• FFO (Funds From Operations): $0.24 per diluted share for Q4 2024; $0.95 per diluted share for full year 2024.
• Leasing Activity: 380,000 square feet leased in Q4 2024; 1.3 million square feet leased for full year 2024.
• Manhattan Office Portfolio Leased Rate: Over 94% leased.
• Same-Store Property Cash NOI: Down 2.9% in Q4 2024 year-over-year.
• Observatory Net Operating Income: $29 million in Q4 2024; $100 million for full year 2024.
• Net Debt to EBITDA: 5.3 times as of year-end 2024.
• 2025 Core FFO Guidance: Expected to range from $0.86 to $0.89.
• 2025 Observatory NOI Guidance: Expected to be $97 million to $102 million.

• Warning! GuruFocus has detected 5 Warning Signs with ESRT.

Release Date: February 20, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Empire State Realty Trust Inc (NYSE:ESRT) reported strong fourth quarter and 2024 results, with FFO exceeding expectations.
• The company achieved significant leasing momentum, with approximately 380,000 square feet leased in the fourth quarter and 1.3 million square feet for the year.
• The Manhattan office portfolio is over 94% leased, reflecting the desirability of ESRT's modernized and amenitized properties.
• The observatory business showed year-over-year growth, with net operating income exceeding 2019 levels.
• ESRT maintains a strong balance sheet with no floating rate debt exposure and the lowest leverage among New York City-focused REITs at 5.3 times net debt to EBITDA.

Negative Points

• Same-store property cash NOI was down 2.9% in the fourth quarter year-over-year due to increased operating expenses and less benefit from non-recurring items.
• The observatory business is projected to have flat NOI growth in 2025 compared to 2024, with concerns about macro factors like dollar strength and limited airline seat capacity from China.
• Investment transaction volumes remain below historical levels, with limited high-quality opportunities in the market.
• The company faces modest lease expirations in 2025, with potential temporary dips in leased percentage early in the year.
• Higher G&A expenses are expected in 2025 due to non-cash stock-based compensation and standard inflation-based payroll increases.

Q & A Highlights

Q: Can you provide more details on the leasing dynamics and where you expect the portfolio's leased percentage to settle? A: Anthony Malkin, CEO, explained that they have experienced positive absorption over the last three years and have a strong pipeline with reduced inventory. They have already signed 50,000 square feet of leases in Q1 2025 and have about 130,000 square feet in negotiation. The portfolio is expected to exceed 95% leased by year-end, with a steady increase in occupancy throughout the year.

Q: Why is the observatory business projected to be flat in 2025 compared to 2024? A: Anthony Malkin, CEO, noted that several macro factors, such as dollar strength and limited airline seat capacity from China, affect the observatory's performance. Despite these challenges, they are confident in maintaining the observatory's preeminent position and expect updates as the year progresses.

Q: Are there any appealing office acquisition opportunities, and what are your yield expectations? A: Anthony Malkin, CEO, stated that while they are beginning to see more office transactions, particularly those driven by debt defaults, they haven't found any that meet their criteria. They remain interested in residential and retail opportunities and are cautious with new acquisitions, expecting higher returns compared to like-for-like replacements.

Q: How are you managing CapEx in 2025, given the elevated spending in 2024? A: Stephen Horn, CFO, clarified that the elevated CapEx in Q4 2024 was due to a timing issue. They expect overall CapEx to decrease in 2025, excluding the one-time item from 2024, as they have already completed significant leasing.

Q: What is the outlook for rent growth and tenant demand in New York City? A: Thomas Durels, EVP of Real Estate, highlighted that they have raised rents and reduced concessions, achieving a 13% year-over-year increase in net effective rents. They expect continued improvement in net effective rent growth due to lower leasing costs and strong tenant demand for high-quality assets.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.