A GLOBAL
LEADER IN
COMMERCIAL
REAL ESTATE
Newmark Knight Frank (“NKF”), operated
by Newmark Group, Inc. (NASDAQ: NMRK)
(“Newmark Group,” “Newmark” or “the
Company”), is one of the world’s leading
and most trusted commercial real estate
advisory fi rms, offering a complete suite
of services and products for both owners
and occupiers.
Together with London-based partner Knight Frank and
independently-owned offi ces, NKF’s 16,000 professionals
operate from approximately 430 offi ces on six continents.
Approximately 5,200 of these employees and 135 of these
offi ces are part of Newmark Group. NKF’s investor/owner
services and products include investment sales, agency
leasing, property management, valuation and advisory,
diligence, underwriting, government-sponsored enterprise
lending, loan servicing, debt and structured fi nance and
loan sales. Occupier services and products include tenant
representation, real estate management technology systems,
workplace and occupancy strategy, global corporate services
consulting, project management, lease administration and
facilities management.
For further information, visit
www.ngkf.com
N E W M A R K G R O U P
5,300
700
3,600
700
5,700
A N N U A L R E P O R T 2018 | 01
FINANCIAL
HIGHLIGHTS
Capital markets
NEWMARK REVENUES
($ IN THOUSANDS)
Leasing and other commissions
Gains from mortgage banking activities/origination, net
Management services, servicing fees and other
$2,047,579
36.7% CAGR
$1,596,450
$1,349,983
$1,200,247
$845,695
$577,191
Capital markets
FY 2018
REVENUES
28%
Management services,
servicing fees and other
23%
Capital markets
9% Gains from mortgage banking
activities/originations, net
40%
Leasing and other commissions
$2.05B
FY 2017
REVENUES
24%
Management services,
servicing fees and other
25%
Capital markets
13% Gains from mortgage banking
activities/originations, net
39%
Leasing and other commissions
Gains from mortgage banking activities/origination, net
$454,616
Leasing and other commissions
$229,500
Management services, servicing fees and other
$1.60B
2011
2012
2013
2014
2015
2016
2017
2018
’11
’12
’13
’14
’15
’16
’17
’18
N E W M A R K G R O U P
2500000
2000000
1500000
1000000
500000
0
NEWMARK GROUP SELECTED CONSOLIDATED FINANCIAL DATA
2017
18 vs. 17 Change
REVENUES ($ IN THOUSANDS)
Leasing and other commissions
Capital markets
Gains from mortgage banking activities/originations, net
Management services, servicing fees and other
2018
$ 817,435
$ 468,904
$
$
182,264
578,976
$ 616,980
$
$
$
397,736
206,000
375,734
(cid:1101) (cid:57)otal (cid:55)evenues
$ 2,047,579
$ 1,596,450
GAAP EARNINGS ($ IN THOUSANDS)1
GAAP income before income taxes and noncontrolling interests
(cid:51)et income for fully diluted s(cid:77)ares2
$
282,385
$ 105,571
$
202,574
$ 117,217
ADJUSTED EARNINGS ($ IN THOUSANDS)1
(cid:53)re(cid:18)ta(cid:93) (cid:38)d(cid:79)usted (cid:42)arnings
(cid:53)ost(cid:18)ta(cid:93) (cid:38)d(cid:79)usted (cid:42)arnings
ADJUSTED EBITDA ($ IN THOUSANDS)1
$
459,034
$ 389,214
$
345,290
$ 282,533
(cid:38)d(cid:79)usted (cid:42)(cid:39)(cid:46)(cid:57)(cid:41)(cid:38)
$ 524,398
$ 339,121
NOTIONAL VOLUME ($ IN MILLIONS)
Investment sales
Mortgage brokerage
(cid:50)ortgage origination volume
(cid:1101) (cid:57)otal de(cid:71)t and e(cid:86)uity volume
Other
Servicing portfolio ($ in millions)
(cid:28)(cid:18)year revenue (cid:40)(cid:38)(cid:44)(cid:55)
(cid:23)(cid:21)(cid:22)(cid:29) revenue per producer (cid:13)(cid:9) in t(cid:77)ousands(cid:14)
(cid:55)evenue per producer (cid:27)(cid:18)year (cid:40)(cid:38)(cid:44)(cid:55)
$
$
$
$
35,028
8,714
8,931
52,673
$
$
$
$
42,269
13,609
9,132
65,010
$
60,000
37%
905
11%
32%
18%
(12%)
54%
28%
39%
(10%)
33%
38%
55%
21%
56%
2%
23%
(cid:22)(cid:19) (cid:58)(cid:19)(cid:56)(cid:19) (cid:44)enerally (cid:38)ccepted (cid:38)ccounting (cid:53)rinciples is referred to as (cid:1126)(cid:44)(cid:38)(cid:38)(cid:53)(cid:19)(cid:1127) (cid:1126)(cid:44)(cid:38)(cid:38)(cid:53) income (cid:71)efore income ta(cid:93)es and noncontrolling interests(cid:1127) and (cid:1126)(cid:38)d(cid:79)usted (cid:42)arnings
(cid:71)efore noncontrolling interests and ta(cid:93)es(cid:1127) may (cid:71)e used interc(cid:77)angea(cid:71)ly (cid:92)it(cid:77) (cid:1126)(cid:44)(cid:38)(cid:38)(cid:53) (cid:53)re(cid:18)ta(cid:93) earnings(cid:1127) and (cid:1126)(cid:53)re(cid:18)ta(cid:93) (cid:38)d(cid:79)usted (cid:42)arnings,(cid:1127) respectively(cid:19) (cid:43)(cid:62) (cid:23)(cid:21)(cid:22)(cid:29)
(cid:44)(cid:38)(cid:38)(cid:53) income (cid:71)efore income ta(cid:93)es and noncontrolling interests, (cid:53)re(cid:18)ta(cid:93) (cid:38)d(cid:79)usted (cid:42)arnings, and (cid:38)d(cid:79)usted (cid:42)(cid:39)(cid:46)(cid:57)(cid:41)(cid:38) include ot(cid:77)er income related to t(cid:77)e (cid:51)asda(cid:86)
s(cid:77)ares of (cid:9)(cid:29)(cid:28)(cid:19)(cid:26) million(cid:19) (cid:56)ee t(cid:77)e sections of t(cid:77)is document including (cid:1126)(cid:38)d(cid:79)usted (cid:42)arnings (cid:41)efined,(cid:1127) (cid:1126)(cid:55)econciliation of (cid:44)(cid:38)(cid:38)(cid:53) (cid:46)ncome (cid:13)(cid:49)oss(cid:14) to (cid:38)d(cid:79)usted (cid:42)arnings
and (cid:44)(cid:38)(cid:38)(cid:53) (cid:43)ully (cid:41)iluted (cid:42)(cid:53)(cid:56) to (cid:53)ost(cid:18)(cid:57)a(cid:93) (cid:38)d(cid:79)usted (cid:42)(cid:53)(cid:56),(cid:1127) (cid:1126)(cid:38)d(cid:79)usted (cid:42)(cid:39)(cid:46)(cid:57)(cid:41)(cid:38) (cid:41)efined,(cid:1127) and (cid:1126)(cid:55)econciliation of (cid:44)(cid:38)(cid:38)(cid:53) (cid:46)ncome (cid:13)(cid:49)oss(cid:14) to (cid:38)d(cid:79)usted (cid:42)(cid:39)(cid:46)(cid:57)(cid:41)(cid:38),(cid:1127) including
any footnotes to t(cid:77)ese sections, for t(cid:77)e complete and updated definitions of t(cid:77)ese non(cid:18)(cid:44)(cid:38)(cid:38)(cid:53) terms and (cid:77)o(cid:92), (cid:92)(cid:77)en and (cid:92)(cid:77)y management uses t(cid:77)em, as (cid:92)ell as
for t(cid:77)e differences (cid:71)et(cid:92)een results under (cid:44)(cid:38)(cid:38)(cid:53) and non(cid:18)(cid:44)(cid:38)(cid:38)(cid:53) for t(cid:77)e periods discussed (cid:77)erein(cid:19)
(cid:23)(cid:19) (cid:51)e(cid:92)mar(cid:80)(cid:1123)s (cid:44)(cid:38)(cid:38)(cid:53) net income for fully diluted s(cid:77)ares (cid:92)ould (cid:77)ave increased (cid:71)y over (cid:24)(cid:26)(cid:10) year(cid:18)over(cid:18)year for t(cid:77)e full year (cid:23)(cid:21)(cid:22)(cid:29), (cid:71)ut for t(cid:77)e various c(cid:77)anges to its
corporate structure related to its separation from (cid:39)(cid:44)(cid:40) and initial pu(cid:71)lic offering (cid:13)(cid:1126)(cid:46)(cid:53)(cid:52)(cid:1127)(cid:14) on (cid:41)ecem(cid:71)er (cid:22)(cid:30), (cid:23)(cid:21)(cid:22)(cid:28)(cid:19) (cid:57)(cid:77)ese c(cid:77)anges in corporate structure resulted in an
appro(cid:93)imately (cid:9)(cid:29)(cid:26) million year(cid:18)on(cid:18)year increase in net income attri(cid:71)uta(cid:71)le to noncontrolling interests for (cid:44)(cid:38)(cid:38)(cid:53) in (cid:23)(cid:21)(cid:22)(cid:29)(cid:19) (cid:43)or t(cid:77)is reason, investors may find t(cid:77)e (cid:24)(cid:30)(cid:10)
increase in (cid:44)(cid:38)(cid:38)(cid:53) income (cid:71)efore income ta(cid:93)es and noncontrolling interests to (cid:71)e a more meaningful figure(cid:19)
(cid:51)ote(cid:31) (cid:40)ertain num(cid:71)ers in t(cid:77)e c(cid:77)arts t(cid:77)roug(cid:77)out t(cid:77)is document may not sum due to rounding(cid:19)
A N N U A L R E P O R T 2018 | 02 /03
DEAR FELLOW
STOCKHOLDERS:
(cid:23)(cid:21)(cid:22)(cid:29) (cid:92)as an important year for (cid:51)e(cid:92)mar(cid:80)(cid:19) (cid:60)e completed our separation from (cid:39)(cid:44)(cid:40) (cid:53)artners, made
several ac(cid:86)uisitions, generated record revenues, and significantly increased our pre(cid:18)ta(cid:93) earnings
and (cid:38)d(cid:79)usted (cid:42)(cid:39)(cid:46)(cid:57)(cid:41)(cid:38)(cid:19)
Positive Momentum
Newmark generated 28% revenue growth year-on-year in 2018, achieving a record $2.0 billion. We also produced a 39% increase in GAAP1
pre-tax income before non-controlling interests, and a 55% improvement in Adjusted EBITDA.
Our strong overall performance included double-digit top-line increases from leasing, management services, and servicing fees. Our 18%
increase in capital markets revenues for the year was led by a 21% rise in investment sales volume and a 56% increase in mortgage
brokerage volume.2 This improvement was a result of our continuing success in integrating various businesses, cross-selling services,
and the increasing use of Newmark’s analytics, data and technology by our producers and clients.
We anticipate continued growth in our revenues and earnings over time, as we continue to add talented brokers to our platform and win
a greater share of our clients’ business through cross-sales. We also expect to continue using data-driven technology to empower our
producers, as well as to improve our clients’ bottom lines by advising them on how to optimize their real estate spending.
From 2011 through 2018, Newmark’s revenues increased almost nine-fold, or at a compound annual growth rate (“CAGR”) of 37%.3 While
we made more than 45 acquisitions over this timeframe, over 50% of our top-line growth since 2011 was organic, excluding Berkeley Point.4
Our robust platform enables our producers to better serve their clients’ diverse needs. As a result, our acquired companies have been able to
increase their revenue by an average of 30% after joining Newmark. In addition, we empower our professionals to increase their productivity.
This is re(cid:1835)ected in our 12(cid:10) year-on-year increase in average revenue per front office employee for the year to (cid:9)905,000.5 This also repre-
sents a 91% increase compared with the $474,000 per producer we generated in 2012. Our continued strong productivity improvement
is largely why nearly 90% of our overall revenue growth was organic in 2018. This follows better than 80% organic revenue growth and
approximately 14% productivity growth in 2017.
Notable Recent Acquisitions and Hires6
We have recently made several key hires of top talent, with a continued focus on expanding in capital markets, Valuation & Advisory, and
consulting. During 2018 and the first quarter of 2019, we increased our revenue-generating headcount by 10(cid:10) and 11(cid:10) year-over-year,
respectively. Over the same periods, our respective total headcount increased by 8% and 9%. These investments are expected to bring
meaningful organic growth in future periods, and included professionals across the following areas:
•
•
•
•
Senior housing capital markets;
Hotel investment sales and financing(cid:32)
Industrial & logistics services;
Retail leasing;
• Multifamily debt origination;
•
•
Valuation & Advisory; and
Over 100 professionals in Latin America across
various service lines.
N E W M A R K G R O U P
Investment sales
Leasing (tenant)
Investment sales
Leasing (agency)
DIVERSE AND RECURRING
REVENUE STREAMS
68% OF NEWMARK’S REVENUES ARE
HIGHLY VISIBLE OR CONTRACTUAL
25%
Leasing (tenant representation)
43% Leasing (agency)
Valuation & Advisory
Global Corporate Services
Servicing Fees
Property & Facilities Management
C
O
N
T
R
A
C
T
U
A
L
L E
LY VI S I B
H
G
I
H
T
R
A
N
S
A
CTIONA L
32% Investment Sales
Non-Originated Mortgage Brokerage
Mortgage Banking
A N N U A L R E P O R T 2018 | 04/05
9X TOP LINE
GROWTH
SINCE 2011
(cid:1126)(cid:52)ur firm(cid:1123)s identity (cid:77)inges upon our a(cid:71)ility to attract,
retain and facilitate the development of the brightest
minds in t(cid:77)e (cid:71)usiness(cid:19)(cid:1127)
David Falk, President of the NY Tri-State Region
Our latest acquisitions expanded our capabilities in tenant representation leasing, retail, and Valuation & Advisory. These included:
• MLG Commercial, a leading commercial real estate
company offering brokerage and property management
services in Wisconsin
• MiT National Land Services, LLC, a New York-based
title agency
•
RKF, a New York-based firm specializing in retail leasing,
investment sales and consulting services
Plans for Further Expansion
•
•
Jackson Cooksey, a Dallas-based corporate tenant
representation real estate agency
Four former offices of the Integra Realty Resources
valuations network, based in Denver, CO; Pasadena,
CA; Boston, MA; and Pittsburgh, PA
We completed our tax-free spin-off from BGC Partners in November 2018. We believe our stakeholders will benefit from this separation
over time due to the enhanced ability we now have to attract and retain talent with a pure-play commercial real estate equity currency.
Newmark’s evolution over the past seven years has led us to a position of strength, enabled us to gain market share, and made us the
company of choice for many of the most talented real estate professionals. Here are four of the ways we plan to continue to outperform
the industry going forward.
$220B(cid:44)(cid:49)(cid:52)(cid:39)(cid:38)(cid:49) (cid:55)(cid:42)(cid:59)(cid:42)(cid:51)(cid:58)(cid:42) (cid:52)(cid:53)(cid:53)(cid:52)(cid:55)(cid:57)(cid:58)(cid:51)(cid:46)(cid:57)(cid:62) 7
N E W M A R K G R O U P
First, we expect to profitably hire more leading professionals thanks
to a proven track record for identifying, employing, and integrating
talented professionals and teams. We offer a unique opportunity
for high-performing producers to grow their business in a collabo-
rative environment. Unlike some of our competitors, we offer equity
stakes and profit sharing to our employees, which allows talented
people to join our company as entrepreneurs and owners. This is
very attractive to producers, and aligns their interests with those of
our outside shareholders.
The second way in which we expect to grow is by continuing to
cross-sell our wide range of services to new and existing clients.
On the investor/owner side, we look to help clients maximize returns
on each asset by providing them with a full suite of services. On the
occupier side, where we may currently only provide one or two of our
services to a given customer, we anticipate serving them across
more of their needs over time.
Third, against the backdrop of a highly fragmented market, we have a
tremendous runway to continue acquiring companies in ways that add
to our earnings per share and offer attractive returns on investment.
We may in-fill and expand certain service offerings in selected markets
where we do not already lead. We estimate that the top six commercial
real estate services firms, including Newmark, generate less than
15% of the more than $220 billion global revenue opportunity.7 We
plan to continue exploring acquisitions judiciously across geographies
or products, while focusing on those potential additions that best
improve shareholder value.
A N N U A L R E P O R T 2018 | 06/07
OUR
MOMENTUM
CONTINUES
TO BUILD
Fourth, we expect to continue to use data and differentiated, value-added
technology to improve the productivity of our new and existing employees.
This should help us to win new business, build relationships with the
senior executives of our clients, improve our customers’ bottom lines,
and provide additional consulting and transaction services to our diverse
client base. We believe that our technology gives us a durable competitive
advantage as we put the considerable data at our disposal in the hands
of our professionals and clients. As the industry continues to consolidate,
we think that those companies who have invested wisely in technology
will be the most likely to grow revenues, profits, and market share.
We Are Optimistic About Our Future
In summary, we are a growing full-service commercial real estate firm
that has a proven record of accomplishment of profitably attracting
key talent and making accretive acquisitions. In addition, we have an
excellent runway to continue growing in an industry with dynamic
opportunities. We offer a variety of highly valuable services to our clients,
including our industry-leading technology solutions, which help our
clients maximize their profitability.
As someone who has been with the Company since 1979, and has been
in commercial real estate even longer, I have never been more excited
about the prospects for Newmark or for the overall industry. We spent
the last seven years building and growing our platform. We believe that
we have established ourselves as the most attractive company for
real estate professionals to do business. Our goal is to accelerate
the addition of top talent over the next few years, to continue to build
and grow Newmark, and to create significant value for our investors.
Sincerely,
Barry M. Gosin, Chief Executive Officer
NOTES
1. U.S. Generally Accepted Accounting Principles is referred to as “GAAP.” “GAAP income before income taxes and noncontrolling interests” and “Adjusted Earnings before noncontrolling interests
and taxes” may be used interchangeably with “GAAP pre-tax earnings” and “Pre-tax Adjusted Earnings,” respectively. FY 2018 GAAP income before income taxes and noncontrolling interests,
Pre-tax Adjusted Earnings, and Adjusted EBITDA include other income related to the Nasdaq shares of (cid:9)87.5 million. See the sections of this document including “Adjusted Earnings Defined,”
“Reconciliation of GAAP Income (Loss) to Adjusted Earnings and GAAP Fully Diluted EPS to Post-Tax Adjusted EPS,” “Adjusted EBITDA Defined,” and “Reconciliation of GAAP Income (Loss) to
Adjusted EBITDA,” including any footnotes to these sections, for the complete and updated definitions of these non-GAAP terms and how, when and why management uses them, as well as for
the differences between results under GAAP and non-GAAP for the periods discussed herein.
2. Investment sales figures include Newmark’s investment sales and equity advisory transactions, while mortgage brokerage figures include the Company’s debt placement transactions, all measured
in notional terms.
3. 2011 revenues are based on unaudited revenues for Newmark & Co.
4. Including Berkeley Point, approximately 36% of the Company’s revenue growth was organic from 2011 through 2018, while 18% was related to Berkeley Point, with the remainder related to other
acquisitions. The figure for revenue growth of acquired companies also excludes Berkeley Point.
5. For the purposes of this document, the terms “producer,” “brokers and salespeople,” 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 for revenue per producer are based on a period average, while the number of producers at period
end is based on the December 31 figures.
6. The lists of recent acquisitions and hires include those completed in 2018 and in the first four months of 2019.
7. The (cid:9)220 billion figure represents the actual revenues reported by global commercial real estate services firms as well as potential revenues from outsourcing opportunities as of 2017.
The sources are IBIS World, Bloomberg, public filings, CoStar, and Newmark Knight Frank research. Top 6 commercial brokerage and services companies as measured by 2017 and 2018 global
revenues: Newmark, CBRE, JLL, Colliers, Savills, and Cushman & Wakefield. Fee revenues used where available.
N E W M A R K G R O U P
(cid:52)(cid:58)(cid:55) (cid:57)(cid:42)(cid:40)(cid:45)(cid:51)(cid:52)(cid:49)(cid:52)(cid:44)(cid:62) (cid:53)(cid:49)(cid:38)(cid:57)(cid:43)(cid:52)(cid:55)(cid:50)(cid:56) (cid:45)(cid:38)(cid:59)(cid:42) (cid:39)(cid:42)(cid:42)(cid:51) (cid:58)(cid:57)(cid:46)(cid:49)(cid:46)(cid:63)(cid:42)(cid:41) (cid:39)(cid:62)
(cid:40)(cid:49)(cid:46)(cid:42)(cid:51)(cid:57)(cid:56) (cid:57)(cid:45)(cid:38)(cid:57) (cid:52)(cid:40)(cid:40)(cid:58)(cid:53)(cid:62) (cid:51)(cid:42)(cid:38)(cid:55)(cid:49)(cid:62) (cid:25)(cid:19)(cid:26) (cid:39)(cid:46)(cid:49)(cid:49)(cid:46)(cid:52)(cid:51) (cid:56)(cid:54)(cid:58)(cid:38)(cid:55)(cid:42) (cid:43)(cid:42)(cid:42)(cid:57)
OF COMMERCIAL REAL ESTATE SPACE
4.5BSF
$60 BILLION SERVICING
PORTFOLIO COMPOSITION
5% Special Servicing
27% Limited Servicing
10%
FHA and Other
24%
Freddie Mac
35%
Fannie Mae
Freddie Mac
Fannie Mae
Special servicing
Limited servicing
FHA and other
A N N U A L R E P O R T 2018 | 08/09
NEWMARK HELPS
(cid:43)(cid:38)(cid:50)(cid:46)(cid:49)(cid:46)(cid:42)(cid:56)(cid:1107)(cid:46)(cid:50)(cid:53)(cid:38)(cid:40)(cid:57)(cid:42)(cid:41)
BY HURRICANE
HARVEY
On February 11 and 12, 2018, the Cantor Fitzgerald Relief Fund (the
“CFRF”) worked with school officials in the Houston area to donate
prepaid $1,000 American Express® cash cards to 5,000 of the
families most severely affected by Hurricane Harvey. The CFRF led
this effort thanks to a generous grant from the firms and partners
of Newmark Group and its affiliates, along with donations from the
general public. Allison and Howard Lutnick, along with Edie Lutnick,
Founder and President of the CFRF, worked with Houston Mayor
Sylvester Turner’s office to make the program a reality. The Relief
Fund could not have achieved this without the invaluable efforts of
school officials and administrators from across 15 school districts
covering over 200 Houston-area schools; they worked to identify
the 5,000 families who lost the most and now need the most.
(cid:56)(cid:77)eila (cid:47)ac(cid:80)son (cid:49)ee, (cid:58)(cid:19)(cid:56)(cid:19) (cid:40)ongress(cid:92)oman, (cid:22)(cid:29)t(cid:77) (cid:41)istrict of (cid:57)e(cid:93)as, (cid:45)o(cid:92)ard (cid:60)(cid:19) (cid:49)utnic(cid:80),
(cid:38)llison (cid:49)utnic(cid:80), (cid:56)ylvester (cid:57)urner, (cid:50)ayor of (cid:45)ouston, (cid:42)die (cid:49)utnic(cid:80), (cid:47)uliet (cid:56)tipec(cid:77)e,
(cid:41)irector of (cid:42)ducation (cid:92)it(cid:77) t(cid:77)e (cid:50)ayor(cid:1123)s (cid:52)ffice of (cid:45)ouston (cid:57)e(cid:93)as
N E W M A R K G R O U P
(cid:51)(cid:42)(cid:60)(cid:50)(cid:38)(cid:55)(cid:48)(cid:1123)(cid:56)
FIRST FULL
(cid:62)(cid:42)(cid:38)(cid:55) (cid:38)(cid:56) (cid:38)
PUBLIC
COMPANY
(cid:56)cenes from various leaders(cid:77)ip meetings
and presentations t(cid:77)roug(cid:77)out t(cid:77)e year(cid:19)
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A N N U A L R E P O R T 2018 | 10/11
2018 RECENT
(cid:46)(cid:51)(cid:41)(cid:58)(cid:56)(cid:57)(cid:55)(cid:62)
RECOGNITION—
RANKINGS
& AWARDS
RANKED #3
NATIONAL REAL ESTATE INVESTOR
TOP BROKERAGE FIRMS 2018
RANKED #3
COMMERCIAL PROPERTY EXECUTIVE
TOP BROKERAGE FIRMS 2018
RANKED #1
COMMERCIAL REAL ESTATE FIRMS
SILICON VALLEY BUSINESS JOURNAL, 2018
RANKED #4
REAL CAPITAL ANALYTICS
TOP BROKERAGE, 2018 by investment volume ($b)
RANKED #5
FANNIE MAE
TOP MULTIFAMILY LENDER RANKINGS 2018
WINNER
14 REBNY DEAL OF THE YEAR AWARDS IN THE LAST 14 YEARS
REAL ESTATE BOARD OF NEW YORK
RANKED #2
REAL ESTATE ALERT
TOP BROKERS OF MULTI-FAMILY PROPERTIES, 2018
Representing sellers in deals $25m+
N E W M A R K G R O U P
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Numbers: 001-38329
NEWMARK GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other Jurisdiction of
Incorporation or Organization)
6531
(Primary Standard Industrial
Classification Code Number)
125 Park Avenue
New York, New York 10017
(212) 372-2000
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
81-4467492
(I.R.S. Employer
Identification Number)
Title of Each Class
Class A Common Stock, $0.01 par value
Name of Each Exchange on Which Registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an
emerging growth company. See definition of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-
2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Emerging growth company
Accelerated filer
Smaller reporting company
☐
☐
☐
☒
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of voting common equity held by non-affiliates of the registrant, based upon the closing price of the Class A common stock on June 30,
2018 as reported on NASDAQ, was approximately $331,954,011.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Class
Class A Common Stock, par value $0.01 per share
Class B Common Stock, par value $0.01 per share
Outstanding at March 13, 2019
156,872,339 shares
21,285,533 shares
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the registrant’s definitive proxy statement for its 2019 annual meeting of stockholders are incorporated by reference in
Part III of this Annual Report on Form 10-K
Newmark Group, Inc.
2018 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
PART I
BUSINESS .......................................................................................................................................
ITEM 1.
ITEM 1A. RISK FACTORS..............................................................................................................................
ITEM 1B. UNRESOLVED STAFF COMMENTS ...........................................................................................
PROPERTIES ..................................................................................................................................
ITEM 2.
LEGAL PROCEEDINGS ................................................................................................................
ITEM 3.
MINE SAFETY DISCLOSURES ....................................................................................................
ITEM 4.
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
ITEM 6.
ITEM 7.
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES .....................................
SELECTED CONSOLIDATED FINANCIAL DATA ....................................................................
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ....................................................................................................
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................
FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES .....................................
ITEM 8.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
ITEM 9.
FINANCIAL DISCLOSURE ......................................................................................................
ITEM 9A. CONTROLS AND PROCEDURES ................................................................................................
ITEM 9B. OTHER INFORMATION ...............................................................................................................
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
.....................................................................................................................................................
.....................................................................................................................................................
ITEM 11. EXECUTIVE COMPENSATION ...................................................................................................
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
11
34
66
67
67
67
68
76
77
113
115
191
191
191
192
192
AND RELATED STOCKHOLDER MATTERS .......................................................................
192
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE ......................................................................................................................
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES .................................................................
192
192
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES .......................................................
ITEM 16. FORM 10-K SUMMARY................................................................................................................
193
198
2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (this “Form 10-K”) contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, which we refer to as the “Securities Act,” and
Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to as the “Exchange Act.” Such
statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein
that are not statements of historical fact may be deemed to be forward-looking statements. For example, words such
as “may,” “will,” “should,” “estimates,” “predicts,” “possible,” “potential,” “continue,” “strategy,” “believes,”
“anticipates,” “plans,” “expects,” “intends,” and similar expressions are intended to identify forward-looking
statements.
Our actual results and the outcome and timing of certain events may differ significantly from the expectations
discussed in the forward-looking statements. Factors that might cause or contribute to such a discrepancy include,
but are not limited to, the factors set forth below:
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(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
our relationship with Cantor Fitzgerald, L.P. and its affiliates and any related conflicts of interest, or
litigation, competition for and retention of brokers and other managers and key employees;
limitations on our ability to enter into certain transactions in order to preserve the tax-free treatment of the
recently completed pro rata distribution (the “Spin-Off”) by BGC Partners, Inc. (“BGC Partners” or
“BGC”) to its stockholders of all of the shares of our common stock owned by BGC as of immediately
prior to the effective time of the Spin-Off;
our ability to maintain or develop relationships with independently owned offices in our Real Estate
Service business;
our ability to grow in other geographic regions;
our ability to manage and to continue to integrate the Berkeley Point business (as defined below), which
was transferred to us pursuant to the Amended and Restated Separation and Distribution Agreement (as
defined below);
the impact of the Spin-Off and related transactions on our business and on our financial results on current
or future periods, including with respect to any assumed liabilities or indemnification obligations with
respect to such transactions, the integration of any completed acquisitions and the use of proceeds of any
completed dispositions;
(cid:120) market conditions, including trading volume and volatility, potential deterioration of equity and debt
capital markets for commercial real estate and related services, impact of significant changes in interest
rates and our ability to access the capital markets;
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
pricing, commissions and fees, and market position with respect to any of our products and services and
those of our competitors;
the effect of industry concentration and reorganization, reduction of customers and consolidation;
liquidity, regulatory requirements and the impact of credit market events;
risks associated with the integration of acquired businesses with our business;
risks related to changes in our relationships with the Government Sponsored Enterprises (“GSEs”) and
Housing and Urban Development (“HUD”), changes in prevailing interest rates and the risk of loss in
connection with loan defaults;
risks related to changes in the future of the GSEs, including changes in the terms of applicable
conservatorships and changes in their origination capabilities;
3
(cid:120)
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economic or geopolitical conditions or uncertainties, the actions of governments or central banks,
including uncertainty regarding the nature, timing and consequences of the United Kingdom (the “U.K.”)
exit from the European Union (the “EU”) following the referendum and related rulings, including
potential reduction in investment in the U.K., and the pursuit of trade, border control or other related
policies by the U.S. and/or other countries, political and labor unrest in France, the impact of the U.S.
government shutdown, and the impact of terrorist acts, acts of war or other violence or political unrest, as
well as natural disasters or weather-related or similar events, including recent hurricanes as well as power
failures, communication and transportation disruptions, and other interruptions of utilities or other
essential services;
the effect on our business, our clients, the markets in which we operate, and the economy in general of
recent changes in the U.S. and foreign tax and other laws, potential policy and regulatory changes from
the government in Mexico, shutdowns of the U.S. government, sequestrations, uncertainties regarding the
debt ceiling and the federal budget, and other potential political policies and impasses;
the effect on our business of changes in interest rates, worldwide governmental debt issuances, austerity
programs, increases or decreases in deficits, and other changes to monetary policy, and potential political
impasses or regulatory requirements, including increased capital requirements for banks and other
institutions or changes in legislation, regulations and priorities;
extensive regulation of our business and clients, changes in regulation relating to commercial real estate
and other industries, and risks relating to compliance matters, including regulatory examinations,
inspections, investigations and enforcement actions, and any resulting costs, increased financial and
capital requirements, enhanced oversight, fines, penalties, sanctions, and changes to our restrictions or
limitations on specific activities, operations, compensatory arrangements, and growth opportunities,
including acquisitions, hiring, and new businesses, products, or services, as well as risks related to our
taking actions to ensure that we and Newmark Holdings, L.P. are not deemed investment companies
under the Investment Company Act of 1940 (the “Investment Company Act”);
factors related to specific transactions or series of transactions as well as counterparty failure;
costs and expenses of developing, maintaining and protecting our intellectual property, as well as
employment and other litigation and their related costs, including related to acquisitions and other
matters, including judgments or settlements paid and the impact thereof on our financial results and cash
flow in any given period;
our ability to maintain continued access to credit and availability of financing necessary to support our
ongoing business needs, including to refinance our indebtedness, and the risks associated with the
resulting leverage, as well as fluctuations in interest rates;
certain other financial risks, including the possibility of future losses, indemnification obligations,
assumed liabilities, reduced cash flow from operations, increased leverage and the need for short- or long-
term borrowings, including from Cantor Fitzgerald, L.P., or other sources of cash relating to acquisitions,
dispositions, or other matters, potential liquidity and other risks relating to our ability to maintain
continued access to credit and availability of financing necessary to support our ongoing business needs
on terms acceptable to us, if at all, and risks associated with resulting leverage, including potentially
causing a reduction in our credit ratings and the associated outlooks and increased borrowing costs,
including as a result of the Berkeley Point Acquisition (defined below), as well as interest rate and foreign
currency exchange rate fluctuations;
risks associated with the temporary or longer-term investment of our available cash, including defaults or
impairments on our investments, stock loans or cash management vehicles and collectability of loan
balances owed to us by partners, employees, or others;
our ability to enter new markets or develop new products or services and to induce customers to use these
products or services and to secure and maintain market share;
our ability to enter into marketing and strategic alliances, and business combinations or other transactions,
including acquisitions, dispositions, reorganizations, partnering opportunities and joint ventures, and the
integration of any completed transactions;
4
(cid:120)
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(cid:120)
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our estimates or determinations of potential value with respect to various assets or portions of our
business, including with respect to the accuracy of the assumptions or the valuation models or multiples
used;
our ability to hire and retain personnel, including brokers, salespeople, managers, and other professionals;
our ability to effectively manage any growth that may be achieved, while ensuring compliance with all
applicable financial reporting, internal control, legal compliance, and regulatory requirements;
our ability to identify and remediate any material weaknesses in our internal controls that could affect our
ability to prepare financial statements and reports in a timely manner, control our policies, practices and
procedures, operations and assets, assess and manage our operational, regulatory and financial risks, and
integrate our acquired businesses and brokers, salespeople, managers and other professionals;
the effectiveness of our risk management policies and procedures, and the impact of unexpected market
moves and similar events;
information technology risks, including capacity constraints, failures, or disruptions in our systems or
those of clients, counterparties, or other parties with which we interact, including cyber-security risks and
incidents, compliance with regulations requiring data minimization and protection and preservation of
records of access and transfers of data, privacy risk and exposure to potential liability and regulatory
focus;
our ability to meet expectations with respect to payment of dividends and repurchases of our common
stock or purchases of Newmark Holdings, L.P. limited partnership interests or other equity interests in our
subsidiaries, including from Cantor Fitzgerald, L.P. or our executive officers, other employees, partners
and others and the effect on the market for and trading price of our Class A common stock as a result of
any such transactions;
the fact that the prices at which shares of our Class A common stock are sold in offerings or other
transactions may vary significantly, and purchasers of shares in such offerings or other transactions, as
well as existing stockholders, may suffer significant dilution if the price they paid for their shares is
higher than the price paid by other purchasers in such offerings or transactions;
the effect on the market for and trading price of our Class A common stock and of various offerings and
other transactions, including offerings of our Class A common stock and convertible or exchangeable
securities, our repurchases of shares of our Class A common stock and purchases of Newmark Holdings,
L.P. limited partnership interests or other equity interests in us or in our subsidiaries, any exchanges by
Cantor Fitzgerald, L.P. of shares of our Class A common stock for shares of our Class B common stock,
any exchanges or redemptions of limited partnership units and issuances of shares of Class A common
stock in connection therewith, including in partnership restructurings, our payment of dividends on our
Class A common stock and distributions on Newmark Holdings L.P. limited partnership interests,
convertible arbitrage, hedging, and other transactions engaged in by holders of our outstanding securities,
share sales and stock pledge, stock loan, and other financing transactions by holders of our shares or units
(including by Cantor Fitzgerald, L.P. executive officers, partners, employees or others), including of
shares acquired pursuant to our employee benefit plans, unit exchanges and redemptions, partnership
restructurings, acquisitions, conversions of our Class B common stock and our other convertible
securities, stock pledge, stock loan, or other financing transactions; and
(cid:120)
other factors, including those that are discussed under “Risk Factors,” to the extent applicable.
The foregoing risks and uncertainties, as well as those risks and uncertainties discussed under the headings
“Item 1A—Risk Factors,” and “Item 7A—Quantitative and Qualitative Disclosures About Market Risk” and
elsewhere in this Form 10-K, may cause actual results and events to differ materially from the forward-looking
statements. The information included herein is given as of the filing date of this Form 10-K with the Securities and
Exchange Commission (the “SEC”), and future results or events could differ significantly from these forward-
looking statements. We do not undertake to publicly update or revise any forward-looking statements, whether as a
result of new information, future events, or otherwise.
5
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the SEC. These
filings are also available to the public from the SEC’s website at www.sec.gov.
Our website address is www.ngkf.com. Through our website, we make available, free of charge, the following
documents as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC: our
Annual Reports on Form 10-K; our proxy statements for our annual and special stockholder meetings; our Quarterly
Reports on Form 10-Q; our Current Reports on Form 8-K; Forms 3, 4 and 5 and Schedules 13G filed on behalf of
Cantor Fitzgerald, L.P., CF Group Management, Inc., our directors and our executive officers; and amendments to
those documents. Our website also contains additional information with respect to our industry and business. The
information contained on, or that may be accessed through, our website is not part of, and is not incorporated into,
this Annual Report on Form 10-K.
6
Unless we otherwise indicate or unless the context requires otherwise, any reference in this Annual Report on
Form 10-K to these terms have the following meanings:
CERTAIN DEFINITIONS
(cid:120)
(cid:120)
the “6.125% Senior Notes” refers to the 6.125% Senior Notes with an original principal amount of $550.0
million. As of December 31, 2018, the 6.125% Senior Notes had a balance of $537.9 million, net of debt
issue costs and debt discount;
the “ancillary agreements” refers collectively to the amended and restated limited partnership agreement
of Newmark OpCo; the amended and restated limited partnership agreement of Newmark Holdings; the
administrative services agreement between Newmark and Cantor; the transition services agreement
between Newmark and BGC Partners; the tax matters agreement between Newmark, Newmark Holdings,
Newmark OpCo, BGC Partners, BGC Holdings and BGC U.S.; the tax receivable agreement between
Newmark and Cantor; the registration rights agreement between Newmark, BGC Partners and Cantor;
and the exchange agreement;
(cid:120) Berkeley Point” or “BPF” refers to Berkeley Point Financial LLC and “Berkeley Point business” refers to
the business conducted by Berkeley Point and its subsidiaries;
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
“BGC Equity Plan” refers to an incentive program under BGC Partners’ Seventh Amended and Restated
Long Term Incentive Plan;
“BGC Global” or “BGC Global OpCo” refers to BGC Global Holdings, L.P., which holds the non-U.S.
business of the BGC group;
“BGC group” or “BGC Partners group” refers to (1) prior to the separation, BGC Partners, BGC
Holdings, BGC U.S. and BGC Global and each of their respective subsidiaries; and (2) after the
separation, BGC Partners, BGC Holdings, BGC U.S. and BGC Global and each of their respective
subsidiaries (other than any member of the Newmark group);
“BGC Holdings” refers to BGC Holdings, L.P.;
“BGC Notes” refer to certain note obligations owed to BGC Partners that were assumed by Newmark
OpCo from BGC U.S. As of December 31, 2018, the BGC Notes were paid in full.
“BGC Partners” or “BGC” refers to BGC Partners, Inc.;
“BGC U.S.” or “BGC U.S. OpCo” refers to BGC Partners, L.P., which holds the U.S. business of the
BGC group;
“Cantor” refers to Cantor Fitzgerald, L.P. and, as applicable, CFGM;
“Cantor Credit Agreement” refers to the $250.0 million unsecured credit agreement between CFLP and
Newmark;
“Cantor group” refers to Cantor and its subsidiaries (other than any member of the BGC group or the
Newmark group), Howard W. Lutnick and/or any of his immediate family members as so designated by
Howard W. Lutnick and any trusts or other entities controlled by Howard W. Lutnick;
“CFGM” refers to CF Group Management, Inc., the managing general partner of Cantor Fitzgerald, L.P.;
the “Code” refers to the Internal Revenue Code of 1986, as amended;
the “contribution ratio” is the number of our shares of Newmark common stock that were outstanding for
each share of BGC common stock outstanding as of immediately prior to our IPO (not including any
shares of our common stock sold in our IPO); this ratio was set initially at a fraction equal to one divided
by 2.2;
“Converted Term Loan” refers to a term loan with an original principal amount of $400.0 million, plus
accrued but unpaid interest thereon, which was assumed by us at the separation. As of December 31,
2018, the Converted Term Loan was repaid in full;
7
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the “Credit Facility” refers to the Credit Agreement between the Bank of America and Newmark which
provides for a $250.0 million three year unsecured senior revolving credit facility;
the term “employees” includes both employees and those real estate brokers who qualify as statutory non-
employees under Internal Revenue Code Section 3508;
“eSpeed” refers to eSpeed, Inc.;
the “exchange agreement” refers to the exchange agreement, dated as of December 13, 2017, and as may
be amended from time to time, by and among Newmark, BGC Partners and Cantor;
“exchangeable limited partners” or “Newmark Holdings exchangeable limited partners” means (a) any
member of the Cantor group that holds an exchangeable limited partnership interest in Newmark
Holdings and that has not ceased to hold such exchangeable limited partnership interest (b) any person to
whom a member of the Cantor group has transferred an exchangeable limited partnership interest in
Newmark Holdings and, prior to or at the time of such transfer, whom Cantor has agreed will be
designated as an exchangeable limited partner and (c) any person who received an exchangeable limited
partnership interest in Newmark Holdings in respect of an existing exchangeable limited partnership
interest in BGC Holdings pursuant to the separation and distribution agreement;
the “exchange ratio” is the number of shares of Newmark common stock that a holder will receive upon
exchange of one Newmark Holdings exchange right unit (the exchange ratio was initially one, but is
subject to adjustment as set forth in the Amended and Restated Separation and Distribution Agreement
and was 0.9793 as of December 31, 2018);
“Fannie Mae” refers to the Federal National Mortgage Association;
“Fannie Mae DUS” refers to the Fannie Mae Delegated Underwriting and Servicing Program;
“FHA” refers to the Federal Housing Administration;
“FHFA” refers to the Federal Housing Finance Agency;
“founding partners” or “Newmark Holdings founding partners” refers to the individuals who became
limited partners of Newmark Holdings in connection with the separation and who held BGC Holdings
founding partner interests immediately prior to the separation (provided that members of the Cantor
group, the BGC group and Howard W. Lutnick (including any entity directly or indirectly controlled by
Mr. Lutnick or any trust of which he is a guarantor, trustee or beneficiary) are not founding partners); the
holders of BGC Holdings founding partner interests received such founding partner interests in
connection with the separation of BGC Partners from Cantor in 2008;
“founding/working partners” refers to founding partners and/or working partners;
“Freddie Mac” refers to the Federal Home Loan Mortgage Corporation;
“Ginnie Mae” and “GNMA” refer to the Government National Mortgage Association;
“GSEs” or “GSE” refers to Fannie Mae and Freddie Mac;
“HUD” refers to the U.S. Department of Housing and Urban Development;
“HUD LEAN” refers to HUD’s mortgage insurance program for senior housing;
“HUD MAP” refers to HUD’s Multifamily Accelerated Processing;
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“IPO” means our initial public offering of 20,000,000 shares of our Class A common stock which closed
on December 19, 2017 along with the sale of an additional 3,000,000 shares of our Class A common
stock which closed on December 26, 2017;
“limited partnership unit holders” refers to the individuals who became limited partners of Newmark
Holdings in connection with the separation and who held BGC Holdings limited partnership units
immediately prior to the separation and certain individuals who become limited partners of Newmark
Holdings from time to time after the separation and who provide services to the Newmark group;
“Multifamily Capital Market Business” refers to our commercial real estate business focused on
multifamily investment sales, origination of loans through government-sponsored and government-funded
loan programs, and mortgage brokerage for multifamily. It also includes the servicing of commercial real
estate loans;
“Nasdaq” refers to Nasdaq, Inc.;
“Nasdaq shares” or “Nasdaq payment” refers to the shares of common stock of Nasdaq which remain
payable by Nasdaq in connection with the Nasdaq Monetization Transactions, the right to which BGC
Partners transferred to Newmark in connection with the separation;
“Nasdaq Monetization Transactions” refer to the sale on June 28, 2013 of eSpeed by BGC Partners to
Nasdaq, in which the total consideration paid or payable by Nasdaq included an earn-out of up to
14,883,705 shares of common stock of Nasdaq to be paid ratably over 15 years after the closing of the
Nasdaq Monetization Transactions, provided that Nasdaq produces at least $25 million in gross revenues
for the applicable year;
“Newmark” refers to Newmark Group, Inc.;
the “Newmark business” refers to the business held by members of the BGC group contributed to us
pursuant to the separation and distribution agreement, which includes the commercial real estate services
business historically operated by the BGC group and the Berkeley Point business. Members of the BGC
group continue to hold the remainder of BGC;
“Newmark common stock” refers collectively to our Class A common stock and our Class B common
stock;
“Newmark’s consolidated and combined financial statements and related notes” refer to Newmark’s
consolidated and combined financial statements and related notes, which include Berkeley Point for all of
the periods presented herein, as the acquisition of Berkeley Point has been determined to be a
combination under common control resulting in a change in the reporting entity;
“Newmark Group” refers to Newmark, Newmark Holdings, Newmark OpCo and their respective
subsidiaries;
“Newmark Holdings” refers to Newmark Holdings, L.P.;
“Newmark Holdings exchange right unit” means (a) any Newmark Holdings exchangeable limited
partnership interest, and (b) if and to the extent that the Newmark Holdings exchangeable limited partners
(by affirmative vote of a majority in interest of such partners) shall have determined that a Newmark
Holdings founding partner unit, REU or working partner unit shall be exchangeable with Newmark for
shares of Newmark common stock, such founding partner unit, REU or working partner unit;
“Newmark OpCo” refers to Newmark Partners, L.P.;
the terms “producer,” “broker,” “salesperson” and “front-office personnel” are synonymous. These terms
refer to customer-facing employees that are directly compensated based wholly or in part on the revenues
they contribute to generating. “Average revenue per producer” is based only on “leasing and other
commissions,” “capital markets,” and “gains from mortgage banking activities, net” revenues and divided
by the number of corresponding producers, which is based on a period average. The productivity figures
exclude both revenues and staff in “management services, servicing fees and other”;
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“Qualified Class B Holder” refers to any of (1) BGC Partners, (2) Cantor, (3) any entity controlled by
BGC Partners, Cantor or Mr. Lutnick and (4) Mr. Lutnick, his spouse, his estate, any of his descendants,
any of his relatives, or any trust established for his benefit or for the benefit of his spouse, any of his
descendants or any of his relatives;
the “separation” refers to the separation by members of the BGC group of the Newmark business from
the remainder of the businesses held by the members of the BGC group pursuant to the separation and
distribution agreement;
the “separation and distribution agreement” refers to the separation and distribution agreement entered
into prior to the completion of the IPO by Cantor, Newmark, Newmark Holdings, Newmark OpCo, BGC
Partners, BGC Holdings, BGC U.S. and, for certain limited purposes described therein, BGC Global as
amended from time to time;
the “Spin-Off” refers to the recently completed pro rata distribution by BGC Partners, Inc. to its
stockholders of all of the shares of the shares of our common stock owned by BGC as of immediately
prior to the effective time of the Spin-Off;
(cid:120) Term Loan” refers to the term loan with an original principal amount of $575.0 million, plus accrued but
unpaid interest thereon that we assumed from BGC Partners at the separation. As of December 31, 2018,
the Term Loan was repaid in full; and
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“working partners” or “Newmark Holdings working partners” refers to the individuals who became
limited partners of Newmark Holdings in connection with the separation and who held BGC Holdings
working partner interests immediately prior to the separation and certain individuals who become limited
partners of Newmark Holdings from time to time from and after the separation and who provide services
to the Newmark group.
Unless otherwise indicated or unless the context requires otherwise, all references in this Annual Report on
Form 10-K to the “Company,” “we,” “our,” “us,” or similar terms refer to Newmark and its consolidated
subsidiaries. Further, unless otherwise indicated or unless the context requires otherwise, all figures reflect the
inclusion of the Berkeley Point business.
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PART I
ITEM 1.
BUSINESS
Throughout this document Newmark Group, Inc. is referred to as “Newmark Knight Frank,” “Newmark,”
and, together with its subsidiaries, as the “Company,” “we,” “us,” or “our.”
Our Business
Newmark is a growing, full-service commercial real estate services business. We have been the fastest
growing U.S. commercial real estate services firm (when compared with our publicly traded U.S. peers), with a
revenue compound annual growth rate (which we refer to as “CAGR”) of 23.2% from 2016 to 2018.
On November 30, 2018 (the “Distribution Date”), BGC completed its previously announced pro-rata
distribution (the “Spin-Off”) to its stockholders of all of the shares of our common stock owned by BGC as of
immediately prior to the effective time of the Spin-Off. Following the Spin-Off, BGC Partners ceased to be our
controlling stockholder, and BGC Partners and its subsidiaries no longer held any shares of our common stock or
other equity interests in us or our subsidiaries. Following the Spin-Off, we are controlled by Cantor Fitzgerald, L.P.
(which we refer to as “Cantor”), a diversified company primarily specializing in financial and real estate services for
institutional customers operating in the financial and commercial real estate markets. Cantor is also the controlling
stockholder of BGC.
We offer a diverse array of integrated services and products designed to meet the needs of both real estate
investors/owners and occupiers. Our investor/owner services and products include capital markets, which consists
of investment sales, debt and structured finance and loan sales, agency leasing, property management, valuation and
advisory, commercial real estate due diligence consulting and advisory services and GSE lending and loan servicing,
mortgage broking and equity-raising. Our occupier services and products include tenant representation, real estate
management technology systems, workplace and occupancy strategy, global corporate consulting services, project
management, lease administration and facilities management. We enhance these services and products through
innovative real estate technology solutions and data analytics that enable our clients to increase their efficiency and
profits by optimizing their real estate portfolio. We have relationships with many of the world’s largest commercial
property owners, real estate developers and investors, as well as Fortune 500 and Forbes Global 2000 companies.
For the 12-month period ended December 31, 2018, we generated revenues of $2.0 billion representing year-over-
year growth of 28%.
We believe that our high margins and leading revenue growth compared to the other publicly traded real estate
services companies in the U.S. have resulted from the execution of our unique integrated corporate strategies:
(cid:120) we offer a full suite of best-in-class real estate services and professionals to both investors/owners and
occupiers,
(cid:120) we deploy deeply embedded technology and use data-driven analytics to enable clients to better manage
their real estate utilization and spend, enhancing the depth of our client relationships,
(cid:120) we attract and retain market-leading professionals with the benefits of our unique partnership structure
and high growth platform,
(cid:120) we actively encourage cross-selling among our diversified business lines, and
(cid:120) we continuously build out additional products and capabilities to capitalize on our market knowledge and
client relationships.
Newmark was founded in 1929 with an emphasis on New York-based investor and owner services such as
tenant and agency leasing, developing a reputation for talented, knowledgeable and motivated brokers. BGC
acquired Newmark in 2011, and since the acquisition Newmark has embarked on a rapid expansion throughout
North America across all critical business lines in the real estate services and product sectors. We believe our rapid
growth has been due to our management’s vision and direction along with a proven track record of attracting high-
producing talent through accretive acquisitions and profitable hiring.
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We have more than 5,200 employees, including more than 1,700 revenue-generating producers in 135 offices
in 96 cities, with an additional 27 licensee locations in the U.S. We intend to continue to opportunistically expand
into markets, including outside of North America, and products where we believe we can profitably execute our full
service and integrated business model.
Bolstered by our acquisition of Berkeley Point (a leading commercial real estate finance company focused on
the origination, sale and servicing of multifamily loans through government-sponsored and government-funded loan
programs) in the third quarter of 2017, we believe we are poised for continued growth and value creation. According
to a recent study commissioned by the National Multifamily Housing Council (“NMHC”) and the National
Apartment Association, favorable demographics are anticipated to drive growth in multifamily sales and GSE
lending, with demand for new apartments expected to reach 4.6 new million apartments by 2030. The NMHC
estimates that 325,000 new units must be built annually through 2030 to meet new demand. We expect the
combination of our multifamily investment sales and GSE lending business to create significant growth across our
platform and serve as a powerful margin and earnings driver.
In summary, we generate revenues from commissions on leasing and capital markets transactions, technology
user and consulting fees, valuation and advisory, property and facility management fees, and mortgage origination
and loan servicing fees. Our revenues are widely diversified across service lines, geographic regions and clients,
with our top 10 clients accounting for approximately 5.3% of our total revenue on a consolidated basis, and our
largest client accounted for less than 2.0% of our total revenue on a consolidated basis in 2018.
Our History
Newmark is a growing, high-margin, full-service commercial real estate services business that has a long
history and, since its acquisition by BGC in 2011, has developed a broad reach. We have grown organically and
through acquisitions including the following in 2017 and 2018:
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acquisition of Berkeley Point, which focuses on origination, sale and servicing of multifamily and
commercial mortgage loans, including loans with GSEs;
acquisition of the assets of Regency Capital Partners, a San Francisco-based real estate finance firm;
acquisition of Spring11, a New York-based commercial real estate due diligence firm;
acquisition of ten former offices of the Integra Realty Resources valuations network based in
Washington, D.C., Baltimore, Wilmington, DE, New York/New Jersey, Philadelphia, Atlanta, Boston,
Pittsburgh, Denver, and Los Angeles;
acquisition of Jackson Cooksey, a Dallas-based corporate tenant representation real estate agency; and
acquisition of RKF, a New York-based firm specializing in retail leasing, investment sales and consulting
services
Our Services and Products
Newmark offers a diverse array of integrated services and products designed to meet the full needs of both
real estate investors/owners and occupiers. Our technology advantages, industry-leading talent, deep and diverse
client relationships and suite of complementary services and products allow us to actively cross-sell our services and
drive industry-leading margins.
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Industry and Market Data
In this Annual Report on Form 10-K, we rely on and refer to information and statistics regarding the commercial
real estate services industry. We obtained this data from independent publications or other publicly available
information. Independent publications generally indicate that the information contained therein was obtained from
sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. Although
we believe these sources are reliable, we have not independently verified this information, and we cannot guarantee
the accuracy and completeness of this information.
Leading Commercial Real Estate Technology Platform and Capabilities
We offer innovative real estate technology solutions for both investors/owners and occupiers that enable our
clients to increase efficiency and realize additional income or cost savings. Our differentiated, value-added and
client-facing technology platforms have been utilized by clients that occupy nearly 4.5 billion square feet of
commercial real estate space. Our N360 platform is a powerful tool that provides instant access and comprehensive
commercial real estate data in one place via mobile or desktop. This technology platform makes information
accessible, including listings, historical leasing, tenant/owner information, investment sales, procurement, research,
and debt on commercial real estate properties. N360 also integrates a Geographic Information Systems (which we
refer to as “GIS”) platform with 3D mapping powered by Newmark’s Real Estate Data Warehouse. For our occupier
clients, the VISION™ platform provides integrated business intelligence, reporting and analytics. Our clients use
VISION™ to reduce cost, improve speed and supplement decision-making in applications such as real estate
transactions and asset administration, project management, building operations and facilities management,
environmental and energy management, and workplace management. Our deep and growing real estate database and
commitment to providing innovative technological solutions empower us to provide our clients with value-adding
technology products and data-driven advice and analytics.
Real Estate Investor/Owner Services and Products
Capital Markets. We offer a broad range of real estate capital markets services, including investment sales
and facilitating access to providers of capital. We provide access to a wide range of services, including asset sales,
sale leasebacks, mortgage and entity-level financing, equity-raising, underwriting and due diligence. Through our
mortgage bankers and brokers, we are able to offer multiple debt and equity alternatives to fund capital markets
transactions through third party banks, insurance companies and other capital providers, as well as through our GSE
lending platform.
Agency Leasing. We execute marketing and leasing programs on behalf of owners of real estate to secure
tenants and negotiate leases. We understand the value of a creditworthy tenant to landlords and work to maximize
the financing value of any leasing opportunity. As of December 31, 2018, we represented buildings that totaled
nearly 400 million square feet of commercial real estate on behalf of owners in the U.S.
Valuation and Advisory. We operate a national valuation and advisory business, which has grown over the
past two years from approximately 30 professionals to over 400 professionals. Our appraisal team executes projects
of nearly every size and type, from single properties to large portfolios, existing and proposed facilities and mixed-
use developments across the spectrum of asset values. Clients include banks, pension funds, insurance companies,
developers, corporations, equity funds, REITs and institutional capital sources. These institutions utilize the advisory
services we provide in their loan underwriting, construction financing, portfolio analytics, feasibility determination,
acquisition structures, litigation support and financial reporting.
Property Management. We provide property management services on a contractual basis to owners and
investors in office, industrial and retail properties. Property management services include building operations and
maintenance, vendor and contract negotiation, project oversight and value engineering, labor relations, property
inspection/quality control, property accounting and financial reporting, cash flow analysis, financial modeling, lease
administration, due diligence and exit strategies. We have an opportunity to grow our property management
contracts in connection with other high margin leasing or other capital markets contracts. These businesses also give
us better insight into our clients’ overall real estate needs.
Government Sponsored Enterprise (“GSE”)
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Lending and Loan Servicing. On September 8, 2017, BGC Partners completed the acquisition of Berkeley
Point, a leading commercial real estate finance company focused on the origination and sale of multifamily and
other commercial real estate loans through government-sponsored and government-funded loan programs, as well as
the servicing of loans originated by it and third parties, including our affiliates. As a result of the Berkeley Point
transaction, we participate in loan origination, sale, and servicing programs operated by two GSEs, Fannie Mae and
Freddie Mac. We also originate, sell and service loans under HUD’s FHA programs, and are an approved HUD
MAP and HUD LEAN lender, as well as an approved Ginnie Mae issuer.
Origination for GSEs. We originate multifamily loans distributed through the GSE programs of Fannie Mae
and Freddie Mac, as well as through HUD programs. Through HUD’s MAP and LEAN Programs, we provide
construction and permanent loans to developers and owners of multifamily housing, affordable housing, senior
housing and healthcare facilities. We are one of 25 approved lenders that participate in the Fannie Mae DUS
program and one of 22 lenders approved as a Freddie Mac seller/servicer. As a low-risk intermediary, we originate
loans guaranteed by government agencies or entities and pre-sell such loans prior to transaction closing. We have
established a strong credit culture over decades of originating loans and remains committed to disciplined risk
management from the initial underwriting stage through loan payoff. Fannie Mae ranked us as a top-five multifamily
lender in 2018 and Freddie Mac ranked us as a top-seven multifamily lender in 2018 based on financing volume
with the GSEs.
Servicing. In conjunction with our origination services, we sell the loans that we originate under GSE and
FHA programs and retain the servicing of those loans. The servicing portfolio (which includes certain other non-
agency loans) provides a stable, predictable recurring stream of revenue to us over the life of each loan. The typical
multifamily loan that we originate and service under these programs is either fixed or variable rate, and includes
significant prepayment penalties. These structural features generally offer prepayment protection and provide more
stable, recurring fee income. Berkeley Point is a Fitch and S&P rated commercial loan primary and special servicer,
as well as a Kroll rated commercial loan primary and MF special servicer. It has a team of over 60 professionals
throughout various locations in the United States dedicated to primary and special servicing and asset management.
These professionals focus on financial performance and risk management to anticipate potential property, borrower
or market issues. Portfolio management conducted by these professionals is not only a risk management tool, but
also leads to deeper relationships with borrowers, resulting in continued interaction with borrowers over the term of
the loan, and potential additional financing opportunities.
We believe that the combination of our leading multifamily investment sales, mortgage brokerage, and agency
lending businesses will provide substantial cross-selling opportunities. In particular, we expect revenues to increase
as we begin to capture a greater portion of the financings on investment sales transactions, and as we cross-refer
business.
Product Offerings
(cid:120) Fannie Mae. As one of 25 lenders under the Fannie Mae DUS program, Berkeley Point is an approved a
multifamily approved seller/servicer for conventional, affordable and seniors loans that satisfy Fannie
Mae’s underwriting and other eligibility requirements. Fannie Mae has delegated to us responsibility for
ensuring that the loans originated under the Fannie Mae DUS program satisfy the underwriting and other
eligibility requirements established from time to time by Fannie Mae. In exchange for this delegation of
authority, we share up to one-third of the losses that may result from a borrower’s default. Most of the
Fannie Mae loans that we originate are sold, prior to loan funding, in the form of a Fannie Mae-
insured security to third-party investors. We service all loans that we originate under the Fannie Mae
DUS program.
(cid:120) Freddie Mac. Berkeley Point is one of 22 Freddie Mac multifamily approved seller/servicer for
conventional, affordable and seniors loans that satisfy Freddie Mac’s underwriting and other eligibility
requirements. Under the program, we submit the completed loan underwriting package to Freddie Mac
and obtain Freddie Mac’s commitment to purchase the loan at a specified price after closing. Freddie Mac
ultimately performs its own underwriting of loans that we sell to Freddie Mac. Freddie Mac may choose
to hold, sell or, as it does in most cases, later securitize such loans. We do not have any material risk-
sharing arrangements on loans sold to Freddie Mac under the program. We also generally service loans
that we originate under this Freddie Mac program.
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(cid:120) HUD/Ginnie Mae/FHA. As an approved HUD MAP and HUD LEAN lender and Ginnie Mae issuer, we
provide construction and permanent loans to developers and owners of multifamily housing, affordable
housing, senior housing and healthcare facilities. We submit a completed loan underwriting package to
FHA and obtain FHA’s firm commitment to insure the loan. The loans are typically securitized into
Ginnie Mae securities that are sold, prior to loan funding, to third-party investors. Ginnie Mae is a United
States government corporation in HUD. Ginnie Mae securities are backed by the full faith and credit of
the United States. In the event of a default on a HUD insured loan, HUD will reimburse approximately
99% of any losses of principal and interest on the loan and Ginnie Mae will reimburse the majority of
remaining losses of principal and interest. The lender typically is obligated to continue to advance
principal and interest payments and tax and insurance escrow amounts on Ginnie Mae securities until the
HUD mortgage insurance claim has been paid and the Ginnie Mae security is fully paid. We also
generally service all loans that we originate under these programs.
Lending Transaction Process. Our value driven, credit focused approach to underwriting and credit
processes provides for clearly defined roles for senior management and carefully designed checks and balances to
ensure appropriate quality control. We are subject to both our own and the GSEs’ and HUD’s rigorous underwriting
requirements related to property, borrower, and market due diligence to identify risks associated with each loan and
to ensure credit quality, satisfactory risk assessment and appropriate risk diversification for our portfolio. We believe
that thorough underwriting is essential to generating and sustaining attractive risk adjusted returns for our investors.
We source lending opportunities by leveraging a deep network of direct borrower and broker relationships in
the real estate industry from our national origination platform. We benefit from offices located throughout the
United States and our approximately $60 billion servicing portfolio as of December 31, 2018 (of which
approximately 5% relates to special servicing), providing real time information on market performance and
comparable data points.
Financing. We finance our loan originations under GSE programs through collateralized financing
agreements in the form of warehouse loan agreements (“WHAs”) with three lenders and an aggregate commitment
as of December 31, 2018 of $1,650 million of which $700 million represented a temporary increase that expired on
January 29, 2019 and an uncommitted $325 million Fannie Mae loan repurchase facility. On January 29, 2019, the
temporary increase was decreased by $400 million for the period from January 29, 2019 to April 1, 2019. As of
December 31, 2018 and December 31, 2017, we had collateralized financing outstanding of approximately $972
million and $360 million, respectively. Collateral includes the underlying originated loans and related collateral, the
commitment to purchase the loans as well as credit enhancements from the applicable GSE or HUD. We typically
complete the distribution of the loans we originate within 30 to 60 days of closing. Proceeds from the distribution
are applied to reduce borrowings under the WHAs, thus restoring borrowing capacity for further loan originations
under GSE programs.
Intercompany Referrals. We, Cantor Commercial Real Estate Company, L.P. (“CCRE”) and certain of our
affiliates have entered into arrangements in respect of intercompany referrals. Pursuant to these arrangements, the
respective parties refer to each other, for customary fees, opportunities for commercial real estate loan originations
to CCRE, opportunities for real estate investment sales, broker or leasing services to us and opportunities for
government-sponsored loan originations (to Berkeley Point, which is part of our business).
Due Diligence and Underwriting. We provide commercial real estate due diligence consulting and advisory
services to a variety of clients, including lenders, investment banks and investors. Our core competencies include
underwriting, modeling, structuring, due diligence and asset management. We also offer clients cost-effective and
flexible staffing solutions through both on-site and off-site teams. We believe that this business line gives us another
way to cross-sell services to our clients.
Real Estate Occupier Services and Products
Tenant Representation Leasing. We represent commercial tenants in all aspects of the leasing process,
including space acquisition and disposition, strategic planning, site selection, financial and market analysis,
economic incentives analysis, lease negotiations, lease auditing and project management. We assist clients by
defining space requirements, identifying suitable alternatives, recommending appropriate occupancy solutions,
negotiating lease and ownership terms with landlords and reducing real estate costs for clients through analyzing,
structuring and negotiating business and economic incentives. Fees are generally earned when a lease is signed. In
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many cases, landlords are responsible for paying the fees. We use innovative technology and data to provide tenants
with an advantage in negotiating leases, which has contributed to our market share gains.
Workplace and Occupancy Strategy. We provide services to help organizations understand their current
workplace standards and develop plans and policies to optimize their real estate footprint. We offer a multi-faceted
consulting service underpinned by robust data and technology.
Global Corporate Services (“GCS”) and Consulting. GCS is our consulting and services business that
focuses on reducing occupancy expense and improving efficiency for corporate real estate occupiers, with large,
often multi-national presence. We provide beginning-to-end corporate real estate solutions for clients. GCS makes
its clients more profitable by optimizing real estate usage, reducing overall corporate footprint, and improving work
flow and human capital efficiency through large scale data analysis and our industry-leading technology. We offer
global enterprise optimization, asset strategy, transaction services, information management, an operational
technology product and transactional and operational consulting. Our consultants provide expertise in financial
integration, portfolio strategy, location strategy and optimization, workplace strategies, workflow and business
process improvement, merger and acquisition integration, and industrial consulting. We utilize a variety of advanced
technology tools to facilitate the provision of transaction and management services to our clients. For example, our
innovative VISION™ tool provides data integration, analysis and reporting, as well as the capability to analyze
potential “what if” scenarios to support client decision making. VISION™ is a scalable and modular enterprise
solution that serves as an integrated database and process flow tool supporting the commercial real estate cycle. Our
VISION™ tool combines the best analytical tools available and allows the client to realize a highly accelerated
implementation timeline at a reduced cost. We believe that we have achieved more than $3 billion in savings for our
clients to date.
We provide real estate strategic consulting and systems integration services to our global clients including
many Fortune 500 and Forbes Global 2000 companies, owner-occupiers, government agencies, healthcare and
higher education clients. We also provide enterprise asset management information consulting and technology
solutions which can yield hundreds of millions of dollars in cost-savings for our GCS business’s client base on an
annual basis. The relationships developed through the software implementation at corporate clients lead to many
opportunities for us to deliver additional services. We also provide consulting services through our GCS business.
These services include operations consulting related to financial integration, portfolio strategy, location strategy and
optimization, workplace strategies, workflow and business process improvement, merger and acquisition integration
and industrial consulting. Fees for these services are on a negotiated basis and are often part of a multi-year services
agreement. Fees may be contingent on meeting certain financial or savings objectives with incentives for exceeding
agreed upon targets.
Technology. GCS has upgraded and improved upon various technologies offered in the Real Estate field
combining our technological specialties and our creative core of development within our GCS platform. We believe
this technology to be a differentiator in the market and is in the first phase of our plan of continued innovations. This
technology is currently being offered, and rolled out, to some of the world’s largest corporations. Delivering best-in-
class technology solutions to occupiers of real estate will allow us an opportunity to add value to our clients and
allow us to realize additional revenue growth through other GCS services such as lease administration, facilities
management and tenant representation, as well as capital markets transactions for owner-occupiers of real estate.
Recurring Revenue Streams. GCS often provides a recurring revenue stream when it enters into multi-year
contracts that provide repeatable transaction work, as opposed to one-off engagements in specific markets and other
recurring fees for ongoing services, such as facilities management and leases administered over the course of the
contract. Today’s clients are focused on corporate governance, consistency in service delivery, centralization of the
real estate function and procurement. Clients are also less focused on transaction- based outcomes and more focused
on overall results, savings, efficiencies and optimization of their overall business objectives. GCS was specifically
designed to meet these objectives. We believe that GCS is hired to solve business problems, not “real estate”
problems.
GCS provides a unique lens into the corporate real estate (which we refer to as “CRE”) outsourcing industry
and offers a unique way to win business. Whether a client currently manages its corporate real estate function in-
house (insource) or has engaged an external provider (outsource), GCS drives value by securing accounts that are
first generation outsource or by gaining outsourced market share.
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GCS increases value for the overall organization via multiple channels:
(cid:120) Multiplying “transactionable” revenue for the firm across all locations in a client’s total real estate
portfolio (i.e., involvement in transactions for hundreds to thousands of assets versus one transaction for a
single asset).
(cid:120) Leveraging our position as a trusted advisor to route business to other non-related divisions of overall
organization (e.g., capital markets).
(cid:120) Amplifying business generation via large corporate procurement-driven efforts that involve harnessing
the enterprise-wide spend for business-to-business / reciprocal business opportunities.
The International Association of Outsourcing Professionals (“IAOP”) has named Newmark to The Best of The
Global Outsourcing 100®, which identifies the world’s best outsourcing providers across all industries over the past
10 years. As part of this honor, IAOP cites “best of leaders,” “top customer references,” and “multiple appearances”
as significant award category achievements for the Company.
In addition to the direct value that GCS creates for its clients, for our overall organization and for our brand
within the industry, there is inherent value in GCS as a driver of innovation and thought leadership. GCS is
comprised of subject matter experts and CRE leaders, and we generate strategic value by speaking at and hosting
industry-related panels at CoreNet Global as well as the World Economic Forum and by publishing content to
market. Also, the implementation of our Certified Advisor Program and internal GCS summits feature workshops,
sessions and other activities designed to share key information, lessons learned and share best practices, all with the
goal of improving service across all accounts.
Project Management. We provide a variety of services to tenants and owners of self-occupied spaces. These
include conversion management, move management, construction management and strategic occupancy planning
services. These services may be provided in connection with a discrete tenant representation lease or on a
contractual basis across a corporate client’s portfolio. Fees are generally determined on a negotiated basis and
earned when the project is complete.
Real Estate and Lease Administration. We manage leases for our clients for a fee, which is generally on a per
lease basis. As of December 31, 2018, we had more than 20,000 leases under management. We also perform lease
audits and certain accounting functions related to the leases. Our lease administration services include critical date
management, rent processing and rent payments. These services provide additional insight into a client’s real estate
portfolio, which allows us to deliver significant value back to the client through provision of additional services,
such as tenant representation, project management and consulting assignments, to minimize leasing and occupancy
costs. For large occupier clients, our real estate technology enables them to access and manage their complete
portfolio of real estate assets. We offer clients a fully integrated user-focused technology product designed to help
them efficiently manage their real estate costs and assets.
Facilities Management. We manage a broad range of properties on behalf of users of commercial real estate,
including headquarters, facilities and office space, for a broad cross section of companies, including Fortune 500 and
Forbes Global 2000 companies. We manage the day-to-day operations and maintenance for urban and suburban
commercial properties of most types, including office, industrial, data centers, healthcare, retail, call centers, urban
towers, suburban campuses, and landmark buildings. Facilities management services may also include facility audits
and reviews, energy management services, janitorial services, mechanical services, bill payment, maintenance,
project management, and moving management. While facility management contracts are typically three to five years
in duration, they may be terminated on relatively short notice periods.
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Industry Trends and Opportunity
We expect the following industry and macroeconomic trends to impact our market opportunity:
Large and Highly Fragmented Market. The commercial real estate services industry is a more than $220
billion global revenue market opportunity of which we believe a significant portion currently resides with smaller
and regional companies. Less than 15% of the revenue in the commercial real estate market is currently serviced by
the top six global firms (by revenue), leaving a large opportunity for us to reach clients serviced by the large number
of fragmented smaller and regional companies. We believe that clients increasingly value full service real estate
service providers with comprehensive capabilities and multi-jurisdictional reach. We believe this will provide a
competitive advantage for us as we have full service capabilities to service both real estate owners and occupiers.
Trend Toward Outsourcing of Commercial Real Estate Services. Outsourcing of real estate-related services
has reduced both property owner and tenant costs, which has spurred additional demand for real estate. We believe
that the more than $220 billion global revenue opportunity includes a large percentage of companies and landlords
that have not yet outsourced their commercial real estate functions, including many functions offered by our
management services businesses. Large corporations are focused on consistency in service delivery and
centralization of the real estate function and procurement to maximize cost savings and efficiencies in their real
estate portfolios. This focus tends to lead them to choose full-service providers like Newmark, where customers can
centralize service delivery and maximize cost reductions. Our GCS business was specifically designed to meet these
objectives through the development of high value-add client-embedded technology, expert consultants and
transaction execution. For those companies and landlords who do not outsource, we consult with them and
implement software to facilitate self-management more efficiently. This technology produces licensing and
consulting revenues, allows us to engage further with these clients and positions us for opportunities to provide
transaction and management services to fulfill their needs.
Increasing Institutional Investor Demand in Commercial Real Estate. Institutions investing in real estate
often compare their returns on investments in real estate to the underlying interest rates in order to allocate their
investments. The continued low interest rate environment around the world and appealing spreads have attracted
significant additional investment by the portfolios of sovereign wealth funds, insurance companies, pension and
mutual funds, and other institutional investors, leading to an increased percentage of direct and indirect ownership of
real-estate related assets over time. The target allocation to real estate by all institutional investors globally has
increased from 3.7% of their overall portfolios in 1990 to over 10% in 2018, according to figures from Preqin Real
Estate Online, Cornell University’s Baker Program in Real Estate and Hodes Weill & Associates. We expect this
positive allocation trend to continue to benefit our capital markets, services, and GSE lending businesses.
Significant Levels of Commercial Mortgage Debt Outstanding and Upcoming Maturities. With $3.4 trillion
in U.S. mortgage debt outstanding and with approximately $2.0 trillion of maturities expected from 2019 to 2023
according to Trepp, LLC and the MBA, we see opportunities in our commercial mortgage brokerage businesses and
our GSE lending units. Sustained low interest rates typically stimulate our capital markets business, where demand
is often dependent on attractive all-in borrowing rates versus asset yields. Demand also depends on credit
accessibility and general macroeconomic trends.
Favorable Multifamily Demographics Driving Growth in GSE Lending and Multifamily Sales. Delayed
marriages, an aging population and immigration to the United States are among the factors increasing demand for
new apartment living, which, according to a recent study commissioned by the National Multifamily Housing
Council (which we refer to as the “NMHC”) and the National Apartment Association (which we refer to as the
“NAA”), is expected to reach 4.6 million new apartments by 2030. The NMHC estimates that 325,000 new
apartments must be built annually through 2030 to meet new demand. Additionally, according to the MBA,
multifamily loan originations by all lenders are estimated to have increased to $526 billion in 2018, CAGR of 3.5%
from 2016 to 2018, while GSE originations were estimated to have increased by a 17.7% CAGR over the same
period. We expect these trends will support continued growth for our multifamily capital markets business, which
provides integrated investment sales, mortgage brokerage, GSE lending, and loan servicing capabilities.
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Our Competitive Strengths
We believe the following competitive strengths differentiate us from competitors and will help us enhance our
position as a leading commercial real estate services provider:
Full Service Capabilities. We provide a fully integrated real estate services platform to meet the needs of our
clients and seek to provide beginning-to-end corporate services to each client. These services include leasing,
investment sales, mortgage brokerage, property management, facility management, multifamily GSE lending, loan
servicing, advisory and consulting, appraisal, property and development services and embedded technological
solutions to support their activities and allow them to comprehensively manage their real estate assets. Through our
investment in Real Estate LP, we are able to provide clients access to nonagency lending investment management
and other real-estate related offerings. Today’s clients are focused on consistency of service delivery, centralization
of the real estate function and procurement, resulting in savings and efficiencies by allowing them to focus on their
core competencies. Our target clients increasingly award business to full-service commercial real estate services
firms, a trend which benefits our business over a number of our competitors. Additionally, our full service
capabilities afford us an advantage when competing for business from clients who are outsourcing real estate
services for the first time, as well as clients seeking best in class technology solutions. We believe that our
comprehensive, top-down approach to commercial real estate services has allowed our revenue sources to become
well-diversified across services and into key markets throughout North America.
Growing our Business with a Proven Ability to Attract Talent. Our business is continuing to rapidly grow
and we believe we have an exceptional ability to identify, acquire or hire, and integrate high-performing companies
and individuals. From December 31, 2016 through December 31, 2018, we have grown our revenues by 51.8%, and
our average revenue per producer by 27.8%. This growth is underpinned by our ability to attract and retain top
talent in the industry. Many high-performing professionals are attracted to our technology capabilities,
entrepreneurial culture, emphasis on cross-selling and unique partnership structure. This unique partnership structure
allows acquirees the ability to contribute the value of their business to, and receive earnings from, our partnership.
Deeply Embedded, Industry-Leading Technology. Our advanced technology differentiates us in the
marketplace by harnessing the scale and scope of our data derived from billions of square feet of leased real estate.
Our technology platform is led by our innovative VISION™ product. This software combines powerful business
intelligence, reporting and analytics, allowing clients to more efficiently manage their real estate portfolios. In
addition to generating revenue from software licenses and user agreements, we believe our technology solutions
encourage customers to use Newmark to execute capital markets and leasing transactions, as well as other recurring
services. Our N360 custom mobile tools provide access to our research, demographics and notifications about
various property related events. This allows us to facilitate more timely dissemination of critical real estate
information to our clients and professionals spread throughout a diverse array of markets. To maintain our
competitive advantage in the marketplace, we employ dedicated, in-house technology professionals and consultants
who continue to improve existing software products as well as develop new innovations. We will continue to
aggressively develop and invest in technology with innovations in this area, which we believe will drive the future
of real estate corporate outsourcing.
Strong and Diversified Client Relationships. We have long-standing relationships with many of the world’s
largest commercial property owners, real estate developers and investors, as well as Fortune 500 and Forbes Global
2000 companies. We are able to provide beginning-to-end corporate services solutions for our clients through GCS.
This allows us to generate more recurring and predictable revenues as we generally have multi-year contracts to
provide services, including repeatable transaction work, lease administration, project management, facilities
management and consulting. In capital markets, we provide real estate investors and owners with property
management and agency leasing during their ownership and assist them with maximizing their return on real estate
investments through investment sales, debt and equity financing, lending and valuation and advisory services and
real estate technology solutions. We believe that the many touch points we have with our clients gives us a
competitive advantage in terms of client-specific and overall industry knowledge, while also giving us an
opportunity to cross-sell our various offerings to provide maximum value to our customers.
Strong Financial Position to Support High Growth. We generate significant earnings and strong and
consistent cash flow that we expect to fuel our future growth. For the 12-month period ended December 31, 2018,
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we generated revenues of $2.0 billion, representing year-over-year growth of approximately 28%. We intend to
maintain a strong balance sheet and our separation from BGC Partners will provide us with a “pure play” and more
effective acquisition currency through our listed equity securities that will allow us to continue to grow our market
share as we accretively acquire companies, develop and invest in technology and add top talent across our platform.
Further, we believe that our capital position will be strengthened by our expected receipt of up to 8.9 million shares
of common stock of Nasdaq, Inc. (which we refer to as “Nasdaq”) to be paid ratably over approximately 9 years in
connection with the eSpeed sale (See “Item 7— Management’s Discussion and Analysis of Financial Condition and
Results of Operations — Nasdaq Monetization Transactions.”). In 2018, we entered into monetization transactions
with respect to the Nasdaq shares for the shares to be received in each of 2019, 2020, 2021 and 2022. Based on the
closing share price of Nasdaq as of December 31, 2018, the Nasdaq shares to be received from 2023 through 2027
are expected to generate approximately $400 million of proceeds. See “Item 7— Management’s Discussion and
Analysis of Financial Condition and Results of Operations — Nasdaq Monetization Transactions.” With our strong
balance sheet and standalone equity currency, we believe we are well positioned to make future hires and
acquisitions and to profitably grow our market share.
Partnership Structure Yields Multiple Benefits. We believe that our unique partnership structure provides us
with numerous competitive advantages. Unlike many of our peers, virtually all of our key executives and revenue-
generating employees have equity stakes. We believe this aligns our employees and management with shareholders
and encourages a collaborative culture that drives cross-selling and improves revenue growth. Additionally, our
partnership structure reduces recruitment costs by encouraging retention, as equity stakes are subject to redemption
or forfeiture in the event that employees leave the firm to compete with Newmark. Additionally, our partnership
structure is tax efficient for employees and our public shareholders. We believe that this structure, which will be
enhanced by our standalone equity currency, promotes an entrepreneurial culture that, along with our strong
platform, enables us to attract key producers in key markets and services.
Strong and Experienced Management Team. We have dozens of executives and senior managers who have
significant experience with building and growing industry-leading businesses and creating significant value for
stakeholders. Management is heavily invested in Newmark’s success, supporting strong alignment with
shareholders. We believe our deep bench of talent will allow us to significantly increase the scale of Newmark as we
continue to invest in our platforms. Our Chairman, Howard Lutnick, has more than 35 years of financial industry
experience at BGC Partners and Cantor. He was instrumental in the founding of eSpeed in 1996, its initial public
offering in 1999, and its merger with and into BGC Partners in 2008. In 2013, he negotiated the sale of eSpeed,
which generated just under $100 million in annual revenues, to Nasdaq for over $1.2 billion. See “Item 7—
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Nasdaq Monetization
Transactions.” Barry Gosin has served as Chief Executive Officer of Newmark since 1979 and has successfully
guided the Company’s significant expansion since 2011. Mr. Gosin spearheaded our merger with BGC Partners in
2011 and has received the Real Estate Board of New York’s “Most Ingenious Deal of the Year” award on three
separate occasions. In addition, Michael Rispoli, our Chief Financial Officer, and Stephen M. Merkel, our Executive
Vice President and Chief Legal Officer, along with our other senior management, collectively have decades of
experience in the financial and real estate services industries.
Our Differentiated Business Growth Strategy
Set forth below are the key components of our differentiated business growth strategy:
Profitably Hire Top Talent and Accretively Acquire Complementary Businesses. Building on our
management team’s proven track record, our unique partnership structure, our high-growth platform and our
standalone equity currency, we intend to opportunistically hire additional producers and acquire other firms, services
and products to strengthen and enhance our broad suite of offerings. We expect this growth to deepen our presence
in our existing markets and expand our ability to service existing and new clients.
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Incentivize and Retain Top Talent Using Our Partnership Structure. Unlike many of our peers, virtually all
of our key executives and producers have partnership or equity stakes in our company and receive deferred equity or
Newmark Holdings units as part of their compensation. Prior to the Spin-Off, they also received deferred equity
from BGC or BGC Holdings units as part of their compensation. A significant percentage of Newmark’s fully
diluted shares are owned by our executives, partners and employees. Our unique partnership structure, and our
standalone equity currency, will enable us to motivate and retain our best producers more effectively than our peers
in the key markets and services that are critical to our growth. Our ownership stakes, retention tools and partnership
structure, together with the creation of Newmark equity solely linked to our business, will more strongly align our
employee interests with those of our stockholders, and provide effective tools to recruit, motivate and retain our key
employees.
Actively Cross-Sell Services to Increase Revenue and Expand Margins. We expect the combination of our
services and products to generate substantial revenue synergies across our platforms, increase revenues per producer
and expand margins. To complement and drive future growth opportunities within our GCS business, we are
leveraging our capabilities in providing innovative front-end real estate technology solutions to complement and
cross-sell other corporate services to those clients, including leasing services, project management, facilities
management and lease administration services. Furthermore, the combination of our leading multifamily debt
origination provider with our top-two multifamily investment sales business, and Newmark’s fast growing
commercial mortgage business is an opportunity for strong loan originations and cross-selling opportunities across
the multifamily market.
Utilize Our Technology to Provide Value and Deepen Relationships with Clients. We believe owners and
occupiers of commercial real estate are increasingly focused on improving their efficiency, cost reduction and
outsourcing of non-core real estate competencies. Through the use of our innovative technology and consulting
services, we help clients become more efficient in their commercial real estate activities, and thus realize additional
profit. We will continue to provide technology solutions for companies that self-manage, offering them visibility
into their real estate data and tools to better manage their real estate utilization and spend. For instance, we are well
positioned to provide technology services for the approximately 80% of the market (measured in square feet) that we
believe does not outsource their real estate functions. The deep insight into our clients that we gain through our data
and technology will provide us with opportunities to cross-sell consulting and transaction services.
Maximize Recurring and Other Revenue Opportunity from Each Service Offering to Real Estate Owners.
We drive growth throughout the life cycle of each commercial real estate asset by providing best-in-class investment
sales, debt and equity financing, agency leasing and property management. Our product offerings often create
recurring revenues from properties, in particular with respect to property management, where the average life of our
properties under management exceeds five years, and our servicing portfolio of approximately $60 billion (of which
approximately 5% relates to special servicing). As of December 31, 2018, our primary servicing portfolio had an
average life of eight years. Our multifamily investment sales business and our commercial mortgage brokerage
business also drive revenue, through referrals, to our GSE lending business. We have also meaningfully expanded
our valuation and advisory business, which we expect to spur significant growth and complement our platforms
supporting the buying and selling of commercial real estate.
Opportunity to Grow Global Footprint. In 2018, less than 2% of our revenues were from international
sources, while our largest, full-service, U.S.-listed competitors earned approximately 30-44% or more of their
revenues outside the Americas, for the most recent twelve-month periods reported, excluding investment
management. We believe that our successful history of acquiring businesses across the U.S. and making profitable
hires across our business lines demonstrates our ability to increase revenues in North America and grow
substantially through acquisitions and hiring globally. Currently, we facilitate servicing our clients’ needs outside of
the Americas through our alliance with London-based Knight Frank LLP (which we refer to as “Knight Frank”).
Nasdaq Transaction and Nasdaq Monetizations
On June 28, 2013, BGC Partners sold eSpeed to Nasdaq in the Nasdaq Transaction. The total consideration
paid or payable by Nasdaq included an earn-out of up to 14,883,705 shares of common stock of Nasdaq to be paid
ratably over 15 years after the closing of the Nasdaq Transaction, provided that Nasdaq produces at least $25 million
in gross revenues for the applicable year. Nasdaq generated gross revenues of approximately $4.3 billion in 2018.
The right to receive the remainder of the Nasdaq payment was transferred from BGC Partners to us beginning in the
third quarter of 2017. We have recorded gains related to the Nasdaq payments of $76 million in 2017 and $87
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million in 2018 and expect our future results to include the additional approximately 8.9 million Nasdaq shares to be
received over time. In 2018, we entered into monetization transactions with respect to the Nasdaq shares for the
shares to be received in each of 2019, 2020, 2021 and 2022. See “Item 7—Management’s Discussion and Analysis
of Financial Condition and Results of Operations — Nasdaq Monetization Transactions.”
Our Knight Frank Partnership
We offer services to clients on a global basis. In 2005, we partnered with London-based Knight Frank in order
to enhance our ability to provide best-in-class local service to our clients, throughout the world. Knight Frank,
operates out of over 500 offices across Europe, the Middle East, Asia, Australia and Africa. Outside of the
Americas, we collaborate with Knight Frank to ensure that our clients have access to local expertise and to highly-
skilled professionals in the locales where they choose to transact. We expect that our cross-selling efforts with
Knight Frank will lead to continued growth, particularly as our growing capital markets business increases its
penetration with foreign investors.
While we have the right to expand our international operations, we may be subject to certain short-term
contractual restrictions due to our existing agreement with Knight Frank, which, was extended, effective on
December 28, 2017 for a three-year period with a 90-day mutual termination right. The agreement restricts the
parties from operating a competing commercial real estate business in the other party’s areas of responsibility. Our
areas of responsibility are North America and South America. Knight Frank’s areas of responsibility are the Asia-
Pacific region, Europe, the Middle East and Africa.
Our Domestic and Latin American Real Estate Services Alliances
In certain smaller markets in the United States and in countries in Latin America in which we do not maintain
owned offices, we have agreements in place to operate on a collaborative and cross-referral basis with certain
independently-owned offices in return for contractual and referral fees paid to us and/or certain mutually beneficial
co-branding and other business arrangements. We do not derive a significant portion of our revenue from these
relationships. These independently owned offices generally use some variation of our branding in their names and
marketing materials. These agreements are normally multi-year contracts, and generally provide for mutual referrals
in their respective markets, generating additional contract and brokerage fees. Through these independently-owned
offices, our clients have access to additional brokers with local market research capabilities as well as other
commercial real estate services in locations where our business does not have a physical presence.
Industry Recognition
As a result of our experienced management team’s ability to skillfully grow the Company, we have become a
nationally recognized brand. Over the past several years, we have consistently won a number of U.S. industry
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awards and accolades, been ranked highly by third-party sources and significantly increased our rankings, which we
believe reflects recognition of our performance and achievements. For example:
(cid:120) Ranked #5 Top Brokers in sales of Office Properties, Real Estate Alert, 2018;
(cid:120) Ranked #3 Top Brokerage Firm, Commercial Property Executive, 2018;
(cid:120) Ranked #3 Top Brokerage Firm, National Real Estate Investor, 2018;
(cid:120) Ranked #5 Multifamily Fannie Mae DUS producer for 2018 by the agency, up from #9 in 2013, the year
before we acquired this business;
(cid:120) Ranked #7 Multifamily Freddie Mac lender in 2018 by the agency, up from #10 in 2013, the year before
we acquired this business;
(cid:120) Ranked #2 Top Brokers of Multifamily Properties, Real Estate Alert, 2018;
(cid:120) Ranked #2 Best Commercial Real Estate Tenant Representation Firm, New York Law Journal, 2018; also
ranked #2 Best Commercial Real Estate Property Management Firm, New York Law Journal, 2018;
(cid:120) Ranked #4 New York’s Largest Commercial Property Managers, Crain’s New York Business, 2018;
(cid:120) Ranked among The Best of The Global Outsourcing 100® by the International Association of
Outsourcing Professionals;
(cid:120) Winner of 14 REBNY Deal of the Year Awards in the last 14 Years, Real Estate Board of New York or
Winner of REBNY 2017 Most Ingenious Deal of the Year Award and 2017 Most Ingenious Retail Deal
of the Year Award;
(cid:120) Ranked #2 Top Apartment Brokers of the Top 25 in Apartment Investment Volume, Real Capital
Analytics Survey, 2018;
(cid:120) Ranked #1 Commercial Real Estate Firms, Silicon Valley Business Journal, 2018; and
(cid:120) Ranked #4 Top Brokers of the Top 25 in Investment Volume, Real Capital Analytics Survey, 2018.
Clients
Our clients include a full range of real estate owners, occupiers, tenants, investors, lenders and multi-national
corporations in numerous markets, including office, retail, industrial, multifamily, student housing, hotels, data
center, healthcare, self-storage, land, condominium conversions, subdivisions and special use. Our clients vary
greatly in size and complexity, and include for-profit and non-profit entities, governmental entities and public and
private companies. For the year ended December 31, 2018, our top 10 clients, collectively, accounted for
approximately 5.3% of our total revenue on a consolidated basis, and our largest client accounted for less than 2.0%
of our total revenue on a consolidated basis.
Sales and Marketing
We seek to develop our brand and to highlight its expansive platform while reinforcing our position as a
leading commercial real estate services firm in the United States through national brand and corporate marketing,
local marketing of specific product lines and targeted broker marketing efforts.
National Brand and Corporate Marketing
At a national level, we utilize media relations, industry sponsorships and sales collateral and targeted
advertising in trade and business publications to develop and market our brand. We believe that our emphasis on our
unique capabilities enables us to demonstrate our strengths and differentiate ourselves from our competitors. Our
multi-market business groups provide customized collateral, website and technology solutions designed to address
specific client needs.
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Local Product Line Marketing and Targeted Broker Efforts
On a local level, our offices (including those owned by us and independently owned offices) have access to
tools and templates that provide our sales professionals with the market knowledge we believe is necessary to
educate and advise clients, and also to bring properties to market quickly and effectively. These tools and templates
include proprietary research and analyses, web-based marketing systems and ongoing communications and training
about our depth and breadth of services. Our sales professionals use these local and national resources to participate
directly in selling to, advising and servicing clients. We provide marketing services and materials to certain
independently owned offices as part of an overall agreement allowing them to use our branding. We also benefit
from shared referrals and materials from local offices.
Additionally, we invest in and rely on comprehensive research to support and guide the development of real
estate and investment strategy for our clients. Research plays a key role in keeping colleagues throughout the
organization attuned to important trends and changing conditions in world markets. We disseminate this information
internally and externally directly to prospective clients and the marketplace through the company website. We
believe that our investments in research and technology are critical to establishing our brand as a thought leader and
expert in real estate-related matters and provide a key sales and marketing differentiator.
Intellectual Property
We hold various trademarks, trade dress and trade names and rely on a combination of patent, copyright,
trademark, service mark and trade secret laws, as well as contractual restrictions, to establish and protect our
intellectual property rights. We own numerous domain names and have registered numerous trademarks and/or
service marks in the United States and foreign countries. We have a number of pending patent applications relating
to the product of our thought leadership. We will continue to file additional patent applications on new inventions,
as appropriate, demonstrating our commitment to technology and innovation. Although we believe our intellectual
property rights play a role in maintaining our competitive position in a number of the markets that we serve, we do
not believe we would be materially adversely affected by the expiration or termination of our trademarks or trade
names or the loss of any of our other intellectual property rights. Our trademark registrations must be renewed
periodically, and, in most jurisdictions, every 10 years.
Competition
We compete across a variety of business disciplines within the commercial real estate industry, including
commercial property and corporate facilities management, owner-occupier, property and agency leasing, property
sales, valuation, capital markets (equity and debt) solutions, GSE lending and loan servicing and development
services. Each business discipline is highly competitive on a local, regional, national and global level. Depending on
the geography, property type or service, we compete with other commercial real estate service providers, including
outsourcing companies that traditionally competed in limited portions of our real estate management services
business and have recently expanded their offerings. These competitors include companies such as Aramark, ISS
A/S and ABM Industries. We also compete with in-house corporate real estate departments, developers, institutional
lenders, insurance companies, investment banking firms, investment managers and accounting and consulting firms
in various parts of our business. Despite recent consolidation, the commercial real estate services industry remains
highly fragmented and competitive. Although many of our competitors are local or regional firms that are smaller
than us, some of these competitors are more entrenched than us on a local or regional basis. We are also subject to
competition from other large multi-national firms that have similar service competencies to ours, including CBRE
Group, Inc., Jones Lang LaSalle Inc., Cushman & Wakefield plc, Savills Studley, Inc., and Colliers International
Group, Inc. In addition, more specialized firms like HFF, Inc., Marcus & Millichap Inc., Eastdil Secured LLC (part
of Wells Fargo & Company) and Walker & Dunlop, Inc. compete with us in certain service lines.
Seasonality
Due to the strong desire of many market participants to close real estate transactions prior to the end of a
calendar year, our business exhibits certain seasonality, with our revenue tending to be lowest in the first quarter and
strongest in the fourth quarter. For the full year ended 2018, we earned 21% of our revenues in the first quarter and
31% of our revenues in the fourth quarter, while the comparable figures were 21% and 29%, respectively, in 2017.
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Partnership Overview
We believe that our partnership structure is one of the unique strengths of our business. We expect many of
our key brokers, salespeople and other professionals to have their own capital invested in our business, aligning their
interests with those of our stockholders. We control the general partner of Newmark Holdings. The limited
partnership interests in Newmark Holdings consist of: (i) a special voting limited partnership interest held by us;
(ii) exchangeable limited partnership interests held by Cantor; (iii) founding/working partner interests held by
founding/working partners; (iv) limited partnership units, which consist of a variety of units that are generally held
by employees such as REUs, RPUs, PSUs, PSIs, PSEs, LPUs, APSUs, APSIs, AREUs, ARPUs and NPSUs; and
(v) Preferred Units, which are working partner interests that may be awarded to holders of, or contemporaneous
with, the grant of REUs, RPUs, PSUs, PSIs, PSEs, LPUs, APSUs, APSIs, AREUs, ARPUs and NPSUs See “—Our
Organizational Structure—Structure of Newmark Following the Spin-Off.”
We believe that our partnership structure is an effective tool in recruiting, motivating and retaining key
employees. We believe that many brokers are attracted by the opportunity to become partners because the
partnership agreement generally entitles partners to quarterly distributions of income from the partnership. While
Newmark Holdings limited partnership interests generally entitle our partners to participate in distributions of
income from the operations of our business, upon leaving Newmark Holdings (or upon any other redemption or
purchase of such limited partnership interests), any such partners will only be entitled to receive over time, and
provided he or she does not violate certain partner obligations, an amount for his or her Newmark Holdings limited
partnership interests that reflects such partner’s capital account or compensatory grant awards, excluding any
goodwill or going concern value of our business unless Cantor, in the case of the founding partners, and we, as the
general partner of Newmark Holdings, otherwise determine. Our partners will be able to receive the right to
exchange their Newmark Holdings limited partnership interests for shares of our Class A common stock (if, in the
case of founding partners, Cantor so determines and, in the case of working partners and limited partnership unit
holders, we, as the Newmark Holdings general partner, with Cantor’s consent, determine otherwise) and thereby
realize any higher value associated with our Class A common stock. We believe that, having invested in us, partners
feel a sense of responsibility for the health and performance of our business and have a strong incentive to maximize
our revenues and profitability. See “—Our Organizational Structure—Structure of Newmark Following the Spin-
Off,” and “Item 1A—Risk Factors—Risks Related to Our Relationship with Cantor and Its Respective Affiliates.”
Relationship with Cantor
See “Item 1A—Risk Factors—Risks Related to Our Relationship with Cantor and Its Respective Affiliates.”
Regulation
The brokerage of real estate sales and leasing transactions, property and facilities management, conducting
real estate valuation and securing debt for clients, among other business lines, also require that we comply with
regulations affecting the real estate industry and maintain licenses in the various jurisdictions in which we operate.
Like other market participants that operate in numerous jurisdictions and in various business lines, we must comply
with numerous regulatory regimes.
We could be required to pay fines, return commissions, have a license suspended or revoked, or be subject to
other adverse action if we conduct regulated activities without a license or violate applicable rules and regulations.
Licensing requirements could also impact our ability to engage in certain types of transactions, change the way in
which we conduct business or affect the cost of conducting business. We and our licensed associates may be subject
to various obligations and we could become subject to claims by regulators and/or participants in real estate sales or
other services claiming that we did not fulfill our obligations. This could include claims with respect to alleged
conflicts of interest where we act, or are perceived to be acting, for two or more clients. While management has
overseen highly regulated businesses before and expects us to comply with all applicable regulations in a
satisfactory manner, no assurance can be given that it will always be the case. In addition, federal, state and local
laws and regulations impose various environmental zoning restrictions, use controls, and disclosure obligations that
impact the management, development, use and/or sale of real estate. Such laws and regulations tend to discourage
sales and leasing activities, as well as mortgage lending availability, with respect to such properties. In our role as
property or facilities manager, we could incur liability under environmental laws for the investigation or remediation
of hazardous or toxic substances or wastes relating to properties we currently or formerly managed. Such liability
may be imposed without regard for the lawfulness of the original disposal activity, or our knowledge of, or fault for,
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the release or contamination. Further, liability under some of these may be joint and several, meaning that one of
multiple liable parties could be responsible for all costs related to a contaminated site. Certain requirements
governing the removal or encapsulation of asbestos-containing materials, as well as recently enacted local
ordinances obligating property or facilities managers to inspect for and remove lead-based paint in certain buildings,
could increase our costs of regulatory compliance and potentially subject us to violations or claims by regulatory
agencies or others. Additionally, under certain circumstances, failure by our brokers acting as agents for a seller or
lessor to disclose environmental contamination at a property could result in liability to a buyer or lessee of an
affected property.
We are required to meet and maintain various eligibility criteria from time to time established by the GSEs
and HUD, as well as applicable state and local licensing agencies, to maintain our status as an approved lender.
These criteria include minimum net worth, operational liquidity and collateral requirements, and compliance with
reporting requirements. We also are required to originate our loans and perform our loan servicing functions in
accordance with the applicable program requirements and guidelines from time to time established by the GSEs and
HUD. For additional information, see “Item—1A—Risk Factors—Risks Related to Our Business—
Regulatory/Legal—The loss of relationships with the GSEs and HUD would, and changes in such relationships
could, adversely affect our ability to originate commercial real estate loans through such programs. Compliance
with the minimum collateral and risk-sharing requirements of such programs, as well as applicable state and local
licensing agencies, could reduce our liquidity.”
As a result of the Berkeley Point Acquisition, Newmark is now subject to various capital requirements in
connection with seller/servicer agreements that Newmark has entered into with the various GSEs. Failure to
maintain minimum capital requirements could result in Newmark’s inability to originate and service loans for the
respective GSEs and could have a direct material adverse effect on Newmark’s consolidated financial statements. As
of December 31, 2018, Newmark has met all capital requirements. As of December 31, 2018, the most restrictive
capital requirement was Fannie Mae’s net worth requirement. Newmark exceeded the minimum requirement by
$322.3 million.
Certain of Newmark’s agreements with Fannie Mae allow Newmark to originate and service loans under
Fannie Mae’s DUS Program. These agreements require Newmark to maintain sufficient collateral to meet Fannie
Mae’s restricted and operational liquidity requirements based on a pre-established formula. Certain of Newmark’s
agreements with Freddie Mac allow Newmark to service loans under Freddie Mac’s Targeted Affordable Housing
Program (“TAH”). These agreements require Newmark to pledge sufficient collateral to meet Freddie Mac’s
liquidity requirement of 8% of the outstanding principal of TAH loans serviced by Newmark. As of December 31,
2018, Newmark has met all liquidity requirements.
In addition, as a servicer for Fannie Mae, GNMA and FHA, Newmark is required to advance to investors any
uncollected principal and interest due from borrowers. As of December 31, 2018 and 2017, outstanding borrower
advances were approximately $164 thousand and $120 thousand, respectively, and are included in “Other assets” in
the accompanying consolidated balance sheets.
In order to continue our business in our current structure, we and Newmark Holdings must not be deemed
investment companies under the Investment Company Act. We intend to take all legally permissible action to ensure
that such entities not be subject to such act. For additional information, see “Item 1A—Risk Factors—Risks Related
to Our Corporate and Partnership Structure—If we or Newmark Holdings were deemed an “investment company”
under the Investment Company Act, the Investment Company Act’s restrictions could make it impractical for us to
continue our business and structure as contemplated and could materially adversely affect our business, financial
condition, results of operations and prospects.”
Employees
As of December 31, 2018, we had more than 5,200 total employees, of which approximately 1,700 were
brokers and commissioned salespeople.
As of December 31, 2018, we had 1,044 employees that were fully reimbursed by our property management
or facilities management clients to whom we provide services and pass through such employee expense.
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Generally, our employees are not subject to any collective bargaining agreements, except for certain
employees that are reimbursed by our property management or facilities management clients.
Legal Proceedings
See the discussion of Legal Proceedings contained in “Note 30 - Commitments and Contingencies” to our
Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
OUR ORGANIZATIONAL STRUCTURE
Our Restructuring
We are Newmark Group, Inc., a Delaware corporation. We were formed as NRE Delaware, Inc. on
November 18, 2016 and changed our name to Newmark Group, Inc. on October 18, 2017. We were formed for the
purpose of becoming a public company conducting the operations of BGC Partners’ Real Estate Services segment,
including Newmark and Berkeley Point. In December 2017, Newmark completed its initial public offering (the
“IPO”) of 23 million shares of its Class A common stock at an initial public offering price of $14.00 per share. Prior
to the IPO, Newmark was a wholly owned subsidiary of BGC Partners.
Initially, a majority of our issued and outstanding shares of common stock were held by BGC Partners.
Through the following series of transactions prior to and following the completion of the Separation and our IPO,
we became a separate publicly traded company.
Prior to the completion of our IPO, the separation and contribution pursuant to which members of the BGC
Group transferred to us substantially all of the assets and liabilities of the BGC Partners’ Real Estate Services
segment, including Newmark, Berkeley Point and the right to receive the remainder of the Nasdaq payment, (the
“Contribution”), various types of interests of Newmark Holdings were issued to holders of interests of BGC
Holdings in proportion to such interests of BGC Holdings held by such holders immediately prior thereto.
(cid:120) Concurrently with the Separation and Contribution, we entered into the transactions described under
“Item 7— Management’s Discussion and Analysis of Financial Condition and Results of Operations—
Separation, Initial Public Offering, and Spin-Off.”
(cid:120)
In March 2018, BGC Partners made an additional investment in us as described under “Item 7—
Management’s Discussion and Analysis of Financial Condition and Results of Operations— Separation,
Initial Public Offering, and Spin-Off—BGC Partners March 2018 Investment by BGC.”
(cid:120) The types of interests in Newmark, Newmark Holdings and Newmark OpCo outstanding following the
completion of these transactions are described under “— Newmark Organizational Structure Following
the Spin-Off below.”
The Separation and Contribution
Prior to the completion of the IPO, pursuant to the Original Separation and Distribution Agreement, (“as
defined below”), members of the BGC Group transferred to us substantially all of the assets and liabilities of the
BGC group relating to BGC Partners’ Real Estate Services segment, including Newmark, Berkeley Point and the
right to receive the remainder of the Nasdaq Earn-out. For a description of the Nasdaq Earn-out, see “Item 7—
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Nasdaq Monetization
Transactions.” Prior to the Separation, the BGC Group held all of the historical assets and liabilities related to our
business.
In connection with the Separation, Newmark Holdings limited partnership interests, Newmark Holdings
founding partner interests, Newmark Holdings working partner interests and Newmark Holdings limited partnership
units were distributed to holders of BGC Holdings limited partnership interests, BGC Holdings founding partner
interests, BGC Holdings working partner interests and BGC Holdings limited partnership units, respectively, in
proportion to such interests of BGC Holdings held by such holders immediately prior to the Separation.
We also entered into a tax matters agreement with BGC Partners that governs the parties’ respective rights,
responsibilities and obligations after the Separation with respect to taxes, tax attributes, the preparation and filing of
27
tax returns, the control of audits and other tax proceedings, tax elections, assistance and cooperation in respect of tax
matters, procedures and restrictions relating to the Spin-Off, if any, and certain other tax matters. We also entered
into an administrative services agreement with Cantor, which governs the provision by Cantor of various
administrative services to us, and our provision of various administrative services to Cantor, at a cost equal to (1) the
direct cost that the providing party incurs in performing those services, including third-party charges incurred in
providing services, plus (2) a reasonable allocation of other costs determined in a consistent and fair manner so as to
cover the providing party’s appropriate costs or in such other manner as the parties agree. We also entered into a
transition services agreement with BGC Partners, which governs the provision by BGC Partners of various
administrative services to us, and our provision of various administrative services to BGC Partners, on a transitional
basis (with a term of up to two years following the Spin-Off) and at a cost equal to (1) the direct cost that the
providing party incurs in performing those services, including third-party charges incurred in providing services,
plus (2) a reasonable allocation of other costs determined in a consistent and fair manner so as to cover the providing
party’s appropriate costs or in such other manner as the parties agree.
Assumption and Repayment of Indebtedness
For a description of Newmark’s assumption and repayment of certain indebtedness prior to the Spin-Off, see
“Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Separation,
Initial Public Offering, and Spin-Off—Debt Repayments and Credit Agreements.”
BGC Partners March 2018 Investment
On March 7, 2018, BGC Partners and its operating subsidiaries purchased 16,606,726 newly issued
exchangeable limited partnership units of Newmark Holdings for an aggregate investment of approximately $242.0
million. The price per unit was based on the $14.57 closing price of our Class A common stock on March 6, 2018 as
reported on the NASDAQ Global Select Market. These units are exchangeable, at BGC Partners’ discretion, into
either shares of our Class A common stock or our Class B common stock, par value $0.01 per share. Following such
issuance, BGC Partners owned 83.4% of our 138.6 million shares of Class A common issued and outstanding on
March 7, 2018 and 100% of our 15.8 million issued and outstanding shares of Class B common stock.
Amended and Restated Separation and Distribution Agreement
For a description of the Amended and Restated Separation and Distribution Agreement, see “Item 7—
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Separation, Initial
Public Offering, and Spin-Off—Amended and Restated Separation and Distribution Agreement.”
The Spin-Off
On November 30, 2018 , BGC completed the Spin-Off to its stockholders of all of the shares of our common
stock owned by BGC as of immediately prior to the effective time of the Spin-Off, with shares of our Class A
common stock distributed to the holders of shares of BGC’s Class A common stock (including directors and
executive officers of BGC Partners) of record as of the close of business on November 23, 2018 (the “Record
Date”), and shares of our Class B common stock distributed to the holders of shares of BGC’s Class B common
stock (consisting of Cantor and CFGM) of record as of the close of business on the Record Date.
28
Based on the number of shares of BGC common stock outstanding as of the close of business on the Record
Date, BGC’s stockholders as of the Record Date received in the Spin-Off 0.463895 of a share of Newmark Class A
common stock for each share of BGC Class A common stock held as of the Record Date, and 0.463895 of a share of
Newmark Class B common stock for each share of BGC Class B common stock held as of the Record Date. BGC
Partners stockholders received cash in lieu of any fraction of a share of Newmark common stock that they otherwise
would have received in the Spin-Off.
Prior to and in connection with the Spin-Off, 14.8 million Newmark Units held by BGC were exchanged into
9.4 million shares of Newmark Class A common stock and 5.4 million shares of Newmark Class B common stock,
and 7.0 million Newmark OpCo Units held by BGC were exchanged into 6.9 million shares of Newmark Class A
common stock. These Newmark Class A and Class B shares of common stock were included in the Spin-Off to
BGC’s stockholders. In the aggregate, BGC distributed 131,886,409 shares of our Class A common stock and
21,285,537 shares of our Class B common stock to BGC’s stockholders in the Spin-Off. These shares of our
common stock collectively represented approximately 94% of the total voting power of our outstanding common
stock and approximately 87% of the total economics of our outstanding common stock in each case as of the
Distribution Date.
On November 30, 2018, BGC Partners also caused its subsidiary, BGC Holdings, to distribute pro-rata (the
“BGC Holdings distribution”) all of the 1,458,931 exchangeable limited partnership units of Newmark Holdings,
held by BGC Holdings immediately prior to the effective time of the BGC Holdings distribution to its limited
partners entitled to receive distributions on their BGC Holdings units (including Cantor and executive officers of
BGC) who were holders of record of such units as of the Record Date. The Newmark Holdings units distributed to
BGC Holdings partners in the BGC Holdings distribution are exchangeable for shares of Newmark Class A common
stock, and in the case of the 449,917 Newmark Holdings units received by Cantor also into shares of Newmark
Class B common stock, at the applicable exchange ratio (subject to adjustment). As of December 31, 2018, the
exchange ratio was 0.9793 shares of Newmark common stock per Newmark Holdings unit.
Following the Spin-Off and the BGC Holdings distribution, BGC Partners ceased to be our controlling
stockholder, and BGC and its subsidiaries no longer held any shares of our common stock or other equity interests in
us or our subsidiaries. Cantor continues to control Newmark and its subsidiaries following the Spin-Off and the
BGC Holdings distribution.
Prior to the Spin-Off, 100% of the outstanding shares of our Class B common stock were held by BGC.
Because 100% of the outstanding shares of BGC Class B common stock were held by Cantor and CFGM as of the
Record Date, 100% of the outstanding shares of our Class B common stock were distributed to Cantor and CFGM in
the Spin-Off. As of the Distribution Date, shares of our Class B common stock represented 57.8% of the total voting
power of the outstanding Newmark common stock and 12.1% of the total economics of the outstanding Newmark
common stock. Cantor is controlled by CFGM, its managing general partner, and, ultimately, by Howard W.
Lutnick, who serves as Chairman of Newmark. Mr. Lutnick is also the Chairman of the Board of Directors and
Chief Executive Officer of BGC Partners and Cantor and the Chairman and Chief Executive Officer of CFGM, as
well as the trustee of an entity that is the sole shareholder of CFGM. Stephen M. Merkel, our Executive Vice
President and Chief Legal Officer serves as Executive Vice President General Counsel and Assistant Secretary of
BGC Partners, and is employed as Executive Managing Director, General Counsel and Secretary of Cantor.
29
Newmark Organizational Structure Following the Spin-Off
As of December 31, 2018, there were 156,966,334 shares of our Class A common stock issued and
outstanding. Cantor and CFGM held no shares of our Class A common stock. Each share of Class A common stock
is generally entitled to one vote on matters submitted to a vote of our stockholders. As of December 31, 2018,
Cantor and CFGM held 21,285,533 shares of our Class B common stock representing all of the outstanding shares
of our Class B common stock. The shares of Class B common stock held by Cantor and CFGM as of December 31,
2018, represented approximately 57.6% of our total voting power. Each share of Class B common stock is generally
entitled to the same rights as a share of Class A common stock, except that, on matters submitted to a vote of our
stockholders, each share of Class B common stock is entitled to 10 votes. The Class B common stock generally
votes together with the Class A common stock on all matters submitted to a vote of our stockholders. We expect to
retain our dual class structure, and there are no circumstances under which the holders of Class B common stock
would be required to convert their shares of Class B common stock into shares of Class A common stock. Our
amended and restated certificate of incorporation referred to herein as our certificate of incorporation does not
provide for automatic conversion of shares of Class B common stock into shares of Class A common stock upon the
occurrence of any event.
We hold the Newmark Holdings general partnership interest and the Newmark Holdings special voting limited
partnership interest, which entitle us to remove and appoint the general partner of Newmark Holdings and serve as
the general partner of Newmark Holdings, which entitles us to control Newmark Holdings. Newmark Holdings, in
turn, holds the Newmark OpCo general partnership interest and the Newmark OpCo special voting limited
partnership interest, which entitle Newmark Holdings to remove and appoint the general partner of Newmark OpCo,
and serve as the general partner of Newmark OpCo, which entitles Newmark Holdings (and thereby us) to control
Newmark OpCo. In addition, as of December 31, 2018, we directly held Newmark OpCo limited partnership
interests consisting of approximately 85,120,661 units representing approximately 32.3% of the outstanding
Newmark OpCo limited partnership interests (not including EPUs). We are a holding company that holds these
interests, serves as the general partner of Newmark Holdings and, through Newmark Holdings, acts as the general
partner of Newmark OpCo. As a result of our ownership of the general partnership interest in Newmark Holdings
and Newmark Holdings’ general partnership interest in Newmark OpCo, we will consolidate Newmark OpCo’s
results for financial reporting purposes.
Cantor, founding partners, working partners and limited partnership unit holders directly hold Newmark
Holdings limited partnership interests. Newmark Holdings, in turn, holds Newmark OpCo limited partnership
interests and, as a result, Cantor, founding partners, working partners and limited partnership unit holders indirectly
have interests in Newmark OpCo limited partnership interests. In addition, The Royal Bank of Canada holds
approximately $325 million of EPUs issued by Newmark on June 18, 2018 and September 26, 2018 in private
transactions.
The Newmark Holdings limited partnership interests held by Cantor and CFGM are designated as Newmark
Holdings exchangeable limited partnership interests. The Newmark Holdings limited partnership interests held by
the founding partners are designated as Newmark Holdings founding partner interests. The Newmark Holdings
limited partnership interests held by the working partners are designated as Newmark Holdings working partner
interests. The Newmark Holdings limited partnership interests held by the limited partnership unit holders are
designated as limited partnership units.
Each unit of Newmark Holdings limited partnership interests held by Cantor and CFGM is generally
exchangeable with us for a number of shares of Class B common stock (or, at Cantor’s option or if there are no
additional authorized but unissued shares of Class B common stock, a number of shares of Class A common stock)
equal to the exchange ratio (which was initially one, but is subject to adjustment as set forth in the Amended and
Restated Separation and Distribution Agreement) and was 0.9793 as of December 31, 2018.
As of December 31, 2018, 5,402,901 founding/working partner interests were outstanding. These
founding/working partner were issued in the Separation to holders of BGC Holdings founding/working partner
interests, who received such founding/working partner interests in connection with BGC Partners’ acquisition of the
BGC Partners business from Cantor in 2008. The Newmark Holdings limited partnership interests held by
founding/working partners are not exchangeable with us unless (1) Cantor acquires such interests from Newmark
Holdings upon termination or bankruptcy of the founding/working partners or redemption of their units by Newmark
Holdings (which it has the right to do under certain circumstances), in which case such interests will be
30
exchangeable with us for our Class A common stock or Class B common stock as described above, or (2) Cantor
determines that such interests can be exchanged by such founding/working partners with us for our Class A common
stock, with each Newmark Holdings unit exchangeable for a number of shares of our Class A common stock equal
to the exchange ratio (which was initially one, but is subject to adjustment as set forth in the Amended and Restated
Separation and Distribution Agreement), on terms and conditions to be determined by Cantor (which exchange of
certain interests Cantor expects to permit from time to time). Cantor has provided that certain founding/working
partner interests are exchangeable with us for Class A common stock, with each Newmark Holdings unit
exchangeable for a number of shares of our Class A common stock equal to the exchange ratio (which was initially
one, but is subject to adjustment as set forth in the Amended and Restated Separation and Distribution Agreement),
in accordance with the terms of the Newmark Holdings limited partnership agreement. Once a Newmark Holdings
founding/working partner interest becomes exchangeable, such founding/working partner interest is automatically
exchanged upon a termination or bankruptcy with us for our Class A common stock.
Further, we provide exchangeability for partnership units under other circumstances in connection with (1) our
partnership redemption, compensation and restructuring programs, (2) other incentive compensation arrangements
and (3) business combination transactions.
As of December 31, 2018, 60,869,397 limited partnership units were outstanding (including founding/working
partner interests and working partner interests, and units held by Cantor). Limited partnership units will be only
exchangeable with us in accordance with the terms and conditions of the grant of such units, which terms and
conditions are determined in our sole discretion, as the Newmark Holdings general partner, with the consent of the
Newmark Holdings exchangeable limited partnership interest majority in interest, in accordance with the terms of
the Newmark Holdings limited partnership agreement.
The exchange ratio between Newmark Holdings limited partnership interests and our common stock was
initially one. However, this exchange ratio will be adjusted in accordance with the terms of the Amended and
Restated Separation and Distribution Agreement if our dividend policy and the distribution policy of Newmark
Holdings are different. As of December 31, 2018, the exchange ratio was 0.9793. See “Item 5—Market for the
Registrant’s Common Equity, Related Stockholder Matters and Purchased of Equity Securities—Dividend Policy.”
With each exchange, our direct and indirect interest in Newmark OpCo will proportionately increase because,
immediately following an exchange, Newmark Holdings will redeem the Newmark Holdings unit so acquired for
the Newmark OpCo limited partnership interest underlying such Newmark Holdings unit.
The profit and loss of Newmark OpCo and Newmark Holdings, as the case may be, are allocated based on the
total number of Newmark OpCo units (not including EPUs) and Newmark Holdings units, as the case may be,
outstanding.
The following diagram illustrates the ownership structure of Newmark as of December 31, 2018. The diagram
does not reflect the various subsidiaries of Newmark, Newmark OpCo or Cantor (including certain operating
subsidiaries that are organized as corporations whose equity is either wholly owned by Newmark or whose equity is
majority-owned by Newmark with the remainder owned by Newmark OpCo) or the results of any exchange of
Newmark Holdings exchangeable limited partnership interests or, to the extent applicable, Newmark Holdings
founding partner interests, Newmark Holdings working partner interests or Newmark Holdings limited partnership
units. In addition, the diagram does not reflect the Newmark OpCo exchangeable preferred limited partnership units,
or EPUs, since they are not allocated any gains or losses of Newmark OpCo for tax purposes and are not entitled to
regular distributions from Newmark OpCo.
31
STRUCTURE OF NEWMARK AS OF DECEMBER 31, 2018
32
Shares of our Class B common stock are convertible into shares of our Class A common stock at any time in
the discretion of the holder on a one-for-one basis. Accordingly, if Cantor and CFGM converted all of their shares of
our Class B common stock into shares of our Class A common stock, Cantor and CFGM would hold 11.9% of the
voting power in Newmark and the stockholders of Newmark other than Cantor and CFGM would hold 88.1% of the
voting power in Newmark (and the indirect economic interests in Newmark OpCo would remain unchanged). In
addition, if Cantor and CFGM continued to hold our Class B common stock and if Cantor exchanged all of the
exchangeable limited partnership units held by Cantor for our Class B common stock, Cantor and CFGM would
hold 74.4% of the voting power in Newmark, and the stockholders of Newmark other than Cantor and CFGM would
hold 25.6% of the voting power in Newmark.
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ITEM 1A.
RISK FACTORS
An investment in shares of our Class A common stock involves risks and uncertainties, including the potential
loss of all or a part of your investment. The following are important risks and uncertainties that could affect our
business, but we do not ascribe any particular likelihood or probability to them unless specifically indicated. Before
making an investment decision to purchase our common stock, you should carefully read and consider all of the
risks and uncertainties described below, as well as other information included in this Annual Report on Form 10-K,
including “Item 7— Management’s Discussion and Analysis of Financial Condition and Results of Operations” and
the consolidated financial statements and related notes included herein. The occurrence of any of the following risks
or additional risks and uncertainties that are currently immaterial or unknown could materially and adversely affect
our business, financial condition, liquidity, result of operations, cash flows or prospects.
RISKS RELATED TO OUR BUSINESS
Global Economic and Market Conditions
Negative general economic conditions and commercial real estate market conditions (including perceptions
of such conditions) can have a material adverse effect on our business, financial condition, results of operations
and prospects.
Commercial real estate markets are cyclical. They relate to the condition of the economy or, at least, to the
perceptions of investors and users as to the relevant economic outlook. For example, companies may be hesitant to
expand their office space or enter into long-term real estate commitments if they are concerned about the general
economic environment. Companies that are under financial pressure for any reason, or are attempting to more
aggressively manage their expenses, may reduce the size of their workforces, limit capital expenditures, including
with respect to their office space, permit more of their staff to work from home and/or seek corresponding
reductions in office space and related management or other services.
Negative general economic conditions and declines in the demand for commercial real estate brokerage and
related management services in several markets or in significant markets could also have a material adverse effect
on our business, financial condition, results of operations, cash flows and prospects as a result of the following
factors:
(cid:120) A general decline in acquisition and disposition activity can lead to a reduction in the commissions and
fees we receive for arranging such transactions, as well as in commissions and fees we earn for arranging
the financing for acquirers.
(cid:120) A general decline in the value and performance of commercial real estate and in rental rates can lead to a
reduction in management and leasing commissions and fees. Additionally, such declines can lead to a
reduction in commissions and fees that are based on the value of, or revenue produced by, the properties
for which we provide services. This may include commissions and fees for appraisal and valuation, sales
and leasing, and property and facilities management.
(cid:120) Cyclicality in the commercial real estate markets may lead to volatility in our earnings, and the
commercial real estate business can be highly sensitive to market perception of the economy generally
and our industry specifically. Real estate markets are also thought to “lag” the broader economy. This
means that, even when underlying economic fundamentals improve in a given market, it may take
additional time for these improvements to translate into strength in the commercial real estate markets.
34
(cid:120)
In weaker economic environments, income-producing multifamily real estate may experience higher
property vacancies, lower investor and tenant demand and reduced values. In such environments, we
could experience lower transaction volumes and transaction sizes as well as fewer loan originations with
lower relative principal amounts, as well as potential credit losses arising from risk-sharing arrangements
with respect to certain GSE loans.
(cid:120) Periods of economic weakness or recession, significantly rising interest rates, fiscal uncertainty, declining
employment levels, declining demand for commercial real estate, falling real estate values, disruption to
the global capital or credit markets, political uncertainty or the public perception that any of these events
may occur, may negatively affect the performance of some or all of our business lines.
(cid:120) Our ability to raise funding in the long-term or short-term debt capital markets or the equity capital
markets, or to access secured lending markets could in the future be adversely affected by conditions in
the United States and international economy and markets, with the cost and availability of funding
adversely affected by illiquid credit markets and wider credit spreads and changes in interest rates.
While the U.S. commercial property market continues to display strength despite slowing growth of
commercial property prices, according to Real Capital Analytics (which we refer to as “RCA”) as of year-end 2018,
there can be no assurances that such strength will continue. Newmark Research estimates that the spreads between
commercial property capitalization rates for all property types and 10-year U.S. Treasuries remain around their long-
term average. While we expect favorable market conditions to continue, there can be no assurance that this trend
will continue.
Business Concentration Risks
Our business is geographically concentrated and could be significantly affected by any adverse change in
the regions in which we operate.
Our current business operations are primarily located in the United States. While we are expanding our
business to new geographic areas, and operate internationally through our alliance with Knight Frank, we are still
highly concentrated in the United States. Because we derived substantially all of our total revenues on a
consolidated basis for the year ended December 31, 2018 from our operations in the United States, we are exposed
to adverse competitive changes and economic downturns and changes in political conditions domestically. If we are
unable to identify and successfully manage or mitigate these risks, our business, financial condition, results of
operations, cash flows and prospects could be materially adversely affected.
The concentration of business with corporate clients can increase business risk, and our business can be
adversely affected due to the loss of certain of these clients.
We value the expansion of business relationships with individual corporate clients because of the increased
efficiency and economics that can result from developing recurring business from performing an increasingly broad
range of services for the same client. Although our client portfolio is currently highly diversified—for the year
ended December 31, 2018, our top 10 clients, collectively, accounted for approximately 5.3% of our total revenue
on a consolidated basis, and our largest client accounted for less than 2.0% of our total revenue on a consolidated
basis. As we grow our business, relationships with certain corporate clients may increase, and our client portfolio
may become increasingly concentrated. For example, part of our strategy is to increase our GCS revenues which
may lead to an increase in corporate clients and therefore greater concentration of revenues. Having increasingly
large and concentrated clients also can lead to greater or more concentrated risks if, among other possibilities, any
such client;
(cid:120)
(cid:120)
experiences its own financial problems;
becomes bankrupt or insolvent, which can lead to our failure to be paid for services we have previously
provided or funds we have previously advanced;
35
(cid:120)
decides to reduce its operations or its real estate facilities;
(cid:120) makes a change in its real estate strategy, such as no longer outsourcing its real estate operations;
(cid:120)
decides to change its providers of real estate services; or
(cid:120) merges with another corporation or otherwise undergoes a change of control, which may result in new
management taking over with a different real estate philosophy or in different relationships with other real
estate providers.
Where we provide real estate services to firms in the financial services industry, including banks and
investment banks, we are experiencing indirectly the increasing extent of the regulatory environment to which they
are subject in the aftermath of the global financial crisis. This increases the cost of doing business with them, which
we are not always able to pass on, as the result of the additional resources and processes we are required to provide
as a critical supplier.
Competition
We operate in a highly competitive industry with numerous competitors, some of which may have greater
financial and operational resources than we do.
We compete to provide a variety of services within the commercial real estate industry. Each of these business
disciplines is highly competitive on a local, regional, national and global level. We face competition not only from
other national real estate service companies, but also from global real estate services companies, boutique real estate
advisory firms, and consulting and appraisal firms. Depending on the product or service, we also face competition
from other real estate service providers, institutional lenders, insurance companies, investment banking firms,
commercial banks, investment managers and accounting firms, some of which may have greater financial resources
than we do. Although many of our competitors are local or regional firms that are substantially smaller than we are,
some of our competitors are substantially larger than us on a local, regional, national or international basis and have
similar service competencies to ours. Such competitors include CBRE Group, Inc., Jones Lang LaSalle Inc.,
Cushman & Wakefield plc, Savills Studley, Inc., and Colliers International Group, Inc. In addition, more specialized
firms like HFF, Inc., Marcus & Millichap Inc., Eastdil Secured LLC (part of Wells Fargo & Company) and
Walker & Dunlop, Inc. compete with us in certain product offerings. Our industry has continued to consolidate, and
there is an inherent risk that competitive firms may be more successful than we are at growing through merger and
acquisition activity. See “Item 1—Business—Competition.” In general, there can be no assurance that we will be
able to continue to compete effectively with respect to any of our commercial real estate business lines or on an
overall basis, to maintain current commission and fee levels or margins, or to maintain or increase our market share.
Additionally, competitive conditions, particularly in connection with increasingly large clients, may require us
to compromise on certain contract terms with respect to the extent of risk transfer, acting as principal rather than
agent in connection with supplier relationships, liability limitations and other terms and conditions. Where
competitive pressures result in higher levels of potential liability under our contracts, the cost of operational errors
and other activities for which we have indemnified our clients will be greater and may not be fully insured.
New Opportunities/Possible Transactions and Hires
If we are unable to identify and successfully exploit new product, service and market opportunities,
including through hiring new brokers, salespeople, managers and other professionals, our business, financial
condition, results of operations, cash flows and prospects could be materially adversely affected.
Because of significant competition in our market, our strategy is to broker more transactions, manage more
properties, increase our share of existing markets and seek out new clients and markets. We may face enhanced risks
as these efforts to expand our business result in our transacting with a broader array of clients and expose us to new
products and services and markets. Pursuing this strategy may also require significant management attention and
hiring expense and potential costs and liability in any litigation or arbitration that may result. We may not be able to
attract new clients or brokers, salespeople, managers, or other professionals or successfully enter new markets. If we
are unable to identify and successfully exploit new product, service and market opportunities, our business, financial
condition, results of operations and prospects could be materially adversely affected.
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We may pursue strategic alliances, acquisitions, joint ventures or other growth opportunities (including
hiring new brokers), which could present unforeseen integration obstacles or costs and could dilute our
stockholders. We may also face competition in our acquisition strategy, and such competition may limit our
number of strategic alliances, acquisitions, joint ventures and other growth opportunities (including hiring new
brokers).
We have explored a wide range of strategic alliances, acquisitions and joint ventures with other real estate
services firms, including maintaining or developing relationships with independently owned offices, and with other
companies that have interests in businesses in which there are brokerage, management or other strategic
opportunities. We continue to evaluate and potentially pursue possible strategic alliances, acquisitions, joint ventures
and other growth opportunities (including hiring new brokers). Such transactions may be necessary in order for us to
enter into or develop new products or services or markets, as well as to strengthen our current ones.
Strategic alliances, acquisitions, joint ventures and other growth opportunities (including hiring new brokers)
specifically involve a number of risks and challenges, including:
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potential disruption of our ongoing business and product, service and market development and distraction
of management;
difficulty retaining and integrating personnel and integrating administrative, operational, financial
reporting, internal control, compliance, technology and other systems;
the necessity of hiring additional management and other critical personnel and integrating them into
current operations;
increasing the scope, geographic diversity and complexity of our operations;
the risks relating to integrating accounting and financial systems and accounting policies and the related
risk of having to restate our historical financial statements;
potential dependence upon, and exposure to liability, loss or reputational damage relating to systems,
controls and personnel that are not under our control;
addition of business lines in which we have not previously engaged;
potential unfavorable reaction to our strategic alliance, acquisition or joint venture strategy by our clients;
to the extent that we pursue these opportunities, exposure to political, economic, legal, regulatory,
operational and other risks that are inherent in operating in a foreign country, including risks of possible
nationalization and/or foreign ownership restrictions, expropriation, price controls, capital controls,
foreign currency fluctuations, regulatory and tax requirements, economic and/or political instability,
geographic, time zone, language and cultural differences among personnel in different areas of the world,
exchange controls and other restrictive government actions, as well as the outbreak of hostilities;
the upfront costs associated with pursuing transactions and recruiting personnel, which efforts may be
unsuccessful in the increasingly competitive marketplace for the most talented producers and managers;
conflicts or disagreements between any strategic alliance or joint venture partner and us;
exposure to potential unknown liabilities of any acquired business, strategic alliance or joint venture that
are significantly larger than we anticipate at the time of acquisition, and unforeseen increased expenses or
delays associated with acquisitions, including costs in excess of the cash transition costs that we estimate
at the outset of a transaction;
reduction in availability of financing due to tightened credit markets or credit rating downgrades or
defaults by us in connection with strategic alliances, acquisitions, joint ventures and other growth
opportunities;
a significant increase in the level of our indebtedness in order to generate significant cash resources that
may be required to effect acquisitions;
dilution resulting from any issuances of shares of our common stock or limited partnership units in
connection with strategic alliances, acquisitions, joint ventures and other growth opportunities;
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adverse effects on our liquidity as a result of payment of cash resources and/or issuance of shares of our
common stock or limited partnership units of Newmark OpCo; and
a lag in the realization of financial benefits from these transactions and arrangements.
We face competition for acquisition targets, which may limit our number of acquisitions and growth
opportunities and may lead to higher acquisition prices or other less favorable terms. To the extent that we choose to
grow internationally from acquisitions, strategic alliances, joint ventures or other growth opportunities, we may
experience additional expenses or obstacles, including the short-term contractual restrictions contained in our
agreement with Knight Frank, which such agreement could both affect and be affected by such choice. See “Item
1—Business—Our Knight Frank Partnership.” There can be no assurance that we will be able to identify, acquire or
profitably manage additional businesses or integrate successfully any acquired businesses without substantial costs,
delays or other operational or financial difficulties.
Any future growth will be partially dependent upon the continued availability of suitable transactional
candidates at favorable prices and upon advantageous terms and conditions, which may not be available to us, as
well as sufficient liquidity and credit to fund these transactions. Future transactions and any necessary related
financings also may involve significant transaction-related expenses, which include payment of break-up fees,
assumption of liabilities, including compensation, severance and lease termination costs, and transaction and
deferred financing costs, among others. In addition, there can be no assurance that such transactions will be
accretive or generate favorable operating margins. The success of these transactions will also be determined in part
by the ongoing performance of the acquired companies and the acceptance of acquired employees of our partnership
compensation structure and other variables which may be different from the existing industry standards or practices
at the acquired companies.
We will need to successfully manage the integration of recent acquisitions and future growth effectively. The
integration and additional growth may place a significant strain upon our management, administrative, operational,
financial reporting, internal control and compliance infrastructure. Our ability to grow depends upon our ability to
successfully hire, train, supervise and manage additional employees, expand our operational, financial reporting,
compliance and other control systems effectively, allocate our human resources optimally, maintain clear lines of
communication between our transactional and management functions and our finance and accounting functions, and
manage the pressure on our management, administrative, operational, financial reporting, internal control and
compliance infrastructure. Additionally, managing future growth may be difficult due to our new geographic
locations, markets and business lines. As a result of these risks and challenges, we may not realize the full benefits
that we anticipate from strategic alliances, acquisitions, joint ventures or other growth opportunities. There can be no
assurance that we will be able to accurately anticipate and respond to the changing demands we will face as we
integrate and continue to expand our operations, and we may not be able to manage growth effectively or to achieve
growth at all. Any failure to manage the integration of acquisitions and other growth opportunities effectively could
have a material adverse effect on our business, financial condition, results of operations and prospects.
Regulatory/Legal
We may have liabilities in connection with our business, including appraisal and valuation, sales and
leasing and property and facilities management activities.
As a licensed real estate broker and provider of commercial real estate services, we and our licensed sales
professionals and independent contractors that work for us are subject to statutory due diligence, disclosure and
standard-of-care obligations. Failure to fulfill these obligations could subject us or our sales professionals or
independent contractors to litigation from parties who purchased, sold or leased properties that we brokered or
managed.
We could become subject to claims by participants in real estate sales and leasing transactions, as well as
building owners and companies for whom we provide management services, claiming that we did not fulfill our
obligations. We could also become subject to claims made by clients for whom we provided appraisal and valuation
services and/or third parties who perceive themselves as having been negatively affected by our appraisals and/or
valuations. We also could be subject to audits and/or fines from various local real estate authorities if they determine
that we are violating licensing laws by failing to follow certain laws, rules and regulations. While these liabilities
have been insignificant in the past, we have no assurance that this will continue to be the case.
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In our property and facilities management business, we hire and supervise third-party contractors to provide
services for our managed properties. We may be subject to claims for defects, negligent performance of work or
other similar actions or omissions by third parties we do not control. Moreover, our clients may seek to hold us
accountable for the actions of contractors because of our role as property or facilities manager or project manager,
even if we have technically disclaimed liability as a contractual matter, in which case we may be pressured to
participate in a financial settlement for purposes of preserving the client relationship. While these liabilities have
been insignificant in the past, we have no assurance that this will continue to be the case.
Because we employ large numbers of building staff in facilities that we manage, we face risk in potential
claims relating to employment injuries, termination and other employment matters. While these risks are generally
passed back to the building owner, we have no assurance it will continue to be the case.
In connection with a limited number of our facilities management agreements, we have guaranteed that the
client will achieve certain savings objectives. In the event that these objectives are not met, we are obligated to pay
the shortfall amount to the client. In most instances, the obligation to pay such amount is limited to the amount of
fees (or the amount of a subset of the fees) earned by us under the contract, but no assurance can be given that we
will be able to mitigate against these payments or that the payments, particularly if aggregated with those required
under other agreements, would not have a material adverse effect on our ongoing arrangements with particular
clients or our business, financial condition, results of operations or prospects. The percentage of our revenue for the
fiscal year ended December 31, 2018 subject to such obligations under our current facilities management
agreements is less than 1%. While these liabilities have been immaterial to date, we have no assurance that this will
continue to be the case.
Adverse outcomes of property and facilities management disputes or litigation could have a material adverse
effect on our business, financial condition, results of operations and prospects, particularly to the extent we may be
liable on our contracts, or if our liabilities exceed the amounts of the insurance coverage procured and maintained by
us. Some of these litigation risks may be mitigated by any commercial insurance we maintain in amounts we believe
are appropriate. However, in the event of a substantial loss or certain types of claims, our insurance coverage and/or
self-insurance reserve levels might not be sufficient to pay the full damages. Additionally, in the event of grossly
negligent or intentionally wrongful conduct, insurance policies that we may have may not cover us at all. Further,
the value of otherwise valid claims we hold under insurance policies could become uncollectible in the event of the
covering insurance company’s insolvency, although we seek to limit this risk by placing our commercial insurance
only with highly rated companies. Any of these events could materially negatively impact our business, financial
condition, results of operations and prospects. While these liabilities have been insignificant in the past, we have no
assurance that this will continue to be the case.
If we fail to comply with laws, rules and regulations applicable to commercial real estate brokerage,
valuation and advisory and mortgage transactions and our other business lines, then we may incur significant
financial penalties.
Due to the broad geographic scope of our operations throughout North America and the commercial real estate
services we perform, we are subject to numerous federal, state, local and foreign laws, rules and regulations specific
to our services. For example, the brokerage of real estate sales and leasing transactions and other related activities
require us to maintain brokerage licenses in each state in which we conduct activities for which a real estate license
is required. We also maintain certain state licenses in connection with our lending, servicing and brokerage of
commercial and multifamily mortgage loans. If we fail to maintain our licenses or conduct brokerage activities
without a license or violate any of the laws, rules and regulations applicable to our licenses, then we may be subject
to audits, required to pay fines (including treble damages in certain states) or be prevented from collecting
commissions owed, be compelled to return commissions received or have our licenses suspended or revoked.
In addition, because the size and scope of commercial real estate transactions have increased significantly
during the past several years, both the difficulty of ensuring compliance with the numerous state licensing and
regulatory regimes and the possible loss resulting from non-compliance have increased. Furthermore, the laws, rules
and regulations applicable to our business lines also may change in ways that increase the costs of compliance. The
failure to comply with federal, state, local and foreign laws, rules and regulations could result in significant financial
penalties that could have a material adverse effect on our business, financial condition, results of operations and
prospects.
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The loss of relationships with the GSEs and HUD would, and changes in such relationships could,
adversely affect our ability to originate commercial real estate loans through such programs. Compliance with
the minimum collateral and risk-sharing requirements of such programs, as well as applicable state and local
licensing agencies, could reduce our liquidity.
Currently, through our Multifamily Capital Markets business we originate a significant percentage of our
loans for sale through the GSEs and HUD programs. Berkeley Point Capital LLC, a subsidiary within our
Multifamily Capital Markets business, is approved as a Fannie Mae DUS lender, a Freddie Mac Program Plus
seller/servicer, a Freddie Mac Targeted Affordable Housing Seller, a HUD MAP lender nationwide, and a Ginnie
Mae issuer. Our status as an approved lender affords us a number of advantages, which may be terminated by the
applicable GSE or HUD at any time. Although we intend to take all actions to remain in compliance with the
requirements of these programs, as well as applicable state and local licensing agencies, the loss of such status
would, or changes in our relationships with the GSEs and HUD could, prevent us from being able to originate
commercial real estate loans for sale through the particular GSE or HUD, which could have a material adverse effect
on our business, financial condition, results of operations and prospects. It could also result in a loss of similar
approvals from the GSEs or HUD. As of December 31, 2018, we exceeded the most restrictive applicable net worth
requirement of these programs by approximately $322.3 million. In addition, over the last 10 years, Berkeley Point
has achieved better 60 day+ delinquency rates than the industry average.
We are subject to risk of loss in connection with defaults on loans sold under the Fannie Mae DUS
program that could materially and adversely affect our results of operations and liquidity.
Under the Fannie Mae DUS program, we originate and service multifamily loans for Fannie Mae without
having to obtain Fannie Mae’s prior approval for certain loans, as long as the loans meet the underwriting guidelines
set forth by Fannie Mae. In return for the delegated authority from Fannie Mae to make loans and Fannie Mae’s
commitment to purchase such loans, we must maintain minimum collateral and generally are required to share risk
of loss on loans sold through Fannie Mae. With respect to most loans, we are generally required to absorb
approximately one-third of any losses on the unpaid principal balance of a loan at the time of loss settlement. Some
of the loans that we originate under the Fannie Mae DUS program are subject to reduced levels or no risk-sharing.
However, we generally receive lower servicing fees with respect to such loans. Although our Multifamily Capital
Markets business’s average annual losses from such risk-sharing programs have been a minimal percentage of the
aggregate principal amount of such loans to date, if loan defaults increase, actual risk-sharing obligation payments
under the Fannie Mae DUS program could increase, and such defaults could have a material adverse effect on our
business, financial condition, results of operations and prospects. In addition, a material failure to pay our share of
losses under the Fannie Mae DUS program could result in the revocation of Berkeley Point’s license from Fannie
Mae and the exercise of various remedies available to Fannie Mae under the Fannie Mae DUS program.
A change to the conservatorship of Fannie Mae and Freddie Mac and related actions, along with any
changes in laws and regulations affecting the relationship between Fannie Mae and Freddie Mac and the U.S.
federal government or the existence of Fannie Mae and Freddie Mac, could have a material adverse effect on
our business, financial condition, results of operations and prospects.
Each GSE has been created under a conservatorship established by its regulator, the Federal Housing Finance
Agency, since 2008. The conservatorship is a statutory process designed to preserve and conserve the GSEs’ assets
and property and put them in a sound and solvent condition. The conservatorships have no specified termination
dates. There has been significant uncertainty regarding the future of the GSEs, including how long they will
continue to exist in their current forms. Changes in such forms could eliminate or substantially reduce the number of
loans we originate with the GSEs. Policymakers and others have focused significant attention in recent years on how
to reform the nation’s housing finance system, including what role, if any, the GSEs should play. Such reforms
could significantly limit the role of the GSEs in the nation’s housing finance system. Any such reduction in the loans
we originate with the GSEs could lead to a reduction in fees related to the loans we originate or service. These
effects could cause our Multifamily Capital Markets business to realize significantly lower revenues from its loan
originations and servicing fees, and ultimately could have a material adverse effect on our business, financial
condition, results of operations and prospects.
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Environmental regulations may adversely impact our commercial real estate business and/or cause us to
incur costs for cleanup of hazardous substances or wastes or other environmental liabilities.
Federal, state, local and foreign laws, rules and regulations impose various environmental zoning restrictions,
use controls, and disclosure obligations which impact the management, development, use and/or sale of real estate.
Such laws and regulations tend to discourage sales and leasing activities, as well as mortgage lending availability,
with respect to some properties. A decrease or delay in such transactions may materially and adversely affect our
business, financial condition, results of operations and prospects. In addition, a failure by us to disclose
environmental concerns in connection with a real estate transaction may subject us to liability to a buyer/seller or
lessee/lessor of property. While historically we have not incurred any significant liability in connection with these
types of environmental issues, there is no assurance that this will not occur.
In addition, in our role as property or facilities manager, we could incur liability under environmental laws for
the investigation or remediation of hazardous or toxic substances or wastes relating to properties we currently or
formerly managed. Such liability may be imposed without regard to the lawfulness of the original disposal activity,
or our knowledge of, or fault for, the release or contamination. Further, liability under some of these laws may be
joint and several, meaning that one liable party could be held responsible for all costs related to a contaminated site.
Insurance for such matters may not be available or sufficient. While historically we have not incurred any significant
liability under these laws, this may not always be the case.
Certain requirements governing the removal or encapsulation of asbestos-containing materials, as well as
recently enacted local ordinances obligating property or facilities managers to inspect for and remove lead-based
paint in certain buildings, could increase our costs of legal compliance and potentially subject us to violations or
claims. More stringent enforcement of existing regulations could cause us to incur significant costs in the future,
and/or materially and adversely impact our commercial real estate brokerage and management services business.
Our operations are affected by federal, state and/or local environmental laws in the jurisdictions in which
we maintain office space for our own operations and where we manage properties for clients, and we may face
liability with respect to environmental issues occurring at properties that we occupy or manage.
Various laws, rules and regulations restrict the levels of certain substances that may be discharged into the
environment by properties and such laws, rules and regulations may impose liability on current or previous real
estate owners or operators for the cost of investigating, cleaning up or removing contamination caused by hazardous
or toxic substances at the property. We may face costs or liabilities under these laws as a result of our role as an on-
site property manager. While we believe that we have taken adequate measures to prevent any such losses, no
assurances can be given that these events will not occur. Within our own operations, we face additional costs from
rising costs of environmental compliance, which make it more expensive to operate our corporate offices. Our
operations are generally conducted within leased office building space, and, accordingly, we do not currently
anticipate that regulations restricting the emissions of greenhouse gases, or taxes that may be imposed on their
release, would result in material costs or capital expenditures. However, we cannot be certain about the extent to
which such regulations will develop as there are higher levels of understanding and commitments by different
governments in the United States and around the world regarding risks related to the climate and how they should be
mitigated.
We may be adversely affected by the impact of recent income tax regulations.
The U.S. Department of the Treasury and the Internal Revenue Service (which we refer to as the “IRS”)
recently released final and temporary regulations regarding the treatment of certain related-party corporate debt as
equity for U.S. federal income tax purposes. These final regulations include provisions that may adversely affect the
tax consequences of common transactions, including intercompany obligations and/or financing, and may impact
many companies in the real estate services sector, including several of our clients and competitors. Further, these
regulations could have an adverse impact on our income tax position or could possibly cause us to change the
manner in which we conduct certain activities in ways that impose other costs on us. These regulations are highly
complex and there is limited guidance regarding their application. Accordingly, we are unable to predict the extent,
if any, to which such regulations would have a material and adverse effect on our business, financial condition,
results of operations and prospects.
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On December 22, 2017, “H.R.1,” formerly known as the “Tax Cuts and Jobs Act (the “Tax Act”)” was signed
into law in the U.S. During 2018, the Treasury and the IRS released proposed regulations associated with certain
provisions of the Tax Act to provide taxpayers with additional guidance. The Tax Act is expected to have a
favorable impact on our effective tax rate (“ETR”) and net income as reported under generally accepted accounting
principles in 2018 and subsequent reporting periods to which the Tax Act is effective due to the reduction in the
Federal income tax rate from 35% to 21%. While we applied the currently enacted tax law and proposed regulations,
the impact of the Tax Act may differ from our estimate for the provision for income taxes, possibly materially, due
to, among other things, changes in interpretations, additional guidance that may be issued, unexpected negative
changes in business and market conditions that could reduce certain tax benefits, and actions taken by us as a result
of the Tax Act.
Intellectual Property
We may not be able to protect our intellectual property rights or may be prevented from using intellectual
property used in our business.
Our success is dependent, in part, upon our intellectual property. We rely primarily on trade secret, contract,
patent, copyright and trademark law in the United States and other jurisdictions as well as confidentiality procedures
and contractual provisions to establish and protect our intellectual property rights to proprietary technologies,
products, services or methods, and our brand.
Unauthorized use of our intellectual property could make it more expensive to do business and harm our
operating results. We cannot ensure that our intellectual property rights are sufficient to protect our competitive
advantages or that any particular patent, copyright or trademark is valid and enforceable, and all patents ultimately
expire. In addition, the laws of some foreign countries may not protect our intellectual property rights to the same
extent as the laws in the United States, or at all. Any significant impairment of our intellectual property rights could
harm our business or our ability to compete.
Protecting our intellectual property rights is costly and time consuming. Although we have taken steps to
protect ourselves, there can be no assurance that we will be aware of all patents, copyrights or trademarks that may
pose a risk of infringement by our products and services. Generally, it is not economically practicable to determine
in advance whether our products or services may infringe the present or future rights of others.
Accordingly, we may face claims of infringement or other violations of intellectual property rights that could
interfere with our ability to use intellectual property or technology that is material to our business. The number of
such third-party claims may grow. Our technologies may not be able to withstand such third-party claims or rights
against their use.
We may have to rely on litigation to enforce our intellectual property rights, protect our trade secrets,
determine the validity and scope of the rights of others or defend against claims of infringement or invalidity. For
example, in 2016, we responded to a claim by Newmark Realty Capital, Inc. (which we refer to as “Realty Capital”)
against us alleging, among other things, trademark infringement. In connection with our answer, we filed
counterclaims alleging that Realty Capital has infringed our trademarks and seeking an order cancelling Realty
Capital’s registered trademarks and a design mark. On December 18, 2018 we entered into a settlement and release
agreement with Realty Capital. All claims before the district court and the PTO were voluntarily dismissed, and we
acquired Realty Capital’s trademark registrations and all associated goodwill.
If our software licenses from third parties are terminated or adversely changed or amended or contain
material defects or errors, or if any of these third parties were to cease doing business, or if products or services
offered by third parties were to contain material defects or errors, our ability to operate our businesses may be
materially adversely affected.
We license databases and software from third parties, much of which is integral to our systems and our
business. The licenses are terminable if we breach our obligations under the license agreements. If any material
licenses were terminated or adversely changed or amended, if any of these third parties were to cease doing business
or if any licensed software or databases licensed by these third parties were to contain material defects or errors, we
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may be forced to spend significant time and money to replace the licensed software and databases, and our ability to
operate our business may be materially adversely affected. Further, any errors or defects in third-party services or
products (including hardware, software, databases, cloud computing and other platforms and systems) or in services
or products that we develop ourselves, could result in errors in, or a failure of our services or products, which could
harm our business. Although we take steps to locate replacements, there can be no assurance that the necessary
replacements will be available on acceptable terms, if at all. There can be no assurance that we will have an ongoing
license to use all intellectual property which our systems require, the failure of which could have a material adverse
effect on our business, financial condition, results of operations and prospects.
IT Systems and Cyber-Security Risks
Defects or disruptions in our technology or services could diminish demand for our products and service
and subject us to liability.
Because our technology, products and services are complex and use or incorporate a variety of computer
hardware, software and databases, both developed in-house and acquired from third-party vendors, our technology,
products and services may have errors or defects. Errors and defects could result in unanticipated downtime or
failure, and could cause financial loss and harm to our reputation and our business. Furthermore, if we acquire
companies, we may encounter difficulty in incorporating the acquired technologies and maintaining the quality
standards that are consistent with our technology, products and services.
If we experience computer systems failures or capacity constraints, our ability to conduct our business
operations could be materially harmed.
If we experience computer systems failures or capacity constraints, our ability to conduct our business
operations could be harmed. We support and maintain many of our computer systems and networks internally. Our
failure to monitor or maintain these systems and networks or, if necessary, to find a replacement for this technology
in a timely and cost-effective manner, could have a material adverse effect on our business, financial condition,
results of operations and prospects.
Although all of our business critical systems have been designed and implemented with fault tolerant and/or
redundant clustered hardware and diversely routed network connectivity, our redundant systems or disaster recovery
plans may prove to be inadequate. We may be subject to system failures and outages that might impact our revenues
and relationships with clients. In addition, we will be subject to risk in the event that systems of our clients, business
partners, vendors and other third parties are subject to failures and outages.
We rely on various third parties for computer and communications systems, such as telephone companies,
online service providers, cloud computing providers, data processors, and software and hardware vendors. Our
systems, or those of our third-party providers, may fail or operate slowly, causing one or more of the following,
which may not in all cases be covered by insurance:
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unanticipated disruptions in service to our clients;
slower response times;
financial losses;
litigation or other client claims; and
regulatory actions.
We may experience additional systems failures in the future from power or telecommunications failures, acts
of God or war, weather-related events, terrorist attacks, human error, natural disasters, fire, power loss, sabotage,
cyber-attacks, hardware or software malfunctions or defects, computer viruses, intentional acts of vandalism and
similar events. Any system failure that causes an interruption in service or decreases the responsiveness of our
service could damage our reputation, business and brand name.
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Malicious cyber-attacks and other adverse events affecting our operational systems or infrastructure, or
those of third parties, could disrupt our business, result in the disclosure of confidential information, damage our
reputation and cause losses or regulatory penalties.
Developing and maintaining our operational systems and infrastructure is challenging, particularly as a result
of rapidly evolving legal and regulatory requirements and technological shifts. Our financial, accounting, data
processing or other operating and compliance systems and facilities may fail to operate properly or become disabled
as a result of events that are wholly or partially beyond our control, such as a malicious cyber-attack or other adverse
events, which may adversely affect our ability to provide services.
In addition, our operations rely on the secure processing, storage and transmission of confidential and other
information on our computer systems and networks. Although we take protective measures such as software
programs, firewalls and similar technology, to maintain the confidentiality, integrity and availability of our and our
clients’ information, and endeavor to modify these protective measures as circumstances warrant, the nature of cyber
threats continues to evolve. As a result, our computer systems, software and networks may be vulnerable to
unauthorized access, loss or destruction of data (including confidential client information), account takeovers,
unavailability or disruption of service, computer viruses, acts of vandalism, or other malicious code, cyber-attack
and other adverse events that could have an adverse security impact. Despite the defensive measures we have taken,
these threats may come from external factors such as governments, organized crime, hackers, and other third parties
such as outsource or infrastructure-support providers and application developers, or may originate internally from
within us.
We also face the risk of operational disruption, failure, termination or capacity constraints of any of the third
parties that facilitate our business activities. Such parties could also be the source of a cyber-attack on or breach of
our operational systems, data or infrastructure.
There have been an increasing number of cyber-attacks in recent years in various industries, and cyber-
security risk management has been the subject of increasing focus by our regulators. The techniques used in these
attached are increasingly sophisticated, change frequently and are often not recognized until launched. If one or
more cyber-attacks occur, it could potentially jeopardize the confidential, proprietary and other information
processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause
interruptions or malfunctions in our, as well as our clients’ or other third parties’, operations, which could result in
reputational damage, financial losses and/or client dissatisfaction, which may not in all cases be covered by
insurance. A technological breakdown could also interfere with our ability to comply with financial reporting
requirements. The SEC has issued guidance stating that, as a public company, we are expected to have controls and
procedures that relate to cybersecurity disclosure, and are required to disclose information relating to certain cyber-
attacks or other information security breaches in disclosures required to be made under the federal securities laws.
Any such cyber incidents involving our computer systems and networks, or those of third parties important to our
business, could have a material adverse effect on our business, financial condition, results of operations and
prospects.
Additionally, data privacy is subject to frequently changing rules and regulations. For example, the EU
adopted a new regulation that became effective in May 2018, the General Data Protection Regulation (“GDPR”),
which requires entities both in the European Economic Area and outside to comply with new regulations regarding
the handling of personal data. While our current business operations are primarily located in the United States, our
failure to successfully implement or comply with appropriate processes to adhere to the GDPR and other
requirements relating to personal data could limit our ability to expand, result in substantial financial penalties for
non-compliance and harm our reputation.
Natural Disasters, Weather-Related Events, Terrorist Attacks and Other Disruptions to Infrastructure
Our ability to conduct our business may be materially adversely impacted by catastrophic events, including
natural disasters, weather-related events, terrorist attacks and other disruptions.
We may encounter disruptions involving power, communications, transportation or other utilities or essential
services depended on by us or by third parties with whom we conduct business. This could include disruptions as the
result of natural disasters, pandemics or weather-related or similar events (such as fires, hurricanes, earthquakes,
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floods, landslides and other natural conditions including the effects of climate change), political instability, labor
strikes or turmoil or terrorist attacks. For example, during 2012, our own operations and properties we manage for
clients in the northeastern United States, and in particular New York City, were impacted by Hurricane Sandy, in
some cases significantly. Similarly, in 2017 and 2018, several parts of the United States, including Texas, Florida,
the Carolinas and Puerto Rico, sustained significant damage from hurricanes and California sustained significant
damage from wildfires and landslides. Similar disruptions may occur in any of the locations in which we, our
borrowers or our clients do business. We continue to assess the impact on our borrowers and other clients and what
impact, if any, these events could have on our business, financial condition, results of operations and prospects.
These disruptions may occur, for example, as a result of events affecting only the buildings in which we
operate (such as fires), or as a result of events with a broader impact on the communities where those buildings are
located. If a disruption occurs in one location and persons in that location are unable to communicate with or travel
to or work from other locations, our ability to service and interact with our clients and others may suffer, and we
may not be able to successfully implement contingency plans that depend on communications or travel.
Such events can result in significant injuries and loss of life, which could result in material financial liabilities,
loss of business and reputational harm. They can also impact the availability and/or loss of commercial insurance
policies, both for our own business and for those clients whose properties we manage and who may purchase their
insurance through the insurance buying programs we make available to them.
There can be no assurance that the disaster recovery and crisis management procedures we employ will suffice
in any particular situation to avoid a significant loss. Given that our employees are increasingly mobile and less
reliant on physical presence in our offices, our disaster recovery plans increasingly rely on the availability of the
Internet (including “cloud” technology) and mobile phone technology, so the disruption of those systems would
likely affect our ability to recover promptly from a crisis situation. Although we maintain insurance for liability,
property damage and business interruption, subject to deductibles and various exceptions, no assurance can be given
that our business, financial condition, results of operations and prospects will not be materially negatively affected
by such events in the future.
Key Employees
Our ability to retain our key employees and the ability of certain key employees to devote adequate time to
us are critical to the success of our business, and failure to do so may materially adversely affect our business,
financial condition, results of operations and prospects.
Our people are our most important resource. We must retain the services of our key employees and
strategically recruit and hire new talented employees to attract clients and transactions that generate most of our
revenues.
Howard W. Lutnick, who serves as our Chairman, is also the Chairman and Chief Executive Officer of
Cantor, Chairman and Chief Executive Officer of CFGM, which is the managing general partner of Cantor, and
Chairman of the Board and Chief Executive Officer of BGC Partners. Stephen M. Merkel, who serves as our
Executive Vice President and Chief Legal Officer, is employed as Executive Managing Director, General Counsel
and Secretary of Cantor and Executive Vice President and General Counsel of BGC. In addition, Messrs. Lutnick
and Merkel hold offices at various other affiliates of Cantor. These two key employees are not subject to an
employment agreement with us or any of our subsidiaries.
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Currently, Mr. Lutnick expects to spend approximately 33% of his time on our matters. Mr. Merkel expects to
spend approximately 25% of his time on our matters. These percentages may vary depending on business
developments at Newmark or Cantor, BGC Partners or any of our or their respective affiliates. As a result, these key
employees (and others in key executive or management roles who we may hire from time to time) dedicate only a
portion of their professional efforts to our business and operations, and there is no contractual obligation for them to
spend a specific amount of their time with us and/or BGC Partners or Cantor. These two key employees may not be
able to dedicate adequate time to our business and operations, and we could experience an adverse effect on our
operations due to the demands placed on our management team by other professional obligations. In addition, these
key employees’ other responsibilities could cause conflicts of interest with us. The Newmark Holdings limited
partnership agreement, which includes non-competition and other arrangements applicable to our key employees
who are limited partners of Newmark Holdings, may not prevent certain of our key employees, including Messrs.
Lutnick and Merkel whose employment by Cantor and BGC Partners is not subject to these provisions in the
Newmark Holdings limited partnership agreement, from resigning or competing against us.
Should Mr. Lutnick leave or otherwise become unavailable to render services to us, ultimate control of us
would likely pass to Cantor, and indirectly pass to the then-controlling stockholder of CFGM (which is currently
Mr. Lutnick), Cantor’s managing general partner, or to such other managing general partner as CFGM would
appoint, and as a result control could remain with Mr. Lutnick.
In addition, our success has largely been dependent on executive officers such as Barry M. Gosin, who serves
as our Chief Executive Officer, and other key employees, including some who have been hired in connection with
acquisitions. If any of our key employees were to join an existing competitor, form a competing company, offer
services to Cantor or any affiliates that compete with our services or otherwise leave us, some of our clients could
choose to use the services of that competitor or another competitor instead of our services, which could adversely
affect our revenues and as a result could materially adversely affect our business, financial condition, results of
operations and prospects.
Seasonality
Our business is generally affected by seasonality, which could have a material adverse effect on our results
of operations in a given period.
Due to the strong desire of many market participants to close real estate transactions prior to the end of a
calendar year, our business exhibits certain seasonality, with our revenue tending to be lowest in the first quarter and
strongest in the fourth quarter. This could have a material effect on our results of operations in any given period.
The seasonality of our business makes it difficult to determine during the course of the year whether planned
results will be achieved and to adjust to changes in expectations. To the extent that we are not able to identify and
adjust for changes in expectations or we are confronted with negative conditions that inordinately impact seasonal
norms, our business, financial condition, results of operations and prospects could be materially adversely affected.
Other General Business Risks
If we experience difficulties in collecting accounts receivable or experience defaults by multiple clients, it
could materially adversely affect our business, financial condition, results of operations and prospects.
We face challenges in our ability to efficiently and/or effectively collect accounts receivable. Any of our
clients or other parties obligated to make payments to us may experience a downturn in their business that may
weaken their results of operations and financial condition. As a result, a client or other party obligated to make
payments to us may fail to make payments when due, become insolvent or declare bankruptcy. A bankruptcy of a
client or other party obligated to make payments to us would delay or preclude full collection of amounts owed to
us. In addition, certain corporate services and property and facilities management agreements require that we
advance payroll and other vendor costs on behalf of clients. If such a client or other party obligated to make
payments to us were to file for bankruptcy, we may not be able to obtain reimbursement for those costs or for the
severance obligations we would incur. Any such failure to make payments when due or the bankruptcy or
insolvency of a large number of our clients (e.g., during an economic downturn) could result in disruption to our
business and material losses to us. While historically we have not incurred material losses as a result of the
difficulties described above, this may not always be the case.
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We may not be able to replace partner offices when affiliation agreements are terminated, which may
decrease our scope of services and geographic reach.
We have agreements in place to operate on a collaborative and cross-referral basis with certain offices in the
United States and elsewhere in the Americas in return for contractual and referral fees paid to us and/or certain
mutually beneficial co-branding and other business arrangements. These independently owned offices generally use
some variation of Newmark in their names and marketing materials. These agreements are normally multi-year
contracts, and generally provide for mutual referrals in their respective markets, generating additional contract and
brokerage fees. Through these independently owned offices, our clients have access to additional brokers with local
market research capabilities as well as other commercial real estate services in locations where we do not have a
physical presence. From time to time our arrangement with these independent firms may be terminated pursuant to
the terms of the individual affiliation agreements. The opening of a Company-owned office to replace an
independent office requires us to invest capital, which in some cases could be material. There can be no assurance
that, if we lose additional independently owned offices, we will be able to identify suitable replacement affiliates or
fund the establishment or acquisition of an owned office. In addition, although we do not control the activities of
these independently owned offices and are not responsible for their liabilities, we may face reputational risk if any of
these independently owned offices are involved in or accused of illegal, unethical or similar behavior. Failure to
maintain coverage in important geographic markets may negatively impact our operations, reputation and ability to
attract and retain key employees and expand domestically and internationally and could have a material adverse
effect on our business, financial condition, results of operations and prospects.
Declines in or terminations of servicing engagements or breaches of servicing agreements could have a
material adverse effect on our business, financial condition, results of operations and prospects.
We expect that loan servicing fees will continue to constitute a significant portion of our revenues from the
Multifamily Capital Markets business for the foreseeable future. Nearly all of these fees are derived from loans that
our Multifamily Capital Markets business originates and sells through the agencies’ programs or places with
institutional investors. A decline in the number or value of loans that we originate for these investors or terminations
of our servicing engagements will decrease these fees. HUD has the right to terminate our Multifamily Capital
Markets business’ current servicing engagements for cause. In addition to termination for cause, Fannie Mae and
Freddie Mac may terminate our Multifamily Capital Markets business’ servicing engagements without cause by
paying a termination fee. Institutional investors typically may terminate servicing engagements with our Multifamily
Capital Markets business at any time with or without cause, without paying a termination fee. We are also subject to
losses that may arise from servicing errors, such as a failure to maintain insurance, pay taxes, or provide notices. If
we breach our servicing obligations to the agencies or institutional investors, including as a result of a failure to
perform by any third parties to which we have contracted certain routine back-office aspects of loan servicing, the
servicing engagements may be terminated. Significant declines or terminations of servicing engagements or
breaches of such obligations, in the absence of replacement revenue sources, could materially and adversely affect
our business, financial condition and results of operations.
Reductions in loan servicing fees as a result of defaults or prepayments by borrowers could have a material
adverse effect on our business, financial condition, results of operations and prospects.
In addition to exposure to potential loss sharing, our loan servicing business is also subject to potential
reductions in loan servicing fees if the borrower defaults on a loan originated thereby, as the generation of loan
servicing fees depends upon the continued receipt and processing of periodic installments of principal, interest and
other payments such as amounts held in escrow to pay property taxes and other required expenses. The loss of such
loan servicing fees would reduce the amount of cash actually generated from loan servicing and from interest on
amounts held in escrow. The expected loss of future loan servicing fees would also result in non-cash impairment
charges to earnings. Such cash and non-cash charges could have a material adverse effect on our business, financial
condition, results of operations and prospects.
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Real Estate LP may engage in a broad range of commercial real estate activities, and we will have limited
influence over the selection or management of such activities.
We own approximately 27% of the capital in Real Estate LP. Cantor controls the remaining 73% of its capital
and controls the general partner of Real Estate LP, who manages Real Estate LP. Real Estate LP collaborates with
Cantor’s significant existing real estate finance business, and Real Estate LP may conduct activities in any real
estate-related business or asset-backed securities-related business or any extensions thereof and ancillary activities
thereto. Accordingly, we have limited to no influence on the selection or management of the activities conducted by
Real Estate LP, each of which may have different risks and uncertainty associated with it and that are each beyond
our control. See “—Risks Related to Our Relationship with Cantor and Its Respective Affiliates—We are controlled
by Cantor. Cantor’s interests may conflict with our interests and Cantor may exercise its control in a way that
favors its respective interests to our detriment.”
Liquidity, Funding and Indebtedness
Liquidity is essential to our business, and insufficient liquidity could have a material adverse effect on our
business, financial condition, results of operations and prospects.
Liquidity is essential to our business. Our liquidity position could be impaired due to circumstances that we
may be unable to control, such as a general market disruption or idiosyncratic events that affect our clients, other
third parties or us.
We are a holding company with no direct operations. We conduct substantially all of our operations through
our operating subsidiaries. We do not have any material assets other than our direct and indirect ownership in the
equity of our subsidiaries. As a result, our operating cash flow as well as our liquidity position are dependent upon
the earnings of our subsidiaries. In addition, we are dependent on the distribution of earnings, loans or other
payments by our subsidiaries to us. In the event of a bankruptcy, liquidation, dissolution, reorganization or similar
proceeding with respect to any of our subsidiaries, we, as an equity owner of such subsidiary, and therefore holders
of our securities, including our Class A common stock, will be subject to the prior claims of such subsidiary’s
creditors, including trade creditors, and any preferred equity holders. Any dividends declared by us, any payment by
us of our indebtedness or other expenses, and all applicable taxes payable in respect of our net taxable income, if
any, are paid from cash on hand and funds received from distributions, loans or other payments, primarily from our
subsidiaries. Regulatory, tax restrictions or elections, and other legal or contractual restrictions may limit our ability
to transfer funds freely from our subsidiaries. These laws, regulations and rules may hinder our ability to access
funds that we may need to meet our obligations. Certain debt and security agreements entered into by our
subsidiaries contain or may contain various restrictions, including restrictions on payments by our subsidiaries to us
and the transfer by our subsidiaries of assets pledged as collateral. To the extent that we need funds to pay
dividends, repay indebtedness and meet other expenses, or to pay taxes on our share of Newmark OpCo’s net
taxable income, and Newmark OpCo or its subsidiaries are restricted from making such distributions under
applicable law, regulations, or agreements, or are otherwise unable to provide such funds, it could materially
adversely affect our business, financial condition, results of operations and prospects, including our ability to
maintain adequate liquidity or to raise additional funding, including through access to the debt and equity capital
markets.
Our ability to raise funding in the long-term or short-term debt capital markets or the equity capital markets, or
to access lending markets could in the future be adversely affected by conditions in the United States and
international economy and markets, with the cost and availability of funding adversely affected by wider credit
spreads, changes in interest rates and dislocations in capital markets. To the extent we are unable to access the debt
capital markets on acceptable terms in the future, we may seek to raise funding and capital through equity issuances
or other means.
Turbulence in the U.S. and international economy and markets may adversely affect our liquidity and funding
positions, financial condition and the willingness of certain clients to do business with each other or with us.
Acquisitions and financial reporting obligations related thereto may impact our ability to access capital markets on a
timely basis and may necessitate greater short-term borrowings during certain times, which in turn may adversely
affect our cost of borrowing, financial condition, and creditworthiness, and as a result, potentially impact our credit
ratings and associated outlooks.
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We generally have had limited need for short-term unsecured funding. We may, however, have need to access
short-term funding sources in order to meet a variety of business needs from time to time, including financing
acquisitions as well as, ongoing business operations or activities such as hiring or retaining real estate brokers,
salespeople, managers and other professionals. While we have a credit facility in place, to the extent that our capital
or other needs exceed the capacity of our existing funding sources or we are not able to access any of these sources,
this could have a material adverse effect on our business, financial condition, results of operations and prospects.
We require short-term funding capacity for loans we originate through our Multifamily Capital Markets
business. As of December 31, 2018, our Multifamily Capital Markets business had $1.65 billion of which $700
million represented a temporary increase that expired on January 29, 2019, of committed loan funding available
through three commercial banks and an uncommitted $325 million Fannie Mae loan repurchase facility. On January
29, 2019, the temporary increase was decreased by $400 million for the period from January 29, 2019 to April 1,
2019. Consistent with industry practice, our Multifamily Capital Markets business’ existing warehouse facilities are
short-term, requiring annual renewal. If any of the committed facilities are terminated or are not renewed or the
uncommitted facility is not honored, we would be required to obtain replacement financing, which we may be
unable to find on favorable terms, or at all, and, in such event, we might not be able to originate loans, which could
have a material adverse effect on mortgage servicing rights and on our business, financial condition, results of
operations and prospects.
We are subject to the risk of failed loan deliveries, and even after a successful closing and delivery, may be
required to repurchase the loan or to indemnify the investor if there is a breach of a representation or warranty
made by us in connection with the sale of loans, which could have a material adverse effect on our business,
financial condition, results of operations and prospects.
We bear the risk that a borrower will not close on a loan that has been pre-sold to an investor and the amount
of such borrower’s rate lock deposit and any amounts recoverable from such borrower for breach of its obligations
are insufficient to cover the investor’s losses. In addition, the investor may choose not to take delivery of the loan if
a catastrophic change in the condition of a property occurs after we fund the loan and prior to the investor purchase
date. We also have the risk of errors in loan documentation which prevent timely delivery of the loan prior to the
investor purchase date. A complete failure to deliver a loan could be a default under the warehouse facilities
collateralized by U.S. Government Sponsored Enterprises used to finance the loan. No assurance can be given that
we will not experience failed deliveries in the future or that any losses will not have a material adverse effect on our
business, financial condition, results of operations or prospects.
We must make certain representations and warranties concerning each loan we originate for the GSEs’ and
HUD’s programs or securitizations. The representations and warranties relate to our practices in the origination and
servicing of the loans and the accuracy of the information being provided by it. In the event of a material breach of
representations or warranties concerning a loan, even if the loan is not in default, investors could, among other
things, require us to repurchase the full amount of the loan and seek indemnification for losses from it, or, for Fannie
Mae DUS loans, increase the level of risk-sharing on the loan. Our obligation to repurchase the loan is independent
of our risk-sharing obligations. Our ability to recover on a claim against the borrower or any other party may be
contractually limited and would also be dependent, in part, upon the financial condition and liquidity of such party.
Although these obligations have not had a significant impact on our results to date, significant repurchase or
indemnification obligations imposed on us could have a material adverse effect on our business, financial condition,
results of operations and prospects.
We are subject to risks associated with the current interest rate environment, and changes in interest rates
may increase the cost of our debt financing.
Since the economic downturn that began in mid-2007, interest rates have remained low. Because longer-term
inflationary pressure may result in the future, we may experience rising interest rates and increased debt refinancing
costs.
Some of our borrowings have variable interest rates. As a result, a change in market interest rates could have a
material adverse effect on our interest expense. In periods of rising interest rates, our cost of funds will increase,
which could reduce our net income. We may use interest rate risk management techniques in an effort to limit our
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exposure to interest rate fluctuations. Such techniques may include various interest rate hedging activities. These
activities may limit our ability to participate in the benefits of lower interest rates with respect to the hedged
borrowings. Adverse developments resulting from changes in interest rates or hedging transactions could have a
material adverse effect on our business, financial condition, results of operations and prospects.
LIBOR, the London interbank offered rate, is the basic rate of interest used in lending between banks on the
London interbank market and is widely used as a reference for setting the interest rate on loans globally. In July
2017, the head of the United Kingdom Financial Conduct Authority announced the desire to phase out the use of
LIBOR by the end of 2021. There is currently no definitive information regarding the future utilization of LIBOR or
of any particular replacement rate. As such, the potential effect of any such event on our cost of capital and interest
expense cannot yet be determined. In addition, any further changes or reforms to the determination or supervision of
LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have a material
adverse effect on our business, financial condition, results of operations and prospects.
We have debt, which could adversely affect our ability to raise additional capital to fund our operations
and activities, limit our ability to react to changes in the economy or the commercial real estate services industry,
expose us to interest rate risk, impact our ability to obtain favorable credit ratings and prevent us from meeting or
refinancing our obligations under our indebtedness.
Our indebtedness, which at December 31, 2018 was approximately $537.9 million, may have important,
adverse consequences to us and our investors, including:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
it may limit our ability to borrow money, dispose of assets or sell equity to fund our working capital,
capital expenditures, dividend payments, debt service, strategic initiatives or other obligations or
purposes;
it may limit our flexibility in planning for, or reacting to, changes in the economy, the markets, regulatory
requirements, our operations or our business;
it may impact our ability to obtain favorable credit ratings;
our financial leverage may be higher than some of our competitors, which may place us at a competitive
disadvantage;
it may make us more vulnerable to downturns in the economy or our business;
it may require a substantial portion of our cash flow from operations to make interest payments;
it may make it more difficult for us to satisfy other obligations;
it may increase the risk of a future downgrade of our credit ratings or otherwise impact our ability to
obtain or maintain investment grade credit ratings, which could increase future debt costs and limit the
future availability of debt financing;
(cid:120) we may not be able to borrow additional funds or refinance existing debt as needed or take advantage of
business opportunities as they arise, pay cash dividends or repurchase common stock; and
(cid:120)
there would be a material adverse effect on our business, financial condition, results of operations and
prospects if we were unable to service our indebtedness or obtain additional financing or refinance our
existing debt on terms acceptable to us.
Our indebtedness excludes the warehouse facilities collateralized by U.S. Government Sponsored Enterprises
because these lines are used to fund short term loans held for sale that are generally sold within 45 days from the
date the loan is funded. All of the loans held for sale were either under commitment to be purchased by Freddie Mac
or had confirmed forward trade commitments for the issuance and purchase of Fannie Mae or Ginnie Mae mortgage-
backed securities that will be secured by the underlying loans.
To the extent that we incur additional indebtedness or seek to refinance our existing debt, the risks described
above could increase. In addition, our actual cash requirements in the future may be greater than expected. Our cash
flow from operations may not be sufficient to service our outstanding debt or to repay the outstanding debt as it
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becomes due, and we may not be able to borrow money, sell assets or otherwise raise funds on acceptable terms, or
at all, to service or refinance our debt.
We may incur substantially more debt or take other actions which would intensify the risks discussed
herein.
We may incur substantial additional debt in the future, some of which may be secured debt. Under the terms
of our existing debt, we are permitted under certain circumstances to incur additional debt, grant liens on our assets
to secure existing or future debt, recapitalize our debt or take a number of other actions that could have the effect of
diminishing our ability to make payments on our debt when due. To the extent that we borrow additional funds, the
terms of such borrowings may contain more stringent financial covenants, change of control provisions, make-whole
provisions or other terms that could have a material adverse effect on our business, financial condition, results of
operations and prospects.
Our debt agreements contain restrictions that may limit our flexibility in operating our business.
The Credit Agreement (as defined below) contains covenants that could impose operating and financial
restrictions on us, including restrictions on our ability to, among other things and subject to certain exceptions:
(cid:120)
(cid:120)
create liens on certain assets;
incur additional debt;
(cid:120) make significant investments and acquisitions;
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;
sell certain assets;
pay additional dividends on or make additional distributions in respect of our capital stock or make
restricted payments;
enter into certain transactions with our affiliates; and
place restrictions on certain distributions from subsidiaries.
In addition, debt agreements of our Multifamily Capital Markets business contain similar and additional
covenants and restrictions. Indebtedness that we may enter into in the future, if any, could also contain similar or
additional covenants or restrictions. Any of these restrictions could limit our ability to adequately plan for or react to
market conditions and could otherwise restrict certain of our corporate activities. Any material failure to comply
with these covenants could result in a default under the Credit Agreement, as well as instruments governing our
future indebtedness. Upon a material default, unless such default were cured by us or waived by lenders in
accordance with the Credit Agreement, the lenders under such agreement could elect to invoke various remedies
under the agreement, including potentially accelerating the payment of unpaid principal and interest, terminating
their commitments or, however unlikely, potentially forcing us into bankruptcy or liquidation. In addition, a default
or acceleration under such agreement could trigger a cross default under other agreements, including potential future
debt arrangements. Although we believe that our operating results will be more than sufficient to cover all of these
obligations, including potential future indebtedness, no assurance can be given that our operating results will be
sufficient to service our indebtedness or to fund all of our other expenditures or to obtain additional or replacement
financing on a timely basis and on reasonable terms in order to meet these requirements when due. See “Item 7 –
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Position,
Liquidity and Capital Resources” in this Annual Report on Form 10-K.
Credit rating downgrades or defaults by us could adversely affect us.
The credit ratings and associated outlooks of companies may be critical to their reputation and operational and
financial success. A company’s credit ratings and associated outlooks are influenced by a number of factors,
including: operating environment, earnings and profitability trends, the prudence of funding and liquidity
management practices, balance sheet size/composition and resulting leverage, cash flow coverage of interest,
composition and size of the capital base, available liquidity, outstanding borrowing levels, the company’s
competitive position in the industry and its relationships in the industry. A credit rating and/or the associated outlook
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can be revised upward or downward at any time by a rating agency if such rating agency decides that circumstances
of that company or related companies warrant such a change. Any adverse ratings or reduction in the credit ratings
of Newmark, Cantor or any of their other affiliates, and/or the associated outlook could adversely affect the
availability of debt financing to us on acceptable terms, as well as the cost and other terms upon which we may
obtain any such financing. In addition, credit ratings and associated outlooks may be important to clients in certain
markets and in certain transactions. A company’s contractual counterparties may, in certain circumstances, demand
collateral in the event of a credit ratings or outlook downgrade of that company. Further, interest rates, including
with respect to our 6.125% Senior Notes, may increase in the event that our ratings decline.
Newmark received its initial long-term credit ratings and associated outlooks in October 2018. Newmark’s
long-term credit ratings from both Fitch Ratings Inc. and Kroll Bond Rating Agency are BBB- and the associated
outlooks are stable. Newmark’s long-term credit rating from Standard & Poor’s is BB+ with an associated outlook
of stable. Although we have taken steps in recent months to further strengthen our balance sheet and continue to
improve our credit ratios, no assurance can be given that the credit ratings will remain unchanged.
Our acquisitions may require significant cash resources and may lead to a significant increase in the level
of our indebtedness.
Potential future acquisitions may lead to a significant increase in the level of our indebtedness. We may enter
into short- or long-term financing arrangements in connection with acquisitions which may occur from time to time.
In addition, we may incur substantial nonrecurring transaction costs, including break-up fees, assumption of
liabilities and expenses and compensation expenses. The increased level of our consolidated indebtedness in
connection with potential acquisitions may restrict our ability to raise additional capital on favorable terms, and such
leverage, and any resulting liquidity or credit issues, could have a material adverse effect on our business, financial
condition, results of operations and prospects.
We may not be able to realize the full value of the Nasdaq payment, which could have a material adverse
effect on our business, financial condition, results of operations and prospects.
On June 28, 2013, BGC Partners sold eSpeed to Nasdaq in the Nasdaq Monetization Transactions. The total
consideration paid or payable by Nasdaq in the Nasdaq Monetization Transactions included an earn-out of up to
14,883,705 shares of common stock of Nasdaq to be paid ratably over 15 years after the closing of the Nasdaq
Monetization Transactions, provided that Nasdaq produces at least $25 million in gross revenues for the applicable
year. Nasdaq generated gross revenues of approximately $4.3 billion in 2018. As of December 31, 2018, up to 8.9
million Nasdaq shares remained payable by Nasdaq under this earn-out. In connection with the separation prior to
the completion of our IPO, BGC transferred to Newmark the right to receive the remainder of the Nasdaq payment.
On June 18, 2018 and September 26, 2018, Newmark OpCo issued approximately $175 million and
approximately $150 million of EPUs, respectively, in private transactions to RBC, and Newmark SPV, a subsidiary
of Newmark OpCo (“Newmark SPV”), entered into forward agreements with RBC (collectively, the “Forward
Transactions”). In connection with the Forward Transactions, Newmark SPV may deliver a certain number of
Nasdaq Shares in exchange for such Newmark OpCo EPUs in each of 2019, 2020, 2021 and 2022. Additionally, the
forward agreements contain provisions the economic effect of which is equivalent to Newmark purchasing four at-
the-money put options with respect to the Nasdaq Shares, which will provide economic protection in the event the
Nasdaq Shares decline in value while enabling Newmark to retain any increase in the value of the Nasdaq Shares as
fewer Nasdaq Shares will be deliverable to RBC should the value of the Nasdaq Shares rise above certain reference
prices. However, certain events could trigger an early termination of the forward agreements and we may not be
able to fully realize the value of the put options in those instances and we may be required to source other funds to
settle the forward agreements if we do not have sufficient Nasdaq shares on hand at such time.
While the Forward Transactions provide certain economic protection for 2019, 2020, 2021 and 2022, we may
be unable to enter into forward transactions for subsequent years on favorable terms, or at all. For 2023 and after, the
earn-out presents market risk to us as the value of consideration related to the Nasdaq payment is subject to
fluctuations based on the stock price of Nasdaq common stock. Therefore, if Nasdaq were to experience financial
difficulties or a significant downturn, the value of the Nasdaq payment may decline and we may receive fewer or no
additional Nasdaq shares pursuant to this earn-out, which could have a material adverse effect on our business,
financial condition, results of operations and prospects.
52
We may not have the funds necessary to repurchase the 6.125% Senior Notes upon a change of control
triggering event as required by the indenture governing these notes.
Upon the occurrence of a “change of control triggering event” (as defined in in the indenture governing the
6.125% Senior Notes) unless we have exercised our right to redeem the notes, holders of the notes will have the
right to require us to repurchase all or any part of their notes at a price in cash equal to 101% of the then-outstanding
aggregate principal amount of the notes repurchased plus accrued and unpaid interest, if any. If we experience a
“change of control triggering event”, we can offer no assurance that we would have sufficient financial resources
available to satisfy our obligations to repurchase any or all of the notes should any holder elect to cause us to do so.
Our failure to repurchase the notes as required would result in a default under the indenture, which in turn could
result in defaults under agreements governing certain of our other indebtedness, including the acceleration of the
payment of any borrowings thereunder, and which could have a material adverse effect on our business, financial
condition, results of operations and prospects.
The requirement to offer to repurchase the 6.125% Senior Notes upon a change of control triggering event
may delay or prevent an otherwise beneficial takeover attempt of us.
The requirement to offer to repurchase the 6.125% Senior Notes upon a change of control triggering event
may in certain circumstances delay or prevent a takeover of us and/or the removal of incumbent management that
might otherwise be beneficial to investors in our Class A common stock.
RISKS RELATED TO OUR CORPORATE AND PARTNERSHIP STRUCTURE
We are a holding company, and accordingly we are dependent upon distributions from Newmark OpCo to
pay dividends, taxes and indebtedness and other expenses and to make repurchases.
We are a holding company with no direct operations, and we will be able to pay dividends, taxes and other
expenses, and to make repurchases of shares of our Class A common stock and purchases of Newmark Holdings
limited partnership interests or other equity interests in our subsidiaries, only from our available cash on hand and
funds received from distributions, loans or other payments, primarily from Newmark OpCo. Tax restrictions or
elections and other legal or contractual restrictions may limit our ability to transfer funds freely from our
subsidiaries. In addition, any unanticipated accounting, tax or other charges against net income could adversely
affect our ability to pay dividends and to make repurchases.
Our Board of Directors and Audit Committee authorized repurchases of shares of our Class A common stock
and redemptions or repurchases of limited partnership interests or other equity interests in our subsidiaries up to
$200 million. This authorization includes repurchases of stock or units from executive officers, other employees and
partners, including Cantor, as well as other affiliated persons or entities. As of December 31, 2018, we had $199.5
million remaining under our authorization. From time to time, we may repurchase shares or redeem or repurchase
units. See—"Liquidity, Funding and Indebtedness —Liquidity is essential to our business, and insufficient liquidity
could have a material adverse effect on our business, financial condition, results of operations and prospects.”
We may not pay a dividend and may not pay the same dividend paid by Newmark OpCo to its equity
holders.
We currently intend to pay dividends on a quarterly basis. Our ability to pay dividends is dependent upon our
available cash on hand and funds received from distributions, loans or other payments from Newmark OpCo.
Newmark OpCo intends to distribute to its limited partners, including us, on a pro rata and quarterly basis, cash in an
amount that will be determined by Newmark Holdings, its general partner, of which we are the general partner.
Newmark OpCo’s ability, and in turn our ability, to make such distributions will depend upon the continuing
profitability and strategic and operating needs of our business. We may not pay the same dividend to our shares as
the dividend paid by Newmark OpCo to its limited partners.
We may also repurchase shares of our common stock or purchase Newmark Holdings limited partnership
interests or other equity interests in our subsidiaries, including from Cantor or our executive officers, other
employees, partners and others, or cease to make such repurchases or purchases, from time to time. In addition, from
53
time to time, we may reinvest all or a portion of the distributions we receive in Newmark OpCo’s business.
Accordingly, there can be no assurance that future dividends will be paid or that dividend amounts will be
maintained at current or future levels. See “Item 5—Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities—Dividend Policy.”
Because our voting control is concentrated among the holders of our Class B common stock, the market
price of our Class A common stock may be materially adversely affected by its disparate voting rights.
The holders of our Class A common stock and Class B common stock have substantially identical economic
rights, but their voting rights are different. Holders of Class A common stock are entitled to one vote per share,
while holders of Class B common stock are entitled to 10 votes per share on all matters to be voted on by
stockholders in general.
As of December 31, 2018, Cantor and CFGM held no shares of our Class A common stock. As of
December 31, 2018, Cantor and CFGM held 21,285,533 shares of our Class B common stock, which represented all
of the outstanding shares of our Class B common stock. The shares of Class B common stock held by Cantor and
CFGM as of December 31, 2018 represented approximately 57.6% of our total voting power. In addition, Cantor
has the right to exchange exchangeable partnership interests in Newmark Holdings into additional shares of Class A
or Class B common stock, and pursuant to the exchange agreement, Cantor, CFGM and other Cantor affiliates
entitled to hold Class B common stock under our certificate of incorporation have the right to exchange from time to
time, on a one-to-one basis, subject to adjustment, shares of our Class A common stock now owned or subsequently
acquired by such persons for shares of our Class B common stock, up to the number of shares of Class B common
stock that are authorized but unissued under our certificate of incorporation. Cantor has pledged 3.1 million shares
of Class B common stock held by it to Bank of America in connection with certain partner loans. We expect to
retain our dual class structure, and there are no circumstances under which the holders of Class B common stock
would be required to convert their shares of Class B common stock into shares of Class A common stock, absent the
exercise of the pledge in the event of foreclosure.
As long as Cantor beneficially owns a majority of our total voting power, it will have the ability, without the
consent of the other holders of our Class A common stock, to elect all of the members of our Board of Directors and
to control our management and affairs. In addition, it will be able to in its sole discretion determine the outcome of
matters submitted to a vote of our stockholders for approval and will be able to cause or prevent a change of control
of us. In certain circumstances, the shares of Class B common stock issued to Cantor may be transferred without
conversion to Class A common stock such as when the shares are transferred to an entity controlled by Cantor or
Mr. Lutnick.
The Class B common stock is controlled by Cantor and will not be subject to conversion or redemption by us.
Our certificate of incorporation does not provide for automatic conversion of shares of Class B common stock into
shares of Class A common stock upon the occurrence of any event. Furthermore, the Class B common stock is only
issuable to Cantor, Mr. Lutnick or certain persons or entities controlled by them. The difference in the voting rights
of Class B common stock could adversely affect the market price of our Class A common stock.
The dual class structure of our common stock may adversely affect the trading market for our Class A
common stock.
S&P Dow Jones and FTSE Russell have announced changes to their eligibility criteria for inclusion of shares
of public companies on certain indices, including the S&P 500, namely, to exclude companies with multiple classes
of shares of common stock from being added to such indices. In addition, several shareholder advisory firms have
announced their opposition to the use of multiple class structures. As a result, the dual class structure of our common
stock may prevent the inclusion of our Class A common stock in such indices and may cause shareholder advisory
firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to
change our capital structure. Any such exclusion from indices could result in a less active trading market for our
Class A common stock. Any actions or publications by shareholder advisory firms critical of our corporate
governance practices or capital structure could also adversely affect the value of our Class A common stock.
54
Delaware law may protect decisions of our Board of Directors that have a different effect on holders of our
Class A common stock and Class B common stock.
Stockholders may not be able to challenge decisions that have an adverse effect upon holders of our Class A
common stock compared to holders of our Class B common stock if our Board of Directors acts in a disinterested,
informed manner with respect to these decisions, in good faith and in the belief that it is acting in the best interests
of our stockholders. Delaware law generally provides that a Board of Directors owes an equal duty to all
stockholders, regardless of class or series, and does not have separate or additional duties to different groups of
stockholders, subject to applicable provisions set forth in a corporation’s certificate of incorporation and general
principles of corporate law and fiduciary duties.
If we or Newmark Holdings were deemed an “investment company” under the Investment Company Act,
the Investment Company Act’s restrictions could make it impractical for us to continue our business and
structure as contemplated and could materially adversely affect our business, financial condition, results of
operations and prospects.
Generally, an entity is deemed an “investment company” under Section 3(a)(1)(A) of the Investment
Company Act if it is primarily engaged in the business of investing, reinvesting, or trading in securities, and is
deemed an “investment company” under Section 3(a)(1)(C) of the Investment Company Act if it owns “investment
securities” having a value exceeding 40% of the value of its total assets (exclusive of U.S. Government securities
and cash items) on an unconsolidated basis. We believe that neither we nor Newmark Holdings should be deemed an
“investment company” as defined under Section 3(a)(1)(A) because neither of us is primarily engaged in the
business of investing, reinvesting, or trading in securities. Rather, through our operating subsidiaries, we and
Newmark Holdings are primarily engaged in the operation of various types of commercial real estate services
businesses as described in this Annual Report on Form 10-K. Neither we nor Newmark Holdings is an “investment
company” under Section 3(a)(1)(C) because more than 60% of the value of our total assets on an unconsolidated
basis are interests in majority-owned subsidiaries that are not themselves “investment companies.” In particular,
Berkeley Point, a significant majority-owned subsidiary, is entitled to rely on, among other things, the mortgage
banker exemption in Section 3(c)(5)(C) of the Investment Company Act.
To ensure that we and Newmark Holdings are not deemed “investment companies” under the Investment
Company Act, we need to be primarily engaged, directly or indirectly, in the non-investment company businesses of
our operating subsidiaries. If we were to cease participation in the management of Newmark Holdings, if Newmark
Holdings, in turn, were to cease participation in the management of Newmark OpCo, or if Newmark OpCo, in turn,
were to cease participation in the management of our operating subsidiaries, that would increase the possibility that
we and Newmark Holdings could be deemed “investment companies.” Further, if we were deemed not to have a
majority of the voting power of Newmark Holdings (including through our ownership of the Special Voting Limited
Partnership Interest), if Newmark Holdings, in turn, were deemed not to have a majority of the voting power of
Newmark OpCo (including through its ownership of the Special Voting Limited Partnership Interest), or if
Newmark OpCo, in turn, were deemed not to have a majority of the voting power of our operating subsidiaries, that
would increase the possibility that we and Newmark Holdings could be deemed “investment companies.” Finally, if
any of our operating subsidiaries were deemed “investment companies,” our interests in Newmark Holdings and
Newmark OpCo, and Newmark Holdings’ interests in Newmark OpCo, could be deemed “investment securities,”
and we and Newmark Holdings could be deemed “investment companies.”
We expect to take all legally permissible action to ensure that we and Newmark Holdings are not deemed
investment companies under the Investment Company Act, but no assurance can be given that this will not occur.
The Investment Company Act and the rules thereunder contain detailed prescriptions for the organization and
operations of investment companies. Among other things, the Investment Company Act and the rules thereunder
limit or prohibit transactions with affiliates, limit the issuance of debt and equity securities, prohibit the issuance of
stock options and impose certain governance requirements. If anything were to happen that would cause us or
Newmark Holdings to be deemed to be an investment company under the Investment Company Act, the Investment
Company Act would limit our or its capital structure, ability to transact business with affiliates (including Cantor,
Newmark Holdings or Newmark OpCo, as the case may be) and ability to compensate key employees. Therefore, if
we or Newmark Holdings became subject to the Investment Company Act, it could make it impractical to continue
55
our business in this structure, impair agreements and arrangements and impair the transactions contemplated by
those agreements and arrangements, between and among us, Newmark Holdings and Newmark OpCo, or any
combination thereof, and materially adversely affect our business, financial condition, results of operations and
prospects.
RISKS RELATED TO THE SEPARATION AND THE SPIN-OFF
Because we closed our IPO on December 19, 2017, we have a limited operating history as a separate public
company, and certain of our historical financial information is not necessarily representative of the results that
we would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future
results.
Certain of our historical financial information included in this Annual Report on Form 10-K is derived from
the consolidated financial statements and accounting records of BGC Partners through December 13, 2017.
Accordingly, the historical financial information included herein for periods prior to the separation do not
necessarily reflect the results of operations, financial position and cash flows that we would have achieved as a
separate, publicly traded company during those periods presented or those that we will achieve in the future
primarily as a result of the following factors:
(cid:120) Prior to the separation, our business had been operated by BGC Partners as part of its broader corporate
organization, rather than as an independent company. BGC Partners or one of its affiliates had performed
various corporate functions for us, including legal services, treasury, accounting, auditing, risk
management, information technology, human resources, corporate affairs, tax administration, certain
governance functions (including internal audit and compliance with the Sarbanes-Oxley Act) and external
reporting. Our historical financial results for periods prior to the separation reflect allocations of corporate
expenses from BGC Partners for these and similar functions. These allocations were less than the
comparable expenses we believe we would have incurred had we operated as a separate public company.
(cid:120) Until the completion of our IPO, our business was integrated with the other businesses of BGC Partners.
Historically, we had shared economies of scale in costs, employees and vendor relationships. While we
have entered into transitional arrangements that govern certain commercial and other relationships
between BGC Partners and us after the separation, those transitional arrangements may not fully capture
the benefits our business has enjoyed as a result of being integrated with the other businesses of BGC
Partners.
(cid:120) Generally, our working capital requirements and capital for our general corporate purposes, including
acquisitions and capital expenditures, had historically been satisfied as part of the enterprise-wide cash
management policies of BGC Partners. We may need to obtain additional financing from banks, through
public offerings or private placements of debt or equity securities, strategic relationships or other
arrangements.
(cid:120) The cost of capital for our business may be higher than BGC Partners’ cost of capital prior to the
separation.
The adjustments and allocations we have made in preparing our historical financial statements may not
appropriately reflect our operations during those periods as if we had in fact operated as a stand-alone entity. For
additional information about the presentation of our historical financial information included in this Annual Report
on Form 10-K, see “Item 6—Selected Consolidated Financial Data” and “Item 7—Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
We may experience increased costs resulting from a decrease in the purchasing power as a result of our
separation from BGC Partners.
Historically, we have been able to take advantage of the size and purchasing power of our former parent, BGC
Partners, in procuring goods, technology and services, including insurance, employee benefit support and audit
services. As a separate public company, we are a smaller and less diversified company than BGC Partners, and we
may not have access to financial and other resources comparable to those available to BGC Partners prior to the
IPO. As a separate, stand-alone company, we may be unable to obtain goods, technology and services at prices and
56
on terms as favorable as those available to us prior to the IPO, which could have a material adverse effect on our
business, financial condition, results of operations and prospects.
The separation may adversely affect our business, and we may not achieve some or all of the expected
benefits of the separation and Spin-Off.
We may not be able to achieve the full strategic and financial benefits expected to result from the separation
and Spin-Off, or such benefits may be delayed or not occur at all. These benefits include the following:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
improving strategic planning, increasing management focus and streamlining decision-making by
providing the flexibility to implement our strategic plan and to respond more effectively to different client
needs and the changing economic environment;
allowing us to adopt the capital structure, investment policy and dividend policy best suited to our
financial profile and business needs;
creating an independent equity structure that will facilitate our ability to effect future acquisitions
utilizing our Class A common stock; and
facilitating incentive compensation arrangements for employees more directly tied to the performance of
our business, and enhancing employee hiring and retention by, among other things, improving the
alignment of management and employee incentives with performance and growth objectives.
We may not achieve the anticipated benefits for a variety of reasons. There also can be no assurance that the
separation and Spin-Off will not adversely affect our business.
If there is a determination that the Spin-Off was taxable for U.S. federal income tax purposes because the
facts, assumptions, representations or undertakings underlying the tax opinion with respect to the Spin-Off were
incorrect or for any other reason, then BGC Partners and its stockholders could incur significant U.S. federal
income tax liabilities, and we could incur significant liabilities.
BGC Partners received an opinion of Wachtell, Lipton, Rosen & Katz, outside counsel to BGC Partners, to the
effect that the Spin-Off, together with certain related transactions, qualified as a transaction that is described in
Sections 355 and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (which we refer to as the “Code”).
The opinion relied on certain facts, assumptions, representations and undertakings from BGC Partners and us
regarding the past and future conduct of the companies’ respective businesses and other matters. If any of these
facts, assumptions, representations or undertakings are incorrect or not otherwise satisfied, BGC Partners and its
stockholders may not be able to rely on the opinion of tax counsel.
Moreover, notwithstanding this opinion of counsel, the IRS could determine on audit that the separation or the
Spin-Off is taxable if it determines that any of these facts, assumptions, representations or undertakings are not
correct or have been violated or if it disagrees with the conclusions in the opinion, or for other reasons, including as
a result of certain significant changes in the stock ownership of BGC Partners or us after the separation or Spin-Off.
If the separation or Spin-Off is determined to be taxable for U.S. federal income tax purposes, BGC Partners and its
stockholders could incur significant U.S. federal income tax liabilities and we may be required to indemnify BGC
Partners for all or a portion of any such tax liabilities under the tax matters agreement. Any such liabilities could be
substantial, and could have a material adverse effect on our business, financial condition, results of operations and
prospects.
We may be required to pay Cantor for a significant portion of the tax benefit, if any, relating to any
additional tax depreciation or amortization deductions we claim as a result of any step up in the tax basis of the
assets of Newmark OpCo resulting from exchanges of interests in Newmark Holdings for our common stock.
Certain partnership interests in Newmark Holdings may be exchanged for shares of Newmark Group common
stock. In the vast majority of cases, the partnership units that become exchangeable for shares of Newmark common
stock are units that have been granted as compensation, and, therefore, the exchange of such units will not result in
an increase in Newmark’s share of the tax basis of the tangible and intangible assets of Newmark OpCo. However,
57
exchanges of other partnership units—including non-tax-free exchanges of units by Cantor—could result in an
increase in the tax basis of such tangible and intangible assets that otherwise would not have been available,
although the Internal Revenue Service may challenge all or part of that tax basis increase, and a court could sustain
such a challenge by the Internal Revenue Service. These increases in tax basis, if sustained, may reduce the amount
of tax that Newmark would otherwise be required to pay in the future. In such circumstances, the tax receivable
agreement that Newmark entered into with Cantor provides for the payment by Newmark to Cantor of 85% of the
amount of cash savings, if any, in the U.S. federal, state and local income tax or franchise tax that Newmark actually
realizes as a result of these increases in tax basis and certain other tax benefits related to its entering into the tax
receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. It is
expected that Newmark will benefit from the remaining 15% cash savings, if any, in income tax that we realize.
We may not be able to execute transactions that are outside of Treasury Regulations safe harbors.
Under current law, a spin-off can be rendered taxable to the parent corporation and its stockholders as a result
of certain post-spin-off acquisitions of shares or assets of the spun-off corporation. For example, a spin-off may
result in taxable gain to the parent corporation under Section 355(e) of the Code if the spin-off were later deemed to
be part of a plan (or series of related transactions) pursuant to which one or more persons acquire, directly or
indirectly, shares representing a 50% or greater interest (by vote or value) in the spun-off corporation. To preserve
the tax-free treatment of the separation and the Spin-Off, and in addition to our other indemnity obligations, the tax
matters agreement between us and BGC Partners restricts us, through the end of the two-year period following the
Spin-Off, except in specific circumstances, from: (i) entering into any transaction pursuant to which all or a portion
of the shares of our common stock would be acquired, whether by merger or otherwise, (ii) issuing equity securities
beyond certain thresholds, (iii) repurchasing shares of our common stock other than in certain open-market
transactions, and (iv) ceasing to actively conduct certain of our businesses. The tax matters agreement also prohibits
us from taking or failing to take any other action that would prevent the Spin-Off and certain related transactions
from qualifying as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355
and 368(a)(1)(D) of the Code. In the absence of the availability of a safe harbor under applicable Treasury
Regulations, these restrictions may place constraints on the extent to which we may make equity issuances or
repurchases or otherwise limit our ability to pursue strategic transactions or other transactions that we may believe to
be in the best interests of our stockholders or that might increase the value of our business.
We could have an indemnification obligation to BGC Partners if the Spin-Off were determined not to
qualify for non-recognition treatment, which could adversely affect our business, financial condition and results
of operations.
If it were determined that the Spin-Off did not qualify for non-recognition treatment under Section 355 of the
Code due to any act, or failure to act, and any breach by us of our representations and agreements as set forth in the
tax matters agreement, we could be required to indemnify BGC Partners from and against any resulting taxes and
related expenses, which could have a material adverse effect on our business, financial condition and results of
operations. Also, if it were determined that the Spin-Off were taxable to BGC Partners as a result of a 50% or
greater change in ownership in our stock pursuant to Section 355(e) of the Code and BGC Partners would be
required to recognize gain, we would generally be required to indemnify BGC Partners from and against any
resulting taxes and related expenses, which could have a material adverse effect on our business, financial condition
and results of operations.
RISKS RELATED TO OUR RELATIONSHIP WITH CANTOR AND ITS RESPECTIVE AFFILIATES
We are controlled by Cantor. Cantor’s interests may conflict with our interests and Cantor may exercise its
control in a way that favors its respective interests to our detriment.
As of December 31, 2018, Cantor and CFGM held no shares of our Class A common stock. As of
December 31, 2018, Cantor and CFGM held 21,285,533 shares of our Class B common stock, which represented all
of the outstanding shares of our Class B common stock. The shares of Class B common stock held by Cantor and
CFGM as of December 31, 2018 represented approximately 57.6% of our total voting power. Cantor and CFGM
also own 24,251,264 exchangeable limited partnership units of Newmark Holdings. If Cantor and CFGM were to
58
exchange such units into shares of our Class B common stock, Cantor would have approximately 74.4% of our total
voting power as of December 31, 2018 (60.2% if Cantor were to exchange such units into shares of our Class A
common stock). We expect to retain our dual class structure, and there are no circumstances under which the holders
of Class B common stock would be required to convert their shares of Class B common stock into shares of Class A
common stock.
As a result, Cantor, directly through its ownership of shares of our Class A common stock and Class B
common stock is able to exercise control over our management and affairs and all matters requiring stockholder
approval, including the election of our directors and determinations with respect to acquisitions and dispositions, as
well as material expansions or contractions of our business, entry into new lines of business and borrowings and
issuances of our Class A common stock and Class B common stock or other securities. Cantor’s voting power may
also have the effect of delaying or preventing a change of control of us.
Cantor’s ability to exercise control over us could create or appear to create potential conflicts of interest.
Conflicts of interest may arise between us and Cantor in a number of areas relating to our past and ongoing
relationships, including:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
potential acquisitions and dispositions of businesses;
the issuance or disposition of securities by us;
the election of new or additional directors to our Board of Directors;
the payment of dividends by us (if any), distribution of profits by Newmark OpCo and/or Newmark
Holdings and repurchases of shares of our Class A common stock or purchases of Newmark Holdings
limited partnership interests or other equity interests in our subsidiaries, including from Cantor or our
executive officers, other employees, partners and others;
business operations or business opportunities of ours and Cantor’s that would compete with the other
party’s business opportunities;
intellectual property matters;
business combinations involving us; and
the nature, quality and pricing of administrative services and transition services to be provided to or by
BGC Partners or Cantor or their respective affiliates.
Potential conflicts of interest could also arise if we decide to enter into any new commercial arrangements
with Cantor in the future or in connection with Cantor’s desire to enter into new commercial arrangements with third
parties.
We also expect Cantor to manage its ownership of us so that it will not be deemed to be an investment
company under the Investment Company Act, including by maintaining its voting power in us above a majority
absent an applicable exemption from the Investment Company Act. This may result in conflicts with us, including
those relating to acquisitions or offerings by us involving issuances of shares of our Class A common stock, or
securities convertible or exchangeable into shares of Class A common stock, that would dilute Cantor’s voting
power in us.
In addition, Cantor has from time to time in the past and may in the future consider possible strategic
realignments of its own businesses and/or of the relationships that exist between and among Cantor and its other
affiliates and us. Any future material related-party transaction or arrangement between Cantor and its other affiliates
and us is subject to the prior approval by our audit committee, but generally does not require the separate approval
of our stockholders, and if such stockholder approval is required, Cantor may retain sufficient voting power to
provide any such requisite approval without the affirmative consent of our other stockholders. Further, our
regulators may require the consolidation, for regulatory purposes, of Cantor and/or its other affiliates and us or
require other restructuring of the group. There is no assurance that such consolidation or restructuring would not
result in a material expense or disruption to our business.
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Cantor has existing real estate-related businesses, and Newmark and Cantor are partners in a real estate-related
joint venture, Real Estate LP. While these businesses do not currently compete with Newmark, it is possible that, in
the future, real estate-related opportunities in which Newmark would be interested may also be pursued by Cantor
and/or Real Estate LP, and Real Estate LP may conduct activities in any real estate-related business or asset-backed
securities-related business or any extensions thereof and ancillary activities thereto. For example, Cantor’s
commercial lending business has historically offered conduit loans to the multifamily market. While conduit loans
have certain key differences versus multifamily agency loans, such as those offered by our Multifamily Capital
Markets business, there can be no assurance that Cantor’s and/or Real Estate LP’s lending businesses will not seek
to offer multifamily loans to our existing and potential multifamily customer base.
Moreover, the service of officers or partners of Cantor as our executive officers and directors, and those
persons’ ownership interests in and payments from Cantor and its affiliates, could create conflicts of interest when
we and those directors or executive officers are faced with decisions that could have different implications for us
and them.
We also have entered into agreements that provide certain rights to the holder of a majority of the Newmark
Holdings exchangeable limited partnership interest, which is currently Cantor. For example, the Amended and
Restated Separation and Distribution Agreement provides that dividends for a year to our common stockholders that
are 25% or more of our 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. In addition, the
Amended Separation and Distribution Agreement requires Newmark to contribute any reinvestment cash (i.e., any
cash that Newmark retains, after the payment of taxes, as a result of distributing a smaller percentage than Newmark
Holdings from the distributions they receive from Newmark OpCo), as an additional capital contribution with
respect to its existing limited partnership interest in Newmark OpCo, unless Newmark and the holder of a majority
of the Newmark Holdings exchangeable limited partnership interests agree otherwise. It is possible that Cantor, as
the holder of a majority of the Newmark Holdings exchangeable limited partnership interest, will not agree to a
higher dividend percentage or a different use of reinvestment cash, even if doing so might be more advantageous to
the Newmark stockholders.
Our agreements and other arrangements with BGC Partners and Cantor, including the Amended and Restated
Separation and Distribution Agreement, may be amended upon agreement of the parties to those agreements and
approval of our audit committee. During the time that we are controlled by Cantor, Cantor may be able to require us
to agree to amendments to these agreements. We may not be able to resolve any potential conflicts, and, even if we
do, the resolution may be less favorable to us than if we were dealing with an unaffiliated party. In order to address
potential conflicts of interest between or among BGC Partners, Cantor and their respective representatives and us,
our amended and restated certificate of incorporation contains provisions regulating and defining the conduct of our
affairs as they may involve BGC Partners and/or Cantor and their respective representatives, and our powers, rights,
duties and liabilities and those of our representatives in connection therewith. Our certificate of incorporation
provides that, to the greatest extent permitted by law, no Cantor Company or BGC Partners Company, each as
defined in our certificate of incorporation, or any of the representatives, as defined in our certificate of
incorporation, of a Cantor Company or BGC Partners Company will, in its capacity as our stockholder or affiliate,
owe or be liable for breach of any fiduciary duty to us or any of our stockholders. In addition, to the greatest extent
permitted by law, none of any Cantor Company, BGC Partners Company or any of their respective representatives
will owe any duty to refrain from engaging in the same or similar activities or lines of business as us or our
representatives or doing business with any of our or our representatives’ clients or customers. If any Cantor
Company, BGC Partners Company or any of their respective representatives acquires knowledge of a potential
transaction or matter that may be a corporate opportunity (as defined in our certificate of incorporation) for any such
person, on the one hand, and us or any of our representatives, on the other hand, such person will have no duty to
communicate or offer such corporate opportunity to us or any of our representatives, and will not be liable to us, any
of our stockholders or any of our representatives for breach of any fiduciary duty by reason of the fact that they
pursue or acquire such corporate opportunity for themselves, direct such corporate opportunity to another person or
do not present such corporate opportunity to us or any of our representatives, subject to the requirement described in
the following sentence. If a third party presents a corporate opportunity to a person who is both our representative
and a representative of a BGC Partners Company and/or a Cantor Company, expressly and solely in such person’s
capacity as our representative, and such person acts in good faith in a manner consistent with the policy that such
corporate opportunity belongs to us, then such person will be deemed to have fully satisfied and fulfilled any
60
fiduciary duty that such person has to us as our representative with respect to such corporate opportunity, provided
that any BGC Partners Company, any Cantor Company or any of their respective representatives may pursue such
corporate opportunity if we decide not to pursue such corporate opportunity.
The corporate opportunity policy that is included in our amended and restated certificate of incorporation is
designed to resolve potential conflicts of interest between us and our representatives and BGC Partners, Cantor and
their respective representatives. The Newmark Holdings and Newmark OpCo limited partnership agreements
contain similar provisions with respect to us and/or BGC Partners and Cantor and each of our respective
representatives. This policy, however, could make it easier for BGC Partners or Cantor to compete with us. If BGC
Partners or Cantor competes with us, it could materially harm our business, financial condition, results of operations
and prospects.
Mr. Lutnick has actual or potential conflicts of interest because of his positions with BGC Partners and/or
Cantor.
Mr. Lutnick serves as Chairman of the Board and Chief Executive Officer of BGC Partners and as Chairman
and Chief Executive Officer of Cantor and holds offices at various other affiliates of Cantor. In addition,
Mr. Lutnick owns BGC Partners common stock, other BGC Partners’ equity awards or partnership interests in BGC
Holdings, or equity interests in Cantor. These interests may be significant compared to his total assets. Although
BGC Partners is no longer our parent following the Spin-Off, Cantor controls both us and BGC. Mr. Lutnick’s
positions at BGC Partners and/or Cantor and the ownership of any such equity create, or may create the appearance
of, conflicts of interest when he is faced with decisions that could have different implications for BGC Partners or
Cantor than the decisions have for us.
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Agreements between us and BGC Partners and/or Cantor are between related parties, and the terms of
these agreements may be less favorable to us than those that we could negotiate with third parties and may
subject us to litigation.
Our relationship with BGC Partners and/or Cantor may result in agreements with BGC Partners and/or Cantor
that are between related parties. For example, we provide to and receive from Cantor and BGC Partners and their
respective affiliates various administrative services and transition services, respectively. As a result, the prices
charged to us or by us for services provided under agreements with BGC Partners and Cantor may be higher or
lower than prices that may be charged by third parties, and the terms of these agreements may be less favorable to us
than those that we could have negotiated with third parties. Any future material related-party transaction or
arrangement between us and BGC Partners and/or Cantor is subject to the prior approval by our audit committee, but
generally does not require the separate approval of our stockholders, and if such stockholder approval were required,
Cantor may retain sufficient voting power to provide any such requisite approval without the affirmative consent of
our other stockholders. These related-party relationships may also from time to time subject us to litigation.
We are controlled by Cantor. Cantor controls its wholly owned subsidiary, CF&Co, which was an
underwriter of our IPO and may provide us with additional investment banking services. From time to time, in
addition, Cantor, CF&Co and their affiliates may provide us with advice and services from time to time.
We are controlled by Cantor. Cantor, in turn, controls its wholly owned subsidiary, CF&Co, which was an
underwriter of our IPO. Pursuant to the underwriting agreement, we paid CF&Co 0.55% of the gross proceeds from
the sale of shares of our Class A common stock in connection with the IPO. In addition, Cantor, CF&Co and their
affiliates may provide investment banking services to us and our affiliates, including acting as our financial advisor
in connection with business combinations, dispositions or other transactions, and placing or recommending to us
various investments, stock loans or cash management vehicles. They would receive customary fees and
commissions for these services in accordance with our investment banking engagement letter with CF&Co. They
may also receive brokerage and market data and analytics products and services from us and our respective
affiliates.
We could be affected by threats, demands, actions or lawsuits from third parties or governmental
authorities, including those against Cantor or BGC Partners, for matters that occurred prior to the IPO.
From time to time in the ordinary course of business, we have in the past and may in the future be affected by
threats, demands, actions, subpoenas, or legal actions and/or proceedings commenced or threatened against Cantor
or BGC Partners or certain of their respective directors, officers or control persons for matters that occurred prior to
the IPO, when Newmark was a reporting segment of BGC Partners.
RISKS RELATED TO, OWNERSHIP OF OUR CLASS A COMMON STOCK AND OUR STATUS AS A
PUBLIC COMPANY
The market price of our Class A common stock may be volatile, which could cause the value of an
investment in our Class A common stock to decline.
The market price of our Class A common stock may fluctuate substantially due to a variety of factors,
including:
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our quarterly or annual earnings, or those of other companies in our industry;
actual or anticipated fluctuations in our results of operations;
differences between our actual financial and operating results and those expected by investors and
analysts;
changes in analysts’ recommendations or estimates or our ability to meet those estimates;
the prospects of our competition and of the commercial real estate market in general;
changes in general valuations for companies in our industry; and
62
(cid:120)
changes in business, legal or regulatory conditions, or other general economic or market conditions and
overall market fluctuations.
In particular, the realization of any of the risks described in these “Risk Factors” or under “Special Note
Regarding Forward-Looking Statements” could have a material adverse impact on the market price of our Class A
common stock in the future and cause the value of an investment in our Class A common stock to decline. In
addition, the stock markets in general have experienced substantial volatility that has often been unrelated to the
operating performance of particular companies. These types of broad market fluctuations may adversely affect the
trading price of our Class A common stock.
In the past, stockholders of other companies have sometimes instituted securities class action litigation against
issuers following periods of volatility in the market price of their securities. Any similar litigation against us could
result in substantial costs, divert management’s attention and our other resources and could have a material adverse
effect on our business, financial condition, results of operations and prospects. There is no assurance that such a suit
will not be brought against us.
If securities or industry analysts do not publish research or reports about our business, or publish negative
reports about our business, our share price and trading volume could decline.
The trading market for our Class A common stock depends, in part, on the research and reports that securities
or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade our
stock or publish unfavorable research about our business, our stock price could decline. If one or more of these
analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could
decrease, which might cause our stock price and trading volume to decline.
The requirements of being a public company may strain our resources, divert management’s attention and
affect our ability to attract and retain qualified board members.
As a public company, we incur significant legal, accounting and other expenses, including costs associated
with public company reporting requirements. We also incur costs associated with the Sarbanes-Oxley Act of 2002,
the Dodd-Frank Wall Street Reform and Consumer Protection Act and related rules implemented or to be
implemented by the SEC and the NASDAQ Stock Market LLC. The expenses incurred by public companies
generally for reporting and corporate governance purposes have been increasing. These laws and regulations could
also make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability
insurance, and we may be forced to accept constraints on policy limits and coverage or incur substantially higher
costs to obtain coverage. These laws and regulations could also make it more difficult for us to attract and retain
qualified persons to serve on our Board of Directors, our board committees or as our executive officers and may
divert management’s attention.
If we fail to implement and maintain an effective internal control environment, our operations, reputation
and stock price could suffer, we may need to restate our financial statements and we may be delayed in or
prevented from accessing the capital markets.
As a public company, we are required, under Section 404 of the Sarbanes-Oxley Act, to furnish a report by
management on, among other things, the effectiveness of our internal control over financial reporting. This
assessment is required to include disclosure of any material weaknesses identified by our management in our
internal control over financial reporting. A material weakness is a control deficiency or combination of control
deficiencies that results in more than a remote likelihood that a material misstatement of annual or interim financial
statements will not be prevented or detected. To achieve compliance with Section 404 within the prescribed period,
we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both
costly and challenging.
Internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore,
internal controls over financial reporting determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and may not prevent or detect all misstatements. Due to the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and
63
instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by
management override of the internal controls. Moreover, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate due to changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate. As such, we could lose investor confidence in the
accuracy and completeness of our financial reports, which may have a material adverse effect on our reputation and
stock price.
Our ability to identify and remediate any material weaknesses in our internal controls could affect our ability
to prepare financial reports in a timely manner, control our policies, procedures, operations and assets, assess and
manage our operational, regulatory and financial risks, and integrate our acquired businesses. Similarly, we need to
effectively manage any growth that we achieve in such a way as to ensure continuing compliance with all applicable
internal control, financial reporting and legal and regulatory requirements. Any failures to ensure full compliance
with internal control and financial reporting requirements could result in restatement, delay or prevent us from
accessing the capital markets and harm our reputation and the market price for our Class A common stock.
We are a “controlled company” within the meaning of the NASDAQ Stock Market rules and we qualify for
exemptions from certain corporate governance requirements. We do not currently expect or intend to rely on any
of these exemptions, but there is no assurance that we will not rely on these exemptions in the future.
Because Cantor controls more than a majority of the total voting power of our common stock, we are a
“controlled company” within the meaning of the NASDAQ Stock Market rules. Under these rules, a company of
which more than 50% of the voting power is held by another person or group of persons acting together is a
“controlled company” and may elect not to comply with certain stock exchange rules regarding corporate
governance, including:
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the requirement that a majority of its Board of Directors consist of independent directors;
the requirement that its director nominees be selected or recommended for the board’s selection by a
majority of the board’s independent directors in a vote in which only independent directors participate or
by a nominating committee comprised solely of independent directors, in either case, with a formal
written charter or board resolutions, as applicable, addressing the nominations process and such related
matters as may be required under the federal securities laws; and
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the requirement that its compensation committee be composed entirely of independent directors with a
written charter addressing the committee’s purpose and responsibilities.
We do not currently expect or intend to rely on any of these exemptions, but there is no assurance that we will
not rely on these exemptions in the future. If we were to utilize some or all of these exemptions, an investor in our
Class A Common Stock may not have the same protections afforded to stockholders of companies that are subject to
all of the NASDAQ Stock Market rules regarding corporate governance.
Future sales of shares of Class A common stock, could adversely affect the market price of our Class A
common stock. Our stockholders could be diluted by such future sales and be further diluted upon exchange of
Newmark Holdings limited partnership interests into our common stock and upon issuance of additional
Newmark OpCo limited partnership interests to Newmark Holdings as a result of future issuances of Newmark
Holdings limited partnership interests.
Future sales of our shares could adversely affect the market price of our Class A common stock. If our
existing stockholders sell a large number of shares, or if we issue a large number of shares of our Class A common
stock in connection with future acquisitions, strategic alliances, third-party investments and private placements or
otherwise, the market price of our Class A common stock could decline significantly. Moreover, the perception in
the public market that these stockholders might sell shares could depress the market price of our Class A common
stock.
64
As of December 31, 2018, Cantor and CFGM held no shares of our Class A common stock. As of
December 31, 2018, Cantor and CFGM held 21,285,533 shares of our Class B common stock, which represented all
of the outstanding shares of our Class B common stock. The shares of Class B common stock held by Cantor and
CFGM represented approximately 57.6% of our total voting power as of December 31, 2018.
We have entered into a registration rights agreement with Cantor that grants it registration rights to facilitate
its sale of shares of our Class A common stock in the market. Any sale or distribution, or expectations in the market
of a possible sale or distribution, by Cantor of all or a portion of our shares of Class A common stock through the
distribution, in a registered offering, pursuant to an exemption under the Securities Act or otherwise could depress or
reduce the market price for our Class A common stock or cause our shares to trade below the prices at which they
would otherwise trade.
We have registered under the Securities Act 50 million of 400 million shares of Class A common stock which
are reserved for issuance upon exercise of options, restricted stock and other equity awards granted under our Long-
Term Incentive Plan (which we refer to as the “Equity Plan”) and expect to register the balance from time to time in
the future. These shares can be sold in the public market upon issuance, subject to restrictions under the securities
laws applicable to resales by affiliates. We may in the future register additional shares of Class A common stock
under the Securities Act that become reserved for issuance under other equity incentive plans.
In addition, as of December 31, 2018, there were outstanding 60,869,379 limited partnership interests of
Newmark Holdings. Some of those limited partnership interests will be exchangeable with us for shares of our
common stock based on the exchange ratio (which was 0.9793 as of December 31, 2018, but is subject to adjustment
as set forth in the Amended and Restated Separation and Distribution Agreement). Shares of Class A common stock
issued upon such exchange would be eligible for resale in the public market.”
We may register for resale the shares of our Class A common stock for which the Newmark Holdings limited
partnership interests are exchangeable. In light of the number of shares of our common stock issuable in connection
with the full exchange of the Newmark Holdings exchangeable limited partnership interests, the price of our Class A
common stock may decrease and our ability to raise capital through the issuance of equity securities may be
adversely impacted as these exchanges occur and any transfer restrictions lapse.
Any such potential sale, disposition or distribution of our common stock, or the perception that such sale,
disposition or distribution could occur, could adversely affect prevailing market prices for our Class A common
stock.
Delaware law, our corporate organizational documents and other requirements may impose various
impediments to the ability of a third party to acquire control of us, which could deprive our investors of the
opportunity to receive a premium for their shares.
We are a Delaware corporation, and the anti-takeover provisions of the Delaware General Corporation Law
(which we refer to as the “DGCL”), our amended and restated certificate of incorporation and our amended and
restated bylaws (which we refer to as our “bylaws”) impose various impediments to the ability of a third party to
acquire control of us, even if a change of control would be beneficial to our Class A stockholders.
These provisions, summarized below, may discourage coercive takeover practices and inadequate takeover
bids. These provisions may also encourage persons seeking to acquire control of us to first negotiate with our Board
of Directors. We believe that the benefits of increased protection give us the potential ability to negotiate with the
initiator of an unfriendly or unsolicited proposal to acquire or restructure us and outweigh the disadvantages of
discouraging those proposals because negotiation of them could result in an improvement of their terms.
Our bylaws provide that special meetings of stockholders may be called only by the Chairman of our Board of
Directors, or in the event the Chairman of our Board of Directors is unavailable, by the Chief Executive Officer or
by the holders of a majority of the voting power of our Class B common stock, which are currently held by Cantor
and CFGM. In addition, our certificate of incorporation permits us to issue “blank check” preferred stock.
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Our bylaws require advance written notice prior to a meeting of our stockholders of a proposal or director
nomination which a stockholder desires to present at such a meeting, which generally must be received by our
Secretary not later than 120 days prior to the first anniversary of the date of our proxy statement for the preceding
year’s annual meeting. In the event that the date of the annual meeting is more than 30 days before or more than 60
days after such anniversary date, notice by the stockholder to be timely must be so delivered not later than the close
of business on the later of the 120th day prior to the date of such proxy statement or the 10th day following the day
on which public announcement of the date of such meeting is first made by us. Our bylaws provide that all
amendments to our bylaws must be approved by either the holders of a majority of the voting power of all of our
outstanding capital stock entitled to vote or by a majority of our Board of Directors.
We have elected in our amended and restated certificate of incorporation not to be subject to Section 203 of
the DGCL, which generally prohibits a publicly held Delaware corporation from engaging in a business
combination, such as a merger, with a person or group owning 15% or more of the corporation’s voting stock, for a
period of three years following the date on which the person became an interested stockholder, unless (with certain
exceptions) the business combination or the transaction in which the person became an interested stockholder is
approved in accordance with Section 203. Accordingly, we are not subject to the anti-takeover effects of
Section 203. However, our certificate of incorporation contains provisions that have the same effect as Section 203,
except that they provide that each of the Qualified Class B Holders and certain of their direct transferees will not be
deemed to be “interested stockholders,” and accordingly will not be subject to such restrictions.
Further, our Equity Plan contains provisions pursuant to which grants that are unexercisable or unvested may
automatically become exercisable or vested as of the date immediately prior to certain change of control events.
Additionally, change in control and employment agreements between us and our named executive officers also
provide for certain grants, payments and grants of exchangeability in the event of certain change of control events.
The foregoing factors, as well as the significant common stock ownership by Cantor including shares of our
Class B common stock, and rights to acquire additional such shares, and the provisions of any debt agreements
could impede a merger, takeover or other business combination or discourage a potential investor from making a
tender offer for our Class A common stock that could result in a premium over the market price for shares of
Class A common stock.
Our certificate of incorporation provides that a state court located within the State of Delaware (or, if no
state court located within the State of Delaware has jurisdiction, the federal court for the District of Delaware)
shall be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could
limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers,
employees or agents.
Our certificate of incorporation provides that, unless we consent to the selection of an alternative forum, a
state court located within the State of Delaware (or, if no state court located within the State of Delaware has
jurisdiction, the federal court for the District of Delaware) shall be the sole and exclusive forum for any derivative
action or proceeding brought on our behalf; any action asserting a claim for or based on a breach of duty or
obligation owed by any current or former director, officer, employee or agent of ours to us or to our stockholders,
including any claim alleging the aiding and abetting of such a breach; any action asserting a claim against us or any
current or former director, officer, employee or agent of ours arising pursuant to any provision of the DGCL or our
certificate of incorporation or bylaws; any action asserting a claim related to or involving us that is governed by the
internal affairs doctrine; or any action asserting an “internal corporate claim” as that term is defined in Section 115
of the DGCL. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum
that it finds favorable for disputes with us or our directors, officers, employees or agents, which may discourage
such lawsuits against us and our directors, officers, employees and agents. Alternatively, if a court were to find the
choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an
action, we may incur additional costs associated with resolving such action in other jurisdictions, which could have a
material adverse effect on our business, financial condition, results of operations and prospects.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not Applicable.
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ITEM 2.
PROPERTIES
Our principal executive offices are located at 125 Park Avenue, New York, New York 10017. They consist of
approximately 150,000 square feet of space under a lease that expires in 2031.
We operate out of more than 135 offices in the United States (in Alabama, Arizona, Arkansas, California,
Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Maryland, Massachusetts, Michigan, Minnesota,
Missouri, Nevada, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee,
Texas, Virginia, Washington and the District of Columbia), offices in Mexico, including in Mexico City, as well as
offices in Canada, including in Toronto and Vancouver. In addition, we have licensed our name to 15 commercial
real estate providers that operate out of 27 offices in certain locations throughout the Americas where we do not
have our own offices. Our partner, Knight Frank, operates out of over 500 offices. We believe our facilities are
sufficient for our current needs.
ITEM 3.
LEGAL PROCEEDINGS
See Note 30–– “Commitments and Contingencies” to the Company’s Consolidated Financial Statements
included in Part II, Item 8 of this Annual Report on Form 10-K for a description of our legal proceedings which is
incorporated by reference herein.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our Class A common stock is traded on the NASDAQ Global Select Market under the symbol “NMRK.”
There is no public trading market for our Class B common stock, which is held by Cantor and CFGM.
As of March 13, 2019, there were 703 holders of record of our Class A common stock and 2 holders of record
of our Class B common stock.
Dividend Policy
Our board of directors has authorized a dividend policy that reflects our intention to pay a quarterly
dividend. Our dividends to our common stockholders will be determined by our board of directors based on our
expected post-tax Adjusted Earnings per fully diluted share, as a measure of net income for the year. See below for a
definition of “post-tax Adjusted Earnings” per fully diluted share.
For the fourth quarter of 2018, our board of directors declared a dividend of $0.09 per share. We have
indicated that we expect to announce the annual expected dividend rate for a given year after the first quarter of such
year.
The declaration, payment, timing and amount of any future dividends payable by us will be at the sole
discretion of our board of directors, provided that any dividend to our common stockholders that would result in the
dividends for a year exceeding 25% of our 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. We are a holding company, with no direct operations, and therefore we are able to pay dividends only
from our available cash on hand and funds received from distributions from Newmark OpCo. Our ability to pay
dividends may also be limited by regulatory or other considerations as well as by covenants contained in financing
or other agreements. In addition, under Delaware law our dividends may be payable only out of surplus, which is
our net assets minus our capital (as defined under Delaware law), or, if we have no surplus, out of our net profits for
the fiscal year in which the dividend is declared and/or the preceding fiscal year. Accordingly, any unanticipated
accounting, tax, regulatory or other charges may adversely affect our ability to declare and pay dividends. While we
intend to declare and pay dividends quarterly, there can be no assurance that our board of directors will declare
dividends at all or on a regular basis or that the amount of our dividends will not change.
Repurchase Program
On March 12, 2018, our Board of Directors and Audit Committee authorized repurchases of shares of our
Class A common stock and redemptions or repurchases of limited partnership interests or other equity interests in
our subsidiaries up to $100 million in aggregate. On August 1, 2018, our Board of Directors and Audit Committee
increased our authorization by $100 million to $200 million. This authorization includes repurchases of stock or
units from executive officers, other employees and partners, including of BGC and Cantor, as well as other affiliated
persons or entities. From time to time, we may repurchase shares or redeem or repurchase units.
As of December 31, 2018, we had approximately $199.5 million remaining from our share repurchase and unit
redemption authorization. From time to time, we may actively continue to repurchase shares and/or redeem units.
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Partnership and Equity Repurchases
The following table details our share repurchase activity during the fourth quarter of 2018, including the total
number of shares purchased, the average price paid per share, the number of shares repurchased as part of our
publicly announced repurchase program and the approximate value that may yet be purchased under such program:
Total
Number of
Shares
Repurchased
Average
Price Paid
per Unit
or Share
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Program
Approximate
Dollar Value
of Units and
Shares That
May Yet Be
Redeemed/
Purchased
Under the Plan
—
—
50,000 $
50,000 $
—
—
9.73
9.73
—
—
50,000
50,000
—
—
—
$ 199,513,725
Period
Repurchases
October 1, 2018 - October 31, 2018
November 1, 2018 - November 30, 2018
December 1, 2018 - December 31, 2018
Total
Performance Graph
The performance graph below shows a comparison of the cumulative total stockholder return, on a net
dividend reinvestment basis, of $100 invested on December 15, 2017, measured on December 31, 2017, March 31,
2018, June 30, 2018, September 30, 2018, and December 31, 2018. The Peer Group consists of CBRE Group, Inc.,
Colliers International Group Inc., Jones Lang LaSalle Incorporated, HFF, Inc., and Savills plc. The returns of the
peer group companies have been weighted according to their U.S. dollar stock market capitalization for purposes of
arriving at a peer group average. Total returns are shown on a “net dividend” basis, which tax effects dividend
reinvestments from companies operating under certain U.K. and European tax jurisdictions, according to local tax
laws.
* $100 invested on 12/15/17 in stock or index, including reinvestment of dividends.
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Note: Peer group indices use beginning of period market capitalization weighting. The above graph was
prepared by Zacks Investment Research, Inc. and used with their permission, all rights reserved, Copyright 1980-
2018. S&P 500 is Copyright © 2018 S&P Dow Jones Indices LLC, a division of S&P Global, all rights reserved.
Certain Definitions
We use non-GAAP financial measures that differ from the most directly comparable measures calculated and
presented in accordance with Generally Accepted Accounting Principles in the United States (“GAAP”). Non-
GAAP financial measures used by the Company include “pre-tax Adjusted Earnings” “post-tax Adjusted Earnings”,
and “Adjusted EBITDA”. These terms are defined later in this document. Adjusted Earnings and Adjusted EBITDA
exclude charges with respect to grants of exchangeability. Whenever GAAP charges with respect to grants of
exchangeability are discussed by the Company, such charges reflect the right of holders of limited partnership
units with no capital accounts, such as LPUs and PSUs, to exchange these units into shares of common stock, or into
partnership units with capital accounts, such as HDUs, as well as cash paid with respect to taxes withheld or
expected to be owed by the unit holder upon such exchange.
The withholding taxes related to the exchange of certain non-exchangeable units without a capital account into
either common shares or units with a capital account may be funded by the redemption of preferred units such as
PPSUs. Any preferred units would not be included in the Company’s fully diluted share count because they cannot
be made exchangeable into shares of common stock and are entitled only to a fixed distribution. Preferred units are
granted in connection with the grant of certain limited partnership units that may be granted exchangeability at ratios
designed to cover any withholding taxes expected to be paid by the unit holder upon exchange. This is an alternative
to the common practice among public companies of issuing the gross amount of shares to employees, subject to
cashless withholding of shares, to pay applicable withholding taxes.
Adjusted Earnings and Adjusted EBITDA exclude GAAP charges with respect to the grant of an offsetting
amount of common stock in connection with the redemption of non-exchangeable units, including PSUs and LPUs.
Such charges are economically similar to grants of exchangeability and reflect the value of the common stock
issued. These charges are non-dilutive, as the units had been included when issued for diluted earnings per share
calculations.
In addition, Adjusted Earnings and Adjusted EBITDA exclude GAAP charges with respect to allocations of
net income to limited partnership units and FPUs. Such allocations represent the pro-rata portion of post-tax GAAP
earnings available to such unit holders. These units are in the fully diluted share count and may be made
exchangeable into shares of common stock or, when applicable, into partnership units with capital accounts that may
be made exchangeable into common shares. When such units are exchanged into common shares, unit holders
become entitled to cash dividends rather than cash distributions. The Company views such allocations as
intellectually similar to dividends on common shares. Because dividends paid on common shares are not an expense
under GAAP, management believes similar allocations of income to unit holders should also be excluded when
analyzing the Company’s results on a fully diluted share basis with respect to Adjusted Earnings and Adjusted
EBITDA.
Adjusted Earnings calculations also exclude certain unusual, one-time, non-ordinary or non-recurring items, if
any, including certain gains and charges with respect to acquisitions, dispositions, or resolutions of litigation. These
items are excluded from Adjusted Earnings because the Company views excluding such items as a better reflection
of the ongoing operations of Newmark.
Furthermore, Adjusted Earnings and Adjusted EBITDA calculations exclude 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.
70
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 when managing its business.
As compared with “income (loss) from operations before income taxes” and “net income (loss) from
operations per fully diluted share”, all prepared in accordance with GAAP, Adjusted Earnings calculations primarily
exclude certain non-cash items 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 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 interests, excluding items such as:
(cid:120) Net non-cash GAAP gains or losses related to OMSRs and MSRs
(cid:120) The impact of any unrealized non-cash mark-to-market gains or losses on “other income” related to the
variable share forward agreements with respect to Newmark’s expected receipt of the Nasdaq payments
in 2019, 2020, 2021, and 2022 (the “Nasdaq Forwards”);
(cid:120) Mark-to-market adjustments for cost basis investments under ASU 2016-01;
(cid:120) Non-cash GAAP asset impairment charges, if any;
(cid:120) Allocations of net income to limited partnership units;
(cid:120) Non-cash GAAP charges related to the amortization of intangibles with respect to acquisitions;
(cid:120) GAAP charges relating to grants of exchangeability of partnership units with no capital accounts into
shares of common stock or into partnership units with capital accounts, and, in conjunction with the
exchange of such units, the redemption of preferred units;
(cid:120) GAAP charges with respect to the grant of an offsetting amount of common stock in connection with the
redemption of certain units; and
(cid:120) Unusual, one-time, non-ordinary, or non-recurring items.
Virtually all of Newmark’s key executives and producers have equity or partnership stakes in the Company
and its subsidiaries and generally receive deferred equity or limited partnership units as part of their compensation.
A significant percentage of Newmark’s fully diluted shares are owned by its executives, partners and employees.
The Company issues limited partnership units as well as other forms of equity-based compensation, including grants
of exchangeability into shares of common stock, to provide liquidity to its employees, to align the interests of its
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 because the unit holder could be granted the ability to exchange their
units into shares of common stock in the future. Generally, units other than preferred units are expected to be paid a
pro rata distribution based on Newmark’s calculation of Adjusted Earnings per fully diluted share. 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 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 and other compensatory grants of equity during the annual period, as described further below under
“Adjustments Made to Calculate Post-Tax Adjusted Earnings”.
71
Adjustments Made to Calculate Post-Tax Adjusted Earnings
Although Adjusted Earnings are calculated on a pre-tax basis, Newmark also reports post-tax Adjusted
Earnings to fully diluted shareholders. The Company defines post-tax Adjusted Earnings to fully diluted
shareholders as pre-tax Adjusted Earnings reduced by the non-GAAP tax provision described below and net income
(loss) attributable to noncontrolling interests for Adjusted Earnings.
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 and other compensatory grants of equity 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 charges with
respect to grants of exchangeability and other compensatory grants of equity; 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 adjustments, the result is the Company’s taxable income for its pre-tax Adjusted
Earnings, to which Newmark then applies the statutory tax rates to determine its non-GAAP tax provision.
Newmark views the effective tax rate on pre-tax Adjusted Earnings as equal to the amount of its 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 charges relating
to the grants of exchangeability and other compensatory grants of equity. Because the charges relating to the grants
of exchangeability and other compensatory grants of equity are deductible in accordance with applicable tax laws,
increases in exchangeability and such grants have the effect of lowering the Company’s non-GAAP effective tax
rate and thereby increasing its post-tax Adjusted Earnings.
Management uses Adjusted Earnings in part to help it evaluate, among other things, the overall performance
of the Company’s 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 U.S. partnerships and are
subject to the Unincorporated Business Tax (“UBT”) in New York City. Any U.S. 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 U.S. federal, state
and local income taxes on the Company’s allocable share of the U.S. results of operations. Outside of the U.S.,
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.
72
Calculations Post-Tax Adjusted Earnings per Share
Newmark’s Post-tax Adjusted Earnings per share calculations assume either that:
(cid:120) The fully diluted share count includes the shares related to any dilutive instruments, but excludes the
associated expense, net of tax, when the impact would be dilutive; or
(cid:120) The fully diluted share count excludes the shares related to these instruments, but includes the associated
expense, net of tax.
The share count for Adjusted Earnings excludes certain shares and share equivalents 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 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 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 Adjusted Earnings per share on a pre-tax basis.
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. In addition, the non-cash preferred dividends
are excluded from Adjusted Earnings per share as Newmark expects to redeem the related EPUs with Nasdaq
shares.
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, as well as related
measures, 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 the GAAP and Adjusted Earnings measures of financial performance should be considered together.
Newmark anticipates providing forward-looking guidance for GAAP revenues and for certain non-GAAP
measures from time to time. However, the Company does not anticipate providing an outlook for other GAAP
results. 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 forecasts to non-GAAP forecasts 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:
(cid:120) Allocations of net income and grants of exchangeability to limited partnership units, as well as other
compensatory grants of equity, which are determined at the discretion of management throughout and up
to the period-end;
(cid:120) The impact of certain marketable securities, as well as any gains or losses related to associated mark-to-
market movements and/or hedging including with respect to the Nasdaq Forwards. These items are
calculated using period-end closing prices;
(cid:120) 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
(cid:120) Acquisitions, dispositions and/or resolutions of litigation, which are fluid and unpredictable in nature.
For more information regarding Adjusted Earnings, see the Company’s most recent financial results press
release in which Newmark’s non-GAAP results are reconciled to those under GAAP.
73
Adjusted EBITDA
Newmark also provides an additional non-GAAP financial performance measure, “Adjusted EBITDA”, which
it defines as GAAP “Net income (loss) available to common stockholders”, adjusted to add back the following
items:
(cid:120)
Interest expense;
(cid:120) Fixed asset depreciation and intangible asset amortization;
(cid:120)
Impairment charges;
(cid:120) Employee loan amortization and reserves on employee loans;
(cid:120) Provision (benefit) for income taxes;
(cid:120) Net income (loss) attributable to noncontrolling interest;
(cid:120) Allocations of net income to limited partnership units;
(cid:120) GAAP charges relating to grants of exchangeability of partnership units with no capital accounts into
shares of common stock or into partnership units with capital accounts, and, in conjunction with the
exchange of such units, the redemption of preferred units;
(cid:120) GAAP charges with respect to the grant of an offsetting amount of common stock in connection with the
redemption of certain units;
(cid:120) Net non-cash GAAP gains or losses related to OMSRs and MSRs;
(cid:120) The impact of any unrealized non-cash mark-to-market gains or losses on “other income” related to the
variable share forward agreements with respect to Newmark’s expected receipt of the Nasdaq payments
in 2019, 2020, 2021, and 2022 (the “Nasdaq Forwards”);
(cid:120) Mark-to-market adjustments for cost basis investments under ASU 2016-01; and
(cid:120) Non-cash earnings or losses related to the Company’s equity investments.
The Company’s management believes that its Adjusted EBITDA measure is useful in evaluating Newmark’s
operating performance, because the calculation of this measure generally eliminates 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 this measure to
evaluate operating performance and for other discretionary purposes. Newmark believes that Adjusted EBITDA is
useful to investors to assist them in getting a more complete picture of the Company’s financial results and
operations.
Since Newmark’s Adjusted EBITDA is not a recognized measurement under GAAP, investors should use this
measure in addition to GAAP measures of net income when analyzing Newmark’s operating performance. Because
not all companies use identical EBITDA calculations, the Company’s presentation of Adjusted EBITDA may not be
comparable to similarly titled measures of other companies. Furthermore, Adjusted EBITDA is not intended to be a
measure of free cash flow or GAAP cash flow from operations because the Company’s Adjusted EBITDA does not
consider certain cash requirements, such as tax and debt service payments.
74
For more information regarding Adjusted EBITDA, see the Company’s most recent financial results press
release in which Newmark’s non-GAAP results are reconciled to those under GAAP.
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.
Simplifying Non-GAAP Reporting Beginning in 2019
Beginning with the first quarter of 2019, the Company expects to simplify and clarify its definitions of
Adjusted Earnings and Adjusted EBITDA in order to be more consistent with how many other companies report
their non-GAAP results.
Specifically, the Company will no longer add back only grants of exchangeability to limited partnership units
and FPUs and issuance of common stock. Instead, Newmark anticipates adding back all charges relating to equity-
based compensation, as described below. The amount added back each period is expected to match the line item
Equity-based compensation and allocations of net income to limited partnership units as recorded on the Company’s
GAAP statements of cash flows. This GAAP line item includes:
(cid:120) GAAP charges relating to grants of exchangeability of partnership units with no capital accounts into
shares of common stock or into partnership units with capital accounts, and, in conjunction with the
exchange of such units, the redemption of preferred units;
(cid:120) GAAP charges related to amortization of RSUs and limited partnership units as well as to grants of equity
awards;
(cid:120) GAAP charges with respect to the grant of an offsetting amount of common stock in connection with the
redemption of certain units; and
(cid:120) GAAP allocations of net income to limited partnership units.
All share equivalents that are part of the Company’s equity-based compensation program, including RSUs,
REUs, PSUs, LPUs, HDUs and other units that may be made exchangeable into common stock, have always been
included in the fully diluted share count when issued. The Company expects to periodically provide an annual
outlook for the growth of its fully diluted share count expected as a result of its ongoing equity-based and
partnership compensation program.
The Company also plans to no longer exclude GAAP charges with respect to employee loan amortization and
reserves on employee loans when calculating Adjusted EBITDA. Such GAAP charges totalled approximately $28
million in 2018 and $34 million in 2017. Newmark’s 2019 outlook for Adjusted EBITDA excludes a similar amount
to the 2018 figure with respect to employee loan amortization and reserves on employee loans and is therefore
consistent with the old non-GAAP definition. Going forward, the Company’s recast Adjusted EBITDA for 2017 and
2018 as well as its 2019 outlook for Adjusted EBITDA will no longer exclude GAAP charges with respect to
employee loan amortization and reserves on employee loans.
These anticipated changes in non-GAAP presentation will be implemented for the first time when the
Company reports its results for the three months ended March 31, 2019. The Company has recast its historical non-
GAAP financial presentation for 2018 and 2017 consistent with this new definition on its investor relations website
at http://ir.ngkf.com. Information contained on our website shall not be deemed to be part of this Annual Report on
Form 10-K or incorporated by reference herein.
75
ITEM 6.
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected combined and consolidated financial data for the last five years ended
December 31, 2018. This selected consolidated financial data should be read in conjunction with “Item 7—
Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated
Financial Statements and the accompanying Notes thereto included elsewhere in this Annual Report on Form 10-K.
Amounts in thousands, except per share data.
Revenues:
Commissions
Gain from mortgage banking activities, net
Management services, servicing fees and other
Total revenues
Expenses:
Compensation and employee benefits
Allocations of net income and grant of
exchangeability to limited partnership units
and FPUs and issuance of common stock
Total compensation and employee benefits
Operating, administrative and other
Fees to related parties
Depreciation and amortization
Total operating expenses
Other income (losses), net:
Other income (loss)
Total other income (losses), net
20181
Year Ended December 31,
20161
20151
20171
20141
$ 1,286,339 $ 1,014,716 $ 849,419 $ 806,931 $ 543,520
182,264 206,000 193,387 115,304
79,751
578,976 375,734 307,177 278,012 220,976
2,047,579 1,596,450 1,349,983 1,200,247 844,247
1,155,834 1,020,183 849,975 816,268 561,181
72,318 142,195
230,795 114,657
20,467
1,386,629 1,134,840 922,293 958,463 581,648
331,758 219,163 185,343 162,316 116,381
11,208
41,083
1,842,282 1,470,589 1,197,843 1,211,024 750,320
18,471
71,774
18,010
72,197
26,162
97,733
20,771
95,815
15,279
127,293
15,279
127,293
332,590 199,788 167,419
3,786
73,927
73,927
(50,205 )
2,786
282,385 202,574 171,205
3,993
191,898 145,096 167,212
90,487
57,478
85,166
(1,189 )
$ 106,732 $ 144,492 $ 168,401 $
604
(460 )
(460 )
(11,237 )
1,867
(9,370 )
(6,644 )
(2,726 )
(1,146 )
(1,146 )
92,781
622
93,403
(268 )
93,671
77
(2,803 ) $
933
92,738
Income (loss) from operations
Interest income, net
Income (loss) before income taxes and
noncontrolling interests
Provision (benefit) for income taxes
Consolidated net income (loss)
Less: Net income (loss) attributable to
noncontrolling interests
Net income (loss) to common stockholders
Per share data:
Basic earnings (loss) per share
Fully diluted earnings per share
Basic weighted-average shares of
common stock outstanding
Fully diluted weighted-average shares of
common stock outstanding
163,810 138,398
N/A
$
Dividends declared per share of common stock
Dividends declared and paid per share of common stock $
N/A
Cash and cash equivalents
Total assets
Notes payable and collateralized borrowings
Notes payable to related parties
Total liabilities
Total stockholders’ equity
157,256 133,413
0.65 $
0.64 $
1.08
0.85
$
$
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
0.36
0.27
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
$ 122,475 $ 121,027 $
94,132
$ 3,454,157 $ 2,273,007 $ 2,534,688 $ 1,657,930 $ 1,773,785
—
$ 537,926 $ 670,710 $
—
$
$ 2,371,189 $ 2,029,593 $ 1,550,905 $ 853,896 $ 1,089,909
$ 1,056,798 $ 222,318 $ 983,783 $ 804,034 $ 683,876
— $
— $ 412,500 $ 690,000 $
66,627 $ 111,430 $
— $
— $
(1)
Financial results have been retrospectively adjusted to include the financial results of Berkeley Point. See “Item 7––Management,
Discussion and Analysis of Financial Condition and Results of Operations — Berkeley Point Acquisition and Investment in Real
Estate L.P.”
76
ITEM 7.
RESULTS OF OPERATIONS
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
The following discussion of Newmark’s financial condition and results of operations should be read together
with Newmark’s consolidated financial statements and related notes, as well as the “Special Note Regarding
Forward-Looking Statements” relating to forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), included elsewhere in this Annual Report on Form 10-K. When used herein, the
terms “Newmark Knight Frank,” “Newmark,” the “Company,” “we,” “us,” and “our” refer to Newmark and its
consolidated subsidiaries.
This discussion summarizes the significant factors affecting our results of operations and financial condition
during the years ended December 31, 2018, 2017 and 2016. We operate in one reportable segment, real estate
services. This discussion is provided to increase the understanding of, and should be read in conjunction with, our
consolidated financial statements and the notes thereto included elsewhere in this report.
Overview and Business Environment
Newmark is a growing, full-service commercial real estate services business. We have been the fastest
growing U.S. commercial real estate services firm (when compared with our publicly traded U.S. peers), with a
revenue CAGR of 23.2% from 2016 to 2018. We offer a diverse array of integrated services and products designed
to meet the full needs of both real estate investors/owners and occupiers. Our investor/owner services and products
include capital markets, which consists of investment sales, debt and structured finance and loan sales, agency
leasing, property management, valuation and advisory, commercial real estate due diligence consulting and advisory
services and GSE lending and loan servicing, mortgage broking and equity-raising. Our occupier services and
products include tenant representation, real estate management technology systems, workplace and occupancy
strategy, global corporate consulting services, project management, lease administration and facilities management.
We enhance these services and products through innovative real estate technology solutions and data analytics that
enable our clients to increase their efficiency and profits by optimizing their real estate portfolio. We have
relationships with many of the world’s largest commercial property owners, real estate developers and investors, as
well as Fortune 500 and Forbes Global 2000 companies. For the year ended December 31, 2018, we generated
revenues of $2.0 billion representing year-over-year growth of 28%.
We generate revenues from commissions on leasing and capital markets transactions, consulting and
technology user fees, property and facility management fees, and mortgage origination and loan servicing fees.
Our growth to date has been focused in North America. We have more than 5,200 employees, including more
than 1,700 revenue-generating producers in over 135 offices in 96 cities. In addition, Newmark has licensed its
name to 15 commercial real estate providers that operate out of 27 offices in certain locations where Newmark does
not have its own offices. Our partner, Knight Frank, operates out of over 500 offices.
The discussion of our financial results reflects only those businesses owned by us 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.
Over the past several years, we expanded our capital markets capabilities through the strategic addition of
many prolific, accomplished capital markets producers in key markets throughout the United States. We have access
to many of the world’s largest owners of commercial real estate, and this will drive growth throughout the life cycle
of each real estate asset by allowing us to provide best-in-class agency leasing and property management during the
ownership period. We also provide investment sales and arrange debt and equity financing to assist owners in
maximizing the return on investment in each of their real estate assets. Specifically, with respect to multifamily
assets, we are a leading GSE lender by loan origination volume and servicer with a servicing portfolio of
$60.0 billion as of December 31, 2018 (of which approximately 5% relates to special servicing). This servicing
portfolio provides a steady stream of income over the life of the serviced loans. Additionally, we expect to see
continued growth from our valuation and advisory business particularly in conjunction with our increasingly robust
capital markets platform.
77
We continue to invest in the business by adding high profile and talented producers and other revenue-
generating professionals. Historically, newly hired commercial real estate producers tend to achieve dramatically
higher productivity in their second and third years with our company, although we incur related expenses
immediately. As our newly hired producers increase their production, we expect our commission revenue and
earnings growth to accelerate, thus reflecting our operating leverage. Our pre-tax margins are impacted by the mix
of revenues generated. For example, servicing revenues tend to have higher pre-tax margins than Newmark as a
whole and margins from “Gains from mortgage banking activities/originations”, net tend to be lower as we retain
rights to service loans over time. In addition, capital markets, which includes sales, commercial mortgage broking,
and other real estate-related financial services, generally has larger transactions that occur with less frequency and
visibility when compared with leasing advisory. Capital markets transactions tend to have higher pre-tax margins
than leasing advisory transactions, while leasing advisory revenues are generally more predictable than revenues
from capital markets. Property and facilities management, along with certain of our other GCS products, generally
have the most predictable and steady revenues, although pre-tax earnings margins for property and facilities
management are at the lower end of those for our business as a whole. When management services clients agree to
give us exclusive rights to provide real estate services for their facilities or properties, it is for an extended period,
which provides us with stable and foreseeable sources of revenues. Newmark’s revenues are balanced between
businesses that are relatively less predictable and contractual sources that are very predictable. Approximately 68%
of our revenues for the year ended December 31, 2018 were generated by our most predictable and highly visible
sources, including agency leasing, valuation, GCS, management services, loan servicing and tenant representation
leasing business. The remaining 32% of revenues were generated by our more transactional investment sales,
mortgage brokerage, and GSE lending platforms. Despite being more transactional, there are $2 trillion of mortgage
maturities between 2019 and 2023 which should support strong levels of mortgage brokerage activities.
Berkeley Point Acquisition and Investment in Real Estate LP
On July 18, 2017, BGC announced that it agreed to acquire Berkeley Point from an affiliate of Cantor. This
affiliate of Cantor had acquired Berkeley Point on April 10, 2014. Berkeley Point is a leading commercial real estate
finance company focused on the origination and sale of multifamily and other commercial real estate loans through
government-sponsored and government-funded loan programs, as well as the servicing of commercial real estate
loans, including those it originates. The acquisition of Berkeley Point was completed on September 8, 2017 (the
“Berkeley Point Acquisition”). The total consideration for the Berkeley Point Acquisition was $875 million, subject
to certain adjustments at closing.
On December 13, 2017, in connection with the Separation, the assets and liabilities of BPF were transferred to
Newmark. This transaction has been determined to be a combination of entities under common control that resulted
in a change in the reporting entity. Accordingly, our financial results have been recast to include the financial results
of BPF in the prior periods as if BPF had always been consolidated. The addition of Berkeley Point has significantly
increased the scale and scope of our business and generated substantial revenue synergies across our multifamily
business.
The following table summarizes the impact of the Berkeley Point Acquisition to Newmark’s consolidated
statement of operations for the year ended December 31, 2016 (in thousands, except per share amounts):
Year ended December 31, 2016
As
Retrospectively
Adjusted
Retrospective
Adjustments
As
Previously
Reported
Income before income taxes and noncontrolling
interests
Consolidated net income
Less: Net loss attributable to noncontrolling
interests
Net income available to common stockholders
$ 45,295 $ 125,910 $
$ 41,382 $ 125,830 $
171,205
167,212
(1,189 )
—
$ 42,571 $ 125,830 $
(1,189 )
168,401
Concurrently with the Berkeley Point Acquisition, on September 8, 2017 Newmark invested $100.0 million
in a newly formed commercial real estate-related financial and investment business, CF Real Estate Finance
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Holdings, L.P. (“Real Estate LP”), which is controlled and managed by Cantor. Real Estate LP may conduct
activities in any real estate related business or asset backed securities-related business or any extensions thereof and
ancillary activities thereto. In addition, Real Estate LP may provide short-term loans to related parties from time to
time when funds in excess of amounts needed for investment are available. As of December 31, 2018, Newmark’s
investment in Real Estate LP was accounted for under the equity method.
Separation, Initial Public Offering, and Spin-Off
Separation and Distribution Agreement
On December 13, 2017, prior to the closing of Newmark’s IPO, BGC, BGC Holdings, BGC Partners, L.P.
(BGC U.S. OpCo), Newmark, Newmark Holdings, Newmark Holdings, Newmark OpCo, and, solely for the
provisions listed therein, Cantor and (BGC Global OpCo) entered into a Separation and Distribution Agreement (the
“Original Separation and Distribution Agreement”). The Original Separation and Distribution Agreement sets forth
the agreements among BGC, Cantor, Newmark and their respective subsidiaries regarding, among other things:
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the principal corporate transactions pursuant to which BGC, BGC Holdings and BGC U.S. OpCo and
their respective subsidiaries (other than the Newmark Group (defined below), the “BGC Group”)
transferred to Newmark, Newmark Holdings and Newmark OpCo and their respective subsidiaries (the
“Newmark Group”) the assets and liabilities of the BGC Group relating to BGC’s Real Estate Services
business (the “Separation”);
the proportional distribution of interests in Newmark Holdings to holders of interests in BGC Holdings;
the IPO;
the assumption and repayment of indebtedness by the BGC Group and the Newmark Group, as further
described below;
the pro rata distribution of the shares of Newmark Class A common stock and the shares of Newmark
Class B common stock held by BGC, pursuant to which shares of Newmark Class A common stock held
by BGC would be distributed to the holders of shares of Class A common stock of BGC and shares of
Newmark Class B Common Stock held by BGC would be distributed to the holders of shares of Class B
common stock of BGC (which were then Cantor and another entity controlled by Howard W. Lutnick),
which distribution was intended to qualify as generally tax-free for U.S. federal income tax purposes;
provided that the determination of whether, when and how to proceed with the Distribution shall be
entirely within the discretion of BGC; and
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other agreements governing the relationship between BGC, Newmark and Cantor.
Related Agreements
In connection with the Separation and the IPO, on December 13, 2017, the applicable parties entered into the
following additional agreements:
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an Amended and Restated Agreement of Limited Partnership of Newmark Holdings, dated as of
December 13, 2017;
an Amended and Restated Agreement of Limited Partnership of Newmark OpCo, dated as of December
13, 2017 and as amended on September 26, 2018;
a Second Amended and Restated Agreement of Limited Partnership of BGC U.S. OpCo, dated as of
December 13, 2017;
a Second Amended and Restated Agreement of Limited Partnership of BGC Global OpCo, dated as of
December 13, 2017;
a Registration Rights Agreement, dated as of December 13, 2017, by and among Cantor, BGC and
Newmark;
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a Transition Services Agreement, dated as of December 13, 2017, by and between BGC and Newmark;
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a Tax Matters Agreement, dated as of December 13, 2017, by and among BGC, BGC Holdings, BGC
U.S. OpCo, Newmark, Newmark Holdings and Newmark OpCo;
an Amended and Restated Tax Receivable Agreement, dated as of December 13, 2017, by and between
Cantor and BGC;
an Exchange Agreement, dated as of December 13, 2017, by and among Cantor, BGC and Newmark;
an Administrative Services Agreement, dated as of December 13, 2017, by and between Cantor and
Newmark; and
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a Tax Receivable Agreement, dated as of December 13, 2017, by and between Cantor and Newmark.
Immediately prior to the Separation, the limited partnership interests in Newmark Holdings were distributed to
the holders of limited partnership interests in BGC Holdings, whereby each holder of BGC Holdings limited
partnership interests at that time received a BGC Holdings limited partnership interest and a corresponding
Newmark Holdings limited partnership interest, equal to a BGC Holdings limited partnership interest multiplied by
one divided by 2.2 (the “contribution ratio”), divided by the ratio by which a Newmark Holdings limited partnership
interest can be exchanged for a number of Newmark Class A common stock (the “exchange ratio”). Initially, the
exchange ratio equaled one, so that each Newmark Holdings limited partnership interest is exchangeable for one
Newmark Class A common stock, however, the exchange ratio is subject to adjustment. For example, for
reinvestment, acquisition or other purposes, Newmark has determined on a quarterly basis to distribute to its
stockholders a smaller percentage than Newmark Holdings distributes to its equity holders (excluding tax
distributions from Newmark Holdings) of cash that it received from Newmark OpCo. In such circumstances, the
Original Separation and Distribution Agreement provides that the exchange ratio will be reduced to reflect the re-
investment of cash by Newmark into Newmark Opco as a result of the distribution of such smaller percentage, after
the payment of taxes. As of December 31, 2018, the exchange ratio equaled 0.9793.
Initial Public Offering
On December 19, 2017, Newmark closed its IPO of 20 million shares of Newmark’s Class A common stock at
a price to the public of $14.00 per share. A registration statement relating to these securities was filed with, and
declared effective by, the U.S. Securities and Exchange Commission. In addition, Newmark granted the
underwriters a 30-day option to purchase up to an additional 3 million shares of Newmark’s Class A common stock
at the IPO price, less underwriting discounts and commissions (“the overallotment option”). Subsequent to the IPO,
the underwriters exercised the overallotment option in full. Upon the closing of the overallotment option, which
occurred on December 26, 2017, Newmark’s public stockholders owned approximately 9.8% of what was then
Newmark’s 234.2 million fully diluted shares outstanding. Newmark received aggregate net proceeds of $295.4
million from the IPO, after deducting underwriting discounts and commissions and estimated offering expenses.
Newmark used the proceeds, net of underwriting discounts and commissions from the IPO to partially repay the
Term Loan.
March 2018 Investment by BGC
On March 7, 2018, BGC Partners and its operating subsidiaries purchased 16.6 million newly issued
exchangeable limited partnership units (the “Newmark Units”) of Newmark Holdings for approximately $242.0
million (“BGC’s 2018 Investment in Newmark”). The price per Newmark Unit was based on the $14.57 closing
price of Newmark’s Class A common stock on March 6, 2018 as reported on the NASDAQ Global Select Market.
These newly-issued Newmark Units were exchangeable, at BGC’s discretion, into either shares of Class A common
stock or shares of Class B common stock of Newmark. BGC’s 2018 Investment in Newmark was made pursuant to
an Investment Agreement, dated as of March 6, 2018, by and among BGC, BGC Holdings, BGC Partners, L.P.,
BGC Global Holdings, L.P., Newmark, Newmark Holdings and Newmark Partners, L.P. BGC’s 2018 Investment in
Newmark and related transactions were approved by the Audit Committees and Boards of Directors of BGC and
Newmark. BGC and its operating subsidiaries funded BGC’s 2018 Investment in Newmark using the proceeds of
BGC’s CEO sales program. Prior to the Spin-Off, the Newmark Units then held by BGC Partners were primarily
exchanged into Newmark Class A or Class B common stock and were included as part of the Newmark Distribution
to holders of shares of BGC Class A or Class B common stock.
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Debt Repayment and Credit Agreements
As of January 1, 2018 Newmark had an outstanding balance of $270.7 million under the Term Loan (as
defined below). Newmark used the proceeds of BGC’s 2018 Investment in Newmark plus cash on hand to repay in
full the Term Loan.
As of January 1, 2018, Newmark had an outstanding balance of $40.0 million under an unsecured senior credit
agreement, which was amended and restated on March 19, 2018 (“Intercompany Credit Agreement.) Through the
six months ended June 30, 2018, Newmark borrowed an additional $230.0 million and used these proceeds plus cash
on hand to fund its restricted cash account pledged for the benefit of Fannie Mae. On September 4, 2018 Newmark
borrowed $112.5 million in order to repay the 2042 Promissory Note. On October 4, 2018, Newmark withdrew
$252.0 million of cash on hand that was in excess of the minimum balance required to be pledged for the benefit of
Fannie Mae to repay $252.0 million towards the outstanding balance of the Intercompany Credit Agreement. The
remaining balance of $130.5 million was repaid with the proceeds of the 6.125% Senior Notes.
As of January 1, 2018, Newmark had an outstanding balance of $400.0 million under the Converted Term
Loan, (as defined below). On June 19, 2018 Newmark repaid $152.9 million, and on September 26, 2018 repaid
$113.2 million of the Converted Term Loan, using the proceeds from the Newmark Opco Preferred Investments.
On November 6, 2018, Newmark repaid the remaining balance of $133.9 million with the proceeds of the 6.125%
Senior Notes.
As of January 1, 2018 Newmark, had an outstanding balance of $112.5 million under the 2042 Promissory
Note (“2042 Promissory Note”) payable to BGC. On September 4, 2018, Newmark borrowed $112.5 million under
the Intercompany Credit Agreement and repaid this note in full.
On November 6, 2018, Newmark closed its offering of $550.0 million aggregate principal amount of 6.125%
Senior Notes due 2023. The 6.125% Senior Notes are general senior unsecured obligations of Newmark. The
6.125% Senior Notes, which were priced on November 1, 2018 at 98.937% to yield 6.375%, were offered and sold
by Newmark in a private offering exempt from the registration requirements under the Securities Act. Newmark
received net proceeds of approximately $537.6 million, net of debt issue costs and debt discount. The 6.125% Senior
Notes bear an interest rate of 6.125% per annum, payable on each May 15 and November 15, beginning on May 15,
2019 and will mature on November 15, 2023. Newmark used the net proceeds to repay the remaining balance of the
Converted Term Loan of $133.9 million, the balance of the Intercompany Credit Agreement of $130.5 million, and a
portion of the 2019 Promissory Note (as defined below).
On November 23, 2018, Newmark repaid the $300.0 million outstanding principal amount under the 2019
Promissory Note, (as defined below), primarily using proceeds from the sale of its 6.125% Senior Notes. Upon
repayment of the 2019 Promissory Note, Newmark had no further debt obligations owed to or guaranteed by BGC,
which was one of the requirements for the Spin-Off to be tax free.
On November 28, 2018, Newmark entered into a credit agreement by and among Newmark, the several
financial institutions from time to time party thereto, as Lenders, and Bank of America N.A., as administrative agent
(the “Credit Agreement”). The Credit Agreement provides for a $250.0 million three-year unsecured senior
revolving credit facility (the “Credit Facility”).
On November 30, 2018 the Company entered into an unsecured credit agreement (the “Cantor Credit
Agreement”) with Cantor. The Cantor Credit Agreement provides for each party to issue loans to the other party in
the lender’s discretion. Pursuant to the Cantor Credit Agreement, the parties and their respective subsidiaries (with
respect to CFLP, other than BGC and its subsidiaries) may borrow up to an aggregate principal amount of $250
million from each other from time to time at an interest rate which is higher to Cantor’s or the Company’s short-
term borrowing rate then in effect, plus 1.0%.
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Credit Rating
In 2018, we improved the credit profile of Newmark. The combination of our lower long-term debt and higher
total equity have improved our credit ratios with specific regard to debt to equity. Newmark received a stand-alone
BBB- stable credit rating from Fitch and Kroll, as well as a BB+ stable rating from Standard & Poor’s during the
third quarter of 2018.
Amendment to Separation and Distribution Agreement
On November 8, 2018, BGC, BGC Holdings, BGC U.S. OpCo, Newmark, Newmark Holdings, Newmark
OpCo, Cantor and BGC Global OpCo entered into an Amendment No. 1 to the Original Separation and Distribution
Agreement (“Amendment No. 1) to clarify the original intent of the parties, including with respect to the calculation
of the Distribution Ratio (as defined in the Original Separation and Distribution Agreement), certain issuances of
BGC common stock and Newmark common stock, and certain adjustments to the Exchange Ratio (as defined in the
Original Separation and Distribution Agreement).
Amended and Restated Separation and Distribution Agreement
On November 23, 2018, BGC Partners, BGC Holdings, BGC U.S. Opco, Newmark, Newmark Holdings,
Newmark Opco and, solely for the provisions set forth therein, Cantor and BGC Global Opco and, collectively, the
“Parties”) entered into an Amended and Restated Separation and Distribution Agreement (the “Amended and
Restated Separation and Distribution Agreement”). The Parties had previously entered into the Original Separation
and Distribution Agreement, and Amendment No.1.
As compared to the Original Separation and Distribution Agreement, as amended by Amendment No.1, the
Amended and Restated Separation and Distribution Agreement includes, among others, the following changes:
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for purposes of calculating the Distribution Ratio (as defined in the Amended and Restated Separation
and Distribution Agreement), the number of shares of Newmark common stock held by BGC Partners
includes shares of Newmark common stock that would be held by BGC Partners if all Newmark Opco
units and exchangeable Newmark Holdings units held by BGC Partners and its subsidiaries were
exchanged for shares of Newmark common stock and distributed to BGC Partners;
prior to the Spin-Off, BGC U.S. Opco and BGC Global Opco shall distribute any Newmark Opco units or
Newmark Holdings units held by such entities to their equity holders, and prior to the Spin-Off, BGC
Partners shall contribute any Newmark Opco units held by it (including Newmark Opco units underlying
Newmark Holdings units) to Newmark in exchange for newly issued shares of Newmark common stock;
prior to the Spin-Off, in connection with a mandatory reinvestment by BGC Partners following the
issuance of shares of BGC Partners common stock, BGC Partners could contribute the net proceeds of
such issuance to BGC U.S. Opco and BGC Global Opco in exchange for a combination of (i) newly
issued BGC U.S. Opco units, (ii) newly issued BGC Global Opco units and (iii) Newmark Opco and/or
Newmark Holdings units held by BGC U.S. Opco and/or BGC Global Opco;
prior to the Spin-Off, in the event that any person forfeits any restricted shares of BGC Partners common
stock, BGC Partners would deliver BGC U.S. Opco units, BGC Global Opco units and Newmark Opco
units to BGC U.S. Opco, BGC Global Opco and Newmark Opco, respectively;
the existing adjustment to the Exchange Ratio (as defined in the Amended and Restated Separation and
Distribution Agreement) was revised so that, in the event that there shall be any Reinvestment Cash (as
defined in the Amended and Restated Separation and Distribution Agreement) in any fiscal quarter, the
Exchange Ratio shall be adjusted so that it shall be equal to (i) the number of fully diluted outstanding
shares of Newmark common stock (as defined in the Amended and Restated Separation and Distribution
Agreement) as of immediately prior to such adjustment, divided by (ii) the sum of (A) the number of fully
diluted outstanding shares of Newmark common stock as of immediately prior to such
adjustment, plus (B) the Adjustment Factor (as defined below) for such fiscal quarter plus (C) the sum of
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the aggregate Adjustment Factors for all prior fiscal quarters following the initial public offering of
Newmark Class A common stock, where:
o
o
the Adjustment Factor shall be equal to the Reinvestment Cash divided by the Newmark Current
Market Price (as defined in the Amended and Restated Separation and Distribution Agreement) as
of the day prior to the date on which the adjustment to the Exchange Ratio is made for such fiscal
quarter; provided that
if, in any subsequent fiscal quarter, the Exchange Ratio shall be further adjusted and the Newmark
Current Market Price as of the day prior to the date on which such further adjustment is made is
greater than the Newmark Current Market Price used in the bullet above, then the Adjustment
Factor for such prior fiscal quarter shall be re-calculated using such greater Newmark Current
Market Price; and
BGC U.S. Opco and BGC Global Opco, on the one hand, and Newmark Opco, on the other hand, shall each
be responsible to issue an appropriate number of units to BGC Partners in connection with potential issuance of a
share of BGC Partners common stock by BGC Partners prior to the Spin-Off, where such share of BGC Partners
common stock was included in the fully diluted share count of BGC Partners as of the Partnership Divisions (as
defined in the Amended and Restated Separation and Distribution Agreement).
The Spin-Off
On November 30, 2018, BGC completed the Spin-Off to its stockholders of all of the shares of our common
stock owned by BGC as of immediately prior to the effective time of the Spin-Off, with shares of our Class A
common stock distributed to the holders of shares of BGC’s Class A common stock (including directors and
executive officers of BGC Partners) of record as of the close of business on November 23, 2018 (the “Record
Date”), and shares of our Class B common stock distributed to the holders of shares of BGC’s Class B common
stock (consisting of Cantor and CFGM of record as of the close of business on the Record Date).
Based on the number of shares of BGC common stock outstanding as of the close of business on the Record
Date, BGC’s stockholders as of the Record Date received in the Spin-Off 0.463895 of a share of Newmark Class A
common stock for each share of BGC Class A common stock held as of the Record Date, and 0.463895 of a share of
Newmark Class B common stock for each share of BGC Class B common stock held as of the Record Date. BGC
Partners stockholders received cash in lieu of any fraction of a share of Newmark common stock that they otherwise
would have received in the Spin-Off.
Prior to and in connection with the Spin-Off, 15.1 million Newmark Units held by BGC were exchanged into
9.4 million shares of Newmark Class A common stock and 5.4 million shares of Newmark Class B common stock,
and 7.0 million Newmark OpCo Units held by BGC were exchanged into 6.9 million shares of Newmark Class A
common stock. These Newmark Class A and Class B shares of common stock were included in the Spin-Off to
BGC’s stockholders.
In the aggregate, BGC distributed 131,886,409 shares of our Class A common stock and 21,285,537 shares of
our Class B common stock to BGC’s stockholders in the Spin-Off. These shares of our common stock collectively
represented approximately 94% of the total voting power of our outstanding common stock and approximately 87%
of the total economics of our outstanding common stock in each case as of the Spin-Off Date.
On November 30, 2018, BGC Partners also caused its subsidiary, BGC Holdings, to distribute pro rata (the
“BGC Holdings distribution”) all of the 1,458,931 exchangeable limited partnership units of Newmark Holdings
held by BGC Holdings immediately prior to the effective time of the BGC Holdings distribution to its limited
partners entitled to receive distributions on their BGC Holdings units (including Cantor and executive officers of
BGC) who were holders of record of such units as of the Record Date. The Newmark Holdings units distributed to
BGC Holdings partners in the BGC Holdings distribution are exchangeable for shares of Newmark Class A common
stock, and in the case of the 449,917 Newmark Holdings units received by Cantor also into shares of Newmark
Class B common stock, at the applicable exchange ratio (subject to adjustment). As of December 31, 2018, the
exchange ratio was 0.9793 shares of Newmark common stock per Newmark Holdings unit.
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Following the Spin-Off and the BGC Holdings distribution, BGC Partners ceased to be our controlling
stockholder, and BGC and its subsidiaries no longer held any shares of our common stock or other equity interests in
us or our subsidiaries. Cantor continues to control Newmark and its subsidiaries following the Spin-Off and the
BGC Holdings distribution.
Prior to the Spin-Off, 100% of the outstanding shares of our Class B common stock were held by BGC.
Because 100% of the outstanding shares of BGC Class B common stock were held by Cantor and CFGM as of the
Record Date, 100% of the outstanding shares of our Class B common stock were distributed to Cantor and CFGM in
the Spin-Off. As of the Distribution Date, shares of our Class B common stock represented 57.8% of the total voting
power of the outstanding Newmark common stock and 12.1% of the total economics of the outstanding Newmark
common stock. Cantor is controlled by CFGM, its managing general partner, and, ultimately, by Howard W.
Lutnick, who serves as Chairman of Newmark. Mr. Lutnick is also the Chairman of the Board of Directors and
Chief Executive Officer of BGC Partners and Cantor and the Chairman and Chief Executive Officer of CFGM, as
well as the trustee of an entity that is the sole shareholder of CFGM. Stephen M. Merkel, our Executive Vice
President and Chief Legal Officer, serves as Executive Vice President, General Counsel and Assistant Secretary of
BGC Partners, and is employed as Executive Managing Director, General Counsel and Secretary of Cantor.
Nasdaq Monetization Transactions
On June 28, 2013, BGC sold certain assets of its on-the-run, electronic benchmark U.S. Treasury platform
(“eSpeed”) to Nasdaq. The total consideration received in the transaction included $750.0 million in cash paid upon
closing and an earn-out of up to 14,883,705 shares of Nasdaq common stock to be paid ratably over 15 years,
provided that Nasdaq, as a whole, produces at least $25.0 million in consolidated gross revenues each year. Nasdaq
generated gross revenues of approximately $4.3 billion in 2018. The earn-out was excluded from the initial gain on
the divestiture and is recognized in income as it is realized and earned when these contingent events have occurred,
consistent with the accounting guidance for gain contingencies. The remaining rights under the Nasdaq Earn-out
were transferred to Newmark on September 28, 2017. Any Nasdaq shares that were received by BGC prior to
September 28, 2017 were not transferred to Newmark.
In connection with the Nasdaq Earn-out, Newmark received 992,247 shares of Nasdaq common stock during
the year ended December 31, 2018 and 992,247 shares of Nasdaq common stock during the year ended December
31, 2017. Newmark will recognize the remaining earn-out of up to 8,930,223 shares of Nasdaq common stock
ratably over the next approximately 9 years, provided that Nasdaq, as a whole, produces at least $25.0 million in
gross revenues each year. During the year ended December 31, 2018, Newmark sold 1,142,247 of the Nasdaq
shares. In November of 2017, Newmark sold 242,247 shares and had 600,000 shares remaining in connection with
the Nasdaq Earn-Out as of December 31, 2018.
Exchangeable Preferred Partnership Units and Forward Contract
On June 18, 2018, Newmark's principal operating subsidiary, Newmark OpCo, issued approximately $175
million of EPUs in a private transaction to RBC. Newmark received $152.9 million of cash with respect to this
transaction.
On September 26, 2018 Newmark entered into a second agreement to issue approximately $150 million of
additional EPUs to RBC, similar to the June 18, 2018 transaction (together the “Newmark OpCo Preferred
Investment”). Newmark received $113.2 million of cash with respect to this transaction.
The EPUs were issued in four tranches and are separately convertible by either RBC or Newmark, into a fixed
number of shares of Newmark’s Class A common stock, subject to a revenue hurdle, in each of the fourth quarters
of 2019 through 2022 for the first, second, third and fourth tranche, respectively. As the EPUs represent equity
ownership of a consolidated subsidiary of Newmark they have been included as “Non controlling interests” on the
consolidated statement of changes in equity. The EPUs are entitled to a preferred payable-in-kind dividend, which is
recorded as accretion to the carrying amount of the EPUs as “Retained earnings” on the consolidated statement of
changes in equity and included in “consolidated net income (loss) available to common stockholders” for purposes
of calculating earnings per share.
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Contemporaneously with the issuance of the EPUs, the newly formed SPVs that are consolidated subsidiaries
of Newmark, entered into four variable postpaid forward contracts with RBC (together, the "RBC Forwards"). The
SPVs are indirect subsidiaries of Newmark whose sole assets are the Nasdaq share Earn-outs for 2019 through 2022.
The RBC Forwards provide the option to both Newmark and RBC for RBC to receive up to 992,247 shares of
Nasdaq common stock, received by Newmark pursuant to the Nasdaq Earn-out (see Note 7— “Marketable
Securities” to our Consolidated Financial Statements included elsewhere in the Annual Report on Form 10-K), in
each of the fourth quarters of 2019 through 2022 in exchange for either cash or redemption of the EPUs, solely at
Newmark’s option.
As the RBC Forwards provide Newmark with the ability to redeem the EPUs for Nasdaq stock, and the two
instruments are not legally detachable, they represent a single financial instrument. The financial instrument’s EPU
redemption feature for Nasdaq common stock is not clearly and closely related to the economic characteristics and
risks of Newmark’s EPU equity host instrument and therefore, it represents an embedded derivative that is required
to be bifurcated and recorded at fair value on Newmark’s consolidated balance sheet as “Other assets”, with all
changes in fair value recorded as a component of ”Other income” on Newmark’s consolidated statements of
operations.
Employees to Newmark and Other Related Party Transactions
In connection with the expansion of our mortgage brokerage and lending activities, Newmark has entered into
an agreement with Cantor pursuant to which five former employees of its affiliate, CCRE, have transferred to
Newmark, effective as of May 1, 2018. In connection with this transfer of employees, Cantor paid $6.9 million to
Newmark in October 2018 and Newmark Holdings issued $6.7 million of limited partnership units and $0.2 million
of cash in the form of a cash distribution agreement to the employees. In addition, Newmark Holdings issued $2.2
million of Newmark Holdings partnership units with a capital account and $0.5 million of limited partnership units
in exchange for the cash payment from Cantor to Newmark of $2.2 million. In consideration for the Cantor payment,
Newmark has agreed to return up to a maximum of $3.3 million to Cantor based on the employees’ production
during their first two years of employment with Newmark. Newmark has agreed to allow certain of these employees
to continue to provide consulting services to Cantor in exchange for a forgivable loan which was directly paid by
Cantor to these employees.
In November 2018, the Audit Committee authorized Newmark to enter into an engagement agreement with
Cantor Fitzgerald & Co. and its affiliates to act as financial advisor in connection with one or more third-party
business combination transactions as requested by Newmark on behalf of its affiliates from time to time on specified
terms, conditions and fees.
In February 2019, the Audit Committee of the Company authorized Newmark and its subsidiaries to originate
and service GSE loans to Cantor and its affiliates (other than BGC) and service loans originated by Cantor and its
affiliates (other than BGC) on prices, rates and terms no less favorable to Newmark and its subsidiaries than those
charged by third parties. The authorization is subject to certain terms and conditions, including but not limited to: (i)
a maximum amount up to $100 million per loan, (ii) a $250 million limit on loans that have not yet been acquired or
sold to a GSE at any given time, and (iii) a separate a $250 million limit on originated Fannie Mae loans outstanding
to Cantor at any given time.
Growth Drivers
The key drivers of revenue growth for U.S. commercial real estate services companies include the overall
health of the U.S. economy, the institutional ownership of commercial real estate as an investible asset class and the
ability to attract and retain talent. In addition, in our capital markets business growth is driven by the availability of
credit to purchasers of and investors in commercial real estate. In our multifamily business, delayed marriages, an
aging population and immigration to the U.S. are increasing a pressing need for new apartments, with an estimated
4.6 million needed by 2030, according to a recent study commissioned by the National Multifamily Housing
Council and the National Apartment Association. This should continue to drive investment sales, GSE multifamily
lending and other mortgage brokerage and growth in our servicing portfolio for the foreseeable future. Our
origination business is impacted by the lending caps imposed by the Federal Housing Finance Agency. As of
December 31, 2018, the industry-wide caps are set at $35 billion for each of Fannie Mae and Freddie Mac,
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excluding loans exempt from the caps, such as loans in the affordable and underserved market segments, or that
finance water and energy efficiency improvements. These excluded categories can make up a significant portion of
the overall market. For example, in 2018, more than half of the loan production reported by Fannie Mae and Freddie
Mac was excluded from the FHFA lending caps.
Economic Growth in the United States
The U.S. economy expanded by 2.9% during 2018, according to a preliminary estimate from the U.S.
Department of Commerce. This growth compares with an increase of 2.2% during 2017. The consensus is for U.S.
gross domestic product to expand by 2.5% in 2019 and 1.9% in 2020, according to a recent Bloomberg survey of
economists. This moderate pace of growth should help keep interest rates and inflation low by historical standards.
The Bureau of Labor Statistics preliminarily reported that employers added a monthly average of 223
thousand net new payroll jobs during 2018, which was above the prior year period’s 188 thousand and the
seasonally adjusted average of 182 thousand per month in 2017. Despite the return to pre-recession unemployment
rates (3.8% as of December), the number of long-term unemployed and the labor force participation rate (the latter
of which is near a 30-year low) remained disappointing for many economists, but these indicators are less important
to commercial real estate than job creation.
The 10-year Treasury yield ended 2018 at 2.7%, up 28 basis points from the year-earlier date. However, 10-
year Treasury yields have remained well below their 50-year average of approximately 6.4%, in large part due to
market expectations that the Federal Open Market Committee will only moderately raise the federal funds rate over
the next few years, as well as due to muted long-term inflation expectations. Interest rates are also relatively low due
to even lower or negative benchmark government interest rates in much of the rest of the developed world, which
makes U.S. government bonds relatively more attractive.
Steady economic growth and historically low interest rates have helped push vacancy rates down for the
office, apartment, retail and industrial markets over the current economic expansion, now in its tenth year.
Construction activity, while increasing, remains low compared with prior expansion cycles and low relative to
demand and absorption, which means that property leasing markets continue to tighten. Overall, demand for
commercial real estate remains strong. While the vast majority of new supply is going to just the top 10-15 markets,
there is healthy demand among investors for well-positioned suburban value add assets in secondary and tertiary
markets, according to NKF Research. Asking rental rates posted moderate gains across all property types during
2018.
The following key trends drove the commercial real estate market during 2018:
(cid:120) Sustained U.S. employment growth and rising home values have fueled the economy and generated
demand for commercial real estate space across all major sectors;
(cid:120) Technology, professional and business services, coworking/flex and healthcare continued to power
demand for office space;
(cid:120) E-commerce and supply-chain optimization has pushed industrial absorption to 35 consecutive quarters of
positive net absorption, creating tenant and owner-user demand for warehouses and distribution centers;
(cid:120) Apartment rents benefited from sustained job growth, and underlying demographic trends towards
apartment living among two key age groups: millennials and baby boomers; and
(cid:120) Continued corporate employment growth, combined with increased leisure travel, generated demand for
hotel room-nights.
The U.S. tax cuts lifted growth, along with leasing activity. Rising inflation and interest rates, byproducts of
faster economic growth, could deliver a mixed outcome: rising interest rates can put upward pressure on cap rates,
but stronger rent growth and sustained investor demand could support higher property values and income growth.
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Market Statistics
Although overall industry metrics are not necessarily correlated to our revenues, they do provide some
indication of the general direction of the business. We believe that limited available product domestically, coupled
with a favorable cap rate spread between global benchmark government bond yields and U.S. cap rates will drive
future international investment.
According to Real Capital Analytics (“RCA”), prices for commercial real estate were up by 6.2% year-over-
year for the year ended December 31, 2018. During the year, U.S. Commercial real estate sales volumes totaled
approximately $562 billion in the U.S. According to a November 2018 Mortgage Bankers Association (“MBA”)
forecast, originations of commercial/multifamily loans of all types are projected to be flat in terms of dollar volume
for the year ended December 31, 2018. In comparison, our real estate capital markets businesses, which includes
investment sales and commercial mortgage brokerage, increased its revenues by 17.9% year-over-year, primarily
due to organic growth. Our loan origination volumes are driven more by the GSE multifamily financing volumes
than the activity level of the overall commercial mortgage market. GSE multifamily volumes increased by 2% year-
over-year in 2018. The GSE multifamily agency volume statistics for the industry are based on when loans are sold
and/or securitized, and typically lag those reported by Newmark and its competitors by 30 to 45 days. As with other
multifamily agency lenders, the Company’s mix of originations, and therefore revenues, can vary depending on the
size of loans, as well by the categories of loans with respect to the FHA, Freddie Mac, and different Fannie Mae
structures. Newmark’s overall volumes from multifamily originations, investment sales, and non-originated
mortgage brokerage increased by 21.8 % year-on-year to approximately $33 billion in 2018. Given its pipeline of
financings and its continued ability to increase cross-selling between its origination, investment sales, and mortgage
brokerage businesses, the Company expects its multifamily capital markets business to grow faster than the overall
market.
According to NKF Research, the combined average vacancy rate for office, industrial, and retail properties
ended the year at 5.8%, down from 8.2% a year earlier, and a 240 basis point improvement over the past 12 months.
Rents for all property types in the U.S. continued to increase across all 3 sectors. NKF Research estimates that
overall U.S. leasing activity in 2018 increased from a year ago, as the expansion has continued in recent quarters
following consistent growth since the start of the current cycle. In comparison, revenues from our leasing and other
commissions business increased by 32.5%.
Regulatory Environment
See “Business—Regulation” in Part I, Item 1 of this Annual Report on Form 10-K for information related to
our regulatory environment.
Liquidity
See “—Financial Position, Liquidity and Capital Resources” herein for information related to our liquidity and
capital resources.
Hiring and Acquisitions
Key drivers of our revenue are producer headcount and average revenue per producer. We believe that our
strong technology platform and unique partnership structure have enabled us to use both acquisitions and recruiting
to profitably increase our front-office revenue per producer.
We have invested significantly to capitalize on the current business environment through acquisitions,
technology spending and the hiring of new producers, salespeople, managers and other front-office personnel. The
business climate for these acquisitions has been competitive, and it is expected that these conditions will persist for
the foreseeable future. We have been able to attract businesses and producers, salespeople, managers and other
front-office personnel to our platform as we believe they recognize that we have the scale, technology, experience
and expertise to succeed in the current business environment. See “Item 1— Business—Our History” for a
description of our acquisitions since 2017.
87
As of December 31, 2018, our producer headcount was up 10% to 1,700 producers and salespeople as
compared to the prior year. For the year ended December 31, 2018, average revenue generated per producer
increased by 12%, as compared to the prior year, to approximately $905 thousand. This growth can be attributed to
the ramp up of producers we hired over the past year as well as growth in our debt business.
Since 2015, our acquisitions have included Berkeley Point, a controlling interest in a commercial real estate
due diligence joint venture, several companies which were affiliated under the Apartment Realty Advisors brand,
Computerized Facility Integration, LLC (which we refer to as “CFI”), Excess Space, RKF, Jackson & Cooksey, Inc.,
MiT National Land Services, LLC and several local and regional brokerage, property management, project
management and commercial real estate valuation and advisory services companies, including our first international
acquisition in Mexico City.
Financial Overview
Revenues
We derive revenues from the following general four sources:
(cid:120) Leasing and Other Commissions. We offer a diverse range of commercial real estate brokerage and
advisory services, including tenant and agency representation, which includes comprehensive lease
negotiations, strategic planning, site selection, lease auditing, and other financial and market analysis.
(cid:120) Capital Markets. Our real estate capital markets business specializes in the arrangement of acquisitions
and dispositions of commercial properties, as well as providing other financial services, including the
arrangement of debt and equity financing, and loan sale advisory.
(cid:120) Gains from Mortgage Banking Activities/Originations, Net. Gains from mortgage banking
activities/originations are derived from the origination of loans with borrowers and the sale of those loans
to investors.
(cid:120) Management Services, Servicing Fees and Other. We provide commercial services to tenants and
landlords in several key U.S. markets. In this business, we provide property and facilities management
services along with project management, appraisal services and other consulting services, as well as
technology, to customers who may also utilize our commercial real estate brokerage services. Servicing
fees are derived from the servicing of loans originated by us as well as loans originated by third parties.
Fees are generally earned when a lease is signed. In many cases, landlords are responsible for paying the fees.
In capital markets, fees are earned and recognized when the sale of a property closes, and title passes from seller to
buyer for investment sales and when debt or equity is funded to a vehicle for debt and equity transactions. Gains
from mortgage banking activities/originations, net are recognized when a derivative asset is recorded upon the
commitment to originate a loan with a borrower and sell the loan to an investor. The derivative is recorded at fair
value and includes loan origination fees, sales premiums and the estimated fair value of the expected net servicing
cash flows. Gains from mortgage banking activities/originations, net are recognized net of related fees and
commissions to affiliates or third-party brokers. For loans we produce, revenues are recognized when the loan is
closed. Servicing fees are recognized on an accrual basis over the lives of the related mortgage loans. We typically
receive monthly management fees based upon a percentage of monthly rental income generated from the property
under management, or in some cases, the greater of such percentage or a minimum agreed upon fee. We are often
reimbursed for our administrative and payroll costs, as well as certain out-of-pocket expenses, directly attributable to
properties under management. We follow accounting principles generally accepted in the U.S., or “U.S. GAAP”,
which provides guidance when accounting for reimbursements from clients and when accounting for certain
contingent events for Leasing and Capital Markets transactions. See Note 3—"Summary of Significant Accounting
Policies” to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a
more detailed discussion.
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Expenses
Compensation and Employee Benefits
The majority of our operating costs consist of cash and non-cash compensation expenses, which include base
salaries, producer commissions based on production, discretionary and other bonuses and all related employee
benefits and taxes. Our employees consist of commissioned producers, executives and other administrative support.
Our producers are compensated based on the revenue they generate for the firm, keeping these costs variable in
nature.
As part of our compensation plans, certain employees have been granted limited partnership units in BGC
Holdings and Newmark Holdings, which generally receive quarterly allocations of net income, that are cash
distributed on a quarterly basis and that are generally contingent upon services being provided by the unit holders.
As prescribed in U.S. GAAP guidance, the quarterly allocations of net income on such limited partnership units are
reflected as a component of compensation expense under “Allocations of net income and grant of exchangeability to
limited partnership units and FPU’s and issuance of common stock” in our consolidated statements of operations.
Certain of these limited partnership units entitle the holders to receive post-termination payments. These
limited partnership units are accounted for as post-termination liability awards under U.S. GAAP guidance, which
requires that we record an expense for such awards based on the change in value at each reporting period and
include the expense in our consolidated statements of operations as part of “Compensation and employee benefits.”
The liability for limited partnership units with a post-termination payout amount is included in “Accrued
compensation” on our consolidated balance sheets.
Certain limited partnership units are granted exchangeability into Class A common stock. At the time
exchangeability is granted, the Company recognizes an expense based on the fair value of the award on that date,
which is included in Allocations of net income and grants of exchangeability to limited partnership units and FPUs
and issuance of common stock in our consolidated statements of operations.
Our employees have been awarded preferred partnership units in BGC Holdings and Newmark Holdings.
Each quarter, the net profits of BGC Holdings and Newmark Holdings are allocated to such units at a rate of either
0.6875% (which is 2.75% per calendar year) or such other amount as set forth in the award documentation, which is
deducted before the calculation and distribution of the quarterly partnership distribution for the remaining
partnership units in BGC Holdings and Newmark Holdings, respectively. The Preferred Units are not entitled to
participate in partnership distributions other than with respect to the Preferred Distribution. Preferred Units may not
be made exchangeable into our Class A common stock and are only entitled to the Preferred Distribution, and
accordingly they are not included in our fully diluted share count. The quarterly allocations of net income on these
preferred partnership units are also reflected in compensation expense under “Allocations of net income and grant of
exchangeability to limited partnership units and FPU’s and issuance of common stock” in our consolidated
statements of operations.
We have entered into various agreements with certain of our employees and partners whereby these
individuals receive loans, which may be either wholly or in part repaid from the distribution earnings that the
individual receives on their limited partnership interests in BGC Holdings and Newmark Holdings. The forgivable
portion of these loans is recognized as compensation expense over the life of the loan.
From time to time, we may also enter into agreements with employees and partners to grant bonus and salary
advances or other types of loans. These advances and loans are repayable in the timeframes outlined in the
underlying agreements. In addition, we also enter into deferred compensation agreements with employees providing
services to us. The costs associated with such plans are generally amortized over the period in which they vest (see
Note 29— “Compensation” and Note 30— “Commitment and Contingencies,” to our Consolidated Financial
Statements included elsewhere in this Annual Report on Form 10-K).
89
Other Operating Expenses
We have various other operating expenses. We incur leasing, equipment and maintenance expenses. We also
incur selling and promotion expenses, which include entertainment, marketing and travel-related expenses. We incur
communication expenses, professional and consulting fees for legal, audit and other special projects, and interest
expense related to short-term operational funding needs, and notes payable and collateralized borrowings.
We pay fees to BGC Partners and Cantor for performing certain administrative and other support, including
charges for occupancy of office space, utilization of fixed assets and accounting, operations, human resources, legal
services and technology infrastructure support. Management believes that these charges are a reasonable reflection
of the utilization of services rendered. However, the expenses for these services are not necessarily indicative of the
expenses that would have been incurred if we had not obtained these services from BGC Partners or Cantor. In
addition, these charges may not reflect the costs of services we may receive from BGC Partners or Cantor in the
future.
Other Income, Net
Other income is comprised of the gains associated with the earn-out shares related to the Nasdaq transaction
and the movements related to the to the impact of any unrealized non-cash mark-to-market gains or losses related to
the RBC forward agreement. Additionally, other income included gains (losses) on equity method investments
which represent our pro rata share of the net gains (losses) on investments over which we have significant influence
but which we do not control, and the mark-to-market gains or losses on the cost method investments accounted for
pursuant to the measurement alternative under ASU 2016-01.
Provision for Income Taxes
We incur income tax expenses based on the location, legal structure, and jurisdictional taxing authorities of
each of our subsidiaries. Certain of the Company’s entities are taxed as U.S. partnerships and are subject to the
Unincorporated Business Tax (which we refer to as “UBT”) in New York City. U.S. federal and state income tax
liability or benefit related to the partnership income or loss, with the exception of UBT, rests with the partners (see
Note 2 – “Limited Partnership Interests”, to our Consolidated Financial Statements included elsewhere in this
Annual Report on Form 10-K.) rather than the partnership entity. The Company’s consolidated financial statements
include U.S. federal, state and local income taxes on the Company’s allocable share of the U.S. results of operations.
Outside of the U.S., we operate principally through subsidiary corporations subject to local income taxes.
Financial Highlights
For the year ended December 31, 2018, Newmark’s total revenues increased by 28.3% as compared to the
year ended December 31, 2017. This improvement was led by an almost entirely organic 32.5% increase in leasing
and other commissions, 17.9% increase in revenues from capital markets brokerage, net and a 54.1% increase in
management services, servicing fees, partially offset by an 11.5% decrease in gains from mortgage banking
activities. We believe that we continue to gain market share in capital markets as we outpaced relevant industry
metrics. Our growth has outpaced the overall market as we continue to hire high quality producers, strategically
acquire local and regional firms and enhance our cross-selling capabilities across business lines as prior acquisitions
and hires become more acclimated to the platform.
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
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 has 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
90
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
interests, 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 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
consolidated statements of operations most closely associated with financial instruments, including 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 year ended
December 31, 2018, except as it relates to the recognition and presentation of Management services and other
revenues that contained additional pass-through revenues and certain Operating, Administrative and Other expenses
subject to reimbursement.
Refer to Note 3— “Summary of Significant Accounting Policies” and Note 13— “Revenues from Contracts
with Customers” in our Consolidated Financial Statements included in this Annual Report on Form 10-K, for further
information.
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Results of Operations
The following table sets forth our consolidated statements of operations data expressed as a percentage of total
revenues for the periods indicated (in thousands):
2018
Year Ended December 31,
2017
2016
Actual
Results
Percentage
of Total
Revenues
Actual
Results
Percentage
of Total
Revenues
Actual
Results
Percentage
of Total
Revenues
$ 817,435
468,904
39.9 % $ 616,980
22.9 397,736
38.7 % $ 513,812
24.9 335,607
38.1 %
24.9
182,264
8.9 206,000
12.9 193,387
14.3
578,976
2,047,579
28.3 375,734
100.0 1,596,450
23.5 307,177
100.0 1,349,983
22.7
100.0
Revenues:
Leasing and other commissions
Capital markets
Gains from mortgage banking
activities/originations, net
Management services, servicing fees
and
other
Total revenues
Expenses:
Compensation and employee benefits 1,155,834
Allocations of net income and grant
of
exchangeability to limited
partnership
units and FPUs and issuance of
common
stock
230,795
56.4 1,010,183
63.3 849,975
63.0
11.3 124,657
7.8
72,318
5.4
Total compensation and
employee
benefits
Operating, administrative and other
Fees to related parties
Depreciation and amortization
Total operating expenses
Other income (losses), net:
Other income
Total other income, net
Income from operations
Interest (expense) income, net
Income before income taxes and
noncontrolling interests
Provision for income taxes
Consolidated net income
Less: Net income attributable to
noncontrolling interests
Net income available to common
stockholders
1,386,629
331,758
26,162
97,733
1,842,282
67.7 1,134,840
16.2 219,163
20,771
95,815
90.0 1,470,589
1.3
4.8
71.1 922,293
13.7 185,344
18,010
72,197
92.1 1,197,844
1.3
6.0
127,293
127,293
332,590
(50,205 )
6.2
6.2
73,927
73,927
16.2 199,788
2,786
(2.5 )
4.6
4.6
15,279
15,279
12.5 167,418
3,787
0.2
282,385
90,487
191,898
13.8 202,574
4.4
57,478
9.4 145,096
12.7 171,205
3.6
3,993
9.1 167,212
68.3
13.7
1.3
5.4
88.7
1.1
1.1
12.4
0.3
12.7
0.3
12.4
85,166
4.2
604
—
(1,189 )
(0.1 )
$ 106,732
5.2 % $ 144,492
9.1 % $ 168,401
12.5 %
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Year ended December 31, 2018 compared to the year ended December 31, 2017
Revenues
Leasing and Other Commissions
Leasing and other commission revenues increased by $200.5 million, or 32.5%, to $817.4 million for the year
ended December 31, 2018 as compared to the year ended December 31, 2017. The increase was due to organic
growth.
Capital Markets
Capital markets revenue increased by $71.2 million, or 17.9%, to $468.9 million for the year ended
December 31, 2018 as compared to the year ended December 31, 2017. The increase was driven by strong
improvement in volumes for the investment sales and mortgage brokerage business.
Gains from Mortgage Banking Activities/Originations, Net
Gains from mortgage banking activities, net decreased by $23.7 million, or 11.5%, to $182.3 million for the
year ended December 31, 2018 as compared to the year ended December 31, 2017. The decrease was primarily
driven by lower OMSR revenue of $17.8 million. As with other multifamily agency lenders, the Company’s mix of
originations, and therefore revenues, can vary depending on the size of loans, as well by the categories of loans with
respect to the FHA, Freddie Mac, and different Fannie Mae structures.
A portion of our gains from mortgage banking activities, net, relate to non-cash gains attributable to OMSRs.
We recognize OMSR gains equal to the fair value of servicing rights retained on mortgage loans originated and sold.
For the year ended December 31, 2018 and 2017, we recognized $103.2 million and $121.0 million of non-cash
gains, respectively, related to OMSRs.
Management Services, Servicing Fees and Other
Management services, servicing fees and other revenue increased $203.2 million, or 54.1%, to $579.0 million
for the year ended December 31, 2018 as compared to the year ended December 31, 2017. $86.2 million of the
increase was related to additional pass-through revenues resulting from the implementation of ASC 606, while $59.5
million was related to the valuation and advisory business. Additionally, $21.3 million or 19.3% of the increase was
related to servicing fee revenues, which includes interest income of $9.0 million on Loans held for sale.
Expenses
Compensation and Employee Benefits
Compensation and employee benefits expense increased by $145.7 million, or 14.4%, to $1,155.8 million for
the year ended December 31, 2018 as compared to the year ended December 31, 2017. The main drivers of this
increase were $122.4 million of additional payments directly related to the increase in revenues.
Allocations of net income and grant of exchangeability to limited partnership units and FPU’s and issuance of
common stock
Allocations of net income and grant of exchangeability to limited partnership units and FPU’s and issuance of
common stock increased by $106.1 million, or 85.1%, to $230.8 million for the year ended December 31, 2018 as
compared to the year ended December 31, 2017. This increase was primarily driven by an increase of $79.9 million
in exchangeability and common stock charges and an increase in allocations of income of $26.2 million as a result
of an increase in pre-tax earnings.
93
Operating, Administrative and Other
Operating, administrative and other expenses increased $112.6 million, or 51.4%, to $331.8 million for the
year ended December 31, 2018 as compared to the year ended December 31, 2017. This increase was primarily
driven by $86.2 million directly related to additional pass-through expenses resulting from the implementation of
ASC 606. Additionally, interest expense on the warehouse facilities collateralized by U.S. Government Sponsored
Enterprises increased $7.3 million, which is commensurate with the increase in interest income on Loans held for
sale.
Fees to Related Parties
Fees to related parties increased by $5.4 million, or 26.0%, to $26.2 million for the year ended December 31,
2018 as compared to the year ended December 31, 2017. Fees to related parties are allocations paid to BGC Partners
and Cantor for administrative and support services.
Depreciation and Amortization
Depreciation and amortization for the year ended December 31, 2018 increased by $1.9 million, or 2.0%, to
$97.7 million as compared to the year ended December 31, 2017. This increase is due to a $5.9 million increase in
mortgage servicing rights amortization and $1.4 million increase in fixed asset depreciation, partially offset by lower
intangible asset amortization of $5.4 million.
Because the Company recognizes OMSR gains equal to the fair value of servicing rights retained on mortgage
loans originated and sold, it also amortizes MSRs in proportion to the net servicing revenue expected to be earned.
Subsequent to the initial recording, MSRs are amortized and carried at the lower of amortized cost or fair value. For
the year ended December 31, 2018 and 2017, our expenses included $78.4 million and $72.5 million of MSR
amortization, respectively.
Other Income, Net
Other income of $127.3 million in the year ended December 31, 2018 is primarily related to the recognition of
income from the receipt of Nasdaq shares of $87.2 million, as well as the mark-to-market adjustment related to the
variable share forward of $19.0 million, and recognized gain of $17.9 million relating to investments carried under
the measurement alternative of ASU 2016-01. Other income of $73.9 million in the year ended December 31, 2017
is primarily related to the recognition of income from the receipt of Nasdaq shares of $76.3 million.
Interest (Expense) Income, Net
Interest expense of $50.2 million incurred during the year ended December 31, 2018 is primarily related to
$58.4 million of interest expense on the Company’s debt, which includes a $7.0 million prepayment fee on long-
term debt repaid as part of the Spin-Off. This is partially offset by $4.7 million of interest income primarily related
to interest income on employee loans and $3.8 million of interest earned on bank deposits.
Provision (Benefit) for Income Taxes
Provision for income taxes increased by $33.0 million, or 57.4%, to $90.5 million for the year ended
December 31, 2018 as compared to the year ended December 31, 2017. This increase was primarily driven by the
mix of allocable revenues among legal entities as a corporation versus flow through partially offset by the effect of
the Tax Act in 2017 related to the remeasurement of deferred tax assets and liabilities. In general, our consolidated
effective tax rate can vary from period to period depending on, among other factors, the geographic and business
mix of our earnings.
Net income (loss) attributable to noncontrolling interests
Net loss attributable to noncontrolling interests was $85.2 million for the year ended December 31, 2018. The
increase was attributable to the change in Newmark’s corporate structure related to the Separation.
94
Year ended December 31, 2017 compared to the year ended December 31, 2016
Revenues
Leasing and Other Commissions
Leasing and other commission revenues increased by $103.2 million, or 20.1%, to $617.0 million for the year
ended December 31, 2017 as compared to the year ended December 31, 2016. The increase was due to organic
growth.
Capital Markets
Capital markets revenue increased by $62.1 million, or 18.5%, to $397.7 million for the year ended
December 31, 2017 as compared to the year ended December 31, 2016. The increase was driven by a 23.7%
increase in investment sales volume and an 84.9% increase in mortgage brokerage volume.
Gains from Mortgage Banking Activities/Originations, Net
Gains from mortgage banking activities, net increased by $12.6 million, or 6.5%, to $206.0 million for the
year ended December 31, 2017 as compared to the year ended December 31, 2016. The increase was driven by a
16.4% increase in GSE lending to $8.9 billion as compared to $7.6 billion in the prior annual period.
A portion of our gains from mortgage banking activities, net, relate to non-cash gains attributable to OMSRs.
We recognize OMSR gains equal to the fair value of servicing rights retained on mortgage loans originated and sold.
For the years ended December 31, 2017 and 2016, we recognized $121.0 million and $124.4 million of non-cash
gains, respectively, related to OMSRs.
Management Services, Servicing Fees and Other
Management services, servicing fees and other revenue increased $68.6 million, or 22.3%, to $375.7 million
for the year ended December 31, 2017 as compared to the year ended December 31, 2016. $22.8 million of the
increase is related to servicing fees, while $9.4 million is related to interest income related to loans held for sale and
$9.4 million related to the appraisal business. The remainder of the increase is due to management services of which
acquisitions contributed to approximately half of the growth.
Expenses
Compensation and Employee Benefits
Compensation and employee benefits expense increased by $160.2 million, or 18.8%, to $1,010.2 million for
the year ended December 31, 2017 as compared to the year ended December 31, 2016. The main drivers of this
increase were $123.5 million of additional payments directly related to the increase in revenues, and the remainder
related to acquisitions and new hires.
Allocations of net income and grant of exchangeability to limited partnership units and FPU’s and issuance of
common stock
Allocations of net income and grant of exchangeability to limited partnership units and FPU’s and issuance of
common stock increased by $52.3 million, or 72.4%, to $124.7 million for the year ended December 31, 2017 as
compared to the year ended December 31, 2016. This increase was primarily driven by an increase of $43.9 million
in exchangeability charges.
95
Operating, Administrative and Other
Operating, administrative and other expenses increased $33.8 million, or 18.2%, to $219.2 million for the year
ended December 31, 2017 as compared to the year ended December 31, 2016. This increase was primarily driven by
a $8.3 million increase in interest expense on Berkeley Point’s warehouse facilities collateralized by U.S.
Government Sponsored Enterprises due to increased loan origination, and a $6.7 million increase in bad debt
allowance. Additionally, we incurred $2.8 million of expenses associated with our IPO. The remainder is due to
increases in selling and promotional and other expenses associated with acquisitions and new hires.
Fees to Related Parties
Fees to related parties increased by $2.8 million, or 15.3%, to $20.8 million for the year ended December 31,
2017 as compared to the year ended December 31, 2016. Fees to related parties are allocations paid to BGC Partners
and Cantor for administrative and support services.
Depreciation and Amortization
Depreciation and amortization for the year ended December 31, 2017 increased by $23.6 million, or 32.7%, to
$95.8 million as compared to the year ended December 31, 2016. This increase is due to a $14.4 million increase in
mortgage servicing rights amortization and the remainder is primarily due to leasehold improvements placed in
service due to the continued expansion of our business. Additionally, in the year ended December 31, 2017, we
recorded a $6.3 million impairment of a trade name.
Because the Company recognizes OMSR gains equal to the fair value of servicing rights retained on mortgage
loans originated and sold, it also amortizes mortgage servicing rights (which we refer to as “MSRs”) in proportion to
the net servicing revenue expected to be earned. Subsequent to the initial recording, MSRs are amortized and carried
at the lower of amortized cost or fair value. For the year ended December 31, 2017 and 2016, our expenses included
$72.5 million and $58.1 million of MSR amortization, respectively.
Other Income, Net
Other income of $73.9 million in the year ended December 31, 2017 is primarily related to the recognition of
income from the receipt of Nasdaq shares of $76.3 million, plus earnings from the Real Estate LP of $1.6 million.
Other income in the year ended December 31, 2016 primarily relates to an adjustment of future earn-out payments
that will no longer be required.
Interest Income, Net
Interest income, net is primarily related to interest income on employee loans.
Provision (Benefit) for Income Taxes
Provision for income taxes increased by $53.5 million, or 1,339.6%, to $57.5 million for the year ended
December 31, 2017 as compared to the year ended December 31, 2016. This increase was primarily driven by the
effect of the remeasurement of deferred tax assets and liabilities as a result of the enactment of the Tax Cut and Jobs
Act as well as the mix of allocable revenues among legal entities as a corporation versus flow through. In general,
our consolidated effective tax rate can vary from period to period depending on, among other factors, the geographic
and business mix of our earnings. The Tax Act is expected to have a favorable impact on the Company’s effective
tax rate and net income as reported under generally accepted accounting principles both in the first fiscal quarter of
2018 and subsequent reporting periods to which the Tax Act is effective.
Net income (loss) attributable to noncontrolling interests
Net loss attributable to noncontrolling interests was $0.6 million for the year ended December 31, 2017 due to
the allocation of income to minority partners.
96
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth our unaudited quarterly results of operations for the indicated periods (in
thousands). Results of any period are not necessarily indicative of results for a full year and may, in certain periods,
be affected by seasonal fluctuations in our business. Certain reclassifications have been made to prior period
amounts to conform to the current period’s presentation.
December 31,
2018
September 30,
20182
June 30,
2018
March 31,
2018
December 31,
2017
September 30,
20171,2
June 30,
20171
March 31,
20171
$
Revenues:
Commissions
Gains from mortgage banking
activities/originations, net
Management services, servicing fees
and other
Total revenues
Expenses:
Compensation and employee benefits
Allocations of net income and grant of
exchangeability to limited partnership
units and FPUs and issuance of common stock
426,431 $
319,340 $ 279,833 $ 260,735 $
312,992 $
256,918 $ 239,848 $ 204,958
49,501
51,972 41,877
38,914
41,737
45,455 73,546
45,262
155,759
631,691
147,497 144,909 130,811
518,809 466,619 430,460
105,847
460,576
95,848 91,677
82,362
398,221 405,071 332,582
343,063
291,096 268,980 252,695
285,577
270,943 238,518 215,145
98,898
41,062 65,026
25,809
71,940
18,217 23,851
10,649
Total compensation and
employee benefits
Operating, administrative and other
Fees to related parties
Depreciation and amortization
Total operating expenses
Other income (losses), net:
Other income (loss)
Total other income (losses), net
Income (loss) from operations
Interest (Expense) Income, net
Income before income taxes and
noncontrolling interests
Provision (benefit) for income taxes
Consolidated net income (loss)
Less: Net income (loss) attributable to
noncontrolling interests
Net income (loss) available to
common stockholders
441,961
91,369
6,323
29,146
568,799
28,234
28,234
91,126
(14,705 )
76,421
36,862
39,559
332,158 334,006 278,504
75,427
6,894
22,513
449,589 440,556 383,338
84,914 80,048
6,301
25,873 20,201
6,644
93,717
93,717
(365 )
(365 )
162,937 25,698
(11,509 ) (10,582 )
5,707
5,707
52,829
(13,409 )
357,517
60,064
6,531
24,438
448,550
(2,029 )
(2,029 )
9,997
(1,453 )
289,160 262,369 225,794
47,382
4,718
18,237
376,750 349,158 296,131
52,313 59,404
4,167
29,922 23,218
5,355
(715 )
77,264
77,264
(715 )
98,735 55,198
1,381
1,724
(593 )
(593 )
35,858
1,134
151,428 15,116
35,870 10,822
4,294
115,558
39,420
6,933
32,487
8,544
54,082
(45,538 )
100,459 56,579
1,422
98,470 55,157
1,989
36,992
(15 )
37,007
21,800
47,321
3,555
12,490
633
(337 )
12
296
$
17,759 $
68,237 $
739 $ 19,997 $
(46,171 ) $
98,807 $ 55,145 $ 36,711
1
2
Financial results have been retrospectively adjusted to include the financial results of Berkeley Point. See “Item 7––Management,
Discussion and Analysis of Financial Condition and Results of Operations–– Berkeley Point Acquisition and Investment in Real
Estate LP.”
Amounts include the gains related to the Nasdaq Earn-out associated with the Nasdaq monetization transactions recorded in Other
income.
Financial Position, Liquidity and Capital Resources
Overview
The primary source of liquidity for our business is the cash flow provided by our operations. Prior to the
Separation and IPO, our cash was transferred to BGC Partners to support its overall cash management strategy.
Transfers of cash to and from BGC Partners’ cash management system were reflected in related party receivables
and payables in the historical consolidated balance sheets and in payments to and borrowings from related parties in
the financing section of the consolidated statements of cash flows. Cash and equity issued for acquisitions were
reflected in BGC Partners’ net investment in the historical statement of changes in invested equity.
Following the completion of the Separation and IPO, we maintain separate cash management and financing
functions for operations. Additionally, our capital structure, long-term commitments and sources of liquidity
changed significantly from our historical capital structure, long-term commitments and sources of liquidity.
Our future capital requirements will depend on many factors, including our rate of sales growth, the expansion
of our sales and marketing activities, our expansion into other markets and our results of operations. To the extent
that existing cash, cash from operations and credit facilities (including the Cantor Credit Agreement), and Nasdaq
97
shares are insufficient to fund our future activities, we may need to raise additional funds through public equity or
debt financing. On October 25, 2018 Newmark received a stand-alone BBB- stable credit rating from Fitch Ratings
Inc. and a BB+ stable rating from Standard & Poor’s and on October 29, 2018 Newmark received a stand-alone
BBB- stable credit rating from Kroll Bond Rating Agency. Long-term debt and long-term debt payable to related
parties decreased by $545.3 million to $537.9 million during 2018. This decrease resulted from debt repayments
partially offset by borrowing under the 6.125% Senior Notes.
Balance Sheet
Total assets at December 31, 2018 were $3,454.2 million as compared to $2,273.0 million at December 31,
2017. $628.2 million of the increase in total assets can be attributed to loans held for sale. Receivables increased by
$241.1 million, primarily as a result of the adoption of ASC 606 coupled with higher revenues. Other assets
increased by $91.4 million due to the RBC Forwards, and Loans, forgivable loans and other receivables from
employees and partners increased by $76.0 million. Total liabilities at December 31, 2018 and December 31, 2017
were $2,371.2 million and $2,029.6 million, respectively. Total liabilities increased primarily due to an increase of
$611.9 million of borrowings from our warehouse facilities collateralized by U.S. Government Sponsored
Enterprises and $330.2 million is due to an increase in current portion of accounts payable, accrued expenses, other
liabilities and accrued commissions, partially offset by a decrease in Secured loans of $57.6 million and a decrease
in current portion of payables to related parties of $20.7 million. Long-term debt and long-term debt payable to
related parties decreased by $545.3 million. The decrease resulted from debt repayments partially offset by
increased borrowings under 6.125% Senior Notes.
Liquidity
Prior to December 13, 2017, the date of the Separation, BGC Partners funded our growth through contributing
acquired companies and related party payables. The related party payables are net of related party receivables which
were generated from our earnings as BGC Partners swept our excess cash to manage treasury centrally.
Additionally, prior to its acquisition by BGC, Berkeley Point and its parent company, CCRE, loaned money to each
other. Fees to related parties that are charged by BGC Partners and Cantor to Newmark are reflected as cash flows
from operating activities in the consolidated statement of cash flows for each period presented. Additionally, prior to
acquisition by BGC, Berkeley Point loaned excess cash to CCRE to fund CCRE’s lending business. These amounts
are presented as investing activities on the statement of cash flows for all periods presented. All other amounts sent
to or from BGC Partners are reflected as cash flows from financing activities in the consolidated statement of cash
flows for each period presented.
For the year ended December 31, 2018, net cash used in operating activities was $332.4 million. However,
excluding activity from loan originations and sales, net cash provided by operating activities was $295.9 million for
the year ended December 31, 2018. We expect to generate cash flows from operations to fund our business
operations and growth strategy to meet our short-term liquidity requirements, which we define as the next 12
months. We also expect that cash flows from operations, cash on hand, our $250 million Credit Facility, and Nasdaq
shares will be sufficient to fund our operations, growth strategy and dividends and distributions to meet our long-
term liquidity requirements.
For the year ended December 31, 2017, net cash provided by operating activities was $853.6 million. Net cash
provided by operating activities excluding activity from loan originations and sales was $144.4 million and $68.6
million for the years ended December 31, 2017 and 2016 respectively. Cash flows from operating activities included
$89.4 million and $45.6 million of cash paid to BGC Partners related to grant of exchangeability to limited
partnership units, respectively. As of the Separation and IPO, these charges became non-cash in nature.
As of December 31, 2018, our liquidity, which Newmark defines as cash and cash equivalents, and marketable
securities, less securities loaned, was $171.4 million. This does not include the approximately $415 million in
additional Nasdaq stock (stock value based on the March 14, 2019 closing price) that Newmark expects to receive
between 2023 and 2027. Newmark expects to use its considerable financial resources to repay debt, profitably hire,
make accretive acquisitions, pay dividends, and/or repurchase shares and units of Newmark, all while maintaining or
improving its credit profile.
98
Debt
Debt Outstanding as of December of 31, 2018
Warehouse facilities
Short-term debt
6.125% Senior Notes
Long-term debt
Total debt
$
As of December
31,
2018
972,387
972,387
537,926
537,926
$ 1,510,313
In addition to the above, Newmark also has a $250.0 million three-year unsecured senior revolving credit
facility and a $250.0 million unsecured credit agreement with Cantor. As of December 31, 2018, there were no
borrowings under these facilities.
99
Term Loan
In connection with the Berkeley Point Acquisition and BGC Partners’ investment in Real Estate LP, on
September 8, 2017, BGC Partners entered into a committed unsecured senior term loan credit agreement (which we
refer to as the “Term Loan Credit Agreement”) with Bank of America, N.A., as administrative agent, and a
syndicate of lenders. The Term Loan Credit Agreement provides for a term loan of up to $575.0 million (which we
refer to as the “Term Loan”). During the year ended December 31, 2017, in connection with the Term Loan, BGC
Partners lent the proceeds of the Term Loan to BGC U.S. OpCo, and BGC U.S. OpCo issued a promissory note with
an aggregate principal amount of $575.0 million to BGC Partners (which we refer to as the “Intercompany Term
Loan Note”). Pursuant to the terms of the Intercompany Term Loan Note, all of the rights and obligations of BGC
Partners under the Intercompany Term Loan Note are the same as the rights and obligations of the lenders with
respect to payment under the Term Loan, and all of the rights and obligations of BGC U.S. OpCo under the
Intercompany Term Loan Note are the same as the rights and obligations of BGC Partners with respect to payment
under the Term Loan. On November 22, 2017, Newmark entered into an amendment to the Term Loan Credit
Agreement (which we refer to as the “Term Loan Amendment”), pursuant to which, in connection with the
Separation and prior to the closing of the IPO, we assumed the obligations of BGC Partners under the Term Loan. In
connection with our assumption of BGC Partners’ rights and obligations under the Term Loan, BGC Partners
assigned to us, and we assumed, all of BGC Partners’ rights and obligations under the Intercompany Term Loan
Note and, pursuant to the separation, Newmark OpCo assumed all of BGC U.S. OpCo’s rights and obligations under
the Intercompany Term Loan Note. During the year ended December 31, 2018 and prior to November 30, 2018, the
Term Loan was repaid in full.
Converted Term Loan
Also, in connection with the Berkeley Point acquisition and BGC Partners’ investment in Real Estate LP, on
September 8, 2017, BGC Partners entered into an unsecured senior revolving credit agreement (which we refer to as
the “Revolving Credit Agreement”) with the administrative agent and a syndicate of lenders. The Revolving Credit
Agreement provided for revolving loans of up to $400.0 million (which we refer to as the “Revolving Credit
Facility”). In connection with the $400.0 million borrowings, the proceeds of which BGC Partners lent to BGC U.S.
OpCo, BGC U.S. OpCo issued a promissory note with an aggregate principal amount of $400.0 million to BGC
Partners (which we refer to as the “Intercompany Revolver Note”). Pursuant to the terms of the Intercompany
Revolver Note, all of the rights and obligations of BGC Partners under the Intercompany Revolver Note are the
same as the rights and obligations of the lenders with respect to payment under the Revolving Credit Facility, and all
of the rights and obligations of BGC U.S. OpCo under the Intercompany Revolver Note are the same as the rights
and obligations of BGC Partners with respect to payment under the Revolving Credit Facility. On November 22,
2017, Newmark entered into an amendment to the Revolving Credit Agreement (which we refer to as the “Revolver
Amendment”), pursuant to which the then outstanding borrowings of BGC Partners under the Revolving Credit
Facility were converted into a term loan (which we refer to as the “Converted Term Loan”) and thereafter, in
connection with the Separation and prior to the closing of the IPO, we assumed the obligations of BGC Partners as
borrower under the Converted Term Loan. BGC Partners remained the borrower under the Revolving Credit Facility
for any future draws and, as long as there is any principal amount outstanding under the Converted Term Loan, we
guaranteed the obligations of BGC Partners under the Revolving Credit Facility. In connection with our assumption
of the Converted Term Loan, BGC Partners assigned to us, and we assumed, all of BGC Partners’ rights and
obligations under the Intercompany Revolver Note and, pursuant to the Separation, Newmark OpCo assumed all of
BGC U.S. OpCo’s rights and obligations under the Intercompany Revolver Note. As of December 31, 2018, and
prior to the Spin-Off, the outstanding amount under the Converted Term Loan was repaid in full.
Under the Revolving Credit Agreement, as amended, BGC Partners guaranteed our repayment obligations
under the Converted Term Loan. As long as the Converted Term Loan remained unpaid in any portion, we will
guarantee any draws by BGC Partners under the Revolving Credit Facility. As the Term Loan and the Converted
Term Loan have been paid in full, we no longer have obligations as a borrower or as a guarantor under either the
Term Loan Credit Agreement or the Revolving Credit Agreement. Upon repayment, no portion of the Term Loan or
the Converted Term Loan may be reborrowed by us.
Pursuant to the Separation and Distribution Agreement, (1) Newmark Group, Inc. will indemnify, defend and
hold harmless the members of the BGC Partners group and each of their respective directors, officers, general
100
partners, managers and employees from and against any and all losses of such persons to the extent relating to,
arising out of or resulting from payments made to satisfy any guarantee by a member of the BGC Partners group to a
third person in respect of the Term Loan Credit Agreement or the Converted Term Loan and (2) BGC Partners will
indemnify, defend and hold harmless the members of the Newmark group and each of their respective directors,
officers, general partners, managers and employees from and against any and all losses of such persons to the extent
relating to, arising out of or resulting from payments made to satisfy any guarantee by a member of the Newmark
group to a third person in respect of borrowings under the Revolving Credit Agreement other than the Converted
Term Loans. In addition, (1) Newmark OpCo will indemnify, defend and hold harmless the Cantor group, the BGC
Partners group and the Newmark group (other than Newmark OpCo and its subsidiaries) and each of their respective
directors, officers, general partners, managers and employees, from and against all liabilities to the extent relating to,
arising out of or resulting from any guarantee for the benefit of any member of the Newmark group by any member
of the BGC Partners group that survives following the Separation and (2) BGC U.S. OpCo and BGC Global OpCo
will indemnify, defend and hold harmless the Cantor group, the Newmark group and the BGC Partners Group (other
than BGC U.S. OpCo, BGC Global OpCo and their respective subsidiaries) and each of their respective directors,
officers, general partners, managers and employees from and against all liabilities to the extent relating to, arising
out of or resulting from any guarantee for the benefit of any member of the BGC Partners group by any member of
the Newmark group that survives following the Separation, including, in each case, any guarantee under the Term
Loan Credit Agreement or the Revolving Credit Agreement.
The Revolving Credit Agreement also contained certain other customary affirmative and negative covenants
and events of default that apply to us.
Pursuant to the Term Loan Credit Agreement the Converted Term Loan Credit Agreement and the Separation
and Distribution Agreement, both the Term Loan and the Converted Term Loan were subject to a mandatory
prepayment requirement by an amount equal to 100% of net cash proceeds of our IPO and all other material debt
and equity issuances (and certain asset sales), in each case subject to customary exceptions. We contributed all of
the net proceeds of the IPO to Newmark OpCo in exchange for a number of units representing Newmark OpCo
limited partnership interests equal to the number of shares issued by us in the IPO. Newmark OpCo used all of such
net proceeds, plus proceeds from BGC’s investment on March 7, 2018, of $242.0 million in Newmark limited
partnership interests and cash on hand to repay in full the Term Loan (which intercompany indebtedness was
originally issued by BGC U.S. OpCo and was assumed by Newmark OpCo in connection with the Separation).
The Term Loan Credit Agreement and the Converted Term Loan Credit Agreement and the Separation and
Distribution Agreement also required us to apply net cash proceeds of material debt issuances after repayment in full
of the Term Loan and Converted Term Loan (and subject to certain exceptions) to repay the BGC Notes.
2019 Promissory Note
On December 9, 2014, BGC issued an aggregate of $300.0 million principal amount of its 5.375% Senior
Notes due 2019 (the “5.375% BGC Senior Notes”). In connection with the issuance of the 5.375% BGC Senior
Notes, BGC lent the proceeds of the 5.375% BGC Senior Notes to BGC U.S. OpCo, and BGC U.S. OpCo issued an
amended and restated promissory note, effective as of December 9, 2014, with an aggregate principal amount of
$300.0 million payable to BGC (the “2019 Promissory Note”). In connection with the Separation, on December 13,
2017, Newmark OpCo assumed all of BGC U.S. OpCo’s rights and obligations under the 2019 Promissory Note. On
November 23, 2018 Newmark repaid the $300.0 million outstanding principal amount under the 2019 Promissory
Note, primarily using proceeds from the sale of the 6.125% Senior Notes.
2042 Promissory Note
On June 26, 2012, BGC issued an aggregate of $112.5 million principal amount of its 8.125% Senior Notes
due 2042 (the “8.125% BGC Senior Notes”). In connection with the issuance of the 8.125% BGC Senior Notes,
BGC lent the proceeds of the 8.125% BGC Senior Notes to BGC U.S. OpCo, and BGC U.S. OpCo issued an
amended and restated promissory note, effective as of June 26, 2012, with an aggregate principal amount of $112.5
million payable to BGC. In connection with the Separation, on December 13, 2017, Newmark OpCo assumed all of
BGC U.S. OpCo’s rights and obligations under the 2042 Promissory Note.
101
On August 3, 2018, BGC delivered a notice of redemption to the holders of its outstanding 8.125% BGC
Senior Notes, which were redeemed on September 5, 2018. BGC’s redemption of its 8.125% BGC Senior Notes
accelerated Newmark’s obligation to repay the 2042 Promissory Note. Accordingly, on September 4, 2018,
Newmark OpCo borrowed $112.5 million from BGC OpCo pursuant to the Intercompany Credit Agreement which
loan bore interest at an annual rate equal to 6.5%. Newmark OpCo used the proceeds of this loan to repay the $112.5
million of the 2042 Promissory Note in full. As a result, Newmark’s long-term debt decreased by $112.5 million and
there was an equal and offsetting increase in Newmark’s current portion of payables to related parties of $112.5
million. As of December 31, 2018, and prior to the Spin-Off, Newmark repaid all outstanding balances payable to
related parties using proceeds from the 6.125% Senior Notes.
Intercompany Credit Agreement
In connection with the Separation on December 13, 2017, BGC entered into an unsecured senior credit
agreement with Newmark, which was amended and restated on March 19, 2018. The Intercompany Credit
Agreement provides for each party to issue revolving loans to the other party in the lender’s discretion.
Through the six months ended June 30, 2018, Newmark borrowed an additional $230.0 million and used these
proceeds plus cash on hand to fund its restricted cash account pledged for the benefit of Fannie Mae. On September
4, 2018 Newmark borrowed $112.5 million in order to repay the 2042 Promissory Note. On October 4, 2018,
Newmark withdrew $252.0 million of restricted cash that was in excess of the required amount pledged for the
benefit of Fannie Mae to repay $252.0 million of the Intercompany Credit Agreement. Additionally, on November
6, 2018, Newmark used proceeds from the 6.125% Senior Notes to repay in full the remaining balance of $130.5
million under the Intercompany Credit Agreement.
Credit Facility
On November 28, 2018, Newmark entered into a credit agreement by and among Newmark, the several
financial institutions from time to time party thereto, as Lenders, and Bank of America N.A., as administrative
agent. The Credit Agreement provides for a $250.0 million three-year unsecured senior revolving credit facility. As
of December 31, 2018, there were no borrowings outstanding under the new credit agreement. Borrowings under the
Credit Facility will bear an annual interest equal to, at Newmark’s option, either (a) LIBOR for specified periods, or
upon the consent of all Lenders, such other period that is 12 months or less, plus an applicable margin, or (b) a base
rate equal to the greatest of (i) the federal funds rate plus 0.5%, (ii) the prime rate as established by the
administrative agent, and (iii) one-month LIBOR plus 1.0%. The applicable margin is 200 basis points with respect
to LIBOR borrowings in (a) above and can range 0.25% to 1.25% higher, depending upon Newmark’s credit rating.
The Credit Facility also provides for an unused facility fee.
6.125% Senior Notes
On November 2, 2018, Newmark announced the pricing of an offering of $550.0 million aggregate principal
amount of 6.125% Senior Notes due 2023, which closed on November 6, 2018. The 6.125% Senior Notes were
offered and sold in a private offering exempt from the registration requirements under the Securities Act. The
6.125% Senior Notes are general senior unsecured obligations of the Company. These 6.125% Senior Notes were
priced at 98.937% to yield 6.375%. The 6.125% Senior Notes bear an interest rate of 6.125% per annum, payable
on each May 15 and November 15, beginning on May 15, 2019 and will mature on November 15, 2023.
Cantor Credit Agreement
On November 30, 2018 the Company entered into an unsecured credit agreement with Cantor. The Cantor
Credit Agreement provides for each party to issue loans to the other party in the lender’s discretion. Pursuant to the
Cantor Credit Agreement, the parties and their respective subsidiaries (with respect to CFLP, other than BGC and its
subsidiaries) may borrow up to an aggregate principal amount of $250 million from each other from time to time at
an interest rate which is higher to CFLP’s or the Company’s short-term borrowing rate then in effect, plus 1.0%. As
of December 31, 2018, there were no borrowings outstanding under the new unsecured senior revolving credit
agreement.
102
Short-Term Borrowings
Warehouse Facilities Collateralized by U.S. Government Sponsored Enterprises
As of December 31, 2018, Newmark had $1,650 million of committed loan funding available through three
commercial banks and an uncommitted $325 million Fannie Mae loan repurchase facility. Consistent with industry
practice, these warehouse facilities are short-term, requiring annual renewal. These warehouse facilities are
collateralized by an assignment of the underlying mortgage loans originated under its various lending programs and
third-party purchase commitments and are recourse only to our wholly-owned subsidiary, Berkeley Point Capital,
LLC.
Cash Flows for the Year Ended December 31, 2018
For the year ended December 31, 2018, we used $332.4 million of cash from operations. However, excluding
activity from loan originations and sales, net cash provided by operating activities for the year ended December 31,
2018 was $295.9 million. We had consolidated net income of $191.9 million, $149.9 million of positive adjustments
to reconcile net income to net cash used by operating activities (excluding activity from loan originations and sales)
and $45.9 million of negative changes in operating assets and liabilities. The negative change in operating assets and
liabilities included $109.6 million of increases in loans, forgivable loans and other receivables from employees and
partners primarily related to continued hiring and expansion of our business and $129.5 million of increase in
receivables related to acquisitions and increased revenues, offset by an increase of $203.1 million in accounts
payable, accrued expenses and other liabilities. Cash provided by investing activities was $7.7 million, primarily
related to $95.9 million of proceeds from the sale of marketable securities, partially offset by $34.5 million of
payments for acquisitions, $29.5 million in cost method investments and $21.0 million of purchases of fixed assets.
We generated $338.6 million of cash from financing activities primarily due to net proceeds from warehouse
facilities collateralized by U.S. Government Sponsored Enterprises of $611.9 million, $242.0 million of proceeds
from BGC’s 2018 investment in Newmark, net proceeds from 6.125% Senior Notes of $537.5 million, $262.2
million proceeds from the Newmark OpCo Preferred Investment, partially offset by distributions to limited
partnership interests and noncontrolling interests of $46.5 million, and dividends of $41.8 million, and $1,156.0
million repayment of long-term debt.
Cash Flows for the Year Ended December 31, 2017
For the year ended December 31, 2017, we generated $853.6 million of cash from operations. We had net
income of $145.1 million, $705.1 million of adjustments to reconcile net income to net cash provided by operating
activities, and $3.4 million of positive changes in operating assets and liabilities. $711.4 million of adjustments to
reconcile net income to net cash provided by operating activities was related to loans held for sale. The positive
change in operating assets and liabilities was driven by a $58.9 million increase in our accounts payable, accrued
expenses and other liabilities, including accrued compensation, and a $36.1 increase in other assets, partially offset
by a $91.5 million negative change in operating assets and liabilities as a result of an increase in outstanding
receivables and employee loans and other receivables. We generated $0.4 million of cash provided by investing
activities primarily related to proceeds from the sale of marketable securities, offset by purchases of fixed assets. We
used $798.2 million of cash from financing activities primarily due to net payments to related parties of
$746.9 million, $101.8 million of distribution of earnings to BGC and $89.1 million distribution related to Berkeley
Point acquisition, offset by $57.6 million of proceeds from secured loans.
Cash Flows for the Year Ended December 31, 2016
For the year ended December 31, 2016, we used $644.2 million of cash from operations. We had net income
of $167.2 million, $759.6 million of negative adjustments to reconcile net income to net cash provided by operating
activities, and $51.8 million of negative changes in operating assets and liabilities. $714.3 million of the negative
adjustments to reconcile net income to net cash provided by operating activities was related to loans held for sale.
The negative change in operating assets and liabilities was driven by a $118.2 million increase in loans and
forgivable loans primarily paid to producers, partially offset by a $66.5 million positive change in operating assets
and liabilities as a result of a reduction in our days sales outstanding while at the same time increasing our days
payable. We used $34.4 million of cash for investing activities primarily related to fixed asset purchases, and
103
generated $636.0 million in financing activities primarily due to net borrowings of $750.7 million from related
parties, partially offset by $101.7 million of net repayments on the warehouse facilities collateralized by U.S.
Government Sponsored Enterprises and earn-out payments for our acquisitions.
CREDIT RATINGS
Our public long-term credit ratings and associated outlooks are as follows:
Fitch Ratings Inc. (1)
Standards & Poor's (2)
Kroll Bond Rating Agency (3)
Rating
BBB-
BB+
BBB-
Outlook
Stable
Stable
Stable
(1)
(2)
(3)
On October 25, 2018, Fitch Ratings Inc. assigned Newmark’s first-time Issuer Default rating of BBB- and assigned a stable rating
outlook.
On October 25, 2018, Standard & Poor’s assigned Newmark’s Issuer credit rating at BB+ and assigned a stable rating outlook.
On October 29, 2018, Kroll Bond Rating Agency assigned Newmark’s long-term Issuer credit rating at BBB- and assigned a
stable rating outlook.
Credit ratings and associated outlooks are influenced by a number of factors, including but not limited to:
operating environment, earnings and profitability trends, the prudence of funding and liquidity management
practices, balance sheet size/composition and resulting leverage, cash flow coverage of interest, composition and
size of the capital base, available liquidity, outstanding borrowing levels and the firm’s competitive position in the
industry. A credit rating and/or the associated outlook can be revised upward or downward at any time by a rating
agency if such rating agency decides that circumstances warrant such a change. Any reduction in our credit ratings
and/or the associated outlook could adversely affect the availability of debt financing on terms acceptable to us, as
well as the cost and other terms upon which we are able to obtain any such financing. In addition, credit ratings and
associated outlooks may be important to customers or counterparties when we compete in certain markets and when
we seek to engage in certain transactions. In connection with certain agreements, interest rates on our notes may
incur increases of up to 2% in the event of a credit ratings downgrade.
REGULATORY REQUIREMENTS
As a result of the Berkeley Point Acquisition, Newmark is now subject to various capital requirements in
connection with seller/servicer agreements that Newmark has entered into with the various GSEs. Failure to
maintain minimum capital requirements could result in Newmark’s inability to originate and service loans for the
respective GSEs and could have a direct material adverse effect on Newmark’s Consolidated Financial Statements.
As of December 31, 2018, Newmark has met all capital requirements. As of December 31, 2018, the most restrictive
capital requirement was Fannie Mae’s net worth requirement. Newmark exceeded the minimum requirement by
$322.3 million.
Certain of Newmark’s agreements with Fannie Mae allow Newmark to originate and service loans under
Fannie Mae’s DUS Program. These agreements require Newmark to maintain sufficient collateral to meet Fannie
Mae’s restricted and operational liquidity requirements based on a pre-established formula. Certain of Newmark’s
agreements with Freddie Mac allow Newmark to service loans under Freddie Mac’s TAH Program. These
agreements require Newmark to pledge sufficient collateral to meet Freddie Mac’s liquidity requirement of 8% of
the outstanding principal of TAH loans serviced by Newmark. As of December, 31, 2018 and 2017 Newmark has
met all liquidity requirements.
In addition, as a servicer for Fannie Mae, GNMA and FHA, Newmark is required to advance to investors any
uncollected principal and interest due from borrowers. As of December 31, 2018 and 2017, outstanding borrower
advances were approximately $0.2 million and $0.1 million, respectively, and are included in “Other assets” in the
accompanying consolidated balance sheets.
See “Regulation” in Part I, Item 1 of this Annual Report on Form 10-K for additional information related to
our regulatory environment.
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EQUITY
Share Exchange Agreement
In relation to the IPO, on December 13, 2017, Newmark entered into an exchange agreement with Cantor,
CFGM, BGC and other Cantor affiliates entitled to hold Class B common stock, providing the right to exchange
from time to time shares of Class A common stock of Newmark now owned or hereafter acquired, as applicable, on
a one-for-one basis for shares of Class B common stock, up to the number of shares of Newmark Class B common
stock that are authorized but unissued under Newmark’s certificate of incorporation. The Newmark Audit
Committee and Board of Directors have determined that the exchange agreement is in the best interests of Newmark
and its stockholders because, among other things, it will help ensure that Cantor retains its exchangeable limited
partnership units in Newmark Holdings, which is the same partnership in which Newmark’s partner employees
participate, thus continuing to align the interests of Cantor with those of the partner employees.
Repurchase Program
On August 1, 2018, our board of directors and audit committee authorized repurchases of shares of our Class
A common stock and redemptions or repurchases of limited partnership interests or other equity interests in our
subsidiaries up to $200 million, increased from $100 million which was authorized on March 12, 2018. This
authorization includes repurchases of stock or units from executive officers, other employees and partners, including
of BGC and Cantor, as well as other affiliated persons or entities. From time to time, we may repurchase shares or
redeem or repurchase units. Changes in shares of Newmark’s Class A common stock outstanding for the year ended
December 31, 2018 were as follows:
Approximate
Dollar
Value of Units
and
Shares That
May Yet
Be Redeemed/
Purchased
Under
the Plan
Total
Number of
Shares
Repurchased
Average
Price Paid
per Unit
or Share
Period
Repurchases ¹
October 1, 2018 - December 31, 2018
Total Repurchases
50,000 $
50,000 $
9.73
9.73 $ 199,513,725
1.
During the year ended December 31, 2018, Newmark repurchased approximately 50,000 shares of its Class A common stock at
an aggregate purchase price of approximately $0.5 million for an average price of $9.73 per share
Fully Diluted Share Count
Our fully diluted weighted-average share count for the year ended December 31, 2018 was as follows (in
thousands)
Common stock outstanding(1)
Partnership units(2)
RSUs (Treasury stock method)
Other
Total(3)
Year Ended
December 31, 2018
157,256
100,904
187
650
258,997
(1)
Common stock consisted of Class A shares, Class B shares and contingent shares for which all necessary conditions have been
satisfied except for the passage of time. For the year ended December 31, 2018, the weighted-average number of Class A shares
was 120.3 million shares, Class B shares was 36.4 million shares and approximately 0.6 million shares of contingent Class A
common stock and limited partnership units were included in our fully diluted EPS computation because the conditions for
issuance had been met by the end of the period.
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(2)
(3)
Partnership units collectively include founding/working partner units, limited partnership units, and Cantor units, (see Note 2—
“Limited Partnership Interests”, to our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K
for more information.) In general, these partnership units are potentially exchangeable into shares of Newmark Class A common
stock. In addition, partnership units held by Cantor are generally exchangeable into shares of Newmark Class A common stock
and/or for up to 23.6 million shares of Newmark Class B common stock. These partnership units also generally receive quarterly
allocations of net income, after the deduction of the Preferred Distribution, based on their weighted-average pro rata share of
economic ownership of the operating subsidiaries. As a result, these partnership units are included in the fully diluted share count
calculation shown above.
For the year ended December 31, 2018, the weighted-average share count includes 95.2 million potentially anti-dilutive securities,
which were excluded in the computation of fully diluted earnings per share.
CONTINGENT PAYMENTS RELATED TO ACQUISITIONS
Newmark completed acquisitions from 2014 through 2018 for which contingent cash consideration of $16.8
million and limited partnership units of 1.4 million may be issued on certain targets being met through 2021. The
contingent equity instruments are issued by and are included in the current portion of “Accounts payable, accrued
expenses and other liabilities” on Newmark’s consolidated balance sheets. The contingent cash liability is recorded
at fair value as deferred consideration on Newmark’s consolidated balance sheets.
EQUITY METHOD INVESTMENTS
Newmark has an investment in Real Estate LP, a joint venture with Cantor in which Newmark has a less than
majority ownership and has the ability to exert significant influence over the operating and financial policies. As of
December 31, 2018, Newmark had $101.3 million in this equity method investment, which represents a 27%
ownership in Real Estate LP.
Registration Statements
In January 2019, we filed a registration statement on Form S-4 pursuant to which the holders of our 6.125%
Senior Notes due 2023 which were issued in a private placement were offered an opportunity to exchange such
notes for new registered notes with substantially identical terms. The registration statement was declared effective
by the SEC and on February 5, 2019, we announced an offer to exchange up to all $550 million aggregate principal
amount of our outstanding 6.125% Senior Notes due 2023 for an equivalent amount of 6.125% Senior Notes due
2023 registered under the Securities Act. The exchange offer closed on March 14, 2019.
We have an effective registration statement on Form S-8 with respect to the issuance of up to 50 million
shares of our Class A common stock (the “S-8 Registration Statement”) from time to time pursuant to our Long
Term Incentive Plan (the “Equity Plan”). The Equity Plan authorizes the issuance of up to 400 million shares of our
Class A common stock (subject to adjustment) pursuant to the exercise or settlement of awards granted under the
Equity Plan. There are 400 million shares reserved for issuance under the Equity Plan and as of December 31, 2018,
we have issued 13.2 million shares of Class A Common stock under the Equity Plan and the S-8 Registration
Statement. As of December 31, 2018, there were 386.8 million shares remaining for issuance under the S-8
Registration Statement.
Contractual Obligations and Commitments
The following table summarizes certain of our contractual obligations at December 31, 2018 (in thousands):
Operating leases(1)
Warehouse facilities collateralized by U.S.
Government Sponsored Enterprises (2)
Long-term debt(3)
Interest on long-term debt(4)
Interest on warehouse facilities
collateralized by U.S. Government
Sponsored Enterprises (5)
Total contractual obligations
Total
Less than
1 Year
1-3
Years
3-5
Years
More than
5 Years
$ 351,589 $
42,870 $
79,784 $
70,028 $ 158,907
972,387
550,000
168,440
972,387
—
33,688
—
—
67,376
—
550,000
67,376
—
—
—
23,347
—
$ 2,065,763 $ 1,072,292 $ 147,160 $ 687,404 $ 158,907
23,347
—
—
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(1)
Operating leases are related to rental payments under various non-cancelable leases principally for office space, net of sublease
payments to be received. The total amount of sublease payments to be received is approximately $1.9 million over the life of the
agreements.
(2) Warehouse Facilities are collateralized by $972.4 of loans held for sale, at fair value (see Note 20 – “Warehouse Facilities
Collateralized by U.S. Government Sponsored Enterprises” to our Consolidated Financial Statements in Part II, Item 8 in this
Annual Report on Form 10-K.). which loans were either under commitment to be purchased by Freddie Mac or had confirmed
forward trade commitments for the issuance of and purchase of Fannie Mae or Ginnie Mae mortgage backed securities.
(3)
Long-term debt reflects long-term borrowings of $550.0 million, 6.125% Senior Notes due 2023. The carrying amount of these
notes was approximately $537.9 million. (see Note 21–“ Long-Term Debt and Long-Term Debt Payable to Related Parties” to our
Consolidated Financial Statements in Part II, Item 8 in this Annual Report on Form 10-K.)
(4)
Reflects interest on the $550 million 6.125% Senior Notes until their maturity date of November 15, 2023.
(5)
Interest on the warehouse facilities collateralized by U.S. Government Sponsored Enterprises was projected by using the 1-month
LIBOR rate plus their respective additional basis points, primarily 120 basis points above LIBOR, applied to their respective
outstanding balances as of December 31, 2018, through their respective maturity dates. Their respective maturity dates range
from June to October 2019, while one line has an open maturity date. The notional amount of these committed and uncommitted
warehouse facilities was $1,975 million at December 31, 2018. One of these lines had been increased temporarily to $1,000
million for the period from November 30, 2018 through January 29, 2019. On January 29, 2019 this temporary increase was
reduced to $300 million for the period January 29, 2019 to April 2019.
As of December 31, 2018, Newmark was committed to fund approximately $294 million, which is the total
remaining draws on construction loans originated by Newmark under the HUD 221(d)4, 220 and 232 programs, rate
locked loans that have not been funded, forward commitments as well as the funding for Fannie Mae structured
transactions. Newmark also has corresponding commitments to sell these loans to various investors as they are
funded.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with U.S. GAAP guidance requires
management to make estimates and assumptions that affect the reported amounts of the assets and liabilities,
revenues and expenses, and the disclosure of contingent assets and liabilities in our consolidated financial
statements. These accounting estimates require the use of assumptions about matters, some which are highly
uncertain at the time of estimation. To the extent actual experience differs from the assumptions used, our
consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows could
be materially affected. We believe that of our significant accounting policies, the following policies involve a higher
degree of judgment and complexity.
Revenue Recognition
We derive our revenues primarily through commissions from brokerage services, gains from mortgage
banking activities/originations, net, revenues from real estate management services, servicing fees and other
revenues. Revenue from contracts with customers is recognized when, or as, the Company satisfies its performance
obligations by transferring the promised goods or services to the customers as determined by when, or as, the
customer obtains control of that good or service. A performance obligation may be satisfied over time or at a point
in time. Revenue from a performance obligation satisfied over time is recognized by measuring the Company’s
progress in satisfying the performance obligation as evidenced by the transfer of the goods or services to the
customer. Revenue from a performance obligation satisfied at a point in time is recognized at the point in time when
the customer obtains control over the promised good or service. The amount of revenue recognized reflects the
consideration we expect to be entitled to in exchange for those promised goods or services (i.e., the “transaction
price”). In determining the transaction price, we consider consideration promised in a contract that includes a
variable amount, referred to as variable consideration, and estimate the amount of consideration due the Company.
Additionally, variable consideration is included in the transaction price only to the extent that it is probable that a
significant reversal in the amount of cumulative revenue recognized will not occur. In determining when to include
variable consideration in the transaction price, the Company considers all information (historical, current and
forecast) that is available, including the range of possible outcomes, the predictive value of past experiences, the
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time period of when uncertainties expect to be resolved and the amount of consideration that is susceptible to factors
outside of the Company’s influence.
We also use third party service providers in the provision of its services to customers. In instances where a
third-party service provider is used, the Company performs an analysis to determine whether the Company is acting
as a principal or an agent with respect to the services provided. To the extent that the Company determines that it is
acting as a principal, the revenue and the expenses incurred are recorded on a gross basis. In instances where the
Company has determined that it is acting as an agent, the revenue and expenses are presented on a net basis within
the revenue line item.
In some instances, the Company performs services for customers and incurs out-of-pocket expenses as part of
delivering those services. The Company’s customers agree to reimburse the Company for those expenses, and those
reimbursements are part of the contract’s transaction price. Consequently, these expenses and the reimbursements of
such expenses from the customer are presented on a gross basis because the services giving rise to the out-of-pocket
expenses do not transfer a good or service. The reimbursements are included in the transaction price when the costs
are incurred, and the reimbursements are due from the customer.
Equity-Based and Other Compensation
Discretionary Bonus: A portion of our compensation and employee benefits expense comprises discretionary
bonuses, which may be paid in cash, equity, partnership awards or a combination thereof. We accrue expense in a
period based on revenues in that period and on the expected combination of cash, equity and partnership units.
Given the assumptions used in estimating discretionary bonuses, actual results may differ.
Restricted Stock Units: We account for equity-based compensation under the fair value recognition provisions
of U.S. GAAP guidance. Restricted stock units (which we refer to as “RSUs”) provided to certain employees are
accounted for as equity awards, and in accordance with U.S. GAAP guidance, we are required to record an expense
for the portion of the RSUs that is ultimately expected to vest. Further, U.S. GAAP guidance requires forfeitures to
be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from
those estimates. Because significant assumptions are used in estimating employee turnover and associated forfeiture
rates, actual results may differ from our estimates under different assumptions or conditions.
The fair value of RSU awards to employees is determined on the date of grant, based on the fair value of BGC
Partners’ Class A common stock. Generally, RSUs granted by us as employee compensation do not receive dividend
equivalents; as such, we adjust the fair value of the RSUs for the present value of expected forgone dividends, which
requires us to include an estimate of expected dividends as a valuation input. This grant-date fair value is amortized
to expense ratably over the awards’ vesting periods. For RSUs with graded vesting features, we have made an
accounting policy election to recognize compensation cost on a straight-line basis. The amortization is reflected as
non-cash equity-based compensation expense in our consolidated statements of operations.
Restricted Stock: Restricted stock provided to certain employees is accounted for as an equity award, and as
per U.S. GAAP guidance, we are required to record an expense for the portion of the restricted stock that is
ultimately expected to vest. We have granted restricted stock that is not subject to continued employment or service;
however, transferability is subject to compliance with our and our affiliates’ customary non-compete obligations.
Such shares of restricted stock are generally saleable by partners in 5 to 10 years. Because the restricted stock is not
subject to continued employment or service, the grant-date fair value of the restricted stock is expensed on the date
of grant. The expense is reflected as non-cash equity-based compensation expense in our consolidated statements of
operations.
Limited Partnership Units: Limited partnership units in BGC Holdings and Newmark Holdings are generally
held by employees. Generally, such units receive quarterly allocations of net income, which are cash distributed on a
quarterly basis and generally contingent upon services being provided by the unit holders. As discussed above,
preferred units in BGC Holdings and Newmark Holdings are not entitled to participate in partnership distributions
other than with respect to a distribution at a rate of either 0.6875% (which is 2.75% per calendar year) or such other
amount as set forth in the award documentation. The quarterly allocations of net income to such limited partnership
units are reflected as a component of compensation expense under “Allocations of net income and grant of
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exchangeability to limited partnership units and FPU’s and issuance of common stock” in our consolidated
statements of operations.
Certain of these limited partnership units entitle the holders to receive post-termination payments equal to the
notional amount in four equal yearly installments after the holder’s termination. These limited partnership units are
accounted for as post-termination liability awards under U.S. GAAP guidance. Accordingly, we recognize a liability
for these units on our consolidated balance sheets as part of “Accrued compensation” for the amortized portion of
the post-termination payment amount, based on the current fair value of the expected future cash payout. We
amortize the post-termination payment amount, less an expected forfeiture rate, over the vesting period, and record
an expense for such awards based on the change in value at each reporting period in our consolidated statements of
operations as part of “Compensation and employee benefits.”
Certain limited partnership units in BGC Holdings and Newmark Holdings are granted exchangeability into
BGC Partners Class A common stock (subject to adjustments and other requirements as set forth in the BGC
Holdings and Newmark Holdings limited partnership agreement). At the time exchangeability is granted, we
recognize an expense based on the fair value of the award on that date, which is included in “Allocations of net
income and grant of exchangeability to limited partnership units and FPU’s and issuance of common stock” in our
consolidated statements of operations.
Employee Loans: We have entered into various agreements with certain of our employees and partners
whereby these individuals receive loans that may be either wholly or in part repaid from distributions that the
individuals receive on some or all of their limited partnership interests or may be forgiven over a period of time.
Cash advance distribution loans are documented in formal agreements and are repayable in timeframes outlined in
the underlying agreements. We intend for these advances to be repaid in full from the future distributions on existing
and future awards granted. The distributions are treated as compensation expense when made and the proceeds are
used to repay the loan. The forgivable portion of any loans is recognized as compensation expense in our
consolidated statements of operations over the life of the loan. We review the loan balances each reporting period
for collectability. If we determine that the collectability of a portion of the loan balances is not expected, we
recognize a reserve against the loan balances. Actual collectability of loan balances may differ from our estimates.
As of December 31, 2018, and 2017, the aggregate balance of employee loans, net of reserve, was $285.5 million
and $209.5 million, respectively, and is included as “Loans, forgivable loans and other receivables from employees
and partners, net” in our consolidated balance sheets. Compensation expense for the above-mentioned employee
loans for the year ended December 31, 2018 was $27.7 million and $34.4 million for the year ended December 31,
2017. The compensation expense related to these loans was included as part of “Compensation and employee
benefits” in our consolidated statements of operations.
Goodwill
Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in a business
combination. As prescribed in U.S. GAAP guidance, Intangibles – Goodwill and Other Intangible Assets, goodwill
is not amortized, but instead is periodically tested for impairment. We review goodwill for impairment on an annual
basis during the fourth quarter of each fiscal year or whenever an event occurs, or circumstances change that could
reduce the fair value of a reporting unit below its carrying amount.
When reviewing goodwill for impairment, we first assess qualitative factors to determine whether it is more
likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If the results
of the qualitative assessment are not conclusive, or if we choose to bypass the qualitative assessment, we perform a
goodwill impairment analysis using a two-step process. Newmark had goodwill balances as of December 31, 2018
and 2017 of $515.3 million and $477.5 million, respectively.
The first step of the process involves comparing each reporting unit’s estimated fair value with its carrying
value, including goodwill. To estimate the fair value of the reporting units, we use a discounted cash flow model and
data regarding market comparables. The valuation process requires significant judgment and involves the use of
significant estimates and assumptions. These assumptions include cash flow projections, estimated cost of capital
and the selection of peer companies and relevant multiples. Because significant assumptions and estimates are used
in projecting future cash flows, choosing peer companies and selecting relevant multiples, actual results may differ
109
from our estimates under different assumptions or conditions. If the estimated fair value of a reporting unit exceeds
its carrying value, goodwill is deemed not to be impaired. If the carrying value exceeds estimated fair value, there is
an indication of potential impairment and the second step is performed to measure the amount of potential
impairment.
The second step of the process involves the calculation of an implied fair value of goodwill for each reporting
unit for which step one indicated a potential impairment may exist. The implied fair value of goodwill is determined
by measuring the excess of the estimated fair value of the reporting unit as calculated in step one, over the estimated
fair values of the individual assets, liabilities and identified intangibles. Events such as economic weakness,
significant declines in operating results of reporting units, or significant changes to critical inputs of the goodwill
impairment test (e.g., estimates of cash flows or cost of capital) could cause the estimated fair value of our reporting
units to decline, which could result in an impairment of goodwill in the future.
Income Taxes
Newmark accounts for income taxes using the asset and liability method as prescribed in U.S. GAAP
guidance, Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to basis differences between the consolidated financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Certain of Newmark’s entities are taxed as U.S. partnerships and are subject
to the Unincorporated Business Tax (“UBT”) in New York City. Therefore, the tax liability or benefit related to the
partnership income or loss except for UBT rests with the partners, rather than the partnership entity. As such, the
partners’ tax liability or benefit is not reflected in Newmark’s consolidated financial statements. The tax-related
assets, liabilities, provisions or benefits included in Newmark’s consolidated financial statements also reflect the
results of the entities that are taxed as corporations, either in the U.S. or in foreign jurisdictions.
Newmark’s income taxes as presented are calculated on a separate return basis for the periods prior to the
Spin-Off and have historically been included in BGC’s U.S. federal and state tax returns or separate non-U.S.
jurisdictions tax returns. Subsequent to the spin, Newmark will file its own stand-alone tax returns for its operations
within these jurisdictions. The 2018 tax results reflect both the pre and post spin periods and as such Newmark’s tax
results as presented are not necessarily reflective of the results that Newmark would have generated on a stand-alone
basis.
Newmark provides for uncertain tax positions based upon management’s assessment of whether a tax benefit
is more likely than not to be sustained upon examination by tax authorities. Management is required to determine
whether a tax position is more likely than not to be sustained upon examination by tax authorities, including
resolution of any related appeals or litigation processes, based on the technical merits of the position. Because
significant assumptions are used in determining whether a tax benefit is more likely than not to be sustained upon
examination by tax authorities, actual results may differ from Newmark’s estimates under different assumptions or
conditions. Newmark recognizes interest and penalties related to uncertain tax positions in “Provision for income
taxes” in Newmark’s consolidated statements of operations.
A valuation allowance is recorded against deferred tax assets if it is deemed more likely than not that those
assets will not be realized. In assessing the need for a valuation allowance, Newmark considers all available
evidence, including past operating results, the existence of cumulative losses in the most recent fiscal years,
estimates of future taxable income and the feasibility of tax planning strategies.
The measurement of current and deferred income tax assets and liabilities is based on provisions of enacted
tax laws and involves uncertainties in the application of tax regulations in the U.S. and other tax jurisdictions.
Because Newmark’s interpretation of complex tax law may impact the measurement of current and deferred income
taxes, actual results may differ from these estimates under different assumptions regarding the application of tax
law.
On December 22, 2017, the SEC issued Staff Accounting Bulletin (“SAB 118”), which provides guidance on
accounting for tax effects of the 2017 Tax Act. SAB 118 provides a measurement period that should not extend
beyond one year from the 2017 Tax Act enactment date for companies to complete the accounting under ASC 740.
In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the 2017 Tax Act for
110
which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax
effects of the 2017 Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a
provisional estimate to be included in the financial statements. If a company cannot determine a provisional estimate
to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provision of the
tax laws that were in effect immediately before the enactment of the 2017 Tax Act. While Newmark is able to make
a reasonable estimate of the impact of the reduction in the corporate rate, the final impact of the 2017 Tax Act may
differ from these estimates, due to, among other things, changes in interpretations, additional guidance that may be
issued, unexpected negative changes in business and market conditions that could reduce certain tax benefits, and
actions taken by Newmark as a result of the 2017 Tax Act.
Derivative Financial Instruments
We have loan commitments to extend credit to third parties. The commitments to extend credit are for
mortgage loans at a specific rate (rate lock commitments). These commitments generally have fixed expiration dates
or other termination clauses and may require a fee. We are committed to extend credit to the counterparty as long as
there is no violation of any condition established in the commitment contracts.
We simultaneously enter into an agreement to deliver such mortgages to third-party investors at a fixed price
(forward sale contracts).
Both the commitment to extend credit and the forward sale commitment qualify as derivative financial
instruments. We recognize all derivatives on the consolidated balance sheets as assets or liabilities measured at fair
value. The change in the derivatives fair value is recognized in current period earnings.
Newmark entered into four variable postpaid forward contracts as a result of the RBC forward. These
contracts qualify as derivative financial instruments. The RBC Forwards provide Newmark with the ability to
redeem the EPUs for Nasdaq stock, and these instruments are not legally detachable, they represent single financial
instruments. The financial instruments’ EPU redemption feature for Nasdaq common stock is not clearly and closely
related to the economic characteristics and risks of Newmark’s EPU equity host instruments, and, therefore, it
represents an embedded derivative that is required to be bifurcated and recorded at fair value on Newmark’s balance
sheet, with all changes in fair value recorded as a component of “Other income, net” on Newmark’s consolidated
statements of operations. See Note 11 — Derivatives, to our Consolidated Financial Statements in Part II, Item 8 of
this Annual Report on Form 10-K for additional information.
Recent Accounting Pronouncements
See Note 1— “Organization and Basis of Presentation,” to our Consolidated Financial Statements in Part II,
Item 8 of this Annual Report on Form 10-K, for information regarding recent accounting pronouncements.
Unit Redemptions and Exchanges – Executive Officers
In connection with the Company’s 2018 executive compensation process, the Company’s executive officers
received certain monetization of prior awards as compensation at Newmark, as set forth below.
On December 31, 2018, the Compensation Committee approved the monetization of 898,080 BGC Holdings,
PPSUs held by Mr. Lutnick (which had an average determination price of $7.65 per unit), and 592,721 Newmark
Holdings PPSUs (which had an average determination price of $13.715 per unit), which transactions had an
aggregate value of $15,000,000. On February 6, 2019, the Compensation Committee approved a modification
which consisted of the following: (i) the right to exchange 1,131,774 non-exchangeable BGC Holdings PSUs held
by Mr. Lutnick into 1,131,774 non-exchangeable partnership units with a capital account (HDUs) (which, based on
the closing price of the BGC Class A common stock of $6.20 per share on such date, had a value of $7,017,000);
and (ii) the right to exchange for cash 1,018,390 BGC Holdings non-exchangeable PPSUs held by Mr. Lutnick,
(which had an average determination price of $7.8388 per unit), for a payment of $7,983,000 for taxes when (i) is
exchanged.
On December 31, 2018, the Compensation Committee approved the monetization of 1,909,188 BGC Holdings
PSUs held by Mr. Gosin and 264,985 BGC Holdings PPSUs (which had an average determination price of $4.2625
per unit), which transactions had an aggregate value of $11,000,000. On February 6, 2019, the Compensation
111
Committee approved a modification which consisted of the following: (i) the right to exchange 1,592,016 non-
exchangeable HDUs (which, based on the closing price of the BGC Class A common stock of $6.20 per share on
such date, had a value of $9,870,501); and (ii) the right to exchange for cash 264,985 BGC Holdings non-
exchangeable PPSUs held by Mr. Gosin, (which had an average determination price of $4.2625 per unit), for a
payment of $1,129,499 for taxes when (i) is exchanged.
On December 31, 2018, the Compensation Committee approved the cancellation of 13,552 non-exchangeable
PSUs in BGC Holdings held by Mr. Rispoli and the cancelation of 11,089 BGC Holdings PPSUs (which had an
average determination price of $5.814 per unit). In connection with the transaction, BGC issued $134,535 in shares
of Class A common stock, less applicable taxes and withholdings, resulting in 13,552 net shares of BGC Class A
common stock at a price of $5.17 per share and the payment of $64,471 for taxes. On February 22, 2019, the
Compensation Committee removed the sale restrictions on 4,229 shares of BGC Class A common stock and 1,961
shares of Newmark Class A common stock held by Mr. Rispoli.
112
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Credit Risk
Berkeley Point, under the Fannie Mae DUS program, originates and services multifamily loans for Fannie
Mae without having to obtain Fannie Mae’s prior approval for certain loans, as long as the loans meet the
underwriting guidelines set forth by Fannie Mae. In return for the delegated authority to make loans and the
commitment to purchase loans by Fannie Mae, we must maintain minimum collateral and generally are required to
share risk of loss on loans sold through Fannie Mae. With respect to most loans, we are generally required to absorb
approximately one-third of any losses on the unpaid principal balance of a loan at the time of loss settlement. Some
of the loans that we originate under the Fannie Mae DUS program are subject to reduced levels or no risk-sharing.
However, we generally receive lower servicing fees with respect to such loans. Although our Berkeley Point
business’s average annual losses from such risk-sharing programs have been a minimal percentage of the aggregate
principal amount of such loans, if loan defaults increase, actual risk-sharing obligation payments under the Fannie
Mae DUS program could increase, and such defaults could have a material adverse effect on our business, financial
condition, results of operations and prospects. In addition, a material failure to pay its share of losses under the
Fannie Mae DUS program could result in the revocation of Berkeley Point’s license from Fannie Mae and the
exercise of various remedies available to Fannie Mae under the Fannie Mae DUS program.
Interest Rate Risk
Newmark had $550 million of fixed rate 6.125% Senior Notes outstanding as of December 31, 2018. These
debt obligations are not currently subject to fluctuations in interest rates, although in the event of refinancing or
issuance of new debt, such debt could be subject to changes in interest rates.
Berkeley Point is an intermediary that originates loans which are generally pre-sold prior to loan closing.
Therefore, for loans held for sale to the GSEs and HUD, we are not currently exposed to unhedged interest rate risk.
Prior to closing on loans with borrowers, we enter into agreements to sell the loans to investors, and originated loans
are typically sold within 45 days of funding. The coupon rate for each loan is set concurrently with the establishment
of the interest rate with the investor.
Some of our assets and liabilities are subject to changes in interest rates. Earnings from escrows are generally
based on LIBOR. 30-day LIBOR as of December 31, 2018 and 2017 was 252 basis points and 157 basis points,
respectively. A 100 basis point increase in the 30-day LIBOR would increase our annual earnings by approximately
$12.6 million based on our escrow balance as of December 31, 2018 compared to $8.1 million based on our escrow
balance as of December 31, 2017. A decrease in 30-day LIBOR to zero would decrease our annual earnings by
approximately $12.6 million based on the escrow balance as of December 31, 2018 compared to $8.1 million based
on our escrow balance as of December 31, 2017.
We use warehouse facilities, borrowings from related parties, and a repurchase agreement to fund loans we
originate under our various lending programs. The borrowing costs of our warehouse facilities and the repurchase
agreement is based on LIBOR. A 100-basis point increase in 30-day LIBOR would decrease our annual net interest
income by approximately $9.7 million based on our outstanding balances as of December 31, 2018 compared to
$3.6 million based on our outstanding balances as of December 31, 2017. A 100-basis point decrease in 30-day
LIBOR would increase our annual earnings by approximately $9.7 million based on our outstanding warehouse
balance as of December 31, 2018 compared to $3.6 million as of December 31, 2017.
Market Risk
We also have investments in marketable equity securities, which are publicly-traded, and which had a fair
value of $48.9 million as of December 31, 2018. These include shares of common stock of Nasdaq, the rights to
which initially resulted from BGC Partners sale of its electronic benchmark Treasury platform to Nasdaq. The right
to receive the remainder of the Nasdaq payment was transferred from BGC Partners to us beginning in the third
quarter of 2017. We have recorded gains related to the Nasdaq payments of $76 million in 2017 and $87 million in
2018 and expect our future results to include the additional approximately 8.9 million Nasdaq shares to be received
113
over time. In 2018, we entered into monetization transactions with respect to the Nasdaq shares for the shares to be
received in each of 2019, 2020, 2021 and 2022.
Investments in marketable securities carry a degree of risk, as there can be no assurance that the marketable
securities will not lose value and, in general, securities markets can be volatile and unpredictable. As a result of
these different market risks, our holdings of marketable securities could be materially and adversely affected. We
may seek to minimize the effect of price changes on a portion of our investments in marketable securities through
the use of derivative contracts. However, there can be no assurance that our hedging activities will be adequate to
protect us against price risks associated with our investments in marketable securities. See Note 7—“Marketable
Securities” and Note 11—“Derivatives” to our Consolidated Financial Statements in Part II, Item 8 of this Annual
Report on Form 10-K for further information regarding these investments and related hedging activities.
Foreign Currency Risk
We are exposed to risks associated with changes in foreign exchange rates. Changes in foreign exchange rates
create volatility in the U.S. Dollar equivalent of our revenues and expenses. While our international results of
operations, as measured in U.S. Dollars, are subject to foreign exchange fluctuations, we do not consider the related
risk to be material to our results of operations. While our exposure to foreign exchange risk is not currently material
to us, we expect to grow our international revenues in the future, and any future potential exposure to foreign
exchange fluctuations may present a material risk to our business.
Disaster Recovery
Our processes address disaster recovery concerns. We operate most of our technology from dual-primary data
centers at our two different London locations. Either site alone is capable of running all of our essential systems. In
addition, we maintain technology operations from data centers in New Jersey and Connecticut. Replicated instances
of this technology are maintained in our London data centers. All data centers are built and equipped to best-practice
standards of physical security with appropriate environmental monitoring and safeguards. Failover for the majority
of our systems is automated.
114
ITEM 8.
FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2018,
2017 AND 2016
Audited Financial Statements of Newmark Group Inc.:
Reports of Independent Registered Public Accounting Firm and Independent Auditors ..........................
Consolidated Balance Sheets .....................................................................................................................
Consolidated Statements of Operations .....................................................................................................
Consolidated Statements of Comprehensive Income ................................................................................
Consolidated Statements of Changes in Equity .........................................................................................
Consolidated Statements of Cash Flows ...................................................................................................
Notes to Consolidated Financial Statements .............................................................................................
116
120
121
122
123
125
127
115
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Newmark Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Newmark Group, Inc. (the “Company”;
formerly the combined entities of Newmark Knight Frank) as of December 31, 2018 and 2017, the related
consolidated statements of operations, comprehensive income, cash flows and changes in equity for each of the
three years in the period ended December 31, 2018, and the related notes and the financial statement schedule
listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our
opinion, based on our audits and, for 2016, the report of other auditors, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017,
and the results of its operations and its cash flows for each of the three years in the period ended December 31,
2018, in conformity with U.S. generally accepted accounting principles.
We did not audit the 2016 financial statements of Berkeley Point Financial LLC, a wholly-owned subsidiary,
which reflect total revenues constituting 22% for the year then ended. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included
for Berkeley Point Financial LLC for 2016, is based solely on the report of the other auditors.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018,
based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework), and our report dated March 15, 2019
expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on the Company’s financial statements based on our audits. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the
risks of material misstatement of the financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits and the report of other auditors provide a
reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2016.
New York, New York
March 15, 2019
116
Independent Auditors’ Report
Member
Berkeley Point Financial LLC:
We have audited the accompanying consolidated statements of operations, changes in member’s capital, and cash
flows of Berkeley Point Financial LLC and subsidiaries for the year ended December 31, 2016. These consolidated
financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards as established by the Auditing
Standards Board (United States) and in accordance with the auditing standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
results of their operations and their cash flows of Berkeley Point Financial LLC and subsidiaries for the year ended
December 31, 2016, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Boston, Massachusetts
August 23, 2017
117
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Newmark Group, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Newmark Group, Inc.’s internal control over financial reporting as of December 31, 2018, based
on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, Newmark
Group, Inc. (the “Company”) maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2018, based on the COSO criteria.
As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting,
management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not
include the internal controls of RKF Holdings, LLC, which is included in the 2018 consolidated financial statements
of the Company and constituted 1.3% and 0.1% of total and net assets, respectively, as of December 31, 2018 and
0.7% and 0.7% of revenues and net income, respectively for the year then ended. Our audit of internal control over
financial reporting of the Company also did not include an evaluation of the internal control over financial reporting
of RKF Holdings, LLC.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2018 and 2017, the related
consolidated statements of operations, comprehensive income, cash flows and changes in equity for each of the three
years in the period ended December 31, 2018, and the related notes and the financial statement schedule listed in the
Index at Item 15(a)(2) and our report dated March 15, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
118
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ Ernst & Young LLP
New York, New York
March 15, 2019
119
NEWMARK GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
$
$
$
Assets:
Current assets:
Cash and cash equivalents
Restricted cash
Marketable securities
Loans held for sale, at fair value
Receivables, net
Receivables from related parties
Other current assets (see Note 18)
Total current assets
Goodwill
Mortgage servicing rights, net
Loans, forgivable loans and other receivables from employees and
partners, net
Fixed assets, net
Other intangible assets, net
Other assets (see Note 18)
Total assets
Liabilities, Redeemable Partnership Interests, and Equity:
Current liabilities:
Warehouse facilities collateralized by U.S. Government Sponsored Enterprises
Accrued compensation
Current portion of accounts payable, accrued expenses and other
liabilities (see Note 28)
Securities loaned
Current portion of payables to related parties
Total current liabilities
Long-term debt
Long-term debt payable to related parties
Other long-term liabilities (see Note 28)
Total liabilities
Commitments and contingencies (see Note 30)
Redeemable partnership interests
Equity:
Class A common stock, par value of $0.01 per share: 1,000,000
shares authorized; 156,966 and 138,921 shares issued at December 31, 2018
and December 31, 2017, respectively, and 156,916 and 138,594 shares
outstanding at December 31, 2018 and December 31, 2017, respectively
Class B common stock, par value of $0.01 per share: 500,000 shares
authorized; 21,285 and 15,840 shares issued and outstanding at
December 31, 2018 and December 31, 2017, respectively
Additional paid-in capital
Retained earnings
Contingent Class A common stock
Treasury stock at cost: 50 shares of Class A common stock at December
31, 2018
Total stockholders’ equity
Noncontrolling interests
Total equity
Total liabilities, redeemable partnership interest, and equity
$
December 31,
2018
2017
122,475 $
64,931
48,942
990,864
451,605
20,498
57,739
1,757,054
515,321
411,809
285,532
78,805
35,769
369,867
3,454,157 $
972,387 $
366,506
312,239
—
13,507
1,664,639
537,926
—
168,623
2,371,188
121,027
52,347
57,623
362,635
210,471
—
20,994
825,097
477,532
392,626
209,549
64,822
24,921
278,460
2,273,007
360,440
205,395
124,961
57,623
34,169
782,588
670,710
412,500
163,795
2,029,593
26,170
21,096
1,570
1,386
212
285,071
277,952
3,250
(486 )
567,569
489,230
1,056,799
3,454,157 $
158
59,374
199,492
—
—
260,410
(38,092 )
222,318
2,273,007
The accompanying Notes to the Consolidated Financial Statements are an integral part of these financial statements.
120
NEWMARK GROUP, INC.
(Prior to December 13, 2017 the Combined entities of Newmark Knight Frank)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Year Ended December 31,
2017
2018
2016
Revenues:
Commissions
Gains from mortgage banking activities/originations, net
Management services, servicing fees and other
Total revenues
Expenses:
Compensation and employee benefits
Allocations of net income and grant of exchangeability
to limited partnership units and FPUs and issuance of
common stock
Total compensation and employee benefits
Operating, administrative and other
Fees to related parties
Depreciation and amortization
Total operating expenses
Other income, net:
Other income
Total other income, net
Income from operations
Interest (expense) income, net
Income before income taxes and noncontrolling interests
Provision for income taxes
Consolidated net income
Less: Net income (loss) attributable to noncontrolling interests
Net income available to common stockholders
Per share data:
Basic earnings per share
$
$ 1,286,339 $ 1,014,716 $
206,000
375,734
849,419
193,387
307,177
2,047,579 1,596,450 1,349,983
182,264
578,976
1,155,834 1,010,183
849,975
230,795
124,657
1,386,629 1,134,840
219,163
20,771
95,815
72,318
922,293
185,344
18,010
72,197
1,842,282 1,470,589 1,197,844
331,758
26,162
97,733
127,293
127,293
332,590
(50,205 )
282,385
90,487
191,898
85,166
106,732 $
73,927
73,927
199,788
2,786
202,574
57,478
145,096
604
144,492 $
15,279
15,279
167,418
3,787
171,205
3,993
167,212
(1,189 )
168,401
Net income available to common stockholders (1)
Basic earnings per share
Basic weighted-average shares of common
stock outstanding
Fully diluted earnings per share
Net income for fully diluted shares
Fully diluted earnings per share
Fully diluted weighted-average shares of common
stock outstanding
$
$
101,641 $
0.65 $
144,492 $
1.08
168,401
N/A
157,256
133,413
N/A
$
$
105,571 $
0.64 $
117,217
0.85
N/A
N/A
163,810
138,398
N/A
(1) In accordance with ASC 260, includes a reduction for dividends on preferred stock or units in the amount of $5,100 for the year ended
December 31, 2018.
The accompanying Notes to the Consolidated Financial Statements are an integral part of these financial statements.
121
NEWMARK GROUP, INC.
(Prior to December 13, 2017 the Combined entities of Newmark Knight Frank)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Consolidated net income
Comprehensive income, net of tax
Less: Comprehensive income (loss) attributable to noncontrolling
interests, net of tax
Comprehensive income available to common stockholders
$
$
Year Ended December 31,
2017
145,096 $
145,096
2018
191,898 $
191,898
2016
167,212
167,212
85,166
106,732 $
604
144,492 $
(1,189 )
168,401
The accompanying Notes to the Consolidated Financial Statements are an integral part of these financial statements.
122
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3
2
1
NEWMARK GROUP, INC.
(Prior to December 13, 2017 the Combined entities of Newmark Knight Frank)
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY – (Continued)
(In thousands, except per share amounts)
Dividends declared per share of common stock
Dividends declared and paid per share of common stock
For the Years Ended December 31,
2016
2017
2018
$
$
0.36
0.27
N/A
N/A
N/A
N/A
The accompanying Notes to the Consolidated Financial Statements are an integral part of these financial statements.
124
NEWMARK GROUP INC.
(Prior to December 13, 2017 the Combined entities of Newmark Knight Frank)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Consolidated net income
Adjustments to reconcile net income to net cash provided
by operating activities:
Gain on originated mortgage servicing rights
Depreciation and amortization
Nasdaq Earn-Out
Equity-based compensation and allocation of net income to limited partnership
units and FPUs and issuance of common stock
Employee loan amortization and reserves
Change in fair value of contingent consideration
Unrealized gain on measurement alternative investments
Unrealized (gains) losses on loans held for sale
Income from an equity method investment
Provision for uncollectible accounts
Deferred tax provision (benefit)
Realized gain on marketable securities
Unrealized loss on marketable securities
Valuation of derivative asset
Loan originations—loans held for sale
Loan sales—loans held for sale
Other
Consolidated net income (loss), adjusted for non-cash and non-operating items
Changes in operating assets and liabilities:
Receivables, net
Loans, forgivable loans and other receivables from employees and partners
Other assets
Accrued compensation
Accounts payable, accrued expenses and other liabilities
Net cash (used in) provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisitions, net of cash acquired and repurchase of
noncontrolling interests
Proceeds from the sale of marketable securities
Investment in cost method investments
Purchases of fixed assets
Payments to related parties
Borrowings from related parties
Purchase of mortgage servicing rights
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from warehouse facilities
Principal payments on warehouse facilities
Proceeds from BGC's purchase of exchangeable limited partnership
units in Newmark Holdings
Proceeds from issuance of exchangeable preferred partnership units
Payments to related parties
Borrowings from related parties
Proceeds from the IPO, net of underwriting discounts
Borrowing of long-term debt
Repayment of long-term debt
Distributions of earnings to BGC
Pre-acquisition distributions relating to BPF acquisitions
Capital contribution from Cantor
Securities loaned
Treasury stock repurchases
Distributions to noncontrolling interests
Distributions to stockholders
Prepayment penalty on debt
Payments on acquisition earn-outs
Payment of deferred financing costs
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash at beginning of period
Cash and cash equivalents and restricted cash at end of period
2018
Year Ended December 31,
2017
2016
$
191,898 $
145,096 $
167,212
(95,284 )
97,733
(85,135 )
224,644
27,743
374
(17,899 )
(18,430 )
(2,750 )
3,530
16,387
(3,256 )
1,193
(19,002 )
(8,612,671 )
8,002,872
1,586
(286,467 )
(129,490 )
(109,569 )
(9,924 )
50,198
152,885
(332,367 )
(34,513 )
95,878
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(21,016 )
—
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(3,107 )
7,742
(120,970 )
95,815
(76,969 )
10,000
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2,675
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(2,194 )
(1,562 )
6,099
44,383
—
—
636
(8,844,768 )
9,556,163
1,367
850,191
(57,175 )
(34,321 )
36,086
45,753
13,103
853,637
2,793
18,710
—
(19,069 )
(375,000 )
375,000
(2,055 )
379
8,612,671
(8,000,725 )
8,844,768
(8,742,295 )
241,960
262,169
(858,428 )
372,950
(8,870 )
535,575
(670,710 )
—
—
9,189
(57,623 )
(486 )
(46,490 )
(41,787 )
(6,954 )
(4,476 )
(1,308 )
336,657
12,032
173,374
185,406 $
—
—
(1,445,838 )
698,919
304,290
—
(304,290 )
(101,731 )
(89,146 )
—
57,623
—
(71 )
—
—
(18,940 )
(1,485 )
(798,196 )
55,820
117,554
173,374 $
$
(126,547 )
72,197
—
—
25,791
(17,348 )
—
1,537
—
(1,099 )
(1,141 )
—
—
—
(7,691,573 )
6,977,308
1,237
(592,426 )
9,462
(118,222 )
(7,643 )
29,751
34,925
(644,153 )
518
—
—
(27,260 )
(175,000 )
175,000
(7,676 )
(34,418 )
7,691,573
(7,793,238 )
—
—
(1,186,910 )
1,937,601
—
—
—
—
—
—
—
—
(311 )
—
—
(11,433 )
(1,329 )
635,953
(42,618 )
160,172
117,554
The accompanying Notes to the Consolidated Financial Statements are an integral part of these financial statements.
125
NEWMARK GROUP INC.
(Prior to December 13, 2017 the Combined entities of Newmark Knight Frank)
CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)
(In thousands)
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest
Taxes
Supplemental disclosure of noncash investing and financing activities:
Net assets contributed by BGC Partners’ (see Notes 4, 8 and 26)
Debt assumed from BGC (see Note 21)
Accrued offering costs
Year Ended December 31,
2018
2017
2016
$
$
$
$
$
81,838 $
1,165 $
21,003 $
46 $
— $
— $
— $
368,418 $
(1,387,500 ) $
8,870 $
11,693
79
20,901
—
—
The accompanying Notes to the Consolidated Financial Statements are an integral part of these financial statements.
126
NEWMARK GROUP, INC.
(Prior to December 13, 2017 the Combined entities of Newmark Knight Frank)
Notes to Consolidated Financial Statements
(1) Organization and Basis of Presentation
Newmark Group, Inc., formerly known as Newmark Knight Frank (together with its subsidiaries, “Newmark”
or the “Company”), a Delaware corporation, was formed as NRE Delaware, Inc. on November 18, 2016. Newmark
changed its name to Newmark Group, Inc. on October 18, 2017. Newmark Holdings, L.P. (“Newmark Holdings”) is
a consolidated subsidiary of Newmark for which Newmark is the general partner. Newmark and Newmark Holdings
jointly own Newmark Partners, L.P. (“Newmark OpCo”), the operating partnership. Newmark is a leading
commercial real estate services firm. Newmark offers a diverse array of integrated services and products designed to
meet the full needs of both real estate investors/owners and occupiers. Newmark’s investor/owner services and
products include capital markets, which consists of investment sales, debt and structured finance and loan sales,
agency leasing, property management, valuation and advisory, commercial real estate due diligence consulting and
advisory services and GSE lending and loan servicing, mortgage broking and equity-raising. Our occupier services
and products include tenant representation, real estate management technology systems, workplace and occupancy
strategy, global corporate consulting services, project management, lease administration and facilities management.
Newmark enhances these services and products through innovative real estate technology solutions and data
analytics that enable our clients to increase their efficiency and profits by optimizing their real estate portfolio.
Newmark has relationships with many of the world’s largest commercial property owners, real estate developers and
investors, as well as Fortune 500 and Forbes Global 2000 companies.
Newmark was formed through BGC Partners, Inc.’s (“BGC Partners” or “BGC”) purchase of Newmark &
Company Real Estate, Inc. and certain of its affiliates in 2011. A majority of the voting power of BGC Partners is
held by Cantor Fitzgerald, L.P. and its affiliates (together, “Cantor”), including Cantor Fitzgerald & Co (“CF&Co”).
Subsequent to the Spin-Off, the majority of the voting power of Newmark is held by Cantor.
On November 30, 2018 (the “Distribution Date”), BGC completed its previously announced pro-rata
distribution (the “Spin-Off”) to its stockholders of all of the shares of common stock of Newmark owned by BGC as
of immediately prior to the effective time of the Spin-Off, with shares of Newmark Class A common stock
distributed to the holders of shares of BGC Class A common stock (including directors and executive officers of
BGC Partners) of record as of the close of business on November 23, 2018 (the “Record Date”), and shares of
Newmark Class B common stock distributed to the holders of shares of BGC Partners Class B common stock
(consisting of Cantor and CF Group Management, Inc. (“CFGM”)) of record as of the close of business on the
Record Date. The Spin-Off was effective as of 12:01 a.m., New York City time, on the Distribution Date.
Acquisition of Berkeley Point and Investment in Real Estate LP
On September 8, 2017, BGC acquired, from Cantor Commercial Real Estate Company, LP (“CCRE”), 100%
of the equity of Berkeley Point Financial LLC (the “Berkeley Point Acquisition”). Berkeley Point Financial LLC
(“Berkeley Point”, “BPF”, or, together with Newmark’s multifamily investment sales and non-GSE multifamily
brokerage business, its “Multifamily Capital Market Business”) is a leading commercial real estate finance company
focused on the origination and sale of multifamily and other commercial real estate loans through government-
sponsored and government-funded loan programs, as well as the servicing of commercial real estate loans. At the
closing of the Berkeley Point Acquisition, BGC purchased and acquired from CCRE all of the outstanding
membership interests of BPF, a wholly owned subsidiary of CCRE, for an acquisition price of $875.0 million,
subject to a post-closing upward or downward adjustment to the extent that the net assets, inclusive of certain fair
value adjustments, of BPF as of the closing were greater than or less than $508.6 million. BGC paid $3.2 million of
the $875.0 million acquisition price with 247,099 limited partnership units of BGC Holdings, L.P. (“BGC
Holdings”), which may be exchanged over time for shares of Class A common stock of BGC, with each BGC
Holdings unit valued for these purposes at the volume weighted-average price of a share of BGC Class A common
stock for the three trading days prior to the closing. The Berkeley Point Acquisition did not include the Special
Asset Servicing Group of BPF; however, BPF will continue to hold the Special Asset Servicing Group’s assets until
the servicing group is transferred to CCRE at a later date in a separate transaction. Accordingly, CCRE will continue
to bear the benefits and burdens of the Special Asset Servicing Group from and after the closing.
127
Concurrently with the Berkeley Point Acquisition, on September 8, 2017 Newmark invested $100.0 million in
a newly formed commercial real estate-related financial and investment business, CF Real Estate Finance Holdings,
L.P. (“Real Estate LP”), which is controlled and managed by Cantor. Real Estate LP may conduct activities in any
real estate-related business or asset backed securities-related business or any extensions thereof and ancillary
activities thereto. In addition, Real Estate LP may provide short-term loans to related parties from time to time when
funds in excess of amounts needed for investment are available. As of December 31, 2018, Newmark’s investment
in Real Estate LP was accounted for under the equity method.
Separation and Distribution Agreement
On December 13, 2017, prior to the closing of Newmark’s initial public offering (“IPO”), BGC, BGC
Holdings, BGC Partners, L.P. (“BGC U.S. OpCo”), Newmark, Newmark Holdings, Newmark OpCo and, solely for
the provisions listed therein, Cantor and BGC Global Holdings, L.P. (“BGC Global OpCo”) entered into a
Separation and Distribution Agreement (the “Original Separation and Distribution Agreement”). The Original
Separation and Distribution Agreement sets forth the agreements among BGC, Cantor, Newmark and their
respective subsidiaries regarding, among other things:
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(cid:120)
(cid:120)
(cid:120)
(cid:120)
the principal corporate transactions pursuant to which BGC, BGC Holdings and BGC U.S. OpCo and
their respective subsidiaries (other than the Newmark Group (defined below), the “BGC Group”)
transferred to Newmark, Newmark Holdings and Newmark OpCo and their respective subsidiaries (the
“Newmark Group”) the assets and liabilities of the BGC Group relating to BGC’s Real Estate Services
business, including BGC’s interests in both BPF and Real Estate LP (the “Separation”);
the proportional distribution of interests in Newmark Holdings to holders of interests in BGC Holdings;
the IPO;
the assumption and repayment of indebtedness by the BGC Group and the Newmark Group, as further
described below
the pro rata distribution of the shares of Newmark Class A common stock and the shares of Newmark
Class B common stock held by BGC, pursuant to which shares of Newmark Class A common stock held
by BGC would be distributed to the holders of shares of BGC Class A common stock and shares of
Newmark Class B common stock held by BGC would be distributed to the holders of shares of BGC
Class B common stock, which distribution is intended to qualify as generally tax-free for U.S. federal
income tax purposes; and
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other agreements governing the relationship between BGC, Newmark and Cantor.
Related Agreements
In connection with the Separation and the IPO, on December 13, 2017, the applicable parties entered into the
following additional agreements:
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(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
an Amended and Restated Agreement of Limited Partnership of Newmark Holdings, dated as of
December 13, 2017;
an Amended and Restated Agreement of Limited Partnership of Newmark OpCo, dated as of December
13, 2017 and as amended on September 26, 2018;
a Second Amended and Restated Agreement of Limited Partnership of BGC U.S. OpCo, dated as of
December 13, 2017;
a Second Amended and Restated Agreement of Limited Partnership of BGC Global OpCo, dated as of
December 13, 2017;
a Registration Rights Agreement, dated as of December 13, 2017, by and among Cantor, BGC and
Newmark;
a Transition Services Agreement, dated as of December 13, 2017, by and between BGC and Newmark;
128
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
a Tax Matters Agreement, dated as of December 13, 2017, by and among BGC, BGC Holdings, BGC
U.S. OpCo, Newmark, Newmark Holdings and Newmark OpCo;
an Amended and Restated Tax Receivable Agreement, dated as of December 13, 2017, by and between
Cantor and BGC;
an Exchange Agreement, dated as of December 13, 2017, by and among Cantor, BGC and Newmark;
an Administrative Services Agreement, dated as of December 13, 2017, by and between Cantor and
Newmark; and
a Tax Receivable Agreement, dated as of December 13, 2017, by and between Cantor and Newmark.
Immediately prior to the Separation, the limited partnership interests in Newmark Holdings were distributed to
the holders of limited partnership interests in BGC Holdings, whereby each holder of BGC Holdings limited
partnership interests at that time received a BGC Holdings limited partnership interest and a corresponding
Newmark Holdings limited partnership interest, equal to a BGC Holdings limited partnership interest multiplied by
one divided by 2.2 (the “contribution ratio”), divided by the ratio by which a Newmark Holdings limited partnership
interest can be exchanged for a number of Newmark Class A common stock (the “exchange ratio”). Initially, the
exchange ratio equaled one, so that each Newmark Holdings limited partnership interest was exchangeable for one
Newmark Class A common stock; however, the exchange ratio is subject to adjustment. For example, for
reinvestment, acquisition or other purposes, Newmark has determined on a quarterly basis to distribute to its
stockholders a smaller percentage than Newmark Holdings distributes to its equity holders (excluding tax
distributions from Newmark Holdings) of cash that it received from Newmark OpCo. In such circumstances, the
Original Separation and Distribution Agreement provides that the exchange ratio will be reduced to reflect the re-
investment of cash by Newmark into Newmark Opco as a result of the distribution of such smaller percentage, after
the payment of taxes. As of December 31, 2018, the exchange ratio equaled 0.9793.
As part of the Separation described above, BGC contributed its interests in both BPF and Real Estate LP to
Newmark
Initial Public Offering
On December 15, 2017, Newmark announced the pricing of the IPO of 20 million shares of Newmark’s
Class A common stock at a price to the public of $14.00 per share, which was completed on December 19, 2017.
Newmark Class A shares began trading on December 15, 2017 on the NASDAQ Global Select Market under the
symbol “NMRK.” In addition, Newmark granted the underwriters a 30-day option to purchase up to an additional
3 million shares of Newmark Class A common stock at the IPO price, less underwriting discounts and commissions.
On December 26, 2017, the underwriters of the IPO exercised in full their overallotment option to purchase an
additional 3 million shares of Newmark Class A common stock from Newmark at the IPO price, less underwriting
discounts and commission (the “option”). As a result, Newmark received aggregate net proceeds of approximately
$295.4 million from the IPO, after deducting underwriting discounts and commissions and estimated offering
expenses. Upon the closing of the option, Newmark’s public stockholders owned approximately 16.6% of the shares
of Newmark Class A common stock. This was based on 138.6 million shares of Newmark Class A common stock
outstanding following the closing of the option. Also upon the closing of the option, Newmark’s public stockholders
owned approximately 9.8% of what was then Newmark’s 234.2 million fully diluted shares outstanding.
Debt
On November 22, 2017, BGC and Newmark entered into an amendment to an unsecured senior term loan
credit agreement, dated as of September 8, 2017, with Bank of America, N.A., as administrative agent and a
syndicate of lenders. The agreement provides for a term loan of up to $575.0 million (the “Term Loan”), and as of
the Separation this entire amount remained outstanding under the term loan credit agreement. Pursuant to the term
loan amendment and effective as of the Separation, Newmark assumed the obligations of BGC as borrower under
the Term Loan. Newmark used the proceeds, net of underwriting discounts and commissions from the IPO to
partially repay $304.3 million of the Term Loan. During the year ended December 31, 2018, Newmark repaid the
outstanding balance of $270.7 million on the Term Loan.
129
Also on November 22, 2017, BGC and Newmark entered into an amendment to the unsecured senior
revolving credit agreement, dated as of September 8, 2017, with the administrative agent and a syndicate of lenders.
The revolving credit agreement provides for revolving loans of up to $400.0 million. As of the Separation,
$400.0 million of borrowings were outstanding under the revolving credit facility. Pursuant to the revolver
amendment, the then-outstanding borrowings of BGC under the revolving credit facility were converted into a term
loan (the “Converted Term Loan”) and, effective upon the Separation, Newmark assumed the obligations of BGC as
borrower under the Converted Term Loan. On June 19, 2018, Newmark repaid $152.9 million, and on September
26, 2018, Newmark repaid $113.2 million of the Converted Term Loan using proceeds from the issuance of the
exchangeable preferred limited partnership units (“EPUs”) in private transactions to the Royal Bank of Canada
(“RBC”) (see section on Exchangeable Preferred Partnership Units and Forward Contracts below for more
information). On November 6, 2018, Newmark repaid the remaining $134.0 million outstanding principal amount of
the Converted Term Loan using the proceeds from the sale of its 6.125% Senior Notes.
On June 26, 2012, BGC issued an aggregate of $112.5 million principal amount of its 8.125% Senior Notes
due 2042 (the “8.125% BGC Senior Notes”). In connection with the issuance of the 8.125% BGC Senior Notes,
BGC lent the proceeds of the 8.125% BGC Senior Notes to BGC U.S. OpCo, and BGC U.S. OpCo issued an
amended and restated promissory note, effective as of June 26, 2012, with an aggregate principal amount of
$112.5 million payable to BGC (the “2042 Promissory Note”). In connection with the Separation, on December 13,
2017 Newmark OpCo assumed all of BGC U.S. OpCo’s rights and obligations under the 2042 Promissory Note. On
September 4, 2018, BGC U.S. OpCo loaned to Newmark OpCo $112.5 million pursuant to the Intercompany Credit
Agreement, which bears an annual interest rate of 6.5%. Newmark OpCo used the proceeds to repay the 2042
Promissory Note assumed by it in connection with the Separation. In addition, on September 5, 2018, BGC
redeemed the outstanding $112.5 million aggregate principal amount of the 8.125% BGC Senior Notes. On
November 6, 2018, Newmark repaid the $112.5 million promissory note under the Intercompany Credit Agreement
using proceeds from the sale of its 6.125% Senior Notes.
On December 9, 2014, BGC issued an aggregate of $300.0 million principal amount of its 5.375% Senior
Notes due 2019 (the “5.375% BGC Senior Notes”). In connection with the issuance of the 5.375% BGC Senior
Notes, BGC lent the proceeds of the 5.375% BGC Senior Notes to BGC U.S. OpCo, and BGC U.S. OpCo issued an
amended and restated promissory note, effective as of December 9, 2014, with an aggregate principal amount of
$300.0 million payable to BGC (the “2019 Promissory Note” and, together with the 2042 Promissory Note, the
“BGC Notes”). In connection with the Separation, on December 13, 2017 Newmark OpCo assumed all of BGC U.S.
OpCo’s rights and obligations under the 2019 Promissory Note. On November 23, 2018, Newmark repaid the
outstanding principal amount of $300.0 million under the 2019 Promissory Note using primarily proceeds from the
sale of its 6.125% Senior Notes.
On March 19, 2018, Newmark entered into an amended and restated credit agreement (the “Intercompany
Credit Agreement”) with BGC, which amended and restated the original intercompany credit agreement between the
parties in relation to the Separation, dated as of December 13, 2017. The Intercompany Credit Agreement provided
for each party to issue revolving loans to the other party in the lender’s discretion. The interest rate on the
Intercompany Credit Agreement can be the higher of BGC’s or Newmark’s short-term borrowings rate in effect at
such time plus 100 basis points, or such other interest rate as may be mutually agreed between BGC and Newmark.
As of November 7, 2018, all borrowings outstanding under the Intercompany Credit Agreement had been repaid.
On November 28, 2018, Newmark entered into a credit agreement by and among Newmark, the several
financial institutions from time to time party thereto, as Lenders, and Bank of America N.A., as administrative agent
(the “Credit Agreement”). The Credit Agreement provides for a $250.0 million three-year unsecured senior
revolving credit facility (the “Credit Facility”). As of December 31, 2018, there were no borrowings outstanding
under the new Credit Agreement. Borrowings under the Credit Facility will bear an annual interest equal to, at
Newmark’s option, either (a) LIBOR for specified periods, or upon the consent of all Lenders, such other period that
is 12 months or less, plus an applicable margin, or (b) a base rate equal to the greatest of (i) the federal funds rate
plus 0.5%, (ii) the prime rate as established by the administrative agent, and (iii) one-month LIBOR plus 1.0%. The
applicable margin is 200 basis points with respect to LIBOR borrowings in (a) above and can range from 0.25% to
1.25% higher, depending upon Newmark’s credit rating. The Credit Facility also provides for an unused facility fee.
130
On November 6, 2018, Newmark completed its offering of $550.0 million aggregate principal amount of
6.125% Senior Notes due 2023 (the “6.125% Senior Notes”). The 6.125% Senior Notes were priced at 98.937% to
yield 6.375%. The 6.125% Senior Notes, which were priced on November 1, 2018, were offered and sold by
Newmark in a private offering exempt from the registration requirements under the Securities Act of 1933 (see Note
31 – Subsequent Events). The 6.125% Senior Notes bear an interest rate of 6.125% per annum, payable on each May
15 and November 15, beginning on May 15, 2019, and will mature on November 15, 2023. The initial carrying
amount of the 6.125% Senior Notes was $537.6 million, net of debt issue costs of $6.3 million and net of debt
discount of $5.8 million. Newmark uses the effective interest rate method to amortize the debt discount over the life
of the loan. Newmark amortized $0.2 million of debt issue costs during the year ended December 31, 2018.
Newmark uses the straight-line method to amortize these debt issue costs over the life of the loan. Newmark
amortized $0.2 million of debt discount during the year ended December 31, 2018. Newmark recorded interest
expense related to the 6.125% Senior Notes of $5.5 million during the year ended December 31, 2018.
On November 30, 2018 Newmark entered into an unsecured credit agreement (the “Cantor Credit
Agreement”) with Cantor Fitzgerald, L.P. (“CFLP”). The Cantor Credit Agreement provides for each party to issue
loans to the other party in the lender’s discretion. Pursuant to the Cantor Credit Agreement, the parties and their
respective subsidiaries (with respect to CFLP, other than BGC and its subsidiaries) may borrow up to an aggregate
principal amount of $250 million from each other from time to time at an interest rate which is higher to CFLP’s or
Newmark’s short-term borrowing rate then in effect, plus 1.0%.
BGC’s Investment in Newmark Holdings
On March 7, 2018, BGC Partners and its operating subsidiaries purchased 16.6 million newly issued
exchangeable limited partnership units (the “Newmark Units”) of Newmark Holdings L.P. for approximately $242.0
million (the “Investment in Newmark in Newmark Holdings”). These newly-issued Newmark Units are
exchangeable, at BGC’s discretion, into either shares of Class A common stock or shares of Class B common stock
of Newmark. BGC and its subsidiaries funded the Investment in Newmark using proceeds of its Controlled Equity
Offering sales program. See Note 26 – Related Party Transactions for additional information.
Nasdaq Monetization Transactions
On June 28, 2013, BGC sold certain assets of its on-the-run, electronic benchmark U.S. Treasury platform
(“eSpeed”) to Nasdaq. The total consideration received in the transaction included $750.0 million in cash paid upon
closing and an earn-out of up to 14,883,705 shares of Nasdaq common stock to be paid ratably over 15 years,
provided that Nasdaq, as a whole, produces at least $25.0 million in consolidated gross revenues each year. The
earn-out was excluded from the initial gain on the divestiture and is recognized in income as it is realized and earned
when these contingent events have occurred, consistent with the accounting guidance for gain contingencies. The
remaining rights under the Nasdaq Earn-out were transferred to Newmark on September 28, 2017. Any Nasdaq
shares that were received by BGC prior to September 28, 2017 were not transferred to Newmark.
In connection with the Nasdaq Earn-Out, Newmark received 992,247 shares of Nasdaq common stock during
the year ended December 31, 2018 and 992,247 shares of Nasdaq common stock during the year ended December
31, 2017. Newmark will recognize the remaining Earn-Out of up to 8,930,223 shares of Nasdaq common stock
ratably over the next approximately 9 years, provided that Nasdaq, as a whole, produces at least $25.0 million in
gross revenues each year. During the year ended December 31, 2018, Newmark sold 1,142,247 of the Nasdaq
shares. In November of 2017, Newmark sold 242,247 shares and had 600,000 shares remaining in connection with
the Nasdaq Earn-out as of December 31, 2018.
Exchangeable Preferred Partnership Units and Forward Contracts
On June 18, 2018 and September 26, 2018, Newmark’s principal operating subsidiary, Newmark OpCo,
issued approximately $175 million and $150 million of EPUs, respectively, in private transactions to RBC (the
“Newmark OpCo Preferred Investment”). Newmark received $152.9 million and $113.2 million of cash in the
second and third quarter, respectively, of 2018 with respect to these transactions. The EPUs were issued in four
tranches and are separately convertible by either RBC or Newmark into a fixed number of Newmark’s Class A
common stock, subject to a revenue hurdle for Newmark in each of the fourth quarters of 2019 through 2022 for
131
each of the respective four tranches. As the EPUs represent equity ownership of a consolidated subsidiary of
Newmark, they have been included in Noncontrolling interests on the consolidated statements of changes in equity.
The EPUs are entitled to a preferred payable-in-kind dividend, which is recorded as accretion to the carrying amount
of the EPUs through Retained Earnings on the consolidated statements of changes in equity and are reductions to
Net income (loss) available to common stockholders for the purpose of calculating earnings per share.
Contemporaneously with the issuance of the EPUs, the newly formed special purpose vehicle entities (the
“SPVs”) that are consolidated subsidiaries of Newmark, entered into four variable postpaid forward contracts with
RBC (together, the "RBC Forwards"). The SPVs are indirect subsidiaries of Newmark whose sole asset is the
Nasdaq share Earn-Outs for 2019 through 2022.The RBC Forwards provide the option to both Newmark and RBC
for RBC to receive up to 992,247 shares of Nasdaq common stock, received by Newmark pursuant to the Nasdaq
earn-out (see Note 7— Marketable Securities), in each of the fourth quarters of 2019 through 2022 in exchange for
either cash or redemption of the EPUs, solely at Newmark’s option. The Nasdaq Earn-Out is related to BGC’s sale
of its electronic benchmark U.S. Treasury platform (“eSpeed”) business to Nasdaq, Inc. (“Nasdaq”) on June 28,
2013. The purchase consideration consisted of $750.0 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 $25.0 million in gross revenues each of these years. In connection with
the separation of Newmark from BGC, during the third quarter of 2017 BGC transferred to Newmark the right to
receive the remainder of the Nasdaq Earn-out payments.
As the RBC Forwards provide Newmark with the ability to redeem the EPUs for Nasdaq stock, and these
instruments are not legally detachable, they represent single financial instruments. The financial instruments’ EPU
redemption feature for Nasdaq common stock is not clearly and closely related to the economic characteristics and
risks of Newmark’s EPU equity host instruments, and, therefore, it represents an embedded derivative that is
required to be bifurcated and recorded at fair value on Newmark’s consolidated balance sheets, with all changes in
fair value recorded as a component of “Other income, net” on Newmark’s consolidated statements of operations.
See Note 11 — Derivatives for additional information.
The Spin-Off
On November 30, 2018, BGC completed the Spin-Off to its stockholders of all of the shares of Newmark’s
common stock owned by BGC as of immediately prior to the effective time of the Spin-Off, with shares of our Class
A common stock distributed to the holders of shares of BGC’s Class A common stock (including directors and
executive officers of BGC Partners) of record as of the close of business on November 23, 2018 (the “Record
Date”), and shares of Newmark’s Class B common stock distributed to the holders of shares of BGC’s Class B
common stock (consisting of Cantor and CF Group Management, Inc. (“CFGM”)) of record as of the close of
business on the Record Date.
Based on the number of shares of BGC common stock outstanding as of the close of business on the Record
Date, BGC’s stockholders as of the Record Date received in the Distribution 0.463895 of a share of Newmark Class
A common stock for each share of BGC Class A common stock held as of the Record Date, and 0.463895 of a share
of Newmark Class B common stock for each share of BGC Class B common stock held as of the Record Date. BGC
Partners stockholders received cash in lieu of any fraction of a share of Newmark common stock that they otherwise
would have received in the Distribution.
Prior to and in connection with the Spin-Off, 14.8 million Newmark Holdings Units held by BGC were
exchanged into 9.4 million shares of Newmark Class A common stock and 5.4 million shares of Newmark Class B
common stock, and 7.0 million Newmark OpCo Units held by BGC were exchanged into 6.9 million shares of
Newmark Class A common stock. These Newmark Class A and Class B shares of common stock were included in
the Spin-Off to BGC’s stockholders.
In the aggregate, BGC distributed 131,886,409 shares of Newmark Class A common stock and 21,285,537
shares of our Class B common stock to BGC’s stockholders in the Distribution. These shares of our common stock
collectively represented approximately 94% of the total voting power of our outstanding common stock and
approximately 87% of the total economics of Newmark outstanding common stock in each case as of the
Distribution Date.
132
On November 30, 2018, BGC Partners also caused its subsidiary, BGC Holdings, L.P. (“BGC Holdings”), to
distribute pro rata (the “BGC Holdings distribution”) all of the 1,458,931 exchangeable limited partnership units of
Newmark Holdings, L.P. (“Newmark Holdings”) held by BGC Holdings immediately prior to the effective time of
the BGC Holdings distribution to its limited partners entitled to receive distributions on their BGC Holdings units
(including Cantor and executive officers of BGC) who were holders of record of such units as of the Record Date.
The Newmark Holdings units distributed to BGC Holdings partners in the BGC Holdings distribution are
exchangeable for shares of Newmark Class A common stock, and in the case of the 449,917 Newmark Holdings
units received by Cantor also into shares of Newmark Class B common stock, at the applicable exchange ratio
(subject to adjustment). As of December 31, 2018, the exchange ratio was 0.9793 shares of Newmark common stock
per Newmark Holdings unit.
Following the Spin-Off and the BGC Holdings distribution, BGC Partners ceased to be Newmark’s
controlling stockholder, and BGC and its subsidiaries no longer held any shares of Newmark common stock or other
equity interests in it or its subsidiaries. Cantor continues to control Newmark and its subsidiaries following the
Distribution and the BGC Holdings distribution.
Prior to the Distribution, 100% of the outstanding shares of Newmark Class B common stock were held by
BGC. Because 100% of the outstanding shares of BGC Class B common stock were held by Cantor and CFGM as
of the Record Date, 100% of the outstanding shares of our Class B common stock were distributed to Cantor and
CFGM in the Distribution. As of the Distribution Date, shares of our Class B common stock represented 57.8% of
the total voting power of the outstanding Newmark common stock and 12.1% of the total economics of the
outstanding Newmark common stock. Cantor is controlled by CFGM, its managing general partner, and, ultimately,
by Howard W. Lutnick, who serves as Chairman of Newmark. Mr. Lutnick is also the Chairman of the Board of
Directors and Chief Executive Officer of BGC Partners and Cantor and the Chairman and Chief Executive Officer
of CFGM, as well as the trustee of an entity that is the sole shareholder of CFGM. Stephen M. Merkel, our Chief
Legal Officer and Executive Vice President, serves as Executive Vice President, General Counsel and Assistant
Secretary of BGC Partners, and is employed as Executive Managing Director, General Counsel and Secretary of
Cantor.
(a) Basis of Presentation
Newmark’s consolidated financial statements have been prepared pursuant to the rules and regulations of the
U.S. Securities and Exchange Commission (the “SEC”) and in conformity with accounting principles generally
accepted in the U.S. (“U.S. GAAP”). The Newmark consolidated financial statements were prepared on a stand-
alone basis derived from the financial statements and accounting records of BGC. For the periods presented, prior to
the IPO, Newmark was an unincorporated reportable segment of BGC. These consolidated financial statements
reflect the historical results of operations, financial position and cash flows of Newmark as it was historically
managed and adjusted to conform with U.S. GAAP. These consolidated financial statements are presented as if
Newmark had operated on a stand-alone basis for all periods presented.
During the year ended December 31, 2018, Newmark changed the line item formerly known as
“Allocations of net income and grant of exchangeability to limited partnership units and FPUs” to “Allocations of
net income and grant of exchangeability to limited partnership units and FPUs and issuance of common stock” in
Newmark’s consolidated statement of operations. Newmark also changed “Gains from mortgage banking activities,
net” to “Gains from mortgage banking activities/orginations, net” during the year ended December 31, 2018. The
line item “Warehouse notes payable” was changed to “Warehouse facilities collateralized by U.S. Government
Sponsored Enterprises” during the year ended December 31, 2018. Reclassifications have been made to previously
reported amounts to conform to the current presentation.
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The Berkeley Point Acquisition has been determined to be a combination of entities under common control
that resulted in a change in the reporting entity. Accordingly, the financial results of Newmark have been
retrospectively adjusted to include the financial results of BPF in the prior periods as if BPF had always been
consolidated. On December 13, 2017, in connection with the Separation, the assets and liabilities of BPF were
transferred to Newmark. As of October 15, 2018, ARA, Berkeley Point, NKF Capital Markets, and Newmark
Cornish & Carey all operate under the name “Newmark Knight Frank”.
The following tables summarize the impact of the Berkeley Point Acquisition on Newmark’s consolidated
statements of operations for the year ended December 31, 2016 (in thousands):
Year Ended December 31, 2016
As
Retrospectively
Adjusted
Retrospective
Adjustments
As
Previously
Reported
Income before income taxes and
noncontrolling interests
Consolidated net income
Net loss attributable to noncontrolling
interests
Net income available to common stockholders
$ 45,295 $ 125,910 $
125,830
41,382
171,205
167,212
(1,189 )
—
$ 42,571 $ 125,830 $
(1,189 )
168,401
Intercompany balances and transactions within Newmark have been eliminated. Transactions between Cantor
or BGC and Newmark pursuant to service agreements between Cantor and BGC (see Note 26—Related Party
Transactions), representing valid receivables and liabilities of Newmark, which are periodically cash settled, have
been included in the consolidated financial statements as either receivables to or payables from related parties.
Additionally, prior to the Spin-Off, certain other transactions between BGC and Newmark are recorded as
contributions of BGC’s net investment in Newmark, including acquisitions prior to the IPO (see Note 4—
Acquisitions).
Newmark receives administrative services to support its operations, and in return, Cantor and BGC allocate
certain of their expenses to Newmark. Such expenses represent costs related, but not limited to, treasury, legal,
accounting, information technology, payroll administration, human resources, incentive compensation plans and
other services. These costs, together with an allocation of Cantor and BGC overhead costs, are included as expenses
in the consolidated statements of operations. Where it is possible to specifically attribute such expenses to activities
of Newmark, these amounts have been expensed directly to Newmark. Allocation of all other such expenses is based
on a services agreement between Cantor and BGC which reflects the utilization of service provided or benefits
received by Newmark during the periods presented on a consistent basis, such as headcount, square footage,
revenue, etc. Management believes the assumptions underlying the stand-alone financial statements, including the
assumptions regarding allocated expenses, reasonably reflect the utilization of services provided to or the benefit
received by Newmark during the periods presented. However, these shared expenses may not represent the amounts
that would have been incurred had Newmark operated independently from Cantor and BGC. Actual costs that would
have been incurred if Newmark had been a stand-alone company would depend on multiple factors, including
organizational structure and strategic decisions in various areas, including information technology and
infrastructure. For an additional discussion of expense allocations, see Note 26—Related Party Transactions.
Prior to the Separation, BGC used a centralized approach to cash management. Accordingly, excess cash and
cash equivalents were held by BGC at the corporate level and were not attributed to Newmark for any of the periods
presented. Transfers of cash, both to and from BGC’s centralized cash management system, are included in “Current
portion of payables to related parties” on the consolidated balance sheets and as part of the change in payments to
and borrowings from related parties in the financing section within the accompanying consolidated statements of
cash flows.
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The income tax provision in the consolidated statements of operations and comprehensive income has been
calculated as if Newmark was operating on a stand-alone basis and filed separate tax returns in the jurisdictions in
which it operates. Newmark’s operations have historically been included in the BGC U.S. federal and state tax
returns or separate non-U.S. jurisdictions tax returns. As Newmark operations in many jurisdictions are
unincorporated commercial units of BGC and its subsidiaries, stand-alone tax returns have not been filed for the
operations in these jurisdictions.
Newmark’s consolidated financial statements contain all normal and recurring adjustments that, in the opinion
of management, are necessary for a fair presentation of the consolidated balance sheets, the consolidated statements
of operations, the consolidated statements of comprehensive income, the consolidated statements of cash flows and
the consolidated statements of changes in equity of Newmark for the periods presented.
(b) Recently Adopted Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting, which simplifies several aspects of the accounting for employee share-based payment
transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as
well as classification of related amounts within the statements of cash flows. The new standard was effective for
Newmark beginning January 1, 2017, and early adoption was permitted. The adoption of this standard did not have a
material impact on Newmark’s consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which relates to
how an entity recognizes the revenue it expects to be entitled to for the transfer of promised goods and services to
customers. Newmark adopted the standard as of its effective date of January 1, 2018 and recognized an increase in
assets, liabilities, beginning retained earnings and noncontrolling interests of $64.4 million, $45.6 million, $16.5
million and $2.3 million, respectively, as the cumulative effect of adoption of this accounting change. The impact of
adoption is primarily related to Newmark’s brokerage revenues from leasing commissions where revenue
recognition was previously deferred when future contingencies exist under the previous revenue recognition
guidance. The adoption of the new revenue recognition guidance accelerated these commission revenues that were
based, in part, on future contingent events. For example, a portion of certain brokerage revenues from leasing
commissions were deferred until a future contingency was resolved (e.g., tenant move-in or payment of first month’s
rent). Under the new revenue recognition model, Newmark’s performance obligation will be typically satisfied at
lease signing, and, therefore, the portion of the commission that is contingent on a future event will likely be
recognized earlier, if it is probable that a significant reversal in the amount of cumulative revenue recognized will
not occur.
Further, Newmark previously presented expenses incurred on behalf of customers for certain management
services subject to reimbursement on a net basis within expenses. Under the new revenue recognition model,
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. As a result, for these service contracts Newmark will present expenses incurred
on behalf of customers along with corresponding reimbursement revenue on a gross basis in Newmark’s
consolidated statements of operations, with no impact on net income available to common stockholders.
Newmark elected to adopt the new guidance using a modified retrospective approach applied to contracts that
were not completed as of January 1, 2018. Accordingly, the new revenue standard is applied prospectively in
Newmark’s financial statements from January 1, 2018 onward, and reported financial information for historical
comparable periods is not revised and continues to be reported under the accounting standards in effect during those
historical periods.
The new revenue recognition guidance does not apply to revenue associated with financial instruments,
including loans and securities that are accounted for under other U.S. GAAP, and as a result did not have an impact
on the elements of Newmark’s consolidated statements of operations most closely associated with financial
instruments, including Gains from mortgage banking activities/origination, net, and Servicing fees.
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There was no significant impact as a result of applying the new revenue standard to Newmark’s consolidated
financial statements for the year ended December 31, 2018, except as it relates to the revenue recognition of certain
brokerage revenues from leasing commissions that were based, in part, on future contingent events and the
presentation of expenses incurred on behalf of customers for certain management services subject to reimbursement.
See Note 3— Summary of Significant Accounting Policies and Note 13— Revenues from Contracts with
Customers.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities. This ASU requires entities to measure
equity investments that do not result in consolidation and are not accounted for under the equity method at fair value
and recognize any changes in fair value in net income unless the investments qualify for the new measurement
alternative. The guidance also requires entities to record changes in instrument-specific credit risk for financial
liabilities measured under the fair value option in other comprehensive income. In February 2018, the FASB issued
ASU No. 2018-03, Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities, to clarify transition and subsequent
accounting for equity investments without a readily determinable fair value, among other aspects of the guidance
issued in ASU 2016-01. The amendments in ASU 2018-03 were effective for fiscal years beginning January 1, 2018
and interim periods beginning July 1, 2018. The amendments and technical corrections provided in ASU 2018-03
could be adopted concurrently with ASU 2016-01, which was effective for Newmark on January 1, 2018. Newmark
adopted both ASUs on January 1, 2018 using the modified retrospective approach for equity securities with a readily
determinable fair value and the prospective method for equity investments without a readily determinable fair value.
The adoption of this guidance did not have a material impact on Newmark’s consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230)—Classification of
Certain Cash Receipts and Cash Payments, which makes changes to how cash receipts and cash payments are
presented and classified in the statements of cash flows. The new standard became effective beginning with the first
quarter of 2018 and required adoption on a retrospective basis. The adoption of this guidance did not have a material
impact on Newmark’s consolidated statements of cash flows.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230)—Restricted
Cash, which requires that the statements of cash flows explain the change during the period in the total of cash, cash
equivalents and amounts generally described as restricted cash or restricted cash equivalents. The new standard
became effective beginning January 1, 2018 and required adoption on a retrospective basis. The effect of this
guidance resulted in the inclusion of restricted cash in the cash and cash equivalents balance on Newmark’s
consolidated statements of cash flows.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805)—Clarifying the
definition of Business, which clarifies the definition of a business with the objective of providing additional guidance
to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets
or businesses. The new standard became effective beginning January 1, 2018 on a prospective basis. The adoption of
this U.S. GAAP guidance did not have a material impact on Newmark’s consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718)—Scope
of Modification Accounting, which amends the scope of modification accounting for share-based payment
arrangements and provides guidance on the types of changes to the terms or conditions of share-based payment
awards to which an entity would be required to apply modification accounting. Under this guidance, an entity would
not apply modification accounting if the fair value, the vesting conditions, and the classification of the awards (as
equity or liability) are the same immediately before and after the modification. The new standard became effective
beginning January 1, 2018, on a prospective basis for awards modified on or after the adoption date. The adoption of
this guidance did not have a material impact on Newmark’s consolidated financial statements.
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(c) New Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This standard requires lessees to
recognize a right-of-use (“ROU”) asset and lease liability for all leases with terms of more than 12 months.
Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease.
The amendments also require certain quantitative and qualitative disclosures. Accounting guidance for lessors is
mostly unchanged. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases,
to clarify how to apply certain aspects of the new leases standard. The amendments address the rate implicit in the
lease, impairment of the net investment in the lease, lessee reassessment of lease classification, lessor reassessment
of lease term and purchase options, variable payments that depend on an index or rate and certain transition
adjustments, among other issues. In addition, in July 2018, the FASB issued ASU 2018-11, Leases (Topic 842),
Targeted Improvements, which provides an additional (and optional) transition method to adopt the new leases
standard. Under the new transition method, a reporting entity would initially apply the new lease requirements at the
effective date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period
of adoption; continue to report comparative periods presented in the financial statements in the period of adoption in
accordance with current U.S. GAAP (i.e., ASC 840, Leases); and provide the required disclosures under ASC 840
for all periods presented under current U.S. GAAP. Further, ASU 2018-11 contains a new practical expedient that
allows lessors to avoid separating lease and associated non-lease components within a contract if certain criteria are
met. In December 2018, the FASB issued ASU 2018-20, Leases (Topic 842), Narrow-Scope Improvements for
Lessors, to clarify guidance for lessors on sales taxes and other similar taxes collected from lessees, certain lessor
costs and recognition of variable payments for contracts with lease and non-lease components. The guidance in
ASUs 2016-02, 2018-10, 2018-11 and 2018-20 is effective beginning January 1, 2019, with early adoption
permitted. Newmark plans to adopt the standards on their required effective date and use the effective date as the
date of initial application. As a result, pursuant to this transition method, financial information will not be updated
and the disclosures required under the new leases standards will not be provided for dates and periods before
January 1, 2019. The new guidance provides a number of optional practical expedients to be utilized by lessees upon
transition. Accordingly, Newmark expects to elect the ‘package of practical expedients,’ which permits Newmark
not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial
direct costs. Newmark does not expect to elect the use-of-hindsight or the practical expedient pertaining to land
easements, with the latter not being applicable to Newmark. The new standard also provides practical expedients for
an entity’s ongoing accounting as a lessee. Newmark currently expects to elect the short-term lease recognition
exemption for all leases that qualify. This means, for those leases that qualify, Newmark will not recognize ROU
assets and lease liabilities, and this includes not recognizing ROU assets and lease liabilities for existing short-term
leases of those assets in transition. Newmark also currently expects to elect the practical expedient to not separate
lease and non-lease components for all leases other than leases of real estate. Newmark acting primarily as a lessee,
currently believes the most material effects of adoption will relate to the recognition of new ROU asset and lease
liability on its consolidated balance sheets for its real estate and equipment operating leases; and these impacts are
expected to represent approximately 7 percent and 10 percent of Newmark’s December 31, 2018 Total assets and
Total liabilities, respectively. Newmark does not believe the adoption of the new guidance will have a significant
impact on its consolidated statements of operations, consolidated statements of changes in equity and consolidated
statements of cash flows. See Note 30 – “Commitments and Contingencies” for additional information.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments, which requires financial assets that are measured at
amortized cost to be presented, net of an allowance for credit losses, at the amount expected to be collected over
their estimated life. Expected credit losses for newly recognized financial assets, as well as changes to credit losses
during the period, are recognized in earnings. For certain purchased financial assets with deterioration in credit
quality since origination, the initial allowance for expected credit losses will be recorded as an increase to the
purchase price. Expected credit losses, including losses on off-balance-sheet exposures such as lending
commitments, will be measured based on historical experience, current conditions, and reasonable and supportable
forecasts that affect the collectability of the reported amount. The new standard will become effective for Newmark
beginning January 1, 2020, under a modified retrospective approach, and early adoption is permitted. Management
is currently evaluating the impact of the new guidance on Newmark’s consolidated financial statements.
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In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350):
Simplifying the Test for Goodwill Impairment, which eliminates the requirement to determine the fair value of
individual assets and liabilities of a reporting unit to measure goodwill impairment. Under the amendments in the
new ASU, goodwill impairment testing will be performed by comparing the fair value of the reporting unit with its
carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the
reporting unit’s fair value. The new standard will become effective beginning January 1, 2020 and will be applied on
a prospective basis, and early adoption is permitted. However, the adoption of the new guidance is not expected to
have a material effect on the Company’s consolidated financial statements.
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted
Improvements to Accounting for Hedging Activities. The guidance intends to better align an entity’s risk
management activities and financial reporting for hedging relationships through changes to both the designation and
measurement guidance for qualifying hedging relationships and the presentation of hedge results. To meet that
objective, the amendments expand and refine hedge accounting for both nonfinancial and financial risk components
and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the
financial statements. The new standard became effective beginning January 1, 2019 on a prospective basis and
modified retrospective basis. In October 2018, the FASB issued ASU No. 2018-16, Derivatives and Hedging (Topic
815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark
Interest Rate for Hedge Accounting Purposes. Based on concerns about the sustainability of LIBOR, in 2017, a
committee convened by the Federal Reserve Board and the Federal Reserve Bank of New York identified a broad
Treasury repurchase agreement (repo) financing rate referred to as the SOFR as its preferred alternative reference
rate. The guidance in ASU No. 2018-16 adds the OIS rate based on SOFR as a U.S. benchmark interest rate to
facilitate the LIBOR to SOFR transition and provide sufficient lead time for entities to prepare for changes to
interest rate risk hedging strategies for both risk management and hedge accounting purposes. The amendments in
this ASU are required to be adopted concurrently with the guidance in ASU No. 2017-12. As Newmark currently
does not designate any derivative contracts as hedges for accounting purposes, the adoption of this new guidance is
not expected to have an impact on Newmark’s consolidated financial statements.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement—Reporting Comprehensive Income
(Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The guidance
helps organizations address certain stranded income tax effects in accumulated other comprehensive income
resulting from the Tax Cuts and Jobs Act of 2017 by providing an option to reclassify these stranded tax effects to
retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the
Tax Cuts and Jobs Act (or portion thereof) is recorded. The new standard will become effective beginning
January 1, 2019, with early adoption permitted. Newmark plans to adopt the new standard on its required effective
date and expects to elect to reclassify the stranded income tax effects of the Tax Cuts and Jobs Act from
accumulated other comprehensive income to retained earnings. However, the adoption of the new guidance is not
expected to have a material effect on Newmark’s consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718):
Improvements to Nonemployee Share-Based Payment Accounting. The guidance largely aligns the accounting for
share-based payment awards issued to employees and nonemployees, whereby the existing employee guidance will
apply to non-employee share-based transactions (as long as the transaction is not effectively a form of financing),
with the exception of specific guidance relate to the attribution of compensation cost. The cost of nonemployee
awards will continue to be recorded as if the grantor had paid cash for the goods or services. In addition, the
contractual term will be able to be used in lieu of an expected term in the option-pricing model for non-employee
awards. The new standard became effective beginning January 1, 2019. The ASU is required to be applied on a
prospective basis to all new awards granted after the date of adoption. In addition, any liability-classified awards that
have not been settled and equity-classified awards for which a measurement date has not been established by the
adoption date should be remeasured at fair value as of the adoption date with cumulative effect adjustment to
opening retained earnings in the year of adoption. Management expects to adopt this standard on its effective date.
The adoption of this guidance is not expected to have a material impact on Newmark’s consolidated financial
statements.
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In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure
Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The guidance is part of the
FASB’s disclosure framework project, whose objective and primary focus are to improve the effectiveness of
disclosures in the notes to financial statements. The ASU eliminates, amends and adds certain disclosure
requirements for fair value measurements. The FASB concluded that these changes improve the overall usefulness
of the footnote disclosures for financial statement users and reduce costs for preparers. The new standard will
become effective for Newmark beginning January 1, 2020 and early adoption is permitted for eliminated and
modified fair value measurement disclosures. Certain disclosures are required to be applied prospectively and other
disclosures need to be adopted retrospectively in the period of adoption. As permitted by the transition guidance in
the ASU, Newmark’s early adoption eliminated and modified disclosure requirements as of December 31, 2018 and
Newmark plans to adopt the remaining disclosure requirements effective January 1, 2020. The adoption of this
standard did not impact Newmark’s consolidated financial statements. See Note 25—“Fair Value of Financial
Assets and Liabilities” for additional information.
In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software
(Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement
That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force). The guidance on the accounting
for implementation, setup, and other upfront costs (collectively referred to as implementation costs) applies to
entities that are a customer in a hosting arrangement that is a service contract. The amendments align the
requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with
the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and
hosting arrangements that include an internal-use software license). The accounting for the service element of a
hosting arrangement that is a service contract is not affected by the guidance in this ASU. The new standard will
become effective for Newmark beginning January 1, 2020, should be applied either retrospectively or prospectively
to all implementation costs incurred after the date of adoption, and early adoption is permitted. Management is
currently evaluating the impact of the new guidance on Newmark’s consolidated financial statements.
(2) Limited Partnership Interests
Newmark is a holding company with no direct operations and conducts substantially all of its operations
through its operating subsidiaries. Virtually all of Newmark’s consolidated net assets and net income are those of
consolidated variable interest entities. Newmark Holdings is a consolidated subsidiary of Newmark for which
Newmark is the general partner. Newmark and Newmark Holdings jointly own Newmark OpCo, the operating
partnership. Listed below are the limited partnership interests in Newmark Holdings. In addition, Newmark OpCo
issued approximately $325 million of exchangeable preferred limited partnership units in private transactions to
RBC (see Note 1—Organization and Basis of Presentation). The founding/working partner units, limited partnership
units, limited partnership interests held by Cantor (“Cantor units”) and, prior to the Spin-Off, limited partnership
interests held by BGC (“BGC units”), each as described below. In addition, prior to the Spin-Off, BGC Partners and
its operating subsidiaries hold limited partnership interest in Newmark Holdings due to the Investment in Newmark
(see Note 26— Related Party Transactions). These collectively represent all of the “limited partnership interests” in
BGC Holdings and Newmark Holdings.
Immediately prior to the completion of the IPO, Newmark entered into the Original Separation and
Distribution Agreement with Cantor, BGC, BGC Holdings and BGC OpCo. As a result of the Original Separation
and Distribution Agreement, the limited partnership interests in Newmark Holdings were distributed to the holders
of limited partnership interests in BGC Holdings, whereby each holder of BGC Holdings limited partnership
interests at that time held a BGC Holdings limited partnership interest and a corresponding Newmark Holdings
limited partnership interest, which was equal to a BGC Holdings limited partnership interest multiplied by one
divided by 2.2 (the “contribution ratio”), divided by the exchange ratio (which is the ratio by which a Newmark
Holdings limited partnership interest can be exchanged for a number of Newmark Class A common stock (the
“exchange ratio”)). Initially, the exchange ratio equaled one, so that each Newmark Holdings limited partnership
interest was exchangeable for one Newmark Class A common stock, however, such exchange ratio is subject to
adjustment. For reinvestment, acquisition or other purposes, Newmark may determine on a quarterly basis to
distribute to its stockholders a smaller percentage of its income than Newmark Holdings distributes to its equity
holders (excluding tax distributions from Newmark Holdings) of cash that it received from Newmark OpCo. In such
circumstances, the Original Separation and Distribution Agreement provides that the exchange ratio will be reduced
to reflect the amount of additional cash retained by Newmark as a result of the distribution of such smaller
percentage, after the payment of taxes. As of December 31, 2018, the exchange ratio equaled 0.9793.
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Redeemable Partnership Interest
Founding/working partners have a limited partnership interest in BGC Holdings and Newmark Holdings.
Holders of High Distribution Units (“HDUs”) have limited partnership interests in Newmark Holdings with a capital
account. Newmark accounts for founding/working partner units (“FPUs”) and HDUs outside of permanent capital,
as “Redeemable partnership interest,” in Newmark’s consolidated balance sheets. This classification is applicable to
FPUs and HDUs because these units are redeemable upon termination of a partner, including a termination of
employment, which can be at the option of the partner and not within the control of the issuer.
FPUs are held by limited partners who are primarily employees of BGC and generally receive quarterly
allocations of net income. Upon termination of employment or otherwise ceasing to provide substantive services, the
founding/working partner units are generally redeemed, and the unit holders are no longer entitled to participate in
the quarterly allocations of net income. Since these allocations of net income are cash distributed on a quarterly
basis and are contingent upon services being provided by the unit holder, they are reflected as a component of “Net
income attributable to noncontrolling interests” in Newmark’s consolidated statements of operations to the extent
they related to Newmark employees.
Limited Partnership Units
Certain Newmark employees hold limited partnership interests in Newmark Holdings (e.g., REUs, RPUs,
PSUs, PSIs and LPUs, collectively the “limited partnership units”). Prior to the Original Separation and Distribution
Agreement, certain employees of both BGC and Newmark received limited partnership units in BGC Holdings. As a
result of the Original Separation and Distribution Agreement, these employees were distributed limited partnership
units in Newmark Holdings equal to a BGC Holdings limited partnership unit multiplied by the contribution ratio.
Subsequent to the Original Separation and Distribution Agreement, BGC employees only receive limited partnership
units in BGC Holdings and Newmark employees only receive limited partnership units in Newmark Holdings.
Generally, such limited partnership units receive quarterly allocations of net income, which are cash
distributed and generally are contingent upon services being provided by the unit holders. As prescribed in U.S.
GAAP guidance, the quarterly allocations of net income on such limited partnership units are reflected as a
component of compensation expense under “Allocations of net income and grant of exchangeability to limited
partnership units and FPUs and issuance of common stock” in Newmark’s consolidated statements of operations.
Following the Spin-Off, the quarterly allocations of net income on BGC Holdings and Newmark Holdings limited
partnership units held by Newmark employees are reflected as a component of compensation expense under
“Allocations of net income and grant of exchangeability to limited partnership units and FPUs and issuance of
common stock” in Newmark’s consolidated statements of operations, and the quarterly allocations of net income on
Newmark Holdings limited partnership units held by BGC employees are reflected as a component of “Net income
(loss) attributable to noncontrolling interests” in Newmark’s consolidated statements of operations. From time to
time, Newmark issues limited partnership units as part of the consideration for acquisitions.
Certain of these limited partnership units entitle the holders to receive post-termination payments equal to the
notional amount of the units in four equal yearly installments after the holder’s termination. These limited
partnership units are accounted for as post-termination liability awards, and in accordance with U.S. GAAP
guidance, Newmark records compensation expense for the awards based on the change in value at each reporting
date in Newmark’s consolidated statements of operations as part of “Compensation and employee benefits.”
Certain Newmark employees hold preferred partnership units (“Preferred Units”). Each quarter, the net profits
of Newmark Holdings are allocated to such units at a rate of either 0.6875% (which is 2.75% per calendar year) or
such other amount as set forth in the award documentation (the “Preferred Distribution”). These allocations are
deducted before the calculation and distribution of the quarterly partnership distribution for the remaining
partnership units and are generally contingent upon services being provided by the unit holder. The Preferred Units
are not entitled to participate in partnership distributions other than with respect to the Preferred Distribution.
Preferred Units may not be made exchangeable into Newmark’s Class A common stock and are only entitled to the
Preferred Distribution, and accordingly are not included in Newmark’s fully diluted share count. The quarterly
allocations of net income on Preferred Units are reflected in compensation expense under “Allocations of net
income and grant of exchangeability to limited partnership units and FPUs and issuance of common stock” in
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Newmark’s consolidated statements of operations. After deduction of the Preferred Distribution, the remaining
partnership units generally receive quarterly allocation of net income based on their weighted-average pro rate share
of economic ownership of the operating subsidiaries.
Cantor Units
Cantor holds limited partnership interests in Newmark Holdings. Cantor units are reflected as a component of
“Noncontrolling interests” in Newmark’s consolidated balance sheets. Cantor receives allocations of net income
(loss), which are cash distributed on a quarterly basis and are reflected as a component of “Net income (loss)
attributable to noncontrolling interests” in Newmark’s consolidated statements of operations.
BGC Units
Prior to the Spin-Off, BGC and its operating subsidiaries held limited partnership interests in Newmark
Holdings. Such BGC units were reflected as a component of “noncontrolling interests” in Newmark’s consolidated
balance sheets. BGC received allocations of net income (loss), which were cash distributed on a quarterly basis and
were reflected as a component of net income (loss) attributable to noncontrolling interests in Newmark’s
consolidated statements of operations. In conjunction with the Spin-Off, such units were either exchanged for
shares of Newmark Class A and Class B shares that were distributed to BGC Stockholders in the Spin-Off, or
distributed to the partners of BGC Holdings in the BGC Holdings distribution (See Note 1 – Organizational and
Basis of Presentation.)
Exchangeable Preferred Limited Partnership Units
RBC holds approximately $325.0 million of EPUs in Newmark OpCo, as a result of the Newmark OpCo
Preferred Investment. The EPUs were issued in four tranches and are separately convertible by either RBC or
Newmark into a fixed number of Newmark’s Class A common stock, subject to a revenue hurdle for Newmark in
each of the fourth quarters of 2019 through 2022 for each of the four tranches, respectively. As the EPUs represent
equity ownership of a consolidated subsidiary of Newmark, they have been included in “Noncontrolling interests”
on the consolidated statement of changes in equity. The EPUs are entitled to a preferred payable-in-kind dividend,
which is recorded as accretion to the carrying amount of the EPUs through retained earnings on the consolidated
statement of changes in equity and are included in “Net income available to common stockholders” for the purpose
of calculating earnings per share.
General
Certain of the limited partnership interests, described above, have been granted exchangeability into BGC
and/or Newmark Class A common stock, and additional limited partnership interests may become exchangeable for
BGC and/or Newmark Class A common stock. In addition, limited partnership interests held by Cantor in Newmark
Holdings are generally exchangeable for up to 23.7 million shares of Newmark Class B common stock. Following
the IPO and prior to the Spin-Off, in order for a partner or Cantor to exchange a limited partnership interest in BGC
Holdings or Newmark Holdings into a Class A or Class B common stock of BGC, such partner or Cantor was
required to exchange both one BGC Holdings limited partnership interests and a number of Newmark Holdings
limited partnership interests equal to a BGC Holdings limited partnership interest multiplied by the quotient
obtained by dividing Newmark Class A and Class B common stock, Newmark OpCo interests, and Newmark
Holdings limited partnership interests held by BGC as of such time by the number of BGC Class A and Class B
common stock outstanding as of such time (the “distribution ratio”), divided by the exchange ratio. Initially the
distribution ratio was equivalent to the contribution ratio (one divided by 2.2 or .4545), and at the time of the Spin-
Off, the distribution ratio equaled 0.463895. As a result of the change in the distribution ratio, certain BGC
Holdings limited partnership interests no longer have a corresponding Newmark Holdings limited partnership
interest. The exchangeability of these BGC Holdings limited partnership interests along with any new BGC
Holdings limited partnership interests issued after the Original Separation and Distribution Agreement (together
referred to as “standalone”) into BGC Class A or Class B common stock was contingent upon the Spin-Off.
Following the Spin-Off, a partner or Cantor is no longer required to have paired BGC Holdings and Newmark
Holdings limited partnership interests to exchange into Newmark Class A or Class B Common Stock. Subsequent to
the Spin-Off, limited partnership interests in BGC Holdings held by a partner or Cantor may become exchangeable
for BGC Class A or Class B common stock on a one-for-one basis, and limited partnership interests in Newmark
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Holdings held by a partner or Cantor may become exchangeable for a number of Newmark Class A or Class B
common stock equal to the number of limited partnership interests multiplied by the then exchange ratio.
Each quarter, net income (loss) is allocated between the limited partnership interests and the common
stockholders. In quarterly periods in which Newmark has a net loss, the loss allocation for FPUs, limited partnership
units (including BGC units and Cantor units) is allocated to Cantor and reflected as a component of “Net income
(loss) attributable to noncontrolling interests” in Newmark’s consolidated statements of operations. In subsequent
quarters in which Newmark has net income, the initial allocation of income to the limited partnership interests is to
“Net income (loss) attributable to noncontrolling interests,” to recover any losses taken in earlier quarters, with the
remaining income allocated to the limited partnership interests. This income (loss) allocation process has no impact
on the net income (loss) allocated to common stockholders.
(3) Summary of Significant Accounting Policies
Use of Estimates:
The preparation of Newmark’s consolidated financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of the assets and liabilities,
revenues and expenses, and the disclosure of contingent assets and liabilities in Newmark’s consolidated financial
statements. Management believes that the estimates utilized in preparing these consolidated financial statements are
reasonable. Estimates, by their nature, are based on judgment and available information. Actual results could differ
materially from the estimates included in Newmark’s consolidated financial statements.
Equity Investments:
Effective January 1, 2018, in accordance with the new guidance on recognition and measurement of equity
investments, Newmark carries its marketable equity securities at fair value and recognizes any changes in fair value
in consolidated net income (loss). Further, Newmark has elected to use a measurement alternative for its equity
investments without a readily determinable fair value, pursuant to which these investments are initially recognized at
cost and remeasured through earnings when there is an observable transaction involving the same or similar
investment of the same issuer, or due to an impairment. See Note 8—Investments for additional information.
Revenue Recognition:
The accounting policy changes are attributable to the adoption of ASU No. 2014-09, Revenue from contracts
with Customers and related amendments on January 1, 2018. These revenue recognition policy updates are applied
prospectively in Newmark’s consolidated financial statements from January 1, 2018 onward. Financial information
for the historical comparable periods was not revised and continues to be reported under the accounting standards in
effect during those historical periods.
Commissions:
Commissions from real estate brokerage transactions are typically recognized at a point in time on the date
the lease is signed, if deemed not subject to significant reversal. The date the lease is signed represents the transfer
of control and satisfaction of the performance obligation as the tenant has been secured. Commission payments may
be due entirely upon lease execution or may be paid in installments upon the resolution of a future contingency (e.g.
tenant move-in or payment of first month’s rent).
Commission revenues from sales brokerage transactions are recognized at the time the service has been
provided and the commission becomes legally due, except when future contingencies exist. In most cases, close of
escrow or transfer of title is a future contingency, and revenue recognition is deferred until all contingencies are
satisfied.
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Gains from Mortgage Banking Activities/Originations, net:
Gains from mortgage banking activities/originations, net are recognized when a derivative asset or liability is
recorded upon the commitment to originate a loan with a borrower and sell the loan to an investor. The derivative is
recorded at fair value and includes loan origination fees, sales premiums and the estimated fair value of the expected
net servicing cash flows. Gains from mortgage banking activities/originations, net are recognized net of related fees
and commissions to third-party brokers.
Management Services, Servicing Fees and Other:
Management services revenues include property management, facilities management and project management.
Management fees are recognized at the time the related services have been performed, unless future contingencies
exist. In addition, in regard to management and facility service contracts, the owner of the property will typically
reimburse Newmark for certain expenses that are incurred on behalf of the owner, which comprise primarily on-site
employee salaries and related benefit costs. The amounts which are to be reimbursed per the terms of the services
contract are recognized as revenue in the same period as the related expenses are incurred. In certain instances,
Newmark subcontracts property management services to independent property managers, in which case Newmark
passes a portion of its property management fee on to the subcontractor, and Newmark retains the balance.
Accordingly, Newmark records these fees gross of the amounts paid to subcontractors, and the amounts paid to
subcontractors are recognized as expenses in the same period.
Newmark also uses third party service providers in the provision of its services to customers. In instances
where a third-party service provider is used, Newmark performs an analysis to determine whether it is acting as a
principal or an agent with respect to the services provided. To the extent that Newmark determines that it is acting as
a principal, the revenue and the expenses incurred are recorded on a gross basis. In instances where Newmark has
determined that it is acting as an agent, the revenue and expenses are presented on a net basis within the revenue line
item.
In some instances, Newmark performs services for customers and incurs out-of-pocket expenses as part of
delivering those services. Newmark’s customers agree to reimburse Newmark for those expenses, and those
reimbursements are part of the contract’s transaction price. Consequently, these expenses and the reimbursements of
such expenses from the customer are presented on a gross basis because the services giving rise to the out-of-pocket
expenses do not transfer a good or service. The reimbursements are included in the transaction price when the costs
are incurred, and the reimbursements are due from the customer.
Servicing fees are earned for servicing mortgage loans and are recognized on an accrual basis over the lives of
the related mortgage loans. Also included in servicing fees are the fees earned on prepayments, interest and
placement fees on borrowers’ escrow accounts and other ancillary fees.
Other revenues include interest income on warehouse notes receivable.
Fees to Related Parties:
Newmark is allocated costs from Cantor and BGC for back-office services provided by Cantor and BGC and
their affiliates, including occupancy of office space, utilization of fixed assets, accounting, operations, human
resources and legal services and information technology. Fees are expensed as they are incurred.
Other Income, Net:
Other income, net comprises gains or losses recorded in connection with changes in fair value of contingent
consideration in connection with entities acquired, gains and losses associated with the Nasdaq monetization
transactions and the movement of mark-to market and/or hedge on marketable securities that are classified as trading
securities (see Note 7—Marketable Securities), Newark’s pro-rata share for equity method investments which
Newmark has significant influence but not a controlling interest (see Note 8—Investments), movements related to
the impact of any unrealized non-cash mark-to-market gains or losses related to the RBC Forward agreement,
unrealized gains relating to investments carried under the measurement alternative, and realized losses on the
accretion of contingent consideration (see Note 25—Fair Value of Financial Assets and Liabilities).
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Restricted Cash:
Represents cash set aside for amounts pledged for the benefit of Fannie Mae in excess of the required cash to
secure Newmark’s financial guarantee liability (See Note 12 – Credit Enhancement Receivable, Contingent Liability
and Credit Enhancement Deposit).
Segment:
Newmark has a single operating segment. Newmark is a real estate services firm offering services to
commercial real estate tenants, owner occupiers, investors and developers, leasing and corporate advisory,
investment sales and real estate finance, consulting, origination and servicing of commercial mortgage loans,
valuation, project and development management and property and facility management. The chief operating
decision maker regardless of geographic location evaluates the operating results of Newmark as total real estate
services and allocates resources accordingly. For the years ended December 31, 2018, 2017 and 2016, Newmark
recognized revenues as follows (in thousands):
Leasing and other commissions
Capital markets
Gains from mortgage banking activities/origination, net
Management services, servicing fees and other
Revenues
Fair Value:
$
Year Ended December 31,
2017
616,980 $
397,736
206,000
375,734
2016
513,812
335,607
193,387
307,177
$ 2,047,579 $ 1,596,450 $ 1,349,983
2018
817,435 $
468,904
182,264
578,976
U.S. GAAP guidance defines fair value as the price received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date and further expands disclosures about such
fair value measurements.
The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to
measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3
measurements). The three levels of the fair value hierarchy are as follows:
(cid:120) Level 1 measurements—Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or liabilities.
(cid:120) Level 2 measurements—Quoted prices in markets that are not active or financial instruments for which all
significant inputs are observable, either directly or indirectly.
(cid:120) Level 3 measurements—Prices or valuations that require inputs that are both significant to the fair value
measurement and unobservable.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is
significant to the fair value measurement.
Cash and Cash Equivalents:
Newmark considers all highly liquid investments with original maturities of 90 days or less at the date of
acquisition to be cash equivalents. Cash and cash equivalents are held with banks as deposits.
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Marketable Securities:
Marketable securities comprise securities held for investment purposes and are accounted for in accordance
with U.S. GAAP guidance, Investments—Debt and Equity Securities. Marketable securities are classified as trading
securities and accordingly are measured at fair value with any changes in fair value recognized currently in earnings
and included in “Other income, net” in Newmark’s consolidated statements of operations. See Note 7 – Marketable
Securities for additional information.
Investments:
Newmark’s investments, in which it has significant influence but not a controlling interest and of which it is
not the primary beneficiary, are accounted for under the equity method. Newmark’s consolidated financial
statements include the accounts of Newmark and its wholly owned and majority owned subsidiaries. Newmark’s
policy is to consolidate all entities of which it owns more than 50% unless it does not have control over the entity. In
accordance with U.S. GAAP guidance, Consolidation of Variable Interest Entities, Newmark also combines any
variable interest entities (“VIEs”) of which it is the primary beneficiary.
Loans Held for Sale, at Fair Value (“LHFS”):
Newmark maintains multifamily and commercial mortgage loans for the purpose of sale to Government
Sponsored Enterprises (“GSEs”). Prior to funding, Newmark enters into an agreement to sell the loans to third-party
investors at a fixed price. During the period prior to sale, interest income is calculated and recognized in accordance
with the terms of the individual loan. LHFS are recorded at fair value, as Newmark has elected the fair value option.
The primary reasons Newmark has elected to account for loans backed by commercial real estate under the fair
value option are to better offset the change in fair value of the loan and the change in fair value of the derivative
instruments used as economic hedges.
Derivative Financial Instruments:
Newmark has loan commitments to extend credit to third parties. The commitments to extend credit are for
mortgage loans at a specific rate (rate lock commitments). These commitments generally have fixed expiration dates
or other termination clauses and may require a fee. Newmark is committed to extend credit to the counterparty as
long as there is no violation of any condition established in the commitment contracts.
Newmark simultaneously enters into a commitment to deliver such mortgages to third-party investors at a
fixed price (forward sale contracts).
Newmark entered into four variable postpaid forward contracts as a result of the RBC Forward. These
contracts qualify as derivative financial instruments.
The commitment to extend credit, the forward sale commitment and RBC Forwards qualify as derivative
financial instruments. Newmark recognizes all derivatives on its consolidated balance sheets as assets or liabilities
measured at fair value. The change in the derivatives fair value is recognized in current period earnings.
Mortgage Servicing Rights, net (“MSR”):
Newmark initially recognizes and measures the rights to service mortgage loans at fair value and subsequently
measures them using the amortization method. Newmark recognizes rights to service mortgage loans as separate
assets at the time the underlying originated mortgage loan is sold, and the value of those rights is included in the
determination of the gains on loans held for sale.
Purchased MSRs, including MSRs purchased from CCRE, are initially recorded at fair value, and
subsequently measured using the amortization method.
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Newmark receives up to a 3-basis point servicing fee and/or up to a 1-basis point surveillance fee on certain
Freddie Mac loans after the loan is securitized in a Freddie Mac pool (Freddie Mac Strip). The Freddie Mac Strip is
also recognized at fair value and subsequently measured using the amortization method, but is recognized as a MSR
at the securitization date.
MSRs are assessed for impairment, at least on an annual basis, based upon the fair value of those rights as
compared to the amortized cost. Fair values are estimated using a valuation model that calculates the present value
of the future net servicing cash flows. In using this valuation method, Newmark incorporates assumptions that
management believes market participants would use in estimating future net servicing income. It is reasonably
possible that such estimates may change. Newmark amortizes the mortgage servicing rights in proportion to, and
over the period of, the projected net servicing income. For purposes of impairment evaluation and measurement,
Newmark stratifies MSRs based on predominant risk characteristics of the underlying loans, primarily by investor
type (Fannie Mae/Freddie Mac, FHA/GNMA, CMBS and other). To the extent that the carrying value exceeds the
fair value of a specific MSR strata, a valuation allowance is established, which is adjusted in the future as the fair
value of MSRs increases or decreases. Reversals of valuation allowances cannot exceed the previously recognized
impairment up to the amortized cost.
Receivables, Net:
Newmark has accrued commission’s receivable from real estate brokerage transactions and management
services and servicing fee receivables from contractual management assignments. Receivables are presented net of
allowance for doubtful accounts of $16.3 million and $16.0 million as of December 31, 2018 and 2017, respectively.
The allowance is based on management’s estimate and is reviewed periodically based on the facts and circumstances
of each outstanding receivable.
Fixed Assets, Net:
Fixed assets are carried at cost net of accumulated depreciation and amortization. Depreciation is calculated
on a straight-line basis over the estimated useful lives of the assets. The costs of additions and improvements are
capitalized, while maintenance and repairs are expensed as incurred. Fixed assets are depreciated over their
estimated useful lives as follows:
Leasehold improvements and other fixed assets
shorter of the remaining term of lease or useful life
Software, including software development costs
3-5 years straight-line
Computer and communications equipment
3-5 years straight-line
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Long-Lived Assets:
Newmark periodically evaluates potential impairment of long-lived assets and amortizable intangibles, when a
change in circumstances occurs, by applying the concepts of U.S. GAAP guidance, Accounting for the Impairment
or Disposal of Long-Lived Assets, and assessing whether the unamortized carrying amount can be recovered over
the remaining life through undiscounted future expected cash flows generated by the underlying assets. If the
undiscounted future cash flows were less than the carrying value of the asset, an impairment charge would be
recorded. The impairment charge would be measured as the excess of the carrying value of the asset over the present
value of estimated expected future cash flows using a discount rate commensurate with the risks involved.
Goodwill and Other Intangible Assets, Net:
Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in a business
combination. As prescribed in U.S. GAAP guidance, Intangibles—Goodwill and Other, goodwill and other
indefinite-lived intangible assets are not amortized, but instead are periodically tested for impairment. Newmark
reviews goodwill and other indefinite-lived intangible assets for impairment on an annual basis during the fourth
quarter of each fiscal year or whenever an event occurs or circumstances change that could reduce the fair value of a
reporting unit below its carrying amount. When reviewing goodwill for impairment, Newmark first assesses
qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its
carrying amount. There was a $6.3 million impairment charge recognized for Newmark’s indefinite-lived intangible
assets other than goodwill for the year ended December 31, 2017, and no impairment of indefinite-lived intangible
assets other than goodwill was deemed necessary for the years ended December 31, 2018 and 2016.
Intangible assets with definite lives are amortized on a straight-line basis over their estimated useful lives.
Definite-lived intangible assets arising from business combinations include trademarks and trade names, contractual
and non-contractual customers, non-compete agreements and brokerage backlog.
Financial Guarantee Liability:
Newmark recognizes a liability in connection with the guarantee provided to Fannie Mae under the Delegated
Underwriting and Servicing Program (“DUS”) and Freddie Mac under the Targeted Affordable Housing Program
(“TAH”). The financial guarantee liability requires Newmark to make payments to the guaranteed party based on the
borrower’s failure to meet its obligations. The liability is adjusted through provisions charged or reversed through
operations. The financial guarantee liability is included in “Other long-term liabilities” on Newmark’s consolidated
balance sheets.
Transfer of Financial Assets:
Newmark originates its commercial mortgage loans primarily for the GSEs’ distribution channels, which
generally involve (a) Freddie Mac purchasing Newmark’s loans for cash, (b) Fannie Mae securitizing Newmark’s
loans into a mortgage-backed security (“MBS”) guaranteed by Fannie Mae, (c) FHA guaranteeing the credit risk of
Newmark’s loans or (d) Ginnie Mae securitizing Newmark’s loans into an MBS. MBS are collateralized by the loan
and Ginnie Mae selling the MBS for cash. As part of its origination activities, Newmark accounts for the transfer of
financial assets in accordance with U.S. GAAP guidance for Transfer and Servicing. In accordance with this
guidance, the transfer of financial assets between two entities must meet the following criteria for derecognition and
sale accounting:
(cid:120) The transfer must involve a financial asset, group of financial assets or a participating interest;
(cid:120) The financial assets must be isolated from the transferor and its consolidated affiliates as well as its
creditors;
(cid:120) The transferee or beneficial interest holders must have the right to pledge or exchange the transferred
financial assets; and
(cid:120) The transferor may not maintain effective control of the transferred assets.
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Newmark determined that all loans sold during the periods presented met these specific conditions and
accounted for all transfers of loans held for sale as completed sales.
Warehouse Facilities Collateralized by U.S. Government Sponsored Enterprises
Warehouse facilities collateralized by U.S. Government Sponsored Enterprises are borrowings under
warehouse line agreements. The carrying amounts approximate fair value due to the short-term maturity of these
instruments. Outstanding borrowings against these lines are collateralized by an assignment of the underlying
mortgages, reflected as loans held for sale, at fair value on Newmark’s consolidated balance sheets and third-party
purchase commitments. The borrowing rates on the warehouse lines are based on short-term LIBOR plus applicable
margins. Accordingly, the warehouse facilities collateralized by U.S. Government Sponsored Enterprises are
typically classified within Level 2 of the fair value hierarchy. The facilities are generally repaid within a 45-day
period when Freddie Mac buys the loans or upon settlement of the Fannie Mae or Ginnie Mae mortgage-backed
securities, while Newmark retains servicing rights.
Income Taxes:
Newmark accounts for income taxes using the asset and liability method as prescribed in U.S. GAAP
guidance for Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to basis differences between the consolidated financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Certain of Newmark’s entities are taxed as U.S. partnerships and are subject
to the Unincorporated Business Tax (“UBT”) in New York City. Therefore, the tax liability or benefit related to the
partnership income or loss except for UBT rests with the partners, rather than the partnership entity. As such, the
partners’ tax liability or benefit is not reflected in Newmark’s consolidated financial statements. The tax-related
assets, liabilities, provisions or benefits included in Newmark’s consolidated financial statements also reflect the
results of the entities that are taxed as corporations, either in the U.S. or in foreign jurisdictions.
Newmark’s income taxes as presented are calculated on a separate return basis for the periods prior to the
Spin-Off and have historically been included in BGC’s U.S. federal and state tax returns or separate non-U.S.
jurisdictions tax returns. Subsequent to the Spin-Off, Newmark will file its own stand-alone tax returns for its
operations within these jurisdictions. The 2018 tax results reflect both the pre and post spin periods and, as such,
Newmark’s tax results as presented are not necessarily reflective of the results that Newmark would have generated
on a stand-alone basis.
Newmark provides for uncertain tax positions based upon management’s assessment of whether a tax benefit
is more likely than not to be sustained upon examination by tax authorities. Management is required to determine
whether a tax position is more likely than not to be sustained upon examination by tax authorities, including
resolution of any related appeals or litigation processes, based on the technical merits of the position. Because
significant assumptions are used in determining whether a tax benefit is more likely than not to be sustained upon
examination by tax authorities, actual results may differ from Newmark’s estimates under different assumptions or
conditions. Newmark recognizes interest and penalties related to uncertain tax positions in “Provision for income
taxes” in Newmark’s consolidated statements of operations.
A valuation allowance is recorded against deferred tax assets if it is deemed more likely than not that those
assets will not be realized. In assessing the need for a valuation allowance, Newmark considers all available
evidence, including past operating results, the existence of cumulative losses in the most recent fiscal years,
estimates of future taxable income and the feasibility of tax planning strategies.
The measurement of current and deferred income tax assets and liabilities is based on provisions of enacted
tax laws and involves uncertainties in the application of tax regulations in the U.S. and other tax jurisdictions.
Because Newmark’s interpretation of complex tax law may impact the measurement of current and deferred income
taxes, actual results may differ from these estimates under different assumptions regarding the application of tax
law.
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On December 22, 2017, the SEC issued Staff Accounting Bulletin 118 (“SAB 118”), which provides guidance
on accounting for tax effects of the 2017 Tax Act. SAB 118 provides a measurement period that should not extend
beyond one year from the 2017 Tax Act enactment date for companies to complete the accounting under ASC 740.
In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the 2017 Tax Act for
which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax
effects of the 2017 Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a
provisional estimate to be included in the financial statements. If a company cannot determine a provisional estimate
to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provision of the
tax laws that were in effect immediately before the enactment of the 2017 Tax Act. While Newmark is able to make
a reasonable estimate of the impact of the reduction in the corporate rate, the final impact of the 2017 Tax Act may
differ from these estimates, due to, among other things, changes in interpretations, additional guidance that may be
issued, unexpected negative changes in business and market conditions that could reduce certain tax benefits, and
actions taken by Newmark as a result of the 2017 Tax Act.
Equity-Based and Other Compensation:
Newmark accounts for equity-based compensation under the fair value recognition provisions. Equity-based
compensation expense recognized during the period is based on the value of the portion of equity-based payment
awards that is ultimately expected to vest. The grant-date fair value of equity-based awards is amortized to expense
ratably over the awards’ vesting periods. As equity-based compensation expense recognized in the Newmark’s
consolidated statements of operations is based on awards ultimately expected to vest, it has been reviewed for
estimated forfeitures. Further, forfeitures are estimated at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates.
Restricted Stock Units:
Restricted stock units (“RSUs”) provided to certain Newmark employees by BGC and are accounted for as
equity awards, and in accordance with U.S. GAAP Newmark is required to record an expense for the portion of the
RSUs that is ultimately expected to vest. The grant-date fair value of RSUs is amortized to expense ratably over the
awards’ vesting periods. The amortization is reflected as non-cash equity-based compensation expense in
Newmark’s consolidated statements of operations.
Limited Partnership Units:
Limited partnership units in BGC Holdings and Newmark Holdings are held by Newmark employees and
receive quarterly allocations of net income, which are cash distributed on a quarterly basis and generally contingent
upon services being provided by the unit holders. The quarterly allocations of net income on such limited
partnership units are reflected as a component of compensation expense under “Allocations of net income and grant
of exchangeability to limited partnership units and FPUs and issuance of common stock” in Newmark’s
consolidated statements of operations.
Certain of these limited partnership units entitle the holders to receive post-termination payments equal to the
notional amount in four equal yearly installments after the holder’s termination. These limited partnership units are
accounted for as post-termination liability awards under U.S. GAAP guidance, which requires that Newmark record
an expense for such awards based on the change in value at each reporting period and include the expense in the
Newmark’s consolidated statements of operations as part of “Compensation and employee benefits.” The liability
for limited partnership units with a post-termination payout amount is included in “Accrued compensation” on the
Newmark’s consolidated balance sheets.
Certain limited partnership units held by Newmark employees are granted exchangeability into Class A
common stock. At the time exchangeability is granted, Newmark recognizes an expense based on the fair value of
the award on that date, which is included in “Allocations of net income and grants of exchangeability to limited
partnership units and FPUs and issuance of common stock” in Newmark’s consolidated statements of operations.
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BGC and Newmark have also awarded Preferred Units held by Newmark employees. Each quarter, the net
profits of BGC Holdings and Newmark Holdings are allocated to such units at a rate of either 0.6875% (which is
2.75% per calendar year) or such other amount as set forth in the the Preferred Distribution, which is deducted
before the calculation and distribution of the quarterly partnership distribution for the remaining partnership units.
The Preferred Units are not entitled to participate in partnership distributions other than with respect to the Preferred
Distribution. Preferred Units may not be made exchangeable into BGC or Newmark Class A common stock and are
only entitled to the Preferred Distribution, and accordingly they are not included in Newmark’s fully diluted share
count. The quarterly allocations of net income on Preferred Units are reflected in compensation expense under
“Allocations of net income and grants of exchangeability to limited partnership units and FPUs and issuance of
common stock” in Newmark’s consolidated statements of operations.
Redeemable Partnership Interests:
Redeemable partnership interest represents limited partnership interests in Newmark Holdings held by
founding/working partners and HDU holders. (See Note 2—Limited Partnership Interests for additional information
related to redeemable partnership interest.)
Loans, Forgivable Loans and Other Receivables from Employees and Partners:
Newmark has entered into various agreements with certain of its employees and partners whereby these
individuals receive loans which may be either wholly or in part repaid from the distribution earnings that the
individual receives on some or all of their limited partnership units or may be forgiven over a period of time. The
forgivable portion of these loans is recognized as compensation expense over the life of the loan. From time to time,
Newmark may also enter into agreements with employees and partners to grant bonus and salary advances or other
types of loans. These advances and loans are repayable in the timeframes outlined in the underlying agreements.
Management reviews the loan balances each reporting period for collectability. If Newmark determines that the
collectability of a portion of the loan balances is not expected, Newmark recognizes a reserve against the loan
balance. This reserve is included in “compensation and employee benefits” in Newmark’s consolidated statements
of operations.
Noncontrolling Interests:
Noncontrolling interests represent third-party, Cantor’s and BGC’s (prior to the Spin-Off) ownership interests
in Newmark’s consolidated subsidiaries and EPUs (see Note 1 – Organization and Basis of Presentation) and are
included on Newmark’s consolidated balance sheets. Cantor and BGC units receive allocations of net income (loss),
which are cash distributed on a quarterly basis and are reflected as a component of “Net income (loss) attributable to
noncontrolling interests” in Newmark’s consolidated statements of operations.
(4) Acquisitions
During April of 2018, Newmark completed the acquisition of two former Integra Realty Resources (“IRR”)
offices (Boston and Pittsburgh). IRR specializes in commercial real estate valuation and advisory services, and the
acquisition provides Newmark with greater geographic coverage.
In July 2018, Newmark completed the acquisition of two additional IRR offices (Denver and Pasadena) as
well as Dallas based Jackson & Cooksey, Inc., a nationally known corporate tenant representation real estate
business.
In September 2018, Newmark completed the acquisition of RKF Retail Holdings, LLC (“RKF”). RKF is a
leading independent real estate firm in North America specializing in retail leasing, investment sales and consulting
services.
In December 2018, Newmark completed the acquisition of New York-based MiT National Land Services,
LLC, a national title agency.
150
For the year ended December 31, 2018, the following tables summarize the components of the purchase
consideration transferred, and the preliminary allocation of the assets acquired and liabilities assumed. Newmark
expects to finalize its analysis of the assets acquired and liabilities assumed within the first year of the acquisition,
and therefore adjustments to assets and liabilities may occur.
As of the
Acquisition Date
Assets
Cash and cash equivalents
Goodwill
Receivables, net
Fixed Assets, net
Other intangible assets, net
Other assets
Total assets
Current liabilities
$
Current portion of accounts payable, accrued expenses
and other liabilities
Accrued compensation
Total liabilities
Net assets acquired
$
1,110
42,188
50,731
1,276
4,677
2,894
102,876
15,937
26,765
42,702
60,174
The total consideration for acquisitions during the year ended December 31, 2018 was approximately
$62.9 million in total fair value, comprised of cash and Newmark Holdings limited partnership units. The total
consideration included contingent consideration of approximately 465,316 Newmark’s Holding partnership units
(with an acquisition date fair value of approximately $6.2 million), restricted stock of approximately 216,900 (with
an acquisition date fair value of approximately $3.1 million) and $8.6 million in cash that may be issued contingent
on certain targets being met through 2021. The excess of the consideration over the fair value of the net assets
acquired has been recorded as goodwill of approximately $42.2 million, of which $28.6 million is deductible by
Newmark for tax purposes.
These acquisitions are accounted for using the purchase method of accounting. The results of operations of
these acquisitions have been included in Newmark’s consolidated financial statements subsequent to their respective
dates of acquisition, which in aggregate contributed $28.5 million to Newmark’s revenue for the year ended
December 31, 2018.
On September 8, 2017, Newmark acquired from CCRE 100% of the equity of BPF. The Berkeley Point
Acquisition has been determined to be a combination of entities under common control that resulted in a change in
the reporting entity (see Note 1—Organization and Basis of Presentation).
The assets and liabilities of BPF have been recorded in Newmark’s consolidated balance sheets at the seller’s
historical carrying value. The excess of the purchase price over BPF’s net assets was accounted for as an equity
transaction for the year ended December 31, 2017 (the period in which the transaction occurred). (See Note 1—
Organization and Basis of Presentation for additional information.)
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to basis
differences between the carrying amounts of existing assets and liabilities and their respective tax basis.
Accordingly, a deferred tax asset of $108.6 million has been contributed to Newmark for the period ended
December 31, 2017 for the basis difference between BPF’s net assets and its tax basis.
On January 13, 2017, Newmark acquired a San Francisco based advisory firm, Regency Capital Partners
(“Regency”). Regency specializes in structured debt and equity for large office and multi-family developments.
151
On July 26, 2017, Newmark acquired an approximately 50% controlling interest in a joint venture. Cantor
owns a noncontrolling interest of 25% of the company, which is headquartered in New York, NY and specializes in
commercial real estate due diligence.
In September 2017, Newmark completed the acquisition of six former Integra Realty Resources offices
(Washington DC, Baltimore, Wilmington, DE, New York/New Jersey, Philadelphia and Atlanta offices). These
firms specialize in valuation services, and the acquisition provides Newmark with greater geographic coverage.
For the year ended December 31, 2017, the following tables summarize the components of the purchase
consideration transferred, and the preliminary allocation of the assets acquired and liabilities assumed, for all
acquisitions other than the Berkeley Point Acquisition, based on the fair values of the acquisition date. Newmark
expects to finalize its analysis of the assets acquired and liabilities assumed within the first year of the acquisition,
and therefore adjustments to assets and liabilities may occur.
Assets
Cash and cash equivalents
Goodwill
Other intangible assets, net
Other assets
Total assets
Current liabilities
Current portion of accounts payable, accrued
expenses and other liabilities
Total liabilities
Noncontrolling interest
Net assets acquired
As of the
Acquisition
Date
$
$
3,903
64,291
3,188
9,234
80,616
7,119
7,119
19,145
54,352
The total consideration for acquisitions during the year ended December 31, 2017 was approximately
$55.6 million in total fair value, comprised of cash, and BGC Holdings limited partnership units. The total
consideration included contingent consideration of approximately 477,169 BGC’s Holding partnership units (with
an acquisition date fair value of approximately $5.0 million) and $1.3 million in cash that may be issued contingent
on certain targets being met through 2020. The excess of the consideration over the fair value of the net assets
acquired has been recorded as goodwill of approximately $64.3 million, of which $45.4 million is deductible by
Newmark for tax purposes.
These acquisitions are accounted for using the purchase method of accounting. The results of operations of
these acquisitions have been included in Newmark’s consolidated financial statements subsequent to their respective
dates of acquisition, which in aggregate contributed $13.1 million to Newmark’s revenue for the year ended
December 31, 2017.
(5) Earnings Per Share and Weighted-Average Shares Outstanding
U.S. GAAP guidance—Earnings Per Share provides guidance on the computation and presentation of
earnings per share (“EPS”). Basic EPS excludes dilution and is computed by dividing Net income (loss) available to
common stockholders by the weighted-average number of shares of common stock outstanding and contingent
shares for which all necessary conditions have been satisfied except for the passage of time. Net income (loss) is
allocated to Newmark’s outstanding common stock, FPUs, limited partnership units, Cantor units and BGC units
(see Note 2—Limited Partnership Interests). In addition, in relation to the Newmark OpCo Preferred Investment, the
EPUs issued in June 2018 and September 2018 are entitled to a preferred payable-in-kind dividend which is
recorded as accretion to the carrying amount of the EPUs and is a reduction to Net income available to common
stockholders for the calculation of Newmark’s Basic earnings per share and Fully diluted earnings per share.
152
The following is the calculation of Newmark’s basic EPS (in thousands, except per share data):
Year Ended December 31,
2017
2016
2018
Basic earnings per share:
Net income available to common
stockholders (1)
Basic weighted-average shares of common
stock outstanding
Basic earnings per share
$
101,641 $
144,492 $
168,401
157,256
0.65
133,413
1.08
$
N/A
N/A
1.
In accordance with ASC 260, includes a reduction for dividends on preferred stock or units in the amount of $5.1 million for the
year ended December 31, 2018.
Fully diluted EPS is calculated utilizing Net income available to common stockholders plus net income
allocations to the limited partnership interests in Newmark Holdings as the numerator. The denominator comprises
Newmark’s weighted-average number of outstanding shares of Newmark common stock to the extent the related
units are dilutive and, if dilutive, the weighted-average number of limited partnership interests and other contracts to
issue shares of common stock, stock options and RSUs. The limited partnership interests generally are potentially
exchangeable into shares of Newmark Class A common stock and are entitled to remaining earnings after the
deduction for the Preferred Distribution; as a result, they are included in the fully diluted EPS computation to the
extent that the effect would be dilutive.
The following is the calculation of Newmark’s fully diluted EPS (in thousands, except per share data):
Fully diluted earnings per share
Net income available to common
stockholders
Allocations of net income to limited
partnership interests in Newmark Holdings,
net of tax
Net income for fully diluted shares
$
Weighted-average shares:
Common stock outstanding
Partnership units(2)
Other
Fully diluted weighted-average
shares of common stock
outstanding
Fully diluted earnings per share
Year Ended December 31,
2017 (1)
2018
2016
$
101,641 $
144,492 $
168,401
3,930
105,571
(27,275)
117,217
157,256
5,717
837
133,413
4,725
260
163,810
0.64
$
138,398
0.85
N/A
N/A
N/A
N/A
N/A
N/A
N/A
1
2
Allocations of Net income (loss) to limited partnership interest in Newmark Holdings, net of tax consist solely of losses relating to
the post-IPO period.
Partnership units collectively include founding/working partner units, limited partnership units, and Cantor and BGC units (see
Note 2—Limited Partnership Interests for more information).
For the year ended December 31, 2018, approximately 95.2 million of limited partnership units were
potentially dilutive securities that were excluded from the computation of fully diluted EPS because their effect
would have been anti-dilutive. For the year ended December 31, 2017, there were no potentially dilutive securities
that would have had an anti-dilutive effect.
153
(6) Stock Transactions and Unit Redemptions
Class A Common Stock
As of December 31, 2018, Newmark has two classes of authorized common stock: Class A common stock and
Class B common stock. Each share of Class A common stock is entitled to one vote. Newmark has 1.0 billion
authorized shares of Class A common stock at $0.01 par value per share.
Changes in shares of Newmark’s Class A common stock outstanding for the years ended December 31, 2018
and 2017 were as follows:
Shares outstanding at beginning of period
Share issuances:
Issuance of Class A common stock in
connection with The Separation
Issuance of Class A common stock
for the IPO
Issuance of Class A common stock in
connection with The Spin-Off
LPU redemption/exchange ¹
Other issuances of Class A common stock
Issuance of Class A common stock for
Newmark RSUs
Treasury stock repurchases
Shares outstanding at end of period
Year Ended December 31,
2018
138,593,787
2017
—
— 115,593,787
— 23,000,000
16,292,623
1,709,048
343,135
—
—
—
27,743
(50,000 )
—
—
156,916,336 138,593,787
1.
Because they were included in the Newmark’s fully diluted share count, if dilutive, any exchange of limited partnership interests
into Class A common shares would not impact the fully diluted number of shares and units outstanding.
Class B Common Stock
Each share of Class B common stock is entitled to 10 votes and is convertible at any time into one share of
Class A common stock. Newmark has 500 million authorized shares of Class B common stock at $0.01 par value
per share.
As of December 31, 2017, there were 15.8 million shares of Newmark’s Class B common stock outstanding.
Newmark issued 5.5 million shares of Class B common stock on November 30, 2018. As of December 31, 2018,
there were 21.3 million shares of Newmark’s Class B common stock outstanding.
Share Repurchases
On August 1, 2018, the Newmark board of directors and audit committee authorized repurchases of shares of
our Class A common stock and redemptions or repurchases of limited partnership interests or other equity interests
in our subsidiaries up to $200 million, increased from the $100 million that had been authorized on March 12, 2018.
This authorization includes repurchases of stock or units from executive officers, other employees and partners,
including of BGC and Cantor, as well as other affiliated persons or entities. From time to time, we may actively
continue to repurchase shares and/or redeem units. In December 2018, we repurchased 50,000 shares of Newmark’s
Class A common stock for $0.5 million. As of December 31, 2018, Newmark had approximately $199.5 million
remaining from its share repurchase and unit redemption authorization.
154
The table below represents Newmark’s share repurchase activity for the year ended December 31, 2018:
Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Program
Approximate
Dollar Value
of Units and
Shares That
May Yet Be
Redeemed/
Purchased
Under the Plan
Total
Number of
Shares
Repurchased
Average
Price
Paid
per Unit
or Share
Period
Repurchases ¹
October 1, 2018 - October 31, 2018
November 1, 2018 - November 30, 2018
December 1, 2018 - December 31, 2018
Total Repurchases
— —
—
—
—
—
—
50,000 $ 9.73 50,000
50,000 $ 9.73 50,000 $ 199,513,725
—
—
1. Newmark repurchased approximately 50,000 shares of its Class A common stock at an aggregate purchase price of approximately
$0.5 million for an average price of $9.73 per share.
Redeemable Partnership Interests
The changes in the carrying amount of redeemable partnership interest for the years ended December 31, 2018
and 2017 were as follows (in thousands):
Year Ended December 31,
2018
2017
Balance at beginning of period
$
21,096 $
—
Transfer of IPO capital to redeemable
partnership interests
Income allocation
Distributions of income
FPU redemptions
Issuance
Balance at end of period
$
—
6,779
(2,843 )
(1,101 )
2,239
26,170 $
21,096
—
—
—
—
21,096
(7) Marketable Securities
On June 28, 2013, BGC sold certain assets of its on-the-run business, eSpeed, to Nasdaq. The total
consideration received by BGC in the transaction included an earn-out of up to 14,883,705 shares of Nasdaq
common stock to be paid ratably over 15 years, provided that Nasdaq, as a whole, produces at least $25.0 million in
consolidated gross revenues each year (the “Nasdaq Earn-Out”). The Nasdaq Earn-Out was excluded from the initial
gain on the divestiture and is recognized in income as it is realized and earned when these contingent events have
occurred, consistent with the accounting guidance for gain contingencies. The remaining rights under the Nasdaq
Earn-Out were transferred to Newmark on September 28, 2017. Any Nasdaq shares that were received by BGC prior
to September 28, 2017 were not transferred to Newmark.
155
In connection with the Nasdaq Earn-Out, Newmark received 992,247 shares each during the years ended
December 31, 2018 and 2017, respectively and accordingly, Newmark recognized a gain of $85.1 million and
$77.0 million, respectively, which is included in “Other income, net” in Newmark’s consolidated statements of
operations. Newmark will recognize the remaining Nasdaq Earn-Out of up to 8,930,223 shares of Nasdaq common
stock ratably over the next approximately 9 years, provided that Nasdaq, as a whole, produces at least $25.0 million
in gross revenues each year. For further information, refer to the section titled “Exchangeable Preferred Partnership
Units and Forward Contract” in Note 1 – Organization and Basis of Presentation, see Note 11 – Derivatives and see
Note 25 – Fair Value of Financial Assets and Liabilities.
During the year ended December 31, 2018, Newmark sold 1,142,247 of the Nasdaq shares. In November of
2017, Newmark sold 242,247 shares. As of December 31, 2018, Newmark had 600,000 shares remaining in
connection with the Nasdaq Earn-Out as of December 31, 2018. During the year ended December 31, 2018, the
gross proceeds of the shares sold was $95.9 million. For the year ended December 31, 2018, Newmark recognized a
gain on the sale of these securities of $3.3 million. Newmark also recorded an unrealized loss of $1.2 million on the
mark-to-market of these securities, which is included in “Other income, net” in Newmark’s consolidated statement
of operations. As of December 31, 2018 and 2017, Newmark had $48.9 million and $57.6 million, respectively,
included in “Marketable securities” on its consolidated balance sheet (see Note 19—Securities Loaned).
(8)
Investments
Newmark has a 27% ownership in Real Estate LP, a joint venture with Cantor in which Newmark has the
ability to exert significant influence over the operating and financial policies. Accordingly, Newmark accounts for
this investment under the equity method of accounting. For the years ended December 31, 2018 and 2017, Newmark
recognized $2.7 million and $1.6 million, respectively. These amounts were included in “Other income, net” in its
consolidated statements of operations. Newmark received distributions of $3.0 million for the year ended December
31, 2018. As of December 31, 2018 and 2017, Newmark had $101.3 million and $101.6 million, respectively in an
equity method investment, and is included in “Other assets” in Newmark’s consolidated balance sheets.
Investments Carried Under Measurements Alternatives
Newmark had previously acquired investments for which it does not have the ability to exert significant
influence over operating and financial policies. The investments are generally accounted for using the cost method
of accounting in accordance with U.S. GAAP guidance, Investments—Other. As of December 31, 2017, the carrying
value of the cost method investments was $6.0 million. These investments are included in “Other assets” in
Newmark’s consolidated balance sheets.
Effective January 1, 2018, these investments are accounted for using the measurement alternative in
accordance with the new guidance on recognition and measurement. The carrying value of these investments was
$53.5 million and is included in “Other assets” in Newmark’s consolidated balance sheets as of December 31, 2018.
Newmark recognized a gain of $17.9 million relating to investments carried under the measurement alternative for
the year ended December 31, 2018.
156
(9) Capital and Liquidity Requirements
Newmark is subject to various capital requirements in connection with seller/servicer agreements that
Newmark has entered into with the various GSEs. Failure to maintain minimum capital requirements could result in
Newmark’s inability to originate and service loans for the respective GSEs and could have a direct material adverse
effect on Newmark’s consolidated financial statements. Management believes that, as of December 31, 2018 and
December 31, 2017, Newmark has met all capital requirements. As of December 31, 2018, the most restrictive
capital requirement was Fannie Mae’s net worth requirement. Newmark exceeded the minimum requirement by
$322.3 million.
Certain of Newmark’s agreements with Fannie Mae allow Newmark to originate and service loans under
Fannie Mae’s DUS Program. These agreements require Newmark to maintain sufficient collateral to meet Fannie
Mae’s restricted and operational liquidity requirements based on a pre-established formula. Certain of Newmark’s
agreements with Freddie Mac allow Newmark to service loans under Freddie Mac’s TAH. These agreements require
Newmark to pledge sufficient collateral to meet Freddie Mac’s liquidity requirement of 8% of the outstanding
principal of TAH loans serviced by Newmark. Management believes that, as of December 31, 2018 and 2017,
Newmark has met all liquidity requirements.
In addition, as a servicer for Fannie Mae, GNMA and FHA, Newmark is required to advance to investors any
uncollected principal and interest due from borrowers. As of December 31, 2018 and 2017, outstanding borrower
advances were approximately $0.2 million and $0.1 million, respectively and are included in “Other assets” in
Newmark’s consolidated balance sheets.
(10) Loans Held for Sale, at Fair Value
Loans held for sale, at fair value represent originated loans that are typically financed by short-term warehouse
facilities (see Note 20 – Warehouse facilities collateralized by U.S. Government Sponsored Enterprises) and sold
within 45 days from the date the mortgage loan is funded. Newmark initially and subsequently measures all loans
held for sale at fair value on the accompanying consolidated balance sheets. The fair value measurement falls within
the definition of a Level 2 measurement (significant other observable inputs) within the fair value hierarchy.
Electing to use fair value allows a better offset of the change in the fair value of the loan and the change in fair value
of the derivative instruments used as economic hedges. Loans held for sale had a cost basis and fair value as follows
(in thousands):
December 31, 2018
December 31, 2017
Cost Basis
Fair Value
$ 972,434 $ 990,864
360,440 362,635
As of December 31, 2018 and 2017, all of the loans held for sale were either under commitment to be
purchased by Freddie Mac or had confirmed forward trade commitments for the issuance and purchase of Fannie
Mae or Ginnie Mae mortgage-backed securities that will be secured by the underlying loans. As of December 31,
2018 and 2017, there were no loans held for sale that were 90 days or more past due or in nonaccrual status.
During the period prior to its sale, interest income on a loan held for sale is calculated in accordance with the
terms of the individual loan. Interest income on loans held for sale was $31.6 million, $30.6 million and $21.2
million for the years ended December 31, 2018 , 2017 and 2016, respectively. Interest income on loans held for sale
is included in “Management services, servicing fees and other” in Newmark’s consolidated statements of operations.
Newmark recognized gains of $18.4 million and $2.2 million, and a loss of $2.3 million for the years ended
December 31, 2018, 2017 and 2016, respectively for the change in fair value on loans held for sale. These
gains/losses were included in “Gains from mortgage banking activities/originations, net” in Newmark’s consolidated
statements of operations.
157
(11) Derivatives
Newmark accounts for its derivatives at fair value, and recognized all derivatives as either assets or liabilities
in its consolidated balance sheets. In its normal course of business, Newmark enters into commitments to extend
credit for mortgage loans at a specific rate (rate lock commitments) and commitments to deliver these loans to third-
party investors at a fixed price (forward sale contracts). These transactions are accounted for as derivatives.
The fair value of derivative contracts, computed in accordance with Newmark’s netting policy, is set forth
below (in thousands):
Derivative contract
Forwards
Rate lock commitments
Total
As of December 31, 2018
As of December 31, 2017
Liabilities
Notional
Amounts
Notional
Amounts(1)
Assets
$ 85,796 (1) $ 9,208 $ 1,574,114 (2) $ 3,753 $
657 $ 541,359
6,732 7,470 240,720 2,923 2,390 180,918
$ 92,528 $ 16,678 $ 1,814,834 $ 6,676 $ 3,047 $ 722,277
Liabilities
Assets
1)
2)
Included in Forwards in 2018 is $77.6 million of the RBC Forwards (see Note 1 – Organization and Basis of Presentation) which
includes $19.0 million of unrealized gains for a change in the fair value of the RBC Forwards.
Notional amounts represent the sum of gross long and short derivative contracts, an indication of the volume of Newmark’s
derivative activity, and does not represent anticipated losses. Included in the notional amounts of forwards is $361 million for the
RBC Forwards.
The change in fair value of rate lock commitments and forward sale contracts related to mortgage loans are
reported as part of “Gains from mortgage banking activities, net” in Newmark’s consolidated statements of
operations. The change in fair value of rate lock commitments are disclosed net of $1.7 million, $1.4 million and
$0.7 million of expenses for the years ended December 31, 2018, 2017 and 2016, respectively, which are reported as
part of “Compensation and employee benefits” in Newmark’s consolidated statements of operations.
The table below summarizes gains and losses on derivative contracts which are included in the consolidated
statements of operations for the years ended December 31, 2018, 2017 and 2016 (in thousands):
Location of gain (loss) recognized
in income for derivatives
For the Year Ended December 31,
2017
2016
2018
Derivatives not
designed as hedging
instruments:
RBC Forwards
Rate lock commitments
Rate lock commitments
Forward sale contracts
Gains from mortgage
banking activities, net
Compensation and employee
benefits
Gains from mortgage
banking activities, net
Other income
$
19,002 $
— $
935
1,953
—
284
(1,673 )
(1,420 )
(724 )
$
(1,031 )
17,233 $
3,096
3,629 $
8,101
7,661
Derivative assets and derivative liabilities are included in “Other current assets”, “Other assets” and the
current portion of “Accounts payable, accrued expenses and other liabilities,” in Newmark’s consolidated balance
sheets.
158
(12) Credit Enhancement Receivable, Contingent Liability and Credit Enhancement Deposit
Newmark is a party to a Credit Enhancement Agreement (“CEA”), dated March 9, 2012, with German
American Capital Corporation and Deutsche Bank Americas Holding Corporation (together, the “DB Entities”). On
October 20, 2016, the DB Entities assigned the CEA to Deutsche Bank AG Cayman Island Branch, a Cayman Island
Branch of Deutsche Bank AG (“DB Cayman”). Under the terms of these agreements, DB Cayman provides
Newmark with varying levels of ongoing credit protection, subject to certain limits, for Fannie Mae and Freddie
Mac loans subject to loss sharing (see Note 22—Financial Guarantee Liability) in Newmark’s servicing portfolio as
of March 9, 2012. DB Cayman will also reimburse Newmark for any losses incurred due to violation of
underwriting and serving agreements that occurred prior to March 9, 2012. For the years ended December 31, 2018
and 2017, there were no reimbursements under the CEA.
Credit enhancement receivable
As of December 31, 2018, Newmark had $20.6 billion of credit risk loans in its servicing portfolio with a
maximum pre-credit enhancement loss exposure of $5.8 billion. Newmark had a form of credit protection from DB
Cayman on $230.7 million of credit risk loans with a maximum loss exposure coverage of $76.2 million. The
amount of the maximum loss exposure without any form of credit protection from DB Cayman was $5.7 billion.
As of December 31, 2017, Newmark had $18.8 billion of credit risk loans in its servicing portfolio with a
maximum pre-credit enhancement loss exposure of $5.3 billion. Newmark had a form of credit protection from DB
Cayman on $4.2 billion of credit risk loans with a maximum loss exposure coverage of $1.2 billion. The amount of
the maximum loss exposure without any form of credit protection from DB Cayman was $4.1 billion.
As of December 31, 2018, there was no Credit enhancement receivable. As of December 31, 2017, the Credit
enhancement receivable was $10 thousand and is included in “Other assets” in Newmark’s consolidated balance
sheets.
Credit enhancement deposit
The CEA required the DB Entities to deposit $25 million into Newmark’s Fannie Mae restricted liquidity
account (see Note 9—Capital and Liquidity Requirements), which Newmark is required to return to DB Cayman,
less any outstanding claims, on March 9, 2021. The $25 million deposit is included in “Restricted cash” and the
offsetting liability in “Other long-term liabilities” in Newmark’s consolidated balance sheets.
Contingent liability
Under the CEA, Newmark is required to pay DB Cayman, on March 9, 2021, an amount equal to 50% of the
positive difference, if any, between (a) $25 million, and (b) Newmark’s unreimbursed loss-sharing payments from
March 9, 2012 through March 9, 2021 on Newmark’s servicing portfolio as of March 9, 2012.
Contingent liabilities as of December 31, 2018 and 2017 were $11.1 million and $10.7 million, respectively
and are included in “Other liabilities” in Newmark’s consolidated balance sheets.
159
(13) Revenues from Contracts with Customers
The following table presents Newmark’s total revenues separately for its revenues from contracts with
customers and our other sources of revenues (in thousands):
Revenues from contracts with customers:
Leasing and other commissions
Capital markets
Management services
Revenues
Other sources of revenue:
Gains from mortgage banking activities/
originations, net(1)
Servicing fees and other(1)
Revenues
Year Ended
December 31,
2018
$
817,435
468,904
414,447
1,700,786
182,264
164,529
2,047,579
$
(1)
Although these items have customers under contract, they were recorded as other sources of revenue as they were excluded from
the scope of ASU No. 2014-09.
The tables below present the impact to Newmark’s consolidated balance sheets and consolidated statement of
operations as a result of applying the new revenue recognition standard, as codified within ASC 606 (in thousands):
Statement of Operations
Revenues:
Leasing and other commissions
Management services
Total Revenues
Expenses:
Compensation and employee benefits
Operating, administrative and other
Total Expenses
Assets:
Receivables, net
Liabilities:
Accrued Compensation
Current portion of accounts payable, accrued expenses
and other liabilities
Year Ended
December 31,
2018(1)
$
$
$
$
$
$
29,581
86,157
115,738
14,929
86,157
101,086
Year Ended
December 31,
2018(1)
103,547
46,681
23,409
(1)
The amounts reflect each affected financial statement line item as they would have been reported under U.S. GAAP, prior to the
adoption of the new revenue standard.
160
Revenue from contracts with customers is recognized when, or as, Newmark satisfies its performance
obligations by transferring the promised goods or services to the customers as determined by when, or as, the
customer obtains control of that good or service. A performance obligation may be satisfied over time or at a point
in time. Revenue from a performance obligation satisfied over time is recognized by measuring Newmark’s progress
in satisfying the performance obligation as evidenced by the transfer of the goods or services to the customer.
Revenue from a performance obligation satisfied at a point in time is recognized at the point in time when the
customer obtains control over the promised good or service. The amount of revenue recognized reflects the
consideration Newmark expects to be entitled to in exchange for those promised goods or services (i.e., the
“transaction price”). In determining the transaction price, Newmark must consider consideration promised in a
contract that includes a variable amount, referred to as variable consideration, and estimate the amount of
consideration due to Newmark. Additionally, variable consideration is included in the transaction price only to the
extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. In
determining when to include variable consideration in the transaction price, Newmark considers all information
(historical, current and forecast) that is available including the range of possible outcomes, the predictive value of
past experiences, the time period of when uncertainties expect to be resolved and the amount of consideration that is
susceptible to factors outside of Newmark’s influence, such as market volatility or the judgment and actions of third
parties.
Newmark also uses third-party service providers in the provision of its services to customers. In instances
where a third-party service provider is used, Newmark performs an analysis to determine whether Newmark is
acting as a principal or an agent with respect to the services provided. To the extent that Newmark determines that it
is acting as a principal, the revenue and the expenses incurred are recorded on a gross basis. In instances where
Newmark has determined that it is acting as an agent, the revenue and expenses are presented on a net basis within
the revenue line item.
In some instances, Newmark performs services for customers and incurs out-of-pocket expenses as part of
delivering those services (such as travel, meals and lodging). Newmark’s customers agree to reimburse Newmark
for those expenses, and those reimbursements are part of the contract’s transaction price. Consequently, these
expenses and the reimbursements of such expenses from the customer are presented on a gross basis because the
services giving rise to the out-of-pocket expenses do not transfer a good or service. The reimbursements are
included in the transaction price when the costs are incurred and the reimbursements are due from the customer.
The following provides detailed information on the recognition of Newmark’s revenues from contracts with
customers:
Leasing and other commissions. Newmark offers a diverse range of commercial real estate brokerage and
advisory services, including tenant and agency representation. Newmark’s performance obligation is to match a
qualified tenant with available landlord property. Commissions from real estate brokerage transactions are typically
recognized at a point in time on the date the lease is signed. The date the lease is signed represents the transfer of
control and satisfaction of all constraints and performance obligation as the tenant has been secured. The
commission fees are either a fixed or variable based on a percentage of the aggregate rental fee payable over the
lease term. Commission payments may be due entirely upon lease execution or may be paid in installments upon the
resolution of a future contingency. In those cases, Newmark does not provide any further services after the first
contingency has been met. Therefore, the performance obligation of securing a tenant has been fulfilled upon
reaching the first contingency. Newmark records a receivable for future installments of the commission revenue
subject to any constraints that may exist in instances where the commission is considered variable consideration.
Capital markets. Newmark provides investment sales and mortgage brokerage services to property owners to
identify qualified purchasers or debt placement for an owner’s property in exchange for a commission. Newmark is
compensated for its services of finding a qualified purchaser or lender for the owner’s property, the one performance
obligation, as evidenced by the closing of the sale of the property. In some cases, the consideration is payable in
separate installments upon reaching two separate contingencies, such as the closing of a construction loan and the
subsequent consummation of the sale of the property. In those cases, Newmark does not provide any further services
after the first contingency has been met. The transfer of control and satisfaction of the performance obligation
occurs when Newmark obtains a qualified purchaser or lender, as evidenced by the closing of the sale of or loans to
the property. Therefore, revenue is recognized at a point in time. Commission fees may be fixed or variable based on
161
a percentage of the transaction amount. Commission payments may be due entirely upon closing, either through
escrow or upon recordation of the deed. Consideration is variable if the payment is contingent on an event that may
or may not occur after Newmark has satisfied its performance obligation. For example, if Newmark’s obligations are
fulfilled upon execution of a purchase and sale agreement, but the commission is not payable until closing of the
transaction, there would exist an element of variable consideration. In those instances, Newmark assesses whether
the amount of variable consideration is constrained and, if so, the source of the uncertainty and expected resolution
of that uncertainty. Accordingly, the variable consideration adjusted for any constraints, if any, should be recognized
upon the sale of the property.
Management services, servicing fees and other. In this business, Newmark provides property and facilities
management services along with project management, appraisal services and other consulting services (collectively,
“management services”), to customers who may also utilize Newmark’s commercial real estate brokerage services.
As previously noted, servicing fees are not within the scope of the new revenue standard and a description of these
services can be found in Note 3 – Summary of Significant Accounting Policies.
Each type of management service (property, facility and project) generally represents a single performance
obligation composed of a series of distinct services that are substantially the same and have the same pattern of
transfer. Each task is an activity to fulfill the management service and are not separate promises that are distinct in
the context of the contract. To meet the same pattern of transfer criterion, Newmark determined each distinct day of
service represents a performance obligation that would be satisfied over time and has the same measure of progress.
The customer simultaneously receives and consumes the benefits provided by Newmark’s performance as Newmark
performs. Therefore, revenue is recognized over time using a time-elapsed method to measure progress.
Consideration received may be fixed or variable. Fixed consideration is included in the transaction price
whereas variable consideration is subject to the revenue constraint and included in the transaction price only to the
extent it is probable a significant reversal in the amount of cumulative revenue recognized will not occur in the
future. For example, management fees subject to key performance indicators for an annual period are considered
variable consideration due to the future contingency that performance indicators would not be met and Newmark
would be required to return a portion of management fees already received. Accordingly, the entire transaction price,
including the element of variable consideration adjusted for any constraints, is recognized over the term of the
contracts. In some cases, Newmark has determined that it has a right to consideration from a customer in an amount
that corresponds directly with the value to the customer of Newmark’s performance completed to date (for example,
a service contract in which Newmark bills a fixed amount for each hour of service provided). Newmark has elected
to use the practical expedient whereby an entity may recognize revenue in the amount to which the entity has a right
to invoice.
In some instances, because project management services can cover many different types of projects and even
include phases for a single project that vary in the services delivered, the performance obligation is the completion
of a deliverable. In those instances, the satisfaction of the performance obligation occurs at a point in time (upon
completion of the deliverable when the customer obtains control). Generally, the fee is due upon completion and
delivery and, accordingly, is recognized at that time.
For management and facility service contracts, the owner of the property will typically reimburse Newmark
for certain expenses that are incurred on behalf of the owner, which comprise primarily on-site employee salaries
and related benefit costs. The reimbursement amounts are recognized as revenue in the same period as the related
expenses are incurred. In certain instances, Newmark subcontracts property management services to independent
property managers, in which case Newmark passes a portion of its property management fee on to the subcontractor,
and Newmark retains the balance. Accordingly, Newmark records these fees gross of the amounts paid to
subcontractors, and the amounts paid to subcontractors are recognized as expenses in the same period.
162
Newmark incurs expenses on behalf of customers for certain management services subject to reimbursement.
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. For these service contracts, Newmark presents expenses incurred on behalf of
customers along with corresponding reimbursement revenue on a gross basis in Newmark’s consolidated statement
of operations.
Disaggregation of Revenue
Newmark’s chief operating decision maker regardless of geographic location evaluates the operating results of
Newmark as total real estate. See Note 3— Summary of Significant Accounting Policies for further discussion.
Contract Balances
The timing of Newmark’s revenue recognition may differ from the timing of payment by its customers.
Newmark records a receivable when revenue is recognized prior to payment and Newmark has an unconditional
right to payment. Alternatively, when payment precedes the provision of the related services, Newmark records
deferred revenue until the performance obligations are satisfied.
Newmark’s deferred revenue primarily relates to customers paying in advance or billed in advance where the
performance obligation has not yet been satisfied. Deferred revenue at December 31, 2018 and January 1, 2018 was
$4.2 million and $4.6 million, respectively. During the year ended December 31, 2018, Newmark recognized
revenue of $3.2 million that was recorded as deferred revenue at the beginning of the period.
Contract Costs
Newmark capitalizes costs to fulfill contracts associated with different lines of its business where the revenue
is recognized at a point in time and the costs are determined to be recoverable. Capitalized costs to fulfill a contract
are recognized at the point in time that the related revenue is recognized.
At December 31, 2018, there were $2.3 million of capitalized costs recorded to fulfill a contract.
(14) Gains from Mortgage Banking Activities/Originations, Net
Gains from mortgage banking activities/originations, net consists of the following activity (in thousands):
Loan originations related fees and sales
premiums, net
Fair value of expected net future cash flows
from servicing recognized at commitment,
net
Gains from mortgage banking
activities/originations, net
For the Years Ended December 31,
2016
2017
2018
$ 79,062
$ 85,030 $ 69,026
103,202
120,970 124,361
$ 182,264
$ 206,000 $ 193,387
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(15) Mortgage Servicing Rights, Net (MSR)
The changes in the carrying amount of mortgage servicing rights for the years ended December 31, 2018 and
2017 is as follows (in thousands):
Mortgage Servicing Rights
Beginning Balance
Additions
Purchases from an affiliate
Purchases from third parties
Amortization
Ending Balance
Valuation Allowance
Beginning Balance
Decrease
Ending Balance
Net balance
For the Year Ended December 31,
2016
2017
2018
$ 399,349 $ 347,558 $ 271,849
95,284 123,902 126,547
3,905
3,107
—
3,771
(58,514 )
(81,609 )
$ 416,131 $ 399,349 $ 347,558
2,055
—
(74,166 )
$
(6,723 ) $
2,401
(4,322 ) $
(7,936 )
194
(7,742 )
$
$ 411,809 $ 392,626 $ 339,816
(7,742 ) $
1,019
(6,723 ) $
Servicing fees are included in “Management services, servicing fees and other” in Newmark’s consolidated
statements of operations and are as follows (in thousands):
Servicing fees
Escrow interest and placement fees
Ancillary fees
Total servicing fees and escrow interest
For the Year Ended December 31,
2016
2017
2018
$ 103,365 $ 95,373 $ 78,527
3,771
5,373
$ 131,776 $ 110,441 $ 87,671
18,293
10,118
9,328
5,740
Newmark’s primary servicing portfolio at December 31, 2018 and 2017 was approximately $57.1 billion and
$54.2 billion, respectively. Also, Newmark is the named special servicer for a number of commercial mortgage
backed securitizations. Upon certain specified events (such as, but not limited to, loan defaults and loans
assumptions), the administration of the loan is transferred to Newmark. Newmark’s special servicing portfolio at
December 31, 2018 and 2017 was $2.9 billion and $3.8 billion, respectively.
The estimated fair value of the MSRs at December 31, 2018 and 2017 was $451.9 million and $418.1 million,
respectively.
Fair values are estimated using a valuation model that calculates the present value of the future net servicing
cash flows. The cash flows assumptions used are based on assumptions Newmark believes market participants
would use to value the portfolio. Significant assumptions include estimates of the cost of servicing per loan, discount
rate, earnings rate on escrow deposits and prepayment speeds. The discount rates used in measuring fair value for
the years ended December 31, 2018 and 2017 were between 3.0% and 13.5% and varied based on investor type. An
increase in discount rate of 100 bps or 200 bps would result in a decrease in fair value by $12.4 million and
$24.4 million, respectively, at December 31, 2018. An increase in discount rate of 100 bps or 200 bps would result
in a decrease in fair value by $11.8 million and $23.0 million, respectively, at December 31, 2017.
164
(16) Goodwill and Other Intangible Assets, Net of Accumulated Amortization
The changes in the carrying amount of goodwill for the years ended December 31, 2018 and 2017 were as
follows (in thousands):
Balance at December 31, 2016
Acquisitions
Measurement period adjustments
Balance at December 31, 2017
Acquisitions
Measurement period adjustments
Balance at December 31, 2018
$
$
412,846
64,291
395
477,532
40,157
(2,368 )
515,321
During the year ended December 31, 2018, Newmark recognized measurement period adjustments of
approximately $(2.4) million. Newmark had additions to goodwill in the amount of $40.2 million as a result of
acquisitions for the year ended December 31, 2018. During the year ended December 31, 2017, Newmark
recognized additional goodwill and measurement period adjustments of approximately $64.3 million and $0.4
million, respectively (see Note 4—Acquisitions for more information).
Goodwill is not amortized and is reviewed annually for impairment or more frequently if impairment
indicators arise, in accordance with U.S. GAAP guidance on Goodwill and Other Intangible Assets. Newmark
completed its annual goodwill impairment testing during the fourth quarter of 2018, which did not result in any
goodwill impairment.
Other intangible assets consisted of the following at December 31, 2018 and 2017 (in thousands, except
weighted average life):
Indefinite life:
Trademark and trade names
License agreements (GSE)
Definite life:
Trademark and trade names
Non-contractual customers
License agreements
Non-compete agreements
Contractual customers
Below market leases
December 31, 2018
Gross
Amount
Accumulated
Amortization
Net
Carrying
Amount
Weighted-
Average
Remaining
Life (Years)
$
11,350 $
5,390
— $
—
11,350
5,390
N/A
N/A
9,316
11,323
4,981
6,267
1,452
941
51,020 $
(6,706 )
(3,890 )
(2,292 )
(1,469 )
(849 )
(45 )
(15,251 ) $
2,610
7,433
2,689
4,798
603
896
35,769
$
0.5
1.8
0.4
1.4
0.1
0.5
4.7
165
Indefinite life:
Trademark and trade names
License agreements (GSE)
Definite life:
Trademark and trade names
Non-contractual customers
License agreements
Non-compete agreements
Contractual customers
Below market leases
December 31, 2017
Gross
Amount
Accumulated
Amortization
Net
Carrying
Amount
Weighted-
Average
Remaining
Life (Years)
$
4,400 $
5,390
— $
—
4,400
5,390
N/A
N/A
7,061
7,950
4,981
3,606
1,452
15
34,855 $
(6,030 )
(1,495 )
(1,298 )
(496 )
(602 )
(13 )
(9,934 ) $
1,031
6,455
3,683
3,110
850
2
24,921
$
0.2
2.5
0.9
1.2
0.2
—
5.0
Intangible amortization expense for the years ended December 31, 2018 and 2017 was $5.6 million and
$11.1 million, respectively. Intangible amortization is included as a part of “Depreciation and amortization” in
Newmark’s consolidated statements of operations. Included in intangible amortization for the year ended
December 31, 2017 is an impairment charge of $6.3 million related to the impairment of the Grubb tradename. The
impairment resulted from Newmark no longer doing business as Newmark Grubb Knight Frank.
The estimated future amortization of definite life intangible assets as of December 31, 2018 was as follows (in
thousands):
2019
2020
2021
2022
2023 and thereafter
Total
$
$
5,086
4,823
3,814
1,908
3,398
19,029
(17) Fixed Assets, Net
Fixed assets, net consisted of the following (in thousands):
Leasehold improvements and other fixed assets
Software, including software development costs
Computer and communications equipment
Accumulated depreciation and amortization
$
December 31,
2018
99,207 $
21,417
16,605
137,229
(58,424 )
78,805 $
December 31,
2017
77,313
17,395
15,878
110,586
(45,764 )
64,822
$
Depreciation expense for the years ended December 31, 2018, 2017 and 2016 was $13.7 million,
$12.2 million and $9.9 million, respectively. Depreciation expense is included as a part of “Depreciation and
amortization” in Newmark’s consolidated statement of operations.
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For the years ended December 31, 2018 and 2017, $2.4 million and $1.1 million of software development
costs were capitalized, respectively. Amortization of software development costs totaled $0.9 million, $0.4 million
and $0.9 million for the years ended December 31, 2018, 2017 and 2016, respectively. Amortization of software
development costs is included as part of “Depreciation and amortization” in Newmark’s consolidated statements of
operations.
(18) Other Assets
Other current assets consisted of the following (in thousands):
Prepaid expenses
Derivative assets
Prepaid taxes
Rent and other deposits
Other
As of December 31,
2017
2018
12,708
15,570 $
6,676
30,796
—
9,992
1,479
1,192
189
131
20,994
57,739 $
$
$
Non-current other assets consisted of the following (in thousands):
Equity method investment
Deferred tax assets(1)
Cost method investments
Derivative assets related to the RBC Forward
Other
As of December 31,
2017
2018
$ 101,275 $ 101,562
149,938 168,594
6,005
—
2,299
$ 369,867 $ 278,460
53,470
61,732
3,452
(1)
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to basis differences between the
carrying amounts of existing assets and liabilities and their respective tax basis. Accordingly, a deferred tax asset of
$108.6 million has been contributed to Newmark for the year ended December 31, 2017 for the basis difference between BPF’s
net assets and its tax basis.
(19) Securities Loaned
As of December 31, 2018, Newmark no longer has securities loaned transactions with Cantor. As of
December 31, 2017, Newmark had securities loaned transactions of $57.6 million with Cantor. The market value of
the securities lent was $57.6 million. As of December 31, 2017, the cash collateral received from Cantor bore
interest rates ranging from 3.1% to 3.25%. Securities loaned transactions are included in “Securities loaned” in
Newmark’s consolidated balance sheets (see Note 7 – Marketable Securities).
(20) Warehouse Facilities Collateralized by U.S. Government Sponsored Enterprises
Newmark uses its warehouse facilities and repurchase agreements to fund mortgage loans originated under its
various lending programs. Outstanding borrowings against these lines are collateralized by an assignment of the
underlying mortgages and third-party purchase commitments and are recourse only to Berkeley Point Capital, LLC.
167
As of December 31, 2018, Newmark had the following lines available and borrowings outstanding (in
thousands):
Warehouse facility due June 20, 2019
Warehouse facility due September 25, 2019
Warehouse facility due October 10, 2019(1)
Fannie Mae repurchase agreement, open maturity
Uncommitted
Lines
Committed
Lines
$ 450,000 $
200,000
1,000,000
Balance at
December 31,
2018
— $ 413,063
— 113,452
— 416,373
— 325,000
29,499
$ 1,650,000 $ 325,000 $ 972,387
Stated Spread
to One Month
LIBOR
Rate Type
120 bps Variable
120 bps Variable
120 bps Variable
115 bps Variable
(1)
The warehouse facility was temporarily increased by $700.0 million to $1.0 billion for the period of November 30, 2018 to
January 29, 2019. On January 29, 2019, the temporary increase was decreased by $400 million to $300 million for the period
January 29, 2019 to April 1, 2019.
As of December 31, 2017, Newmark had the following lines available and borrowings outstanding (in
thousands):
Warehouse facility due June 20, 2018
Warehouse facility due September 25, 2018
Warehouse facility due October 11, 2018
Fannie Mae repurchase agreement, open maturity
Uncommitted
Lines
Committed
Lines
$ 450,000 $
200,000
300,000
Balance at
December 31,
2017
— $
60,715
— 107,383
— 174,102
18,240
$ 950,000 $ 325,000 $ 360,440
— 325,000
Stated Spread
to One Month
LIBOR
Rate Type
130 bps Variable
130 bps Variable
130 bps Variable
120 bps Variable
Newmark is required to meet a number of financial covenants. Newmark was in compliance with all
covenants on December 31, 2018 and December 31, 2017 and for the years ended December 31, 2018, 2017 and
2016.
The borrowing rates on the warehouse facilities are based on short-term London Interbank Offered Rate
(LIBOR) plus applicable margins. Due to the short-term maturity of these instruments, the carrying amounts
approximate fair value.
(21) Long-Term Debt and Long-Term Debt Payable to Related Parties
Long-term debt and long-term debt payable to related parties consisted of the following (in thousands):
6.125% Senior Notes
Converted Term Loan
Term Loan
Long-term debt
2019 Promissory Note
2042 Promissory Note
Total long-term debt
As of December 31,
2018
2017
$ 537,926 $
—
— 400,000
— 270,710
537,926 670,710
— 300,000
— 112,500
$ 537,926 $ 1,083,210
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6.125% Senior Notes
On November 6, 2018, Newmark closed its offering of $550.0 million aggregate principal amount of 6.125%
Senior Notes due 2023. (the “6.125% Senior Notes”). The 6.125% Senior Notes were priced at 98.937% to yield
6.375%. The 6.125% Senior Notes, which were priced on November 1, 2018, were offered and sold by Newmark in
a private offering exempt from the registration requirements under the Securities Act of 1933, as amended. The
6.125% Senior Notes bear an interest rate of 6.125% per annum, payable on each May 15 and November 15,
beginning on May 15, 2019, and will mature on November 15, 2023. The initial carrying amount of the 6.125%
Senior Notes was $537.6 million, net of debt issue costs of $6.6 million and net of debt discount of $5.8 million.
Newmark uses the effective interest rate method to amortize the debt discount over the life of the loan. Newmark
amortized $0.2 million of debt discount for the year ended December 31, 2018. Newmark uses the straight-line
method to amortize these debt issue costs over the life of the loan. Newmark amortized $0.2 million for the year
ended December 31, 2018. Newmark recorded interest expense related to the 6.125% Senior Notes of $5.5 million
for the year ended December 31, 2018.
Credit Facility
On November 28, 2018, Newmark entered into a credit agreement by and among Newmark, the several
financial institutions from time to time party thereto, as Lenders, and Bank of America N.A., as administrative
agent, the Credit Agreement. The Credit Agreement provides for a $250.0 million three-year unsecured senior
revolving credit facility, the Credit Facility. As of December 31, 2018, there were no borrowings outstanding under
the new credit agreement. Borrowings under the Credit Facility will bear an annual interest equal to, at Newmark’s
option, either (a) LIBOR for specified periods, or upon the consent of all Lenders, such other period that is 12
months or less, plus an applicable margin, or (b) a base rate equal to the greatest of (i) the federal funds rate plus
0.5%, (ii) the prime rate as established by the administrative agent, and (iii) one-month LIBOR plus 1.0%. The
applicable margin is 200 basis points with respect to LIBOR borrowings in (a) above and can range from 0.25% to
1.25%, depending upon Newmark’s credit rating. The Credit Facility also provides for an unused facility fee.
Term Loan
On September 8, 2017, BGC entered into a committed unsecured senior term loan credit agreement with Bank
of America, N.A., as administrative agent, and a syndicate of lenders. The term loan credit agreement provides for
loans of up to $575.0 million. The maturity date of the agreement is September 8, 2019. Borrowings under the Term
Loan bore interest at either LIBOR or a defined base rate plus an additional margin which ranged from 50 basis
points to 325 basis points depending on BGC’s debt rating as determined by S&P and Fitch and whether such loan
was a LIBOR loan or a base rate loan. Since there were amounts outstanding under the term loan facility as of
December 31, 2017, the pricing increased by 50 basis points. On November 22, 2017, BGC and Newmark entered
into an amendment to the unsecured senior term loan credit agreement. Pursuant to the term loan amendment and
effective as of December 13, 2017, Newmark assumed the obligations of BGC as borrower under the Term Loan.
The Term Loan is also subject to mandatory prepayment from 100% of net cash proceeds of all material asset sales
and debt and equity issuances (subject to certain customary exceptions, including sales under the BGC’s CEO sales
program). The net proceeds from the IPO were used to partially repay $304.3 million of the Term Loan. During the
year ended December 31, 2018, Newmark repaid the outstanding balance of $270.7 million on the Term Loan, at
which point the facility was terminated. Newmark recorded interest expense related to the Term Loan of $2.6
million and $0.7 million for the years ended December 31, 2018 and 2017, respectively. During the year ended
December 31, 2018 and prior to November 30, 2018, the Term Loan was repaid in full.
Converted Term Loan
On September 8, 2017, BGC entered into a committed unsecured senior revolving credit agreement with Bank
of America, N.A., as administrative agent, and a syndicate of lenders. The revolving credit agreement provides for
revolving loans of up to $400.0 million. The maturity date of the facility was September 8, 2019. Borrowings under
the Converted Term Loan bore interest at either LIBOR or a defined base rate plus an additional margin, which
ranged from 50 basis points to 325 basis points depending on BGC’s debt rating as determined by S&P and Fitch
and whether such loan was a LIBOR loan or a base rate loan. Since there were amounts outstanding under the Term
Loan facility as of December 31, 2017, the pricing increased by 50 basis points. The Term Loan was paid in full on
March 9, 2018. Since the Term Loan was repaid in full, the pricing of the Converted Term Loan returned to the
169
levels previously described. On November 22, 2017, BGC and Newmark entered into an amendment to the
unsecured senior revolving credit agreement. Pursuant to the amendment, the then-outstanding borrowings of BGC
under the revolving credit facility were converted into a term loan. There was no change in the maturity date or
interest rate. As of December 13, 2017, Newmark assumed the obligations of BGC as borrower under the Converted
Term Loan. On June 19, 2018, Newmark repaid $152.9 million, and on September 26, 2018, Newmark repaid
$113.2 million of the Converted Term Loan using proceeds from the Newmark OpCo Preferred Investment. On
November 6, 2018, Newmark repaid the remaining $134.0 million outstanding principal amount of the Converted
Term Loan using the proceeds from the sale of its 6.125% Senior Notes. Therefore, there were no borrowings
outstanding as of December 31, 2018. Newmark recorded interest expense related to the Converted Term Loan of
$12.9 million and $0.7 million for the years ended December 31, 2018 and 2017. As of December 31, 2018, and
prior to the Spin-Off, the outstanding amount under the Converted Term Loan was repaid in full.
As of December 31, 2017, the carrying value of the Converted Term Loan and Term Loan approximated the
fair value.
2019 Promissory Note and 2042 Promissory Note
On December 13, 2017, in connection with the Separation, Newmark assumed from BGC an aggregate of
$300.0 million principal amount of its 2019 Promissory Note due December 9, 2019 and $112.5 million principal
amount of its 2042 Promissory Note due June 26, 2042. On September 4, 2018, Newmark OpCo borrowed $112.5
million from BGC pursuant to the Intercompany Credit Agreement which loan bore interest at an annual rate equal
to 6.5%. Newmark OpCo used the proceeds of the Intercompany Credit Agreement loan to repay the $112.5 million
of the 2042 Promissory Note. The 2019 Promissory Note bore interest at 5.375% and the 2042 Promissory Note
bore interest at 8.125%. Newmark repaid the $300 million outstanding principal amount under the 2019 Promissory
Note on November 23, 2018. Upon repayment of the 2019 Promissory Note, Newmark no longer has debt
obligations owed to BGC. In connection with the repayment of the 2019 Promissory Note, Newmark incurred a
prepayment penalty of $7.0 million.
The 2019 and 2042 Promissory Notes are recorded at amortized cost. As of December 31, 2017, the carrying
amounts and estimated fair values of the 2019 and the 2042 Promissory Notes were as follows (in thousands):
2019 Promissory Note
2042 Promissory Note
December 31, 2017
Fair
Value
Carrying
Amount
$ 300,000 $ 313,125
112,500 116,550
$ 412,500 $ 429,675
The fair value of the 2042 Promissory Note was determined using observable market prices as the 8.125%
BGC Senior Notes were considered Level 1 within the fair value hierarchy as they were deemed to be actively
traded and the 2019 Promissory Note are considered Level 2 within the fair value hierarchy.
For the year ended December 31, 2018, Newmark recorded interest expense on its 2019 Promissory Note and
2042 Promissory Note in the amount of $22.3 million and $6.3 million, respectively. These Senior Notes are
included in “Long-term debt payable to related parties” on Newmark’s consolidated balance sheets as of December
31, 2017.
170
(22) Financial Guarantee Liability
Newmark shares risk of loss for loans originated under the Fannie Mae DUS and Freddie TAH programs and
could incur losses in the event of defaults under or foreclosure of these loans. Under the guarantee, Newmark’s
maximum contingent liability to the extent of actual losses incurred is approximately 33% of the outstanding
principal balance on Fannie Mae DUS or Freddie TAH loans. Risk sharing percentages are established on a loan-by-
loan basis when originated, with most loans at 33% and “modified” loans at lower percentages. Under certain
circumstances, risk sharing percentages can be revised subsequent to origination or Newmark could be required to
repurchase the loan. In the event of a loss resulting from a catastrophic event that is not required to be covered by
borrowers’ insurance policies, Newmark can recover the loss under its mortgage impairment insurance policy. Any
potential recovery is subject to the policy’s deductibles and limits.
At December 31, 2018, the credit risk loans being serviced by Newmark on behalf of Fannie Mae and Freddie
Mac had outstanding principal balances of approximately $20.6 billion with a maximum potential loss of
approximately $5.8 billion, of which $0.1 billion is covered by the Credit Enhancement Agreement (see Note 12—
Credit Enhancement Receivable, Contingent Liability and Credit Enhancement Deposit).
At December 31, 2017, the credit risk loans being serviced by Newmark on behalf of Fannie Mae and Freddie
Mac had outstanding principal balances of approximately $18.8 billion with a maximum potential loss of
approximately $5.3 billion, of which $1.2 billion is covered by the Credit Enhancement Agreement (see Note 12—
Credit Enhancement Receivable, Contingent Liability and Credit Enhancement Deposit).
For the years ended December 31, 2018 and 2017, changes on the estimated liability under the guarantee
liability were as follows:
Financial guarantee liability (in thousands)
Balance at December 31, 2016
Reversal of provision
Balance at December 31, 2017
Reversal of provision
Balance at December 31, 2018
$
$
(413 )
359
(54 )
22
(32 )
In order to monitor and mitigate potential losses, Newmark uses an internally developed loan rating scorecard
for determining which loans meet Newmark’s criteria to be placed on a watch list. Newmark also calculates default
probabilities based on internal ratings and expected losses on a loan-by-loan basis. This methodology uses a number
of factors including, but not limited to, debt service coverage ratios, collateral valuation, the condition of the
underlying assets, borrower strength and market conditions.
See Note 12—Credit Enhancement Receivable, Contingent Liability and Credit Enhancement Deposit for
further explanation of credit protection provided by DB Cayman. The provisions for risk sharing are included in
“Operating, administrative and other” in Newmark’s consolidated statements of operations as follows (in
thousands):
Increase (decrease) to financial
guarantee liability
Decrease (increase) to credit
enhancement asset
Increase to contingent liability
Total expense
For the Years Ended December 31,
2016
2017
2018
$
(22 ) $
(359 ) $
125
10
—
(12 ) $
147
6
(206 ) $
101
5
231
$
171
(23) Concentrations of Credit Risk
The lending activities of Newmark create credit risk in the event that counterparties do not fulfill their
contractual payment obligations. In particular, Newmark is exposed to credit risk related to the Fannie Mae DUS
and Freddie Mac TAH loans (see Note 22—Financial Guarantee Liability). As of December 31, 2018, 25% and 16%
of $5.8 billion of the maximum loss (see Note 22—Financial Guarantee Liability) was for properties located in
California and Texas, respectively. As of December 31, 2017, 26% and 15% of $5.3 billion of the maximum loss
(see Note 22—Financial Guarantee Liability) was for properties located in California and Texas, respectively.
(24) Escrow and Custodial Funds
In conjunction with the servicing of multifamily and commercial loans, Newmark holds escrow and other
custodial funds. Escrow funds are held at unaffiliated financial institutions generally in the form of cash and cash
equivalents. These funds amounted to approximately $1.3 billion and $0.8 billion, as of December 31, 2018 and
2017, respectively. These funds are held for the benefit of Newmark’s borrowers and are segregated in custodial
bank accounts. These amounts are excluded from the assets and liabilities of Newmark.
(25) Fair Value of Financial Assets and Liabilities
U.S. GAAP guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used
to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for
identical assets liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3
measurements). The three levels of the fair value hierarchy are as follows:
(cid:120) Level 1 measurements—Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or liabilities.
(cid:120) Level 2 measurements—Quoted prices in markets that are not active or financial instruments for which all
significant inputs are observable, either directly or indirectly.
(cid:120) Level 3 measurements—Prices or valuations that require inputs that are both significant to the fair value
measurement and unobservable.
As required by U.S. GAAP guidance, assets and liabilities are classified in their entirety based on the lowest
level of input that is significant to the fair value measurement. The following table sets forth by level within the fair
value hierarchy financial assets and liabilities accounted for at fair value under U.S. GAAP guidance at
December 31, 2018 and 2017 (in thousands):
As of December 31, 2018
Level 1
Level 2
Level 3
Total
Assets:
Marketable securities
RBC Forwards
Loans held for sale, at fair value
Rate lock commitments
Forwards
Total assets
Liabilities:
— $
77,619
— $
$ 48,942 $
48,942
—
—
77,619
— 990,864
— 990,864
—
—
6,732
—
—
8,177
$ 48,942 $ 990,864 $ 92,528 $ 1,132,334
6,732
8,177
Accounts payable, accrued expenses and other
liabilities—contingent consideration
Rate lock commitments
Forwards
Total Liabilities
$
$
— $
—
—
— $
— $ 32,552 $
—
7,470
—
9,208
— $ 49,230 $
32,552
7,470
9,208
49,230
172
Assets:
Marketable securities
Loans held for sale, at fair value
Rate lock commitments
Forwards
Total assets
Liabilities:
Level 1
As of December 31, 2017
Level 3
Level 2
Total
$ 57,623 $
— $
— 362,635
—
—
—
—
$ 57,623 $ 362,635 $
— $ 57,623
— 362,635
2,923
2,923
3,753
3,753
6,676 $ 426,934
Accounts payable, accrued expenses and other
liabilities—contingent consideration
Rate lock commitments
Forwards
Total Liabilities
$
$
— $
—
—
— $
— $ 23,711 $ 23,711
—
2,390
2,390
—
657
657
— $ 26,758 $ 26,758
There were no transfers among level 1, 2 and level 3 for the years ended December 31, 2018 and 2017.
Level 3 Financial Assets and Liabilities: Changes in Level 3 RBC Forwards, rate lock commitments,
forwards and contingent consideration measured at fair value on recurring basis for the year ended December 31,
2018 were as follows (in thousands):
As of December 31, 2018
Total realized
and unrealized
gains (losses)
included in
Net income(1)
Opening
Balance
Issuances
Settlements
Closing
Balance
Unrealized
gains (losses)
outstanding
as of
December 31,
2018
$
$
2,923 $
3,753
—
6,676 $
6,732 $
8,177
19,002
33,911 $
- $
—
58,617
58,617 $
(2,923 ) $
(3,753 )
—
(6,676 ) $
6,732 $
8,177
77,619
92,528 $
6,732
8,177
(19,002 )
(4,093 )
Total realized
and unrealized
(gains) losses
included in
Net income(1)
Opening
Balance
Issuances
Settlements
Closing
Balance
Unrealized
(gains) losses
outstanding
as of
December 31,
2018
$
$
23,711
2,390
657
26,758
$
$
700
7,470
9,208
17,378
$
$
12,616
—
—
12,616
$
$
(4,475 ) $
(2,390 )
(657 )
(7,522 ) $
$
32,552
7,470
9,208
49,230 $
839
7,470
9,208
17,517
Assets:
Rate Lock Commitments
Forwards
RBC Forwards
Total Assets
Liabilities:
Accounts payable, accrued
expenses and
other liabilities – contingent
consideration(1)
Rate Lock Commitments
Forwards
Total Liabilities
(1)
Realized losses are reported in “Other income, net” in Newmark’s consolidated statements of operations.
173
Changes in Level 3 rate lock commitments, forwards and contingent consideration measured at fair value on
recurring basis for the year ended December 31, 2017 were as follows (in thousands):
Assets:
Rate Lock Commitments
Forwards
Total Assets
As of December 31, 2017
Total realized
and unrealized
gains (losses)
included in
Net income(1) Issuances Settlements
Closing
Balance
Opening
Balance
Unrealized
gains (losses)
outstanding
as of
December 31,
2018
$ 17,824 $
2,100
$ 19,924 $
2,923 $
3,753
6,676 $
—
- $ (17,824 ) $
(2,100 )
- $ (19,924 ) $
2,923 $
3,753
6,676 $
2,923
3,753
6,676
Total realized
and unrealized
(gains) losses
included in
Net income(1) Issuances Settlements
Closing
Balance
Opening
Balance
Unrealized
(gains) losses
outstanding
as of
December 31,
2018
Liabilities:
Accounts payable, accrued expenses
and
other liabilities – contingent
consideration(1)
Rate Lock Commitments
Forwards
Total Liabilities
$ 38,713 $
9,670
—
$ 48,383 $
2,675 $ 1,263 $ (18,940 ) $ 23,711 $
2,390
2,390
657
657
5,722 $ 1,263 $ (28,610 ) $ 26,758 $
(9,670 )
—
—
—
2,675
2,390
657
5,722
(1)
Realized losses are reported in “Other income, net” in Newmark’s consolidated statements of operations.
Quantitative Information About Level 3 Fair Value Measurements
The following tables present quantitative information about the significant unobservable inputs utilized by
Newmark in the fair value measurement of Level 3 assets and liabilities measured at fair value on a recurring basis:
Level 3 assets and liabilities
Accounts payable, accrued
expenses and other liabilities:
Contingent consideration
December 31, 2018
Assets
Liabilities
Significant Unobservable
Inputs
Range
Weighted
Average
$
— $ 32,552 Discount rate
0.3%-10.4% 8.2%
Probability of meeting
earnout and contingencies
Financial forecast
information
99%-100%(1)
99.6%
Derivative assets and liabilities:
RBC Forwards
Forward sale contracts
Rate lock commitments
$ 77,619 $
$ 8,177 $ 9,208 Counterparty credit risk
$ 6,732 $ 7,470 Counterparty credit risk
— Volatility
23.7%-34.8%(2) 30.2%
N/A
N/A
N/A
N/A
174
Level 3 assets and liabilities
Accounts payable, accrued
expenses and other liabilities:
Contingent consideration
December 31, 2017
Assets
Liabilities
Significant Unobservable
Inputs
Range
Weighted
Average
$
— $ 23,711 Discount rate
3.3%-10.4%(1) 6.43%
99.5%
99%-100%(1)
Probability of meeting
earnout and contingencies
Financial forecast
information
Derivative assets and liabilities:
Forward sale contracts
Rate lock commitments
657 Counterparty credit risk
$ 3,753 $
$ 2,923 $ 2,390 Counterparty credit risk
N/A
N/A
N/A
N/A
(1)
(2)
Newmark’s estimate of contingent consideration as of December 31, 2018 and 2017 was based on the acquired business’ projected
future financial performance, including revenues.
The volatility of Newmark’s RBC Forwards is primarily based on the underlying Nasdaq stock price.
Valuation Processes - Level 3 Measurements
Both the rate lock commitments to borrowers and the forward sale contracts to investors are derivatives and,
accordingly, are marked to fair value through Newmark’s consolidated statements of operations. The fair value of
Newmark’s rate lock commitments to borrowers and loans held for sale and the related input levels includes, as
applicable:
(cid:120) The assumed gain/loss of the expected loan sale to the investor, net of employee benefits;
(cid:120) The expected net future cash flows associate with servicing the loan;
(cid:120) The effects of interest rate movements between the date of the rate lock and the balance sheet date; and
(cid:120) The nonperformance risk of both the counterparty and Newmark.
The fair value of Newmark’s forward sales contracts to investors considers effects of interest rate movements
between the trade date and the balance sheet date. The market price changes are multiplied by the notional amount
of the forward sales contracts to measure the fair value.
The fair value of Newmark’s rate lock commitments and forward sale contracts is adjusted to reflect the risk
that the agreement will not be fulfilled. Newmark’s exposure to nonperformance in rate lock and forward sale
contracts is represented by the contractual amount of those instruments. Given the credit quality of Newmark’s
counterparties, the short duration of rate lock commitments and forward sales contracts, and Newmark’s historical
experience with the agreements, management does not believe the risk of nonperformance by Newmark’s
counterparties to be significant.
The RBC Forwards are derivatives and, accordingly, are marked to fair value through Newmark’s
consolidated statements of operations. The fair value of the RBC Forwards is determined utilizing the following
inputs, as applicable:
(cid:120) The underlying number of shares and the related strike price;
(cid:120) The maturity date; and
(cid:120) The implied volatility of Nasdaq’s stock price.
The fair value of Newmark’s RBC Forwards considers the effects of Nasdaq’s stock price volatility between
the balance sheet date and the maturity date. The fair value is determined through the use of a Black-Scholes put
option valuation model.
175
Information About Uncertainty of Level 3 Fair Value Measurements
The significant unobservable inputs used in the fair value of Newmark’s contingent consideration are the
discount rate and forecasted financial information. Significant increases (decreases) in the discount rate would have
resulted in a significantly lower (higher) fair value measurement. Significant increases (decreases) in the forecasted
financial information would have resulted in a significantly higher (lower) fair value measurement. As of
December 31, 2018 and 2017, the present value of expected payments related to Newmark’s contingent
consideration was $32.6 million and $23.7 million, respectively (see Note 30- Commitments and Contingencies).
The undiscounted value of the payments, assuming that all contingencies are met, would be $39.6 million and $27.7
million, respectively. Valuations for contingent consideration, RBC Forwards, forward sales contracts, and rate lock
commitments are conducted by Newmark. Each reporting period, Newmark updates unobservable inputs. Newmark
has a formal process to review changes in fair value for satisfactory explanation.
Fair Value Measurements on a Non-Recurring Basis
Pursuant to the new recognition and measurement guidance for equity investments, effective January 1,
2018, equity investments carried under the measurement alternative are remeasured at fair value on a non-recurring
basis to reflect observable transactions which occurred during the period. Newmark applied the measurement
alternative to equity securities with the fair value of approximately $53.5 million, which were included in “Other
assets” in Newmark’s consolidated statements of financial condition as of December 31, 2018. These investments
are classified within Level 2 in the fair value hierarchy, because their estimated fair value is based on valuation
methods using the observable transaction price at the transaction date.
(26) Related Party Transactions
(a) Service Agreements
Newmark receives administrative services, including but not limited to, treasury, legal, accounting,
information technology, payroll administration, human resources, incentive compensation plans and other support,
provided by Cantor and BGC. For the years ended December 31, 2018, 2017 and 2016, allocated expenses were
$26.2 million, $20.8 million and $18.0 million, respectively. These expenses are included as part of “Fees to related
parties” in Newmark’s consolidated statements of operations.
176
(b) Loans, Forgivable Loans and Other Receivables from Employees and Partners
Newmark has entered into various agreements with certain employees and partners whereby these individuals
receive loans which may be either wholly or in part repaid from the distribution earnings that the individuals receive
on some or all of their limited partnership interests or may be forgiven over a period of time. The forgivable portion
of these loans is recognized as compensation expense over the life of the loans. From time to time, Newmark may
also enter into agreements with employees and partners to grant bonus and salary advances or other types of loans.
These advances and loans are repayable in the timeframes outlined in the underlying agreements.
As of December 31, 2018 and 2017, the aggregate balance of employee loans was $285.5 million and
$209.5 million, respectively, and is included as “Loans, forgivable loans and other receivables from employees and
partners, net” in Newmark’s consolidated balance sheets. Compensation expense for the above mentioned employee
loans for the years ended December 31, 2018, 2017 and 2016 was $27.7 million, $34.4 million and $25.8 million,
respectively. The compensation expense related to these employee loans is included as part of “Compensation and
employee benefits” in Newmark’s consolidated statements of operations.
Transfer of CCRE Employees to Newmark
In connection with the expansion of our mortgage brokerage and lending activities, Newmark has entered into
an agreement with Cantor pursuant to which five former employees of its affiliate, CCRE, have transferred to
Newmark, effective as of May 1, 2018. In connection with this transfer of employees, Cantor paid $6.9 million to
Newmark in October 2018 and Newmark Holdings issued $6.7 million of limited partnership units and $0.2 million
of cash in the form of a cash distribution agreement to the employees. In addition, Newmark Holdings issued $2.2
million of Newmark Holdings partnership units with a capital account and $0.5 million of limited partnership units
in exchange for the cash payment from Cantor to Newmark of $2.2 million. Newmark recorded $6.9 million and
$2.2 million as “Stockholders’equity” and “Redeemable partnership interests”, respectively, in Newmark’s
consolidated balance sheets.
In consideration for the Cantor payment, Newmark has agreed to return up to a maximum of $3.3 million to
Cantor based on the employees’ production during their first two years of employment with Newmark. Newmark
has agreed to allow certain of these employees to continue to provide consulting services to Cantor in exchange for a
forgivable loan which was directly paid by Cantor to these employees.
(c) Transactions with CCRE
Newmark has a referral agreement in place with CCRE, in which Newmark’s brokers are incentivized to refer
business to CCRE through a revenue-share agreement. In connection with this revenue-share agreement, Newmark
did not recognize any revenues for the year ended December 31, 2018. Newmark recognized revenues of
$0.1 million and $1.1 million for the years ended December 31, 2017 and 2016, respectively. This revenue was
recorded as part of “Commissions” in Newmark’s consolidated statements of operations.
Newmark also has a revenue-share agreement with CCRE, in which Newmark pays CCRE for referrals for
leasing or other services. In connection with this agreement, Newmark paid $0.4 million to CCRE for the year ended
December 31, 2016. Newmark did not make any payments under this agreement to CCRE for the years ended
December 31, 2018 and 2017.
In addition, Newmark has a loan referral agreement in place with CCRE, in which either party can refer a loan
to the other. Revenue from these referrals were $2.2 million, $2.1million and $7.5 million for the years ended
December 31, 2018, 2017 and 2016, respectively, and was recognized in “Gains from mortgage banking
activities/originations, net” in Newmark’s consolidated statements of operations. These referrals fees are net of the
broker fees and commissions to CCRE of $ 0.8 million, $0.8 million and $1.6 million for the years ended
December 31, 2018, 2017 and 2016, respectively.
177
On September 8, 2017, BGC completed the Berkeley Point Acquisition, for an acquisition price of
$875.0 million with $3.2 million of the acquisition price paid in units of BGC Holdings, pursuant to a Transaction
Agreement, dated as of July 17, 2017, with Cantor and certain of Cantor’s affiliates, including CCRE and Cantor
Commercial Real Estate Sponsor, L.P., the general partner of CCRE. In accordance with this Transaction
Agreement, BPF made a distribution of $89.1 million to CCRE, for the amount that BPF’s net assets exceeded
$508.6 million.
On March 11, 2015, BPF and CCRE entered into a note receivable/payable that allows for advances to or from
CCRE at an interest rate of 1-month LIBOR plus 1.0%. On September 8, 2017, the note receivable/payable was
terminated, and all outstanding advances due were paid off. BPF recognized interest income of $0.7 million and
$0.1 million for the years ended December 31, 2017 and 2016, respectively. BPF recognized interest expense of
$2.5 million and $2.3 million for the years ended December 31, 2017 and 2016, respectively. For the years ended
December 31, 2018 and 2017, Newmark purchased the primary servicing rights for $1.2 billion of loans originated
by CCRE for $2.5 million and 2.1 million, respectively. Newmark also services loans for CCRE on a “fee for
service” basis, generally prior to a loan’s sale or securitization, and for which no MSR is recognized. Newmark
recognized $3.8 million, $3.8 million and $3.6 million for the years ended December 31, 2018, 2017 and 2016,
respectively, of servicing revenues (excluding interest and placement fees) from loans purchased from CCRE on a
“fee for service” basis, which was included as part of “Management services, servicing fee and other” in Newmark’s
consolidated statements of operations.
Transactions with Executive Officers and Directors
In connection with Newmarks’s 2018 executive compensation process, Newmark’s executive officers
received certain monetization of prior awards as compensation at Newmark, as set forth below:
On December 31, 2018, the Compensation Committee approved the monetization of 898,080 BGC Holdings,
L.P. (“BGC Holdings”) PPSUs held by Mr. Lutnick (which had an average determination price of $7.65 per unit),
and 592,721 Newmark Holdings PPSUs (which had an average determination price of $13.715 per unit), which
transactions had an aggregate value of $15,000,000. On February 6, 2019, the Compensation Committee approved a
modification which consisted of the following: (i) the right to exchange 1,131,774 non-exchangeable BGC Holdings
PSUs held by Mr. Lutnick into 1,131,774 non-exchangeable BGC Holdings partnership units with a capital account
(which, based on the closing price of the BGC Class A common stock of $6.20 per share on such date, had a value
of $7,017,000); and (ii) the right to exchange for cash 1,018,390 BGC Holdings non-exchangeable PPSUs held by
Mr. Lutnick, (which had an average determination price of $7.8388 per unit), for a payment of $7,983,000 for taxes
when (i) is exchanged.
On December 31, 2018, the Compensation Committee approved the monetization of 1,909,188 BGC Holdings
PSUs held by Mr. Gosin and 264,985 BGC Holdings PPSUs (which had an average determination price of $4.2625
per unit), which transactions had an aggregate value of $11,000,000. On February 6, 2019, the Compensation
Committee approved a modification which consisted of the following: (i) the right to exchange 1,592,016 non-
exchangeable limited partnership units (which, based on the closing price of the BGC Class A common stock of
$6.20 per share on such date, had a value of $9,870,501); and (ii) the right to exchange for cash 264,985 BGC
Holdings non-exchangeable PPSUs held by Mr. Gosin, (which had an average determination price of $4.2625 per
unit), for a payment of $1,129,499 for taxes when (i) is exchanged.
On December 31, 2018, the Compensation Committee approved the cancellation of 13,552 non-exchangeable
PSUs in BGC Holdings held by Mr. Rispoli and the cancelation of 11,089 BGC Holdings PPSUs (which had an
average determination price of $5.814 per unit). In connection with the transaction, BGC issued $134,535 in shares
of Class A common stock, less applicable taxes and withholdings, resulting in 13,552 net shares of BGC Class A
common stock at a price of $5.17 per share and the payment of $64,471 for taxes. On February 22, 2019, the
Compensation Committee removed the sale restrictions on 4,229 shares of BGC Class A common stock and 1,961
shares of Newmark Class A common stock held by Mr. Rispoli.
178
CF Real Estate Finance Holdings, LP.
Contemporaneously with the Berkeley Point Acquisition, on September 8, 2017, Newmark invested $100.0
million in a newly formed commercial real estate-related financial and investment business, Real Estate LP, which is
controlled and managed by Cantor. Real Estate LP may conduct activities in any real estate related business or asset
backed securities related business or any extensions thereof and ancillary activities thereto. As of December 31,
2018, Newmark’s investment is accounted for under the equity method (See Note 8 – Investments).
IPO and Spin-Off
On December 13, 2017, prior to the closing of the IPO, BGC, BGC Holdings, BGC U.S. OpCo, Newmark,
Newmark Holdings, Newmark OpCo, Cantor, and BGC Global OpCo entered into the Original Separation and
Distribution Agreement. The Original Separation and Distribution Agreement sets forth the agreements among
BGC, Cantor, Newmark and their respective subsidiaries with respect to the Separation and related matters. For
additional information, see Note 1 — “Organization and Basis of Presentation.” In addition, in connection with the
Separation and Newmark IPO, on December 13, 2017 a Registration Rights Agreement by and among Cantor, BGC
and Newmark, an Amended and Restated Tax Receivable Agreement by and between Cantor and BGC, an
Exchange Agreement by and among Cantor, BGC and Newmark, and Administrative Services Agreement by and
between Cantor and Newmark (see “Service Agreements” above), and a Tax Receivable Agreement by and between
Cantor and Newmark were entered into.
As a result of the Separation, the limited partnership interests in Newmark Holdings were distributed to the
holders of limited partnership interests in BGC Holdings, including Cantor, whereby each holder of BGC Holdings
limited partnership interests at that time now holds a BGC Holdings limited partnership interest and a corresponding
Newmark Holdings limited partnership interest, which is equal to a BGC Holdings limited partnership interest
multiplied by the contribution ratio, divided by the current exchange ratio. The exchange ratio is subject to
adjustment, in accordance with the terms of the separation agreement (for additional information, see Note 2 —
“Limited Partnership Interests.”)
In addition CF&Co, a wholly owned subsidiary of Cantor, was an underwriter of the IPO. Pursuant to the
underwriting agreement, Newmark paid CF&Co 5.5% of the gross proceeds from the sale of shares of Newmark
Class A common stock sold by CF&Co. in connection with the IPO.
On November 30, 2018, BGC completed the Spin-Off of Newmark. BGC Partners’ stockholders, including
Cantor, as of the Record Date, received in the Spin-Off 0.463895 of a share of Newmark Class B common stock for
each share of BGC Class B common stock held as of the Record Date. In the aggregate, BGC distributed 131.9
million shares of Newmark Class A common stock and 21.3 million shares of Newmark Class B common stock to
BGC’s stockholders in the Spin-Off. As Cantor and CFGM held 100% of the shares of BGC Class B common stock
as of the Record Date, Cantor and CFGM were distributed 100% of the shares of Newmark Class B common stock
in the Spin-Off (see BGC’s 2018 Investment in Newmark below).
BGC’s 2018 Investment in Newmark Holdings
On March 7, 2018, BGC Partners and its operating subsidiaries purchased 16.6 million Newmark Units of
Newmark Holdings for approximately $242.0 million. The price per Newmark Unit was based on the $14.57 closing
price of Newmark’s Class A common stock on March 6, 2018 as reported on the NASDAQ Global Select Market.
These newly-issued Newmark Units were exchangeable, at BGC’s discretion, into either shares of Class A common
stock or shares of Class B common stock of Newmark. BGC made the Investment in Newmark pursuant to an
Investment Agreement dated as of March 6, 2018 by and among BGC, BGC Holdings, BGC U.S. OpCo, BGC
Global OpCo, Newmark, Newmark Holdings and Newmark OpCo. BGC’s 2018 Investment in Newmark and related
transactions were approved by the Audit Committees and Boards of Directors of BGC and Newmark. BGC and its
subsidiaries funded the Investment in Newmark using the proceeds of its CEO sales program. Newmark used the
proceeds to repay the balance of the outstanding principal amount under its unsecured senior term loan credit
agreement with Bank of America, N.A., as administrative agent, and a syndicate of lenders that was guaranteed by
BGC. In addition, in accordance with the Separation and Distribution Agreement, BGC owned 7.0 million limited
partnership interests in the Newmark OpCo (“Newmark OpCo Units”) immediately prior to the Spin-Off, as a result
of other issuances of BGC Class A common stock primarily related to the redemption of limited partnership units in
BGC Holdings and Newmark Holdings.
179
Prior to and in connection with the Spin-Off, 14.8 million Newmark Holdings Units held by BGC were
exchanged into 9.4 million shares of Newmark Class A common stock and 5.4 million shares of Newmark Class B
common stock, and 7.0 million Newmark OpCo Units held by BGC were exchanged into 6.9 million shares of
Newmark Class A common stock. These Newmark Class A and Class B shares of common stock were included in
the Spin-Off to BGC’s stockholders. On November 30, 2018, BGC Holdings distributed pro rata all of the 1.5
million exchangeable limited partnership units of Newmark Holdings held by BGC Holdings immediately prior to
the effective time of the Spin-Off to its limited partners entitled to receive distributions on their BGC Holdings units
who were holders of record of such units as of November 23, 2018 (including Cantor and executive officers of
BGC). The Newmark Holdings Units distributed to BGC Holdings partners in the BGC Holdings Distribution are
exchangeable for shares of Newmark Class A common stock, and in the case of the 0.4 million Newmark Holdings
Units received by Cantor also into shares of Newmark Class B common stock, at the exchange ratio of 0.9793 shares
of Newmark common stock per Newmark Holdings unit (subject to adjustment). As of December 31, 2018, the
exchange ratio equaled 0.9793. See Note 1—“Organization and Basis of Presentation” for additional information.
(d) Payables to Related Parties
On March 19, 2018, Newmark entered into the “Intercompany Credit Agreement” with BGC, which amended
and restated the original intercompany credit agreement between the parties in relation to the Separation, dated as of
December 13, 2017. The Intercompany Credit Agreement provides for each party to issue revolving loans to the
other party in the lender’s discretion. The interest rate on the Intercompany Credit Agreement can be the higher of
BGC’s or Newmark’s short-term borrowings rate in effect at such time, plus 100 basis points, or such other interest
rate as may be mutually agreed between BGC and Newmark. As of November 7, 2018, all borrowings outstanding
under the Intercompany Credit Agreement had been repaid. The interest rate as of December 31, 2018 was 5.21%.
As of December 31, 2017, the amount outstanding under the Intercompany Facility was $40.0 million and is
included in “current portion of payables to related parties” on the consolidated balance sheets. Newmark recorded
interest expense of $8.9 million and $0.1 million for the years ended December 31, 2018 and 2017, respectively,
which is included in “interest income, net” in the consolidated statement of operations.
On November 30, 2018, Newmark entered into the Cantor Credit Agreement with CFLP. The Cantor Credit
Agreement provides for each party to issue loans to the other party at the lender’s discretion. Pursuant to the Cantor
Credit Agreement, the parties and their respective subsidiaries (with respect to CFLP, other than BGC and its
subsidiaries) may borrow up to an aggregate principal amount of $250 million from each other from time to time at
an interest rate which is the higher of CFLP’s or Newmark’s short-term borrowing rate then in effect, plus 1%.
As of December 31, 2018, the related party receivables and current portion of payables to related parties were
$20.5 million and $13.5 million, respectively.
As of December 31, 2017, the related party receivables and current portion of payables to related parties were
$0.0 million and $34.2 million, respectively.
(See Note 1—Organization and Basis of Presentation, Note 2—Limited Partnership Interests, and Note 21—
Long-Term Debt and Long-Term Debt Payable to Related Parties, for additional information on transactions with
related parties.)
180
(27) Income Taxes
Newmark’s consolidated financial statements include U.S. federal, state and local income taxes on Newmark’s
allocable share of its U.S. results of operations, as well as taxes payable to jurisdictions outside the U.S. In addition,
certain of Newmark’s entities are taxed as U.S. partnerships and are subject to the Unincorporated Business Tax
(“UBT”) in New York City. Therefore, the tax liability or benefit related to the partnership income or loss except for
UBT rests with the partners (see Note 2 – Limited Partnership Interests, for discussion of partnership interests)
rather than the partnership entity. Income taxes are accounted for using the asset and liability method, as prescribed
in U.S. GAAP guidance for Income Taxes. The provision for income taxes consisted of the following:
Year Ended December 31,
2017
2016
2018
Current:
U.S. federal
U.S. state and local
Foreign
UBT
Deferred:
U.S. federal
U.S. state and local
UBT
Provision for income taxes
$ 49,985 $ 10,412 $ 4,253
2,468
599
19,290
169
(3 )
1,239
3,586
113
218
5,134
Total 74,100 13,095
(9,972 ) 56,648
24,092 (12,606 )
2,267
341
Total 16,387 44,383
(488 )
(562 )
(91 )
(1,141 )
$ 90,487 $ 57,478 $ 3,993
Newmark had pre-tax income of $282.4 million, $202.6 million and $171.2 million for the years ended
December 31, 2018, 2017 and 2016, respectively. Newmark had pre-tax income (loss) from foreign operations of
$(3.7) million, $(0.1) million and $0.5 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Differences between Newmark’s actual income tax expense and the amount calculated utilizing the U.S.
federal statutory rates were as follows:
2018
Year Ended December 31,
2017
$ 59,297 $ 70,901 $ 59,921
(26,257 ) (66,344 ) (57,635 )
2016
44
9,948
(44 )
(1,740 )
13,353
3,119
—
1,050
561
(1,183 )
(36 )
968
748
22
(95 )
— 64,658
23,001 (15,348 )
4,285
594
(376 )
464
—
(143 )
—
(2 )
—
245
$ 90,487 $ 57,478 $ 3,993
2,003
1,281
2,341
2,357
Tax expense at federal statutory rate
Non-controlling interest
Incremental impact of foreign taxes compared
to the federal rate
Other permanent differences
U.S. state and local taxes, net of U.S. federal
benefit
New York City UBT
Amortization of intangibles
Revaluation of deferred taxes related to tax
reform
Other rate change
Section 453A interest
Valuation allowance
Return to Provision Adjustments
Other
Provision for income tax
181
The Tax Cut and Jobs Act (the “Tax Act”) was enacted on December 22, 2017. The Tax Act made significant
changes to the US corporate income tax system, including (1) a reduction of the U.S. federal corporate income tax
rate from 35% to 21%, (2) transitioning to a territorial tax system and requiring companies to pay a one-time
transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, (3) implementation of a
base erosion and anti-abuse tax ("BEAT”), (4) further limitation on deductibility of interest on financing
arrangements, (5) and introduction of a new provision designed to tax a foreign subsidiaries’ global intangible low-
taxed income (“GILTI”). The Staff Accounting Bulletin (“SAB 118”) provided guidance for companies that did not
complete their accounting for the tax effects of the Tax Act in the period of enactment by allowing a one-year
measurement period from the date of enactment to complete their analysis. At December 31, 2018, Newmark has
completed its accounting for the tax effects of the Act including the effects on our existing deferred tax balances. As
a result, we have recorded a net expense in the amount of $64.7 million with no material adjustment in the current
year, related to the remeasurement of Newmark’s deferred tax inventory, which has been included as a component
of provision for income taxes in Newmark’s consolidated statement of operations.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences
between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective
tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
A valuation allowance is recorded against deferred tax assets if it is deemed more likely than not that those assets
will not be realized.
Significant components of Newmark’s deferred tax asset and liability consisted of the following:
Year Ended December 31,
2018
2017
Deferred tax asset
Basis difference of investments
Deferred compensation
Other deferred and accrued expenses
Net Operating loss and credit carry-forwards
Total deferred tax asset
Valuation Allowance
Deferred tax asset, net of allowance
Deferred tax liability
Depreciation and amortization
Other
Deferred tax liability(1)
Net deferred tax asset
55,847 $
9,600
1,297
77,611
$
114,758 104,251
4,475
378
181,502 186,715
(403 )
180,205 186,312
(1,297 )
19,518
10,749
30,267
17,718
—
17,718
$ 149,938 $ 168,594
(1)
Before netting within tax jurisdictions.
Newmark has net operating losses in non-U.S. jurisdictions of approximately $1.3 million, which has an
indefinite life. Management assesses the available positive and negative evidence to determine whether existing
deferred tax assets will be realized. Accordingly, a valuation allowance of $1.3 million has been recorded against the
deferred tax asset that is more likely than not to not be realized. Newmark’s deferred tax asset and liability are
included in Newmark’s consolidated balance sheets as components of “Other assets” and “Other liabilities”,
respectively.
Pursuant to the SAB 118 guidance, Newmark has finalized its accounting policy and elect to treat taxes
associated with the GILTI provision as a current period expense when incurred (“period cost method”) and thus
have not recorded deferred taxes for basis differences under this regime as of December 31, 2018. The GILTI
provision on its foreign subsidiaries did not have a material impact on Newmark’s tax expense for the year ended
December 31, 2018.
182
Pursuant to U.S. GAAP guidance on Accounting for Uncertainty in Income Taxes, Newmark provides for
uncertain tax positions based upon management’s assessment of whether a tax benefit is more likely than not to be
sustained upon examination by tax authorities.
A reconciliation of the beginning to the ending amounts of gross unrecognized tax benefits for the years ended
December 31, 2018, 2017 and 2016 is as follows (in thousands):
Balance, December 31, 2016
$
Increases for prior year tax positions
Decreases for prior year tax positions
Increases for current year tax positions
Decreases related to settlements with taxing
authorities
Decreases related to a lapse of applicable statute of
limitations
Balance, December 31, 2017
Increases for prior year tax positions
Decreases for prior year tax positions
Increases for current year tax positions
Decreases related to settlements with taxing authorities
Decreases related to a lapse of applicable statute of
limitations
Balance, December 31, 2018
$
208
—
—
—
—
—
208
—
—
—
—
—
208
As of December 31, 2018, Newmark’s unrecognized tax benefits, excluding related interest and penalties,
were $0.2 million, which, if recognized, would affect the effective tax rate. Newmark is currently open to
examination by United States Federal, state and local and non-U.S. tax authorities as part of the BGC consolidated
group for tax years beginning 2008, 2009 and 2015, respectively. Newmark does not believe that the amounts of
unrecognized tax benefits will materially change over the next 12 months.
Newmark recognizes interest and penalties related to uncertain tax positions in “Provision for income taxes”
in Newmark’s consolidated statement of operations. As of December 31, 2018, Newmark accrued $45 thousand for
income tax-related interest and penalties.
(28) Accounts Payable, Accrued Expenses and Other Liabilities
The current portion of accounts payable, accrued expenses and other liabilities consisted of the following:
Accounts payable and accrued expenses
Payroll taxes payable
Outside broker payable
Corporate and other taxes payable
Contingent consideration
Derivative liability
As of December 31,
2017
2018
79,376
5,976
23,361
6,697
6,504
3,047
$ 312,239 $ 124,961
$ 113,713 $
39,620
59,918
77,858
4,452
16,678
183
Other long-term liabilities consisted of the following:
Deferred rent
Payroll taxes payable
Accrued compensation
Credit enhancement deposit
Contingent consideration
Financial guarantee liability
$
As of December 31,
2017
2018
41,875
49,334 $
48,248
31,055
31,411
35,103
25,000
25,000
28,099
17,207
54
32
$ 168,623 $ 163,795
(29) Compensation
Newmark’s Compensation Committee may grant various equity-based awards to employees of Newmark,
including restricted stock units, limited partnership units and exchange rights for shares of Newmark’s Class A
common stock upon exchange of Newmark limited partnership units (see Note 2—Limited Partnership Interests).
On December 13, 2017, as part of the Separation, the Newmark Group, Inc. Long Term Incentive Plan (the
“Newmark Equity Plan”) was approved by Newmark’s sole stockholder, BGC, for Newmark to issue up to
400.0 million aggregate number of shares of Class A common stock of Newmark, of which 50.0 million are
registered, that may be delivered or cash-settled pursuant to awards granted during the life of the Newmark Equity
Plan. As of December 31, 2018, 13.2 million units have been granted and 386.8 million are available for future
issuances.
Prior to the Separation, BGC’s Compensation Committee granted various equity-based awards to employees
of Newmark, including restricted stock units, limited partnership units and exchange rights for shares of BGC’s
Class A common stock upon exchange of BGC’s limited partnership units (see Note 2—Limited Partnership
Interests).
a)
Limited Partnership Units
As a result of the Separation, limited partnership interests in Newmark Holdings were distributed to the
holders of limited partnership interests in BGC Holdings. Each holder of BGC Holdings limited partnership interests
at that time held a BGC Holdings limited partnership interest and a corresponding Newmark Holdings limited
partnership interest, which is equal to a BGC Holdings limited partnership interest multiplied by an amount
calculated in accordance with the BGC Holdings limited partnership agreement, the contribution ratio, divided by an
amount, as of December 31, 2018, which at that time was one to one but was .9793 (the exchange ratio), by which a
Newmark Holdings limited partnership interest can be exchanged for a number of shares of Newmark Class A
common stock.
184
A summary of the activity associated with limited partnership units held by Newmark employees in BGC
Holdings is as follows:
Balance at December 31, 2015
Granted
Redeemed/exchanged units
Forfeited units
Balance at December 31, 2016
Granted
Redeemed/exchanged units
Forfeited units
Balance at December 31, 2017
Granted
Redeemed/exchanged units
Forfeited units
Balance at December 31, 2018
Number of
Units
38,000,970
19,149,118
(3,351,944 )
(390,517 )
53,407,627
13,976,871
(2,668,048 )
(7,535 )
64,708,915
2,872,825
(5,650,292 )
(60,479 )
61,870,969
A summary of the activity of the number of share-equivalent limited partnership units and post IPO grants of
Newmark LPU’s held by Newmark employees in Newmark Holdings is as follows:
Balance at December 31, 2016
Granted
Balance at December 31, 2017
Granted
Redeemed/exchanged units
Forfeited units
Balance at December 31, 2018
Number of
Units
—
29,413,143
29,413,143
19,141,943
(3,793,351 )
(28,248 )
44,733,487
As of December 31, 2018 and 2017, Newmark employees had 61.9 million and 64.7 million BGC Holdings
limited partnership units outstanding, respectively. In addition, there were 44.7 million and 29.4 million limited
partnership units in Newmark Holdings outstanding as of December 31, 2018 and 2017, respectively. The 29.4
million limited partnership units shown as granted during 2017 and outstanding as of December 31, 2017, represent
the share equivalent of BGC Holdings held by Newmark employees.
During the years ended December 31, 2018, 2017 and 2016, BGC granted, to Newmark employees,
exchangeability on 17.4 million, 6.5 million and 3.8 million limited partnership units in BGC Holdings and 6.2
million, 0.0 million, and 0.0 million equivalent limited partnership units in Newmark Holdings for which Newmark
incurred compensation expense of $166.0 million, $89.4 million and $45.6 million, respectively. For the year ended
December 31, 2018, Newmark granted exchangeability on 0.2 million limited partnership units in Newmark
Holdings and incurred compensation expense of $2.0 million. For the years ended December 31, 2017 and 2016,
there was no expense related to grants of exchangeability on limited partnership units in Newmark Holdings.
In addition, during the year ended December 31, 2018, Newmark redeemed 0.9 million units in BGC Holdings
and 0.8 million units in Newmark holdings and in turn directly issued employees an equivalent amount of BGC or
Newmark shares, respectively. Newmark incurred an expense of $11.3 million relating to this activity, which is
included within “Allocations of net income and grant of exchangeability to limited partnership units and FPU’s, and
issuance of common stock” in Newmark’s consolidated statements of operations.
As of December 31, 2018, the number of share-equivalent BGC limited partnership units exchangeable into
shares of BGC’s Class A common stock at the discretion of the unit holder was 26.0 million and the number of
185
share-equivalent Newmark limited partnership units exchangeable into shares of Newmark’s Class A common stock
at the discretion of the unit holder was 9.3 million. As of December 31, 2017, the number of share-equivalent BGC
limited partnership units exchangeable into shares of BGC’s Class A common stock at the discretion of the unit
holder was 12.3 million. The number of share-equivalent limited partnership units exchangeable into shares of BGC
Class A common stock as of December 31, 2017 represent 12.3 million and 5.6 million of limited partnership units
in BGC Holdings and Newmark Holdings, respectively, exchangeable together into 12.3 million shares of BGC
Class A common stock.
As of December 31, 2018, the notional value of the BGC limited partnership units with a post-termination
pay-out amount held by executives and non-executive employees, awarded in lieu of cash compensation for salaries,
commissions and/or discretionary or guaranteed bonuses was approximately $92.7 million. The number of
outstanding limited partnership units with a post-termination pay-out represented 8.4 million limited partnership
units in BGC Holdings and 3.8 million limited partnership units in Newmark Holdings, of which approximately 3.3
million units in BGC Holdings and 1.5 million units in Newmark Holdings were unvested. As of December 31,
2018, the aggregate estimated fair value of these limited partnership units was approximately $22.6 million. As of
December 31, 2017, the notional value of the limited partnership units with a post-termination pay-out amount held
by executives and non-executive employees, awarded in lieu of cash compensation for salaries, commissions and/or
discretionary or guaranteed bonuses, was approximately $232.9 million. The number of outstanding limited
partnership units with a post-termination pay-out as of December 31, 2017 was approximately 23.4 million of which
approximately 13.2 million units were unvested. As of December 31, 2017, the number of outstanding limited
partnership units with a post-termination pay-out represent 23.4 million and 10.6 million of limited partnership units
in BGC Holdings and Newmark Holdings, respectively, of which approximately 13.2 million and 6.0 million units
in BGC Holdings and Newmark Holdings, respectively, were unvested. As of December 31, 2017, the aggregate
estimated fair value of these limited partnership units was approximately $39.2 million.
In addition, beginning January 1, 2018, Newmark began granting standalone limited partnership units in
Newmark Holdings to Newmark employees. As of December 31, 2018, the notional value of the limited partnership
units with a post-termination pay-out amount held by executives and non-executive employees, awarded in lieu of
cash compensation for salaries, commissions and/or discretionary or guaranteed bonuses, was approximately
$77.0 million. The number of outstanding limited partnership units with a post-termination pay-out represent 5.5
million limited partnership units in Newmark Holdings, of which approximately 4.0 million units in Newmark
Holdings were unvested. As of December 31, 2018, the aggregate estimated fair value of these limited partnership
units was approximately $8.0 million.
Compensation expense related to limited partnership units with a post-termination pay-out amount is
recognized over the stated service period. These units generally vest between three and five years from the date of
grant. Newmark recognized compensation expense/(benefit), before associated income taxes, related to these limited
partnership units that were not redeemed of $(7.9) million, $21.3 million and $13.8 million for the years ended
December 31, 2018, 2017 and 2016, respectively. These are included in “Compensation and employee benefits” in
Newmark’s consolidated statements of operations.
Certain limited partnership units generally receive quarterly allocations of net income, which are cash
distributed on a quarterly basis and generally contingent upon services being provided by the unit holders. The
allocation of income to limited partnership units was $51.5 million, $25.2 million and $26.5 million for the years
ended December 31, 2018 , 2017 and 2016, respectively. This expense is included within “Allocations of net income
and grant of exchangeability to limited partnership units and FPU’s, and issuance of common stock” in Newmark’s
consolidated statements of operations.
186
(b) Restricted Stock Units
A summary of the activity associated with RSUs in BGC is as follows:
Balance at December 31, 2015
Granted
Settled units (delivered shares)
Forfeited units
Balance at December 31, 2016
Granted
Settled units (delivered shares)
Forfeited units
Balance at December 31, 2017
Granted
Settled units (delivered shares)
Forfeited units
Balance at December 31, 2018
Restricted
Stock
Units
258,526 $
196,855
(141,490 )
(28,166 )
285,725
269,754
(151,844 )
(57,097 )
346,538
3,439
(147,006 )
(34,296 )
168,675 $
Weighted-
Average
Grant Date
Fair Value
6.52
7.87
5.85
7.64
7.56
10.37
7.73
8.75
9.56
7.64
9.17
10.01
9.77
Weighted-
Average
Remaining
Contractual
Term
(Years)
1.56
1.75
1.85
0.98
A summary of the activity associated with RSUs in Newmark is as follows:
Balance at December 31, 2017
Granted
Settled units (delivered shares)
Forfeited units
Balance at December 31, 2018
Restricted
Stock
Units
— $
264,532
(8,109 )
(36,536 )
219,887 $
Weighted-
Average
Grant Date
Fair Value
—
13.54
13.36
13.71
13.52
Weighted-
Average
Remaining
Contractual
Term
(Years)
—
2.28
Beginning January 1, 2018, Newmark began granting stand-alone Newmark RSUs to Newmark employees
and directors. The fair value is determined on the date of grant based on the market value of Newmark Class A
common stock in the same fashion as described above, and the awards vest ratably over the 2-4 year vesting period
into settled units of Newmark Class A common stock.
The fair value of RSUs awarded to Newmark employees and directors is determined on the date of grant based
on the market value of Newmark Class A common stock (adjusted if appropriate based upon the award’s eligibility
to receive dividends), and is recognized, net of the effect of estimated forfeitures, ratably over the vesting period.
Newmark uses historical data, including historical forfeitures and turnover rates, to estimate expected forfeiture rates
for both employees and directors RSUs. Each RSU is settled into one unit of Newmark Class A common stock upon
completion of the vesting period.
During the years ended December 31, 2018 and 2017, BGC granted 0.0 million and 0.3 million, respectively,
of RSUs with aggregate estimated grant date fair value of $0.0 million and $2.8 million, respectively, to Newmark
employees and directors. These RSUs were awarded in lieu of cash compensation for salaries, commissions and/or
discretionary or guaranteed bonuses. RSUs granted to these individuals generally vest over a two- to four-year
period.
187
During the year ended December 31, 2018, Newmark granted 0.3 million of RSUs with aggregate estimated
grant date fair value of $3.6 million to Newmark employees and directors. These RSUs were awarded in lieu of cash
compensation for salaries, commissions and/or discretionary or guaranteed bonuses. RSUs granted to these
individuals generally vest over a two- to four-year period. There were no Newmark RSU grants during the year
ended December 31, 2017.
As of December 31, 2018 and December 31, 2017, the aggregate estimated grant date fair value of
outstanding BGC RSUs was $1.6 million and $3.3 million, respectively. As of December 31, 2018 and December
31, 2017, the aggregate estimated grant date fair value of outstanding Newmark RSUs was $3.0 million and $0.0
million, respectively.
Compensation expense related to BGC RSUs, before associated income taxes, was approximately
$1.1 million, $1.2 million and $1.0 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Compensation expense related to Newmark RSUs, before associated income taxes, was approximately $0.7 million
for the year ended December 31, 2018. As of December 31, 2018, there was approximately $2.5 million total
unrecognized compensation expense related to unvested Newmark RSUs and approximately $1.6 million total
unrecognized compensation expense related to unvested BGC RSUs.
Newmark may pay certain bonuses in the form of deferred cash compensation awards, which generally vest
over a future service period. The total compensation expense recognized in relation to the deferred cash
compensation awards for the years ended December 31, 2018, 2017 and 2016 were $2.1 million, $0.3 million and
$1.3 million, respectively. As of December 31, 2018 and 2017, the total liability for the deferred cash compensation
awards was $1.5 million and $0.4 million, respectively, and is included in “Other long-term liabilities” in
Newmark’s consolidated balance sheets.
See Note 26 – Related Party Transactions for compensation related matters for the transfer of CCRE
employees to Newmark.
(30) Commitments and Contingencies
(a) Contractual Obligations and Commitments
The following table summarizes certain of Newmark’s contractual obligations at December 31, 2018 (in
thousands):
Total
Less than
1 Year
1-3 Years 3-5 Years
More than
5 Years
Operating leases(1)
Warehouse facilities(2)
Long-term debt(3)
Interest on long-term debt(4)
Interest on warehouse facilities(5)
Total contractual obligations
$ 351,589 $
972,387 972,387
—
550,000
168,440
23,347
42,870 $ 79,784 $ 70,028 $ 158,907
—
—
—
—
$ 2,065,763 $ 1,072,292 $ 147,160 $ 687,404 $ 158,907
—
—
— 550,000
33,688 67,376 67,376
—
23,347
—
(1)
(2)
(3)
(4)
(5)
Operating leases are related to rental payments under various non-cancelable leases principally for office space, net of sublease
payments to be received. The total amount of sublease payments to be received is approximately $1.9 million over the life of the
agreement.
The warehouse facilities are collateralized by $972.4 of loans held for sale, at fair value (see Note 20 – Warehouse Facilities
Collateralized by U.S. Government Sponsored Enterprises), which loans were either under commitment to be purchased by
Freddie Mac or had confirmed forward trade commitments for the issuance of and purchase of Fannie Mae or Ginnie Mae
mortgage-backed securities.
Long-term debt reflects long-term borrowings of $550.0 million, 6.125% Senior Notes due 2023. The carrying amount of these
notes was approximately $537.6 million. See Note 21 Long-Term Debt and Long-Term Debt Payable to Related Parties for more
information regarding these obligations.
Reflects interest on the $550 million 6.125% Senior Notes until their maturity date of November 15, 2023.
Interest on the warehouse facilities was projected by using the 1 month LIBOR rate plus their respective additional basis points,
primarily 120 basis points above LIBOR, applied to their respective outstanding balances as of December 31, 2018, through their
respective maturity dates. Their respective maturity dates range from June to October 2019, while one line has an open maturity
date. The notional amount of these committed and uncommitted warehouse facilities was $1,975 million at December 31, 2018.
One of these lines had been increased temporarily to $1,000 million for the period from November 30, 2018 through January 29,
2019. On January 29, 2019 this temporary increase was reduced to $600 million.
188
As of December 31, 2018 and 2017, Newmark was committed to fund approximately $294 million and
$244 million, respectively, which is the total remaining draws on construction loans originated by Newmark under
the HUD 221(d)4, 220 and 232 programs, rate locked loans that have not been funded, forward commitments as well
as the funding for Fannie Mae structured transactions. Newmark also has corresponding commitments to sell these
loans to various investors as they are funded.
(b) Lease Commitments
Newmark is obligated for minimum rental payments under various non-cancelable operating leases,
principally for office space, expiring at various dates through 2031. Certain of the leases contain escalation clauses
that require payment of additional rent to the extent of increases in certain operating or other costs.
As of December 31, 2018, minimum lease payments under these arrangements were as follows (in thousands):
2019
2020
2021
2022
2023
Thereafter
Total
$
42,870
41,497
38,287
35,738
34,290
158,907
$ 351,589
Rent expense for the years ended December 31, 2018, 2017 and 2016 was $42.6 million, $36.7 million and
$37.3 million respectively. Rent expense is reported in “Operating, administrative and other” in Newmark’s
consolidated statements of operations.
(c) Contingent Payments Related to Acquisitions
Newmark completed acquisitions from 2014 through 2018 for which contingent cash consideration of $16.8
million and limited partnership units of 1.4 million may be issued on certain targets being met through 2021. The
contingent equity instruments are issued by and are included in the current portion of “Accounts payable, accrued
expenses and other liabilities” on Newmark’s consolidated balance sheet. The contingent cash liability is recorded at
fair value as deferred consideration on Newmark’s consolidated balance sheets.
(d) Contingencies
In the ordinary course of business, various legal actions are brought and are pending against Newmark and its
subsidiaries in the U.S. and internationally. In some of these actions, substantial amounts are claimed. Newmark is
also involved, from time to time, in reviews, examinations, investigations and proceedings by governmental and
self-regulatory agencies (both formal and informal) regarding Newmark’s businesses, which may result in
regulatory, civil and criminal judgments, settlements, fines, penalties, injunctions or other relief. The following
generally does not include matters that Newmark has pending against other parties which, if successful, would result
in awards in favor of Newmark or its subsidiaries:
Employment, Competitor-Related and Other Litigation
From time to time, Newmark and its subsidiaries are involved in litigation, claims and arbitrations in the U.S.
and internationally, relating to various employment matters, including with respect to termination of employment,
hiring of employees currently or previously employed by competitors, terms and conditions of employment and
other matters. In light of the competitive nature of the real estate services industry, litigation, claims and arbitration
between competitors regarding employee hiring are not uncommon.
189
Legal reserves are established in accordance with U.S. GAAP guidance on Accounting for Contingencies,
when a material legal liability is both probable and reasonably estimable. Once established, reserves are adjusted
when there is more information available or when an event occurs requiring a change. The outcome of such items
cannot be determined with certainty. Newmark is unable to estimate a possible loss or range of loss in connection
with specific matters beyond its current accrual and any other amounts disclosed. Management believes that, based
on currently available information, the final outcome of these current pending matters will not have a material
adverse effect on Newmark’s consolidated financial statements and disclosures taken as a whole.
Risks and Uncertainties
Newmark generates revenues by providing financial intermediary and brokerage activities and commercial
real estate services to institutional customers. Revenues for these services are transaction-based. As a result,
revenues could vary based on the transaction volume of global financial and real estate markets. Additionally,
financing is sensitive to interest rate fluctuations, which could have an impact on Newmark’s overall profitability.
(31) Subsequent Events
Fourth Quarter 2018 Dividend
On February 11, 2019, Newmark’s Board of Directors declared a quarterly qualified cash dividend of $0.09
per share payable on March 13, 2019 to Class A and Class B common stockholders of record as of February 28,
2019.
Exchange Offer for the 6.125% Senior Notes Due 2023
On February 5, 2019, Newmark announced an offer to exchange up to $550 million aggregate principal
amount of its outstanding 6.125% Senior Notes due 2023 issued in a private offering in November 2018 (the “Old
Notes”) for an equivalent amount of its 6.125% Senior Notes due 2023 registered under the Securities Act of 1933.
The exchange offer was made to satisfy the Company’s obligations under a registration rights agreement entered
into, in connection with the issuance of the Old Notes, and does not represent a new financing transaction. The
exchange offer closed on March 14, 2019.
190
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Newmark Group, Inc. maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed by Newmark Group, Inc. is recorded, processed, accumulated, summarized and
communicated to its management, including its Chairman and its Chief Financial Officer, to allow timely decisions
regarding required disclosures, and reported within the time periods specified in the SEC’s rules and forms. The
Chairman and the Chief Financial Officer have performed an evaluation of the effectiveness of the design and
operation of Newmark Group, Inc.’s disclosure controls and procedures as of December 31, 2018. Based on that
evaluation, the Chairman and the Chief Financial Officer concluded that Newmark Group, Inc’s disclosure controls
and procedures were effective as of December 31, 2018.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with
the participation of our management, including our Chairman and our Chief Financial Officer, we conducted an
evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2018 based upon
criteria set forth in the Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (COSO). Our internal control over financial
reporting includes policies and procedures that provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external reporting purposes in accordance with U.S.
generally accepted accounting principles.
Based on the results of our 2018 evaluation, our management concluded that our internal control over
financial reporting was effective as of December 31, 2018. We reviewed the results of management’s assessment
with our Audit Committee.
Management has excluded the acquisition of RKF Retail Holdings, LLC, which did not have a material effect
on our financial condition, results of operations or cash flows in 2018. However, we do anticipate that this
acquisition will be included in management’s assessment of internal control over financial reporting and our audit of
internal controls over financial reporting for 2019. RKF Holdings, LLC is included in our 2018 consolidated
financial statements and constituted 1.3 % and less than 1% of total and net assets, respectively, as of December 31,
2018 and less than 1% of revenues and net income for the year then ended. The effectiveness of our internal control
over financial reporting as of December 31, 2018 has been audited by Ernst & Young, an independent registered
public accounting firm, as stated in their report, which is included in this Annual Report on Form 10-K. Such report
expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as
of December 31, 2018.
Changes in Internal Control over Financial Reporting
During the quarter ended December 31, 2018, there were no changes in our internal control over financial
reporting that materially affect, or are reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION
Not Applicable.
191
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information appearing under “Election of Directors,” “Executive Officers,” “Section 16(a) Beneficial
Ownership Reporting Compliance” and “Code of Ethics and Whisteblower Procedures” in the definitive Proxy
Statement for the Company’s 2019 Annual Meeting of Stockholders (the “2019 Proxy Statement”) is hereby
incorporated by reference in response to this Item 10. We anticipate that we will file the 2019 Proxy Statement with
the SEC on or before April 30, 2019.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under “Compensation Discussion and Analysis,” “Compensation Committee
Report,” “Executive Compensation” and “Compensation Committee Interlocks and Insider Participation” in the
2019 Proxy Statement is hereby incorporated by reference in response to this Item 11.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The information appearing under “Security Ownership of Certain Beneficial Owners and Management” and
“Equity Compensation Plan Information as of December 31, 2018” in the 2019 Proxy Statement is hereby
incorporated by reference in response to this Item 12.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information appearing under “Certain Relationships and Related Transactions, and Director
Independence” and “Election of Directors – Independence of Directors” in the 2019 Proxy Statement is hereby
incorporated by reference in response to this Item 13.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information appearing under “Independent Registered Public Accounting Firm Fees” and “Audit
Committee Pre-Approval Policies and Procedures” in the 2019 Proxy Statement is hereby incorporated by reference
in response to this Item 14.
192
PART IV—OTHER INFORMATION
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) (1) Financial Statements. The consolidated financial statements required to be filed in this Annual Report
on Form 10-K are included in Part II, Item 8 hereof.
(a) (2) Schedule I, Parent Company Only Financial Statements. All other schedules are omitted because they
are not applicable or not required, or the required information is in the financial statements or the notes thereto.
(a) (3) The Exhibit Index set forth below is incorporated by reference in response to this Item 15.
The following Exhibits are filed as part of this Report as required by Regulation S-K. The Exhibits designated
by an asterisk (*) are management contracts and compensation plans and arrangements required to be filed as
Exhibits to this Report. Schedules and similar attachments to the exhibits designated by a double asterisk (**) have
been omitted pursuant to Item 601(b)(2) of Regulation S-K. Newmark Group, Inc. will supplementally furnish a
copy of them to the Securities and Exchange Commission (the “SEC”) upon request.
Exhibit
Number
1.1
2.1
2.2
2.3
EXHIBIT INDEX
Exhibit Title
Underwriting Agreement, dated as of December 14, 2017, by and among Newmark Group, Inc. and
Goldman Sachs & Co. LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global
Markets Inc. and Cantor Fitzgerald & Co. as representatives of the several underwriters named therein
(incorporated by reference to Exhibit 1.1 to the Registrant’s Current Report on Form 8-K filed with the
SEC on December 19, 2017)
Separation and Distribution Agreement, dated as of December 13, 2017, by and among Cantor
Fitzgerald, L.P., BGC Partners, Inc., BGC Holdings, L.P., BGC Partners, L.P., BGC Global Holdings,
L.P., Newmark Group, Inc., Newmark Holdings, L.P. and Newmark Partners, L.P. (incorporated by
reference as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on
December 19, 2017)**
Amendment No. 1, dated November 8, 2018, to the Separation and Distribution Agreement, dated as of
December 13, 2017, by and among BGC Partners, Inc., BGC Holdings, L.P., BGC Partners, L.P.,
Newmark Group, Inc., Newmark Holdings, L.P., Newmark Partners, L.P., Cantor Fitzgerald, L.P., and
BGC Global Holdings, L.P. (incorporated by reference to Exhibit 10.5 to the Current Report on Form
10-Q filed by BGC Partners, Inc. with the SEC on November 8, 2018)**
Amended and Restated Separation and Distribution Agreement, dated as of November 23, 2018, by and
among Cantor Fitzgerald, L.P., BGC Partners, Inc., BGC Holdings, L.P., BGC Partners, L.P., BGC
Global Holdings, L.P., Newmark Group, Inc., Newmark Holdings, L.P. and Newmark Partners, L.P.
(incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the
SEC on November 27, 2018)**
3.1
Amended and Restated Certificate of Incorporation of Newmark Group, Inc. (incorporated by reference
to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on December 19,
2017)
3.2
Amended and Restated Bylaws of Newmark Group, Inc. (incorporated by reference to Exhibit 3.2 to the
Registrant’s Current Report on Form 8-K filed with the SEC on December 19, 2017)
193
Exhibit
Number
4.1
4.2
4.3
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Exhibit Title
Indenture, dated as of November 6, 2018, between Newmark Group, Inc. and Regions Bank, as trustee
(incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the
SEC on November 8, 2018)
First Supplemental Indenture, dated as of November 6, 2018, between Newmark Group, Inc. and
Regions Bank, as trustee (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on
Form 8-K filed with the SEC on November 8, 2018)
Form of Newmark Group, Inc. 6.125% Senior Notes due 2023 (incorporated by reference to Exhibit 4.2
to the Registrant’s Current Report on Form 8-K filed with the SEC on November 8, 2018)
Amended and Restated Agreement of Limited Partnership of Newmark Holdings, L.P., dated as of
December 13, 2017 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K filed with the SEC on December 19, 2017)
Amended and Restated Agreement of Limited Partnership of Newmark Partners, L.P., dated as of
December 13, 2017 (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on
Form 8-K filed with the SEC on December 19, 2017)
Amendment No. 1 to Amended and Restated Agreement of Limited Partnership of Newmark Partners,
L.P., dated as of March 14, 2018 (incorporated by reference as Exhibit 10.27 to the Registrant’s Annual
Report on Form 10-K filed with the SEC on March 20, 2018)
Second Amended and Restated Limited Partnership Agreement of Newmark Partners, L.P., dated as of
June 19, 2018 (incorporated by reference as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K
filed with the SEC on June 20, 2018)
Third Amended and Restated Agreement of Limited Partnership of Newmark Partners, L.P., dated as of
September 26, 2018 (incorporated by reference as Exhibit 10.3 to the Registrant’s Current Report on
Form 8-K filed with the SEC on September 28, 2018)
Second Amended and Restated Agreement of Limited Partnership of BGC Holdings, L.P., dated as of
December 13, 2017 (incorporated by reference as Exhibit 10.3 to the Registrant’s Current Report on
Form 8-K filed with the SEC on December 19, 2017)
Registration Rights Agreement, dated as of December 13, 2017, by and among Cantor Fitzgerald, L.P.,
BGC Partners, Inc. and Newmark Group, Inc. (incorporated by reference as Exhibit 10.4 to the
Registrant’s Current Report on Form 8-K filed with the SEC on December 19, 2017)
Administrative Services Agreement, dated as of December 13, 2017, by and among Cantor Fitzgerald,
L.P. and Newmark Group, Inc. (incorporated by reference to Exhibit 10.5 to the Registrant’s Current
Report on Form 8-K filed with the SEC on December 19, 2017)
Transition Services Agreement, dated as of December 13, 2017, by and between BGC Partners, Inc. and
Newmark Group, Inc. (incorporated by reference as Exhibit 10.7 to the Registrant’s Current Report on
Form 8-K filed with the SEC on December 19, 2017)
10.10
Tax Matters Agreement, dated as of December 13, 2017, by and among BGC Partners, Inc., BGC
Holdings, L.P., BGC Partners, L.P., Newmark Group, Inc., Newmark Holdings, L.P. and Newmark
Partners, L.P. (incorporated by reference as Exhibit 10.8 to the Registrant’s Current Report on Form 8-K
filed with the SEC on December 19, 2017)
10.11
Tax Receivable Agreement, dated as of December 13, 2017, by and between Cantor Fitzgerald, L.P. and
Newmark Group, Inc. (incorporated by reference to Exhibit 10.8 to the Registrant’s Current Report on
Form 8-K filed with the SEC on December 19, 2017)
194
Exhibit
Number
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
Exchange Agreement, dated as of December 13, 2017, by and among Cantor Fitzgerald, L.P., BGC
Partners, Inc. and Newmark Group, Inc. (incorporated by reference as Exhibit 10.10 to the Registrant’s
Current Report on Form 8-K filed with the SEC on December 19, 2017)
Exhibit Title
Term Loan Credit Agreement, dated as of September 8, 2017, by and among BGC Partners, Inc., as
Borrower, certain subsidiaries of the Borrower, as Guarantors, the several financial institutions from
time to time as parties thereto, as lenders, and Bank of America N.A., as Administrative Agent
(incorporated by reference as Exhibit 10.3 to the BGC Partners, Inc.’s Current Report on Form 8-K filed
with the SEC on September 8, 2017)
Amendment, dated November 22, 2017, to the Term Loan Credit Agreement, dated September 8, 2017,
by and among BGC Partners, Inc., as the Borrower, certain subsidiaries of the Borrower, as Guarantors,
the several financial institutions from time to time parties thereto, as Lenders, and Bank of America,
N.A., as Administrative Agent (incorporated by reference as Exhibit 10.2 to the BGC Partners, Inc.’s
Current Report on Form 8-K filed with the SEC on November 28, 2017)
Revolving Credit Agreement, dated as of September 8, 2017, by and among BGC Partners, Inc., as
Borrower, certain subsidiaries of the Borrower, as Guarantors, the several financial institutions from
time to time as parties thereto, as lenders, and Bank of America N.A., as Administrative Agent
(incorporated by reference as Exhibit 10.2 to the BGC Partners, Inc.’s Current Report on Form 8-K filed
with the SEC on September 8, 2017)
Amendment, dated November 22, 2017, to the Revolving Credit Agreement, dated September 8, 2017,
by and among BGC Partners, Inc., as the Borrower, certain subsidiaries of the Borrower, as Guarantors,
the several financial institutions from time to time parties thereto, as Lenders, and Bank of America,
N.A., as Administrative Agent (incorporated by reference as Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K filed with the SEC on November 28, 2017)
Indenture, dated as of June 26, 2012, between BGC Partners, Inc. and U.S. Bank National Association,
as Trustee, relating to the 8.125% Senior Notes due 2042 (incorporated by reference to Exhibit 4.1 to
the BGC Partners, Inc.’s Current Report on Form 8-K filed with the SEC on June 27, 2012)
First Supplemental Indenture, dated as of June 26, 2012, between BGC Partners, Inc. and U.S. Bank
National Association, as Trustee, relating to 8.125% Senior Notes due 2042 (incorporated by reference
to Exhibit 4.2 to BGC Partners, Inc.’s Current Report on Form 8-K filed with the SEC on June 27, 2012)
Amended and Restated Promissory Note of BGC Partners, L.P., effective as of June 26, 2012
(incorporated by reference to Exhibit 10.23 of Amendment No. 3 to the Registration Statement on
Form S-1 of Newmark Group, Inc. filed with the SEC on December 4, 2017)
Second Supplemental Indenture, dated December 9, 2014, between BGC Partners, Inc. and U.S. Bank
National Association, as Trustee (incorporated by reference to Exhibit 4.2 to the BGC Partners, Inc.’s
Current Report on Form 8-K filed with the SEC on December 10, 2014)
Amended and Restated Promissory Note of BGC Partners, L.P., effective as of December 9, 2014
(incorporated by reference to Exhibit 10.25 of Amendment No. 3 to the Registration Statement on Form
S-1 of Newmark Group, Inc. filed with the SEC on December 4, 2017)
Change of Control Agreement, dated as of December 13, 2017, by and between Newmark Group, Inc.
and Howard W. Lutnick (incorporated by reference as Exhibit 10.20 to the Registrant’s Current Report
on Form 8-K filed with the SEC on December 19, 2017)*
Employment Agreement, dated as of December 1, 2017, by and between Newmark Partners, L.P. and
Barry M. Gosin (incorporated by reference to Exhibit 10.13 of Amendment No. 3 to the Registration
Statement on Form S-1 of Newmark Group, Inc. filed with the SEC on December 4, 2017)*
Letter Agreement, effective as of December 1, 2017, by and between Barry M. Gosin and BGC
Holdings, L.P. (incorporated by reference to Exhibit 10.27 of Amendment No. 3 to the Registration
Statement on Form S-1 of Newmark Group, Inc. filed with the SEC on December 4, 2017)*
195
Exhibit
Number
10.25
10.26
10.27
10.28
10.29
Exhibit Title
Letter Agreement, effective as of December 1, 2017, by and between Barry M. Gosin and Newmark
Holdings, L.P. (incorporated by reference to Exhibit 10.28 of Amendment No. 3 to the Registration
Statement on Form S-1 of Newmark Group, Inc. filed with the SEC on December 4, 2017)*
Newmark Group, Inc. Long-Term Incentive Plan (incorporated by reference as Exhibit 10.24 to the
Registrant’s Current Report on Form 8-K filed with the SEC on December 19, 2017)*
Newmark Group, Inc. Incentive Bonus Compensation Plan (incorporated by reference as Exhibit 10.25
to the Registrant’s Current Report on Form 8-K filed with the SEC on December 19, 2017)*
Newmark Holdings, L.P. Participation Plan (incorporated by reference as Exhibit 10.26 to the
Registrant’s Current Report on Form 8-K filed with the SEC on December 19, 2017)*
Investment Agreement, dated as of March 6, 2018, by and among BGC Partners, Inc., BGC Holdings,
L.P., BGC Partners, L.P., BGC Global Holdings, L.P., Newmark Group, Inc., Newmark Holdings, L.P.,
and Newmark Partners, L.P. (incorporated by reference as Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K filed with the SEC on March 7, 2018)
10.30
Amended and Restated Credit Agreement, dated as of March 19, 2018, by and between BGC Partners,
Inc. and Newmark Group, Inc. (incorporated by reference as Exhibit 10.28 to the Registrant’s Annual
Report on Form 10-K filed with the SEC on March 20, 2018)
10.31
Variable Postpaid Forward Transaction Confirmation Agreement by and between Newmark SPV I, LLC
and Royal Bank of Canada, dated as of June 18, 2018 (incorporated by reference as Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed with the SEC on June 20, 2018)
10.32
Parent Agreement by and among Newmark Partners, L.P., Newmark Group, Inc. and Royal Bank of
Canada, dated as of June 18, 2018 (incorporated by reference as Exhibit 10.3 to the Registrant’s Current
Report on Form 8-K filed with the SEC on June 20, 2018)
10.33
Variable Postpaid Forward Transaction Supplemental Confirmation Agreements by and between
Newmark SPV I, LLC and Royal Bank of Canada, dated as of September 25, 2018 (incorporated by
reference as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on
September 28, 2018)
10.34
2018-2 Parent Agreement by and among Newmark Partners, L.P., Newmark Group, Inc. and Royal Bank
of Canada, dated as of September 25, 2018 (incorporated by reference as Exhibit 10.4 to the Registrant’s
Current Report on From 8-K filed with the SEC on September 28, 2018)
10.35
Registration Rights Agreement, dated as of November 6, 2018, between Newmark Group, Inc. and the
parties named therein (incorporated by reference as Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K filed with the SEC on November 8, 2018)
10.36
Credit Agreement, dated as of November 28, 2018, by and among Newmark Group, Inc., as the
Borrower, certain subsidiaries of the Borrower, as Guarantors, the several financial institutions from
time to time as parties thereto, as Lenders, and Bank of America, N.A., as Administrative Agent
(incorporated by reference as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the
SEC on November 30, 2018)
10.37
Intercompany Credit Agreement, dated as of November 30, 2018, between Newmark Group, Inc. and
Cantor Fitzgerald, L.P.(incorporated by reference as Exhibit 10.2 to the Registrant’s Current Report on
Form 8-K filed with the SEC on November 30, 2018)
21.1
23.1
List of subsidiaries of Newmark Group, Inc.
Consent of Ernst & Young LLP
196
Exhibit
Number
23.2
31.1
31.2
32.1
101
Consent of KPMG LLP
Exhibit Title
Certification by the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
Certification by the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
Certification by the Principal Executive Officer and Principal Financial Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
The following materials from Newmark Group, Inc.’s Annual Report on Form 10-K for the period ended
December 31, 2018 are formatted in eXtensible Business Reporting Language (XBRL): (i) the
Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated
Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Equity, (v) the
Consolidated Statements of Cash Flows (vi) Notes to the Consolidated Financial Statements, and
(vii) Schedule I, Parent Company Only Financial Statements.
197
ITEM 16. FORM 10-K SUMMARY
Not Applicable.
198
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this Annual Report on Form 10-K for the fiscal year ended December 31, 2018 to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 15th day of March, 2019.
Newmark Group, Inc.
By:
Name:
Title:
/s/ Howard W. Lutnick
Howard W. Lutnick
Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has
been signed below by the following persons on behalf of the registrant, Newmark Group, Inc., in the capacities and
on the date indicated.
Signature
Capacity in Which Signed
Date
/s/ Howard W. Lutnick
Chairman (Principal Executive Officer)
March 15, 2019
Howard W. Lutnick
/s/ Barry Gosin
Barry Gosin
/s/ Michael J. Rispoli
Michael J. Rispoli
Chief Executive Officer
March 15, 2019
Chief Financial Officer (Principal Financial
and Accounting Officer)
March 15, 2019
/s/ Virginia S. Bauer
Director
March 15, 2019
Virginia S. Bauer
/s/ Peter F. Cervinka
Director
March 15, 2019
Peter F. Cervinka
/s/ Michael Snow
Michael Snow
Director
March 15, 2019
199
NEWMARK GROUP, INC.
(Parent Company Only)
Balance Sheet
(in thousands)
Assets:
Current assets:
Cash and cash equivalents
Receivables from related parties
Total current assets
Investment in subsidiaries
Note receivable from related party
Other assets
Total assets
Liabilities:
Current liabilities:
Accounts payable and accrued expenses
Payable to related parties
Total current liabilities
Long-term debt
Total liabilities
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2018
December 31,
2017
$
$
$
$
24
-
24
501,000
593,517
152,027
1,246,568
84,436
56,637
141,073
537,926
678,999
567,569
1,246,568
$
$
$
$
1
11,474
11,475
101,834
670,710
164,569
948,588
16,313
1,155
17,468
670,710
688,178
260,410
948,588
See accompanying Notes to Financial Statements.
200
NEWMARK GROUP, INC.
(Parent Company Only)
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
December 31,
2018
December 31,
2017
November 18,
2016 through
December 31,
2016
Revenues:
Interest income
Total revenue
Expenses:
Professional and consulting fees
Interest expense
Other expenses
Total expenses
Loss from operations before income taxes
Equity income of subsidiaries
Provision for income taxes
Net income available to common stockholders
Per share data:
Basic earnings per share
Net income available to common stockholders
Basic earnings per share
Basic weighted-average shares of common stock
outstanding
Fully diluted earnings per share
$
27,249 $
27,249
1,433 $
1,433
277
27,249
344
27,870
—
1,499
—
1,499
(621 )
190,826
83,473
106,732
$
(66 )
199,166
54,608
144,492
101,641
0.65
$
$
144,492
1.08
157,256
133,413
$
$
$
Net income for fully diluted shares
Fully diluted earnings per share
Fully diluted weighted-average shares of common stock
outstanding
$
$
105,571
0.64
$
$
117,217
0.85
163,810
138,398
See accompanying Notes to Financial Statements.
—
—
—
—
—
—
—
—
—
—
—
N/A
N/A
N/A
N/A
N/A
201
NEWMARK GROUP, INC.
(Parent Company Only)
STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income
Total other comprehensive income, net of tax
Comprehensive income available to common stockholders
December 31,
2018
106,732 $
106,732
106,732 $
December 31,
2017
144,492 $
144,492
144,492 $
$
$
November 18,
2016 through
December 31,
2016
—
—
—
See accompanying Notes to Financial Statements.
202
NEWMARK GROUP, INC.
(Parent Company Only)
STATEMENTS OF CASH FLOWS
(in thousands)
December 31,
2018
December 31,
2017
$
106,732 $
144,492
November 18,
2016 through
December 31,
2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income available to common stockholders
Adjustments to reconcile net income to net cash used in
operating activities:
Equity income from subsidiaries
Deferred tax provision
Changes in operating assets and liabilities:
Receivables from subsidiaries
Payable to subsidiaries
Other assets
Accounts payable, accrued and other liabilities
Net cash from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions
Contribution to subsidiary
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Contribution from BGC
Proceeds from the Initial Public Offering, net of
underwriting discounts
Repayment of long-term debt
Borrowings of long-term debt
Distributions from subsidiaries
Reinvestment of cash in subsidiaries
Dividends to stockholders
Treasury stock repurchases
Repayment of related party receivable
Net cash provided by (used in) financing activities
Net cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest
Taxes
Supplemental disclosure of noncash investing and financing
activities:
Net assets contributed by BGC Partners’
Note receivable from related parties
Debt assumed from BGC
Accrued offering costs
$
$
$
$
$
$
$
(190,826 )
14,197
(199,166 )
47,548
22,717
120,483
(1,655 )
68,123
139,771
(2,342 )
1,157
—
8,311
—
(6,691 )
—
(6,691 )
—
(304,290 )
(304,290 )
—
—
—
(670,710 )
537,926
107,000
(65,000 )
(41,787 )
(486 )
—
(133,057 )
23
1
24 $
304,290
(304,290 )
—
304,290
304,290
—
1
1 $
21,751 $
1,165 $
— $
— $
— $
— $
— $
— $
795,497 $
975,000 $
975,000 $
8,870 $
See accompanying Notes to Financial Statements.
203
—
—
—
—
—
—
—
—
—
—
—
—
1
—
—
—
—
1
1
—
1
—
—
—
—
—
—
NEWMARK GROUP, INC.
(Parent Company Only)
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Basis of Presentation
The accompanying Parent Company Only Financial Statements of Newmark Group, Inc. (“Newmark”) should
be read in conjunction with the consolidated financial statements of Newmark Group, Inc. and subsidiaries and notes
thereto. Newmark, a Delaware corporation, was formed as NRE Delaware, Inc. on November 18, 2016. Newmark
changed its name to Newmark Group, Inc. on October 18, 2017. Newmark Holdings, L.P. (“Newmark Holdings”) is
a consolidated subsidiary of Newmark for which Newmark is the general partner. Newmark and Newmark Holdings
jointly own Newmark Partners, L.P. (“Newmark OpCo”), the operating partnership. Newmark is a leading
commercial real estate services firm. Newmark offers commercial real estate tenants, owner-occupiers, investors and
developers a wide range of services, including leasing and corporate advisory, investment sales and real estate
finance, origination of and servicing of commercial mortgage loans, valuation, project and development
management and property and facility management.
Newmark was formed through BGC Partners Inc.’s (“BGC Partners” or “BGC”) purchase of Newmark &
Company Real Estate, Inc. and certain of its affiliates in 2011. A majority of the voting power of BGC Partners is
held by Cantor Fitzgerald, L.P. and its affiliates, (together “Cantor”), including Cantor Fitzgerald & Co (“CF&Co”),
subsequent to the Spin-off, the majority of the voting power of Newmark is held by Cantor.
Acquisition of Berkeley Point and Investment in Real Estate LP
On September 8, 2017, BGC acquired from Cantor Commercial Real Estate Company, LP (“CCRE”), 100%
of the equity of Berkeley Point Financial (“Berkeley Point Acquisition”). Berkeley Point Financial (“BPF”, or,
together with Newmark’s multifamily investment sales and non-GSE multifamily brokerage business, it’s
“Multifamily Capital Market Business”) a leading commercial real estate finance company focused on the
origination and sale of multifamily and other commercial real estate loans through government-sponsored and
government-funded loan programs, as well as the servicing of commercial real estate loans. At the closing of the
Berkeley Point Acquisition, BGC purchased and acquired from CCRE all of the outstanding membership interests of
BPF, a wholly owned subsidiary of CCRE, for an acquisition price of $875.0 million, subject to a post-closing
upward or downward adjustment to the extent that the net assets, inclusive of certain fair value adjustments, of BPF
as of the closing were greater than or less than $508.6 million. BGC paid $3.2 million of the $875.0 million
acquisition price with 247,099 limited partnership units of BGC Holdings, L.P. (“BGC Holdings”), which may be
exchanged over time for shares of Class A common stock of BGC, with each BGC Holdings unit valued for these
purposes at the volume weighted-average price of a share of BGC Class A common stock for the three trading days
prior to the closing. The Berkeley Point Acquisition did not include the Special Asset Servicing Group of BPF;
however, BPF will continue to hold the Special Asset Servicing Group’s assets until the servicing group is
transferred to CCRE at a later date in a separate transaction. Accordingly, CCRE will continue to bear the benefits
and burdens of the Special Asset Servicing Group from and after the closing (the “Special Asset Servicing
Arrangement”).
Concurrently with the Berkeley Point Acquisition, on September 8, 2017 Newmark OpCo invested
$100 million in a newly formed commercial real estate-related financial and investment business, CF Real Estate
Finance Holdings, L.P. (“Real Estate LP”), which is controlled and managed by Cantor. Real Estate LP may conduct
activities in any real estate related business or asset backed securities-related business or any extensions thereof and
ancillary activities thereto. As of December 31, 2018 and 2017, Newmark’s investment in Real Estate LP was
accounted for under the equity method.
Separation and Distribution Agreement
On December 13, 2017, prior to the closing of Newmark’s initial public offering (“IPO”), BGC, BGC
Holdings, BGC Partners, L.P. (“BGC U.S. OpCo”), Newmark, Newmark Holdings, Newmark OpCo and, solely for
the provisions listed therein, Cantor and BGC Global Holdings, L.P. (“BGC Global OpCo”) entered into a
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Separation and Distribution Agreement (the “Separation and Distribution Agreement”). The Separation and
Distribution Agreement sets forth the agreements among BGC, Cantor, Newmark and their respective subsidiaries
regarding, among other things:
• the principal corporate transactions pursuant to which BGC, BGC Holdings and BGC U.S. OpCo and their
respective subsidiaries (other than the Newmark Group (defined below), the “BGC Group”)
transferred to Newmark, Newmark Holdings and Newmark OpCo and their respective subsidiaries (the
“Newmark Group”) the assets and liabilities of the BGC Group relating to BGC’s Real Estate Services
business, including BGC’s interests in both BPF and Real Estate LP (the “Separation”);
• the proportional distribution of interests in Newmark Holdings to holders of interests in BGC Holdings;
• the IPO;
• the assumption and repayment of indebtedness by the BGC Group and the Newmark Group, as further
described below;
• the pro rata distribution of the shares of Newmark Class A common stock and the shares of Newmark
Class B common stock held by BGC, pursuant to which shares of Newmark Class A common stock held
by BGC would be distributed to the holders of shares of BGC Class A common stock and shares of
Newmark Class B common stock held by BGC would be distributed to the holders of shares of BGC
Class B common stock (which are currently Cantor and another entity controlled by Howard W. Lutnick),
which distribution is intended to qualify as generally tax-free for U.S. federal income tax purposes; and
• other agreements governing the relationship between BGC, Newmark and Cantor.
Initial Public Offering
On December 15, 2017, Newmark announced the pricing of the IPO of 20 million shares of Newmark’s
Class A common stock at a price to the public of $14.00 per share, which was completed on December 19, 2017.
Newmark Class A shares began trading on December 15, 2017 on the NASDAQ Global Select Market under the
symbol “NMRK.” In addition, Newmark granted the underwriters a 30-day option (the “overallotment option”) to
purchase up to an additional 3 million shares of Newmark Class A common stock at the IPO price, less underwriting
discounts and commissions. On December 26, 2017, the underwriters of the IPO exercised in full their overallotment
option to purchase an additional 3 million shares of Newmark Class A common stock from Newmark at the IPO
price, less underwriting discounts and commission. As a result, Newmark received aggregate net proceeds of
approximately $295.4 million from the IPO, after deducting underwriting discounts and commissions and estimated
offering expenses. Upon the closing of the option, Newmark’s public stockholders owned approximately 16.6% of
the shares of Newmark Class A common stock. This is based on 138.6 million shares of Newmark Class A common
stock outstanding following the closing of the overallotment option. Also upon the closing of the overallotment
option, Newmark’s public stockholders owned approximately 9.8% of Newmark’s 234.2 million fully diluted shares
outstanding
The Spin-Off
On November 30, 2018, BGC completed the Spin-Off to its stockholders of all of the shares of Newmark
common stock owned by BGC as of immediately prior to the effective time of the Spin-off, with shares of Newmark
Class A common stock distributed to the holders of shares of BGC’s Class A common stock (including directors and
executive officers of BGC Partners) of record as of the close of business on November 23, 2018 (the “Record
Date”), and shares of Newmark Class B common stock distributed to the holders of shares of BGC’s Class B
common stock (consisting of Cantor and CF Group Management, Inc. (“CFGM”)) of record as of the close of
business on the Record Date.
Based on the number of shares of BGC common stock outstanding as of the close of business on the Record
Date, BGC’s stockholders as of the Record Date received in the Spin-off 0.463895 of a share of Newmark Class A
common stock for each share of BGC Class A common stock held as of the Record Date, and 0.463895 of a share of
205
Newmark Class B common stock for each share of BGC Class B common stock held as of the Record Date. BGC
Partners stockholders received cash in lieu of any fraction of a share of Newmark common stock that they otherwise
would have received in the Spin-off.
Prior to and in connection with the Spin-Off, 14.8 million Newmark Units held by BGC were exchanged into
9.4 million shares of Newmark Class A common stock and 5.4 million shares of Newmark Class B common stock,
and 7.0 million Newmark OpCo Units held by BGC were exchanged into 6.9 million shares of Newmark Class A
common stock. These Newmark Class A and Class B shares of common stock were included in the Spin-Off to
BGC’s stockholders.
In the aggregate, BGC distributed 131,886,409 shares of Newmark Class A common stock and 21,285,537
shares of Newmark Class B common stock to BGC’s stockholders in the Spin-off. These shares of Newmark
common stock collectively represented approximately 94% of the total voting power of our outstanding common
stock and approximately 87% of the total economics of our outstanding common stock in each case as of the
Distribution Date.
On November 30, 2018, BGC Partners also caused its subsidiary, BGC Holdings, to distribute pro rata (the
“BGC Holdings distribution”) all of the 1,458,931 exchangeable limited partnership units of Newmark Holdings,
held by BGC Holdings immediately prior to the effective time of the BGC Holdings distribution to its limited
partners entitled to receive distributions on their BGC Holdings units (including Cantor and executive officers of
BGC) who were holders of record of such units as of the Record Date. The Newmark Holdings units distributed to
BGC Holdings partners in the BGC Holdings distribution are exchangeable for shares of Newmark Class A common
stock, and in the case of the 449,917 Newmark Holdings units received by Cantor also into shares of Newmark
Class B common stock, at the applicable exchange ratio (subject to adjustment). As of December 31, 2018, the
exchange ratio was 0.9793 shares of Newmark common stock per Newmark Holdings unit.
Following the Spin-Off and the BGC Holdings distribution, BGC Partners ceased to be Newmark’s
controlling stockholder, and BGC and its subsidiaries no longer held any shares of Newmark’s common stock or
other equity interests in it or its subsidiaries. Cantor continues to control Newmark and its subsidiaries following the
Spin-Off and the BGC Holdings distribution.
Debt
On November 6, 2018, Newmark closed its offering of $550.0 million aggregate principal amount of 6.125%
Senior Notes due 2023 (the “6.125% Senior Notes”). The 6.125% Senior Notes were priced at 98.937% to yield
6.375%. The 6.125% Senior Notes, which were priced on November 1, 2018, were offered and sold by Newmark in
a private offering exempt from the registration requirements under the Securities Act of 1933. The 6.125% Senior
Notes bear an interest rate of 6.125% per annum, payable on each May 15 and November 15, beginning on May 15,
2019, and will mature on November 15, 2023. The initial carrying amount of the 6.125% Senior Notes was $537.6
million, net of debt issue costs of $6.3 million and net of debt discount of $5.8 million.
On November 28, 2018, Newmark entered into a credit agreement by and among Newmark, the several
financial institutions from time to time party thereto, as Lenders, and Bank of America N.A., as administrative
agent, the Credit Agreement. The Credit Agreement provides for a $250.0 million three-year unsecured senior
revolving credit facility, the Credit Facility. The Credit Facility also provides for an unused facility fee. No amounts
were outstanding on this facility as of December 31, 2018.
On November 30, 2018 the Company entered into an unsecured credit agreement with Cantor. The Cantor
Credit Agreement provides for each party to issue loans to the other party in the lender’s discretion. Pursuant to the
Cantor Credit Agreement, the parties and their respective subsidiaries (with respect to CFLP, other than BGC and its
subsidiaries) may borrow up to an aggregate principal amount of $250.0 million from each other from time to time.
As of December 31, 2018, there were no borrowings outstanding under the new unsecured senior revolving credit
agreement.
On November 22, 2017, BGC and Newmark entered into an amendment to an unsecured senior term loan. On
November 22, 2017, BGC and Newmark entered into an amendment to an unsecured senior term loan credit
agreement dated as of September 8, 2017, with Bank of America, N.A., as administrative agent and a syndicate of
206
lenders. The agreement provides for a term loan of up to $575.0 million (the “Term Loan”), and as of the Separation
this entire amount remained outstanding under the term loan credit agreement. Pursuant to the term loan amendment
and effective as of the Separation, Newmark assumed the obligations of BGC as borrower under the Term Loan.
Newmark used the proceeds, net of underwriting discounts from the IPO to partially repay $304.3 million of the
Term Loan. During the year ended December 31, 2018, Newmark repaid the outstanding balance of $270.7 million
on the Term Loan, at which point the facility was terminated.
Also on November 22, 2017, BGC and Newmark entered into an amendment to the unsecured senior
revolving credit agreement, dated as of September 8, 2017, with the administrative agent and a syndicate of lenders.
The revolving credit agreement provides for revolving loans of up to $400.0 million. As of the date of the revolver
amendment and as of the Separation, $400.0 million of borrowings were outstanding under the revolving credit
facility. Pursuant to the revolver amendment, the then-outstanding borrowings of BGC under the revolving credit
facility were converted into a term loan (the “Converted Term Loan”) and, effective upon the Separation, Newmark
assumed the obligations of BGC as borrower under the Converted Term Loan. On June 19, 2018, Newmark repaid
$152.9 million, and on September 26, 2018, Newmark repaid $113.2 million of the Converted Term Loan using
proceeds from the issuance of exchangeable preferred limited partnership units. On November 6, 2018, Newmark
repaid the remaining $133.9 million outstanding principal amount of the Converted Term Loan using the proceeds
from the sale of its 6.125% Senior Notes.
(2) Other Assets
Other assets of $152.0 million consist of prepaid expenses of $1.6 million and deferred tax assets of $150.4
million as of December 31, 2018. As of December 31, 2017, other assets consist of deferred tax assets of $164.6
million. Deferred tax assets are primarily comprised of book-tax difference associated with deferred compensation
awards as well as the basis difference between BPF’s net assets and its tax basis.
(3) Accounts payable and accrued expenses
Accounts payable and accrued expenses consisted of the following (in thousands):
Accrued interest
Corporate taxes payable
Other
As of December 31,
2018
2017
$
$
5,149 $
79,079
208
84,436 $
1,254
7,059
8,000
16,313
( 4) Long-Term Debt
6.125% Senior Notes
On November 6, 2018, Newmark closed its offering of $550.0 million aggregate principal amount of 6.125%
Senior Notes due 2023. The 6.125% Senior Notes were priced at 98.937% to yield 6.375%. The 6.125% Senior
Notes, which were priced on November 1, 2018, were offered and sold by Newmark in a private offering exempt
from the registration requirements under the Securities Act of 1933. The 6.125% Senior Notes bear an interest rate
of 6.125% per annum, payable on each May 15 and November 15, beginning on May 15, 2019, and will mature on
November 15, 2023. The initial carrying amount of the 6.125% Senior Notes was $537.6 million, net of debt issue
costs of $6.3 million and net of debt discount of $5.8 million. Newmark uses the effective interest rate method to
amortize the debt discount over the life of the loan. Newmark amortized $0.2 million of debt discount for the year
ended December 31, 2018. Newmark uses the straight-line method to amortize these debt issue costs over the life
of the loan. Newmark amortized $0.2 million for the year ended December 31, 2018. Newmark recorded interest
expense related to the 6.125% Senior Notes of $5.5 million for the year ended December 31, 2018. The interest rate
as of December 31, 2018 was 6.125%.
207
Revolving Credit Facility
On November 28, 2018, Newmark entered into a credit agreement by and among Newmark, the several
financial institutions from time to time party thereto, as Lenders, and Bank of America N.A., as administrative
agent, the Credit Agreement. The Credit Agreement provides for a $250.0 million three-year unsecured senior
revolving credit facility, the Credit Facility. Borrowings under the Credit Facility will bear an annual interest equal
to, at Newmark’s option, either (a) LIBOR for specified periods, or upon the consent of all Lenders, such other
period that is 12 months or less, plus an applicable margin, or (b) a base rate equal to the greatest of (i) the federal
funds rate plus 0.5%, (ii) the prime rate as established by the administrative agent, and (iii) one-month LIBOR plus
1.0%. The applicable margin is 200 basis points with respect to LIBOR borrowings in (a) above and can range
from 0.25% to 1.25% higher, depending upon Newmark’s credit rating. The Credit Facility also provides for an
unused facility fee. No amounts were outstanding on this facility as of December 31, 2018.
Cantor Credit Agreement
On November 30, 2018 the Company entered into an unsecured credit agreement with Cantor. The Cantor
Credit Agreement provides for each party to issue loans to the other party in the lender’s discretion. Pursuant to the
Cantor Credit Agreement, the parties and their respective subsidiaries (with respect to CFLP, other than BGC and
its subsidiaries) may borrow up to an aggregate principal amount of $250.0 million from each other from time to
time at an interest rate which is higher to CFLP’s or the Company’s short-term borrowing rate then in effect, plus
1.0%. As of December 31, 2018, there were no borrowings outstanding under the new unsecured senior revolving
credit agreement.
Converted Term Loan
On September 8, 2017, BGC entered into a committed unsecured senior revolving credit agreement with Bank
of America, N.A., as administrative agent, and a syndicate of lenders. The revolving credit agreement provided for
revolving loans of up to $400.0 million. The maturity date of the facility was September 8, 2019. Borrowings under
this facility bore interest at either LIBOR or a defined base rate plus an additional margin which ranges from 50
basis points to 325 basis points depending on BGC’s debt rating as determined by S&P and Fitch and whether such
loan is a LIBOR loan or a base rate loan. If there were any amounts outstanding under the term loan facility as of
December 31, 2017, the pricing would increase by 50 basis points until the term loan facility was paid in full and if
there were any amounts outstanding under the term loan facility as of June 30, 2018, the pricing would increase by
an additional 75 basis points (125 basis points in the aggregate) until the term loan facility was paid in full. From
and after the repayment in full of the term loan facility, the pricing would return to the levels previously described.
On November 22, 2017, BGC and Newmark entered into an amendment to the unsecured senior revolving credit
agreement. Pursuant to the amendment, the then-outstanding borrowings of the BGC under the revolving credit
facility were converted into a term loan, there was no change in the maturity date or interest rate. As of
December 13, 2017, Newmark assumed the obligations of BGC as borrower under the Converted Term Loan. On
June 19, 2018, Newmark repaid $152.9 million, and on September 26, 2018, Newmark repaid $113.2 million of the
Converted Term Loan using proceeds from the issuance of exchangeable preferred limited partnership units. On
November 6, 2018, Newmark repaid the remaining $133.9 million outstanding principal amount of the Converted
Term Loan using the proceeds from the sale of its 6.125% Senior Notes. Therefore, there were no borrowings
outstanding as of December 31, 2018. As of December 31, 2017, the interest rate on this facility was 4.21%.
Newmark recorded interest expense related to the Converted Term Loan of $12.9 million and $0.7 million for the
years ended December 31, 2018 and 2017, respectively.
Term Loan
On September 8, 2017, BGC entered into a committed unsecured senior term loan credit agreement with Bank
of America, N.A., as administrative agent, and a syndicate of lenders. The term loan credit agreement provided for
loans of up to $575.0 million. The maturity date of the agreement was September 8, 2019. Borrowings under this
facility bore interest at either LIBOR or a defined base rate plus an additional margin which ranged from 50 basis
points to 325 basis points depending on BGC’s debt rating as determined by S&P and Fitch and whether such loan
was a LIBOR loan or a base rate loan. If there were any amounts outstanding under the term loan facility as of
December 31, 2017, the pricing would increase by 50 basis points until the term loan facility was paid in full and if
208
there were any amounts outstanding under the term loan facility as of June 30, 2018, the pricing would increase by
an additional 75 basis points (125 basis points in the aggregate) until the term loan facility is paid in full. From and
after the repayment in full of the term loan facility, the pricing would return to the levels previously described. On
November 22, 2017, BGC and Newmark entered into an amendment to the unsecured senior term loan credit
agreement. Pursuant to the term loan amendment and effective as of December 13, 2017, Newmark assumed the
obligations of the BGC as borrower under the senior term loan. The term loan credit agreement was also subject to
mandatory prepayment from 100% of net cash proceeds of all material asset sales and debt and equity issuances
(subject to certain customary exceptions, including sales under BGC’s CEO sales program). The proceeds from the
IPO net of underwriting discounts of approximately $304.3 million were used to partially repay the Term Loan. The
proceeds from the exercise by the underwriters of their overallotment option to purchase additional shares of
Newmark Class A Common Stock in the IPO was also used to partially repay the Term Loan. During the year ended
December 31, 2018, Newmark repaid the outstanding balance of $270.7 million on the Term Loan, at which point
the facility was terminated. As of December 31, 2017, the interest rate on this facility was 4.21%. Newmark
recorded interest expense related to the facility of $2.6 million and $0.7 million for the years ended December 31,
2018 and 2017, respectively.
(5) Subsequent Events
Fourth Quarter 2018 Dividend
On February 11, 2019, Newmark’s Board of Directors declared a quarterly qualified cash dividend of $0.09
per share payable on March 13, 2019 to Class A and Class B common stockholders of record as of February 28,
2019.
Exchange Offer for the 6.125% Senior Notes Due 2023
On February 5, 2019, Newmark announced an offer to exchange up to $550 million aggregate principal
amount of its outstanding 6.125% Senior Notes due 2023 issued in a private offering in November 2018 (the “Old
Notes”) for an equivalent amount of its 6.125% Senior Notes due 2023 registered under the Securities Act of 1933.
The exchange offer was made to satisfy the Company’s obligations under a registration rights agreement entered
into in connection with the issuance of the Old Notes, and does not represent a new financing transaction. The
exchange offer closed on March 14, 2019.
209
Non-GAAP Financial Measures
This document contains non-GAAP financial measures that differ from the most directly comparable measures
calculated and presented in accordance with Generally Accepted Accounting Principles in the United States
(“GAAP”). Non-GAAP financial measures used by the Company include “Adjusted Earnings before noncontrolling
interests and taxes”, which is used interchangeably with “pre-tax Adjusted Earnings”; “Post-tax Adjusted Earnings
to fully diluted shareholders”, which is used interchangeably with “post-tax Adjusted Earnings”; “Adjusted
EBITDA”; and “Liquidity”. These terms are defined later in this document.
Equity-based Compensation and Allocations of Net Income to Limited Partnership Units and FPUs
Newmark has changed the GAAP line item formerly known as “Allocations of net income and grant of
exchangeability to limited partnership units and FPUs and issuance of common stock” to “Equity-based
compensation and allocations of net income to limited partnership units and FPUs” in the Company’s condensed
consolidated statements of operations. The change resulted in the reclassification of amortization charges related to
equity-based awards such as REUs and RSUs from GAAP “Compensation and employee benefits” to “Equity-based
compensation and allocations of net income to limited partnership units and FPUs”. This change in presentation had
no impact on the Company’s GAAP “Total compensation and employee benefits” nor GAAP “Total expenses”.
Certain reclassifications have been made to previously reported amounts to conform to the current presentation.
These GAAP equity-based compensation charges reflect the following items:
(cid:13) Charges with respect to grants of exchangeability, which reflect the right of holders of limited partnership units
with no capital accounts, such as LPUs and PSUs, to exchange these units into shares of common stock, or into
partnership units with capital accounts, such as HDUs, as well as cash paid with respect to taxes withheld or
expected to be owed by the unit holder upon such exchange. The withholding taxes related to the exchange of
certain non-exchangeable units without a capital account into either common shares or units with a capital
account may be funded by the redemption of preferred units such as PPSUs.
(cid:13) Charges with respect to preferred units. Any preferred units would not be included in the Company’s fully
diluted share count because they cannot be made exchangeable into shares of common stock and are entitled
only to a fixed distribution. Preferred units are granted in connection with the grant of certain limited
partnership units that may be granted exchangeability at ratios designed to cover any withholding taxes
expected to be paid by the unit holder upon exchange. This is an alternative to the common practice among
public companies of issuing the gross amount of shares to employees, subject to cashless withholding of shares,
to pay applicable withholding taxes.
(cid:13) GAAP equity-based compensation charges with respect to the grant of an offsetting amount of common stock or
partnership units with capital accounts in connection with the redemption of non-exchangeable units, including
PSUs and LPUs.
(cid:13) Charges related to amortization of RSUs and limited partnership units.
(cid:13) Charges related to grants of equity awards, including common stock or partnership units with capital accounts.
(cid:13) Allocations of net income to limited partnership units and FPUs. Such allocations represent the pro-rata portion
of post-tax GAAP earnings available to such unit holders.
The Company’s Adjusted Earnings and Adjusted EBITDA measures exclude all GAAP charges included in the line
item “Equity-based compensation and allocations of net income to limited partnership units and FPUs” (or “equity-
based compensation” for purposes of defining the Company’s non-GAAP results) as recorded on the Company’s
GAAP Consolidated Statements of Operations and GAAP Consolidated Statements of Cash Flows. Newmark had
formerly excluded all charges related to the previous line item “Allocations of net income and grant of
exchangeability to limited partnership units and FPUs and issuance of common stock.
Virtually all of Newmark’s key executives and producers have equity or partnership stakes in the Company and its
subsidiaries and generally receive deferred equity or limited partnership units as part of their compensation. A
significant percentage of Newmark’s fully diluted shares are owned by its executives, partners and employees. The
Company issues limited partnership units as well as other forms of equity-based compensation, including grants of
exchangeability into shares of common stock, to provide liquidity to its employees, to align the interests of its
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.
210
All share equivalents that are part of the Company’s equity-based compensation program, including REUs, PSUs,
LPUs, HDUs, and other units that may be made exchangeable into common stock, as well as RSUs (which are
recorded using the treasury stock method), are included in the fully diluted share count when issued or at the
beginning of the subsequent quarter after the date of grant. Generally, limited partnership units other than preferred
units are expected to be paid a pro-rata distribution based on Newmark’s calculation of Adjusted Earnings per fully
diluted share.
Other Items with Respect to Non-GAAP Results
Adjusted Earnings and Adjusted EBITDA calculations also exclude 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.
In addition, Adjusted Earnings calculations exclude certain unusual, one-time, non-ordinary or non-recurring items,
if any, as well as certain gains and charges with respect to acquisitions, dispositions, or resolutions of litigation. The
Company views excluding such items as a better reflection of the ongoing operations of the Company.
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 when managing its business.
As compared with “Income (loss) from operations before income taxes” and “Net income (loss) from operations per
fully diluted share”, all prepared in accordance with GAAP, Adjusted Earnings calculations primarily exclude
certain non-cash items 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 results of
Newmark.
Adjustments Made to Calculate Pre-Tax Adjusted Earnings
Newmark defines pre-tax Adjusted Earnings as GAAP income (loss) from operations excluding items such as:
(cid:13) Net non-cash GAAP gains or losses related to OMSRs and MSRs;
(cid:13) The impact of any unrealized non-cash mark-to-market gains or losses on “Other income (loss)” related to the
variable share forward agreements with respect to Newmark’s expected receipt of the Nasdaq payments in
2019, 2020, 2021, and 2022 (the “Nasdaq Forwards”);
(cid:13) Mark-to-market adjustments for cost basis investments under ASU 2016-01;
(cid:13) Non-cash GAAP asset impairment charges, if any;
(cid:13) Non-cash GAAP charges related to the amortization of intangibles with respect to acquisitions;
(cid:13) Unusual, one-time, non-ordinary, or non-recurring items; and
(cid:13) Equity-based compensation.
The amount of charges relating to equity-based compensation the Company uses to calculate pre-tax Adjusted
Earnings on a quarterly basis is based upon the Company’s estimate of such expected charges during the annual
period, as described further below under “Adjustments Made to Calculate Post-Tax Adjusted Earnings”.
Adjustments Made to Calculate Post-Tax Adjusted Earnings
Although Adjusted Earnings are calculated on a pre-tax basis, Newmark also reports post-tax Adjusted Earnings to
fully diluted shareholders. The Company defines post-tax Adjusted Earnings to fully diluted shareholders as pre-tax
211
Adjusted Earnings reduced by the non-GAAP tax provision described below and net income (loss) attributable to
noncontrolling interest for Adjusted Earnings.
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 equity-based
compensation 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 charges with respect
to equity-based compensation; 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 adjustments, the result is the Company’s taxable income for its pre-tax Adjusted Earnings,
to which Newmark then applies the statutory tax rates to determine its non-GAAP tax provision. Newmark views
the effective tax rate on pre-tax Adjusted Earnings as equal to the amount of its 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 charges relating to
equity-based compensation. Because the charges relating to equity-based compensation are deductible in accordance
with applicable tax laws, increases in such charges have the effect of lowering the Company’s non-GAAP effective
tax rate and thereby increasing its post-tax Adjusted Earnings.
Management uses Adjusted Earnings in part to help it evaluate, among other things, the overall performance of the
Company’s 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 U.S. partnerships and are subject to the
Unincorporated Business Tax (“UBT”) in New York City. Any U.S. 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 U.S. federal, state and local income
taxes on the Company’s allocable share of the U.S. results of operations. Outside of the U.S., 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.
Calculations of Post-Tax Adjusted Earnings per Share
Newmark’s Post-tax Adjusted Earnings per share calculations assume either that:
(cid:13) The fully diluted share count includes the shares related to any dilutive instruments, but excludes the associated
expense, net of tax, when the impact would be dilutive; or
(cid:13) The fully diluted share count excludes the shares related to these instruments, but includes the associated
expense, net of tax.
The share count for Adjusted Earnings excludes certain shares and share equivalents 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 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 share. Newmark may also pay a pro-rata
212
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 Adjusted Earnings per share on a pre-tax basis.
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. In addition, the non-cash preferred dividends
are excluded from Adjusted Earnings per share as Newmark expects to redeem the related EPUs with Nasdaq
shares.
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, as well as related measures,
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 the GAAP
and Adjusted Earnings measures of financial performance should be considered together.
For more information regarding Adjusted Earnings, see the certain sections and tables of this document and/or the
Company’s most recent financial results press release in which Newmark’s non-GAAP results are reconciled to
those under GAAP.
Adjusted EBITDA Defined
Newmark also provides an additional non-GAAP financial performance measure, “Adjusted EBITDA”, which it
defines as GAAP “Net income (loss) available to common stockholders”, adjusted to add back the following items:
Interest expense;
Impairment charges;
(cid:13)
(cid:13) Provision (benefit) for income taxes;
(cid:13) Fixed asset depreciation and intangible asset amortization;
(cid:13)
(cid:13) Net income (loss) attributable to noncontrolling interest;
(cid:13) Equity-based compensation;
(cid:13) Net non-cash GAAP gains or losses related to OMSRs and MSRs;
(cid:13) The impact of any unrealized non-cash mark-to-market gains or losses on “other income (loss)” related to the
variable share forward agreements with respect to Newmark’s expected receipt of the Nasdaq payments in
2019, 2020, 2021, and 2022 (the “Nasdaq Forwards”); and
(cid:13) Mark-to-market adjustments for cost basis investments under ASU 2016-01.
The Company’s management believes that its Adjusted EBITDA measure is useful in evaluating Newmark’s
operating performance, because the calculation of this measure generally eliminates 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 this measure to
evaluate operating performance and for other discretionary purposes. Newmark believes that Adjusted EBITDA is
useful to investors to assist them in getting a more complete picture of the Company’s financial results and
operations.
Since Newmark’s Adjusted EBITDA is not a recognized measurement under GAAP, investors should use this
measure in addition to GAAP measures of net income when analyzing Newmark’s operating performance. Because
not all companies use identical EBITDA calculations, the Company’s presentation of Adjusted EBITDA may not be
comparable to similarly titled measures of other companies. Furthermore, Adjusted EBITDA is not intended to be a
measure of free cash flow or GAAP cash flow from operations because the Company’s Adjusted EBITDA does not
consider certain cash requirements, such as tax and debt service payments.
213
For more information regarding Adjusted EBITDA, see the certain sections and tables of this document and/or the
Company’s most recent financial results press release in which Newmark’s non-GAAP results are reconciled to
those under GAAP.
Outlook for Non-GAAP Items
Newmark anticipates providing forward-looking guidance for GAAP revenues and for certain non-GAAP measures
from time to time. However, the Company does not anticipate providing an outlook for other GAAP results. This is
because certain GAAP items, which are excluded from Adjusted Earnings and/or Adjusted EBITDA, are difficult to
forecast with precision before the end of each period. The Company therefore believes that it is not possible for it to
have the required information necessary to forecast GAAP results or to quantitatively reconcile GAAP forecasts to
non-GAAP forecasts with sufficient precision without unreasonable efforts. For the same reasons, the Company is
unable to address the probable significance of the unavailable information. The relevant items that are difficult to
predict on a quarterly and/or annual basis with precision and may materially impact the Company’s GAAP results
include, but are not limited, to the following:
(cid:13) Certain equity-based compensation charges that may be determined at the discretion of management throughout
and up to the period-end;
(cid:13) Unusual, one-time, non-ordinary, or non-recurring items;
(cid:13) The impact of gains or losses on certain marketable securities, as well as any gains or losses related to
associated mark-to- market movements and/or hedging including with respect to the Nasdaq Forwards. These
items are calculated using period-end closing prices;
(cid:13) 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;
(cid:13) Acquisitions, dispositions and/or resolutions of litigation, which are fluid and unpredictable in nature.
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.
214
NEWMARK GROUP, INC.
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)
Net income (loss) available to common stockholders
Pre-tax adjustments:
Compensation adjustments;
Equity-based compensation and allocations of net income to limited partnership units and FPUs (1)
Reserves on employee loans
Total Compensation adjustments
Non-Compensation adjustments;
Amortization of intangibles (2)
MSR amortization(3)
OMSR Revenue(3)
Total Non-Compensation adjustments
Other (income) losses
Non-recurring (gains) / losses (4)
Other non-cash, non-dilutive, and /or non-economic items (5)
Total Other (income) losses:
Total pre-tax adjustments
Net income attributable to noncontrolling interests(6)
Provision for income taxes (7)
Pre-tax Adjusted Earnings
GAAP Net income (loss) available to common stockholders
Allocation of net income (loss) to noncontrolling interests (8)
Total pre-tax adjustments (from above)
Income tax adjustment to reflect adjusted earnings taxes (7)
Post-tax Adjusted Earnings
Per Share Data:
Twelve Months Ended December 31,
2018
$
106,732
2017
144,492
$
224,643
-
224,643
5,629
78,423
(103,202)
(19,150)
8,057
(36,901)
(28,844)
147,138
26,055
173,193
11,046
72,518
(120,970)
(37,406)
6,929
-
6,929
176,649
142,716
85,166
90,487
604
57,478
$
459,034
$
345,290
$
106,732
$
144,492
83,446
-
176,649
142,716
22,387
(4,675)
$
389,214
$
282,533
GAAP fully diluted earnings per share
$
0.64
$
0.85
Allocation of net income (loss) to noncontrolling interests
Exchangeable preferred limited partnership units non-cash preferred dividends
Total pre-tax adjustments (from above)
Income tax adjustment to reflect adjusted earnings taxes
Other
Post-tax adjusted earnings per share (9)
Pre-tax adjusted earnings per share (9)
Fully diluted weighted-average shares of common stock outstanding
See the following page for notes to the above table.
0.01
0.02
0.68
0.08
0.07
0.12
0.00
0.62
0.00
(0.36)
$
1.50
$
1.23
$
1.78
$
1.51
258,997
229,479
215
(1) For the twelve months ended December 31, 2018 and 2017, GAAP expenses included $173.1 million and $121.9 million, respectively, in equity-based compensation
and $51.5 million and $25.2 million, respectively, in allocation of net income to limited partnership units and FPUs. For additional information, see section on
Non-GAAP Financial Measures in this document. Allocations of net income to limited partnership units and FPUs represents Newmark employees’
pro-rata portion of net income.
(2) Includes Non-cash GAAP charges related to the amortization of intangibles with respect to acquisitions.
(3) Adjusted Earnings calculations exclude non-cash GAAP gains attributable to originated mortgage servicing rights (which the Company 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 in future periods.
(4) Includes a $7.0 million prepayment fee on long-term debt related to the spin off transaction in the twelve months ended December 31, 2018.
Additionally, 2017 includes a $1.9 million impairment charge related to a cost basis investment, and IPO related charges.
(5) Includes $19.0 million for the year ended December 31, 2018 related to the impact of any unrealized non-cash mark-to-market gains or losses in “other
income (loss)” related to the variable share forward agreements with respect to Newmark’s expected receipt of the Nasdaq payments in 2019, 2020, 2021 and 2022.
Additionally, full year 2018 Adjusted Earnings results excluded the mark-to-market adjustments for cost basis investments under FASB Accounting Standards Update
("ASU") 2016-01 of $17.9 million.
(6) Primarily represents Cantor and/or BGC’s pro-rata portion of Newmark's net income and the noncontrolling portion of Newmark's net income in subsidiaries,
which are not wholly owned.
(7) The Company’s GAAP provision for income taxes is calculated based on an annualized methodology. The Company’s GAAP provision for income taxes was
$90.5 million for the twelve months ended December 31, 2018. The Company includes additional tax-deductible items when calculating the provision for taxes with
respect to Adjusted Earnings using an annualized methodology. These include tax-deductions related to equity-based compensation, and certain net-operating loss
carryforwards. The provision for income taxes with respect to Adjusted Earnings was modified by $22.4 million for twelve months ended December 31, 2018. As
a result, the provision for income taxes for Adjusted Earnings was $68.1 million for the twelve months ended December 31, 2018.
The Company’s GAAP provision for income taxes was $57.5 million for the twelve months ended December 31, 2017. The provision for income taxes with respect
to Adjusted Earnings was modified by $4.7 million for twelve months ended December 31, 2017. As a result, the provision for income taxes for Adjusted Earnings was
$62.2 million for the twelve months ended December 31, 20187.
(8) Excludes the noncontrolling portion of Newmark's net income in subsidiaries, which are not wholly owned.
(9) For the twelve months ended December 31, 2018, earnings per share calculations under GAAP included reductions for EPUs of $5.1 million. For Adjusted Earnings these
non-cash preferred dividends are excluded as the Company expects to redeem these EPUs with Nasdaq shares.
216
NEWMARK GROUP, INC.
Reconciliation of GAAP Income (Loss) to Adjusted EBITDA(1)
(in thousands)
(unaudited)
Twelve Months Ended December 31,
2018
2017
GAAP Net income (loss) available to common stockholders
$
106,732
$
144,492
Add back:
Net income (loss) attributable to noncontrolling interests (2)
Provision (benefit) for income taxes
OMSR Revenue(3)
MSR Amortization(4)
Other Depreciation and Amortization (5)
Equity-based compensation and allocations of net income to limited partnership units and FPUs (6)
Other non-cash, non-dilutive, non-economic items (7)
Interest expense
Adjusted EBITDA
85,166
90,487
(103,202)
78,424
19,311
224,641
(35,969)
604
57,478
(120,969)
72,518
23,297
147,138
11,678
58,807
$ 524,398
2,885
$ 339,121
(1) Non-recurring (gains) / losses, which was previously a separate line item, have now been reclassified to Other non-cash, non-dilutive, non-economic items.
For the twelve months ended December 31, 2018 and 2017, these non-recurring expenses included contingent consideration and other expenses of $1.1 million
and $6.9 million, respectively.
(2) Primarily represents Cantor and/or BGC’s pro-rata portion of Newmark's net income and the noncontrolling portion of Newmark's net income in subsidiaries
which are not wholly owned.
(3) Non-cash gains attributable to originated mortgage servicing rights.
(4) Non-cash amortization of mortgage servicing rights in proportion to the net servicing revenue expected to be earned.
(5) Includes fixed asset depreciation of $13.7 million and $12.3 million for the twelve months ended December 31, 2018 and 2017, respectively. Also includes intangible asset
asset amortization and impairments related to acquisitions of $5.6 million and $11.0 million for the twelve months ended December 31, 2018 and 2017, respectively.
(6) For the twelve months ended December 31, 2018 and 2017, GAAP expenses included $173.1 million and $121.9 million, respectively, in equity-based compensation
and $51.5 million and $25.2 million, respectively, in allocation of net income to limited partnership units and FPUs. For additional information, see section on
Non-GAAP Financial Measures in this document. Allocations of net income to limited partnership units and FPUs represents Newmark employees’
pro-rata portion of net income.
(7) Includes $19.0 million for the twelve months ended December 31, 2018 related to the impact of any unrealized non-cash mark-to-market gains or losses in “other
income (loss)” related to the variable share forward agreements with respect to Newmark’s expected receipt of the Nasdaq payments in 2019, 2020, 2021 and 2022.
Additionally, full year 2018 Adjusted Earnings results excluded the mark-to-market adjustments for cost basis investments under FASB Accounting Standards Update
("ASU") 2016-01 of $17.9 million.
217
NEWMARK GROUP, INC.
FULLY DILUTED WEIGHTED-AVERAGE SHARE COUNT
FOR GAAP AND ADJUSTED EARNINGS
(in thousands)
(unaudited)
Common stock outstanding
Limited partnership units
Cantor units
Founding partner units
RSUs
Other
Twelve Months Ended December 31,
2018
2017 (1)
157,256
-
-
5,717
187
650
133,413
3,272
1,174
278
237
23
Fully diluted weighted-average share count for GAAP
163,810
138,397
Adjusted Earnings Adjustments:
Common stock outstanding
Limited partnership units
Cantor units
Founding partner units
RSUs
Other
-
71,566
23,621
-
-
-
20,213
42,280
22,172
5,846
-
571
Fully diluted weighted-average share count for
Adjusted Earnings
258,997
229,479
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 the twelve months ended December 31, 2017 was 454.3 million.
Newmark’s post-tax Adjusted Earnings per share for the twelve months ended December 31, 2018 and 2017 under this methodology is
$1.50, and $1.23, respectively.
NEWMARK GROUP, INC.
LIQUIDITY ANALYSIS
(in thousands)
(unaudited)
Cash and cash equivalents
Marketable securities (1)
Total
December 31, 2018
December 31, 2017
$
122,475
$
121,027
$
48,942
171,417
$
-
121,027
(1) As of December 31, 2018 and December 31, 2017, $0 million and $57.6 of Marketable securities on
our balance sheet were lent out in Securities Loaned transactions and therefore are not
included as part of our Liquidity Analysis, respectively.
218
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CORPORATE
INFORMATION
NEWMARK
GROUP OPERATING
COMMITTEE
BARRY M. GOSIN
CHIEF EXECUTIVE
OFFICER
JAMES D. KUHN
PRESIDENT, BROKERAGE
LOU ALVARADO
CHIEF REVENUE OFFICER
RAJ K. BHATTI
CHIEF INFORMATION
OFFICER
JEFF C. DAY
PRESIDENT, HEAD OF
MULTIFAMILY CAPITAL
MARKETS AND CHIEF
STRATEGY OFFICER
M. ALISON LEWIS
CHIEF ADMINISTRATIVE
OFFICER
MICHAEL J. RISPOLI
CHIEF FINANCIAL
OFFICER
BOARD OF DIRECTORS
HOWARD W. LUTNICK
CHAIRMAN OF THE
BOARD OF DIRECTORS
VIRGINIA S. BAUER
DIRECTOR
CHIEF EXECUTIVE OFFICER
OF GTBM, INC.
PETER F. CERVINKA
DIRECTOR
CHIEF EXECUTIVE OFFICER
OF CERCO FUNDING LLC
MICHAEL SNOW
DIRECTOR
CHIEF INVESTMENT OFFICER
OF SNOW FUND ONE, LLC
MANAGEMENT
HOWARD W. LUTNICK
CHAIRMAN
BARRY M. GOSIN
CHIEF EXECUTIVE OFFICER
MICHAEL J. RISPOLI
CHIEF FINANCIAL OFFICER
STEPHEN M. MERKEL
EXECUTIVE VICE PRESIDENT,
CHIEF LEGAL OFFICER
CAROLINE A. KOSTER
CORPORATE SECRETARY
About Newmark Group
Newmark Group, Inc. is a publicly traded company that, through
subsidiaries, operates as a full-service commercial real estate
services business with a complete suite of services and products for
both owners and occupiers across the entire commercial real estate
industry. Under the Newmark Knight Frank name, the investor/owner
services and products of Newmark Group’s subsidiaries include capital
markets (comprised of investment sales and mortgage brokerage),
agency leasing, property management, valuation and advisory,
diligence and underwriting. Newmark Group’s subsidiaries also offer
government sponsored enterprise lending, loan servicing, debt and
structured finance, and loan sales. Newmark Group’s occupier services
and products include tenant representation, global corporate services,
real estate management technology systems, workplace and occupancy
strategy, consulting, project management, lease administration and
facilities management. Newmark Group enhances these services
and products through innovative real estate technology solutions and
data analytics designed to enable its clients to increase their efficiency
and profits by optimizing their real estate portfolio.
Newmark Group has relationships with many of the world’s largest
commercial property owners, real estate developers and investors,
as well as Fortune 500 and Forbes Global 2000 companies. Newmark
Group’s Class A common stock trades on the NASDAQ Global Select
Market under the ticker symbol “NMRK”. Newmark is a trademark/
service mark and/or registered trademark/service mark of Newmark
Group and/or its affiliates. Knight Frank is a service mark of Knight
Frank (Nominees) Limited.
Find out more about Newmark at
http://www.ngkf.com/
https://twitter.com/newmarkkf
https://www.linkedin.com/company/newmark-knight-frank/
and/or
http://ir.ngkf.com/investors/investors-home/default.aspx.
INVESTOR RELATIONS & REQUESTS
FOR ANNUAL REPORT ON FORM 10-K
JASON A. MCGRUDER
HEAD OF INVESTOR RELATIONS
Copies of the Company’s Annual Report on Form 10-K and any
amendments thereto on form 10-K/A along with news releases,
CORPORATE HEADQUARTERS
125 Park Avenue
New York, NY 10017
T: +1 212 372 2000
other recent SEC filings, and general stock information are
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
available without charge by going to ir.ngkf.com, or by calling
Investor Relations at +1 212 610 2426, or by writing to Investor
Relations at Newmark’s corporate headquarters
Ernst & Young LLP
5 Times Square
New York, NY 10036
LEGAL COUNSEL
TRANSFER AGENT
MORGAN, LEWIS & BOCKIUS LLP
AMERICAN STOCK TRANSFER & TRUST COMPANY
101 Park Avenue
New York, NY 10178-0060
6201 15th Avenue
T: +1 718 921 8124
Brooklyn, NY 11219
www.amstock.com
NEW YORK CITY
HEADQUARTERS
125 PARK AVENUE
NEW YORK, NY 10017
212.372.2000
NEWMARK GROUP
LOCATIONS
KNIGHT FRANK AND
INDEPENDENTLY- OWNED OFFICES
ALABAMA
ARIZONA
ARK ANSAS
CALIFORNIA
COLORADO
CONNECTICUT
DELAWARE
THE DISTRICT
OF COLUMBIA
FLORIDA
GEORGIA
ILLINOIS
MARYLAND
MASSACHUSETTS
MICHIGAN
MINNESOTA
MISSOURI
NEVADA
NEW JERSEY
NEW YORK
NORTH CAROLINA
OHIO
OKLAHOMA
OREGON
PENNSYLVANIA
TENNESSEE
TEXAS
VIRGINIA
WASHINGTON
MEXICO CITY
ONTARIO
BRITISH COLUMBIA
EUROPE
AUSTRIA
BELGIUM
CZECH REPUBLIC
FRANCE
GERMANY
IRELAND
ITALY
NETHERLANDS
POLAND
PORTUGAL
ROMANIA
RUSSIA
SPAIN
SWITZERLAND
UNITED KINGDOM
LATIN AMERICA
ARGENTINA
BRAZIL
CHILE
COLOMBIA
COSTA RICA
PERU
PUERTO RICO
ASIA-PACIFIC
AUSTRALIA
CAMBODIA
CHINA
INDIA
INDONESIA
JAPAN
MALAYSIA
NEW ZEALAND
PHILIPPINES
SINGAPORE
SOUTH KOREA
TAIWAN
THAILAND
AFRICA
BOTSWANA
KENYA
MALAWI
NIGERIA
SOUTH AFRICA
TANZANIA
UGANDA
ZAMBIA
ZIMBABWE
MIDDLE EAST
SAUDI ARABIA
UNITED ARAB
EMIRATES
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