IPO Preview: Empire State Realty Trust

| About: Empire State (ESRT)

Based in New York, NY, Empire State Realty Trust (NYSE:ESRT) scheduled a $1 billion million IPO with a market capitalization of $3.6 billion at a price range mid-point of $14, for Wednesday, October 2, 2013.

Six IPOs are scheduled for this week. The full IPO calendar can be found at IPOpremium.

S-11A filed September 19, 2013.

Manager, Joint Managers: Goldman, BofA Merrill Lynch

Co- Managers: Barclays, Citigroup, Deutsche, Wells Fargo Securities, Capital One Securities, HSBC, KeyBanc Capital Markets, RBS, Stifel, Lebenthal Capital Markets, Loop Capital, Ramirez

Summary

ESRT owns, manages, operates, acquires and repositions office and retail properties in Manhattan and the greater New York metropolitan area, including the Empire State Building.

As of June 30, 2013, ESRT's Manhattan office properties were 82% leased.

Valuation

Compare

Valuation Ratios

Mrkt

Price /

Price /

Dividend

annualizing June 6 mos '13

Cap (mm)

BkVlue

TanBV

Yield %

Empire State Realty Trust (ESRT)

$3,360

3.2

18.9

2.4%

Boston Properties (NYSE:BXP)

$16,320

2.9

2.9

2.45%

Vornado Realty Trust (NYSE:VNO)

$15,780

2.2

2.3

3.5%

Piedmont Office Realty Trust (NYSE:PDM)

$2,930

1.1

1.2

4.6%

Glossary

ESRT is priced in the same range as BXP but has a lower lease ratio, because of the extensive, ongoing renovation program.

Conclusion

The rating on ESRT is neutral.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above:.

Business

ESRT is a self-administered and self-managed REIT that owns, manages, operates, acquires and repositions office and retail properties in Manhattan and the greater New York metropolitan area. ESRT was formed to continue and expand the commercial real estate business of the predecessor, Malkin Holdings LLC and its affiliates.

ESRT's primary focus will be to continue to own, manage and operate our current portfolio and to acquire and reposition office and retail properties in Manhattan and the greater New York metropolitan area.

As of June 30, 2013, ESRT's Manhattan office properties were 82.0% leased (or 84.8% giving effect to leases signed but not yet started as of that date) and had 1.1 million rentable square feet of available space (excluding leases signed but not yet commenced). This compares to an average of 89.9% leased in midtown Manhattan according to RCG (research firm) as of March 31, 2013.

Renovation and repositioning

Since ESRT's predecessors assumed full control of the day-to-day management of the Manhattan office properties beginning with One Grand Central Place in 2002, and through June 30, 2013, ESRT has invested a total of $384.0 million (excluding tenant improvement costs and leasing commissions) in its Manhattan office properties.

Of the $384.0 million invested in the program, $190.4 million was invested at the Empire State Building. ESRT currently intends to invest between $40.0 million and $70.0 million of additional capital through the end of 2013.

ESRT expects to complete this program by the end of 2013, except with respect to the Empire State Building, which is the last Manhattan office property that began its renovation program. In addition, ESRT currently estimates that between $95.0 million and $125.0 million of capital is needed beyond 2013 to complete substantially the renovation program at the Empire State Building, is expected to occur by the end of 2016 due to the size and scope of the remaining work and a desire to minimize tenant disruptions at the property.

Of the total $140.0 million to $200.0 million of estimated additional capital expected to be incurred through 2016, ESRT currently estimates that between $135.0 million and $175.0 million is attributable to the Empire State Building.

5% stockholders pre-IPO

Anthony E. Malkin, 12.3%
Peter L. Malkin, 3.4%

Use of proceeds

ESRT expects to net $821 million from it IPO. Proceeds are allocated to repay debt.

Disclaimer: This ERST IPO report is based on a reading and analysis of ERTS's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.