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CoStar relaunches Apartments.com rental site

CoStar Group (Nasdaq:CSGP) announced today it has re-launched Apartments.com with a completely new website that dramatically improves the experience for renters searching online for apartments, condos and rental homes. The new Apartments.com has more apartments than any other website, and uniquely presents information on actual availabilities and rents to save renters valuable time in their search. The site offers innovative software tools to help renters find the apartments that best meet their needs.
 
The new website draws on CoStar’s massive multifamily database, which contains detailed information on over 450,000 apartment properties, and the largest research effort ever conducted to document the apartment industry in the United States. CoStar is the commercial real estate industry’s leading provider of information, analytics and online marketplaces and has three decades of experience collecting and curating real estate information. Over 1,000 researchers participated in collecting and verifying information, and visiting and photographing over 400,000 properties prior to re-launching Apartments.com. CoStar researchers and “secret shoppers” also make over 1 million calls per month to continually update available units, rents and other fees, while proprietary software checks approximately 40,000 apartment websites each day for new information. Apartments.com also integrates directly with property management companies’ inventory systems.
 
“We believe Multifamily is a huge asset class valued at over $3 trillion,” stated CoStar Group Founder and CEO Andrew C. Florance. “Over 100 million Americans live in a rental and approximately 30 million people move annually. We believe that within the next 10 years CoStar Group can achieve $550 million in annual revenue and $250 million in annual adjusted EBITDA with Apartments.com, meeting the online marketing and information needs of this enormous industry.”
 
“Our market research indicates that renters are dissatisfied and frustrated with the current generation of apartment search websites,” said Florance. “Consumers expect accurate, actionable and comprehensive information when they search online for anything from flights to dinner reservations, but when it comes to finding an apartment, the current apartment search websites fall short of these consumer expectations. Most apartment websites or ILSs primarily supply only the listings that property owners pay to advertise and often return results that don’t match the renter’s search criteria. These limited results generally do not even indicate if the rental is actually available, thereby requiring the renter to painstakingly contact each and every apartment,” Florance continued.
 
The new Apartments.com website changes all that. With approximately 680,000 rental options across the U.S., we believe that Apartments.com provides the most comprehensive selection of rentals ever available on the internet. Landlords can list for free and the site includes not only apartment buildings, but condos, townhouses and single family home options. Apartments.com also offers in-depth information on neighborhoods, including restaurants, nightlife, history, schools and other important facts. The site is available on responsive mobile, iPad, iPhone and Android devices. 
 
“We designed the new Apartments.com around the needs of the renter, and in doing so have created a site that we expect consumers will overwhelmingly prefer,” stated Florance. “We recently showed our new site and our top competitors’ sites to renters in focus groups across the country and they gave Apartments.com an average grade of A-, while they gave the competing sites an average grade of D.”
 
CoStar Group believes that the new Apartments.com now provides renters with a vastly superior search experience and therefore has the opportunity to capture a significant share of the renter audience.   The Company also believes that an aggressive consumer marketing campaign will accelerate the likelihood that the Company can capture the largest share of the rental audience and thereby increase the likelihood of achieving our long range earnings goal of $250 million in annual adjusted EBITDA from the apartment sector. In 2015, CoStar Group intends to make an incremental marketing investment of $75 million above Apartments.com’s 2014 annualized marketing spend since the close of the acquisition. The Company plans to aggressively market the new Apartments.com with the largest consumer marketing campaign in the multifamily industry.  Acclaimed actor Jeff Goldblum will star in the advertising campaign. The campaign, which is expected to reach 95% of all adults aged 18-49 via high profile TV spots running on primetime and late-night network television, local TV and radio advertising, online/digital advertising, social media, and out-of-home ads, is scheduled to kick off on March 1 and run throughout the year. The media campaign is reinforced by what we believe is the most aggressive Search Engine Marketing (SEM) program in the industry. “We believe this investment will generate massive brand awareness and site traffic for Apartments.com and quickly position Apartments.com as the #1 destination for renters,” stated Florance.
 
“We believe that apartment owners will prefer to advertise on the most heavily trafficked apartment website. We also believe that apartment owners have a need for quality information to position their properties, and analytic solutions to understand critical market dynamics such as supply, demand, vacancy rates, rental rates and sale prices. We believe that CoStar is uniquely positioned to provide such information services to apartment owners and managers who may also buy lead generation from Apartments.com,” Florance stated.
 
The Company is reiterating its overall goal of $1 billion in revenue with 40% adjusted EBITDA margin in 2018.
 
2014 Results
The Company will release financial results for the fourth quarter and year ended December 31, 2014, following market close on Wednesday, February 25, 2015, and expects that revenue and earnings for those periods will meet or exceed the top end of the guidance range previously communicated in its last quarterly earnings call held on October 30, 2014. 
 
2015 Outlook
For the full year of 2015 the Company expects revenue of approximately $655 million to $660 million and approximately $157 million to $159 million for the first quarter of 2015. The Company’s revenue guidance includes trends from the fourth quarter of 2014 as well as the estimated impact of the decision to deemphasize or discontinue certain non-core services totaling $14 million to $20 million in annualized revenue, as previously disclosed.  
For the full year of 2015, the Company expects non-GAAP net income per diluted share in a range of $1.95 to $2.05. The outlook includes the impact of the increased marketing for Apartments.com as well as previously disclosed research investments. The 2015 impact of the Apartments.com marketing campaign is expected to be approximately $75 million of incremental investment, or approximately $1.45 in non-GAAP net income per diluted share, versus the annualized marketing expenditure run-rate since the close of the 2014 Apartments.com acquisition. 
 
“The majority of the investment for the Apartments.com marketing and branding campaign is planned for the first and second quarters of 2015 to coincide with the prime rentals season,” stated Brian Radecki, Chief Financial Officer of CoStar Group. “We expect that this investment will result in increased site traffic and quality leads for our advertisers. We believe this ultimately will lead to higher sales in the back half of 2015 and therefore accelerate revenue growth at Apartments.com to 25% to 30% in 2016 and beyond.” These investments are expected to better position the Company to achieve its 2018 revenue and earnings goals.
For the first quarter of 2015, the Company expects non-GAAP net income per diluted share (defined below) of approximately $0.18 to $0.22. The Company expects the impact from the marketing investment on non-GAAP net income per diluted share to be approximately $0.60 in each of the first and second quarters of 2015. Seasonal expenses including the Company’s annual sales conference and standard annual increases in personnel expenses in the first quarter of 2015 are expected to impact non-GAAP net income per share approximately $0.10 to $0.15, consistent with prior years.
 
The preceding forward-looking statements reflect CoStar Group’s expectations as of February 17, 2015, including forward-looking non-GAAP financial measures on a consolidated basis. We are not able to forecast with certainty whether or when certain events, such as the exact amounts or timing of investments, transition, de-emphasis or discontinuation of services, acquisition-related costs, restructuring, settlements or impairments will occur in any given quarter. 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.
Reconciliation of non-GAAP net income and all of the disclosed non-GAAP financial measures to their GAAP basis results are shown in detail below, along with definitions for those terms.
 
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 attributable to CoStar Group 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 attributable to CoStar Group before (i) purchase amortization and other related costs, (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. We assume 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 used in the calculation of GAAP net income per diluted share.
 
Conference Calls
Management will conduct a conference call at 8:45 AM EST on Tuesday, February 17, 2015 to discuss.  The audio portion of the conference call will be broadcast live over the Internet at http://www.CoStargroup.com/investors.aspx. To join the conference call by telephone, please dial (800) 230-1096 (from the United States and Canada) or (612) 332-0342 (from all other countries) and refer to conference code 353862. 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 353862. The webcast replay will also be available in the Investors section of CoStar Group’s website for a period of time following the call.
The Company still intends to conduct its previously scheduled call to discuss results for the fourth quarter and year-ended December 31, 2014, on Thursday, February 26, at 11:00 am.
 

 

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CRE Price Recovery Accelerates In May, According to CoStar CCRSI Analysis

 

This month’s CoStar Commercial Repeat Sale Indices (CCRSI) provide the market’s first look at May 2013 commercial real estate pricing.

Based on 1,220 repeat sales in May 2013 and more than 125,000 repeat sales since 1996, the CCRSI offers the broadest measure of commercial real estate repeat sales activity.

May 2013 CCRSI National Results Highlights

>> CRE PRICES ADVANCE ACROSS THE BOARD IN MAY 

The two broadest measures of aggregate pricing for commercial properties within the CCRSI–the value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index–increased by 0.7% and 2.0%, respectively, in the month of May 2013, reflecting continued improvement in market fundamentals and increased investment activity.

The value-weighted index, which is heavily influenced by larger transactions and typically tracks with high quality core real estate prices, has now increased by 41% from its most recent trough in 2010. For comparison, the equal-weighted index, which is influenced by smaller, more numerous opportunistic transactions, has improved by 10% from its bottom in 2011.

>> INVESTMENT GRADE INDEX REACHES HIGHEST LEVEL IN MORE THAN 4 YEARS

Within the equal-weighted U.S. Composite Index, the Investment Grade segment shook off the seasonal slump of the previous months and surged ahead by 2.6% in May 2013. The Investment Grade index, which broadly encompasses upper-middle tier properties, has now recovered by 24.6% since prices for investment-grade property reached a trough in October 2009.

Pricing in the General Commercial segment has taken longer to recover, but investor demand for smaller and lower-quality commercial property assets has risen in tandem with those in the investment grade segment in recent months. Pricing in the General Commercial segment advanced 1.7% from the previous month and 8.2% from its recent nadir in the first quarter of 2011 as investment activity has increasingly extended into secondary markets and property types.

>> STRONG 2Q 2013 ABSORPTION IN BOTH INVESTMENT GRADE AND GENERAL COMMERCIAL SEGMENTS SUPPORTS PRICING GAINS

Net absorption of available space for the three major property types — office, retail, and industrial — has been positive over the past three years. For the majority of that period, core office markets, including New York, San Francisco and Houston, and large distribution markets such as Dallas and Chicago, have led absorption in the Investment Grade segment, as reflected by the faster pricing growth in this index since 2009.

More recently though, the General Commercial segment has posted robust gains in absorption as well, indicating a broader and more sustained commercial real estate recovery.

>> DISTRESS SALES DECLINE WITH IMPROVING FUNDAMENTALS

The percentage of commercial property selling at distressed prices declined to an average of 14.1% in April and May, the lowest two-month average on record since 2008. The decline in the number of distressed trades continues to support higher, more consistent pricing and has enhanced market liquidity by giving buyers and sellers greater confidence to do deals.

Healthcare Reform Impacting Healthcare Real Estate

How Healthcare Reform Will Impact Healthcare Real Estate

How Healthcare Reform Will Impact Healthcare Real Estate

The Patient Protection and Affordable Care Act (ACA) which becomes fully effective in 2014 is the most ambitious undertaking in the American medical field since Medicare’s highly controversial passage in 1965.

The law, which expands healthcare coverage to as many as 52 million Americans who are currently uninsured, goes into effect at a time when the nation’s 68 million Baby Boomers – many of whom have pre-existing medical conditions – celebrate their 65th birthdays at the rate of one every eight seconds. And it’s these patients that the ACA addresses – those with four or more chronic conditions who are poised to account for 96 percent of healthcare costs going forward.

The impact of reform on healthcare real estate will be significant because there is a robust requirement for new mixed-use campuses and outpatient facilities where preventive care can be delivered to millions of newly insured Americans. Sg2, a Chicago firm that works with more than 1,000 hospitals and health systems, estimates that the use of outpatient services will grow by 21.6 percent between 2009 and 2019. In comparison, during that same time period, inpatient care will grow by just 1.7 percent.

As the Affordable Care Act Kicks In

Even if healthcare reform had not been passed, demographic trends were already supporting the outpatient sector, says Alan Pontius, managing director of the healthcare real estate group at Marcus & Millichap Real Estate Investment Services. According to Pontius, reform makes a good thing even better.

Although reform will definitely boost demand for space, investment principles for the healthcare sector are likely to remain unchanged. Supply is tagged to demand. “I don’t think spec development in medical office is the right thing to do,” Pontius said. “We’ve seen a lot of spec development fail in the past 24 months. And the impact of this healthcare reform isn’t going to show up overnight anyway.” There is still uncertainty over how healthcare reform will impact the overall economy, which drives demand for all types of outpatient facilities.

The Physician Shortage and Its Impact

Demand for space will be impacted by the supply of healthcare providers, according to Robert Bach, chief economist at Grubb & Ellis. “Do we have enough doctors, nurses and other professionals to accommodate the rising demand? Over time, we will see greater demand for healthcare facilities, but the rate of increase will be constrained by how quickly medical schools can ramp up the supply of healthcare professionals.”

Cecil B. Wilson, M.D., president of the American Medical Association (AMA), says that “This is not a surprise, of course, but I hope that the oft-repeated statistic will force our nation and our government to face the harsh reality of America’s current physician shortage, our growing underserved populations, and the dismal issue of access for those newly insured after 2014 under provisions of the Patient Protection and Affordable Care Act.” According to Wilson, the AMA anticipates that the nation will be short by at least 125,000 physicians by 2025. Complicating the situation is the fact that the Department of Health and Human Services estimates that as many as one-third of physicians practicing today will retire over the next 10 years.

How Much Outpatient Space Is Needed?

Jeffrey H. Cooper, an investment banker who specializes in healthcare facilities with Savills, believes the potential exists to develop as much as 60 million SF of new medical office buildings nationally over the next few years. Using the standard multiplier that calculates that each new outpatient requires 1.9 SF of medical office space, Cooper says that a low-ball figure of 30 million newly insured individuals will require the construction of approximately 57 million SF.

In Massachusetts from 2006 through 2009 — as a direct consequence of the introduction of the Commonwealth Care Health Insurance Program — an additional 1.8 million SF of medical office space was developed and absorbed, a 14 percent increase. CoStar reports that national medical office building space construction peaked at 19.5 million SF in the 4th quarter of 2006, and plummeted to 6.7 million in the 1st quarter of 2009. The Massachusetts numbers bucked the national trend and are a direct result of RomneyCare.

The Growth of Outpatient Care

Outpatient care – which accounts for 40 percent of a hospital’s total revenues – will surge as newly insured people seek healthcare services. Currently, the U.S. delivers 65 percent of healthcare services in outpatient facilities, a significant increase over the 43 percent reported in 1980.

A study by McKinsey & Company’s Global Institute found that outpatient spending is growing at a rate of 7.5 percent annually, adding $166 billion between 2003 and 2006. Outpatient spending is expected to total $163 billion in 2011 alone and is likely to grow by 30 percent over the next decade. With more than 600 million outpatient visits every year, inpatient admissions will continue to decline. As the number of annual outpatient visits increases dramatically, hospitals will shift their resources to more dynamic and integrated ways of delivering healthcare to their patients.

According to the McKinsey report, “In theory, this shift (to outpatient care) should help to save money, since fixed costs in outpatient settings tend to be lower than the cost of overnight hospital stays. In reality, however, the shift to outpatient care has added to – not taken away from – total system costs because of the higher utilization of outpatient care in the United States.”

Focus on Wellness

Healthcare villages – a campus-type environment that we’ve helped to pioneer, featuring primary-care, imaging, diagnostics, outpatient surgery and free-standing emergency departments– are becoming destinations of choice for people in the community. For practices looking to reduce their overhead and debt service, healthcare villages offer enormous growth opportunities. These include access to electronic health-record services, as well as service-line managers who help practices enhance growth of their revenue streams.

In my estimation, one of the most important components of the new paradigm will be wellness centers. Just five years ago, wellness was an emerging $200 billion a year industry; today, it totals $500 billion and is growing rapidly. These facilities usually include a state-of-the-art medically-based wellness center including clinical departments that promote health prevention, lifestyle modification, disease management programs and rehabilitation. Wellness centers typically house a fitness center with an indoor aquatics center; spa services; indoor walking track; group exercise rooms; cardio and strength-training equipment; and well-appointed men’s, women’s and family locker rooms.

The concept of integrating aligned services across the continuum is also creating new models for co-locating medical providers with R&D and even education. Take the Arizona Health & Technology Park, an alliance between The Alter Group and the Mesa Campus of A.T. Still University of Health Sciences, featuring a spectrum of complex facilities from a nationally recognized university to medical office buildings to a specialty hospital to biomedical research facilities. The East Valley park, situated in the state’s largest and fastest growing metro area, allows a new alignment of services that fosters the education of future healthcare providers, the expansion of chronic care, and new medical innovations with the presence major pharmaceutical and medical equipment companies.

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