About the transcript:
This conference call, as well as many previous conference calls, was recorded by me using the AudioNote software application. The time notations (bold numbers) are thus from my recording, not the official recording. However, they will help you with locating the exact conversation when listening to the official recording made by Richie Edelman. Access to the recorded calls are available at www.empirestatebuildinginvestors.com.
Tho I worked part of my way through college as a transcriber, and managed the production department of a publishing company, I do not have the equipment, staff or budget to be able to produce a professional transcription. I tried to capture the conference word-for-word, but you will find errors and you may want to follow up by listening to the actual tape.
It would be ideal to have transcripts of all of the conference calls as they have been extremely enlightening, with many, many smart, knowledgeable participants who also have been very articulate. Being able to go back and review statements illuminating the difficulties with this investment would be very useful.
Personally speaking:
This investment was established 50 years ago amongst a diverse group of people. From business owners to bus drivers, participation was sought at all income levels. Intentionally, I am told, it was not to be an investment for the privileged alone.
In participating in a phone tree, which alerted owners to upcoming conference calls, I talked to a big variety of people ... and it was a delightful experience. Many were quite elderly, others had inherited parts of the original investment one way or another. I spoke to a truck driver, on the road, a cattle rancher who had to sell his herd due to the drought, a mom planning her daughter's wedding, and those who have brokerage accounts and never really see their checks from this investment: many, many fascinating people. People who arrived in this investment due to their trust in Larry Wein and the Malkins.
But "big business" got into the act with PR firms, accountants, lawyers, banks, stock brokerages, public relations firms, etc., to spend our money to grab our real estate and consolidate it with a number of other real estate properties (I don't know that we know how many of those buildings Malkin is financially involved with) which had unknown financial challenges, rolling them under the prized Empire State Building.
There was a lot of fear-mongering about all kinds of disasters awaiting our investment, such as the government no longer intending to write insurance on big commercial buildings. The corker was, for me, when Peter Malkin told me that "even Richie Edelman ... leader of the opposition ... had called him to ask how to vote yes for the deal! I was interviewed by the SEC, and news organizations, and I told them of the incredible experience I was having with the Malkins and their minions. And, where there were written communications (by the carload), not even top lawyers could decipher the language of those communications, much less us folks. How much money do you think we'd have to have to hire a lawyer to fight on our individual behaves?
Many of us are alarmed at the way our world is working these days. This investment represents a microcosm of the lengths greedy people will go to in the public and private sectors, to become ever more wealthy, without ethics and morals which provide the only means, IMHO, by which (along with long-range planning) our world can survive.
I hope that the transcript in this blog will help investors get a better understanding, and will enable them to communicate a bit better, with their puzzled families, friends and professional advisers. Thank you for taking your time with this.
Sunday, August 10, 2014
Thursday, August 7, 2014
Transcript of the entire June 5, 2014 Conference Call
00:40 RE:
00:40 We have a huge audience.
00:50 We know the topic of discussion we will spend the most time on is the exchange
offer that I hope all of you have received by now. I have had some conversations and
emails from those of you who have done some research on it and I have suggested that
you share what you have found and offer your opinions and research on that and we
will also quickly dispense with some other information which we can go back to but I
think if we put the time in on this exchange offer we will probably spend most of the time
on that….
01:51 Again I hope that at least initially the conversation will be mostly about the exchange
offer, whether you like it or don’t like it ….
02:10 First are some updates on the lawsuits, it has been now 6 or 7 weeks since our last
call. We have been holding off on some developments and that is why it is longer than
planned.
02:33 The $600 million lawsuit now has a court date of July 7, in New York in the Supreme
Court, for those of you not familiar with that, the Supreme Court is the trial court, which
is the opposite of the way we understand the Federal Court … 3:00 pm … it is a smaller
court room so otherwise the appeal when we invited people to show up … 100 people…
I welcome people and we will share with you the address, but with the smaller capacity
… as I understand it what is going to be orally argued are the papers which have been
submitted and they concern the issue which has to be settled before this case goes
forward and that is whether the initial class action suit waiver somehow gave Malkin
Holdings a pass for all future conduct.
04:08 Obviously the attorneys who filed these suits feel that is not the case as we
discussed and as we can discuss later on, the events that they allege that took place,
took place after that settlement, they were not covered in the agreement, they argued
before ???? Maklin lawyers are arguing that that relief absolves them of any
responsibility going forward with anything to do with the REIT.
04:37 So that will be argued July 7. I don’t know how quickly we will hear a decision after
that. If the judge rules that it can go forward, obviously that case will go forward and
they may ask for a jury trial and that could be an important development.
04:55 The other case that is out there is the appeal of the original class action suit of one
of the participant investors, attorney (actually he was the Assistant Attorney General of
Massachusetts), Alan Kovak, he has filed an appeal I believe it is going to be heard in
September and that would be that Appellate Court that those of you who turned up last
November were in. I don’t have a particular date.
05:30 And now we get to some other issues. I have been telling you all along about the
Freedom of Information Act request and under the law we are permitted pretty much
everything once the REIT went forward. We made a series of requests from January 6 -
January 16, and a couple later on, we are now 5-1/2 months into this and we have
received nothing. Whether this is the norm or not, I get different feed back on it but we
did get something, a letter from the SEC, that is NOT the norm.
06:06 And we can talk more about it, but I’ll just quickly go over what it is.
06:10 We ??? requested the consumer complaints that were registered during the REIT
process, during the REIT vote, we requested that information, I have spoken to the SEC
Freedom of Information Office, that is something that they do provide, of course they will
redact what they call “PI” (personal information) we can’t identify that who it was that
called and we felt that that would be important information to share. We requested it, we
got what they call a “Glomar” response, which is on the Empire State website.
07:05 I’ll quickly read some of the salient points later on.
07:16 The letter is a letter saying they are not going to give us the information, and I’ll read
it for those of you who do not have access to computers. Here we go [get from website].
07:31 This was made in early January, we did not get it for some time after [letter dated
April 30, 2014 “in response to your request of January 15, 2014”]
07:56 See letter at http://www.empirestatebuildinginvestors.com/ site
08:16 “We can neither confirm nor deny the existence of any records responsive to your
request. If such records were to exist, they may be exempt from disclosure pursuant to
one or more of the following exemptions under the FOIA:”
08:27 “(7)(A), which protects records or information when disclosure could reasonably be
expected to interfere with law enforcement proceedings;”
08:36 (7)(C), which protects records or information when disclosure could reasonably be
expected to constitute an unwarranted invasion of personal privacy;
08:38 I’ll go back and explain this
08:45 “By outlining the provisions of these exemptions, we do not mean to imply in any
way that records responsive to your request exist.”
08:45 Now those of you who have been on these calls have heard people on them who
have talked to the SEC when ????? We obviously know these records exist, nobody
knows how many there are, there could be 30, 50, we’ll only know when we get them.
08:45 I’ll just quickly go back to what they said in 7A and 7C, …. I have spoken to lots of
people about this, I have spoken to the SEC about this, I spoke with them today, and
asked how often they see these Glomar responses, I was told, I’ll tell you exactly, that at
one time they saw a lot of them, they don’t see as many of them nowadays. … You can
read into that anything you want, that is what they said and we can certainly debate our
interpretation.
08:45 The second one, 7C, which protects records or information when disclosure could
reasonably be expected to constitute an unwarranted invasion of personal privacy;
10:01 I have been told that that means when there is an investigation of somebody, to
disclose the investigation when they haven’t be charged with anything obviously would
be damaging to their reputation and they interpret that … [capture more of this from
recording later]
10:21 when that happens and it will happen, at some point, and we don’t know again too and
release this information and we will be engaged in with them…[dog barking etc., here,
review later]
10:35 and to quickly move on from this to the main event
10:35 We have gone through a process with the SEC over 5-1/2 months with internal
appeals going up and down to the General Counsel office it has been sent back to the
Freedom of Information Office, and by the end of this coming month of June, we will be
in District Court probably in Washington where the SEC will be asked to bring all of the
documents that they say they can’t provide us with for the judge to review each page on
whether they can or cannot be released. This is a normal process, we are not setting
any new process here. It has happened before, and again we can get some more
details about this because I know everybody has more urgency to speak about this
exchange offer.
11:26 And again, I want you to hear what each of you have to say about this ….
501 Area Code:
11:49 … “I actually talked to my Stock Broker about all of this, and he is a very good guy, I
have had him forever, I trust him, he is very ethical, he has done well by me. He also did
a lot of math while I was on the phone with him, and he said we’d be exchanging
equities for debt and the percentage of the Malkin equity would be going up and we
would have very poor returns in the end. He said that this is a good guidance for us as a
group and for individual investors: whatever the Malkins do for themselves you should
do for yourself. You should always align yourself with their interests.”
RE:
12:45 And so, do you mean that within this document [exchange document] it says that no
one in management including the Malkins are going to participate in this exchange?
501:
12:58 Well, exactly
RE:
12:58 So therefore, if they are not doing what he is saying is there is a reason why they
are not so you have to wonder why you would.
13:07 Exactly, that is exactly it and if they are not doing it then we certainly shouldn’t. The
thing is too, is that all our investors talk about how they want to return the equity ?
income back to those people who desperately needed it. Well, they are just screwing us
over again. Just like they did the first time. We had a very nice income for a very long
time and they took that away from us and now the pretense is that they are restoring
that to those that need it but at a much reduced rate and huge penalties.
RE:
13:56 I am going to reserve my own judgement and I think what you just said was great
and I hope when we get some more people who either on their own or in conversation
with an investment professional have gotten an opinion, that is a great way to start,
thank you so much.
954 Area Code:
14:21 I have a more devious mind than that broker.
14:31 I got a very interesting call about 2 hours ago, from that very, very fine organization
that wants to do us all a favor and steal everything. Mackenzie.
14:42 They want to know had I made up my mind. I said “for what”. To trade off the Empire
State. Personally I feel that the Malkins (well I don’t want to use an explicative), I think it
is a “Trojan Horse”.
15:01 I told you then and I tell you now. This deal, if you take it, you get locked into a
“preferred stock”. You have no market, you have to make your own market if you want
to sell it. I don’t care if it is $90 or $10, you still have no market. The same deal as we
had before.
15:22 So what this guy is trying to do in my opinion, is ????? (look up online recording)
say …. they really didn’t want it anyhow or they wouldn’t have taken the offer no matter
what it was. So what’s the point of all of this? That’s my personal opinion. I don’t think it
is a good deal for us.
15:41 I spoke to this young fellow, he was a young fellow, I said, “Now let me ask you a
question”, what happens if ESRT takes off like a bat-out-of-hell, we win everything in
sight, we even buy better properties and we are making money hand-over-fist, and I am
in this deal and all the stock holders say heh, let’s raise the dividend, you know what we
get, in a word? Nothing.
16:12 We get the 60 cents, that is what we get. It could go up to $10 per share, dividend,
we’d get 60 cents … period … that is what they are obligated to give us. Of course, we
have the advantage that if the whole thing goes down the drain, god forbid the whole
country falls apart, and everything is emptied out and removed, they get the money first.
RE:
16:38 Right, so the advantage is that if the world falls apart you will be ahead of the
country falls apart, and everything is emptied out and removed, they get the money first.
954:
16:47 No, no, it is even better than that, Richard, I forgot for a minute, it is even better than
that. To all of you people who are listening, listen to this, if the world falls apart, we get
twice what the stock is, $16.62, we get $33.24, of course, if there is the one that don’t
get it but that is what we are entitled to as preferred owners, that is the whole skinny.
RE:
17:30 I suppose that others are getting these calls …. Anything else you want to add?
954:
17:45 Not really. There is a lot of things you know but I am not gonna go into them, as far
as I am concerned we found out that the trust we had with Larry Wien, died with Larry
Wien.
RE:
17:50 Right. I know some of you like you are an original investor and when you speak from
that you speak from experience because I know you have spoken with all of the
principals over all these years, including in the recent times. Thank you so much.
954:
18:10 My pleasure and thank you so much, for everything you are doing and so far you
have been right on the money.
RE:
18:16 Thank you so much
561 Area Code:
18:27 Let me add some additional items.
18:28 I am a real estate guy, so when I went on their website and looked at some of their
current articles as one of the things you look at in Real Estate, especially in Manhattan
is the ability to buy the ground lease underneath the real estate.
18:47 The returns on buying those ground leases, especially if you can buy them light (and
you would have had to have negotiated that from the very beginning) if you had an
option to buy the land at a certain price, for a certain value, the turn around on literally
re-writing that ground lease and/or selling that ground lease to a foreign sovereign fund,
the cap rate could go to like 2% and the amount of money that can be generated from a
ground lease could rival the acquisition cost of a building.
19:18 And they are starting to do that now which is good for the REIT, and so if they are
able to to cap out a whole bunch of investors at 2 times the $16.66 value and/or 60 cent
cap on the dividends, especially if at the close of $17.18 today and they start converting
some of those ground leases to either revenue or additional revenue or potential sale or
gain, you got tremendous windfalls in these properties.
19:48 I was involved in a major transaction recently where that ground lease was a very,
very desirable instrument to acquire and then to either hold or recap and sell that
income stream to a foreign national, and that happens all of the time, so this deal of
what there are offering us is like fleas on a vest — terrible.
RE:
20:04 Thank you and once again it is great to have people who have knowledge about the
business that helps the rest of us, as you know most of these investors are middle class
people who inherited and they are not professionals and hearing people like you speak I
think is incredibly valuable. So thank you for that.
973 Area Code:
20:40 I got a question, a comment and then a few questions. Obviously there are folks on
the call who are very sophisticated and understand all of this and they get it. I am kind
of in the middle. I think there are a lot of people who don’t even understand the offering.
It may be a good idea to go through it. I can go through the 4 points I’ve picked out and
please tell me if I have missed anything.
21:15 First question I had is “why are they doing this?” I mean what is the benefit to
Malkin, I don’t know the answer, I mean I am sure there is a motive, there is always a
motive behind what they have been doing the last few years, but why are they doing this
? I know one fellow called before who said that this is just to show the court that they
are the good guys, basically, I think it is more than that. I just don’t know what it is. Do
you know, does anybody know?
RE:
21:40 Well, I do know, I am trying to hold my opinions to a minimum … I have an opinion
on it and it is not my own but from talking to many people, is that by doing this they are
reducing the equity base which means those who don’t agree to this offer all of a
sudden have a larger ownership of the REIT. So that is beneficial, so those of you that
don’t do it, you benefit at the expense of those who do do it.
973:
22:09 I couldn’t figure out why anybody would want to do this quite frankly, [sic] but I was
just trying to figure it out in reading everything, so I went on to the SEC site and I read it
because I didn’t get the Times today, and I am reading and reading and reading and
usually somebody says why they are doing it, is that it is good for you, it is good for us,
and they didn’t answer that question. They didn’t even address it.
RE:
22:37 And the carrot is that you get a higher dividend immediately AND that of course on
the surface would be attractive to someone, like someone in their 80s (like the vast
majority of the investors) and if they didn’t understand what they were giving up for that
extra income during the remainder of their lives they wouldn’t understand.
??22:54 We know that most of the investors hold this as a long-term investment to bequeath
majority of the investors) and if they didn’t understand what they were giving up for that
extra income during the remainder of their lives they wouldn’t understand.
??22:54 We know that most of the investors hold this as a long-term investment to bequeath
to their progeny in most cases, they wouldn’t understand that those who would inherit it in
their estate wouldn’t be able to sell it for anything close to what it is worth today.
23:11 In fact in more technical terms they do mention in this document (exchange
document) that it has no liquidity and we all know what that means because for 50 years
we owned the same and I will point out something that you all know and that is those
things that were trading for $30,000 before the REIT process started and now they are
worth you know 7, 8, 9 times that so what they are doing with this is the inverse of what
you currently have that is taking you back to something that you had before, something
that is illiquid and they make clear in the documents that they will not register the trade
so you will be on your own again and that, of course, returns you to this thing that you
couldn’t sell if you wanted to sell, that means it is worth … the day you do the
transaction, if you do it, you have something that is worth far less than it did the day
before.
973:
24:09 Absolutely and I read it and read it and read it and I have no idea why anybody
would do this. They even talked about buying, I don’t know if I understood this correctly,
they talked about buying based on a pro-rata basis, a number of these shares. I was
really curious what they meant. I think they want to convert a fixed amount of shares if I
got this right.
RE:
24:31 Well they set it as a certain amount that they are willing to buy and therefore, if more
people tender than the amount they are willing to buy I believe that may be what you
are referring to pro-rata meaning that if they are willing to buy, you know a million five or
15 million, the more people tender.
24:56 And the other risk (?) which they don’t put in here and this is something you should
all know and I will point out that if you read this you know this was not reviewed by the
SEC. This was not reviewed by any State, this is being used through an exemption in
Securities laws and I am not going to pretend that I know them but I do know what I
read and I do know they say that it wasn’t reviewed. So no one has looked and this and
said that there aren’t things in here that shouldn’t be in here or that there aren’t things
missing.
25:28 Well one of the things that is missing is this particular preferred with a 3.6% dividend
(roughly based on what the stock price was when they mailed it) has interest rate risks.
And you may not understand what that means in those terms, but what it means is since
the rate is set forever, it is perpetual, it means we all know that today interest rates are
the lowest they’ve been in our lifetimes.
25:59 And we all have lived long enough, I am 59, many of you know that interest rates as
well as the stock market go up and down. So in the case of interest rates, they will
return to their mean one day, whether it is 5 years or 10 years, and at that point,
someone who wants to sell this not only has an illiquid discount, they now have
something that is yielding 3.6% in an environment where maybe people are getting 6%,
well as the stock market go up and down. So in the case of interest rates, they will
return to their mean one day, whether it is 5 years or 10 years, and at that point,
someone who wants to sell this not only has an illiquid discount, they now have
something that is yielding 3.6% in an environment where maybe people are getting 6%,
so the willingness of someone to buy something that pays only 3.6% can only be done if
you discount it tremendously.
26:43 So, it is a possible scenario where a person who owns this in the future, someone
who probably inherited it, maybe they decide to sell, they need to sell it, they may get a
fraction of what it is worth even after the illiquidity discount, so it has a permanent
interest rate discount, and in fact what is remarkable is that it is almost like a bank loan
that never has to be paid back. So you wouldn’t want to be the bank that makes that
loan, but certainly, for the REIT it is a great deal because they never have to pay it back
and they are paying a rate that is set forever.
973:
27:17 Right. So they have the motivation to do this which you explained, it may be on a
pro-rata basis, there is no participation in any future gain, like the Class A or anything, if
they do better the Class A people will do better or the OP people will do better if they
didn’t convert, ???? could sell it. I don’t know even know, if I did this, which I am not,
who in the heck I could sell it to, what do I do, take an ad out in the paper?
RE:
27:54 And that is it. We do know that prior to the REIT some of these people put some of
these ESBA units like on Ebay, because I know someone who negotiated. And those
who were trying to sell them, I think they were asking about $50,000, this was about a
year before the process began when they had informed us that it was going to happen
but they hadn’t started it.
28:13 So that unit they were trying to sell for $50,000 we know that once it came out
publicly that they were doing the REIT, you had people offering you double that, that
was Mckenzie, who eventually raised their price to $225,000 and that was even before
the REIT went public.
28:34 So this is like the reverse of that, going back to the old way so, again I say that
people who read the first page, and say “oh, I could make more money” it does perk
their interest and certainly you should understand this, there may be some people
where they are not going to bequeath this to anyone and they want the extra interest
rate. I would suggest there are better alternatives than that but there could be reasons
someone would seriously consider this.
973:
29:00 I suppose, I guess someone would but I just hope that people don’t do this for their
own sake I mean we are not going to be voting it just seems to be one of the worst
decisions you could possibly make.
RE:
29:16 Well, Ok, but it’s par for the course though isn’t it?
973:
29:16 Of course, of course, I guess we have all learned. Alright, thank you so much.
203:
29:32 My gut reaction when I received this thing was, are these guys for real? They
shoved this REIT down our throat based on the liquidity factor and now they are trying
to get us to go into an instrument that is going to give us absolutely no liquidity? It is
ridiculous. The one thing I couldn’t find is whether or not, if we did bite and do the
exchange would this be a taxable event?
RE:
30:01 No, they do say it would not be.
203:
30:04 That I couldn’t find. I can’t say that I read it with a fine tooth comb, I was just taken
aback by the whole thing. But it would not be taxable.
RE:
30:12 No, no they said it would not be.
203:
30:16 OK, I am not interested anyway but I just wanted to verify that.
RE:
30:24 I am sure that was on a lot of people’s mind and thank you for bringing it up.
716 Area Code:
30:39 We were down in New York last week and had a wonderful tour and visited the
Empire State Building and in the brochure it mentioned that in 2002 Peter Malkin and
his son, Anthony Malkin, purchased the land under the building. Now I must have
missed this in all of the conference calls, but I am wondering what impact that has on
anything, if you have any comments or thoughts about that.
RE:
31:03 Well, I do. There was, for many years, and probably still is, the myth, and it was on
the website for the Empire State Company that managed the building, that Peter Malkin
purchased the land and the building. Of course, that is not true, we bought it as ESBA
and we owned it, because prior we had owned just the Master Lease.
31:34 And this gets into what transpired if we peel back the onion on what was going on
during those years, but to directly answer your question, they owned it, just like you
owned it. It was a typical “Malkinesque”, if I can use that term, sort of a fudge. Yes,
Peter and Tony Malkin bought it as our representatives as investors, they owned it, and
so did the other 2,800 of you. So, it wasn’t a lie, it was a deception, and that seems to
be the common theme for many of us when we look at these things.
716:
32:19 So this is what’s in the brochure that they hand out for tourists and along with that is
the item in 2007, the $550 million invested to bring the building to the forefront of the
21st century, so that was the figure which I hadn’t remembered.
RE:
32:36 Right. And that was the budget that was projected at the time and is probably close
to what will be spent and we financed about $300 million of that, so that’s probably true.
32:45 But as disappointed as I am that they say that, I am not surprised because we have
been dealing with these kinds of things for some time now.
716:
32:55 Ok, well I thought maybe they did actually own the land lease for it.
RE:
32:59 No, you did. They should say your name next time.
716:
33:04 OK
Area Code: 973
33:11 I just wanted to point out that in addition to be limited to a 60 cent distribution there
is also a question whether that distribution will be categorized as guaranteed payments
which is very clearly stated in this document … and guaranteed payments generally will
appear on your K1, in addition to your net income distribution, which is, of course, part
of your tax return. The guaranteed payment will be another piece. So …
RE:
33:53 You are getting into some minutia there that is important and they do point that out
there in the document that the current OP units you own get to claim depreciation, and
these won’t because these are debt, not ownership.
973:
34:03 Right. So there would be another tax issue with regard to not only your piece of the
income of ESBA, but also you would have guaranteed payments on top of that.
RE:
34:18 Right. So it shows the tax treatment is less favorable than the current one.
973:
34:21 I think so, yeah, because the guaranteed payments will be deductions to the
partnership.
RE:
34:27 Ah, so you are saying that once again the people who don’t do this benefit at the
expense of those that do.
973:
34:39 Yes, I believe so, because the deductions for the partnership is for the guaranteed
expense of those that do.
973:
34:39 Yes, I believe so, because the deductions for the partnership is for the guaranteed
payments. It is basically for the use of capital. It is not for performance which is normally
the reason for guaranteed payments when a partner provides a service to the
partnership and they get a guaranteed amount and that is for services rendered but in
this case it is for the use of capital, this guaranteed payment that they have been talking
about.
35:03 I would think that most people, I mean you know, it is crazy to think that 60 cents is all
we will ever get out of it this deal if things go even the way, you know, we heard in the
past, it has been projected that things are going to get even better.
RE:
35:19 Well, I think that is exactly why we didn’t want to sell it. We had the Duff and Phelps
numbers showing our numbers doubling as of next year, then tripling in soon in years
after, and the reason why those of us who where against it, among other things, is that
we were wanted to keep that upside to ourselves, but we were deluded and now we will
only have a portion of that.
973:
35:42 They also, mention, I think, that if they don’t get 1.2 million units tendered, then I
guess they don’t have to go ahead with any of it.
RE:
35:47 Right. And look, someone said to me, and they weren’t serious, but they wanted to
point out that it is not in my interest, my family’s interest, to tell people not to do this
because we will benefit, as I have been saying, at the expense of those who do and you
know of course, that is not the spirit of the way I think that we have been operating from
the beginning, that we felt that whatever was done, should be best for everyone and this
has not been operated that way this is sort of a zero sum game and we are holding this
conference call now, because we know that this is important to people who don’t have
access to someone like you who is giving insight to things they will never hear, which is
another reason they should pause before they leap.
973:
36:35 One last question, I heard someone mention today that the liquidation value was
twice the $16.62, I don’t quite understand that comment.
RE:
36:48 Well, in other words, in the event that let’s say the REIT was purchased at some
point, they would have to retire it, the redemption is 200% of what the value was when
they published the thing and sent it to us, so that is the potential upside if there was
some sort of sale.
37:07 Obviously, I am sure there is no plan for a sale and that probably should be a big
hint that there isn’t because why would they do this transaction if it would diminish our
returns in a sale. So, that is significant. That is significant, and why they chose that
number, I have no idea.
973:
37:31 OK, well that is very interesting too. That’s barely where the stock price is today for
even for the ESBA units, very close to that figure, today, $16.25 it is quoted at today.
RE:
37:44 Right, right. Look, so our families made these investments 50+ years ago, and most
people I have spoken to and heard on these calls, plan to pass this along to their
children, their grandchildren, their favorite nephew, niece and we have been long-term
believers in this investment and I think the point has to be made over and over again,
that anyone who decides to go forward with this particular exchange, no longer is an
owner. There are merely someone that loaned the company money at a fixed rate and if
there is an upside, you won’t share in it.
973:
38:21 And also, the issue of why would anyone go into this with just a slight (I’ll call it
slight) with a 75% increase in current dividend not knowing where this could go in the
future. It doesn’t make any sense.
RE:
38:34 Well, actually they do know because they have the Duff and Phelps, because at
least they have the Empire State Building which is really the driver of the stock and the
earnings cause the other buildings in most cases are fully rented, so the growth in the
next couple of years is going to come from repositioning the space and re-renting it at
higher rates so we actually are in a position to know that it is going to go up and that 60
cents which obviously is higher than today, 2 or 3 or 4 years from now might look like it
was a horrible deal.
973:
39:16 The only people who would ever be interested in doing this, is if they were so
dependent on the income from the investment.
RE:
39:25 Right, and I would say that, but if someone really needed that, and they asked me
what my opinion is, this is just one person’s opinion, I would say wait until October,
convert your ESB to REIT stock, sell it, pay the taxes, and you could probably reinvest it
into solid dividend paying stocks, that pay equal or more than what this 3.6% is and you
would still have your liquidity and your principle. So there are alternatives even for
people who say, you know, I could really use the money if they are willing to wait and
just do what a sensible person would do or if they went to a stock broker and explain
what they wanted to do they could be put into a safe utilities, and not give up the future.
561 Area Code:
40:22 I was thinking why they are doing this, why they came up with this, you know as a
prospective. What advantage does Malkin have, and I think you have answered that
question.
40:52 The other question I had, the second area, is that if they can afford to pay the 60
prospective. What advantage does Malkin have, and I think you have answered that
question.
RE:
41:14 Well I am s that the calculation to which we are not privy that by paying it to a
smaller percentage of investors a small percentage of investors we enhance the value
of the remaining if 10% agree to this, the other 90% now own 100% of the building. So
all of a sudden we have enhanced our future by 10% at the expense of these people
who got some additional income, so forever, so again for those of us who don’t do it, it is
good that some people do it. But I am not going to have a clear conscience to not have
this conference call today and give people the opportunity to know that this is what we
are thinking and these are our opinions and at least if they go forward and they hear it
they will have had additional voices to hear.
561:
41:59 No, as I say, if they can afford to pay the 60 on these numbers then there must be
the revenue in there that would effect our rate, I mean that would potentially give us
more money.
RE:
42:11 Right. What you are saying is that they built in a cushion, which, I mean, of course
they did. That would be sensible management and I figure they have a plan which if
they execute on it will have enough cushion to increase our rate because with the stock
price at the current price, the yield now is under 2%. So since most of us own this for
the income, even though it feels good to see the stock price higher, it really doesn’t
effect us in any way because we are long-term holders.
561:
But if new people want to come in and buy it, they are going to look at the yield, so I
am sure there is a plan to increase that dividend with the improving results that we know
are going to happen.
42:56 And one other question. Has anybody analyzed this with their broker as to the
reason for this recent significant increase in this stock?
RE:
43:11 Well I can tell you just what some of the events are that have taken place.
43:15 This week there was an event in New York where people who are invested in REITs
gathered and companies give presentations. Empire State Realty did a presentation
earlier this week. And then there was an article today or yesterday in Investors Business
Daily, so those brought people the story which is what you hope management does and
that would have attracted people.
43:43 And I will also point out again, we don’t care really for the most part what the stock
price is. The volume on the stock this week has been typical. Meaning it is about 1/2 a
(million? billion?) shares give or take, so it just seems that there are people who are
hearing about this, hearing the story and saying “I’d like to own it”.
43:43 And I will also point out again, we don’t care really for the most part what the stock
price is. The volume on the stock this week has been typical. Meaning it is about 1/2 a
(million? billion?) shares give or take, so it just seems that there are people who are
hearing about this, hearing the story and saying “I’d like to own it”.
561:
44:09 Good. All right but it doesn’t effect our income unfortunately at this point, right? But it
effects our value on paper, right, that’s all.
212 Area Code:
44:40 I too got that call from MacKenzie a few hours ago and he starts telling me what the
advantage this has for income, and when I asked about liquidity he said “well, you’ll
have to talk to your investment advisor and he will guide you into selling it”. And I said I
don’t think he knows anything about it, but could I put it on Craig’s List? Got a chuckle
out of him, the long and short of it was I can’t imagine that this is anything but an
advantageous move on the part of Malkins and I am not interested.
That was the end of that. But they are trying every possible way to encourage the
go-ahead on this. So…that was my two cents.
RE:
45:36 Well good and I hope that these young people who they hire don’t go over the line
there. There are limitations on what they are permitted to say on these calls it should
bother them if we end up getting reports that they are saying more than they are
supposed to. It is unseemly stuff when that happens and we know it happened last time
and we know who were the perpetrators of it.
46:01 The reason why, by the way, we have this Glomar response from the SEC. These
are things that are upsetting to all of us for different reasons, but I am thrilled you knew
what to say and hopefully they will think twice about trying to convince people when he
is not even supposed to be doing that.
212:
46:25 Well, I agree. And the thing is it really (knocked / stacked?) the ? for any controversy
or any throwback from us, so we stymied them with that with any information we give
them in a negative vein.
RE:
46:41 Yeah. Well if you are a little more sophisticated investor than other investors who
maybe have never had a stock before. We know of many people who didn’t even have
brokerage accounts before this got converted into stock, so there were ill-prepared to
deal with any of these questions like you are.
212: Right. OK. Keep up the good work. We really appreciate what’s going on.
47:11 And if you need us there on July 7th, let us know.
RE:
47:11 Absolutely. I am going to find out, again, it’s a smaller courtroom, I’d love to have a
turn-out, but it can’t be like last time because there is just no room. So I’ll contact you
before that and let you know what we can do. Thanks.
347 Area Code:
47:29 I’d like to know the exact location for the appeals.
RE:
47:44 Right. I’ll get all of the information, I just want to, like last time, we sort of cleared it
with the court that we were going to bring “X” amount of people, and I always want to do
that prior to having them show up, you know you have to work with them, especially
since most of our investors are elderly and they where very accommodating last time,
we know so I expect the same.
48:08 So I will communicate the specifics. Now we have a date. It is July 7, 2014 at 3:00
pm. But I’ll have to give you all the information. It is downtown. I just don’t have all of the
other information handy.
347:
48:25 100 10th Street?
RE:
48:25 It may be, but I will have to double check, I just don’t have it in front of me.
48:41 Everyone will be contacted so you will have the information and we will ask people if
they plan on going so at least we will have a number count to give them the heads-up at
the court.
347:
49:15 ? I can tell that the Malkins noses have grown big.
RE:
49:00 Well, you know, you have the benefit of a long relationship with these people and
your opinion is based on this so no one can say you have come to a too quick
assessment as to what is going on.
718 Area Code:
49:35 We have not received the offer.
RE:
49:57 As you can hear from the conversations on the call, that you should get this thing.
You are not missing much as far as a great opportunity. But I would suggest you call
whoever you called in the past and say you didn’t get it and that you would like to have
the paperwork. So you will be informed in some way before you even see it and we will
have more conference calls about this, so we look forward, when you have a chance to
read it, what your comments are.
50:42 June 26th is the deadline, but of course they can extend that but that is the initial one
there.
561 Area Code:
50:51 My question is if there was more money to be distributed, why aren’t the dividends
higher?
RE:
51:05 Well, that is a question someone else brought up. That is a great question. It means
that the additional funds available to distribute (but they decided to employ this
technique) but yes, why didn’t they just distribute what extra income is available
amongst all of the investors. So, you can do the math, they could have raised it and
they didn’t it because in the long run, it was better for the remaining investors.
51:38 So … look, these are things that managements do. What is unusual here is our
history with them. And, frankly, this particular offering, being an offering that was not
reviewed by the SEC, it was done in a manner that didn’t require it, and it doesn’t have
the same sort of “stamp of approval”, if you can call it that, that an SEC document does.
And as I pointed out one of the things that I believe the document is missing that I
believe would be in if it was reviewed by the SEC, was the fact that this exchange offer
puts you into a debt instrument that is interest rate sensitive, which will, if interest rates
go the way they have gone throughout history, will diminish the value of your remaining
investment significantly.
52:37 So they did it because they thought it was good for them and the people who don’t
do it. The question is great because yes, it indicates they have more money to distribute
and why did they distribute it in this manner?
561:
53:00 So it is good for our shares and the price goes down doesn’t that hurt them
RE:
53:01 When you say the price, you mean the “stock price”?
561:
53:05 Yeah.
RE:
53:05 Well, again, if you own it for income do you care about the stock price?
561:
53:14 Yeah, doesn’t that hurt them if the stock price goes down? because the money isn’t
available?
RE:
53:23 Well, the money clearly is available, as you point out, and you know they did it for
the reasons they did it, which I think we are hearing opinions on it, obviously they
haven’t explained it, which is the right question to ask. Why don’t they just say “we did
this because”, “we did this because the remaining shareholders, who don’t tender, will
have a ownership that will be greater than they did before”. I mean that is really what it
the reasons they did it, which I think we are hearing opinions on it, obviously they
haven’t explained it, which is the right question to ask. Why don’t they just say “we did
this because”, “we did this because the remaining shareholders, who don’t tender, will
have a ownership that will be greater than they did before”. I mean that is really what it
is. They don’t say that, I don’t think they do, maybe it is hidden in here somewhere, but
…
561:
54:01 ownership…??
RE:
54:10 Well, yes, yes, we all would. And by the way, you give up your voting rights so - if,
just to use their numbers, 10% of these 150 (million / billion ?) OP tender, all of a
sudden everyone who remains, including the Malkins, have roughly 10% more influence
with the vote. So it is a great way to increase you voting power if you are the largest
holder.
561:
54:36 Thank you very much.
718 Area Code:
54:40 All of the statements are pretty correct, but I think that main factor is the loss of
convertibility. The OP shares are able to be converted into the common shares and
there is a difference even today of maybe $1.00 - $1.50 difference. In the future it could
be much greater. So that alone would cause me never to vote for that deal. And that I
think is the main factor.
RE:
55:27 Well, you know, again all of these opinions are valid and we don’t know the reasons.
We do know that the offer is there and each individual has to decide if it is something
they want to take part in and you know. I haven’t heard one person say that they will. I
wish if there is, they’d anonymously explain it to us. We are not going to give you a hard
time, you know this is the sharing of information.
55:54 We are not selling anything ourselves and ironically it is against our interest to try to
convince someone not to do it because we would benefit from you doing it in the long
run. So it is not self-interest here but you know the spirit of these conference calls is the
sharing of information and hopefully there are people listening in who will benefit who
don’t have anyone to talk to about this.
718 Area Code:
56:24 I think it is against my interest to convince people not to do it because if I am the
only one that did it, I wouldn’t (would?) benefit from it. But I think most people should be
aware that you lose that convertibility aspect of it. And that has to be accentuated.
RE:
56:45 No, I think that is a great point. The stock price goes up in ESRT and come October,
you can convert it. You give that up forever. You are not stuck with something you can
never trade into the stock.
718:
57:01 Thanks very much.
847 Area Code:
57:13 Is there any cost basis for this stock?
RE:
57:39 I am not sure what you are asking.
847:
57:44 My broker asked me to ask if there is a cost basis if we sell it?
RE:
57:44 You mean if you accept this exchange offer?
847:
57:52 Right.
RE:
57:52 Because the cost basis usually we discuss in relation to selling your stock on the
open market. To answer the question, there is not cost basis that is different than the
one you currently have. You are trading it into this new debt instrument, it is called the
preferred, but it really is debt, masquerading as equity. So whatever your cost basis is
currently with your ESBA OP units, if that is what you own, it is the same when it comes
to this exchange, if you were to do it.
847:
58:34 Ok. And all of this stuff that they just sent out, they are paying for it, Malkins are
paying for it, we are not?
RE:
58:34 Well, the REIT is paying for it. I mean the cost is in the low millions, I guess, relative
to some of the expenses we’ve endured these past two years, it seems relatively small
but it is real money.
847:
58:49 Absolutely. Well, thanks Rich for everything.
817 Area Code:
58:56 I got a question. If I remember correctly when they went to the REIT they had to pay
90% out upon close. where are they getting this $16 ($15?) million dollars to buy all
these shares and trade them if they are not paying the 90%.
RE:
59:42 Well, it may be that these new securities would be just part of that 90%. Meaning
that before the 90% or higher went to ESRT and our ESBA as well as the other two
buildings. Now they have another security they are paying, so they are still paying it out
but they are paying it out to another type of security.
817:
60:04 Well, I just don’t trust them.
RE:
60:13 Well, you have a long history as some of us know and you have been extremely kind
to share your history and I know when you say these things, it means something.
817:
60:30 It almost doesn’t make sense.
RE:
60:32 And I think you are right as it is confusing because it is being done in this manner,
meaning it wasn’t reviewed by the SEC, it maybe didn’t benefit from the additional
information that the SEC review process may have required where it may have
answered the questions that many of you are raising, because it was done in this
manner under some exemption where it doesn’t require anybody to review it. So I am
not a securities lawyer, and I am not even going to try to pretend to understand how
they can do this to their investors, who clearly are not sophisticated enough to
understand this. It uses terms that nobody, unless you were very experienced in
finance, would understand.
908 Area Code:
61:29 What would happen if the stock went substantially higher, let’s say to $400,000
worth, would that effect the law suit in any way?
RE:
62:00 No. But it is a good question. Whatever the performance of the stock, good or bad,
after the things that took place, it is not material, and I have been told that by the
lawyers, it doesn’t matter. That’s my answer, whether it is right or wrong, that’s my
answer.
908:
62:22 Yeah, because we are taking a risk, and that is worth something.
914 Area Code:
62:33 I am just curious, isn’t there some sort of formula as to what they have to pay on the
REIT in in other words, X number of dollars that they earn, what percentage of that do
they have to pay dividends on?
RE:
62:55 Well, I think you heard the caller a couple of callers back who mentioned 90% which
is what I am familiar with meaning that REITs are required to distribute 90% of some
definition of net profits. I am not going to pretend to be an accountant to know which
one it is so, with the issuance of this new security, if it does go forward, they would have
a claim of that 90% and it would just be another way to distribute. Now, as everyone is
pointing out, whoever converts this, in the short run is making a higher distribution so it
definition of net profits.??? is coming from somewhere and it implies…
914:
63:39 But that would dilute the amount that could be distributed isn’t that a fact?
RE:
63:43 Well, yeah, that’s a good point. If things got bad in the real estate business, they
would distribute 60 cents and we could have our dividend cut, so that is a good way to
show that someone who is worried that we would be heading into bad times in real
estate, or worried about it happening or worrying about our dividends being cut, by
switching into this for 60 cents, doesn’t have to worry about it.
914:
64:12 And who substantiates the figures that they issue? Is it just the group of five or six
that are members of the board? And …
RE:
64:32 Yeah, I am presuming that since it is a publicly held company, that they do it with all
of the professionals and transparency at that level, at least it gives us some confidence
that it is being done straight-forward.
678 Area Code:
64:53 You know I gotta think that this is being brought to you by the same people who
gave us ENRON. This is clearly a suckers bet for so many people. In fact I think it is
part designed to give them additional defenses both in this litigation and I think
someone made a reference to it earlier, to the extent that people sell into this, ???
there’d be a lot of people, that if there is an unwinding, who could then participate in this
unwinding portion, they’ll have additional claims and legal arguments to make that will
delay that profit that we actually get ?? or we’re looking for in the litigation of the
lawsuit, they’re buying themselves future control of the entity. I think they have shown
fairly good, you know, indication that they don’t really care for the 2,800 co-owners and
are continuing to act in a way that so obviously, I think, blatantly, counter to their
obligation as fiduciaries, again.
RE:
65:57 Right, right. Well, it has been explained to me that their relationship to us now, when
it comes to this is not as fiduciaries it is a different term, and again I am not going to
pretend that I understand these legal terms.
678:
66:08 But the problem is that they do have that fiduciary obligation. I almost think that we
are well served ??? by keeping ??? that has been placed in receivership. is to have
someone appointed who actually doesn’t have the conflicting motivation.
RE:
66:24 Well, you are getting to the heart of the $600 million lawsuit. Which is that they were
fiduciaries …
678:
66:30 Right, this offer of theirs, just as I leave the ownership pool, may well be in part to go
ahead and counter anything ?oppositions that they may plan next. I mean, when did
they come up with this idea. Does it predate the closing of the IPO? Did they always
have this in mind and it wasn’t disclosed?
RE:
66:47 Well, look, these are great questions, and I hope for the sake of each individual
investor unless they have reasons, and we have explored some of the reasons they
might want to do it, that they don’t do it because they will regret it. So if you are worried
about the end of the world, this could be a good choice. But if you think that things are
going to go forward in a positive manner, then it is probably a lousy choice.
678:
67:16 Well, it is to their benefit which makes [sic?] the lousy choice because our interests [
??? …they have drawn this distinction that in a soccer bet people that lay down
opportunities that they shouldn’t.???] Just simply not right. We are all best served by
making sure we all stay in the boat.
RE:
67:33 Right, right. And again that is why we have these calls, to hear your opinions and
others and at least they have the benefit of having a conversation that will help them
make their individual decisions.
687:
67:43 You know, the $300 million figure you mentioned earlier, that financed the ???, that
is $107,000 per share. That’s deferred and has yet to be recovered.
RE:
67:54 Well, this was of course one of our arguments during the vote, that you finance this
thing, the improvements are now within the last quarter, and you are going to not reap
the benefits, you are going to reap a portion of the benefits, even though you financed
100% of it.
687:
68:18 I also …. this is part of a bankruptcy strategy, delightfully [?sic] by (my?) ownership
as well, in some fashion rather a greater percentage or less. (??? Important to capture /
understand what he is saying here), they’re not doing it.
RE:
68:34 Right. As individuals you can make the decision whether you are comfortable doing
it after you have heard the opinions of others, at least you have had the opportunity and
we have done our job in sharing others opinions. I am not going to give someone a hard
time if they did it. I will feel good that we had this call today.
687:
68:57 Yep. Again the notion that we all are better by someone’s loss? needs to be
conveyed so that ?we don’t encourage that right.
951 Area Code:
69:20 There’s one thing I wanted in here I said at the very beginning, please everybody,
stop cogitating, stop trying to pick it apart, think, use your own brain. The stock that they
want to take from us and give us back the deal we had, ? immovable. The stock we now
have is going up, the stock. The stock market has a million analysts, there are very
sophisticated people out there, if they thought it was garbage, it would be going down
not up. That’s all I wanted to say. Have a good one.
RE:
70:05 Thanks for that additional comment.
607 Area Code:
70:05 First thing I have to ask is that one of those suits that is going on, what is the
potential for that to be totally overturned. In other words, you’ve got class actions,
you’ve got appeals, you’ve got class actions for things after the situations, alleging that
money was improperly put together, etc., what is the possibility that the conversion to
the REIT itself, will be overturned. Given that possibility, would it be advisable to hang
on to this and wait for the courts to throw it back. Where we were before.
RE:
71:01 Well I think that if you won ESBA units, or ESRT, some people had tax situations
where they could offset the gain by taking part in ESRT. But most of you have ESBA.
And you’ve wanted to hold it forever like you did ESBA before the conversion, in my
opinion then you should continue to do that and whatever comes down the pike we will
deal with but you don’t need to do anything. I don’t know if that is exactly what you are
asking, but you know it is overwhelming, for even me, where I have spent all of this time
with it to explain it to people. So I can’t imagine how someone who visits this issue once
or twice a month if even that, can keep it straight. So I’d say, do nothing unless you
have a compelling reason to do something. Maybe that’s not clear enough, but…
607:
72:06 I am happy to do nothing especially I am not in a particular situation where I am a
nominee and represent other people on this, I am happy to do nothing, but what I am
asking you, given the suit, is it possible (and you always say your are not an attorney)
but is it possible that the resolution of these suits could include the invalidation of the
whole operation?
RE:
72:36 Well, I’ll tell you. The word that I have heard continually from people who have
experience in these matters. They use the term restitution. If all these scenarios, some
of which turn out favorably for the ESBA owners, it would take the form of restitution,
and what that form is, such as what you are suggestion, your guess is as good as
anyone else’s.
It could be the form that you are suggesting. That would probably be the
least likely, but within the realm of possibility, I think it would be more likely, if I was going to offer a handicap on it, that it would take the form of additional ownership that
was transferred from the people who, if were found guilty, were depriving you of your
economic interests against the loss. So, if that were to happen. Again, calculating this is
very difficult because it is so complicated.
607:
73:43 Well, no, I wouldn’t expect you to calculate it, but that would seem to closer to the
remedy sought by the last set up of suits, last actions, which were saying that money
was improperly done, then we would hold on to this and wait for payback.
RE:
74:04 Right, right. Well look let’s hope that we continue to move forward, we have a big
day July 7th, and some ruling soon after that, if we get the permission to go forward, by
we I mean the lawyers who are working on behalf of the investors, then we will have a
chance at what you are suggesting, and we are certainly looking forward to that
because it has been a long time in coming.
607:
74:36 So, at the moment, of course, you are not suggesting that you would ??take this up?
?, you are waiting for the interim results and then you’ll see whether or not you and
everybody else is ready to go higher against it?
RE:
74:57 Oh, I believe, when I first spoke to the class action lawyers for this suit, you have to
remember that these were lawyers who had absolutely no relationship with ESBA
investors at all until they were contacted by the people who voted for the REIT, and they
filed this suit, again unbeknown to those of us who were active, and when I did ask the
question that I think you are asking, is about if on July 7th or soon after Judge Sherwin
rules that in fact the earlier ?relief / brief? prevents the filing of this law suit, they were
very comfortable with the idea that on appeal they would win and and ?if he returned to
his courtroom?. So, I may be mis-characterizing their opinion, but that is what I heard,
so they would not have filed this suit if they thought it was going to go to trial, and they’d
like it to go to trail immediately, meaning, making this July 7th the end of that particular
motion which is the dismiss of the release of the earlier class action suit, but they are
committed committed for the long run, so they believe we are going to have our day in
court and they are devoting their own resources to it, so clearly they believe in it.
607:
76:21 That was the same trial judge who judge who sanctified ….
RE:
76:29 Right, right. Remember we talked about this and we can certainly talk about it again
because I am sure people don’t fully understand it. But the rulings the judge made for us
at that time were ones that he made where he maybe felt … and these other people’s
opinions who are more knowledgeable … that if he had upset the apple cart at that time,
he would have been responsible for potentially delaying something or that would have
had economic consequences. That is not the case now.
So I guess their opinions would have been in the realm of discretionary judgement then, now there is no urgency, a judges ruling that is favorable to us for the trail to go forward doesn’t upset anything that is ongoing, so without that risk of judicial intervention, he may be inclined to let it go
forward because he doesn’t have to worry about the ramifications that he would of if he
had ruled favorably for us at that time.
607:
77:34 I see, OK, thank you.
203 Area Code:
77:38 Who can control this? Like, what’s next?
RE:
77:57 Well, are you talking about anything in particular, or just in a global sense of the
word?
203:
77:59 I am just talking about these offers continuing to come and when will it have this
negative effect on everyone?
RE:
78:08 Well, I think what you are talking about is the emotional toll, if I can describe it that
way. And that is real. It is extremely upsetting we know, to all of us. I get angry, frankly,
when I see this and I get angry because I feel it is a repeat, as you have heard other
people express, of past behavior and unfortunately, if it is a pattern, meaning a pattern
that started in the past and may continue with the REIT, I would hope that a board of
directors, at some point, would speak up and say, you know something, this is not the
way we want to conduct business as a board of directors. And they have that possibility
of acting that way. And I would hope they would. Hopefully that is some sort of answer
to what you are saying.
203:
79:12 I am just waiting for the next envelope. You know what I mean?
RE:
79:15 Well, there are going to be more envelopes, I think you are right about that.
203:
79:20 OK, thank you.
908 Area Code:
79:23 Couple of things, real quick. A lot of talk tonight about logistics and what makes
sense, to make changes or stay where we are. First thing I want to say is that I have a
colleague of mine, a good friend, we went to college together and he is a senior analyst
with Merrill Lynch in New Jersey. That is the first thing I thought I would say.
80:13 The second thing is, and I don’t want to go into details, but I’ll just say, that you know
we have had this discussion tonight and I have been on numerous calls and we haven’t
talked a lot about the emotional part of these investments that we own.
80:28 … a long time ago, but we have sort of gotten away from it and it has become a lot
about the investments and money and whether it makes sense to keep it and make
changes and so forth.
80:40 For me, I just want to say on this call in front of everyone, I am not making any
changes because I inherited this investment from my grandmother, who was one of the
most important people I ever had in my life. And there is not chance, under any
circumstances, that I am selling it and I am proud to be an owner, or a part owner in
some capacity of the Empire State Building. So …
RE:
81:09 And I am thrilled that you brought this up. This is an important issue, likewise, my
daughter is named after my grandmother who purchased this with my grandfather. I am
sure that many of us have our version of this story and it resonates.
908:
81:25 Yeah. And the last thing I want to say, is that I am sure that most people on this call
are aware, is that we finally, finally, got a letter from the Malkin Holding Company
indicating that they are moving forward with the “Wall of Recognition” inside of the
Empire State Building. I hope everyone got that letter. It has taken quite some time for
them to finally get here, but I am happy to say that they are moving forward with that
and ah, ….
RE:
81:56 Right. You know this is an emotional issue for us, because we want to stay owners.
So, relating that to the topic of tonight, if you exchange your ownership, you are no
908:
82:15 That’s exactly right. That will never happen in my family.
RE:
82:15 Right. My family, and I think many others, feel the same way.
908:
82:22 I appreciate all you do, Richie.
203 Area Code:
82:26 Nobody has talked about the Shareholders Meeting that is coming up.
RE:
82:50 Great point. The Shareholders Meeting. You have all been notified. I don’t plan on
attending because it is in New York. If you are in New York, you can show up there.
Probably most of you have never been to a Shareholders Meeting and I think it is at the
Roosevelt Hotel, I may be wrong, I am doing it from memory. But you are entitled as an
investor to show up and see modern corporate governance. I don’t expect anything
significant to happen there. It will probably be very short, but you are within your right to
Probably most of you have never been to a Shareholders Meeting and I think it is at the
Roosevelt Hotel, I may be wrong, I am doing it from memory. But you are entitled as an
investor to show up and see modern corporate governance. I don’t expect anything
significant to happen there. It will probably be very short, but you are within your right to
go.
203:
83:21 So do you have any voting shares? Because I saved to see what was the vote to
see what was going on, what they were up to, so this is the whole thing about the
compensation which is really, really turns your stomach. They want us to approve, um
… not only the Board … it’s a done deal, and?
RE:
83:36 Right, right. … you know something, I think that it is so early after the IPO, and we
are so busy with other issues, we probably have neglected the conversation that you
are bringing up today, we probably should have had it. So my guess is that we will have
to wait until next year’s event, if we are still holding these calls, which I expect we will
be, to have that discussion, because they are now on trial as a new manager of a new
public company and people will form a judgement and you should vote your shares
accordingly. It won’t be just us, it will be all of the new shareholders too, who will form
an opinion. You already have a history to do it. But, yeah, we have been neglectful in
discussing that. I am sorry about that.
203:
84:34 My other question was what would happen at something like this? So you think it
might just be a short thing, and you know, it is a distance for me to go but what might
happen at that shareholder’s meeting?
RE:
84:47 I don’t expect anything to happen. They are heavily scripted, unless there is some
significant event such as an activist group trying to unseat the board, or someone who
puts forth a shareholder proposal, that is against management’s interest, it is a pretty
mundane affair, as I understand it, so since none of that is happening, at least at this
time, I don’t expect much to come out of it, but again I encourage people to go, if only to
experience something they haven’t experienced before.
203:
85:30 And just to clarify. The things they sent in the mail are not actually the proxy to vote,
you still have to obtain those online?
RE:
85:36 Well, we did ours online. I know many of you don’t have that capacity, so I am
unsure of how you vote if you don’t do it online because I didn’t pay attention to that.
Sorry.
203:
85:50 Alright, thank you.
864 Area Code:
85:52 No. The gentleman that called just before the woman who was just talking,
mentioned the Wall of Recognition. I think that those who are on the call who have not
placed the names of their parents, grandparents, or what have you, to be on the wall. I
whole-heartedly tell them to please pay attention.
86:34 We only have until the end of June, Coleen up at the Malkin’s office is handling it. She
has been involved with it since the very beginning and she has done a marvelous job. If
you are a participant, you can place two names on the wall.
86:56 It just so happens that my brother and I, who do not have heirs, have placed in one
instance have placed our mother and father on the wall, and the other brother has
placed our own names on the wall. So it is an opportunity, speaking of perpetual, as this
will be a wall that will up there for a thousand years if the building is still there.
87:25 So anyone, if you have heirs and grandchildren and so forth, they will be able to visit the
Empire State Building and look for the names and say “oh, mommy and daddy” or
“grandpa and grandpa” are on the wall at the Empire State Building. “Isn’t it wonderful.”
So it is one promise that our esteemed Malkins have finally registered with all of us and
I am grateful for that. So, those who have not done it, or if you know others that have
not done it, please go ahead and take care of that.
RE:
88:14 Right. That is a good service for all of you who are out there. If you did not do it at
the time or forgot to here is your chance, as the caller is reminding you, you have until
the end of the month to do that. So call Malkins’ office, speak to, Colleen, you said is the
person?
864:
88:30 That’s right, I can’t remember …
RE:
88:35 Well just call and say why you are calling. They’ll know why. We don’t have to go
into the minutia of why this transpired but I would suggest it was done in response to
what they thought was the risk of the voters disapproving the REIT vote because of their
emotional attachment. This was not part of their original plan. I will tell you that the
many reporters when they saw that filing with the SEC, saw it for really what it was at
the time. It was an attempt to curry favor, but just because it was done for the wrong
reason, in my opinion, doesn’t mean that we can’t enjoy what the benefit is to our family
legacy. So…I hope everyone does take advantage of it. Thank you.
864:
89:25 I got it right here, no it is not Colleen, I am sorry. You need to address it to Melanie,
Wall of Recognition, and that is at empirestaterealtytrust.com (Empire State Realty Trust
. com). So that is who I would...
ER:
90:07 I guess what you are saying is call Melanie and if you haven’t done it, find out how
you can. By the way, Melanie, if you are on the call I apologize for all of the calls you
may be getting. Melanie is also an investor as well as a Malkin Holdings employee. She
has the same stake as you do in the success of whole process.
864:
90:23 And she has been very helpful to investors over many, many years, as has Barbara.
RE:
90:34 Yes, I have heard only good things about this and they will help you once again if
this is something you want to take advantage of.
713 Area Code:
90:50
RE:
91:03 And I did get your message, by the way…
713:
91:03 Yeah, and you have already answered that question, but how come we don’t have a
a “write in board of director”?
RE:
91:14 Well, as I was suggesting, considering the short term year we have experienced, I
think that probably was an unlikely thing, even thought it was a good idea to do. But
certainly, management is going to have to win the trust of not only the new investors
who not only have no track record, but they are going to have to, going forward,
convince people that whatever happened in the past, isn’t a precursor to future behavior
and that is why this Exchange Offer is certainly not a way to have people change their
opinion.
713:
91:50 OK, well I know you have a full plate, maybe we will do that next year.
RE:
91:56 Well, I think that certainly think that a company that treats their investors unfair, are
vulnerable to that. We want only the company to make us money, but set an example.
92:24 We know that this is a special building, we all believe that, and the behavior of
running it should also be an example. And in my opinion, and I know obviously we are
hearing it tonight, this Exchange Offer somehow doesn’t jive with our view of what
would be the kind of behavior we would want to see.
92:41 Maybe we are just inexperienced investors who don’t realize in business you do
what you do because it is all business. It is unfortunate because we know that the
nature of the way these things were invested and the way the original investor, Larry
Wein and Company, treated their investors and we spoke a lot about how that changed
at some point and of course and I guess we are nostalgic for that to return. But, yes,
next year who knows. I love the idea personally.
713:
93:29 I’ll tell you my grandfather is spinning in his grave right now. He would have gone up
there and probably taken Tony out.
RE:
93:26 Well, there was a time when they did things like that in Texas didn’t they?
713:
93:37 He was from up North, he grew up in New York, but he moved down here in …
RE:
93:49 Look, many original investors had frank discussions with these Malkin Holding’s
executives and there was an exchange of views and apparently he didn’t make enough
of a difference, at least at this point. No, thank you for that suggestion and remind us
again and please don’t drop it.
08 Area Code:
94:19 Does anyone have a phone number for Melanie?
RE:
94:42 Do you have any numbers from the past when you have called Malkin Holdings?
908:
94:42 Somewhere in my file.
RE:
94:42 Those numbers, I believe still work, I may be wrong, I would say just use what you
have used in the past and that should be good enough.
864 Area Code:
95:05 It is 212-850-2742. I am sorry Melanie if this is going to cause you grief, but you can
always call them back. She will send you the paperwork if you have lost it and give you
guidance on what they can do by the end of the month.
RE:
96:03 Thank you. I am sure many people are grateful for that.
561 Area Code:
96:06 This is an easy question. Do we have to reply to this thing? Or
RE:
96:16 No. Great question.
561:
96:24 Could we just throw it out if we are not going to go forward?
561:
96:24 Could we just throw it out if we are not going to go forward?
RE:
96:21 Exactly. Either throw it out or you put it in your files for someone to read it in the
future who wants to figure out what was going on.
925 Area Code:
96:39 In this call I am really kind of pleased and am going to express kind of being
surprised that nobody has brought up the issue of not being paid yet, monies from the
class action suit.
RE:
97:03 That’s a good point, that is surprising. But I think it is because this issue is so
pressing with a date they are not really asking about the other things, so I am glad you
are.
925:
97:19 What issue is pressing of a date?
RE:
97:19 This Exchange Offer says it expires June 26th, so everyone is concerned about that
pending date and these other things have been going around forever.
925:
97:33 Well, the point being as I understand it, in that same offering about asking for the
exchange of preferred stock, they mention that the lawsuits that have been filed have
been holding up the settlement. So if what I heard today is that we are just going to
continue this “ad-nausium”, scenario of filing lawsuits. We are being prevented for
collecting monies that are due. So ….
RE:
98:20 Well, you’ve got a good point. That means that that would be their argument for
people saying that you shouldn’t be suing. But keep in mind that that was one investor
who got the ball rolling on the $600 lawsuit. So nobody, me, you, nor anybody else was
responsible for that so if it goes forward and if it goes forward, it’s because it went
forward on its merit. But your point is taken and people do contact me occasionally
asking what happened to that money so I am glad you are bringing it up.
925:
98:46 And other thread of this particular call, seems to, in my view, finally acknowledge
how much the Malkins have accomplished in upgrading, among other things, the
Empire State Building, the opportunity to get more money as a result of their efforts, and
the stock is up over 30%. And I heard the gentleman saying that his stock broker, is
projecting it is going to go up to $20. So…
RE:
99:28 Look, we have talked about it in the past and people aren’t going to really care that
we rehash the history. We own the Empire State Building, we knew the income was
going to double by the Duff and Phelps number by 2015. When we traded it into the
REIT, we go diluted on that upside. That is what happened. The facts don’t change. So,
it is still an upside, we are just not going to get 100% of it anymore, we are sharing with
others. So….
925:
100:02 Wait, wait, one minute. 100% of what equals how many dollars at the time you
presented this concern, and what is the current differential?
RE:
100:16 Alright, so let’s talk about this because we are at the end of this call. Everyone in this
REIT wants it to succeed. Regardless whether we thought it should be done or not. I will
tell you something, and I never talk about the REIT, because my interest in it is to be a
huge success, but I will tell you that one of the things that we were warned by Marty,
those of you probably don’t remember who he was, he was an ex-Wein employee, who
did an anaylsis, was that the income of the Empire State was going to go up and the
income of what the call “The Metropolitan” Building, the “non-Manhattan” one, was
going to go down. In the first quarterly report of the REIT, they give a chart on what the
rents are in the new leases. The rents in the new leases for the building that were called
“junk” or something similar by Marty, have gone down, they have gone down
significantly.
101:13 The good news for us is that represents a small portion of the REIT portfolio. The whole
story of this REIT is the Empire State Building. Every analyst’s report, every
conversation with investors, is the Empire State Building.
101:32 We were deluded and we are carrying the water for the investors who are riding on
our coat-tails and that is why we are against it. It was a sound discussion. We lost the
vote for whatever the reasons were, whether it was fair or not fair, so that doesn’t justify
the means that they won the vote and that is what all this Glomar response letter is all
about frankly.
101:54 The SEC interviewed investors who alleged some very serious things, I am not
confident or knowledgeable and certainly have no insight as to whether action will be
taken against the people who perpetrated this but the did it and do the means justify the
end? I hope not.
102:17 But I am glad you brought that up, I really am. Now one person brought up “where’s
my money from that settlement?” It’s interesting, isn’t it?
925:
102:30 Yes it is. So this must be whoever the very few people are involved with these
calls…
RE:
102:38 By the way, did you say “very few”? We average 500 people a call, just so you know.
We’ve shared that with the journalists, they know that. This call was a huge, huge,
audience. But for good reason. Everyone is concerned about this Exchange offer, so I
am glad you call and you share your view. Because it is amazing no one mentioned it
until you did.
925:
103:02 Alright. Thanks
RE:
103:05 OK, this is going to be our last question
615 Area Code:
103:09 Two questions, and I will leave the last one maybe for a “soft punch”.
103:31 So the July 7th court date is being sponsored by that unified attorney group that has
combined their efforts. Is that my understanding?
RE:
103:54 Yes.
625:
103:54 Second question. I spoke to a young lady earlier who brought her family to the
Empire State Building to visit it, and enjoyed it, and I haven’t been there in 40 years. I’ve
gone for a wedding in Long Island and when I was a kid my dad used to take us up
there “carte-blanche”, it was tickets, we had set up there. Is that still part of the program
or are we….
RE:
104:24 Yes, the way it works now is you used to get a free executive pass, what you do now
is you buy a ticket but you buy it through the Malkin Office. You buy a regular ticket, but
what it does is gives you permission to cut to the front of the line so is a premium ticket.
So that is my understanding…so…if you plan on going, call Malkin Holdings office and
tell them that and I don’t know anyone who has done it since the REIT went public, but I
know that there is some preferential treatment.
625:
104:52 But now we have to buy our own building?
RE:
105:01 Yeah, you have to buy them and they are just a shade under $30 each. So, since the
REIT process began, they have been jacking up the price and you know, with fairly
decent results. The attendance went down quarter over quarter the first quarter, but they
expect that was due to the weather, the weather was pretty awful in New York, so
maybe that was the reason why.
625:
105:32 OK. Thank you for your efforts.
RE:
105:32 There is one other person here, will give you a shot. And you are the last one.
818 Area Code:
RE:
105:54 Not there. Alright. Well, thank you everyone for participating. We had a huge
audience, I hope it was valuable. We will be in contact with you soon when it comes to
the court date when we learn how many people they can accommodate. We will
schedule another call certainly soon also.
106:09 I want to thank everyone for your support. Those of you who have supported us with
donations, thank you, it means a lot. We have significant costs we will be encountering
with the SEC Freedom of Information Act, but we are doing it either way. But again, we
are in this together so look forward to any comments or questions and we will speak to
you all soon.
106:35 Thank you.
106:40 “Conference Recording stopped”
00:40 We have a huge audience.
00:50 We know the topic of discussion we will spend the most time on is the exchange
offer that I hope all of you have received by now. I have had some conversations and
emails from those of you who have done some research on it and I have suggested that
you share what you have found and offer your opinions and research on that and we
will also quickly dispense with some other information which we can go back to but I
think if we put the time in on this exchange offer we will probably spend most of the time
on that….
01:51 Again I hope that at least initially the conversation will be mostly about the exchange
offer, whether you like it or don’t like it ….
02:10 First are some updates on the lawsuits, it has been now 6 or 7 weeks since our last
call. We have been holding off on some developments and that is why it is longer than
planned.
02:33 The $600 million lawsuit now has a court date of July 7, in New York in the Supreme
Court, for those of you not familiar with that, the Supreme Court is the trial court, which
is the opposite of the way we understand the Federal Court … 3:00 pm … it is a smaller
court room so otherwise the appeal when we invited people to show up … 100 people…
I welcome people and we will share with you the address, but with the smaller capacity
… as I understand it what is going to be orally argued are the papers which have been
submitted and they concern the issue which has to be settled before this case goes
forward and that is whether the initial class action suit waiver somehow gave Malkin
Holdings a pass for all future conduct.
04:08 Obviously the attorneys who filed these suits feel that is not the case as we
discussed and as we can discuss later on, the events that they allege that took place,
took place after that settlement, they were not covered in the agreement, they argued
before ???? Maklin lawyers are arguing that that relief absolves them of any
responsibility going forward with anything to do with the REIT.
04:37 So that will be argued July 7. I don’t know how quickly we will hear a decision after
that. If the judge rules that it can go forward, obviously that case will go forward and
they may ask for a jury trial and that could be an important development.
04:55 The other case that is out there is the appeal of the original class action suit of one
of the participant investors, attorney (actually he was the Assistant Attorney General of
Massachusetts), Alan Kovak, he has filed an appeal I believe it is going to be heard in
September and that would be that Appellate Court that those of you who turned up last
November were in. I don’t have a particular date.
05:30 And now we get to some other issues. I have been telling you all along about the
Freedom of Information Act request and under the law we are permitted pretty much
everything once the REIT went forward. We made a series of requests from January 6 -
January 16, and a couple later on, we are now 5-1/2 months into this and we have
received nothing. Whether this is the norm or not, I get different feed back on it but we
did get something, a letter from the SEC, that is NOT the norm.
06:06 And we can talk more about it, but I’ll just quickly go over what it is.
06:10 We ??? requested the consumer complaints that were registered during the REIT
process, during the REIT vote, we requested that information, I have spoken to the SEC
Freedom of Information Office, that is something that they do provide, of course they will
redact what they call “PI” (personal information) we can’t identify that who it was that
called and we felt that that would be important information to share. We requested it, we
got what they call a “Glomar” response, which is on the Empire State website.
07:05 I’ll quickly read some of the salient points later on.
07:16 The letter is a letter saying they are not going to give us the information, and I’ll read
it for those of you who do not have access to computers. Here we go [get from website].
07:31 This was made in early January, we did not get it for some time after [letter dated
April 30, 2014 “in response to your request of January 15, 2014”]
07:56 See letter at http://www.empirestatebuildinginvestors.com/ site
08:16 “We can neither confirm nor deny the existence of any records responsive to your
request. If such records were to exist, they may be exempt from disclosure pursuant to
one or more of the following exemptions under the FOIA:”
08:27 “(7)(A), which protects records or information when disclosure could reasonably be
expected to interfere with law enforcement proceedings;”
08:36 (7)(C), which protects records or information when disclosure could reasonably be
expected to constitute an unwarranted invasion of personal privacy;
08:38 I’ll go back and explain this
08:45 “By outlining the provisions of these exemptions, we do not mean to imply in any
way that records responsive to your request exist.”
08:45 Now those of you who have been on these calls have heard people on them who
have talked to the SEC when ????? We obviously know these records exist, nobody
knows how many there are, there could be 30, 50, we’ll only know when we get them.
08:45 I’ll just quickly go back to what they said in 7A and 7C, …. I have spoken to lots of
people about this, I have spoken to the SEC about this, I spoke with them today, and
asked how often they see these Glomar responses, I was told, I’ll tell you exactly, that at
one time they saw a lot of them, they don’t see as many of them nowadays. … You can
read into that anything you want, that is what they said and we can certainly debate our
interpretation.
08:45 The second one, 7C, which protects records or information when disclosure could
reasonably be expected to constitute an unwarranted invasion of personal privacy;
10:01 I have been told that that means when there is an investigation of somebody, to
disclose the investigation when they haven’t be charged with anything obviously would
be damaging to their reputation and they interpret that … [capture more of this from
recording later]
10:21 when that happens and it will happen, at some point, and we don’t know again too and
release this information and we will be engaged in with them…[dog barking etc., here,
review later]
10:35 and to quickly move on from this to the main event
10:35 We have gone through a process with the SEC over 5-1/2 months with internal
appeals going up and down to the General Counsel office it has been sent back to the
Freedom of Information Office, and by the end of this coming month of June, we will be
in District Court probably in Washington where the SEC will be asked to bring all of the
documents that they say they can’t provide us with for the judge to review each page on
whether they can or cannot be released. This is a normal process, we are not setting
any new process here. It has happened before, and again we can get some more
details about this because I know everybody has more urgency to speak about this
exchange offer.
11:26 And again, I want you to hear what each of you have to say about this ….
501 Area Code:
11:49 … “I actually talked to my Stock Broker about all of this, and he is a very good guy, I
have had him forever, I trust him, he is very ethical, he has done well by me. He also did
a lot of math while I was on the phone with him, and he said we’d be exchanging
equities for debt and the percentage of the Malkin equity would be going up and we
would have very poor returns in the end. He said that this is a good guidance for us as a
group and for individual investors: whatever the Malkins do for themselves you should
do for yourself. You should always align yourself with their interests.”
RE:
12:45 And so, do you mean that within this document [exchange document] it says that no
one in management including the Malkins are going to participate in this exchange?
501:
12:58 Well, exactly
RE:
12:58 So therefore, if they are not doing what he is saying is there is a reason why they
are not so you have to wonder why you would.
13:07 Exactly, that is exactly it and if they are not doing it then we certainly shouldn’t. The
thing is too, is that all our investors talk about how they want to return the equity ?
income back to those people who desperately needed it. Well, they are just screwing us
over again. Just like they did the first time. We had a very nice income for a very long
time and they took that away from us and now the pretense is that they are restoring
that to those that need it but at a much reduced rate and huge penalties.
RE:
13:56 I am going to reserve my own judgement and I think what you just said was great
and I hope when we get some more people who either on their own or in conversation
with an investment professional have gotten an opinion, that is a great way to start,
thank you so much.
954 Area Code:
14:21 I have a more devious mind than that broker.
14:31 I got a very interesting call about 2 hours ago, from that very, very fine organization
that wants to do us all a favor and steal everything. Mackenzie.
14:42 They want to know had I made up my mind. I said “for what”. To trade off the Empire
State. Personally I feel that the Malkins (well I don’t want to use an explicative), I think it
is a “Trojan Horse”.
15:01 I told you then and I tell you now. This deal, if you take it, you get locked into a
“preferred stock”. You have no market, you have to make your own market if you want
to sell it. I don’t care if it is $90 or $10, you still have no market. The same deal as we
had before.
15:22 So what this guy is trying to do in my opinion, is ????? (look up online recording)
say …. they really didn’t want it anyhow or they wouldn’t have taken the offer no matter
what it was. So what’s the point of all of this? That’s my personal opinion. I don’t think it
is a good deal for us.
15:41 I spoke to this young fellow, he was a young fellow, I said, “Now let me ask you a
question”, what happens if ESRT takes off like a bat-out-of-hell, we win everything in
sight, we even buy better properties and we are making money hand-over-fist, and I am
in this deal and all the stock holders say heh, let’s raise the dividend, you know what we
get, in a word? Nothing.
16:12 We get the 60 cents, that is what we get. It could go up to $10 per share, dividend,
we’d get 60 cents … period … that is what they are obligated to give us. Of course, we
have the advantage that if the whole thing goes down the drain, god forbid the whole
country falls apart, and everything is emptied out and removed, they get the money first.
RE:
16:38 Right, so the advantage is that if the world falls apart you will be ahead of the
country falls apart, and everything is emptied out and removed, they get the money first.
954:
16:47 No, no, it is even better than that, Richard, I forgot for a minute, it is even better than
that. To all of you people who are listening, listen to this, if the world falls apart, we get
twice what the stock is, $16.62, we get $33.24, of course, if there is the one that don’t
get it but that is what we are entitled to as preferred owners, that is the whole skinny.
RE:
17:30 I suppose that others are getting these calls …. Anything else you want to add?
954:
17:45 Not really. There is a lot of things you know but I am not gonna go into them, as far
as I am concerned we found out that the trust we had with Larry Wien, died with Larry
Wien.
RE:
17:50 Right. I know some of you like you are an original investor and when you speak from
that you speak from experience because I know you have spoken with all of the
principals over all these years, including in the recent times. Thank you so much.
954:
18:10 My pleasure and thank you so much, for everything you are doing and so far you
have been right on the money.
RE:
18:16 Thank you so much
561 Area Code:
18:27 Let me add some additional items.
18:28 I am a real estate guy, so when I went on their website and looked at some of their
current articles as one of the things you look at in Real Estate, especially in Manhattan
is the ability to buy the ground lease underneath the real estate.
18:47 The returns on buying those ground leases, especially if you can buy them light (and
you would have had to have negotiated that from the very beginning) if you had an
option to buy the land at a certain price, for a certain value, the turn around on literally
re-writing that ground lease and/or selling that ground lease to a foreign sovereign fund,
the cap rate could go to like 2% and the amount of money that can be generated from a
ground lease could rival the acquisition cost of a building.
19:18 And they are starting to do that now which is good for the REIT, and so if they are
able to to cap out a whole bunch of investors at 2 times the $16.66 value and/or 60 cent
cap on the dividends, especially if at the close of $17.18 today and they start converting
some of those ground leases to either revenue or additional revenue or potential sale or
gain, you got tremendous windfalls in these properties.
19:48 I was involved in a major transaction recently where that ground lease was a very,
very desirable instrument to acquire and then to either hold or recap and sell that
income stream to a foreign national, and that happens all of the time, so this deal of
what there are offering us is like fleas on a vest — terrible.
RE:
20:04 Thank you and once again it is great to have people who have knowledge about the
business that helps the rest of us, as you know most of these investors are middle class
people who inherited and they are not professionals and hearing people like you speak I
think is incredibly valuable. So thank you for that.
973 Area Code:
20:40 I got a question, a comment and then a few questions. Obviously there are folks on
the call who are very sophisticated and understand all of this and they get it. I am kind
of in the middle. I think there are a lot of people who don’t even understand the offering.
It may be a good idea to go through it. I can go through the 4 points I’ve picked out and
please tell me if I have missed anything.
21:15 First question I had is “why are they doing this?” I mean what is the benefit to
Malkin, I don’t know the answer, I mean I am sure there is a motive, there is always a
motive behind what they have been doing the last few years, but why are they doing this
? I know one fellow called before who said that this is just to show the court that they
are the good guys, basically, I think it is more than that. I just don’t know what it is. Do
you know, does anybody know?
RE:
21:40 Well, I do know, I am trying to hold my opinions to a minimum … I have an opinion
on it and it is not my own but from talking to many people, is that by doing this they are
reducing the equity base which means those who don’t agree to this offer all of a
sudden have a larger ownership of the REIT. So that is beneficial, so those of you that
don’t do it, you benefit at the expense of those who do do it.
973:
22:09 I couldn’t figure out why anybody would want to do this quite frankly, [sic] but I was
just trying to figure it out in reading everything, so I went on to the SEC site and I read it
because I didn’t get the Times today, and I am reading and reading and reading and
usually somebody says why they are doing it, is that it is good for you, it is good for us,
and they didn’t answer that question. They didn’t even address it.
RE:
22:37 And the carrot is that you get a higher dividend immediately AND that of course on
the surface would be attractive to someone, like someone in their 80s (like the vast
majority of the investors) and if they didn’t understand what they were giving up for that
extra income during the remainder of their lives they wouldn’t understand.
??22:54 We know that most of the investors hold this as a long-term investment to bequeath
majority of the investors) and if they didn’t understand what they were giving up for that
extra income during the remainder of their lives they wouldn’t understand.
??22:54 We know that most of the investors hold this as a long-term investment to bequeath
to their progeny in most cases, they wouldn’t understand that those who would inherit it in
their estate wouldn’t be able to sell it for anything close to what it is worth today.
23:11 In fact in more technical terms they do mention in this document (exchange
document) that it has no liquidity and we all know what that means because for 50 years
we owned the same and I will point out something that you all know and that is those
things that were trading for $30,000 before the REIT process started and now they are
worth you know 7, 8, 9 times that so what they are doing with this is the inverse of what
you currently have that is taking you back to something that you had before, something
that is illiquid and they make clear in the documents that they will not register the trade
so you will be on your own again and that, of course, returns you to this thing that you
couldn’t sell if you wanted to sell, that means it is worth … the day you do the
transaction, if you do it, you have something that is worth far less than it did the day
before.
973:
24:09 Absolutely and I read it and read it and read it and I have no idea why anybody
would do this. They even talked about buying, I don’t know if I understood this correctly,
they talked about buying based on a pro-rata basis, a number of these shares. I was
really curious what they meant. I think they want to convert a fixed amount of shares if I
got this right.
RE:
24:31 Well they set it as a certain amount that they are willing to buy and therefore, if more
people tender than the amount they are willing to buy I believe that may be what you
are referring to pro-rata meaning that if they are willing to buy, you know a million five or
15 million, the more people tender.
24:56 And the other risk (?) which they don’t put in here and this is something you should
all know and I will point out that if you read this you know this was not reviewed by the
SEC. This was not reviewed by any State, this is being used through an exemption in
Securities laws and I am not going to pretend that I know them but I do know what I
read and I do know they say that it wasn’t reviewed. So no one has looked and this and
said that there aren’t things in here that shouldn’t be in here or that there aren’t things
missing.
25:28 Well one of the things that is missing is this particular preferred with a 3.6% dividend
(roughly based on what the stock price was when they mailed it) has interest rate risks.
And you may not understand what that means in those terms, but what it means is since
the rate is set forever, it is perpetual, it means we all know that today interest rates are
the lowest they’ve been in our lifetimes.
25:59 And we all have lived long enough, I am 59, many of you know that interest rates as
well as the stock market go up and down. So in the case of interest rates, they will
return to their mean one day, whether it is 5 years or 10 years, and at that point,
someone who wants to sell this not only has an illiquid discount, they now have
something that is yielding 3.6% in an environment where maybe people are getting 6%,
well as the stock market go up and down. So in the case of interest rates, they will
return to their mean one day, whether it is 5 years or 10 years, and at that point,
someone who wants to sell this not only has an illiquid discount, they now have
something that is yielding 3.6% in an environment where maybe people are getting 6%,
so the willingness of someone to buy something that pays only 3.6% can only be done if
you discount it tremendously.
26:43 So, it is a possible scenario where a person who owns this in the future, someone
who probably inherited it, maybe they decide to sell, they need to sell it, they may get a
fraction of what it is worth even after the illiquidity discount, so it has a permanent
interest rate discount, and in fact what is remarkable is that it is almost like a bank loan
that never has to be paid back. So you wouldn’t want to be the bank that makes that
loan, but certainly, for the REIT it is a great deal because they never have to pay it back
and they are paying a rate that is set forever.
973:
27:17 Right. So they have the motivation to do this which you explained, it may be on a
pro-rata basis, there is no participation in any future gain, like the Class A or anything, if
they do better the Class A people will do better or the OP people will do better if they
didn’t convert, ???? could sell it. I don’t know even know, if I did this, which I am not,
who in the heck I could sell it to, what do I do, take an ad out in the paper?
RE:
27:54 And that is it. We do know that prior to the REIT some of these people put some of
these ESBA units like on Ebay, because I know someone who negotiated. And those
who were trying to sell them, I think they were asking about $50,000, this was about a
year before the process began when they had informed us that it was going to happen
but they hadn’t started it.
28:13 So that unit they were trying to sell for $50,000 we know that once it came out
publicly that they were doing the REIT, you had people offering you double that, that
was Mckenzie, who eventually raised their price to $225,000 and that was even before
the REIT went public.
28:34 So this is like the reverse of that, going back to the old way so, again I say that
people who read the first page, and say “oh, I could make more money” it does perk
their interest and certainly you should understand this, there may be some people
where they are not going to bequeath this to anyone and they want the extra interest
rate. I would suggest there are better alternatives than that but there could be reasons
someone would seriously consider this.
973:
29:00 I suppose, I guess someone would but I just hope that people don’t do this for their
own sake I mean we are not going to be voting it just seems to be one of the worst
decisions you could possibly make.
RE:
29:16 Well, Ok, but it’s par for the course though isn’t it?
973:
29:16 Of course, of course, I guess we have all learned. Alright, thank you so much.
203:
29:32 My gut reaction when I received this thing was, are these guys for real? They
shoved this REIT down our throat based on the liquidity factor and now they are trying
to get us to go into an instrument that is going to give us absolutely no liquidity? It is
ridiculous. The one thing I couldn’t find is whether or not, if we did bite and do the
exchange would this be a taxable event?
RE:
30:01 No, they do say it would not be.
203:
30:04 That I couldn’t find. I can’t say that I read it with a fine tooth comb, I was just taken
aback by the whole thing. But it would not be taxable.
RE:
30:12 No, no they said it would not be.
203:
30:16 OK, I am not interested anyway but I just wanted to verify that.
RE:
30:24 I am sure that was on a lot of people’s mind and thank you for bringing it up.
716 Area Code:
30:39 We were down in New York last week and had a wonderful tour and visited the
Empire State Building and in the brochure it mentioned that in 2002 Peter Malkin and
his son, Anthony Malkin, purchased the land under the building. Now I must have
missed this in all of the conference calls, but I am wondering what impact that has on
anything, if you have any comments or thoughts about that.
RE:
31:03 Well, I do. There was, for many years, and probably still is, the myth, and it was on
the website for the Empire State Company that managed the building, that Peter Malkin
purchased the land and the building. Of course, that is not true, we bought it as ESBA
and we owned it, because prior we had owned just the Master Lease.
31:34 And this gets into what transpired if we peel back the onion on what was going on
during those years, but to directly answer your question, they owned it, just like you
owned it. It was a typical “Malkinesque”, if I can use that term, sort of a fudge. Yes,
Peter and Tony Malkin bought it as our representatives as investors, they owned it, and
so did the other 2,800 of you. So, it wasn’t a lie, it was a deception, and that seems to
be the common theme for many of us when we look at these things.
716:
32:19 So this is what’s in the brochure that they hand out for tourists and along with that is
the item in 2007, the $550 million invested to bring the building to the forefront of the
21st century, so that was the figure which I hadn’t remembered.
RE:
32:36 Right. And that was the budget that was projected at the time and is probably close
to what will be spent and we financed about $300 million of that, so that’s probably true.
32:45 But as disappointed as I am that they say that, I am not surprised because we have
been dealing with these kinds of things for some time now.
716:
32:55 Ok, well I thought maybe they did actually own the land lease for it.
RE:
32:59 No, you did. They should say your name next time.
716:
33:04 OK
Area Code: 973
33:11 I just wanted to point out that in addition to be limited to a 60 cent distribution there
is also a question whether that distribution will be categorized as guaranteed payments
which is very clearly stated in this document … and guaranteed payments generally will
appear on your K1, in addition to your net income distribution, which is, of course, part
of your tax return. The guaranteed payment will be another piece. So …
RE:
33:53 You are getting into some minutia there that is important and they do point that out
there in the document that the current OP units you own get to claim depreciation, and
these won’t because these are debt, not ownership.
973:
34:03 Right. So there would be another tax issue with regard to not only your piece of the
income of ESBA, but also you would have guaranteed payments on top of that.
RE:
34:18 Right. So it shows the tax treatment is less favorable than the current one.
973:
34:21 I think so, yeah, because the guaranteed payments will be deductions to the
partnership.
RE:
34:27 Ah, so you are saying that once again the people who don’t do this benefit at the
expense of those that do.
973:
34:39 Yes, I believe so, because the deductions for the partnership is for the guaranteed
expense of those that do.
973:
34:39 Yes, I believe so, because the deductions for the partnership is for the guaranteed
payments. It is basically for the use of capital. It is not for performance which is normally
the reason for guaranteed payments when a partner provides a service to the
partnership and they get a guaranteed amount and that is for services rendered but in
this case it is for the use of capital, this guaranteed payment that they have been talking
about.
35:03 I would think that most people, I mean you know, it is crazy to think that 60 cents is all
we will ever get out of it this deal if things go even the way, you know, we heard in the
past, it has been projected that things are going to get even better.
RE:
35:19 Well, I think that is exactly why we didn’t want to sell it. We had the Duff and Phelps
numbers showing our numbers doubling as of next year, then tripling in soon in years
after, and the reason why those of us who where against it, among other things, is that
we were wanted to keep that upside to ourselves, but we were deluded and now we will
only have a portion of that.
973:
35:42 They also, mention, I think, that if they don’t get 1.2 million units tendered, then I
guess they don’t have to go ahead with any of it.
RE:
35:47 Right. And look, someone said to me, and they weren’t serious, but they wanted to
point out that it is not in my interest, my family’s interest, to tell people not to do this
because we will benefit, as I have been saying, at the expense of those who do and you
know of course, that is not the spirit of the way I think that we have been operating from
the beginning, that we felt that whatever was done, should be best for everyone and this
has not been operated that way this is sort of a zero sum game and we are holding this
conference call now, because we know that this is important to people who don’t have
access to someone like you who is giving insight to things they will never hear, which is
another reason they should pause before they leap.
973:
36:35 One last question, I heard someone mention today that the liquidation value was
twice the $16.62, I don’t quite understand that comment.
RE:
36:48 Well, in other words, in the event that let’s say the REIT was purchased at some
point, they would have to retire it, the redemption is 200% of what the value was when
they published the thing and sent it to us, so that is the potential upside if there was
some sort of sale.
37:07 Obviously, I am sure there is no plan for a sale and that probably should be a big
hint that there isn’t because why would they do this transaction if it would diminish our
returns in a sale. So, that is significant. That is significant, and why they chose that
number, I have no idea.
973:
37:31 OK, well that is very interesting too. That’s barely where the stock price is today for
even for the ESBA units, very close to that figure, today, $16.25 it is quoted at today.
RE:
37:44 Right, right. Look, so our families made these investments 50+ years ago, and most
people I have spoken to and heard on these calls, plan to pass this along to their
children, their grandchildren, their favorite nephew, niece and we have been long-term
believers in this investment and I think the point has to be made over and over again,
that anyone who decides to go forward with this particular exchange, no longer is an
owner. There are merely someone that loaned the company money at a fixed rate and if
there is an upside, you won’t share in it.
973:
38:21 And also, the issue of why would anyone go into this with just a slight (I’ll call it
slight) with a 75% increase in current dividend not knowing where this could go in the
future. It doesn’t make any sense.
RE:
38:34 Well, actually they do know because they have the Duff and Phelps, because at
least they have the Empire State Building which is really the driver of the stock and the
earnings cause the other buildings in most cases are fully rented, so the growth in the
next couple of years is going to come from repositioning the space and re-renting it at
higher rates so we actually are in a position to know that it is going to go up and that 60
cents which obviously is higher than today, 2 or 3 or 4 years from now might look like it
was a horrible deal.
973:
39:16 The only people who would ever be interested in doing this, is if they were so
dependent on the income from the investment.
RE:
39:25 Right, and I would say that, but if someone really needed that, and they asked me
what my opinion is, this is just one person’s opinion, I would say wait until October,
convert your ESB to REIT stock, sell it, pay the taxes, and you could probably reinvest it
into solid dividend paying stocks, that pay equal or more than what this 3.6% is and you
would still have your liquidity and your principle. So there are alternatives even for
people who say, you know, I could really use the money if they are willing to wait and
just do what a sensible person would do or if they went to a stock broker and explain
what they wanted to do they could be put into a safe utilities, and not give up the future.
561 Area Code:
40:22 I was thinking why they are doing this, why they came up with this, you know as a
prospective. What advantage does Malkin have, and I think you have answered that
question.
40:52 The other question I had, the second area, is that if they can afford to pay the 60
prospective. What advantage does Malkin have, and I think you have answered that
question.
RE:
41:14 Well I am s that the calculation to which we are not privy that by paying it to a
smaller percentage of investors a small percentage of investors we enhance the value
of the remaining if 10% agree to this, the other 90% now own 100% of the building. So
all of a sudden we have enhanced our future by 10% at the expense of these people
who got some additional income, so forever, so again for those of us who don’t do it, it is
good that some people do it. But I am not going to have a clear conscience to not have
this conference call today and give people the opportunity to know that this is what we
are thinking and these are our opinions and at least if they go forward and they hear it
they will have had additional voices to hear.
561:
41:59 No, as I say, if they can afford to pay the 60 on these numbers then there must be
the revenue in there that would effect our rate, I mean that would potentially give us
more money.
RE:
42:11 Right. What you are saying is that they built in a cushion, which, I mean, of course
they did. That would be sensible management and I figure they have a plan which if
they execute on it will have enough cushion to increase our rate because with the stock
price at the current price, the yield now is under 2%. So since most of us own this for
the income, even though it feels good to see the stock price higher, it really doesn’t
effect us in any way because we are long-term holders.
561:
But if new people want to come in and buy it, they are going to look at the yield, so I
am sure there is a plan to increase that dividend with the improving results that we know
are going to happen.
42:56 And one other question. Has anybody analyzed this with their broker as to the
reason for this recent significant increase in this stock?
RE:
43:11 Well I can tell you just what some of the events are that have taken place.
43:15 This week there was an event in New York where people who are invested in REITs
gathered and companies give presentations. Empire State Realty did a presentation
earlier this week. And then there was an article today or yesterday in Investors Business
Daily, so those brought people the story which is what you hope management does and
that would have attracted people.
43:43 And I will also point out again, we don’t care really for the most part what the stock
price is. The volume on the stock this week has been typical. Meaning it is about 1/2 a
(million? billion?) shares give or take, so it just seems that there are people who are
hearing about this, hearing the story and saying “I’d like to own it”.
43:43 And I will also point out again, we don’t care really for the most part what the stock
price is. The volume on the stock this week has been typical. Meaning it is about 1/2 a
(million? billion?) shares give or take, so it just seems that there are people who are
hearing about this, hearing the story and saying “I’d like to own it”.
561:
44:09 Good. All right but it doesn’t effect our income unfortunately at this point, right? But it
effects our value on paper, right, that’s all.
212 Area Code:
44:40 I too got that call from MacKenzie a few hours ago and he starts telling me what the
advantage this has for income, and when I asked about liquidity he said “well, you’ll
have to talk to your investment advisor and he will guide you into selling it”. And I said I
don’t think he knows anything about it, but could I put it on Craig’s List? Got a chuckle
out of him, the long and short of it was I can’t imagine that this is anything but an
advantageous move on the part of Malkins and I am not interested.
That was the end of that. But they are trying every possible way to encourage the
go-ahead on this. So…that was my two cents.
RE:
45:36 Well good and I hope that these young people who they hire don’t go over the line
there. There are limitations on what they are permitted to say on these calls it should
bother them if we end up getting reports that they are saying more than they are
supposed to. It is unseemly stuff when that happens and we know it happened last time
and we know who were the perpetrators of it.
46:01 The reason why, by the way, we have this Glomar response from the SEC. These
are things that are upsetting to all of us for different reasons, but I am thrilled you knew
what to say and hopefully they will think twice about trying to convince people when he
is not even supposed to be doing that.
212:
46:25 Well, I agree. And the thing is it really (knocked / stacked?) the ? for any controversy
or any throwback from us, so we stymied them with that with any information we give
them in a negative vein.
RE:
46:41 Yeah. Well if you are a little more sophisticated investor than other investors who
maybe have never had a stock before. We know of many people who didn’t even have
brokerage accounts before this got converted into stock, so there were ill-prepared to
deal with any of these questions like you are.
212: Right. OK. Keep up the good work. We really appreciate what’s going on.
47:11 And if you need us there on July 7th, let us know.
RE:
47:11 Absolutely. I am going to find out, again, it’s a smaller courtroom, I’d love to have a
turn-out, but it can’t be like last time because there is just no room. So I’ll contact you
before that and let you know what we can do. Thanks.
347 Area Code:
47:29 I’d like to know the exact location for the appeals.
RE:
47:44 Right. I’ll get all of the information, I just want to, like last time, we sort of cleared it
with the court that we were going to bring “X” amount of people, and I always want to do
that prior to having them show up, you know you have to work with them, especially
since most of our investors are elderly and they where very accommodating last time,
we know so I expect the same.
48:08 So I will communicate the specifics. Now we have a date. It is July 7, 2014 at 3:00
pm. But I’ll have to give you all the information. It is downtown. I just don’t have all of the
other information handy.
347:
48:25 100 10th Street?
RE:
48:25 It may be, but I will have to double check, I just don’t have it in front of me.
48:41 Everyone will be contacted so you will have the information and we will ask people if
they plan on going so at least we will have a number count to give them the heads-up at
the court.
347:
49:15 ? I can tell that the Malkins noses have grown big.
RE:
49:00 Well, you know, you have the benefit of a long relationship with these people and
your opinion is based on this so no one can say you have come to a too quick
assessment as to what is going on.
718 Area Code:
49:35 We have not received the offer.
RE:
49:57 As you can hear from the conversations on the call, that you should get this thing.
You are not missing much as far as a great opportunity. But I would suggest you call
whoever you called in the past and say you didn’t get it and that you would like to have
the paperwork. So you will be informed in some way before you even see it and we will
have more conference calls about this, so we look forward, when you have a chance to
read it, what your comments are.
50:42 June 26th is the deadline, but of course they can extend that but that is the initial one
there.
561 Area Code:
50:51 My question is if there was more money to be distributed, why aren’t the dividends
higher?
RE:
51:05 Well, that is a question someone else brought up. That is a great question. It means
that the additional funds available to distribute (but they decided to employ this
technique) but yes, why didn’t they just distribute what extra income is available
amongst all of the investors. So, you can do the math, they could have raised it and
they didn’t it because in the long run, it was better for the remaining investors.
51:38 So … look, these are things that managements do. What is unusual here is our
history with them. And, frankly, this particular offering, being an offering that was not
reviewed by the SEC, it was done in a manner that didn’t require it, and it doesn’t have
the same sort of “stamp of approval”, if you can call it that, that an SEC document does.
And as I pointed out one of the things that I believe the document is missing that I
believe would be in if it was reviewed by the SEC, was the fact that this exchange offer
puts you into a debt instrument that is interest rate sensitive, which will, if interest rates
go the way they have gone throughout history, will diminish the value of your remaining
investment significantly.
52:37 So they did it because they thought it was good for them and the people who don’t
do it. The question is great because yes, it indicates they have more money to distribute
and why did they distribute it in this manner?
561:
53:00 So it is good for our shares and the price goes down doesn’t that hurt them
RE:
53:01 When you say the price, you mean the “stock price”?
561:
53:05 Yeah.
RE:
53:05 Well, again, if you own it for income do you care about the stock price?
561:
53:14 Yeah, doesn’t that hurt them if the stock price goes down? because the money isn’t
available?
RE:
53:23 Well, the money clearly is available, as you point out, and you know they did it for
the reasons they did it, which I think we are hearing opinions on it, obviously they
haven’t explained it, which is the right question to ask. Why don’t they just say “we did
this because”, “we did this because the remaining shareholders, who don’t tender, will
have a ownership that will be greater than they did before”. I mean that is really what it
the reasons they did it, which I think we are hearing opinions on it, obviously they
haven’t explained it, which is the right question to ask. Why don’t they just say “we did
this because”, “we did this because the remaining shareholders, who don’t tender, will
have a ownership that will be greater than they did before”. I mean that is really what it
is. They don’t say that, I don’t think they do, maybe it is hidden in here somewhere, but
…
561:
54:01 ownership…??
RE:
54:10 Well, yes, yes, we all would. And by the way, you give up your voting rights so - if,
just to use their numbers, 10% of these 150 (million / billion ?) OP tender, all of a
sudden everyone who remains, including the Malkins, have roughly 10% more influence
with the vote. So it is a great way to increase you voting power if you are the largest
holder.
561:
54:36 Thank you very much.
718 Area Code:
54:40 All of the statements are pretty correct, but I think that main factor is the loss of
convertibility. The OP shares are able to be converted into the common shares and
there is a difference even today of maybe $1.00 - $1.50 difference. In the future it could
be much greater. So that alone would cause me never to vote for that deal. And that I
think is the main factor.
RE:
55:27 Well, you know, again all of these opinions are valid and we don’t know the reasons.
We do know that the offer is there and each individual has to decide if it is something
they want to take part in and you know. I haven’t heard one person say that they will. I
wish if there is, they’d anonymously explain it to us. We are not going to give you a hard
time, you know this is the sharing of information.
55:54 We are not selling anything ourselves and ironically it is against our interest to try to
convince someone not to do it because we would benefit from you doing it in the long
run. So it is not self-interest here but you know the spirit of these conference calls is the
sharing of information and hopefully there are people listening in who will benefit who
don’t have anyone to talk to about this.
718 Area Code:
56:24 I think it is against my interest to convince people not to do it because if I am the
only one that did it, I wouldn’t (would?) benefit from it. But I think most people should be
aware that you lose that convertibility aspect of it. And that has to be accentuated.
RE:
56:45 No, I think that is a great point. The stock price goes up in ESRT and come October,
you can convert it. You give that up forever. You are not stuck with something you can
never trade into the stock.
718:
57:01 Thanks very much.
847 Area Code:
57:13 Is there any cost basis for this stock?
RE:
57:39 I am not sure what you are asking.
847:
57:44 My broker asked me to ask if there is a cost basis if we sell it?
RE:
57:44 You mean if you accept this exchange offer?
847:
57:52 Right.
RE:
57:52 Because the cost basis usually we discuss in relation to selling your stock on the
open market. To answer the question, there is not cost basis that is different than the
one you currently have. You are trading it into this new debt instrument, it is called the
preferred, but it really is debt, masquerading as equity. So whatever your cost basis is
currently with your ESBA OP units, if that is what you own, it is the same when it comes
to this exchange, if you were to do it.
847:
58:34 Ok. And all of this stuff that they just sent out, they are paying for it, Malkins are
paying for it, we are not?
RE:
58:34 Well, the REIT is paying for it. I mean the cost is in the low millions, I guess, relative
to some of the expenses we’ve endured these past two years, it seems relatively small
but it is real money.
847:
58:49 Absolutely. Well, thanks Rich for everything.
817 Area Code:
58:56 I got a question. If I remember correctly when they went to the REIT they had to pay
90% out upon close. where are they getting this $16 ($15?) million dollars to buy all
these shares and trade them if they are not paying the 90%.
RE:
59:42 Well, it may be that these new securities would be just part of that 90%. Meaning
that before the 90% or higher went to ESRT and our ESBA as well as the other two
buildings. Now they have another security they are paying, so they are still paying it out
but they are paying it out to another type of security.
817:
60:04 Well, I just don’t trust them.
RE:
60:13 Well, you have a long history as some of us know and you have been extremely kind
to share your history and I know when you say these things, it means something.
817:
60:30 It almost doesn’t make sense.
RE:
60:32 And I think you are right as it is confusing because it is being done in this manner,
meaning it wasn’t reviewed by the SEC, it maybe didn’t benefit from the additional
information that the SEC review process may have required where it may have
answered the questions that many of you are raising, because it was done in this
manner under some exemption where it doesn’t require anybody to review it. So I am
not a securities lawyer, and I am not even going to try to pretend to understand how
they can do this to their investors, who clearly are not sophisticated enough to
understand this. It uses terms that nobody, unless you were very experienced in
finance, would understand.
908 Area Code:
61:29 What would happen if the stock went substantially higher, let’s say to $400,000
worth, would that effect the law suit in any way?
RE:
62:00 No. But it is a good question. Whatever the performance of the stock, good or bad,
after the things that took place, it is not material, and I have been told that by the
lawyers, it doesn’t matter. That’s my answer, whether it is right or wrong, that’s my
answer.
908:
62:22 Yeah, because we are taking a risk, and that is worth something.
914 Area Code:
62:33 I am just curious, isn’t there some sort of formula as to what they have to pay on the
REIT in in other words, X number of dollars that they earn, what percentage of that do
they have to pay dividends on?
RE:
62:55 Well, I think you heard the caller a couple of callers back who mentioned 90% which
is what I am familiar with meaning that REITs are required to distribute 90% of some
definition of net profits. I am not going to pretend to be an accountant to know which
one it is so, with the issuance of this new security, if it does go forward, they would have
a claim of that 90% and it would just be another way to distribute. Now, as everyone is
pointing out, whoever converts this, in the short run is making a higher distribution so it
definition of net profits.??? is coming from somewhere and it implies…
914:
63:39 But that would dilute the amount that could be distributed isn’t that a fact?
RE:
63:43 Well, yeah, that’s a good point. If things got bad in the real estate business, they
would distribute 60 cents and we could have our dividend cut, so that is a good way to
show that someone who is worried that we would be heading into bad times in real
estate, or worried about it happening or worrying about our dividends being cut, by
switching into this for 60 cents, doesn’t have to worry about it.
914:
64:12 And who substantiates the figures that they issue? Is it just the group of five or six
that are members of the board? And …
RE:
64:32 Yeah, I am presuming that since it is a publicly held company, that they do it with all
of the professionals and transparency at that level, at least it gives us some confidence
that it is being done straight-forward.
678 Area Code:
64:53 You know I gotta think that this is being brought to you by the same people who
gave us ENRON. This is clearly a suckers bet for so many people. In fact I think it is
part designed to give them additional defenses both in this litigation and I think
someone made a reference to it earlier, to the extent that people sell into this, ???
there’d be a lot of people, that if there is an unwinding, who could then participate in this
unwinding portion, they’ll have additional claims and legal arguments to make that will
delay that profit that we actually get ?? or we’re looking for in the litigation of the
lawsuit, they’re buying themselves future control of the entity. I think they have shown
fairly good, you know, indication that they don’t really care for the 2,800 co-owners and
are continuing to act in a way that so obviously, I think, blatantly, counter to their
obligation as fiduciaries, again.
RE:
65:57 Right, right. Well, it has been explained to me that their relationship to us now, when
it comes to this is not as fiduciaries it is a different term, and again I am not going to
pretend that I understand these legal terms.
678:
66:08 But the problem is that they do have that fiduciary obligation. I almost think that we
are well served ??? by keeping ??? that has been placed in receivership. is to have
someone appointed who actually doesn’t have the conflicting motivation.
RE:
66:24 Well, you are getting to the heart of the $600 million lawsuit. Which is that they were
fiduciaries …
678:
66:30 Right, this offer of theirs, just as I leave the ownership pool, may well be in part to go
ahead and counter anything ?oppositions that they may plan next. I mean, when did
they come up with this idea. Does it predate the closing of the IPO? Did they always
have this in mind and it wasn’t disclosed?
RE:
66:47 Well, look, these are great questions, and I hope for the sake of each individual
investor unless they have reasons, and we have explored some of the reasons they
might want to do it, that they don’t do it because they will regret it. So if you are worried
about the end of the world, this could be a good choice. But if you think that things are
going to go forward in a positive manner, then it is probably a lousy choice.
678:
67:16 Well, it is to their benefit which makes [sic?] the lousy choice because our interests [
??? …they have drawn this distinction that in a soccer bet people that lay down
opportunities that they shouldn’t.???] Just simply not right. We are all best served by
making sure we all stay in the boat.
RE:
67:33 Right, right. And again that is why we have these calls, to hear your opinions and
others and at least they have the benefit of having a conversation that will help them
make their individual decisions.
687:
67:43 You know, the $300 million figure you mentioned earlier, that financed the ???, that
is $107,000 per share. That’s deferred and has yet to be recovered.
RE:
67:54 Well, this was of course one of our arguments during the vote, that you finance this
thing, the improvements are now within the last quarter, and you are going to not reap
the benefits, you are going to reap a portion of the benefits, even though you financed
100% of it.
687:
68:18 I also …. this is part of a bankruptcy strategy, delightfully [?sic] by (my?) ownership
as well, in some fashion rather a greater percentage or less. (??? Important to capture /
understand what he is saying here), they’re not doing it.
RE:
68:34 Right. As individuals you can make the decision whether you are comfortable doing
it after you have heard the opinions of others, at least you have had the opportunity and
we have done our job in sharing others opinions. I am not going to give someone a hard
time if they did it. I will feel good that we had this call today.
687:
68:57 Yep. Again the notion that we all are better by someone’s loss? needs to be
conveyed so that ?we don’t encourage that right.
951 Area Code:
69:20 There’s one thing I wanted in here I said at the very beginning, please everybody,
stop cogitating, stop trying to pick it apart, think, use your own brain. The stock that they
want to take from us and give us back the deal we had, ? immovable. The stock we now
have is going up, the stock. The stock market has a million analysts, there are very
sophisticated people out there, if they thought it was garbage, it would be going down
not up. That’s all I wanted to say. Have a good one.
RE:
70:05 Thanks for that additional comment.
607 Area Code:
70:05 First thing I have to ask is that one of those suits that is going on, what is the
potential for that to be totally overturned. In other words, you’ve got class actions,
you’ve got appeals, you’ve got class actions for things after the situations, alleging that
money was improperly put together, etc., what is the possibility that the conversion to
the REIT itself, will be overturned. Given that possibility, would it be advisable to hang
on to this and wait for the courts to throw it back. Where we were before.
RE:
71:01 Well I think that if you won ESBA units, or ESRT, some people had tax situations
where they could offset the gain by taking part in ESRT. But most of you have ESBA.
And you’ve wanted to hold it forever like you did ESBA before the conversion, in my
opinion then you should continue to do that and whatever comes down the pike we will
deal with but you don’t need to do anything. I don’t know if that is exactly what you are
asking, but you know it is overwhelming, for even me, where I have spent all of this time
with it to explain it to people. So I can’t imagine how someone who visits this issue once
or twice a month if even that, can keep it straight. So I’d say, do nothing unless you
have a compelling reason to do something. Maybe that’s not clear enough, but…
607:
72:06 I am happy to do nothing especially I am not in a particular situation where I am a
nominee and represent other people on this, I am happy to do nothing, but what I am
asking you, given the suit, is it possible (and you always say your are not an attorney)
but is it possible that the resolution of these suits could include the invalidation of the
whole operation?
RE:
72:36 Well, I’ll tell you. The word that I have heard continually from people who have
experience in these matters. They use the term restitution. If all these scenarios, some
of which turn out favorably for the ESBA owners, it would take the form of restitution,
and what that form is, such as what you are suggestion, your guess is as good as
anyone else’s.
It could be the form that you are suggesting. That would probably be the
least likely, but within the realm of possibility, I think it would be more likely, if I was going to offer a handicap on it, that it would take the form of additional ownership that
was transferred from the people who, if were found guilty, were depriving you of your
economic interests against the loss. So, if that were to happen. Again, calculating this is
very difficult because it is so complicated.
607:
73:43 Well, no, I wouldn’t expect you to calculate it, but that would seem to closer to the
remedy sought by the last set up of suits, last actions, which were saying that money
was improperly done, then we would hold on to this and wait for payback.
RE:
74:04 Right, right. Well look let’s hope that we continue to move forward, we have a big
day July 7th, and some ruling soon after that, if we get the permission to go forward, by
we I mean the lawyers who are working on behalf of the investors, then we will have a
chance at what you are suggesting, and we are certainly looking forward to that
because it has been a long time in coming.
607:
74:36 So, at the moment, of course, you are not suggesting that you would ??take this up?
?, you are waiting for the interim results and then you’ll see whether or not you and
everybody else is ready to go higher against it?
RE:
74:57 Oh, I believe, when I first spoke to the class action lawyers for this suit, you have to
remember that these were lawyers who had absolutely no relationship with ESBA
investors at all until they were contacted by the people who voted for the REIT, and they
filed this suit, again unbeknown to those of us who were active, and when I did ask the
question that I think you are asking, is about if on July 7th or soon after Judge Sherwin
rules that in fact the earlier ?relief / brief? prevents the filing of this law suit, they were
very comfortable with the idea that on appeal they would win and and ?if he returned to
his courtroom?. So, I may be mis-characterizing their opinion, but that is what I heard,
so they would not have filed this suit if they thought it was going to go to trial, and they’d
like it to go to trail immediately, meaning, making this July 7th the end of that particular
motion which is the dismiss of the release of the earlier class action suit, but they are
committed committed for the long run, so they believe we are going to have our day in
court and they are devoting their own resources to it, so clearly they believe in it.
607:
76:21 That was the same trial judge who judge who sanctified ….
RE:
76:29 Right, right. Remember we talked about this and we can certainly talk about it again
because I am sure people don’t fully understand it. But the rulings the judge made for us
at that time were ones that he made where he maybe felt … and these other people’s
opinions who are more knowledgeable … that if he had upset the apple cart at that time,
he would have been responsible for potentially delaying something or that would have
had economic consequences. That is not the case now.
So I guess their opinions would have been in the realm of discretionary judgement then, now there is no urgency, a judges ruling that is favorable to us for the trail to go forward doesn’t upset anything that is ongoing, so without that risk of judicial intervention, he may be inclined to let it go
forward because he doesn’t have to worry about the ramifications that he would of if he
had ruled favorably for us at that time.
607:
77:34 I see, OK, thank you.
203 Area Code:
77:38 Who can control this? Like, what’s next?
RE:
77:57 Well, are you talking about anything in particular, or just in a global sense of the
word?
203:
77:59 I am just talking about these offers continuing to come and when will it have this
negative effect on everyone?
RE:
78:08 Well, I think what you are talking about is the emotional toll, if I can describe it that
way. And that is real. It is extremely upsetting we know, to all of us. I get angry, frankly,
when I see this and I get angry because I feel it is a repeat, as you have heard other
people express, of past behavior and unfortunately, if it is a pattern, meaning a pattern
that started in the past and may continue with the REIT, I would hope that a board of
directors, at some point, would speak up and say, you know something, this is not the
way we want to conduct business as a board of directors. And they have that possibility
of acting that way. And I would hope they would. Hopefully that is some sort of answer
to what you are saying.
203:
79:12 I am just waiting for the next envelope. You know what I mean?
RE:
79:15 Well, there are going to be more envelopes, I think you are right about that.
203:
79:20 OK, thank you.
908 Area Code:
79:23 Couple of things, real quick. A lot of talk tonight about logistics and what makes
sense, to make changes or stay where we are. First thing I want to say is that I have a
colleague of mine, a good friend, we went to college together and he is a senior analyst
with Merrill Lynch in New Jersey. That is the first thing I thought I would say.
80:13 The second thing is, and I don’t want to go into details, but I’ll just say, that you know
we have had this discussion tonight and I have been on numerous calls and we haven’t
talked a lot about the emotional part of these investments that we own.
80:28 … a long time ago, but we have sort of gotten away from it and it has become a lot
about the investments and money and whether it makes sense to keep it and make
changes and so forth.
80:40 For me, I just want to say on this call in front of everyone, I am not making any
changes because I inherited this investment from my grandmother, who was one of the
most important people I ever had in my life. And there is not chance, under any
circumstances, that I am selling it and I am proud to be an owner, or a part owner in
some capacity of the Empire State Building. So …
RE:
81:09 And I am thrilled that you brought this up. This is an important issue, likewise, my
daughter is named after my grandmother who purchased this with my grandfather. I am
sure that many of us have our version of this story and it resonates.
908:
81:25 Yeah. And the last thing I want to say, is that I am sure that most people on this call
are aware, is that we finally, finally, got a letter from the Malkin Holding Company
indicating that they are moving forward with the “Wall of Recognition” inside of the
Empire State Building. I hope everyone got that letter. It has taken quite some time for
them to finally get here, but I am happy to say that they are moving forward with that
and ah, ….
RE:
81:56 Right. You know this is an emotional issue for us, because we want to stay owners.
So, relating that to the topic of tonight, if you exchange your ownership, you are no
908:
82:15 That’s exactly right. That will never happen in my family.
RE:
82:15 Right. My family, and I think many others, feel the same way.
908:
82:22 I appreciate all you do, Richie.
203 Area Code:
82:26 Nobody has talked about the Shareholders Meeting that is coming up.
RE:
82:50 Great point. The Shareholders Meeting. You have all been notified. I don’t plan on
attending because it is in New York. If you are in New York, you can show up there.
Probably most of you have never been to a Shareholders Meeting and I think it is at the
Roosevelt Hotel, I may be wrong, I am doing it from memory. But you are entitled as an
investor to show up and see modern corporate governance. I don’t expect anything
significant to happen there. It will probably be very short, but you are within your right to
Probably most of you have never been to a Shareholders Meeting and I think it is at the
Roosevelt Hotel, I may be wrong, I am doing it from memory. But you are entitled as an
investor to show up and see modern corporate governance. I don’t expect anything
significant to happen there. It will probably be very short, but you are within your right to
go.
203:
83:21 So do you have any voting shares? Because I saved to see what was the vote to
see what was going on, what they were up to, so this is the whole thing about the
compensation which is really, really turns your stomach. They want us to approve, um
… not only the Board … it’s a done deal, and?
[Note from the transcriber:
I was not aware of this meeting, as I did not receive the April 25th
letter nor an Annual Report. I am a Class B shareholder.]
RE:
83:36 Right, right. … you know something, I think that it is so early after the IPO, and we
are so busy with other issues, we probably have neglected the conversation that you
are bringing up today, we probably should have had it. So my guess is that we will have
to wait until next year’s event, if we are still holding these calls, which I expect we will
be, to have that discussion, because they are now on trial as a new manager of a new
public company and people will form a judgement and you should vote your shares
accordingly. It won’t be just us, it will be all of the new shareholders too, who will form
an opinion. You already have a history to do it. But, yeah, we have been neglectful in
discussing that. I am sorry about that.
203:
84:34 My other question was what would happen at something like this? So you think it
might just be a short thing, and you know, it is a distance for me to go but what might
happen at that shareholder’s meeting?
RE:
84:47 I don’t expect anything to happen. They are heavily scripted, unless there is some
significant event such as an activist group trying to unseat the board, or someone who
puts forth a shareholder proposal, that is against management’s interest, it is a pretty
mundane affair, as I understand it, so since none of that is happening, at least at this
time, I don’t expect much to come out of it, but again I encourage people to go, if only to
experience something they haven’t experienced before.
203:
85:30 And just to clarify. The things they sent in the mail are not actually the proxy to vote,
you still have to obtain those online?
RE:
85:36 Well, we did ours online. I know many of you don’t have that capacity, so I am
unsure of how you vote if you don’t do it online because I didn’t pay attention to that.
Sorry.
203:
85:50 Alright, thank you.
864 Area Code:
85:52 No. The gentleman that called just before the woman who was just talking,
mentioned the Wall of Recognition. I think that those who are on the call who have not
placed the names of their parents, grandparents, or what have you, to be on the wall. I
whole-heartedly tell them to please pay attention.
86:34 We only have until the end of June, Coleen up at the Malkin’s office is handling it. She
has been involved with it since the very beginning and she has done a marvelous job. If
you are a participant, you can place two names on the wall.
86:56 It just so happens that my brother and I, who do not have heirs, have placed in one
instance have placed our mother and father on the wall, and the other brother has
placed our own names on the wall. So it is an opportunity, speaking of perpetual, as this
will be a wall that will up there for a thousand years if the building is still there.
87:25 So anyone, if you have heirs and grandchildren and so forth, they will be able to visit the
Empire State Building and look for the names and say “oh, mommy and daddy” or
“grandpa and grandpa” are on the wall at the Empire State Building. “Isn’t it wonderful.”
So it is one promise that our esteemed Malkins have finally registered with all of us and
I am grateful for that. So, those who have not done it, or if you know others that have
not done it, please go ahead and take care of that.
RE:
88:14 Right. That is a good service for all of you who are out there. If you did not do it at
the time or forgot to here is your chance, as the caller is reminding you, you have until
the end of the month to do that. So call Malkins’ office, speak to, Colleen, you said is the
person?
864:
88:30 That’s right, I can’t remember …
RE:
88:35 Well just call and say why you are calling. They’ll know why. We don’t have to go
into the minutia of why this transpired but I would suggest it was done in response to
what they thought was the risk of the voters disapproving the REIT vote because of their
emotional attachment. This was not part of their original plan. I will tell you that the
many reporters when they saw that filing with the SEC, saw it for really what it was at
the time. It was an attempt to curry favor, but just because it was done for the wrong
reason, in my opinion, doesn’t mean that we can’t enjoy what the benefit is to our family
legacy. So…I hope everyone does take advantage of it. Thank you.
864:
89:25 I got it right here, no it is not Colleen, I am sorry. You need to address it to Melanie,
Wall of Recognition, and that is at empirestaterealtytrust.com (Empire State Realty Trust
. com). So that is who I would...
ER:
90:07 I guess what you are saying is call Melanie and if you haven’t done it, find out how
you can. By the way, Melanie, if you are on the call I apologize for all of the calls you
may be getting. Melanie is also an investor as well as a Malkin Holdings employee. She
has the same stake as you do in the success of whole process.
864:
90:23 And she has been very helpful to investors over many, many years, as has Barbara.
RE:
90:34 Yes, I have heard only good things about this and they will help you once again if
this is something you want to take advantage of.
713 Area Code:
90:50
RE:
91:03 And I did get your message, by the way…
713:
91:03 Yeah, and you have already answered that question, but how come we don’t have a
a “write in board of director”?
RE:
91:14 Well, as I was suggesting, considering the short term year we have experienced, I
think that probably was an unlikely thing, even thought it was a good idea to do. But
certainly, management is going to have to win the trust of not only the new investors
who not only have no track record, but they are going to have to, going forward,
convince people that whatever happened in the past, isn’t a precursor to future behavior
and that is why this Exchange Offer is certainly not a way to have people change their
opinion.
713:
91:50 OK, well I know you have a full plate, maybe we will do that next year.
RE:
91:56 Well, I think that certainly think that a company that treats their investors unfair, are
vulnerable to that. We want only the company to make us money, but set an example.
92:24 We know that this is a special building, we all believe that, and the behavior of
running it should also be an example. And in my opinion, and I know obviously we are
hearing it tonight, this Exchange Offer somehow doesn’t jive with our view of what
would be the kind of behavior we would want to see.
92:41 Maybe we are just inexperienced investors who don’t realize in business you do
what you do because it is all business. It is unfortunate because we know that the
nature of the way these things were invested and the way the original investor, Larry
Wein and Company, treated their investors and we spoke a lot about how that changed
at some point and of course and I guess we are nostalgic for that to return. But, yes,
next year who knows. I love the idea personally.
713:
93:29 I’ll tell you my grandfather is spinning in his grave right now. He would have gone up
there and probably taken Tony out.
RE:
93:26 Well, there was a time when they did things like that in Texas didn’t they?
713:
93:37 He was from up North, he grew up in New York, but he moved down here in …
RE:
93:49 Look, many original investors had frank discussions with these Malkin Holding’s
executives and there was an exchange of views and apparently he didn’t make enough
of a difference, at least at this point. No, thank you for that suggestion and remind us
again and please don’t drop it.
08 Area Code:
94:19 Does anyone have a phone number for Melanie?
RE:
94:42 Do you have any numbers from the past when you have called Malkin Holdings?
908:
94:42 Somewhere in my file.
RE:
94:42 Those numbers, I believe still work, I may be wrong, I would say just use what you
have used in the past and that should be good enough.
864 Area Code:
95:05 It is 212-850-2742. I am sorry Melanie if this is going to cause you grief, but you can
always call them back. She will send you the paperwork if you have lost it and give you
guidance on what they can do by the end of the month.
RE:
96:03 Thank you. I am sure many people are grateful for that.
561 Area Code:
96:06 This is an easy question. Do we have to reply to this thing? Or
RE:
96:16 No. Great question.
561:
96:24 Could we just throw it out if we are not going to go forward?
561:
96:24 Could we just throw it out if we are not going to go forward?
RE:
96:21 Exactly. Either throw it out or you put it in your files for someone to read it in the
future who wants to figure out what was going on.
925 Area Code:
96:39 In this call I am really kind of pleased and am going to express kind of being
surprised that nobody has brought up the issue of not being paid yet, monies from the
class action suit.
RE:
97:03 That’s a good point, that is surprising. But I think it is because this issue is so
pressing with a date they are not really asking about the other things, so I am glad you
are.
925:
97:19 What issue is pressing of a date?
RE:
97:19 This Exchange Offer says it expires June 26th, so everyone is concerned about that
pending date and these other things have been going around forever.
925:
97:33 Well, the point being as I understand it, in that same offering about asking for the
exchange of preferred stock, they mention that the lawsuits that have been filed have
been holding up the settlement. So if what I heard today is that we are just going to
continue this “ad-nausium”, scenario of filing lawsuits. We are being prevented for
collecting monies that are due. So ….
RE:
98:20 Well, you’ve got a good point. That means that that would be their argument for
people saying that you shouldn’t be suing. But keep in mind that that was one investor
who got the ball rolling on the $600 lawsuit. So nobody, me, you, nor anybody else was
responsible for that so if it goes forward and if it goes forward, it’s because it went
forward on its merit. But your point is taken and people do contact me occasionally
asking what happened to that money so I am glad you are bringing it up.
925:
98:46 And other thread of this particular call, seems to, in my view, finally acknowledge
how much the Malkins have accomplished in upgrading, among other things, the
Empire State Building, the opportunity to get more money as a result of their efforts, and
the stock is up over 30%. And I heard the gentleman saying that his stock broker, is
projecting it is going to go up to $20. So…
RE:
99:28 Look, we have talked about it in the past and people aren’t going to really care that
we rehash the history. We own the Empire State Building, we knew the income was
going to double by the Duff and Phelps number by 2015. When we traded it into the
REIT, we go diluted on that upside. That is what happened. The facts don’t change. So,
it is still an upside, we are just not going to get 100% of it anymore, we are sharing with
others. So….
925:
100:02 Wait, wait, one minute. 100% of what equals how many dollars at the time you
presented this concern, and what is the current differential?
RE:
100:16 Alright, so let’s talk about this because we are at the end of this call. Everyone in this
REIT wants it to succeed. Regardless whether we thought it should be done or not. I will
tell you something, and I never talk about the REIT, because my interest in it is to be a
huge success, but I will tell you that one of the things that we were warned by Marty,
those of you probably don’t remember who he was, he was an ex-Wein employee, who
did an anaylsis, was that the income of the Empire State was going to go up and the
income of what the call “The Metropolitan” Building, the “non-Manhattan” one, was
going to go down. In the first quarterly report of the REIT, they give a chart on what the
rents are in the new leases. The rents in the new leases for the building that were called
“junk” or something similar by Marty, have gone down, they have gone down
significantly.
101:13 The good news for us is that represents a small portion of the REIT portfolio. The whole
story of this REIT is the Empire State Building. Every analyst’s report, every
conversation with investors, is the Empire State Building.
101:32 We were deluded and we are carrying the water for the investors who are riding on
our coat-tails and that is why we are against it. It was a sound discussion. We lost the
vote for whatever the reasons were, whether it was fair or not fair, so that doesn’t justify
the means that they won the vote and that is what all this Glomar response letter is all
about frankly.
101:54 The SEC interviewed investors who alleged some very serious things, I am not
confident or knowledgeable and certainly have no insight as to whether action will be
taken against the people who perpetrated this but the did it and do the means justify the
end? I hope not.
102:17 But I am glad you brought that up, I really am. Now one person brought up “where’s
my money from that settlement?” It’s interesting, isn’t it?
925:
102:30 Yes it is. So this must be whoever the very few people are involved with these
calls…
RE:
102:38 By the way, did you say “very few”? We average 500 people a call, just so you know.
We’ve shared that with the journalists, they know that. This call was a huge, huge,
audience. But for good reason. Everyone is concerned about this Exchange offer, so I
am glad you call and you share your view. Because it is amazing no one mentioned it
until you did.
925:
103:02 Alright. Thanks
RE:
103:05 OK, this is going to be our last question
615 Area Code:
103:09 Two questions, and I will leave the last one maybe for a “soft punch”.
103:31 So the July 7th court date is being sponsored by that unified attorney group that has
combined their efforts. Is that my understanding?
RE:
103:54 Yes.
625:
103:54 Second question. I spoke to a young lady earlier who brought her family to the
Empire State Building to visit it, and enjoyed it, and I haven’t been there in 40 years. I’ve
gone for a wedding in Long Island and when I was a kid my dad used to take us up
there “carte-blanche”, it was tickets, we had set up there. Is that still part of the program
or are we….
RE:
104:24 Yes, the way it works now is you used to get a free executive pass, what you do now
is you buy a ticket but you buy it through the Malkin Office. You buy a regular ticket, but
what it does is gives you permission to cut to the front of the line so is a premium ticket.
So that is my understanding…so…if you plan on going, call Malkin Holdings office and
tell them that and I don’t know anyone who has done it since the REIT went public, but I
know that there is some preferential treatment.
625:
104:52 But now we have to buy our own building?
RE:
105:01 Yeah, you have to buy them and they are just a shade under $30 each. So, since the
REIT process began, they have been jacking up the price and you know, with fairly
decent results. The attendance went down quarter over quarter the first quarter, but they
expect that was due to the weather, the weather was pretty awful in New York, so
maybe that was the reason why.
625:
105:32 OK. Thank you for your efforts.
RE:
105:32 There is one other person here, will give you a shot. And you are the last one.
818 Area Code:
RE:
105:54 Not there. Alright. Well, thank you everyone for participating. We had a huge
audience, I hope it was valuable. We will be in contact with you soon when it comes to
the court date when we learn how many people they can accommodate. We will
schedule another call certainly soon also.
106:09 I want to thank everyone for your support. Those of you who have supported us with
donations, thank you, it means a lot. We have significant costs we will be encountering
with the SEC Freedom of Information Act, but we are doing it either way. But again, we
are in this together so look forward to any comments or questions and we will speak to
you all soon.
106:35 Thank you.
106:40 “Conference Recording stopped”
Tuesday, June 10, 2014
Exchange Offer and Transcript of the June 5, 2014 Conference Call
Below is a conversation that occurred on our recent ESBA Conference Call. This call is being transcribed so it will be available in a printed version. The full transcription will appear on the Empire State Building Investors site (http://www.empirestatebuildinginvestors.com/) as it becomes available.
You may want to postpone your decision on the Exchange deal we are being offered until after you read or listen to the conference call: (1-267-507-0255, code 53580847).
It is thought that by creating a written document of this call, it will enhance understanding of the details of this deal, assist investors in talks with their professional advisers, or other interested persons, and may be a document you can share with your elected officials.
We intend to make printed versions available of this conference for those who are not comfortable with computers.
Here is a conversation from the conference to give you a feel for the information many knowledgeable people provided:
From Area Code: 973
I just wanted to point out that in addition to be limited to a 60 cent distribution there is also a question whether that distribution will be categorized as guaranteed payments which is very clearly stated in this document … and guaranteed payments generally will appear on your K1, in addition to your net income distribution, which is, of course, part of your tax return. The guaranteed payment will be another piece. So …
RE:
You are getting into some minutia there that is important and they do point that out there in the document that the current OP units you own get to claim depreciation, and these won’t because these are debt, not ownership.
973:
Right. So there would be another tax issue with regard to not only your piece of the income of ESBA, but also you would have guaranteed payments on top of that.
RE:
Right. So it shows the tax treatment is less favorable than the current one.
973:
I think so, yeah, because the guaranteed payments will be deductions to the partnership.
RE:
Ah, so you are saying that once again the people who don’t do this benefit at the expense of those that do.
973:
Yes, I believe so, because the deductions for the partnership is for the guaranteed payments. It is basically for the use of capital. It is not for performance which is normally the reason for guaranteed payments when a partner provides a service to the partnership and they get a guaranteed amount and that is for services rendered but in this case it is for the use of capital, this guaranteed payment that they have been talking about.
I would think that most people, I mean you know, it is crazy to think that 60 cents is all we will ever get out of it this deal if things go even the way, you know, we heard in the past, it has been projected that things are going to get even better.
RE:
Well, I think that is exactly why we didn’t want to sell it. We had the Duff and Phelps numbers showing our numbers doubling as of next year, then tripling in soon in years after, and the reason why those of us who where against it, among other things, is that we were wanted to keep that upside to ourselves, but we were deluded and now we will only have a portion of that.
973:
They also, mention, I think, that if they don’t get 1.2 million units tendered, then I guess they don’t have to go ahead with any of it.
RE:
Right. And look, someone said to me, and they weren’t serious, but they wanted to point out that it is not in my interest, my family’s interest, to tell people not to do this because we will benefit, as I have been saying, at the expense of those who do and you know of course, that is not the spirit of the way I think that we have been operating from the beginning, that we felt that whatever was done, should be best for everyone and this has not been operated that way this is sort of a zero sum game and we are holding this conference call now, because we know that this is important to people who don’t have access to someone like you who is giving insight to things they will never hear, which is another reason they should pause before they leap.
973:
One last question, I heard someone mention today that the liquidation value was twice the $16.62, I don’t quite understand that comment.
RE:
Well, in other words, in the event that let’s say the REIT was purchased at some point, they would have to retire it, the redemption is 200% of what the value was when they published the thing and sent it to us, so that is the potential upside if there was some sort of sale.
Obviously, I am sure there is no plan for a sale and that probably should be a big hint that there isn’t because why would they do this transaction if it would diminish our returns in a sale. So, that is significant. That is significant, and why they chose that number, I have no idea.
973:
OK, well that is very interesting too. That’s barely where the stock price is today for even for the ESBA units, very close to that figure, today, $16.25 it is quoted at today.
RE:
Right, right. Look, so our families made these investments 50+ years ago, and most people I have spoken to and heard on these calls, plan to pass this along to their children, their grandchildren, their favorite nephew, niece and we have been long-term believers in this investment and I think the point has to be made over and over again, that anyone who decides to go forward with this particular exchange, no longer is an owner. There are merely someone that loaned the company money at a fixed rate and if there is an upside, you won’t share in it.
973:
And also, the issue of why would anyone go into this with just a slight (I’ll call it slight) with a 75% increase in current dividend not knowing where this could go in the future. It doesn’t make any sense.
RE:
Well, actually they do know because they have the Duff and Phelps, because at least they have the Empire State Building which is really the driver of the stock and the earnings cause the other buildings in most cases are fully rented, so the growth in the next couple of years is going to come from repositioning the space and re-renting it at higher rates so we actually are in a position to know that it is going to go up and that 60 cents which obviously is higher than today, 2 or 3 or 4 years from now might look like it was a horrible deal.
973:
The only people who would ever be interested in doing this, is if they were so dependent on the income from the investment.
RE:
Right, and I would say that, but if someone really needed that, and they asked me what my opinion is, this is just one person’s opinion, I would say wait until October, convert your ESB to REIT stock, sell it, pay the taxes, and you could probably reinvest it into solid dividend paying stocks, that pay equal or more than what this 3.6% is and you would still have your liquidity and your principle. So there are alternatives even for people who say, you know, I could really use the money if they are willing to wait and just do what a sensible person would do or if they went to a stock broker and explain what they wanted to do they could be put into a safe utility, and not give up the future.
You may want to postpone your decision on the Exchange deal we are being offered until after you read or listen to the conference call: (1-267-507-0255, code 53580847).
It is thought that by creating a written document of this call, it will enhance understanding of the details of this deal, assist investors in talks with their professional advisers, or other interested persons, and may be a document you can share with your elected officials.
We intend to make printed versions available of this conference for those who are not comfortable with computers.
Here is a conversation from the conference to give you a feel for the information many knowledgeable people provided:
From Area Code: 973
I just wanted to point out that in addition to be limited to a 60 cent distribution there is also a question whether that distribution will be categorized as guaranteed payments which is very clearly stated in this document … and guaranteed payments generally will appear on your K1, in addition to your net income distribution, which is, of course, part of your tax return. The guaranteed payment will be another piece. So …
RE:
You are getting into some minutia there that is important and they do point that out there in the document that the current OP units you own get to claim depreciation, and these won’t because these are debt, not ownership.
973:
Right. So there would be another tax issue with regard to not only your piece of the income of ESBA, but also you would have guaranteed payments on top of that.
RE:
Right. So it shows the tax treatment is less favorable than the current one.
973:
I think so, yeah, because the guaranteed payments will be deductions to the partnership.
RE:
Ah, so you are saying that once again the people who don’t do this benefit at the expense of those that do.
973:
Yes, I believe so, because the deductions for the partnership is for the guaranteed payments. It is basically for the use of capital. It is not for performance which is normally the reason for guaranteed payments when a partner provides a service to the partnership and they get a guaranteed amount and that is for services rendered but in this case it is for the use of capital, this guaranteed payment that they have been talking about.
I would think that most people, I mean you know, it is crazy to think that 60 cents is all we will ever get out of it this deal if things go even the way, you know, we heard in the past, it has been projected that things are going to get even better.
RE:
Well, I think that is exactly why we didn’t want to sell it. We had the Duff and Phelps numbers showing our numbers doubling as of next year, then tripling in soon in years after, and the reason why those of us who where against it, among other things, is that we were wanted to keep that upside to ourselves, but we were deluded and now we will only have a portion of that.
973:
They also, mention, I think, that if they don’t get 1.2 million units tendered, then I guess they don’t have to go ahead with any of it.
RE:
Right. And look, someone said to me, and they weren’t serious, but they wanted to point out that it is not in my interest, my family’s interest, to tell people not to do this because we will benefit, as I have been saying, at the expense of those who do and you know of course, that is not the spirit of the way I think that we have been operating from the beginning, that we felt that whatever was done, should be best for everyone and this has not been operated that way this is sort of a zero sum game and we are holding this conference call now, because we know that this is important to people who don’t have access to someone like you who is giving insight to things they will never hear, which is another reason they should pause before they leap.
973:
One last question, I heard someone mention today that the liquidation value was twice the $16.62, I don’t quite understand that comment.
RE:
Well, in other words, in the event that let’s say the REIT was purchased at some point, they would have to retire it, the redemption is 200% of what the value was when they published the thing and sent it to us, so that is the potential upside if there was some sort of sale.
Obviously, I am sure there is no plan for a sale and that probably should be a big hint that there isn’t because why would they do this transaction if it would diminish our returns in a sale. So, that is significant. That is significant, and why they chose that number, I have no idea.
973:
OK, well that is very interesting too. That’s barely where the stock price is today for even for the ESBA units, very close to that figure, today, $16.25 it is quoted at today.
RE:
Right, right. Look, so our families made these investments 50+ years ago, and most people I have spoken to and heard on these calls, plan to pass this along to their children, their grandchildren, their favorite nephew, niece and we have been long-term believers in this investment and I think the point has to be made over and over again, that anyone who decides to go forward with this particular exchange, no longer is an owner. There are merely someone that loaned the company money at a fixed rate and if there is an upside, you won’t share in it.
973:
And also, the issue of why would anyone go into this with just a slight (I’ll call it slight) with a 75% increase in current dividend not knowing where this could go in the future. It doesn’t make any sense.
RE:
Well, actually they do know because they have the Duff and Phelps, because at least they have the Empire State Building which is really the driver of the stock and the earnings cause the other buildings in most cases are fully rented, so the growth in the next couple of years is going to come from repositioning the space and re-renting it at higher rates so we actually are in a position to know that it is going to go up and that 60 cents which obviously is higher than today, 2 or 3 or 4 years from now might look like it was a horrible deal.
973:
The only people who would ever be interested in doing this, is if they were so dependent on the income from the investment.
RE:
Right, and I would say that, but if someone really needed that, and they asked me what my opinion is, this is just one person’s opinion, I would say wait until October, convert your ESB to REIT stock, sell it, pay the taxes, and you could probably reinvest it into solid dividend paying stocks, that pay equal or more than what this 3.6% is and you would still have your liquidity and your principle. So there are alternatives even for people who say, you know, I could really use the money if they are willing to wait and just do what a sensible person would do or if they went to a stock broker and explain what they wanted to do they could be put into a safe utility, and not give up the future.