Key facts
- Empire State Realty Trust (ESRT) reported a net loss of 15 cents per share for the second quarter.
- ESRT recorded a $166 million write-down in value for the Empire State Building's observation deck.
- The observation deck's net operating income dropped by nearly half, from $24 million to $12.4 million year-over-year.
- Visitor numbers to the observatory declined by 18% in the first quarter and 29% in the second quarter.
- ESRT updated its full-year FFO guidance downward, from 85-89 cents per share to 75-79 cents per share.
Empire State Realty Trust (ESRT) has reported a net loss of 15 cents per share for the second quarter, primarily due to a significant decline in visitors to the iconic Empire State Building observation deck. The REIT announced a $166 million write-down in value associated with the attraction, which saw its net operating income (NOI) plummet by nearly half year-over-year, from $24 million to $12.4 million.
ESRT CEO Tony Malkin attributed the downturn to a decrease in international tourism and a reduction in participation in sightseeing pass programs, which are popular with budget-conscious international travelers. Visitor numbers to the 86th-floor deck fell by approximately 18% in the first quarter and 29% in the second quarter compared to the previous year. Malkin noted that recent visitor counts, following the World Cup, were predominantly domestic.
In response to these challenges, ESRT has updated its financial guidance. The company now forecasts the observation deck's NOI to be around $55 million, a reduction from the previous range of $87 million to $92 million. Consequently, ESRT's expected funds from operations (FFO) for the year has been lowered from 85-89 cents per share to 75-79 cents per share.
Despite the struggles of its observation deck, ESRT's core business of leasing office and retail space in New York City has shown improvement, with occupancy rates increasing to 89.4% at the end of June. The company has also been strategically shifting its portfolio towards a purely New York City focus and investing in multifamily properties and outer borough retail.
Meanwhile, competition in Manhattan's observation deck market has intensified with the opening of The Edge and Summit One Vanderbilt. Summit One Vanderbilt, operated by SL Green, reported more stable revenue and has not participated in discount-heavy sightseeing pass programs, maintaining higher ticket prices.