Empire State Realty Trust, Inc. · NYSE:ESRT
Empire State Realty Trust — Q1 2020 Earnings Presentation
41 slides from Empire State Realty Trust's earnings presentation, Apr 23, 2020
Slide 1: Empire State Realty Trust Investor Presentation April 2020
EMPIRE STATE REALTY TRUST Investor Presentation April 2020
Slide 2: Investor Highlights
Investor Highlights COMPETITIVE ADVANTAGES Growth >» $50 million in contracted revenue growth represents embedded upside >» Market leading cash leasing spreads focused on Manhattan » Positioned, between trophy/class A and class B properties, to outperform in any market Quality * Fully modernized ass
Slide 3: Portfolio Overview
Portfolio Overview PURE-PLAY MANHATTAN AND GREATER NEW YORK METROPOLITAN AREA 10.1 Million Total Rentable erm st J the Gotham By Square Feet ‘000 77TH ST °e ~ osrh st ° q o a [1010 Third avenue ay 2 fo 5 Z Manhattan Office 74.7% aiTHst © 25st ee0ce0e eco Office Properti: Company data and filings as
Slide 4: Varied Tenant Base
Varied Tenant Base DIVERSIFIED BY INDUSTRY High Quality Tenant Mix JCDecaux = Shutterstock I G Non-Profit Consumer Interpublic Group 3.9% Goods Media & Advertising 20.2% PartnerRe ° 7 4.3% Linked[f]. <>” ° — — Legal Services 4.8% EMPIRE STATE REALTY TRUST Finance, Insurance, Real Estate 17.3% HNTB a
Slide 5: New Lease Asking Rents
NEW LEASE ASKING RENTS Well-located, redeveloped properties New Build and Aged Trophy Class A costs more; Class B offers less Asking rents from $56 PSF to $86 PSF 1For Midtown Manhattan direct spaces only. 2 Source: Cushman & Wakefield custom research as of April 15, 2020. EMPIRE STATE
Slide 6: Tenant Expansions Fuel Leases
Tenant Expansions Fuel Leases Cumulative Growth from Tenant Expansions 2,000,000 1,600,000 1,200,000 800,000 Square Footage 400,000 2013 2014 2015 2016 » We focus on tenants which have potential for growth >» Tenants expand due to: Tenant service Proven execution Newly redeveloped buildings Combinat
Slide 7: Contracted Revenue Growth
Contracted Revenue Growth EMBEDDED UPSIDE $60 Timing Realization: * $50 M of contractual revenue! * 2020: $16M * 2021: $24M * 2022+: $10M $50 wf a fo) Cin millions) Ff WN fo) $0 = Burn-off of free rent Signed leases not commenced ‘The Company as of 12/31/19 projected an additional $47M of additional
Slide 8: April 2020 Rent Collection Update
April 2020 Rent Collection Update ¢ As of April 20th, 2020, we have collected: °* 69% of rents overall * 73% of rents from office tenants * 46% of rents from retail tenants * As areference, March 2020 rent collections through March 20*, 2020 were approximately 92% ¢ As of April 20th, 2020, 170 tenan
Slide 9: April Rent Collection / Security
April Rent Collection / Security ¢ We have security deposits from 526 tenants, that in aggregate total 33% of annualized fully escalated rent ° Deposits range up to 35 months with a median tenor of three months * The application of security deposits held in cash or letters of credit increases our to
Slide 10: Rent Deferral Request SOP
Rent Deferral Request SOP COMPREHENSIVE PROCESS IN PLACE Tenant requests for deferral of rent or other relief are replied to as follows: ¢« Please provide: An explanation of Covid-19 impact on their business. Steps taken, or planned, to mitigate that impact. Financial statements to compare 2019 to 2
Slide 11: Delivering on Cash NOI Growth
Delivering on Cash NOI Growth MANAGEMENT TEAM HAS DELIVERED Cash NOI Growth Even With Fluctuating Occupancy! $400,000 90.5% $380,000 90.0% —_ $360,000 89.5% $340,000 89.0% $125M in $320,000 88.5% 6 | Cash $300,000 88.0% NO! Growth $280,000 87.5% $260,000 87.0% $240,000 86.5% a ar © © & © © oo ID _@
Slide 12: Redevelopment Opportunity
Redevelooment Opportunity Tenant space to be redeveloped Empire State Building 140,000 SF Balance of Manhattan office portfolio 330,000 SF Total 470,000 SF 60% of Remaining Redevelopment Work is Scheduled to be Completed by the End of 2024! 200,000 115,000 SF 100,000 60,000 SF 60,000 SF 40,000 SF 5,
Slide 13: Creating Full Floor Availabilities
Creating Full Floor Availabilities EMPIRE STATE REALTY TRUST REDEVELOPMENT CASE STUDY Floors 55-58 originally had 42 tenants Adjacent tenants are grouped by lease expiration dates Spaces are vacated as expired leases are not renewed Floors 55-58 leased entirely to three tenants 13
Slide 14: Superior Returns from Redevelopment
Superior Returns from Redevelooment 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 $28 $19 TOTAL INVESTMENT $189 $206 TTM WEIGHTED AVERAGE UNL
Slide 15: Net Effective Rent Growth
Net Effective Rent Growth NEW MANHATTAN OFFICE LEASING, WHICH COMPRISES 80% OF MANHATTAN VOLUME TTM Net Effective Rent Growth on a YoY Basis ' 20.0% 17: 18.0% 8% 16.0% 14.8% 14.0% 12.3% 12.3% a a a =—median 10.0% 8.0% 6.2% 6.0% 5.5% 4.0% 2.0% 0.0% 1Q 2019 2Q 2019 3Q 2019 4Q 2019 1Q 2020 1™Company da
Slide 16: Superior Cash Leasing Spreads
Superior Cash Leasing Spreads ILLUSTRATES MARK TO MARKET OPPORTUNITY Strong NYC office cash leasing spreads Strong NYC office cash leasing spreads Q1 2020 Total portfolio leases New, renewal and expansion Manhattan office portfolio leases 3.4% 12.6% New Manhattan office portfolio leases Company data
Slide 17: Significant Cash, Line Availability and Low Leverage
SIGNIFICANT CASH, LINE AVAILABILITY AND LOW LEVERAGE $1.5BN+ Total Liquidity 35.5% Available $550M Net Debt / Available under : Unsecured Credit Enterprise Value Facility’ 78% 7.2 years Fixed Rate Weighted Avg. Outstanding Debt Debt Maturity '1$550 million drawn under $1.1 billion unsecured credit f
Slide 18: Strong and Flexible Balance Sheet
Strong and Flexible Balance Sheet MEETS NEEDS AND SUPPORTS GROWTH EMPIRE STATE REALTY TRUST Net Debt / EBITDA! 4.4x Net Debt / t 35.5% | Enterprise Value’ CURRENT DEBT MATURITY PROFILE (As Of March 31, 2020)? ($ millions) $838 $315 $319 $225 [| = $78 — a 2020 2021 2022 2023 2024 2025 2026 2027 2028
Slide 19: Observatory Performance
Observatory Performance CONSISTENT PERFORMANCE AMID ECONOMIC CYCLES, FX MOVEMENTS AND NEW ATTRACTIONS One World Observatory. Opens (1.0 Million Visitors Observatory annual revenue! (millions) : estimated 2019) ?°9/11 Museum Opens 2 (3.1 Million Visitors! $1312 sio8.8° E ay $124.8 a. 5 $112.2 Peeeeee
Slide 20: Hypothetical Observatory Reopening
Hypothetical Observatory Reopening Monthly Admissions: Equivalent Quarterly Weighted Average . . _ Admissions: * For discussion purposes, we utilize a reopen date of July 1st, 2020! * We use 2019 attendance numbers for comparison purposes 3Q 2020: 32.7% of 2019 level * 4Q 2020: 40% * 1Q2021: 40% * 2
Slide 21: Observatory Expense Reductions
Observatory Expense Reductions We have reduced our annualized expense run-rate by 60% from $35M in Feb. 2020 to $14 million in May 2020. ¢ Two-thirds of the reduction is due to lower payroll expenses. * The balance is due to lower marketing and other costs. e Remaining run-rate includes management,
Slide 22: Observatory is a Global Brand
Observatory is a Global Brand 80% OF VISITORS DECIDE TO VISIT BEFORE LEAVING HOME! Demographics': What Differentiates the ESB 64% International, 36% Domestic > Global and Iconic brand built 47% of Visitors are 18-34 years through: old Top Foreign Countries!: ° 88 years of popular cultural references
Slide 23: Observatory Ticket Mix
Observatory Ticket Mix ACTIVE MANAGEMENT OF TICKET MIX TO DRIVE REVENUE PER CAPITA Direct sales at full price is Premium experience largest source offerings capture incremental revenue Growth in Observatory Revenue Per Capital.2 1 Revenue per Capita equals: a) Observatory revenue less the fixed lice
Slide 24: Management Team
Anthony E. Malkin Chairman & Chief Executive Officer 31 years with ESRT 31 years in industry AB. from Harvard College Management Team EXPERIENCED AND COMMITTED John B. Kessler President & Chief Operating Officer 5 years with ESRT 31 years in industry AB. from Harvard College and M.B.A. from the Boot
Slide 25: Appendix
Slide 26: ESG Drives Long Term Value
ESG Drives Long Term Value SNAPSHOT OF REPRESENTATIVE INITIATIVES ___ Environmental / Sustainability ¢ Lowest kgCO2 psf of New York City office REITS' «Below Requirements of the 2024-2029 Threshold Under NYC’s Climate Mobilization Act Local Law 97 ¢ Water Consumption, Electricity Consumption, Greenh
Slide 27: ESG Actions
ESG Actions med Patricia S. Han joined ESRT Board ¢ Expands Board to 8 members * Brings over 20 years of experience in the tech and media industry ¢ Expertise in digital media and e-commerce will aid in areas critical to our businesses Chairman and CEO Anthony E. Malkin is Industry Sustainability Le
Slide 28: Sustainability In Action
= ROldriven Energy Conservation Measure development and implementation = Energy Star and Energy Star for Tenant Spaces = Real-Time Energy Management = Tenant Energy Audits = Tenant Energy Management Software Programs = 100% Renewable Energy at Empire State Building = High Performance Design & Constr
Slide 29: Free Rent Burn-Off and SLNC
Free Rent Burn-Off and SLNC SUMMARY COMMENCED LEASES IN FREE RENT PERIOD AND SIGNED LEASES NOT COMMENCED (SLNC) SCHEDULE Base Cash Rent Contributing to Cash NOI in the Following Years Annualized Initial Base Total Portfolio 2020 2021 2022 2023 Cash Rent Commenced leases in free rent period $27.570M
Slide 30: Signed Leases Not Commenced
Signed Leases Not Commenced SIGNED LEASES NOT COMMENCED SCHEDULE Tenant Interpublic Group of Companies, Inc. Uber Technologies, Inc. Concord Music Group, Inc. Kaplan Hecker & Fink LLP First Republic Bank LinkedIn Corporation LinkedIn Corporation LinkedIn Corporation LinkedIn Corporation LinkedIn Cor
Slide 31: Vacant Office Space
Vacant Office Space Current vacancy / Redeveloped vacancy (Manhattan Office) 563,000 SF / 467,000 SF MANHATTAN OFFICE PORTFOLIO CURRENT VACANT SPACE SQ FEET Redeveloped Manhattan office space 467,000 200 000EE Signed Leases Not Commenced (SLNC): “7 Manhattan Office Properties SLNC 191,000 Greater Ne
Slide 32: Manhattan Office Mark to Market
Manhattan Office Mark to Market CURRENT FULLY ESCALATED RENT AND LEASE EXPIRATIONS'! 9 mos 12 mos 12 mos 12 mos 2020 2021 2022 ~—.2023 Current fully escalated areas $53 $56 $59 $59 Leased square feet 314,319 428,098 386,466 531,176 expiring ‘Because of uncertain market conditions, there is no refere
Slide 33: Greater NY Office Mark to Market
Greater NY Office Mark to Market CURRENT FULLY ESCALATED RENT AND LEASE EXPIRATIONS'! 9 mos 12 mos 12 mos 12 mos 2020 2021 2022 2023 Current fully escalated rent PSF2 $50 $44 $38 $47 Leased square feet rings 166,790 21,165 133,636 119,834 'Because of uncertain market conditions, there is no referenc
Slide 34: Retail Mark to Market and Vacant Space
Retail Mark to Market and Vacant Space CURRENT FULLY ESCALATED RENT AND LEASE EXPIRATIONS'! Current fully escalated rent PSF2 Leased square feet expiring? 9 months Vacant 2020 N/A $136 42,983 19,696 12 months 2021 $158 32,149 | Because of uncertain market conditions, there is no reference to current
Slide 35: Observatory Valuation
Observatory Valuation SUM OF THE PARTS VALUES BOTH RENTAL REVENUE AND RESIDUAL PROFIT STREAMS Observatory Results -Trailing Twelve Months2 In $MM Visitor Revenue 126 Gift Shop License Fee 6° Total Revenue 132 Less Operating Expenses 35 NOI 97 Less Intercompany rent expense 85 NOI after intercompany
Slide 36: Observatory Brand Actions Post-COVID
Observatory Brand Actions Post-COVID 19 Continued Social Media Engagement > Driven higher organic post performance from our new initiatives We have posted inspirational quotes to keep spirits high during the crisis; these posts have consistently performed extremely well with higher saves and higher
Slide 37: Observatory social media and media coverage
*) empirestatebldg © + Following my ‘empirestatebldg © We ir ght through th y 7ayv A ied by abbywinsloww and 17,357 others i jot S ACL GAYA Ehe New York Zimes @ usa TODAY ‘Amount reflects combined impressions for messaging of the Observatory siren, sparkle and moment of darkness. Media impressions a
Slide 38: Norwalk Stamford White Plains
Highway Metro-North Railroad Metro-North Train Stop 684 Norwalk 95 Stamford White Plains 287 Harrison ~30 miles to Midtown Manhattan 10 Bank Street 500 Mamaroneck Avenue First Stamford Place Metro Center 383 Main Avenue
Slide 39: Reconciliation of Net Income to NOI and Cash NOI
Three Months Ended Year Ended Reconciliation of Net Income to NOI March 31, December 31, September 30, June 30, March 31, December 31, September 30, June 30, Dec 31, and Cash NOI 2020 2019 2019 2019 2019 2018 2018 2018 2017 Net Income $ 8,288 $ 28,720 $ 26,784 $ 18,930 $ 9,856 $ 39,781 $ 29,230 $ 30
Slide 40: Total cash revenues reconciliation
Three Months Ended Twelve Months March 31, December 31, September 30, June 30, to Date 2020 2019 2019 2019 Rental revenue $ 515,079 $ 130,577 $ 130,234 $ 129,098 $ 125,170 Tenant expense reimbursement 76,031 17,536 21,467 21,127 15,901 Deduct: Straight-line rental revenues (22,846) (8,193) (6,276) (
Slide 41: Forward-looking statements
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. For these statements, we claim the protections of the safe harbor for forward-looking statements co
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