Empire State Realty Trust, Inc. · NYSE:ESRT
Empire State Realty Trust — Investor Presentation (February 2019)
44 slides from Empire State Realty Trust's investor presentation, February 2019
Slide 1: Investor Presentation February 2019
Investor Presentation February 2019 1
Slide 2: Disclaimer
Disclaimer We make forward-looking statements in this presentation within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. You should not rely on them as predictions of future events. For these statements, we cl
Slide 3: Investor Highlights
Investor Highlights › Fully modernized assets, centrally located near mass- transit › Embedded, de-risked growth potential and market leading leasing spreads › Lowest levered balance sheet among office REITs, significant cash position, and no outstanding borrowings against our credit line › Secure m
Slide 4: Manhattan Portfolio Proposition
Manhattan Portfolio Proposition NEW LEASE WEIGHTED AVERAGE ASKING RENTS New Build Class A “Aged Trophy” Class A › New construction since 2008 › Stock constructed from 1970-2000 that needs base building renovation of approx. $100 PSF › Asking rents of $149F 1,2 › Asking rents of $94 PSF 1,2 › Well-lo
Slide 5: Varied Tenant Base
Varied Tenant Base DIVERSIFIED BY INDUSTRY Other Non-Profit Consumer 12.7% 4.4% Goods 21.8% Media & Advertising 3.9% Technology Finance, 9.5% Insurance, Real Estate 16.1% Legal Services 3.7% Retail Professional 17.1% Services 10.8% Industry diversification by annualized fully escalated rent. Company
Slide 6: Growth from Tenant Expansions
Growth from Tenant Expansions › We have had 163 tenant expansions within our portfolio totaling over 1,171,443 square feet1 › Tenants expand due to the attractive proposition we provide: • Newly redeveloped buildings • Combination of location and amenities • Attractive value price point • Tenant ser
Slide 7: Portfolio Overview
Portfolio Overview PURE-PLAY MANHATTAN AND GREATER NEW YORK METROPOLITAN AREA 10.1 Million Total Rentable 9.4 Million Rentable Square Feet Square Feet of Office Space GNYMA GNYMA Office Office 18.2% 19.6% Retail 7.1% Manhattan Office Manhattan Office 74.7% 80.4% Company data and filings as of Decemb
Slide 8: Manhattan Portfolio
Manhattan Portfolio 111 West 33rd Street One Grand Central Place 1359 Broadway 1400 Broadway Office Properties Retail Properties 8
Slide 9: De-risked Revenue Growth
Four Drivers of Embedded De-risked Revenue Growth 1 Burn-off of free rent $32 M Signed leases not commenced Retail $20 M $112 opportunity $11 M Million4 Lease up of Office mark-to- vacant market redeveloped opportunity3 Manhattan $21 M office space2 $28 M 1 Amounts reflect management’s estimates of
Slide 10: Free Rent Burn-Off and Signed Leases Not Commenced
Free Rent Burn-Off and Signed Leases Not Commenced Base Cash Rent Contributing to Cash NOI in the Following Years on a Cumulative Basis Annualized Initial Total Portfolio 2019 2020 2021 2022 Base Cash Rent Commenced leases in $31.557 M $20.985 M $30.871 M $31.557 M $31.557 M free rent period Signed
Slide 11: Superior Leasing Spreads
Superior Leasing Spreads ILLUSTRATES MARK TO MARKET OPPORTUNITY Manhattan office leasing spreads Strong re-leasing spreads Trailing 4 quarters Q4 2018 average3 All leases Q4 2018 New leases Q4 2018 1 Compared to peer group $ 64.82 $ 63.57 25.0% 23.7% $ 51.32 $ 49.85 20.0% 15.0% 10.0% 7.2% 5.0% 0.0%
Slide 12: Manhattan Office Mark to Market
Manhattan Office Mark to Market CURRENT 2019 MARKET RENT VS. CURRENT FULLY ESCALATED RENT 12 mos 12 mos 12 mos 12 mos 12 mos 2019 2020 2021 2022 2023 Current fully escalated rent $54 $55 $55 $57 $56 PSF1 Leased square feet expiring2 576,030 588,087 457,024 363,454 507,038 Weighted Average Current $6
Slide 13: Redevelopment Opportunity
Redevelopment Opportunity EMBEDDED, DE-RISKED GROWTH Tenant space to be redeveloped Empire State Building 180,000 SF Balance of Manhattan office portfolio 490,000 SF Total 670,000 SF Probable Renovations of Undeveloped Space in 2019-20231 200,000 170,000 SF 110,000 SF 100,000 50,000 SF 50,000 SF 5,0
Slide 14: Creating Full Floor Availabilities
Creating Full Floor Availabilities REDEVELOPMENT CASE STUDY Floors 55-58 originally had 42 tenants Adjacent tenants are grouped by lease expiration dates Spaces are vacated as expired leases 2014 are not renewed Floors 55-58 leased to only 2 tenants 14
Slide 15: Superior Returns from Redevelopment
Superior Returns from Redevelopment AN ILLUSTRATION OF THE RETURNS ON INVESTMENTS White Box Pre-Built WEIGHTED AVERAGE INVESTMENT PER SQUARE FOOT Tenant space: Base building $64 $54 Tenant allowance / improvement $97 $133 Leasing commission $29 $19 TOTAL INVESTMENT $190 $206 TTM WEIGHTED AVERAGE RET
Slide 16: Tenant Lease Expirations
Tenant Lease Expirations WELL-LADDERED MANHATTAN OFFICE PORTFOLIO LEASE EXPIRATIONS1 57.4% 7.3% 6.1% 7.8% 6.0% 6.7% 3.9% 4.8% Available SLNC 2019 2020 2021 2022 2023 Thereafter 1 Based on rentable square footage. Company data and filings as of December 31, 2018. 16
Slide 17: Vacant Office Space
Vacant Office Space Current vacancy / Redeveloped vacancy (Manhattan Office) 549,000 SF / 438,000 SF Weighted average starting rent (Manhattan Office) $64 PSF MANHATTAN OFFICE PORTFOLIO CURRENT VACANT SPACE SQ FEET Redeveloped Manhattan office space 438,000 Signed Leases Not Commenced (SLNC): Prebui
Slide 18: Tenants Relocating to ESRT
Tenants Relocating to ESRT ATTRACTING TENANTS FROM ALL PARTS OF NYC AND BEYOND OVER PAST 12 MONTHS From Outside Manhattan 9 Tenants Representing 52,032 SF From Midtown (West) (Madison/Fifth, Penn Station/ Times Square South, Rockefeller Center, West Side) 10 Tenants Representing 87,857 SF From Midto
Slide 19: Observatory Performance
Observatory Performance CONSISTENT PERFORMANCE THROUGH ECONOMIC CYCLE AND NEW ATTRACTIONS One World Observatory Observatory annual revenue1 (millions) Opens 1.6 Million Visitors (estimated 2018) 2001 – 2018 CAGR 9/11 Museum Opens 10.2% 3.2 Million Visitors $131.2 2 (estimated 2018) $127.1 $124.8 $11
Slide 20: Who Visits the Observatory?
Who Visits the Observatory? 77% OF VISITORS DECIDE TO VISIT BEFORE LEAVING HOME International vs. Domestic: 62% International, 38% Domestic Age Group: Domestic International 38% 62% 53% 18-34 years old Male vs. Female: 59% Female, 41% Male Top 6 foreign countries: England/ Scotland/ Canada France Ch
Slide 21: Observatory Ticket Mix
Observatory Ticket Mix ACTIVE MANAGEMENT OF TICKET MIX TO MAXIMIZE MARGINS Direct sales at Growth in Observatory Revenue Per Capita1 full price is $34.00 largest source $33.00 $32.00 $31.00 Introduction of $30.00 $29.00 Per capita 1Q 2018 variable pricing $28.00 TTM lower; 102nd floor closed to duri
Slide 22: Valuing The Observatory
Valuing The Observatory SUM OF THE PARTS VALUES BOTH RENTAL REVENUE AND RESIDUAL PROFIT STREAMS Observatory Results – 4Q 2018 Trailing Twelve Months In $MM Visitor Revenue 125 (1) Gift Shop License Fee 6 Total Revenue 131 Less Operating Expenses 33 NOI 98 Less Intercompany rent expense 80 NOI after
Slide 23: Retail Opportunity
Retail Opportunity › 719,354 SF of total retail space › 90.8% occupied / 91.3% leased › Annualized fully escalated rent of $93.2 million › 62,419 SF of retail space available to lease, including 23,404 SF of ground floor space, in 5 high traffic locations • Empire State Building, One Grand Central P
Slide 24: Retail Mark to Market and Vacant Space
Retail Mark to Market and Vacant Space CURRENT 2019 MARKET RENT VS. CURRENT FULLY ESCALATED RENT 12 12 12 12 12 months months months months months Vacant 2019 2020 2021 2022 2023 Current fully escalated rent N/A $166 $129 $155 $150 $127 PSF1 Leased square feet expiring2 62,419 23,828 27,811 32,365 6
Slide 25: Retail Value Creation Case Study
Retail Value Creation Case Study SUCCESSFUL REPOSITIONING OF 112 WEST 34th STREET › 88,513 SF on 3 floors leased to one › New leases were signed with tenant, including 2 levels of office and Footlocker, Sephora and Target by storage, for $2.2 million in annualized March 2017 for annualized rent of f
Slide 26: Strong, Flexible and Liquid Balance Sheet
Strong, Flexible and Liquid Balance Sheet CAPITAL STRUCTURE STRATEGY Low leverage with laddered debt maturities FINANCIAL STRATEGY Significant cash on hand Access to a variety of forms of capital 26
Slide 27: Fortress Balance Sheet
Fortress Balance Sheet STEADY IMPROVEMENT THROUGH PERFORMANCE Net Debt to EBITDA1 7.0 6.0 5.7X 5.4X PEERS2 4.9X 5.0 Net Debt / 4.0 3.6X EBITDA 3.6x 8.0x 3.5X 3.1X 3.0 2.0 Net Debt / 23% 46% 1.0 Enterprise Value 0.0 Year Year Year Year Year Year Ended Ended Ended Ended Ended Ended 2013 2014 2015 2016
Slide 28: Improved Balance Sheet Flexibility
Improved Balance Sheet Flexibility UNENCUMBERING THE PORTFOLIO Repaid $844 million in mortgage loans, adding approximately 8.0 million square feet to the unencumbered pool since IPO Repaid $844 million, including mortgage loans At IPO securing: Dec 2018 100% 99% › Empire State Building 100% 79% 80%
Slide 29: Debt Maturity
Debt Maturity WEIGHTED AVERAGE MATURITY INCREASED FROM 3.1 YEARS AT IPO TO 8.1 YEARS CURRENT DEBT MATURITY PROFILE (AS OF DECEMBER 31, 2018) ($ millions) $663 $203 $319 $250 $265 $460 $194 $146 $100 $78 $50 $125 $115 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2028 and thereafter Unsecured pri
Slide 30: Support for Future Growth
Support for Future Growth BALANCE SHEET STRENGTH AND FLEXIBILITY Low Leverage › Net debt / enterprise value: 23% Capital Structure1 › Net debt / EBITDA: 3.6x Exchangeable Senior › Interest coverage: 5.7x Mortgage Debt Unsecured Notes $615 mm $250 mm › Attractive in place debt 10% 4% Senior Unsecured
Slide 31: Creating Value Through Sustainability
Creating Value Through Sustainability EMPIRE STATE BUILDING CASE STUDY › Annual savings of $4.4 M › 3.1 year payback › Energy Star 86 › Quantifiable transparent results › Visit www.esbsustainability.com 31
Slide 32: Sustainability Measures
Sustainability Measures Energy Efficiency Example › 100% of portfolio has undergone whole building energy retrofit analysis › Work pioneered by ESRT led to EPA’s Energy Star for Tenants Building Certification › 86% of portfolio has a robust or partial building management system in-place Day to Day G
Slide 33: Greater NY Metropolitan Office Portfolio
Greater NY Metropolitan Office Portfolio QUALITY ASSETS AND TENANTS › Best assets located at or Highway Metro-North Railroad near major transit hubs Metro-North Train › Full amenities 684 Stop Norwalk 95 › 11.2% of 4Q 2018 NOI / Stamford 18.2% of total SF White Plains › 87.6% occupied / 88.1% 287 le
Slide 34: Tenant Lease Expirations
Tenant Lease Expirations GREATER NY METROPOLITAN PORTFOLIO LEASE EXPIRATIONS1 38.2% 11.9% 12.7% 12.2% 11.4% 6.3% 6.8% 0.5% Available SLNC 2019 2020 2021 2022 2023 Thereafter 1 Based on rentable square footage. Company data and filings as of December 31, 2018. 34
Slide 35: Greater NY Office Mark to Market
Greater NY Office Mark to Market CURRENT 2019 MARKET RENT VS. CURRENT FULLY ESCALATED RENT 12 mos 12 mos 12 mos 12 mos 12 mos 2019 2020 2021 2022 2023 Current fully escalated rent $38 $45 $45 $38 $45 PSF1 Leased square feet expiring2 237,531 224,778 210,934 116,525 126,488 Weighted Average Current $
Slide 36: Global Brand
Global Brand VALUE OF THE EMPIRE STATE BUILDING BRAND › 87 years of brand references and popular cultural references make ESB an iconic brand › Branding yields millions in › Top of the Rock advertising value equivalent › One WTC (AVE) annually representing VS. › 30 Hudson Yards effectively free adve
Slide 37: ESB's partnership with ABC, Jimmy Kimmel Live!, Google, Eminem, and Interscope Records
ESB’s partnership with ABC, Jimmy Kimmel Live!, Google, Eminem, and Interscope Records MEDIA COVERAGE 1.1B $1.8MM 112MM MEDIA IMPRESSIONS AD VALUE EQUIVALENCY SOCIAL MEDIA IMPRESSIONS Data for media impressions and ad value is from Cision and data for social media impressions is from Sysomos. 37
Slide 38: Delivered on Promises
Delivered on Promises EXECUTED ON LEASING Cash NOI Growth 4Q 2018 Even With Fluctuating Occupancy $400,000 90.0% › 246,760 SF of leasing 89.5% › 30.0% spreads $360,000 thousand 89.0% achieved on new 88.5% Manhattan office $320,000 88.0% leases 87.5% › 10.8% CAGR on TTM $280,000 87.0% cash NOI from 3
Slide 39: ESRT Metrics Since IPO
ESRT Metrics Since IPO DAILY VOLUME, FLOAT, AND COMPARABLE PERFORMANCE Average Trading Volume in 2019 YTD: 1,124,702 shares Daily Average Trading Volume in 2018: 1,236,088 shares Volume Average Trading Volume in 2017: 852,657 shares Average Trading Volume in 2016: 984,876 shares Average Trading Volu
Slide 40: Management Team
Management Team EXPERIENCED AND COMMITTED Anthony E. Malkin John B. Kessler Thomas P. Durels David A. Karp Thomas N. Keltner, Jr. Chairman & President & Chief Executive Vice President, Executive Vice President Executive Vice President, Chief Executive Officer Operating Officer Real Estate & Chief Fi
Slide 41: 41
41
Slide 42: Appendix
Appendix RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Three Months Ended Year Ended Year Ended Year Ended Period From 10/7/13 Reconciliation of Net Income to NOI December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31, Dec 31, Dec 31, Dec 31, through and Cash NOI
Slide 43: Appendix
Appendix RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Three Months Ended Reconciliation of Rental Revenue and Tenant Twelve Months December 31, September 30, June 30, March 31, December 31, Expense Reimbursement to Cash Revenues to Date 2018 2018 2018 2018 2017 Rental revenue $ 493,231 $ 123,261 $
Slide 44: Observatory Visitor Count
Appendix Observatory Visitor Count Prior Methodology Current Period As Reported (1) Methodology (2) Q4 2013 980,000 969,000 Q1 2014 664,000 654,000 Q2 2014 1,222,000 1,200,000 Q3 2014 1,405,000 1,380,000 Q4 2014 997,000 982,000 Q1 2015 622,000 610,000 Q2 2015 1,165,000 1,131,000 Q3 2015 1,327,000 1,
Empire State Realty Trust — Investor Presentation (February 2019) on 6ix