Anywhere Real Estate Inc. (04M.DU) Earnings Call Transcript & Summary

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Good afternoon, everybody, and I want to -- my name is Ed DeForest, I'm a Senior Vice President at Moody's Investor Service and the Corporate Finance Group, where I cover business and consumer services companies, including real estate brokers. And I'm joined today by the Executive Vice President and Chief Financial Officer of Anywhere Real Estate, Charlotte Simonelli. We were going to be spending the first half hour chatting about what's now and what's next for the existing home sale market in the U.S. Before we start our discussion, a few reminders, if you're having any technical issues, please send an e-mail to events at moodys.com, no apostrophe, and someone will reach out to you for support. We also want this to be an interactive discussion, so please submit your questions in the Q&A box on your screen through Zoom, and we'll try to take questions from the audience during our chat. So now let's get started. Charlotte, thanks so much for joining me this afternoon.

Thank you, Ed. Good afternoon, everyone. Some opening comments from me. I think it's no secret that the macro environment is pretty volatile right now, which is definitely having an impact on the housing market. But I will say it's an exciting time for our company with our rebranding to Anywhere Real Estate. We've come off a period of substantial transformation and shown substantial improvement in our operating results, in our market share and in our balance sheet. We've demonstrated that we have increasing technology leadership, and we have a great team, great talent and great culture. We're leveraging the strength of our current business to manage our near term, but we're also focused on the longer term and leading real estate to what's next. We're better positioned today in the market with that strong balance sheet, with our longer-dated maturities, our low cost of capital and our solid liquidity position. We have been and continue to be committed to profitability and have done a great job of managing our cost structure. We're also strategically rethinking the physical and human-based models for the future to support consumers and agents. And there's plenty of opportunity to continue to take costs out of this business, even after all the progress that we've already made. We're not just building on our current business, though. We are focused on changing the transaction for the future and hoping that we can bring a more frictionless way for consumers to buy and sell homes. And part of that is an example of what we've already done with RealSure, which is our attempt to try to automate the transaction more and provide new and unique things for our consumers. So we're leaning into more consumer-focused ways to help improve this experience. And we think that over time, the real competitive asset is going to be very different than what it is today. We are in advantaged position financially due to all the progress that we've made, and we feel optimistic for the future as we lead real estate to what's next. Thanks, Ed.

That's great. Thanks, Charlotte, for those opening comments. I'd like to move right into what's going on in the market right now. Is what's coming a needed pause? Is it a big chill? Is there a market freeze coming?

Yes. As you point out, things are definitely cooling off a bit. A little bit more color on that, too. where we're really seeing it most acute is in sort of the first-time homebuyer situation because the inventories are acutely low at $500,000 and below and with interest rates rising, the affordability is also tighter -- creating issues for these first-time homebuyers. So it's not the same across the landscape. We are still seeing strong performance at the higher ends. And let's be honest, those are less impacted by the need to get a mortgage. So it's not really the same at every price point. And there really is a very big imbalance between supply and demand. There's a ton of demand and the supply is just as tight as it's ever been. So that's holding prices up, but it is putting a big issue on the side. So we are definitely seeing tighter contracting side home sale transactions.

Is the -- how important are regional differences as well as the sort of price points that you pointed out?

Yes. So definitely, certain markets are way stronger than others. But in general, there is still a cooling off that's happening more broadly. So markets like the South, the West Florida, there's definitely markets that still remain very strong. New York City actually remains very strong as well. So it is different by geography. But just the fact that the inventory is so acute at the low price point is impacting, that's a nationwide situation everywhere.

How is -- we've been reading a lot in the last couple of years about the transformation to hybrid work as a driver of causing people to move maybe -- a flight from high-tax locations is another driver. Do you still see those trends continuing despite the dislocation from higher interest rates?

Yes. We actually are still seeing that, and I think that that's a trend that will continue over time even into the future. So despite the inventory constraints, people really still are moving. And I think the workforce has not settled out yet, where a lot of folks including us are virtual, and so you can kind of work from anywhere. So not all of those folks have actually moved to where they'd like to live. So I definitely see that trend continuing, and we're still seeing it now.

Is the -- there's been a long run of a seller's market where features like cash-only bidding, no inspection become really common. Might those be -- might those be early indicators of a normalization with those sorts of formerly routine procedures like inspections and ability to submit a finance offer and have it be considered good return?

Yes. I think at some point, they will return. I think we're still seeing a lot of that. And I think the other thing I'd point out is historic lows from time of contract to actual closing, like we're talking 2 weeks from the time that the house goes under -- it's like 2 weeks' time is unheard of to close. And part of that is driven by cash-only offers and not to have the need to have inspections and financing and all of that. So that's a good like early warning sign or indicator if things are changing or not. It's still historically low right now. But I do think over time, you will see more of that, especially as inventory continues to build. So the more inventory we get, I think that will help sort of ease us back into more normal ways of inspecting houses and having financing and things like that.

Okay. Does the -- what do you think of is the real long-term benefits from a renewal of an inventory for sale properties?

Listen, we have been talking about inventory constraints for years and it's as acute as it's ever been right now. So clearly, having more homes is going to help from an affordability perspective. So I think the pricing will balance out the more inventory we have. And that's really what's needed. And it's not just in home sales, even rentals, like the amount of price increases happening, both on home sales and in rentals. It's just -- it's a serious affordability issue for a lot of consumers. And so we definitely need more supply of homes to be able to help normalize that and they just can't build them fast enough. So they are. The good news is there's a lot more coming on the market. It's just not going to solve things overnight. So it's going to take more time, but it definitely will help ease some of the affordability issues that consumers are facing right now.

Well, that's -- we're certainly fascinating to see how this all works out. It's a very interesting season. And we'll see how the summer goes. In the meanwhile, maybe switching tack a little bit, you mentioned that you've rebranded and you're attempting the pivot to be closer to your customer and be something of a one-stop shop for all things real estate. Why we rebrand the company to Anywhere?

It's actually -- I think it's critical, and it's one of the most important things to signify the changes. And that's just -- it's not only externally, it's actually internally. We feel very proud of the accomplishments we've made over the past few years to sort of shore up the foundation of our business, both financially from a market share perspective, even on the tech side, the culture, the talent. So we are at a very great spot to now actually drive for significant change. And I think the name was actually critical to making sure that everyone understood this really is an actual change for us. It's not just a rebranding of a company. This is a new period in time where we expect to lead, and it's not business as usual. We will continue to drive the successes that we have in our core business. So it's a great solid core. And for those that listened in on our Investor Day, we still expect that to deliver half of our growth over time, doing more of what's made us successful to date. But the other half of that growth is coming from the focus on the consumer and meeting the consumer where they are in their journey. So rebranding the company is critical to ensure that everybody is unilaterally focused on delivering what it's going to take to actually move the transaction in a much different way.

You've emphasized it in your Investor Day and in other discussions, the importance of trust in brokerage and technology has got a really big role to play in helping with that. Could you help us with the role of technology?

Yes, absolutely. Some of the things that we shared on our Investor Day that are already out in the marketplace today are around improving agent productivity, for example. So we have a product called Listing Concierge. And basically, it's a different way to market homes. It's actually a package that they can then offer to the consumer that's selling their house. And what it does over time is it's actually improving the list price of the house. So the price goes up -- even though prices are up, this is versus its own sample set of already inflated prices, which makes the consumer happy, makes the agent happy and it makes us happy. So we've got products that are tech-enabled that do things today. I think RealSure is another example because just the way that the transaction is architected, it then integrates things and also helps to streamline the transaction. So those are things that we already have today. But into the future, if you think about a more frictionless transaction, there's a lot of paper pushing right now. It's highly manual. And so the more that we can use tech to enable the transaction to be more seamless and frictionless, it's actually critical. And we are highly focused on it. You saw our new COO that we hired recently a few months ago, Melissa McSherry, she's got a lot of great experience in this space. And so I'm really encouraged by where the future is -- where we will lead for the future.

Just the -- you're thinking about technology and helping with trust in the -- is it through transparency that we build trust? Do we -- how do we -- emphasis, I think, in a lot of circles on fairness in housing. Is that also something that's enabled by technology?

I think it can be for sure. So if you start first on the trust side with technology, that comes with accurate data, that comes with open access to data. And it comes with -- even if you're the consumer who's selling or buying the house, just having -- we have a product that shows you all of the steps of what's happening next in your home sale transaction in the app. It's not available in all markets or at all brands yet, but that's another way to build trust and transparency because then the consumers are not surprised. The seller is not surprised of what's coming next, when is it due. So I think it absolutely can play a role. And then to your point on fair housing, equal access to homes is important regardless of where you live or which demographic you're in. So it absolutely does play a role, I think, in both of those areas as it relates to trust and fair housing.

Does the technology or can technology help make the housing market more sustainable?

Well, I think the first thing that makes the housing market more sustainable is more inventory. I think that's the most acute situation that we have right now. And as far as sustainability, I think there's a lot of great access to information today. I think some of that information can be misleading. I think sometimes people go on a certain website and they think that the agent that's showing up there is the agent that is listing the home and it's not. And so I think that there's probably definitely still more room for improvement on some of the data that's available today. But yes, I agree with the comment. .

So the -- we've emphasized a little bit on technology, but what about the agent? And is the -- how important is the agent in a transaction today?

The agent is more important than ever right now. And if you think about it with the acute inventory situation that we have, sometimes you're not even aware the house is on the market before it's off the market. And so even at all price bands it's much more difficult to -- for someone who's not a cash buyer to then try to compete with folks who are cash buyer. So having this trusted adviser is actually even more important today in the market conditions that we have today than ever before. And most people like 60% or 70% of the time, they're using someone that's a recommendation to them like an agent that is recommended, either they've used the person before or they know someone who's used -- so it's not just the fact that there is an agent. It's someone that comes referred to them as well. And it really is making a huge difference in the market today and agents are providing a ton of value.

Yes. This is interesting hearing what some of those key attributes are for buyers and sellers in choosing an agent. Is there -- are there regional differences? Does the calculus change at the high end or at the low end of the housing market?

It really doesn't change dramatically. I think at the higher end, people tend to be a little bit more experienced. I think buyers tend to use agents slightly less than sellers. So there are some nuances to it. But overall, the statistic of the 60% and 70% that people use someone that's recommended, they've either known them or someone that knows them, it sort of speaks for itself that they want that trusted adviser and trust comes from your mom's recommendation, your best friend's recommendation. So yes, but you're right, there are some differences and at the higher end, there may be slightly less usage and on the buyer side versus the seller side.

Does anywhere multiple brand strategies help address some of those differences?

I don't think it does from an agent perspective, I think the brands have very unique profiles and sort of it speaks to the agent itself. So the brand is what the agent wants to be affiliated with. The brands have meaning and certain demographics that they tend to lean towards and price points. And so an agent self-selects into a brand based on sort of what that brand profile is, but also then the value proposition that is offered by the brand. . And I think Anywhere is known for having a very solid value proposition, whether it be in product, in tech, in training and support like the whole mantra has been to like bring agents in earlier in their career and make them even better agents over time. And so some of those things are common across Anywhere because some of the tools and products and services we offer are common, but sometimes they're different, and they're very targeted to the brand. So that's sort of a self-selecting from an agent perspective. based on sort of the brand that they identify with and the products and value proposition that is provided for those brands.

Okay. I think there's been growth in competition in -- both from traditional brokers that are targeting some of the key markets we've targeted as well as new forms of home buying and selling enablement, do-it-yourself solutions, iBuyers, other sorts of things. How should we think about competition today? And how is it evolving?

Yes. So there is a ton of competition still. It's always been an extremely competitive sort of industry. I think you saw a different type of competition a few years back where you saw just hefty price tags for recruiting of agents. Now those do exist less so now, but they still do exist, and we are part of the competition, so agents are continuing to move from brand to brand, but it's not the same that you would have seen sort of in like the 2018, 2019 time period. And really, our best foot forward is in our value proposition and in being the company that's going to lead residential real estate to what's next is exciting and people want to be part of that. So competition still exists. I think you mentioned the different ways to go to market, and that's definitely having an impact. across the industry. I wouldn't say it's having a huge impact on our business per se because we're unique in what we offer, especially sort of the national scale and national access for title and mortgage. It's our value proposition. The emphasis behind that, that is actually our best foot forward for the future, and we're highly focused on it, as you can see.

I mentioned a little bit some of the new models. Are there business models that if we assume that the housing market cools for some extended period of time that, are there models that may not make it?

Definitely a possibility, I think. And it's also not just models, it may be more consolidation because not every brokerage performs the same way. As you know, there's very different profitability based on -- like we have a full suite of services between title mortgage, et cetera. but like maybe some more consolidation that comes out of that as others are -- there's more brokerages fighting for less transactions, and the profitability can change. So I think it's probably more leaning towards consolidation.

Is there -- do you think information security considerations are important in consumer choice for brokerages and thinking about some of the competitors, indirect competitors as well, how important is information security?

Well, I think that's for the consumers to decide. I know as a consumer myself, I find it very important, the safety of your own information. And there's a ton of information that's gathered in these transactions, right? So I want to -- as a consumer, I want to be part working with a company that was trusted and had a good track record around that because it is one of probably the single most largest financial transactions of your life with all the different personal pieces of information and banking information and everything that goes along with that. I would certainly want to be with someone who has a good reputation for that and a trusted adviser. So I think it has been important. I think it will continue to be important going into the future. And it's just -- to me, it's like a minimum entry point. If you're going to be in this business, this is something that you should be focused on and ensuring the safety of consumers' information.

Great. Maybe you mentioned the RealSure program. Can you discuss that a little more? And how important is that, that line to your strategy?

Yes. So for those that aren't aware of it, it's sort of our foray into what iBuying can deliver. It's not iBuying because if we were doing iBuying, what that would put us in is a situation where we're buying a lot of houses, and we're using our balance sheet to fund home sales. That's not what RealSure is. RealSure is a way to enable consumers to either get a cash offer from us so that they don't have to list their house. Now what actually ends up happening more times than not, significantly more times than not, is they get the offer from us and then they actually go on to list their house with us and one of our agents. And that gives them an offer, but it gives them an extended period of time, 30, 45 days to then market their home and try to get a better price. And that's better for the consumer. It's better for the agent, and it's better for us. And 9 times out of 10, they actually -- I mean that's not the actual statistic. But the majority of the time, they actually end up listing their house with us and getting a better economic outcome for themselves. So that's one of the facets of RealSure. Another facet of RealSure is if someone finds a home that they want to buy, they can then become a cash buyer because they'll get an offer for the house from us, and then they have guaranteed financing through our mortgage partner, Guaranteed Rate Affinity. So it's solving 2 pain points, especially as you pointed out earlier in this conversation, cash-only buyers, it's an acute pain point when you're not one and you're competing against one, most times you're not going to win. So it's definitely -- I think it's going to continue to be a necessary part of the market. I don't think over time, you're going to see that be some significant portion of the market, like 20% or 30% or 40%, but there's definitely a place for it, and we think we have a much better offering and at much less risk to our company financially.

Okay. So that's really interesting. It seems like something that may be leveling the playing field a little bit. Just as a reminder, if anyone would like to submit a question, please use the Q&A box on your screen. I'd like to turn Charlotte, maybe to anywhere as a large employer that's experiencing the same sorts of pressures that we've talked about in terms of flexible homework arrangements and remote work. Can you talk to us about the strategy you need to attract, develop and retain brokers and the technology folks that support them and marketing and other professionals, and these present human capital risks to the company. Those are people with salesmanship skills or where technology skills are valuable and difficult to retain. What are your -- how through your ESG commitments, as you stated them, are you trying to manage these challenges?

Yes. So listen, from a remote work perspective, we are a remote work first company for sure. And I think that this is where more of the world is going to. We've transformed our headquarters. You've been in our headquarters recently. It's entirely designed around collaboration. There aren't offices. I don't have an office. There are meeting spaces that are set up with top-notch technology to be able to interface with folks that are in person versus those that are virtual. And so that has been critical. All the time, we were able to then sort of let go of about 65% or 70% of our administrative lease expense. So it's more efficient financially for us to do it, too. But on the employee side, our employees have never been happier. They love the ability to work remote and guarantee not everybody can because some people still need to be in an office, supporting agents. It's not the entire workforce. It depends on the nature of the job. But the vast majority of our folks are actually virtual, and we have had great success with hiring the quality of the talent that we've been getting because they can work and live anywhere. And I mean, no pun intended with the name. But it really does make a difference. The quality of talent has been amazing. And I think on the tech front, too, it is a big differentiator for us. So I couldn't be more pleased with it. The productivity remains at an all-time high. and folks are just very happy with this. I think what you have to do in those situations is have clarity with the employees around the expectations and then live up to them. So what's expected? Is it expected that you come and collaborate in person once a quarter, once a month with your team, for those that close the books, do you do some of that in person. So setting the expectations upfront with what the in-person requirements are going to be and then living up to those so that you're not waffling back and forth, that's what's mattered to us too. So we're kind of doing a soft relaunch of our opening of our headquarters. Like I said, you were there just a month ago, and we're continuing to roll that out. And folks are going back in the office, but again, they're doing it to collaborate. We just had an in-person top leaders meeting in our new office last week. It was a great event and people, I have never seen the engagement so high. I mean it was really, really high engagement. But it's fit for purpose for what we're trying to accomplish. And so I do think it is making a big difference, and I think it's the right strategy for Anywhere.

It's great. So really interesting as the marketplace is awesome and your company does as well. Maybe with -- we've got a little more time if we could just close with some discussion on your ESG initiatives. Thinking really about kind of how your commitments might help with building trust and the trust that needs to be projected to the buyers and sellers of real estate, to your customers, but also internally. For instance, does transparency ensure fairness?

Yes. So ESG is a top priority for us. If I think of -- it's kind of been an evolution. One of the things I'm most proud of is our governance, the G and the ESG. So like we have very robust governance between us and our Board. And I think it served us well. I think one of the reasons I joined this company is because we've been on the world's most ethical companies list in now 11 years. So how we behave and our attention to ESG is critical and core to who we are. We've been a top LinkedIn company, A Great Place To Work for 4 years. We've been on the Forbes list of best employers for diversity. So there's lots of awards we've gotten that we've deserved because this is, like I said, a top priority. We are an advocate for equality and inclusion in the industry, and we're trying to lead our way through social programs, partnerships, et cetera. So there's clearly a lot in this space that we've done. It has been an evolution. There's still -- there's always more to do. But we're highly focused on it. And we definitely want to be an employer and a company that looks and feels and acts and supports the demographics of where we operate and the communities that we serve. So top priority for us -- and I think all of that does then link back to trust. Like the awards that I've highlighted very important -- especially the -- one of the world's most ethical companies. Like these are things that build trust, and this is why employees stay with us, and this is why agents stay with us and why consumers choose to use us. So clearly, a lot evolving in this space. It's a very hot topic, but I'm proud of the accomplishments we've had, and we're laser-focused on it as we go into the future.

Right. Well, that's really helpful. Maybe as a final question, you started to answer this a little bit, was just how does Anywhere's Board of Directors and senior executive management team, including yourself, measure success under your ESG commitments?

Yes. It's in many different ways, right? So it's on the awards and the accomplishments that we achieved and receive have shown sort of like benchmarks against what we can deliver. But on the governance side, as a public company, we have formal ways to know if we're succeeding or not succeeding on the governance side. And again, I'm very proud of our government. So I feel like we have done a lot, and we are in very good shape there. So it's like you have to continue to do what you do well, but you can't rest where you are today. So success for us is in leading for the future, and we're -- because we should be a leader and we are a leader in this industry. So the more we can do to continue to lead in this space. It's like continuing what you do well today, but continuing to strive for more into the future. And it's something the Board is highly focused on. This is an active conversation we have with them at a minimum once or twice a year. And so more to come, always more to do, but proud of the accomplishments that we've had so far.

Great. All right. Well, Charlotte, it's really been a pleasure speaking with you this afternoon about what's now and next in real estate. And I want -- on behalf of Moody's, I want to thank you for joining us.