Anywhere Real Estate Inc (HOUS) 2010 Q2 法說會逐字稿

Good afternoon and welcome to the Realogy second quarter 2010 earnings conference call via webcast.

Today's call is being recorded, and a written transcript will be available in the Investor Information section of the Company's website tomorrow morning.

A webcast replay will also be made available on the Company's website.

At this time, I would like to turn the conference over to Realogy's Senior Vice President of Financial Planning, Alicia Swift.

Please go ahead, Alicia.

Thank you.

Good afternoon, and welcome to Realogy's second quarter 2010 earnings conference call.

On the call with me today are Realogy's President and CEO, Richard Smith, and Chief Financial Officer, Tony Hull.

I would like to call your attention to three item.

First, you should have access to a copy of our financial results press release and Form 10-Q for the quarter ended June 30, 2010, both of which were issued earlier today, August 10th, 2010, on the Investor Information section of our website, and filed with the Securities and Exchange Commission.

Second, the Company will be making statements about its future results and other forward-looking statements during the 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 in the current economic environment.

Forward-looking statements and projections are inherently subject to significant economic, competitive and other uncertainties and contingencies, many of 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 set forth under the headings "Forward-Looking Statements" and "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31st, 2009, and forward-looking statements in our Form 10-Q for the quarter ended June 30, 2010, and in other periodic reports we file from time to time.

Third, we will be referring to certain non-GAAP financial measures during the call.

Today's press release contains definitions of these terms, a reconciliation of these terms to their most comparable GAAP measure, and a discussion of why we believe these non-GAAP financial measures are useful to our investors.

Let me briefly review the headlines from our release issued today regarding Realogy's second quarter 2010 results.

Specifically for the quarter ended June 30, 2010, we reported revenue of $1.3 billion, EBITDA of $544 million, which is after $4 million in restructuring costs, and a $314 million benefit of net former parent legacy items, or $234 million before restructuring and other items.

And net income attributable to Realogy of $222 million, which includes the benefit of net former parent legacy items, and is after $155 million of interest expense and $49 million of depreciation and amortization.

Now I would like to turn the call over to Realogy's President and CEO, Richard Smith.

Thank you Alicia, good afternoon and thank you for joining our webcast.

As is our practice, I will review the business and operating environment, followed by Tony's review of our financial results.

We anticipated that the second quarter of 2010 would be much improved compared to the same period in the prior year, and far better than the first quarter of 2010.

Our outlook was based on the push by consumers to complete eligible home sales under the home buyer tax credit by the closing deadline of June 30, as well as the normal seasonal uptick in home sales during the second quarter.

Clearly, it was a strong quarter for us.

On a year-over-year basis, Realogy reported significant increases in revenues and earnings in the second quarter.

Specifically, revenues increased 23% to $1.3 billion, and EBITDA before restructuring and other items increased 57% to $234 million, up from $149 million in the second quarter of last year.

Our second quarter 2010 revenue drivers of transaction size and price once again continued the upward trend that we experienced in each of the previous three quarters, with the lone exception occurring in title and segment services segment, where gains in purchase title, closing units and average price were not enough to offset a significant decline in refinance, title and closing units.

On a combined basis, second quarter homesale transactions sides and average sales price increased 16% year-over-year at Realogy Franchise Group, RFG, and 28% in our-Company owned brokerage segment, NRT.

Specifically, homesale sides at RFG were up 11% and average sales price was up 5% in the second quarter.

At NRT, homesale sides increased 16% and average sales price improved by 12%.

The homebuyer tax credit clearly contributed to the increase in home sales at the lower price points, but we also experienced an increase in sales at higher price points, for the most part homes at $750,000 and higher.

Although those higher-priced buyers generally did not qualify for the tax credit, we believe they were acting on the strong price value propositions.

Comparatively, both NRT and RFP outperformed the market in terms of sales price in the second quarter.

NAR reported a median price increase of 1%, and Fannie Mae forecasted a price decline of 2%.

On a unit basis, NRT and RFG experienced homesale increases of 16% and 11% respectively, and were in line with increases at NAR and Fannie Mae.

NAR reported a 17% increase in home sales, and Fannie May forecasted a 12% year-over-year increase in units versus the second quarter of last year.

According to NAR's most recent home sales report, median home prices in June 2010 were the highest since October of 2008, and on a national basis are trending up year-over-year.

In it's latest report, the Case-Shiller Home Price Index marked its fourth consecutive monthly increase compared to its year ago levels, following more than three years of consecutive monthly decreases.

NRT's operations along the East Coast, such as New Jersey, Connecticut and New England experienced year-over-year unit increases in the range of 28% to 45% in the second quarter.

Average sales prices in these regions range from flat to up almost 20% in the second quarter.

Our New York City operations, which include the Hamptons, experienced the largest unit sale increases of almost 100% for the second quarter, along with an average sales price that was flat to prior year.

NRT's operations in Florida experienced flat closed sides in the quarter, and a 9% increase in the average sales price.

NRT's closed sides in California increased 5%, and price was up 17%.

Within the Realty Franchise Group segment, the Northeast continued to perform exceptionally well, with a 21% increase in units.

The West showed the weakest unit increase of 3%, but the largest average sales price increase of 8%.

The average sales price increased between 2% and 8% in all RFG regions during the second quarter of this year.

In mid-July CoreLogic released its home price index, which found that home sale prices on national basis were 2.9% higher than they were a year ago, and that includes distressed sales.

According to CoreLogic, prices were up in 60 of the top 100 real estate markets, which was a big improvement over July 2009, when all 100 markets showed negative price appreciation.

Another contributing factor in the increase in national average sales price was the continued decline in the number of real estate owned, or REO sales.

In the second quarter of 2010, NRT's REO operations saw REO sales decline by approximately one-third compared to 2009.

As we noted last quarter, the demand for foreclosed properties continues to be very strong.

It is evident to us that REO properties are being held out of the market by banks and lenders, which has created significant uncertainty about the depth of the shadow inventory.

We believe that the sooner the banks and lenders release their inventory, the sooner most markets will adjust, eliminate uncertainty, and return to some sense of normalcy.

Another contributing factor to market uncertainty is the Home Affordable Modification Program, or HAMP as it is called.

The Government Accountability Office, GAO, recently issued a report acknowledging that the HAMP program has made limited progress, suffered from inconsistent program implementation, and continues to face additional challenges.

While HAMP was expected to help 3 million to 4 million homeowners, the Treasury reported that only 1.2 million homeowners had started trial modifications, and just 347,000 homeowners had received permanent loan modifications as of the end of May 2010.

And according to a [FISH] report issued in June, between 65% to 75% of borrowers who get loan modifications under HAMP are expected to default within 12 months.

From our perspective, the unintended consequence of this loan modification program is a protracted recovering in housing.

We believe that now is the time to get foreclosed inventory into the market, when the demand is high and mortgage rates are historically low.

As already noted, the expanded home buyer tax credit had a significant positive impact on the housing market during the second quarter of this year; however, the last minute Congressional extension of the tax credit closing date from June 30 to September 30 will not materially affect the Q3, since it only applied to homebuyer whose had previously qualified for the tax credit by having signed contracts in place by April 30.

The home buyer tax credit, which we were intimately involved in marshaling through Congress and into law, clearly accelerated and improved housing sales; unfortunately, the economy has not followed.

Housing is a major influence on our economy, but cannot alone overcome the downward pressures of continuing high unemployment, declining consumer confidence, and a general economic uncertainty that seems to dominate the headlines.

That said, given the pressures, housing has generally been resilient.

Now let's briefly review the operating highlights of our business units, followed by some comments on the balance of the year.

The Realogy franchise group, which has 14,400 offices and 264,000 sales associates throughout its worldwide franchise networks, reported net franchise sales of $52 million in gross commission income, or GCI, versus $35 million, a 47% improvement, compared to the second quarter of last year.

Although market conditions continue to weigh heavily on new franchise sales, we are making solid progress towards our goals.

Our newest brand, Better Homes and Gardens Real Estate, currently has 146 offices in 19 states, and is our fastest-growing brand.

Our franchise brands continue to push forward as leaders in social media and technology.

Just last month, Better Homes and Gardens Real Estate CEO, Sherry Chris, received the Inman Innovator of the Year Award, which honored her for going above and beyond the traditional tools used by the real estate industry to enhance the transaction process, and improve the overall experience for consumers and real estate professionals.

The franchise group also continued its global expansion efforts; most notably in June, Coldwell Banker announced a new master franchise agreement with Demeure S.A.

to expand the Coldwell Banker footprint in France, and enter a new market in Monaco.

Founded in 1920, this company has played a major role in the development of real estate sales in France, and has the strong management we look for in our international master franchisees.

Likewise, our Sotheby's international realty brand recently expanded it's existing footprint in Switzerland, and also signed significant new master franchise agreements for Peru, Sweden and Turkey.

The appeal of this unique luxury real estate brand continues to grow in overseas markets.

Internationally, our brands now operate through master franchisees in 99 unique countries and territories around the world.

In early August, the Wall Street Journal and Real Trends published their fifth annual ranking of the nation's top 400 real estate sales professionals.

We are pleased to note that sales agents and teams affiliated with the Realogy brand comprised 41% of this ranking, including a heavy concentration in the top ten.

Residential real estate sales professionals from Realogy's own Company-owned offices at NRT and those of franchisees across the Century 21, Coldwell Banker, E.R.A., Sotheby's International Realty, and the Corcoran Group brands, captured 194 spots in the overall rankings.

Most notably, agents of Realogy and its franchisees accounted for 65% of the top 100 ranked by sales volume, and 55% of the top agents ranked by transaction size.

NRT alone accounted for 29% of the total agents and teams on this prestigious list.

NRT, our company brokerage Company that operates approximately 750 offices in 35 major metropolitan markets in the United States, has continued its focus on organic growth and improving the productivity of its 45,000 agents.

NRT sales associates' retention rate continued at very high levels in the second quarter of 2010, with the Company retaining approximately 93% of production from its first and second quartile sales associates.

This underscores the high quality of services and support that NRT provides to its agents, and what is as always a competitive market for top-producing sales associates.

Management's focus on organic growth also continues to pay dividends.

In the last 12 months, NRT recruited new sales associates who collectively generated more than $57 million in gross commission income during that period.

On the cost containment side, NRT for the most part concluded its very successful office consolidation strategy, and is now focusing on the renegotiation of leases for its remaining offices.

In the past 12 months, NRT has realized $6 million in annualized cost savings from this effort.

At Cartus, our relocation services Company, the operational integration of primacy relocation continues to go extremely well.

This strategic acquisition, which took place in January 2010, has enabled Cartus to re-enter the US Government relocation business, increase its domestic operations, and expand its global relocation capabilities.

Cartus had a strong second quarter, due in part to the addition of Primacy.

Looking at its business drivers, Cartus's initiations jumped 40% year-over-year to 46,000, and referrals increased by 25%.

Even before the impact of Primacy, second quarter relocation authorizations at Cartus were up 17%, and the Company also had a 17% increase in transaction referrals.

This is a further continuation of a positive trend in the corporate relocation business this year, and a significant reversal of what we experienced in 2009.

Also during the second quarter, Cartus continued to add new global and domestic clients to its already impressive list, including Philips Electronics North America, VMware Inc.

and Seneca Resources Corporation.

While the market for relocation and global mobility services contracts remains competitive, we are experiencing a positive response from the marketplace regarding the quality and depth of services we now offer.

Cartus's Primacy acquisition has been very well received by current and prospective clients.

Regarding new revenue channels, the Cartus Asset Recovery Group, which provides foreclosure avoidance services in the early stages of loan default, continues to grow its client list of financial institutions, mortgage services and government agencies.

These clients are leveraging Cartus's short sale and deed in lieu of foreclosure expertise in order to reduce costs, and avoid the lengthy process of foreclosure.

Moving on to our title and settlement services company, Title Resource Group, it had a 7% increase in purchase title in closing units in the second quarter, as its NRT capture rates improved, and its average price per closing unit increased 17% on a year-over-year basis.

The improvements were negated by a significant decline in refinance, title and closing units, which were down 54% from the second quarter of last year.

However, with the improving mortgage rate environment in June and July, we expect refinancing into the second half of 2010 to increase to levels that we haven't seen since the first half of last year.

TRG's underwriter, Title Resources Guarantee Company, reported the highest level of net premiums in the Company's history during the second quarter of 2010, and it's underwriting claims experience of 1.25% continues to substantially outperform the industry average 7% loss ratio.

As we previously discussed in our call in May, the third and fourth quarters for housing are expected to be substantially influenced by traditional macro factors, such as job growth and consumer confidence; as well from a microeconomic perspective, the dynamic of the local market.

In addition, the third quarter is being further challenged by the pull forward of sales in the second quarter due to the 2010 tax credit, and fourth quarter 2010 comparisons will be against strong fourth quarter 2009 volume that benefited from the 2009 Tax Stimulus program.

In other words, the strength of the second quarter in housing does not appear to be sustainable in the near term.

Based on what we know today, we are facing an extremely challenging third quarter.

The sales volume of our open contracts, which are the leading indicator for closed sales, dropped an average of 17% in June and July on a year-over-year basis.

Likewise, NAR's most recent pending home sales indices, which represents the number of signed contracts, showed a drop of 16% and 19%, respectively, from May and June of 2009.

Fannie Mae and NAR are currently forecasted that home sales transactions will decrease in the third and fourth quarter of 2010 compared to the prior year, and both made significant downward adjustments to their previous forecasts.

Fannie Mae is estimating an 8% decline in its third quarter 2010 run rate to 4.9 million units, compared to 2009.

NAR is forecasting a 14% drop.

To give you insight into the volatility of the housing market in 2010, NAR's estimate for the third quarter is a seasonally adjusted annualized rate of 4.5 million units, down from a 5.6 million annualized rate in the second quarter of 2010.

Clearly, the back half of 2010 is not expected to compare favorably to the second half of last year or the first half of 2010.

The dramatic drop in sales from second quarter to the third quarter will provide no shortage of negative headlines.

That said, these periods do not offer fair comparisons.

The third quarter of 2010 is being impacted by home sales that were pulled forward in the second quarter, and the fourth quarter of 2010 is not likely to measure up to the fourth quarter of last year, which benefited greatly from the first-time home buyer tax credit deadline last November.

In their latest forecast, both NAR and Fannie Mae estimate that existing homesale transactions for full year 2010 will be flat to last year at 5.1 million units.

Looking at the big picture, despite all of the difficulties in housing in 2009 and 2010, a base level of 5 million home sales in each of those years is encouraging; that's a trough level of sales we think is impressive.

With respect to homesale prices for full year 2010, NAR is forecasting median homesale prices to be flat compared to 2009.

However, Fannie Mae's latest forecast is prices decreasing 2% in 2010 compared with the prior year.

Despite high affordability and historically low mortgage interest rates, the housing market appears to need a longer period of time for buyer demand to build up again.

With that in mind, the prospects for housing are expected to get brighter when you look at 2011.

As noted earlier, the longer shadow inventory remains, the longer it will take housing to recover.

NAR is forecasting an increase of 10% on the combined sides and price basis in 2011, while Fannie Mae estimates a combined increase of 5%.

In both cases, the forecasts of improvement for the housing market appears to be from unit increases.

Specifically, NAR is forecasting an 8% increase in homesale transactions to 5.6 million homes in 2011, and a 2% increase in median homesale prices for 2011, compared to 2010.

Fannie Mae's forecast shows a 6% increase to 5.4 million home sales in 2011, with prices remaining flat in 2011 compared to 2010.

NAR and Fannie Mae's forecasts for 2011 are seemingly supported by our relocation business.

Cartus can be a litmus test of Corporate America's view of its economic prospects.

The strong pick-up in management relocations we saw this past quarter typically reflect an improved outlook on the part of Corporate America; since we represent more than half the Fortune 100, that is a telling point.

We continue to take a long-term view of the housing market, and the good news is that the demographics that attracted us to this industry continue to be compelling.

Between 2010 and 2020, the Census Bureau projects US household growth in the range of 1.25 million to 1.5 million per year, which we believe will create addition demand for housing.

Housing is, and will continue to be, a vibrant, dynamic and growth segment of the US economy.

Let me conclude by telling you that although we are faced with a challenging housing market in the second half of this year, Realogy will continue to focus on what we can control.

We will continue to execute the strategic growth plans for each business unit, which include both acquisitions and organic growth.

Simultaneously, we will strive to maximize the efficiency and effectiveness of our cost structure, just as we have for almost five years now.

With that, I'll turn the call over to Tony.

Thank you, Richard.

In discussing the financial results, I will be referring to the tables in the press release.

Let me begin with some financial highlights for Realogy in the second quarter.

Q2 2010 revenue totaled $1.3 billion, an increase of $235 million year-over-year.

EBITDA, before restructuring and other items in the second quarter, was $234 million, an increase of 57% or $85 million over 2009 Q2 results, due mostly to our 23% increase in revenues.

Realogy ended the quarter with strong liquidity.

We had $239 million of readily available cash on June 30, and no borrowing under our $750 million revolving credit facility.

We settled a legacy IRS audit, which resulted in a $58 million cash payment by Realogy, which has been paid.

This settlement, along with the former parent liability adjustments, resulted in the reduction of $308 million of former parent contingent liabilities on our balance sheet.

The tax audit settlement also resulted in approximately $110 million of non-cash tax expense in the second quarter.

Neither of these items had any impact on EBITDA before restructuring and other items.

As a result of the progressive organic increases in trailing 12-month adjusted EBITDA, Realogy's senior secured leverage ratio improved from 4.7 times at December 31st, 2009 to 4.3 times at June 30, 2010.

Looking at table one of the press release, the breakdown by category of the $1.3 billion of total net revenue was as follows -- gross commission income totaled $941 million [NRT], an increase of 26% over Q2 2009.

Service revenues at Cartus and Title Resource Group increased 15% from Q2 2009 to $185 million, and Realogy Franchise Group's third-party franchise fees increased 13% to $81 million.

In terms of expenses, comparing second quarter 2010 results to 2009, total commission expense of $612 million increased $135 million year-over-year, as one would expect due to higher transaction volume.

Operating expenses of $310 million declined $3 million year-over-year.

Marketing costs increased $5 million.

These costs relate to marketing fees collected from franchisees, as well as local NRT office marketing spending.

General and administrative costs increased $4 million, mainly due to 2010 bonus and employee retention accruals that were absent or lower last year.

In terms of year-to-date expenses, comparing the first half of 2010 to the first half of 2009, total commission expense of $989 million increased 29% year-over-year, due to higher transaction volume.

Operating expenses of $610 million declined $31 million year-over-year, as we continued to realize the benefits of storefront and other proactive cost-reduction initiatives.

Marketing costs increased by $10 million, due to higher transaction volume compared to the first half of 2009.

Finally, general and administrative costs increased $19 million, again mainly due to 2010 bonus and employee retention accruals that were absent or lower last year.

Next, I would like to discuss our key business drivers for the second quarter of 2010, from table three of the press release.

In the second quarter, RFG and NRT homesale sides increased 11% and 16%, respectively, compared to 2009.

These strong year-over-year gains were positively impacted by the 2010 housing tax credit.

Our mix of business caused improvement to the average sales price at both NRT and RFG, although it was more significant at NRT than with our affiliates.

NRT average sales price climbed to $424,000 in the second quarter, up from $379,000 in the second quarter of 2009.

NRT average price increased 12%, as sales of homes over $750,000 represented 41% of NRT volume versus 37% in the second quarter of 2009.

In addition, NRT saw a decrease in REO sales compared to 2009, when REO represented 4% of NRT sides, while in the second quarter of 2010 REO only represented 8% of sides.

Realogy Franchise Group, which manages our five residential franchise brands, reported a 5% average sales price increase to $198,000 in the second quarter of 2010, which was largely the result of a greater percentage of higher-priced home sales recorded by all of our brands, but most notably at Sotheby's International Realty.

Average broker commission rates moved in the opposite direction of price in the quarter, decreasing NRT from 2.52% in Q2 of lat year to 2.59% this past quarter.

The change in mix from REO to high-end sales impacted that rate.

Also, RFG's net effective royalty rate declined 6 basis points to 5.04%, given improvements in our affiliates' results.

As our larger affiliates earn more gross commission income, they can achieve volume discounts, which reduces the royalty rate paid to RFG.

During the second quarter at Cartus, we experienced a 40% increase in initiations, with a little over half of that growth coming from Primacy.

Excluding Primacy, initiations increased 17% in the second quarter, split about evenly between corporate client activity and affinity volume.

At TRG, purchase title and closing units gained 7% compared to 2009, but refinance unit volume decreased 54%.

As you can see, the fee we earned per closing increased 17% year-over-year, reflecting the shift in mix to purchased units.

I will now review revenue and EBITDA, before restructuring and other items, by business unit for the second quarter ended June 30, 2009 and 2010, shown on tables 5a and 5b of the press release.

Total revenue at RFG was $173 million in Q2 2010, compared to $143 million in 2009.

The 21% revenue gain was due to the increase in transactions and average price shown on the [driver] table, along with higher inter-company royalties from NRT.

Domestic royalties from our third-party affiliates were compressed by a decrease in the average broker commission rate charged by our franchisees to their customers, and a lower net effective royalty rate.

EBITDA before restructuring and other items at RFG was $123 million in 2010 compared to $86 million in 2009, due to the $30 million increase in revenue, along with lower costs.

The lower expenses relate to an $11 million decrease in bad debt and notes reserve, due to improved collection activities.

NRT EBITDA, before restructuring and other items, in the second quarter increased to $86 million.

This was a $57 million improvement compared to the second quarter of 2009, driven by a $192 million increase in revenue due to higher unit volume and price levels at NRT.

The revenue gain was partially offset by a $147 million increase in commission royalty expense, due to higher volume.

Expenses benefited from a $12 million reduction in employee costs, and other cost-saving activities.

EBITDA before restructuring and other items at Cartus was $28 million in the second quarter, up from $20 million in 2009.

Although revenue increases of $26 million were primarily driven by the impact of the Primacy acquisition, EBITDA before restructuring and other items increased $5 million due to the acquisition; the remaining $3 million increase was due to higher royalty revenue and relocation service fee revenues.

At TRG, revenue decreased 2% as a result of lower refinancing of volume, and EBITDA, before restructuring and other items, also decreased $2 million.

Turning to the balance sheet on table two of the press release, we ended the quarter with a cash balance of $265 million, which includes $239 million of readily available cash, and $26 million of statutory cash required for our title business.

We had no outstanding balance on our $750 million revolver at June 30, 2010.

Also on the balance sheet, the due to former parent line item decreased from $505 million at December 31st to $197 million at June 30, due to the tax settlement with the IRS and the adjustment of certain other liabilities.

The deferred income tax liability increased at June 30, primarily due to a $109 million reduction of deferred tax assets as a result of the IRS settlement.

The remaining $197 million of contingent liabilities consists of the $58 million tax settlement, which subsequently has been paid, unresolved state and foreign tax issues with corresponding accrued interest, ongoing reserves relating to Cendant's terminated or divested businesses, and a residual portion of accruals for Cendant operations.

In relation to the reduction in due to former parent, we have entered in to agreement with Avis Budget and Wyndham, whereby our outstanding letter of credit with Avis Budget is expected to be reduced from its current $446 million to approximately $150 million by the end of this quarter.

Some other movements to note on the balance sheet, the revolving credit facility in current portion of long-term debt increased from $71 million at March 31st to $162 million at June 30, because of additional letter of credit-backed borrowings of $90 million that were completed this past quarter.

Accrued expenses decreased by $150 million to $583 million at June 30, because of the payment of our semi-annual interest in April.

Let me provide you with expectations for certain cash flow items for the full year 2010.

Corporate cash interest is expected to be approximately $535 million to $545 million for the year.

Capital expenditures are expected to be approximately $45 million for the full year.

Reductions in relocation assets, net of changes in securitization borrowings, are expected to generate between $35 million and $45 million in cash.

Working capital, inclusive of cash restructuring costs, is forecasted to be a use of cash of between $70 million and $90 million.

This also includes the working capital requirements of the Primacy relocation business, which were partially financed through unsecured revolving credit facility outside of our $750 million secured revolving credit facility.

Net funding of legacy issues is expected to total about $65 million to $85 million for the full year, which includes the $58 million settlement of the legacy tax issue, which has been paid.

On table six of the press release, we present our senior secured leverage ratio calculation, for which the maximum allowable ratio can be 5.0 times to 1.

At June 30, 2010, the numerator, total senior secured net debt, as defined in our credit agreement, totaled $2.85 billion; that, divided by adjusted EBITDA of $656 million for the 12 months ended June 30, results in a senior secured net debt to adjusted EBITDA ratio of 4.34 to 1; maintaining compliance with our credit agreement.

Our EBITDA cushion rose to $86 million in June from $64 million this past March, due to the improved revenues and impact of our cost containment efforts.

Said another way, at the end of June we could have borrowed an additional $430 million under our revolver, and remained in compliance with the 5 to 1 maximum leverage ratio.

In conclusion, let me leave you with a few closing remarks.

Although the second quarter results were strong, the value of open contracts in June and July were down an average of 17% from 2009.

This indicates the third quarter will be weak, and is presumably because of the pull-forward of sales into the second quarter, along with continuing economic uncertainty.

Both NAR and Fannie Mae have taken down their third quarter and full year forecasts.

The comparisons for the fourth quarter also are expected to be unfavorable, due to impact of the 2009 tax credit, which resulted in the strong fourth quarter of 2009.

Although NAR and Fannie Mae downwardly revised their full year estimates, their unit forecasts for the full year are now flat with 2009.

While the next six months will likely be challenging, we have confidence that we will get through the latest blip on the screen, just as we have so successfully during the past several years.

More importantly, given the cost savings and growth initiatives that we have put in place, we expect to be in a favorable position to capitalize on the turnaround that is forecasted to occur in 2011 and beyond.

With that, I will turn it over the Alicia for some concluding remarks.

Thank you, Richard and Tony.

A few quick points of information before we conclude today's call.

First, a transcript of this webcast will be available on the Investor Information section of the Realogy.com website tomorrow morning, August 11.

Second, we anticipate announcing our third quarter 2010 results in November, with the date still to be determined.

We thank you for taking the time to join us on the call, and we look forward to speaking with you in November.

Thank you.

This concludes today's conference.

Thank you for your participation.

You may now disconnect your lines.