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ES

Empire State Realty Trust, Inc. (ESRT)·Q3 2024 Earnings Summary

Executive Summary

  • Core FFO per diluted share rose to $0.26, and diluted EPS was $0.08; management said FFO came in above consensus and raised 2024 Core FFO guidance to $0.92–$0.94 from $0.90–$0.94. The commercial portfolio leased rate reached 93.0%, and Manhattan office occupancy increased to 89.2% .
  • Leasing momentum continued: 304k RSF signed with +2.6% blended office leasing spreads; Observatory NOI was $29.7M (+5.6% YoY), and year-to-date Observatory NOI reached $71.0M .
  • Capital recycling advanced: closed $143M of the $195M Williamsburg retail acquisition and entered an agreement for an additional ~$30M asset; liquidity stood at $0.9B, net debt/Adj. EBITDA was 5.2x, and there is no floating-rate debt exposure .
  • Management highlighted “Flight to Quality” tenant demand, proactive balance sheet management, and sustainability leadership (GRESB score 93; 5-Star, ranked first among all listed companies in the Americas) as catalysts for narrative and stock reaction .

What Went Well and What Went Wrong

What Went Well

  • “FFO came in above consensus,” driven by strong leasing (304k RSF) and sustained Observatory execution; management raised Core FFO guidance midpoint to $0.93 per share .
  • Flight to Quality: “ESRT is a destination for the Flight to Quality... draws from a deep well of tenant demand,” with Manhattan office leased rate at 93.6% (+170 bps YoY) and 13th consecutive quarter of positive leasing spreads .
  • Observatory strength: “TripAdvisor’s #1 attraction in the world... continued its performance,” with NOI of $29.7M and controlled costs; revenue per cap remains high per management .

What Went Wrong

  • Higher G&A and expected expense pressures: management called out elevated 2024 G&A (~$70M) and ~8% YoY increase in same-store operating expenses and real estate taxes (partly offset by reimbursements) .
  • Retail pricing headwind in the quarter: Total retail average cash rent psf was below previously escalated rents (–38.7%), pulling total portfolio blended comparison to –4.7% in Q3 execution snapshots .
  • Observatory attendance softness citywide in Q3 (seasonality and international mix) even as ESRT drove higher per-visitor monetization; management cited softer NYC tourism and timing effects (Easter shift) .

Financial Results

MetricQ3 2023Q2 2024Q3 2024
Total Revenues ($USD Thousands)$191,526 $189,543 $199,599
Diluted EPS ($)$0.07 $0.10 $0.08
Core FFO per Diluted Share ($)$0.25 $0.24 $0.26
Total Operating Income ($USD Thousands)$42,257 $39,361 $45,346
Interest Expense ($USD Thousands)$(25,382) $(25,323) $(27,408)
Observatory PerformanceQ2 2024Q3 2024
Observatory Revenue ($USD Millions)$34.1 $39.4
Observatory Expenses ($USD Millions)$8.9 $9.7
Observatory NOI ($USD Millions)$25.2 $29.7
Leasing & Occupancy KPIsQ1 2024Q2 2024Q3 2024
Signed Leases (RSF)~248,000 ~272,000 ~304,000
Blended Office Leasing Spreads+4.8% +2.0% +2.6%
Manhattan Office Leased Rate92.7% 93.3% 93.6%
Manhattan Office Occupancy88.9% 88.8% 89.2%
Total Commercial Leased Rate91.1% 92.6% 93.0%
Total Commercial Occupancy87.6% 88.5% 88.8%
Balance Sheet & LiquidityQ2 2024Q3 2024
Total Liquidity ($USD Billions)$1.0 $0.9
Cash ($USD Millions)$536 $422
Total Debt Outstanding ($USD Billions)~$2.3 ~$2.3
Weighted Avg Interest Rate (%)4.27% 4.27%
Net Debt / Adjusted EBITDA (x)5.1x 5.2x

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Core FFO per Fully Diluted ShareFY 2024$0.90–$0.94 $0.92–$0.94 Raised midpoint
Commercial Occupancy (year-end)FY 202487%–89% 88%–89% Raised low end
SS Property Cash NOI (excl term fees)FY 20240%–3% 3%–4% Raised
Observatory NOI ($USD Millions)FY 2024$94–$102 $96–$100 Tightened around midpoint
Average Observatory Expenses ($USD Millions/quarter)FY 2024~$9 ~$9 Maintained
Quarterly Dividend ($/share)Q3 2024$0.035 $0.035 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2024, Q2 2024)Current Period (Q3 2024)Trend
Flight to Quality & leasing spreads11th–12th consecutive quarters of positive spreads; Manhattan leased rate rose to 92.7%–93.3% 13th consecutive quarter of positive spreads; Manhattan leased 93.6% Strengthening
Observatory driversQ1 NOI +13% YoY; Q2 NOI $25.2M (+1.6% YoY); manage demand via reservations Q3 NOI $29.7M (+5.6% YoY); softness in visitors citywide offset by higher per-cap monetization Solid execution; seasonal sensitivity
Capital recycling (Williamsburg retail)Announced $195M agreements; NOI mix diversification Closed $143M; agreement for additional ~$30M; initial ~4% yield ramping to >6% by 2027 Scaling; multi-year upside
Balance sheet disciplineAddressed 2025 maturities; lowest leverage among NYC REITs (5.1x) Liquidity $0.9B; net debt/Adj EBITDA 5.2x; no floating-rate debt; leverage to trend toward ~6x with acquisitions Strong position; slightly higher leverage path
Leasing costs/net effective rentStrategy of turnkey/prebuilt; net effective rent up ~10% over ~3 years; concessions tightening Lowest leasing costs of any quarter in 3 years and highest net effective rent; free rent pullback Improving economics
Sustainability leadershipENERGY STAR/WELL awards; cornerstone of tenant appeal GRESB 5-Star, score 93, ranked first Americas listed Reinforced leadership

Management Commentary

  • “In the third quarter, FFO came in above consensus. Our leasing team again put points on the board... and our 13th consecutive quarter of positive New York City office rent spreads.” — Anthony Malkin, CEO .
  • “We have $45 million in incremental cash revenue from signed leases not commenced and free rent burn-off...” — Thomas Durels, EVP Real Estate .
  • “Upon completion... we will have an initial yield of approximately 4% and yield of just over 6% by 2027, with further mark-to-market upside over time.” — Christina Chiu, President .
  • “We raised the midpoint of our core FFO guidance for 2024 to $0.93 per fully diluted share.” — Stephen Horn, CFO .

Q&A Highlights

  • Guidance calibration: Beat included termination fees and other one-time items; Q4 modeled conservatively with higher G&A and Observatory variability; updated full-year guide implies ~$0.22 for Q4 .
  • Observatory attendance: Softer Q3 NYC tourism and holiday timing; revenue per visitor strong, Chinese visitors doubled off a low base .
  • Capital recycling dilution concerns: Emphasis on long-term cash flow growth and fair trade of non-core suburban for prime NYC retail; opportunistic approach to future deals .
  • Leasing pipeline and concessions: More early renewals and expansions; highest net effective rents and lowest leasing costs in years; free rent reduced, turnkey buildouts continue .
  • Balance sheet/leverage outlook: No floating-rate exposure; leverage expected to trend modestly higher toward ~6x with acquisitions and debt actions .

Estimates Context

  • S&P Global consensus data could not be retrieved in this session (system limit). Management stated “FFO came in above consensus” in Q3. We therefore anchor to company-reported results and guidance and flag that Street comparisons are not included due to data unavailability .
  • Where relevant, investors may need to adjust estimates for: higher 2024 G&A, raised same-store NOI growth and occupancy assumptions, tightened Observatory range, and management’s disclosed adverse net impact of approximately $0.05 to 2025 FFO from capital movements and non-cash stock-based comp .
  • Note: S&P Global consensus values unavailable in this session; please refer to your S&P Global feed for current Street estimates.*

Key Takeaways for Investors

  • Positive narrative: Strong leasing, sustained Observatory performance, and raised Core FFO guidance underpin improving fundamentals and a Flight to Quality story in NYC offices .
  • Leasing economics improving: Highest net effective rents and lowest leasing costs in years, with continued positive spreads; pipeline and signed-not-commenced leases support 2025 occupancy gains .
  • Retail strategy adds multi-year growth: Williamsburg assets scale ESRT’s prime retail footprint with contractual free-rent burn-off and vacancy lease-up driving yields from ~4% to >6% by 2027, plus mark-to-market upside .
  • Balance sheet remains a differentiator: $0.9B liquidity, no floating-rate debt, net debt/Adj EBITDA 5.2x; modest leverage increase expected but within disciplined framework .
  • Watch expense and G&A trajectory: 2024 G&A ~$70M and ~8% SS OpEx growth; near-term optics could temper FFO flow-through despite stronger leasing and Observatory trends .
  • Near-term trading setup: Raised guidance and confidence in leasing spreads are supportive; selective caution on Q4 variability (Observatory/weather, one-time items not recurring) .
  • Medium-term thesis: Capital recycling into NYC retail/multifamily, sustainability leadership, and balanced sheet optionality position ESRT to capture distressed/structured opportunities with duration-focused returns .

Other Relevant Press Releases (Q3 context)

  • Empire State Building opens new 10,000 sq ft Empire Lounge, enhancing tenant amenities and experience .
  • Bloomsbury Publishing (24k sf) and Hecker Fink expansion (26.8k sf) highlight post-quarter leasing wins consistent with Q3 trends .
  • ESRT ranks first among all listed companies in the Americas in GRESB (score 93; 5-Star), reinforcing sustainability leadership .

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