Apollo Global Management LLC (APO:US), the private-equity firm led by financier Leon Black, will reap about double its money on a six-year-old investment in Realogy Holdings Corp. (RLGY:US) as the U.S. housing market rebounds.
The firm plans to sell 25.1 million shares of the real estate brokerage’s common stock for $47.57 a share, or $1.2 billion, in a secondary public offering, Parsippany, New Jersey-based Realogy said in a regulatory filing (RLGY:US) yesterday.
Realogy, owner of the Century 21 and Coldwell Banker brands, has jumped 85 percent since its October initial public offering, closing yesterday at $49.95, as homebuying demand spurs the biggest jump in values since 2006. For New York-based Apollo, the sale caps a turnaround of a bet that three years ago was in jeopardy of being wiped out.
A fund Apollo manages sank $920 million into an $8.3 billion leveraged buyout of the company in April 2007, just before the bottom fell out of the housing market. Realogy’s earnings before interest, taxes, depreciation and amortization, or Ebitda, fell by almost half from 2006 to 2009.
Black and his partners salvaged the investment by amassing Realogy’s junior bonds during the depths of the housing slump. They then converted the debt into equity and took Realogy public on Oct. 10 amid signs that home prices were reviving.
The maneuver transformed a potential loss into about a 100 percent gain on the $1.34 billion Apollo Investment Fund VI ultimately ended up investing in the company. The fund’s Realogy proceeds include $1.2 billion from selling about half its stake (RLGY:US) in an April stock offering.
Melissa Mandel Kvitko, a spokeswoman for Apollo at public-relations firm Rubenstein Associates, declined to comment on the investment returns.
Homebuyers seeking to take advantage of historically low mortgage rates are competing for a tight supply of listings, driving up values. U.S. home prices rose 12.2 percent in May from a year earlier, the largest increase since February 2006, according to Irvine, California-based CoreLogic Inc.
Realogy’s net revenue increased as much as 18 percent in the second quarter from a year earlier to as much as $1.54 billion, according to preliminary results the company issued this week. Home-sale transactions rose 21 percent, compared with the company’s May projection that they’d climb 14 percent to 17 percent.
U.S. mortgage rates fell in the latest period, reducing borrowing costs for homebuyers after the 30-year average jumped to a two-year high last week. The average rate for a 30-year fixed mortgage dropped to 4.37 percent in the week ended yesterday from 4.51 percent, which was the highest since July 2011, McLean, Virginia-based Freddie Mac said yesterday in a statement.
To contact the reporters on this story: David Carey in New York at firstname.lastname@example.org; Oshrat Carmiel in New York at email@example.com; Prashant Gopal in Boston at firstname.lastname@example.org
To contact the editor responsible for this story: Christian Baumgaertel at email@example.com