HFF, Inc. Reports Third Quarter 2009 Financial and Transaction Production Results

http://www.businesswire.com/news/home/20091102006614/en

PITTSBURGH--(Business Wire)--
HFF, Inc. (NYSE:HF) reported today its financial and production volume results
for the third quarter 2009. HFF, Inc. (the Company), through its Operating
Partnerships, Holliday Fenoglio Fowler, L.P. (HFF LP) and HFF Securities L.P.
(HFF Securities and collectively HFF LP and HFF Securities are also referred to
as the Firm), is one of the leading providers of commercial real estate and
capital markets services to the U.S. commercial real estate industry based on
transaction volume and is one of the largest full-service commercial real estate
financial intermediaries in the country.

Consolidated Earnings

Third Quarter Results

The Company's third quarter 2009 revenues of $20.6 million were approximately
$4.2 million, or 25.6%, higher than its second quarter 2009 revenues of
approximately $16.4 million. Notwithstanding the third quarter 2009 revenue
increase over the second quarter 2009 revenues, the Company`s third quarter 2009
revenues of $20.6 million, when compared to the third quarter 2008 revenues of
$31.0 million, decreased $10.4 million, or 33.6%. The decrease in third quarter
2009 revenues compared to third quarter 2008 revenues is due to declines in
transactional activity which are directly attributable to the combined effects
of unprecedented losses and write-offs incurred by global financial institutions
resulting in continuing overall liquidity and credit constraints in the global
debt and equity markets combined with a continued deep recession in the U.S. and
other global economies during the third quarter and the first nine months of
2009.

The Company had operating income of $0.8 million in the reporting period
compared to an operating loss of $0.1 million for the third quarter of 2008,
representing an increase in operating income of $0.9 million despite the 33.6%
quarter over quarter decrease in revenues in 2009 compared to 2008. Offsetting
the decrease in revenues was a reduction in total operating expenses of $11.4
million during the third quarter of 2009 compared to the same period of the
prior year. The decreases in operating costs were driven by the variable cost
categories, which are directly tied to the lower capital markets services
revenues, as well as the implementation of cost-savings initiatives taken in the
fourth quarter 2008 and the second quarter 2009, which also resulted in a
comparable decrease in fixed costs, and finally through the Company`s continued
aggressive management of discretionary spending.

Interest and other income, net, decreased $0.9 million, or 50.2%, primarily due
to a decrease in income recognized on mortgage servicing rights and by lower
interest earned on the Company`s cash balances due to decreased interest rates
as compared to the same period in the prior year.

The Company recorded income tax expense of $2.1 million in the third quarter of
2009, compared to income tax expense of $0.4 million in the third quarter of
2008. The income tax expense in the third quarter of 2009 is primarily the
result of a change in the tax rate used to measure the deferred tax assets.

The Company reported a net loss of $39,000 for the quarter ended September 30,
2009 (after an adjustment to the third quarter results of $1.3 million to
reflect the impact of the noncontrolling interest of HFF Holdings LLC (Holdings)
in the Operating Partnerships), compared with net income of $0.3 million for the
same period last year (after adjustments to the results for the quarter ended
September 30, 2008 of approximately $1.3 million to reflect the impact of the
noncontrolling interest of Holdings in the Operating Partnerships). Net income
for the quarter ended September 30, 2009 was $0.00 per diluted share.

EBITDA (a non-GAAP measure whose reconciliation to net loss can be found within
this release) was $4.3 million for the quarter ended September 30, 2009, an
increase of approximately $1.2 million as compared to $3.1 million in the same
period in the prior year.

Nine Month Results

The Company reported revenues of $50.3 million for the nine months ended
September 30, 2009, a decrease of $56.5 million, or 52.9%, compared to the same
period last year. The Company continued to experience a decrease in production
volumes and related capital markets services revenues from the same period in
the prior year although, as previously stated, the Company`s third quarter 2009
revenues were approximately $4.2 million or 25.6% higher than our second quarter
2009 revenues. The year over year decreases in third quarter revenues were
caused, in large measure, by the continuing and significant downturn in debt and
investment sales transaction activity in the U.S. commercial real estate markets
as evidenced by data from Real Capital Analytics (RCA) and the Mortgage Bankers
Association (the MBA). RCA`s data reports a 74% overall decline of sales
activity in the U.S. through the third quarter of 2009 compared to the same
period in 2008, which is on top of the 71% decline in investment sales activity
for full year 2008 when compared to the full year period in 2007. Similarly, the
MBA reported a 62% decline in loan origination volume during the first half of
2009 compared to the same period in 2008 (the MBA`s data for the third quarter
of 2009 is not currently available, and the MBA`s data through the end of the
second quarter is its most current available data). This is in addition to the
full year 2008 decline in loan originations of 65% compared to full year 2007.

The Company reported an operating loss of $7.1 million for the nine month period
ended September 30, 2009, compared to operating income of $1.8 million for the
nine months ended September 30, 2008, which represents a decrease in operating
income of $8.9 million. This decrease in operating income for the nine month
period is primarily attributable to the significant decrease in production
volumes and related capital markets services revenues from the prior year, for
the reasons stated above. Partially offsetting this decrease in revenues of
approximately $56.5 million is a reduction in total operating expenses of
approximately $47.6 million during the first nine months of 2009 compared to the
same period of the prior year. This reduction in operating expenses is a result
of a decrease in cost of services of approximately $36.3 million, which is
primarily due to the decrease in commissions and other incentive compensation
directly related to the lower capital markets services revenues, and a decrease
in operating, administrative and other expenses (including depreciation and
amortization) of $11.3 million, which is primarily related to a reduction in
other performance-based accruals and cost reductions due to the cost savings
initiatives previously mentioned and through the continued aggressive management
of the Company`s discretionary spending.

The income (loss) before income taxes for the first nine months of 2009 and 2008
included income of $1.7 million and $3.9 million, respectively, related to a
decrease in the estimated amount due to Holdings under a tax receivable
agreement (see Note 2).

Income tax expense for the nine months ended September 30, 2009 was
approximately $1.1 million, compared to approximately $4.8 million of income tax
expense for the same period in 2008. This decrease is primarily attributable to
lower pre-tax book income, which is partially offset by the effect of changes in
the rates used to measure the deferred tax assets. The largest component of the
deferred tax assets relates to the tax basis step up resulting from the
reorganization transactions completed in 2007 in connection with the Company`s
initial public offering. The effect of changes in the rates used to measure the
deferred tax assets on income tax expense for the nine months ended September
30, 2009 and 2008 was approximately $2.0 million and $4.6 million, respectively.
This additional tax expense due to the remeasurement of the deferred tax assets
resulted in a higher effective tax rate. During the nine month periods ended
September 30, 2009 and 2008, this tax expense and its impact on net income was
partially offset by a decrease of $1.7 million and $3.9 million, respectively,
in the payable under the tax receivable agreement (as shown on the consolidated
operating results before the line item "income (loss) before income taxes"). The
effect of changes in the rates used to measure the deferred tax assets and the
corresponding effect of the related remeasurement of the payable under the tax
receivable agreement resulted in an overall net decrease to net income of
approximately $0.3 million, or an estimated $0.02 per share on a fully diluted
basis for the nine month period ended September 30, 2009 and approximately $0.7
million, or an estimated $0.04 per share on a fully diluted bases for the nine
month period ended September 30, 2008.

The Company reported a net loss of $2.3 million (after an adjustment to the nine
months results of $1.2 million to reflect the impact of the noncontrolling
ownership interest of Holdings in the Operating Partnerships) for the nine month
period ended September 30, 2009, compared with net income of $0.4 million (after
an adjustment to the results for the nine month period ended September 30, 2008
of $4.1 million to reflect the impact of the noncontrolling ownership interest
of Holdings in the Operating Partnerships) for the same period last year. Net
loss attributable to controlling interest for the nine month period ended
September 30, 2009 was $2.3 million, or $0.14 per diluted share.

EBITDA was $0.5 million for the nine months ended September 30, 2009, a decrease
of $11.5 million as compared to the same period in the prior year.

HFF, Inc.
Consolidated Operating Results
(dollars in thousands, except per share data)
(Unaudited)

For the Three Months Ended Sept. 30, For the Nine Months Ended Sept. 30,
2009 2008 2009 2008

Revenue $ 20,612 $ 31,034 $ 50,273 $ 106,803

Operating expenses:
Cost of services 12,185 20,014 33,069 69,365
Operating, administrative and other 6,715 10,007 21,683 33,061
Depreciation and amortization 872 1,111 2,617 2,587
Total expenses 19,772 31,132 57,369 105,013

Operating income (loss) 840 (98 ) (7,096 ) 1,790

Interest and other income, net 920 1,849 3,322 3,775
Interest expense (51 ) (4 ) (373 ) (15 )
Decrease in payable under the tax receivable agreement (2) 1,694 282 1,694 3,862
Income (loss) before income taxes 3,403 2,029 (2,453 ) 9,412

Income tax expense 2,114 369 1,073 4,833

Net income (loss) 1,289 1,660 (3,526 ) 4,579

Net income (loss) attributable to noncontrolling interest (1) 1,328 1,335 (1,244 ) 4,149
Net (loss) income attributable to controlling interest $ (39 ) $ 325 $ (2,282 ) $ 430

Earnings per share - basic $ (0.00 ) $ 0.02 $ (0.14 ) $ 0.03
Earnings per share - diluted $ (0.00 ) $ 0.02 $ (0.14 ) $ 0.03

EBITDA $ 4,326 $ 3,144 $ 537 $ 12,014

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.

Unaudited Production Volume by Platform

(dollars in thousands)
For the Three Months Ended Sept 30,
By Platform 2009 2008
Production Volume # of Transactions Production Volume # of Transactions
Debt Placement $ 1,542,112 79 $ 3,210,673 122
Investment Sales 824,802 20 1,113,440 25
Structured Finance 49,901 7 275,848 15
Loan Sales 66,826 7 374,342 5
Total Transaction Volume $ 2,483,641 113 $ 4,974,303 167
Average Transaction Size $ 21,979 $ 29,786

Fund/Loan Balance # of Loans Fund/Loan Balance # of Loans
Private Equity Discretionary Funds $ 1,908,000 $ 1,943,000
Loan Servicing Portfolio Balance $ 24,681,756 2,045 $ 24,344,099 2,046

Third Quarter Production Volume Results

As reported above, beginning in 2008 and through the first nine months of 2009,
the U.S. commercial real estate sector experienced a significant decrease in the
number of transactions due to adverse conditions in the global and domestic
capital markets combined with the continued deep economic recession in much of
the world, especially in the U.S. These conditions continued to have a
significant and adverse impact on the Company`s production volumes and related
capital markets services revenues for the third quarter 2009 as well as for the
first nine months of 2009.

The Company reported production volumes for the third quarter 2009 which totaled
approximately $2.5 billion on 113 transactions, representing a 50.1% decrease in
production volume and a 32.3% decrease in the number of transactions when
compared to third quarter 2008 production of approximately $5.0 billion on 167
transactions. The average transaction size for the third quarter 2009 was $22.0
million, approximately 26.2% lower than the comparable figure of $29.8 million
for the third quarter 2008.

* Debt Placement production volume was approximately $1.5 billion in the third
quarter of 2009, representing a 52.0% decrease from third quarter 2008 volume of
approximately $3.2 billion.
* Investment Sales production volume was approximately $0.8 billion in the third
quarter of 2009, representing a 25.9% decrease from third quarter 2008 volume of
$1.1 billion.
* Structured Finance production volume was approximately $49.9 million in the
third quarter of 2009, a decrease of 81.9% from the third quarter 2008 volume of
approximately $275.8 million.
* Loan Sales production volume was approximately $66.8 million for the third
quarter 2009, a decrease of 82.1% from the third quarter 2008 volume of $374.3
million.
* At the end of third quarter 2009 and third quarter 2008, the amount of active
private equity discretionary fund transactions on which HFF Securities had been
engaged and might recognize additional future revenue was approximately $1.9
billion.
* The principal balance of the Company`s Loan Servicing portfolio increased
approximately 1.4% to approximately $24.7 billion at the end of the third
quarter 2009 from approximately $24.3 billion at the end of the third quarter
2008.

Nine Month Production Volume

Production volumes for the nine months ended September 30, 2009 totaled more
than $5.2 billion on 256 transactions, representing a 68.3% decrease in
production volume and a 51.2% decrease in the number of transactions when
compared to the production volumes of approximately $16.5 billion on 525
transactions for the comparable period in 2008. The average transaction size for
the nine months ended September 30, 2009 was $20.4 million, representing a 35.1%
decrease from the comparable figure of $31.4 million in the first nine months of
2008.

(dollars in thousands)
For the Nine Months Ended Sept 30,
By Platform 2009 2008
Production Volume # of Transactions Production Volume # of Transactions
Debt Placement $ 3,654,459 190 $ 10,165,152 380
Investment Sales $ 1,300,354 38 $ 4,724,554 94
Structured Finance $ 141,572 15 $ 671,013 39
Loan Sales $ 129,074 13 $ 941,065 12
Total Transaction Volume $ 5,225,459 256 $ 16,501,784 525
Average Transaction Size $ 20,412 $ 31,432

Fund/Loan Balance # of Loans Fund/Loan Balance # of Loans
Private Equity Discretionary Funds $ 1,908,000 $ 1,943,000
Loan Servicing Portfolio Balance $ 24,681,756 2,045 $ 24,344,099 2,046

Business Comments

As a result of the cost-saving initiatives undertaken by the Company, primarily
in the fourth quarter of 2008 and second quarter 2009, in response to the
above-referenced adverse conditions, total employment has been reduced 20.4%
from 490 on September 30, 2008 to 390 as of September 30, 2009, which represents
a 9.9% net decrease from the year end 2008 employment level of 433. The
Company`s high-water mark in terms of employment was reached in the second
quarter 2008 when the Company`s employment reached 491 employees.
Notwithstanding the fact total employment decreased 20.4% from September 30,
2008 to September 30, 2009, the number of transaction professionals declined by
only 4.0% over the same period as the Company employed 167 transaction
professionals as of September 30, 2009 compared to 174 transaction professionals
as of September 30, 2008.

"Our third quarter and nine month results continued to be negatively impacted by
the significant decrease in transactional activity caused in large measure by
the continuing adverse and unprecedented conditions in the global capital
markets as well as the continued deep economic recession in the U.S. and in a
majority of other global economies and their combined impact on the property
level fundamentals in the U.S. commercial real estate markets. We believe these
difficult economic conditions will continue throughout the remainder of 2009 and
into 2010 as well. Recent statements from the Federal Reserve and the Treasury
indicate that the recession in the U.S. may have technically ended in the third
quarter of 2009, or will end by the fourth quarter 2009; however, both groups
have stated the job losses experienced in the U.S. since the start of the
recession are likewise forecasted to continue throughout the remainder of 2009
and likely well into 2010. Due to the lag effect of these significant job
losses, forecasted continued high unemployment rates and a sluggish recessionary
economy on the U.S. commercial real estate sector, we believe that property
level fundamentals will be negatively impacted well into 2011 and possibly 2012
which we believe will lead to additional distressed situations and ultimately a
pick-up in transaction activity from the depressed levels in 2008 and 2009,"
said John H. Pelusi, Jr., HFF, Inc.`s chief executive officer.

"As noted earlier and in prior releases, to operate our business more
efficiently we have implemented a number of cost-saving initiatives including
significant reductions or elimination of salaries and positions to more
appropriately align our resources with these challenging economic conditions;
however, we are also fully prepared to take advantage of any and all strategic
opportunities to grow our offices and/or lines of business as evidenced by
recent key additions to our Firm, such as the Leggett and Rohm Investment Sales
Team in our San Francisco office and the Lafollette Multi-Housing Investment
Sales Team in our Houston office," said Mr. Pelusi.

"Staffed with 167 transaction professionals, with an average tenure of more than
16 years in the real estate industry and more than eight years' tenure with the
Company, the Firm is very focused on all opportunities to generate revenue, not
only from our existing lines of business but also from the unique opportunities
that present themselves when there are significant dislocations in markets, such
as those we are experiencing today. Our Special Asset Group, which consists of
experienced debt, structured finance and investment sales professionals, was
formally organized in 2008 to focus on distressed debt and REO opportunities.
This group has been actively calling on local, regional and national financial
institutions, life insurance companies, special servicers as well as the federal
agencies. We expect these efforts to generate revenues in the future as these
institutions will likely be forced to deal with assets that are or will be
adversely affected by declining property level fundamentals resulting in some
type of transaction activity. Our loan sales and loan sale advisory business for
both performing and non-performing debt has actively been working with numerous
financial institutions to assist them in taking advantage of unique
opportunities to reposition and enhance their existing portfolios or to dispose
of problem loans. Our experienced multi-housing debt placement and investment
sales transaction professionals have been actively assisting our multi-housing
clients navigate through and take advantage of the resiliency of the Agencies
(Freddie Mac and FNMA - HFF accesses both Agency lenders) who have continued to
provide full 70% to 80% loan to value mortgages to this sector of the commercial
real estate market at incredibly attractive debt yields despite the lack of
liquidity seen for other property types. Our investment banking, capital market
and real estate advisory businesses have also been very active in advising new
and existing clients who are seeking advice relative to their existing
portfolios and their unique challenges. Our loan servicing line of business has
continued to grow despite the decline in the national debt placement transaction
activity primarily due to the strong performance of our Agency debt business and
secondarily through the continued marketing of this service to both the
traditional and non-traditional potential users of this service," stated Mr.
Pelusi.

"Many of our existing and potential new clients are faced with extraordinarily
difficult situations and/or potential opportunities given the current stress in
the capital markets as well as deteriorating property level fundamentals in the
commercial real estate sector brought on by the recession. We are fully focused
on finding the best real estate and capital markets solution for each of our
client`s respective individual needs. We are grateful for our existing and new
clients who continue to show their confidence in our ability to create and
execute viable solutions for them, especially in these very difficult and
challenging conditions. We would also like to thank each of our associates who
continue to demonstrate their ability to quickly adapt and innovate in this
challenging environment by sharing their collective knowledge from each
transaction with their fellow associates to provide superior value-added
services to our clients," added Mr. Pelusi.

Non-GAAP Financial Measures

This earnings press release contains a non-GAAP measure, EBITDA, which as
calculated by the Company is not necessarily comparable to similarly titled
measures reported by other companies. Additionally, 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 EBITDA and a reconciliation of
EBITDA with net loss, see the section of this press release titled "EBITDA
Reconciliation."

Earnings Conference Call

The Company`s management will hold a conference call to discuss third quarter
2009 financial results on Tuesday, November 3rd, at 8:30 a.m. Eastern Time. To
listen, participants should dial 866-730-5771 in the U.S. and 857-350-1595 for
international callers approximately 10 minutes prior to the start of the call
and enter participant code 13430350. A replay will become available after 11:30
a.m. Eastern Time on November 3rd and will continue through December 3, 2009 by
dialing 888-286-8010 (U.S. callers) and 617-801-6888 (international callers) and
entering participant code 12639940.

The live broadcast of the Company`s quarterly conference call will be available
online on the Company`s website at www.hfflp.com on Tuesday, November 3rd,
beginning at 8:30 a.m. Eastern Time. The broadcast will be available on the
Company`s website for one month. 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. and HFF Securities
L.P., the Company operates out of 17 offices nationwide and is one of the
leading providers of commercial real estate and capital markets services, by
transaction volume, to the U.S. commercial real estate industry. The Company
offers clients a fully integrated national capital markets platform including
debt placement, investment sales, structured finance, private equity, 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
the Company`s 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
current 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 and other risks associated with its transformation to a
public company; (4) the deteriorating business of certain of the Company`s
clients; (5) competitive pressures; (6) risks related to our organizational
structure; and (7) 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)

September 30, December 31,
2009 2008
ASSETS
Cash, cash equivalents and restricted cash $ 35,547 $ 37,218
Accounts receivable and prepaids 4,303 8,592
Mortgage notes receivable 11,224 16,300
Property, plant and equipment, net 4,433 5,294
Deferred tax asset, net 123,635 124,168
Intangible assets, net 11,341 11,361
Other noncurrent assets 432 459
$ 190,915 $ 203,392

LIABILITIES AND STOCKHOLDERS EQUITY
Warehouse line of credit $ 11,224 $ 16,300
Accrued compensation, accounts payable, payable to affiliate and other current liabilities 8,655 9,115
Long-term debt (includes current portion) 258 151
Deferred rent credit and other liabilities 3,638 3,913
Payable under the tax receivable agreement (2) 104,336 108,287
Total liabilities 128,111 137,766
Class A Common Stock, par value $0.01 per share, 175,000,000 shares authorized, 16,538,830 and 16,446,480 shares outstanding, respectively 165 164
Class B Common Stock, par value $0.01 per share, 1 share authorized, 1 share issued and outstanding - -
Additional paid in capital 27,119 26,206
Treasury stock (173 ) -
Retained earnings 10,474 12,756
Total stockholders' equity 37,585 39,126
Noncontrolling interest (1) 25,219 26,500
Total equity 62,804 65,626
$ 190,915 $ 203,392

Notes

(1) As of December 31, 2008, the Company`s balance sheet reflected a minority
interest balance of $26.5 million which represented Holdings approximate 55%
ownership interest in the Operating Partnerships. Effective January 1, 2009, the
Company adopted the provisions of the Financial Accounting Standards Board
("FASB") Accounting Standard Codification ("ASC") 810, Consolidation (formerly
SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an
amendment of ARB No. 51). FASB ASC 810-10-45-16 states that minority interests
are to be characterized as "noncontrolling interests" and classified as a
component of equity. The noncontrolling interest adjustment on the consolidated
financials statements of HFF, Inc. relates to the ownership interest of Holdings
in the Operating Partnerships as a result of the initial public offering. As the
sole stockholder of Holliday GP (the sole general partner of the Operating
Partnerships), the Company operates and controls all of the business and affairs
of the Operating Partnerships. The Company consolidates the financial results of
the Operating Partnerships, and the ownership interest of Holdings in the
Operating Partnerships is reflected as a noncontrolling interest in HFF, Inc`s
consolidated financial statements. The noncontrolling interest presented in the
Company`s Consolidated Operating Results is calculated based on the income from
the Operating Partnerships.

(2) During the three and nine month periods ended September 30, 2009 and 2008,
the decrease in payable under the tax receivable agreement on the Consolidated
Operating Results statement of HFF, Inc. reflects the decrease in the estimated
tax benefits owed to Holdings under the tax receivable agreement between the
Company and Holdings. This decrease in tax benefits owed to Holdings reflects
the remeasurement of the related deferred tax asset. In addition, during the
third quarter 2009, HFF, Inc. made a payment of $2.3 million to Holdings under
the tax receivable agreement.

EBITDA Reconciliation

The Company defines EBITDA as net income (loss) before interest expense, income
taxes, depreciation and amortization and income reported to the noncontrolling
interest. The Company uses 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 EBITDA as a supplemental measure to evaluate its overall
operating performance. However, 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 EBITDA as a
useful tool to assist in evaluating performance because it eliminates items
related to capital structure and taxes. Note that the Company classifies the
interest on the Company`s warehouse lines of credit as an operating expense and,
accordingly, it is not eliminated from net income in determining EBITDA. In
addition, note that the Company includes in net income, the income upon the
initial recognition of mortgage servicing rights and, accordingly, it is
included in net income in determining EBITDA. The items that the Company has
eliminated from net income in determining EBITDA are interest expense, income
taxes, depreciation of fixed assets, amortization of intangible assets, and
noncontrolling interest. Some of these eliminated items 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 carrying significant amounts of fixed assets on its balance sheet has
material limitations as a performance measure. In light of the foregoing
limitations, the Company does not rely solely on EBITDA as a performance measure
but also considers its GAAP results. 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 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 (loss)
to EBITDA for the Company for the three and nine months ended September 30, 2009
and 2008:

EBITDA for the Company is calculated as follows:
(dollars in thousands)

For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2009 2008 2009 2008

Net (loss) income $ (39 ) $ 325 $ (2,282 ) $ 430
Add:
Interest expense 51 4 373 15
Income tax expense 2,114 369 1,073 4,833
Depreciation and amortization 872 1,111 2,617 2,587
Noncontrolling interest 1,328 1,335 (1,244 ) 4,149
EBITDA $ 4,326 $ 3,144 $ 537 $ 12,014

HFF, Inc.
John H. Pelusi Jr., 412-281-8714
Chief Executive Officer
jpelusi@hfflp.com
Gregory R. Conley, 412-281-8714
Chief Financial Officer
gconley@hfflp.com
Myra F. Moren, 713-852-3500
Director, Investor Relations
mmoren@hfflp.com

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