Homesale transactions plummeted at an “unprecedented level” in the second quarter of 2020 for Realogy’s franchise and brokerage businesses as COVID-19-fueled lockdowns shuttered the housing market in the beginning of the quarter.
Realogy Franchise Group reported 238,085 transaction sides in the second quarter, a 21 percent decrease from last year. The company’s brokerage business reported 71,375 transactions, a year-over-year decrease of 25 percent, with geographic variations impacting the brokerage and franchise businesses differently.
The fall is a stark portrait of the headwinds generated by the pandemic, though the company does believe industry trends due to the lockdowns have shown significant improvement since the lows reached in April and May.
“Closed transaction volume across both our franchise and owned business fell significantly in April and May but improved markedly in June,” Ryan Schneider, Realogy’s president and CEO, said on a company earnings call.
Schneider called both the challenges and the drop in transactions, “unprecedented.”
In another positive sign for future earnings, the company reported that open transactions — a signed contract where the home hasn’t yet closed — were up 21 percent year over year in June.
“Open volume is showing very strong growth,” Schneider said. “Based on preliminary data, this trend continues to improve in July, with both our brokerage and franchise businesses up approximately 30 percent.”
“There’s definitely some pent up demand form the massive drop-off we saw in April and May.”
In the second quarter of 2019, the company reported 301,377 closed sides for its franchise business and 95,251 closed sides for its brokerage business. Those transaction numbers were down 4 percent and 5 percent, respectively, from their 2018 totals.
The company generated $1.2 billion in revenue in the quarter, a decrease of 27 percent or $457 million, year-over-year, and posted an overall net loss of $14 million, after posting a net income of $69 million in the second quarter of 2019.
The company did beat expectations on the revenue front by more than $103 million, however, those expectations should have been taken with a grain of salt due to the economic uncertainty surrounding COVID-19, according to John Campbell, an analyst with Stephens.
The company’s proactive actions earlier in the quarter led the company to deliver Operating EBIDTA [earnings before interest, taxes, depreciation, and amortization] of $172 million from continuing operations.
“Realogy delivered substantial Operating EBIDTA in the quarter as we made rapid moves to navigate through the turbulent environment,” Schneider said in a statement.
“We continued to enhance our digital technology offerings, invest in strategic priorities, and improve our balance sheet,” Schneider added. “We believe that progress, combined with recent positive market data, positions us well for the future.”
The company posted a net income of $28 million specifically from continuing operations. For accounting purposes, the Cartus relocation services business was considered a discontinued operation.
In the second quarter, the company’s previously agreed-upon deal to sell the relocation services arm of Cartus, to pay off some debt, fell through. Last week, a Delaware court rejected the company’s bid to compel Madison Dearborn Partners (MDP) and SIRVA Worldwide to close the $400 million deal. Realogy had accused MDP and SIRVA of using the global coronavirus pandemic to avoid closing the deal.
However, the company was able to pay off outstanding new senior notes dues in 2021, thanks to a $500 million capital raise, by selling second lien notes.
Realogy exited the quarter with $686 million in cash, which included the $400 million it drew down in March, as well as the $106 million of free cash flow from continuing operations in the quarter.
“We were agile and efficient throughout the second quarter and successfully managed costs, which helped generate substantial Operating EBITDA and positive free cash flow in the quarter,” Charlotte Simonelli, Realogy’s executive vice president, chief financial officer and treasurer, said in a statement. “We took proactive steps to strengthen our balance sheet.”
Realogy closed the trading day with its stock price trading at $8.83 per share and was up 1.7 percent in after-hours trading.