Empire State Realty trades at half implied value
Longleaf Partners highlighted a recent Empire State Realty Trust asset sale that implies the New York REIT's shares are worth more than double their current price.
Longleaf Partners told investors in its second-quarter 2026 letter that Empire State Realty Trust recently closed an asset sale implying the remainder of its business is worth more than double its current stock price.
"Empire State also contributed but on a lesser scale in the quarter as the company closed a great asset sale itself that implies a value for the rest of its business that is over 2x the current share price," the firm wrote. Longleaf paired the New York REIT with Alexander's, noting both real estate firms are "on offense and able to continue closing their price to value gaps."
The New York-focused REIT, which holds office, retail and multifamily assets, closed at $5.54 on July 13 for a $1.69 billion market capitalization. The stock has gained 3.36% in the past month but remains down 30.49% over the past 52 weeks.
This significant valuation disconnect highlights the divergence between Longleaf's value strategy and the broader small-cap market in the second quarter. The Longleaf Partners Small-Cap Fund returned -2.47% in the period, drastically underperforming the 21.49% gain of the Russell 2000 Index and the 17.19% return of the Russell 2000 Value Index.
The firm attributed this underperformance to unexpected moves in the IT and industrials sectors, stressing that "market winners have gone far higher than fair value" as investors heavily favored speculative stocks. Longleaf's approach relies on median, unweighted multiples, prioritizing growth in free cash flow per share, multiple expansion potential, and strategic corporate initiatives.
Despite the quarterly lag, Longleaf argued its holdings remain attractive based on price-to-value and price-to-free-cash-flow metrics. Alexander's was the fund's larger contributor during the quarter, driven by the closure of a non-core asset sale and a new Target lease that fully leased its key Queens shopping center.
Broad hedge fund interest in Empire State Realty Trust remains muted. A total of 16 hedge fund portfolios held the stock at the end of the first quarter of 2026, down from 17 in the prior quarter. This keeps the company off the list of the 40 most popular stocks among hedge funds heading into 2026.
