Empire State Realty Trust, Inc.ESRT
Empire State Realty Trust, Inc. Fair Value Disclosure
Financial Instruments and Fair Values
Derivative Financial Instruments
We use derivative financial instruments primarily to manage interest rate risk and such derivatives are not considered speculative. These derivative instruments are typically in the form of interest rate swap and forward agreements, and the primary objective is to minimize interest rate risks associated with investing and financing activities. The counterparties of these arrangements are major financial institutions with which we may also have other financial relationships. We are exposed to credit risk in the event of non-performance by these counterparties; however, we currently do not anticipate that any of the counterparties will fail to meet their obligations.
We have agreements with our derivative counterparties that contain a provision where if we either default or are capable of being declared in default on any of our indebtedness, then we could also be declared in default on our derivative obligations. If we had breached any of these provisions, we could have been required to settle our obligations that were in a net liability position under the agreements at their termination value of $31.0 thousand as of December 31, 2025, which includes accrued interest but excludes any adjustment for nonperformance risk. As of December 31, 2025, we were in compliance with these provisions.
As of December 31, 2025 and 2024, we had interest rate swaps and caps with an aggregate notional value of $567.0 million and $664.0 million, respectively. The notional value does not represent exposure to credit, interest rate or market risks. These interest rate swaps have been designated as cash flow hedges and hedge the variability in future cash flows associated with our existing variable-rate term loan facilities. Interest rate caps not designated as hedges are not speculative and are used to manage our exposure to interest rate movements, but do not meet the strict hedge accounting requirements.
As of December 31, 2025, 2024 and 2023 our cash flow hedges are deemed highly effective and for the years ended December 31, 2025, 2024 and 2023 net unrealized gains (losses) of $(5.7) million, $6.7 million and $(2.2) million, respectively, relating to both active and terminated hedges of interest rate risk, are reflected in the consolidated statements of comprehensive
income (loss). Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the debt. We estimate that $1.4 million net loss of the current balance held in accumulated other comprehensive income (loss) will be reclassified into interest expense within the next 12 months. Cash payments and receipts related to our cash flow hedges are classified as operating activities and included within our disclosure of cash paid for interest on our consolidated statements of cash flows, consistent with the classification of the hedged interest payments.
The table below summarizes the terms of agreement and the fair value of our derivative financial instruments:
| (amounts in thousands, except percentages) | December 31, 2025 | December 31, 2024 | ||||||||||||||||||||||||||||||||||||
| Derivative | Notional Amount | Receive Rate | Pay Rate | Effective Date | Expiration Date | Asset(1) | Liability(2) | Asset(1) | Liability(2) | |||||||||||||||||||||||||||||
| Interest rate swap | $ | 36,820 | 70% of 1 Month SOFR | 2.5000 | % | December 1, 2021 | November 1, 2030 | $ | — | $ | (9) | $ | 759 | $ | — | |||||||||||||||||||||||
| Interest rate swap | 103,790 | 70% of 1 Month SOFR | 2.5000 | % | December 1, 2021 | November 1, 2033 | 698 | — | 2,825 | — | ||||||||||||||||||||||||||||
| Interest rate swap | 10,710 | 70% of 1 Month SOFR | 1.7570 | % | December 1, 2021 | November 1, 2033 | 472 | — | 743 | — | ||||||||||||||||||||||||||||
| Interest rate swap | 12,272 | 1 Month SOFR | 2.2540 | % | December 1, 2021 | November 1, 2030 | 354 | — | 754 | — | ||||||||||||||||||||||||||||
| Interest rate swap | — | SOFR Compound | 2.6260 | % | August 19, 2022 | March 19, 2025 | — | — | 383 | — | ||||||||||||||||||||||||||||
| Interest rate swap | — | SOFR OIS Compound | 2.6280 | % | August 19, 2022 | March 19, 2025 | — | — | 382 | — | ||||||||||||||||||||||||||||
| Interest rate swap | 175,000 | SOFR Compound | 2.5620 | % | August 31, 2022 | December 31, 2026 | 1,421 | — | 4,895 | — | ||||||||||||||||||||||||||||
| Interest rate cap | 6,780 | 70% of 1 Month SOFR | 4.5000 | % | October 1, 2024 | November 1, 2030 | 11 | — | 35 | — | ||||||||||||||||||||||||||||
| Interest rate cap | 6,676 | 1 Month SOFR | 5.5000 | % | October 1, 2024 | November 1, 2030 | 27 | — | 81 | — | ||||||||||||||||||||||||||||
| Interest rate swap | 47,500 | 1 Month SOFR | 3.3090 | % | March 19, 2025 | March 8, 2029 | — | (13) | 1,117 | — | ||||||||||||||||||||||||||||
| Interest rate swap | 47,500 | 1 Month SOFR | 3.3030 | % | March 19, 2025 | March 8, 2029 | — | (5) | 1,124 | — | ||||||||||||||||||||||||||||
| Interest rate swap | 35,000 | SOFR | 3.2265 | % | November 14, 2025 | February 1, 2029 | 68 | — | — | — | ||||||||||||||||||||||||||||
| Interest rate swap | 35,000 | SOFR | 3.2530 | % | December 3, 2025 | February 1, 2029 | 40 | — | — | — | ||||||||||||||||||||||||||||
| Interest rate swap | 50,000 | SOFR | 3.3975 | % | December 18, 2025 | December 31, 2026 | — | (4) | — | — | ||||||||||||||||||||||||||||
Interest rate swap(3) | — | SOFR | 3.0110 | % | December 31, 2026 | February 1, 2029 | 398 | — | — | — | ||||||||||||||||||||||||||||
Interest rate swap(3) | — | SOFR | 3.0140 | % | December 31, 2026 | February 1, 2029 | 393 | — | — | — | ||||||||||||||||||||||||||||
| $ | 567,048 | $ | 3,882 | $ | (31) | $ | 13,098 | $ | — | |||||||||||||||||||||||||||||
(1) Included as a component of prepaid expenses and other assets on the consolidated balance sheets.
(2) Included as a component of accounts payable and accrued expenses on the consolidated balance sheets.
(3) The notional amount of each interest rate swap effective December 31, 2026 is $87.5 million.
The table below shows the effect of our derivative financial instruments designated as cash flow hedges on accumulated other comprehensive income (loss):
| Year Ended December 31, | ||||||||||||||||||||
| (amounts in thousands) | 2025 | 2024 | 2023 | |||||||||||||||||
| Amount of (loss) gain recognized in other comprehensive income (loss) | $ | (3,416) | $ | 13,769 | $ | 5,581 | ||||||||||||||
| Amount of gain reclassified from accumulated other comprehensive income (loss) into interest expense | (2,288) | (7,111) | (7,819) | |||||||||||||||||
The table below shows the effect of our derivative financial instruments designated as cash flow hedges on the consolidated statements of operations:
| Year Ended December 31, | ||||||||||||||||||||
| (amounts in thousands) | 2025 | 2024 | 2023 | |||||||||||||||||
| Total interest expense presented in the consolidated statements of operations in which the effects of cash flow hedges are recorded | $ | (103,133) | $ | (105,239) | $ | (101,484) | ||||||||||||||
| Amount of gain reclassified from accumulated other comprehensive income (loss) into interest expense | 2,288 | 7,111 | 7,819 | |||||||||||||||||
Fair Valuation
The estimated fair values at December 31, 2025 and 2024 were determined by management, using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts we could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
The following tables summarize the carrying and estimated fair values of our financial instruments:
| December 31, 2025 | ||||||||||||||||||||||||||||||||
| Carrying Value | Estimated Fair Value | |||||||||||||||||||||||||||||||
| (amounts in thousands) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||
| Interest rate swaps included in prepaid expenses and other assets | $ | 3,882 | $ | 3,882 | $ | — | $ | 3,882 | $ | — | ||||||||||||||||||||||
| Interest rate swaps included in accounts payable and accrued expenses | 31 | 31 | — | 31 | — | |||||||||||||||||||||||||||
| Mortgage notes payable | 619,269 | 586,773 | — | — | 586,773 | |||||||||||||||||||||||||||
| Senior unsecured notes - Series B-L | 1,270,668 | 1,244,255 | — | — | 1,244,255 | |||||||||||||||||||||||||||
| Unsecured revolving credit facility | 145,000 | 145,000 | — | — | 145,000 | |||||||||||||||||||||||||||
| Unsecured term loan facilities | 336,794 | 340,000 | — | — | 340,000 | |||||||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||||||||
| Carrying Value | Estimated Fair Value | |||||||||||||||||||||||||||||||
| (amounts in thousands) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||
| Interest rate swaps included in prepaid expenses and other assets | $ | 13,098 | $ | 13,098 | $ | — | $ | 13,098 | $ | — | ||||||||||||||||||||||
| Mortgage notes payable | 692,176 | 618,378 | — | — | 618,378 | |||||||||||||||||||||||||||
| Senior unsecured notes - Series A-K | 1,197,061 | 1,116,149 | — | — | 1,116,149 | |||||||||||||||||||||||||||
| Unsecured revolving credit facility | 120,000 | 120,000 | — | — | 120,000 | |||||||||||||||||||||||||||
| Unsecured term loan facilities | 268,731 | 270,000 | — | — | 270,000 | |||||||||||||||||||||||||||
The debt associated with property in receivership was categorized as Level 3 of the fair value hierarchy and had a fair value and carrying value of $158.2 million and $177.7 million, respectively, as of December 31, 2024, and zero as of December 31, 2025.
Disclosure about the fair value of financial instruments is based on pertinent information available to us as of December 31, 2025 and 2024. Although we are not aware of any factors that would significantly affect the reasonable fair value amounts, such amounts have not been comprehensively revalued for purposes of these consolidated financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 2, 2026 | Showing above |
| 2024 | Feb 28, 2025 | |
| 2023 | Feb 28, 2024 | |
| 2022 | Feb 28, 2023 | |
| 2017 | Feb 28, 2018 | |
| 2015 | Feb 26, 2016 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.