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Empire State Realty Trust Announces Fourth Quarter 2019 Results

February 19, 2020 4:15 PM

- Earnings of $0.09 Per Fully Diluted Share -

- Core FFO of $0.25 Per Fully Diluted Share -

- Leased 345,606 Square Feet of Office and Retail Space -

- Observatory Revenue Increased 9.2% to $37.7 Million -

NEW YORK--(BUSINESS WIRE)-- Empire State Realty Trust, Inc. (NYSE: ESRT) (the "Company"), a real estate investment trust with office and retail properties in Manhattan and the greater New York metropolitan area, today reported its operational and financial results for the fourth quarter and full year of 2019.

“We had a good quarter. We leased approximately 346,000 square feet of office and retail space, which brought our full year leasing total to over 1.3 million square feet. In aggregate for the quarter, we delivered cash rent spreads of 24.4% on new Manhattan office leases and 20.2% on all leases portfolio-wide over previous fully escalated cash rents,” stated John B. Kessler, Empire State Realty Trust’s President and Chief Operating Officer.

“Our Observatory upgrade project is now complete, visitor and industry feedback are positive, and fourth quarter results are up. For the full year, Observatory revenue adjusted for the closure of the 102nd floor observation deck increased 2.1% due to improved pricing, offset by lower visitation,” added Kessler.

Fourth Quarter Highlights

Full Year Highlights

A reconciliation of net income to FFO, Modified FFO and Core FFO is provided in the tables accompanying this press release.

Portfolio Operations

As of December 31, 2019, the Company’s total portfolio contained 10.1 million rentable square feet of office and retail space. The Company’s occupancy levels fluctuate in certain periods due to the timing lag between the date of tenants’ move out and the date of Company’s completion of redevelopment work for new leases to commence. As of December 31, 2019, the Company’s portfolio was occupied and leased as shown below. Leased percentages include SLNC.

December 31, 2019

September 30, 2019

December 31, 2018

Percent occupied:

Total portfolio

88.6%

89.4%

88.8%

Total office

88.5%

89.3%

88.6%

Manhattan office

89.8%

89.6%

88.8%

Empire State Building

94.1%

93.4%

93.4%

Retail

90.3%

90.7%

90.8%

Percent leased:

Total portfolio

91.2%

91.7%

91.8%

Total office

91.0%

91.5%

91.8%

Manhattan office

92.7%

92.1%

92.7%

Empire State Building

95.2%

95.3%

94.1%

Retail

93.1%

94.3%

91.3%

Leasing

For the three months ended December 31, 2019, the Company signed 47 new, renewal, and expansion leases within the total portfolio, comprising 345,606 rentable square feet with an average starting rental rate of $65.68 per rentable square foot, representing an increase of 20.2% over the previous fully escalated cash rent.

On a blended basis, the 36 new, renewal, and expansion office leases, comprising 224,592 rentable square feet signed within the Manhattan office portfolio during the fourth quarter, had an average starting rental rate of $65.26 per rentable square foot, representing an increase of 17.5% over the previous fully escalated cash rent.

Leases Signed in the Fourth Quarter 2019 for the Manhattan Office Portfolio

Significant Leases Executed During the Fourth Quarter 2019

Observatory

The 102nd floor Observatory was closed for redevelopment for approximately nine months in 2019 and re-opened on October 12, 2019. The Company completed its work on the 80th floor component of its Observatory upgrade program and opened this floor on November 26, 2019. The overall Observatory upgrade program is now complete.

Fourth Quarter Observatory Results

Observatory revenue for the fourth quarter 2019 increased 9.2% compared to the fourth quarter 2018 driven by improved pricing and the reopening of the 102nd floor observation deck, which was open for most of the fourth quarter 2019. The Observatory hosted approximately 894,000 visitors in the fourth quarter 2019 compared to 945,000 visitors in the fourth quarter 2018, a decrease of 5.5%. There were 22 bad weather days in the fourth quarter 2019 compared to 19 bad weather days in the fourth quarter 2018.

Year-to-Date Observatory Results

Observatory revenue for the year ended December 31, 2019 declined 1.9% compared to the year ended December 31, 2018 driven by the closure of the 102nd floor observation deck for approximately nine months as part of the Observatory upgrade program and a visitation decline, partially offset by improved pricing. As set forth in the chart below, excluding the 102nd floor revenue in each period, year-over-year revenue growth for the year ended December 31, 2019 would have increased 2.1%.

(dollars in thousands)

2019

2018

Percent
Change

Observatory revenue

$128,769

$131,227

(1.9%)

Less: 102nd floor revenue

(3,555)

(8,578)

-

Observatory revenue excluding 102nd floor

$125,214

$122,649

2.1%

Number of visitors

3,505,000

3,805,000

(7.9%)

Bad weather days

73

56

Balance Sheet

As of December 31, 2019, the Company had total debt outstanding of approximately $1.7 billion and held cash and cash equivalents of $233.9 million. The Company’s consolidated net debt to total market capitalization was approximately 25.2% and consolidated net debt to EBITDA was 4.1x.

Dividend

On December 31, 2019, the Company paid a dividend of $0.105 per share, or unit as applicable, for the fourth quarter 2019 to holders of the Company’s Class A common stock (NYSE: ESRT) and Class B common stock and to holders of the Series ES, Series 250 and Series 60 partnership units (NYSE Arca: ESBA, FISK and OGCP, respectively) and Series PR partnership units of Empire State Realty OP, L.P., the Company’s operating partnership (the “Operating Partnership”). The Company paid a dividend of $0.15 per unit for the fourth quarter 2019 to holders of the Operating Partnership’s Series 2014 private perpetual preferred units and paid a dividend of $0.175 per unit for the fourth quarter 2019 to holders of the Operating Partnership’s Series 2019 private perpetual preferred units.

Webcast and Conference Call Details

Empire State Realty Trust, Inc. will host a webcast and conference call, open to the general public, on Thursday, February 20, 2020 at 2:00 pm Eastern time.

The webcast will be accessible on the “Investors” section of the Company’s website at www.empirestaterealtytrust.com. To listen to the live webcast, go to the site at least five minutes prior to the scheduled start time in order to register, download and install any necessary audio software. Shortly after the call, a replay of the webcast will be available for 90 days on the Company’s website.

The conference call can also be accessed by dialing 1-877-407-3982 for domestic callers or 1-201-493-6780 for international callers. A dial-in replay will be available starting shortly after the call until February 27, 2020, which can be accessed by dialing 1-844-512-2921 for domestic callers or 1-412-317-6671 for international callers. The passcode for this dial-in replay is 13698061.

The Supplemental Report will be available prior to the conference call on the “Investors” section of the Company’s website at www.empirestaterealtytrust.com.

About Empire State Realty Trust

Empire State Realty Trust, Inc. (NYSE: ESRT), a leading real estate investment trust (REIT), owns, manages, operates, acquires and repositions office and retail properties in Manhattan and the greater New York metropolitan area, including the Empire State Building, the world's most famous building. Headquartered in New York, New York, the Company's office and retail portfolio covers 10.1 million rentable square feet, as of December 31, 2019, consisting of 9.4 million rentable square feet in 14 office properties, including nine in Manhattan, three in Fairfield County, Connecticut, and two in Westchester County, New York; and approximately 700,000 rentable square feet in the retail portfolio.

Forward-Looking Statements

This press release includes “forward looking statements” within the meaning of the federal securities laws. Forward-looking statements may be identified by the use of words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” “contemplates,” “aims,” “continues,” “would” or “anticipates” or the negative of these words and phrases or similar words or phrases. The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: changes in our industry, the real estate markets, either nationally or in Manhattan or the greater New York metropolitan area; resolution of legal proceedings involving the Company; reduced demand for office or retail space; general volatility of the capital and credit markets and the market price of the Company’s Class A common stock and the publicly-traded partnership units of the Operating Partnership; changes in our business strategy; changes in technology and market competition that affect utilization of our broadcast or other facilities; changes in domestic or international tourism, including geopolitical events and currency exchange rates; defaults on, early terminations of, or non-renewal of, leases by tenants; fluctuations in interest rates; declining real estate valuations and impairment charges; termination or expiration of our ground leases; our failure to obtain or maintain necessary outside financing, including our unsecured revolving credit facility and term loan facility; our leverage; decreased rental rates or increased vacancy rates; our failure to redevelop and reposition properties, or to execute any newly planned capital project, successfully or on the anticipated timeline or at the anticipated costs; difficulties in identifying properties to acquire and completing acquisitions; risks of real estate development (including our Metro Tower development site) and capital projects, including the cost of construction delays and cost overruns; impact of changes in governmental regulations, tax laws and rates and similar matters; our failure to qualify as a REIT; and environmental uncertainties and risks related to adverse weather conditions, rising sea levels and natural disasters. For a further discussion of these and other factors that could impact the Company's future results, performance or transactions, see the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, and other risks described in documents subsequently filed by the Company from time to time with the Securities and Exchange Commission.

While forward-looking statements reflect the Company's good faith beliefs, they are not guarantees of future performance. The Company disclaims any obligation to update or revise publicly any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events, or other changes after the date of this press release, except as required by applicable law. Prospective investors should not place undue reliance on any forward-looking statements, which are based only on information currently available to the Company (or to third parties making the forward-looking statements).

Empire State Realty Trust, Inc.

Condensed Consolidated Statements of Income

(unaudited and amounts in thousands, except per share data)

Three Months Ended December 31,

2019

2018

Revenues

Rental revenue (1)

$

151,701

$

123,261

Tenant expense reimbursement (1)

-

19,746

Observatory revenue

37,730

34,536

Lease termination fees

1,240

18,683

Third-party management and other fees

299

289

Other revenue and fees

3,963

2,794

Total revenues

194,933

199,309

Operating expenses

Property operating expenses

43,901

41,004

Ground rent expenses

2,332

2,332

General and administrative expenses

16,618

13,673

Observatory expenses

8,743

8,899

Real estate taxes

29,818

28,229

Depreciation and amortization

46,409

46,682

Total operating expenses

147,821

140,819

Total operating income

47,112

58,490

Other income (expense):

Interest income

1,352

3,452

Interest expense

(18,534)

(20,849)

Income before income taxes

29,930

41,093

Income tax expense

(1,210)

(1,312)

Net income

28,720

39,781

Preferred unit distributions

(1,041)

(234)

Net income attributable to non-controlling interests

(10,880)

(16,705)

Net income attributable to common stockholders

$

16,799

$

22,842

Total weighted average shares

Basic

180,166

171,829

Diluted

296,852

297,492

Net income per share attributable to common stockholders

Basic

$

0.09

$

0.13

Diluted

$

0.09

$

0.13

Note:
(1) The Company adopted Financial Accounting Standards Board Topic 842 using the modified retrospective approach as of January 1, 2019 and elected to apply the transition provisions of the standard at adoption. As such, the prior period amounts presented under ASC 840 were not restated to conform with the 2019 presentation. The Company adopted the practical expedient in Topic 842, which allowed the Company to avoid separating lease and non-lease rental income. Consequently, all rental income earned pursuant to tenant leases in 2019 is reflected as one category, “Rental Revenue,” in the 2019 consolidated statements of income. The billed tenant expense reimbursement was $21.5 million for the three months ended December 31, 2019.

In connection with the adoption of Topic 842, beginning in 2019, the Company expensed certain leasing costs that were previously capitalized. Had the Company adopted Topic 842 in 2018, it would have expensed in general and administrative expenses an additional $1.3 million of such costs in the fourth quarter 2018.

Empire State Realty Trust, Inc.

Condensed Consolidated Statements of Income

(unaudited and amounts in thousands, except per share data)

Year Ended December 31,

2019

2018

Revenues

Rental revenue (1)

$

586,414

$

493,231

Tenant expense reimbursement (1)

-

72,372

Observatory revenue

128,769

131,227

Lease termination fees

4,352

20,847

Third-party management and other fees

1,254

1,440

Other revenue and fees

10,554

12,394

Total revenues

731,343

731,511

Operating expenses

Property operating expenses

174,977

167,379

Ground rent expenses

9,326

9,326

General and administrative expenses

61,063

52,674

Observatory expenses

33,767

32,767

Real estate taxes

115,916

110,000

Depreciation and amortization

181,588

168,508

Total operating expenses

576,637

540,654

Total operating income

154,706

190,857

Other income (expense):

Interest income

11,259

10,661

Interest expense

(79,246)

(79,623)

Income before income taxes

86,719

121,895

Income tax benefit (expense)

(2,429)

(4,642)

Net income

84,290

117,253

Preferred unit distributions

(1,743)

(936)

Net income attributable to non-controlling interests

(33,102)

(50,714)

Net income attributable to common stockholders

$

49,445

$

65,603

Total weighted average shares

Basic

178,340

167,571

Diluted

297,798

297,259

Net income per share attributable to common stockholders

Basic

$

0.28

$

0.39

Diluted

$

0.28

$

0.39

Note:
(1) The Company adopted Financial Accounting Standards Board Topic 842 using the modified retrospective approach as of January 1, 2019 and elected to apply the transition provisions of the standard at adoption. As such, the prior period amounts presented under ASC 840 were not restated to conform with the 2019 presentation. The Company adopted the practical expedient in Topic 842, which allowed the Company to avoid separating lease and non-lease rental income. Consequently, all rental income earned pursuant to tenant leases in 2019 is reflected as one category, “Rental Revenue,” in the 2019 consolidated statements of income. The billed tenant expense reimbursement was $75.3 million for the year ended December 31, 2019.

In connection with the adoption of Topic 842, beginning in 2019, the Company expensed certain leasing costs that were previously capitalized. Had the Company adopted Topic 842 in 2018, it would have expensed in general and administrative expenses an additional $4.6 million of such costs in the year ended December 31, 2018.

Empire State Realty Trust, Inc.

Reconciliation of Net Income to Funds From Operations (“FFO”),

Modified Funds From Operations (“Modified FFO”) and Core Funds From Operations (“Core FFO”)

(unaudited and amounts in thousands, except per share data)

Three Months Ended
December 31,

2019

2018

Net income

$

28,720

$

39,781

Preferred unit distributions

(1,041)

(234)

Real estate depreciation and amortization

45,298

45,771

FFO attributable to common stockholders and non-controlling interests

72,977

85,318

Amortization of below-market ground leases

1,958

1,958

Modified FFO attributable to common stockholders and non-controlling interests

74,935

87,276

Core FFO attributable to common stockholders and non-controlling interests

$

74,935

$

87,276

Total weighted average shares

Basic

296,852

297,492

Diluted

296,852

297,492

FFO per share

Basic

$

0.25

$

0.29

Diluted

$

0.25

$

0.29

Modified FFO per share

Basic

$

0.25

$

0.29

Diluted

$

0.25

$

0.29

Core FFO per share

Basic

$

0.25

$

0.29

Diluted

$

0.25

$

0.29

Empire State Realty Trust, Inc.

Reconciliation of Net Income to Funds From Operations (“FFO”),

Modified Funds From Operations (“Modified FFO”) and Core Funds From Operations (“Core FFO”)

(unaudited and amounts in thousands, except per share data)

Year Ended December 31,

2019

2018

Net income

$

84,290

$

117,253

Preferred unit distributions

(1,743)

(936)

Real estate depreciation and amortization

177,515

166,292

FFO attributable to common stockholders and non-controlling interests

260,062

282,609

Amortization of below-market ground leases

7,831

7,831

Modified FFO attributable to common stockholders and non-controlling interests

267,893

290,440

Core FFO attributable to common stockholders and non-controlling interests

$

267,893

$

290,440

Total weighted average shares

Basic

297,798

297,258

Diluted

297,798

297,259

FFO per share

Basic

$

0.87

$

0.95

Diluted

$

0.87

$

0.95

Modified FFO per share

Basic

$

0.90

$

0.98

Diluted

$

0.90

$

0.98

Core FFO per share

Basic

$

0.90

$

0.98

Diluted

$

0.90

$

0.98

Empire State Realty Trust, Inc.

Condensed Consolidated Balance Sheets

(unaudited and amounts in thousands)

December 31, 2019

December 31, 2018

Assets

Commercial real estate properties, at cost

$

3,109,433

$

2,884,486

Less: accumulated depreciation

(862,534)

(747,304)

Commercial real estate properties, net

2,246,899

2,137,182

Cash and cash equivalents

233,946

204,981

Restricted cash

37,651

65,832

Short-term investments

-

400,000

Tenant and other receivables

25,423

29,437

Deferred rent receivables

220,960

200,903

Prepaid expenses and other assets

65,453

64,345

Deferred costs, net

228,150

241,223

Acquired below market ground leases, net

352,566

360,398

Right of use assets

29,307

-

Goodwill

491,479

491,479

Total assets

$

3,931,834

$

4,195,780

Liabilities and equity

Mortgage notes payable, net

$

605,542

$

608,567

Senior unsecured notes, net

798,392

1,046,219

Unsecured term loan facility, net

264,640

264,147

Unsecured revolving credit facility

-

-

Accounts payable and accrued expenses

143,786

130,676

Acquired below market leases, net

39,679

52,450

Ground lease liabilities

29,307

-

Deferred revenue and other liabilities

72,015

44,810

Tenants’ security deposits

30,560

57,802

Total liabilities

1,983,921

2,204,671

Total equity

1,947,913

1,991,109

Total liabilities and equity

$

3,931,834

$

4,195,780

Investors

Empire State Realty Trust Investor Relations

(212) 850-2678

[email protected]

Media

Sard Verbinnen & Co.

(212) 687-8080

Source: Empire State Realty Trust, Inc.

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