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: April 27, 2016
Reporting Period: First Quarter of 2016
This filing serves as a notification that the Company issued a press release announcing its financial results for the first quarter of 2016. The actual financial data is contained in the attached press release (Exhibit 99.1) and supplemental information (Exhibit 99.2), which are incorporated by reference but not deemed "filed" for liability purposes under Section 18 of the Exchange Act.
Key Financial Metrics
Revenue, Profit, Cash Flow, Margins, Debt, and Liquidity: The provided text does not contain specific numerical values for revenue, net income, cash flow, margins, debt levels, or liquidity ratios. These figures are located in the referenced Exhibits 99.1 and 99.2, which are not included in the input text.
Non-GAAP Measures Defined: The filing details the Company's methodology for several supplemental financial measures:
- Funds From Operations (FFO): Net income excluding impairment writedowns, gains/losses from debt restructurings and sales of properties, plus real estate-related depreciation and amortization.
- Modified FFO: FFO adjusted to add back amortization of above or below-market ground leases.
- Core FFO: Modified FFO adjusted to exclude non-recurring items such as acquisition expenses, lawsuit settlement gains, and prepayment penalties.
- Core Funds Available for Distribution (Core FAD): Core FFO adjusted for non-real estate depreciation, straight-line rent, capital expenditures, and other items to estimate dividend funding ability.
- Net Operating Income (NOI): A measure of property performance excluding cost of funds, depreciation, and corporate-level expenses.
- EBITDA: Net income plus preferred distributions, interest, taxes, depreciation, amortization, and acquisition expenses.
Material Changes
The filing text does not provide specific data points to compare the current period against the prior comparable period. It only confirms the issuance of Q1 2016 results. The text notes that the Company acquired two properties in July 2014 carrying significantly below-market ground leases, the amortization of which is material to results and is adjusted for in Modified FFO.
Guidance, Outlook, and Risks
Management Commentary: Management emphasizes that the non-GAAP measures (FFO, Modified FFO, Core FFO, Core FAD, NOI, EBITDA) are useful for evaluating operating performance and comparability among REITs but explicitly states they are not substitutes for GAAP net income or cash flow from operating activities.
Risks and Limitations:
- Non-GAAP measures exclude capital expenditures and leasing commissions necessary to maintain operating performance.
- FFO and Modified FFO do not represent cash generated from operating activities or cash available for distributions.
- There is no assurance that the Company's non-GAAP measures are comparable to those of other REITs due to varying computation methods.
- NOI excludes significant economic costs such as interest expense and general administrative costs.
Unusual Items: The definition of Core FFO specifically excludes non-recurring items such as private perpetual preferred exchange offering expenses, acquisition break-up fees, and a gain on the settlement of a lawsuit related to the Observatory.
Investor Verification Checklist
- Review Exhibit 99.1 (Press Release) for specific Q1 2016 revenue, net income, and FFO figures.
- Review Exhibit 99.2 for the detailed reconciliation of GAAP net income to FFO, Modified FFO, Core FFO, and Core FAD.
- Verify the impact of the below-market ground lease amortization on Modified FFO.
- Confirm the specific amounts related to the Observatory lawsuit settlement and acquisition expenses excluded from Core FFO.
- Assess the Company's ability to fund dividends by comparing Core FAD against declared distributions.