Philip Soper - President, Chief Executive Officer Kevin Cash - Chief Financial Officer

Brad Sturges - CIBC World Markets

Thank you, operator, and good afternoon, everybody. Thank you for joining us.

To callers from Canada and the United States, Happy Remembrance Day and Veterans Day. And again, we apologize and thank you for your flexibility with the rescheduling due to a technical difficulty with the broadcast facility.

Today’s call will be similar to our usual format. I will begin with a brief look at the high level results and the overall Canadian real estate market.

Kevin will then discuss our third quarter financial results in more detail. Finally, I’ll conclude by providing some remarks on recent business, operation and industry development.

After that, Kevin and I will be happy to take questions. As usual, I must remind you that some of the remarks expressed during this call may contain forward-looking statements that may differ materially from the results published in this morning’s press release.

I encourage everyone to review the cautionary language found in our news release and on our Annual Information Form posted on our website and on CEDAR. Overall, we’re very pleased with the Company’s financial and operational performance for the three and nine-month period ended September 30, 2014.

If you look at the principal metrics we use to assess the performance of the Company, namely royalties and cash flow from operations, we had a very strong quarter and are on track for an excellent fiscal 2014. For the third quarter, the Company’s royalties were 10.8 million, up 0.7 million or 7% compared with the same period last year.

Our cash flow from operations was 7.5 million, up 0.4 million or 6% from Q3 2013. Our cash flow continues to be well in excess of our dividends to our shareholders and exchange full unitholders of the company, putting us in a strong financial position.

Our payout ratio this term is approximately 60%, positioning us nicely to continue to meet our objective, providing our stakeholders with an investment vehicle that pays stable and growing dividends. Our business model first and foremost provides on stable royalty streams to fund our operations.

With approximately 71% of our revenue generated from fixed fees derived from a network of REALTORS, our royalty stream is remarkably healthy and stable. The remainder of our revenue is variable and derived primarily from the total transactional dollar volume from the sales commissions of our agents and sales representatives.

I am pleased to note that after the quarter ended, the Company announced the closing of a five-year $68 million financing solely with CIBC business banking. Kevin Cash will provide more detail on the refinancing package when he addresses you.

During the third quarter the Canadian market closed at 12.3% compared to the same period in 2013, while the Greater Toronto Area market closed up 13.9% compared to the same period last year. Our network growth itself was in line with the bump in overall activity and as such, our revenues from variable sources were up approximately 13% compared to the same period last year.

Overall because a significant portion of our earnings, the 71% I referred to earlier come from fixed fees and our variable exposure is limited and capped at $1,300 per agent, periods of rapid market expansion, like we witnessed in Q3, do not result in extreme spikes in royalties. The flip side of this of course is that the Company does very well and is insulated during slow periods when the market dips, for example during the 2008-2009 global recession.

We saw attrition of 104 agents from approximately 16,000 agents during Q3 and remain optimistic to increase our overall agent count through organic means during this program year and next year as we put in place new facilities designed to drive higher organic recruiting. Year to date our total agent count is plus 283 agents, which were of course [indiscernible].

At September 30, 2014, the Company network was made up of 15,593 REALTORS operating under 306 franchise agreements, providing services from 634 locations with approximately one-fifth market share based on 2013 transaction volumes. We continue to have a very strong representation in Ontario, Quebec, Atlantic Canada and are poised for very strong growth in British Columbia.

We continue to over-resource and focus on growing in Western Canada, in British Columbia and Alberta as we see an opportunity both in terms of increasing our market share, but also the size and health of real estate markets in that region of the country warrants the investment. We have a formidable geographic impression in the market and are a market leader in many provinces and cities.

Right now we have moved to number one in Manitoba, Ontario, Nova Scotia, New Brunswick and Prince Edward Island. Our ultimate goal is to be number one in every single broad market in Canada and we feel we have the right team and the right plan in place to work towards that goal.

As has been our experience over the past decade, the Company continues to experience a high level of franchise renewals and agent retention. Historically we’ve successfully renewed approximately 95% of our franchise agreements by agent count as they come due.

During the third quarter four franchise agreements representing 127 agents were subject to renewal and are renewed. During the quarter two Royal LePage agreements representing four agents, very, very small, were terminated.

So in summary, we continue to see stable and growing top line for our business and supported by reliable long term contracts. The company has been able to grow steadily through periods of both rise and fall in home sale volume.

With that, I’ll turn things over to Kevin for a closer look at our third quarter financial performance.

Thank you, Phil and good afternoon, everyone. For the three months ended September 30, 2014, the Company generated cash flow from operations of $7.5 million, which was up 6% from the same period in 2013.

On a rolling 12-month basis, cash flow from operations was $2.04 per share, which was up from the $1.97 recorded at the end of 2013. During the quarter, the Canadian market closed up 12.3% at $52.9 billion as compared to the same period in 2013 and this was driven by a 6.9% and 6.5% increase in price and units sold respectively, which has been driven largely by markets such as Toronto, Vancouver and Calgary.

For the same period, the Greater Toronto Area market closed up 13.9% at 13.8 billion as compared to the same period in 2013 and this was driven by an 11.1% and 5.6% increase in price and units. On a rolling 12-month basis, the Canadian and Greater Toronto markets as compared to the same period in 2013 closed up 13.4% and 14.9% respectively.

For the three months ended September 30, 2014, our network of 15,593 agents decreased by 102 agents which continues to come primarily from the Province of Quebec which has seen a 3.4% decrease in agents industry wide since the beginning of the year. Now turning back to cash flow from operations for the quarter.

The $425,000 increase in cash flow for the quarter over same quarter of 2013 was primarily driven by a 7% increase in royalties, partially offset by a 209,000 increase in operating costs. The increase in royalties resulted primarily from a 13% increase in same quarter year-over-year variable and premium fees resulting from the increased year-over-year market activity in the current quarter and the flow through of the June market activity.

Administrative costs were up during the quarter due primarily to approximately 350,000 in provisions recorded for certain franchisees who were experiencing financing or operating challenges. From a net income perspective, for the quarter the company generated net and comprehensive income before income taxes of $3.2 million, which is up 4.7 million from the same quarter of [2003] (sic).

The components of the year-over-year increase primarily results from the following six items: Firstly, the 425,000 increase in cash flow previously described; a $4.7 million gain on the fair value of exchangeable units of the Company as the shares closed down $0.12 at $13.88 per share at the end of the quarter as compared to closing up a $1.30 to $13.50 at the end of the same period in 2013; there is a 578,000 reduction in the amortization of intangible assets as many of our underlying contracts recorded at the time of inception of the Company in 2003 continue to reach the end of their amortization periods. These increases were partially offset by a $421,000 increase in the fair value of the Company’s purchase obligations as the underlying royalty contracts are performing better than initially thought.

A $150,000 increase in interest due to our exchangeable unitholders, as discussed in previous quarters, key monthly distribution to these stakeholders was increased to bring their distributions in line with their economic interest. And lastly, a $444,000 increase in impairment charges taken for terminated franchises and for franchises we’re experiencing ongoing operating and financing challenges.

For the nine months ended September 30th, cash flow from operations was $20.2 million which is up 900,000 or 5% from the same period in 2013 with the increase coming from increased royalties due primarily to the increase in fixed fees and a 6% and 7% increase in variable and premium fees respectively due to the increased market activity as previously described. Operating costs were flat year-over-year at approximately 600,000 year-to-date provisions taken for franchisees experiencing financial and operating challenges and have largely been offset by the non-recurring costs incurred in 2014 for the new management services agreement and the reduction in the management fee for Via Capitale franchise revenue from 30% to 20% of royalties in 2014.

From a net income perspective, for the nine months the Company generated net and comprehensive income before income taxes of $3.6 million which was up $459,000 from the same period in 2013. After taking into account the 900,000 increase in cash flow from operations, the major components of the remaining change is due primarily to the following: a $1.2 million decrease in the loss on the fair value of the Company’s exchangeable units due to the change in the Company’s share price; a $1.5 million decrease in the amortization of intangible assets for reasons described earlier; and with the increases due to the offsets of $1 million due to the increased interest on exchangeable unitholders for the reasons we’ve described previously and in prior quarters; a $1.2 million increase in the loss of the fair value of the Company’s purchase obligations due to the better than estimated performance of the underlying contracts of $695,000 for 2014 as compared to a reduction of $553,000 for the same period in 2013; and lastly, a 806,000 increase in the impairment charges for franchisees experiencing ongoing operational and financing challenges.

We are encouraged by the increase in the year-over-year market activity and we’re pleased to see that the fixed nature of our royalty fees continues to generate a strong stable cash flow which partially insulates the Company’s royalties from market fluctuations. Lastly, as disclosed on October 27th, we refinanced our $53 million debt which was coming due in February of next year along with our $2 million revolver.

The new five-year financial arrangement is comprised of a $53 million non-revolving term debt which we have swapped to a fix rate of 3.64%. Our $2 million revolver is now at $5 million and we’ve also acquired a $10 million non-revolving acquisition line for future franchise contract activity.

We’re very pleased with the confidence that CIBC business banking is showing our operations by providing funding under these arrangements. With that, I'd like to turn the call back to Phil.

Thank you, Kevin. Like to now offer some brief comments on our operations and some important developments in the market itself.

Let me start with growth. 2014's poised to be a record year for our Company.

The momentum that has seen us grow faster than any other national firm in recent years continues. I have talked in the past about some of the larger acquisitions that we have successfully made, the largest one in this calendar year being the acquisition of what was formally Coldwell Banker Terrequity, now Royal LePage Terrequity, adding some 400 agents to our Company’s network.

Royal LePage Terrequity has been a great success. And it's important when you are acquiring what are essentially services businesses to track the success of these deals because of course your assets in these acquisitions are mobile.

They're people. And just like acquiring professional services firms in [indiscernible] accounting or any other firm where the people can choose where they work, it's important that we do a good job post acquisition in integrating and passing on the enthusiasm that the current team has to the new team.

So I am very happy to say that the Royal LePage Terrequity agent team has been very enthusiastic. I have heard from many of them first hand how our offering and our brand has helped them gain business that was previously inaccessible with their previous affiliation.

We continue to be the major consolidator in the Canadian real estate industry whereby the best real estate professionals want to be associated with the best brand and the operators of those businesses, those brokerage firms understand that and are very receptive to our approaches for discussions on potentially joining our firm. Two businesses that have joined our firm in just the last few weeks that I wanted to highlight, they have been formally announced of course and are now flying the Royal LePage flags, are in Oakville Ontario, formerly Coldwell Banker Home and Family is now the Royal LePage Home and Family.

And in the general GTA market, Toronto market, what was formerly Century 21 New Concept is now Royal LePage New Concept Realty. These businesses together account for some 200 agents.

So it's a significant move in increasing our REALTOR base in the all important Southern Ontario market. Wanted to spend just a second talking about Royal LePage New Concepts.

It is what we would call a Korean brokerage. The vast majority of the professionals in the firm are of Korean descent and fell to the Korean segment of the Ontario housing market, including the commercial market.

And the owners of the New Concept brokerage firm were very interested in joining a firm that allowed them to represent not only residential, but in very strong ways representing commercial brokerage needs as Korean investors are the largest investors in commercial real estate in Canada ahead of even the Chinese and South Asian Indian investment community. So, we’re very pleased by that.

We’ve had a special focus on growing in what are often called ethnic real estate markets in Canada. And this will mark the third significant Chinese, South Asian, in this case Korean, brokerage operation that we’ve added to the business in the last 18 months.

Turning to our services platform, we had our major biannual national conference in Toronto at the beginning of October and announced a number of extensions to our services platform, including new technologies based on our partnership with Google that will substantially enhance the capability of not just our consumer search applications where we've put most of our capital and investment resources over the past year since we’ve been working with Google, but in this case investing in the operational platform itself that the real estate agents will be using to conduct their business. So we believe the integrated nature of the Google application suite will allow them to be more productive and will save there money both through time and through outward expense on competitive software and such.

So this has been well received we’re just beginning with the investments in this area in the internal Internet space, but we’re very pleased with the initial pilot programs that we have in field. We’ve also announced new management and agent training and continue to use training and coaching as a differentiation versus markets or brands that operate down market in our industry.

Overall I am very pleased with the health of our services platform and believe that it's an important contributor to the strong growth we’ve had in being able to attract so many people to the brand. Turning to economic factors, last week the Bank of Canada indicated that it intends to keep interest rates lower for a little longer due to what it calls global economic headwinds.

Further, the bank has indicated that they will keep – if they were to keep them low even if the domestic economy continued gaining strength if the global headwinds do not subside sufficiently, indicating that the domestic recovery must be more deep rooted before production of monetary stimulate is undertaken. However with the strengthening of the economy south of the border, particularly in the growth of its labor force, we believe it would not be surprising if we did see interest rates move during the next year in 2015.

And at that time it may well be that the Bank of Canada reevaluates its position on very low interest rates. As we have said before, very low interest rates do have a significant stimulating impact on the residential housing marketing in Canada, but so do jobs and a strengthening economy.

And we believe the strength in the economy could offset some of the impact of rising interest rate and result in a muted negative response to a change in interest rate policy in Canada and across North America. In closing, we are very positive about the state of our business and optimistic about our ability to continue to provide our stakeholders with an investment vehicle have pays stable and growing dividends.

Again, the make up of our company's revenues, which are approximately 71% fixed and 29% variable, largely insulates us from the sometimes violent market upheavals that occur when the housing market [indiscernible]. One way or the other, we had a very strong quarter on the back of our expanding network and are looking forward to finishing the year in a very strong position, which I look forward to updating you on in just a few months time.

But with that, I’ll turn the call back to the operator to open up the call to questions for both Kevin and I.

Just on the organic loss in Quebec, I mean clearly it's been a tough market over the last few years. Any light at the end of the tunnel there given all the weakness that's happened in the market?

Well, I'd like to say that there is a clear shift in the Quebec market. It hasn’t been a poor market overall and I’m not talking about the number of registrants in the province, but rather the real estate market, I felt it hasn't been a poor market but it hasn’t been a strong market either.

It's clearly been in the bottom half of Canadian markets over the last year to two and that certainly hasn’t helped. But we’re still seeing an overall organic loss in terms of the number of agents in the province.

We are well through our 2015 planning process and again are investing in resources intended to get a larger share of what may be a potentially shrinking pot. We have two strong offerings in the province with Via Capitale and Royal LePage .

They come at the market in different ways. They both had had good solid years in terms of acquisition performance.

They've had some troubled franchisees that they’ve been able to consolidate into other businesses. So I believe we’re managing the business effectively given the state of the Quebec market.

And if you compare the results of our brand to say the other two large brands in the province, it really is a four brand province with RE/MAX and Sutton. We’re certainly doing much better than Sutton and in most quarters we’re holding our own with RE/MAX which is the strongest single brand in the Province of Quebec.

But it has been a tough market for everybody. We have some ideas in terms of restructuring our marketing programs that may allow us again to get a larger share of the REALTOR population in the province from both brands.

And we’ve got some interesting activity going on on the acquisition front that may well bear fruit. But I can’t tell you that I feel light at the end of the tunnel in terms of the overall number of registrants in the province, overall number of agents, because that has continued to slip in low single-digit numbers, but it has been atrophying for several years now.

And until we actually see that number turn around and start to grow again, I'd hesitate to predict anything else.

I guess looking at the rest of the country and obviously you’ve highlighted the investments being made out west, any opportunities to really push organic growth, let’s say, in the Western Ontario to help offset maybe a little bit more weakness in Quebec?

Absolutely. And in fact if you look at what has been happening in British Columbia and Ontario, I’ll point to those two provinces, probably I’d say Saskatchewan as well would be a strong place where we see the ability to make some difference.

I said during my remarks earlier that we believe this will be a record year for us and that’s where our growth is coming from, a very, very healthy market of us -- we clearly -- the momentum firm right now. And when you complement them with you, you attract a lot of interest.

Our sales teams are in markets. They’re getting their -- we’re a big brand obviously and we’re a long time, well respected premium brand.

So typically we get our phone calls responded to, but often it’s what it’s like, no thank you, and now there's more people saying I’d like to discuss why others are joining the firm. So we like to capitalize on the enthusiasm we see in the business right now and particularly Ontario West.

So overall I guess if you were to look at the network now and trying to forecast organic growth as a whole, would you be comfortable in saying that that could be in the low single digits in terms of growth next year? Or how should we be looking at that?

We don’t forecast organic growth. We certainly have our internal plans on a province by province basis.

Overall when you include one by one agent recruiting, what I might call small acquisition based growth, this is where we go after a practitioner team that may operate in a rural or a suburban geography or even a large condo development. And we’ve had great success in recruiting those people and we're continuing focus in that area.

And then the major acquisitions like Royal LePage Terrequity, we’ve got plans for each and we’ll see significant growth next year. But we don’t break it down by category.

In terms of contracts as far as next year, is there any expectations for non-renewals or any guidance there?

I’ve never given my team any quota other than 100%. So we certainly never expect non-renewal.

Occasionally we terminate contracts and we had two very small ones this quarter, total of four agents. Typically those are people who are in small markets where they represented the brand and almost hit a satellite fashion and they retired.

And they’re just not continuing with the business and they have no succession plan. We've put succession planning programs in place with our bigger brokerages.

But if it’s an agent operator, which happens in Royal Canada sometimes when a person retires they truly get retired. But overall in terms of planning, we plan for $100 renewal and that would be my hope for next year.

And Kevin, how much was the provision recorded during the quarter?

Around 350,000, 600,000 year-to-date.

There was impairment charge as well during the quarter and how much was that?

Yes. Impairment charges were 444.

And just lastly on look to the housing market more on the basis for dollar volumes, I think I’ve seen comments recently that you're expecting I guess a fuller pace of growth next year. just wanted to get your general thoughts on the housing market.

The market overall has been expanding at a rate far beyond the growth in either employment or the underlying economy during the last two quarters. It is at normal -- at normally high.

And in our last report from our Royal LePage brand probably that the quotes you're referring to, I did suggest that the -- we believe the market has reached a cyclical peak in terms of the - and this is key - the rate of expansion. So it's not that we’re expecting a contraction in the market, we just don’t expect the rate of expansion to be able to match what we see for example in the third quarter which is well beyond what the economy could sustain in the long term.

We'll be coming out soon actually and we’re just finalizing our models for our 2015 forecast. So we're coming out with our 2015 forecast in the not too distant future.

At a high level, we wouldn’t expect to grow to be as great as this year, but we’d expect the market to continue to expand.

Thank you, everybody. Again, thank you for your flexibility in your calendars.

And we do apologize for the technical difficulties that required rescheduling. Hope you are pleased with the quarterly results, as we were, and look forward to a strong finish to the year which we’ll update you on in three months time.