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Empire State Realty Trust Inc. (NYSE:ESRT)

Q4 2013 Earnings Conference Call

February 28, 2014 10:00 AM ET

Executives

Brad Collins – ICR

Anthony Malkin – Chairman, CEO and President

Thomas Durels – EVP, Chief of Property Operations and Leasing

David Karp – EVP and CFO

Analysts

Brad Burke – Goldman Sachs

Craig Mailman – KeyBanc Capital Markets

Stephen Sihelnik – Bank of America Merrill Lynch

Michael Knott – Green Street Advisors

Operator

Greetings. And welcome to the Empire State Realty Trust Fourth Quarter and Year End 2013 Results Conference Call. At this time all participants are in a listen-only mode. A question and answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded.

I would now like to turn the conference over to your host Brad Collins with ICR. Thank you. You may begin.

Brad Collins

Good morning. We would like to thank you for joining us today by Empire State Realty Trust fourth quarter and year-end 2013 earnings conference call. In addition to the press release distributed last evening, we have posted a quarterly supplemental package with additional detail on the company’s results in the Investor Relations section on the company’s website at www.empirestaterealitytrust.com.

On today’s call management’s prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are just matters that are subject to risk and uncertainties that may cause actual results to differ from those discussed today.

Examples of forward-looking statements include those related to revenue, operating income, financial guidance as well as non-GAAP financial measures such as FFO, core FFO, same store results and EBITDA. We encourage listeners to review the more detailed discussions related to these forward-looking statements contained in the company’s filings with the Securities & Exchange Commission. We also caution that prior period results that are referenced in any comments today may not necessarily be reflective of the result at Empire State Realty Trust truly been a standalone entity during the period presented.

As a reminder forward-looking statements represent management’s current estimates. Empire State Realty Trust assumes no obligation to update any forward-looking statements in the future.

Finally during today’s conference call we will discuss certain non-GAAP financial measures which we believe are meaningful and evaluating the company’s performance. The definitions and reconciliations of these measures to the most directly comparable GAAP measures are included in the earnings release and supplemental package each available on the company’s website.

This morning’s conference call is hosted by Empire State Realty Trust Chairman, President and Chief Executive Officer Anthony Malkin, Chief of Property Operations and Leasing Tom Durels and Chief Financial Officer David Karp. They will make some introductory comments after which we will open up the call to your questions.

Now I will turn the call over to Mr. Anthony Malkin. Anthony?

Anthony Malkin

Thank you and good morning. I’m delighted to welcome you to our fourth quarter 2013 earnings conference call. Lot of show for today’s call will include a brief review and overview update on the company by me, Thomas Durels our Executive Vice President and Director of Leasing and Operations will give a brief review of our portfolio. And David Karp our Chief Executive Officer will review financial results and discuss our balance sheet.

Empire State Realty Trust is a pure play New York City metro area real estate portfolio. We like our assets and believe they are well positioned to generate long-term value creation and cash flow growth. We believe our portfolio continues to offer embedded growth. And the unique opportunity to capture upside through our continued renovation and repositioning of our properties, bringing our occupancies to market and leasing them at market rents. Our results for the fourth quarter 2013 were fully consistent with our expectations for operations and financial performance.

Recent successful completion of our formation transactions and initial public offering has given us an integrated management and leasing mandate. And we are well positioned to meet our goals. our core management team has decades of experience and a track record of value creation over many years, and through many cycles in the ownership, operation, redevelopment and repositioning of office and retail properties in Manhattan and the greater New York metropolitan area.

We are focused on the strong prospects we see as we continue to bring our existing portfolio occupancy and rents to market with our innovative market leading energy efficiency initiative. We are also very pleased with our observatory operations and the good results we have achieved as our planning, new programs and execution of new initiatives begin to bear fruit.

In 2013 we continue the upgrading of our observatory experience and self-launched our new handheld multimedia self-guided tour which is now included in our increased price of admission. We were pleased to have another record for attendance with 4.3 million visitors and nearly 3% increase over 2012. David Karp will cover the numbers from the observatory and his remarks. Our balance sheet makes it easy for us to continue to implement our redevelopment, repositioning and leasing strategies. The process detailed in the auction agreements with respect to our auction properties is under way in accordance with such agreements.

We will comment further when a final decision on the auction properties has been made, just another word, our strong balance sheet. We now have one of the lowest leveraged balance sheets in the industry and have the capacity and flexibility to finance our capital programs and support our pursuit of incremental opportunities that may arise. We see our balance sheet as one of our greatest assets and will – judiciously when we see that it can create real value. We enjoy an excellent network of industry relationships, and these relationships support all our activities with our team, our competitive position in our markets and our solid execution, I’m quite confident in our future prospects.

Lastly and importantly, our interests are aligned with our shareholders. My family remains a major stakeholder with the same objectives of value creation, value recognition, capital create appreciation and the growth of our current return. I’d now like to turn the call over to Thomas Durels.

Thomas Durels

Thank you Tony. Good morning everyone. 2013 was a strong year for the company as we drove recent momentum throughout the portfolio continue to execute on our repositioning and redevelopment program at the Empire State Building. Capture our mark-to-market on vacant office and retail space that we are repositioning and consolidating in Manhattan. And we began our transition to in-house property management from third-party agents. Further centralizing our organization which we believe will result in greater control and cost efficiencies.

Let me begin with a review of the fourth quarter leasing results. We signed 55 new and renewal leases, totaling approximately 415,000 square feet of office and retail space. Approximately 406,000 square feet of this leasing activity took place within our office portfolio with approximately 360,000 square feet in our Manhattan office properties. At year-end 2013 our portfolio was 86.1% occupied, and 87.7% leased, when including lease is signed that are not yet commenced. Over the longer period the opportunity to lease out and stabilize our Manhattan portfolio should result in stronger cash flow growth in coming years. During the fourth quarter revenue from new and renewal leases across our entire portfolio was 6.1% higher on a cash basis, compared to previous escalated rents. On the Manhattan office portfolio where the rates were 8% higher than prior escalated rents in the fourth quarter during which there no significant retail lease signed.

For the year starting rental rates were 18% higher than prior escalated rents on over 1.1,000,000 square feet of total leasing. This included our Manhattan office which achieved starting rents 13.7% higher than prior escalated rents for the year and included a significant retail we set 1333 Broadway with a large mark-to-market. Our average cost for tenant improvements and leasing commissions during the fourth quarter on new and renewal office leases were $57.64 per square foot .Also during the fourth quarter we signed several significant leases, but 501 Seventh Avenue we signed a 224,000 square feet renewal and extensive lease with PVH Corp. Formerly known as Phillips-Van Heusen, one of the world’s largest apparel companies.

At 1359 Broadway, we estimate 48,000 square feet renewal lease with Ipreo Holdings, a global leader of data and market intelligence. I’d like to note that these two Manhattan office leases were early renewals that provide immediate and future rent increases and avoidance of rollover costs. These two significant early renewals are consistent with our strategy for leasing to and retaining quality tenants that have good prospects as well within our portfolio. Additionally we sold strong progress in our greater New York metropolitan portfolio with a 22,000 square feet new lease at First Stamford Place with Novitex Enterprise Solutions, formally a division of Pitney Bowes.

Also, and 11,000 square feet new lease at First Stamford Place with CareCentrix a leader in the healthcare industry. Looking more broadly our portfolio offers an excellent combination of value, immediate access to mass transit, high quality office space in upgraded properties. We continue to intentionally vacate smaller suites occupied by legacy tenants to create new marketable space that we lease to higher quality tenants at market rents.

So let me move on to update you on the Empire State building where we continue to execute on our repositioning strategy. We are managing lease expirations to create more efficient larger blocks of space, while delivering highly marketable pre-built office suites which are being leased up and can be in the future released with little additional capital costs over time.

We believe our energy efficiency retrofits and sustainability guidelines are tracking tenants that seek the healthy and productive workplace environment while recognizing that our initiatives help to lower their direct utility costs. Our ongoing improvements, including new corridors, elevator modernization, white tablecloth restaurant with private executive dining. Distributed antenna system for building large cellular reception, tenant only conference centre and a 15,000 square feet tenant only fitness centre will all serve as an attractive draw for new quality tenants.

With these new amenities we are creating a completely unique urban campus unlike anywhere in New York City. Currently we are 82.3% leased in Empire including leases are signed but are not yet commenced with approximately 490,000 square feet of available space. Now other word to consolidated basis ongoing we have four fourth floors that are now available. And we expect that by year-end 2014 we would deliver four additional floors to the market.

In summary we believe the office market remains healthy. And Midtown Manhattan properties are very well positioned. Our repositioning plans continue to progress as anticipated. And we remain focused on attracting and leasing to quality tenants, enhancing NOI growth including long-term value for our shareholders

Now I’ll turn the call to David Karp, our Chief Financial Officer, David?

David Karp

Thanks Tom, and good morning everyone. Today I’ll review our fourth quarter operating results and then discuss our low leveraged and flexible balance sheet. After that we could open the call for questions. Let me start with a review of our fourth quarter results. Last night we reported core FFO of $41.4 million or $0.17 per diluted share for the fourth quarter 2013.

Our results in the fourth quarter were in line with our expectations. As you know the company completed its IPO during the fourth quarter and our reported results reflect only that portion of the period during which the company operated as a publicly traded company. Prior to the formation transactions in IPO the predecessor results of operations contain unconsolidated results for certain entities and are not directly comparable to our reported results.

Core FFO excludes the impact of formation expenses and gains, the review is one-time in nature such as acquisition costs, savings costs, retirement equity compensation costs and gains on the consolidation of non-controlled entities. Including these items the company’s FFO was $220.8 million or $0.90 per share for the fourth quarter 2013. Included in these numbers is the performance of the Empire State Building Observatory. The Observatory hosted approximately 980,000 visitors in the fourth quarter 2013 representing an 8.5% increase from the same period in 2012.

Observatory revenue for the fourth quarter grew 10.4% to $25.4 million as a result of greater tenants and a more profitable mix of ticket categories and direct sales to visitors. And Tony noted for the full year 2013 the Empire State Observatory hosted 4.3 million visitors a 2.7% increase from the same period in 2012. Observatory revenue for 2013 was $101.8 million, a 10.8% increase over the prior year

Moving to our balance sheet, we continue to maintain our balance sheet with low leverage and sufficient capacity and flexibility to support our strategic initiatives and capital investment programs. At December 31, 2013 we had approximately $1.2 billion of total consolidated debt outstanding with a weighted average interest rate of 4.56%. Approximately $835.6 million of this outstanding debt is fixed rate with the weighted average interest rate of 5.78% and a weighted average term to maturity of 2.6 years. The remaining $372.5 million of debt is variable-rate with a weighted average interest rate of 1.81% in a weighted average term to maturity of 4.2 years.

At the end of the quarter our leverage reflected by debt to market capitalization was 24%, giving us one of the lowest leveraged balance sheet in the industry. At December 31, 2013 the outstanding balance of the company’s term loan and revolving credit facility was $325 million. Our credit facility has a total capacity including the accordion feature of $1.25 billion. We believe we had ample capacity and availability on our credit facilities to support our stated growth strategies, including our internal plans to continue to redevelop and reposition our properties.

During the quarter we repaid a $9.5 million dollars mortgage on one of our retail properties in Westport Connecticut. In 2014 we have $197.5 million of debt maturing which carries a weighted average interest rate of 5.49%. Included in this total is a loan on 1350 Broadway with an outstanding balance of $13.5 million which contains an option to extend its maturity to be coterminous with the senior financing on the property. We will continue to manage our balance sheet in a manner consistent with our goal to achieve an investment grade rating. In that regard we are currently considering our various alternatives to address the debt maturities arising later this year.

Looking at had we had only $90.5 million of debt maturing in 2015. Last Friday our Board of Directors approved a quarterly dividend of $8.5 per share to be paid in March.

With that, I would like to open the call for questions, operator?

Question-and-Answer Session

Operator

Thank you. At this time we’ll conduct a question-and-answer session. [Operator Instructions] Our first question comes from the line of Brad Burke with Goldman Sachs. Please proceed with your question.

Brad Burke – Goldman Sachs

Hi guys. Good morning. Wanted to touch on the observatory pretty impressive revenue growth and it looks like the direct sales in the ticket mix were really the driver. So wondering how much more room there is to grow revenue from the mix and from direct sales. And are we talking about the observatory, I was hoping you could give us an update on how we are to be thinking about costs trending in 2014?

Anthony Malkin

Tony Malkin here. First of all we don’t break out certain details on the observatory, so what I’m going to do here with regard to the total capacity for the observatory to try to reiterate some of the stuff that we spoke about uptight for the observatory we spoke about during our road show and some of the conversations we had with folks over time. We view the total capacity of the, day of the Empire State Building Observatory about 20,000 to 22,000 visitors in that range. And we had pretty close to 22,000 from time-to-time. And on that basis with 4.3 million visitors, we’re operating at just around 50% capacity.

So from an actual just moving numbers, there is room. Of course the businesses set with – as far as seasonality is concerned so there our shoulder periods where we can improve. And there are trades at your peak where we can. With regard to our mix, again well I couldn’t break that out but I will say that as we noted in our presentations in the past. This is a significant of priority and we’ll just frame it as a significant opportunity for us.

We are building and value the direct relationship we have with our customer. And that is our objective. We have spent a lot of time as part of our overall program and plan from observatory to put that together. And we feel comfortable and confident with the progress that we’re making there.

Brad Burke – Goldman Sachs

Okay that’s helpful. And then on the lease – looks like you’re making good progress. I was hoping, give us an update on how we’re – the thing about occupancy depending on the year as we think about the leases that you’ve already signed. And the expirations that you have coming up. And you can give us an update on the Empire State Building specifically how we should be thinking about occupancy turning in the year that’d be helpful.

Thomas Durels

Sure this is Tom Durels. So first we continue to execute on our strategy to vacate smaller suites, create vacant space, redevelop that vacant space and then lease it up. We have a proven history and a track record as we create vacant space, redevelop it. We’ve been successful in leasing that. We continue to add programs throughout the portfolio delivering modern, efficient pre-built suites on a smaller scales up to fourth floor availabilities as I mentioned in my remarks we have now four fourth floors available at Empire State Building. And we would be delivering four additional floors as part of that program to take that space, redevelop it. And make available for lease – four additional fourth floors would be available at the end of 2014.

Anthony Malkin

I just wanted to – jumping for a moment here, Tony Malkin, here. Just sort remind you how we view ourselves and measure our accomplishments. We are not a stabilized portfolio. Our goals are to consolidate and vacate old spaces, redevelop them and to vacant old floors, blocks of floors or pre-built and lease them at higher rates.

Our occupancy should logically fall in line with that program and our leasing spread should show our success. Now this is not to give you guidance, it’s more a frame of reference. We have given guidance on our CapEx and as it’s been explained, much of that CapEx is first time CapEx towards the redevelopment of space. And we still have a lot of money to spend. And Tom maybe this might – just remind about folks on any other detail you might offer some things that we have disclosed and have discussed.

Thomas Durels

Sure and our portfolio rely on space that remains to be developed. We have had about 1.9 million square feet within the portfolio of undeveloped space. And about 800,000 square feet of that is at Empire State Building. So you can see the progress that we’ve made throughout the portfolio and the work that we have in front of us going forward.

Brad Burke – Goldman Sachs

Alright, guys. I appreciate, thank you.

Operator

Thank you. Our next question comes from the line of Craig Mailman with KeyBanc Capital Markets. Please proceed with your question.

Craig Mailman – KeyBanc Capital Markets

Good morning. I was hoping you guys could give a little bit of extra color on the option properties. I know in the release you said you’re in process there but can you give us an update on where specifically you are in that process. And as it relates to the one that expires in March maybe give us a sense of how close you are?

David Karp

Yes Craig, its David Karp speaking. Just to give you an update on where we are on the option properties, we’re proceeding with the process as has been outlined in the option agreements. And just as a reminder of what that procedure is for a pre-term the option assets the date for the final appraisals and appraisals what determines the option price. It must be determined by April 7th of this year. Once that price is determined we have five months within which to determine whether to exercise the option. If we elect to exercise the option we then have approximately 90 days thereafter to close. Two other points, one is just a reminder that Tony Malkin and Peter Malkin have recused themselves from the process because of their participation in the ownership of those assets. And we have appointed a special committee of the board to oversee this process.

Craig Mailman – KeyBanc Capital Markets

Great, thanks for the color. And David maybe speaking with you on the $190 million of debt maturing in ‘14, does that grow do you think, do you guys take cash out equity on any of the properties or is it just going to be refinancing in that that principle balance?

David Karp

Well we are, as I mentioned in my remarks, we’re still looking at various alternatives we have available to us. And unfortunately we do have many alternatives given our balance sheet and the low leverage that we have on those assets. So I can’t tell you today what level of financing we will take or what type of financing will be assumed in connection with those maturities. What I will tell you is that we feel very good and very comfortable giving the balance sheet, the low leverage on those assets and the number of options available to us.

Craig Mailman – KeyBanc Capital Markets

Thanks. And then I just want to clarify Tom the 490,000 square feet at the Empire State Building, is that all white box and pre-built at this point or is there still some raw space there?

Thomas Durels

It is in various stages as part of that space consists of the four floors that I mentioned earlier. Some of that space is already pre-built, some of it is, are pre-built in construction. And others are four floors that are in the process of being consolidated and demolished.

Craig Mailman – KeyBanc Capital Markets

And then just lastly, on some of the read at CapEx you guys are putting the Empire State building recently, kind of where the, returns been shaking out?

Thomas Durels

Well the way we look is that we’re seeing probably somewhere in the 10% to 12% return on the new money that we’re investing in the Empire State Building. And we’re looking at that based upon the incremental NOI that we’re achieving from that space at projected market rates. And taking into consideration the fact that we’re already paying, most if not all of the operating expenses associated with that space already.

Craig Mailman – KeyBanc Capital Markets

Great and just lastly how’s the traction been there, what’s the showings been like?

Thomas Durels

At Empire State Building?

Craig Mailman – KeyBanc Capital Markets

Yeah.

Thomas Durels

Yeah it, I’m really pleased with the activity that we have. I’m really pleased with the showings and the prospects in the pipeline both for the small pre-built suites and the feedback that we’re getting from showings and recent proposals on fourth floors, so we’re very pleased.

David Karp

Very much like where we’re at in our competitive position.

Craig Mailman – KeyBanc Capital Markets

Great thank you.

Operator

Thank you, our next question comes from the line of Jamie Feldman, Bank of America Merrill Lynch. Please proceed with your question.

Stephen Sihelnik – Bank of America Merrill Lynch

Good morning, this is Stephen Sihelnik with Jamie Feldman actually. I was just wondering if you could comment and just give us an update on leasing progress you see in your suburban office assets within about Stamford, Norwalk – and if you guys can just give an update on that?

David Karp

Yeah sure if you followed some of the recent announcements we had a number of new and renewal leases recently done. And that follows some residuals of the two significantly leases that we closed in the fourth quarter, Novitex and CareCentrix first ever place. I would say that again our property show very well, I like our current position we’re in great location near mass transit. And if you look at the competitive set of the downtown properties near mass transits, I think we can keep very favorably.

Stephen Sihelnik – Bank of America Merrill Lynch

Okay, thank you.

Operator

Thank you. Our next question comes from the line of Aaron [indiscernible] Please proceed with your question.

Unidentified Analyst

Hey good morning. Could you just discuss for a moment the OpEx at one Grand Central place in the TI’s through that peers about the new leases?

Anthony Malkin

And what as far as TI’s related to new leasing at One Grand Central Place I’d say that generally to our concessions or at market. It varies from if we’re building a pre-built suite you know we’re delivering it up to the tenant on a turnkey basis but if it’s a full floor availability, we’re providing market rates and TI concessions along in line with marketing. Fairly everyone is deal dependent meaning the specifics of each individual transactions it depends on the terms, the rent that we get. So you have some availability there. And as far as operating expenses at One Grand Central Place look I will say that we are throughout the portfolio, starts on our redevelopment work. And as we move forward I think that we’ll see operating expenses stabilize over time.

Unidentified Analyst

And what it what are OpEx on a per store per basis today?

Anthony Malkin

Generally operating expenses today at One Grand Central Place are running at about $15 a square foot and in real estate taxes of another $10 so all in we are just in the ballpark of $25 a square foot.

Unidentified Analyst

Okay great. And then free rent was market but what is market for O1GCP today?

Anthony Malkin

Well again it depends on the deal size and the lease term and the rent, I’d say that on smaller suites for pre-build’s it may be anywhere from one to three months of free rent. On a larger transaction say about a full floor of availability it could be anywhere from eight to ten months again, really depending on those specific lease terms.

Unidentified Analyst

Right okay. And then in terms of available, from my understanding could be full floors currently available at the Empire State Building with another fourth floor that you’re planning to deliver by the year end. In terms of bring the floors, the fourth floors that you currently have available for lease. In terms of leasing those out those year, what do how do the prospects feel in terms of delivering that space to those tenants between first quarter, second quarter, third quarter, fourth quarter? Is that late in the year, mid-year?

David Karp

In terms of delivering this space to make it available it’s a matter of vacating the balance of the tenants on those floors and executing on our redevelopment to being the demolition on those fourth floors. So as we, as that work is done those floors would be available to the marketplace. We’re already pre-marketing those, but we’re on track and with our plans.

Anthony Malkin

I think it’s worthwhile to note some of the recent leasing that has been done at One Grand Central with the [indiscernible] which is one of the largest private equity firms in the world based in the UK, taking the full floor, Allianz taking space for their real estate group of course last year we had Gerson Lehrman Group taking up a full base floor and additional space on another floor that connected their two and they built that up, they’re building out a beautiful space with an atrium and all kinds of great features. So we really like the way things are coming along at one Grand Central. And though it’s not material – the one forward-looking statement that I’ll give you is we intend to move off of our tower floor here into a low, lower in another building to rent our space.

Thomas Durels

Well what Tony didn’t mention which was in a recent release we also did a full floor deal with Johnson Controls here at One Grand Central place.

Anthony Malkin

But that was a renewal expense.

Thomas Durels

Renewal expansion.

Unidentified Analyst

Yes got it that was great. Thank you.

Operator

Thank you. [Operator Instructions] Our final question will come from the line of Michael Knott with Green Street Advisors. Please proceed with your question.

Michael Knott – Green Street Advisors

Hey guys. Question for you on leasing pipeline, I don’t have a sense on how you feel about your current lot of prospects. And if you’ve prepared the, do you have a sort of a number of square feet that you’re sort of negotiating with the prospects like some of the other companies do, but just curious how you’re thinking about that.

Thomas Durels

Sure Michael. This is Tom again, yeah so, very good about our competitive position. I feel good about our executing on our redevelopment plans. I feel good about the way our property’s show, I think that I’m seeing healthy activity as I look at our properties in the Broadway corridor – Broadway corridor in the Times Square shop. Our strong market, its, our properties are well positioned. They show great in a resurging market that is a very active in that corridor. So we’re getting healthy amount of showings. I’m seeing a healthy amount of deal prospects and then moving on to Empire State Building just building on our prior comments. I like what I see there. From the small suite activity to the full floors and I’m really excited about the work that will be completed this year and how the property shows.

Michael Knott – Green Street Advisors

Okay, you guys are not giving any guidance in terms of where you expect occupancy to trend over the years is that right?

Thomas Durels

We’re not giving any guidance at this point. We’re considering the subject to providing some form of guidance, but any change in our present policy will be in the future.

Michael Knott – Green Street Advisors

Okay just in general, Tom on your comment about the additional fourth floors at Empire State. Should we infer that occupancy or the lease percentage there is going to go down before it goes back up or is that not an accurate inference?

Thomas Durels

Well again Michael as I said we continue our strategy to vacate space, redevelop it and lease it up. We have shown in the past that when we have vacated and redeveloped space we’ve been successful leasing it. Those four additional floors and then falling into that same strategy. So I feel confident about where we’re at and where we’re headed.

Michael Knott – Green Street Advisors

Again just a couple more if I may. On the observatory, is any commentary you can provide on whether the tough winter you guys have had is making for a tough 1Q so far versus 1Q of ‘13?

Thomas Durels

But the key to our observatory operation are the ability to get to and around New York City and to be able to observe the city from the observatory. When flights indications are cancelled, the city is snowbound and there are days when there is no view our performance can be impacted. But I can’t tell you that results year-to-date are generally ahead of 2013 for the same period. But we’re not providing more detail at this time but we feel very good about where we are. We feel good about that business. As I said we’re generally ahead of 2013 and kind of viewers just to – we’re living basically in Nome, Alaska right now in New York. And we’re expecting another foot of snow on Monday, so it’s been fun and interesting.

Michael Knott – Green Street Advisors

That’s why Newport Beach isn’t so bad.

Thomas Durels

Yeah. Well there’s many reasons. Yeah I wanted to say in general on the observatory. Again folks who met with us before and who – you’ll hear the same thing; you’ll meet with us in the future. We feel really good about – that we’ve been very thoughtful about this business, we continue to be thoughtful. We continue to have programs which we’ve implemented the audio tour which I reference is really a multimedia handheld device which turns the – our busiest periods from alignment to an experience. It’s included in the price of every ticket now. We increased our ticket price, we handed out to everybody. The reviews are fantastic from visitors who been using it. And we track Trip Advisor we’ve just done our poling with our, with our visitors which we do on a regular basis.

So that the exhibits have been upgraded, the energy efficiency exhibit has received an upgrade. We’re constantly moving the asset around. And our prominent and preeminent position as the featured view of New York City. Really the branding effort for that building in general, I hate to go on about it too much but it is our flagship property and you guys do have a lot of questions. Who’s going to win hash tag, who’s going to win program with Verizon over the Super Bowl?

We got more tweets on the Friday before the Super Bowl than the super, than the word Super Bowl. It was an incredibly engaging and engaged program. It got international coverage and we say international coverage, first it’s all about putting eyes on the Empire State Building so that we’re front of mind in everybody’s view of the perspective of the city of New York around the world.

And we have, we have things which dovetail with that. We have things which fit in with that so we like what we’re doing there. We like what’s going on, we feel good and comfortable about it. And – don’t forget it’s a lease just like a one World Trade Center. They leased that space out; if we weren’t operating this ourselves someone else would be operating it. They’d be paying us rent. One World Trade Center is getting $55 million starting rent from the Legends Group for that, we’ve got a much better offering, a much better operation, a much better brand. We feel good about what we’re doing.

Michael Knott – Green Street Advisors

Just real quick on the observatory and then one other one – if I may. Any thoughts on the potential for competition from Hudson Yards down the road?

Thomas Durels

No – there is, there will be competitors always you have to look at where that is, where we are. Get to look at what they’re offering and what we offer. They’re going to do a good thing; they’re going to do a bunch of other stuff. I feel very good about where we are. And candidly the more offering and the more opportunity that people have to advertise for their offerings of a view of New York, the view they’re always advertising is of the Empire State Building and that’s brand building anyway.

Michael Knott – Green Street Advisors

I agree, you should feel good. One last question for me is just on the litigation any comment just give us your perspective on what’s out there?

Thomas Durels

Sure I appreciate that. And I don’t know if how many people saw, hopefully you did see the result on Tuesday this past week when the court challenged to the legality of the buyout provisions. The court ruled in our favor. We have a very simple view of this. We went through a consolidation process on which people voted. The vote took place; people approved the consolidation and IPO. The rest of the stuff as far as I’m concerned is ants at a picnic.. It’s a big M&A transaction, it was a big offering, every single one has some litigation. We believe the claims are without merit, totally merit less, without merit. And we respond to these things in court. And so far I think the courts have demonstrated their view is in line with our position on these things. We did things right, people voted. We’re now talking about run the company.

Michael Knott – Green Street Advisors

Right. Thank you for that.

Operator

Thank you. Ladies and gentlemen we’ve come to the end of our time for questions. I would like to turn the floor – I’m sorry –

Anthony Malkin

Okay, so I just want to thank everybody for being on the call. It’s our first performance without a net given our first quarterly conference call. We’re really happy as a group. The thing I’ll leave you with is, we’re probably the one company for whom the life became more simple when we went public than it was before. And to be able to devote all of our efforts to executing on our strategies is a wonderful feeling. I’m having a lot of fun with it.

Operator

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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