Profits decline but property sales increase as The Agency navigates tough FY23 real estate market

After losing a branding battle in May this year, real estate company The Agency Group (ASX: AU1) has realised there’s little to worry about as it expanded its national market share significantly in FY23.

The Agency achieved its fifth straight year of growth in the number of properties sold, although that growth was rather small—standing at 0.4%—with The Agency exchanging 5,734 properties. This was achieved when the National Market Transactions decreased by 20.3% over the same period. It’s no secret that Australia’s real estate market has been a tough contender, with rising interest rates, migration and dwindling supply.

So, unsurprisingly, the Company’s profit declined by over 350% on FY22 to $4.3 million. Its earnings attributable to parents, too, fell from a positive $1.6 million to a loss of $4.3 million. 

The Agency Managing Director & CEO, Geoff Lucas, said, “The investments undertaken in FY23 which have contributed to an EBITDA loss will generate returns for many years to come. 

“The second half of FY23 saw a return to sales commissions growth and improved operational performance from the 1H growth initiatives underpinned a reduction in the second half of FY23 operating expenses. 

“The second half FY23 cost of doing business materially reduced to 32.6% of revenue from 35.9% in the first half. As a result second half EBITDA loss reduced significantly from $950k EBITDA (Pre AASB16) loss in the first half, to $350k EBITDA (Pre AASB16) loss in the second half.” 

This achievement is helpful because the Company did better than the market, which was affected by unfavourable circumstances like higher interest rates and lower home values everywhere. As a result, there was a growth in the overall market presence of The Agency, responsible for 1.23% of total residential property deals across Australia. This reflects a rise from their 0.98% market share in FY22.

That said, its Gross Commission Income (GCI) decreased by 7% to $95.4 million, down from $102.5 million. This was due to more sales happening in Western Australia and lower average selling prices on the East Coast. As a result, there was a 7% drop in the total value of properties sold. However, revenue went up by 6% to $76.93 million as payroll agents in WA did well and there were higher management fees from national properties under management, increasing from $5.1 million to $7.4 million.

In FY23, The Agency introduced a new strategic partnership with MDC Trilogy Group. This collaboration with MDC Trilogy presents an option for business owners (Principals) to sell their businesses, including their rent roll assets, and become sales agents within The Agency. Subsequently, MDC Trilogy invested nearly $20 million in obtaining rent roll assets in NSW and Queensland. These acquired rent roll assets include over 3,000 managed properties, now under the management of The Agency.

Plus, with the Bushby Property Group Tasmania acquisition and the re-establishment of property management operations in Western Australia, The Agency’s portfolio has expanded to include 5,018 managed properties as of June 30, 2023. Throughout FY23, these properties generated over $135 million in rental income for the property owners.

Lucas added, “Our total commissions of $95.4 million is just a fraction of the $6.0 billion total Australian residential real estate commissions paid by vendors in FY23 across Australia. We believe our contemporary business model, national reach, culture, and commitment to excellence in customer service means we are well positioned to expand our share of this $6.0 billion residential sales commissions market.” 

Going forward, the Company has its eyes on the Queensland and Victorian states making up about 50% of Aussie annual sales transaction volumes. 

As at 30 June 2023, the Group’s Cash and Cash Equivalents was $4.63 million, down from FY22’s $8.22 million.