Real estate investment trusts (REITs) are a popular way for investors to passively participate in real estate through the stock market. But they aren't the only way. There are dozens of other real estate stocks available to invest in. Realogy Holdings Corp. (NYSE: RLGY), is a diverse residential real estate company that offers brokerage, franchising, relocation, mortgage, and title and settlement services for some of the largest companies in real estate today. If you're wondering if Realogy is a buy, take a look who the company is and where they stand today.
Diversified business in all facets of real estate
It's likely you've heard of Realogy Holdings Corp. companies, with brands, brokerages, and franchises like Better Homes and Gardens, CENTURY 21, Climb Real Estate, Coldwell Banker, Corcoran Group, ERA, Sotheby's International Realty, NRT, Cartus, Title Resource Group, and ZapLabs. They have 300,000 independent sales agents across the globe with presence in the USA and 112 other countries, making them the largest world franchiser of real estate brokerages in the world.
The company earns billions of dollars in revenue each year by collecting fees from their brokerages, franchises, and settlement services that assist agents and homeowners through the sale process. In addition to a joint venture with the mortgage company GRA, which provides a substantial income stream for the company -- $35 million in Q2 2020.
Tough quarter but signs of a rebound
Realogy's revenue was down 27% in Q2 2020, without a doubt from the initial halt and reduction in real estate transactions at the onset of the global pandemic. However, transactions have increased considerably in June 2020 and are likely to continue as demand for housing builds. The company spent much of Q2 focused on reducing overhead costs with several expense cuts while refinancing a 5.25% interest 2021 debt maturity to a 7.625% secured second position loan that matures in 2025. At the end of Q2 2020, their net debt to EBITDA was 5.6x, which is high for a stock, meaning the company could be overleveraged. They do have $3.4 billion in cash or cash equivalents on hand, though. Earnings per share (EPS) is currently $0.47, a $0.35 decrease from Q2 2019 EPS. Share prices plummeted back in early March, falling over 450% in a matter of days. While share prices have rebounded significantly, with prices up 380% to March lows, the company hasn't recovered fully.
Is Realogy Holdings Corp. a buy?
I think Realogy has a really great business model because it allows the opportunity to earn multiple fees from one real estate transaction, and I enjoy the fact that they have so many revenue streams. This offers diversification for the company, although that diversification is somewhat limited and Q2 2020 was a perfect example of that. Luckily, the real estate market has rebounded significantly and there are positive signs for continued sales transactions and high demand for property, but if there's a turn in the market, the company would surely feel it.
The company is not currently paying a dividend, meaning investors who purchase shares are relying solely on growth. In the past, Realogy Holdings Corp. has paid dividends but hasn't done so since 2019. Based on current earnings per share and debt ratios, I don't see the company reintroducing dividends any time soon. All in all, I don't personally think Realogy is a great value buy at the moment, but I do think the company will recover. I wouldn't be surprised to see a positive Q3 earnings report, which could drive share prices up to pre-March levels.