Empire State Realty Trust Q1 2026 Earnings Call - Office Leasing Momentum and Debt Maturity Wall Averted

Suzanne Liu, Senior Vice President, Chief Counsel, Real Estate, Empire State Realty Trust: It is now my pleasure to introduce Suzanne Liu, SVP, Chief Counsel, Real Estate. Thank you. You may begin.

Operator: Good afternoon. Welcome to Empire State Realty Trust first quarter 2026 earnings conference call. In addition to the press release distributed yesterday, a quarterly supplemental package with further detail on our results and our latest investor presentation were posted in the Investors section of the company’s website at esrtreit.com. During today’s call, management’s prepared remarks and responses to questions may include forward-looking statements within the meaning of applicable securities laws. These statements reflect management’s current views and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially. Empire State Realty Trust assumes no obligation to update any forward-looking statement in the future. We encourage listeners to review the more detailed discussions related to these forward-looking statements in the company’s filings with the SEC.

During today’s call, we will discuss certain non-GAAP financial measures such as FFO, modified and Core FFO, NOI, same-store property cash NOI, EBITDA, and adjusted EBITDA, which we believe are meaningful to evaluating the company’s performance. The definitions and reconciliations of these measures to the most directly comparable GAAP measures are included in the earnings release and supplemental package, each available on the company’s website. Now I will turn the call over to Anthony Malkin, our Chairman and Chief Executive Officer.

Anthony Malkin, Chairman and Chief Executive Officer, Empire State Realty Trust: Thanks, Suzanne. Good afternoon, everyone. Yesterday, we reported ESRT’s first quarter results. We began the year with solid earnings, steady execution across our portfolio, and continued contribution from the observatory. We acquired a high-quality retail asset on North Sixth Street with recycled investment, part of our concentrated effort to reallocate our balance sheet capacity towards growth and completed financings which address our debt maturities all the way into 2028 and maintain balance sheet flexibility. Today’s environment presents a wide range of macroeconomic outcomes, some of which could adversely affect our business. That said, as we have said consistently, we do not seek to predict the weather. We have an arc. From that arc, we operate from a position of strength and with great latitude. We derive our revenue from diverse income streams and a broad tenant base.

A substantial portion of our revenue is from long-term leases, and we maintain high leased percentages, all supported by our balance sheet. We navigate freely and act decisively when opportunities arise. Pages 5 through 9 of our investor presentation, available at esrtreit.com, highlight our ongoing program to trade into opportunities which provide better prospects for growth at our desired capitalization and levels of risk. Cash flow growth is key to our focus. The Manhattan office leasing environment remains healthy and active for our top-of-tier product. Tenant demand is strong and diverse. Availability of high-quality space remains limited, and there’s no new construction at our price point. Ryan will provide highlights on occupancy, leased percentage, and what we expect to achieve by year-end. Much has been written about AI as a disruptor of office demand. In New York City, our leasing pipeline remains active.

Tour volume is strong, and tenants across industries continue to make long-term commitments to high-quality space. Office leases executed this quarter averaged over 10.5 years in term. Our commercial portfolio is 93.2% leased. Our leasing pipeline is healthy, and we expect occupancy gains for the full year. We are delighted to have leased the first floor at our 130 Mercer Street acquisition and have a strong pipeline of leases in negotiation, which we’ll hit in 2Q, about which Ryan will speak. We achieved our 19th consecutive quarter of positive mark-to-market rent spreads in our Manhattan office portfolio, which reflects sustained demand from our best-in-class buildings. We continue to see an upward trajectory in net effective rents, and our portfolio is well-positioned to deliver strong operating performance.

Our iconic Empire State Building observatory deck remains a market leader and a meaningful contributor to cash flow. NOI was $10.6 million in the first quarter, our seasonally lightest quarter. Revenue per capita increased approximately 1% year-over-year, excluding gift shop license fees. Visitation from international and budget-conscious tourists-centric pass programs remains soft and impacted our results. Against this backdrop, we focus on our domestic and direct sales program, which support higher revenue per visitor and better margin performance while we await the return of our traditional international demand. ESRT has been a leader in sustainability for more than a decade. The Empire State Building was the first building in New York State to achieve LEED version 5 platinum status. We focus on measurable business outcomes which drive energy savings, operational efficiency, and high performance buildings for our tenants and reduce risk for our shareholders and stakeholders.

Our sustainability leadership attracts tenants and is part of their satisfaction when they renew and/or expand. Our entire organization remains laser-focused on the company’s five priorities: lease space, sell tickets to our Empire State Building Observation Deck experience, manage our balance sheet, identify growth opportunities, and achieve our sustainability goals. These priorities are directly aligned with long-term shareholder value creation. Christina, Ryan, and Steve will provide more detail on our results and outlook. Christina.

Christina Cheng, Senior Vice President, Capital Markets, Empire State Realty Trust: Thanks, Tony. I’ll provide an update on our observatory business and capital markets activity, which includes a high-quality retail acquisition on North Sixth Street as part of our capital recycling and $184 million of financings that result in no unaddressed debt maturities until 2028. Our iconic Empire State Building Observatory continues to be a highly differentiated component of our platform, characterized by low capital intensity, strong operating margins, and dynamic pricing capability that helps mitigate inflationary pressures over time. We recognize we are in a period of heightened uncertainty with the potential for macro risks and geopolitical tensions to weigh on economic growth and tourism. As Tony mentioned, the first quarters historically are seasonally lightest, which makes it difficult to draw meaningful conclusions from results this early in the year.

The balance of the year typically represents approximately 85% of our annual NOI, with approximately 60% coming from the second half of the year. Our focus remains on the levers within our control to run the operations well, cultivate our brand, enhance the guest experience, broaden our marketing reach, control expenses, and be transparent with the market as external factors play out. Longer term, the observatory has proven resilient through cycles and has attractive cash flow characteristics. CapEx is low and a high proportion of NOI flows directly to our bottom line. Shifting to our investment activity, at the end of the first quarter, we acquired 4155 North Sixth Street, a newly constructed, currently vacant prime retail asset at the corner of 10th and North Sixth Street in Williamsburg for $46 million, comprising approximately 22,000 sq ft.

This acquisition, together with our purchase of 8690 North Sixth Street in mid-2025, completed the redeployment of investment capacity from the December 2025 disposition of Metro Center without recognition of a taxable gain. In aggregate, we exited our last suburban commercial property and reinvested in approximately 37,000 sq ft of prime retail on North Sixth Street. 1 redevelopment asset on a strategic corner anchored by a key long-term lease we executed last year, and 1 newly developed asset ready for lease-up. Our North Sixth Street portfolio now totals 124,000 sq ft and continues to perform strongly and in line with our expectations. These transactions reflect our strategy as outlined on pages 5 through 9 of our investor presentation to rotate capital into opportunities with stronger growth prospects at our desired capitalization and risk profile.

We built this position over approximately 2 and a half years for roughly $300 million, all without leverage, which uniquely positions us to curate tenant mix, drive leasing momentum, and enhance long-term value across our holdings. We built on ESRT’s core strength in urban retail and achieved meaningful scale. We now own a dominant position and control four key street corner locations in a sought-after, supply-constrained, and otherwise fragmented ownership market with a premium mix of tenants and significant mark-to-market opportunity over time. On our balance sheet, year to date, we’ve executed $184 million of financing. In mid-April, we announced the issuance of $130 million of senior unsecured notes in a private placement at a rate of 5.99% that will fund in mid-July and mature in 2032.

Proceeds will be used toward pay down of existing debt, including our line of credit. We also closed on a $53.5 million mortgage refinancing for 10 Union Square East. The 10-year interest-only loan carries a fixed interest rate of 5.3% and replaces a $50 million loan that matured on April 1, 2026. With these financings, we have no unaddressed debt maturity until January 2028. Our balance sheet is a key strength. From our continued proactive approach to balance sheet management, we have enhanced flexibility, durability, reduced risk, and are in a position to capitalize on attractive investment opportunities as they emerge.

We maintain ample liquidity, lower leverage versus sector peers at 6.3 times net debt to adjusted EBITDA, and a well-laddered debt maturity schedule, providing significant financial flexibility. Our 100% owned asset portfolio with limited secured debt also provides capital structure optionality. We continue to underwrite new investments across New York City office, retail, and multifamily, evaluate strategic capital recycle opportunities that are accretive to long-term cash flow growth, and assess opportunistic share repurchases. New York City’s strength is its underlying property fundamentals, and ESRT is a pure-play New York City REIT aligned with live, work, play, and visit demand drivers. We continue to look for ways to further enhance the quality of our portfolio and grow cash flows through disciplined, value-driven capital allocation. I’ll now turn the call over to Ryan to review our leasing activity.

Ryan, Senior Vice President, Leasing, Empire State Realty Trust: Thanks, Christina, and good afternoon, everyone. In the first quarter, we signed 113,000 sq ft of new and renewal leases. The average lease term for office transactions during the quarter was 10.5 years. We currently have approximately 280,000 sq ft of leases in negotiation, up from the 170,000 sq ft we cited in our fourth quarter call, and tour activity continues to be robust. In today’s bifurcated market of haves and have-nots, ESRT firmly is in the have category. Demand continues to concentrate in high quality, modernized, amenitized, transit-oriented buildings owned by well-capitalized landlords with proven operating platforms. Our best-in-class portfolio enables us to capture this demand, as reflected in our leasing pipeline. Last quarter, we highlighted that we will see fluctuations in our lease percentage during the year due to known move-outs.

We also said that due to our number of larger space availabilities, we have 29 spaces to lease today, of which 16 are full floor. Our lease % changes will likely be lumpy. Importantly, we remain confident in our year-end occupancy guidance of 90%-92%. We started the year at 93.6% leased. We have approximately 210,000 sq ft of known vacates through the balance of the year, and our present leasing plan will more than cover those vacates, and we will end the year above the year’s starting number. Our office portfolio is currently 93% leased, which marks the 13th consecutive quarter above 90%. As of today, approximately 15% of our available office space is held off market for consolidation into larger availabilities.

The first quarter marked our 19th consecutive quarter of positive mark-to-market lease spreads in our Manhattan office portfolio, underscoring our sustained pricing power. We achieved mark-to-market spreads of 6.8% in Manhattan office, which demonstrates our ability to grow rents and lock in long-term cash flow. Average lease duration was 12.2 years across the commercial portfolio. Notable leases signed during the quarter include a 13-year, 60,000 sq ft new office lease with Steve Madden for the entire third and fourth floors at 501 Seventh Avenue, and a 20-year, 22,000 sq ft retail renewal lease with JP Morgan at One Grand Central Place. New York City’s leasing market remains strong and provides a favorable backdrop for execution. Demand is broad-based across industries, including finance, professional services, TAMI, and consumer products.

Subsequent to quarter end, in April, we signed a 10 and a half year, 38,000 sq ft new office lease for the entire third floor at 130 Mercer with a financial services tenant. This brings our lease percentage from 70% at acquisition to 80%, and we have 2 full floors left to lease. We launched our marketing campaign in January and are encouraged by the early traction, which supports our underwriting and is ahead of completion of our planned capital improvements. Activity remains strong, supported by the scarcity of institutional quality space in this supply-constrained sub-market. We are pleased to see our business plan take hold. Lastly, our multifamily portfolio continues to deliver solid performance. Same-store NOI increased 9% year-over-year, and net rents increased 6%.

We ended the quarter at 96.4% occupied due to the vacancies in units which rolled out of 421 A at Hudson Landing during the slower winter months. We are now over 98% leased. Thank you. I will now turn the call over to Steve. Steve?

Steve, Chief Financial Officer, Empire State Realty Trust: Thanks, Ryan. For the first quarter of 2026, we reported Core FFO of $0.20 per diluted share. Same-store property cash NOI, excluding lease termination fees, increased 5.5% year-over-year. The increase was primarily attributed to growth in base rent and tenant reimbursement income, as well as approximately $3 million of non-recurring items recognized in the first quarter of 2026, which predominantly consisted of lease modification revenue and insurance recoveries. These increases were partially offset by operating expense growth. Adjusted for these non-recurring items, same-store property cash NOI increased 1.3%. Our observation deck generated approximately $10.6 million of NOI in the first quarter, which is generally our latest quarter. Excluding the gift shop, this represents a year-over-year decline of approximately $3.5 million.

As discussed last quarter, the timing of gift shop revenue will be more heavily weighted to the fourth quarter due to a Covid-era license amendment that both reduced our fixed payments and lowered the thresholds for percentage-based payments to us.

This provides us with upside tied to the recovery of international visitation. Revenue per capita increased by approximately 1% year-over-year, excluding the aforementioned gift shop revenue. Turning to funds available for distribution, Core FAD for the first quarter was approximately $33 million, up significantly from approximately $1 million in the first quarter of 2025 and above the $31 million we generated in the fourth quarter of 2025, despite the first quarter being seasonally light for the observation deck. This improvement reflects our meaningful reduction in FAD CapEx, which was approximately $22 million this quarter as compared to $53 million in the first quarter of 2025. As a reminder, the elevated levels of CapEx in 2024 and early 2025 reflected spend related to a significant lease-up we executed since the fourth quarter of 2021, which drove our commercial portfolio to over 93% leased today.

Lastly, our guidance for full year 2026 remains unchanged. This concludes our prepared remarks. I’ll now turn the call back to the operator to begin the Q&A session.

Suzanne Liu, Senior Vice President, Chief Counsel, Real Estate, Empire State Realty Trust: Our first questions come from the line of Manasseh Ebeki with Evercore. Please proceed with your questions.

Manasseh Ebeki, Analyst, Evercore: Yeah, great. Thanks for taking the question. Christina, maybe starting with you. If you could touch on a little bit on the just opportunities you see in the market for 2026 that you are currently like looking at underwriting. Obviously, I understand you cannot talk about details, but just would be interested to get an update a little bit more detailed on just like the opportunity set that you’re observing right now.

Ryan, Senior Vice President, Leasing, Empire State Realty Trust: Could you repeat that question? We didn’t understand.

Christina Cheng, Senior Vice President, Capital Markets, Empire State Realty Trust: Opportunities for 26.

Ryan, Senior Vice President, Leasing, Empire State Realty Trust: Okay. Yeah.

Christina Cheng, Senior Vice President, Capital Markets, Empire State Realty Trust: Yeah. I think one thing that we’ve long discussed is we’ve been surprised by the lack of distress. Right? We were hoping for more of a basis reset. We do sense that more recap opportunities may come online. A lot of the extensions of loans has already taken place, the question will be at some point, you have to deal with the maturity wall, and we’re done with extensions, that can be a source. In other instances, we look for opportunities where people are either at the end of fund life, wanna wrap up their investment, and we can be part of the solution. As I mentioned, we continue to actively look at office, retail, and multi-family, we’ll look for situations where we can extract and add value, and be able to generate good returns.

Manasseh Ebeki, Analyst, Evercore: Got it. Perfect. Thank you. Maybe one follow-up question on an item that was mentioned in the prepared remarks in terms of the 15% of space that is available that is held back for further consolidation of space. I think it’s what it was talked about. I was wondering if you could clarify a little bit on just on the leasing strategy there and, like, how we could kind of expect that in terms of timing.

Ryan, Senior Vice President, Leasing, Empire State Realty Trust: you know, when we spoke previously, that number was actually higher at roughly 20%. Because of the success of the Steve Madden transaction, and also we’ve been able to bring the portion of the One Grand Central large block space online, we’ve been able to bring that down to 15%. There’s four or five large blocks and full floors that we work to create over the next weeks to months, and that space will come online as quickly as possible.

Manasseh Ebeki, Analyst, Evercore: Okay. Thank you. That’s it. That is it for me.

Suzanne Liu, Senior Vice President, Chief Counsel, Real Estate, Empire State Realty Trust: Thank you. Our next questions come from the line of Blaine Heck with Wells Fargo. Please proceed with your questions.

Blaine Heck, Analyst, Wells Fargo: Great. Thanks. Good afternoon. You all have done a particularly good job of leasing spec or pre-built suites within your portfolio over the past few years. I wanted to ask whether there was a significant difference in demand for that type of space versus full floors. It just seems as though you guys are leaning a little bit more towards full floors with your existing vacancy, but maybe I’m reading that wrong.

Ryan, Senior Vice President, Leasing, Empire State Realty Trust: The pre-built portion of our portfolio is doing extremely well. Right now we have single-digit pre-built available, and we are actively showing it in offers and continuing to negotiate on those, Blaine. What we do is every space, every floor, we have a master plan for the building, the floor, and we evaluate everything on a case-by-case basis, what will yield the best ROI for the portfolio. What we found is right now, based on the current market demands, the conditions of the spaces, it makes sense to move forward with some of the consolidations that we spoke about previously.

Christina Cheng, Senior Vice President, Capital Markets, Empire State Realty Trust: I think I wouldn’t read too much into the commentary. You know, at One Thirty Mercer, we happen to have three full floors, one of which we executed on leasing a full floor, so we see to availability. The common link in our leasing activity is we provide top-tier space in our price point, and emphasize right service and quality and the experience at this segment of the market, and we provide that whether it’s full floor or in pre-built spaces.

Ryan, Senior Vice President, Leasing, Empire State Realty Trust: Agreed. When we look at the mix it’s a healthy mix within our current pipeline of that 280,000 square feet. The pre-builts also act as a great opportunity to build a relationship and work with our tenants long term to renew and expand them, and that’s a testament to the over 3 million square feet of expansions that we’ve done in the portfolio over time.

Blaine Heck, Analyst, Wells Fargo: Got it. Thanks. That’s very helpful commentary. Then second, you know, can you just talk a little bit more about the strategic rationale of buying a vacant retail property at this point versus, you know, maybe continuing to reinvest in your existing portfolio through share buybacks, you know, was that just more of a function of needing to reinvest your proceeds for the 1031 exchange?

Christina Cheng, Senior Vice President, Capital Markets, Empire State Realty Trust: Sure. As we’ve mentioned, in our capital allocation, buybacks are definitely a part of the consideration. Very specifically on the last 2 North Sixth Street acquisitions, that represented a deployment of the Metro Center asset. If you think about it, we wanted to avoid recognition of taxable gain, which would be leakage of proceeds. We wanted to exit out of a market where although there can be rental and tenant demand, it requires meaningful CapEx and fundamentally doesn’t have rent growth. In contrast, North Sixth Street provides a combination of both current yield as well as outlook for continued cash flow growth over time, especially as that corridor continues to strengthen amid strong underlying property fundamentals and great demographics. For us, that was a very specific capital recycling trade. It does not mean we will no longer do share buybacks.

It is something that is most beneficial for shareholders if we were to deploy in that manner. Separately, we have great liquidity where we can also do share buybacks over time.

Blaine Heck, Analyst, Wells Fargo: Okay, great. Thank you.

Suzanne Liu, Senior Vice President, Chief Counsel, Real Estate, Empire State Realty Trust: Thank you. Our next question has come from the line of Seth Bergey with Citi. Please proceed with your questions.

Seth Bergey, Analyst, Citi: Hey, thanks for taking my question. I just wanted to go back to kind of the observatory. I guess with visitation trends or the visitation down kind of 18% for the first quarter, understand, you know, it’s a seasonally kind of weakest quarter, but just what kind of gives you confidence, you know, to kind of achieve the guide for the rest of the year and any color you can kind of add on what you’re seeing in April.

Anthony Malkin, Chairman and Chief Executive Officer, Empire State Realty Trust: Of course, you know, we update by quarter, we appreciate your question for April. What we have seen to date is in our slowest period, an impact from factors which are, we believe, significant to the market in general. We’re aware that other attractions have done poorly in the first quarter. We have folks who disclose, and we have other folks who, through whom we had either information sharing or access to information. As we go forward, 85% of the year is in front of us, that’s really where we hang our hat on, let’s see what happens in this quarter. If you recall, last year, we did look at things after the second quarter on the basis of what was accomplished there.

What we see at this point is, we still have a war on, we still have reduced travel into the U.S. We still have significant disruption and delivery of things like aviation fuel and gasoline and diesel for both people to travel internationally and locally. We’re keeping a close eye on things. We think that changes there could have changes in general for the year. We just think that it’s not correct for us to make a change on things off of 15% of the year to date. We’ll keep a strong weather eye.

Seth Bergey, Analyst, Citi: Great. Thanks. Maybe just as a follow-up on 130 Mercer, now that you’ve executed some additional kind of leasing on the building, how does the project kind of compare to your initial underwriting?

Ryan, Senior Vice President, Leasing, Empire State Realty Trust: Overall, the lease is supportive of our underwriting. The rents are in the high $90s for the transaction that we just completed. TIs are consistent and the pre-rent’s a little bit better. The transaction occurred faster than we had underwrote, and it’s before the start of our capital improvement program. We launched the marketing in June. We’re encouraged by the early traction and again, completing a transaction ahead of our planned capital improvements. Activity is strong, scarcity of institutional quality space down there. You know, really we’re a differentiator for our large floor plate, the amenities, our financial stability and our service. Excited.

Seth Bergey, Analyst, Citi: Great. Thank you.

Suzanne Liu, Senior Vice President, Chief Counsel, Real Estate, Empire State Realty Trust: Thank you. Our next question has come from the line of Dylan Burzinski with Green Street. Please proceed with your questions.

Dylan Burzinski, Analyst, Green Street: Hi, guys. I joined late, so I might have missed it, but did you guys share the yield on cost estimates for the recent retail acquisition? You didn’t miss it ’cause we didn’t say it. On North Sixth Street, we have said for our portfolio, right, the other assets we acquired, we acquired sort of high fours to 5, and we expect it to be around 6. That includes lease up of some vacancy and delivery of storefronts under development. Given this is a lease-up opportunity, it’s newly built, newly constructed, and ready for lease up, we would expect yields higher than that, and we’ll provide more as we continue to make more progress. This is more of a value add as compared to other existing income properties.

Just maybe going back to you guys obviously being opportunistic on the acquisitions in terms of property type. As you sort of look at the market today, are you guys seeing more opportunities within any given property type? I know in the past it was likely office, but given office fundamentals in New York continue to be very strong, is that changing at all? Just trying to get your sense for what you guys are sort of seeing in terms of opportunities out there today.

Anthony Malkin, Chairman and Chief Executive Officer, Empire State Realty Trust: What we hear more about today is different capital structures have begun to reach the end of the road. That there was the wall of maturities. There were extensions, kick the can down the road, and now, we hear more about situations where the capital structure is broken, people don’t wanna put more money in, and they look to resolution. Most of what we hear about is in office. Different situations which we have seen and on which we have passed have come back. You know, we’ll keep our eyes open. Interestingly enough, there’s really more debt out there than there is equity, and the debt tends to end up getting involved or needing to be involved at more of equity type returns. We don’t think that really equity type risks.

We don’t think that really works for a lot of these assets. Again, we keep our eyes open, and remain omnivorous opportunivores.

Dylan Burzinski, Analyst, Green Street: Great. Thanks for the color, Tony.

Suzanne Liu, Senior Vice President, Chief Counsel, Real Estate, Empire State Realty Trust: Thank you. We’ll now turn the call back over to Anthony Malkin, Chairman and CEO, for closing remarks.

Anthony Malkin, Chairman and Chief Executive Officer, Empire State Realty Trust: Thanks, everybody, for joining us today. At ESRT, we remain focused on a clear and consistent set of priorities. Lease our space, drive observatory performance, maintain a strong and flexible balance sheet, reallocate capital towards growth, maintain our leadership and sustainability. These priorities keep the organization focused and aligned as we drive the business forward. With our high-quality portfolio and strong financial foundation, we are well-positioned to execute in the quarters ahead and create long-term value for our stakeholders. Again, thanks for your participation in the call today. We look forward to the chance to meet with many of you at non-deal road shows, conferences, and property tours in the months ahead. Onward and upward.

Suzanne Liu, Senior Vice President, Chief Counsel, Real Estate, Empire State Realty Trust: Ladies and gentlemen, thank you so much. That does conclude today’s teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.