Empire State Realty Trust, Inc. Q1 FY2025 earnings call

• Solid first quarter earnings, continued leasing momentum, and Observatory performance.
• ESRT has diverse income streams, high leased percentages, and a flexible balance sheet.
• Leasing environment in NYC active for top-tier product; ESRT's portfolio is a 'have' building with modernization, good location, amenities, and stable ownership.
• Leased 231,000 square feet in commercial portfolio in Q1, including renewals and new leases. Manhattan office portfolio has 160,000 square feet of remaining lease expirations for 2025. Occupancy rate expected to increase between 89% and 91% by year-end.
• Multifamily portfolio 99% occupied with 8% YOY rent growth in Q1.
• Observatory resilient in Q1 despite visitation decline; NOI guidance unchanged. Revenue per caps grew 5.9% in Q1.

Office:

• Leased 231,000 square feet in Q1 2025, including renewals and new leases. Manhattan office portfolio is 93% leased. Achieved 15th consecutive year of positive New York City office mark-to-market rent spreads. Blended mark-to-market lease spreads increased by over 10% in Q1. Average lease duration was 8.4 years. $57 million in incremental cash revenue from signed leases not commenced.

Observatory:

• Generated net operating income of approximately $15 million in Q1. Visitation down 4.6% year-over-year due to Easter holiday shift and bad weather. NOI guidance range of $97 million to $102 million remains unchanged.

Multifamily:

• Portfolio was 99% occupied and achieved 8% year-over-year rent growth in Q1.

• Core FFO guidance: $0.86 to $0.89 per diluted share.
• Observatory NOI guidance: $97 million to $102 million (unchanged).
• Adjusted same store property cash NOI growth: 0.5% to 4%.
• Expenses expected to increase 2% to 4% year-over-year, partially offset by higher tenant reimbursement income.
• CapEx expected to decrease in 2025 relative to 2024, with decreases in leasing commissions and building improvements.

• Macro factors including consumer confidence, geopolitical tensions, and currency exchange rates can impact tourism and business.
• Bad weather can affect Observatory visitation during peak periods.
• Uncertainty in the market environment may impact investment and transaction activities.

Q: Flush out more on the leasing side, especially by tenant category over the last 30-60 days.

A: No change in lease negotiations with any tenant in the last 60 days; pipeline tour volume strong with activity across various industry types.

Q: Size of CapEx run rate for normalized occupancy level.

A: TI spend still coming through from prior year leasing, with over 70% of planned TI spend in 2025 from prior year leasing; leasing commissions and building improvements expected to decrease as lease rate is high.

Q: Williamsburg leasing progression and average rent.

A: Good activity in Williamsburg with household brand names; retail portfolio 94% leased with four leases in negotiation.

Q: Capital allocation between acquisitions and buybacks.

A: Share buybacks measured due to uncertain environment; balancing operating runway and potential investment opportunities; open to multi, retail, office opportunities depending on basis and structure.

Q: Ideal investment profile for office in current environment.

A: View risks differently due to unique capabilities in redeveloping assets; de-risked view on office investments with capabilities and experience; look for opportunities to combine assets/resources for better returns.

Q: Impact of stock market weakness and political tensions on Observatory tourism.

A: No significant shift in demand detected; focus on disciplined operation; direct marketing to domestic customers, cost controls via reservations model.

Q: Suburban asset market process and net effective rents.

A: Suburban asset broadly marketed with no disruption from capital market volatility; pushing rents across portfolio, reduced free rent concessions, seeing less resistance on price, free rent, and term.

Q: Final suburban asset to market and disruption from capital markets.

A: Suburban asset in market, process equal to other suburban processes; no significant disruption from capital market volatility.