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Expert says Realogy might be biting off more than it can chew in IPO

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While Parsippany-based residential brokerage giant Realogy Corp. hasn't backed off its original plan to reduce nearly $3 billion worth of debt by making its stock public, an initial public offering analyst said the firm may be asking too much in its filing today.

"I'm a little surprised at their 40 million shares offering, because I'm not sure if the market is ready to take that kind of deal and embrace it just yet," said David Menlow, president of Green Brook-based IPO Financial Network. "The jury has not yet come up with a verdict on the health of the real estate market."

But in its amended filing with the Securities and Exchange Commission, Realogy — which owns brokerage brands like Century 21, Coldwell Banker and ERA — said it "believe(s) that we are experiencing the beginning of a recovery in the residential real estate market," noting its company-wide volume of completed home sales increased 13 percent in the first eight months of 2012, compared to the same period in 2011. The company hopes to raise more than $1 billion through the IPO.

In an earlier filing, Realogy parent company Domus Holdings Corp. said sales volume rose 12 percent in the first five months of the year from the same period last year.

"We believe that our business is well positioned to benefit from a sustained recovery in the residential real estate market as a result of our scale, market leadership, breadth of complementary service offerings and operations, and the substantial brand equity of our portfolio of brokerage brands," Realogy said in its SEC filing today.

But Menlow said "all the metrics are just trying to point toward a better real estate market," so the brokerage firm's $1 billion offering is "a bit too large for investors to consider in an area of scorched earth."

Menlow said he would have "much rather seen Realogy come in with fewer shares and selling less of the company" in its first public offering.

"They have a little too much happening at once at this point. Most companies in their position would at least establish a foothold, and then go to a secondary offering to raise the money they want to get," Menlow said. "Why would you come in with 40 million shares when you can come in with 10 million shares in that same $25-a-share range, wait six months to see how it's going, and then sell more shares later when maybe your stock is at a $35 range?"

Menlow said the investing public has also raised eyebrows at Realogy's plan to use the IPO proceeds to significantly pay down its debt. The company had $7.34 billion worth of debt as of June 30, and anticipates paying off approximately $2.8 billion of that debt through the offering.

"Everybody is saying, 'If the company spends all of its efforts to try to repay its debt, where's the room for growth?' " Menlow said. "If it's a failed IPO, it could then be a problem in terms of the markets' perception of what the company is. That's what concerns us here."

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