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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 30, 2022
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-36105
EMPIRE STATE REALTY TRUST, INC.
(Exact name of Registrant as specified in its charter)
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Maryland | | 37-1645259 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
111 West 33rd Street, 12th Floor
New York, New York 10120
(Address of principal executive offices) (Zip Code)
(212) 850-2600
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of Securities | Trading Symbol | Exchange on which traded |
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Class A Common Stock, par value $0.01 per share | ESRT | The New York Stock Exchange |
Class B Common Stock, par value $0.01 per share | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☒ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 28, 2022, there were 160,428,938 shares of Class A Common Stock, $0.01 par value per share, outstanding and 992,051 shares of Class B Common Stock, $0.01 par value per share, outstanding.
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| EMPIRE STATE REALTY TRUST, INC. | |
| FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2022 | |
| TABLE OF CONTENTS | PAGE |
PART 1. | FINANCIAL INFORMATION | |
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ITEM 1. | FINANCIAL STATEMENTS | |
| Condensed Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021 | |
| Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021 (unaudited) | |
| Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2022 and 2021 (unaudited) | |
| Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2022 and 2021 (unaudited) | |
| Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (unaudited) | |
| Notes to Condensed Consolidated Financial Statements (unaudited) | |
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ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | |
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK | |
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ITEM 4. | CONTROLS AND PROCEDURES | |
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PART II. | OTHER INFORMATION | |
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ITEM 1. | LEGAL PROCEEDINGS | |
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ITEM 1A. | RISK FACTORS | |
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ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | |
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ITEM 3. | DEFAULTS UPON SENIOR SECURITIES | |
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ITEM 4. | MINE SAFETY DISCLOSURES | |
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ITEM 5. | OTHER INFORMATION | |
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ITEM 6. | EXHIBITS | |
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SIGNATURES | |
ITEM 1. FINANCIAL STATEMENTS
Empire State Realty Trust, Inc.
Condensed Consolidated Balance Sheets
(amounts in thousands, except per share amounts)
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| September 30, 2022 | | December 31, 2021 |
ASSETS | (unaudited) | | |
Commercial real estate properties, at cost: | | | |
Land | $ | 334,598 | | | $ | 336,278 | |
Development costs | 8,162 | | | 8,131 | |
Building and improvements | 3,194,787 | | | 3,156,508 | |
| 3,537,547 | | | 3,500,917 | |
Less: accumulated depreciation | (1,159,364) | | | (1,072,938) | |
Commercial real estate properties, net | 2,378,183 | | | 2,427,979 | |
Cash and cash equivalents | 387,248 | | | 423,695 | |
Restricted cash | 52,567 | | | 50,943 | |
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Tenant and other receivables | 30,547 | | | 18,647 | |
Deferred rent receivables | 239,750 | | | 224,922 | |
Prepaid expenses and other assets | 72,905 | | | 76,549 | |
Deferred costs, net | 188,706 | | | 202,437 | |
Acquired below-market ground leases, net | 331,030 | | | 336,904 | |
Right of use assets | 28,725 | | | 28,892 | |
Goodwill | 491,479 | | | 491,479 | |
Total assets | $ | 4,201,140 | | | $ | 4,282,447 | |
LIABILITIES AND EQUITY | | | |
Liabilities: | | | |
Mortgage notes payable, net | $ | 915,202 | | | $ | 948,769 | |
Senior unsecured notes, net | 973,607 | | | 973,373 | |
Unsecured term loan facilities, net | 388,645 | | | 388,223 | |
Unsecured revolving credit facility | — | | | — | |
Accounts payable and accrued expenses | 94,436 | | | 120,810 | |
Acquired below-market leases, net | 18,897 | | | 24,941 | |
Ground lease liabilities | 28,725 | | | 28,892 | |
Deferred revenue and other liabilities | 80,249 | | | 84,358 | |
Tenants’ security deposits | 27,550 | | | 28,749 | |
Total liabilities | 2,527,311 | | | 2,598,115 | |
Commitments and contingencies | | | |
Equity: | | | |
Empire State Realty Trust, Inc. stockholders' equity: | | | |
Preferred stock, $0.01 par value, 50,000 shares authorized, none issued or outstanding | — | | | — | |
Class A common stock, $0.01 par value, 400,000 shares authorized, 160,576 and 169,221 shares issued and outstanding in 2022 and 2021, respectively | 1,606 | | | 1,692 | |
Class B common stock, $0.01 par value, 50,000 shares authorized, 994 and 996 shares issued and outstanding in 2022 and 2021, respectively | 10 | | | 10 | |
Additional paid-in capital | 1,060,321 | | | 1,150,884 | |
Accumulated other comprehensive income (loss) | 6,674 | | | (20,848) | |
Retained deficit | (116,232) | | | (133,610) | |
Total Empire State Realty Trust, Inc. stockholders' equity | 952,379 | | | 998,128 | |
Non-controlling interests in the Operating Partnership | 676,008 | | | 643,012 | |
Non-controlling interests in other partnerships | 15,502 | | | 13,252 | |
Private perpetual preferred units: | | | |
Private perpetual preferred units, $13.52 liquidation preference, 4,664 issued and outstanding in 2022 and 2021, respectively | 21,936 | | | 21,936 | |
Private perpetual preferred units, $16.62 liquidation preference, 1,560 issued and outstanding in 2022 and 2021 | 8,004 | | | 8,004 | |
Total equity | 1,673,829 | | | 1,684,332 | |
Total liabilities and equity | $ | 4,201,140 | | | $ | 4,282,447 | |
The accompanying notes are an integral part of these consolidated financial statements
Empire State Realty Trust, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
(amounts in thousands, except per share amounts)
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Revenues: | | | | | | | |
Rental revenue | $ | 148,290 | | | $ | 139,558 | | | $ | 445,143 | | | $ | 420,586 | |
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Observatory revenue | 33,051 | | | 12,796 | | | 73,660 | | | 23,758 | |
Lease termination fees | — | | | 11,321 | | | 20,032 | | | 15,949 | |
Third-party management and other fees | 389 | | | 314 | | | 1,025 | | | 917 | |
Other revenue and fees | 1,982 | | | 1,059 | | | 5,908 | | | 2,550 | |
Total revenues | 183,712 | | | 165,048 | | | 545,768 | | | 463,760 | |
Operating expenses: | | | | | | | |
Property operating expenses | 42,798 | | | 33,357 | | | 118,875 | | | 92,429 | |
Ground rent expenses | 2,331 | | | 2,331 | | | 6,994 | | | 6,994 | |
General and administrative expenses | 15,725 | | | 14,427 | | | 45,287 | | | 42,369 | |
Observatory expenses | 8,516 | | | 6,370 | | | 22,507 | | | 16,226 | |
Real estate taxes | 31,831 | | | 29,566 | | | 91,637 | | | 92,367 | |
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Depreciation and amortization | 46,984 | | | 65,794 | | | 172,394 | | | 155,339 | |
Total operating expenses | 148,185 | | | 151,845 | | | 457,694 | | | 405,724 | |
Total operating income | 35,527 | | | 13,203 | | | 88,074 | | | 58,036 | |
Other income (expense): | | | | | | | |
Interest income | 1,564 | | | 211 | | | 2,144 | | | 497 | |
Interest expense | (25,516) | | | (23,577) | | | (75,572) | | | (70,553) | |
Loss on early extinguishment of debt | — | | | — | | | — | | | (214) | |
Gain on disposition of property | — | | | — | | | 27,170 | | | — | |
Income (loss) before income taxes | 11,575 | | | (10,163) | | | 41,816 | | | (12,234) | |
Income tax (expense) benefit | (1,457) | | | (20) | | | (224) | | | 3,271 | |
Net income (loss) | 10,118 | | | (10,183) | | | 41,592 | | | (8,963) | |
Net (income) loss attributable to non-controlling interests: | | | | | | | |
Non-controlling interests in the Operating Partnership | (3,560) | | | 4,256 | | | (14,865) | | | 4,591 | |
Non-controlling interests in other partnerships | 49 | | | — | | | 271 | | | — | |
Private perpetual preferred unit distributions | (1,050) | | | (1,050) | | | (3,151) | | | (3,151) | |
Net income (loss) attributable to common stockholders | $ | 5,557 | | | $ | (6,977) | | | $ | 23,847 | | | $ | (7,523) | |
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Total weighted average shares: | | | | | | | |
Basic | 162,165 | | | 172,494 | | | 166,354 | | | 172,487 | |
Diluted | 267,121 | | | 277,716 | | | 270,966 | | | 277,829 | |
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Earnings per share attributable to common stockholders: | | | | | | | |
Basic | $ | 0.03 | | | $ | (0.04) | | | $ | 0.14 | | | $ | (0.04) | |
Diluted | $ | 0.03 | | | $ | (0.04) | | | $ | 0.14 | | | $ | (0.04) | |
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Dividends per share | $ | 0.035 | | | $ | 0.035 | | | $ | 0.105 | | | $ | 0.070 | |
The accompanying notes are an integral part of these consolidated financial statements
Empire State Realty Trust, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
(amounts in thousands)
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net income (loss) | $ | 10,118 | | | $ | (10,183) | | | $ | 41,592 | | | $ | (8,963) | |
Other comprehensive income: | | | | | | | |
Unrealized gain (loss) on valuation of interest rate swap agreements | 19,588 | | | (103) | | | 39,407 | | | (139) | |
Less: amount reclassified into interest expense | 1,392 | | | 2,920 | | | 7,428 | | | 8,687 | |
Other comprehensive income | 20,980 | | | 2,817 | | | 46,835 | | | 8,548 | |
Comprehensive income (loss) | 31,098 | | | (7,366) | | | 88,427 | | | (415) | |
Net (income) loss attributable to non-controlling interests and private perpetual preferred unitholders | (4,561) | | | 3,206 | | | (17,746) | | | 1,440 | |
Other comprehensive income attributable to non-controlling interests | (8,518) | | | (1,061) | | | (19,400) | | | (3,239) | |
Comprehensive income (loss) attributable to common stockholders | $ | 18,019 | | | $ | (5,221) | | | $ | 51,281 | | | $ | (2,214) | |
The accompanying notes are an integral part of these consolidated financial statements
Empire State Realty Trust, Inc.
Condensed Consolidated Statements of Stockholders' Equity
For The Three Months Ended September 30, 2022 and 2021
(unaudited) (amounts in thousands)
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| Number of Class A Common Shares | | Class A Common Stock | | Number of Class B Common Shares | | Class B Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Loss | | Retained Earnings (Deficit) | | Total Stockholders' Equity | | Non-controlling Interests | | Private Perpetual Preferred Units | | Total Equity |
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Balance at June 30, 2022 | 162,690 | | | $ | 1,626 | | | 994 | | | $ | 10 | | | $ | 1,076,854 | | | $ | (5,827) | | | $ | (114,860) | | | $ | 957,803 | | | $ | 678,350 | | | $ | 29,940 | | | $ | 1,666,093 | |
Issuance of Class A shares | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Conversion of operating partnership units and Class B shares to Class A shares | 461 | | | 5 | | | — | | | — | | | (5) | | | 39 | | | — | | | 39 | | | (39) | | | — | | | — | |
Repurchases of common shares | (2,567) | | | (25) | | | — | | | — | | | (16,845) | | | — | | | (1,235) | | | (18,105) | | | — | | | — | | | (18,105) | |
Equity compensation: | | | | | | | | | | | | | | | — | | | | | | | — | |
LTIP units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 5,057 | | | — | | | 5,057 | |
Restricted stock, net of forfeitures | (8) | | | — | | | — | | | — | | | 317 | | | — | | | — | | | 317 | | | — | | | — | | | 317 | |
Dividends and distributions | — | | | — | | | — | | | — | | | — | | | — | | | (5,694) | | | (5,694) | | | (3,887) | | | (1,050) | | | (10,631) | |
Net income | — | | | — | | | — | | | — | | | — | | | — | | | 5,557 | | | 5,557 | | | 3,511 | | | 1,050 | | | 10,118 | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | 12,462 | | | — | | | 12,462 | | | 8,518 | | | — | | | 20,980 | |
Balance at September 30, 2022 | 160,576 | | | $ | 1,606 | | | 994 | | | $ | 10 | | | $ | 1,060,321 | | | $ | 6,674 | | | $ | (116,232) | | | $ | 952,379 | | | $ | 691,510 | | | $ | 29,940 | | | $ | 1,673,829 | |
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| Number of Class A Common Shares | | Class A Common Stock | | Number of Class B Common Shares | | Class B Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Loss | | Retained Earnings (Deficit) | | Total Stockholders' Equity | | Non-controlling Interests | | Private Perpetual Preferred Units | | Total Equity |
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Balance at June 30, 2021 | 172,399 | | | $ | 1,724 | | | 1,001 | | | $ | 10 | | | $ | 1,151,979 | | | $ | (24,794) | | | $ | (73,260) | | | $ | 1,055,659 | | | $ | 647,609 | | | $ | 29,940 | | | $ | 1,733,208 | |
Issuance of Class A shares | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Conversion of operating partnership units and Class B shares to Class A shares | 544 | | | 6 | | | (2) | | | — | | | 914 | | | 11 | | | — | | | 931 | | | (931) | | | — | | | — | |
Repurchases of common shares | (626) | | | (6) | | | — | | | — | | | (4,148) | | | — | | | (2,356) | | | (6,510) | | | | | | | (6,510) | |
Equity compensation: | | | | | | | | | | | | | | | — | | | — | | | — | | | — | |
LTIP units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 5,198 | | | — | | | 5,198 | |
Restricted stock, net of forfeitures | (24) | | | (1) | | | — | | | — | | | 181 | | | — | | | — | | | 180 | | | — | | | — | | | 180 | |
Dividends and distributions | — | | | — | | | — | | | — | | | — | | | — | | | (6,061) | | | (6,061) | | | (3,918) | | | (1,050) | | | (11,029) | |
Net income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | (6,977) | | | (6,977) | | | (4,256) | | | 1,050 | | | (10,183) | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | 1,756 | | | — | | | 1,756 | | | 1,061 | | | — | | | 2,817 | |
Balance at September 30, 2021 | 172,293 | | | $ | 1,723 | | | 999 | | | $ | 10 | | | $ | 1,148,926 | | | $ | (23,027) | | | $ | (88,654) | | | $ | 1,038,978 | | | $ | 644,763 | | | $ | 29,940 | | | $ | 1,713,681 | |
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The accompanying notes are an integral part of these consolidated financial statements
Empire State Realty Trust, Inc.
Condensed Consolidated Statements of Stockholders' Equity
For The Nine Months Ended September 30, 2022 and 2021
(unaudited) (amounts in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of Class A Common Shares | | Class A Common Stock | | Number of Class B Common Shares | | Class B Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings (Deficit) | | Total Stockholders' Equity | | Non-controlling Interests | | Private Perpetual Preferred Units | | Total Equity |
Balance at December 31, 2021 | 169,221 | | | $ | 1,692 | | | 996 | | | $ | 10 | | | $ | 1,150,884 | | | $ | (20,848) | | | $ | (133,610) | | | $ | 998,128 | | | $ | 656,264 | | | $ | 29,940 | | | $ | 1,684,332 | |
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Conversion of operating partnership units and Class B shares to Class A shares | 1,601 | | | 16 | | | (2) | | | — | | | 2,281 | | | 87 | | | — | | | 2,384 | | | (2,384) | | | — | | | — | |
Repurchases of common shares | (10,433) | | | (104) | | | — | | | — | | | (93,416) | | | — | | | 10,975 | | | (82,545) | | | — | | | — | | | (82,545) | |
Contributions from consolidated joint ventures | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 224 | | | — | | | 224 | |
Equity compensation: | | | | | | | | | | | | | | | | | | | | | |
LTIP units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 15,025 | | | — | | | 15,025 | |
Restricted stock, net of forfeitures | 187 | | | 2 | | | — | | | — | | | 572 | | | — | | | — | | | 574 | | | — | | | — | | | 574 | |
Dividends and distributions | — | | | — | | | — | | | — | | | — | | | — | | | (17,444) | | | (17,444) | | | (11,613) | | | (3,151) | | | (32,208) | |
Net income | — | | | — | | | — | | | — | | | — | | | — | | | 23,847 | | | 23,847 | | | 14,594 | | | 3,151 | | | 41,592 | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | 27,435 | | | — | | | 27,435 | | | 19,400 | | | — | | | 46,835 | |
Balance at September 30, 2022 | 160,576 | | | $ | 1,606 | | | 994 | | | $ | 10 | | | $ | 1,060,321 | | | $ | 6,674 | | | $ | (116,232) | | | $ | 952,379 | | | $ | 691,510 | | | $ | 29,940 | | | $ | 1,673,829 | |
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| Number of Class A Common Shares | | Class A Common Stock | | Number of Class B Common Shares | | Class B Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings (Deficit) | | Total Stockholders' Equity | | Non-controlling Interests | | Private Perpetual Preferred Units | | Total Equity |
Balance at December 31, 2020 | 170,555 | | | $ | 1,705 | | | 1,010 | | | $ | 10 | | | $ | 1,147,527 | | | $ | (28,320) | | | $ | (65,673) | | | $ | 1,055,249 | | | $ | 646,118 | | | $ | 29,940 | | | $ | 1,731,307 | |
| | | | | | | | | | | | | | | | | | | | | |
Conversion of operating partnership units and Class B shares to Class A shares | 2,693 | | | 27 | | | (11) | | | — | | | 7,755 | | | (16) | | | — | | | 7,766 | | | (7,766) | | | — | | | — | |
Repurchases of common shares | (1,009) | | | (10) | | | — | | | — | | | (6,699) | | | — | | | (3,334) | | | (10,043) | | | — | | | — | | | (10,043) | |
Equity compensation: | | | | | | | | | | | | | | | | | | | | | |
LTIP units | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 15,072 | | | — | | | 15,072 | |
Restricted stock, net of forfeitures | 54 | | | 1 | | | — | | | — | | | 343 | | | — | | | — | | | 344 | | | — | | | — | | | 344 | |
Dividends and distributions | — | | | — | | | — | | | — | | | — | | | — | | | (12,124) | | | (12,124) | | | (7,309) | | | (3,151) | | | (22,584) | |
Net income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | (7,523) | | | (7,523) | | | (4,591) | | | 3,151 | | | (8,963) | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | 5,309 | | | — | | | 5,309 | | | 3,239 | | | — | | | 8,548 | |
Balance at September 30, 2021 | 172,293 | | | $ | 1,723 | | | 999 | | | $ | 10 | | | $ | 1,148,926 | | | $ | (23,027) | | | $ | (88,654) | | | $ | 1,038,978 | | | $ | 644,763 | | | $ | 29,940 | | | $ | 1,713,681 | |
The accompanying notes are an integral part of these consolidated financial statements
Empire State Realty Trust, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(amounts in thousands)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2022 | | 2021 |
Cash Flows From Operating Activities | | | |
Net income (loss) | $ | 41,592 | | | $ | (8,963) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Depreciation and amortization | 172,394 | | | 155,339 | |
Gain on disposition of property | (27,170) | | | — | |
Amortization of non-cash items within interest expense | 7,514 | | | 7,978 | |
Amortization of acquired above- and below-market leases, net | (4,136) | | | (5,615) | |
Amortization of acquired below-market ground leases | 5,873 | | | 5,873 | |
Straight-lining of rental revenue | (18,533) | | | (13,197) | |
Equity based compensation | 15,599 | | | 15,416 | |
| | | |
Loss on early extinguishment of debt | — | | | 214 | |
Increase (decrease) in cash flows due to changes in operating assets and liabilities: | | | |
Security deposits | ( |