Nov 01, 2012 (Marketwire via COMTEX) - Realogy Holdings Corp. (NYSE: RLGY) ("Realogy" or the "Company"), a global leader in real estate franchising, today reported results for the third quarter ended September 30, 2012. Realogy's net revenue for the quarter was $1.3 billion, an increase of 11% compared to 2011. Realogy's EBITDA was $213 million, a year-over-year increase of $26 million, or 14%. These improvements were due largely to an increase in sales volume (homesale transaction sides times average sale price) at both the franchised and company-owned real estate services segments. For the quarter, Realogy recorded a net loss attributable to the Company of $34 million, which was after $187 million of interest expense and $42 million of depreciation and amortization.
"Our revenue and EBITDA were strong in the third quarter, with revenue up 11% compared to the same period in 2011 and EBITDA increasing 14%," said Richard A. Smith, chairman, chief executive officer and president of Realogy. "The early-stage housing market recovery that we spoke of in the first two quarters of the year continued in the third quarter of 2012. Once again, we experienced strong year-over-year gains in homesale units and average home sale price as the housing market continued its recovery."
For the nine months ended September 30, 2012, net revenue totaled $3.5 billion, an increase of 9% compared to the first nine months of 2011, and EBITDA was $446 million, a year-over-year increase of 23%. Realogy's Adjusted EBITDA for the nine month period was $502 million, an increase of 10% compared to 2011. Year-to-date through September 30, 2012, Realogy had a net loss attributable to the Company of $251 million, which was after $533 million of interest expense and $131 million of depreciation and amortization. These results do not incorporate any reductions to the Company's leverage as a result of the IPO and related transactions.
"Our IPO and related transactions are enabling us to substantially reduce our debt," continued Smith. "After giving effect to the anticipated use of IPO proceeds, our overall indebtedness will be reduced by approximately 40% and our annualized interest expense will decrease by approximately 50%. Going forward, we will use free cash flow primarily to further reduce our debt."
Realogy also announced the appointment of Michael J. Williams to its Board of Directors. Most recently, Williams was president and chief executive officer of Fannie Mae from April 2009 to June 2012, managing the company during the period of conservatorship as it dealt with the many challenges presented by the worst housing market downturn in U.S. history. "We are pleased to welcome Mike to our Board as an independent director," said Smith. "Mike's more than 21 years in the housing industry, expert knowledge of the mortgage finance industry and practical regulatory experience will add substantial value to our Board."
Realogy's core business drivers improved in the third quarter. During the third quarter of 2012, Realogy's company-wide homesale transaction volume (average homesale price times the number of homesale transaction sides) increased 14% compared to the third quarter of 2011. The Company's performance is in line with the National Association of Realtors (NAR), which reported that third quarter national existing homesale transaction volume increased 16% on a national basis compared to third quarter 2011.
Realogy Franchise Group (RFG) had a year-over-year 5% increase in homesale transaction sides, while NRT, the company-owned brokerage unit, had a 12% year-over-year increase. In comparison, NAR, which utilizes survey data, reported that existing home sales increased by 8% compared to third quarter 2011. RFG's average homesale price increased 9% in the third quarter, which was consistent with NAR's 7% reported increase in national average sales price. NRT's average homesale price, which is generally twice the national average, increased 2% compared to third quarter 2011, due to its mix of business that shifted to more lower-priced homes. In our relocation business, Cartus experienced a 3% year-over-year increase in initiations compared to third quarter 2011 and an 8% increase in broker referrals. As for our title and settlement services segment, Title Resource Group experienced an 11% increase in purchase title and closing units compared to third quarter 2011 and a 70% increase in refinance title and closing units. Those significant gains more than offset a 5% decrease in the average fee per closing unit compared to third quarter 2011 due to the increase in refinance volume. For the nine months ended September 30, 2012, RFG and NRT closed homesale volume was up 13% and 12%, respectively.
"Our closed homesale transaction volume drivers continued to perform well in the third quarter," said Anthony E. Hull, Realogy's executive vice president, chief financial officer and treasurer. "In the third quarter, Realogy lost one business day compared to the third quarter of 2011. The gain or loss of one business day in a quarter can increase or reduce homesale transaction sides by approximately two percentage points. Accordingly, on a same business day-adjusted basis assuming all else remains equal, the combined transaction volume (homesale sides times average sales price) would have been up approximately 16% rather than the reported 14% increase for the quarter compared to 2011. Although it is too early to know the impact Hurricane Sandy will have on the fourth quarter, we expect that most of the impact will be delaying the timing of closing of transactions from October to November. Historically, significant storms have had an immaterial impact on our financial results."
Hull continued: "Based on the visibility we have into the coming months, we anticipate our fourth quarter, which includes an additional business day compared to 2011, will outperform the revenue driver trends we saw in the first nine months of 2012 at RFG, NRT and TRG, even with any impact from Hurricane Sandy. Specifically at RFG and NRT, based on our open, or pending, contracts in September and October at those two business units combined, we expect to see approximately a 9% to 10% increase in transaction sides year-over-year in the fourth quarter and average sale price increase of approximately 6% to 7% year-over-year, also on a combined basis, which would equate to a 16% to 18% volume increase."
In October, Realogy utilized proceeds from the IPO to prepay the $650 million of the Second Lien Loans that had an annual interest rate of 13.50% and $50 million of other indebtedness supported by a letter of credit issued under the Realogy Group LLC senior secured credit facility. Realogy Group also issued notices to redeem $64 million of 10.5% Senior Notes due 2014 and $41 million of 11.00%/11.75% Senior Toggle Notes due 2014, on November 16, 2012.
As previously disclosed, at the closing of the IPO, holders of approximately $1.9 billion (the "Significant Holders") of the $2.1 billion of the 11.00% Convertible Notes converted all of their notes into common stock of the Company. A redemption notice was also issued to holders of the remaining $209 million of Convertible Notes to redeem such notes at 90% of their principal amount on November 16, 2012, to the extent they have not been converted into common stock of the Company. As of October 31, 2012, holders of approximately $93 million of the remaining $209 million Convertible Notes have converted their holdings into common stock. If all of the remaining Convertible Notes are converted into common stock prior to the November 16th redemption date, the Company would have approximately 144.8 million shares of common stock outstanding.
By year-end 2012, Realogy will have reduced its overall indebtedness by approximately $2.9 billion, a 40% reduction from September 30, 2012 levels. Also as a result of the overall debt reduction, Realogy's annualized interest expense will decline by approximately $338 million, which includes the elimination of $232 million of annualized interest expense relating to the conversion or redemption of the $2.1 billion of Convertible Notes. In aggregate, this represents an immediate elimination of approximately half of the Company's interest expense. Looking forward, in the second quarter of 2013 we plan to use IPO proceeds to redeem $200 million of subordinated notes (both 12 3/8% and 13 3/8%).
As described in the pro forma financial section of the Company's IPO prospectus, Realogy will incur certain non-recurring IPO-related costs that will be reflected in its fourth quarter 2012 results, which include:
The Company ended the quarter with $89 million of readily available cash out of a total cash balance of $141 million and $20 million of outstanding borrowings on its revolving credit facility under its senior secured credit agreement. These balances do not reflect the impact of the October IPO.
As of September 30, 2012, the senior secured leverage ratio (SSLR) under the Realogy Group LLC senior secured credit agreement was 3.85 to 1, below the 4.75 to 1 maximum ratio required to be in compliance under the agreement. (See Table 7 for the definition of this non-GAAP financial measure, Adjusted EBITDA, and Table 6 for a reconciliation of this non-GAAP measure to the most comparable GAAP financial measure, net loss attributable to the Company.)
On Friday, November 2nd, Realogy will hold a conference call via webcast to review its third quarter 2012 results at 8:30 a.m. (EDT). The call will be hosted by Richard A. Smith, chairman, chief executive officer and president, and Anthony E. Hull, executive vice president, chief financial officer and treasurer, and will conclude with an investor Q&A period with management.
Investors may access the conference call with corresponding slides live via webcast at ir.realogy.com or by telephone at (888) 895-2010 (toll free); international callers should dial (706) 679-2250. A webcast replay of the call will be available at ir.realogy.com from November 2 through November 16.
Realogy Holdings Corp. (NYSE: RLGY) is a global leader in real estate franchising with company-owned real estate brokerage operations doing business under its franchise systems as well as relocation and title services. Realogy's brands and business units include Better Homes and Gardens® Real Estate, CENTURY 21®, Coldwell Banker®, Coldwell Banker Commercial®, The Corcoran Group®, ERA®, Sotheby's International Realty®, NRT LLC, Cartus and Title Resource Group. Collectively, Realogy's franchise system members operate approximately 13,500 offices with 239,500 independent sales associates doing business in 103 countries around the world. Realogy is headquartered in Parsippany, N.J.
Certain statements in this press release constitute "forward-looking statements." Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Realogy Holdings Corp. to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Statements preceded by, followed by or that otherwise include the words "believes," "expects," "anticipates," "intends," "projects," "estimates" and "plans" and similar expressions or future or conditional verbs such as "will," "should," "would," "may" and "could" are generally forward-looking in nature and not historical facts. Any statements that refer to expectations or other characterizations of future events, circumstances or results are forward-looking statements.
Various factors that could cause actual future results and other future events to differ materially from those estimated by management include, but are not limited to: our substantial amount of outstanding debt and interest obligations; variable rate indebtedness which subjects the Company to interest rate risk; our ability to comply with the affirmative and negative covenants contained in our debt agreements; adverse developments or the absence of sustained improvement in general business, economic and political conditions; adverse developments or the absence of improvement in the residential real estate markets including but not limited to the lack of sustained improvement in the number of home sales and/or stagnant or declining in home prices, low levels of consumer confidence, the impact of slow economic growth or future recessions and related high levels of unemployment in the U.S. and abroad, renewed high levels of foreclosures, seasonal fluctuations in the residential real estate brokerage business; reduced availability of mortgage financing or financing availability at rates not sufficiently attractive to homebuyers; the final resolution or outcomes with respect to Cendant's remaining contingent liabilities; any outbreak or escalation of hostilities on a national, regional or international basis; government regulation as well as legislative, tax or regulatory changes that would adversely impact the residential real estate market, including but not limited to potential reform of the financing of the U.S. housing and mortgage markets and/or the Internal Revenue Code; the Company's failure to enter into or renew franchise agreements, maintain its brands or the inability of franchisees to survive the cumulative impact of the recent downturn in the real estate market or to grow their businesses; the Company's inability to realize benefits from future acquisitions; the Company's inability to sustain improvements in its operating efficiency; and our ability to access capital.
Consideration should be given to the areas of risk described above, as well as those risks set forth under the headings "Forward-Looking Statements" and "Risk Factors" in our filings with the Securities and Exchange Commission, including our final prospectus filed with the SEC on October 11, 2012, our Annual Report on Form 10-K for the year ended December 31, 2011, as amended, our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2012 and June 30, 2012, as amended, and our Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 and in our other filings made from time to time, in connection with considering any forward-looking statements that may be made by us and our businesses generally. Except for our ongoing obligations to disclose material information under the federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless we are required to do so by law.
This release includes certain non-GAAP financial measures as defined under SEC rules. As required by SEC rules, important information regarding such measures is contained in the Tables attached to this release.
Table 1
View Original for Full Data Table
Table 2
View Original for Full Data Table
Table 3
View Original for Full Data Table
View Original for Full Data Table
Table 4
View Original for Full Data Table
View Original for Full Data Table
Table 5a
View Original for Full Data Table
View Original for Full Data Table
View Original for Full Data Table
View Original for Full Data Table
Table 5b
View Original for Full Data Table
View Original for Full Data Table
View Original for Full Data Table
Table 6
View Original for Full Data Table
A reconciliation of net loss attributable to Realogy Holdings to EBITDA and Adjusted EBITDA for the twelve months ended September 30, 2012 is set forth in the following table:
View Original for Full Data Table
View Original for Full Data Table
Set forth in the table below is a reconciliation of net loss attributable to Realogy to Adjusted EBITDA for the nine-month periods ended September 30, 2012 and 2011:
View Original for Full Data Table
Table 7
EBITDA is defined by us as net income (loss) before depreciation and amortization, interest expense, net (other than relocation services interest for securitization assets and securitization obligations) and income taxes. Adjusted EBITDA calculated for a twelve-month period is presented to demonstrate our compliance with the senior secured leverage ratio covenant in the senior secured credit facility. Adjusted EBITDA calculated for a twelve-month period corresponds to the definition of "EBITDA," calculated on a "pro forma basis," used in the Realogy Group LLC senior secured credit facility to calculate the senior secured leverage ratio. Adjusted EBITDA includes adjustments to EBITDA for merger costs, restructuring costs, former parent legacy cost (benefit) items, net, gain (loss) on the early extinguishment of debt, pro forma cost savings, the pro forma effect of business optimization initiatives and the pro forma effect of acquisitions and new franchisees, in each case calculated as of the beginning of the twelve-month period. Adjusted EBITDA calculated for a nine-month period adjusts for the same items as for a twelve-month period, except that the pro forma effect of cost savings, business optimizations and acquisitions and new franchisees are calculated as of the beginning of the nine-month period instead of the twelve-month period.
We present EBITDA and Adjusted EBITDA because we believe EBITDA and Adjusted EBITDA are useful as supplemental measures in evaluating the performance of our operating businesses and provide greater transparency into our results of operations. Our management, including our chief operating decision maker, use EBITDA as a factor in evaluating the performance of our business. EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for net income or other statement of operations data prepared in accordance with GAAP.
We believe EBITDA facilitates company-to-company operating performance comparisons by backing out potential differences caused by variations in capital structures (affecting net interest expense), taxation, the age and book depreciation of facilities (affecting relative depreciation expense) and the amortization of intangibles, which may vary for different companies for reasons unrelated to operating performance. We further believe that EBITDA is frequently used by securities analysts, investors and other interested parties in their evaluation of companies, many of which present an EBITDA measure when reporting their results.
EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider EBITDA or Adjusted EBITDA either in isolation or as substitutes for analyzing our results as reported under GAAP. Some of these limitations are:
In addition to the limitations described above Adjusted EBITDA includes pro forma cost savings, the pro forma effect of business optimization initiatives and the pro forma full period effect of acquisitions and new franchisees. These adjustments may not reflect the actual cost savings or pro forma effect recognized in future periods.
Alicia Swift
(973) 407-4669
alicia.swift@realogy.com
Mark Panus
(973) 407-7215
mark.panus@realogy.com
Realogy's company-owned real estate brokerage, is the largest residential brokerage company in the United States, operates under several of Realogy's brands and also provides related residential real estate services.