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ES

Empire State Realty OP, L.P. (ESBA)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 2024 delivered stable operational performance: diluted EPS of $0.10, Core FFO per diluted share of $0.24, and Same-Store Property Cash NOI up 7.4% year-over-year (approx. 6% after adjusting for nonrecurring items). Management reaffirmed full-year Core FFO guidance of $0.90–$0.94 per diluted share .
  • Leasing momentum continued: 272K rentable square feet signed, 10th consecutive quarter of positive leased absorption, and 12th consecutive quarter of positive Manhattan office leasing spreads (+2.0% blended). Manhattan office was 93.3% leased at quarter-end .
  • Observatory performance remained resilient: Q2 Observatory NOI of $25.2M (+1.6% YoY) with year-to-date NOI of $41.3M (+5.8% YoY). Management reiterated 2024 Observatory NOI guidance of $94M–$102M .
  • Balance sheet strength unchanged: $1.0B liquidity, no floating-rate exposure, net debt to adjusted EBITDA of 5.1x; company announced two all-cash agreements to acquire North 6th Street retail in Williamsburg aggregating $195M, consistent with capital recycling strategy .
  • Estimates comparison unavailable: S&P Global consensus could not be retrieved at time of analysis; management called out ~$2M positive one-time revenue items in Q2 and increased Same-Store cash NOI guidance range to 0–3% (from -1–2%), implying modest upward estimate pressure on property-level cash NOI .

What Went Well and What Went Wrong

  • What Went Well

    • 10th consecutive quarter of positive commercial leased rate absorption; Manhattan office leased rate rose 60 bps sequentially to 93.3% and 170 bps YoY .
    • Positive pricing power: 12th consecutive quarter of positive Manhattan office leasing spreads (+2.0% blended), with notable leases at Empire State Building and 1350 Broadway (Pontera 40,679 sf expansion; A.T. Kearney 27,866 sf; William Carter 24,592 sf) .
    • Strong Observatory brand and economics: “#1 attraction in the world” TripAdvisor win; Q2 Observatory NOI $25.2M, +1.6% YoY; year-to-date NOI $41.3M, +5.8% YoY. Quote: “Our Observatory performance continues very nicely… named #1 destination attraction” — Anthony Malkin .

  • What Went Wrong

    • Total revenues down slightly YoY ($189.5M vs $190.5M) as property operating expenses and real estate taxes increased, partially offset by rent commencements .
    • Q2 diluted EPS declined YoY ($0.10 vs $0.14), while Core FFO per diluted share also trended below Q2 2023 ($0.24 vs $0.26) .
    • GNYMA office (suburban) softness: percent leased and occupied metrics below Manhattan trends; Stamford asset was placed into receivership in May and the company recorded debt/interest associated with property in receivership .

Financial Results

MetricQ2 2023Q1 2024Q2 2024
Total Revenues ($USD Millions)$190.5 $181.2 $189.5
Diluted EPS ($USD)$0.14 $0.03 $0.10
Core FFO per Diluted Share ($USD)$0.26 $0.21 $0.24
Observatory NOI ($USD Millions)$24.8 $16.2 $25.2
Segment/Operating MetricQ2 2023Q1 2024Q2 2024
Manhattan Office – Percent Leased91.6% 92.7% 93.3%
Total Commercial – Percent Leased90.3% 91.1% 92.6%
Same-Store Property Cash NOI YoY (%)—+12.3% (approx. +8% adj.) +7.4% (approx. +6% adj.)
Leases Signed (sq ft)—248,108 271,981
Manhattan Office Leasing Spreads (blended)—+5.4% +2.0%

Note: S&P Global consensus estimates unavailable at time of retrieval; comparisons to consensus could not be made .

Guidance Changes

MetricPeriodPrevious Guidance (Feb 2024)Current Guidance (Jul 2024)Change
Core FFO per Fully Diluted ShareFY 2024$0.90–$0.94 $0.90–$0.94 Maintained
Same-Store Property Cash NOI (ex-terminations)FY 2024-1% to +2% 0% to 3% Raised
Commercial Occupancy at Year-EndFY 202487%–89% 87%–89% Maintained
Observatory NOIFY 2024$94M–$102M $94M–$102M Maintained
G&A Expense (company commentary)FY 2024—~$68M full-year G&A expected (non-cash comp acceleration) New disclosure (higher run-rate)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2023 and Q1 2024)Current Period (Q2 2024)Trend
Leasing absorption & occupancy92.1% Manhattan office leased (Q4 2023); Q1 2024 leased rate rose to 92.7% with 248K sf signed 93.3% Manhattan office leased; 272K sf signed; pipeline ~150K sf; 10th consecutive absorption quarter Improving
Pricing power (rent spreads, concessions)Q4 2023: 5.8% Manhattan blended cash rent uplift; Q1 2024: +5.4% blended spreads +2.0% blended; management noted reducing free rent and pushing rents in top assets Maintained, moderating spreads
Observatory performanceQ4 2023 NOI $26.9M (full year $94.1M); Q1 2024 NOI $16.2M (+13% YoY) Q2 NOI $25.2M (+1.6% YoY); YTD $41.3M (+5.8% YoY); Easter shift impacted comps Stable
Capital recycling & acquisitionsQ1 2024: $715M facility closed; green notes; multifamily JV buyout; anticipated Stamford foreclosure Two Williamsburg retail agreements aggregating $195M; strategy to recycle into NYC assets Expanding retail footprint
Balance sheet & leverageQ4 2023 net debt/Adj. EBITDA ~5.4x; liquidity $1.2B Q2 2024 net debt/Adj. EBITDA 5.1x; liquidity $1.0B; no floating-rate debt Strong/steady
Expense outlook & G&AQ1 2024 reaffirmed guidance; ops expenses set to rise; new green notes Raised SS Cash NOI guidance via lower-than-expected utilities/payroll; G&A ~ $68M for 2024 Favorable opex trajectory; higher G&A run-rate

Management Commentary

  • “Team ESRT put points on the board again with our 10th consecutive quarter of leased percentage growth… and our 12th consecutive quarter of positive New York City mark-to-market lease spreads.” — Anthony Malkin .
  • “Year-to-date, Observatory NOI is up 6% year-over-year, driven by continued improvement in revenue per cap and increase in visitation.” — Anthony Malkin .
  • “We continue to make progress with our capital recycling initiatives… agreements to acquire prime retail assets in Williamsburg, Brooklyn for $195 million in aggregate.” — Christina Chiu .
  • “For the second quarter of 2024, we reported core FFO of $0.24 per diluted share… adjusted same-store cash NOI increased by approximately 6% year-over-year.” — Steve Horn .

Q&A Highlights

  • Early renewals and expansion-driven extensions: management added disclosure on “early renewals” and is seeing tenants commit earlier, often tied to expansions (e.g., additional full floor opportunities at ESB) .
  • Williamsburg retail economics: while specifics are confidential pre-close, management referenced prior Williamsburg acquisition at just under a 6% stabilized cap and expects long-term upside across the corridor .
  • Capital allocation vs buybacks: buybacks remain strategic, but retail acquisitions present superior long-duration returns and synergy with existing assets .
  • Tech tenant demand: examples of tech expansion (24K sf full-floor at 1350 Broadway; potential doubling by an ESB tenant); New York is the preferred destination for tech jobs, with underwriting focused on profitable tenants .
  • Expense dynamics and net effective rents: integrated turnkey delivery reduces tenant buildout burden; tightening free rent and pushing gross rents support ~10% net effective rent improvement vs 2021 .

Estimates Context

  • S&P Global Wall Street consensus estimates (EPS and revenue) for Q2 2024 were unavailable at time of retrieval; management-specific disclosures indicate ~$2M of positive one-time revenue items in Q2, and raised the Same-Store Property Cash NOI range to 0–3% for 2024, suggesting potential upward revisions to property-level cash NOI assumptions while aggregate FFO guidance remains unchanged .
  • Without consensus figures, no beat/miss determination can be made. If desired, we can update this section when S&P Global data becomes available.

Key Takeaways for Investors

  • Leasing trajectory remains favorable with growing occupancy and sustained positive spreads; pipeline of ~150K sf supports near-term cash revenue growth from signed-not-commenced leases and free rent burn-off .
  • Observatory is a durable cash engine; seasonal and Easter timing effects aside, NOI trend is positive; guidance steady at $94–$102M for FY 2024 .
  • Capital recycling is shifting mix toward prime NYC retail/multifamily with lower CapEx intensity; Williamsburg retail scale-up is a multi-year upside story .
  • Balance sheet remains a differentiator: no floating-rate exposure, ample liquidity, and net debt to adjusted EBITDA at 5.1x enable opportunistic deployment while maintaining flexibility .
  • Expense outlook improved in Q2 (utilities/payroll lighter than expected), raising SS Cash NOI guidance; however, G&A will be higher (~$68M in 2024) due to noncash stock comp timing, impacting model assumptions .
  • Near-term trading: reaffirmed FFO and stronger occupancy trends should be supportive; medium-term thesis hinges on continued Flight-to-Quality demand, retail execution in Williamsburg, and disciplined balance sheet management .