Realogy climbed to $34.20 in New York after selling 40 million shares for $27 each yesterday, the top of its initial public offering range. The owner of the Coldwell Banker and Century 21 brands raised $1.08 billion through the sale of a 31 percent stake, according to a statement.
The IPO price gave Parsippany, New Jersey-based Realogy a market value of about $3.5 billion. The firm had planned to use the proceeds from the sale to help reduce debt by more than a third to $4.5 billion. Realogy was taken private by Apollo in 2007 in the largest U.S. leveraged buyout of a real-estate services firm on record, just as U.S. home prices headed for the worst slump since the 1930s.
“We’re happy with the outcome but we have a lot of work to do,” Chief Executive Officer Richard Smith said in a telephone interview today. “If you want broad housing exposure as a component of your portfolio, this is the only pure play for you.”
Realogy and such rivals such as closely held Re/Max International Inc. and Keller Williams Realty Inc. are poised to benefit as home sales and prices recover. The market is being propelled by tight supplies of listings and borrowing costs that are close to a record low.
Home prices rose 4.6 percent in August from a year earlier, the biggest increase since July 2006, according to CoreLogic Inc. (CLGX), a Santa Ana, California-based mortgage data firm. Sales of existing houses in August jumped to the highest in more than two years, rising 7.8 percent from the previous month, the National Association of Realtors said.
Smith said that Realogy plans to retire about $1 billion of debt a year as it works to reach profitability. The company had a net loss of $25 million in the second quarter after recording $176 million of interest expense and $44 million of depreciation and amortization costs. Revenue rose 11 percent from a year earlier to $1.31 billion.
Realogy will benefit even if the economy recovers slowly because of divorces, births and other life events that spur Americans to buy and sell homes, he said. Realogy has cut its annual costs by about $500 million and reduced its employee count by 30 percent during the six-year housing slump, he said.
“We are well positioned for a strong recovery, a moderate recovery or a choppy recovery,” Smith said.
Apollo, co-founded by Leon Black more than two decades ago, invested $1.05 billion in the 2007 Realogy buyout. The takeover was valued at $6.8 billion, according to a regulatory filing. Apollo announced the acquisition in December 2006, five months after home prices peaked, according to the S&P/Case-Shiller index. At the $27 IPO price, Apollo’s 50.2 percent stake in Realogy was valued at about $1.8 billion.
Apollo, based in New York, took Realogy public as it prepares to raise a new fund of as much as $12 billion, people familiar with the situation have said. Last week, Apollo’s Berry Plastics Group Inc. (BERY) completed its own IPO, pricing its shares at the bottom of its planned price range.