CoStar Group to Acquire Hotel Benchmarking & Analytics Company STR

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CoStar Group to Acquire Hotel Benchmarking & Analytics Company STR

10/01/2019

CoStar Group, Inc., a provider of commercial real estate information, analytics and online marketplaces, announced 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 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. CoStar believes that the combination of the two companies’ offerings will allow it to create valuable new and improved tools for investors, lenders, and service providers for use in developing, financing, valuing, and selling hotel properties.

As CoStar integrates the complementary capabilities of STR and CoStar, it plans to focus on a number of attractive growth areas.

Create Powerful Hotel Data and Analytics in CoStar Suite

The company plans 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. It believes 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. CoStar believes 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. CoStar perceives 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 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 CoStar plans 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.

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.