Bridgemarq Real Estate Services Inc. (BRE) Earnings Call Transcript & Summary

Thank you, ladies and gentlemen. I now declare the nominations closed. If you have not already recorded your vote, please record it now, remembering that if you have already voted in advance of the meeting and do not wish to change your vote, no further action is required. We will wait for a brief moment to allow you to record your vote. Voting for all resolutions brought before the meeting is now closed. Now that the voting is closed, I can declare the results of the votes. On the basis of the voting completed prior to the meeting, the proxies received by management and the results of voting received online during this meeting, the motion to reappoint Deloitte LLP as auditors of the corporation is carried. As to the election of directors, as there are 4 directors elected and the same number of nominees, I now declare that those nominated have been duly elected as directors of the corporation until the next annual meeting or until their successors are elected or appointed. Ladies and gentlemen, that brings us to the conclusion of the formal agenda of the meeting. And as such, may I please call for a motion to terminate the meeting.

Mr. Chairman, I move that the meeting be terminated.

Thank you, Glen. May I have a seconder?

Mr. Chairman, I second the motion.

Thank you, Phil. I will now ask the secretary to please advise if admitted or if there are any objections or amendments to this motion. We will wait for a brief period of time to allow for the broadcast delay and to allow eligible shareholders to submit their questions related to this motion.

Questions specific to this motion nor any objections or amendments submitted.

Thank you. As there have been no questions or comments submitted related to this motion, seem to be concluded. I will now turn the webcast over to Mr. Phil Soper, President and Chief Executive Officer of the corporation, who will provide a strategic update on the corporation and present the corporation's 2022 and first quarter 2023 financial results. After Phil's presentation, we will be happy to answer any questions that may have been submitted. Again, if you wish to ask a question, you can access the messaging tab on your screen. Before Phil starts, I should caution that in talking about our strategic initiatives and our financial and operating performance, and in answering any of your questions, we may make forward-looking statements. These statements are subject to known and unknown risks, and future results may differ materially from those implied or imputed from those forward-looking statements. For further information on known risk factors, I would encourage you to review the Risk Factors section in our annual information form, which is posted on the corporation's website and on SEDAR.

Thank you, Mr. Chairman. It is my pleasure to provide an update on the corporation. It has been a tumultuous few years. The pandemic brought the real estate industry grinding to a halt, after which the hyper focus on one slipping arrangement brought unheard of numbers of trends actions through the industry. And then we went into a market correction in 2022 through to all the -- our shareholders and the Board of Directors have to bias and the company has remained remarkably steady and growing through this period. So thanks to the Board of Directors for their advice and counsel and for all of you for your trust. What I am going to take you through today is highlights on the corporation, the overall real estate brokerage industry itself and then dive into some of our strategic initiatives. To begin with a summary of the items that drive our business strategy. First and foremost, we have been seeing as a strong income investment since inception. So we do deliverable purposeful dividend income. And I'm just going to pause for a second while we sort out the slide. presentation. One back, one back, that one. And I can control the slide, okay. Secondly, we are a service provider to thousands and thousands of real estate agents across the country. We do this through the use of innovative technology and business services. As the industry's largest firm, we leverage our size and scale to the benefit of our industry participants, our partnered franchisees. We need the talents of the industry's premium practitioners. So we recruit, tame them throughout their careers. And finally, we operate the business through long-term franchise agreements, which provides that stability of income that we have for a long time talked about. All right. Let me just briefly go through our brands. We operate multiple brands. Our premium brand and the largest portion of the company is the role of Page brand, dates back to 1913, 110 years old this year. It is Canada's oldest real estate continuing portfolio, definitely the largest Canadian-based real estate company. We run 2 luxury boutique [indiscernible], which provide specific skills for agents that sell distinctive properties at high value. And we have a very specific Quebec-based business via Capital, which is very strong in particularly in areas outside of the city of Montreal across the province of Quebec. Let me provide a brief overview of our operating results. Overall, in 2022, we participated in 28%, 1 in 3 transactions approximately in Canada had a bridge mark realtor on one or both sides of the table. That was delivered through 20,700 realtors from coast to coast. And it's interesting to note, and I'll talk about this later in the presentation. The Bridgemarq realtors on average sold $1,600,000 more of real estate compared to the industry average last year. And during an industry correction, this is very important to allow people to escape through a down market. I wanted to make a brief mention to Royal LePage commercial, a very important commercial brokerage brand in Canada and of the major commercial houses that operate nationally, the fastest growing. We grew by 60% in 2022. And by practitioner count are the largest dedicated commercial practice in the country. Turning to our financial results. In 2022, we again paid a healthy dividend of $1.35 per share and continue to pay a healthy dividend throughout the life of the corporation. In the first quarter, compared to the first quarter of 2023, there was a dip in revenue year-over-year. But we have to remember that we were comparing ourselves to the absolute peak of the pandemic access when we broke all records for price and volume, the number of homes trading hands in this kind of comparison. If you look back to 2020 and pre-pandemic times, we're -- it's more of a return to normal. So over on transaction count and rose because of the growth in the underlying agent count during '21 and '20 that we've called out. We can boil our business down to these elements. First is the number of realtors in the company network. They are -- secondly, and I talked about this at the outset is the stability of our revenues. With long-term contracts, recurring revenue stream has been one of the more attractive elements of Bridgemarq to shareholders for years. Thirdly, and this is where we saw a sharp rise in 2021 and a dip during the market correction of 2022 is transactional dollar volume. Although it is less of an element in our overall revenue structure, the business does benefit from an expanding Canadian real estate market. And when the market contracts, we do see the results of that. Fourthly is realtor productivity. Again, on a previous slide, I talked about how our realtors sell more real estate than the industry overall. And when our realtors are more productive, that drives additional revenue into the corporation. And finally, we have ancillary products and services. These are things like CRM-driven leads, lead generation revenue and mortgage services revenue that are added to the company's overall revenue and diversified the way that we move the business forward. If you look at the business, we've been on a continuous growth path. If you compare the business back to 2017, we've grown by more than 14%. And this is a considerable feat considering the size of the business and our market share. We are a very large and mature company. So to continue to grow steadily over time is one of the things that management is most proud of. Productivity. I've touched on this a couple of times. You look at the earnings of our agents compared to the industry overall, and you see that our agents simply sell more real estate. Now the obvious benefit of this is that this produces more revenue, which finds its way into the corporation and ultimately to stakeholders. But there are secondary benefits as well, particularly those show up during a down market, a market correction like 2022. When the industry dips, less productive agents -- remember, in the real estate industry across North America, our frontline practitioners are independent contractors. 100% have the need a large book of business to be able to get through those lean years, lucky in the Canadian real estate over the last quarter century, and we'll talk about the better equipped to weather them. Overall, we follow GDP roughly in Canada. As the nation's largest firm and having been serving Canadians for over a century, we are embedded in communities, small and large, farming communities, huge cities, downtown cores, we are serving our clients everywhere. We are slightly overrepresented in certain jurisdictions and slightly underrepresented in other jurisdictions. For example, in Quebec, where we have Immobilier, Via Capitale and Royal LePage, we have an overrepresentation. And in Alberta, we have a slightly stronger growth in 2022. And as I look ahead to 2023, is actually in the West in Alberta and British Columbia. The other thing that mitigates risk in our industry is our the traditional real estate franchise agreement is a 5-year agreement. Our agreements, and we're able to do this because the level of renewal on our contracts, people tend to get into our businesses as we across the company, up to 10-year agreements. And you can see from this graph that the expiration date of those agreements is spread out over time, which simply reduces the risk that someone should either leave the industry all together or decide to take another path. So let's turn to growth opportunities themselves. Royalty growth. Our top line growth is driven through the number of realtors which we talked about by converting competitive brokerage, whether they're an independent or someone who wishes the services and the brands they trade in and they are moving from another say American brand to the leading Canadian brands by driving realtor productivity through better use of technologies or training and those technologies themselves can open brand-new doors for revenue such as introducing Canada's first national AVM or automated valuation method, a new introduction service that we introduced that I'll be talking about later in -- when you have a network as large as ours, it's one thing to develop a better mousetrap. You have to get people to use it. And that is half the battle, and it's something I'd like to say we're very good at. 2023. Here are items of focus for this year, the year we find ourselves in. First of all, digital brokerage transformation, including expanding the use of cloud-based AI-driven software services, which we have -- we first introduced in 2020, and we see for decision support. The national business uses it for client service. We use it for marketing lean brokerages and individual agents to one of the company's brands by showing them the light, showing them the be brokerage to date. We have an evolving and growing focus on servicing real estate, traditionally, we have practiced on 3 levels: a national firm, a national brand, call it a franchisor, then local brokerage and then frontline practitioners. The business is evolving into a 4-level structure with individual agents, real estate teams, brokerage offices in the national firm. And that real estate team, which is essentially a brokerage within a brokerage is a high level of growth. It's beyond the scope of this particular call to get into all the details. But in short, we are taking our years of expertise in helping real estate brokerage companies grow through better use of local technology, human resources, financial systems, taking those -- that kind of learning and applying it to the small business, which may have as few as 2 or 3 people in it or it may have, say, up to 30 people in a real estate team. They are businesses within the business, and we found that they are thirsty for this kind of knowledge and we're able to attract teams from other corporations as a result. And finally, we are, as the nation's largest real estate firm, we take that responsibility seriously, and we advocate for policies that addresses Canada's critical housing supply shortage with policymakers at the municipal, provincial and federal levels. All right. Let's talk more specifically about the Bridgemarq difference. And I'm going to start with some in-depth market research. So this is a brand new literally just weeks old. We went to market before the Bank of Canada ended its aggressive interest rate rising campaign that lasted a full year. So this was February of this year. And we asked Canadians if they were in the market for changing their housing situation, and 24% of them said they were. Yet 63% of them had postponed their plans due to the rising interest rate environment. We then asked whether or not an end to that environment or if the Bank of Canada ended their campaign of raising interest rates, would that change your plan? And this is focused on that 63% who had postponed their plans. And 26% said, yes, when I see them keeping interest rates flat, we'll be back in market. And then we said, okay, for the rest of you, if the bank kept interest rates flat again, so a second or more times, would that encourage you to get back in the market and a further 36% of people said, yes. We -- that would encourage us to get back into the real estate market. So in summary, 6 of 10 sideline homebuyers have or plan to return to the real estate market. And we are seeing this in spades this spring where demand levels are very high. Canada's millennials, which are the largest demographic have aged into our largest our prime buying category and 57% of millennials already own their home. 60% of millennials who do not currently own their home believe that they will someday. And of those 52% say they would have to relocate in order to achieve this. So this there's some interesting information that is part of this. First of all, the newest group, the people in their 20s, 30s and 40s who are our largest buying cohort are as interested in owning their homes as their parents were, the baby boomers, which is the generation that had the highest homeownership rate in Canadian history. The other reality that comes from this research is that our most relocate, and we see this, we see people relocating from the Golden Horseshoe at Southern Ontario into Atlantic Canada into the Prairies particularly on the markets because most new Canadians land in Southern Ontario and for the which attracts brokerages, franchisees and agents who understand the power of a national referral network. In Vancouver, 32% in Montreal, almost 40% nationally, as I mentioned. So it was a significant market correction. Excuse me, sorry, we're just having an issue with the chart. Okay. Perfect. All right. So this now we turn ourselves to the outlook overall in 2023. We have upgraded our outlook for the 2023 home price by a significant amount over what we believed the market would show when we first put our 2023 forecast in place at the end of 2022. So at that time, we believe the market would recover. Remember, we just seen double-digit drops in both volume and in home prices. And so we had forecast that we would basically recover to flat to minus 1% in price by the end of 2023. Based on a number of factors, predominantly the steep rise in demand, we've adjusted our forecast to say that prices will be up by 4.5% year-over-year 2023 over 2022. And you can see it, it varies considerably by major city. But the GTA itself, we see rising 7.5%, for example, over prices at the end of 2023. So the rise in demand is significant. And this is driven, as we showed in the research by the Bank of Canada holding interest rates in that neutral range. So we saw the steepest rise in interest rates from virtually 0 during that 1-year period, and we're now in a holding pattern. We've had 2 periods where the Bank of Canada has kept interest rates flat. From an employment standpoint, as we look across the country at employment, it has been quite remarkable, and this has certainly helped the recovery of the real estate industry, because while people were pushed to the side with the -- I showed you the research recently that said, the majority of Canadians were uncomfortable trading while interest rates were rising rapidly, and they felt that once they have stopped rising rapidly that it was okay to get back into the market, what backing that is the fact that we have in economic terms, full employment in this country. For the fifth consecutive month at 5% unemployment, 95% of people working full time. And of course, when people work full time, they're able to get a mortgage, they're able to afford a home. The other part of the financial occasion is Canadians are saving at a much higher rate than they traditionally have. The traditional savings rate is at about 2% and Canadian savings rate are currently standing at 6%. So about 3x normal. And that, of course, means that they can afford a down payment. So we have existing Canadians who are able to get back in the market driving demand. The next piece of the puzzle are new Canadians. So the wave of immigration, these people have to be housed. Now it's critical that we pursue this immigration because the rate of people retiring from the market, call it baby boomers moving into retirement is quite a bit higher than the rate of young people moving into their working years. So we need to plot that graph as to advanced economies all over the world with immigration. And Canada is a leader in attracting economic immigrants who come to the country and are -- they have skills or they have capital. And interestingly, at the 7-year mark, new Canadians have a higher level of homeownership than people who were born in Canada. All right. Let's switch gears and talk about the tools and technologies that we use to drive our business. The biggest news in technology in Canadian real estate in many years, probably since our Royal LePage business introduced the very first website to Canada, the very first real estate portal back in 1995, that's royallepage.ca was the introduction of rlpSPHERE, which is a cloud-based, AI-driven end-to-end digital architecture. It's a platform for managing real estate. We introduced this in 2020, and it has made a huge difference in the way our realtors practice. Essentially, what it allows people to do to use a customized CRM to manage their relationship with prospects and existing clients. So if you look at this chart, you'll see 2020, 2021, 2022, contacts, calls even -- we're just going to bounce back for a second here. Yes. And you'll see in the calls, texts and e-mails line, in particular, that first blue circle that we have moved from $2.3 million to $11 million to $22 million as our sales force across the country and so adopted this. And this is despite the fact that the market was down by 40%. There was 40 fewer contacts. People are using the auto drive, AI-driven models to reach out to their clients at the appropriate time. And even though the market was down 40%, you can see a very similar level of formal leads driven into them 112,000 versus $119,000 in 2021. On royallepage.ca. This is Canada and has been since 1995, the most visited, the most popular real estate company website, 127 million views last year, 37% and are the second largest real estate company website, driving approximately 0.25 million leads into our agents across the country, which is one of the most powerful tools that we have. I mentioned at the outset, a new feature of royallepage.ca. We call it quick quote. It is an automated valuation method, a way for consumers, Canadian consumers to understand what the value of a home is before it goes on sale. So traditionally, real estate websites like reiltor.ca or our royallepage.ca are a place where sellers go to find homes for -- or sorry, where buyers go to find homes for sale. It's a place you go to shop homes. We call it buyer aggregation. What we intended to do for the ADM is to aggregate sellers, to bring people who have not let lifted their home to the website to give them advice and counsel before they were ready to talk to a real estate agent, and then we take these leads and they're put through our Smart Leads program into our frontline practitioners. So it allows people to get an estimate on the value of their personal home, their neighbors home, any property in Canada. All right. To wrap things up, I did want to talk on our ESG, our environmental, social and governance initiatives. The company has a number of initiatives that are focused on aligning with our core values we published, which you can find on bridgemarq.com, a comprehensive ESG report, which covers all the various elements of our corporate philanthropic efforts, our efforts on the environmental front and how we properly governed the business. If you look here, you can see some of the initiatives that we have taken under each of the ESG highlights that have allowed us to move the industry forward and aligned our business and all our stakeholders with being an appropriate corporate citizen. And the most important of which and which we're extremely proud of is our charitable foundation, the Royal LePage Shelter Foundation. It is the largest foundation, largest public foundation in Canada focused on eradicating violence in our communities and supporting the women and children who fall victim to it. It is our 25th anniversary of the foundation. This year, we've raised some $41 million since inception. And even in a down market in 2022, we were able to raise $3.25 million for women's shelters across Canada and many policy programs to help eradicate violence in the future. So to sum up, Bridgemarq Real Estate Services, we feel is a compelling investment as a strong track record of producing attractive annual dividends, produces financial stability and liquidity, a strong network of the industry's premium realtors that has continued to grow even through market downturns, secured by industry-leading long-term franchise agreements. We operate markets through iconic brands, and all of this together is a proven successful growth strategy. So with that, I'll wrap things up, and we'll be pleased to take your questions.

Thanks very much, Phil. I'd like to now open the proceedings to questions or comments concerning the corporation or its operations. Again, if you would like to ask a question, please do so using the messaging tab. Glen, do we have any questions from shareholders or guests at this time?

Mr. Chairman, there are no questions from shareholders or guests.

Thank you, Glen. Well, ladies and gentlemen, on behalf of my colleagues, I would like to thank everyone for their support and participation here today. We hope that you and your families stay healthy and safe.