Empire State Realty Trust, Inc. Q4 FY2024 earnings call

• Leasing momentum: Achieved over three years of consecutive quarterly lease percentage growth, leased 1.3 million sq ft in 2024, Manhattan office portfolio over 94% leased. Signed major office leases with quality tenants like Burlington, Sol De Janeiro, etc. Early renewals with existing tenants contributed 450,000 sq ft of 2024 lease volume.
• Observatory performance: Continued as TripAdvisor's number one attraction, 2024 net operating income exceeded 2019 levels, had over 485 billion global media impressions and over $950 million in advertising value equivalency in 2024.
• Balance sheet and acquisitions: Best-in-class balance sheet with low leverage, diversified into multifamily and retail assets in Williamsburg, Brooklyn with $221 million of acquisitions executed and $30 million expected in mid-2025.
• Priorities: Focus on lease space, sell observatory tickets, manage balance sheet, identify growth opportunities, and achieve sustainability goals.

In the fourth quarter, Empire State Realty Trust's office portfolio was over 94% leased, with 1.3 million square feet leased in 2024, up from 982,000 sq ft in 2023. The observatory had year-over-year growth in fourth quarter and full-year 2024 net operating income exceeding 2019 levels. The multifamily portfolio had 98.5% occupancy. In terms of revenue contribution, the office portfolio's leasing activity was a significant driver, while the observatory's strong performance contributed to overall results.

• Core FFO for 2025 is expected to range from $0.86 to $0.89, compared to 2024 adjusted core FFO of $0.91. Factors contributing to the decline include lower interest income, higher G&A, etc.
• Same-store property cash NOI growth excluding certain items is expected to range from 0.5% to 4%, with commercial occupancy expected to be 89%-91% by year-end 2025.
• Observatory NOI for 2025 is approximately $97 to $102 million, with expenses expected to be $9 million to $10 million per quarter, accounting for tourism fluctuations and bad weather.

• Macro factors affecting observatory: Dollar strength, Europe's threat to tourism, limited airline seat capacity between China and New York City (only 10 direct flights per week in 2024 compared to 72 in 2019).
• Office transaction volumes: Significantly below 2019 levels, with limited attractive opportunities seen yet.

Q: Just curious about the dynamics and pull forward of leasing activity and where the portfolio might settle on lease percentage.

A: Tom Durels mentioned strong leasing momentum, pipeline with 50,000 sq ft signed in Q1 2025 and 130,000 sq ft in negotiation, and expects to get above 95% lease percentage by year-end.

Q: Thoughts on observatory NOI guidance for 2025.

A: Tony Malkin noted early in the year, macro factors like dollar strength, Europe's threat, and airline seat capacity affecting, but confident in observatory's preeminent position.

Q: Commentary on investment opportunities, especially office.

A: Tony Malkin said volumes below 2019, nothing attracted yet, interested in residential and retail.

Q: Color on CapEx in 2025.

A: Steve Horn said elevated Q4 spend was timing issue, expect CapEx to decrease in 2025, excluding one-time item.

Q: Update on Williamsburg North Sixth corridor rents and vacancy.

A: Tom Durels said underwrote 30% mark-to-market increase, optimistic on go-forward, proposals from well-known brands for vacant space.

Q: Impact of large tenants' headcount reductions.

A: Tom Durels said Macy's sublease space is spoken for, Kohl's has remaining lease term yet to be seen impactful.

Q: View on net effective rent growth and demand across tenant sizes.

A: Tom Durels said continued rent growth with lower concessions and TI, interest from various tenant sizes with demand migrating to high-quality assets.