Executive Summary / Key Takeaways

• Empire State Realty Trust is a New York City-focused REIT strategically diversified across office, retail, multifamily, and its iconic Observatory, leveraging a modernized portfolio and a strong balance sheet to drive value.
• The company demonstrates consistent operational strength in its core Manhattan office portfolio, marked by 15 consecutive quarters of positive mark-to-market rent spreads and ongoing occupancy gains, fueled by demand for its "top of tier", amenity-rich, and sustainable assets.
• Strategic capital recycling initiatives, including the disposition of suburban assets and targeted acquisitions of high-quality NYC multifamily and prime Williamsburg retail, are enhancing the portfolio's growth profile and reducing future capital expenditure requirements.
• ESRT stands out competitively through its leadership in sustainability and indoor environmental quality, offering quantifiable benefits like significant energy efficiency and emissions reductions that attract tenants and contribute to operational cost advantages.
• While 2025 Core FFO guidance anticipates a modest year-over-year decline due to specific financial and accounting impacts from recent capital structure changes, the outlook is underpinned by expected positive same-store cash NOI growth, continued leasing momentum, and the ramp-up potential from recent acquisitions.

A Foundation in the World's Most Dynamic Market

Empire State Realty Trust, Inc. (ESRT) is not merely a collection of buildings; it is a strategic play on the enduring dynamism of New York City. Formed in 2013 through an IPO and related transactions, ESRT established itself as a REIT focused on owning and operating a portfolio deeply embedded in the fabric of the city. Over the past decade, the company has embarked on a significant modernization and amenitization program, transforming its assets into what it terms "top of tier" properties designed to meet the evolving demands of tenants and visitors. This historical commitment to upgrading its physical plant forms the bedrock of its current strategy and competitive positioning.

More recently, ESRT has sharpened its focus through a deliberate capital recycling strategy. This has involved shedding non-core suburban assets, such as the consensual foreclosure of First Stamford Place in early 2025 and the disposition of five other suburban properties since 2022. The capital generated has been strategically reinvested in high-quality New York City assets, notably increasing its stake to 100% in two Manhattan multifamily properties and making significant acquisitions of prime retail assets on North 6th Street in Williamsburg, Brooklyn, for an aggregate of $195 million, with another $30 million acquisition pending. This strategic evolution has diversified ESRT's income streams across office, retail, multifamily, and its unique Observatory business, positioning it as a pure-play NYC REIT with a portfolio built for resilience and growth.

In the competitive landscape of New York City real estate, ESRT operates alongside major players like Vornado Realty Trust (VNO), SL Green Realty Corp. (SLG), and Boston Properties (BXP). While these competitors often boast larger overall portfolios or greater geographic diversification (in BXP's case), ESRT carves out its niche by focusing on a specific segment of the market: modernized, well-located assets offered at an accessible price point ($60-$80 per square foot being a key target range). Its balance sheet strength, characterized by low leverage (net debt/EBITDA of 5.2x as of Q1 2025, significantly lower than VNO's estimated 17x and SLG's estimated 10x) and a well-laddered debt maturity schedule (no unaddressed maturity until December 2026), is a distinct competitive advantage. Management emphasizes that this financial stability is paramount to brokers and tenants, ensuring the company can execute on leases and deliver on its promises, a critical differentiator in an uncertain market.

Operational Excellence and a Differentiated Edge

ESRT's operational performance underscores the success of its modernization efforts and strategic focus. The core Manhattan office portfolio continues to demonstrate robust leasing momentum, achieving its 15th consecutive quarter of positive mark-to-market rent spreads in Q1 2025, with blended spreads increasing by over 10%. This consistent performance reflects strong demand for the company's "haves" buildings – those that are modernized, amenitized, well-located near mass transit, and owned by a financially stable landlord. The company leased 231,000 square feet in Q1 2025, contributing to a Manhattan office portfolio that was 93% leased as of March 31, 2025. Management retains guidance for occupancy gains, targeting an increase to between 89% and 91% by year-end 2025, supported by a healthy pipeline of leases in negotiation and significant incremental cash revenue ($57 million as of Q1 2025) expected from signed leases not yet commenced and free rent burn-off. The ability to offer turnkey spaces, designed and built by ESRT's integrated team, is highlighted as a significant attractant, simplifying the process for tenants.

Beyond office, the strategic expansion into multifamily and prime retail adds layers of resiliency and growth potential. The multifamily portfolio, comprising 732 units in NYC, boasted 99% occupancy and achieved 8% year-over-year rent growth in Q1 2025. This segment benefits from strong market fundamentals, limited new supply, and frequent rent resets that allow cash flows to adjust with inflation. The growing retail portfolio, particularly the Williamsburg assets, is over 94% leased and offers significant mark-to-market upside, with in-place rents well below market. The $195 million North 6th Street acquisition is expected to yield approximately 4% initially, ramping up to over 6% by 2027 through lease-up and contractual rent increases, with further upside as leases roll.

A critical differentiator for ESRT, woven throughout its portfolio, is its leadership in sustainability and indoor environmental quality. The company is recognized as a quantitative sustainability leader, evidenced by its first-place ranking among U.S. listed companies in the Americas in the GRESB assessment for the second consecutive year and the Empire State Building earning the BOMA International Earth Award. This focus translates into tangible, quantifiable benefits. The Empire State Building retrofit, for instance, achieved a 54% reduction in greenhouse gas emissions. This technological edge in energy efficiency contributes to lower operating costs and provides a compelling value proposition for tenants seeking to meet their own sustainability goals and provide healthy work environments for their employees. Management views this as a competitive moat, attracting informed, better-credit tenants and contributing to leasing success and tenant retention. While competitors like BXP also focus on high-efficiency designs, ESRT's deep, portfolio-wide commitment and proven results in emissions reduction set it apart.

The Observatory at the Empire State Building remains a unique and high-margin component of ESRT's business. Despite a decrease in visitation in Q1 2025 compared to Q1 2024 (down 11.8%, or 4.6% adjusted for the Easter holiday shift), primarily due to weather and the holiday timing, the Observatory generated $15.0 million in NOI and saw revenue per cap grow by 5.9%. Its status as the #1 Attraction in the World according to TripAdvisor underscores its unparalleled brand recognition. The business benefits from low CapEx, high operating margins, and dynamic pricing strategies aimed at optimizing revenue. While sensitive to tourism trends, geopolitical events, and currency fluctuations, the Observatory has historically demonstrated resilience and exceeded its 2019 NOI levels in 2024 ($100 million). Management expects continued growth potential in 2025, supported by ongoing operational optimization and the dynamic pricing model.

Financial Strength and Forward Outlook

ESRT's financial position provides a solid foundation for its operations and strategic initiatives. As of March 31, 2025, the company held $187.8 million in cash and cash equivalents and had $620.0 million available under its unsecured revolving credit facility. Total consolidated indebtedness was approximately $2.1 billion, with a weighted average interest rate of 4.3% and a weighted average maturity of 5.3 years. The company has proactively managed its debt, with no mortgage debt maturity until April 2026 and the successful repayment of the $100 million Series A senior unsecured notes and a $120 million paydown on the revolving credit facility in March 2025. This conservative approach is reflected in its low leverage ratios, significantly below those of many peers, providing substantial flexibility for future investments or to weather market downturns.

Management's outlook for 2025 reflects a blend of continued operational momentum and the financial impacts of recent strategic capital movements. Core FFO guidance for 2025 is set at $0.86 to $0.89 per diluted share, a decrease from the 2024 adjusted core FFO of $0.91. This expected decline is primarily attributed to specific factors: an anticipated ~$0.05 reduction in interest income due to cash deployment for acquisitions and debt paydown, and higher G&A expenses (~$0.015) partly from accelerated non-cash stock-based compensation. Despite this near-term FFO impact, the underlying operational forecast remains positive. Adjusted same-store property cash NOI growth is projected to range from 0.5% to 4% in 2025, driven by expected cash revenue growth from leasing and occupancy gains. Property operating expenses and real estate taxes are expected to increase by 2% to 4%, partially offset by tenant reimbursements. Second-generation CapEx is anticipated to decrease in 2025 relative to 2024, reflecting prior investments in preparing space.

Beyond 2025, management anticipates solid cash flow growth, fueled by the full realization of benefits from the capital recycling strategy (lower CapEx, higher growth potential from NYC assets), continued positive mark-to-market leasing upside as leases roll, and the ramp-up of NOI from the Williamsburg retail acquisitions. The resilient performance of the multifamily portfolio and potential upside from the Observatory's dynamic pricing further support this longer-term view.

However, the operating environment is not without risks. Macroeconomic uncertainty, including potential recession risks, inflation, and interest rate volatility, could impact tenant demand, rental rates, and property valuations. Geopolitical tensions and currency fluctuations could affect Observatory visitation. While ESRT's portfolio is positioned as "haves," the broader softening of the office market, particularly for less desirable assets, remains a headwind. Environmental liabilities, such as asbestos or mold, and compliance with regulations like NYC's Local Law 97, while currently managed, pose potential future costs. Despite these risks, ESRT's strong balance sheet and diversified income streams provide a degree of insulation compared to more leveraged or sector-concentrated peers.

Conclusion

Empire State Realty Trust has strategically repositioned itself as a diversified, NYC-focused REIT with a portfolio underpinned by significant modernization investments and a commitment to sustainability. The core investment thesis rests on the continued operational strength of its Manhattan office assets, driven by demand for high-quality, amenity-rich, and environmentally conscious space, complemented by the growth potential of its expanding retail and multifamily segments and the unique cash flow generation of the Empire State Building Observatory.

While the near-term FFO outlook for 2025 reflects specific financial adjustments related to recent capital allocation decisions, the underlying operational trends, including positive same-store NOI growth and anticipated occupancy gains, remain favorable. ESRT's robust balance sheet, characterized by low leverage and ample liquidity, provides the flexibility to navigate market uncertainties and pursue opportunistic growth. The company's leadership in sustainability offers a quantifiable competitive advantage, enhancing tenant attraction and operational efficiency. For investors seeking exposure to the resilience and long-term growth potential of the New York City market, ESRT presents a compelling, well-managed option with a clear strategy for value creation.