Cendant keeps options open for future of Realogy

If Cendant Corp.’s upcoming launch of an independent, publicly traded real estate company does not have a warm reception on Wall Street, the company may consider other options for that business, CEO and chairman Henry Silverman said today during a discussion of the company’s first-quarter earnings.

He did not rule out the potential for a post-spin-off private sale of the company’s real estate segment, which re-branded this year as Realogy, or other business segments that the company plans to spin-off as separate companies. Silverman, who will serve as chairman and CEO for the first 18 months of the spin-off real estate company, prefaced the comment with a statement that there is no plan at this time to sell off the real estate business.

Cendant officials announced in February that it would split into four separate companies: Realogy; a hotel company, Wyndham Worldwide; a car rental company, Avis Budget Group; and a Travel Distribution Services company.

The planned launch of Realogy is still on track for June, Cendant officials said today. Earlier this week, company officials said they were considering a sale of the travel segment as an alternative to the spin-off of that segment.

During a first-quarter-2006 earnings presentation today, Chris Gutek, an analyst for Morgan Stanley, asked Silverman whether company officials would also consider a possible sale of other business segments if the spin-offs don’t receive satisfactory valuations as publicly traded companies.

In response, Silverman offered this disclosure, “We can’t have any arrangement pre-spin to sell something post-spin, and we have no such arrangement, plan, scheme or hope or dream.

“That said, I can only speak for Realogy … The board I would assume, and I certainly foresee, I would recommend that we monetize that asset at an appropriate value if the marketplace is not willing to do that. We are determined to enhance value. We would not be going through the brain damage of this four-way split-up unless we thought there was a very significant upside for all this activity that people are going through.”

The proposed Realogy spin-off comes at a time when the nation’s real estate market is slowing down.

In its first-quarter earnings announcement, Cendant announced that transaction volume dropped 10 percent for its franchise business and 6 percent for company-owned business compared to first-quarter 2005, and total revenue for franchise and company-owned business dropped slightly while earnings before interest, income taxes, depreciation and amortization, or EBITDA, fell 25 percent compared to first-quarter 2005. The first quarter is typically slow for the real estate industry, with most profits coming during the second and third quarters of the year, Silverman said.

He also said that Cendant’s real estate business should be roughly flat this year, with some improvement expected in the second half of the year.

While the National Association of Realtors released existing-home sales data this week that showed an improving market from February to March, Silverman said he is unconvinced that the market is getting better at this time. “I’m not sure the (association) data is terribly relevant. They typically sample only 20 percent of MLSs and then they adjust those numbers with a number of variables. I think that with 30 percent of the market — as we believe we have at least on price and size in terms of dollar volume — statistically you could argue we are the market.”

He added, “So our results are more likely to be accurate as to the market than whatever (the association) is projecting or … has reported.”

Ronald L. Nelson, Cendant president and chief financial officer, said, “There is no question that certain markets that were overheated are feeling the pressure of reduced transaction volume,” adding that the nation as a whole is still headed for a soft landing as opposed to a bubble-burst. He said the forecast is for a percentage increase in home prices in the mid-single digits this year, with transaction volume down in the high-single digits.

Nelson also reiterated the company’s previously announced plan to compensate for the slower real estate market with office consolidations, and he also said the plan would include a “head-count reduction.”

The company earlier reported a plan to cut about $50 million in cost through consolidation at company-owned brokerages, which are operated through Cendant subsidiary NRT Inc.

Cendant’s company-owned and franchise brands include Coldwell Banker, Century 21, ERA and Sotheby’s.