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Real Estate Market Hits Cendant

The conglomerate is spinning off its real estate business right when the housing market is weakening.


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plan to spin off its real estate business doesn't have the best timing, coming right when home sales are looking the weakest they've been for some time.

The consumer services conglomerate, set to break up into four companies by the end of the year, on Monday

cut its earnings forecast for the first quarter, in part because the softening real estate market.

Cendant's "NRT" real estate division -- which includes some of the best-known names in the real estate brokerage business, including Century 21, Coldwell Banker and the Corcoran Group -- saw its fourth-quarter earnings before interest, taxes, depreciation and amortization decline 7% year over year to $221 million, Cendant said late Monday. Revenue for the division increased 3% to $1.6 billion, but results were dragged down by fixed costs in what Cendant called a seasonally slow fourth quarter.

But the first quarter is also expected to be weak. "As a result of recent moderation in the residential real estate market, particularly in some of the markets where NRT is more heavily concentrated, the company expects EBITDA comparisons (before separation costs) to be negative in first quarter 2006 versus first quarter 2005," Cendant said.

The company said the softness in the brokerage business is expected to shave 3 cents to 5 cents off first-quarter earnings. Overall, Cendant lowered its first-quarter earnings projection to a range of 11 cents to 16 cents a share, before items, from a December forecast of 18 cents to 20 cents.

The company said it is taking steps to reduce costs at NRT, including consolidating some its 1,000-plus sales offices.

Cendant said average home sales prices increased in the high single-digit range in January from a year earlier. As a result, the company currently estimates that the real estate segment's revenue will increase and EBITDA (before separation costs) will be about flat in 2006 compared with 2005. Even though recent sales have been slow, the company said open contracts at its brokers have picked up in recent weeks, "which normally indicates that home sales should improve in the next few quarters."

That improvement remains to be seen. Homebuilders face the possibility that recent tepid orders might not pick up in the all-important spring-selling season. On Monday,

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said that in the first two months of the year it has had an

increase in order cancellations, as well as fewer new orders.

To exacerbate matters, Cendant's brokerage business focuses on the East and West coasts, where affordability issues and growing inventories of homes for sale have stifled the market.

Cendant plans to spin off the real estate division in the second quarter. That means investors receiving stock in the new company will only have information about the muted first-quarter results and will be left to question if the spring selling season will actually be as rosy as Cendant projects.

Cendant shares recently were down $1.06, or 6.3%, to $15.76.