Empire State Realty Trust is Unlocking the Potential of NYC Real Estate

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Written By Faith Boluwatife

Empire State Realty Trust stands out in the REIT space as the proud owner of the iconic Empire State Building, offering investors exposure to prime NYC real estate.

Over the past decade, shares have trended downwards, presenting a historical discount. Despite this, the current dividend yield is a modest 1.5%, which is low for the REIT sector.

This raises the question: is there hidden value, or has the market accurately priced ESRT? For now, ESRT appears fairly valued with little obvious upside.

Financial History

Credits: DepositPhotos

Over the last decade, ESRT’s revenue growth has been sluggish, barely keeping pace with inflation. The pandemic caused a temporary dip, but the company has since recovered.

Examining the cash flow situation reveals a similar trend in Funds From Operations (FFO). Distributions have typically been lower than FFO, especially after a post-COVID decline.

The breakdown of total distributions highlights the cash flow scenario as it affects common shares and operating partnership units. Over time, as OP units convert to common shares, most distributions now go to common shareholders.

The low payout ratio relative to FFO indicates financial prudence, with some of the surplus funds allocated to opportunistic buybacks due to the low share price.

These factors culminated in a gradual increase in dividends per share until the pandemic, which resulted in a cut. Although FFO has nearly returned to pre-pandemic levels, the dividend remains at $0.14 per share, down from the previous $0.42.

Business Model

ESRT primarily generates revenue from renting its office, retail, and multifamily properties in NYC. Operations are conducted through their operating partnership, where ESRT holds 60.1% OP units as of Q1 2024.

Rental revenue forms the bulk of ESRT’s income, but observatory revenue from the Empire State Building accounted for 17.5% in 2023. Observatory revenues, heavily impacted by the pandemic, have shown strong recovery.

The company maintains a stable balance sheet, with about $2.7 billion in cash and real estate assets against $2.4 billion in debt. The debt, with staggered maturities over the next decade, has no floating rates and a weighted average fixed rate of 3.97%.

Future Outlook

The primary vulnerability is the observatory revenue, given its significant drop during COVID. Nonetheless, it has historically grown steadily, indicating resilience against typical cyclical factors.

Office Properties

Concerns about office real estate persist due to COVID-induced disruptions and ongoing work-from-home trends. However, ESRT argues its office properties are attractively located, particularly in Midtown Manhattan, close to transit areas and amenities.

Despite distress in the NYC office market, evidenced by recent distressed transactions, ESRT’s leasing activities have been positive, supporting their “Flight to Quality” thesis.


ESRT has opportunities to capitalize on distressed properties. CEO Tony Malkin emphasized potential acquisitions across office, retail, and residential sectors due to capital dislocation and rising rates.


With a low payout ratio, ESRT is positioned to reinvest excess cash flow into buybacks or acquisitions, enhancing future FFO growth. This supports the likelihood of returning to the pre-pandemic dividend rate of $0.42 per share, increasing the yield for long-term investors.


Using a DCF-like approach, substituting free cash flow with an expected dividend of $0.42 per share, and assuming a 5% average growth rate over a decade with a terminal multiple of 25, ESRT’s fair value is around $9.88 per share. This aligns closely with the current price, suggesting the market fairly values the stock amidst uncertain future conditions.


Credits: DepositPhotos

ESRT, with its iconic Empire State Building and other NYC assets, demonstrates resilience amidst market challenges. Its strategic “Flight to Quality” approach, strong balance sheet, and potential acquisition opportunities position it well.

However, the current price likely reflects its fair value. Investors may want to watch for clearer signs of upside before considering investing.


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