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.