Empire State Realty Trust, Inc. · NYSE:ESRT
Empire State Realty Trust — Q1 2018 Earnings Presentation
41 slides from Empire State Realty Trust's earnings presentation, 2018
Slide 1: First Quarter 2018
~ EMPIRE STATE First Quarter 2018.
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 › Pure-play Manhattan and greater New York metropolitan area › Embedded, de-risked growth potential from four drivers of growth › Strong and flexible balance sheet, lowest leverage among office REIT peers › Proven management team 3
Slide 4: 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 5: Delivered on Promises
Delivered on Promises STEADY CASH NOI; EXECUTED ON LEASING Q4 2017 Steady Cash NOI › 274,988 SF of leasing Even With Fluctuating Occupancy $400,000 90.0% › 33.9% spreads thousand achieved on new 89.5% Manhattan office $360,000 89.0% leases 88.5% $320,000 88.0% › Reported 3.5% same- 87.5% store cash
Slide 6: 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 18.4% 19.8% Retail 7.0% Manhattan Office Manhattan Office 74.6% 80.2% Company data and filings as of Decemb
Slide 7: Varied Tenant Base
Varied Tenant Base DIVERSIFIED BY INDUSTRY Non-Profit 4.6% Other Consumer 12.4% Goods 21.8% Media & Advertising 4.2% Technology 8.6% Finance, Insurance, Real Estate Legal Services 16.4% 3.7% Retail 17.4% Professional Services 10.9% Industry diversification by annualized fully escalated rent. Company
Slide 8: Growth from Tenant Expansions
Growth from Tenant Expansions › We have had 140 tenant expansions within our portfolio totaling over 931,000 square feet1 › Tenants expand due to the attractive proposition we provide: • Newly redeveloped buildings • Combination of location and amenities • Attractive value price point • Tenant servi
Slide 9: Manhattan Portfolio
Manhattan Portfolio 111 West 33rd Street One Grand Central Place 1359 Broadway 1400 Broadway Office Properties Retail Properties 9
Slide 10: Tenant Lease Expirations
Tenant Lease Expirations WELL-LADDERED MANHATTAN OFFICE PORTFOLIO LEASE EXPIRATIONS1 54.7% 7.9% 9.5% 8.3% 6.2% 5.8% 4.5% 3.1% Available SLNC 2018 2019 2020 2021 2022 Thereafter 1 Based on rentable square footage. Company data and filings as of December 31, 2017. 10
Slide 11: Four Drivers of Embedded De-risked Revenue Growth
Four Drivers of Embedded De-risked Revenue Growth RELATIVE TO TTM CASH NOI OF $381M1 Free rent $26 M Signed leases not commenced $17 M Retail $97 opportunity Million3 $10 M Manhattan Lease up of redevelopment vacant mark-to-market Manhattan opportunity office space2 $18 M $26 M 1 Amounts reflect man
Slide 12: Free Rent Burn-Off and Signed Leases Not Commenced
Free Rent Burn-Off and Signed Leases Not Commenced Cumulative Cash Base Rent Contributing to the Following Years: Annualized Initial Base Total Portfolio 2018 2019 2020 2021 Cash Rent Commenced leases in $26.07 M $12.90 M $25.70 M $26.03 M $26.07 M free rent period Signed leases not 17.22 M 0.84 M 1
Slide 13: Superior Leasing Spreads
Superior Leasing Spreads ILLUSTRATES MARK TO MARKET OPPORTUNITY Strong re-leasing spreads1 Manhattan office leasing spreads Q4 20173 All leases Q4 2017 New leases Q4 2017 Compared to peer group $ 61.42 $ 61.31 35.0% 29.4% 30.0% $ 48.45 $ 45.80 25.0% 20.0% 15.0% 10.0% 5.0% 3.9% 0.0% Prev. New Prev. N
Slide 14: Vacant Office Space
Vacant Office Space Current vacancy / Redeveloped vacancy (Manhattan Office) 595,000 SF / 425,000 SF Weighted average starting rent (Manhattan Office) $60 PSF MANHATTAN OFFICE PORTFOLIO CURRENT VACANT SPACE Square Feet Prebuilt Total portfolio vacant space 1,052,000 245,000 SF Broadcasting 41% Less
Slide 15: Manhattan Office Mark to Market
Manhattan Office Mark to Market CURRENT 2018 MARKET RENT VS. CURRENT FULLY ESCALATED RENT 12 mos 12 mos 12 mos 12 mos 12 mos 2018 2019 2020 2021 2022 Current fully escalated rent PSF1 $54 $50 $54 $52 $56 Leased square feet expiring2 713,837 468,407 626,176 442,320 340,773 Weighted Average Current $5
Slide 16: Redevelopment Opportunity
Redevelopment Opportunity EMBEDDED, DE-RISKED GROWTH Tenant space to be redeveloped Empire State Building 240,000 SF Balance of Manhattan office portfolio 720,000 SF Total 960,000 SF Probable Renovations of Undeveloped Space in 2018-20221 300,000 220,000 SF 200,000 170,000 SF 100,000 95,000 SF 95,00
Slide 17: 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 17
Slide 18: 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 $63 $63 Tenant allowance / improvement $90 $128 Leasing commission $27 $18 TOTAL INVESTMENT $180 $209 TTM WEIGHTED AVERAGE RET
Slide 19: Manhattan Portfolio Proposition
Manhattan Portfolio Proposition DOMINANT POSITION WITH LITTLE COMPETITION New Build Class A “Aged Trophy” Class A › New construction › Stock over 40 years old that needs base building renovation of approx. $100 PSF › Asking rents of $95-200 PSF1 › Asking rents of $72-185 PSF1 › Well-located, redevel
Slide 20: Tenants Relocating to ESRT
Tenants Relocating to ESRT ATTRACTING TENANTS FROM ALL PARTS OF NYC AND BEYOND OVER PAST 12 MONTHS From Outside Manhattan 14 Tenants Representing 166,161 SF From Midtown (West) (Madison/Fifth, Penn Station/ Times Square South, Rockefeller Center, West Side) 23 Tenants Representing 195,556 SF From Mi
Slide 21: Retail Opportunity
Retail Opportunity › 713,135 SF of total retail space › 92.0% occupied / 93.9% leased › Annualized fully escalated rent of $91.7 million › 43,416 SF of retail space available to lease in 4 high traffic locations › 1400 Broadway, One Grand Central Place, Empire State Building and 501 Seventh Ave Comp
Slide 22: Retail Mark to Market and Vacant Space
Retail Mark to Market and Vacant Space CURRENT 2018 MARKET RENT VS. CURRENT FULLY ESCALATED RENT 12 12 12 12 12 months months months months months Vacant 2018 2019 2020 2021 2022 Current fully escalated rent N/A $111 $140 $138 $155 $151 PSF1 Leased square feet expiring2 43,416 25,881 30,727 25,601 3
Slide 23: 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 24: Creating Value Through Sustainability
Creating Value Through Sustainability EMPIRE STATE BUILDING CASE STUDIES Replicable Process Forms Basis for ULI’s Tenant Energy Optimization and EPA’s Tenant Star Program Utility costs represent the third largest component of tenant expenses after salaries and rent 3 ESB Tenant Energy Optimization P
Slide 25: Sustainability Measures
Sustainability Measures Energy Efficiency Example › 100% of portfolio has undergone whole building energy retrofit analysis › Work pioneered by ESRT lead 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
Slide 26: Greater NY Metropolitan Portfolio
Greater NY Metropolitan Portfolio QUALITY ASSETS AND TENANTS › Best assets located at Highway Metro-North Railroad 66-99 Main St Metro-North Train Westport 103-107 Main St or near major 684 Stop 95 Norwalk transportation hubs 287 Stamford › Full amenities › 14.9% of 2017 NOI White Plains › 18.4% of
Slide 27: Tenant Lease Expirations
Tenant Lease Expirations GREATER NY METROPOLITAN PORTFOLIO LEASE EXPIRATIONS1 Add 35.5% 11.6% 10.9% 11.2% 11.9% 10.1% 8.2% 0.6% Available SLNC 2018 2019 2020 2021 2022 Thereafter 1 Based on rentable square footage. Company data and filings as of December 31, 2017. 27
Slide 28: Observatory Performance
Observatory Performance CONSISTENT PERFORMANCE THROUGH ECONOMIC CYCLE AND NEW ATTRACTIONS One World Observatory Observatory annual revenue (millions) Opens 2.1 Million Visitors (estimated 2017) 2001 – 2017 CAGR 9/11 Museum Opens 10.7% 3.1 Million Visitors (estimated 2017) $127.1 $124.8 $111.5 $112.2
Slide 29: Who Visits the Observatory?
Who Visits the Observatory? 80% OF VISITORS DECIDE TO VISIT BEFORE LEAVING HOME International vs. Domestic: 65% International, 35% Domestic Domestic Age Group: 35% International 53% 18-34 years old 65% Male vs. Female: 59% Female, 41% Male Top 6 foreign countries: England/ Scotland/ France Canada Ch
Slide 30: Observatory Ticket Mix
Observatory Ticket Mix ACTIVE MANAGEMENT OF TICKET MIX TO MAXIMIZE MARGINS Steady Growth in Observatory Revenue Per Direct sales at Capita full price is $32.00 $31.00 largest source $30.00 $30.77 $31.36 $31.59 $30.31 $29.00 $29.44 $28.00 $28.84 $28.46 $27.94 $27.00 $27.68$27.90 $27.30 $26.95 $26.00
Slide 31: Valuing The Observatory
Valuing The Observatory SUM OF THE PARTS VALUES BOTH RENTAL REVENUE AND RESIDUAL PROFIT STREAMS Observatory Results – 4Q 2017 Trailing Twelve Months In $MM Revenue $127 Less Operating Expenses 30 NOI 97 Intercompany rent expense 78 NOI after intercompany rent $19 › If ESRT did not operate the Observ
Slide 32: Iconic NY Brand
Iconic NY 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 advertising value equivalent (AVE) annually representing › Top of the Rock effectively free advertising VS. › One WTC › 30 Hu
Slide 33: Holiday Light Show with Gwen Stefani
Holiday Light Show with Gwen Stefani MEDIA COVERAGE 748MM $0.9MM 50MM MEDIA IMPRESSIONS AD VALUE EQUIVALENCY SOCIAL MEDIA IMPRESSIONS 625MM 198MM MEDIA IMPRESSIONS SOCIAL MEDIA IMPRESSIONS Data for media impressions and ad value is from Cision and data for social media impressions is from Sysomos. 3
Slide 34: Strong and Flexible Balance Sheet
Strong and Flexible 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 34
Slide 35: 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 / EBITDA 3.5x 7.4x 4.0 3.5X 3.1X 3.0 2.0 Net Debt / 17% 40% Enterprise Value 1.0 0.0 2013 2014 2015 2016 2017 1 2013 based on fourth quarter EBITDA annualized. 2014, 2015, 201
Slide 36: Improved Balance Sheet Flexibility
Improved Balance Sheet Flexibility UNENCUMBERING THE PORTFOLIO Repaid $580 million in mortgage loans, adding approximately 5.9 million square feet to the unencumbered pool since IPO Repaid $580 million, At IPO including mortgage loans December 2017 99% 100% securing: 80% 59% 60% › Empire State Build
Slide 37: Debt Maturity
Debt Maturity WEIGHTED AVERAGE MATURITY INCREASED FROM 3.1 YEARS AT IPO TO 6.2 YEARS Prior DEBT MATURITY PROFILE (AT IPO OCTOBER 2013) ($ millions) $403 $381 $103 $193 $88 $92 $300 $0 $0 $0 $0 $0 $0 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 CURRENT DEBT MATURITY PROFILE (AS OF December
Slide 38: Support for Future Growth
Support for Future Growth BALANCE SHEET STRENGTH AND FLEXIBILITY Low Leverage Capital Structure1 › Net debt / enterprise value: 17% › Net debt / EBITDA: 3.5x Mortgage Debt Exchangeable Senior Unsecured Notes Senior › Interest coverage: 5.8x $721 mm $250 mm Unsecured Notes 9% 3% $465 mm › Attractive
Slide 39: ESRT Metrics Since IPO
ESRT Metrics Since IPO DAILY VOLUME, FLOAT, AND COMPARABLE PERFORMANCE Average Trading Volume in 2017: 852,657 shares Daily Average Trading Volume in 2016: 984,876 shares Volume Average Trading Volume in 2015: 844,333 shares Average Trading Volume in 2014: 590,317 shares Class A common shares now co
Slide 40: MetLife
MetLife = 2
Slide 41: Appendix: Reconciliation of Non-GAAP Financial Measures
Appendix RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Three Months Ended Year Ended Year Ended Period from 10/7/13 Dec 31, Sept 30, Jun 30, Mar 31, Dec 31, Sept 30, Jun 30, Mar 31, Dec 31, Dec 31, through Reconciliation of Net Income to NOI and Cash NOI 2017 2017 2017 2017 2016 2016 2016 2016 2015
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