Empire State Realty Trust, Inc. Q2 FY2026 earnings call

• **Core Business Priorities

  • Maintain active leasing for top-quality Manhattan office space, which continues to see resilient broad-based demand amid constrained supply of high-quality product
  • Optimize cash flow from the Empire State Building Observation Deck and leverage its strong global brand
  • Maintain a disciplined, flexible balance sheet with ample liquidity
  • Achieve sustainability goals, which serve as a key differentiator to attract and retain tenants

• **Transaction Activity

  • Completed the sale of 250 West 57th Street for $275 million (including buyer assumption of $180 million in mortgage debt), recycling capital into the prior December 2025 acquisition of 130 Mercer Street without recognizing taxable gain
  • Acquired the land under 111 West 33rd Street and 1400 Broadway for an aggregate $110 million, creating permanent long-term value for the portfolio despite near-term FFO dilution
  • Announced a new $245 million unsecured delayed draw term loan maturing in 2032, to be drawn in January 2027 to repay existing debt

• **Leasing Accomplishments

  • Signed 382,000 square feet of leases in Q2 2026, including over 250,000 square feet of new leases (the highest volume since Q4 2021)
  • Notable transactions include United Talent Agency's 16-year, 101,000 square foot lease at the Empire State Building, Instacart's 26,000 square foot lease at 111 West 33rd Street (now 100% leased as of July 2026), and a record rent setting 12,000 square foot lease at One Grand Central Place
  • Current healthy lease pipeline stands at 200,000 square feet

• **Observation Deck Strategic Review

  • Completed an end-to-end reevaluation of the observatory business model in response to shifting market demand, focused on channel-by-channel optimization
  • Adjusted online marketing to adapt to the shift from traditional search to AI search, with early positive results from these changes
  • Shifting customer mix from 60%+ international (majority budget-conscious via pass programs) to now majority domestic, following a 45% decline in pass program visitors since 2024 caused by industry headwinds and one major operator exiting business in 2025

1. Office Segment: The commercial office portfolio reached 94.9% leased at quarter end, up from 93.8% in Q1 2026 (excluding the sold 250 West 57th Street). Manhattan office achieved 20th consecutive quarter of positive 17.8% mark-to-market rent spreads. Q2 2026 same-store property cash NOI (excluding one-time items) was 3.2% lower year-over-year, primarily due to increased free rent and operating expenses, partially offset by higher tenant reimbursement income. This segment contributes approximately 80% of the company's total NOI.
2. Empire State Building Observation Deck: Generated $12.4 million of NOI in Q2 2026, down from $24.1 million in Q2 2025 on revenue of $24.2 million. Visitation declined 28.5% year-over-year, while revenue per capita (excluding gift shop licensees) increased 1.6% year-over-year. This segment is a high-margin attraction that has weighed on overall company performance in 2026.
3. Retail Segment: The retail portfolio remains highly leased, with no major negative performance reported. Prior period real estate tax refunds contributed approximately $4 million to Q2 results.
4. Multifamily Segment: Delivered solid performance with 8% net rent growth year-over-year and nearly 98% occupancy.

• Full year 2026 core FFO guidance is set to a range of 75 to 79 cents per diluted share, revised lower from prior guidance to reflect an assumption of no improvement in current observation deck visitation levels, with a full year observation deck NOI assumption of $55 million
• End-of-year office occupancy guidance is maintained at 90 to 92%
• G&A guidance is maintained: run rate G&A is expected to decline 5% to 10% by the end of 2026, reaching approximately $17 million per quarter in the second half of 2026
• Management maintains confidence in long-term cash flow growth from the core property portfolio and the long-term value of the Empire State Building Observation Deck asset

• Persistently soft visitation to the Empire State Building Observation Deck driven by multiple factors: reduced international budget-conscious travel, industry contraction of traditional pass program channels, increased competition from other NYC observation decks, and shifting consumer demand in the current K-shaped economy and geopolitical environment
• Near-term pressure on same-store property NOI from elevated free rent for new leases and operating expense increases, partially offset by higher tenant reimbursement income
• Uncertain near-term visibility into observation deck visitation trends, which could lead to actual results differing from guidance
• Exposure to market concentration of demand in the bifurcated NYC office market: while ESRT's high-quality portfolio is well-positioned, lower-quality assets in the market face persistent headwinds

Q: What factors beyond reduced international tourism contributed to the Empire State Building Observation Deck's weaker Q2 performance? / A: The primary additional factor is a massive decline in visitors from traditional pass programs, which primarily served international budget-conscious travelers. One major pass program operator went out of business in 2025, and total pass program visitors have dropped 45% since 2024. Because the observation deck had more exposure to this channel than other attractions, its visitation decline has outpaced the broader market. Management is confident they can rebuild the business through strategic changes, but this will take time.

Q: Have you seen any recent pickup in observation deck visitation, given broader improvements in NYC tourist activity? / A: Management noted that one recent week had the second highest visitor volume of 2026 to date, but saw no visitor bump from the World Cup, which acted as a distraction rather than a driver. The $55 million full year NOI guidance assumes no improvement from current visitation trends, and management says there is still too little near-term visibility to commit to a more optimistic outlook.

Q: When will positive leasing results start flowing through to positive same-store NOI growth, after adjusting for one-time items? / A: Free rent burn-off is already beginning to remove this drag, as seen with the completion of H&M free rent in the Williamsburg portfolio during Q2. On the office side, rising operating expenses like utility costs are already being materially offset by higher tenant reimbursement income. The primary remaining drag is temporary downtime from the FDIC space that will be occupied by LinkedIn starting early 2027, when that space will begin contributing to cash flow.

Q: How is ESRT adapting its observation deck marketing to the rise of AI search, and what is the company's appetite for additional dispositions or share repurchases? / A: Management is still in the process of adapting marketing strategy to the AI search landscape, a new and fluid environment, and will provide updates as work progresses. For capital allocation, share repurchases remain a strategic option, and the company will continue to pursue capital recycling: 1359 Broadway is currently listed for sale, and the company is actively evaluating opportunities to buy high-quality NYC office, retail, and multifamily assets that create long-term per-share value.

Q: Could the observation deck ever be monetized long-term after performance recovers, given the public market's current discounting of the asset? / A: Management states it is far too early to consider any such strategic move. The immediate focus is entirely on fixing the current performance challenges of the observation deck business, and no decisions about potential monetization are under consideration at this time.