Empire State Realty Trust, Inc. · NYSE:ESRT
Empire State Realty Trust — Q2 2018 Earnings Presentation
43 slides from Empire State Realty Trust's earnings presentation, 2018
Slide 1: Second Quarter 2018
EMPIRE STATE Se arpel an Cae
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 and market leading leasing spreads › Fully modernized assets, centrally located near mass- transit and heavily amenitized › Secure market position between trophy/class A and class
Slide 4: Manhattan Portfolio Proposition
Manhattan Portfolio Proposition DOMINANT POSITION 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 $125F 1,2 › Asking rents of $94 PSF 1,2 › Well-located, redeveloped pro
Slide 5: 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 March
Slide 6: Varied Tenant Base
Varied Tenant Base DIVERSIFIED BY INDUSTRY Non-Profit 4.6% Other Consumer 12.4% Goods 21.2% Media & Advertising 4.3% Technology 8.9% Finance, Insurance, Real Estate Legal Services 17.1% 3.7% Retail 17.4% Professional Services 10.4% Industry diversification by annualized fully escalated rent. Company
Slide 7: Growth from Tenant Expansions
Growth from Tenant Expansions › We have had 143 tenant expansions within our portfolio totaling over 943,000 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 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 Signed leases $22 M not commenced $21 M Retail $97 opportunity Million4 $11 M Lease up of vacant Office mark-to- redeveloped market Manhattan opportunity3 office space2 $15 M $28 M 1 Amounts reflect management’s estimates of a
Slide 10: Free Rent Burn-Off and Signed Leases Not Commenced
Free Rent Burn-Off and Signed Leases Not Commenced Cumulative Contribution to Annualized Base Rent in the Following Years: Annualized Initial Base Total Portfolio 2018 2019 2020 2021 Cash Rent Commenced leases in $22.17 M $7.47 M $21.22 M $22.17 M $22.17 M free rent period Signed leases not 21.42 M
Slide 11: Superior Leasing Spreads
Superior Leasing Spreads ILLUSTRATES MARK TO MARKET OPPORTUNITY Manhattan office leasing spreads Strong re-leasing spreads Trailing 4 quarters Q1 2018 average3 All leases Q1 2018 New leases Q1 2018 1 Compared to peer group $ 59.51 35.0% 32.5% $ 57.29 $ 51.44 30.0% $ 48.05 25.0% 20.0% 15.0% 10.2% 10.
Slide 12: Manhattan Office Mark to Market
Manhattan Office Mark to Market CURRENT 2018 MARKET RENT VS. CURRENT FULLY ESCALATED RENT 9 mos 12 mos 12 mos 12 mos 12 mos 3 mos 2018 2019 2020 2021 2022 2022 Current fully escalated rent $54 $52 $54 $52 $55 $57 PSF1 Leased square feet expiring2 437,807 492,440 588,352 450,664 350,266 62,343 Weight
Slide 13: Redevelopment Opportunity
Redevelopment Opportunity EMBEDDED, DE-RISKED GROWTH Tenant space to be redeveloped Empire State Building 240,000 SF Balance of Manhattan office portfolio 650,000 SF Total 890,000 SF Probable Renovations of Undeveloped Space in 2018-20221 200,000 170,000 SF 146,000 SF 100,000 SF 100,000 SF 100,000 5
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 $91 $133 Leasing commission $28 $18 TOTAL INVESTMENT $183 $205 TTM WEIGHTED AVERAGE RET
Slide 16: Tenant Lease Expirations
Tenant Lease Expirations WELL-LADDERED MANHATTAN OFFICE PORTFOLIO LEASE EXPIRATIONS1 56.5% 8.4% 6.6% 7.8% 4.3% 5.8% 6.0% 4.6% Available SLNC 2018 2019 2020 2021 2022 Thereafter 1 Based on rentable square footage. Company data and filings as of March 31, 2018. 16
Slide 17: Vacant Office Space
Vacant Office Space Current vacancy / Redeveloped vacancy (Manhattan Office) 632,000 SF / 461,000 SF Weighted average starting rent (Manhattan Office) $60 PSF MANHATTAN OFFICE PORTFOLIO CURRENT VACANT SPACE SQ FEET Signed Leases Not Commenced (SLNC): Manhattan Office Properties SLNC 327,000 Prebuilt
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 13 Tenants Representing 172,542 SF From Midtown (West) (Madison/Fifth, Penn Station/ Times Square South, Rockefeller Center, West Side) 23 Tenants Representing 198,767 SF From Mi
Slide 19: 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) $124.8 $127.1 $111.5 $112.2
Slide 20: Who Visits the Observatory?
Who Visits the Observatory? 80% OF VISITORS DECIDE TO VISIT BEFORE LEAVING HOME International vs. Domestic: 64% International, 36% Domestic Domestic Age Group: 36% International 52% 18-34 years old 64% Male vs. Female: 58% Female, 42% Male Top 6 foreign countries: England/ Scotland/ France Canada Ch
Slide 21: Observatory Ticket Mix
Observatory Ticket Mix ACTIVE MANAGEMENT OF TICKET MIX TO MAXIMIZE MARGINS Growth in Observatory Revenue Per Capita1 Direct sales at $32.00 $31.00 full price is $30.00 Per capita 1Q 2018 largest source TTM lower; 102nd floor closed to $29.00 replace elevator. $28.00 $27.00 $26.00 $25.00 $24.00 Intro
Slide 22: Valuing The Observatory
Valuing The Observatory SUM OF THE PARTS VALUES BOTH RENTAL REVENUE AND RESIDUAL PROFIT STREAMS Observatory Results – 1Q 2018 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 23: Retail Opportunity
Retail Opportunity › 712,060 SF of total retail space › 89.7% occupied / 91.4% leased › Annualized fully escalated rent of $90.9 million › 61,228 SF of retail space available to lease, including 22,530 SF of ground floor space, in 5 high traffic locations • 1400 Broadway, One Grand Central Place, Em
Slide 24: Retail Mark to Market and Vacant Space
Retail Mark to Market and Vacant Space CURRENT 2018 MARKET RENT VS. CURRENT FULLY ESCALATED RENT 9 12 12 12 12 3 months months months months months months Vacant 2018 2019 2020 2021 2022 2023 Current fully escalated rent N/A $133 $147 $126 $155 $149 - PSF1 Leased square feet expiring2 61,228 6,338 2
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: 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 EBITDA 3.5x 8.0x 3.5X 3.5X 3.1X 3.0 2.0 Net Debt / 20% 44% 1.0 Enterprise Value 0.0 Year Year Year Year Year Period Ended Ended Ended Ended Ended Ended 2013 2014 2015 20
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 $844 million, including mortgage loans At IPO securing: March 2018 100% 99% › Empire State Building 100% 79% 80
Slide 29: Debt Maturity
Debt Maturity WEIGHTED AVERAGE MATURITY INCREASED FROM 3.1 YEARS AT IPO TO 8.8 YEARS CURRENT DEBT MATURITY PROFILE (AS OF MARCH 2018) ($ millions) $808 $233 $250 $319 $575 $265 $194 $78 $100 $50 $125 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 and thereafter Unsecured private placement Mo
Slide 30: Support for Future Growth
Support for Future Growth BALANCE SHEET STRENGTH AND FLEXIBILITY Low Leverage Capital Structure1 › Net debt / enterprise value: 20% › Net debt / EBITDA: 3.5x Mortgage Debt Exchangeable Senior Unsecured Notes › Interest coverage: 4.4x $617 mm $250 mm Senior 9% 4% Unsecured Notes › Attractive in place
Slide 31: 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 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 › 14.0% of 1Q 2018 NOI / Stamford 18.4% of total SF White Plains › 90.8% occupied / 91.0% 287 le
Slide 34: Tenant Lease Expirations
Tenant Lease Expirations GREATER NY METROPOLITAN PORTFOLIO LEASE EXPIRATIONS1 41.1% 11.9% 10.9% 11.3% 9.0% 9.1% 6.5% 0.2% Available SLNC 2018 2019 2020 2021 2022 Thereafter 1 Based on rentable square footage. Company data and filings as of March 31, 2018. 34
Slide 35: Greater NY Office Mark to Market
Greater NY Office Mark to Market CURRENT 2018 MARKET RENT VS. CURRENT FULLY ESCALATED RENT 9 mos 12 mos 12 mos 12 mos 12 mos 3 mos 2018 2019 2020 2021 2022 2023 Current fully escalated rent $40 $37 $44 $44 $37 $31 PSF1 Leased square feet expiring2 170,655 222,824 203,761 210,934 121,876 27,391 Weigh
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: Phantom of the Opera 30th Anniversary Music-to-Light Show
Phantom of the Opera 30th Anniversary Music-to-Light Show MEDIA COVERAGE 180MM $0.5MM 919K MEDIA IMPRESSIONS AD VALUE EQUIVALENCY SOCIAL MEDIA IMPRESSIONS 625MM MEDIA IMPRESSIONS Andrew Lloyd Weber and Cameron Mackintosh “Flip the Switch” Data for media impressions and ad value is from Cision and da
Slide 38: Delivered on Promises
Delivered on Promises EXECUTED ON LEASING Steady Cash NOI Q1 2018 Even With Fluctuating Occupancy $400,000 90.0% › 259,530 SF of leasing 89.5% › 23.8% spreads $360,000 thousand 89.0% achieved on new 88.5% Manhattan office $320,000 88.0% leases 87.5% › 11.6% 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 2018YTD: 1,244,860 shares Daily Average Trading Volume in 2017: 852,657 shares Volume Average Trading Volume in 2016: 984,876 shares Average Trading Volume in 2015: 844,333 shares Average Trading Volume
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
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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 March 31, December 31, September 30, June 30, March 31, Dec 31, Dec 31, Dec 31, through and Cash NOI 2018 2017 2017 2017 2017 2016 2015 2
Slide 43: Appendix
Appendix RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Three Months Ended Twelve Months March 31, December 31, September 30, June 30, March 31, Trailing Twelve Months Cash Revenue to Date 2018 2017 2017 2017 2017 Rental revenue $ 489,142 $ 122,311 $ 123,596 $ 122,391 $ 120,844 $ 117,113 Tenant expen
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