1q 2018 earnings
TRANSCRIPT
HFF Proposal Style Guide 1Q16 (Powerpoint)1 Q 2 0 1 8 E A R N I N G
S
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DISCLAIMER
DISCLAIMER
Forward-Looking Statements This presentation contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our future growth momentum, operations, financial performance and business outlook. These statements may be identified by words such as “may,” “could,” “would,” “should,” “believe,” “expect,” “anticipate,” “plan,” “estimate,” “target,” “project,” “intend” and similar expressions. These statements should be considered as estimates only and actual results may differ materially from these estimates due to known and unknown risks and uncertainties, including economic, business, competitive, market and regulatory conditions in the industries and markets in which we operate. We caution you not to place undue reliance on such forward-looking statements. Any forward-looking statements speak only as of the date of this presentation and, except to the extent required by applicable securities laws, we undertake no obligation to update or revise any of the forward-looking statements. For a more detailed discussion of risks and other factors that could cause results to differ, please refer to those factors discussed under “Business,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk” and elsewhere in our annual report on Form 10–K for the year ended December 31, 2016 and in other reports filed with the SEC, including our most recent quarterly earnings report and Form 10-Q, which are available on its website at www.sec.gov. These slides and the associated remarks and comments are integrally related, and are intended to be presented and understood together.
Industry and Market Data In this presentation, we rely on and refer to information and statistics regarding economic conditions, trends, and our market in the sectors of that market in which we compete. In particular, we have obtained general industry information and statistics from certain third-party sources. We believe that these sources of information and estimates are reliable and accurate, but we have not independently verified them.
Non-GAAP Financial Measure 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.
C O M PA N Y I N F O R M AT I O N
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TRANSACTION industry.
MARKET POSITION
COMPANY INFORMATIONNote: HFF has ranked as #1 or #2 intermediary/originator since the MBA began its survey in 2004.
National Recognition Leading Market Position Scale & Performance
Ranked among the Fastest-Growing Companies for four years: 2012 - 2014, 2016
Russell 2000 Russell 2000 Growth Russell 2500 Russell 2500 Growth Russell 3000 Russell 3000 Growth S&P Smallcap 600 S&P 1500 Composite S&P 1000
• Exceptional Revenue Growth
Productivity per Employee
Major Index Membership
DEBT PLACEMENT Mortgage Bankers Association, 2017 Rankings
Freddie Mac Top Multifamily Lenders, 2017 Rankings #1 Top Seniors Housing Seller #1 Conventional Structured Transaction Seller
INVESTMENT ADVISORY Real Estate Alert, 2017 Rankings
EQUITY PLACEMENT Mortgage Bankers Association, 2017 Rankings #1 Seconds/Mezzanine/Preferred Equity Total Originations #1 Seconds/Mezzanine/Preferred Equity Intermediary
#1 Total Loan Originations #1 Intermediary #1 Insurance Company Originator #1 Credit Company Originator
#1 Originator for Third Parties #1 Total Direct Originations
#1 Seniors Housing Broker #3 Top Broker Overall #3 Multi-Housing Broker
#3 Retail Broker #3 Office Broker
COMPANY INFORMATIONThe map specifically identifies HFF offices opened since the downturn in 2009.
1,009 Total Associates
385 Capital Markets
COMPANY INFORMATIONSource: Real Capital Analytics
Rank Name Sales 1 CB Richard Ellis 2 Eastdil Secured 3 HFF 4 Cushman & Wakefield 5 Newmark Grubb Knight Frank 6 JLL 7 Marcus & Millichap 8 Colliers International 9 Berkadia
10 Moran & Co. 11 Walker & Dunlop 12 Transwestern 13 Hodges Ward Elliott 14 NAI Global 15 SVN®
Industry consolidation provides strategic growth opportunities for HFF UNRANKED to #3 BROKER
Rank Name Sales 1 CB Richard Ellis 2 Cushman & Wakefield 3 Eastdil 4 Trammell Crow 5 Grubb & Ellis 6 Colliers Affiliates 7 Insignia/ESG 8 JLL 9 Marcus & Millichap
10 Secured Capital 11 Hendricks & Partners 12 JP Morgan Chase 13 Sonnenblick-Goldman 14 ONCOR 15 Lehman Brothers
$3 b
il.
2001 Brokerage Firm Ranking By dollar value of all reported office,
retail, multi-housing, and flex/industrial transactions
2017 Brokerage Firm Ranking By dollar value of all reported office,
retail, multi-housing, and flex/industrial transactions
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Agency 5%
LOAN SERVICING
COMPANY INFORMATIONNote: All values as of 12/31 for the years shown (3/31 for 2018). Lender type breakdown as of 3/31/18.
HFF’s Loan Servicing Portfolio Balance
$10.7 $11.0 $12.1 $13.0 $15.0 $18.0
$23.4 $24.4 $25.2 $25.0 $27.1 $31.3 $33.0
$39.3
$48.7
$58.0
$69.8 $72.0
$0 $5
$10 $15 $20 $25 $30 $35 $40 $45 $50 $55 $60 $65 $70 $75 $80
($B)
+19%
+24%
+5%
HFF is a CMBS primary and loan-level special servicer rated "CPS2" and "CLLSS3," respectively, by Fitch Ratings.
+19%
+20%
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ALIGNMENT OF INTERESTS
COMPANY INFORMATION 1. As of 3/31/18. 2. Number of capital markets advisor shareholders is an estimate based on internal documentation, which is unaudited.
Approximately 235 capital markets advisors are shareholders; approximately 73 of the Leadership Team are shareholders. 3. Revenue generation credit given by initial lead – unaudited
Partnership Culture • Key aspects of current partnership
operating structure remain intact
• Continue to evaluate performance against national partner criteria and utilize equity awards as incentive
• Scalable culture using player/coach management structure (Executive Committee and Leadership Team)
Pay For Performance • Capital Markets Advisors and Management
incentivized through a competitive commission structure
• Executive Committee, Leadership Team and Capital Markets Advisors incentivized through annual Office and Firm Profit Participation plan awards
• Long term value-add performance rewarded with equity awards through the HFF, Inc. 2016 Equity Incentive Plan
Significant Shareholder Ownership by Capital Markets Advisors
• As of 3/31/18, the Company estimates Capital Markets Advisors own approximately 11% of the equity of the Company.
61% 92% 76%
385 Capital Markets Advisors(1) 79 Office Heads & Business Line Managers (1) 1Q 2018 Capital Markets Revenue $125.4M (1)
61% of Capital Markets Advisors are Shareholders(2)
92% of Leadership Team are Shareholders(2)
76% of Revenue Generated by Shareholder Capital Markets Advisors(3)
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COMPANY INFORMATIONAs of 3/31/18
Operating Partnerships - HFFLP & HFFS
(10 Officers)
Manny de Zárraga John Fowler
Matthew Lawton Kevin MacKenzie
Gerard Sansosti Mike Tepedino
(16) Property Sector Leaders
(46) Office Head Leaders
• Internally developed, proprietary database of transactions
• Tracks billions of dollars of transactional volume that HFF is continuously pricing
• Tracks relationships with over 55,000 clients and potential clients
• Contains investment objectives of the most active and largest capital providers, both domestic and foreign
• Tracks historic and current flows and pricing of debt and equity capital throughout the U.S.
• Provides real-time status of all HFF pipeline transactions
• Processes daily updates of investment objectives as received from clients
This database is shared throughout the entire HFF network and is updated daily through the compilation of critical deal and capital
markets data from the firm’s associates. No other firm enjoys this exchange of both historic and real-time
capital markets information.
“CapTrack”- Competitive Advantage and Differentiator
I N D U S T RY T R E N D S
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$464
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5%
$0
$100
$200
$300
$400
$500
$600
$700
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Entity Portfolio
INDUSTRY TRENDS
5.02% 4.61% 4.01% 4.27% 4.29% 4.80% 4.63% 3.66% 3.26% 3.22% 2.78% 1.80% 2.35% 2.54% 2.14% 1.84% 2.33% Average Annual 10yr UST
Source: Real Capital Analytics
2016 vs 2017
RETURN PERFORMANCE DRIVES DEMAND FOR CRE
INDUSTRY TRENDS Source: HFF Research, Dow Jones Corporate Bond Index – equal weight investment grade corporate bonds, S&P Total Return Index – total return including capital appreciation, assumes dividend reinvestment, Bloomberg Commodity Index – annually rebalanced excess return index based on futures price fluctuation, Dow Jones CBOT Treasury Index – default-free returns available within the US, FTSE NAREIT Total Return Index – non-timber, non-infrastructure REITs total return including capital appreciation, assumes dividend reinvestment
Commercial real estate has outperformed corporate bonds, the S&P 500, commodities and treasuries over the past 15 years, providing higher average annual returns with lower levels of volatility
Institutional and HNW allocations to real assets are increasing Rising allocations of new capital will, over time, increase capital flows into the asset class, reducing historical
price volatility and supporting valuations
YEAR CORPORATE BONDS S&P 500 COMMODITIES TREASURIES NCREIF REITS 15yr 21.5% 320.3% -4.5% 70.1% 264.8% 367.1% 10yr 20.7% 104.9% -50.7% 43.9% 83.0% 76.3% 5yr 0.3% 94.4% -42.5% 6.4% 63.6% 58.8% 1yr -1.4% 18.6% -0.3% -1.7% 6.9% 0.7%
Since 2002 CAGR 1.3% 10.0% -0.3% 3.6% 9.0% 10.8%
St. Dev. 6.8% 13.2% 15.5% 3.0% 9.8% 17.1% Sharpe Ratio -33.8% 48.7% -25.3% 0.0% 55.4% 42.2%
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2.1%
1980 1985 1990 1995 2000 2005 2010 2015 2017 Actual
Po rt
fo lio
T ar
ge t
Al lo
ca tio
n to
R ea
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$26
$37
$54
$70
$118
$133
$151
$0
$20
$40
$60
$80
$100
$120
$140
$160
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Bi lli
on s
INDUSTRY TRENDSSource: HFF Research, Preqin
2007 vs 2017
INDUSTRY TRENDSSource: HFF Research, National Council of Real Estate Investment Fiduciaries, Preqin
~$277 BILLION + AUM
Open-End FundsClosed-End Funds
~$473 BILLION + AUM
$262 $351 $336 $306 $342
$429 $474
$565 $625
$0
$100
$200
$300
$400
$500
$600
$700
$800
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1Q17
Bi lli
on s
$4 $10 $10
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Foreign M arket Share (%
Asia Australia Europe MENA North America South America % Mkt Share
Source: Real Capital Analytics INDUSTRY TRENDS
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Source: Real Capital Analytics
Rank Country Acquisitions ($b) YoY Change
1 Canada $14.63 18% 2 Singapore $6.33 92% 3 China $5.98 -65% 4 Germany $4.56 -26% 5 Netherlands $3.26 924% 6 Japan $2.41 -11% 7 South Korea $1.93 -50% 8 Israel $1.61 -38% 9 Hong Kong $1.57 -34% 10 Norway $1.16 75% 11 Switzerland $1.14 -65% 12 Australia $0.98 87% 13 United Kingdom $0.89 -37% 14 Qatar $0.73 -77% 15 Denmark $0.59 16 France $0.55 -47% 17 Spain $0.48 -56% 18 Sweden $0.35 -24% 19 Finland $0.31 624% 20 Kuwait $0.29 -74% 21 Chile $0.17 -40% 22 Brazil $0.10 -22% 23 Mexico $0.09 -36% 24 Ireland $0.08 588% 25 India $0.07 -22%
INDUSTRY TRENDS
INDUSTRY TRENDSSource: Preqin
3 Years or Less
0%
1%
2%
3%
4%
5%
6%
$0
$100
$200
$300
$400
$500
$600
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
B ill
io ns
Origination Volume
10yr UST
INDUSTRY TRENDSSource: Mortgage Bankers Association, Real Capital Analytics
8% 2016 vs 2017
20 $1 32
$1 78
$1 29
$8 6
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
CMBS Banks Life Cos Other
Bi lli
on s
Source: Trepp, Federal Reserve
$1.06 Trillion Matures 2018-2020
$8.6 $6.0
$0 $10 $20 $30 $40 $50 $60
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 1Q '17 1Q '18
($B)
HFF Market Share = 7.4%
2007 Industry Activity – Investment Sales Volume 2017 Industry Activity – Investment Sales Volume
HFF +102% Industry -19%
45% 55%
Industry Sales Volume = $571 B
HFF Sales Volume = $17 B
HFF Market Share = 3.0%
$51.7
$0 $10 $20 $30 $40 $50 $60
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 1Q '17 1Q '18
($B)
DEBT PLACEMENT
INDUSTRY TRENDSSource: Mortgage Bankers Association. Note: HFF has ranked as #1 or #2 intermediary/originator since the MBA began its survey in 2004.
2017 Industry Activity – Debt Originations
22%
78%
HFF +120% Industry +4%
HFF Market Share = 9.8%
HFF Market Share = 4.7%
30%
70%
HFF -7.5%
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2.40%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
10 yr UST RCA Cap NCREIF Cap JPM Implied Cap
CAPITALIZATION RATE SPREADS
10yr UST RCA: 323 vs. 369
2.98% UST Spreads (bps)
Current vs. LT Avg.
JPM: 262 vs. 292
NCREIF: 207 vs. 292
In 2007… Treasury – 4.4% Negative & Excessive Leverage NCREIF Cap Rate Below 10yr UST Aggressive Underwriting Metrics Total Return Composition Imbalance
NCREIF Cap Rate
RCA Cap Rate
INDUSTRY TRENDSSources: Moody’s, Real Capital Analytics
Major Markets Are 37.6% Above Previous Peak – Non-Major Markets Are 11.9% Above Peak – National 20.1% Above Peak
Major Markets Have Increased 96.6% Since Bottom, Approximately 1.16x the 82.6% Gain By Non-Major Markets
60
80
100
120
140
160
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
National Major Markets Non-Major Markets
37.6%
20.1%
11.9%
INDUSTRY TRENDSSource: CoStar, Inc.
(Completions:Absorption Ratio) Office Retail Industrial Multi-Housing Equilibrium
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Source: GreenStreet Advisors as of November 2017
New Completions as % of Existing Stock
Supply in some niches is starting to heat up, but the overall outlook
remains moderate
INDUSTRY TRENDS
REITs Vs. Construction Cost Index
Source: Turner Construction, Bloomberg
80
180
280
380
480
580
680
780
80
100
120
140
160
180
200
220
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
N AREIT Equity REIT Index
(Indexed to 100) Tu
80
100
120
140
160
180
200
220
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
N O
Double-Header or Extra Innings? (Same Store NOI Growth)
1990s NOI Growth Cycle • Lasted 8 yrs • Produced 52% NOI Growth
2000s NOI Growth Cycle • Lasted 4 yrs • Produced 17% NOI Growth
2010s NOI Growth Cycle • 7 yrs old • Has produced 37% NOI Growth
F I N A N C I A L S
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1Q 2018 PERFORMANCE
• Revenue decreased 5.2% for 1Q 2018 when compared to 1Q 2017. • Total transaction volumes decreased 17.4% with debt transaction volume down
7.5% and investment advisory volume down 30.4% from 1Q 2017. • Total of 531 transactions closed in 1Q 2018, down 0.2% from 1Q 2017. • Commercial loan servicing portfolio grew to $72.0 billion, or 18.7%, when compared
to the first quarter of 2017. • Operating margins decreased to 2.1% in 1Q 2018 from 15% in 1Q 2017. • Adjusted EBITDA margin decreased 770 bps to 15.7% in 1Q 2018 when compared
to 1Q 2017. • Cash balance of $186.9 million at the end of 1Q 2018 (net of $5.9 million of client
advances) compared to a cash balance of $171.1 million at the end of 1Q 2017 (net of $4.7 million of client advances), with no corporate debt on the balance sheet.
• During the twelve months ending first quarter of 2018, no one borrower or seller client represented more than 2.2% of our total capital markets services revenue.
• The combined fees from our top 10 clients during the twelve months ending 1Q 2018 were 9.7% of our total capital markets services revenue.
Transaction Volume Contribution
1Q 2018 1Q 2017 Dollars %
Revenue 131,618$ 138,806$ (7,188)$ -5.2%
Cost of services 78,644 80,131 (1,487) -1.9% % of revenue 59.8% 57.7% Operating, administrative and other 44,786 34,244 10,542 30.8% % of revenue 34.0% 24.7% Depreciation and amortization 5,481 3,667 1,814 49.5% Total Expenses 128,911 118,042 10,869 9.2% Operating income 2,707 20,764 (18,057) -87.0% Operating margin 2.1% 15.0% -12.9%
Interest and other income, net 15,171 10,794 4,377 40.6%
Net income 17,068$ 19,656$ (2,588) -13.2%
EPS 0.42$ 0.50$ (0.08)$ -16.0%
Adjusted EBITDA 20,706$ 32,457$ (11,751) -36.2% Adjusted EBITDA margin 15.7% 23.4% -32.7%
Change
15,171
10,794
4,377
40.6%
36,045
24,109
11,936
49.5%
$ 38.8
$ 35.0
$ 37.3
$ 35.5
Headcount2
975
897
891
721
Revenue per transaction professional
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$78.0
$140
0
100
200
300
400
500
600
700
2009 2010 2011 2012 2013 2014 2015 2016 2017 1Q 17 1Q 18
$3.1
$25.6
0
5
10
15
20
25
30
0
20
40
60
80
100
120
140
160
180
2009 2010 2011 2012 2013 2014 2015 2016 2017 1Q 17 1Q 18
Adjusted EBITDA EBITDA Margin
REVENUE ADJUSTED EBITDA (1)
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PERFORMANCE
Financials Notes: (1) Operating cash flow shown for the years 2015, 2016 and 2017 are net of client advance decreases / (increases) of $3.9 million, $16.6 million and $(6.2) million, respectively. Operating cash flow shown for 1Q 2017 and 1Q 2018 are net of client advance decreases of $0.2 million and $5.1 million, respectively.
(2) EPS grew from $0.40 to $2.39 during the period from 2010 – 2017 (CAGR of 29.1%). Note that this excludes 2009, when EPS was negative.
($0.05)
$0.40
-$0.50
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
2009 2010 2011 2012 2013 2014 2015 2016 2017 1Q 17 1Q 18
OPERATING CASH FLOW & CAPITAL EXPENDITURE (1) EPS (2)
$5.9
$34.3
$73.7
$45.1
$3.2 $0.05 $0.4 $2.0 $2.1 $3.3 $5.0 $5.9 $5.3 $6.6
$0.7 $0.5$0
$20
$40
$60
$80
$100
$120
2009 2010 2011 2012 2013 2014 2015 2016 2017 1Q 17 1Q 18
($MM)
SUMMARY BALANCE SHEET KEY HIGHLIGHTS
• No corporate level debt • Ample capital for growth • Limited working capital needs • Low capex • High variable cost – approximately 59.1%
of operating costs are considered variable for the twelve month period ending 3/31/18 compared to variable costs of approximately 60.9% of total operating costs for the year ending 12/31/17.
• Since December 2012, HFF has paid six special dividends totaling $10.27/share, or $388.5 million. The latest dividend was paid on February 21, 2018 of $1.75/share, or $67.8 million.
• 3/31/18, 12/31/17 and 3/31/17 cash balance and accrued current liabilities include $5.9 million, $11.1 million and $4.7 million of client advances, respectively.
3/31/2018 12/31/2017 3/31/2017
Assets Cash and cash equiv. and restricted cash 192,828$ 276,802$ 175,783$ Mortgage notes receivable 961,720 450,821 844,426 Property and equipment, net 17,263 17,897 15,508 Deferred tax asset, net 50,208 50,874 102,388 Other current and noncurrent assets 101,264 95,811 73,171 Total assets 1,323,283 892,205 1,211,276
Liabilities and Stockholders Equity Warehouse line of credit 958,841 450,255 842,626 Accrued current liabilities 57,120 81,439 47,739 Total debt (capital leases) 343 405 570 Payable under tax receivable agreement 60,939 60,939 111,392 Deferred rent credit 12,391 12,700 11,355
1,089,634 605,738 1,013,682
Dollars in thousands, except per share data
Sheet1
3/31/18
12/31/17
3/31/17
Assets
$ 192,828
$ 276,802
$ 175,783
101,264
95,811
73,171
60,939
60,939
111,392
$ 1,323,283
$ 892,205
$ 1,211,276
Sheet2
Sheet3
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$ in millions
$56.3 million
All values as of 12/31 for the year shown. Cash shown for 2014, 2015, 2016 and 2017 are net of $25.4 million, $8.8 million, $4.9 million and $11.1 million of client advances, respectively. Cash shown for 1Q 17 and 1Q 18 are net of client advances of $4.7 million and $5.9 million, respectively.
We have paid six special dividends for a combined total of $10.27/share or $388.5 million.
CASH BALANCE
• Ability to fully fund operations
• Cash reserves available to both survive and thrive during downturns in the industry
• Ability to strategically and prudently invest in business for growth
($1.57/share) $60.0 million
($1.75/share) $67.8 million
SPECIAL DIVIDENDS
Financials
Funds Marketing and Loan Servicing Portfolio
(dollars in thousands) By Platform 1Q 2018 % of Total 1Q 2017 % of Total $ Chg % Chg
Debt Placement $ 10,383,212 59.2% $ 11,230,079 52.8% $ (846,867) -7.5% Investment Advisory $ 6,015,952 34.3% $ 8,645,335 40.7% $ (2,629,383) -30.4% Equity Placement $ 1,070,140 6.1% $ 1,363,413 6.4% $ (293,273) -21.5% Loan Sales $ 79,864 0.5% $ 14,275 0.1% $ 65,589 459.5% Total Transaction Volume $ 17,549,168 $ 21,253,102 $ (3,703,934) -17.4%
Average Transaction Size $ 33,049 $ 39,949 $ (6,900) -17.3%
By Platform 1Q 2018 1Q 2017 # Chg % Chg Debt Placement 325 329 (4) -1.2% Investment Advisory 164 176 (12) -6.8% Equity Placement 37 26 11 42.3% Loan Sales 5 1 4 400.0% Total Transaction Volume 531 532 -1 -0.2%
1Q 2018 # Loans 1Q 2017 # Loans $ Chg Pct Chg. Loan Servicing Portfolio Balance $72,046,856 3,128 $60,704,650 2,812 $ 11,342,206 18.7% 11.2%
Transaction volume is estimated based on the Company’s internal database and is unaudited.
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KEY HIGHLIGHTS
• 1Q 2018 total headcount of 1,009 reflects a gain of 85 associates compared to the 1Q 2017 total of 924, or 9.2%.
• 1Q 2018 capital markets advisors total 385 represents a net gain of 40 when compared to 1Q 2017 capital markets advisors count of 345, or 11.6%.
• Since year-end 2012, the firm has grown by a total of 435 total associates, or 76%.
• Capital markets advisors growth since year-end 2012 totals 156 net new advisors, or 68%.
159 171 191 229 251 277 290 319 371 345 385 217 256 307
345 386 444
1,009
0
200
400
600
800
1000
1200
2009 2010 2011 2012 2013 2014 2015 2016 2017 1Q 2017
1Q 2018
HEADCOUNT SUMMARY
PRODUCTION & PRODUCTIVITY
Financials 1 Transaction volume is estimated based on the Company’s internal database, CapTrack, and is unaudited. 2 As of the end of the respective period. 3 Calculated based on quarter end average headcount.
KEY HIGHLIGHTS • Transaction volume of $17.5 billion for
1Q 2018, down 17.4% from 1Q 2017. • Number of transactions during 1Q
2018 totaled 531, down 0.2% when compared to 532 transactions during 1Q 2017.
• Revenue per capital markets advisor decreased 15.0% as compared to 1Q 2017 and down 2.6% for the TTM period ended March 31, 2018 compared to the TTM period ended March 31, 2017.
COMPARATIVE PRODUCTION DATA
Revenue (in thousands) 131,618$ 138,806$ 609,478$
Total Volume (in billions)1 18$ 21$ 96$
No. of Transactions1 531 532 2,357
Avg Deal Size (in millions) 33$ 40$ 41$
Headcount2 1,009 924 982
Revenue per Capital Markets Advisor 342$ 402$ 1,686$ (in thousands)3
Revenue per transaction professional 1,621$ 1,664$ 1,686$ TTM (in thousands)3
Operating Performance - Qtr
12,209
9,053
3,156
34.9%
36,045
24,109
11,936
49.5%
$ 33
$ 40
$ 41
$ 35.5
Headcount2
1,009
924
982
721
$ 342
$ 402
$ 1,686
$ 1,577
Windows User: Use decimals from EOC schedule
A P P E N D I X
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Appendix
Set forth below is an unaudited reconciliation of consolidated net income (loss) attributable to controlling interest to Adjusted EBITDA for the periods presented.
Amounts do not reflect expense associated with the stock component of estimated incentive payouts under the Company’s firm profit participation bonus plan, office profit participation bonus plans (the “Plans”) and executive incentive 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. For further information regarding the Company’s accounting policies relating to the Plans, see Note 2 to the Company’s consolidated financial statements included in the quarterly report on Form 10-Q for the quarter ended March 31, 2018 to be filed with the Securities and Exchange Commission.
Stock-based payments under the firm profit participation bonus plan and office profit participation bonus plans were first made in 2012 in respect of 2011. Stock-based payments under the executive incentive plan was first made in 2016 in respect of 2015. See Note 3 to the Company’s consolidated financial statements included in the quarterly report on Form 10-Q for the year ended March 31, 2018 to be filed with the Securities and Exchange Commission, for further information regarding the Company’s accounting policies relating to its stock compensation.
(a)
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 1Q 2018 1Q 2017 Net income (loss) attributable to controlling interest 229$ (752)$ 10,891$ 40,019$ 43,862$ 51,426$ 61,286$ 83,963$ 77,195$ 94,960$ 17,068$ 19,656$ Add Interest expense 20 419 64 29 42 33 41 47 42 21 5 7 Income tax expense 5,043 2,208 8,612 22,371 8,661 34,578 42,226 57,949 51,036 106,768 805 11,895 Depreciation & amortization 3,475 3,523 3,655 4,627 5,767 6,800 7,830 9,194 11,834 17,001 5,481 3,667 Net income attributable to noncontrolling interest 4,784 2,531 6,098 2,031 243 - - - - - - - Stock-based compensation (a) 876 1,136 970 2,053 3,442 8,302 9,821 8,579 12,310 17,385 5,752 3,906 Valuation of mortgage servicing rights (3,653) (4,157) (3,923) (6,025) (9,373) (5,231) (10,294) (16,326) (19,892) (33,455) (8,405) (6,674) Increase (decrease) in payable under the tax receivable agreement (3,862) (1,889) (813) 3,890 17,358 1,040 (800) (2,143) 1,025 (39,212) - - Adjusted EBITDA 6,912$ 3,019$ 25,554$ 68,995$ 70,002$ 96,948$ 110,110$ 141,263$ 133,550$ 163,468$ 20,706$ 32,457$
Sheet1
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
$ 14,420
$ 229
$ (752)
$ 10,891
$ 40,019
$ 43,862
$ 51,426
$ 61,286
$ 83,963
$ 77,195
$ 94,960
$ 17,068
$ 19,656
Add
29,748
4,784
2,531
6,098
2,031
243
(4,344)
(3,653)
(4,157)
(3,923)
(6,025)
(9,373)
(5,231)
(10,294)
(16,326)
(19,892)
(33,455)
(8,405)
(6,674)
agreement
60
21
0%
10%
20%
30%
40%
0
20
40
60
80
100
120
140
160
180
200
220
1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18
Revenue Adjusted EBITDA Adjusted EBITDA Margin
20172016 2018
Revenue and Adjusted EBITDA1
Slide Number 1
CREATING KEY COMPETITIVE ADVANTAGES
Slide Number 17
OPEN- & CLOSED-END FUND AUM UP 115% SINCE 2007
$50.5B OF FOREIGN INVESTMENT IN 2017
FOREIGN INVESTMENT DOWN 25.2% YOY
CLOSED-END FUNDS: 64% HOLD LESS THAN 5 YEARS
REFINANCE IN FAVOR OF SALES; LESS VOLATILITY
$1 BILLION MATURING DAILY NEXT THREE YEARS
INVESTMENT ADVISORY
DEBT PLACEMENT
SUPPLY FORECAST TO STAY LOW
REPLACEMENT COST INFLATION LIMITING NEW SUPPLY
MATURE NOI GROWTH CYCLE?
HEADCOUNT GROWTH
PRODUCTION & PRODUCTIVITY
| 2
DISCLAIMER
DISCLAIMER
Forward-Looking Statements This presentation contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our future growth momentum, operations, financial performance and business outlook. These statements may be identified by words such as “may,” “could,” “would,” “should,” “believe,” “expect,” “anticipate,” “plan,” “estimate,” “target,” “project,” “intend” and similar expressions. These statements should be considered as estimates only and actual results may differ materially from these estimates due to known and unknown risks and uncertainties, including economic, business, competitive, market and regulatory conditions in the industries and markets in which we operate. We caution you not to place undue reliance on such forward-looking statements. Any forward-looking statements speak only as of the date of this presentation and, except to the extent required by applicable securities laws, we undertake no obligation to update or revise any of the forward-looking statements. For a more detailed discussion of risks and other factors that could cause results to differ, please refer to those factors discussed under “Business,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk” and elsewhere in our annual report on Form 10–K for the year ended December 31, 2016 and in other reports filed with the SEC, including our most recent quarterly earnings report and Form 10-Q, which are available on its website at www.sec.gov. These slides and the associated remarks and comments are integrally related, and are intended to be presented and understood together.
Industry and Market Data In this presentation, we rely on and refer to information and statistics regarding economic conditions, trends, and our market in the sectors of that market in which we compete. In particular, we have obtained general industry information and statistics from certain third-party sources. We believe that these sources of information and estimates are reliable and accurate, but we have not independently verified them.
Non-GAAP Financial Measure 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.
C O M PA N Y I N F O R M AT I O N
| 4
TRANSACTION industry.
MARKET POSITION
COMPANY INFORMATIONNote: HFF has ranked as #1 or #2 intermediary/originator since the MBA began its survey in 2004.
National Recognition Leading Market Position Scale & Performance
Ranked among the Fastest-Growing Companies for four years: 2012 - 2014, 2016
Russell 2000 Russell 2000 Growth Russell 2500 Russell 2500 Growth Russell 3000 Russell 3000 Growth S&P Smallcap 600 S&P 1500 Composite S&P 1000
• Exceptional Revenue Growth
Productivity per Employee
Major Index Membership
DEBT PLACEMENT Mortgage Bankers Association, 2017 Rankings
Freddie Mac Top Multifamily Lenders, 2017 Rankings #1 Top Seniors Housing Seller #1 Conventional Structured Transaction Seller
INVESTMENT ADVISORY Real Estate Alert, 2017 Rankings
EQUITY PLACEMENT Mortgage Bankers Association, 2017 Rankings #1 Seconds/Mezzanine/Preferred Equity Total Originations #1 Seconds/Mezzanine/Preferred Equity Intermediary
#1 Total Loan Originations #1 Intermediary #1 Insurance Company Originator #1 Credit Company Originator
#1 Originator for Third Parties #1 Total Direct Originations
#1 Seniors Housing Broker #3 Top Broker Overall #3 Multi-Housing Broker
#3 Retail Broker #3 Office Broker
COMPANY INFORMATIONThe map specifically identifies HFF offices opened since the downturn in 2009.
1,009 Total Associates
385 Capital Markets
COMPANY INFORMATIONSource: Real Capital Analytics
Rank Name Sales 1 CB Richard Ellis 2 Eastdil Secured 3 HFF 4 Cushman & Wakefield 5 Newmark Grubb Knight Frank 6 JLL 7 Marcus & Millichap 8 Colliers International 9 Berkadia
10 Moran & Co. 11 Walker & Dunlop 12 Transwestern 13 Hodges Ward Elliott 14 NAI Global 15 SVN®
Industry consolidation provides strategic growth opportunities for HFF UNRANKED to #3 BROKER
Rank Name Sales 1 CB Richard Ellis 2 Cushman & Wakefield 3 Eastdil 4 Trammell Crow 5 Grubb & Ellis 6 Colliers Affiliates 7 Insignia/ESG 8 JLL 9 Marcus & Millichap
10 Secured Capital 11 Hendricks & Partners 12 JP Morgan Chase 13 Sonnenblick-Goldman 14 ONCOR 15 Lehman Brothers
$3 b
il.
2001 Brokerage Firm Ranking By dollar value of all reported office,
retail, multi-housing, and flex/industrial transactions
2017 Brokerage Firm Ranking By dollar value of all reported office,
retail, multi-housing, and flex/industrial transactions
| 9
Agency 5%
LOAN SERVICING
COMPANY INFORMATIONNote: All values as of 12/31 for the years shown (3/31 for 2018). Lender type breakdown as of 3/31/18.
HFF’s Loan Servicing Portfolio Balance
$10.7 $11.0 $12.1 $13.0 $15.0 $18.0
$23.4 $24.4 $25.2 $25.0 $27.1 $31.3 $33.0
$39.3
$48.7
$58.0
$69.8 $72.0
$0 $5
$10 $15 $20 $25 $30 $35 $40 $45 $50 $55 $60 $65 $70 $75 $80
($B)
+19%
+24%
+5%
HFF is a CMBS primary and loan-level special servicer rated "CPS2" and "CLLSS3," respectively, by Fitch Ratings.
+19%
+20%
| 10
ALIGNMENT OF INTERESTS
COMPANY INFORMATION 1. As of 3/31/18. 2. Number of capital markets advisor shareholders is an estimate based on internal documentation, which is unaudited.
Approximately 235 capital markets advisors are shareholders; approximately 73 of the Leadership Team are shareholders. 3. Revenue generation credit given by initial lead – unaudited
Partnership Culture • Key aspects of current partnership
operating structure remain intact
• Continue to evaluate performance against national partner criteria and utilize equity awards as incentive
• Scalable culture using player/coach management structure (Executive Committee and Leadership Team)
Pay For Performance • Capital Markets Advisors and Management
incentivized through a competitive commission structure
• Executive Committee, Leadership Team and Capital Markets Advisors incentivized through annual Office and Firm Profit Participation plan awards
• Long term value-add performance rewarded with equity awards through the HFF, Inc. 2016 Equity Incentive Plan
Significant Shareholder Ownership by Capital Markets Advisors
• As of 3/31/18, the Company estimates Capital Markets Advisors own approximately 11% of the equity of the Company.
61% 92% 76%
385 Capital Markets Advisors(1) 79 Office Heads & Business Line Managers (1) 1Q 2018 Capital Markets Revenue $125.4M (1)
61% of Capital Markets Advisors are Shareholders(2)
92% of Leadership Team are Shareholders(2)
76% of Revenue Generated by Shareholder Capital Markets Advisors(3)
| 12
COMPANY INFORMATIONAs of 3/31/18
Operating Partnerships - HFFLP & HFFS
(10 Officers)
Manny de Zárraga John Fowler
Matthew Lawton Kevin MacKenzie
Gerard Sansosti Mike Tepedino
(16) Property Sector Leaders
(46) Office Head Leaders
• Internally developed, proprietary database of transactions
• Tracks billions of dollars of transactional volume that HFF is continuously pricing
• Tracks relationships with over 55,000 clients and potential clients
• Contains investment objectives of the most active and largest capital providers, both domestic and foreign
• Tracks historic and current flows and pricing of debt and equity capital throughout the U.S.
• Provides real-time status of all HFF pipeline transactions
• Processes daily updates of investment objectives as received from clients
This database is shared throughout the entire HFF network and is updated daily through the compilation of critical deal and capital
markets data from the firm’s associates. No other firm enjoys this exchange of both historic and real-time
capital markets information.
“CapTrack”- Competitive Advantage and Differentiator
I N D U S T RY T R E N D S
| 15
$464
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5%
$0
$100
$200
$300
$400
$500
$600
$700
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Entity Portfolio
INDUSTRY TRENDS
5.02% 4.61% 4.01% 4.27% 4.29% 4.80% 4.63% 3.66% 3.26% 3.22% 2.78% 1.80% 2.35% 2.54% 2.14% 1.84% 2.33% Average Annual 10yr UST
Source: Real Capital Analytics
2016 vs 2017
RETURN PERFORMANCE DRIVES DEMAND FOR CRE
INDUSTRY TRENDS Source: HFF Research, Dow Jones Corporate Bond Index – equal weight investment grade corporate bonds, S&P Total Return Index – total return including capital appreciation, assumes dividend reinvestment, Bloomberg Commodity Index – annually rebalanced excess return index based on futures price fluctuation, Dow Jones CBOT Treasury Index – default-free returns available within the US, FTSE NAREIT Total Return Index – non-timber, non-infrastructure REITs total return including capital appreciation, assumes dividend reinvestment
Commercial real estate has outperformed corporate bonds, the S&P 500, commodities and treasuries over the past 15 years, providing higher average annual returns with lower levels of volatility
Institutional and HNW allocations to real assets are increasing Rising allocations of new capital will, over time, increase capital flows into the asset class, reducing historical
price volatility and supporting valuations
YEAR CORPORATE BONDS S&P 500 COMMODITIES TREASURIES NCREIF REITS 15yr 21.5% 320.3% -4.5% 70.1% 264.8% 367.1% 10yr 20.7% 104.9% -50.7% 43.9% 83.0% 76.3% 5yr 0.3% 94.4% -42.5% 6.4% 63.6% 58.8% 1yr -1.4% 18.6% -0.3% -1.7% 6.9% 0.7%
Since 2002 CAGR 1.3% 10.0% -0.3% 3.6% 9.0% 10.8%
St. Dev. 6.8% 13.2% 15.5% 3.0% 9.8% 17.1% Sharpe Ratio -33.8% 48.7% -25.3% 0.0% 55.4% 42.2%
| 17
2.1%
1980 1985 1990 1995 2000 2005 2010 2015 2017 Actual
Po rt
fo lio
T ar
ge t
Al lo
ca tio
n to
R ea
| 18
$26
$37
$54
$70
$118
$133
$151
$0
$20
$40
$60
$80
$100
$120
$140
$160
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Bi lli
on s
INDUSTRY TRENDSSource: HFF Research, Preqin
2007 vs 2017
INDUSTRY TRENDSSource: HFF Research, National Council of Real Estate Investment Fiduciaries, Preqin
~$277 BILLION + AUM
Open-End FundsClosed-End Funds
~$473 BILLION + AUM
$262 $351 $336 $306 $342
$429 $474
$565 $625
$0
$100
$200
$300
$400
$500
$600
$700
$800
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1Q17
Bi lli
on s
$4 $10 $10
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Foreign M arket Share (%
Asia Australia Europe MENA North America South America % Mkt Share
Source: Real Capital Analytics INDUSTRY TRENDS
| 21
Source: Real Capital Analytics
Rank Country Acquisitions ($b) YoY Change
1 Canada $14.63 18% 2 Singapore $6.33 92% 3 China $5.98 -65% 4 Germany $4.56 -26% 5 Netherlands $3.26 924% 6 Japan $2.41 -11% 7 South Korea $1.93 -50% 8 Israel $1.61 -38% 9 Hong Kong $1.57 -34% 10 Norway $1.16 75% 11 Switzerland $1.14 -65% 12 Australia $0.98 87% 13 United Kingdom $0.89 -37% 14 Qatar $0.73 -77% 15 Denmark $0.59 16 France $0.55 -47% 17 Spain $0.48 -56% 18 Sweden $0.35 -24% 19 Finland $0.31 624% 20 Kuwait $0.29 -74% 21 Chile $0.17 -40% 22 Brazil $0.10 -22% 23 Mexico $0.09 -36% 24 Ireland $0.08 588% 25 India $0.07 -22%
INDUSTRY TRENDS
INDUSTRY TRENDSSource: Preqin
3 Years or Less
0%
1%
2%
3%
4%
5%
6%
$0
$100
$200
$300
$400
$500
$600
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
B ill
io ns
Origination Volume
10yr UST
INDUSTRY TRENDSSource: Mortgage Bankers Association, Real Capital Analytics
8% 2016 vs 2017
20 $1 32
$1 78
$1 29
$8 6
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
CMBS Banks Life Cos Other
Bi lli
on s
Source: Trepp, Federal Reserve
$1.06 Trillion Matures 2018-2020
$8.6 $6.0
$0 $10 $20 $30 $40 $50 $60
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 1Q '17 1Q '18
($B)
HFF Market Share = 7.4%
2007 Industry Activity – Investment Sales Volume 2017 Industry Activity – Investment Sales Volume
HFF +102% Industry -19%
45% 55%
Industry Sales Volume = $571 B
HFF Sales Volume = $17 B
HFF Market Share = 3.0%
$51.7
$0 $10 $20 $30 $40 $50 $60
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 1Q '17 1Q '18
($B)
DEBT PLACEMENT
INDUSTRY TRENDSSource: Mortgage Bankers Association. Note: HFF has ranked as #1 or #2 intermediary/originator since the MBA began its survey in 2004.
2017 Industry Activity – Debt Originations
22%
78%
HFF +120% Industry +4%
HFF Market Share = 9.8%
HFF Market Share = 4.7%
30%
70%
HFF -7.5%
| 27
2.40%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
10 yr UST RCA Cap NCREIF Cap JPM Implied Cap
CAPITALIZATION RATE SPREADS
10yr UST RCA: 323 vs. 369
2.98% UST Spreads (bps)
Current vs. LT Avg.
JPM: 262 vs. 292
NCREIF: 207 vs. 292
In 2007… Treasury – 4.4% Negative & Excessive Leverage NCREIF Cap Rate Below 10yr UST Aggressive Underwriting Metrics Total Return Composition Imbalance
NCREIF Cap Rate
RCA Cap Rate
INDUSTRY TRENDSSources: Moody’s, Real Capital Analytics
Major Markets Are 37.6% Above Previous Peak – Non-Major Markets Are 11.9% Above Peak – National 20.1% Above Peak
Major Markets Have Increased 96.6% Since Bottom, Approximately 1.16x the 82.6% Gain By Non-Major Markets
60
80
100
120
140
160
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
National Major Markets Non-Major Markets
37.6%
20.1%
11.9%
INDUSTRY TRENDSSource: CoStar, Inc.
(Completions:Absorption Ratio) Office Retail Industrial Multi-Housing Equilibrium
| 30
Source: GreenStreet Advisors as of November 2017
New Completions as % of Existing Stock
Supply in some niches is starting to heat up, but the overall outlook
remains moderate
INDUSTRY TRENDS
REITs Vs. Construction Cost Index
Source: Turner Construction, Bloomberg
80
180
280
380
480
580
680
780
80
100
120
140
160
180
200
220
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
N AREIT Equity REIT Index
(Indexed to 100) Tu
80
100
120
140
160
180
200
220
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
N O
Double-Header or Extra Innings? (Same Store NOI Growth)
1990s NOI Growth Cycle • Lasted 8 yrs • Produced 52% NOI Growth
2000s NOI Growth Cycle • Lasted 4 yrs • Produced 17% NOI Growth
2010s NOI Growth Cycle • 7 yrs old • Has produced 37% NOI Growth
F I N A N C I A L S
| 34
1Q 2018 PERFORMANCE
• Revenue decreased 5.2% for 1Q 2018 when compared to 1Q 2017. • Total transaction volumes decreased 17.4% with debt transaction volume down
7.5% and investment advisory volume down 30.4% from 1Q 2017. • Total of 531 transactions closed in 1Q 2018, down 0.2% from 1Q 2017. • Commercial loan servicing portfolio grew to $72.0 billion, or 18.7%, when compared
to the first quarter of 2017. • Operating margins decreased to 2.1% in 1Q 2018 from 15% in 1Q 2017. • Adjusted EBITDA margin decreased 770 bps to 15.7% in 1Q 2018 when compared
to 1Q 2017. • Cash balance of $186.9 million at the end of 1Q 2018 (net of $5.9 million of client
advances) compared to a cash balance of $171.1 million at the end of 1Q 2017 (net of $4.7 million of client advances), with no corporate debt on the balance sheet.
• During the twelve months ending first quarter of 2018, no one borrower or seller client represented more than 2.2% of our total capital markets services revenue.
• The combined fees from our top 10 clients during the twelve months ending 1Q 2018 were 9.7% of our total capital markets services revenue.
Transaction Volume Contribution
1Q 2018 1Q 2017 Dollars %
Revenue 131,618$ 138,806$ (7,188)$ -5.2%
Cost of services 78,644 80,131 (1,487) -1.9% % of revenue 59.8% 57.7% Operating, administrative and other 44,786 34,244 10,542 30.8% % of revenue 34.0% 24.7% Depreciation and amortization 5,481 3,667 1,814 49.5% Total Expenses 128,911 118,042 10,869 9.2% Operating income 2,707 20,764 (18,057) -87.0% Operating margin 2.1% 15.0% -12.9%
Interest and other income, net 15,171 10,794 4,377 40.6%
Net income 17,068$ 19,656$ (2,588) -13.2%
EPS 0.42$ 0.50$ (0.08)$ -16.0%
Adjusted EBITDA 20,706$ 32,457$ (11,751) -36.2% Adjusted EBITDA margin 15.7% 23.4% -32.7%
Change
15,171
10,794
4,377
40.6%
36,045
24,109
11,936
49.5%
$ 38.8
$ 35.0
$ 37.3
$ 35.5
Headcount2
975
897
891
721
Revenue per transaction professional
| 36
$78.0
$140
0
100
200
300
400
500
600
700
2009 2010 2011 2012 2013 2014 2015 2016 2017 1Q 17 1Q 18
$3.1
$25.6
0
5
10
15
20
25
30
0
20
40
60
80
100
120
140
160
180
2009 2010 2011 2012 2013 2014 2015 2016 2017 1Q 17 1Q 18
Adjusted EBITDA EBITDA Margin
REVENUE ADJUSTED EBITDA (1)
| 37
PERFORMANCE
Financials Notes: (1) Operating cash flow shown for the years 2015, 2016 and 2017 are net of client advance decreases / (increases) of $3.9 million, $16.6 million and $(6.2) million, respectively. Operating cash flow shown for 1Q 2017 and 1Q 2018 are net of client advance decreases of $0.2 million and $5.1 million, respectively.
(2) EPS grew from $0.40 to $2.39 during the period from 2010 – 2017 (CAGR of 29.1%). Note that this excludes 2009, when EPS was negative.
($0.05)
$0.40
-$0.50
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
2009 2010 2011 2012 2013 2014 2015 2016 2017 1Q 17 1Q 18
OPERATING CASH FLOW & CAPITAL EXPENDITURE (1) EPS (2)
$5.9
$34.3
$73.7
$45.1
$3.2 $0.05 $0.4 $2.0 $2.1 $3.3 $5.0 $5.9 $5.3 $6.6
$0.7 $0.5$0
$20
$40
$60
$80
$100
$120
2009 2010 2011 2012 2013 2014 2015 2016 2017 1Q 17 1Q 18
($MM)
SUMMARY BALANCE SHEET KEY HIGHLIGHTS
• No corporate level debt • Ample capital for growth • Limited working capital needs • Low capex • High variable cost – approximately 59.1%
of operating costs are considered variable for the twelve month period ending 3/31/18 compared to variable costs of approximately 60.9% of total operating costs for the year ending 12/31/17.
• Since December 2012, HFF has paid six special dividends totaling $10.27/share, or $388.5 million. The latest dividend was paid on February 21, 2018 of $1.75/share, or $67.8 million.
• 3/31/18, 12/31/17 and 3/31/17 cash balance and accrued current liabilities include $5.9 million, $11.1 million and $4.7 million of client advances, respectively.
3/31/2018 12/31/2017 3/31/2017
Assets Cash and cash equiv. and restricted cash 192,828$ 276,802$ 175,783$ Mortgage notes receivable 961,720 450,821 844,426 Property and equipment, net 17,263 17,897 15,508 Deferred tax asset, net 50,208 50,874 102,388 Other current and noncurrent assets 101,264 95,811 73,171 Total assets 1,323,283 892,205 1,211,276
Liabilities and Stockholders Equity Warehouse line of credit 958,841 450,255 842,626 Accrued current liabilities 57,120 81,439 47,739 Total debt (capital leases) 343 405 570 Payable under tax receivable agreement 60,939 60,939 111,392 Deferred rent credit 12,391 12,700 11,355
1,089,634 605,738 1,013,682
Dollars in thousands, except per share data
Sheet1
3/31/18
12/31/17
3/31/17
Assets
$ 192,828
$ 276,802
$ 175,783
101,264
95,811
73,171
60,939
60,939
111,392
$ 1,323,283
$ 892,205
$ 1,211,276
Sheet2
Sheet3
| 39
$ in millions
$56.3 million
All values as of 12/31 for the year shown. Cash shown for 2014, 2015, 2016 and 2017 are net of $25.4 million, $8.8 million, $4.9 million and $11.1 million of client advances, respectively. Cash shown for 1Q 17 and 1Q 18 are net of client advances of $4.7 million and $5.9 million, respectively.
We have paid six special dividends for a combined total of $10.27/share or $388.5 million.
CASH BALANCE
• Ability to fully fund operations
• Cash reserves available to both survive and thrive during downturns in the industry
• Ability to strategically and prudently invest in business for growth
($1.57/share) $60.0 million
($1.75/share) $67.8 million
SPECIAL DIVIDENDS
Financials
Funds Marketing and Loan Servicing Portfolio
(dollars in thousands) By Platform 1Q 2018 % of Total 1Q 2017 % of Total $ Chg % Chg
Debt Placement $ 10,383,212 59.2% $ 11,230,079 52.8% $ (846,867) -7.5% Investment Advisory $ 6,015,952 34.3% $ 8,645,335 40.7% $ (2,629,383) -30.4% Equity Placement $ 1,070,140 6.1% $ 1,363,413 6.4% $ (293,273) -21.5% Loan Sales $ 79,864 0.5% $ 14,275 0.1% $ 65,589 459.5% Total Transaction Volume $ 17,549,168 $ 21,253,102 $ (3,703,934) -17.4%
Average Transaction Size $ 33,049 $ 39,949 $ (6,900) -17.3%
By Platform 1Q 2018 1Q 2017 # Chg % Chg Debt Placement 325 329 (4) -1.2% Investment Advisory 164 176 (12) -6.8% Equity Placement 37 26 11 42.3% Loan Sales 5 1 4 400.0% Total Transaction Volume 531 532 -1 -0.2%
1Q 2018 # Loans 1Q 2017 # Loans $ Chg Pct Chg. Loan Servicing Portfolio Balance $72,046,856 3,128 $60,704,650 2,812 $ 11,342,206 18.7% 11.2%
Transaction volume is estimated based on the Company’s internal database and is unaudited.
| 41
KEY HIGHLIGHTS
• 1Q 2018 total headcount of 1,009 reflects a gain of 85 associates compared to the 1Q 2017 total of 924, or 9.2%.
• 1Q 2018 capital markets advisors total 385 represents a net gain of 40 when compared to 1Q 2017 capital markets advisors count of 345, or 11.6%.
• Since year-end 2012, the firm has grown by a total of 435 total associates, or 76%.
• Capital markets advisors growth since year-end 2012 totals 156 net new advisors, or 68%.
159 171 191 229 251 277 290 319 371 345 385 217 256 307
345 386 444
1,009
0
200
400
600
800
1000
1200
2009 2010 2011 2012 2013 2014 2015 2016 2017 1Q 2017
1Q 2018
HEADCOUNT SUMMARY
PRODUCTION & PRODUCTIVITY
Financials 1 Transaction volume is estimated based on the Company’s internal database, CapTrack, and is unaudited. 2 As of the end of the respective period. 3 Calculated based on quarter end average headcount.
KEY HIGHLIGHTS • Transaction volume of $17.5 billion for
1Q 2018, down 17.4% from 1Q 2017. • Number of transactions during 1Q
2018 totaled 531, down 0.2% when compared to 532 transactions during 1Q 2017.
• Revenue per capital markets advisor decreased 15.0% as compared to 1Q 2017 and down 2.6% for the TTM period ended March 31, 2018 compared to the TTM period ended March 31, 2017.
COMPARATIVE PRODUCTION DATA
Revenue (in thousands) 131,618$ 138,806$ 609,478$
Total Volume (in billions)1 18$ 21$ 96$
No. of Transactions1 531 532 2,357
Avg Deal Size (in millions) 33$ 40$ 41$
Headcount2 1,009 924 982
Revenue per Capital Markets Advisor 342$ 402$ 1,686$ (in thousands)3
Revenue per transaction professional 1,621$ 1,664$ 1,686$ TTM (in thousands)3
Operating Performance - Qtr
12,209
9,053
3,156
34.9%
36,045
24,109
11,936
49.5%
$ 33
$ 40
$ 41
$ 35.5
Headcount2
1,009
924
982
721
$ 342
$ 402
$ 1,686
$ 1,577
Windows User: Use decimals from EOC schedule
A P P E N D I X
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Appendix
Set forth below is an unaudited reconciliation of consolidated net income (loss) attributable to controlling interest to Adjusted EBITDA for the periods presented.
Amounts do not reflect expense associated with the stock component of estimated incentive payouts under the Company’s firm profit participation bonus plan, office profit participation bonus plans (the “Plans”) and executive incentive 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. For further information regarding the Company’s accounting policies relating to the Plans, see Note 2 to the Company’s consolidated financial statements included in the quarterly report on Form 10-Q for the quarter ended March 31, 2018 to be filed with the Securities and Exchange Commission.
Stock-based payments under the firm profit participation bonus plan and office profit participation bonus plans were first made in 2012 in respect of 2011. Stock-based payments under the executive incentive plan was first made in 2016 in respect of 2015. See Note 3 to the Company’s consolidated financial statements included in the quarterly report on Form 10-Q for the year ended March 31, 2018 to be filed with the Securities and Exchange Commission, for further information regarding the Company’s accounting policies relating to its stock compensation.
(a)
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 1Q 2018 1Q 2017 Net income (loss) attributable to controlling interest 229$ (752)$ 10,891$ 40,019$ 43,862$ 51,426$ 61,286$ 83,963$ 77,195$ 94,960$ 17,068$ 19,656$ Add Interest expense 20 419 64 29 42 33 41 47 42 21 5 7 Income tax expense 5,043 2,208 8,612 22,371 8,661 34,578 42,226 57,949 51,036 106,768 805 11,895 Depreciation & amortization 3,475 3,523 3,655 4,627 5,767 6,800 7,830 9,194 11,834 17,001 5,481 3,667 Net income attributable to noncontrolling interest 4,784 2,531 6,098 2,031 243 - - - - - - - Stock-based compensation (a) 876 1,136 970 2,053 3,442 8,302 9,821 8,579 12,310 17,385 5,752 3,906 Valuation of mortgage servicing rights (3,653) (4,157) (3,923) (6,025) (9,373) (5,231) (10,294) (16,326) (19,892) (33,455) (8,405) (6,674) Increase (decrease) in payable under the tax receivable agreement (3,862) (1,889) (813) 3,890 17,358 1,040 (800) (2,143) 1,025 (39,212) - - Adjusted EBITDA 6,912$ 3,019$ 25,554$ 68,995$ 70,002$ 96,948$ 110,110$ 141,263$ 133,550$ 163,468$ 20,706$ 32,457$
Sheet1
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
$ 14,420
$ 229
$ (752)
$ 10,891
$ 40,019
$ 43,862
$ 51,426
$ 61,286
$ 83,963
$ 77,195
$ 94,960
$ 17,068
$ 19,656
Add
29,748
4,784
2,531
6,098
2,031
243
(4,344)
(3,653)
(4,157)
(3,923)
(6,025)
(9,373)
(5,231)
(10,294)
(16,326)
(19,892)
(33,455)
(8,405)
(6,674)
agreement
60
21
0%
10%
20%
30%
40%
0
20
40
60
80
100
120
140
160
180
200
220
1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18
Revenue Adjusted EBITDA Adjusted EBITDA Margin
20172016 2018
Revenue and Adjusted EBITDA1
Slide Number 1
CREATING KEY COMPETITIVE ADVANTAGES
Slide Number 17
OPEN- & CLOSED-END FUND AUM UP 115% SINCE 2007
$50.5B OF FOREIGN INVESTMENT IN 2017
FOREIGN INVESTMENT DOWN 25.2% YOY
CLOSED-END FUNDS: 64% HOLD LESS THAN 5 YEARS
REFINANCE IN FAVOR OF SALES; LESS VOLATILITY
$1 BILLION MATURING DAILY NEXT THREE YEARS
INVESTMENT ADVISORY
DEBT PLACEMENT
SUPPLY FORECAST TO STAY LOW
REPLACEMENT COST INFLATION LIMITING NEW SUPPLY
MATURE NOI GROWTH CYCLE?
HEADCOUNT GROWTH
PRODUCTION & PRODUCTIVITY