HFF, Inc. (NYSE:HF) (the Company or HFF) reported today its
financial and production volume results for the fourth quarter of
2016. Based on transaction volume, HFF, through its subsidiaries,
Holliday Fenoglio Fowler, L.P., HFF Securities L.P. and its U.K.
subsidiaries, is one of the leading and largest full-service
commercial real estate financial intermediaries, providing
commercial real estate and capital markets services to both the
consumers and providers of capital in the commercial real estate
sector.
Fourth Quarter 2016
Highlights
- Revenue was $155.7 million, 7.9% lower
year-over-year.
- Net income was $27.5 million, as
compared to $34.1 million in the prior year period.
- Net income per diluted share was $0.70,
as compared to $0.88 during the prior year period.
- Adjusted EBITDA was $47.8 million
versus $56.8 million in the prior year period.
Full Year 2016
Highlights
- Revenue was $517.4 million, a 3.1%
increase over prior year.
- Net income was $77.2 million, as
compared to $84.0 million in the prior year period.
- Net income per diluted share was $1.99,
as compared to $2.18 during the prior year.
- Adjusted EBITDA was $133.6 million
compared to $141.3 million in the prior year period.
“Despite the continued headwinds in the capital markets and
their impact on the industry’s and HFF’s transaction activity
during the year, we remain confident in the fundamentals supporting
the commercial real estate industry and the potential for future
transaction volume growth over the next several years. Therefore,
we continued to heavily invest in our business throughout 2016 in
order to properly position the Company to take advantage of the
above referenced potential future growth opportunities,” said Mark
Gibson, chief executive officer of HFF.
“HFF’s total transaction volumes were higher for the fourth
quarter and full year of 2016 comparing favorably to the industry,
which experienced declines in both the investment sales and debt
market transaction volumes as reported by RCA and the MBA,
respectively. Throughout 2016, industry volumes were impacted by a
number of factors including general uncertainty regarding domestic
and global growth, the development of a ‘bid-ask’ gap as buyers and
sellers engage in “price discovery” for real estate assets, as well
as increased regulatory scrutiny among financial institutions.
While some of these headwinds might persist in 2017, our long-term
view of the U.S. commercial real estate activity remains positive,
as demonstrated by our growth in headcount during the past year
including investment in support personnel and technology
improvements across the firm.”
“We remain grateful for our clients who continue to show their
confidence in our abilities to create and execute winning
strategies for them as evidenced by our performance relative to the
industry results. The combination of our people, our culture and
our highly focused business model allows HFF to continue to benefit
from the meaningful synergies which exist among the Company’s six
business lines,” added Mark Gibson.
Based on the Company’s performance in 2016 and considerable
liquidity position, the board of directors declared a special cash
dividend on January 24, 2017 of $1.57 per share, or $60.0 million.
Since 2012, the Company has returned approximately $320.7 million,
or $8.52 per share, to shareholders in the form of special cash
dividends.
Results for the Fourth Quarter Ended
December 31, 2016
The Company’s revenues were $155.7 million for the fourth
quarter of 2016, which represents a decrease of $13.3 million, or
7.9% compared to revenue of $169.0 million for the fourth quarter
of 2015. The Company generated operating income of $37.2 million
during the fourth quarter of 2016, a decrease of $9.8 million, or
20.8% when compared to operating income of $47.0 million for the
fourth quarter of 2015. This decrease in operating income is
primarily due to the 7.9% decrease in revenues and increases in the
Company’s compensation-related costs and other operating expenses
associated with the net growth in headcount of 81 associates during
the last twelve months.
Interest and other income, net, grew 4.2% to $9.4 million in the
fourth quarter of 2016, compared to $9.0 million in the fourth
quarter of 2015. This increase is primarily a result of higher
income from the valuation of the Company’s mortgage servicing
rights and was partially offset by lower securitization and other
agency-related income.
The Company reported net income for the quarter ended December
31, 2016 of $27.5 million, a decrease of approximately $6.7
million, or 19.5%, when compared to net income of $34.1 million for
the quarter ended December 31, 2015. For the quarter ended December
31, 2016 net income per diluted share was $0.70 compared to $0.88
for the fourth quarter of 2015.
Adjusted EBITDA (a non-GAAP measure whose reconciliation to net
income can be found within this release) for the fourth quarter of
2016 was $47.8 million, which represents a decrease of $9.1
million, or 16.0%, when compared to $56.8 million in the fourth
quarter of 2015. This decrease in Adjusted EBITDA is primarily
attributable to the decreases in operating income, and
securitization and other agency-related income. The Adjusted EBITDA
margin for the fourth quarter of 2016 was 30.7%, a 290 basis point
decrease compared to the Adjusted EBITDA margin of 33.6% in the
fourth quarter of 2015.
Results for the Full Year of
2016
The Company’s revenue increased 3.1% to $517.4 million for the
year ended December 31, 2016, compared to revenues of $502.0
million for 2015. The Company generated operating income of $95.8
million during 2016, a decrease of $12.0 million, or 11.1% when
compared to operating income of $107.8 million for 2015. This
decrease in operating income is primarily due to (i) increases in
the Company’s compensation-related costs and expenses associated
with the net growth in headcount of 81 associates during the year
(ii) an increase in non-cash stock compensation and (iii) increases
in other operating expenses due to the growth in transactional
activity and the increase in headcount. These costs increases were
partially offset by the revenue growth.
Interest and other income, net, totaled $33.5 million for the
year ended December 31, 2016, an increase of $1.5 million, or 4.6%,
when compared to $32.0 million for the year ended December 31,
2015. This increase is primarily a result of additional income from
valuation of the Company’s mortgage servicing rights partially
offset by lower securitization and other agency-related income.
The Company’s net income for the year ended December 31, 2016
was $77.2 million, a decrease of approximately $6.8 million, or
8.1%, when compared to net income of $84.0 million for the year
ended December 31, 2015. For the year ended December 31, 2016, net
income per diluted share was $1.99 compared to $2.18 in 2015.
Adjusted EBITDA for the year ended December 31, 2016 was $133.6
million, a 5.5% decrease when compared to $141.3 million in the
comparable period in 2015. This decrease in Adjusted EBITDA is
attributable to the decreases in operating income as well as
decreases in securitization and other agency-related income. The
Adjusted EBITDA margin for the year ended December 31, 2016 was
25.8%, a 230 basis point decrease, compared to the Adjusted EBITDA
margin of 28.1% in the comparable period in 2015.
HFF, Inc. Consolidated Operating Results
(dollars in thousands, except per share data) (Unaudited)
For the Three Months
Ended Dec. 31, For the Year Ended Dec. 31, 2016
2015 2016 2015 Revenue $ 155,696 $
169,042 $ 517,426 $ 501,990 Operating expenses: Cost of
services 84,954 91,404 291,290 280,674 Operating, administrative
and other 30,347 28,078 118,529 104,349 Depreciation and
amortization 3,209 2,590 11,834
9,194 Total expenses 118,510 122,072 421,653
394,217 Operating income 37,186 46,970 95,773 107,773
Interest and other income, net 9,416 9,037 33,525 32,043 Interest
expense (9 ) (12 ) (42 ) (47 ) (Increase) decrease in payable under
the tax receivable agreement – –
(1,025 ) 2,143 Income before income taxes 46,593
55,995 128,231 141,912 Income tax expense 19,140 21,871
51,036 57,949 Net income $ 27,453
$ 34,124 $ 77,195 $ 83,963
Earnings per share - basic $ 0.72 $ 0.90 $ 2.02 $ 2.21 Earnings per
share - diluted $ 0.70 $ 0.88 $ 1.99 $ 2.18 Weighted average shares
outstanding - basic 38,277,889 38,011,731 38,245,682 37,975,997
Weighted average shares outstanding - diluted 39,077,905 38,611,660
38,843,156 38,449,212 Adjusted EBITDA $ 47,752 $ 56,828 $
133,550 $ 141,263
Production Volume and Loan Servicing
Summary
The reported volume data presented below (provided for
informational purposes only) is unaudited and is estimated based on
the Company’s internal database.
Fourth Quarter Production Volume
Results
Unaudited Production Volume by Platform (dollars in
thousands)
For the Three Months Ended December 31, By
Platform 2016 2015
Change
Production Volume
# of Trans.
Production Volume
# of Trans.
Production Volume
% chg.
# of Trans.
% chg. Debt Placement $ 13,021,286 354 $
11,342,958 376 $ 1,678,328 14.8 % (22 ) -5.9 %
Investment
Sales 11,767,635 211 12,790,320 224 (1,022,685 ) -8.0 % (13 )
-5.8 %
Equity Placement 1,436,107 36 1,280,032 45 156,075
12.2 % (9 ) -20.0 %
Loan Sales 82,462 9
63,766 8 18,696 29.3 % 1 12.5 %
Total Transaction Volume $ 26,307,490
610 $ 25,477,076 653 $
830,414 3.3 %
(43 ) -6.6 %
Average
Transaction Size $ 43,127 $ 39,015
$ 4,112 10.5 %
Fund/Loan Balance
# of Loans
Fund/Loan Balance
# of Loans
Fund/Loan Balance
% chg.
# of Loans
% chg. Private Equity Discretionary Funds
$ 2,848,900 $ 2,869,300 $
(20,400 ) -0.7 %
Loan Servicing Portfolio
Balance $ 57,956,110 2,807 $
48,661,658 2,646 $ 9,294,452 19.1 %
161 6.1 %
Production volumes for the fourth quarter of 2016 totaled
approximately $26.3 billion on 610 transactions representing a 3.3%
increase in production volume and a 6.6% decrease in the number of
transactions when compared to the production volumes of
approximately $25.5 billion on 653 transactions for the fourth
quarter of 2015. The average transaction size for the fourth
quarter of 2016 was $43.1 million, which is approximately 10.5%
higher than the comparable figure of approximately $39.0 million
for the fourth quarter of 2015.
- Debt Placement production volume was
approximately $13.0 billion in the fourth quarter of 2016,
representing an increase of 14.8% from the fourth quarter of 2015
volume of approximately $11.3 billion.
- Investment Sales production volume was
approximately $11.8 billion in the fourth quarter of 2016, a
decrease of 8.0% from the fourth quarter of 2015 volume of
approximately $12.8 billion.
- Equity Placement production volume was
approximately $1.4 billion in the fourth quarter of 2016, an
increase of 12.2% over the fourth quarter of 2015 volume of
approximately $1.3 billion.
- Loan Sales production volume was
approximately $82.5 million for the fourth quarter of 2016, an
increase of 29.3% from the $63.8 million of volume in fourth
quarter 2015.
- At the end of the fourth quarter of
2016, the amount of active private equity discretionary fund
transactions on which HFF Securities has been engaged and may
recognize additional future revenue was approximately $2.8 billion
compared to approximately $2.9 billion at the end of the fourth
quarter of 2015, representing a 0.7% decrease.
- The principal balance of the Company’s
Loan Servicing portfolio reached $58.0 billion at the end of the
fourth quarter of 2016, representing an increase of approximately
$9.3 billion, or 19.1%, from $48.7 billion at the end of the fourth
quarter of 2015.
Full Year Production Volume
Results
Unaudited Production Volume by Platform (dollars in
thousands)
For the Twelve Months Ended December 31, By
Platform 2016 2015
Change
Production Volume
# of Trans.
Production Volume
# of Trans.
Production Volume
% chg.
# of Trans.
% chg. Debt Placement $ 40,657,627 1,268 $
38,100,249 1,308 $ 2,557,378 6.7 % (40 ) -3.1 %
Investment
Sales 36,660,669 770 34,074,334 733 2,586,335 7.6 % 37 5.0 %
Equity Placement 4,010,375 135 3,332,245 132 678,130 20.4 %
3 2.3 %
Loan Sales 688,912 28 522,183
31 166,729 31.9 % (3 ) -9.7 %
Total
Transaction Volume $ 82,017,583
2,201 $ 76,029,011 2,204
$ 5,988,572 7.9 %
(3 ) -0.1 %
Average Transaction Size $ 37,264 $
34,496 $ 2,768 8.0 %
Fund/Loan Balance
# of Loans
Fund/Loan Balance
# of Loans
Fund/Loan Balance
% chg.
# of Loans
% chg. Private Equity Discretionary Funds
$ 2,848,900 $ 2,869,300 $
(20,400 ) -0.7 %
Loan Servicing Portfolio
Balance $ 57,956,110 2,807 $
48,661,658 2,646 $ 9,294,452 19.1 %
161 6.1 %
Production volumes for the year ended December 31, 2016 totaled
approximately $82.0 billion on 2,201 transactions, representing a
7.9% increase in production volume and a 0.1% decrease in the
number of transactions when compared to the production volumes of
approximately $76.0 billion on 2,204 transactions for the
comparable period in 2015. The average transaction size for the
year ended December 31, 2016 was $37.3 million, representing an
8.0% increase from the comparable figure of $34.5 million in the
year ended December 31, 2015.
Employment Comments
Consistent with its strategic growth initiatives, the Company
continued to expand its total employment and production ranks to
the highest levels since the Company went public in January 2007.
The Company’s total employment reached 891 associates as of
December 31, 2016, which represents a net increase of 81, or 10.0%,
over the comparable total of 810 associates as of December 31,
2015. HFF’s total number of transaction professionals was 319 as of
December 31, 2016, which represents a net increase of 29, or 10.0%
over the comparable total of 290 transaction professionals as of
December 31, 2015. Over the past twelve months, the Company
continued to add transaction professionals to existing lines of
business and product specialties through the promotion and
recruitment of associates in 14 of the Company’s 23 offices.
Non-GAAP Financial
Measures
This earnings press release contains a non-GAAP measure,
Adjusted EBITDA, which as calculated by the Company is not
necessarily comparable to similarly-titled measures reported by
other companies. Additionally, Adjusted EBITDA is not a measurement
of financial performance or liquidity under GAAP and should not be
considered as an alternative to the Company’s other financial
information determined under GAAP. For a description of the
Company’s use of Adjusted EBITDA and a reconciliation of Adjusted
EBITDA with net income, see the section of this press release
titled “Adjusted EBITDA Reconciliation.”
Earnings Conference Call
The Company’s management will hold a conference call to discuss
fourth quarter 2016 financial results on February 23, 2017 at
6:00 p.m. Eastern Time. To listen, participants should dial
844-420-8188- (U.S. callers) or 478-219-0768 (international
callers) approximately 10 minutes prior to the start of the
call and enter participant code 51105257. A replay will become
available after 9:00 p.m. Eastern Time on February 23,
2017 and will continue through March 2, 2017, by dialing
855-859-2056 (U.S. callers) and 404-537-3406 (international
callers) and entering participant code 51105257.
The live broadcast of the Company’s quarterly conference call
will be available online on the HFF website at www.hfflp.com on
February 23, 2017 beginning at 6:00 p.m. Eastern Time. A recording
of the broadcast will be available for replay on the Company’s
website for one year. Related presentation materials will be posted
to the “Investor Relations” section of the Company’s website prior
to the call. The presentation materials will be available in Adobe
Acrobat format.
About HFF, Inc.
Through its subsidiaries, Holliday Fenoglio Fowler, L.P., HFF
Real Estate Limited, HFF Securities L.P. and HFF Securities
Limited, HFF operates out of 24 offices and is one of the leading
and largest full-service commercial real estate financial
intermediaries, providing commercial real estate and capital
markets services to both the consumers and providers of capital in
the commercial real estate sector. HFF offers clients a
fully-integrated national capital markets platform including debt
placement, investment sales, equity placement, investment banking
and advisory services, loan sales and commercial loan
servicing.
Certain statements in this earnings press release are
“forward-looking statements” within the meaning of the federal
securities laws. Statements about our beliefs and expectations and
statements containing the words “may,” “could,” “would,” “should,”
“believe,” “expect,” “anticipate,” “plan,” “estimate,” “target,”
“project,” “intend” and similar expressions constitute
forward-looking statements. These forward-looking statements
involve known and unknown risks, uncertainties and other factors
that may cause the Company’s actual results and performance in
future periods to be materially different from any future results
or performance suggested in forward-looking statements in this
earnings press release. Investors, potential investors and other
readers are urged to consider these factors carefully in evaluating
the forward-looking statements and are cautioned not to place undue
reliance on such forward-looking statements. Any forward-looking
statements speak only as of the date of this earnings press release
and, except to the extent required by applicable securities laws,
the Company expressly disclaims any obligation to update or revise
any of them to reflect actual results, any changes in expectations
or any change in events. If the Company does update one or more
forward-looking statements, no inference should be drawn that it
will make additional updates with respect to those or other
forward-looking statements. Factors that could cause results to
differ materially include, but are not limited to: (1) general
economic conditions and commercial real estate market conditions,
including the recent conditions in the global markets and, in
particular, the U.S. debt markets; (2) the Company’s ability to
retain and attract transaction professionals; (3) the Company’s
ability to retain its business philosophy and partnership culture;
(4) competitive pressures; (5) the Company’s ability to integrate
and sustain its growth; and (6) other factors discussed in the
Company’s public filings, including the risk factors included in
the Company’s most recent Annual Report on Form 10-K.
Additional information concerning factors that may influence
HFF, Inc.'s financial information is discussed under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," "Quantitative and Qualitative Disclosures About Market
Risk" and "Forward-Looking Statements" in the Company’s most recent
Annual Report on Form 10-K, as well as in the Company's press
releases and other periodic filings with the Securities and
Exchange Commission. Such information and filings are available
publicly and may be obtained from the Company's web site at
www.hfflp.com or upon request from the HFF, Inc. Investor Relations
Department at investorrelations@hfflp.com.
HFF, Inc. Consolidated
Balance Sheets (dollars in thousands) (Unaudited)
December 31, December 31, 2016 2015
ASSETS Cash and cash
equivalents $ 235,582 $ 233,904 Accounts receivable, receivable
from affiliate and prepaids 16,213 13,305 Mortgage notes receivable
290,933 318,951 Property, plant and equipment, net 15,837 13,592
Deferred tax asset, net 112,557 129,877 Intangible assets, net
40,426 30,734 Other noncurrent assets 5,111
2,167 Total assets $ 716,659 $ 742,530
LIABILITIES AND STOCKHOLDERS' EQUITY Warehouse line of
credit $ 290,980 $ 318,618 Accrued compensation, accounts payable
and other current liabilities 65,553 77,376 Long-term debt
(includes current portion) 707 1,014 Deferred rent credit and other
liabilities 11,485 9,827 Payable under the tax receivable agreement
111,392 121,191 Total liabilities
480,117 528,026 Class A Common Stock, par value $0.01 per share,
175,000,000 shares authorized, 38,091,123 and 37,854,312 shares
outstanding, respectively 385 383 Additional paid in capital
132,513 117,216 Treasury stock (11,477 ) (11,378 ) Retained
earnings 115,121 108,283 Total equity
236,542 214,504 Total liabilities and
stockholders' equity $ 716,659 $ 742,530
Adjusted EBITDA
Reconciliation
The Company defines Adjusted EBITDA as net income before (i)
interest expense, (ii) income tax expense, (iii) depreciation and
amortization, (iv) stock-based compensation expense, which is a
non-cash charge, (v) income recognized on the initial recording of
mortgage servicing rights that are acquired with no initial
consideration and the inherent value of servicing rights, which are
non-cash income amounts and (vi) the increase (decrease) in payable
under the tax receivable agreement, which represents changes in a
liability recorded on the Company’s consolidated balance sheet
determined by the ongoing remeasurement of related deferred tax
assets and, therefore, can be income or expense in the Company’s
consolidated statement of income in any individual period. The
Company uses Adjusted EBITDA in its business operations to, among
other things, evaluate the performance of its business, develop
budgets and measure its performance against those budgets. The
Company also believes that analysts and investors use Adjusted
EBITDA as a supplemental measure to evaluate its overall operating
performance. However, Adjusted EBITDA has material limitations as
an analytical tool and should not be considered in isolation or as
a substitute for analysis of the Company’s results as reported
under GAAP. The Company finds Adjusted EBITDA as a useful tool to
assist in evaluating performance because it eliminates items
related to capital structure and taxes, including the Company’s tax
receivable agreement. Note that the Company classifies the interest
expense on its warehouse lines of credit as an operating expense
and, accordingly, it is not eliminated from net income in
determining Adjusted EBITDA. Some of the items that the Company has
eliminated from net income in determining Adjusted EBITDA are
significant to the Company’s business. For example,
(i) interest expense is a necessary element of the Company’s
costs and ability to generate revenue because it incurs interest
expense related to any outstanding indebtedness, (ii) payment
of income taxes is a necessary element of the Company’s costs and
(iii) depreciation and amortization are necessary elements of
the Company’s costs.
Any measure that eliminates components of the Company’s capital
structure and costs associated with the Company’s operations has
material limitations as a performance measure. In light of the
foregoing limitations, the Company does not rely solely on Adjusted
EBITDA as a performance measure and also considers its GAAP
results. Adjusted EBITDA is not a measurement of the Company’s
financial performance under GAAP and should not be considered as an
alternative to net income, operating income or any other measures
derived in accordance with GAAP. Because Adjusted EBITDA is not
calculated in the same manner by all companies, it may not be
comparable to other similarly titled measures used by other
companies.
Set forth below is an unaudited reconciliation of consolidated
net income to Adjusted EBITDA for the Company for the three and
twelve months ended December 31, 2016 and 2015:
Adjusted EBITDA for the Company is calculated
as follows: (dollars in thousands)
For the Three Months EndedDecember 31,
For the Full Year EndedDecember 31,
2016 2015 2016 2015 Net income $ 27,453 $ 34,124 $ 77,195 $
83,963 Add: Interest expense 9 12 42 47 Income tax expense 19,140
21,871 51,036 57,949 Depreciation and amortization 3,209 2,590
11,834 9,194 Stock-based compensation (a) 3,369 2,185 12,310 8,579
Valuation of mortgage servicing rights (5,428 ) (3,954 ) (19,892 )
(16,326 ) Increase (decrease) in payable under the tax receivable
agreement - - 1,025
(2,143 ) Adjusted EBITDA $ 47,752 $ 56,828 $
133,550 $ 141,263
(a) Amounts do not reflect expense
associated with the stock component of estimated incentive payouts
under the Company’s firm profit participation plan, office profit
participation plans and executive bonus plan that are anticipated
to be paid in respect of the applicable year. Such expense is
recorded as incentive compensation expense within personnel
expenses in the Company’s consolidated statements of income during
the year to which the expense relates. Following the award, if any,
of the related incentive payout, the stock component expense is
reclassified as stock compensation costs within personnel expenses.
See Note 2 to the Company’s consolidated financial statements
included in the annual report on Form 10-K for the year ended
December 31, 2016 to be filed with the Securities and Exchange
Commission for further information regarding the Company’s
accounting policies relating to its firm profit participation plan,
office profit participation plans and executive bonus plan. See
Note 3 to the Company’s consolidated financial statements included
in the annual report on Form 10-K for the year ended December 31,
2016 to be filed with the Securities and Exchange Commission for
further information regarding the Company’s accounting policies
relating to its stock compensation.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170223006537/en/
HFF, Inc.GREGORY R. CONLEY, (412) 281-8714Chief Financial
Officergconley@hfflp.comorMYRA F. MOREN, (713)
852-3500Managing Director, Investor Relationsmmoren@hfflp.com
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