Transaction Enables CoStar to Provide
Comprehensive and Precise Data and Analytics on the $3 Trillion
Hotel Commercial Real Estate Asset Class
CoStar’s Management to Hold Conference Call at
9:00 a.m. EDT today to discuss
CoStar Group, Inc. (NASDAQ: CSGP) the leading provider of
commercial real estate information, analytics and online
marketplaces, announced today that it plans to acquire STR for $450
million in cash, subject to adjustments in the definitive
agreements. The transaction is expected to close in the fourth
quarter of 2019, subject to customary closing conditions.
STR was founded in 1985 as Smith Travel Research to provide
performance benchmarking and comparative analytics to hotels. Over
the past 34 years, STR has grown its data assets, product offerings
and geographic reach to become the gold standard in the global
hospitality industry for premium data analytics, performance
benchmarking and market insights. Today, STR aggregates data from
over 65,000 hotels worldwide, representing nearly nine million
guest rooms in over 180 countries. The company’s flagship product -
the STARreport – provides hotel brands, owners and management
companies vital performance benchmark information with more than
1.2 million reports distributed each month. STR is headquartered in
Hendersonville, Tennessee and has 370 employees in 15
countries.
“The STR team has built an extraordinary company that partners
with the hotel industry to create benchmarks and analytics that are
the primary tools hotel management and investors rely on to
optimize and improve their assets,” said Andrew C. Florance,
Founder and Chief Executive Officer of CoStar Group. “STR brings an
unrivaled reputation within the global hospitality industry for
their data integrity, reliability and strict confidentiality, and
we look forward to continuing to build on these core values in the
next chapter of STR’s growth.”
The value of the STR benchmarks extends well beyond optimizing
hotel operations. Valued at over $3 trillion globally, hotels are a
massive commercial real estate asset class. In the way that
CoStar’s acquisition of Apartments.com enabled CoStar to extend
valuable new services to investors and service providers in
multifamily real estate, we believe that STR will complement
CoStar’s existing offerings and empower CoStar to provide valuable
new services to investors and service providers in the hospitality
industry. CoStar currently provides basic building information on
80,000 hotels, 45,000 hotel sale comparables, and 4,500 hotels
offered for sale. Among many other things, STR’s information
provides aggregated anonymized information on occupancy rates,
average room rates, and revenue per available room. We believe that
the combination of the two companies’ offerings will allow us to
create valuable new and improved tools for investors, lenders, and
service providers for use in developing, financing, valuing, and
selling hotel properties.
As we integrate the complementary capabilities of STR and
CoStar, we plan to focus on a number of attractive growth
areas.
Create Powerful Hotel Data and Analytics in CoStar
Suite
We plan to integrate STR data with CoStar to create exciting new
products that provide building data, income level and trend
reports, sales comps, for sale information, etc. We believe this
product will bring substantial benefits to customers, thereby
enabling the sale of more CoStar subscriptions to investors,
brokers, appraisers, lenders, and developers who can use the
information to understand investments, assess potential new
developments and support property purchase and sale decisions.
There is a clear opportunity to utilize the CoStar sales force to
reach thousands of additional potential clients.
Drive International Penetration
STR is currently selling to over 15,000 hotel customers outside
of the United States, representing a small fraction of the over
350,000 international hotels. We believe the combined international
presence of STR and CoStar will create opportunities for further
penetration around the world.
Build and Sell New Products
STR primarily focuses on providing historical data around timely
revenue and occupancy benchmarking. We perceive a growing demand
from hotel clients for additional aggregated and anonymized
bookings and revenue information, including robust forecasts. Our
combined technology design and development capabilities is expected
to accelerate these new product efforts, and bring them to market
more broadly. In addition, CoStar plans to invest in and grow STR’s
net operating income benchmarking and analytics products.
Expand Benchmarking to Other Areas
STR has exceptional expertise in all aspects of benchmarking,
which we plan to extend to other commercial real estate segments
within CoStar. Combining STR’s capabilities with the significant
CoStar data assets will allow for the creation of new benchmark
products for commercial leases and multifamily operating metrics
that would be extremely valuable to owners, brokers, lenders,
tenants, and property managers.
"We are very excited to become part of CoStar," said Amanda
Hite, STR’s President and CEO. “CoStar brings leading technologies,
analytics and sales capabilities that we believe will enable STR to
accelerate growth and increase the value and insights we provide to
our hospitality clients. This combination also represents an
outstanding career opportunity for all of our employees around the
world.”
STR revenue for 2019 is expected to be approximately $64 million
and EBITDA is estimated at approximately $16 million, for an EBITDA
margin of 25%. CoStar expects that within the next three to four
years, the investments in new products and growth focus of the
combined businesses will generate annual revenue growth above 20%,
approximately two times the current growth rate, and profit margins
in line with CoStar’s long-term goal of 40% adjusted EBITDA margins
by 2023.
Based on preliminary estimates and assuming a November 2019
close, the Company expects that STR will contribute between $3 - 4
million in revenue in the fourth quarter of 2019. Due to the impact
of integration costs and purchase accounting adjustments for
deferred revenue, we expect STR will be slightly dilutive on a
non-GAAP net income per share basis in the fourth quarter of
2019.
The preceding forward-looking statements reflect CoStar Group’s
expectations as of October 1, 2019. We are not able to forecast
with certainty whether or when certain events, such as
acquisition-related costs, the exact timing of closing of the
acquisition, or the exact amounts or timing of any investments
related to the acquisition will occur. Given the risk factors,
uncertainties and assumptions discussed above, actual results may
differ materially. Other than in publicly available statements, the
Company does not intend to update its forward-looking statements
until its next quarterly results announcement.
Non-GAAP Financial Measures
For information regarding the purpose for which management uses
the non-GAAP financial measures disclosed in this release and why
management believes they provide useful information to investors
regarding the Company’s financial condition and results of
operations, please refer to the Company’s latest periodic
report.
EBITDA is a non-GAAP financial measure that represents GAAP net
income before (i) interest income (expense), (ii) provision for
income taxes, and (iii) depreciation and amortization.
Adjusted EBITDA is a non-GAAP financial measure that represents
EBITDA before (i) stock-based compensation expense, (ii)
acquisition and integration related costs, (iii) restructuring
charges and related costs, and (iv) settlements and impairments
incurred outside the company’s normal business operations.
Non-GAAP net income is a non-GAAP financial measure that
represents GAAP net income before (i) amortization of acquired
intangible assets, (ii) stock-based compensation expense, (iii)
acquisition and integration related costs, (iv) purchase accounting
adjustments, (v) restructuring charges and related costs, and (vi)
settlements and impairments. From this figure, we then subtract an
assumed provision for income taxes to arrive at non-GAAP net
income. The company assumes a 38% tax rate in order to approximate
our long-term effective corporate tax rate.
Non-GAAP net income per diluted share (also referred to as
non-GAAP EPS) is a non-GAAP financial measure that represents
non-GAAP net income divided by the number of diluted shares
outstanding for the period. For periods with GAAP net losses and
non-GAAP net income, the weighted-average outstanding shares used
to calculate non-GAAP net income per share includes potentially
dilutive securities that were excluded from the calculation of GAAP
net income per share as the effect was anti-dilutive.
Conference Call
Management will conduct a conference call at 9:00 a.m. EDT on
October 1, 2019 to discuss the acquisition and its impact on the
Company’s outlook for 2019 and beyond. The audio portion of the
conference call will be broadcast live over the Internet at
www.costargroup.com/investors/events. To join the conference call
by telephone, please dial (800) 553-0358 (from the United States
and Canada) or (612) 288-0337 (from all other countries) and
conference code 472856 if needed. An audio recording of the
conference call will be available for replay approximately one hour
after the call's completion and will remain available for a period
of time following the call. To access the recorded conference call,
please dial (800) 475-6701 (from the U.S. and Canada) or (320)
365-3844 (from all other countries) using access code 472856. The
webcast replay will also be available in the Investors section of
CoStar Group's website for a period of time following the call.
About CoStar Group, Inc.
About CoStar Group
CoStar Group, Inc. (NASDAQ: CSGP) is the leading provider of
commercial real estate information, analytics and online
marketplaces. Founded in 1987, CoStar conducts expansive, ongoing
research to produce and maintain the largest and most comprehensive
database of commercial real estate information. Our suite of online
services enables clients to analyze, interpret and gain unmatched
insight on commercial property values, market conditions and
current availabilities. LoopNet is the most heavily trafficked
commercial real estate marketplace online with 5.8 million monthly
unique visitors. Realla is the UK’s most comprehensive commercial
property digital marketplace. Apartments.com, ApartmentFinder.com,
ForRent.com, ApartmentHomeLiving.com, Westside Rentals,
AFTER55.com, CorporateHousing.com, ForRentUniversity.com and
Apartamentos.com form the premier online apartment resource for
renters seeking great apartment homes and provide property managers
and owners a proven platform for marketing their properties. CoStar
Group’s websites attracted an average of over 52 million unique
monthly visitors in aggregate in the second quarter of 2019.
Headquartered in Washington, DC, CoStar maintains offices
throughout the U.S. and in Europe and Canada with a staff of over
3,900 worldwide, including the industry’s largest professional
research organization. For more information, visit
www.costargroup.com.
This news release contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of
1995. Such statements include, but are not limited to, statements
about CoStar Group's financial expectations, the Company's plans,
objectives, expectations and intentions and other statements
including words such as “hope,” "anticipate," "may," "believe,"
"expect," "intend," "will," "should," "plan," "estimate,"
"predict," "continue" and "potential" or the negative of these
terms or other comparable terminology. Such statements are based
upon the current beliefs and expectations of management of CoStar
Group and are subject to significant risks and uncertainties.
Actual results may differ materially from the results anticipated
in the forward-looking statements. The following factors, among
others, could cause or contribute to such differences: the
possibility that the acquisition of STR does not close when
expected or at all; the risk that the businesses of STR, and CoStar
may not be combined successfully or in a timely and cost-efficient
manner; the risk that the combination does not produce the expected
benefits for STR’s and CoStar’s customers and users or result in
further market penetration and accelerated STR growth as stated in
this release; the risk that business disruption relating to the STR
acquisition may be greater than expected; the risk that synergies
from the acquisition of STR, including as a result of cross-selling
and cost efficiencies, may not be as expected, may not be fully
realized, may take longer to realize than expected; the risk that
the acquisition and combination of services does not produce the
expected results for CoStar or its customers and advertisers,
including as stated in this release; the risk that STR revenues,
EBITDA and EBITDA margins for 2019 will not be as stated in this
press release; the risk that STR revenues and the impact on
non-GAAP net income per share in the fourth quarter of 2019 will
not be as stated in this release; the risk that expected
investments in STR, or the timing of any such investments, may
change or may not produce the expected results as stated in this
release; the risk that the Company is unable to achieve its
adjusted EBITDA margin goal as stated in this release; and the risk
that the combination and integration of STR will disrupt CoStar
Group's or STR’s operations or result in the loss of customers or
key employees. Additional factors that could cause results to
differ materially from those anticipated in the forward-looking
statements can be found in CoStar’s Annual Report on Form 10-K for
the year ended December 31, 2018, and CoStar’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2019, each of which is
filed with the SEC, including in the “Risk Factors” section of
those filings, and the Company’s other filings with the SEC
available at the SEC’s website (www.sec.gov). CoStar assumes no
obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or
otherwise.
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version on businesswire.com: https://www.businesswire.com/news/home/20191001005467/en/
Investors Scott Wheeler Chief Financial Officer (202)
336-6920 swheeler@costar.com
Richard Simonelli (202) 346-6394 rsimonelli@costar.com
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