11/23/2014 9:20 PM

Stern IAG Alumni Mingle

November 14, 2014

11/23/2014 9:20 PM

Table of Contents

Preliminary Draft - Confidential

Section
Investment Thesis

RE/MAX Business Overview

II

Housing Recovery Cycle

III

Valuation and Catalysts

IV

Appendix

11/23/2014 9:20 PM

I.

Investment Thesis

11/23/2014 9:20 PM

Investment Thesis

Preliminary Draft - Confidential

Attractive business model

Share gainer in a fragmented industry

Levered to a recovery in housing

Inexpensive on a standalone basis with further upside potential on optimization of the balance
sheet, independent buy-ins

Recent IPO, small float, underperformance vs. the market, weakening sentiment on housing
creates an interesting setup and opportunity

Agenda
1.

Business model description - Jing

2.

Framing the housing cycle and key revenue drivers - Mitch

3.

Financials & valuation - Ryan

11/23/2014 9:20 PM

II. RE/MAX Business Overview

11/23/2014 9:20 PM

RE/MAX Business Overview

Preliminary Draft - Confidential

How Does a Real Estate Agent/Broker Make Money?

Broker

Sell-side
Agent

Services Offered
Market Analysis
Exposure
Market Overview
Facilitation
Appraisal
Contracts

Broker
Buy-side
Agent

Buyer
$

Cost of Home for Buyer

+ 5% Commission to Agents

200,000
10,000

Total Transaction

210,000

Sell-side Agents Commission

Buy-side Agents Commission

5,000
5,000

For each agent:

40% of Commission is Paid up to Brokerage Firm
60% of Commission the Agent Keeps for Himself

3,000
2,000

11/23/2014 9:20 PM

RE/MAX Business Overview

Preliminary Draft - Confidential

Company Overview
Business Description

Revenue and Agent Breakdown

Status:
Public (NYSE: RMAX)
Founded:
1973
Headquarters:Denver, CO
Agents:
97,647 (2014 Q3)

2013A Revenue Breakdown

Rest of
World
6%

Founded by Dave and Gail Liniger in 1973, with IPO in Oct

13

Rest of
World
22%

Canada
16%

Franchise brokerage business model that derives most of

revenue from recurring agent franchise fees rather than
transaction commissions

U.S.
78%

Canada
20%

U.S.
58%

High margins (~50% EBITDA margin) and high operating

leverage

Value Proposition for Agents

2013A Global Agent Mix

1-Year Stock Price Performance

130

RE/MAX is the brand with the highest unaided consumer

awareness in the U.S.

S&P 500

RMAX

RLGY

120

High agent commission split, compared to traditional

brokerage firms

110
100

RE/MAX website provides network of lead generation

system for real estate agents, with network effects increasing as
agent count and regional presence increases

90
80
70
9/30/13

Source: Company filings and website

12/19/13

3/9/14

5/28/14

8/16/14

11/4/14

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RE/MAX Business Overview

Preliminary Draft - Confidential

Revenue Model

RE/MAX

Traditional Broker

Agent Count Model

Commission Model

100% Franchised; low franchise fees

Owned by brokers

95% to Agent / 5% to Broker

60% to Agent / 40% to Broker

$10,000 Commission

$10,000 Commission

Agent
$9,500

Broker
$500

Agent
$6,000

Broker
$4,000

Company Owned Franchise Regions

$123/Agent/Month + 1% Commission
as Continuing Franchise Fees

Agents

$500/Agent
+ 5% of
Commission

Local Real
Estate
Brokerage

Independent Regions

$123/Ag./Mo.+
1% Commission

Independent
Franchise
Rights
Owners

$400/Agent/Year in Annual Dues

Source: Company FY2013 10-K

15-30% Continuing
Franchise Fees

RMAX

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RE/MAX Business Overview

Preliminary Draft - Confidential

Revenue Mix

Recurring
Fees
(Dependent
on Agent
Count)

Transaction
Based

Continuing Franchise Fee ($64mm)

Based on Agent Count
Paid Monthly

59%

16%

Annual Dues ($30mm)

Based on Agent Count
Paid Annually

19%

Broker Fees ($25mm)

Based on Commissions; Paid Monthly

16%

Franchise Sales and Other Revenue ($24mm)

Others

40%

15%

25%
Brokerage ($16mm)

Source: Company FY2013 10-K

10%

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RE/MAX Business Overview

Preliminary Draft - Confidential

Franchise Regions in US/Canada

Although RMAX owns the rights to the

RE/MAX name, the franchise rights are
licensed out to independent parties in 20
regions.

The company does not receive the full

franchise fees from these independent
regions, but takes a 15-30% cut.

32 States in Company-Owned Regions

28 States in Independent Regions

Source: RMAX Investor Presentation

40,000 agents in these states, with RMAX receiving

$2,404 / agent/yr on average

34,000 agents in these states, with RMAX receiving

$828 / agent/yr on average

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RE/MAX Business Overview

Preliminary Draft - Confidential

RE/MAX Market Share

Source: RMAX Investor Presentation

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RE/MAX Business Overview

Preliminary Draft - Confidential

Growth Potential with Pool of Unaffiliated Agents

Affliated
40%

Real Industry Brokerage Industry Set to Grow

Currently only 40% of agents are affiliated

Significant growth potential

Proven Value-Add for Agents

Unaffiliated
60%

87% of firms reported their current franchise

affiliation improved their firm name recognition

85% reported an improved use of technology

83% reported an improvement in acquiring listings

Source: RMAX Investor Presentation

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RE/MAX Business Overview

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Capital Structure & Management

David and Gail Liniger

Co-Founders of RE/MAX

Chairman, and Vice Chair

Majority holders in RIHI, Inc.

Margaret Kelly

CEO sine 2005

In RE/MAX since 1987 as Financial Analyst

Prev: VP, SVP, President

Vinnie Tracey

President; Regional Development since 2004

Since 1977 as Marketing Rep. in Tenn. & Kans.

Prev: EVP Corp. Dev./Franchise

David Metzger

Source: Company website

CFO since 2007; COO since 2011

Law and CPA background

Prev: CFO at two companies

11/23/2014 9:20 PM

III. Housing Recovery Cycle

11/23/2014 9:20 PM

Housing Recovery Cycle

Preliminary Draft - Confidential

RE/MAX Revenue Breakdown Transaction Based Revenue Drivers

10%

15%

Agent Based Fees

Transaction Based Revenue
Franchise Sales
59%
16%

Source: Company filings

10

Brokerage Revenue

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Housing Recovery Cycle

Preliminary Draft - Confidential

Existing Home Sales Volume

(in thousands)

8,000

7,000

30.6%

6,000

5,000

4,000

3,000

2,000
1999

2001

2003

2005

2007

2009

US Existing Home Sales Volume (SAAR)

Source: Bloomberg

11

2011

2013

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Housing Recovery Cycle

Preliminary Draft - Confidential

Existing Home Sales Volume by Region

(in thousands)
Regional Average Home Price
Thousands

Regional Existing Home Sales Volume

2,900

2,400

$500

$450

$400

$350
1,900
$300

1,400

$250

$200
900
$150

South

West

Midwest

$100
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

400

Northeast

South

Source: Bloomberg

12

West

Midwest

Northeast

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Housing Recovery Cycle

Preliminary Draft - Confidential

Existing Home Sales Price

($ in thousands)

$390

$370

10.0%

$350

$330

$310

$290

$270

$250
2004

2006

2008

2010
US Average Price

Source: Bloomberg

13

2012

2014

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Housing Recovery Cycle

Preliminary Draft - Confidential

Existing Home Sales Dollar Volume

($ in billions)

$2,800
$2,600
$2,400
$2,200

34.6%

$2,000
$1,800
$1,600
$1,400
$1,200
$1,000
1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Existing Home Sales Dollar Volume

Source: Bloomberg

14

2009

2010

2011

2012

2013

2014

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Housing Recovery Cycle

Preliminary Draft - Confidential

Existing Home Sales Dollar Volume Long Term

$1,600,000

$1,400,000

Dollar volume only

down in 9 years, 5
in last decade

$1,200,000

$1,000,000

$800,000

$600,000

$400,000

$200,000

$0
1968

1971

1974

1977

1980

1983

1986

1989

1992

$ Value
Source: Bloomberg

15

1995

1998

2001

2004

2007

2010

2013

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Housing Recovery Cycle

Preliminary Draft - Confidential

RE/MAX Revenue Breakdown Franchise Fee Drivers

10%

15%

Agent Based Fees

Transaction Based Revenue
Franchise Sales
59%
16%

Source: Company filings

16

Brokerage Revenue

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Housing Recovery Cycle

Preliminary Draft - Confidential

600

7,000

500

6,000

400

5,000

300

4,000

200

3,000

100

Billions

8,000

2,000

0
1999

2001

2003

2005

2007

US Existing Home Sales Volume (SAAR)

Source: Bloomberg, Morgan Stanley Research

17

2009

2011

US Agent Count

2013

Thousands

Existing Home Sales Volume, US Real Estate Agent Count & Households

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Housing Recovery Cycle

Preliminary Draft - Confidential

Existing Home Sales as a % of Number of Households

6.0%

5.5%

5.0%

4.5%

4.0%

3.5%

3.0%

2.5%

2.0%
1968

1973

1978

1983

1988

1993

Housing turnover
Source: Bloomberg

18

1998

2003

2008

2013

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Housing Recovery Cycle

Preliminary Draft - Confidential

RE/MAX Agent Growth and Productivity

RE/MAX Agent Growth Drivers

Transaction Sides per Agent

140

U.S. Brokerages

1,600

1,400

120

1,200

100

1,000

20
16
12
8
4
0

80

23% below
peak

60

800

Canada Brokerages

600
20

40

400

16
12

20

200

4
0

1978

1983

1988

1993

Remax Agent Count

1998

2003

2008

NAR Membership

Source: Company Filings, Bloomberg, Morgan Stanley Research, National Association of Realtors

19

2013

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Housing Recovery Cycle

Preliminary Draft - Confidential

RE/MAX Revenue Breakdown - Canada

22%

U.S.
Canada
58%
20%

Source: Company filings

20

International

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Housing Recovery Cycle

Preliminary Draft - Confidential

Low Volatility Canadian Revenue

Source: Barclays Research

21

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Housing Recovery Cycle

Preliminary Draft - Confidential

Potential Drivers for a Housing Takeoff

22

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Housing Recovery Cycle

Preliminary Draft - Confidential

Average Credit Score for Home Purchase Loans

Source: RLGY filings

23

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Housing Recovery Cycle

Preliminary Draft - Confidential

Homebuyer Breakdown

Source: RGLY Filings

24

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Housing Recovery Cycle

Preliminary Draft - Confidential

Renter Confidence about Future Ownership

Source: Barclays research

25

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Housing Recovery Cycle

Preliminary Draft - Confidential

Rent is Getting Too Expensive

Source: Barclays Research

26

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Housing Recovery Cycle

Preliminary Draft - Confidential

A Word on Rising Interest Rates

What happens when rates go up?

27

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Housing Recovery Cycle

Preliminary Draft - Confidential

30 Year Treasury Yield

16.00%

14.00%

12.00%

10.00%

8.00%

6.00%

4.00%

2.00%

0.00%
1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

30 Yr Treasury Bond Yield

Source: Bloomberg

28

2003

2005

2007

2009

2011

2013

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Housing Recovery Cycle

Preliminary Draft - Confidential

Housing Affordability Near Peak

250

200

150

100

50

0
1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

Housing Affordability Index

Source: Bloomberg

29

2003

2005

2007

2009

2011

2013

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Housing Recovery Cycle

Preliminary Draft - Confidential

Dollar Volume Reaction to Interest Rates

($ in billions)

2500

9%
8%

2000

7%
6%

1500
5%
4%
1000

3%
2%

500

1%
0

1999

2000

2001

2002

2003

2004

2005

2006

2007

Existing Home Sales Dollar Volume

Source: Bloomberg

30

2008

2009

2010

Mortgage Rates

2011

2012

2013

2014

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Housing Recovery Cycle

Preliminary Draft - Confidential

Dollar Volume Driven by Unemployment

($ in billions)

2500

10%
9%

2000

8%
7%

1500

6%
5%

1000

4%
3%

500

2%
1%

1999

2000

2001

2002

2003

2004

2005

2006

2007

Existing Home Sales Dollar Volume

Source: Bloomberg

31

2008

2009

2010

Unemployment Rate

2011

2012

2013

2014

11/23/2014 9:20 PM

IV. Valuation and Catalysts

11/23/2014 9:20 PM

Valuation and Catalysts

Preliminary Draft - Confidential

Overview of Historical Financial Performance

2008A
Total Agent Count
% growth
Agent Revenue Streams
% growth
Transaction Revenue Streams
% growth
Other Revenue Streams
% growth
Total Revenue
% growth
Adjusted EBITDA
% growth
% margin

2009A

($ in thousands, except per share data)

2010A

2011A

2012A

2013A

2014E

100,331
NA

92,071
-8%

89,628
-3%

87,476
-2%

89,008
2%

93,228
5%

96,191
3%

$113,594

$177,300
NA

$94,250
-17%
$16,010
-2%
$39,410
-17%
$149,670
-15.6%

$91,337
-3%
$16,021
0%
$32,859
-17%
$140,217
-6.3%

$86,122
-6%
$16,764
5%
$35,416
8%
$138,302
-1.4%

$85,259
-1%
$19,579
17%
$38,839
10%
$143,677
3.9%

$93,989
10%
$24,811
27%
$40,062
3%
$158,862
10.6%

$103,490
10%
$28,612
15%
$38,714
-3%
$170,817
7.5%

NA

NA

$62,368
NA
44.5%

$59,281
-5%
42.9%

$66,744
13%
46.5%

$77,286
16%
48.6%

$84,347
9%
49.4%

$16,401
$47,305

32

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Valuation and Catalysts

Preliminary Draft - Confidential

RE/MAX Growth Profile

Agent Count

Revenue

EBITDA

EPS

Organic growth of 3-5% each year over the next 5 years

95/5 commission structure also naturally selects for high-productivity agents
Revenue growth likely in the mid-single digits over the next 5 years, with room for faster growth from reacquiring
independent franchise regions
Operating leverage means EBITDA margins will expand over time as revenue increases
Organic EBITDA growth of high-single digits over the next 5 years
Net income expected to grow in the low-double digits range over the next 5 years
High quality operating cash flows allows for plenty of share repurchases, providing further upside for EPS growth

Lost

33

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Valuation and Catalysts

Preliminary Draft - Confidential

RE/MAX Financial Projections (1)

($ in thousands, except per share data)

SUMMARY INCOME STATEMENT

2012A

2013A

Revenue
% growth
Implied SG&A
% growth
Adjusted EBITDA
% margin
% growth

$143,677

$158,862
11%
81,576
6%
$77,286
48.6%
16%

$170,817
8%
86,471
6%
$84,347
49.4%
9%

$187,519
10%
93,388
8%
$94,131
50.2%
12%

$199,370
6%
98,991
6%
$100,379
50.3%
7%

$218,613
10%
106,911
8%
$111,702
51.1%
11%

$233,083
7%
113,325
6%
$119,758
51.4%
7%

76,933
$66,744
46.5%
NA

2014E

2015E

2016E

2017E

2018E

Adjusted Depreciation and Amortization

Adjusted EBIT
% growth

$3,010
$63,734

$2,892
$74,394
17%

$3,416
$80,930
9%

$3,750
$90,381
12%

$3,987
$96,391
7%

$4,372
$107,330
11%

$4,662
$115,096
7%

Implied Interest Expense (net of Interest Income)

Adjusted EBT

$11,400
$52,334

$12,344
$62,050

$9,122
$71,809

$9,122
$81,259

$9,122
$87,270

$9,122
$98,208

$9,122
$105,975

Provision for Income Taxes at 39%

Adjusted Net Income
% margin
% growth

$20,410
$31,924
22%
NA

$24,200
$37,851
24%
19%

$28,005
$43,803
26%
16%

$31,691
$49,568
26%
13%

$34,035
$53,235
27%
7%

$38,301
$59,907
27%
13%

$41,330
$64,645
28%
8%

$1.46

$1.72
17%
7%
$1.61

$1.99
16%
15%
$1.73

$2.37
19%

$2.69
13%

Adjusted EPS
% growth
% above Street Estimates
Street EPS Estimates

-2%
$1.49

34

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Valuation and Catalysts

Preliminary Draft - Confidential

RE/MAX Financial Projections (2)

FREE CASH FLOW
Adjusted Net Income
(+) D&A
(+) Change in Net Working Capital
(-) CapEx (net of sale of assets)
Operating FCF
% growth

($ in thousands, except per share data)

2012A
$31,924
3,010
1,667
(1,578)
$35,023

Average diluted shares outstanding

Ending share count
Buyback price
Operating FCF / Share
% growth
USES OF FREE CASH FLOW
Acquisitions of Independent Franchise Regions
Share Buyback
Net Debt Paydown
BALANCE SHEET

2012A
($45,500)

2012A

2013A

2014E

2015E

2016E

2017E

2018E

$37,851
2,892
(638)
(1,090)
$39,015

$43,803
3,416

(2,562)
$44,657
14%

$50,623
3,750

(2,813)
$51,561
15%

$54,912
3,987

(1,994)
$56,906
10%

$62,893
4,372

(1,530)
$65,735
16%

$67,809
4,662

(1,632)
$70,840
8%

29,970

29,965
29,965
$29.84

28,842
27,719
$32.07

26,675
25,630
$34.46

25,144
24,658
$37.04

23,867
23,075
$39.80

$1.30

$1.49
14%

$1.79
20%

$2.13
19%

$2.61
23%

$2.97
14%

2013A

2014E

($27,305)

2013A

Cash
Debt
Net Debt
Net Debt / Adjusted EBITDA

2015E

2014E
$98,128
212,198
114,070
1.4x

35

($28,000)
(80,000)

2015E
$41,689
212,198
170,509
1.8x

2016E

(80,000)

2016E
$18,594
212,198
193,604
1.9x

2017E
($28,000)
(40,000)

2017E
$16,329
212,198
195,869
1.7x

2018E

(70,000)

2018E
$17,168
212,198
195,030
1.6x

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Valuation and Catalysts

Preliminary Draft - Confidential

Analysis at Various Prices

($ in thousands, except per share data)

Current
Share Price
% to current
FD Shares
Equity Value
(+) Net Debt
Enterprise Value
Implied Multiple

$30.84

$24.67
-20%

$26.21
-15%

$27.76
-10%

$30.84
0%

29,965
$924,109

29,965
$739,287

29,965
$785,492

29,965
$831,698

29,965
$924,109

114,070
$1,038,179

114,070
$853,357

114,070
$899,562

114,070
$945,768

$33.92
10%

$35.47
15%

$37.01
20%

$38.55
25%

$40.09
30%

29,965
29,965
29,965
29,965
29,965
$1,016,520 $1,062,725 $1,108,930 $1,155,136 $1,201,341

114,070
114,070
114,070
114,070
114,070
114,070
$1,038,179 $1,130,590 $1,176,795 $1,223,000 $1,269,206 $1,315,411

Metric

EV / '15 EBITDA
P / '15 FCF / Share

$94,131
$1.75

9.1x
14.1x

9.6x
15.0x

10.0x
15.9x

11.0x
17.6x

12.0x
19.4x

12.5x
20.3x

13.0x
21.2x

13.5x
22.0x

14.0x
22.9x

EV / '16 EBITDA
P / '16 FCF / Share

$100,379
$2.06

8.5x
12.0x

9.0x
12.7x

9.4x
13.5x

10.3x
15.0x

11.3x
16.5x

11.7x
17.2x

12.2x
17.9x

12.6x
18.7x

13.1x
19.4x

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Valuation and Catalysts

Preliminary Draft - Confidential

Comparable Companies

($ in thousands, except per share data)

Net Debt/

Franchised restaurants
Mcdonald'S Corp
Yum! Brands Inc
Burger King Worldwide Inc
Dunkin' Brands Group Inc
Domino'S Pizza Inc
Wendy'S Co/The
Jack In The Box Inc
Sonic Corp
Average
Median

Hotels
Marriott International -Cl A
Starwood Hotels & Resorts
Choice Hotels Intl Inc
Average
Median

Ticker
MCD
YUM
BKW
DNKN
DPZ
WEN
JACK
SONC

Ticker
MAR
HOT
CHH

Price
$96.26
$74.56
$32.26
$48.08
$91.50
$8.51
$71.60
$25.18

Price
$77.89
$78.39
$52.72

Equity Val
93,690
32,716
11,326
5,040
5,042
3,112
2,799
1,339

Equity Val
22,045
13,997
3,064

EV
105,587
35,191
13,339
6,708
6,535
4,216
3,324
1,768

EV
25,423
15,983
3,606

EBITDA

P/E
18.9x 17.2x 15.8x
23.1x 19.5x 16.4x
33.0x 28.1x 24.8x
27.3x 23.8x 20.1x
31.4x 26.8x 23.6x
25.5x 22.1x 19.6x
28.1x 25.1x
NA
28.6x 24.2x 21.5x
27.0x 23.4x 20.3x
27.7x 24.0x 20.1x

Net Debt/

P/E

EBITDA
2.0x
1.5x
2.3x
1.9x
2.0x

Realogy Holdings Corp

Re/Max Holdings Inc-Cl A
Average
Median

Ticker
RLGY
RMAX

Price
$43.11
$30.63

Equity Val
6,304
918

EV
10,267
1,032

EBITDA
4.6x
1.2x
2.9x
2.9x

EBITDA Growth

EPS Growth

2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E

1.2x
0.8x
2.6x
4.0x
3.6x
2.7x
1.8x
2.7x
2.4x
2.6x

10.8x
12.3x
19.7x
17.5x
17.2x
10.6x
12.5x
12.2x
14.1x
12.4x

10.4x
10.8x
16.9x
16.1x
15.6x
10.2x
11.7x
11.1x
12.8x
11.4x

9.7x
9.4x
15.8x
14.6x
14.2x
9.7x
11.1x
10.7x
11.9x
10.9x

EV/EBITDA

(5%)
13%
15%
8%
12%
19%
13%
3%
10%
13%

4%
14%
16%
8%
10%
4%
7%
10%
9%
9%

6%
15%
8%
11%
9%
5%
5%
4%
8%
7%

EBITDA Growth

(8%)
8%
37%
32%
18%
57%
30%
3%
22%
24%

10%
18%
17%
15%
17%
15%
12%
18%
15%
16%

9%
19%
13%
18%
14%
13%
NA
13%
14%
13%

EPS Growth

2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E
30.3x 25.7x
27.8x 24.6x
26.3x 23.9x
28.1x 24.7x
27.8x 24.6x

Net Debt/
Real Estate Brokers

EV/EBITDA

22.0x
21.6x
21.1x
21.6x
21.6x

P/E

16.8x
13.1x
16.6x
15.5x
16.6x

14.9x
12.2x
15.3x
14.2x
14.9x

13.6x
11.2x
14.0x
12.9x
13.6x

EV/EBITDA

36%
3%
7%
15%
7%

12%
7%
8%
9%
8%

10%
9%
10%
9%
10%

EBITDA Growth

30%
(7%)
5%
9%
5%

18%
13%
10%
14%
13%

17%
14%
13%
14%
14%

EPS Growth

2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E
38.1x 24.2x
21.0x 17.4x
29.5x 20.8x
29.5x 20.8x

Source: Bloomberg as of 12:00pm on 11/14/2014

37

16.8x
14.9x
15.8x
15.8x

13.3x
12.2x
12.8x
12.8x

11.9x
10.8x
11.3x
11.3x

10.6x
10.0x
10.3x
10.3x

0%
36%
18%
18%

11%
14%
13%
13%

12% (66%) 58%

8%
NA 21%
10% (66%) 39%
10% (66%) 39%

44%
17%
31%
31%

11/23/2014 9:20 PM

Valuation and Catalysts

Preliminary Draft - Confidential

Discounted Cash Flow Valuation

($ in thousands, except per share data)

2014E

Adjusted Net Income

(+) D&A
(-) Change in Working Capital
(-) CapEx
(-) Acquisition of Independent Franchise Regions
Unlevered Free Cash Flow

2016E

2017E

2018E

Terminal

$43,803.4 $49,568.0 $53,234.6 $59,907.0 $64,644.6 $64,644.6

3,416
3,750
3,987
4,372
4,662
4,662

(2,562)
(2,813)
(1,994)
(1,530)
(1,632)
(4,662)

(28,000)

(28,000)

$44,657
$22,506
$55,228
$34,749
$67,675
$64,645

Cost of Equity
Perpetuity Growth Rate
Discount Period
Discount Factor
Discounted Cash Flows

7.47%
2.50%

Equity Value
FDSO
Equity Value Per Share

$1,137,886
29,965
$37.97

Current Share Price

Potential Upside (Downside) %

2015E

0.25
0.98
$10,965

1.25
0.91
$20,568

2.25
0.85
$46,966

3.25
0.79
$27,497

4.25
0.74
$49,830

4.25
0.74
$982,060

$30.84
23%

Upside of 33% represents conservative estimates for cash flows that are very high quality.

38

11/23/2014 9:20 PM

Valuation and Catalysts

Preliminary Draft - Confidential

Further Potential Upside and Catalysts

($ in thousands, except per share data)

Financial Impact of Repurchasing Franchise Rights

Effect of Levering Up on 2016 FCF / Share

2016 Adjusted EBITDA
Current Net Debt/EBITDA Leverage
Target Net Debt/EBITDA Leverage
Implied Incremental Debt

$100,379
2.0x
4.0x
$205,179

2016 Operating FCF

Incremental After-tax Interest Expense
Pro-forma 2016 Operating FCF

$55,228
($5,380)
$49,848

2016 Base Share Count

(-) Shares Repurchased with Incremental Debt
Pro-forma 2016 Share Count

26,782
-5,761
21,021

Base FCF / Share

Pro-forma FCF / Share
% Accretion

$2.06
$2.37
15%

2016 Independent US Agent Count

2016 Independent Canadian Agent Count
Incremental Revenue / US Agent from Reacquisition
Incremental Revenue / Canadian Agent from Reacquisition
Total Incremental Revenue

23,194
13,468
$1.76
$1.70
$63,612

Incremental EBITDA (assuming 50% margin)

$31,806

Repurchase Price EBITDA Multiple

RMAX 2016E EV/EBITDA Multiple
Incremental Value Generated
2016 FDSO
Incremental Value Per Share
% Upside to Current Share Price

7.0x
10.3x
$106,314
26,782
$3.97
13%

Significant amount of incremental upside exists if management were to lever up or to

repurchase independent franchises. This represents additional value not captured in DCF.

39

11/23/2014 9:20 PM

Valuation and Catalysts

Preliminary Draft - Confidential

It's far better to buy a wonderful company at a fair price than a fair company at a
wonderful price
-Warren Buffett, Letter to shareholders, 1989

If investing is entertaining, if youre having fun, youre probably not making any money.
Good investing is boring.
- George Soros

40

11/23/2014 9:20 PM

Appendix

11/23/2014 9:20 PM

Appendix: Online Brokers

Preliminary Draft - Confidential

Source: Realogy Investor Presentation

41

11/23/2014 9:20 PM

Appendix: Online Brokers

Preliminary Draft - Confidential

Source: Realogy Investor Presentation

42

11/23/2014 9:20 PM

Preliminary Draft - Confidential

Multiple Listing Services

We see this as a low near-term risk. Zillow and Trulia are at a different place in the value chain, and in effect derive portions of
their revenues from brokers (including Realogy) and are depend on brokers listings on their sites. Also, for these companies it
would be disadvantageous to cease to work with Realogy as they attempt to grow at this point. Aside from Zillow and Trulia,
other MLS (Multiple Listing Service) providers exist. With a roughly 16% unit and 26% transaction share of the broker
assisted market (between RFG and NRT), Realogy remains a major presence. Realogys cloud-based system, Home Base, is
operational in a majority of its NRT offices and will be progressively made available to its franchisees.
Buying a home is the biggest purchase for most people, and help from online services and price discovery tools aside, home
buyers and sellers still need as much assistance in the logistics of buying a home as they did 10-15 years ago. Simply
put, realtors presence on the ground becomes essential in showing potential buyers around and helping buyers and sellers
through the process. For us, this explains why commission rates have not come down, and instead are up, since the peak of the
housing cycle.

Source: Goldman Equity Research

43