A Potential Dividend King Kong

Investors looking for dividends might want to gaze skyward,to the most recent IPO filing of the Empire State Realty Trust. Just as it sounds, this real estate investment trust, or REIT, will manage the Empire State Building,along with several other New York and Connecticut properties. Shares will begin trading a few months from now, but its recent filing gives you an early view on whether or not this stock goes to the top floor.

A view of REITs from 102 floors up
REITs are organized to avoid corporate tax, but must abide by certain rules,like paying at least 90% of net income as dividends to shareholders. REITs exist across several industries:

Source: Google Finance.

And each industry has its own specific threats. Levered mortgage REITs are greatly affected by interest rates, especially the spread between long-term and short-term rates. As Fool Ilan Moscovitz writes, while Annaly's interest-rate spread is falling (it's currently at 1.71%), it has already weathered a few years at spreads well under 1%. Weyerhauser faces a tough market for wood demand in housing, and reported a year-end profit of $65 million, a 62% drop from last year because of restructuring. Omega Healthcare's tenants may be hurt by an 11% decrease in Medicare reimbursement rates. While Enerplus spent$800 million to expand production, mostly for natural gas, those nat-gas prices have yet to rebound from decade lows. And Getty Realty is fighting to receive rent and property taxes from its largest tenant,who went bankrupt in December.

One might say that every REIT has a wrong.

Stepping into the lobby
When analyzing a REIT, funds from operations, or FFO, usually sits at the top of metrics. Because of the large amount of depreciation related to real estate, FFO takes earnings and adds back depreciation to find the cash available to shareholders. There also exists the measure of adjusted funds from operations, or AFFO, which subtracts capital expenditures representing the cash required to maintain properties. An increase in either FFO or AFFO could improve both share price and dividend growth.

An Empire State of REITs
The Empire State Realty Trust's FFO were $112 million in 2011. To grow this, Empire can increase occupancy or rents in its buildings. As of now, companies leased only 67% of the Empire State Building's office space. And while the average rent for Manhattan is about $57 per square foot, the base rent for the Empire State Building was a little under $35 per square foot. There is definitely room for improvement, as shown in Empire's case study:After renovating floors, it was able to increase occupancy and raised the base rent to $41.60 per square foot.

Also, Empire's namesake building represents only 34% of their total rentable square feet. So even if the Empire State Building remains more than a quarter empty, other buildings provide opportunities for the trust to bring in more cash.

While dividend yield, share price, and number of shares have yet to be determined, should you worry about the usual IPO wackiness with this REIT?

Research actually says that REIT IPOs usually do not suffer the same long-run negative performance or traditional pops in first day, as they are fairly valued from the outset of trading. In fact, one study shows that REIT IPOs improve their return on assets after going public.

If you're looking to invest in New York commercial real estate without purchasing a building of your own, you might want to keep tabs on this trust, expected to trade under the symbol ESB on the New York Stock Exchange. If you're looking for other cash-generating stocks that pad your portfolio with dividends, check out our free report and our choices of 11 rock-solid dividend stocks.