Empire State Realty Trust Fund (NYSE:ESRT) is a real estate investment trust (REIT) that offers investors a unique opportunity to own a piece of the iconic New York City skyline. Its flagship property is the world-famous Empire State Building, so it truly stands out in a crowded REIT market.

What is this?

Founded in 2011, Empire State Realty focuses on owning and operating a portfolio of office, retail and multifamily properties in the New York metropolitan area. What sets this REIT apart is its commitment to modernization and sustainability. It has established itself as a leader in energy efficiency and indoor environmental quality, which is increasingly significant to both tenants and investors.

The company’s crown jewel, the Empire State Building, is not just a landmark—it’s a major revenue generator. The building’s observatory has been named the No. 1 attraction in the U.S. for two consecutive years by Tripadvisor Travelers’ Choice Awards. This tourist attraction provides a steady stream of income that complements the company’s real estate business, offering a degree of diversification.

Numbers

As of July 2024, the company has a market capitalization of $2.5 billion. Over the past year, the fund has outperformed its sector, returning a solid 16.1% compared to the US REIT industry average of -6.1%. However, it is worth noting that it has underperformed the broader US market, which returned 24.2% over the same period.

The company’s price-to-earnings (P/E) ratio of 31.7 times suggests that investors are willing to pay a premium for a unique portfolio. At a price-to-sales ratio of two times, that’s not necessarily low-cost, but it’s not excessive either, especially considering its prime real estate holdings.

Chances and dangers

The office market faces uncertainty in a post-pandemic world, and the rise of remote work could impact demand for office space. But Empire State Realty’s premier locations and focus on high-quality, amenity-rich properties could assist the company weather these challenges better than many of its competitors.

Looking ahead, there are both opportunities and challenges for the trust. The focus on improving the property could make it increasingly attractive to environmentally conscious tenants and investors. However, profits are forecast to fall by an average of 20.6% per year over the next three years, which worries me greatly.

It offers a dividend yield of 1.5% and a payout ratio of 11%. This is far from the highest in the sector. While a low payout ratio indicates that the dividend has significant room to grow, many investors may decide to seek passive income elsewhere.

Potential winner?

For investors looking for exposure to the New York real estate market, Empire State Realty seems like a really engaging choice. Its unique portfolio, anchored by one of the most recognizable buildings in the world, clearly sets it apart from other REITs. While there are many risks to consider, its strategic positioning could make it a valuable addition to a diversified portfolio.

Sure, real estate can be cyclical, and REITs can be sensitive to interest rates. But with so many businesses returning to the office, I like this one. Empire State Realty offers a way to own a slice of the Big Apple skyline, so I’ll buy more shares next time I get a chance.