Empire State Realty Trust, Inc.

Greetings and welcome to the Empire State Realty Trust fourth quarter and full year 2020 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Tom Keltner, Executive Vice President and General Counsel, thank you. You may begin.

Good afternoon. Thank you for joining us today for Empire State Realty Trust's first quarter 2021 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 investor section of the company's website at EmpireStateRealtyTrust.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, and expense. As a reminder, forward-looking statements represent management's current estimates. They are subject to risks and uncertainties, including ongoing developments regarding the COVID-19 pandemic, 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. Certain of our disclosures today are added specifically in response to the SEC's direction on special additional disclosure due to the changes in our business prompted by the COVID-19 pandemic and are unique to this instruction. We do not expect to maintain the same level of disclosure when we resume normal business operations. Finally, during today's call, we will discuss certain non-GAAP financial measures, such as FFO, modified and core FFO, NOI, cash NOI, and EBITDA, which we believe are meaningful in evaluating the company's performance. The definitions and reconciliations of these measures to the most directly comparable gap 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, President, and Chief Executive Officer.

Thanks, Tom, and good afternoon to everyone. We remain confident in the recovery of New York City, realistic with regard to where we are and through what we will have to go to get to that recovery, and well positioned with a balance sheet that gives us a long runway and the ability to take advantage of growth opportunities. The U.S. vaccination rollout, stimulus spending, and reduction in New York State pandemic-linked restrictions all speak to a much better spring than any period we have had since lockdown in March of 2020. Daily, there are new announcements from arts, cultural, hotel, hospitality, and entertainment venues, which all serve the remarkable and growing demand from New Yorkers to get out and enjoy their city. Rental apartment occupancy is up and apartment sales have increased. Schools are back in session. Airlines have announced rehirings and increased domestic flights. Even if the much-discussed 100% of 2019 domestic schedules by summer does not occur, Directionally, this is good news. Our number one international tourist source for the Empire State Building Observatory, the United Kingdom, is well advanced in their inoculation program. As dark as people would like to paint the picture, the near-term future is brighter than it has been for more than a year. As I've said for several quarters, I still believe that it will be the end of Q1 2022 before we see predominantly positive overall news stories on New York City, office utilization, retail sales, tourist visits, and quality of life issues. We are well positioned to bring back employees and tenants with confidence to our buildings, operate efficiently, and encourage Empire State Building Observatory visits. New York State has just announced the return in May of up to 75% of office capacity. Our tenant presence has grown slightly since last quarter, and our building utilization stands now at approximately 13% in our New York City portfolio and 32% in our greater New York portfolio. Many tenants plan their return to the office around the widespread rollout of vaccinations, with major tenants' announcements of return to office beginning around July 4 in Labor Day. Importantly, even the incredibly negatively biased reporting around the, quote, death of the office, unquote, has now shifted to an acknowledgement of the challenges, inequities, and worries about divided workplaces between home and office work and the impossibilities posed by the thought of onboarding new employees and the future of businesses without an office. The awareness of the selective discriminatory impacts on minorities, women, youth, and the service jobs of COVID, lockdown, school and child care shutdowns, and the absence from the office paint the roadmap to solutions driven by the reopening of our great city. All of this is good news to ESRT. We are well positioned with our flexible balance sheet. Our collection levels have been stable for several months. and we have shifted our focus from successfully implemented cost reduction measures to a rethink of our processes and practices around new ways to reduce our costs permanently. All this works to our advantage as we look to utilize our balance sheet flexibility and seek ways to deploy our capital through external growth opportunities. We have done more work on that external growth in the last quarter than our entire prior period as a public company. Visitors to the Empire State Building Observatory continue to grow off a very low base, with no discounts offered and fantastic visitor feedback from our largely local visitorship to our attraction that features top-of-the-line indoor environmental quality, including MERV 13 filters, ventilation, and active bipolar ionization. Driven in part by our timed reservation ticketing, local and regional visits and limited utilization by our visitors of past programs and online travel agents, our per-cap revenues have never been higher. People are prepared to pay for quality and welcome the opportunity to enjoy our destination attraction with confidence. First quarter attendance was at nearly 9% of 2019 comparable attendance, a gradual improvement from 2020 levels and consistent with our hypothetical admissions forecast. Visitation is primarily domestic, retail, and website-driven, which bolsters revenue per capita. Visitors remain very pleased with our focus on health and safety, an area where we excel with more than half a decade-old focus on healthy buildings and indoor environmental quality. We have no change to our hypothetical observatory admissions shown on page 13 of the investor presentations. WE HAVE SAID IN PRECEDING QUARTERS THAT WE EXPECT A HIGHER LOCAL VISITOR MIX FOLLOWED BY A RAMP UP OF REGIONALLY THEN NATIONALLY SOURCED TRAVEL AND THEN FOLLOWED BY A RESTORATION OF OUR TYPICAL VISITOR MIX THAT IS APPROXIMATELY TWO-THIRDS INTERNATIONAL THAT WILL NOT BE ACHIEVED UNTIL A BROAD RESUMPTION OF INTERNATIONAL AIR TRAVEL THAT WE ANTICIPATE WILL OCCUR SOMETIME IN 2022. Our number one international tourist source for the Empire State Building Observatory, the United Kingdom, is well advanced in their inoculation program compared to any other international nation. Our hypothetical suggests that we can reach 60% of 2019 attendance levels by the end of 2021 and return to 100% by the end of 2022. Please remember these points for your modeling. We believe we can essentially maintain our current observatory operating cost structure and achieve up to 60% of our 2019 attendance. With more distant and international inbound tourists, we will see growth from lower margin passes and online travel agent tourists in the future. as inbound tourism mixes with our current local and regional customers, and that will lower our per caps. Our ESG leadership continues. I encourage all stakeholders to read our first-ever annual sustainability report that highlights our leadership, accomplishments, and certifications in this area, and that also can give you a clear understanding that we are well positioned for where the puck will be in the future on issues of energy efficiency, healthy buildings, and indoor environmental quality. Our sustainability report can be found at EmpireStateRealtyTrust.com. Again, the full first annual sustainability report can be found at EmpireStateRealtyTrust.com. In January, we announced that Our portfolio is now 100% powered by renewable wind energy. This action builds on our earlier success with the Empire State Building, which has been 100% renewable powered for a decade. In April, we were awarded the Energy Star Partner of the Year designation in recognition of our contributions and leadership in the fight against climate change. And I am pleased to say that we are currently 76% ENERGY STAR certified by the number of square feet in our portfolio. That said, our first annual sustainability report covers many more issues, many more certifications, and many more facts, and I hope that you will view it online. New developments, as of just last week, we joined New York State and the New York State Energy Research Development Authority in a commitment to the Empire Building Challenge, a $50 million state initiative to accelerate progress towards a reduction of 85% of greenhouse gas emissions statewide by 2050. Our prior work at the Empire State Building, which we have extended throughout our entire portfolio over the past decade, provided us with knowledge of what is possible and a skill set on how to execute. We believe these commitments to a carbon-free future will offer us a competitive edge in a tenant-driven marketplace that increasingly focuses on ESG and how their occupied spaces can help them achieve their corporate goals. As I have said, I am confident and I am a realist. We are still in a time of uncertainty, and I have said and still believe we will not hit the bottom of the market until the end of the first quarter of 2022. Through the noise, we hear the sound of real companies that now approach real space needs with clarity and vision of how they want to use offices for their teams to work and grow together. We will have uncertainty in the press about return to the workplace, large amounts of sublease space on the market, and challenges with leasing and the reestablishment of New York City as the great world capital it is. I believe ESRT is well positioned in 2021 with our well-priced and competitive product, operational prowess, flexible balance sheet, focus on prudent capital allocation, and leadership in ESG. I believe that ESRT is well positioned to thrive and deliver long-term shareholder value. And now, folks, Tom Durrells.