Real estate franchisor Realogy is selling a 70% stake in its title insurance underwriting subsidiary, Title Resources Guaranty, to Centerbridge Partners for $210 million in cash.
The two parties are creating a joint venture, Closing Parent Holdco, which will own Title Resources Guaranty. This transaction is expected to close in the first quarter of 2022.
The deal does not include any ownership stake in Realogy's title agency, escrow and settlement services business.
Until now, the underwriting business, the agency business and the parent company’s interest in the
In the first half of the year, 60% of the group's revenues (not including the mortgage joint venture), came from the title agency and settlement services business, according to a Keefe, Bruyette & Woods report.
The Realogy Title Group had net revenues of $255 million in the second quarter and $456 million in the first half, compared with $160 million and $297 million respectively one year prior, its 10-Q filing said.
"Overall, we view the transaction favorably as it monetizes an asset that was likely being undervalued per a sum of the parts analysis of Realogy stock," Bose George, an analyst for KBW, said.
George speculated that this deal could be the first step in something bigger in real estate finance for Centerbridge.
"While it is unclear whether Centerbridge has broader goals for growth within the mortgage ecosystem, we think this is a possibility," George said. "Title is a business that benefits from scale so growing this business, likely through acquisition, would be logical."
Centerbridge has been an active investor in real estate businesses. Back in March, it invested in
In 2019, there were reports that Centerbridge was in negotiations to take mortgage insurer
Centerbridge owned
"The title insurance underwriter is one of the fastest growing companies in the sector, delivering an approximately 15% CAGR (compound annual growth rate) in gross title premiums since June 2010," Kevin Mahony, managing partner at Centerbridge, said in a press release. "We believe we can accelerate this growth even further by investing in new geographies, expanding title products and services, continuing the development of technology, and delivering value to all stakeholders, including agents and employees."
Title Resources is one of the largest of the independent underwriters, with a market share of 2.6% in the second quarter, according to the American Land Title Association. Westcor is the largest with a 6.2% share, followed by WFG National Title at 3%. Title Resources is just ahead of
In the first quarter, Title Resources had a 2.3% share while for the full year of 2020, it had a 2.49% share.
Among all individual underwriters, Title Resources ranked ninth; however the
"We believe a standalone venture guided by Centerbridge's proven asset growth and management expertise can fully unleash the underwriter's growth potential, which is why Realogy has committed to maintaining a material ownership stake," said Ryan Schneider, the real estate company's CEO and president. "Future growth upside from the underwriter venture, combined with our ability to unlock capital to further invest in Realogy's strategic priorities, can help us generate additional value for both the company and our shareholders."
AM Best gave Title Resources a B++ (good) financial strength rating in April. "The ratings reflect TRG's balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management," the ratings announcement said. "AM Best also considered the parent company's credit profile in the TRG's rating analysis, and viewed it as a limiting factor to the ratings."
