Empire State Realty OP LP Reports Solid 2023 Earnings with Increased Observatory NOI
Net Income: $0.06 per fully diluted share in Q4 and $0.30 for full year 2023.
Core FFO: $0.25 per fully diluted share in Q4 and $0.93 for full year 2023.
Leasing Activity: Signed 951,000 rentable square feet of leases in 2023.
Liquidity: $1.2 billion of liquidity with no floating rate debt exposure.
Occupancy: Total commercial portfolio occupancy at 86.3% as of December 31, 2023.
Observatory Revenue: Increased by 26% year-over-year, matching full year 2019 NOI.
2024 Outlook: Core FFO per fully diluted share projected to be between $0.90 and $0.94.
On February 20, 2024, Empire State Realty OP LP (ESBA) released its 8-K filing, announcing its financial results for the fourth quarter and full year of 2023. The company, a key player in the New York City real estate market, manages a portfolio of office, retail, and multifamily assets, with a focus on energy efficiency and indoor environmental quality. Its flagship asset, the Empire State Building, includes the renowned Observatory, a top-rated tourist attraction.
Performance and Challenges
ESBA's performance in 2023 was marked by a net income per fully diluted share of $0.06 in the fourth quarter and $0.30 for the full year. Core Funds From Operations (FFO) per fully diluted share reached $0.25 in Q4 and $0.93 for the entire year. The company signed a substantial 951,000 rentable square feet of leases throughout the year, demonstrating robust leasing activity despite the challenges posed by evolving office space usage and remote work trends.
The company's Observatory segment showed notable strength, with a 26% increase in net operating income (NOI) year-over-year, matching the full year 2019 NOI. This performance underscores the Observatory's resilience and appeal as a leading tourist destination. However, the broader market continues to face uncertainties, including the impact of remote work on office space demand and the potential for economic headwinds that could affect leasing and occupancy rates.
Financial Achievements and Importance
ESBA's financial achievements in 2023, particularly the growth in Observatory NOI and the strong leasing activity, are significant as they reflect the company's ability to attract and retain tenants in a competitive market. Additionally, the company's strong liquidity position, with $1.2 billion available and no exposure to floating rate debt, provides financial stability and flexibility to navigate potential market fluctuations.
The company's balance sheet remains robust, with total debt standing at approximately $2.2 billion and a weighted average interest rate of 3.9% per annum. The weighted average term to maturity is 5.4 years, and the net debt to adjusted EBITDA ratio is 5.4x. These metrics are crucial for ESBA as they impact the company's borrowing costs and financial leverage, which are key considerations for investors in the Real Estate Investment Trust (REIT) industry.
2024 Earnings Outlook
Looking ahead, ESBA provided guidance for 2024, with Core FFO per fully diluted share expected to range between $0.90 and $0.94. The company anticipates year-end commercial occupancy rates to be between 87% and 89%, and Observatory NOI to be between $94 million and $102 million. These projections are based on assumptions that include positive revenue growth, an increase in operating expenses and real estate taxes, and average quarterly Observatory expenses of approximately $9 million.
While ESBA's outlook is positive, it is subject to fluctuations due to factors such as changes in office space usage, the ability to complete capital improvements, and the costs associated with future transactions. Investors are encouraged to consider these factors when evaluating the company's future performance.
In conclusion, Empire State Realty OP LP (ESBA) has reported a solid financial performance for 2023, with increased net income and Core FFO per share. The company's leasing activity and liquidity position remain strong, and the Observatory segment continues to be a significant contributor to its success. As ESBA looks to 2024, it remains cautiously optimistic, with guidance reflecting both the opportunities and challenges ahead.
Explore the complete 8-K earnings release (here) from Empire State Realty OP LP for further details.
This article first appeared on GuruFocus.
