NEWMARK GROUP, INC. The following discussion of Newmark's financial condition and results of operations should be read together with Newmark's accompanying unaudited condensed consolidated financial statements and related notes, as well as the "Special Note Regarding Forward-Looking Information" 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 in Newmark's Annual report on Form 10-K and in this report. When used herein, the terms "Newmark," the "Company," "we," "us," and "our" refer toNewmark Group, Inc. and its consolidated subsidiaries. This discussion summarizes the significant factors affecting our results of operations and financial condition during the three and nine months endedSeptember 30, 2022 and 2021. 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 accompanying unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this report. Overview Newmark is a leading full-service commercial real estate services business. 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 government sponsored enterprise ("GSE") andFederal Housing Administration ("FHA") lending and loan servicing, mortgage broking and equity-raising. Our occupier services and products include tenant representation, workplace and occupancy strategy, global corporate consulting services, project management, lease administration and facilities management. Newmark's global flexible workspace platform, is a product that is offered to owners and investors. 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.
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 has historically been focused inNorth America . During 2021, we ended our affiliation with Knight Frank and have since accelerated our global growth plans by acquiring Space Management (DBA "Deskeo") andKnotel Inc. ("Knotel"), both of which are European leaders in flexible and serviced workspace, and announced the addition of industry-leading international professionals in Global Corporate Services ("GCS"), Leasing and Capital Markets, and Valuation and Advisory. During 2022, we acquired BH2, aLondon -based real estate advisory firm. As ofSeptember 30, 2022 , we had over 6,300 employees in over 150 offices in more than 116 cities. Approximately 1,100 of those employees are fully reimbursed by clients, mainly in our property management and GCS businesses. In addition, Newmark has licensed its name to 13 commercial real estate providers that operate out of 27 offices in certain locations where Newmark does not have its own offices. The discussion of our financial results reflects only the business owned by us and does not include the results for independently owned offices that use some variation of the Newmark name in their branding or marketing. We are a leading capital markets business inthe 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 approximately$70.9 billion as ofSeptember 30, 2022 (of which 78.3% is higher margin primary servicing, 19.2% is limited servicing, and 2.5% is special servicing). This servicing portfolio provides a steady stream of income over the life of the serviced loans. 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 newly hired producers increase their production, our commission revenue and earnings growth accelerate, thus reflecting our operating leverage. 55 -------------------------------------------------------------------------------- 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 originating GSE/FHA "Commercial mortgage origination, net" tend to be lower as we retain rights to service loans over time. Investment sales and mortgage brokerage transactions tend to have higher pre-tax margins than leasing advisory transactions. Pre-tax earnings margins on our property and facilities management, along with certain of our other GCS products, are at the lower end of margins for our business as a whole.
Business Environment
The rapid rise of global interest rates has materially impacted transaction volumes. We do not expect volumes to rebound until interest and capitalization rates stabilize and the strong fundamentals of commercial real estate reemerge. While we anticipate lower volumes well into next year, we expect to continue generating solid Adjusted EBITDA and cash flow due to our diversified revenue streams and variable cost structure. Excluding the impact of no-margin, pass-through revenues, we again generated double-digit top-line growth from our recurring revenue businesses, which we expect to grow throughout the cycle. With over$410 billion of global institutional real-estate focused capital waiting to be deployed (according to Preqin) and$2.5 trillion of commercial and multifamily debt maturing over the next five years (according to MSCI Real Capital Analytics ("RCA") andNewmark Research ), we expect industry volumes to bounce back relatively quickly once interest rates are no longer rising and have stabilized. Our meaningful scale, low leverage, and strong cash flow, together with our$600 million undrawn revolving credit facility, position us to invest in growth across our diverse business lines and geographies as we execute our 2025 plan. Given the tremendous white space on our global map, we expect to have many opportunities to further expand our platform as the industry consolidates around well capitalized full service providers. During the third quarter of 2022, theU.S. economic rebound continued, as compared with the pandemic-related downturn in 2020. According to theU.S. Centers for Disease Control and Prevention (the "CDC") as ofOctober 13, 2022 , approximately 49.0% of the American population have been fully vaccinated and received a booster, 68.1% of the American population has been fully vaccinated against COVID-19, and 79.9% has received at least one dose, although there is persistent vaccine reluctance in the currently unvaccinated population. Many companies are requiring employees to come back to the office as business and the government continues to reopen both in the US and around the world. However, some of the recent strength in theU.S. office market has been tempered as companies continue to assess the impact of remote work, periodic increases in COVID-19 cases, the combined impact of flu and other seasonal illness, legal, cultural, and political events and conflicts, and a slowing US economy. Trends with respect to the return to office have recently been moving in a positive direction. For example, security providerKastle Systems tracks the number of employees in ten of the largest US metropolitan areas that were physically in the offices they secure every work week versus of typical number physically present during the first three weeks of February, 2020 (the "Kastle Back to Work Barometer Average" or the "Kastle Barometer"). For the week endedOctober 26, 2022 , the Kastle Barometer was 47.6%. This is up from the 47.2% in last full week ofSeptember 2022 and 36.8% in the last week of October, 2021. For additional context, it averaged 40.7% fromJanuary 3, 2022 throughSeptember 28, 2022 , and 28.7% fromFebruary 21, 2020 throughDecember 31, 2021 . As owners and occupiers continue to further increase the percentage of employees working in offices, we expect to have additional opportunities for our consulting fee revenues from tenant restructuring and portfolio optimization. We also expect structural reviews of office design and utilization by occupiers to create significant opportunities for our flexible workspace business and for Newmark to broker leasing transactions involving external flexible workspace platforms.
Acquisitions
OnApril 1, 2022 , Newmark completed the acquisitions of two businesses; BH2, aLondon -based real estate advisory firm, and McCall & Almy, a multi-market tenant representation and real estate advisory firm. OnMay 3, 2022 , Newmark completed the acquisition ofOpen Realty Advisors andOpen Realty Properties , which together operate as "Open Realty ", a retail real estate advisory firm. OnMarch 24, 2021 , Newmark acquired the business of Knotel, a global flexible workspace provider. Newmark agreed to provide approximately$19.8 million of debtor-in-possession financing as part of a$70 million credit bid to acquire the business through Knotel's Chapter 11 sales process, subject to approval of theU.S. Bankruptcy Court . OnMarch 18, 2021 , theUnited States Bankruptcy Court approved the transaction under Section 363 of the United States Bankruptcy Code. See Note 4 - "Acquisitions" to our accompanying unaudited condensed consolidated financial statements included in Part I, Item 1 of the Quarterly Report on Form 10-Q for additional information. 56 -------------------------------------------------------------------------------- OnSeptember 6, 2021 , Newmark acquired Deskeo,France's leader in flexible and serviced workspace for enterprise clients. Based inParis, France Deskeo adds over 50 locations to Newmark's international flexible workspace portfolio. See Note 4 - "Acquisitions" to our accompanying unaudited condensed consolidated financial statements included in Part I, Item 1 of the Quarterly Report on Form 10-Q for additional information. Debt and Credit Agreements OnNovember 6, 2018 , Newmark closed its offering of$550.0 million aggregate principal amount of 6.125% Senior Notes due 2023 ("6.125% Senior Notes"). The 6.125% Senior Notes are general senior unsecured obligations of Newmark. The 6.125% Senior Notes, which were priced onNovember 1, 2018 at 98.94% 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$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 eachMay 15 andNovember 15 , beginning onMay 15, 2019 and will mature onNovember 15, 2023 . The 6.125% Senior Notes were subsequently exchanged for notes with substantially similar terms that were registered under the Securities Act. As ofSeptember 30, 2022 andDecember 31, 2021 , the carrying amount of the 6.125% Senior Notes was$547.1 million and$545.2 million , respectively. OnNovember 28, 2018 , Newmark entered into the Credit Agreement by and among Newmark, the several financial institutions from time to time party thereto, as Lenders, andBank of America N.A ., as administrative agent (the "Credit Agreement"). The Credit Agreement provided for a$250.0 million three year unsecured senior revolving Credit Facility (the "Credit Facility"). OnFebruary 26, 2020 , Newmark entered into an amendment to the Credit Agreement (the "Amended Credit Agreement"), increasing the size of the Credit Facility to$425.0 million and extending the maturity date toFebruary 26, 2023 . The interest rate on the Credit Facility was reduced to LIBOR plus 1.75% per annum, subject to a pricing grid linked to Newmark's credit ratings fromStandard & Poor's and Fitch.
On
OnMarch 10, 2022 , Newmark entered into the Amended and Restated Credit Agreement (the "A&R Credit Agreement"), which amends and restates the Credit Agreement, as amended. Pursuant to the A&R Credit Agreement, the Lenders agreed to: (a) increase the amount available to the Company under the Credit Facility to$600.0 million , (b) extend the maturity date of the Credit Facility toMarch 10, 2025 , and (c) improve pricing to 1.50% per annum with respect to Term SOFR (as defined in the A&R Credit Agreement) borrowings. Borrowings under the Credit Facility bear interest at a per annum rate equal to, at the Company's option, either (a) Term SOFR for interest periods of one or three months, as selected by the Company, or upon the consent of all Lenders, such other period that is 12 months or less (in each case, subject to availability), as selected by the Company, plus an applicable margin, or (b) a base rate equal to the greatest of (i) the federal funds rate plus 0.50%, (ii) the prime rate as established by the Administrative Agent, and (iii) Term SOFR plus 1.00%, in each case plus an applicable margin. The applicable margin will initially be 1.50% with respect to Term SOFR borrowings in (a) above and 0.50% with respect to base rate borrowings in (b) above. The applicable margin with respect to Term SOFR borrowings in (a) above will range from 1.00% to 2.125% depending upon the Company's credit rating, and with respect to base rate borrowings in (b) above will range from 0.00% to 1.125% depending upon the Company's credit rating. The A&R Credit Agreement also provides for certain upfront and arrangement fees and for an unused facility fee. OnJune 16, 2020 , the Company's Board of Directors and its Audit Committee authorized a debt repurchase program for the repurchase by the Company in the amount of up to$50.0 million of the Company's 6.125% Senior Notes and any future debt securities issued by the Company hereafter (collectively, "Company debt securities"). Repurchases of Company debt securities, if any, are expected to reduce future cash interest payments, as well as future amounts due at maturity or upon redemption. Under the authorization, the Company may make repurchases of Company debt securities for cash from time to time in the open market or in privately negotiated transactions upon such terms and at such prices as management may determine. Additionally, the Company is authorized to make any such repurchases of Company debt securities throughCantor Fitzgerald 57 -------------------------------------------------------------------------------- & Co. (or its affiliates), in its capacity as agent or principal, or such other broker-dealers as management shall determine to utilize from time to time upon customary market terms or commissions.
As of
OnJune 19, 2020 , Newmark established a$125.0 million sublimit line of credit to fund potential principal and interest servicing advances on its Fannie Mae portfolio during the forbearance period related to the Coronavirus Aid, Relief, and Economic Security Act. The sublimit is now included within the Company's existing$450 million warehouse facility dueJune 14, 2023 . The advance line provides 100% of the principal and interest advance payment at a rate of SOFR plus 1.90% and will be collateralized by Fannie Mae's commitment to repay advances. There were no outstanding draws under this sublimit as ofSeptember 30, 2022 . Newmark did not have any Fannie Mae loans in forbearance as ofSeptember 30, 2022 . OnNovember 30, 2018 , Newmark 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 Partners, Inc. ("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 the higher of Cantor's or Newmark's short-term borrowing rate then in effect, plus 1.0%. As ofSeptember 30, 2022 andDecember 31, 2021 , the Company did not have any outstanding balances under this facility.
Credit Ratings
Newmark has a stand-alone BBB+ Stable credit rating from JCRA, BBB- Stable credit ratings fromFitch Ratings, Inc. andKroll Bond Rating Agency , and a BB+ Positive credit rating fromS&P Global Ratings . Nasdaq Monetization Transactions OnJune 28, 2013 , BGC sold certain assets of its on-the-run, electronic benchmarkU.S. Treasury platform ("eSpeed") to Nasdaq, Inc ("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 shares to be paid ratably over 15 years (subject to acceleration and present value discount as discussed below), provided that Nasdaq, as a whole, produces at least$25.0 million in consolidated gross revenues each year. The remaining rights under the Nasdaq Earn-out were transferred to Newmark onSeptember 28, 2017 . During the third and fourth quarters of 2021, Newmark sold 2,780,180 shares of Nasdaq for gross proceeds of$516.5 million . During the first quarter of 2022, Newmark sold all of its remaining 2,497,831 Nasdaq shares for gross proceeds of$437.8 million . In the aggregate fromSeptember 2017 throughMarch 31, 2022 , Newmark received 10.2 million shares of Nasdaq, of which Newmark sold 7.6 million shares of Nasdaq and delivered 2.6 million shares of Nasdaq to RBC. For further information regarding sales of Nasdaq shares and realized and unrealized gains (losses) on such shares, see Note 7 - "Marketable Securities " to our accompanying unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Exchangeable Preferred Partnership Units and Forward Contracts OnJune 18, 2018 , Newmark's principal operating subsidiary, Newmark OpCo, issued$175.0 million of exchangeable preferred partnership units ("EPUs") in a private transaction to the Royal Bank of Canada ("RBC"). Newmark received$152.9 million of cash with respect to this transaction.
On
The EPUs were issued in four tranches and were separately convertible by either
RBC or Newmark into a fixed number of shares of Newmark Class A common stock,
subject to a revenue hurdle in each of the fourth quarters of 2019 through 2022
for each of the respective four tranches. The ability to convert the EPUs into
Newmark Class A common stock was subject to the special purpose vehicle (the
"SPV") SPV's option to settle the postpaid forward contracts as described below.
As the EPUs represented equity ownership of a consolidated subsidiary of
Newmark, they have been included in "Noncontrolling interests" on our
accompanying unaudited condensed consolidated balance sheets and unaudited
condensed consolidated statements of changes in equity. The EPUs were entitled
to a preferred payable-in-kind dividend, which was recorded as accretion to the
carrying amount of the EPUs through "Retained earnings" on our accompanying
unaudited condensed 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 SPV that is a consolidated
subsidiary of Newmark entered into four variable postpaid forward contracts with
RBC (together, the "Nasdaq Forwards"). The SPV was an indirect subsidiary of
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Newmark whose sole assets were the Nasdaq Earn-outs for 2019 through 2022. Each
of the Nasdaq Forwards provided the SPV the option to settle using up to 992,247
Nasdaq shares, to be received by the SPV pursuant to the Nasdaq Earn-out (see
Note 7 - "Marketable Securities " to our accompanying unaudited condensed
consolidated financial statements included in Part I, Item 1 of this Quarterly
Report on Form 10-Q ), or Newmark Class A common stock, in exchange for either
cash or redemption of the EPUs, notice of which must be provided to RBC prior to
November 1 of each year from 2019 through 2022 (subject to acceleration due to
Nasdaq's transaction with Tradeweb Markets, Inc ("Tradeweb")).
In September 2020 , the SPV notified RBC of its decision to settle the second
Nasdaq Forward using the Nasdaq shares the SPV received in November 2020 in
exchange for the second tranche of the EPUs, which resulted in a payable to RBC
that was settled upon receipt of Nasdaq Earn-out shares. The fair value of the
Nasdaq shares that Newmark received was $121.9 million . On November 30, 2020 ,
Newmark settled the second Nasdaq Forward with 741,505 Nasdaq shares, with a
fair value of $93.5 million and Newmark retained 250,742 Nasdaq shares.
In September 2019 , the SPV notified RBC of its decision to settle the first
Nasdaq Forward using the Nasdaq shares the SPV received in November 2019 in
exchange for the first tranche of the EPUs, which resulted in a payable to RBC
that was settled upon receipt of Nasdaq Earn-out shares. The fair value of the
Nasdaq shares that Newmark received was $98.6 million . On December 2, 2019 ,
Newmark settled the first Nasdaq Forward with 898,685 Nasdaq shares, with a fair
value of $93.5 million and Newmark retained 93,562 Nasdaq shares.
Acceleration of Nasdaq Earn-out
On February 2, 2021 , Nasdaq announced that it entered into a definitive
agreement to sell its U.S. fixed income business to Tradeweb. On June 25, 2021 ,
Nasdaq announced the closing of the sale of its U.S. fixed income business,
which accelerated Newmark's receipt of Nasdaq shares. Newmark received 6,222,340
Nasdaq shares, with a fair value of $1,093.9 million based on the closing price
on June 30, 2021 , included in "Other (loss) income, net" for the three months
ended June 30, 2021 .
On June 25, 2021 , the SPV notified RBC of its decision to settle the third and
fourth Nasdaq Forwards using the Nasdaq shares the SPV received on June 25,
2021 . On July 2, 2021 , Newmark settled the third and the fourth Nasdaq Forwards
with 944,329 Nasdaq shares, with a fair value of $166.0 million based on the
closing price of June 30, 2021 .
Master Repurchase Agreement with Cantor
On August 2, 2021 , our subsidiary, Newmark OpCo, entered into a Master
Repurchase Agreement (the "Repurchase Agreement") with CF Secured, LLC ("CF
Secured"), an affiliate of Newmark's majority stockholder, Cantor, pursuant to
which Newmark could seek, from time-to-time, to execute short-term secured
financing transactions. Repurchase agreements effect equity financing. The
Company, under the Repurchase Agreement, could seek to sell securities, in this
case common shares of Nasdaq, owned by the Company, to CF Secured, under the
Repurchase Agreement, and agreed to repurchase those securities on a date
certain at a repurchase price generally equal to the original purchase price
plus interest.
Pursuant to the Repurchase Agreement, the Company and CF Secured agreed to enter
into a repurchase transaction, wherein CF Secured would deliver the cash of such
repurchase transaction to the Company on an overnight basis at an initial rate
of 0.95% per annum (approximately 1.00% less expensive than Newmark's revolving
credit facility), and the Company would deliver to CF Secured the number of
shares of Nasdaq as collateral so that the market value of such shares equaled
130% of such cash proceeds. The Nasdaq shares would be marked to market daily,
and the minimum maintenance margin requirement, should the share price decline,
would be 120% of such cash proceeds. The Company would be required to transfer
additional collateral (securities and/or cash) in the event of a margin
percentage decline below 120%.
The initial repurchase or financing transaction was executed on August 2, 2021
and consisted of Newmark receiving $260 million in cash and Newmark delivering
1,818,000 Nasdaq shares as collateral. The repurchase transaction could be
rolled over daily (or for a term greater than one day at a time), subject to
terms mutually acceptable to the Company and CF Secured, including the rate and
minimum margin requirement, both of which could fluctuate based upon general
funding rates and other factors in the repurchase funding market.
The Repurchase Agreement was subject to ongoing compliance with various
covenants and contains customary events of default. If an event of default would
have occurred, the repurchase date for each transaction under the Repurchase
Agreement would have been accelerated to the date of default. For events of
default relating to insolvency and receivership, the repurchase date for each
transaction under the Repurchase Agreement would have been automatically
accelerated to the date of default.
The Company utilized the cash proceeds from the repurchase transaction to lower its debt costs. The Company repaid the cash proceeds under the repurchase transaction with proceeds of periodic sales of Nasdaq shares and from its operating cash.
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The Repurchase Agreement and related initial repurchase transaction were on
market terms and rates and were approved by Newmark's Audit Committee. There
were no amounts outstanding under the Repurchase Agreement as of September 30,
2022 , and $140.0 million was outstanding as of December 31, 2021 . See Note 7 -
"Marketable Securities " and Note 27 - "Related Party Transactions" to our
accompanying unaudited condensed consolidated financial statements in Part I,
Item 1 of this Quarterly Report on Form 10-Q.
2021 Equity Event and Share Count Reduction
In connection with the acceleration of the Nasdaq Earn-out, on June 28, 2021 ,
the Compensation Committee of Newmark's Board of Directors (the "Compensation
Committee") approved a plan to expedite the tax deductible exchange and
redemption of a substantial number of limited partnership units held by partners
of the Company (the "2021 Equity Event"). The 2021 Equity Event also accelerated
certain compensation expenses resulting in $428.6 million of compensation
charges in the second quarter of 2021. These partnership units were settled
using a $12.50 share price. In July 2021 , the Compensation Committee approved
increasing to $13.01 the price to settle certain units at an incremental cost of
$15.9 million , which was recorded as compensation charges in the third quarter
of 2021.
Some of the key components of the approved plan were as follows:
•8.3 million and 8.0 million compensatory limited partnership units, respectively, ofNewmark Holdings, L.P. ("Newmark Holdings ") andBGC Holdings, L.P. ("BGC Holdings ") held by our partners who are employees were redeemed or exchanged. •23.2 million and 17.4 million compensatory limited partnership units, respectively, ofNewmark Holdings andBGC Holdings held by our partners who are independent contractors were redeemed or exchanged. We also accelerated the payment of related withholding taxes to them with respect to their Newmark units. Independent contractors received one BGC Class A common share for each redeemed non-preferred BGC unit or cash and are responsible for paying any related withholding taxes. •Partners with nonexchangeable non-preferred compensatory units exchanged or redeemed in connection with the 2021 Equity Event generally received restricted Class A common shares of Newmark and/or BGC to the extent tax deductible. A portion of the BGC Class A common shares received by independent contractors were unrestricted to facilitate their payment of withholding taxes.
•The issuance of Newmark Class A common stock related to the 2021 Equity Event
reflected the
•Newmark Holdings andBGC Holdings limited partnership interests with rights to convert into HDUs for cash were also redeemed in connection with the 2021 Equity Event. Refer to the section "Certain Other Related Party Transactions" below for the specific transactions with respect to our executive officers which are included in the above summary.
Certain Other Related Party Transactions
Transactions with Executive Officers and Directors
Rispoli Employment Agreement
OnSeptember 29, 2022 ,Mr. Rispoli entered into an employment agreement withNewmark OpCo andNewmark Holdings . In connection with the employment agreement, the Compensation Committee approved the following forMr. Rispoli : (i) an award of 500,000 Newmark RSUs granted in connection with the execution of the employment agreement, divided into tranches of 100,000 RSUs each that vest on a seven-year schedule; (ii) an award of 250,000 Newmark RSUs granted in connection with the execution of the employment agreement, divided into tranches of 50,000 RSUs each that vest on a seven-year schedule; and (iii) exchange rights into shares of Newmark Class A common stock with respect to 20,221 previously awarded non-exchangeable Newmark Holdings PSUs held byMr. Rispoli . A copy of the employment agreement was attached as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with theSEC onSeptember 29, 2022 and is described in detail therein.
Other Executive Compensation
OnDecember 21, 2021 , the Compensation Committee approved: (i) the redemption of all ofMr. Gosin's remaining 838,996 non-exchangeable Newmark PPSUs for$8,339,980 in cash and (ii) compensation of approximately$7,357,329 by way of the Company causing 478,328 ofMr. Gosin's non-exchangeable Newmark PSUs to be redeemed for zero and issuing 446,711 shares of Newmark Class A Common Stock, based upon the closing price on the date the Committee approved the 60 --------------------------------------------------------------------------------
transaction (which was
OnDecember 21, 2021 ,Mr. Lutnick elected to redeem all of his 193,530 currently exchangeable Newmark PPSUs for a cash payment of$1,465,873 . In addition, upon the Compensation Committee's approval of the monetization ofMr. Gosin's remaining non-exchangeable Newmark PPSUs and a number ofMr. Gosin's non-exchangeable PSUs onDecember 21, 2021 ,Mr. Lutnick (i) elected to redeem 188,883 non-exchangeable Newmark PPSUs for a cash payment of$1,954,728 , and 127,799 non-exchangeable Newmark NPPSUs for a cash payment of$1,284,376 , both for which he previously waived, but now accepted under the Company's standing policy forMr. Lutnick ; and (ii) received the right to monetize, and accepted the monetization of, his remaining 122,201 non-exchangeable Newmark NPPSUs for a cash payment of$1,228,124 , under such standing policy. In connection with the foregoing,Mr. Lutnick accepted the right to monetize approximately$4,406,915 by way of the Company causing 286,511 ofMr. Lutnick's non-exchangeable Newmark PSUs to be redeemed for zero and issuing 267,572 shares of Newmark Class A Common Stock based upon the closing price on the date the Committee approved the transaction (which was$16.47 ) and a 0.9339 exchange ratio, under the Company's standing policy applying toMr. Lutnick , with such acceptance of rights granted in reference toMr. Gosin's December 2021 transactions to the extent necessary to effectuate the foregoing (and otherwiseMr. Lutnick waived all remaining rights, which shall be cumulative). The aggregate estimated pre-tax value of these transactions is$10,340,015 , less applicable taxes and withholdings, using a 57.38% tax rate forMr. Lutnick . OnApril 27, 2021 , the Compensation Committee approved an additional monetization opportunity forMr. Merkel : (i) 73,387 ofMr. Merkel's 145,384 non-exchangeable Newmark Holdings PSUs were redeemed for zero, (ii) 19,426 ofMr. Merkel's 86,649 non-exchangeable Newmark Holdings PPSUs were redeemed for a cash payment of$173,863 , and (iii) 68,727 shares of our Class A common stock were issued toMr. Merkel . On the same day, the 68,727 shares of our Class A common stock were repurchased fromMr. Merkel at$10.67 per share, the closing price of our Class A common stock on that date, under our stock buyback program. The total payment delivered toMr. Merkel was$0.8 million , less applicable taxes and withholdings. OnMarch 16, 2021 , pursuant to the Newmark standing policy forMr. Lutnick , the Compensation Committee granted exchange rights and/or monetization rights with respect to rights available toMr. Lutnick .Mr. Lutnick elected to waive such rights one-time with such future opportunities to be cumulative. The aggregate number ofMr. Lutnick's units for which he waived exchange rights or other monetization rights is 4,423,457 non-exchangeable Newmark Holdings PSUs/NPSUs, inclusive of the PSUs receiving an HDU conversion right and 1,770,016 non-exchangeable Newmark Holdings PPSUs with an aggregate determination amount of$21.6 million at that time, inclusive of the PPSUs receiving an HDU conversion right. OnMarch 16, 2021 , the Company redeemed 30,926 non-exchangeableNewmark Holdings PSUs held byMr. Merkel for zero and in connection therewith issued 28,962 shares of our Class A common stock. On the same day, the Company repurchased these shares fromMr. Merkel at the closing price of our Class A common stock of$11.09 per share under our stock buyback program. The total payment delivered toMr. Merkel was$0.3 million , less applicable taxes and withholdings. The Compensation Committee approved these transactions. OnMarch 16, 2021 , the Compensation Committee grantedMr. Gosin exchange rights into shares of Class A common stock with respect to 526,828 previously awarded non-exchangeable Newmark Holdings PSUs and 30,871 non-exchangeable Newmark Holdings APSUs held byMr. Gosin (which, based on the closing price of the Class A common stock of$11.09 per share on such date and using the exchange ratio of 0.9365, had a value of$5.8 million in the aggregate). In addition, onMarch 16, 2021 , the Compensation Committee approved removing the sale restrictions onMr. Gosin's remaining 178,232 restricted shares of Class A common stock in BGC (which were originally issued in 2013) and associated 82,680 remaining restricted shares of Newmark Class A common stock (issued as a result of the Company spin-off inNovember 2018 ). OnMarch 16, 2021 , the Compensation Committee grantedMr. Rispoli (i) exchange rights into shares of Class A common stock with respect to 6,043 previously awarded non-exchangeable Newmark Holdings PSUs held byMr. Rispoli (which, based on the closing price of the Class A common stock of$11.09 per share on such date and using the exchange ratio of 0.9365, had a value of$0.1 million ); and (ii) exchange rights into cash with respect to 4,907 previously awarded non-exchangeable Newmark Holdings PPSUs held byMr. Rispoli (which had an average determination price of$15.57 per unit, for a total of$76,407 in the aggregate to be paid for taxes when (i) is exchanged).Howard W. Lutnick , Chairman OnDecember 27, 2021 , the Compensation Committee approved a one-time bonus award toMr. Lutnick (the "Award"), which was evidenced by the execution and delivery of a Retention Bonus Agreement datedDecember 28, 2021 (the "Effective Date") and described below (the "Award Agreement"), in consideration of his success in managing certain aspects of 61 -------------------------------------------------------------------------------- the Company's performance as its principal executive officer and Chairman. The Award rewardedMr. Lutnick for his efforts in delivering superior financial results for the Company and its stockholders, including in particular his success in creating substantial value for the Company and its stockholders in connection with creating, structuring, hedging and monetizing the forward share contract to receive over time shares of common stock of Nasdaq, Inc. (the "Nasdaq Derivative") held by the Company (together, the "Nasdaq Shares") and the strong balance sheet and significant amount of income created from the Nasdaq Derivative. A principal reason for structuring the Award with a substantial portion to be paid out over three years was also to further incentivizeMr. Lutnick to continue to serve as both the Company's principal executive officer and its Chairman for the benefit of the Company's stockholders. The Award is the subject of legal challenge. See the heading "Derivative Suit" below. The Award Agreement provides for an aggregate cash payment of$50 million , payable as follows:$20 million within three days of the Effective Date (which payment was made onDecember 31, 2021 ), and$10 million within thirty days following vesting on each of the first, second and third anniversaries of the Effective Date. Any entitlement to future amounts not vested will be forfeited immediately if, prior to the applicable anniversary date,Mr. Lutnick ceases to serve as both the Company's Chairman and its principal executive officer, unlessMr. Lutnick ceasing to serve in either such capacity occurs pursuant to a "Vesting Termination," as that term is defined in the Award Agreement.Mr. Lutnick has purchased Newmark Class A Common Stock with the after-tax proceeds of the initial tranche of the Award. The Award Agreement describes a "Vesting Termination" as (i) a termination ofMr. Lutnick's employment by the Company without "Cause" (as that term is defined in the Award Agreement) or (ii) an involuntary removal of the Executive from the position of Chairman of the Board on or after the occurrence of a Change in Control (as that term is defined in the Change of Control Agreement dated as ofDecember 13, 2017 by and betweenMr. Lutnick and the Company (the "Control Agreement"). In the event thatMr. Lutnick ceases to serve as both the Company's Chairman and its principal executive officer pursuant to a Vesting Termination, any amounts not vested will immediately become fully vested. The Award Agreement provides thatMr. Lutnick ceasing to serve as the Company's Chairman and principal executive officer pursuant to his death or disability does not constitute a Vesting Termination. The provisions of the Control Agreement do not apply to the Award. A copy of the Award Agreement was attached as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with theSEC onDecember 29, 2021 and is described in detail under the heading "2021 Lutnick Award" in Amendment No. 1 to the Company's Annual Report on Form 10-K/A filed with theSEC onApril 29, 2022 .
2021 Equity Event
The specific transactions approved by the Compensation Committee, in connection with the 2021 Equity Event, with respect to our executive officers are set forth below. All of the transactions included in the 2021 Equity Event with respect to Messrs. Lutnick, Gosin and Rispoli, are based on (i) the price for Newmark Class A common stock of$12.50 per share, as approved by the Compensation Committee; (ii) the price of BGC Partners Class A common stock of$5.86 ; and (iii) the price of Nasdaq common stock of$177.11 . OnJune 28, 2021 , in connection with the 2021 Equity Event, the Newmark Compensation Committee approved the following forMr. Lutnick : (i) the exchange of 279,725 exchangeable Newmark Holdings PSUs into 263,025 shares of Class A common stock of Newmark based on the then applicable exchange ratio of 0.9403; and$1,465,874 associated withMr. Lutnick's non-exchangeable 193,530 Newmark Holdings PPSUs was redeemed and used for tax purposes; (ii) the conversion of 552,482.62 non-exchangeable Newmark Holdings PSUs with the right to exchange PSUs into HDUs ("H-Rights") into 552,482.62 non-exchangeableNewmark Holdings HDUs and redemption of such HDUs for their Capital Account of$7,017,000 , paid in the form of Nasdaq Shares issued at$177.11 per share (which was the NASDAQ closing price as ofJune 28, 2021 ); and$7,983,000 associated withMr. Lutnick's non-exchangeable Newmark Holdings PPSUs with -H were redeemed and used for tax purposes; (iii) the exchange of 520,380 exchangeable BGC Holdings PSUs into 520,380 shares of Class A common stock of BGC Partners, and$1,525,705 associated withMr. Lutnick's exchangeable BGC Holdings PPSUs was redeemed and used for tax purposes; (iv) the redemption of 88,636 non-exchangeable BGC Holdings PSUs pursuant toMr. Lutnick's rights under his existing standing policy, and the issuance of 88,636 shares of Class A common stock of BGC Partners; (v) the conversion of 1,131,774 non-exchangeable BGC Holdings PSUs with H-Rights into 1,131,774 non-exchangeable BGC Holdings HDUs and$7,983,000 associated withMr. Lutnick's BGC Holdings PPSUs with H- Rights was redeemed and used for tax purposes in connection with the exercise of the exercise of the BGC Holdings HDUs; and (vi) the issuance of 29,059 shares of Class A common stock of Newmark. In accordance withMr. Lutnick's right under his existing standing policy, and in connection with the 2021 Equity Event, upon the approval of the Newmark Compensation Committee: (i) 2,909,819 non-exchangeableNewmark Holdings PSUs, pursuant toMr. Lutnick's rights under his existing standing policy, were redeemed and 2,736,103 shares of Class A common stock of Newmark, based upon the then applicable exchange ratio of 0.9403, were granted toMr. Lutnick ; and (ii)$8,798,546 associated withMr. Lutnick's rights under his existing standing policy was redeemed and used for tax purposes. See Item 11 - "Executive Compensation" in our Annual Report on Form 10-K/A for additional information and definitions.
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On September 20, 2021 , the Compensation Committee approved a monetization
opportunity for Mr. Gosin : all of Mr. Gosin's 2,114,546 non-exchangeable BGC
Holdings PSUs were redeemed for 0 and 2,114,456 shares of BGC Class A common
stock were issued to Mr. Gosin . Effective as of April 14, 2022 , Mr. Gosin's
905,371 BGC Holdings HDUs were redeemed for a cash payment of $3,521,893 based
upon a price of $3.89 per unit, which was the closing price of BGC Partners
Class A common stock on April 14, 2022 .
On June 28, 2021 , the Compensation Committee approved the following for Barry M.
Gosin , the Company's Chief Executive Officer: (i) the exchange of 1,531,061.84
exchangeable Newmark Holdings units (comprised of 1,438,597.37 exchangeable
Newmark Holdings PSUs and 92,464.47 exchangeable Newmark Holdings APSUs) into
1,439,658 shares of Class A common stock of Newmark based upon the then current
exchange ratio of 0.9403; and $834,508 associated with Mr. Gosin's exchangeable
Newmark Holdings PPSUs was redeemed and used for tax purposes; (ii) the
conversion of 443,871.60 non-exchangeable Newmark Holdings PSUs with H-Rights
into 443,871.60 non-exchangeable Newmark Holdings HDUs, and redemption of such
HDUs, less any taxes and withholdings in excess of $5,362,452 , paid in the form
of Nasdaq shares issued at $177.11 per share (which was the NASDAQ closing price
as of June 28, 2021 ); and $5,362,452 in connection with Mr. Gosin's Newmark
Holdings PPSUs with H-Rights was redeemed and used for tax purposes; (iii) the
exchange of 3,348,706 exchangeable BGC Holdings units (comprised of 3,147,085
exchangeable BGC Holdings PSUs and 201,621 exchangeable BGC Holdings APSUs) into
3,348,706 shares of Class A common stock of BGC Partners; and $298,273
associated with Mr. Gosin's exchangeable BGC Holdings PPSUs was redeemed and
used for tax purposes; (iv) the conversion of 1,592,016 non-exchangeable BGC
Holdings PSUs with H-Rights into 1,592,016 non-exchangeable BGC Holdings HDUs,
and $1,129,499 associated with Mr. Gosin non-exchangeable BGC Holdings PPSUs was
redeemed and used for tax purposes; and (v) the issuance of 12,500 shares of
Class A common stock of Newmark.
Michael J. Rispoli , Chief Financial Officer
On June 28, 2021 , the Compensation Committee approved the following for Mr.
Michael Rispoli , the Company's Chief Financial Officer: (i) the exchange of
23,124 exchangeable Newmark Holdings PSUs into 21,744 shares of Class A common
stock of Newmark based on the then current exchange ratio of 0.9403 and $208,407
associated with Mr. Rispoli's exchangeable Newmark Holdings PPSUs was redeemed
and used for tax purposes; (ii) 6,000 non-exchangeable Newmark Holdings PSUs
were redeemed and an aggregate of 5,642 restricted shares of Newmark were issued
to Mr. Rispoli based upon the then current exchange ratio of 0.9403, and $52,309
associated with Mr. Rispoli's non-exchangeable Newmark Holdings PPSUs was
redeemed and used for tax purposes; (iii) the conversion of 5,846.07
non-exchangeable Newmark Holdings PSUs with H-Rights into 5,846 non-exchangeable
Newmark Holdings HDUs and the redemption of such HDUs, less any taxes and
withholdings in excess of $60,750 , paid in the form of Nasdaq shares issued at
$177.11 per share (which was the NASDAQ closing price as of June 28, 2021 ); and
$60,750 associated with Mr. Rispoli's PPSUs with H-Rights was redeemed and used
for tax purposes; (iv) the exchange of 36,985 exchangeable BGC Holdings PSUs
into 36,985 shares of Class A common stock of BGC, and $134,573 associated with
Mr. Rispoli's exchangeable BGC Holdings PPSUs was redeemed and used for tax
purposes; and (v) the issuance of 383 shares of Class A common stock of Newmark.
Stephen M. Merkel , Chief Legal Officer
On June 28, 2021 the Compensation Committee also approved the following for
Stephen M. Merkel , the Company's Chief Legal Officer: (i) the redemption of
51,124.28 non-exchangeable Newmark Holdings PSUs and issuance of 48,072 shares
of Newmark Class A common stock based upon the current exchange ratio of 0.9403;
and (ii) the redemption of 46,349.87 non-exchangeable Newmark Holdings PPSUs for
a cash payment of $0.3 million , to be remitted to the applicable tax authorities
to the extent necessary in connection with the issuance of the shares above.
Retirement Fund Purchase
On April 27, 2021 , a Keogh retirement account held by Mr. Lutnick purchased
5,154 shares of our Class A common stock from us at the closing price of our
Class A common stock on that date of $10.67 per share. The transaction was
approved by our Audit Committee.
CF Real Estate Finance Holdings, LP .
Contemporaneously with the acquisition of Berkeley Point , 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 September 30, 2022 and December
31, 2021 , Newmark's investment was accounted for under the equity method (see
Note 8 - "Investments"). Newmark holds a redemption option in which Real Estate
LP will redeem in full Newmark's investment in Real Estate LP in exchange for
Newmark's capital account balance in Real Estate LP as of such time. On July 20,
2022 , Newmark exercised this redemption option and expects to receive
approximately $88.4 million from Cantor on or prior to July 20, 2023 .
Pre-IPO intercompany agreements
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In December 2017 , prior to our Separation and IPO, all intercompany arrangements
and agreements that were previously approved by the Audit Committee of BGC
Partners with respect to BGC Partners and its subsidiaries and Cantor and its
subsidiaries were also approved by our Board of Directors with respect to the
relationships between us and our subsidiaries and Cantor and its subsidiaries
following our IPO on the terms and conditions approved by the BGC Audit
Committee during such time that our business was owned by BGC Partners. These
arrangements include, but are not limited to, the following: (i) an
authorization to provide Cantor real estate and related services, including real
estate advice, brokerage, property or facilities management, valuation and
advisory and other services; (ii) an authorization to enter into brokerage and
similar agreements with respect to the provision of ordinary course brokerage
services in circumstances in which such entities customarily provide brokerage
services to third-party customers; (iii) an authorization to enter into
agreements with Cantor and/or its affiliates, to provide services, including
finding and reviewing suitable acquisition or partner candidates, structuring
transactions and negotiating and due diligence services in connection with
acquisitions and other business strategies in commercial real estate and other
businesses from time to time; and (iv) an arrangement to jointly manage exposure
to changes in foreign exchange rates.
Services Agreement with CFE Dubai
As the Company does not yet have a presence in Dubai , in May 2020 , the Audit
Committee of the Company authorized Newmark & Company Real Estate, Inc.
("Newmark & Co. "), a subsidiary of Newmark, to enter into an agreement with
Cantor Fitzgerald Europe (DIFC Branch) ("CFE Dubai") pursuant to which CFE Dubai
will employ and support an individual who is a resident of Dubai in order to
enhance Newmark's capital markets platform, in exchange for a fee. CFE Dubai and
Newmark & Co. negotiated a Services Agreement memorializing the arrangement
between the parties (the "Services Agreement"). The Services Agreement provides
that Newmark & Co. will reimburse CFE Dubai for the individual's fully allocated
costs, plus a mark-up of seven percent (7%). In addition, the Audit Committee of
the Company authorized the Company and its subsidiaries to enter into similar
arrangements in respect of any jurisdiction, in the future, with Cantor and its
subsidiaries, provided that the applicable agreements contain customary terms
for arrangements of this type and that the mark-up charged by the party
employing one or more individuals for the benefit of the other is between 3% and
7.5%, depending on the level of support required for the employed individual(s).
Sublease to BGC and Cantor Fitzgerald, L.P.
On May 15 2020 , BGC U.S. OpCo ("BGC OpCo") entered into an arrangement to
sublease excess space from RKF Retail Holdings LLC , a subsidiary of Newmark,
which was approved by the Newmark Audit Committee. The deal was a one-year
sublease of approximately 21,000 rentable square feet in New York City . Under
the terms of the sublease, BGC OpCo paid a fixed rent amount of $1.1 million in
addition to all operating and tax expenses attributable to the lease. In May
2021 , the sublease was amended to provide for a rate of $15 thousand per month
based on the size of utilized space, in addition to terms extending on a
month-to-month basis. The lease with BGC OpCo ended in December 2021 . Newmark
received $0.1 million and $0.5 million from BGC OpCo for the three and nine
months ended September 30, 2021 , respectively.
In January 2022 , Cantor entered into an agreement to sublease this space for a
period of six months until June 30, 2022 at a rate of $0.1 million per month. In
July 2022 , the sublease was extended one year to June 30, 2023 . Newmark received
$0.2 million and $0.7 million from Cantor for the three and nine months ended
September 30, 2022 , respectively.
GSE loans and related party limits
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 $100.0 million per loan, (ii) a $250.0 million limit on loans that
have not yet been acquired or sold to a GSE at any given time, and (iii) a
separate $250.0 million limit on originated Fannie Mae loans outstanding to
Cantor at any given time.
Transaction with CCRE Lending
On July 22, 2019 , Cantor Commercial Real Estate Lending, L.P. ("CCRE Lending"),
a wholly-owned subsidiary of Real Estate LP , made a $146.6 million commercial
real estate loan (the "Loan") to a single-purpose company (the "Borrower") in
which Barry Gosin , Newmark's Chief Executive Officer, owns a 19% interest. The
Loan is secured by the Borrower's interest in property in Pennsylvania that is
subject to a ground lease. While CCRE Lending initially provided the full loan
amount, on August 16, 2019 , a third-party bank purchased approximately 80% of
the Loan value from CCRE Lending, with CCRE Lending retaining approximately 20%.
The Loan matures on August 6, 2029 , and is payable monthly at a fixed interest
rate of 4.38% per annum.
Transactions related to ordinary course real estate services
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On November 4, 2020 , the Audit Committee of the Board of Directors authorized
entities in which executive officers have a non-controlling interest to engage
Newmark to provide ordinary course real estate services to them as long as
Newmark's fees are consistent with the fees that Newmark ordinarily charges for
these services.
Arrangement with View, Inc.
On November 30, 2020 , Newmark entered into an arrangement to assist View, Inc.
("View") in the sale of its products and services to real estate clients in
exchange for commissions. View, Inc. is a Silicon Valley -based producer of
high-efficiency dynamic glass that controls light, heat, and glare, providing
unobstructed views and privacy using a low voltage control system. In connection
with the arrangement, View also agreed to engage Newmark as its exclusive
provider of real estate services for a period of at least five years. While View
is not under common control with Newmark, it was, at the time that the agreement
was executed, the target of a merger with CF Finance Acquisition Corp. II, a
special purpose acquisition company sponsored by Cantor.
Cantor Rights to Purchase Cantor Units from Newmark Holdings
Cantor has a right to purchase from Newmark Holdings exchangeable limited
partnership interests in the event that any Newmark Holdings founding partner
interests that have not become exchangeable are redeemed by Newmark Holdings
upon termination or bankruptcy of a founding partner or upon mutual consent of
the general partner of Newmark Holdings and Cantor. Cantor has the right to
purchase such Newmark Holdings exchangeable limited partnership interests at a
price equal to the lesser of (1) the amount that Newmark Holdings would be
required to pay to redeem and purchase such Newmark Holdings founding partner
interests and (2) the amount equal to (a) the number of units underlying such
founding partner interests, multiplied by (b) the exchange ratio as of the date
of such purchase, multiplied by (c) the then-current market price of our Class A
common stock. Cantor may pay such price using cash, publicly traded shares or
other property, or a combination of the foregoing. If Cantor (or the other
member of the Cantor group acquiring such limited partnership interests, as the
case may be) so purchases such limited partnership interests at a price equal to
clause (2) above, neither Cantor nor any member of the Cantor group nor Newmark
Holdings nor any other person is obligated to pay Newmark Holdings or the holder
of such founding partner interests any amount in excess of the amount set forth
in clause (2) above.
In addition, the Newmark Holdings limited partnership agreement provides that
(1) where either current, terminating or terminated partners are permitted by us
to exchange any portion of their founding partner units and Cantor consents to
such exchangeability, we will offer to Cantor the opportunity for Cantor to
purchase the same number of new exchangeable limited partnership interests in
Newmark Holdings at the price that Cantor would have paid for exchangeable
limited partnership interests in the event we had redeemed the founding partner
units; and (2) the exchangeable limited partnership interests to be offered to
Cantor pursuant to clause (1) above would be subject to, and granted in
accordance with, applicable laws, rules and regulations then in effect.
If Cantor acquires any units as a result of the purchase or redemption by
Newmark Holdings of any founding partner interests, Cantor will be entitled to
the benefits (including distributions) of the units it acquires from the date of
termination or bankruptcy of the applicable founding partner. In addition, any
such units will be exchangeable by Cantor for a number of shares of our Class B
common stock or, at Cantor's election, shares of our Class A common stock, in
each case, equal to the then-current exchange ratio, on the same basis as the
limited partnership interests held by Cantor, and will be designated as Newmark
Holdings exchangeable limited partnership interests when acquired by Cantor. The
exchange ratio was initially one, but is subject to adjustment as set forth in
the Separation and Distribution Agreement and was 0.9365 as of September 30,
2022 . This may permit Cantor to receive a larger share of income generated by
our business at a less expensive price than through purchasing shares of our
Class A common stock, which is a result of the price payable by Cantor to
Newmark.
.
On March 31, 2021 , Cantor purchased from Newmark Holdings an aggregate of (i)
273,088 exchangeable limited partnership interests for aggregate consideration
of $1,105,598 as a result of the redemption of 273,088 founding partner
interests, and (ii) 735,625 exchangeable limited partnership interests for
aggregate consideration of $2,918,919 as a result of the exchange of 735,625
founding partner interests.
On October 28, 2021 , Cantor purchased from Newmark Holdings an aggregate of (i)
299,910 exchangeable limited partnership interests for aggregate consideration
of $975,064 as a result of the redemption of 299,910 founding partner interests,
and (ii) 523,284 exchangeable limited partnership interests for aggregate
consideration of $1,898,363 as a result of the exchange of 523,284 founding
partner interests.
On May 17, 2022 , Cantor purchased from Newmark Holdings an aggregate of (i)
184,714 exchangeable limited partnership interests for aggregate consideration
of $763,064 as a result of the redemption of 184,714 founding partner interests,
and (ii) 23,562 exchangeable limited partnership interests for aggregate
consideration of $100,079 as a result of the exchange of 23,562 founding partner
interests.
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On October 25, 2022 , Cantor purchased from Newmark Holdings an aggregate of (i)
104,701 exchangeable limited partnership interests for aggregate consideration
of $446,647 as a result of the redemption of 104,701 founding partner interests,
and (ii) 102,454 exchangeable limited partnership interests for aggregate
consideration of $272,100 as a result of the exchange of 102,454 founding
partner interests.
Following such purchases, as of October 31, 2022 there were no founding partner
interests in Newmark Holdings remaining in which the partnership had the right
to redeem or exchange and with respect to which Cantor will have the right to
purchase an equivalent number of Cantor units following such redemption or
exchange.
Special Purpose Acquisition Company
In April 2021 , Newmark OpCo and Cantor entered into various arrangements
pursuant to which they agreed to co-sponsor a special purpose acquisition
company, named Newmark Acquisition Corp. (the "SPAC"), in which certain of our
executive officers are executive officers and are expected to be directors.
Pursuant to a purchase agreement, Newmark OpCo purchased from Cantor a 75%
equity interest in an entity now known as Newmark Acquisition Holdings, LLC , the
sponsor of the SPAC (the "Sponsor"), for $18.8 thousand , with Cantor retaining
the remaining 25% equity interest in the Sponsor. Pursuant to an amended and
restated limited liability company agreement of the Sponsor, Newmark OpCo is the
managing member of the Sponsor, and Newmark OpCo and Cantor have agreed to make
additional equity contributions to the Sponsor in order to fund the obligations
of the Sponsor with respect to the SPAC in proportion to their equity ownership
in the Sponsor. Also, in April 2021 , the Sponsor agreed to lend to the SPAC up
to $0.3 million without interest in order to cover expenses related to any
initial public offering of the SPAC ; the maturity date of the loans is the
earlier of the consummation of the initial public offering of the SPAC and
December 31, 2022 . As of September 30, 2022 there was no outstanding balance on
this Pre-IPO loan.
Knotel Assets
As part of the Knotel acquisition, Newmark assigned the rights to acquire
certain Knotel assets to a subsidiary of Cantor, on the terms that if the
subsidiary monetized the sale of these assets, Newmark would receive 10% of the
proceeds of the sale after the subsidiary recoups its investment in the assets.
Employment Matters
On June 28, 2021 , the Audit Committee authorized Newmark to hire a son of its
Chairman as a full-time employee of its Knotel business with an annual base
salary of $125,000 and an annual discretionary bonus of up to 30% of base
salary. The arrangement includes a potential profit participation consistent
with other entrepreneurial arrangements in the event of certain liquidity events
related to businesses developed by him. In June 2022 , the Audit Committee
approved ordinary course compensation adjustments and expense, travel and
housing reimbursement for him in accordance with standard Company policies up to
$250,000 in total compensation without further Committee review.
Referral Fees to Cantor
In September 2021 , the Audit Committee approved the payment of a referral fee
from Newmark to Cantor Realty Capital Advisors, L.P. ("CRCA"), a subsidiary of
Cantor, in relation to CRCA's referral to Newmark of a sale and lease back
transaction for a portfolio of medical office properties. Newmark paid CRCA
approximately $0.3 million for the referral of the portfolio sale. Newmark
management negotiated the referral arrangement with CRCA in the ordinary course
of business and the arrangement is reasonable and consistent with referral
arrangements of its type between unrelated parties.
Additionally, in September 2021 , the Audit Committee authorized Newmark and its
subsidiaries to pay referral fees to Cantor and its subsidiaries (other than
Newmark and its subsidiaries) in respect of referred business, pursuant to
ordinary course arrangements in circumstances where Newmark would customarily
pay referral fees to unrelated third parties and where Newmark is paying a
referral fee to Cantor in an amount that is no more than the applicable
percentage rate set forth in Newmark's intra-company referral policies, as then
in effect, with such fees to be at referral rates no less favorable to Newmark
than would be paid to unrelated third parties.
Key Business Drivers
Key drivers for U.S. commercial real estate services companies include the
overall health of the U.S. economy, institutional ownership of commercial real
estate as an investible asset class, and the ability to attract and retain
talent. In our investment sales and mortgage brokerage businesses, the
availability of credit and certainty of valuations to investors are key drivers.
In our multifamily business, demographic and economic factors are driving
increased demand for new apartments. For example, in June of 2021, the National
Association of Realtors said the U.S. has not constructed enough housing to keep
up with population growth for many years, and that the country has a deficit of
1.1 million units in buildings with two to four units and of 2.4 million units
in buildings of at least five units according to "U.S. Housing Market Needs 5.5
Million More Units, Says New Report" from the Wall Street Journal . In July of
2022, a report published by the National Multifamily Housing Council and the
National Apartment Association said that the U.S. needs 4.3 million new
apartments over the next 13 years just to meet projected demand. This strong
demand for new housing should continue to drive growth across our investment
sales, GSE/FHA multifamily origination, mortgage brokerage, and servicing
businesses over time.
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Our GSE/FHA origination business is also impacted by the lending caps imposed by
the Federal Housing Finance Agency (the "FHFA"). On November 17, 2020 , the FHFA
announced that the 2022 multifamily loan purchase caps for Fannie Mae and
Freddie Mac were $70 billion for each GSE. The cap structure allowed the GSEs to
offer a combined total of no more than $140 billion in lending support to the
multifamily market in 2021, as compared to the $159 billion delivered in 2020.
On October 13, 2021 , the FHFA announced that the 2022 multifamily loan purchase
caps will be $78 billion for each GSE, for a combined total of $156 billion . The
2022 caps are based on FHFA's projections of the overall growth of the
multifamily originations market. The 2021 and 2022 caps require at least 50% of
the Enterprises' multifamily business to be mission-driven, affordable housing.
FHFA will also require at least 25% of the GSE's 2022 multifamily business be
affordable to residents at or below 60% of area median income (AMI), up from 20%
in 2021. The 11% year-on-year increase in full year lending caps, and the 1.5%
year-on-year increase in industry GSE lending in the first nine months of 2022
would normally suggest a strong increase in industry volumes for the fourth
quarter of 2022. However, the GSEs have indicated that the caps will likely not
be reached this year.
Overall U.S. investment sales and mortgage brokerage volumes are expected to
face challenging comparisons, due to the significant industry-wide growth in
capital markets activity in the fourth quarter of 2021. For example, RCA reports
that U.S. investment sales notional volumes increased by 120% year-over-year to
record amounts in the fourth quarter of 2021, while the Mortgage Bankers'
Association ("MBA") says that commercial and multifamily lending increased in
the U.S. by 79% in the same period to an all-time quarterly high. In addition,
volumes will likely be further impacted by interest rate and credit spread
volatility, as well as the gap between buyer and seller expectations. The
Company believes that it remains well-positioned to increase its market share in
these economic conditions.
Economic Outlook in the United States
COVID-19 adversely affected the economic outlook beginning in March of 2020.
Following a 3.4% contraction in 2020, U.S. gross domestic product expanded by
5.7% in 2021, according to the U.S. Department of Commerce . According to
preliminary estimates from the same source, U.S. GDP contracted at an annualized
rate of 1.6% and 0.6%, respectively, in the first and second quarters of 2022.
In third quarter of 2022, it grew by annualized 2.6% The third quarter
improvement was driven by various factors, including increases in exports,
consumer spending, nonresidential fixed investment, federal government spending,
and state and local government spending, which were partly offset by decreases
in residential fixed investment and private inventory investment. Imports, which
are a subtraction in the calculation of GDP, decreased. The current consensus is
that U.S. GDP will continue increasing slowly through the end of 2023, and then
resume growth more in-line with pre-pandemic levels thereafter. For example, as
of November 1, 2022 , the Bloomberg consensus of economists was for U.S. GDP to
expand at an annualized rate of 0.6% in the fourth quarter of 2022 and by 1.7%
for full year 2022, and then by 0.4% in 2023 and 1.4% in 2024.
According to the Bureau of Labor Statistics , the monthly average of non-farm
payroll employment increased by a seasonally adjusted monthly average of 562
thousand, net, during 2021, which was the highest such figure since record
keeping began. Based on a preliminary report from the same source, strong job
growth continued in the first, second, and third quarters of 2022, with average
monthly gains of approximately 539 thousand, 349 thousand, and 372 thousand,
respectively, on the same basis. The U.S unemployment rate (based on U3)
declined to 3.5% in September 2022 , compared with 4.7 % in September 2021 and a
high of 14.8% in April of 2020, and the same as in February 2020 . In comparison,
the last time the U.S. unemployment rate was near these low levels was 1969,
when unemployment reached 3.4%.
The ten-year Treasury yield increased by 234 basis points to 3.8% as of
September 30, 2022 , compared with a year-earlier. As of quarter end, ten-year
Treasury yields remained below their 50-year average of approximately 6.0%,
despite the recent increase. On September 22, 2022 and November 2, 2022 , the
Federal Open Market Committee ("FOMC") announced increases to the target range
for the federal funds rate by 75 basis points in order to curb inflation, which
itself is due in part to tight labor market conditions as well as to other
factors, such continued supply chain issues related to the pandemic as well as
higher commodity prices due largely to the Ukraine -Russia conflict. The FOMC
also stated that it plans to continue reducing the $8.7 trillion portfolio of
securities it holds, including long-term agency mortgage-backed securities and
U.S. Treasuries. These securities were purchased as part of the Fed's
quantitative easing program designed hold down long-term interest rates, and the
FOMC previously indicated that a maximum of $60 billion in Treasury purchases
and $35 billion in mortgage-backed securities purchases would be allowed to roll
off, phased in over three months starting June 1, 2022 .
Economists generally expect long-term U.S. interest rates to increase versus
where they were in 2021 and thus far in 2022, but to remain below the long-term
historical averages for the foreseeable future. For example, as November 1,
2022 , the Bloomberg consensus was for the ten-year Treasury yield to be
approximately 3.9%, 3.4%, and 3.2% by the end of 2022, 2023 and 2024,
respectively. However, short-term yields are expected to rise considerably
compared with low levels seen for most of the period from the end of 2008
through early 2022 as per the same Bloomberg survey. While the upper Fed Funds
Target rate averaged 0.64% from December 31, 2008 through February 28, 2022 , it
was 3.25% as of September 30, 2022 . The Bloomberg
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consensus is for this short-term rate to be 4.5%, 4.35%, and 3.05%, respectively
at the end of 2022, 2023, and 2024. Following the most recent
Market Statistics According to preliminary estimates from CoStar, value-weighted prices forU.S. commercial real estate were up by 2.6% over the trailing twelve months endedSeptember 30, 2022 and were now at all-time highs and 34.0% higher than inFebruary 2020 , before the onset of the global pandemic. However, this is the second consecutive quarterly slowdown in price appreciation as measured by this index. RCA currently estimates that 2022 U.S. investment sales declined by 21.2% year-on-year in the third quarter of 2022. In comparison, our quarterly investment sales volumes decreased by 35.7% year-on-year. According to RCA, Newmark's average transaction size was approximately 45% larger than the overall RCA average for nine months endedSeptember 30, 2022 . We believe that larger deal sizes are more likely to require debt financing, and that such financing became more difficult given the recent sharp rise in interest rates. Year to date, we continued to gain market share inU.S. investment sales, ranking number three by RCA, up from number four in 2021, and number five in 2017. Newmark quarterly volumes from mortgage brokerage and GSE/FHA originations (together, "total debt") were down by 1.2% year-on-year. We believe we gained market share in total debt, as the MBA's most recent forecast is for the notional dollar volume of all commercial and multifamily lending to decrease in theU.S. by 14% in 2022 versus 2021. Because this source also stated that such lending was up by 39% year-on-year in the first half of 2022, this implies thatU.S. industry lending volumes could decline by approximately 35-40% year-over-year in the second half of 2022, according toNewmark Research calculations based on MBA data. Newmark's loan origination volumes are driven more by the GSE multifamily financing volumes than the activity level of the overall commercial mortgage market. Overall industry GSE multifamily origination volume increased by 1.5% in the first nine months of 2022 compared with a year earlier, per data from Fannie Mae and Freddie Mac. In comparison, Newmark's GSE/FHA origination volumes declined by 3.4% over the same timeframe, while our total debt volumes in multifamily were up by 29.1%. Our total debt volumes across all property types improved by 26.5% year-to-date. Certain GSE multifamily 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. Regulatory Environment See "Business-Regulation" in Part I, Item 1 of the 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.
Financial Overview
Revenues
We derive revenues from the following general four sources:
•Management Services, Servicing Fees and Other. We provide commercial services to tenants and landlords. In this business, we provide property and facilities management services along with project management, valuation and advisory services and other consulting services, as well as technology, to customers who may also utilize our commercial real estate brokerage services, and flexible workspace solutions. Servicing fees are derived from the servicing of loans originated by us as well as loans originated by third parties.
•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.
•Investment Sales. 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.
•Commercial Mortgage Origination, net. We offer services and products to
facilitate debt financing for our clients and customers. Commercial mortgage
origination revenue is comprised of commissions generated from mortgage
brokerage and debt placement services, as well as the origination fees and
premiums derived from the origination of GSE/FHA loans with borrowers and the
sale of those loans to investors. Our commercial mortgage origination revenue
also includes the revenue recognized for the fair value of expected net future
cash flows from servicing recognized at commitment.
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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. Loan originations related fees and sales premiums,
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.
Loan originations related fees and sales premiums, net, are recognized net of
related fees and commissions to affiliates or third-party brokers. For loans we
broker, 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 accompanying unaudited condensed consolidated financial
statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for
a more detailed discussion.
Expenses
(i) 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, forgivable loans for term contracts, 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 largely 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 inNewmark Holdings and, prior to our 2017 IPO,BGC Holdings , which generally receive quarterly allocations of net income and are generally contingent upon services being provided by the unit holders. Certain Newmark employees also hold non-distribution earnings units (e.g. NPSUs and NREUs, collectively "N Units") that do not participate in quarterly partnership distributions and are not allocated any items of profit or loss. These N Units vest into distribution earnings units over a 4-year period. As prescribed inU.S. GAAP guidance, the quarterly allocations of net income on such limited partnership units are reflected as a component of compensation expense under "Equity-based compensation and allocations of net income to limited partnership units and FPUs" in our accompanying unaudited condensed consolidated statements of operations. Newmark granted conversion rights on outstanding limited partnership units inNewmark Holdings andBGC Holdings to Newmark employees to convert the limited partnership units to a capital balance withinNewmark Holdings orBGC Holdings . Generally, such units are not considered share-equivalent limited partnership units and are not in the fully diluted share count. 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 underU.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 accompanying unaudited condensed consolidated statements of operations as part of "Equity-based compensation and allocations of net income to limited partnership units and FPUs". The liability for limited partnership units with a post-termination payout amount is included in "Other long-term liabilities" on our accompanying unaudited condensed consolidated balance sheets. Certain limited partnership units are granted exchangeability into Class A common stock or may be redeemed in connection with the grant of shares of Class A common stock. At the time exchangeability is granted, or the shares are issued, Newmark recognizes an expense based on the fair value of the award on that date, which is included in "Equity-based compensation and allocations of net income to limited partnership units and FPUs" in our accompanying unaudited condensed consolidated statements of operations. Our employees have been awarded preferred partnership units ("Preferred Units") inNewmark Holdings andBGC Holdings . Each quarter, the net profits ofNewmark Holdings andBGC 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"), which is deducted before the calculation and distribution of the quarterly partnership distribution for the remaining partnership units inNewmark Holdings andBGC Holdings , respectively. The Preferred Units are not entitled to 69 -------------------------------------------------------------------------------- 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 Preferred Units are also reflected in compensation expense under "Equity-based compensation and allocations of net income to limited partnership units and FPUs" in our accompanying unaudited condensed 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 rata share of economic ownership of the operating subsidiaries. In addition, Preferred Units are granted in connection with the grant of certain limited partnership units, such as PSUs, that may be granted exchangeability to cover the withholding taxes owed by the unit holder upon such exchange. This is an acceptable 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. 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 inBGC Holdings andNewmark 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 30 - "Compensation" and Note 31 - "Commitment and Contingencies", to our accompanying unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q). (ii) 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 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 Cantor. In addition, these charges may not reflect the costs of services we may receive from Cantor in the future. (iii) Other Income (loss), Net Other income (loss), net is comprised of the gains associated with the Earn-out shares related to the Nasdaq Transaction and the movements related to the impact of any realized and unrealized cash and non-cash mark-to-market gains or losses related to the Nasdaq common shares held, and the Nasdaq Forwards. Additionally, other income includes gains (losses) on cost and 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 non-marketable investments. (iv) 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 asU.S. partnerships and are subject to the Unincorporated Business Tax (which we refer to as "UBT") inNew 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 inNewmark Holdings andBGC Holdings ", to our accompanying unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q) rather than the partnership entity. Our accompanying unaudited condensed consolidated financial statements includeU.S. federal, state and local income taxes on Newmark's allocable share of theU.S. results of operations. Outside of theU.S. , we operate principally through subsidiary corporations subject to local income taxes. Results of Operations 70
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The following table sets forth our unaudited condensed consolidated statements
of operations data expressed as a percentage of total revenues for the periods
indicated (in thousands):
Three Months Ended September 30 ,
Nine Months Ended September 30,
2022 2021 2022 2021
Percentage of Percentage of Percentage of Percentage of
Actual Results Total Revenues Actual Results Total Revenues Actual Results Total Revenues Actual Results Total Revenues
Revenues:
Management services, servicing fees and other$ 222,379 33.5 %$ 244,469 31.0 %$ 689,183 32.8 %$ 651,729 33.9 % Leasing and other commissions 219,903 33.1 231,532 29.4 631,681 30.1 563,311 29.3 Investment sales 131,731 19.8 208,786 26.5 492,898 23.5 452,565 23.5 Commercial mortgage origination, net 90,633 13.6 103,338 13.1 284,483 13.6 254,372 13.2 Total revenues 664,646 100.0 788,125 100.0 2,098,245 100.0 1,921,977 100.0 Expenses: Compensation and employee benefits 388,903 58.5 444,408 56.4 1,198,104 57.1 1,274,879 66.3 Equity-based compensation and allocations of net income to limited partnership units and FPUs (1) 44,088 6.6 33,963 4.3 102,974 4.9 315,743 16.4 Total compensation and employee benefits 432,991 65.1 478,371 60.7 1,301,078 62.0 1,590,622 82.8 Operating, administrative and other 121,382 18.3 152,363 19.3 395,882 18.9 394,546 20.5 Fees to related parties 7,301 1.1 5,664 0.7 20,878 1.0 17,696 0.9 Depreciation and amortization 44,359 6.7 28,883 3.7 118,758 5.7 80,804 4.2 Total operating expenses 606,033 91.2 665,281 84.4 1,836,596 87.5 2,083,668 108.4 Other income/(loss), net (128) - 102,720 13.0 (101,432) (4.8) 1,187,322 61.8 Income from operations 58,485 8.8 225,564 28.6 160,217 7.6 1,025,631 53.4 Interest (expense) income, net (7,281) (1.1) (8,498) (1.1) (24,074) (1.1) (26,034) (1.4) Income before income taxes and noncontrolling interests 51,204 7.7 217,066 27.5 136,143 6.5 999,597 52.0 Provision for income taxes 13,294 2.0 53,811 6.8 35,723 1.7 206,572 10.7 Consolidated net income 37,910 5.7 163,255 20.7 100,420 4.8 793,025 41.3 Less: Net income attributable to noncontrolling interests 9,946 1.5 34,707 4.4 23,572 1.1 191,627 10.0 Net income available to common stockholders$ 27,964 4.2 %$ 128,548 16.3 %$ 76,848 3.7 %$ 601,398 31.3 %
(1)The components of Equity-based compensation and allocations of net income to limited partnership units and FPUs are as follows (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Percentage of Actual Percentage of Percentage of Percentage of
Actual Results Total Revenues Results Total Revenues Actual Results Total Revenues Actual Results Total Revenues
Issuance of common stock and
exchangeability expenses $ 33,330 5.0 % $ 14,414 1.8 % $ 69,188 3.3 % $ 298,202 15.5 %
Allocations of net income to
limited partnership units
and FPUs 4,875 0.7 13,167 1.7 12,808 0.6 38,092 2.0
Limited partnership units
amortization 181 - 2,323 0.3 5,214 0.2 (32,056) (1.7)
RSU amortization 5,702 0.9 4,059 0.5 15,764 0.8 11,505 0.6
Equity-based compensation
and allocations of net
income to limited
partnership units and FPUs $ 44,088 6.6 % $ 33,963 4.3 % $ 102,974 4.9 % $ 315,743 16.4 %
Three months ended
Revenues
Management Services, Servicing Fees and Other
Management services, servicing fees and other revenue decreased by
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three months ended September 30, 2022 as compared to the three months ended
September 30, 2021 . The decrease was due to a decline in no margin, pass-through
revenues. Excluding pass-through revenues, management services, servicing fee
and other increased by $15.5 million , or 10.8%, to $159.1 million for the three
months ended September 30, 2022 as compared to the three months ended September
30, 2021 . This growth was led by strong improvements from the Company's
servicing business, which continues to benefit from rising short-term interest
rates, as well as from our flexible workspace platform and GCS.
Leasing and Other Commissions
Leasing and other commission revenues decreased by $11.6 million , or 5.0%, to
$219.9 million for the three months ended September 30, 2022 as compared to the
three months ended September 30, 2021 . The Company generated stronger leasing
activity in industrial and retail, offset by lower office volumes, principally
as a result of lower office volumes, partially offset by stronger leasing
activity in industrial and retail, which reflected lower industry-wide volumes.
Investment Sales
Investment sales revenue decreased by $77.1 million , or 36.9%, to $131.7 million
for the three months ended September 30, 2022 as compared to the three months
ended September 30, 2021 . Newmark's investment sales volumes decreased by 35.7%
to $14.7 billion across most major property types.
Commercial Mortgage Origination, Net
Commercial mortgage origination, net activities, decreased by $12.7 million , or
12.3%, to $90.6 million for the three months ended September 30, 2022 as
compared to the three months ended September 30, 2021 . The decrease was driven
by a total debt volumes decrease of 1.2% year over year.
Expenses
Compensation and Employee Benefits Compensation and employee benefits expense decreased by$55.5 million , or 12.5%, to$388.9 million for the three months endedSeptember 30, 2022 as compared to the three months endedSeptember 30, 2021 . The decrease was primarily a result of variable compensation related to commission-based revenues and compensation expense in the prior period related to the 2021 Equity Event. Equity-based compensation and allocations of net income to limited partnership units and FPUs Equity-based compensation and allocations of net income to limited partnership units and FPUs increased by$10.1 million , or 29.8%, to$44.1 million for the three months endedSeptember 30, 2022 as compared to the three months endedSeptember 30, 2021 .
Operating, Administrative and Other
Operating, administrative and other expenses decreased by
Fees to Related Parties Fees to related parties increased by$1.6 million , or 28.9%, to$7.3 million , for the three months endedSeptember 30, 2022 as compared to the three months endedSeptember 30, 2021 . Depreciation and Amortization Depreciation and amortization for the three months endedSeptember 30, 2022 increased by$15.5 million , or 53.6%, to$44.4 million as compared to the three months endedSeptember 30, 2021 due to changes in the MSR valuation allowance and fixed asset and intangible asset amortization.
Other Income (loss), Net
Other income (loss), net in the three months ended
Other income (loss), net of$102.7 million in the three months endedSeptember 30, 2021 was primarily related to$72.6 million of realized and unrealized gains on Nasdaq shares and$27.8 million of non-cash gain related to the acquisition of Deskeo. Interest Expense, Net Interest expense, net decreased by$1.2 million , or 14.3%, to$7.3 million during the three months endedSeptember 30, 2022 as compared to the three months endedSeptember 30, 2021 . 72 -------------------------------------------------------------------------------- Provision for Income Taxes Provision for income taxes decreased by$40.5 million , to$13.3 million for the three months endedSeptember 30, 2022 as compared to the three months endedSeptember 30, 2021 . This decrease was primarily driven by lower pre-tax earnings. 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 attributable to noncontrolling interests
Net income attributable to noncontrolling interests decreased by
Nine months ended
Revenues
Management Services, Servicing Fees and Other Management services, servicing fees and other revenue increased by$37.5 million , or 5.7%, to$689.2 million for the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 . Excluding pass-through revenues, management services, servicing fee and other increased$108.0 million , or 29.4%, to$475.6 million , for the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 . The growth was driven by strong improvements from servicing and other related revenues, as well as Valuation & Advisory, property management, and flexible workspace. Leasing and Other Commissions Leasing and other commission revenues increased by$68.4 million , or 12.1%, to$631.7 million for the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 , due to stronger leasing activity in industrial and retail. Investment Sales Investment sales revenue increased by$40.3 million , or 8.9%, to$492.9 million for the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 . This was primarily due to a 17.1% year-over-year increase in investment sales volume across most major property types. Commercial Mortgage Origination, Net Commercial mortgage origination activities, net increased by$30.1 million , or 11.8%, to$284.5 million for the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 . The increase was primarily due to higher origination volumes and product mix.
Expenses
Compensation and Employee Benefits Compensation and employee benefits expense decreased by$76.8 million , or 6.0%, to$1,198.1 million for the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 . The decrease in the nine months was due to the compensation expense in the prior period related to the 2021 Equity Event offset by an increase in commission-based revenue due to higher business activity and acquisitions. Equity-based compensation and allocations of net income to limited partnership units and FPUs Equity-based compensation and allocations of net income to limited partnership units and FPUs decreased by$212.8 million , or 67.4%, to$103.0 million for the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 as a result of equity-based compensation expense related to the 2021 Equity Event. Operating, Administrative and Other Operating, administrative and other expenses increased by$1.3 million , or 0.3%, to$395.9 million for the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 due to higher support and operational expenses related to the resumption of normalized business activity on the part of us and our clients, as well as from our acquisitions. Fees to Related Parties Fees to related parties increased by$3.2 million , or 18.0%, to$20.9 million for the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 . 73 -------------------------------------------------------------------------------- Depreciation and Amortization Depreciation and amortization for the nine months endedSeptember 30, 2022 increased by$38.0 million , or 47.0%, to$118.8 million as compared to the nine months endedSeptember 30, 2021 due to changes in the MSR valuation allowance and fixed asset and intangible amortization. Other Income (loss), Net Other loss of$101.4 million in the nine months endedSeptember 30, 2022 was primarily due to realized and unrealized losses from the sale of Nasdaq shares and mark-to-market losses on non-marketable investments. Other income, net of$1,187.3 million in the nine months endedSeptember 30, 2021 was primarily related to$1,167.0 million of gains from the acceleration of the Nasdaq Earn-out and realized and unrealized gains on marketable securities. Additionally, the Company recorded$27.8 million of non-cash gain related to the acquisition of Deskeo during the nine months endedSeptember 30, 2021 , partially offset by a realized loss on the Nasdaq Forward of$12.8 million . Interest Expense, Net Interest expense, net decreased by$2.0 million , or 7.5%, to$24.1 million during the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 . Provision for Income Taxes Provision for income taxes decreased by$170.8 million , or 82.7%,to$35.7 million for the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 . This decrease was primarily driven by lower pre-tax earnings. 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 attributable to noncontrolling interests Net income attributable to noncontrolling interests decreased by$168.1 million , to$23.6 million for the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 . Financial Position, Liquidity and Capital Resources Overview The primary source of liquidity for our business is the cash on our balance sheet, cash flow provided by operations, and the$600.0 million revolving credit facility. Additionally, the Company exercised its redemption option inReal Estate LP , and expects to receive$88.4 million from Cantor on or prior toJuly 20, 2023 . Our future capital requirements will depend on many factors, including our 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 are insufficient to fund our future activities, we may need to raise additional funds through public equity or debt financing. As ofSeptember 30, 2022 , our long-term debt consists of our 6.125% Senior Notes with a carrying amount of$547.1 million .
Financial Position
Total assets were
Total liabilities were
Liquidity
AtSeptember 30, 2022 , we had cash and cash equivalents of$229.7 million . Additionally, we have a$600.0 million undrawn revolving credit facility. We expect to generate cash flows from operations to fund our business and to meet our short-term liquidity requirements, which we define as the next twelve months. Long-term debt Long-term debt consisted of the following (in thousands): 74 --------------------------------------------------------------------------------
September 30, 2022 December 31, 2021
2022 2021
6.125% Senior Notes $ 547,141 $ 545,239
Credit Facility - -
Total $ 547,141 $ 545,239
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 Newmark. These
6.125% Senior Notes were priced at 98.94% 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 . The
6.125% Senior Notes were subsequently exchanged for notes with substantially
similar terms that were registered under the Securities Act.
Credit Facility
On November 28, 2018 , Newmark entered into the 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
provided for a $250.0 million Credit Facility.
On February 26, 2020 , Newmark entered into the Amended Credit Agreement,
increasing the size of the Credit Facility to $425.0 million and extending the
maturity date to February 26, 2023 . The interest rate on the Credit Facility was
reduced to LIBOR plus 1.75% per annum, subject to a pricing grid linked to
Newmark's credit ratings from S&P Global Ratings and Fitch.
On March 16, 2020 , Newmark entered into the Second Amended Credit Agreement,
increasing the size of the Credit Facility to $465.0 million . The interest rate
on the amended Credit Facility was LIBOR plus 1.75% per annum, subject to a
pricing grid linked to Newmark's credit ratings from S&P Global Ratings and
Fitch.
On March 10, 2022 , Newmark entered into the A&R Credit Agreement, which amends
and restates the Credit Agreement, as amended. Pursuant to the A&R Credit
Agreement, the Lenders agreed to: (a) increase the amount available to the
Company under the Credit Facility to $600.0 million , (b) extend the maturity
date of the Credit Facility to March 10, 2025 , and (c) improve pricing to 1.50%
per annum with respect to Term SOFR (as defined in the A&R Credit Agreement)
borrowings.
Borrowings under the Credit Facility bear interest at a per annum rate equal to,
at the Company's option, either (a) Term SOFR for interest periods of one or
three months, as selected by the Company, or upon the consent of all Lenders,
such other period that is 12 months or less (in each case, subject to
availability), as selected by the Company, plus an applicable margin, or (b) a
base rate equal to the greatest of (i) the federal funds rate plus 0.50%, (ii)
the prime rate as established by the Administrative Agent, and (iii) Term SOFR
plus 1.00%, in each case plus an applicable margin. The applicable margin will
initially be 1.50% with respect to Term SOFR borrowings in (a) above and 0.50%
with respect to base rate borrowings in (b) above. The applicable margin with
respect to Term SOFR borrowings in (a) above will range from 1.00% to 2.125%
depending upon the Company's credit rating, and with respect to base rate
borrowings in (b) above will range from 0.00% to 1.125% depending upon the
Company's credit rating. The A&R Credit Agreement also provides for certain
upfront and arrangement fees and for an unused facility fee. As of September 30,
2022 and December 31, 2021 , there were no borrowings outstanding under the
Credit Facility.
Cantor Credit Agreement
On November 30, 2018 , Newmark 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 the higher of CFLP's or Newmark's short-term borrowing rate then in
effect, plus 1.0%. As of September 30, 2022 , and December 31, 2021 there were no
borrowings outstanding under the Cantor Credit Agreement.
Master Repurchase Agreement
On August 2, 2021 , a subsidiary of Newmark, Newmark OpCo, entered into the
Repurchase Agreement with CF Secured, an affiliate of Cantor, pursuant to which
Newmark could seek, from time-to-time, to execute short-term secured
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financing transactions. For additional information regarding this agreement, see
Note 27 - "Related Party Transactions" to our accompanying unaudited condensed
consolidated financial statements included in Part I, Item 1 of this Quarterly
Report on Form 10-Q.
Warehouse Facilities Collateralized by U.S. Government Sponsored Enterprises
As of September 30, 2022 , Newmark had $1.4 billion of committed loan funding and
$300.0 million of uncommitted loan funding available through three commercial
banks and an uncommitted $400.0 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 . As of September 30, 2022
and December 31, 2021 , respectively, we had $1.0 billion and $1.1 billion
outstanding under "Warehouse facilities collateralized by U.S. Government
Sponsored Enterprises " on our accompanying unaudited condensed consolidated
balance sheets.
Cash Flows
Cash flows from operations excluding activity from loan originations and sales,
net were as follows (in thousands):
Nine Months Ended
September 30,
2022 2021
Net cash provided by operating activities $ 264,735 $ (326,557)
Add back:
Net activity from loan originations and sales (55,349) 113,387
Net cash provided by (used in) operating activities excluding activity from loan originations and sales (1)
(1) Includes payments for corporate taxes in the amount of
Cash Flows for the Nine Months EndedSeptember 30, 2022 For the nine months endedSeptember 30, 2022 , we generated$264.7 million of cash from operations. Excluding activity from loan originations and sales, cash from operating activities for the nine months endedSeptember 30, 2022 was$209.4 million . Cash provided by investing activities was$330.8 million , primarily related to$437.8 million of proceeds from the sale of Nasdaq shares. Cash used in financing activities of$554.5 million primarily related to net principal payments on warehouse facilities of$34.3 million ,$140.0 million related to repurchase agreements and securities loaned, and$281.2 million of treasury stock repurchases. Cash Flows for the Nine Months EndedSeptember 30, 2021 For the nine months endedSeptember 30, 2021 , we used$326.6 million of cash from operations. However, excluding activity from loan originations and sales cash used from operating activities for the nine months endedSeptember 30, 2021 was$213.2 million . The$213.2 million reflects$484.4 million of cash used with respect to the 2021 Equity Event to reduce our fully diluted share count and for amounts paid on behalf of or to partners for withholding taxes related to unit exchanges and/or redemptions, cash paid for redemption of HDUs, and other items. But for these uses of cash, net cash provided by operating activities for the nine months endedSeptember 30, 2021 would have been$271.2 million . We had consolidated net income of$793.0 million , which included a$1,108.0 million gain related to the Nasdaq earn-out recognition. The Nasdaq earn-out is reflected in cash flows from investing activities as the Nasdaq shares are sold for cash. Also included as expense in consolidated net income was$315.7 million of equity-based compensation and allocation of net income to limited partnership units and FPUs which is a non-cash expense and approximately$203.8 million related to the 2021 Equity Event. Cash provided by investing activities was$424.0 million , primarily related to$495.7 million of proceeds from the sale of marketable securities, partially offset by$58.9 million of payments for acquisitions, net of cash acquired. Cash used in financing activities of$110.6 million primarily related to$139.3 million of treasury stock repurchases.
Credit Ratings
As of
Rating Outlook
Fitch Ratings Inc. BBB- Stable
JCRA BBB+ Stable
Kroll Bond Rating Agency BBB- Stable
S&P Global Ratings BB+ Positive
76-------------------------------------------------------------------------------- Credit ratings and associated outlooks are influenced by several 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 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 our accompanying unaudited condensed consolidated financial statements. As ofSeptember 30, 2022 , Newmark has met all capital requirements. As ofSeptember 30, 2022 , the most restrictive capital requirement was Fannie Mae's net worth requirement. Newmark exceeded the minimum requirement by$415.1 million . Certain of Newmark's agreements with Fannie Mae allow Newmark to originate and service loans under Fannie Mae's Delegated Underwriting and Servicing ("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'sTargeted Affordable Housing ("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 ofSeptember 30, 2022 andDecember 31, 2021 , Newmark has met all liquidity requirements. In addition, as a servicer for Fannie Mae, theGovernment National Mortgage Association ("Ginnie Mae") and FHA, Newmark is required to advance to investors any uncollected principal and interest due from borrowers. As ofSeptember 30, 2022 andDecember 31, 2021 , outstanding borrower advances were$1.1 million and$0.9 million , respectively, and are included in "Other assets" in our accompanying unaudited condensed consolidated balance sheets. OnSeptember 9, 2019 , theU.S. Department of the Treasury issued a Housing Reform Plan (the "Plan") in response to aMarch 27, 2019 Presidential Memorandum soliciting reforms in the housing financing system designed to minimize taxpayer exposure to future bailouts. The primary recommendations of the Plan are: (i) that existing government support for the secondary markets should be explicitly defined, tailored and paid for; (ii) that the GSEs' conservatorship should come to an end; (iii) the implementation of reforms necessary to ensure that the GSEs, and any successors, are appropriately capitalized to withstand a severe economic downturn and that shareholders and unsecured creditors, rather thanU.S. taxpayers, bear the losses; (iv) that the GSEs should continue to support affordable housing at a reasonable economic return that may be less than the return earned on other activities; (v) that the FHFA and theU.S. Department of Housing and Urban Development should clearly define the appropriate roles and overlap between the GSEs and theFederal Housing Administration so as to avoid duplication and (vi) that measures should be implemented to "level the playing field" between the GSEs and private sector competitors. Additionally, inSeptember 2019 , FHFA announced a cap of$200 billion as the maximum volume for combined Fannie Mae and Freddie Mac multifamily volume through the end of 2020, of which 37.5% must meet certain affordability requirements. The foregoing proposals may have the effect of impacting the volume of business that we may do with Fannie Mae and Freddie Mac. Additionally, the potential increase in our proportion of affordable business and the potential implementation of a fee to be charged in connection with the government's offer of a guarantee may alter the economics of the business and, accordingly, may impact our financial results.
See "Business-Regulation" in Part I, Item 1 of this Quarterly Report on Form 10-Q for information related to our regulatory environment.
Equity
Repurchase Program OnFebruary 10, 2022 , our Board increased its authorized share repurchases of Newmark Class A Common stock and purchases of limited partnership interests in Newmark's subsidiaries to$400.0 million . This authorization includes repurchases of shares or purchase of 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, Newmark may actively continue to repurchase shares and/or purchase 77 -------------------------------------------------------------------------------- units. During the nine months endedSeptember 30, 2022 , Newmark repurchased 23,217,195 shares of Class A common stock, at an average price of$12.10 . As ofSeptember 30, 2022 , Newmark had$146.9 million remaining from its share repurchase and unit purchase authorization. OnNovember 4, 2022 , theBoard and Audit Committee reauthorized the$400.0 million Newmark share repurchase and unit redemption authorization. The following table details Newmark's unit redemptions and share repurchases for cash, under the new program, and does not include unit redemptions and/or cancellations in connection with the grant of shares Newmark's Class A common stock. The gross unit redemptions and share repurchases of Newmark's Class A common stock during the nine months endedSeptember 30, 2022 were as follows (in thousands except units, shares and per share amounts): Approximate Dollar Value of Units and Shares That May Yet Be Total Average Repurchased/ Number of Price Paid Purchased Shares per Unit Under the Repurchased/Purchased or Share Program Repurchases January 1, 2022 - March 31, 2022 1,682,871$ 18.35 April 1, 2022 - June 30, 2022 11,370,647$ 12.75 July 2022 2,390,179$ 10.19 August 2022 3,337,037$ 10.68 September 2022 4,436,461$ 10.20 Total Repurchases 23,217,195$ 12.10 $ 146,927 In addition to the repurchases in the table above, during the three months endedMarch 31, 2022 ,Mr. Lutnick purchased an aggregate of 503,500 shares of Newmark's Class A common stock at an average price of$16.92 . During the three months endedJune 30, 2022 ,Mr. Lutnick purchased an aggregate of 556,000 shares of Newmark's Class A common stock at an average price of$9.81 . During the three months endedSeptember 30, 2022 ,Mr. Lutnick did not purchase any shares of Newmark's Class A common stock. Fully Diluted Share Count Our fully diluted weighted-average share count follows (in thousands): September 30, 2022 2021 Common stock outstanding(1) 183,311 199,413 Partnership units(2) 58,899 52,510 RSUs (Treasury stock method) 3,809 4,696 Newmark exchange shares 2,048 1,172 Total(3) 248,067 257,791 (1)Common stock consisted of Class A shares and Class B shares. For the nine months endedSeptember 30, 2022 , the weighted-average number of Class A shares was 162.0 million shares and Class B shares was 21.3 million that were included in our fully diluted EPS computation because the conditions for issuance had been met by the end of the period. (2)Partnership units collectively include FPUs, limited partnership units, and Cantor units, (see Note 2 - "Limited Partnership Interests inNewmark Holdings andBGC Holdings ", to our Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q 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 24.6 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.
(3)For the nine months ended
Our fully diluted period-end (spot) share count were as follows (in thousands):
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September 30,
2022 2021
Common stock outstanding 171,817 195,693
Partnership units 61,916 51,374
Newmark RSUs 2,604 4,698
Newmark exchange shares 970 1,167
Total 237,307 252,932
Contingent Payments Related to Acquisitions
Newmark completed acquisitions for which there is contingent cash consideration
of $12.3 million . The contingent cash liability is recorded at fair value as
deferred consideration on our accompanying unaudited condensed 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 September
30, 2022 , Newmark had $88.4 million in this equity method investment, which
represents a 27% ownership in Real Estate LP . Newmark holds a redemption option
in which Real Estate LP will redeem in full Newmark's investment in Real Estate
LP in exchange for Newmark's capital account balance in Real Estate LP as of
such time. On July 20, 2022 , Newmark exercised this redemption option and
expects to receive approximately $88.4 million from Cantor on or prior to July
20, 2023 (see Note 8 - "Investments" for more information).
Registration Statements
OnMarch 28, 2019 , we filed a registration statement on Form S-3 pursuant to which CF&Co may make offers and sales of our 6.125% Senior Notes in connection with ongoing market-making transactions which may occur from time to time. Such market-making transactions in these securities may occur in the open market or may be privately negotiated at prevailing market prices at a time of resale or at related or negotiated prices. Neither CF&Co, nor any of our affiliates, has any obligation to make a market in our securities, and CF&Co or any such other affiliate may discontinue market-making activities at any time without notice. Newmark does not receive any proceeds from market-making activities in these securities by CF&Co (or any of its affiliates). This registration statement expired inMarch 2022 . OnMarch 25, 2022 , we filed a new market-making Registration Statement on Form S-3 to replace the one that was expiring. We have an effective registration statement on Form S-4, with respect to the offer and sale of up to 20.0 million shares of our Class A common stock from time to time in connection with business combination transactions, including acquisitions of other businesses, assets, properties or securities. As ofSeptember 30, 2022 , we have issued 1.7 million shares of our Class A common stock under this registration statement. As ofSeptember 30, 2022 andDecember 31, 2021 , Newmark was committed to fund approximately$0.4 billion and$0.3 billion , respectively, which is the total remaining draws on construction loans originated by Newmark under theHousing and Urban Development ("HUD") 221(d)4, 220 and 232 programs, rate locked loans that have not been funded, and forward commitments, as well as the funding for Fannie Mae structured transactions. Newmark also has corresponding commitments to sell these loans to various purchasers as they are funded. Derivative Suits OnAugust 5, 2022 ,Robert Garfield filed a complaint in theDelaware Court of Chancery , captionedRobert Garfield v.Howard W. Lutnick , et al. (Case No.2022-0687), against the members of the Board andMr. Lutnick in his capacity as Chairman of the Board and controlling stockholder. This derivative complaint alleges that in connection with theDecember 2021 bonus award, payable over a 3-year period, granted toMr. Lutnick , that: (i) the Board breached its fiduciary duty, (ii) neither the award nor the approval process employed by the Compensation Committee were entirely fair to the Company and its stockholders, and (iii) the members of the Compensation Committee did not exercise independent judgment. The complaint alleges thatMr. Lutnick breached his fiduciary duty as Chairman and controlling shareholder by forcing the Company to grant the award and by accepting it. The complaint seeks rescission of the award and other compensation, as well as damages and other relief. The Company's position is that the award was properly approved by the Compensation Committee comprised of independent directors (which does not includeMr. Lutnick ) after careful consideration of his contributions to the Company, including the Company's superior financial results, and following an extensive process that included advice from independent legal counsel and an independent compensation consultant. The Company believes the lawsuit has no merit. However, as with any litigation, the outcome cannot be determined with certainty. 79 -------------------------------------------------------------------------------- OnOctober 7, 2022 ,Cardinal Capital Management, LLC filed a complaint in theDelaware Court of Chancery , captionedCardinal Capital Management, LLC v.Howard W. Lutnick , et al. (Case No.2022-0909-SG), againstMr. Lutnick , the members of the Compensation Committee in 2021, who wereVirginia S. Bauer ,Kenneth A. McIntyre andMichael Snow (the "Compensation Committee"), andBarry Gosin ,Michael Rispoli andStephen Merkel (the "Officers"). The derivative complaint alleges that in connection with the Company'sJune 2021 partnership units exchange forMr. Lutnick and Officers and theDecember 2021 bonus award, payable over a 3-year period, granted toMr. Lutnick : (i) the Compensation Committee and Officers breached their fiduciary duties and wasted corporate assets; and (ii)Mr. Lutnick and the Officers were unjustly enriched. The complaint also alleges thatMr. Lutnick breached his fiduciary duty as Chairman and controlling shareholder by forcing the Company to grant the award and by accepting it. The complaint seeks recoupment of the partnership units exchange and the bonus award, as well as damages and other relief. The Company's position is that the partnership units exchange was appropriate and in the best interests of the Company, and that the bonus award was properly approved after a thorough consideration process that included advice from independent legal counsel and an independent compensation consultant. The Company believes the lawsuit has no merit. However, as with any litigation, the outcome cannot be determined with certainty. Critical Accounting Policies and Estimates The preparation of our accompanying unaudited condensed consolidated financial statements in conformity withU.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 accompanying unaudited condensed 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 accompanying unaudited condensed 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, commercial mortgage origination, net, revenues from real estate management services, servicing fees and other revenues. Revenue from contracts with customers is recognized when, or as, we satisfy our 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 our 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 to us. 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, we consider 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 our 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, we perform an analysis to determine whether we are acting as a principal or an agent with respect to the services provided. To the extent that we are acting as a principal, the revenue and the expenses incurred are recorded on a gross basis. In instances where we are acting as an agent, the revenue and expenses are presented on a net basis within the revenue line item. In some instances, we perform services for customers and incur out-of-pocket expenses as part of delivering those services. Our customers agree to reimburse us 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. MSRs, Net We initially recognize and measure the rights to service mortgage loans at fair value and subsequently measure them using the amortization method. We recognize 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 80 --------------------------------------------------------------------------------
sale. Purchased MSRs, including MSRs purchased from CCRE, are initially recorded at fair value, and subsequently measured using the amortization method.
We receive 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, we incorporate
assumptions that management believes market participants would use in estimating
future net servicing income. The fair value estimates are sensitive to
significant assumptions used in the valuation model such as prepayment rates,
cost of servicing, escrow earnings rates, discount rates and servicing
multiples, which are affected by expectations about future market or economic
conditions derived, in part, from historical data. It is reasonably possible
that such estimates may change. We amortize the MSRs in proportion to, and over
the period of, the projected net servicing income. For purposes of impairment
evaluation and measurement, we stratify 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.
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 our 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 accompanying unaudited condensed 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
accompanying unaudited condensed consolidated statements of operations.
Limited Partnership Units: Limited partnership units in Newmark Holdings and BGC
Holdings are held by Newmark employees and receive quarterly allocations of net
income and are generally contingent upon services being provided by the unit
holders. As discussed above, preferred units in Newmark Holdings and BGC
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 "Equity-based
compensation and allocations of net income to limited partnership units and
FPUs" in our accompanying unaudited condensed consolidated statements of
operations.
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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 our
accompanying unaudited condensed consolidated statements of operations as part
of "Equity-based compensation and allocations of net income to limited
partnership units and FPUs." The liability for limited partnership units with a
post-termination payout is included in "Other long-term liabilities" on our
accompanying unaudited condensed consolidated balance sheets.
Certain limited partnership units held by Newmark employees are granted
exchangeability into Class A common stock or may be redeemed in connection with
the grant of shares of Class A common stock. At the time exchangeability is
granted, or the shares are issued, Newmark recognizes an expense based on the
fair value of the award on that date, which is included in "Equity-based
compensation and allocations of net income to limited partnership units and
FPUs" in our accompanying unaudited condensed 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 allocations of net
income to the awards are treated as compensation expense and the proceeds from
distributions are used to repay the loan. The forgivable portion of any loans is
recognized as compensation expense in our accompanying unaudited condensed
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 September 30, 2022 and December 31, 2021 , the
aggregate balance of employee loans, net of reserve, was $493.0 million and
$453.3 million , respectively, and is included as "Loans, forgivable loans and
other receivables from employees and partners, net" in our accompanying
unaudited condensed consolidated balance sheets. Compensation expense for the
above-mentioned employee loans three and nine months ended September 30, 2022 ,
was $21.4 million and $61.0 million , respectively, compared with $17.2 million
and $54.0 million , respectively, for the three and nine months ended September
30, 2021 . The compensation expense related to these loans was included as part
of "Compensation and employee benefits" in our accompanying unaudited condensed
consolidated statements of operations.
Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired in a business combination. As prescribed inU.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 indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or if we choose to bypass the qualitative assessment, we perform a quantitative goodwill impairment analysis as follows. The quantitative goodwill impairment test, used to identify both the existence of impairment and the amount of impairment loss, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss should be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill is deemed not to be impaired. To estimate the fair value of the reporting unit, 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 from our estimates under different assumptions or conditions. Credit Losses The CECL methodology, which became effective onJanuary 1, 2020 , requires us to estimate lifetime expected credit losses by incorporating historical loss experience, as well as current and future economic conditions over a reasonable and supportable period beyond the balance sheet date. The adoption of CECL resulted in the recognition of reserves relating to our loss sharing guarantee provided to Fannie Mae under the DUS Program which was previously accounted for under the incurred 82 --------------------------------------------------------------------------------
loss model, which generally required that a loss be incurred before it was recognized. Additional reserves were recognized for our receivables from customers including certain employee receivables carried at amortized cost.
The expected credit loss is modeled based on our historical loss experience adjusted to reflect current conditions. A significant amount of judgment is required in the determination of the appropriate reasonable and supportable period, the methodology used to incorporate current and future macroeconomic conditions, determination of the probability of and exposure at default, all of which are ultimately used in measuring the quantitative components of our reserves. Beyond the reasonable and supportable period, we estimate expected credit losses using our historical loss rates. We also consider whether to adjust the quantitative reserves for certain external and internal qualitative factors, which consequentially may increase or decrease the reserves for credit losses and receivables. In order to estimate credit losses, assumptions about current and future economic conditions are incorporated into the model using multiple economic scenarios that are weighted to reflect the conditions at each measurement date. During the nine months endedSeptember 30, 2022 , there was an increase of$0.6 million in our reserves. These reserves were based on macroeconomic forecasts are critical inputs into our model and material movements in variables such as, theU.S. unemployment rate andU.S. GDP growth rate could significantly affect our estimated expected credit losses. These macroeconomic forecasts, under different conditions or using different assumptions or estimates could result in significantly different changes in reserves for credit losses. It is difficult to estimate how potential changes in specific factors might affect the overall reserves for credit losses and current results may not reflect the potential future impact of macroeconomic forecast changes. Income Taxes Newmark accounts for income taxes using the asset and liability method as prescribed inU.S. GAAP guidance, Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to basis differences between our accompanying unaudited condensed consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Certain of Newmark's entities are taxed asU.S. partnerships and are subject to UBT inNew 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 our accompanying unaudited condensed consolidated financial statements. The tax-related assets, liabilities, provisions or benefits included in our accompanying unaudited condensed consolidated financial statements also reflect the results of the entities that are taxed as corporations, either in theU.S. or in foreign jurisdictions. 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 our accompanying unaudited condensed 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 theU.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. 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").
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Both the commitment to extend credit and the forward sale commitment qualify as
derivative financial instruments. We recognize all derivatives on our
accompanying unaudited condensed 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 variable postpaid forward contracts as a result of the
Nasdaq Forwards. These contracts qualified as derivative financial instruments.
The Nasdaq Forwards provided Newmark with the ability to redeem the EPUs for
Nasdaq stock, and as these instruments were not legally detachable, they
represented single financial instruments. The financial instruments' EPU
redemption feature for Nasdaq shares was not clearly and closely related to the
economic characteristics and risks of Newmark's EPU equity host instruments,
and, therefore, it represented an embedded derivative that is required to be
bifurcated and recorded at fair value on our accompanying unaudited condensed
consolidated balance sheets, with all changes in fair value recorded as a
component of "Other income (loss), net" on our accompanying unaudited condensed
consolidated statements of operations. See Note 11 - "Derivatives", to our
accompanying unaudited condensed consolidated financial statements in Part I,
Item 1 of this Quarterly Report on Form 10-Q for additional information.
Recent Accounting Pronouncements
See Note 1 - "Organization and Basis of Presentation", to our accompanying
unaudited condensed consolidated financial statements in Part I, Item 1 of this
Quarterly Report on Form 10-Q, for information regarding recent accounting
pronouncements.
Capital Deployment Priorities, Dividend Policy and Repurchase and Redemption Program
Our near-term capital allocation priorities are to return capital to stockholders through share and unit repurchases and to invest in growth and margin expansion at attractive returns.
Traditionally, our dividend policy provided that we expect to pay a quarterly cash dividend to our common stockholders based on our post-tax Adjusted Earnings per fully diluted share. Please see below for a detailed definition of post-tax Adjusted Earnings per fully diluted share. Beginning in the first quarter of 2020, and for all of the quarterly periods in 2020 and 2021, the Board reduced the quarterly dividend to$0.01 per share out of an abundance of caution in order to strengthen the Company's balance sheet as the real estate markets faced difficult and unprecedented macroeconomic conditions due to the COVID-19 pandemic. Additionally, beginning with the first quarter 2020,Newmark Holdings reduced its distributions to or on behalf of its partners. In the first quarter of 2022, the Board increased the quarterly dividend to$0.03 per share. In addition, Newmark increased the after-tax distributions to its partners to$0.06 per unit. The exchange ratio was adjusted in accordance with the terms of the Separation and Distribution Agreement due to any difference in our dividend policy and the distribution policy ofNewmark Holdings . See Note 6 "Stock Transactions and Unit Redemptions" to our accompanying unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information. As Newmark's financial condition has improved substantially year-over-year, and as the economy has rebounded from the lows it reached during the pandemic, the Company has repurchased and/or redeemed a meaningful number of shares/units in 2021 and thus far in 2022 as part of its overall capital return policy. Any dividends, if and when declared by our Board, will be paid on a quarterly basis. The dividend to our common stockholders is expected to be calculated based on a number of factors, including post-tax Adjusted Earnings allocated to us and generated over the fiscal quarter ending prior to the record date for the dividend. No assurance can be made, however, that a dividend will be paid each quarter. The declaration, payment, timing, and amount of any future dividends payable by us will be at the sole discretion of our Board. With respect to any distributions which are declared, amounts paid to or on behalf of partners will at least cover their related tax payments. Whether any given post-tax amount is equivalent to the amount received by a stockholder also on an after-tax basis depends upon stockholders' and partners' domiciles and tax status. We received 6,222,340 Nasdaq shares worth$1,093.9 million as ofJune 30, 2021 . OnJuly 2, 2021 , we settled the third and fourth Nasdaq Forwards with 944,329 Nasdaq shares worth$166.0 million and retained 5,278,011 Nasdaq shares. In connection with the 2021 Equity Event, we used$484.4 million , of which$203.5 million was to reduce our fully diluted share count by 16.3 million. FromJuly 2021 throughMarch 2022 , we sold all of the Nasdaq shares. 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 considerations as well as by covenants contained in financing or other agreements. In addition, underDelaware law, dividends may be payable only out of surplus, which is our net assets minus our capital (as defined underDelaware 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 against net income may adversely affect our ability to declare and pay dividends. While we intend to declare and pay dividends quarterly, there can be 84 --------------------------------------------------------------------------------
no assurance that our Board will declare dividends at all or on a regular basis or that the amount of our dividends will not change.
Non-GAAP Financial Measures
Newmark uses non-GAAP financial measures that differ from the most directly comparable measures calculated and presented in accordance with Generally Accepted Accounting Principles inthe 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". The definitions of these terms are below. Adjusted Earnings Defined Newmark uses non-GAAP financial measures, including "Adjusted Earnings before noncontrolling interests and taxes" and "Post-tax Adjusted Earnings to fully diluted shareholders" which are supplemental measures of operating results 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) before income taxes and noncontrolling interests" and "Net income (loss) for fully diluted shares" both 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. In addition, Adjusted Earnings calculations exclude certain gains and charges that management believes do not best reflect the ordinary results of Newmark. Adjusted Earnings is calculated by taking the most comparable GAAP measures and making adjustments for certain items with respect to compensation expenses, non-compensation expenses, and other income, as discussed below.
Calculations of Compensation Adjustments for Adjusted Earnings and Adjusted EBITDA
Treatment of Equity-Based Compensation under Adjusted Earnings and Adjusted EBITDA
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. These GAAP equity-based compensation
charges reflect the following items:
•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, 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.
•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 or
redeemed in connection with the grant of shares of common stock at ratios
designed to cover any withholding taxes expected to be paid. This is an
acceptable 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.
•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.
•Charges related to amortization of RSUs and limited partnership units.
•Charges related to grants of equity awards, including common stock or
partnership units with capital accounts.
•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 amount of certain quarterly equity-based compensation charges is based upon
the Company's estimate of such expected charges during the annual period, as
described further below under "Methodology for Calculating Adjusted Earnings
Taxes".
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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 growth.
All share equivalents that are part of the Company's equity-based compensation
program, including REUs, PSUs, LPUs, 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.
Certain Other Compensation-Related Items under Adjusted Earnings and Adjusted
EBITDA
Newmark also excludes various other GAAP items that management views as not
reflective of the Company's underlying performance for the given period from its
calculation of Adjusted Earnings and Adjusted EBITDA. These may include
compensation-related items with respect to cost-saving initiatives, such as
severance charges incurred in connection with headcount reductions as part of
broad restructuring and/or cost savings plans.
The Company also excludes compensation charges related to non-cash GAAP gains
attributable to originated mortgage servicing rights (which Newmark refers to as
"OMSRs") because these gains are also excluded from Adjusted Earnings and
Adjusted EBITDA.
Excluded Compensation-Related Items with Respect to the 2021 Equity Event under Adjusted Earnings and Adjusted EBITDA (Beginning in Third Quarter 2021, as Updated)
Newmark does not view the GAAP compensation charges related to 2021 Equity Event
that were not equity-based compensation as being reflective of its ongoing
operations (the "Impact of the 2021 Equity Event"). These consisted of charges
relating to cash paid to independent contractors for their withholding taxes and
the cash redemption of HDUs. These were recorded as expenses based on Newmark's
previous non-GAAP results, but were excluded in the recast non-GAAP results
beginning in the third quarter of 2021 for the following reasons:
•But for the 2021 Equity Event, the items comprising such charges would have
otherwise been settled in shares and been recorded as equity-based compensation
in future periods, as is the Company's normal practice. Had this occurred, such
amounts would have been excluded from Adjusted Earnings and Adjusted EBITDA, and
would also have resulted in higher fully diluted share counts, all else equal.
•Newmark views the fully diluted share count reduction related to the 2021
Equity Event to be economically similar to the common practice among public
companies of issuing the net amount of common shares to employees for their
vested stock-based compensation, selling a portion of the gross shares pay
applicable withholding taxes, and separately making open market repurchases of
common shares.
•There was nothing comparable to the 2021 Equity Event in 2020 and nothing
similar is currently contemplated after 2021. Accordingly, the only prior period
recast with respect to the 2021 Equity Event was the second quarter of 2021.
Calculation of Non-Compensation Expense Adjustments for Adjusted Earnings
Newmark's calculation of pre-tax Adjusted Earnings excludes non-cash GAAP
charges related to the following:
•Amortization of intangibles with respect to acquisitions.
•Amortization of mortgage servicing rights (which Newmark refers to as "MSRs").
Under GAAP, the Company recognizes OMSRs 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.
•Various other GAAP items that management views as not reflective of the
Company's underlying performance for the given period, including
non-compensation-related charges incurred as part of broad restructuring and/or
cost savings plans. Such GAAP items may include charges for exiting leases
and/or other long-term contracts as part of cost-saving initiatives, as well as
non-cash impairment charges related to assets, goodwill and/or intangibles
created from acquisitions.
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Non-Cash Adjustment for Originated Mortgage Servicing Rights Revenue for
Adjusted Earnings
Newmark's calculation of pre-tax Adjusted Earnings excludes non-cash GAAP gains
attributable to OMSRs. Beginning in the fourth quarter of 2020, OMSRs are no
longer included in non-compensation adjustments for Adjusted Earnings but
instead shown as a separate line item in the Company's "Reconciliation of GAAP
Net Income Available to Common Stockholders to Adjusted Earnings Before
Noncontrolling Interests and Taxes and GAAP Fully Diluted EPS to Post-Tax
Adjusted EPS". This presentation has no impact on previously reported Adjusted
Earnings.
Calculation of Other (income) losses for Adjusted Earnings and Adjusted EBITDA
Adjusted Earnings calculations also exclude certain other non-cash,
non-dilutive, and/or non-economic items, which may, in some periods, include:
•Unusual, one-time, non-ordinary or non-recurring gains or losses.
•Non-cash GAAP asset impairment charges.
•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 receipt of the Nasdaq payments in 2021 and 2022 and the 2020 Nasdaq
payment (the "Nasdaq Forwards").
•Mark-to-market adjustments for non-marketable investments.
•Certain other non-cash, non-dilutive, and/or non-economic items.
Due to the sale of Nasdaq's U.S. fixed income business in the second quarter of
2021, the Nasdaq Earn-out and related Forward settlements were accelerated, less
certain previously disclosed adjustments. Because these shares were originally
expected to be received over a 15 year period ending in 2027, the Earn-out had
been included in calculations of Adjusted Earnings and Adjusted EBITDA under
Newmark's previous non-GAAP methodology. Due to the acceleration of the Earn-out
and the Nasdaq Forwards, the Company now views results excluding certain items
related to the Earn-out to be a better reflection of the underlying performance
of Newmark's ongoing operations. Therefore, beginning with the third quarter of
2021, other (income) losses for Adjusted Earnings and Adjusted EBITDA also
excludes the impact of the below items. These items may collectively be referred
to as the "Impact of Nasdaq".
•Realized gains related to the accelerated receipt on June 25, 2021 of Nasdaq
shares.
•Realized gains or losses and unrealized mark-to-market gains or losses with
respect to Nasdaq shares received prior to the Earn-out acceleration.
•Dividend income on Nasdaq shares.
•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 receipt of the Nasdaq payments in 2021 and 2022 and the 2020 Nasdaq
payment (the "Nasdaq Forwards"). This item was historically excluded under the
previous non-GAAP definitions.
•Other items related to the Earn-out.
Upon further consideration, Newmark's calculations of non-GAAP "Other income
(loss)" will continue to include dividend income on Nasdaq shares, as these
dividends contribute to cash flow and are generally correlated to Newmark's
interest expense on short term borrowing against such shares. All other things
being equal, as Newmark sells Nasdaq shares, both its interest expense and
dividend income will decline.
Methodology for Calculating Adjusted Earnings Taxes
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 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 before noncontrolling interests and taxes 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 before income taxes and
noncontrolling interests. 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
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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.
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% of
earnings were taxed at global corporate rates.
Calculations of Pre- and Post-Tax Adjusted Earnings per Share
Newmark's pre- and post-tax Adjusted Earnings per share calculations assume
either that:
•The fully diluted share count includes the shares related to any dilutive
instruments, but excludes the associated expense, net of tax, when the impact
would be dilutive; or
•The fully diluted share count excludes the shares related to these instruments,
but includes the associated 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 expected to redeem the related
exchangeable preferred limited partnership units ("EPUs") with Nasdaq shares.
Management Rationale for Using Adjusted Earnings
Newmark's calculation of Adjusted Earnings excludes the items discussed above
because they are either non-cash in nature, because the anticipated benefits
from the expenditures are not expected to be fully realized until future
periods, or because the Company views results excluding these items as a better
reflection of the underlying performance of Newmark's ongoing operations.
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. Dividends payable to common stockholders and
distributions payable to holders of limited partnership units are included
within "Distributions to stockholders" and "Earnings distributions to limited
partnership interests and noncontrolling interests," respectively, in our
accompanying unaudited condensed consolidated statements of cash flows.
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
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For more information regarding Adjusted Earnings, see the sections of the
Company's most recent financial results press release titled "Reconciliation of
GAAP Income to Adjusted Earnings and GAAP Fully Diluted EPS to Post-tax Adjusted
EPS", including the related footnotes, for details about how 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 for the following items:
•Net income (loss) attributable to noncontrolling interest.
•Provision (benefit) for income taxes.
•OMSR revenue.
•MSR amortization.
•Compensation charges related to OMSRs.
•Other depreciation and amortization.
•Equity-based compensation and allocations of net income to limited partnership
units and FPUs.
•Various other GAAP items that management views as not reflective of the
Company's underlying
performance for the given period. These may include compensation-related items
with respect to cost-saving
initiatives, such as severance charges incurred in connection with headcount
reductions as part of broad
restructuring and/or cost savings plans; charges for exiting leases and/or other
long-term contracts as part of
cost-saving initiatives; and non-cash impairment charges related to assets,
goodwill and/or intangibles created
from acquisitions.
•Other non-cash, non-dilutive, and/or non-economic items, which may, in certain
periods, include 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 receipt of the Nasdaq payments in 2021 and 2022 and
the 2020 Nasdaq payment (the "Nasdaq Forwards"), as well as mark-to-market
adjustments for non-marketable investments.
•Interest expense.
Beginning with the third quarter of 2021, calculation of Adjusted EBITDA will
also exclude the "Impact of Nasdaq" and the "Impact of the 2021 Equity Event",
which are defined above.
Newmark's calculation of Adjusted EBITDA excludes certain items discussed above
because they are either non-cash in nature, because the anticipated benefits
from the expenditures are not expected to be fully realized until future
periods, or because the Company views excluding these items as a better
reflection of the underlying performance Newmark's ongoing operations. 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.
For more information regarding Adjusted EBITDA, see the section of the Company's
most recent financial results press release titled "Reconciliation of GAAP
Income to Adjusted EBITDA" including the related footnotes, for details about
how Newmark's non-GAAP results are reconciled to those under GAAP EPS.
89
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Timing of Outlook for Certain GAAP and 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:
•Certain equity-based compensation charges that may be determined at the
discretion of management throughout and up to the period-end;
•Unusual, one-time, non-ordinary, or non-recurring items;
•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.
These items are calculated using period-end closing prices;
•Non-cash asset impairment charges, which are calculated and analyzed based on
the period-end values of the underlying assets. These amounts may not be known
until after period-end;
•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,
marketable securities, and reverse repurchase agreements (if any), less
securities lent out in securities loaned transactions and repurchase agreements.
The Company considers liquidity to be an important metric for determining the
amount of cash that is available or that could be readily available to the
Company on short notice.
For more information regarding liquidity, see the section of the Company's most
recent financial results press release titled "Liquidity Analysis," including
any related footnotes, for details about how Newmark's non-GAAP results are
reconciled to those under GAAP.
OUR ORGANIZATIONAL STRUCTURE
Current Organizational Structure As ofSeptember 30, 2022 , there were 199,459,258 shares of Newmark Class A common stock issued and 150,530,807 outstanding. Cantor and CFGM held no shares of Newmark Class A common stock. Each share of Newmark Class A common stock is generally entitled to one vote on matters submitted to a vote of our stockholders. As ofSeptember 30, 2022 , Cantor and CFGM held 21,285,533 shares of Newmark Class B common stock representing all of the outstanding shares of Newmark Class B common stock. The shares of Newmark Class B common stock held by Cantor and CFGM, as ofSeptember 30, 2022 , represented approximately 58.6% of our total voting power. Each share of Newmark Class B common stock is generally entitled to the same rights as a share of Newmark Class A common stock, except that, on matters submitted to a vote of our stockholders, each share of Newmark Class B common stock is entitled to 10 votes. The Newmark Class B common stock generally votes together with the Newmark 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 Newmark Class B common stock would be required to convert their shares of Newmark Class B common stock into shares of Newmark Class A common stock. Our amended and restated certificate of incorporation ("our certificate of incorporation") does not provide for automatic conversion of shares of Newmark Class B common stock into shares of Newmark Class A common stock upon the occurrence of any event. We hold theNewmark Holdings general partnership interest and theNewmark Holdings special voting limited partnership interest, which entitle us to remove and appoint the general partner ofNewmark Holdings and serve as the general partner ofNewmark Holdings , which entitles us to controlNewmark Holdings .Newmark Holdings , in turn, holds the Newmark OpCo general partnership interest and the Newmark OpCo special voting limited partnership interest, which entitleNewmark Holdings to remove and appoint the general partner of Newmark OpCo, and serve as the general partner of Newmark OpCo, which entitlesNewmark Holdings (and thereby us) to control Newmark OpCo. In addition, as ofSeptember 30, 2022 , we directly held Newmark OpCo limited partnership interests consisting of approximately 62,806,554 units representing approximately 26.6% 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 ofNewmark Holdings and, throughNewmark Holdings , acts as the general partner of Newmark OpCo. As a result of our ownership of the general partnership interest inNewmark Holdings andNewmark Holdings' general partnership interest in Newmark OpCo, we consolidate Newmark OpCo's results for financial reporting purposes. 90 -------------------------------------------------------------------------------- Cantor, founding partners, working partners and limited partnership unit holders directly holdNewmark 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. TheNewmark Holdings limited partnership interests held by Cantor and CFGM are designated asNewmark Holdings exchangeable limited partnership interests. TheNewmark Holdings limited partnership interests held by the founding partners are designated asNewmark Holdings founding partner interests. TheNewmark Holdings limited partnership interests held by the working partners are designated asNewmark Holdings working partner interests. TheNewmark Holdings limited partnership interests held by the limited partnership unit holders are designated as limited partnership units. Each unit ofNewmark 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. As ofSeptember 30, 2022 , 3,740,783 founding/working partner interests were outstanding. These founding/working partners were issued in the Separation to holders ofBGC 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. TheNewmark Holdings limited partnership interests held by founding/working partners are not exchangeable with us unless (1) Cantor acquires Cantor units fromNewmark Holdings upon termination or bankruptcy of the founding/working partners or redemption of their units byNewmark Holdings (which it has the right to do under certain circumstances), in which case such interests will be exchangeable with us for shares of Newmark Class A common stock or Newmark 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 Newmark Class A common stock, with eachNewmark Holdings unit exchangeable for a number of shares of Newmark Class A common stock equal to the exchange ratio (which was initially one, but is subject to adjustment as set forth in the 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 eachNewmark Holdings unit exchangeable for a number of shares of Newmark Class A common stock equal to the exchange ratio (which was initially one, but is subject to adjustment as set forth in the Separation and Distribution Agreement), in accordance with the terms of theNewmark Holdings limited partnership agreement. Once aNewmark Holdings founding/working partner interest becomes exchangeable, such founding/working partner interest is automatically exchanged upon a termination or bankruptcy with us for Newmark 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 ofSeptember 30, 2022 , 32,774,324 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 theNewmark Holdings general partner, with the consent of theNewmark Holdings exchangeable limited partnership interest majority in interest, in accordance with the terms of theNewmark Holdings limited partnership agreement. The exchange ratio betweenNewmark 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 Separation and Distribution Agreement if our dividend policy and the distribution policy ofNewmark Holdings are different. As ofSeptember 30, 2022 , the exchange ratio was 0.9365. With each exchange, our direct and indirect interest in Newmark OpCo will proportionately increase because, immediately following an exchange,Newmark Holdings will redeem theNewmark Holdings unit so acquired for the Newmark OpCo limited partnership interest underlying suchNewmark Holdings unit. The profit and loss ofNewmark OpCo andNewmark Holdings , as the case may be, are allocated based on the total number of Newmark OpCo units (not including EPUs) andNewmark Holdings units, as the case may be, outstanding. The following diagram illustrates the ownership structure of Newmark as ofSeptember 30, 2022 . 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 ofNewmark Holdings exchangeable limited 91 -------------------------------------------------------------------------------- partnership interests or, to the extent applicable,Newmark Holdings founding partner interests,Newmark Holdings working partner interests orNewmark 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. 92 -------------------------------------------------------------------------------- STRUCTURE OF NEWMARK AS OFSEPTEMBER 30, 2022 [[Image Removed: nmrk-20220930_g1.jpg]] 93
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Shares of Newmark Class B common stock are convertible into shares of Newmark 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 Newmark Class B common stock into shares of Newmark Class A common stock, Cantor and CFGM would hold 12.4%/ of the voting power in Newmark and the stockholders of Newmark other than Cantor and CFGM would hold 87.6% 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 shares of Newmark Class B common stock and if Cantor exchanged all of the exchangeable limited partnership units held by Cantor for shares of Newmark Class B common stock, Cantor and CFGM would hold 76.0% of the voting power in Newmark, and the stockholders of Newmark other than Cantor and CFGM would hold 24.0% of the voting power in Newmark. The diagram reflects Newmark Class A common stock andNewmark Holdings partnership unit activity fromJanuary 1, 2022 throughSeptember 30, 2022 as follows: (a) an aggregate of 10,518,897 limited partnership units granted byNewmark Holdings ; (b) 23,217,195 shares of Newmark Class A common stock repurchased by us; (c) 26,742 shares of Newmark Class A common stock forfeited; (d) 1,686,307 shares of Newmark Class A common stock issued for vested restricted stock units; (e) 234,482 shares of Class A common stock issued by us under our acquisition shelf Registration Statement on Form S-4 (Registration No. 333-231616), but not the 18,344,061 of such shares remaining available for issuance by us under such Registration Statement; and (h) 359,678 terminated limited partnership units.
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