ESRT Q3 2026 Earnings: Observatory Weakness Offsets Office Leasing Gains

Empire State Realty Trust (NYSE: ESRT) reported Q3 2026 revenue of $193.1 million, down about 2.4% from $197.7 million a year earlier, while diluted EPS fell to $0.02 from $0.05. Core FFO per diluted share declined to $0.20 from $0.23 as weak Observatory visitation offset higher rental revenue and improving office occupancy. ESRT nevertheless raised its full-year Core FFO guidance.

Core Earnings Data

The revenue decline was concentrated in the Observatory business: Observatory revenue fell by $9.2 million, while rental revenue increased by $3.6 million. Total operating expenses edged lower, but reduced revenue narrowed the operating margin, while higher interest expense added pressure on net income.

Same-store property cash NOI excluding the Observatory and lease termination fees increased 0.5%, supported by tenant reimbursement income and insurance recoveries. Operating expense growth and an approximately $2 million revenue decline from the previously disclosed FDIC lease expiration limited the increase. Adjusted for the FDIC impact and $1.2 million of Q3 non-recurring items, same-store property cash NOI grew 1.9%.

Core FFO and same-store property cash NOI are non-GAAP measures. The same-store figure excludes the Observatory and lease termination fees.

Business and Portfolio Performance

The commercial portfolio was 95.6% leased and 92.3% occupied at September 30, compared with 92.6% leased and 90.0% occupied one year earlier. Office occupancy reached 91.9%, while office leased percentage rose to 95.5%. Retail was 96.6% occupied and 96.8% leased. Multifamily leasing declined to 97.1% from 98.6%.

ESRT signed 27 commercial leases covering 189,477 square feet, with an average lease term of 8.1 years. Office accounted for 170,608 square feet and generated a positive 9.9% blended leasing spread, marking the 21st consecutive quarter of positive office spreads.

The office leasing mix was uneven. New office leases produced a positive 16.2% spread, while office renewals had a negative 4.5% spread. Retail leasing spreads were negative 13.9%, leaving the total portfolio spread at positive 2.8%. This indicates that the overall office result was driven primarily by new leasing rather than renewals.

The reported occupancy and leasing percentages exclude certain redevelopment and unstabilized spaces, as well as specified sold properties, including 1359 Broadway.

Office Gains Could Not Offset the Observatory Decline

Rental revenue increased about 2.2% to $162.0 million, but Observatory revenue fell about 25.6% to $26.8 million because visitation remained weak. At the same time, Observatory expenses rose about 17.8% to $11.2 million, causing Observatory NOI to decline about 41.2% to $15.6 million.

This divergence explains why improving office occupancy and modest same-store property NOI growth did not translate into higher consolidated earnings. Total cash NOI, including the Observatory, fell about 9.5% to $92.1 million even though same-store property cash NOI excluding the Observatory increased slightly.

Balance Sheet and Capital Allocation

ESRT had approximately $0.6 billion of liquidity at quarter-end, consisting of $85 million in cash and $520 million available under its revolving credit facility. Total debt was approximately $2.2 billion at a weighted average interest rate of 4.78%, while net debt to adjusted EBITDA was 6.7 times. Q3 interest expense increased about 10.7% to $27.9 million.

The company closed a $245 million unsecured delayed-draw term loan during the quarter. The loan matures in 2032, and ESRT expects to draw the proceeds in January 2027 to repay existing debt. The company said it has no unaddressed debt maturity until March 2029.

After quarter-end, ESRT completed the sale of 1359 Broadway for $217.5 million. The company plans to use proceeds for share repurchases and debt repayment. From its second-quarter earnings call through November 2, ESRT repurchased $85.8 million of shares at a weighted average price of $4.56 per share.

2026 Guidance

ESRT increased its full-year Core FFO range and raised its same-store property cash NOI assumptions. The revised Core FFO outlook incorporates capital markets transactions, share repurchases completed to date, and the sale of 1359 Broadway, while the higher property NOI range reflects better year-to-date results driven primarily by non-recurring items.

The property outlook assumes operating expenses and real estate taxes rise approximately 4% to 6%, largely offset by tenant reimbursement income. The Observatory framework remains unchanged despite weak Q3 visitation.

Risks Investors Need to Watch

• Continued Observatory weakness: Lower visitation reduced both revenue and NOI sharply in Q3. The unchanged $55 million full-year NOI framework remains sensitive to tourism, weather, currency movements, geopolitical conditions, and competition.
• Rising property costs: The guidance assumes a 4% to 6% increase in operating expenses and real estate taxes. Achieving the same-store NOI range depends partly on tenant reimbursements offsetting those increases.
• Timing between leasing and occupancy: The commercial portfolio’s 95.6% leased rate was above its 92.3% occupied rate because leased figures include signed leases that have not commenced. Temporary downtime and commencement timing can delay rental cash flow.
• Leverage and interest costs: Net debt to adjusted EBITDA was 6.7 times, while quarterly interest expense increased. The delayed-draw term loan addresses refinancing needs, but debt costs remain relevant to earnings and Core FFO.

Summary

ESRT’s Q3 2026 results showed improving commercial occupancy, positive office leasing spreads, and modest same-store property cash NOI growth. Those gains were outweighed by weak Observatory visitation, higher Observatory expenses, and increased interest costs, resulting in lower revenue, net income, and Core FFO. The raised full-year guidance reflects year-to-date property results and completed capital allocation activity, while Observatory performance, lease commencements, operating expenses, and debt costs remain the main items to monitor.