WSJ: Tax Terms Amended in Empire State Building IPO
05/08/20120 By CRAIG KARMIN The family that controls the Empire State Building has agreed to change the terms of the skyscraper's public offering, making the tax treatment less punitive to small investors who have been fighting with the family over their potential tax bill arising from the sale.
Under the initial terms of the offering, the 2,800 investors were limited to cashing out no more than 15% of their stake in the new public company during the first six months following the IPO. That raised the prospect they could face a tax bill on gains that could more than wipe out the cash investors received from the offering.
An amended Securities and Exchange Commission filing made by the Malkin family on Tuesday gives the current owners more flexibility. If the IPO occurs in 2012, then the investors will be able to receive in cash or sell shares for up to about a third of their stake in the new public company, according to the filing.
A Malkin spokeswoman said "we are presently in a quiet period and are therefore unable to comment" on why the tax treatment was changed.
But the changes may have reflected the reaction by many of the Empire State Building investors, who were concerned that they would have to dip into their savings to pay their tax bill from the sale.
The Malkins, who control the building and are spearheading the IPO, would receive a different tax treatment, according to the filings. They would be allowed to defer some taxes and could be reimbursed about $83 million for other tax liabilities.
The different tax treatment sparked rebukes from some investors. But it was only the latest criticism from some of the Empire State Building investors of this closely watched proposed public offering.
At least five lawsuits have been filed in New York State Supreme Court attempting to block the sale or challenge the terms by alleging it isn't fair or equitable to investors. A spokeswoman for the Malkins has called the lawsuits" baseless."
While many investors are likely to welcome the amended tax treatment, it may be not be enough to persuade skeptics to throw support behind the offering. The plan requires approval from 80% of the partnership units held by investors. The Malkins control voting rights for about 8% of the units.
"Certainly these changes show they are listening," said Peter Benjamin, an investor with a small stake who retired near Greenville, S.C. He said he spoke with Peter Malkin, chairman of Malkin Holdings, about the issue a few weeks ago.
But Mr. Benjamin added that he felt the IPO process still rewarded the Malkins with fees and compensation that he thought were too high. "It's still too one-sided toward the Malkins," he said.
The proposed IPO has no timetable but is expected to be months away. The new company, to be known as the Empire State Realty Trust Inc., will include the Manhattan skyscraper and 17 other properties in New York and Connecticut. The real-estate investment trust is valued at $4 billion, and the Empire State Building was appraised at $2.52 billion.
The Malkins would get a stake valued at $642 million, while a nonprofit foundation named for Leona and Harry Helmsley would receive the largest stake in the REIT, valued at about $1 billion, according to the filings.
Harry Helmsley and Lawrence Wien, the grandfather of Anthony Malkin, who is Malkin Holdings LLC's president, took control of the Empire State Building in 1961.
The IPO proposal limits investors to receiving 12% to 15% of their stake in the new company in cash. That restriction was applied so that the new company could qualify for favorable tax treatment from New York.
Under the old IPO structure, investors had to wait six months before they could sell any stock in the company, which raised fears that federal and state taxes on the full amount of their gains could hit them faster. Tax attorneys estimate that the bill could come to 25% to 35% of those gains.
Under the amended terms, investors would still be limited to cashing out no more than 12% to 15% of the stake. But if the offering prices by the end of 2012, then investors would be able to sell between 17% to 19.5% of their stock starting April, 1, 2013 "to provide liquidity for income tax payments due on April 15, 2013," the filings say.
Since the cash allocation remains the same under the new filing, the REIT will still enjoy favorable tax treatment, according to Tuesday's filing.
http://online.wsj.com/article/SB10001424052702304363104577392552126659614.html?mod=googlenews_wsj#articleTabs%3Dcomments
Under the initial terms of the offering, the 2,800 investors were limited to cashing out no more than 15% of their stake in the new public company during the first six months following the IPO. That raised the prospect they could face a tax bill on gains that could more than wipe out the cash investors received from the offering.
An amended Securities and Exchange Commission filing made by the Malkin family on Tuesday gives the current owners more flexibility. If the IPO occurs in 2012, then the investors will be able to receive in cash or sell shares for up to about a third of their stake in the new public company, according to the filing.
A Malkin spokeswoman said "we are presently in a quiet period and are therefore unable to comment" on why the tax treatment was changed.
But the changes may have reflected the reaction by many of the Empire State Building investors, who were concerned that they would have to dip into their savings to pay their tax bill from the sale.
The Malkins, who control the building and are spearheading the IPO, would receive a different tax treatment, according to the filings. They would be allowed to defer some taxes and could be reimbursed about $83 million for other tax liabilities.
The different tax treatment sparked rebukes from some investors. But it was only the latest criticism from some of the Empire State Building investors of this closely watched proposed public offering.
At least five lawsuits have been filed in New York State Supreme Court attempting to block the sale or challenge the terms by alleging it isn't fair or equitable to investors. A spokeswoman for the Malkins has called the lawsuits" baseless."
While many investors are likely to welcome the amended tax treatment, it may be not be enough to persuade skeptics to throw support behind the offering. The plan requires approval from 80% of the partnership units held by investors. The Malkins control voting rights for about 8% of the units.
"Certainly these changes show they are listening," said Peter Benjamin, an investor with a small stake who retired near Greenville, S.C. He said he spoke with Peter Malkin, chairman of Malkin Holdings, about the issue a few weeks ago.
But Mr. Benjamin added that he felt the IPO process still rewarded the Malkins with fees and compensation that he thought were too high. "It's still too one-sided toward the Malkins," he said.
The proposed IPO has no timetable but is expected to be months away. The new company, to be known as the Empire State Realty Trust Inc., will include the Manhattan skyscraper and 17 other properties in New York and Connecticut. The real-estate investment trust is valued at $4 billion, and the Empire State Building was appraised at $2.52 billion.
The Malkins would get a stake valued at $642 million, while a nonprofit foundation named for Leona and Harry Helmsley would receive the largest stake in the REIT, valued at about $1 billion, according to the filings.
Harry Helmsley and Lawrence Wien, the grandfather of Anthony Malkin, who is Malkin Holdings LLC's president, took control of the Empire State Building in 1961.
The IPO proposal limits investors to receiving 12% to 15% of their stake in the new company in cash. That restriction was applied so that the new company could qualify for favorable tax treatment from New York.
Under the old IPO structure, investors had to wait six months before they could sell any stock in the company, which raised fears that federal and state taxes on the full amount of their gains could hit them faster. Tax attorneys estimate that the bill could come to 25% to 35% of those gains.
Under the amended terms, investors would still be limited to cashing out no more than 12% to 15% of the stake. But if the offering prices by the end of 2012, then investors would be able to sell between 17% to 19.5% of their stock starting April, 1, 2013 "to provide liquidity for income tax payments due on April 15, 2013," the filings say.
Since the cash allocation remains the same under the new filing, the REIT will still enjoy favorable tax treatment, according to Tuesday's filing.
http://online.wsj.com/article/SB10001424052702304363104577392552126659614.html?mod=googlenews_wsj#articleTabs%3Dcomments
