Newmark Group, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed March 16, 2023. This is an annual report, not a standalone fourth-quarter filing. Newmark provides commercial real estate brokerage, capital markets, mortgage origination and servicing, property management, valuation, and corporate real estate services.
Financial results
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | $2.706 billion | $2.906 billion |
| Income from operations | $185.6 million | $1.255 billion |
| Income before taxes and noncontrolling interests | $154.6 million | $1.221 billion |
| Net income available to common stockholders | $83.3 million | $750.7 million |
| Basic / diluted EPS | $0.46 / $0.45 | $3.91 / $3.80 |
| Cash and cash equivalents, year-end | $233.0 million | $191.3 million |
| Senior notes carrying amount, year-end | $547.8 million | $545.2 million |
- Revenue mix: Management services, servicing fees and other: $909.5 million, down 0.7%; leasing commissions: $831.9 million, up 0.6%; investment sales: $606.4 million, down 20.0%; commercial mortgage origination, net: $357.8 million, down 11.9%.
- Margins: GAAP operating margin was approximately 6.9%, versus 43.2% in 2021; pretax margin was approximately 5.7%, versus 42.0%. These comparisons are heavily affected by unusual 2021 items described below.
- Cash flow: GAAP operating cash flow was $1.196 billion, versus cash used of $48.7 million in 2021. Excluding net loan-origination and sale activity, operating cash flow was $261.5 million in 2022 versus cash used of $63.0 million in 2021. The 2021 comparable included $484.4 million of cash used for the 2021 Equity Event; excluding that use, the filing reports $421.4 million of operating cash flow excluding loan activity.
- Liquidity and debt: The company reported $233.0 million cash and an undrawn $600 million revolving credit facility, maturing March 2025. Its $550 million of 6.125% senior notes were due November 15, 2023; management said it intended to refinance them or use cash, operating cash flow, and the revolver. Warehouse borrowings supporting loans held for sale were $137.4 million at year-end, down from $1.051 billion.
- Other balance-sheet items: Total assets were $3.941 billion and total liabilities $2.399 billion. Operating lease liabilities totaled $723.9 million; $188.0 million related to flexible workspace entities, with $36.5 million of guarantees and/or letters of credit exposing Newmark Group, Inc.
Material changes and unusual items
- Revenue declined 6.9% year over year. Investment sales and mortgage origination weakened as interest rates rose rapidly and financing became more difficult. Management-services revenue excluding pass-through costs grew 18.3%; the reported category declined due mainly to lower reimbursed project costs.
- 2021 results included $1.203 billion of cumulative gains/proceeds recorded in connection with the accelerated Nasdaq earn-out and related share activity, as well as significant 2021 Equity Event compensation charges. In 2022, the company sold its remaining Nasdaq shares for $437.8 million gross proceeds and recorded an $87.5 million loss associated with Nasdaq shares in other loss, net. Management said 2022 GAAP pretax income fell 87.1%; excluding the effects of GAAP other income and the 2021 Equity Event, it would have fallen 41.1%.
- Compensation expense fell 15.0%, reflecting lower activity and the prior-year Equity Event; equity-based compensation and partnership allocations fell 61.2%. Depreciation and amortization increased 36.2% to $165.8 million, including effects of MSR valuation, fixed-asset depreciation and impairments, and intangible amortization.
- Newmark repurchased 24.9 million Class A shares in 2022 at an average $11.83 per share, spending approximately $294.8 million in cash. About $392.3 million remained under its $400 million share/unit repurchase authorization at year-end. The 2022 dividend declared was $0.12 per share; the filing reports $0.10 per share paid during the year.
- Acquisitions during 2022 included BH2, McCall & Almy, and Open Realty, for total consideration of approximately $72.9 million; together they contributed $17.8 million of 2022 revenue. The filing also reports the post-year-end Gerald Eve acquisition and purchase of the remaining Spring11 interests.
Outlook, risks and contingencies
- Management outlook: Newmark expected U.S. investment-sales and mortgage-brokerage volumes to decline at least through the first half of 2023. Management anticipated a recovery once interest rates stabilized, citing institutional real estate investment funds and substantial upcoming commercial mortgage maturities, but provided no quantified company revenue or earnings guidance in the filing. It aims to grow recurring or more predictable businesses and expand internationally; near-term share repurchases were expected to decline as the company prioritized hiring and acquisitions.
- Market risks: Rising rates, inflation, credit-market and banking-sector instability, recession risk, lower transaction volumes, office-space uncertainty and hybrid work may pressure brokerage, lending, leasing and property-management demand. Management noted that industrial and retail leasing exceeded pre-pandemic levels in 2022, while office remained challenging.
- Credit and servicing exposure: The $70.7 billion servicing portfolio supports recurring fees, but the company bears loss-sharing exposure on certain GSE loans. At year-end, credit-risk loans totaled $27.6 billion, with maximum potential loss exposure of $8.4 billion. One loan was in foreclosure and one was delinquent; estimated Newmark shares of loss were approximately $1.5 million and $1.1 million, respectively. No actual losses were incurred in 2022.
- Governance and litigation: Cantor controlled approximately 58.6% of voting power through Class B shares, which carry ten votes per share. The filing describes derivative litigation challenging the 2021 partnership-unit transactions and a $50 million retention award to Chairman Howard Lutnick; management said it believes the claims lack merit, but outcomes are uncertain. Related-party arrangements and potential conflicts are also disclosed.
- Reporting and audit: The company disclosed a late-filing notice related to post-termination compensation accounting. The year-end liability for future equity-based post-termination payments was $42.7 million, $2.8 million above the previously expected amount, resulting in slight changes to certain reported line items. Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Investor facts to verify
- How the $550 million senior notes due November 2023 were refinanced or repaid, and the resulting interest cost and liquidity impact.
- Whether transaction volumes and revenue in investment sales and mortgage origination stabilized after the filing’s reported downturn, and whether recurring-service growth continued.
- The sustainability of cash generation after separating loan-origination cash flows, pass-through revenues, and unusual Nasdaq-related items.
- Credit performance, loss-sharing reserves and collateral requirements across the GSE servicing portfolio, including the disclosed foreclosure and delinquent loans.
- Subsequent developments in the Lutnick compensation litigation and other legal matters, related-party dealings, and any effects on compensation, governance or cash flows.
- Acquisition integration, lease commitments and flexible-workspace economics, including the extent to which contracted customer revenue offsets workspace lease exposure.