$1 Billion Realogy IPO Shows Increasing Confidence in Housing

by Peter Thomas Ricci

October 01, 2012

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The Realogy IPO, which is expected to raise more than $1 billion for the company, could signal continued investor confidence in the housing market.

By Peter Ricci

Realogy, the real estate services company that owns Coldwell Banker and Century 21, is planning on going public late next week, and its IPO is expected to raise more than $1 billion from investors, according to numerous reports on the offering.

In what would be the third-largest initial public offering in the U.S. in 2012, the Realogy IPO will involve 40 million shares of stock priced between $23 and $27 each; should Realogy raise the anticipated $1.08 billion, the company would be valued at $3.51 billion.

Realogy IPO – Oh Heavy (Debt) Burden

Realogy, which is owned by Apollo Management, a private equity firm, would principally use the financing from its IPO to pay down its substantial debt:

Realogy has never turned a profit since going private in 2007; it was spun off from Cendant Corp in July 2006, and Apollo took it private for $6.65 billion.
As of June 30, its total debt was $7.34 billion.
In 2011, Realogy recorded a revenue of about $4 billion, but it still suffered $441 million in losses.
The Realogy IPO is being led by Goldman Sachs and JPMorgan Chase, and after the firm is taken public, Apollo’s ownership of the company will drop from 73 percent to about 50 percent.

Investor Confidence and the Real Estate Industry

Initial public offerings have been taking a bad rap since the much-beleaguered Facebook public offering, but the Realogy IPO could have different fortunes for one main reason – its association with real estate.

As the Zillow and Trulia IPOs have demonstrated, the financial markets are beginning to feel more confident with real estate businesses; in its first day of trading, Trulia’s stock soared 41 percent, closing the day with its shares at $24.

Megan McGrath, an analyst with MKM Partners, explained that investors are now feeling optimistic with where the housing market is headed and are attempting to get in on the action.

“The debate has moved away from, ‘Is housing really recovering?’ to ‘How fast is it going to recover, and what’s the best way to play that?'” she said.

Indeed, in addition to the Realogy IPO, Archstone Inc, an owner and developer of multifamily units, filed for an IPO in August.

After years of skepticism, isn’t it nice to see investors flocking to housing?