Empire State Realty Trust - Q4 2025

Transcript

Operator (participant)

Greetings, and welcome to the Empire State Realty Trust Fourth Quarter and Full Year 2025 Earnings Call. At this time, all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Heather Houston, SVP, Chief Counsel, Corporate, and Secretary. Thank you. You may begin.

Heather Houston (SVP and Chief Counsel of Corporate and Secretary)

Good afternoon. Welcome to Empire State Realty Trust fourth quarter 2025 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 from those expressed or implied. 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 in 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 Tony Malkin, our Chairman and Chief Executive Officer.

Tony Malkin (Chairman and CEO)

Good afternoon, everyone. Yesterday, we reported ESRT's fourth quarter and full-year results. Today, we will discuss our continued leasing momentum, observation deck execution, latest balance sheet recycling, and outlooks for 2026. We delivered full-year core FFO of $0.87, a reflection of continued performance across our platform. Our leasing team again put points on the board with nearly 460,000 sq ft leased in the quarter and 1,000,000 sq ft for the year. We have now delivered 4 consecutive years of occupancy growth and positive New York City office rent spreads. As we enter 2026, we have framed in our new investor deck, that is available online, the significant transformation to drive shareholder value ESRT has executed over the past 5 years.

This transformation was deliberate to strengthen our platform and improve the quality and durability of our cash flows. Since Christina joined as CFO in 2020 and was in 2024 elevated as president to join me at the head of the company, we addressed management succession with key leadership hires and promotions. Steve Horn was promoted from CAO to CFO in 2024, Ryan Kass to Co-Head and Chief Revenue Officer of Real Estate, and Jackie Renton joined us in 3Q as Co-Head and Chief Operating Officer of Real Estate. These management changes, along with others across the organization, strengthen our operating platform and reinforce our ability to execute on our growth initiatives. Our portfolio is now 100% New York City.

We completed $1 billion of acquisitions of high-quality real estate and disposed of our suburban commercial assets, all without tax leakage. Our acquired assets improve our cash flow and portfolio quality and include high-quality Manhattan multifamily properties, prime retail on North 6th Street in Williamsburg, Brooklyn, and more recently, 130 Mercer in SoHo, also known as Scholastic's Headquarters. ESRT's New York City pure-play portfolio benefits from live, work, play, and visit dynamics of the greatest market in the United States. This is all made possible by our proactive balance sheet management that provides ESRT significant flexibility to transact strategically and create shareholder value. We are confident in our position as we look ahead. While known tenant rollover will impact our FFO growth in 2026, we believe the portfolio is well-positioned for long-term cash growth. Our Office portfolio is 93.5% leased.

That reflects the desirability of our top-of-tier, modernized, amenitized, well-located, sustainability leading portfolio, underpinned by a strong financial position. Importantly, there is no new supply at our price point. We continue to see an upward trajectory in net effective rents, and our portfolio continues to perform. Our iconic Empire State Building observation deck remains a market leader and a meaningful contributor to our cash flow. Revenue per capita increased year-over-year. In 2025, we delivered resilient bottom-line performance through disciplined cost management and price execution... despite a decline in visitation from our cross-ocean international tourist visitors. We continue to grow our domestic demand and be ready for the return of our traditional budget-conscious international visitors. Our sustainability leadership is a lever for measurable business results and reduces our and our tenants' exposure to increased energy and regulatory costs.

We partner with tenants to support their sustainability goals. In 2025, ESRT achieved the highest possible GRESB rating for the sixth consecutive year, with a score of 93 and an A in public disclosure. In addition, the Empire State Building became the first LEED Version 5 Platinum certified building in New York State. These results reflect the leadership and focus of our organization. Our entire organization remains laser-focused on the Observatory's 5 priorities: lease space, sell tickets to the observation deck, manage our balance sheet, identify growth opportunities, and achieve our sustainability goals. These priorities are simple, repeatable, and aligned with our desire to drive long-term shareholder value. Christina, Ryan, and Steve will provide more detail on our results and outlook. Christina?

Christina Chiu (President)

Thanks, Tony. Tony mentioned in the past five years, we've been very active and fully recycled out of lower growth, higher CapEx suburban commercial assets on a tax-efficient basis into prime New York City assets aggregating over $1 billion, of which $750 million are unencumbered, with superior long-term growth characteristics and lower capital requirements. In 2025, we executed $417 million of all-cash acquisitions of well-located, high-quality office and retail assets, comprised of 130 Mercer and 86-90 North 6th Street, and completed the disposition of Metro Center. In the fourth quarter of 2025, we completed financings that aggregate $420 million and result in no unaddressed debt maturities until March 2027. These include a $175 million unsecured notes issuance and a $245 million term loan recast.

The cumulative impact of all the transaction activity in the past 5 years is a successful transition to a 100% New York City portfolio that drives resilient cash flow to the bottom line through high-quality assets that benefit from live, work, play, and visit. This is backed by a proactively managed balance sheet with strength and flexibility. As we look ahead, our focus remains to grow and improve the quality of our portfolio and cash flows and deliver shareholder value through prudent capital allocations. Adding more color to our recent investment activity, in December, we acquired 130 Mercer for $386 million. Our ability to move quickly and close with certainty is a significant advantage in today's market. This was enabled by our proactive balance sheet management, strong liquidity, and low leverage.

We acquired the asset all cash on our balance sheet and have significant optionality on the building's long-term capital structure. 130 Mercer is a high-quality, 396,000 sq ft office and retail asset in prime SoHo between Prince and Spring Street, with an attractive risk-adjusted return profile. It provides both a solid initial yield and meaningful embedded upside. The property delivered a mid-5% initial cash yield at 70% occupancy, supported by a 15-year office lease with Scholastic and fully leased street retail, with approximately 8 years of remaining term in a Triple A location anchored by Sephora and Capital One. We expect growth towards a stabilized yield of approximately 8% through the lease-up of a 3-floor vacant office block of over 110,000 sq ft, with large, efficient floor plates. Our mandate here is straightforward: lease 3 floors.

The market for large block, institutional quality office space in this submarket is supply-constrained, while demand remains strong. This creates unique opportunity for ESRT to leverage our operating platform and best-in-class stewardship to drive occupancy, rents, and returns. The disposition of our final suburban commercial asset, Metro Center in Stamford, Connecticut, and repayment of the related mortgage debt in December, is consistent with our objective to recycle capital to improve the quality of our portfolio and cash flows. The previously announced acquisition of 86-90 North 6th Street represents a redeployment of these proceeds. 86-90 North 6th Street is a prime redevelopment property that we closed in June 2025 and announced a long-term lease with a high-quality retail tenant shortly after.

It is located on a strategic corner along North 6th Street, where we now control four key street corner locations and further strengthens our dominant position along the corridor, where foot traffic, residential density, and tenant demand remain strong. In aggregate, our acquisitions along North 6th Street through year-end 2025 total approximately $250 million. These transactions reflect our disciplined capital allocation approach.... Our capital recycling activity over the last five years and exit from suburban commercial assets will result in an estimated $90 million of cumulative incremental property level cash flow between 2025 and 2030. This reflects the superior growth and lower capital requirements of what we acquired versus what we sold. We continue to reassess our portfolio to uncover opportunities to recycle capital that are accretive to growth and cash flow.

Opportunistic share repurchases remain a strategic part of our capital allocation framework. During the fourth quarter, we repurchased $6 million of shares at an average price of $6.73. For the full year, we repurchased $8 million of shares at an average price of $6.78. Since the inception of our repurchase program in 2020, we repurchased approximately $302 million of shares in aggregate. Our well-positioned and flexible balance sheet remains one of our key strengths. Pro forma for recent investment activity, we maintain ample liquidity and lower leverage versus sector peers at 6.3x Net Debt to Adjusted EBITDA and a well-laddered maturity schedule, with all debt maturities in 2026 addressed.

From a capital allocation perspective, we continue to actively underwrite new investments across New York City office, retail, and multifamily, evaluate strategic capital recycling opportunities that are accretive to long-term cash flow, and assess opportunistic share repurchases. Transaction activity has increased, and there is strong institutional capital interest in New York City and recognition of the strength of its underlying property fundamentals. We remain focused on opportunities where our operating and repositioning expertise can create meaningful value, and our strong balance sheet provides flexibility to act decisively when conditions align. We remain excited about the path ahead for ESRT. We look to continue to improve the quality of our pure-play New York City portfolio and cash flows through thoughtful, prudent capital allocation. We also continue to look for ways to operate more efficiently and drive shareholder value. I'll now turn the call over to Ryan to review our leasing activity.

Ryan?

Ryan Kass (Co-Head of Real Estate and CRO of Real Estate)

Thanks, Christina, and good afternoon, everyone. In 2025, our property team delivered another year of exceptional performance. We leased over 1 million sq ft and grew occupancy to 90.3%, up 170 basis points year-over-year. Our office portfolio is 93.5% leased, our 12th consecutive quarter above 90%, which is a testament to the strength of our leasing platform and execution. In today's bifurcated market of have and have-nots, ESRT remains a clear have. Demand is concentrated among top-quality, modernized, amenitized, transit-oriented buildings owned by financially stable landlords with proven operational performance. Our best-in-class portfolio has enabled us to push rents, reduce concessions, and extend lease terms. The fourth quarter marked our 18th consecutive quarter of positive mark-to-market lease spreads in our office portfolio and underscores our consistent pricing power. We finished the year strong.

In the fourth quarter, we signed over 458,000 sq ft of new and renewal leases. We achieved positive mark-to-market lease spreads in our Manhattan office portfolio of 6.4%. Key leases signed in the fourth quarter include a 10-year, 46,000 sq ft early renewal with TJ Maxx at 350 West 57th Street, an anchor investment-grade retail tenant, a 7-year, 42,000 sq ft early renewal with Nespresso at 111 West 33rd Street, a 16-year, 36,000 sq ft expansion with Burlington at 1400 Broadway, which represents 20% footprint growth, and a 16-year, 15,000 sq ft retail lease with LinkedIn at the Empire State Building, which brings their total square footage to 540,000 sq ft. Average lease duration was 11.6 years for new leases executed in the fourth quarter.

We continue to deliver an exceptional tenant experience and superior service, which contributes to our impressive track record of tenant retention and expansions. In 2025, we completed approximately 274,000 sq ft of early renewals with existing tenants, where we proactively extended lease expirations. Since our IPO in 2013, we have signed 317 tenant expansion leases for over 3 million sq ft. New York City's office leasing market is the strongest we have seen since 2019, which creates a favorable backdrop for us to execute. Tenant demand is strong and diverse, with industries such as finance, professional services, TAMI, and consumer products. Similar to last year, there may be temporary dips in our lease percentage over the course of the year, but we feel confident in our year-end occupancy guidance of 90%-92%.

At 130 Mercer, we kicked off our marketing campaign in January to lease our three-floor block of over 110,000 sq ft. Initial activity is healthy, as it is a unique availability of institutional quality product in a supply-constrained submarket. As Christina mentioned, our mandate is straightforward: lease three floors. More to come. Lastly, our multifamily portfolio continues to deliver excellent performance, with occupancy just under 98%. Revenue increased 9% YoY in the fourth quarter and 10% in the full year. These results reflect strong market fundamentals and our focus on operational excellence. Thank you. I will now turn the call over to Steve. Steve?

Steve Horn (CFO and Chief Accounting Officer)

Thanks, Ryan. For the fourth quarter of 2025, we reported core FFO of $0.23 per diluted share. For the full year of 2025, core FFO was $0.87 per diluted share. Same-store property cash NOI, excluding lease termination fees, increased 3.4% YoY for the fourth quarter and 60 basis points for the full year, after adjusting for approximately $2 million and $7 million of non-recurring items recognized in the fourth quarter of 2024 and full year 2024, respectively. Excluding these items, same-store cash revenue increased 2.5% and 2.1% for the fourth quarter and full year, respectively, while operating expenses increased 1.7% and 3.4%, respectively.

Operating expense growth for the year was primarily driven by higher real estate taxes and cleaning-related labor costs and was partially offset by higher tenant reimbursement income. Our Observatory business generated approximately $24 million of NOI in the fourth quarter and $90 million for the full year. Expenses totaled approximately $11 million in the fourth quarter and $38 million for the full year. Revenue per capita increased 6.9% YoY in the fourth quarter and 4.4% for the full year. For the full year of 2025, FAD CapEx shrunk by approximately $21 million or 11% YoY.

While the decrease was seen on all fronts across tenant improvements, leasing commissions, and building improvements, the primary contributor to the decrease was an $18 million reduction in CapEx dollars spent on building improvements, as we previously spent the CapEx required to develop our portfolio in preparation for the positive lease absorption we recognized. Now on to our 2026 outlook. At a high level, we expect 2026 FFO and same-store cash NOI to be consistent with our 2025 results. This expectation stems primarily from a lag between the disclosed FDIC expiration and the lease commencement of the related backfill we executed in advance of the anticipated vacancy. Importantly, we expect to exit 2026 with higher occupancy and lower run rate G&A. The occupancy improvement is not expected to have a material positive impact on our 2026 results due to timing.

To drill down further into the components of our guidance, we expect core FFO to range from $0.85-$0.89 per diluted share. Our guidance assumes same-store property cash NOI growth of -1.5% to +2%. Within this range, we expect positive cash revenue growth with anticipated commercial occupancy of 90%-92% by year-end 2026, compared to 90.3% at year-end 2025. On the expense side, we expect property operating expenses and real estate taxes to increase by approximately 2%-4% in aggregate, which we expect to be partially offset by higher tenant reimbursement income. Our 2026 same-store pool now includes our multifamily and North 6th Street retail portfolios.

This change reflects our transformation over the last 5 years, which includes our exit from suburban markets and transition to a 100% New York City portfolio. As expected, FDIC vacated 119,000 sq ft at Empire State Building subsequent to year-end. While the space has long been backfilled by LinkedIn at a favorable mark-to-market, the temporary downtime impacts our 2026 core FFO by approximately $0.03 and reduces same-store property NOI growth by approximately 270 basis points. Excluding this downtime, the midpoint of our 2026 adjusted same-store property cash NOI growth guidance would be approximately 3%. We expect cash rent commencement for this space to begin in the second half of 2027. For the Observatory, we expect 2026 NOI of approximately $87 million-$92 million and expenses of approximately $10 million per quarter.

Included in this guidance is an expected $2 million net decline in license fee revenue earned from the gift shop operator at the Observatory, and a shift in the timing of such revenue to be more heavily weighted to the fourth quarter. This reflects a COVID-era license amendment that provided for fixed payments to the Observatory through 2025. Starting in 2026, these fixed payments were reduced, as are the annual percentage-based payment thresholds, which provides us with the upside tied to the recovery of international visitation. From an operating perspective, we remain focused on the levers within our control to enhance the guest experience, broaden our marketing reach, and drive efficiencies. Longer term, the Observatory remains a durable, high-margin cash flow business. Lastly, we expect calendar year 2026 G&A to aggregate approximately $69 million-$71 million, as compared to approximately $73 million in 2025.

We are on a path to reduce run rate G&A by approximately 5%-10% by year-end 2026 relative to 2025, driven by compensation reductions and other cost reduction initiatives. We expect these savings to be in place by the third quarter. That concludes our prepared remarks. I'll now turn the call back to the operator to begin the Q&A session. Operator?

Operator (participant)

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for your questions. Our first questions come from the line of Manus Ebbecke with Evercore ISI. Please proceed with your questions.

Manus Ebbecke (Equity Research Analyst)

Yeah, thanks for taking the question, and good to see you. A strong leasing quarter in the fourth quarter. Just wanted to see if you can provide some more color on just the outlook as just kind of seeing how the first quarter has trended so far in terms of either pipeline or leasing activity, if that's kind of continued to hold up into 2026. And kind of like, if you see any specific submarkets in your portfolio stronger than others. So any color would be appreciated.

Ryan Kass (Co-Head of Real Estate and CRO of Real Estate)

The market tenor remains strong. We continue to see a bifurcating market of the have and have-nots, and we're a clear have. We have just over 170,000 sq ft of leases in the pipeline that we anticipate closing in the first and second quarter.

Manus Ebbecke (Equity Research Analyst)

Got you. Okay. Maybe one follow-up question. On the release, I didn't see a sales price that was given for the Stamford asset that you disposed of in the fourth quarter. So I wanted to just see if there's any further information you can kind of give us around the transaction, and when it closed or for how much?

Christina Chiu (President)

Yeah, it was mid-$60 million, and then with some credit and adjustments, it gets to right around the debt balance, and from an NOI perspective, it's around 7 cap rate.

Manus Ebbecke (Equity Research Analyst)

Got you. Thank you. Much appreciated.

Operator (participant)

Thank you. Our next question has come from the line of John Kim with BMO Capital Markets. Please proceed with your questions. John, can you please check if you're self-muted?

John Kim (Equity Research Analyst)

Oh, sorry about that. On that, just following up on that Metro Center sale, why not just walk away from the, the mortgage debt, given the sale price was, you know, a little bit underneath the outstanding principal amount?

Christina Chiu (President)

We achieved an execution that was right around that area, and so it made sense. It's consistent with our capital recycling and allows us to redeploy proceeds into assets additive to the rest of our portfolio. So it was a good execution overall.

John Kim (Equity Research Analyst)

Okay. Our mayor, Mamdani, has proposed a 9.5% increase in property taxes to balance the New York City budget. Can you just remind us of your ability to pass those increased taxes to your tenants? And if you can, how will this affect your ability to push rents going forward?

Tony Malkin (Chairman and CEO)

Well, let's just first of all say that, the proof is always in the pudding, and, I don't think anything's even ingredient wise, is in the kitchen yet. So, you know, we'll see how things go with, the mayor's agenda and the budget, number one. Number two, you know, Ryan can comment on our, on how we handle our pass-throughs and, with tenants. And number three, you know, the market is what the market is, so we're gonna lease, and if rent increase-- if, if, if we get our rents, we get our rents, and if we have a higher base year on real estate taxes for new leases, well, that'll be a higher base year for real estate taxes, on new leases.

Ryan Kass (Co-Head of Real Estate and CRO of Real Estate)

As Tony said, you know, that would be the future on the existing leases, that any increase would be passed through on a tax escalation bill to the tenant.

John Kim (Equity Research Analyst)

Okay, and then my final question is, I know this gets asked a lot on office calls, but, the impact of AI on tenants. Last week, we had the latest AI scare trade and the impact it's had, not just on software companies, but all types of professional service companies. Have you seen any impact on leasing decisions as a result of, you know, the latest news?

Tony Malkin (Chairman and CEO)

The first thing I'll say, John, is we, we've seen a lot of people who are on book tours or seek to have more people come on to their, their blog, where they can make advertising, make all sorts of declarations. We can only tell you that we've seen strong demand for high-quality office space in New York City amid low availability. Tenants continue to expand and AI itself has been a positive for the leasing market and a source of incremental tenant demand, though from our perspective, we're, we're very sensitive to highly volatile infant industries as, as far as tenancies are concerned. So, you know, we again can only speak to 2024, 2025, 2026 leasing and trends, and we're very busy. You know, Ryan gave you a number of 170,000 sq ft of leases in discussion.

You know, we've got proposals in excess of that going back and forth, and we're very busy. At this point, we're more hindered by the availability of space to lease than anything else.

John Kim (Equity Research Analyst)

That's very helpful. Thank you.

Operator (participant)

Thank you. Our next question has come from the line of Seth Bergey with Citi. Please proceed with your questions.

Nick Joseph (Senior Equity Research Analyst)

Thanks. It's Nick Joseph here with Seth. Maybe just following up on the new mayor in New York. Obviously, you know, you said the ingredients aren't even in the kitchen, but just broadly, you know, how much have the rhetoric or policy impacted your conversations around leasing decisions or business sentiment more broadly?

Ryan Kass (Co-Head of Real Estate and CRO of Real Estate)

It has not impacted any of our leasing discussions.

Tony Malkin (Chairman and CEO)

I mean, I hate to, it may be so extinct. We could maybe give you a little more color of it really hasn't impacted our leasing discussions, but demand is high. And look, we're in an incredibly volatile world. Let's face it, capital markets are kinda crazy. You know, we may be at war in Iran, you know, within the next week or two. We just do what we can do here at ESRT. Got a balance sheet that allows us to do our business, have a balance sheet that allows us to take advantage of opportunity, and we will make money where we can make money, and we've got a varied portfolio, folks, to what we think is the best market in the world.

And we'll see how, you know, the mayor gets things done, and we'll live within whatever world he impacts.

Nick Joseph (Senior Equity Research Analyst)

Got it. Thanks. And then just on the Observatory, I guess you gave some color in the, in your opening remarks, but, you know, what are you seeing in terms of competition, and what's the economic and tourism outlook embedded for the 2026 guide?

Tony Malkin (Chairman and CEO)

Well, I can give you some background on the general tourism trends, and then I'll let Christina or Steve comment on what goes into our guide. I'll just also let you know that Steve is alone in a conference room somewhere. He's come in because he has the flu, but he has intermittent internet at his apartment. So, if we're at all slow on the transition between Christina and Steve, it's 'cause he's in another room. We feel safe, by the way, because we have MERV 13 filters and active bipolar ionization, so we feel highly unlikely that Steve will infect anyone else in the office. But going back to your question, we did see a very meaningful change, set of changes in the Observatory.

We used to be two-thirds, roughly, international, and now we're more than 50% domestic. We did see actual changes from the composition of our visitors. Our direct retail purchaser is way up, highest revenue per person we've seen. And at the same time, we have seen meaningful decline in pass programs, and particularly pass programs from overseas visitors. And just so you know, for anyone who's not familiar with the pass program, that's where a number of attractions are bundled into one price, and visitors have a choice of to where they might go. One of the pass program businesses ceased operations in early 2025, and the other two are materially down in their businesses.

So, we've pivoted and achieved very good results on our direct marketing, and at the same time, we've maintained excellent relationships with our pass program partners, who we value very highly. We've worked very hard on our online travel agent relationships and how we conduct our business there. And from that perspective, you know, we adjust to what the market serves us. Much more active from our side. It's much less we take a toll from people who cross our bridge. And as far as competition, SL Green's reported on their own activities at the Summit. But the Edge is definitely very weak. One World Trade Center is very weak. Both of those have experienced significant deterioration in their businesses and do extensive discounting.

Top of the Rock is private and doesn't give out data, but we think they're pretty steady in relation to how business has gone in general. Do you want to talk about Christina or Steve? Steve, you'll take that on, the modeling?

Steve Horn (CFO and Chief Accounting Officer)

Yeah. There's not really much, a lot to add from what you said, but from the guidance perspective, we account for just a range of various outcomes throughout the year. So the range that we have of 87-92, the midpoint is flattish, and so that contemplates those central variances.

Nick Joseph (Senior Equity Research Analyst)

Thanks. Hope you feel better.

Steve Horn (CFO and Chief Accounting Officer)

Thank you.

Operator (participant)

Thank you. Our next questions come from the line of Blaine Heck with Wells Fargo. Please proceed with your questions.

Blaine Heck (Equity Research Analyst)

Great, thanks. I was hoping you could dig into the occupancy forecast a little bit more for 2026. You know, the 91% midpoint seems maybe a little light, just given that you are 93.6% leased at the end of the quarter, but I do understand you're expecting about 250,000 sq ft of vacates during the year. So with respect to that, is FDIC included in that 250,000 sq ft number? And I guess, what's your level of certainty with respect to the rest of those move-outs? And lastly, are there any other headwinds that might be a little bit less obvious?

Ryan Kass (Co-Head of Real Estate and CRO of Real Estate)

Thanks, Blaine. So I'll, I'll take that one. You know, we feel very confident in our year-end occupancy guidance to that 90%-92%. A lot of that is driven by timing of vacancies. If you take a look at page 15 in the supplement, you'll see first and fourth quarter, we do have large move-outs. That fourth quarter is mainly driven by a 70,000 sq ft tenant at the Empire State Building, who has been in this space for a very long time. So I think that's, that's impacting the numbers, and we're excited to get that space back in a substantial positive mark-to-market.

Blaine Heck (Equity Research Analyst)

Okay, great. That's helpful. Switching gears, in the past, I think you've said six times that the EBITDA is your kind of loose target for the upper, upper bound of leverage. I think this is the first time I've seen your Net Debt Adjusted EBITDA above six. So I guess how are you thinking about moderation in that metric and whether that limits your ability to be active on the investment front or share buyback front?

Christina Chiu (President)

Yeah, we have always mentioned, we evaluate the market based on continued access to capital. We've been able to continue to access the debt markets, have a number of conversations going on, you know, with interest in our assets. So we'll continue to navigate. We've also said that from time to time, we may tick up on Net Debt to EBITDA. It's not a strict limit. We're not looking to run the company at high risk or high balance sheet leverage. And at the same time, when there are great opportunities where we can utilize our balance sheet, close with certainty, you may see that tick up from time to time, and we'll have a game plan, as we navigate going forward to maintain appropriate levels of leverage.

So for us, this is consistent, and we'll continue to have activity, you know, in the coming year. All of our debt maturities are addressed, and we'll continue to manage the balance sheet prudently.

Tony Malkin (Chairman and CEO)

I just might add to Christina's comment. Anyone who's followed us over the more than decade since we've been public, I always have said that at the right opportunity, where we think it can lead to growth, we will, we'll make moves on the balance sheet. That's why we have the balance sheet, and we are still peer leading in our balance sheet position.

Blaine Heck (Equity Research Analyst)

That's great commentary. Thanks, guys.

Operator (participant)

Thank you. Our next question has come from the line of Dylan Burzinski with Green Street. Please proceed with your questions.

Dylan Burzinski (Equity Research Analyst)

Hi, guys. Maybe just going back to the Observatory. I appreciate your comments thus far, but are you able to share sort of what added lift or benefit is imputed in the guide as it relates to any expectations for the World Cup to drive an increased activity on the international visitor side of things?

Tony Malkin (Chairman and CEO)

So we've developed marketing strategies to capture demand around the World Cup. We're optimistic it will benefit our business, with the biggest upside really around co-branding opportunities. So we still think it's early in the year. Many factors can impact demand. We don't rely on just one event. There are only a certain number of people who will fit into the stadia around New York City, where the World Cup will take place. And the good news for us is that costs are so bloody expensive around that period of time, that we're really in a position in which our best customer right now, which is someone who really pays full price and gets significant additional purchases out of what we offer for upgrades, that'll fit right in there.

We do see, and we are in discussion, you know, continuing on our branding side, opportunities both generate advertising value equivalency and co-branding dollars.

Dylan Burzinski (Equity Research Analyst)

Thanks, Tony. Appreciate that color. And then maybe just switching over, Real Estate Alert, I think, late last month, mentioned that you guys have, I think, it's 250 West on the market. Just sort of curious how you guys are sort of viewing, you, you guys on the board are viewing sort of the disconnect between where the stock trades today and maybe where underlying private market value is for, your guys' portfolio?

Christina Chiu (President)

Sure. I think it's no secret we trade at a discount to underlying real estate values, as does the rest of the office sector. So clearly, there's a disconnect. But what we focus on, and as we've reiterated, is we focus on the things that are within our control, and we continue to execute on the business. We've always said that we are open to capital recycling. First step was getting out of the suburban office market and reinvesting those proceeds into assets that are additive to the portfolio, add to the quality, add to the cash flow characteristics of what we're trying to build. Now that we're done with the suburban, we can look within New York City as well.

The asset that we have on the market is an asset where we've added a bunch of value, and we continue to underwrite opportunities in the marketplace where we can add more value. You know, it appears to us, as you can see in the transaction market, there's a lot of interest in New York City, and we'll see how that goes. Happy to own it, also happy to potentially pursue a sale and look for additional opportunities, and more details will come as the process plays out.

Dylan Burzinski (Equity Research Analyst)

Great. Thanks, everyone.

Operator (participant)

Thank you. We will now turn the call back over to Tony Malkin, Chairman and CEO, for some closing remarks.

Tony Malkin (Chairman and CEO)

Thank you all very much. We remain focused on a clear and consistent set of priorities: lease our space, drive Observatory performance, maintain a strong and flexible balance sheet, allocate capital with discipline, and lead in sustainability. These priorities keep our organization focused and aligned as we drive the business forward. Supported by a high-quality portfolio and a strong financial foundation, we are well-positioned to execute in the quarters ahead and create long-term value for our shareholders. We look forward to the chance to meet with many of you at non-deal roadshows, conferences, and property tours in the months ahead. Onward and upward.

Operator (participant)

Thank you. This does now conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.