THE HEDGEYE EDGE
Realogy’s first quarter earnings results were positive as revenue grew +6%, ahead of consensus expectations for +2% growth. All in, sales were stronger with margins lighter on higher average broker commission rates though the real takeaway here is that both volumes and prices are continuing their upward trend.
Realogy has four segments. They include the franchised brokerage (RFG), company-owned brokerage (NRT), relocation services (Cartus) and title services (TRG).
Breaking down the most recent quarter, Realogy's franchise segment (RFG) had solid performance in the quarter. Closed homesale sides grew +3.2% in 1Q 2017 to 225,250 sides. Meanwhile, the average homesale price grew +6.5% year-over-year to $275,828, equating to a +9.7% Y/Y increase in total transaction volume.
NRT reported revenue of $897mn, an increase of +7% from 1Q16. During the first quarter, NRT closed 66,570 homesale sides, a +3.6% Y/Y increase, at an average selling price of $509.2k, an increase of +3.3% Y/Y. Management noted that volume increased +8% Y/Y in the Northeast and Southern regions, +6% Y/Y in the Midwest, and +5% Y/Y in the West.
Sales were buoyed by a +10% Y/Y increase in NRT homes sold over $2.5mn, which accounted for ~20% of NRT’s volume. The NRT segment, with a heavy Tri-State footprint, accounted for 59% of Realogy’s 2015 EBITDA. We generally regard trends in NY Metro/Tri-State to be decent high-end proxies on a broader basis.
We also note that the trend in high end real estate volume comports with the broader rebound in luxury spending nationwide. High ticket discretionary consumption (pleasure boats, aircraft, jewelry and watches - our proxy for the state of luxury consumerism) has grown +5% thus far in 2017, a notable acceleration off of 2016's post-recession low watermark of 1% growth.
Furthermore, a recent report (HERE) from Douglas Elliman and Miller Samuel notes that the number of single family homes sold in Greenwich, Connecticut during the first quarter increased by +28% Y/Y. The median single family home price during this period was $1.87mn, an increase of +12% Y/Y. Recall that Greenwich had been one of the weakest high-end markets in the country throughout much of 2016.
The Real Estate Board of New York reported (HERE) that the dollar volume of residential sales in New York City totaled $12.3bn in 1Q17, an increase of 11.5% from 4Q16 and an increase of 15% Y/Y. During the same period, the average price for a home in New York City jumped to $1.02mn, a +12% Y/Y increase. Additionally, REBNY reported an increase of 33% Y/Y for homes sold above $10mn. We generally regard trends in NY Metro/Tri-State to be decent high-end proxies on a broader basis.
Our current outlook is that Realogy will beat the Street's estimates throughout the balance of 2017. Hedgeye estimates for total revenue and GAAP EPS in 2017 are currently +5% and +15% above the Street, respectively. We see a path to $3 in earnings by 2019.
ONE-YEAR TRAILING CHART
