Intrinsic value of Empire State Realty Trust - ESRT

Previous Close

$20.77

  Intrinsic Value

$11.24

stock screener

  Rating & Target

sell

-46%

  Value-price divergence*

+82%

Previous close

$20.77

 
Intrinsic value

$11.24

 
Up/down potential

-46%

 
Rating

sell

 
Value-price divergence*

+82%

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

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

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

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 3.2

 

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
  5.10
  5.09
  5.08
  5.07
  5.07
  5.06
  5.05
  5.05
  5.04
  5.04
  5.03
  5.03
  5.03
  5.03
  5.02
  5.02
  5.02
  5.02
  5.02
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.00
Revenue, $m
  678
  713
  749
  787
  827
  869
  913
  959
  1,007
  1,058
  1,111
  1,167
  1,226
  1,288
  1,352
  1,420
  1,492
  1,566
  1,645
  1,727
  1,814
  1,905
  2,000
  2,101
  2,206
  2,316
  2,432
  2,554
  2,682
  2,816
  2,957
Variable operating expenses, $m
 
  545
  570
  596
  624
  653
  684
  716
  750
  785
  822
  812
  853
  896
  941
  988
  1,037
  1,090
  1,144
  1,202
  1,262
  1,325
  1,391
  1,461
  1,534
  1,611
  1,692
  1,777
  1,866
  1,959
  2,057
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
  545
  570
  596
  624
  653
  684
  716
  750
  785
  822
  812
  853
  896
  941
  988
  1,037
  1,090
  1,144
  1,202
  1,262
  1,325
  1,391
  1,461
  1,534
  1,611
  1,692
  1,777
  1,866
  1,959
  2,057
Operating income, $m
  185
  168
  179
  190
  203
  215
  229
  243
  257
  273
  289
  355
  373
  392
  412
  432
  454
  477
  501
  526
  552
  580
  609
  639
  672
  705
  740
  778
  816
  857
  900
EBITDA, $m
  340
  350
  368
  387
  407
  427
  449
  472
  495
  520
  547
  574
  603
  633
  665
  698
  734
  770
  809
  850
  892
  937
  984
  1,033
  1,085
  1,139
  1,196
  1,256
  1,319
  1,385
  1,454
Interest expense (income), $m
  69
  69
  75
  82
  88
  95
  102
  110
  118
  126
  135
  145
  154
  164
  175
  186
  198
  210
  223
  237
  251
  266
  282
  299
  316
  334
  353
  373
  395
  417
  440
Earnings before tax, $m
  113
  99
  103
  109
  114
  120
  126
  133
  139
  146
  154
  211
  219
  228
  237
  246
  256
  266
  277
  289
  301
  314
  327
  341
  356
  371
  387
  404
  422
  441
  460
Tax expense, $m
  6
  27
  28
  29
  31
  32
  34
  36
  38
  40
  42
  57
  59
  61
  64
  66
  69
  72
  75
  78
  81
  85
  88
  92
  96
  100
  105
  109
  114
  119
  124
Net income, $m
  52
  72
  76
  79
  83
  88
  92
  97
  102
  107
  112
  154
  160
  166
  173
  180
  187
  194
  202
  211
  220
  229
  239
  249
  260
  271
  283
  295
  308
  322
  336

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
  3,510
  3,689
  3,876
  4,073
  4,279
  4,496
  4,723
  4,961
  5,212
  5,474
  5,750
  6,039
  6,343
  6,662
  6,996
  7,347
  7,716
  8,103
  8,510
  8,936
  9,384
  9,854
  10,348
  10,866
  11,410
  11,982
  12,582
  13,212
  13,873
  14,567
Adjusted assets (=assets-cash), $m
  3,337
  3,510
  3,689
  3,876
  4,073
  4,279
  4,496
  4,723
  4,961
  5,212
  5,474
  5,750
  6,039
  6,343
  6,662
  6,996
  7,347
  7,716
  8,103
  8,510
  8,936
  9,384
  9,854
  10,348
  10,866
  11,410
  11,982
  12,582
  13,212
  13,873
  14,567
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
  2,350
  2,470
  2,595
  2,727
  2,865
  3,010
  3,162
  3,322
  3,489
  3,665
  3,849
  4,043
  4,246
  4,460
  4,684
  4,919
  5,166
  5,425
  5,697
  5,983
  6,283
  6,597
  6,928
  7,275
  7,639
  8,022
  8,423
  8,845
  9,288
  9,753
Working capital, $m
  0
  -71
  -75
  -79
  -83
  -87
  -91
  -96
  -101
  -106
  -111
  -117
  -123
  -129
  -135
  -142
  -149
  -157
  -164
  -173
  -181
  -190
  -200
  -210
  -221
  -232
  -243
  -255
  -268
  -282
  -296
Total debt, $m
  1,612
  1,754
  1,901
  2,054
  2,215
  2,383
  2,561
  2,746
  2,941
  3,146
  3,361
  3,586
  3,823
  4,071
  4,332
  4,606
  4,893
  5,195
  5,511
  5,844
  6,193
  6,559
  6,944
  7,348
  7,772
  8,217
  8,684
  9,175
  9,690
  10,231
  10,799
Total liabilities, $m
  2,729
  2,871
  3,018
  3,171
  3,332
  3,500
  3,678
  3,863
  4,058
  4,263
  4,478
  4,703
  4,940
  5,188
  5,449
  5,723
  6,010
  6,312
  6,628
  6,961
  7,310
  7,676
  8,061
  8,465
  8,889
  9,334
  9,801
  10,292
  10,807
  11,348
  11,916
Total equity, $m
  1,162
  639
  671
  705
  741
  779
  818
  860
  903
  949
  996
  1,046
  1,099
  1,154
  1,212
  1,273
  1,337
  1,404
  1,475
  1,549
  1,626
  1,708
  1,793
  1,883
  1,978
  2,077
  2,181
  2,290
  2,404
  2,525
  2,651
Total liabilities and equity, $m
  3,891
  3,510
  3,689
  3,876
  4,073
  4,279
  4,496
  4,723
  4,961
  5,212
  5,474
  5,749
  6,039
  6,342
  6,661
  6,996
  7,347
  7,716
  8,103
  8,510
  8,936
  9,384
  9,854
  10,348
  10,867
  11,411
  11,982
  12,582
  13,211
  13,873
  14,567
Debt-to-equity ratio
  1.387
  2.750
  2.830
  2.910
  2.990
  3.060
  3.130
  3.200
  3.260
  3.320
  3.370
  3.430
  3.480
  3.530
  3.570
  3.620
  3.660
  3.700
  3.740
  3.770
  3.810
  3.840
  3.870
  3.900
  3.930
  3.960
  3.980
  4.010
  4.030
  4.050
  4.070
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
  72
  76
  79
  83
  88
  92
  97
  102
  107
  112
  154
  160
  166
  173
  180
  187
  194
  202
  211
  220
  229
  239
  249
  260
  271
  283
  295
  308
  322
  336
Depreciation, amort., depletion, $m
  155
  183
  189
  197
  204
  212
  220
  229
  238
  247
  257
  219
  230
  241
  253
  266
  279
  294
  308
  324
  340
  357
  375
  394
  413
  434
  456
  479
  503
  528
  554
Funds from operations, $m
  196
  255
  265
  276
  287
  300
  312
  326
  340
  354
  370
  373
  390
  407
  426
  446
  466
  488
  511
  535
  560
  586
  614
  642
  673
  705
  738
  774
  811
  849
  890
Change in working capital, $m
  -23
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
Cash from operations, $m
  219
  258
  269
  280
  291
  304
  317
  330
  344
  359
  375
  378
  395
  414
  433
  453
  473
  495
  519
  543
  568
  595
  623
  653
  683
  716
  750
  786
  823
  863
  904
Maintenance CAPEX, $m
  0
  -127
  -134
  -140
  -147
  -155
  -163
  -171
  -180
  -189
  -198
  -208
  -219
  -230
  -241
  -253
  -266
  -279
  -294
  -308
  -324
  -340
  -357
  -375
  -394
  -413
  -434
  -456
  -479
  -503
  -528
New CAPEX, $m
  -182
  -114
  -120
  -125
  -132
  -138
  -145
  -152
  -160
  -168
  -176
  -185
  -194
  -203
  -213
  -224
  -235
  -247
  -259
  -272
  -286
  -300
  -315
  -331
  -347
  -364
  -383
  -402
  -422
  -443
  -465
Cash from investing activities, $m
  -182
  -241
  -254
  -265
  -279
  -293
  -308
  -323
  -340
  -357
  -374
  -393
  -413
  -433
  -454
  -477
  -501
  -526
  -553
  -580
  -610
  -640
  -672
  -706
  -741
  -777
  -817
  -858
  -901
  -946
  -993
Free cash flow, $m
  37
  17
  15
  14
  12
  11
  9
  7
  5
  3
  1
  -15
  -17
  -19
  -22
  -25
  -28
  -31
  -34
  -37
  -41
  -45
  -49
  -53
  -57
  -62
  -67
  -72
  -77
  -82
  -88
Issuance/(repayment) of debt, $m
  -22
  142
  146
  153
  161
  169
  177
  186
  195
  205
  215
  225
  237
  248
  261
  274
  287
  302
  317
  332
  349
  366
  385
  404
  424
  445
  467
  491
  515
  541
  568
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
  142
  146
  153
  161
  169
  177
  186
  195
  205
  215
  225
  237
  248
  261
  274
  287
  302
  317
  332
  349
  366
  385
  404
  424
  445
  467
  491
  515
  541
  568
Total cash flow (excl. dividends), $m
  565
  159
  162
  167
  173
  179
  186
  193
  200
  208
  216
  211
  220
  229
  239
  249
  260
  271
  283
  295
  308
  322
  336
  351
  367
  383
  401
  419
  438
  458
  480
Retained Cash Flow (-), $m
  -629
  -31
  -33
  -34
  -36
  -38
  -39
  -41
  -43
  -46
  -48
  -50
  -53
  -55
  -58
  -61
  -64
  -67
  -70
  -74
  -78
  -82
  -86
  -90
  -94
  -99
  -104
  -109
  -115
  -120
  -126
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
 
  682
  129
  133
  137
  142
  147
  152
  157
  162
  168
  161
  167
  174
  181
  188
  196
  204
  212
  221
  230
  240
  250
  261
  272
  284
  297
  310
  324
  338
  353
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
 
  638
  112
  107
  101
  95
  88
  82
  75
  68
  61
  50
  44
  38
  33
  28
  23
  19
  15
  12
  9
  7
  5
  4
  3
  2
  1
  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., a real estate investment trust (REIT), focuses on owning, managing, operating, and acquiring office and retail properties in Manhattan and the greater New York metropolitan area. It also intends to provide construction services to tenants and other entities. The company, formerly known as Empire Realty Trust, Inc., is based in New York, New York.

FINANCIAL RATIOS  of  Empire State Realty Trust (ESRT)

Valuation Ratios
P/E Ratio 62.2
Price to Sales 4.8
Price to Book 2.8
Price to Tangible Book
Price to Cash Flow 14.8
Price to Free Cash Flow 87.5
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 5.1% 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 -10%. 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 152.995 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 $3.2 billion.

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COMPANY NEWS

▶ 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]
▶ Empire State Realty Trust reports 1Q results   [Apr-26-17 05:58PM  Associated Press]
▶ Should You Avoid Empire State Realty Trust Inc (ESRT)?   [Dec-11-16 04:28AM  at Insider Monkey]
▶ NYC to Get 1,020-Foot Skydeck Near Grand Central Terminal   [Dec-05-16 05:00AM  at Bloomberg]
Stock chart of ESRT 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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