Bridgemarq Real Estate Services Inc. (OTCPK:BREUF) Q2 2022 Earnings Conference Call August 9, 2022 10:00 AM ET
Company Participants
Philip Soper – President and CEO
Glen McMillan – CFO
Operator
Good morning. My name is Justin, and I would like to welcome everyone to the Bridgemarq’s Real Estate Services Inc. 2022 Second Quarter Results Conference Call. [Operator Instructions]. I would now like to introduce you to Mr.
Phil Soper, President and CEO of Bridgemarq Real Estate Services Inc. Mr. Soper, you may begin your conference.
Philip Soper
Thank you, Justin, and good morning, everybody. On the call with me today is our Chief Financial Officer, Glen McMillan. We appreciate you joining us on the call today. I will begin with a brief overview of the company’s second quarter results and business updates. Glen will then discuss our financial results in more detail, and I’ll jump back on and conclude with some remarks on operational highlights, company updates and market developments.
Following our remarks, Glen and I would be happy to take your questions. I want to remind you that some of the remarks expressed during this call may contain forward-looking statements. You should not place reliance on these forward-looking statements because they involve known and unknown risks and uncertainties that may cause the actual results and performance of the company to differ materially from anticipated future results expressed or implied by such forward-looking statements. I encourage everyone to review the cautionary language found in our news release and on our regulatory filings. These can all be found on the Bridgemarq website and on SEDAR.
After 2.5 years, the COVID-19’s pandemic’s hold on our day-to-day lives appears to be fading. However, we will be dealing with the economic consequence of managing this health emergency for some time, including the need to tighten monetary policy to slow inflation and the impact of such measures could have on the economy, the real estate market and our business. The company performed admirably during the pandemic, and we remain optimistic. Further, it is important to remain vigilant. We’re pleased with the company’s aging growth during the past year as our highly regarded brands resonate with real estate professionals across the country.
How the sector performs in the future will be impacted by Canada’s economic performance and more specifically, employment levels and mortgage rates. In previous quarters, you heard us speak of record double-digit real estate market growth. We have called this the COVID catalyst where the perfect storm of rock-bottom interest rates, government stimulus, soaring consumer savings, pent-up demand and most importantly, a hyper focus on the importance of the family home, created a huge surge in the number of trading hands in our nation. As a result, market set new records for both home prices and sales volumes, and they are now moderating. Technically, we are in a balanced housing market now.
But this quickly transitioning towards a buyer’s market, particularly in our largest and most expensive cities, where demand is down year-over-year as consumers adopt a [wait and see] during the transition. However, it is important to remember that home values, remember, remain well above pandemic levels and sales in most regions are close to or above historic norm.
For the first six months of the year, revenue for the company was $27.2 million, which is a slight increase compared to the same period last year. During the second quarter, revenue was $13.8 million, down slightly from the $14 million we produced last year. Distributable cash flow decreased to $5.9 million from $6.4 million last year. The company’s steady financial performance is a result of network growth, which has substantially offset a decline in the transaction activity in the Canadian market and other structural safeguards built into our model that we’ll talk about later, and Glen will provide more commentary on the company’s financials.
I’m pleased to report that the company’s [Audio Gap] the network agent count has risen to 20,538, which reflects a net growth of 950 agents or 4.6% compared to June of last year, a very strong period based on historical norms.
At its meeting yesterday, the Board of Directors approved a dividend payment on September 30 of $11.25 per share to shareholders of record on August 31. This indicates an annualized dividend of $1.35 per share, which is consistent with 2021.
And with that, I’ll turn things over to Glen for a look at our second quarter financial performance in more detail.
Glen McMillan
Thank you, Phil, and good morning, everyone. As Phil mentioned, revenue during the first 6 months was $27.2 million, up slightly from the $27.1 million generated in the same period last year. In the second quarter alone, revenue was $13.8 million, down slightly from the $14 million we generated last year, reflecting a decline in unit sales, partly offset by healthy network growth, as Phil just mentioned. Net earnings for the quarter were $11.3 million or $0.36 per share compared to $900,000 during the second quarter of 2021. The results reflect a gain on the fair valuation of our exchangeable units of $8.1 million in the quarter compared to a loss of $2.5 million last year.
Distributable cash flow amounted to $5.9 million in the second quarter, down from $6.4 million in Q2 of 2021. The decrease was primarily due to lower revenues from a decline in market activity and higher income tax expense. For the rolling 12-month period ended June 30, 2022, distributable cash flow amounted to $20.9 million or $1.63 per share compared to $18.4 million or $1.43 per share for the same period ended June 30, 2021. The improvement was driven by strong real estate markets in the last half of 2021 and the first quarter of 2022. During the quarter, the Canadian residential real estate market closed down 22% at $110.7 billion compared to Q2 of 2021. This was driven by a 24% decrease in unit sales, partly offset by a 3.4% increase in average selling price.
The Greater Toronto Area real estate market saw a year-over-year decrease of 35% at $26.1 billion during the second quarter. The primary driver was a 41% decrease in unit sales, while the average selling price increased by 12%. And as a point of reference, the GTA represents approximately 1/4 of the national housing market.
The Greater Vancouver market was down 29% at $11.2 billion in the second quarter, driven by a 34% decrease in unit sales and a 9% increase in average selling price, while the Greater Montreal Area decreased 4%, reflecting a 14% decrease in unit sales and a 10% increase in average selling price.
Phil will now provide additional insights into the markets and an update on our operations.
Philip Soper
Thanks very much, Glen. The real estate markets trying to reach record highs and home prices depreciate at a much quicker rate than underlying rate of neutralities. They eventually correct with lower trend adding to no flat or declining house prices. This is what is occurring right now after the record performance from the end of 2020 and 2021. This skews year-over-year comparisons as we are now comparing an uncharacteristically active market to an uncharacteristically slow market.
In addition, Canadian real estate markets typically experience a seasonal slowdown during the summer months. This is the case this year as it’s the norm, but it was not the case in 2021. There was no slowdown during the summer, no slowdown during the end of year holiday period in 2021, a very unusual period during the pandemic. This further adds difficulty to year-over-year comparison. From a broader perspective, the average price of a home in Canada is 45% higher than the second quarter of 2019, pre-pandemic.
And year-to-date, home sale volumes represent the second strongest six-month period ever, second only to 2021. An unintended consequence of the aggressive fiscal stimulus in play to get the economy — global economy through the pandemic-related shutdowns as well as the disruptive global supply chains that came as we [indiscernible] or lower labor levels at the front lines to protect a worker, while we understand the consequence ultimately with inflation. In June, inflation rate stood at 8.1%, highest since January of 1983.
Policymakers around the world, including our Bank of Canada, has responded to the inflation trend with a series of interest rate hikes. The bank rate currently sits at 2.5% with highest level in almost 15 years. The naturally occurring market correction, I mentioned earlier, combined with a steep climb in interest rates have impacted consumer confidence negatively. What happens is both sellers and buyers are pushed to the sidelines. It’s a [indiscernible] home price stability.
We expect lower sales volumes through the balance of 2022 as we move through this period.
Looking ahead, there are significant underlying drivers of real estate demand to consider, historically high immigration and favorable demographics with a larger percentage of younger families in their prime home trading years than other advanced nations around the world will continue to drive strong household formation in Canada. In addition, our rental markets are tight and rents are high. This is encouraged [indiscernible] investors to trade in real estate — residential real estate as commercial investors. Employment remains very strong and income have grown and are growing, while home prices are monitoring somewhat [indiscernible] impact of those higher borrowing rates we talked about. In addition, there remains a sizable pipeline of buyers who were simply not successful in transacting in a highly competitive sellers’ market of 2021.
It is important to note that despite increasing inventory models, Canada does not have the supply needed to meet housing demand. According to CMHC, current rates of construction are not meeting the housing needs of Canadians, and we will be short 3.5 million housing units by 2030 if construction rates do not improve. And it’s worth noting that research by Scotia Economics and other point to much lower homes per capita in Canada than in other advanced nations throughout the world. Commercial real estate markets, on the other hand, have remained active with both high demand for industrial space and return to office movement, driving demand in our cities and suburbs. As to the previous market slowdown, the fixed nature of the company’s revenues provides some protection from the impact of a moderately declining housing market as seen in the second quarter of 2022.
Big schemes allow the company the ability to offer investors exposure to the Canadian real estate market, while also mitigating the impact of volatility, which is inherent in all the real estate markets on cash flows. As buyer demand wanes from its recent high, agents will look for brands and can help set them apart from their competition through innovative, applied technology, superior coaching and training focused on how to adapt to these changing client needs and marketing and brand awareness. The company has excelled here and continues to make significant investments for future growth. During the second quarter, the company’s history of an industry-changing innovation continues with the rollout of QuickQuote. This service offered to Canadians across the country was launched on royallepage.ca website, which is the second most popular portal for consumers to look at real estate in Canada after the industry-owned REALTOR.ca.
QuickQuote provides Canadians with an instant current market home value estimate alongside helpful related neighborhood analytics while [indiscernible] new source of seller lead generation. QuickQuote launch to consider in July of 2022. We believe it will be very attractive to hold sellers, whereas websites traditionally, including our own are places that attract home buyers. So we’re expanding our reach, our lead generation reach into new markets. During the quarter, Via Capitale announced a major sponsorship of the permanent exhibition at Ma Maison, My place, at the Musée de la civilisation du Québec, Quebec’s largest museum.
This program is enhancing brand awareness as Via Capitale’s logo, brand will be displayed at exhibition right through to the end of 2027. The company’s strong network growth is a testament to the brands for delivering on first-to-market tools that create a competitive advantage. The investment in new and improved products and services are critical to our recruiting and our retention efforts. We are pleased to see the brands offering resonating within the industry.
In conclusion, while the second quarter sales volume was markedly weaker compared to last year’s record performance, sales are consistent with typical market correction. Housing values remain significantly higher than pre-pandemic norms protecting the investment that nearly 70% of Canadian [owner] — have homes, having their — for many of their largest financial assets.
And the company’s success and attracting new agents, coupled with a business model designed to mitigate the impact of lower industry transactions have maintained our revenue at 2021 levels. The impact of the decline in demand for housing is expected to be short term as low supply and strong demographics will continue to support real estate industry growth. The growth in our network of realtors is a testament to the company’s continued investment in differentiating tools and services, which enhance each of our brands’ offerings. Our brand [indiscernible] offering will likely increase importance as agents seek more support in this changing market.
With that, I will turn things back to our operator and open up the call to questions.
Question-and-Answer Session
Operator
Philip Soper
Thank you, Justin, and thank you, everyone, for once again participating in today’s call. We look forward to updating you again next quarter.
Operator
Well, thank you. And that does conclude today’s conference. We do thank you for your participation. Have an excellent day.
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