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


By Ilaina Jonas

NEW YORK, Sept 30 (Reuters) - The company that owns New York City's Empire State Building priced its initial public offering at $13 a share on Tuesday, an underwriting source said, the low end of an expected $13- to $15-a-share range, marking the end of a 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 company brings to the market and should not be seen as a harbinger for other real estate investment trusts and real estate-related companies on deck for an IPO, Green Street Advisors analyst Michael Knott said. Those include Blackstone Group LP's Brixmor Property Group Inc, a shopping center REIT, and hotel company Hilton Worldwide Inc.

"It has more unusual features or issues that investors take up," Knott said. "It reinforces the idea that coming public is not an easy process, and public investors are exacting and demanding attractive pricing to put new dollars to work in a new company."

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

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

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

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

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

The REIT will have an initial annual dividend of 34 cents a share, according to a filing with the U.S. Securities and Exchange Commission. At the $13 per share price, the dividend translates to about 2.6 percent. The average dividend for an office REIT currently stands at 3.3 percent, according to Green Street.

Much of the funds will be used to allow the estate of Leona M. Helmsley and other non-profits to cash out of their investment.

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

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

Malkin Holdings rejected the offers, saying that after debt and other costs, the proposals were shy of the value the REIT is expected to generate for investors, according to a regulatory filing.

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

Simultaneously, he sublet the property for 114 years to Empire State Building Co, owned by Wien and real estate magnet Harry Helmsley.

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

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