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Empire State Building IPO Challenged by Legacy Investors
By David M. Levitt - Aug 22, 2012 2:47 PM PT Al Weiner’s stake in the Empire State Building came to him by way of his grandfather’s death in a 1950 train crash in Queens, N.Y. Weiner’s grandmother sued the Long Island Rail Road, and her lawyer was Lawrence Wien, a family friend. The money from the settlement made her a natural person to call when Wien reached out to friends and business associates in the early 1960s to buy what was then the world’s tallest skyscraper. The family and more than 2,000 others purchased shares of the Empire State Building under a syndication orchestrated by Wien and his partner, real estate investor Harry Helmsley. Click here for rest of riveting story. Empire State Building faces float fight
Vivek Ahuja 24 Aug 2012 It would appear that all may not be running smoothly with plans to float New York’s iconic Empire State Building, once the world’s tallest skyscraper. A recent story on The Wall Street Journal’s Developments blog [http://on.wsj.com/NH3e8p ] cited documents filed with the US Securities and Exchange Commission this month that predicted the building’s net operating income is projected to rise to $160.6m in June 2015, up from $76.8m in June this year. The building is managed by Malkin Holdings within one of three limited liability companies that between them house more than a dozen property holdings. Malkin wants to consolidate the three LLCs into a single real estate investment trust called Empire State Realty Trust, which would then sell shares to the public via an initial public offering. Duff & Phelps, which is acting as Malkin’s valuation firm, estimates the entities that hold the buildings that would be put into the trust are worth a combined $3.99bn, with the Empire State Building accounting for roughly $2.5bn of that figure, according to a story on Bloomberg. The problem is that, while punchy income projections and the brand allure of the Empire State Building will no doubt prove attractive to potential new investors through the IPO, that same combination is threatening to scupper the IPO plan because some existing investors in the building, which has a fairly complex ownership structure, are starting to wonder whether the wild swings of the stock markets would be a better bet than sitting on the unit holdings that they currently own. Lawyer Lawrence Wien and more than 2,000 other people purchased what was then the world’s tallest skyscraper in 1961 under a syndication arrangement that gave them stakes in an entity called Empire State Building Associates which holds the deed to the building. That ownership structure has endured for more than 50 years, with many investors passing their holdings through family generations and continuing to receive annual returns on their investment. Bloomberg quoted one stakeholder, Al Weiner, who runs an artisanal cheese business, as saying: “My grandma said don’t ever sell these. The checks come in like clockwork.” Weiner and other investors have been canvassing opposition to the IPO plan, with Weiner saying: “I speak to people one on one, trying to educate them on the investment and the goodness that it’s been for the last 51 years, and the fact that this might not be the best deal for us at this point in time.” With Malkin needing 80% approval from unit holders to press ahead with the IPO, the stage is set to see whether a 102-storey building can indeed float. - write to vivek.ahuja@dowjones.com http://www.efinancialnews.com/story/2012-08-24/empire-state-building-flotation Empire State Building IPO Challenged by Legacy Investors By David M. Levitt - Aug 22, 2012 2:47 PM PT Al Weiner’s stake in New York’s Empire State Building came to him by way of his grandfather’s death in a 1950 train crash in Richmond Hill, Queens. His grandmother sued the Long Island Rail Road, and her lawyer was Lawrence Wien, a family friend. Click here for rest of story (Corrects paragraph 2 in Aug 14 story to show the trust is seeking ownership, and is not the current owner of the Empire State Building)
Aug 14 (Reuters) - The Empire State Building, a signature feature of the Manhattan skyline caught up in lawsuits to block a proposed IPO, expects to more than double its income in another three years, a realty trust seeking ownership of the building said in a securities filing on Monday. Empire State Realty Trust, seeking ownership of the 102-floor Art Deco building, filed in February to sell up to $1 billion of its Class A common stock, but several investors have sued to prevent the move, saying it unfairly undervalues their interests. Monday's filing said the building's net operating income is expected to surge to $160.6 million in June 2015 from the current $76.9 million, while revenue is projected to grow to $262.4 million by 2015 from the current $176.8 million. The company provided financial projections until 2026 in the filing with the U.S. Securities and Exchange Commission (SEC). The valuations are based on the discounted cash flow method and were calculated by an independent valuer, the company said in the filing. While the building is still leasing below comparable properties in Midtown, the gap has narrowed such that the Empire State's average rent is now a third under market, compared with two-thirds below in 2006, according to data supplied by Studley, a real estate services firm representing tenants. (Reporting by Sakthi Prasad in Bangalore; Editing by Edmund Klamann) http://in.reuters.com/article/2012/08/16/empirestate-income-idINL4E8JE1J920120816 Wall Street Journal: Income to Soar for Empire State Building
By Craig Karmin The Empire State Building’s income is poised to double within four years and more than triple by 2026, according to a new securities filing related to the proposed public sale of the building. The surge in income comes amid a $550 million upgrade to the building. The Malkins, the New York real estate family that manages the skyscraper and is spearheading the initial public offering, has been combining the more than 850 office spaces in the building in an effort to attract larger and higher-paying tenants. That effort, which has restored the lobby and upgraded the 81-year old building to make it more energy efficient, is already starting to pay off with new tenants like Swedish construction company Skanska and Air China. The building’s net operating income is projected to rise to $160.6 million in June 2015, up from $76.8 million in June 2012, according to Securities and Exchange documents filed on Monday. Income is seen rising to $248.5 million by 2026, and balloons to $422 million by 2041. Rental income at the Empire State Building has been largely flat for the past several years, though the observation deck has been profitable. The new income projections do not provide separate figures for the observation deck. This long-anticipated rise in the building’s income has caused some of the 2,800 current investors in the Empire State building to wonder if they would be better off from an IPO or by voting against it. The proposed plan requires 80% of the shares to approve it. The projections are based on a discounted cash-flow analysis conducted by Duff & Phelps, which has issued its opinion that these valuations are fair to investors, according to the securities filings. The new public company, which will be known as Empire State Realty Trust, would roll up the iconic building with 17 other Malkin properties. The Empire State Building has been valued at $2.52 billion of the new company’s $4 billion valuation, according to securities filings. The filings released today are the first time the Malkins have made public income forecasts for the Empire State Buildings and the other properties. The Malkins have told investors that the status quo for the Empire State Building is not possible because Leona Helmsley’s estate, which has a stake valued at $1 billion, needs to cash out its position in the building’s operating company. Their other buildings are also projected to see rising incomes, filings show. http://blogs.wsj.com/developments/2012/08/13/income-to-soar-for-empire-state-building/ Empire State Building investors dig in against REIT plan
Published: Tuesday, 17 Jul 2012 | 9:45 PM ET NEW YORK (Reuters) - Malkin Holdings LLC, which has proposed creating a real estate investment trust with the Empire State Building as its centerpiece, has spent more than $10 million of the iconic building's owners' money, raising the ire of some investors who are organizing an opposition against the whole plan. Malkin Holdings spent $10,237,424 chiefly on fees to consolidate 18 properties into a REIT, a first step toward an proposed initial public offering of Empire State Realty Trust Inc, according to an April filing with the U.S. Securities and Exchange Commission. On July 3, Empire State Realty Trust filed a copy of the 1962 participating agreement, issued when money was raised to buy the lease on the building and the land. The agreement governs the powers of the supervisor and partners who manage Empire State Building Associates, the partnership which holds a master lease on one of the world's most famous buildings and as of 2002 owns it. Some who oppose the REIT point to the agreement, which states that the partnership cannot convert into a REIT, corporation or any other form of ownership, "without the consent of all of the Participants," meaning the investors. They said the money was spent without their consent. "If management can spend $10 million of investors' money without a required vote, then why not $20 million, $50 million, or even $100 million?" said Edelman, whose grandparents were among the original investors in the 1961 real estate syndication. It became the latest focal point of the controversial proposed REIT and underscores the acrimony between the investors in Empire State Building Associates and Malkin Holdings, which supervises the investment company and manages the property. Some investors have filed lawsuits against the proposal for the REIT. Others have formed a grassroots effort, reaching out to some of the other 2,824 investors, to challenge Malkin Holdings' proposal and Malkin's leader, Anthony Malkin. So far 1,150 have contacted the group via a web site, www.empirestatebuildinginvestors.com, said investor Richard Edelman, who last year spearheaded the opposition to the REIT. Since then, he has gained the help of other investors and their heirs. Not everyone contacting the website opposes the REIT. Most requested more information. Others object to the proposed 50-50 split of the value of the Empire State Building between Empire State Building Associates and the management company owned by the estate of Leona M. Helmsley and Malkin Holdings. The group has held conference calls, and Malkin has objected to some of the statements made during them. Malkin Holdings issued a letter on Tuesday to two of the investors on the call demanding that they stop making what Malkin said were untrue statements, an investor said. Malkin Holdings said it could not comment because of a quiet period after filing for the IPO. However, a person familiar with the situation but not authorized to speak on the record, said the agreement allows the those in charge of the investors broad powers. It is very specific about circumstances in which the supervisor needs an 80 percent vote by investors, including selling, mortgaging or transferring the property. In fact, when Empire State Building Associates bought the property, investors had to approve the purchase, but Malkin Holdings had the authority to incur costs for legal and other pre-purchase services that amounted to under $1 million needed prior to the acquisition, the source said. Some of the investors, who bought units in the Empire State Building Associates in 1961 and 1962 have filed lawsuits to challenge the consolidation of the 18 properties into a REIT. (Reporting By Ilaina Jonas; Editing by Eric Meijer) (c) Copyright Thomson Reuters 2012. Check for restrictions at: http://about.reuters.com/fulllegal.asp http://www.cnbc.com/id/48219411 By CRAIG KARMIN As if stock-market volatility, arcane securities regulation, and the tepid state of the office market weren't enough, the real-estate family seeking to list the Empire State Building now has to contend with an unexpected foe: a semiretired guy in a beach community near San Diego. Richie Edelman inherited a small stake in the iconic skyscraper that his grandparents purchased in 1962 from the storied real-estate team of Harry Helmsley and Lawrence Wien. Now he is leading a group of two dozen investors who are opposed to the structure of the proposed public offering and are trying to block or alter the deal, which is being led by the Malkin family. The Empire State Building is the jewel in a proposed new real-estate company, to be known as Empire State Realty Trust, that will include 17 other Malkin properties and is expected to raise up to $1 billion from an initial public offering within the next year. Mr. Edelman and other critics of the IPO say it favors the Malkins at the expense of the other part-owners of the tower. If the offering goes through, the Malkin family and the estate of Leona Helmsley would own stakes valued at $642 million and $1 billion, respectively. "The investors who own the Empire State Building are not getting a fair shake, and everyone knows it," says Mr. Edelman, whose stake would be worth about $3.3 million under the terms of the sale. Enlarge Image Sam Hodgson for The Wall Street JournalRichie Edelman A spokeswoman for the Malkins declined to comment. While a vote still is months away, the family needs 80% of shares held by the Empire State Building's 2,800 owners to approve the plan, which is why it is hard to swat Mr. Edelman away like a bothersome but harmless gadfly. To be sure, Mr. Edelman's group isn't big enough to block the deal by itself. Some investors haven't been persuaded and are leaning toward supporting the Malkins. Nevertheless, the group has had some success in wringing concessions from the Malkins, who agreed recently to change the offering's tax treatment of the investors. That has made Mr. Edelman an unlikely player in one of the most hotly-anticipated real-estate IPOs in years. A 57-year-old college dropout who bounced around from job to job before getting into the music-video business, Mr. Edelman may seem ill-equipped to take on a New York real-estate dynasty. The Malkins control millions of square feet of office space in the New York region. Peter Malkin, the patriarch of the family and chairman of Malkin Holdings, was the son-in-law of Mr. Wien, Mr. Helmsley's partner. His son, Anthony Malkin, currently runs the family company and recently oversaw a $550 million upgrade of the Empire State Building that is attracting larger and high-paying tenants. Mr. Edelman's organization argues that the smaller investors should do better, based in part on the value of Manhattan office properties. The group consists of about two dozen volunteers, many of them retirees. The volunteers make phone calls to persuade other investors that there are alternatives to an IPO, such as a sale to a private buyer, or at least better terms to be had. Richie Edelman says most of the hundreds of investors his group has contacted share at least some of his concerns. Not every investor is convinced. "I thought they had some good points but also some outrageous claims," says Howard Peskoe, a New York-based attorney and investor in the building who listened in on one of the group's conference calls last month. Mr. Peskoe said the investors didn't have a plan for allowing owners to sell their shares in the event the IPO didn't happen, and says he is planning to vote in favor of the proposed sale. Not long ago, the Malkins were dismissing Mr. Edelman and his cohorts as a tiny minority of investors, according to investors who spoke with Peter Malkin. But two weeks ago, the Malkins announced for the second time in three months they were changing terms of the IPO offering in a way that responds to complaints from small owners. For instance, the new proposal will allow investors to receive stakes in the new public company as tax-deferred partnership units, instead of common shares, giving investors the same favorable tax treatment that the Malkins already enjoyed. A Long Island, N.Y., native, Mr. Edelman attended college in Albany, New York City, Denmark, and San Diego before deciding after four and half years that formal education wasn't for him. In 1982, he moved to Los Angeles to help produce a television series in which Arianna Stassinopoulos—now Arianna Huffington, founder of the Huffington Post website—interviewed politicians, scientists and artists. He now lives in Solana Beach, Calif., and works part-time advising companies on their online media strategies. Late last year, he started reading preliminary Security and Exchange Commission filings for the IPO and decided investors could use a guide. He set up a website that warns investors how they might fare under the proposed public sale. The site raised questions about the Malkins' compensation, tax treatment for the existing owners, and the valuation process for the buildings. Michael Caplan, a 68-year old who lives in Boca Raton, Fla., said he is sending the group a $1,000 check to help cover legal fees and other expenses. He thinks the Malkins' fees and other compensation is too high but doesn't think the message is getting through to his fellow investors. "I don't want to read that the little guy didn't know what he was getting into" after an IPO, he said. Write to Craig Karmin at craig.karmin@wsj.com http://online.wsj.com/article/SB10001424052702303612804577533013788176618.html#articleTabs%3Darticle The following letters were mailed to participants in Empire State Building Associates L.L.C., 60 East 42nd Street Associates L.L.C. and 250 West 57th Street Associates L.L.C., respectively, on July 2, 2012:
July 2, 2012 To Participants in Empire State Building Associates L.L.C. Dear Fellow Participants: Since we embarked on a path toward the proposed consolidation of properties and initial public offering (“IPO”), we have heard widespread concern from investors that they could owe taxes and might have to sell a portion of their interests to pay their taxes based on the original structure developed by our experts. Over the past several months, however, we have been working diligently with our legal, tax, and capital markets advisors to see if there might an innovative approach to address this investor concern. We have pressed to find a practical tax deferral option that could be offered to investors in an SEC-registered public entity like Empire State Building Associates. We are pleased to inform you that we have developed a new structure that would give you the option to defer any tax that could be triggered by the proposed consolidation. The new structure is unique, never used before, and was conceived by the Malkin Holdings team and made possible through the work of our third-party legal and investment advisors. We are able to announce it now after having discussed the structure with both the New York Stock Exchange and NASDAQ, which has given us confidence that we will be able to implement the structure. We are now filing this structure in full detail with the SEC. But we wanted to let you know as soon as we could that we have developed a plan that will enable you to receive the exact same tax treatment that private entity investors and the Malkin family would receive for their interests. Under this structure, you will have the option to elect either (a) currently taxable Class A Shares or (b) tax-deferred operating partnership units (“OP Units”). If you elect OP Units, as with the private investors and the Malkin family, you may also choose to elect a portion in Class B Shares which provide voting rights in the REIT with minimal tax effect. Operating Partnership Units OP Units would not be taxable at the time of the consolidation. Instead, as described in more detail in the new draft Form S-4, taxes would be payable on any gain only at the time of a future capital transaction such as your sale or exchange of the OP Units or a sale involving Associates’ property. Each OP Unit will receive the same quarterly cash dividend as a Class A Share. OP Units issued to investors in the public entities - Empire State Building Associates L.L.C., 60 East 42nd St. Associates L.L.C. and 250 West 57th St. Associates L.L.C. – will also be listed on a national securities exchange.1 However, OP Units do not have a vote in the REIT, and there is no guarantee they would trade at the same price as Class A Shares. To protect against dissimilar pricing, holders of OP Units who want to sell may exchange their OP Units for an equal number of Class A Shares or equivalent cash at any time starting a year after the consolidation. In order to achieve the listing of the OP Units, there will be a small percentage of each series of OP Units which may be sold by investors at the time of the offering. While receiving OP Units entitles investors to tax deferral, if you choose to sell any OP Unit, that would be a taxable event. Our next filing of the Form S-4 with the SEC will explain this option in more detail. Class B Shares Because OP Units do not provide direct voting rights in the REIT, our new structure also permits you to have voting rights in the same way as was offered to the private entity investors and the Malkin family - by electing to receive one Class B Share for every 50 OP Units you would otherwise receive (thereby holding one Class B Share and 49 OP Units). These Class B Shares carry the same voting rights as 50 Class A Shares, meaning you would have the same voting rights as if you elected all Class A Shares. Although Class B Shares are taxable, because you will receive one out of every 50 OP Units you would otherwise receive, you will only be taxed for 2% of your total consideration if you elect this option. However, if you prefer 100% tax deferral, you may elect to receive only OP Units. In summary, if you elect Class B Shares, you will receive to the extent of your holdings: • One Class B Share • 49 OP Units • The same economic and voting rights as if you had elected 100% taxable Class A Shares • Tax deferral on 98% of your investment • The same dividend as an OP Unit • The ability to redeem your Class B Shares and OP Units for Class A Shares Where they may do so, the Malkin Family has elected to receive Class B shares. Identical Treatment to Malkin Family and Private Entity Investors This new structure provides the same election as was made available to the Malkin family and the investors in the private entities. All such entities approved the proposed consolidation. Under this new tax deferred OP Unit election, there is no cash election at the time of the IPO. Class A Shares Class A Shares would still be available as an option under the new structure. These shares would receive the same income distributions as OP Units and carry REIT voting rights. However, individuals selecting Class A Shares would be taxed on the full gain on their investment in the tax year in which the consolidation occurs and would not receive any cash proceeds at the time of the IPO (unless a tax-exempt charity). 1 Depending on which public entity you invested in, you would receive a different series of OP Unit. However, all OP Units will share the same economic features. Those wanting liquidity would be eligible to sell half of their Class A Shares, Class B Shares and OP Units six months after the IPO and the remainder after twelve months. To our knowledge and the knowledge of our advisors, the options we are presenting here have never been made available in any prior consolidation to form a REIT. The work we have done here is ground-breaking – and the result of our commitment to serve all investors, our conviction that this consolidation provides important benefits to our investors, and our recognition that far more investors than anticipated found the prior taxable Class A-only option difficult. We continue to believe that the proposed consolidation and IPO presents the best way forward for all investors. Helmsley Estate Sale of its Interests If the consolidation and IPO do not proceed, it is important for you to understand that the executors of the Estate of Leona Helmsley will be required to sell the Helmsley interests in Associates’ operating lessee. The Malkin Holdings group will retain its blocking interest in Associates’ operating lease, thereby creating the potential for stalemate in the operating lessee. Thus, the status quo is not an option. We believe the combination of multiple properties in a publicly traded REIT will benefit all investors through diversification of assets for more consistent cash distributions, potential for growth through existing property performance and accretive acquisitions, greater access to capital markets, efficient portfolio planning and decision-making by experienced officers and employees, as well as regular quarterly dividends based on the performance of a variety of properties. In addition, those seeking to sell their current interests would soon have the ability to realize a true market price from a liquid security, traded on a national securities exchange, which they could sell at any time of their choosing after the six and twelve month periods described above. There are material risks and conflicts of interest associated with the consolidation. In addition, the preliminary filing of the Form S-4 includes a more detailed discussion of the tax consequences of the consolidation. You should carefully review the sections entitled “Risk Factors” and “Conflicts of Interest” in the preliminary Form S-4 which has been filed with the SEC. There is no action you need to take until our Form S-4 is declared effective. We welcome the opportunity to answer questions you have. If you want to reach out to professionals who can answer your questions with firsthand knowledge of your investment and this proposed transaction, feel free to reach us through Ned H. Cohen at 212-850-2695 or ncohen@malkinholdings.com. Sincerely, MALKIN HOLDINGS LLC /s/ Peter L. Malkin /s/ Anthony E. Malkin Peter L. Malkin Anthony E. Malkin Chairman President This communication shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. Each of the three public entities, Empire State Building Associates L.L.C., 60 East 42nd St. Associates L.L.C., and 250 West 57th St. Associates L.L.C. (the “Companies”) and their agents and supervisor, and each officer and director of them or of Empire State Realty Trust, Inc. (the “REIT”) may be deemed to be a participant in the solicitation of consents in connection with the proposed consolidation. The names of such persons and a description of their interests in the Companies and the REIT are set forth, respectively, in each Company’s Annual Report on Form 10-K for the year ended December 31, 2011 and the REIT’s Registration Statement on Form S-4, which have been filed with the SEC July 2, 2012 To Participants in 60 East 42nd St. Associates L.L.C. and 250 West 57th St. Associates L.L.C. Dear Fellow Participants: Since we embarked on a path toward the proposed consolidation of properties and initial public offering (“IPO”), we have heard widespread concern from investors that they could owe taxes and might have to sell a portion of their interests to pay their taxes based on the original structure developed by our experts. Over the past several months, however, we have been working diligently with our legal, tax, and capital markets advisors to see if there might an innovative approach to address this investor concern. We have pressed to find a practical tax deferral option that could be offered to investors in an SEC-registered public entity like yours. We are pleased to inform you that we have developed a new structure that would give you the option to defer any tax that could be triggered by the proposed consolidation. The new structure is unique, never used before, and was conceived by the Malkin Holdings team and made possible through the work of our third-party legal and investment advisors. We are able to announce it now after having discussed the structure with both the New York Stock Exchange and NASDAQ, which has given us confidence that we will be able to implement the structure. We are now filing this structure in full detail with the SEC. But we wanted to let you know as soon as we could that we have developed a plan that will enable you to receive the exact same tax treatment that private entity investors and the Malkin family would receive for their interests. Under this structure, you will have the option to elect either (a) currently taxable Class A Shares or (b) tax-deferred operating partnership units (“OP Units”). If you elect OP Units, as with the private investors and the Malkin family, you may also choose to elect a portion in Class B Shares which provide voting rights in the REIT with minimal tax effect. Operating Partnership Units OP Units would not be taxable at the time of the consolidation. Instead, as described in more detail in the new draft Form S-4, taxes would be payable on any gain only at the time of a future capital transaction such as your sale or exchange of the OP Units or a sale involving Associates’ property. Each OP Unit will receive the same quarterly cash dividend as a Class A Share. OP Units issued to investors in the public entities - Empire State Building Associates L.L.C., 60 East 42nd St. Associates L.L.C. and 250 West 57th St. Associates L.L.C. – will also be listed on a national securities exchange.2 However, OP Units do not have a vote in the REIT, and there is no guarantee they would trade at the same price as Class A Shares. To protect against dissimilar pricing, holders of OP Units who want to sell may exchange their OP Units for an equal number of Class A Shares or equivalent cash at any time starting a year after the consolidation. In order to achieve the listing of the OP Units, there will be a small percentage of each series of OP Units which may be sold by investors at the time of the offering. While receiving OP Units entitles investors to tax deferral, if you choose to sell any OP Unit, that would be a taxable event. Our next filing of the Form S-4 with the SEC will explain this option in more detail. 2 Depending on which public entity you invested in, you would receive a different series of OP Unit. However, all OP Units will share the same economic features. Class B Shares Because OP Units do not provide direct voting rights in the REIT, our new structure also permits you to have voting rights in the same way as was offered to the private entity investors and the Malkin family - by electing to receive one Class B Share for every 50 OP Units you would otherwise receive (thereby holding one Class B Share and 49 OP Units). These Class B Shares carry the same voting rights as 50 Class A Shares, meaning you would have the same voting rights as if you elected all Class A Shares. Although Class B Shares are taxable, because you will receive one out of every 50 OP Units you would otherwise receive, you will only be taxed for 2% of your total consideration if you elect this option. However, if you prefer 100% tax deferral, you may elect to receive only OP Units. In summary, if you elect Class B Shares, you will receive to the extent of your holdings: • One Class B Share • 49 OP Units • The same economic and voting rights as if you had elected 100% taxable Class A Shares • Tax deferral on 98% of your investment • The same dividend as an OP Unit • The ability to redeem your Class B Shares and OP Units for Class A Shares Where they may do so, the Malkin Family has elected to receive Class B shares. Identical Treatment to Malkin Family and Private Entity Investors This new structure provides the same election as was made available to the Malkin family and the investors in the private entities. All such entities approved the proposed consolidation. Under this new tax deferred OP Unit election, there is no cash election at the time of the IPO. Class A Shares Class A Shares would still be available as an option under the new structure. These shares would receive the same income distributions as OP Units and carry REIT voting rights. However, individuals selecting Class A Shares would be taxed on the full gain on their investment in the tax year in which the consolidation occurs and would not receive any cash proceeds at the time of the IPO (unless a tax-exempt charity). Those wanting liquidity would be eligible to sell half of their Class A Shares, Class B Shares and OP Units six months after the IPO and the remainder after twelve months. To our knowledge and the knowledge of our advisors, the options we are presenting here have never been made available in any prior consolidation to form a REIT. The work we have done here is ground-breaking – and the result of our commitment to serve all investors, our conviction that this consolidation provides important benefits to our investors, and our recognition that far more investors than anticipated found the prior taxable Class A-only option difficult. We continue to believe that the proposed consolidation and IPO presents the best way forward for all investors. Helmsley Estate Sale of its Interests If the consolidation and IPO do not proceed, it is important for you to understand that the executors of the Estate of Leona Helmsley will be required to sell the Helmsley interests in Associates’ operating lessee. Thus, the status quo is not an option. We believe the combination of multiple properties in a publicly traded REIT will benefit all investors through diversification of assets for more consistent cash distributions, potential for growth through existing property performance and accretive acquisitions, greater access to capital markets, efficient portfolio planning and decision-making by experienced officers and employees, as well as regular quarterly dividends based on the performance of a variety of properties. In addition, those seeking to sell their current interests would soon have the ability to realize a true market price from a liquid security, traded on a national securities exchange, which they could sell at any time of their choosing after the six and twelve month periods described above. There are material risks and conflicts of interest associated with the consolidation. In addition, the preliminary filing of the Form S-4 includes a more detailed discussion of the tax consequences of the consolidation. You should carefully review the sections entitled “Risk Factors” and “Conflicts of Interest” in the preliminary Form S-4 which has been filed with the SEC. There is no action you need to take until our Form S-4 is declared effective. We welcome the opportunity to answer questions you have. If you want to reach out to professionals who can answer your questions with firsthand knowledge of your investment and this proposed transaction, feel free to reach us through Ned H. Cohen at 212-850-2695 or ncohen@malkinholdings.com. Sincerely, MALKIN HOLDINGS LLC /s/ Peter L. Malkin /s/ Anthony E. Malkin Peter L. Malkin Anthony E. Malkin Chairman President This communication shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. Each of the three public entities, Empire State Building Associates L.L.C., 60 East 42nd St. Associates L.L.C., and 250 West 57th St. Associates L.L.C. (the “Companies”) and their agents and supervisor, and each officer and director of them or of Empire State Realty Trust, Inc. (the “REIT”) may be deemed to be a participant in the solicitation of consents in connection with the proposed consolidation. The names of such persons and a description of their interests in the Companies and the REIT are set forth, respectively, in each Company’s Annual Report on Form 10-K for the year ended December 31, 2011 and the REIT’s Registration Statement on Form S-4, which have been filed with the SEC. http://sec.gov/Archives/edgar/data/1541401/000119312512292003/d376103d425.htm |
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