Greetings, and welcome to the Empire State Realty Trust First Quarter 2024 Earnings Call. [Operator Instructions] 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.

Good afternoon. Thank you for joining us today for Empire State Realty Trust's First Quarter 2024 Earnings Conference Call. In addition to the press release distributed yesterday, a quarterly supplemental package with further detail on our results and our latest investor presentation 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 company's 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.

Thanks, Heather, and good afternoon to everyone. Yesterday, ESRT reported strong first quarter results to start the year with strong leasing progress, observatory results and proactive balance sheet actions. Today, we will discuss them in our outlook for the rest of 2024. In the first quarter, came in above expectations. Office leasing absorption and spreads each showed consistently strong positive results. We delivered our ninth consecutive quarter of leased percentage growth and our 11th consecutive quarter of positive mark-to-market lease spreads. Our Observatory performance continues and we maintain a best-in-class balance sheet. Year-to-date, the company completed several capital markets actions to ensure the balance sheet strength and flexibility, which put us on our front foot, and we are eager to create additional value for our shareholders in the current real estate cycle. We leased about 250,000 square feet in our top of tier commercial portfolio to start the year. Our Manhattan office portfolio had 200 basis points of positive lease absorption year-over-year and is now nearly 93% leased. Tom will discuss our current activity. Our office leasing has outperformed the market because, one, we maintained balance sheet discipline during the financing and acquisition booms did not lever up and did not pay top of market prices. Two, for a decade, we invested portfolio-wide and upgrades to modernize and amenitize our portfolio. This included intentional vacates to consolidate floors, modernization through GAAP renovation, addition of amenities and leadership in energy efficiency and indoor environmental quality. These efforts have resulted in top of tier future-ready product that attracts high-quality tenants; three, our goal has always been to get the best deals in good times, get the deals in challenged times and draw consistent leasing volumes through cycles. Four, our price point and unique value proposition catered to the deepest segment of tenant…

Thanks, Tony, and good afternoon, everyone. We just concluded our ninth consecutive quarter in which we increased our least percentage for our office and retail portfolio. That's 9 consecutive quarters of positive absorption and an increase of 540 basis points in leased percentage since the fourth quarter of 2021. The first quarter of 2024 was our 11th straight quarter with positive market lease spreads in our Manhattan office portfolio. We are off to a strong start in 2024 with 248,000 square feet of total leasing in the first quarter. New and renewal leases were signed at positive mark-to-market rent spreads of 4.8% and a weighted average lease duration of approximately 10 years. We increased our Manhattan office leased percentage to 92.7% in the first quarter, which increased 60 basis points compared to last quarter and is up 200 basis points compared to a year ago. And Manhattan office occupancy increased by 160 basis points from last quarter to 88.9%. We Notable office leases signed in the first quarter include a 16-year 68,000 square foot expansion lease with Burlington at 1400 Broadway. Burlington has expanded with us 3 times 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, an 11-year 57,000 square foot new lease with solid Deane, a loss etained subsidiary at One Grand Central Place. And we signed leases for 14 pre-boot office suites that totaled 67,000 square feet. Additionally, as shown on Page 10 of our supplemental, we have $47 million in incremental cash revenue from signed leases not commenced free rent burn off. Our 9 consecutive quarters of strong leasing performance demonstrate that in today's market, there is a flight to quality in product, service and balance sheet. ESRT continues…

Thanks, Tom. For the first quarter of 2024, we reported core FFO of $57 million or $0.21 per diluted share, which increased 30% year-over-year. Same-store property cash NOI, which now excludes First Stamford Place increased 12.3% year-over-year, primarily driven by higher revenues from cash rent commencement, which was partially offset by increases in property operating expenses. Excluding non-recurring items, 1Q '24 adjusted same-store NOI increased by approximately 8% year-over-year. As it relates to the onetime items in the current period, we recognized approximately $1.5 million of revenue from various items, including bad debt recovery and settlement of an insurance claim. The 1Q '23 period was an easier comp as it had about $1 million less cash rents that resulted from adjustments recorded for a few delays in rent commencement. While not material to their individual quarters, we called this out as it contributed to a roughly 4% pop in the comparable same-store cash NOI growth year-over-year. As Christina will discuss, our outlook for same-store NOI growth for the year remains unchanged. We had a solid first quarter of growth driven by a strong recurring rental revenues and free rent burn off as well as the onetime items just discussed. That said, the remainder of the year will be a tougher year-over-year comp due to several nonrecurring items discussed last quarter, which benefited 2023 results primarily in 2Q '23 through 4Q '23. Moving to our Observatory business. We generated net operating income of $16 million in the first quarter, an increase of 13% year-over-year. Revenue per capita remains high and admissions continue to improve year-over-year. Observatory expense was $8.4 million in the first quarter. Christina will discuss the proactive measures we recently took to fortify our balance sheet and then discuss our outlook for the balance of the year. Christina?

Thanks, Steve. We had a busy start to the year from a balance sheet and transaction standpoint. Starting with the balance sheet. In March, we closed on a new $715 million credit facility, which consists of a $620 million revolving credit facility and a $95 million term loan. The new facility matures in March 2029 inclusive of extensions and replaces the prior facility that was due to mature in March 2025. After quarter end in April, we entered into a note purchase agreement to issue $225 million of green senior unsecured notes in a private placement transaction with 3 tranches, including $155 million that matures in 2029, $45 million that matures in 2031 and $25 million that matures in 2034 at an overall weighted average rate of 7.25%. We received strong support from both new and existing high-quality institutional investors. This is scheduled to fund in mid-June, and we intend to use the proceeds to eventually pay down indebtedness, including the remaining $100 million maturity in 2025 and the $120 million drawn on our credit facility. With these financings, the company has successfully addressed the entire $315 million of debt that was due to mature in 2025 and extended the maturity of our revolving credit facility from 2025 to 2029 inclusive of extension. The next meaningful debt maturity is not until December 2026 when a $175 million term loan matures. On the transaction side, in March, we executed a buyout of the remaining 10% that we did not already own in 2 multifamily assets located at 561 10th Avenue and 345 East 10-port Street for approximately $14 million in cash and the assumption of $18 million of the in-place debt. As a reminder, the debt on these 2 assets have a blended interest rate of 3.9% and mature in 2030…

[Operator Instructions]One moment, please, will be pull for your questions. Our first questions come from the line of Steve Sakwa with Evercore ISI.

Maybe, Tom, just starting on the leasing. Could you just provide a little more detail on the pipeline, maybe the types of tenants that you're currently seeing in the market? And whether there seems to be any hesitation from the tenants looking for new space to, in effect, pull the trigger. We've heard some C-suites in other areas maybe being a little bit more gun-shy about making decisions. And I'm just curious what you're seeing in the discussions with the tenants in the pipeline.

Well, Steve, just looking at the results for the first quarter, about 84% of our leasing in Manhattan office and portfolio-wide was for new leasing. So I don't think that, that indicates hesitancy by those decision-makers. We're seeing activity from a variety of tenant types, which has always been, I think, a hallmark of our portfolio in that we're not tied to one industry. We've got activity from tenants in consumer brands, tech, financial services, professional services and technology. So look, we got, as I said before, a 200,000 square feet of leases in negotiation. We have a few hundred thus square feet of active proposals being exchanged and our toric volume is up. So look, we continue to be a standout. We performed well. The things that I mentioned earlier about the flight to quality and the things that our strength that attracts tenants, including modernized and monetized portfolio, great locations, our balance sheet, the access to transit, the IE is stated, but all of these things are leading to the activity that we're seeing. So again, I think... I feel good.

I might just add one thing, Steve, to make sure you understand Tom's point, clearly, the people who are doing -- who do tours with us are people who have action on their minds. We do not see a lot of tire kicking.

Maybe just sticking with you on the transaction front, you have been disciplined over the last several years. I'm just curious, what are you seeing in the marketplace today as it relates to distressed opportunities, ability to get to debt stacks and maybe get to properties through the back door. I'm just curious how that activity levels may be picking up and doesn't vary greatly across the multifamily retail and office, Scott complex?

So we definitely believe the crisis created by the capital dislocation, rising rates and heavy near-term market maturities will create a once-in-a-lifetime once in a generation opportunity to buy into certain New York City assets. And we have begun to see cracks. And our focus is actually on the right situations with the right basis. We're extremely disciplined in our approach. We see interesting opportunity in office and retail and resi. Resi has a backstop with finance from the GSEs. So much more eminently financeable. Office is more complicated on the capital requirements, what new basis is so important and retail somewhere in the middle. What I will also say is we have been surprised by the level of inbound we have received -- pleasantly surprised by the level of inbound we have received from people who are interested to partner with us. They see our success and what we have done with our product types. They see the opportunity created by the capital dislocation. And these are people who are really not current market participants, and they really, to a significant degree, are what I would call individuals, very wealthy individuals or groups of individuals who can stroke very large checks on a per transaction basis. And the focus is not on IRR based on higher leverage, it's based on exactly what our model is and they really focus on multiple on invested capital over a 10-year hold. So both the opportunity sets begun to break. We think CMBS will drive sales more quickly than banks as far as products changing hands, and we are absolutely totally and completely disciplined and focused on our basis. And in structure of deals where we can accommodate existing owners needs, desires, perhaps to avoid a tax recognition event or perhaps the sale of a minority interest, which will allow them to maintain their current basis and where we can invest capital on a priority basis with yields that will make it worth our while.

Our next questions come from the line of John Kim with BMO Capital Markets.

Tony, last unpacked that you just said. I just wanted to maybe follow up and ask about timing of when you could deploy some of this capital. And on the joint venture partnerships with private owners entering the market, is this on office? Or is it on conversions? Or any other color you could provide on what kind of asset type that you're looking to partner on with.

So I want to be really super specific. We will remain very focused on our discipline. That has not changed. That says, we've transacted more in the last 2.5 years than we did in the prior 10, including our pre-IPO period. So we are absolutely on nevus opportunivores. That hasn't changed. Our focus continues to be on New York. The people who have come to us have said, we think you are a well-established strong player with a great balance sheet without problems. And we see the leasing you've accomplished, and we see your transactions you've done recently, we'd like to talk with you about whatever you think is interesting to do. And the last thing I'll say with regard to conversions, our view on conversions is pretty simple. -- and we've said it before. These are difficult to do in a way that doesn't produce a compromised product. And our view is that there are others who may have stronger motivations to do so than we do. We certainly don't have anything in our existing portfolio for which it makes any sense because our portfolio is extraordinarily well leased. We do believe that we can find a lot of really good opportunities without the need to do office conversions into residential. So we don't put resi conversions from office, high on our list to do.

That's great color. My second question is on your tenant vacates in the first quarter on Page 14 of your supplement. It looks like the quarter ended up less than you were expecting last quarter. What led to that? Was that just a timing issue? And maybe on a related note, second half of the year in 2025, it looks like this estimated vacates have picked up a little bit. Any color that you could provide on the tenants or locations of these known vacates?

Yes, it's really just timing. If you look at the overall, it hasn't changed significantly with the expected total vacates for the year. about 192,000 square feet in our Manhattan office portfolio. But it's really just timing from quarter-to-quarter. And given the volume of tenants that we deal with, it's nothing significant that stands out that caused that change.

Any particular asset that's saying more vacates than others?

No. No, it's really across the board. I mean, the -- at 1400 Broadway, we have the -- we have floors that are being vacated backfilled by the Burlington lease. But as vacates uncovered, we've got a consolidated full floor 1400 Broadway. We've got a full floor consolidated 1333 Broadway, a Tower Florida Empire State Building this year. The good news for us is that these are full floors. They've been built out, base-building work, a lot of the base bearing work has been done. So it puts us in a good position to market and lease those spaces. And then in 2025, the known vacates about 122,000 square feet. It's really across the board, the largest one being a 26,000 square foot built space that we built on really on a pre-basis, at 111 West 33rd Street. So the rest are smaller spaces across the board.

Our next questions come from the line of Michael Griffin with Citi.

I want to go back to the new leasing in the quarter and maybe get some more color. For those tenants that are taking new space, is it people moving down the affordability curve from higher rent buildings? And if so, would you expect this trend to continue throughout the year?

Well, we're trying to cash from all markets, and it's a mix of tenants that are looking forward to move to a buildings that are better amenitized, modernized and provide better service, turnkey installations, newly built to of spaces, which we provide and offer all of that. So some are looking for to improve their employee experience and their office environment. Others are involved some expansion. And so -- and we continue to attract tenants from really all submarkets. And so again, it speaks to this flight to quality that we've spoken about, and it's not just new development. It's all the things that I continue to mention and the things that we continue to market that is very appealing to tenants, our locations, the modernization, the amenities, it's a great service. So -- but by and large, when we see more and more as tenants are looking for just an overall better landlord, better experience, better product, better environment, and that's why we're having the success that we have.

Right. But I guess what I'm saying is, are you seeing tenants that are paying $90 of rent that are looking for -- to pay in the $60s? Or is it people that are currently paying that middle-of-the-road price point, just trying to move to a better amenitized building?

Well, I would characterize it more that they -- I think all tenants look for value. And we have attracted tenants that could certainly afford to pay more. And they look for the value that we provide, and they recognize that we provide the absolute top product in our price tier. And if you look at the vast majority of deals in the market, there's a patient investor deck that speaks to this that the vast majority of deals in the market are really in our price point, and that's, call it, high 50s to high 70s per square foot is where the bulk of activity occurs, and that's where we play, that's where we compete and win deals.

Got you. I appreciate the color there. And then just on the full year guide. It seemed like a pretty strong quarter. You saw pretty good increases, particularly in the Observatory. I wonder, is it just conservatism deciding to not raise the guide right now? Or maybe how should we think about that?

Yes. I think as mentioned, we always have building blocks for guidance. We're very clear on the various drivers. And as the year proceeds, we can look at areas where we can tighten up the range and make adjustments. And as mentioned, there was a $0.02 impact from all the activity that we just announced, and we were able to maintain that. So we'll continue to monitor and make adjustments as we go along.

Our next questions come from the line of Blaine Heck with Wells Fargo.

Observatory attendance has definitely continued to improve and NOI is now above pre-pandemic levels. So can you just talk about how you plan on continuing to improve those numbers? And maybe just how sensitive that business could be to a hypothetical slowdown in consumption in the U.S.

I really welcome that question. If you take a look at the -- I don't have the deck in front of me, Christina, maybe you could cite the page, which shows how the Observatory has performed going back a very long period of time through all sorts of economic upheavals the SARS epidemic -- the -- obviously, what happened with COVID, new attractions opening , it's really a solid performer. And candidly, we intend to continue to do what we do to continue to maintain and build the Empire State Building brand worldwide, continue to do the great co-branding partnerships that we have. We just did a major one with Disney and Star Wars. We have another one that is a surprise that will come up very shortly, which is all set to go. And all of this is built towards -- if you look at Slide 15, the steady performance over time of the Observatory through economic cycles and frankly, to improve and enhance our performance in the midst of what has been more competition that, again, our NOI per cap towers over anybody else who reports.

Second question, can you just talk about the expected cadence for same-store NOI throughout the year. Obviously, you guys had a great quarter with 12% in the first quarter but kept guidance unchanged at negative 1% to positive 2%. Occupancy is expected to stay largely flat to modestly higher by the end of the year. I think you talked about some tougher comps, higher OpEx and some onetime items. So just hoping you can give a little bit more color on what the impact is from each of those on same-store NOI relative to the first quarter and how we might expect same-store to trend throughout the year?

Yes. With regards to same-store NOI, you have it right as far as looking at the -- for the first quarter of '24 versus '23, we had buoyed by the lower comp in '23 due to the onetime items that I called out in my opening remarks as far as the less cash rents from the short-term recommencement delays. When we look through the remainder of the year, we expect those comps to get much more difficult as you have the onetime items that work to the positive from 2Q to 4Q start coming in comparing against those. We called those out in our last earnings call to highlight the materiality of those and the timing of that. So that's all baked into our guidance. We'll expect to see that come in, and that's really leading towards why there was no change in our guidance at this point in time.

Yes. And overall, as mentioned in our earnings release, we assume continued positive revenue growth, and we still maintain 6% to 8% increase in OpEx. So all of that still holds. And Steve just highlighted the factors that drove an outsized 1Q.

Our next questions come from the line of Camilla Bonnel with Bank of America.

Tom, the team has had some clear success in leasing up your buildings around Ten Station, but there are 1 or 2 where it doesn't seem to have gained much traction like 250 West 57th Street and 501 Seventh Avenue. Is there anything unique about the floor plates or how the space is being marketed? Just trying to get a sense of the level of interest you're getting for these spaces.

Well, specifically on 250 West 73 and 501 7th Avenue, it's the submarket, the Columbus Circle submarket where 250 is located is a clear is not seeing the same level of activity we've seen in the other submarkets. And our 501 7th Avenue, we have had some good showings. We have 1 single full floor that is grateful for. It's side core and very efficient. I think it's at an attractive price point with great access to Penn Station. So I'm confident that, that space will move. But I think that aside from that, we've got good activity across the board, and that's the pipeline I spoke to earlier, in which we've had really good momentum with ninth consecutive quarters of positive absorption.

I appreciate the additional color there. And Tony called out the pickup in Observatory visitors this quarter. If you normalize for the timing of Easter, is this side of the business tracking in line or above your expectations for first quarter?

It's -- this is tracking in line with our expectations.

Got it. I'm curious, since this business has moved to a reservations only model, do you have visibility on what demand looks like into the peak period or in the upcoming months?

The vast majority of reservations we receive do not extend that far out.

Thank you. We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Chairman and CEO, Anthony Malkin for closing remarks.

Again, we're thrilled with this quarter. We're thrilled with the continuation of our team points on the board. ESRT is the pure-play New York City REIT, and we have 4 diverse ways to play it, an office portfolio that is top of our tier and targets the deepest market segment, our observatory that continues to perform our high foot traffic everyday street retail and a growing multifamily platform. We have a future-ready portfolio and an opportunity balance sheet. We are confident in the company's ability to execute on our goals and drive further growth for shareholders in 2024. Many thanks to our great team who work incredibly hard, and we have every confidence that we will continue to do a great job on behalf of stakeholders. We thank you all for your participation in today's call and look forward to the chance to meet with many of you at non-deal roadshows, conferences and property tours in the months ahead, including one we had planned for the fall in Europe. Until then, thank you very much for your interest, Onward and upward.

Thank you. This does conclude today's teleconference. You may disconnect at this time. Thank you for your participation, and enjoy the rest of your day.