We’ve all seen the red, white, and blue hot air balloons, the readily recognizable logo of real estate brokerage giant Re/Max. Now that the U.S. real estate market has been ballooning itself, Re/Max has decided it’s time to launch an IPO for a listing on the NYSE.
But after 40 years of running a very successful realty agency as a private company, why go public now? What is behind Re/Max’s decision? Might our portfolios get a lift from its expanding business?
Poised to Soar
Founded in 1973 in Denver, Colorado, Re/Max operates a network of real estate broker franchises in 95 countries around the globe, with a sales force of over 92,000 agents. The company had reached a peak of 120,000 agents prior to the bursting of the U.S. housing bubble, which popped many a real estate agency’s balloons.
But with the U.S. housing recovery in full swing, Re/Max’s business is soaring again, with $24 million in profits in 2011 and $33 million in 2012. In the first six months of 2013, profits have already reached $15 million, some 8.7% more than last year’s first half.
Ranked the most recognizable real estate brokerage in the nation, the company posts some rather impressive survey results, including the “RISMedia Power Broker Report”, showing Re/Max agents “averaged 16.8 transaction sides compared to the 8.1 average of agents at all other participating brokerages.”
With more transactions than any other U.S. real estate brokerage, “RE/MAX agents closed 828,960 residential transaction sides in 2012, 25% more than second-place Coldwell Banker…Re/Max agents have earned No. 1 market share every year in the U.S. since 1997,” the company proudly boasts.
The company sold 739 franchises last year and expects more franchise sales as the housing recovery is seen continuing for several more years. It has even positioned itself to participate in the robust Asian real estate markets by expanding into China and Hong Kong last year and into South Korea this year.
Encouraging IPO Prospects
With everything going so well for the private company for over 40 years, there was never really a need to go public… until others started raking in a fortune doing it.
Competitor real estate brokerage Realogy Holdings (NYSE: RLGY), which went public last October, has already gained 33% in share value as its stock climbed from the $32.50 IPO price to today’s $43.20. Even with $4.5 billion worth of debt at the time of its offering, Realogy still managed to raise $1.1 billion, underscoring the strong enthusiasm investors have for the real estate space.
So Re/Max is going to launch its own stock in the hopes that it too will balloon upward, intending to raise $100 million under the NYSE ticker RMAX, the date not yet disclosed.
Whereas Realogy’s IPO was a success even with most of its offering’s proceeds going toward paying down its enormous debt, Re/Max’s offering should fair even better given the company’s considerably lighter debt burden. Its IPO proceeds will go toward expanding its business by acquiring regional franchise rights in the central Atlantic and southwestern United States.
As noted in the company’s IPO filing, of the two classes of shares that will be issued, Class A shares will be auctioned on the NYSE. Class B shares carrying twice the voting authority as Class A shares will be sold to a select group of investing companies, which include private-equity firm Weston Presidio V LP and RIHI Inc., the holding company started by Re/Max’s original founders.
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Adding Lift to Your Portfolio
If everything else that is home related has been soaring – such as building supplier Home Depot (NYSE: HD), up 31% over 12 months, home builder Hovnanian Enterprises (NYSE: HOV), up 109%, and real estate online listing service Zillow (NASDAQ: Z), up 116% – then why not a real estate agency? Competitor realtor Realogy Holdings (NYSE: RLGY), already up 33%, has proven the investment demand.
Yet we mustn’t fear upcoming adjustments in the U.S. Federal Reserve’s monetary policies – likely to be announced September 18th – as putting a damper on the housing market. The latest home sales figures for July by the National Association of Realtors show sales soared 6.5% last month to an annual rate of 5.39 million units. That’s an awful lot of business going into real estate agencies’ cash registers.
Sure, expected policy adjustments are likely to drive mortgage rates up a little more, which will turn some buyers away. But once everyone adjusts to new financing norms, home buyers will soon realize that rates can only go higher in the future and that now is still the best time to shop for a home.
So look for home buying to continue strong for the next few years. Remember, too, that higher interest rates will bring home prices down, and the lower asking prices will attract buyers all the same.
After 40 years in the business of selling homes, Re/Max will tell you the demand for its services will always be there. With the U.S. housing recovery still ballooning, Re/Max’s new stock will likely be riding along in the basket beneath it.
Joseph Cafariello
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