Realogy Holdings Corp., a global leader in residential real estate franchising and provider of real estate brokerage, relocation title and settlement services, has reported financial results for the fourth quarter and full year ended December 31, 2012, including the following:
• Realogy’s net revenue for fourth quarter 2012 was $1.2 billion, a 30 percent increase compared to the same period in 2011.
• The company’s Adjusted EBITDA(1) was $167 million in the fourth quarter, which was an increase of 61 percent year-over-year. The increase was primarily due to a 35 percent increase in sales volume (homesale transaction sides times average sale price) at the franchised and company-owned real estate services segments combined year-over-year for the quarter.
• Net loss attributable to the Company in the fourth quarter was $292 million, which was after $400 million of primarily non-cash IPO-related costs, $18 million of debt extinguishment charges and $42 million of depreciation and amortization.
• Realogy’s net revenue for full year 2012 was $4.7 billion, an increase of 14 percent compared to 2011.
• Realogy’s Adjusted EBITDA(2) for 2012 was $674 million, an increase of 18 percent compared to 2011. These improved results were due largely to an increase in sales volume (homesale transaction sides times average sale price) at the franchised and company-owned real estate services segments.
• In 2012, Realogy recorded a net loss attributable to the company of $543 million, which was after $528 million of interest expense, $400 million of primarily non-cash IPO-related costs, $24 million of debt extinguishment charges and $173 million of depreciation and amortization.
• Based on the company’s $3.1 billion reduction of debt from its IPO, which gives effect to the expected redemption in the second quarter of $200 million of Subordinated Notes with remaining IPO proceeds, the company expects corporate cash interest expense to total $315 to $320 million in 2013.
“The strength of the year, and in particular our strong fourth quarter results, supports the growing consensus of a housing recovery,” said Richard A. Smith, Realogy’s chairman, chief executive officer and president. “The favorable housing trends we experienced early in 2012 were evident in the fourth quarter, and our first quarter 2013 closed sales volume and open contracts indicate the continuation of the housing recovery.”
Business Driver Discussion
For full year 2012, Realogy’s core business drivers all showed significant year-over-year improvement. RFG, its franchise segment and largest contributor to its EBITDA, and NRT, the operator of its company-owned brokerage offices, led the way with closed homesale sides increases of 9 percent and 14 percent, respectively. Average sales price increased 8 percent at RFG and 4 percent for NRT for 2012 compared to 2011.
In its relocation business, Cartus experienced a 3 percent year-over-year increase in initiations compared to 2011 and a 10 percent increase in broker referrals. In its title and settlement services segment, Title Resource Group (TRG) experienced a 13 percent increase in purchase title and closing units compared to 2011 and a 42 percent increase in refinance title and closing units.
In the fourth quarter alone, RFG had a year-over-year 14 percent increase in homesale transaction sides, while NRT had a 22 percent year-over-year increase. RFG’s average homesale price also increased 14 percent in the fourth quarter, and NRT’s average homesale price, which is generally twice the national average, increased 18 percent compared to fourth quarter 2011. Thus, overall combined transaction volume was up 35 percent for the fourth quarter.
“Our closed homesale transaction volume drivers outperformed our expectations in the fourth quarter, especially with respect to average sales price,” said Anthony E. Hull, Realogy’s executive vice president, chief financial officer and treasurer. “We believe that the fourth quarter volume increase was partially aided by tax-related selling, particularly at the high end of the market.”
Hull continued: “Based on the visibility we have into the coming months from our January closed sales data and open contracts in January and early February, we expect to see an approximately 4 percent to 5 percent increase in transaction sides in the first quarter of 2013 with one less business day than we had in the first quarter of 2012. Likewise, we anticipate a combined RFG and NRT average sale price increase of approximately 8 percent to 9 percent year-over-year, which would equate to a 14 percent to 16 percent volume increase in the first quarter after adjusting out the additional business day in the first quarter of 2012.”
Recent Accomplishments & Other Highlights
• Realogy’s IPO and related transactions reduced our overall net indebtedness (including remaining IPO proceeds of approximately $220 million at year-end) by approximately $3.1 billion. Also as a result of the overall net debt reduction, Realogy’s corporate cash interest expense is expected to decline to approximately $315 to $320 million in 2013. There were 145.4 million shares outstanding at December 31, 2012.
• Realogy maintained its industry-leading position in terms of U.S. residential real estate market penetration, which was 26 percent for broker-assisted sales in 2012, based on volume. In all, Realogy was involved in approximately 1.3 million transaction sides last year — on either the buy or sell side.
• The Realogy Franchise Group finished the year with $234 million of new franchise sales gross commission income (GCI). RFG also retained approximately 97 percent of its franchisee production in 2012 as measured by GCI.
• NRT retained approximately 94 percent of the GCI production of its first and second quartile agents in 2012.
• In 2012, Cartus signed 117 new corporate clients and expanded the scope of services provided for nearly 300 existing clients.
• TRG’s underwriter reported a 22 percent increase in 2012 net premiums year over year. TRG’s underwriting claims experience for the year was approximately 1.3 percent, which continues to substantially outperform the industry average loss ratio of approximately 7 percent.
• In January, the Company appointed Brett White, recently retired CEO of CBRE Group (NYSE: CBG), to its Board of Directors. White is now the third independent director on our eight-member board.
Balance Sheet Information as of December 31, 2012
The company ended the year with approximately $220 million of remaining IPO proceeds out of a total cash balance of $376 million and $110 million of outstanding borrowings on its revolving credit facility under its senior secured credit agreement.
“As previously discussed, we intend to use our remaining IPO proceeds to redeem the $190 million of 12 3/8 percent notes at par in April as well as the $10 million of 13 3/8 percent extended maturity notes,” said Hull. “This will fully retire all of Realogy’s subordinated debt. Our next focus will be the 11.5 percent Senior Notes and 12 percent Senior Notes, which become redeemable in April 2013. We are also in the process of refinancing our senior secured credit facility, which, if completed, would lower the interest rate on such borrowings and extend the maturities of our revolving credit facility and term loan. We continue to analyze and optimize our capital structure and use our free cash flow primarily to retire debt with the ultimate goal of becoming investment grade.”
A consolidated balance sheet is included as Table 2 of this press release.
As of December 31, 2012, the senior secured leverage ratio (SSLR) under the Realogy Group LLC senior secured credit agreement was 3.30 to 1, below the 4.75 to 1 maximum ratio required to be in compliance under the agreement. (See Table 8 for the definition of this non-GAAP financial measure, Adjusted EBITDA, and Table 6a, 6b, and 6c for a reconciliation of this non-GAAP measure to the most comparable GAAP financial measure, net loss attributable to the Company.)
Investor Conference Call
On February 14th, Realogy held a conference call via webcast to review its fourth quarter and full year 2012 results at 8:30 a.m. (EDT). The call was hosted by Richard A. Smith, chairman, chief executive officer and president, and Anthony E. Hull, executive vice president, chief financial officer and treasurer, and concluded with an investor Q&A period with management.
A webcast replay of the call is available at ir.realogy.com from February 14 through March 1.
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