Empire State Realty Trust Announces Second Quarter 2023 Results

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

 

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The Empire State Realty Trust Registered (A) Stock at the time of publication of the news with a raise of +0,35 % to 7,20EUR on Lang & Schwarz stock exchange (26. Juli 2023, 22:24 Uhr).