Berkshire Hathaway 2012 Annual Letter to Shareholders

OK, so maybe it was more of an “attaboy.”

But, for the first time that I can recall, HomeServices of America — the immediate parent company of Edina Realty — and its CEO, Ron Peltier, rated a mention (below) in Mr. Buffett’s annual letter to shareholders (his remarks also address why HomeServices’ financial results are grouped with MidAmerican Energy, an Omaha-based utility; explanation:  MidAmerican, a subsidiary of Berkshire, in turn is the immediate parent company of HomeServices).

Here’s what Mr. Buffett had to say:

Sharp-eyed readers will notice an incongruity in the MidAmerican earnings tabulation. What in the world is HomeServices, a real estate brokerage operation, doing in a section entitled “Regulated, Capital-Intensive Businesses?”

Well, its ownership came with MidAmerican when we bought control of that company in 2000. At that time, I focused on MidAmerican’s utility operations and barely noticed HomeServices, which then owned only few real estate brokerage companies.

Since then, however, the company has regularly added residential brokers — three in 2012 — and now has about 16,000 agents in a string of major U.S. cities. (Our real estate brokerage companies are listed on page 107.)

In 2012, our agents participated in $42 billion of home sales, up 33% from 2011.

Additionally, HomeServices last year purchased 67% of the Prudential and Real Living franchise operations, which together license 544 brokerage companies throughout the country and receive a small royalty on their sales. We have an arrangement to purchase the balance of those operations within five years. In the coming years, we will gradually rebrand both our franchisees and the franchise firms we own as Berkshire Hathaway HomeServices.

Ron Peltier has done an outstanding job in managing HomeServices during a depressed period. Now, as the housing market continues to strengthen, we expect earnings to rise significantly.

2012 Berkshire Hathaway letter to shareholders; page 11

“Let Us Unburden You”

Apparently, the media thinks the highlight of this year’s letter is Mr. Buffett’s chiding of his fellow CEO’s, too many of whom he believes are using short-term uncertainty as a fig leaf to hide inaction and/or mediocre results (Berkshire’s 2012 capital spending hit an all-time high).

Here’s the dig that seems to be this year’s “sound bite”:  ‘If you are a CEO who has some large, profitable project you are shelving because of short-term worries, call Berkshire. Let us unburden you.’

In fact, I think the two most interesting parts of this year’s letter are Mr. Buffett’s analysis of the much-battered newspaper business (he’s been a buyer); and his explanation of why Berkshire declines to pay dividends (it believes it can more profitably reinvest those funds, while giving individual shareholders more flexibility to reinvest or liquidate their share of retained earnings as they see fit).

Editor’s Note:  Berkshire Hathaway is the ultimate parent company of Edina Realty.  The views and opinions stated in this post and elsewhere on this blog are strictly my own.

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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