Empire State Realty Trust(ESRT) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Presents unaudited condensed consolidated financial statements for Q1 2025, covering balance sheets, operations, comprehensive income, equity, cash flows, and detailed notes Condensed Consolidated Balance Sheets Total assets decreased from $4,510.3 million to $4,114.4 million, driven by reduced cash and derecognized contract asset, with liabilities also decreasing | Metric | March 31, 2025 (millions) | December 31, 2024 (millions) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Total assets | $4,114.4 | $4,510.3 | | Cash and cash equivalents | $187.8 | $385.5 | | Contract asset | — | $170.4 | | Total liabilities | $2,328.5 | $2,728.3 | | Total equity | $1,785.9 | $1,782.0 | Condensed Consolidated Statements of Operations Total revenues slightly decreased, but net income attributable to common stockholders significantly increased due to a gain on property disposition | Metric (millions) | 3 Months Ended March 31, 2025 | 3 Months Ended March 31, 2024 | Change (YoY) | | :----------------------------------- | :---------------------------- | :---------------------------- | :----------- | | Total revenues | $180.1 | $181.2 | -0.6% | | Total operating expenses | $154.3 | $150.1 | +2.8% | | Total operating income | $25.8 | $31.1 | -17.0% | | Net income | $15.8 | $10.2 | +54.5% | | Net income attributable to common stockholders | $9.2 | $5.7 | +62.9% | | Basic EPS | $0.06 | $0.03 | +100.0% | | Diluted EPS | $0.05 | $0.03 | +66.7% | | Dividends per share | $0.035 | $0.035 | 0.0% | - A significant gain on disposition of property of $13.17 million was recognized in Q1 2025, compared to none in Q1 2024, contributing to the increase in net income[10] Condensed Consolidated Statements of Comprehensive Income Comprehensive income decreased year-over-year, primarily due to an unrealized loss on interest rate swap valuation in 2025 | Metric (millions) | 3 Months Ended March 31, 2025 | 3 Months Ended March 31, 2024 | | :------------------------------------------------- | :---------------------------- | :---------------------------- | | Net income | $15.8 | $10.2 | | Unrealized gain (loss) on valuation of interest rate swap agreements | $(4.1) | $8.2 | | Other comprehensive income (loss) | $(5.2) | $5.9 | | Comprehensive income | $10.6 | $16.1 | | Comprehensive income attributable to common stockholders | $6.0 | $9.4 | Condensed Consolidated Statements of Stockholders' Equity Total equity slightly increased from $1,781.9 million to $1,785.9 million, influenced by net income, equity compensation, and distributions | Metric (millions) | March 31, 2025 | December 31, 2024 | | :------------------------------------------------- | :------------- | :---------------- | | Total Empire State Realty Trust, Inc. stockholders' equity | $1,032.1 | $1,030.7 | | Non-controlling interests in the Operating Partnership | $723.9 | $721.3 | | Total equity | $1,785.9 | $1,782.0 | - Key changes in equity for Q1 2025 include $9.22 million in net income, $4.41 million in LTIP units equity compensation, and $10.78 million in total dividends and distributions[15] Condensed Consolidated Statements of Cash Flows Operating cash flow increased, investing cash flow decreased, and financing cash flow significantly increased due to debt repayments, leading to a substantial net cash decrease | Cash Flow Activity (millions) | 3 Months Ended March 31, 2025 | 3 Months Ended March 31, 2024 | | :----------------------------------- | :---------------------------- | :---------------------------- | | Net cash provided by operating activities | $83.1 | $70.9 | | Net cash used in investing activities | $(42.1) | $(71.3) | | Net cash used in financing activities | $(233.0) | $(21.3) | | Net decrease in cash and cash equivalents and restricted cash | $(191.9) | $(21.6) | | Cash and cash equivalents and restricted cash—end of period | $237.4 | $385.3 | - Financing activities in Q1 2025 included a $100 million repayment of unsecured senior notes and a $120 million repayment of the unsecured revolving credit facility[20] Notes to Condensed Consolidated Financial Statements Provides detailed explanations of financial statements, covering business, accounting policies, acquisitions, debt, financial instruments, leases, legal, equity, and segment performance 1. Description of Business and Organization ESRT is a NYC-focused REIT with a portfolio of 7.9 million sq ft office, 0.8 million sq ft retail, and 732 residential units, including the Empire State Building Observatory - ESRT's portfolio includes 7.9 million sq ft of office, 0.8 million sq ft of retail, and 732 residential units as of March 31, 2025[24] - The company owns approximately 60.3% of the aggregate operating partnership units in its Operating Partnership[25] 2. Summary of Significant Accounting Policies Financial statements adhere to GAAP with no material changes to accounting policies, consolidating controlled entities and utilizing estimates - No material changes to significant accounting policies from the Annual Report on Form 10-K for the year ended December 31, 2024[26] - Observatory business and multifamily business experience some seasonality, with Q1 accounting for approximately 18% of annual Observatory revenue[28] 3. Acquisitions and Dispositions ESRT acquired $195.0 million in retail properties and a 10% multifamily interest in 2024, and completed a consensual foreclosure in Q1 2025, yielding a $13.2 million gain - Acquired a portfolio of retail properties on North 6th Street in Williamsburg, Brooklyn for $195.0 million in September and October 2024[35] - Executed a buyout of a 10% non-controlling interest in two multifamily properties for $14.2 million cash and assumption of $18.0 million in debt in March 2024[35] - Completed consensual foreclosure of First Stamford Place on February 5, 2025, resulting in a $13.2 million gain on disposition recognized in Q1 2025[37][38] 4. Deferred Costs, Acquired Lease Intangibles and Goodwill Deferred costs slightly decreased to $181.8 million, while goodwill remained stable at $491.5 million, allocated across segments with no impairment | Metric (millions) | March 31, 2025 | December 31, 2024 | | :------------------------------------ | :------------- | :---------------- | | Total deferred costs, net | $181.8 | $184.0 | | Acquired below-market ground leases, net | $311.5 | $313.4 | | Goodwill | $491.5 | $491.5 | - Goodwill is allocated $227.5 million to the Observatory segment and $264.0 million to the real estate segment[40] 5. Debt Total principal debt decreased to $2,073.4 million due to $100.0 million senior note and $120.0 million revolving credit facility repayments, with all debt covenants met | Debt Type (millions) | March 31, 2025 | December 31, 2024 | | :-------------------------- | :------------- | :---------------- | | Total mortgage debt | $703.4 | $704.3 | | Senior unsecured notes | $1,075.0 | $1,175.0 | | Unsecured term loan facility | $175.0 | $175.0 | | Unsecured term loan facility | $95.0 | $95.0 | | Unsecured revolving credit facility | — | $120.0 | | Total principal | $2,073.4 | $2,294.3 | - Repaid $100.0 million of Series A senior unsecured notes and $120.0 million on the unsecured revolving credit facility in Q1 2025[49][54] - Aggregate required principal payments for 2026 are $228.96 million, including $225.0 million in maturities[46] 6. Accounts Payable and Accrued Expenses Total accounts payable and accrued expenses slightly increased to $135.3 million, driven by higher capital expenditures and accrued interest | Metric (millions) | March 31, 2025 | December 31, 2024 | | :------------------------------------------------- | :------------- | :---------------- | | Capital expenditures included in accounts payable and accrued expenses | $79.0 | $73.5 | | Accrued interest payable | $7.9 | $3.7 | | Total accounts payable and accrued expenses | $135.3 | $132.0 | 7. Financial Instruments and Fair Values Derivative financial instruments, with $448.5 million notional value, manage interest rate risk, resulting in a $7.0 million fair value asset position and $1.9 billion fair value of debt - Aggregate notional value of interest rate swaps and caps was $448.5 million at March 31, 2025, down from $664.0 million at December 31, 2024[59] | Metric (millions) | March 31, 2025 | December 31, 2024 | | :------------------------------------------------- | :------------- | :---------------- | | Fair value of derivative instruments (asset position) | $7.0 | $13.1 | | Fair value of outstanding debt | $1,932.7 | $2,124.5 | | Book value of outstanding debt | $2,057.8 | $2,278.0 | - A net unrealized loss of $(5.2) million related to cash flow hedges was recognized in other comprehensive income for Q1 2025, compared to a $5.9 million gain in Q1 2024[62] 8. Leases As lessor, Q1 2025 rental revenue was $154.5 million, with $3.68 billion in future minimum lease payments; as lessee, ground lease liabilities total $28.1 million | Rental Revenue (millions) | 3 Months Ended March 31, 2025 | 3 Months Ended March 31, 2024 | | :------------------------- | :---------------------------- | :---------------------------- | | Fixed payments | $136.0 | $136.4 | | Variable payments | $18.6 | $17.5 | | Total rental revenue | $154.5 | $153.9 | - Future contractual minimum lease payments (excluding tenant expense reimbursements) on non-cancellable operating leases total $3.68 billion, expiring through 2054[70] | Lessee Liabilities (millions) | March 31, 2025 | December 31, 2024 | | :----------------------------- | :------------- | :---------------- | | Right-of-use assets | $28.1 | $28.2 | | Ground lease liabilities | $28.1 | $28.2 | 9. Commitments and Contingencies Legal proceedings include a $1.3 million arbitration award under appeal; unfunded capital expenditures are $110.9 million, with environmental compliance and insurance also addressed - An arbitration award of approximately $1.3 million (inclusive of interest) was issued against the company in January 2024, affirmed on appeal in March 2025, with a motion for reargument filed[78] - Estimated unfunded capital expenditures (including tenant improvements and leasing commissions) are approximately $110.9 million as of March 31, 2025[81] - The company expects to pay no Local Law 97 fine on any covered building in its portfolio for the 2024-2029 enforcement period[88] 10. Equity Outstanding equity includes 167.1 million Class A shares and 110.7 million OP Units; a $500.0 million repurchase program is active, with $2.1 million repurchased post-Q1, and new incentive grants were made | Equity Instrument | March 31, 2025 | | :------------------------------------------------- | :------------- | | Class A common stock shares outstanding | 167.1 million | | Class B common stock shares outstanding | 0.98 million | | Operating Partnership Units (OP Units) outstanding | 110.7 million | | REIT controlling interest in OP | 60.3% | - The Board authorized a $500.0 million repurchase program for Class A common stock and OP units, with $500.0 million remaining as of March 31, 2025. $2.1 million was repurchased subsequent to March 31, 2025[96] | LTIP Unit Grants (March 2025) | Units | Grant Date Fair Value (millions) | | :------------------------------ | :---- | :------------------------------ | | Time-based vesting LTIP units | 1,399,681 | $9.4 | | Market-based vesting LTIP units | 1,462,922 | $6.0 | | Performance-based vesting LTIP units | 969,328 | $6.0 | 11. Related Party Transactions The company earned $0.4 million in supervisory fees and $0.1 million in property management fees from affiliated entities in Q1 2025, along with other related party revenues | Related Party Revenue (millions) | 3 Months Ended March 31, 2025 | 3 Months Ended March 31, 2024 | | :-------------------------------- | :---------------------------- | :---------------------------- | | Supervisory fees | $0.4 | $0.3 | | Property management fees | $0.1 | $0.1 | | Other revenue (rent, support services) | $0.1 | $0.1 | 12. Segment Reporting The company reports Real Estate and Observatory segments; Q1 2025 Real Estate NOI was $91.2 million, while Observatory NOI was $(0.1) million - The company's two reportable segments are Real Estate (office, retail, multifamily) and Observatory (Empire State Building)[122] | Segment NOI (millions) | 3 Months Ended March 31, 2025 | 3 Months Ended March 31, 2024 | | :---------------------- | :---------------------------- | :---------------------------- | | Real Estate Segment NOI | $91.2 | $92.8 | | Observatory Segment NOI | $(0.1) | $0.1 | | Total Net Operating Income | $91.1 | $92.9 | 13. Subsequent Events No subsequent events were reported ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses Q1 2025 financial performance, liquidity, capital resources, portfolio activities, and future operational factors, including segment performance and non-GAAP measures Overview Q1 2025 highlights include $9.2 million net income attributable to common stockholders, $52.0 million Core FFO, and 231,000 rentable square feet of new leases signed - Net income attributable to common stockholders was $9.2 million for Q1 2025[135] - Core Funds From Operations (Core FFO) was $52.0 million attributable to common stockholders and the operating partnership[135] - Signed a total of 231,000 rentable square feet of new, renewal, and expansion leases[136] Results of Operations Total revenues decreased 0.6%, but net income attributable to common stockholders increased 62.9%, with Real Estate rental revenue up and Observatory revenue down due to lower visitation | Metric (millions) | 3 Months Ended March 31, 2025 | 3 Months Ended March 31, 2024 | Change (YoY) | | :----------------------------------- | :---------------------------- | :---------------------------- | :----------- | | Total revenues | $180.1 | $181.2 | -0.6% | | Net income attributable to common stockholders | $9.2 | $5.7 | +62.9% | | Real Estate Segment Rental Revenue | $154.5 | $153.9 | +0.4% | | Observatory Revenue | $23.2 | $24.6 | -5.8% | - Rental revenue increase was primarily due to higher operating and real estate tax expense escalations ($5.0 million increase), partially offset by the net impact of acquisitions and dispositions ($4.0 million decrease)[140] - Observatory revenue decreased due to lower visitation, primarily attributed to the shift in the timing of the Easter holiday[144] Liquidity and Capital Resources Liquidity is supported by $187.8 million cash, operating cash flows, and $620.0 million available credit; total debt is $2.1 billion with a 4.30% weighted average interest rate and 5.3-year maturity | Metric | March 31, 2025 | | :------------------------------------------------- | :------------- | | Cash and cash equivalents | $187.8 million | | Available under unsecured revolving credit facility | $620.0 million | | Total consolidated indebtedness outstanding | $2.1 billion | | Weighted average interest rate on debt | 4.30% | | Weighted average maturity of debt | 5.3 years | - The company expects to meet short-term liquidity needs from cash flows, cash on hand, debt issuances, and available borrowing capacity[146] - The company was in compliance with all financial covenants related to its unsecured facilities as of March 31, 2025[151] Capital Expenditures Total commercial portfolio capital expenditures decreased to $8.8 million in Q1 2025, with lower office tenant improvement costs and no retail tenant improvement costs | Capital Expenditures (millions) | 3 Months Ended March 31, 2025 | 3 Months Ended March 31, 2024 | | :------------------------------- | :---------------------------- | :---------------------------- | | Total Commercial Portfolio Capital Expenditures | $8.8 | $20.1 | | Office Properties Leasing Costs | 3 Months Ended March 31, 2025 | 3 Months Ended March 31, 2024 | | :------------------------------ | :---------------------------- | :---------------------------- | | Leasing commission costs per square foot | $22.18 | $19.86 | | Tenant improvement costs per square foot | $48.17 | $65.08 | - Expected additional costs of approximately $110.9 million for tenant improvements and leasing commissions under existing lease agreements[167] Cash Flows Operating cash flow increased by $12.2 million to $83.1 million, investing cash flow decreased by $29.2 million to $42.1 million, and financing cash flow increased by $211.7 million to $233.0 million due to debt repayments - Net cash provided by operating activities increased by $12.2 million to $83.1 million[173] - Net cash used in investing activities decreased by $29.2 million to $42.1 million[174] - Net cash used in financing activities increased by $211.7 million to $233.0 million[175] Net Operating Income (NOI) NOI, a non-GAAP measure, decreased to $91.1 million in Q1 2025, used by management to evaluate property performance by excluding specific expenses | Metric (millions) | 3 Months Ended March 31, 2025 | 3 Months Ended March 31, 2024 | | :----------------- | :---------------------------- | :---------------------------- | | Net income | $15.8 | $10.2 | | Net operating income | $91.1 | $92.9 | - NOI excludes general and administrative costs, interest expense, depreciation and amortization, and gains/losses from property sales to focus on property-level operating performance[178] Funds from Operations (FFO), Modified FFO, and Core FFO FFO attributable to common stockholders and the Operating Partnership decreased to $49.4 million in Q1 2025, with Modified FFO and Core FFO also declining, providing REIT operating performance insights | Metric (millions) | 3 Months Ended March 31, 2025 | 3 Months Ended March 31, 2024 | | :------------------------------------------------- | :---------------------------- | :---------------------------- | | Funds from operations attributable to common stockholders and the Operating Partnership | $49.4 | $54.0 | | Modified funds from operations attributable to common stockholders and the Operating Partnership | $51.4 | $56.0 | | Core funds from operations attributable to common stockholders and the Operating Partnership | $52.0 | $56.5 | - FFO is defined by NAREIT as net income excluding impairment write-offs, gains/losses from sales of depreciable operating properties, plus real estate-related depreciation and amortization[181] - Core FFO further adjusts Modified FFO by adding back interest expense associated with property in receivership and loss on early extinguishment of debt[185] Factors That May Influence Future Results of Operations Future results are influenced by 7.9% available commercial space and 4.7% expiring leases in 2025, 11.8% lower Observatory visitors, and global economic uncertainties, offset by a diversified portfolio and strong balance sheet - Approximately 0.7 million rentable square feet (7.9% of commercial portfolio) is available to lease, and leases representing 4.7% and 6.5% of net rentable square footage will expire in 2025 and 2026, respectively[189] - Observatory hosted 428,000 visitors in Q1 2025, an 11.8% decrease from 485,000 visitors in Q1 2024, leading to a 5.8% decrease in revenue[190] - The company's outlook acknowledges global economic uncertainty (inflation, interest rates, recession risk, geopolitical unrest) but emphasizes its diversified portfolio, strong balance sheet, and absence of near-term debt maturities[193][194][195] Critical Accounting Estimates No material changes to critical accounting estimates were reported from the Annual Report - No material changes to critical accounting estimates from the Annual Report[197] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The company manages interest rate risk from its revolving credit facility and debt refinancings using fixed-rate borrowings and derivative instruments with a $448.5 million aggregate notional value - The company's primary market risk exposure is to interest rate changes[198] - As of March 31, 2025, the company had interest rate SOFR swap and cap agreements with an aggregate notional value of $448.5 million[199] - The weighted average interest rate on the $2.1 billion of fixed-rate indebtedness outstanding was 4.30% per annum[200] ITEM 4. CONTROLS AND PROCEDURES Management concluded disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2025[203] - No material changes to internal control over financial reporting occurred during the period[204] PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Legal proceedings are detailed in Note 9 of the Financial Statements - Refer to Note 9 Commitments and Contingencies for a description of legal proceedings[205] ITEM 1A. RISK FACTORS No material changes to risk factors were reported from the Annual Report on Form 10-K - No material changes to risk factors as of March 31, 2025, referring to the Annual Report on Form 10-K for details[207] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS No unregistered equity sales occurred; a $500.0 million stock repurchase program is active, with $2.1 million repurchased post-Q1 2025 - No unregistered sales of equity securities[208] - The Board authorized a $500.0 million stock repurchase program, with $500.0 million remaining as of March 31, 2025. Subsequent to March 31, 2025, through May 7, 2025, $2.1 million of Class A common stock was repurchased at a weighted average price of $6.90 per share[209] ITEM 3. DEFAULTS UPON SENIOR SECURITIES No defaults upon senior securities were reported - No defaults upon senior securities[210] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the company - Not Applicable[211] ITEM 5. OTHER INFORMATION No other material information was reported, and no Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted, terminated, or modified by directors or officers - No directors or officers adopted, terminated, or modified Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended March 31, 2025[213] ITEM 6. EXHIBITS This section lists exhibits filed with Form 10-Q, including certifications, XBRL documents, and interactive data files - Includes certifications from the Chief Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2)[214] - XBRL Instance Document and Taxonomy Extension Documents are filed[214] SIGNATURES The report was signed by Stephen V. Horn, EVP, CFO & CAO of Empire State Realty Trust, Inc. on May 7, 2025 - Report signed by Stephen V. Horn, Executive Vice President, Chief Financial Officer & Chief Accounting Officer, on May 7, 2025[218]