Document

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 September 30, 2020



☐	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 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 October 30, 2020, there were 170,950,356 shares of Class A Common Stock, $0.01 par value per share, outstanding and 1,010,832 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 SEPTEMBER 30, 2020
	TABLE OF CONTENTS	PAGE
PART 1.	FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS
	Condensed Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019	2
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019 (unaudited)	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2020 and 2019 (unaudited)	4
	Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2020 and 2019 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 (unaudited)	7
	Notes to Condensed Consolidated Financial Statements (unaudited)	9

ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	32

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	52

ITEM 4.	CONTROLS AND PROCEDURES	52

PART II.	OTHER INFORMATION	53

ITEM 1.	LEGAL PROCEEDINGS	53

ITEM 1A.	RISK FACTORS	53

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	53

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	54

ITEM 4.	MINE SAFETY DISCLOSURES	55

ITEM 5.	OTHER INFORMATION	55

ITEM 6.	EXHIBITS	55

SIGNATURES		56

ITEM 1. FINANCIAL STATEMENTS

Empire State Realty Trust, Inc.

Condensed Consolidated Balance Sheets

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



	September 30, 2020			December 31, 2019
ASSETS	(unaudited)
Commercial real estate properties, at cost:
Land	$	201,196		$	201,196
Development costs	7,938			7,989
Building and improvements	2,925,532			2,900,248
	3,134,666			3,109,433
Less: accumulated depreciation	(927,517		)	(862,534		)
Commercial real estate properties, net	2,207,149			2,246,899
Cash and cash equivalents	373,088			233,946
Restricted cash	54,865			37,651
Tenant and other receivables	25,853			25,423
Deferred rent receivables	223,886			220,960
Prepaid expenses and other assets	50,773			65,453
Deferred costs, net	207,774			228,150
Acquired below-market ground leases, net	346,693			352,566
Right of use assets	29,154			29,307
Goodwill	491,479			491,479
Total assets	$	4,010,714		$	3,931,834
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable, net	$	603,178		$	605,542
Senior unsecured notes, net	973,106			798,392
Unsecured term loan facilities, net	387,309			264,640
Unsecured revolving credit facility, net	—			—
Accounts payable and accrued expenses	111,918			143,786
Acquired below-market leases, net	33,405			39,679
Ground lease liabilities	29,154			29,307
Deferred revenue and other liabilities	77,572			72,015
Tenants’ security deposits	51,257			30,560
Total liabilities	2,266,899			1,983,921
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, 171,981,257 shares issued and outstanding and 180,877,597 shares issued and outstanding in 2020 and 2019, respectively	1,719			1,809
Class B common stock, $0.01 par value per share, 50,000,000 shares authorized, 1,010,832 and 1,016,799 shares issued and outstanding in 2020 and 2019, respectively	10			10
Additional paid-in capital	1,161,871			1,232,433
Accumulated other comprehensive loss	(30,038		)	(21,496		)
Retained (deficit) earnings	(64,293		)	15,764
Total Empire State Realty Trust, Inc.'s stockholders' equity	1,069,269			1,228,520
Non-controlling interests in operating partnership	644,606			690,242
Private perpetual preferred units:
Private perpetual preferred units, $13.52 per unit liquidation preference, 4,664,038 and 4,610,383 issued and outstanding in 2020 and 2019, respectively	21,936			21,147
Private perpetual preferred units, $16.62 per unit liquidation preference, 1,560,360 issued and outstanding in 2020 and 2019	8,004			8,004
Total equity	1,743,815			1,947,913
Total liabilities and equity	$	4,010,714		$	3,931,834

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)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Revenues:
Rental revenue	$	139,909		$	150,225		$	426,021		$	434,713
Observatory revenue	4,419			37,575			24,049			91,039
Lease termination fees	331			2,361			1,575			3,112
Third-party management and other fees	283			304			930			955
Other revenue and fees	1,633			2,408			5,254			6,591
Total revenues	146,575			192,873			457,829			536,410
Operating expenses:
Property operating expenses	33,836			47,894			105,054			131,076
Ground rent expenses	2,331			2,331			6,994			6,994
General and administrative expenses	14,517			14,421			48,617			44,445
Observatory expenses	5,931			9,089			18,087			25,024
Real estate taxes	31,196			29,599			90,029			86,098
Impairment charges	2,103			—			6,204			—
Depreciation and amortization	44,733			44,260			143,609			135,179
Total operating expenses	134,647			147,594			418,594			428,816
Total operating income	11,928			45,279			39,235			107,594
Other income (expense):
Interest income	366			2,269			2,529			9,907
Interest expense	(23,360		)	(19,426		)	(66,906		)	(60,712		)
Loss on early extinguishment of debt	—			—			(86		)	—
IPO litigation expense	(1,165		)	—			(1,165		)	—
Income (loss) before income taxes	(12,231		)	28,122			(26,393		)	56,789
Income tax benefit (expense)	(38		)	(1,338		)	2,794			(1,219		)
Net income (loss)	(12,269		)	26,784			(23,599		)	55,570
Private perpetual preferred unit distributions	(1,050		)	(234		)	(3,147		)	(702		)
Net (income) loss attributable to non-controlling interests	5,115			(10,668		)	10,244			(22,222		)
Net income (loss) attributable to common stockholders	$	(8,204	)	$	15,882		$	(16,502	)	$	32,646

Total weighted average shares:
Basic	173,048			178,352			176,299			177,428
Diluted	280,940			298,151			285,640			298,117

Earnings per share attributable to common stockholders:
Basic	$	(0.05	)	$	0.09		$	(0.09	)	$	0.18
Diluted	$	(0.05	)	$	0.09		$	(0.09	)	$	0.18

Dividends per share	$	—		$	0.105		$	0.210		$	0.315

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)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Net income (loss)	$	(12,269	)	$	26,784		$	(23,599	)	$	55,570
Other comprehensive income (loss):
Unrealized gain (loss) on valuation of interest rate swap agreements	64			(6,256		)	(19,340		)	(25,992		)
Less: amount reclassified into interest expense	2,873			319			5,986			637
Other comprehensive income (loss)	2,937			(5,937		)	(13,354		)	(25,355		)
Comprehensive income (loss)	(9,332		)	20,847			(36,953		)	30,215
Net income attributable to non-controlling interests and private perpetual preferred unitholders	4,065			(10,902		)	7,097			(22,924		)
Other comprehensive (income) loss attributable to non-controlling interests	(1,060		)	2,347			5,114			10,269
Comprehensive income (loss) attributable to common stockholders	$	(6,327	)	$	12,292		$	(24,742	)	$	17,560

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, 2020 and 2019

(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 (Deficit) Earnings			Total Stockholders' Equity			Non-controlling Interests			Private Perpetual Preferred Units			Total Equity
Balance at June 30, 2020	172,333		$	1,723		1,014		$	10	$	1,166,451		$	(31,874	)	$	(56,089	)	$	1,080,221		$	645,877		$	29,940		$	1,756,038
Conversion of operating partnership units and Class B shares to Class A shares	782		8			(3	)	—		2,419			(41		)	—			2,386			(2,386		)	—			—
Repurchases of common shares	(1,134	)	(12		)	—		—		(7,333		)	—			—			(7,345		)	—			—			(7,345		)
Equity compensation:																			—									—
LTIP units	—		—			—		—		—			—			—			—			5,170			—			5,170
Restricted stock, net of forfeitures	—		—			—		—		334			—			—			334			—			—			334
Dividends and distributions	—		—			—		—		—			—			—			—			—			(1,050		)	(1,050		)
Net income	—		—			—		—		—			—			(8,204		)	(8,204		)	(5,115		)	1,050			(12,269		)
Other comprehensive income (loss)	—		—			—		—		—			1,877			—			1,877			1,060			—			2,937
Balance at September 30, 2020	171,981		$	1,719		1,011		$	10	$	1,161,871		$	(30,038	)	$	(64,293	)	$	1,069,269		$	644,606		$	29,940		$	1,743,815



	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 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
Conversion of operating partnership units and Class B shares to Class A shares	2,141		21		(11	)	—		12,908		(133		)	—			12,796			(12,796		)	—			—
Equity compensation:																	—									—
LTIP units	—		—		—		—		—		—			—			—			3,456			—			3,456
Restricted stock, net of forfeitures	(1	)	—		—		—		191		—			—			191			—			—			191
Dividends and distributions	—		—		—		—		—		—			(18,907		)	(18,907		)	(13,039		)	(234		)	(32,180		)
Net income	—		—		—		—		—		—			15,882			15,882			10,668			234			26,784
Other comprehensive income (loss)	—		—		—		—		—		(3,590		)	—			(3,590		)	(2,347		)	—			(5,937		)
Balance at September 30, 2019	179,131		$	1,791	1,019		$	10	$	1,226,269	$	(24,110	)	$	18,059		$	1,222,019		$	710,323		$	8,004		$	1,940,346

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, 2020 and 2019

(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 (Deficit) Earnings			Total Stockholders' Equity			Non-controlling Interests			Private Perpetual Preferred Units			Total Equity
Balance at December 31, 2019	180,878		$	1,809		1,017		$	10	$	1,232,433		$	(21,496	)	$	15,764		$	1,228,520		$	690,242		$	29,151		$	1,947,913
Issuance of private perpetual in exchange for common shares	—		—			—		—		—			—			—			—			(789		)	789			—
Conversion of operating partnership units and Class B shares to Class A shares	5,160		52			(6	)	—		24,153			(302		)	—			23,903			(23,903		)	—			—
Repurchases of common shares	(14,205	)	(142		)	—		—		(95,434		)	—			(26,374		)	(121,950		)	—			—			(121,950		)
Equity compensation:
LTIP units	—		—			—		—		—			—			—			—			19,455			—			19,455
Restricted stock, net of forfeitures	148		—			—		—		719			—			—			719			—			—			719
Dividends and distributions	—		—			—		—		—			—			(37,181		)	(37,181		)	(25,041		)	(3,147		)	(65,369		)
Net income	—		—			—		—		—			—			(16,502		)	(16,502		)	(10,244		)	3,147			(23,599		)
Other comprehensive income (loss)	—		—			—		—		—			(8,240		)	—			(8,240		)	(5,114		)	—			(13,354		)
Balance at September 30, 2020	171,981		$	1,719		1,011		$	10	$	1,161,871		$	(30,038	)	$	(64,293	)	$	1,069,269		$	644,606		$	29,940		$	1,743,815



	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
Conversion of operating partnership units and Class B shares to Class A shares	5,204	52		(19	)	—		21,773		(171		)	—			21,654			(21,654		)	—			—
Equity compensation:
LTIP units	—	—		—		—		—		—			—			—			14,971			—			14,971
Restricted stock, net of forfeitures	53	—		—		—		421		—			—			421			—			—			421
Dividends and distributions	—	—		—		—		—		—			(56,098		)	(56,098		)	(39,570		)	(702		)	(96,370		)
Net income	—	—		—		—		—		—			32,646			32,646			22,222			702			55,570
Other comprehensive income (loss)	—	—		—		—		—		(15,086		)	—			(15,086		)	(10,269		)	—			(25,355		)
Balance at September 30, 2019	179,131	$	1,791	1,019		$	10	$	1,226,269	$	(24,110	)	$	18,059		$	1,222,019		$	710,323		$	8,004		$	1,940,346

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,
	2020			2019
Cash Flows From Operating Activities
Net income (loss)	$	(23,599	)	$	55,570
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	143,609			135,179
Impairment charges	6,204			—
Amortization of non-cash items within interest expense	6,803			5,400
Amortization of acquired above- and below-market leases, net	(2,953		)	(5,780		)
Amortization of acquired below-market ground leases	5,873			5,873
Straight-lining of rental revenue	(5,878		)	(13,781		)
Equity based compensation	20,174			15,392
Settlement of derivative contract	(20,281		)	—
Loss on early extinguishment of debt	86			—
Increase (decrease) in cash flows due to changes in operating assets and liabilities:
Security deposits	20,697			(25,961		)
Tenant and other receivables	(431		)	149
Deferred leasing costs	(8,241		)	(14,513		)
Prepaid expenses and other assets	14,680			19,883
Accounts payable and accrued expenses	(1,699		)	(2,970		)
Deferred revenue and other liabilities	8,509			23,932
Net cash provided by operating activities	163,553			198,373
Cash Flows From Investing Activities
Short-term investments	—			400,000
Development costs	(1,336		)	(2		)
Additions to building and improvements	(112,018		)	(189,666		)
Net cash (used in) provided by investing activities	(113,354		)	210,332

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

Empire State Realty Trust, Inc.

Condensed Consolidated Statements of Cash Flows (continued)

(unaudited)

(amounts in thousands)



	Nine Months Ended September 30,
	2020		2019
Cash Flows From Financing Activities
Repayment of mortgage notes payable	(2,939	)	(2,829	)
Proceeds from unsecured senior notes	175,000		—
Repayment of unsecured senior notes	—		(250,000	)
Proceeds from unsecured term loan	175,000		—
Repayment of unsecured term loan	(50,000	)