Empire State Realty Trust Announces Second Quarter 2023 Results

– Net Income Per Fully Diluted Share of $0.14 –

– Core FFO Per Fully Diluted Share of $0.26 –

– $1.2 Billion of Liquidity, No Floating Rate Debt Exposure, No Debt Maturity Until Nov 2024 –

– 2023 Guidance Raised –

NEW YORK--()--Empire State Realty Trust, Inc. (NYSE: ESRT) is a NYC-focused REIT that owns and manages a well-positioned property portfolio of office, retail, and multifamily assets in Manhattan and the greater New York metropolitan area. Owner of the Empire State Building – the “World’s Most Famous Building” – ESRT also owns and operates its iconic, newly reimagined Observatory Experience that was named the #1 attraction in the US for the second year in a row, in Tripadvisor’s 2023 Travelers’ Choice Awards: Best of the Best. Today the Company reported its operational and financial results for the second quarter 2023. All per share amounts are on a fully diluted basis, where applicable.

Second Quarter and Recent Highlights

  • Net Income of $0.14 per share.
  • Core Funds From Operations (“Core FFO”) of $0.26 per share.
  • Signed 336,314 rentable square feet of new, renewal, and expansion leases.
  • Manhattan office portfolio leased rate increased by 90bps sequentially and increased by 330bps year-over-year to 91.6%. Total commercial portfolio is 90.3% leased as of June 30, 2023.
  • Same-Store Property Cash Net Operating Income ("NOI") increased 1.1% year-over-year, excluding lease termination fees, primarily driven by an increase in cash rental revenue and timing of tenant expense reimbursements, which was partially offset by increases in property operating expenses and real estate taxes.
  • As previously announced, Flagstar Bank N.A. assumed the entire 313,109 square foot lease at 1400 Broadway, formerly leased by Signature Bank. Second quarter Core FFO includes a +$0.02 per share reversal of the straight-line rent receivable reserve taken in the first quarter of 2023.
  • Empire State Building Observatory generated $24.8 million of NOI. NOI recapture (as a % of 2019) was 101%. Our Observatory Experience was named the #1 attraction in the U.S. by Tripadvisor’s 2023 Travelers’ Choice Best of the Best Awards for the second year in a row.
  • Repurchased $7.4 million of common stock in the second quarter and through July 25, 2023.
  • Completed the disposition of an office asset at 500 Mamaroneck in Harrison, NY, for $53 million.
  • Published ESRT’s third annual Sustainability Report on April 26, 2023 (linked here).
  • Appointed two new members to the Board of Directors – Christina Van Tassell and Hannah Yang, effective July 12, 2023, as part of an ongoing commitment to board refreshment.

Property Operations

As of June 30, 2023, the Company’s property portfolio contained 8.6 million rentable square feet of office space, 0.7 million rentable square feet of retail space and 721 residential units across three multifamily properties, which were occupied and leased as shown below.

 

 

June 30, 2023

March 31, 2023

June 30, 2022

Percent occupied:

 

 

 

 

Total commercial portfolio

86.8%

86.7%

84.3%

 

Total office

86.5%

86.7%

83.7%

 

Manhattan office

87.6%

87.8%

84.0%

 

GNYMA office1

79.2%

80.6%

82.2%

 

Total retail2

90.7%

86.7%

92.0%

 

Percent leased (includes signed leases not commenced):

 

Total commercial portfolio

90.3%

89.4%

87.8%

 

Total office

90.2%

89.3%

87.4%

 

Manhattan office

91.6%

90.7%

88.3%

 

GNYMA office1

80.4%

81.6%

83.5%

 

Total retail2

91.6%

90.6%

92.4%

 

Total multifamily portfolio

97.4%

97.2%

98.4%

1 “GNYMA office” for the period ended June 30, 2023 reflects the removal of 10 Bank Street, White Plains, NY and 500 Mamaroneck, Harrison, NY. For the period ended March 31, 2023, it reflects the removal of 10 Bank Street, White Plains, NY.

2 “Total retail” for the period ended June 30, 2022 includes the Westport, CT retail assets which were sold in February 2023.

Leasing

The tables below summarize leasing activity for the three months ended June 30, 2023. During the second quarter of 2023, the Company signed 31 leases in the total portfolio totaling 336,314 square feet. Within the Manhattan office portfolio, the Company signed 25 office leases totaling 308,310 square feet. The average starting rent on the Manhattan office leases signed in the second quarter of 2023 was $64.48 per rentable square foot with an average lease term of 7.9 years and average tenant concessions of 7.0 months of free rent with a tenant improvement allowance of $64.58 per rentable square foot.

Total Portfolio

Total Portfolio

Total Leases

Executed

Total square

footage

executed

Average cash

rent psf –

leases executed

Previously

escalated cash

rents psf

% of new cash

rent over/ under

previously

escalated rents

Office

28

326,150

$

64.27

$

56.20

14.4%

Retail

3

10,164

$

122.70

$

178.14

(31.1%)

Total Overall

31

336,314

$

66.10

$

60.03

10.1%

Manhattan Office Portfolio

Manhattan Office

Portfolio

Total Leases

Executed

Total square

footage

executed

Average cash

rent psf –

leases executed

Previously

escalated cash

rents psf

% of new cash

rent over / under

previously

escalated rents

New Office

15

156,949

$

66.35

$

48.93

35.6%

Renewal Office

10

151,361

$

62.55

$

63.79

(1.9%)

Total Office

25

308,310

$

64.48

$

56.23

14.7%

Observatory Results

For the second quarter of 2023, the Observatory hosted approximately 666,000 visitors, a 16% increase year-over-year. Observatory revenue for the second quarter of 2023 was $33.4 million and expenses were $8.7 million. Observatory NOI was $24.8 million, a 26% increase year-over-year. This represents a 101% NOI recapture rate as a percentage of 2019 levels.

Portfolio Transaction Activity

On April 5, 2023, the Company closed on the disposition of its office asset at 500 Mamaroneck Avenue in Harrison, NY at a gross asset valuation of $53 million. Proceeds were partially utilized in a reverse 1031 tax deferral transaction into the 298 Mulberry Street acquisition that was executed in December 2022.

Balance Sheet

The Company had $1.2 billion of total liquidity as of June 30, 2023, which was comprised of $315 million of cash, plus $850 million available under its revolving credit facility. At June 30, 2023, the Company had total debt outstanding of approximately $2.3 billion, no floating rate debt exposure, and a weighted average interest rate of 3.9% per annum. The weighted average term to maturity was 5.9 years and the Company has no debt maturity until November 2024. At June 30, 2023, the Company’s ratio of net debt to adjusted EBITDA was 5.8x.

Share Repurchase

The Company repurchased $7.4 million of common stock at a weighted average price of $6.09 per share in the second quarter. The stock repurchase program began in March 2020 and through July 25, 2023, approximately $293.7 million has been repurchased at a weighted average price of $8.18 per share.

Dividend

On June 30, 2023, the Company paid a quarterly dividend of $0.035 per share or unit, as applicable, for the second quarter of 2023 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”).

On June 30, 2023, the Company paid a quarterly preferred dividend of $0.15 per unit for the second quarter of 2023 to holders of the Operating Partnership’s Series 2014 private perpetual preferred units and a preferred dividend of $0.175 per unit for the second quarter of 2023 to holders of the Operating Partnership’s Series 2019 private perpetual preferred units.

2023 Earnings Outlook

The Company updates the 2023 Core FFO guidance range to $0.83 to $0.86 per fully diluted share. This reflects the positive $0.02 per share straight-line reserve reversal recognized in the second quarter and an improvement in the 2023 same-store property cash NOI outlook. The Company’s current guidance does not include the impact of any significant future lease termination fee income or any unannounced acquisition, disposition or other capital markets activity. Key assumptions are included in the table below.

Key Assumptions

2023 Updated

Guidance

(July 2023)

2023 Updated

Guidance

(April 2023)

2023 Initial

Guidance

(Feb 2023)

Comments

Earnings

Core FFO Per Fully Diluted Share

$0.83 to $0.86

$0.80 to $0.84

$0.82 to $0.86

  • Update includes the impact from a +$0.02 straight-line reserve reversal recognized in 2Q23 and revised 2023 SS Cash NOI outlook
  • Includes $0.04 from multifamily assets

Commercial Property Drivers

Commercial Occupancy at year-end

85% to 87%

85% to 87%

85% to 87%

SS Property Cash NOI

(excluding lease termination fees)

-3% to -5%

from 2022

-4% to -6%

from 2022

-4% to -6%

from 2022

  • Assumes modest revenue growth
  • Assumes increased building utilization and an ~8% increase in operating expenses and real estate taxes, partially offset by higher tenant expense reimbursements

Observatory Drivers

Observatory NOI

$88M to $96M

$88M to $96M

$88M to $96M

  • Reflects average quarterly expenses of ~$9M

Low

High

Net Income (loss) Attributable to Common Stockholders and the Operating Partnership

$0.21

$0.24

Add:
Impairment Charge

-

-

Real Estate Depreciation & Amortization

0.72

0.72

Less:
Private Perpetual Distributions

0.02

0.02

Gain on Disposal of Real Estate, net

0.12

0.12

FFO Attributable to Common Stockholders and the Operating Partnership

$0.80

$0.83

Add:
Amortization of Below Market Ground Lease

0.03

0.03

Core FFO Attributable to Common Stockholders and the Operating Partnership

$0.83

$0.86

The estimates set forth above may be subject to fluctuations as a result of several factors, including continued impacts of pandemics on our business and our market, our ability to complete planned capital improvements in line with budget, costs of integration of completed acquisitions, costs associated with future acquisitions or other transactions, straight-line rent adjustments and the amortization of above and below-market leases. There can be no assurance that the Company’s actual results will not differ materially from the estimates set forth above.

Investor Presentation Update

The Company has posted on the “Investors” section of ESRT’s website the latest investor presentation, which contains additional information on its businesses, financial condition and results of operations.

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 27, 2023 at 12:00 pm Eastern time.

The webcast will be accessible on the “Investors” section of ESRT’s website. To listen to the live webcast, go to the site at least five minutes prior to the scheduled start time in order to register and download and install any necessary audio software. The conference call can also be accessed by dialing 1-877-407-3982 for domestic callers or 1-201-493-6780.

Starting shortly after the call until August 3, 2023, a replay of the webcast will be available on the Company’s website, and a dial-in replay will be available 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 13739120.

The Supplemental Report and Investor Presentation are additional components of the quarterly earnings announcement and are now available on the “Investors” section of ESRT’s website.

The Company uses, and intends to continue to use, the “Investors” page of its website, which can be found at www.esrtreit.com, as a means to disclose material nonpublic information and to comply with its disclosure obligations under Regulation FD, including, without limitation, through the posting of investor presentations that may include material nonpublic information. Accordingly, investors should monitor the “Investors” page, in addition to following our press releases, SEC filings, public conference calls, presentations and webcasts. The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this document.

About Empire State Realty Trust

Empire State Realty Trust, Inc. (NYSE: ESRT) is a REIT that owns and manages office, retail and multifamily assets in Manhattan and the greater New York metropolitan area. ESRT owns the iconic Empire State Building – “the World’s Most Famous Building” – and the newly reimagined Empire State Building Observatory that was named #1 attraction in the US for the second year in a row, in Tripadvisor’s 2023 Travelers’ Choice Awards: Best of the Best. The company is a leader in healthy buildings, energy efficiency, and indoor environmental quality. As of June 30, 2023, ESRT's portfolio is comprised of approximately 8.6 million rentable square feet of office space, 718,000 rentable square feet of retail space and 721 residential units across three multifamily properties. More information about Empire State Realty Trust can be found at esrtreit.com and by following ESRT on Facebook, Instagram, TikTok, Twitter and LinkedIn.

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,” “thinks,” “forecasts,” anticipates,” “hope,” “may,” “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 with the intention of identifying statements about the future. For the avoidance of doubt, any projection, guidance or similar estimation about the future or future results, performance or achievements is a forward-looking statement. Although the assumptions and estimates on which forward-looking statements are based are believed by our management to be reasonable and based on the best currently available information, such forward-looking statements are based on assumptions that are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. Many important factors could cause our actual results, performance, achievements, and future events to differ materially from those set forth, implied, anticipated, expected, projected, assumed or contemplated in our forward-looking statements, including, among other things: (i) economic, market, political and social impact of, and uncertainty relating to, any catastrophic events, including pandemics, epidemics or other outbreaks of disease, natural disasters and extreme weather events, terrorism and other armed hostilities, as well as cybersecurity threats and technology disruptions; ; (ii) a failure of conditions or performance regarding any event or transaction described herein, (iii) resolution of legal proceedings involving the Company; (iv) reduced demand for office, multifamily or retail space, including as a result of the changes in the use of office space and remote work; (v) changes in our business strategy; (vi) changes in technology and market competition that affect utilization of our office, retail, observatory, broadcast or other facilities; (vii) changes in domestic or international tourism, including due to health crises and pandemics, geopolitical events, including global hostilities, currency exchange rates, and/or competition from recently opened observatories in New York City, any or all of which may cause a decline in Observatory visitors; (viii) defaults on, early terminations of, or non-renewal of, leases by tenants; (ix) increases in the Company’s borrowing costs as a result of changes in interest rates and other factors, including the current phasing out of LIBOR; (x) declining real estate valuations and impairment charges; (xi) termination of our ground leases; (xii) changes in our ability to pay down, refinance, restructure or extend our indebtedness as it becomes due and potential limitations on our ability to borrow additional funds in compliance with drawdown conditions and financial covenants; (xiii) decreased rental rates or increased vacancy rates; (xiv) our failure to execute any newly planned capital project successfully or on the anticipated timeline or budget; (xv) difficulties in identifying and completing acquisitions; (xvi) risks related to any development project (including our Metro Tower potential development site); (xvii) impact of changes in governmental regulations, tax laws and rates and similar matters; (xviii) our failure to qualify as a REIT; (xix) environmental uncertainties and risks related to climate change, adverse weather conditions, rising sea levels and natural disasters; (xx) incurrence of taxable capital gain on disposition of an asset due to failure of use or compliance with a 1031 exchange program; and (xxi) accuracy of our methodologies and estimates regarding ESG metrics and goals, tenant willingness and ability to collaborate in reporting ESG metrics and meeting ESG goals, and impact of governmental regulation on our ESG efforts. 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” of our annual report on Form 10-K for the year ended December 31, 2022 and our quarterly report on Form 10-Q for the quarter ended March 31, 2023 and any additional factors that may be contained in any filing we make with the SEC.

While forward-looking statements reflect the Company's good faith beliefs, they do not guarantee future performance. Any forward-looking statement contained in this press release speaks only as of the date on which it was made, and we assume no 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 Operations

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

 

 

Three Months Ended June 30,

2023

2022

Revenues

Rental revenue

$

154,603

$

149,339

Observatory revenue

 

33,433

 

27,368

Lease termination fees

 

-

 

 

18,859

Third-party management and other fees

 

381

 

326

Other revenue and fees

 

2,125

 

2,130

Total revenues

 

190,542

 

198,022

Operating expenses

Property operating expenses

 

39,519

 

37,433

Ground rent expenses

 

2,332

 

2,332

General and administrative expenses

 

16,075

 

15,876

Observatory expenses

 

8,657

 

7,776

Real estate taxes

 

31,490

 

29,802

Depreciation and amortization

 

46,280

 

58,304

Total operating expenses

 

144,353

 

151,523

Total operating income

 

46,189

 

46,499

Other income (expense):

 

 

 

Interest income

 

3,339

 

 

431

Interest expense

 

(25,405)

 

(25,042)

Gain on disposition of property

 

13,565

 

 

27,170

Income before income taxes

 

37,688

 

49,058

Income tax expense

 

(733)

 

(363)

Net income

 

36,955

 

48,695

Net (income) loss attributable to noncontrolling interests:

 

 

Noncontrolling interest in the Operating Partnership

 

 

(14,049)

 

(18,224)

Noncontrolling interests in other partnerships

 

(1)

 

159

Preferred unit distributions

 

(1,051)

 

(1,051)

Net income attributable to common stockholders

$

21,854

$

29,579

Total weighted average shares

Basic

 

160,028

 

167,118

Diluted

 

264,196

 

270,085

Earnings per share attributable to common stockholders

Basic

$

0.14

$

0.18

Diluted

$

0.14

$

0.18

 

Empire State Realty Trust, Inc.

Condensed Consolidated Statements of Operations

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

 

 

Six Months Ended June 30,

2023

2022

Revenues

Rental revenue

$

294,694

$

296,853

Observatory revenue

 

55,587

 

40,609

Lease termination fees

 

-

 

20,032

Third-party management and other fees

 

808

 

636

Other revenue and fees

 

4,075

 

3,926

Total revenues

 

355,164

 

362,056

Operating expenses

Property operating expenses

 

81,563

 

76,077

Ground rent expenses

 

4,663

 

4,663

General and administrative expenses

 

31,783

 

29,562

Observatory expenses

 

16,512

 

13,991

Real estate taxes

 

63,278

 

59,806

Depreciation and amortization

 

93,688

 

125,410

Total operating expenses

 

291,487

 

309,509

Total operating income

 

63,677

 

52,547

Other income (expense):

 

 

Interest income

 

5,934

 

580

Interest expense

 

(50,709)

 

(50,056)

Gain on disposition of property

 

29,261

 

27,170

Income before income taxes

 

48,163

 

30,241

Income tax benefit

 

486

 

1,233

Net income

 

48,649

 

31,474

Net (income) loss attributable to noncontrolling interests:

Noncontrolling interest in the Operating Partnership

 

(18,217)

 

(11,305)

Noncontrolling interests in other partnerships

 

42

 

222

Preferred unit distributions

 

(2,101)

 

(2,101)

Net income attributable to common stockholders

$

28,373

$

18,290

Total weighted average shares

Basic

 

160,669

 

168,099

Diluted

 

264,736

 

271,837

Earnings per share attributable to common stockholders

Basic

$

0.18

$

0.11

Diluted

$

0.18

$

0.11

 

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,

2023

2022

 

Net income

$

36,955

$

48,695

Noncontrolling interests in other partnerships

 

(1)

 

159

Preferred unit distributions

 

(1,051)

 

(1,051)

Real estate depreciation and amortization

 

44,887

 

56,571

Gain on disposition of property

 

(13,565)

 

(27,170)

FFO attributable to common stockholders and Operating Partnership units

 

67,225

 

77,204

 

Amortization of below-market ground leases

 

1,958

 

1,958

Modified FFO attributable to common stockholders and Operating Partnership units

 

69,183

 

79,162

 

 

 

 

 

 

Core FFO attributable to common stockholders and Operating Partnership units

$

69,183

$

79,162

 

 

Total weighted average shares and Operating Partnership units

Basic

 

262,903

 

270,078

Diluted

 

264,196

 

270,085

 

FFO per share

Basic

$

0.26

$

0.29

Diluted

$

0.25

$

0.29

 

 

 

Modified FFO per share

 

 

Basic

$

0.26

$

0.29

Diluted

$

0.26

$

0.29

 

 

 

Core FFO per share

 

 

Basic

$

0.26

$

0.29

Diluted

$

0.26

$

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)

 

 

Six Months Ended June 30,

2023

2022

 

Net income

$

48,649

$

31,474

Noncontrolling interests in other partnerships

 

42

 

222

Preferred unit distributions

 

(2,101)

 

(2,101)

Real estate depreciation and amortization

 

90,911

 

121,985

Gain on disposition of property

 

(29,261)

 

 

(27,170)

FFO attributable to common stockholders and Operating Partnership units

 

108,240

 

124,410

 

Amortization of below-market ground leases

 

3,916

 

3,916

Modified FFO attributable to common stockholders and Operating Partnership units

 

112,156

 

128,326

 

 

 

 

 

 

 

 

Core FFO attributable to common stockholders and Operating Partnership units

$

112,156

$

128,326

 

 

Total weighted average shares and Operating Partnership units

Basic

 

263,694

 

271,834

Diluted

 

264,736

 

271,837

 

FFO per share

Basic

$

0.41

$

0.46

Diluted

$

0.41

 

$

0.46

 

 

 

 

Modified FFO per share

 

 

 

Basic

$

0.43

 

$

0.47

Diluted

$

0.42

 

$

0.47

 

 

 

 

Core FFO per share

 

 

 

Basic

$

0.43

 

$

0.47

Diluted

$

0.42

 

$

0.47

 

Empire State Realty Trust, Inc.

Condensed Consolidated Balance Sheets

(unaudited and amounts in thousands)

 

 

June 30, 2023

December 31,

2022

Assets

Commercial real estate properties, at cost

$

3,565,882

$

3,551,449

Less: accumulated depreciation

 

(1,180,558)

 

(1,137,267)

Commercial real estate properties, net

 

2,385,324

 

2,414,182

Assets held for sale

 

-

 

35,538

Cash and cash equivalents

 

315,357

 

264,434

Restricted cash

 

80,451

 

50,244

Tenant and other receivables

 

32,901

 

24,102

Deferred rent receivables

 

249,881

 

240,188

Prepaid expenses and other assets

 

98,986

 

98,114

Deferred costs, net

 

176,678

 

187,570

Acquired below market ground leases, net

 

325,157

 

329,073

Right of use assets

 

28,554

 

28,670

Goodwill

 

491,479

 

491,479

Total assets

$

4,184,768

$

4,163,594

 

Liabilities and equity

Mortgage notes payable, net

$

880,592

$

883,705

Senior unsecured notes, net

 

973,768

 

973,659

Unsecured term loan facility, net

 

389,028

 

388,773

Accounts payable and accrued expenses

 

71,709

 

80,729

Acquired below market leases, net

 

15,280

 

17,849

Ground lease liabilities

 

28,554

 

28,670

Deferred revenue and other liabilities

 

73,972

 

76,091

Tenants’ security deposits

 

40,253

 

25,084

Liabilities related to assets held for sale

 

-

 

5,943

Total liabilities

 

2,473,156

 

2,480,503

Total equity

 

1,711,612

 

1,683,091

Total liabilities and equity

$

4,184,768

$

4,163,594

 

Contacts

Investors and Media
Empire State Realty Trust Investor Relations
(212) 850-2678
IR@esrtreit.com

Contacts

Investors and Media
Empire State Realty Trust Investor Relations
(212) 850-2678
IR@esrtreit.com