Empire State Realty OP, L.P. (ESBA) Bundle
Understanding Empire State Realty OP, L.P. (ESBA) Revenue Streams
Understanding Empire State Realty OP, L.P.’s Revenue Streams
Empire State Realty OP, L.P. generates revenue primarily through two segments: Real Estate and Observatory. The following provides a detailed breakdown of these revenue sources.
Breakdown of Primary Revenue Sources
| Revenue Source | Q3 2024 (in thousands) | Q3 2023 (in thousands) | Change (%) |
|---|---|---|---|
| Rental Revenue | $153,117 | $151,458 | 1.1% |
| Observatory Revenue | $39,382 | $37,562 | 4.8% |
| Lease Termination Fees | $4,771 | $0 | N/A |
| Third-party Management and Other Fees | $271 | $268 | 1.1% |
| Other Revenues and Fees | $2,058 | $2,238 | -8.0% |
| Total Revenues | $199,599 | $191,526 | 4.2% |
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rate for the nine months ended September 30, 2024, compared to the same period in 2023, is as follows:
| Period | Total Revenue (in thousands) | Growth Rate (%) |
|---|---|---|
| 9M 2024 | $570,321 | 4.3% |
| 9M 2023 | $546,690 | N/A |
Contribution of Different Business Segments to Overall Revenue
For the nine months ended September 30, 2024, the contributions from each segment were:
| Segment | Revenue (in thousands) | Percentage of Total Revenue (%) |
|---|---|---|
| Real Estate | $459,469 | 80.6% |
| Observatory | $98,102 | 17.2% |
| Other Revenues | $12,750 | 2.2% |
Analysis of Significant Changes in Revenue Streams
During the nine months ended September 30, 2024, rental revenue increased by $23.0 million compared to the same period in the previous year, primarily due to higher occupancy rates and escalated operating and real estate tax expenses. However, the net impact of acquisitions and dispositions reduced rental revenue by $9.7 million.
Observatory revenues increased by 5%, driven by higher visitation levels and increased ticket prices. For the nine months ended September 30, 2024, the Observatory hosted 1,860,000 visitors, compared to 1,852,000 in 2023.
The table below summarizes the revenue growth for each segment:
| Segment | Revenue Growth (in thousands) | Growth Rate (%) |
|---|---|---|
| Real Estate | $23,000 | 5.3% |
| Observatory | $4,953 | 5.3% |
A Deep Dive into Empire State Realty OP, L.P. (ESBA) Profitability
Profitability Metrics
Understanding the profitability metrics of the company is crucial for evaluating its financial health. Below, we break down key profitability indicators including gross profit, operating profit, and net profit margins.
Gross Profit, Operating Profit, and Net Profit Margins
For the nine months ended September 30, 2024, the company reported:
- Gross Profit: $115,770,000
- Operating Profit: $61,566,000
- Net Profit: $36,273,000
The margins for these profits are as follows:
- Gross Profit Margin: 20.3%
- Operating Profit Margin: 10.8%
- Net Profit Margin: 6.4%
Trends in Profitability Over Time
When comparing the profitability metrics year-over-year:
| Metric | September 30, 2024 | September 30, 2023 | Change (%) |
|---|---|---|---|
| Gross Profit | $115,770,000 | $105,934,000 | 9.4% |
| Operating Profit | $61,566,000 | $68,577,000 | -10.2% |
| Net Profit | $36,273,000 | $39,933,000 | -9.2% |
Comparison of Profitability Ratios with Industry Averages
In comparison to the real estate industry averages, the company’s profitability ratios stand as follows:
| Metric | Company | Industry Average | Variance |
|---|---|---|---|
| Gross Profit Margin | 20.3% | 25.0% | -4.7% |
| Operating Profit Margin | 10.8% | 15.0% | -4.2% |
| Net Profit Margin | 6.4% | 8.0% | -1.6% |
Analysis of Operational Efficiency
Operational efficiency can be measured through cost management and gross margin trends:
- Property Operating Expenses: $132,530,000 in 2024, an increase of 6.6% compared to $124,380,000 in 2023.
- General and Administrative Expenses: $52,364,000 in 2024, compared to $47,795,000 in 2023, reflecting a 9.6% increase.
The company’s increasing property operating expenses and general administrative expenses indicate a need for enhanced cost management strategies to improve profitability metrics.
Debt vs. Equity: How Empire State Realty OP, L.P. (ESBA) Finances Its Growth
Debt vs. Equity: How Empire State Realty OP, L.P. Finances Its Growth
As of September 30, 2024, the total liabilities for Empire State Realty OP, L.P. were approximately $2.3 billion. This includes $705.6 million in mortgage notes payable and $1.5 billion in senior unsecured notes.
Overview of the Company's Debt Levels
The company has a mix of long-term and short-term debt. The breakdown is as follows:
| Debt Type | Amount (in thousands) | Interest Rate | Maturity Date |
|---|---|---|---|
| Mortgage Debt | $705,624 | Varies (2.83% - 4.44%) | 2026 - 2035 |
| Senior Unsecured Notes | $1,591,000 | Varies (3.61% - 7.41%) | 2025 - 2034 |
| Unsecured Term Loan Facility | $175,000 | SOFR + 1.50% | 2026 |
| Unsecured Revolving Credit Facility | $120,000 | SOFR + 1.30% | 2029 |
Debt-to-Equity Ratio and Comparison to Industry Standards
The debt-to-equity ratio for Empire State Realty OP, L.P. stands at 1.30 as of September 30, 2024. This is in line with the industry average, which typically ranges between 1.2 and 1.5 for real estate investment trusts (REITs).
Recent Debt Issuances, Credit Ratings, or Refinancing Activity
In April 2024, the company issued $225 million in senior unsecured notes with an interest rate range from 7.20% to 7.41%. The company has maintained a credit rating of Baa3 from Moody's, indicating a moderate credit risk.
Balancing Between Debt Financing and Equity Funding
Empire State Realty OP, L.P. has effectively balanced its debt financing and equity funding. The total equity as of September 30, 2024, is approximately $1.76 billion, which supports its debt levels. The company has also authorized a repurchase program of up to $500 million for its Class A common stock and operating partnership units, indicating an active approach to manage its equity structure.
Overall, the company’s strategy reflects a prudent use of leverage, ensuring a stable capital structure while pursuing growth opportunities.
Assessing Empire State Realty OP, L.P. (ESBA) Liquidity
Assessing Empire State Realty OP, L.P. Liquidity
Current Ratio: As of September 30, 2024, the current ratio was 1.21, indicating that the company has sufficient current assets to cover its current liabilities.
Quick Ratio: The quick ratio stood at 0.95, suggesting that the company may have challenges meeting its short-term obligations without relying on inventory sales.
Analysis of Working Capital Trends
As of September 30, 2024, working capital was reported at $124.5 million, reflecting an increase from $105.7 million in the previous year. This indicates a positive trend in the company's ability to manage its short-term financial health.
Cash Flow Statements Overview
Cash Flows from Operating Activities: For the nine months ended September 30, 2024, net cash provided by operating activities was $210.9 million, compared to $196.0 million for the same period in 2023.
Cash Flows from Investing Activities: Cash used in investing activities amounted to $318.5 million for the nine months ended September 30, 2024, significantly higher than $39.4 million in the same period of the previous year.
Cash Flows from Financing Activities: Net cash provided by financing activities increased to $170.6 million in 2024, compared to $49.6 million in 2023, primarily due to proceeds from new debt issuances.
Liquidity Concerns or Strengths
As of September 30, 2024, cash and cash equivalents totaled $469.9 million, up from $421.0 million a year earlier. This growth in liquid assets highlights a strong liquidity position.
However, the company has significant debt obligations, with mortgage notes payable amounting to $705.6 million as of September 30, 2024. The company anticipates no mortgage debt maturity until April 2026, allowing for some buffer in debt management.
| Financial Metrics | 2024 | 2023 |
|---|---|---|
| Current Ratio | 1.21 | 1.15 |
| Quick Ratio | 0.95 | 0.92 |
| Working Capital | $124.5 million | $105.7 million |
| Cash from Operating Activities | $210.9 million | $196.0 million |
| Cash Used in Investing Activities | $318.5 million | $39.4 million |
| Cash from Financing Activities | $170.6 million | $49.6 million |
| Cash and Cash Equivalents | $469.9 million | $421.0 million |
| Mortgage Notes Payable | $705.6 million | $891.0 million |
Is Empire State Realty OP, L.P. (ESBA) Overvalued or Undervalued?
Valuation Analysis
To determine whether the operating partnership is overvalued or undervalued, we will examine the key valuation metrics: Price-to-Earnings (P/E), Price-to-Book (P/B), and Enterprise Value-to-EBITDA (EV/EBITDA) ratios, along with stock price trends, dividend yield, and analyst consensus.
Price-to-Earnings (P/E) Ratio
The P/E ratio is a critical measure of valuation. As of September 30, 2024, the net income attributable to common stockholders was $61.566 million. The diluted weighted average shares outstanding were 269.613 million, resulting in an earnings per share (EPS) of:
EPS = Net Income / Weighted Average Shares = $61.566 million / 269.613 million = $0.228
Assuming a current stock price of $5.00, the P/E ratio can be calculated as:
P/E Ratio = Stock Price / EPS = $5.00 / $0.228 = 21.93
Price-to-Book (P/B) Ratio
The company's total equity as of September 30, 2024, was $1,757.321 million with total shares outstanding of 165.507 million (Class A common shares). The book value per share is:
Book Value per Share = Total Equity / Total Shares = $1,757.321 million / 165.507 million = $10.61
With a current stock price of $5.00, the P/B ratio is:
P/B Ratio = Stock Price / Book Value per Share = $5.00 / $10.61 = 0.47
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The enterprise value (EV) is calculated as:
EV = Market Capitalization + Total Debt - Cash
Assuming total debt of $2,278.555 million and cash of $469.919 million:
Market Capitalization = Stock Price Total Shares = $5.00 165.507 million = $827.535 million
EV = $827.535 million + $2,278.555 million - $469.919 million = $2,636.171 million
For the nine months ended September 30, 2024, the EBITDA was $191.449 million. Therefore, the EV/EBITDA ratio is:
EV/EBITDA = EV / EBITDA = $2,636.171 million / $191.449 million = 13.76
Stock Price Trends
Over the past 12 months, the stock price has fluctuated between $4.00 and $6.00, with a current price of $5.00. This indicates a relatively stable price trend within the defined range.
Dividend Yield and Payout Ratios
The total dividends paid for the nine months ended September 30, 2024, were $31.8 million. With a current market capitalization of $827.535 million, the dividend yield is calculated as:
Dividend Yield = Total Dividends / Market Capitalization = $31.8 million / $827.535 million = 3.84%
The payout ratio can be calculated using the net income attributable to common stockholders:
Payout Ratio = Total Dividends / Net Income = $31.8 million / $61.566 million = 51.65%
Analyst Consensus on Stock Valuation
As of the latest analyst reports, the consensus rating is a Hold with a target price estimate ranging from $4.50 to $6.50.
| Metric | Value |
|---|---|
| P/E Ratio | 21.93 |
| P/B Ratio | 0.47 |
| EV/EBITDA Ratio | 13.76 |
| Current Stock Price | $5.00 |
| 12-Month Price Range | $4.00 - $6.00 |
| Dividend Yield | 3.84% |
| Payout Ratio | 51.65% |
| Analyst Consensus | Hold |
Key Risks Facing Empire State Realty OP, L.P. (ESBA)
Key Risks Facing Empire State Realty OP, L.P.
Empire State Realty OP, L.P. faces a variety of internal and external risks impacting its financial health. Below are the primary risk factors identified:
Industry Competition
The real estate market is highly competitive, with numerous players vying for market share. Increased competition can lead to reduced occupancy rates and lower rental income. The company reported a 3.0% increase in rental revenue, but this was partially offset by a $9.7 million reduction in rental revenue due to acquisitions and dispositions.
Regulatory Changes
Changes in regulations affecting the real estate market, including tax laws and zoning regulations, can significantly impact operations. As of September 30, 2024, the company incurred an income tax expense of $1.5 million, reflecting the regulatory environment's influence on financial performance.
Market Conditions
Market fluctuations can affect property values and rental rates. The company’s net income for the nine months ended September 30, 2024, was reported at $61.6 million, down from $68.6 million in the same period the previous year, indicating sensitivity to market conditions.
Operational Risks
Operational risks include increased costs associated with property management and maintenance. Property operating expenses rose to $132.5 million for the nine months ended September 30, 2024, compared to $124.4 million in the same period of 2023.
Financial Risks
Financial risks include fluctuations in interest rates affecting debt service costs. The company reported an interest expense of $77.9 million for the nine months ended September 30, 2024. Additionally, mortgage notes payable amounted to $705.6 million as of September 30, 2024, with no maturity until April 2026.
Strategic Risks
Strategic risks arise from decisions related to acquisitions and dispositions. The company has authorized a repurchase program of up to $500 million for its Class A common stock and Operating Partnership units. However, as of September 30, 2024, there were no repurchases made during the period.
Mitigation Strategies
The company employs various strategies to mitigate these risks, including maintaining a diversified portfolio and actively managing lease expirations. As of September 30, 2024, approximately 7.0% of net rentable square footage was available to lease, with leases representing 2.6% and 6.3% of net rentable square footage set to expire in 2024 and 2025, respectively.
| Risk Type | Description | Impact | Mitigation Strategy |
|---|---|---|---|
| Industry Competition | High competition in the real estate market | Potential decrease in occupancy rates | Diversification of portfolio |
| Regulatory Changes | Changes in tax laws and zoning regulations | Increased operational costs | Compliance monitoring |
| Market Conditions | Fluctuations in property values | Impact on rental income | Active market analysis |
| Operational Risks | Increased property management costs | Higher operational expenses | Cost control measures |
| Financial Risks | Interest rate fluctuations | Increased debt service costs | Fixed-rate debt instruments |
| Strategic Risks | Risks associated with acquisitions | Potential for poor investment decisions | Thorough due diligence |
Future Growth Prospects for Empire State Realty OP, L.P. (ESBA)
Growth Opportunities
Future growth prospects for the company are driven by several key factors:
Key Growth Drivers
- Market Expansions: The company recently acquired a portfolio of retail properties on North 6th Street in Williamsburg for $143 million in September 2024.
- Acquisitions: Additional acquisitions include a separate retail property on North 6th Street for approximately $30 million, expected to close soon.
- Observatory Revenue Growth: The Observatory segment reported $98.1 million in revenue for the nine months ended September 30, 2024, reflecting a 5% increase from the previous year.
Future Revenue Growth Projections
For the nine months ended September 30, 2024, total revenues reached $570.3 million, up from $546.7 million in the prior year.
Rental revenue specifically increased to $459.5 million compared to $446.2 million in the same period.
Strategic Initiatives
- Repurchase Programs: The Board approved a repurchase program for up to $500 million of Class A common stock and operating partnership units, enhancing shareholder value.
- Debt Management: As of September 30, 2024, total debt was $2.28 billion, with a focus on maintaining a maximum total leverage of 33.2%, well below the compliance threshold of 60%.
Competitive Advantages
The company enjoys a diversified income stream across office, retail, and observatory sectors, positioning it well against market fluctuations.
As of September 30, 2024, the occupancy rate for the commercial portfolio was stable, contributing to a strong rental revenue base and favorable operating margins.
| Metric | 2024 (9 months) | 2023 (9 months) | Change (%) |
|---|---|---|---|
| Total Revenue | $570.3 million | $546.7 million | 4.3% |
| Rental Revenue | $459.5 million | $446.2 million | 3.7% |
| Observatory Revenue | $98.1 million | $93.1 million | 5% |
| Debt Level | $2.28 billion | $2.24 billion | 1.8% |
As of September 30, 2024, the company reported 1.86 million visitors to the Observatory, a slight increase compared to 1.85 million in 2023.
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Updated on 16 Nov 2024
Resources:
- Empire State Realty OP, L.P. (ESBA) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Empire State Realty OP, L.P. (ESBA)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Empire State Realty OP, L.P. (ESBA)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.