ESRT's Q3 2025 Earnings Call: Contradictions on Tenant Behavior, Share Buybacks, and Office Leasing Momentum

Guidance:

• Reaffirmed full-year 2025 guidance.
• Year-end Manhattan commercial occupancy expected 89%–91%.
• Expect strong Q4 year-over-year cash NOI growth driven largely by a real-estate tax abatement recognized at year-end.
• CapEx expected to trend lower in H2 2025; FAD reduced sequentially (FAD FX spend down from $52M to $25M).
• Issuance of $175M senior unsecured notes (5.47%, maturing 2031) to fund general corporate purposes; no unaddressed maturities until end of 2026.
• Observatory performance consistent with revised guidance.

Business Commentary:

• Office Leasing 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 approximately 150,000 square feet in negotiation.
• Manhattan office occupancy increased by 80 basis points sequentially to 90.3%, on track to achieve year-end guidance of 89% to 91%.

• The leasing success is attributed to the strength of their portfolio, with high-quality, amenitized properties in prime locations.

• Observatory Performance and Visitation:

• The Empire State Building Observatory generated $26.5 million in NOI for Q3, with revenue per capita increasing by 2.7% year-over-year.
• Despite reduced international visitation, over 50% of visitors were domestic, supporting sustained domestic demand.

• The resiliency in visitation is due to the Observatory's iconic status and consistent domestic demand.

• Capital Allocation and Financing:

• The company issued $175 million in senior unsecured notes at a rate of 5.47%, set to mature in 2031, enhancing liquidity.
• They actively underwrite new investment opportunities in New York City office, retail, and multifamily sectors, with a flexible balance sheet and no unaddressed maturities until 2026.
• The focus on maintaining liquidity and flexibility in capital allocation enables ESRT to pursue attractive opportunities.

Sentiment Analysis:

Overall Tone: Positive

• Management noted they "delivered FFO above consensus and reaffirmed our 2025 guidance," reported the 17th consecutive quarter of positive mark-to-market spreads, Manhattan office occupancy rose to 90.3% (up 80 bps sequentially), and highlighted continued leasing momentum with ~150,000 sq ft in negotiation and post-quarter signed leases.

Q&A:

• Question from Manus Ibekwe (Evercore ISI): I was just wondering if you could expand a little bit more on the capital uses side after you now placed a private placement in December. And just in terms of if there's any specific acquisition or potential transactions that you're looking at, maybe also comment on the general transaction market a little bit more, if there are kind of like pockets within New York that are more attractive than others? If you could talk about cap rates to the extent you can, that would be great. Or just kind of giving a little bit more color just on that bucket in general, that would be very helpful.
  Response: Actively underwriting office, retail and multifamily opportunities across NYC with ample liquidity to move quickly; market cap-rate evidence varies (mid- to high-single digits for some bespoke deals) and transactions are evaluated case-by-case.

• Question from Seth Bergey (Citigroup Inc., Research Division): As you think about kind of New York and the mayoral election, it seems like some of the policies are largely kind of aspirational or require state legislative support to pass. But are you concerned about any tenants that may be more directly exposed to changes in rent or anything like that?
  Response: Operate on policy not politics; remain positive on NYC fundamentals and not currently concerned about tenant exposure.

• Question from Seth Bergey (Citigroup Inc., Research Division): As you think about capital allocation, how attractive is buying back stock where your shares are currently trading?
  Response: Share price is attractive and buybacks remain part of the capital-allocation toolkit, balanced against acquisition opportunities given available liquidity.

• Question from Blaine Heck (Wells Fargo Securities, LLC): We've seen a recent uptick in layoff headlines. Can you comment on whether you've seen any change in trends with respect to expansion versus contraction of space at expiration? And how are you thinking about potential rising layoffs as it relates to demand for office space into '26 and '27?
  Response: We continue to see expansions and active pipeline activity; no signs of broad contraction in our portfolio and tenant demand for top-quality NYC space remains strong.

• Question from Blaine Heck (Wells Fargo Securities, LLC): With respect to dispositions, is there any update to share on Metro Center? Any assets where you might have maximized value and could be funding sources for acquisitions?
  Response: No new update on Metro Center; still seeking a sale but flexible to retain given attractive in-place debt; open to capital recycling where it is accretive.

• Question from Dylan Burzinski (Green Street Advisors, LLC): Can you talk about trends you're seeing—are larger tenants more active, and which industries are outpacing others? Any green shoots in tech leasing?
  Response: Demand is diversified across TAMI, consumer, financial and professional services; many tenants are upgrading and expanding into higher-quality space.

• Question from Dylan Burzinski (Green Street Advisors, LLC): On net effective rents, is there potential for significant rent spikes in 2026–27 given limited competitive availability and robust demand?
  Response: We have already seen material rent increases (examples include mid-90s rents in recent negotiations) and expect continued upward pressure due to constrained supply and limited competition.

• Question from Regan Sweeney (BMO Capital Markets): The 150,000 sq ft pipeline—is that all office or is there retail component? Can you break down property types?
  Response: Pipeline is a mix of office and retail but the vast majority is office; roughly 20% of Manhattan vacancy is being held off-market to assemble large contiguous blocks.

• Question from Regan Sweeney (BMO Capital Markets): On rent spreads—the office has done well but retail showed some weakness. Is Williamsburg picking up? Also, multifamily rent growth: I noticed the presentation change—any update for October or going forward?
  Response: Williamsburg leasing momentum is strong (recent leases including Rolex/Tourneau, Tocovus, HOKA) with one vacancy remaining; multifamily fundamentals remain strong with 9.3% net effective rent growth and occupancy gains contributing to revenue upside.

Contradiction Point 1

Tenant Behavior and Leasing Strategy

It involves changes in the company's assessment of tenant behavior and leasing strategy, which are crucial for understanding the market demand and ESRT's response to it.

Have you noticed increased activity from large tenants and trends in tech leasing? - Dylan Burzinski(Research Division)

2025Q3: We appeal to a broad range of industries, including TAMI, consumer products, and professional services. Tenants are looking to upgrade spaces and expand offerings. - Ryan Kass(CMO)

Are tenants concerned about space and lease renewals? - Stephen Sakwa(Research Division)

2025Q2: Tenant behavior shows no change, driven by quality buildings and strong demand for top-tier products. - Thomas Durels(CFO)

Contradiction Point 2

Share Repurchase Strategy

It involves changes in the company's approach to share repurchases, which can have significant implications for shareholder value and capital allocation.

Are stock buybacks attractive at current trading levels? - Seth Bergey(Research Division)

2025Q3: We've done $300 million in share buybacks and continue to evaluate opportunities. Our flexible balance sheet allows for both share repurchases and new investments. - Christina Chiu(CFO)

How are you approaching new investments given the stock's high implied cap rate? - Seth Bergey(Research Division)

2025Q2: We expect that we will have the flexibility to continue returning capital to shareholders through share buybacks while maintaining a healthy balance sheet for growth initiatives. - Christina Chiu(CFO)

Contradiction Point 3

Office Leasing Trends and Demand

It involves differing perspectives on the trends in office leasing and demand, which are crucial factors for understanding the company's growth strategy and market outlook.

Have you noticed increased activity from large tenants and trends in tech leasing? - Dylan Burzinski(Green Street Advisors)

2025Q3: We appeal to a broad range of industries, including TAMI, consumer products, and professional services. Tenants are looking to upgrade spaces and expand offerings. - Ryan Kass(CRO)

Can you provide more details on the leasing side, specifically how tenant conversations are progressing regarding tariffs and whether there are any concerns? - Steve Sakwa(Evercore ISI)

2025Q1: We've noticed no change in lease negotiations with any tenant across all industries in the past 60 days. Negotiations are progressing normally, with a strong pipeline and tour volume, indicating consistent demand. - Thomas Durels(EVP, Real Estate)

Contradiction Point 4

Policy Changes Impacting New York Demand

It highlights differing stances on how policy changes may affect demand for office space in New York, which is a significant factor for the company's business strategy.

How concerned are you about tenant exposure to rent changes due to potential policy shifts in New York, particularly the mayoral election? - Seth Bergey(Citigroup Inc, Research Division)

2025Q3: We operate based on policy, not politics, and work with whatever administration arrives. The positive factors about New York City include its appeal to job seekers and its magnet status for companies, indicating strong future prospects. - Anthony Malkin(CEO)

How might policy changes affect demand in New York? - Seth Bergey(Citi)

2025Q1: New York City is the number one destination for various factors, including post-graduate college and TAMI desks. We hope politicians recognize the impact of their decisions on the city. - Anthony Malkin(CEO)

Contradiction Point 5

Office Leasing Dynamics and Market Demand

It involves differing perspectives on the leasing momentum and office market demand, which are crucial for understanding the company's revenue and growth prospects in the office segment.

What are your capital allocation priorities post-December private placement? Which specific acquisitions or transactions are under consideration? What are current market conditions regarding cap rates and attractive sectors? - Manus Ibekwe (Evercore ISI)

2025Q3: We are actively underwriting deals across New York City, including office, retail, and multifamily. Our strong liquidity allows for quick action when the right deal presents itself. Cap rates vary from mid- to high single digits, but they are transaction-specific. Currently, we are well-positioned to transact and are actively looking for opportunities. - Christina Chiu(CEO)

Can you detail the leasing dynamics and activity pull-forward? Also, what portfolio lease percentage do you expect to settle at? - Steve Sakwa (Evercore ISI)

2024Q4: We're seeing strong leasing momentum due to our quality product and quality buildings. Low tenant move-outs and increased demand for modernized, well-located properties suggest a tight market. Our Manhattan office portfolio is over 94% leased, and we expect to reach 95% to 96% leased by year-end. - Thomas Durels(COO)