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Brookfield Real Estate Services Inc. Q2-2017 Earnings Update

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Brookfield Real Estate Services Inc. is a leading Canadian provider of services to residential real estate brokers and their realtors. Cash flow is generated from franchise royalties and service fees derived from a national network of real estate brokers and agents in Canada operating under the Royal LePage, Via Capitale Real Estate Network and Johnston & Daniel brand names. At Jun-30-2017, their network consisted of 18,116 realtors operating under 297 franchise agreements and from 669 locations, with an approximate 20% share of the Canadian real estate market. This is an increase from 17,580 as at Dec-31-2016. On Jan-1-2016, they acquired 33 franchise agreements representing an annual revenue stream of approximately $1M from 459 realtors. In addition to this acquisition, the network was further increased by net organic recruitment of 67 realtors.

Revenue from royalties is comprised of both fixed and variable components. Approximately 90% of royalties are comprised of fixed franchise fee per realtor the 1% variable franchise fee and premium franchise fees. The remaining royalty stream is made up of franchise fees generated from warranty fees, technology fees and other fees. Approximately 72% of annual royalties were partly insulated from the fluctuations in the Canadian Market as they were not directly driven by transaction volumes.

Their network has about a one fifth share of the Canadian residential resale real estate market based on 2013 transactional dollar volume. They generate revenues by both fixed and variable fee components with approximately 71% of the revenue based on fees that are fixed in nature. Variable fees are primarily driven by the total transactional dollar volume from the sales commissions of realtors, fixed fees are based on the number of agents and sales representatives in the network. By revenue, approximately 60% is from the Greater Toronto Area, 20% each from western Canada and Quebec with the balance from the Maritimes.

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