Empire State Realty OP, L.P. (ESBA) stock intrinsic value fair value estimate & owner earnings analysis

What the business is. Empire State Realty OP, L.P. is the operating partnership through which Empire State Realty Trust owns a New York City portfolio: about 7.9 million square feet of office space (10 properties, all in Manhattan), 0.8 million square feet of retail, 743 residential units, and the Empire State Building Observatory. The Trust owned about 61.4% of the partnership units at the end of 2025. Values below are per partnership unit, the class that includes the Series ES units. How we measure earnings. We start from operating cash flow, then subtract stock compensation and the capital spending needed to keep buildings leased. For an office landlord that includes tenant improvements and leasing costs, so we treat all building-improvement spending as a running cost, apart from a small slice tied to revenue growth. We did not deduct routine working-capital swings, but we left leasing costs in as a real recurring expense. On that basis, earnings per unit were about $0.29 (2021), $0.36 (2022), $0.33 (2023), $0.25 (2024) and only $0.01 in 2025. Earlier years (2016 to 2020) were near zero or negative because of the heavy building-repositioning programme and the pandemic, so they describe a different phase of the business and are not used for the level. Why 2025 was so weak, and the level we use. In 2025 operating cash flow eased to $249 million from $261 million while building spending rose to $198 million from $173 million, and about $412 million was spent on acquisitions (not deducted here). Only $64 million of the 2025 spending was ordinary capital work; the rest was tenant improvements and leasing costs. The first half of 2026 shows building spending falling to $49 million from $124 million a year earlier, while operating cash flow was $88 million versus $110 million, so the 2025 spike looks like a peak but cash flow itself is softer. We therefore anchor on $0.25 per unit, below the 2022 to 2025 median of about $0.29 and roughly equal to the 2022 to 2025 average of $0.24, and do not treat a single weak year as the run rate. Growth check: earnings growth in 2025 was about negative 95%; the base case assumes zero growth in year one, so no reversal is being assumed. Base case, about $4.17 per unit. Earnings of $0.25 per unit held flat, discounted at 6%. Manhattan office occupancy rose 90 basis points to 89.9% in 2025 and 1.0 million square feet were leased, but those gains are already in the level; buildings are kept up through the capital spending we deduct, so the earning power is treated as lasting but not growing. We did not credit rent growth, Observatory recovery, or redevelopment of the newly acquired 130 Mercer Street, because none is secured or a repeatable record we can point to. Bear case, about $1.33 per unit. Earnings fall to $0.08 per unit and stay there. The filing supports this: Observatory revenue fell 5.9% to $128 million in 2025 on weaker international tourism; the company carries about $2.4 billion of debt, with about $1.3 billion of principal maturing from 2026 to 2030 that must be refinanced (including $399 million in 2029 and $509 million in 2030) and interest is paid before earnings reach owners; and the company disclosed about $94 million of unfunded tenant improvements and leasing commissions on existing leases. Local Law 97, New York City's building emissions law, could add spending. A lower level for a decade would fit 2016 to 2020, when earnings were near zero. Bull case, about $6.74 per unit. Earnings start at $0.36 per unit, matching the 2022 to 2023 level the business has already reached, and grow 1.5% a year for ten years then hold flat. That growth matches contractual rent escalation reflected in 2025 rental revenue up 1.9% to $626 million. The drivers are steady leasing volume (over 1 million square feet in 2025) and building spending returning toward the lower pace seen in early 2026. What would make this wrong. Higher-than-expected refinancing costs, continued high tenant improvement costs, a further drop in Observatory visitation, or new emissions-law spending would push toward the bear case. We could not fully separate ordinary tenant improvements from spending that adds capacity, so all building improvements were treated as running costs, which is conservative. We did not add cash or subtract debt; leverage is reflected in the bear case only. Latest annual report reviewed: 2025 (filed March 2026), with the second-quarter 2026 report for recent trends.