Empire State Realty Trust (NYSE:ESRT) released first-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below.

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Summary

Empire State Realty Trust reported a core FFO of $0.20 per diluted share for the first quarter of 2026, with a 5.5% year-over-year increase in same-store property cash NOI, excluding lease termination fees.

The company's observation deck generated $10.6 million in NOI, with a year-over-year decline attributed largely to changes in gift shop revenue timing, highlighting potential upside tied to international visitation recovery.

Core FAD for the first quarter was approximately $33 million, significantly up from the previous year, driven by reduced FAD CapEx and a commercial portfolio now over 93% leased.

Empire State Realty Trust's leasing strategy focuses on consolidating space and providing high-quality, full-floor and pre-built spaces, with a current pipeline of 280,000 square feet.

The company remains opportunistic with acquisitions, focusing on retail properties and capital recycling trades, while maintaining liquidity for potential share buybacks.

Management expressed confidence in achieving full-year guidance despite first-quarter challenges impacting visitation trends and emphasized the company's strategic initiatives and strong financial positioning for future growth.

Full Transcript

OPERATOR

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 and A session. 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 Mana Savecki with Evercore. Please proceed with your questions.

Mana Savecki (Equity Analyst)

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 in 2026 as 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 detail on just like the opportunity set that you're observing right now.

Christina

Could you repeat that question? We didn't understand your question regarding 2026.

Mana Savecki (Equity Analyst)

Okay, yeah, yeah, I think so. 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 extensions of loans has already taken place and the question will be at some point you have to deal with the maturity wall and we're done with extensions. So that can be a source. And in other instances we look for opportunities where people are either at the end of fund life, want to wrap up their investment and we can be part of the solution. As I mentioned, we continue to actively look at office, retail and multifamily and we'll look for situations where we can extract and add value and be able to generate good returns. Got it. Perfect. Thank you. And 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 is what was talked about. I was wondering if you could clarify a little bit on just on the leasing strategy there and how we could expect that in terms of timing.

Christina

So 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 a 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. Okay, thank you. That is it for me.

OPERATOR

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

Blaine Hecht (Equity Analyst)

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. So 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.

Christina

So 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 plan. 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. And 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. And I think I wouldn't read too much into the commentary. You know, at 130 Mercer we happen to have three full floors, one of which we executed on leasing a full floor. So we speak 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. Agreed. And when we look at them, it's a healthy mix within our current pipeline of that 280,000 square feet. And the pre built 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 Hecht (Equity Analyst)

Got it, thanks, that's very helpful commentary. And 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 back buybacks? You know, was that just more of a function of needing to reinvest your proceeds for the 1031 exchange?

Christina

Yeah, sure. So as we've mentioned in our capital allocation, buybacks are definitely a part of the consideration. Very specifically on the last two north six street acquisitions that represented a deployment of the Metro center assets. So 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 6th 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. So 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 redeploy in that manner and separately, we have great liquidity where we can also do share buybacks over time. Okay, great. Thank you.

OPERATOR

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

Seth Berge (Equity Analyst)

Hey, thanks for taking my question. I just wanted to go back to sort of the observatory, I guess, with visitation trends or the visitation down sort of 18% for the first quarter. Understand, you know, it's the seasonally sort of weakest quarter, but just what sort of gives you confidence to sort of achieve the guide for the rest of the year and any color you can sort of add on what you're seeing in April. So of course we update by quarter. So 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 have either information sharing or access to information as we go forward. 85% of the year is in front of us. And so 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. And what we see at this point is we still have a war on. We still have reduced travel into the US we still have significant disruption and delivery of things like aviation fuel and gasoline and diesel for both people to travel internationally and locally. And so we're keeping a close eye on things. So we think that changes there could have changes in general for the year. So 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, a strong weather eye. Great, thanks. And then maybe just as a follow up on 130 Mercer, now that you've executed some additional sort of leasing on the, on the building, how does that, how does the project sort of compare to your initial underwriting?

Christina

Overall, the lease is supportive of our underwriting. The rents are in the high 90s for the transaction that we just completed. TI's are consistent and the free rents 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, strong scarcity of institutional quality space down there, you know, and really we're a differentiator for our large floor plate, the amenities, our financial stability and our service. We're excited. Great. Thank you.

OPERATOR

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

Dylan Brzezinski (Equity Analyst)

Hi guys. I joined late so I might have missed it, but did you guys share the yield on cost estimates for the for the recent retail acquisition?

Christina

You didn't miss it because we didn't say it. So on North 6th street we have said for our portfolio, right. The other assets we acquired, we acquired sort of high fours to five and we expect it to be around six. 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. But this is more of a value add as compared to other existing income properties. And 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. 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 want to 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. So 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. And we don't think that really. And equity type risks, we don't think that really works for a lot of these assets. So again we keep our eyes open and remain omnivorous opportunists. Great.

OPERATOR

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

Tony Malkin (Chairman and CEO)

Thanks everybody for joining us today. At esrt, we remain focused on a clear and consistent set of 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 at non deal roadshows, conferences and property tours in the months ahead. Onward and upward.

OPERATOR

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.

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