The parent of Realogy Corp. filed to raise as much as $1 billion in an initial public offering, five years after Apollo Global Management LLC (APO:US) took the real estate broker private in the largest buyout on record for the industry.
Domus Holdings Corp., owner of Realogy, didn’t specify the price or the number of shares on offer today in a regulatory filing. Apollo, the New York private equity firm run by Leon Black, will hold a majority of the voting common stock following the offering, the filing shows.
Realogy, which runs the Century 21, Coldwell Banker and Sotheby’s International Realty brands, is going public as the U.S. housing market shows signs of hitting bottom in the midst of the worst real estate collapse since the 1930s. While trends suggest a recovery for real estate, a weak stock market is sapping demand for new equity offerings, according to Jack Ablin of BMO Harris Private Bank.
“The housing market and the IPO market are certainly different,” said Ablin, who helps oversee about $60 billion of assets as the firm’s chief investment officer in Chicago. “They’re certainly bucking the trend by bringing this deal.”
The real estate services provider announced IPO plans even after U.S. stocks sank to a six-month low this month and demand for offerings dried up. No companies have completed or set pricing terms for U.S. IPOs since Menlo Park, California-based Facebook Inc. raised $16 billion in its May 17 sale.
Realogy is well-positioned to take advantage of the strengthening recovery in residential property, Domus said in the filing. Sales of previously owned houses climbed 3.4 percent in April to a 4.62 million annual rate in April, close to January’s 4.63 million pace, which was the highest in almost two years, the National Association of Realtors reported.
U.S. home prices advanced 1.1 percent in April compared with a year earlier, according to data provider CoreLogic’s monthly Home Price Index released June 5. It was the second straight year-over-year rise and the first time two consecutive increases occurred since June 2010.
“A successful IPO for Realogy will depend on investors believing we are in a sustainable U.S. residential real estate recovery.” said Emile Courtney, a New York-based credit analyst at Standard & Poor’s.
Apollo paid $6.6 billion for Parsippany, New Jersey-based Realogy in the biggest leveraged buyout of a real-estate services firm on record, according to data compiled by Bloomberg. Apollo announced the deal in December 2006, five months after home prices peaked, according to the S&P/Case- Shiller Index.
Domus has reduced operating costs by about $500 million since 2005. Still, the company reported net losses every year since at least 2008 and also in the first three months of this year, the filing shows.
Domus also is allowing Apollo and Paulson & Co., the hedge fund run by John Paulson, to convert about $2 billion of convertible notes for stock in conjunction with the IPO, according to the filing. Paulson owns $493.5 million of convertible notes, the filing shows.
Assuming the notes are converted, Apollo would hold 66 percent of Domus’s Class A stock prior to the IPO, and Paulson would own 22 percent. The filing didn’t elaborate on how much they will own following the offering.
Domus’s offering may allow Paulson to raise cash as the billionaire hedge-fund manager seeks to reverse record losses in 2011. Paulson has agreed to hold his Domus stock for as much as 180 days following the IPO.
Apollo’s IPO of Caesars Entertainment Corp. (CZR:US) earlier this year also opened the way for Black and Paulson to reap cash from an investment. The Las Vegas-based casino chain’s February initial offering raised $16.3 million, and the shares have risen 34 percent through yesterday.
Realogy’s $491.8 million of 11.5 percent bonds due April 2017 rose 5 cents to 95.5 cents on the dollar to yield 12.8 percent at 12:17 p.m. in New York, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority.
Realogy’s brands, which also include Better Homes and Gardens, The Corcoran Group and ERA, have about 13,800 franchised and company-owned offices in more than 100 countries, according to the company’s website.
Realogy didn’t say in its filing whether it had hired underwriters for the IPO.
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