Analyst Note| Suryansh Sharma |
The challenging office real estate environment continues to weigh on no-moat-rated Empire State Realty’s first-quarter results. The firm reported first-quarter core funds from operations, or FFO, of $0.18 per share, higher than the $0.15 in core FFO during the same quarter last year. Meanwhile, the same-store cash net operating income excluding lease termination fees was up 0.9% from the first quarter of 2021. The same-store rental and NOI growth numbers are disappointing especially after considering the fact that we are currently in a highly inflationary environment. The record-high vacancy rates and the remote work dynamic are making it difficult for office owners to increase rental rates that match inflation. We do not plan to materially change our $11.30 fair value estimate for Empire State Realty as we fully incorporate the first-quarter result.