L1 Capital on Empire Stare Realty (ESRT): “We Believe There’s a Significant Upside to Come”

L1 Capital, an independent investment management firm, published its fourth quarter 2020 “L1 Long Short Fund Limited” investor letter – a copy of which can be downloaded here. The Company’s NTA increased 34.4% for the quarter (ASX200AI +13.7%) and 29.5% for the 2020 calendar year (ASX200AI 1.4%). You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

L1 Capital, in their Q4 2020 investor letter, mentioned Empire State Realty Trust, Inc. (NYSE: ESRT) and emphasized their views on the company. Empire State Realty Trust, Inc. is a US-based real estate investment trust company that currently has a $3.2 billion market capitalization. Since the beginning of the year, ESRT delivered a 20.49% return, impressively extending its 12-month gains to 28.64%. As of March 26, 2021, the stock closed at $11.23 per share.

Here is what L1 Capital has to say about Empire State Realty Trust, Inc. in their Q4 2020 investor letter:

Empire State Realty Trust (ESRT) (long +52%) is a New York-focused office REIT with approximately half of its portfolio value comprising arguably the “world’s most famous building”: the Empire State building. We initiated our position in June after a substantial fall in the share price post the onset of COVID-19, seeing an exciting opportunity to invest in an iconic property asset at incredibly depressed pricing. Around half the revenue from the Empire State building is derived from the famous observatory, which is currently open with restrictive capacity limitations. Both the observatory and the wider office portfolio have benefited from a huge capex improvement program over the past 5 years. Moreover, they look set to outperform the broader New York City office market over the coming years as the city recovers from the impacts of COVID-19. We believe the observatory is underappreciated by REIT investors despite a long history of strong compound revenue growth which should continue post recovery. ESRT remains well capitalised to overcome near term headwinds, with significant liquidity headroom and no debt maturities due until 2024. Even with the strong share price rally over the quarter, ESRT still trades close to 35% below is pre-pandemic share price of ~US$14 and we believe there is significant upside to come as the New York City office market recovers and tourist visits to the observatory re-commence at full capacity.”

Our calculations show that Empire State Realty Trust, Inc. (NYSE: ESRT) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, Empire State Realty Trust, Inc. was in 13 hedge fund portfolios, compared to 17 funds in the third quarter. ESRT delivered an 18.34% return in the past 3 months.