Q1 2020 Earnings Call
Thank you everyone for joining today's conference years conference will begin shortly.
Thanks for joining senior conference will begin shortly thank you.
[music].
Greetings welcome to Empire State Realty Trust first quarter 2020 earnings call.
At this time, all participants are in listen only mode.
First question answer session will follow the formal presentation.
If anyone should operate assistance during the conference. Please press star zero from your telephone keypad.
Please note this conference is being recorded.
At this time, we'll turn the conference over to Thomas Keltner Executive Vice President General Counsel.
Mr Calendar you may now begin.
Good afternoon. Thank you for joining us today for Empire State Realty Trust first quarter 2020 earnings Conference call.
In addition to the press release distributed yesterday.
Utterly supplemental package with further detail on our results.
Latest investor presentation.
Posted in the Investor section of the company's website at Empire State Realty Trust Dot com.
On today's call management's prepared remarks and answers to your questions may contain forward looking statements as defined that applicable securities laws.
Including those related to market conditions property operations capital expenditures income and expense as a reminder.
<unk> looking statements represent management's current estimates they are subject to risks and uncertainties.
Including ongoing developments regarding the cold at night team pandemic, which may cause actual results to differ from those discussed today.
Empire State Realty Trust assumes no obligation to update any forward looking statement in the future.
We encourage listeners to review the more detailed discussions related to these forward looking statements and the company's filings with the FCC.
Certain of our disclosures today are added specifically in response to the Fccs direction on special additional disclosure due to changes in our business prompted by the colder 19 pandemic.
Our unique to this instruction.
We do not expect to maintain the same level of disclosure when we resumed normal business operations.
Finally during today's call, we will discuss certain non-GAAP financial measures such as that threshold modified in core if that's all I know why cash in Hawaii and EBITDA.
Which we believe are meaningful and evaluating companys performance.
The definitions and reconciliations of these measures should the most directly comparable GAAP measures are included in the earnings relation supplemental package each available on the company's website.
Now I will turn the call I'll go to Tony Malkin, Chairman and Chief Executive Officer.
Thanks, Tom and good afternoon, everyone.
Our thoughts are with all those affected by the 19.
Ticket really our colleagues and their families have experienced illness and loss.
Hi, Thanks go out to the frontline responders in New York City, the United States.
In the World and we honor them with the Empire State building nicely, beating heart.
The heart of New York City beats for all of Us.
We recognize that the situation remains fluid and continues to evolve.
We will share the facts that we have at this time to the best extent possible as we navigate this environment.
And the week of February 24, we began the implementation of our crisis management plan.
The beginning we looked at this as a marathon and not a spread.
Our actions had been driven by our theme keep column and to carry on.
Our perspective, and paying preparedness derived from our experience with many cycles.
Hey that our plans and governed our actions.
Our Observatory remained open until we were instructed to close by the authorities.
Happily none of our observatory personnel crack did the 19 during this period.
Our capex teams remained at work to fulfill our obligations under our signed leases not commenced at our long term capital plans until they too were instructed to cease work by authorities.
Even today, a central work continues and our New York City portfolio as government and limited by the parties.
We have had no interruption of construction in our Connecticut portfolio.
Our buildings remained open clean and safe for our tenants use well we follow the guidelines from authorities.
Our business continues as witnessed by the leasing activity and financing we completed towards the end of the quarter.
Our leasing team has done an excellent job to advance the leases, we still have underway and the new leases that certain prospects wish to continue.
We have utilized the combination of work from home and small rotational crews that are buildings.
Our transition team led by President and COO, John Kessler has continued its timely and excellent work with special call outs to Greg for Jay and I are John Haagen after today.
Treasure and acting CFO drew practice.
We have maintained company spirit with extensive employee engagement activities for mid day stretches the end of work trivia contest.
Hi, Mark, Yes, Archie Cortlandt town playlists, the end of weak quarantine He's our culture Committee deserves special Commendation for their excellent work.
We have provided counseling and assistance to employees, a need and track all incidence of confirmed improbable 19 infections amongst our salaried and union colleagues.
Especial call out to our Chief Technology Officer, Jackie Burns and her team.
That's all 10 of our crisis manager coordinator and Suresh run God, John Our Chief Technology Officer, and his team for flawless execution.
Our board and I have gratitude and appreciation for the hard work Oh, Yes, Archie employees during this time I.
I'd like to take a moment and pause as we honor the memory a family of our team who have passed and this time of unprecedented challenge.
For years I have said repeatedly that we would make the balance sheet execute our strategy and provide for future growth.
During that period, we have been criticized for too much cash on our balance sheet to low leverage failure to repurchase stock and failure to buy at what we have repeatedly said, we thought was a market top.
We have avoided exposure to fads like co working and short term leases.
As of the quarter and we held over $1 billion in cash on hand.
Commenced in early March and through April 22nd we purchased 8.5 million shares at a weighted average price of $9.37 per share totaling $79.8 million in aggregate.
We have taken advantage of volume what was available and limited purchases during periods of lower volumes through a combination of open window purchases and subsequently through and in place Tenbfive One program.
I said in the past if we do not wish to use stock repurchases to inflate our share price and we do not feel we have impacted our stock price with our purchases.
We believe shareholders will benefit long term from our purchases.
As we look forward I'm pleased to announce that we have appointed a new easy P and CFO.
Please watch for our press announcement, and 8-K, which will follow today's market close.
We're also very close to the announcement of our tire a chief investment officer to build our external growth initiative to take advantage of our balance sheet.
And an environment that we feel will offer the opportunities upon which we have maintained the ability to act.
Well at this present, we closed the excellent better than market performance of our observatory. During the first two months of 2020 disclosed on page 19 of our Investor presentation.
Even without the annual bump up lunar new year tropical from China.
That's great confidence for the future.
There's only one Empire state building.
It's Brad is better than ever and we look forward to the future with this in mind.
Finally.
Congratulations to our director of E.S.G., Senior Vice President and senior leasing Council Justine or babies.
And then it Robbins Schneider senior Vice President of energy and sustainability or the excellent work in the expanded actions disclosed in our proxy.
I will now turn the call over to John Kessler.
Uh huh.
Good afternoon, and thank you Tony.
The first quarter, we had a healthy January and February across the business prior to the early disruption from the emerging pandemic.
We saw steady leasing activity and a strong pipeline.
And the Observatory showed significant revenue growth post completion of our redevelopment at the end of last year.
The remainder of today's call Tom Durels will speak about the first quarter leasing results and how we have responded to the covert 19 impact on our business.
Brexit Jay will then review, our financial performance and balance sheet.
And Tony will then provide some additional details on our outlook for the observatory.
As always we're joined but you press, our chief Accounting Officer, Treasurer, and acting CFO, and John Hog or how to financial planning and analysis you can also assist with questions.
In March we completed our planned actions to bolster our already strong and flexible balance sheet. We are grateful for the excellent work by our team and our wonderful financing partners.
In two financings, we raised $300 million that incremental cash proceeds.
At attractive all in blended cost of approximately 3.6% inclusive of the effect of swap agreements and what the weighted average maturity over eight years.
In the first transaction, we raised 175 million in a private placement of 12 in 15 year unsecured notes the potential Metlife and AI jie.
In the second transaction, we proactively refinanced our existing 265 million unsecured term loan which was due in 2022 with two new unsecured term loans totaling 390 million, which mature in 2025 and 2026, respectively.
Term loan financing generated net incremental proceeds of 125 million.
To ensure adequate liquidity liquidity not just for a very extended runway of operations, but also to take advantage of new opportunities.
We have drawn down 550 million under our 1.1 billion unsecured revolving credit facility.
As of quarter, Ed we held over 1 billion in cash on our balance sheet.
Thank you can do to have ample undrawn capacity under our credit facility.
We will now assess potential longer term options for financing to restore the full credit facility draw down capacity.
Finally, I'd like to add my welcome to our new CFO and to say it has been a great experience to lead our transition team as we have executed at a high level and not missed a beat during our nearly one year without a permanent CFO.
I'll now turn the call over to Tom Durels Tom.
Thanks, John and good afternoon.
Today, I will comment on our first quarter leasing results and then provide insight into our operations during the co bit 19th situation.
Including people rent collections.
Just a broader requests.
Actions taken to reduce operating expenses in capital improvement costs and preparations for one show through in place orders are lifted.
First a word about or properties and our stuff.
As Tony mentioned.
All of our buildings have remained open during the current crisis two or tenants.
Who provide central services as permitted by the authorities.
We think our dedicated building staff, who make this possible.
There are well prepared and trained and we're incredibly grateful for their work and commitment to serve our tenants as we continue with day to day pits and of course corrections.
In the first quarter, we signed 35, new and renewal leases totaling approximately 149000 square feet.
This included approximately 94000 square feet, you know Manhattan office properties.
24000 square feet in or greater Metropolitan office properties.
32000 square feet in our retail portfolio.
The most significant newly signed during the quarter was a 23000 square foot new retail lease with Starbucks.
Reported in the real deal yesterday, who will occupy three levels, including the currently the recently vacated northeast corner store at the Empire State building.
It's usually concept will be a tremendous amenity provided an engaging experience in amenity for office tenants and the durbin toward visitors and destination attraction.
Allowing time for to relocate or recently extended term with or move up in existing interpublic store.
We expect Starbucks to be opened in 2021.
During the first quarter rock the rates on new and renewal leases across our entire portfolio were 3.4% higher on a cash patients compared to the prior cash escalated rents and that our Manhattan office properties, we signed a new leases other positive cash rent spread of 19.4%.
Except for at least transactions that were in negotiation prior to the city's order just shelter in place.
At least prospect tours have stopped and new leasing activity has slowed to a trickle.
Well physical showings, our prevented by order of the authorities <unk>, we remain fully engage with the brokerage community with digital outreach and virtual space tours.
We will continue to do these online social interactions after the shelter unpledged waters lifted.
Moving to recollections.
As shown on page eight of the Investor presentation as of April 20th.
We collected 69% over total people that charges with 73% for office tenants and 46% for retail tenants.
To the extent, we applaud the applicable portion of security deposits, which we reported cash or letters of credit.
We will have collected 87% of the total April right charges.
93% for office tenants and 59% for retail tenants.
Such application is currently in process and will require impact the tenants to restore their full security deposits.
We have received requests for rent deferral from 170 office and retail tenants that represents approximately 32% of <unk> annual rental revenue.
Three tenants, representing approximately approximately 8.8% doubling annualized rent and ever agreed to for old terms it in documentation.
Before any consideration to any tenant request for rent this girl.
Required that tenant provide.
An explanation of the actions taken to mitigate the impacts of Kobin 19 on their business.
Current financial statements, including recent monthly comparisons to prior year.
Proof that the tenant has applied for financial relief through the Cures Act.
And verification that a claim under their own insurance policy has been submitted.
And your basket the federal government provides new supplements to typical exclusions and limitations on business interruption insurance in response to the cobot 19 situation.
We're going to assess each request on an individual basis deferral requests to date have generally been for no more than three months.
Our smaller food and service type retailers have been hit particularly hard.
They provide critical amenities and service to our office tenants.
Our plan is to convert the remaining 2020 fixed rent to a percentage rent structure.
The pay back of the difference between current and percentage went over define period.
We want these service in food providers to reopen so that they are there to provide services when the office tenants we occupied.
Given the current disruption it is logical to spend to temporarily and update of our for growth drivers.
We continue to provide on page six of our supplemental schedules are free rent burn off and signed leases not commenced.
For the timing of lease Commencements, specifically, the GAAP revenue component.
We assume a july 1st date for when the government mandated suspension of Nonessentials construction will be lifted.
Our quarterly supplemental continues to provide the details on vacant space without an estimate of market went.
We have provided the historic Mark to market for the office and retail space and will not speculate on taking once given the absence of leasing activity.
We have scaled back certain doting operations, including security lobby counts years, and recurring maintenance, which will reduce costs until buildings or re populated.
We estimate that these efforts will reduce operating expenses by approximately 25% from 2019 levels were approximately $40 million to $45 million on an annualized basis.
Portion of the reduction in operating expenses will be offset by a reduction in tenet expense recoveries.
Our operations team is hard at work to maintain plans for wouldn't work from home orders are lifted.
And our tenants we occupied buildings to ensure a safe.
Clean and healthy work environment.
These plants involve additional staffing cleaning and maintenance and changes to boating operations for building access by tenants and their guests.
All New York State capital from work, except for a central work is defined by the authorities, which includes safety related and worked the mobilize previously started projects has been stopped until such time that the government restrictions are lifted.
The spend significantly curtailed under the current restrictions.
Work continues in Connecticut as permitted by the authorities.
We have looked at every one of our leases where we'd have an obligation to complete work.
We have notified tenants where appropriate up the force majeure event, which will extend completion dates without penalty.
Despite the challenge of the uncertain near term environment.
We continue to believe in the long term demand for office space.
Most of US have now experienced the inefficiencies of working from home.
I missed the connectivity and productivity done office environment provides.
That said, we believe that then demick may cause some fundamental changes to how tenets used for office space in the future, including less densification.
Motor open floor plans with appropriate spacing.
We also believe current co working build outs or to dance and will be poorly positioned for tenant demand in the do you paradigm.
We believe in the resilience of New York City, and the demand for employers and employees to be located here.
Your city has recovered from past economic cycles, and external shocks and come out stronger more diversified and more vibrant.
Each time.
For now we continue to run our business in server tenants is allowed by the guidelines and instructions will be authorities and preserve value for shareholders.
And now I will turn the call over to Greg <unk> Greg.
Thanks, Tom for the fourth quarter, we reported core FFO $54 million or 18 cents per diluted share.
Same store property operations, if you exclude onetime lease termination fees and the observatory results for the respective periods drove a 4.8% increase in cash NOI.
Turning to our Observatory operations, we started the year off on a strong basis on the conclusion of our observatory redevelopment project in the fourth quarter of 2019.
Revenue for the first two month of 2020 was up 13.2% compared to the first two months of 2019, reflecting previously announced pricing actions visitation was flat in a two month time period compared to the prior year.
This attendance and revenue growth occurred despite the absence of Chinese new year activity in January and a pullback in demand in March from European countries, Workover thinking was ramping.
In the first half of March the Observatory sorrow lower visitor density we filed the mandate of government authorities includes the observatory on March 16.
Page 16 of our supplemental details our observatory results.
Revenue for the first quarter of 2020 declined to $19.5 million or 5% when the prior year period, driven primarily by the aforementioned observatory closure.
Observatory net operating income decreased 12.3% to $11.4 million. The observatory hosted approximately 422000 visitors in the first quarter of 2020, a decrease of 29.8% compared to the first quarter 2019, primarily attributable to the 15 days, but the observatory was closed in the quarter.
Due to the covert 19 pandemic.
Now for word about our strong and flexible balance sheet.
Looked at our near term cash requirements as part of our stress testing analysis and believe we are in great shape, we guess with significant capital the play Opportunistically as we see fit.
As of March 31st 2020, the company had total debt outstanding of approximately two and a half billion dollars on a gross basis and $1.5 billion on that basis. The company's told that has a weighted average interest rate of 3.6% in a weighted average terms and maturity of 7.2 years.
Our consolidated net debt to total market capitalization was 35.5% and consolidated net debt EBITDA was 4.4 times, we have no near term maturities and a well laddered maturity schedule.
Our revolving credit facility expires in August 2021 has to six month extension options.
Next maturity isn't on November 2024, and last we would highlight that we have no joint ventures, no we work or similar new generation shared office tenants and no debt book.
I would like to head mounted welcoming congratulations to our new CFO I look forward to working with her.
Finally, thanks to John Kessler for his leadership of the transition team.
Now I will turn the call over to Tony to provide some additional fault or observatory business as we think about it on a go forward basis Tony.
Thanks, Greg before we go to cure it a little more information about the observatory expenses out of view on how they reopening may look like.
Well expenses, we have reduced our annualized expense run rate from 35 million in February to $14 billion, they 60% reduction.
There have been certain wind down cost that has continued in April and we will reach this run rate in may.
Proximately two thirds of the reduction is attributable to lower payroll costs as we furloughed staff and the balances due to lower operational and other costs.
We anticipate we will initially reopened on a reduced hours basis and most of these expenses will come back when we reopened.
The remaining costs related payroll fraud management and sales staff certain fixed operating costs skeleton custodial and security crew and other contracted costs.
With respect to our outlook for a reopening.
Our current base case for us admissions ramp up is outlined on page 20 of our investor presentation.
It assumes 2019 monthly levels as the baseline.
Visitation comparison reference point.
Bands that we will reopen on July onest.
We anticipate an opening of July onest with admissions that 20% of the 2019 level and we subsequently.
Jack that admissions will ramp up.
40% for the August 2020 through March 2021 period.
Easter 2021, we expect admissions to be at 60% of the 2019 level.
Admissions then wrap up.
75% by June 2021, followed by 90% in August 2021, and hold for the remainder of 2021.
We anticipate return full admissions by January 2022.
These estimated visitation levels are entirely of our own derivation.
And just happened to align with certain independent consulting work of which we are aware that was prepared for other market participants.
We anticipate initially that we will have a higher local visitor mix followed by wrap up nationally sourced to travel.
And then followed by a restoration of our typical visitor mix that is approximately two thirds international that would not be achieved until the broad resumption of international air travel sometime in 2022.
Well the observatory that's been closed we have remained relevant an active in the promotion of our brands through numerous social media initiatives.
That's known broadly and shown.
On pages, 36, and 37 I'd be investor presentation.
We are the heartbeat of New York City.
Out of achieved significant growth and engagement metrics in our digital social presence.
These results along with the reported results from the first two months of 2020 give us confidence that we are well positioned for when the observatory reopened due to the authenticity and iconic status of the Empire State building.
We believe when the dust clears, we'll emerge stronger than ever as the brand and icon of New York City.
With that I would like to open the call for your questions to keep the call moving as always we ask that each participant limit him or herself to one primary question.
And one follow up and rejoin the queue. If you have an additional question.
Operator.
Thank you.
Well now be conducting a question answer session in respect to everyone's time, well less you ask one question and one follow up every Q for additional questions.
To ask a question today. Please press star one on your telephone keypad and a confirmation Tom indicate your line is another question Q.
You mean first start to if you like to remove your question from the Q.
Participants shooting speaker equipment, and maybe necessary to forget for handset before pressing the star Keith.
One moment, please we poll for questions.
Thank you Eric first question is coming from the line of Craig Melman with Keybanc capital markets. Please proceed with your question.
Hey, guys. So Tony I appreciate the the commentary here, particularly surrounding the balance sheet and kind of how you guys have been deliberately conservative there now potentially have the ability to unleash it. So I'm just curious on two things number one you know what's the incremental appetite.
<unk> for buybacks here, then just number two.
With the hiring of a CIO I mean are you guys expecting to see a real ramp in opportunities coming on the other side of this.
Thanks, Greg.
First of all the buyback is a decision made from time to time, we have unused capacity in our board authorization in all cases, our effort is to buy a at a time when we can avoid impact on our stock price.
That means candidly, we can take advantage of really significant volumes.
It's harder when they're center trading outside of that I would say that we look at how we deploy our capital and the way that's going to do.
Create the greatest benefit over time.
I really don't want on anymore other comment with regard to the buyback.
With regard to our plan, we do have for external growth our plan for external growth, we do have a candidate.
It is.
Will shortly be announced.
Number one number two just some color Canada this from a private equity background.
We expect to build out a team.
Yeah, we do think that this situation.
Will create a.
A significant change in the economy, and and devaluation and availability of assets.
And we view this as a.
Really at 12, 36 month opportunity set and I've always said, we've always said wouldn't come to a fork in the we'll take it out.
We think this as a fork in the road and therefore, it's time for us to move to this this different footing.
That's helpful. There just as a follow up would you guys be interested and if there's any dislocations buying debt positions or are you solely focused on kinda equity positions.
Well look at equity joint venture will look at participations, we'll look at fee positions. We will look at ground lease positions. We look at senior preferred equity, we'll look at Mezz will be omnivorous opportunity wars that is what we were in the past before I.
Yeah. So that's what we will be going forward.
Great. Thank you.
Your next question comes from the line of Jason Green with Evercore. Please she was your question.
Thanks on office collection cutting it 72% so far for the month of April are you able to elaborate on the candidates that are driving the state your lower whether it's their average size or general common characteristics.
Hi, Jason a this this is Tom.
What we've seen it is that as of April 20, that's.
There you know roughly 100 somebody office tenants and returned to us representing about 32% of our annualized rental revenue have requested.
Right deferrals.
We've seen a tenants or make deferral requests kind of all sizes public companies private companies and companies in various industries. Clearly there are certain industries that have been more severely directly impacted by October 19th, particularly those with direct ties to reach.
Ill hospitality travel and then even some of the advertising consulting and legal firms that support those businesses, let's say that we have seen opportunistic requests by both office and retail tenants with good balance sheets and credit and were surprised about those requests.
And we will pursue aggressively collection of ranch. These tenants are obligated.
Hey, there wrench.
Overall, the tone out there by trying to just to conserve cash linked in the right way of cash spent through the downturn and and some of this is a this approach has showed up can tenants attitude towards rent payments well work with some tenants on deferrals.
We will reject certain deferral requests and we will pursue all collections across the board what we what we saw in April is it's not an indication of the future and at this point, we're certainly can't make any prediction about made in the months ahead.
Got it and then I guess I'm a capital allocation side I mean, how should we think about a billion dollars catheters you have for some of these collection issues that you guys are experiencing can you opportunistically utilize capital in this environment or do you need to see collections back to normal level before you do so.
We live does Tony here, we've done extensive stress testing of our company model. We've done this internally through a granular breakdown of our expenses, we have modeled broad variety of.
Run rate and runway length experiences we have reviewed this.
In pieces.
With our finance committee or it will be a presentation to our board.
Shortly.
And we believe that we have two things going for us number one.
We have the billion dollars of cash, but we can always increased that to a billion five with our line.
And and again on that first like on that side that we will proceed with a that's to look at terming out those.
Those borrowings against our line so that we have an opportunity to restore that number two.
[music].
We have the strongest balance sheet.
Amongst our peers, possibly side some companies and liquidation in the office sector in total.
We have the ability to commit new capital, we with confidence continued our share buyback.
We feel very comfortable that this is.
[laughter].
Life during wartime if you will and the fact is that this is where we should shine.
We look forward to the opportunity.
Got it thank you.
Your next question comes from the line of Manny Korchman with Citi. Please she with your question.
Hey, it's Michael Bilerman I'm not here with 90, but many use on the phone with me.
Tony I wanted to go through a little bit the decision to hire an actual CIO.
If you go back to the IPO process and a number of times on these conference calls.
You've talked a lot about your relationships your family's relationships with potential other families and investment opportunities.
That has come about you know I think about your executive management team today, the top five executive.
They can close to $30 million total G and H approaching 65 million in aggregate.
You are still acting as CEO, U.S. Kessler and as a precedent darrelle through all told me. He has the operation to be hiring a CFO that sounds will be much more CFO less than acting as a cross I capital markets a investment person.
I guess I guess I'm struggling why higher another person into an already pretty bloated management team that has their relationships relative to the size of your enterprise, which is about second half 7 billion gross assets. So can you sort of explain a little bit how you sort of see this evolving and different role to respond.
The ability to cross the management team.
I I'm there Michael I think it'll be clear, what our actions will be towards Youre thinking.
Thinking on your question in the months ahead.
I guess, what does that they are you re aligning your existing management team or.
You know are you reducing base salaries or comp of existing management team to fit more people in what does that.
I mean.
I I said I think it'll be clear what we're doing in the month ahead.
What you're doing on the management team are we doing the external growth.
I'm just trying to figure out what question you're answering.
But to your question wasn't about external growth your questions about the.
If I recall correctly the term useless bloat.
And we will be clear on our actions in the months ahead.
Okay. Thank you.
Your next question comes from the line of Jamie Feldman Bank of America Merrill Lynch. Please proceed with your question.
Great. Thank you.
Hoping you could dig down a little deeper into 32% of that the.
Tenants it didn't pay April rent versus the 8% that sounds like you're gonna give a.
Deferrals to how do we think about what's in that pool or is it does include any of the tenants on your top 20.
And you know what how do we kind of handicapped the buckets of which how much of that is opportunistic first how much of that is stuff that you'll seriously consider.
Hey, Jamie it's Tom.
I'll just have to repeat something the comments I made before but <unk> as I said it weeks, we've seen a request for deferral from tenants of all sizes public companies private companies and it and in various industries and certainly those tenants with direct ties to retail hospitality and travel have been more severely impact, but then as you work down.
The tenant list some of those those periphery affirms that have ties to those businesses. It starts in consulting and legal have have also been impacted and they've made requests were going through a very methodical approach.
We're not ramping blanket deferrals across the board, where there's not one formula that that fits all back just the opposite we have been established just hoping you we take very clear deliberate steps with our tenants we seek information from them that we outlined in our investor deck not.
Those request ranged from updated financials.
Seeking a verification that tenant as applied for financial support onto the carries act we want to understand the impact to their businesses and then actions taken to reduce costs and then of course, we're looking at the existing lease in the conditioner space and things like that.
We are also looking at opportunities to extend term or do were early renewals, where we think there's an economic benefits and it makes sense for us but for those kinda steps taken an opportunistic approach to see could differ or not here. The ranch, we will aggressively pursue collection of direct channel there were surprised by some of those.
But some of those requests. So you know there are a tenants with good balance sheets that have the ability to pay the rent we will pursue them.
Okay can you say how much of that 32% is comprised of that last group you were talking about.
No we haven't provided a greater break down the done what I've already provided a as we did report there we have agreed to its read deferrals that represents about a 0.8% of of the retro revenue, but the as as big as we as we moved through this in a very methodical approach.
Certainly we will give further updates.
Okay.
And then that's helpful. And then thinking about just you know when people start start to go back to work two questions. One is.
Can you talk about what tenants are requesting what type of changes tenants might be requesting immediately to their did at work spaces, and <unk> and kind of building flow or anything like that and then also to the extent there need to be upgrades to.
Air quality and ventilation you know do you think your portfolio.
We'll take a lot of Capex your portfolio to be able to meet those standards or the renovations you've done already or at the highest end.
Yeah, I used to really good question, Jamie and I I would say it first <unk>, we will follow the guidelines laid out by the government authorities any new guidelines, but it can come out with but but as I commented in my opening remarks, our operation team is incredibly hard at work in the development plans for when our tenants returned to work those protein.
Calls, which will be guided by the authorities, but will augment a buyer on our own considerations made includes things like temperature checks thermal scans requirement of space masks before entry to the building and senators and sanitizing before entry to our bodies, that's going to apply to tenants.
Building employees visitors vendors contractors to lift delivery personnel will look a staggering and restricting certain deliveries, we will require food delivery and pick us by tenants outside the building lobbies, we will certainly increase our frequency of cleaning up and high touch points areas require social just see in lobbies stagger.
Okay. So you have elevators and then we will also using reservation system to limit the number persons allowed into our gyms and other amenity spaces. There may be some added costs and stuffy costs associated with what they use but I view most of the changes being oh operational in nature, along the lines of what I, just mentioned and many of our.
I just have requested the things that I've, just stated and we do you ever tenets updates in regular town Hall meetings.
As far as air filtration systems, we've Oh, we already meet or exceed ASHRAE 62.1 standards for ventilation and we specking use burbs 13 filters, which are high performance filter full or fan systems, and we already performed annually and indoor air quality testing in ore properties and well look to see if we want to increase the frequency.
You have those air testing.
Okay and is that it is that the air quality, you're talking about I mean is that standard across a lot in New York city or because you've done somebody renovations, that's actually you kinda upgraded all of that.
<unk>, we exceeded the industry industry norm <unk> Burps 13 filters are high performance filter.
And that's an all of your buildings.
Yes, except for where we have a handful of legacy system before for the for the vast majority of systems out there. There are currently using Merck 13 filters.
Alright. Thank you this is helpful.
You bet.
Our next questions from the line of John Guinee with Stifel. Please proceed with your question.
[noise] great. Thank you very much nicely gun Guy question I'm, just looking at and doing a back the Danville ups I might have this wrong.
But it looks like.
Your cash balance went up by 775 million this quarter, but your your debt outstanding went up by 843 843 million snacking $68 million gap.
How much of that went to a share repurchases in the quarter and how much Oh that was just cashed bleed.
Hey, John It's Craig conveying here yeah. The vast majority we gave you some details there on the share repurchases was $80 million. The vast majority of it did occur during the quarter, but you know there's somewhat of a meaning capex. It's also detailed in the supplemental.
So so how much of the 80 million was spent in Threeq you like how much was spent in Fourq you.
I'm sorry, you're talking I think you know, there's one well I think you made what well I think they want.
John don't you.
Yeah, I'm, sorry, I'm, we're not going to break out.
We're not going to break out the share repurchase we're just getting a year to date total there I'm happy to talk about the Capex I'll find again, a little more color.
Okay, and then the share count went down here.
It's safe to say, it's safe to say John as to Greg's earlier comment that that the a handful component of this took no meaningful comes out of this took place and.
And in the.
In the first quarter, but a very painful component, but also took place in the second quarter.
Why would you not getting this answer.
It is a little talking I'm, not seeing my lever, but well.
We'll talk about a job well watch out two week, we did not.
Okay, All right Hey, Tom I was looking at your our lease economics are up this last quarter on both the greater New York and out.
And New York City on page seven and eight.
And you know they were extraordinarily weak I think it spent 120 $920. That's what they have rents go up 3.4% and.
The city and out in the suburbs just spend about $55 I thought maybe $6 in place rents go down by 8% is that the due to normal or is that you step.
A bad here today.
I think it's a good question John Thanks for for for raising it Oh I would first point you on page 15, outdoor investor presentation that talks about or.
Just short lived net effective rent growth, but specifically this quarter with regards to lease costs.
Our lease costs for office for Manhattan were about $14.62 per square foot per year, which is higher than where we would have been trending over the last four to five quarters, but this was due to a higher percentage of our leasing was comprised of first generation Prebuilts and in fact.
Roughly two thirds of our leasing in Manhattan was for first generation do Prebuilts now the good news is as we've seen in prior quarters, depending on the volume of leasing that we're doing it depending on the mix of spaces, but will be seen is done when those first generation Prebooks go to second Gen. We spend significantly less leasing costs. So that will pure later.
Quarters next on retail we did have higher leasing costs related to this the Starbucks lease that was announced by the press we think its unique.
Deal and what it brings to the building and then we did have some relocation cost one for Chipotle you connection with a relocation that's necessary to implement the Starbucks installation and Oh, a Fedex a real chase down at Union square in order to consolidate the corner. So I think that these were this was a unique quarters.
From those two perspectives.
<unk> percentage or first generation Prebuilts and then these unique retail leases.
Great. Thank you.
Hey, John just a quick follow up I want to get back on the share repurchase activity. It was $61 million in the first quarter.
Thank you as a reminder, and John Tony here.
We're not trying to be a which I'm not trying to be cute here. We are all of us in different locations and so it may take a moment to go forward you know us well enough to know we're not Q, we're not that attractive.
Thank you as a reminder, in respect to every piece shekel everyone's time. Please take one last one question one follow up.
The next question is from the line of Daniel Smell with Green Street Advisors.
Great. Thank you I understand it's still a bit early but can you maybe sharing insights on the conversations you're having with both new and renewal tenants on rental rates and kind of concessions.
Sure Dan.
This is Tom as I mentioned in my opening remarks, new leasing activity is large largely frozen at this time leased physical leased tours have stopped but we have seen some leases that were in negotiation before the shelter in place orders have continued some of those leases in terms.
Remain in negotiations some had been placed temporarily on hold and we expect that they will.
Resume once the sell through in place orders have lifted and some deals have died so it's that we're seeing a bit about a mixed bag out there from the carryover of the activity. We had in the first beginning of the first quarter, but as far as new leasing activity, it's pretty much frozen at the current time until at least.
Tourist can resume the shelter in place orders are lifted we are in discussion with a number of tenants on renewals we.
The second quarter, we signed a good size renewal lease out in the greater New York Metropolitan portfolio and how some other.
Renewal activity underway right now.
But so anything you could share on the rental rates are.
Mobile concessions for <unk>.
As far as far as Roger rights with the absence of transactions. There really are no comps and it really difficult for us we cannot speculate. So it's it's <unk> is the fact that you see in our investor presentation, we removed the market, which took was shown in our mark to markets slides, but at this point.
The <unk>, where we are right now with the absence of transactions and they're not being any leasing costs. We just don't want to speculate on we're asking rents are headed.
Okay, and then maybe just I think one and if I take a step back is there anything specific about the Empire state portfolio that would make it more or less impacted by these type of French collections, well I guess said differently as I said it different citywide all or it would be comparable cross sell.
<unk>, that's liberal bunch collections.
Well I watch like all our portfolios a pretty good reflection of the to the broader market and economy, because we have the very very diversified portfolio and a diversified rent role and we have seen these requests come in from a variety of tenants. So as I mentioned earlier there are those industries that are clearly more directly and.
And so severely impacted what we do like about our portfolio <unk> is that it is diversified we are multi tenanted.
And we think that at least it gives us some protection going forward, we're not too heavily weighted in one single industry, but beyond the remarks that I made earlier, it's can't really give any or any further insight.
Great. Thank you.
You bet.
Thank you.
<unk> was from the line of Blaine Heck with Wells Fargo. Please proceed with your question.
Great. Thanks. Good afternoon, just following up on to answer. This question. Tom You know you got some done a a good job capturing some of the additional demand from tech tenants that has come to the city.
The cycle and I think before the Corona virus hits, there was an expense expectation for a substantial amount of leasing to be done by some of the large tech players that were growing their foot <unk> footprint in Manhattan can you comment at all on you know what you're seeing from those guys and tech tenants in general are they going ahead with.
Leasing is that leasing on older or is there any chance of them just backing away from those those expansion plan.
[noise] well I would prefer that you refer those questions to those other landlords that you maybe you're talking about that are in negotiation or a habit in negotiation on some some large truck deals, but I would say overall, we've certainly seen an increase in the tech demand in the city and as you know are within our portfolio. We have a good collection of really high quality Tech.
Tenants that includes Microsoft due to lengthen the recent Mexico, Expedia Shutterstock workday surface now in a plan. These are these are all really really solid tenants and they had been growing what does.
Pretty shutdown and I'm happy that they're in our portfolio look for more growth going forward, but as far as the you know those active lease negotiations you of course, we hear things, but I really would not want to comment on those others activities.
Okay. That's fair and helpful response, and then just real quickly as a follow up certainly sorry, if I Miss this the can you talk about the terms of deferral that you guys have agreed to thus far I think you mentioned on average are suffering for three months.
How long are you, giving them to pay back that deferred rent or is that also kind of on a case by case basis.
Yeah, what plane first just remember we're not a.
Necessarily approving every different <unk> request, we will reject many deferral requests on on average the requests have come in for a three months deferral or less and as a reminder, this is we will only consider a deferral not and abatements generally we're looking for pay back within 12 months or.
Yes, and then separately you know opportunistically, if there's an opportunity to recast lease or do a blend extended or do an early renewal where it makes economic sense and the tenant is it is a good business. Then we'll certainly look at those opportunities, but generally the payback is 12 months to or less and a three month deferral or less.
All right they were going to move to the speed Rod here, because we realize people are going to want to get to be SL Green call. So that's one more call I've got some closing comments to make one more question lets people quick.
Thank you as a reminder, police S. One question and one follow up question.
And next question is from John Kim with BMO capital markets.
Thank you can you provide any more color and why you decided draw down of the line at this time with how to use the proceeds.
Did you fear of any like kind of cardiac starting with capital.
We we were concerned of what occurred in prior crises, so with our board, we decided to flex our lives.
On the in investment team in CIO hires are you contemplating providing any capital to your tenants or making any investments outside of real estate.
No.
If I can squeeze in one more at the 170 deferral requests or any of those related to me no no no no no no no let's go to a BMO. Please.
Operator.
Yeah, they with Mr. Kim from BMO on the line.
Or any of those different <unk>.
Any this deferral requests related we have anybody else.
There there are no additional questions Mr. Kim.
[laughter].
Please proceed mr. Kim.
The deferral requests or any of them related to me renters that just for April.
John It's Tom it the deferral requests came in in April some of those have paid up or ranch in still seeking <unk> as much as a three month to for all of which would commence in may.
Great. Thank you.
Thank you Mr. Falcon, Okay. That's it that's.
That's a that's there that's a wrap just as a reminder, if we could please the depth and breadth of disclosures this quarter or unusual and specifically to address the FCC direction that sure the impacts on our business than I can we anticipate that in our return to normal much of this additional disclosure will fall away.
<unk> said that kindness and compassion towards each other and the opportunity to engage with each other helps billable heads coordinated teamwork smart thinking and it turned out to a good luck, we'll see us all through this had a good balance sheet helps as well things will continue to develop over time. Please remember that forward statements on plan reopened our observatory and returned to business or discussion purposes.
Only at the healthy with their models, they're not guidance nor the guarantees. So we thank you all very much well there's the on our end up we'll look forward to our second quarter results enjoy until then they stay safe and onward and upward.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.