Empire State Earnings: NOI Impacted by Higher Operating Expenses as Building Utilization Improves

No-moat-rated Empire State Realty reported disappointing first-quarter results as the core funds from operations, or FFO, was reported at $0.16 per share in the current quarter, around 11% lower than the $0.18 in core FFO during the same quarter last year. The demand for Manhattan office real estate remains muted due to macroeconomic factors and a slower recovery in physical office utilization rates. The short-term outlook for office real estate remains challenging, but shares are cheap from a long-term perspective. We think that the current share prices of our office REIT coverage reflect excessive pessimism. Empire State Realty is trading at around $5.80 per share after releasing its first-quarter results, which implies a 7 times 2023 FFO multiple. We are maintaining our fair value estimate of $9.50 per share for Empire State Realty after incorporating the first-quarter results.