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Time to Buy? Empire State Realty Stock(s) Hit 52-Week Highs.
It is Wednesday which means it's time to talk about stocks hitting 52-week highs or lows.
As I scoured through StockTwits’ Trends With No Friends list of 52-week highs from Tuesday’s trading, Empire State Realty OP LP Series ES (ESBA) jumped out at me because it has no followers at StockTwits.
None. Zero. Nada.
With the name Empire State, one would think the REIT would be related to New York. Indeed, it is. It is a New York City-focused real estate owner whose prime asset is the Empire State Building.
So, why does it have no followers? I’ll answer that and explain why it’s a Buy.
ESBA Has No Followers
The first reason it has no followers is that it’s too small for the S&P 500. There are 31 real estate stocks in the index with Federal Realty Investment Trust (FRT)the smallest with a market capitalization of $9.1 billion. It has 1,276 followers.
Secondly, I can’t find any analysts that cover its stock. I asked Perplexity AI. It told me not directly but through Empire State Realty Trust (ESRT) It has seven with an average rating of Hold.
So, if you haven’t figured it out by now, there are four Empire State Realty stocks: ESRT, ESBA, Empire State Realty OP LP Series 60 (OGCP), and Empire State Realty OP LP Series 250 (FISK).
ESRT is the actual REIT. It trades on the NYSE. ESBA, OGCP, and FISK are different series of operating partnership units that trade on NYSE ARCA. A fourth series, Series PR, doesn’t trade.
Before getting into the REIT itself, I’ll unravel the four series of operating partnership units.
“As of February 22, 2024, we had approximately 574 registered holders of Series PR OP Units, 1,225 registered holders of Series ES OP Units, 357 registered holders of Series 60 OP Units and 279 registered holders of Series 250 OP Units. Certain shares and OP Units are held in ‘street’ name and accordingly, the number of beneficial owners of such shares and OP Units is not known or included in the foregoing totals,” states pg. 32 of its 2023 10-K.
The company went public in October 2013, selling 71.5 million shares at $13. It did an IPO so that the various owners of the various properties, including the Empire State Building, had the option of cashing out of their investment, or putting it into something bigger that would grow over time.
Twelve former investors in Empire State Building Associates L.L.C. (ESBA), which owned the fee title to the Empire State Building, have been in legal wranglings with Peter Malkin (Chairman Emeritus), Anthony Malkin (Chairman and CEO), Thomas N. Keltner, Jr. (former EVP and Senior Counsel), and subsidiary ESRT MH Holdings LLC, the former supervisor of ESBA.
However, the dollar value surrounding litigation is negligible.
In a nutshell, when ESRT went public, it owned 38% of the operating partnership, senior management and directors owned 12.4%, and 49.6% was held by other continuing investors. ESBA owns the actual real estate.
Today, ESRT owns 60.2% of ESBA’s operating partnership units. It is the sole general partner of ESBA.
The REIT’s Business
The company’s assets consist of 8.6 million square feet of office space, 700,000 square feet of retail space, and 727 residential apartment units. Nine office properties are in Manhattan, and two are in Stamford, Connecticut. It owns land at one of its Stamford properties that could be developed into commercial or residential space.
It has two operating segments: Real Estate and Observatory. The former generates revenue from owning and operating its real estate, while the latter operates the observatories on the 86th and 102nd floors of the Empire State Building. In 2023, the observatories had 2.6 million visitors, 18% higher than in 2022.
In the three months ended March 31, it had rental revenue of $153.9 million, 9.9% higher than Q1 2023. Its observatory revenue was $24.6 million, 10.8% higher than a year ago. Total revenues were $181.2 million, 10.1% higher. Its core FFO (funds from operations) was $56.5 million, 31.4% higher than $43.0 million in Q1 2023. On a per-share basis, earnings rose at a slower rate of 23.8% due to more shares outstanding.
In 2024, it expects core FFO of $0.92 a share, two cents higher than in 2023, with multifamily contributing four cents. It expects to finish 2024 with commercial occupancy of 88%, 170 basis points higher than a year ago. The Observatory business should generate net operating income of $98 million, 4.1% higher than in 2023.
On July 1, the REIT announced that Kearney, a leading management consultant, had signed a lease to occupy the top two office floors (27,866 square feet) of the Empire State Building.
The REIT pays a $0.035 quarterly dividend. The annual payment of 14 cents yields 1.3%.
Which stock would I buy? If it were me, I’d go with ESBA because it trades at 3.3x its tangible book value per share, compared to a multiple of 9.9x for ESRT.
If you want to own a tiny piece of one of America’s most iconic buildings, the REIT gives you several options.
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On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
