Finance  ·  Industry

Empire State Realty Trust Reports Strong Office Leasing and Occupancy Rates

The firm’s future outlook is weighed down by uncertainty surrounding former tenant Signature Bank


Empire State Realty Trust (ESRT) reported strong first-quarter financials Thursday during an earnings call, citing impressive quarterly increases in occupancy and leasing across its Manhattan office portfolio and improved attendance at the Empire State Building Observatory, the firm’s trophy asset. 

However, funds from operations declined by $6 million compared to last year, and the loss of Signature Bank (SBNY) — one the firm’s largest tenants by square footage — has created a cloud of uncertainty going forward. 

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“How pleased we are to report solid first-quarter results to start the year,” said Anthony Malkin, ESRT’s chairman, president and chief executive officer. “We are in a great position with a differentiated balance sheet and multiple value drivers.” 

Malkin cited increased revenues at the Empire State Building Observatory, which saw its net operating income (NOI) reach 110 percent of pre-COVID-19 levels in the first quarter, and the strength of the firm’s balance sheet, which has neither near-term debt maturities nor any floating-rate debt exposure, as reasons to celebrate. 

“Our balance sheet’s strength helps us win new tenants, who look to partner with a financially stable landlord who will maintain high-quality standards at their assets and deliver on their commitment to tenants,” he said. 

Occupancy in the firm’s nine Manhattan office buildings increased by 180 basis points over the last quarter and 390 basis points over the last 12 months, and the amount of space increased by 110 basis points in the last quarter and was up 210 basis points compared to a year ago, according to Thomas Durels, executive vice president of real estate. 

“We delivered positive mark-to-market spreads for the seventh quarter in a row, and most of the 202,000 square feet of total leasing volume this quarter was for new leases in our Manhattan office portfolio, where we are 90.7 percent leased,” said Durels. “The narrative that only new development can compete and attract tenants is wrong.” 

ESRT owns 100 percent of its office assets without any joint-venture structures. However, many of these buildings are prewar structures — the newest building in the firm’s portfolio was built in 1954 — rather than the new construction that has been a winner during the pandemic. The firm’s crown jewel, The Empire State Building, was built in 1931. 

The firm is counting on its eponymous office tower to continue to deliver strong attendance numbers at its world-famous Observatory. 

The Observatory generated $14.3 million NOI in the first quarter 2023, up from an NOI of $7 million in the first quarter 2022. 

“The Observatory’s NOI recovery has outpaced visitation,” said Christina Chiu, executive vice president, chief operating officer and chief financial officer of ESRT. “As a reminder, the Observatory has historically contributed roughly a quarter of the company’s NOI and stands at approximately 23 percent on a trailing 12-month basis through the first quarter.” 

But the firm’s stock price has remained stubbornly flat for the last 12 months, fluctuating between $8.50 per share and $5.50 per share. As a real estate investment trust (REIT), ESRT distributes rent income it collects on its properties as dividends to shareholders. Its tax structure requires the firm to pay a minimum of 90 percent of taxable income to shareholders as dividends each year.

The firm’s funds from operations, the strongest barometer of cash flow for REITs, fell from $49 million in the first quarter of 2022 to $43 million in the first quarter of 2023. 

One area that might have spooked investors is the demise of a core ESRT office tenant, Signature Bank, which unceremoniously collapsed on March 12 due to a bank run. 

In March, the Federal Deposit Insurance Corporation announced the sale of $38.4 billion of Signature’s assets to New York Community Bancorp, including $12.9 billion of commercial and industrial loans. The $2.7 billion shotgun marriage instantly converted 40 Signature branches to Flagstar Bank, a subsidiary of New York Community Bancorp, but left more than $60 billion of Signature loans still in FDIC control, including its entire commercial real estate loan portfolio. The FDIC has tapped Newmark to sell roughly $60 billion of loans originated by Signature. 

Signature leased more than 313,000 square feet across 11 floors at 1400 Broadway, an Art Deco, prewar office building in the Garment District, and accounted for one-third of all rentable space at the address.  

ESRT’s executive team touched on the uncertainty surrounding the future of the square footage previously leased by Signature.

Flagstar Bank has the right to assume Signature Bank’s lease by May 19. If Flagstar does not assume the lease, the FDIC-controlled bridge bank has until July 10 to reject the lease. 

“While there has been no official announcement, Flagstar remains current on its rent obligations,” Durels said. “Should Flagstar terminate its lease, we are prepared and confident in our ability to lease the space.”

Brian Pascus can be reached at