Toronto, Ontario, August 2, 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 six months ended June 30, 2012 was $7.4 million or $0.57 per Restricted Voting Share (“Share”) and $12.9 million or $1.01 per Share, respectively, as compared to $6.8 million or $0.53 per Share and $12.5 million or $0.98 per Share, respectively, for the same period in 2011.
CFFO for the rolling 12 month period ended June 30, 2012 was $2.00 per Share as compared to $1.97 for the 12 months ended December 31, 2011. Royalties for the three and six months ended June 30, 2012 were $10.0 million and $18.2 million, respectively, compared to $9.8 million and $18.1 million, respectively for the same period in 2011. Net earnings for the three and six months ended June 30, 2012 was $7.9 million and $4.7 million, or $0.83 and $0.49 earnings per Share, respectively, as compared to net income of $4.9 million and $3.1 million or $0.52 and $0.33 per Share, respectively, for the same period in 2011.
OVERVIEW OF SECOND QUARTER OPERATING RESULTS
During the Quarter, the Company generated CFFO of $7.4 million as compared to $6.8 million for the same period in 2011 as a result of increased market activity, a $0.2 million recovery of previously written off receivables and reduced reporting costs, partially offset by a $0.2 million decrease in other revenue and services fees. Other revenue and services decreased by $0.2 million quarter over quarter, as the Company discontinued an agent website program that was no longer relevant.
On a rolling twelve-month basis, the Canadian market transactional dollar volume of $170.8 billion increased by 10% from June 30, 2011, driven by a 3% and 7% increase in selling price and home sale activity, respectively. For the three months ended June 30, 2012, the Canadian market transactional dollar volume was up 5% over the same period in 2011, solely driven by increase in home sale activity.
On a rolling twelve-month basis, the GTA Market experienced a quarter-over-same-quarter increase of 18% driven by a 8% increase in selling price and 10% increase in home sale activity. For the three months ended June 30, 2012, the GTA Market experienced an 12% increase on a 7% and 4% increase in selling price and home sale activity, respectively over the same period in 2011. The higher than anticipated rise in home prices is largely driven by the consistent shortage of listings in the single-detached homes market, resulting in competition among home buyers, and low interest rates, which continues to draw home buyers into the Market.
The Company’s revenue is primarily fixed in nature, based on the number of REALTORS®
in the network, which decreased 1%, period over period. 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.
“While tumultuous economic conditions beyond our borders have been a drag on Canadian consumer confidence, the relatively favourable domestic outlook and stimulative effect of pervasively low interest rates have continued to support real estate activity at healthy levels.” said Phil Soper, President and Chief Executive Officer, Brookfield Real Estate Services, Inc.
It has been an encouraging year from a growth perspective. Our franchising prospects are building at a good pace as skilled brokerage operators from across the country look favourably upon the company’s offerings and agree to join the network. As well, early conversions to our Royal LePage brand from the Brookfield’s acquisition of Prudential Real Estate will positively impact the Company’s future results.
The Company Network
As at June 30, 2012 the Company Network was comprised of 15,249 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.
“The industry has enjoyed three years of strong house price appreciation in almost all regions of the country, but home prices cannot grow faster than salaries and the underlying economy indefinitely,” added Soper. “Some regions have reached or perhaps even exceed the current upper level of price resistance. We expect prices and unit sales to level off in many major markets, bringing the full year 2012 into line with our original growth forecast.”
Monthly Cash Dividend
The Company declared a cash dividend of $0.092 per share for the month of August 2012, payable on September 28, 2012, to shareholders of record on August 31, 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 between the Company and Brookfield Real Estate Services Manager Limited (the “Manager”), a subsidiary of Brookfield Asset Management. The Management Services Agreement would automatically renew for a ten year renewal term on August 7, 2013, unless the Company or the Manager gives notice of its intention not to renew the Management Services Agreement not later than August 6, 2012. The Company and the Manager have agreed to delay the date for delivery of such notice to on or before December 31, 2012. The Management Services Agreement has been in effect since 2003 and was originally designed for an Income Trust structure. The Company intends to ensure that any future ongoing management arrangements are in the best interests of the Company and its shareholders.
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 15,295 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. will host a conference call on Friday, August 3, 2012 at 10 a.m. ET to discuss its second 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 August 7, 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 six months ended June 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 June 30, 2012, the Company network consisted of 15,249 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.