ANALYST DAY PRESENTATION May 2018 DISCLAIMER 2
Discussion of Forward-Looking Statements by Newmark Group, Inc. and BGC Partners, Inc. Statements in this document regarding BGC and Newmark that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, BGC and Newmark undertake no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark’s and BGC’s Securities and Exchange Commission filings, including, but not limited to, the risk factors set forth in these filings and any updates to such risk factors contained in subsequent Forms 10-K, Forms 10-Q or Forms 8-K.
Notes Regarding Financial Tables and Metrics Excel files with the Company’s most recent quarterly financial results and metrics from the current period are accessible in the financial results press release at the “Investor Relations” section of http://www.ngkf.com. They are also available directly at http://ir.ngkf.com/investors/news-releases/financial-and-corporate-releases/default.aspx.
Other Items Newmark Group, Inc. (NASDAQ: NMRK) (“Newmark” or “the Company”) generally operates as “Newmark Knight Frank”, “Newmark”, “NKF”, or derivations of these names. The discussion of financial results reflects only those businesses owned by the Company and does not include the results for Knight Frank or for the independently-owned offices that use some variation of the Newmark name in their branding or marketing. Berkeley Point Financial LLC, and its wholly owned subsidiary Berkeley Point Capital LLC may together be referred to as “Berkeley Point” or “BPF”. For the purposes of this document, the terms “producer” and “front office employee” are synonymous. The average revenue per producer figures are based only on “leasing and other commissions”, “capital markets”, and “Gains from mortgage banking activities/origination, net” revenues and corresponding producers. The productivity figures exclude both revenues and staff in “management services, servicing fees and other.” Headcount numbers used in this calculation are based on a period average. Throughout this document, certain percentage changes are described as “NMF” or “not meaningful figure”.
Newmark is a publicly traded subsidiary of BGC Partners, Inc. (NASDAQ: BGCP) (“BGC Partners”, or “BGC”). BGC is the largest and controlling shareholder of Newmark. As a result, BGC consolidates the results of Newmark and reports them as its Real Estate Services segment. These segment results may differ from those of Newmark as a stand-alone company with respect to revenues, pre-tax GAAP income and pre-tax Adjusted Earnings. These differences are reconciled in the tables in BGC’s first quarter 2018 financial results press release titled “Reconciliation of BGC Real Estate Segment to Newmark Group, Inc. Stand-Alone for Revenues”, “Reconciliation of BGC Real Estate Segment to Newmark Group, Inc. Stand-Alone for GAAP Income (Loss) From Operations before Income Taxes” and “Reconciliation of BGC Real Estate Segment to Newmark Group, Inc. Stand-Alone for Pre-Tax Adjusted Earnings”.
On June 28, 2013, BGC sold eSpeed to Nasdaq, Inc. (“Nasdaq”). The purchase consideration consisted of $750 million in cash paid upon closing, plus an expected payment of up to 14.9 million shares of Nasdaq common stock to be paid ratably over 15 years beginning in 2013, assuming that Nasdaq, as a whole, generates at least $25 million in gross revenues each of these years. In connection with the separation and prior to the completion of Newmark’s IPO, BGC transferred to Newmark the right to receive the remainder of the Nasdaq payments. Newmark recognized the receipt of the first of these payments in the quarter ended September 30, 2017, and expects to recognize the receipt of shares ratably in the third quarter of each of the next ten fiscal years. Nasdaq “Payments” may be used interchangeably with the Nasdaq share “earn-out”. The future value of Nasdaq shares discussed in this document are based on the closing price as of May 15, 2018.
On September 8, 2017, BGC acquired Berkeley Point Financial LLC, including its wholly owned subsidiary Berkeley Point Capital LLC. Berkeley Point is now a subsidiary of Newmark. Newmark’s financial results have been recast to include the results of Berkeley Point for all periods discussed in this document because this transaction involved reorganizations of entities under common control. Unless otherwise noted, all year-on-year comparisons in this document reflect the recast results.
Throughout this document the term “GSE” may refer to a government-sponsored enterprise such as Fannie Mae or Freddie Mac, “FHA” is used to refer to the Federal Housing Administration. In addition “TTM” is used to describe certain “trailing twelve month” periods. DISCLAIMER (CONTINUED) 3
Certain reclassifications may have been made to previously reported amounts to conform to the current presentation and to show results on a consistent basis across periods. Any such changes would have had no impact on consolidated revenues or earnings for GAAP and would either leave essentially unchanged or increase pre- and post-tax Adjusted Earnings for the prior periods, all else being equal. Certain numbers in the tables throughout this document may not sum due to rounding. Rounding may have also impacted the presentation of certain and year-on-year percentage changes. Newmark, Grubb & Ellis, ARA, Computerized Facility Integration, Landauer, Excess Space Retail Services, Inc., and Berkeley Point are trademarks/service marks, and/or registered trademarks/service marks and/or service marks of Newmark Group, Inc. and/or its affiliates. Knight Frank is a service mark of Knight Frank (Nominees) Limited. Adjusted Earnings and Adjusted EBITDA This presentation should be read in conjunction with Newmark’s most recent financial results press releases. Unless otherwise stated, throughout this document Newmark refers to its income statement results only on an adjusted earnings basis. Newmark may also refer to “Adjusted EBITDA”. For a complete and revised description of these non-GAAP terms and how, when, and why management uses them, see the “Adjusted Earnings Defined“ and “Adjusted EBITDA Defined” pages of this presentation. For both this description and reconciliations to GAAP, as well as for more information regarding GAAP results, see Newmark’s most recent financial results press release, including the sections called “Adjusted Earnings Defined”, “Differences Between Consolidated Results for Adjusted Earnings and GAAP”, “Reconciliation of GAAP Income (Loss) to Adjusted Earnings”, Adjusted EBITDA Defined”, and “Reconciliation of GAAP Income (Loss) to Adjusted EBITDA”. These reconciliations can be found in the “Appendix” section of this presentation. Below is a summary of certain GAAP and non-GAAP results for Newmark.
Highlights of Consolidated Results (USD millions) 1Q18 1Q17 Change Revenues $430.5 $332.6 29.4% Income before income taxes and noncontrolling interests under U.S. Generally Accepted Accounting Principles (“GAAP”) 39.4 37.0 6.6% GAAP net income (loss) for fully diluted shares 30.3 36.7 (17.5)% Pre-tax Adjusted Earnings before noncontrolling interest in subsidiaries and taxes 63.6 34.8 83.1% Post-tax Adjusted Earnings to fully diluted shareholders 54.4 28.2 92.8% Adjusted EBITDA 75.0 42.5 76.5% Adjusted EBITDA before allocations to units 79.1 47.1 67.8%
Per Share Results 1Q18 1Q17 Change GAAP net income (loss) per fully diluted share $0.12 N/A N/A Post-tax Adjusted Earnings per share 0.22 0.13 69.2%
A discussion of GAAP, Adjusted Earnings and Adjusted EBITDA and reconciliations of these items, as well as liquidity, to GAAP results are found later in this document, incorporated by reference, and also in our most recent financial results press release and/or are available at http://ir.ngkf.com/investors/investors-home/default.aspx Liquidity Defined Newmark may also use a non-GAAP measure called “liquidity”. The Company considers liquidity to be comprised of the sum of cash and cash equivalents plus marketable securities that have not been financed, reverse repurchase agreements, and securities owned, less securities loaned and repurchase agreements. The Company considers this an important metric for determining the amount of cash that is available or that could be readily available to the Company on short notice. AGENDA 4
12:05 PM Lunch
12:35 PM Overview Barry M. Gosin, Chief Executive Officer
12:50 PM Financial Overview Mike Rispoli, Chief Financial Officer
Craig Robinson, CEO, Global Corporate Services 1:10 PM Global Corporate Services Raj Bhatti, Chief Technology Officer Alan Nager, Vice Chairman, Global Corporate Services
Jeff Day, CEO, Berkeley Point Multifamily & Commercial 1:30 PM Mortgage Banking Overview Anthony Orso, President, Capital Markets Strategies Blake Okland, Vice Chairman, Head of US Multifamily
2:05 PM Conclusion Barry M. Gosin, Chief Executive Officer
2:15 PM Q&A with Newmark Presenters
Q&A with Newmark and BGC 2:30 PM Executives OVERVIEW BARRY M. GOSIN – CHIEF EXECUTIVE OFFICER 6
Barry M. Gosin Chief Executive Officer
• Barry M. Gosin has served as Chief Executive Officer of Newmark Group Inc., one of the world's leading commercial real estate advisory firms, since 1979. Mr. Gosin guides the firm’s national and global expansion initiatives and oversees all facets of its day-to-day operations
• Mr. Gosin spearheaded Newmark’s merger with BGC Partners in 2011 and was a driving force behind the company’s initial public offering on the Nasdaq stock exchange in 2017. Over the last six years, Mr. Gosin has led the firm to a compound annual growth rate (“CAGR”) of 38 percent and steered the acquisition of over 40 companies. Mr. Gosin’s primary focus continues to be the attainment of higher revenues per broker, with a priority on hiring top talent, implementing innovative technologies and bolstering Newmark’s already-impressive research capabilities. These initiatives result in value creation for our clients and ensure the highest return on investment
• An active industry and community leader, Mr.Gosin serves as a Member of the Board of Directors of the Partnership for New York City, Trustee of the Citizens Budget Commission and Trustee of Pace University HOW NEWMARK EXPECTS TO DRIVE GROWTH 7
Profitably attract and retain elite talent
Acquire companies accretively
Drive cross-selling across service offerings
Leverage technology to meet the needs of underserved clients
Expand our geographic reach and services offered
Maintain our intermediary-oriented, low risk business model
Use technology to improve internal efficiency
Return value to shareholders and reinvest profits for future growth BROAD SERVICE OFFERING AND HIGHEST GROWTH IN US CRE SECTOR 8
1 Walker & Marcus & Business Line CBRE JLL Colliers HFF Dunlop Millichap
Leasing ✔ ✔ ✔ ✔
Investment Sales & ✔ ✔ ✔ ✔ ✔ ✔ ✔ Mortgage Brokerage Multifamily lending ✔ ✔ ✔ ✔ ✔ (GSE and FHA)
Servicing ✔ ✔ ✔ ✔ ✔
Property & Facility ✔ ✔ ✔ ✔ Management
Advisory & Consulting ✔ ✔ ✔ ✔ ✔
Appraisal ✔ ✔ ✔ ✔
Property & ✔ ✔ ✔ ✔ Development Services
Non-Agency Lending ✔
Investment Management ✔ ✔ ✔
Historical Revenue 16% 14% 15% 16% 29% 17% CAGR2 38%
Source: Public filings 1. Includes Newmark’s 27% interest in the commercial real estate-related limited partnership between the Company and Cantor 2. Newmark’s unaudited 2011 revenues are based on full year 2011 revenues for Newmark & Co. Revenue CAGRs are based on global revenues reported for FY 2011 and FY 2017 Note: The peers are CBRE Group, Inc. (CBRE), Jones Lang LaSalle Incorporated (JLL), Colliers International Group Inc. (Colliers), HFF, Inc. (HFF), Walker & Dunlop, Inc. (Walker & Dunlop), and Marcus & Millichap, Inc. (Marcus & Millichap). All revenues figures on this page are based on those reported prior to any restatements related to ASC 606 GLOBAL CRE SERVICES MARKET OPPORTUNITY 9 MASSIVE POTENTIAL GLOBAL MARKET FOR BROKERAGE AND SERVICES
$220B+ 1 1 Total$220+ Revenue Opportunity Bn Large and Highly Total Revenue Fragmented Market Opportunity (FY 2017)
TOP 6 COMPANIES The Top 6 CRE Brokerage & Services Firms $28B 2017 Market Share <15% (<15%) $28Bn(<15%) $1.6B (<1%)
$1.6Bn (<1%)
1. Represents actual revenues earned by global commercial real estate services firms as well as potential revenues from outsourcing opportunities Sources: IBIS World, Bloomberg, public filings, CoStar and Newmark Knight Frank research. Top 6 CRE Brokerage and Services Companies as measured by FY17 global revenue prior to any restatements related to ASC 606: Newmark, CBRE (fee-revenue), JLL (fee-revenue), Colliers, Savills, Cushman & Wakefield (estimated based on FY15 global revenues adjusted by the average two-year growth rate of the other Top 6 companies) Note: Chart has not been shown to scale. Prior versions of this chart did not include a complete estimate for commercial mortgage brokerage STRONG MANAGEMENT TEAM 10
EXECUTIVE OFFICERS CORPORATE MANAGEMENT
HOWARD W. BARRY M. JAMES MICHAEL JAMES D. LUIS ALISON RAJ RICHARD A. LUTNICK GOSIN FICARRO RISPOLI KUHN ALVARADO LEWIS BHATTI MALETSKY Chairman Chief Executive Chief Operating Chief Financial President Chief Revenue Chief Chief Executive Vice Officer Officer Officer Officer and Administrative Technology President Executive Vice Officer Officer Legal President (East Region)
BUSINESS MANAGEMENT
ROBERT KEVIN JEFF ANTHONY BLAKE CRAIG JOHN MICHAEL GRIFFIN SHANNON DAY ORSO OKLAND ROBINSON BUSI SHEINKOP Co-Head Co-Head Chief Executive Officer President of Vice Chairman Chief Executive Officer President President US Capital US Capital Berkeley Point Capital Markets Head of Multifamily Global Corporate Valuation & Advisory Recruiting Markets Markets Strategies Capital Markets Services
REGIONAL MANAGEMENT
CHUCK LUIS KEVIN GREG SEUFFERLEIN ALVARADO McCABE MAY President Chief Revenue Officer Executive Vice President Executive Vice President (Northwest Region) Executive Vice President (Central Region) (Southwest Region) (East Region) FINANCIAL OVERVIEW MICHAEL RISPOLI – CHIEF FINANCIAL OFFICER 12
Michael Rispoli Chief Financial Officer
• 20+ years of finance and accounting experience • Chief Financial Officer of Newmark since April 2012 • CFO of Grubb & Ellis from 2010 until 2012 when BGC Partners acquired the assets of Grubb & Ellis • SVP of Strategic Planning and Investor Relations at Grubb & Ellis from 2007 - 2010 • Executive Director and Corporate Controller at Conexant Systems from 2000 to 2007 • Began career at PricewaterhouseCoopers THEMES FOR TODAY’S DISCUSSION 13
Strong credit profile
Demonstrated ability to grow across all business lines
Substantial diversity of revenues
Multiple avenues for growth within the US
Partnership structure is a competitive advantage PROPOSED SPIN-OFF OF NEWMARK 14
• BGC’s credit watch has been resolved; both Fitch and S&P have affirmed investment grade rating at “stable” • Key steps NMRK management intends to take • Attain own credit rating • Repay / refinance $812.5 million of long-term debt
Note: The proposed spin-off remains subject to a number of conditions. BGC may determine not to proceed with the spin-off including if not considered in the best interest of BGC and its stockholders. Please see the section titled “Proposed Spin-Off of Newmark” in the appendix of this document for more information STRONG CREDIT PROFILE 15
($ in '000s) Newmark Group, Inc. 3/31/2018 Cash and Cash Equivalents $48,069
Newmark Group, Inc. Interest Rate Maturity 3/31/2018 Converted Term Loan 3.990% 9/8/2019 $400,000 Long-term debt payable to related parties1 8.125% 6/26/2042 112,500 Long-term debt payable to related parties 5.375% 12/9/2019 300,000 Total Long-term Debt $812,500 Net Debt / (Liquidity) $764,431
Newmark Group, Inc. (Adj. EBITDA and Ratios are TTM 1Q 2018) 3/31/2018 Adjusted EBITDA before allocations to units $ 405,496 Leverage Ratio: Total Long-term Debt / Adjusted EBITDA2 2.0x Net Leverage Ratio: Net Long-term Debt / Adjusted EBITDA2 1.9x Total equity3 553,789
• Newmark’s balance sheet does not include the over $890 million of Nasdaq shares (at May 15, 2018 closing price) expected to be received in the future
1. Callable at par beginning June 26, 2017 2. This calculation is based on Newmark’s Adjusted EBITDA before allocations to units 3. Includes “redeemable partnership interests”, “noncontrolling interests” and “total stockholders’ equity” Note: This table does not include short-term borrowings, of which there was $202 million of debt related to Newmark’s credit facility with BGC as of March 31, 2018. Restricted cash is also excluded from this table. See the section titled “Nasdaq Transaction” of Newmark’s first quarter 10-Q filing for more information on the Nasdaq shares FINANCIAL PERFORMANCE 16 Revenue Growth TTM 1Q18 Revenue Composition (US$ millions)
Management, Servicing $1,694 Fees and Other $1,596 Capital Revenues Management services, Markets2 $1,350 $424 25% $376 servicing fees and other 25% $307 Gains from mortgage banking $206 $200 activities/origination, net Investment Sales, $193 Mortgage $422 $398 Capital markets Brokerage and Leasing and Other $336 2 Agency Lending Commissions Leasing and Gains from Mortgage 37% 38% $649 $514 $617 other services Banking Activities/ Origination, Net2 12% FY 2016 FY 2017 TTM 1Q18
Pre-tax Adjusted Earnings Growth1 Adjusted EBITDA before allocation to units1 (US$ millions) (US$ millions) $350 $400 $352 $405 $300 $323 $350 $374 $250 $300 $200 $250 $200 $150 $185 $218 $150 $100 $100 $50 $50 $0 $0 FY 2016 FY 2017 TTM 1Q18 FY 2016 FY 2017 TTM 1Q18 Margin 13.7% 20.2% 20.8% Margin 16.1% 23.4% 23.9%
1. FY 2017 includes other income related to the Nasdaq shares of $76 million. Excluding this income, FY 2017 pre-tax Adjusted Earnings and Adjusted EBITDA would have been up approximately 33% and 37%, respectively, while TTM 1Q18 pre-tax Adjusted Earnings margin and TTM 1Q18 Adjusted EBITDA margin would have been 16% and 19%, respectively. See the appendix of this document for reconciliations of Adjusted Earnings and Adjusted EBITDA to GAAP 2. Investment sales, mortgage brokerage, and GSE lending revenues represents two separate line items: 1) capital markets (which consists of investment sales and mortgage brokerage), and 2) gains from mortgage banking activities/origination, net (referred to here as “agency lending”) HISTORY OF GROWING ORGANICALLY AND THROUGH ACQUISITION 17
Newmark Revenues1 (US$ millions) $1,800 1,694 $1,600 336 $1,400
$1,200 592 $1,000
$800 134 $600
$400 632 $200 230 $0 2011 2012 2013 2014 2015 2016 2017 TTM 1Q18 Organic Organic Growth on Acquisitions Acquisitions Acquisitions - Berkeley Point Revenue / $474 $467 $622 $680 $707 $806 $830 Producer2 ($’000) 75% growth from 2012 • Excluding Berkeley Point, 37% of Newmark’s revenue growth since 2011 has been organic • Companies acquired by Newmark have organically grown their revenues 23% since being acquired
1. Based on revenues reported for BGC’s Real Estate Services segment for FY 2012, FY 2013, and FY 2014. FY 2011 revenues are based on unaudited full year 2011 revenues for Newmark & Co. Includes Berkeley Point revenues for FY 2014 onwards 2. Based on Front Office Revenue (capital markets, leasing and other commissions, and gains from mortgage banking activities/origination, net) and average number of producers DIVERSE AND RECURRING INCOME STREAMS 18
Leasing (agency) Balanced mix of revenue Leasing Valuation and other income with (tenant rep) Global approximately 42% derived Corporate Services from recurring sources in 23% TTM 1Q 2018 Loan Servicing
Investment Property & Sales 35% Facilities Ten largest customers Mgmt. represent approximately 7% Mortgage 42% of total revenue1 Brokerage Nasdaq Income Mortgage Banking
Note: Chart based on revenue and other income related to the Nasdaq earn-out for the TTM ended March 31, 2018 1. For the TTM ended March 31, 2018 BALANCED GEOGRAPHIC REVENUES 19 WE MAINTAIN A BALANCED MIX OF GEOGRAPHIC REVENUE STREAMS
Region % of NMRK1 East 43% Central 28% West 28% International 1% 23% 41% 36%
• California and New York represent 24% and 18% of revenues, respectively1 • Newmark has runway for future growth in the US and internationally
1. Excludes revenues from Berkeley Point. Based on revenues for the TTM ended March 31, 2018 FINANCIAL OVERVIEW GROWTH OPPORTUNITIES NEWMARK CAPITAL MARKETS VOLUMES AND US MARKET SHARE BY YEAR 21 DEMONSTRATED ABILITY TO INCREASE MARKET SHARE (IN NOTIONAL DOLLAR VOLUMES) ] NEWMARK’S US VOLUMES1 % CHANGE IN OVERALL US MARKET VOLUMES 2015 – 2017
$36 40% $32 35.0 30% 34.8% $28 $24 20% $20
Billions 10%
$16 19.2 12.0% % Change % $12 0% $8 10.8 Selling Cross 8.9 -10% -14.3% $4 3.9 4.8 $0 -20% Investment Sales Mortgage Brokerage GSE and FHA Origination Investment Sales Mortgage Brokerage GSE and FHA Origination
2015 2017
• Over the last two years, Newmark has dramatically increased its US market share across overall investment sales, mortgage brokerage, and mortgage origination • Compared to its peers, Newmark still has significant room to grow its market share
1. Includes a relatively small amount of Newmark Americas volumes outside the US Note: Investment sales volumes are based on actual volumes recorded by Newmark rather than those reported by RCA. RCA reported volumes are used for the market share estimate on the following page Source: Real Capital Analytics (“RCA “), Newmark Knight Frank Research, and Mortgage Bankers Association (“MBA”) NEWMARK’S CAPITAL MARKETS 2017 US MARKET SHARE COMPARED TO PEERS 22 SIGNIFICANT RUNWAY TO CONTINUE INCREASING MARKET SHARE (IN NOTIONAL DOLLAR VOLUMES)
Average US Newmark’s 2017 Market Share of Newmark’s US Market US Market Size Newmark’s Growth Business Line Rank1 Share2 Estimate Largest Peers3 Opportunity
Overall Investment Sales 5 5.3% $487.2B 8.2% 54.7%
Overall Mortgage 7 3.8% $284.3B 13.0% 242.1% Cross Selling Cross Brokerage Selling Cross
Fannie Mae Origination 5 6.4% $61.2B 9.9% 54.7%
Freddie Mac Origination 5 6.8% $68.7B 11.5% 69.1%
• If Newmark grows to be in line with the average of its top 5 peers in each business line, its combined investment sales, mortgage brokerage and origination revenues would exceed $1.0 billion, all else equal
1. Investment sales rank is based on RCA. Mortgage brokerage rank based on how Newmark would have ranked if it had been included in MBA’s 2017 annual origination ranking. Newmark did not submit to be included in MBA’s 2017 annual origination rankings. Fannie Mae and Freddie Mac rankings are from the agencies 2. Market share estimate for investment sales is based on Newmark’s 2017 US investment sales volume as reported by RCA rather than Newmark’s actual volumes on the prior page. This is the same source for the market share of Newmark’s peers and the overall market size estimate 3. Based on top 5 peers for each respective business line. Each peer set has a different composition, and may include privately held companies Source: RCA, Newmark Knight Frank Research and MBA REVENUE GROWTH OPPORTUNITY IN AGENCY LEASING 23 OFFICE AGENCY LEASING ASSIGNMENTS (SQUARE FEET)
350
300 300 250
200
150 166
Million Square Feet MillionSquare 100
50
0 FY 2013 FY 2017
Representation of landlords: • Represents nearly 40% of Newmark leasing revenues over TTM 1Q18 • Significant opportunity for future growth REVENUE GROWTH OPPORTUNITIES IN MANAGEMENT SERVICES AND GLOBAL CORPORATE SERVICES 24
Valuation & Appraisal: Continue growth through acquisitions and new hires • Headcount has increased by 270 professionals to a total of 300 professionals YOY as of March 31, 2018 • Over time we expect to be one of the largest CRE valuation & appraisal businesses in the US with over $150 million in annual revenue as compared to approximately $10 million in 2017 Property and Facilities Management: Leverage growth in agency leasing and capital markets • Currently manage nearly 125 MSF; approximately $175 million in annual revenues1 • Top 4 competitors manage on average 3 BSF2 • We expect to more than double the size of this businesses by leveraging real estate capital markets relationships and other opportunities over time
Global Corporate Services: Leverage consulting and technology to expand client relationships • Synergies between consulting, technology, tenant rep leasing for large occupiers of real estate • Opportunity to increase revenues by hundreds of millions of dollars from large corporate occupiers
US market opportunity across all business lines adds up to > $1.1 billion in revenues Revenue growth target over next several years >15% per year
1. Square feet managed is as of March 31, 2018. Annual revenues based on revenues for the trailing twelve months ended March 31, 2018 2. Top 4 competitors are CBRE, JLL, Colliers, and Cushman & Wakefield. Source for their square feet managed is National Real Estate Investor PARTNERSHIP STRUCTURE CREATES COMPETITIVE ADVANTAGE 25
Virtually all Newmark producers are partners • Partners sign long-term contracts; more than 20% of fully diluted share count
Up front consideration for hiring and acquisitions includes partnership units
• Loans incentivize partners to stay for the full term
• Partners have nonexchangeable equity forfeited if they leave; helps reduce compensation ratio over time
• Lowers corporate tax rate
95% retention rate1
1. Based on the number of partners whose contracts were up for renewal and who were pursued for renewal in 2015, 2016, and 2017 OUTLOOK COMPARED WITH YEAR AGO RESULTS 26
• Newmark expects to produce 2018 revenues of between approximately $1,900 million and $2,050 million, which would represent an increase of between 19% and 28% compared with $1,596.5 million in 2017
• Newmark anticipates its 2018 tax rate for Adjusted Earnings to be in the range of approximately 12% and 14%, compared with 18% in 2017
• Newmark expects 2018 post-tax Adjusted Earnings per share to be in the range of approximately $1.40 and $1.60, or an increase of between 22% and 39% versus $1.15 in 2017
• Newmark anticipates generating Adjusted EBITDA before allocations to units of between $475 million and $525 million, or an increase of 27% to 40% compared with approximately $374 million in 2017 GLOBAL CORPORATE SERVICES GLOBAL CORPORATE SERVICES 28
Craig Robinson Alan Nager Raj Bhatti CEO, Global Corporate Services Vice Chairman, Global Technology, Global Chief Technology Officer Corporate Services • • Raj Bhatti joined Newmark in 2015 Craig Robinson is the Chief • Alan Nager joined Newmark in March 2006 where he serves as Chief Executive Officer of Global where he was recruited to launch the Technology Officer. Mr. Bhatti Corporate Services at Newmark. Mr. consulting group and integrate those brings to his role more than 21 Robinson has responsibility for services into the core real estate years of experience in implementing Newmark’s overall strategic businesses. He is responsible for and managing technology systems, direction for occupier clients, developing, marketing and branding, and operations and strategy. Mr. Bhatti overseeing business development, deploying the next generation revenue is skilled in bridging the gap client operations and platform channels for GCS and driving profitability by between the business and investments. He brings to Newmark differentiating GCS in winning and retaining technology sides of an organization. nearly 20 years of experience business. Alan led the acquisition effort for He has led programs aimed at leading commercial real estate Computerized Facilities Integration (CFI). improving service delivery, outsourcing businesses within large Business Architect for Newmark’s Vision enhancing infrastructure and global public companies as well as technology platform including a Pre- integrating innovative technology mid-cap growth businesses Configured Integrated Workplace Management Solution (IBM Tririga), Business Intelligence, Technology Consulting, IWMS Implementation Services, and Advanced Analytics GCS VIDEO 29
This video can be found at the below link https://vimeo.com/269649273
Note: If clicking on the above link does not open up a new web page, you may need to cut and paste the above url into your browser's address bar INTEGRATED FULL SERVICE PLATFORM AND CAPABILITIES 30
GLOBAL CORPORATE Transaction Capital SERVICES Management Markets Integrated service delivery Lease Administration & Valuation Lease Audit Services & Advisory
Global Strategy: Business & NKF Property Real Estate Consulting GLOBAL Management CORPORATE
Technology SERVICES Tenant & Landlord & Innovation Integrated service Representation delivery
Specializations Program & Project Retail, Industrial, Data Center, Management Energy & Sustainability, Healthcare, Government, Hotel, Legal, Net Lease Facilities Management Research Services
Note: Global Corporate Services is a division within Newmark integrated with Knight Frank SERVICING A DIVERSE RANGE OF CLIENTS GLOBALLY 31
ASSET TYPES DATA CENTER LAND OFFICE INDUSTRIAL MANUFACTURING RETAIL
INDUSTRIES FINANCIAL HEALTHCARE AND TECHNOLOGY INDUSTRIAL MANUFACTURING CONSUMER GOODS FOOD & BEVERAGE SERVICES LIFE SCIENCES GOVERNMENT – GOVERNMENT – PROFESSIONAL HIGHER EDUCATION INSURANCE TELECOMMUNICATIONS RETAIL FEDERAL STATE & LOCAL SERVICES GCS SCALE AND PLATFORM MATURITY 32
220+ 11M 500
CORPORATE ACCOUNTS* AVG. ACCOUNT PORTFOLIO SIZE (SF) AVG. ACCOUNT # OF LOCATIONS
Leveraging Access to over 963 2 1,565 dedicated in-house 4.3 billion ft brokers and their respective professionals in Global of customer CRE data representing clients and prospects Corporate Services 132 technology clients
= 100 million ft2 = 50 professionals = 100 producers
* Includes technology clients GCS PLAYS STRATEGIC ROLE WITHIN NEWMARK 33
GENERATES AND RETAINS CROSS-SELLING DRIVES RECURRING REVENUE AND BROKERAGE OCCUPIER CREATES OPPORTUNITY FOR BUSINESS AT MULTIPLE BROKERS TO EXECUTE HIGH LEVELS MARGIN, STRATEGIC TRANSACTION WORK GLOBAL CORPORATE SERVICES GROWTH OPPORTUNITY LARGE AND FRAGMENTED MARKET OPPORTUNITY 35
MARKET DRIVERS 1 • Outsourcing driven by corporate mandates for: $220B+ 1) savings, 2) service improvement, and 3) Total Revenue Opportunity 2 redirecting internal resources to more strategic activities
• Technology a key consideration, enabling CRE centralization, corporate transparency, and new accounting requirements TOP 6 COMPANIES • Continued consolidation of demand with firms offering full service capabilities $28B • Outsourcing activity greatest in financial (<15%) services, insurance, healthcare, pharma, and high tech sectors $1.6B (<1%)
1. KPMG 2018 REFM Pulse Survey 2. Represents actual revenues earned by global commercial real estate services firms as well as potential revenues from outsourcing opportunities Sources: IBIS World, Bloomberg, public filings, CoStar and Newmark Knight Frank research. Top 6 CRE Brokerage and Services Companies as measured by FY17 global revenue prior to any restatement for ASC 606: Newmark, CBRE (fee-revenue), JLL (fee-revenue), Colliers, Savills, Cushman & Wakefield (estimated based on FY15 global revenues and the two-year growth rate of the other Top 6 companies) Note: Chart has not been shown to scale. The prior year version of this chart did not include a complete estimate for commercial mortgage brokerage CLIENT SOURCING MODELS VARY BY MATURITY, INDUSTRY, AND PORTFOLIO COMPOSITION 36
FEW ORGANIZATIONS OUTSOURCE ALL SERVICES AND REGIONS TO A SINGLE FIRM; DEMAND FOR INTEGRATED “BEST IN BREED”
Bundle individually Bundle and Bundle individually Continue to Insource services contracted outsource contracted services manage multiple currently provided services, but retain increasing number and outsource key services with by service high-level of individually management individual providers. management contracted functions of contracts. functions of services. services. services.
3.72 3.57 3.04 2.70
2.28
Buyers
Buyers
Buyers
Buyers Buyers
1.00 = Significant decrease in preference/demand; 5.00 = Significant increase in performance/demand Source: KPMG Real Estate and Facilities Management Outsourcing Pulse Survey Report 2018 UNDERSERVED MARKET DEMAND 37
1 “BEST IN BREED” MARKET OPPORTUNITY 3 SELF-SERVICE MARKET OPPORTUNITY • 2nd and 3rd generation outsourcing contracts • Self-service solutions • Creative sourcing models • Technology • Consulting Demand: Global, Full Service Contracts
Supply: Inconsistent, Quality, Capabilities and Depth 80% BROKERAGE ACCOUNT MARKET OPPORTUNITY 2 Insourced • Under-served smaller, transaction brokerage accounts • Brokerage incentives for collaboration • Regional platform • Pre-configured technology solutions <20% Outsourced
Well-served, Crowded Fortune X Segment Under-served “Mid Caps”
Smaller, Fast Growing Companies GLOBAL CORPORATE SERVICES TECHNOLOGY GLOBAL TECHNOLOGY BUSINESS 39
RE TECHNOLOGY AND INTEGRATED WORKPLACE MANAGEMENT CONSULTING MANAGEMENT SYSTEMS (IWMS)
Client advisory services to select technology Hosting, configuration, integration, maintenance and manage data programs for a portfolio or an and support of 3rd party enterprise-scale software 1 2 individual property to reduce costs and improve used to optimize workplace resources, real estate the employee experience portfolio and facilities assets GCS GLOBAL TECHNOLOGY BUSINESS INTELLIGENCE (BI) VISION (IWMS, BI) AND ANALYTICS SOLUTIONS CAPABILITIES INFORMATION PRODUCTS 3 4 Data aggregation and standardization from Pre-Configured and Pre-Integrated real third-party technologies to benchmark real estate and facilities solution as a estate portfolio performance and provide service platform decision support
OVER 130 TECHNOLOGY PROFESSIONALS PROVIDING GLOBAL SOLUTIONS TO OPTIMIZE THE REAL ESTATE AND FACILITIES LIFE CYCLE SUPPORTING 4.3 BILLION SF OF SPACE TECHNOLOGY TIMELINE AND ROADMAP 40
FUTURE INITIATIVE Information Mobile distribution Product ANALYTICS
2018 INTEGRATOR • Data Service Management Integrator • Data Quality Management • Data Transformation Rules / Masking • User / Security Management
2016-PRESENT VISION Pre-Configured and RE Delivery 2015 Pre-Integrated Solution CFI ACQUISITION Product
2008-PRESENT Business INSIGHT Intelligence MATURE AND Commercial “Off The Shelf” Point EVOLVING Client enterprise Solution Or Highly-Configured IWMS Building and human 1990-PRESENT systems experience technology
Real Estate Mgt. Capital Project Space Mgt. Mgt. • Reservations • Utilization Data • Guest Services • Collaboration • Lighting & Comfort • Concierge Facilities Mgt. Environmental & Energy Mgt. • Occupancy • Mobility REAL ESTATE PROVIDERS AND DELIVERY APPROACH 41
REAL ESTATE & TECHNOLOGY SERVICES & VC INVESTMENT FACILITIES SERVICES COMMERCIAL PRODUCT TECHNOLOGY MODELS DELIVERY IMPLEMENTERS INTEGRATOR
NEWMARK STRATEGIC APPROACH • Integrate core real estate and technology service delivery • Leverage client-facing business intelligence and analytics leadership to improve core services and create recurring revenue information products • Increase transaction and multi-service account win probability and GCS margins MARKET OPPORTUNITY 42
PRE-CONFIGURED AND PRE-INTEGRATED IWMS AND BI TRANSFORMING REAL ESTATE TECHNOLOGY PROJECTS INTO AN INFORMATION PRODUCT
SOLUTION AS A SERVICE HIGHLY CUSTOMIZED IWMS Integrated
Commercial Proprietary Functionality
COMMERCIAL “OFF THE CUSTOM POINT SOLUTIONS
SHELF” POINT SOLUTION Separated
Time, Cost and Risk
• New business model • Modular & scalable platform • Accessing more potential customers • Recurring revenue
Note: “IWMS” refers to the term “Integrated Workplace Management Systems” and “BI” refers to the term “Business Intelligence” N360 43
POWERFUL DESKTOP/MOBILE SUPPORTED PLATFORM PROVIDING INSTANT ACCESS TO COMPREHENSIVE CRE DATA IN ONE PLACE
• A powerful tool for that provides instant access • GIS information platform with 3D mapping powered to property data in one place by Newmark’s Real Estate Data Warehouse
– Listings – Historical leasing – Tenant/owner information – Investment sales – Stacking Plans – Research – Debt on property
• One data warehouse that provides consolidated search across market data sources and internal • Custom GIS information platform with enriched Newmark Research, urban environment and property market data Leasing, Investment Sales and Debt data N360 SCREENSHOTS 44
• Unique net effective pricing data inclusive of concessions on completed transactions
• Stacking plans with unique information on future availability (shadow space): • Point 72 leaving in future to move to Hudson Yards
• Ability for Newmark professionals to cross-sell: • Linkage to government debt filings - turn leasing relationships into capital markets/appraisal TECHNOLOGY VIDEO 45
This video can be found at the below link https://vimeo.com/266330667/0548b30551
Note: If clicking on the above link does not open up a new web page, you may need to cut and paste the above url into your browser's address bar NEWMARK MULTIFAMILY & COMMERCIAL MORTGAGE BANKING OVERVIEW MULTIFAMILY AND CAPITAL MARKETS 47
Jeff Day Anthony Orso Blake Okland CEO, Berkeley Point President, Capital Market Strategies Vice Chairman, Head of US Multifamily • Jeff Day is focused on corporate • Anthony Orso joined NKF Capital Markets in • Blake Okland’s role is to increase strategy, recruiting and driving 2018 to help build the firm’s Debt Capital collaboration and improve service revenue by enhancing new and Markets business. Mr. Orso also serves as to clients nationwide by identifying existing client relationships. His NKF Capital Markets’ liaison with Cantor and executing strategic initiatives, primary activities center on the Fitzgerald’s commercial-backed mortgage business line and geographic mortgage banking and multifamily securities (CMBS) business and advises the expansion and recruiting. Mr. businesses in partnership with firm on its third-party debt business. Mr. Okland also leads business Blake Okland and Anthony Orso is the co-founder and former CEO of development nationally as the face Orso. Mr. Day currently serves on CCRE, Cantor’s fully integrated commercial of the brand, maintaining the Artemis Real Estate Partners and multifamily real estate finance company. relationships with large institutional Advisory Board, the International During his tenure as CEO, CCRE closed clients to help the firm secure Advisory Board of the Leeds School approximately $50 billion worth of loans and business and engage on complex of Business and the Board of opened locations across the US In 2014, national and global assignments Directors of Shelters to Shutters CCRE was ranked as the No. 1 Fastest Growing Company by Crain’s New York Business. That same year, Mr. Orso was named No. 1 in Commercial Observer’s 50 Most Important People in Commercial Real Estate Finance KEY GROWTH THEMES 48
Integration • Running the multifamily/commercial investment sales and debt platforms as a unified team • Managing key client accounts at the senior level • Coordinating GSE and mortgage banking efforts to clear the market for clients
Expansion • Strengthening presence in under-served markets • Continue strategically adding investment sales/debt specialists in key markets • Broadening the scope of products and services offered MULTIFAMILY & COMMERCIAL MORTGAGE BANKING SUMMARY 49 LINKING SALES & FINANCING
Multifamily Debt Multifamily Investment Sales #5 Multifamily GSE Lender #2 Multifamily Investment Sales Platform – 11 Offices – 25 Offices – $12.8 Billion in Transaction Volume in – $16.8 Billion in Transaction Volume 2017 (ARA and Berkeley Point) in 2017 (ARA) – $58.9B Servicing Portfolio
Commercial Debt Commercial Investment Sales #3 Commercial Loan Brokerage in NYC #6 Commercial Investment Sales Broker – 12 Offices – 50 Offices – Completed Approximately $8 Billion in – $18.3 Billion in Transaction Volume Commercial Debt-related Transaction Volume in 2017 (Newmark excluding ARA) in FY 2017 (excluding Berkeley Point and ARA)
Note: GSE ranking based on those published by Fannie Mae and Freddie Mac for 2017; multifamily investment sales ranking based on those reported by Real Estate Alert for 2017; commercial loan brokerage ranking based on The Real Deal for 2017; commercial investment sales ranking based on RCA data for 2017 and is based on total volumes excluding multifamily properties NEWMARK OFFICES 50 GROWTH OF CAPITAL MARKETS PRESENCE: SINCE FALL 2015 51
SEATTLE DENVER TULSA MCLEAN PHILADELPHIA BOSTON COMMERCIAL COMMERCIAL NATIONAL NET LEASE LOAN SALES MULTIFAMILY COMMERCIAL Tim O’Keefe John Jugl Ken Hedrick John Howley Lizann McGowan Robert Griffin Jerry Hopkins John Daniels Erin Miller Edward Maher Andrew Ragsdale Matthew Pullen Frank Nelson PORTLAND CINCINNATI MULTIFAMILY Michael Byrne COMMERCIAL COMMERCIAL RETAIL James Childress Jim Vondran Geoff Millerd Keith Yearout Justin Smith CAPITAL LEASE Michael Doyle LOS ANGELES COMMERCIAL Kevin Shannon NEW YORK Ken White DEBT Rob Hannan Anthony Orso INDUSTRIAL Bill Weber Brett Hardy Ari Schwartzbard Scott Schumacher Dustin Stolly DEBT David Milestone RETAIL RUTHERFORD Bill Bauman COMMERCIAL Kyle Miller Kevin Welsh Brian Schulz SAN FRANCISCO COMMERCIAL BALTIMORE Steve Golubchik COMMERCIAL Grant Lammersen Cris Abramson Edmund Najera SAN DIEGO Brian Kruger Tyler Meyerdirk COMMERCIAL Nicholas Signor Seth McKinnon Brunson Howard DEBT DEBT Ramsey Daya Jesse Lowe NEWPORT BEACH PHOENIX ATLANTA WASHINGTON, DC Chris Moritz RETAIL COMMERCIAL COMMERCIAL RETAIL COMMERCIAL Michael Grausz Pete Bethea Paul Jones CJ Osbrink Drew Fleming James Cassidy Jonathan Soffer Rob Ippolito Blake Bokosky MULTIFAMILY Mark Joines Jud Ryan RETAIL SENIORS HOUSING Brandon White Brett Polachek RETAIL Nicholas Bicardo Rob Black RETAIL Mat Adler Brandon Rogoff Sean McNee Glen Rudy
Note: Representative list of hires COMMERCIAL/MULTIFAMILY: DEBT VOLUME GROWTH 52
OVERALL US COMMERCIAL/MULTIFAMILY MORTGAGE VOLUME
$600 530 504 $500 491
400 $400 202 234 214 150
$300 Billions
$200
302 276 296 250 $100
$0 2014 2015 2016 2017 Commercial Multifamily • Since FY 2014, US industry Commercial/Multifamily mortgage volumes have increased at a CAGR of 10%, with substantial growth from multifamily, which has grown at 16% CAGR • This expanding market represents a significant growth opportunity for Newmark’s Capital Markets business
Source: MBA COMMERCIAL/MULTIFAMILY MORTGAGE MATURITIES 53 ATTRACTIVE REFINANCING ENVIRONMENT
$500 $1.5 Trillion
$397 $400 $400 $395 $371 $371 $375 $366 $362 $352 $342 $353 $334 $321 $327 $300 $267
$223 BILLIONS $200 $196 $172 $150 $132 $115 $103 $100
$0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Banks CMBS Life Insurance Other (primarily GSE) • $1.5 trillion in commercial mortgage maturities from 2019 – 2022 should support strong levels of refinancing activity
Source: Newmark Knight Frank Research, Trepp MULTIFAMILY: EVOLVING DEMOGRAPHICS FAVORABLE FOR MULTIFAMILY OUTLOOK 54
Projected Home Ownership Rate 2011 – 2016 CAGR Of Wages, Rent, Home Peak home ownership Prices, And Student Debt Outstanding 69% (2004) 70% 10% 9% 67% 8% 8.7% 7% 64% 62.2% 61.8% 61.4% 61.2% 6% 6.6% 61.0% 60.9% 60.7% 60.5% 61% 5% 4% 58% 3% 2% 55% 2.4% 1% 1.9% 52% 0% 2016 2018 2020 2022 2024 2026 2028 2030 Wages Median U.S Home Student Debt Peak home ownership rate: 69.0% in 20041 U.S. Rent Prices Outstanding • Further decline projected for home ownership rate • In many of the major metros we operate in, the home ownership rate is significantly lower – 22% in New York County, 43% in San Francisco County, 52% in Denver County • New entrants into the workforce are more and more likely to rent as student debt becomes a larger economic burden • Home prices have risen much faster than rents, making it more favorable to rent than own a home – translates into increased demand for multifamily housing
1. Home ownership rate data available from 1984 - 2017 Source: Federal Reserve Bank of St. Louis, US Census Bureau, BLS, Federal Reserve Bank of New York, Newmark Knight Frank Research, and the National Apartment Association MULTIFAMILY: US VOLUME AND MARKET SHARE BY YEAR 55 DEMONSTRATED ABILITY TO INCREASE MARKET SHARE (NOTIONAL VOLUMES)
NEWMARK’S US MULTIFAMILY VOLUMES1 % CHANGE IN OVERALL US MULTIFAMILY MARKET VOLUMES 2015 – 2017 $18 40%
$15 16.8 35% 34.8% 30% $12 25% 11.5 $9 20% Billions 8.9 % Change % 15% $6 10% $3 4.8 5% 3.2 6.1% 1.5 0.5% $0 0% Investment Sales Mortgage GSE and FHA Brokerage Origination Investment Sales Mortgage Brokerage GSE and FHA Origination 2015 2017
• Dramatic increase in NMRK’s market share for sales & financing since 2015 • Still room for growth
1. Includes a relatively small amount of Newmark Americas volumes outside the US Note: Investment sales volumes are based on actual volumes recorded by Newmark rather than those reported by RCA. RCA reported volumes are used for the market share estimate on the following page Source: RCA, Newmark Knight Frank Research, and MBA COMMERCIAL/MULTIFAMILY: 2017 US MARKET SHARE COMPARED TO PEERS 56 SIGNIFICANT RUNWAY TO CONTINUE INCREASING MARKET SHARE (NOTIONAL VOLUMES)
Average US Market Newmark’s Newmark’s Share of Newmark’s Business Line Rank1 US Market Share2 Largest Peers3 Growth Opportunity
Multifamily Investment Sales 2 8.8% 16.2% 84.1%
Multifamily Mortgage Brokerage 8 3.8% 12.8% 236.8%
GSE & FHA Origination 5 6.0% 9.8% 63.3%
Commercial (ex. Multifamily) 6 Investment Sales 3.7% 8.6% 132.4% Commercial (ex. Multifamily) 7 Mortgage Brokerage 3.8% 14.1% 271.1%
• Newmark has an immense runway to continue to grow market share to be in line with top competitors
1. Investment sales rank is based on RCA’s 2017 data. Mortgage brokerage rank is based on how Newmark would have ranked if it had been included in MBA’s 2017 annual origination ranking. Newmark did not submit to be included in MBA’s 2017 annual origination rankings. GSE & FHA origination rank is based on MBA’s 2017 annual origination ranking data, which includes Newmark’s GSE & FHA origination business line (Berkeley Point) 2. Market share estimate for investment sales is based on Newmark’s 2017 investment sales volume as reported by RCA. This is the same source for the market share of Newmark’s peers 3. Each peer set is different for each business line and includes different firms, some of which may be privately held. Top 5 peers used for multifamily and commercial mortgage brokerage, GSE & FHA origination, and commercial investment sales. #1 ranked peer is used for multifamily investment sales Note: For purposes of this analysis, “commercial” is defined as total volumes excluding multifamily Source: RCA, Newmark Knight Frank Research and MBA COMMERCIAL & MULTIFAMILY CAPITAL MARKETS INTEGRATION 57
Coordination of Investment Sales & Financing Teams • Become a full-service capital markets provider sourcing properties, equity & debt • Leverage relationships to provide more services on future deals
Key Account Management • Institute senior management oversight Equity over large accounts with touchpoints across multiple verticals
Debt Debt – Clearing the Markets • Provide full-range of financing options Properties for clients, including in-house/affiliated Bridge, GSE & CMBS platforms CROSS-SELL / SYNERGY OPPORTUNITY 58 CAPTURE INCREMENTAL FINANCING VOLUME THROUGH NKF INVESTMENT SALES TRANSACTIONS
Converted financing assignments on approximately 13% of multifamily investment sales transactions eligible for financing (by volume) in 2017 • Increased to 18% of eligible transactions in Q1 2018
Conversion target of 40% of multifamily and commercial investment sales • Opportunity for $7 billion – $9 billion in annual debt placement & origination volume based on Newmark’s FY 2017 investment sales • In line with the conversion ratio of certain peers CROSS-SELL: INVESTMENT SALES AND DEBT EXAMPLE 59
Vue 21 – $50 million Berkeley Point financing • Colorado Springs Market • ARA 2018 Sale & BPC 2018 Debt Placement • Fannie Mae Execution: 64% Leverage/7yr- Fixed Rate • Debt Client & Active Buyer - Deep Client Relationship • Communication and coordination among ARA & BPC = Fast & Effective Execution COMMERCIAL & MULTIFAMILY CAPITAL MARKETS EXPANSION 60
Geographic Expansion • Establish a “Top 3” presence in underserved key markets • Opportunistically enhance existing teams
Products and Services • Expand to include capabilities across Geography the full spectrum of products and services Products & Services Strategic Relationships • Develop new relationships with various Strategic Relationships domestic and foreign capital sources in order to clear the market in unique and creative ways GROWTH OPPORTUNITIES: GEOGRAPHIC EXPANSION 61 STRATEGIC GEOGRAPHIC COVERAGE
Build-out multifamily debt teams in existing investment sales markets
Embedded debt teams in ARA offices Embedded debt teams in ARA offices Future embedded debt teams prior to one year ago over the past year • Houston • New York • Denver • Austin • Dallas • Boca Raton • Boston • Charlotte • Seattle • Washington, DC • Portland • Orange County • San Francisco • San Diego • Tampa • Chicago • Los Angeles • Atlanta COMMERCIAL & MULTIFAMILY CAPITAL MARKETS EXPANSION 62 SIGNIFICANT OPPORTUNITY TO CAPTURE MARKET SHARE
Expand Presence in Certain Specializations Affordable Multifamily Net Lease Hospitality Industrial Data Centers Retail Small Loans Seniors Affordable Housing FHA MHC Student Healthcare / Assisted Living GROWTH OPPORTUNITIES: EXPANSION OF PRODUCTS AND SERVICES 63 LEVERAGE RELATIONSHIPS FOR GROWTH Strategic Debt Servicing Relationships Over the past three years, our servicing group has added correspondent or strategic relationships with: Barclays Bank CUNA (CMFG Life Insurance) CCRE John Hancock Citigroup JP Morgan Asset Management Goldman Sachs Life Insurance Co of the Southwest UBS Lincoln Financial Group Deutsche Bank Invesco Allstate Related Companies Americo
Will continue to add more strategic relationships in partnership with the commercial mortgage banking group CONCLUSION HOW NEWMARK EXPECTS TO DRIVE GROWTH 65
Profitably attract and retain elite talent
Acquire companies accretively
Drive cross-selling across service offerings
Leverage technology to meet the needs of underserved clients
Expand our geographic reach and services offered
Maintain our intermediary-oriented, low risk business model
Use technology to improve internal efficiency
Return value to shareholders and reinvest profits for future growth QUESTIONS GAAP FINANCIAL RESULTS SELECT CONSOLIDATED GAAP FINANCIAL RESULTS 68
Highlights of Consolidated GAAP Results (USD 1Q 2018 1Q 2017 Change (%) millions, except per share data)
Revenues $430.5 $332.6 29.4%
Income before income taxes and noncontrolling 39.4 37.0 6.6% interests
Net income (loss) for fully diluted shares 30.3 36.7 (17.5)%
GAAP net income (loss) per fully diluted share 0.12 N/A N/A
Pre-tax earnings margin 9.2% 11.1% NEWMARK GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) (UNDER GAAP) 69
Three Months Ended March 31, Revenues: 2018 2017 Commissions $ 260,735 $ 204,958 Gains from mortgage banking activities/origination, net 38,914 45,262 Management services, servicing fees and other 130,811 82,362 Total revenues 430,460 332,582
Expenses: Compensation and employee benefits 252,695 215,145 Allocations of net income and grant of exchangeability to limited partnership units 25,809 10,649 Total compensation and employee benefits 278,504 225,794 Operating, administrative and other 75,427 47,382 Fees to related parties 6,894 4,718 Depreciation and amortization 22,513 18,237 Total non-compensation expenses 104,834 70,337 Total operating expenses 383,338 296,131
Other income (losses), net: Other income (loss) 5,707 (593) Total other income (losses), net 5,707 (593)
Income (loss) from operations 52,829 35,858 Interest (expense) income , net (13,409) 1,134 Income before income taxes and noncontrolling interests 39,420 36,992
Provision (benefit) for income taxes 6,933 (15) Consolidated net income (loss) $ 32,487 $ 37,007
Less: Net income (loss) attributable to noncontrolling interest in subsidiaries 12,490 296
Net income (loss) available to common stockholders $ 19,997 $ 36,711
Per share data: Basic earnings per share Net income (loss) available to common stockholders $ 19,997 N/A Basic earnings per share $ 0.13 N/A
Basic weighted-average shares of common stock outstanding 155,694 N/A
Fully diluted earnings per share Net income (loss) for fully diluted shares 30,286 N/A Fully diluted earnings per share $ 0.12 N/A Fully diluted weighted-average shares of common stock outstanding 246,834 N/A
Dividends declared per share of common stock $ 0.09 N/A Dividends declared and paid per share of common stock $ - N/A NEWMARK GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) (UNDER GAAP) 70
Year Ended December 31, Revenues: 2017 2016 Commissions 1,014,716 849,419
Gains from mortgage banking activities, net 206,000 193,387 Management services, servicing fees and other 375,734 307,177 Total revenues 1,596,450 1,349,983
Expenses: Compensation and employee benefits 1,020,183 849,975 Allocations of net income and grant of exchangeability to limited partnership units and FPUs 114,657 72,318 Total compensation and employee benefits 1,134,840 922,293 Operating, administrative and other 219,163 185,344 Fees to related parties 20,771 18,010 Depreciation and amortization 95,815 72,197 Total non-compensation expenses 335,749 275,551 Total expenses 1,470,589 1,197,844
Other income (losses), net: Other income (loss) 73,927 15,279 Total other income (losses), net 73,927 15,279
Income (loss) from operations 199,788 167,418
Interest (income) expense , net (2,786) (3,787) Income before income taxes and noncontrolling interests 202,574 171,205
Provision (benefit) for income taxes 57,478 3,993 Consolidated net income (loss) $ 145,096 $ 167,212
Less: Net income (loss) attributable to noncontrolling interest in subsidiaries 604 (1,189)
Net income (loss) available to common stockholders $ 144,492 $ 168,401
Per share data: Basic earnings per share Net income (loss) available to common stockholders $ 144,492 N/A Basic earnings per share $ 1.08 N/A Basic weighted-average shares of common stock outstanding 133,413 N/A
Fully diluted earnings per share Net income (loss) for fully diluted shares $ 117,217 N/A Fully diluted earnings per share $ 0.85 N/A Fully diluted weighted-average shares of common stock outstanding 138,398 N/A
Dividends declared per share of common stock $ - N/A Dividends declared and paid per share of common stock $ - N/A NEWMARK GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) (UNDER GAAP) 71
March 31, December 2018 31, 2017 Assets Current Assets: Cash and cash equivalents $ 48,069 $ 121,027 Restricted cash 243,944 52,347 Marketable securities 8,622 57,623 Loans held for sale 965,639 362,635 Receivables, net 293,148 210,471 Other current assets 36,499 20,994 Total current assets 1,595,921 825,097 Goodwill 474,990 477,532 Mortgage servicing rights, net 381,526 392,626 Loans, forgivable loans and other receivables from employees and partners 226,744 209,549 Fixed assets, net 64,565 64,822 Other intangible assets, net 25,896 24,921 Other assets 287,508 278,460 Total assets $ 3,057,150 $ 2,273,007 Liabilities, Redeemable Partnership Interest, and Equity: Current Liabilities: Warehouse notes payable $ 950,479 $ 360,440 Accrued compensation 205,732 205,395 Current portion of accounts payable, accrued expenses and other liabilities 165,746 124,961 Secured loans 8,622 57,623 Current portion of payables to related parties 197,199 34,169 Total current liabilities 1,527,778 782,588 Long-term debt 400,000 670,710 Long-term debt payable to related parties 412,500 412,500 Other long term liabilities 163,190 163,795 Total liabilities 2,503,468 2,029,593 Commitments and contingencies Equity: Total equity (1) 553,682 243,414 Total liabilities, redeemable partnership interest, and equity $ 3,057,150 $ 2,273,007
(1) Includes "redeemable partnership interests," "noncontrolling interests" and "total stockholders' equity." NEWMARK GROUP, INC. SUMMARIZED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) (UNDER GAAP) 72
Three Months Ended March 31, 2018 2017 Net cash provided by (used in) operating activities $ (590,394) $ 296,411 Net cash provided by (used in) investing activities 42,473 (4,050) Net cash provided by (used in) financing activities 666,560 (271,969) Net increase (decrease) in cash and cash equivalents 118,639 20,392 Cash and cash equivalents and restricted cash at beginning of period 173,374 117,554 Cash and cash equivalents and restricted cash at end of period $ 292,013 $ 137,946
Net cash provided by (used in) operations excluding activity from loan originations and sales $ 12,611 $ 1,236
The Condensed Consolidated Statements of Cash Flows are presented in summarized form. For complete Condensed Consolidated Statements of Cash Flows, please refer to the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2018, to be filed with the Securities and Exchange Commission in the near future. APPENDIX RECENT NEWMARK TRANSACTIONS 74
LEASING ADVISORY PROPERTY TYPE PROPERTY NAME LOCATION SIZE CLIENT Large, global professional Office Hudson Yards New York, NY 604,000 SF services firm The John Buck Office 333 S Wabash Avenue Chicago, IL 462,000 SF Company/Morgan Stanley Office 121 Seaport Boulevard Boston, MA 386,911 SF Skanska (two transactions) Office 1414 E Maple Rd Troy, MI 276,250 SF Henry Ford Health System Kramer Levin Naftalis & Office 1177 Avenue Of The Americas New York, NY 265,348 SF Frankel LLP New York City Economic Office 1 Liberty Plaza New York, NY 219,486 SF Development/Brookfield Office Properties Office 250 Campus Drive Boston, MA 216,218 SF Hines Global REIT, Inc. Office 1850 Towers Crescent Plaza Tysons Corner, VA 213,060 SF MicroStrategy Incorporated TIAA-CREF Investment Office 925 4th Avenue Seattle, WA 149,742 SF Management, LLC Office 101 N Sepulveda Boulevard El Segundo, CA 134,586 SF Claymark Capital, LLC AGENCY ASSIGNMENT WINS PROPERTY TYPE PROPERTY NAME LOCATION SIZE CLIENT Port Authority of NY/NJ and Office One World Trade Center New York, NY 3.2M SF The Durst Organization Mixed-Use 2600 Vikings Parkway Minneapolis, MN 3M SF MV Eagan Ventures LLC Office Wells Fargo Center Minneapolis, MN 1.2M SF Hines Interests Development Site Land Bay C Arlington, VA 1.2M SF The Meridian Group RECENT NEWMARK TRANSACTIONS 75
AGENCY ASSIGNMENT WINS PROPERTY TYPE PROPERTY NAME LOCATION SIZE CLIENT Office US Bancorp Center Minneapolis, MN 950K SF Piedmont Office Realty Trust Office Parkview Business Park - TBB Sacramento, CA 835K SF Pappas Investments Office Marion Tower Seattle, WA 750K SF Urban Visions Real Estate Normandy Real Estate Fund Office 575 Lexington Avenue New York, NY 739K SF III/Angelo Gordon/George Comfort Office 1 Center Plaza Boston, MA 717K SF Synergy Boston Properties, Inc., Office 655 15th St NW Washington, DC 619K SF Blackstone Group Office HQ @ First San Jose, CA 604K SF Lane Partners Office KPMG Tower Los Angeles, CA 590K SF Morgan Stanley PROPERTY MANAGEMENT WINS PROPERTY TYPE PROPERTY NAME LOCATION SIZE CLIENT Industrial/ Coca Cola Beverages Florida, Florida Portfolio Florida 2,674,937 Warehouse LLC Class A, Office Atrium Two Cincinnati, OH 653,604 STRS of Ohio 10 St. James Avenue & Class A, Office Boston, MA 565,793 Mori Trust Co. Ltd 75 Arlington Street Class A, Office Xcel Building Denver, CO 495,518 Invesco Advisors, Inc. Class A, Office The Sacramento Bee Sacramento, CA 400,000 Private Investor Wyndham Worldwide Class A, Office Corporate Headquarters Parsippany, NJ 249,409 Corporation GCS AND CAPTIAL MARKETS RECENT NOTABLE WINS 76
CORPORATE PORTFOLIO TRANSACTIONS, LEASE ADMIN, FACILITIES MANAGEMENT, AND VARIABLE SERVICES CONTRACT CLIENT HIGHLIGHTS SIZE PERIOD Global Semiconductor Company 2.8 million sf 44 locations 3 years
National Media and Telecommunications Company 13 million sf 380 locations 3 years
Global Packaging Solutions Company 10.5 million sf 110 locations 3 years
Global Information Management Company 7.5 million sf 128 locations 3 years
Global Healthcare and Pharmaceutical Company 16 million sf 152 locations 1 year (Contract Renewal)
National Financial Service and Banking Company 2.6 million sf 300 locations 3 years (Contract Renewal)
Global Aerospace Manufacturing Company 55 million sf 879 locations 1 year (Contract Renewal) CAPITAL MARKETS TYPE PROPERTY NAME LOCATION SIZE CLIENT Multifamily Project Maple Multiple $2,221M Starwood Capital Group General Investment & Multifamily GID-IMP Pool A and B Multiple $553M Development Company Multifamily Avion at Spectrum San Diego, CA $105M Prime Group Multifamily Chatsworth Park Manassas, VA $92M Pantzer Properties Inc Milestone Apartment Multifamily Luna Bella Lafayette CO 240 units | $60.25 Developers Los Angeles CA Lincoln Property Office 1000 Wilshire 476,491 sf | $196M Company Retail The Shops at Fort Union Salt Lake City, UT 688,549 sf | $142M Undisclosed ONGOING “GOLDILOCKS GROWTH” CONTINUES TO BENEFIT CRE 77
• GDP is expected to continue to grow WAGE GROWTH1 3.0% steadily in 2018 and 2019 2.5% • Inflation is expected to increase close 2.0% 1.5% to the US Federal Reserve’s target of 1.0% 2% per year 0.5% 0.0% • Moderate wage growth has applied mild pressure on inflation
REAL GDP AND INFLATION CONSENSUS MARKET IMPLIED INFLATION2 GROWTH ESTIMATES 3.0% 2.8% 2.5% 2.5% 2.5% 2.5% 2.2% 2.0% 2.0% 1.5% 1.5% 1.0% 1.0% 0.5% 0.5% 0.0% 0.0% 2018 2019 Real GDP CPI 1. Based on seasonally adjusted average hourly earnings: total private industries (Y/Y) 2. Based on 5-year breakeven inflation rate Sources: Bloomberg, US Bureau of Labor Statistics (BLS) and Federal Reserve Bank of St. Louis SUPPORTIVE EMPLOYMENT TRENDS 78
UNEMPLOYMENT RATE LABOR PARTICIPATION
12.0% 66.0%
10.0% 65.0%
8.0% 64.0%
6.0% 63.0%
4.0% 62.0%
2.0% 61.0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2010 2011 2012 2013 2014 2015 2016 2017 2018
• Steady job growth and low levels of unemployment are a positive for the leasing market • Labor participation remains near generational lows implying room for further job growth without spurring inflation
Source: US Bureau of Labor Statistics and Federal Reserve Bank of St. Louis COMMERCIAL REAL ESTATE DEBT GROWTH DURING PAST EXPANSIONS 79
REAL GDP GROWTH VS GROWTH IN CRE DEBT OUTSTANDING DURING PAST EXPANSIONS
10% 9% 9.8% 9.1% 8% 7% 7.2% 6% 5% 5.7% 4% 4.8% 4.7% 4.0% 3.9% 3% 3.8% 3.0% 2% 2.3% 2.1% 1% 1.8% 1.3% 0% 1Q62 - 3Q69 4Q71 - 3Q73 1Q76 - 4Q79 4Q83 - 2Q90 1Q92 - 4Q00 4Q02 - 3Q07 2Q10 - 4Q17 Real GDP CAGR CRE Debt Outstanding CAGR 1
• The current expansion has been at a much slower pace than past expansions • Commercial real estate debt outstanding has increased at a significantly slower pace than the expansion that ended in 3Q07 • Therefore we believe there is still a long runway for strong levels of market activity
1. Based on inflation adjusted commercial/multifamily mortgage debt outstanding Source: Federal Reserve Bank of St. Louis, Federal Reserve Flow of Funds, Newmark Knight Frank Research OVERALL US MARKET OUTLOOK 80
We expect flat industry office leasing volumes
Flat to modest growth in overall investment sales volumes with particular strength in multifamily and industrial
MBA expects overall multifamily originations to decline by 3%, and for GSE and FHA multifamily originations to be flat YOY in 2018
We expect to outperform the overall market relative to these statistics in 2018 BALANCED INDUSTRY REVENUE STREAMS 81 WE MAINTAIN A DIVERSE BALANCE OF INDUSTRY REVENUE STREAMS AMONGST OUR TOP CLIENTS1
Distribution of Top 100 Clients Wholesale Trade 5% Other, 6%
Insurance 7%
Real Estate 36%
Financial Services 12%
Manufacturing 16%
Technology Services 6% Other Services Health services Legal services 5% 4% 4%
1. Our Top 100 clients represent 20% of revenues for the TTM ended March 31, 2018 Note: “Other” Includes Transportation & Public Utilities, Construction, and Public Administration industries. “Other Services” includes Business Services and Engineering & Management Services industries. In addition, numbers in the above chart may not sum to 100 due to rounding NEWMARK’S FULLY DILUTED SHARE COUNT SUMMARY AS OF MARCH 31, 2018 82
Newmark Group, Inc. Fully Diluted Share Count Summary Fully-diluted As of March 31, 2018 Shares (millions) Ownership (%) Class A owned by Public 23.3 9%
Limited partnership units owned by employees1 55.0 22% Other owned by employees2 2.3 1% Class A owned by BGC 115.6 45% Class B owned by BGC 15.8 6% Limited partnership units owned by BGC 18.9 7% Partnership units owned by Cantor 23.8 9%
Total 254.7 100%
1. In conjunction with the proposed spin-off of Newmark, the limited partnership units are owned by employees of both Newmark and BGC. Over time, virtually all of the partners of Newmark are expected to only own units and/or shares of Newmark and virtually all of the partners of BGC are expected to only own units and/or shares of BGC. Going forward, partners of Newmark will be compensated with Newmark partnership units and partners of BGC will be compensated with BGC partnership units 2. These primarily represent contingent shares and/or units for which all necessary conditions have been satisfied except for the passage of time ADJUSTED EARNINGS DEFINED 83
Adjusted Earnings Defined Newmark uses non-GAAP financial measures including, but not limited to, “pre-tax Adjusted Earnings” and “post-tax Adjusted Earnings,” which are supplemental measures of operating results that are used by management to evaluate the financial performance of the Company and its consolidated subsidiaries. Newmark believes that Adjusted Earnings best reflect the operating earnings generated by the Company on a consolidated basis and are the earnings which management considers available for, among other things, dividends and/or distributions to Newmark’s common stockholders and holders of Newmark Holdings partnership units during any period. As compared with items such as “Income (loss) before income taxes and noncontrolling interests” and “Net income (loss) for fully diluted shares” all prepared in accordance with GAAP, Adjusted Earnings calculations primarily exclude certain non-cash compensation and other expenses that generally do not involve the receipt or outlay of cash by the Company and/or which do not dilute existing stockholders, as described below. In addition, Adjusted Earnings calculations exclude certain gains and charges that management believes do not best reflect the ordinary operating results of Newmark. Adjustments Made to Calculate Pre-Tax Adjusted Earnings Newmark defines pre-tax Adjusted Earnings as GAAP income (loss) from operations before income taxes and noncontrolling interest in subsidiaries, excluding certain items such as: • Non-cash asset impairment charges, if any; • Allocations of net income to limited partnership units; • Non-cash charges related to the amortization of intangibles with respect to acquisitions; • Non-cash charges relating to grants of exchangeability to limited partnership units. Virtually all of the Company’s key executives and producers have partnership or equity stakes in the Company and receive deferred equity or limited partnership units as part of their compensation. A significant percentage of Newmark’s fully diluted shares are owned by the Company’s executives, partners and employees. The Company issues limited partnership units and grants exchangeability to unit holders to provide liquidity to Newmark’s employees, to align the interests of the Company’s employees and management with those of common stockholders, to help motivate and retain key employees, and to encourage a collaborative culture that drives cross-selling and revenue growth. When the Company issues limited partnership units, the shares of common stock into which the units can be ultimately exchanged are included in Newmark’s fully diluted share count for Adjusted Earnings at the beginning of the subsequent quarter after the date of grant. Newmark includes such shares in the Company’s fully diluted share count when the unit is granted because the unit holder is expected to be paid a pro-rata distribution based on Newmark’s calculation of Adjusted Earnings per fully diluted share and because the holder could be granted the ability to exchange their units into shares of common stock in the future. Non-cash charges with respect to grants of exchangeability reflect the value of the shares of common stock into which the unit is exchangeable when the unit holder is granted exchangeability not previously expensed in accordance with GAAP. The amount of non-cash charges relating to grants of exchangeability the Company uses to calculate pre-tax Adjusted Earnings on a quarterly basis is based upon the Company’s estimate of expected grants of exchangeability to limited partnership units during the annual period, as described further below under “Adjustments Made to Calculate Post-Tax Adjusted Earnings.” Adjusted Earnings also excludes non-cash GAAP gains attributable to originated mortgage servicing rights (which Newmark refer to as “OMSRs”) and non-cash GAAP amortization of mortgage servicing rights (which the Company refers to as “MSRs”). Under GAAP, the Company recognizes OMSRs gains equal to the fair value of servicing rights retained on mortgage loans originated and sold. Subsequent to the initial recognition at fair value, MSRs are carried at the lower of amortized cost or fair value and amortized in proportion to the net servicing revenue expected to be earned. However, it is expected that any cash received with respect to these servicing rights, net of associated expenses, will increase Adjusted Earnings (and Adjusted EBITDA) in future periods. ADJUSTED EARNINGS DEFINED (CONTINUED) 84
Additionally, Adjusted Earnings calculations exclude certain unusual, one-time or non-recurring items, if any. These items are excluded from Adjusted Earnings because the Company views excluding such items as a better reflection of the ongoing, ordinary operations of Newmark. Newmark’s definition of Adjusted Earnings also excludes certain gains and charges with respect to acquisitions, dispositions, or resolutions of litigation. Management believes that excluding such gains and charges also best reflects the ongoing operating performance of Newmark. Adjustments Made to Calculate Post-Tax Adjusted Earnings Because Adjusted Earnings are calculated on a pre-tax basis, Newmark also intends to report post-tax Adjusted Earnings to fully diluted stockholders. Newmark defines post-tax Adjusted Earnings to fully diluted stockholders as pre-tax Adjusted Earnings reduced by the non-GAAP tax provision described below. The Company calculates its tax provision for post-tax Adjusted Earnings using an annual estimate similar to how it accounts for its income tax provision under GAAP. To calculate the quarterly tax provision under GAAP, Newmark estimates its full fiscal year GAAP income (loss) from operations before income taxes and noncontrolling interests in subsidiaries and the expected inclusions and deductions for income tax purposes, including expected grants of exchangeability to limited partnership units during the annual period. The resulting annualized tax rate is applied to Newmark’s quarterly GAAP income (loss) from operations before income taxes and noncontrolling interests in subsidiaries. At the end of the annual period, the Company updates its estimate to reflect the actual tax amounts owed for the period. To determine the non-GAAP tax provision, Newmark first adjusts pre-tax Adjusted Earnings by recognizing any, and only, amounts for which a tax deduction applies under applicable law. The amounts include non-cash charges with respect to grants of exchangeability, certain charges related to employee loan forgiveness, certain net operating loss carryforwards when taken for statutory purposes, and certain charges related to tax goodwill amortization. These adjustments may also reflect timing and measurement differences, including treatment of employee loans, changes in the value of units between the dates of grants of exchangeability and the date of actual unit exchange, variations in the value of certain deferred tax assets and liabilities and the different timing of permitted deductions for tax under GAAP and statutory tax requirements. After application of these previously described adjustments, the result is the Company’s taxable income for Newmark’s pre-tax Adjusted Earnings, to which the Company then applies the statutory tax rates. This amount is the Company’s non-GAAP tax provision. Newmark views the effective tax rate on pre-tax Adjusted Earnings as equal to the amount of Newmark’s non-GAAP tax provision divided by the amount of pre-tax Adjusted Earnings. Generally, the most significant factor affecting this non-GAAP tax provision is the amount of non-cash charges relating to the grants of exchangeability to limited partnership units. Because the non-cash charges relating to the grants of exchangeability are deductible in accordance with applicable tax laws, increases in exchangeability have the effect of lowering the Company’s non-GAAP effective tax rate and thereby increasing Newmark’s post-tax Adjusted Earnings. Management uses post-tax Adjusted Earnings in part to help it evaluate, among other things, the overall performance of the business, to make decisions with respect to the Company’s operations, and to determine the amount of dividends payable to common stockholders and distributions payable to holders of limited partnership units. Newmark incurs income tax expenses based on the location, legal structure and jurisdictional taxing authorities of each of its subsidiaries. Certain of the Company’s entities are taxed as US partnerships and are subject to the Unincorporated Business Tax (“UBT”) in New York City. Any US federal and state income tax liability or benefit related to the partnership income or loss, with the exception of UBT, rests with the unit holders rather than with the partnership entity. The Company’s consolidated financial statements include US federal, state and local income taxes on the Company’s allocable share of the US results of operations. Outside of the US, Newmark is expected to operate principally through subsidiary corporations subject to local income taxes. For these reasons, taxes for Adjusted Earnings are expected to be presented to show the tax provision the consolidated Company would expect to pay if 100 percent of earnings were taxed at global corporate rates. ADJUSTED EARNINGS DEFINED (CONTINUED) 85
Calculations of Pre-Tax and Post-Tax Adjusted Earnings per Share Newmark’s Adjusted Earnings per share calculations assume either that: • The fully diluted share count includes the shares related to any dilutive instruments, but excludes the associated interest expense, net of tax, when the impact would be dilutive; or • The fully diluted share count excludes the shares related to these instruments, but includes the associated interest expense, net of tax. The share count for Adjusted Earnings excludes certain shares expected to be issued in future periods but not yet eligible to receive dividends and/or distributions. Each quarter, the dividend payable to Newmark’s common stockholders, if any, is expected to be determined by the Company’s Board of Directors with reference to a number of factors, including post-tax Adjusted Earnings per fully diluted share. Newmark may also pay a pro-rata distribution of net income to limited partnership units, as well as to Cantor for its noncontrolling interest. The amount of this net income, and therefore of these payments per unit, would be determined using the above definition of pre-tax Adjusted Earnings using the fully diluted share count. The declaration, payment, timing and amount of any future dividends payable by the Company will be at the discretion of its board of directors using the fully diluted share count.
Other Matters with Respect to Adjusted Earnings The term “Adjusted Earnings” should not be considered in isolation or as an alternative to GAAP net income (loss). The Company views Adjusted Earnings as a metric that is not indicative of liquidity or the cash available to fund its operations, but rather as a performance measure. Pre- and post-tax Adjusted Earnings are not intended to replace the Company’s presentation of its GAAP financial results. However, management believes that these measures help provide investors with a clearer understanding of Newmark’s financial performance and offer useful information to both management and investors regarding certain financial and business trends related to the Company’s financial condition and results of operations. Management believes that Adjusted Earnings measures and the GAAP measures of financial performance should be considered together. Newmark anticipates providing forward-looking guidance for GAAP revenues and for certain Adjusted Earnings measures from time to time. However, the Company does not anticipate providing an outlook for GAAP results other than revenue. This is because certain GAAP items, which are excluded from Adjusted Earnings, are difficult to forecast with precision before the end of each period. The Company therefore believes that it is not possible to forecast GAAP results or to quantitatively reconcile GAAP results to non-GAAP results with sufficient precision unless Newmark makes unreasonable efforts. The items that are difficult to predict on a quarterly basis with precision and which can have a material impact on the Company’s GAAP results include, but are not limited, to the following: • Allocations of net income and grants of exchangeability to limited partnership units, which are determined at the discretion of management throughout and up to the period-end; • The impact of certain marketable securities, as well as any gains or losses related to associated mark-to- market movements and/or hedging. These items are calculated using period-end closing prices; • Non-cash asset impairment charges, which are calculated and analyzed based on the period-end values of the underlying assets. These amounts may not be known until after period-end; and • Acquisitions, dispositions and/or resolutions of litigation, which are fluid and unpredictable in nature. ADJUSTED EBITDA DEFINED 86
Adjusted EBITDA and Adjusted EBITDA Before Allocations to Units Defined Newmark provides a non-GAAP financial performance measure, “Adjusted EBITDA,” which the Company defines as “Net income (loss) for fully diluted shares” derived in accordance with GAAP and adjusted for the addition of the following items (the last two items of which are discussed further in section of this documents called “Adjustments Made to Calculate Pre-Tax Adjusted Earnings.”) • Provision (benefit) for income taxes; • Net income (loss) attributable to noncontrolling interest; • Employee loan amortization and reserves on employee loans; • Interest expense; • Fixed asset depreciation and intangible asset amortization; • Non-cash charges relating to grants of exchangeability to limited partnership units; • Other non-cash charges related to equity-based compensation; • Other non-cash income (loss); and • Net non-cash GAAP gains related to OMSRs and MSRs amortization. The Company also discloses “Adjusted EBITDA before allocations to units,” which is Adjusted EBITDA excluding GAAP charges with respect to allocations of net income to limited partnership units. Such allocations represent the pro-rata portion of pre-tax earnings available to such unit holders. These units are included in the fully-diluted share count, and are exchangeable on a one-to-one basis, subject to certain adjustments, into shares of Newmark’s Class A common stock. As these units are exchanged into shares of the Company’s Class A common stock, unit holders will become entitled to cash dividends paid on the shares of the Class A common stock rather than cash distributions in respect of the units. The Company views such allocations as economically equivalent to dividends on common shares. Because dividends paid to common shares are not an expense under GAAP, management believes similar allocations of income to unit holders should also be excluded by investors when analyzing Newmark’s results on a fully-diluted basis with respect to Adjusted EBITDA. The Company’s management believes that these Adjusted EBITDA measures are useful in evaluating Newmark’s operating performance, because the calculations of these measures generally eliminate the effects of financing and income taxes and the accounting effects of capital spending and acquisitions, which would include impairment charges of goodwill and intangibles created from acquisitions. Such items may vary for different companies for reasons unrelated to overall operating performance. As a result, the Company’s management uses these measures to evaluate operating performance and for other discretionary purposes. Newmark believes that these Adjusted EBITDA measures are useful to investors to assist them in achieving a more complete picture of the Company’s financial condition and results of operations. Because these Adjusted EBITDA measures are not recognized measurements under GAAP, investors should use these measures in addition to “Net income (loss) for fully diluted shares” when analyzing Newmark’s operating performance. Because not all companies use identical Adjusted EBITDA calculations, the Company’s presentation of these Adjusted EBITDA measures may not be comparable to similarly-titled measures of other companies. Furthermore, these Adjusted EBITDA measures are not intended to be measures of free cash flow or GAAP cash flow from operations, because these Adjusted EBITDA measures do not consider certain cash requirements, such as tax and debt service payments. See the reconciliation table “Reconciliation of GAAP Income (Loss) to Adjusted EBITDA” elsewhere in this document for additional information on this topic. PROPOSED SPIN-OFF 87
Proposed Spin-Off of Newmark BGC has advised Newmark that it expects to pursue a distribution to its stockholders of all of the Class A shares common and Class B common shares of Newmark (collectively, the “Newmark common shares”) that BGC then owns in a manner that is intended to qualify as generally tax-free for U.S. federal income tax purposes (the “spin-off”). As currently contemplated, shares of Class A common stock of Newmark held by BGC would be distributed to the holders of shares of Class A common stock of BGC, and shares of Class B common stock of Newmark held by BGC would be distributed to that holders of shares of Class B common stock of BGC. Key steps that Newmark plans to take towards the tax-free spin-off include: first, Newmark intends to attain its own credit rating; and second, Newmark expects to repay or refinance its $812.5 million of long-term debt owed to or guaranteed by BGC. This is necessary for the spin-off to be tax free. Newmark’s management is planning to begin the process of pursuing its own credit rating now that BGC’s credit watch has been resolved. Had the spin-off occurred immediately following the close of the first quarter of 2018, the ratio of Newmark common shares to be distributed in respect of each BGC common share would have been approximately 0.4702. However, the exact ratio of Newmark common shares to be distributed in respect of each BGC common share in the spin-off will depend on, among other things, the number of BGC common shares outstanding and the number of Newmark common shares (including Newmark common shares underlying units of Newmark OpCo) owned by BGC as of the record date of the spin-off. The spin-off is subject to a number of conditions, and BGC may determine not to proceed with the spin-off if the BGC board of directors determines, in its sole discretion, that the spin-off is not in the best interest of BGC and its stockholders. Accordingly, the spin-off may not occur on the expected timeframe, or at all. Please see the section titled “Item 13—Certain Relationships and Related Transactions, and Director Independence—Separation and Distribution Agreement—The Distribution” and “Item 13—Certain Relationships and Related Transactions, and Director Independence—Separation and Distribution Agreement— BGC Partners Contribution of Newmark OpCo Units Prior to the Distribution” in Newmark’s amended 2017 annual report on Form 10-K/A for additional information regarding the proposed spin-off. DIVIDEND POLICY & ASC 606 88
Newmark Dividend Policy Newmark’s board of directors has authorized a dividend policy that reflects its intention to pay a quarterly dividend, starting with the first quarter of 2018. Any dividends to Newmark’s common stockholders will be calculated based on its expected post-tax Adjusted Earnings per fully diluted share, as a measure of net income for the year. See Newmark’s 10-Q for a definition of “post-tax Adjusted Earnings” per fully diluted share. Newmark currently expects that, in any year, its aggregate quarterly dividends will be equal to or less than its estimate at the end of the first quarter of such year of 25% of its post-tax Adjusted Earnings per fully diluted share to its common stockholders for such year. The declaration, payment, timing and amount of any future dividends payable by Newmark will be at the discretion of its board of directors; provided that any dividend to its common stockholders that would result in the dividends for a year exceeding 25% of its post-tax Adjusted Earnings per fully diluted share for such year shall require the consent of the holder of a majority of the Newmark Holdings exchangeable limited partnership interests, which is currently Cantor. For the first quarter of 2018, Newmark’s board of directors declared a dividend of 9 cents per share based on management’s current expectation of its post-tax Adjusted Earning per fully diluted share for the year, and has indicated that it expects such dividend to remain consistent for the full year. To the extent that 25% of Newmark’s post- tax Adjusted Earnings per fully diluted share for the year exceeds this dividend on an annualized basis (i.e. an expected aggregate of $0.36 for four quarters), Newmark does not expect that its board of directors will increase the amount of the quarterly dividend payment during the year, or make downward adjustments in the event of a shortfall, although no assurance can be given that adjustments will not be made during the year. Newmark has indicated that it expects to announce the annual expected dividend rate in the first quarter of each year.
Impact of Adopting Revenue Recognition Guidance On January 1, 2018, we adopted ASC 606, which provides accounting guidance on the recognition of revenues from contracts with customers and impacts the presentation of certain revenues and expenses in our Condensed Consolidated Statements of Operations. Newmark elected to adopt ASC 606 using a modified retrospective approach with regard to contracts that were not completed as of December 31, 2017, and prospectively from January 1, 2018 onward. Accordingly, our financial information have not been revised for historical comparable periods and are presented under the accounting standards in effect during those periods. Due to the adoption of ASC 606, for all periods from the first quarter of 2018 onward, Newmark did not and will not record revenues or earnings related to “Leasing and other commissions” with respect to contingent revenue expected to be received in future periods as of December 31, 2017, in relation to contracts signed prior to January 1, 2018, for which services have already been completed. Instead, the Company recorded this contingent revenue and related commission payments on the balance sheet on January 1, 2018, with a corresponding pre-tax improvement of approximately $22.7 million and Newmark recognized an increase of $16.5 million and $2.3 million to beginning retained earnings and non-controlling interest, respectively, as a cumulative effect of adoption of an accounting change. Over time, the Company expects to receive $23 million of cash related to these “Leasing and other commissions” receivables, primarily over the course of 2018 and 2019. This cash, however, will not be recorded as GAAP net income. Additionally, prior to the adoption of ASC 606, Newmark presented certain management services expenses incurred on behalf of customers, subject to reimbursement, on a net basis. Under ASC 606, Newmark concluded that it controls the services provided by a third party on behalf of customers and, therefore, acts as a principal under those contracts and will present the related expenses on a gross basis in our Condensed Consolidated Statements of Operations, with no impact on net income available to common stockholders. ASC 606 does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other U.S. GAAP guidance, and as a result, did not have an impact on the elements of our Condensed Consolidated Statements of Operations most closely associated with financial instruments, including Commissions, Gains from mortgage banking activities/originations, net and Servicing fees. There was no significant impact as a result of applying ASC 606 to our results of operations for the three months ended March 31, 2018, except as it relates to the recognition and presentation of Management services, servicing fees and other revenues that contained future contingencies and certain Operating, Administrative and Other expenses subject to reimbursement. Refer to Newmark’s Quarterly Report on Form 10-Q for further information. RECONCILIATION OF GAAP INCOME (LOSS) TO ADJUSTED EARNINGS AND GAAP FULLY DILUTED EPS TO POST-TAX ADJUSTED EPS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) 89 Q1 2018 Q1 2017 Net income (loss) available to common stockholders $ 19,997 $ 36,711 Provision (benefit) for income taxes 6,933 (15) Net income (loss) attributable to noncontrolling interest in subsidiaries 12,490 296 Pre-tax adjustments: OMSR Revenue (21,097) (29,310) MSR amortization 17,824 13,876 Grant of exchangeability to limited partnership units 21,749 6,037 Intangible Asset Amortization 1,513 1,347 Non recurring (Gains) / Losses 168 1,202 Allocation of Net Income 4,060 4,612
Total pre-tax adjustments 24,217 (2,236) Pre-tax Adjusted Earnings $ 63,637 $ 34,756
GAAP Net income (loss) available to common stockholders $ 19,997 $ 36,711 Allocation of net income (loss) to noncontrolling interest in subsidiaries 11,687 - Total pre-tax adjustments (from above) 24,217 (2,236)
Income tax adjustment to reflect adjusted earnings taxes (1,531) (6,271) Post-tax Adjusted Earnings $ 54,370 $ 28,204
Per Share Data
GAAP fully diluted earnings per share $ 0.12 N/A
Less: Allocations of net income to limited partnership units and FPUs, net of tax (0.05) N/A Total pre-tax adjustments (from above) 0.10 (0.01) Income tax adjustment to reflect adjusted earnings taxes (0.01) (0.03) Post-tax adjusted earnings per share $ 0.22 $ 0.13
Pre-tax adjusted earnings per share $ 0.26 $ 0.15
Fully diluted weighted-average shares of common stock outstanding 246,834 225,194 RECONCILIATION OF GAAP INCOME (LOSS) TO ADJUSTED EARNINGS AND GAAP FULLY DILUTED EPS TO POST-TAX ADJUSTED EPS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) 90
FY 2017 FY 2016 Net income (loss) available to common stockholders $ 144,492 $ 168,401 Provision (benefit) for income taxes 57,478 3,993 Net income (loss) attributable to noncontrolling interest in subsidiaries 604 (1,189) Pre-tax adjustments: Reserves on employee loans 26,055 18,142 OMSR Revenue (120,970) (124,361) MSR amortization 72,518 58,140 Grant of exchangeability to limited partnership units 89,435 45,573 Intangible Asset Amortization 11,046 4,126 Non recurring (Gains) / Losses 6,929 (14,410) Other non-cash, non-dilutive, non-economic items 10,000 - Allocation of Net Income 25,221 26,746 Total pre-tax adjustments 120,234 13,956 Pre-tax Adjusted Earnings $ 322,808 $ 185,161
GAAP net income (loss) available to common stockholders $ 144,492 $ 168,401 Total pre-tax adjustments (from above) 120,234 13,956 Income tax adjustment to reflect adjusted earnings taxes (627) (30,817) Post-tax Adjusted Earnings $ 264,099 $ 151,540
Per Share Data
GAAP fully diluted earnings per share $ 0.85 N/A
Less: Allocations of net income to limited partnership units and FPUs, net of tax 0.12 N/A Total pre-tax adjustments (from above) 0.52 0.06 Income tax adjustment to reflect adjusted earnings taxes (0.00) (0.14) Post-tax adjusted earnings per share $ 1.15 $ 0.69
Pre-tax adjusted earnings per share $ 1.41 $ 0.84
Fully diluted weighted-average shares of common stock outstanding 229,479 219,921 RECONCILIATION OF GAAP INCOME (LOSS) TO ADJUSTED EBITDA (IN THOUSANDS)(UNAUDITED) 91
Q1 2018 Q1 2017 GAAP Net income (loss) available to common stockholders $ 19,997 $ 36,711 Add back: Provision (benefit) for income taxes 6,933 (15) Net income (loss) attributable to noncontrolling interest in subsidiaries 12,490 296 OMSR Revenue (21,097) (29,310) MSR Amortization 17,824 13,876 Other Depreciation and Amortization 4,688 4,363 Depreciation and amortization 22,512 18,239 Grant of Exchangeability to limited partnership units (1) 21,749 6,037 Other non-cash equity based compensation and amortization (2) (2,384) 8,014 Non-Recurring (Gains) / Losses 169 1,202 Other non-cash, non-dilutive, non-economic items (170) 1,332 Interest expense (3) 14,820 6 Adjusted EBITDA $ 75,019 $ 42,512 Allocations of net income 4,060 4,612 Adjusted EBITDA before allocations to units $ 79,079 $ 47,124
(1) Represents non-cash and non-dilutive charges relating to grants of exchangeability to limited partnership units. (2) Includes other equity based amortization and employee loans amortization and reserves (3) The Interest expense add back for Adjusted EBITDA excludes $3.7 million and $1.9 million of operating interest on Warehouse notes payable for Q1 2018 and Q1 2017, respectively. RECONCILIATION OF GAAP INCOME (LOSS) TO ADJUSTED EBITDA (IN THOUSANDS)(UNAUDITED) 92
FY 2017 FY 2016 GAAP Net income (loss) available to common stockholders $ 144,492 $ 168,401 Add back: Provision (benefit) for income taxes 57,478 3,993 Net income (loss) attributable to noncontrolling interest in subsidiaries 604 (1,189) OMSR Revenue (120,970) (124,361)
MSR Amortization 72,518 58,140 Other Depreciation and Amortization 23,297 14,057 Depreciation and amortization 95,815 72,197
Grant of Exchangeability to limited partnership units (1) 89,435 45,573 Other Equity Based Compensation 32,482 14,763 Employee loan amortization and reserves on employee loans 34,420 25,791 Non-Recurring (Gains) / Losses 6,929 (14,410) Other non-cash, non-dilutive, non-economic items 4,749 0 Interest expense (2) 2,885 17
Adjusted EBITDA $ 348,319 $ 190,775 Allocations of net income 25,222 26,745 Adjusted EBITDA before allocations to units $ 373,541 $ 217,520
(1) Represents non-cash and non-dilutive charges relating to grants of exchangeability to limited partnership units. (2) The Interest expense add back for Adjusted EBITDA excludes $4.5 million and $2.5 million of operating interest on Warehouse notes payable for Q4 2017 and Q4 2016, respectively. FULLY DILUTED WEIGHTED-AVERAGE SHARE COUNT FOR GAAP AND ADJUSTED EARNINGS (IN THOUSANDS) (UNAUDITED) 93
Q1 2018 Q1 2017 (1)
Common stock outstanding 155,694 N/A Limited partnership units 60,688 N/A Cantor units 23,801 N/A Founding partner units 5,733 N/A RSUs 275 N/A Other 643 N/A
Fully diluted weighted-average share count for GAAP 246,834 -
Adjusted Earnings Adjustments: Common stock outstanding - N/A Limited partnership units - N/A Cantor units - N/A Founding partner units - N/A RSUs - N/A Other - N/A Fully diluted weighted-average share count for Adjusted Earnings 246,834 225,194
Note: (1) This methodology divides the relevant historical weighted average share counts of BGC Partners by 2.2 and adds the 23.0 million shares of NMRK Class A common stock issued in the IPO as though they were issued and outstanding for the entire relevant period. BGC's fully diluted weighted average share count for Q1 2017 was 444.8 million. Newmark’s post-tax Adjusted Earnings per share for Q1 2018 and Q1 2017 under this methodology is $0.22 and $0.13 respectively. MEDIA CONTACT: Karen Laureno-Rikardsen +1 212-829-4975
INVESTOR CONTACTS: Jason McGruder Kelly Collar +1 212-610-2426 +1 212-610-2426
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