Empire State Realty Trust, Inc. Class A Stock

Thank you. Greetings and welcome to the Empire State Realty Trust second quarter 2026 earnings call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Suzanne Liu, SVP, Chief Counsel, Real Estate. Thank you. You may begin.

Good afternoon. Welcome to Empire State Realty Trust's second quarter, two thousand twenty-six earnings conference call. In addition to the press release distributed yesterday, a quarterly supplemental package with further detail on our results and our latest investor presentation were posted in the investor section of the company's website at esrtreit.com. During today's call, management's prepared remarks and responses to questions may include forward-looking statements within the meaning of applicable securities laws. These statements reflect management's current views and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially. Empire State Realty Trust assumes no obligation to update any forward-looking statement in the future. We encourage listeners to review the more detailed discussions related to these forward-looking statements in the company's filings with the SEC. During today's call, we will discuss certain non-GAAP financial measures such as FFO, Modified and Core FFO, NOI, Same Store Property Cash NOI, EBITDA, and Adjusted EBITDA, which we believe are meaningful in evaluating the company's performance.

The definitions and reconciliations of these measures, the most directly comparable GAAP measures, are included in their earnings release and supplemental package, each available on the company's website. Now we'll turn the call over to Tony Malcolm, our Chairman and Chief Executive Officer.

Good afternoon everyone. Yesterday we reported ESRT's second quarter results. We delivered strong performance across the property portfolio, which represents approximately 80% of our NOI. Office leasing accelerated from the first quarter as we converted our pipeline into executed leases. Our retail portfolio was highly leased. that our multifamily properties delivered solid growth. We remain active on transactions. During the quarter, we completed the once in a lifetime opportunity to acquire the land under 111 West 33rd Street and 1400 Broadway and executed on the sale of 250 West 57th Street, the proceeds from which we swapped into the prior purchase of 130 Mercer. Against excellent leasing in our property portfolio, the Empire State Building Observation Deck weighed on performance. In our press release, we gave an updated FFO range under an assumption there is no improvement to current visitation levels, but it utilizes $55 million of NOI for the observation deck for full year 2026.

I'll spend a few minutes on our observation deck business. and get to our strong leasing. During our first quarter call, we called out softer visitation amidst today's geopolitical environment and K-shaped consumer economy, and stated it was premature to alter guidance based upon performance in our seasonally lightest quarter. did say we would reassess our outlook after six months of results. In our NAERIP meetings and updated presentation we shared, that softer visitation persisted through the second quarter. The Empire State Building remains the world's most famous building and its brand is undiminished. Our iconic Empire State Building Observation Deck remains a world-class attraction with absolute top-of-sector customer reviews. The Empire State Building Observation Deck was ranked number one as an attraction in the US by TripAdvisor last year, and we had 326 billion global media impressions. remain the international symbol of New York City. The path ahead is to convert our international brand to revenues amidst the following changes in the market.

Historically, we have relied on international visitors. In the past, more than 60% of our visitors were international. Last week, in which we had our second highest visitor numbers of 2026, More than 60% of our visitors were domestic. While not as high a number for the year to date, the shift is definitely to a majority of domestic visitors. The past program channel that has been a source of significant visitor traffic to us has experienced significant headwinds. Historically, these past programs have been largely international and specifically with the international budget conscious traveler. One past program operator went out of business in 2025. from 2024 year to date to 2026 year to date, we have seen a 45% decline in past program visitors.

While all attractions have experienced reduced visitorship in 2026, Our drop compared to the market in general is larger due to our prior dominance with patch programs and their international presence. These, in fact, may be tailwinds in the future. The competitive environment with other observation decks and alternatives is also a factor. We began a total reevaluation of our observatory business model and execution. early in the first quarter in anticipation that market conditions may continue to work against our historic customer sourcing mix. With our team and logical partners, this is a fresh channel-by-channel approach. Part of that is the shift from traditional search engine to AI search. This is ongoing work, and we have adjusted our online presence to accommodate the impacts of this shift.

Some of our actions have already produced positive results. Historically, our operational costs have been relatively fixed and made tremendous operating leverage with increased visitors and revenue. At the same time, we will reinvest to strengthen the business and monetize on the strong brand and operations over the long term. We've remained confident in the long-term value of our iconic asset. Let me turn to our real estate business. The Manhattan office leasing market remains healthy for our top of tier product. Tenant demand remains broad-based and resilient.

Availability of high-quality space remains constrained, and there is no new construction at our price point. These dynamics continue to support strong leasing fundamentals for our portfolio. Our commercial portfolio was 94.9% leased at quarter end. So we expect occupancy gains for the year. We achieved our 20th consecutive quarter of positive mark-to-market spreads within our Manhattan office portfolio, reflects sustained demand for our best-in-class assets. Our portfolio remains well positioned to deliver strong operating results. Brian will discuss our and his significant leasing accomplishments in the second quarter.

ESRT has maintained a leadership position in sustainability for more than a decade. Our focus remains on measurable business outcomes that produce excuse me, that produce viable outcomes. Sustainability is, remains an important differentiator that attracts tenants and supports retention, renewals, and expansions across our portfolio. Across the organization, we remain laser focused on four priorities. space, optimize observation deck and Empire State building brand cash flow, maintain our balance sheet, and achieve our sustainability goals. These priorities guide every decision and we make and align directly with our objectives to drive long-term cash flow growth and value creation. Christina, Ryan, and Steve will provide additional detail on our results and outlook.

Christina? Thanks, Tony. I'll provide some comments on our recent transaction activity, including the sale of 250 West 57th Street and the acquisition of land beneath two Broadway campus properties. Our capital allocation strategy is focused on value creation and long-term cash flow per share, even when at times individual transactions are not immediately accretive to earnings. Our second quarter activity reflects that disciplined approach. During the quarter, we completed the sale of 250 West 57th Street for $275 million, which includes the buyer's assumption of $180 million of mortgage debt. The disposition effectively recycled capital into our prior acquisition of 130 Mercer Street in SoHo, executed in December 2025, without the recognition of a taxable gain. Also in the second quarter, we executed on the unique opportunity to acquire the land beneath 111 West 33rd Street and 1400 Broadway for an aggregate $110 million, or approximately $65 per square foot. The acquired ground leases carried below market annual rent of 1.4 million, which applies a sub-2% cap rate.

If we include below-market rent amortization, the implied cap rate is just under 7%, which better illustrates what the cap rate would be on rents that are closer to market. While this transaction reduces our FFO, it creates a permanent and material increase in the value of our real estate given the substantial difference in valuations and exit cap rates for owned real estate versus leasehold assets. Shifting to our balance sheet, subsequent to quarter end, we announced a new $245 million unsecured delayed draw term loan that matures in 2032. Proceeds are expected to be drawn in January 2027 and used to repay existing debt, including our line of credit. We remain disciplined in our proactive approach to balance sheet management. We maintain ample liquidity, a well-laddered debt maturity schedule, and have no unaddressed debt maturities until January 2028. maintain a well-positioned and flexible balance sheet, and predominantly unencumbered portfolio that provides substantial optionality. Thank you. At the end of the second quarter, our leverage was approximately 6.6 times net debt to trailing 12-month adjusted EBITDA.

Against the backdrop of a healthy transaction market, we continue to underwrite opportunities across New York City office, retail, and multifamily, evaluate strategic capital recycling opportunities that enhance long-term cash flow, and assess opportunistic share repurchases. In each instance, our evaluation is guided by whether the transaction creates long-term value per share. New York City's enduring strength is rooted in its property fundamentals, and ESRT owns high-quality New York City real estate aligned with the city's live, work, play, and visit demand drivers. We continue to look for ways to further enhance the quality of our portfolio and grow cash flow through disciplined, value-driven capital allocation. With that, I'll turn the call to Ryan to review our leasing activity.

Thanks, Christina, and good afternoon everyone. In the second quarter, leasing performance was strong. Volume was high as we signed 382,000 square feet, which includes over 250,000 square feet of new leases, our highest level since the fourth quarter of 2021. Our lease percentage increased to 94.9%, up from 93.8% in the first quarter on a comparable basis, excluding 250 West 57th Street from both periods. This demonstrates strong tenant demand for our top-of-tier portfolio, and we remain confident in our year-end occupancy. guidance of 90 to 92 percent. In the second quarter, we achieved mark-to-market spreads of 17.8 percent in Manhattan office, our 20th consecutive quarter of positive spreads, which underscores our sustained pricing power. Tenants continue to make long-term commitments to us, as highlighted by our average lease duration on new leases of 12 years, which includes United Talent Agency's 16-year office lease at the Empire State Building.

United Talent Agency's 101,000 square foot lease across four full floors addresses our largest expiration this year of approximately 70,000 square feet, where the existing tenant is expected to vacate in October. Other notable leases signed during the quarter include a 29,000 square foot new office lease with Infiniium wall systems for the duplex penthouse at 1359 Broadway. A 26,000 square foot new office lease with Instacart at 111 West 33rd Street. The building is now 100% leased as of July. A 12,000 square foot full floor new office lease with landmark management at one Grand Central place, which set a record average rent of $89 for a new transaction in the building. and also a 59,000 square foot renewal office lease with Alfred Dunner at 1333 Broadway. At just under 95% leased, we have less space available to lease. We remain focused on the execution and the creation of opportunities within our portfolio.

At the Empire State Building, we have one full floor available and we will look to continue to increase rents. At One Grand Central Place, we just launched our base block space to the market, an 80,000 square foot duplex with a private terrace that overlooks the Vanderbilt Plaza. expect to see strong tenant demand given its unique attributes, in-building access to Grand Central Terminal, and the lack of supply for competitive large contiguous space in the market today. At 1.30 Mercer, our capital improvement program is underway, and we are in active discussions for the remaining two full floors left to lease. Our pipeline of leases and negotiation remains healthy at 200,000 square feet. In today's bifurcated office market of have and have nots, ESRT remains firmly in the have category. Demand continues to concentrate in high quality, modernized, amenitized, transit-oriented buildings owned by well-capitalized landlords with proven operating platforms. Our best-in-class portfolio enables us to capture this demand as reflected in our strong results.

New York City's leasing market remains strong and provides a favorable backdrop for execution, with demand broad-based across finance, professional services, TAMI, and consumer products. Lastly, our multifamily portfolio continues to perform well. Net rents increased 8% and our portfolio is almost 98% occupied. Thank you. I'll now.

I'll turn the call over to Steve. Steve? Thanks, Ryan. For the second quarter of 2026, we reported core FFO of 21 cents per diluted share. store property cash NOI, excluding lease termination fees, increased 3.3% year-over-year. The Improvement is primarily attributed to the receipt of approximately $4 million related to prior period real estate tax payments. Adjusted for non-recurring items, same-store property cash NOI was off 3.2%. This primarily reflects increases in free rent and operating expenses, partially offset by higher tenant reimbursement income. Our observation deck generated approximately $12.4 million of NOI during the second quarter, as compared to $24.1 million in the prior year period. with revenue of $24.2 million and expenses of $11.8 million. Visitation was lowered by approximately 28.5% year-over-year.

Revenue per capita increased by approximately 1.6% year-over-year after the exclusion of gift shop license fees. Turning to funds available for distribution, core FADs for the second quarter was approximately 16.2 million, up from 11.9 million in the prior year period. This improvement reflects FAD CapEx savings of approximately $14 million year over year, due in part to reduced capital requirements for a recycled portfolio and is also attributable to the significant lease-up we executed since the fourth quarter of 2021. this helped drive our commercial portfolio lease percentage to 94.9%. As a reminder, that leasing velocity was accompanied by elevated levels of FAD CapEx in 2024 and early 2025. Lastly, our 2026 core FFO range is now 75 to 79 cents. Given the uncertain operating environment and limited visibility into near-term performance trends for the observation deck, we utilize $55 million of NOI, a level that assumes no improvement to current visitation levels and expenses similar to the half of this year. This represents a change to core FFO of 13 cents relative to our prior guidance, which is partially mitigated by lower income taxes, higher non-cash rent, and real estate tax abatements.

For our commercial portfolio, we assume year-end occupancy of 90 to 92%, which is unchanged from our prior guidance. Our assumption for same-store property cash NOI growth of negative 1.5% to positive 2% is unchanged and continues to include a 270 basis point impact from temporary downtime associated with the FDIC expiration which has been released. We expect G&A to decline to approximately $17 million per quarter in the second half of 2026, which is consistent with our prior guidance of a 5 to 10% reduction in run rate G&A by the end of this year. This concludes our prepared remarks. I'll now turn the call back to the operator to begin the Q&A session.

Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. confirmation tone will indicate your line is in the question queue. You may press star 2 to remove your question from the queue. The assistance using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. please while we poll for your questions. Our first questions come from the line of John Kim with BMO Capital Markets. Please proceed with your questions.

Thank you. On the observatory, I just wanted to ask if you could separate what you think The changes have been, aside from international tourists, if there's anything in terms of ticket pricing or competition in the market or bad weather or any other items that resulted in... what we achieved in the second quarter.

Sorry about that. We were on mute. I think the biggest change has been the mix of international to domestic, or more importantly, the gutting of the bargain international traveler and the really tremendous decline in our past program partners. I think there are other things around the edges. In general, attractions in New York have seen declines. We declined more than others. We think that's primarily because of our exposure to these two sectors. We believe that both we have work to do and a lot of a lot of new learnings and things we've already put in place. Some of this has to do with how we appear online. to the customer and how our different online travel agents present us.

But I think the biggest item is the change in the budget traveler path to New York and the past programs. So that said, we build our business here. we build it back. And we're very confident in that. It just will take time. It's work to get done.

I appreciate that. In the guidance, there's no assumed improvement in visitation levels. But I was wondering what you saw in June and July, to get sure of that. Just looking at the Times Square traffic data, it did look like it improved in June, whereas earlier in the year it was a little bit different.

was negative. I'm wondering if you saw any pick up in visitors recently. You know, we really don't have much more to add. I did mention that our, that our, our last week was our second highest week in the in a year as far as traffic, number one. And number two, interestingly, we saw no bump from the World Cup. In fact, I think the World Cup was a distraction. Had a lot of people on the streets, but... Not a lot of people who are there for anything but the World Cup.

And I also want to be very careful. This is not guidance that we've provided. We've provided parameters within which we believe we can... give you on the basis that business continues the way it has been through the end of the year. That how we come up with that $55 million of NOI. It's a framework. We don't want to hold ourselves to that because we just don't have a lot of confidence in what we see right now.

If I could just squeeze one in on the opposite side, the leasing spreads were positive. It's been that way for a while. Occupancy is up, yet this cash things to run away with negative if you exclude the one-time items. So I'm wondering when that the free rent burn off or other items when that starts to not impact your same store growth and we see the impact of the positive leasing in the same store results.

Yes, you'll start to see some of that flow through. I mean, at the Williamsburg portfolio, we had our free rent at H&M burn off during the quarter or cost. So that goes to- And then on the on the office side, we continue to see any of our increases in operating expenses, like utility costs, materially offset by the increase in tenant reimbursement income. So that continues to go through. But remember, we have a drag on office from the downtime, about 270 basis points. And so LinkedIn comes into occupancy this year for that space.

and begins cash flowing in early next year. And the team did a great job, the construction team, of delivering occupancy of that space to LinkedIn this month.

Thank you. Thank you. Our next questions come from the line of Manas Aveki with Evercore ISI. Please proceed with your questions.

Yes, thanks for taking the question. A quick follow up in the beginning on the observatory business you talked about, how you maybe want to look into AI and revaluating the business a little bit to help improve it. I was just wondering if you could expand a little bit on your thoughts on how you could maybe help and improve that business a little bit and what's on your mind there.

We'll provide updates as our work progresses. We're very focused on our marketing efforts. not just our messaging but our execution to align with the changing landscape between search engine optimization, which is really, at this point, you might as well put that away. It's all AI right now. And so that's a big bit of work where it's a new skill set and good work underway to adapt to the new and very fluid landscape. Aside from that, we've got a fantastic brand, and how we move that brand towards revenue and convert customers, that's our focus. More than that, really nothing to add other than what we've said.

Got you. Okay, I appreciate that. And maybe a quick follow-up if I can on this capital allocation, just wondering your appetite for additional either disposition or share repurchases. If there's any appetite for that. I'm just curious if you could help us maybe think through that a little bit, what's on your mind?.

Yes, we've long said we look at share repurchases as a strategic part of capital allocation. That said, it won't be the only primary factor that we look at, and we do look at continued capital recycling within the portfolio. We've executed on the business plan, and there are opportunities. where we can generate and add more value and generate good cash flow growth going forward, it's something that we would consider. So it continues to be each of those items that you've mentioned within our capital allocation.

Okay, thank you. And I would just add, you know, it is public knowledge that 1359 Broadway is on the market now, and we'll see how we do with that transaction.

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

Thanks for taking my question. I guess just another one on the observatory. You mentioned that historically international travel was around 60 percent focused on kind of the low international traveler through the past programs. And more recently you saw that was kind of 60% domestic. Is that kind of just a function of the shrinking international and just kind of any thoughts on kind of what the pricing differences are and the mix shifts?.

from the customers. Right, so I wanna be clear on a couple things. First of all, we are definitely an aspirational brand. So, it's a budget-conscious traveler, primarily from Europe, was the primary customer for these past programs. And that's where we have seen the biggest drop and where the past programs themselves, our position within the past programs and as an attraction has not changed. They've just sold many, many, many fewer passes. That's part one. part two, uh, there, there is a reality that European inbound, uh, budget traveler is greatly reduced. There is There's a war, there are energy issues, Europe has a series of issues themselves as far as itself.

So, you know, from our perspective, though, we are happy to see our work on and growth into our domestic And we have other sales channels which are available, and it's up to us to execute on them.

Great. And then just maybe on capital allocation, how are you thinking about just strategically would you like to grow the traditional office assets, retail, multifamily, to kind of effectively shrink the contribution from the observatory?.

are you thinking about that positioning longer term? Well, let's be really clear. I'm going to let Christina talk about, you know, what we look to do and increase our emphasis on, assets in our property portfolio, which had the prospects for cash flow generation growth in the future. We do view the observatory as a key component to our business on which we need to work. And again, as I noted, we think that a lot of things such as headwinds now may well turn to tailwinds in the future. Christina, maybe you want to talk about our recycling on the balance sheet and both what we've done and what we've accomplished in the past.

what's ahead? Yes, I think we look at New York City office retail multifamily that's reflected in the over a billion dollars of transactions that we completed, which includes Williamsburg Retail, New York City multifamily assets, both of which are performing very well, as well as the Scholastic Headquarters building at 130 Mercer. So we have appetite in all three of those components. Regarding the observatory, it is a strong business with great margins. It is going through a period impacted by international budget conscious travelers and the items that Tony has mentioned. We have a long term view on health of the business and quality of the poor portfolio and a few periods of weakness doesn't deter that. We're not saying we're going out and acquiring more observatories, so that's not the point in the asset allocation, but we will definitely try to grow that contribution to our business along with shifting our portfolio to better quality, better cash flow growth over time.

with that objective in mind. But I would just point out that the land acquisitions.

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

Great, thanks. So just with respect to the observatory, can you just expand and clarify on whether the past program weakness is just a direct result of the weakness in international tourism or those differentiated at all? I guess, you know, you mentioned one operator going out of business, but I guess I'm not understanding whether and how that have a direct impact on your overall visitation. So any color there would be appreciated.

Yes, they're somewhat intertwined. So to start, right, our business has international customers, it has domestic, and there are different channels from which sales are generated. One channel is the PATH program channel where they aggregate attractions and The Newport State Building Observatory Deck has traditionally been a leader in that, ranked very well, has dominated in the space. It also happens to be that because of what it is, the PATH programs, they catered largely to international and largely to budget-conscious travelers, and because we had dominance, give more exposure. So when you think about size of the pie, if that was a component of our business and that experiencing more weakness for intertwined factors, then that is the area where we see more of the challenge, which is why we provided that level of commentary. As we think about it overall, a strong brand, strong experience, TripAdvisor number one, has a lot of great attributes, and we will look to both have recovering those international and budget-conscious commentary areas be tailwinds, as well as expand the opportunity set for how we can generate cash flows. And we'll have more to report as we go through that.

But that was the backdrop on the comments. Okay, thanks, Christine. That's helpful. And I'm not sure if Tony's on, but for him or Ryan, I was hoping to get your thoughts on AI demand in the market. Do you feel like you guys are well positioned to benefit from new leasing from AI tenants in any particular buildings in your portfolio? And on the flip side, do you think there's any susceptibility to displacement of office users workers, you know, driven by AI in any segments of the New York office market or your portfolio kind of as we look forward?.

Thanks, Wayne. So, a few questions within that, so I'll start there. just with sort of the impact, it has not impacted our portfolio. Our tenants are continuing to make long-term commitments. And the majority of the transactions that we're currently working on are expansions. Obviously, the stats are out there. The number of AI tenants that are in the market and deals completed year to date exceed 2025. So more demand, they're taking supplies off the table. So it gives us an opportunity to push our rents.

And what are we focused on? We're focused on getting the right tenant in that we know is going to be there long term with a high likelihood for expansion over time. So continue to pick the right tenants.

and grow with them. Great. Thanks, everyone. Thank you. Our next questions come from the line of Dylan Brzezinski with Green Street. Please proceed with your questions.

Hi, guys. Thanks for taking the question. Most of mine have been asked already, but I guess just one thinking longer term. It feels like the population public market doesn't necessarily give you guys the credit for the observatory and the cash flow profile to the upside. Obviously, when you have cuts to guidance as a result of just weakness in the portfolio, it seems to impact the stock price. So I guess just longer term, now I'm not saying you guys are thinking about this today, but once the recovery ultimately happens within the business, could this or would this ever be an asset that you guys decide to monetize over time? Or is that sort of out of the realm of possibilities right now as you guys do the portfolio? Yes.

Gosh, that's so early in the game. I don't appreciate the thought and the question, but our view right now is to focus on the fix of the business. That's what we're after. That's what we're about. So from our perspective, we're just going to get the business fixed and we go on from there.

Okay, thanks, Tony. Thank you. We've reached the end of our question and answer session. And I would now like to close the call out. We appreciate your participation. You may disconnect your lines at this time.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Greetings, and welcome to the Empire State Realty Trust First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce Susanne Lieu, SVP, Chief Counsel, Real Estate. Thank you. You may begin.

Good afternoon. Welcome to Empire State Realty Trust's First Quarter 2026 Earnings Conference Call. In addition to the press release distributed yesterday, a quarterly supplemental package with further detail on our results and our latest investor presentation were posted in the Investors section of the company's website at esrtreit.com.

During today's call, management's prepared remarks and responses to questions may include forward-looking statements within the meaning of applicable securities laws. These statements reflect management's current views and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially. Empire State Realty Trust assumes no obligation to update any forward-looking statement in the future. We encourage listeners to review the more detailed discussions related to these forward-looking statements in the company's filings with the SEC.

During today's call, we will discuss certain non-GAAP financial measures such as FFO, modified and core FFO, NOI, same-store property cash NOI, EBITDA and adjusted EBITDA, which we believe are meaningful to evaluating the company's performance. The definitions and reconciliations of these measures to the most directly comparable GAAP measures are included in the earnings release and supplemental package, each available on the company's website.

Now I will turn the call over to Tony Malkin, our Chairman and Chief Executive Officer.

Thanks, Susanne. Good afternoon, everyone. Yesterday, we reported ESRT's first quarter results. We began the year with solid earnings, steady execution across our portfolio and continued contribution from the Observatory. We acquired a high-quality retail asset on North 6th Street with recycled investment, part of our concentrated effort to reallocate our balance sheet capacity towards growth and completed financings, which address our debt maturities all the way into 2028 and maintain balance sheet flexibility.

Today's environment presents a wide range of macroeconomic outcomes, some of which could adversely affect our business. That said, as we have said consistently, we do not seek to predict the weather, we have an arc. From that arc, we operate from a position of strength and with great latitude. We derive our revenue from diverse income streams and a broad tenant base. A substantial portion of our revenue is from long-term leases, and we maintain high leased percentages, all supported by our balance sheet. We navigate freely and act decisively when opportunities arise.

Pages 5 through 9 of our investor presentation available at esrtreit.com, highlight our ongoing program to trade into opportunities, which provide better prospects for growth at our desired capitalization and levels of risk. Cash flow growth is key to our focus. The Manhattan office leasing environment remains healthy and active for our top of tier product. Tenant demand is strong and diverse. Availability of high-quality space remains limited, and there's no new construction at our price point.

Ryan will provide highlights on occupancy, leased percentage and what we expect to achieve by year-end. Much has been written about AI as a disruptor of office demand. In New York City, our leasing pipeline remains active. Tour volume is strong and tenants across industries continue to make long-term commitments to high-quality space. Office leases executed this quarter averaged over 10.5 years in term. Our commercial portfolio is 93.2% leased. Our leasing pipeline is healthy, and we expect occupancy gains for the full year.

We are delighted to have leased the first floor at our 130 Mercer Street acquisition and have a strong pipeline of leases in negotiation, which will hit in 2Q, about which Ryan will speak. We achieved our 19th consecutive quarter of positive mark-to-market rent spreads in our Manhattan office portfolio, which reflects sustained demand from our best-in-class buildings. We continue to see an upward trajectory in net effective rents, and our portfolio is well positioned to deliver strong operating performance.

Our iconic Empire State Building Observatory deck remains a market leader and a meaningful contributor to cash flow. NOI was $10.6 million in the first quarter, our seasonally lightest quarter. Revenue per capita increased approximately 1% year-over-year, excluding gift shop license fees. Visitation from international and budget-conscious tourists-centric past programs remains soft and impacted our results.

Against this backdrop, we focus on our domestic and direct sales program, which support higher revenue per visitor and better margin performance, while we await the return of our traditional international demand. ESRT has been a leader in sustainability for more than a decade. The Empire State Building was the first building in New York State to achieve LEED Version 5 Platinum status. We focus on measurable business outcomes, which drive energy savings, operational efficiency and high-performance buildings for our tenants and reduce risk for our shareholders and stakeholders.

Our sustainability leadership tracks tenants and is part of their satisfaction when they renew and/or expand. Our entire organization remains laser-focused on the company's 5 priorities: lease space, sell tickets to our Empire State Building Observation deck experience, manage our balance sheet, identify growth opportunities and achieve our sustainability goals. These priorities are directly aligned with long-term shareholder value creation.

Christina, Ryan and Steve will provide more detail on our results and outlook. Christina?

Thanks, Tony. I'll provide an update on our Observatory business and capital markets activity, which includes a high-quality retail acquisition on North 6th Street as part of our capital recycling and $184 million of financings that result in no unaddressed debt maturities until 2028.

Our iconic Empire State Building Observatory continues to be a highly differentiated component of our platform, characterized by low capital intensity, strong operating margins and dynamic pricing capability that helps mitigate inflationary pressures over time. We recognize we are in a period of heightened uncertainty with the potential for macro risk and geopolitical tensions to weigh on economic growth and tourism.

As Tony mentioned, the first quarter is historically our seasonally lightest, which makes it difficult to draw meaningful conclusions from results this early in the year. The balance of the year typically represents approximately 85% of our annual NOI with approximately 60% coming from the second half of the year. Our focus remains on the levers within our control. To run the operations well, cultivate our brand, enhance the guest experience, broaden our marketing reach, control expenses and be transparent with the market as external factors play out. Longer-term, the Observatory has proven resilient through cycles and has attractive cash flow characteristics. CapEx is low and a high proportion of NOI flows directly to our bottom line.

Shifting to our investment activity. At the end of the first quarter, we acquired 41-55 North 6th Street, a newly constructed currently vacant prime retail asset at the corner of 10 and North 6th Street in Williamsburg for $46 million, comprising approximately 22,000 square feet. This acquisition, together with our purchase of 86-90 North 6th Street in mid-2025, completed the redeployment of investment capacity from the December 2025 disposition of Metro Center without recognition of a taxable gain.

In aggregate, we exited our last suburban commercial property and reinvested in approximately 37,000 square feet of prime retail on North 6th Street, one redevelopment asset on a strategic corner anchored by a key long-term lease we executed last year and one newly developed asset ready for lease-up. Our North 6th Street portfolio now totals 124,000 square feet and continues to perform strongly and in line with our expectations. These transactions reflect our strategy, as outlined on Pages 5 through 9 of our investor presentation to rotate capital into opportunities with stronger growth prospects and our desired capitalization and risk profile.

We built this position over approximately 2.5 years for roughly $300 million, all without leverage, which uniquely positions us to curate tenant mix, drive leasing momentum and enhance long-term value across our holdings. We built on ESRT's core strength in urban retail and achieve meaningful scale. We now own a dominant position and control 4 key street corner locations in a sought-after supply-constrained and otherwise fragmented ownership market with a premium mix of tenants and significant mark-to-market opportunity over time.

On our balance sheet, year-to-date, we've executed $184 million of financing. In mid-April, we announced the issuance of $130 million of senior unsecured notes in a private placement at a rate of 5.99% that will fund in mid-July and mature in 2032. Proceeds will be used toward paydown of existing debt, including our line of credit. We also closed on a $53.5 million mortgage refinancing for 10 Union Square East.

The 10 year interest-only loan carries a fixed interest rate of 5.3% and replaces a $50 million loan that matured on April 1, 2026. With these financings, we have no unaddressed debt maturity until January 2028. Our balance sheet is a key strength. From our continued proactive approach to balance sheet management, we have enhanced flexibility, durability, reduced risk and are in a position to capitalize on attractive investment opportunities as they emerge. We maintain ample liquidity, lower leverage versus sector peers at 6.3x net debt to adjusted EBITDA and a well-laddered debt maturity schedule, providing significant financial flexibility.

Our 100% owned asset portfolio with limited secured debt also provides capital structure optionality. We continue to underwrite new investments across New York City office, retail and multifamily, evaluate strategic capital recycle opportunities that are accretive to long-term cash flow growth and assess opportunistic share repurchases. New York City's strength is its underlying property fundamentals, and ESRT is a pure-play New York City REIT aligned with live, work, play and visit demand drivers. We continue to look for ways to further enhance the quality of our portfolio and grow cash flows through disciplined value-driven capital allocation.

I'll now turn the call over to Ryan to review our leasing activity.

Thanks, Christina, and good afternoon, everyone. In the first quarter, we signed 113,000 square feet of new and renewal leases. The average lease term for office transactions during the quarter was 10.5 years. We currently have approximately 280,000 square feet of leases in negotiation, up from the 170,000 square feet we cited in our fourth quarter call and tour activity continues to be robust.

In today's bifurcated market of haves and have-nots, ESRT firmly is in the have category. Demand continues to concentrate in high-quality, modernized, amenitized, transit-oriented buildings owned by well-capitalized landlords with proven operating platforms. Our best-in-class portfolio enables us to capture this demand as reflected in our leasing pipeline.

Last quarter, we highlighted that we will see fluctuations in our lease percentage during the year due to known move-outs. We also said that due to our number of larger space availabilities, we have 29 spaces to lease today, of which 16 are full floor. Our lease percentage changes will likely be lumpy. Importantly, we remain confident in our year-end occupancy guidance of 90% to 92%. We started the year at 93.6% leased. We have approximately 210,000 square feet of known vacates through the balance of the year, and our present leasing plan will more than cover those vacates, and we will end the year above the year's starting number.

Our office portfolio is currently 93% leased, which marks the 13th consecutive quarter above 90%. As of today, approximately 15% of our available office space is held off market for consolidation into larger availabilities. The first quarter marked our 19th consecutive quarter of positive mark-to-market lease spreads in our Manhattan office portfolio, underscoring our sustained pricing power. We achieved mark-to-market spreads of 6.8% in Manhattan office, which demonstrates our ability to grow rents and lock in long-term cash flow. Average lease duration was 12.2 years across the commercial portfolio.

Notable leases signed during the quarter include a 13 year 60,000 square foot new office lease with Steve Madden for the entire third and fourth floors at 501 Seventh Avenue and a 20 year 22,000 square foot retail renewal lease with JPMorgan at One Grand Central Place. New York City's leasing market remains strong and provides a favorable backdrop for execution. Demand is broad-based across industries, including finance, professional services, TAMI and consumer products.

Subsequent to quarter end, in April, we signed a 10.5 year 38,000 square foot new office lease for the entire third floor at 130 Mercer with a financial services tenant. This brings our lease percentage from 70% at acquisition to 80%, and we have 2 full floors left to lease. We launched our marketing campaign in January and are encouraged by the early traction, which supports our underwriting and is ahead of completion of our planned capital improvements. Activity remains strong, supported by the scarcity of institutional quality space in the supply-constrained submarket. We are pleased to see our business plan take hold.

Lastly, our multifamily portfolio continues to deliver solid performance. Same-store NOI increased 9% year-over-year and net rents increased 6%. We ended the quarter at 96.4% occupied due to the vacancies in units, which rolled out of 421A at Hudson Landing during the slower winter months, and we are now over 98% leased.

Thank you. I will now turn the call over to Steve. Steve?

Thanks, Ryan. For the first quarter 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 nonrecurring 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 nonrecurring 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&A session.

[Operator Instructions] Our first questions come from the line of [ Manas Abeki ] with Evercore.

Christina, maybe starting with you. If you could touch on a little bit on the -- just opportunities you see in the market for 2026 that 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.

Could you repeat that question? We didn't understand. Okay. Yes.

Yes. 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 the extensions of loans has already taken place. And the question will be, at some point, you have to deal with the maturity wall and predominant extension. 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 solutions. 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. 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 just on the leasing strategy there and like how we could kind of expect that in terms of timing.

So 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 4 or 5 large blocks and full floors that we work to create over the next weeks, 2 months, and that space will come online as quickly as possible.

Our next questions come from the line of Blaine Heck with Wells Fargo.

You all have done a particularly good job of leasing spec or prebuilt 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.

So the prebuilt portion of our portfolio is doing extremely well. Right now, we have single-digit prebuilt available, and we are actively showing it in offers and continuing to negotiate on those, Blaine. 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. At 130 Mercer, we happen to have 3 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 prebuilt spaces.

Agreed. And when we look at the -- it's a healthy mix within our current pipeline of that 280,000 square feet. And the prebuilts 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.

Got it. That's very helpful commentary. And then second, can you just talk a little bit more about the strategic rationale of buying a vacant retail property at this point versus maybe continuing to reinvest in your existing portfolio through share buybacks? Was that just more of a function of needing to reinvest your proceeds for the 1031 exchange?

Yes, sure. So as we've mentioned, in our capital allocation, buybacks are definitely a part of the consideration. Very specifically on the last 2 North 6th 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 an outlook for continued cash flow growth over time, especially as that corridor continues to strengthen amidst 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 were to deploy in that manner. And separately, we have great liquidity where we can also do share buybacks over time.

Our next questions come from the line of Seth Bergey with Citi.

I just wanted to go back to kind of the Observatory. I guess with visitation trends or the visitation down kind of 18% for the first quarter, I understand it's the seasonally kind of weakest quarter, but just what kind of gives you confidence to kind of achieve the guide for the rest of the year? And any color you can kind 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 U.S. 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 the 15% of the year-to-date, and we'll keep a strong weather eye.

Great. And then maybe just as a follow-up on 130 Mercer now that you've executed some additional kind of leasing on the building. How does that -- how does the project kind of compare to your initial underwriting?

Overall, the lease is supportive of our underwriting. The rents are in the high 90s for the transaction that we just completed. TIs are consistent and the free rent is 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 the transaction ahead of our planned capital improvements. Activity is strong, scarcity of institutional quality space down there. And really, we're a differentiator for our large floor plate, the amenities, our financial stability and our service. So excited.

Our next questions come from the line of Dylan Burzinski with Green Street.

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

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 4s to 5%, and we expect it to be around 6%. 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 omniverse opportunivores.

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

Thanks, everybody, for joining us today. At ESRT, we remain focused on a clear and consistent set of priorities: lease our space, drive Observatory performance, maintain a strong and flexible balance sheet, reallocate capital towards growth and maintain our leadership in 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 you at non-deal roadshows, conferences and property tours in the months ahead, onward on upward.

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. Enjoy the rest of your day.

I'm joined by our President, Christina Chiu. Two weeks ago, we reported fourth quarter and full year 2025 results. In 2025, we put more points on the board across our 5 priorities. Our commercial portfolio stands at 93.6% leased with more than 1 million square feet leased in 2025. We have now delivered 4 consecutive years of occupancy growth and positive New York City office rent spreads. Our leasing pipeline supports further occupancy gains as reflected in our 2026 guidance.

Second, our iconic Empire State Building Observatory remains a market leader. 2025, we delivered resilient bottom line performance through disciplined cost management price execution despite lower visitation from our cross-ocean international tourist visitors. We continue to grow our direct sales program and address the changes and challenges to inbound travel to New York City.

Third, we continue to identify growth and capital recycle opportunities that enhance our cash flow. In 2025, we closed $417 million all-cash transactions of well-located, high-quality office and retail assets and completed the disposition of our last suburban commercial asset. Fourth, we maintain a well-positioned balance sheet. Our capital position allows us to exit the suburbs without recognized taxable gain and differentiates us with tenants and brokers and provides us with flexibility to lease space and transact opportunistically.

Finally, we remain a leader in sustainability and focused on measurable business results. Over the past 5 years, we thoughtfully transformed ESRT, the new first few slides in our updated investor presentation share the highlights of our work. We upgraded our portfolio with the exit from our suburban commercial assets and $1 billion of high-quality New York City acquisitions, all without the recognition of taxable gain and in the process, improved cash flow prospects and durability.

We set management succession through key hires and internal promotions. Our balance sheet remains strong and gives continued flexibility. The result, we are more focused, high-quality pure-play New York City portfolio built to drive durable cash flow growth and long-term shareholder value. We remain confident in our portfolio position and our ability to execute. And with that, we welcome your questions.

Great. Thanks. Just a few housekeeping items. This session is for Citi clients only. Disclosures have been made available at the corporate access desk. And then if anyone here wants to ask a question, you can raise your hand or go to liveqa.com and enter code GPC26 to submit questions. Thanks for the introduction, Tony.

I guess to start off, you kind of gave us the reasons why investors should be -- should buy your stock. How are you weighing opportunities kind of across office, retail and multifamily? You recently acquired the Scholastic Building. Is office kind of currently the most compelling asset class to you?

So we took actions to seize opportunities, which give us better prospects for cash flow growth. And our actions have given us a sharper New York City focus. Office, retail and multifamily all compete for capital under the same risk-adjusted return capital allocation framework. So it's just this was a really good opportunity within the set where we consider opportunities on which to act.

And then SoHo, I think, was kind of a new submarket for you with this Scholastic Building. Is that kind of a submarket that you're interested in kind of growing in? Or what specific submarkets do you kind of look out within New York City?

So we look at the New York City opportunity set broadly. There are not a lot of opportunities in SoHo like the one we acquired, floor plate size, building size, location. So I wouldn't say that we should consider that SoHo was anything other than opportunistic. It met what we think is really important to us from our standards.

I will also say that when we acquired our initial assets on North Sixth Street, we didn't intend to do more on North Sixth Street, and we did because the opportunities presented themselves. And we really, through our presence there, understood the market and saw the inbound.

Yes. I would add on 130 Mercer that we're rebranding the Scholastic property. SoHo has very strong supply and demand fundamentals, right? No new supply getting built. And as Tony mentioned, to have that kind of floor plate and offer 3 contiguous floors on top of stable income and fully leased retail was really compelling to us. You can't even assemble that type of property if you tried.

The second is that market does not currently have a lot of institutional products. So apart from being unique space, the ability to offer institutional sponsorship extremely unique. And finally, we all focus on deal metrics, right? And so that deal is unique in that going in with 70% occupancy because we have Scholastic taking up all floors except 3 floors and we have the retail fully leased, we're at a 5.5% yield.

And following the lease-up of 3 contiguous floors, which aggregates about 110,000 square feet, we will get to roughly 8% stabilized yield a few years out. And so for us, that's a compelling risk-adjusted return that allows us to both deploy capital as well as exercise our operating expertise and offer institutional product in the market. We acquired that asset, all cash unlevered, and we think that affords us a lot of flexibility on the long-term capital structure for that asset and at large as we continue to navigate the market. So I think that's been an acquisition that's been well received, and we hope to do more, but every deal is extremely bespoke, and we'll continue to exercise discipline.

And then just on that, kind of what is the leasing interest spend and kind of the balance of the space there?

The leasing spend?

The leasing interest because you have -- it's...

We already have one very strong indication for one floor at -- which more than meets our underwriting.

Okay. And then...

The market demand. Market demand in general in New York from our experience right up until Friday remains strong.

And then I guess just given kind of where the stock trades, how do you view the opportunity set amongst kind of the asset classes that you're exposed to versus opportunistic kind of share buybacks?

Well, look, share buybacks are always a key component of our consideration. We've done over $300 million since we began that program and began to act on that program. And we're authorized by the Board to do it. That said, the reality is it's -- we look at everything from a perspective of company growth, value, use of the balance sheet and what's the best outcome. And everything goes against the capital allocation framework. I don't know, Christina, if you want to add anything to that?

Sounds good.

And then just kind of within the asset classes that you're exposed to within New York, kind of how are you seeing kind of pricing trend? Is there anything we should be thinking about from where -- how pricing has changed...

So it's interesting. First of all, we're exposed to everything but hospitality and what we do. So we get a pretty clear beat. Second of all, there is no question that the big story right now in New York City is interest from lenders is up, even banks and also that things have -- volumes were up considerably, though definitively below 2019, the volumes are up considerably. So with the return of institutional interest for certain assets in New York City, no longer just opportunistic or high net worth, we see significant transaction opportunity, number one.

Number two, we also do see in that reduced pricing sort of 20% to 30% below the last peak. Nonetheless, that's the market as in 130 Mercer was hotly competed for transaction. Could it have gotten more in 2019? Maybe. But it was hotly -- hot competition on that. So overall, residential is probably the slowest volume, lowest volume right now because people aren't really certain about what will happen under the Mamdani new regime that will actually be able to accomplish in concert with New York State.

He requires New York State approval for a bunch of the things which he wants to do. But in general, the transaction market is quite strong. We had a presentation in our last Board dinner by Newmark for the differences between 12 months ago to today and what they see going forward. Needless to see, going forward, they see nothing but excitement and upside is the capital market side, the sales side. But also they spoke to we're in the market right now for financing, very strong interest and for a property. And so we'll see what happens from there. Anything you want to add?

Kind of just on that topic of the political landscape in New York, kind of what are your views on kind of the discussion around proposed property tax increases or the potential tax change affecting high-income individuals in New York?

Well, it's really interesting. Still very early, as I said in the earnings -- in our earnings call, it's not even that things are fully baked on all the ingredients are in the kitchen. There are requirements that people have when you are in charge of New York City to do certain things, you need state approvals. So that said, should we have increased taxes, we get pass-throughs of taxes on existing leases off of base years.

And with respect to new leases, keep in mind that rents are on an upward trajectory due to strong tenant demand and low availability of high-quality space. So I think everyone will have to take that into account. But we wait to see exactly what Mamdani actually accomplishes. And so far, it's very early days.

Just kind of given the lack of space availability, do you kind of have a sense of where there's the portfolio mark-to-market is just given how much market rent has kind of improved and concessions have stabilized within New York?

Sure. Concessions have stabilized, as you point out, if we look at TIs and free rent, we see the area of compression more in free rent, particularly if you have multiple tenants looking at a space in a supply-constrained environment. We have a slide within our portfolio and as reported in our mark-to-market, you could see double-digit teens type of mark-to-market opportunities. A lot of that depends on what's rolling off. So that's what we try to show in each lease expiration. And overall, in the marketplace, you're seeing net effective growth through rising asking rents and some compression or concessions staying flat.

And then just on that, I think on the call, you talked...

And by the way, just so we're clear on concessions flat, TIs haven't really moved in 3 or 4 years. So the cost of the actual work up. We both had great cost control. And in essence, we provide on a real dollar basis less.

Helpful. Can you just provide some more color on the leasing pipeline? I think it was 170,000 square feet kind of as of the call. And just kind of where you're seeing strength and weakness across the New York City submarkets.

So we see strength across the portfolio when we referenced that 170,000 feet in our fourth quarter call. The pipeline is actionable with most deals expected to close in the first half of 2025. We have less space available right now. And our focus has been, as we noted over the prior several quarters of calls, to create bigger blocks of space because those are what is more in demand.

There's -- as Christina likes to say, no one builds any more product like ours. Anything new delivered to the market, you have to look at $200 a square foot plus rents. So from our perspective, our goal is to find those larger tenants for the larger blocks of space that we have underway the creation of them. I mean we have -- if you wanted to walk in right now and say, for instance, OGCP, where we plan to have an 80,000 square foot block, okay, I'd like to start construction tomorrow. We don't have it yet.

We will have it in 2026, and we are in discussion with tenants about that. Those aren't leases out. Those are discussions. So for us, it's really a matter of -- you'll see our leased percentage will drop a bit. Well, the FDIC moves out. On that one, actually, occupancy will drop. FDIC moves out is already leased to LinkedIn. So you'll see our occupancy drift a little bit. And then part of it also is the fact that we plan to assemble these blocks of space because we think that they're of higher value, we get better credit tenants over longer terms.

I guess you talked about the FDIC move out. What's like kind of like the activity been on backfilling that space?

Again, tours are strong. Well, FDIC is leased to LinkedIn. Yes, that's already done. And the LinkedIn space, they have the right to give up certain space and move to the base of the building. Some of the space they have given up is already leased, and we have activity on the balance.

Maybe kind of switching gears to the Empire State Observatory. How do you kind of think about the increased competition from other Observatory decks? And has that impacted the demand for the Empire State Building Observatory?

Well, the market has been competitive for a long time. And there's been -- let's just put it that way. We focus on the levers we control, guest experience, price optimization, direct marketing in response to changes in travel trends. The brand of the Empire State Building is unmatched. And what we need to do as we're still the #1 rated attraction in New York City, is we need to shift with the flows of visitorship as they shift. So flows of visitors shift, we see a really big drop in the budget Transocean traveler period.

And the past programs with whom we've worked for a significant volume over more than a decade, 1.5 decades, they are significantly and materially down. On the other hand, our direct sales online are way up, and these are very high revenue per person add-ons, premium product, additional add-ons. So for us, we have to be flexible, and we need to respond, and that's what we do. So from our perspective, we always have as a tailwind, the return of the international traveler, the budget traveler.

Right now, for geopolitical and economic reasons, that's impacted. It will be interesting to see what happens around the World Cup. We'll see, I think, a modest uptick there. Those will all be very high spending visitors because everything in New York City has been marked up tremendously during the World Cup. And we see co-branding opportunities with the World Cup opportunity coming up where people like to use the Empire State Building in their advertising, their branding and their licensing from us of our image for their use.

Just on the co-branding opportunity, how are those partnerships being structured? Is that just a licensing fee or...

All licensing. We -- as we discussed before, first, we wanted to develop the brand, and then we wanted to profit from the brand. So we've established the brand equity, the billions of dollars of international presence for the brand on advertising value equivalency as measured by Cision, which is the firm we use to measure. And now we have -- and then, by the way, for a period of time, we provided very inexpensive licenses for people to get the brand out there.

And now we charge. And so we look forward to more bottom line production from those. We've got a licensing firm that we've hired and a sponsorship firm that we have hired. Those 2 firms together have really taken over and the professionalization of what we did before is just in-house. Those were both end of last year outcomes.

You mentioned kind of the international traveler could be a tailwind for demands. Kind of what visibility do you have into the return of the traveler? Kind of what's your base case as you kind of laid out guidance for this year in terms of how that demand kind of comes back in '26?

So I'll let Christina comment on our guidance in general. That said, we do subscribe to a number of services, which talk about inbound travel expressions of interest, online, airline reservations. So what we've seen is that the planning phase is much shorter. It's not as far off in the future. The inquiries are much more near term. We think that's consistent with what we see from higher income, higher wealth travelers. They don't plan as far in the future. They have the ability on the wind just to go and do something. So outside of that, our view is constructive, and Christina can talk to our actual...

Yes. Our guidance is roughly flat to last year, and it takes into account a variety of outcomes. If we do get recovery, we're not here a crystal ball, but if you get upside to the international travel picture, that could be to the higher end. And if conditions remain, that's also captured in the range. And in the meantime, we'll focus on top experience, cost controls, but the guidance specifically reflects roughly flattish results.

Okay. And then what's, I guess, been topical over the last couple of weeks has just been AI and its impact on how much office space people will need in the future, how many employees companies will have. I guess just starting with the conversations you're having with tenants, is that kind of coming up at all as people think about their future space needs?

It's kind of interesting, I think, that there's just a mention this morning of an article published over the weekend that the Gen Zers prefer to be in the office and that it's the millennials who most would prefer to be out of the office. And there is also a reference that the people -- that the jobs available for truly remote work are materially down. I think that was in the Wall Street Journal, but I read a bunch of periodicals each morning. So I think that the whole back-to-office story is over, and that's what we see, number one.

Number two, with regard to AI, it's definitely a big story, but the technology is constantly evolving. So from our perspective, our view on it is very few people have -- very few AI companies have a clear vision forward. What it sounds to date like is -- and we had a presentation at this at the -- about this last night at the Citi Investment Bank dinner 2, which we were invited we attended from R. David Adelman of MIT and Washington, D.C. Think Tank World.

And AI at this point appears to create more work for a lot of people, number one. And number two, really hit the software side hard and software people. The other way in which I personally look at this is there'll just be tremendous capital destruction from the AI investment, more about the actual investment that people have invested in AI than anything else because the juice worth the squeeze, the revenue from these different offerings as they go through the money they've raised and actually have to start to charge for their services.

Right now, everybody gets this stuff virtually for free. You can have a corporate sign up, but it's still -- it's not unless you're a really professional coder, you're probably not paying for the capabilities. So we have not seen -- and now back to specific to your question, we have not seen any abatement in -- we haven't seen a lease upper signature canceled. We haven't heard about a lease upper signature in New York City canceled.

Right now, the move in New York City is definitively, there's a shortage of space and people look for space and there are approximately estimated 1.5 million square feet of new AI company demand for space in New York City. That said, as Christina likes to say, signed leases are a backward-looking indicator. So the real issue is what do we see as far as new and when leases get up to the CEO or President or CFO or whoever signs the actual lease, do they get pulled?

Because until then, people do their jobs. And their job is to find space and lease space, they'll do it. So we haven't seen anything yet. We haven't seen any abatement in demand for residential. We haven't seen any abatement in demand for retail. We haven't seen any abatement for demand in office. Christina, anything you want to add?

I think in a speculative period on what happens, right, the news headlines are at a much quicker pace than reality. So in terms of actionable items, watch out for supply and demand, there is limited supply in New York City, right? Cost of new construction is high. Those will go for certain rents. Our our price point is not getting a replenishment of new supply, and there continues to be demand. The first phase of AI seems to be more about enhancement of productivity.

And so to that extent, companies that adapt can get more from their people. And I think the notion that they will just go half staff and try it out is probably something that most companies can't absorb. So I think this is work in progress. It doesn't mirror the pace of disaster that the headlines say. That said, it is important for companies to adapt we will actively focus on that as we underwrite tenant credit and look out for the landscape.

But in real estate terms, watch for the supply and demand backdrop and having low supply is very favorable to that. And the final thing is the biggest thing to look out for on AI is probably more the economic and recessionary impact, right? Because that's what really can drive as opposed to individual companies making a specific call to let go of a lot of staff or not. It's sort of what does it do for the overall economy and productivity.

So I will say that when Jack Dorsey comments he's firing -- fired 40% of the staff. Number one, there was a comment that's been out there for a long time that he specifically has overhired. And number two, we look at a market like San Francisco, which is in sort of a mid-phase of its nascent recovery, and we say, okay, an area like that is always boom and bust. It's always more exposed. We feel very comfortable in New York City with the multiple drivers. And then we'll see.

But the #1 thing that we see is no change yet and a lot of conversation and a bit [ jurious ] about office once again written? And we think that's reflected in our stock price. And that's why, frankly, our solid balance sheet is so important. We don't have any maturity for which we have not had resolution until March of 2027. And we've got a very good balance sheet where we've upped our leverage slightly in order to shift to higher production of cash flow over time, more dependable better upside from investment. So we feel very good that we're prepared for whatever may happen.

Have you -- I mean, obviously, some of the office stocks have kind of sold off over the past 2 weeks on the AI headlines. Are you seeing any changes to kind of office pricing or the buyer pool or just the competitive landscape for assets? And it sounds like your comments are pretty positive in terms of having seen an impact and having a view that it can enhance worker productivity. Are you seeing maybe some of this disruption present an opportunity for Empire?

So we've been active with over $1 billion of transactions, around $1 billion of transactions since we began our shift out of the suburbs, $1 billion of acquisitions. And -- what we've seen is what's reflected in the market. Prices are, as I mentioned before, 20%, 30% below their peak. Residential has seen a degree of decline in volume as people are uncertain about what will happen with Mamdani. Institutional investors are back. Institutional lenders are back in the market. So we see -- okay.

So evidently, that part doesn't get announced here. We see strength in the capital markets and in the transaction world and at the same time, at prices below where they were and the volume is materially down from its peak, though it's up from 2024, 2025 was up over 2024. So still in a recovery phase. And at the same time, the bellwether indicators are strong.

And then you touched on kind of the balance sheet. Your leverage is slightly above 6x. How are you thinking about managing the balance sheet going forward? Is that kind of the leverage range we should expect you to kind of run at? Or any thoughts there?

Yes. I think that's a very comfortable level of leverage, but we've always said we're not trying to be extremely underlevered or try to be overlevered. We think about managing a very flexible and well-positioned balance sheet so that we can navigate all sorts of market circumstances. And I think coming from the years of COVID into now and the various disruptions, we've proven that out.

As Tony mentioned, we saw a great opportunity for an acquisition, acquiring it on an all-cash basis, doing some recent financings affords us great flexibility on the go forward while maintaining a lot of liquidity and our leverage is still well below peer averages. So very comfortable at this level. But any time we tick up, we also ensure that we have various alternatives to bring it back down so that we can continue to weather the market in a very healthy way.

We have no JV in our portfolio anywhere. We own everything 100% ourselves, and we have a lot of unlevered property that is not part of the unsecured pool for our bonds.

And then maybe just your FAD kind of increased in '25 due to kind of CapEx. As leases kind of commence, how does -- how do you kind of view CapEx over the next few years? And how does kind of -- if cash flow improves kind of as the free rent burns off, how does that change kind of your capital allocation priorities?

Well, let me answer the CapEx piece and then the capital allocation separately. So the last few years, we've had very significant lease-up of the portfolio, right, 600 basis points when you look over the last 3-plus years, and that has been great for increasing lease percentage. But as a result of that, we've had CapEx increase ahead of all of that leasing translating into cash and GAAP NOI. We think there's about another year or so where you'll see some of that TI continue to flow through, leasing commissions likely come down and base building comes down because those were sort of paid for ahead of the full commitments towards TIs.

On a go-forward basis, there will always be some noise. We've said at below 150 is how to think about CapEx and all things being equal, but things are never equal, right? You'll always have early renewals and situations that come up, but we'll do our best to provide the market with transparency on how that looks. And as a reminder, the portfolio is fully modernized. So it's extremely ready for being 93% leased and continued leasing without having to double back and get the portfolio up to speed.

In terms of capital allocation, to resummarize, right, strategically, we always think about share buybacks. The opportunity to buy back our portfolio that is well leased, well invested in is always attractive. That said, we also believe there could be opportunities that could leverage the platform, our skills and add to shareholder value and allow growth in overall cash flows and use of the platform. And so that will be a consideration as well.

So it will be a balanced approach. It won't be back up the truck, use all our liquidity just for share buyback. And at the same time, that's definitely a part of what we think of. And that's why we've done over $300 million and continue to engage in that activity while also looking for acquisition opportunities. So the benefit of a good balance sheet is you don't have to make a choice and do one at the expense of the other. Ideally, we can do both and add to shareholder value over the years.

Okay. And then maybe moving on to some of our rapid fire. What will net effective rent growth be for your property sector overall, not your company in 2027?

Net effective rent growth will be positive and the market will be carried by the haves as modernized, amenitized energy-efficient property, which have been full investment or brand-new property.

And then will your property sector have more or fewer or the same number of public companies a year from now?

Fewer.

Great. Thank you so much.

Thank you.

Greetings, and welcome to the Empire State Realty Trust Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Heather Houston, SVP, Chief Counsel, Corporate and Secretary. Thank you. You may begin.

Good afternoon. Welcome to Empire State Realty Trust's Fourth Quarter 2025 Earnings Conference Call. In addition to the press release distributed yesterday, a quarterly supplemental package with further detail on our results and our latest investor presentation were posted in the Investors section of the company's website at esrtreit.com.

During today's call, management's prepared remarks and responses to questions may include forward-looking statements within the meaning of applicable securities laws. These statements reflect management's current views and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. Empire State Realty Trust assumes no obligation to update any forward-looking statement in the future. We encourage listeners to review the more detailed discussions related to these forward-looking statements in the company's filings with the SEC.

During today's call, we will discuss certain non-GAAP financial measures, such as FFO, modified and core FFO, NOI, same-store property cash NOI, EBITDA and adjusted EBITDA, which we believe are meaningful in evaluating the company's performance. The definitions and reconciliations of these measures to the most directly comparable GAAP measures are included in the earnings release and supplemental package, each available on the company's website.

Now I will turn the call over to Tony Malkin, our Chairman and Chief Executive Officer.

Good afternoon, everyone. Yesterday, we reported ESRT's fourth quarter and full year results. Today, we will discuss our continued leasing momentum, observation deck execution, latest balance sheet recycling and outlook for 2026. We delivered full year core FFO of $0.87, a reflection of continued performance across our platform. Our leasing team again put points on the board with nearly 460,000 square feet leased in the quarter and 1 million square feet for the year. We have now delivered 4 consecutive years of occupancy growth and positive New York City office rent spreads.

As we enter 2026, we have framed in our new investor deck that is available online, the significant transformation to drive shareholder value ESRT has executed over the past 5 years. This transformation was deliberate to strengthen our platform and improve the quality and durability of our cash flows. Since Christina joined as CFO in 2020 and was in 2024, elevated as President to join me at the head of the company, we addressed management succession with key leadership hires and promotions. Steve Horn was promoted from CIO to CFO in 2024; Ryan Kass to Co-Head and Chief Revenue Officer of Real Estate; and Jackie Renton joined us in 3Q as Co-Head and Chief Operating Officer of Real Estate. These management changes, along with others across the organization, strengthened our operating platform and reinforce our ability to execute on our growth initiatives.

Our portfolio is now 100% New York City. We completed $1 billion of acquisitions of high-quality real estate and disposed of our suburban commercial assets all without tax leakage. Our acquired assets improved our cash flow and portfolio quality and include high-quality Manhattan multifamily properties, prime retail on North Sixth Street in Williamsburg, Brooklyn, and more recently, 130 Mercer in SoHo, also known as Scholastic's headquarters. ESRT's New York City pure-play portfolio benefits from live, work, play and visit dynamics of the greatest market in the United States. This was all made possible by our proactive balance sheet management that provides ESRT significant flexibility to transact strategically and create shareholder value.

We are confident in our position as we look ahead. While known tenant rollover will impact our FFO growth in 2026, we believe the portfolio is well positioned for long-term cash growth. Our office portfolio is 93.5% leased. That reflects the desirability of our top-of-tier modernized, amenitized, well-located sustainability leading portfolio underpinned by a strong financial position. Importantly, there is no new supply at our price point. We continue to see an upward trajectory in net effective rents, and our portfolio continues to perform. Our iconic Empire State Building observation deck remains a market leader and a meaningful contributor to our cash flow.

Revenue per capita increased year-over-year. In 2025, we delivered resilient bottom line performance through disciplined cost management and price execution despite a decline in visitation from our cross-ocean international tourist visitors. We continue to grow our domestic demand and be ready for a return of our traditional budget-conscious international visitors. Our sustainability leadership as a lever for measurable business results and reduces our and our tenants' exposure to increased energy and regulatory costs. We partner with tenants to support their sustainability goals.

In 2025, ESRT achieved the highest possible GRESB rating for the sixth consecutive year with a score of 93 and an A in public disclosure. In addition, the Empire State Building became the first lead version 5 platinum certified building in New York State. These results reflect the leadership and focus of our organization. Our entire organization remains laser-focused on the Observatory's 5 priorities: Lease space, sell tickets to the observation deck, manage our balance sheet, identify growth opportunities and achieve our sustainability goals. These priorities are simple, repeatable and aligned with our desire to drive long-term shareholder value.

Christina, Ryan and Steve will provide more detail on our results and outlook. Christina?

Thanks, Tony. As Tony mentioned, in the past 5 years, we've been very active and fully recycled out of lower growth, higher CapEx suburban commercial assets on a tax-efficient basis into prime New York City assets, aggregating over $1 billion, of which $750 million are unencumbered with superior long-term growth characteristics and lower capital requirements. In 2025, we executed $417 million of all cash acquisitions of well-located, high-quality office and retail assets comprised of 130 Mercer and 86-90 North Street and completed the disposition of Metro Center.

In the fourth quarter of 2025, we completed financing that aggregate $420 million and result in no unaddressed debt maturities until March 2027. These include a $175 million unsecured notes issuance and a $245 million term loan recast. The cumulative impact of all the transaction activity in the past 5 years is the successful transition to a 100% New York City portfolio that drives resilient cash flows to the bottom line through high-quality assets that benefit from live, work, play and visit. And this is backed by a proactively managed balance sheet with strength and flexibility. As we look ahead, our focus remains to grow and improve the quality of our portfolio and cash flows and deliver shareholder value through prudent capital allocation.

Adding more color to our recent investment activity. In December, we acquired 130 Mercer for $386 million. Our ability to move quickly and close with certainty is a significant advantage in today's market. This was enabled by our proactive balance sheet management, strong liquidity and low leverage. We acquired the asset all cash on our balance sheet and have significant optionality on the building's long-term capital structure. 130 Mercer is a high-quality 396,000 square foot office and retail asset in prime SoHo between Prince and Spring Street with an attractive risk-adjusted return profile. It provides both a solid initial yield and meaningful embedded upside. The property delivered a mid-5% initial cash yield at 70% occupancy, supported by a 15-year office lease with Scholastic and fully leased street retail with approximately 8 years of remaining term in a AAA location anchored by Sephora and Capital One.

We expect growth towards a stabilized yield of approximately 8% through the lease-up of a 3-floor vacant office block of over 110,000 square feet with large, efficient floor plates. Our mandate here is straightforward, lease 3 floors. The market for large block institutional quality office space in this submarket is supply constrained, while demand remained strong. This creates a unique opportunity for ESRT to leverage our operating platform and best-in-class stewardship to drive occupancy, rents and returns. The disposition of our final suburban commercial asset, Metro Center in Stamford, Connecticut and repayment of the related mortgage debt in December is consistent with our objective to recycle capital to improve the quality of our portfolio and cash flows.

The previously announced acquisition of 86-90 North Sixth Street represents a redeployment of these proceeds. A 86-90 North Sixth Street is a prime redevelopment property that we closed in June 2025 and announced a long-term lease with a high-quality retail tenant shortly after. It is located on a strategic corner along North Sixth Street, where we now control 4 key street corner locations and further strengthens our dominant position along the corridor, where foot traffic, residential density and tenant demand remains strong. In aggregate, our acquisitions along North Sixth Street through year-end 2025 total approximately $250 million. These transactions reflect our disciplined capital allocation approach.

Our capital recycling activity over the last 5 years an exit from suburban commercial assets will result in an estimated $90 million of cumulative incremental property level cash flow between 2025 and 2030. This reflects the superior growth and lower capital requirements of what we acquired versus what we sold. We continue to reassess our portfolio to uncover opportunities to recycle capital that are accretive to growth and cash flows. Opportunistic share repurchases remain a strategic part of our capital allocation framework.

During the fourth quarter, we repurchased $6 million of shares at an average price of $6.73. For the full year, we repurchased $8 million of shares at an average price of $6.78. Since the inception of our repurchase program in 2020, we repurchased approximately $302 million of shares in aggregate. Our well-positioned and flexible balance sheet remains one of our key strengths. Pro forma for recent investment activity, we maintained ample liquidity and lower leverage versus sector peers at 6.3x net debt to adjusted EBITDA and a well-laddered maturity schedule with all debt maturities in 2026 address.

From a capital allocation perspective, we continue to actively underwrite new investments across New York City office, retail and multifamily, evaluate strategic capital recycling opportunities that are accretive to long-term cash flow and assess opportunistic share repurchases. Transaction activity has increased, and there is strong institutional capital interest in New York City and recognition of the strength of its underlying property fundamentals. We remain focused on opportunities where our operating and repositioning expertise can create meaningful value, and our strong balance sheet provides flexibility to act decisively when conditions align. We remain excited about the path ahead for ESRT. We look to continue to improve the quality of our pure-play New York City portfolio and cash flows through thoughtful prudent capital allocation. We also continue to look for ways to operate more efficiently and drive shareholder value.

I'll now turn the call over to Ryan to review our leasing activity. Ryan?

Thanks, Christina, and good afternoon, everyone. In 2025, our property team delivered another year of exceptional performance. We leased over 1 million square feet and grew occupancy to 90.3%, up 170 basis points year-over-year. Our office portfolio is 93.5% leased, our 12th consecutive quarter above 90%, which is a testament to the strength of our leasing platform and execution.

In today's bifurcated market of have and have nots, ESRT remains a clear have. Demand is concentrated among top quality, modernized, amenitized, transit-oriented buildings owned by financially stable landlords with proven operational performance. Our best-in-class portfolio has enabled us to push rents, reduce concessions and extend lease terms. The fourth quarter marked our 18th consecutive quarter of positive mark-to-market lease spreads in our office portfolio and underscores our consistent pricing power.

We finished the year strong. In the fourth quarter, we signed over 458,000 square feet of new and renewal leases. We achieved positive mark-to-market lease spreads in our Manhattan office portfolio of 6.4%. Key leases signed in the fourth quarter include a 10-year 46,000 square foot early renewal with T.J. Maxx at 50 West 57th Street, an anchor investment-grade retail tenant; a 7-year 42,000 square foot early renewal with Nespresso at 111 West 33rd Street; a 16-year 36,000 square foot expansion with Burlington at 1400 Broadway, which represents 20% footprint growth; and a 16-year 15,000 square foot retail lease with LinkedIn at the Empire State Building, which brings their total square footage to 540,000 square feet. Average lease duration was 11.6 years for new leases executed in the fourth quarter.

We continue to deliver an exceptional tenant experience and superior service, which contributes to our impressive track record of tenant retention and expansion. In 2025, we completed approximately 274,000 square feet of early renewals with existing tenants where we proactively extended lease expirations. Since our IPO in 2013, we have signed 317 tenant expansion leases for over 3 million square feet. New York City's office leasing market is the strongest we have seen since 2019, which creates a favorable backdrop for us to execute. Tenant demand is strong and diverse with industries such as finance, professional services, TAMI and consumer products. Similar to last year, there may be temporary dips in our lease percentage over the course of the year. but we feel confident in our year-end occupancy guidance of 90% to 92%.

At 130 Mercer, we kicked off our marketing campaign in January to lease our 3-floor block of over 110,000 square feet. Initial activity is healthy as it is a unique availability of institutional quality product in a supply-constrained submarket. As Christina mentioned, our mandate is straightforward, lease 3 floors. More to come. Lastly, our multifamily portfolio continues to deliver excellent performance with occupancy just under 98%. Revenue increased 9% year-over-year in the fourth quarter and 10% in the full year. These results reflect strong market fundamentals and our focus on operational excellence. Thank you.

I will now turn the call over to Steve. Steve?

Thanks, Ryan. For the fourth quarter of 2025, we reported core FFO of $0.23 per diluted share. For the full year 2025, core FFO was $0.87 per diluted share. Same-store property cash NOI, excluding lease termination fees, increased 3.4% year-over-year for the fourth quarter and 60 basis points for the full year, after adjusting for approximately $2 million and $7 million of nonrecurring items recognized in the fourth quarter of 2024 and full year 2024, respectively. Excluding these items, same-store cash revenue increased 2.5% and 2.1% for the fourth quarter and full year, respectively, while operating expenses increased 1.7% and 3.4%, respectively. Operating expense growth for the year was primarily driven by higher real estate taxes and cleaning related labor costs and was partially offset by higher tenant reimbursement income.

Our Observatory business generated approximately $24 million of NOI in the fourth quarter and $90 million for the full year. Expenses totaled approximately $11 million in the fourth quarter and $38 million for the full year. Revenue per capita increased 6.9% year-over-year in the fourth quarter and 4.4% for the full year. For the full year 2025, FAD CapEx shrunk by approximately $21 million or 11% year-over-year. While the decrease was seen on all fronts across tenant improvements, leasing commissions and building improvements, the primary contributor to the decrease was an $18 million reduction in CapEx dollars spent on building improvements as we previously spent the CapEx required to develop our portfolio in preparation for the positive lease absorption we recognized.

Now to our 2026 outlook. At a high level, we expect 2026 FFO and same-store cash NOI to be consistent with our 2025 results. This expectation stems primarily from a lag between the disclosed FDIC expiration and the lease commencement of the related backfill we executed in advance of the anticipated vacancy. Importantly, we expect to exit 2026 with higher occupancy and lower run rate G&A. The occupancy improvement is not expected to have a material positive impact on our 2026 results due to timing. To drill down further into the components of our guidance, we expect core FFO to range from $0.85 to $0.89 per diluted share. Our guidance assumes same-store property cash NOI growth of negative 1.5% to positive 2%. Within this range, we expect positive cash revenue growth with anticipated commercial occupancy of 90% to 92% by year end 2026 compared to 90.3% at year-end 2025.

On the expense side, we expect property operating expenses and real estate taxes to increase by approximately 2% to 4% in aggregate, which we expect to be partially offset by higher tenant reimbursement income. Our 2026 same-store pool now includes our multifamily and North Sixth Street retail portfolios. This change reflects our transformation over the last 5 years, which includes our exit from suburban markets and transition to a 100% New York City portfolio. As expected, FDIC vacated 119,000 square feet at Empire State Building subsequent to year-end. While the space has long been backfilled by LinkedIn at a favorable mark-to-market, the temporary downtime impacts our 2026 core FFO by approximately $0.03 and reduces the same-store property NOI growth by approximately 270 basis points. Excluding this downtime, the midpoint of our 2026 adjusted same-store property cash NOI growth guidance would be approximately 3%. We expect cash rent commencement for the space to begin in the second half of 2027.

For the Observatory, we expect 2026 NOI of approximately $87 million to $92 million and expenses of approximately $10 million per quarter. Included in this guidance is an expected $2 million net decline in license fee revenue earned from the gift shop operator at the Observatory and a shift in the timing of such revenue to be more heavily weighted to the fourth quarter. This reflects a COVID era license amendment that provided for fixed payments to the Observatory through 2025. Starting in 2026, these payments were reduced as are the annual percentage-based payment thresholds, which provides us with the upside tied to the recovery of international visitation.

From an operating perspective, we remain focused on the levers within our control, to enhance the guest experience, broaden our marketing reach and drive efficiencies. Longer term, the observatory remains a durable high-margin cash flow business. Lastly, we expect calendar year 2026 G&A to aggregate approximately $69 million to $71 million as compared to approximately $73 million in 2025. We are on a path to reduce run rate G&A by approximately 5% to 10% by year-end 2026 relative to 2025, driven by compensation reductions and other cost reduction initiatives. We expect these savings to be in place by the third quarter. That concludes our prepared remarks.

I'll now turn the call back to the operator to begin the Q&A session. Operator?

[Operator Instructions] Our first questions come from the line of [ Manas Abic ] with Evercore ISI.

Good to see a strong decent quarter in the fourth quarter. Just wanted to see if you can provide some more color on just the outlook kind of seeing how the first quarter has turned so far in terms of either pipeline or leasing activity if that's kind of continued to hold up into '26 and kind of like if you see any specific submarkets in your portfolio stronger than others. So any color would be appreciated.

The market tenor remains strong. We continue to see a bifurcated market of the have and have-nots and where we have. We have just over 170,000 square feet of leases in the pipeline that we anticipate closing in the first and second quarter.

Got you. Okay. And maybe one follow-up question. On the release, I didn't see a sales price that was given for the Stanford asset that you disposed of in the fourth quarter. So I wanted to just see if there's any further information you can kind of give us around the transaction and when it closed or for how much?

Yes, it was mid-$60 million. And then with some credit and adjustment, it gets to right around the debt balance. And from an NOI perspective, it's around [ 7 ] cap rate.

Our next question has come from the line of John Kim with BMO Capital Markets. John, can you please check if you're self muted?

Sorry about that. On that -- just following up on the Metro Center sale. Why not just walk away from the mortgage debt given the sale price was a little bit underneath the outstanding principal amount?

We achieved an execution that was right around that area. And so it made sense. It's consistent with our capital recycling and allows us to redeploy proceeds into assets additive to the rest of our portfolio. So it was good execution overall.

Okay. Our mayor Mamdani has proposed a 9.5% increase in property taxes that balance in New York City budget. Can you just remind us of your ability to pass those increased taxes to your tenants? And if you can, how will this affect your ability to push rents going forward?

Well, let's just, first of all, say that the proof is always in the pudding, and I don't think anything's even ingredient-wise is in the kitchen yet. So we'll see how things go with the Merit agenda and the budget, number one. Number two, Ryan can comment on how we handle our pass-throughs on the tenants and number three, the market is what the market is, so we're going to lease and if rent increase -- if we get our rents, we get our rents and if we have a higher base year on real estate taxes for new leases, well, that will be a higher base year for real estate taxes on new leases. .

And as Tony said, that would be in the future on the existing leases that any increase would be passed through on a tax escalation to the tenant.

Okay. And then my final question is, I know this gets asked a lot on office calls, but the impact of AI on tenants. Last week, we had the latest AI scared trade and the impact it's had not just on software companies, but all types of professional service companies, have you seen any impact on leasing decisions as a result of latest news?

The first thing I'll say, John, is we've seen a lot of people who are on book tours or seek to have more people come on to their blog where they can make advertising, make all sorts of decorations. We can only tell you that we've seen strong demand for high-quality office space in New York City amid low availability. Tenants continue to expand, and AI itself has been a positive for the leasing market and the source of incremental tenant demand, though, from our perspective, we're very sensitive to highly volatile infant industries as far as tenancies are concerned. So we, again, can only speak to 2024, '25, '26 leasing and trends, and we're very busy. Ryan gave you a number of 170,000 square feet of leases in discussion. We've got proposals in excess of that going back and forth. And we're very busy. At this point, we're more hindered by the availability of space to lease than anything else.

Our next questions come from the line of Seth Bergen with Citi.

It's Nick here with Seth. Maybe just following up on the new mayor in New York, obviously, you said the ingredients aren't even in the kitchen. But just broadly, how much of the rhetoric or policy impacted your conversations around leasing decisions or business sentiment more broadly?

It has not impacted any of our leasing discussions. I mean...

We can maybe give you a little more color of it really hasn't impacted our leasing discussions, but demand is high. And look, we are in an incredibly volatile world. Let's face it. Capital markets are kind of crazy. We may be at war in Iran within the next week or 2. We just do what we can do here at ESRT, got a balance sheet that allows us to do our business, have a balance sheet that allows us to take advantage of opportunity. And we will make money where we can make money. And we've got a varied portfolio of focus to what we think is the best market in the world. And we'll see how the mayor get things done, and we'll live in whatever world he impacts.

Got it. And then just on the Observatory, I guess you gave some color on the -- in your opening remarks. But what are you seeing in terms of competition? And what's the economic and tourism outlook embedded for the 2026 guide?

Well, I can give you some background on the general tourism trends, and then I'll let Christina or Steve comment on what goes into our guide. I'll just also let you know that Steve is alone in a conference room somewhere. He's come in because he has the flu, but he has intermittent Internet at his apartment. So if we're at all slow on the transition between Christina and Steve, it's because he's in another room. We feel safe, by the way, because we have MERV 13 filters and active bipolar ionization, so we feel highly unlikely that Steve will infect anyone else in the office.

But going back to your question, we did see a very meaningful change -- set of changes in the Observatory. We used to be 2/3 roughly international, and now we're more than 50% domestic. We did see actual changes from the composition of our visitors. Our direct retail purchaser is way up, highest revenue per person we've seen. And at the same time, we have seen meaningful decline in past programs and particularly past programs from overseas visitors. And just so you know, for anyone who's not familiar with the past program, that's where a number of attractions are bundled into one price and visitors have a choice of to where they might go.

One of the past program businesses ceased operations in early 2025, and the other two are materially down in their businesses. So we've pivoted and achieved very good results on our direct marketing. And at the same time, we've maintained excellent relationships with our past program partners that we value very highly. We've worked very hard on our online travel agent relationships and how we conduct our business there. And from that perspective, we adjust to what the market serves us. Much more active from our side, it's much less we take a toll from people across our bridge.

And as far as competition, SL Green's reported on their own activities at the Summit. The edge is definitely very weak. One World Trade Center is very weak. Both of those have experienced significant deterioration in their businesses and do extensive discounting. On top of the rock is private and doesn't give out data, but we think they're pretty steady in relation to how business has gone in general. Do you want to talk about -- Christina or Steve. Steve, you'll take that on, the modeling.

Yes. There's not really much a lot to add from what you said. But from the guidance perspective, we account for just a range of various outcomes throughout the year. So the range that we have of the $87 million to $92 million, the midpoint is flattish. And so that contemplates those potential variances.

Our next questions come from the line of Blaine Heck with Wells Fargo.

I was hoping you could dig into the occupancy forecast a little bit more for 2026. The 91% midpoint seems maybe a little light just given that you are 93.6% leased at the end of the quarter. But I do understand you're expecting about 250,000 square feet of vacates during the year. So with respect to that, is FDIC included in that 250,000 square foot number. And I guess, what's your level of certainty with respect to the rest of those move-outs? And lastly, are there any other headwinds that might be a little bit less obvious?

Thanks, Mike. So I'll take that one. We feel very confident in our year-end occupancy guidance of that 90% to 92%. A lot of that is driven by timing of vacancies. If you take a look at Page 15 in the supplement, you'll see first and fourth quarter, we do have large move-outs, that fourth quarter is mainly driven by a 70,000-foot tenant at the Empire State Building, who has been in this space for a very long time. So I think that's impacting the numbers, and we're excited to get that space back in a substantial positive mark-to-market.

Okay. Great. That's helpful. Switching gears, in the past, I think you've said 6x debt-to-EBITDA as your kind of loose target for the upper bound of leverage. I think this is the first time I've seen your net debt to adjusted EBITDA above 6. So I guess how are you thinking about moderation in that metric and whether that limits your ability to be active on the investment front or share buyback front?

Yes. We have always mentioned we evaluate the market based on continued access to capital. We've been able to continue to access the debt market, have a number of conversations going on with interest in our assets. So we'll continue to navigate. We've also said that from time to time, we may tick up on net debt to EBITDA, it's not a strict limit. We're not looking to run the company at high risk or high balance sheet leverage. And at the same time, when there are great opportunities where we can utilize our balance sheet, close with certainty, you may pick up from time to time, and we'll have a game plan as we navigate going forward to maintain appropriate levels of leverage. So for us, this is consistent, and we'll continue to have activity in the coming year. All of our debt maturities are addressed, and we'll continue to manage the balance sheet prudently.

I just might add to Christina's comment, anyone who's followed us over the more than decade since we've been public, I always have said that the right opportunity where we think it can lead to growth, we will make moves on the balance sheet. That's why we have the balance sheet, and we are still peer-leading in our balance sheet position.

Our next questions come from the line of Dylan Burzinski with Green Street.

Maybe just going back to the Observatory. I appreciate your comments thus far, but are you able to say sort of what added lift or benefit is imputed in the guide as it relates to any expectations for the World Cup to drive an increased activity on the international visitor side of things?

So we've developed marketing strategies to capture demand around the World Cup. We're optimistic it will benefit our business with the biggest upside really around co-branding opportunities. So we still think it's early in the year. Many factors can impact demand. We don't rely on just one event. There are only a certain number of people who will fit into the stadia around New York City, where the World Cup will take place. And the good news for us is that costs are so bloody expensive around that period of time that we're really in a position in which our best customer right now, which is someone who really pays full price and get significant additional purchases out of what we offer for upgrades, that will fit right in there. We do see, and we are in discussion continuing on our branding side, opportunities both generate advertising value equivalency and co-branding dollars.

Appreciate that color. And then maybe just switching over real estate alert. I think late last month, mentioned that you guys have, I think it's 250 West on the market. Just sort of curious how you guys are sort of viewing -- you guys and the Board are viewing sort of the disconnect between where the stock trades today and maybe where underlying private market value is for your guys' portfolio?

Sure. I think it's no secret we trade at a discount to underlying real estate values as the rest of the office sector. So clearly, there's a disconnect. But what we focus on and as we've reiterated is we focus on the things that are within our control, and we continue to execute on the business. We've always said that we are open to capital recycling, first step with getting out of the suburban office market and reinvesting those proceeds into assets that are additive to the portfolio, add to the quality, add to the cash flow characteristics of what we're trying to build.

Now that we're on the suburban, we can look within New York City as well. And the asset that we have on the market is an asset where we've added a bunch of value, and we continue to underwrite opportunities in the marketplace where we can add more value. It appears to us as you see in the transaction market, there's a lot of interest in New York City, and we'll see how that goes. So happy to own it, also happy to potentially pursue a sale and look for additional opportunities and more details will come as the process plays out.

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

Thank you all very much. We remain focused on a clear and consistent set of priorities, lease our space to drive observatory performance, maintain a strong and flexible balance sheet, allocate capital with discipline and lead in sustainability. These priorities keep our organization focused and aligned as we drive the business forward. Supported by a high-quality portfolio and a strong financial foundation, we are well positioned to execute in the quarters ahead and create long-term value for our shareholders. We look forward to the chance to meet with many of you at non-deal roadshows, conferences and property tours in the months ahead, onward and upward.

Thank you. This does now conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time, and enjoy the rest of your day.

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" Evercore ISI Institutional Equities, Research Division

" Citigroup Inc., Research Division

" Wells Fargo Securities, LLC, Research Division

" Green Street Advisors, LLC, Research Division

" BMO Capital Markets Equity Research[ id="-1" name="Operator" /> Greetings, and welcome to the Empire State Realty Trust Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce Heather Houston, Senior Vice President, Chief Counsel, Corporate and Secretary. Thank you. You may begin.

Good afternoon. Welcome to Empire State Realty Trust third quarter 2025 earnings conference call. In addition to the press release distributed yesterday, a quarterly supplemental package with further detail on our results and our latest investor presentation were posted in the Investors section of the company's website at gsrtreit.com.

On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements as defined in applicable securities laws, including those related to market conditions, property operations, capital expenditures, income expense, financial results and proposed transactions and events. As a reminder, forward-looking statements represent management's current estimates. They are subject to risks and uncertainties, which may cause actual results to differ from those discussed today. Empire State Realty Trust assumes no obligation to update any forward-looking statement in the future. We encourage listeners to review the more detailed discussions related to these forward-looking statements in the company's filings with the SEC.

During today's call, we will discuss certain non-GAAP financial measures, such as FFO, modified and core FFO, NOI, same-store property cash NOI, EBITDA and adjusted EBITDA, which we believe are meaningful in evaluating the company's performance. The definitions and reconciliations of these measures to the most directly comparable GAAP measures are included in the earnings release and supplemental package, each available on the company's website.

Now I will turn the call over to Tony Malkin, our Chairman and Chief Executive Officer.

Thanks, Heather. Good afternoon, everyone. Yesterday, we reported ESRT's third quarter and year-to-date results. We delivered FFO above consensus and reaffirmed our 2025 guidance. Our highly leased portfolio has benefited from strong lease-up executed over the last several years, and 3Q was a slightly lighter quarter for office leasing. Post 3Q closed, we signed another 50,000 square feet of leases and we presently have approximately 150,000 square feet of leases in negotiation. We also delivered our 17th consecutive quarter of positive marks-to-market. We will discuss our healthy pipeline of leasing activity and completed leasing in October in this call. Observatory results were consistent with our guidance.

ESRT is purpose-built for strength and agility across all cycles. Our long-term leases, high occupancy, diversified income streams and flexible balance sheet provide a solid foundation for consistent performance and strategic growth. In New York City, office leasing market remains strong. Availability is low at top-tier buildings like ours and rents continue to rise. There is no new supply at our price point and many older buildings properties, which are not like our portfolio, modernized, amenitized, well located, supported by sustainability leadership and a strong financial position, continue to be taken off the market for conversion to residential.

We continue to outperform. Our focus right now is on our little over 500,000 square feet of availability in our Manhattan office portfolio. Some is held off the market for assembly of large contiguous blocks at several properties. We remain focused on our ability to drive occupancy and maximize lease economics. At the Observatory, revenue per capita continued to increase in the third quarter in the face of reduced budget traveler visitation. More than half of our visitation is domestic.

Slide 16 of our latest investor presentation shows that the Observatory remains resilient. Our strong balance sheet gives ESRT the flexibility to act on opportunity, maintain our portfolio at the highest standards and create durable long-term value for our shareholders. We continue to be leaders in environmental stewardship and healthy building performance, focus on business outcomes and partner with our tenants to help them achieve their own sustainability goals.

Earlier this month, ESRT achieved the highest possible GRESB 5-star rating for the sixth consecutive year. Hats off to the team for their continued leadership and excellence. Our entire organization remains laser-focused on the company's 5 priorities: lease space, sell tickets to the Observatory, manage our balance sheet, identify growth opportunities and achieve our sustainability goals.

Last month, we announced that Tom Durels, my partner for more than 35 years and our Head of Real Estate, began to transition his role to 2 senior leaders at ESRT. We are deeply grateful to Tom and his impact on our company's success and culture, strategy and post-IPO transformation into a modernized amenitized, sustainable portfolio are all indelible. We have an experienced and capable team to build on the strong foundation that Tom helped to establish.

I will now turn the call over to Tom, who has a few remarks. Then Ryan, Steve and Christina will provide more detail on our progress and outlook for the balance of 2025. Tom?

Thanks, Tony, and thank you for those remarks, and good afternoon, everyone. I'd like to touch on our recent leadership succession update. We announced in mid-September that after more than 35 years, we began the transition of my role at ESRT to Ryan Kass as Chief Revenue Officer; and Jackie Renton as Chief Operating Officer, the new Co-Heads of Real Estate. I'm here in the room today as Ryan covers our leasing update, and I continue to work with Christina and Tony and assist Ryan and Jackie in our work to deliver strong results and long-term value for our shareholders.

And with that, I will hand it off to Ryan to discuss our third quarter leasing results and outlook for the balance of the year. Ryan?

Thanks, Tom, and good afternoon, everyone. In the third quarter, we signed 88,000 square feet of new and renewal leases. Subsequent to quarter end, we signed approximately 50,000 square feet of additional leases and have approximately 150,000 square feet of leases in negotiation. We are excited to announce since quarter end, we signed 3 new leases within our North Sixth Street collection.

Tourneau leased over 3,700 square feet to open a Rolex store at 86-90 North Sixth, an asset we purchased last quarter as a strategic redevelopment opportunity on one of New York City's most dynamic retail corridors. Our partnership with a global luxury brand like Rolex prior to commencement of our redevelopment work underscores both the quality and success of this location, which anchors Williamsburg as the premier destination for high-end retail and institutional investment.

We also signed new leases with Tocovus and HOKA. Beyond that, we have one space left to lease on North Sixth Street, and that is adjacent to Rolex in our 86-90 redevelopment property, and we are confident in more good news when existing leases roll. Manhattan office occupancy increased 80 basis points sequentially to 90.3%, and we remain on track to achieve our year-end commercial occupancy guidance of 89% to 91%.

As mentioned, we have 150,000 square feet of leases in negotiation. Tenant demand continues to be diversified, and we are in discussions with prospects from various industries such as finance, professional services, TAMI, consumer products and others. New York City's office leasing market is the strongest it has been since 2019, which creates a favorable backdrop for us to execute.

Our Manhattan office portfolio is over 93% leased, our 11th consecutive quarter above 90%, which is a testament to the strength of our leasing platform and strong execution over the last few years. We have slightly over 500,000 square feet of Manhattan office vacancy. As Tony mentioned, in a market with limited supply, we will create large contiguous blocks at several properties to accommodate demand. We remain focused on improved occupancy and rent growth as the market continues to strengthen.

In today's bifurcated market of haves and have-nots, ESRT remains a clear have. Demand is concentrated among top quality, amenitized, transit-oriented buildings owned by financially strong landlords with proven operational performance. Our best-in-class portfolio has enabled us to push rents, reduce concessions and extend lease terms. The third quarter marked our 17th consecutive quarter of positive mark-to-market lease spreads in our Manhattan office portfolio and underscores the consistent pricing power of our portfolio.

We have $46 million in incremental cash revenue from signed leases not commenced and free rent burnoff as shown on Page 19 of our supplemental that reflects our leasing success. Lastly, our multifamily portfolio continues to deliver excellent performance with 99% occupancy and 9% year-over-year net rent growth. These results reflect strong market fundamentals and our focus on operational excellence. Thank you.

I will now turn the call over to Steve. Steve?

Thanks, Ryan. For the third quarter of 2025, we reported core FFO of $0.23 per diluted share. Same-store property cash NOI, excluding lease termination fees, increased 1.1% year-over-year after adjustment for approximately $1.7 million of nonrecurring items recognized in the third quarter of 2024. Adjusted for these nonrecurring items, same-store cash revenue and operating expenses increased 1.3% and 1.5%, respectively, year-over-year.

Operating expenses increased due to the timing of planned repair and maintenance work and higher real estate taxes and were partially offset by higher tenant reimbursement income. As we progress through the balance of 2025, we expect a strong fourth quarter from a year-over-year cash NOI growth perspective due in large part to a real estate tax abatement we expect to recognize at the end of the year.

In our Observatory business, we generated approximately $26.5 million of NOI in the third quarter. Observatory expenses totaled $9.5 million and revenue per capita increased 2.7% year-over-year. Core FAD increased to $40.4 million in the third quarter from $11.9 million in the second quarter. This mainly reflects a reduction in FAD FX spend from $52 million last quarter to $25 million this quarter. This is consistent with the commentary from our previous earnings call, where we conveyed our expectation for CapEx to trend lower in the second half of 2025.

With that, I will now turn the call over to Christina. Christina?

Thanks, Steve. I'll touch on the Observatory and our capital allocation strategy before we shift to Q&A. Our iconic Empire State Building Observatory remains a resilient asset and strong contributor to our bottom line cash flow. As Tony mentioned, performance has been consistent with our revised guidance. We continue to see steady domestic demand offset by reduced international visitation. We remain focused on the levers within our control to enhance the guest experience, broaden our marketing reach and drive operational efficiency. Our unmatched brand position as the authentic New York City experience anchored by the world's most iconic building supports sustained long-term growth as global travel patterns normalize.

Our well-positioned and flexible balance sheet remains one of our key strengths with ample liquidity, lower leverage versus sector peers at 5.6x net debt to EBITDA, a well-laddered maturity schedule and no unaddressed maturities until the end of 2026. Subsequent to quarter end, we announced the issuance of $175 million of senior unsecured notes in a private placement at a rate of 5.47% that will fund in mid-December and mature in 2031. Proceeds will be used towards general corporate purposes, including potential new investments and repayment of debt. And as a reminder, all $250 million of our Williamsburg acquisitions since late 2023 were executed on an unlevered basis.

From a capital allocation standpoint, we continue to actively underwrite new investment opportunities across New York City office, retail and multifamily. The market has seen a pickup in transaction activity and investment opportunities, the return of institutional capital and strong recognition of the strength of New York City underlying property fundamentals. We continue to pursue opportunities where our operating and repositioning expertise can create meaningful value and our strong liquidity provides the flexibility to act decisively when conditions align.

As we look ahead, our focus remains on driving sustainable cash flow to the bottom line through our high-quality New York City portfolio that is well diversified across sectors and sources of income that benefit from live, work, play and visit. Our operating expertise, flexible balance sheet and high-quality assets continue to position us to capitalize on the strength of the Manhattan office market.

Over the last several years, we have achieved more than 600 basis points of positive lease absorption across our Manhattan office portfolio. At the same time, we have tax efficiently recycled out of noncore suburban market and invested approximately $675 million into Manhattan multifamily and Williamsburg retail assets to optimize cash flow growth over time through higher rent growth and lower CapEx requirements.

We continue to evaluate additional recycling opportunities that are accretive to long-term cash flow and seek ways to operate more efficiently. We also continue to evaluate opportunistic share repurchases within our broader capital allocation framework.

That concludes our prepared remarks. And with that, I'll turn the call back to the operator to begin Q&A.[ id="-1" name="Operator" /> [Operator Instructions] Our first questions come from the line of Manus Ibekwe with Evercore ISI.

I was just wondering if you could expand a little bit more on the capital uses side after you now placed a private placement in December. And just in terms of if there's any specific acquisition or potential transactions that you're looking at, maybe also comment on the general transaction market a little bit more, if there are kind of like pockets within New York that are more attractive than others? If you could talk about cap rates to the extent you can, that would be great. Or just kind of giving a little bit more color just on that bucket in general, that would be very helpful.

Sure. So as we've mentioned, we continue to actively underwrite deals in New York City, and that would span across office, retail as well as multifamily. So that remains the case, and we're really positioned with good liquidity so that we can move quickly when the right deal comes up. On top of that, we also have a couple of debt maturities early next year, which is why we referenced that within our remarks. You're asking about cap rates. And I think the market has had some transactions that have provided some cap rate evidence, but the reality is not all deals are the same.

And so you see some deals with sort of mid- to high single-digit cap rates, but they're very bespoke to the transaction. And then you have other deals that are more situational and cap rates aren't as relevant of a metric. You really have to look at those on a per pound basis. So overall, we want to be well positioned as always to be able to transact, and we are actively looking.

[ id="-1" name="Operator" /> Our next questions come from the line of Seth Bergey with Citi.

I guess as you think about kind of New York and the mayoral election, it seems like some of the policies are largely kind of aspirational or require state legislative support to pass. But are you concerned about any tenants that may be more directly exposed to changes in rent or anything like that?

So first of all, as I've said so many times, we are incredibly fortunate to be in New York City. And New York City is the best market in the United States, and that makes it one of the best, if not the best markets in the world. Number two, we very clearly operate on the basis, as I've mentioned before, we do policy, not politics. So whoever shows up, whatever administration arrives, that's the one with which we deal, and that's where we try to contribute both to policy and do our best to work from a business perspective. We're always concerned about all developments.

And at the same time, New York City has and continues -- has been and continues to be a magnet for the job seeking college graduates, the folks who want to come and make their careers and live in a vibrant environment. And by the way, those are an awful lot of today's voters. So they are the employees. The employers are here because they want those employees, and we are very positive on the future of New York City. Outside of that, it's all speculation. There are certain checks and balances, as you said, and we'll see what comes.

Okay. Great. And then I guess just a second one, as you think about capital allocation, how attractive is buying back stock where your shares are currently trading?

We think our share price is very attractive, provides a great entry point for those interested in our portfolio that's extremely well positioned, well leased, strong operating fundamentals. For us as a company, we definitely look at that. As I mentioned, we've done $300 million of share buybacks over the years. So clearly, a part of our strategic capital allocation. And we've also mentioned we're looking at opportunities. And I think it's a balance that you want to find the right deals and be able to act and you need to have liquidity and capacity for that and at the same time, balance that against share buybacks. So both are definitely on the table. And I think with our flexible balance sheet, we can -- we have room to do both.

[ id="-1" name="Operator" /> Our next questions come from the line of Blaine Heck with Wells Fargo.

Great. And Tom, all the best in the future. Thanks for your help over the years. We've seen a recent uptick in layoff headlines for some companies with Amazon probably being the largest and most recent. So within that context, can you comment on whether you've seen any change in trends with respect to expansion versus construction of space at expiration? And more broadly, just how you guys are thinking about the potential rising trend of layoffs as it relates to demand for office space as we head into '26 and '27.

So first of all, I just to make sure that you're aware, Tom is not only here, he's here for the announcement for months to come. So several quarters to come, possibly as long as for the full duration of what was announced in our disclosure. So you'll have an opportunity to see them if you'd like to because we get to see them every day.

Second of all, I think it's very important to note, we've had over 3.1 million square feet of expansions of existing tenants within our portfolio since our IPO in 2013. We have active discussion, though not -- actually active discussion and part of our leasing pipeline consists of existing tenants with intention to expand. So we still see good growth, number one. Number two, we serve the fatest, widest component of the office market. And that's the opportunity with ESRT. And we are top of tier in our price range.

So from our perspective, we do not see anything in the way of contraction. Everybody with whom we speak comes to us because of the quality of our portfolio and several of them have migrated from what would be thought of as glass and steel buildings. And finally, and most importantly, we still have ongoing expansion within our portfolio from existing tenants. So as we look and we go forward, there are all kinds of reasons for which people might not expand or take additional space. We don't see any of them play out right now.

And the Amazon announcement, as we might say, they announced people they had already laid off and plans for future layoffs. The word we get from the sources with whom we work, New York City is still the #1 desired desk for anyone who works at Amazon.

Got it. That's very helpful, Tony. Switching gears, I think you guys covered the acquisition side. But with respect to dispositions, is there any update to share on Metro Center? And then past that, are there any assets in the portfolio or groups of assets in which you think you might have maximized value and could be good funding sources if you were to look at kind of a larger deal on the acquisition side?

Yes. We don't have an additional update on Metro. As we've mentioned, we can be flexible on that front. We are looking to sell that asset. But if it doesn't work out, we also have attractive in-place debt and can continue. There is still tenant demand in that space, and that was really a capital allocation decision for us.

As it relates to other capital recycling, as I mentioned, we are definitely open to that. And it's as you stated, if we've added value and it's a quality asset, there could be buyers that are interested in a strong market like New York City, and it may make sense for us to dispose of those assets so we can redeploy proceeds into assets where we can add more value, and that would span New York City office, retail and multifamily. So it's extremely consistent with what we've communicated to you.

And now with more activity in the market, it does feel like a better time as compared to 18, 24 months ago, where financing wasn't as readily available weren't as many deals, institutional capital had some question marks. So as we get into a more vibrant market, it does feel like that's a logical consideration, and we'll keep the market updated.

[ id="-1" name="Operator" /> Our next questions come from the line of Dylan Burzinski with Green Street.

Tony, you mentioned that your guys' portfolio caters to the largest subset of demand in New York. Can you kind of just talk about any trends you're discerning? Are you seeing more activity amongst some of the larger tenants out there in the market? Are there certain industries that are outpacing? I know, obviously, tech leasing has been subdued lately, but are you seeing any sort of green shoots on that front as it relates to demand within that industry?

So this is Ryan here. We -- one of the advantages that Tony spoke about in our portfolio is diversification, we appeal to everybody. So we have a lot of interest from a lot of different sectors. It does range from TAMI, consumer products, fire, professional services. Our job is to assist our tenants with employee recruitment and retention. And what we're seeing is a lot of the conversations right now are driven by tenants looking to upgrade into better quality spaces and also expand their offering.

That's helpful. And then I guess just touching on the net effective rent environment. I know you guys have noted in the past that you guys have continued to see net effective rent growth across the portfolio. But I guess as you look out to 2026, given limited competitive availability that you guys compete with as well as just the amount of robust demand in the market. I mean, is there a potential to sort of see, call it, rent spikes in '26 and '27? I know one of your peers talked about potentially seeing cumulative rent growth of like 25% over the next 5 years. So just sort of curious you guys' thoughts on that.

Gosh. Well, if you look at what we've accomplished over the last 5 years, we have very much seen rent spikes across our portfolio. And as an example, the active negotiations underway at Empire State include rents over long terms in the mid-90s for their -- the lives of those leases and going into the 90s at One Grand Central Place. So from our perspective, we're very much in that environment. We still think it is a very healthy environment.

And when it comes to the future, we do, at this point, still anticipate increased rents due to shortage of available space. When you talk about our competitive set, I think it's really important to note, the buildings which are being taken out of circulation, the important thing to us is that limits our competitive set. Those buildings, which will not be reinvested in, will not be modernized, will not be amenitized, will not be made energy efficient for office tenants means that we are the best house on our block for sure. It also means we're the most affordable house on the best block.

So number one, from our competitive set, many of which are being taken out of circulation, but we're top of tier. Number two, we do pull from other buildings where either because they may be glass and steel, but they are not modernized and amenitized with energy efficiency and sustainability in great locations or just the rent is too darn high, they come to us, and we're a bargain even at our increased rents. Ryan, anything else you want to add there?

No, I think you summed it up really well.

[ id="-1" name="Operator" /> Our next questions come from the line of Regan Sweeney with BMO Capital Markets.

I just wanted to dive into the pipeline of 150,000 square feet. Is that really all office? Or is there also a retail component in that? And then just can you give the breakdown between the different property types if available?

So that's a healthy mix of both office and retail as well as a mix of new and renewal. So right now, what we're focused on, as Tony spoke about earlier, is the creation of the large blocks of space. We're 93.1% leased. We have the 150,000 square feet of leases in negotiation. Roughly 20% of our Manhattan office vacancy right now is strategically held off market in connection with the assemblage of those large blocks. And that's really in response to market demand, and we believe it's going to provide better long-term economic results.

I would add in addition to Ryan's comment that -- look, we don't have that much retail to lease. So the vast bulk of that 150,000 square feet is office. And it's across our portfolio and its price ranges.

Great. And then just on the rent spreads, obviously, the office has done very well, but there's been a few quarters of weakness in the retail segment. So just where rents really going out today? Is there an opportunity for the Williamsburg portfolio to pick up on that? And then just also on multifamily, I know you said there was a 9% rent growth in the quarter, but I noticed in the presentation, you removed the bullet on the year-over-year rent growth. So has there been a change in October or something expected going forward?

So, Ryan, why don't you talk to Williamsburg and then we'll move things around from there.

So we're very excited with what's happened in Williamsburg. This week, we signed 3 transactions. Obviously, Tourneau will be putting Rolex at the redevelopment at 86-90, Tocovus, HOKA. We're left with one vacancy. We leased our -- the Hermès temporary space that will be vacated next year, and we've been pushing rents there and continue to see an increase in demand from tenants that are walking the street.

Yes. Of course, the great news for us on that Hermès moves to its permanent new flagship store, and we've already got that backfilled.

Correct.

And the 8690 acquisition, that lease to Tourneau /Rolex is -- that's terrific for us. It exceeded what we expected to happen and happened much more quickly than we thought it would. That was a direct deal that we did ourselves with no representing broker. We just dealt with the tenant broker. Very grateful to Andrew Greenberg, a CBRE for that.

When we look at the resi, Christina, maybe you want to comment on that?

I'm not familiar with the specific bullet that was mentioned, but we continue to see good fundamentals. Happy to take it offline and go through any of the items that you want to. But overall, fundamentals remain quite strong.

Yes. Just to give a bit more details there. Year-over-year, Ryan already mentioned the net effective rent growth of 9.3%. But we have 2 other factors that play into the success there year-over-year. We had 180 basis points of occupancy pickup, which contributed to about 25% of that rent growth -- or revenue growth, I should say. And then also, we had a number of units that we held offline that we disclosed as part of a potential 421A program, and those have now all been re-leased. And so that contributed to about another 15% of that pickup. So really firing all cylinders on the residential side.

[ id="-1" name="Operator" /> There are no further questions at this time. I would now like to hand the call back over to Anthony Malkin for closing comments.

So thanks so much. Thanks, everybody. At ESRT, we are steadfast in our focus on 5 strategic priorities: lease space, grow Observatory revenue, maintain a strong and flexible balance sheet, pursue disciplined growth and advance our sustainability leadership. Each of these pillars supports our mission to create lasting value for our shareholders.

With our differentiated portfolio, strong financial position and proven track record of execution, we are well positioned to capitalize on opportunities as they arise and to continue to deliver results with focus, discipline and consistency in the quarters ahead. Thanks, everyone, for your participation in today's call, and we look forward to the chance to meet with many of you at non-deal roadshows, conferences and property tours in the months ahead. onward and upward.

[ id="-1" name="Operator" /> Thank you. This does now conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.