4 Reasons For BTIG's Bearish Turn On Empire State Realty Trust

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The bullish case for Empire State Realty Trust Inc ESRT has come to an end after a lack of available office space helped the company generate above-average same store net operating income growth over the past year, according to BTIG.

The Analyst

BTIG's Thomas Catherwood downgraded Empire State Realty Trust from Buy to Neutral.

The Thesis

Empire State benefited from strong demand and limited supply for creative office space in Midtown South, but the company's deleveraging and substantial cash balance negated part of its potential earnings, Catherwood said in the downgrade note. (See the analyst's track record here.) 

The analyst named four reasons for investors to move to the sidelines: 

  • Empire State has seen lower occupancy metrics since the fourth quarter of 2017 that prompted declining SSNOI.
  • The company did show 30.1-percent cash leasing spreads over the past three years, but the stock's funds from operations moved from 98 cents in 2015 to an estimated 92 cents for 2018.
  • The REIT does deserve credit for its low-levered balance sheet and large cash position, but there is no near-term catalyst on the horizon.
  • Empire State stock is trading at a "fairly valued" multiple of 17.4 times estimated 2019 FFO/share and a 17-percent discount to net asset value per share.

Price Action

Empire State Realty Trust shares were trading up 1.83 percent to $16.69 at the time of publication Tuesday. 

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Posted In: Analyst ColorREITDowngradesAnalyst RatingsReal EstatebtigNew York Cityoffice spaceThomas Catherwood
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