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EX-99.2 - EX-99.2 - Empire State Realty Trust, Inc.d582780dex992.htm
8-K - FORM 8-K - Empire State Realty Trust, Inc.d582780d8k.htm

Exhibit 99.1

 

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EMPIRE STATE REALTY TRUST ANNOUNCES SECOND QUARTER 2018 RESULTS

- Earnings of $0.10 Per Fully Diluted Share -

- Core FFO of $0.24 Per Fully Diluted Share -

- Leased 143,417 Square Feet of Office and Retail Space -

New York, New York, July 25, 2018 - 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 second quarter of 2018.

“We continued to execute our long-term strategy to consolidate, redevelop and re-lease space to larger, higher credit quality tenants at higher rents and create long-term value for shareholders. During the quarter, we leased approximately 143,000 square feet of office and retail space that resulted in attractive spreads on both new Manhattan office and total portfolio leases of 26.5% and 17.9%, respectively. Our well-located, amenity-rich office buildings continue to draw a diverse group of prospective tenants. Our value price point between trophy Class A and Class B properties positions us well to capture steady tenant demand,” stated John B. Kessler, Empire State Realty Trust’s President and Chief Operating Officer.

“Year-to-date, Observatory revenue increased 2.8% and Observatory net operating income increased 2.4%, as compared with the first half of 2017, driven by improved revenue mix despite slightly lower attendance. We are excited to open the new Observatory entrance in the third quarter,” added Kessler. “We continue to manage the business with a long-term perspective as we proactively position the balance sheet to fund our redevelopment program and allow for potential external growth opportunities.”

 

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Second Quarter Highlights

 

    Achieved net income attributable to the Company of $0.10 per fully diluted share.

 

    Core Funds From Operations (“Core FFO”) was $0.24 per fully diluted share.

 

    Occupancy and leased percentages at June 30, 2018:

 

    Total portfolio was 88.4% occupied; including signed leases not commenced (“SLNC”), the total portfolio was 91.4% leased.

 

    Manhattan office portfolio (excluding the retail component of these properties) was 88.3% occupied; including SLNC, the Manhattan office portfolio was 91.9% leased.

 

    Retail portfolio was 88.3% occupied; including SLNC, the retail portfolio was 91.1% leased.

 

    Empire State Building was 92.9% occupied; including SLNC, was 94.6% leased.

 

    Signed 37 leases, representing 143,417 rentable square feet across the total portfolio, and achieved a portfolio-wide 17.9% increase in mark-to-market rent over previous fully escalated rents on new, renewal, and expansion leases.

 

    Signed 15 new leases representing 83,251 rentable square feet for the Manhattan office portfolio (excluding the retail component of these properties), and achieved an increase of 26.5% in mark-to-market rent over previous fully escalated rents.

 

    Empire State Building Observatory revenue for the second quarter 2018 grew 3.6% to $35.2 million from $34.0 million in the second quarter 2017.

 

    Declared a dividend of $0.105 per share.

Financial Results for the Second Quarter 2018

Net income attributable to common stockholders was $16.7 million, or $0.10 per fully diluted share, compared to $16.6 million, or $0.10 per fully diluted share, in the second quarter of 2017.

Core FFO was $71.0 million, or $0.24 per fully diluted share, compared to $73.2 million, or $0.25 per fully diluted share, in the second quarter of 2017.

Modified FFO was $71.0 million, or $0.24 per fully diluted share, compared to $73.2 million, or $0.25 per fully diluted share, in the second quarter of 2017.

 

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FFO was $69.0 million, or $0.23 per fully diluted share, compared to $71.3 million, or $0.24 per fully diluted share, in the second quarter of 2017.

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

Financial Results for the Six Months Ended June 30, 2018

Net income attributable to common stockholders was $26.4 million, or $0.16 per fully diluted share, compared to $26.6 million, or $0.17 per fully diluted share, in the six months ended June 30, 2017.

Core FFO was $130.2 million, or $0.44 per fully diluted share, compared to $134.5 million, or $0.45 per fully diluted share, in the six months ended June 30, 2017.

Modified FFO was $130.2 million, or $0.44 per fully diluted share, compared to $134.5 million, or $0.45 per fully diluted share, in the six months ended June 30, 2017.

FFO was $126.3 million, or $0.43 per fully diluted share, compared to $130.6 million, or $0.44 per fully diluted share, in the six months ended June 30, 2017.

Portfolio Operations

As of June 30, 2018, 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 that exists between the date of tenants’ move out and the date of Company’s completion of redevelopment work for new leases to commence. As of June 30, 2018, the Company’s portfolio was occupied and leased as follows. Leased percentages include signed leases not commenced.

 

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     June 30, 2018     March 31, 2018     June 30, 2017  

Percent occupied:

      

Total portfolio

     88.4     88.1     89.2

Total office

     88.4     88.0     88.7

Manhattan office

     88.3     87.3     88.3

Empire State Building

     92.9     92.8     92.1

Retail

     88.3     89.7     95.9

Percent leased:

      

Total portfolio

     91.4     91.5     91.3

Total office

     91.4     91.5     90.9

Manhattan office

     91.9     91.6     90.7

Empire State Building

     94.6     93.9     92.4

Retail

     91.1     91.4     96.0

Leasing

For the three months ended June 30, 2018, the Company signed 37 new, renewal, and expansion leases within the total portfolio, comprising 143,417 rentable square feet with an average starting rental rate of $55.99 per rentable square foot, representing an increase of 17.9% over the previous fully escalated rent.

On a blended basis, the 29 new, renewal, and expansion office leases, comprising 110,989 rentable square feet, signed within the Manhattan office portfolio during the second quarter, had an average starting rental rate of $60.53 per rentable square foot, representing an increase of 22.0% over the previous fully escalated rent.

 

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Leases Signed in the Second Quarter 2018 for the Manhattan Office Portfolio

 

    15 new leases, comprising 83,251 rentable square feet, with an average starting rental rate of $62.88 per rentable square foot, representing an increase of 26.5% over the previous fully escalated rent, and

 

    14 renewal leases, comprising 27,738 rentable square feet, with an average starting rental rate of $53.48 per rentable square foot, representing an increase of 8.4% over the previous fully escalated rent.

Significant Lease Executed During the Second Quarter 2018

 

    At Empire State Building, the Company signed a new full floor office lease, totaling 30,200 rentable square feet with LinkedIn, for a term of 7.5 years.

Empire State Building

The Company continues to renovate and lease the 2.8 million rentable square foot Empire State Building, its flagship property. As previously announced, the Company has commenced the first phase of a capital project to enhance the experience of office and retail tenants and Observatory visitors. The first phase will move the Observatory entrance to a new, larger, designated entrance at the western side of the Empire State Building on 34th Street, which will improve the commercial tenant and office visitor experience and the value of the Empire State Building’s 34th Street retail. The Company expects the new entrance to open by the end of the third quarter of 2018.

During the second quarter 2018, the Company signed eight office leases at the Empire State Building, representing 46,643 rentable square feet in the aggregate.

Observatory revenue for the second quarter 2018 was $35.2 million, a 3.6% increase from $34.0 million in the second quarter 2017. The Observatory hosted approximately 1,078,000 visitors in the second quarter 2018 compared to 1,126,000 visitors in the second quarter 2017, a decrease of 4.3%. This year, the Easter holiday was spilt between the first and second quarters, whereas in 2017, the Easter holiday fell entirely within the second quarter. In the second quarter 2018, there were 11 bad weather days compared to 15 bad weather days in the second quarter 2017. For the second quarter 2018, the Company estimates that fewer bad weather days resulted in approximately nineteen thousand more visitors than in the prior year period.

 

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Observatory revenue was $56.5 million for the six months ended June 30, 2018, a 2.8% increase from $54.9 million for the six months ended June 30, 2017. The 102nd floor observation deck was closed in the first quarter of 2018 for the scheduled replacement of original elevator machinery with a new, higher speed glass elevator. Excluding first quarter revenue from the 102nd floor observation deck (which was $1.9 million in 2017), revenue would have increased 6.4% for the six months ended June 30, 2018 as compared with the same period in 2017. For the six months ended June 30, 2018, the Observatory hosted approximately 1,738,000 visitors, compared to 1,762,000 visitors for the same period in 2017, a decrease of 1.4%. For the six months ended June 30, 2018, there were 26 bad weather days compared to 37 bad weather days in the six months ended June 30, 2017.

Balance Sheet

At June 30, 2018, there was no outstanding balance under the Company’s $1.1 billion unsecured revolving credit facility and $265 million outstanding under the term loan facility. The facilities have an accordion feature allowing for an additional increase in the maximum aggregate principal balance to $1.75 billion under certain circumstances. The Company held cash, cash equivalents and short-term investments of $651.8 million at June 30, 2018.

As of June 30, 2018, the Company had total debt outstanding of approximately $1.9 billion, with a weighted average interest rate of 3.84% per annum, and a weighted average term to maturity of 8.6 years. None of the Company’s outstanding debt is subject to variable interest rates. At June 30, 2018, the Company’s consolidated net debt to total market capitalization was approximately 19.7% and consolidated net debt to EBITDA was 3.6x.

 

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Dividend

On June 29, 2018, the Company paid a dividend of $0.105 per share for the second quarter 2018 to holders of the Company’s Class A common stock and Class B common stock and to holders of the operating partnership’s Series ES, Series 250 and Series 60 operating partnership units (NYSE Arca: ESBA, FISK and OGCP, respectively) and Series PR operating partnership units. The Company paid a dividend of $0.15 per unit for the second quarter 2018 to holders of the operating partnership’s 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, July 26, 2018 at 8:30 am Eastern time.

The webcast will be accessible in 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 August 2, 2018, 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 13681494.

The Supplemental Report will be available prior to the conference call in 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.

 

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Headquartered in New York, New York, the Company’s office and retail portfolio covers 10.1 million rentable square feet, as of June 30, 2018, 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,” “pro forma,” “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 our Class A common stock and our publicly-traded operating partnership units; changes in our business strategy; changes in technology and market competition which 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; 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 law and rates and similar matters; and our failure to qualify as a real estate investment trust, or REIT. 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 Annual Report on Form 10-K for the year ended December 31, 2017, and other risks described in documents subsequently filed by the Company from time to time with the Securities and Exchange Commission.

 

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While forward-looking statements reflect the Company’s good faith beliefs, they are not guarantees of future performance. The Company disclaims any obligation to publicly update or revise 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).

Contact:

Investors

Empire State Realty Trust Investor Relations

(212) 850-2678

IR@empirestaterealtytrust.com

Media

Sard Verbinnen & Co.

(212) 687-8080

 

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Empire State Realty Trust, Inc.

Condensed Consolidated Statements of Income

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

 

     Three Months Ended June 30,  
     2018     2017  

Revenues

    

Rental revenue

   $ 124,038     $ 120,844  

Tenant expense reimbursement

     16,205       17,569  

Observatory revenue

     35,201       33,966  

Lease termination fees

     357       1,251  

Third-party management and other fees

     376       392  

Other revenue and fees

     2,352       2,327  
  

 

 

   

 

 

 

Total revenues

     178,529       176,349  

Operating expenses

    

Property operating expenses

     39,418       38,529  

Ground rent expenses

     2,332       2,332  

General and administrative expenses

     13,225       12,579  

Observatory expenses

     7,678       7,176  

Real estate taxes

     26,743       24,542  

Depreciation and amortization

     39,468       40,532  
  

 

 

   

 

 

 

Total operating expenses

     128,864       125,690  
  

 

 

   

 

 

 

Total operating income

     49,665       50,659  

Other income (expense):

    

Interest income

     2,499       775  

Interest expense

     (20,525     (17,477

Loss from derivative financial instruments

     —         (42
  

 

 

   

 

 

 

Income before income taxes

     31,639       33,915  

Income tax expense

     (1,455     (2,556
  

 

 

   

 

 

 

Net income

     30,184       31,359  

Preferred unit distributions

     (234     (234

Net income attributable to non-controlling interests

     (13,299     (14,541
  

 

 

   

 

 

 

Net income attributable to common stockholders

   $ 16,651     $ 16,584  
  

 

 

   

 

 

 

Total weighted average shares

    

Basic

     165,256       157,921  
  

 

 

   

 

 

 

Diluted

     297,244       298,398  
  

 

 

   

 

 

 

Net income per share attributable to common stockholders

 

Basic

   $ 0.10     $ 0.10  
  

 

 

   

 

 

 

Diluted

   $ 0.10     $ 0.10  
  

 

 

   

 

 

 

 

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Empire State Realty Trust, Inc.

Condensed Consolidated Statements of Income

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

 

     Six Months Ended June 30,  
     2018     2017  

Revenues

    

Rental revenue

   $ 246,349     $ 237,957  

Tenant expense reimbursement

     33,999       33,543  

Observatory revenue

     56,450       54,906  

Lease termination fees

     979       9,189  

Third-party management and other fees

     839       743  

Other revenue and fees

     7,184       4,344  
  

 

 

   

 

 

 

Total revenues

     345,800       340,682  

Operating expenses

    

Property operating expenses

     83,603       80,739  

Ground rent expenses

     4,663       4,663  

General and administrative expenses

     25,853       23,667  

Observatory expenses

     15,014       14,431  

Real estate taxes

     53,487       49,100  

Depreciation and amortization

     79,351       81,378  
  

 

 

   

 

 

 

Total operating expenses

     261,971       253,978  
  

 

 

   

 

 

 

Total operating income

     83,829       86,704  

Other income (expense):

    

Interest income

     3,724       1,396  

Interest expense

     (38,116     (35,219

Loss from derivative financial instruments

     —         (289
  

 

 

   

 

 

 

Income before income taxes

     49,437       52,592  

Income tax expense

     (1,195     (2,088
  

 

 

   

 

 

 

Net income

     48,242       50,504  

Preferred unit distributions

     (468     (468

Net income attributable to non-controlling interests

     (21,355     (23,467
  

 

 

   

 

 

 

Net income attributable to common stockholders

   $ 26,419     $ 26,569  
  

 

 

   

 

 

 

Total weighted average shares

    

Basic

     164,311       157,265  
  

 

 

   

 

 

 

Diluted

     297,029       298,180  
  

 

 

   

 

 

 

Net income per share attributable to common stockholders

 

Basic

   $ 0.16     $ 0.17  
  

 

 

   

 

 

 

Diluted

   $ 0.16     $ 0.17  
  

 

 

   

 

 

 

 

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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 June 30,  
     2018     2017  

Net income

   $ 30,184     $ 31,359  

Preferred unit distributions

     (234     (234

Real estate depreciation and amortization

     39,049       40,132  
  

 

 

   

 

 

 

FFO attributable to common stockholders and non-controlling interests

     68,999       71,257  

Amortization of below-market ground leases

     1,958       1,958  
  

 

 

   

 

 

 

Modified FFO attributable to common stockholders and non-controlling interests

     70,957       73,215  

Core FFO attributable to common stockholders and non-controlling interests

   $ 70,957     $ 73,215  
  

 

 

   

 

 

 

Total weighted average shares

    

Basic

     297,244       296,388  
  

 

 

   

 

 

 

Diluted

     297,244       298,398  
  

 

 

   

 

 

 

FFO per share

 

Basic

   $ 0.23     $ 0.24  
  

 

 

   

 

 

 

Diluted

   $ 0.23     $ 0.24  
  

 

 

   

 

 

 

Modified FFO per share

    

Basic

   $ 0.24     $ 0.25  
  

 

 

   

 

 

 

Diluted

   $ 0.24     $ 0.25  
  

 

 

   

 

 

 

Core FFO per share

    

Basic

   $ 0.24     $ 0.25  
  

 

 

   

 

 

 

Diluted

   $ 0.24     $ 0.25  
  

 

 

   

 

 

 

 

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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)

 

     Six Months Ended June 30,  
     2018     2017  

Net income

   $ 48,242     $ 50,504  

Preferred unit distributions

     (468     (468

Real estate depreciation and amortization

     78,517       80,556  
  

 

 

   

 

 

 

FFO attributable to common stockholders and non-controlling interests

     126,291       130,592  

Amortization of below-market ground leases

     3,916       3,916  
  

 

 

   

 

 

 

Modified FFO attributable to common stockholders and non-controlling interests

     130,207       134,508  

Core FFO attributable to common stockholders and non-controlling interests

   $ 130,207     $ 134,508  
  

 

 

   

 

 

 

Total weighted average shares

    

Basic

     297,028       296,388  
  

 

 

   

 

 

 

Diluted

     297,029       298,180  
  

 

 

   

 

 

 

FFO per share

 

Basic

   $ 0.43     $ 0.44  
  

 

 

   

 

 

 

Diluted

   $ 0.43     $ 0.44  
  

 

 

   

 

 

 

Modified FFO per share

    

Basic

   $ 0.44     $ 0.45  
  

 

 

   

 

 

 

Diluted

   $ 0.44     $ 0.45  
  

 

 

   

 

 

 

Core FFO per share

    

Basic

   $ 0.44     $ 0.45  
  

 

 

   

 

 

 

Diluted

   $ 0.44     $ 0.45  
  

 

 

   

 

 

 

 

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Empire State Realty Trust, Inc.

Condensed Consolidated Balance Sheets

(unaudited and amounts in thousands)

 

     June 30,     December 31,  
     2018     2017  

Assets

    

Commercial real estate properties, at cost

   $ 2,771,845     $ 2,667,655  

Less: accumulated depreciation

     (698,725     (656,900
  

 

 

   

 

 

 

Commercial real estate properties, net

     2,073,120       2,010,755  

Cash and cash equivalents

     251,797       464,344  

Restricted cash

     58,719       65,853  

Short-term investments

     400,000       —    

Tenant and other receivables

     21,600       28,329  

Deferred rent receivables

     190,419       178,629  

Prepaid expenses and other assets

     64,695       61,028  

Deferred costs, net

     246,763       262,701  

Acquired below market ground leases, net

     364,313       368,229  

Goodwill

     491,479       491,479  
  

 

 

   

 

 

 

Total assets

   $ 4,162,905     $ 3,931,347  
  

 

 

   

 

 

 

Liabilities and equity

    

Mortgage notes payable, net

   $ 610,026     $ 717,164  

Senior unsecured notes, net

     1,044,573       707,895  

Unsecured term loan facility, net

     263,900       263,662  

Unsecured revolving credit facility

     —         —    

Accounts payable and accrued expenses

     129,944       110,849  

Acquired below market leases, net

     58,960       66,047  

Deferred revenue and other liabilities

     29,553       40,907  

Tenants’ security deposits

     42,808       47,086  
  

 

 

   

 

 

 

Total liabilities

     2,179,764       1,953,610  

Total equity

     1,983,141       1,977,737  
  

 

 

   

 

 

 

Total liabilities and equity

   $ 4,162,905     $ 3,931,347  
  

 

 

   

 

 

 

 

 

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