Company Quick10K Filing
HFF
Price48.05 EPS3
Shares40 P/E15
MCap1,937 P/FCF31
Net Debt-240 EBIT150
TEV1,696 TEV/EBIT11
TTM 2019-03-31, in MM, except price, ratios
10-Q 2019-03-31 Filed 2019-05-07
10-K 2018-12-31 Filed 2019-02-28
10-Q 2018-09-30 Filed 2018-11-06
10-Q 2018-06-30 Filed 2018-08-02
10-Q 2018-03-31 Filed 2018-05-04
10-K 2017-12-31 Filed 2018-02-28
10-Q 2017-09-30 Filed 2017-11-07
10-Q 2017-06-30 Filed 2017-08-03
10-Q 2017-03-31 Filed 2017-05-04
10-K 2016-12-31 Filed 2017-03-01
10-Q 2016-09-30 Filed 2016-11-04
10-Q 2016-06-30 Filed 2016-08-03
10-Q 2016-03-31 Filed 2016-05-06
10-K 2015-12-31 Filed 2016-02-26
10-Q 2015-09-30 Filed 2015-11-09
10-Q 2015-06-30 Filed 2015-08-06
10-Q 2015-03-31 Filed 2015-05-07
10-K 2014-12-31 Filed 2015-02-27
10-Q 2014-09-30 Filed 2014-11-10
10-Q 2014-06-30 Filed 2014-08-08
10-Q 2014-03-31 Filed 2014-05-12
10-K 2013-12-31 Filed 2014-03-14
10-Q 2013-09-30 Filed 2013-11-08
10-Q 2013-06-30 Filed 2013-08-01
10-Q 2013-03-31 Filed 2013-05-08
10-K 2012-12-31 Filed 2013-03-15
10-Q 2012-09-30 Filed 2012-11-07
10-Q 2012-06-30 Filed 2012-08-03
10-Q 2012-03-31 Filed 2012-05-04
10-K 2011-12-31 Filed 2012-03-09
10-Q 2011-09-30 Filed 2011-11-04
10-Q 2011-06-30 Filed 2011-08-02
10-Q 2011-03-31 Filed 2011-05-06
10-K 2010-12-31 Filed 2011-03-11
10-Q 2010-09-30 Filed 2010-11-04
10-Q 2010-06-30 Filed 2010-08-05
10-Q 2010-03-31 Filed 2010-05-07
10-K 2009-12-31 Filed 2010-03-12
8-K 2019-07-01
8-K 2019-06-28
8-K 2019-06-19
8-K 2019-04-24
8-K 2019-03-19
8-K 2019-03-18
8-K 2019-03-18
8-K 2019-02-21
8-K 2019-02-01
8-K 2018-10-30
8-K 2018-08-24
8-K 2018-07-26
8-K 2018-05-24
8-K 2018-04-24
8-K 2018-02-27
8-K 2018-01-26

HF 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 hf-ex311_6.htm
EX-31.2 hf-ex312_8.htm
EX-32.1 hf-ex321_7.htm

HFF Earnings 2019-03-31

Balance SheetIncome StatementCash Flow
1.51.20.90.60.30.02012201420172020
Assets, Equity
0.30.20.20.10.10.02012201420172020
Rev, G Profit, Net Income
0.10.10.0-0.0-0.1-0.12012201420172020
Ops, Inv, Fin

10-Q 1 hf-10q_20190331.htm 10-Q hf-10q_20190331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2019     

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from      to

Commission file number: 001-33280

HFF, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

51-0610340

(State of Incorporation)

(I.R.S. Employer Identification No.)

 

 

One Victory Park

 

2323 Victory Avenue, Suite 1200

 

Dallas, Texas

75219

(Address of Principal Executive Offices)

(Zip code)

 

(214) 265-0880

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

  

  

Smaller Reporting Company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class A Common Stock

 

HF

 

New York Stock Exchange

Number of shares of Class A common stock, par value $0.01 per share, of the registrant outstanding as of April 30, 2019 was 39,823,827 shares.

 

 


HFF, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

 

 

2


FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. The forward-looking statements reflect our current views with respect to, among other things, our operations and financial performance. You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include, but are not limited to, those described under the caption “Risk Factors” in our Annual Report on Form 10-K and this Quarterly Report on Form 10-Q. Additionally, risks and uncertainties related to the merger are set forth in the preliminary Proxy Statement/Prospectus filed by Jones Lang LaSalle Incorporated on Form S-4 with the Securities and Exchange Commission on April 29, 2019, and incorporated herein by reference. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this Quarterly Report on Form 10-Q and our other periodic filings with the Securities and Exchange Commission. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by securities laws.

 

SPECIAL NOTE REGARDING THE REGISTRANT

In connection with our initial public offering in February 2007, we effected a reorganization of our business into a holding company holding the partnership interests in Holliday Fenoglio Fowler, L.P. and HFF Securities L.P. (together, the “Operating Partnerships”), held through the wholly owned subsidiary HFF Partnership Holdings, LLC, a Delaware limited liability company, and all of the outstanding shares of Holliday GP Corp. (“Holliday GP”), the sole general partner of each of the Operating Partnerships. The transactions that occurred in connection with the initial public offering and reorganization are referred to as the “Reorganization Transactions.”

Unless the context otherwise requires, references to (1) “HFF Holdings” refer solely to HFF Holdings LLC, a Delaware limited liability company that was previously the holding company for our consolidated subsidiaries, and not to any of its subsidiaries, (2) “HFF LP” refer to Holliday Fenoglio Fowler, L.P., a Texas limited partnership, (3) “HFF Securities” refer to HFF Securities L.P., a Delaware limited partnership and registered broker-dealer, (4) “Holliday GP” refer to Holliday GP Corp., a Delaware corporation and the general partner of HFF LP and HFF Securities, (5) “HoldCo LLC” refer to HFF Partnership Holdings LLC, a Delaware limited liability company and a wholly-owned subsidiary of HFF, Inc., (6) “Holdings Sub” refer to HFF LP Acquisition LLC, a Delaware limited liability company and wholly-owned subsidiary of HFF Holdings, (7) “HFF Real Estate” refer to HFF Real Estate Limited, a company incorporated in England and Wales and (8) “HFF Securities Limited” refer to HFF Securities Limited, a company incorporated in England and Wales (collectively, with HFF Real Estate, the “UK Subsidiaries” and, with HFF Securities, the “Securities Subsidiaries”). Except where specifically noted, references in this Quarterly Report on Form 10-Q to “the Company,” “we” or “us” mean HFF, Inc., a Delaware corporation and its consolidated subsidiaries after giving effect to the Reorganization Transactions.

 


3


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HFF, Inc.

Consolidated Balance Sheets

(Dollars in thousands, except share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

235,212

 

 

$

305,555

 

Restricted cash

 

 

5,234

 

 

 

1,723

 

Accounts receivable

 

 

10,283

 

 

 

8,150

 

Mortgage notes receivable

 

 

966,694

 

 

 

351,194

 

Prepaid taxes

 

 

1,240

 

 

 

671

 

Prepaid expenses and other current assets

 

 

18,787

 

 

 

13,021

 

Total current assets

 

 

1,237,450

 

 

 

680,314

 

Property and equipment, net

 

 

18,778

 

 

 

17,196

 

Operating lease right-of-use asset

 

 

34,970

 

 

 

 

Deferred tax asset, net

 

 

35,863

 

 

 

41,124

 

Goodwill

 

 

8,581

 

 

 

8,512

 

Intangible assets, net

 

 

74,313

 

 

 

73,862

 

Securities - held to maturity

 

 

25,000

 

 

 

25,000

 

Other noncurrent assets

 

 

12,820

 

 

 

12,045

 

Total assets

 

$

1,447,775

 

 

$

858,053

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

79

 

 

$

3,898

 

Current portion of operating lease liabilities

 

 

9,397

 

 

 

 

Warehouse line of credit

 

 

961,252

 

 

 

348,378

 

Accrued compensation and related taxes

 

 

49,705

 

 

 

67,653

 

Accounts payable

 

 

4,359

 

 

 

3,204

 

Payable under tax receivable agreement

 

 

8,313

 

 

 

8,313

 

Other current liabilities

 

 

29,094

 

 

 

21,968

 

Total current liabilities

 

 

1,062,199

 

 

 

453,414

 

Deferred rent credit

 

 

 

 

 

11,825

 

Payable under the tax receivable agreement, less current portion

 

 

41,977

 

 

 

41,977

 

Long-term debt, less current portion

 

 

52

 

 

 

66

 

Noncurrent operating lease liabilities

 

 

37,436

 

 

 

 

Other noncurrent liabilities

 

 

608

 

 

 

225

 

Total liabilities

 

 

1,142,272

 

 

 

507,507

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Class A common stock, par value $0.01 per share, 175,000,000 authorized; 39,857,514

   and 39,143,253 shares issued, respectively; 39,823,827 and 39,116,745 shares

   outstanding, respectively

 

 

399

 

 

 

391

 

Treasury stock, 33,687 and 26,508 shares at cost, respectively

 

 

(1,501

)

 

 

(1,220

)

Additional paid-in-capital

 

 

159,229

 

 

 

159,636

 

Accumulated other comprehensive loss

 

 

(728

)

 

 

(743

)

Retained earnings

 

 

148,104

 

 

 

192,482

 

Total equity

 

 

305,503

 

 

 

350,546

 

Total liabilities and stockholders’ equity

 

$

1,447,775

 

 

$

858,053

 

 

See accompanying notes to the consolidated financial statements.

4


HFF, Inc.

Consolidated Statements of Comprehensive Income

(Dollars in thousands, except per share data)

 

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

Revenues

 

 

 

 

 

 

 

 

Capital markets services revenue

 

$

153,366

 

 

$

125,458

 

Interest on mortgage notes receivable

 

 

4,589

 

 

 

5,244

 

Other

 

 

1,227

 

 

 

916

 

 

 

 

159,182

 

 

 

131,618

 

Expenses

 

 

 

 

 

 

 

 

Cost of services

 

 

90,271

 

 

 

78,644

 

Personnel

 

 

20,289

 

 

 

22,064

 

Occupancy

 

 

4,160

 

 

 

3,813

 

Travel and entertainment

 

 

5,918

 

 

 

6,382

 

Supplies, research, and printing

 

 

2,316

 

 

 

2,191

 

Insurance

 

 

692

 

 

 

689

 

Professional fees

 

 

3,239

 

 

 

1,670

 

Depreciation and amortization

 

 

6,127

 

 

 

5,481

 

Interest on warehouse line of credit

 

 

3,911

 

 

 

4,211

 

Other operating

 

 

3,403

 

 

 

3,766

 

 

 

 

140,326

 

 

 

128,911

 

Operating income

 

 

18,856

 

 

 

2,707

 

Interest and other income, net

 

 

14,211

 

 

 

15,171

 

Interest expense

 

 

(1

)

 

 

(5

)

(Increase) decrease in payable under the tax receivable agreement

 

 

 

 

 

 

Income before income taxes

 

 

33,066

 

 

 

17,873

 

Income tax expense

 

 

5,256

 

 

 

805

 

Net income

 

$

27,810

 

 

$

17,068

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

15

 

 

 

495

 

Comprehensive income

 

$

27,825

 

 

$

17,563

 

Earnings per share - Basic and Diluted

 

 

 

 

 

 

 

 

Earnings per share available to HFF, Inc. common stockholders

   - Basic

 

$

0.70

 

 

$

0.44

 

Earnings per share available to HFF, Inc. common stockholders

   - Diluted

 

$

0.69

 

 

$

0.42

 

 

See accompanying notes to the consolidated financial statements.

 

 

5


HFF, Inc.

Consolidated Statements of Stockholders’ Equity

(Dollars in thousands, except share data)

(Unaudited)

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional

 

 

Accumulated

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Paid in

 

 

Comprehensive

 

 

Retained

 

 

Total

 

(Dollars in thousands)

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

(Loss) Income

 

 

Earnings

 

 

Equity

 

Stockholders' Equity, December 31, 2018

 

 

39,116,745

 

 

$

391

 

 

 

26,508

 

 

$

(1,220

)

 

$

159,636

 

 

$

(743

)

 

$

192,482

 

 

$

350,546

 

Stock compensation and other, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,365

 

 

 

 

 

 

 

 

 

10,365

 

Issuance of Class A common stock, net

 

 

1,044,669

 

 

 

8

 

 

 

(330,408

)

 

 

14,231

 

 

 

(14,239

)

 

 

 

 

 

 

 

 

 

Repurchase of Class A common stock

 

 

(337,587

)

 

 

 

 

 

337,587

 

 

 

(14,512

)

 

 

 

 

 

 

 

 

 

 

 

(14,512

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15

 

 

 

 

 

 

15

 

Dividends paid

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,467

 

 

 

 

 

 

(72,188

)

 

 

(68,721

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27,810

 

 

 

27,810

 

Stockholders' Equity, March 31, 2019

 

 

39,823,827

 

 

$

399

 

 

 

33,687

 

 

$

(1,501

)

 

$

159,229

 

 

$

(728

)

 

$

148,104

 

 

$

305,503

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Additional

 

 

Accumulated

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Paid in

 

 

Comprehensive

 

 

Retained

 

 

Total

 

(Dollars in thousands)

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

(Loss) Income

 

 

Earnings

 

 

Equity

 

Stockholders' Equity, December 31, 2017

 

 

38,579,544

 

 

$

387

 

 

 

163,154

 

 

$

(4,971

)

 

$

144,304

 

 

$

171

 

 

$

146,576

 

 

$

286,467

 

Cumulative effect of adoption of new accounting

   standard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,304

 

 

 

1,304

 

Stock compensation and other, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,188

 

 

 

 

 

 

 

 

 

10,188

 

Issuance of Class A common stock, net

 

 

822,207

 

 

 

4

 

 

 

(423,501

)

 

 

17,273

 

 

 

(17,277

)

 

 

 

 

 

 

 

 

 

Repurchase of Class A common stock

 

 

(298,931

)

 

 

 

 

 

298,931

 

 

 

(14,101

)

 

 

 

 

 

 

 

 

 

 

 

(14,101

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

495

 

 

 

 

 

 

495

 

Dividends paid

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,663

 

 

 

 

 

 

(71,435

)

 

 

(67,772

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,068

 

 

 

17,068

 

Stockholders' Equity, March 31, 2018

 

 

39,102,820

 

 

$

391

 

 

 

38,584

 

 

$

(1,799

)

 

$

140,878

 

 

$

666

 

 

$

93,513

 

 

$

233,649

 

 

See accompanying notes to the consolidated financial statements.

 

 

6


 

HFF, Inc.

Consolidated Statements of Cash Flows

(Dollars in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

Operating activities

 

 

 

 

 

 

 

 

Net income

 

$

27,810

 

 

$

17,068

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Stock based compensation

 

 

5,850

 

 

 

5,752

 

Deferred taxes

 

 

5,091

 

 

 

666

 

Increase (decrease) in payable under the tax receivable agreement

 

 

 

 

 

 

Depreciation

 

 

1,183

 

 

 

1,100

 

Amortization

 

 

4,944

 

 

 

4,381

 

Gain on sale and initial recording of mortgage servicing rights

 

 

(7,112

)

 

 

(8,573

)

Mortgage service rights assumed

 

 

(885

)

 

 

(935

)

Other

 

 

(370

)

 

 

 

Increase (decrease) in cash from changes in:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(2,133

)

 

 

(1,960

)

Mortgage notes receivable

 

 

(612,874

)

 

 

(508,586

)

Net borrowings on warehouse line of credit

 

 

612,874

 

 

 

508,586

 

Prepaid taxes, prepaid expenses and other current assets

 

 

(5,781

)

 

 

914

 

Other noncurrent assets

 

 

(538

)

 

 

1,159

 

Accrued compensation and related taxes

 

 

(13,263

)

 

 

(15,167

)

Accounts payable

 

 

1,155

 

 

 

(1,740

)

Other current liabilities

 

 

7,126

 

 

 

(4,279

)

Deferred rent and other noncurrent liabilities

 

 

 

 

 

(309

)

Net cash provided by operating activities

 

 

23,077

 

 

 

(1,923

)

Investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(2,788

)

 

 

(490

)

Purchase of securities and other investments

 

 

(3,800

)

 

 

 

Net cash used in investing activities

 

 

(6,588

)

 

 

(490

)

Financing activities

 

 

 

 

 

 

 

 

Payments on long-term debt

 

 

(33

)

 

 

(62

)

Dividends paid

 

 

(68,721

)

 

 

(67,772

)

Treasury stock

 

 

(14,512

)

 

 

(14,101

)

Net cash used in financing activities

 

 

(83,266

)

 

 

(81,935

)

Effects of exchange rate changes on cash and cash equivalents and restricted cash

 

 

(55

)

 

 

374

 

Net decrease in cash and cash equivalents and restricted cash

 

 

(66,832

)

 

 

(83,974

)

Cash and cash equivalents and restricted cash, beginning of period

 

 

307,278

 

 

 

276,802

 

Cash and cash equivalents and restricted cash, end of period

 

$

240,446

 

 

$

192,828

 

 

See accompanying notes to the consolidated financial statements.

 

 

7


HFF, Inc.

Notes to Consolidated Financial Statements (Unaudited)

 

1. Organization and Basis of Presentation

Organization

HFF, Inc., a Delaware corporation (the “Company”), through its wholly-owned subsidiaries, Holliday Fenoglio Fowler, L.P., a Texas limited partnership (“HFF LP”), HFF Securities L.P., a Delaware limited partnership and registered broker-dealer (“HFF Securities” and together with HFF LP, the “Operating Partnerships”), HFF Real Estate Limited and HFF Securities Limited, in the United Kingdom, is a commercial real estate financial intermediary providing commercial real estate and capital markets services including debt placement, investment advisory, equity placements, investment banking and advisory services, loan sales and loan sale advisory services, commercial loan servicing, and capital markets advice and maintains offices in 25 cities in the United States and one office in London, United Kingdom. The Company’s operations are impacted by the availability of equity and debt as well as credit and liquidity in the domestic and global capital markets especially in the commercial real estate sector. Significant disruptions or changes in domestic and global capital market flows, as well as credit and liquidity issues in the global and domestic capital markets, regardless of their duration, could adversely affect the supply and demand for capital from investors for commercial real estate investments which could have a significant impact on all of the Company’s capital market services revenues.

Initial Public Offering and Reorganization

The Company completed its initial public offering (“IPO”) and the Company’s Class A Common Stock began trading on the New York Stock Exchange under the symbol “HF” in the first quarter of 2007. The proceeds of the initial public offering, including the exercise of the underwriter’s option to purchase additional shares, were used to purchase from HFF Holdings LLC, a Delaware limited liability company (“HFF Holdings”), all of the shares of Holliday GP Corp. (“Holliday GP”) and purchase from HFF Holdings partnership units of the Operating Partnerships (including partnership units in the Operating Partnerships held by Holliday GP). HFF Holdings used a portion of its proceeds to repay all outstanding indebtedness under HFF LP’s credit agreement. Accordingly, the Company did not retain any of the proceeds from the initial public offering.

In addition to cash received for its sale of all of the shares of Holliday GP and approximately 45% of partnership units of each of the Operating Partnerships (including partnership units in the Operating Partnerships held by Holliday GP), HFF Holdings also received, through the issuance of one share of HFF, Inc.’s Class B common stock to HFF Holdings, an exchange right that permitted, subject to certain restrictions, HFF Holdings to exchange interests in the Operating Partnerships for shares of (i) the Company’s Class A common stock (the “Exchange Right”) and (ii) rights under a tax receivable agreement between the Company and HFF Holdings (the “TRA”). See Notes 16 and 17 for further discussion of the tax receivable agreement.

As a result of the reorganization in connection with the IPO, the Company became a holding company through a series of transactions pursuant to a sale and purchase agreement. As a result of the IPO and reorganization, the Company’s sole assets were partnership interests in Operating Partnerships (that are held through its wholly-owned subsidiary HFF Partnership Holdings, LLC, a Delaware limited liability company (“Partnership Holdings”) and all of the shares of Holliday GP, the sole general partner of each of the Operating Partnerships. The transactions that occurred in connection with the IPO and reorganization are referred to as the “Reorganization Transactions.”

The Reorganization Transactions were treated, for financial reporting purposes, as a reorganization of entities under common control. As of August 31, 2012, HFF Holdings had utilized its Exchange Right to exchange all of its remaining interests in the Operating Partnerships and therefore the Company, through its wholly-owned subsidiaries, became and continues to be the sole equity holder of the Operating Partnerships.

Proposed Merger with Jones Lang LaSalle Incorporated

On March 18, 2019, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among Jones Lang LaSalle Incorporated, a Maryland corporation (“Parent”), JLL CM, Inc., a Delaware corporation and wholly owned subsidiary of JLL (“Merger Sub”), JLL CMG, LLC, a Delaware limited liability company and wholly owned subsidiary of JLL (“Merger LLC”), and the Company. The Merger Agreement provides, among other things, that, upon the terms and subject to the conditions set forth in the Merger Agreement, (i) Merger Sub will merge with and into the Company, with the Company as the surviving corporation (the “Merger”), and (ii) following the completion of the Merger, the surviving corporation from the Merger will merge with and into Merger LLC (the “Subsequent Merger”), with Merger LLC surviving the Subsequent Merger and continuing as a wholly owned subsidiary of Parent.

8


HFF, Inc.

Notes to Consolidated Financial Statements (Unaudited) - (Continued)

 

The Company’s Board of Directors (the “Board”) has, by unanimous vote, approved the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement.

Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger, (the “Effective Time”), each share of Class A common stock of the Company, par value $0.01 per share (“Company Shares”), issued and outstanding immediately prior to the Effective Time (other than shares held by the Company, Parent or any of their respective subsidiaries and shares held by any holder of Company Shares who is entitled to demand and properly demands appraisal of such shares under Delaware law) will convert into (i) $24.63 per share in cash and (ii) 0.1505 of a share of common stock of Parent, par value $0.01 per share (“Parent Common Stock”). No fractional shares of Parent Common Stock will be issued in the Merger, and holders of Company Shares will receive cash in lieu of any fractional shares of Parent Common Stock.

The closing of the Merger is subject to certain conditions, including, among others, (i) the adoption of the Merger Agreement by the holders of at least a majority of the outstanding Company Shares entitled to vote thereon, (ii) the approval for listing on the New York Stock Exchange of the shares of Parent Common Stock issuable to the Company’s stockholders pursuant to the Merger Agreement, (iii) the expiration or earlier termination of the waiting period under Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and regulatory approval by FINRA, the U.K. Financial Conduct Authority, the Federal Home Loan Mortgage Corporation and certain state regulatory authorities, (iv) no court order or other legal restraint or prohibition preventing the consummation of the Merger or the Subsequent Merger, (v) the effectiveness of a registration statement on Form S-4 to be filed with the Securities and Exchange Commission by Parent in connection with the issuance of shares of Parent Company Stock in the Merger, (vi) in the case of each party’s obligation to effect the Merger, the absence of a material adverse effect with respect to the other party since the date of the Merger Agreement and (vii) subject to materiality exceptions, the accuracy of the representations and warranties made by Parent, Merger Sub and Merger LLC, on the one hand, and the Company, on the other hand, and compliance by Parent, Merger Sub, Merger LLC and the Company in all material respects with their respective obligations under the Merger Agreement. Effective April 15, 2019, the early termination of the Hart-Scott-Rodino waiting period was granted by the Federal Trade Commission.

The Merger Agreement contains specified termination rights for both the Company and Parent. The Company must pay Parent a termination fee of $54,000,000 if the Merger Agreement is terminated under certain specified circumstances, including (i) following a failure by the Company to obtain the requisite stockholder approval if the Company enters into a transaction with respect to a Company Competing Proposal (as defined in the Merger Agreement) within 12 months of such termination, (ii) if Parent terminates the Merger Agreement following a change of recommendation, (iii) if the Company terminates the Merger Agreement to enter into a Company Superior Proposal (as defined in the Merger Agreement) or (iv) if the Company has committed a material breach of the restrictions regarding dealing with third parties. Furthermore, Parent must pay the Company a termination fee of $75,000,000 if the Merger Agreement is terminated under certain specified circumstances, including (i) as a result of a judgment or other legal prohibition or restraint arising under the antitrust laws, and solely in such case, as of the date of such termination, all of the conditions other than antitrust-related conditions have been satisfied or waived other than those conditions that by their nature are only capable of being satisfied at the closing and (ii) if, upon reaching the 9-month anniversary of the Merger Agreement (which may be extended by up to 6 months under certain circumstances), the Company or Parent terminates the Merger Agreement and all of the conditions other than approval under the antitrust laws have been satisfied or waived at such time, other than conditions that by their nature would be satisfied if the closing and the closing date had occurred on the date of such termination.

The foregoing summary of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is qualified in its entirety by reference to the terms and conditions of the Merger Agreement, a copy of which is attached as Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on March 20, 2019.

Basis of Presentation

The accompanying consolidated financial statements of the Company include the accounts of HFF LP, HFF Securities, HFF Real Estate Limited and HFF Securities Limited, as well as the Company’s additional wholly-owned subsidiaries, Holliday GP, Partnership Holdings and HFF InvestCo LLC. All significant intercompany accounts and transactions have been eliminated.

Recent Accounting Pronouncements

In February 2016, the FASB issued guidance on the accounting for leases.  This guidance requires that a lessee recognize assets and liabilities on the balance sheet for all leases with a lease term of more than twelve months, with the result being the recognition of a right of use asset and a lease liability.  The Company adopted the new standard on January 1, 2019 on a modified retrospective basis and did not restate comparative periods. Upon adoption, the Company elected to utilize the package of practical expedients permitted

9


HFF, Inc.

Notes to Consolidated Financial Statements (Unaudited) - (Continued)

 

under the transition guidance, which allows the Company to carryforward (i) the historical lease classification, (ii) its assessment on whether a contract is or contains a lease and (iii) previously capitalized initial direct costs for any leases that exist prior to adoption of the new standard. The Company will also elect to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of comprehensive income on a straight-line basis over the lease term. Upon adoption, approximately $37.0 million was recognized as a right-of-use asset and approximately $49.4 million was recorded as a lease liability on our consolidated statement of financial position as of January 1, 2019. The new standard also requires expanded disclosure regarding the amounts, timing and uncertainties of cash flows related to a company’s lease portfolio. Refer to Note 9 for additional information on the adoption of the lease standard.

In June 2016, the FASB issued its final standard on measurement of credit losses on financial instruments. This standard, issued as ASU 2016-13, requires that an entity measure impairment of certain financial instruments, including trade receivables, based on expected losses rather than incurred losses. This update is effective for annual and interim financial statement periods beginning after December 15, 2019, with early adoption permitted for financial statement periods beginning after December 15, 2018. The Company is currently evaluating this standard to determine the impact of adoption on its consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07 “Stock Compensation (Topic 718): Improvements to Nonemployee Share-based Payment Accounting”, to simplify the accounting for share–based payments granted to nonemployees by aligning the accounting with the requirements for employee share–based compensation. The Company adopted the new standard on January 1, 2019 and the adoption did not have a material impact on the Company's consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13 “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for the Fair Value Measurement. The update eliminates the disclosure requirements associated with (a) the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (b) policies related to the timing and transfers between levels of the fair value hierarchy and (c) the valuation processes for Level 3 fair value measurements. ASU 2018-13 will require disclosures related to the range and weighted averages used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for the Company on January 1, 2020 with early adoption permitted. The Company does not expect the adoption of this guidance to have a material impact on the Company's consolidated financial statements or disclosures.

 

2. Summary of Significant Accounting Policies

These interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  In the opinion of management, all adjustments consisting of normal and recurring entries considered necessary for a fair presentation of the results for the interim periods presented have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts in the financial statements and accompanying notes. These estimates are based on information available as of the date of the unaudited consolidated financial statements. Therefore, actual results could differ from those estimates. Furthermore, operating results for the three months ended March 31, 2019 are not necessarily indicative of the results expected for the year ending December 31, 2019.

Revenue Recognition. Substantially all of the Company’s revenues are derived from capital markets services. These capital markets services revenues are in the form of fees collected from the Company’s clients, usually negotiated on a transaction-by-transaction basis, which includes origination fees, investment advisory fees earned for brokering sales of commercial real estate, loan sales and loan servicing fees. The Company also earns interest on mortgage notes receivable during the period between the origination of the loan and the subsequent sale to Freddie Mac in connection with the Company’s participation in the Freddie Mac Program.  

Total Revenues:

Capital markets services revenues.    The Company earns its capital markets services revenue through the following activities and sources:

 

Origination fees.    Origination fees are earned through the placement of debt and equity or structured financing for commercial real estate transactions. Fees earned by the Securities Subsidiaries for discretionary and non-discretionary equity capital raises and other debt referral transactions are also included within origination fees in the Company’s consolidated statements of comprehensive income.

10


HFF, Inc.

Notes to Consolidated Financial Statements (Unaudited) - (Continued)

 

 

Investment advisory fees.    The Company earns investment advisory fees by acting as a broker for commercial real estate owners seeking to sell a property or multiple properties or an interest in a property or multiple properties and by providing investment banking advisory services through the Securities Subsidiaries.

 

Loan sales.    The Company generates loan sales fees through assisting its clients in their efforts to sell all or portions of commercial real estate debt notes.

The Company’s contracts are generally negotiated on a transaction-by-transaction basis with a success-based fee awarded upon the satisfaction of the origination, sale, referral, placement or equity raise.  The Company’s agreements generally include such success-based fees for services that are performed over time under one performance obligation. The variable consideration associated with the successful outcome remains constrained until the completion of the transaction, generally at the closing of the applicable financing or funding of the transaction.  Once the constraint is lifted, revenue is recognized as the Company’s fee agreements do not include terms or conditions that require the Company to perform any service or fulfill any obligation once the transaction closes.  The substantial majority of the Company’s transactions are completed within one year and the Company has utilized the practical expedients within Topic 606 related to financing components and costs of obtaining a contract due to the short-term nature of the contracts.

 

Loan servicing fees and loan performance fees.    The Company generates loan servicing fees through the provision of collection, remittance, recordkeeping, reporting and other related loan servicing functions, activities and services for either lenders or borrowers on mortgages placed with third-party lenders. The Company also generates loan performance fees associated with indemnification obligations related to the Risk Transfer Agreement. Revenue is recognized as the Company fulfills its stand ready obligation to satisfy such indemnification obligations.

The revenues associated with loan servicing fees are accounted for in accordance with Topic 860, Transfers and Servicing, whereby the Company recognizes loan servicing revenues at the time services are rendered, provided the loans are current and the debt service payments are made by the borrowers.

Interest on mortgage notes receivable.    The Company recognizes interest income on the accrual basis during the holding period based on the contract interest rate in the loan that is to be purchased by Freddie Mac in connection with the Company’s participation in the Freddie Mac Multifamily Approved Seller/Servicer for Conventional and Senior Housing Loans program (“Freddie Mac Program”), provided that the debt service is paid by the borrower.

Other.     Certain of the Company’s fee agreements provide for reimbursement of transaction-related costs which the Company recognizes as other revenue. Reimbursements received from clients for out-of-pocket expenses are characterized as revenue in the consolidated statements of comprehensive income rather than as a reduction of expenses incurred. Because the Company is the primary obligor, has supplier discretion, and bears the credit risk for such expenses, the Company records reimbursement revenue for such out-of-pocket expenses. Reimbursement revenue is recognized over time based upon the measure of progress to completion.

Disaggregation of Revenue.    The Company disaggregates its revenue from contracts with customers by its multiple platforms, as the Company believes it best depicts how the nature, amount, timing and uncertainty of the Company’s revenue and cash flows are affected by economic factors.  The following table provides a reconciliation of the Company’s revenue recognized under Topic 606 to the Company’s consolidated revenues:

 

Revenue Category

 

Three Months Ended

March 31, 2019

 

 

Three Months Ended

March 31, 2018

 

Debt placement origination fees

 

$

65,508

 

 

$

54,871

 

Investment advisory fees

 

 

61,432

 

 

 

47,523

 

Equity placement origination fees

 

 

16,667

 

 

 

14,081

 

Loan sales

 

 

359

 

 

 

592

 

Capital markets services revenue recognized under Topic 606

 

 

143,966

 

 

 

117,067

 

Loan servicing and loan performance fees

 

 

9,400

 

 

 

8,391

 

Capital markets services revenue

 

 

153,366

 

 

 

125,458

 

Interest on mortgage notes receivable

 

 

4,589

 

 

 

5,244

 

Other(1)

 

 

1,227

 

 

 

916

 

Total revenue

 

$

159,182

 

 

$

131,618

 

 

11


HFF, Inc.

Notes to Consolidated Financial Statements (Unaudited) - (Continued)

 

(1)- Other revenues are recognized under Topic 606.

Firm and Office Profit Participation Plans and Executive Bonus Plan. The Company has a firm profit participation plan, office profit participation plans, and an executive bonus plan (the “Plans”) that each allow for incentive payments to be made, based on the achievement of various performance metrics, either in the form of cash or stock at the election of the Company’s board of directors.  The expense associated with the Plans is included within personnel expenses in the consolidated statements of comprehensive income. The expense recorded for these Plans is estimated during the year based on actual results at each interim reporting date and an estimate of future results for the remainder of the year.  Based on an accounting policy election and consistent with ASC Topic 718, Compensation - Stock Compensation, the expense associated with the estimated share-based component of the estimated incentive payout is recognized before the grant date of the share-based awards due to the fact that the terms of the Plans have been approved by the Company’s board of directors, the employees of the Company understand the requirements to earn the award, the number of shares is not determined before the grant date and, finally, if the performance metrics are not met during the performance year, the award is not earned and therefore forfeited.  Prior to the grant date, the share-based component expense is recorded as incentive compensation expense within personnel expenses in the Company’s consolidated statements of comprehensive income. Following the award, if any, of the related incentive payout, the share-based component expense is reclassified as stock compensation costs within personnel expenses and the share-based component of the accrued incentive compensation is reclassified as additional paid-in-capital upon the granting of the awards on the Company’s consolidated balance sheets. The Plans allow for payment to be made in both cash and share-based awards.  The cash portion of the awards will not be subject to time-based vesting conditions and will be expensed during the performance year.  The share-based portion of the awards is subject to a three-year time-based vesting schedule beginning on the first anniversary of the grant (which is made in the first calendar quarter of the subsequent year).  As a result, the total expense for the share-based portion of the awards is recorded over the period from the beginning of the performance year through the vesting date, or 50 months.

 

3. Stock Compensation

The stock compensation cost that has been charged against income for the three months ended March 31, 2019 and 2018 was $5.9 million and $5.8 million, respectively. At March 31, 2019, there was approximately $53.9 million of unrecognized compensation cost related to non-vested restricted stock units with a weighted average remaining contractual term of 2.7 years.  As of March 31, 2019, there were 1,951,716 restricted stock units outstanding, of which 1,783,355 have continued vesting requirements.  

During the three-month period ended March 31, 2019, no options were granted, vested, exercised or forfeited.

During the three-month period ended March 31, 2019, 755,823 new restricted stock units were granted, 1,053,742 restricted stock units vested of which 1,044,669 were converted to Class A common stock, and 51,006 restricted stock units were forfeited.

The fair value of vested restricted stock units was $11.4 million at March 31, 2019.


12


HFF, Inc.

Notes to Consolidated Financial Statements (Unaudited) - (Continued)

 

 

4. Property and Equipment

Property and equipment consist of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(in thousands)

 

Furniture and equipment

 

$

8,327

 

 

$

8,426

 

Computer equipment

 

 

1,759

 

 

 

1,759

 

Capitalized software costs

 

 

3,931

 

 

 

3,665

 

Leasehold improvements

 

 

23,297

 

 

 

21,065

 

Property and equipment, gross

 

 

37,314

 

 

 

34,915

 

Less accumulated depreciation and amortization

 

 

(18,536

)

 

 

(17,719

)

Property and equipment, net

 

$

18,778

 

 

$

17,196

 

 

At March 31, 2019 and December 31, 2018, the Company has recorded, within furniture and equipment, office equipment under finance leases of $1.1 million and $1.2 million, respectively, including accumulated amortization of $1.0 million and $1.0 million, respectively, which is included within depreciation and amortization expense in the accompanying consolidated statements of comprehensive income.

 

5. Goodwill and Intangible Assets

The Company’s goodwill at March 31, 2019 is summarized as follows (in thousands):

 

Balance at December 31, 2018

 

$

8,512

 

Additions through acquisitions

 

 

 

Foreign currency translation

 

 

69

 

Balance at March 31, 2019

 

$

8,581

 

 

The Company performs goodwill impairment tests annually during the fourth quarter, and also performs interim goodwill impairment tests if it is determined that it is more likely than not that the fair value of a reporting unit is less than the carrying amount. No goodwill impairment test was required for the three-month period ended March 31, 2019. 

The Company’s intangible assets are summarized as follows:

 

 

 

March 31, 2019

 

 

December 31, 2018

 

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Book

Value

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Book

Value

 

 

 

(in thousands)

 

Intangible assets: