Empire State Realty Trust Inc

Previous wording

Unless the context otherwise requires or indicates, references in this section to “we,” “our,” and “us” refer to our Company and its consolidated subsidiaries. This Management’s Discussion and Analysis provides a comparison of the Company’s performance for its three and six month periods ended June 30, 2024 with the corresponding three and six month periods ended June 30, 2023 and reviews the Company’s financial position as of June 30, 2024. The following discussion related to our consolidated financial statements should be read in conjunction with the financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K.

Current wording

Unless the context otherwise requires or indicates, references in this section to “we,” “our,” and “us” refer to our Company and its consolidated subsidiaries. This Management’s Discussion and Analysis provides a comparison of the Company’s performance for its three and nine month periods ended September 30, 2024 with the corresponding three and nine month periods ended September 30, 2023 and reviews the Company’s financial position as of September 30, 2024. The following discussion related to our consolidated financial statements should be read in conjunction with the financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K and Form 10-K/A.

Previous wording

Many important factors could cause actual results, performance, achievements, and future events to differ materially from those set forth, implied, anticipated, expected, projected, assumed or contemplated in the forward-looking statements, including, among other things: (i) economic, market, political and social impact of, and uncertainty relating to, any catastrophic events, including pandemics, epidemics or other outbreaks of disease, climate-related risks such as natural disasters and extreme weather events, terrorism and other armed hostilities, as well as cybersecurity threats and technology disruptions; (ii) a failure of conditions or performance regarding any event or transaction described herein; (iii) resolution of legal proceedings involving the Company; (iv) reduced demand for office, multifamily or retail space, including as a result of the changes in the use of office space and remote work; (v) changes in our business strategy; (vi) a decline in Observatory visitors due to changes in domestic or international tourism, including due to health crises, geopolitical events, currency exchange rates, and/or competition from other observatories; (vii) defaults on, early terminations of, or non-renewal of, leases by tenants; (viii) increases in the Company’s borrowing costs as a result of changes in interest rates and other factors; (ix) declining real estate valuations and impairment charges; (x) termination of our ground leases; (xi) limitations on our ability to pay down, refinance, restructure or extend our indebtedness or borrow additional funds; (xii) decreased rental rates or increased vacancy rates; (xiii) difficulties in executing capital projects or development projects successfully or on the anticipated timeline or budget; (xiv) difficulties in identifying and completing acquisitions; (xv) impact of changes in governmental regulations, tax laws and rates and similar matters; (xvi) our failure to qualify as a REIT; (xvii) incurrence of taxable capital gain on disposition of an asset due to failure of compliance with a 1031 exchange program; (xviii) our disclosure controls and internal control over financial reporting, including any material weakness; and (xix) failure to achieve sustainability metrics and goals, including as a result of tenant collaboration, and impact of governmental regulation on our sustainability efforts. For a further discussion of these and other factors that could impact the Company's future results, performance, or transactions, see the section entitled “Risk Factors” in the Company’s Annual Report, and other risks described in documents subsequently filed by the Company from time to time with the SEC.

Current wording

Many important factors could cause actual results, performance, achievements, and future events to differ materially from those set forth, implied, anticipated, expected, projected, assumed or contemplated in the forward-looking statements, including, among other things: (i) economic, market, political and social impact of, and uncertainty relating to, any catastrophic events, including pandemics, epidemics or other outbreaks of disease, climate-related risks such as natural disasters and extreme weather events, terrorism and other armed hostilities, as well as cybersecurity threats and technology disruptions; (ii) a failure of conditions or performance regarding any event or transaction described herein; (iii) resolution of legal proceedings involving the Company; (iv) reduced demand for office, multifamily or retail space, including as a result of the changes in the use of office space and remote work; (v) changes in our business strategy; (vi) a decline in Observatory visitors due to changes in domestic or international tourism, including due to health crises, geopolitical events, currency exchange rates, and/or competition from other observatories; (vii) defaults on, early terminations of, or non-renewal of, leases by tenants; (viii) increases in the Company’s borrowing costs as a result of changes in interest rates and other factors; (ix) declining real estate valuations and impairment charges; (x) termination of our ground leases; (xi) limitations on our ability to pay down, refinance, restructure or extend our indebtedness or borrow additional funds; (xii) decreased rental rates or increased vacancy rates; (xiii) difficulties in executing capital projects or development projects successfully or on the anticipated timeline or budget; (xiv) difficulties in identifying and completing acquisitions; (xv) impact of changes in governmental regulations, tax laws and rates and similar matters; (xvi) our failure to qualify as a REIT; (xvii) incurrence of taxable capital gain on disposition of an asset due to failure of compliance with a 1031 exchange program; (xviii) our disclosure controls and internal control over financial reporting, including any material weakness; and (xix) failure to achieve sustainability metrics and goals, including as a result of tenant collaboration, and impact of governmental regulation on our sustainability efforts. For a further discussion of these and other factors that could impact the Company's future results, performance, or transactions, see the section entitled “Risk Factors” in the Company’s Annual Report for the year ended December 31, 2023 and our quarterly report for the quarter ended June 30, 2024, and other risks described in documents subsequently filed by the Company from time to time with the SEC.

Previous wording

•Net income attributable to common stockholders of $17.1 million.

Current wording

•Net income attributable to common stockholders of $13.5 million.

Previous wording

•Core Funds From Operations ("Core FFO") of $65.7 million attributable to common stockholders and the operating partnership.

Current wording

•Core Funds From Operations ("Core FFO") of $69.2 million attributable to common stockholders and the operating partnership.

Previous wording

•Signed a total of 272,000 rentable square feet of new, renewal, and expansion leases.

Current wording

•Signed a total of 304,000 rentable square feet of new, renewal, and expansion leases.

Previous wording

The discussion below relates to our results of operations for the three and six months ended June 30, 2024 and 2023, respectively.

Current wording

The discussion below relates to our results of operations for the three and nine months ended September 30, 2024 and 2023, respectively.

Previous wording

The following table summarizes our historical results of operations for the three months ended June 30, 2024 and 2023, respectively (amounts in thousands):

Current wording

The following table summarizes our historical results of operations:

Previous wording

The increase in rental revenue was primarily attributable to higher occupancy and higher operating and real estate tax expense escalations during the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

Current wording

The increase in rental revenue was primarily attributable to higher occupancy and higher operating and real estate tax expense escalations driving a $7.7 million increase during the three months ended September 30, 2024 compared to the three months ended September 30, 2023. This was partially offset by the net impact of acquisitions and dispositions made during the comparative period, which reduced rental revenue by $6.0 million.

Previous wording

The increase in general and administrative expenses primarily reflects higher payroll costs during the three months ended June 30, 2024 compared to the three months ended June 30, 2023. This increase in payroll costs is partially attributable to an acceleration of share based compensation expense as certain executives approach their retirement eligibility date.

Current wording

The increase in general and administrative expenses primarily reflects higher audit related costs and recognition of non-cash stock-based compensation expense of awards granted to executives that are nearing retirement eligibility during the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

Previous wording

The increase in interest income in the six months ended June 30, 2024 reflects higher interest rates and cash balances compared to the six months ended June 30, 2023.

Current wording

The increase in interest income in the three months ended September 30, 2024 reflects larger cash balances compared to the three months ended September 30, 2023.

Previous wording

The following table summarizes our historical results of operations for the six months ended June 30, 2024 and 2023, respectively (amounts in thousands):

Current wording

The following table summarizes our historical results of operations:

Previous wording

The increase in property operating expenses was primarily due to higher utilities costs, higher payroll costs and higher repair and maintenance costs during the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

Current wording

The increase in property operating expenses was primarily due to higher utilities and cleaning costs, higher payroll costs and higher repair and maintenance costs during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

Previous wording

The increase in general and administrative expenses primarily reflects higher payroll costs during the six months ended June 30, 2024 compared to the six months ended June 30, 2023. This increase in payroll costs is partially attributable to an acceleration of share based compensation expense as certain executives approach their retirement eligibility date.

Current wording

The increase in general and administrative expenses primarily reflects higher audit related costs and recognition of non-cash stock-based compensation expense of awards granted to executives that are nearing retirement eligibility during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

Previous wording

The increase in interest income in the three months ended June 30, 2024 reflects higher interest rates and cash balances compared to the three months ended June 30, 2023.

Current wording

The increase in interest income in the nine months ended September 30, 2024 reflects higher interest rates and larger cash balances compared to the nine months ended September 30, 2023.

Previous wording

The gain on disposition activity for the six months ended June 30, 2024 relates to the disposition of First Stamford Place in Stamford, Connecticut in May 2024. The gain on disposition activity for the six months ended June 30, 2023 relates to the disposition of 500 Mamaroneck Avenue in Harrison, New York in April 2023 and 69-97 and 103-107 Main Street in Westport, Connecticut in February 2023.

Current wording

The gain on disposition activity for the nine months ended September 30, 2024 relates to the disposition of First Stamford Place in Stamford, Connecticut in May 2024. The gain on disposition activity for the nine months ended September 30, 2023 relates to the disposition of 500 Mamaroneck Avenue in Harrison, New York in April 2023 and 69-97 and 103-107 Main Street in Westport, Connecticut in February 2023.

Previous wording

Observatory revenues were higher driven by increased visitation and revenue per visitor during the six months ended June 30, 2024 as compared to the six months ended June 30, 2024.

Current wording

Observatory revenues were higher driven by increased visitation and ticket prices during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2024.

Previous wording

At June 30, 2024, we had $535.5 million available in cash and cash equivalents, and $500.0 million available under our unsecured revolving credit facility.

Current wording

At September 30, 2024, we had $421.9 million available in cash and cash equivalents, and $500.0 million available under our unsecured revolving credit facility.

Previous wording

As of June 30, 2024, we had approximately $2.3 billion of total consolidated indebtedness outstanding, with a weighted average interest rate of 4.27% and a weighted average maturity of 5.4 years.

Current wording

As of September 30, 2024, we had approximately $2.3 billion of total consolidated indebtedness outstanding, with a weighted average interest rate of 4.27% and a weighted average maturity of 5.3 years.

Previous wording

On March 28, 2024, we executed a buyout of our partner's 10% interest in two of our multifamily properties located at 561 10 th Avenue and 345 East 94 th Street in Manhattan for $14.2 million in cash and the assumption of $18.0 million of in-place debt and now own 100% of the ownership interests in these assets.

Current wording

On March 28, 2024, we executed a buyout of the 10% non-controlling interest in two of our multifamily properties located at 561 10 th Avenue and 345 East 94 th Street in Manhattan for $14.2 million in cash and the assumption of $18.0 million of in-place debt and now own 100% of the ownership interests in these assets.

Previous wording

In March 2024, we closed on the BofA Credit Facilities, a $715 million, five-year unsecured credit agreement which consists of the $620.0 million Revolving Credit Facility and the $95.0 million BofA Term Loan Facility. The Revolving Credit Facility matures on March 8, 2029, inclusive of two six-month extension periods and replaced the existing revolving credit facility that was due to mature in March 2025. The BofA Term Loan Facility matures on March 8, 2029, inclusive of two twelve-month extension periods and replaced the existing term loan facility that matures in March 2025. Initial interest rates on the new facility, which may change based on our leverage levels, are adjusted SOFR plus 130 basis points for any drawn portion of the Revolving Credit Facility and adjusted SOFR plus 150 basis points for the BofA Term Loan Facility. In addition, the BofA Credit Facilities have a sustainability-linked pricing mechanism that reduces the borrowing spread if certain benchmarks are achieved each year. See "Financial Statements - Note 5 Debt" for a summary of our unsecured revolving credit and term loan facilities.

Current wording

In March 2024, we closed on the BofA Credit Facilities, a $715 million, five-year unsecured credit agreement which consists of the $620.0 million Revolving Credit Facility and the $95.0 million BofA Term Loan Facility. The Revolving Credit Facility matures on March 8, 2029, inclusive of two six-month extension periods and replaced the existing revolving credit facility that was due to mature in March 2025. The BofA Term Loan Facility matures on March 8, 2029, inclusive of two twelve-month extension periods and replaced the existing term loan facility that was due to mature in March 2025. Initial interest rates on the BofA Credit Facilities, which may change based on our leverage levels, are adjusted SOFR plus 130 basis points for any drawn portion of the Revolving Credit Facility and adjusted SOFR plus 150 basis points for the BofA Term Loan Facility. In addition, the BofA Credit Facilities have a sustainability-linked pricing mechanism that reduces the borrowing spread if certain benchmarks are achieved each year. See "Financial Statements - Note 5 Debt" for a summary of our unsecured revolving credit and term loan facilities.

Previous wording

As of June 30, 2024, mortgage notes payable, net, amounted to $700.3 million. After the refinancing discussed below, the next mortgage debt maturity is April 2026.

Current wording

As of September 30, 2024, mortgage notes payable, net, amounted to $705.6 million. We have no mortgage debt maturity until April 2026.

Previous wording

In April 2024, we worked with the First Stamford Place mortgage lender to structure a consensual foreclosure. In May 2024, the First Stamford Place property was placed in receivership and accordingly, we reclassified the related debt and applicable accrued interest to debt associated with property under receivership and accrued interest associated with property in receivership, respectively, in our condensed consolidated balance sheet as of June 30, 2024. In connection with this we recorded a contract asset which represents our right to debt extinguishment once the foreclosure process on the First Stamford Place property is completed.

Current wording

In April 2024, we worked with the First Stamford Place mortgage lender to structure a consensual foreclosure. In May 2024, the First Stamford Place property was placed in receivership and accordingly, we reclassified the related debt and applicable accrued interest to debt associated with property under receivership and accrued interest associated with property in receivership, respectively, in our condensed consolidated balance sheet. As of September 30, 2024, this debt consists of a $164 million mortgage loan bearing interest at 4.09% and a $11.9 million loan bearing interest at 6.25%. In connection with this we recorded a contract asset which represents the amount of obligation we expect to be released upon the final resolution of the foreclosure process on the First Stamford Place property.

Previous wording

Subsequent to quarter-end, in July 2024, we executed an agreement for the refinance of the mortgage for the Metro Center property that was due to mature in November 2024. Beginning November 2024, the new loan balance of $71.6 million will be interest-only at the same interest rate of 3.59%, with a maturity of November 2029, inclusive of a one-year extension option.

Current wording

In July 2024, we executed an agreement for the refinance of the mortgage for the Metro Center property that was due to mature in November 2024. Beginning in November 2024, the new loan balance of $71.6 million will be interest-only at the same interest rate of 3.59%, with a maturity of November 2029, inclusive of a one-year extension option.

Previous wording

(1)Excludes an aggregate of 486,943 and 497,786 rentable square feet of retail space in our Manhattan office in 2024 and 2023, respectively. Includes the Empire State Building broadcasting licenses and Observatory operations.

Current wording

(1)Excludes an aggregate of 475,744 and 498,672 rentable square feet of retail space in our Manhattan office properties in 2024 and 2023, respectively. Includes the Empire State Building broadcasting licenses and Observatory operations.

Previous wording

(3)Beginning in 2024, the number of leases signed include "Early Renewals" which are leases signed over two years prior to the lease expiration. Amounts for number of leases signed, total square feet, leasing commission costs per square foot and tenant improvement costs per square foot have been adjusted to include the impact of early renewals for the six months ended June 30, 2023.

Current wording

(3)Beginning in 2024, the number of leases signed include "Early Renewals" which are leases signed over two years prior to the lease expiration. Amounts for number of leases signed, total square feet, leasing commission costs per square foot and tenant improvement costs per square foot have been adjusted to include the impact of early renewals for the nine months ended September 30, 2023.

Previous wording

(6)Includes an aggregate of 486,943 and 497,786 rentable square feet of retail space in our Manhattan office in 2024 and 2023, respectively. Excludes the Empire State Building broadcasting licenses and Observatory operations.

Current wording

(6)Includes an aggregate of 475,744 and 498,672 rentable square feet of retail space in our Manhattan office properties in 2024 and 2023, respectively.

Previous wording

As of June 30, 2024, we expect to incur additional costs relating to obligations under existing lease agreements of approximately $111.6 million for tenant improvements and leasing commissions. We intend to fund the tenant improvements and leasing commission costs through a combination of operating cash flow, cash on hand and other borrowings.

Current wording

As of September 30, 2024, we expect to incur additional costs relating to obligations under existing lease agreements of approximately $126.5 million for tenant improvements and leasing commissions. We intend to fund the tenant improvements and leasing commission costs through a combination of operating cash flow, cash on hand and other borrowings.

Previous wording

Distributions and dividends amounting to $21.2 million and $20.3 million have been made to equity holders for the six months ended June 30, 2024 and 2023, respectively.

Current wording

Distributions and dividends amounting to $31.8 million and $30.8 million have been made to equity holders for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Our Board of Directors authorized the repurchase of up to $500 million of our Class A common stock and the Operating Partnership’s Series ES, Series 250 and Series 60 operating partnership units from January 1, 2024 through December 31, 2025. Under the program, we may purchase our Class A common stock and the Operating Partnership’s Series ES, Series 250 and Series 60 operating partnership units in accordance with applicable securities laws from time to time in the open market or in privately negotiated transactions. The timing, manner, price and amount of any repurchases will be determined by us at our discretion and will be subject to stock price, availability, trading volume, general market conditions, and applicable securities laws. The authorization does not obligate us to acquire any particular amount of securities, and the program may be suspended or discontinued at our discretion without prior notice. As of June 30, 2024, we had $500 million remaining of the authorized repurchase amount. There were no repurchases of equity securities during the three and six months ended June 30, 2024. See "Financial Statements - Note 10. Equity".

Current wording

Our Board of Directors authorized the repurchase of up to $500.0 million of our Class A common stock and the Operating Partnership’s Series ES, Series 250 and Series 60 operating partnership units from January 1, 2024 through December 31, 2025. Under the program, we may purchase our Class A common stock and the Operating Partnership’s Series ES, Series 250 and Series 60 operating partnership units in accordance with applicable securities laws from time to time in the open market or in privately negotiated transactions. The timing, manner, price and amount of any repurchases will be determined by us at our discretion and will be subject to stock price, availability, trading volume, general market conditions, and applicable securities laws. The authorization does not obligate us to acquire any particular amount of securities, and the program may be suspended or discontinued at our discretion without prior notice. As of September 30, 2024, we had $500.0 million remaining of the authorized repurchase amount. There were no repurchases of equity securities during the three and nine months ended September 30, 2024. See "Financial Statements - Note 10. Equity".

Previous wording

Comparison of Six Months Ended June 30, 2024 to the Six Months Ended June 30, 2023

Current wording

Comparison of Nine Months Ended September 30, 2024 to the Nine Months Ended September 30, 2023

Previous wording

Net cash. Cash and cash equivalents and restricted cash were $576.5 million and $395.8 million, respectively, as of June 30, 2024 and 2023. The increase was primarily the result of the following changes in cash flows:

Current wording

Net cash. Cash and cash equivalents and restricted cash were $469.9 million and $421.0 million, respectively, as of September 30, 2024 and 2023. The increase was primarily the result of the following changes in cash flows:

Previous wording

Operating activities. Net cash provided by operating activities increased by $2.1 million to $108.1 million primarily due to an increase in revenue including decreases in rent concessions. These increases are partially offset by decreases in working capital, particularly a reduction in security deposits as more tenants replaced cash deposits with letters of credit in the current period, as well as the derecognition of First Stamford Place in May 2024.

Current wording

Operating activities. Net cash provided by operating activities increased by $14.8 million to $210.9 million primarily due to an increase in revenue including decreases in rent concessions and increase in lease termination fees. These increases are partially offset by decreases in working capital, particularly a reduction in security deposits as more tenants replaced cash deposits with letters of credit in the current period, as well as the derecognition of First Stamford Place in May 2024.

Previous wording

Financing activities. Net cash provided by financing activities increased by $226.7 million to $189.2 million primarily due to proceeds from a private placement of senior unsecured notes in the current period.

Current wording

Financing activities. Net cash provided by financing activities increased by $221.0 million to $170.6 million primarily due to proceeds from a private placement of senior unsecured notes in the current period. See "Financial Statements - Note 5. Debt."

Previous wording

The following table presents a reconciliation of our net income, the most directly comparable GAAP measure, to NOI for the periods presented (amounts in thousands):

Current wording

The following table presents a reconciliation of our net income, the most directly comparable GAAP measure, to NOI:

Previous wording

The following table presents a reconciliation of our net income, the most directly comparable GAAP measure, to FFO, Modified FFO and Core FFO for the periods presented (amounts in thousands):

Current wording

The following table presents a reconciliation of our net income, the most directly comparable GAAP measure, to FFO, Modified FFO and Core FFO:

Previous wording

As of June 30, 2024, there were approximately 0.6 million rentable square feet of space in our portfolio available to lease (excluding leases signed but not yet commenced) representing 7.4% of the net rentable square footage of the properties in our commercial portfolio. In addition, leases representing 3.9% and 6.5% of net rentable square footage of the properties in our commercial portfolio will expire in 2024 and in 2025, respectively. These leases are expected to represent approximately 3.5% and 7.5%, respectively, of our annualized rent for such periods. Our revenues and results of operations can be impacted by expiring leases that are not renewed or re-leased or that are renewed or re-leased at base rental rates equal to, above or below the current average base rental rates. Further, our revenues and results of operations can also be affected by downtime after space is vacated and the costs we incur to re-lease available space, including payment of leasing commissions, redevelopments and build-to-suit remodeling that may not be borne by the tenant.

Current wording

As of September 30, 2024, there were approximately 0.6 million rentable square feet of space in our portfolio available to lease (excluding leases signed but not yet commenced) representing 7.0% of the net rentable square footage of the properties in our commercial portfolio. In addition, leases representing 2.6% and 6.3% of net rentable square footage of the properties in our commercial portfolio will expire in 2024 and in 2025, respectively. These leases are expected to represent approximately 2.3% and 6.9%, respectively, of our annualized rent for such periods. Our revenues and results of operations can be impacted by expiring leases that are not renewed or re-leased or that are renewed or re-leased at base rental rates equal to, above or below the current average base rental rates. Further, our revenues and results of operations can also be affected by downtime after space is vacated and the costs we incur to re-lease available space, including payment of leasing commissions, redevelopments and build-to-suit remodeling that may not be borne by the tenant.

Previous wording

For the six months ended June 30, 2024, the Observatory hosted 1,133,000 visitors, compared to 1,108,000 visitors for the six months ended June 30, 2023, an increase of 2%. Observatory revenue for the six months ended June 30, 2024 was $58.7 million, a 6% increase from $55.6 million for the six months ended June 30, 2023. The Observatory revenue increase was driven by higher visitation levels and ticket prices in 2024.

Current wording

For the nine months ended September 30, 2024, the Observatory hosted 1,860,000 visitors, compared to 1,852,000 visitors for the nine months ended September 30, 2023, an increase of 0.4%. Observatory revenue for the nine months ended September 30, 2024 was $98.1 million, a 5% increase from $93.1 million for the nine months ended September 30, 2023. The Observatory revenue increase was driven by higher visitation levels and ticket prices in 2024.

Previous wording

In addition to our diversified portfolio, our business is supported by a well-positioned balance sheet, modest leverage and good access to liquidity as set forth herein. The absence of near term debt maturities provides an added degree of security in a rising rate environment. This provides us optionality to execute on capital recycling, acquisitions, and buybacks. As we navigate these uncertain times, we remain prepared for various challenges and situations.

Current wording

In addition to our diversified portfolio, our business is supported by a well-positioned balance sheet, modest leverage and good access to liquidity as set forth herein. The absence of unaddressed near term debt maturities provides an added degree of security in a rising rate environment. This provides us optionality to execute on capital recycling, acquisitions, and buybacks. As we navigate these uncertain times, we remain prepared for various challenges and situations.