Empire State Realty Trust, Inc. (ESRT) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlighted strong financial performance, with a 9% revenue increase in the multifamily portfolio and successful capital recycling activities. The share repurchase program and debt management were well-received, and there were positive indications for leasing activity and the observatory business. Despite some vague responses in the Q&A, the company's strategic initiatives and optimistic guidance, coupled with a market cap of approximately $1.5 billion, suggest a positive stock price movement in the short term.
Key Financial Performance
Core FFO (Funds From Operations) Full year core FFO was $0.87, reflecting continued performance across the platform. This was consistent with the prior year, with no significant year-over-year change mentioned.
Leasing Activity Leased nearly 460,000 square feet in the quarter and 1 million square feet for the year. Occupancy grew to 90.3%, up 170 basis points year-over-year, driven by strong demand for top-quality, modernized, and amenitized buildings.
Same-Store Property Cash NOI Increased 3.4% year-over-year for the fourth quarter and 0.6% for the full year. Adjusted for nonrecurring items in 2024, the growth was 2.5% for the quarter and 2.1% for the year. Growth was driven by higher tenant reimbursement income, offset partially by higher real estate taxes and cleaning-related labor costs.
Observatory NOI Generated $24 million in the fourth quarter and $90 million for the full year. Revenue per capita increased 6.9% year-over-year in the fourth quarter and 4.4% for the full year, despite a decline in international tourist visitation. Growth was supported by disciplined cost management and price execution.
Multifamily Portfolio Revenue Revenue increased 9% year-over-year in the fourth quarter and 10% for the full year, reflecting strong market fundamentals and operational excellence.
Capital Recycling Activity Executed $417 million of all-cash acquisitions in 2025, including high-quality office and retail assets. Disposed of suburban commercial assets, resulting in an estimated $90 million of cumulative incremental property-level cash flow between 2025 and 2030. This reflects superior growth and lower capital requirements of acquired assets.
Share Repurchases Repurchased $6 million of shares in the fourth quarter at an average price of $6.73 and $8 million for the full year at an average price of $6.78. Since 2020, approximately $302 million of shares have been repurchased.
Debt Management Completed $420 million in financing in the fourth quarter, including a $175 million unsecured notes issuance and a $245 million term loan recast. Maintained a net debt to adjusted EBITDA ratio of 6.3x and addressed all debt maturities in 2026.
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Operating Highlights
Empire State Building observation deck: Remains a market leader and a meaningful contributor to cash flow. Revenue per capita increased year-over-year despite a decline in visitation from international tourists. Domestic demand continues to grow.
130 Mercer acquisition: Acquired for $386 million, a high-quality office and retail asset in SoHo. Provides a mid-5% initial cash yield at 70% occupancy with potential growth to an 8% stabilized yield through lease-up of vacant office space.
86-90 North Sixth Street acquisition: Acquired as a prime redevelopment property. Announced a long-term lease with a high-quality retail tenant, strengthening the company's position in Williamsburg, Brooklyn.
New York City portfolio transformation: Transitioned to a 100% New York City portfolio with $1 billion in acquisitions of high-quality real estate, including Manhattan multifamily properties and prime retail locations. Disposed of suburban commercial assets without tax leakage.
Leasing activity: Leased over 1 million square feet in 2025, growing occupancy to 90.3%. Office portfolio is 93.5% leased, with positive rent spreads for 18 consecutive quarters.
Sustainability achievements: Achieved the highest possible GRESB rating for the sixth consecutive year and LEED version 5 platinum certification for the Empire State Building. Focused on reducing energy and regulatory costs for tenants.
Cost management: Disciplined cost management led to resilient bottom-line performance despite challenges. Reduced FAD CapEx by $21 million year-over-year.
Capital recycling: Recycled capital from suburban commercial assets into high-quality New York City properties, resulting in $90 million of cumulative incremental property-level cash flow between 2025 and 2030.
Balance sheet management: Proactively managed balance sheet with $420 million in financing completed in Q4 2025. Maintains flexibility with no unaddressed debt maturities until March 2027.
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Risk or Challenges
Tenant Rollover Impact: Known tenant rollover will impact FFO growth in 2026, with temporary downtime affecting financial performance.
Decline in International Tourism: The observation deck business faced a decline in visitation from cross-ocean international tourists, impacting revenue.
FDIC Lease Expiration: The FDIC vacated 119,000 square feet at the Empire State Building, causing temporary downtime and reducing 2026 core FFO by approximately $0.03.
Operating Expense Growth: Operating expenses, including real estate taxes and cleaning-related labor costs, increased in 2025 and are expected to grow by 2% to 4% in 2026.
Gift Shop Revenue Decline: The Observatory's gift shop revenue is expected to decline by $2 million in 2026 due to a COVID-era license amendment.
Economic Uncertainty in Leasing Market: Temporary dips in lease percentage may occur in 2026, despite strong tenant demand and occupancy guidance of 90%-92%.
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Guidance & Outlook
2026 FFO and same-store cash NOI: Expected to be consistent with 2025 results, primarily due to a lag between disclosed FDIC expiration and the lease commencement of the related backfill.
Core FFO guidance for 2026: Expected to range from $0.85 to $0.89 per diluted share.
Same-store property cash NOI growth for 2026: Expected to range from negative 1.5% to positive 2%. Excluding downtime from FDIC vacancy, adjusted growth guidance midpoint would be approximately 3%.
Commercial occupancy for 2026: Anticipated to be 90% to 92% by year-end 2026, compared to 90.3% at year-end 2025.
Property operating expenses and real estate taxes for 2026: Expected to increase by approximately 2% to 4% in aggregate, partially offset by higher tenant reimbursement income.
Observatory NOI for 2026: Expected to range from $87 million to $92 million, with expenses of approximately $10 million per quarter. Includes a $2 million net decline in license fee revenue from the gift shop operator.
G&A expenses for 2026: Expected to aggregate approximately $69 million to $71 million, compared to approximately $73 million in 2025. Run rate G&A expected to reduce by approximately 5% to 10% by year-end 2026.
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Shareholder Return Plan
Share Repurchase Program: Opportunistic share repurchases remain a strategic part of our capital allocation framework. During the fourth quarter, we repurchased $6 million of shares at an average price of $6.73. For the full year, we repurchased $8 million of shares at an average price of $6.78. Since the inception of our repurchase program in 2020, we repurchased approximately $302 million of shares in aggregate.
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Key Q&A
Q:Can you provide more color on the outlook for the first quarter in terms of pipeline or leasing activity and specific submarkets?
A:The market remains strong with a bifurcated market of 'haves and have-nots.' There are over 170,000 square feet of leases in the pipeline anticipated to close in the first and second quarters.
Q:What was the sales price for the Stanford asset disposed of in the fourth quarter?
A:The sales price was in the mid-$60 million range, with adjustments bringing it close to the debt balance. The NOI perspective was around a 7% cap rate.
Q:Why not walk away from the mortgage debt for the Metro Center sale since the sale price was below the outstanding principal amount?
A:The execution was close to the outstanding principal amount, aligning with capital recycling strategy and allowing redeployment of proceeds into portfolio-enhancing assets.
Q:How will the proposed 9.5% property tax increase in New York City affect your ability to pass increased taxes to tenants and push rents?
A:Existing leases will pass through any tax increases to tenants via tax escalation. For new leases, higher real estate taxes will set a higher base year for taxes. The market will determine rent increases.
Q:Have you seen any impact on leasing decisions due to the latest AI developments?
A:AI has been a positive for the leasing market, driving incremental tenant demand. There is strong demand for high-quality office space in New York City, and the company is more constrained by space availability than demand.
Q:Has the new mayor in New York impacted leasing discussions or business sentiment?
A:The new mayor has not impacted leasing discussions. Demand remains high despite a volatile global environment.
Q:What is the competition and economic outlook for the Observatory in the 2026 guide?
A:Tourism trends have shifted, with more domestic visitors and higher revenue per person. Competition from other attractions like Summit and One World Trade Center has weakened. The guidance range of $87 million to $92 million accounts for various outcomes.
Q:Can you elaborate on the occupancy forecast for 2026 and the impact of expected move-outs?
A:The year-end occupancy guidance is 90%-92%, influenced by timing of vacancies, including a 70,000-square-foot tenant move-out at the Empire State Building in Q4. The company is confident in achieving positive mark-to-market on vacated spaces.
Q:How are you addressing the net debt to adjusted EBITDA exceeding 6x, and does it limit investment or share buyback activities?
A:The company evaluates market conditions and maintains access to capital. While net debt to EBITDA may occasionally exceed 6x, the balance sheet remains strong, allowing for strategic investments and prudent leverage management.
Q:What is the expected impact of the World Cup on the Observatory's performance?
A:Marketing strategies are in place to capture demand, with potential benefits from co-branding opportunities. The company does not rely solely on the World Cup and expects high-spending customers to align with the event's timing.
Q:How is the company addressing the disconnect between stock trading value and private market portfolio value?
A:The company focuses on executing its business plan, including capital recycling and adding value to its portfolio. The asset on the market has generated interest, and the company is open to selling it or pursuing other opportunities.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the potential impact of the new mayor's policies on business sentiment, using vague language about volatility and global events. Additionally, the response to the World Cup's impact on the Observatory's performance lacked specific numerical expectations, relying on general optimism and co-branding opportunities.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CFO
Chief Corporate
Chief Officer
City portfolio
Co Head
Head Chief
Mercer
Metro Center
Officer Real
Officer afternoon
Real Estate
Scholastic
SoHo
West
acquisition North
acquisition quality
activity year
aggregate
asset cash
asset tax
block foot
capital requirement
corner
deck balance
expansion foot
flow capital
flow share
liquidity leverage
mandate floor
observation deck
platform
portfolio cash
recycling
repurchase
shareholder value
strength
submarket
yield
ESRT Transcript
Empire State Realty Trust, Inc. (ESRT) Q4 2025 Earnings Call Transcript
Positive2-18
The earnings call highlighted strong financial performance, with a 9% revenue increase in the multifamily portfolio and successful capital recycling activities. The share repurchase program and debt management were well-received, and there were positive indications for leasing activity and the observatory business. Despite some vague responses in the Q&A, the company's strategic initiatives and optimistic guidance, coupled with a market cap of approximately $1.5 billion, suggest a positive stock price movement in the short term.
Empire State Realty Trust, Inc. (ESRT) Q3 2025 Earnings Call Transcript
Positive10-30
The earnings call summary indicates strong financial metrics, including increased NOI and FAD, high occupancy rates, and robust rent growth. The Q&A section reveals optimism from management regarding capital allocation, tenant demand, and market positioning. Despite some unclear responses, the overall sentiment is positive, with no significant negative trends or risks highlighted. The market cap suggests a moderate reaction, leading to a positive stock price prediction.
Empire State Realty Trust, Inc. (ESRT) Q2 2025 Earnings Call Transcript
Positive7-24
The earnings call highlighted strong leasing activity and occupancy rates, a low net debt-to-EBITDA ratio, and an optimistic outlook on strategic investments and market demand. Despite some weather-related slowdowns, the company maintained its guidance and showed resilience in leasing and investment strategies. The Q&A session confirmed strong tenant demand and strategic asset management, with no significant concerns raised by analysts. Given the market cap and overall positive sentiment, a positive stock price movement is expected over the next two weeks.
Earnings call transcript: Empire State Realty Q1 2025 beats forecasts, stock rises
Unknown4-30
The earnings call presents a mixed picture. Financial performance shows modest growth with some declines, such as in Observatory NOI. The Q&A highlights potential risks, including macroeconomic factors and regulatory changes. However, strong leasing activity and a successful share buyback program are positive indicators. The market cap suggests moderate volatility, leading to a neutral prediction as positive and negative factors balance each other.
ESRT Slides
ESRT Report
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