Empire State Realty Trust Q3 2025 Earnings Call: Contradictions Emerge on Tenant Reactions, Office/Retail Pipeline, and Buyback Strategy

Date of Call: None provided

Financials Results

• EPS: Core FFO $0.23 per diluted share (third quarter 2025, as reported)

Guidance:

• Reaffirmed 2025 guidance.
• Year‑end Manhattan commercial occupancy expected to be 89% to 91%.
• Expect strong Q4 same‑store cash NOI growth, aided by a real estate tax abatement to be recognized by year‑end.
• Capital expenditures expected to trend lower in H2 2025.
• Issued $175M senior unsecured notes (5.47%) funding mid‑December for general corporate purposes.

Business Commentary:

* Strong Leasing Activity and Occupancy: - Empire State Realty Trust signed 88,000 square feet of new and renewal leases in Q3, with an additional 50,000 square feet signed post-quarter-end, and 150,000 square feet in negotiation. - The Manhattan office portfolio's occupancy increased to 90.3%, with negotiations involving various industries like finance, professional services, TAMI, and consumer products. - The leasing success is attributed to the quality of the portfolio, which appeals to a broad range of tenants seeking better spaces and expansions.

• Observatory Performance and Strategic Growth:
• The Empire State Building Observatory generated $26.5 million in NOI for Q3, with revenue per capita increasing by 2.7% year over year.
• The company is focused on enhancing the guest experience, broadening marketing reach, and improving operational efficiency to drive long-term growth.

• The resilience of the Observatory is supported by its iconic brand position and domestic demand, amid reduced international visitation.

• Capital Allocation and Debt Management:

• Empire State Realty Trust maintains a strong and flexible balance sheet, with a net debt to EBITDA ratio of 5.6x, and no unaddressed maturities until 2026.
• The company recently issued $175 million in senior unsecured notes, which will be used for general corporate purposes and potential new investments.

• The strategy is to maintain ample liquidity for opportunistic acquisitions and share buybacks, balancing strategic growth with capital preservation.

• Office Market Dynamics and Rental Growth:

• The office leasing market remains strong, with low availability at top-tier buildings and rising rents.
• Empire State Realty Trust is successfully pushing rents, reducing concessions, and extending lease terms due to its best-in-class portfolio and strategic positioning.
• The limited supply at competitive price points and the taking off of older buildings for residential conversion contribute to the favorable market dynamics for the company.

Sentiment Analysis:

Overall Tone: Positive

• Management said they "delivered FFO above consensus and reaffirmed our 2025 guidance," noted the "17th consecutive quarter of positive marks to market," reported Manhattan occupancy rose 80 bps sequentially to 90.3%, and core FFO of $0.23 per diluted share; described a "strong balance sheet" and active leasing/transaction pipeline.

Q&A:

• Question from Regan Sweeney (Evercore ISI): Could you expand on capital uses after the private placement — any specific acquisitions or transactions you’re targeting, commentary on the transaction market and attractive NYC pockets, and thoughts on cap rates?
  Response: Actively underwriting NYC office/retail/multifamily opportunities, positioned with liquidity to move quickly; deal activity improving, cap rates vary by transaction (some mid‑to‑high single digits) and are highly deal‑specific.

• Question from Seth Bergey (Citi): Any concern about tenant exposure from potential policy changes tied to the mayoral election, and how attractive is buying back stock at current prices?
  Response: We operate on policy not politics, remain positive on NYC demand and do not see immediate tenant contraction risk; share repurchases are attractive but will be balanced with opportunistic acquisitions given a flexible balance sheet.

• Question from Blaine Heck (Wells Fargo): With recent layoff headlines, have you seen changes in expansion vs. contraction at expirations and how are you thinking about layoffs' impact on 2026–27 demand? Also, any update on Metro Center or other assets for potential disposition to fund acquisitions?
  Response: We continue to see expansions (3.1M sq ft of tenant expansions since IPO) and no material contraction trend; no new update on Metro Center but flexible to sell or retain; open to capital recycling to redeploy into higher‑return NYC office, retail, and multifamily.

• Question from Dylan Burzinski (Green Street): Are you seeing activity from larger tenants or specific industries; any green shoots in tech leasing; and potential for significant rent increases in 2026–27?
  Response: Demand is diversified (TAMI, consumer, FIRE, professional services) with tenants upgrading/expanding; limited supply and buildings being taken out of market support continued rent growth — recent negotiated rents include mid‑$90s and up into the $199s on select assets.

• Question from Regan Sweeney (BMO Capital Markets): Is the 150,000 sq ft pipeline all office or mixed with retail; breakdown by property type; comments on retail rent trends, Williamsburg pickup, and multifamily rent growth (presentation bullet change)?
  Response: Pipeline is a mix of office and retail but the vast majority is office; ~20% of Manhattan vacancy is held off‑market for large‑block assemblies; Williamsburg leasing is strong (Rolex/Tecovas/Hoka) with one vacancy remaining; multifamily fundamentals remain robust — ~99% occupancy and ~9% Y/Y net effective rent growth.

Contradiction Point 1

Tenant Reaction to Political Uncertainty

It involves the perception and impact of potential political changes on tenant behavior, which could directly influence business operations and revenue projections.

With the New York mayoral election approaching, are you concerned about tenants directly affected by potential rent changes? - Seth Bergey(Citi)

2025Q3: We're fortunate to be in New York City, which is one of the best markets globally. We focus on policy, not politics, working with whoever is in office. We remain positive on New York City's future as a magnet for job seekers and employers. Any developments are speculative, and we consider policy implications while staying agile. - Anthony Malkin(CEO)

What are your thoughts on potential headwinds from the Mayoral race results and any hesitation from prospective tenants in signing leases due to concerns about City Hall changes? - Blaine Matthew Heck (Wells Fargo Securities, LLC, Research Division)

2025Q2: We continue to see very strong demand for quality spaces and services. During the past several months, we've had no change in tenant behavior. - Thomas P. Durels(CFO)

Contradiction Point 2

Office and Retail Pipeline Composition

It involves the composition of the pipeline for office and retail spaces, which is crucial for strategic planning and revenue forecasting.

Is the 150,000-square-foot pipeline all office or retail? - Regan Sweeney (BMO Capital Markets)

2025Q3: The pipeline is a healthy mix of both office and retail. - Ryan Kass(CRO)

Have you noticed any changes in tech tenant demand in the market? - Dylan Robert Burzinski (Green Street Advisors, LLC, Research Division)

2025Q2: Our portfolio is diversified, appealing to various sectors like TAMI, Consumer Products, FIRE, and Professional Services. Tenants upgrading and expanding are driving conversations, aligning with our focus on quality spaces. - Ryan Kass(CRO)

Contradiction Point 3

Capital Allocation and Share Buybacks

It reflects changes in the company's capital allocation strategy, particularly regarding share buybacks, which impacts shareholder value and investor perceptions.

Is it attractive to buy back stock at current share prices? - Seth Bergey(Citi)

2025Q3: Our share price is attractive, and we've done $300 million in share buybacks. Buying back stock is part of our capital allocation strategy, alongside opportunistic acquisitions. - Anthony Malkin(CEO)

How do you prioritize capital allocation between acquisitions and buybacks given the current 11% implied cap rate? - Regan Sweeney(BMO Capital Markets)

2025Q1: We opportunistically buy back shares but remain measured due to market uncertainty. Our priority is maintaining operating runway and flexibility for potential investment opportunities. - Christina Chiu(CFO)

Contradiction Point 4

Office Leasing Dynamics and Market Demand

It highlights potential shifts in the company's perception of office leasing activity and market demand, which are crucial for understanding the company's growth strategy and market positioning.

Have you observed any changes in trends between expansion and contraction of space at expiration, and how might rising layoffs affect office space demand through 2026-2027? - Blaine Heck(Wells Fargo)

2025Q3: We've had over 3.1 million sq ft of expansions since IPO. Our portfolio attracts quality tenants, and we see ongoing expansions. - Anthony Malkin(CEO)

On leasing, can you explain the tenant dynamics, particularly activity acceleration, and what percentage leased do you expect for the portfolio? - Steve Sakwa(Evercore ISI)

2024Q4: We believe that we will have a positive year in leasing. We are anticipating a solid year in 2025. - Thomas P. Durels(CFO)

Contradiction Point 5

Stock Buybacks as an Investment Strategy

It demonstrates a potential shift in the company's capital allocation strategy, which could impact shareholder value and financial performance.

How attractive is buying back shares at current prices? - Seth Bergey(Citi)

2025Q3: Our share price is attractive, and we've done $300 million in share buybacks. Buying back stock is part of our capital allocation strategy, alongside opportunistic acquisitions. - Anthony Malkin(CEO)

Where do stock buybacks rank in your investment priorities given the difficulty in finding high-yielding deals? - Blaine Heck(Wells Fargo)

2024Q4: While buybacks are considered, we'll focus on a new approach offering preferred equity investments on transactions in 2025. We're not planning significant shifts in buybacks. - Anthony Malkin(CEO)