Empire State Realty OP(ESBA) - 2021 Q4 - Annual Report

PART I Business The company is a REIT managing office, retail, and multifamily assets primarily in the New York metropolitan area Portfolio Overview as of December 31, 2021 | Asset Type | Rentable Square Feet | Occupancy | Leased Percentage (incl. signed) | | :--- | :--- | :--- | :--- | | Office & Retail | 10.1 million | 82.4% | 85.7% | | Office Properties | 9.4 million | 82.5% | 85.3% | | Standalone Retail | 0.2 million | - | 100.0% | | Multifamily | 625 units | - | - | - The company operates through a real estate segment for commercial and multifamily assets and an observatory segment[25] - Business strategies include capitalizing on environmental leadership, pursuing acquisitions, and enhancing Observatory operations[17][18][19] - As of December 31, 2021, the company employed 693 people, with approximately 70% covered by collective bargaining agreements[61][144] Risk Factors The company faces significant risks from the COVID-19 pandemic, geographic concentration, and regulatory changes - The COVID-19 pandemic severely impacted the observatory, with visitor volume at 0.8 million in 2021 versus 3.5 million in 2019[75][85] - The portfolio's geographic concentration in New York makes it vulnerable to local economic and regulatory downturns[80][82] - A significant portion of revenue comes from six properties, with the Empire State Building accounting for 31.7% of 2021 rental revenues[84][85] - The company is subject to NYC's Local Law 97 on emissions but expects to pay no fines in the first enforcement period (2024-2030)[40][139] - Tax protection agreements could limit the company's ability to sell certain properties or require specific debt levels[181][182][184] Unresolved Staff Comments The company had no unresolved comments from the SEC staff as of the end of the fiscal year 2021 - There were no unresolved SEC staff comments as of the end of the fiscal year 2021[205] Properties The company's portfolio consists of 10.1 million square feet of office/retail space and recently acquired multifamily assets Office and Retail Portfolio Summary (as of Dec 31, 2021) | Metric | Value | | :--- | :--- | | Total Rentable Square Feet | 10,128,335 | | Percent Occupied | 82.4% | | Annualized Rent | $523.8 million | | Number of Leases | 730 | Top 5 Tenants by Annualized Rent (as of Dec 31, 2021) | Tenant | Annualized Rent | % of Portfolio Annualized Rent | | :--- | :--- | :--- | | LinkedIn | $26,656,726 | 5.1% | | PVH Corp. | $11,343,800 | 2.2% | | Centric Brands Inc. | $11,006,769 | 2.1% | | Sephora | $10,528,487 | 2.0% | | Li & Fung | $9,283,476 | 1.8% | Lease Expirations (All Office and Retail Properties) | Year of Expiration | % of Portfolio Rentable Square Feet Expiring | | :--- | :--- | | 2022 | 5.7% | | 2023 | 6.3% | | 2024 | 8.3% | | 2025 | 5.4% | | 2026 | 7.8% | - In December 2021, the company acquired two multifamily assets for $307 million, adding 625 units to its portfolio[228] - The company has invested approximately $966.7 million in its Manhattan office properties as part of a redevelopment program[229] Legal Proceedings The company is not involved in any material litigation beyond routine matters and a disclosed arbitration case - The company is not involved in any material litigation outside the ordinary course of business, except for a previously disclosed arbitration claim[578][579] Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable[236] PART II Market for Registrant's Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities The company's units are traded on NYSE Arca, with a reinstated dividend and an active share repurchase program - The quarterly dividend was reinstated in May 2021 and set at $0.035 per share for the remainder of 2021[243] - A $500 million repurchase program for common stock and OP units was authorized for 2022 through 2023[253] Equity Repurchases in Q4 2021 | Month | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | October 2021 | — | — | | November 2021 | 1,452,168 | $10.06 | | December 2021 | 2,426,091 | $9.09 | [Reserved] This item is not applicable - Not applicable[257] Management's Discussion and Analysis of Financial Condition and Results of Operations FY2021 saw an improved net loss driven by partial observatory recovery, despite slightly lower rental revenue Financial Performance Summary (Year Ended Dec 31) | Metric | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $624.1M | $609.2M | 2.4% | | Rental Revenue | $559.7M | $563.1M | (0.6)% | | Observatory Revenue | $41.5M | $29.1M | 42.7% | | Operating Income | $79.1M | $58.7M | 34.9% | | Net Loss | ($13.0M) | ($22.9M) | 43.0% improvement | Non-GAAP Financial Measures (Year Ended Dec 31) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net Operating Income (NOI) | $343.4M | $316.0M | $396.1M | | Core Funds From Operations (Core FFO) | $194.9M | $175.4M | $267.9M | - As of December 31, 2021, the company had strong liquidity with $423.7 million in cash and $850 million of undrawn capacity[268][301] - In July 2021, tenant GBG USA filed for bankruptcy, resulting in $10.1 million recognized as lease termination income[277][279] - The fair value of the observatory reporting unit exceeded its carrying value by less than 15.0%, indicating a heightened risk of future goodwill impairment[282][371] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate volatility on its variable rate debt, managed via derivatives - The principal market risk is interest rate risk, with $125.0 million in floating rate debt (5.4% of total) as of year-end 2021[363][379] - The company uses interest rate swaps and caps to manage risk, with an aggregate notional value of $451.3 million[383] - The company is managing the transition from LIBOR to an alternative rate like SOFR for its credit facilities and derivatives[386][387] Financial Statements and Supplementary Data This section incorporates by reference the company's audited consolidated financial statements and data - This section refers to the full consolidated financial statements, which are included from page F-1 onwards in the Form 10-K[393] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure No changes in or disagreements with the company's accountants were reported - None reported[393] Controls and Procedures Management concluded that the company's disclosure controls and internal financial reporting controls were effective - Management concluded that disclosure controls and procedures were effective as of December 31, 2021[394] - Management's report on internal control over financial reporting concluded that controls were effective as of December 31, 2021[396] - The independent auditor, Ernst & Young LLP, issued an unqualified opinion on the effectiveness of internal controls[399] Other Information No other information was required to be reported in this section - None[406] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This disclosure requirement is not applicable to the company - Not applicable[407] PART III Directors, Executive Officers and Corporate Governance Information is incorporated by reference from the 2022 Annual Meeting of Stockholders proxy statement - Information is incorporated by reference from the ESRT Proxy Statement[409] Executive Compensation Information is incorporated by reference from the 2022 Annual Meeting of Stockholders proxy statement - Information is incorporated by reference from the ESRT Proxy Statement[410] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information is incorporated by reference from the 2022 Annual Meeting of Stockholders proxy statement - Information is incorporated by reference from the ESRT Proxy Statement[410] Certain Relationships and Related Transactions, and Director Independence Information is incorporated by reference from the 2022 Annual Meeting of Stockholders proxy statement - Information is incorporated by reference from the ESRT Proxy Statement[412] Principal Accounting Fees and Services Information is incorporated by reference from the 2022 Annual Meeting of Stockholders proxy statement - Information is incorporated by reference from the ESRT Proxy Statement[413] PART IV Exhibits, Financial Statements and Schedules This section lists all financial statements, schedules, and exhibits filed with the Form 10-K report - This section provides an index of all financial statements, schedules, and exhibits included in or filed with the 10-K report[415][418] Form 10-K Summary No summary of the Form 10-K was provided in this section - None[424]