Portfolio and Occupancy - As of December 31, 2020, the total portfolio contained 10.1 million rentable square feet of office and retail space, with an occupancy rate of 85.9% and a leased rate of 88.7% including signed leases not yet commenced[12]. - The Empire State Building, with 2,714,482 rentable square feet, had an occupancy rate of 88.5% and generated annualized rent of $146.2 million[210]. - One Grand Central Place, with 1,246,992 rentable square feet, had an occupancy rate of 84.1% and generated annualized rent of $63.1 million[210]. - The retail properties in the portfolio had an overall occupancy rate of 86.9% and generated annualized rent of approximately $69.9 million[210]. - As of December 31, 2020, the company had approximately 1.1 million rentable square feet of vacant space[107]. - The annualized rent from the portfolio was approximately $542.7 million, with a projected increase to approximately 88.7% leased when accounting for leases signed but not yet commenced[209]. Financial Performance and Liquidity - The company secured an additional $180 million in ten-year financing, maintaining $1.6 billion in liquidity as of December 31, 2020, with no debt maturities until November 2024[17]. - The company has a total debt outstanding of $2.2 billion, with a weighted average interest rate of 3.91% and a weighted average maturity of 8.2 years[31]. - The company experienced a significant reduction in cash flows, which could negatively impact its ability to pay dividends and maintain REIT qualification[89]. - The COVID-19 pandemic led to a 93.8% decline in visitor volume during Q4 2020 compared to the same period in 2019, significantly impacting revenue[88]. - Observatory revenue for 2020 was $29.1 million, representing a 77.4% decline compared to 2019[88]. COVID-19 Impact - The COVID-19 pandemic has created volatility and negative pressure in financial markets, adversely affecting the company's and its tenants' operations[87]. - The pandemic has increased the risk of tenant bankruptcies, which could lead to reduced rental income and financial strain on the company[104]. - The company reduced operating expenses and general administrative costs, including executive compensation reductions, to navigate the challenges posed by the COVID-19 pandemic[15]. Energy Efficiency and Sustainability - Approximately 76% of the portfolio's square footage is ENERGY STAR certified, with the Empire State Building achieving a 43% reduction in energy use post-retrofit, resulting in over $6.9 million in annual energy cost savings[22][29]. - The company has made energy efficiency retrofitting a portfolio-wide initiative, passing on cost savings to tenants through lower utility costs[41]. - The company was the first commercial real estate portfolio in the Americas to achieve the WELL Health-Safety Rating for Facility Operations and Management in 2020[26]. - The company self-manages all properties and implements energy efficiency initiatives, which are expected to attract high credit-quality tenants and reduce operating costs[41]. Tenant Relationships and Leasing - Since 2013, the company has achieved 217 tenant expansions totaling over 1.9 million square feet, indicating strong tenant relationships and proactive management[36]. - The company maintains strong relationships with brokers to negotiate attractive leasing deals, focusing on high credit-quality tenants[40]. - Approximately 16.5% of the portfolio's annualized rent was derived from retail tenants, a sector facing significant challenges due to the pandemic[102]. Governance and Management - The management team owns 12.7% of ESRT's common stock on a fully diluted basis, aligning their interests with those of the securityholders[30]. - The company has made strides in enhancing gender and ethnic diversity in its board and management team over the past two years[75]. - As of December 31, 2020, the Chairman, President, and CEO, Anthony E. Malkin, along with the Malkin Group, holds approximately 18.5% of the voting power of the company's outstanding common stock[189]. Risks and Compliance - The company faces risks related to compliance with the Americans with Disabilities Act (ADA), which may require significant costs to bring non-compliant properties into compliance[155]. - The company is susceptible to reductions in visitor demand due to adverse weather and competition from other observatories in New York City[120]. - The company may incur significant costs and face operational restrictions due to environmental laws and potential contamination at its properties[145]. - The company is exposed to risks associated with property development, including potential delays and increased costs, particularly for a planned 0.4 million rentable square foot office building in Stamford, Connecticut[115]. Insurance and Taxation - The company carries comprehensive insurance, including $2 billion in terrorism coverage for the Empire State Building, ensuring financial protection against potential losses[55]. - The company carries terrorism insurance on all properties, with deductibles deemed commercially reasonable[58]. - The company must ensure that income from its Observatory and broadcast facilities qualifies for REIT gross income tests to avoid restructuring operations[174]. - The company must distribute at least 90% of its REIT taxable income annually to maintain its REIT status[63]. Future Outlook and Strategy - The company has established a dedicated investment function, including a Chief Investment Officer and a full acquisitions team, to focus on acquiring Manhattan office properties and other real estate in densely populated areas[35]. - Future acquisitions may expose the company to additional risks and competition from private investors, potentially impacting its growth strategy[125]. - The company intends to make distributions to securityholders, but these will depend on earnings and financial condition, with no assurance of sustainability[201].
Empire State Realty OP(FISK) - 2020 Q4 - Annual Report