Jul 18, 2017 2:00 AM
The Board of Directors of BGC, upon the unanimous recommendation of a Special Committee consisting of all four independent directors (the "Special Committee") assisted by independent advisors, has unanimously approved the acquisition of Berkeley Point and the related transactions. The total consideration payable by BGC for the acquisition of Berkeley Point is
Management Comments
"Berkeley Point is a low-risk intermediary in commercial real estate finance for the multifamily market. It originates and services multifamily loans as part of programs run by
"Berkeley Point will drive our margins higher, as it is more profitable than our publicly-traded commercial real estate services peers.8 In addition, Berkeley Point generated approximately 30 percent of its revenues from stable and recurring loan servicing fees, which come from mortgage servicing rights with an average duration of almost eight years.9 These servicing fees, alongside Newmark's existing property management, facilities management, advisory, consulting, and agency leasing businesses, mean that a significant amount of our revenues and earnings will be recurring and predictable."
Highlights of Berkeley Point Financial Results
Berkeley Point's net asset or book value was
BPF's GAAP pre-tax income includes non-cash GAAP gains attributable to originated MSRs and non-cash GAAP amortization of MSRs. Excluding the net impact of these non-cash items, Berkeley Point's pre-tax earnings would have increased by 52 percent to
Berkeley Point Outlook
This growth is expected to be driven by synergies between Berkeley Point's and NKF's large national sales organizations.
Transaction Details
The total consideration payable by BGC to Cantor for the acquisition of Berkeley Point is
BGC expects to fund the acquisition through a combination of a bond issuance, term loan, or other debt financing arrangements, as well as from existing financing sources and cash on hand. BGC intends to remain investment-grade following the close of the transaction. The acquisition of Berkeley Point is expected to close during 2017, subject to receipt of certain regulatory approvals, including from Fannie Mae, Freddie Mac and HUD, and other customary closing conditions.
Contemporaneously with the proposed acquisition of Berkeley Point, BGC will invest
Under the terms of the Investment, Cantor has agreed to bear initial net losses of the partnership, if any, up to an aggregate amount of approximately
Special Committee Unanimous Approval
The Board of Directors of BGC has unanimously approved the BPF acquisition and the Investment, upon the recommendation of the Special Committee, which was assisted by independent advisors.
Recast Financial Results
After the proposed transaction is completed, the Company's Real Estate Services segment will report one new revenue line item reflecting BPF's "gains from mortgage banking activities, net" and record Berkeley Point's "servicing fees" as part of what will be called "management services and servicing fees". The proposed transaction involves a reorganization of entities under common control. Therefore, after the closing of the acquisition, BGC's financial statements are expected to be retrospectively recast to include the results of BPF from
Conference Call and Investor Presentation
BGC will host a conference call on
A listing of minimum system requirements can be found here:
A webcast replay of the conference call is expected to be accessible at http://ir.bgcpartners.com within 24 hours of the live call and will be available for 365 days following the call. Additionally, call participants may dial in with the following information:
LIVE CALL: |
|
Date - Start Time: |
July 18 at |
|
(844) 309-0609 |
International Dial In: |
(574) 990-9937 |
Conference ID: |
5647-2576 |
REPLAY: |
|
Available From – To: |
|
|
(855) 859-2056 or (800) 585-8367 |
International Dial In: |
(404) 537-3406 |
Conference ID: |
5647-2576 |
About
Real Estate Services are offered through brands including Newmark Knight Frank or "NKF" (formerly known as "
BGC's customers include many of the world's largest banks, broker-dealers, investment banks, trading firms, hedge funds, governments, corporations, property owners, real estate developers, and investment firms. BGC's common stock trades on the NASDAQ Global Select Market under the ticker symbol (NASDAQ: BGCP). BGC also has an outstanding bond issuance of Senior Notes due
BGC, BGC Trader, GFI,
About
Distributable Earnings Defined
As compared with "income (loss) from operations before income taxes", and "net income (loss) per fully diluted share", all prepared in accordance with GAAP, distributable earnings calculations primarily exclude certain non-cash compensation and other expenses that generally do not involve the receipt or outlay of cash by the Company and/or which do not dilute existing stockholders, as described below. In addition, distributable earnings calculations exclude certain gains and charges that management believes do not best reflect the ordinary operating results of BGC.
Adjustments Made to Calculate Pre-Tax Distributable Earnings
Pre-tax distributable earnings are defined as GAAP income (loss) from operations before income taxes and noncontrolling interest in subsidiaries excluding items, such as:
Distributable earnings calculations also exclude certain unusual, one-time or non-recurring items, if any. These charges are excluded from distributable earnings because the Company views excluding such charges as a better reflection of the ongoing, ordinary operations of BGC.
In addition to the above items, allocations of net income to founding/working partner and other limited partnership units are excluded from calculations of pre-tax distributable earnings. Such allocations represent the pro-rata portion of pre-tax earnings available to such unit holders. These units are in the fully diluted share count, and are exchangeable on a one-to-one basis into common stock. As these units are exchanged into common shares, unit holders become entitled to cash dividends rather than cash distributions. The Company views such allocations as intellectually similar to dividends on common shares. Because dividends paid to common shares are not an expense under GAAP, management believes similar allocations of income to unit holders should also be excluded when calculating distributable earnings performance measures.
BGC's definition of distributable earnings also excludes certain gains and charges with respect to acquisitions, dispositions, or resolutions of litigation. This includes the one-time gains related to the Nasdaq and Trayport transactions. Management believes that excluding such gains and charges also best reflects the ongoing operating performance of BGC.
However, the payments associated with BGC's expected annual receipt of Nasdaq stock and related mark-to-market gains or losses are anticipated to be included in the Company's calculation of distributable earnings for the following reasons:
To make period-to-period comparisons more meaningful, one-quarter of each annual Nasdaq contingent earn-out amount, as well as gains or losses with respect to associated mark-to-market movements and/or hedging, will be included in the Company's calculation of distributable earnings each quarter as "other income".
The Company also treats gains or losses related to mark-to-market movements and/or hedging with respect to any remaining shares of Intercontinental Exchange, Inc. ("ICE") in a consistent manner with the treatment of Nasdaq shares when calculating distributable earnings.
Investors and analysts should note that, due to the large gain recorded with respect to the Trayport sale in
Adjustments Made to Calculate Post-Tax Distributable Earnings
Since distributable earnings are calculated on a pre-tax basis, management intends to also report post-tax distributable earnings to fully diluted shareholders. Post-tax distributable earnings to fully diluted shareholders are defined as pre-tax distributable earnings, less noncontrolling interest in subsidiaries, and reduced by the provision for taxes as described below.
The Company's calculation of the provision for taxes on an annualized basis starts with GAAP income tax provision, adjusted to reflect tax-deductible items. Management uses this non-GAAP provision for taxes in part to help it to evaluate, among other things, the overall performance of the business, make decisions with respect to the Company's operations, and to determine the amount of dividends paid to common shareholders.
The provision for taxes with respect to distributable earnings includes additional tax-deductible items including limited partnership unit exchange or conversion, employee loan amortization, charitable contributions, and certain net-operating loss carryforwards.
BGC 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
Calculations of Pre-tax and Post-Tax Distributable Earnings per Share
BGC's distributable earnings per share calculations assume either that:
The share count for distributable earnings excludes shares expected to be issued in future periods but not yet eligible to receive dividends and/or distributions.
Each quarter, the dividend to BGC's common stockholders is expected to be determined by the Company's Board of Directors with reference to a number of factors, including post-tax distributable earnings per fully diluted share. In addition to the Company's quarterly dividend to common stockholders,
Other Matters with Respect to Distributable Earnings
The term "distributable earnings" should not be considered in isolation or as an alternative to GAAP net income (loss). The Company views distributable 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 distributable earnings are not intended to replace the Company's presentation of GAAP financial results. However, management believes that they help provide investors with a clearer understanding of
BGC anticipates providing forward-looking quarterly guidance for GAAP revenues and for certain distributable earnings measures from time to time. However, the Company does not anticipate providing a quarterly outlook for other GAAP results. This is because certain GAAP items, which are excluded from distributable earnings, are difficult to forecast with precision before the end of each quarter. The Company therefore believes that it is not possible to forecast quarterly GAAP results or to quantitatively reconcile GAAP results to non-GAAP results with sufficient precision unless BGC makes unreasonable efforts.
The items that are difficult to predict on a quarterly basis with precision and which can have a material impact on the Company's GAAP results include, but are not limited, to the following:
For more information on this topic, please see certain tables in BGC's most recent quarterly financial results press release including "Reconciliation of GAAP Income (Loss) to Distributable Earnings". These tables provide summary reconciliations between pre- and post-tax distributable earnings and the corresponding GAAP measures for the Company.
Pre-Tax Distributable Earnings Following the Closing of the Proposed BPF Transaction
Following the closing of the Berkeley Point transaction, additional GAAP items will be excluded in order to calculate pre-tax distributable earnings for the Real Estate Services segment and the consolidated Company. The most material items expected to be excluded for both historical and future period results will be non-cash GAAP gains attributable to originated mortgage servicing rights ("OMSRs") and non-cash GAAP amortization of mortgage servicing rights ("MSRs"). BPF recognizes OMSR gains equal to the fair value of servicing rights retained on mortgage loans originated and sold. BPF amortizes MSRs in proportion to the net servicing revenue expected to be earned. Subsequent to the initial recording, MSRs are amortized and carried at the lower of amortized cost or fair value.
For the years 2015 and 2016, pre-tax distributable earnings for the Real Estate Services Business and for the consolidated Company will exclude approximately
In addition, pre-tax distributable earnings for the Real Estate Services Business and for the consolidated Company will exclude any non-cash provision or benefit related to risk-sharing obligations, net of charge-offs.
Adjusted EBITDA Defined
BGC also provides an additional non-GAAP financial performance measure, "adjusted EBITDA", which it defines as GAAP "Net income (loss) available to common stockholders", adjusted to add back the following items:
The Company's management believes that adjusted EBITDA is useful in evaluating BGC'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 these measures to evaluate operating performance and for other discretionary purposes. BGC 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 adjusted EBITDA is not a recognized measurement under GAAP, investors should use adjusted EBITDA in addition to GAAP measures of net income when analyzing BGC'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 adjusted EBITDA does not consider certain cash requirements, such as tax and debt service payments.
For a reconciliation of adjusted EBITDA to GAAP "Net income (loss) available to common stockholders", the most comparable financial measure calculated and presented in accordance with GAAP, see the section of BGC's most recent quarterly financial results press release titled "Reconciliation of GAAP Income (Loss) to Adjusted EBITDA".
Adjusted EBITDA Following the Closing of the Proposed BPF Transaction
Following the closing of the Berkeley Point transaction, additional GAAP items will be excluded in order to calculate BGC's consolidated adjusted EBITDA. The most material items expected to be excluded for both historical and future periods will be non-cash GAAP gains attributable to OMSRs and non-cash GAAP amortization of MSRs. Berkeley Point recognizes OMSR gains equal to the fair value of servicing rights retained on mortgage loans originated and sold. BPF amortizes MSRs in proportion to the net servicing revenue expected to be earned. Subsequent to the initial recording, MSRs are amortized and carried at the lower of amortized cost or fair value.
For the years 2015 and 2016, adjusted EBITDA will exclude approximately
In addition, adjusted EBITDA will exclude any non-cash provision or benefit related to risk-sharing obligations, net of charge-offs.
Financial Results and Figures Presented for
All GAAP and non-GAAP financial results and figures for Berkeley Point shown in this document may differ from the results that will be shown in BGC's retrospectively adjusted financial statements upon the expected consolidation of these results and do not reflect any results previously disclosed by Berkeley Point in any other context. Trailing 12 month financial figures presented for Berkeley Point discussed herein are unaudited. Results for the trailing 12 months ended
Discussion of Forward-Looking Statements about
Statements in this document regarding BGC, the proposed transactions, and Berkeley Point that are not historical facts are "forward-looking statements" that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Factors that could cause actual results to differ from those contained in the forward-looking statements include, but are not limited to: the possibility that the proposed transactions may not be consummated in a timely manner or at all, including as a result of a failure to satisfy a condition to closing (including regulatory approvals); the possibility that there may be an adverse effect or disruption from the proposed transactions that negatively impacts BGC's other businesses; the possibility that the anticipated benefits of the proposed transactions to BGC may not be realized as presently contemplated or at all; and the possibility that changes in interest rates, commercial real estate values, the regulatory environment, pricing or other competitive pressures, and other market conditions or factors could cause the results of Berkeley Point to differ from the forward-looking statements contained herein. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see BGC's
1 The proposed acquisition of
2
3 "GAAP" is an abbreviation for Generally Accepted Accounting Principles.
4 "MSRs" is an abbreviation for "Mortgage Servicing Rights." "Net non-cash MSR income" consists of GAAP non-cash originated MSR gains, net of GAAP non-cash MSR amortization. See the sections of this document titled "Highlights of Berkeley Point Financial Results", "Pre-Tax Distributable Earnings Following the Closing of the Proposed BPF Transaction", and "Adjusted EBITDA Following the Closing of the Proposed BPF Transaction" for more information on how MSRs affect BPF's financial results.
5 Abbreviated as "GSEs" and "HUD".
6 These loans are held on BPF's balance sheet for generally only 30 to 45 days.
7 Based on Real Estate Alert's 2016 U.S. investment sales broker rankings and Fannie Mae and Freddie Mac 2016 multifamily lender rankings.
8 NKF's peers trade under
9 Revenues are for the trailing 12 months ended
10 As of
11 The net impact of non-cash GAAP gains attributable to originated MSRs and non-cash GAAP amortization of MSRs was
12 See the portions of this document titled "Pre-tax Distributable Earnings Following the Closing of the Proposed BPF Transaction" and "Adjusted EBITDA Following the Closing of the Proposed BPF Transaction" for the expected revisions to these non-GAAP terms.
13 Approximately 50% of GAAP net income in both 2017 and 2018 is expected to consist of non-cash GAAP gains related to originated MSRs, net of non-cash MSR amortization expense.
14 Up to
15 As of
View original content with multimedia:http://www.prnewswire.com/news-releases/bgc-partners-agrees-to-acquire-100-percent-of-berkeley-point-financial-llc-300489435.html
SOURCE