Intrinsic value of Empire State Realty Trust - ESRT

Previous Close

$17.60

  Intrinsic Value

$13.10

stock screener

  Rating & Target

sell

-26%

Previous close

$17.60

 
Intrinsic value

$13.10

 
Up/down potential

-26%

 
Rating

sell

Our model is not good at valuating stocks of financial companies, such as ESRT.

We calculate the intrinsic value of ESRT stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  3.04
  6.30
  6.17
  6.05
  5.95
  5.85
  5.77
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
  5.20
  5.18
  5.16
  5.14
  5.13
  5.12
  5.10
  5.09
  5.08
  5.08
  5.07
  5.06
Revenue, $m
  678
  721
  765
  811
  860
  910
  963
  1,017
  1,075
  1,134
  1,197
  1,262
  1,330
  1,402
  1,476
  1,555
  1,636
  1,722
  1,812
  1,906
  2,005
  2,108
  2,217
  2,330
  2,450
  2,575
  2,706
  2,843
  2,988
  3,139
  3,298
Variable operating expenses, $m
 
  550
  581
  614
  647
  682
  719
  757
  797
  838
  882
  878
  925
  975
  1,027
  1,081
  1,138
  1,198
  1,260
  1,326
  1,395
  1,466
  1,542
  1,621
  1,704
  1,791
  1,882
  1,978
  2,078
  2,183
  2,294
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  493
  550
  581
  614
  647
  682
  719
  757
  797
  838
  882
  878
  925
  975
  1,027
  1,081
  1,138
  1,198
  1,260
  1,326
  1,395
  1,466
  1,542
  1,621
  1,704
  1,791
  1,882
  1,978
  2,078
  2,183
  2,294
Operating income, $m
  185
  170
  184
  198
  213
  228
  244
  261
  278
  296
  315
  384
  405
  427
  449
  473
  498
  524
  552
  580
  610
  642
  675
  709
  746
  784
  824
  866
  909
  956
  1,004
EBITDA, $m
  340
  354
  376
  399
  423
  448
  473
  500
  528
  558
  589
  621
  654
  689
  726
  765
  805
  847
  891
  937
  986
  1,037
  1,090
  1,146
  1,205
  1,266
  1,331
  1,398
  1,469
  1,544
  1,622
Interest expense (income), $m
  69
  69
  77
  85
  93
  101
  110
  119
  128
  138
  149
  159
  171
  182
  195
  208
  221
  236
  250
  266
  282
  299
  317
  336
  356
  376
  398
  421
  445
  470
  496
Earnings before tax, $m
  113
  101
  107
  113
  120
  127
  134
  142
  150
  158
  167
  225
  234
  244
  255
  265
  277
  289
  301
  314
  328
  342
  358
  373
  390
  407
  426
  445
  465
  486
  508
Tax expense, $m
  6
  27
  29
  31
  32
  34
  36
  38
  40
  43
  45
  61
  63
  66
  69
  72
  75
  78
  81
  85
  89
  92
  97
  101
  105
  110
  115
  120
  126
  131
  137
Net income, $m
  52
  74
  78
  83
  88
  93
  98
  104
  109
  115
  122
  164
  171
  178
  186
  194
  202
  211
  220
  229
  239
  250
  261
  273
  285
  297
  311
  325
  339
  355
  371

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  554
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  3,891
  3,550
  3,769
  3,998
  4,235
  4,483
  4,742
  5,012
  5,293
  5,588
  5,895
  6,217
  6,553
  6,905
  7,273
  7,658
  8,061
  8,484
  8,926
  9,390
  9,876
  10,385
  10,919
  11,479
  12,067
  12,682
  13,328
  14,006
  14,717
  15,463
  16,245
Adjusted assets (=assets-cash), $m
  3,337
  3,550
  3,769
  3,998
  4,235
  4,483
  4,742
  5,012
  5,293
  5,588
  5,895
  6,217
  6,553
  6,905
  7,273
  7,658
  8,061
  8,484
  8,926
  9,390
  9,876
  10,385
  10,919
  11,479
  12,067
  12,682
  13,328
  14,006
  14,717
  15,463
  16,245
Revenue / Adjusted assets
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
  0.203
Average production assets, $m
  2,236
  2,377
  2,524
  2,676
  2,836
  3,001
  3,175
  3,355
  3,544
  3,741
  3,947
  4,162
  4,387
  4,623
  4,869
  5,127
  5,397
  5,680
  5,976
  6,287
  6,612
  6,953
  7,311
  7,685
  8,079
  8,491
  8,923
  9,377
  9,853
  10,352
  10,876
Working capital, $m
  0
  -589
  -625
  -663
  -702
  -744
  -786
  -831
  -878
  -927
  -978
  -1,031
  -1,087
  -1,145
  -1,206
  -1,270
  -1,337
  -1,407
  -1,480
  -1,557
  -1,638
  -1,722
  -1,811
  -1,904
  -2,001
  -2,103
  -2,211
  -2,323
  -2,441
  -2,565
  -2,694
Total debt, $m
  1,612
  1,787
  1,966
  2,153
  2,347
  2,550
  2,762
  2,982
  3,213
  3,454
  3,705
  3,968
  4,243
  4,531
  4,832
  5,147
  5,477
  5,823
  6,185
  6,564
  6,962
  7,378
  7,815
  8,273
  8,753
  9,257
  9,786
  10,340
  10,921
  11,532
  12,172
Total liabilities, $m
  2,729
  2,904
  3,083
  3,270
  3,464
  3,667
  3,879
  4,099
  4,330
  4,571
  4,822
  5,085
  5,360
  5,648
  5,949
  6,264
  6,594
  6,940
  7,302
  7,681
  8,079
  8,495
  8,932
  9,390
  9,870
  10,374
  10,903
  11,457
  12,038
  12,649
  13,289
Total equity, $m
  1,162
  646
  686
  728
  771
  816
  863
  912
  963
  1,017
  1,073
  1,131
  1,193
  1,257
  1,324
  1,394
  1,467
  1,544
  1,625
  1,709
  1,797
  1,890
  1,987
  2,089
  2,196
  2,308
  2,426
  2,549
  2,678
  2,814
  2,957
Total liabilities and equity, $m
  3,891
  3,550
  3,769
  3,998
  4,235
  4,483
  4,742
  5,011
  5,293
  5,588
  5,895
  6,216
  6,553
  6,905
  7,273
  7,658
  8,061
  8,484
  8,927
  9,390
  9,876
  10,385
  10,919
  11,479
  12,066
  12,682
  13,329
  14,006
  14,716
  15,463
  16,246
Debt-to-equity ratio
  1.387
  2.770
  2.870
  2.960
  3.050
  3.130
  3.200
  3.270
  3.340
  3.400
  3.450
  3.510
  3.560
  3.610
  3.650
  3.690
  3.730
  3.770
  3.810
  3.840
  3.870
  3.900
  3.930
  3.960
  3.990
  4.010
  4.030
  4.060
  4.080
  4.100
  4.120
Adjusted equity ratio
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  52
  74
  78
  83
  88
  93
  98
  104
  109
  115
  122
  164
  171
  178
  186
  194
  202
  211
  220
  229
  239
  250
  261
  273
  285
  297
  311
  325
  339
  355
  371
Depreciation, amort., depletion, $m
  155
  184
  192
  201
  210
  220
  229
  240
  250
  262
  273
  236
  249
  263
  277
  291
  307
  323
  340
  357
  376
  395
  415
  437
  459
  482
  507
  533
  560
  588
  618
Funds from operations, $m
  196
  258
  271
  284
  298
  312
  327
  343
  360
  377
  395
  401
  420
  441
  462
  485
  509
  534
  559
  587
  615
  645
  676
  709
  744
  780
  818
  857
  899
  943
  989
Change in working capital, $m
  -23
  -35
  -36
  -38
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -53
  -56
  -58
  -61
  -64
  -67
  -70
  -73
  -77
  -81
  -84
  -89
  -93
  -97
  -102
  -107
  -112
  -118
  -124
  -130
Cash from operations, $m
  219
  293
  307
  322
  337
  353
  370
  388
  407
  426
  446
  454
  476
  499
  524
  549
  576
  604
  633
  664
  696
  730
  765
  802
  841
  882
  925
  970
  1,017
  1,067
  1,119
Maintenance CAPEX, $m
  0
  -127
  -135
  -143
  -152
  -161
  -171
  -180
  -191
  -201
  -213
  -224
  -236
  -249
  -263
  -277
  -291
  -307
  -323
  -340
  -357
  -376
  -395
  -415
  -437
  -459
  -482
  -507
  -533
  -560
  -588
New CAPEX, $m
  -182
  -141
  -147
  -153
  -159
  -166
  -173
  -181
  -189
  -197
  -206
  -215
  -225
  -235
  -246
  -258
  -270
  -283
  -296
  -310
  -325
  -341
  -358
  -375
  -393
  -412
  -432
  -454
  -476
  -499
  -524
Cash from investing activities, $m
  -182
  -268
  -282
  -296
  -311
  -327
  -344
  -361
  -380
  -398
  -419
  -439
  -461
  -484
  -509
  -535
  -561
  -590
  -619
  -650
  -682
  -717
  -753
  -790
  -830
  -871
  -914
  -961
  -1,009
  -1,059
  -1,112
Free cash flow, $m
  37
  25
  25
  26
  26
  26
  27
  27
  27
  27
  28
  14
  15
  15
  14
  14
  14
  14
  14
  14
  13
  13
  12
  12
  11
  11
  10
  9
  8
  7
  6
Issuance/(repayment) of debt, $m
  -22
  175
  179
  187
  194
  203
  212
  221
  230
  241
  252
  263
  275
  288
  301
  315
  330
  346
  362
  379
  398
  417
  437
  458
  480
  504
  528
  554
  582
  610
  640
Issuance/(repurchase) of shares, $m
  611
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  528
  175
  179
  187
  194
  203
  212
  221
  230
  241
  252
  263
  275
  288
  301
  315
  330
  346
  362
  379
  398
  417
  437
  458
  480
  504
  528
  554
  582
  610
  640
Total cash flow (excl. dividends), $m
  565
  200
  204
  212
  221
  229
  238
  248
  258
  268
  279
  277
  290
  302
  316
  330
  344
  360
  376
  393
  411
  429
  449
  470
  492
  514
  538
  563
  590
  618
  647
Retained Cash Flow (-), $m
  -629
  -38
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -54
  -56
  -59
  -61
  -64
  -67
  -70
  -73
  -77
  -81
  -84
  -88
  -93
  -97
  -102
  -107
  -112
  -118
  -123
  -129
  -136
  -142
Prev. year cash balance distribution, $m
 
  554
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  716
  165
  171
  177
  184
  191
  199
  206
  215
  223
  219
  228
  238
  249
  259
  271
  283
  295
  308
  322
  337
  352
  368
  385
  402
  421
  440
  460
  482
  504
Discount rate, %
 
  6.90
  7.25
  7.61
  7.99
  8.39
  8.81
  9.25
  9.71
  10.19
  10.70
  11.24
  11.80
  12.39
  13.01
  13.66
  14.34
  15.06
  15.81
  16.61
  17.44
  18.31
  19.22
  20.18
  21.19
  22.25
  23.37
  24.53
  25.76
  27.05
  28.40
PV of cash for distribution, $m
 
  670
  143
  137
  130
  123
  115
  107
  98
  90
  81
  68
  60
  52
  45
  38
  32
  26
  21
  17
  13
  10
  7
  5
  4
  3
  2
  1
  1
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Empire State Realty Trust, Inc. is a real estate investment trust. The Company owns, manages, operates, acquires and repositions office and retail properties in Manhattan and the greater New York metropolitan area, including the Empire State Building. The Company operates through two segments: Real Estate and Observatory. The Real Estate segment includes all activities related to the ownership, management, operation, acquisition, repositioning and disposition of its real estate assets. The Observatory segment operates the 86th and 102nd floor observatories at the Empire State Building. As of December 31, 2016, its portfolio consisted of 14 office properties and six standalone retail properties totaling approximately 10.1 million rentable square feet. The Company's properties include One Grand Central Place, 1400 Broadway, 111 West 33rd Street, 250 West 57th Street, 1359 Broadway and 1333 Broadway.

FINANCIAL RATIOS  of  Empire State Realty Trust (ESRT)

Valuation Ratios
P/E Ratio 52.7
Price to Sales 4
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 12.5
Price to Free Cash Flow 74.1
Growth Rates
Sales Growth Rate 3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 28.2%
Cap. Spend. - 3 Yr. Gr. Rate 10%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 138.7%
Total Debt to Equity 138.7%
Interest Coverage 3
Management Effectiveness
Return On Assets 3.3%
Ret/ On Assets - 3 Yr. Avg. 3%
Return On Total Capital 2.1%
Ret/ On T. Cap. - 3 Yr. Avg. 1.7%
Return On Equity 6.1%
Return On Equity - 3 Yr. Avg. 6.4%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 58.7%
Gross Margin - 3 Yr. Avg. 55.9%
EBITDA Margin 49.7%
EBITDA Margin - 3 Yr. Avg. 47.5%
Operating Margin 27.3%
Oper. Margin - 3 Yr. Avg. 24.2%
Pre-Tax Margin 16.7%
Pre-Tax Margin - 3 Yr. Avg. 13.7%
Net Profit Margin 7.7%
Net Profit Margin - 3 Yr. Avg. 5.7%
Effective Tax Rate 5.3%
Eff/ Tax Rate - 3 Yr. Avg. 5.6%
Payout Ratio 109.6%

ESRT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ESRT stock intrinsic value calculation we used $678 million for the last fiscal year's total revenue generated by Empire State Realty Trust. The default revenue input number comes from 2016 income statement of Empire State Realty Trust. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our ESRT stock valuation model: a) initial revenue growth rate of 6.3% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 6.9%, whose default value for ESRT is calculated based on our internal credit rating of Empire State Realty Trust, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Empire State Realty Trust.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of ESRT stock the variable cost ratio is equal to 76.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for ESRT stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.3% for Empire State Realty Trust.

Corporate tax rate of 27% is the nominal tax rate for Empire State Realty Trust. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the ESRT stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for ESRT are equal to 329.8%.

Life of production assets of 17.6 years is the average useful life of capital assets used in Empire State Realty Trust operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for ESRT is equal to -81.7%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $1162 million for Empire State Realty Trust - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 160.253 million for Empire State Realty Trust is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Empire State Realty Trust at the current share price and the inputted number of shares is $2.8 billion.

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COMPANY NEWS

▶ Empire State Realty Trust reports 4Q results   [Feb-21-18 07:25PM  Associated Press]
▶ Opening Bell, January 30, 2018   [09:29AM  CNBC Videos]
▶ 3 Top New York Stocks to Consider Buying Now   [Jan-24-18 06:52AM  Motley Fool]
▶ Empire State Realty Trust reports 3Q results   [Oct-31-17 05:25PM  Associated Press]
▶ Empire State Realty Trust reports 2Q results   [Jul-26-17 11:39PM  Associated Press]
▶ Celebrate Summer At The Empire State Building   [Jul-17-17 02:20PM  PR Newswire]
▶ Here's Why Parkway Inc. Shares Are Soaring by 12% Today   [Jun-30-17 02:48PM  Motley Fool]
▶ 5 Top Diversified REIT Stocks to Buy in 2017   [Jun-27-17 10:02AM  Motley Fool]
▶ Empire State Building Exclusive 4th Of July Celebration   [Jun-06-17 05:44PM  PR Newswire]
Financial statements of ESRT
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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