Empire State Realty Trust Inc., whose properties include Manhattan’s Empire State Building, filed to raise as much as $1.07 billion as it proceeds with one of the largest initial public offerings of a U.S. real estate investment trust.
The company, based in New York, plans to offer 71.5 million shares for $13 to $15 each, according to a regulatory filing yesterday. It expects to list on the New York Stock Exchange under the symbol ESRT.
Malkin Holdings LLC, supervisor of the Empire State Building, is moving ahead with the IPO after battling a group of dissident investors and rejecting a set of unsolicited offers for the tower. The REIT, which holds 21 New York-area properties, may be attractive to investors as it benefits from tenant demand, tourist visits to the landmark skyscraper and its holdings in prime Manhattan office locations, said Michael Knott, an analyst with research firm Green Street Advisors Inc.
“It would offer public investors a unique way to play the New York market,” Knott, based in Newport Beach, California, said in an interview before the filing. In addition to revenue from the Empire State Building’s observatory, the company has the potential to significantly boost leasing, and has a concentration in the “up-and-coming” Times Square South neighborhood, he said.
The IPO is scheduled to price Oct. 1, according to data compiled by Bloomberg, led by Goldman Sachs Group Inc. and Bank of America Corp.
Malkin Holdings initially filed for a share sale 19 months ago. The firm, led by Chairman Peter Malkin and his son Anthony Malkin, faced challenges by a minority group within the roughly 2,800 investors who hold stakes in the Empire State Building. After an emotional campaign marked by charges of misrepresentation by both sides, the Malkins in May received the necessary approvals from investors to allow the tower to be rolled into the REIT.
Bidders for the landmark building have tried to upend the IPO. On Sept. 9, Joseph Sitt’s Thor Equities LLC offered $1.4 billion for the title to the 102-story tower, according to a letter from Stephen Meister, an attorney representing the dissidents. The offer was more than the $1.18 billion value allocated to the company, Empire State Building Associates LLC, which owns the skyscraper, Meister said in a letter to the Malkins’ attorney.
The Malkins said in a separate filing yesterday that the latest bid would offer “materially less” value to investors because of debt and other obligations. It won’t entertain any more alternatives to the IPO, the company said.
The Malkins already said earlier this month that they would proceed with the plan to go public after reviewing other proposals and determining that an IPO is in investors’ best interest. In addition to the unsolicited offer for the tower from Sitt, the Malkins received one from investor Rubin Schron and a joint bid by Philip Pilevsky and Joseph Tabak.
Pilevsky, whose group also included unnamed Middle Eastern investors, said he is no longer pursuing his bid after being rebuffed by the Malkins. He said his group was willing to raise its offer of $2.1 billion, which included the value attributed to a sublease to a company majority-owned by the estate of Leona Helmsley.
“They seem to want to do their IPO, and they don’t care what the bid is,” he said in an interview Sept. 18. “We dropped the effort. If they would do it, we’d do it in a minute.”
Hugh Burns, a spokesman for the Malkins with Sard Verbinnen & Co., declined to comment. The family said in its filing that it reviews “all matters,” including unsolicited proposals, and that Lazard Ltd. acted as an independent adviser in determining to pursue the IPO.
The “Sturm und Drang” between dissidents and the Malkins may concern investors, as may litigation, said Green Street’s Knott. A small group of unitholders has appealed an April 30 ruling upholding a provision that would pay unitholders a nominal $100 a share if they refused to back the REIT after 80 percent voted for it, which they called coercive.
A reversal “could have a material adverse effect on us, which could take the form of monetary damages or other equitable relief,” the company said in its prospectus.
At the top end of the range, the IPO would be the biggest for a U.S. REIT after Douglas Emmett Inc. raised almost $1.6 billion in 2006, according to data compiled by Bloomberg. It comes after a drop in real estate shares in recent months amid speculation that rising interest rates may curb property demand. The 138-member Bloomberg REIT Index lost more than 11 percent through yesterday since peaking in May.
Anthony Malkin, who is to become the REIT’s chairman, chief executive officer and president, is expected to own Class A common shares with a value of $413.7 million based on the midpoint of the projected price range, according to the prospectus. Peter Malkin, to be chairman emeritus, would have shares valued at $84.1 million.
Empire State Realty Trust’s portfolio includes seven Manhattan office properties, among them the Empire State Building, 1 Grand Central Place, and 250 West 57th St., known as the Fisk Building. There are five office properties north of the city, including First Stamford Place in Stamford, Connecticut, and 10 Bank St. in White Plains, New York.
There are six standalone retail properties, including 10 Union Square in Manhattan and two retail centers in Westport, Connecticut. The proposed REIT also has a development site in Stamford and options to buy two more Manhattan office buildings.
The Empire State Building generated 47.1 percent of the REIT’s pro-forma revenue of $511.2 million last year. The observatory, a magnet for Manhattan tourists, accounted for $92.2 million of that. That probably can only be improved “modestly,” while office revenue should jump as space is leased after a renovation, Knott said.
The office portion of the tower was 78 percent leased as of June 30, according to the REIT prospectus. That’s up from 67 percent as of the end of last September.
“The 20 or so floors they have finished renovations on, they’ve increased the revenues on by almost 110 percent,” Knott said. “The early results there are encouraging, and speak to the progress they have made in executing the repositioning.”