TORONTO, Aug. 7, 2013 /CNW/ - Brookfield Real Estate
Services Inc. (the Company) (TSX: BRE), a leading provider of
services to residential real estate brokers and their
REALTORS®1 signed a renewed Management Services
Agreement during the quarter, and today announced that cash flow
from operations ("CFFO") for the three and six months ended
June 30, 2013 was $6.6 million or $0.51 per Restricted Voting Share ("Share") and
$12.1 million or $0.95 per Share, respectively, as compared to
$7.4 million or $0.57 per Share and $12.9
million or $1.01 per Share,
respectively, for the same period in 2012.
Management Services Agreement
Since 2003, the Company has been managed pursuant to a ten-year
Management Services Agreement (the "MSA") with the Brookfield Real
Estate Services Manager Limited (the "Manager"), a subsidiary of
Brookfield Asset Management Inc. This agreement had recently been
extended to December 31, 2013,
allowing a Special Committee of the Board of Directors of the
Company along with external advisors to conduct a thorough review
and assessment of alternatives in advance the expiry of the term of
the current agreement. Entering into a renewed MSA with the Manager
was determined to be the best possible option at this time, as it
builds upon the strong existing relationship between the Company
and Brookfield and maintains
consistency in a vital part of the infrastructure to the
Company.
On June 28, 2013, the Company
announced that it will be continuing its relationship with the
Manager under an amended and restated MSA effective January 1, 2014. The agreement provides new
growth opportunities for the Company and enhances the value of
Canada's premier real estate
services brands, including Royal LePage, Johnston & Daniel and
the Via Capitale Real Estate Network.
"The changes to the agreement all provide significant benefit to
shareholders," said Spencer Enright,
President and Chief Executive Officer of Brookfield Real Estate
Services Manager Limited. "With the new MSA in place, we will see a
close alignment of the Manager and Company goals, reduced
management fees, a new incentive arrangement emphasizing organic
agent growth, and the ability to grow market share while
safeguarding the existing return on investment."
Under the new MSA : (1) the management fee has been standardized
to 20% across all brands as compared to 20% for Royal LePage and
30% for Via Capitale under the existing MSA; (2) the Manager can
earn a new incentive fee for organic growth which closely aligns
the Manager and the Company's goals with growing the underlying
network of Agents, with the fee being calculated in accordance with
the formula for incremental franchises based on the average annual
royalty fees per Agent; (3) the Manager has the ability to sell
other branded Canadian franchises to the Company; and (4) the
following three changes were made to the manner in which amounts
paid to the Manager for incremental franchisee contracts are
determined : (i) the discount factor was standardized to 7.5% ,
(ii) the final purchase price is based on the average annual
royalties earned over two years, and (iii) the 20% holdback on the
initial purchase price for the incremental franchise contracts is
paid over two years.
All other provisions under the new MSA remain substantially
unchanged from the previous
MSA.
OVERVIEW OF SECOND QUARTER OPERATING RESULTS
CFFO for the rolling 12 month period ended June 30, 2013 was $1.92 per Share as compared to $1.98 for the 12 months ended December 31, 2012. Royalties for the three and
six months ended June 30, 2013 were
$9.7 million and $17.8 million, respectively, compared to
$10.0 million and $18.2 million, respectively for the same period
in 2012. Net earnings for the three and six months ended
June 30, 2012 was $3.4 million and $2.8
million, or $0.36 and
$0.30 earnings per Share,
respectively, as compared to net income of $7.9 million and $4.7
million or $0.83 and
$0.49 per Share, respectively, for
the same period in 2012.
During the Quarter, the Company generated CFFO of $6.6 million as compared to $7.4 million for the same period in 2012 as a
result of $0.2 million decrease in
royalties from lower market activity, and $0.6 million increase in administrative expenses
that was mainly attributed to $0.3
million of one-time legal, consulting and
special committee fees incurred in completing the revised MSA and
the recovery of $0.2 million of
previously written off receivables in the comparative period. On a
rolling twelve-month basis, the Canadian market transactional
dollar volume of $160.8 billion
decreased by 5.9% from June 30, 2012,
driven by a 1.3% increase in selling price and a 7.1% decrease in
home sale activity. For the three months ended June 30, 2013, the Canadian market transactional
dollar volume was up 1.0% over the same period in 2012, driven by a
3.1% increase in selling price and a 2.1% decrease in home sale
activity.
On a rolling twelve-month basis, the Greater Toronto Area ("GTA") Market
experienced a quarter-over-same-quarter decrease of 6.8% driven by
a 4.6% increase in selling price and 10.9% decrease in home sale
activity. For the three months ended June
30, 2013, the GTA Market experienced a 1.7% increase on a
3.7% increase in selling price and a 2.2% decrease in home sale
activity over the same period in 2012. The lower market volume is
mainly driven by tighter mortgage lending restrictions introduced
in the second half of 2012. Prices remain stable given a balanced
supply and demand amid a low interest rate environment.
The Company's revenue is primarily fixed in nature, based on the
number of REALTORS® in the network. This structure
provides revenue protection from the impact of revenue declines
when the market cools, but also reduces the degree to which the
Company participates in periods of rapid market expansion. "We
witnessed the continuation of a normal cyclical market correction
in the second quarter of 2013. The economy improved in Canada and in the
United States, but monetary policymakers on both sides of
the border are being patient to ensure the sustainability of the
rebound," said Phil Soper, President
and Chief Executive Officer, Brookfield Real Estate Services Inc.
"While we have seen modest price appreciation recently, homebuyers
have been taking a slightly cautious stance as evidenced by lower
sales volumes in many regions across the country for the
quarter." "While record low interest rates offer significant
appeal to would-be buyers, consumer confidence levels have not
completely rebounded," continued Soper. "Nevertheless, indicators
point to a steadily improving economy that will help the market
return to historical sales volume and house price appreciation
averages."
The Company Network
As at June 30, 2013, the Company
Network was comprised of 15,499 REALTORS®, operating
under 438 franchise agreements providing services from 673
locations, with an approximate 24% share of the Market based on
2012 transactional dollar volume.
Outlook
"We are in the late stages of a cyclical market correction that has
seen fewer houses trading hands and below average price
appreciation for the last four quarters," said Soper. "It is the
view of management that we will see sales volumes start to trend
upward on a year-over-year basis in late 2013, and as we work our
way through 2014 we also expect to see house price appreciation
return to long-term historical averages."
"The condominium sector may see some softness for the near term
as the market absorbs new supply," said Soper. "In the longer-term,
however, we believe that changes to demography, city planning and
customer preferences all presage positive growth for this
category."
Monthly Cash Dividend
The Company declared a cash dividend of $0.092 per share for the month of August 2013, payable on September 30, 2013, to shareholders of record on
August 30, 2013.
CFFO
This news release and accompanying financial statements make
reference to cash flow from operations ("CFFO") on a total and per
restricted voting share basis. CFFO is defined as net income prior
to fair value changes, amortization, interest on Exchangeable
Units, income taxes, items related to other income and interests of
Exchangeable Unitholders. CFFO is used by the Company to measure
the amount of cash generated from operations which is available to
the Company's shareholders on a diluted basis where such dilution
represents the total number of shares of the Company that would be
outstanding if Exchangeable Unitholders converted Class B LP units
into shares of the Company. The Company uses CFFO to assess its
operating results, the value of its business and believes that many
of its shareholders and analysts also find this measure of value to
them. CFFO does not have any standard meaning prescribed by IFRS
and therefore may not be comparable to similar measures presented
by other companies.
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 Company's network of
15,499 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 Company'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.
Conference Call
Brookfield Real Estate Services Inc. will host a conference call on
Wednesday, August 7, 2013 at
10 a.m. ET to discuss its financial
results for the second quarter of 2013.
To access the call by telephone, please dial (888) 231-8191 or
(647) 427-7450. Please connect approximately ten minutes prior to
the beginning of the call to ensure participation. A recording of
the conference call will be available on the Company's website by
August 9, 2013 at
http://www.brookfieldresinc.com/content/investor_centre-25063.html.
Supplemental Information
The Company's Interim Condensed Consolidated Financial Statements,
Supplemental Information and IFRS overview for the three and
months ended June 30, 2013 contain
further information on the company's strategy, operations and
financial results and can be found on our website at
www.brookfieldresinc.com. The Company's Management Discussion and
Analysis, Financial Statements and associated regulatory filings
will follow within prescribed timelines. Shareholders are
encouraged to read these documents.
Brookfield Real Estate Services Inc. Profile
The Company is a leading provider of services to residential real
estate brokers and their REALTORS®. 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, Via Capitale Real Estate Network and Johnston
& Daniel brand names. At June 30,
2013, the Company network consisted of 15,499
REALTORS®. The Company network has an approximate 24%
share of the Canadian residential resale real estate market based
on 2012 transactional dollar volume. 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 73% 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. The
Company is listed on the TSX and trades under the symbol "BRE". For
further information about the Company, please
visit www.brookfieldresinc.com.
1 REALTOR® is a trademark identifying
real estate licensees in Canada
who are members of the Canadian Real Estate Association.
SOURCE Brookfield Real Estate Services Inc.