CoStar Group to Acquire STR

Forecasting

Washington – CoStar Group, Inc., a commercial real estate information, analytics, and online marketplaces provider, announced 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 aggregates data from over 65,000 hotels worldwide, representing nearly nine million guestrooms 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, Tenn., 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,” says Andrew C. Florance, founder and CEO 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.”

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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, STR can 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. STR’s information provides aggregated anonymized information on occupancy rates, average room rates, and revenue per available room. CoStar plans to create valuable new and improved tools for investors, lenders, and service providers for use in developing, financing, valuing, and selling hotel properties.

CoStar plans to integrate STR data for new products that provide building data, income level, and trend reports for sales comps, sale information, and more. STR data can 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.

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. The global presence of STR and CoStar can create global opportunities through the acquisition.

Build and Sell New Products

STR primarily focuses on providing historical data around timely revenue and occupancy benchmarking. There is a growing demand from hotel clients for additional aggregated and anonymized bookings and revenue information, including robust forecasts. The combined technology design and development capabilities is expected to accelerate 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 is planned 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,” says 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 percent. 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 percent, approximately two times the current growth rate, and profit margins in line with CoStar’s long-term goal of 40 percent adjusted EBITDA margins by 2023.

Based on preliminary estimates and assuming a November 2019 close, CoStar expects that STR will contribute between $3 to $4 million in revenue in the fourth quarter of 2019. Due to the impact of integration costs and purchase accounting adjustments for deferred revenue, it is expected that STR will be slightly dilutive on a non-GAAP net income per share basis in the fourth quarter of 2019.