Empire State IPO prices at $13/shr, low end of range -source

Reuters

By Ilaina Jonas

NEW YORK, Sept 30 (Reuters) - The company that owns New YorkCity's Empire State Building priced its initial public offeringat $13 a share on Tuesday, an underwriting source said, the lowend of an expected $13- to $15-a-share range, marking the end ofa nearly two-year road to an IPO.

At that price, Empire State Realty Trust Inc raised$929.5 million by pricing 71.5 million shares as planned.

The price reflects some of the complexities that the companybrings to the market and should not be seen as a harbinger forother real estate investment trusts and real estate-relatedcompanies on deck for an IPO, Green Street Advisors analystMichael Knott said. Those include Blackstone Group LP's Brixmor Property Group Inc, a shopping center REIT, and hotelcompany Hilton Worldwide Inc.

"It has more unusual features or issues that investors takeup," Knott said. "It reinforces the idea that coming public isnot an easy process, and public investors are exacting anddemanding attractive pricing to put new dollars to work in a newcompany."

Such issues include problematic corporate governance,investing in a family-run business, and valuing the Empire StateBuilding's observation decks, he said. The revenue generatedfrom the observation decks, where tickets run between $16 and$55 each, is inconsistent, and the tourist site will facecompetition in the future from One World Trade Center, Knottsaid.

Bank of America Corp and Goldman Sachs & Co,were lead bankers on the deal. The shares are expected to tradeWednesday under the symbol "ESRT" on the New York StockExchange.

The REIT's centerpiece is arguably the most famous buildingin the world. The Empire State Building opened in 1931 duringthe Great Depression. At 102 stories, it stood as the world'stallest building until it lost its title in 1972 to the WorldTrade Center's North Tower.

The skyscraper withstood an airplane crash in 1945 andplayed a central role in the movie versions of "King Kong" aswell as other films and television shows.

The REIT portfolio, which includes 19 properties in New Yorkand Connecticut, is about 83 percent occupied, Knott said.

The REIT will have an initial annual dividend of 34 cents ashare, according to a filing with the U.S. Securities andExchange Commission. At the $13 per share price, the dividendtranslates to about 2.6 percent. The average dividend for anoffice REIT currently stands at 3.3 percent, according to GreenStreet.

Much of the funds will be used to allow the estate of LeonaM. Helmsley and other non-profits to cash out of theirinvestment.

The road to an IPO for the REIT has been exceptionally long.Malkin Holdings LLC, which spearheaded the plan, kicked off theeffort to roll up the properties into the REIT at the end ofNovember 2011. It was quickly met with opposition from a smallbut vocal group of investors, and a few court cases. At leastone is still pending an appeal.

Once the REIT plan won the approval of the investors,several New York developers offered to buy the EmpireState Building.

Malkin Holdings rejected the offers, saying that after debtand other costs, the proposals were shy of the value the REIT isexpected to generate for investors, according to a regulatoryfiling.

The skyscraper and its more than 2,800 investors were managed by Malkin Holdings. The relationship dates back to theearly 1960s, when Lawrence Wien, one of the pioneers ofsyndicated real estate ownership, sold 3,300 units at $10,000and created Empire State Building Associates.

Simultaneously, he sublet the property for 114 years toEmpire State Building Co, owned by Wien and real estate magnetHarry Helmsley.

Over the years, Empire State Building Associates also boughtthe land. Wien died in 1988, passing control of the Empire StateBuilding and several other New York buildings in the REIT to hisson-in-law, Peter Malkin, the chairman of Malkin Holdings, andhis grandson, Anthony Malkin, Malkin Holdings' president.

Anthony Malkin is chairman, chief executive officer andpresident of the REIT.

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