Q1 2018 Investor Presentation 0
FORWARD-LOOKING STATEMENTS This presentation contains forward-looking information and other forward-looking statements. Words such as continue, expected, forecast, grow, increase, may, projected, plans, estimated, promise, pipeline, maintain, forecast, showing, generates, pay, stability, leverage, remains, produces, contributes, acquiring, expanding, capitalizing, holds, trajectory and other expressions that are predictions of or could 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 Company 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 indicated in the forward looking statements include: changes in the supply of houses for sale in Canada or in any particular region within Canada, changes in the demand for houses in Canada or any particular region within Canada, changes in government policy, laws or regulations which could reasonably affect the housing markets in Canada, consumer response to any changes in the housing markets in Canada or any changes in government policy, laws or regulations, changes in the Company s strategy with respect to dividends, other developments in the residential real estate brokerage industry or the Company that reduce the number of REALTORS 1 in the Company s Network or royalty revenue from the Company s Network, changes in the productivity of REALTORS in the Company s Network, changes in general economic conditions (including interest rates, consumer confidence and other general economic factors or indicators) in Canada or any particular region of Canada, the ability of governments to pass legislation and regulations related to indicated policies, changes in global and regional economic growth, changes in the demand for and prices of natural resources on local and international markets, the level of residential real estate transactions, competition from other real estate brokers or from discount and/or Internet-based real estate alternatives, the closing of existing real estate brokerage offices, our ability to maintain brand equity through the use of trademarks, the methods used by shareholders or analysts to evaluate the value of the Company and its publicly traded securities, changes in tax laws or regulations, 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 Company 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. 1 REALTORS 1 Association is a trademark identifying real estate licensees in Canada who are members of the Canadian Real Estate
Company Profile Canadian real estate s leading consolidator and growth story since inception Brookfield Real Estate Services Inc. (the Company ), through its relationship with Brookfield Real Estate Services Manager Limited (the Manager ), is a leading provider of services to residential real estate brokers and REALTORS across Canada. The Company generates cash flow from fixed and variable fees that are received from real estate brokers and REALTORS operating under the Royal LePage, Via Capitale and Johnston & Daniel brands. As at March 31, 2018, the Company network consisted of 18,708 REALTORS. The Company network has an approximate one fifth share of the Canadian residential real estate market based on 2017 transactional dollar volume. The Company is listed on the TSX and trades under the symbol BRE. 2
BUSINESS STRATEGY Since inception, the Company s network has grown at a 5% CAGR Pay growing dividends Stability through long-term franchise agreements with fixed fees Leverage the economies of scale of the nation s largest operator Recruit and train premium practitioners Maintain appropriate capital structure Lead the industry with innovative, effective technology and business services SINCE INCEPTION, Brookfield has grown by 9,500 REALTORS 3
OUR BRANDS 4
Leader in Canadian real estate since 1913 Over 17,000 agents in more than 650 locations nationwide Leading luxury real estate boutique firm selling distinctive homes in southern Ontario ~260 real estate professionals The Quebec founded and headquartered real estate company, since 1991 ~900 agents in 60 locations 5
OPERATING RESULTS OVERVIEW For the quarter ended March 31, 2018 6
CASH FLOW FROM OPERATIONS ($ millions, as at March 31) $7.6 $7.4 Cash Flow from Operations Cash flow from operations continued to grow during the quarter, underpinned by an increase in royalties and accretive growth of our REALTOR Network $0.58 per Share $0.59 per Share As at March 31, 2018, cash flow from operations (CFFO) rose 3% year-over-year to $7.6 million or $0.59 per share. For the rolling twelve-month period ended March 31, 2018, CFFO was $2.57 per Share as compared to $2.47 per Share for the twelve month period ended March 31, 2017. 2017 2018 7
ROYALTIES ($ millions, as at March 31) $10.4 $10.5 Royalties In the first quarter of 2018, the Company s royalties grew by 1% compared to prior year 2017 Royalty revenues have increased compared to Q1 of last year as a result of the increase in the number of REALTORS in the Company Network, partly offset by lower variable and premium franchise fees. 2017 2018 8
NET EARNINGS ($ millions, as at March 31) $1.3 $0.13 per Share Net Earnings In the first quarter of 2018, the Company experienced a loss of $0.04 per share For the three months ended March 31, 2018, the Company showed a net loss of $0.4 million, or $0.04 per Share, compared to net earnings of $1.3 million or $0.13 per Share, for the same period in 2017. -$0.4 - $0.04 per Share The Company s net earnings are impacted by a number of significant non-cash charges, including: Changes in the value of exchangeable units issued by the Company; Changes in the fair value of an interest rate swap which serves to fix the interest rate on a portion of the Company s debt obligations. 2017 2018 9
DIVIDENDS PAID PER RESTRICTED VOTING SHARE (For the years ended December 31, except 2018) $1.30 $1.32 A Growing Dividend The Company s cash dividend per Restricted Voting Share has increased by 20% in the past five years On May 7, 2018, the Board of Directors of the Company approved a dividend to shareholders of $0.1125 per restricted voting share payable June 29, 2018. This represents a target annual dividend of $1.35 per restricted voting share. $0.34 The distribution payment rate was 77% for the quarter, 72% for the full year in 2017 and 74% for the full year in 2016. 2016 2017 2018 YTD 10
KEY BUSINESS DRIVERS For the quarter ended March 31, 2018 11
Key Business Drivers A time-tested strategy, contributing to growth and stability Stability of the Company s Royalty Stream Number of REALTORS in the Company s Network The Company s Growth Opportunities Transaction Volumes from Real Estate Sales Fees 1 2 3 4 12
ROYALTY FEE COMPOSITION (For the year ended December 31, 2017) 15% 24% Variable Capped 9% Premium Variable Other 27% 52% Fixed 73% Stability: Fee Structure The Company s revenue is primarily based on fees that are fixed in nature, providing lower revenue volatility in the face of real estate market fluctuations. 13
REALTOR DISTRIBUTION (As at March 31, 2018) 59% 57% 18% 13% 14% Year (as at March 31) 10% 6% 9% Company REALTOR count in British Columbia 2015 1,633 2016 2,218 2017 2,384 2018 2,521 4% 3% 4% 3% A Geographically Dispersed Salesforce The Company holds an approximate onefifth share of the residential real estate market based on transactional dollar volume The Company has a very strong presence in two of Canada s largest markets, Ontario and Quebec. British Columbia remains a large growth opportunity. Investment in the region saw the Company s REALTOR count grow by 888 from March 31, 2015 to the same period in 2018. Ontario British Columbia Quebec Alberta Maritimes Prairies Company s Network of REALTORS Canadian REALTOR Population* 14 *Source: CREA
TRANSACTIONAL $ VOLUME PER AGENT ($ millions, for the year ended December 31) The average Company REALTOR generated $600,000 more than the average Canadian REALTOR. $2.1 $2.7 Superior Productivity Home to some of Canada s most productive real estate professionals The average Company REALTOR generated $2.7 million in 2017 compared to $2.1 million generated by an average Canadian REALTOR outside the Company Network. More productive REALTORS : Lower attrition; Produces higher variable royalties; Contributes to the profitability of broker-owners. All Other Canadian REALTORS Company Network REALTORS 2017 15 *Source: CREA
% OF FRANCHISE AGREEMENTS UP FOR RENEWAL 2018 2019 2020 2021 2022 Balanced, Lower Risk Contract Portfolio The Company historically achieves a 95%*+ contract renewal rate In the first quarter of 2018, 36 Franchise Agreements in the Company Network extended their term or renewed. Renewal profile is balanced over the next 10 years. 2023 2024 2025+ 0% 10% 20% 30% 40% By Number of REALTORS By Number of Agreements 16 *Expressed as a percentage of the underlying number of REALTORS associated with these agreements.
COMPANY GROWTH (Number of REALTORS as at December 31) 16,794 17,580 18,135 18,708 Strong Network Growth In the first quarter of 2018, the Company network of REALTORS grew 3%, compared to 2017 In the first quarter, the Company s network of REALTORS increased to 18,708, up from 18,135 as at December 31, 2017. The increase of 573 REALTORS was driven by 563 REALTORS acquired by way of the acquisition of 38 Franchise Agreements. The 38 franchise agreements acquired on January 1, 2018, are estimated to generate royalties of $1.3 million annually. 2015 2016 2017 2018* Since inception, the Company s network has witnessed a CAGR of 5% compared to industry growth of 4%. 17 *As at March 31
The Company s Growth Opportunities In a sales-services industry, momentum is contagious. Leading agents choose a winner Growth in the Company s royalties is achieved through: Increasing the number of REALTORS in the Company Network through recruitment growth Acquiring Franchise Agreements from the Manager Increasing the productivity of REALTORS Expanding the range of products and services supporting Franchisees and their REALTORS Increasing the adoption of the Company s products and services. 18
The Pipeline in 2018 2018 is off to a great start. The Company continues to be on a strong growth trajectory In addition to the January 1st acquisition of 38 Franchise Agreements, the Company s pipeline for 2018 is healthy and holds a promising list of opportunities. Continued focus on Western Canada, Quebec and ethnically diverse regions Brokerages and agents from competing brands are attracted to the Company s strong brands and unique value propositions. For a decade, the Company has been the leader in capitalizing on a long-term consolidation trend in the Canadian industry. 19
In the first quarter, the Canadian Market closed down 21% year-over-year at $48.2 billion. Transactional dollar volume of real estate in Canada has declined as real estate values and volumes have been weak, particularly in the GTA. Royalty revenues have grown despite the significant reduction in the transactional dollar volumes of the Canadian Market, due in part to the fixed nature of the Company s royalty fees. 20
OUTSTANDING LEADERSHIP 21
Industry Leaders The quality of our REALTORS and leadership has made the Company s brands some of the most respected in North America As The Voice of Canadian Real Estate, Royal LePage is the most quoted real estate services company in the nation. The Royal LePage brand received Canadian Marketing Association Awards in the Data Marketing category as well as in Experiential and Innovative Media category for Your Perfect Life, featured on royallepage.ca. Royal LePage also received a 2018 Ovation Award of Excellence and two ACE awards from the Canadian Public Relations Society for campaigns launched in 2017. In the Swanepoel Power 200 (SP200) the industry s definitive ranking of residential real estate leadership across North America the Company s CEO, Phil Soper, ranked as Canadian real estate s number one most influential person for the fifth year running, and number 14 internationally. The Royal LePage Shelter Foundation has raised $27.0 million since inception, and helps over 30,000 women and children each year. 22
EXCEPTIONAL OPERATING PLATFORM 23
Operating Platform The Company s commitment to delivering innovative technology and marketing systems, as well as the industry s best training and coaching programs, is second to none In the first quarter of 2018, the Company made significant investments in its marketing, technology and branding initiatives, including: The Royal LePage brand launched a lead management solution for its REALTORS. This new tool is designed to improve lead conversion through automating best practices. The brand also launched a Facebook campaign for brokers that focuses on recruiting. During the quarter, Via Capitale launched Agence-vedette, a new tool to support brokerages with online promotion. 24
REAL ESTATE MARKET UPDATE 25
The Canadian Real Estate Market Canada s residential real estate market saw a decline in sales during the first quarter of 2018 as buyers wait to gauge impact of new regulations First quarter sales activity fell both nationally and regionally year-over-year, in part due to an observed pull-ahead in transactions at the end of 2017. Buyers sought finalize home purchases before the new mortgage rules came into effect on January 1, 2018. Ontario s strong economy, low unemployment rate, low housing supply and population growth should contribute to improving sales activity later in the year. British Columbia s 2018 budget announced in February included significant tax policies on real estate targeting mostly non-residents and luxury home owners. This announcement resulted in lower sales during the quarter as buyers and sellers waited to gauge its impact. Low sales volume did not improve inventory as the region posted the lowest number of first quarter listings since 2013. Low inventory in both Greater Vancouver and the GTA are expected to be long-term drivers of national price appreciation. 26
Market Outlook The national average price is projected to ease to $498,100 this year, down 2.3% from 2017 The decline in the national average price reflects fewer transactions in B.C. and Ontario; by the same token, price declines in these provinces reflect fewer sales of higher-priced homes in Vancouver and Toronto. Home prices in Eastern Ontario, Quebec, New Brunswick, Nova Scotia and Prince Edward Island are expected to continue to rise following years of steadily firming market conditions. In 2019, national sales are forecast to rebound modestly to 496,500 units but remain below levels recorded in 2015, 2016 and 2017. The rebound reflects an expected partial recovery of sales over the second half of 2018 in Ontario and B.C. followed by a gradual softening in activity over 2019 as previously deferred activity wanes and interest rates continue to rise. The national average price is also forecast to rebound by 3.1% to $513,300 in 2019, placing it roughly in line with the 2017 figure. The increase reflects expected modest price gains in a number of provinces and a partial rebound of sales activity in B.C. and Ontario. 27 *Source: CREA
Brookfield Real Estate Services Inc. A Compelling Investment Attractive annual dividend paid monthly supported by a long track record of stable reliable cash flow. Recurring fixed revenue structure provides insulation from market fluctuations. Industry leading long-term franchise agreements. Strong and established brands. Successful growth strategy. Robust acquisition pipeline. 28
Institutional Investors Institution Name Number of Shares Percentage of Class Brookfield* 1 Special Voting Share 100% 1832 Asset Management, L.P. 1,223,300 Restricted Voting Shares 12.9% Fiera Capital Corporation 995,800 Restricted Voting Shares 10.5% 29 *This entity also holds 3,327,667 Class B LP Units and 315,000 Restricted Voting Shares.
CONTACT US Brookfield Real Estate Services Inc. 39 Wynford Drive Toronto, ON M3C 3K5 Tel: 416-510-5800 Fax: 416-510-5856 Email: info@brookfieldres.com www.brookfieldresinc.com 30