The following table shows the revenue and EBITDA (before central G&A) forecasted by management (filed with the SEC, S-4) in 2006 in conjunction with their reverse merger versus actual performance:
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2006
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2007
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2008
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2009
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2010
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2011
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2012
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Management Projections
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Revenue
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$18,855
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$23,880
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$28,524
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$33,712
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$39,220
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$44,918
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$50,817
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EBITDA
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$6,592
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$8,577
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$11,600
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$15,119
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$19,125
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$23,470
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$27,899
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Actual Results
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Revenue
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$19,288
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$23,668
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$25,851
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$23,892
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EBITDA
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$6,136
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$8,505
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$11,541
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$10,721
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As you can see, prior to 2009 the company’s performance was impressively close to management projections. Obviously, when there is an 87% peak to trough decline in commercial real estate market transactions and a number of small banks folding (causing REIS customer base to contract from 800 to 670), the 12% decline in revenue while holding 40%+ EBITDA margins does not look so bad. With that said, REIS is off by about two years from their original projections made in 2006. Therefore we think REIS’ 2010 results will resemble their 2007-2008 projection ($10mn or $1 per share), and 2011 will be between the 2008-2009 estimates ($13mn or $1.30 per share). Given their very high EBITDA margins, reasonable top line growth and forecasted corporate expense savings, the company should generate $3-4mn in additional EBITDA per year which at a 10x multiple should add $3-4 in incremental per share per year.
In April 2008, REIS received an $8.75 buyout offer for the company from CoStar (CSGP), one their competitors. REIS’ CEO commented on the offer: “We have illiquid stock as you know, trading on average just over 7,000 shares a day and therefore the concept of a premium to stock price in our judgment is largely irrelevant, whether you are talking about a 20% premium to stock price or a 97% premium to stock price. Our stock trades very few shares a day and we do not believe it reflects the true value or the prospects of the Company.”
“[In 2006 when we merged with Wellsford] there was tremendous interest in the Company. I think the document discloses that there were 16 bids; there were a number of finalists. And in fact Wellsford stepped into a previously negotiated contract with another bidder. And there were many bidders from both private equity as well as from the strategic arena. So I think it’s instructive for you...all of you...to go back and review that and look at the multiples of EBITDA that were being offered for our Company at that time.”-CEO Aug 08 earnings call
The multiples bankers thought were fair given comparable transactions over a number of years were a range from 12-20x EBITDA. We think that 12x REIS services EBITDA is the right number given the number of attractive attributes and the operating leverage in the model which would imply $12-13 per share. Below are the current trading multiples for Reis and its main publicly traded competitors.
The CEO provided the following comments to shareholders in his April 2009 letter to shareholders: "REIS's stock price continue to be a metric of abiding concern to us. Senior management and our board collectively own approximately 28.5% of REIS's common stock, of which I personally own 10.6% any my co-founder, Jonathan Garfield, owns 7.1%. We believe the company continues to be dramatcially undervalued, and at the current valuation, our stock represents an attractive investment opportunity."
We think the downside is fairly limited $5 and the upside today is $11-12.
Disclaimer: This does not constitute a recommendation to buy or sell this stock. We own shares in this company, and we may buy or sell at any time without updating the board.