Business Context and Reporting Period
Company: Empire State Realty Trust, Inc. and Empire State Realty OP, L.P.
Filing Type: Form 8-K (Current Report)
Date of Report: February 25, 2015
Reporting Period: Fourth quarter and full year 2014 financial results.
This filing serves to announce the release of financial results for the fourth quarter and full year 2014 via a press release and supplemental information package. The specific financial data is contained in attached Exhibits 99.1 and 99.2, which are incorporated by reference but not deemed "filed" for liability purposes under Section 18 of the Exchange Act.
Key Financial Metrics
The filing text defines the methodology for several non-GAAP financial measures but does not provide specific numerical values for revenue, profit, cash flow, margins, debt, or liquidity for the reported period. These figures are located in the referenced Exhibits 99.1 and 99.2.
The Company utilizes the following non-GAAP measures to evaluate performance:
- Funds From Operations (FFO): Net income excluding impairment writedowns, gains/losses from debt restructurings and sales, plus real estate depreciation/amortization, adjusted for non-controlling interests and discontinued operations.
- Modified FFO: FFO adjusted to add back above or below-market ground lease amortization, specifically related to the Q3 2014 acquisition of two option properties.
- Core FFO: Modified FFO adjusted to exclude IPO and formation transaction costs (e.g., acquisition expenses, severance, retirement equity compensation) and other non-recurring items.
- Core Funds Available for Distribution (Core FAD): Core FFO adjusted for non-real estate depreciation, financing costs, and capital expenditures (including tenant improvements and leasing commissions) to assess dividend funding ability.
- Net Operating Income (NOI): Property-level performance measure excluding cost of funds, depreciation, acquisition expenses, and general administrative costs.
- EBITDA: Net income plus preferred distributions, interest, taxes, depreciation, amortization, and acquisition expenses.
Material Changes and Unusual Items
The filing highlights specific accounting treatments and unusual items that impact the non-GAAP measures:
- Ground Lease Amortization: The Q3 2014 acquisition of two option properties resulted in significant below-market ground leases. The amortization of these leases is material to results and is added back in the calculation of Modified FFO.
- Transaction Costs: Core FFO excludes expenses related to the Company's initial public offering (IPO), formation transactions, and a private perpetual preferred exchange offering.
- Legal Settlement: The filing references a gain on the settlement of a lawsuit related to the Observatory, which is excluded from Core FFO and NOI calculations.
Guidance, Outlook, and Risks
Guidance and Outlook: The filing text does not contain specific forward-looking guidance, earnings projections, or management commentary regarding future performance trends.
Risks and Limitations of Non-GAAP Measures: Management explicitly states that FFO, Modified FFO, Core FFO, Core FAD, NOI, and EBITDA:
- Do not represent cash generated from operating activities.
- Should not be considered alternatives to GAAP net income or GAAP cash flow from operating activities.
- Are not indicative of cash available to fund ongoing needs or make distributions.
- May not be comparable to similarly titled measures used by other REITs due to varying computation methods.
Investor Verification Checklist
- Verify the specific numerical values for Q4 and full-year 2014 revenue, net income, and FFO in Exhibit 99.1 (Press Release) and Exhibit 99.2 (Supplemental Package), as they are not present in this 8-K text.
- Confirm the impact of the Q3 2014 ground lease acquisitions on Modified FFO and overall operating results.
- Review the reconciliation tables in the supplemental package to understand the adjustments made to derive Core FFO and Core FAD from GAAP net income.
- Assess the Company's liquidity position and debt levels using the GAAP financial statements referenced in the exhibits, as this filing only defines the metrics.