Empire State Realty OP, L.P 10-Q for FY2020 Q1

Empire State Realty OP, L.P. (ESBA)

10-Q 2020-05-06 For: 2020-03-31

Added on April 08, 2026

About this 10-Q

Empire State Realty OP, L.P filed this 10-Q on May 6, 2020, covering the quarter ended March 31, 2020 (FY2020 Q1).

Headline figures

Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $170.22M; up 1.8% from $167.29M a year earlier
Net income: $8.29M; down 15.9% from net income of $9.86M a year earlier
Diluted EPS: $0.02; down 33.3% from $0.03 a year earlier

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Delaware		45-4685158
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



Title of Securities	Trading Symbol	Exchange on which traded

Series ES operating partnership units	ESBA	NYSE Arca, Inc.
Series 60 operating partnership units	OGCP	NYSE Arca, Inc.
Series 250 operating partnership units	FISK	NYSE Arca, Inc.



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐



	EMPIRE STATE REALTY OP, L.P.
	FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2020
	TABLE OF CONTENTS	PAGE
PART 1.	FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS
	Condensed Consolidated Balance Sheets as of March 31, 2020 (unaudited) and December 31, 2019	2
	Condensed Consolidated Statements of Income for the three months ended March 31, 2020 and 2019 (unaudited)	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2020 and 2019 (unaudited)	4
	Condensed Consolidated Statements of Capital for the three months ended March 31, 2020 and 2019 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (unaudited)	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	8

ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	26

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	42

ITEM 4.	CONTROLS AND PROCEDURES	42

PART II.	OTHER INFORMATION	43

ITEM 1.	LEGAL PROCEEDINGS	43

ITEM 1A.	RISK FACTORS	43

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	43

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	43

ITEM 4.	MINE SAFETY DISCLOSURES	43

ITEM 5.	OTHER INFORMATION	43

ITEM 6.	EXHIBITS	47

SIGNATURES		47



	March 31, 2020			December 31, 2019
ASSETS	(unaudited)
Commercial real estate properties, at cost:
Land	$	201,196		$	201,196
Development costs	8,800			7,989
Building and improvements	2,913,312			2,900,248
	3,123,308			3,109,433
Less: accumulated depreciation	(886,822		)	(862,534		)
Commercial real estate properties, net	2,236,486			2,246,899
Cash and cash equivalents	1,008,983			233,946
Restricted cash	36,881			37,651
Tenant and other receivables	22,549			25,423
Deferred rent receivables	229,154			220,960
Prepaid expenses and other assets	40,583			65,453
Deferred costs, net	218,578			228,150
Acquired below-market ground leases, net	350,609			352,566
Right of use assets	29,256			29,307
Goodwill	491,479			491,479
Total assets	$	4,664,558		$	3,931,834
LIABILITIES AND CAPITAL
Liabilities:
Mortgage notes payable, net	$	604,763		$	605,542
Senior unsecured notes, net	973,002			798,392
Unsecured term loan facilities, net	386,568			264,640
Unsecured revolving credit facility, net	546,436			—
Accounts payable and accrued expenses	142,315			143,786
Acquired below-market leases, net	37,623			39,679
Ground lease liabilities	29,256			29,307
Deferred revenue and other liabilities	64,176			72,015
Tenants’ security deposits	30,543			30,560
Total liabilities	2,814,682			1,983,921
Commitments and contingencies
Capital:
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
Series PR operating partnership units:
ESRT partner's capital (2,976,762 and 2,996,520 general partner operating partnership units and 174,151,247 and 178,897,876 limited partner operating partnership units outstanding in 2020 and 2019, respectively)	1,148,584			1,228,520
Limited partners' interests (84,899,960 and 81,387,763 limited partner operating partnership units outstanding in 2020 and 2019, respectively)	666,778			680,580
Series ES operating partnership units (25,359,132 and 25,809,604 limited partner operating partnership units outstanding in 2020 and 2019, respectively)	3,652			7,262
Series 60 operating partnership units (6,824,249 and 7,025,089 limited partner operating partnership units outstanding in 2020 and 2019, respectively)	607			1,593
Series 250 operating partnership units (3,464,875 and 3,535,197 limited partner operating partnership units outstanding in 2020 and 2019, respectively)	315			807
Total capital	1,849,876			1,947,913
Total liabilities and capital	$	4,664,558		$	3,931,834



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



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



	Three Months Ended March 31,
	2020			2019
Revenues:
Rental revenue	$	148,113		$	143,417
Observatory revenue	19,544			20,569
Lease termination fees	211			388
Third-party management and other fees	346			320
Other revenue and fees	2,010			2,599
Total revenues	170,224			167,293
Operating expenses:
Property operating expenses	41,468			42,955
Ground rent expenses	2,331			2,331
General and administrative expenses	15,951			14,026
Observatory expenses	8,154			7,575
Real estate taxes	29,254			28,232
Depreciation and amortization	46,093			46,098
Total operating expenses	143,251			141,217
Total operating income	26,973			26,076
Other income (expense):
Interest income	637			3,739
Interest expense	(19,618		)	(20,689		)
Loss on early extinguishment of debt	(86		)	—
Income before income taxes	7,906			9,126
Income tax expense	382			730
Net income	8,288			9,856
Private perpetual preferred unit distributions	(1,050		)	(234		)
Net income attributable to common unitholders	$	7,238		$	9,622

Total weighted average units:
Basic	292,645			298,049
Diluted	292,645			298,049

Earnings per unit attributable to common unitholders:
Basic	$	0.02		$	0.03
Diluted	$	0.02		$	0.03

Dividends per unit	$	0.105		$	0.105



					Series PR Operating Partnership Units										Series ES Operating Partnership Units Limited Partners					Series 60 Operating Partnership Units Limited Partners					Series 250 Operating Partnership Units Limited Partners
					General Partner					Limited Partners					Series ES Operating Partnership Units Limited Partners					Series 60 Operating Partnership Units Limited Partners					Series 250 Operating Partnership Units Limited Partners
	Private Perpetual Preferred Units	Private Perpetual Preferred Unitholders			Operating Partnership Units		Operating Partnership Unitholders			Operating Partnership Units		Operating Partnership Unitholders			Operating Partnership Units		Operating Partnership Unitholders			Operating Partnership Units		Operating Partnership Unitholders			Operating Partnership Units		Operating Partnership Unitholders			Total Capital
Balance at December 31, 2019	6,170	$	29,151		181,894		$	1,228,520		81,388		$	680,580		25,810		$	7,262		7,025		$	1,593		3,535		$	807		1,947,913
Issuance of private perpetual preferred in exchange for common units	54	789			—		—			(97	)	(800		)	43		11			—		—			—		—			—
Conversion of operating partnership units to ESRT Partner's Capital	—	—			1,659		7,562			(894	)	(7,416		)	(494	)	(104		)	(201	)	(31		)	(70	)	(11		)	—
Repurchases of common units	—	—			(6,571	)	(62,666		)	—		—			—		—			—		—			—		—			(62,666		)
Equity compensation	—	—			146		154			4,503		5,737			—		—			—		—			—		—			5,891
Distributions	—	(1,050		)	—		(18,987		)	—		(8,849		)	—		(2,677		)	—		(723		)	—		(365		)	(32,651		)
Net income	—	1,050			—		4,495			—		1,852			—		630			—		174			—		87			8,288
Other comprehensive income (loss)	—	—			—		(10,494		)	—		(4,326		)	—		(1,470		)	—		(406		)	—		(203		)	(16,899		)
Balance at March 31, 2020	6,224	$	29,940		177,128		$	1,148,584		84,900		$	666,778		25,359		$	3,652		6,824		$	607		3,465		$	315		$	1,849,876



	March 31, 2020			December 31, 2019
Leasing costs	$	200,792		$	199,033
Acquired in-place lease value and deferred leasing costs	193,478			200,296
Acquired above-market leases	44,813			49,213
	439,083			448,542
Less: accumulated amortization	(220,505		)	(224,598		)
Total deferred costs, net, excluding net deferred financing costs	$	218,578		$	223,944



	March 31, 2020			December 31, 2019
Acquired below-market ground leases	$	396,916		$	396,916
Less: accumulated amortization	(46,307		)	(44,350		)
Acquired below-market ground leases, net	$	350,609		$	352,566



	March 31, 2020			December 31, 2019
Acquired below-market leases	$	(97,101	)	$	(100,472	)
Less: accumulated amortization	59,478			60,793
Acquired below-market leases, net	$	(37,623	)	$	(39,679	)



	Principal Balance						As of March 31, 2020
	March 31, 2020			December 31, 2019			Stated Rate		Effective Rate⁽¹⁾		Maturity Date⁽²⁾
Mortgage debt collateralized by:
Fixed rate mortgage debt
Metro Center	$	89,090		$	89,650		3.59	%	3.68	%	11/5/2024
10 Union Square	50,000			50,000			3.70	%	3.97	%	4/1/2026
1542 Third Avenue	30,000			30,000			4.29	%	4.53	%	5/1/2027
First Stamford Place⁽³⁾	180,000			180,000			4.28	%	4.75	%	7/1/2027
1010 Third Avenue and 77 West 55th Street	38,061			38,251			4.01	%	4.23	%	1/5/2028
10 Bank Street	32,700			32,920			4.23	%	4.36	%	6/1/2032
383 Main Avenue	30,000			30,000			4.44	%	4.55	%	6/30/2032
1333 Broadway	160,000			160,000			4.21	%	4.29	%	2/5/2033
Total mortgage debt	609,851			610,821
Senior unsecured notes:⁽⁴⁾
Series A	100,000			100,000			3.93	%	3.96	%	3/27/2025
Series B	125,000			125,000			4.09	%	4.12	%	3/27/2027
Series C	125,000			125,000			4.18	%	4.21	%	3/27/2030
Series D	115,000			115,000			4.08	%	4.11	%	1/22/2028
Series E	160,000			160,000			4.26	%	4.27	%	3/22/2030
Series F	175,000			175,000			4.44	%	4.45	%	3/22/2033
Series G	100,000			—			3.61	%	4.90	%	3/17/2032
Series H	75,000			—			3.73	%	5.00	%	3/17/2035
Unsecured revolving credit facility⁽⁴⁾	550,000			—			LIBOR plus 1.10%		3.48	%	8/29/2021
Unsecured term loan facility⁽⁴⁾	215,000			265,000			LIBOR plus 1.20%		3.39	%	3/19/2025
Unsecured term loan facility⁽⁴⁾	175,000			—			LIBOR plus 1.50%		3.87	%	12/31/2026
Total principal	2,524,851			1,675,821
Deferred financing costs, net	(14,082		)	(7,247		)
Total	$	2,510,769		$	1,668,574


(1)	The effective rate is the yield as of March 31, 2020 and includes the stated interest rate, deferred financing cost amortization and interest associated with variable to fixed interest rate swap agreements.


(2)	Pre-payment is generally allowed for each loan upon payment of a customary pre-payment penalty.


(3)	Represents a $164 million mortgage loan bearing interest at 4.09% and a $16 million loan bearing interest at 6.25%.


(4)	At March 31, 2020, we were in compliance with all debt covenants.



Year	Amortization		Maturities		Total
2020	$	2,967	$	—	$	2,967
2021	4,090		550,000		554,090
2022	5,628		—		5,628
2023	7,876		—		7,876
2024	7,958		77,675		85,633
Thereafter	25,909		1,842,748		1,868,657
Total	$	54,428	$	2,470,423	$	2,524,851



							March 31, 2020					December 31, 2019
Derivative	Notional Amount		Receive Rate	Pay Rate	Effective Date	Expiration Date	Asset		Liability			Asset		Liability
Interest rate swap	$	265,000	1 Month LIBOR	2.1485%	August 31, 2017	August 24, 2022	$	—	$	(11,888	)	$	—	$	(4,247	)
Interest rate swap	125,000		3 Month LIBOR	2.9580%	July 1, 2019	July 1, 2026	—		(18,499		)	—		(9,083		)
							$	—	$	(30,387	)	$	—	$	(13,330	)



	March 31, 2020			December 31, 2019
Financing costs	$	28,839		$	25,315
Less: accumulated amortization	(14,757		)	(13,863		)
Total deferred financing costs, net	$	14,082		$	11,452



	March 31, 2020		December 31, 2019
Accrued capital expenditures	$	78,107	$	90,910
Accounts payable and accrued expenses	29,667		35,084
Interest rate swap agreements liability	30,387		13,330
Accrued interest payable	3,254		3,699
Due to affiliated companies	900		763
Total accounts payable and accrued expenses	$	142,315	$	143,786



	Three Months Ended
Effects of Cash Flow Hedges	March 31, 2020			March 31, 2019
Amount of gain (loss) recognized in other comprehensive income (loss)	$	(17,695	)	$	(7,390	)
Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into interest expense	(796		)	(149		)



	March 31, 2020
			Estimated Fair Value
	Carrying Value		Total		Level 1		Level 2		Level 3
Interest rate swaps included in accounts payable and accrued expenses	$	30,387	$	30,387	$	—	$	30,387	$	—
Mortgage notes payable	604,763		638,852		—		—		638,852
Senior unsecured notes - Series A, B, C, D, E, F, G and H	973,002		1,034,848		—		—		1,034,848
Unsecured term loan facilities	386,568		391,627		—		—		391,627
Unsecured revolving credit facility	546,436		550,000		—		—		550,000
Ground lease liabilities	29,256		34,564		—		—		34,564



	Three months ended March 31, 2020		Three months ended March 31, 2019
Fixed payments	$	130,514	$	126,581
Variable payments	17,599		16,836
Total rental revenue	$	148,113	$	143,417



Remainder of 2020	$	371,553
2021	484,524
2022	462,080
2023	435,217
2024	397,628
Thereafter	1,842,594
	$	3,993,596



Remainder of 2020	$	1,139
2021	1,518
2022	1,518
2023	1,518
2024	1,518
Thereafter	66,780
Total undiscounted cash flows	73,991
Present value discount	(44,735		)
Ground lease liabilities	$	29,256



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan	Maximum Approximate Dollar Value Available for Future Purchase (in thousands)
March 2020	6,570,778	$	9.54	6,570,778	$	437,334

April 2020	2,345,129	$	8.66	2,345,129	$	417,023



	Restricted Stock		LTIP Units		Weighted Average Grant Fair Value
Unvested balance at December 31, 2019	118,918		5,986,569		$	9.73
Vested	(42,702	)	(638,907	)	15.54
Granted	158,806		5,344,748		5.23
Forfeited or unearned	—		(841,587	)	11.09
Unvested balance at March 31, 2020	235,022		9,850,823		$	6.76



	Three Months Ended March 31, 2020
	Real Estate			Observatory			Intersegment Elimination			Total
Revenues:
Rental revenue	$	148,113		$	—		$	—		$	148,113
Intercompany rental revenue	11,536			—			(11,536		)	—
Observatory revenue	—			19,544			—			19,544
Lease termination fees	211			—			—			211
Third-party management and other fees	346			—			—			346
Other revenue and fees	2,010			—			—			2,010
Total revenues	162,216			19,544			(11,536		)	170,224
Operating expenses:
Property operating expenses	41,468			—			—			41,468
Intercompany rent expense	—			11,536			(11,536		)	—
Ground rent expense	2,331			—			—			2,331
General and administrative expenses	15,951			—			—			15,951
Observatory expenses	—			8,154			—			8,154
Real estate taxes	29,254			—			—			29,254
Depreciation and amortization	46,085			8			—			46,093
Total operating expenses	135,089			19,698			(11,536		)	143,251
Total operating income	27,127			(154		)	—			26,973
Other income (expense):
Interest income	637			—			—			637
Interest expense	(19,618		)	—			—			(19,618		)
Loss on early extinguishment of debt	(86		)	—			—			(86		)
Income before income taxes	8,060			(154		)	—			7,906
Income tax (expense) benefit	(227		)	609			—			382
Net income	$	7,833		$	455		$	—		$	8,288
Segment assets	$	4,409,281		$	255,277		$	—		$	4,664,558
Expenditures for segment assets	$	26,570		$	1,237		$	—		$	27,807


•	Achieved net income of $7.2 million and Core Funds From Operations of $53.7 million.


•	Fortified our already strong balance sheet with the completion of several financings that raised $300 million in net incremental proceeds.


•	Bolstered our cash balance with $550 million drawn under our unsecured revolving credit facility.


•	Repurchased 8.9 million shares at an average price of $9.31 per share, totaling $83.0 million in aggregate, through April 30, 2020.


•	Total portfolio was 88.7% occupied; including signed leases not commenced (“SLNC”), the total portfolio was 91.1% leased.


•	Manhattan office portfolio (excluding the retail component of these properties) was 90.0% occupied; including SLNC, the Manhattan office portfolio was 92.6% leased.


•	Retail portfolio was 88.5% occupied; including SLNC, the retail portfolio was 94.0% leased.


•	Empire State Building was 93.7% occupied; including SLNC, was 95.4% leased.


•	Signed 35 leases, representing 149,143 rentable square feet across the total portfolio, and achieved a 3.4% increase in mark-to-market cash rent over previous fully escalated cash rents portfolio-wide on new, renewal, and expansion leases.


•	Signed 12 new leases representing 63,153 rentable square feet for the Manhattan office portfolio (excluding the retail component of these properties) and achieved an increase of 19.4% in mark-to-market cash rent over previous fully escalated cash rents.