UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2019

☐ 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)

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) 687-8700

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Securities	Trading Symbol	Exchange on which traded
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 (§232.405 of this chapter) 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. 

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 July 25, 2019, there were 177,819,739 shares of Class A Common Stock, $0.01 par value per share, outstanding and 1,019,645 shares of Class B Common Stock, $0.01 par value per share, outstanding.

	EMPIRE STATE REALTY TRUST, INC.
	FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2019
	TABLE OF CONTENTS	PAGE
PART 1.	FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS
	Condensed Consolidated Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018	2
	Condensed Consolidated Statements of Income for the three and six months ended June 30, 2019 and 2018 (unaudited)	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2019 and 2018 (unaudited)	4
	Condensed Consolidated Statements of Stockholders' Equity for the three and six months ended June 30, 2019 and 2018 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the three and six months ended June 30, 2019 and 2018 (unaudited)	7
	Notes to Condensed Consolidated Financial Statements (unaudited)	9
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	30
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	46
ITEM 4.	CONTROLS AND PROCEDURES	46
PART II.	OTHER INFORMATION	47
ITEM 1.	LEGAL PROCEEDINGS	47
ITEM 1A.	RISK FACTORS	47
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	47
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	47
ITEM 4.	MINE SAFETY DISCLOSURES	47
ITEM 5.	OTHER INFORMATION	47
ITEM 6.	EXHIBITS	47
SIGNATURES		49

1

ITEM 1. FINANCIAL STATEMENTS

Empire State Realty Trust, Inc.

Condensed Consolidated Balance Sheets

(amounts in thousands, except share and per share amounts)

	June 30, 2019			December 31, 2018
ASSETS	(unaudited)
Commercial real estate properties, at cost:
Land	$	201,196		$	201,196
Development costs	7,987			7,987
Building and improvements	2,784,472			2,675,303
	2,993,655			2,884,486
Less: accumulated depreciation	(809,197		)	(747,304		)
Commercial real estate properties, net	2,184,458			2,137,182
Cash and cash equivalents	375,335			204,981
Restricted cash	38,043			65,832
Short-term investments	150,000			400,000
Tenant and other receivables, net of allowance of $488 as of December 31, 2018	31,264			29,437
Deferred rent receivables, net of allowance of $19 as of December 31, 2018	209,510			200,903
Prepaid expenses and other assets	60,818			64,345
Deferred costs, net	228,782			241,223
Acquired below-market ground leases, net	356,482			360,398
Right of use assets	29,404			—
Goodwill	491,479			491,479
Total assets	$	4,155,575		$	4,195,780
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable, net	$	607,072		$	608,567
Senior unsecured notes, net	1,047,939			1,046,219
Unsecured term loan facility, net	264,394			264,147
Unsecured revolving credit facility	—			—
Accounts payable and accrued expenses	131,842			130,676
Acquired below-market leases, net	45,651			52,450
Ground lease liabilities	29,404			—
Deferred revenue and other liabilities	48,858			44,810
Tenants’ security deposits	32,383			57,802
Total liabilities	2,207,543			2,204,671
Commitments and contingencies
Equity:
Empire State Realty Trust, Inc. stockholders' equity:
Preferred stock, $0.01 par value per share, 50,000,000 shares authorized, none issued or outstanding	—			—
Class A common stock, $0.01 par value per share, 400,000,000 shares authorized, 176,991,123 shares issued and outstanding and 173,872,536 shares issued and outstanding in 2019 and 2018, respectively	1,770			1,739
Class B common stock, $0.01 par value per share, 50,000,000 shares authorized, 1,029,782 and 1,038,090 shares issued and outstanding in 2019 and 2018, respectively	10			10
Additional paid-in capital	1,213,170			1,204,075
Accumulated other comprehensive loss	(20,387		)	(8,853		)
Retained earnings	21,084			41,511
Total Empire State Realty Trust, Inc.'s stockholders' equity	1,215,647			1,238,482
Non-controlling interests in operating partnership	724,381			744,623
Private perpetual preferred units, $16.62 per unit liquidation preference, 1,560,360 issued and outstanding in 2019 and 2018	8,004			8,004
Total equity	1,948,032			1,991,109
Total liabilities and equity	$	4,155,575		$	4,195,780

The accompanying notes are an integral part of these consolidated financial statements 

2

Empire State Realty Trust, Inc.

Condensed Consolidated Statements of Income

(unaudited)

(amounts in thousands, except per share amounts)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenues:
Rental revenue	$	141,071		$	124,038		$	284,488		$	246,349
Tenant expense reimbursement	—			16,205			—			33,999
Observatory revenue	32,895			35,201			53,464			56,450
Lease termination fees	363			357			751			979
Third-party management and other fees	331			376			651			839
Other revenue and fees	1,584			2,352			4,183			7,184
Total revenues	176,244			178,529			343,537			345,800
Operating expenses:
Property operating expenses	40,227			39,418			83,182			83,603
Ground rent expenses	2,332			2,332			4,663			4,663
General and administrative expenses	15,998			13,225			30,024			25,853
Observatory expenses	8,360			7,678			15,935			15,014
Real estate taxes	28,267			26,743			56,499			53,487
Depreciation and amortization	44,821			39,468			90,919			79,351
Total operating expenses	140,005			128,864			281,222			261,971
Total operating income	36,239			49,665			62,315			83,829
Other income (expense):
Interest income	3,899			2,499			7,638			3,724
Interest expense	(20,597		)	(20,525		)	(41,286		)	(38,116		)
Income before income taxes	19,541			31,639			28,667			49,437
Income tax benefit (expense)	(611		)	(1,455		)	119			(1,195		)
Net income	18,930			30,184			28,786			48,242
Private perpetual preferred unit distributions	(234		)	(234		)	(468		)	(468		)
Net income attributable to non-controlling interests	(7,609		)	(13,299		)	(11,554		)	(21,355		)
Net income attributable to common stockholders	$	11,087		$	16,651		$	16,764		$	26,419
Total weighted average shares:
Basic	176,796			165,256			176,495			164,311
Diluted	298,131			297,244			298,100			297,029
Earnings per share attributable to common stockholders:
Basic	$	0.06		$	0.10		$	0.09		$	0.16
Diluted	$	0.06		$	0.10		$	0.09		$	0.16
Dividends per share	$	0.105		$	0.105		$	0.210		$	0.210

The accompanying notes are an integral part of these consolidated financial statements

3

Empire State Realty Trust, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

(amounts in thousands)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net income	$	18,930		$	30,184		$	28,786		$	48,242
Other comprehensive income (loss):
Unrealized gain (loss) on valuation of interest rate swap agreements	(12,346		)	1,763			(19,736		)	5,943
Less: amount reclassified into interest expense	169			536			318			1,135
Other comprehensive income (loss)	(12,177		)	2,299			(19,418		)	7,078
Comprehensive income	6,753			32,483			9,368			55,320
Net income attributable to non-controlling interests and private perpetual preferred unitholders	(7,843		)	(13,533		)	(12,022		)	(21,823		)
Other comprehensive (income) loss attributable to non-controlling interests	4,953			(1,004		)	7,922			(3,164		)
Comprehensive income attributable to common stockholders	$	3,863		$	17,946		$	5,268		$	30,333

The accompanying notes are an integral part of these consolidated financial statements

4

Empire State Realty Trust, Inc.

Condensed Consolidated Statements of Stockholders' Equity

For The Three Months Ended June 30, 2019 and 2018

(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			Total Stockholders' Equity			Non-controlling Interests			Private Perpetual Preferred Units			Total Equity
Balance at March 31, 2019	175,558		$	1,755	1,035		$	10	$	1,207,386	$	(13,130	)	$	28,668		$	1,224,689		$	734,508		$	8,004		$	1,967,201
Issuance of Class A shares	—		—		—		—		—		—			—			—			—			—			—
Conversion of operating partnership units and Class B shares to Class A shares	1,438		15		(5	)	—		5,594		(33		)	—			5,576			(5,576		)	—			—
Equity compensation:																	—									—
LTIP units	—		—		—		—		—		—			—			—			6,136			—			6,136
Restricted stock, net of forfeitures	(5	)	—		—		—		190		—			—			190			—			—			190
Dividends and distributions	—		—		—		—		—		—			(18,671		)	(18,671		)	(13,343		)	(234		)	(32,248		)
Net income	—		—		—		—		—		—			11,087			11,087			7,609			234			18,930
Other comprehensive income (loss)	—		—		—		—		—		(7,224		)	—			(7,224		)	(4,953		)	—			(12,177		)
Balance at June 30, 2019	176,991		$	1,770	1,030		$	10	$	1,213,170	$	(20,387	)	$	21,084		$	1,215,647		$	724,381		$	8,004		$	1,948,032

	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			Total Stockholders' Equity			Non-controlling Interests			Private Perpetual Preferred Units			Total Equity
Balance at March 31, 2018	163,321		$	1,633	1,048		$	10	$	1,138,600	$	(6,037	)	$	39,323		$	1,173,529		$	791,805		$	8,004		$	1,973,338
Issuance of Class A shares	284		3		—		—		4,746		—			—			4,749			—			—			4,749
Conversion of operating partnership units and Class B shares to Class A shares	3,056		31		(3	)	—		15,678		47			—			15,756			(15,756		)	—			—
Equity compensation:																	—									—
LTIP units	—		—		—		—		—		—			—			—			4,518			—			4,518
Restricted stock, net of forfeitures	(2	)	—		—		—		138		—			—			138			—			—			138
Dividends and distributions	—		—		—		—		—		—			(17,585		)	(17,585		)	(14,266		)	(234		)	(32,085		)
Net income	—		—		—		—		—		—			16,651			16,651			13,299			234			30,184
Other comprehensive income (loss)	—		—		—		—		—		1,295			—			1,295			1,004			—			2,299
Balance at June 30, 2018	166,659		$	1,667	1,045		$	10	$	1,159,162	$	(4,695	)	$	38,389		$	1,194,533		$	780,604		$	8,004		$	1,983,141

The accompanying notes are an integral part of these consolidated financial statements

5

Empire State Realty Trust, Inc.

Condensed Consolidated Statements of Stockholders' Equity

For The Six Months Ended June 30, 2019 and 2018

(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			Total Stockholders' Equity			Non-controlling Interests			Private Perpetual Preferred Units			Total Equity
Balance at December 31, 2018	173,874	$	1,739	1,038			$	10	$	1,204,075	$	(8,853	)	$	41,511		1,238,482			$	744,623		$	8,004		1,991,109
Issuance of Class A shares	—	—		—			—		—		—			—			—			—			—			—
Conversion of operating partnership units and Class B shares to Class A shares	3,063	31		(8		)	—		8,865		(38		)	—			8,858			(8,858		)	—			—
Equity compensation:
LTIP units	—	—		—			—		—		—			—			—			11,515			—			11,515
Restricted stock, net of forfeitures	54	—		—			—		230		—			—			230			—			—			230
Dividends and distributions	—	—		—			—		—		—			(37,191		)	(37,191		)	(26,531		)	(468		)	(64,190		)
Net income	—	—		—			—		—		—			16,764			16,764			11,554			468			28,786
Other comprehensive income (loss)	—	—		—			—		—		(11,496		)	—			(11,496		)	(7,922		)	—			(19,418		)
Balance at June 30, 2019	176,991	$	1,770	$	1,030		$	10	$	1,213,170	$	(20,387	)	$	21,084		$	1,215,647		$	724,381		$	8,004		$	1,948,032

	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			Total Stockholders' Equity			Non-controlling Interests			Private Perpetual Preferred Units			Total Equity
Balance at December 31, 2017	160,425	$	1,604	1,052		$	11		$	1,128,460	$	(8,555	)	$	46,762		1,168,282			$	801,451		$	8,004		1,977,737
Issuance of Class A shares	284	3		—		—			4,746		—			—			4,749			—			—			4,749
Conversion of operating partnership units and Class B shares to Class A shares	5,926	60		(7	)	(1		)	25,840		(54		)	—			25,845			(25,845		)	—			—
Equity compensation:
LTIP units	—	—		—		—			—		—			—			—			9,095			—			9,095
Restricted stock, net of forfeitures	24	—		—		—			116		—			—			116			—			—			116
Dividends and distributions	—	—		—		—			—		—			(34,792		)	(34,792		)	(28,616		)	(468		)	(63,876		)
Net income	—	—		—		—			—		—			26,419			26,419			21,355			468			48,242
Other comprehensive income (loss)	—	—		—		—			—		3,914			—			3,914			3,164			—			7,078
Balance at June 30, 2018	166,659	$	1,667	1,045		$	10		$	1,159,162	$	(4,695	)	$	38,389		$	1,194,533		$	780,604		$	8,004		$	1,983,141

The accompanying notes are an integral part of these consolidated financial statements

6

Empire State Realty Trust, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(amounts in thousands)

	Six Months Ended June 30,
	2019			2018
Cash Flows From Operating Activities
Net income	$	28,786		$	48,242
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	90,919			79,351
Amortization of non-cash items within interest expense	4,147			3,069
Amortization of acquired above- and below-market leases, net	(4,098		)	(2,719		)
Amortization of acquired below-market ground leases	3,916			3,916
Straight-lining of rental revenue	(8,607		)	(11,662		)
Equity based compensation	11,745			9,211
Increase (decrease) in cash flows due to changes in operating assets and liabilities:
Security deposits	(25,420		)	(4,278		)
Tenant and other receivables	(1,827		)	6,601
Deferred leasing costs	(10,892		)	(10,349		)
Prepaid expenses and other assets	993			2,351
Accounts payable and accrued expenses	(4,430		)	(2,691		)
Deferred revenue and other liabilities	4,048			(11,355		)
Net cash provided by operating activities	89,280			109,687
Cash Flows From Investing Activities
Short-term investments	250,000			(400,000		)
Development costs	—			(1		)
Additions to building and improvements	(130,648		)	(98,567		)
Net cash provided by (used in) investing activities	119,352			(498,568		)

The accompanying notes are an integral part of these consolidated financial statements

7

Empire State Realty Trust, Inc.

Condensed Consolidated Statements of Cash Flows (continued)

(unaudited)

(amounts in thousands)

	Six Months Ended June 30,
	2019			2018
Cash Flows From Financing Activities
Proceeds from mortgage notes payable	—			160,000
Repayment of mortgage notes payable	(1,877		)	(264,771		)
Proceeds from unsecured senior notes	—			335,000
Proceeds from the sale of common stock	—			4,749
Deferred financing costs	—			(1,902		)
Private perpetual preferred unit distributions	(468		)	(468		)
Dividends paid to common stockholders	(37,191		)	(34,792		)
Distributions paid to non-controlling interests in the operating partnership	(26,531		)	(28,616		)
Net cash provided by (used in) financing activities	(66,067		)	169,200
Net increase in cash and cash equivalents and restricted cash	142,565			(219,681		)
Cash and cash equivalents and restricted cash—beginning of period	270,813			530,197
Cash and cash equivalents and restricted cash—end of period	$	413,378		$	310,516
Reconciliation of Cash and Cash Equivalents and Restricted Cash:
Cash and cash equivalents at beginning of period	$	204,981		$	464,344
Restricted cash at beginning of period	65,832			65,853
Cash and cash equivalents and restricted cash at beginning of period	$	270,813		$	530,197
Cash and cash equivalents at end of period	$	375,335		$	251,797
Restricted cash at end of period	38,043			58,719
Cash and cash equivalents and restricted cash at end of period	$	413,378		$	310,516