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RE/MAX adds brokers, revenues but net income drops

Highlights:

  • RE/MAX reports earnings.
  • IPO costs contribute to drop in net income.
  • EBITDA rises 15%.

Denver-based RE/MAX Holdings added agents and revenues last year, but experienced a 15 percent drop in net income in 2013 from 2012, in part because of one-time expenses of going public.

Margaret Kelly

Margaret Kelly

However, by other financial metrics, the giant real estate franchise company founded in Denver 41 years ago, showed improvements on a year-over-year basis as well as in the fourth quarter of 2013, compared with the fourth quarter of 2012, RE/MAX reported last week.

RE/MAX also filed a proxy statement last week that showed CEO Margaret Kelly made $2.5 million: $770,000 in salary, almost $1.26 million stock awards, $460,462 in non-equity incentive compensation and $11,500 in other compensation.

In 2012, she made $2.1 million.

Dave Liniger, the co-founder and chairman of RE/MAX, made $1.58 million in salary in 2013, down from the 24.6 percent from the $2.1 million he was paid in 2012.

RE/MAX discontinued paying a salary after the company went public last October.

Liniger and is wife, Gail, own 17.73 million shares of RE/MAX, valued at $515.4 million. Their holdings gives them 60.44 percent of the total shares and 75.34 percent of the voting power.

RE/MAX last Friday fell 4.3 percent to $29.12, which is about 3.6 percent lower than where it closed after its first trading day last year. However, it is up about 32.4 percent from its opening price of $22.

Financial highlights for RE/MAX in  2013 compared with 2012 include:

  • Total agent count at year-end was 93,228, up 4.7 percent compared to the prior year;
  • Revenue of $158.9 million, rose 10.6 percent from $143.7million;
  • Adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, was $77.3 million, up 15.8 percent;
  • Adjusted EBITDA margin was 48.6 percent, compared with 46.5 percent 2012;
  • And RE/MAX announced a first quarterly dividend of $0.0625 per share of Class A common stock.

Fourth quarter highlights include:

  • Revenue of $40.2 million, up 14.7 percent compared to the fourth quarter of 2012;
  • Adjusted EBITDA of $18.5 million, up 3.7 percent;
  • Adjusted EBITDA  margin was 46.0 percent compared to 50.9 percent in the fourth quarter of 2012
  • And the successful completion of initial public offering  in October.

“For the second year in a row, we grew agent count, revenue and our adjusted EBITDA margin from the prior year,” Kelly said in a Securities and Exchange Commission filing.

“Our highly productive agents capitalized on the recovering housing market in 2013, enabling us to perform extremely well,” Kelley continued. “In addition, we acquired regional franchise rights for the Southwest and Central Atlantic regions, consistent with our strategy to drive enhanced profitability.”

Kelly said the company plans to build on its success this year.Unknown

“At RE/MAX, we understand success is driven by people and relationships,” Kelly said, in the SEC filing. “In 2014, we will continue our relentless efforts to provide our network of agents and brokers with innovative tools and ideas, so they are able to connect with more buyers and sellers.

“We will also continue to promote the benefits of our agent-centric model to attract productive agents to the RE/MAX family,” she added.

The company said its 10.6 percent increase in revenues was due to growth in the number of agents as well as higher broker fee revenues due to a rise in commissions from increased home sales and prices.

Also, the company generated additional fee revenues by acquiring the RE/MAX of Texas region in December 2012 and the Southwest and Central Atlantic regions last October.

Revenue was $40.2 million for the fourth quarter 2013, up 14.7 percent from the same period in 2012 due to the same revenue drivers that increased full year 2013 revenue.

The company’s fixed recurring revenue streams, which include annual dues and continuing franchise fees, accounted for 59.2 percent of the its annual revenues in 2013 and 59.3 percent of 2012 revenues. Annual dues, which are fixed fees paid by agents directly to RE/MAX, rose 2.1 percent to $29.5 million compared to the prior year due to growth in agent count.

Continuing franchise fees, a fixed fee per agent paid by each regional franchise owner in independent regions or each franchisee in Company-owned regions, were $64.5 million, up 14.4 percent over the prior year.

Total operating expenses were $111.8 million for 2013, $13.7 million higher than in 2012 mainly due to one-time initial public offering related expenses, amortization expense associated with the acquisition of the Texas, Southwest and Central Atlantic regions, increased personnel costs associated with the acquisitions and the activities related to being a public company.

Total operating expenses for the three months ended December 31, 2013 were $30.6 million, an increase of $5.5 million from the same period in 2012 due to the same reasons that increased operating expense for the full year 2013.

Net income for 2013 fell to $28.3 million from $33.32 million from 2012, due primarily to increased interest expense and losses associated with the early extinguishment and refinancing of debt, one-time expenses related to the IPO, losses associated with foreign currency transactions and increased amortization expense associated with the acquisition of the Texas, Southwest and Central Atlantic regions, the company said.

Reported net income was $5.6 million for the fourth quarter 2013., compared with $7.1 million in the fourth quarter of 2012, a 21.6 percent decline.

However, adjusted net income  increased by 18.6 percent to $37.9 million in 2013 and grew by 8.2 percent to $9.4 million in the fourth quarter.

Last Friday, Kelly appeared on CNBC and said that home prices in Colorado and Texas are at or above where they were before the recession, while other states such as Arizona and Florida are still about 20 percent below where they were during the previous peaks prior to the recession.

Nationally, she said there is a 5.6 month supply of unsold homes, while a 6-month supply is considered one in equilibrium between buyers and sellers.

In the Denver area, inventory levels are about half that national levels.

Have a story idea or real estate tip? Contact John Rebchook at  JRCHOOK@gmail.com. InsideRealEstateNews.com is sponsored by Universal Lending, Land Title Guarantee and 8z Real Estate. To read more articles by John Rebchook, subscribe to the Colorado Real Estate Journal.