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Bridgemarq Real Estate Services - Q2-2020 Earnings, Price Target Update

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Bridgemarq Real Estate Services Inc.(BRE), (formerly Brookfield Real Estate Services In. 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. Effective May-1-2019 the name was changed to Bridgemarq to differentiate them from the Brookfield owned group of companies and the terms of the management agreement were changed to increase the management fee. The ticker symbol remains the same at BRE. Bridgemarq continues to own approximately 72% of the operating company. BRE's board is comprised of five persons. Brookfield Business Partners who are controlled by Brookfield Asset Management (BAM.A) designate two of the five directors,

At Jun-30-2020, their network consisted of more than 18,920 realtors operating under 298 franchise agreements and from 676 locations, with an approximate 20% share of the Canadian real estate market. 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. A Pandemic Relief Plan has temporarily been implemented to reduced fees to realtors. The remaining royalty stream is made up of franchise fees generated from warranty fees, technology fees and other fees. Approximately 70% of annual royalties were partly insulated from the fluctuations in the Canadian Market as they were not directly driven by transaction volumes. BRE's revenues are earnings from a network of franchisees operating under the Royal LePage and Johnston and Daniel brands and 5% from the Via Capitale brand.

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 57% is from the Greater Toronto Area, 18% from BC, approximately 10% each from Quebec and Alberta with the balance split between the Prairies and Maritimes. Compared to the distribution of realtors across Canada, they are under-represented in British Columbia and Alberta. They have a relatively strong presence in Ontario (as a result of a historical base there) and Quebec (due in part to the acquisitions of the Via Capitale Network).

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