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1 Sign That Real Estate Is Getting Frothy

Rick Aristotle Munarriz
October 11, 2012

Realogy  (NYSE: RLGY  ) dared to challenge the choppy IPO waters by going public today.

It's winning.

Realogy may not ring a bell, but you may be familiar with many of its real estate services. This is the company behind Coldwell Banker, ERA, Century 21, Sotheby's International Realty, and several other providers of real estate franchising, brokerage, relocation, and title services.

It's been a well-received debut. Realogy was expecting to sell a whopping 40 million shares between $23 and $27 apiece. Underwriters were able to price the deal at the high end of that range last night, and that's good news for Apollo Global Management (NYSE: APO  ) , which took the company private in a leveraged buyout five years ago.

However, even $27 for Realogy wasn't enough. The stock opened 22% higher at $32.85 this morning, moving even higher later in the day.

Realogy's financials aren't befitting of a hot IPO. Revenue clocked in flat last year at $4.1 billion and adjusted EBITDA declined by 11%.

For a company that generated 72% of its revenue last year from gross commission income, one would think that home prices inching higher this year and an inviting mortgage market given dirt cheap borrowing rates would be major growth catalysts.

Well, that is starting to play out this year, but perhaps not as vividly as housing bulls would expect. Revenue climbed 9% through the first six months of 2012, and adjusted EBITDA climbed 14%. However, Realogy is still posting losses, weighed down by the heavy interest expenses incurred given its highly leveraged ways. Today's IPO will help Realogy pay down some of that burdensome debt, but this is still an offering that can quickly so