Empire State Realty Trust Inc.

11/05/2025 | Press release | Distributed by Public on 11/05/2025 15:49

Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context otherwise requires or indicates, references in this section to "we," "our," and "us" refer to our Company and its consolidated subsidiaries. This Management's Discussion and Analysis provides a comparison of the Company's performance for its three and nine month periods ended September 30, 2025 with the corresponding three and nine month periods ended September 30, 2024 and reviews the Company's financial position as of September 30, 2025. The following discussion related to our consolidated financial statements should be read in conjunction with the financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of complying with those safe harbor provisions. You can identify forward-looking statements by the use of forward-looking terminology such as "aims," "anticipates," "approximately," "believes," "contemplates," "continues," "estimates," "expects," "forecasts," "hope," "intends," "may," "plans," "seeks," "should," "thinks," "will," "would" or the negative of these words and phrases or similar words or phrases. In particular, statements pertaining to our capital resources, portfolio performance, dividend policy and results of operations contain forward-looking statements. Likewise, all of our statements regarding anticipated growth in our portfolio from operations, acquisitions and anticipated market conditions, demographics and results of operations are forward-looking statements.
Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control, and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise, and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all).
Many important factors could cause actual results, performance, achievements, and future events to differ materially from those set forth, implied, anticipated, expected, projected, assumed or contemplated in the forward-looking statements, including, among other things: (i) economic, market, political and social impact of, and uncertainty relating to, any catastrophic events, including pandemics, epidemics or other outbreaks of disease, natural disasters and extreme weather events, terrorism and other armed hostilities, as well as cybersecurity threats and technology disruptions; (ii) increased costs due to tariffs or other economic factors; (iii) a failure of conditions or performance regarding any event or transaction described herein; (iv) resolution of legal proceedings involving the Company; (v) reduced demand for office, multifamily or retail space, including as a result of the changes in the use of office space and remote work; (vi) changes in our business strategy; (vii) a decline in Observatory visitors due to changes in domestic or international tourism, including due to health crises, geopolitical events, currency exchange rates, and/or competition from other observatories; (viii) defaults on, early terminations of, or non-renewal of, leases by tenants; (ix) increases in the Company's borrowing costs as a result of changes in interest rates and other factors; (x) declining real estate valuations and impairment charges; (xi) termination of our ground leases; (xii) limitations on our ability to pay down, refinance, restructure or extend our indebtedness or borrow additional funds; (xiii) decreased rental rates or increased vacancy rates; (xiv) difficulties in executing capital projects or development projects successfully or on the anticipated timeline or budget; (xv) difficulties in identifying and completing acquisitions; (xvi) impact of changes in governmental regulations, tax laws and rates and similar matters; (xvii) our failure to qualify as a REIT; (xviii) incurrence of taxable capital gain on disposition of an asset due to failure of compliance with a 1031 exchange program; (xix) our disclosure controls and internal control over financial reporting, including any material weakness; and (xx) failure to achieve sustainability metrics and goals, including as a result of tenant collaboration, and impact of governmental regulation on our sustainability efforts. For a further discussion of these and other factors that could impact the Company's future results, performance, or transactions, see the section entitled "Risk Factors" in the Company's Annual Report for the year ended December 31, 2024, and other risks described in documents subsequently filed by the Company from time to time with the SEC.
While forward-looking statements reflect the Company's good faith beliefs, they do not guarantee future performance. Any forward-looking statement speaks only as of the date on which it was made, and we assume no obligation to update or revise publicly any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events, or other changes after the date of this Quarterly Report on Form 10-Q, except as required by applicable law. Prospective investors should not place undue reliance on any forward-looking statements, which are based only on information currently available to the Company (or to third parties making the forward-looking statements).
Overview
Highlights for the three months ended September 30, 2025
•Net income of $13.6 million.
•Core Funds From Operations ("Core FFO") of $61.3 million attributable to common stockholders and the operating partnership.
•Signed a total of 87,880 rentable square feet of new, renewal, and expansion leases.
Results of Operations
The discussion below relates to our results of operations for the three and nine months ended September 30, 2025 and 2024, respectively.
Three Months Ended September 30, 2025 Compared to the Three Months Ended September 30, 2024
The following table summarizes the historical results of operations:
Three Months Ended September 30,
2025 2024 Change %
(amounts in thousands) Real Estate Segment Observatory Segment Total Real Estate Segment Observatory Segment Total
Revenues:
Rental revenue $ 158,410 $ - $ 158,410 $ 153,117 $ - $ 153,117 $ 5,293 3.5 %
Observatory revenue - 36,037 36,037 - 39,382 39,382 (3,345) (8.5) %
Lease termination fees - - - 4,771 - 4,771 (4,771) (100.0) %
Third-party management and other fees 404 - 404 271 - 271 133 49.1 %
Other revenues and fees 2,879 - 2,879 2,058 - 2,058 821 39.9 %
Total revenues 161,693 36,037 197,730 160,217 39,382 199,599 (1,869) (0.9) %
Operating expenses:
Property operating expenses 46,957 - 46,957 45,954 - 45,954 (1,003) (2.2) %
Ground rent expenses 2,331 - 2,331 2,331 - 2,331 - - %
General and administrative expenses 18,743 - 18,743 18,372 - 18,372 (371) (2.0) %
Observatory expenses - 9,510 9,510 - 9,715 9,715 205 2.1 %
Real estate taxes 33,241 - 33,241 31,982 - 31,982 (1,259) (3.9) %
Depreciation and amortization 47,573 42 47,615 45,861 38 45,899 (1,716) (3.7) %
Total operating expenses 148,845 9,552 158,397 144,500 9,753 154,253 (4,144) (2.7) %
Operating income 12,848 26,485 39,333 15,717 29,629 45,346 (6,013) (13.3) %
Intercompany rent revenue (expense) 20,185 (20,185) - 23,461 (23,461) - - - %
Other income (expense):
Interest income 992 154 1,146 6,871 89 6,960 (5,814) (83.5) %
Interest expense (25,189) - (25,189) (27,408) - (27,408) 2,219 8.1 %
Interest expense associated with property in receivership - - - (1,922) - (1,922) 1,922 100.0 %
Gain on disposition of property - - - 1,262 - 1,262 (1,262) (100.0) %
Income before income taxes 8,836 6,454 15,290 17,981 6,257 24,238 (8,948) (36.9) %
Income tax expense (317) (1,328) (1,645) (216) (1,226) (1,442) (203) (14.1) %
Net income 8,519 5,126 13,645 17,765 5,031 22,796 (9,151) (40.1) %
Net income attributable to non-controlling interests:
Non-controlling interests in the Operating Partnership (4,610) - (4,610) (8,205) - (8,205) 3,595 43.8 %
Private perpetual preferred unit distributions (1,050) - (1,050) (1,050) - (1,050) - - %
Net income attributable to common stockholders $ 2,859 $ 5,126 $ 7,985 $ 8,510 $ 5,031 $ 13,541 $ (5,556) (41.0) %
Real Estate Segment
Rental Revenue
The increase in rental revenue during the three months ended September 30, 2025 compared to the three months ended September 30, 2024 was primarily attributable to the acquisitions during 2024 and 2025 and higher tenant reimbursement income.
Property Operating Expenses
The increase in property operating expenses during the three months ended September 30, 2025 compared to the three months ended September 30, 2024 was primarily due to higher repair and maintenance costs and by the increase from acquisitions during 2024 and 2025.
Real Estate Taxes
The increase in real estate taxes during the three months ended September 30, 2025 compared to the three months ended September 30, 2024 was primarily due to higher tax rates and property valuations and by the increase from acquisitions during 2024 and 2025.
Interest Income
The decrease in interest income during the three months ended September 30, 2025 was primarily attributable to a decrease in cash and cash equivalents due to unlevered property acquisitions during 2024 and 2025, the paydown of the $120.0 million revolving credit facility and the $100.0 million Series A senior unsecured notes in March 2025.
Observatory Segment
Observatory Revenue
Observatory revenues were lower due to lower visitation during the three months ended September 30, 2025 compared to the three months ended September 30, 2024, primarily due to lower levels of international tourism in 2025 as compared to 2024.
Nine Months Ended September 30, 2025 Compared to the Nine Months Ended September 30, 2024
Nine Months Ended September 30,
2025 2024 Change %
(amounts in thousands) Real Estate Segment Observatory Segment Total Real Estate Segment Observatory Segment Total
Revenues:
Rental revenue $ 466,492 $ - $ 466,492 $ 459,469 $ - $ 459,469 $ 7,023 1.5 %
Observatory revenue - 93,097 93,097 - 98,102 98,102 (5,005) (5.1) %
Lease termination fees 464 - 464 4,771 - 4,771 (4,307) (90.3) %
Third-party management and other fees 1,243 - 1,243 912 - 912 331 36.3 %
Other revenues and fees 7,750 - 7,750 7,067 - 7,067 683 9.7 %
Total revenues 475,949 93,097 569,046 472,219 98,102 570,321 (1,275) (0.2) %
Operating expenses:
Property operating expenses 136,897 - 136,897 132,530 - 132,530 (4,367) (3.3) %
Ground rent expenses 6,994 - 6,994 6,994 - 6,994 - - %
General and administrative expenses 54,368 - 54,368 52,364 - 52,364 (2,004) (3.8) %
Observatory expenses - 27,450 27,450 - 27,104 27,104 (346) (1.3) %
Real estate taxes 98,898 - 98,898 96,106 - 96,106 (2,792) (2.9) %
Depreciation and amortization 144,068 128 144,196 139,346 107 139,453 (4,743) (3.4) %
Total operating expenses 441,225 27,578 468,803 427,340 27,211 454,551 (14,252) (3.1) %
Operating income 34,724 65,519 100,243 44,879 70,891 115,770 (15,527) (13.4) %
Intercompany rent revenue (expense) 56,011 (56,011) - 60,508 (60,508) - - - %
Other income (expense):
Interest income 6,420 379 6,799 16,022 208 16,230 (9,431) (58.1) %
Interest expense (77,253) - (77,253) (77,859) - (77,859) 606 0.8 %
Interest expense associated with property in receivership (647) - (647) (2,550) - (2,550) 1,903 74.6 %
Loss on early extinguishment of debt - - - (553) - (553) 553 100.0 %
Gain on disposition of property 13,170 - 13,170 12,065 - 12,065 1,105 9.2 %
Income before income taxes 32,425 9,887 42,312 52,512 10,591 63,103 (20,791) (32.9) %
Income tax expense (682) (822) (1,504) (537) (1,000) (1,537) 33 2.1 %
Net income 31,743 9,065 40,808 51,975 9,591 61,566 (20,758) (33.7) %
Net income attributable to non-controlling interests:
Non-controlling interests in the Operating Partnership (13,933) - (13,933) (22,138) - (22,138) 8,205 37.1 %
Non-controlling interests in other partnerships - - - (4) - (4) 4 100.0 %
Private perpetual preferred unit distributions (3,151) - (3,151) (3,151) - (3,151) - - %
Net income attributable to common stockholders $ 14,659 $ 9,065 $ 23,724 $ 26,682 $ 9,591 $ 36,273 $ (12,549) (34.6) %
Real Estate Segment
Rental Revenue
The increase in rental revenue was primarily attributable to the increase in operating and real estate tax expense escalations during the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. New lease commencements in excess of expirations in the current period also drove an increase in the Company's portfolio. These increases were partially offset by the net impact from the disposition made during 2024 and the acquisitions made during 2024 and 2025.
Property Operating Expenses
The increase in property operating expenses was primarily due to higher repair and maintenance costs and cleaning-related payroll costs during the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. This was partially offset by the net impact from the disposition made during 2024 and the acquisitions made during 2024 and 2025.
General and Administrative Expenses
The increase in general and administrative expenses was primarily due to recognition of non-cash stock based compensation expense during the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024.
Interest Income
The decrease in interest income during the nine months ended September 30, 2025 was primarily attributable to a decrease in cash and cash equivalents due to unlevered property acquisitions during 2024 and 2025, the paydown of the $120.0 million revolving credit facility and the $100.0 million Series A senior unsecured notes in March 2025.
Gain on Disposition of Property
The gain on disposition activity for the nine months ended September 30, 2024 and 2025, represents the derecognition of assets and certain liabilities in connection with the consensual foreclosure of First Stamford Place in Stamford, Connecticut in May 2024, and the subsequent deconsolidation of the mezzanine debt obligation in connection with the completion of the consensual foreclosure in February 2025, respectively. See "Financial Statements - Note 3. Acquisitions and Dispositions" for additional details.
Observatory Segment
Observatory Revenue
Observatory revenues were lower due to lower visitation during the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, primarily due to lower levels of international tourism in 2025 as compared to 2024, in addition to more bad weather days during holiday weekends in the second quarter of 2025 as compared to 2024.
Liquidity and Capital Resources
Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain our assets and operations, including lease-up costs, fund our redevelopment and repositioning programs, acquire properties, make distributions to our securityholders and fulfill other general business needs. Based on the historical experience of our management and our business strategy, in the foreseeable future we anticipate we will generate positive cash flows from operations. In order to qualify as a REIT, we are required under the Internal Revenue Code of 1986 to distribute to our stockholders, on an annual basis, at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains. We expect to make quarterly distributions, as required, to our securityholders.
While we may be able to anticipate and plan for certain liquidity needs, there may be unexpected increases in uses of cash that are beyond our control and which would affect our financial condition and results of operations. For example, we may be required to comply with new laws or regulations that cause us to incur unanticipated capital expenditures for our properties, thereby increasing our liquidity needs. Even if there are no material changes to our anticipated liquidity requirements, our sources of liquidity may be fewer than, and the funds available from such sources may be less than, anticipated or needed. Our primary sources of liquidity will generally consist of cash on hand, cash generated from our operating activities, debt issuances and unused borrowing capacity under our unsecured revolving credit facility. We expect to meet our short-term liquidity requirements, including distributions, operating expenses, working capital, debt service, and capital expenditures from cash flows from operations, cash on hand, debt issuances, and available borrowing capacity under our unsecured revolving credit facility. The availability of these borrowings is subject to the conditions set forth in the applicable loan agreements. We expect to meet our long-term capital requirements, including acquisitions, redevelopments and capital expenditures through our cash flows from operations, cash on hand, our unsecured revolving credit facility, mortgage financings, debt issuances, common and/or preferred equity issuances and asset
sales. Our properties require periodic investments of capital for individual lease related tenant improvement allowances, general capital improvements and costs associated with capital expenditures. Our overall leverage will depend on our mix of investments and the cost of leverage. Our charter does not restrict the amount of leverage that we may use.
At September 30, 2025, we had $154.1 million available in cash and cash equivalents, and $620.0 million available under our unsecured revolving credit facility.
At September 30, 2025, we had approximately $2.1 billion of total consolidated indebtedness outstanding, with a weighted average interest rate of 4.34% and a weighted average maturity of 4.8 years.
Portfolio Transaction Activity
In June 2025, we closed on the acquisition of two retail properties on North 6thStreet in Williamsburg, Brooklyn for an aggregate purchase price of $31.0 million.
In September and October 2024, we closed on the acquisition of a portfolio of retail properties on North 6thStreet in Williamsburg, Brooklyn for an aggregate purchase price of $195.0 million.
On March 28, 2024, we executed a buyout of the 10% non-controlling interest in two of our multifamily properties located at 561 10thAvenue and 345 East 94thStreet in Manhattan for $14.2 million in cash and the assumption of $18.0 million of in-place debt and now own 100% of the ownership interests in these assets.
Unsecured Revolving Credit and Term Loan Facilities
On May 28, 2025, through our Operating Partnership, we entered into a first amendment to our second amended and restated credit agreement, dated March 8, 2024, with Bank of America, N.A., as administrative agent and other lenders party thereto, which governs our BofA Credit Facilities. The first amendment amends certain sustainability margin adjustment terms. No other changes were made to the amount of the commitments, the maturity date of the outstanding loans or the covenants.
In March 2024, we closed a $715.0 million, five-year unsecured credit agreement which consists of a $620.0 million revolver and a $95.0 million term loan facility, each of which mature on March 8, 2029, inclusive of the extension periods. On March 18, 2025, we repaid the $120.0 million borrowings previously drawn on the Revolving Credit Facility. See "Financial Statements - Note 5. Debt" for a summary of our unsecured revolving credit and term loan facilities.
Financial Covenants
As of September 30, 2025, we were in compliance with the following financial covenants related to our unsecured facilities:
Financial Covenant Required September 30, 2025 In Compliance
Maximum total leverage < 60% 32.1 % Yes
Maximum secured leverage < 40% 11.7 % Yes
Minimum fixed charge coverage > 1.50x 3.1x Yes
Minimum unencumbered interest coverage > 1.75x 4.9x Yes
Maximum unsecured leverage < 60% 25.2 % Yes
Mortgage Debt
As of September 30, 2025, mortgage notes payable, net, amounted to $691.0 million. Our next mortgage debt maturity is for $50.0 million in April 2026.
In April 2024, we worked with the First Stamford Place mortgage lender to structure a consensual foreclosure. On May 22, 2024, a receiver was appointed and we ended our management of the property. On February 5, 2025, the consensual foreclosure was completed, title of the property was transferred to the mortgage lender and we were released of our mortgage obligation.
See "Financial Statements - Note 5. Debt" for more information on mortgage debt.
Senior Unsecured Notes
As of September 30, 2025, senior unsecured notes, net, amounted to $1.1 billion. We have no senior unsecured notes maturing until March 2027.
On June 17, 2024, we closed on the issuance and sale of an aggregate $225.0 million principal amount of notes, consisting of (a) $155.0 million aggregate principal amount of 7.20% Series I Green Guaranteed Senior Notes due June 17, 2029, (b) $45.0 million aggregate principal amount of 7.32% Series J Green Guaranteed Senior Notes due June 17, 2031 and (c) $25.0 million aggregate principal amount of 7.41% Series K Green Guaranteed Senior Notes due June 17, 2034.
On March 27, 2025, the Series A senior unsecured notes matured and the aggregate principal amount of $100.0 million was repaid. The notes had a stated interest rate of 3.93%.
Subsequent to quarter end on October 15, 2025, we entered into the Purchase Agreement in connection with a private placement of the Series L Notes. Under the Purchase Agreement, we will issue and sell $175.0 million aggregate principal amount of the Series L Notes. The sale and purchase of the Series L Notes is scheduled to fund on December 18, 2025, subject to customary closing conditions.
See "Financial Statements - Note 5. Debt" for more information on senior unsecured notes.
Leverage Policies
We expect to employ leverage in our capital structure in amounts determined from time to time by our Board of Directors. In the evaluation of our level of indebtedness, our Board of Directors will consider a number of factors including the mix of recourse or non-recourse debt and cross-collateralized debt, mix of fixed or floating rate debt, and cost of leverage. Our charter and bylaws do not limit the amount or percentage of indebtedness that we may incur nor do they restrict the form in which our indebtedness will be taken. Our overall leverage will depend on our mix of investments and the cost of leverage. Our Board of Directors may from time to time modify our leverage policies in light of the then-current economic conditions, access to and relative costs of debt and equity capital, market values of our properties, general market conditions for debt and equity securities, fluctuations in the market price of our common stock, growth and acquisition opportunities and other factors.
Capital Expenditures
The following tables summarize our tenant improvement costs, leasing commission costs and our capital expenditures for each of the periods presented (dollars in thousands, except per square foot amounts).
Office Properties(1)(2)
Nine Months Ended September 30,
Total New Leases, Expansions, and Renewals(3)
2025 2024
Number of leases signed(4)
51 82
Total square feet 523,002 921,671
Weighted average annualized cash rent per square foot for new and renewal leases executed during the year $ 68.94 $ 66.69
Weighted average annualized cash rent per square foot for previous leases 62.77 64.58
Percentage of new cash rent over previously escalated rents 9.8 % 3.3 %
Leasing commission costs per square foot(5)
$ 24.78 $ 18.53
Tenant improvement costs per square foot(5)
65.69 58.67
Total leasing commissions and tenant improvement costs per square foot(5)
$ 90.47 $ 77.20
Retail Properties(2)(6)
Nine Months Ended September 30,
Total New Leases, Expansions, and Renewals(3)
2025 2024
Number of leases signed(4)
7 9
Total square feet 27,534 24,240
Weighted average annualized cash rent per square foot for new and renewal leases executed during the year $ 183.86 $ 181.95
Weighted average annualized cash rent per square foot for previous leases 211.21 241.65
Percentage of new cash rent over previously escalated rents (12.9) % (24.7) %
Leasing commission costs per square foot(5)
$ 89.43 $ 74.29
Tenant improvement costs per square foot(5)
75.97 35.87
Total leasing commissions and tenant improvement costs per square foot(5)
$ 165.40 $ 110.16
_______________
(1)Excludes an aggregate of 475,442 and 475,744 rentable square feet of retail space in our Manhattan office properties in 2025 and 2024, respectively.
(2)The tables above exclude our multifamily properties.
(3)The number of leases signed include "Early Renewals" which are leases signed over two years prior to the lease expiration.
(4)Presents a renewed and expansion lease as one lease signed.
(5)Presents all tenant improvement and leasing commission costs as if they were incurred in the period in which the lease was signed, which may be different than the period in which they were actually paid.
(6)Includes an aggregate of 475,442 and 475,744 rentable square feet of retail space in our Manhattan office properties in 2025 and 2024, respectively.
(amounts in thousands) Nine Months Ended September 30,
Total Commercial Portfolio 2025 2024
Capital expenditures (1)
$ 47,413 $ 48,878
_______________
(1)Includes all capital expenditures, excluding tenant improvements and leasing commission costs.
As of September 30, 2025, we expect to incur additional costs relating to obligations under existing lease agreements of approximately $96.8 million for tenant improvements and leasing commissions. We intend to fund the tenant improvements and leasing commission costs through a combination of operating cash flow, cash on hand and other borrowings.
Capital expenditures are considered part of both our short-term and long-term liquidity requirements. We intend to fund capital improvements through a combination of operating cash flow, cash on hand and other borrowings.
Distribution Policy
We intend to distribute our net taxable income to our securityholders in a manner intended to satisfy REIT distribution requirements and to avoid U.S. federal income tax liability.
Before we pay any distribution, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and obligations to make payments of principal and interest, if any. However, under some circumstances, we may be required to use cash reserves, incur debt or liquidate assets at rates or times that we regard as unfavorable or make a taxable distribution of our shares in order to satisfy REIT distribution requirements.
Distribution to Equity Holders
Distributions and dividends amounting to $32.4 million and $31.8 million have been made to equity holders for the nine months ended September 30, 2025 and 2024, respectively.
Stock and Publicly Traded Operating Partnership Unit Repurchase Program
Our Board of Directors authorized the repurchase of up to $500.0 million of our Class A common stock and the Operating Partnership's Series ES, Series 250 and Series 60 operating partnership units from January 1, 2024 through December 31, 2025. Under the program, we may purchase our Class A common stock and the Operating Partnership's Series ES, Series 250 and Series 60 operating partnership units in accordance with applicable securities laws from time to time in the open market or in privately negotiated transactions. The timing, manner, price and amount of any repurchases will be determined by us at our discretion and will be subject to stock price, availability, trading volume, general market conditions, and applicable securities laws. The authorization does not obligate us to acquire any particular amount of securities, and the program may be suspended or discontinued at our discretion without prior notice. As of September 30, 2025, we
had $497.9 million remaining of the authorized repurchase amount. There were no repurchases of equity securities during the three months ended September 30, 2025. See "Financial Statements - Note 10. Equity."
Cash Flows
Comparison of Nine Months Ended September 30, 2025 to the Nine Months Ended September 30, 2024
Net cash. Cash and cash equivalents and restricted cash were $197.8 million and $469.9 million as of September 30, 2025 and 2024, respectively. The decrease was primarily the result of the following changes in cash flows:
Operating activities. Net cash provided by operating activities increased by $4.3 million to $215.2 million primarily due to changes in working capital.
Investing activities. Net cash used in investing activities decreased by $130.4 million to $188.1 million primarily due to the $31.7 million acquisition of two retail properties on North 6thStreet in Williamsburg, Brooklyn in June 2025, compared to the $143.4 million acquisition of a portfolio of retail properties on North 6thStreet Williamsburg in September 2024.
Financing activities. Net cash used in financing activities increased by $429.2 million to $258.6 million primarily due to the 2025 repayments of the $120.0 million previously drawn on the revolving credit facility and the $100.0 million Series A senior unsecured notes, compared to the 2024 proceeds from the issuance of $225.0 million Series I-K senior unsecured notes. See "Financial Statements - Note 5. Debt."
Net Operating Income
Net operating income ("NOI") is a non-GAAP financial measure of performance. NOI is used by our management to evaluate and compare the performance of our properties and to determine trends in earnings and to compute the fair value of our properties as it is not affected by: (i) the cost of funds of the property owner, (ii) the impact of depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets that are included in net income computed in accordance with GAAP, (iii) acquisition expenses, loss on early extinguishment of debt, impairment charges and loss from derivative financial instruments, or (iv) general and administrative expenses and other gains and losses that are specific to the property owner. The cost of funds is eliminated from NOI because it is specific to the particular financing capabilities and constraints of the owner. The cost of funds is eliminated because it is dependent on historical interest rates and other costs of capital as well as past decisions made by us regarding the appropriate mix of capital which may have changed or may change in the future. Depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets are eliminated because they may not accurately represent the actual change in value in our office or retail properties that result from use of the properties or changes in market conditions. While certain aspects of real property do decline in value over time in a manner that is reasonably captured by depreciation and amortization, the value of the properties as a whole have historically increased or decreased as a result of changes in overall economic conditions instead of from actual use of the property or the passage of time. Gains and losses from the sale of real property vary from property to property and are affected by market conditions at the time of sale which will usually change from period to period. These gains and losses can create distortions when comparing one period to another or when comparing our operating results to the operating results of other real estate companies that have not made similarly-timed purchases or sales. We believe that eliminating these costs from net income is useful to investors because the resulting measure captures the actual revenue generated and actual expenses incurred in operating our properties as well as trends in occupancy rates, rental rates and operating costs.
However, the usefulness of NOI is limited because it excludes general and administrative costs, interest expense, depreciation and amortization expense and gains or losses from the sale of properties, and other gains and losses as stipulated by GAAP, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, all of which are significant economic costs. NOI may fail to capture significant trends in these components of net income which further limits its usefulness.
NOI is a measure of the operating performance of our properties but does not measure our performance as a whole.NOI is therefore not a substitute for net income as computed in accordance with GAAP. This measure should be analyzed in conjunction with net income computed in accordance with GAAP and discussions elsewhere in this Management's Discussion and Analysis of Financial Condition and Results of Operations regarding the components of net income that are eliminated in the calculation of NOI. Other companies may use different methods for calculating NOI or similarly titled measures and, accordingly, our NOI may not be comparable to similarly titled measures reported by other companies that do not define the measure exactly as we do.
The following table presents a reconciliation of our net income, the most directly comparable GAAP measure, to NOI:
Three Months Ended September 30, Nine Months Ended September 30,
(amounts in thousands) 2025 2024 2025 2024
(unaudited) (unaudited)
Net income $ 13,645 $ 22,796 $ 40,808 $ 61,566
Add:
General and administrative expenses 18,743 18,372 54,368 52,364
Depreciation and amortization 47,615 45,899 144,196 139,453
Interest expense 25,189 27,408 77,253 77,859
Interest expense associated with property in receivership - 1,922 647 2,550
Loss on early extinguishment of debt - - - 553
Income tax expense 1,645 1,442 1,504 1,537
Less:
Gain on disposition of property - (1,262) (13,170) (12,065)
Third-party management and other fees (404) (271) (1,243) (912)
Interest income (1,146) (6,960) (6,799) (16,230)
Net operating income $ 105,287 $ 109,346 $ 297,564 $ 306,675
Other Net Operating Income Data
Straight-line rental revenue $ 4,688 $ 2,277 $ 13,719 $ 7,238
Net increase in amortization of rental revenue from above-and-below-market leases $ 821 $ 476 $ 2,459 $ 1,503
Amortization of acquired below-market ground leases $ 1,957 $ 1,958 $ 5,873 $ 5,874
Funds from Operations
We present below a discussion of Funds from Operations ("FFO"). Wecompute FFO in accordance with the "White Paper" on FFO published by the National Association of Real Estate Investment Trusts, or NAREIT, which defines FFO as net income (loss) (determined in accordance with GAAP), excluding impairment write-off of investments in depreciable real estate and investments in in-substance real estate investments, gains or losses from debt restructurings and sales of depreciable operating properties, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs), less distributions to non-controlling interests and gains/losses from discontinued operations and after adjustments for unconsolidated partnerships and joint ventures. FFO is a widely recognized non-GAAP financial measure for REITs that we believe, when considered with financial statements determined in accordance with GAAP, is useful to investors in understanding financial performance and providing a relevant basis for comparison among REITs. In addition, we believe FFO is useful to investors as it captures features particular to real estate performance by recognizing that real estate has generally appreciated over time or maintains residual value to a much greater extent than do other depreciable assets. Investors should review FFO, along with GAAP net income, when trying to understand an equity REIT's operating performance. We present FFO because we consider it an important supplemental measure of our operating performance and believe that it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our results of operations, the utility of FFO as a measure of performance is limited. There can be no assurance that FFO presented by us is comparable to similarly titled measures of other REITs. FFO does not represent cash generated from operating activities and should not be considered as an alternative to net income (loss) determined in accordance with GAAP or to cash flow from operating activities determined in accordance with GAAP. FFO is not indicative of cash available to fund ongoing cash needs, including the ability to make cash distributions. Although FFO is a measure used for comparability in assessing the performance of REITs, as the NAREIT White Paper only provides guidelines for computing FFO, the computation of FFO may vary from one company to another.
Modified Funds From Operations
Modified Funds from Operations ("Modified FFO") adds back an adjustment for any below-market ground lease amortization to traditionally defined FFO. We believe this a useful supplemental measure in evaluating our operating performance due to the non-cash accounting treatment under GAAP, which stems from the third quarter 2014 acquisition of two option properties following our formation transactions as they carry significantly below market ground leases, the amortization of which is material to our overall results. We present Modified FFO because we believe it is an important supplemental measure of our operating performance in that it adds back the non-cash amortization of below-market ground leases. There can be no assurance that Modified FFO presented by us is comparable to similarly titled measures of other REITs. Modified FFO does not represent cash generated from operating activities and should not be considered as an alternative to net income (loss) determined in accordance with GAAP or to cash flow from operating activities determined in accordance with GAAP. Modified FFO is not indicative of cash available to fund ongoing cash needs, including the ability to make cash distributions.
Core Funds From Operations
Core FFO adds back to Modified FFO the following items: Interest expense associated with property in receivership and loss on early extinguishment of debt. The Company believes Core FFO is an important supplemental measure of its operating performance because it excludes non-recurring items. There can be no assurance that Core FFO presented by the Company is comparable to similarly titled measures of other REITs. Core FFO does not represent cash generated from operating activities and should not be considered as an alternative to net income (loss) determined in accordance with GAAP or to cash flow from operating activities determined in accordance with GAAP. Core FFO is not indicative of cash available to fund ongoing cash needs, including the ability to make cash distributions. In future periods, we may also exclude other items from Core FFO that we believe may help investors compare our results.
The following table presents a reconciliation of our net income, the most directly comparable GAAP measure, to FFO, Modified FFO and Core FFO:
Three Months Ended September 30, Nine Months Ended September 30,
(amounts in thousands) 2025 2024 2025 2024
(unaudited) (unaudited)
Net income $ 13,645 $ 22,796 $ 40,808 $ 61,566
Non-controlling interests in other partnerships - - - (4)
Private perpetual preferred unit distributions (1,050) (1,050) (3,151) (3,151)
Real estate depreciation and amortization 46,741 44,871 141,533 136,126
Gain on disposition of property - (1,262) (13,170) (12,065)
Funds from operations attributable to common stockholders and the Operating Partnership 59,336 65,355 166,020 182,472
Amortization of below-market ground leases 1,957 1,958 5,873 5,874
Modified funds from operations attributable to common stockholders and the Operating Partnership 61,293 67,313 171,893 188,346
Interest expense associated with property in receivership - 1,922 647 2,550
Loss on early extinguishment of debt - - - 553
Core funds from operations attributable to common stockholders and the Operating Partnership $ 61,293 $ 69,235 $ 172,540 $ 191,449
Weighted average shares and Operating Partnership Units
Basic 266,963 264,787 266,978 264,675
Diluted 270,357 269,613 269,945 268,608
Factors That May Influence Future Results of Operations
Leasing
Due to the relatively small number of leases that are signed in any particular quarter, one or more larger leases may have a disproportionately positive or negative impact on average rent, tenant improvement and leasing commission costs for that period. As a result, we believe it is more appropriate when analyzing trends in average rent and tenant improvement and leasing commission costs to review activity over multiple quarters or years. Tenant improvement costs include expenditures for general improvements occurring concurrently with, but that are not directly related to, the cost of installing a new tenant. Leasing commission costs are similarly subject to significant fluctuations depending upon the length of leases being signed and the mix of tenants from quarter to quarter.
As of September 30, 2025, there were approximately 0.9 million rentable square feet of space in our portfolio available to lease (including leases signed but not yet commenced) representing 10.4% of the net rentable square footage of the properties in our commercial portfolio. In addition, leases representing 2.4% and 6.0% of net rentable square footage of the properties in our commercial portfolio will expire in 2025 and in 2026, respectively. These leases are expected to represent approximately 2.4% and 5.4%, respectively, of our annualized rent for such periods. Our revenues and results of operations can be impacted by expiring leases that are not renewed or re-leased or that are renewed or re-leased at base rental rates equal to, above or below the current average base rental rates. Further, our revenues and results of operations can also be affected by downtime after space is vacated and the costs we incur to re-lease available space, including payment of leasing commissions, redevelopments and build-to-suit remodeling that may not be borne by the tenant.
Observatory Operations
For the nine months ended September 30, 2025, the Observatory hosted 1,705,000 visitors, compared to 1,860,000 visitors for the nine months ended September 30, 2024, a decrease of 8.3%. Observatory revenue for the nine months ended September 30, 2025 was $93.1 million,
a 5.1% decrease from $98.1 million for the nine months ended September 30, 2024. Observatory revenues were lower primarily due to lower levels of international visitors in 2025 as compared to 2024.
Observatory revenues and admissions are dependent upon the following: (i) the number of tourists (domestic and international) who come to New York City and visit the Observatory, as well as any related tourism trends; (ii) the prices per admission that can be charged; (iii) seasonal trends affecting the number of visitors to the Observatory; (iv) competition, in particular from other new and existing observatories; and (v) weather trends.
Outlook
We believe the global economy, including the real estate sector, currently navigates an environment of uncertainty around inflation, interest rates, tariffs, economic growth and geopolitical unrest. There have been concerns about the challenges of refinancing existing low interest rate loans at higher rates. Additionally, the risk of slower global economic growth could impact the number of visitors to the Empire State Building Observatory, as well as our pricing power.
Despite this global economic backdrop, we believe that ESRT is in a good competitive position with diversified drivers of income across office, retail, multifamily and the Empire State Building Observatory. ESRT's New York City-focused portfolio is modernized, amenitized, well-located and energy efficient, with high indoor environmental quality, competitive rental rates and strong leased percentages.
In addition to our diversified portfolio, our business is supported by a well-positioned balance sheet, modest leverage and good access to liquidity as set forth herein. The absence of unaddressed near term debt maturities provides an added degree of security. This provides us optionality in capital allocation decisions.
Critical Accounting Estimates
Refer to our Annual Report for a discussion of our critical accounting estimates. There were no material changes to our critical accounting estimates disclosed in our Annual Report.
Empire State Realty Trust Inc. published this content on November 05, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on November 05, 2025 at 21:50 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]