Business Context and Reporting Period
This Form 8-K was filed by Empire State Realty Trust, Inc. and its operating partnership subsidiary, Empire State Realty OP, L.P., on December 13, 2017. The filing reports the entry into a Material Definitive Agreement regarding a private placement of senior unsecured notes.
Key Financial Metrics and Transaction Details
The Operating Partnership entered into a Note Purchase Agreement to issue and sell an aggregate of $450 million in senior unsecured notes to entities affiliated with Prudential Capital Group, AIG Asset Management, MetLife Investment Advisors, LLC, and Teachers Insurance and Annuity Association of America.
- Total Principal Amount: $450 million
- Series D Notes: $115 million at 4.08% interest, due January 22, 2028.
- Series E Notes: $160 million at 4.26% interest, due March 22, 2030.
- Series F Notes: $175 million at 4.44% interest, due March 22, 2033.
- Issue Price: 100% of aggregate principal amount.
- Guarantees: Obligations are unconditionally guaranteed by the Company's subsidiaries that guarantee the Credit Agreement or other material credit facilities.
The filing does not provide specific revenue, profit, cash flow, or margin figures for the reporting period, as this is a transactional filing rather than a periodic financial report.
Material Changes and Covenants
The transaction introduces new debt obligations and specific financial covenants effective as of the last day of each fiscal quarter:
- Debt to Asset Value: Total indebtedness to total asset value ratio must not exceed 60%.
- Secured Debt Limit: Total secured indebtedness to total asset value ratio must not exceed 40%.
- Tangible Net Worth: Must not be less than $1.2 billion plus 75% of net equity proceeds received after June 30, 2017.
- Fixed Charge Coverage: Adjusted EBITDA to consolidated fixed charges ratio must not be less than 1.50x.
- Unsecured Coverage: Aggregate net operating income of unencumbered properties to interest expense on unsecured debt must not be less than 1.75x.
- Unsecured Debt Limit: Total unsecured indebtedness to unencumbered asset value must not exceed 60%.
Additionally, the Company amended its 2015 Note Purchase Agreement to conform covenants with the new Purchase Agreement.
Outlook, Use of Proceeds, and Risks
Use of Proceeds: The Operating Partnership intends to use net proceeds to repay certain mortgage indebtedness maturing in 2018 and for general corporate purposes.
Closing Schedule:
- Series D Notes closing: December 22, 2017.
- Series E and F Notes closing: March 22, 2018.
Risks and Contingencies: The agreement includes customary events of default, including non-payment, breach of covenants, cross-defaults, bankruptcy, ERISA events, and loss of REIT qualification. The notes are subject to a make-whole premium if prepaid.
Investor Verification Checklist
- Verify the successful closing of the Series D Notes on December 22, 2017, and Series E/F Notes on March 22, 2018.
- Confirm the Company's compliance with the new financial covenants, specifically the 60% debt-to-asset ratio and 1.50x fixed charge coverage ratio.
- Monitor the repayment of 2018 maturing mortgage indebtedness using the proceeds.
- Review the full text of the Note Purchase Agreement (Exhibit 10.1) for detailed definitions of Adjusted EBITDA and asset value calculations.
- Check for any subsequent amendments to the 2015 Note Purchase Agreement referenced in the filing.