Empire State Realty Trust, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing reports annual results, not a standalone fourth-quarter financial summary. ESRT is a New York metropolitan-area REIT focused on office, retail, multifamily and the Empire State Building Observatory.
Business context and portfolio
- At year-end, the office and retail portfolio comprised 10.1 million rentable square feet, was 82.4% occupied and 85.7% leased including signed leases not yet commenced. Annualized rent was $523.8 million.
- The company owned 14 office properties, six standalone retail properties and, following a December acquisition, two Manhattan multifamily properties totaling 625 units. The multifamily assets were 96.4% occupied at year-end.
- The portfolio is concentrated in Manhattan, Westchester County and Fairfield County. The Empire State Building generated 31.7% of portfolio rental revenue in 2021; six properties generated 75.5%.
Financial performance and liquidity
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $624.1 million | $609.2 million | Up 2.4% |
| Rental revenue | $559.7 million | $563.1 million | Down 0.6% |
| Observatory revenue | $41.5 million | $29.1 million | Up 42.7% |
| Operating income | $79.1 million | $58.7 million | Up 34.9% |
| Net loss attributable to common shareholders | $10.7 million | $16.7 million | Loss narrowed |
| Core FFO | $194.9 million | $175.4 million | Up 11.1% |
| Net cash from operating activities | $212.5 million | $182.3 million | Up $30.2 million |
- Operating income was approximately 12.7% of revenue in 2021, versus 9.6% in 2020. This is a simple calculation from reported figures, not a company-defined margin.
- NOI, a non-GAAP measure, was $343.4 million, up from $316.0 million. The filing cautions that NOI and Core FFO are not substitutes for GAAP results or operating cash flow and do not represent cash available for distributions.
- Cash and cash equivalents were $423.7 million; cash plus restricted cash totaled $474.6 million. The company also had $850 million of undrawn revolving-credit capacity.
- Year-end debt principal was $2.334 billion (carrying value $2.310 billion), with a 3.89% weighted-average interest rate and 7.5-year weighted-average maturity. Net debt to total market capitalization was 42.4%. The first stated debt maturity was in November 2024.
- Debt covenants were reported in compliance, except the $30 million mortgage on the Norwalk property, which was in default. The company suspended debt service and stated its intent to transfer the property to the lender.
Material changes, outlook and risks
- Revenue rose as Observatory revenue and lease termination fees increased, while rental revenue declined with lower occupancy, rent-receivable write-offs and reduced tenant expense reimbursements. Operating expenses fell 1.0%; interest expense rose 5.0% to $94.4 million.
- Observatory visitation increased to 827,000 from 507,000 in 2020, but remained far below 3.5 million in 2019. Management expected visitor mix and international travel to recover gradually; it gave no specific financial guidance or timetable for return to pre-pandemic results.
- In December 2021, ESRT acquired a 90% interest in two Manhattan multifamily assets for a total transaction value of $307 million, including $186 million of assumed debt. Fetner Properties retained 10% and manages onsite operations.
- GBG USA, a significant tenant, filed for bankruptcy in July 2021 and rejected its leases. ESRT converted a $17.0 million letter of credit to cash, including $10.1 million recognized as lease termination income; it recorded a $1.6 million non-cash write-off of straight-line rent receivables.
- The company recorded a $7.7 million impairment on the Norwalk property. Observatory goodwill of $227.5 million was not impaired, but estimated fair value exceeded carrying value by less than 15%, making the valuation sensitive to tourism, revenue and cost assumptions.
- Management cited continued uncertainty from COVID-19, hybrid work, tenant credit and lease renewals, retail weakness, local market concentration, refinancing and interest-rate exposure, and competition. It expects no Local Law 97 fines for its buildings in the 2024–2030 first enforcement period, based on its current calculations; this is not assured.
- The quarterly common dividend was reinstated in 2021 at $0.035 per share for each of the second through fourth quarters ($0.14 annualized). The board retains discretion over future distributions. The company repurchased 4.89 million shares during 2021.
- A $1.2 million judgment in a long-running arbitration-related matter was entered in 2021; the company appealed. The filing says other material litigation was not pending, apart from ordinary-course matters.
Most important facts for investors to verify
- Whether office occupancy, leasing and rent collections improve, and how much vacant space and upcoming lease expirations require concessions or leasing capital.
- Progress on the Norwalk mortgage default and transfer, including any further costs, liabilities or effects on lender relationships.
- Observatory visitation, revenue and the assumptions supporting the less-than-15% goodwill valuation cushion.
- Debt maturities, covenant headroom, refinancing terms and the LIBOR-to-alternative-rate transition.
- Whether operating cash flow can support expected tenant improvements, capital spending, acquisitions, debt service and distributions.