Toronto, Ontario, November 9, 2012
– 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 that cash flow from operations (“CFFO”) for the three and nine months ended September 30, 2012 was $7.1 million or $0.55 per restricted voting share (“Share”) and $20.0 million or $1.56 per Share, respectively, as compared to $7.3 million or $0.57 per Share and $19.9 million or $1.55 per Share, respectively, for the same period in 2011.
CFFO for the rolling 12 month period ended September 30, 2012 was $1.98 per Share as compared to $1.97 for the 12 months ended December 31, 2011. Royalties for the three and nine months ended September 30, 2012 were $10.2 million and $28.4 million, respectively, compared to $10.3 million and $28.3 million, respectively for the same period in 2011. Net loss and net earnings for the three and nine months ended September 30, 2012 was $2.5 million and $2.1 million, or $0.26 loss and $0.22 earnings per Share, respectively, as compared to net income of $8.1 million and $11.2 million or $0.85 and $1.18 per Share, respectively, for the same period in 2011.
OVERVIEW OF THIRD QUARTER OPERATING RESULTS
During the Quarter the Company generated CFFO of $7.1 million as compared to $7.3 million for the same period in 2011 due primarily to a $0.3 million bad debt provision associated with the writedown of the remaining receivable balance of a distressed franchisee. Management continues to work with this franchisee and will record the associated royalties and receivable recoveries as received.
On a rolling twelve-month basis, the Canadian market transactional dollar volume of $168.0 billion increased by 3% from September 30, 2011, driven by a 1% and 2% increase in selling price and home sale activity, respectively. For the three months ended September 30, 2012, the Canadian market transactional dollar volume was down 7% over the same period in 2011, driven solely by a decrease in home sale activity.
“Early in the year, we had forecast a cyclical slowing in transaction volumes, a natural market reaction after a period of strong home price appreciation, which saw affordability eroded,” said Phil Soper, President and Chief Executive Officer. “Changes to mortgage regulations, which took effect on July 9th
, accelerated the correction.”
On a rolling twelve-month basis, the GTA Market increased by 7% from September 30, 2011, driven solely by an increase in selling price. For the three months ended September 30, 2012, the GTA Market experienced a 10% decrease on a 5% increase in selling price and 15% decrease in home sale activity, respectively over the same period in 2011.
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.
The Company Network
As at September 30, 2012 the Company Network was comprised of 15,238 REALTORS®
, operating under 412 franchise agreements providing services from 662 locations, with an approximate 22% share of the Market based on 2011 transactional dollar volume.
“Canadian consumers were bombarded with upsetting economic news from around the globe during the period, particularly in the early weeks of the third quarter. While this has been a drag on the country’s housing market and contributed to a slowing in home sale transactions, consumer confidence appeared to rebound in September, which should support activity in the important fall market,” said Phil Soper, President and Chief Executive Officer, Brookfield Real Estate Services, Inc.
“Policy makers in Canada and the United States have stated that the current period of very low interest rates will continue through at least 2013. This is supportive of housing market activity hence downward pressure on home prices will likely be minimal,” said Soper. “And for the first time in six years, sustained positive news from the American housing market should support a more positive outlook on overall economic prosperity."
Monthly Cash Dividend
The Company declared a cash dividend of $0.092 per share for the month of November 2012, payable on December 31, 2012, to shareholders of record on November 30, 2012.
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 pre- scribed by IFRS and therefore may not be comparable to similar measures presented by other companies.
Management Services Agreement
The Company is managed pursuant to a Management Services Agreement (the “MSA”) between the Company and Brookfield Real Estate Services Manager Limited (the “Manager”), a subsidiary of Brookfield Asset Management Inc. The MSA has been in effect since 2003 and was originally designed for an income trust structure. The Company and the Manager have agreed to extend the termination date of the MSA to December 31, 2013 and the date for delivery of such notice to on or before June 30, 2013.
The Board of Directors of the Company have convened a Special Committee to evaluate various alternatives associated with the renewal of the MSA and have engaged an external advisor.
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 15,238 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.
Brookfield Real Estate Services Inc. will host a conference call on Friday, November 9, 2012 at 10 a.m. ET to discuss its third quarter financial results.
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 November 12, 2012 at http://www.brookfieldresinc.com/content/investor_centre-25063.html
The Company’s Interim Condensed Consolidated Financial Statements, Supplemental Information and IFRS overview for the three and nine months ended September 30, 2012 containing further information on the company’s strategy, operations and financial results 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®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, Via Capitale Real Estate Network and Johnston & Daniel brand names. At September 30, 2012, the Company network consisted of 15,238 REALTORS®
. The Company network has an approximate 22% share of the Canadian residential resale real estate market based on 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 68% 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
Director, Public Relations & National Communications
Brookfield Real Estate Services Inc.
is a trademark identifying real estate licensees in Canada who are members of the Canadian Real Estate Association.