Q1 2024 Empire State Realty Trust Inc Earnings Call
Operator: Thank you; you may begin.
Question and answer session will follow the formal presentation, if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Heather M. Lawson Houston: Good afternoon. Thank you for joining us today for Empire State Realty Trust's first quarter 2024 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 was posted in the investor section of the company's website at ESRTREIT.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
Heather M. Lawson Houston: As a reminder, this conference is being recorded it is now my pleasure to introduce Heather Houston Senior Vice President Chief Counsel Corporate N Secretary. Thank you you may begin.
Heather M. Lawson Houston: Good afternoon. Thank you for joining us today for Empire State Realty Trust first quarter 2024 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 are posted in the investors section of the company's website at E. S. R. T read Doctor.
Heather M. Lawson Houston: Uh huh.
Heather M. Lawson Houston: On today's call management's prepared remarks and answers to your questions may contain forward looking statements as defined in applicable securities laws, including those related to market conditions property operations capital expenditures income expense financial result, and proposed transactions.
Heather M. Lawson Houston: 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.
Heather M. Lawson Houston: As a reminder, forward-looking statements represent management's current efforts, and 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 statement in the future.
Heather M. Lawson Houston: Empire State Realty Trust assumes no obligation to update any forward looking statement in the future. We encourage listeners to review the more detailed discussion related to these forward looking statements in the company's filings with the SEC.
Heather M. Lawson Houston: We encourage listeners to review the more detailed discussions related to these forward-looking statements in the company's filings with the SEC. 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. The definitions and reconciliations of these measures to the most directly comparable gap measures are included in the company's release and supplemental package, both available on the company's website. Now, I will turn the call over to Tony Malkin, our Chairman and Chief Executive.
Heather M. Lawson Houston: During today's call, we will discuss certain non-GAAP financial measures such as SSL modified in core F. L. 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 minister equity comparable GAAP measures.
Anthony E. Malkin: Are included in the company's release and supplemental package each available on the company's website.
Heather M. Lawson Houston: Now I will turn the call over to Tony Malkin, Our chairman and Chief Executive Officer.
Anthony E. Malkin: Thanks, Heather, and good afternoon to everyone. Yesterday, ESRT reported strong first quarter results to start the year, with strong leasing progress, observatory results, and proactive balance sheet action. Today, we will discuss them and our outlook for the rest of 2024. In the first quarter, FFO came in above expectation; office leasing, absorption, and spreads each showed consistently strong positive results. We delivered our 9th consecutive quarter of leased percentage growth and our 11th consecutive quarter of positive mark-to-market lease spread.
Anthony E. Malkin: Yesterday yeah.
Anthony E. Malkin: Day, we will discuss them in our outlook for the rest of 2024.
Anthony E. Malkin: In the first quarter, that's F O came in above expectations.
Anthony E. Malkin: Office leasing absorption in spreads.
Anthony E. Malkin: Our observatory performance continues and.
Anthony E. Malkin: Our observatory performance continues, and we maintain a best-in-class balance sheet. Year to date, the company completed several capital markets actions to ensure balance sheet strength and flexibility, which put us on our front foot, and we are eager to create additional value for our shareholders in the current real estate cycle. We leased about 250,000 square feet in our top-of-tier commercial portfolio to start the year. Our Manhattan office portfolio had 200 basis points of positive leased absorption year over year and is now nearly 93% leased.
Anthony E. Malkin: Year to date the company completed several capital markets actions to ensure the balance sheet strength and flexibility, which put us on our front foot and we're eager to create additional value for our shareholders and the current real estate cycle.
Anthony E. Malkin: We leased about 250000 square feet and our top tier commercial portfolio to start the year.
Anthony E. Malkin: Tom will discuss our current activities. Our office leasing has outperformed the market because 1. We maintained balance sheet discipline during the financing and acquisition booms, did not lever up, and did not pay top market prices.
Anthony E. Malkin: Our office leasing has outperformed the market because one we maintained balance sheet discipline during the financing and acquisition booms did not lever up and did not pay top of market prices.
Anthony E. Malkin: Two.
Anthony E. Malkin: For a decade, we invested portfolio-wide in upgrades to modernize and amenitize our portfolio. This included intentional vacates to consolidate floors, modernization through gut renovation, addition of amenities, and leadership in energy efficiency and indoor environmental quality. These efforts have resulted in top-of-tier, future-ready product that attracts high-quality tenants. Our goal has always been to get the best deals in good times, get the deals in challenging times, and draw consistent leasing volumes through the cycle. 4.
Anthony E. Malkin: For a decade, we invested portfolio wide and upgrades to modernize and monetize our portfolio.
Anthony E. Malkin: This included intentional vacates to consolidate floors modernization through gut renovation.
Anthony E. Malkin: Additional amenities and leadership and energy efficiency and indoor environmental quality.
Anthony E. Malkin: These efforts have resulted in top tier future ready product that attracts high quality tenants.
Anthony E. Malkin: Three.
Anthony E. Malkin: Our goal has always been to get the best deals in good times get the deals in challenging times and draw consistent leasing volumes through cycles.
Anthony E. Malkin: For our price point and unique value proposition cater to the deepest segment of tenant demand and the New York City office market.
Anthony E. Malkin: Our price point and unique value proposition cater to the deepest segment of tenant demand in the New York City office market. ESRT's commitment to service and tenant relationships drives strong tenant retention and expansion within our portfolio over time. Since our IPO, we have seen over 2.7 million square feet of tenant expansions in our portfolio. Tenants look to partner with a financially stable landlord who will maintain high quality standards and protect their assets. We have the lowest leverage of any New York City REIT and a strong liquidity position with no significant debt maturity until 2026 December. Christina will later discuss, seven, and last.
Speaker Change: Five <unk>.
Anthony E. Malkin: Yes, our teams commitment to service and tenant relationships drives strong tenant retention and expansion within our portfolio over time.
Anthony E. Malkin: Since our IPO, we have seen over two 7 million square feet of tenant expansions in our portfolio.
Anthony E. Malkin: Six.
Anthony E. Malkin: Tenants look to partner with a financially stable landlord, who will maintain high quality standards and their assets.
Anthony E. Malkin: We have the lowest leverage of any New York City, REIT and a strong liquidity position with no significant debt maturity until 2026 December.
Anthony E. Malkin: Kristina will later discuss this.
Speaker Change: Seven and last this is how we consistently put points on the board.
Anthony E. Malkin: This is how we consistently put points on the board. The observatory continues to perform. In the face of an abundance of rainy, low-visibility days, first quarter NOI was up 13% year-over-year, driven by the continued improvement in revenue per cap and a 10% increase in visitation, which was partially helped by the shift of the Easter holiday into March of this year as compared to April in 2023, generally based upon a gradual build-back of international travel.
Anthony E. Malkin: The observatory continues to perform.
Anthony E. Malkin: In the face of an abundance of rainy low visibility days first quarter NOI was up 13% year over year.
Anthony E. Malkin: Driven by the continued improvement in revenue per caps and a 10% increase in visitation.
Anthony E. Malkin: Which was partially helped by the shift of the Easter holiday into March of this year as compared to April in 2023.
Anthony E. Malkin: And.
Anthony E. Malkin: Generally based upon a gradual build back of international travel.
Anthony E. Malkin: Our NOI per cap towers above the competition.
Anthony E. Malkin: Our NOI per-cap towers above the competition. There is further upside to our observatory's performance as tourism continues to return, and we have exceptional global brand awareness. Our observatory is iconic New York City and has been resilient through all economic cycles, new competition, and the pandemic. All this is shown on slide 15 of our investor presentation. Sustainability is a cornerstone of ESRT's business philosophy, and we are a leader in environmental stewardship and healthy building performance.
Anthony E. Malkin: We have an exceptional global brand awareness.
Anthony E. Malkin: Our observatory is iconic New York City and.
Anthony E. Malkin: Our track record of successful partnerships with tenants and their employees and sustainability attracts tenants. We received the highest scores in this area this quarter. We are pleased to receive the Energy Star Partner of the Year Sustained Excellence Award for the second consecutive year, and the Well Equity Award and Well Health Safety Leadership Award. This makes ESRT the first commercial and multifamily REIT to achieve Well Health Safety certification four times, achieve well equity, and have all buildings enrolled in wells at scale.
Anthony E. Malkin: Our track record of successful partnerships with tenants and their employees and sustainability attracts tenants.
Anthony E. Malkin: This quarter, we were pleased to received the energy star partner of the year sustained Excellence award for the second consecutive year.
Anthony E. Malkin: And the well equity award and well Health Safety Leadership Award.
Anthony E. Malkin: This makes E. S. R T. The first commercial and multifamily REIT to achieve well health safety certification four times.
Anthony E. Malkin: We are committed to delivering long-term value to our shareholders through continued excellence and sustainability. I encourage you all to read our just released 2024 Sustainability Report, which contains full details on our recent accomplishments and initiatives. ESRT's 2024 priorities include growth and a company-wide focus on cash generation from continuing operations. Of course, day in and day out, our focus is to lease space, sell tickets to the observatory, manage the balance sheet, and achieve our sustainability goals.
Anthony E. Malkin: I encourage you all to read our just released 2020 for sustainability report that contains full details on our recent accomplishments and initiatives.
Anthony E. Malkin: <unk> 2024 priorities include gross.
Anthony E. Malkin: And a company wide focus on cash generation from continuing operations.
Anthony E. Malkin: Of course day in and day out our focus is to lease space sell tickets to the observatory manage the balance sheet and achieve our sustainability goals.
Anthony E. Malkin: These actions together enhance shareholder value. We have a future-ready portfolio and an opportunity-ready balance sheet, which give us options today. We are in a position to take advantage of opportunities created through market disruptions and capital dislocation. Tom, Steve, and Christina will provide more detail on our progress and how we plan to accomplish these goals in 2024.
Anthony E. Malkin: These actions together enhance shareholder value.
Anthony E. Malkin: We have a future ready portfolio and an opportunity ready balance sheet, which give us options today.
Thomas P. Durels: Hey, thanks, Tony. And good afternoon, everyone.
Tom: Thanks, Tony and good afternoon, everyone.
Speaker Change: We just concluded our ninth consecutive quarter in which we increased our leased percentage for our office and retail portfolio, that's nine consecutive quarters of positive net absorption.
Thomas P. Durels: We just concluded our ninth consecutive quarter in which we increased our leased percentage for our office and retail portfolio. That's nine consecutive quarters of positive absorption and an increase of 540 basis points in leased percentage since the fourth quarter of 2021. The first quarter of 2024 was our 11th straight quarter with positive market market lease spreads in our Manhattan office portfolio. We are off to a strong start in 2024 with 248,000 square feet of total leasing in the first quarter.
Thomas P. Durels: And an increase of 540 basis points in leased percentage since the fourth quarter of 2021.
Thomas P. Durels: The fourth quarter of 2024, it was our 11th straight quarter with positive Mark to market lease spreads in our Manhattan office portfolio.
Thomas P. Durels: We're off to a strong start in 2024 with 248000 square feet of total leasing in the first quarter.
Thomas P. Durels: New and renewal leases were signed at positive mark to market rent spreads of four 8%.
Thomas P. Durels: New and renewal leases were signed at positive market-to-market rent spreads of 4.8 percent and a weighted average lease duration of approximately 10 years. We increased our Manhattan office lease percentage to 92.7% in the first quarter, which increased 60 basis points compared to last quarter and is up 200 basis points compared to a year ago, and Manhattan office occupancy increased by 160 basis points from last quarter to 88.9%. Notable office leases signed in the first quarter include a 16-year, 68,000-square-foot expansion lease with Burlington at 1400 Broadway. Burlington has expanded with us three times, with this latest expansion along with an extension of their current lease. Burlington will occupy a total of 170,000 square feet on a 16-year lease term.
Thomas P. Durels: On a weighted average lease duration of approximately 10 years.
Thomas P. Durels: In the first quarter, which increased 60 basis points compared to last quarter.
Thomas P. Durels: And is up 200 basis points compared to a year ago.
Thomas P. Durels: Notable office leases signed in the first quarter included a 16 year 68000 square foot expansion lease with Burlington at 1400 Broadway.
Thomas P. Durels: They can walk in Pi, a total of 170000 square feet for a 16 year lease term.
Thomas P. Durels: At 11 year, 57000 square foot, new lease with a solid de Janeiro, a loss of <unk> subsidiary at one Grand Central place.
Thomas P. Durels: An 11-year, 57,000-square-foot new lease with Sault de Janeiro, a L'Occitane subsidiary at One Grand Central Place, and we signed leases for 14 pre-vote offices that total 67,000 square feet. Additionally, as shown on page 10 of our supplementary, we have $47 million in incremental cash revenue from signed leases not committed and free rent burn-off. Our non-consecutive quarters of strong leasing performance demonstrate that in today's market, there is a flight to quality in product, service, and balance.
Thomas P. Durels: And we signed leases for 14 pre built office suites that totaled 67000 square feet.
Thomas P. Durels: Additionally, as shown on page 10 of our supplemental we have $47 million in incremental cash revenue from signed leases not commenced and free rent burn off.
Thomas P. Durels: Our nine consecutive quarters of strong leasing performance demonstrate that in today's market. There is a flight to quality in product service and balance sheet, Yes. Archie continues to offer the topic to your offering in our price bracket and our portfolio offers what tenants watch.
Thomas P. Durels: ESRT continues to offer the top of the tier offering in our price bracket, and our portfolio offers what tenants want, a high-quality product that is fully modernized. We've invested approximately a billion dollars since our IPO to modernize our buildings, amenities with a variety of fitness, food offerings, tenant lounges, conferencing, and abundant outdoor space. Energy Efficiency, Sustainability, and Indoor Environmental Quality, locations near mass transit and neighborhood amenities.
Thomas P. Durels: High quality product that is fully modernized we've invested approximately $1 billion since our IPO to modernize our buildings.
Thomas P. Durels: Amenities with a variety of fitness food offerings tenant lounges, conferencing and abundant outdoor spaces.
Thomas P. Durels: Energy efficiency and sustainability and indoor environmental quality.
Thomas P. Durels: Locations near mass transit and neighborhood amenities.
Thomas P. Durels: Quality Service, Turnkey Built Tenant Spaces, an accessible price point as tenants look for value, and Balance Sheet Strength. Today, in advance of every building tour, the broker's qualification list includes the capital stack of the building and the financial strength of the landlord. Tenants make long-term commitments with us based on our financial strength and confidence that we will deliver on our promise.
Thomas P. Durels: Quality service turnkey built tenant spaces and.
Thomas P. Durels: An accessible price point as tenants look for value.
Thomas P. Durels: And balance sheet strength today.
Thomas P. Durels: Today in advance of every building tour. The brokerage qualification list includes the capital stack of the building and the financial strength of the landlord.
Thomas P. Durels: Tennis make long term commitments with us based on our financial strength and confidence that we will deliver on our promises.
Thomas P. Durels: We've seen strong tour volume year to date, which will help drive noodle leasing activity later this year.
Thomas P. Durels: We've seen strong tour volume to date, which will help drive new leasing activity later this year. In our Manhattan office portfolio, we have modest lease expirations for the balance of 2024, with 486,000 square feet set to expire, of which 268,000 square feet is covered by expected renewals, relocations, and new leases. Only 193,000 square feet are known to vacate, and 25,000 square feet remains undecided at this time.
Thomas P. Durels: In our Manhattan office portfolio, we have modest lease expirations for the balance of 2024 with 486000 square feet set to expire of which 268000 square feet is covered by expected renewals relocations and new leases.
Thomas P. Durels: Only 193000 square feet are known Vacates.
Thomas P. Durels: And 25000 square feet remains undecided at this time.
Thomas P. Durels: We have a healthy pipeline of over 200000 square feet of leases in negotiation of which a 140000 square feet or new deals and the balance are renewals.
Thomas P. Durels: We have a healthy pipeline of over 200,000 square feet of leases and negotiations, of which 140,000 square feet are new deals and the balance are renewals. Our multifamily portfolio, with occupancy of 97.1% at quarter end, continues to perform exceptionally well and benefit from strong market fundamentals and recent property improvement. Once again, we had a strong start to the year, and in the first quarter, we signed over 248,000 square feet of commercial leases and increased our Manhattan office leased percentage by 200 basis points from a year ago to 92.7%.
Thomas P. Durels: Our multifamily portfolio with occupancy of 97, 1% at quarter end.
Thomas P. Durels: Continues to perform exceptionally well and benefit from strong market fundamentals and recent property improvements.
Thomas P. Durels: Once again, we had a strong start to the year and in the first quarter, we signed over over 248000 square feet of commercial leases and increased our Manhattan office lease percentage by 200 basis points from a year ago to 92, 7%.
Thomas P. Durels: Our Manhattan office occupancy increased by 160 basis points compared to last quarter to 88.9%. We are well positioned to lease space and achieve positive leased absorption with modest lease expirations for the year and a healthy pipeline of new leases to start the year, and we continue to see strong demand for our multifamily portfolio. Thank you, and I'll now turn the call over to Steve. Thanks, Tom.
Thomas P. Durels: Our Manhattan office occupancy increased by 160 basis points compared to last quarter to 88, 9%.
Steve: We are well positioned to lease space and achieve positive least absorption with modest lease expirations for the year and a healthy pipeline of new leases to start the year.
Steve: And we continue to see strong demand for our multifamily portfolio.
Thomas P. Durels: Now I'll turn the call over to Steve.
Stephen Thomas Sakwa: Thanks, Tom. For the first quarter of 2024, we reported core FFO of $57 million, or $0.21 per diluted share, which increased 30% year-over-year. Same-store property cash NOI, which now excludes First Stanford Place, increased 12.3% year-over-year, primarily driven by higher revenues from cash rent commencement, which was partially offset by increases in property operating expenses. Including non-recurring items, 1Q24-adjusted same-store NOI increased by approximately 8% year-over-year. As it relates to the one-time items, in the current period, we recognized approximately $1.5 million of revenue from various items, including bad debt recovery and settlement of an insurance claim.
Steve: Thanks, Tom for the first quarter of 2024, we reported core <unk> of $57 million or 21 per diluted share, which increased 30% year over year same store property cash NOI, which now excludes first Stamford place increased 12, 3% year over year, primarily driven by higher.
Stephen Thomas Sakwa: Revenues from cash rent commencement, which was partially offset by increases in property operating expenses. Excluding nonrecurring items was <unk> 24, adjusted same store NOI increased by approximately 8% year over year.
Stephen Thomas Sakwa: As it relates to the one time items in the current period, we recognized approximately $1 5 million of revenue from various items, including bad debt recovery in settlement of an insurance claim that.
Stephen Thomas Sakwa: The 1Q23 period was an easier comp as it had about 1 million less cash rents that resulted from adjustments recorded for a few delays in rent commencement. While not material to their individual quarters, we called this out as it contributed to a roughly 4% pop in the comparable same-store cash NOI growth year over year. As Christina will discuss, our outlook for same-store NOI growth for the year remains unchanged. We had a solid first quarter of growth driven by strong recurring rental revenues and free rent burn-off, as well as the one-time items just discussed.
Stephen Thomas Sakwa: <unk> 'twenty three period was an easier comp as it had about $1 million less cash rents that resulted from adjustments recorded for a few delays in rent commencement.
Stephen Thomas Sakwa: While not material to their individual quarters, we called this out as a contributor to a roughly 4% pop in the comparable same store cash NOI growth year over year.
Stephen Thomas Sakwa: As Christina will discuss our outlook for our same store NOI growth for the year remains unchanged. We had a solid first quarter of growth driven by a strong recurring rental revenues and free rent burn off as well as the one time items just discussed.
Stephen Thomas Sakwa: That said, the remainder of the year will be a tougher year-over-year comp due to several non-recurring items discussed last quarter, which benefited 2023 results primarily in 2Q23 through 4Q23. Moving to our observatory business, we generated net operating income of $16 million in the first quarter, an increase of 13% year-over-year. Revenue per capita remains high, and admissions continue to improve year-over-year. Observatory expense was $8.4 million in the first quarter.
Stephen Thomas Sakwa: That said the remainder of the year it will be a tougher year over year comp due to several nonrecurring items discussed last quarter, which benefited 2023 results primarily in <unk> 'twenty three through four to 'twenty three.
Stephen Thomas Sakwa: Moving to our Observatory business, we generated net operating income of $16 million in the first quarter, an increase of 13% year over year revenue per capita remains high and admissions continued to improve year over year Observatory expense was $8 $4 million in the first quarter.
Christina Chiu: Christina will discuss the proactive measures we recently took to fortify our balance sheet and then discuss our outlook for the balance of the year. Christina? Thanks.
Stephen Thomas Sakwa: Kristina will discuss the proactive measures. We recently took to fortify our balance sheet and then discuss our outlook for the balance of the year Kristina.
Christina Chiu: Thanks, Steve we had a busy start to the year from a balance sheet and transaction standpoint, starting with the balance sheet in March we closed on a new $715 million credit facility, which consists of a $620 million revolving credit facility and $95 million term loan the new facility matures.
Christina Chiu: We had a busy start to the year from a balance sheet and transaction standpoint. Starting with the balance sheet, in March, we closed on a new $715 million credit facility, which consists of a $620 million revolving credit facility and $95 million term loan. The new facility matures in March 2029, inclusive of extensions, and replaces the prior facility that was due to mature in March 2025. After quarter end in April, we entered into a note purchase agreement to issue $225 million of green senior unsecured notes in a private placement transaction with three tranches, including $155 million that matures in 2029, $45 million that matures in 2031, and $25 million that mature in 2034 at an overall weighted average rate of 7.25%.
Christina Chiu: March 'twenty 'twenty nine inclusive of extension and replaces the prior facility that was due to mature in March 2025.
Christina Chiu: After quarter end any problem, we entered into a note purchase agreement to issue $225 million of Green senior unsecured notes in a private placement transaction with three tranches, including 155 million that matures in 2029 45 million that matures in 2031, and 25 million that matures.
Christina Chiu: In 2034 at an overall weighted average rate of seven 5%.
Christina Chiu: We receive strong support from both new and existing high-quality institutional investors. This is scheduled to fund in mid-June, and we intend to use the proceeds to eventually pay down indebtedness, including the remaining $100 million maturity in 2025 and the $120 million drawn on our credit facility. With these financings, the company has successfully addressed the entire $315 million of debt that was due to mature in 2025 and extended the maturity of our revolving credit facility from 2025 to 2029, inclusive of the extension. The next meaningful debt maturity is not until December 2026, when a $175 million term loan matures.
Christina Chiu: We received strong support from both new and existing high quality institutional investors. This.
Christina Chiu: This is schedule to find in mid June and we intend to use the proceeds will eventually pay down indebtedness, including the remaining $100 million maturity in 2025, and the $120 million drawn on our credit facility.
Christina Chiu: With these financings the company has successfully addressed the entire $315 million of debt that was due to mature in 2025.
Christina Chiu: And extended the maturity of our revolving credit facility from 2025 to 2029 inclusive of extension.
Christina Chiu: The next meaningful debt maturity is not until December 2026, when the $175 million term loan matures.
Christina Chiu: On the transaction side in March we executed a buyout of the remaining 10% and we did not already own in two multifamily assets located at 561, 10th Avenue and 345, <unk> Street for approximately $14 million in cash and the assumption of $18 million at the in place debt.
Christina Chiu: On the transaction side, in March, we executed a buyout of the remaining 10% that we did not already own in two multifamily assets located at 561 10th Avenue and 345 East 94th Street for approximately $14 million in cash and the assumption of $18 million of the in-place debt. As a reminder, the debt on these two assets has a blended interest rate of 3.9% and matures in 2030 and 2035. As a result, ESRT now owns 100% of its portfolio.
Christina Chiu: As a result, ESR G now own 100% of our portfolio, we have no JV ownership structure and that allows for a great opportunity and flexibility for future financing and capitalization.
Christina Chiu: We have no JV ownership structure, and that allows for great opportunity and flexibility for future financing and capitalization. Subsequent to quarter end in early April, we entered into an agreement for the strategic disposition of First Sanford Place via a cooperative consensual foreclosure with the lender, which is anticipated to close by the end of the second quarter. Pro forma for the completion of this disposition, 98% of net operating income will be from properties in our New York City-focused portfolio.
Christina Chiu: Subsequent to quarter end in early April we entered into an agreement for the strategic disposition of first Stamford place via a co-operative consensual foreclosure with the lender, which is anticipated to close by the end of the second quarter.
Christina Chiu: Profile format for the completion of this disposition, 98% of net operating income will be from properties in our New York City focused portfolio.
Christina Chiu: Furthermore, upon completion, our debt maturity in 2027 is reduced to just $155 million, as shown in our pro forma debt maturity schedule on slide 9 of the investor presentation. This transaction is consistent with our strategy to proactively manage our balance sheet and recycle capital. In our decision here, we considered after-capex adjusted cash flows, sub-market fundamentals in Samford, Connecticut, and our capital allocation objectives. This disposition avoids significant capex, reduces secured debt as a percentage of total debt, and frees up $176 million of debt capacity from our balance sheet that we can recycle into stronger New York City-focused assets that align better with our long-term business. Over the past two-plus years, we have disposed Metro Center will be our last remaining asset outside of New York City.
Christina Chiu: Further upon completion, our debt maturity in 2027 is reduced to just $155 million as shown in our pro forma debt maturity schedule on slide nine of the Investor presentation.
Christina Chiu: Sub market fundamentals in Stamford, Connecticut, and our capital allocation objectives.
Christina Chiu: Metro Center will be our last remaining asset outside of New York City. It's mortgage matures in November 2024, and we have had productive discussions with the lender and are close to finalization of the terms for its refinance at maturity.
Christina Chiu: Its mortgage matures in November 2024, and we have had productive discussions with the lender and are close to finalizing the terms for its refinance transaction. We continue to look for ways to reinvest capital in a tax-efficient manner and pursue investment opportunities that are additive to our New York City-focused portfolio and enhance shareholder value. At quarter end, the company had net debt of $2.2 billion with a weighted average interest rate of 3.97% and a weighted average term to maturity of 5.4 years.
Christina Chiu: We continue to look for ways to reinvest capital in a tax efficient manner and pursue investment opportunities that are additive to our New York city focused portfolio and enhance shareholder value.
Christina Chiu: At quarter end, the company had net debt of $2 $2 billion with a weighted average interest rate of 397% and a weighted average term to maturity of five four years, we have strong liquidity no floating rate debt exposure, a well at our debt maturity schedule and the lowest leverage among all New York City focused REIT at five.
Christina Chiu: We have strong liquidity, no floating rate debt exposure, a well-ladder debt maturity schedule, and the lowest leverage among all New York City focused REITs at 5.3 times net debt to adjusted EBITDA. From an earnings perspective, the net impact from the balance sheet and transaction activity announced to date will be approximately 1.2 cents diluted to our 2024 FFO. This includes the repayment of the old $215 million term loan in March 2024 using proceeds from the new $95 million term loan and the $120 million revolver draw.
Christina Chiu: Three times net debt to adjusted EBITDA.
Christina Chiu: From an earnings perspective, the net impact from the balance sheet and transaction activity announced to date will be approximately $1.02 dilutive to our 2024.
Christina Chiu: This includes the repayment of the old $215 million term loan in March 2024, using proceeds from the new $95 million term loan and the $120 million revolver draw.
Christina Chiu: The $215 million SOFR swap remains in place through March 2025, so the only impact is a modest change in spread for the balance of 2024. It also includes funding of the new $225 million private placement notes in mid-June. Prior to any repayment of debt, these proceeds will earn interest income around a current rate of approximately 5%. It also includes the buyout of our partner's 10% interest in two multifamily assets at the end of the first quarter, including the assumption of their share of debt. And finally, it includes the disposition of First Sanford Place, which for the full year of 2023 generated approximately $10 million of cash NOI and incurred $7.5 million of interest expense.
Christina Chiu: The $215 million so for swap remains in place through March 2025, So the only impact is a modest change in spread for the balance of 2024.
Christina Chiu: It also includes funding of the new $225 million private placement notes in mid June.
Christina Chiu: Prior to any repayment of debt. These proteins will earn interest income around our current rate of approximately 5%.
Christina Chiu: It also includes the buyout of our partner's 10% interest in two multifamily assets at the end of the first quarter, including the assumption of their share of debt.
Christina Chiu: And finally it includes the disposition of firsthand park place, which for the full year of 2023 generated approximately $10 million of cash NOI and incurred $7 $5 million of interest expense. We assume this transaction is completed by the end of the second quarter.
Christina Chiu: We assume this transaction is completed by the end of the second quarter... Now on to our outlook for 2024. We continue to expect 2024 FFO to range between $0.90 and $0.94 per fully diluted share. As a reminder, our prior guidance range did not include the balance sheet activity and transactions announced to date.
Christina Chiu: Now onto our outlook for 2024, we continue to expect 2024 S. F O to range between 90, and 94 cents per fully diluted share.
Christina Chiu: As a reminder, our prior guidance range did not include the balance sheet activity and transactions announced to date, but as discussed these items have only one two cent impact on 2024 S. F L and we therefore have room within our 410 range.
Christina Chiu: But, as discussed, these items have only a 1.2 cent impact on 2024 FFO, and we therefore have room within our 4 cent range. Based on our performance to date and forward assumptions provided, we remain confident with this. We continue to expect same store cash net operating income for the commercial portfolio to be modestly positive at the midpoint, with a range of down 1% to up 2% relative to 2023 levels. Within this range, we expect positive revenue growth, which assumes commercial occupancy of 87 to 89 percent by year-end 2024, driven by a strong pipeline of signed leases not yet commenced and manageable lease expirations in 2024.
Christina Chiu: Based on our pro forma entity and forward assumptions provided we remain confident with this range. We continue to expect same store cash net operating income for the commercial portfolio to be modestly positive at the midpoint with a range of down 1% to up 2% relative to 2023 level.
Christina Chiu: Within this range, we expect positive revenue growth, which assumes commercial occupancy of 87% to 89% by year end 2024, driven by a strong pipeline of signed leases not yet commenced and manageable lease expirations in 2024.
Christina Chiu: We expect an approximate 6 to 8% increase in forecasted property operating expenses and real estate taxes in 2024, which is partially offset by higher reimbursement. Lastly, we expect 2024 observatory NOI to be approximately $94 to $102 million, an average observatory expense of approximately $9 million per quarter.
Christina Chiu: We expect an approximate 68% increase in forecasted property operating expenses and real estate taxes in 2024, which is partially offset by higher reimbursement income.
Christina Chiu: Lastly, we expect 2024 observatory NOI to be approximately $94 million to $102 million and average observatory expenses of approximately $9 million per quarter.
Speaker Change: In summary, yes, Archie had another productive quarter and executed well on our priorities and with that I will now turn the call back to the operator for our Q&A session operator.
Operator: In summary, ESRT had another productive quarter and executed well on our priorities. And with that, I will now turn the call back to the operator for a Q&A session. Operator?
Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the participants using speaker equipment. It may be necessary to pick up your handset before pressing the star key.
Speaker Change: Thank you we will now be conducting a question and answer session I 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. You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star.
Operator: One moment, please, while we poll for your question. Our first questions come from the line of Steve Sakwa with Evercore ISI. Please proceed with your question.
Operator: Yeah.
Stephen Thomas Sakwa: Ah. Thanks excuse me good afternoon, maybe Tom just starting on the leasing could you just provide a little more detail on the pipeline maybe the types of tenants that you're currently seeing in the market and you know whether there seems to be any hesitation from the tenants looking for new space to in effect pulled the trigger or we've we've heard.
Stephen Thomas Sakwa: Thanks. Excuse me. Good afternoon. Maybe Tom, just starting on the leasing, could you just provide a little more detail on the pipeline, maybe the types of tenants that you're currently seeing in the market, and whether there seems to be any hesitation from the tenants looking for new space to, in effect, pull the trigger. We've heard some C-suites in other areas maybe being a little bit more gun-shy about making decisions, and I'm just curious what you're seeing in the discussions with the tenants in the pipeline.
Stephen Thomas Sakwa: Some C suites and other areas, maybe being a little bit more gun shy about making decisions and I'm just curious what you're saying in the discussions with the tenants in the pipeline.
Thomas P. Durels: Well, Steve, just looking at the results for the first quarter, about 84% of our leasing in our Manhattan office and portfolio-wide was for new leasing, so I don't think that that indicates hesitancy by those decision makers.
Thomas P. Durels: We're seeing activity from a variety of tenant types, which has always been, I think, a hallmark of our portfolio in that we're not tied to one industry. We've got activity from tenants in consumer brands, tech, financial services, professional services, and technology. So, look, we got, as I said before, 200,000 square feet of leases in negotiation. We have a few hundred thousand square feet of active proposals being exchanged, and our tour volume is up.
Thomas P. Durels: Hydro one industry, we've got activity from tenants in consumer brands Tech.
Thomas P. Durels: A financial services professional services and technology.
Thomas P. Durels: So look we've got as I said before at 200000 square feet of leases in negotiation, we have a few hundred thousand square feet of active proposals being exchanged and where our tour volume is up. So you know look we continue to be a standout we performed well the things that I mentioned earlier about the flight to quality.
Thomas P. Durels: So, you know, look, we continue to be a standout. We perform well. The things that I mentioned earlier about the flight quality and the things that are strengths that attract tenants, including a modernized, amortized portfolio, great locations, our balance sheet, the access to transit, the IEQ, but all of these things are leading to the activity that we're seeing. So, again, I think it'll feel good.
Thomas P. Durels: Things that are strength attract tenants, including modernize and monetize a portfolio of great locations to our balance sheet.
Thomas P. Durels: Access to transit the iqs faded, but all of these things are are leading to that you know the activity that we're seeing so.
Thomas P. Durels: And I think what so I feel good.
Anthony E. Malkin: I might just add one thing, Steve, to make sure you understand Tom's point clearly. The people who do tours with us are people who have action in their minds. We do not see a lot of tire kicking.
Speaker Change: I might just add one thing, Steve and to make sure that.
Speaker Change: You understand Tom's point clearly.
Anthony E. Malkin: The people, who are doing who do tours with us or people who have action on their minds. We don't we do not see a lot of tire kicking.
Stephen Thomas Sakwa: Great. Thanks, Tony. I'll maybe just stick around with you.
Speaker Change: Great. Thanks, Tony maybe just sticking with you.
Stephen Thomas Sakwa: On the transaction front, you have been disciplined over the last several years. I'm just curious, what are you seeing in the marketplace today as it relates to distressed opportunities, the ability to get to debt stacks, and maybe get to properties through the back door? I'm just curious how that activity level is maybe picking up, and does it vary? you know, greatly across the multifamily retail and office complex.
Steve: On the transaction front you you have been disciplined you know over the last several years I'm. Just curious you know what are you seeing in the marketplace today as it relates to.
Stephen Thomas Sakwa: Excuse me distressed opportunities ability to get the debt stacks and maybe get to properties through the back door. I'm. Just curious you know how that activity levels may be picking up an.
Stephen Thomas Sakwa: Excuse me does it vary.
Stephen Thomas Sakwa: Greatly across the multifamily retail and office complex.
Anthony E. Malkin: So, we definitely believe the crisis created by the capital dislocation, rising rates, and heavy near-term market maturities will create a once-in-a-lifetime, once-in-a-generation opportunity to buy into certain New York City assets. We have begun to see cracks, and our focus is actually on... the right situations with the right basis. We're extremely disciplined in our approach.
Stephen Thomas Sakwa: So we definitely believe the crisis created by the capital dislocation rising rates and heavy near term market maturities.
Anthony E. Malkin: We'll create a once in a lifetime a once in a generation opportunity to buy into certain New York City assets.
Anthony E. Malkin: And.
Anthony E. Malkin: We have begun to see cracks.
Anthony E. Malkin: And our focus is actually on.
Anthony E. Malkin: The right situations with the right basis, we're extremely disciplined in our approach.
Anthony E. Malkin: We see interesting opportunities in office, retail, and resi. Resi has a backstop with finance from the GSEs, so it is much more eminently financeable. Office is more complicated on the capital requirements, what your basis is is so important, and retail somewhere in the middle.
Anthony E. Malkin: We see interesting opportunity in office and retail and dressy.
Anthony E. Malkin: <unk> has a backstop with finance from the G S. He's so.
Anthony E. Malkin: Much more eminently financeable.
Anthony E. Malkin: Office is it's more complicated on the capital requirements.
Anthony E. Malkin: What your basis is it so important.
Anthony E. Malkin: And retail somewhere in the middle.
Anthony E. Malkin: What I will also say is we have been surprised by the level of inbound calls we have received, pleasantly surprised by the level of inbound calls we have received from people who are interested in partner with us. They see our success and what we have done with our product types. They see the opportunity created by the Capital Dislocation. And these are people who are really not current market participants, and they really, to a significant degree, are what I would call individuals, very wealthy individuals or groups of individuals who can write very large checks on a per transaction basis.
Speaker Change: What I will also say is we had been.
Anthony E. Malkin: Surprised by the level of inbound we have received pleasantly surprised by the level of inbound we have received from people who are interested to partner with us they see our success and what we have done with our product.
Anthony E. Malkin: Product types.
Anthony E. Malkin: They see the opportunity creep.
Anthony E. Malkin: Created by the capital dislocation.
Anthony E. Malkin: And these are people who are really not current market participants.
Anthony E. Malkin: And they really to a significant degree or what I would call it instead visuals.
Anthony E. Malkin: Three wealthy individuals or groups of individuals who can stroke very large checks on a per transaction basis.
Anthony E. Malkin: And the focus is not on IRR based on higher leverage; it's based on exactly what our model is, and they really focus on the multiple on invested capital over a 10-year hold. So both the opportunity sets have begun to break. We think CMBS will drive sales more quickly than banks, as far as products changing hands, and we are absolutely, totally, and completely disciplined and focused on our basis and on the structure of deals where we can accommodate existing owners' needs, desires, perhaps to avoid a tax recognition event, or perhaps a sale of a minority interest which will allow them to maintain their current basis, and where we can invest capital on a priority basis with yields that will make it
Anthony E. Malkin: And the focus is not on IRR based on higher leverage it's based on exactly what our model is and they really focus on multiple on invested capital over a 10 year hold.
Anthony E. Malkin: So both the opportunity set has begun to break.
Anthony E. Malkin: We think C M B S will drive.
Anthony E. Malkin: Sales more quickly than the banks.
Anthony E. Malkin: As far as products changing hands, and we are absolutely totally and completely disciplined and focused on our basis and in structure of deals where we can accommodate existing owners needs desires, perhaps to avoid a tax recognition event.
Anthony E. Malkin: Or perhaps the sale of a minority interest, which will allow them to maintain their current <unk>.
Anthony E. Malkin: <unk>.
Anthony E. Malkin: And where we can invest capital on a priority basis with yields that will make it worth our while.
Anthony E. Malkin: Okay.
Stephen Thomas Sakwa: Great, that's it for me, thanks.
Speaker Change: Great that's it for me thanks.
Stephen Thomas Sakwa: Thank you our next questions come from the line of John Kim with BMO capital markets. Please proceed with your questions.
Operator: Thank you. Our next questions come from the line of Jon Kim with BMO Capital Markets. Please proceed with your questions.
John P. Kim: Hey, good morning, Tony but less impacted but he just said I just wanted to maybe follow up and ask about timing of when you could took place and that's capital and on the joint venture partnerships.
John P. Kim: Hey, good morning Tony. Tony, a lot's unpacked from what you just said.
John P. Kim: I just wanted to maybe follow up and ask about timing of when you could deploy some of this capital. And on the joint venture partnerships with private owners entering the market, is this office or is it conversion? or any other color you could provide and what kind of asset type you're looking to partner on. So I want to be, uh...
John P. Kim: With with private owners are entering the market is this an office or is it a conversions or any any other color you could provide on what kind of asset type that you are looking to partner with.
John P. Kim: So I'm gonna be a really super specific we will remain very focused on our discipline that has not changed that says we've transacted more in the last two and a half years than we did in the prior 10.
Anthony E. Malkin: So I'm going to be really super specific. We will remain very focused on our discipline. That has not changed. That says we've transacted more in the last two and a half years than we did in the prior ten, including our pre-IPO period. So, we are absolutely omnivorous opportunovores. That hasn't changed. Our focus continues to be on New York.
Anthony E. Malkin: Including our pre IPO period.
Anthony E. Malkin: So we are absolutely I'm never saw or tune of ores.
Anthony E. Malkin: That hasn't changed.
Anthony E. Malkin: Our focus continues to be on New York.
Anthony E. Malkin: The people who have come to us have said, we think you are a well-established..., a strong player with a great balance sheet without problems, and we see the leasing you've accomplished, and we see the transactions you've done recently. We'd like to talk with you about whatever you think is interesting to do. And the last thing I'll say with regard to conversions, our view on conversions is pretty simple. Uh, and we've said it before.
Anthony E. Malkin: The people who have come to US have said, we think you are a well established strong player with a great balance sheet without problems.
Anthony E. Malkin: And we see the leasing you've accomplished and we see your transactions you've done recently.
Anthony E. Malkin: We'd like to talk with you about whatever you think is interesting to do.
Anthony E. Malkin: And the last thing I'll say with regard to conversions our view on conversions is pretty simple.
Anthony E. Malkin: And we've said it before.
Anthony E. Malkin: These are difficult to do in a way that doesn't produce a compromised product, and our view is that there are others who may have stronger motivations to do so than we do. We certainly don't have anything in our existing portfolio for which it makes any sense because our portfolio is extraordinarily well leased. We do believe that we can find a lot of really good opportunities without the need to do office conversions into residential. So, we don't put resi conversions from office high on our list of to-dos.
Anthony E. Malkin: These are.
Anthony E. Malkin: Difficult to do in a way that doesn't produce a compromised product.
Anthony E. Malkin: And our view is that there are others, who may have stronger motivations to do. So then we do we certainly don't have anything in our existing portfolio for which it makes any sense because our portfolio is extraordinarily well leased.
Anthony E. Malkin: We do believe that we can find a lot of really good opportunities without the need to do office conversions into residential so we don't put Reggie conversions from office high on our list of to Dos.
Speaker Change: That's great color. Thank you.
John P. Kim: Thank you. My second question is on your tenant leaving in the first quarter, page 14 of your supplement. It looks like the quarter ended up being less than you were expecting last quarter. What led to that was just a timing issue, and maybe on a related note, the second half of the year in 2025, looks like these estimated vacates have picked up a little bit. Any color that you could provide for the tenants or locations of these known vacancies.
John P. Kim: My second question is on your tenant Vacates in the first quarter page 14 of your supplement it looks like the quarter ended up less than you were expecting last quarter.
John P. Kim: What led to that was that.
John P. Kim: Just the timing issue and maybe related or unrelated note second half of the year in 2025, it looks like the estimated vacates have picked up a little bit.
John P. Kim: Any color that you can provide on the tenant or locations of our of these known vacates.
Thomas P. Durels: Yeah, it's really just timing. If you look at the overall, it hasn't changed significantly with the expected total vacates for the year, you know, about 193,000 square feet in our Manhattan office portfolio. But, you know, it's really just timing from quarter to quarter. And given the volume of tenants that we deal with, there's nothing significant that stands out that caused that change.
John P. Kim: Yes, it's really just a really just timing.
Thomas P. Durels: If you look at the overall hasnt changed significantly with the expected.
Thomas P. Durels: Total vacates for the year.
Thomas P. Durels: About 192000 square feet in our Manhattan office portfolio, but yeah, it's really just timing from from quarter to quarter and given the volume of tenants that we deal with it's nothing significant that stands out that caused.
Thomas P. Durels: That change.
Thomas P. Durels: Any particular asset the thing where vacates and others.
Thomas P. Durels: Any particular asset that's seeing more vacants than others? No, no, it's...
Thomas P. Durels: No no.
Thomas P. Durels: It's it's it's really it's really across the board.
Thomas P. Durels: No. No.
Thomas P. Durels: It's, you know, it's really across the board. The, in At 1400 Broadway, we have the two, we have floors that are being vacated, they're backfilled by the Burlington lease, but as vacant units are uncovered, we've got a consolidated full floor at 1400 Broadway, we've got a full floor consolidated at 1333 Broadway, a tower floor at the Empire State Building this year. The good news for us is that these are full floors, they've been built out, and the base building A lot of the base building work has been done, so it puts us in a good position to market and lease those spaces.
Thomas P. Durels: Yes.
Thomas P. Durels: Yes.
Thomas P. Durels: And.
Thomas P. Durels: At 1400 Broadway we have the two we have floors that are being vacated a backfill abide by the Burlington lease, but as vacates on covered we've got.
Thomas P. Durels: Consolidated full for 1400 Broadway has got a full floor consolidated 13 33 Broadway.
Thomas P. Durels: A tower, Florida Empire State building this year. The good news for US is that these are full floors, they've been built out base building work a lot of the baseband work had been done so it puts us in a good position to market and lease those spaces.
Thomas P. Durels: And then in 2025, you know, the known vacant space is about 122,000 square feet. It's really, across the board, the largest one being a 26,000 square foot built space that we built on a, really on a pre-built basis at 111 West 33rd Street. So, and the rest are smaller spaces, across the board.
Thomas P. Durels: And then in 2025, the known Vacates about 122000 square feet, it's really across the board the largest one being at 26000 square foot adult space that we built on are really a prebuilt spaces that are at 111 West 33rd Street. So the restaurants are smaller spaces.
Thomas P. Durels: Across the board.
Speaker Change: Got it thank you.
John P. Kim: Thank you. Our next questions come from the line of Michael Griffin with Citi. Please proceed with your questions.
Thomas P. Durels:
John P. Kim: Thank you. Our next question is come from the line of Michael Griffin with Citi. Please proceed with your question.
Michael Anderson Griffin: Great, thanks. I want to go back to the new leasing in the quarter and maybe get some more color. For those tenants that are taking new space, are they, you know, people moving down the affordability curve from higher-rent buildings? And if so, would you expect this trend to continue throughout the year?
Michael Anderson Griffin: Great. Thanks, I wanted to go back to the new leasing in the quarter and maybe get some more color for those tenants that are taking new space is it you know people moving down the affordability curve from from higher rent buildings.
Michael Anderson Griffin: And if so would you expect this trend to continue throughout the year.
Speaker Change: Well, we're trying to change from from all markets and it's a mix of tenants that are looking for two two.
Thomas P. Durels: Well, we're attracting tenants from all markets, and it's a mix of tenants that are looking forward to moving to buildings that are better equipped, modernized, and provide better service, turnkey installations, and newly built tenant spaces, which we provide and offer all of that. So some are looking forward to improving their employee experience and their office environment.
Thomas P. Durels: To move to a building.
Thomas P. Durels: Buildings that are better amortize modernized and provide better service turnkey installations newly built tenant spaces, which we provide an offer all of that so some are looking for to improve their their employee experience in their office environment others are involved some expansion.
Thomas P. Durels: Others involve some expansion, and we continue to attract tenants from really all sub-markets. And so, again, it speaks to this flight to quality that we've spoken about, and it's not just, you know, new developments. All the things that I've continued to mention and the things that we continue to market that are very appealing to tenants. Our locations, the modernization, the amenities, you know, it's a great, great, great service. So, you know, but by and large, we see more and more tenants are looking for just an overall better, better landlord, better experience, better product, better environment, and that's why we're having the success that we are.
Thomas P. Durels: And so and we've continued to attract tenants from really all all submarkets.
Thomas P. Durels: And so again it speaks to this flight to quality that we've spoken about and it's not just new developments all the things that Ive continued dimension and the things that we continue to market that is very appealing to tenants to our locations to the modernization of the amenities. It's a great great great service, so, but by and large what we see more and more as tenants are looking for it.
Thomas P. Durels: Just an overall better better landlord better experience better product better environment and that's why we're having the success that we have.
Speaker Change: Right, but I guess, what I'm, saying is are you seeing tenants that are paying $90 of rent that are looking for the pay in the sixty's or is it you know people that are currently paying that.
Thomas P. Durels: Right. But I guess what I'm saying is, are you seeing tenants that are paying, you know, $90 a month that are looking for, you know, to pay in the 60s? Or are people that are currently paying that, you know, middle of the road price point just trying to move to a better amortized building?
Thomas P. Durels: Middle of the road price point, just trying to move to a better amount of times building.
Thomas P. Durels: Well, I would characterize it more as I think all tenants look for value, and we have attracted tenants that could certainly afford to pay more. And they look for the value that we provide, and they recognize that we provide the absolute top product in our price tier. And if you look at the vast majority of deals in the market, there's a page in our investor deck that speaks to this, that the vast majority of deals in the market are really in our price point, and that's called high 50s to high 70s per square foot. That's where the bulk of activity occurs, and that's where we play, that's where we compete, and win deals.
Speaker Change: Well I'd say I would characterize it more that that.
Thomas P. Durels: All tenants look for value.
Thomas P. Durels: And we have attractive tenants that could certainly afford to pay more and they look for they look for the value that we provide and they really.
Thomas P. Durels: They recognize that we provide the absolute top product in our in our priced here and if you look at the vast majority of deals in the market.
Thomas P. Durels: There's a patient or an investor deck that speaks to this that the vast majority of the market. We are really in our price point and that's quite high 50 is too high 70 per square foot is where the bulk of activity occurs and that's where we play that's where we compete.
Thomas P. Durels: And in Windows.
Speaker Change: Got you I appreciate the color there had.
Michael Anderson Griffin: Gotcha, appreciate the color there. And then just on the full year guide, it seemed like a pretty strong quarter; you saw pretty good increases, particularly in the observatory. I wonder, is it just conservatism deciding to not raise the guide right now, or maybe how should we think about that?
Michael Anderson Griffin: And then just on the full year guide.
Michael Anderson Griffin: It seemed like a pretty strong quarter you saw pretty.
Michael Anderson Griffin: Good increases, particularly in the Observatory I Wonder is it just conservatism decided to not raise the guide right now or maybe how should we think about that.
Christina Chiu: Yeah, I think, as mentioned, we always have building blocks for guidance. We're very clear on the various drivers, and as the year progresses, we can look at areas where we can tighten up the range and make adjustments. And, as mentioned, there was a 1.2 percent impact from all the activity that we just announced, and we were able to maintain that. So we'll continue to monitor and make adjustments as we go along.
Speaker Change: Yeah, I think as mentioned, we always have building block for guidance very clear on the various drivers and as the year proceeds we can look at areas, where we can tighten up the range and make adjustments and as mentioned there was a one point impact from all the activity that we just announced and we were.
Christina Chiu: We're able to maintain that so we'll continue to monitor and make adjustments as we go along.
Speaker Change: Great. That's it for me thanks for the time.
Michael Anderson Griffin: Great, that's it for me. Thanks for the time.
Michael Anderson Griffin: Thank you. Our next question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your questions.
Operator: Thank you. Our next questions come from the line of Blaine Heck with Wells Fargo. Please proceed with your questions.
Blaine Matthew Heck: Alright, great. Thanks, Good afternoon Observatory attendance.
Blaine Matthew Heck: All right, great, thanks. Good afternoon. Observatory attendance has definitely continued to improve, and NOI is now above pre-pandemic levels, so can you just talk about how you plan on continuing to improve those numbers and maybe just how sensitive that business could be to a hypothetical slowdown in consumption in the U.S.?
Blaine Matthew Heck: Definitely continued to improve in NOI is now above pre pandemic levels. So can you just talk about how you plan on continuing to improve those numbers and maybe just how sensitive that business could be to a hypothetical slowdown in consumption in the U S.
Blaine Matthew Heck: Hi.
Anthony E. Malkin: I really welcome that question. If you take a look at the, I don't have the deck in front of me, Christina, maybe you could cite the page, which shows how the observatory has performed over a very long period of time through all sorts of economic upheavals, the SARS epidemic, obviously what happened with COVID, new attractions opening. It's really a solid performer.
Blaine Matthew Heck: I really welcome about that question if you take a look at the.
Christina Chiu: I have the deck in front of me Christine maybe you could cite the page.
Anthony E. Malkin: Which shows how the observatory has performed.
Anthony E. Malkin: Going back a very long period of time through all sorts of economic upheavals.
Anthony E. Malkin: The Sars epidemic.
Anthony E. Malkin: Obviously, what happened with Covid, new attractions opening it's really a solid performer.
Anthony E. Malkin: And, candidly, we intend to continue to do what we do to continue to maintain and build the Empire State Building brand worldwide, and we will continue to do the great co-branding partnerships that we have. We just did a major one with Disney and Star Wars. We have another one that is a surprise that will come up very shortly, which is all set to go. And all of this is built towards... If you look at slide 15, the steady performance over time of the observatory through economic cycles and frankly do improve and enhance our performance in the midst of what has been more competition, that, again, our NOI per cap towers over anybody else who reports.
Anthony E. Malkin: Candidly, we intend to continue to do what we do to continue to maintain and build the Empire State building brand worldwide.
Anthony E. Malkin: Continue to do the great co branding partnerships that we have we just did a major one with Disney and Star Wars.
Anthony E. Malkin: We have another one that is a surprise that will come up very shortly.
Anthony E. Malkin: And with which is all set to go and all of this is built towards.
Anthony E. Malkin: If you look at slide 15.
Anthony E. Malkin: The.
Anthony E. Malkin: The steady performance overtime of the observatory through economic cycles, and frankly do.
Anthony E. Malkin: Improve and enhance our performance in the midst of what has been more competition that again, our NOI per per cap towers over anybody else who reports.
Anthony E. Malkin: Yeah.
Speaker Change: Great. Thanks for that color Tony.
Blaine Matthew Heck: Great. Thanks for that color, Tony.
Blaine Matthew Heck: Second question, can you just talk about the expected cadence for St. Sterling Online throughout the year? You know, obviously, you guys had a great quarter with 12% in the first quarter but kept guidance unchanged at negative 1 to positive 2%. Occupancy is expected to stay largely flat to modestly higher by the end of the year. You know, I think you talked about some tougher comps, higher off X, and some one-time items, but just hoping you could give a little bit more color on what the impact is from each of those on St. Sterling Online relative to the first quarter and how we might expect St. Sterling to trend throughout the year. Thanks.
Speaker Change: Second question can you just talk about the expected cadence for same store NOI throughout the year. You know, obviously, you guys had a great quarter with 12% in the first quarter, but kept guidance unchanged at negative one to positive 2%.
Blaine Matthew Heck: Occupancy is expected to stay largely flat to modestly higher by the end of the year I think you talked about some tougher comps higher opex and some one time items, but just hoping you could give a little bit more color on what the impact is from each of those on the same store NOI relative to the first quarter and how we might expect our same store to trend through.
Blaine Matthew Heck: Thanks.
Blaine Matthew Heck: Yeah, with regard to same-store NOI, you have it right as far as looking at the comps. For the first quarter of 24 versus 23, we had it buoyed by the lower comp in 23 due to the one-time items that I called out in my opening remarks as far as the lower cash rents from the short-term recommencement delays. When we look through the remainder of the year, we expect those comps to get much more difficult as we have the one-time items that were positive from 2Q to 4Q start coming in compared against those.
Blaine Matthew Heck: Yeah with regard to same store NOI do you have it right as far as looking at the comps for.
Blaine Matthew Heck: For the first quarter of 24 hours of 'twenty three we had the we had a buoyed by the lower competent in 'twenty three due to the onetime items that I called out in my opening remarks as far as the less cash rents from the short term recommencement delays when you look through the remainder of the year.
Blaine Matthew Heck: We expect those costs get much more difficult as you have the the onetime items the order to the positive from <unk> start coming in and compare against those we called those out in our last earnings call to highlight that.
Blaine Matthew Heck: We called those out in our last earnings call to highlight the materiality of those and the timing of that. So that's all baked into our guidance, so we'll expect to see that come in, and that's really leading towards why there was no change in our guidance at this point in time. Yeah, and overall, as mentioned in our earnings call.
Blaine Matthew Heck: Sirianni of those and the timing of that so that's all baked into our guidance. So we'll expect to see that come in and Thats really alluding towards why there is no change in our in our guidance at this point in time.
Blaine Matthew Heck: Yeah, and overall as mentioned in our earnings release, we assume continued positive revenue growth and we still maintain a 60% increase in opex. So all of that still a hog and can you just highlight in the factor that drove an outsized one here.
Christina Chiu: Yeah, and overall, as mentioned in our earnings release, we assume continued positive revenue growth, and we still maintain a six to eight percent increase in OPEC. So all of that still holds, and Steve just highlighted the factors that drove an outsized increase.
Speaker Change: Great. Thanks.
Operator: Thank you. Our next questions come from the line of Camille Bonnel with the Bank of America. Please proceed with your questions.
Camille Bonnel: Thank you our next questions come from the line of combing all bottle with Bank of America. Please proceed with your questions.
Camille Bonnel: Good morning, Tom the team has had some clear success in leasing up your buildings around Penn station, but there are one or two where it doesn't seem to have gained much traction like 250, West 57th Street and 501 Seventh Avenue is there anything unique about the floor plates are harvest spaces being marketed just trying to get a <unk>.
Camille Bonnel: Good morning, Tom. The team has had some clear success in leasing your buildings around Penn Station, but there are one or two where it doesn't seem to have gained much traction, like 250 West 57th Street and 501 7th Avenue. Is there anything unique about the floor plates or how the space is being marketed? Just trying to get a sense of the level of interest you're getting for these spaces.
Camille Bonnel: The level of interest you're getting for these spaces.
Thomas P. Durels: Well, specifically on 250 West 50th Cemetery and 501 7th Avenue, the sub-market, the Columbus Circle sub-market where 250 is located is not seeing the same level of activity we've seen in the other sub-markets. And on 501 7th Avenue, we have had some good showings. We have one single full floor that is a great full floor. It's side core and very efficient.
Thomas P. Durels: Well, specifically on 250, West 57th Street, and 501 seventh Avenue.
Thomas P. Durels: The Submarket, the Columbus Circle, Submarket, where $2 50 is located is it.
Thomas P. Durels: As is clear is not seeing the same level of activity we've seen in the other other submarkets.
Thomas P. Durels: And our fiber one seventh Avenue.
Thomas P. Durels: Have had some good showings we have won.
Thomas P. Durels: Single full floor that is grateful for it.
Thomas P. Durels: <unk> core and.
Thomas P. Durels: And very efficient.
Camille Bonnel: I think it's an attractive price point with great access to Penn Station. So, you know, I'm confident that that space will move. But I think that, aside from that, we've got good activity across the board and, you know, that's the pipeline I spoke to earlier, and we've had really good momentum with nine consecutive quarters of positive absorption.
Thomas P. Durels: I think it's at an attractive price point with great access to Penn station, So I'm confident that our that that space will move.
Camille Bonnel: But but but I think that aside from that we have.
Camille Bonnel: Got good activity across the board and that's the pipeline I spoke to earlier in weeks.
Camille Bonnel: We've had really good momentum with our ninth consecutive quarters of positive absorption.
Speaker Change: I appreciate the additional color there and Tony you called out the pick up in observatory visitors that's quarter, if you normalize for the timing of Easter.
Thomas P. Durels: I appreciate the additional color there, and Tony called out the increase in observatory visitors this quarter. If you normalize for the timing of Easter, is this side of the business tracking in line or above your expectations for the first quarter?
Thomas P. Durels: This side of the business tracking in line or above your expectation for first quarter.
Thomas P. Durels: It's this is tracking in line with our expectations.
Thomas P. Durels: This is tracking in line with our expectations.
Speaker Change: Got it.
Camille Bonnel: Got it. And curious, since this business has moved to a reservations-only model, do you have visibility on what demand looks like into the peak period or the upcoming months?
Thomas P. Durels: Since this business has moved to a reservations only model do you have visibility on what demand looks like in two different carried R. R.
Camille Bonnel: The upcoming months.
Camille Bonnel: The.
Thomas P. Durels: The vast majority of reservations we receive do not extend that far out.
Thomas P. Durels: The vast majority of reservations, we receive do not extend that far out.
Speaker Change: Okay. Thank.
Camille Bonnel: Thank you for taking my questions. Thank you.
Speaker Change: Thank you for taking my questions.
Speaker Change: Thank you.
Camille Bonnel: Thank you we have reached the end of our question and answer session I would now like to turn the floor back over to chairman and CEO Anthony Malkin for closing remarks.
Anthony E. Malkin: Thank you. We have reached the end of our question and answer session. I would now like to turn the floor back over to Chairman and CEO Anthony Malkin for closing remarks.
Anthony E. Malkin: Again, we're thrilled with this quarter. We're thrilled with the continuation of our theme, Points on the Board. ESRT is the pure play. New York City Reef.
Anthony E. Malkin: Again, we're thrilled with this quarter, we're thrilled with the continuation of a theme points on the board ESR Te Yes, our T. As a pure play New York City REIT.
Anthony E. Malkin: And we have four diverse ways to play it. An office portfolio that is top of our tier and targets the deepest market segment, our observatory that continues to perform, our high foot traffic everyday street retail, and a growing multifamily platform. We have a future-ready portfolio and an opportunity-ready balance sheet. We are confident in the company's ability to execute on our goals and drive further growth for shareholders in 2024. Many thanks to our great team who work incredibly hard, and we have every confidence we will continue to do a great job on behalf of stakeholders.
Anthony E. Malkin: And we have four diverse ways to play it and office portfolio that is top of our tier and targets. The deepest market segment. Our observatory that continues to perform a high foot traffic everyday street retail and our growing multifamily platform.
Anthony E. Malkin: We have a future ready portfolio and an opportunity ready balance sheet. We are confident the companys ability to execute on our goals and drive further growth for shareholders in 2024.
Anthony E. Malkin: Many thanks to our great team, who worked incredibly hard and we have every confidence we will continue to do a great job on behalf of stakeholders. We thank you all for your participation in today's call and look forward to the chance to meet with many of you at non deal Roadshows.
Anthony E. Malkin: We thank you all for your participation in today's call and look forward to the chance to meet with many of you at non-deal roadshows, conferences, and property tours in the months ahead, including one we have planned for the fall in Europe. Until then, thank you very much for your interest; onward and upward.
Anthony E. Malkin: <unk> isn't property tours in the months ahead, including one we have planned for the fall in Europe.
Anthony E. Malkin: Until then thank you very much for your interest onward and upward.
Operator: Thank you. This does conclude today's teleconference. You may disconnect at this time. Thank you for your participation and enjoy the rest of your day.
Operator: Thank you. This does conclude today's teleconference. You may disconnect at this time. Thank you for your participation and enjoy the rest of your day.
Operator: Yeah.
Operator: [music].