Morningstar | Empire State Realty Trust Reports Tepid 1Q Earnings; Maintaining FVE
Empire State Realty Trust provided mixed first-quarter results, with encouraging re-leasing spreads offset by soft observatory demand. However, we saw little in this quarterly report to alter our long-term thesis and consequently expect to maintain our $17 per share fair value estimate for the no-moat-rated company. Core funds from operations was $0.19 in the first quarter compared with $0.20 a year ago. This slight decline was largely driven by a 3% decrease in observatory revenue compared with the first quarter of 2018. Although the decrease was largely attributable to a shift in the timing of Easter and Passover holidays to the second quarter, it appears that weak international tourism is also partly to blame.Empire State Realty Trust continues to pursue a redevelopment strategy in a bid to improve the overall quality of its Manhattan office portfolio. Although this entails significant capital expenditures, it seems to be working, as the company announced cash rent spreads of over 20% on its new Manhattan office leases and around 13% on portfoliowide leases. We think management’s focus on redevelopment is prudent, and we expect it to generate value over the long term.
By contrast, the observatory on the Empire State Building is experiencing some challenges. Although the company has been successful in increasing revenue per capita by tinkering with its pricing structure and strategy, faltering demand caused an overall decrease in quarterly revenue. This past quarter, the observatory hosted about 601,000 visitors, a decrease of 43,000 from the first quarter of 2018. While management estimates that around half of this can be attributed to the holiday shift, the rest of the decline is due to other factors, including weather and lower international tourist travel. While we think the observatory will remain a magnet for tourists in the long term, current headwinds provide reason for caution in the short term.
Empire State Realty Trust is a self-administered and self-managed real estate investment trust. The company owns, manages, operates, acquires and repositions office and retail properties in Manhattan and the greater New York metropolitan area, including the Empire State Building. The company's operating partnership, Empire State Realty OP, L.P., conducts substantially all of the company's business. The company has two reportable segments: Real Estate and Observatory. The company's real estate segment includes all activities related to the ownership, management, operation, acquisition, repositioning and disposition of its real estate assets. The company's observatory segment operates the floor observatories at the Empire State Building.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.