Q1 2025 Empire State Realty Trust Inc Earnings Call
Operator: Greetings, and welcome to the Empire State Realty Trust first quarter 2025 earnings call. At this time, all participants are in a listen-only mode.
Greetings and welcome to the Empire State Realty Trust's first quarter 2025 earnings call. At this time, all participants are in a listen only mode.
Operator: A brief question and answer session will follow the formal presentation.
A brief question and answer session will follow the formal presentation pretty.
Operator: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
Only one should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
Heather Houston: It is now my pleasure to introduce Heather Houston, Senior Vice President, Chief Counsel, Corporate, and Secretary. Thank you. You may begin.
Speaker Change: Now my pleasure to introduce Heather Houston, Senior Vice President Chief Counsel, corporate and Secretary.
You may begin.
Heather Houston: Good afternoon, welcome to Empire State Realty Trust first quarter 2025 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 investors section of the company's website at esrtreads.com. On today's call, management's prepared remarks and answers to your questions will contain four booking 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 And... As a reminder, forward-looking statements represent management's current... They are subject to risks and uncertainties, which may cause actual results to differ from those discussed.
Heather Houston: Good afternoon, and welcome to Empire State Realty Trust first quarter 2025 earnings.
Heather Houston: In addition to the press release distributed yesterday, a quarterly supplemental package with further detail on our results.
Speaker Change: Mr President.
Speaker Change: What I said in the investors section of the company's website at <unk> com.
Speaker Change: On today's call management's prepared remarks and answers to your questions.
Speaker Change: Looking statements as defined in applicable Securities law.
Speaker Change: The IMO related to market conditions property operations capital expenditures income anything unusual at all for transactions on it.
Speaker Change: As a reminder, forward looking statements represent managements right.
Speaker Change: They are subject to risks and uncertainties, which may cause actual results to differ from that.
Speaker Change: 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 these forward looking statements in the company's filings with the SEC.
Heather Houston: Empire State Realty Trust assumes no obligation to update any forward-looking statement. We encourage listeners to review the more detailed discussions related to these four booking statements and the company's filings with the FDC. During today's call, we will discuss the non-GAAP financial measures such as FFO, Modified and Core FFO, NOI, Same-Store Poverty Cash NOI, EBITDA, and Adjusted EBITDA, which we believe are meaningful in evaluating the company's future.
Speaker Change: During today's call, we'll discuss certain non-GAAP financial measure, but there's also modified and core <unk> NOI same store property cash NOI EBITDA and adjusted EBITDA, which we believe are meaningful in evaluating the company's fault lines.
Heather Houston: The definitions and reconciliations of these measures for the most directly comparable gap measures are included in the earnings relief and supplemental package, each available on the website.
Speaker Change: The definitions and reconciliations of these measures with the most directly comparable GAAP measure are included in the earnings release and supplemental.
Speaker Change: Therefore, the company.
Tony Malkin: Now I will turn the call over to Tony Malkin, our Chairman and Chief Executive Officer. Thanks, Heather. Good afternoon to everyone. Yesterday, we reported ESRT's first quarter results. We started the year with solid first quarter earnings, continued leasing momentum, and observatory performance. and we reaffirm our outlook for the remainder of 2025. We are not the first reporting public company to state today's world has a wide range of potential macroeconomic outcomes, and some of those could have an adverse impact on our business. That said, as we have mentioned so many times, we do not seek to predict the weather, rather we have an arc, and that arc allows us to remain on our front foot.
Tony: Now I will turn the call over to Tony <unk>, Our chairman and Chief Executive Officer.
Tony: Thanks, Heather and good afternoon to everyone.
Tony: Yesterday, we reported <unk> first quarter results.
Tony: We started the year with solid first quarter earnings continued leasing momentum and observatory performance.
Tony: And we reaffirm our outlook for the remainder of 2025.
Tony: We are not the first reporting public company to state today's world has a wide range of potential macroeconomic outcomes and some of those could have an adverse impact on our business.
Tony: That said as we have mentioned so many times, we do not seek to predict the weather rather we haven't arc that arc allows us to remain on our front foot.
Tony Malkin: ESRT receives a substantial portion of our cash flows from long-term leases, has high leased percentages, diverse income streams, a diverse tenant base, and a flexible balance sheet, and that puts us in a strong position from which to act. The leasing environment in New York City remains active for our top of pure product.
Tony: <unk> receives a substantial portion of our cash flows from long term leases has high lease percentages diverse income streams a day.
Tony: Burst tenant base and a flexible balance sheet and that puts us in a strong position from which to act.
Tony: The leasing environment in New York City remains active for our top tier product.
Tony: The halves.
Tony Malkin: The haves. Buildings like ours, which have been modernized, are well located near mass transit, our sustainability leaders have great amenities, and are owned by financially stable landlords. will outperform in any environment. In the first quarter, our leasing team put points on the board with approximately 230,000 square feet leased, which included the successful conversion of 77,000 square feet of previously unknown 2026 expirations into renewals. Our Manhattan office portfolio is 93% leased, and we retain our guidance and expect to have leasing and occupancy gains for the full year. We achieved our 15th consecutive year of positive New York City office mark-to-market rent spread.
Tony: Buildings, like ours, which have been modernized our well located near mass transit our sustainability leaders have great amenities at our owned by financially stable landlord.
Tony: We'll outperform in any environment.
Tony: In the first quarter, our leasing team put points on the board with approximately 230000 square feet leased which included the successful conversion of 77000 square feet of previously unknown 2026 explorations and renewals.
Tony: Our Manhattan office portfolio was 93% leased and we retain our guidance and expect to have leasing and occupancy gains for the full year.
Tony: We achieved our 15th consecutive year of positive New York City office, Mark to market rent spreads.
Tony Malkin: We have not changed our observatory guidance for 2025. The first quarter is our lightest quarter seasonally in the observatory, and saw an abundance of visibility-impaired days concentrated over the peak holiday periods of President and Martin Luther King weekends. The observatory was resilient in the first quarter and produced NOI of $15 million. Visitation was down 4.6 percent year over year after adjustment for the shift of the Easter holiday to the second quarter. Consumer confidence, geopolitical tensions, and currency exchange rates can have an impact on tourism and consumers in the remainder of the year. That said, our Easter holiday performance was solid and will be reflected in second quarter results.
Tony: We have not changed our observatory guidance for 2025.
Tony: The first quarter is our lightest quarter seasonally in the observatory and saw an abundance of visibility impaired days concentrated over the peak holiday periods of President and Martin Martin Luther King weekend.
Tony: The observatory was resilient in the first quarter and produced NOI of $15 million visitation was down one 6% year over year after adjustment for the shift of the Easter holiday to the second quarter.
Tony: Consumer confidence geopolitical tensions and currency exchange rates can have an impact on tourism and consumers in the remainder of the year.
Tony: That said, our Easter holiday performance was solid and will be reflected in second quarter results.
Tony: We grew revenue per caps by five 9% in the first quarter.
Tony Malkin: We grew revenue per caps by 5.9% in the first quarter. We continue our digital marketing initiatives to enhance revenues, optimization of our pricing strategy, reservation based cost controls, and above all, delivery to our customers of an excellent experience. There has been a lot of discussion around tourism and the potential impact on businesses like Observatory Deck. Today, roughly 50% of our visitors are domestic. Our international exposure is broad-based. No one region contributes more than 10% of our total visitation. We adjust our marketing efforts to focus real-time on sourcing trends. Our observatory deck remains the leader and is named the number one attraction in the world in TripAdvisor's Traveler's Choice Awards.
Tony: We continue our digital marketing initiatives to enhance revenues optimization of our pricing strategy.
Tony: <unk> based cost controls and above all delivery to our customers of an excellent experience.
Tony: There's been a lot of discussion around tourism and the potential impact on businesses like Observatory decks.
Tony: Today, roughly 50% of our visitors are domestic.
Tony: Our international exposure is broad based no one region contributes more than 10% of our total visitation.
Tony: We adjust our marketing efforts to focus real time on sourcing trends.
Tony: Our observatory deck remains the leader and is named the number one attraction in the World and Tripadvisor is Travelers' choice Awards.
Tony Malkin: Our observatory has proven to be resilient over time through cycles. The maintenance of a best-in-class balance sheet allows ESRT tremendous flexibility to lease, maintain our portfolio to the highest standards, and transact opportunistically to create additional value for our shareholders. Our entire organization remains laser focused on the company's five priorities to lease space, sell tickets to the observatory, manage our balance sheet, identify growth opportunities, and achieve our sustainability goals.
Tony: Our observatory has proven to be resilient over time through cycles.
Tony: The maintenance of a best in class balance sheet allows ESR team tremendous flexibility to lease maintain our portfolio to the highest standards.
Tony: And transact opportunistically to create additional value for our shareholders.
Tony: Our entire organization remains laser focused on the company's five priorities to lease space sell tickets to the observatory manage our balance sheet identify growth opportunities and achieve our sustainability goals Tom.
Tom: Tom, Christina, and Steve will provide more detail on our progress and outlook for the balance of 2025. Tom. Hey, thanks, Tony. And good afternoon, everyone. We continue to build off strong momentum from 2024 and are happy to report another healthy quarter of leasing results to kick off 2025. We leased a total of 231,000 square feet in our commercial portfolio in the first quarter, including an 11-year, 77,000-square-foot renewal lease with Garrison Lehrman at One Grand Central Place. a 10-year, 39,000-square-foot renewal and expansion lease with Workday at the Empire State Building. An eight-year, 33,000-square-foot renewal and expansion lease with Carolina Herrera at 5017th Avenue.
Tony: Tom Christina and Steve will provide more detail on our progress and outlook for the balance of 2025 Tom.
Tony: Tom.
Tony: Thanks, Tony and good afternoon, everyone.
Tony: We continue to build off strong momentum from 2024 and are happy to report another healthy quarter of leasing results to kick off 2025.
Tony: We leased a total of 231000 square feet in our commercial portfolio in the first quarter, including an 11 year 77000 square foot renewal lease with Gerson lehrman at one Grand Central place.
Tony: A 10 year 39000 square foot renewal and expansion lease with workday at the Empire State building.
Tony: An eight year at 33000 square foot renewal and expansion lease with Carolina Herrera at 501 seventh Avenue.
Tom: And we signed leases for 12 pre-built office suites, which total 60,000 square feet. In the first quarter, we signed 177,000 square feet of renewals and 43,000 square feet of new leases in a Manhattan office portfolio, where we have only 160,000 square feet of remaining lease expirations to address for the balance of 2025. Our Manhattan office portfolio stands at 93% leased, compared to 94.2% last quarter. On our earnings call last quarter, we said that this would happen, and as many of our known move-outs were scheduled for the beginning of the year. We have a healthy pipeline of leasing activity, and we retain our guidance that our leased and occupancy percentages will increase by year-end 2025.
Tony: And we signed leases for 12 pre built office suites, which totaled 60000 square feet.
Tony: In the first quarter, we signed 177000 square feet of renewals and 43000 square feet of new leases in our Manhattan office portfolio, where we have only 160000 square feet of remaining lease explorations to address for the balance of 2025.
Tony: Our Manhattan office portfolio stands at 93% leased compared to 94, 2% last quarter.
Tony: On our earnings call last quarter, we said that this would happen and as many of our known move outs were scheduled for the beginning of the year.
Tony: A healthy pipeline of leasing activity and we retain our guidance that our leased and occupancy percentages will increase by year end 2025.
Tony: Our healthy pipeline includes approximately 160000 square feet of leases in negotiation.
Tom: Our Healthy Pipeline includes approximately 160,000 square feet of leases in negotiation and over a few hundred thousand square feet of proposals exchanged with tenant prospects in various industries, including finance, professional services, TAMI, and others. This is consistent with the same time last year when we had a similar amount of new leases in negotiation and proposals issued. Our total volume remains strong in the face of reduced availability, with no slowdown in recent weeks. In fact, several tenants have competed for space, and we currently have leases out on four full floors. We remain on track with our four-year guidance, which contemplates an increase in our occupancy rate to between 89 and 91 percent by year-end.
Tony: And over a few hundred thousand square feet of proposals exchanged with tenant prospects in various industries, including finance professional services Tami and others.
Tony: This is consistent with the same time last year, when we had a similar amount of new leases in negotiation and proposals issue.
Tony: Our tour volume remained strong in the face of reduced availability with no slowdown in recent weeks in fact, several tenants have competed for space and we currently have leases out on four full floors. We remain on track with our full year guidance, which contemplates an increase in our occupancy rate to between 89.
Tony: And 91% by year end.
Tony: We speak consistently about haves and have nots and our es as their T portfolio is clearly one of the hats. There are fewer tenant options for quality buildings owned by strong landlords that offer amenities leadership in sustainability and convenient locations avail.
Tom: We speak consistently about haves and have-nots. And our E3T portfolio is clearly one of the haves. There are fewer tenant options for quality buildings owned by strong landlords that offer amenities, leadership and sustainability, and convenient location. availability of high quality HAVS office space in Manhattan's better buildings continues to shrink. We have increased rents and reduced concessions. We just completed our 15th consecutive quarter with positive mark-to-market lease spreads in our Manhattan office portfolio where blended mark-to-market lease spreads increased by over 10% in the first quarter. Our average lease duration was 8.4 years and we have $57 million in incremental cash revenue from signed leases not commenced and free rent burn-off as shown on page 10 of our supplemental that reflects our leasing success.
Tony: Availability of high quality Habs office space in Manhattan, better buildings continues to shrink.
Tony: We have increased rents and reduced concessions.
Tony: We just completed our 15th consecutive quarter with positive Mark to market lease spreads in our Manhattan office portfolio, where blended mark to market lease spreads increased by over 10% in the first quarter.
Tony: Our average lease duration was eight four years and we have $57 million in incremental cash revenue from signed leases not commenced and free rent burn off as shown on page 10 of our supplemental reflects that reflects our leasing success.
Tom: Lastly, our multifamily portfolio continues to excel, benefiting from robust market fundamentals, strategic property improvements, and improved operations. The portfolio was 99% occupied and achieved 8% year-over-year rent growth in the first quarter.
Tony: Lastly, our multifamily portfolio continues to excel.
Tony: Benefiting from robust market fundamentals strategic property improvements and improved operations.
Tony: The portfolio was 99% occupied and achieved 8% year over year rent growth in the first quarter.
Christine: Thank you and now I'll turn the call over to Christine.
Christina: Thank you, and now I'll turn the call over to Christina. Thanks, Tom. Before Steve covers our 2025 outlook, I'd like to set the stage with a discussion of the broader environment we operate in today and how ESRT is well positioned to navigate through it. New York City has significantly outperformed other gateway cities in terms of vibrancy and full recovery from COVID. Within New York City, ESRT owns a high quality portfolio that is well diversified across sectors and sources of income that benefit from live, work, play, and visit. We are well leased across each property type.
Christine: Thanks, Tom.
Christine: Before Steve covers our 2025 outlook I'd like to set the stage with a discussion of the broader environment. We operate in today and how ESR T is well positioned to navigate through it.
Christine: New York City has significantly outperformed other gateway cities in terms of vibrancy and full recovery from Covid.
Christine: Within New York City, Yes, Archie owned a high quality portfolio that is well diversified across sectors and sources of income that benefit from live work play and visit.
Christine: We are well leased across each property type our New York City office assets are 93% beat our retail is over 94% leased and our multifamily at 99% leased.
Christina: Our New York City office assets are 93% leased, our retail is over 94% leased, and our multifamily is 99% leased. All three sectors benefit from a backdrop of very limited new supply today. This should persist for at least several years given the high and rising cost of new construction and long development time. Our portfolio was built to withstand and perform in all cycles. We offer a great value proposition that targets the deepest and broadest segment of office tenant demand in Manhattan, and that should play well in the current environment. Our goal has always been to get the best deals in good times, get the deals in challenged times, and draw consistent leasing volumes through cycles.
Christine: All three sectors benefit from a backdrop of very limited new supply today.
Christine: Shouldn't persist for at least several years, given the high and rising cost of new construction and long development timeline our.
Christine: Our portfolio was built to withstand and perform and all cycle, we offer a great value proposition that targets, the deepest and broadest segment of office tenant demand in Manhattan.
Christine: That should play well in the current environment.
Christine: Our goal has always been to get the best deals in good time get the deals and challenge time and drive consistent leasing volumes through cycles.
Christina: Our tenant base is well diversified in terms of both industry type and size, and demand for our properties has been solid as demonstrated by our leasing progress, as we have picked up nearly 600 basis points of positive lease rate absorption in our Manhattan office portfolio since the end of 2021. The supply picture is now even more favorable as replacement costs continue to increase amidst tariffs and the impact on labor from shifts in immigration policy. While we monitor any shifts in demand, we continue to have constructive discussions with prospective tenants and build our future leasing pipeline.
Christine: Tenant base is well diversified in terms of both industry type and size and demand for our properties has been solid as demonstrated by our leasing progress as we have picked up nearly 600 basis points of positive lease rate absorption in our Manhattan office portfolio since the end of 2021.
Christine: The supply picture is now even more favorable as replacement cost continued to increase and the terrorists any impact on labor from shifts and immigration policy.
Christine: While we monitor any shifts in demand we continue to have constructive just got constructive discussions with perspective tenants and build our future leasing pipeline.
Christina: In times of economic uncertainty like we have today, our portfolio stands out against the competition because of the value proposition and our financial stability to ensure we will deliver on our promises, which is paramount to brokers and tenants today.
Christine: In times of economic uncertainty like we have today, our portfolio stands out against the competition because of the value proposition and our financial stability to ensure we will deliver on our promises which is paramount to brokers and tenants today.
Christine: Shifting to the Observatory, we have always said that the observatory business is a great complement to our property portfolio business. It features low capex high operating margins and dynamic pricing with better potential to like Asps with inflation.
Christina: Shifting to the observatory, we have always said that the observatory business is a great complement to our property portfolio business. It features low capex, high operating margins, and dynamic pricing with better potential to adjust with inflation. We recognize we are in a period of heightened uncertainty and there could be headwinds in the balance of the year to the extent macro risks and geopolitical tensions result in lower economic growth and reduced tourism. Our focus is to continue to run the operations well, cultivate our brand, control expenses, and be transparent with the market as these external factors play out.
Christine: We recognize we are in a period of heightened uncertainty and there could be headwinds in the balance of the year to the extent macro risk and geopolitical tension result in lower economic growth and reduced tourism.
Christine: Our focus is to continue to run the operations Wow cultivate our brand control expenses and be transparent with the market as these external factors play out.
Christina: The addition of multifamily to our portfolio has been great and adds to the resiliency of ESRT's cash flow. Fundamentals remain strong, there is virtually no new supply, replacement costs remain high, and frequent rent resets relative to office allows cash flows from this segment to better adjust with inflation. We remain happy with our well-located, high-foot traffic retail portfolio that includes a balance of everyday retail and our growing street retail portfolio on North 6th Street in Williamsburg, Brooklyn, where in-place rents are well below market. Our retail portfolio is well leased with a six and a half year weighted average lease term.
Christine: The addition of multifamily to our portfolio has been great and add to the resiliency of ESR Keith cashless funding.
Christine: Fundamentals remain strong there is virtually no new supply replacement costs remain high and frequent rent resets relative to office allows cashless from this segment to better adjust with inflation.
Christine: We remain happy with our well located high foot traffic retail portfolio that includes a balance of everyday retail and our growing street retail portfolio, our north fifth Street in Williamsburg, Brooklyn, where in place rents are well below market.
Christine: Our retail portfolio with long lease with a six and a half year weighted average lease term.
Christina: Across our retail portfolio, we have a roster of strong credit quality tenants that are also well positioned in an uncertain environment. Importantly, we have a great balance sheet that enables us to weather any environment. We manage our balance sheet in a proactive manner with strong liquidity, no floating rate debt exposure, a well-ladder debt maturity schedule, no unaddressed debt maturity until December 2026, and the lowest leverage among all New York City focused REITs at 5.2 times net debt to EBITDA as of quarter end. During the quarter, we repaid our $100 million Series A unsecured notes and the $120 million revolving credit facility balance.
Christine: Cross our retail portfolio, we have a roster of strong credit quality tenants that are also well positioned in an uncertain environment.
Christine: Importantly, we have a great balance sheet that enables us to weather any environment.
Christine: We manage our balance sheet in a proactive manner with strong liquidity no.
Christine: No floating rate debt exposure, well ladder debt maturity schedule no unaddressed that maturity until December 2026, and the lowest leverage among all New York City focused REIT at five two times net debt to EBITDA as of quarter end.
Christine: During the quarter, we repaid our 100 million dollar series, a unsecured notes and the $120 million revolving credit facility balance.
Christina: Subsequent to quarter end, we opportunistically repurchased $2.1 million of shares at an average price of $6.92 per share through April 28, 2025. We continue to consider share buybacks as part of our capital allocation strategy. That said, buybacks will be measured given the uncertain environment and our focus on operating runway and continued flexibility to be in a position to go on offense when attractive investment opportunities arise. The transaction environment became more active at the end of 2024 through early 2025, but we will monitor how that shifts with more market uncertainty today. We continue to actively underwrite deals across three sectors in which we target retail, multifamily, and office with a focus on New York City.
Christine: Subsequent to quarter end, we opportunistically repurchased two $1 million of shares at an average price of $6.92 per share through April 28, 2025.
Christine: We continue to consider share buyback as part of our capital allocation strategy that said buybacks will be measured given the uncertain environment and our focus on operating runway and continued flexibility to be in a position to go on offense when attractive investment opportunities arise.
Christine: The transaction environment became more active at the end of 'twenty 'twenty four and through early 2025, but we will monitor how that shifts with more market uncertainty today.
We continue to actively underwrite deals across three sectors in which we target retail multifamily and office with a focus on New York City, where.
Christina: We are prepared to act when we see opportunities to enhance growth, either through expansion or further recycle of capital.
Christine: We are prepared to act when we see opportunities to enhance growth either through expansion or further recycle of capital and now I'll turn it over to Steve to discuss our first quarter results and outlook for the remainder of 2025.
Steve: And now I'll turn it over to Steve to discuss our first quarter results and outlook for the remainder of 2020. Thanks, Christina. first quarter of 2025, we reported core FFO of 19 cents per diluted share. same-store property cash NOI was up 0.4% when you exclude the $1.5 million of non-recurring revenue items recognized in the first quarter of 2024. Expenses were up approximately 5% year-over-year, driven by real estate taxes, payroll costs, and repair and maintenance costs. These expense increases were partially offset by higher tenant reimbursement income and growth in rental revenue driven by cash rent. In our observatory business, we generated net operating income of approximately $15 million.
Christina: Christina for the firm.
Christina: First quarter of 2025, we reported core <unk> 19 cents per diluted share.
Christina: Same store property cash NOI was up 4% when he was exclude the $1 $5 million nonrecurring revenue items recognized in the first quarter of 2024.
Christina: Those were up approximately 5% year over year, driven by real estate taxes payroll costs and repair and maintenance costs.
Christina: Expense increases were partially offset by higher tenant reimbursement income and growth in rental revenue driven by cash, but that's it.
Christina: In our observatory business, we generated net operating income of approximately $15 million, 7% year over year change is largely attributed to the shift in the Easter holiday season.
Steve: 7% year over year change is largely attributed to the shift in the Easter holiday season from the first quarter of 2024 to the second quarter of this year, as well as bad weather days this year, which are concentrated over the holiday weekend.
Christina: First quarter of 2020 for the second quarter of this year as well as bad weather days this year, which are concentrated over the holiday weekend.
Christina: Now onto our outlook for 2025.
Steve: Now under Outlook for 2025. We continue to guide the core FFO of 86 to 89. As Tony mentioned at the top of the call, our observatory NMI guidance range of 97 to 102 million is unchanged at this time. This NOI range assumes observatory expenses of approximately $9 to $10 million per quarter on average. We will monitor and update our guidance as warranted. Other key assumptions are also unchanged and include adjusted same-store property cash NOI growth excluding lease termination fees and non-recurring items to range from up 0.5% to 4%. Within this range, we expect positive cash revenue growth, which assumes commercial occupancy of 89% to 91% by year-end 2025 and driven by cash rent commencement and manageable lease expirations in 2025.
Christina: We continue to guide to core <unk> of 86 to 89.
Christina: As Tony mentioned at the top of the call our Observatory NOI guidance range of 97 million.
Christina: Unchanged.
Christina: This NOI range assumes.
Christina: Our expenses by approximately $9 million per quarter on average.
Christina: Monitor and update our guidance as warranted.
Christina: Other key assumptions are also unchanged and include adjusted same store property cash NOI growth, excluding lease termination fees and nonrecurring items to range from up 5% to 4%.
Christina: This range, we expect positive cash revenue growth, which assumes commercial occupancy of 89% to 91% by year end 2025, driven by cash rent commencement in Nashville lease explorations in 2025.
Steve: On the expense side, we expect an approximate 2 to 4% increase in property operating expenses and real estate tax. to be partially offset by higher tenant reimbursement income. Operating expense and real estate taxes will fluctuate throughout the year based on the timing of our planned maintenance work, utility expense seasonality, and the timing of real estate tax abatements. In particular, we expect an increase in operating expenses in both the second and third quarter of this year due to the timing of our repair and maintenance.
Christina: On the expense side, we expect an approximate 2% to 4% increase in property operating expenses and real estate taxes, which will be partially offset by higher tenant reimbursement income.
Christina: Operating expenses in real estate taxes will fluctuate throughout the year based on the timing of our planned maintenance work utility expense seasonality and the timing of real estate tax abatements in particular, we expect an increase in operating expenses in both the second and third quarter of this year due to the timing of our repair and maintenance work.
Christina: Lastly, I'll cover our expectations for Capex in 2025.
Steve: Lastly, I'll cover our expectations for CapEx in 2025. Over the past few years, our CapEx has reflected TIs and leasing commissions associated with the meaningful increase in lease percentage for our portfolio at around 93% currently. While CapEx will always fluctuate due to factors such as the pace of our leasing volume, the mix of new versus renewal versus early renewal, turnkey and prebuilt leasing, and the timing over which the tenant improvements are completed, we expect a decrease in 2025 second-gen CapEx relative to 2024, which takes into account the following. First, consistent level of TI spent in 2025 relative to 2024 based on strong leasing activity, which resulted in nearly 600 basis points of positive lease rate absorption in Manhattan office since the end of 2021.
Christina: Over the past few years, our Capex, that's reflected ti's and leasing commissions associated with a meaningful increase in this percentage of our portfolio is around 93% currently.
Christina: Capex will always fluctuate due to factors such as the pace of our leasing volume and mix of new versus renewal for an early renewal turnkey and prebuilt leasing the timing over which the tenant improvements are completed we expect a decrease in 2025 second Gen Capex relative to 2024, which takes into account the following.
Christina: First consistent level of Ti spend from 25 relative to 2024 based on strong leasing activity, which resulted in nearly 600 basis points of positive lease rate absorption in Manhattan office at the end of 2021.
Steve: As a reminder, this spend is often lagged as we recognize the cost of the TI allowances as related work is performed to prepare space after leases are signed. Second, an expected reduction in leasing commissions relative to prior years, which we generally recognize at lease signing, as the portfolio has achieved a high lease percentage level. third and expected decrease in building which were elevated over the last few years as we prepared our assets for the aforementioned strong... The first quarter is a good go-forward run rate for building improvement spend in 2025.
Christina: As a reminder, this spend is often let us we recognize the cost of the Ti allowances as it related work is performed to prepare space. After it leases are signed second an expected reduction in leasing commissions relative to prior years, which we generally recognized at least signing as the portfolio has achieved a high lease percentage level.
Christina: The expected decrease in building improvements, which were elevated over the last few years as we prepared our assets for the aforementioned strong leasing activity. The first quarter is a good go forward run rate for building improvements spend in 2025.
Operator: With that, we now turn the call back to the operator for the Q&A session. Operator. Thank you. We will now be conducting a question and answer. If you would like to ask a question, please press star 1 on your telephone. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove your question. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start key. One moment, please, while we poll for your question.
Speaker Change: With that we now turn the call back to the operator for the Q&A session operator.
Christina: <unk>.
Speaker Change: Thank you we will now be conducting a question and answer session.
Christina: To ask a question. Please press star one on your telephone keypad.
Christina: A confirmation tone will indicate your line is in the question queue.
Christina: Star two 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 keys.
Christina: One moment, please while we poll for your questions.
Speaker Change: Our first questions come from the line of Steve Sochua with Evercore ISI. Please proceed with your questions.
Steve Sakwa: Our first questions come from the line of Steve Sakwa with Evercore ISI. Please proceed with your question. Yes, thanks. Good afternoon. Maybe, Tom, just maybe flush out a little bit more on the leasing side. If you think about the different types of tenants that you're talking to, financial services, law firms, maybe folks in retail, you know, how are those conversations unfolding with the terrorists in terms of their desire to move forward, maybe higher apprehension? You know, is there anything you've noticed by, I guess, tenant category over the last maybe 30 to 60 days? Yeah, Steve, thanks for the question.
Steve Sochua: Yes, thanks, good afternoon.
Speaker Change: Maybe Tom just maybe flush out a little bit more on the leasing side. If you think about the different types of tenants that you're talking to financial services law firms may be folks in retail.
Speaker Change: How are those conversations unfolding with the terrorists in terms of their desire to move forward maybe higher apprehension.
Speaker Change: Is there anything you've noticed by I guess tenant category.
Speaker Change: Over the last maybe 30 to 60 days.
Speaker Change: Yeah, Steve Thanks for the question actually in the last 60 days I have met we have noticed absolutely no change.
Tom: Actually, in the last 60 days, I have, we have noticed absolutely no change. in any of our lease negotiations underway with any tenant throughout our entire portfolio. And that is quite noticeable. In recent speaking with all of our leasing staff, all of our agents, there is not a single deal that has been put on hold or put on pause in the last 60 days. And so I think that that's quite remarkable. Our pipeline tour volume is really strong relative to our reduced availabilities. And we have activity really with all a variety of industry types, TAMI, consumer product, professional services, legal, and some finance.
Speaker Change: In any of our lease negotiations underway with any tenant throughout our entire portfolio and that is quite notable noticeable.
Speaker Change: In recent speaking with all of our leasing staff all of our agents there isn't a there's not a single deal that has been put on hold or put on pause in the last 60 days and so that I think that that's quite remarkable pipeline tour volume is really strong relative to a reduced availabilities and we have activity.
Speaker Change: It really with a variety of industry types.
Speaker Change: <unk> consumer products professional services.
Speaker Change: Legal and some finance.
Speaker Change: Okay. Thanks.
Steve Sakwa: Okay, thanks.
Steve: And I guess, Christina, or maybe Stephen, on the CapEx, I mean, one of the biggest questions we get from investors is, obviously, that elevated level of CapEx and how that number should trend down over the next couple of years. I know we've had some conversations, but can you just sort of help us size, you know, where you think, I know the timing of that is a little bit hard, but, you know, what do you think the right run rate would be, roughly, on average, for the when you get to a stabilized and normalized occupancy level?
Speaker Change: And I guess, Christina or or maybe Steven on the Capex I mean, one of the biggest questions. We get from investors is.
Speaker Change: Obviously that elevated level of Capex and how that number should trend down over the next couple of years I know we've had some conversations but can you just sort of help us size.
Speaker Change: Where you think I know the timing of that is a little bit hard, but you know what do you think the right run rate would be roughly on average for the portfolio when you get to a stabilized and normalized occupancy level.
Speaker Change: Yeah. Thanks, Steve So from a we break it down into three categories being Ti and leasing commissions and building improvement. So from a Ti perspective, we mentioned we had about nearly 600 basis points of lease rate of absorption in Manhattan office. So you still see that spend come through.
Steve: Yeah, thanks, Steve. So, from a, we break it down into three categories, being TI, leasing commissions and building improvements. So, from a TI perspective, we mentioned we had about nearly 600 basis points of lease rate absorption in Manhattan office. So, we still see that spend come through. In fact, over 70% of our planned TI spend in 25 is coming from prior leasing. So, you continue to see the impact of that flow through in 25 and see some of that continue into 26 as well. So, once that flows through the portfolio, you'll see a reduction in an overall run rate from TI spend.
Speaker Change: In fact over 70% of our planned Ti spend and 25 is coming from higher leasing so.
Speaker Change: You see the impact of that flow through in 'twenty, five and see some of that continue into 2006 as well.
Speaker Change: So once that flows through the portfolio Youll see a reduction in the overall run rate from Gi side that will have a longer tail on it as I mentioned in my remarks from leasing commissions and building improvements at the different story because that is more aligned to now we've reached a high level lease rate so less leasing to be done.
Steve: That will have a longer tail on it, as I mentioned in my remarks. From leasing commissions and building improvements, that's a different story because that is more aligned to now we've reached a high level of lease rate, so less leasing to be done from that perspective, and so lower leasing commissions from that. And similar to building improvements, we spent the capex previously to prepare for that leasing, and so we look at the first quarter where we had about, you know, $5 million in capex of building improvements. We expect that to be a good, a run rate going forward from there, as the, as I mentioned, that the work was already underway.
Speaker Change: Perspective, and so lower leasing commissions from that and similar to building improvements. We spent the capex previously to prepare for that leasing and so we look at the first quarter.
Speaker Change: We had about $5 million of Capex in building permits we expect that to be a good run rate going forward from there.
Speaker Change: As the dimension that that work was already done.
Speaker Change: Thank you our next questions come from the line of John Kim with BMO capital markets. Please proceed with your questions.
Steve: Thank you.
John Kim: Our next question has come from the line of John Kim with BMO Capital Markets. Please proceed with your question.
Regan Sweeney: Good afternoon, it's Regan Sweeney here with John. Thank you for the question. I guess just first kind of on leasing, how's the Williamsburg leasing going? There's a progression on the one vacant unit. I saw there was a slight uptick in the lease rate and the average rent this quarter. Just wanted to dive in there.
Speaker Change: Good afternoon, it's a rig and sweeny here with John. Thank you for the question I guess, just first kind of on leasing how is the Williamsburg leasing going about the progression on the one vacant unit I saw there was a slight uptick in the leased rate and your average rent this quarter just wanted to dive in there.
Speaker Change: Yeah. Thanks for the question, we got really good activity in Williamsburg, Ron as you know just on the one space availability of about 2400 square feet.
Regan Sweeney: Yeah, thanks for the question. We've got really good activity in Williamsburg on, as you know, just on the one space availability of about 2400 square feet. The activity is coming from household brand names, very recognizable brand names. So we're really excited about the response that we've seen in Williamsburg. We're very early in the, you know, kind of the processing there, but you know, really excited and really pleased with that with our acquisition on an overall front. You know, we're 94% leased on our entire retail portfolio. We only have seven vacant stores throughout the entire retail portfolio and we have four leases in negotiation, three are new deals, and one is a renewal.
Speaker Change: The activity is coming from.
Speaker Change: Household brand names very recognizable brand names and so we're really excited about the response that we've seen.
Speaker Change: Seen in Williamsburg, but very early on in the.
Speaker Change: Kind of the processing there but.
Speaker Change: Yes, we're really excited and really pleased with our with our acquisition on an overall you know we're 94% leased on our entire retail portfolio, we only have seven vacant stores throughout the entire retail.
Speaker Change: Portfolio and we have four leases in negotiation three are new deals and one is a renewal.
Speaker Change: Great. Thank you and then just one other one shifting to capital allocation, how do you rank the capital allocation opportunities in the market just between acquisitions and then additional buybacks, while you're currently trading at about an 11% implied cap rate.
Regan Sweeney: Great, thank you.
Regan Sweeney: And then just one other one shifting to capital allocation. How do you rank the capital allocation opportunities in the market just between acquisitions and then additional buybacks while you're currently trading at about an 11% implied cap? So we opportunistically did some share buybacks. But as mentioned in my remarks, we'll be measured, we are balancing against an environment that's highly uncertain, and definitely want to be mindful of that. Within that uncertain backdrop, there could also be more potential investment opportunities. And we want to be prepared to be able to go on offense if those opportunities arise.
Speaker Change: And so we opportunistically, particularly did some share buyback, but as mentioned in my remarks will be measured we are balancing against an environment that is highly uncertain and definitely want to be mindful of that within that uncertain backdrop. There could also be more potential.
Speaker Change: Investment opportunity and we want to be prepared to be able to go on offense if those.
Speaker Change: Opportunities arise and of course as we operate in the normal course of business, we want to maintain our portfolio Wow, Hey for leasing Capex and have plenty of operating right away. So when we think about the prioritization is definitely operating runway and the ability to go on offense, coupled with if theres an opportunity.
Regan Sweeney: And of course, as we operate in the normal course of business, we want to maintain our portfolio well, pay for leasing CapEx, and have plenty of operating runway. So when we think about the prioritization, it's definitely operating runway, and the ability to go on offense coupled with if there's an opportunity to do some buybacks, we'll do that along the way.
Speaker Change: Do you need to do some buybacks, we'll do that along the way.
Speaker Change: Do you have.
Regan Sweeney: Do you have a... The only thing I'll add to that is, you know, we do see opportunities out there. And as the cycle moves on, we see more. So, you know, we acted in a in a prudent and logical way during a 10B51 period and acquired stock.
Speaker Change: Yeah.
Speaker Change: The only thing I'll add to that is we do see opportunities out there.
Speaker Change: And as the cycle moves on.
Speaker Change: See more.
Speaker Change: So.
Speaker Change: But we acted in a in a prudent and logical way during the <unk> period and acquired stock.
Speaker Change: Do you have a preference over multi verse of office or retail and those opportunities as they arise or are kind of just whatever whatever comes up.
Regan Sweeney: Do you have a preference over multi versus office or retail in those opportunities as they arise or kind of just whatever comes up? We are omnivorous opportunivores, so we like multi, we like retail, we like office. It depends on basis, it depends on structure. We are open to inventive deal structures. We're open to assist. lenders with working out assets to commit new capital to work out assets. Really, we just try to be a good, disciplined, local sharpshooter and deliver the best result for our stakeholders.
Speaker Change: We are diverse opportunity horse so.
Speaker Change: We like multi we like retail we like office.
Speaker Change: It depends on basis it depends on structure.
Speaker Change: We are open to inventive deal structures.
Speaker Change: We're open to assist.
Speaker Change: Lenders with working out assets to commit new capital to work out assets.
Speaker Change: Really we just try to be a good disciplined local sharpshooter and do what would deliver the best result for our stakeholders.
Speaker Change: Great I appreciate it thank you.
Regan Sweeney: I appreciate it.
Operator: Thank you.
Speaker Change: Thank you our next questions come from the line of Blaine Heck with Wells Fargo. Please proceed with your questions.
Blaine Heck: Our next questions come from the line of Blaine Heck with Wells Fargo. Please proceed with your Great, thanks. Good afternoon. Just following up on that last question, you know, you guys have previously commented on looking for some higher yielding investments in the near term following the multifamily and retail deals, which were more core opportunities. I'd assume you'd kind of need to look to office for those higher yields.
Blaine Heck: Great. Thanks. Good afternoon, just following up on that last question.
Blaine Heck: You guys had previously commented on looking for some higher yielding investments in the near term following the multifamily and retail deals which were more core opportunities.
Speaker Change: Assume you kind of need to look to office for those higher yield. So I was hoping you could talk about the ideal kind of investment profile. If there is one whether it's a core opportunity that may just eating mispriced for one reason or the other or something with lease up needs or renovation needs even conversion opportunities.
Blaine Heck: So, I was hoping you could talk about the ideal kind of investment profile if there is one, whether it's a core opportunity that may just be mispriced for one reason or the other, or something with lease-up needs or renovation needs, even conversion opportunities. I guess I'm just wondering how far out on the risk spectrum you would go on an office investment in the current environment.
Speaker Change: I'm just wondering how far out on the risk spectrum you would go on in office investment in the current environment.
Speaker Change: So Tony here, and then open up to any comment from anybody else in the room.
Tony Malkin: So, Tony here, and then open it up to any comment from anybody else in the room. We define risk, we think, in a way different from the way others do, because we have unique capabilities. to redevelop assets. We are in the market with. A unique component of the market are top-of-tier, older properties, modernized, amenitized, energy-efficient, and good environments with the right floor plate sizes. So I think a lot of people might look at investment and activity and office. like that and say, wow, that is a really risky thing to do, whereas for us, we think it's very de-risked.
Speaker Change: We define risk.
Speaker Change: We think in a way different from the way others do.
Speaker Change: Because we have unique capabilities.
Speaker Change: To redevelop assets, we are in the market with.
Speaker Change: A unique component of the market our top tier.
Speaker Change: Older properties modernized.
Speaker Change: <unk> energy efficient and good environments with the right floor plate sizes.
Speaker Change: I think a lot of people might look at investment and activity in the office.
Speaker Change: Like that and say Wow that is really risky thing to do whereas for US we think it's it's very derisked.
Tony Malkin: So, you know, our view on risk... have more to do with... What for what do we try to solve? And we put up fresh dollars we try to solve for a better return. We also look to solve when you mentioned those core acquisitions for 1031s, and that's a different appetite for a different type of transaction where the risk is in the execution itself and we don't want necessarily to take on additional risk on top of that. So, you know, from our perspective, Absent 1031s, we do look for better opportunities for returns in areas that other people might think are riskier to undertake.
Speaker Change: So our view on risks.
Speaker Change: Have more to do with.
Speaker Change: What for what do we try to solve and we put up fresh dollars, we try to solve for a better return.
Speaker Change: We also look to solve.
Speaker Change: When you mentioned those core acquisitions for 10, 30 ones and that's a different appetite for a different type of transaction, where the risk is in the execution itself and we don't want necessarily to take on.
Speaker Change: Additional risk on top of that.
Speaker Change: From our perspective.
Speaker Change: Absent 10, 30 ones, we do look for better opportunities.
Speaker Change: Returns in areas that other might other people might think are riskier to undertake and for US, we think with our capabilities and experience and presence in the market are derisked.
Tony Malkin: And for us, we think with our capabilities and experience and presence in the market are de-risked. We also will look at opportunities where we can combine our assets and resources with other people's resources. So that's another way in which we might approach the delivery of a good hurdle return for ourselves as we look at how we want to. go forward.
Speaker Change: We also will look at opportunities, where we can combine our assets and resources with other People's resources. So that's another way in which we might approach that.
Speaker Change: The delivery of a good hurdle return for ourselves as we look at how we want it.
Speaker Change: Go forward.
Speaker Change: Alright very helpful commentary, there just shifting to the observatory Tony you touched on this but clearly some headlines are suggesting the weakness in the stock market combined with the rising political attention could impact tourism. So I'm wondering first whether you even agree with that.
Blaine Heck: All right. Very helpful commentary there.
Blaine Heck: Just shifting to the observatory, Tony, you touched on this, but clearly some headlines are suggesting the weakness in the stock market combined with, you know, the rising political tensions could impact tourism. So, I'm wondering first whether you even agree with that assessment and whether you're seeing any of that decline in tourism today.
Speaker Change: That assessment, and whether youre seeing any of that decline in tourism.
Tony Malkin: And second, you know, what specific steps out of all those that you covered in prepared remarks, you know, what levers you think you can pull that are going to be most effective in kind of overcoming any softness in volume and still achieving that guidance target? So we look to operate in a very disciplined way on the observatory. We have not detected any significant shifts in demand that we can't ascribe to logical events like really bad weather over key periods during what is a very light quarter for us typically, that first quarter, particularly with Easter not present.
Speaker Change: Good day, and second what specific steps out of all of those that you covered in the prepared remarks.
Speaker Change: Levers you think you can pull that are going to be most effective in kind of overcoming any softness in volume in still achieving that guidance target.
Speaker Change: So we look to operate in a very disciplined way on the observatory, we have not detected any significant shifts in demand that we cant ascribe to logical events like really bad weather over key periods. During what is a very light quarter for us typically.
Speaker Change: That first quarter, particularly with eastern at present, so we really hesitate to extrapolate too much from bad weather impacting our highest volume periods in a low volume period for the year.
Tony Malkin: So we really hesitate to extrapolate too much from bad weather impacting our highest volume periods in a low volume period for the year. So with that said, with all that noise and the data, we fall back on, all right, how did we do? over Easter solid. What are our opportunities given the mix? Direct more marketing towards our domestic customers, potential customers, more in-market activity. What do we do as far as cost controls? Well, we operate by our reservations model. We know when people come through when we control our costs. And outside of that, do we think that there's opportunity for change in the world out there based on macro factors?
Speaker Change: So with that said with all that noise in the data we fall back on alright hadn't we do.
Speaker Change: Over Easter solid.
Speaker Change: What are our opportunities given the mix <unk>.
Speaker Change: Direct more.
Speaker Change: Marketing towards our.
Speaker Change: Domestic customers potential customers more end market activity.
Speaker Change: What do we do as far as cost controls, where we operate by our reservations model, we know when people come through when we control our costs.
Speaker Change: And and outside of that.
Speaker Change: Do we think that there's opportunity for change in the world out there based on macro factors.
Tony Malkin: Well, we're in a pretty unique environment right now. Historically, as you look at our investor presentation, through depressions, wars. all sorts of new attractions. We performed very well.
Speaker Change: But we're in a pretty unique environment right now historically as you look at our investor presentation through depressions.
Speaker Change: Worse.
Speaker Change: All sorts of new attractions, we performed very well I think everyone can agree that we're in a unique set of circumstances and we just recognized that could have an impact and we don't feel that now's the time for us to call. It.
Blaine Heck: I think everyone can agree that we're in a unique set of circumstances and we just recognize that could have an impact and we don't feel like now's the time for us to call it. Great. Thanks, Tony. Thank you.
Speaker Change: Great. Thanks, Tony.
Speaker Change: Okay.
Speaker Change: Thank you our next questions come from the line of Seth <unk> with Citi. Please proceed with your questions.
Seth Berge: Our next questions come from the line of Seth Berge with Citi. Please proceed with your question. Hi, good morning, or good afternoon, rather. Thanks for taking my question. I just, you know, there's an article that, you know, New York is considering raising payroll taxes to cover some of the MTA budgets.
Seth: Hi, good morning, or good afternoon. Thanks for taking my question I. Just you know there was an article that you know New York is considering raising.
Speaker Change: Payroll taxes to cover some of the MTA budgets.
Speaker Change: Are there how do you how do you guys kind of think about the impact of something like that or any other policy changes on <unk>.
Tony Malkin: Are there, how do you, how do you guys kind of think about the impact of something like that, or any other policy changes on demand for New York? Next to Toronto, as was recently published, I think, in an article on the Wall Street Journal, New York City was the largest population growth over the prior 12 months in North America. as far as inbound population growth. That's the article I'll cite. New York City is the number one target and destination for college graduates. New York City is the number one destination for deaths. for major TAMI companies with a presence in New York City, meaning given a choice of where they'd like to be, this is the number one destination.
Speaker Change: Demand for New York.
Speaker Change: Next to Toronto as was recently published I think in an article in the Wall Street Journal, New York City was the largest population growth and over the prior 12 months in North America.
Speaker Change: As far as inbound population growth.
Speaker Change:
Speaker Change: That's the article I'll cite New York City is the number one target and destination.
Speaker Change: For college graduates in New York City is the number one destination for desks for major Tami companies with a presence in New York City, meaning given a choice of where they'd like to be this is the number one destination.
Tony Malkin: New York City is the best performing CVD of any in the United States right now as far as performance relative to recovery from COVID. We no longer talk about is it back to work in the office or not. It just is back to work in the office.
Speaker Change: New York City is the best performing CBD.
Speaker Change: Of any in the United States right now as far as performance relative to recovery from Covid.
Speaker Change: We no longer talk about is it back to work in the office or not it just is back to work in the office.
Tony Malkin: So we look at all that and we say, We're hopeful that the political powers that be recognize that what they do. has impacts potentially on how things happen. That said, New York City is in demand.
Speaker Change: So we look at all of that and we say.
Speaker Change: We're hopeful that the political powers that be recognized that what they do.
Speaker Change: Has impacts potentially on how things happen that said New York City.
Speaker Change: Is in demand.
Tony Malkin: We're very happy we're here, and as I've said so many times on these calls, I'm very happy that my ancestors didn't have enough money to move any further than the Lower East Side when they got to the United States. Thank you.
Speaker Change: We're very happy we're here and as I've said, so many times on these calls I am very happy that my ancestors didn't have enough money to move any further than the lower east side, when they got to the United States.
Speaker Change: Thank you our next questions come from the line of Dylan Brzezinski with Green Street. Please proceed with your questions.
Dylan Burzinski: Our next questions come from the line of Dylan Burzinski with Green Street. Please proceed with your question. Well, thanks for taking the question.
Dylan Brzezinski: Well thanks for thanks for taking the question I think earlier this year you guys mentioned taking.
Dylan Burzinski: I think earlier this year, you guys mentioned taking your final suburban asset to market, is that still the case? And if so, have you seen any disruption from that process associated with some of the volatility in capital markets? We're in the market, it's been broadly marketed, and the process to date is equal to other processes we've entered into out in the sub-region.
Dylan Brzezinski: Taking your final suburban asset to market is that still the case and if so have you seen any sort of disruption from that process associated with some of the volatility in capital markets.
Dylan Brzezinski: We're in the market.
Dylan Brzezinski: It's been broadly marketed.
Dylan Brzezinski: And the process to date is equal to other processes, we've entered into out in the suburbs.
Speaker Change: Great and then maybe if you can touch on sort of net effective rents. Obviously the portfolio is well leased today you guys talked about not seeing any disruption in terms of the level of depth of tenant demand over the last several weeks call. It seems liberation day, but are you starting to see any hesitation on being able to push net effective rent.
Dylan Burzinski: Great. And then maybe you can touch on sort of net effective rents. Obviously, the portfolio as well, at least today, you guys talked about not seeing any disruption in terms of the level or depth of tenant demand over the last several weeks, call it, since Liberation Day. But are you starting to see any hesitation on being able to push net effective rents as you guys continually set the portfolio? That's a great question, but let me give the backdrop of what we're seeing is that the availability of high quality office space in Manhattan's better buildings continues to shrink.
As you guys continue to lease up the portfolio.
Speaker Change: So it's a great question, but let me give the backdrop.
Speaker Change: We are seeing is that the availability of high quality office space in Manhattan, better buildings continues to shrink there are simply fewer.
Tom: There's simply fewer options for tenants in better buildings that are modernized with turnkey space, amenities, with good landlords. And so in the face of that, we increased our asking rents. We increased our rents last quarter. We increased our rents at the start of the year. And we just recently went to another round of increased rents just as late as yesterday. We have reduced our free rent concessions, where we used to see maybe a year ago a month per year lease term. We saw that decline, and we've seen that steadily decline over the last five quarters.
Speaker Change: The options for tenants in better buildings that are modernized with turnkey space amenities with good landlords and so in the face of that we increased our asking rents we increased our rents last quarter, we increased our rates at the start of the year and we just recently went through another round of increased rents adjust as late as yesterday, we are we have reduced our free.
Speaker Change: Free rent concessions, where we used to see maybe a year ago a month per year of lease term, we saw that decline and we've seen that steadily declined over the last five quarters. So look where we're pushing rents across the portfolio we have tower floors.
Tom: So, look, we're pushing rents across the portfolio. We have tower floors at Empire and One Grand Central Place. We're achieving rents in the mid to high 80s, 80s per square foot. And overall, we're seeing less resistance on price, free rents and terms. Great.
Speaker Change: At Empire, and one Grand Central place, where we're achieving rents in the mid to high <unk> per square foot and overall, we're seeing less resistance, Sean on price free rent and term.
Speaker Change: Great I appreciate that color. Thank you.
Dylan Burzinski: Appreciate that, Collar. Thank you.
Speaker Change: Thank you we have reached the end of our question and answer session I would now like to turn the floor back over to Tony Malkin for any closing remarks.
Operator: We have reached the end of our question and answer session.
Tony Malkin: I would now like to turn the floor back over to Tony Malkin for any closing remarks. ESRT remains focused on our five priorities, lease, space, sell tickets, the observatory, manage the balance sheet, identify growth opportunities, and achieve our sustainability goals, all for the purpose to create shareholder value. We will continue to take advantage of opportunities as they arise and are confident in our ability to execute and drive further value for shareholders going forward.
Speaker Change: Yes, our team remains focused on our five priorities lease space sell tickets the observatory manage the balance sheet identified growth opportunities and achieve our sustainability goals all for the purpose to create shareholder value we.
Speaker Change: We will continue to take advantage of opportunities as they arise and are confident in our ability to execute and drive further value for shareholders going forward. We 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. The team here is front footed.
Tony Malkin: We 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, conferences, and property tours in the months ahead. The team here is front-footed and feels good.
Speaker Change: Feels good.
Tony Malkin: Onward and upward.
Speaker Change: Onward and upward.
Speaker Change: Thank you that does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time and enjoy the rest of your day.
Operator: Thank you.
Operator: That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time.
Operator: Enjoy the rest of your day.
Speaker Change: Okay.
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