Empire State Realty Trust Announces Second Quarter 2014 Results

  Empire State Realty Trust Announces Second Quarter 2014 Results

            - Reports Core FFO of $0.22 Per Fully Diluted Share -

Business Wire

NEW YORK -- July 30, 2014

Empire State Realty Trust, Inc. (NYSE:ESRT) (the "Company"), a real estate
investment trust with office and retail properties in Manhattan and the
greater New York metropolitan area, today reported operational and financial
results for the second quarter 2014.

“We are pleased with our second quarter leasing and Empire State Building
Observatory performance. Leasing volume, quality of tenants, and rental
spreads all met or exceeded our expectations. The Observatory had record
attendance in June, and in the year to date we outpaced the financial
performance of the comparable period in 2013. During the quarter we exercised
our option to purchase the ground leaseholds at 112 West 34th Street and 1400
Broadway on which we subsequently closed on July 15, 2014. We believe the
exercise of our options unlocks a source of additional potential future growth
for the Company. After the transaction, we have maintained a strong, flexible
balance sheet with strong credit metrics and meaningful capacity to support
future growth. Our team continues to execute on behalf of shareholders at a
very high level,” stated Anthony E. Malkin, Empire State Realty Trust’s
Chairman, Chief Executive Officer, and President.

Second Quarter Highlights

  *Achieved Core Funds From Operations (“Core FFO”) of $0.22 per fully
    diluted share and net income attributable to the Company was $0.10 per
    fully diluted share;
  *Total portfolio was 88.6% occupied, up 140 basis points from March 31,
    2014; including signed leases not commenced (“SLNC”), the total portfolio
    was 89.6% leased at June 30, 2014;
  *Manhattan office portfolio (excluding the retail component of these
    properties) was 87.7% occupied, up 170 basis points from March 31, 2014;
    including SLNC, the Manhattan office portfolio (excluding the retail
    component of these properties) was 88.6% leased at June 30, 2014;
  *Retail portfolio was 92.5% occupied, up 30 basis points from March 31,
    2014; including SLNC, the Company’s retail portfolio was 92.5% leased at
    June 30, 2014;
  *Empire State Building was 85.6% occupied, up 260 basis points from March
    31, 2014; including SLNC, the Empire State Building was 86.0% leased at
    June 30, 2014;
  *Executed 69 leases, representing 211,259 rentable square feet across the
    total portfolio, achieving a 19.2% increase in mark-to-market rent over
    previously fully escalated rents on new, renewal, and expansion leases; 51
    of these leases, representing 169,725 rentable square feet, were within
    the Manhattan office portfolio (excluding the retail component of these
    properties), representing a 25.8% increase in mark-to-market rent over
    previously fully escalated rents on new, renewal and expansion leases;
  *Exercised the option to purchase the ground and operating leases at 112
    West 34th Street and the ground lease at 1400 Broadway (the “option
    properties”) for a total of approximately $734 million in assumption of
    debt, cash, common stock and operating partnership (“OP”) units; and
  *Declared a dividend in the amount of $0.085 per share for the second
    quarter 2014, which was paid on June 30, 2014.

Financial Results for the Second Quarter 2014

Core FFO was $55.0 million, or $0.22 per fully diluted share. Core FFO
excludes the impact of acquisition costs, preferred exchange offering costs,
and gains, net of income taxes, on the settlement of a lawsuit related to the
Observatory. FFO, which includes these items, was $53.8 million, or $0.22 per
fully diluted share.

Net income attributable to the Company was $9.8 million, or $0.10 per fully
diluted share. The Company began operations upon the completion of its
formation transactions and initial public offering ("IPO") in October 2013 and
therefore had no comparative results to report for the second quarter 2013.

Financial Results for the Six Months Ended June 30, 2014

Core FFO was $96.3 million, or $0.39 per fully diluted share. Core FFO
excludes the impact of acquisition costs, preferred exchange offering costs,
and gains, net of income taxes, on the settlement of a lawsuit related to the
Observatory. FFO, which includes these items, was $95.1 million, or $0.39 per
fully diluted share.

Net income attributable to the Company was $14.2 million, or $0.15 per fully
diluted share. The Company began operations upon the completion of its
formation transactions and IPO in October 2013 and therefore had no
comparative results to report for the six months ended June 30, 2013.

Portfolio Operations

The Company reported that its total portfolio as of June 30, 2014, containing
8.4 million rentable square feet of office and retail space, was 88.6%
occupied at the end of the second quarter 2014. Percentage occupied was up 140
basis points from 87.2% at the end of the first quarter 2014, and up 530 basis
points from 83.3% at the end of the second quarter 2013. Including SLNC, the
Company’s portfolio was 89.6% leased at June 30, 2014.

The Company’s office portfolio (excluding the retail component of these
properties) as of June 30, 2014, containing 7.8 million rentable square feet,
was 88.3% occupied at the end of the second quarter 2014, up 150 basis points
from the end of the first quarter 2014, and up 480 basis points from the end
of the second quarter 2013. Including SLNC, the Company’s office portfolio
(excluding the retail component of these properties) was 89.4% leased at June
30, 2014.

The Manhattan office portfolio (excluding the retail component of these
properties) as of June 30, 2014, containing 5.9 million rentable square feet
was 87.7% occupied at the end of the second quarter 2014, up 170 basis points
from the end of the first quarter 2014, and up 570 basis points from the end
of the second quarter 2013. Including SLNC, the Company’s Manhattan office
portfolio (excluding the retail component of these properties), was 88.6%
leased at June 30, 2014.

The Company’s retail portfolio as of June 30, 2014, containing approximately
620,000 rentable square feet, was 92.5% occupied at the end of the second
quarter 2014. This compares to 92.2% at the end of the first quarter of 2014,
and compares to 80.4% at the end of the second quarter 2013. Including SLNC,
the Company’s retail portfolio was 92.5% leased at June 30, 2014.

Leasing

For the three months ended June 30, 2014, the Company executed 69 leases
within the total portfolio, comprising 211,259 rentable square feet. Total
leasing volume included 67 office leases, comprising 209,678 rentable square
feet, and two retail leases, comprising 1,581 rentable square feet.

On a blended basis, the 69 new, renewal and expansion leases signed within the
total portfolio during the quarter had an average starting rental rate of
$49.05 per rentable square foot, representing an increase of 19.2% over the
prior in-place rent on a fully escalated basis.

Leases signed in the Second Quarter 2014 for the Manhattan office portfolio
included:

  *21 renewal leases, comprising 34,538 rentable square feet, with an average
    starting rental rate of $47.57 per rentable square foot, representing a
    decrease of 3.9% over the prior in-place rent on a fully escalated basis,
    and
  *30 new leases comprising 135,187 rentable square feet, with an average
    starting rental rate of $52.70 per rentable square foot, representing an
    increase of 35.5% over the prior in-place rent on a fully escalated basis.

Significant Leases Executed During the Second Quarter included:

  *At the Empire State Building, the Company signed a 33,214 rentable square
    foot full floor new lease with Bulova Corporation for a term of 15.8
    years; and
  *At One Grand Central Place, the Company signed a 12,712 rentable square
    foot full floor new lease with Robertson Foundation, a private grant
    foundation established by Tiger Management founder Julian H. Robertson,
    for a term of 10.4 years.

Empire State Building Update

The Company continues to renovate and re-lease the 2.8 million rentable square
foot Empire State Building, its flagship property. At June 30, 2014, the
Empire State Building was 85.6% occupied; including SLNC, the Empire State
Building was 86.0% leased.

In the second quarter 2014, the Company executed five office leases and one
retail lease at the Empire State Building, representing 49,746 rentable square
feet in the aggregate.

The Empire State Building Observatory revenue for the second quarter grew
11.4% to $30.4 million, from $27.3 million in the second quarter 2013, and was
driven by a combination of higher admission prices and the shift of the Easter
holiday week from first quarter 2013 to second quarter 2014. The Observatory
hosted approximately 1.2 million visitors in the second quarter 2014,
representing a 3.8% increase from the same period of 2013.

For the six months ended June 30, 2014, the Empire State Building Observatory
hosted 1.9 million visitors, which was unchanged from the same period in 2013.
Observatory revenue was $47.7 million, an 8.4% increase from $44.0 million for
the six months ended June 30, 2013.

Acquisitions

Subsequent to the end of the quarter, the Company announced the completion of
the acquisition of the ground and operating leases at 112 West 34th Street and
the ground lease at 1400 Broadway for a total of approximately $734 million in
assumption of debt, cash, common stock and OP units. 112 West 34th Street is a
26-story, approximately 650,769 rentable square foot office tower, with 92,455
square feet of retail space located in the 34th Street/Penn Station submarket.
The property’s office and retail space is 77.5% occupied and 83.2% leased, as
of June 30, 2014. 1400 Broadway is a 37-story 880,131 rentable square foot
office tower with 19,815 square feet of retail space, located in the Times
Square South submarket and the property’s office and retail space is 92.6%
occupied and 92.7% leased, as of June 30, 2014.

Balance Sheet and Financial Transactions

As of June 30, 2014, the outstanding balance on the Company’s term loan and
credit facility was $355.0 million. The secured revolving and term credit
facility has an accordion feature, allowing for an increase in maximum
aggregate principal balance to $1.25 billion under certain circumstances.

At June 30, 2014, the Company had total debt outstanding of approximately $1.2
billion, with a weighted average interest rate of 4.47% per annum, and a
weighted average term to maturity of 2.6 years. The Company has approximately
$193.6 million of debt maturing during the remainder of 2014, and
approximately $88.4 million maturing in 2015.

In connection with the purchase of the ground and operating leases at 112 West
34th Street and the ground lease at 1400 Broadway, the Company issued
approximately 2.7 million shares of Class A and Class B common stock at a per
share price of $16.65 and approximately 20.1 million Series PR OP Units at a
unit price of $16.65.

Dividend

The Company paid a dividend of $0.085 per share for the second quarter 2014 to
holders of the Company’s Class A common stock and Class B common stock and to
holders of Empire State Realty OP, L.P.'s Series ES, Series 250 and Series 60
operating partnership units (NYSE Arca: ESBA, FISK and OGCP, respectively) and
Series PR operating partnership units on June 30, 2014.

Webcast and Conference Call Details

Empire State Realty Trust will host a webcast and conference call, open to the
general public, on Thursday, July 31, 2014 at 8:30 am Eastern time.

The webcast will be available in the Investor Relations section of the
Company’s website at www.empirestaterealtytrust.com. To listen to a live
broadcast, go to the site at least 15 minutes prior to the scheduled start
time in order to register, download and install any necessary audio software.
Shortly after the call, a replay of the webcast will be available for 90 days
on the Company’s website.

The conference call can be accessed by dialing 1-877-407-3982 for domestic
callers or 1-201-493-6780 for international callers. A replay will be
available shortly after the call and can be accessed by dialing 1-877-870-5176
for domestic callers or 1-858-384-5517 for international callers. The passcode
for the replay is 13586123. A replay of the conference call will be available
until August 7, 2014.

The Supplemental Package will be available prior to the conference call in the
Investor Relations section of the Company’s website,
www.empirestaterealtytrust.com.

About Empire State Realty Trust

Empire State Realty Trust, Inc. (NYSE: ESRT), a leading real estate investment
trust (REIT), owns, manages, operates, acquires and repositions office and
retail properties in Manhattan and the greater New York metropolitan area,
including the Empire State Building, the world’s most famous office building.
Headquartered in New York, New York, the Company’s office and retail portfolio
covers 10.0 million rentable square feet, as of July 15, 2014, consisting of
9.3 million rentable square feet in 14 office properties, including nine in
Manhattan, three in Fairfield County, Connecticut and two in Westchester
County, New York; and approximately 732,000 rentable square feet in the retail
portfolio. The Company also owns land at the Stamford, Connecticut
Transportation Center that supports the development of an approximately
380,000 rentable square foot office building and garage.

Non-GAAP Financial Measures

The Company has used non-GAAP financial measures in this press release. A
reconciliation of each non-GAAP financial measure and the comparable GAAP
financial measure can be found on pages 11 and 12 of this release and in the
Company’s supplemental package.

Forward-Looking Statements

This press release includes “forward looking statements”. Forward-looking
statements may be identified by the use of words such as “believes,”
“expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,”
“plans,” “pro forma,” “estimates,” “contemplates,” “aims,” “continues,”
“would” or “anticipates” or the negative of these words and phrases or similar
words or phrases. The following factors, among others, could cause actual
results and future events to differ materially from those set forth or
contemplated in the forward-looking statements: the factors included in (i)
the Company's Annual Report on Form 10-K for the year ended December 31, 2013,
including those set forth under the headings "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business,” and “Properties" and (ii) in future periodic reports filed by the
Company under the Securities and Exchange Act of 1934, as amended. While
forward-looking statements reflect the Company's good faith beliefs, they are
not guarantees of future performance. The Company disclaims any obligation to
publicly update or revise any forward-looking statement to reflect changes in
underlying assumptions or factors, of new information, data or methods, future
events or other changes after the date of this press release, except as
required by applicable law. For a further discussion of these and other
factors that could impact the Company's future results, performance or
transactions, see the section entitled “Risk Factors” in the Annual Report on
Form 10-K for the year ended December 31, 2013, and other risks described in
documents subsequently filed by the Company from time to time with the
Securities and Exchange Commission. Prospective investors should not place
undue reliance on any forward-looking statements, which are based only on
information currently available to the Company (or to third parties making the
forward-looking statements).

                                                             
Empire State Realty Trust, Inc.
Condensed Consolidated Statement of Income
(unaudited and amounts in thousands, except per share data)
                                                              
                                                                 For the Three
                                                                 Months Ended
                                                                 June 30, 2014
Revenues
Rental revenue                                                   $  92,210
Tenant expense reimbursement                                     14,304
Observatory revenue                                              30,389
Construction revenue                                             12,963
Third-party management and other fees                            753
Other revenue and fees                                           4,549      
Total revenues                                                   155,168
                                                                            
Operating expenses
Property operating expenses                                      35,596
Marketing, general and administrative expenses                   12,189
Observatory expenses                                             7,120
Construction expenses                                            12,795
Real estate taxes                                                18,186
Depreciation and amortization                                    28,637     
Total operating expenses                                         114,523
                                                                           
Total operating income                                           40,645
                                                                            
Other income (expense)
Interest expense                                                 (14,629    )
Acquisition expenses                                             (735       )
Net income                                                       25,281
Net income attributable to non-controlling interests             (15,447    )
Net income attributable to Empire State Realty Trust, Inc.       $  9,834   
                                                                            
Total weighted average shares
Basic                                                            95,573     
Diluted                                                          95,615     
                                                                            
Net income per share attributable to Empire State Realty
Trust, Inc.
Basic                                                            $  0.10    
Diluted                                                          $  0.10    
                                                                            

                                                             
Empire State Realty Trust, Inc.
Condensed Consolidated Statement of Income
(unaudited and amounts in thousands, except per share data)
                                                              
                                                                 For the Six
                                                                 Months Ended
                                                                 June 30, 2014
Revenues
Rental revenue                                                   $   182,414
Tenant expense reimbursement                                     29,457
Observatory revenue                                              47,690
Construction revenue                                             27,926
Third-party management and other fees                            1,364
Other revenue and fees                                           6,623       
Total revenues                                                   295,474
                                                                             
Operating expenses
Property operating expenses                                      71,907
Marketing, general and administrative expenses                   20,864
Observatory expenses                                             14,101
Construction expenses                                            27,078
Real estate taxes                                                36,559
Depreciation and amortization                                    58,752      
Total operating expenses                                         229,261
                                                                            
Total operating income                                           66,213
                                                                             
Other income (expense)
Interest expense                                                 (28,966     )
Acquisition expenses                                             (735        )
Net income                                                       36,512
Net income attributable to non-controlling interests             (22,309     )
Net income attributable to Empire State Realty Trust, Inc.       $   14,203  
                                                                             
Total weighted average shares
Basic                                                            95,574      
Diluted                                                          95,616      
                                                                             
Net income per share attributable to Empire State Realty
Trust, Inc.
Basic                                                            $   0.15    
Diluted                                                          $   0.15    
                                                                             


Empire State Realty Trust, Inc.
Reconciliation of Net Income to Funds From Operations ("FFO")
and Core Funds From Operations (Core FFO")
(unaudited and amounts in thousands, except per share data)
                                                              
                                                                 For the Three
                                                                 Months Ended
                                                                 June 30, 2014
                                                                            
Net income                                                       $  25,281
Real estate depreciation and amortization                        28,556     
FFO                                                              53,837
Gain on settlement of lawsuit related to the Observatory,        (540       )
net of income taxes
Private perpetual preferred exchange offering expenses           950
Acquisition expenses                                             735        
Core FFO                                                         $  54,982  
                                                                            
Total weighted average shares and Operating Partnership
Units
Basic                                                            245,899    
Diluted                                                          245,941    
                                                                            
FFO per share
Basic                                                            $  0.22    
Diluted                                                          $  0.22    
                                                                            
Core FFO per share
Basic                                                            $  0.22    
Diluted                                                          $  0.22    
                                                                            


Empire State Realty Trust, Inc.
Reconciliation of Net Income to Funds From Operations ("FFO")
and Core Funds From Operations ("Core FFO")
(unaudited and amounts in thousands, except per share data)
                                                              
                                                                 For the Six
                                                                 Months Ended
                                                                 June 30, 2014
                                                                             
Net income                                                       $    36,512
Real estate depreciation and amortization                        58,608      
FFO                                                              95,120
Gain on settlement of lawsuit related to the Observatory,        (540        )
net of income taxes
Private perpetual preferred exchange offering expenses           950
Acquisition expenses                                             735         
Core FFO                                                         $    96,265 
                                                                             
Total weighted average shares and Operating Partnership
Units
Basic                                                            245,839     
Diluted                                                          245,881     
                                                                             
FFO per share
Basic                                                            $    0.39   
Diluted                                                          $    0.39   
                                                                             
Core FFO per share
Basic                                                            $    0.39   
Diluted                                                          $    0.39   
                                                                             

Empire State Realty Trust, Inc.
Condensed Consolidated Balance Sheets
(unaudited and amounts in thousands)
                                                            
                                               June 30,          December 31,
Assets                                         2014              2013
Commercial real estate properties, at cost     $ 1,702,736       $ 1,649,423
Less: accumulated depreciation                 (332,766    )     (295,351    )
Commercial real estate properties, net         1,369,970         1,354,072
Cash and cash equivalents                      41,791            60,743
Restricted cash                                55,482            55,621
Tenant and other receivables                   26,185            24,817
Deferred rent receivables                      85,948            62,689
Prepaid expenses and other assets              39,658            35,407
Deferred costs, net                            77,035            78,938
Acquired below market ground lease, net        61,460            62,312
Acquired lease intangibles, net                227,617           249,983
Goodwill                                       491,479          491,479     
Total assets                                   $ 2,476,625      $ 2,476,061 
                                                                             
Liabilities and equity
Mortgage notes payable                         $ 873,863         $ 883,112
Term loan and credit facility                  355,000           325,000
Accounts payable and accrued expenses          74,807            81,908
Acquired below market leases, net              120,219           129,882
Deferred revenue and other liabilities         18,722            21,568
Tenants' security deposits                     34,170           31,406      
Total liabilities                              1,476,781         1,472,876
Total equity                                   999,844          1,003,185   
Total liabilities and equity                   $ 2,476,625      $ 2,476,061 

Contact:

Investors
Empire State Realty Trust Investor Relations
212-850-2678
IR@empirestaterealtytrust.com
or
Media
Sard Verbinnen & Co.
Brandy Bergman/Hugh Burns
212-687-8080
 
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