PITTSBURGH--(Business Wire)--
HFF, Inc. (NYSE:HF) reported today its financial and production
volume results for the second quarter 2008. HFF, Inc. (the Company),
through its Operating Partnerships, Holliday Fenoglio Fowler, L.P.
(HFF LP) and HFF Securities L.P. (HFF Securities), is a leading
provider 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
Second Quarter Highlights
In the face of the continuing difficult and challenging credit and
liquidity conditions in the global capital markets, especially in the
U.S. capital markets, as well as a weakening economy, the Company
generated second quarter total revenue of $43.6 million compared to
$79.8 million in the second quarter of 2007, a decrease of $36.2
million, or 45.4%. The Company reported operating income of $3.4
million for the second quarter of 2008 compared to operating income of
$19.4 million in the comparable period of 2007, a decrease of
approximately $16.0 million, or 82.3%. This decrease in operating
income is attributable to the decrease in production volumes and
related revenue from the prior year's quarter in several of the
Company's capital markets services platforms. Offsetting this decrease
in revenue of approximately $36.2 million is a reduction in total
operating expenses of approximately $20.2 million in the second
quarter 2008 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 $17.3 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 $2.9 million, which is primarily
related to a reduction in other performance based accruals and
depreciation and amortization.
Income tax expense for the second quarter 2008 was approximately
$0.4 million, compared to $3.8 million of income tax expense for the
second quarter 2007. This decrease is primarily attributable to the
decrease in operating income as discussed above.
The Company reported net income for the second quarter 2008 of
approximately $1.1 million (after an adjustment to the three months
results of $2.9 million to reflect the impact of the minority
ownership interest of HFF Holdings, LLC (Holdings) in the Operating
Partnerships) compared with net income of $5.1 million (after an
adjustment to the three months results of $11.5 million to reflect the
impact of the minority ownership interest of Holdings in the Operating
Partnerships) for the same period in 2007. Earnings per diluted share
were $0.06 in the second quarter of 2008 compared to $0.31 in the
second quarter of 2007.
EBITDA for the second quarter 2008 was approximately $5.1 million,
a decrease of $16.2 million or 76.1% compared to the same period last
year. This decrease is primarily attributable to the decrease in our
operating income as discussed above.
Six Month Results
The Company reported revenues of $75.8 million for the six months
ended June 30, 2008, a decrease of $59.6 million, or 44.0%, compared
to the same period last year. Operating income was $1.9 million
compared to $27.1 million for the six months ended June 30, 2007,
representing a decrease of $25.2 million, or 93.0%. This decrease in
operating income is attributable to the decrease in production volumes
and related revenue from the prior year in several of the Company's
capital markets services platforms. Offsetting this decrease in
revenue of approximately $59.6 million is a reduction in total
operating expenses of approximately $34.4 million during the first six
months of 2008 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 $28.3 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 $6.0 million, which is primarily
related to a reduction in other performance based accruals and
depreciation and amortization. The Company reported net income of $0.1
million (after an adjustment to the six months results of $2.8 million
to reflect the impact of the minority ownership interest of Holdings
in the Operating Partnerships) for the six month period ended June 30,
2008, compared with net income of $6.4 million (after adjustments to
the results for the six month period ended June 30, 2007 of $15.4
million to reflect the impact of the minority ownership interest of
Holdings in the Operating Partnerships following the Company's
offering on January 30, 2007 and $1.9 million to reflect the net
income earned prior to the IPO and reorganization) for the same period
last year. Net income attributable to Class A common stockholders for
the six month period ended June 30, 2008 was $0.1 million, or $0.01
per diluted share.
EBITDA was $5.3 million for the six months ended June 30, 2008, a
decrease of $25.6 million or 82.9% compared to the same period in the
prior year.
The financial results presented in this earnings press release
reflect the consolidated financial position and results of operations
of Holliday GP Corp., HFF, Inc.'s wholly-owned subsidiary and sole
general partner of each of the Operating Partnerships (Holliday GP),
HFF Partnership Holdings LLC, the Operating Partnerships, and HFF,
Inc. for all periods presented. The minority interest relates to the
ownership interests of Holdings in the Operating Partnerships
following the initial public offering. For a discussion of the
adjustments relating to the reorganization transactions and the
initial public offering, see Note (1) to the financial statements
included in this earnings press release. For more information
regarding the transactions associated with the initial public
offering, please refer to the Company's prospectus filed with the
Securities and Exchange Commission on January 31, 2007.
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HFF, Inc.
Consolidated Operating Results (1)
(dollars in thousands, except per share data)
(Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- ------------------
2008 2007 2008 2007
---------- --------- -------- ---------
Revenue $ 43,589 $ 79,786 $75,769 $135,331
Operating expenses:
Cost of services 27,041 44,355 49,351 77,688
Operating, administrative
and other 12,380 15,174 23,054 28,652
Depreciation and
amortization 742 878 1,476 1,898
---------- --------- -------- ---------
Total expenses 40,163 60,407 73,881 108,238
Operating income 3,426 19,379 1,888 27,093
Interest and other income, net 920 994 1,926 1,916
Interest expense (5) (6) (11) (400)
---------- --------- -------- ---------
Income before income taxes and
minority interest 4,341 20,367 3,803 28,609
Income tax expense 361 3,796 884 4,892
---------- --------- -------- ---------
Income before minority
interest 3,980 16,571 2,919 23,717
Minority interest (2) 2,912 11,513 2,814 15,421
---------- --------- -------- ---------
Net income $ 1,068 $ 5,058 $ 105 $ 8,296
========== ========= ======== =========
Less net income earned prior
to IPO and reorganization - - - (1,893)
---------- --------- -------- ---------
Net income available to
stockholders $ 1,068 $ 5,058 $ 105 $ 6,403
========== ========= ======== =========
Earnings per share - basic $ 0.06 $ 0.31 $ 0.01 $ 0.48
Earnings per share - diluted $ 0.06 $ 0.31 $ 0.01 $ 0.48
---------- --------- -------- ---------
EBITDA $ 5,088 $ 21,251 $ 5,290 $ 30,907
========== ========= ======== =========
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Production Volume and Loan Servicing Summary
The reported volume data presented below is provided for
informational purposes only, is unaudited and is estimated based on
the Company's internal database.
Second Quarter Production Volume Highlights
The second quarter of 2008 was again impacted by the continuing
and further deterioration in credit, liquidity and investor confidence
in the global capital markets including those related to the U.S.
commercial real estate sector. As has been the case in past quarters,
these conditions have caused a number of capital sources to cease or
significantly curtail their lending in several of their lending
platforms, especially in the U.S. commercial real estate capital
markets, which has had a significant adverse impact on the Company's
production volume for the second quarter 2008. Production volume for
the second quarter totaled approximately $7.5 billion on 192
transactions, compared to second quarter 2007 production volume of
approximately $14.3 billion on 344 transactions, which is a 47.5%
decrease in production volume and a 44.2% decrease in the number of
transactions.
-- Debt Placement production volume was approximately $4.6
billion in the second quarter of 2008, representing a 42.4%
decrease from second quarter 2007 volume of approximately $8.0
billion.
-- Investment Sales production volume was approximately $2.1
billion in the second quarter of 2008, representing a 61.7%
decrease from second quarter 2007 volume of approximately $5.6
billion.
-- Structured Finance production volume was approximately $178.0
million in the second quarter of 2008, representing a 59.4%
decrease from the second quarter 2007 volume of approximately
$438.2 million.
-- Note Sales and Note Sale Advisory Services production volume
was approximately $547.4 million for the second quarter 2008,
representing an increase of 149.2% from second quarter 2007
volume of more than $219.7 million.
-- The amount of active private equity discretionary fund
transactions at the end of the second quarter 2008 on which
HFF Securities has been engaged and may recognize additional
future revenue is approximately $2.0 billion compared to
approximately $1.9 billion at the end of second quarter of
2007, representing an 8.3% increase.
-- The principal balance of HFF's Loan Servicing portfolio
increased 14.3% to approximately $23.7 billion at the end of
the second quarter 2008 from approximately $20.8 billion at
the end of the second quarter 2007.
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Unaudited Production Volume by Platform
----------------------------------------------------------------------
(dollars in thousands)
For the Three Months Ended June 30,
-------------------------------------------------
By Platform 2008 2007
--------------------------------------------- ------------------------
Production # of Production # of
Volume Transactions Volume Transactions
----------- ------------ ----------- ------------
Debt Placement $ 4,625,740 135 $ 8,029,316 258
Investment Sales 2,147,884 38 5,601,248 55
Structured Finance 178,033 13 438,150 25
Note Sales & Note
Sale Advisory 547,440 6 219,709 6
------------------------ ------------------------
Total Transaction
Volume $ 7,499,097 192 $14,288,423 344
======================== ========================
Average Transaction
Size $ 39,058 $ 41,536
Fund/Loan # of Loans Fund/Loan # of Loans
Balance Balance
----------- ------------ ----------- ------------
Private Equity
Discretionary Funds $ 2,020,500 $ 1,865,500
Loan Servicing
Portfolio Balance $23,745,505 2,040 $20,778,685 1,885
*T
Six Month Production Volume
Production volumes for the six months ended June 30, 2008 totaled
more than $11.5 billion on 358 transactions, representing a 52.8%
decrease in production volume and a 47.4% decrease in the number of
transactions when compared to the production volumes of approximately
$24.4 billion on 680 transactions for the comparable period in 2007.
The average transaction size for the six months ended June 30, 2008
was $32.2 million, representing a 10.3% decrease from the comparable
figure of $35.9 million in the first six months of 2007.
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(dollars in thousands)
For the Six Months Ended June 30,
-------------------------------------------------
By Platform 2008 2007
--------------------------------------------- ------------------------
Production # of Production # of
Volume Transactions Volume Transactions
----------- ------------ ----------- ------------
Debt Placement $ 6,961,329 259 $13,373,480 520
Investment Sales 3,611,114 69 9,888,586 102
Structured Finance 388,315 23 814,558 51
Note Sales & Note
Sale Advisory 566,723 7 336,920 7
------------------------ ------------------------
Total Transaction
Volume $11,527,481 358 $24,413,544 680
======================== ========================
Average Transaction
Size $ 32,200 $ 35,902
Fund/Loan # of Loans Fund/Loan # of Loans
Balance Balance
----------- ------------ ----------- ------------
Private Equity
Discretionary Funds $ 2,020,500 $ 1,865,500
Loan Servicing
Portfolio Balance $23,745,505 2,040 $20,778,685 1,885
*T
Business Expansion Highlights
Pursuant to its strategic growth initiatives, HFF continued to
expand during second quarter 2008, with the addition of 6 transaction
professionals and 4 production support personnel, bringing total
employment to 491, which is a 9.1% net increase from the second
quarter 2007 employment level of 450.
"Our second quarter and year-to-date results were clearly impacted
by the continuing adverse conditions in the global and domestic
capital markets, which have seen a continuing and unprecedented level
of write-offs and loan loss reserves by both domestic and
international financial institutions, as well as a continued weakening
of the U.S. economy at the consumer level, which is now starting to
impact other parts of the economy," said John H. Pelusi, Jr., HFF,
Inc.'s chief executive officer. "As we have said throughout this
period of uncertainty and volatility, we will continue to manage and
grow through these unsettled market conditions. We remain focused on
our strategic business expansion plan to position the Company for the
future by taking advantage of our strong balance sheet, our solid cash
and liquidity position, and our fully-integrated capital markets
services platform by adding high-quality production personnel through
both organic advancements and external recruitment."
"We would like to express our appreciation to our clients who
continued to show their confidence in our ability to perform
value-added services for their commercial real estate and capital
markets needs, as evidenced by the nearly $12 billion in consummated
transaction volume during the first six months in these very demanding
and challenging times. We would like to also thank each of our
associates who have consistently demonstrated their ability to quickly
adapt to 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 Income, see the section of this press release titled
"EBITDA Reconciliation."
Earnings Conference Call
The Company's management will hold a conference call to discuss
second quarter 2008 financial results on Tuesday, August 5th, at 8:30
a.m. Eastern Time. To listen, participants should dial 866-202-3109 in
the U.S. and 617-213-8844 for international callers approximately 10
minutes prior to the start of the call and enter participant code
61728489. A replay will become available after 10:30 a.m. Eastern Time
on August 5th and will continue through September 5, 2008, by dialing
888-286-8010 (U.S. callers) and 617-801-6888 (international callers)
and entering participant code 96009024.
The live broadcast of the Company's quarterly conference call will
be available online on its website at www.hfflp.com on Tuesday, August
5th, 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 18 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, note sales and note sale advisory services 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 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 our transformation to a public company;
(4) competitive pressures; (5) risks related to our organizational
structure; and (6) other factors discussed in our 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.
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HFF, Inc.
Consolidated Balance Sheets (1)
(dollars in thousands)
(Unaudited)
June 30, December 31,
2008 2007
-------------- ------------
ASSETS
Cash, cash equivalents and restricted cash $ 31,016 $ 44,109
Investments 9,920 -
Accounts receivable, receivable from
affiliate and prepaids 12,347 6,742
Mortgage notes receivable 101,015 41,000
Property, plant and equipment, net 5,997 6,789
Deferred tax asset, net 123,900 131,752
Intangible assets, net 10,139 9,481
Other noncurrent assets 518 603
-------------- ------------
$ 294,852 $ 240,476
============== ============
LIABILITIES AND STOCKHOLDERS EQUITY
Warehouse line of credit $ 101,015 $ 41,000
Accrued compensation, accounts payable and
other current liabilities 12,585 17,379
Long-term debt (includes current portion) 194 189
Deferred rent credit and other liabilities 4,233 4,674
Payable to minority interest holder under
tax receivable agreement 113,826 117,406
-------------- ------------
Total liabilities 231,853 180,648
Minority interest 24,542 21,784
Class A Common Stock, par value $0.01 per
share, 175,000,000 shares authorized,
16,446,480 and 16,445,000 shares
outstanding, respectively 164 164
Class B Common Stock, par value $0.01 per
share, 1 share authorized, 1 share issued
and outstanding - -
Additional paid in capital 25,666 25,353
Accumulated other comprehensive income, net
of taxes (5) -
Retained earnings 12,632 12,527
-------------- ------------
Total stockholders equity 38,457 38,044
-------------- ------------
$ 294,852 $ 240,476
============== ============
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Notes
(1) The Company's consolidated operating results and balance
sheets for all periods presented herein give effect to the
reorganization transactions made in connection with its initial public
offering. In connection with the initial public offering consummated
on January 30, 2007, the purchase of shares of Holliday GP and
partnership units in each of the Operating Partnerships are treated as
a reorganization of entities under common control for financial
reporting purposes. Accordingly, the net assets of Holdings purchased
by the Company are reported in the consolidated financial statements
of HFF, Inc. at Holdings' historical cost. For more information
regarding the transactions associated with the initial public
offering, please refer to the Company's prospectus filed with the
Securities and Exchange Commission on January 31, 2007.
(2) The minority 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 minority interest in HFF,
Inc's consolidated financial statements. The minority interest
presented in the Company's Consolidated Operating Results is
calculated based on the income from the Operating Partnerships. In
connection with the reorganization transactions, the initial public
offering on January 30, 2007, and the underwriters' exercise of their
option to purchase an additional 2,145,000 shares of Class A common
stock on February 22, 2007, the first quarter 2007 is segregated into
three distinct periods representing different ownership interests in
the Operating Partnerships by HFF, Inc. and Holdings during each of
these three periods.
The table below sets forth the minority interest reported on the
Company's Consolidated Operating Results for the three and six months
ended June 30, 2008 and June 30, 2007:
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Minority Interest Calculation
(dollars in thousands)
Period Period Period Three Three
1/1/07 1/31/07 2/22/07 months months
through through through ended ended
1/30/07 2/21/07 3/31/07 3/31/07 6/30/07
------------------------------------------------
Net income (loss)
from operating
partnerships $1,922 $ 1,683 $ 5,206 $8,811 $20,814
Minority interest
ownership percentage 61.14% 55.31% 55.31%
---------- ---------- ------- ---------
Minority interest $ 1,029 $ 2,879 $3,908 $11,513
========== ========== ======= =========
Six Three Three Six
months months months months
ended ended ended ended
6/30/07 3/31/08 6/30/08 6/30/08
-------------------------------------------
Net income (loss)
from operating
partnerships $ 29,625 $ (177) $ 5,265 $ 5,088
Minority interest
ownership percentage 55.31% 55.31% 55.31%
---------- ---------- ---------- ---------
Minority interest $ 15,421 $ (98) $ 2,912 $ 2,814
========== ========== ========== =========
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EBITDA Reconciliation
The Company defines EBITDA as net income before interest expense,
income taxes, depreciation and amortization and income reported to the
minority interest holder. 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 you should not consider this in isolation, or as a substitute
for analysis of our results as reported under GAAP. The Company finds
it as a useful tool to assist in evaluating performance because it
eliminates items related to capital structure and taxes. The items
that the Company has eliminated from net income in determining EBITDA
are interest expense, income taxes, depreciation of fixed assets and
amortization of intangible assets, and minority interest. Note that
the Company classifies the interest on the warehouse line 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. However, 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 and 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 to EBITDA for HFF, Inc. for the three months and six months
ending June 30, 2008 and 2007:
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EBITDA for the Company is calculated as follows:
(dollars in thousands)
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
------------------------------------
2008 2007 2008 2007
--------- -------- -------- --------
Net income $1,068 $ 5,058 $ 105 $ 8,296
Add:
Interest expense 5 6 11 400
Income tax expense 361 3,796 884 4,892
Depreciation and amortization 742 878 1,476 1,898
Minority interest 2,912 11,513 2,814 15,421
--------- -------- -------- --------
EBITDA $5,088 $21,251 $5,290 $30,907
========= ======== ======== ========
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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
Copyright Business Wire 2008
