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Earnings call: Empire State Realty Trust Outperforms in Q4 with Strong Leasing

Published 22/02/2024, 12:30 pm
Updated 22/02/2024, 12:30 pm
© Reuters.

Empire State Realty Trust (NYSE:ESRT) has reported a robust performance for the fourth quarter of 2023, surpassing financial expectations and strengthening its leasing activities. The company's Funds from Operations (FFO) exceeded forecasts by $0.05, reflecting a period of significant growth. Notably, the Empire State Building achieved nearly 92% occupancy, underpinning the trust's success in its leasing endeavors.

ESRT's commitment to sustainability and quality properties continues to draw tenants, with the multifamily segment showing a strong performance. As the company looks forward to 2024, it remains confident in its growth trajectory, with a healthy leasing pipeline and strategic plans for capital allocation.

Key Takeaways

  • Empire State Realty Trust's FFO beat estimates by $0.05 in Q4 2023.
  • Positive leased percentage absorption for the eighth consecutive quarter.
  • Empire State Building nears 92% leased status.
  • Leased nearly 1 million square feet, a 250 basis point increase in leased absorption.
  • Observatory performance remains strong with reliable cash flows.
  • Healthy leasing pipeline for 2024, with a focus on quality and sustainability.
  • Strong balance sheet with the lowest leverage among New York City-focused REITs.
  • Net debt to EBITDA decreased to 5.4x.
  • New CFO appointment and strategic handling of Flagstar's lease at 1333 Broadway.
  • Looking into opportunistic investments and potential capital raising.
  • Dividend growth and debt maturity plans under careful monitoring.

Company Outlook

  • ESRT aims to enhance shareholder value by focusing on leasing space, selling Observatory tickets, managing the balance sheet, and achieving sustainability goals.
  • A flight to quality and sustainability is evident in the market, with ESRT well positioned to capitalize on these trends.
  • Strong leasing pipeline with 190k square feet under negotiation.
  • Majority of 400,000 square feet leases set to commence by 2024.
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Bearish Highlights

  • No specific bearish highlights were mentioned in the summary.

Bullish Highlights

  • Continued positive mark-to-market lease spreads for the tenth consecutive quarter in Manhattan office spaces.
  • Diverse portfolio with office, Observatory, street retail, and multifamily platforms performing well.
  • Strong equity position for investment opportunities.

Misses

  • There were no specific misses reported in the summary.

Q&A Highlights

  • ESRT is eyeing opportunistic investments and considering raising capital.
  • Discussions about debt maturity are ongoing, with no specific updates provided at this time.
  • Confidence expressed in executing goals and driving further growth in 2024.

Empire State Realty Trust's recent financial results and leasing achievements reflect a resilient business model and a strategic focus on quality and sustainability. The company's strong balance sheet and commitment to shareholder value, coupled with a robust leasing pipeline, position it favorably for the year ahead. With a clear vision for 2024 and beyond, ESRT continues to leverage its top-tier portfolio to attract and retain tenants in the competitive Manhattan market.

InvestingPro Insights

Empire State Realty Trust (ESRT) has demonstrated a commendable financial performance, and the latest data from InvestingPro further highlights the company's strengths. With a market capitalization of $2.66 billion and a Price/Earnings (P/E) ratio of 32.37, the company is trading at a low P/E ratio relative to near-term earnings growth, which is an InvestingPro Tip indicating that the stock may be undervalued based on its earnings outlook.

The company's solid financial base is also reflected in its PEG Ratio for the last twelve months as of Q3 2023, which stands at 0.19. This suggests that ESRT's stock price is relatively low in relation to its earnings growth, a potential sign that it could be a good investment opportunity. Additionally, ESRT's liquid assets have surpassed short-term obligations, providing the company with financial flexibility and stability.

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InvestingPro Tips also highlight that analysts predict the company will be profitable this year, with ESRT already showing profitability over the last twelve months. This is supported by the company's strong revenue growth of 6.15% over the last twelve months as of Q3 2023. Furthermore, the company is trading near its 52-week high, with its price reaching 95.16% of this peak, signaling positive market sentiment.

For those interested in a deeper analysis, InvestingPro offers additional insights and metrics. Subscribers can use the exclusive coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With 5 more InvestingPro Tips available, investors can gain a comprehensive understanding of ESRT's financial health and future prospects.

Empire State Realty Trust's recent achievements in leasing and financial performance, combined with the favorable metrics from InvestingPro, suggest a promising outlook for the company as it continues to navigate the competitive real estate market.

Full transcript - Empire State Rty (ESRT) Q4 2023:

Operator: Greetings, and welcome to the Empire State Realty Trust Fourth Quarter 2023 Earnings Call. As a reminder, all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Heather Houston, Senior Vice President, Chief Counsel, Corporate and Secretary. Thank you. You may begin.

Heather Houston: Good afternoon. Thank you for joining us today for Empire State Realty Trust's fourth quarter 2023 earnings conference call. In addition to the press release distributed yesterday, a quarterly supplemental package with further detail on our results and our latest investor presentation were posted in the Investors section of the company's website at esrtreit.com. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements as defined in applicable securities laws, including those related to market conditions, property operations, capital expenditures, income expense, financial results and proposed transactions and events. As a reminder, forward-looking statements represent management's current estimates. They are subject to risks and uncertainties, which may cause actual results to differ from those discussed today. Empire State Realty Trust assumes no obligation to update any forward-looking statement in the future. We encourage listeners to review the more detailed discussions related to these forward-looking statements in the company's filings with the SEC. During today's call, we will discuss certain non-GAAP financial measures, such as FFO, modified and core FFO, NOI, same-store property cash NOI, EBITDA and adjusted EBITDA, which we believe are meaningful in evaluating the company's performance. The definitions and reconciliations of these measures to the most directly comparable GAAP measures are included in the earnings release and supplemental package, each available on the company's website. Now I will turn the call over to Tony Malkin, our Chairman and Chief Executive Officer.

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Tony Malkin: Thanks, Heather. It is great to have you back after your parental leave, and good afternoon to everyone. ESRT is pleased to report a strong fourth quarter to close out what was a very productive year for our top of tier portfolio. We have a modernized, amenitized energy efficient portfolio of properties in great locations, absolute commitment to put points on the board under any circumstance and a balance sheet that allows us to do so. Our team's focus and relentless effort once again delivered results. In the fourth quarter, FFO came in $0.05 above expectations, $0.015 from non-recurring items, the majority from recurring operations. Christina, our new President, will handle that in more depth in her comments. We delivered our eighth consecutive quarter of positive leased percentage absorption. We achieved our 10th consecutive quarter of positive mark-to-market lease spreads for Manhattan office, our observatory performance continues, and our balance sheet remains best-in-class. Our top of tier portfolio sees continued demand, and we leased nearly 1 million square feet. Lease-up progress over the last year increased our Manhattan office leased percentage to over 92% and increased leased absorption by 250 basis points. The Empire State Building is now just shy of 92% leased. That is an increase of 720 basis points over the last year. Within our Broadway campus, the leased rate at 1359 Broadway increased 730 basis points over the last year. Tom will discuss some of the quality tenant leases, which contribute to this progress. ESRT's commitment to service and tenant relationships, combined with our modernized, amenitized, energy-efficient portfolio of properties in great locations drives our consistent leasing volumes. Over 2.6 million square feet of tenant expansions in our portfolio since our IPO, quite significant relative to our entire portfolio that totals 9.3 million square feet today proves the value of our market proposition. I would like to share some words from recently signed tenants as to why they chose ESRT's buildings. All of the following are quotes. "Industry-leading facilities and client services. Iconic. Prime location. Blend of heritage and contemporary design. Top-tier amenities. Forefront of sustainability. Astute partner. Commuter-friendly. Energy efficient. Bolsters teamwork and innovation." That is the end of the quotes from tenants. You can see more tenant testimonials on Slides 11 and 12, of our investor presentation. The right offices and the right buildings at the right prices and the right locations with the right landlord, are critical components of company culture and employee collaboration, recruitment and retention. ESRT's leasing successes are built upon the $1 billion we invested and portfolio upgrades to consolidate floor plates and gut renovate our buildings so that our assets are fully modernized, leaders in energy efficiency, competitive and attractive to lease. We maintain a best-in-class balance sheet, and that makes a big difference to tenants and brokers in today's environment. And we service the deepest segment of the tenant demand of the New York City office market at our accessible price points. Our goal is to get the best deals in good times, get the deals in challenged times and draw consistent leasing volumes through cycles. We know what we have to do, and we remain absolutely focused. And we believe with the right capital partners with whom we can share our balance sheet and expertise, the current debt issues create opportunities for us to grow that success amongst select additional office buildings. The Observatory continues to perform. 2023 saw the Observatory NOI return back to pre-COVID levels. And that was just with 20 -- excuse me, just with 73% of the admissions relative to 2019. For years, we have put in the hard work to build exceptional brand awareness of our iconic, authentic brand. In 2023, the Empire State Building had over 388 billion global media impressions and generated globally nearly $800 million in advertising value equivalency. The Empire State Building Observatory is the authentic New York experience and was ranked the number one attraction in the United States by TripAdvisor (NASDAQ:TRIP) for the second year in a row. Our Observatory's cash flows are reliable through all economic cycles, new competition and a pandemic, as shown on Slide 13 of our investor presentation. We now focus on year-over-year NOI growth. Tenants look to partner with a financially stable landlord who will maintain high-quality standards at their assets. We can allocate capital as we think best to achieve return for our investors, be it capital recycling, new acquisitions or share repurchases. ESRT has been the quantitative sustainability leader for more than a decade, and sustainability is integrated into every decision we make from property to FP&A and reporting. Our industry leadership and sustainability and healthy building performance matters more and more each year to tenants who come to us based upon our reputation for successful partnerships with companies and their employees and sustainability. This quarter, we were pleased to be recognized as one of Newsweek's most responsible companies. And on the governance front, we were awarded Governance Intelligence's 2023 Corporate Governance Award for Best Small Cap proxy statement and nominee for best shareholder engagement. ESRT's 2024 priorities remain unchanged. Lease space, sell tickets to the Observatory, manage the balance sheet, and achieve our sustainability goals. These actions together enhance shareholder value. We are in a position to take advantage of opportunities created through market disruptions and capital dislocation. We believe in New York City, and we have four diverse ways to play it, an office portfolio that is the top of our tier and targets the deepest market segment. Our observatory, that is the number one ranked attraction in the United States. Our high foot traffic everyday street retail, and a growing multi-family platform. Tom and Christina will provide more detail on our progress and how we plan to accomplish these goals in 2024. Before I hand things over to Tom, a big congratulations to Christina for her just announced promotion to President; and Steve Horn, to EVP, CFO and Chief Accounting Officer. In Christina's nearly four years with ESRT, she has grown with experience, led with strength, contributed materially to the sector-leading successes of ESRT, and has been a great partner. Her well-deserved promotion recognizes her capabilities, responsibilities and value-add to ESRT and reflects our success in the attraction, development, and promotion of talent for our present and future opportunities. I will let Christina comment more directly on Steve. And I assure you that I have no plan to depart ESRT, and Tom Durels is as committed as ever. Now on to Tom.

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Thomas Durels: Thanks, Tony, and good afternoon, everyone. We had another strong year in 2023 and have the people and the properties to deliver strong results in 2024. During the full-year of 2023, we leased over 950,000 square feet in our commercial portfolio. In our Manhattan office portfolio, we leased 862,000 square feet which was our highest annual volume, since 2019. Our new lease spreads averaged 14% for the year, which exceeds the prior three year average. We achieved our highest new starting rents for office leases at the Empire State Building and 1 Grand Central Place. We signed major office leases with quality tenants, including Capco, greater New York Mutual Insurance Company, LinkedIn, Rising Ground, Starbucks (NASDAQ:SBUX), and STV, to name a few. And we welcomed new retail tenants like Ghirardelli, who will open their first ever New York store at the Empire State Building next to the Observatory entrance. The 34th Street Front now hosts the Starbucks Reserve, Chipotle (NYSE:CMG), Ghirardelli, AT&T and has one more retail opportunity to lease and two new sushi restaurants, one at the base of 1359 Broadway and one in the Empire State Building, which will serve as great amenities to our office tenants. Our property team delivered a strong close to the year. And in the fourth quarter, we achieved positive mark-to-market lease spreads across our Manhattan office portfolio for the 10th consecutive quarter. It was our eighth consecutive quarter in which we achieved positive leased rate absorption for our commercial portfolio. We increased our Manhattan office lease percentage by 250 basis points compared to a year ago, and 20 basis points quarter-over-quarter to 92.1%, which reflects an increase of 510 basis points since the end of 2021. We leased 164,000 square feet in our commercial portfolio, including 135,000 square feet in our Manhattan office portfolio at 5.8% positive mark-to-market rent spreads. The weighted average lease duration in our Manhattan office portfolio increased to 11.9 years, which is the highest it has been in the last two years. Notable leases signed in the fourth quarter include a full floor 17-year new office lease with Greater New York Mutual Insurance Company for 52,000 square feet at the Empire State Building. Greater New York Mutual will relocate its offices from Madison Avenue to the Empire State Building because of our industry-leading sustainability measures and excellent tenant-only amenities which aid in employee recruitment, retention, and productivity. We signed a full floor renewal deals with this quarter with Ingram Content Group, Anaplan (NYSE:PLAN) and Fairfield Maxwell. Ingram renewed their lease for 12 years in a 14,000 square foot space at 1400 Broadway. This marks our third collaboration with Ingram and reflects their desire for our quality services, amenities and convenient location. Additionally, our partnership with Fairfield Maxwell has spanned over 28 years. We signed a 10-year new full-floor office lease with Hanover Street Capital for 13,000 square feet at 250 West 57th Street, and we signed leases for 11 pre-built office suites that totaled 59,000 square feet. Additionally, as shown on Page 10 of our supplemental, we have $51 million in incremental cash revenue from signed leases not commenced and free ramp burn off. And we're off to a great start in 2024. We recently signed a 16-year 68,000 square foot expansion lease with Burlington (NYSE:BURL) at 1400 Broadway. Burlington has expanded with us 3 times and with this latest expansion, along with an extension of their current lease, Burlington will occupy a total of 170,000 square feet for a 16-year lease term. And we just signed an 11-year 57,000 square foot new lease with Sol de Janeiro, a L'Occitane subsidiary at 1 Grand Central Place. We have a healthy leasing pipeline for 2024 and saw an uptick in tour volume in the fourth quarter, reaching our second highest level since 2019 that should drive leasing activity in the year ahead. We have modest lease expirations in 2024 with 578,000 square feet set to expire. And after the Burlington and Sol de Janeiro leases that were just signed, 320,000 square feet of that is covered by expected renewals, relocations and new leases and only 183,000 square feet are known vacates and 75,000 square feet is undecided at this time. Based on our annual average of approximately 650,000 square feet of new leases signed in the past 4 years, we are well positioned to increase our lease percentage in 2024. In today's market, there is a flight to property balance sheet and sustainability quality at every price tier and ESRT offers the top of tier offering in our price bracket. We attract tenants who want product that is modernized, amenitized, energy efficient and well located near mass transit and neighborhood amenities, financially stable ownership, high-quality service and indoor environmental quality at our price points. More and more, we hear tenants are sensitive to rental costs and look for a value proposition as they seek the best office space they can get for their money that will complement their employee and workspace strategy. Tenants in our price range make up the deepest part of the Manhattan leasing market, as we show on Page 13 of our investor presentation, since 2019, nearly 50% of market leases were for $50 to $75 per square foot in rent, which is our sweet spot. Our unique product is competitive and attractive to tenants as demonstrated by our excellent leasing results, 92% leased percentage from Manhattan office. Of course, we did the hard work over many years. We invested in our assets to provide fully modernized, amenitized product, committed early to build all our tenant spaces with the latest in sustainability and IEQ technology, which sets us apart from competitors and has brought up more and more frequently in our broker and tenant leasing discussions. We fostered enduring tenant relationships through a service-oriented culture and maintain a solid balance sheet, which Christina will speak to, which is more important than ever to attract and renew quality tenants as they consider to making long-term lease commitments. The average occupancy in our multifamily portfolio was 98.1% in the fourth quarter and continues to benefit from strong market fundamentals that validates our prior investments into these assets. So once again, we had a solid fourth quarter that completed a very good year in 2023. We signed over 950,000 square feet of commercial leases and increased our Manhattan office portfolio lease percentage by 250 basis points from a year ago to 92.1% at year-end, which represents a 510 basis point increase since the end of 2021. We are well positioned to lease space and achieve positive lease absorption again in 2024 with modest lease expirations for the year and a healthy pipeline of new leases to start the year. And we continue to see impressive performance in our multifamily portfolio. Thank you. And before I turn the call over to Christina, I want to extend my congratulations to both Christina and Steve on your well-deserved promotions. Having worked closely alongside both of you these past few years, I have immense confidence in your abilities and the value you bring to ESRT. I'm also optimistic that our ongoing partnership will yield fresh opportunities and enhanced value for ESRT shareholders. Christina?

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Christina Chiu: Thanks, Tom. For the fourth quarter of 2023, we reported core FFO of $68 million or $0.25 per diluted share, which increased 15% year-over-year. This was largely driven by strong same-store property cash NOI growth, strong performance from our Observatory business as well as higher interest income year-over-year. Results for the quarter included approximately $0.015 of nonrecurring items, mostly within other income. Same-store property cash NOI increased 11.3% year-over-year primarily driven by higher revenues from early cash rent commencement, free rent burn-off, higher tenant expense reimbursements and higher other income. These revenue items came in ahead of expectations embedded in our same-store property cash NOI guidance for the year. The higher revenues in the fourth quarter were partially offset by an increase in property operating expenses which we anticipated in our guidance, albeit the increase was less than what we expected due to a few successful tax appeals that resulted in refunds as well as some repair and maintenance cost savings relative to expectations. Overall, as mentioned, there were approximately $4 million or $0.015 of nonrecurring items that benefited same-store NOI in the fourth quarter. In the fourth quarter, the Observatory generated net operating income of $27 million, an increase of 13% year-over-year. Revenue per capita remains high and admissions continued to improve year-over-year. Observatory expense was $9.3 million in the fourth quarter. For the full-year 2023, the Observatory generated NOI of $94 million, and that exceeded the midpoint of our guidance for the year. For the full-year, we reported core FFO of $0.93 per diluted share. Within fourth quarter results, each of the building blocks, same-store revenues, same-store expenses, Observatory NOI that we provided in our full-year guidance table happen to skew to the favorable side, which contributed to the large beat relative to our 2023 FFO guidance. As mentioned in the release, 2023 results also included approximately $0.03 of items that were nonrecurring in nature and also benefited from higher-than-expected interest income. As of December 31, 2023, the company had total liquidity of $1.2 billion, which was comprised of $347 million of cash and $850 million of undrawn capacity on our revolving credit facility. At quarter end, the company had net debt of $2.2 billion with a weighted average interest rate of 3.9% and a weighted average term to maturity of 5.4 years. We have strong liquidity, no floating rate debt exposure, a well-laddered debt maturity schedule and the lowest leverage among all New York City focused REITs at 5.4x net debt-to-adjusted EBITDA. ESRT owns 100% of our commercial assets with no complex JV structures, and that allows for great opportunity and flexibility for future financing and capitalization. With this balance sheet flexibility, over the past two years, we actively recycled capital in a tax-efficient manner, pursued investment opportunities that are additive to our New York City focused portfolio and repurchased our shares. And we will continue to allocate capital to generate shareholder value. Now on to our outlook for 2024. We expect 2024 core FFO to range between $0.90 and $0.94 per diluted share, which compares to 2023 core FFO of $0.90 per share, excluding nonrecurring items. Let me spend a moment to discuss the assumptions used in our guidance. In 2024, we expect same-store cash NOI to be modestly positive at the midpoint, with a range of down 1% to up 2% relative to 2023 levels. Within this range, we expect positive revenue growth, which assumes commercial occupancy of 87% to 89% by year-end 2024, up from 86.3% at year-end 2023, driven by a strong pipeline of signed leases not yet commenced and manageable lease expirations in 2024. On the expense side, we expect an approximate 6% to 8% increase in forecasted property operating expenses and real estate taxes in 2024, which is partially offset by higher tenant expense reimbursement income. It is important to note that 2023 operating expenses ultimately increased 6.8% from the prior year, about 120 basis points lighter than the 8% year-over-year growth anticipated in our 2023 guidance driven by tax refunds, some R&M cost savings and timing changes from certain projects that will now fall into 2024. 2024 property operating expenses also reflect inflationary cost increases. Turning to the Observatory. We expect 2024 Observatory NOI to be approximately $94 million to $102 million, up from $94 million in 2023. This NOI guidance assumes Observatory expenses of approximately $9 million per quarter for 2024. We continue to leave room within our 2024 FFO guidance range for uncertainty around tourism fluctuations and bad weather that could impact results in any given quarter. Please note that the guidance estimates and assumptions just described do not include the impact of any meaningful future lease termination fee income or any unannounced future property acquisitions, dispositions or capital markets activity. In summary, over the last year, the company has executed well on its priorities. We leased over 950,000 square feet of total commercial space and achieved over 100 basis points of positive occupancy absorption across the portfolio. We continue to benefit from tenants' demand for our high-quality assets and the unique value proposition and balance sheet strength that we offer as a landlord. Importantly, we have already invested to fully modernize our portfolio, and our portfolio now reaps the rewards of those forward-looking efforts. We are 92% leased and positioned to lease up further. Our Observatory business remains TripAdvisor's number one attraction in the U.S. for the second consecutive year and has seen a strong recovery, and we expect continued growth into 2024. The company continues to manage our best-in-class balance sheet prudently and strategically with net debt to EBITDA, which continue to trend down to 5.4x and strong equity to take advantage of attractive investment opportunities that may emerge in this period of uncertainty and capital dislocation. And our fourth leg of growth, multifamily has performed well and adds to the resiliency of ESRT's cash flows. Before I turn it over to Q&A, I'd like to congratulate Steve on his promotion to Chief Financial Officer and Chief Accounting Officer. Steve has been a tremendous asset to ESRT since he joined us in December 2020, and this promotion was a natural part of our succession plan that we had in mind when we brought Steve on board. I will continue to work closely with Steve on his growth and development in his new role at ESRT. And with that, I'll turn the call back to the operator for Q&A. Operator?

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Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]. Our first questions come from the line of John Kim with BMO Capital Markets. Please proceed with your questions.

John Kim: Thank you and congratulations to Christina and Steve. I wanted to ask about Flagstar. I realize it's a little bit of a deja vu potentially, but how concerned are you with Flagstar's lease given NYCB stock price? And it looks like they gave a little bit of space at 1333 Broadway. Was that already known? Or was that foreshadowing more space they may give up?

Thomas Durels: Yes, John, the giveback of the small space of 1333 Broadway was anticipated. It had previously been leased in temporary space in connection with the larger expansion previously done to 1400 Broadway. Flagstar leases 313,000 square feet of 1400 Broadway. Their in-place fully escalated rent is about $58 a foot. This compares favorably low compared to, say, where the lease was just done with Burlington in the low 60s per square foot. Remember, Flagstar only represents about 3.4% of our total commercial portfolio rent and about 2.5% of our total annual revenue. Beyond that, I'd say that -- but 1400 Broadway is a fantastic building. It's 100% leased. It's fully modernized. We have a new tenant lounge, new town hall facility. The tenants have access to campus amenities. Burlington just expanded by 68,000 square feet. So whatever happens with Flagstar, we're confident that our leasing at 1400 Broadway will do very, very well.

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John Kim: Okay. And my second question is on opportunistic investments. It seems like there's a lot of opportunities that are attractive on the debt side. I was wondering if you could comment on that. And I know you've been buying -- repurchasing shares recently. I wanted to know if you would consider going the other route, raising capital, either your own stock or third-party capital and go on defense because you can make that argument that it would be accretive depending on the investments you make.

Tony Malkin: Sure. Thanks, John, Tony here. We believe the crisis created by capital dislocation, rising rates and heavy near-term market maturities will create a once-in-a-generation opportunity to buy a certain New York City office assets with great upside. We have unique intellectual property and a track record of success in the redevelopment of assets in the top of tier modernized, amenitized, energy-efficient buildings which are competitive and attractive to lease. We continue to look for these opportunities. And of course, we'll be prudent in our underwritings. We know the costs required to create prime assets. We'll be patient to find the right deals and the right partners. We always look. We'll let you know if we find anything. At the same time, we are omnivorous opportunivores. So we have acquired resi and we've acquired retail. We'll keep our eyes open for opportunities in any of the above. I don't know whether or not Christina or Tom wants to add anything to that response.

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Christina Chiu: The only thing is to address John's other question on access to capital. And all I would say is as we've demonstrated, we evaluate actions and capital allocation decisions in the best interest of our stakeholders. So wouldn't red line any options, but really depends on the situation. I think too soon to roll either way what you do in offensive equity issuance. But we're certainly looking at opportunities, as Tony mentioned.

John Kim: Great, thank you.

Christina Chiu: Thanks.

Operator: Thank you. Our next questions come from the line of Michael Griffin with Citi. Please proceed with your questions.

Michael Griffin: Great, thanks. Maybe going back to the guidance for a second. If you strip out the $0.015 of non-core in the quarter, you do about $0.235 for run rate for 2024. If you look at the other pieces, it looks like you had about a $0.015 benefit from the Observatory NOI increase, call it $0.01 benefit from occupancy. I was just curious, are there any other puts and takes on the guidance? How should we think about kind of getting to that midpoint?

Christina Chiu: I think on the guidance, as always, we point to our building blocks, and we try to provide a lot of transparency. And what you could see is same-store NOI, cash property NOI is roughly flattish. And we do pick up the midpoint does represent a pickup from where we ended 2023 for the Observatory. So that gets us to our initial guidance range with the revenue at modest growth, modest positive growth and same-store operating expenses at 6% to 8% up, and we'll continue to narrow as we have better visibility over the course of the year.

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Michael Griffin: All right. That was helpful. And then just maybe going back to kind of capital allocation opportunities. You've kind of stressed in the past that the simple structure, no joint ventures out there. But it seems like there are opportunities, I reason that there's nothing off the table. If the right joint venture opportunity came up, would you entertain it? Or that's just not part of the long-term strategy?

Tony Malkin: Griff, Tony here. Absolutely we'll entertain the right structure the right structure, the right capital at the right price. And if it's more logical to incorporate the use of third-party capital, we will.

Michael Griffin: Great, that's it for me. Thanks for the time.

Operator: Thank you. Our next questions come from the line of Camille Bonnel with Bank of America (NYSE:BAC). Please proceed with your questions.

Camille Bonnel: Congrats everyone on a solid quarter and to Christina and Steve on your promotion. Last quarter, you had around 200,000 square feet of leases in negotiation. And looking at the activity you've done to date, it looks like you were able to get those all over the line. So following up on earlier comments, Tom, could you quantify your leasing pipeline and what's currently under contract?

Thomas Durels: Sure. Well, look, first of all, Camille, we're off to a great start in the first quarter with approximately 125,000 square feet of new leases signed between the Burlington and Sol de Janeiro leases. We're constantly adding to our pipeline. But where we sit right now is we have roughly about, call it, about 190,000 square feet of additional leases out in various stages of negotiation or final term sheets. Most of that is in our Manhattan office properties, around 160,000 square feet. So that's our current pipeline in addition to the Burlington and Sol leases that we just signed. In addition to that, we have probably a few 100,000 square feet of active proposals in various stages of negotiation. Now not all of those will transition into leases, but it gives you an indication that we have a good healthy pipeline of activity. And this -- in the backdrop of very modest lease expirations and very little exposure to tenant move-outs in 2024. So I think we're incredibly well positioned to improve our leased percentage in 2024.

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Camille Bonnel: Appreciate the color there. Just shifting to your liquidity position is very strong, and your earnings outlook has some good momentum. I was wondering how you're balancing various capital allocation decisions with the potential to increase the dividend. Do you expect to grow this at some point in the near term? Or do you need to see more visibility in operations first?

Christina Chiu: So on the dividend, what we've mentioned is it will track the business. However, we've also mentioned that we do have a net operating loss carryforward in the balance of approximately $100 million in an environment where capital markets conditions are uncertain, increased cost of capital, it does seem prudent if we have the ability to monetize on that and utilize the cash to return capital in other ways, whether it be share buybacks or pursue opportunities, that's something that we should consider. So our current dividend level allows us to continue to pay a dividend very comfortably. We'll continue to monitor the business, we'll monetize on our NOL, and we'll see what the conditions are and when it makes sense to raise the dividend.

Camille Bonnel: Thank you.

Operator: Thank you. Our next questions come from the line of Jay Poskitt with Evercore ISI. Please proceed with your questions.

Jay Poskitt: Hi, thanks for taking my questions. I was wondering if you could just help bridge the gap between the total office and retail portfolio forecast, which you show on Page 14 of the supplemental and the just 170 basis point uptick in occupancy that guidance implies. I assume a lot of this has to do with the signed leases not yet commenced. But I just wanted to put those two buckets together.

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Thomas Durels: Sure. I think we'd given an awful lot of detail on that Page 14, but I think that more simply, if you go back to my earlier comments about the fact that we only have about 183,000 square feet of known vacates that are not -- they're not covered. The balance of our leases expiring in 2024 have been covered by expected renewals, relocations or new leasing. And then only about 75,000 square feet of undecided tenants. Were you looking for -- does that answer your question? Or did you have something else on office and retail?

Jay Poskitt: I guess, just to that point, of the roughly 400,000 square feet of the signed leases not yet commenced, would you say that the majority of that will commence in '24? Or is that kind of over the next two years when that will commence?

Thomas Durels: We give detail on the commencement of those leases on Page 10 of the supplemental. You can see the quarter by which -- by when signed leases not yet commenced are expected to commence and contribute to cash NOI.

Jay Poskitt: Okay. Thank you. And then just on the debt maturity front, I know you have a mortgage coming due at the end of the year and then a little over $315 million coming due in early '25. So just any color on what the plans are for that would be great.

Christina Chiu: We continue to discuss with our lending partners. I don't have an update to provide now. But as always, we have productive discussions, and we'll provide an update to the market as soon as it's available.

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Jay Poskitt: Great. Thanks. That's all for me.

Operator: Thank you. [Operator Instructions] Okay. With that, we have reached the end of our question-and-answer session. I would now like to turn the floor back over to Tony Malkin, Chairman and CEO for closing remarks.

Tony Malkin: Thanks very much. ESRT is the pure-play New York City REIT, and we are well positioned to perform and build on our well-diversified income stream. We are confident in the company's ability to execute on our goals and drive further growth for shareholders in 2024. Many thanks to our great team who work incredibly hard, and I have every confidence we'll continue to do a great job on behalf of stakeholders. Thank you all for your participation in today's call. We look forward to the chance to meet with many of you at non-deal roadshows, conferences and property tours in the months ahead. Until then, thank you for your interest onward and upward.

Operator: Thank you. That does concludes today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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