Cendant Corp. plans to cut costs at real estate brokerage company NRT Inc. by about $50 million this year through a cost-cutting strategy that includes office closures, Cendant chairman and CEO Henry Silverman said today during an earnings presentation.

“To counter the impact of a slowdown at NRT we have put in place a cost-reduction program, which principally includes consolidating local offices in order to right-size NRT’s cost structure to be in line with reduced volumes,” Silverman said during a discussion of the company’s fourth-quarter earnings and full-year earnings for 2005.

“We think we can take out about $50 million of cost initially. That requires some office closings. It’s not a dollar-per-dollar benefit because you do have some breakage — you do lose some of the benefit of having the agents in those offices who may even work for the person across the street if they like that particular location.” The company is expected to realize the financial benefits of the cost-cutting plans in the second half of the year, Silverman said.

Cendant and NRT officials provided no other information about the office closures and whether staff reductions are also planned. Mark Panus, a Cendant spokesman, said in a statement today that the company had no additional comments about the consolidation plan announced last year.

Cendant real estate brands include Coldwell Banker, Century 21, ERA and Sotheby’s. The company is a major real estate franchiser and owns offices through the NRT subsidiary, which is the nation’s largest real estate brokerage company. Cendant also operates companies in the hospitality services, timeshare resorts, vehicle rental and travel distribution services industries.

The real estate market quickly turned in December, Silverman said, and the default rate or cancel rate of open contracts to purchase properties “spiked by about 30 percent just in December alone.” This cancellation rate was largely in markets where there have been reports of widespread real estate speculation, he said. “The flippers, the speculators, either have or are departing the market.”

While the market “is basically where it is expected to be, the deceleration or lack of acceleration is greater” than anticipated, he said. And that has had a particularly dramatic impact on NRT, he said, which is responsible for company-owned real estate brokerage offices. NRT has operations concentrated in coastal markets that have seen some particular market changes, he noted.

The volume of real estate transaction sides — there are two sides in every real estate transaction; a buyer’s side and a seller’s side — dropped about 19 percent in the New England, California and Florida markets for NRT in fourth-quarter 2005, the company reported, while transaction sides for NRT’s other market segments were up about 4 percent.

Silverman blamed media reports about the real estate market, in part, for the change in market conditions. “We think to some extent that that is also a function of the media which is reporting on a daily basis that the real estate market is going over the cliff — that may have convinced buyers to become more cautious. Anecdotally we’re being told that,” he said.

The real estate market is expected to be a drag on the company’s financial results for the first quarter of this year, Silverman said, with projected earnings before interest, taxes, depreciation and amortization down 30 percent to 40 percent for the quarter versus first-quarter 2004.

This decline “is exaggerated significantly by the seasonality of the revenue stream,” he said, as the real estate market is typically slow in the first quarter. NRT, which has fixed expenses of about $300 million per quarter, typically loses money in the first quarter because of seasonal variations in real estate activity. About 15-17 percent of NRT’s revenue occurs in the first quarter, compared to about 30 percent in each of the next two quarters and 23 percent in the fourth quarter, he said.

Cendant plans to split its operations into four separate public companies, and the real estate spin-off should occur in June, Silverman announced. He will lead the real estate spin-off company.

The company expects a gradual increase in mortgage interest rates, “but nothing that’s going to have a major impact on the market,” Silverman said, adding that the company is likely to pursue more acquisitions and more franchising opportunities if there is a downturn in the market.

Revenue for Cendant’s real estate services division reached $1.62 billion in fourth-quarter 2005, up 3 percent from fourth-quarter 2004. But EBITDA for the real estate services division was down 7 percent in that time. This real estate division includes the company’s real estate franchise brands, brokerage operations, relocation services and settlement services businesses.

Home prices increased 12 percent at Cendant’s real estate franchise business and 10 percent at NRT’s company-owned real estate offices in the fourth quarter, though there was a 5 percent decline in closed transaction sides at company-owned and franchise offices, the company reported.

Total revenue for the company’s real estate franchise and company-owned real estate offices was up 4 percent in fourth-quarter 2005 compared to fourth-quarter 2004. Total revenue for Cendant’s settlement services division was down 1 percent in fourth-quarter 2005 compared to fourth-quarter 2004, and total revenue for the company’s relocation division was down 2 percent.

For all of its operating divisions, Cendant Corp. reported that revenue increased 7 percent to $4.3 billion in fourth-quarter 2005 versus $4 billion in fourth-quarter 2004.

The company’s fourth-quarter earnings per share from continuing operations was a loss of 4 cents. Full-year 2005 revenue increased 9 percent to $18.2 billion in 2005 versus $16.7 billion in 2004.

“The loss from operations in the fourth quarter reflects the impact of the previously disclosed impairment charge related to lower than previously forecasted results in the company’s travel distribution services businesses,” Cendant reported. Net income increased to $537 million, versus $357 million in fourth-quarter 2004.

Reported earnings per share from continuing operations was 82 cents ($1.28 as adjusted for specified items), and net income was $1.3 billion.

An audio recording of the company’s earnings announcement is available online.

Cendant stock (NYSD: CD) was trading at $15.69 per share this afternoon, down 6.72 percent from Monday’s closing price of $16.82.


Send tips or a Letter to the Editor to glenn@inman.com or call (510) 658-9252, ext. 137.

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