Realogy reaches 4x leverage goal early, eyes further reduction to 3x

By Lisa Kerner

Charlotte, N.C., Nov. 5 – Realogy Holdings Corp. was able to achieve a 4 times leverage ratio one quarter earlier than expected, chief financial officer Tony Hull said during Realogy’s third-quarter earnings call on Thursday.

The company increased its third-quarter free cash flow by $15 million year over year to $249 million. Year-to-date free cash flow is up 59% at $400 million, said Hull.

Previously, Realogy announced plans to retire its $593 million principal amount of 7 5/8% first-lien notes and $196 million principal amount of 9% first-and-a-half-lien notes by the end of the year.

The company completed a $1.25 billion financing in October, increasing its revolver capacity to $815 million and raising $435 million under a new term loan A facility.

“In connection with the financing, we called both the $593 million of 7 5/8% debt and subsequently the $196 million of 9% debt,” Hull said. “Along with our plan to retire $500 million of senior notes due May of 2016, this will reduce run rate interest expense in 2016 to approximately $170 million, down from the current annualized rate of $210 million.”

Realogy will apply near-term cash balances and draw on its revolver to retire the $500 million of debt due in May, according to Hull.

“As cash flow builds, we're making progress towards our goal of 3 times net debt to adjusted EBITDA leverage, which will put us in a position to return capital to shareholders,” said Hull.

The company ended the quarter with cash and cash equivalents of $567 million and no outstanding borrowings under its revolving credit facility. Total long-term corporate debt, including the short portion, net of cash and cash equivalents, totaled $3.33 billion at Sep. 30.

Financial highlights

“Our strong third-quarter results reflect our solid financial and operating performance," said chairman, chief executive officer and president Richard A. Smith.

“Thus far, we believe 2015 represents a sustainable and steady housing recovery that is still in its early stages, that most of the relevant economic and demographic factors that impact housing are moving in the right direction, and we expect to benefit from that trend,” Smith said.

Realogy’s third-quarter revenue was up 9% year over year at $1.7 billion, driven by higher homesale transaction volume, according to the earnings release.

“Looking ahead to the fourth quarter of 2015, we expect to achieve homesale transaction volume gains in the range of 7% to 10% year-over-year on a company-wide basis,” said Smith.

Adjusted net income was up 14% at $111 million.

The Madison, N.J.-based residential real estate services provider’s adjusted EBITDA was up 7%, or $21 million, at $308 million.

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