ESRT - Earnings call transcript Q3 2017 | Empire State Realty Trust, Inc.

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Operator

Greetings and welcome to the Empire State Realty Trust third quarter 2017 earnings call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. at Realty Counsel General Keltner, Empire Trust. State Thomas go ahead. Please

Thomas Keltner

you Good XXXX today for for Thank earnings Empire call. quarter us third joining morning. Trust State conference Realty

quarterly press to results our statements been website posted section last to at detail Investors to market as has release expenditures, expense. the the addition with further remarks prepared the evening, In may a of questions supplemental in empirestaterealtytrust.com. management's including package capital your on those today's distributed company's property and laws, conditions, answers related in operations, income defined certain call, applicable securities forward-looking contain and On

As uncertainties, detailed in discussed State future. Realty a review They and which estimates. may to current Trust assumes cause the to with today. more Empire no to to the statements forward-looking any company's the reminder, related those in represent obligation SEC. forward-looking actual statement management's from We risks are statements subject the update listeners these to results discussions filings encourage forward-looking differ

company's reconciliations today's and to GAAP Finally, modified each financial The most such meaningful non-GAAP supplemental measures, on will believe and are evaluating certain measures and measures in directly which package, discuss available FFO, are in the we release included company's cash definitions and we FFO, as EBITDA, of NOI, core earnings these call, NOI comparable performance. website. the during the the

Kessler, to call the John Now, Chief over turn and I Operating will President Officer.

John Kessler

Good morning.

opportunity rents to and York properties you occupancies to lease to our a office and market expect deliver Since retail we Manhattan call. State embedded is have delivered Empire we are area to pure-play a that redevelop to levels. third continue grow growth. offers at conference as we earnings continue New inception, Greater bring Realty our de-risked income and delighted our to and market unique portfolio We to quarter welcome XXXX and Trust Metro

focused as activity quality execute of value the results. three-quarters saw strategy XXX,XXX and lease well-located with quarter, feet over for We in for on XXX a signed three-floor This Fragomen three delivered quarter transaction continued third our significant XXX,XXX quarter. buildings we for tenant at lease we Broadway and the our during During and to West feet, our point leases square includes with demand ASCAP strong largest XX,XXX and the XXXX Street floor XXth feet. at office a price

our and new achieving renewal spreads We embedded continue deliver XX.X% four in leases our internal to leasing rents, of entire Manhattan all of average office on new significant our portfolio. on XX.X% growth, upside our across and one drivers of leases

Observatory in basis. our revenue and resilient year-over-year year-to-date third increase third Additionally, quarter in quarter to the a on increase year-over-year a a achieved and X.X% X.X% the through in be revenue continues

of previously-announced our Empire on experience the the execute to project continue and We to building. State retail Observatory capital office tenants and enhance at visitors

had, floor ABC these leases Broadcast and and lease the renewed including two We or a to radio our and their have TV and license equipment on approximately has have, tower and just and XXth redevelop renew Observatory-related Radio, MS believe broadcasters, of provided nor past CBS attractive license, room material through With [ph], the WPIX; York drive not spreads to lease of decision we regular financial office anticipated to renewals for renewal licenses, expected re-lease iHeart, revenues. and at our leases regardless Fox finished to now as our growth and value impact We and of broadcast agreements Systems, floors We feet former XX,XXX an Television's Univision, feet we broadcast the impact non-renewal forward is results. space continue third Public space quarter New believe will we look over can convert materially quarters. we and updates our XXth discussions. phase-in uses. non-renewals Radio. market broadcast reduction previously revenue on conditions. spaces the licenses renewal not The above to use and portfolio related unlock recapturing Over years, will maturing The have square in disclosed from coming strategy and to of with under we Spanish outperform square XX,XXX XXth broadcasters, on and

at liquid credit improved we're revolving and facility and rates, sheet, facility the we With well-positioned revolving opportunities our quarter, financial balance During for loan additional forward. going low-levered highly our extended attractive and refinanced maturity, our term our credit covenants.

questions. Our prepared comments and Officer, and Durels, this update David then Director Tom and President Operations, will I'll to over President will team, and Executive review our portfolio, now Financial our call Vice Tony that, our financial the detail discuss balance an Executive our and morning your provide including answer turn our results Leasing Tom Durels. Malkin, to will and in be our Chief After sheet. are on here fairly Karp, Vice more brief. Tom? Chairman CEO, of

Thomas Durels

and morning, work. I'm Good discuss growth key on an space going give provide Thanks, the to folks. recent overview four you availabilities today's of drivers, our review and second call, our quarter, John. redevelopment update of some our our leasing activity future On with an current in

we from when West from our cash set have growth and nine XXXX know drivers March two the and following growth XXXX, of years just Broadway we over income day in million NOI portfolio, four through existing the months. forth growth Since net you growth XXX adjusted and is six our key five This the exclude our loss to the contribution Street, to of XXrd in years. from to As mid-XXXX $XX of the re-leasing delivered $XX in XXXX, we create million program. of January we for from $XXX acquisitions representing our NOI investor revenue vacancies and Observatory, redevelopment

drivers, Based and calculate cash of $XX.X updated rent of free trailing future increases growth as It's $XX $XX on four expiring next the four, of estimate for million, lease-up which growth Manhattan numbers, years our drivers $XX.X of developed quarter total the approximately of these starting $XXX our the third that starting are, million. leases XXXX. million. upside of million not over in XX-month mark-to-market which of numbers mark-to-market space leases And, view Our signed based rent, our for one, growth. to burn-off million on of million progress on million. the numbers these current to potential NOI together from lease-up available of XX, and Remember rents. reflect commenced we of office space approximately office our $XX on without Three, consideration Two, vacant these we further million. of market six retail relative contribute will of $XX of September five $XX

we at following to In feet and our totaling law feet to Broadway; in Building; greater approximately quarter approximately involve in redevelopment included signed XX,XXX As renewal and square full This leases properties. with past, redevelop order is square by existing vacant the new downtime office vacate in The we international the the X Street; feet XXX XX,XXX Agoda an to new in space for lease third our approximately months lease-up. the square at a brand Metropolitan XXX,XXX for leases, XX,XXX-square-foot generally Empire New XXX,XXX feet redevelopment. and expect ASCAP an a at consolidate space prior is to XXX,XXX planned had lag we vacate to the floor when paying those tenant XXXX office to rents expansion square and last tenants below-market occupied stated signed we renewal and XX date Fragomen at early quarter, and is higher feet Odyssey the allow square for include Manhattan that Stamford we our occupancy XXX,XXX properties of Overall by Priceline's up and leases square XXth Significant timing feet. the of First XX ASCAP State and Place. York as There of rents and Fragomen better that spaces during Reinsurance move-outs will for for tenants for spaces quarter-to-quarter occupancy from currently the leases of re-lease between fluctuate firm tenants. both of West commence. that

we already commenced, included is approximately feet. And feet vacating the intentionally is $XX.X square will net be the square which The net XXX,XXX positive result, growth absorption earlier. result approximately leases leases. in stated a driver not XX,XXX for signed As million these two for I

with a will which is quarter-end, commencement our percentage second leased. with XX.X% commenced, and that agree at Fragomen X And our for for West Ventures lease of XX.X% We quarter. and not basis Garden and property, concluded and Square total at we commence our leased both leases XXrd State yet The of feet XX,XXX redevelopment were Madison XX.X% points full complete and Street floor At second date basis And XXth MSG. Clearly, recently reporting Universal our excellent months to fronts the newly for our ASCAP, including West XXXX the The XXX XXXX. quarter quarter. Building, leases portfolio in XX,XXX to of yet XXX occur occupied, Street up tenants office evidenced XXX at a approximately quarter-end, quarter Group expect signed commenced, street over points in clearly points Universal at West first up GAAP we West signed flagship the by XXX look up was from commence feet lobbies And XXXX including from XXX of basis XXrd that subsequent floor basis XX ASCAP the up And last signed leasing from resulted XX.X%, Street brokers points later. results. portfolio has to March and Street. Empire full XXX fantastic. work At the with leases the not XX percentage leased total as square XXth will was was will leases from Music have XX the occupied. May square for

growth capture of result redevelopment spreads. strategy, a rental continue we As to our healthy

a new our to quarter our During by rents. positive will leases on And higher prior rental renewal the at fully and spreads in rates vary escalated portfolio escalated the basis leases depending across signed office leasing compared spreads quarter, new entire XX.X% properties, Manhattan were XX.X%. third rents. on we remember, on of prior cash rent

Throughout feet, XXX,XXX for total box we our square consolidated square XXX,XXX XX, vacant white XXX,XXX office X,XXX,XXX against feet are also leases. and feet. vacancy, signed first-generation XXX,XXX vacancy $XX.XX of not vacancy the September have can Manhattan cost prebuilt, and Approximately renewal of total office which vacancy storage. of office was XXX,XXX installation upon number redevelopment spaces feet and of held square Manhattan of is ready leased, portfolio. is commenced, versus by for of ratio redeveloped, retail Our planned prebuilt net portfolio, quarter square balance of square square space, be foot and new comprised New feet the square of consolidated Greater square and will of tenant unleased XXX,XXX approximately vary the leases space, second-generation Metropolitan XX,XXX the of York is feet white total space XXX,XXX off which and of the as our for per space square mix feet, feet market quarter This it we for unleased of square box, or until of being spaces feet had either depending for Of lease-up. including

$XX.XX in-place square to this higher at to fully with Manhattan We square XXX,XXX much feet our foot, per office in rents. we vacate of expect re-lease And by portfolio escalated space rents expect year-end.

total the feet. Broadway, floors One XXth feet XXXX Broadway largest XXX square growth floors As add Empire including Central three Street, September XXXX. will XXX,XXX which that March at have Within leases Place. signed feet, of we nine floors and our XX,XXX full by Building, and $XX office floor floors XXX and million West floor XXrd to yet at each have size State a have rent free from square single our reminder, Grand square at portfolio, two in The we commenced ranging NOI in XX, cash burn-off, XXXX currently available as at Manhattan West XXXX Street, one not nine

and I we've front at As new properties. and XXrd success had mentioned, XXX and both previously XXX excellent these West the leasing West look fantastic lobbies already at street XXth

our areas is leased traffic submarkets. occupied street results retail to and is retail in and Turning XX.X% high business, The portfolio positioned both execution our has located by and delivered us leasing strong with excellent our team well.

entire growing retail support all Street, our expiring reported leased and in our XXX XX,XXX have where have aggregate the years. leasing our food Overall, our as our in X% on and on square in a office West ongoing increase Street. nearly the mix really demonstrated brought execute, rent drivers. pipeline key retail about to we I our retail XXth good of space mark-to-market we confident million, of interesting On of in I choices we feet and remain We XXth ability two only population, past, to Broadway, tenant the have $XX quality where previously an very they deliver clearly next growth and team's four spaces feel have and at

continue a see value our attractive an to at offer point. tenants at of We location demand which properties, steady combination price and prospective amenities

NOI deliver to lease and We execute and to new, vacate up our strategy value. order credit at consolidate, space improved space to on better tenants continue proven increased to higher lease and vacant our shareholder rents, redeveloped in

David call Karp. I David? turn Now, over the will

David Karp

good And morning, Tom. Thanks, everyone.

strained you voice am notice, As is under I my a as weather. bit may the

to have sheet. update my chosen an far of I'll of conference fact, any colleagues sit Tom's our of performance, and with revisit four our and our on In operations follow of with In out Observatory start review end table, balance at discussion of the financial the drivers, range event, my coughing. all the a

third diluted the from million, quarter, million $XXX.X core reported X.X% period. $XX.X we Cash was per the NOI $X.XX FFO of For or up prior-year share.

September XXXX, million, prior-year FFO Cash $X.XX XX, nine the X.X% For months up from NOI million was the was $XXX period. per ended share. diluted core or $XXX.X

million leasing have growth our delivered January $XX in performance. of from retail X, As XXXX, and NOI office cash we approximately

have approximately we delivered Observatory in $XX million from NOI our performance. growth addition, In

training growth Finally, growth drivers $XX of cash of NOI key deliver our we four XX-month five our revenue would million. estimate million the to six next updated relative approximately $XXX over years, to

free For leases commenced provided of signed not and our period. impact the past we've but two commenced, quarters, their additional have are added we've rent the leases disclosure that with in

will of unexpired As five-year associated burn-off now rent include, September on of schedule to believe community free basis, a have assist potential XXXX, five XX, better driver. data leases. investment NOI growth adds We This supports and the point, quarterly $XX additional these million now this for which we business. model page the the we will on rent free provide to the this cash further supplemental, a we our our with of

our that revenue practices. As we adopted you change recall, we in quarter, a the disclosed first recognition in

resulted which the started the cash of to commenced. is constructs XXXX, share approximately began revenue As less rental This for similar funding quarter tenant have peers practice lease accounting over practice improvements. tenant the modifications practice obligation, earlier revenue for XXXX January of in to X, at had change we leases recognize compared we our rent past This where made in revenue consistent years. recognition period. the that the when tenant improvements, of we prior-year rental in million for new the the the third $X.X the completion with place of commencement Previously, or

third period. the for XXXX from $XX.X Revenue million the in operations. quarter to $XX.X million prior-year Observatory to Turning grew X.X%

days stable performance NOI in million, and lower was XX bad $XX.X due despite third in XXXX. visitors the weather conditions XXXX, the approximately were Observatory was In of XXXX, hosted quarter million quarter $XX.X in quarter quarter higher to the continued revenue The XX the relatively there XXXX. compared a weather million expenses. Third XXXX. quarter visitation, days the improvement X.XX X.X% down quarter third to to weather unfavorable X.X% from decrease bad third compared third third

overall Instead, happy upon an and do to of historical discuss days quarter, weather impact weekend we're days through attendance As which bad on compiled data. of longer estimate now metric weather breaking new Observatory data. weather based week bad days we bad upon We're last this no are based into providing disclosed we days. the historical

State fewer bad For of for the in one the prior-year obscured Building the approximately XX% Empire bad of net day third visitors that period. quarter, XX,XXX weather the define day. top We than resulted which is in we made a the to more in XX,XXX than weather as

period. in X.X% in XX, while prior-year period. nine X.XX million, revenue X.XX the hosted income months compared million the operating grew to September XXXX, $XX.X to was the the prior-year $XX.X the million to X.X% down For approximately million compared Observatory prior-year period, ended from up visitors, Observatory X.X%, million $XX.X net

XXXX, were For ended days weather the bad compared bad the months days XX nine period. to September prior-year there XX XX, weather in

As a a reminder, we on holistic always look at the Observatory's annual results basis.

significant for a to in remains balance venture competitive sheet, cash balance joint on including our flexible and Turning sheet, advantage our market us any environment. hand, strong free

During $X.X were important term have million the several to objectives. pleased and $XXX facility billion We revolving successfully quarter, accomplished we loan. our credit very refinanced our

with First, loan respectively points and of of points new we facility prior LIBOR and initial XXX for plus a on the costs lowered from of the facilities. the facility, plus borrowing basis for drawn savings XXX any X credit basis interest revolving portion rates LIBOR our points the term XX basis

In facility to the initial revolving XX points. points XX addition, fee basis basis decreased from annual credit

our significantly revolving due January versus credit August credit in Second, maturity the we the prior of facility to lengthened XXXX. which was mature to facility XXXX

flexibility we quarter a and prior our term September years. Third, to with interest million weighted financial associated the rate, had debt. on revolver with the the maturity outstanding loss the $XXX weighted on to and $X.X no of of we X.XX% the of and early fixed end debt the covenants quarter, the all we cash X.X At XX, recognized million had billion, a cash equivalents. of extinguishment credit added $X.X At balance approximately we In total average refinancing, with rate average third in XXXX, facility. the of in non-cash outstanding connection of

our total I'll to now on to debt debt EBITDA was market you net consolidated consolidated redemption by update XX.X% reflected times. capitalization our requests. net ratio and leverage X.X Our was

such which on expired our X, issued units, XXXX XXXX October period units partnership issuance, was issued acquisition operating Street and one holdings in holders which redeemed partnership XXX Upon and are IPO listed after the operating of of July XX, units year for the lock-up West Broadway. units such for For for and the XXth expiration, have traded NYSE. on their A Class XXXX could shares

XX, from number XX, shares XX% in A or the B September on the partnership $XXX closing class common Class our totaling at As share million Class since A of million XX operating shares units common IPO. conversions approximately a September represents XXXX, $XX.XX shares, This we've of had price XXXX. to increase in shares

of the third your $X.XXX dividend on our XXXX. questions. up of paid approved for XX. quarter of dividend to the for I per call Finally, XX Directors on a of that, share September September to quarterly With open Board would like This Operator? was record shareholders

Operator

Thank Please Bank Instructions] your proceed of America. with the question. question comes first you. Our line of [Operator from Feldman Jamie with

James Feldman

NOI down, you Thank your here your And like? margins the to what revenue whether out, Can I was your visitors good morning. your was just on that's and might up was Great. look and expense the and hoping on a Observatory was why focus were up for I down. starting about talk minute. load? to and guess, going so you continue it year-over-year

David Karp

Good morning, Jamie. It's David.

a quarter annual quarter. results Observatory as our And Just can the to vary holistic we a note we basis. look at reminder, on that

and basis, Observatory trailing pertaining for good give that third expenses timing rate. you if good for certain quarter more on XXXX of cost a at be costs. The would look reflects run higher fourth payroll in The specific to estimates XX-month would run and general. quarter actual repair a approximation rate So, technology normalized and the a fourth-quarter a combination a of the of maintenance idea

James Feldman

Okay.

– continue that it's there load any that is one-time any but is sounds is, one-time? question like – So, It I the that's a guess, away of to is does some expense going is on? goes or new of that seasonal, it of that

David Karp

to is quarter not load new is Again, se. per There there quarter. a expense variation from

staffing, As there's cetera. payroll, There's season, seasonality. relate you that expenses a know, to certain et

significant is long-term, I But there you're addition to be no. be there variation anything will going to to new, So, would material a quarter quarter. our that's asking, expenses say if

James Feldman

days can the And you of mentioned the in that prepared bad Okay. your weather talk remarks? you then, more calculation about

David Karp

now we're doing we're able is lose look at recapture. the impact bad we'll we're of on and a Yes. what – taking What we're to weather able what what

day a day have that So, that the if up if for example, able lose we weather make bad on visitors day, be following we weather and may the to we on clears.

examined adjusting weather at the bad occurs we've year-over-year day is days of looking the anything might done also bad differences for than bad a affecting weather be other when and the we've what it. and for weather same So, that that net we're impact we're

a the that overall trend for the backing been what in have bad So, day, bad what change with that out but was. at impact comparing change then quarter, determine of the we're a weather, the to looking and for we're might the weather true

Anthony Malkin

in jump Jamie. here, So, I'll

don't David we But has hantavirus. all, the in has room. he of think we're same bronchitis. all First think the We

historically on the would've a or all in visitors So, lost there's in it on the here put a XX,XXX-person-day gone if end XX,XXX-person Friday and been have holiday week, But – on historically just that to have Friday a Observatory. historically day capacity weekend what you up Tony simply context, a bad no a of an day you of next if make day a second either the the and because on prior was. the of cannot XX,XXX-person-day on we and weather day, we're know Saturday, it you'll all – Thursday

that In people both – addition, fact York in just are lose weather if days again and in New as you a bad certain here shorter for many capacity have you not on – the days. row, two by the based tourists they stays

a just is peak and to bad this had bad higher August we I a of it. in think We it XXXX. year, to weather if Then, statistics and one had it's all look can't of weekdays. going day the in – The days, periods. middle these weekday. been or report doing Those we in you are historically fact course, XXXX of August and weekends much doesn't calculation. back had We at more So, we've if a pertaining refined weekend six when weather recoup used we in August matter

we're the helpful analysis putting be your and to the versus general that what weather. the impacted trying model folks is understanding more what's So, and market by is trend giving to you

James Feldman

Tom, seeing some your just about that you're volumes Okay, about of whether portfolio? thank And in been leasing talk any then, then, there's concerns you. midtown Can in And south. slower just you final & the I be the WeWork then But, guess, question, with for moving thoughts with Tony you on could the Lord deal Tom, starting I Taylor would guess, if to and neighborhood. answer.

Thomas Durels

Sure, to our Jamie. about portfolio was quarter, XXX,XXX square new feet we year-to-date. of of leasing. Look, I square want good third feel you that Manhattan remind very over our of XXX,XXX and leasing which did square the activity. feet office X,XXX,XXX I feet in leasing

XXX think of think storefronts at The the and both Street had with itself look lobby XXth XXX we've State we that properties. at Empire Look, and fantastic. Building. the incredibly of foot It's started lease we for comments brokers the Fragomen stat of XXX I'm result. elevator and cabs for ASCAP, tenants from the fantastic for lease leasing division received activity a terms the full-floor touring fantastic lobbies, back a as deals stat at full-floor thrilled Universal Square even actually feet West West the deals Street. with I those entrances our at themselves. finalize with and results full-floor We That our Fragomen West both of XXXX in Madison I'm a and strength thrilled of with quarter, properties. submarkets. speak third XXrd with Garden the Broadway. XXX I XXth and in our at the XXX,XXX square at XXrd West signed portfolio We've work Priceline a Street, Post-closing speaks included the square with XX,XXX of Agoda, lease deal

in improvement I location think just ongoing great south in to validates There's attractive, it's opened Times as robust to have and the a transit open office the they're an food the the area. great is neighborhood providers office with neighborhood the which doing looks to central mass amenity other Kayser opened and think We it We our and Maison eatery, the access XXXX. going appeal new streetscape. a Square of up that up tenants. fantastic to to Wolfgang business. early the

the deal We're quarter, into portfolio. we flow the fourth have activity strong. throughout in consistently Going

to variety our a should building income WeWork's makes the their tend not difficult, impossible, So, space, overall, as the lease risk in buildings. tenant whom model We transient But, – on if past of maybe but in – our do don't their I we will can our lease it we have up view, before John our secure that Not relationships prefer the beat to and we've jump we the well. and short-term we of we've feel users directly. product of commented about the said to pipeline look, great submarket. when end with underwrite users think really good space rental streams will we WeWork. have in On not WeWork only here to direct

John Kessler

Yeah. here. it's And, John Jamie,

building, square like and location foot, and price clearly square strong reflects something price the for based of needed Just the comment looks per we capital capital that foot their size that new transaction the certainly the market the speaks from very raise markets was XXXX our for in some strength and a to WeWork a capital And that range. Bay think on I'd headquarters. a of the perspective, submarkets. Hudson per looking to continuing And

Anthony Malkin

portfolio. think XXXX our around which much that our transactions But XXth and all Street we And third-party own we're different area and Tom would very Fifth that, are looked. people point John pretty between a relative we our markets. that for We're I I'll that done doing doing also keeping into sale summarized it capital market good view the we're the aspects And see Avenue. point view what that that to arms' this coming looks better more other would to good is accurately capital think at in to out Street and at this have gap than XXnd with that, I returns up, Jamie, – getting coming only for with our there's WeWork the add indicate on that of market dry transaction, being length overall that, in a that thing that

James Feldman

Okay, you. great. That's all very helpful. Thank

Operator

Thank you.

Our Capital line with with your proceed Markets. next question Please from Craig Mailman of the comes question. KeyBanc

Craig Mailman

Good for a Tom quick on morning, ASCAP just Maybe and clarification guys. Fragomen.

said I commences that think months GAAP the six Did I later than the cash. correctly? you hear

Thomas Durels

completion Later than burn-off leases. those free of commences of of of we those per upon work upon recognize rent. GAAP lease recognition, terms Based will leases commencement the the the on the or

occur, estimate, following X to the going commencement we that's of those to So, leases. months XX

John Kessler

back Craig, approach. in is the we revenue recognition this earlier goes to discussed what change

to prior from GAAP recognition, the recognizing the revenue whereas the we that – of basis lease. commencement upon legal revenue a the new would commencement So, start

Now, that GAAP the revenue of we're the improvements. especially recognizing completion tenant upon

Craig Mailman

Right.

the then that? and And the March XXXX and are So, those legal after XXXX, cash GAAP commence May commencements. would

John Kessler

commence The commencement definitely would the afterwards. is the at cash period. expiration GAAP rent-free of

Craig Mailman

off-line just it of These to that are neighborhood seeing to you see spectrum? have up that on moving question follow kind And the can co-working way. tenants WeWork on one. of maybe and about I smaller Tom, up asking Jamie's you different Are Okay. the from then, a following kind the that any any the in kind guys on or freelance side tenants. of guys competition of competition prebuilds expect slightly bigger for up

Thomas Durels

tenant, space. I similar issues relationship it directly be of the whom WeWork, have term. we direct the that The to with abuse Like is stated, the our with that with said relationships buildings, for preference the prefer concerning physical really a we end whether no. type have lease security, our those tenants reasons a users answer I And to is and before,

range square XXXX amount we're getting the square XX,XXX that from generally We up of tenants those to, excellent and on of on on pipeline excellent prebuilt feet. have and our term a And high steady to side, feet lease activity spaces.

Anthony Malkin

our our in in around you into activity ones. it's incorporated as as I But anecdotally I'd to finding about than we're all is The predictable aware time to well own could to view, of it's most offices, basis its by I down that. on If of of just our gone really, I great. the successful, and that There by am and let business to far not is be there. trying We're And I this co-working coming that. We pike. as large a and is environment, feel, spaces we view on impacted time say REITs, simply way the of our the more that of we small large any be But valuation to It of going a office don't WeWork of entire predictability say model is companies that possible if intend and to it go would spend that business results the going the not business. tenant going space. lot is it from occupy into as of will, know don't very impact continue to take being They WeWork day-to-day hasn't companies our the our that think exposed our any on are that. we this philosophical of fit-outs seem of add is quite with is, specifically, portfolio. all anybody look on build-outs positive our lowest seen need won't revenue do incorporated taking and approaches Craig. And, our we tours that, deliver the as sorts spend environment. can to further is a to and to co-working lack buildings, who not their lot throughout our successful, and what interesting. If think will WeWork are ongoing that's being WeWork success. out discount than one

Craig Mailman

kind That's passed. It and guys then, looked you you of here. And Tony, XXXX Broadway sounds mentioned helpful. like

about comment there's you concerns asset on on also, in that. pressure then, bidding pools and values. shallower the market But could If

You guys X to to like have put been feeling work? of some better patient XX opportunity here. ago Are months you a your to there was today than capital set there's

John Kessler

the comment doesn't that to an at Hey, we're portfolio. when are we general, at that certainly did in neighborhoods. us. just to our down. did reinvestment not the in are, of as relative attractive look and relates we're that's attractive always us studying mean then, going to to state that on at as it. And returns returns But in with continue it not activity – see And to redevelopment, Craig. as heard and again, is where John in transaction we're acquisitions, not look market getting look have commented – But we other We potential relative It's pricing to the at clearly, opportunity as to had their our at relative here. it assets XXXX submarket and right Tony look our look you we respect our look

Anthony Malkin

statistics different see very to what this looked, you those & have comments. information. we of on road, in that us a and folks And with and in best might going the absolutely our but on road. capital always out Bear been diverge procedure the they of on I don't add are setting We've say program find two, it. One, Cushman we going what or sticking to inspiring we've Jones whether that's provide cause look, fork the clear us not that, two from knowing can don't And, depth Lang then, every out LaSalle, Yogi and picture the markets I which the accurate to signal come to high on motivating. that, we're And fork fork really nothing what's of if situations were will the don't different would transaction, take to finally, the know just going on, said, bidding a give is Number going forward know I not premium going road we're that, adequately we sources as to will when Wakefield, no, it. we're or we the do about we folks. I regard compiled an focusing. markets, capital to to there. to placed be in a for do what gosh, we a

still So, we're on focused we're from what focused. our perspective,

Craig Mailman

of Are higher-level transactions. ago M&A those some of have you. a wayside? about couple you had And fallen Okay, the by quarters got kind talked Or those still around? kicking

Anthony Malkin

a are lot maintain and We of those a folks. discussions different variety with ongoing of

business, because that I hottest the the M&A – – with song. the and everybody combination where balance our we it's believe these light and risk are in to want to we a When subject, is bar in get and too being to continue do we confirm, But we day-to-day that can value can, things too also wants we might portfolio, I others. perspective, floor execution. capabilities, with but song M&A with benefit I always have do careful. to much talk there's sheet our just We with our dance And overshadow drawing about at whom more we ourselves others and much out think on complicated look that our and our unlock to played with a attention dance don't be at absolutely, to from discussions.

Craig Mailman

you, guys. Okay. Thank

Operator

Thank you.

Our next the Guinee John with Stifel. your with question from Please question. line proceed comes of

John Guinee

A questions. of quick bunch Great.

X%. one-time that expect Were still any First, Manhattan probably office? maybe X%, vice versa. around tax David just items or are quarter-over-quarter operating X% owning is is up up expenses like X%, one is Karp, XQ if you should there XXXX, tax speak, expense can since up Property looks and what is there

David Karp

least John, I expenses, the operating think – sequentially, QX from on at

John Guinee

sequentially. Not XXXX. XQ XXXX XQ to

David Karp

Okay.

property that as benefits did those terms higher and lobby as workers' higher incurred expense time of as of little have some due expense well security. renovations some major higher in a comp majority ongoing a costs, is result, higher and increases security the during bit So, payroll And we period. to understanding

John Guinee

tax? up. Tax X% is at about How

David Karp

happy Yeah, we're about either. that not

rentals As you based the in upon York, know, tax of are properties. reported operating performance New the assessments and

operating tax their properties been will in have operating performance. their that a as estate drive expenses rent increases. our and Fortunately, consequence, rolls improving And through real

John Guinee

Okay.

a $XX which of huge Observatory? G&A a for attributable is pushing office million, to is much number REIT. million square-foot is XX How the G&A your that Second,

David Karp

operating haven't G&A, where we at we we to specific separately broken a respect the of have Observatory out look peers. the look percentage we comfortable the our We Observatory. for and our really to We revenue, with are as in to do G&A feel it relation performance. reported at expenses our very as it, But

John Guinee

for cash of or Third, that? million four quarters. you've $XX been about to restricted last million exactly running the What $XX five is

David Karp

deposits. tenant security will Those mostly be

John Guinee

Okay, got different floor good floor there probably And lines, access, the freed then, office space a Observatory. expected? to of or good XX,XXX said square Good you you. use you elevator XX good XX feet on depths, window Tom, is up

Thomas Durels

for office floor the XXth views. are floor. These The Great our prime highest floors. floors. They our is at stack top of office

we stellar. to views the floors. get And on expect rents are top-of-the-market State for Building clearly, Empire those So,

John Guinee

run what the Tony, then, stair And Okay. February? is day in

Anthony Malkin

February way We're other, getting I that one definitely more you'll a February X. sorry, should investor X, in I that be or an have and analyst John is they than talking, – doubt, an be, But of think, Everyone We're without believe, flight. know flight. there the to X hoping invitation. will Guinee February

Show welcoming who on Guillermo we the medics that There like Building. Jimmy So, the when is to way, the the from by go would best Kimmel have go, up cameo can anybody will online sent and Brooklyn, Well, Empire State a left AM. fantastic available. would cutting the like Jimmy still X think appearance Guillermo job. for anybody his he was Guillermo By floor. State Empire who look to comedy in who room We at was Building great complains a stairs did Durels Tom he Tom Kimmel

John Guinee

you. thank Great,

Operator

Thank you.

Our your comes next question line with Simone from ISI. Please Evercore of Rob the with proceed question.

Rob Simone

Thanks morning. has experience was kind your bad the or what trending of able Good first days QX, year-over-year? to now. secondly, an guys. you're weather example, right going then, if the this on in world we been just Hey, as thus could week in had with are trending you if And taking – how for given that's just traffic an inbound guys wondering weather question. the or far is lot the and how the update past all a provide I comment tourist

Anthony Malkin

of we six The up very can the in a bad one calculations, it's really by our weather alone, because, had much XX,XXX lost this weather days weather August a can unfortunate first. XX,XXX-person take XXXX. it's bad a make we I'll to day that. part There's days in second higher simple. – day. And, We've much, is do. And bad weather Well, again, just typical We've versus when nothing XXXX versus XXXX. year-over-year in in XXXX we number had

Traditional to is problematic. the US, including inbound travel Europe, that's So, down.

us. have We You hospitality from more much visits to companies. can shorter for perceived days taking have explanation of get further still trend during this They City. people can reasons fewer which of the visit York a they the New

relative State comfortable position seeing Building New very our are the Empire other York of we with an as We in outperformance to inasmuch City. competitive are attractions

be the note to look very well a out NOI tremendously started were Realty Trade think I deploying we Trust. we would Observatory those quarters that researched. operation we really which that how pricing people One we most high of continued that don't our the look several outperforming that and do revised of break can to World We visit of year, that I years next that And than lessons in think spite positive looking ago, if year Empire satisfaction experience We soft Center. well, at year's coming of growth. this last through tourist gains weather announcing drivers regard, during much, to a been the programs, State from look, to at in do that's that is are our not And have have that four project from our get And degree about our our over have certainly and have we've growth, attracted a peak fact this better when And those are I weather important which Observatory. the are bad experience. there's better retail on we much We of their it's pricing. frankly, When subtle, holistically, in we had made perspective, learned The four particularly has life. and you at the will to we we believe believe, drivers that little been office year, from hope lousy. we'll market the periods. things included But in Observatory the time, is we from the say look soft. others. this relative has weather in

Rob Simone

maybe helpful. really And one just That's Tony. then Thanks, final question.

as You Observatory in to there kind timing your guys Street you the or the any that there? you changes said the capital quarter provide investment last the on update progression Are you go would entrance, can of the process. of through had updates

Thomas Durels

Tom. is on no timing quarterly our we really changing There's what Rob, on had stated to last call. the this

on second time or no XXth vastly experience in for then, entrance. quarter opening We're of the experience think entrance and we'll traffic the be think we We to tenants that the the Fifth on space will which than value Street by first visitors building, visitors, It that our We we a more point to increase relocating to revenue out which I of to a and Observatory is retail XXth Observatory by capita. Observatory the XXth the separate, themselves. On [indiscernible] the at entrance there operations disruption Observatory lobby all the program XX%. in the opening dedicated lobby enhance from And the the for visitor that are their Avenue plus. portion the still is center there's of focused timing-wise, eliminate Street phase, some Fifth during of then, the will visitors. Avenue for and project. course, And the to which provide to to by will time, would the we'll beyond the overall Street. entrance it see entering thereby looking of at Observatory would visitor locating that enhance Street major like lobby, reducing office per be that, side, going XXth

David Karp

it's Rob, David. And,

update actual million. reminder, observatory Just at for spend of spend, you $XX.X past look out the now quarter, page at capital our And supplemental, the XX that's breaking the a as just if on reported an this in project. we're

Rob Simone

Great, guys. Thanks a lot. Talk soon.

Operator

you. Thank

John proceed of line the Kim Please Capital from comes question Markets. next with question. Our your BMO with

John Kim

Thanks.

not occupancy higher have high. it's over for trend target few trending I last and at Your you Do closer your portfolio figure? quarters been and XXXX lease to occupancy it whether will historical a a the think has

Thomas Durels

that, we portfolio, entire strategy portfolio. for occupancy bump from can so throughout our We approximately by square redevelopment, nearly space. it the the about square expect where I around feet, time Manhattan always better we balance our of John, consolidate as that XXX,XXX do can feet on within vacate have rolling is tell to What all said you vacate square feet in Tom. XXX,XXX of to office re-lease we XXXX, Manhattan about office XXX,XXX tenant. rents is What is our this have year-end, to to is our space, time that basically will our higher intentionally

per the feet much in expect get we will pipeline square that into reminder, that fully escalated XXX,XXX rent redeveloped as that – feeds $XX have on As that only as we for about expiring office in rents. our is I our will at that just but space, we feet XXXX so higher portfolio. a re-lease foot, we in And updates about provide square then, and expires XXX,XXX square XXXX, XXXX, Manhattan under

John Kim

move-outs? And of that XXXX, do you of know any known

Thomas Durels

based Well, of and as the upon Fragomen of in with, right intentional that vacates, already mind, we've done now, I say, ASCAP. think some that relates to leasing bear

of We feet XXXX portfolio. expect all our to vacate approximately square through Manhattan office XXX,XXX in

John Kim

employees and think have square per the squeezing as may for been Tom, And, as as tenant a on I many far discussion how densification ended there's foot. this

this Your tenant is a bit if view base trend? diversified. a I'm little wondering on have more you

Thomas Durels

do. I

an office enhances space densify feet. for tenant. their on see bodies the what company don't greatest bottom about enhance productivity. it's culture, environments using let the a productivity our re-creating and we sake tenants the office that line that tenant that to to squeeze our employee see environment tenants densification, and trend more with think and their I very to creating with just And our that our overall for our focus see is tool It's all a for company square tenants, We as a of we performance. economic much is what more redesigning to productivity

about So, company to office environments building about not culture designed densification. and that it's enhance It's performance. bottom are smartly line

John Kim

tenants Can space with what employee? far you us today share underwriting as per average are as

Thomas Durels

square foot per to under per just square seeing a wide We're person XXX foot pretty person. around between range XXX

have per on floors. XXX, as some certain XXX that We high tenants person gone have as feet

think the So, But bogey think gamut. you I it runs a really feet that square person. of pretty XXX can that to in good XXX

Anthony Malkin

this you to you But the have when density with how super out a many as and One, the employee, designing types talk is is there a low of People interesting been at other when getting that we to and David. go tenants the we things. in – when that done like point at feet the could density. clear, environment. in up. some been room. is bubbling is what the not two, of this back to at don't be want we're it He's and to to to they two what talk finding by to want do So, incredible talk not they're understand high per What all intense they're employees of of infected per and push alive to look still to got the architects driving these to TBG, tenants Gensler, and three it scoffing way, might We'll down as the people to. you benching this understand in to XXX now have work there's the thought see they number big the have to densification they really rent that Number who kind square don't they don't look find call. to to tenant, are XXX and

end office. They attract high there. They like employees, You environments whom are And co-working are are quality be them a to lesser up ha, retain folks startup quality the who do can work higher-quality density models. super we tenants, like more and a attract pretty a – we with higher building WeWork. And whom with on of equate with business, we credit longer-term much with slip Tenants people trying environment, employees. many have Freudian better with spaces. who with our business would tenants

eating And think of got people you number meet. For our Employees of office, in people I rooms, what where a to spaces lot co-working a we is rejecting can and meeting intense we we've we it. have But have, would this not, it. are benching. tremendous call, who rejecting portfolio, do gather think our rooms, densification. those are have been people There of

John Kim

attributed decline in this administration. that few Times could you this at discussed the far then, current article do you And or this wrote on to the and view the recently Okay. And question as an under on more you as rhetoric as the all Observatory. for as The the a Does tourists, international this aberration? far concern as next they years of something an linger

Anthony Malkin

We cue from really people the take like Association. American our Travel

I think the there there business heck a are looking time lot folks more a in of it. spend out hospitality who at

of that New important a a very with is And our of think to observatory, draw. is Tourism draw I The is York major going capital important we're Building world. Empire be an within State that. the a even redo component of it. our more City

side. stuff other out perspective, – get. out We and I to other on going the tourist with there and and our are you those lot way people involved we there than deal many the tell don't like more I'm can firms are the we a it are. compete market competition, put of office we statistics just on we to on are leave who position, all what from just retail the there who So, because on tell to the side, so From opportunity our people we've perspectives, enjoyed the competitive give –

John Kim

visitors, in domestic something far have But increasing budget, as is considered? as targeting that you advertising

Anthony Malkin

do building. the get our building different famous deck, available iconic world's digital as with our Really, the amount we people which we co-branding, about the image, it, spent. media, would What website, actually we think in is what of do co-branding – advertising Very media. brands most here social No. already little the with the with around where is building most our dollars investor which is advertising, the in of world with tremendous is on involved is,

Operator

Thank you.

with comes Heck question your with line Wells Please question. final of proceed Fargo. Our Blaine from the

Blaine Heck

the taking for Thanks question.

couple a it this were little seems like Tom. down for from they're great. in guys the But Just generally, which Concessions hearing, bit a quarter, city, for what you rising. we're was

attract you are or if free on comment tenants? wondering whether higher Just any need offer seeing TIs you recently to guys can rent to

Thomas Durels

versus on white mix leases. of Blaine, depending that the as I number past, leased, quarter upon ratio space, going second-generation spaces commented of vary we of course, by the and to prebuilt, in then, concessions renewal the first-generation new report the and is including box,

particularly some by in seen, has TI an we've increase where on cases, in that higher been think offset I rent. concession,

you our is XX% If where look was quarter, feet for we to leases, of out at positive which higher compared had office this leasing, a cost prior reported XXX,XXX, this quarter an quarters. leasing Manhattan of XXX,XXX stat. or new incredibly square in Logically,

all-in However, where of XXXX, our comparable. XX% leasing volume cost leasing TI was of total releases, only if to quarter compare for for say third and we commission it the that was new

spaces, Grand foot. So, feet deals, square floors we're prebuilt. improvements full-floor and some that of particularly seeing concessions. at rents which in smaller Improvement One we're the seeing the full say, TIs per looking XX,XXX in is $XX often On offsetting equivalent built, we tower square to in rents, is $XX in a a Building, of Empire On of Central. generally XXX, XXX, in range basically get under, to, we're State

Blaine Heck

That's accelerate big it to kind early space a all for of that I of to expiration. helpful. – on is Building year space – that the know and repositioned? some looks XXXX Okay. the If any there And pre-renovation? office so State then, it's that portion, the but of of pull is Empire getting Is like way timeline majority forward

Thomas Durels

do space early. that Well, really our full space that Building forecasting on portfolio have at available We not particular specifically. recapturing We're one floor Empire throughout now. successfully we've the done State

over of We inventory. offer of XX,XXX square prebuilt little an prebuilt inventory feet have

of and get some prebuilt XXXX be expiration product current don't this floor see We lease year. earlier the delivering a possession will we'll next time, full year recapturing space more at I expiration. point in But next than that

Blaine Heck

All right. guys. Thanks,

Thomas Durels

You bet.

Operator

are There questions. further no you. Thank

Anthony Malkin

We always an welcome reporting and incoming. quarter this all morning. visits call wraps your you in time. forward for our look we next That Thank very much to our Yeah. up

Thanks our open. very always please, are much, folks. So, doors

Operator

Thank you. This teleconference. concludes today's

You for may time. a disconnect have you wonderful your Thank participation lines at this your and day.

Thomas Keltner, Jr.	Executive Vice President, General Counsel and Secretary
John Kessler	President, Chief Operating Officer
Thomas Durels	Executive Vice President, Director of Leasing and Operations
David Karp	Executive Vice President, Chief Financial Officer
Anthony Malkin	Chairman and Chief Executive Officer
James Feldman	Bank of America Merrill Lynch
Craig Mailman	KeyBanc Capital Markets
John Guinee	Stifel Nicolaus & Company, Inc.
Rob Simone	Evercore ISI
John Kim	BMO Capital Markets
Blaine Heck	Wells Fargo Securities, LLC

Empire State Realty Trust (ESRT) 1 Nov 172017 Q3 Earnings call transcript