Anywhere Real Estate Inc (HOUS) 2006 Q3 法說會逐字稿

Welcome to the Realogy Corporation Third Quarter Earnings Conference Call.

[OPERATOR INSTRUCTIONS]

This conference is being recorded. If anyone has any objection, you may disconnect at this time. I would now like to introduce Mr. Hank Diamond, Senior Vice President of investor relations. Sir, you may begin.

Thank you, Fran. Good afternoon, everyone, and welcome to Realogy's first earnings call as an independent company. On the call with me today are our chairman and CEO, Henry Silverman; our Vice-Chairman and President, Richard Smith; and our chief financial officer, Tony Hull. Before we discuss the third quarter earnings release, I would like to remind everyone of four things; First, the rebroadcast, reproduction and retransmission of this conference call and webcast without the express written consent of Realogy Corporation are strictly prohibited.

Second, if you do not receive a copy of our press release, it is available on our website at www.realogy.com or on the FirstCall system. Third, the company will be making statements about its future results and other forward-looking statements during this call. Statements about future results made during the call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These statements are based on current expectations and the current economic environment. Forward-looking statements and projections are inherently subject to significant economic, competitive and other uncertainties and contingencies, which are beyond the control of management. The company cautions that these statements are not guarantees of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements.

Important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements and projections are specified in the company's information statement dated July 13, 2006; Quarterly Report on Form 10-Q for the period ended June 30, 2006; and Quarterly Report on Form 10-Q for the period ended September 30, 2006 to be filed with the SEC, including under headings such as risk factors, and in our press release issued today and filed on Form 8-K.

Finally, during the call, the company will be using certain non-GAAP financial measures as defined under SEC rules. Where required, we have provided a reconciliation of those measures for those most directly comparable GAAP measures, in the tables in the press release, and on our website in our most recent investor presentation. Before I turn the call over to our Chairman, let me briefly review the major points from today's press release.

Revenue for the third quarter was $1.73 billion. EBITDA before separation, restructuring and legacy costs was $277 million. Adjusted EPS on the same basis was $0.52 and EPS was $0.34, and net income was $87 million. These results were at the high end of the range of expectations that the company announced on October 11, 2006, and as a result we are reiterating our most recent guidance for full year 2006.

Now, I'd like to turn the call over to Realogy's chairman and CEO, Henry Silverman.

Thank you, Hank, and good afternoon to all of you, and welcome to our first conference call as a public company, relating to earnings. As you all know Richard Smith is responsible for the day-to-day operations of our real estate businesses as he as been for the past ten years. My principal role is to oversee the strategic direction of the company, as well as how we allocate capital.

I'll briefly comment on some of our recent strategic achievements, and then turn the call over to Richard and Tony Hull, our CFO, to discuss the residential real estate market and the results of our -- of our operations. Then we will be happy to take your questions. First, as you know, we became a public company and a member of the 500 -- S&P 500 index on August 1st, following our spin-off from Cendant.

Realogy is the largest residential real estate company in the world and the only security that enables investors to participate in the long-term growth of the U.S. existing home sale market, which is one of the largest components of the GDP, and which we have been discussing with you since 1995. Turning to our share repurchase plans, as reported on our call in August, we believed that Realogy's shares were being mis-priced by the market and as a result, our board approved a program to repurchase almost 20% of our stock.

And in September, we successfully completed a tender offer for 37 million shares -- or 15% of the shares then outstanding, for $23 per share. We believe the tender accomplished our objectives of buying back a significant portion of our shares at an attractive return on capital, as well as eliminating much of the overhang from legacy Cendant investors, who are selling their Realogy shares post spin-off.

We continue to believe that the repurchase of our stock is one of the best investments we can make, and as a result, we announced last month our intention to complete the 48 million share repurchase through the purchase of the remaining 11 million shares on the NYSE. Finally, on the debt-side, we completed a successful offering of $1.2 billion of investment-grade medium-term notes, which enabled us to repay our interim facility at attractive rates.

Although the real estate markets are currently experiencing a reversion to a more normalized level after several years of unsustainable growth, as Richard and Tony will elaborate -- we believe in the long-term secular growth of the U.S. residential real estate market, driven by compelling demographic and economic trends. We expect our company will outperform our markets and our industry to the strength of our leading national brands and our strategic initiatives.

While earnings will be down in 2006 compared to 2005's record results, over the long-term, we believe we can generate consistent earnings growth. Even in 2006 -- despite the slowdown from 2005's record levels -- Realogy remains highly profitable and we expect to generate free cash flow of about $400 million.

With that, I will turn the call over to Richard and Tony to discuss the state of the real estate market and the results of our operations.

Thank you, Henry. I'm going to discuss the recent trends we've observed in the residential real estate market, how we've been managing the business in light of those trends, and offer some perspective on the long-term outlook, which we view as very positive. For the purpose of this call we will focus on residential real estate although it is important to note that we are also a leading franchisor of commercial real estate brokerage companies through Coldwell Banker Commercial.

It is a growing and important business for the company, but does not yet rise to the level of materiality that is appropriate for this call. At the conclusion of my comments, Tony will review our results for the quarter and guidance for the rest of the year. You know, you need only turn on the television or open a newspaper to know that the real estate market has moderated in 2006, as has long been expected. In fact, the slowdown actually began in the third quarter of 2005.

We project our sides volume for the full year 2006 to be down in the mid to high teens with a larger decline in the second half. The price seems to be up 3 to 4% on the year but about flat in the second half. It is important to keep in perspective that this is simply a return to a more sustainable, historically normal market, not a seismic change in the market's health or long-term outlook.

Indeed, 2006 is still expected to be the third best year in the history of U.S. residential real estate. Our company remains highly profitable, and free cash flow positive, and our long-term growth prospects remain robust and intact. We believe that the current trends reflect a disconnect between home sellers' and home buyers' expectations in terms of price, and the resulting increase in inventory [to little] better than seven months, according to the National Association of Realtors.

What is encouraging is that demand for homes priced correctly appears to be strong and this bodes well for sales once buyers and sellers expectations reach equilibrium. What remains unclear, however, is exactly when this will occur. It is interesting to note that some important leading indicators do seem to indicate that the market may be close to a bottom.

For example, according to the latest weekly survey by the Mortgage Bankers Association, purchase mortgage applications were down about 13% compared with the same week last year. The trend has been improving since July when purchase mortgage applications were down about 20%. Note that the ten-year treasury is now just under 4.6% which bodes well for the future direction of mortgage rates.

Also based on the most recent NAR -- National Association of Realtors Housing Affordability Index -- affordability seems to be improving. The September index rose to 107.1, an almost 4 percentage point increase over August. This was the second monthly increase in a row after the index hit a 20 year low of 99.6 in July. So while we think it is still too early to call a bottom, there are some encouraging signs, and while neither we nor anyone else has enough visibility into 2007 to accurately predict the market at this point, I would note that both NAR and Fannie Mae predict it to stabilize beginning in 2007.

Specifically, dollar volume of sales for the full year are projected to be about flat according to NAR and down about 6% according to Fannie Mae. We believe that Fannie Mae's estimate is probably more realistic than NAR's. Also the California Association of Realtors predicts that the dollar volume of sales in that state will be down about 9% in 2007 compared to down 18% in 2006. It's important given the weighting of our activity in California, particularly at NRT.

What is most important, however, is that the long-term growth prospect for the U.S. residential real estate market remains very positive once we cycle through the current period of moderation. This growth is expected to be driven by compelling demographic factors, a solid economic outlook and relatively low mortgage rates. You've heard us discuss these factors many times before over the years, but I just want to enumerate some of the most important ones.

First, population growth. According to the Harvard Joint Center for Housing Studies, almost 15 million additional U.S. households will be added between 2005 and 2015. And according to the Brookings Institute, 40 million net additions to the housing stock will be required by 2030 to satisfy demand from a population of 360 -- 376 million people. According to a recent article in the Wall Street Journal, the U.S. population is projected to reach 400 million by 2043 versus about 300 million today. Immigration has and will continue to be a very important factor in our growth.

Second, increasing homeownership. A larger percentage of the growing population are expected to become homeowners in the years to come according to the Harvard Joint Center and other experts. Important factors driving this increase are growing minority homeownership, non-traditional households and the children of the baby boomers just starting to enter their peak home buying years. Taken together, population growth and increasing homeownership translates into greater demand for housing and therefore, home sales turnover and price growth over time.

So in the shorter term what are we doing to manage through the current slowdown? Let me discuss several actions we are taking. On the cost side, as previously announced for 2006, we have rationalized our storefront costs and are on track to merge, consolidate or close about 100 NRT offices by year-end, while preserving our productive agent population and market position and have taken other actions that we expect will trim Realogy's run -- operating expenses by about $60 million per year.

Moreover, we continue to closely monitor each of our more than 1,000 NRT brokerage offices, and continue to seek additional opportunities to enhance profitability. On the revenue side, we continue to strengthen our market position through franchise sales, brokerage acquisitions, client wins, and Cartus, and expansion of our footprint and Title Resource Group. For the full year we expect our franchise sales to be above 2005 levels, consistent with our long held belief that the value of affiliation increases during a less robust market.

We are also doing an excellent job of retaining our current franchisees and our franchisee retention rate is expected to be in the high 90s for 2006. At Cartus, we renewed 15 clients and gained 50 new ones, while losing only five out of, approximately, 1,100 clients. At TRG, we have launched 11 new joint -- title joint ventures with franchisees and other partners in key markets not currently served by NRT and we plan to continue to expand our [JEB] activity at a rapid clip.

Although there are attractive broker acquisition opportunities available, we are being very disciplined in terms of what we are willing to pay and how we structure the deals and the earn-outs. While year-to-date, we have deployed approximately $160 million toward the brokerage and title acquisitions at attractive returns on capital, we only invested about $30 million in acquisitions in the third quarter.

Aside from actions we take directly, there are a number of silver linings that accrue to our benefit in the slower market. Tony will discuss these in more detail, but they include stabilized broker commission rates, higher effective royalty rates at the Realogy franchise group and more favorable broker-agent commission splits in NRT.

None of these will fully offset the factors that are keeping consumers cautious and adversely impacting our earnings in 2006, but long-term, they will strengthen our already leading position in the residential real estate business and help us achieve our long-term target of double-digit earnings growth

With that, I will turn the call over to our Tony Hull, our CFO.

Thank you, Richard. I'm going to discuss some of the details of our third quarter financial results and our outlook for the remainder of the year. Starting with the Realogy Franchise Group, this is our largest business segment and is expected to account for almost three-quarters of our 800 to $900 million of EBITDA in 2006.

At RFG, home sales sides were down 22% in the third quarter, and price was down 1% year-over-year. Although RFG's footprint is national in scope, it is somewhat more heavily concentrated in Florida and California compared to the overall U.S. real estate market, and the decline in sides and price at RFG is reflective of that footprint. We continue to expect RFG's full-year 2006 home sales sides to be down 15 to 20% and average home price to be up 3%.

As Richard mentioned, there are certain silver linings to the softer market. At RFG, these include the net-effective royalty rate, which increased 26 basis points year-over-year to 4.95% as our franchisees hit fewer incentive thresholds. As a result of this high royalty rate, RFG's royalty per side increased 2% despite the slight decline in home prices during the quarter. In addition, commission rates charged by our franchisees have remained within one basis point during the past four consecutive quarters compared to the consistent decline we have seen in prior periods.

We expect commission rates to continue to hold steady over the near term as the value of full service brokerage is reinforced in stark contrast to the declining value of the limited service discount broker. Excluding separation and restructuring costs, RFG's EBITDA margin came in at 73% in the quarter of -- in the third quarter of 2006 compared to 77% in the third quarter of 2005 despite a 19% revenue decline.

Including the separation and restructuring costs, RFG's third quarter of 2006 EBITDA margin was 68%. In terms of operational achievement at RFG, we continue to grow our franchisee network and expect to see a pick-up in franchise sales this year as the market has softened. In terms of value added services we provide our franchisees, we continue to roll-out LeadRouter, our proprietary technology that enables our brokers to be more productive in acting on leads received on the internet.

LeadRouter is now used by about 40% of our franchise group brokers as well as over 80% of our eligible NRT sales agents. Turning to NRT, home sale sides declined 23% while average home sale price was up 3% to $490,000 compared to the national average of $270,000. Acquisitions added about three percentage points to NRT's volume during the quarter. So on a same store basis, sides were down 26%.

The larger sides decline and better price performance at NRT versus franchise reflects NRT's heavier concentration in some of the large coastal markets like California and Florida where in 2005, speculative real estate activity had been highest and the disconnect between buyers and sellers price expectations is still the widest. It is important to consider that although some of the regions where NRT is concentrated are currently experiencing the most pain in our portfolio of markets, it is also these regions that have experienced the most gains over the past several years.

This presents us with challenging comparisons in 2006. Once we get through the current reversion to the mean, regions such as Florida and California as well as other areas we serve including New York City, New England and Arizona, to mention a few, will continue to deliver some of the best long-term growth opportunities for residential real estate driven by continued population growth, immigration, and other positive demographic and economic factors.

In terms of silver linings at NRT -- aside from the cost savings that Richard mentioned -- we've been successful at maintaining a stable broker commission rate at NRT for the fifth consecutive quarter, and we are also benefiting from improved broker-agent splits. For the full year 2006, we expect our broker-agent split to be about 40 basis points better than 2005. This 40 basis point improvement represents an EBITDA benefit of almost $20 million.

Turning to Cartus, which is our leading employee relocation services company, revenue increased slightly year-over-year, primarily due to the growth in our global relocation and government services activity. This was offset by lower referral activity that is consistent with a slowdown in overall residential unit volume we are generally experiencing this year. EBITDA declined modestly year-over-year due to the lower margins on our government business than last year.

Finally, at Title Resource Group, which provides title agency and other settlement services, revenue increased 17% due to the acquisition of several related title companies in Texas during the first quarter. This acquisition contributed $36 million to revenue and 4 million to EBITDA -- the third quarter, and has enabled us to gain a substantial title presence in Texas, a state where NRT also has a substantial footprint.

Excluding the Texas acquisition, TRG's revenue in EBITDA declined consistent with the overall decline in home sale transactions, particularly at NRT and a reduction in refinance activity. Going forward, we expect TRG's growth to outperform the growth of the real estate market generally as we continue to increase its capture rate of NRT volume and expand its footprint through joint ventures discussed earlier.

With respect to Realogy's overall outlook for the remainder of the year, open contracts and listings suggest that our businesses are tracking within the range of guidance we originally provided on August 23rd. Specifically, our implied guidance for fourth quarter EBITDA -- before separation, restructuring and legacy costs -- currently stands at 90 to $190 million. We get to that number by deducting the actual nine year -- nine month EBITDA of $710 million from our full-year guidance of 800 to $900 million. At this point, we expect to end up somewhere in the middle of the fourth quarter range. Details on guidance for the year is contained in Table 5 of our earnings release.

With that, we would be pleased to take your questions.

Thank you.

We will now begin the question and answer session.

[OPERATOR INSTRUCTIONS]

Jennifer Pinnick of Morgan Stanley, your line is open.

Good afternoon.

Hi, Jennifer

Hi, okay. I would let to ask a little bit about pricing -- NRT versus the franchise group. The NRT division -- as you mentioned -- has the higher exposure to California and Florida over the franchise, but the pricing held up better. Could you give us a little more color on that?

Jennifer, this is Richard. As you know, NRT was -- is an assemblage of companies acquired in key markets in the United States - they tend to be at the higher price point. It has been our experience over the past year that the average priced home has been more impacted by the affordability issues than the higher priced homes.

So we think that is the key -- key response to your question. I think the higher priced homes have not been impacted by affordability as much as the lower priced homes. So I think that's it in a nutshell.

Okay. You gave us some initial thoughts on '07 in terms of what you thought sides were going to do for the industry. Could you elaborate a little bit more maybe on the pricing in '07?

Well, the numbers we gave -- that Richard mentioned in his script -- were volume, which was sides and price. So --

Oh, I see. Okay.

NAR's forecasting -- I think if you look at their forecast on their website, they're a point down on sides and a point up on price, and Fannie Mae is, I think, five points down on sides and one point down on price. So that's where he got the six down for Fannie Mae and flat for NAR.

Okay, great. And one more question: could you update us in terms of where you are in terms of the 11 million share repurchase.

Yes, we bought back about 10% of the 11 million shares to date, Jennifer.

Great.

Thank you, our next question from Jeffrey Kessler of Lehman Brothers. Your line is open

Thank you. Thank you, very much. Firstly, you have done a very good job. It looks like the good things that have happened during this period are, obviously, the ability -- the broker fees, the royalty rates, the broker-agent split as well as, finally, the ability -- the increase in franchising. As the market begins to get better -- when it gets better -- and our assumption is latter part of 2007, you may have different assumptions -- but all right, my question to you is:

Do you have some idea of what your ability to retain some of these positive metrics that you're getting during the down period will be as the market gets better, particularly when we get into things like the broker fee, which appears to be stabilizing right now as a result of people moving toward better brokers?

Jeff, this is Richard, and Henry and Tony can chime in when they think it's appropriate. You're right. These are conditions that have been created by a weaker than expected market in 2006, but the good news is we took the initiative well in advance of the market change, and we were probably first to market with many of these initiatives, and we fully expect that many of them will continue even into a strong market.

One speaks to the value proposition, a full brokerage commission, and the service we provide has, as you know, been on the decline for a number of years - we've stabilized that. We tend to believe that the buyer and seller will get very comfortable market by market. So it's -- I don't know where it will go, but our intention is to continue the pressure and hopefully that initiative will be very successful even in an improving market when that occurs.

As to the balance of the initiatives, it's just management focus. So if we execute well against the strategies that we have in place, we don't see anything that would suggest that those initiatives would be at risk even in an improving market, again, whenever that may occur.

Okay, now you had indicated -- and fairly specifically -- what your -- in the last quarter report, I guess, as part of Cendant what your franchising -- what your franchising numbers were year-over-year. And you did indicate that you weren't -- you were going -- you were not going to be as specific going forward. Nevertheless, you've -- all you've said is, they're going to be up for the year. Could you just be a little bit more specific than, they're going to be up?

We haven't indicated as to what they're going to be up. And what's interesting about franchise sales, many of those sales occur in the last few days of the quarter, that's just the nature of the business. So we are very comfortable that they will be up, we just don't know by what percentage.

Okay because the last quarter it was significantly up.

It was. But remember, we look at franchise sales not on a quarterly basis -- you need to look at it on the year because it can move around a little bit on the quarter.

Okay. $400 million in free cash flow, now, this is higher than what our estimate is, and I'm just wondering if you could -- based on the numbers that you've given out -- could you get us there to $400 million in free cash flow for this year?

Jeff, it's in the presentation that we went around -- actually with you in September.

I know that, but --

It's on the website. So if you look on the page that's free cash flow -- I think it's page 12 or something like that -- how we get to that number in detail. And the range is, you know, I think it's in the mid-3s to the low-4s.

Yes, it's $310 million to $340 million, before acquisitions, is the number -- to -- is the number we have on that page. And it's basically funds from operations, you know, net of capital expenditures and working capital. And that working capital negative includes the after-tax cost of our separation from Cendant, et cetera. So that's on that page - it's $310 million to $430 million is the --.

All right. Two corporate items. First is, I guess it took a Halloween to get a ghoul in prison. But with that said, yes, the conviction of Walter Forbes does have some potential ramifications given that the contingent assets and contingent liabilities for both Wyndham and -- Wyndham and Realogy accrue from the old Cendant.

And I'm just wondering, doesn't Mr. Forbes owe some $50 million and number two, more importantly, the timing on resuming the suit against Ernst & Young.

Yes, you're right. In theory, if Mr. Forbes' appeal were to be denied and he had the funds to repay us, the benefit to Realogy is about $60 some-odd million, of which about half is cash and about half is the reversal of an accrual for his legal fees, which we had -- had to put up over the last x number of years.

It's in that magnitude -- $60 million to $65 million and Wyndham would have the balance, probably $100 million in total. And the case against Ernst & Young, Jeff, has continued. But the part that was stayed was the depositions of some of the key witnesses. Those will now resume in November, December and, of course, January. When, as in if, there's a trial in that case -- I wouldn't want to handicap the odds of that -- but, yes, that will now, at least, be on schedule to be tried sometime next year.

All right, and is it still in place that if you were to settle -- or whatever settlement or win that you would get -- the class still retains half?

Well, the way the waterfall works is first, we and Wyndham share in a recovery of all the costs of prosecuting the lawsuit -- which are quite significant, it's probably nine figures by now. Then the balance is split 50/50 between the class and Wyndham/Realogy. And we, as you know, get 62.5% of the half that is retained by the Realogy and Wyndham shareholders.

All right. One final question and that is -- a couple of -- I can't remember whether it was DOW or Reuters reports on private equity interest in this specific company, Realogy -- have you folks been in discussion? Been approached? Are you going to -- have you discussed this issue? Has it come to the board? Can you give me some idea of what the corporate situation is with regard to a potential sale of this company?

Well, first of all, the answer to your question, obviously -- you know the answer before you ask the question. Obviously, we can't -- we can't tell you anything because that would not be appropriate.

But I can still ask it.

Yes, you're right. You can ask it, and I can tell you that you know you can't ask it. But I think that we certainly have had a dialogue with our tax counselor, which I think is relevant to your question. Our understanding of the tax rules is that a post spin-off acquisition is not prohibited if there was no agreement or arrangement or understanding as to such an acquisition at the time of the spin-off.

And as we've told you all along, Realogy did not have and still does not have any such plans so what that says is if somebody were to approach us with an acquisition proposal, our counsels advise us that we would not be prohibited from considering it. So I guess a long answer to your question, Jeff, is if somebody came along, we can certainly enter into a dialogue with them, but we, obviously, couldn't discuss with you whether or not that has happened.

Okay, very good, and thank you very much.

You're welcome, Jeff.

Our next question from Michael Millman of Soleil Securities, you're open.

Thank you. So following up on Jeff's question, could you talk about how you interpret the Morris Trust? And I have some other questions.

Well, there's really no -- the Morris Trust rules really have no application to any transaction because they really relate to an acquisition done in contemplation of your spin-off -- or an acquisition-- or a spin-off done in contemplation of an acquisition, which is not applicable to the back pattern in the split up of Cendant.

And also could you comment on what -- [counsel interprets] here -- your ability to repurchase additional shares above 20% over what period of time?

Well, there's no bright line. There's nothing in the code that tells you what you can or can't do and therefore, you can't get an opinion that says you can or can't buy more than 20% within six months of the date of spin-off. But I would prefer us not to be the test case. So you should assume that the Board authorization of 20% is still where we'd end up -- at least for these first six months, which would take us through around the first week of February.

Okay, sorry -- so you would think that the non-bright line is more like six months than 12 or 24 months?

Well, I think, again -- I don't think you're getting -- get an opinion that it's any different after six months than it is 24 months, but counsel is much more comfortable after six months. And it all gets back to facts and circumstances, meaning if you didn't buy more than 20% for the first six months, you probably didn't have a plan to do that when you did the spin-off.

And, obviously, we didn't have a plan, but I think that we, as I say -- everyone is very comfortable staying under 20% for the first six months. And I guess by the conference call we have with you after the year-end, we'll be at the six-month level, be happy to report to you where our tax counsel is at that point in time.

Okay, and on operations. Are you seeing any changes, for example, listings, are they -- are the listings' average time, longer, shorter than they have been? Or what's the trend? And talk about the trends and price declines on listings and cancellation rates, and if you're seeing an increase in buyers.

And, sort of, related to that, in a way, on your guidance -- if I've done the arithmetic -- your guidance suggests that the fourth quarter franchise sales and sides are going to be down anywhere from 5 to 30%. It would seem by November, you should've focused that a little bit more.

Well, Mike, you ask a number of questions, let me make sure I'm responsive to as many of them as I can be. As to the listings -- the inventory -- as you know, it's been growing in most markets, and I think NAR is indicating it's about 7.3 months. We would not dispute that. On the average that's about correct. It's higher in some markets; lower in some markets, but that's the national average.

As to the price that a seller elects to sell his or her home, as they reduce that price we see that as a good fact - that impacts affordability, which eventually impacts volume, generates interest, and we directly participate in the wisdom of the seller in reducing the price to whatever the market will bear. Now the good news is in markets where price corrections have been necessary or appropriate under the circumstances, as we have seen single-digit price increases generate activity as opposed to what some might suggest would be double-digit or deep discounts.

We do not see deep discounts. We see single-digit discounts resulting in increased buyer activity. The good news is when the house is priced properly, the buyers are there. The bad scenario would be, you know, you keep reducing the price and the buyers are not showing up. That's not the case. That's probably only half the questions you ask. Tony, as to the fourth quarter?

Well, his question is why do we not narrow the range? And really we just -- you know, our feeling was to keep the range -- we kept our guidance for the year at where it was, and, you know, we now have three-quarters information about it so it's kind of a -- it's more of an implied number than anything else. It's just where we end up when you take the $800 million to $900 million less the $710 million that we've earned for the three quarters, and we just haven't changed guidance.

Mike, there's one other question and that was cancellation rates. NRT cancellation rates are currently running around 12 to 15%. In prior conversations, we told you that was the run rate. As you recall earlier in the year, there was a blip on the screen as the cancellation rates increased. We believe they've settled into that 12 to 15% range, and that's about the range of the RFG side as well.

And in good times, in '05, what might that have been?

Probably about the same. That cancellation rate, I mean, it could, you know, be up or down a couple of points, but that's about the range -- 12 to 15%.

I think what you're referring to Mike is when the speculators fled the market -- which was primarily fourth quarter '05 and first quarter '06 -- it just about doubled for a six or eight or ten week period. It's now back -- I think it's about -- so, I think it was about13% average in past when we went back and looked at it, and that's around where it is now.

And what is your estimate as the impact of the speculators on the total market, and in terms -- if you could quantify a number estimate?

Well, if you listen to the National Association of Realtors, they broadly suggested that 35 to 40% of the business was attributed to second home buyers, third home buyers and also speculators. I'm not sure that that's correct. In many markets, perhaps, it was. The good news is that the vast majority of those people are gone. They left the scene, and thus we've seen the impact, I think, on the marketplace.

It is a good -- we view it very positively that they are out of the market. Now we have real buyers, real sellers, and these are homeowners - people that are going to occupy the home. And I, you know -- I suggest to you that they will stay out of the market for the foreseeable future. So we're going to settle into that regression of the mean, and we view that very positively with respect to 2007.

If you take those numbers at face value, are you saying, kind of, a third of the $7 million in '05 was speculative and not going to be there when the market normalizes?

Well, I think that included speculative, second homes, third homes, and that was NAR's number -- you know, based on our research with mortgage lenders, the number was more in the mid-teens.

So I guess the same thing - would we then say a normalized number is $7 million minus the mid-teens?

if you take out second homes and speculators. But that includes -- people are -- still buy second home so if the speculators out of the market, it would be a portion of that 15%.

I see. Okay, thank you.

You're welcome.

Our next question from Jim Wilson of JMP Securities, your line is open.

Thank you. I was wondering if, you guys, of the $60 million cost reduction that you've put in place -- how much, relatively, of that might be reflected and know what you reported for the third quarter?

In the quart -- for the year -- we expect -- in the guidance for the year, we expect -- we have estimated about $35 million of that total is reflected in the 800 to 900 million for the year, and most of it -- since we took the actions beginning in the second quarter, most of it, you know, would be in the third and fourth quarter.

Okay, so then in the balance, 25 is more able -- we'll start to see the reflection in Q1, Q2.

Yes.

Okay, all right, that makes sense. And then the second one, I just -- can you comment at all on what trends have been in October for NRT or the franchise group at all as far as side activity - anything else you can give color on?

We are encouraged by what we have seen in the month of October, both on the franchise side as well as NRT. As you know, and in prior conversations, the open contracts -- and I think Mike Millman referenced this -- the open contracts serve as somewhat an indicator of the first 90 days [less] your cancellation rate. We're encouraged by the opens that we're seeing at this point.

Okay, but no specific numbers you care to give?

No.

Okay, all right, great, thanks.

Our next question from [Doug Rothschild] of [Scolligan Capital], your line is open, sir.

Thank you. Congratulations on a solid quarter, guys. I had a question on your net debt number, pro forma for the stock buyback. I get about a 1.6 billion to 1.7 billion versus, I think, you got it to 2 billion of net debt? And I'm just wondering if I'm doing my math wrong, or if maybe you've generated more cash than you thought?

No, you're doing your math correctly. We'll have about -- 1.8 billion of debt post all the refinancing and -- to the extent we buy the remaining 11 -- 10 million shares, we'd get about 100 million of cash.

Okay, and that -- did you guys generate more cash than you thought or was that just being conservative in your guidance?

It's just where the numbers came out based on a variety of factors, you know, how much we bought the stock back for, et cetera, et cetera.

Okay.

You know there was -- there's a lot of ins and outs, obviously, in those numbers.

And Richard, you had mentioned that for next year Fannie Mae is guiding towards 6% dollar volume decline, and you had thought that's probably more accurate of what happens. Should we take that as some sort of kind of guidance for '07, which would be offset by cost savings, acquisitions and your agent commission mix or is that not meant to give any guidance at all?

It was not meant to give guidance. What's interesting is you have two parties in the marketplace who routinely forecast the business -The National Association of Realtors and Fannie, and we offer that for whatever value it may create, but we're not giving guidance for '07 at this point.

Okay. Thank you, guys.

Our next question is from Scott O'Shea of Deutsche Bank, your line is open.

Yes, good evening. The $30 million of acquisitions this quarter, did that include any earn-out payments, or was that all new deals?

Virtually all of our deals require earn-outs. The 30 in -- the 30 million in the third quarter all involve some form of earn-out.

Okay, but I'm just wondering whether that was earn-out payments on previous deals or whether this was, you know, new transactions volume?

Okay, no, the 30 million was new deals.

Okay, any color on where -- I guess these are all brokerage offices -- where they were located, prices on the transactions, things like that?

On the acquired companies?

Yes.

Well, as you -- these are small companies -- you may recall that we announced Allan Schneider, which is in the Hamptons in New York. That's a name you may recall. The balance of them were fairly small companies in various different markets from New Jersey to Minnesota, New York, San Francisco, Arizona, Boston -- so they're, you know, a good -- a good balance of companies in various different markets. And, by the way, these are markets in which we currently operate.

Okay. Does your reported acquisition ever then not include the earn-out payments? Or is that just separate line item?

It is included in that number.

Okay.

In the quarter it was -- is a relatively small number.

Okay, that's fine. Thank you, appreciate it.

You're welcome.

Our next question is from Jeffrey Kessler of Lehman Brothers, you're open.

Thank you. Richard, on the -- on your road show back in September, you mentioned that at least some -- your feet on the street in California would be seeing a price equilibrium -- in other words the buyers and sellers coming together at about 9% -- 8 to 9% below the asking price.

Have you gotten any expansion on that from other states and has that changed at all in California since then? Trying to get to a -- obviously, trying to get to a point at which we can begin to feel where equilibrium is going to happen on the pricing of a buyer-seller pricing equation.

Well, you know, California is two markets. And actually many would argue there are multiple markets in California, but northern Cal and southern Cal often act very differently. Just to highlight that -- the point that you made -- and we did in fact previously indicate that single-digit declines were moving units in the state of California and other place where it was appropriate.

But if you look at Los Angeles, as an example, they're still up 10%. There are a couple of other market in California that despite their decline in units, continue to see price increases on the average. So look, real estate is local. What might apply to LA, is not applying to, say, San Bernardino, and as in -- to just highlight that point, San Bernardino has a price increase of 12% year-over-year. So, you know, in some markets down generates traffic, but you still -- based on inventory -- you're still seeing price increases in certain markets. And that, I think, is typical across the country. Okay, Thank you.

You're welcome

Our next question from Michael Freedman of Omega Advisors, your line is open.

Good evening, gentlemen. Just as a follow-up -- a couple of questions -- but first as a follow-up to Jeff's question. You mention a couple of times that when priced right, you're seeing transactions conclude and buyers. I mean, asking Jeff's questions a second way, is there any way to generalize what type of pricing level that "priced right", is?

I wish it were that easy, but the simple fact is that the answer is, "no".

Okay.

Again, real estate is local. I'll give you Philadelphia as an example: year-to-date 2006 versus same period 2005, they're up 21% in price. I know they have increased inventory and their units are [off]. It doesn't stand to reason, but it is what it is and it varies market by market.

I generally think that in markets that are under pressure -- primarily supply and demand -- single-digit price corrections are generating traffic. And that's, sort of, a rule of thumb, but it's a helpful rule of thumb.

But single -- it's Henry -- but single-digit price corrections, like in California, may simple be a lower rate of increase. As Richard pointed out that while in LA the rates -- the price may be down 8% from the asking price, it's still up 12% from last year.

Right.

So it's really a very hard equation to consider because it varies all over the place.

Fair enough. And the two other questions; Do you guys know off-hand when you're like the market guidance on 2007? Will that be at your fourth quarter call or at a later time?

It'll probably be in the early part of the year.

Okay, and just lastly, Henry, do you still intend to complete the full repurchase this calendar year? And is it -- is it -- I mean, the stock has moved a lot -- is it dependent on the price or -- just curious where you stand on that?

We're not, obviously, price-sensitive. We're going to buy the stock back as we said we are. And it's not appropriate to comment specifically unto timing. I prefer not to give the market that heads up because we, obviously, like to buy it as cheaply as possible. But we are committed to repurchasing the remaining 11 -- well, now 10 million shares in the stock repurchase program.

Thank you.

Thank you. I'd now like to turn the call back over to Realogy management for closing remarks.

Thank you very much, and we will speak to you all again on the next call.

Thank you for participating in today's conference call, you may disconnect at this time.