Q3 2023 Empire State Realty Trust Inc Earnings Call
Greetings and welcome to the Empire State Realty Trust's third quarter 2023 earnings call. At this time, all participants are in a listen only mode.
Speaker 1: Greetings and welcome to the Empire State Realty Trust's third quarter 2023 earnings call. At this time, all participants are in a listen-only mode. The question and answer session will...
<unk> and answer session will follow the formal presentation, if anyone should require operator assistance during the call. Please press star zero on your telephone keypad.
Speaker 1: If anyone should require operator assistance during the call, please press star zero in your telephone keypad. As a reminder...
As a reminder, this conference is being recorded it is now my pleasure to introduce Katie Melon, asking Vice President of Investor Relations. Thank you you may begin.
Speaker 1: It is now my pleasure to introduce Katie Malinowski, Vice President of Investor Relations. Thank you.
Good afternoon. Thank you for joining us today for Empire State Realty Trust's third quarter 2023 earnings Conference call.
Speaker 2: joining us today for Empire State Realty Trust's third quarter 2023 earnings conference call. In addition to the press release distributed yesterday, a quarterly supplemental package with further detail on our results and our latest investor presentation were posted in the investor section of the company's website at esrtrate.com.
In addition to the press release distributed yesterday, a quarterly supplemental package with further detail on our results and our latest investor presentation are posted in the investors section of the company's website at yes, Archie Reed dotcom.
Speaker 2: On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements as defined in applicable securities law, including those related to market conditions, property operations, capital expenditures, income, expense, financial results, and proposed transactions and events.
On today's call management's prepared remarks and answers to your questions may contain forward looking statements as defined in applicable securities law, including those related to market conditions property operations capital expenditures income expense financial result.
And proposed transactions and events.
Speaker 2: As a reminder, forward-looking statements represent management's current estimates. They are subject to risks and uncertainties, which may cause actual results to differ from those discussed today.
As a reminder, forward looking statements represent managements current estimates they are subject to risks and uncertainties, which may cause actual results to differ from those discussed today.
Empire State Realty Trust assumes no obligation to update any forward looking statements in the future. We encourage listeners to review them more detailed discussions related to those forward looking statements in the company's filings with the SEC.
Speaker 2: Empire State Realty Trust assumes no obligation to update any forward-looking statements in the future. We encourage listeners to review the more detailed discussions related to those forward-looking statements in the company's filings with the SEC.
Speaker 2: During today's call, we will discuss certain non-GAAP financial measures such as FFO, modified and core FFO, NOI, Same-Store Property Cash NOI, EBITDA, and Adjusted EBITDA, which we believe are meaningful in evaluating the company's performance.
During today's call, we will discuss certain non-GAAP financial measures such as F. S. L modified in core F. F L and O Y same store property cash NOI EBITDA and adjusted EBITDA, which we believe are meaningful in evaluating the company's performance.
The definitions and reconciliations of these measures to the most directly comparable GAAP measures are included in the earnings release and supplemental package each available on the company's website.
Speaker 2: The definitions and reconciliations of these measures to the most directly comparable GAAP measures are included in the earnings release and supplemental package, each available on the company's website.
Speaker 2: And now I will turn the call over to Tony Malkin, our Chairman, President, and Chief Executive Officer. Thanks, Katie.
And now I will turn the call over to Tony Malkin, Our chairman President and Chief Executive Officer.
Thanks, Katie and good afternoon to everyone.
Speaker 3: We continue our efforts to educate the market that ESRT is a top-of-our-tier destination.
We continue our efforts to educate the market that ESR T is a top or our tier destination.
For tenants flight to quality today, we are not b properties, we are top of our tier and our accessible price range and we continue to capture market share.
Speaker 3: for tenants' flight to quality today. We are not B properties. We are top of our tier in our accessible price range, and we continue to capture market share.
We can think of no better way to inform then to continue to put points on the board. So we are pleased to report a third quarter of strong performance in 2023.
Speaker 3: We can think of no better way to inform than to continue to put points on the board. So we are pleased to report a third quarter of strong performance in 2023.
Speaker 3: We did not predict the weather. We built an arc for the storms that were certain to come.
We did not predict the weather, we built an arc for the storms that were certain to come.
Speaker 3: We positioned ESRT to perform in all cycles.
We positioned ESR T to perform in all cycles.
Speaker 3: We built a brand around modernized, amenatized, well-located, energy-efficient buildings with indoor environmental quality, and a team of union and non-union colleagues distinguished by service and collaborative work.
We built a brand around modernized monetized well located energy efficient buildings with indoor environment, that's where quality and a team of union and nonunion colleagues distinguished by service and collaborative work.
Speaker 3: And we report our earnings from a position to take advantage of the opportunities ahead while we perform in today's market.
We report our earnings from our position to take advantage of the opportunities ahead, while we perform in today's market.
Your ESR T team is more focused than ever on points on the board.
Speaker 3: Your ESRT team is more focused than ever on points on the board.
Speaker 3: In the third quarter, FFO came in above expectations.
In the third quarter F. F O came in above expectations, we leased another quarter of a million square feet that is 787000 square feet year to date.
Speaker 3: We leased another quarter of a million square feet. That is 787,000 square feet year to date.
Speaker 3: achieved another positive quarter of leasing spreads, double-digit positive leasing spreads, that is nine consecutive quarters of positive leasing spreads, and our observatory continues to perform.
We achieved another positive quarter of leasing spreads double digit positive leasing spreads that is nine consecutive quarters of positive leasing spreads and our observatory continues to perform well.
Speaker 3: We completed a 100% recycle of sales proceeds from prior dispositions through 1031 transactions with no tax leakage. Our balance sheet remains.
We completed a 100% recycle of sales proceeds from prior dispositions through 10, 31 transactions with no tax leakage our balance sheet remains best in class.
<unk> T is in New York City focused company and we have four diverse drivers of value that complement each other well.
Speaker 3: ESRT is a New York City focused company and we have four diverse drivers of value that complement each other well.
Speaker 3: Our office portfolio that is the top of our tier and targets the deepest market segment.
Our office portfolio that is the top of our tier and targets the deepest market segment.
Speaker 3: our observatory that is the number one ranked attraction in the United States.
Our observatory that is the number one ranked attraction in the United States.
Speaker 3: according to TripAdvisor, for the second consecutive year.
According to Tripadvisor for the second consecutive year.
Our high foot traffic every day retail that serves as a great amenity to our office tenants and a growing multifamily platform.
Speaker 3: Our high foot traffic, everyday retail that serves as a great amenity to our office tenants and a growing multi-family platform.
Speaker 3: We continue to deliver consistent leasing volume.
We continued to deliver consistent leasing volumes.
Speaker 3: We leased a quarter of a million square feet in the third quarter.
We leased a quarter of a million square feet in the third quarter.
Speaker 3: Tennis Choose ESRT's constructive partnership on energy efficiency and indoor environmental quality, where we add value to their installation and occupants.
Tenants choose ESR Ts constructive partnership on energy efficiency, and indoor environmental quality, where we add value to their installation and occupancy with our top tier and modernized assets. Our amenities are locations and the certainteed delivered by our great balance sheet.
Speaker 3: with our top tier modernized assets, our amenities, our locations, and the certainty delivered by our great balance sheet.
Those relationships have driven more than 2.6 million square feet of tenant expansion in our portfolio since IPO.
Speaker 3: Those relationships have driven more than 2.6 million square feet of tenet expansion in our portfolio since IPO.
Speaker 3: Put this in perspective. Our entire portfolio today totals just over 9.3 million square feet.
Puts us in perspective, our entire portfolio today totals just over nine 3 million square feet.
We are happy to announce that in the third quarter. We grew our partnership with Starbucks with a new full office floor lease at the Empire State building.
Speaker 3: We are happy to announce that in the third quarter, we grew our partnership with Starbucks with a new full office floor lease at the Empire State Building.
Speaker 3: Starbucks has grown from our original retail store in the lobby of a building we no longer own in the early 1990s
Starbucks has grown from our original retail store in the lobby of a building we no longer own in the early 19 nineties.
Speaker 3: all the way to the remarkable 23,000 square feet, three level Starbucks reserve that opened in late 2022 to this new full-floor office lease.
All the way to the remarkable 23000 square feet three level Starbucks reserve that opened in late 2022.
To this new full floor office lease.
Tom to rails will discuss another expansion this one with Linkedin, which brings our total footprint in the Empire state building to over half a million square feet.
Speaker 3: Tom Derrells will discuss another expansion, this one with LinkedIn, which brings their total footprint in the Empire State Building to over half a million square feet.
And our partnership with Linkedin started with a few thousand square feet.
Speaker 3: Our partnership with LinkedIn started with a few thousand square feet in
In 2010.
As of quarter end, our Manhattan office portfolio is nearly 92% leased and this reflects an increase of 250 basis points over the past 12 months are.
Speaker 3: As of quarter end, our Manhattan office portfolio is nearly 92% leaf.
Speaker 3: And this reflects an increase of 250 basis points over the past 12 months.
Speaker 3: Our leasing success meets the performance of newly built Class A office properties. Improves we are a destination for the market's flight to quality.
Our leasing success meets the performance of newly built class a office properties improves we are a destination for the market's flight to quality.
Speaker 3: ESRT's successes are built upon the investments we have already made. We are future ready.
ESR team's successes are built upon the investments we have already made we are future ready.
Speaker 3: And we service the deepest segment of tenant demand in the New York City office market at our accessible price point.
And we service the deepest segment of tenant demand and the New York City office market at our accessible price points.
Speaker 3: Our balance sheet makes a big difference to tenants in today's environment.
Our balance sheet makes a big difference to tenants in today's environment.
We have always said that our goal is to get the best deals in good times, yet the deals and challenged times and draw a consistent leasing volumes through cycles.
Speaker 3: We have always said that our goal is to get the best deals in good times, get the deals in challenged times, and draw consistent leasing volumes through cycles.
Speaker 3: We know what we have to do, and we are absolutely focused.
We know what we have to do and we are absolutely focused.
Speaker 3: The observatory continues to perform well. Year-to-date Observatory NOI exceeded comparable 2019 levels by 2%, with 71% of the admissions relative to 2019 levels.
The observatory continues to perform well.
Year to date Observatory NOI exceeded comparable 2019 levels by 2% with 71% of the admissions relative to 2019 levels.
Speaker 3: Candidly, we could have done without four consecutive rainy weekends in September , and we look forward to this weekend where the sun is met to shine.
Candidly, we could've done without four consecutive rainy weekends in September and we look forward to this weekend, where the Sun is met to shine.
That said, we continue to manage expenses drive topline growth and provide visitors with unmatched customer experience.
Speaker 3: That said, we continue to manage expenses, drive top-lying growth, and provide visitors with unmatched customer experience.
Speaker 3: The Empire State Building Observatory is the authentic New York City experience and is the number one ranked attraction in the United States by TripAdvisor for the second year in a row.
The Empire State building Observatory is the authentic New York City experience.
And as the number one ranked attraction in the United States by Tripadvisor for the second year in a row.
Speaker 3: Observatory's cash flows are reliable as demonstrated on 514 of our investor presentation.
Our observatory as cash flows are reliable as.
As demonstrated on slide 14 of our Investor presentation.
Speaker 3: ESRT's balance sheet is the strongest amongst all New York City office reads. And the capital structure is simple.
<unk> balance sheet is the strongest amongst all New York City office, REIT and the capital structure is simple there.
Speaker 3: There's no doubt that our balance sheet is a competitive event.
There's no doubt that our balance sheet is a competitive advantage tenants look to partner with a financially stable landlord, who will maintain high quality standards at their assets.
Speaker 3: tenants look to partner with a financially stable landlord who will maintain high quality standards at their assets.
Speaker 3: We can allocate capital as we think best. Be it capital recycling, new acquisitions or share repurchase.
We can allocate capital as we think best be it capital recycling, new acquisitions or share repurchases.
Just in the last 20 months or so we have purchased nearly half a billion dollars in property.
Speaker 3: Just in the last 20 months or so, we have purchased nearly half a billion dollars in proper
Speaker 3: primarily funded by dispositions of suburban assets and diversified into residential to build out our New York City focused portfolio.
Primarily funded by dispositions of suburban assets and diversified into residential to build out our New York City focused portfolio.
Speaker 3: Longtime participants in this call know this is against years of criticism for the fact that we bought nothing during the frothing decade that led to the current credit crunch.
Long time participants in this call know this is against years of criticism or the fact that we bought nothing during the frosting decade that led to the current credit crunch.
ESR T has been the quantitative sustainability leader for more than a decade and sustainability is integrated within every decision we make.
Speaker 3: ESRT has been the quantitative sustainability leader for more than a decade, and sustainability is integrated within every decision we make.
Speaker 3: Our industry leadership and sustainability and healthy building performance matters more and more each year to tenants, lenders, and shareholders. And this is a cornerstone when we say we are future ready.
Our industry leadership in sustainability and healthy building performance matters, more and more each year to tenants lenders and shareholders and this is a cornerstone when we say we are future ready.
Speaker 3: There can be only one number one. ESRT's overall GREZ score ranked first.
There can be only one number one.
ESR Ts overall greuze score ranked first.
Speaker 3: number one amongst all 115 listed companies in the Americas, as well as the first and the most competitive peer group within the United States.
Number one amongst all 115 listed companies in the Americas.
As well as the first and the most competitive peer group within the United States.
Speaker 3: We achieved the highest possible GRES 5-star rating for the fourth consecutive year.
We achieved the highest possible grasp five star rating for the fourth consecutive year.
The Empire State building was just awarded the 2023 BOMA New York Earth building of the year Award and the Bummer Grand Pinnacle Award.
Speaker 3: The Empire State Building was just awarded the 2023 BOMA New York Earth Building of the Year Award and the BOMA Grand Pinnacle Award. Tremendous accomplishments.
Tremendous accomplishment for our entire company.
Speaker 3: Our data-based sustainability work delivers economic returns and provides us with a competitive advantage over our peers.
Our databased sustainability work delivers economic returns and provides us with a competitive advantage over our peers.
Speaker 3: ESRT priorities are unchanged – lease space, sell tickets to the observatory, manage the balance sheet, and achieve our sustainability goals.
Yes, our T priorities are unchanged lease space sell tickets to the observatory manage the balance sheet.
And achieve our sustainability goals.
Speaker 3: This quarter we demonstrated our commitment with more points on the board. These actions together enhance shareholder value.
This quarter, we demonstrated our commitment with more points on the board these actions together enhance shareholder value.
While we work through challenges we are in a position to take advantage of opportunities created through market disruptions and capital Dislocations E. S. R. T is prepared to act.
Speaker 3: While we work through challenges, we are in a position to take advantage of opportunities created through market disruptions and capital dislocations. ESRT is prepared to act.
We believe in New York City, and we offer four ways to play it office the Empire State building Observatory retail and multifamily.
Speaker 3: We believe in New York City, and we offer four ways to play it. Office, the Empire State Building Observatory, retail, and multifamily.
Park City is resilient and ESR T as future ready and well positioned to drive value for shareholders.
Speaker 3: New York City is resilient, and ESRT is future ready and well positioned to drive value for shareholders.
Speaker 3: Tom and Christina will provide more detail on our progress and how we plan to accomplish these goals in the balance of the year. Tom? Thanks, Tony.
Tom and Kristina will provide more detail on our progress and how we plan to accomplish these goals and the balance of the year Tom.
Thanks, Tony and good afternoon, everyone.
Speaker 4: We had another strong quarter with 248,000 square feet of total leasing at 10% positive mark-to-market rent spreads for our office and retail portfolio. This represents our seventh consecutive quarter in which we achieved positive absorption based on leased percentage for our commercial portfolio and our ninth straight quarter with positive mark-to-market lease spreads in our Manhattan office portfolio.
We had another strong quarter with 248000 square feet of total leasing at 10% positive mark to market rent spreads for our office and retail portfolio. This represents our seventh consecutive quarter in which we achieved positive absorption based on leased percentage for our commercial portfolio.
And our ninth straight quarter with positive mark to market lease spreads in our Manhattan office portfolio.
Speaker 4: We continue to attract new and renew existing tenants who look for high quality product that is modernized, amenitized, well-located near mass transit, and neighborhood amenities, and has best in class sustainability and indoor environmental quality at an accessible price point.
We continue to attract new and renew existing tenants, who look for high quality product that is modernized.
<unk> well located near mass transit and neighborhood amenities and has best in class sustainability and indoor environmental quality at an accessible price point.
Speaker 4: We increased our Manhattan office leased percentage to 91.9% in the third quarter, which increased 30 basis points compared to last quarter, is up 250 basis points compared to a year ago, and has increased 490 basis points since the end of 2021.
We increased our Manhattan office leased percentage to 91.9% in the third quarter, which increased 30 basis points compared to last quarter.
Is up 250 basis points compared to a year ago and has increased 490 basis points since the end of 2021.
Speaker 4: In the third quarter, we signed 248,000 square feet of leases, which include a 235,000 square feet of leases in our Manhattan office properties. And in our retail portfolio, we signed a new lease with an exciting sushi restaurant at 1359 Broadway, which would be a great amenity for office tenants in the Broadway portfolio, where we continue to bring in food and services to support the growing demand from office users.
In the third quarter, we signed 248000 square feet of leases, which include a 235000 square feet of leases in our Manhattan office properties.
And in our retail portfolio, we signed a new lease with an exciting sushi restaurant at 13, 59, Broadway, which would be a great amenity for our office tenants and the Broadway portfolio, where we continue to bring in food and services to support the growing demand from office users.
Speaker 4: Notable leases signed in the third quarter include a 10-year, 144,000-square-foot lease with LinkedIn at the Empire State Building.
Notable leases signed in the third quarter include a 10 year 144000 square foot lease with Linkedin at the Empire State building.
Speaker 4: LinkedIn acted upon its existing rights to relocate 119,000 square feet from tower floors to base floors, and also expanded by 25,000 square feet, which brings LinkedIn's total leased square footage at the Empire State Building to 527,000 square feet.
Linkedin acted upon its existing rights to relocate 119000 square feet from tower floors to base floors, and also expanded by 25000 square feet, which brings lengthens total lease square footage at the Empire State building to 527000 square feet.
Speaker 4: Our track record of tenant retention and expansions, including this most recent expansion by LinkedIn, is the result of excellent work by our entire team to provide exceptional service to our tenants. And this is not just effort.
Our track record of tenant retention and expansions, including this most recent expansion by Linkedin is the result of excellent work by our entire team to provide exceptional service to our tenants.
And this is not just effort.
As a result.
We signed a full floor of 11 year office lease with Starbucks for 25000 square feet at the Empire State building the.
Speaker 4: We signed a full-floor, 11-year office lease with Starbucks for 25,000 square feet at the Empire State Building.
Speaker 4: company where we located only New York City office to the Empire State Building where currently operates a three-story Starbucks reserve
The company will relocate it's only New York City office to the Empire State building, where it currently operates a three story Starbucks reserve.
As Tony mentioned, our long standing partnership with Starbucks continues to add value to both Starbucks and to our portfolio.
Speaker 4: Tony mentioned our longstanding partnership with Starbucks continues to add value to both Starbucks and to our portfolio.
And we signed leases for 14th pre built office suites that totals 66000 square feet across the portfolio.
Speaker 4: And we signed leases for 14 pre-built office suites that total 66,000 square feet across the portfolio.
Speaker 4: A reported weighted average TI costs, tenant installation costs, vary by quarter depending on the variety of space types leased.
Our reported weighted average ti costs tenant installation costs vary by quarter, depending on a variety of space types leased.
Long term full floor leases typically include turnkey installation or equivalent tenant installation contribution.
Speaker 4: Long-term, full-floor leases typically include turnkey installation or equivalent tenant installation contribution. And for most pre-built spaces, we have already incurred the prior cost to build.
And for most prebuilt spaces, we have already incurred the prior cost to build.
Speaker 4: Our TI costs in the third quarter were higher than the prior quarter, mostly due to the LinkedIn and Starbucks deals, which represent about two-thirds of our total lease volume this quarter.
Our ti costs in the third quarter were higher than the prior quarter, mostly due to the Linkedin and Starbucks deals, which represent about two thirds of our total lease volume this quarter.
Both are long term leases for full floors and the Ti cost are consistent with full floor leases that we've signed over the past several years.
Speaker 4: Both are long-term leases for full floors, and the TI costs are consistent with full floor leases that we have signed over the past several years.
Speaker 4: One thing to note about the LinkedIn transaction is that it includes an as-of-right relocation within the Empire State Building.
One thing to note about the Linkedin transaction is that it includes an as of right relocation within the Empire State building.
The Ti allowance for the floors. They will vacate has not been contributed.
Speaker 4: The TI allowance for the floors they will vacate has not been contributed and will now be used for the new space they will occupy.
And will now be used for the new space They will occupy.
Against that background for our third quarter Manhattan office leasing the average starting rent was $67 73 per square foot.
Speaker 4: Against that background for our third quarter Manhattan office leasing the average starting rent was $67.73 per square foot With an average lease term of eight
With an average lease term of eight six years 10, nine months of free rent and tenant improvement allowance of $93 per square foot.
Speaker 4: 10.9 months of free rent and 10-it improvement allowance of $93 per square foot.
That is consistent with our historic free rent and tenant improvement allowance for the last several quarters and represents no increase in our general market terms.
Speaker 4: That is consistent with our historic free rent and tenant improvement allowance for the last several quarters and represents no increase in our general market term.
Speaker 4: Following the close of the third quarter, we signed that 11-year, 9,500-square-foot new lease with Elemis, a subsidiary of L'Occitane at 111 West 33rd Street, and extended L'Occitane's existing 21,000-square-foot lease for an additional five years.
Following the close of the third quarter, we signed an 11 year 9500 square foot new lease with Elemis a subsidiary of lots of time at 111, West 30, <unk> Street and extended lots of teens, because our existing 21000 square foot lease for an additional five years.
Year to date through the third quarter, we have leased 787000 square feet throughout our entire commercial portfolio.
Speaker 4: Year-to-date through the third quarter, we have leased 787,000 square feet throughout our entire commercial portfolio.
Speaker 4: And as shown on page 10 of our supplemental, we have $50 million in incremental cash revenue from signed leases not commenced and free rent burn off.
And as shown on page 10 of our supplemental we have $50 million in incremental cash revenue from signed leases not commenced and free rent burn off.
Looking ahead to the fourth quarter of 2023, we expect approximately 136000 square feet will be vacated by year end, which will be partially offset by new leases that we expect to be signed during the same quarter.
Speaker 4: Looking ahead to the fourth quarter of 2023, we expect approximately 136,000 square feet will be vacated by year end, which will be partially offset by new leases that we expect to be signed during the same quarter.
Speaker 4: We have manageable lease expirations in 2024 with only 496,000 square feet set to expire of which about 207,000 square feet are known vacate.
We have manageable lease explorations in 2024 with only 496000 square feet set to expire of which about 207000 square feet are known Vacates.
Speaker 4: Based on our annual average of 680,000 square feet of new leases signed in the past three years, we are well positioned to increase our leased percentage in 2024.
Based on our annual average of 680000 square feet of new leases signed in the past three years, we are well positioned to increase our leased percentage in 2024.
In today's market there was a flight to quality at every price tier and use our T offers a unique value proposition for tennis is the best in class space in our tier are priced here represents the biggest segment of the market.
Speaker 4: In today's market, there is a flight quality at every price tier. And ESRT offers a unique value proposition for tennis as the best in class space in our tier. Our price tier represents the biggest segment.
Speaker 4: We have done the work so that ESRT's well-located portfolio is modernized, amenitized, and energy efficient with superior indoor environmental quality. And our product is top in our tier, competitive and attractive to tenants, as demonstrated by our leasing results.
We have done the work that he's our chief well located portfolio is modernized and monetized and energy efficient with superior enduring environmental quality and our product is top tier.
<unk> and attractive to tenants as demonstrated by our leasing results.
Within our multifamily portfolio. The average occupancy of 97, 1% reflects strong market fundamentals and we are underway with property improvements that will enhance future performance.
Speaker 4: Within our multifamily portfolio, the average occupancy of 97.1% reflects strong market fundamentals. And we are underway with property and improvements that will enhance future performance.
So once again, we had another solid quarter with 248000 square feet of total office and retail leasing a strong positive mark to market spreads.
Speaker 4: So once again, we had another solid quarter with 248,000 square feet of total office and retail leasing at strong positive mark to market spread.
Speaker 4: We increased our Manhattan office portfolio at least percentage by 30 basis points over the prior quarter, and by 250 basis points from a year ago to reach 91.9%.
We increased our Manhattan office portfolio leased percentage by 30 basis points over the prior quarter and by 250 basis points from a year ago to reach 91.9%.
Speaker 5: We are well positioned to further increase our lease percentage in 2024, and we continue to see strong performance in our multi-family portfolio. With that, I'll turn that call over to Christina. Christina. Thanks Tom. For the third quarter of 2023, we've reported core FFO of $66 million or 25 cents per diluted share, which is up 17% year-over-year excluding lease termination fee increase.
We are well positioned to further increase our leased percentage in 2024, and we continue to see strong performance in our multifamily portfolio with that I'll turn the call over to Christina. Thanks.
Thanks, Tom.
For the third quarter of 2023, we reported core <unk> of $66 million or 25 cents per diluted share, which is up 17% year over year, excluding lease termination fee income.
Same store property cash NOI, excluding lease termination fees increased eight 8% year over year, primarily driven by cash rent commencement and increased tenant expense reimbursements.
Speaker 5: Same-store property cash NOI, excluding lease termination fees, increased 8.8% year-over-year, primarily driven by cash rent commencement and increased tenant expense reimbursement.
Operator: Greetings and welcome to the Empire State Realty Trust 3rd quarter 2023 earnings call. At this time, all participants are in a listen only mode. The question and answer session will follow the formal presentation.
Speaker 5: In the third quarter, the observatory generated NOI of $28 million, an increase of 14% year-over-year.
In the third quarter, the observatory generated NOI of $28 million, an increase of 14% year over year.
Operator: If anyone wants to require operator assistance during the call, please press star zero and your telephone keypad. As a reminder, this conference is being recorded.
Speaker 5: Revenue per capita remains high and admissions continue to improve. Observatory expense was 9.5 million dollars in the third quarter. Year to date, the Observatory generated NOI of $67 million which represents NOI recapture of 102% as compared to the same period in 2008.
Revenue per capita remains high and admissions continue to increase observatory expenses, nine and a half million dollars in the third quarter year to date, the observatory generated NOI of $67 million, which represent NOI recapture of 102% as compared to the same period in 2019.
Katy Malonoski: It is now my pleasure to introduce Katy Malonoski, Vice President of the Investor Relations. Thank you. You may begin.
Katy Malonoski: Good afternoon. Thank you for joining us today for Empire State Realty Trust 3rd quarter 2023 earnings conference call. In addition to the press release distributed yesterday, a quarterly supplemental package with further detail on our results and our latest investor presentation were posted in the investor section of the company's website at ESRTREAT.com. On today's call, management's prepared remarks and answers to your questions may contain forward looking statements as defined in applicable securities law, including those related to market conditions, property operations, capital expenditures, income, expense, financial results, and proposed transactions and events.
As of September 30th 2023, the company had total liquidity of $1 $2 billion, which was comprised of $354 million of cash and $850 million of undrawn capacity on our revolving credit facility at.
Speaker 5: As of September 30th, 2023, the company had total liquidity of $1.2 billion, which was comprised of $350, $4 million of cash, and $850 million of undrawn capacity on a revolving credit facility.
Speaker 5: At quarter end, the company had net debt of $2.2 billion with a weighted average interest rate of 3.9% and a weighted average term to maturity of 5.7 years.
At quarter end, the company had net debt of $2 $2 billion with a weighted average interest rate of three 9% and a weighted average term to maturity of five seven years.
Speaker 5: We have the lowest leverage among all New York City office rates at 5.5 times net debt to adjusted EBITDA. We have strong liquidity, no floating rate debt exposure, and no meaningful debt maturity until early 2025.
We have the lowest leverage among all New York City Office REIT at five five times net debt to adjusted EBITDA, We have strong liquidity no floating rate debt exposure and no meaningful debt maturity until early 2025.
Katy Malonoski: As a reminder, forward looking statements represent management's current estimates. They are subject to risks and uncertainties, which may cause actual results to differ from those discussed today. Empire State Realty Trust assumes no obligation to update any forward looking statements in the future. We encourage listeners to review the more detailed discussions related to those forward looking statements in the company's filings with the SEC. During today's call, we will discuss certain non-gap financial measures such as FFO, Modified and Core FFO, NOI, Same Store Property Cash, NOI, EBITDA, and Adjusted EBITDA, which we believe are meaningful in evaluating the company's performance. The definitions and reconciliations of these measures to the most directly comparable gap measures are included in the earnings release and supplemental package, each available on the company's website.
In fact, he owned 100% of our commercial assets with no complex JV structures and that allows for great opportunity and flexibility for future financing and capitalization.
Speaker 5: ESRK owns 100% of our commercial assets with no complex JV structures. And that allows for great opportunity and flexibility for future financing and capitalization.
With this balance sheet flexibility, we have recycled capital pursuing investment opportunities that are additive to our New York City focused portfolio and repurchased our shares and will continue to allocate capital to generate shareholder value.
Speaker 5: With this balance sheet flexibility, we have recycled capital, pursued investment opportunities that are additive to our New York City focus portfolio and repurchased our shares, and will continue to allocate capital to generate shareholders.
Speaker 5: Our off-market acquisition of primary tail and Williamsburg during the third quarter completes the redeployment of our 1031 proceeds and is consistent with our strategy to recycle capital into high quality, well-located, high-foot traffic, New York City assets with strong demographic trends.
Our off market acquisition of Prime retail in Williamsburg during the third quarter completes the redeployment of our 10 31 proceeds and is consistent with our strategy to recycle capital into high quality well located high foot traffic, New York City assets with strong demographic trend.
Speaker 5: Share buybacks remain on the agenda as a strategic part of our capital allocation. While we do not repurchase shares this quarter, from March 2020 to date, we have repurchased $294 million at a weighted average price of $8.18 per share, which represents approximately 12% of total shares outstanding since our share buyback program began.
Share buybacks remain on the agenda is a strategic part of our capital allocation, while we did not repurchase shares this quarter from March 2020 to date, we have repurchased 294 million at a weighted average price of $8 18 per share, which represents approximately 12% of total shares outstanding since our share.
Tony Malkin: And now I will turn the call over to Tony Malcolm, our chairman, president, and chief executive officer. Thanks, Katie, and good afternoon to everyone. We continue our efforts to educate the market that ESRT is a top-our-tier destination for tenants flight to quality today. We are not B properties. We are top-of-our-tier in our accessible price range, and we continue to capture market share. We can think of no better way to inform than to continue to put points on the board.
Our buyback program began.
Speaker 5: And now, on to our outlook for the balance of the year. We have adjusted our 2023 guidance as follows.
And now onto our outlook for the balance of the year, we have adjusted our 2023 guidance as follows.
Speaker 5: Our 2023 FFO guidance is increased to a tightened range of 85 cents to 87 cents per fully diluted share. This is driven by an improvement in our same store cash NOI outlook by 100 basis points, which is primarily due to higher rental revenues to date from tenant expense reimbursements, and reduced full year buffer for a number of items in a downside scenario that were not realized year to date.
Our 2023 F. O guidance is increased with tightened range of 85 to 87 cents per fully diluted share. This is driven by an improvement in our same store cash NOI outlook by 100 basis point, which is primarily due to higher rental revenues to date and tenant expense reimbursements and reduced full year.
But for a number of items in a downside scenario that were not realized year to date.
Tony Malkin: So we are pleased to report a third quarter of strong performance in 2023. We did not predict the weather. We built an arc for the storms that were certain to come. We positioned ESRT to perform in all cycles. We built a brand around modernized, amenitized, well-located, energy-efficient buildings with indoor environmental quality, and a team of union and non-union colleagues distinguished by service and collaborative work, and we report our earnings from a position to take advantage of the opportunities ahead while we perform in today's market.
Speaker 5: Within our updated FFO guidance range, we do expect a sequential decline in the fourth quarter, which factors in an increase in operating expenses largely tied to the expected timing of major R&M projects underway.
Within our updated <unk> guidance range, we do expect a sequential decline in the fourth quarter, which factors in an increase in operating expenses largely tied to the expected timing of major R&M projects underway.
Speaker 5: Our expense expectations for the full year are unchanged and continue to reflect some permanent property operating cost savings and efficiencies that we achieve from pre-COVID levels.
Our expense expectations for the full year are unchanged and continue to reflect some permanent property operating cost savings and efficiencies that we achieved from pre COVID-19 level.
Speaker 5: Additionally, there is typical seasonality in the observatories.
Additionally, there is typical seasonality in the observatory business, while we feel good about the observatory performance City, we continue to leave room within our updated <unk> guidance range for uncertainty around tourism fluctuation and bad weather that could adversely impact fourth quarter results.
Speaker 5: While we feel good about the observatories' performance to date, we continue to leave room within our updated FFO guidance range for uncertainty around tourism fluctuations and bad weather that could adversely impact fourth quarter.
Tony Malkin: Your ESRT team is more focused than ever on points on the board. In the third quarter, FFO came in above expectations. We leased another quarter of a million square feet that is 787,000 square feet year to date. We achieved another positive quarter of leasing spreads, double digit positive leasing spreads that is nine consecutive quarters of positive leasing spreads and our observatory continues to perform. We completed a 100% recycle of sales proceeds from prior dispositions through 1031 transactions with no tax leakage.
Speaker 5: We maintained our expected observatory NOI range of $88 to $96 million for 2023 up from $75 million in 2022.
We maintained our expected observatory NOI range of $88 million to $96 million for 2023 up from $75 million in 2022.
Our NOI guidance of <unk>.
Speaker 5: Our NOI guidance assumes observatory expenses average approximately $9 million per quarter in 2020.
Inventory expenses averaged approximately $9 million per quarter in 2023.
Speaker 5: Our same store commercial occupancy guidance is unchanged at 85 to 87 percent.
Our same store commercial occupancy guidance is unchanged at 85% to 87%.
Speaker 5: In summary, the company continues to manage our best in class balance sheet prudently and strategically with strong liquidity to take advantage of attractive investment opportunities that may emerge in this period of uncertainty and capital dislocation.
In summary, the company continues to manage our best in class balance sheet prudently and strategically with strong liquidity to take advantage of attractive investment opportunities that may emerge in this period of uncertainty and capital dislocation our commercial portfolio is now 87% occupied and 95% leased.
Tony Malkin: Our balance sheet remains best in class. ESRT is a New York City focused company and we have four diverse drivers of value that complement each other well. Our office portfolio that is the top of our tier and targets the deepest market segment. Our observatory that is the number one ranked attraction in the United States according to TripAdvisor for the second consecutive year. Our high-foot traffic every day detail that serves as a great amenity to our office tenants and a growing multi-family platform.
Speaker 5: Our commercial portfolio is now 87% occupied and 90.5% lease. We continue to benefit from tenant demand for our high quality assets and the unique value proposition as the best in class space in our rental price range and balance sheet strength that we offer as a landlord.
We continue to benefit from tenants demand for our high quality asset and the unique value proposition as the best in class base in our rental price range and balance sheet strength that we offer as a landlord.
Our observatory recovery continues with good momentum year to date and our fourth leg of growth multifamily has performed well and adds to the resiliency of ESR, Keith cashless and with that I'll turn the call back to the operator for our Q&A session.
Speaker 5: Our observatory recovery continues with good momentum year-to-date. And our fourth leg of growth, multifamily, has performed well and adds to the resiliency of ESRT's cash flows. And with that, I'll turn the call back to the operator for a Q&A session.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Tony Malkin: We continue to deliver consistent leasing volumes. We leased a quarter of a million square feet in the third quarter. Tenants choose ESRT's constructive partnership on energy efficiency and indoor environmental quality where we add value to their installation and occupancy with our top tier modernized assets, our amenities, our locations, and the certainty delivered by our great balance sheet. Those relationships have driven more than 2.6 million square feet of tenant expansion in our portfolio since IPO.
Speaker 1: If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
A confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys, one moment. Please while we poll for your questions.
Speaker 1: participants using speaker equipment and maybe necessary to pick up your handset before pressing the star keys. One moment please.
Our first questions come from the line of Steve <unk> with Evercore. Please proceed with your questions.
Speaker 1: Our first questions come from the line of Steve Fatqua with Evercourt. Please proceed with your questions.
Speaker 6: Thanks. Good afternoon. Maybe, Tom, starting on the leasing, if you could just maybe give us a little bit more specificity on kind of the current pipeline, and are you seeing more demand today in kind of the Penn Station, maybe Garment area, or are you seeing kind of more strength over in the Grand Central Subway?
Thanks, Good afternoon, maybe Tom starting on the leasing if you could just maybe give us a little bit more specificity on kind of the current pipeline.
Tony Malkin: Put this in perspective, our entire portfolio today totals just over 9.3 million square feet. We are happy to announce that in the third quarter we grew our partnership with Starbucks with a new full office floor lease at the Empire State Building. Starbucks has grown from our original retail store in the lobby of a building we no longer own in the early 1990s. All the way to the remarkable 23,000 square feet, three-level Starbucks reserve that opened in late 2022 to this new full-floor office lease.
And are you seeing more demand today in kind of the Penn station, maybe garmin area or are you seeing kind of more strength over in the Grand Central Submarket.
Yeah, Steve we've got a good pipeline of activity, we've got activity and interest from tenants and that's both proposals and leases in negotiation.
Speaker 4: Yes, Steve, we've got a good pipeline of activity. We've got activity and interest from tenants, and that's both proposals and leases in negotiation.
Speaker 4: At 1 Grand Central Place, where we're trading paper on pre-built and full floor, 250 West 57th Street, where we have a full floor that's been pre-built. We have activity on that. At Empire State Building, we're optimistic of getting another significant lease done there, as well as some smaller pre-built.
One Grand Central place, where we're trading paper on pre books and full floor.
The $2 50, Westwood semi street, where we have a.
A full floor that's been prebuilt, we have activity on that.
At Empire State building, we were we're optimistic of getting another significant lease done there as well as some smaller prebuilt.
Tony Malkin: Tom Derelles will discuss another expansion, this one with LinkedIn, which brings their total footprint in the Empire State Building to over half a million square feet. At our partnership with LinkedIn started with a few thousand square feet in 2010. As of quarter-end, our Manhattan office portfolio is nearly 92% and this reflects an increase of 250 basis points over the past 12 months. Our leasing success meets the performance of newly built, class A office properties and proves we are a destination for the market's flight to quality.
Speaker 4: And a 4,900 Broadway where we have some leases that are expiring next year. It's part of our known tenant vacates. We're already in active discussion.
And a 1400 Broadway, where we have some leases that are expiring next year as part of our known tenant Vacates were already in active discussions for tenants to backfill that space. So it's really across the portfolio in terms of the pipeline generally I'd say roughly you know somewhere around 200000 square feet of leases in negotiation.
Speaker 4: for tennis to backfill that space. So it's really across the portfolio, in terms of the pipeline, generally I'd say roughly, somewhere around 200,000 square feet of leases in negotiation, timing will dictate as to whether those leases get signed in the fourth quarter or first quarter, but we feel.
<unk> timing will dictate as to whether those at least to get signed in the fourth quarter or first quarter, but we feel pretty good about our overall pipeline of activity and its really continues to be from a broad variety of industry types that include technology fire sector not for profit professional services and consumer goods.
Speaker 4: pretty good about our overall pipeline of activity and it just really continues to be from abroad.
Speaker 4: variety of industry types that include technology, fire sector, not for profit, professional services, and consumer goods. And so look, we're on a pretty good run here, right? We've had seven consecutive quarters of positive, least percentage absorption, and nine quarters of positive market, at least spread. So I think we're incredibly well positioned.
Tony Malkin: ESRT's successes are built upon the investments we have already made. We are future ready. And we service the deepest segment of tenant demand in the New York City office market at our accessible price points. Our balance sheet makes a big difference to tenants in today's environment. We have always said that our goal is to get the best deals in good times, yet the deals in challenged times, and draw consistent leasing volumes through cycles.
So look we're in a pretty good run here right. We've had seven consecutive quarters of positive lease percentages absorption of nine quarters of.
Martin positive mark to market lease spreads so I think we're incredibly well positioned.
Speaker 6: Good. Thanks for that color. Maybe Christina, you know, you had a good third quarter here 25 cents. I think the full year guidance implies kind of a 20 cent run rate for the fourth quarter at the midpoint. So can you maybe just walk us through what some of the, I guess, downward, you know, pointing arrows would be for the transition from Q3 to Q4? Sure. So as I mentioned.
Good thanks for that color, maybe Christina you know you had a good third quarter here twenty-five sense I think the the full year guidance implies kind of a 20 cent run rate for the fourth quarter at the midpoint. So can you maybe just walk us through what some of the I guess downward.
Tony Malkin: We know what we have to do, and we are absolutely focused. The observatory continues to perform well. Year-to-date observatory NOI exceeded comparable 2019 levels by 2%, with 71% of the admissions relative to 2019 levels. Candidly, we could have done without 4 consecutive rainy weekends in September, and we look forward to this weekend where the sun is met to shine. That said, we continue to manage expenses, drive top-lying growth, and provide visitors with unmatched customer experience.
Pointing arrows would be for the transition from Q3 to Q4.
Sure. So as I mentioned in my remarks, I'm within <unk>, we expect the sequential decline driven by an increase in operating expenses and some of that in large part is due to some major R&M projects that are underway and this is just timing and where the expenses fall out for the full year, though we would know.
Speaker 5: driven by an increase in operating expenses and some of that in large part is due to some major R&M projects that are underway. So this is just timing and where the expenses fall out. For the full year though, we would know that OPEC's change is as we guided, which is about an 8% increase, so that is consistent. And the other piece is the typical seasonality in the observatory business. So if you look back, there traditionally has been some seasonality factor between 3Q and 4Q. And as we mentioned, we do factor in a little bit of uncertainty around tourism fluctuations and bad weather. So that would be the primary driver of that...
Opex change is as we guided which is about an 8% increase so that is consistent and the other piece is the typical seasonality in the observatory business. So if you look back there is traditionally have been some seasonality factor between <unk> and <unk> and as we mentioned we do factor.
Tony Malkin: The Empire State Building Observatory is the authentic New York City experience, and is the number one ranked attraction in the United States by TripAdvisor for the second year in a row. Our observatory's cash flows are reliable, as demonstrated on 514 of our investor presentation. ESRT's balance sheet is the strongest amongst all New York City office reads, and the capital structure is simple. There's no doubt that our balance sheet is a competitive advantage.
We're in a.
A little bit of uncertainty around tourism fluctuations and bad weather, so that would be the primary driver of that sequential decline.
Speaker 5: So that would be the primary driver of that sequential-
Okay and then just last question I know you've got a a mortgage coming due up in a Stanford I think it's kind of late in 'twenty 'twenty four you know that assets around 80% occupied yeah, I'm, just curious kind of the discussions with the lenders today, how you're thinking about that asset and you know is that something gets you know.
Speaker 6: Okay, and then just last question, I know you've got a mortgage coming do up in Stanford. I think it's kind of late in 2024. That asset's around 80% occupied. Yeah, I'm just curious kind of the discussions with the lenders today, how you're thinking about that asset and is that something that's kind of long term for the portfolio.
Tony Malkin: Tenets look to partner with a financially stable landlord who will maintain high quality standards at their assets. We can allocate capital as we think best, be it capital recycling, new acquisitions, or share repurchases. Just in the last 20 months or so, we have purchased nearly half a billion dollars in property, primarily funded by dispositions of suburban assets and diversified into residential to build out our New York City focus portfolio. Long-time participants in this call know this is against years of criticism for the fact that we bought nothing during the frothing decade that led to the current credit crunch.
Kind of long term for the portfolio.
Yeah, we continue to have active discussion with our lenders on that piece of property in mortgage as well as other maturities and we'll keep the market.
Speaker 5: Yeah, we continue to have active discussion with our lenders on that piece of property and mortgage, as well as other materities. And we'll keep the market a price, but we run the portfolio and these are discussions that we always have and continue to discuss what makes the most sense with our lending partners.
<unk> that we run the portfolio and these are discussions that we always have and continue to discuss what makes the most sense with our lending partners.
Thank you alright.
Alright, thanks, Thanks, Steve.
Thank you our next questions come from the line of Michael Griffin with Citi. Please proceed with your questions.
Speaker 1: Thank you. Our next questions come from the line of Michael Griffin with City. Please proceed with your questions. Great.
Tony Malkin: ESRT has been the quantitative sustainability leader for more than a decade, and sustainability is integrated within every decision we make. Our industry leadership and sustainability and healthy building performance matters more and more each year to tenants, lenders, and shareholders, and this is a cornerstone when we say we are future ready. There can be only one number one. ESRT's overall Grezbs score ranked first. Number one, amongst all 115 listed companies in the Americas, as well as the first in the most competitive peer group within the United States.
Great. Thanks, maybe just go on to Tom and the leasing I'm curious if you've noticed any time for space.
Speaker 7: I'm sure you've noticed any time for space takers that they're delaying.
Delaying decision, making in terms of taking space from that you can provide more color on concession packages appreciated when you provided kind of in the prepared remarks, but you kind of expectation for that on a go forward basis would be helpful.
Speaker 7: Can women spend lives all day safe pump?!
Speaker 7: provided kind of the prepared remarks, but you've kind of expectations for that on a go forward basis will be help.
Sure I believe your first question was the timing of tenants in terms of deciding on their on their leasing it and it really is as tenant by tenant.
Speaker 4: Sure, I believe your first question was the timing of tenants in terms of deciding on their leasing, and it really is tenant by tenant. It will range from very quick decisions, and particularly for those that want built space that where our pre-built suites and even full floor pre-built will attract those.
It will range from very quick decisions and particularly for those that want built space that where our pre built suites and even full floor prebuilt will attract those tenants are working on really all right. Now we're actually a tenant is is is is a pretty quick timeline, whether they want to get.
Tony Malkin: We achieved the highest possible Grezbs by star rating for the fourth consecutive year. The Empire State Building was just awarded the 2023 BOMA New York Earth Building of the Year award and the BOMA Grand Pinnacle Award. Tremendous accomplishments for our entire company. Our database sustainability work delivers economic returns and provides us with a competitive advantage over our peers. ESRT priorities are unchanged, lease space, sell tickets to the observatory, manage the balance sheet and achieve our sustainability goals.
Speaker 4: tenants. We're working on an ideal right now. We're actually a tenant is has a pretty quick timeline of whether I want to get get into this space.
You get into this space and then there's others that are that can enter the market you know as much as 18 months or more before their lease at our current lease expires and there'll be shopping the market for an extended period of time, So I can't say, there's a trend as much as it just really runs a wide gamut depending upon.
Speaker 4: And then it's others that can enter the market as much as 18 months or more before they're least currently six buyers and they'll be shopping the market for an extended period of time. So I can't say there's a trend as much as it just really runs a wide gamut depending upon the particular tenants needs and what's going on with their business as well as the space type that they're pursuing.
PON, the particular tenants' needs.
And what's going on with their business as well as the space type that they're pursuing.
Speaker 4: And your next question was on leasing costs.
And your next question was on lease leasing costs why I've made the comments earlier in my prepared remarks about you know what drove our leasing costs. This quarter were really not seeing a significant change in the market generally most of the leasing we do involves a fully pre built space that's been built on spec.
Tony Malkin: This quarter we demonstrated our commitment with more points on the board. These actions together enhance shareholder value. While we work through challenges, we are in a position to take advantage of opportunities created through market disruptions and capital dislocations. ESRT is prepared to act. We believe in New York City and we offer four ways to play it. Office, the Empire State Building Observatory, retail and multifamily. New York City is resilient and ESRT is future ready and well positioned to drive value for shareholders.
Speaker 4: Well, I've made the comments earlier in my prepared remarks about what drove our leasing costs this quarter. We're really not seeing a significant change in the market. Generally, most of the leasing we do involves a fully pre-built space that's been built on spec for which we already have a significant amount of built inventory, and we've already incurred that cost to turnkey.
For which we already have a significant a significant amount of built inventory and we've already incurred that cost too.
Two turnkey installations are and that's generally what we continue to see in the marketplace and that was what we experienced on both the linked into the Starbucks transactions, which has been consistent with the market over the last Oh and consider what was consistent with the leasing we've done over the last several years.
Speaker 4: And that's generally what we continue to see in the marketplace. And that was what we experienced on both the LinkedIn and the Starbucks transactions, which has been consistent with the market over the last, and consistent with the leasing we've done over the last several years.
Tony Malkin: Tom and Christina will provide more detail in our progress and how we plan to accomplish these goals in the balance of the year. Tom, thanks Tony.
Great. Thanks, and then just on the retail acquisition Williamsburg, Yeah should we read into that in these kind of acquisition appear more attractive relative to other asset types and is there anything you can kind of quantify in terms of cap rate or IRR basis that'd be helpful.
Tom Durels: Good afternoon everyone. We had another strong quarter with 248,000 square feet of total leasing at 10% positive mark to market red spreads for our office and retail portfolio. This represents our seventh consecutive quarter in which we achieved positive absorption based on leased percentage for our commercial portfolio and our ninth straight quarter with positive mark the market leased spreads in our Manhattan office portfolio. We continue to attract new and renew existing tenants who look for high quality product that is modernized, a monetized, well located near mass transit and neighborhood amenities and has best in class sustainability and indoor environmental quality at an accessible price point.
Speaker 7: You know, should we read into this and these kind of acquisitions appear more attractive relative to other asset types? And is there anything you can kind of quantify in terms of caprate or an IRR base?
Speaker 3: I agree. We were very happy to be able to complete 100% recycling of the sales proceeds from prior sales. And it's really a matter of just, as I've said before, we're omnivorous opportunivores. We go for where we think there's the best combination of value and growth potential when we do either acquire or recycle capital.
Hey, Greg we were very happy to be able to complete 100% recycling of the sales proceeds.
From prior sales and and it's really a matter of just as I've said before we're I'm never as opportune of Wars. We go for where we think there is the best combination of value and growth potential when we do either acquire or recycled capital.
And.
I think what you should read into it is that given the nature of a 10 31 exchange, which operates in a compressed time frame you have to operate on the best execute on the best opportunities present presented to at that time.
Tom Durels: We increased our Manhattan office leased percentage to 91.9% in the third quarter which increased 30 basis points compared to last quarter is up 250 basis points compared to a year ago and has increased 490 basis points since the end of 2021. In the third quarter we signed 248,000 square feet of leases which include a 235,000 square feet of leases in our Manhattan office properties and in our retail portfolio we signed a new lease with an exciting sushi restaurant at 1359 Broadway which be a great amenity for office tenants in the Broadway portfolio where we continue to bring in food and services to support the growing demand from office users.
At the right price.
Speaker 3: at the right basis uh... will definitely do office we know how to build out read renovate
At the right basis, we'll definitely do office, we know how to build out re renovate.
Speaker 3: modernize, and monetize with energy efficiency and indoor environmental quality.
Modernize our monetized.
Energy efficiency and indoor environmental quality.
Speaker 3: assets in the right locations with the right size floor plate to perform, we've demonstrated that. The fact is that we have to operate in a compressed time frame, and that's what presented its best opportunity when we had to make that acquisition.
Assets in the right locations with the right size floor plate.
To perform we've demonstrated that.
The fact is that we have to operate into the compressed time frame and that's what presented its best opportunity when we had to make that acquisition.
Tom Durels: Notable leases signed in the third quarter include a 10 year 144,000 square foot leased with LinkedIn at the Empire State Building. LinkedIn acted upon its existing rights to relocate 119,000 square feet from tower floors to base floors and also expanded by 25,000 square feet which brings LinkedIn's total lease square footage at the Empire State Building to 527,000 square feet. Our track record of tenant retention and expansions including this most recent expansion by LinkedIn is the result of excellent work by our entire team to provide exceptional service to our tenants, and this is not just effort, it is results.
Great that's it for me.
At the time.
Thank you our next questions come from the line of John Kim with BMO capital markets. Please proceed with your questions.
Speaker 1: Thank you. Our next questions come from the line if John Kim with BMO capital markets, please proceed with
Thank you.
Speaker 1: Thank you. I had a follow-up on the LinkedIn decision to move from the tower floors to the base floors. Can you comment on the new rent that they leased versus what they vacated and also what the mark-to-market is of the vacated space?
I had a follow up on the Linkedin, a decision to move from the town fluids to the base floors.
Can you comment on the new rents are that at least versus what they vacated.
And also what the mark to market as of the vacated space.
Yeah.
Yeah, John I don't want to get into the specific details of the of the leaf transaction, but I would just generally say we've been signing leases.
Speaker 4: Yeah, John , I don't want to get into the specific details of the lease transaction, but I would just generally say we've been signing leases, in the 70s per square foot in the last quarter, we signed lease in the tower floor in the 80s. And so the deals that we signed this quarter, we're fairly consistent, we've been seeing over the last couple of quarters. Does that answer your question?
In the seventies per square foot in the last quarter, we signed leases.
At least in the tower floor and in the eighties.
Tom Durels: We signed a full floor at 11-year office lease with Starbucks for 25,000 square feet at the Empire State Building. The company will relocated to only New York City Office to the Empire State Building where it currently operates a three-story Starbucks reserve. As Tony mentioned, our long-standing partnership with Starbucks continues to add value to both Starbucks and to our portfolio. And we signed leases for 14 pre-bought office sweeps that told us 66,000 square feet across the portfolio.
And so the deals that we signed this quarter were fairly consistent where we've been seeing over the last couple of quarters.
Does that answer your question.
We moved to the base fluids is that because of it.
Speaker 4: floor plate size or? Yeah, well it's continuous with other spaces they occupy they're moving out of three tower floors.
The floor plate size or yes, what's going with the contiguous with other space that they occupy they're there they're moving out of three tower floors, which are highly desirable marketable they will move to base floors and expand by 25000 square feet of puts them contiguous to other space that they have as well as close to some are built out amenity space.
Speaker 4: which are highly desirable and marketable. They will move to base floors and expand by 25,000 square feet, put them contiguous to other spaces they have, as well as closer to some built-out amenity space with food hall on the third floor. It was part of a prior agreement that we had in connection with the earlier lease that was signed.
Tom Durels: Our reported weighted average TI costs, tenant installation costs varied by quarter depending on the variety of space types leased. Long-term full floor leases typically include chunky installation or equivalent tenant installation contribution. And for most pre-bought space we have already incurred the prior cost to build. Our TI costs in the third quarter will higher than the prior quarter mostly due to the LinkedIn and Starbucks deals which represent about two thirds of our total lease volume this quarter.
With food Hall on the third floor. It was part of a prior agreement that we had in connection with the earlier lease that was signed.
Speaker 4: uh... and you know as a reminder we did not spend or provide the t.i. allowance on those three tower floors of their vacating and will be contributing that allowance money to the base floors that they will build out but they have they are in occupancy currently of those tower floors we were not opportunity to market those in advance of them moving out in 2020 six
And as a reminder, we did not spend or provide the ti allowance on those three tower floors that they're vacating and will be contributing that allowance money to the base floors that they will build out but they have they are in occupancy currently have those tower floors, where you were not opportunities to the market those in advance of them moving out in 2026.
Tom Durels: Both are long-term leases for full floors and the TI costs are consistent with full floor leases that we have signed over the past several years. One thing to note about the LinkedIn transaction is that it includes an as-of-right relocation within the Empire State Building. The TI allowance for the floors they will vacate has not been contributed and will now be used for the new space they will occupy. Against that background for our third quarter Manhattan office leasing the average starting rent with $67.73 per square foot with an average lease term of 8.6 years, 10.9 months of free rent and tenant improvement allowance of $93 per square foot.
So all in all it's really you know favorable deal works very well for Linkedin and it works very well for us as well.
Speaker 4: So all in all, it's a really, you know, favorable deal. Works very well for LinkedIn. It works very well for us as well.
And it's the type of thing that we do to accommodate tenants.
Speaker 4: And it's the type of thing that we do to accommodate, you know, tennis that have expanded and grown within our portfolio.
Tenants that have expanded and grown within our portfolio.
Speaker 4: At the Empire State Building with Starbucks moving in, was set a consolidation of existence space within New York or in expansion in the market? It is a relocation of their New York City offices, of their only New York City offices from the Penn District in Chambers State Building.
At the Empire State building with the Starbucks moving into Bathetic consolidation of existing space within New York or an.
And expansion.
It is a re look yeah as a relocation of their New York City Office is up there only in New York City offices.
From the Penn District, and temporary state border.
Okay, and then Kristina you mentioned R&M expenses dragging down fourth quarter earnings.
Speaker 8: Okay. And then, Christina, you mentioned R&M expenses, dragging down fourth quarter earnings.
Speaker 8: Any further call you could provide on that. And also on the observatory, it looks like you're, you're guiding to a 12% reduction, quarter on quarter, and the observatory versus a 3%.
Any further color you could provide on that and also on the observatory it looks like your.
Tom Durels: That is consistent with our historic free rent and tenant improvement allowance for the last several quarters and represents no increase in our general market terms. Following the close of the third quarter we signed that 11 year, 9,500 square foot new lease with elements, a subsidiary of La Satane at 111 West 33rd Street and extended La Satane existing 21,000 square foot lease for an additional five years. Year date through the third quarter we have leased 787,000 square feet throughout our entire commercial portfolio and as shown on page 10 of our supplemental we have $50 million in incremental cash revenue from sign leases not commenced and free rent burn off.
You're guiding to 12% reduction quarter on quarter and the observatory versus.
A 3%.
On the call.
Speaker 8: quarter reduction last year. Is there anything you're seeing as far as
Reduction last year is there anything you're seeing as far as.
Speaker 8: leads or website traffic that would lead you to think that there'd be a bigger seasonality impact this year.
Leads our website traffic that would lead you to think that there'd be a bigger seasonality impact this year.
Speaker 5: For the observatory, a lot of that is seasonality. So that will continue to provide more information as that goes along. And for the major RNM, nothing in particular to call out, we have regularly planned projects. And it happens to just be timing if it comes into 4Q or if it believes into 2024. So not much notable on either items. These are both.
For the observatory a lot of that is seasonality.
So that will continue to provide more information as that goes along and for the major R&M nothing in particular to call out we are regularly.
You know planned projects and it happened to just be timing if it comes into <unk>, if it bleeds into 2024, so not much notable.
Other items these are tricky.
Tom Durels: Looking ahead to the fourth quarter of 2023 we expect approximately 136,000 square feet will be vacated by year end which will be partially offset by new leases that we expect to be signed during the same quarter. We have manageable lease expirations in 2024 with only 496,000 square feet set to expire of which about 207,000 square feet are known vacate. Based on an annual average of 680,000 square feet of new leases signed in the past three years, we are well-positioned to increase our least percentage in 2024.
Speaker 8: The seasonality impact last year was pretty minimal, though.
This season that seasonality impact last year was pretty minimal about 3%.
Seasonality last year, but last year, we were still in the midst of ramping up when you look overall in past years. There is a drop between <unk> and <unk> overall and happy to go over that more when we have our call later.
Speaker 5: Seasonality last year, but last year we were still in the midst of ramping up. When you look overall in past years, there is a drop between 3Q and 4Q overall. I'm happy to go over that more when we have our call later.
Okay, Sir thank you.
Okay.
Thank you. Our next question is coming from the line of Camille bottle with Bank of America. Please proceed with your questions.
Speaker 1: Thank you. Our next questions come from the line of Camille Bottle with Bank of America. Please proceed with you.
Hello can you talk to the renewal activity. Our teams are executing on it seems like quite a step up compared to the recent years, how far in advance are tenants coming to you.
Speaker 9: Hello, can you talk to the renewal activity your teams are executing on? It seems like quite a step up compared to the recent years. How far in advance are tenants coming?
Tom Durels: In today's market, there is a flight quality at every price tier, and ESRT offers a unique value proposition for tennis as the best-in-class space in our tier. Our price tier represents the biggest segment of the market. We have done the works that ESRT's well-located portfolio is modernized, amenitized, and energy efficient with superior indoor environmental quality, and our product is top in our tier, competitive and attractive to tenants, as demonstrated by our leasing results.
Sure.
Speaker 4: Sure, we proactively speak to all of our tenants on our regular basis, and we certainly ramp up those conversations starting 24 months out before lease expiration. And generally what we find is that the smaller tenants...
Proactively speak to all of our tenants on a regular basis.
We certainly ramp up those conversations starting of 24 months out before lease exploration and generally what we find is that the.
Smaller tenants.
Speaker 4: You know, 10,000 graffiti. And they're really postpone their decision making until the year of their lease expiration. And some don't even get to a total about six months prior to there.
10000 square feet and are really postpone their decision, making until the year of their lease exploration and some don't even get to until about six months prior to their expiration and that's why you see the you know as we update the page 14 of our supplemental.
Speaker 4: expiration. That's why you see the, you know, as we update the page 14 in our supplemental, you know, you'll continue to see a certain amount of tenancy that remains in an unknown category until those tenants get closer to those expiration dates. Generally, we've been...
Tom Durels: Within our multifamily portfolio, the average occupancy of 97.1 percent reflects strong market fundamentals, and we are underway with property and improvements that will enhance future performance. So once again, we had another solid quarter with 248,000 square feet of total office and retail leasing at strong positive market spreads. We increased our Manhattan office portfolio at least percentage by 30 basis points over the prior quarter, and by 250 basis points from a year ago to reach 91.9 percent. We are well positioned to further increase our lease percentage in 2024, and we continue to see strong performance in our multifamily portfolio.
You'll continue to see certain amount of Tennessee that remains in an unknown category until those tend to get closer to those expiration dates are generally we've been.
Speaker 4: averaging around a little over 60% on renewal rate when you factory in early renewals.
Averaging around a little over 60% on renewal rate when you factor in early renewals and I think that look it's a it's a reflection of the fact that we've completed our redevelopment work. We've spent $1 billion to redevelop our portfolio, we've we've scraped and redeveloped, 95% of our tenant spaces with it.
Speaker 4: And I think that, look, it's a reflection of the fact that we've completed our redevelopment work.
Speaker 4: spent a billion dollars to redevelop our portfolio. We've scraped and redeveloped 95% of our tenant spaces. We've added, we've built amenities, we're adding to our amenities, and we're definitely benefiting from a flight to quality as we deliver the best product location in our price tier. And so I think that's leading to better renewal rates and tenant retention overall.
We've added we've we've built amenities that we're adding to our amenities are definitely benefiting from a flight to quality as we deliver the best product and location and are priced here and so I think that's leading to better renewal rates and tenant retention overall.
Christina Chiu: With that, I'll turn that call over to Christina. Thanks, Tom. For the third quarter of 2023, we've reported core FFO of $66 million, or 25 cents per diluted share, which is up 17 percent year-over-year, excluding lease termination fee income. Same-store property cash NOI, excluding lease termination fees, increased 8.8 percent year-over-year, primarily driven by cash rent commencement, and increased tenant expense reimbursement. In the third quarter, the observatory generated NOI of $28 million, and increased of 14 percent year-over-year.
Uh-huh he's definitely had a strong build of occupancy over the past few quarters and I. Appreciate your comments on the lease percent outlook, but on the occupancy side. Do you think you can also continue to maintain or grow that further from here.
Speaker 9: You've definitely had a strong build of occupancy over the past few quarters, and appreciate your comments on the least percent outlook. But on the occupancy side, do you think you can also continue to maintain or grow that further from?
Well, our occupancy has increased 460 basis points.
Speaker 4: Well, our occupancy has increased 460 basis points since the end of...
Since the end of 2021.
Speaker 4: So again, it's an increase of 460 basis points since the end of 2021. We've had seven consecutive quarters of positive, least percentage absorption.
So again, it's an increase of 460 basis points since the end of 2021, we've had we've had seven consecutive quarters of positive leased percentage percentage absorption.
Christina Chiu: Revenue per capita remains high, and admissions continue to improve. Observatory expense was $9.5 million in the third quarter. Year-to-date, the observatory generated NOI of $67 million, which represents NOI recapture of 102 percent as compared to the same period in 2019. As of September 30, 2023, the company had total liquidity of $1.2 billion, which was comprised of $354 million of cash and $850 million of undrawn capacity on a revolving credit facility. At quarter end, the company had net debt of $2.2 billion with a weighted average interest rate of 3.9 percent and a weighted average term to maturity of 5.7 years.
Look we're confident we'll achieve our guidance that we provided for the year end and we're very well positioned for 2024, and we feel really good about our ability to increase occupancy next year based upon a modest amount of known move outs.
Speaker 4: Look, we're confident we'll achieve our guidance that we've provided for the year end. And we're very well positioned for 2024. We feel really good about our ability to increase occupancy next year, based upon a modest amount of known moveouts.
Speaker 4: And look, we have about 207,000 square feet of known vacates in 2024, and that's against the backdrop of roughly 250,000 square feet of leases on vacant space that should commence by next year, and are generally we're averaging over 600,000 square feet of new leasing per year. So I think we're well positioned to improve both leased percentage and occupancy percentage next year.
And look weird.
We have about 207000 square feet of known Vacates in 2024, and that's against the backdrop of roughly 250000 square feet of leases on vacant space that should commence by next year and are generally we're averaging over 600000 square feet of new leasing per year. So I think we're well positioned to improve both leased percentage and occupancy occupancy.
Z percentage next year.
I appreciate the clarification, there and finally, just your comments around looking at office, a central investment can you expand a bit more on the opportunity you would look at would it be more value add or potentially looking at assets to further improve the koala.
Speaker 9: appreciate the clarification there. And finally, just your comments around looking at office as potential as that.
Christina Chiu: We have the lowest leverage among all New York City office reads at 5.5 times net debt to adjust to EBITDAF. We have strong liquidity, no floating rate debt exposure, and no meaningful debt maturity until early 2025. ESRT owns 100 percent of our commercial assets with no complex JV structures, and that allows for great opportunity and flexibility for future financing and capitalization. With this balance sheet flexibility, we have recycled capital, pursued investment opportunities that are additive to our New York City focus portfolio and repurchased our shares and will continue to allocate capital to generate shareholder value.
Speaker 9: Can you expand a bit more on the opportunity you look at? Would it be more value add or potentially looking at assets to further improve the quality of your overall portfolio?
Any of your overall portfolio. Thank you.
Speaker 3: Our skill set is, as Tony here, our skill set is redevelopment. And our unique intellectual property, our IP advantage is we actually don't have to do this conceptually. We know the costs and we know.
Our skill set is S. Tony here, our skill set is redevelopment and our.
Our unique intellectual property or IP advantage is we actually don't have to do this conceptually we know the costs and.
And we know the demand.
Speaker 3: and we know the time it takes because we've done it.
And we know the time it takes because we've done it.
Christina Chiu: Our off-market acquisition of primary tail and Williamsburg during the third quarter completes the redeployment of our 1031 proceeds and is consistent with our strategy to recycle capital into high quality, well-located, high-foot traffic New York City assets with strong demographic trends. Share buybacks remain on the agenda as a strategic part of our capital allocation. While we do not repurchase shares this quarter, from March 2020 to date, we have repurchased 294 million at a weighted average price of $8.18 per share, which represents approximately 12% of total shares outstanding since our share buyback program began.
Throughout our entire portfolio.
At the same time will always react opportunistically.
Two things, which develop what I would say at this point is theres been very little market clearing.
Speaker 3: in the office environment. And if we had seen opportunity that was better than what we chose to invest in with the proceeds from our sales, we would have acted. We didn't. And as soon as we see opportunity, we'll let you know.
In the office environment, and if we had seen.
Opportunity that was better than what we chose to invest.
Invest in with the proceeds from our sales we would have acted.
Didn't.
And.
As soon as we see opportunity, we'll let you know.
Thank you for taking my question.
Speaker 1: Thank you. Our next questions come from the line of Blaine Heck with Wells Fargo. Please proceed with your
Thank you our next questions come from the line of Blaine Heck with Wells Fargo. Please proceed with your questions.
Christina Chiu: And now on to our outlook for the balance of the year. We have adjusted our 2023 guidance as follows. Our 2023 FFO guidance is increased to a tight and range of 85 cents to 87 cents per fully diluted share. This is driven by an improvement in our same store, a cash NOI outlook by 100 basis points, which is primarily due to higher rental revenues to date from tenant expense reimbursements and reduced full-year buffer for a number of items in a downside scenario that were not realized year to date.
Great. Thanks, just wanted to follow up on that last question I'm, just hoping you could talk a little bit more about your appetite for additional new new investments and I guess, you know what level of returns you might be targeting given the increase in rates and again, how you're kind of weighing those returns versus continued reinvestment in your own stock through.
Speaker 7: Great, thanks. Just want to follow up on that last question. Just hoping you could talk a little bit more about your appetite for additional new investments. And I guess, what level of returns you might be targeting given the increase in rates and again, how you're kind of weighing those returns versus continued reinvestment in your own stock through repurchases. I guess just where do those returns need to be on a property acquisition to make them compelling relative to repurchase.
I guess, just where do those returns need to be on a property acquisition to make them compelling relative to to repurchases.
Christina Chiu: Within our updated FFO guidance range, we do expect a sequential decline in the fourth quarter, which factors in an increase in operating expenses largely tied to the expected timing of major R&M projects underway. Our expense expectations for the full year are unchanged and continue to reflect some permanent property operating cost savings and efficiencies that we achieve from pre-COVID levels. Additionally, there is typical seasonality in the observatory business. While we feel good about the observatory's performance to date, we continue to leave room within our updated FFO guidance range for uncertainty around tourism fluctuations and bad weather that could adversely impact fourth quarter results.
Yeah, so well.
Speaker 5: The returns sought and required have obviously gone up because cost of capital has gone up because traditional lenders have created a void and that has led to higher debt cost of capital in this period to make any deals work. I think take that as a given across the board. As we look at the landscape, as Tony mentioned, we believe there will be distressed opportunities and it all comes from buying in at the right basis so that we can do our work, which does require capital, and understanding the rental price points, which will allow us to get leasing velocity the way we have in our own portfolio, and that's the way the returns pencil out. So clearly it's higher than before, but in the absence of actual investment transactions in the market, don't want to get ahead and quote what the returns are. Everyone knows that the bar is higher and it's higher for us as well. As for share buybacks, we do think it's a very attractive opportunity, even currently when we look at our implied price per square foot, implied cap rate.
But the returns are thought in Wroclaw and have obviously gone up because cost of capital has gone up because traditional lenders have created a void and that has led to higher debt cost of capital in this period to make any deals works I think take that as a given across the board as we look at the landscape it Tony.
And we believe there will be distressed opportunities and it all comes from buying in at the right basis. So that we can do our work, which does require capital and understanding the rental price points, which will allow us to get leasing velocity than we have in our own portfolio and that's the way the returns pencil out so clearly it's higher than before.
Christina Chiu: We maintained our expected observatory NOI range of $88 to $96 million for 2023 up from $75 million in 2022. Our NOI guidance assumes observatory expenses average approximately $9 million per quarter in 2023. Our same store commercial occupancy guidance is unchanged at 85 to 87%. In summary, the company continues to manage our best-in-class balance sheet prudently and strategically with strong liquidity to take advantage of attractive investment opportunities that may emerge in this period of uncertainty and capital dislocation.
But in the absence of actual investment transactions in the market and don't want to get ahead and quote what the returns are everyone knows that the bar is higher and it's higher for us as well as for share buybacks. We do think it's a very attractive opportunity and even currently when we look at our implied price per square foot implied cap rate.
And even if there is a question mark on private market valuation and these are very attractive values, especially considering we've already spent the capex. So when you buy ins, yes, Archie star our implied value per square foot is capex already spent right and that makes it or trying to value that said when we think about share buyback, it's not just about the value.
Speaker 5: Even if there's a question mark on private market valuation, these are very attractive values, especially considering we've already spent the catback. So when you buy into ESRT stock, our implied value per square foot is catbacks already spent, right? And that makes it a tremendous value. That said, when we think about share buyback, it's not just about the value opportunity. That is a huge component. It's also about continued operating runway for the company, continued access to capital. And we all know we're in a peak period of capital dislocation. So we need to be prudent about how much we do at a given time, and clearly we've done a lot.
Christina Chiu: Our commercial portfolio is now 87% occupied in 90.5% lease and we continue to benefit from ten in demand for our high-quality assets and the unique value proposition as the best-in-class base in our rental price range and balance sheet strength that we offer as a landlord. Our observatory recovery continues with good momentum year to date and our fourth leg of growth multi-family has performed well and adds to the resiliency of ESRT's cash, was.
Opportunity that is a huge component. It's also about continued operating runway for the company continued access to capital and we all know we're in a peak period of capital dislocations that we need to be prudent about how much we do at a given time and clearly we've done a lot inside.
That's very helpful. Christina then probably for Tom I guess can you talk a little bit more about the man for Ya Prebuilt suites, you know clearly some of the largest operators of co working and flexible space or having trouble and you know Tony has been vocal about leasing to them in the past, but you know are you guys seeing this as an opportunity to.
Speaker 6: That's very helpful, Christina. Then probably for Tom, I guess, can you talk a little bit more about the man for your prebuilt suite? You know, clearly some of the largest operators of coworking and flexible space are having trouble and, you know, Tony's been vocal about leasing to them in the past, but, you know, are you guys seeing this as an opportunity to expand that offering and how has that demand kind of trended for that type of kind of turnkey space?
Operator: And with that, I'll turn the call back to the operator for a Q&A session. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question Q. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment and maybe necessary to pick up your handset before pressing the star keys. One moment please while we poll for your questions.
To expand that offering and how has that demand kind of trended for that type of kind of turnkey space.
Well, we've always had consistent demand and good leasing activity of.
Speaker 4: Well, we've always had consistent demand and good leasing activity.
Speaker 4: For our pre-built suites, fortunately for us, we have about a little over 200 doze per feet of vacant pre-built suites where we've already incurred the cost.
For our prebuilt suites, Fortunately for US we have about a little over 200000 square feet of vacant prebuilt suites, where we've already incurred the costs and don't have to incur that cost on a go forward basis or at least those spaces and they're ready to go ready ready for immediate immediate move in.
Steve Sakwa: Our first questions come from the line of Steve Sakwa with Everquart. Please proceed with your questions. Thanks.
Speaker 4: and don't have to incur that cost on a go for basically, at least those spaces and they're ready to go, ready for immediate move in.
Tom Durels: Good afternoon. Maybe Tom, starting on the leasing. If you could just maybe give us a little bit more specificity on kind of the crime pipeline. And are you seeing more demand today in kind of the Penn station, maybe Garmin area or are you seeing kind of more strength over in the grand central sub market? Yes, Steve. We've got a good pipeline of activity. We've got activity and interest from tenants and that's both proposals and leases and negotiation at one grand central place where we're trading paper on pre-built and full floor, 250 west footies, some street where we have a full floor that's been pre-built.
Speaker 4: They really, I can't say that we see a big trend of movement from.
They are really I can't say that we see a big trend of you know movement from tenants that come out of co working type spaces into our pre built I think that are generally those that want their own office space their own separate environment.
Speaker 4: tenants that come out of co-working-type spaces into our pre-builds. I think that generally, those that want their own office space, their own separate environment.
Speaker 4: uh have opted to lease with someone like us in built
Have opted to lease with someone like us in built space and a lot of those.
Speaker 4: And a lot of those pre-built tenants that we leased to have gone on to grow within our portfolio to subsequently lease.
Prebuilt tennis that we leased two have gone onto grow within our portfolio to subsequently lease full floors with us.
Speaker 4: floors with us. And look, a lot of those tenants also want the direct relationship with the landlord and don't really want to be in a shared or co-working environment. But we signed 14 leases for pre-post this quarter. It's pretty consistent with our pace over the last couple years.
And look a lot of those tenants also want the direct relationship with the landlord and don't really want to be in a corridor of shared or co working.
Tom Durels: We have activity on that. At Empire State Building, we're optimistic at getting another significantly done there as well as some smaller pre-built and a 14-under broadway where we have some leases that expire next year. As part of our known tenant vacates, we're already in active discussions for tenants to backfill that space. So it's really across the portfolio in terms of the pipeline. Generally, it's roughly somewhere around 200,000 square feet of leases and negotiation.
Environment, but we signed 14 leases for People's this quarter, it's pretty consistent with our pace over the last couple of years.
Speaker 3: And just to, not to overstate the obvious, if there were a great deal of demand within those co-working spaces, those companies would not go out of business.
This is not to overstate the obvious.
If there were a great deal of demand within those co working spaces.
Those companies would not go out of business.
Speaker 3: So it's a question of what those tenants have been, what those users have been, and are they suitable for us in the first place? So it's a question of what those tenants have been, what those users have been, and are they suitable for us in the first place?
So it's a question of what those tenants have been but those users have been.
Tom Durels: Timing will dictate as to whether those leases get signed in the fourth quarter or first quarter, but we feel pretty good about our overall pipeline of activity. And it really continues to be from a broad variety of industry types that include technology, fire sector, not-for-profit, professional services, and consumer goods. And so, look, we're on a pretty good run here, right? We've had seven consecutive quarters of positive lease percentage absorption and nine quarters of positive market lease spread. So I think we're incredibly well-positioned.
And are they suitable for us in the first place.
Okay fair enough. Thank you all.
Thank you our next questions come from the line of Julian Burzynski with Green Street. Please proceed with your questions.
Speaker 1: Thank you. Our next questions come from the line of Dylan Berzinsky with Green Street. Please proceed with your questions.
Speaker 8: Hi guys, thanks for taking the question. Just sort of going back to the capital allocation and appreciate the comments on how you guys evaluate underwriting new acquisition opportunities versus repurchasing your stock. But I guess just when you guys are underwriting new acquisitions just from a property type perspective, are you guys requiring a larger rate of return when you guys are underwriting office opportunities or I guess just can you give us a sense for how you guys think about that internally when evaluating opportunities across property?
Hi, guys. Thanks for taking the question just sort of going back to the capital allocation and appreciate the comments and how you guys evaluate underwriting new acquisition opportunities virtually versus repurchasing your stock, but I guess just when you guys are underwriting new acquisitions, just from a property type perspective, you guys are.
Christina Chiu: Good, thanks for that color. Maybe Christina, you know, you had a good third quarter here, 25 cents. I think the full-year guidance implies kind of a 20 cent run rate for the fourth quarter at the midpoint. So can you maybe just walk us through what some of the, I guess, downward, you know, pointing arrows would be for the transition from Q3 to Q4? Sure. So as I mentioned in my remarks, within 4Q, we expect the sequential decline driven by an increase in operating expenses.
Acquiring a larger rate of return when you guys are underwriting office opportunities or I guess, just can you give us a sense for how you guys think about that internally when evaluating opportunities across property types.
Speaker 5: Yeah, so our interest continues to be, as we've mentioned, New York City, office, retail, and multifamily. The return requirements have gone up across the board, and we've discussed a bit on how we underwrite and think about office. And it's hugely predicated on basis and making sure we get high-quality space that we can do our work on. Within our interest in multifamily, I think we do have a recognition that that asset class is being valued differently. Even access to financing is different. So that will come into consideration as we look at it. That asset class has access to agency financing. You are able to buy down on the rate. And that cost of debt capital will impact the returns that buyers will expect. And it's also a very healthy asset class with high occupancy levels and continued rental strength. So we have to keep that in mind as we look at opportunities. That said, we'll still look at individual opportunities that come along and make sure that that asset is additive to our portfolio. And there is upside to our entire portfolio and shareholder portfolio.
So our interest continues to be as we've mentioned New York City office retail and multifamily and you know the return requirements have gone up across the board and we've discussed a bit on how we underwrite and think about all this and its hugely predicated on basis, and making sure we get high quality fee and we can do our work on them.
Christina Chiu: And some of that in large part is due to some major R&M projects that are underway. So this is just timing and where the expenses fall out. For the full year, though, we would note that OPEC's change is as we guided, which is about an 8 percent increase, so that is consistent. And the other piece is the typical seasonality in the observatory business. So if you look back, there traditionally has been some seasonality factor between 3Q and 4Q. And as we mentioned, we do factor in, you know, a little bit of uncertainty around tourism fluctuations and bad weather.
And then our interest in multifamily I think we do have a recognition that that asset class is being valued differently. Even access to financing is different so that will come into consideration as we look at it in that asset class has access to agency financing you are able to buy down on the rate and that cost of debt.
Cap it all will impact that returns that buyers will expect and it's also a very healthy asset class with high occupancy levels and continued mental strength. So we have to keep that in mind as we look at opportunities that said, we will still look at individual opportunities that come along and make sure that that asset is additive to our.
Christina Chiu: So that would be the primary driver of that sequential Okay, and then just last question. I know you've got a mortgage coming due up in Stanford. I think it's kind of late in 2024. You know, that asset's around 80% occupied. Yeah, I'm just curious kind of the discussions with the lenders today. How you're thinking about that asset and you know, is that something that's, you know, kind of long term for the portfolio.
Our portfolio and there is upside to our entire portfolio and shareholder base.
I appreciate that commentary and then I guess just one on occupancy.
Speaker 8: appreciate that commentary and then I guess just just one on occupancy you know I think you ended the quarter at 87% occupancy you didn't change guidance so you guys are ending the quarter at the high end just curious sort of the movie and pieces here as you look towards our key for
We ended the quarter at 87% occupancy you didn't change guidance. So you guys are ending the quarter at the high end just curious sort of the moving pieces here as you look towards Q.
Christina Chiu: Yeah, we continue to have active discussion with our lenders on that piece of property and mortgage. As well as other maturities. And we'll keep the market a pride, but we run the portfolio and these are discussions that we always have and continue to discuss what makes the most sense with our lending partners.
Q4.
Speaker 4: Yep. Well, first, we're confident that we'll achieve our guidance. That's 85, 87 percent for the portfolio and about 100 basis points higher for Manhattan office.
Yeah, well first we're confident that we'll achieve our guidance Ah that's 85% to 87% for the portfolio and about 100 basis points higher for Manhattan Office as I stated earlier, we do expect about 136000 square feet of tenants to vacate in the fourth quarter and that will be partially offset.
Speaker 4: As I stated earlier, we do expect about 136,000 square feet of tenants to vacate.
Speaker 4: in the fourth quarter. And that will be partially offset by finally so that can mention.
Steve Sakwa: Thank you. Thanks. Thank you.
Ah by sign leases that commence in the fourth quarter and anything that new that we signed that will also commence in the fourth quarter in.
Michael Griffin: Our next questions come from the line of Michael Griffin with city. Please proceed with your questions. Great. Thanks. Maybe just going to Tom and the leasing.
Speaker 4: in the fourth quarter and anything new that we sign that will also commence in the fourth quarter.
Speaker 4: In 2024, as I commented, I feel really good about our ability to increase both occupancy and leased percentage based upon the modest amount of known move-outs. We've proactively
In 2024 as I commented, we're I feel really good about our ability to to increase both occupancy and leased percentage based upon the modest amount of known move outs.
Tom Durels: I'm curious if you know that you noticed any time for space takers that they're delaying decision making in terms of taking space and then you provide some more culture on concession packages. Appreciate you. We provided kind of the prepared remarks, but you've kind of expectations for that on a go forward basis will be helpful. Sure. I believe your first question was that the timing of tennis in terms of deciding on their on their leasing.
We proactively managed our rent roll.
Speaker 4: We have built space, we have modernized buildings, we have robust amenities, we're adding to those amenities that open up next year, so I think we're very well positioned to improve upon our performance and our percentages for next year.
We have built space, we have modernized buildings, where we have a robust and manage amenities, where we're adding to those amenities that open up next year. So I think we're very well positioned to improve upon our performance in our percentages for next year.
Tom Durels: And it really is is 10 by 10. It will range from very quick decisions, and particularly. For those that want built space that where our pre-built suite and even full floor pre-built will attract those tenants. We're working on a deal right now. We're actually a tenant is is is has a pretty quick timeline of whether I want to get get into the space. And then it's others that that can enter the market, you know, as much as 18 months, you know, or more before their leasing, currently expires and they'll be shopping the market for an extended period of time.
Thanks, guys.
Speaker 1: Thank you. We'll now turn the call back over to Tony Malcolm, Chairman, President and CEO .
Thank you we will now turn the call back over to Tony Malkin, Chairman, President and CEO for closing remarks.
Speaker 3: Thank you very much, everybody. A few final notes. This month, we celebrated ESRT's first decade as a public company listed on the New York Stock Exchange. Since our IPO in October 2013, we really have not followed the crowd as we have made and executed our plans to be the New York City-focused REIT with four diverse verticals, office, the iconic Empire State Building Observatory, retail, and multifamily, and a best-in-class balance sheet.
Thank you very much everybody a few final notes. This month, we celebrated our ESR team's first decade as a public company listed on the New York Stock Exchange.
Since our IPO in October 2013, we really have not followed the crowd is we've made and executed our plans to be the New York City focused REIT with four diverse verticals.
Tom Durels: So I can't say there's a trend as much as it just really runs a wide gamut depending upon the particular tenants needs and what's going on with their business as well as the space type that they're pursuing.
Office, the iconic Empire State building observatory retail and multifamily and a best in class balance sheet.
Speaker 3: Our leadership and sustainability in our carbon neutral commercial real estate portfolio continues to put points on the board with leasing and the development of practices to inform policy.
Our leadership in sustainability and our carbon neutral commercial real estate portfolio continues to put points on the board with leasing in the development of practices to inform policy.
Tom Durels: And your next question was on leasing costs. Well, I made the comments earlier in my prepared remarks about, you know, what drove our leasing costs this quarter. We're really not seeing a significant change in the market generally most of the leasing we do involves a fully pre built space that's been built on spec for which we already have a significant significant amount of built inventory and we've already incurred that cost to turnkey installations.
Speaker 3: The biggest callout goes to our dedicated employees, directors, tenants, stakeholders, and partners who drive our success and position ESRT for future growth. Thank you all for your participation in today's call. We look forward to the chance to meet with many of you at Nondale Road Show's conferences and property tours in the months ahead. Until then, thank you for your interest and onward enough.
The biggest call out goes to our dedicated employees directors tenants stakeholders and partners, who drive our success and position ESR team for future growth. Thank you all for your participation in today's call. We look forward to the chance to meet with many of you at non deal Roadshows and conferences and property tours in the months ahead.
Till then thank you for your interest and onward and upward.
Tom Durels: And that's generally, you know, what we continued to see in the marketplace and that was what we experienced on both the LinkedIn and the Starbucks transactions, which has been consistent with the market over the last and consistent with the leasing we've done over the last several years. Great, thanks.
Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect your lines at this time.
Speaker 1: Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.
Enjoy the rest of your day.
Tom Durels: And then just on the retail acquisition, William Berg, you know, should we read into this is these kind of acquisitions here more attractive relative to other asset types. And is there anything you can kind of quantify in terms of cap rate or an IRR basis? That would be helpful. I guess we were very happy to be able to complete 100% recycling of the sales proceeds from prior sales and it's really a matter of just as I've said before we're omnivorous opportunities.
Okay.
[music].
Tom Durels: We go for where we think there's the best combination of value and growth potential when we do either acquire or recycle capital and I think what you should read into it is that given the nature of a 1031 exchange, which operates in a compressed time frame, you have to operate on the best execute on the best opportunities presented to at that time. At the right price, at the right basis, we'll definitely do office.
Tom Durels: We know how to build out, renovate, modernize, and monetize with energy efficiency and indoor environmental quality assets in the right locations, with the right size floor plate to perform. We've demonstrated that. The fact is that we have to operate in a compressed time frame, and that's what presented its best opportunity when we had to make that acquisition. Great.
Michael Griffin: That's it for me. Once we're done. Thank you.
John Kim: Our next questions come from the line of John Kim with BMO Capital Markets. Please proceed with your questions. Thank you. I had a follow-up on the LinkedIn decision to move from the tower floor to the base floor. Can you comment on the new rent that they leased versus what they vacated, and also what the market market is of the vacated space? John, I don't want to get into the specific details of the lease transaction, but I would just generally say we've been signing leases in the 70s per square foot.
John Kim: Last quarter, we signed leasing the tower floor in the 80s, and so the deals that we signed this quarter were fairly consistent. We've been seeing over the last couple of quarters. Does that answer question? We moved to the base floor. Is that because of the floor plate size? Yeah, well, it's continuous with other space that they occupy. They're moving out of three tower floors, which are highly desirable and marketable. They will move to base floors and expand by $25,000 square feet to put them continuous to other space that they have as well as close to some built out amenity space with the football on the third floor.
John Kim: It was part of a prior agreement that we had in connection with the earlier lease that was signed. As a reminder, we did not spend or provide the P.I, allowance on those three tower floors that they're vacating and we'll be contributing that allowance money to the base floors that they will build out. They are in occupancy currently of those tower floors. We were not opportunity to market those in advance of them moving out in 2026.
John Kim: All in all, it's a really favorable deal. It works very well for LinkedIn. It works very well for us as well. It's the type of thing that we do to accommodate tenants that have expanded and grown within our portfolio.
John Kim: At the Empire State Building with Starbucks moving in, is that a consolidation of existing space within New York or an expansion in the market? It is a relocation of their New York City offices, of their only New York City offices from the PAN District in Chambers State Building. Yeah, okay. And then Christina, you mentioned R&M expenses dragging down fourth quarter earnings. Any further call you could provide on that. And also on the observatory, it looks like you're you're guiding to a 12% reduction quarter on quarter and the observatory versus 3% quarter reduction last year.
John Kim: Is there anything you're seeing as far as leads or website traffic that would lead you to think that there'd be a bigger humanity impact this year? For the observatory, a lot of that is seasonality. So that, you know, will continue to provide more information as that goes along. And for the major R&M, nothing in particular to call out. We have regularly planned projects. And it happens to just be timing if it comes into 4Q or if it leads into 2024.
John Kim: So not much notable on either item. These are both routine. The seasonality impact last year was pretty minimal, though, 3%. Seasonality last year, but last year, we were still in the midst of ramping up. When you look overall in past years, there is a drop between 3Q and 4Q overall. And happy to go over that more when we have our call later. Okay, sir.
John Kim: Thank you.
Camille Bonnel: Our next question has come from the line of Camille Bottle with Bank of America. Please proceed with your questions.
Tom Durels: Hello. Can you talk to the renewal activity your teams are executing on? It seems like quite a step up compared to the recent years. How far speak to all of our tenants on our regular basis? And we certainly ramp up those conversations starting 24 months out before lease expiration. And generally, what we find is that the smaller tenants, you know, 10,000 square feet, and they're really postponed their decision making until the year of their lease expiration.
Tom Durels: And some don't even get to a total about 6 months prior to their expiration. And that's why you see the, you know, as we update the page 14 in a sentimental, you know, you'll continue to see certain amount of tenancy that remains in an unknown category until those tenants get closer to those expiration dates. Generally, we've been abging around a little over 60% on renewal rate when you factory in early renewals.
Tom Durels: And I think that, look, it's as a reflection of the fact that we've completed our redevelopment work. We've spent a billion dollars to redevelop our portfolio. We've scraped and redeveloped 95% percent of our tenant spaces. We've added, we've built amenities. We're adding to our amenities and we're definitely benefiting from a flight to quality as we deliver the best product location in our price tier. And so I think that's leading to better renewal rates and tenant retention overall.
Tom Durels: And you've definitely had a strong build of occupancy over the past few quarters and appreciate your comments on the least percent outlook. But on the occupancy side, do you think you can also continue to maintain or grow that further from here? Well, occupancy has increased 460 basis points since the end of 2021. So again, it's an increase of 460 basis points since the end of 2021. We've had seven consecutive quarters of positive, least percentage absorption.
Tom Durels: Look, we're confident we'll achieve our guidance that we've provided for the year end and we're very well positioned for 2024. We feel really good about our ability to increase occupancy next year based upon a modest amount of known moveouts. And look, we have about 207,000 square feet of known vacates in 2024. And that's against the backdrop of roughly 250,000 square feet of leases on vacant space that should commence by next year. And generally we're averaging over 600,000 square feet of new leasing per year. So I think we're well positioned to improve both least percentage and occupancy percentage next year.
Tom Durels: Appreciate the clarification there. And finally, just your comments around looking at office as potential investments. Can you expand a bit more on the opportunity you look at? Would it be more value add or potentially looking at assets to further improve the quality of your overall portfolio?
Tony Malkin: Thank you. Our skill set is as Tony here, our skill set is redevelopment and our unique intellectual property, our IP advantage is we actually don't have to do this conceptually. We know the costs and we know the demand and we know the time it takes because we've done it throughout our entire portfolio. At the same time, we'll always react opportunistically to things which develop what I would say at this point is there have been very little market clearing.
Tony Malkin: In the office environment and if we had seen opportunity that was better than what we chose to invest in with the proceeds from our sales, we would have acted we didn't. And you know, as soon as we see opportunity, we'll let you know.
Camille Bonnel: Thank you for taking my question.
Blaine Heck: Thank you. Our next questions come from the line of Blaine Heck with Wells Fargo.
Christina Chiu: Please proceed with your questions. Great. Thanks. Just want to follow up on that last question. Just hoping you could talk a little bit more about your appetite for additional new investments. And I guess you know what level of returns you might be targeting given the increase in rates and again how you're kind of weighing those returns versus continually investing in your own stock through repurchases. I guess just where do those returns need to be on a property acquisition to make them compelling relative to repurchases?
Christina Chiu: Yeah, so look, the returns sought and required have obviously gone up because cost of capital has gone up because traditional lenders have created a void and that has led to higher debt cost of capital in this period to make any deals work. I think take that as a given across the board as we look at the landscape. As Tony mentioned, we believe there will be distressed opportunities and it all comes from buying in at the right basis so that we can do our work which does require capital and understanding the rental price points which will allow us to get leasing velocity the way we have in our own portfolio.
Christina Chiu: And that's the way the returns pencil out so clearly it's higher than before, but in the absence of actual investment transactions in the market, don't want to get ahead and quote what the returns are. Everyone knows that the bar is higher and it's higher for us as well. As for share buybacks, we do think it's a very attractive opportunity even currently when we look at our implied price per square foot implied cap rate.
Christina Chiu: Even if there's a question mark on private market valuation, these are very attractive values, especially considering we've already spent the catback. So when you buy into ESRT stock, our implied value per square foot is capex already spent and that makes it a tremendous value. That said, when we think about share buyback, it's not just about the value opportunity that is a huge component. It's also about continued operating runway for the company, continued access to capital and we all know we're in a peak period of capital dislocation so we need to be prudent about how much we do at a given time and clearly we've done a lot.
Christina Chiu: That's very helpful, Christina.
Tom Durels: Then probably for Tom, I guess can you talk a little bit more about the man for your prebuilt suite, you know, clearly some of the largest operators of co-working and flexible space are having trouble and, you know, Tony's been vocal about leasing to them in the past, but you know, are you guys seeing this as an opportunity to expand that offering and how has that demand kind of trended for that type of kind of turnkey space? Well, we've always had consistent demand and good leasing activity for our prebuilt suites.
Tom Durels: Fortunately for us, we have about a little over 200,000 square feet of vacant prebuilt suites where we've already incurred the costs and don't have to incur that cost on a go-forward basis. We lease those spaces and they're ready to go ready, ready for immediate, immediate move in. They really, I can't say that we see a big trend of, you know, movement from tennis that come out of co-working type spaces into our prebuilt.
Tom Durels: I think that generally those that want their own office space, their own separate environment, have opted to lease with someone like us in built space. And a lot of those, you know, prebuilt tennis that we lease to have gone on to grow within our portfolio to subsequently lease full floors with us. And look, a lot of those tennis also want the directly relationship with the landlord and don't really want to be in a shared or co-working environment.
Tom Durels: But we find 14 leases for pre-posed discord are pretty consistent with our pace over the last, you know, couple of years. And just not to overstate the obvious, if there were a great deal of demand within those co-working spaces, those companies would not go out of business. So it's a question of what those tennis have been, what those users have been, and are they suitable for us in the first place? Yeah, there are no.
Dylan Burzinski: Thank you all. Thank you.
Christina Chiu: Our next questions come from the line of Dylan Burzinski with Green Street. Please proceed with your questions. Hi guys, thanks for taking the question. I'm just sort of going back to the capital allocation and appreciate the comments on how you guys evaluate underwriting new acquisition opportunities versus repurchasing your stock. But I guess just when you guys are underwriting new acquisitions just from a property type perspective, are you guys requiring a larger rate of return when you guys are underwriting office opportunities?
Christina Chiu: Or I guess just can you give us a sense for how you guys think about that internally when evaluating opportunities across property types? Yeah, so our interest continues to be, as we've mentioned, New York City, Office, Retail, and Multi-Family. You know, the return requirements have gone up across the board and we've discussed a bit on how we underwrite and think about office. And it's hugely predicated on basis and making sure we get high quality space that we can do our work on.
Christina Chiu: Within our interest in multi-family, I think we do have a recognition that that asset class is being valued differently, even access to financing is different, so that will come into consideration as we look at it. That asset class has access to agency financing. You are able to buy down on the rate and that cost of debt capital will impact the returns that buyers will expect. And it's also a very healthy asset class with high occupancy levels and continued rental strength, so we have to keep that in mind as we look at opportunities. That said, we'll still look at individual opportunities that come along and make sure that that asset is additive to our portfolio and there is upside to our entire portfolio and shareholder.
Tom Durels: I appreciate that commentary. And then I guess just just one on occupancy. You know, I think you ended the quarter at 87% occupancy. You didn't change guidance. So you guys are ending the quarter at the high end. Just curious sort of the movie in pieces here as you look towards our key for. Yeah, well, first we're confident that we will achieve our guidance that's 85 87% for the portfolio and about 100 base points higher for Manhattan office.
Tom Durels: As I stated earlier, we do expect about 136,000 square feet of tenants to vacate in the fourth quarter. And that will be partially offset by finally spec comments in the fourth quarter and anything new that we find that will also comment in the fourth quarter. In 2024, as I commented, I feel really good about our ability to increase both occupancy and least percentage based upon the modest amount of known move outs.
Tom Durels: We've proactively managed our rent roll. We have built space. We have modernized buildings. We have robust amenities. We're adding it to those amenities that open up next year. So I think we're very well positioned to improve upon our performance and our percentages for next year.
Tom Durels: Thank you.
Tony Malkin: We'll now turn the call back over to Tony Malcolm, chairman, president and CEO for closing remarks. Thank you very much, everybody. A few final notes this months.
Tony Malkin: We celebrated ESRT's first decade as a public company listed on the New York Stock Exchange. Since our IPO on October 2013, we really have not followed the crowd as we have made and executed our plans to be the New York City focused, we've just reached with four diverse verticals office, the iconic Empire State Building Observatory, retail and multi-family and the best in class balance sheet. Our leadership and sustainability and our carbon neutral commercial real estate portfolio continues to put points on the board, with leasing and the development of practices to inform policy.
Operator: The biggest call out goes to our dedicated employees, directors, tenants, stakeholders and partners who drive our success and position ESRT for future growth. Thank you all for your participation in today's call. We look forward to the chance to meet with many of you at Nondale Roadshow's conferences and property tours in the months ahead. Until then, thank you for your interest and onward and upward. Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time.
Operator: Enjoy the rest of your day.