Real estate firm Royal LePage Franchise Services Fund said yesterday it is poised to jump into the troubled U.S. housing market, after reporting second-quarter profit more than doubled.
The fund - which reported profit of $3.6-million or 36 cents per unit compared with a year-earlier profit of $1.5-million or 15 cents per unit - is currently shopping around for a major regional real estate company in the U.S.
CEO Philip Soper said it's an ideal time to make a buy at a reasonable price.
"Certainly it's a much better time to make an acquisition at the bottom of the market," Mr. Soper said, adding he's in talks with companies in various regions.
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"It's just taking some time to find the right target," Mr. Soper said, noting it's not just a matter of price. He said Royal LePage is also looking for a corporate leadership team that will share the Canadian company's vision.
"We're involved in lots of discussions and we know some of them will bear fruit," he said.
Mr. Soper, who called the U.S. housing market a "solid prospect" for expansion, said he's not deterred by the current crisis in the U.S. market since he has a long-term view of the real estate cycle.
"The long-term prospects of the American market remain very attractive to us," Mr. Soper said, noting housing corrections don't tend to last longer than two years and he expects the current U.S. downturn to extend into the spring of 2008.
Mr. Soper said the fund, which employs 13,000 agents in Canada, would not try to launch the Royal LePage name as a U.S. brand because research has shown the word "royal" doesn't play well with Americans.
Mr. Soper said Brookfield Asset Management Inc., which owns 25 per cent of Royal LePage, would make the acquisition, restructure it, and offer a stake of it to the market through a new class of Royal LePage units.
"We'd either be buying an American brand from scratch or acquiring an American brand," Mr. Soper said.
Mr. Soper said Royal's back-office support systems and training programs for realtors would be attractive to U.S. players. Royal has already adapted to trends in real estate such as lower commissions and smaller cuts for brokers and franchisors.
Royalty revenue for the April-June period was $8.8-million, up 11.4 per cent over $7.9-million in the same period in 2006 on continued growth of the Canadian residential real estate resale market, the fund said in a release.
Mr. Soper said the growth in royalty revenue exceeded the fund's expectations, and he attributed the surprising strength in housing unit sales in the Toronto area -- after a flat period in 2006 in particular -- to a smooth transition from a manufacturing-based economy to one that is service-based. "It was well above predictions and yet price increases remain," Mr. Soper said. "It really does indicate this market has some legs in a healthy way."
In contrast, the market in Western Canada is so hot - with double-digit growth - it is worrying brokers, Mr. Soper said.
"They aren't sustainable in the long term," Mr. Soper said of the western price hikes, which have outpaced salary increases of most buyers.
Mr. Soper said the fund also plans to diversify its portfolio into different brands to attract different types of brokers.
Units closed up 14 cents at $13.70 on very small volume.
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