Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Newmark Group Inc (NMRK, Financial) delivered growth across every business line, with a 15% increase in capital markets revenues.
- The company achieved an 8% top-line improvement and a 22% earnings per share growth.
- Investment sales increased by 18%, outpacing industry volumes.
- Office leasing revenues were up 16%, driven by demand from technology and financial services sectors.
- The company completed a $75 million cost savings plan, focusing on long-term and sustainable expense reductions.
Negative Points
- Total expenses increased by 4.3%, with compensation expenses up 8.3% due to higher variable commissions and new hires.
- Non-compensation expenses were down 5.3%, indicating potential areas of inefficiency.
- The decline in GSE/FHA origination was due to a 27% decrease in industry activity and a tough comparison to the previous year.
- The company faces challenges in the office leasing market due to hybrid work trends and the need for building recapitalization.
- Despite strong performance, the full-year 2024 revenue and earnings outlook remains unchanged, indicating cautious optimism.
Q & A Highlights
Newmark Group Inc (NMRK) Q2 2024 Earnings Call Highlights
Q: How do you view the institutional appetite for investing in favorable property types, and how might this impact your investment sales fees in the back half of the year?
A: Barry Gosin, CEO: We have passed the inflection point and are on our way to better times with stabilized interest rates. The ecosystem is designed to buy property, and the industry is starting to feel better about opportunities. Retail and industrial fundamentals are strong, and we expect positive leverage as interest rates stabilize. This bodes well for future opportunities.
Q: Are you seeing spillover in office leasing activity to other submarkets or regions beyond Park Avenue and Century City?
A: Barry Gosin, CEO: The top markets are generally performing well, with low vacancy and high pricing. As top-tier markets get rented, the next tier starts to see activity. Luis Alvarado, Chief Revenue Officer, added that demand is up, and longer-term commitments are being made. Recapitalized buildings are becoming competitive, and the pipeline looks good going forward.
Q: How is the business progressing with new international launches, particularly in Paris?
A: Barry Gosin, CEO: The Paris launch is incredibly exciting, with 30-40 people already in the office and plans to grow further. We have hired top teams in capital markets, retail brokerage, and office leasing. The UK business is also doing well, and we plan to replicate this success throughout Europe.
Q: What kind of growth rates do you expect in leasing and capital markets in 2025?
A: Michael Rispoli, CFO: We see a turn in the market with building pipelines. We have a target of 50% EBITDA growth over two years by 2026. While exact yearly growth is hard to predict, we expect improvement through the back half of 2024 and into 2025, with robust activity by the back half of 2025 and into 2026.
Q: For commercial real estate transaction volumes to pick up, would you prefer weaker employment and lower rates or stronger employment with higher rates?
A: Barry Gosin, CEO: Lower interest rates are the biggest driver of capital markets transactions. While higher employment establishes demand, lower interest rates facilitate positive leverage, making it easier to invest. The ideal scenario would be low interest rates with population growth and inflation, making existing inventory more valuable.
Q: How has occupier sentiment changed in office leasing, and how does the recent weaker-than-expected jobs report factor in?
A: Barry Gosin, CEO: Financial services and technology sectors are doing well, and metrics show that productivity and opportunities decline with remote work. CEOs are pushing for a return to the office for cultural and productivity reasons. Lower employment can give CEOs more leverage to bring employees back to the office.
Q: What is the outlook for multi-family and your loan origination pipeline?
A: Barry Gosin, CEO: Demand for multi-family remains strong despite some market oversupply. Affordable housing is a significant opportunity, supported by both political parties. Michael Rispoli, CFO, added that the multi-family debt business is up 13% year-to-date, with strong GSE pipelines expected to remain healthy in the back half of the year.
Q: What is Newmark's ability to participate in converting outdated office properties into multi-family properties?
A: Barry Gosin, CEO: Newmark has been actively involved in major conversions, such as 25 Water and 222 Broadway in New York. We are engaged in legislative efforts and see opportunities to repurpose outdated office buildings into multi-family or other uses, depending on the building's characteristics and cost feasibility.
Q: Why did you decide to keep the full-year outlook unchanged despite a strong second quarter and favorable macro backdrop?
A: Michael Rispoli, CFO: We outperformed the peer group last year and had a strong fourth quarter, making for tough comparisons. While pipelines are building and we feel good about the guidance, the timing of transaction closings is unpredictable. We remain optimistic about the business over the next few years.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
