Kroll Bond Rating Agency (KBRA) affirms its BBB- issuer rating for Newmark Group Inc. ('Newmark'), and its BBB- rating for Newmark's outstanding $550 million 6.125% Senior Notes due November 2023.

Newmark is a $2.7 billion (enterprise value) company providing a wide range of commercial real estate services including investment sales, mortgage brokerage, leasing, building and facility management, consulting and advisory, and valuation. Newmark also ranks as one of the largest originators and servicers of loans sold to Fannie Mae and Freddie Mac.

The primary driver of today's action is Newmark's low 23% leverage based on net debt to enterprise value1 , which would represent only 9% if net debt and enterprise value were reduced by the KBRA-estimated $405 million value of future Nasdaq Inc. share awards2 . Net debt represents a moderate 1.7x based on KBRAadjusted TTM EBITDA of $371 million3 and 1.5x based on Newmark-reported TTM EBITDA of $413 million.

Key Credit Considerations

The rating affirmation reflects the following key credit considerations:

(+) Credit Positives

The KBRA ratings reflect favorably on Newmark's scalable platform across diverse business segments; the relative post-pandemic resilience of its revenues from management services and servicing fees that during 2Q-3Q'20 declined by a relatively moderate 9% versus prior year levels; a largely variable expense structure (Newmark-reported 75% of 2019 expenses), as reflected in the 22% reduction in combined 2Q-3Q'20 operating expenses relative to a 28% decline in GAAP revenues; a post-pandemic commitment to maintaining liquidity as reflected in a 90% reduction in dividend payout and curtailment of share repurchases; $225MM of availability (following a $100 million post-quarter end paydown) under its $465MM revolving credit facility that in February was upsized and extended to 2023; an exceptionally high 27% insider ownership of fully-diluted common shares; and potential for considerable internally-generated cash flow for debt paydown, based on Newmark's reported $211 million of 2019 after-tax net cash from operations and additional $99 million from Nasdaq share earnout.

(-) Credit Negatives The primary credit risk for Newmark is concurrent downturns in commercial property transaction volume, leasing activity, and property values-as has materialized during the pandemic which has disproportionately impacted commercial real estate relative to other sectors, in particular hotel and retail properties to which Newmark has minimal exposure, and office properties that represent 14% of the company's transaction volumes and a majority of its leasing commissions. While values in most property sectors have proven resilient during the current recession, Newmark reported a 50% decline in 2Q'-3Q'20 capital markets revenues (investment sales and mortgage brokerage), which comprised 21% of year-to-date and 24% of 2019 revenues. Newmark reported a 45% decline in 2Q'-3Q'20 leasing and other commissions, which comprised 29% of year-to-date and 39% of 2019 revenues. While Newmark's post-pandemic decline in capital market fees is moderately more favorable than peers and trends in US transaction volumes reported by research firm RCA, the year-over-year decline in leasing commissions, while in line with the overall market, has been greater for Newmark than its peers. In contrast with capital market fees that increased 57% from 2Q to 3Q'20, Newmark reported a moderate sequential decline in leasing commissions, which KBRA attributes to office properties' proportionately greater contribution to leasing commissions than 1 Enterprise value based on Newmark's $7.76 closing share price as of December 4, 2020. Net debt based on notional debt of $890 million less $273 million cash and equivalents as of September 30, 2020. Debt excludes the balance of warehouse facilities secured by loans pre-sold to GSE lenders.

2 KBRA-estimated $405 million present value of future Nasdaq Inc. share awards (vs nominal value $678 million) is based on the discount rate implied by Newmark's 2018 forward monetization of Nasdaq Inc. shares and hedging of risk associated with potential share price declines on monetized shares. Newmark would additionally retain appreciation above the $122.71 Nasdaq Inc. closing share price as of September 30, 2020.

3 KBRA adjusted EBITDA excludes add-back of certain share-based compensation and includes $81 million annual annuity-equivalent value of Nasdaq Inc. shares that Newmark is expected to receive annually through 2027.

PRESS RELEASE

investment sale volumes. As commercial property transaction volumes recover from the pandemic, KBRA anticipates that Newmark's growth in capital markets volume will likely outperform peers owing to apartments' well above average 46% share of Newark's 2019/2020 investment sales volume (relative to 32% for the US, and office' 30% share of Newmark investment sales volume) and strong support from GSE lending that is expected to again post record volumes in 2020.

Credit strengths are tempered by Newmark's lower 21.3% company reported TTM EBITDA margin, which is down from 25.5% in 2019. Newmark's Class A/B common share structure, whereby Cantor Fitzgerald L.P.

owns 17% of Newmark equity but controls 57% of voting rights, is also considered a potential deterrent to institutional equity investment and a credit negative.

Potential credit risk associated with Newmark's commitment to share losses on loans sold to Fannie Mae, with Newmark's at-risk exposure representing 30% of the $22.7 billion in related loan principal serviced by Newmark, is considered to be relatively moderate and adequately provisioned for by a cumulative $32 million reserve for expected losses. The reserve represents 0.5% of Newmark's risk share compared to a low 0.2% current delinquency rate and the 0.01% historical annualized Newmark loss rate for GSE loans.

Rating Sensitivities

Upgrade or Positive Outlook

Sustained EBITDA growth; net debt to KBRA-adjusted EBITDA maintained in the low 1.0x range; increased diversification of revenue across business segments; proportionately higher fees from more recessionresilient service- related business units; surrender of super-voting rights associated with Class-B shares; and/or continued appreciation in the value of non-monetized Nasdaq share awards.

Downgrade or Negative Outlook Net debt to KBRA-adjusted TTM EBITDA above 2.0x; continuation of year-over-year transaction-based revenue declines experienced during 2Q'-3Q'20; continued deterioration in operating margins; indications that commercial real estate transaction and leasing volumes will not recover from 2Q'3Q'20 trough levels as currently anticipated by KBRA; expectation that losses associated with GSE risk-sharing will exceed current reserve levels; a shift away from equity-based compensation; and/or monetization of future Nasdaq share awards and distribution of proceeds to equity investors.

ESG Considerations KBRA's ratings process incorporates all meaningful credit factors, including those that relate to Environmental, Social, and Governance (ESG) factors. ESG factors were not a driver of the subject Rating actions.

To access ratings and relevant documents, click here.

Related Publications

- KBRA Affirms Newmark Group Inc. BBB- Issuer and Senior Note Ratings

- Global Equity REIT and REOC Rating Methodology

Analytical Contacts

Mark Berry, Managing Director

+1 (646) 731-2413

mberry@kbra.com

Richard Bozzelli, Associate

+1 (646) 731-1230

rbozzelli@kbra.com

PRESS RELEASE

Eric Thompson, Senior Managing Director

+1 (646) 731-2355

ethompson@kbra.com

Business Development Contact:

Nish Kumar, Senior Director

+1 (646) 731-3372

nkumar@kbra.com

Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe is registered with ESMA as a CRA.

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