Empire State Realty Trust Inc.

03/02/2026 | Press release | Distributed by Public on 03/02/2026 05:01

Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context otherwise requires or indicates, references in this section to "we," "our," and "us" refer to our Company and its consolidated subsidiaries. The following discussion and analysis should be read in conjunction with our consolidated financial statements as of December 31, 2025 and 2024 and for the years ended December 31, 2025, 2024 and 2023 and the notes related thereto which are included in this Annual Report on Form 10-K.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. We intend these forward-looking statements to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts and can generally be identified by words such as "anticipate," "believe," "expect," "intend," "plan," "project," "estimate," "may," "will," "should," "would," and similar expressions. Forward-looking statements are based on our current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied.
Forward-looking statements are based on our current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. These risks and uncertainties include, among others: economic and market conditions (including the impact of catastrophic events, pandemics, extreme weather, terrorism, armed hostilities, cybersecurity threats and other technology disruptions); increased costs due to tariffs or other economic factors; changes in the New York City office, retail and tourism markets (including changes in the use of office space and remote work); leasing activity, tenant defaults, early terminations and renewals, occupancy levels and rental rates; performance of the Observatory (including tourism levels, currency and geopolitical impacts, weather and competition); interest rate volatility and capital markets conditions, including our ability to refinance, restructure or extend indebtedness; real estate valuation declines and potential impairment charges; our ability to execute capital projects and complete acquisitions on acceptable terms; risks relating to governmental regulation, environmental and climate-related requirements (including Local Law 97), and our ability to achieve sustainability goals and metrics; risks relating to our ground leases; our ability to maintain our qualification as a REIT; potential taxable gain arising from transactions structured to qualify under Section 1031; legal proceedings; and risks relating to our disclosure controls and internal control over financial reporting. For a discussion of these and other factors, see "Item 1A. Risk Factors" in this report. Any forward-looking statement speaks only as of the date of this report. We undertake no obligation to update or revise any forward-looking statement to reflect subsequent events or circumstances, except as required by law.
Overview
2025 Highlights
•Net income attributable to common stockholders of $43.4 million.
•Core Funds From Operations ("Core FFO") of $234.2 million attributable to common stockholders and the operating partnership.
•Signed a total of 1,009,009 rentable square feet of new, renewal and expansion leases.
•In June 2025, we closed on the acquisition of two retail properties on North 6th Street in Williamsburg, Brooklyn for a purchase price of $31.0 million.
•In December 2025, we closed on the acquisition of 130 Mercer Street, located in the SoHo submarket of Manhattan, for a purchase price of $386.0 million.
Results of Operations
Overview
The discussion below relates to the financial condition and results of operations for the years ended December 31, 2025 and 2024. For a discussion of our 2023 financial results as compared to our 2024 financial results, please see our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
Year Ended December 31, 2025 Compared to the Year Ended December 31, 2024
The following table summarizes the historical results of operations:
Years Ended December 31,
2025 2024 Change %
(amounts in thousands) Real Estate Segment Observatory Segment Total Real Estate Segment Observatory Segment Total
Revenues:
Rental revenue
$ 626,213 $ - $ 626,213 $ 614,596 $ - $ 614,596 $ 11,617 1.9 %
Observatory revenue - 128,329 128,329 - 136,377 136,377 (8,048) (5.9) %
Lease termination fees 464 - 464 4,771 - 4,771 (4,307) (90.3) %
Third-party management and other fees 1,483 - 1,483 1,170 - 1,170 313 26.8 %
Other revenues and fees 11,781 - 11,781 11,009 - 11,009 772 7.0 %
Total revenues
639,941 128,329 768,270 631,546 136,377 767,923 347 0.1 %
Operating expenses:
Property operating expenses 184,714 - 184,714 179,175 - 179,175 (5,539) (3.1) %
Ground rent expenses 9,326 - 9,326 9,326 - 9,326 - - %
General and administrative expenses 72,842 - 72,842 70,234 - 70,234 (2,608) (3.7) %
Observatory expenses - 38,237 38,237 - 36,834 36,834 (1,403) (3.8) %
Real estate taxes 132,740 - 132,740 128,826 - 128,826 (3,914) (3.0) %
Depreciation and amortization 194,591 171 194,762 184,667 151 184,818 (9,944) (5.4) %
Total operating expenses
594,213 38,408 632,621 572,228 36,985 609,213 (23,408) (3.8) %
Operating income
45,728 89,921 135,649 59,318 99,392 158,710 (23,061) (14.5) %
Intercompany rent income (expense) 76,306 (76,306) - 83,477 (83,477) - - - %
Other income (expense):
Interest income
8,222 526 8,748 20,853 445 21,298 (12,550) (58.9) %
Interest expense
(103,133) - (103,133) (105,239) - (105,239) 2,106 2.0 %
Interest expense associated with property in receivership (647) - (647) (4,471) - (4,471) 3,824 85.5 %
Loss on early extinguishment of debt (97) - (97) (553) - (553) 456 82.5 %
Gain on disposition of properties 35,018 - 35,018 13,302 - 13,302 21,716 163.3 %
Income before income taxes
61,397 14,141 75,538 66,687 16,360 83,047 (7,509) (9.0) %
Income tax expense
(1,131) (1,427) (2,558) (413) (2,275) (2,688) 130 4.8 %
Net income
60,266 12,714 72,980 66,274 14,085 80,359 (7,379) (9.2) %
Net income attributable to non-controlling interests:
Non-controlling interests in the Operating Partnership (25,379) - (25,379) (28,713) - (28,713) 3,334 11.6 %
Non-controlling interests in other partnerships - - - (4) - (4) 4 100.0 %
Private perpetual preferred unit distributions (4,201) - (4,201) (4,201) - (4,201) - - %
Net income attributable to common shareholders $ 30,686 $ 12,714 $ 43,400 $ 33,356 $ 14,085 $ 47,441 $ (4,041) (8.5) %
Real Estate Segment
Rental Revenue
The increase in rental revenue during the twelve months ended December 31, 2025 compared to the twelve months ended December 31, 2024 was primarily attributable to a $7.6 million increase in tenant reimbursement income and $5.9 million increase due to higher base rent from new or renewed tenants. The increases were partially offset by a net $1.9 million decrease in revenue from our recent transaction activity as disclosed in "Financial Statements - Note 3. Acquisitions and Dispositions" in this Annual Report on Form 10-K.
Property Operating Expenses
The increase in property operating expenses during the twelve months ended December 31, 2025 compared to the twelve months ended December 31, 2024 was primarily due to higher cleaning-related payroll costs, utilities costs, and repair and maintenance costs in 2025
relating to increased building utilization and certain local law compliance costs. The increases were partially offset by a net decrease in property operating expenses from our recent transaction activity as disclosed in "Financial Statements - Note 3. Acquisitions and Dispositions" in this Annual Report on Form 10-K.
Real Estate Taxes
The increase in real estate taxes during the twelve months ended December 31, 2025 compared to the twelve months ended December 31, 2024 was primarily attributable to higher assessed values for multiple properties, partially offset by a net decrease from our recent transaction activity as disclosed in "Financial Statements - Note 3. Acquisitions and Dispositions" in this Annual Report on Form 10-K.
Depreciation and Amortization
Depreciation and amortization increased during the twelve months ended December 31, 2025 compared to the twelve months ended December 31, 2024 primarily due to depreciation on building and tenant improvement assets placed in service as a result of our increase in leasing activity. The remaining activity relates to our recent transaction activity as disclosed in "Financial Statements - Note 3. Acquisitions and Dispositions" in this Annual Report on Form 10-K.
Interest Income
The decrease in interest income during the twelve months ended December 31, 2025 compared to the twelve months ended December 31, 2024 is primarily due to lower cash balances due to unlevered property acquisitions during 2024 and 2025, the paydown of the $120.0 million revolving credit facility and the $100.0 million Series A senior unsecured notes in March 2025. See "Financial Statements -Note 5. Debt" in this Annual Report on Form 10-K.
Gain on Sale/Disposition of Property
The gain on disposition activity for the year ended December 31, 2025 relates to the disposition of Metro Center in Stamford, Connecticut as disclosed in "Financial Statements - Note 3. Acquisitions and Dispositions" in this Annual Report on Form 10-K. The gain on disposition activity for the year ended December 31, 2024 relates to the derecognition of assets and certain liabilities in connection with the consensual foreclosure of First Stamford Place in Stamford, Connecticut.
Observatory Segment
Observatory Revenue
Observatory revenues were lower due to lower visitation during the twelve months ended December 31, 2025 compared to the twelve months ended December 31, 2024, primarily due to lower levels of international tourism in 2025 as compared to 2024. While observatory revenues declined due to lower levels of international tourism, this was partially offset by an increase in domestic visitation and overall revenue per visitor for the twelve months ended December 31, 2025 compared to the twelve months ended December 31, 2024.
Observatory Expenses
The increase in Observatory expenses during the twelve months ended December 31, 2025 compared to the twelve months ended December 31, 2024 was driven by increased costs such as marketing and maintenance costs.
Liquidity and Capital Resources
Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain our assets and operations, including lease-up costs, fund our redevelopment and repositioning programs, acquire properties, make distributions to our securityholders and fulfill other general business needs. Based on the historical experience of our management and our business strategy, in the foreseeable future we anticipate we will generate positive cash flows from operations. In order to qualify as a REIT, we are required under the Internal Revenue Code of 1986 to distribute to our stockholders, on an annual basis, at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains. We expect to make quarterly distributions, as required, to our securityholders.
While we may be able to anticipate and plan for certain liquidity needs, there may be unexpected increases in uses of cash that are beyond our control and which would affect our financial condition and results of operations. For example, we may be required to comply with new laws or regulations that cause us to incur unanticipated capital expenditures for our properties, thereby increasing our liquidity needs. Even if there are no material changes to our anticipated liquidity requirements, our sources of liquidity may be fewer than, and the funds available
from such sources may be less than, anticipated or needed. Our primary sources of liquidity will generally consist of cash on hand, cash generated from our operating activities, debt issuances, common and/or preferred equity issuances and unused borrowing capacity under our unsecured revolving credit facility. We expect to meet our short-term liquidity requirements, including distributions, operating expenses, working capital, debt service, and capital expenditures from cash flows from operations, cash on hand, debt issuances, common and/or preferred issuances and available borrowing capacity under our unsecured revolving credit facility. The availability of these borrowings is subject to the conditions set forth in the applicable loan agreements. We expect to meet our long-term capital requirements, including acquisitions, redevelopments, repositioning and capital expenditures through our cash flows from operations, cash on hand, our unsecured revolving credit facility, mortgage financings, debt issuances, common and/or preferred equity issuances and asset sales. Our properties require periodic investments of capital for individual lease related tenant improvements allowances, general capital improvements and costs associated with capital expenditures. Our overall leverage will depend on our mix of investments and the cost of leverage. Our charter does not restrict the amount of leverage that we may use. See ITEM 1A. "Risk Factors -Risks Relating to Our Indebtedness and Liquidity" in this Annual Report on Form 10-K for more information.
At December 31, 2025, we had approximately $132.7 million available in cash and cash equivalents and there was $475.0 million available under our unsecured revolving credit facility.
At December 31, 2025, we had approximately $2.4 billion of total consolidated indebtedness outstanding, with a weighted average interest rate of 4.48% and a weighted average maturity of 4.8 years. As of December 31, 2025, excluding debt amortization, we have a debt maturity of:
Year Amortization Maturities Total
2026 $ 3,958 $ 50,000 $ 53,958
2027 4,276 155,000 159,276
2028 3,555 146,091 149,646
2029 3,890 395,000 398,890
2030 4,511 508,600 513,111
Thereafter 10,123 1,104,007 1,114,130
Total $ 30,313 $ 2,358,698 $ 2,389,011
As of December 31, 2025, interest expense obligations from 2026 through 2030 and thereafter amounts to approximately $515.4 million.
In connection with our three ground leases (i.e. long-term leaseholds of the land and the improvements) at 1350 Broadway, 111 West 33rd Street and 1400 Broadway, we also have contractual rent obligations totaling $65.2 million as of December 31, 2025, of which $7.4 million is due within the next five years.
Portfolio Transaction Activity
Refer to Part I. ITEM 2."Properties - Portfolio Transaction Activity" for a summary of our portfolio transaction activity.
Refer to"Financial Statements - Note 3 Acquisitions and Dispositions" in this Annual Report on Form 10-K.
Unsecured Revolving Credit and Term Loan Facilities
In November 2025, through our Operating Partnership, we entered into an amended and restated credit agreement with Wells Fargo Bank, National Association, as administrative agent, and the other lenders party thereto, that amends and restates the credit agreement dated March 19, 2020, which governs our senior unsecured term loan credit facility (the "Wells Term Loan Facility"). The Wells Term Loan Facility is comprised of a $245.0 millionsenior unsecured term loan facility and matures on January 15, 2031.
In May 2025, through our Operating Partnership, we entered into a first amendment to our second amended and restated credit agreement, dated March 8, 2024, with Bank of America, N.A., as administrative agent and other lenders party thereto, which governs our BofA Credit Facilities. The first amendment amends certain sustainability margin adjustment terms. No other changes were made to the amount of the commitments, the maturity date of the outstanding loans or the covenants.
In March 2024, we closed a $715.0 million, five-year unsecured credit agreement which consists of a $620.0 million revolver and a $95.0 million term loan facility, each of which mature on March 8, 2029, inclusive of the extension periods. On March 18, 2025, we repaid the $120.0 million borrowings previously drawn on the Revolving Credit Facility. As of December 31, 2025, we had $145.0 million borrowings
under the Revolving Credit Facility and $95.0 million under the BofA Term Loan Facility. See "Financial Statements - Note 5 Debt" in this Annual Report on Form 10-K for a summary of our unsecured revolving credit and term loan facilities.
Financial Covenants
As of December 31, 2025, we were in compliance with the following financial covenants related to our unsecured facilities:
Financial Covenant Required December 31, 2025 In Compliance
Maximum total leverage < 60% 36.4 % Yes
Maximum secured leverage < 40% 10.2 % Yes
Minimum fixed charge coverage > 1.50x 3.0x Yes
Minimum unencumbered interest coverage > 1.75x 4.4x Yes
Maximum unsecured leverage < 60% 35.4 % Yes
Mortgage Debt
As of December 31, 2025, mortgage notes payable, net, amounted to $619.3 million. Our next mortgage debt maturity is for $50.0 million in April 2026.
In December 2025, we repaid the $71.6 million mortgage debt in connection with the sale of Metro Center, in Stamford, Connecticut.
In April 2024, we worked with the First Stamford Place mortgage lender to structure a consensual foreclosure. On May 22, 2024, a receiver was appointed and we ended our management of the property. On February 5, 2025, the consensual foreclosure was completed, title of the property was transferred to the mortgage lender and we were released of our mortgage obligation.
See "Financial Statements - Note 5 Debt"in this Annual Report on Form 10-K for more information on mortgage debt.
Senior Unsecured Notes
In December 2025, we closed on the issuance and sale of $175.0 million aggregate principal amount of 5.47% Series L Notes that mature on January 7, 2031 in a private placement transaction.
In March 2025, the Series A senior unsecured notes matured and the aggregate principal amount of $100.0 million was repaid. The notes had a stated interest rate of 3.93%.
See "Financial Statements - Note 5 Debt"in this Annual Report on Form 10-K for more information on senior unsecured notes.
Leverage Policies
We expect to employ leverage in our capital structure in amounts determined from time to time by our Board of Directors. In the evaluation of our level of indebtedness, our Board of Directors will consider a number of factors including the mix of recourse or non-recourse debt and cross-collateralized debt, mix of fixed or floating rate debt, and cost of leverage. Our charter and bylaws do not limit the amount or percentage of indebtedness that we may incur nor do they restrict the form in which our indebtedness will be taken. Our overall leverage will depend on our mix of investments and the cost of leverage. Our Board of Directors may from time to time modify our leverage policies in light of the then-current economic conditions, access to and relative costs of debt and equity capital, market values of our properties, general market conditions for debt and equity securities, fluctuations in the market price of our common stock, growth and acquisition opportunities and other factors. See ITEM 1A. "Risk Factors -Risks Relating to Our Indebtedness and Liquidity" in this Annual Report on Form 10-K for more information.
Capital Expenditures
The following tables summarize our tenant improvement costs, leasing commission costs and our capital expenditures for each of the periods presented (dollars in thousands, except per square foot amounts).
Office Properties(1)(2)
Years Ended December 31,
Total New Leases, Expansions, and Renewals(3)
2025 2024 2023
Number of leases signed(4)
69 102 85
Total square feet 856,453 1,300,584 960,192
Weighted average annualized cash rent per square foot for new and renewal leases executed during the year $ 70.77 $ 70.07 $ 63.45
Weighted average annualized cash rent per square foot for previous leases 65.27 66.44 57.95
Percentage of new cash rent over previously escalated rents 8.4 % 5.5 % 9.5 %
Leasing commission costs per square foot(5)
$ 20.73 $ 19.46 $ 19.51
Tenant improvement costs per square foot(5)
54.27 55.98 79.30
Total leasing commissions and tenant improvement costs per square foot(5)
$ 75.00 $ 75.44 $ 98.81
Retail Properties(1)(2)
Years Ended December 31,
Total New Leases, Expansions, and Renewals(3)
2025 2024 2023
Number of leases signed(4)
16 9 8
Total square feet 152,556 24,240 21,715
Weighted average annualized cash rent per square foot for new and renewal leases executed during the year $ 101.51 $ 181.95 $ 148.89
Weighted average annualized cash rent per square foot for previous leases 108.78 241.65 209.88
Percentage of new cash rent over previously escalated rents (6.7) % (24.7) % (29.1) %
Leasing commission costs per square foot(5)
$ 49.40 $ 74.29 $ 54.62
Tenant improvement costs per square foot(5)
35.26 35.87 38.57
Total leasing commissions and tenant improvement costs per square foot(5)
$ 84.66 $ 110.16 $ 93.19
_______________
(1)Office activity excludes an aggregate of 475,442, 475,744, and 498,682 rentable square feet of retail space in our office properties in 2025, 2024 and 2023, respectively, that is included in the retail activity for the respective years.
(2)The tables above exclude our multifamily properties.
(3)The number of leases signed include "Early Renewals" which are leases signed over two years prior to the lease expiration.
(4)Presents a renewed and expansion lease as one lease signed.
(5)Presents all tenant improvement and leasing commission costs as if they were incurred in the period in which the lease was signed, which may be different than the period in which they were actually paid.
(amounts in thousands) Years Ended December 31,
Total Commercial Portfolio
2025 2024 2023
Capital expenditures (1)
$ 63,944 $ 72,899 $ 55,385
_______________
(1)Includes all capital expenditures, excluding tenant improvements and leasing commission costs.
As of December 31, 2025, we expect to incur additional costs relating to obligations under signed new leases of approximately $94.2 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.
Capital expenditures are considered part of both our short-term and long-term liquidity requirements. We intend to fund the capital improvements through a combination of operating cash flow, cash on hand and borrowings.
Distribution Policy
We intend to distribute our net taxable income to our securityholders in a manner intended to satisfy REIT distribution requirements and to avoid U.S. federal income tax liability.
Before we pay any distribution, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and obligations to make payments of principal and interest, if any. However, under some circumstances, we may be required to use cash reserves, incur debt or liquidate assets at rates or times that we regard as unfavorable or make a taxable distribution of our shares in order to satisfy REIT distribution requirements.
We declared dividends of $0.035 per share for each quarter of 2025, which equates to an annualized rate of $0.14 per share. The Board of Directors will continue its regular review of its dividend and capital allocation policies at each Board meeting.
Distribution to Equity Holders
Distributions and dividends have been made to equity holders as follows:
Years Ended December 31,
(amounts in thousands) 2025 2024 2023
Distributions and dividends $ 43,184 $ 42,490 $ 41,323
Stock and Publicly Traded Operating Partnership Unit Repurchase Program
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. Upon expiration of this program, the 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 during the period from January 1, 2026 through December 31, 2027. 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 December 31, 2025, we had $491.9 million remaining of the authorized repurchase amount for the 2024-2025 period.
The following table summarizes our purchases of equity securities for the year ended December 31, 2025.
Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plan Maximum Approximate Dollar Value Available for Future Purchase (in thousands)
Year ended December 31, 2025 1,198,603 $ 6.78 1,198,603 $ 491,878
Cash Flows
Comparison of Year Ended December 31, 2025 to the Year Ended December 31, 2024
Net cash. Cash and cash equivalents and restricted cash were $166.5 million and $429.3 million as of December 31, 2025 and 2024, respectively. The decrease was primarily due to increased acquisition activity in 2025 compared to 2024.
Operating activities. Net cash provided by operating activities decreased by $11.8 million to $249.1 million due to decreased Observatory operating income and interest income, partially offset by increases in working capital.
Investing activities. Net cash used in investing activities increased by $152.9 million to $550.0 million primarily due to $412.0 million of acquisitions in 2025, compared to $193.1 million of acquisitions in 2024. This increase in cash used in investing activities was partially offset by the net proceeds of $60.5 million from the disposition of Metro Center in 2025.
Financing activities. Net cash provided by financing activities decreased by $120.4 million to $38.2 million primarily due $175.0 million funding of Series L senior unsecured notes, $70.0 million increase in the Wells Term Loan Facility, and $25.0 million of net draws on the unsecured revolving credit facility, partially offset by repayments of $100.0 million of Series A senior unsecured notes and 75.3 million of mortgage note payables in 2025, compared to the $225.0 million funding of Series I-K senior unsecured notes in 2024.
Net Operating Income
Net Operating Income ("NOI") is a non-GAAP financial measure of performance. NOI is used by our management to evaluate and compare the performance of our properties and to determine trends in earnings and to compute the fair value of our properties as it is not affected by: (i) the cost of funds of the property owner, (ii) the impact of depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets that are included in net income computed in accordance with GAAP, (iii) acquisition expenses, loss on early extinguishment of debt, impairment charges and loss from derivative financial instruments, or (iv) general and administrative expenses and other gains and losses that are specific to the property owner. The cost of funds is eliminated from NOI because it is specific to the particular financing capabilities and constraints of the owner. The cost of funds is eliminated because it is dependent on historical interest rates and other costs of capital as well as past decisions made by us regarding the appropriate mix of capital which may have changed or may change in the future. Depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets are eliminated because they may not accurately represent the actual change in value in our office or retail properties that result from use of the properties or changes in market conditions. While certain aspects of real property do decline in value over time in a manner that is reasonably captured by depreciation and amortization, the value of the properties as a whole have historically increased or decreased as a result of changes in overall economic conditions instead of from actual use of the property or the passage of time. Gains and losses from the sale of real property vary from property to property and are affected by market conditions at the time of sale which will usually change from period to period. These gains and losses can create distortions when comparing one period to another or when comparing our operating results to the operating results of other real estate companies that have not made similarly-timed purchases or sales. We believe that eliminating these costs from net income is useful to investors because the resulting measure captures the actual revenue generated and actual expenses incurred in operating our properties as well as trends in occupancy rates, rental rates and operating costs.
However, the usefulness of NOI is limited because it excludes general and administrative costs, interest expense, depreciation and amortization expense and gains or losses from the sale of properties, and other gains and losses as stipulated by GAAP, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, all of which are significant economic costs. NOI may fail to capture significant trends in these components of net income which further limits its usefulness.
NOI is a measure of the operating performance of our properties but does not measure our performance as a whole. NOI is therefore not a substitute for net income as computed in accordance with GAAP. This measure should be analyzed in conjunction with net income computed in accordance with GAAP and discussions elsewhere in this Management's Discussion and Analysis of Financial Condition and Results of Operations regarding components of net income that are eliminated in the calculation of NOI. Other companies may use different methods for calculating NOI or similarly titled measures and, accordingly, our NOI may not be comparable to similarly titled measures reported by other companies that do not define the measure exactly as we do.
The following table presents a reconciliation of our net income, the most directly comparable GAAP measure, to NOI:
Years Ended December 31,
(amounts in thousands) 2025 2024 2023
Net income $ 72,980 $ 80,359 $ 84,407
Add:
General and administrative expenses 72,842 70,234 63,939
Depreciation and amortization 194,762 184,818 189,911
Interest expense 103,133 105,239 101,484
Interest expense associated with property in receivership 647 4,471 -
Loss on early extinguishment of debt 97 553 -
Income tax expense 2,558 2,688 2,715
Less:
Gain on disposition of properties (35,018) (13,302) (26,764)
Third-party management and other fees (1,483) (1,170) (1,351)
Interest income (8,748) (21,298) (15,136)
Net operating income $ 401,770 $ 412,592 $ 399,205
Other Net Operating Income Data
Straight-line rental revenue $ 18,039 $ 11,283 $ 19,563
Net increase in rental revenue from the amortization of above- and below-market lease assets and liabilities $ 3,196 $ 2,177 $ 2,416
Amortization of acquired below-market ground leases $ 7,831 $ 7,831 $ 7,831
Funds From Operations
We present below a discussion of Funds From Operations ("FFO"). Wecompute FFO in accordance with the "White Paper" on FFO published by the National Association of Real Estate Investment Trusts, or NAREIT, which defines FFO as net income (loss) (determined in accordance with GAAP), excluding impairment write-off of investments in depreciable real estate and investments in in-substance real estate investments, gains or losses from debt restructurings and sales of depreciable operating properties, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs), less distributions to non-controlling interests and gains/losses from discontinued operations and after adjustments for unconsolidated partnerships and joint ventures. FFO is a widely recognized non-GAAP financial measure for REITs that we believe, when considered with financial statements determined in accordance with GAAP, is useful to investors in understanding financial performance and providing a relevant basis for comparison among REITs. In addition, we believe FFO is useful to investors as it captures features particular to real estate performance by recognizing that real estate has generally appreciated over time or maintains residual value to a much greater extent than do other depreciable assets. Investors should review FFO, along with GAAP net income, when trying to understand an equity REIT's operating performance. We present FFO because we consider it an important supplemental measure of our operating performance and believe that it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs. However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our results of operations, the utility of FFO as a measure of performance is limited. There can be no assurance that FFO presented by us is comparable to similarly titled measures of other REITs. FFO does not represent cash generated from operating activities and should not be considered as an alternative to net income (loss) determined in accordance with GAAP or to cash flow from operating activities determined in accordance with GAAP. FFO is not indicative of cash available to fund ongoing cash needs, including the ability to make cash distributions. Although FFO is a measure used for comparability in assessing the performance of REITs, as the NAREIT White Paper only provides guidelines for computing FFO, the computation of FFO may vary from one company to another.
Modified Funds From Operations
Modified Funds From Operations ("Modified FFO") adds back an adjustment for any below-market ground lease amortization to traditionally defined FFO. We believe this is a useful supplemental measure in evaluating our operating performance due to the non-cash accounting treatment under GAAP, which stems from the third quarter 2014 acquisition of two option properties following our formation transactions as they carry significantly below market ground leases, the amortization of which is material to our overall results. We present Modified FFO because we believe it is an important supplemental measure of our operating performance in that it adds back the non-cash amortization of below-market ground leases. There can be no assurance that Modified FFO presented by us is comparable to similarly titled measures of other REITs. Modified FFO does not represent cash generated from operating activities and should not be considered as an alternative to net income (loss) determined in accordance with GAAP or to cash flow from operating activities determined in accordance with GAAP. Modified FFO is not indicative of cash available to fund ongoing cash needs, including the ability to make cash distributions.
Core Funds From Operations
Core FFO adds back to Modified FFO the following items: Interest expense associated with property in receivership, loss on early extinguishment of debt, and IPO litigation expense. The Company believes Core FFO is an important supplemental measure of its operating performance because it excludes non-recurring items. There can be no assurance that Core FFO presented by the Company is comparable to similarly titled measures of other REITs. Core FFO does not represent cash generated from operating activities and should not be considered as an alternative to net income (loss) determined in accordance with GAAP or to cash flow from operating activities determined in accordance with GAAP. Core FFO is not indicative of cash available to fund ongoing cash needs, including the ability to make cash distributions. In future periods, we may also exclude other items from Core FFO that we believe may help investors compare our results.
The following table presents a reconciliation of our net income, the most directly comparable GAAP measure, to FFO, Modified FFO and Core FFO:
Years Ended December 31,
(amounts in thousands) 2025 2024 2023
Net income $ 72,980 $ 80,359 $ 84,407
Non-controlling interests in other partnerships - (4) (68)
Private perpetual preferred unit distributions (4,201) (4,201) (4,201)
Real estate depreciation and amortization 191,222 180,513 184,633
Gain on disposition of properties (35,018) (13,302) (26,764)
Funds from operations attributable to common stockholders and the Operating Partnership
224,983 243,365 238,007
Amortization of below-market ground leases 7,831 7,831 7,831
Modified funds from operations attributable to common stockholders and the Operating Partnership
232,814 251,196 245,838
Interest expense associated with property in receivership 647 4,471 -
Loss on early extinguishment of debt 97 553 -
IPO litigation expense 632 - -
Core funds from operations attributable to common stockholders and the Operating Partnership
$ 234,190 $ 256,220 $ 245,838
Weighted average shares and Operating Partnership units
Basic
266,939 264,706 263,226
Diluted
270,040 269,019 265,633
Critical Accounting Estimates
Goodwill
Goodwill is tested annually for impairment and more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount, including goodwill, exceeds the reporting unit's fair value and the implied fair value of goodwill is less than the carrying amount of that goodwill. Non-amortizing intangible assets, such as trade names and trademarks, are subject to an annual impairment test based on fair value and amortizing intangible assets are tested whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
We performed our annual goodwill testing in October 2025 for both the Real Estate and Observatory reportable segments. We bypassed the optional qualitative goodwill impairment assessment and proceeded directly to a quantitative assessment of the Observatory reportable segment and engaged a third-party valuation consulting firm to perform the valuation process. The quantitative analysis used a combination of the discounted cash flow method (a form of the income approach) utilizing Level 3 unobservable inputs and the guideline company method (a form of the market approach). Significant assumptions under the former included revenue and cost projections, weighted average cost of capital, long-term growth rate and income tax considerations while the latter included guideline company enterprise values, revenue multiples, EBITDA multiples and control premium rates. Our methodology to review goodwill impairment, which included a significant amount of judgment and estimates, provided a reasonable basis to determine whether impairment had occurred. The quantitative analysis performed concluded the fair value of the reporting unit exceeds its carrying value. Many of the factors employed in determining whether or not goodwill is impaired are outside of our control, and it is reasonably likely that assumptions and estimates will change in future periods.
Empire State Realty Trust Inc. published this content on March 02, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on March 02, 2026 at 11:01 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]