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

Zach Liggett - Financial

Thank you, Sally, and good morning, everyone. With me today is our Chief Financial Officer, Kevin Cash.

Today’s call will be similar to the usual format. I will begin with a brief look at our high level financial and operational results, and then Kevin will discuss our fourth quarter and year-end financial results in more detail.

Finally, I’ll conclude by providing some remarks on recent business, operation and market development. After that, Kevin and I will be happy to take questions.

As usual, I’d like to remind listeners 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 in our Annual Information Form posted on our website and on CEDAR.

Overall, we were pleased with the performance of our business for the three and 12-month periods ended December 31, 2014. We are delighted that as of January 01, 2015 our network of REALTORS exceeded 16,000 for the first time thanks primarily to acquisitions made during the calendar year 2014.

It was a very strong year for us. This important milestone represents almost a doubling of our network since our initial public offering 12 years ago.

I will talk about our acquisitions in more detail later in the call. If you look at the main major we use to assess the performance of those company mainly royalties and cash flow from operations, we had a good final quarter which caps up a strong year for our business.

Royalties for the quarter were $8.6 million, up from $8.3 million or 4% from the same period last year. For the full fiscal year, our royalties were $37.4 million, up 3% on a year-over-year basis.

For the fourth quarter, our cash flow from operations was $5.7 million, down $0.3 million or 5% when compared to the same period last year. And for the entire 2014 fiscal year, our cash flow from operations was $25.9 million, up 3% compared to 2013.

Our cash flow continues to be well in excess of our dividend payments with a payout ratio of approximately 66% in 2014. This puts us in very good financial position to continue to add capacity and revenue to the company through acquisitions while continuing to pay our shareholders a stable and growing dividend.

Again, this year our business model which is built upon a stable base of fixed royalties proved profitable and resilient. Approximately 71% of our revenue was generated from fixed fees derived from our network of brokers and realtors across the nation, which to a great degree protects our annual royalty stream from market fluctuation.

This is of course an important investment feature for our shareholders, but one should not underestimate the value of the structure for Royal LePage, Via Capitale and Johnston & Daniel brokers and agents. We are able to maintain a reliable and always improving suite of services and support for our team regardless of fluctuations in the retail real estate marketplace.

The remaining 29% of the revenue is variable and derived from the total transactional dollar volume from the sales commissions of our agents and sales representatives. For the year, the Canadian housing market closed up 12.1% at $196.3 billion compared to the same period in 2013 driven by a 6.7% and 5.1% increase in price and units sold respectively.

The increases in average selling price of a home was avoid by robust activity in Toronto, Vancouver and for the entire 2014 the Calgary market and of course the lower interest rate environment. For the year, the GTA market closed up 13.4% at $52.8 billion as compared to the same period in 2013 driven by a 7.7% and 5.2% increase in price and units sold respectively.

This increase in house price of the number of units sold in Canada throughout the year led to a 5% year-over-year increase in our royalties and variable franchise fees. However, because the majority of our earnings come from fixed fees and our variable exposure is limited and capped at $1,300 an agent, when the market spikes like we saw in 2014, we do not see a linear wise revenue.

Of course in a soft market, our decline has been very much muted. During fiscal 2014, the company experienced a net increase of 67 agents.

Over the past year, we saw a national attrition of 426 agents which was offset by the acquisition of agreements representing 493 agents. We continue to have very strong representation across most of the country particularly Montreal, Quebec, Manitoba, Atlantic Canada, and have seen great strides in British Columbia, and most recently in Saskatchewan, and we continue to focus on opportunities in Western Canada.

In the last few months, we have made headway particularly in the lower mainland and just last week Saskatoon as I’d say more on that in a moment. As have been our experience, since our initial public offering back in 2003 as an income trust, the company continues to experience a very high level of franchise renewals.

Historically, we have successfully renewed over 95% of our franchise agreements as they come due. During the year, 17 agreements representing 851 agents that were subject to renewal all renewed, but one franchise agreement representing 199 agents renewed early.

In deed to the year 2014, six agreements were terminated but they represented only 15 agents. To regular listeners on the call, in our small world offices, we sometime have retirements of people who lead the industry and their practice is simply not replaced, but again 15 agents on 16,000.

In summary, we are pleased with the company’s financial and operational performance and excited with the direction we are headed. We are already off to a very good start in 2015 and expect this to be another strong year.

With that, I’ll turn things over to Kevin Cash for a closer look at our fourth quarter and 2014 financial performance.

Thank you, Phil, and good morning. Now turning to the results for the year and the quarter, for the year, the company generated cash flow from operations of $25.9 million or $2.02 per share which was up 3% or $700,000 from the $1.97 we recorded last year.

This $700,000 increase was primarily driven by an increase in royalties, partially offset by an increased administration cost. Royalties were up $1.1 million or 3% due primarily to the increase in the number of agents in the network as a result of the acquisition of franchise contracts at the beginning of the year and the implementation of the previously announced $2 per month increase in the Royal LePage fixed monthly franchise fee.

Operating costs were up $400,000 year-over-year and that was due primarily to bad debt provisions recorded for certain franchisees that are experiencing financial challenges, a $400,000 increase in interest expenses resulting from the refinancing cost associated with the company’s new financing arrangements, and partially offsetting this was a $200,000 reduction in management fees due primarily to the reduction in the Via Capitale management fees which will reduce from 30% to 20% of royalties under the new MSA which commenced at the beginning of 2014. For the quarter, the company generated CFFO or cash flow from operations of $8.2 million or $0.45 per share, which was down 4% or $232,000 from the prior year.

For reasons described earlier, the decrease was comprised of a 4% increase of royalties and a 10% decrease in management fees, which were offset by a $339,000 increase in interest cost for the refinancing of the company’s debt, and a $300,000 increase in administration costs. The year-over-year increase in administration costs for the quarter was due primarily to the recovery of accounts receivable amounts in the last quarter of 2013.

For the year, the company generated net and comprehensive earnings of $3.9 million or $0.41 per share, which was up $3 million from the $0.09 per share we recorded last year. The primary drivers of this year-over-year increase was $2.8 million in net non-cash item.

The $700,000 increase in cash flow from operations I spoke to earlier, $700,000 reduction in income taxes, partially offset by $1.2 million increase in interest on exchangeable units. Interest on exchangeable units was increased during the year to bring these unitholders interest in line with our economic interest in the company.

The non-cash items are comprised of $3.6 million attributed to the fair valuing of the non-controlling interest exchangeable units, which is simply a function of the share price for the company. The remaining $800,000 of non-cash items was attributed to $1.9 million of reduced amortization, partially offset by $1.2 million year-over-year increase in the company’s purchase obligations, due to the better performance of those underlying contracts; a $1 million increase in the pyramid of intangible asset charges recorded for certain franchises that were experiencing financial difficulties and a $482,000 loss recorded on the fair valuing of the interest rate swap the company entered into on the new $53 million term debt facility, which fixed our go-forward cost at 3.64%.

For the quarter, the company generated net and comprehensive earnings of $2.5 million or $0.26 per share, which was up $1.9 million from the $0.06 we recorded last year. The primary drivers of this year-over-year increase was $1.5 million in net non-cash items, $150, 000 increase in interest on exchangeable units, and a 232 [ph] reduction in CFFO cash flow from operations as described earlier.

The $1.5 million increase in non-cash items was due primarily to a $2.4 million increase in the gain on valuing of the exchangeable units, as well as a result of the decrease in the company’s share price, which was partially offset by the $482,000 loss recorded on the fair valuing of the interest rate swap I spoke to earlier. We closed out 2014 with an approximate 71% fixed and 29% variable fee royalty mix, which continues to insulate the company’s cash flows and variations in the underlying real estate market.

We are encouraged by the continued productivity of our agent network, which is based on 2014 transactional dollar volume are approximately 66% more productive than the rest of the Canada’s REALTORS. With that I would now like to turn the call back to Phil.

Thank you, Kevin. Before we open up the call to questions, I’d like to offer some brief comments on our operations and some important market developments.

Let’s start with the operational updates. Our Royal LePage brand has invested in leading edge award winning technology over the last few years from the launch of a brand new consumer portal royallepage.ca to new mobile technology with our mobile apps, and this year we did the same thing internally for our agents and brokers with RLP network.

The internet that our team uses to increase our productivity and sales performance. After our pilot program, we re-launched the new RLP network just last week.

The site is completely revamped and is easier to use; was designed to really tie into our agent’s everyday needs. RLP network includes a robust search function with all directory, which allows our agents to search for anyone across Royal LePage using a variety of search criteria’s such as language or product type such as farm, industrial, condominium, luxury.

It also allows agents to get prudential claims more refined and appropriate referrals when they are passing them off to one of their peers across the country. RPL network is the first internet site we are told by Google to be fully integrated with Google apps for work.

From within the internet, agents can access all of their Google accounts and the Google technology providing an up at a glance update to all recent activity and all the tools they need. It really is intended to be a way that our agents can operate more efficiently and save money.

We also believe it will be a sticky service, one that will increase retention levels as people are reluctant to lead the firm and lead this extensive suite of tools that they can’t get elsewhere. As I mentioned earlier in the call, Brookfield Real Estate Services has surpassed the 16,000 agent mark for the first time.

Thanks to a very active and successful streak of acquisitions that we’ve made over the last year, which includes four businesses that each added a 100 or more agents to our network. The largest of these brought Terrequity Realty, now known as Royal LePage Terrequity Realty and its approximately 400 agents across the Greater Toronto area into the Royal LePage family.

This was previously the largest Coldwell Banker franchise in Canada. Coldwell Banker is the largest real estate company globally.

The second largest was the acquisition Prudential Sussex Realty and its team of almost 300 agents in the Lower mainland of British Columbia, which was announced in December after our last conference call. It moves Royal LePage from third to first place with more than 25% market share in the cities of North Vancouver, West Vancouver and the Sunshine Coast markets combined and quadruples our share of the luxury real estate market in Greater Vancouver area.

It was a real game changer of an acquisition. These are just two examples of the many acquisitions we made in 2014.

I am proud to report that the addition of 858 agents just a few weeks ago on January 1, 2015 represents our best year in terms of network since 2008 when we acquired 1000 agents as part of our acquisition of La Capitale. 2015 has started off well from a growth standpoint as well.

As only last week, I was incepting to celebrate the acquisition of the leading local independent brokerage Hallmark Realty, now know as Royal LePage Hallmark. It is an established and well respected company and once a number one independent brokerage in the entire prudential market.

The addition of Hallmark adds 80 sales professionals to the Royal LePage sale spots in Saskatoon, bringing its total over 130 and increases our market share to almost 22% in the provinces second largest city. Across the province we are now within nine agents of being the number one brand in Saskatoon.

So, a really significant change in that fast growing markets; the way people buy and sell real estate. Looking ahead, we have a solid pipeline the works that demand additional – significant number of additional agents in our company network and our management team is enthusiastic about the opportunities that exist in the marketplace right now.

In 2014, the average company REALTOR generated approximately $2.6 million in transactional dollar volume, which is up 13% from 2013. This productivity was 53% greater that the estimated average of $1.7 million for the average of other Canadian REALTORS.

Having more productive agents is positive and enviable for two reasons. First, a higher productivity makes the company less prone than the industry at large to attrition during periods of reduced transactional dollar volume.

So when the market softens, the best people are the ones that have the most stable practices. Secondly, having more productive, it also means the company can expect to receive higher variable royalties from its network.

And we look for companies like Hallmark in Sussex that I just mentioned that match the productivity levels of our existing network and those two acquisitions certainly did. One of the ways we help our agents to be more productive is through innovative training programs that will help them build their businesses, earning industry designation, prove the marketing efforts, increase the profitability.

In 2014, our Royal LePage brand ran that pilots on two new programs which were very successful. So we plan to roll those out into production if you will in an expanded fashion in 2015.

The first move of the tailored program called Peak Producers which is offered by Buffini and Company which have had a longstanding relationship with our firm and is one of the leading coaching and training companies in the world. Peak Producers is a 12-week program that teaches our agents how to generate more leads and close more transactions, overcome peaks and valleys in their income and produce at a consistent level but a higher level.

We also ran a pilot program with Leader's Edge Virtual Training system, again a 12-week course. In this case, one that teaches operational critical selling, objection handling and negotiations go.

So very hands on practical system that even add an element of business planning time management skills, training to what we are offering to our sales force across the company. These are just two examples of the many offerings from our learning services program.

Given the events of recent months in energy markets as well as the Bank of Canada’s decision to cut the overnight rate to 0.75 in January, I’m going to take a second just to step back and look at the market and what impact we expect this all to have on our business. Natural place to start is in Calgary and in fact I’m joining the conference call today from Red Deer, Alberta which is half way between Calgary and Edmonton, where we have our major Royal LePage conference beginning in a few hours.

Over the last two or three years at Calgary and in fact to Alberta has been one of that country’s hardest markets, where constrained supply has driven the high single digit home price depreciation. The rapid drop in the value of oil will indirectly impact the housing market here in Alberta as well as in other energy producing provinces like Saskatchewan and Newfoundland.

We expect we will see lower consumer confidence in those regions and that the low priced oil will be a drag on real estate markets there initially through lower transaction volume and if the oil remains depreciated for an extended period of time by softness in home prices. It’s important to note that at this stage, we have not seen this in Newfoundland or Saskatchewan, and seen only a small easing of home prices in Calgary.

Year-to-date we are looking at between 2% and 4% softness in the market and we have to remember that the spring market really doesn’t begin until well about 10 days from now is a traditional kick-off with the spring market. So we still have to step back and watch and see if in fact the change in the fortune of the energy companies in the province are going to have a marketing impact on home values in the region.

So, it’s important to note for our company that our collective exposure is limited. Firstly, over 70% of our royalty stream as I said at the outset is based on fixed revenue which means we have a projectable earning to royalty stream from these provinces and any downturn is muted.

Secondly and this is important to note, as in total the three energy producing provinces are the three provinces that which energy production has a very significant impact on GDP in those provinces account for less than 10% of our annual royalties. Other firms, it’s worth noting also that in times of softening market, there are opportunities for strong firms like ours.

In the 2008, 2009 global economic recession, we saw what we called a slight dequality where agents looked at the strength of national brands and where naturally attractive countries leading brand Royal LePage and we actually saw an increase in recruiting opportunities during a softer market as people were looking to make a difference with how they aligned. And secondly from an acquisition standpoint, if there are brokerages that are weakened by a softer market, it may provide opportunities that weren’t there otherwise.

Finally, we believe over the long-term, the energy sector will be resilient and will contribute to economic growth. As such, we are confident that housing markets in Calgary, Edmonton, Red Deer across the province will see activity levels and price appreciation that will likely be above the long-term Canadian average.

Meanwhile in Central Canada, the lower Canadian dollar and the similar effect of lower fuel cost on consumers are expected to avoid consumer spending and to list our export sector overall, and generally be supportive of the residential real estate industry. We predicted the key Toronto market will see average house price growth of approximately 4.5% in 2015 outpacing all major markets in the country.

I should say in the very early stages of the year that it is Vancouver that has set the pace with Toronto following closely behind. In addition, the Bank of Canada’s move to lower the bank rate to 0.75% is expected to mitigate the negative impact of lower energy prices in the energy producing regions, and to further strengthen housing activity right across the country.

It’s also worth noting that Bank of Canada has suggested that he believes the oil shock as he calls it may be frontend loaded and that the biggest economic drag we will see will be in the early part of the year and we may work our way through it by midyear. So that’s an interesting perspective.

In closing, we are optimistic about the state of our business and the growth opportunities that continue to exist for us. Past year has shown that our brands are the top destination for Canada’s best real estate professionals.

We are positioned for another strong year and confident in our ability to continue enrolling while providing shareholders an investment vehicle that paid stable and growing dividends. With that, I’ll turn things back over to the operator and open up the call to questions.

Sally?

Quick housekeeping question. Could you give the actual realtor count as of January 01?

I know you’ve said broadly it was over 16,000. I was just hoping to get the exact number before the annual was filed.

It’s 15,377 plus 858.

858. Okay, great.

Thanks very much.

Great, thank you. Hey good morning.

Just a couple of questions, first question, anything new on the commercial side, any new developments there? And then the second question just in terms of the broader demographics of your network, are you seeing pretty good distribution, young people still coming into the industry or how do see some ageing of the network, just curious how the demographics of your agents look at the moment?

Okay, yeah, firstly on the commercial side of things, Royal LePage commercial continues to grow. It is a different market, the commercial market than the residential market.

In over the years we don’t see linear growth in residential and corresponding growth in commercial. They really – the commercial market is driven by the – by future commercial rent opportunities and they look good now.

The market is healthy obviously things have slowed in Calgary, but in general it’s a very relatively small part of our business, we don’t report on it separately, but an important one. It’s also important for our growth in two ways, one it’s a halo sub brand.

So when a consumer or a business person, say for example who is looking to sell their home sees a Royal LePage commercial sign on a prime commercial property, they feel comfortable that it’s a well capitalized strong and an important firm they are dealing with. So, it has that, as I say sort of halo effect.

Secondly, we do operate standalone Royal LePage commercial offices, but also high grade offices, large offices in urban centers and it gives us the opportunity to attract new business people to open up a brokerage who would like to operate in both markets, both the commercial and residential market and in Canada we are the only substantial business that operates in both sectors. So, that’s the commercial side, all that important strategic reason.

On the use side, there are some interesting developments, we got another degree real estate program being offered in the country. So, until recently we had only one, we now have a UBC Guelph and most recently [indiscernible] University has offered a business degree in real estate.

We are participating in these programs and looking for ways to help young people start with a carrier in real estate. What’s happened over the last 10 to 15 years is the early earnings potential for a sales professional, real estate is really comfortable for that.

With the sales objection in say a Procter & Gamble or a Great-West Life or some of the traditional places that business students and other young people go there looking to pursue a professional sales carrier. So, yes we are pleased with call it our bilineal recruiting, but it continuous to be a focus for us.

Okay great, if I can slip one more and just curious on what kind of trends you are seeing with a foreign buyer, the real estate in Canada, the currency weakness has been helpful or harmful on that front and how much exposure have people have to cross, all the transaction through your network how much that could be impacted by the change in the currency.

In general, a lower Canadian dollar attracts foreign investment. It is that simple and certainly there has been more buzz in our major markets call it Vancouver, Calgary, Toronto, and Montreal as a result of the effectively discounting of high end Canadian real estate property and I spoke on the residential and the commercial side.

However, the percentage of foreign activity in our market is very low and I’m not talking about our business. I’m talking about the real estate market overall.

For the very first time we got some good data on this in 2014 when CMHC published a report that showed even in our most heavily – where transactions buy foreign investors was the highest, which is Vancouver and Toronto. It’s a in that 2% to 2.5% and in most of our cities it is well, well less than 1% down to 0.1% of 1%.

So, foreign investments in Canadian residential real estate is – it’s important, particularly in the very high end, but it is not a maximum percentage of our housing stock. Now, remember that is not New Canadians we are talking about.

If someone immigrates to Canada and was a foreign born, they count as Canadian buyers, what I’m talking about there what CMHC was reporting on were people who are not residents in our country.

Okay. Great, thanks for the color, I appreciate it.

No problem.

Thanks, operator. I wish to thank everyone for participating in today’s call and look forward to presenting to you at this year’s Annual General Meeting, which is scheduled for May 6 at the Westin Prince Hotel, in North Toronto.

Westin Prince, North Toronto May 6, look forward to seeing you there. You can find out more details about the AGM on our website.

Thank you.