ESRT - NYSE

Greetings, and welcome to the Empire State Realty Trust Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Heather Houston, SVP, Chief Counsel, Corporate and Secretary. Thank you. You may begin.

Good afternoon. Welcome to Empire State Realty Trust's Fourth Quarter 2025 Earnings Conference Call. In addition to the press release distributed yesterday, a quarterly supplemental package with further detail on our results and our latest investor presentation were posted in the Investors section of the company's website at esrtreit.com. During today's call, management's prepared remarks and responses to questions may include forward-looking statements within the meaning of applicable securities laws. These statements reflect management's current views and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. Empire State Realty Trust assumes no obligation to update any forward-looking statement in the future. We encourage listeners to review the more detailed discussions related to these forward-looking statements in the company's filings with the SEC. During today's call, we will discuss certain non-GAAP financial measures, such as FFO, modified and core FFO, NOI, same-store property cash NOI, EBITDA and adjusted EBITDA, which we believe are meaningful in evaluating the company's performance. The definitions and reconciliations of these measures to the most directly comparable GAAP measures are included in the earnings release and supplemental package, each available on the company's website. Now I will turn the call over to Tony Malkin, our Chairman and Chief Executive Officer.

Good afternoon, everyone. Yesterday, we reported ESRT's fourth quarter and full year results. Today, we will discuss our continued leasing momentum, observation deck execution, latest balance sheet recycling and outlook for 2026. We delivered full year core FFO of $0.87, a reflection of continued performance across our platform. Our leasing team again put points on the board with nearly 460,000 square feet leased in the quarter and 1 million square feet for the year. We have now delivered 4 consecutive years of occupancy growth and positive New York City office rent spreads. As we enter 2026, we have framed in our new investor deck that is available online, the significant transformation to drive shareholder value ESRT has executed over the past 5 years. This transformation was deliberate to strengthen our platform and improve the quality and durability of our cash flows. Since Christina joined as CFO in 2020 and was in 2024, elevated as President to join me at the head of the company, we addressed management succession with key leadership hires and promotions. Steve Horn was promoted from CIO to CFO in 2024; Ryan Kass to Co-Head and Chief Revenue Officer of Real Estate; and Jackie Renton joined us in 3Q as Co-Head and Chief Operating Officer of Real Estate. These management changes, along with others across the organization, strengthened our operating platform and reinforce our ability to execute on our growth initiatives. Our portfolio is now 100% New York City. We completed $1 billion of acquisitions of high-quality real estate and disposed of our suburban commercial assets all without tax leakage. Our acquired assets improved our cash flow and portfolio quality and include high-quality Manhattan multifamily properties, prime retail on North Sixth Street in Williamsburg, Brooklyn, and more recently, 130 Mercer in SoHo, also known as Scholastic's headquarters. ESRT's New York City pure-play portfolio benefits from live, work, play and visit dynamics of the greatest market in the United States. This was all made possible by our proactive balance sheet management that provides ESRT significant flexibility to transact strategically and create shareholder value. We are confident in our position as we look ahead. While known tenant rollover will impact our FFO growth in 2026, we believe the portfolio is well positioned for long-term cash growth. Our office portfolio is 93.5% leased. That reflects the desirability of our top-of-tier modernized, amenitized, well-located sustainability leading portfolio underpinned by a strong financial position. Importantly, there is no new supply at our price point. We continue to see an upward trajectory in net effective rents, and our portfolio continues to perform. Our iconic Empire State Building observation deck remains a market leader and a meaningful contributor to our cash flow. Revenue per capita increased year-over-year. In 2025, we delivered resilient bottom line performance through disciplined cost management and price execution despite a decline in visitation from our cross-ocean international tourist visitors. We continue to grow our domestic demand and be ready for a return of our traditional budget-conscious international visitors. Our sustainability leadership as a lever for measurable business results and reduces our and our tenants' exposure to increased energy and regulatory costs. We partner with tenants to support their sustainability goals. In 2025, ESRT achieved the highest possible GRESB rating for the sixth consecutive year with a score of 93 and an A in public disclosure. In addition, the Empire State Building became the first lead version 5 platinum certified building in New York State. These results reflect the leadership and focus of our organization. Our entire organization remains laser-focused on the Observatory's 5 priorities: Lease space, sell tickets to the observation deck, manage our balance sheet, identify growth opportunities and achieve our sustainability goals. These priorities are simple, repeatable and aligned with our desire to drive long-term shareholder value. Christina, Ryan and Steve will provide more detail on our results and outlook. Christina?

Thanks, Tony. As Tony mentioned, in the past 5 years, we've been very active and fully recycled out of lower growth, higher CapEx suburban commercial assets on a tax-efficient basis into prime New York City assets, aggregating over $1 billion, of which $750 million are unencumbered with superior long-term growth characteristics and lower capital requirements. In 2025, we executed $417 million of all cash acquisitions of well-located, high-quality office and retail assets comprised of 130 Mercer and 86-90 North Street and completed the disposition of Metro Center. In the fourth quarter of 2025, we completed financing that aggregate $420 million and result in no unaddressed debt maturities until March 2027. These include a $175 million unsecured notes issuance and a $245 million term loan recast. The cumulative impact of all the transaction activity in the past 5 years is the successful transition to a 100% New York City portfolio that drives resilient cash flows to the bottom line through high-quality assets that benefit from live, work, play and visit. And this is backed by a proactively managed balance sheet with strength and flexibility. As we look ahead, our focus remains to grow and improve the quality of our portfolio and cash flows and deliver shareholder value through prudent capital allocation. Adding more color to our recent investment activity. In December, we acquired 130 Mercer for $386 million. Our ability to move quickly and close with certainty is a significant advantage in today's market. This was enabled by our proactive balance sheet management, strong liquidity and low leverage. We acquired the asset all cash on our balance sheet and have significant optionality on the building's long-term capital structure. 130 Mercer is a high-quality 396,000 square foot office and retail asset in prime SoHo between Prince and Spring Street with an attractive risk-adjusted return profile. It provides both a solid initial yield and meaningful embedded upside. The property delivered a mid-5% initial cash yield at 70% occupancy, supported by a 15-year office lease with Scholastic and fully leased street retail with approximately 8 years of remaining term in a AAA location anchored by Sephora and Capital One. We expect growth towards a stabilized yield of approximately 8% through the lease-up of a 3-floor vacant office block of over 110,000 square feet with large, efficient floor plates. Our mandate here is straightforward, lease 3 floors. The market for large block institutional quality office space in this submarket is supply constrained, while demand remained strong. This creates a unique opportunity for ESRT to leverage our operating platform and best-in-class stewardship to drive occupancy, rents and returns. The disposition of our final suburban commercial asset, Metro Center in Stamford, Connecticut and repayment of the related mortgage debt in December is consistent with our objective to recycle capital to improve the quality of our portfolio and cash flows. The previously announced acquisition of 86-90 North Sixth Street represents a redeployment of these proceeds. A 86-90 North Sixth Street is a prime redevelopment property that we closed in June 2025 and announced a long-term lease with a high-quality retail tenant shortly after. It is located on a strategic corner along North Sixth Street, where we now control 4 key street corner locations and further strengthens our dominant position along the corridor, where foot traffic, residential density and tenant demand remains strong. In aggregate, our acquisitions along North Sixth Street through year-end 2025 total approximately $250 million. These transactions reflect our disciplined capital allocation approach. Our capital recycling activity over the last 5 years an exit from suburban commercial assets will result in an estimated $90 million of cumulative incremental property level cash flow between 2025 and 2030. This reflects the superior growth and lower capital requirements of what we acquired versus what we sold. We continue to reassess our portfolio to uncover opportunities to recycle capital that are accretive to growth and cash flows. Opportunistic share repurchases remain a strategic part of our capital allocation framework. During the fourth quarter, we repurchased $6 million of shares at an average price of $6.73. For the full year, we repurchased $8 million of shares at an average price of $6.78. Since the inception of our repurchase program in 2020, we repurchased approximately $302 million of shares in aggregate. Our well-positioned and flexible balance sheet remains one of our key strengths. Pro forma for recent investment activity, we maintained ample liquidity and lower leverage versus sector peers at 6.3x net debt to adjusted EBITDA and a well-laddered maturity schedule with all debt maturities in 2026 address. From a capital allocation perspective, we continue to actively underwrite new investments across New York City office, retail and multifamily, evaluate strategic capital recycling opportunities that are accretive to long-term cash flow and assess opportunistic share repurchases. Transaction activity has increased, and there is strong institutional capital interest in New York City and recognition of the strength of its underlying property fundamentals. We remain focused on opportunities where our operating and repositioning expertise can create meaningful value, and our strong balance sheet provides flexibility to act decisively when conditions align. We remain excited about the path ahead for ESRT. We look to continue to improve the quality of our pure-play New York City portfolio and cash flows through thoughtful prudent capital allocation. We also continue to look for ways to operate more efficiently and drive shareholder value. I'll now turn the call over to Ryan to review our leasing activity. Ryan?

Thanks, Christina, and good afternoon, everyone. In 2025, our property team delivered another year of exceptional performance. We leased over 1 million square feet and grew occupancy to 90.3%, up 170 basis points year-over-year. Our office portfolio is 93.5% leased, our 12th consecutive quarter above 90%, which is a testament to the strength of our leasing platform and execution. In today's bifurcated market of have and have nots, ESRT remains a clear have. Demand is concentrated among top quality, modernized, amenitized, transit-oriented buildings owned by financially stable landlords with proven operational performance. Our best-in-class portfolio has enabled us to push rents, reduce concessions and extend lease terms. The fourth quarter marked our 18th consecutive quarter of positive mark-to-market lease spreads in our office portfolio and underscores our consistent pricing power. We finished the year strong. In the fourth quarter, we signed over 458,000 square feet of new and renewal leases. We achieved positive mark-to-market lease spreads in our Manhattan office portfolio of 6.4%. Key leases signed in the fourth quarter include a 10-year 46,000 square foot early renewal with T.J. Maxx at 50 West 57th Street, an anchor investment-grade retail tenant; a 7-year 42,000 square foot early renewal with Nespresso at 111 West 33rd Street; a 16-year 36,000 square foot expansion with Burlington at 1400 Broadway, which represents 20% footprint growth; and a 16-year 15,000 square foot retail lease with LinkedIn at the Empire State Building, which brings their total square footage to 540,000 square feet. Average lease duration was 11.6 years for new leases executed in the fourth quarter. We continue to deliver an exceptional tenant experience and superior service, which contributes to our impressive track record of tenant retention and expansion. In 2025, we completed approximately 274,000 square feet of early renewals with existing tenants where we proactively extended lease expirations. Since our IPO in 2013, we have signed 317 tenant expansion leases for over 3 million square feet. New York City's office leasing market is the strongest we have seen since 2019, which creates a favorable backdrop for us to execute. Tenant demand is strong and diverse with industries such as finance, professional services, TAMI and consumer products. Similar to last year, there may be temporary dips in our lease percentage over the course of the year. but we feel confident in our year-end occupancy guidance of 90% to 92%. At 130 Mercer, we kicked off our marketing campaign in January to lease our 3-floor block of over 110,000 square feet. Initial activity is healthy as it is a unique availability of institutional quality product in a supply-constrained submarket. As Christina mentioned, our mandate is straightforward, lease 3 floors. More to come. Lastly, our multifamily portfolio continues to deliver excellent performance with occupancy just under 98%. Revenue increased 9% year-over-year in the fourth quarter and 10% in the full year. These results reflect strong market fundamentals and our focus on operational excellence. Thank you. I will now turn the call over to Steve. Steve?

Thanks, Ryan. For the fourth quarter of 2025, we reported core FFO of $0.23 per diluted share. For the full year 2025, core FFO was $0.87 per diluted share. Same-store property cash NOI, excluding lease termination fees, increased 3.4% year-over-year for the fourth quarter and 60 basis points for the full year, after adjusting for approximately $2 million and $7 million of nonrecurring items recognized in the fourth quarter of 2024 and full year 2024, respectively. Excluding these items, same-store cash revenue increased 2.5% and 2.1% for the fourth quarter and full year, respectively, while operating expenses increased 1.7% and 3.4%, respectively. Operating expense growth for the year was primarily driven by higher real estate taxes and cleaning related labor costs and was partially offset by higher tenant reimbursement income. Our Observatory business generated approximately $24 million of NOI in the fourth quarter and $90 million for the full year. Expenses totaled approximately $11 million in the fourth quarter and $38 million for the full year. Revenue per capita increased 6.9% year-over-year in the fourth quarter and 4.4% for the full year. For the full year 2025, FAD CapEx shrunk by approximately $21 million or 11% year-over-year. While the decrease was seen on all fronts across tenant improvements, leasing commissions and building improvements, the primary contributor to the decrease was an $18 million reduction in CapEx dollars spent on building improvements as we previously spent the CapEx required to develop our portfolio in preparation for the positive lease absorption we recognized. Now to our 2026 outlook. At a high level, we expect 2026 FFO and same-store cash NOI to be consistent with our 2025 results. This expectation stems primarily from a lag between the disclosed FDIC expiration and the lease commencement of the related backfill we executed in advance of the anticipated vacancy. Importantly, we expect to exit 2026 with higher occupancy and lower run rate G&A. The occupancy improvement is not expected to have a material positive impact on our 2026 results due to timing. To drill down further into the components of our guidance, we expect core FFO to range from $0.85 to $0.89 per diluted share. Our guidance assumes same-store property cash NOI growth of negative 1.5% to positive 2%. Within this range, we expect positive cash revenue growth with anticipated commercial occupancy of 90% to 92% by year end 2026 compared to 90.3% at year-end 2025. On the expense side, we expect property operating expenses and real estate taxes to increase by approximately 2% to 4% in aggregate, which we expect to be partially offset by higher tenant reimbursement income. Our 2026 same-store pool now includes our multifamily and North Sixth Street retail portfolios. This change reflects our transformation over the last 5 years, which includes our exit from suburban markets and transition to a 100% New York City portfolio. As expected, FDIC vacated 119,000 square feet at Empire State Building subsequent to year-end. While the space has long been backfilled by LinkedIn at a favorable mark-to-market, the temporary downtime impacts our 2026 core FFO by approximately $0.03 and reduces the same-store property NOI growth by approximately 270 basis points. Excluding this downtime, the midpoint of our 2026 adjusted same-store property cash NOI growth guidance would be approximately 3%. We expect cash rent commencement for the space to begin in the second half of 2027. For the Observatory, we expect 2026 NOI of approximately $87 million to $92 million and expenses of approximately $10 million per quarter. Included in this guidance is an expected $2 million net decline in license fee revenue earned from the gift shop operator at the Observatory and a shift in the timing of such revenue to be more heavily weighted to the fourth quarter. This reflects a COVID era license amendment that provided for fixed payments to the Observatory through 2025. Starting in 2026, these payments were reduced as are the annual percentage-based payment thresholds, which provides us with the upside tied to the recovery of international visitation. From an operating perspective, we remain focused on the levers within our control, to enhance the guest experience, broaden our marketing reach and drive efficiencies. Longer term, the observatory remains a durable high-margin cash flow business. Lastly, we expect calendar year 2026 G&A to aggregate approximately $69 million to $71 million as compared to approximately $73 million in 2025. We are on a path to reduce run rate G&A by approximately 5% to 10% by year-end 2026 relative to 2025, driven by compensation reductions and other cost reduction initiatives. We expect these savings to be in place by the third quarter. That concludes our prepared remarks. I'll now turn the call back to the operator to begin the Q&A session. Operator?

[Operator Instructions] Our first questions come from the line of [ Manas Abic ] with Evercore ISI.

Good to see a strong decent quarter in the fourth quarter. Just wanted to see if you can provide some more color on just the outlook kind of seeing how the first quarter has turned so far in terms of either pipeline or leasing activity if that's kind of continued to hold up into '26 and kind of like if you see any specific submarkets in your portfolio stronger than others. So any color would be appreciated.

The market tenor remains strong. We continue to see a bifurcated market of the have and have-nots and where we have. We have just over 170,000 square feet of leases in the pipeline that we anticipate closing in the first and second quarter.

Got you. Okay. And maybe one follow-up question. On the release, I didn't see a sales price that was given for the Stanford asset that you disposed of in the fourth quarter. So I wanted to just see if there's any further information you can kind of give us around the transaction and when it closed or for how much?

Yes, it was mid-$60 million. And then with some credit and adjustment, it gets to right around the debt balance. And from an NOI perspective, it's around [ 7 ] cap rate.

Our next question has come from the line of John Kim with BMO Capital Markets. John, can you please check if you're self muted?

Sorry about that. On that -- just following up on the Metro Center sale. Why not just walk away from the mortgage debt given the sale price was a little bit underneath the outstanding principal amount?

We achieved an execution that was right around that area. And so it made sense. It's consistent with our capital recycling and allows us to redeploy proceeds into assets additive to the rest of our portfolio. So it was good execution overall.

Okay. Our mayor Mamdani has proposed a 9.5% increase in property taxes that balance in New York City budget. Can you just remind us of your ability to pass those increased taxes to your tenants? And if you can, how will this affect your ability to push rents going forward?

Well, let's just, first of all, say that the proof is always in the pudding, and I don't think anything's even ingredient-wise is in the kitchen yet. So we'll see how things go with the Merit agenda and the budget, number one. Number two, Ryan can comment on how we handle our pass-throughs on the tenants and number three, the market is what the market is, so we're going to lease and if rent increase -- if we get our rents, we get our rents and if we have a higher base year on real estate taxes for new leases, well, that will be a higher base year for real estate taxes on new leases. .

And as Tony said, that would be in the future on the existing leases that any increase would be passed through on a tax escalation to the tenant.

Okay. And then my final question is, I know this gets asked a lot on office calls, but the impact of AI on tenants. Last week, we had the latest AI scared trade and the impact it's had not just on software companies, but all types of professional service companies, have you seen any impact on leasing decisions as a result of latest news?

The first thing I'll say, John, is we've seen a lot of people who are on book tours or seek to have more people come on to their blog where they can make advertising, make all sorts of decorations. We can only tell you that we've seen strong demand for high-quality office space in New York City amid low availability. Tenants continue to expand, and AI itself has been a positive for the leasing market and the source of incremental tenant demand, though, from our perspective, we're very sensitive to highly volatile infant industries as far as tenancies are concerned. So we, again, can only speak to 2024, '25, '26 leasing and trends, and we're very busy. Ryan gave you a number of 170,000 square feet of leases in discussion. We've got proposals in excess of that going back and forth. And we're very busy. At this point, we're more hindered by the availability of space to lease than anything else.

Our next questions come from the line of Seth Bergen with Citi.

It's Nick here with Seth. Maybe just following up on the new mayor in New York, obviously, you said the ingredients aren't even in the kitchen. But just broadly, how much of the rhetoric or policy impacted your conversations around leasing decisions or business sentiment more broadly?

It has not impacted any of our leasing discussions. I mean...

We can maybe give you a little more color of it really hasn't impacted our leasing discussions, but demand is high. And look, we are in an incredibly volatile world. Let's face it. Capital markets are kind of crazy. We may be at war in Iran within the next week or 2. We just do what we can do here at ESRT, got a balance sheet that allows us to do our business, have a balance sheet that allows us to take advantage of opportunity. And we will make money where we can make money. And we've got a varied portfolio of focus to what we think is the best market in the world. And we'll see how the mayor get things done, and we'll live in whatever world he impacts.

Got it. And then just on the Observatory, I guess you gave some color on the -- in your opening remarks. But what are you seeing in terms of competition? And what's the economic and tourism outlook embedded for the 2026 guide?

Well, I can give you some background on the general tourism trends, and then I'll let Christina or Steve comment on what goes into our guide. I'll just also let you know that Steve is alone in a conference room somewhere. He's come in because he has the flu, but he has intermittent Internet at his apartment. So if we're at all slow on the transition between Christina and Steve, it's because he's in another room. We feel safe, by the way, because we have MERV 13 filters and active bipolar ionization, so we feel highly unlikely that Steve will infect anyone else in the office. But going back to your question, we did see a very meaningful change -- set of changes in the Observatory. We used to be 2/3 roughly international, and now we're more than 50% domestic. We did see actual changes from the composition of our visitors. Our direct retail purchaser is way up, highest revenue per person we've seen. And at the same time, we have seen meaningful decline in past programs and particularly past programs from overseas visitors. And just so you know, for anyone who's not familiar with the past program, that's where a number of attractions are bundled into one price and visitors have a choice of to where they might go. One of the past program businesses ceased operations in early 2025, and the other two are materially down in their businesses. So we've pivoted and achieved very good results on our direct marketing. And at the same time, we've maintained excellent relationships with our past program partners that we value very highly. We've worked very hard on our online travel agent relationships and how we conduct our business there. And from that perspective, we adjust to what the market serves us. Much more active from our side, it's much less we take a toll from people across our bridge. And as far as competition, SL Green's reported on their own activities at the Summit. The edge is definitely very weak. One World Trade Center is very weak. Both of those have experienced significant deterioration in their businesses and do extensive discounting. On top of the rock is private and doesn't give out data, but we think they're pretty steady in relation to how business has gone in general. Do you want to talk about -- Christina or Steve. Steve, you'll take that on, the modeling.

Yes. There's not really much a lot to add from what you said. But from the guidance perspective, we account for just a range of various outcomes throughout the year. So the range that we have of the $87 million to $92 million, the midpoint is flattish. And so that contemplates those potential variances.

Our next questions come from the line of Blaine Heck with Wells Fargo.

I was hoping you could dig into the occupancy forecast a little bit more for 2026. The 91% midpoint seems maybe a little light just given that you are 93.6% leased at the end of the quarter. But I do understand you're expecting about 250,000 square feet of vacates during the year. So with respect to that, is FDIC included in that 250,000 square foot number. And I guess, what's your level of certainty with respect to the rest of those move-outs? And lastly, are there any other headwinds that might be a little bit less obvious?

Thanks, Mike. So I'll take that one. We feel very confident in our year-end occupancy guidance of that 90% to 92%. A lot of that is driven by timing of vacancies. If you take a look at Page 15 in the supplement, you'll see first and fourth quarter, we do have large move-outs, that fourth quarter is mainly driven by a 70,000-foot tenant at the Empire State Building, who has been in this space for a very long time. So I think that's impacting the numbers, and we're excited to get that space back in a substantial positive mark-to-market.

Okay. Great. That's helpful. Switching gears, in the past, I think you've said 6x debt-to-EBITDA as your kind of loose target for the upper bound of leverage. I think this is the first time I've seen your net debt to adjusted EBITDA above 6. So I guess how are you thinking about moderation in that metric and whether that limits your ability to be active on the investment front or share buyback front?

Yes. We have always mentioned we evaluate the market based on continued access to capital. We've been able to continue to access the debt market, have a number of conversations going on with interest in our assets. So we'll continue to navigate. We've also said that from time to time, we may tick up on net debt to EBITDA, it's not a strict limit. We're not looking to run the company at high risk or high balance sheet leverage. And at the same time, when there are great opportunities where we can utilize our balance sheet, close with certainty, you may pick up from time to time, and we'll have a game plan as we navigate going forward to maintain appropriate levels of leverage. So for us, this is consistent, and we'll continue to have activity in the coming year. All of our debt maturities are addressed, and we'll continue to manage the balance sheet prudently.

I just might add to Christina's comment, anyone who's followed us over the more than decade since we've been public, I always have said that the right opportunity where we think it can lead to growth, we will make moves on the balance sheet. That's why we have the balance sheet, and we are still peer-leading in our balance sheet position.

Our next questions come from the line of Dylan Burzinski with Green Street.

Maybe just going back to the Observatory. I appreciate your comments thus far, but are you able to say sort of what added lift or benefit is imputed in the guide as it relates to any expectations for the World Cup to drive an increased activity on the international visitor side of things?

So we've developed marketing strategies to capture demand around the World Cup. We're optimistic it will benefit our business with the biggest upside really around co-branding opportunities. So we still think it's early in the year. Many factors can impact demand. We don't rely on just one event. There are only a certain number of people who will fit into the stadia around New York City, where the World Cup will take place. And the good news for us is that costs are so bloody expensive around that period of time that we're really in a position in which our best customer right now, which is someone who really pays full price and get significant additional purchases out of what we offer for upgrades, that will fit right in there. We do see, and we are in discussion continuing on our branding side, opportunities both generate advertising value equivalency and co-branding dollars.

Appreciate that color. And then maybe just switching over real estate alert. I think late last month, mentioned that you guys have, I think it's 250 West on the market. Just sort of curious how you guys are sort of viewing -- you guys and the Board are viewing sort of the disconnect between where the stock trades today and maybe where underlying private market value is for your guys' portfolio?

Sure. I think it's no secret we trade at a discount to underlying real estate values as the rest of the office sector. So clearly, there's a disconnect. But what we focus on and as we've reiterated is we focus on the things that are within our control, and we continue to execute on the business. We've always said that we are open to capital recycling, first step with getting out of the suburban office market and reinvesting those proceeds into assets that are additive to the portfolio, add to the quality, add to the cash flow characteristics of what we're trying to build. Now that we're on the suburban, we can look within New York City as well. And the asset that we have on the market is an asset where we've added a bunch of value, and we continue to underwrite opportunities in the marketplace where we can add more value. It appears to us as you see in the transaction market, there's a lot of interest in New York City, and we'll see how that goes. So happy to own it, also happy to potentially pursue a sale and look for additional opportunities and more details will come as the process plays out.

Thank you. We will now turn the call back over to Tony Malkin, Chairman and CEO, for some closing remarks.

Thank you all very much. We remain focused on a clear and consistent set of priorities, lease our space to drive observatory performance, maintain a strong and flexible balance sheet, allocate capital with discipline and lead in sustainability. These priorities keep our organization focused and aligned as we drive the business forward. Supported by a high-quality portfolio and a strong financial foundation, we are well positioned to execute in the quarters ahead and create long-term value for our shareholders. We look forward to the chance to meet with many of you at non-deal roadshows, conferences and property tours in the months ahead, onward and upward.