McGrath pursuit of strengthened profitability sees end of lower North Shore franchise arrangement

McGrath pursuit of strengthened profitability sees end of lower North Shore franchise arrangement
McGrath pursuit of strengthened profitability sees end of lower North Shore franchise arrangement

McGrath Estate Agents has provided the stockmarket with an update regarding the renewal of its Sydney Lower North Shore franchise office arrangement.

McGrath has withdrawn its offer to extend the franchise agreement.

It is due to end in April 2019.

McGrath failed to secure agreement with the franchise principals who are listed as Dean Mackie, Piers van Hamburg and David Howe. 

The negotiations seemingly were cordial.

But the decision puts the future of one of the McGrath group's top performers, Michael Coombs in play.

Coombs had equity in the Mosman franchise but sold them back to the principals around 18 months ago.

Coombs has always rated highly with his sales tally among the McGrath agents, although his sales tally hasn't been public since he pulled out of the REB Top 100 ratings two years ago. 

Coombs ranked 26 in 2016 with $276 million in property sales.

In 2015 with 13 year's experience, and three support staff his sales tally was $180 million. There was a $4 million average sale.

Coombs sold 41 properties in 2014 for a $140 million total.

McGrath, which is trading at 29 cents having floated at $2.10 in late 2015, is currently considering the "optimum" structure for the continuation of the McGrath presence in the key markets of Mosman, Neutral Bay, Chatswood and Northbridge.

The cost cutting decision was couched has providing the opportunity of strengthening the profitability for the publicly listed estate agency.

McGrath opened its first office in Sydney’s Lower North Shore in 1996.

“We have a clear plan to rejuvenate our presence in the region," McGrath chief, Geoff Lucas said.

The shareholders were told by Lucas the LNS profitability had "fallen below expectations in recent years.”

Lucas was among its clients when he sought to find a buyer of his LNS home last year without success.

"McGrath remains committed to servicing its clients for both residential sales and property management," he stressed.

It is understood McGrath has been negotiating with the principals since last year but could not reach a mutual agreement on any continuity.

Its recent annual results signalled a key FY19 priority was "office growth with a focus on the Eastern seaboard predominately in the franchise network."

Nine Entertainment reported last week that McGrath had "found its feet again with a new board and chief executive."

On floating the network consisted of 22 company owned offices and 53 franchise offices generating revenue primarily through commissions and franchise fees.

It had 16 offices in 2009, some three years after it opened its first franchise office.

Franchise services revenue increased by 31 percent to $9.4 million in FY2015. It now stands at $11 million.

McGrath Estate Agents currently has 95 offices located throughout the east coast of Australia, which consists of 27 company owned offices and 68 franchise offices.

It recently saw the opening of Coburg/Brunswick and its McGrath Land office. Closures have included BENTLEIGH, Berry, Cairns, and The Ponds in June.

The majority of franchisees paid an initial fee, as well as continuing royalties of between 6 percent and 8 percent in respect of commissions received on property sales (excluding GST).

The fee is typically 3 percent in respect of property management fees.

In addition to the initial fee and continuing royalties, the majority of franchisees pay McGrath a marketing levy, which is an amount equal to 1 percent of commissions received on property sales (excluding GST), a monthly website subscription fee, a technology and training levy and a fee in relation to the publication of the McGrath magazine.

The 2015 prospectus advised McGrath’s franchise agreements were typically five years with an additional five year option exercisable by the franchisee.

"No McGrath franchisee has elected not to renewits franchise agreement and move to another franchise network," the prospectus proudly noted.

Just prior to the float the Manly and Seaforth offices were converted from franchise offices to company owned offices.

The head of franchise at McGrath, Gary Vouris at the time the float left the company in 2017 after six years for First National. Now back at McGrath Sutherland Shire, his Randwick Californian bungalow was sold last year by Ben Collier of The Agency, formerly McGrath's top eastern suburbs agent.

The McGrath Network, which had previously a strong record of retaining its agents, has been hit hard over the past two years with departures.

On its 2015 float, the top 50 Agents within the McGrath Network based on FY2015 GCI had an average tenure of nine years with McGrath or its franchisees, while the top 10 Agents had an average tenure of 12 years.

 

Jonathan Chancellor

Jonathan Chancellor

Jonathan Chancellor is one of our authors. Jonathan has been writing about property since the early 1980s and is editor-at-large of Property Observer.

Tags: 
Mcgrath Lower North Shore

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