, equity earnings, and losses.
Karen: At the consolidated level, revenue increased 12% to $5.6 billion in the quarter, led by 19% growth in workplace management and a 13% increase in project management, both within work dynamics, as well as 8% growth in property management and a 5% increase in leasing, both within markets advisory. The revenue growth, along with the benefits of our cost reduction, were the primary drivers of the 11% increase in adjusted EBITDA to $246 million and a 23% increase in adjusted diluted EPS to $2.55.
Speaker Change: At the consolidated level, revenue increased 12% to $5.6 billion in the quarter.
Speaker Change: led by 19% growth in workplace management and a 13% increase in project management, both within Work Dynamics, as well as 8% growth in property management and a 5% increase in leasing, both within Markets Advisory.
Speaker Change: The revenue growth, along with the benefits of our cost reduction, were the primary drivers of the 11% increase in adjusted EBITDA to $246 million, and the 23% increase in adjusted diluted EPS to $2.55.
Speaker Change: Other notable items impacting profitability in the quarter included the positive impact of the year-over-year timing of incentive compensation accruals, as well as headwinds from $18 million of expenses associated with the repurchase of a loan.
Speaker Change: Lower incentive fee activity within LaSalle compared with the prior year, and a $12 million year-over-year increase in carried interest expense related to JLL Technologies' equity earnings and losses.
Karen Brennan: Moving to a detailed review of our operating performance by segments, beginning with Market Advisory. The 6% increase in revenue in the quarter was led by leasing, which generated growth across most geographies, notably in the US, Greater China, India, and Germany. Increased field size and transaction volumes in the office sector led leasing growth, while lower deal size and volumes within the industrial sector were partial offsets. Portfolio expansions in the Americas and Asia-Pacific, primarily from incremental pass-through expenses, led property management revenue growth. We continue to see more sustained leasing demand for high-quality assets, and large office deals increased from a year ago, both of which are favorable for our business mix.
Karen: Other notable items impacting profitability in the quarter included the positive impact of the year-over-year timing of incentive compensation accruals, as well as headwinds from $18 million of expenses associated with the repurchase of a loan, lower incentive fee activity within LaSalle compared with the prior year, and a $12 million year-over-year increase in carried interest expense related to JLL Technologies' equity earnings and losses. Moving to a detailed review of our operating performance site segment, beginning with Marcus Advisory.
Speaker Change: Moving to a detailed review of our operating performance by segment.
Karen: The 6% increase in revenue in the quarter was led by leasing, which generated growth across most geographies, notably in the US, Greater China, India, and Germany. Increased deal size and transaction volumes in the office sector led leasing growth, while lower deal size and volumes within the industrial sector were partially offset. Portfolio Expansions in the Americas and Asia-Pacific, Primarily from Incremental Pass-Through Expenses, Lead Property Management Revenue Growth. We continue to see more sustained leasing demand for high quality assets and large office deals increased from a year ago, both of which are favorable for our business mix.
Speaker Change: Beginning with Marcus' visory.
Speaker Change: The 6% increase in revenue in the quarter was led by leasing, which generated growth across most geographies, notably in the U.S., Greater China, India, and Germany.
Speaker Change: Increased deal size and transaction volumes in the office sector led leasing growth, while lower deal size and volumes within the industrial sector were partial offset.
Speaker Change: Portfolio expansions in the Americas and Asia Pacific, primarily from incremental pass-through expenses, led property management revenue growth.
Speaker Change: We continue to see more sustained leasing demand for high quality assets and large office deals increased from a year ago, both of which are favorable for our business mix.
Karen Brennan: Our global growth leasing pipeline is up versus this time last year, supported by the growth and active tenant requirements. The trends within the OECD Business Confidence Index from late 2023 to June, which generally lead leasing activity by two to three quarters, along with limited new office and industrial building starts, and stabilization and subway space, provides optimism for continued pickup and activity in the second half of 2024 and beyond. The revenue growth and cost management actions largely executed in 2023 drove a 30% increase in market advisory adjuster EBITDA. In addition, the timing of incentive compensation accruals positively impacted year-over-year profitability, shifting to our capital market segments.
Karen: Our global growth leasing pipeline is up versus this time last year, supported by growth and active tenant requirements. The trends within the OECD Business Competence Index from late 2023 to June, which generally leads to leasing activity by two to three quarters, along with limited new office and industrial building starts, and Stabilization in Subway Space, provide optimism for continued pickup and activity in the second half of 2024 and beyond. The revenue growth and cost management actions largely executed in 2023 drove a 30% increase in market advisory adjusted EBITDA.
Speaker Change: Our global growth leasing pipeline is up versus this time last year, supported by the growth and active tenant requirements.
Speaker Change: The trends within the OECD Business Competence Index from late 2023 to June , which generally leads leasing activity by two to three quarters,
Speaker Change: along with limited new office and industrial building starts, and stabilization in subway space, provides optimism for continued pickup and activity in the second half of 2024 and beyond.
Speaker Change: The revenue growth and cost management actions largely executed in 2023 drove a 30% increase in market advisory adjusted EBITDA.
Speaker Change: In addition, the timing of incentive compensation accruals positively impacted year-over-year profitability.
Karen Brennan: Broad-based growth across all business lines drove a 3% increase in revenue, despite economic, geopolitical, and industry outlook uncertainty during the quarter. Excluding an $11 million year-rear headwind from net non-cash MSR and mortgage banking derivative activity, revenue grew 5%. Revenue increased across most geographies, led by the UK, Australia, and the US. So growth was nixed across major asset classes, with notable growth in office, industrial, and hotels offset by decline in residential and retail. Our global investment sales revenue, which accounted for nearly 40% of segment revenue in the quarter, grew 17% and compared favorably with a 1% decline in global sales volumes that Christian referenced, with the Americas and EMEA regions performing notably better than the respective market activities according to Jail or research.
Speaker Change: Shifting to our Capital Markets segment.
Speaker Change: Broad-based growth across all business lines drove a 3% increase in revenue, despite economic, geopolitical, and interest rate outlook uncertainty during the quarter.
Speaker Change: Excluding an $11 million dollar year-over-year headwind from net non-cash MSR and mortgage banking derivative activity, revenue grew 5%.
Karen: Revenue increased across most geographies, led by the UK, Australia, and the U.S. Our global investment sales revenue, which accounted for nearly 40 percent of segment revenue in the quarter, grew 17 percent and compared favorably with a 1 percent decline in global sales volumes that Christian referenced, with the Americas and EMEA regions performing notably better than their respective market activities, according to JLL Research. Our U.S. investment sales debt and equity advisory revenue, which accounts for approximately a third of segment revenue, Moving next to work dynamics.
Speaker Change: Revenue increased across most geographies, led by the UK, Australia, and the US, so growth was mixed across major asset classes, with notable growth in office, industrial, and hotels offset by a decline in residential and retail.
Christian Ulbrich: Our global investment sales revenue, which accounted for nearly 40% of segment revenue in the quarter, grew 17% and compared favorably with the 1% decline in global sales volumes that Christian referenced.
Christian Ulbrich: with the Americas and EMEA regions performing notably better than their respective market activities, according to JLL Research.
Karen Brennan: Our US investment sales debt and equity advisory revenue, which accounts for approximately a third of segment revenue, through low single digits, as more than a 20% increase in investment sales was mostly offset by a notable decline in equity advisory. The capital market's adjusted EBITDA decline was predominantly driven by 18 million dollars of cost associated with the repurchase of a lonely originated in full defanime, which more than offset the positive contributions from revenue growth and cost management actions primarily executed in 2023. In addition, lower equity earnings reflected a 4.6 million dollar gain in the prior year quarter that did not recur as expected.
Speaker Change: Our U.S. investment sales debt and equity advisory revenue, which accounts for approximately a third of segment revenue through low single digits, is more than a 20 percent increase in investment sales, with mostly offset by a notable decline in equity advisory.
Speaker Change: The capital markets adjusted EBITDA decline was predominantly driven by $18 million of costs associated with the repurchase of a loan we originated and sold to Fannie Mae.
Speaker Change: which more than offset the positive contributions from revenue growth and cost management actions primarily executed in 2023.
Speaker Change: In addition, lower equity earnings reflected a $4.6 million gain in the prior year quarter that did not recur as expected.
Karen Brennan: Looking ahead, the global investment sales debt and equity advisory pipeline is up high single digits compared with this time last year, and client engagements have picked up. As Christian mentioned, we see signs of improving investor sentiment, which flows well for higher growth rates in the second half of 2024.
Speaker Change: Looking ahead, the global investment sales debt and equity advisory pipeline is up high single digits compared with this time last year and client engagements have picked up.
Speaker Change: As Christian mentioned, we see signs of improving investor sentiment, which bodes well for higher growth rates in the second half of 2024.
Karen Brennan: However, as we've seen in the recent past, faster-the-impact transaction activity, such as the interest rate outlook and geopolitical risks, can shift quickly and influence deal timing and closing rates, particularly in the near term, moving next to work dynamics. 17% revenue growth was led by a 19% increase in workplace management revenue as we continue to benefit from the 2023 global client wins and mandate expansion. Within project management, higher pass-through costs drove the 13% increase in revenue, as management fees grew low single digits. The increase in work dynamics adjusted EBITDA was primarily attributable to the revenue growth, ongoing cost management, and a timing of incentive compensation accruals.
Christian Ulbrich: However, as we've seen in the recent past,
Christian Ulbrich: Factors that impact transaction activity, such as the interest rate outlook and geopolitical risks, can shift quickly and influence deal timing and closing rates, particularly in the near term.
Speaker Change: Moving next to Work Dynamics.
Speaker Change: 17% revenue growth was led by a 19% increase in workplace management revenue as we continue to benefit from the 2023 Global Client Wins and Mandate Expansion.
Karen: Within project management, higher pass-through costs drove the 13% increase in revenue as management fees grew low single digits. While we expect these trends to continue to pressure growth in the near term, we are encouraged by the long-term growth opportunity of our technology business. The combination of the revenue pressures and timing of expenses, including carried interest accruals, may adversely impact JLL Technologies' profitability in the near term. Capital raising and deployment activity remain subdued in the evolving market environment, which is reflected in the muted incentive and transaction fees in the quarter.
Speaker Change: Within project management, higher pass-through costs drove the 13% increase in revenue as management fees grew low single digits.
Speaker Change: The increase in work dynamics adjusted EBITDA was primarily attributable to the revenue growth, ongoing cost management, and a timing of incentive compensation accrual.
Karen Brennan: We remain competent and work dynamics revenue and profit growth opportunity over the coming years, considering our global platform capabilities, strong demand, and the significant market opportunity. Within workplace management, we continue to add clients and expand existing mandates, supporting a solid long-term growth trajectory. As a reminder, we will begin lapping the benefit of the 2023 win in the third quarter and more meaningfully in the fourth quarter of this year. We are encouraging the client decisions to delay projects with the primary drivers of the seven percent decline in revenue. While we expect these trends to continue to pressure growth in the near term, we are encouraged by the long-term growth opportunity of our technology business.
Speaker Change: We remain confident in WorkDynamics revenue and profit growth opportunity over the coming years, considering our global platform capabilities, strong demand, and a significant market opportunity.
Speaker Change: Within Workplace Management, we continue to add clients and expand existing mandates, supporting a solid long-term growth trajectory.
Speaker Change: As a reminder, we will begin lapping the benefit of the 2023 wins in the third quarter and more meaningfully in the fourth quarter of this year.
Speaker Change: Shifting to project management, we remain focused on securing additional mandates. However, the moderation and corporate CapEx spending broadly and the soft late 2023 leasing environment may dampen near-term growth rates.
Speaker Change: Turning to JLL Technologies.
Speaker Change: Lower bookings over the past few quarters, as well as client decisions to delay projects, were the primary drivers of the 7% decline in revenue.
Speaker Change: While we expect these trends to continue to pressure growth in the near term, we are encouraged by the long-term growth opportunity of our technology business.
Karen Brennan: Adjusted EBITDA declined $10 million from a year ago, driven entirely by the $12 million euro per year change in carried interest accruals associated with equity earnings and losses within our Spark venture funds. The carried interest more than offset benefits from a reduction in certain expenses associated with cost management actions and incremental operating efficiency gains over the past 12 months. The combination of the revenue pressures and tiny of expenses, including carried interest accruals, may adversely impact JLL technology's profitability in the near term. We aim to strike an appropriate balance between investing to drive growth and progressing to sustain profitability within the segments.
Speaker Change: Adjusted EBITDA declined $10 million from a year ago, driven entirely by the $12 million year-over-year change in carried interest accruals associated with equity earnings and losses within our SPARC venture funds.
Speaker Change: The carried interest more than offset benefits from a reduction in certain expenses associated with cost management actions and incremental operating efficiency gains over the past 12 months.
Speaker Change: The combination of the revenue pressures and timing of expenses, including carried interest accruals, may adversely impact JLL Technologies' profitability in the near term.
Speaker Change: We aim to strike an appropriate balance between investing to drive growth and progressing to sustain profitability within the segment.
Karen Brennan: Now to LaSalle. Revenue decreased 27 percent, largely on the expected decline in incentive the activity in the current quarter. Advisory fees fill 8 percent in the quarter, primarily on the impact of ongoing valuation declines within our assets under management over the past year, as well as lower fees in Europe from the structural changes in our business mix we discussed in the first quarter. Absent foreign currency exchange movement, assets under management were 5 percent lower than a year earlier, nearly all attributable to the valuation reduction. As dispositions and withdrawals were mostly offset by investments. We anticipate valuation declines to continue to the balance of 2024, albeit at a moderating pace.
Speaker Change: Now to LaSalle.
Speaker Change: Revenue decreased 27%, largely on the expected decline in incentive fee activity in the current quarter.
Speaker Change: Advisory fees fell 8% in the quarter, primarily on the impact of ongoing valuation decline within our assets under management over the past year, as well as lower fees in Europe from the structural changes in our business mix we discussed in the first quarter.
Speaker Change: Absent foreign currency exchange movements, assets under management were 5% lower than a year earlier, nearly all attributable to the valuation reduction.
Speaker Change: as dispositions and withdrawals were mostly offset by investments.
Speaker Change: We anticipate valuation declines to continue through the balance of 2024, albeit at a moderating pace.
Karen Brennan: Capital raising and deployment activity remains the dude in the evolving market environment, which are reflected in the muted incentive and transaction fees in the quarter. The contraction in LaSalle adjusted EBITDA in the quarter was driven by the lower revenue and its fee to street individually in the term items, partially offset by lower operating expenses, reflecting a decline in variable compensation and cost management action, alongside an 8 million dollar gain, following the purchase of a controlling interest in old sale managed fund. Turning to free cash flow, the growth and earnings from improved business performance are partially offset by timing of tax.
Speaker Change: Capital raising and deployment activity remains subdued in the evolving market environment, which are reflected in the muted incentive and transaction fees in the quarter.
Speaker Change: The contraction in LaSalle's adjusted EBITDA in the quarter was driven by the lower revenue and a few discrete, individually immature items.
Speaker Change: Partially offset by lower operating expenses, reflecting a decline in variable compensation and cost management actions, alongside an $8 million gain following the purchase of a controlling interest and wholesale managed fund.
Speaker Change: Turning to free cash flow, the growth in earnings from improved business performance, partially offset by timing of tax payments, led a 19% increase in free cash flow to $236 million.
Karen Brennan: But a 19 percent increase in free cash flow to $236 million. Cash flow conversion is a high priority, and we remain very focused on our working capital efficiency. Shifting to our balance sheet and capital allocation, liquidity totaled $2.4 billion at the end of the second quarter, including $2 billion of undrawn credit facility capacity. We launched a commercial paper program during the quarter with $2.5 billion authorized for issuance. Proceeds are intended for general corporate purposes, including repayment of credit facility borrowings. In addition to further diversifying or short-term sources of liquidity, the commercial paper program intends to provide interest expense savings.
Speaker Change: Cash flow conversion is a high priority, and we remain very focused on our work in capital efficiency.
Speaker Change: Shifting to our balance sheet and capital allocations, liquidity totaled $2.4 billion at the end of the second quarter, including $2 billion of undrawn credit facility capacity. We launched a commercial paper program during the quarter, with $2.5 billion authorized for issuance.
Speaker Change: Proceeds are intended for general corporate purposes, including repayment of credit facility borrowings.
Speaker Change: In addition to further diversifying our short-term sources of liquidity, the commercial paper program intends to provide interest expense savings.
Karen Brennan: As the June 30th reported net leverage with 1.7 times, down from 2.0 times a year earlier due to both a reduction in net debt and higher adjusted EBITDA over the trailing 12 months. Over the medium term, we intend to manage the business of our 0-2 times leverage range. During the quarter, we selectively deployed capital towards growth initiatives and repurchased $20 million of shares during the quarter. As Christian will further detail, our acquisition of SK is a prime example of our target M&A objectives within our overall capital allocation framework. Organic reinvestment in our business remains a top priority for capital allocation.
Speaker Change: As of June 30th, reported net leverage was 1.7 times, down from 2.0 times a year earlier due to both a reduction in net debt and higher adjusted EBITDA over the trailing 12 months.
Speaker Change: Over the medium term, we intend to manage the business for the full of our zero to two times leverage range.
Speaker Change: During the quarter, we selectively deployed capital towards growth initiatives and repurchased $20 million of shares during the quarter.
Speaker Change: As Christian will further detail, our acquisition of SCAE is a prime example of our targeted M&A objective within our overall capital allocation framework.
Christian Ulbrich: Organic reinvestment in our business remains a top priority for capital allocation.
Karen Brennan: Considering feasibility of cash flow, current leverage, and the broader macro and geopolitical volatility, we anticipate near-term share repurchases to continue to pace that will at least offset foliar. compensation dilution.
Christian Ulbrich: Considering seasonality of cash flow, current leverage, and the broader macro and geopolitical volatility, we anticipate near-term share repurchases to continue at a pace that will at least offset full-year stock compensation dilution.
Karen Brennan: Regarding our 2024 foliar financial outlook, growth trends in our more resilient business lines collectively remain solid. Considering our pipeline activity and general improvement in a number of key market drivers, we are cautiously optimistic for acceleration and transaction activity in the back half of the year. Though macro and geopolitical risks remain key fast in the timing and shape of a sustained recovery. With this in mind, and given our strong performance in the first half of the year, we are increasing our full year 2024 adjusted EBITDA target range to $1.0 billion to $1.2 billion. We are focused on executing our strategic initiatives, improving the operating efficiency of our platform, and investing for future growth opportunities, which gives us confidence in the long-term resiliency and the value creation process of our business.
Christian Ulbrich: Regarding our 2024 Full Year Financial Outlook,
Christian Ulbrich: Growth trends and our more resilient business lines collectively remain solid.
Speaker Change: Considering our pipeline activity and general improvement in a number of key market drivers, we are cautiously optimistic for an acceleration in transaction activity in the back half of the year.
Christian Ulbrich: The macro and geopolitical risks remain key factors in the timing and shape of a sustained recovery.
Speaker Change: With this in mind, and given our strong performance in the first half of the year, we are increasing our full year 2024 Adjusted EBITDA target range to $1.0 billion to $1.2 billion.
Christian Ulbrich: We are focused on executing our strategic initiatives, improving the operating efficiency of our platform, and investing for future growth opportunities, which gives us confidence in the long-term resiliency and the value creation prospects of our business. Christian, back to you.
Christian Ulbrich: Christian, back to you. Thank you, Karen. One of the first interest rate cuts in the U.S. is still to come. There have been early signs of an introduction point in registered markets. Over the first half of the year, further activity has increased significantly according to JLL's proprietary Global Business Intensity Index. Large strategic transactions are re-emerging in the market's globally, particularly in the leading sector. These transactions represent important barometers for the market and are expected to spur more activity. In leading, we are expecting global activity to continue improving through the remainder of the year. In the U.S., active tenant requirements were stable from Q1 and up from last year, with new requirements outpacing executed transactions during the quarter, which should lead to a continued race in activity.
Christian Ulbrich: Thank you, Karen.
Christian Ulbrich: While the first interest rate cut in the U.S. is still to come, there have been early signs of an inflection point in real estate markets.
Christian Ulbrich: Over the first half of the year, bid activity has increased significantly according to JLL's proprietary Global Bid Intensity Index.
Speaker Change: Large strategic transactions are re-emerging in the markets globally, particularly in the living sector.
Christian Ulbrich: These transactions represent important barometers for the market and are expected to spur more activity.
Speaker Change: In the U.S., active tenant requirements were stable from Q1 and up from last year with new requirements outpacing executed transactions during the quarter, which should lead to a continued raise in activity.
Christian Ulbrich: After LL, our vision is to grow our position as the commercial state industry's premier brand, leveraging global insights, leading technology, sustainable practices, and our inclusive culture for better-clined outcomes. Our recent acquisition of SK, a New York-based provider of data center technical and project management services, is an example of this vision. The data center mark is an area where we see growth for the foreseeable future, and the scale acquisition positions as well to take advantage of this opportunity. By infusing this talent and regional expertise into the JLL platform, we are able to quickly scale enhanced data center capabilities into new markets globally, deliver on our clients' expectations, and cross-sell JLL services to scale existing platforms. We plan to continue to invest in capabilities both organically and through this type of targeted M&A in order to strengthen our product offerings and grow our resilient business lines.
Karen: The data center market is an area where we see growth for the foreseeable future and the scale acquisition positions as well to take advantage of this opportunity. Before I close, I would like to thank our colleagues for all you do for JLL and our clients every day. I look forward to what we can achieve together. Operator, please explain the Q&A process.
Christian Ulbrich: By leveraging our data-driven market insights to help serve our clients, I'm confident we will seize on the opportunities ahead.
Christian Ulbrich: Before I close, I would like to thank our colleagues for all you do for JLL and our clients. Thanks every day. I look forward to what we can achieve together.
Operator: Operator, please explain the Q&A process. If you wish to ask a question, please first start followed by one on your telephone and wait for your name to be announced. That is star one. If you wish to ask a question.
Operator: If you wish to ask a question, please press star followed by 1 on your telephone and wait for your name to be announced. That is star 1 if you wish to ask a question.
Stephen Sheldon: And your first question comes from Ryan of Steven Sheldon, William Bleth; your line is open. Hey, good morning. Thanks. Nice work in the quarter.
Unknown Questioner: Christian, I think I want to start with you and ask about some of your closing comments about potentially seeing a pickup in larger deals in capital markets. Can you give us some more detail there on what you're seeing? And am I right to think that JLL, on average, is more exposed to larger deal activity than some of your peers, or do you think that's an unfair characterization?
Christian Ulbrich: Christian, I think I want to start with you and ask about some of your comments about potentially seeing a pickup in larger deals and capital markets. You can get some more detail there on what you're seeing. Am I right to think that JLL, on average, is more exposed to larger deal activity than some of your peers, or do you think that's an unfair characterization? I see my. Yes, what we are seeing is the support, as we already alluded to on the prepared earnings, that the bit intensity index is as strengths and quite significantly, which is always a nice sign.
Christian Ulbrich: Christian, I think I want to start with you and ask about some of your ending comments about...
Christian Ulbrich: potentially seeing a pickup in larger deals in capital markets. Can you give some more detail there on what you're seeing?
Christian Ulbrich: have strengthened quite significantly, which is always a nice sign. We see a significant number of larger transactions, especially in the living sector. And so that will prompt more deals in the second quarter of this year if we don't have any major other disturbances coming into the market. And yes, we are very focused on large transactions, so we will take particular benefit from that trend.
Christian Ulbrich: We see a significant number of more larger transactions, especially around the living sector. And that will continue to be the case when you look at the interest rate development on the 10-year boundary that came up from peak to current levels, roughly 100 basis points. And we are now at a level where the overall cost of capital is very close to where it needs to be, considering the current market pricing. And so that will form more deals in the second quarter of this year. If we don't have any major other disturbances coming into the market, and yes, we are very focused on last funds action.
Christian Ulbrich: And that will continue to be the case when you look at the interest rate development on there.
Speaker Change: 10-year bond rate that came up from from peak to current levels, roughly 100 basis points. And we are now at a level where the overall cost of capital is is
Christian Ulbrich: And so that will prompt more deals in the second quarter of this year.
Christian Ulbrich: if we don't have any major other disturbances coming into the market. And yes, we are very focused on large funds actions. So we will take particular benefit from that trend.
Unknown Executive: So we will take particularly benefit from that trend. Got it. That's really helpful.
Unknown Questioner: Got it. That's really helpful. And then Karen has a follow-up on the loan repurchase in capital markets and the drag on profit in the quarter. Can you give some more context or background there? And then You know, this might be a tough one to answer, but how much risk do you see of additional one-off items like that dragging on capital markets profit as you look out over the coming quarters? Sure, so first, let me give you some.
Karen Brennan: And then Karen is a follow up on the loan repurchasing capital markets of the drag on profit in the quarter. Can you get some more context for background there, and then you know, this might be a tough one. The answer with how much risk you see of additional one op item like that drag drag. on Capitol Market's profit as you look out over the coming quarters. Sure, so first let me give some more color on the individual loan repurchase in the quarter that we mentioned. Actually, in August is when we repurchased the loan and unpaid principal balance of $74 million, and we had originated and sold that loan to Fannie Mae in the first half of 2019.
Karen: Sure, so first, let me give some more color on the individual loan repurchase in the quarter that we mentioned. Actually, in August, was when we repurchased the loan at an unpaid principal balance of $74 million, and we had originated and sold that loan to Fannie Mae in the first half of 2019. Both we and Fannie Mae were victims of fraud on this loan. The borrower has pled guilty and is awaiting sentencing.
Speaker Change: Sure, so first let me give some more color on the individual loan repurchase in the quarter that we mentioned. Actually in August is when we repurchased the loan at an unpaid principal balance of $74 million and we had originated and sold that loan to Fannie Mae in the first half of 2019.
Karen Brennan: Both we and Fannie Mae were victims of fraud on the loan. The borrower has pled guilty and is awaiting sentencing. The estimated loss in the quarter that I cited was $18 million, which includes expenses associated with the loan repurchase as well. So the status of that loan right now is that it's in default; a receiver has been appointed, and we're intending to stabilize the property, including some occupancy improvements, before the asset is sold. In terms of your second question around, you know, what else might be coming in terms of one-off items such as this on this particular topic.
Christian Ulbrich: Both we and Fannie Mae were victims of fraud on this loan. The borrower has pled guilty and is awaiting sentencing.
Karen: The estimated loss in the quarter that I cited was $18 million, which includes expenses associated with the loan repurchase as well. So the status of that loan right now is that it's in default, a receiver has been appointed, and we're intending to stabilize the property, including some occupancy improvements before the asset is sold.
Christian Ulbrich: The estimated loss in the quarter that I cited was $18 million, which includes expenses associated with the loan repurchase as well.
Christian Ulbrich: So, the status of that loan right now is that it's in default, a receiver has been appointed, and we're intending to stabilize the property, including some occupancy improvements before the asset is sold.
Christian Ulbrich: In terms of your second question around what else might be coming in terms of one-off items such as this, on this particular topic, there are a handful of other loans that are also subject to fraud or suspected fraud by the borrower that we are monitoring, for which we don't have full resolution at this time.
Karen Brennan: There are a handful of other loans that are also subject to fraud or suspected fraud by the borrower that we are monitoring for which we don't have full resolution at this time. The other loans they want to highlight are smaller in nature. So the loan we just repurchased has the largest unpaid principal balance of that list, and the one we just repurchased also has a lowest occupancy level; other loans are more stabilized occupancy. So holistically, if you look at including the recently repurchased loan loans with known or potential fraud by the borrower, it is represented less than half of 1% overall, Fannie and Freddie portfolio, so this stage quite contained.
Christian Ulbrich: The other loans I want to highlight are smaller in nature, so the loan we just repurchased has the largest unpaid principal balance of that list, and the one we just repurchased also has the lowest occupancy level. The other loans are more stabilized occupancy.
Christian Ulbrich: So, holistically, if you look at, including the recently repurchased loan, loans with known or potential fraud by the borrowers represent less than half of 1% of our overall Fannie and Freddie portfolio, so at this stage, quite contained.
Unknown Executive: Great, thank you.
Speaker Change: Great, thank you.
Anthony Paolone: Your next question, Concelana Anthony, from JP Morgan. Your line is open. Yeah, thanks. And just maybe to stay on capital markets and sort of adjust for this loan, if we add, I guess, $18 million back to your capital markets, EBITDA, the margin would seem to have been a pretty high like 11% plus. And so just wondering if maybe you know, how we should think about whether, you know, that was dramatically higher than the year ago period. Like, is the right number somewhere in between or just any help in thinking about the margin improvement in cap markets this year?
Anthony Paolone: Your next question comes from Anthony Paolone from J.P. Morgan. Your line is open.
Speaker Change: Your next question comes from Anthony Paolone from J.P. Morgan. Your line is open.
Anthony Pallone: Yeah, thanks. And just maybe to stay on capital markets and sort of adjust for this loan, if we add, I guess, $18 million back to your capital markets,
Anthony Pallone: EBITDA, the margin would seem to have been a pretty high like 11% plus and so just wondering if maybe you know how we should think about whether you know that was dramatically higher than the year ago period like is the right number somewhere in between or just any help in thinking about the the margin
Karen Brennan: Well, Anthony, it will depend very much how the second quarter plays out. As you know, the incremental margin of that business is relatively high. And if we will see these encouraging signs of the last couple of weeks continuing, then we expect further margin improvement in that business for the rest of the year. Okay, and so the second quarter, like, just adjusting for the 18 million, that is a number that's like a fairly straightforward one.
Karen: The incremental margin of that business is relatively high, and if we see these encouraging signs of the last couple of weeks continuing, then we expect further margin improvement in that business for the rest of the year.
Speaker Change: incremental margin of that business is relatively high and if we will see these encouraging signs of the last couple of weeks continuing then we expect further margin improvement in that business for the rest of the year.
Unknown Questioner: Okay, and so the second quarter, just adjusting for the $18 million, that... That is a number that's a fairly straightforward one.
Speaker Change: And so the second quarter, like, just adjusting for the $18 million, that is a number that's like a fairly straightforward one.
Karen Brennan: The other thing I would just call out, Tony, would be the fact that we're laughing more; significant cost reduction actions that we took in the second half of last year and the second half of this year. And so that impact is really being experienced across all of our different business segments as well.
Karen: The other thing I would just call out, Tony, is the fact that we're lapping more significant cost reduction actions that we took in the second half of last year and the second half of this year. And so that impact is really being experienced across all of our different business segments as well.
Karen Brennan: Glad to see you. Okay. That was going to be sort of my follow-up, too. If I look and work dynamics, if I take out the pass through that margin, year-over-year seemed to be up, you know, just inside 200 basis points. So I guess the same sort of thing. I get it's trying to just understand when you lap those, because both cases are pretty notable pickups in margin.
Unknown Questioner: Got it. So that was going to be sort of my follow-up to if I look in work dynamics, if I take out the pass-throughs, that margin year over year seemed to be up, you know, just inside 200 basis points. So I guess the same sort of thing, I get to try and just understand when you lap those, because those are, in both cases, pretty notable pickups and margin. Yeah.
Karen Brennan: Yeah, so I'd call out three specific things related to first half versus second half for work dynamics, margin, and overall. Adjust with EBITDA expectations. So first on the revenue side, we will begin to be lapping the wins that we had that have caused a significant increase in revenue in the second half of this year, certainly in the third quarter and then even more in the fourth quarter. The impact of the cost reduction actions we took in the second half of the last year that were lapping the second half of this year also holds true, as I just referenced on capital markets.
Karen: Yeah, so I'd call out three specific things related to first half versus second half for work dynamics, margin, and overall adjusted EBITDA expectations. So first on the revenue side, we will begin to be lapping the wins that we had that have caused a significant increase in revenue in the second half of this year, certainly in the third quarter, and then even more in the fourth quarter. The impact of the cost reduction actions we took in the second half of the last year that were lapping the second half of this year also holds true, as I just referenced in capital markets.
Speaker Change: Both in both cases pretty notable pickups and margin
Speaker Change: Yeah, so I'd call out three specific things related to first half versus second half for work dynamics, margin, and overall.
Christian Ulbrich: First on the revenue side, we will begin to be lapping the winds.
Speaker Change: The impact of the cost reduction actions we took in the second half of the last year that we're lapping the second half of this year also holds true as I just referenced on capital markets.
Karen: Then, finally, I referenced the overall impact of incentive accrual timing and phasing. And so that will unwind itself in the second half of the year as well. So I'd say those are the three call-outs with respect to our work dynamics business.
Karen Brennan: Then finally, I referenced an overall impact of incentive, accrual, timing, and phasing. And so that will unwind itself in the second half of the year as well. So I'd say those are the three call outs with respect to our work dynamics business. Okay, got it.
Speaker Change: Then finally, I referenced an overall impact of incentive accrual timing and phasing. And so that will unwind itself in the second half of the year as well. So I'd say those are the three call-outs with respect to our work dynamics business.
Unknown Questioner: Okay, I got it. Thank you.
Unknown Executive: Thank you.
Speaker Change: Okay, got it. Thank you.
Michael Griffin: Your next question comes from a line of Michael Griffin from City. Good line is up. Great. Thanks. Question. I appreciate your comments on the macro and your pair of remarks.
Michael Griffin: Your next question comes from the line of Michael Griffin from City. Your line is open.
Speaker Change: Your next question comes from the line of Michael Griffin from City. Your line is open.
Christian Ulbrich: Great, thanks. Christian, I appreciated your comments on the macro and your prepared remarks. You know, I acknowledge that it's kind of certainly been volatile in recent weeks. But just given the maybe potential recession fears that have picked up probably over the last week, can you give us a sense of maybe how you would expect business performance to be if this recessionary hard landing scenario ends up coming to fruition?
Michael Griffin: Great, thanks. Christian, I appreciated your comments on the macro and your prepared remarks. You know, I acknowledged that
Christian Ulbrich: You know, I acknowledge that it's kind of certainly been volatile and reasonably, but just given the maybe potential recession fears, really, that have picked up probably over the last week, can you give us a sense of maybe how we would expect this performance to be if this recessionary, hard landing scenario ends up coming to fruition? Yeah, I mean, we have been less enthusiastic about massive tear winds already for the last couple of quarters. And that's how we plan for the year. And so what has happened over the last four weeks and maybe has come a little bit more to surface over the last two days at the stock market is it's not completely off the charts with regards to our own planning for the year.
Michael Griffin: It's kind of certainly been volatile in recent weeks, but just given the maybe potential recession fears really that have picked up probably over the last week, can you give us a sense of maybe how you would expect business performance to be if this recessionary hard landing scenario ends up coming to fruition?
Christian Ulbrich: Yeah, I mean, we have been less enthusiastic about massive tailwinds for the last couple of quarters. And that's how we plan for the year. And so what has happened over the last four weeks, and maybe has come a little bit more to surface over the last two days in the stock market, is it's not completely off the charts with regard to our own planning for the year. So we have two kinds of opposing dynamics with regard to our business. Obviously, an overall economic decline will feed into our leasing and project management business and into the sentiment overall.
Speaker Change: Yeah, I mean, we have been less enthusiastic about massive tailwinds already for the last couple of quarters, and that's how we planned for the year.
Michael Griffin: And so, what has happened over the last four weeks?
Michael Griffin: and maybe has come a little bit more to surface over the last two days at the stock market.
Michael Griffin: It's not completely off the charts with regards to our own planning for the year.
Christian Ulbrich: So we have two kind of opposing dynamics with regards to our business, obviously, and overall economic decline will feed into our leasing and project management business and into the sentiment overall, but at the same time, this more rapid interest rate decline, which we have seen over the last couple of weeks, will help our capital markets business. And so there is a bit of offset there on that side. So overall, we do better when the economy is doing great.
Michael Griffin: So we have two kind of opposing dynamics with regards to our business, obviously an overall economic decline will feed into our leasing and project management business.
Christian Ulbrich: But at the same time, this more rapid interest rate decline which we have seen over the last couple of weeks will help our capital markets business. And so there is a bit of an offset there on that side. So overall, we do better when the economy is doing great. If the economy has slightly harder lending than what was expected a couple of months ago, that may have an impact. But it's reflected in our guidance for the second half of the year.
Michael Griffin: and into the sentiment overall. But at the same time, this more rapid interest rate decline, which we have seen over the last couple of weeks will help our capital markets business.
Michael Griffin: And so there is a bit of an offset there.
Michael Griffin: On that side. So overall, we do better when the economy is doing great. If the economy has a slightly harder lending than what has been expected a couple of months ago, that may have an impact.
Christian Ulbrich: If the economy has a slightly harder landing than what has been expected a couple of months ago, that may have an impact, but it's frankly reflected in our guidance for the second half of the year. Great. That's helpful.
Michael Griffin: But it's frankly reflected in our guidance for the second half of the year.
Michael Griffin: Great, that's helpful. And then maybe just a question on capital allocation, Karen. Obviously, it was a pretty positive quarter in terms of free cash flow. But as you kind of look to opportunities in the future, you know, does using that free cash flow make more sense to pay down debt to use it for future M&A or for any other potential uses?
Karen Brennan: And then maybe just a question on capital allocation, Karen. Obviously, it was a pretty positive quarter in terms of free cash flow, but as you kind of look to opportunities in the future, you know, using that free cash flow makes more sense to pay down debt, to use it for future M&A, or for any other potential use. Yeah, I'll just restate how we're thinking about capital allocation at this stage. So first and foremost, it's to reinvest in our business organically for growth. Second, we are very focused on continuing to reduce our overall leverage levels closer to the midpoint of our range.
Speaker Change: Great. That's helpful. And then maybe just a question on capital allocation, Karen. Obviously, it was a pretty positive quarter in terms of free cash flow, but as you kind of look to opportunities in the future, does using that free cash flow make more sense to pay down debt, to use it for future M&A, or for any other potential uses?
Karen: Yeah, I'll just restate how we're thinking about capital allocation at this stage. So, first and foremost, it's to reinvest in our business organically for growth. Second, we are very focused on continuing to reduce our overall leverage levels closer to the midpoint of our range. And then we think of what the opportunities are and evaluate M&A, targeted opportunities versus share repurchases. And we are committed to repurchasing shares that offset the stock compensation dilution in any given year.
Karen: Yeah, I'll just restate how we're thinking about capital allocation at this stage. So first and foremost, it's to reinvest in our business organically for growth.
Karen: Second, we are very focused on continuing to reduce our overall
Karen Brennan: And then we think of what the opportunities are and evaluate M&A target opportunities versus sharey purchases. And we are committed to repurchasing shares that offset the stock compensation delusion in any given year.
Speaker Change: Leverage Levels, closer to the midpoint of our range, and then we think of what the opportunities are and evaluate M&A, targeted opportunities, versus share repurchases, and we are committed to repurchasing shares that offset the stock compensation dilution in any given year.
Operator: Great. That's it for me. Thanks for the time. As a reminder, if you wish to ask a question, please press star followed by 1 on your telephone and wait.
Unknown Executive: Great, that's it for me. Thanks for the time.
Speaker Change: Great. That's it for me. Thanks for the time.
Jason Saphson: As a reminder, if you wish to ask a question, please press star followed by one on your telephone and wait for your name to be announced. And your next question comes along, Jade Rahmani from KPW. Your line is open.
Operator: As a reminder, if you wish to ask a question, please press star followed by 1 on your telephone and wait for your name to be announced. And your next question comes from Jade Rahmani from KBW.
Speaker Change: As a reminder, if you wish to ask a question, please press star followed by 1 on your telephone and wait for your name to be announced.
Michael Griffin: And your next question comes from Jade Rahmani from KBW. Your line is open.
Christian Ulbrich: Hi, this is Jason Saphson on for Jade. Thanks for taking my question. It would be helpful to hear an update on JLL technologies, and whether you anticipate taking any more right now. Jason, in fact, what we have seen in the last during the last quarter is that within our Spark portfolio, we have some equity earnings. And we see overall slightly reversing trend against the last couple of quarters that the interest in those property companies is growing again. So we don't have any red flags here, which regards to further write-downs. The right downs we have taken in the second quarter are concerned some of the other tech investments we have in our portfolio outside of the Spark Venture Capital Fund.
Jade Rahmani: Your line is open. Hi, this is a.
Jason Sapshon: Hi, this is Jason Sapshon on for Jade. Thanks for taking my question. It would be helpful to hear an update on JLL technologies and whether you anticipate taking any more write-downs.
Christian Ulbrich: Jason, what we have seen during the last quarter is that within our SPARC portfolio, we had some equity earnings, and we see overall a slightly reversing trend against the last couple of quarters where the interest in those prop tech companies is growing again. We don't have any red flags here with regard to further write-downs. The write-downs we took in the second quarter concerned some of the other tech investments we have in our portfolio outside of the SPARC Venture Capital Fund. And, and again, you know, it's not that we can completely exclude any further negative developments, but generally, we are quite happy with how the portfolio looks at the moment and have no major concerns there.
Michael Griffin: Bye.
Michael Griffin: Jason,
Speaker Change: In fact, what we have seen in
Speaker Change: In the last, during the last quarter is that within our SPARC portfolio, we had some equity earnings.
Michael Griffin: Bye.
Michael Griffin: And we see, overall, a slightly reversing trend against the last couple of quarters that
Michael Griffin: The interest in those prop tech companies is growing again.
Michael Griffin: So we don't have any red flags here with regards to further write-downs.
Michael Griffin: The write-downs we have taken in the second quarter are concerned some of the other tech investments we have in our portfolio outside of the Spark Venture Capital Fund. And again, you know...
Christian Ulbrich: And again, you know, it's not that we can completely exclude any further negative developments, but generally we are quite happy with how the portfolio looks at the moment and have no major concern there.
Michael Griffin: It's not that we can completely exclude any further negative developments, but generally we are quite happy with how the portfolio looks at the moment and have no major concerns there.
Operator: Great. Thank you. As a reminder, if you wish to ask a question, please just stop, followed by one on your telephone, and wait for your name to be announced.
Peter Abramowitz: As a reminder, if you wish to ask a question, please press star followed by 1 on your telephone and wait for your name to be announced. And your next question comes from the line of Peter Abramowitz from Jeffreys. Your line is open.
Speaker Change: Great, thank you.
Speaker Change: As a reminder, if you wish to ask a question, please press star followed by 1 on your telephone and wait for your name to be announced.
Peter Abramowitz: And your next question comes along with Peter Abramowitz from Jeffries. Your line is open. Yes, thank you. You called out in the earnings release. It looks like you can share investment sales in the quarter in the US, which I think we're down 3% that you are up 20. Could you just touch on any investments in teams, whether in specific property types or specific geographies, that are helping drive that? And any thoughts on where you might invest in those teams, your geographies going forward? Sure, Peter, you may recall that we did not take out any client-facing people in our capital markets business during the downturn.
Speaker Change: And your next question comes from the line of Peter Abramowitz from Jeffreys. Your line is open.
Christian Ulbrich: Yes, thank you. You called out in the earnings release that it looks like you gained share in investment sales in the US, which I think we're down 3%, but you are up 20. Could you just touch on any investments in teams, whether in specific property types or specific geographies that are helping drive that? And any thoughts on where you might invest in those teams or geographies going forward?
Peter Abramovich: Yes, thank you. You called out in the earnings release, it looks like you gained share in investment sales in the quarter in the U.S., which I think we're down 3%, but you are up 20. Could you just touch on any investments in teams, whether in specific property types or specific geographies that are helping drive that? And any thoughts on where you might invest in those teams or geographies going forward?
Christian Ulbrich: Sure, Peter. You may recall that we did not take out any client-facing people in our capital markets business during the downturn. We were keeping very tight to our team members because we believed in their strengths and we knew that the market would come back. And so that is obviously helpful now because we have a whole team on the ground, and they are picking up the opportunities which are there. And as we alluded to, we see a slight trend to slightly larger transactions now coming back, which is helpful for us. And so the third piece is, and we spoke about that a couple of times now, that we believe that we really have an edge through our technology platform helping us to win more business and get better results for our clients.
Speaker Change: Sure, Peter. You may recall that we did not take out any client-facing people in our capital markets business during the downturn. We were keeping very tight to our team members because
Christian Ulbrich: We were keeping very tight to our team members because we believed in their strengths and we knew that the market will come back. And so that is obviously helpful now. We have a whole team on the ground, and they are picking up the opportunities which are there. Then, as we alluded to, we see a trend to slightly larger transactions now coming back, which is helpful for us. And so. The third piece is, and we spoke about that a couple of times now, that we believe that we really have an edge through our technology platform helping us to win more business and get to better results for our clients.
Speaker Change: We believed in their strengths and we knew that the market will come back.
Michael Griffin: And so that is obviously helpful now because we have a whole team on the ground, and they are picking up the opportunities which are there. Then, as we alluded to, we see a trend to slightly larger transactions now coming back, which is helpful for us.
Speaker Change: and and so
Speaker Change: The third piece is, and we spoke about that a couple of times now, that we believe that we really have an edge through our technology platform helping us to
Michael Griffin: win more business and get to better results for our clients. And that as a combination is probably driving that performance in the market. And we have good reason to believe that this will continue to be the case.
Christian Ulbrich: And that's a combination is probably driving that performance in the market. And we have good reason to believe that this will continue to be the case.
Christian Ulbrich: And that combination is probably driving that performance in the market, and we have good reason to believe that this will continue to be the case. And we don't need to make any further additions to the team. That doesn't rule out that we once in a while get some new team members in if there's a great opportunity, but our planning for the year is based on our existing team strength.
Christian Ulbrich: We're going to make any further additions to the team that doesn't rule out that we once in a while get some new team members in if there's a great opportunity, but our planning for the year is based on our existing team strength. All right, thanks, Christian.
Speaker Change: And we don't need to make any further additions to the team. That doesn't rule out that we once in a while get some new team members in if there's a great opportunity, but our planning for the year is based on our existing team strength.
Christian Ulbrich: All right, thanks, Christian. And then one more for me: you called out a little bit softer leasing and industrial this quarter. And I think in Karen's comments, you mentioned a lack of new construction over the past few years. We'll certainly have a tailwind from a supply perspective. Can you just talk about what you're seeing on the ground, what your brokers are seeing from a demand perspective, and maybe sort of what you're thinking of one that might inflect?
Christian Ulbrich: And then one more for me, you called out a little bit softer, leasing an industrial this quarter. And I think in Karen's comments, you mentioned a lack of new construction over the past few years. We'll certainly have a tailwind from a supply perspective. Did you just talk about what you're seeing on the ground where brokers are seeing from a demand perspective and maybe sort of what you're thinking of one that might deflect. Sure. So I'll focus on the US and just real market specifically here to frame the comments. We're continuing to see a normalization of leasing activity and demand towards pre-COVID levels.
Karen: All right. Thanks, Christian. And then one more for me. You called out a little bit softer leasing and industrial this quarter. And I think in Karen's comments, you mentioned a lack of new construction over the past few years.
Speaker Change: We'll certainly have a tailwind from a supply perspective. Could you just talk about what you're seeing on the ground, what your brokers are seeing from a demand perspective, and maybe sort of what you're thinking of one that might inflect?
Christian Ulbrich: Sure. So I'll focus on the US industrial market specifically here just to frame the comments. We're continuing to see a normalization of leasing activity and demand towards pre-COVID levels. And based on conversations with clients, this is really tied to uncertainty in the economy, inflation, spending, and geopolitical impacts on trade. And people are just not preemptively leasing space the way they were a couple of years ago. And so we have developments delivering with vacancy, which is pushing the overall vacancy rate higher and slowing the rent growth.
Speaker Change: Sure, so I'll focus on the U.S. industrial market specifically here just to frame the comments.
Speaker Change: And we're continuing to see a normalization of leasing activity and demand towards pre-COVID levels.
Christian Ulbrich: And based on conversations with clients, this is really tied to uncertainty on the economy, inflation, spending, and geopolitical impacts on trade. And people are just not preemptively leasing space the way they were a couple of years ago. And so we have developments delivering with vacancy, which are pushing the overall vacancy rate higher and slowing the rent growth. Importantly, there's still positive demand in industrial and the overall secular trends around industrial, particularly US, remain strong. The vacancy rates are only at 6.6%. And as I mentioned in reference, the total amount of industrial space under construction has decreased, and it's around down around 47% are there about zero a year.
Michael Griffin: And based on conversations with clients, this is really...
Michael Griffin: tied to uncertainty on the economy, inflation, spending and geopolitical impacts on trade.
Speaker Change: And people are just not preemptively leasing space the way they were a couple of years ago.
Michael Griffin: And so we have developments delivering with vacancy, which are pushing the overall vacancy rate higher and slowing the rent growth.
Christian Ulbrich: Importantly, there's still positive demand for industrial space, and the overall secular trends around industrial space, particularly in the US, remain strong. The vacancy rate's only at 6.6%. And as I mentioned in your reference, the total amount of industrial space under construction has decreased, and it's down around 47% or thereabouts year over year. However, we are still seeing some pockets of strength. The key industries where we're seeing the highest leasing volume are energy and utilities, advanced manufacturing, and e-commerce uses. So there'll still be some level of – we anticipate some level of softness in the near term, but over the medium and longer term, we do see continued strength in industrial leasing demand broadly.
Michael Griffin: Importantly, there's still positive demand in industrial and the overall secular trends around industrial, particularly in the U.S., remain strong.
Michael Griffin: The vacancy rate is only at 6.6%.
Speaker Change: And as I mentioned in your reference, the total amount of industrial space under construction has decreased and it's down around 47% or thereabouts year over year.
Christian Ulbrich: We are still seeing some pockets of strength. The key industries that we're seeing the highest leasing volume are energy and utilities, advanced manufacturing, and e-commerce uses. So there'll still be some level of softness in the near term, but over the medium and longer term, we do see continued strength in industrial leasing demand broadly. That's helpful. That's all for me. Thank you.
Speaker Change: We are still seeing some pockets of strength.
Speaker Change: The key industries where we're seeing the highest leasing volume are energy and utilities.
Speaker Change: Advanced Manufacturing and E-Commerce Uses. So there'll still be some level of softness in the near term, but over the medium and longer term, we do see continued strength in industrial leasing demand broadly.
Peter Abramowitz: That's helpful. That's all for me. Thank you.
Speaker Change: That's helpful. That's all for me. Thank you.
Operator: There are no further questions at this time.
Christian Ulbrich: There are no further questions at this time, so I would like to hand the call back to Christian Ulbrich for closing remarks.
Christian Ulbrich: So I would like to hand the call back to Christian Ulberg, the closing remarks. On behalf of the entire JLL team, we thank you all for participating on the call today. Karen and I look forward to speaking with you again following the third quarter. Thank you.
Speaker Change: There are no further questions at this time, so I would like to hand the call back to Christian Ulbrich for closing remarks.
Christian Ulbrich: On behalf of the entire JLL team, we thank you all for participating. I look forward to speaking with you again following the third quarter. Thank you.
Christian Ulbrich: On behalf of the entire JLL team, we thank you all for participating on.
Christian Ulbrich: The call today, Karen and I look forward to speaking with you again following the third quarter.
Operator: That doesn't shoot our conference for today. Thank you for participating in our All Disconnect. Thank you.
Operator: That does conclude our conference for today. Thank you for participating, and I will disconnect.
Speaker Change: That does conclude our conference for today. Thank you for participating and I will disconnect.