Empire State Realty OP, L.P. (ESBA)·Q2 2025 Earnings Summary

Executive Summary

• Q2 2025 delivered solid office leasing and occupancy gains but softer Observatory performance; Core FFO per diluted share was $0.22 and net income per diluted share was $0.04 .
• Same-Store Property Cash NOI excluding lease termination fees fell 5.9% YoY, or approximately 3.0% YoY when adjusting for non-recurring positives in Q2 2024; the decline was driven by higher real estate taxes and property operating expenses, partially offset by higher tenant reimbursements .
• Updated 2025 guidance lowered Observatory NOI to $90–$94M (from $97–$102M) and Core FFO/sh to $0.83–$0.86 (from $0.86–$0.89) to reflect first-half weather headwinds and softer international program demand; commercial occupancy and same-store NOI growth ranges were maintained .
• Leasing remained a bright spot: 232,108 sq ft signed in Q2 with +12.1% blended Manhattan mark-to-market spreads; Manhattan office leased rate rose 80 bps QoQ to 93.8% and occupancy rose 140 bps QoQ to 89.5% .
• Balance sheet remains a strength: ~$0.7B liquidity, no floating-rate exposure, all debt fixed (weighted avg. rate 4.34%), and no unaddressed maturity until December 2026—supporting continued leasing and selective investment (e.g., North 6th Street retail) .

What Went Well and What Went Wrong

• What Went Well

  • Strong leasing and occupancy momentum: 232,108 sq ft signed in the quarter; Manhattan office blended cash spreads +12.1%; leased rate +80 bps QoQ to 93.8% and occupancy +140 bps QoQ to 89.5% .
  • Strategic capital allocation and growth pipeline: Closed acquisition of 86–90 North 6th Street, Brooklyn, for $31.0M; management sees sub–7% yield on redevelopment and robust tenant interest, with potential stabilization around 2027 and projected rents north of $500/ft (corner) and high $300s (inline) .
  • Balance sheet advantage: No floating-rate debt, all fixed rate; $620M undrawn revolver; covenant headroom with fixed charge coverage 3.1x and unsecured leverage 25.1% .

• What Went Wrong

  • Observatory headwinds: NOI $24.1M in Q2 on lower visitorship (-2.9% YoY) and 21 “bad weather days” in Q2 vs. 8 in Q2 2024; guidance revised down for the year .
  • Higher operating expenses: Operating expenses up YoY on taxes, cleaning payroll, and repairs (~$1.4M non-recurring); this pressured same-store property cash NOI (ex-terminations) -5.9% YoY; adjusted for non-recurring items, ~-3.0% YoY .
  • Retail occupancy softness: Total retail occupancy down YoY (89.9% vs. 92.3% in Q2 2024), reflecting portfolio churn; retail leasing cash spreads were negative on a small sample (-15.0%) .

Financial Results

Overall P&L (USD thousands unless noted)

Observatory and NOI detail

Same-Store Property Cash NOI (ex-lease termination fees)

KPIs

Balance sheet and liquidity

• Total fixed-rate debt: $2,072,478; variable-rate debt: $0; weighted avg. interest rate 4.34%; weighted avg. maturity 5.0 years .
• Revolving credit facility capacity: $620,000 available .
• Covenant metrics at quarter end: Fixed charge coverage 3.1x; Unsecured leverage 25.1%; all in compliance .

Guidance Changes

Management cited weather-related impacts and lower international program demand for the Observatory as key drivers of the guidance cut, while keeping commercial drivers unchanged .

Earnings Call Themes & Trends

Management Commentary

• CEO framing on quarter: “We delivered strong office leasing, and we had a more challenged quarter for the Observatory... Our progress in our core office portfolio reflects the value of our proposition...” .
• On Observatory drivers: “...impacted by bad weather, particularly on the weekends in May and June, and lower demand from our past program business, which is predominantly international.” .
• Real estate demand quality: “In today’s bifurcated office market of haves and have-nots, ESRT stands out as a clear have.” .
• Balance sheet advantage: “...strong liquidity, no floating rate debt exposure, a well-laddered debt maturity schedule, and no unaddressed maturity until December 2026.” .

Q&A Highlights

• Observatory guidance and visibility: Management revised Observatory NOI to $90–$94M given first-half weather and program softness; aim to outperform where controllable; noted 21 bad weather days in Q2 vs. 8 last year .
• Leasing pipeline and market tone: No change in tenant behavior; dwindling supply of quality space; early renewals targeting 2026–2027 expirations; ~160k sq ft in negotiation .
• Capital allocation discipline: Buybacks remain in the toolkit; disciplined hurdle rates for new investments; focus on value creation within NYC .
• Williamsburg returns: Sub–7% redevelopment yield targeted at 86–90 North 6th; strong interest may accelerate lease-up; stabilization potentially by 2027 with >$500/ft (corner) and high $300s (inline) asking rents .
• Macro/policy backdrop: Company engaged on policy, not politics; no leasing slowdown tied to political change; transaction markets may see brief pause .

Estimates Context

• S&P Global consensus for Q2 2025: EPS consensus unavailable; revenue consensus not provided (system returned actual only). As a result, we cannot opine on beat/miss vs. Street for Q2 2025. Values retrieved from S&P Global.*
• Reported actuals: Revenue $191.3M and diluted EPS $0.04 .

Key Takeaways for Investors

• Office recovery traction at ESRT/ESBA remains robust, with positive spreads, rising leased and occupied rates, and a healthy pipeline—supporting forward NOI traction as signed leases commence .
• Observatory headwinds (weather, international mix) drove a guidance cut; near-term volatility is likely, but long-term unit economics and pricing power remain favorable per management .
• Balance sheet provides strategic optionality—no floating-rate exposure, ample liquidity, and covenant headroom—enabling continued investment and aggressive leasing without financial strain .
• Williamsburg retail strategy consolidates key corners with below-market rents and attractive expected returns; watch lease announcements and rent marks as catalysts .
• Expense pressures (taxes, repairs, cleaning payroll) are a watch item; management expects timing variability with heavier planned work in H2; monitor SS NOI trajectory as these normalize .
• With Street consensus unavailable for Q2, trading reactions likely hinge on guidance reset, leasing momentum, and management tone; near-term catalysts include occupancy gains and any upside in Observatory trends into H2 .

Notes:
*Values retrieved from S&P Global.