HFF, Inc. (NYSE:HF)
2Q 2013 Results - Earnings Call Transcript
July 30, 2013 06:00 PM ET
Myra Moren - Director of IR
John Pelusi - Chief Executive Officer
Greg Conley - Chief Financial Officer
Nancy Goodson - Chief Operating Officer
Whitney Stevenson - JMP Securities
Keane McCarthy - William Blair
Good afternoon and welcome to the HFF, Incorporated Second Quarter 2013 Conference Call. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session with instructions being given at that time. As a reminder this conference call is being recorded.
I would like to turn the conference over to your host for today, Ms. Myra Moren, our Director of Investor Relations. Please go ahead madam.
Thank you and welcome to HFF Inc.'s earnings conference call to review the company's production results and operating performance for the second quarter and first six months of 2013. Earlier this afternoon we issued a press release announcing our production and financial results for the second quarter and first six months of 2013. This release is available on our Investor Relations website at hfflp.com. This conference call is being webcast live and is being recorded.
Also available on our website is a related PDF presentation. The presentation contains background information on the company's historical production and financial results as seen on slides 1 through 28 including our results for the second quarter and first six months of 2013 which are noted on slides 28 through 38 along with select transactions we consummated during the second quarter found on slides 40 through 46. Also included in the presentation is a high level overview of the recent object and the 10-year Treasury and possible implications for commercial real estate based on recent history which can be seen on slides 47 through 65.
Due to investor and analysts requests after our call today we will make available on our website an additional PDF presentation, which includes our full capital market update. This additional presentation will not be covered during today’s call but will be available on our website along with the transcripts of today’s call. Before we start, let me offer the cautionary note that this call contains forward-looking statements within the meaning of the federal securities laws. Statements about our beliefs and expectation and statements containing the word may, could, would, should, believe, expect, anticipate, plan, estimate, target, project, intend and similar expressions constitute forward-looking statements. Forward-looking statements involve known and unknown risk, uncertainties and other factors which could cause actual results to differ materially contained in any forward-looking statements.
For more detailed discussions of these risks and other factors that could cause results to differ, please refer to our second quarter 2013 earnings release dated July 30, 2013 and filed on Form 8-K, and our most recent annual report on Form 10-K, all of which are filed with the SEC and available on their website at sec.gov.
Investors, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements, and are cautioned not to place undue reliance on such forward-looking statements. Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the SEC, we are under no obligation to publicly update or revise any forward-looking statements after the date of this conference call.
We may make certain statements during today's call which will refer to a non-GAAP financial measure, and we have provided a reconciliation of this measure to GAAP figures in our earnings release.
With that in mind, I'll introduce our senior management team. Conducting the call today will be John Pelusi, our Chief Executive Officer; Greg Conley, our Chief Financial Officer, and Nancy Goodson, our Chief Operating Officer.
I'll now turn the call over to our CEO, John Pelusi.
Thank you, Myra. As noted on slides 28 through 38, we are very pleased to report that the company had a very strong second quarter and first six months in 2013. As evidenced by a very healthy production and operating results, especially when viewed in the context of the increased operating expenses directly attributable to our ongoing and significant growth initiatives coupled with the fact that we believe approximately 5% to 10% of our fourth quarter 2012 production revenues were pulled forward from 2013 to capitalize on the lower capital gain tax rates available in 2012, as we reported in March.
Since January 2010, we have been continuously investing in our business and aggressively pursuing our strategic growth initiatives to both internal promotions and recruitment. During this period we have grown our headcount by more than 61%, including a 54% increase in our production ranks. Due to our strong balance sheet which we have used to support our strategic growth initiatives, coupled with our leadership team's strong discipline of managing our business, we are pleased to report that we again continued to successfully build upon our past achievements during the quarter.
During the second quarter and first six months of 2013, as believe, we again grew our market share relative to the industry in the past 12 months we have grown our headcount, which now stands at 607 by more than 12%, we also grew our production ranks which now stands at 244 transaction professionals by more than 14% through both promotion and recruitment in 16 of our 21 offices.
Both our headcount and our total number of transaction professionals are new high watermarks for the company. Our total transaction volumes for the second quarter and first six months of 2013 were up 27.4% and nearly 14% respectively. And our commercial loan servicing portfolio increased nearly 12% to $32.3 billion which represents a new high watermark for the company.
Our total revenues and adjusted EBITDA for the second quarter of 2013 were up over 21% and nearly 25% respectively and where also among the best quarterly results recorded by the company since going public, second only to the fourth quarter of 2012. Even in the face of our planned significant headcount growth associated with our strategic growth initiatives and its impact on our operating expenses, and margins, and the fact that we believe potentially have 5% to 10% of our fourth quarter 2012 revenues were likely pulled forward from 2013 in order to take advantage of lower capital gains tax rates in 2012. Our total revenues and adjusted EBITDA for the first six months of 2013 were up a strong 14% and 16% respectively and where among the best first half results recorded by the company since going public.
Our adjusted EBITDA margin for the first six months of 2013 was 22.2% which is a significant achievement given the significant headcount growth we continue to experience and a pull forward of business from 2013 into 2012.
Our cash and cash equivalents also continued to grow to more than a $138 million during the first six months of 2013, which compares very favorably to our cash and cash equivalents position of a $148.5 million at June 30, 2012. Please keep in mind this does not reflect the payment of the $56.3 million special dividend in late December 2012.
I will now briefly touch on current conditions across the commercial real estate global capital markets which you can reference on slide 66 to 77. Due primarily to the ongoing and unprecedented quantitative easing by the Federal Reserve, this balance sheet has now grown to approximately $3.6 trillion, we continue to see improvement in both the public and private sectors of the U.S. commercial real estate and capital markets.
These improved conditions coupled with the slowly improving economy continues to benefit certain sectors of the U.S. commercial real estate market especially the Core and Core-plus and certain value that properties in most major markets, including some selective secondary markets which are proven economies.
According to Real Capital Analytics, total sales activity for the first six months of 2013 rose 24% to approximately $145 billion. However, this included the $15 billion sale of Archstone to EQR and AvalonBay and compares to $117 billion for the comparable period in 2012. Excluding portfolio sales, total sales activity would have only increased 13%.
In comparison, our investment sales volume was up over 45% for the first six months of 2013 compared to the same period in 2012. The MBA just released in second quarter and first half 2013 origination index and reported an increase of 6.4% and 7.4% respectively. In comparison our debt originations were up 13.1% and 5.5% respectively for the second quarter and first half of 2013.
We believe CMBS market was the single largest contributor to the increase based on data from Commercial Real Estate Direct, according to this reports CMBS issuance during the first six months of 2013 was $41.4 billion and increased of 149% compared to only $16.6 billion over the comparable period in 2012.
It should be noted there was a significant level of single borrower transactions which totaled $11.3 billion in the first quarter of 2013 alone. However, there is no denying the improvement in the CMBS market so far in 2013 which is nearly equal to the $48 billion initiative all of 2012. Assuming this trend continuous this should continue to facilitate transactions in the secondary markets with proven economy and noted on slides 40 through 46, based on the transactions we have recently consummated in this highly inefficient and constantly changing private capital markets, we see that generally speaking the debt and equity markets continue to remain focused on core and core plus properties as well as select value add properties. And we continue to see the migration of equity and debt capital for most major markets and some select secondary markets with proven economies as investors search for yield given how competitive debt and equity pricing has become in select major markets.
With that said, major markets are preferred over secondary markets and secondary markets are greatly preferred over tertiary ones. As reported in our March call, we believe there's plenty of debt capital from multiple sources available to borrowers in 2013 and beyond. Based on current activity, we believe there are significant competitions for the best loans especially in the targeted loan size of $10 million to $100 million where borrowers have multiple debt options which is good news for our borrower clients.
All in coupons remove very attractive ranging from sub 3.5% to sub 4.5% for low leverage transactions on the best at best assets, sponsors and markets for terms of five to 10 years or longer. For loans with leverage in the 65% to 75% range for similar assets sponsors and markets for terms of five to 10 years all in coupons range from a sub 4% to sub 5.5%.
As we've been saying on past calls from a historical perspective, these all-in coupons remain close to the lows we've seen in the past 30 years. Please note this pricing is based on current debt quotes and are estimates only. Given the significant liquidity that global central banks have injected into financial markets, we believe that all-in interest rates will likely remain within 25 to 50 basis points of current levels absent the global central banks removing excess liquidity from the financial system or a significant deterioration in global macro conditions.
We continue to believe that the US commercial real estate risk adjusted spreads relative to other fixed income instruments such as sovereign debt or corporates have provided a superior return on a risk adjusted basis, which has fueled to increase lending by life insurance companies, banks, CMBS originators and debt funds.
On the equity front, trophy assets, core and core plus properties and certain value add properties remain in high demand and the competition remains very keen with the major markets being the key to a deep pool of aggressive qualified bidders. As investors search for better risk adjusted returns, some key secondary markets with proven economies continue to see increased interest in good activity for Core, Core-plus properties as well as select value added properties.
Generally speaking, given the lack of new construction for most asset classes in most major markets, we expect to see modest improvement in property level fundamentals for most property types in the majority of the major markets, with more stagnant conditions in secondary, tertiary markets. However, improvements in property level fundamentals remain vulnerable to the many potential macro concerns that we have discussed in the past.
Generally speaking, the capital markets for some secondary and most tertiary markets remain somewhat capital constraint to the previous conditions we experienced since 2002 through 2007 with the exception of multi-family housing assets due to their strong fundamentals and debt available through the agencies who will lend in all secondary and tertiary markets.
We believe the continued improvements in the overall commercial real estate markets are good tailwinds for our business. Absent potential macro concerns which we have discussed on prior calls, we believe we will see continued improvement in our business over the long-term given the expansion of capital market activity into some select markets with proven economies, coupled with the nearly $1.7 trillion of maturing real estate loans between 2013 and 2017.
The transactions noted in slides 40 through 46 provide some insights into the debt and equity pricings that occurred during the quarter. We are not going to review any of transactions today. But you can review them at your convenience following the call as they will be helpful in understanding the depth and breadth of some of the complex transactions. Our transaction professionals have concentrated for our clients.
We would now like to take a moment to touch on the historical investment sale and debt activities including historical spreads between interest rates and cap rates and the 10-year treasury rate as well as our performance at higher interest rate levels that we have witnessed over the past several years, given the recent questions from analyst and shareholders regarding the recent uptick in the 10-year treasury.
Before starting and as we have stated in our past calls, we have no control over macro issues such as the economy, interest rates, fund flows and any investment strategy and available opportunities or global issues, which is why we have never given any guidance as a public company, we can offer interest rates are headed especially given the significant injection of liquidity into the global economies by the global central banks around the world and where they might, when they might also begin to withdraw from the market.
In fact that is 100% certain is that none of us know where interest rates will be a year from today or tomorrow for that matter. Recently, the 10-year treasury has risen from a record level of 1.38% to 1.6% then the 2%, then the 2.2%, then the 2.5%, then the 2.7 plus percent and now back into 250 to 260 range.
It is interesting to note that even at the current elevated 10-year treasury, by historical standards still remains well below the 50-year plus average of the 10-year treasury rate of 6.51%, from 1961 to year-to-date 2013. As well as well below the median 10-year treasury rate of 4.28% and 4.5% respectively in the 1961 to 1969 and 2000 to 2009 respective time periods.
As noted on slides 47 through 65, some additional observations from the research compiled by Myra Moran our Director of Research are as follows. From 1998 to 2012, the 10-year treasury averaged 4.22%, currently some 150 to 175 basis points above the recent run up in the 10-year treasury, which has been in the 2.5% to 2.7% range over the past several weeks.
From 2003 to 2007, the 10-year treasury average 4.4%, currently some 170 to 190 basis points above the 2.5% to 2.7% range over the past several weeks. In 2005, the 10-year treasury averaged 4.29%. In 2006, the 10-year treasury averaged 4.8% and in 2007 it averaged 4.63%.
Clearly, based on historical data as reported by the MBA, CMA and real estate capital analytics, the national US debt in investment sales activity was very robust and achieved record levels in each of those years starting in 2005 and continuing through 2007.
It is interesting to note that the debt investment sales activity from 2005, ‘06 and ‘07 are above the same respective debt in sales volume levels in 2011 and 2012. We saw an average treasury of 2.78% and 1.8% respectively which is well below the 10-year treasury levels in the 2005 to 2007 time period.
The current 10-year treasury even at 2.7% could increase by 200 basis points and it would still be 10 basis points lower than the comparable tenure treasury in 2006 and approximately the same as the tenure treasury in 2007. Which year has represent the highest success of debt investment sales volume recorded the national level in the US.
It is also interesting to note that the spread between all-in coupon rates for 10-year debt and cap rates versus the 10-year treasury were narrower in 2004 to 2007 and the spread between the same metrics in 2011 and ‘12 which present the possible case for same portion of future increases in the 10-year treasury if any to be absorbed rather than resolving an overall higher debt and cap rates.
While the economy has clearly been improving more slowly than the past periods resolving recession, the fact remains it has been improving since 2010. Generally speaking, new construction and completions for the most part remained below historical levels as noted in this analysis. If both of these conditions continue to persist, there is a strong case for continuing improvement in commercial real estate fundamentals over the foreseeable future.
As it relates to HFF, our production volumes in 2005 to 2007 were equally strong during the period in which the 10-year treasury was approximately 200 basis points higher than where it has been in the past several weeks.
There is a matter of fact we have succeeding record years in transaction volumes in 2004, 2005, 2006 and 2007 and 2007 still remains our high watermark from the production volume metric. As we stated in past calls, we believe there is nearly $1.7 trillion of commercial mortgages that will mature between now and 2017, regardless of where the 10-year treasury in new economy are.
As we know our business is a pure capital markets and intermediary business that does not compete with its clients, does not own commercial real estate or make investments in any part of the capital staff and simply realize on transactions recurring and our ability to capture same.
As such we have no mark-to-market issues relative to these capital investment concerns as well as where interest rates are. Therefore as long as transactions are occurring and we capture our fair share and we hope more than our fair share, we have proven in the past that we have operated efficiently in good times and in more difficult times as well as in times where interest rates are moving up and/or down, although there is no guarantee that we will be able to do so in the future.
While the (inaudible) provides interesting color on potential impacts from higher interest rates, we are not especially focused on it as we cannot predict the future nor can we control any of these macro events which is why we remain focused on our long-term strategic plan and the way we manage our business through our very experienced and talented leadership team. Frankly today we think it is difficult to predict any business given the numerous factors that come into play, such as the overall economy, the unemployment picture and the employment picture, the impact from massive injections of the liquidity from global central banks and the eventual removal of same and the impacts from the sluggish economy in the Eurozone, a slowdown in Asia and unrest in many parts of the world.
In addition to the unpredictability of a capital market transaction and when it may close, these are among other reasons why we elected not to give guidance when we went public as well as why we constantly communicate on earnings calls that we do not manage or run the business on a quarterly or annual basis, but rather we manage the business and run the business for the long haul.
As noted on slides 1 through 27, we believe our key relationships with the owners of institutional, commercial real estate and the debt and equity capital providers are deep knowledge and understanding of the most effective way to capitalize any given transaction and our in-depth understanding of the trends in the U.S. commercial real estate and capital markets provide our clients with the best real estate and capital market solutions to assist them in navigating these highly inefficient and constantly changing conditions necessary to consummate their transactions. We intend to remain singularly focused on continuing to perform high-quality, value-added services for our existing and future clients without competing with them.
Our collective focus remains fixated on have to business that has to happen which we really can’t be transacted in the market with high-quality cap, clients and capital resources. We remain prepared to continue to use our strong balance sheet and cash position to weather any challenges that might materialize in the future as well as to strategically invest in any opportunity to grow our business, platforms, product specialties in existing and new markets but only when the culture, philosophy and work ethic match up. As we've repeatedly stated since going public, our goal is to be the best one-stop shop commercial real estate intermediary in the U.S. that is focused on and does not compete with its clients, not to be the biggest if the expense would be in the best. Simply stated, we will not grow for growth sake.
In 2007, we consummated $43.5 billion of transaction with just 150 producers. As of June 30, 2013, we had 244 transaction professionals with an average tenure of 17.5 years in the business. (inaudible) that any future strategic growth of offices, platform services or property specialties. If we can achieve the productivity per producer that we achieve in 2005 through 2007, coupled with our demonstrated disciplined approach to managing our business both of which are largely dependent on the market conditions and related transaction flows as well as our ability to capture the same, we believe we have the potential to materially increase our transaction volumes and financial results well in excess of our 2012 and 2007 years.
In summary, we're have consistently demonstrated we believe we have the people, the culture, experience when combined with our disciplined approach to managing the business through our deep and experienced leadership team. We also believe this coupled with our pay-for-performance compensation system, which aligned our interest with our clients and shareholders and our strong balance sheet will allow us to continue to position the company to continue to gain market share and take full advantage of the significant transaction volumes we believe will be fourth company between 2013 and 2017.
We believe our 244 transaction professionals, who have an average tenure of 17.5 years in the commercial real estate industry, coupled with our enhanced disciplined management oversight, will enable us to continue to assist our clients, navigate these ever changing and efficient capital market conditions.
Finally, we believe all of the above especially our people what has allowed us to outperform the market in the past and will be what allows us to outperform the market in the future. I would now like to turn the call over Greg Conley, who will report on a financial and operational results and ask Greg to discuss these results in more detail.
Thank you, John. I'd like to go through our financial results for the second quarter 2013. This information is also noted on slides 28 through 38 in the PDF materials referenced earlier.
As John previously mentioned, we are very pleased with our second quarter results. Our revenue for the second quarter 2013 was $81 million compared to $66.8 million in the second quarter of 2012, representing an increase of $14.3 million or 21.4%. The second quarter revenues of $81 million is the second highest reported quarterly revenues in the history of the company, but the fourth quarter 2012 being the highest reported quarterly revenue amount at $97.3 million.
For the first six months of 2013, revenue was $135.2 million compared to a $118.6 unit for the same period in 2012. It represents a year-over-year increase of $16.5 million or 14%. The increase in the quarter and for the full year was driven by the increase in our transaction volumes primarily in our investment sales platform as well as increased servicing revenues from the growth in our servicing portfolio.
The company had operating income of $15.4 million in the second quarter of 2013 compared to the second quarter of 2012 operating income of $13.5 which represents an increase of $1.9 million or 14.4%. For the first six months of 2013, operating income was $15.3 million compared to $16.2 million for the same period in 2012, which represents a decrease of $900,000 or 5.8%
The company had strong operating margins for the second quarter and the first six months of 2013 of 19% and 11.3% respectively. Operating margins were also up sequentially from the first quarter to the second quarter of 2013, where margins increased from a negative 0.2% to 19% primarily as a result of the increase in revenue from $54.2 million in the first quarter to $80 million in the second quarter of 2013.
The operating margins were down slightly, however when compared to the second quarter and first six months of 2013, where the operating margins were 20.2% and 13.7% respectively. This decline in operating margins for both the quarter and the first six month period is attributable with the increase in the company's operating expenses primarily related to the investments we're making in our business.
For example, we have experienced an increase in our compensation related costs and expenses associated with in part a 12.2% increase in headcount of 66 net new associates over the past 12 months as well as all of the related cost necessary to support this growth, such as office expansion related occupancy costs and an increase in operating expenses related to the increase in production activity such as T&E. We typically have seasonality in our business where about the first quarter of each year is generally our weakest quarter relative to revenue and financial performance. As a result, the increased operating costs have disproportion of impact on our first quarter operating income and adjusted EBITDA margins due to the smaller first quarter revenue base as is evidenced by the improving comparative operating margins in the second quarter compared to the first six months period.
Cost of services as a percentage of revenue increased to 57.5% in the second quarter of 2013 compared to 56.2% in the second quarter of 2012 for a percentage of revenue increase at 1.3%. For the first six months of 2013, cost of services as the percentage of revenue increased to 60.2% compared to 58.9% for the same period in 2012, or a percentage of revenue increase of 1.3% as well.
The increased in the cost of services as a percentage of revenue for both the quarter and the first six months period is attributable to the increase in the fixed cost component which is primarily related to an increase in salaries and other payable related expenses associated with the increase in headcount of 66 associates over the past 12 months.
Operating, administrative and other expenses increased approximately $2.5 million in the second quarter of 2013 as compared to the same period in 2012 and increased approximately $5.2 million for the comparative six month period ending June 30. The increase in these expenses is primarily attributable to an increase in personnel expenses of $2.9 million and $4.8 million for the quarter and six month period respectively.
The increase in personnel expenses is related to an increase in certain incentive-based compensation expenses including our office and firm participation plan expenses and increased non-cash stock compensation expense of approximately $500,000 and $1.4 million for the quarter and six month period respectively which is primarily related to an increase of the mark-to-market adjustments on liability based stock awards which are required to be revalued each quarter.
Additional, cost increases related to other discretionary expenses such as travel and entertainment and other operating expenses due to increased production activity were offset by a decrease in interest expense on our warehouse line of credit. The increase in depreciation and amortization expense of approximately $700,000 and an $800,000 for the quarter and the first six months period respectively is primarily related to the increase in the amortization of mortgage servicing rates.
Interest and other income net increased $1.1 million for the second quarter of 2013 compared with the second quarter of 2012 and increased $2.5 million for the first six months of 2013 compared with the same period in 2012. This increase is primarily the result of other income earned as it relates to our multi housing platform including our Freddie Mac program plus Seller/Servicer business.
Income tax expenses for the second quarter and the first six months of 2013 increased by approximately $600,000 and $100,000 as compared to the same period in 2012 primarily as a result of the increase of pretax book income. Income tax expenses were also impacted in the second quarter in the first six months of 2013 by a re-measurement of the deferred tax asset which decreased income tax expense by $400,000.
The adjustment increased the company's deferred tax assets and its impact on the company's tax expense was partially offset by a corresponding decrease in other income related to the increase in the liability payable under the tax receivables agreement which reduced income before income taxes by 300,000 in the second quarter and for the six months of 2013.
The company’s effective tax rates after eliminating the impact of this re-measurement of the deferred tax asset for the first six months of 2013 is approximately 41%. The net income attributable to Class A common stockholders increased $0.06 per diluted share for the second quarter of 2013 and increased $0.03 per diluted share for the first six months of 2013 as compared to same period in 2012. The impact of this re-measurement of the deferred tax asset and the change in the liability of the payable under the tax receivable agreement had no impact on the earnings per share for either the six months or the second quarter periods.
The company’s adjusted EBITDA for the second quarter and the first six months of 2013 increased $4.6 million or 24.9% and $4.2 million or 16.3% respectively compared to same period in 2012. Our adjusted EBITDA margins were very strong at 28.5% for the second quarter of 2013, which is an increase of 80 basis points over the adjusted EBITDA margins for the second quarter of 2012. For the first six months of 2013, the adjusted EBITDA margins increases 50 basis points over the first six months of 2012 to 22.2%.
Our cash balance at June 30 was $138.2 million compared to a cash balance of $148.5 million at June 30, 2012 and $126.3 million at December 31, 2012. Our cash balance increased $11.9 million from the year-end 2012, primarily as a result from cash generated from operations. The company’s use of cash is typically related to the limited working capital needs during the year and the payment of taxes. The company has virtually no debt to service other than that related to capital leases and our Freddie Mac business, which is offset with the mortgage notes receivable.
During the second quarter for the first six months of 2013, the company's net cash provided by operating activities was approximately $30.5 million, $13.9 million respectively. The net use of cash from investing and financing activities for the first six months of 2013 was approximately $2 million.
In summary, the company had a strong operating performance in the second quarter of 2013, when considering that we continue to make strategic investments in our business to support the continued headcount growth which was a net increase to 66 new associates over the past 12 months and the increase operating cost related to the headcount growth.
In addition, to our operating margins in the second quarter, in the first six months of 2013, were further impacted by an increase in personnel expenses of $2.9 million and $4.8 million respectively, which is primarily related to an increase in incentive based compensation expenses including our performance based profit participation plans and an increase in our non-cash stock compensation expense of approximately $500,000 and $1.4 million for the quarter in the first six month of 2013 respectively, primarily as it relates to the mark-to-market adjustments on the existing restricted stock awards which we revalue each quarter and resulting from the increase in the company’s stock price from $14.90 per share on December 31, 2012 to $17.77 per share on June 30, 2013.
All other cost increases are relatively in line with the increased revenue year-over-year and in supported the increase business activity as well as in keeping with our long term strategic objectives. Finally our adjusted EBITDA margins continue to be strong at 22.2% for the first six months of 2013, which is evidence that the execution of our strategic growth initiatives and the resulting increase in operating cost are in line with the growth in revenue that we are achieving in our business.
As John previously stated, the additions we have made and we'll continue to make in personnel are commensurate with our longer term strategic growth initiatives through both organic promotions and recruitment to best position the company to take advantage of the forecasted transaction volumes resulting from the significant volume of maturing commercial real estate loans between 2013 and 2017 as well as to continue to better serve our clients and capture additional market share.
We continue to believe that we have been very efficient and strategic as it relates to our management of expenses and any incremental increase should have minimal impact to our bottom-line results on a full year over year comparative basis, provided the market continues to recover and we continue to experience revenue growth consistent with the investments made in our business.
Now I'll turn the call over to Nancy Goodson to discuss our production volume and loan servicing business. Nancy?
Thanks, Greg. As noted on slides 28 through 38, I'd like to review with you our production volume by platform services and our loan servicing business for the second quarter and first half of 2013 and compare these with same periods in 2012. The company's production volume for the second quarter of 2013 totaled approximately $12.3 billion on 345 transactions representing an increase in production volumes of approximately $2.6 billion or 27.4% and an increase of 11 in the number of separate transactions or approximately 3.3% when compared to the second quarter 2012. The average transaction size for the second quarter of 2013 was $35.7 million, approximately 23.3% higher than the comparable figure of approximately $28.9 million for the second quarter of 2012.
Debt Placement production volume was approximately $6.6 billion in the second quarter of 2013 representing an increase of 13.1% from second quarter 2012 volume of approximately $5.9 billion. Investment sales production volume is approximately $5.3 billion in the second quarter of 2013 representing an increase of 93.2% from second quarter 2012 volume of approximately $2.8 billion.
Structured finance production volume was approximately $258 million in the second quarter of 2013, a decreased of 57% from the second quarter of 2012 volume of approximately $600 million. Loan sales production volume was approximately $68.4 million for the second quarter of 2013, a decrease of 84% from the second quarter of 2012 volume of $428.7 million.
At the end of the second quarter of 2013, the amount of active private equity discretionary fund transactions which HFF Securities has been engaged and may result in future additional revenue was approximately $2.1 billion compared to approximately $1.6 billion at the end of the second quarter 2012 representing an increase of approximately 30.1%.
The principal balance of HFF loan servicing portfolio increased $3.4 billion or approximately 11.9% more than $32.3 billion and new high watermark at the end of the second quarter. The company’s production volume for the six months ended June 30, 2013 totaled approximately $19.9 billion on 622 transactions representing a 13.8% increase in production volume and a 6.7% increase from the number of transactions when compared to production volumes of approximately $17.5 billion on 583 transactions for the first six months of 2012.
The average transaction size for the six months ending June 30, 2013 was approximately $32 million or 6.7% higher than the average transaction size of approximately $30 million for the comparable period in 2012. As for our headcount, HFF’s total employment reached the high watermark as a public company with 607 associates as of June 30, 2013 which is a 12.2% net increase from the June 30, 2012 employment level of 541. The increase in headcount is attributable to the addition of transaction professionals and associates in 16 of our 21 offices. The number of transaction professionals increased 14% to 244 as of June 30, 2013 compared to 214 at June 30, 2012 with an average 10-year of 17.5 years in the commercial real estate industry we believe our transaction professionals are uniquely positioned to help our clients navigate these challenging and inefficient capital markets.
I will now turn the call back over to John for his concluding remarks.
Thank you Nancy. Our successes are directly tied to our clients and therefore we would like to thank each of our clients who continue to show their confidence in our ability to create and execute viable solutions for them as evidenced by the 622 separate transactions representing nearly $20 billion in transaction volumes consummated during the first six months of 2013. Just as important, these results are a testament to all of our associates as well, and therefore we'd like to thank each of them for providing superior value-added services to our clients.
Operator, I would now like to turn the call over to questions from our callers.
(Operator Instructions) Your first question comes from the line of Whitney Stevenson, JMP Securities. Please proceed.
Whitney Stevenson - JMP Securities
This is John, Myra. My first question is, I see in the supplemental side, during the quarter it looks like 20 of the top 25 clients used multiple HFF platforms and I was just wondering if maybe you could give us some historical context on that, and demonstrate how the platforms ramping?
Yes, Whitney. As we do and I think it's earlier on in the deck we went back and showed what that look like from 2007 through 2012 and I think on average, I would say probably, roughly 20 of our top clients used us on multiple platform services. I think Greg have the slide there. It’s on slides 10 and 11. So I think the quarter compares very favorably to the historic average. I believe in 2007 we actually had all 25 of our top clients uses on multiple services.
Whitney Stevenson - JMP Securities
Okay, and then I have one more and I might be wrong here but it looks the average deal size is the highest that we've seen in last six or so quarters and I would think that there is more transactions occurring in the secondary markets and maybe even a few in the tertiary, but the average deal size might actually decrease compared to earlier in the cycle when most of activity was contained and it really just the trophy product. Is there a trend there or?
Well, I think on average this quarter is more in line with our historical averages, I think the first quarter was down below this, I’d like Nancy to chime in here on this as well, so Nancy?
A lot of the average deal size are going to be driven by how many portfolio deals are getting caught up in that quarter and so even though we put out these average transaction size you have to realize that some of the average transaction might have a portfolio of 10 properties or something like that. And so it’s really hard to watch a trend, because it’s not always individual assets that we are tracking when we call for second deal more using those averages.
Your next question comes from line of Keane McCarthy from William Blair. Please proceed.
Keane McCarthy - William Blair
Guys its (inaudible) pensioning for Brandon, just a couple of questions in terms of market share for investment sales, which obviously kicked up pretty nicely for you guys during the quarter, were there any one-time bigger deals that execute that number a little bit?
I’ll let Nancy answer that, I don’t believe it was but I would like her to answer definitively.
Well we are not, generally we do some, we disclose or we discuss it in our press release if we had anyone transactions that was larger than a $1 billion and we did not have any this quarter to point out, so there was really anything giant in the quarter.
Keane McCarthy - William Blair
Okay. And then I guess another way to ask that, with respect to the market share gains this quarter, is there a way that you could differentiate between the increased activity in secondary markets or in between some of the improved productivity from some of the 2010, 2011 producer classes?
I think what we have said repeatedly on the last several calls is we believe that there is a migration of capital to, first from the Core 24/7 markets that into select major markets, then into nearly all of the major markets because of pricing levels in the Core 24/7 markets, especially for a trophy Core and Core-plus assets. And so we have seen quarter-over-quarter new markets open up and capital both on the equity and debt side move into those areas. But there need to be proven economy in each of those markets or otherwise the capital is just not going to go there, clearly Freddie and Fannie are an exception, because they have stated goal which is to promote affordable housing. So they are going to go into the secondary and treasury markets.
But I would say that also as we stated on past calls, the new producers that we hired in 2010 are going to start to come into their for most stabilized, being more stabilized in 2013 and ‘14. And likewise for those who came in 2011 are going to be stabilizing in ‘14 and ‘15 and likewise those that came in ‘12 are going to be coming into stabilization in 2015 and ‘16, all that presupposed is that the global macro conditions that funds the economy, interest rates all kind of remain within certain ranges of norm. So, I would say it's a combination of all those things.
Keane McCarthy - William Blair
Okay, got it. And then I guess on the production basis the debt that related to sales came down a bit. Just looking for some clarity here, is that more over a reflection of some increased activity at same office location that may not have maybe a big of exposure in debt or is it more just because of the property mix that you guys had during the quarter?
My guess is it’s more mix of the properties and probably there are more Core assets or Core-plus assets, those assets tend to not be as heavily leverage, so institutions that buy those properties a lot of them will buy them on cash with no leverage or if it is going to be leverage, they might leverage in at the portfolio level or the fund level where they hold them. If it is going to get leverage then it’s an institution more likely than not, that is going to be in the 35% to 50% range. So a lot of it is really going to depend on that as well as if you are selling the property that already has existing debt that is not going to show up in odd numbers.
So if you look at our numbers for the quarter relative to the MBA, we were I think nearly double with MBA numbers and for the first six months, we are roughly right in line. So I think a combination of three to four different things and without going into each specific transactions, it’s hard to do anything other than that generalization.
Keane McCarthy - William Blair
Okay. And then final one for me just on housekeeping basis, the cash tax rate of 40% or is it bit higher than we are looking for just some commentary, I heard you guys expect that level to persist for the remainder of the year or should they move down a little bit to the high 30s?
No, I think 41% has been fairly consistent and it picked up a little bit a few basis points here in this first six months and you will see when we get clear that will be income tax, you will see some of the items impacting that rate, but for the most part 41%, I think is a pretty reasonable rate, it is been pretty consistent over time. I think you will get and in particular like this quarter, you will have little bit of an impact from the re-measurement of the deferred tax asset, although it might have been like a 0.5% or a 1% impact on the tax rate. But I think 41% is a pretty reasonable rate to consider going forward.
Operator, it doesn't appear that there are any more questions. So we will close this up. And again, we would like to thank everybody for joining us today and hope that you can join us again in a few months for our third quarter 2013 call. Thanks and have a great evening.
Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Good day.
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