Empire State IPO prices at $13 per share, low end of range

NEW YORK Tue Oct 1, 2013 8:09pm EDT

1 of 2. The Empire State Building is seen from the top of The Rock in New York in this April 25, 2012 file photo. The company that owns New York City's Empire State Building skyscraper priced its initial public offering at $13 a share on October 1, 2013, an underwriting source said, a price on the low end of the expected range of $13 to $15 a share.

Credit: Reuters/Shannon Stapleton/Files

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NEW YORK (Reuters) - The company that owns New York City's Empire State Building sold shares in an initial public offering on Tuesday, capping two years of rancor among the marquee building's private owners.

The Empire State Realty Trust Inc (ESRT.N) said it sold 71.5 million shares at $13 apiece, the low end of its expected range of $13 to $15 a share. At that price it raised $929.5 million.

Investors were likely put off by the company's unusual ownership structure, and questions about how much revenue the Empire State Building's observation decks can generate over time, said Michael Knott, an analyst at real estate research and trading firm Green Street Advisors. This deal's lukewarm reception may not mean anything for other real estate companies on deck for an IPO, because its situation is so unusual, Knott said.

The company'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. King Kong famously climbed the building in a 1933 movie, and Cary Grant and Deborah Kerr agreed to meet at the building in the 1957 movie "An Affair to Remember."

In the early 1960s, lawyer Lawrence Wien bought the right to lease the property by selling 3,300 units of the building to individuals, creating Empire State Building Associates. Wien and real estate magnate Harry Helmsley sublet the building from the investors for 114 years, essentially giving them and their heirs control of the property.

When their heirs, Lawrence Wien's grandson Anthony Malkin and the estate of Leona Helmsley, decided to take the company public in late 2011, litigation ensued, and a small but vocal group of owners of the 3,300 units sued to block the transaction, and at least one case is pending on appeal. They also sought bids from other possible buyers.

The Empire State Realty Trust owns the Empire State Building and 18 other properties in New York and Connecticut. The portfolio is 83 percent occupied, Green Street's Knott said.

At the $13 share price, the company's market value is about $3.2 billion, and the proceeds from this deal make it the largest real estate investment trust IPO since October 2006, when office and apartment owner Douglas Emmett Inc went public.

The real estate investment trust - a company that essentially pays no income taxes in exchange for paying out nearly all its income as dividends - 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 annual dividend yield is about 2.6 percent. The average for U.S. office REITs currently stands at 3.3 percent, according to Green Street.

The net proceeds of the offering are expected to be about $754.4 million after underwriting expenses and other items, according to the company. Much of the proceeds from the offering will go to the estate of Leona M. Helmsley and other non-profit owners.

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

Among the other real estate companies slated for IPOs in the near term are Blackstone Group LP's (BX.N) Brixmor Property Group Inc, a shopping center REIT, and hotel company Hilton Worldwide Inc.

(Reporting by Ilaina Jonas; Editing by David Gregorio and Ken Wills)

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Comments (1)
wesatch wrote:
Right, they sell a third of the company’s value at a lousy dividend of 2.6% on mature real estate?

Lucky they got 13.

Oct 02, 2013 10:44am EDT  --  Report as abuse
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