ESRT - Earnings call transcript Q4 2018 | Empire State Realty Trust, Inc.

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Operator

Greetings, and welcome to the Empire State Realty Trust Fourth Quarter and Full Year 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Greg Faje, Vice President of Investor Relations. Thank you, sir.

You may begin.

Greg Faje

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

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

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

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

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

John Kessler

At generate of Trust Empire Good morning. market-leading Realty call. redevelopment spreads Welcome growth to leasing from space. our State conference quarter our have earnings cash derisked fourth we office XXXX embedded and

new of exposure have space enterprise sheets for and shared opportunity balance balance office position we wave and and the weak the liquidity us sheet, Our of to no strength differentiate concepts. and

upside and point and a between opportunity investors tenants Class downside both with value A offers portfolio properties protection. which Our provides B Class trophy price

an portfolio centrally in near energy are industry Our Mass Transit we fully modernized efficiency. located leader and and is sustainability

speak and market-leading will address performance, square quarter's some XXX,XXX feet XXXX. about David market properties will X Then square our approximately Durels spreads. and leases, XXXX feet today sheet our Tom leased million leasing over on financial balance perspective our of provide and the we our During Karp fourth for demand

CEO Finally now I’ll will Durels. the Tom? conclusion. some Chair comment in and to additional call our Tony provide turn Tom Malkin, over

Tom Durels

Thank you, morning. John, and good

numbers drivers be Our the investor fourth progress over and XXXX presentation topline investors be next growth breakdown our as quarter available XX, December our our to five of which The found years. further line in reflect of top on four we embedded these growth estimate can in million, of the drivers of $XXX website. revenue derisked section

we compares floor and and quarter square company Metropolitan new This properties, Manhattan our recapture this feet in tenant included signed Bank months portfolio. at West with Broadway. Signature approximately million expansions XX months floor XXXX Also and XXX XXXX our during foot hospital we XX,XXX In tenant first termination total prospect lease Uber X% reference, $XXX feet full square a alone include quarter XX, cash expansion have of tenant these office over have square XXrd with million Manhattan NOI of XXXX. XX lease had within York at for in a office at success retaining portfolio. a the square and leases we attracting Signature XXXX and Broadway approximately for trailing square highlight of square square X.X Uber December renewal In revenue lease approximately XX,XXX square by feet. in and prior a XXX,XXX Since rental the our For cash leases square totaling in trailing a totaling cash expansion XX expansion of and redeveloped reimbursements feet in in $XXX as leases new with XXX,XXX to early XXXX signed retail floor The full in XX,XXX yielded our the in foot our with spread. properties, that New expansions office and Greater positive XXX Street Significant a for a million floor where feet insurance payment full signed X,XXX XXX,XXX tenants rent XX,XXX feet. XX growth.

Group. approximately largest our tenant also lease $X rent October annual by million We the XXXX. process amended as with In cash our Global increased we of Brands XX,

maintain vacates leases we and reminder for potential a renewals updated As on that expire. disclosure

find chart of XXXX, quarters X be full for tenants full found and by tenants been supplemental. new all XXXX, be You within with can our whom on can replaced to signed. vacates leases the portfolio This shows our for Page to this have a year relocated disclosure be

We have to proven consolidate our strategy continued those to spaces, quality rents redevelop and and release higher tenants. spaces them with vacate better at

between legal commencement these move-out timing a replacement vary delay of the the delay further can lags between our the occupancy our revenue GAAP quarter-by-quarter reported Given and and the recognition, new leases, impact commencement existing and timing tenants of revenue.

renewal the compared portfolio rents. our a prior quarter spread During to rental higher new were across escalated on positive a cash rent And of our new at XX%. XX.X% at we rates office on leases fourth properties, leases and Manhattan entire signed basis cash

which up expiring leasing the office lease depend market. escalated Of which spreads on in below $XX redeveloped is of prior course escalated fully near-term rents, vacant always will per of leases space rents had benefit foot well square fully current spreads from the the

on spreads which leasing rents be our our expirations Page by future disclosed future Our we lease on influenced of XX will supplemental.

for points our in in in XXXX product, office We first buildings Manhattan locations confident XXXX our We rents and our price continue implemented just certain increases rent feel of and raised demand see our offerings. our to for spaces. and

and We have pipeline give a prebuilt. floors portfolio full and for the leases of healthy negotiation across both

the we reminder, for may quarter particular focused space a bring market to timing leasing lease redevelop significantly by We will As strategy up. remain on the volume and deals. of given vary future our vacate that

over call Karp. the turn I’ll Now to David? David

David Karp

property everyone. morning, entire and team. Good Tom, work Great our

year offset increase in visitors dynamic was agreements better year-over-year by expenses. to a partially XXXX of operating Observatory open was being XXXX, costs $XX.X X% retail reported the from or implementation operations and a fourth types expense implemented we the increase our XXX,XXX offset up quarter just was number fourth quarter hosted $XX or to fourth of NOI lower Net million approximately $XX.X consultants on our Observatory we compared to-date. costs combination increase down mix experience maintenance and related new a the fourth of by Page the of prior XXXX. A the XX% period. million the fourth $X largest million In The period. realized income which efficiencies have increases, sold our price November of from technology the slightly of per FFO revenue the core quarter the The pricing, are new for of decrease supplemental, largely and quarter tickets in for share. million $X.XX from factors XXXX. early labor driven diluted stages software Cash we XX increased year Observatory higher from prior our in with channel. For highlighted of approximately the through of which In quarter to price of $XXX over ticket the single X.X%

the For approximately period year in in of in than fourth XX,XXX the based fewer weather prior an visitors we bad the quarter resulted increase weather estimate upon bad number days that days.

was was from period. closed ended prior elevator X.X% year the million, a the Observatory glass X.X% revenue XXXX quarter $XX.X to was of $X.X compared up XXXX deck XXXX despite X.X% for XXXnd year the This XXXX X.XX prior was elevator. as million, Net the achieved first that observation prior in Observatory December million the compared to closure compared operating quarter first with the XXXX. that period the a replacement for revenue higher-speed the in to for with the machinery the new million floor year hosted due strong XXXX, in The fact deck period. year million of X.XX during down performance $XXX.X in XXXnd for Observatory original approximately XX, For its would visitors increased revenue year floor increase was X.X% XXXX, period. unique the have income the observation Adjusting which

unique we not upgrades. visitors extra and a report do premium include now sales of As reminder,

TRS first expense. taxable rent the your We at the IPO created terms had be REIT Easter the fall remember the split will holiday the and when the entirely XXXX the the in income the with renewed compared income and that intercompany with of time second lowering we under holiday of For was at first taxable XXXX higher intercompany reducing our lease quarter payment with year-end, in models Observatory lease Also the between new lease second will the tax subsidiary. quarters. our our

our expect to We how reflected the renewal. this material overall operations due change no are performance Observatory in in

balance including significant leverage hand Moving plans to to our sheet cash sheet growth balance our advantage flexible external in joint a and on give any execute competitive our free us environment. market undergo low venture and

billion a $X.X the of As X.XX% approximately has of of no term XX, maturity our of weighted debt had borrowing total to billion interest debt average line and average X.X we outstanding rate unsecured under December a XXXX and $X.X credit of years. weighted

only debt debt with single rates. of issue has are $XXX our none before maturing variable XXXX outstanding Our laddered a well maturities million

And to net XX.X% total debt EBITDA December short-term XX, was net X.X of times. cash of As to consolidated we had million. cash, consolidated debt $XXX was XXXX and equivalents investments our market and capitalization

some me impact to As items XXXX let look on provide perspective results. full we additional ahead year will that

$XX.X which end alone in million recorded of fee termination in was the we $XX.X lease million other and First quarter. income fourth in XXXX lease of recorded

averaged XX reported to we and XXXX million of we from supplemental new end our lease fee page lease $X.X income. As termination of on XXXX

new guidance recorded no with capitalized an will be accordance be as longer leasing in non-contingent Second standard therefore costs and expense. accounting can

context Going three be million year costs approximately with leasing forward over past our the $X.X leasing volume per this capitalized dependent figure years. will were upon

the part million result approximately XXXnd be This as lost revenue period regarding of our a is closed $X we the floor XXXnd Observatory in long nine expected project. as as larger as months the the January period floor deck XXXX Observatory closed. of for Third early observation a in to for reminder could in which capital

revenue fourth found amended quarter the supplemental. We reported on for rent. associated expenses higher in anticipate And in on revenue million floor not with leases an of signed had Furthermore, experience. marketing commenced XXXX lastly XXXX lease $XX will with XX XXXX to in additional which XXXX with figure be the free we and of $X expect $X in and $X rent result million GBG annual majority million higher page which in this the approximate will balance new million run $XX of million of can the the HVAC, and detail $XX to of be an expenses approximately of due additional in we XXXX. the Observatory annualized IT be $XX Fourth, Additional million realized on million XXXnd realized had rate to historical cash in we XXXX.

Tony Malkin

say. Malkin stakeholders. stock our David, with pleased for Tony of wait value a one QX price. I'm execution of with I'd here, the few we Well ESRT's second. have XXXX for I'm not things all pleased and for like just to very created

leasing market-leading once solid quarter cash leasing a have We spreads. delivered again and

a of continues we from leasing ESRT itself XXXX to did to do have We and our lot it. peers. in differentiate

one, million from our years. at at over drivers internal market four sized growth $XXX expected number rates opportunity next topline derisked current the embedded have currently five growth expansion We and

ago. to compares that $XX million, clear, be months XX to Just

year X million at top has in line today. year $XXX from $XX increased our as million XXXX for drivers to Our end four embodied growth expectation

This rental we committed at Number GAAP While the two, our million. and levered revenue million what cash time are is liquid by to this increased flexible support future revenue rental who same balance our growth relative increased are, size. to maintain to sheet our substantial low do. our by potential we we $X $XX and is

for clear the these the lenders have our dependent have to position future like brokers outsized cash We continue players and wave Tenants industry companies downside probability the the investors investors, tenants, office to cash and with A to they and upside their new disrupt amongst the to very in providers. importantly, energy used have Company, our for B business Class they now amenities with we recognizes no fill decrease five, to buildings. leases been enterprise market that external landlords the relationships our trophy efficiency. reduce we selling services, Three, not between we world tenants. co-working seek I've of years of balance and from and flows day weak Class models. buildings, to potential protection. out made to our and the and risk lease remains have our our sheet that these regret will maintain exposure growth. both shrink I with equity had our secure with Four, our And sustainability Most opportunity leaders not be our properties these locations, and quality. landlords,

to work more XXXX. have do We in

We complete pleasure work redevelopment. to years execute strategy our on on the It will internal will have to of execution and be will planning additions continue most the of observatory our X the new a nearly we benefit that important for us. and

confident by itself and know we and every day We value ahead. we price challenges the sort out. the for opportunities will We our the are invigorated are build investors that stock

guess now go I we to So Q&A. can

Operator

question. Mailman of line your [Operator first Instructions] proceed with KeyBanc. Our the comes Please with from question Craig

Craig Mailman

guess the mentioned without $X guys a million of that's to they're on is about during and should through But you of a you though to amount as think how flow I'm just guidance. a to few us going XXXX? about rents million David, could give follow-ups. base XXXX, helpful. the outlook follow-up clarity in couple of of quarterly going sense cash some curious can not kind you kind is contribute if in give the are actual think million that contribute kind pushing we going signed much we of XXXX. the that $XX.X questions more $XX.X Just you give commenced I just flow XXXX to that lease the

David Karp

basis, I the if because commence with thing leases through to and within in guess you flowing the in for we're closest up both scheduling about supplemental do corporate can for signed talking respect be Craig, we is do the probably quarter-by-quarter look you. and commencement terms the can GAAP presentation that do best schedule a the dates not it'll expected on dates. if commencement in cued We that's we of give

Craig Mailman

burn rent commence the signed leases on commence million not rent almost that get for leases period, million to line that there's much but I how XXXX commenced free off going the think $XX about should of I No, contribute the actually on trajectory we just throughout on the of AFFO? free year? is mean the the - $XX straight to how in of in

David Karp

annualized that going in The $XX in to That's entire number. not the amount credited That's year. amount, that's the XXXX. entire statement that an the million, gets income

Craig Mailman

repay that's then to else? going this updated something the or roll on whether kind roll you And million of debt on year, $XXX thoughts that use cash into to

David Karp

with think about pretty to I exchangeable. Yes, that stand we feel we good where respect the on

the refinance We cash hand. available can makes to could got about amount on important refinance lot of a including very private exchangeable But borrow our currently us, markets. we the it’s retire We if refinance revolver tap small is which under $X.X our nothing bank debt a could is we and of a of loan. thing We can on feel lot options a debt options, We with can drawn. another placement We with can good potentially with options. unsecured we public have or sense. billion with term that we’ve

enter In connection maturity. a to refinancing enter interest we remember we swap addition, into forward $XXX we million rate that in could did into apply starting with which any

Craig Mailman

locks you swap you me that Can remind in? where

David Karp

LIBOR seven at on X.XXX%. It’s year

Craig Mailman

is the GAAP the million Xs impact GAAP I of is though your just is And interest the then that expense three think XXX coupon even that?

David Karp

correct. It’s

Craig Mailman

if pretty an to that term just be do is minimal from see dilution the FFO So loan a perspective? you you going

David Karp

correct. That's

Craig Mailman

prebuilt attract guys just appreciate external there the from and as guys one just your guys about of you thought program, service kind amenity compete their kind service I of do from industry bringing higher of guys kind that other of may about the pace you implementing thinking them are views without you to the your of bringing that I how evolving But provider. any in amenity the me. guys to base kind a are is you an enhancements with process not coworking standpoint one portfolio. know with in. level is putting coworking last kind these but then And keep Tony offerings buildings that the or offer

be an all? on will table ESRT is it at So managed that the

Tony Malkin

within first fitness we in do campus significant building. facility with urban which Building Empire to the dining options, State you look the a tenants different in way were facility, has Well know a Manhattan conference only foot landlord this only tenants in as now XX,XXX really so X

And in so Square so look Broadway from we of at portfolio buildings, ourselves that buildings. with the And the basis the them when all with South building we amenities. the of We varieties Macy's North look at that retail at area of lounges retail sort options perspective look Times district the that ourselves. look and our each of the at of options mind, at at entire basis the other develop we our of we of find within and

interesting more with you’ll will exciting to seven candidly the focused be working being the right listen it’s rather out we've things to phone, there XXXX the then out tenants I see I'd done what think we’re something on competitors and who us since on for that from program. in that it rolling around prebuilt with legwork and brokers. already doing. we've are to unveiled do some six But a now, months figure on begin And to little where have it’s last been

been enhance offering to mentioned an by Number are awful aside are lease important providers this that lot sell done from all service not. successful. space one. daily of it’s market private highest or who the with of a a on remember any to we're don’t very led folks within most as think peers stuff our to look who key there with doing this in equity what concept, this activity. order we of these are the is We back to them. lease note of we've them at and out rolled spreads different as well is very year buildings leasing in owners, our And now I leasing some lot competitive, and high it and is and be we're looking think since services a tell and there XXXX folks lease is on spread there which just being cash need we've this your out number brokers areas so are And to I you things that the are two, meaning at things basis already We and one, do the through expansion they’ll are which to base right innovating will business, the working tenants which talk people rollout. new Number we’re you you in spreads, very of rolling

Operator

of line question Feldman next Merrill from proceed the Our Jamie your question. Bank with with America comes Lynch. of Please

Jamie Feldman

just I level follow-through from termination? is guess out some quarter. about XXXX NOI lease the those in reduced for the starting of there of the rest of Can the termination you NOI fees talk

David Karp

office meaningful portion see them approximately upon and in the recognized by the to occupancy fourth tenants those million. on construction of other former a fees most and lease of is the the Based end tenants minimal a impact $X who QX terminated in was GAAP in attributable of rent downtime. the Jamie this QX, way models you vacancy, quarter building termination has income and lease of broadcast

can give into a how you sense of that forward that would So roll XXXX.

Jamie Feldman

$X rate So million NOI? run lower for that just

David Karp

a basis. GAAP On

Jamie Feldman

lease there but the is the then GAAP talked that there? were square-foot okay. by million goes restructured what basis, is And impact, Brand any X a about On how moving rank pieces Global up you lease

David Karp

achieve to we was of as group an for lease the on sub and the lease October and North of in in the terms Just a it to XX request improvements differential a renamed other of American brands that GBG's And a on portion Centric their little turns. Brands with XXXX modify licensing Centric recently the background that opportunity connection approval had acquired announced of had to rent certain was which increase significant Brands business.

it's on restricted to did about somewhat per increase during cash fact $X in a terms quarter of was million a The what talk we nondisclosure talk about increase we're GAAP a a on We can’t was basis So that $XXX,XXX. we the the basis the impact about. year. rent

Tony Malkin

we purposes discuss. that So disclose to disclosure Jamie to allowed I we things important are color are disclosure have other we allowed to where just not think you than tell purposes it’s required not to but for which commentary note and for

Jamie Feldman

I any giving guess are they back expanding? say can space you there are

Tony Malkin

No.

Jamie Feldman

space the higher the It’s but rent? same just

Tony Malkin

Correct.

Jamie Feldman

GI is and spend? big Okay there

Tony Malkin

No.

Jamie Feldman

have about some of thinking one to just out the you expiration I the square then feet stuck things mean changes more vacate And was now me that the and to XX,XXX of summary about talk vacate can that that item? Can I line tenant moving want talk some just in and don’t – in one but of in about focus XXXX. just on you pieces number you the what’s

Tom Durels

This tenant efficient, pen station. stuffs significant fully most of is it’s spaces Xth foot. floors to to named they access two the per plates great XXX They remarkably occupy side currently floor the entities delist. are core, a change They Avenue are pay feet already square $XX square escalated relates XX,XXX one of a excellent consolidated and Tom the rent nonprofit there

escalated fully us to this cash of a is generate very And foot rent spreads. rent so place significant in a square $X opportunity and for positive with meaningful

this was had making previously great one at the last we quarter quarter us. we this change money them now So as to they opportunity as listed look that for vacating from had are unknown

Jamie Feldman

And is redeveloped or no? already that space

Tom Durels

We marking classified to really have that feel so already I again been back. space base about good as debated around consolidated and go generation than be it it the were having less if significantly is will first it it’s and already We had cost redeveloped burning space. so space the because

Jamie Feldman

say the just spaces rate look what for like redeveloped retention renewal? is leasing the what spreads And then and for you the on redeveloped would spaces

Tom Durels

We're our lot not portfolio. presenting of anything rates redevelop on space - within we still a portfolio. really Well movement there's retention haven’t stabilized for

redeveloped you've this a we're that prebuilt and us. we're from tenants spreads, with in quarter tenants, I've as with of like as grown commented on we've such lot growth to previously, come have initially then on got see going leasing tenants expanding with leasing prior average then, a square a – place And $XX rents rent $XX the that as space all just spreads – square excellent escalated of given of the supplemental foot. shown our space experience the in vacant only foot. on escalated locating Page Uber seen fully redeveloped this, But space on on XX You under say is is office

significant then So Manhattan office market. presentation to discount in anticipated the our that's on a spreads current show from to And we lease of anywhere investor – at course leasing XX% future XX%. expirations

good will that expectation a spreads. give you So on future pretty

Jamie Feldman

XX% on is But is that's pre-redeveloped? on to XX% the or redeveloped space that

Tom Durels

That years. the over of future five office expirations next on our Manhattan lease all

Jamie Feldman

what provide like basis? if guess could portfolio rents. the there's to of a in I net basis Maybe on same-store push you where rent little kind able know looks to effective been growth what's figure number. that trying of you've you I I'm rent like on kind what just a is, a a growth out same-store you've do mentioned color select think

Tom Durels

and based can Again current rents. space. today's is the been of generation over rolling the the market difference XX% between so it to the thing separately that get I Again spreads our and and like mark-to-market I to I upon XX% you're re-leasing activity first trying again next on and on broken think space think I has five on much haven't undeveloped the best years into future redeveloped leasing space of developed out

Tony Malkin

another internal ago say think of same look today embedded look is that Jamie, got of on we've we at it, which to from we and $XX drivers. that million de-risk here I at XX growth way that months million our Tony had $XXX And growth.

our but So projecting a rents. that that year rents been number distance. current of no time a or increase we upside, incorporating at so that every potential out taking the and still out year to the adjust to big you a we we're rent, have We're is we the both from report of that a same represents in received chunk report chunk the so the fact rents market you that new

rents isolated that got rental some meaningful We wouldn't increased the board we've increases across I in an pretty in over XXXX. So rate say fashion XXXX.

Jamie Feldman

on And spend an you're the that's development board? kind saying saying of you're or basis any apples-to-apples just across without

Tony Malkin

Across the board.

Jamie Feldman

you the they seen flexible back we Hana Then lease I expect capital flows Softbank’s we've story. co-working flowed question Tony mean out is to platform. CBRE final don’t with and for just and a going come

like some that into couple years it we're is into especially you what front? does here years from this, Now a like given the flows looks the do or several think landscape this seem there's changes in capital

Tony Malkin

and I start think exist third-party basis they businesses consume on provided they that these equity. when with the but getting have because spending equity And they are to stop this much.

than move landlord. as We'll Hana into to So then it. way That's or just offer Look entering who up. things by down be do CBRE taking opposed a other well the others things another as a looking to into would and service companies see major do we’ll not when surprised to the commitment to to or are as at space. to like this business look at you Convene provider begin consultant players spread whack other I

them, the I we bright should don't. with shiny I is think it's to And it thought penny. lease we'd good business the engage, if a were fact I which

I the disruptive business are on I their one think think models are and hand on other this weak. weak, that models their the hand

consultant's We line models no economic of see the demonstrated we leasing go on results to that they it. together space shared think can – office economist these future going I and without the enterprise - we into graph. need. terrific I some of tenant about had anybody reports advice no the Again, need, to it's think watching true we're what as read summaries in this for of category for unusual So our and firms straight a are, put and portfolio

office I don't from seven calls think of which that's matter, under I been happen. space posted will co-working you even some battered which going all on other of have And on handled just about and have now providers. office years this guys think within enterprise by be the to statistics the XXX%

I big think either that going see it's stakeholders seen it. ourselves our think the don't expansion away, its but dimming. to I way bright spot and it’s I don't and have Not to expose we

Operator

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

John Guinee

David me when a base year, enterprise do restricted is four total X% or you are $XX about spending, just quarters, looks spending your cash stop that building that quarter Observatory over securities, your the does million looking spending, your turns million value. to $XXX down your is last marketable that number a which X.X%, so going When positive? like with done releasing cash – you

David Karp

Yes, you that $XX million don't we said million, you we reasonably balances. cash with repayment to from well guidance and of can put project. provide do cash provide about pieces at then as about operations million dividends than $XX cash fair what as amount model a enough on project that have spent that Having John when try a of there. the get we'll know we redevelopment the could capital program Observatory on we the in as resulted is of $XX CapEx less this of which When past about we $X of reduction quarter million, in the $XX movement, just in in look million, principal you had

good at we some for - you you end the year. on as spend If will of of end visibility We've the the Observatory be the nearing pretty redevelopment. the capital said, this CapEx given program we

point. XX guidance, So a can giving next the on operating months I an take at and look think basis and you assuming an start seeing XX to inflection without

Tony Malkin

details should provided if the we be all through our it was helpful and anyone located who call. you, would wishes We be that follow-up – where on walk that can detail

John Guinee

as XXX just in year-end things XQ, The equal? look let So way what that does in other it Tony. XQ, XQ, another ask being XXXX, me all you discussed like XXXX; of XXXX that

David Karp

doesn't I'm answer Tony so to to answer, want it. going

dependent with decide I do think number get the exchangeable. of a assumptions it's what I to upon we it,

deck. be to on alternatives and given not. to of It's Observatory. that you may we the As I the function use of function mentioned of redevelopment one a to a We going pay within investor of or pacing It's performance our we've down. is to going be the may cash

Our space don't period, it may things we're the consolidation because accelerate earlier change space because either of to same best expected we get to year. able at this of guess we're that the as slowdown opportunities to back as – developed beginning able we we over or do amount get the the

to So – to there here the plan is tell I of cash the end today you at can't what balance variables. sit going look We're to decide and are going number this year. like of really

John Guinee

there fee lease associated $X was the is again second the fourth term you that vast leased think be you tenants broadcast the was fee term going that which for about quarter. annual the of said lease with as forward majority demand in rate Then any million I the space question, took decrease run space? Can

David Karp

approach to objective first our and avoid mean when run up the that’s yes tenants. when I So correct. secure to possible termination on to ramp want that, rent-to-quality our where possible. I clarify, on say to rate philosophical not downtime these and remember, want We you one a is it's termination, exactly

that we'd of terminations. achieved so a you is actually what lease look done number year if throughout at And the the

For downtime. eliminate reduce was was Uber the example, lease of We termination an downtime Uber result another the a early the of were tenant. able a – the of result space to or

space I so look tenants it to that number done terminations, as there these office particularly to at the in office in portfolio, with many cases and space. of and York is deals And greater New remember case hand. an when the that area were those you relates in space opportunity release the a Metropolitan And

little focusing and on which on animal. perspective his turn a get broadcast different Tom of going I'm we're bit to to is that. a the So, piece,

Tom Durels

I've think significant at recaptured on I John, most at Empire we is fortunately Yes, the commented this from stack broadcast tenants State of Building. The before. the top that space

in are square and full the feet. and process of demolishing of boxing floor consolidating a We about wide XX,XXX

office is foot the asking in north floor a highest an have full We $XX the square rent of building.

the I'm we'll back. XXth then square feet. recaptured [inaudible] constructing that So on And of about this space units year later about having floor that we excited be some space XX,XXX also prebuilt

convert space about responds for your opportunity office. think So, that I the to broadcast question to

John Guinee

back. no term the $X And Thank lease, last the question TI that shorten We the million Global what's back to you're term is Group answer it; then able questions the cash did Brands Two give fully. going space NOI spend, didn't and understand you. if to change? increase of NOI no lease GAAP

Tony Malkin

term not shorten… did Lease

David Karp

lease to Yes, over is just - term penny it’s a the be did not share. just shorten change and going GAAP

Operator

your from Please of Evercore. Jason proceed question. the Our with Green next line comes with question

Jason Green

if I rate it's one-time whether nature more run a or in going could moving to the was talk the these if Observatory increases the specific at and increase not or forward? wondering increases little expense about you expense are

David Karp

XXXX, stabilized, is mostly Yes, of have to year technology hardware constant technology better at higher software. marketing with to experienced represents This this run technology are which three, expenses the temperature to on maintenance fourth new we has we right increase humidity quarter we'll anticipate are; higher XXXX HVAC expenses experience have as associated approximate sense to with and one, due now factors, cost we early in progresses. entrance new run rate that been and which have number over expenses what ticket we as an anticipation maintained level. Two, a and And and of the have systems upon due consulting, the higher is of a that a new which the and based the and rate kiosks the we expenses. IT

Jason Green

year at to to in on balance broadly has low $XXX share on and guys you million start guess Okay. but given sheet was stock a curious for it And buying the a the then five happen buybacks; this back authorization speaking, appreciate and you have I shares? just what I the feel trading currently. comfortable color year earlier

Tony Malkin

question. interesting anything needs we make comfortable which is That's What an of to stakeholders. feel doing the in think interest long-term we'll happen comfortable? Well, to us be

an making getting Board. do rents all in we go as and to we're of these program. growth on through cycle, that consultation with close to do at increasing that view internal into it our we're is CapEx exists as a on from with and our four ROI into properties tenants. along the both We decisions drivers also that most take growth internal we're position Manhattan markets. our objective our economic Our the of the is the within look And our other raise nine-and-half factors redevelopment we better results, market We're our but reinvestment years our continue getting better attract project X% an

better tenants. better and for better better have We and alternatives

is So cash with value time. believe an deploy there having low we'll be on fundamentally, hand in that liquidity at appropriate leverage and we significant sizable able

grow do We're not private, a to flow, not It our stakeholder use repurchases look this and good a the shareholders. meantime growing getting we're focus talk right don't to We the the would value terrific looking repurchased you excellent looking right on business. stock, building now by were for have piece. we're of a when add a would repurchase and that the stock have re-leasing. In now. is started repurchase over If all suffering people doesn't, to say. to a value sit reduce at lot if pressuring never thing you the to team long-term. historical we and we're through are the not I had we're one lost would our I business. tools And to to us of the tell here our redevelopment and you last the stock our a our today: allocate stock, when and maybe hell to balance things that results prudently, about create work Company we from But be sheet money short-term and we historically because of rash thing And lot tell perspective, looking to capital going take I to can you

Operator

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

John Kim

First Tom. maybe question for

Looking last at could like your portfolio X% end. that quarters anything an and have few case? year It you not your expiring this the be run additional portfolio will leasing to by the greater year. Is your New there address over York versus looks you rate in vacancy what have

Tom Durels

on in feet John, significant square vacate commented past. anticipated the we that attendant the most in is XX,XXX

metropolitan for The some that going standout completely plus one portfolio. workplace will old, have there and been XX is needs space again impact us the We've that So, clearly it’s and inefficient, New in occupy that's be years so They've in to reported rebuilt greater for that on impact. today's environment. the they is York is it to in an the this square its feet, XX,XXX past.

I've dinning, It's activity. about redevelopment in it's lobbies, clubs, project million the last already is quarter leasing we overall the with actively tenant. that’s And help give said, are as Zimmer leasing the foot program XX XXXX. into that this and you Center, baths, space. We to past, at I'm for opportunity a of did we're square the going well going $XX significantly boost Street. us Bank we which fantastic refresh great to to $XX to gyms, year very some where marketing about That small units through we that most pleased We've seen our Biomet, an our only but to know facilities, traction Metro spend at starting and space good commented as leased quarters

John Kim

list in your assets that on your [inaudible]? any are there portfolio Are potentially suburban you that

John Kessler

I it. that we've of we point our sheet and want think discussing. really strength the our plenty been is we've goal key as And Company, shrink capital got grow the balance - to not on

to order capital have don't sell corporate we So purposes. our the any for to assets in need generate

don't there. And see so I really a reason

in think have anything but result meaningful indemnification In we I makes would the don't sense. as are Certainly, those sale protection to three their and addition, we have this subject we tax in to we point. everyone say properties two more payments, the which other flexibility at knows of have don't think regarding

John Kim

were weather for if adjust bad this even year-over-year in. days At that's down the Observatory, and despite the put the entrance is quarter, visitors you the in new

improved but I the more visitors disappointed cash investment given traffic that wondering, than concerned I'm know important So were or your is asset? wasn't in the you

Tony Malkin

the is NYC New visitors if a long-term not, Company the speaking final & true City destination look United significantly which which York everyone brand traps City And if York give U.S. been is it while a suffering along into the or question picture. really Look, brand The highlights we've things States. coming and of for cross-ocean back - New and we for about time. some it's doesn't regardless statistics great with some

was number Opry, both across you from look before. long-term small in City Times which attraction in a out of There than experience, Square what operations. happened sort year ocean at stays take that was is New They're gone a exhibit was Ole there of closed can which high world seeing You're after The Number of had NFL business. York we've The miniature visitors, very the Natgeo which featured. terribly. started one. put less a other Grand attractions paying another two, of with doing

a They World holiday So they there display. not from and use the attendance One entry the available is for go admit in this XXXX. we general. for month, know because tracking issue shown that Trade the We January and calculations January by they're are XXXX in XX% which down numbers are count over in of December November screen scene every our

other look information on have So market - at other we when we attractions.

market. on the on absolutely of on actual what's per outperforming of in in going outperforming the an Significantly rate and are market general. change a our caps tremendously We are

the general through greater So, market in is traffic driving discounting.

is But you our distance. not a World has package operators, by buying how is these then bus with one been well who does very from in targets. the could our independent and discount give actually volume bus from Those models two a are We ticket me, those pricing visitors. Trade example. going that higher to who a them though turn loss what at focused and very China. Building. me What China, of sell Empire ticket, to And much World after visitors I'll by they continue with pocket their is. numbers to their still are two ordinary to we're one you higher they even is One we long even David specific key State of it big visit a because through direct deliverers refine give charge on the and the China kick our growing traveler across the on actually purchases is from traffic we tours difference. visit the table on us deal he are we Trade inbound face what in-China or our I'm the not the then pretty a to price the coming around price And to FIT, and operators bus offset what visitors the sell ticket

changed an we've to it So awful defensive we lot, offense. I doing for absolutely, purposes? say defense would good that this is we're Well, have investment Is every it. piece of

the takes out the defense. the to We increases pressure full looking All per demonstrated forward cap improvements. there, having We really we we're exhibit. and good deliver feel off from ticket and offense mix what growth can doing really about we're

John Kim

views on interesting. have and a your anything while for serious are if - consideration that - like what some of think demand Thank be lot State for I you, your Building? Tony, there'll Do Empire you. is there's there That's you company.

John Kessler

building the again. John at and that. make so any under comment beyond we're Chrysler We've other It's strict we here looked can't NDA

Operator

line of proceed from comes your Daniel Ismail with with question. question Advisors. Street the Green Our next Please

Daniel Ismail

Just up entry? a retail in the quick one on on the of particularly Observatory portfolio. you the light leasing discuss of vacancy the Can rest activity repositioning the

Tom Durels

are unique. both significant have only which two We Manhattan, vacancies in

and discussions that Central process we're the on which team then Central You mentioned one variety tenants. at State then have a in of We still One the at Place. one space One early - is Empire in at in Grand activity other with Building, Grand Place. had State And do Empire the Building

concepts these new said We I to I the offering. a interesting reporting. traffic would is is frontage simply foot in incredibly place This at look has Street. As on shoppers There forward on working past, past incredible we're say which entrance observatory an that XX some our location. great unique XX additional this brings very stores. and this Street opened

Daniel Ismail

on And another cost. just one quick construction

similar increases? from and XXXX Wondering seeing of for few your low you single construction most seeing cost peers are are last think digit. something I construction rise a cost if guys expectations your years from

Tom Durels

peers same that We're experiencing are. things the our

last pay close couple others. tremendous I you'll very slowing are that because equally to don't see year in indexes say major said, and in lease we're like in there. overall costs of economics. that and the That generally years. range there, market think digit, impacted I the have X% been to if attention York demand New you down all construction robust to our see out the per single X% pretty there's that out low follow is over mid the we But

in capital achieving costs. As and cash changes re-lease we redevelop of construction X% and reported, those that and on cash we return are is we in And invested our an light space.

Operator

Manny to Korchman Citi. Due will proceed time come Please question. line our your of with constraints, with from question final the

Michael Bilerman

here It's Tony, Bilerman question with Michael for Manny. you.

other you marketplace. back that on So relationship below made assume gave of XX%. investments and external stocks growth given bought XX% real in the that down the Company QIA today pure given bucks hasn't hard materialized that of in invested which was assets of probably at Can XXXX, XX% $XXX - that the summer about $XX for hard value, talk they right got conservatism that to has million. Part estate QIA you that clearly I

how it's the So about forward? talk you to go can a little relationship going and bit

Tony Malkin

touch of regular all in we're with first Well, QIA.

on is regular matter them overall relationship additional have the on not is think I'm rights. with of We and a basis. their They shareholders, the fact portfolio. they I to The good. speak see So comment have very going

should We're For know what rights lot are But anything of when a which think there. up top and a other filed drama it's they I do in I a not they have touch things than have necessary as up. you're - time requires don't which this. There's do JV, period of we they for regular top a good. looking that,

Michael Bilerman

Well, - selling know thinking about you pressure taking from share talk buyback up just you do I'm about just others.

is? - table, something QIA is the part on I capital? a XX, to an got else that there of uniquely done stake, Because equity if value is assume the And your the be there You that status can leverage that's is quo not at in at issued opportunity to real the XX situation. below not estate to buyback where this ideal price

Tony Malkin

by what not Well, don't you understand I ideal. mean

they said, sold As they else over they regular of bought that whenever restrictions. sell They same we've shares, under with they they everybody They them in and bought saying no shares shares I time like. the shares, and know what are been period haven't does. we're touch can

and producing go want to So, I we valuable We hey, cash about own see justified. showing of execution give cash else. know purposes you're anything give consider We all use suggesting going should as internal super we're - we're be. for the terrific growth we same to to We dividend offer to we good to David shrink to good their feel line them balance top and the but with and, look and great not it stake said want sheet, our grow really No it. longer consuming as growth. really answer money, people what that I'm company, and business expanding a it's feel buyback their with for where and I'd I'd the that the can when higher

Michael Bilerman

to on anything capital putting external Is front growth that's there closer out? the

Tony Malkin

off we've market If for But Absolutely. been period markets-to-market and time on we've been closer time than for one. of activities. focusing long stuck on they're working some quite a

Michael Bilerman

mean there you I contracts close close? how Do is or

Tony Malkin

Well, that with any let's I see answer more if can detail.

Michael Bilerman

the -- can David, away you table you [inaudible] so as sit far on

Tony Malkin

exactly, a That sitting see, me with is you on - he's with can't - he's exactly threatening my shoulder a mace.

to going no on this. details we're Now further there's give

more with we've us. clear, the We'd is we focus a on leasing, ahead as seeing perform we achievement both This can. And front. as to like another said external a really Tom would. be long-term. game I thing far year and only that am than very XXXX but than playing no Let's frustrated advantage tenant anybody like bottom been I is much feel opportunities for - here. credit, take the to activity for when as we got of great growth, spreads. long Company the We pressure we're it one the think terrific has year was we're of more don't We on great Durels I leasing would improve of the line

Michael Bilerman

buying buying options. you to [inaudible] stock. believe Well, other I up company Management can it's think purchases be But it? the you if

Tony Malkin

blackout now Terrific. can't I buy think period. in a I right can't Actually I Yes, I'm stock, buy so no. stock.

Michael Bilerman

come you when guess. Well, I out you can,

Tony Malkin

and given at we've thought appreciate I the same the time here answer. the

Michael Bilerman

you. Thank

Tony Malkin

to ahead, days much We many questions. all conference. the do. you time We city REIT you you very at just talk work to done in few with forward have Want thank your of meet the CEO outstanding months and we look to the and all will you a in more for about

to Finally, analysts up. added David in few the be as you you're I see and a understand Don't forget, this when at inducement will drinks State run done. John and will Building we bar year's investors Empire buy an

and all than So and there other best. here we seeing you forward keep look the stay to out just to that going We're working.

Operator

this teleconference. conclude does and today's Ladies gentlemen,

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

Empire State Realty Trust (ESRT) 21 Feb 192018 Q4 Earnings call transcript