Barron's - USA (2021-02-22)

(Antfer) #1

February 22, 2021 BARRON’S 17


T


he observatory at the top of

the Empire State Building is

one of New York City’s

most famous—and nor-

mally most lucrative—tour-

ist attractions. Its woes dur-

ing the pandemic reflect the

collapse in the city’s tourist industry.

Empire State Realty Trust.................


(ticker: ESRT), a real estate investment

trust that owns the 90-year-old Empire

State Building, said in its latest finan-

cial results that the number of visitors

to the observatory declined by 94% in

2020’s fourth quarter to 55,000, from

894,000 in the year-earlier period.

Observatory revenue fell 87% in

the quarter, to $5 million, and 77% for

all of 2020, to $29 million. Visitation

remains light this year, at less than 9%

of 2019’s volume through Feb. 14.

The observatory is one of the com-

pany’s most valuable assets, generat-

ing nearly $100 million in operating

income in 2019. That implies a poten-

tial value of $1.5 billion or more. Tick-

ets to the 86th floor open-air deck run

$42 for adults and $75 for both the

86th and 102nd floor decks.

During 2019, most visitors—63%—

were international, with U.K. tourists

topping the list of foreign visitors.

The observatory also faces growing

competition like Edge, at Hudson

Yards on Manhattan’s far west side,

which is billed as the highest sky deck

in the Western Hemisphere. Another

rival is scheduled to open at the top of

the One Vanderbilt skyscraper near

Grand Central Terminal later this year.

Empire State Realty’s shares are off

28% in the past year, but the stock has

nearly doubled from its October low

as investors bet that observatory reve-

nue and the company’s portfolio of

New York–area office buildings will

recover as the economy reopens and

tourism returns. The company has a

market value of about $2.7 billion.

Empire State isn’t alone in its dis-

tress. Larger New York office REITs

likeVornado Realty Trust(VNO)

andSL Green Realty(SLG) have

been among the worst performers in

the sector amid concerns about post-

pandemic demand for office space and

the high cost of renovating older New

York buildings.

Vornado is off 42% in the past year

to $37 and SL Green is down 36% to

$62. Both trade cheaply relative to

operating income and book value, and

amount to bets on a revival in the New

York economy.

Empire State expressed optimism

that observatory revenues will re-

cover, stating it remains “confident

attendance will return to pre-Covid-

levels, though that will take time and

is not anticipated to occur in 2021.”

The company indicated that attend-

ance could hit 50% of 2019 levels by

the fourth quarter of 2021 and 100%

by the fourth quarter of 2022.

“Management has tempered expec-

tations of recovery with 40% ex-

pected in October rather than June,

but then ramping to previous levels,”

Citigroup’s Emmanuel Korchman

wrote in a note. Citi has a neutral

rating on the stock, with a target of

$10.50 a share.B

From the Top


To the Bottom


Revenue from

tickets to the

Empire State

Building’s obser-

vatory was a

valuable source

of operating

income in 2019.

$95M


But as tourists

stopped coming

to New York City,

observatory

revenue fell

77%


By ANDREW BARY

What Covid


Did to This


Iconic Tower


As tourism crashed, revenue from the Empire State


Building’s observatory fell. Now the owner waits.


whenever possible to get drugs to mar-

ket. The pandemic “has demonstrated

more broadly the importance of sci-

ence in solving major global prob-

lems,” he says.

In 2019, Galakatos’ team worked

with Novartis to form Anthos Thera-

peutics, a company developing thera-

pies for high-risk heart patients. The

same year, Blackstone and Swiss-

based Ferring Pharmaceuticals

formed a new company called Fer-

Gene, with a $570 million investment,

to develop and bring to market a blad-

der-cancer drug—some $400 million

of which camefrom Blackstone.

Last year, BlackstoneLife Sciences

invested $350 million inReata Phar-

maceuticals(RETA), which has a

drug in late-stage trials against kidney

disease, and $337 million in

Medtronic’s diabetes devices. Last

summer Blackstoneclosed on its $4.

billion Life Sciences Fund, the largest

of its kind, mostly aimed at institu-

tional investors such as pension funds.

But life sciences isn’t just a real

estate or private-equity playfor Black-

stone. It lends through its credit funds

and invests through its tactical funds

in businesses that support the drug

industry.

Last year, theBlackstoneTactical

Opportunities fund invested $

million inCryoPort(CYRX), a cool-

storage logistics company that has

become front-and-center in the race

to get Covid vaccines into human

arms. (The Moderna and Pfizer vac-

cines require freezing temperatures.)

And in November, Blackstoneput

some $2.3 billion into Precision Med-

icine Group, which runs late-stage

trials and coordinates drug-approval

processes.

There are seemingly unrelated in-

vestments that could be useful with its

life-sciences portfolio. For example,

Blackstone’s $18.7billion deal in 2019

for GLP’s U.S. logistics assets, such as

e-commerce warehouses. Storage and

logistics are a vital part of getting

medicines to the public.

“They have information they can

connect together that no other firm

has,” JMP Securities analyst Devin

Ryan says. “It gives them the ability to

be a step ahead in a large addressable

market.”

As Gray tellsBarron’s:“We see

what’s happening. Medicine will be

more customized, more and more

therapies will be created targeting

more and more individual treatments.

Chris Sorensen/Gallery StockSo this whole ecosystem will grow.”B
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