Real estate brokerage and franchise company Realogy Corp. reported a $797 million net loss in 2007 for the period since its April 10 acquisition by an affiliate of private equity firm Apollo Management LP.

The company also reported a $44 million net loss for the period from Jan. 1, 2007, through April 9, 2007. That compares with net income of $365 million in 2006 and net income of $627 million in 2005.

In a projection of the financial effects of the company’s acquisition as if it had occurred on Jan. 1, Realogy said its net loss would have been $605 million for the full year.

The company said a fourth-quarter review resulted in a non-cash impairment charge of $667 million that reduced the company’s intangible assets by $550 million and reduced goodwill by $117 million. "The impairment is the result of the continued downturn in the residential real estate market in 2007 as well as reduced short-term financial projections," the company reported.

The company’s revenue for the Jan. 1-April 9 period in 2007 was $1.49 billion and was $4.47 billion for the April 10-Dec. 31 period in 2007, for an annual total of $5.97 billion. That compares with $6.49 billion in revenue in 2006 and $7.14 billion in revenue in 2005.

The company reported that its operating results "declined year-over-year primarily as a result of the continued industrywide slowdown in U.S. existing-home sales."

Realogy company-owned brokerage office and franchise brands include Coldwell Banker, Century 21, ERA Real Estate and Sotheby’s International Realty, among others.

The volume of home-sale transactions by Realogy-affiliated franchise offices fell 19 percent in 2007 compared to 2006, while the volume of transactions at company-owned offices fell 17 percent.

This reduction in sales volume by company-owned operations, was partially offset by an 8 percent year-over-year rise in the average sale price, which the company said reflects its "strategic presence in higher-priced markets such as New York City, the Hamptons, Beverly Hills and the Sotheby’s International Realty markets across the country."

Meanwhile, the average sales price of transactions that Realogy-affiliated franchise offices handled fell 1 percent in 2007 compared to 2006.

In 2007, Realogy consolidated 67 company-owned office locations while "retaining about 92 percent of its top agents and their production," according to the earnings report. In the past two years, the company has consolidated about 20 percent of its company-owned offices.

Realogy announced that it will exit government relocation business through its Cartus subsidiary. That company was reportedly "taking losses on home sales in this line of business in 2007" as relocating employees’ properties took longer to sell and the company worked under a fixed fee for those contracts.

The company estimates that the elimination of the government relocation business will improve the company’s cash flow by $50 million in 2008.

The market has also taken its toll on an unaffiliated relocation giant, Sirva Inc., which in February announced a bankruptcy reorganization. Sirva conducts about 300,000 relocations per year.

"The U.S. residential real estate industry is in a significant downturn due to various factors including downward pressure on housing prices, credit constraints inhibiting buyers, an exceptionally large inventory of unsold homes at the same time that sales volumes are decreasing and a decrease in consumer confidence, which accelerated in the second half of 2007," Realogy reported in its annual earnings statement.

"Although cyclical patterns are not atypical in the housing industry, the depth and length of the current downturn has proved exceedingly difficult to predict."

Turmoil in the credit markets has impacted Realogy parent company Apollo Management LP, a firm that has specialized in leveraged buyout deals of large companies.

Bloomberg News this month reported that bonds related to the Apollo buyout of Realogy have been losing value, with some bonds due in 2015 trading at about 51 cents on the dollar compared with about 80 cents on the dollar five months ago.

And the value of leveraged buyout deals announced in the second half of 2007 fell by two-thirds compared to their value in the first half of the year, Bloomberg also reported.

Leon Black, founder of Apollo Management LP, has stated that the company "factored a substantial (housing market) downturn into our original investment thesis" when the company acquired Realogy, and noted that Realogy has not yet drawn from a $750 million available credit line, the article states.

In its annual earnings report, Realogy noted that the company is "significantly leveraged," and its total long-term debt was estimated at $6.24 billion as of Dec. 31, 2007, which does not include $525 million in letters of credit issued under a credit facility and $37 million in outstanding letters of credit.

The company also reported that its liabilities include about $1.01 billion in securitization obligations collateralized by $1.3 billion of securitization assets "that are not available to pay our general obligations." And much of the company’s debt is subject to fluctuating interest rates.

Realogy CFO Anthony Hull said in a statement that given the company’s net senior secured debt of $3.1 billion, combined with the company’s accounting of its earnings before interest, taxes, depreciation and amortization (EBITDA), the ratio of debt to its adjusted EBITDA at the end of 2007 was "well within the maximum 5.6 times ratio that will be measured under the terms of our credit agreement at March 31 of this year."

Richard A. Smith, Realogy CEO and president, said in a February statement that changes in the company’s bond values have "little bearing on our company’s financial performance and is not an accurate indicator of our ability to continue to meet our debt obligations.

"We have met, and fully expect to continue to meet, all of our debt service obligations. Bond pricing is subject to short-term trading market vagaries and uninformed speculation."

Smith said that the company is on track to launch an additional franchise brand, Better Homes and Gardens Real Estate, in July 2008, "and we will continue to grow our existing franchise networks."

There are an estimated 308,000 sales associates working with Realogy company-owned and affiliated brands, and Realogy has 13,400 employees around the globe.

Am earnings conference call is planned on March 24 at 4 p.m. EDT. The call can be accessed via Web cast at the "Investor Information" section of the Web site. There will also be a limited number of dial-in conference lines at (800) 857-9091, pass code: 7808796. A reply of the call will be available at the company’s Web site through March 31.


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