Add
HF to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| HF > SEC Filings for HF > Form 10-Q on 10-Nov-2008 | All Recent SEC Filings |
10-Nov-2008
Quarterly Report
• Global and domestic credit and liquidity issues. Global and domestic credit and liquidity issues have lead to and are expected to continue to lead to a decrease in transaction activity and lower values. The current situation in the global credit markets whereby many world governments (including but not limited to the U.S. where the Company transacts virtually all of its business) have had to take unprecedented and uncharted steps to support the financial institutions in their respective countries from collapse is unprecedented in the Company's history. Restrictions on the availability of capital, both debt and/or equity, have created significant reductions and could further reduce the liquidity in and flow of capital to the commercial real estate markets, as is currently the case. These restrictions could also cause commercial real estate prices to decrease due to the reduced amount of equity capital and debt financing available, as is currently the case. In particular, global and domestic credit and liquidity issues may reduce the number of acquisitions, dispositions and loan originations, as well as the respective number of transactions and transaction volumes, which could also adversely affect our capital markets services revenues including our servicing revenue, as is currently the case.
• Decreased investment allocation to commercial real estate class. Allocations to commercial real estate as an asset class for investment portfolio diversification may decrease for a number of reasons beyond our control, including but not limited to poor performance of the asset class relative to other asset classes, superior performance of other asset classes when compared with continued good performance of the commercial real
estate asset class or when allocations must be reduced due to the overall poor performance of an investor's portfolio causing the allocations to commercial real estate to exceed the target allocation. In addition, while commercial real estate had been recently viewed as an accepted and valid class for portfolio diversification, if this perception changes, which may be the case today, there could be a significant reduction in the amount of debt and equity capital available in the commercial real estate sector.
• Fluctuations in interest rates. Significant fluctuations in interest rates as well as steady and protracted movements of interest rates in one direction (increases or decreases) could adversely affect the operation and income of commercial real estate properties as well as the demand from investors for commercial real estate investments. Both of these events could adversely affect investor demand and the supply of capital for debt and equity investments in commercial real estate. In particular, increased interest rates may cause prices to decrease due to the increased costs of obtaining financing and could lead to decreases in purchase and sale activities thereby reducing the amounts of investment sales and loan originations and related servicing fees. If our investment sales origination and servicing businesses are negatively impacted, it is likely that our other lines of business would also suffer due to the relationship among our various capital markets services.
The factors discussed above continue to be a risk to our business as evidenced by the recent significant disruptions in the global capital and credit markets, especially in the domestic capital markets. In particular, the liquidity issues in the capital markets have adversely affected our business and could continue to adversely affect our business. The significant balance sheet issues of many of the CMBS lenders, banks, life insurance companies, captive finance companies and other financial institutions have, and may likely continue to, adversely affect the flow of commercial mortgage debt and equity to the U.S. capital markets as well and can potentially adversely affect all of our capital markets services platforms and resulting revenues.
The economic slow down, as well as deflation, and possible recession globally, and especially in the United States also continues to be a risk, not only due to the current and potential negative adverse impacts on the performance of U.S. commercial real estate markets, but also to the ability of lenders and equity investors to generate significant funds to continue to make loans and equity available to the U.S. commercial real estate market.
Other factors that may adversely affect our business are discussed under the heading "Forward-Looking Statements" and under the caption "Risk Factors" in this Quarterly Report on Form 10-Q.
Results of Operations
Following is a discussion of our results of operations for the three months
ended September 30, 2008 and September 30, 2007. The table included in the
period comparisons below provides summaries of our results of operations. The
period-to-period comparisons of financial results are not necessarily indicative
of future results.
For the Three Months Ended
September 30,
2008 2007
Total Total
% of % of Dollar Percentage
Dollars Revenue Dollars Revenue Change Change
(dollars in thousands, unless percentages)
Revenues
Capital markets
services revenue $ 29,441 94.9 % $ 66,463 97.7 % $ (37,022 ) (55.7 )%
Interest on mortgage
notes receivable 698 2.2 % 246 0.4 % 452 183.7 %
Other 895 2.9 % 1,320 1.9 % (425 ) (32.2 )%
Total revenues 31,034 100.0 % 68,029 100.0 % (36,995 ) (54.4 )%
Operating expenses
Cost of services 20,014 64.5 % 39,166 57.6 % (19,152 ) (48.9 )%
Personnel 2,160 7.0 % 4,605 6.8 % (2,445 ) (53.1 )%
Occupancy 1,930 6.2 % 2,134 3.1 % (204 ) (9.6 )%
Travel and
entertainment 970 3.1 % 991 1.5 % (21 ) (2.1 )%
Supplies, research and
printing 1,523 4.9 % 2,655 3.9 % (1,132 ) (42.6 )%
Other 4,535 14.6 % 4,878 7.2 % (343 ) (7.0 )%
Total operating
expenses 31,132 100.3 % 54,429 80.0 % (23,297 ) (42.8 )%
Operating (loss) /
income (98 ) (0.3 )% 13,600 20.0 % (13,698 ) (100.7 )%
Interest and other
income 1,849 6.0 % 2,170 3.2 % (321 ) (14.8 )%
Interest expense (4 ) (0.0 )% (4 ) (0.0 )% - 0.0 %
Decrease in payable
under tax receivable
agreement 282 0.9 % - 0.0 % 282 100.0 %
Income before income
taxes and minority
interest 2,029 6.5 % 15,766 23.2 % (13,737 ) (87.1 )%
Income tax expense 369 1.2 % 2,947 4.3 % (2,578 ) (87.5 )%
Income before minority
interest 1,660 5.3 % 12,819 18.8 % (11,159 ) (87.1 )%
Minority interest 1,335 4.3 % 8,808 12.9 % (7,473 ) (84.8 )%
Net income $ 325 1.0 % $ 4,011 5.9 % $ (3,686 ) (91.9 )%
|
Revenues. Our total revenues were $31.0 million for the three months ended
September 30, 2008 compared to $68.0 million for the same period in 2007, a
decrease of $37.0 million, or 54.4%. Revenues decreased primarily as a result of
the decrease in production volumes in several of our capital markets services
platforms brought about, in significant part, by a slowing economy, both
globally and domestically as well as from the unprecedented disruptions in the
global and domestic capital and credit markets.
• The revenues we generated from capital markets services for the three months
ended September 30, 2008 decreased $37.0 million, or 55.7%, to $29.4 million
from $66.5 million for the same period in 2007. The decrease is primarily
attributable to a decrease in both the number and the average dollar value of
transactions closed during the third quarter of 2008 compared to the third
quarter of 2007.
• The revenues derived from interest on mortgage notes receivable were $0.7 million for the three months ended September 30, 2008 compared to $0.2 million for the same period in 2007, an increase of $0.5 million. Revenues increased primarily as a result of increased volume of Freddie Mac loans in the third quarter of 2008 compared to the third quarter of 2007.
• The other revenues we earned, which include expense reimbursements from clients related to out of pocket costs incurred, were approximately $0.9 million for the three month period ended September 30, 2008 and $1.3 million for the three month period ending September 30, 2007. The decrease is primarily due to the decrease in the number of transactions closed during the third quarter 2008 compared to the third quarter of 2007.
Total Operating Expenses. Our total operating expenses were $31.1 million for
the three months ended September 30, 2008 compared to $54.4 million for the same
period in 2007, a decrease of $23.3 million, or 42.8%. Expenses decreased
primarily due to lower cost of services, personnel and supplies, research and
printing costs as a result of the reduction in capital markets services revenue.
• The costs of services for the three months ended September 30, 2008 decreased
$19.2 million, or 48.9%, to $20.0 million from $39.2 million for the same
period in 2007. The decrease is primarily the result of the decrease in
commissions and other incentive compensation directly related to the decrease
in capital markets services revenues. Cost of services as a percentage of
capital markets services and other revenues were approximately 66.0% and 57.8%
for the three month periods ended September 30, 2008 and September 30, 2007,
respectively. This percentage increase is primarily attributable to the fixed
portion of cost of services, such as salaries for our analysts and fringe
benefit costs being spread over a lower revenue base.
• Personnel expenses that are not directly attributable to providing services to our clients for the three months ended September 30, 2008 decreased $2.4 million, or 53.1%, to $2.2 million from $4.6 million for the same period in 2007. The decrease is primarily related to a decrease in profit participation expense resulting from the lower operating income during the three months ended September 30, 2008.
• Occupancy, travel and entertainment, and supplies, research and printing expenses for the three months ended September 30, 2008 decreased $1.4 million, or 23.5%, to $4.4 million compared to the same period in 2007. These decreases are primarily due to decreased supplies, research and printing expenses stemming from the decrease in capital markets services revenues.
• Other expenses, including costs for insurance, professional fees, depreciation and amortization, interest on our warehouse line of credit and other operating expenses, were $4.5 million in the three months ended September 30, 2008, a decrease of $0.3 million, or 7.0%, versus $4.9 million in the three months ended September 30, 2007. This decrease is primarily related to decreased professional fees, other taxes and gain on sale of assets in the total amount of $0.8 million. This decrease was partially offset by an increase in production interest expense of $0.3 million.
Net Income. Our net income for the three months ended September 30, 2008 was
$0.3 million, a decrease of $3.7 million versus income of $4.0 million for the
same fiscal period in 2007. We attribute this decrease to several factors, with
the most significant cause being the reduction in revenues of $37.0 million.
Factors slightly offsetting this decrease included:
• The decrease in the payable under the tax receivable agreement of $282,000
reflects the decrease in the estimated tax benefits owed to HFF Holdings under
the tax receivable agreement. This decrease in tax benefits owed to HFF
Holdings represents 85% of the decrease in the related deferred tax asset of
$333,000.
• During the three months ended September 30, 2008, the Company recorded a current income tax expense of $0.7 million and deferred income tax benefit of $0.3 million as compared to current income tax expense of $1.1 million and deferred income tax expense of $1.8 million during the three months ended September 30, 2007.
Following is a discussion of our results of operations for the nine months ended September 30, 2008 and September 30, 2007. The table included in the period comparisons below provides summaries of our results of operations. The period-to-period comparisons of financial results are not necessarily indicative of future results.
For the Nine Months Ended
September 30,
2008 2007
Total Total
% of % of Dollar Percentage
Dollars Revenue Dollars Revenue Change Change
(dollars in thousands, unless percentages)
Revenues
Capital markets
services revenue $ 103,003 96.4 % $ 199,565 98.1 % $ (96,562 ) (48.4 )%
Interest on mortgage
notes receivable 1,421 1.3 % 1,081 0.5 % 340 31.5 %
Other 2,379 2.2 % 2,714 1.4 % (335 ) (12.3 )%
Total revenues 106,803 100.0 % 203,360 100.0 % (96,557 ) (47.5 )%
Operating expenses
Cost of services 69,365 64.9 % 116,854 57.5 % (47,489 ) (40.6 )%
Personnel 7,018 6.6 % 14,307 7.0 % (7,289 ) (50.9 )%
Occupancy 5,689 5.3 % 6,012 3.0 % (323 ) (5.4 )%
Travel and
entertainment 4,855 4.5 % 4,635 2.3 % 220 4.7 %
Supplies, research and
printing 5,841 5.5 % 6,703 3.3 % (862 ) (12.9 )%
Other 12,245 11.5 % 14,156 7.0 % (1,911 ) (13.5 )%
Total operating
expenses 105,013 98.3 % 162,667 80.0 % (57,654 ) (35.4 )%
Operating income 1,790 1.7 % 40,693 20.0 % (38,903 ) (95.6 )%
Interest and other
income 3,775 3.5 % 4,086 2.0 % (311 ) (7.6 )%
Interest expense (15 ) (0.0 )% (404 ) (0.2 )% 389 (96.3 )%
Decrease in payable
under the tax
receivable agreement 3,862 3.6 % - 0.0 % 3,862 100.0 %
Income before income
taxes and minority
interest 9,412 8.8 % 44,375 21.8 % (34,963 ) (78.8 )%
Income tax expense 4,833 4.5 % 7,839 3.9 % (3,006 ) (38.3 )%
Income before minority
interest 4,579 4.3 % 36,536 18.0 % (31,957 ) (87.5 )%
Minority interest 4,149 3.9 % 24,229 11.9 % (20,080 ) (82.9 )%
Net income $ 430 0.4 % $ 12,307 6.1 % $ (11,877 ) (96.5 )%
|
Revenues. Our total revenues were $106.8 million for the nine months ended
September 30, 2008 compared to $203.4 million for the same period in 2007, a
decrease of $96.6 million, or 47.5%. Revenues decreased primarily as a result of
the decrease in production volumes in several of our capital markets services
platforms attributable to, in significant part, by a slowing economy, both
globally and domestically as well as from the unprecedented disruptions in the
global and domestic capital and credit markets.
• The revenues we generated from capital markets services for the nine months
ended September 30, 2008 decreased $96.6 million, or 48.4%, to $103.0 million
from $199.6 million for the same period in 2007. The decrease is primarily
attributable to a decrease in both the number and the average dollar value of
transactions closed during the first nine months of 2008 compared to the first
nine months of 2007.
• The revenues derived from interest on mortgage notes receivable were $1.4 million for the nine months ended September 30, 2008 compared to $1.1 million for the same period in 2007, an increase of $0.3 million. Revenues increased primarily as a result of increased volume of Freddie Mac loans in the first nine months of 2008 compared to the first nine months of 2007.
• The other revenues we earned, which include expense reimbursements from clients related to out of pocket costs incurred, were approximately $2.4 million for the nine month period ended September 30, 2008 and $2.7 million for the nine month period ending September 30, 2007.
Total Operating Expenses. Our total operating expenses were $105.0 million for the nine months ended September 30, 2008 compared to $162.7 million for the same period in 2007, a decrease of $57.7 million, or 35.4%. Expenses decreased primarily due to lower cost of services and personnel costs as a result of the reduction in capital markets services revenue, and decreased professional fees and supplies, research and printing costs.
• The costs of services for the nine months ended September 30, 2008 decreased $47.5 million, or 40.6%, to $69.4 million from $116.9 million for the same period in 2007. The decrease is primarily the result of the decrease in commissions and other incentive compensation directly related to the decrease in capital markets services revenues. Cost of services as a percentage of capital markets services and other revenues were approximately 65.8% and 57.8% for the nine month periods ended September 30, 2008 and September 30, 2007, respectively. This percentage increase is primarily attributable to the fixed portion of cost of services, such as salaries for our analysts and fringe benefit costs, being spread over a lower revenue base.
• Personnel expenses that are not directly attributable to providing services to our clients for the nine months ended September 30, 2008 decreased $7.3 million, or 50.9%, to $7.0 million from $14.3 million for the same period in 2007. The decrease is primarily related to a decrease in profit participation expense resulting from the lower operating income during the nine months ended September 30, 2008. This decrease was slightly offset by increased salaries of $0.5 million during the nine months ended September 30, 2008 as compared to the same period in the prior year.
• Other expenses, including costs for insurance, professional fees, depreciation and amortization, interest on our warehouse line of credit and other operating expenses, were $12.2 million in the nine months ended September 30, 2008, a decrease of $1.9 million, or 13.5%, versus $14.2 million in the nine months ended September 30, 2007. This decrease is primarily related to decreases in professional fees and marketing expenses. The Company experienced higher professional fees of approximately $0.9 million during the nine month period ended September 30, 2007 primarily as a consequence of fees related to the Company's initial public offering that were incurred during this period. Marketing expenses decreased $0.8 million due to a decrease in corporate and local advertising and corporate-sponsored events .
Net Income. Our net income for the nine months ended September 30, 2008 was
$0.4 million, a decrease of $11.9 million versus net income of $12.3 million for
the same fiscal period in 2007. We attribute this decrease to several factors,
with the most significant cause being a decrease of revenues of $96.6 million
related to current year market conditions and the resulting lower operating
income. Factors slightly offsetting this decrease included:
• The interest expense we incurred in the nine months ended September 30, 2008
totaled $15,000, compared to $0.4 million of similar expenses incurred in the
nine months ended September 30, 2007. This decrease resulted from interest
expense in the amount of $0.4 million on a Credit Agreement with Bank of
America in the three months ended March 31, 2007. The outstanding balance of
$56.3 million under this Credit Agreement was paid off with the proceeds from
the initial public offering and we contemporaneously entered into an Amended
Credit Agreement with Bank of America providing for our current $40.0 million
line of credit.
• The decrease in the payable under the tax receivable agreement of $3.9 million reflects the decrease in the estimated tax benefits owed to HFF Holdings under the tax receivable agreement. This decrease in tax benefits owed to HFF Holdings represents 85% of the decrease in the related deferred tax asset of $4.6 million.
• Income tax expense was approximately $4.8 million for the nine months ended September 30, 2008, a decrease of $3.0 million from $7.8 million in the nine months ended September 30, 2007. This decrease is primarily due to the decrease in net operating income experienced during the nine months ended September 30, 2008 compared to the same period in the prior year. During the nine months ended September 30, 2008, the Company recorded a current income tax benefit of $2.7 million which was offset by deferred income tax expense of $7.5 million, primarily relating to the amortization of the step-up in basis from the Section 754 election and a change in the rates used to measure the deferred tax assets. During the nine months ended September 30, 2007, the Company recorded current income tax expense of $3.3 million and deferred income tax expense of $4.5 million.
Financial Condition
Total assets increased to $289.5 million at September 30, 2008, from
$240.5 million at December 31, 2007, primarily due to:
• An increase in prepaids and other assets of $4.6 million primarily the result
of the recording of a current income tax benefit of $2.7 million during the
nine months ending September 30, 2008 and payment of annual insurance
premiums.
. . .
|
|