- Berkeley Point is a Leading Fannie Mae, Freddie Mac and
FHA Multifamily Finance Company and Commercial Loan
Servicer
- Acquisition is Expected to Dramatically Increase
Revenues and Earnings
- Will Expand Product Offerings and Generate
Synergies with Newmark Knight Frank,
BGC's Real Estate Services Business
- BGC to Take Minority Stake in a New Real
Estate Finance and Investment Business
- Conference Call and Webcast with
Accompanying Investor Presentation Scheduled for 8:30 AM ET on Tuesday July
18
NEW YORK and LONDON, July 18,
2017 /PRNewswire/ -- BGC Partners, Inc. (NASDAQ: BGCP)
("BGC Partners", "BGC", or the "Company"), a leading global
brokerage company servicing the financial and real estate markets,
today announced that it has agreed to acquire Berkeley Point
Financial LLC.1 Berkeley Point is a leading commercial
real estate finance company focused on the origination and sale of
multifamily and other commercial real estate loans through
government-sponsored and government-funded loan programs, as well
as the servicing of commercial real estate loans, including those
it originates. Berkeley Point was acquired by an affiliate of
Cantor Fitzgerald, L.P.2 on April
10, 2014.
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 $875
million, subject to certain adjustments at closing. After
the proposed acquisition is completed, Berkeley Point and the
investment in the new real estate business described below will
become part of Newmark Knight Frank
("Newmark" or "NKF"), BGC's Real Estate Services segment. The
acquisition of BPF is expected to be immediately accretive to BGC's
earnings per share upon closing.
Management Comments
Howard W. Lutnick, Chairman and
Chief Executive Officer of BGC Partners, said: "We believe that the
addition of Berkeley Point will significantly increase the scale
and scope of Newmark, as well as substantially improve upon its
already strong financial performance. BPF's revenues increased by
more than 55 percent year-over-year in the 12 months ended
March 31, 2017. Over the same
timeframe, Berkeley Point's GAAP3 pre-tax income grew by
approximately 169 percent, while its pre-tax income, excluding GAAP
net non-cash MSR income,4 increased by over 52 percent.
BPF is also expected to generate strong double-digit revenue and
earnings growth for full years 2017 and 2018.
"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 U.S.
government-sponsored enterprises such as Fannie Mae and Freddie
Mac, as well as by the U.S. Department of Housing and Urban
Development.5 This means that unlike traditional
lenders, Berkeley Point originates loans that meet strict criteria
set by the U.S. government. These loans are guaranteed by GSEs, and
are pre-sold.6 Berkeley Point is entirely consistent
with our low-risk business model."
Barry M. Gosin, Chief Executive
Officer of Newmark, added: "This transaction will combine BPF's top
five Fannie Mae and Freddie Mac multifamily origination business
with ARA, Newmark's top three multifamily investment sales
business,7 along with our fast-growing commercial
mortgage brokerage business. We believe that this combination will
be a catalyst for dramatically higher revenue and earnings growth
for Newmark.
"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."
Jeff Day, Chief Executive Officer
of Berkeley Point, stated: "Being part of Newmark will give us the
ability to offer our clients a broad array of financing options.
The combined business will also provide tenant and agency leasing,
property and facilities management, advisory and consulting,
appraisal, project and development management, real estate
technology solutions, and commercial loan servicing. This diverse
suite of offerings covers the full spectrum of products applicable
to tenants, landlords, and investors, which will be unmatched
across the commercial real estate services industry".
Highlights of Berkeley Point Financial Results
Berkeley Point's net asset or book value was $509 million as of March
31, 2017.10 BPF generated revenues and pre-tax
income under GAAP of $314 million and
$143 million, respectively, for the
trailing 12 months ended March 31,
2017. The latter two results represented year-on-year
increases of 55 percent and 169 percent, respectively.
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
$64 million11 for the same
trailing 12 month period. Following the completion of the proposed
transaction, BGC's calculation of pre-tax distributable earnings
and adjusted EBITDA12 will exclude the net impact of
these same non-cash GAAP items. Investors should note that the cash
received with respect to these MSRs, net of associated expenses, is
expected to increase pre-tax distributable earnings and adjusted
EBITDA recorded by the Real Estate Services segment in future
periods.
Berkeley Point Outlook
- For the year ended December 31,
2017, Berkeley Point's revenues are expected to increase by
at least 30 percent compared with $294
million in 2016. BPF's revenues are expected to increase by
at least an additional 20 percent year-over-year in 2018.
- Berkeley Point's 2017 GAAP pre-tax income is expected to
increase by at least 35 percent compared with $126 million in 2016. BPF's GAAP pre-tax income
is expected to increase by at least 35 percent year-over-year again
in 2018.
- Berkeley Point's 2017 pre-tax income excluding GAAP net
non-cash MSR income is expected to increase by at least 35 percent
compared with $60 million in 2016.
This same metric is expected to increase by at least another 40
percent year-over-year in 2018.13
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 $875
million, expected to be in cash,14 subject to
upward or downward adjustment to the extent that the net assets of
Berkeley Point as of the closing are greater than or less than
approximately $509 million. The
proposed transaction does not include a transfer of the economics
of BPF's special asset servicing business,15 which was
not profitable.
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.
Minority Investment in a New Real Estate Finance and
Investment Business with Cantor
Contemporaneously with the proposed acquisition of Berkeley
Point, BGC will invest $100 million
in cash for approximately 27 percent of the capital in a commercial
real estate-related finance and investment business, along with
Cantor (the "Investment"). Cantor will control the Investment and
will contribute approximately $267
million of cash and non-cash assets for approximately 73
percent of the Investment's capital. The Investment will be
structured as a limited partnership, is expected to collaborate
with Cantor's significant existing commercial real estate finance
business, and may conduct activities in any real estate-related
business.
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 $37 million
per year. BGC will be entitled to a cumulative annual preferred
return of five percent of its capital account balance and a
profit participation thereafter.
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.
Sandler O'Neill & Partners, L.P. served as financial advisor to
the Special Committee, and Debevoise & Plimpton LLP served as
legal advisor to the Special Committee.
Cantor Fitzgerald & Co. served as Cantor's financial
advisor, and Wachtell, Lipton, Rosen & Katz served as Cantor's
legal advisor.
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 April 10,
2014, onward. These adjustments will impact a number of line
items on the financial statements for the Real Estate Services
segment, Corporate Items, and the consolidated Company.
Conference Call and Investor Presentation
BGC will host a conference call on July
18 at 8:30 AM ET to discuss
the proposed transaction. A webcast of the call, along with a
presentation containing relevant information, will be accessible at
that time via the following site:
http://ir.bgcpartners.com
A listing of minimum system requirements can be found here:
http://event.on24.com/view/help/ehelp.html?text_language_id=en&fh=true&flashconsole=true&ngwebcast=true
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 8:30
AM ET
|
U.S. Dial
In:
|
(844)
309-0609
|
International Dial
In:
|
(574)
990-9937
|
Conference
ID:
|
5647-2576
|
|
|
REPLAY:
|
|
Available From –
To:
|
07/18/2017 11:30 AM
ET to 07/25/2017 11:30 AM ET
|
U.S. Dial
In:
|
(855) 859-2056 or
(800) 585-8367
|
International Dial
In:
|
(404)
537-3406
|
Conference
ID:
|
5647-2576
|
About BGC Partners, Inc.
BGC Partners, Inc. is a leading global brokerage company
servicing the financial and real estate markets. BGC owns GFI Group
Inc., a leading intermediary and provider of trading technologies
and support services to the global OTC and listed markets. The
Company's Financial Services offerings include fixed income
securities, interest rate swaps, foreign exchange, equities, equity
derivatives, credit derivatives, commodities, futures, and
structured products. BGC provides a wide range of services,
including trade execution, broker-dealer services, clearing, trade
compression, post trade, information, and other services to a broad
range of financial and non-financial institutions. Through brands
including FENICS, BGC Trader, Capitalab, Lucera, and FENICS Market
Data, BGC offers financial technology solutions, market data, and
analytics related to numerous financial instruments and
markets.
Real Estate Services are offered through brands including
Newmark Knight Frank or "NKF"
(formerly known as "Newmark Grubb Knight
Frank" or "NGKF"), Newmark
Cornish & Carey, ARA, Computerized Facility Integration,
Newmark Knight Frank Valuation & Advisory, and Excess Space.
Under these names and others, the Company provides a wide range of
commercial real estate services, including leasing and corporate
advisory, investment sales and financial services, consulting,
project and development management, and property and facilities
management.
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
June 15, 2042, which trade on the New
York Stock Exchange under the symbol (NYSE: BGCA). BGC Partners is
led by Chairman and Chief Executive Officer Howard W. Lutnick. For
more information, please visit http://www.bgcpartners.com. You can
also follow the Company at https://twitter.com/bgcpartners and/or
https://www.linkedin.com/company/bgc-partners.
BGC, BGC Trader, GFI, FENICS, FENICS. COM, Capitalab,
Swaptioniser, ColleX, Newmark, Grubb & Ellis, ARA, Computerized
Facility Integration, Landauer, Lucera, and Excess Space, Excess
Space Retail Services, Inc., and Grubb are trademarks/service
marks, and/or registered trademarks/service marks and/or service
marks of BGC Partners, Inc. and/or its affiliates. Knight Frank is
a service mark of Knight Frank (Nominees) Limited.
About Berkeley Point Financial LLC
Berkeley Point Financial LLC is one of the nation's leading
providers of multifamily capital solutions. Berkeley Point has a 30
year history and a servicing portfolio of more than $56 billion representing in excess of 3,100 loans
in 49 states and the District of
Columbia. A top five Fannie Mae and Freddie Mac Lender,
Berkeley Point offers a full complement of Fannie Mae, Freddie Mac,
and FHA products.
Distributable Earnings Defined
BGC Partners uses non-GAAP financial measures including, but not
limited to, "pre-tax distributable earnings" and "post-tax
distributable earnings", which are supplemental measures of
operating results that are used by management to evaluate the
financial performance of the Company and its consolidated
subsidiaries. BGC believes that distributable earnings best reflect
the operating earnings generated by the Company on a consolidated
basis and are the earnings which management considers available
for, among other things, distribution to BGC Partners, Inc. and its
common stockholders, as well as to holders of BGC Holdings
partnership units during any period.
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:
- Non-cash equity-based compensation charges related to limited
partnership unit exchange or conversion.
- Non-cash asset impairment charges, if any.
- Non-cash compensation charges for items granted or issued
pre-merger with respect to certain mergers or acquisitions by BGC
Partners, Inc. To date, these mergers have only included those with
and into eSpeed, Inc. and the back-end merger with GFI Group
Inc.
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:
- Nasdaq is expected to pay BGC in an equal amount of stock on a
regular basis for a 15 year period beginning in 2013 as part of
that transaction;
- The Nasdaq earn-out largely replaced the generally recurring
quarterly earnings BGC generated from eSpeed; and
- The Company intends to pay dividends and distributions to
common stockholders and/or unit holders based on all other income
related to the receipt of the earn-out.
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 December 2015, and the closing of the back-end
merger with GFI in January 2016,
non-cash charges related to the amortization of intangibles with
respect to acquisitions are also excluded from the calculation of
pre-tax distributable earnings. In order to present results in a
consistent manner, this adjustment was made with respect to all
acquisitions completed for the periods from the first quarter of
2015 onward.
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 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., BGC operates
principally through subsidiary corporations subject to local income
taxes. For these reasons, taxes for distributable earnings are
presented to show the tax provision the consolidated Company would
expect to pay if 100 percent of earnings were taxed at global
corporate rates.
Calculations of Pre-tax and Post-Tax Distributable Earnings
per Share
BGC's distributable earnings per share calculations assume
either that:
- The fully diluted share count includes the shares related to
any dilutive instruments, such as the Convertible Senior Notes, but
excludes the associated interest expense, net of tax, when the
impact would be dilutive; or
- The fully diluted share count excludes the shares related to
these instruments, but includes the associated interest expense,
net of tax.
The share count for 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, BGC Partners expects to
pay a pro-rata distribution of net income to BGC Holdings
founding/working partner and other limited partnership units, as
well as to Cantor for its non-controlling interest. The amount of
this net income, and therefore of these payments, is expected to be
determined using the above definition of pre-tax distributable
earnings per share.
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 Partners' financial performance and
offer useful information to both management and investors regarding
certain financial and business trends related to the Company's
financial condition and results of operations. Management believes
that distributable earnings and the GAAP measures of financial
performance should be considered together.
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:
- Allocations of net income and grants of exchangeability to
limited partnership units and founding partner units, which are
determined at the discretion of management throughout and up to the
period-end.
- The impact of certain marketable securities, as well as any
gains or losses related to associated mark-to-market movements
and/or hedging. These items are calculated using period-end closing
prices.
- Non-cash asset impairment charges, which are calculated and
analyzed based on the period-end values of the underlying assets.
These amounts may not be known until after period-end.
- Acquisitions, dispositions and/or resolutions of litigation
which are fluid and unpredictable in nature.
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 $13
million and $66 million of net
non-cash GAAP gains, respectively, related to OMSR gains and MSR
amortization. For the first quarters of 2016 and 2017, pre-tax
distributable earnings for the Real Estate Services Business and
for the consolidated Company will exclude approximately
$3 million and $15 million, respectively, of these same net
non-cash GAAP gains. However, it is expected that cash received
with respect to these servicing rights, net of associated expenses,
will increase pre-tax distributable earnings in future periods.
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:
- Interest expense;
- Fixed asset depreciation and intangible asset
amortization;
- Impairment charges;
- Employee loan amortization and reserves on employee loans;
- Provision (benefit) for income taxes;
- Net income (loss) attributable to noncontrolling interest in
subsidiaries;
- Non-cash charges relating to grants of exchangeability to
limited partnership interests;
- Non-cash charges related to issuance of restricted shares;
and
- Non-cash earnings or losses related to BGC's equity
investments.
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 $13 million and
$66 million of net non-cash GAAP
gains, respectively, related to OMSR gains and MSR amortization.
For the first quarters of 2016 and 2017, adjusted EBITDA will
exclude approximately $3 million and
$15 million, respectively, of these
same net non-cash GAAP gains. However, it is expected that cash
received with respect to these servicing rights, net of associated
expenses, will increase adjusted EBITDA in future periods.
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 Berkeley Point
Financial LLC
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 March 31, 2015, reflect
the period April 10, 2014 to
March 31, 2015. Because Berkeley
Point was acquired by Cantor on April 10,
2014, BGC will only consolidate Berkeley Point's financial
results from April 10, 2014
onwards.
Discussion of Forward-Looking Statements about BGC Partners
and Berkeley Point
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
Securities and Exchange Commission filings, including, but not
limited to, the risk factors set forth in the most recent Form 10-K
and any updates to such risk factors contained in subsequent Forms
10-Q or Forms 8-K. Except as required by law, BGC undertakes no
obligation to update any forward-looking statements.
1 The proposed acquisition of Berkeley Point
Financial LLC includes its wholly owned subsidiary Berkeley Point
Capital LLC, which together are referred to as "Berkeley Point" or
"BPF".
2 Cantor Fitzgerald, L.P. and/or certain of its
affiliates or subsidiaries are collectively referred to as
"Cantor".
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 U.S. ticker symbols CBG,
JLL, and CIGI, and U.K. ticker symbol SVS. The margins for these
peers are based on Bloomberg data for the trailing 12 months ended
March 31, 2017. BPF's margin is based
on the unaudited trailing 12 months ended March 31, 2017.
9 Revenues are for the trailing 12 months ended
March 31, 2017. Duration is
based on the weighted average remaining term as of the same
date.
10 As of March 31,
2017, BPF's balance sheet included $355 million of mortgage servicing rights.
11 The net impact of non-cash GAAP gains attributable
to originated MSRs and non-cash GAAP amortization of MSRs was
$79 million for the trailing 12
months ended March 31, 2017.
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 $3.5 million
of the purchase price may be paid in units of BGC Holdings,
L.P.
15 As of March 31,
2017, BPF's special asset servicing business represented
less than 10 percent of the notional value of Berkeley Point's
overall $56 billion servicing
portfolio and an immaterial amount of BPF's servicing fees.
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