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.
No comments:
Post a Comment