Sunday, 29 September 2013

Empire State Building

Investors can finally own a piece of the Empire State Building. The Empire State will be a part of a real estate investment trust that will list with 100% exposure to Manhattan and Greater NY Metropolitan market offices and retail. The portfolio of buildings has been assembled over an 80 year period which has been consolidated into one public company. What makes this company special is not only the Empire State Building but the observatory.

Even the famous antenna makes money
The Empire State Building is the flagship property and accounted for 45.5% of total pro forma revenues for the six months ended June 30, 2013. Included in this number was the observatory which on its own contributed 18% of revenues in 2012. Last year 4.15 million visitors took the lifts up to the 86th and 102nd floor observatories. Over the past 5 years ticket prices have increased from $15.47 to $20.21. The observatory does show some tourism cyclicality with negative growth in 2001 and 2009 but has tended to grow at a low double digit pace.




Remember the famous antenna that King Kong climbed, well that antenna made $17.1million last year luckily he didn’t break it. The building has 150 antennas which are licensed to 35 third party television and radio broadcasters and made up 9.5% of the Empire buildings revenue. These customers include CBS, Univision, FOX, ABC and NBC.



King Kong lego style at New York Toys R Us


What else do they own?
As of June 30, 2013, they owned 12 office properties (including one long-term ground leasehold interest) encompassing approximately 7.7 million rentable square feet of office space, which were approximately 83.5% leased.

Why list? Upgrades are needed
The company currently estimates that between $95.0 million and $125.0 million is needed beyond 2013 to complete substantially the renovation program at the Empire State Building. This is expected to be finished by the end of 2016. The goal is to re position the building for new higher credit quality tenants including Linkedin, Coty and even Shutterstock.

The risks are tenant concentration. Currently LF USA, Coty, Inc., Legg Mason, Warnaco, a subsidiary of PVH Corp, and Thomson Reuters are the largest customers. Together they represented 22.2% of the portfolio’s base rent as of June 30, 2013.

At the end of the day what is special about this listing is the Empire State Building. If King Kong wants it it must be special!

Jason

Disclosure: Decisive has no long position in Empire State Realty Trust (ESRT) stock 

The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.