BRE Bridgemarq Real Estate Services Inc

TORONTO, March 14 /CNW/ -- Results highlighted by another strong year of royalty growth and increases in distributable cash TORONTO, March 14 /CNW/ - Brookfield Real Estate Services Inc. (the "Company') (TSX: BRE), a leading provider of services to residential real estate brokers and their REALTORS®¹ , today announced financial results for the year ended December 31, 2010. Financial and operational highlights for the fiscal year include (all comparisons are relative to fiscal 2009): -- Royalties increased 6.6% to $36.6 million. -- Distributable cash(2) rose by 5.4% to $25.2 million, inclusive of a $0.7 million charge for the conversion from an Income Trust to a Corporation. -- Net earnings rose to $6.2million or $0.65 per share as compared to $5.6 million or $0.58 per share. Financial and operational highlights for the fourth quarter include (all comparisons are relative to the fourth quarter of 2009): -- Royalties were $8.2 million, down 4% from $8.5 million. -- Distributable cash was $5.0 million, down 17.3% from $5.9 million. -- In addition to the regular monthly distribution of $0.117 per unit, the Company declared a special distribution of $0.20 per unit for unitholders of record on December 30,2010. -- Net earnings were $0.3 million or $0.03 per share as compared to $1.5 million or $0.16 per share. OVERVIEW OF 2010 OPERATING RESULTS With a modest year-over-year increase of 1.7% in the Canadian Market, the Company closed out 2010 with distributable cash per unit of $1.97, up 6.5% from $1.85 per share in 2009. Distributable cash includes a $0.05 charge per unit for conversion costs related to the conversion from an Income Trust to a corporate structure, otherwise distributable cash would have been $2.02 per unit which represents a 9.2% increase in year-over-year distributable cash. Driving this result was a: -- 4.6% (677 REALTORS®) increase year-over-year, with 62% (417 REALTORS®) of the increase coming through the acquisition of contracts at the beginning of 2010 and the balance through organic growth. This is in direct contrast to 2009 when the Company's growth was limited to 37 REALTORS® and when the beginning of year acquisition of contracts representing 316 REALTORS® was partially offset by a 279 agent decrease; -- 20% increase in year-over-year premium fees, which are driven by the Greater Toronto Market, pushed by pent-up demand in the fourth quarter of 2009 and the first quarter of 2010 as the market pulled out of a recessionary trough and consumers sought to complete home purchases ahead of the government's mandated mortgage-lending rules, anticipated higher interest costs and misconceptions about the impact of HST on the home sale transaction; -- 9% decrease in interest costs as a result of a refinancing of the Company's debt in February 2010; and a -- 1.7% year-over-year increase in the Canadian Market, represented by a 6% increase in the selling price of a home to $339,030 and partially offset by a 3.9% decrease in home sales to 447,010. OVERVIEW OF FOURTH QUARTER OPERATING RESULTS Fourth-quarter results were impacted by the unusually strong residential real estate market conditions experienced at the end of 2009, which led to 57% of 2010 royalties being recognized in the first half of 2010. This compares to 46% for the same period in 2009. Accordingly, third-and fourth-quarter year-over-year variable and premium franchise fees were negatively affected; at the same time, fixed franchise fees increased by 5.3%, which was in line with the growth in the underlying number of REALTORS® in the Company's network. Also negatively impacting fourth quarter performance was a $0.7 million charge related to the conversion of the Company from an Income Fund to a corporation on December 31, 2010. Summary of fourth quarter and year-end results _____________________________________________________________________________________ | | Fourth Quarter | Year Ended December 31 | |_____________|___________________________________|___________________________________| | | 2010| 2009| 2010| 2009| |_____________|_________________|_________________|_________________|_________________| | |(thousands)| (per|(thousands)| (per|(thousands)| (per|(thousands)| (per| | | |unit)| |unit)| |unit)| |unit)| |_____________|___________|_____|___________|_____|___________|_____|___________|_____| |Royalties | $8,158|$0.64| $8,495|$0.66| $36,630|$2.86| $34,359|$2.65| |_____________|___________|_____|___________|_____|___________|_____|___________|_____| |Net earnings | $304|$0.03| $1,511|$0.16| $6,162|$0.65| $5,579|$0.58| |_____________|___________|_____|___________|_____|___________|_____|___________|_____| |Distributable| $5,044|$0.39| $5,873|$0.46| $25,246|$1.97| $23,926|$1.85| |cash(2) | | | | | | | | | |_____________|___________|_____|___________|_____|___________|_____|___________|_____| |Distributions| $7,057|$0.55| $4,969|$0.39| $20,549|$1.60| $18,633|$1.44| |_____________|___________|_____|___________|_____|___________|_____|___________|_____| |Payout(3) | 140%| | 85%| | 81%| | 78%| | |_____________|___________|_____|___________|_____|___________|_____|___________|_____| 1 REALTOR® is a trademark identifying real estate licensees in Canada who are members of the Canadian Real Estate Association (CREA). 2. Defined as royalties less administrative expenses, interest expense and management fee. Distributable cash does not have a standardized meaning under Canadian generally accepted accounting principles. Management believes that distributable cash is a useful supplemental measure of performance as it provides investors with an indication of the amount of cash for distribution to unitholders. Investors are cautioned that distributable cash should not be construed as an alternative to using net earnings as a measure of profitability or the statement of cash flows. 3 Payout represents distributions as a percentage of distributable cash. "We are pleased with the Company's performance in 2010, specifically growth in royalties and distributable cash when compared to 2009," said Phil Soper, president and chief executive officer, Brookfield Real Estate Services Inc. "The strength and size of our broker and agent network, the low interest rate environment and the widely held consumer belief that rates will rise later in 2011, all played a role in our earnings picture for 2010. Looking ahead, we expect that the Company's conversion will not only provide greater access to the capital markets, but will also drive Company performance as Brookfield continues to grow and expand its REALTOR® network."   Fund Growth During the fourth quarter, the Fund experienced a net loss of 15 REALTORS®. For the 12 months ended December 31, 2010, the Fund ended the year with 15,308 REALTORS® up 4.6% (677) from the same period of 2009; 62% (417) of this increase was a result of the acquisition of contracts on January 1, 2010, and the remaining 38% (260) through organic growth. This increase in REALTOR® growth was significantly ahead of our 2009 net growth in REALTORS®, which was almost flat, and the overall number of Canadian REALTORS®, which increased in 2010 by 3.8% to 101,916 members. On January 1, 2011, the Fund acquired franchise agreements from the Manager, representing 23 locations serviced by 247 agents operating under the Royal LePage and La Capitale brands. These acquisitions increased the Company's network to 15,555 REALTORS®, up 3.4% from the 15,048 REALTORS® as at January 1, 2010. Monthly Cash Dividend Today, the Company declared a cash dividend of $0.0917 per share for the month of March 2011, payable on April 30,( )2011, to shareholders of record on March 31, 2011. Outlook Across Canada, we anticipate that the average price of a home will increase 3% over the coming year, while the number of transactions is expected to drop by 2%, with sales activity skewed to the first half of the year. The low cost of borrowing stimulated the housing market in 2010, and this trend is predicted to continue in the first half of 2011 as consumers anticipate an increase in mortgage interest rates in the latter half of 2011. In addition to this market stimulus, further sales activity may be pushed into the first quarter of 2011 as home buyers attempt to close their home purchases ahead of the recently announced government-mandated mortgage-tightening rules. The  Canadian Real Estate Association (CREA) revised its 2011 forecast on February 8, 2011, for home sales activity on the Multiple Listing Service® (MLS) systems of Canadian real estate boards and associations. National sales activity is expected to reach 439,900 units in 2011, representing an annual decline of 1.6%. In 2012, CREA forecasts that national sales activity will rebound by 3% to 453,300 units. Even though interest rates are widely expected to rise later this year, they will still be within reach of current levels and remain supportive for housing market activity. We expect that strengthening economic fundamentals will keep the housing market in balance and home prices stable in the coming months. Structure of Fees The Company generates both fixed and variable fee components. Variable fees are primarily driven by the total transactional dollar volume from the sales commissions of REALTORS®, while fixed fees are based on the number of agents and sales representatives in the network. Approximately 69% of the Company's revenue is based on fees that are fixed in nature; this provides revenue stability and helps insulate the Company's cash flows from market fluctuations . Q4 Conference Call Brookfield Real Estate Services Inc. will host a conference call on Monday March 14, 2011 at 10:00 a.m. EasternTime to discuss its fourth-quarter and fiscal-year 2010 financial results. To access the call by telephone, dial (647) 427-7450 or (888) 231-8191. Please connect approximately 10 minutes before the beginning of the call to ensure participation. A recording of the conference call will be available on the Company's website by Tuesday March 15, 2011, at http://www.brookfieldresinc.com/content/investor_centre-25063.html.  About Brookfield Real Estate Services Inc. The Company is a leading provider of services to residential real estate brokers and their REALTORS®¹. The Company generates cash flow from franchise royalties and service fees derived from a national network of real estate brokers and agents in Canada operating under the Royal LePage, La Capitale Real Estate Network and Johnston & Daniel brand names. At December 31, 2010, the Company network consisted of 15,308 REALTORS®. The Company network has an approximate 23% share of the Canadian residential resale real estate market based on transactional dollar volume. The Company is listed on the TSX and trades under the symbol "BRE". Its website address is www.brookfieldresinc.com. Forward-Looking Statements  This news release contains forward-looking information and other "forward-looking statements". The words such as "should", "will", "continue", "plan", "believe", "expect", "anticipate", "intend", "estimate", "approximate", "expected" and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. Reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Corporation to differ materially from anticipated future results, performance or achievement expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially from those set forward in the forward looking statements include a change in general economic conditions, interest rates, consumer confidence, the level of residential real estate resale transactions, the average rate of commissions charged, competition from other traditional real estate brokers or from discount and/or Internet-based real estate alternatives, the availability of acquisition opportunities and/or the closing of existing real estate brokerage offices, other developments in the residential real estate brokerage industry or the Corporation that reduce the number of and/or royalty revenue from the Corporation's network of REALTORS®, our ability to maintain brand equity through the use of trademarks, the availability of equity and debt financing, a change in tax provisions, and other risks detailed in the Fund's annual information form, which is filed with securities commissions and posted on SEDAR at www.sedar.com. The Corporation undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Brookfield Real Estate Services Inc. Consolidated Balance Sheets As at December 31, 2010 and 2009 (in thousands of 2010 2009 dollars) Assets Current assets Cash $ 5,672 $ 6,842 Accounts receivable, (note 4) 3,158 3,267 Prepaid expenses 267 - 9,097 10,109 Intangible assets (note 6) 104,225 114,840 $ 113,322 $ 124,949 Liabilities and shareholders' equity Current liabilities Accounts payable and accrued liabilities $ 2,965 $ 3,079 Purchase obligation - current portion (note 3,282 2,219 5) Dividends payable to shareholders 3,006 1,489 Financial derivative (note 9) - 101 9,253 6,888 Long-term debt (note 9) 52,277 52,953 Purchase obligation (note 5) 281 1,924 Future income tax liability (note 7) 2,139 2,079 Non-controlling interest (note 10) 14,378 17,061 78,328 80,905 Shareholders' equity (note 1) 34,994 44,044 $ 113,322 $ 124,949 See accompanying notes to the consolidated financial statements. On behalf of the board (signed) (signed) Simon Dean Lorraine Bell DIRECTOR DIRECTOR Brookfield Real Estate Services Inc. Consolidated Statements of Earnings and Comprehensive Earnings Years ended December 31 (in thousands of dollars, except share and per share 2010 2009 amounts) Royalties Fixed franchise fees $ 18,715 $ 17,842 Variable franchise fees 8,245 7,875 Premium franchise fees 5,225 4,355 Other revenue and services 4,445 4,287 36,630 34,359 Expenses Administration (note 4) 1,771 866 Management fee (note 3) 6,713 6,365 Interest expense 2,900 3,202 Other income (note 9) (101) (264) Amortization of intangible assets (note 16,471 16,997 6) 27,754 27,166 Earnings before income tax and non-controlling 8,876 7,193 interest Non-controlling interest (note 10) (2,654) (2,165) Future income tax (expense) recovery (note (60) 551 7) Net and comprehensive earnings 6,162 5,579 Basic and diluted earnings per share $ 0.65 $ 0.58 Weighted average number of shares outstanding used in computing basic and diluted earnings per share 9,483,850 9,594,500 (1) (1) Comparative amounts presented are trust units - see note 1. See accompanying notes to the consolidated financial statements. Brookfield Real Estate Services Inc. Consolidated Statements of Shareholders' Equity (in thousands Common Contributed Shareholders' of dollars) Equity Surplus Deficit Equity Balance, $ 87,947 $ $ (44,798) $ January 1, 895 44,044 2010 Net earnings - - 6,162 6,162 for the year Dividends - - (15,212) (15,212) declared Balance, $ 87,947 $ $ (53,848) $ December 31, 895 34,994 2010 (in thousands Unitholder's Contributed Unitholders' of dollars) Equity Surplus Deficit Equity Balance, $ 91,301 $ $ (36,549) $ January 1, 404 55,156 2009 Issuer (3,354) 491 - repurchases (2,863) (note 11) Net earnings - - 5,579 5,579 for the year Distributions - - (13,828) (13,828) declared Balance, $ 87,947 $ $ (44,798) $ December 31, 895 44,044 2009 There is no accumulated other comprehensive income or loss to the Company. See accompanying notes to the consolidated financial statements. Brookfield Real Estate Services Inc. Consolidated Statements of Cash Flows Years ended December 31 (in thousands of 2010 2009 dollars) Cash provided by (used for): Operating activities Net earnings for the year $ 6,162 $ 5,579 Items not affecting cash Non-controlling interest 2,654 2,165 Future income tax expense (recovery) 60 (551) Non-cash interest expense (note 9) 179 344 Change in value of derivative (101) (264) Amortization of intangible assets 16,471 16,997 Changes in non-cash working capital (note (804) 1,440 14) 24,621 25,710 Investing activities Purchase of intangible assets (note (4,217) (2,770) 5) Payment of purchase price obligation (note (2,219) (3,051) 5) (6,436) (5,821) Financing activities Repurchase of shares (note 11) - (3,805) Proceeds from term facility (note 9) 19,972 994 Repayment of term facility (note 9) (15,000) - Proceeds of private debt placement (note 32,173 - 9) Repayment of private debt placement (note (38,000) - 9) Distributions paid to shareholders (13,695) (13,487) Distributions paid to non-controlling (4,805) (4,673) interest (19,355) (20,971) Decrease in cash during the year (1,170) (1,082) Cash, beginning of year 6,842 7,924 Cash, end of year $ 5,672 $ 6,842 Supplemental cash flow information Interest paid $ 3,014 $ 2,858 See accompanying notes to the consolidated financial statements. Brookfield Real Estate Services Inc. Notes to the Consolidated Financial Statements December 31, 2010 and 2009 (in thousands of dollars) 1. ORGANIZATION Brookfield Real Estate Services Inc. (the "Company"), formerly Brookfield Real Estate Services Fund (the "Fund"), is incorporated under the Ontario Business Corporation Act. Through its limited partnership holdings, the Company owns certain franchise agreements, relationships and trademark rights of residential real estate brands in Canada. On December 31, 2010 (the "Conversion Date"), the Fund completed a transaction (the "Conversion") by way of a plan of arrangement with Trilon Bancorp Inc. (the "non-controlling interest") which resulted in the Fund converting from a publicly traded limited purpose trust to a publicly traded corporation and the unitholders of the Fund becoming shareholders of the Company. The Conversion did not result in any changes to the underlying business operations of the Fund. Effective on the closing of the Conversion Date, the Company now directly owns the Fund and its subsidiaries which own and operate the businesses of Residential Income Fund L.P. and 9120 Real Estate Network, L.P., which own the assets from which the Company derives its sole source of revenue. The management and trustees of the Fund are now the management and directors of the Company. Pursuant to the Conversion, unitholders of the Fund received one restricted voting share of the Company for each trust unit held on the effective date. The Company has 9,483,850 restricted voting shares issued and outstanding. The shares of the Company are traded on the Toronto Stock Exchange ("TSX") under the symbol "BRE". All references to "shares" refer collectively to the Company's common shares on and subsequent to the Conversion Date and to the Fund's units prior to the Conversion Date. Similarly, all references to "shareholders" refer collectively to holders of the Company's restricted voting shares on and subsequent to the Conversion Date and to holders of the Fund's trust units prior to the Conversion Date. All references to "dividends" refer collectively to dividends declared by the Company on and subsequent to the Conversion Date and to distributions declared by the Fund prior to the Conversion Date. 2. SIGNIFICANT ACCOUNTING POLICIES Basis of presentation These consolidated financial statements include the accounts of the Company, its wholly-owned subsidiary RL RES Holding Trust ("RLHT"), and its 74% owned subsidiaries, Residential Income Fund General Partner Limited ("RIFGP"), Residential Income Fund L.P. (the "Partnership"), 9120 Real Estate Network, L.P. ("LCLP"), a wholly owned subsidiary of the Partnership, and 4541219 Canada Inc., the "General Partner of LCLP". RIFGP is the managing general partner of the Partnership. Trilon Bancorp Inc. owns the remaining 26% interest in the Partnership and RIFGP. The Company receives certain management, administrative and support services from Brookfield Real Estate Services Ltd. ("BRESL"), a party related to the non-controlling interest via common control. Royal LePage Real Estate Services Limited ("RES"), a wholly owned subsidiary of BRESL, pays royalties to the Company under a franchise agreement. These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") applied on a basis consistent with the prior year.  The Conversion has been accounted for as a continuity of interests, with no changes in carrying values. The Company's significant accounting policies are as follows: Revenue recognition Franchise fees are generally based on a percentage of an agent's gross revenue ("Variable Franchise Fees") to a specified maximum plus a dollar amount per agent ("Fixed Franchise Fees"). Gross revenue is the gross commission income (net of outside broker payments) paid in respect of the closings of residential resale real estate transactions. Variable Franchise Fees are recognized as income at the time a residential resale real estate transaction closes or lease is signed by the vendor or lessor. Fixed Franchise Fees are recognized as income as earned. Premium franchise fees are calculated as a percentage ranging from 1% to 5% of an agent's gross commission income for a select number of franchise locations. These fees are recognized as income at the time a residential resale real estate transaction closes or lease is signed by the vendor or lessor. Other revenue and services are generally recognized as income when the related services have been provided. Any prepayment for future service is recorded as deferred revenue. Deferred revenue as at December 31, 2010 was $115 (2009 - $111). Intangible assets Intangible assets, consisting of franchise agreements, relationships and trademark rights are recorded at cost less accumulated amortization. The franchise agreements are being amortized over the term of the agreements using the effective rate method. Relationships are amortized over one renewal period, at the commencement of that period, using the effective rate method. The trademarks are amortized on a straight-line basis over the term of the agreement plus one renewal period, if applicable. The Company reviews the carrying value of the intangible assets for impairment annually and whenever events or circumstances indicate that the carrying value exceeds the undiscounted cash flows expected from the life of the franchise agreements, relationships and trademarks. If impairment is determined to exist, the intangible assets are written down to their fair value. Earnings per share The earnings per share are based on the weighted average number of shares outstanding during the year. Diluted earnings per share are calculated to reflect the dilutive effect, if any, of the non-controlling interest exercising its right to exchange its Class B limited partnership units ("Class B LP Units") of the Partnership into shares of the Company. Financial instruments All financial instruments are classified into one of the following five categories: held-for-trading; held-to-maturity; loans and receivables; available-for-sale or other financial liabilities. All financial instruments, including derivatives, are measured at fair value, except for loans and receivables, held-to-maturity instruments and other financial liabilities, which are measured at amortized cost. Transaction costs for financial liabilities are applied against these liabilities and amortized using the effective interest method, the resulting amortization being recorded as financial expenses. Gains and losses on held-for-trading financial instruments are included in net income in the period in which they arise. The Company made the following classifications: Cash or cash equivalents Held-for-trading Accounts receivable Loans and receivables Accounts payable and Other financial accrued liabilities liabilities Purchase obligation Other financial liabilities Dividends payable to Other financial shareholders liabilities Long-term debt Other financial liabilities The Company previously utilized a derivative financial instrument to manage its interest rate risk. Derivative financial instruments are classified as held-for-trading and are carried at estimated fair values. Gains or losses arising from changes in fair value are recognized in the consolidated statements of earnings and comprehensive earnings and are classified as other income or loss in the period the change occurs. All financial instruments measured at fair value are categorized into one of three hierarchy levels, described below, for disclosure purposes. Each level is based on the transparency of the inputs used to measure the fair values of assets and liabilities: -- Level 1 - inputs that are unadjusted quoted prices of identical instruments in active markets. -- Level 2 - inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. -- Level 3 - inputs that used in a valuation technique are not based on observable market data in determining fair values of the instruments. The Company did not have any financial instruments at December 31, 2010 that would result in Other Comprehensive Earnings to the Company. Income taxes The Company uses the liability method of tax allocation in accounting for income taxes. Under this method, temporary differences between the carrying amount of balance sheet items and their corresponding tax basis result in either future income tax assets or liabilities. Future income taxes are computed using substantively enacted tax rates applicable to the years in which the differences are expected to reverse. Future income tax assets are only recognized to the extent that, in the opinion of management, they will more likely than not be realized. Use of estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of management estimates relate to the determination of the carrying value of intangible assets, determination of the future tax balances, useful lives for amortization of intangible assets and provisions for contingencies. Actual results could differ from those estimates. Future accounting and reporting changes: International Financial Reporting Standards The Accounting Standards Board of Canada ("ACSB") converged Canadian GAAP for publicly accountable enterprises with International Financial Reporting Standards ("IFRS") on January 1, 2011 with the adoption of IFRS. The ACSB announced on February 13, 2008 that IFRS will be required in 2011 for publicly accountable, profit-oriented enterprises. The changeover date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. IFRS uses a conceptual framework similar to Canadian GAAP, but there are significant differences in recognition, measurement and disclosure requirements. 3. MANAGEMENT SERVICES AGREEMENT On January 1, 2008, the Company entered into an Amended and Restated Management Services Agreement ("MSA") with BRESL, a party related to the non-controlling interest via common control. This agreement replaced the original Management Services Agreement, which commenced on August 7, 2003 with an initial term of 10 years and automatic renewal for successive 10-year periods subject to approval of the Company and BRESL. The termination date and renewal periods of the MSA remain consistent with the original agreement. Under the MSA, BRESL is to provide certain management, administrative and support services to the Company and its subsidiaries and in return is paid a monthly fee equal to 20% and 30% of the distributable cash of the Partnership and LCLP, respectively. For the year ended December 31, 2010, BRESL earned $6,713 for these services (2009 - $6,365). The MSA also prescribes the conditions under which the Company purchases contracts from BRESL and the formula for calculating the purchase price. 4. ACCOUNTS RECEIVABLE Accounts receivable are related to fees due from the Company's franchise network and are valued initially at fair value, then subsequently measured at amortized cost less any provision for doubtful accounts. As at December 31, 2010 the Company had accounts receivable of $3,158 (2009 - $3,267) net of $48 (2009 - $nil) allowance for doubtful accounts. During 2010, $48 (2009 - $nil) of bad debt expense related to the provision for doubtful accounts was included in Administration expense. The table below summarizes the amount of accounts receivables that are overdue which have not been provided for: 90+ Days 60 Days 30 Days Total Accounts receivable $136 $116 $249 $501 5. ASSET ACQUISITIONS The Company's purchases of franchise agreements are governed by terms set out in the MSA. On January 1, 2010, the Partnership acquired 18 new Royal LePage franchise agreements from BRESL at a purchase price of $4,597 and $26 of related legal and other acquisition costs. On January 1, 2010, LCLP acquired three La Capitale franchise agreements from BRESL at an estimated purchase price of $1,072. The estimated price is to be revised at the end of each of the next two years based on the average annual royalty stream earned over the three-year period from November 1, 2009 to October 31, 2012. Until the final purchase price is determined, the purchase price obligation is recalculated at each period-end based on the actual royalties earned. Correspondingly, the deposit on acquisition is reduced by the calculated amount and transferred to intangible assets. The intangible assets are then amortized in accordance with the Company's policy on a prospective basis. The recalculated purchase price obligation in excess of the deposit on acquisition is recorded as a purchase obligation and the corresponding amount added to the intangible assets and amortized as described above.   On January 1, 2009, the Partnership acquired 18 new Royal LePage franchise agreements from BRESL at a purchase price of $2,264 and $24 of related legal and other acquisition costs. On January 1, 2009, LCLP acquired three new La Capitale franchise agreements from BRESL for an estimated purchase price of $1,050 and $2 of related costs. The estimated price is to be revised at the end of 2011 based on the average annual royalty stream earned over the three-year period from November 1, 2008 to October 31, 2011. The Partnership used cash on hand to acquire these agreements. The acquisitions during 2010 are summarized as follows: Adjustments to Royal prior year 2010 2009 LePage LCLP purchase price Total Total Franchise $ 3,486 $ 610 $ 81 $ 4,177 $ 2,456 agreements Relationships and 1,137 462 80 1,679 1,401 trademarks 4,623 1,072 161 5,856 3,857 Future income tax - - - - (104) liability $ 4,623 $ 1,072 $ 161 $ 5,856 $ 3,753 The considerations paid, including transaction costs, are funded by the following: Adjustments to Royal prior year 2010 2009 LePage LCLP purchase price Total Total Cash on hand $ 3,385 $ 832 $ - $ 4,217 $ 2,770 Purchase obligations, 1,238 80 148 1,466 637 current Purchase obligations, - 160 13 173 346 long-term $ 4,623 $ 1,072 $ 161 $ 5,856 $ 3,753 The purchase obligations consist of the following: Royal 2010 2009 LePage LCLP Total Total Purchase obligations, current $ 1,238 $ 2,044 $ 3,282 $ 2,219 Purchase obligations, long-term - 281 281 1,924 $ 1,238 $ 2,325 $ 3,563 $ 4,143 6. INTANGIBLE ASSETS A summary of intangible assets is provided in the table below. December 31, 2010 Accumulated Cost Amortization Net Book Value Franchise agreements $ 154,474 $ 106,136 $ 48,338 Relationships and 61,047 5,160 55,887 trademarks $ 215,521 $ 111,296 $ 104,225 December 31, 2009 Accumulated Cost Amortization Net Book Value Franchise agreements $ 150,297 $ 91,844 $ 58,453 Relationships and 59,368 2,981 56,387 trademarks $ 209,665 $ 94,825 $ 114,840 The additions to intangible assets during the years ended December 31, 2010 and 2009 are summarized as follows: Royal Year ended Year ended LePage LCLP Dec. 31, 2010 Dec. 31, 2009 Franchise $ 3,486 $ 691 $ 4,177 $ 2,456 agreements Relationships and 1,137 542 1,679 1,401 trademarks $ 4,623 $ 1,233 $ 5,856 $ 3,857 Amortization for the year ended December 31, 2010 was $16,471 (2009 - $16,997). 7. FUTURE INCOME TAXES On October 31, 2006, the Minister of Finance announced proposed tax legislation ("SIFT rules") that will change the income tax rules applicable to publicly traded trusts rendering income trusts taxable in 2011. The SIFT rules were substantively enacted on June 12, 2007, at which time the Fund gave accounting recognition to these new tax rules. Prior to June 12, 2007, income tax obligations relating to distributions from the Fund were obligations of the unitholders and, accordingly, no provisions for income taxes were recorded by the Fund. As a result of the Conversion, as described in note 1, the Company became a taxable Canadian corporation liable for income taxes as of December 31, 2010. The enactment of the SIFT rules led to the Company recognizing future income taxes in respect of temporary tax expected to reverse after December 31, 2010. These temporary differences arose from differences between the tax basis and the carrying amount of the Company's intangible assets. These differences arose primarily due to the Company's acquisition of certain intangible assets on a tax-deferred basis (meaning that the tax basis of the assets was lower than cost recorded for accounting), but are also affected by relative amounts of amortization deducted for tax and accounting purposes each year. A reconciliation of income taxes at Canadian statutory rates with reported income taxes is as follows: For the year ended December 31 2010 2009 Expected income tax expense at a statutory tax rate $ 2,732 $ 2,374 of 31% (2009 - 33%) Effect of current year's income allocated to (831) (714) non-controlling interest Effect of current year's income being distributed (1,901) (1,660) to shareholders Future income tax recovery due to tax rate reductions and rescheduling of temporary 60 (551) differences Future income tax expense (recovery) $ 60 $ (551) Future income tax liability due to purchase price $ - $ 104 adjustment Change to future income tax liability $ 60 $ (447) The tax effect of the estimated temporary differences as at December 31, 2010 that give rise to the future tax liability is as follows: 2010 2009 Future tax liability - intangible assets $ 2,139 $ 2,079 8. OPERATING CREDIT FACILITY On February 18, 2010, the Partnership renewed the credit facility (the "Revolver") of up to $2,000 from a Canadian financial institution. This Revolver may be used to provide working capital to the Partnership from time to time. The Revolver is subject to annual renewal with outstanding principal under the Revolver subject to interest at the lender's prime rate plus 2.5% to 3% or the Bankers' Acceptance rate plus 3.5% to 4%, based on the ratio of total debt to Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") of the Partnership as defined in the credit agreement.  On April 19, 2010, the Company drew $1,700 on its Revolver in the form of a 30-day Bankers' Acceptance which yielded $1,694 in cash, net of $6 interest paid in advance. The Revolver was repaid on May 21, 2010. The cash was utilized to pay outstanding management fees and associated taxes and interest. As at December 31, 2010, the Revolver had not been drawn upon. 9. LONG-TERM DEBT The Company's long-term debt is comprised of the following debt facilities: As at December 31 2010 2009 Private debt placement $ 32,254 $ 37,795 Term facility 20,023 14,978 $ 52,277 $ 52,953 On February 18, 2010, the Partnership completed the refinancing of its $53,000 debt obligations with a five-year term maturing on February 17, 2015.  The refinancing included a $32,700 private debt placement with a number of Canadian institutional investors with fixed interest of 5.809% and a $20,300 term facility provided by a Canadian financial institution with interest available in the form of a floating rate at prime plus 1.5% payable quarterly, or at Banker's Acceptance rates plus 3% with terms of up to six months. The Company incurred $855 in issue costs associated with the new debt obligations resulting in net proceeds of $52,145. These proceeds and cash on hand were utilized to repay the previous private placement of $38,000 and term facility of $15,000, which matured on February 17, 2010. The private placement and term facility had fair values of $34,003 and $20,300, respectively at December 31, 2010 (2009 - $37,950 and $15,000). During the year ended December 31, 2010, $179 of amortization of the issue costs was recorded as interest expense (2009 - $344). The swap agreement relating to the prior term facility that expired on February 17, 2010 was valued at its market value which was a liability of $101 as at December 31, 2009. Upon maturity of the swap agreement on February 17, 2010, this liability was reversed and $101 of other income was recorded. 10. NON-CONTROLLING INTEREST The non-controlling interest owns 25 common shares in RIFGP and 3,327,667 Class B LP Units of the Partnership; this reflects an effective 26% interest in the Partnership.  Prior to the Conversion, an equivalent number of Special Fund Units, which represent voting rights in the Fund, also accompanied the Class B LP Units.  Pursuant to the Conversion, the Special Fund Units were redeemed and one Special Voting Share was issued by the Company.  The Special Voting Share entitles the holder to a number of votes at any meeting of the Restricted Voting Shareholders equal to the number of Restricted Voting Shares that may be obtained upon the exchange of all the Class B LP Units held by the holder and/or its affiliates.  The Company indirectly holds the remaining 74% interest in the Partnership through Class A limited partnership units of the Partnership ("Ordinary LP Units").   The non-controlling interest is entitled to indirectly exchange, on one-for-one basis, subject to adjustment, the Class B LP Units for Restricted Voting Shares of the Company. A summary of the non-controlling interest is as follows: 2010 2009 Non-controlling interest, beginning of year $ 17,061 $ 19,701 Share of earnings for the year 2,654 2,165 Distributions during the year (5,337) (4,805) Non-controlling interest, end of year $ 14,378 $ 17,061 11. SHARE CAPITAL The Company is authorized to issue an unlimited number of restricted voting shares, an unlimited number of preferred shares and one special voting share. As at December 31, 2010, 9,483,850 in restricted voting shares were issued in exchange for 9,483,850 trust units outstanding, and one special voting share was issued in exchange for all Special Fund Units outstanding prior to the Conversion.  The restricted voting shares were issued to replace the trust units outstanding prior to the Conversion. Each restricted voting share represent a proportionate voting right in the Company and holders of the Company's restricted voting shares are entitled to dividends declared and distributed by the Company. The special voting share was issued to replace all of the special Fund units outstanding prior to the Conversion, which represent the proportionate voting rights of Non-controlling interests in the Company, are redeemable by the holder at $0.01 per share, and are not entitled to dividends declared by the Company.  No preferred shares were issued or outstanding as at December 31, 2010. On October 3, 2008, the TSX approved the Company's notice of intention to make a normal course issuer bid ("NCIB") for up to 499,150 of its shares, representing 5% of its 9,983,000 outstanding units as of September 30, 2008. The Company was permitted to purchase shares at prevailing market prices during the period from October 7, 2008 to October 6, 2009. Purchases were made at market prices in accordance with the rules and policies of the TSX. Daily purchases were effected through the facilities of the TSX and limited to 3,800 units, other than block purchase exceptions. The Company financed these purchases with a special distribution from the Partnership. Units purchased were cancelled at the end of each month. During the year ended December 31, 2009, the Company purchased and cancelled 335,430 units at a total cost of $2,863. The repurchased units had an issued value of $3,354, resulting in a contributed surplus of $491. A summary of the activity for the year ended December 31, 2010 with the comparative 2009 information is presented in the table below. 2010 2009 Voting Shares Amount Units Amount Beginning of year 9,819,280 $ 91,301 Restricted voting shares 9,483,850 $ 87,947 - - Special voting share 1 - - - NCIB purchases - - (335,430) (3,354) End of year 9,483,851 $ 87,947 9,483,850 $ 87,947 12. EARNINGS PER SHARE The Class B LP Units referred to in note 10 was not included in the diluted per unit calculations as the effect would have been anti-dilutive. 13. RELATED PARTY TRANSACTIONS Unless disclosed elsewhere, the Company had the following transactions with parties related to the non-controlling interest during the years ended December 31, 2010 and 2009. These transactions have been recorded at the exchange amount agreed to between the parties. 2010 2009 a) Royalties Fixed, variable and other franchise fees $ 2,587 $ 2,351 Premium franchise fees $ 4,461 $ 3,700 b) Expenses Management fees $ 6,713 $ 6,365 Insurance and other $ 109 $ 109 c) Distributions Distributions paid to non-controlling interest $ 4,805 $ 4,673 The following amounts due to/from related parties are included in the account balance as described: 2010 2009 d) Accounts receivable Franchise fees receivable and other $ 908 $ 585 e) Accounts payable and accrued liabilities Dividends payable to non-controlling interest $ 1,055 $ 521 Management fees $ 489 $ 1,656 f) Purchase obligation payable $ 3,563 $ 4,143 14. SUPPLEMENTAL CASH FLOW INFORMATION 2010 2009 Changes in non-cash working capital Accounts receivable $ 109 $ (43) Prepaid expenses (267) 145 Accounts payable and accrued liabilities (646) 1,338 $ (804) $ 1,440 15. FINANCIAL INSTRUMENTS In the normal course of business the Company is exposed to a number of financial risks that can affect its operating performance. These risks are outlined below: a) Credit risk Credit risk arises from the possibility that the franchisees may experience financial difficulty and be unable to pay outstanding franchise fees.  The Company's credit risk is limited to the recorded amount of accounts receivable.  Management reviews the financial position of all franchisees during the application process and closely monitors outstanding accounts receivable on an ongoing basis.   b) Liquidity risk The Company is exposed to liquidity risk in its ability to finance its working capital requirements and meet its cash flow needs including paying ongoing future dividends to shareholders and non-controlling interest.  Management reduces liquidity risk by maintaining more conservative debt covenant ratios compared with those required by the covenants associated with the long-term debt. Also, the Company has $2,000 unutilized credit under the Revolver as described in note 8. Estimated maturities of the Company's financial liabilities are as follows: 2011 2012 2013 Beyond 2013 Total Accounts payable and $ 2,965 $ - $ - $ - $ 2,965 accrued liabilities Purchase obligations 3,282 201 80 - 3,563 Dividends payable to 3,006 - - - 3,006 shareholders Private debt placement - - - 32,700 32,700 Term facility - - - 20,300 20,300 Total $ 9,253 $ 201 $ 80 $ 53,000 $ 62,534 c) Interest rate risk The Company is exposed to the risk of interest rate fluctuations on its Revolver and term facilities as the interest rates on these facilities are tied to the prime and Bankers' Acceptance rates. Management has elected to continue with a floating rate position on these facilities and monitors this position on an ongoing basis. The Company's $32,700 private debt placement is fixed and accordingly does not have risk of interest rate fluctuations. An increase of 1% in the Company's effective interest rate on its variable rate debt would result in an interest expense increase of approximately $203.  d) Fair value The fair value of the Company's financial instruments, which consist of cash, accounts receivable, accounts payable and accrued liabilities, purchase obligation and dividends payable to shareholders are estimated by management to approximate their carrying values due to their short-term nature.  Similarly, the Company's floating rate debt has a fair value that approximates its face value. The Company determines the fair value of the fixed rate debt through the use of a discounted cash flow analysis using relevant risk-free bond rates plus an applicable risk premium.  The fair value of the Company's long-term debt is disclosed in note 9. e) Fair value hierarchy The following table summarizes the financial instruments measured at fair value in the consolidated balance sheet as at December 31, 2010 and 2009, classified using the fair value hierarchy described in note 2: As at December 31, 2010 Level 1 Level 2 Level 3 Total Financial asset or liability Cash $ - $ 5,672 $ - $ 5,672 Total $ - $ 5,672 $ - $ 5,672 As at December 31, 2009 Level 1 Level 2 Level 3 Total Financial asset or liability Cash $ - $ 6,842 $ - $ 6,842 Financial derivative - (101) - (101) Total $ - $ 6,741 $ - $ 6,741 16. MANAGEMENT OF CAPITAL The Company's capital is made up of its cash on hand, long-term debt, shareholders' equity and non-controlling interest.  The Company's objectives when managing capital are to maintain a capital structure that provides financing options to the Company while remaining compliant with the covenants associated with the long-term debt; maintain financial flexibility to preserve its ability to meet financial obligations, including debt servicing and dividends to shareholders; and deploy capital to provide an appropriate investment return to its shareholders. The Company's financial strategy is designed to maintain a flexible capital structure consistent with the objectives stated above and to respond to changes in economic conditions.  The covenants of the long-term debt prescribe that the Company must maintain a ratio of Adjusted Earnings Before Income Tax, Depreciation and Amortization ("Adjusted EBITDA") to Senior Interest Expense at a minimum of 5.00 to 1 and a ratio of Senior Indebtedness to Adjusted EBITDA at a maximum of 2.25 to 1. Senior Indebtedness is defined as the Company's long term debt disclosed under note 9, which is made up of $32,700 in private debt placement and $20,300 in term facilities.  Senior Interest Expense includes interest expenses generated on the Company's Senior Indebtedness.  The Company is compliant with all financial covenants.  There were no changes in the Company's approach to capital management during the year. 17. SUBSEQUENT EVENTS Acquisitions Royal LePage franchise agreements On January 1, 2011, the Partnership acquired 21 new Royal LePage franchise agreements from BRESL. The estimated purchase price of $2,524 is based on an estimated annual royalty stream of $378. A deposit of $2,019, equal to 80% of the estimated purchase price, was to be paid from cash on hand in 2011 and the remainder is to be paid a year later, when the final purchase price is determined in accordance with the terms set out in the MSA. La Capitale franchise agreements On January 1, 2011, LCLP acquired two new La Capitale franchise agreements from BRESL. The estimated purchase price of $951 is based on an estimated annual royalty stream of $167. A deposit of $761, equal to 80% of the estimated purchase price, was to be paid from cash on hand in 2011. The estimated price is to be revised over a three-year period from November 1, 2010 to October 31, 2013 based on the average annual royalty stream earned. SUPPLEMENTAL INFORMATION - SELECTED FINANCIAL AND OPERATING INFORMATION _________________________________________________________________________________________________________ |Three months ended | | March| | June| | Sept.| |Dec. 31,| | March| |June 30,| | Sept.| | Dec.| |($000's, unaudited) | | 31,| | 30,| | 30,| | 2009| | 31,| | 2010| | 30,| | 31,| | | | 2009| | 2009| | 2009| | | | 2010| | | | 2010| | 2010| |_____________________|__|______|__|______|__|______|__|________|__|______|__|________|__|______|__|______| |Revenue | |_________________________________________________________________________________________________________| | |Fixed franchise |$ | 4,467|$ | 4,445|$ | 4,459|$ | 4,471 |$ | 4,610|$ | 4,695 |$ | 4,700|$ | 4,710| | |fees | | | | | | | | | | | | | | | | | |_|___________________|__|______|__|______|__|______|__|________|__|______|__|________|__|______|__|______| | |Variable franchise | | 1,194| | 2,312| | 2,738| |1,631 | | 1,783| |2,990 | | 2,203| | 1,269| | |fees | | | | | | | | | | | | | | | | | |_|___________________|__|______|__|______|__|______|__|________|__|______|__|________|__|______|__|______| | |Premium franchise | |420 | |920 | | 1,674| |1,341 | |851 | |1,556 | | 1,692| | 1,126| | |fees | | | | | | | | | | | | | | | | | |_|___________________|__|______|__|______|__|______|__|________|__|______|__|________|__|______|__|______| | |Other fee revenue | |916 | | 1,162| | 1,157| |1,052 | |921 | |1,286 | | 1,185| | 1,053| | |and services | | | | | | | | | | | | | | | | | |_|___________________|__|______|__|______|__|______|__|________|__|______|__|________|__|______|__|______| | |$ | 6,997|$ | 8,839|$ |10,028|$ | 8,495 |$ | 8,165|$ |10,527 |$ | 9,780|$ | 8,158| | | | | | | | | | | | | | | | | | | |_____________________|__|______|__|______|__|______|__|________|__|______|__|________|__|______|__|______| |% Revenue by region | |_________________________________________________________________________________________________________| | |British | | 13 | | 12 | | 12 | | 12 | | 12 | | 11 | | 11 | | 11| | |Columbia | | | | | | | | | | | | | | | | | |_|___________________|__|______|__|______|__|______|__|________|__|______|__|________|__|______|__|______| | |Prairies | | 10 | | 9 | | 9 | | 9 | | 10 | | 9 | | 9 | | 9| |_|___________________|__|______|__|______|__|______|__|________|__|______|__|________|__|______|__|______| | |Ontario | | 53 | | 54 | | 56 | | 56 | | 56 | | 57 | | 58 | | 57| |_|___________________|__|______|__|______|__|______|__|________|__|______|__|________|__|______|__|______| | |Quebec | | 21 | | 22 | | 20 | | 20 | | 19 | | 20 | | 19 | | 20| |_|___________________|__|______|__|______|__|______|__|________|__|______|__|________|__|______|__|______| | |Maritimes | | 3 | | 3 | | 3 | | 3 | | 3 | | 3 | | 3 | | 3| |_|___________________|__|______|__|______|__|______|__|________|__|______|__|________|__|______|__|______| | | | 100 | | 100 | | 100 | | 100 | | 100 | | 100 | | 100 | | 100| |_____________________|__|______|__|______|__|______|__|________|__|______|__|________|__|______|__|______| | | | | | | | | | | | | | | | | | | |_|___________________|__|______|__|______|__|______|__|________|__|______|__|________|__|______|_________| |Three months ended | | March| | June| | Sept.| |Dec. 31,| | March| |June 30,| | Sept.| | Dec.| |Changes during the | | 31,| | 30,| | 30,| | 2009| | 31,| | 2010| | 30,| | 31,| |period | | 2009| | 2009| | 2009| | | | 2010| | | | 2010| | 2010| |_____________________|__|______|__|______|__|______|__|________|__|______|__|________|__|______|__|______| | |Number of | | 98 | |(74) | |(51) | | 64 | |639 | | 25 | | 27 | | (14)| | |REALTORS® | | | | | | | | | | | | | | | | | |_|___________________|__|______|__|______|__|______|__|________|__|______|__|________|__|______|__|______| | |Number of Agents | | 96 | |(81) | |(46) | | 51 | |579 | | 37 | | 34 | | (15)| | | | | | | | | | | | | | | | | | | | |_|___________________|__|______|__|______|__|______|__|________|__|______|__|________|__|______|__|______| | |Number of | | | | | | | | | | | | | | | | | | |fixed-fee-paying | | | | | | | | | | | | | | | | | | | Sales | | | | | | | | | | | | | | | | | | |Representatives | | 0 | | (2) | | 2 | | 8 | | 64 | | (9) | |(14) | | 4| |_|___________________|__|______|__|______|__|______|__|________|__|______|__|________|__|______|__|______| | |Number of locations| | 17 | | (5) | | (3) | | (5) | | 18 | | 1 | | (3) | | (5)| | | | | | | | | | | | | | | | | | | | |_|___________________|__|______|__|______|__|______|__|________|__|______|__|________|__|______|__|______| | |Number of franchise| | | | | | | | | | | | | | | | | | |agreements | | 15 | | (3) | | 1 | | (2) | | 20 | | (1) | | (1) | | 0| |_|___________________|__|______|__|______|__|______|__|________|__|______|__|________|__|______|__|______| | | |_________________________________________________________________________________________________________| |At end of period | |_________________________________________________________________________________________________________| | |Number of | |14,692| |14,618| |14,567| |14,631 | |15,270| |15,295 | |15,322| |15,308| | |REALTORS® | | | | | | | | | | | | | | | | | |_|___________________|__|______|__|______|__|______|__|________|__|______|__|________|__|______|__|______| | |Number of Agents | |13,696| |13,615| |13,569| | 13,620| |14,199| | 14,236| |14,270| |14,255| | | | | | | | | | | | | | | | | | | | |_|___________________|__|______|__|______|__|______|__|________|__|______|__|________|__|______|__|______| | |Number of | | | | | | | | | | | | | | | | | | |fixed-fee-paying | | | | | | | | | | | | | | | | | | | Sales | | | | | | | | | | | | | | | | | | |Representatives | |699 | |697 | |699 | | 707 | |771 | | 762 | |748 | | 752| |_|___________________|__|______|__|______|__|______|__|________|__|______|__|________|__|______|__|______| | |Number of locations| |660 | |655 | |652 | | 647 | |665 | | 666 | |663 | | 658| | | | | | | | | | | | | | | | | | | | |_|___________________|__|______|__|______|__|______|__|________|__|______|__|________|__|______|__|______| | |Number of franchise| | | | | | | | | | | | | | | | | | |agreements | |353 | |350 | |351 | | 349 | |369 | | 368 | |367 | | 367| |_|___________________|__|______|__|______|__|______|__|________|__|______|__|________|__|______|__|______| To view this news release in HTML formatting, please use the following URL: http://www.newswire.ca/en/releases/archive/March2011/14/c2425.html pbFor further information about the Company, please visit our website at/ba href="http://www.brookfieldresinc.com"www.brookfieldresinc.com/abor contact:/bbr/ Tammy Gilmerbr/ Director, Public Relations & National Communicationsbr/ Brookfield Real Estate Servicesbr/ a href="mailto:tgilmer@brookfieldres.com"tgilmer@brookfieldres.com/a    Tel: 416.510.5783/p

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