Empire State Realty Trust, Inc. · NYSE:ESRT
Empire State Realty Trust — Investor Presentation (October 2019)
39 slides from Empire State Realty Trust's investor presentation, October 2019
Slide 1: Investor Presentation October 2019
Investor Presentation October 2019
Slide 2: Investor Highlights
Investor Highlights COMPETITIVE ADVANTAGES AND PROVEN PERFORMER › Fully modernized assets, central locations, easy access to mass-transit › Four drivers of growth deliver embedded upside › Market leading cash leasing spreads focused on Manhattan › Positioned, between trophy/class A and class B prope
Slide 3: Portfolio Overview
Portfolio Overview PURE-PLAY MANHATTAN AND GREATER NEW YORK METROPOLITAN AREA 10.1 Million Total Rentable Square Feet GNYMA Office 18.2% Retail 7.1% Manhattan Office 74.7% Office Properties Retail Properties Company data and filings as of September 30, 2019. 3
Slide 4: Varied Tenant Base
Varied Tenant Base DIVERSIFIED BY INDUSTRY High Quality Tenant Mix Other Non-Profit Consumer 12.5% GNYMA 3.9% Goods Office 20.4% 19.6% Media & Advertising 4.4% Technology Finance, 9.9% Insurance, Real Estate Manhattan Office 16.2% 80.4% Legal Services 5.0% Professional Retail Services 17.0% 10.7% In
Slide 5: Manhattan Portfolio Market Position
Manhattan Portfolio Market Position NEW LEASE 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 $142 PSF 1,2 › Asking rents of $94 PSF 1,2 › Well-located, red
Slide 6: Tenant Expansions Fuel Leases
Tenant Expansions Fuel Leases Cumulative Growth from Tenant Expansions 2,000,000 240 Number of Transactions 1,600,000 196 200 Square Footage 163 160 1,200,000 132 120 108 800,000 90 1,575,558 80 1,171,443 400,000 49 901,585 649,690 742,515 40 26 133,708 294,503 - - 2013 2014 2015 2016 2017 2018 9M 2
Slide 7: Four Drivers of Revenue Growth
Four Drivers of Revenue Growth 1 EMBEDDED UPSIDE Burn-off of free rent $25 M Signed leases Retail not commenced opportunity $21 M $5 M $97 Million4 Office mark-to- market opportunity3 Lease up of $16 M vacant redeveloped Manhattan office space2 $30 M 1 Amounts reflect management’s estimates of addit
Slide 8: 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 thousand 89.5% $340,000 89.0% $320,000 88.5% $300,000 88.0% $280,000 87.5% $260,000 87.0% $240,000 86.5% 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
Slide 9: Redevelopment Opportunity
Redevelopment Opportunity Tenant space to be redeveloped Empire State Building 170,000 SF Balance of Manhattan office portfolio 400,000 SF Total 570,000 SF Probable Renovations of Undeveloped Space in 2019-20231 200,000 130,000 SF 125,000 SF 100,000 50,000 SF 10,000 SF 5,000 SF (SF) 0 4Q 2019 2020 2
Slide 10: 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 entirely to three tenants 10
Slide 11: 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 UNL
Slide 12: Demonstrating Net Effective Rent Growth
Demonstrating Net Effective Rent Growth IN NEW MANHATTAN OFFICE TTM Net Effective Rent Growth on a YoY Basis 1,2 20.0% 17.8% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.2% 5.5% 5.5% 6.0% 5.0% median 4.0% 1.9% 2.0% 0.0% 3Q 2018 4Q 2018 1Q 2019 2Q 2019 3Q 2019 1 Company data on weighted average new Manhattan
Slide 13: Superior Cash Leasing Spreads
Superior Cash Leasing Spreads ILLUSTRATES MARK TO MARKET OPPORTUNITY Strong NYC office leasing spreads1 Strong NYC office leasing spreads All leases Q3 2019 New leases Q3 2019 All leases Q3 2019 average $ 73.64 $ 71.36 35.0% 30.9% 30.0% $ 56.26 $ 53.83 25.0% 20.0% 15.0% 10.0% 5.0% 3.5% 0.0% Prev. Ne
Slide 14: Fortress Balance Sheet
Fortress Balance Sheet SIGNIFICANT CASH, LINE AVAILABILITY AND LOW LEVERAGE 3.8x 24% $294MM $1.1BN+ Net Debt / Net Debt / Cash and S-T Unsecured EBITDA Enterprise Value Investments Credit Facility 100% 4.03% 8.5 years 79% of SF Fixed Rate Weighted Avg. Weighted Avg. Unencumbered Outstanding Debt Int
Slide 15: Best in Class Balance Sheet
Best in Class Balance Sheet MEETS NEEDS AND SUPPORTS GROWTH PEERS1 Net Debt / EBITDA 3.8x 7.5x Net Debt / 24% 43% Enterprise Value CURRENT DEBT MATURITY PROFILE (AS OF SEPTEMBER 30, 2019) ($ millions) $663 $203 $319 $265 $460 $100 $194 $146 $78 $50 $125 $115 2019 2020 2021 2022 2023 2024 2025 2026 2
Slide 16: Observatory Performance
Observatory Performance CONSISTENT PERFORMANCE THROUGH ECONOMIC CYCLE AND NEW ATTRACTIONS 3 One World Observatory Observatory annual revenue1 (millions) Opens 1.6 Million Visitors (estimated 2018) 2001 – 2018 CAGR 9/11 Museum Opens 2 10.2% 3.2 Million Visitors $131.2 (estimated 2018) $127.1 $124.8 $
Slide 17: Observatory is a Global Brand
Observatory is a Global Brand 79% OF VISITORS DECIDE TO VISIT BEFORE LEAVING HOME1 International vs. Domestic1: What Differentiates the ESB 64% International 36% Domestic › 87 years of popular cultural references make ESB a Global Age Group1: brand 49% 18-34 years old › ESRT invests in strategies to
Slide 18: Observatory Ticket Mix
Observatory Ticket Mix ACTIVE MANAGEMENT OF TICKET MIX TO DRIVE REVENUE PER CAPITA Direct sales at full price is Introduction of variable Offering different largest source pricing during peak experiences to capture demand incremental demand Growth in Observatory Revenue Per Capita1,2 $34.00 $33.00 $
Slide 19: Management Team
Management Team EXPERIENCED AND COMMITTED Anthony E. Malkin John B. Kessler Thomas P. Durels Thomas N. Keltner, Jr. Chairman & President & Chief Executive Vice President, Executive Vice President, Chief Executive Officer Operating Officer Real Estate General Counsel 31 years with ESRT 5 years with E
Slide 20: Appendix
Appendix
Slide 21: ESG Drives Long Term Value
ESG Drives Long Term Value SNAPSHOT OF REPRESENTATIVE INITIATIVES Environmental / Sustainability • Tenants Lease Requirements and Engagement Program • Focus on Energy, Water, Waste and IEQ • Exceed Requirements of the 2024 Threshold Under NYC’s Climate Mobilization Act • Sustainability Committee Led
Slide 22: Sustainability Leader
Sustainability Leader LEADER IN INVESTMENT AND RETURN ORIENTATED SUSTAINABILITY PRACTICES › Focus on quantifiable transparent results › Our key performance indicators (KPIs) focus on: • Reduction in energy consumption • Water use reduction • Waste management and recycling Tenant Energy • Indoor envi
Slide 23: Sustainability In Action
Sustainability In Action SAMPLE INITIATIVES FROM FOUR FOCUS AREAS 23
Slide 24: Creating Value Through Sustainability
Creating Value Through Sustainability EMPIRE STATE BUILDING CASE STUDIES 3 Tenant Energy Optimization Projects Examples Global Brands › Annual savings of Tenant Coty Group LinkedIn $4.4 M Energy reduction 31% 12% 38% › 3.1 year payback ROI over lease › Energy Star 811 328% 126% 93% term › Quantifiab
Slide 25: 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 2019 2020 2021 2022 Cash Rent Commenced leases in $24.785 M $1.342 M $20.448
Slide 26: Signed Leases Not Commenced (SLNC)
Signed Leases Not Commenced (SLNC) SIGNED LEASES NOT COMMENCED (SLNC) SCHEDULE 9/30/19 Expected Base Rent Incremental New Annual Tenant SF Escalated Commencement Annual Rent Annual Rent GAAP Cash Revenue Distinguished Concerts 17,644 $0.00 M $1.18 M Oct. 2019 Jan. 2020 $1.18 M International LLC Inst
Slide 27: Vacant Office Space
Vacant Office Space Current vacancy / Redeveloped vacancy (Manhattan Office) 600,000 SF / 472,000 SF Weighted average starting rent (Manhattan Office) $64 PSF MANHATTAN OFFICE PORTFOLIO CURRENT VACANT SPACE SQ FEET Redeveloped Manhattan office space 472,000 Prebuilt Signed Leases Not Commenced (SLNC
Slide 28: Manhattan Office Mark to Market
Manhattan Office Mark to Market CURRENT 2019 MARKET RENT VS. CURRENT FULLY ESCALATED RENT 3 mos 12 mos 12 mos 12 mos 12 mos 9 mos 2019 2020 2021 2022 2023 2024 Current fully $53 $56 $56 $58 $57 $57 escalated rent PSF1 Leased square feet 154,277 437,614 425,962 392,252 504,660 324,384 expiring2 Weigh
Slide 29: Greater NY Office Mark to Market
Greater NY Office Mark to Market CURRENT 2019 MARKET RENT VS. CURRENT FULLY ESCALATED RENT 3 mos 12 mos 12 mos 12 mos 12 mos 9 mos 2019 2020 2021 2022 2023 2024 Current fully escalated $37 $52 $46 $38 $47 $45 rent PSF1 Leased square feet 177,451 143,542 237,772 131,159 120,187 182,716 expiring2 Weig
Slide 30: Retail Mark to Market and Vacant Space
Retail Mark to Market and Vacant Space CURRENT 2019 MARKET RENT VS. CURRENT FULLY ESCALATED RENT 3 12 12 12 12 9 months months months months months months Vacant 2019 2020 2021 2022 2023 2024 Current fully escalated rent N/A $306 $111 $157 $153 $130 $224 PSF1 Leased square feet 40,745 6,865 41,492 3
Slide 31: Observatory Ticket Mix
Observatory Ticket Mix ACTIVE MANAGEMENT OF TICKET MIX TO MAXIMIZE MARGINS Retail Pricing – starting at Adult1 Main Deck (86th Floor) & 2nd Floor Museum2 $38.00 AM/PM Experience (86th Floor) & 2nd Floor Museum2 $55.00 102nd Deck, Main Deck (86th Floor) & 2nd Floor Museum2 $58.00 Main Deck (86th Floo
Slide 32: Valuing The Observatory
Valuing The Observatory SUM OF THE PARTS VALUES BOTH RENTAL REVENUE AND RESIDUAL PROFIT STREAMS Observatory Results – 3Q 2019 Trailing Twelve Months In $MM Visitor Revenue 120 (1) Gift Shop License Fee 6 Total Revenue 126 Less Operating Expenses 34 NOI 92 Less Intercompany rent expense 79 NOI after
Slide 33: Tenants Relocating to ESRT
Tenants Relocating to ESRT ATTRACTED TENANTS FROM ALL PARTS OF NYC AND BEYOND OVER PAST 12 MONTHS From Outside Manhattan 14 Tenants Representing 77,498 SF From Midtown (West) (Madison/Fifth, Penn Station/ Times Square South, Rockefeller Center, West Side) 14 Tenants Representing 90,864 SF From Midto
Slide 34: 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 35: Empire State Building CoBranding Case Study
Empire State Building CoBranding Case Study 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 Media impressions is based on U.S. print, online, and broadcast outlets; exclud
Slide 36: 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 › Amenities update 684 Stop Norwalk 95 underway White Plains Stamford › 12.0% of 3Q 2019 287 property NOI / 18.2% of total SF › 88.0%
Slide 37: Reconciliation of Non-GAAP Measures
Reconciliation of Non-GAAP Measures Three Months Ended Year Ended Reconciliation of Net Income to NOI September 30, June 30, March 31, December 31, September 30, June 30, March 31, Dec 31, and Cash NOI 2019 2019 2019 2018 2018 2018 2018 2017 Net Income $ 26,784 $ 18,930 $ 9,856 $ 39,781 $ 29,230 $ 3
Slide 38: Reconciliation of Non-GAAP Measures
Reconciliation of Non-GAAP Measures Three Months Ended Twelve Months September 30, June 30, March 31, December 31, to Date 2019 2019 2019 2018 Rental revenue $ 504,163 $ 129,098 $ 125,170 $ 126,634 $ 123,261 Tenant expense reimbursement 73,557 21,127 15,901 16,783 19,746 Deduct: Straight-line rental
Slide 39: 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. For these statements, we claim the protections of the safe harbor for forward-looking st
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