Real estate services and investment management company Jones Lang LaSalle (NYSE:JLL) comfortably beat analyst estimates with its fourth-quarter results and signaled improving conditions within the commercial real estate market. The company offers a range of services across the industry, and as such, it's a useful barometer of global real estate conditions. So let's take a closer look at its earnings and see why the stock surged after results.

The numbers
Before delving into the details, a brief summary of earnings versus expectations:

  • Fourth-quarter non-GAAP earnings per share were $4.30, versus analyst estimates of $3.85.
  • Fourth-quarter revenue was $1.75 billion, versus analyst estimates of $1.68 billion.

Given the sluggish and uneven pace of the global recovery since 2009, it's rare that a company reports strong results across all its service lines and geographies, but Jones Lang LaSalle just did it. To see how the company makes money, here's a breakout of earnings before interest, tax, depreciation, and amortization, or EBITDA, for the full year.


Adjusted EBITDA

Full-Year Growth

Fourth-Quarter Growth

Americas -- Real Estate Services




Europe, Middle East, Africa -- Real Estate Services




Asia-Pacific -- Real Estate Services




LaSalle Investment Management




Source: Jones Lang LaSalle presentations. EBITDA data is in thousands.

The fact that fourth-quarter real estate services growth was stronger than full-year growth is an indication that its end markets accelerated toward the end of the year. Indeed, on the earnings call, management gave its estimate for a global office vacancy rate at the end of the year of 12.7% -- a figure notably below the 12.9% assumed in its previous outlooks. It's also below its global office vacancy rate estimates for 2012 and 2013 of 13.1% and 13.2%, respectively.

Strength across the board
A lowering in the global office vacancy rate -- the percentage of available office units that are unoccupied -- is a good thing, because it implies a pick-up in leasing market activity. In turn, an increase in leasing market activity implies that the company can increase revenue across all its real estate services. For example, as more offices get leased, so the demand for property and facilities management services should increase. Indeed, all its real estate services managed to increase revenue handsomely in the fourth quarter.

 ServiceTotal Real Estate Services Fee RevenueGrowth
Leasing $538.1 19%
Capital Markets and Hotels $328.1 27%
Property and Facility Management Fee $305.8 9%
Project and Development Services Fee $131.6 19%
Advisory, Consulting, and Other  $161.8 17%
Total Operating Fee Revenue $1465.4 18%

Source: Jones Lang LaSalle presentations. Fee revenue data is in millions.

Ongoing strength in LaSalle Investment Management
As the data in the first table demonstrates, LaSalle Investment Management earnings growth has been strong recently, with fourth-quarter adjusted EBITDA coming in with a nearly 42% increase. LaSalle Investment Management operates independently but is fully owned by Jones Lang LaSalle. Its main activity is managing capital for major pension funds, insurance companies, governments, and other wealth organizations.

A recovering commercial real estate market helped incentive fees rise by $91 million to $105 million. In fact, this increase was responsible for 70.5% of the increase in the segment's revenue. While this kind of growth will be hard to replicate in the future -- after all, the comparisons just got harder -- readers should note that assets under management, or AUM, rose 12.6% to $53.6 billion. In a nutshell, AUM is the benchmark metric of any asset manager. The more AUM an investment firm has, the more its potential to earn future fees.

The bottom line
All told, this was a strong report from the company, and management sounded an upbeat tone on the earnings call. There are pockets of weakness in the global market, with management predicting falls in capital and rental values of prime offices in Mumbai, Sao Paulo, and Moscow, but the overall outlook is positive for Jones Lang LaSalle, and for the global commercial real estate market.