Empire State Realty Trust, Inc.

Greetings and welcome to the Empire State Realty Trust first quarter 2023 earnings call. At this time, all participants are in a listen-only mode. A brief 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 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 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 investor 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 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 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, president, and chief executive officer.

Thanks, Heather. Good afternoon to everyone. What a great day it is and how pleased we are to report solid first quarter results to start the year, provide updates on strong leasing, balance sheet recycling, and observatory results, and discuss our positive outlook for the rest of 2023. Our more than a decade's focus on modernization, amenities, energy efficiency, indoor environmental quality, and a strong balance sheet really puts us in a good place. We are in a great position with a differentiated balance sheet and multiple value drivers. We are able to act in and benefit from the current environment, and in the first quarter of 2023, we did. We are a New York City-focused landlord with four diverse drivers of income, office, our observatory experience, retail, and our growing multifamily portfolio, as shown on slide four of our new investor presentation. We are primed to take advantage of New York City's recovery, resiliency, and progress towards a new normal. According to the Department of Labor, New York City office use employment now exceeds pre-pandemic levels, and the narrative around in-office work has changed for the better. Yes, there is a cohort of employees cast adrift by the vanished fruit bowls, pampering, and compensation and retention based on whether they return to the office or stay at home and complain. We focus more on the new narrative about the importance for companies to gather in person to plan, mentor, learn, build, and execute together and move forward towards and through uncertain times. This is a cycle, and it is a down cycle right now, one about which we spoke and for which we prepared for years with a fortified balance sheet with low leverage. ESRT's modernized portfolio is well amenitized, leads in healthy buildings, energy efficiency, and indoor environmental quality, is 100% carbon neutral and renewable wind powered, is well located near mass transit, and serves as a desirable place for employees to return. We see brokers and tenants who focus on landlord quality and balance sheets, lenders and investors who look at hard data, science-based targets and reporting on sustainability, and challenges from floating rate borrowers who have to go to lenders for TI accommodations and lease decisions. Our quality office portfolio is resilient. and ESR benefits from the flight to quality trend. We had another solid quarter with over 200,000 square feet leased at positive leasing spreads and made continued absorption progress with a 180 basis point increase in Manhattan office occupancy and a 110 basis point increase in Manhattan office leased percentage sequentially. We have always said that our goal is to get the best deals in good times and get the deals in challenged times and draw consistent leasing volumes through cycles. Tenants seek a compelling value proposition in well-located buildings owned by landlords who have planned for where the puck will be and gotten there with a solid balance sheet. We've added a great new slide on page five of our new investor deck that we introduced at the City REIT Conference to showcase how our portfolio benefits from the flight to quality, and that this is not just a, quote, new versus old, unquote, narrative. ESRT offers a high-quality experience in trophy pre-war assets at our attractive price point. Importantly, we are also a landlord who has the balance sheet to stand behind its commitments and obligations with an economically accessible winning portfolio. This makes a big difference in today's environment and helps set us apart as a landlord. We know what we have to do and we are absolutely focused. Tom will cover the quarter in more detail, discuss our 2023 pipeline and speak to two great deals just signed yesterday. The observatory is off to a strong start in 2023. In the first quarter of 2023, Observatory NOI reached 110% of pre-COVID 2019 levels. The Empire State Building is true, authentic New York City and the true international brand. Prior to the pandemic, the observatory contributed approximately 25% of total company NOI on a full-year basis, and we are on track to recapture that performance with tourism's ongoing return. We own the number one position, and our observatory's cash flows are reliable. The resilience of our observatory through cycles, new competition, and a pandemic speaks for itself and is demonstrated on slide 16 of our investor presentation. We have spoken about the strength of ESRT's balance sheet for years. We have a clean balance sheet and simple capital structure. Our leverage is well below our peer average, We proactively manage our debts maturity schedule and rent roll and have neither near-term debt maturities nor floating rate debt exposure. ESRT owns 100% of our office assets with no complex JB structures, and that allows for great optionality and flexibility for future financing and capitalization. Our balance sheet strength helps us win new tenants who look to partner with a financially stable landlord who will maintain high-quality standards at their assets and deliver on their commitments to tenants. Our balance sheet allows us to indulge in prudent, omnivorous opportunism, be it share repurchases at the bottom of a cycle, new acquisitions, or capital recycling. We will go where we see opportunity to enhance shareholder value. We remain resolutely focused on our sources of capital and seek attractive entry points on assets which offer cash flow growth after CapEx. We have transitioned out of various suburban assets and reinvested tax efficiently into Manhattan multifamily. The addition of multifamily to our portfolio since December 2021 further diversifies our cash flow stream, and we are very pleased with the performance. According to the Census Bureau, New York City has more residents today than it did pre-COVID, and that drives strong leasing demand in our growing multifamily platform, now a true fourth leg of ESRT's cash flow stream. Our industry leadership and environmental stewardship and healthy building performance matters more and more each year to tenants, lenders, and shareholders. We uphold our values. and adhere to the highest standards in reporting. I encourage all of you to read our just released 2023 sustainability report available on our website that contains full details on our recent accomplishments and new investment and return-based goals. Just in this year, ESRT has received the 2023 Energy Star Sustained Excellence Award, was certified as a 2023 Great Place to Work in our first year of survey participation, earned the International Well Buildings Award for Leadership and Implementation, was included in the 2023 Bloomberg Gender Equality Index for the second consecutive year, and was recognized as a Platinum Green Lease Leader for the second consecutive year. And we also won the 2023 Better Project and Better Practice Award from the Department of Energy's Better Buildings Initiative. We are committed to the delivery of long-term value to our shareholders and our teammates through continued excellence in ESG. ESRT outperforms because of our people, because of our team, who work together and each of whom understands his, her, and their role towards our goals, our differentiated portfolio, strong balance sheet, and leasing progress. We see disruptions in the market and we will manage through them. The current cycle poses its challenges and presents opportunities. Our priorities are unchanged. Lease space, sell tickets to the observatory, manage the balance sheet, Achieve sustainability goals. In short, put points on the board. These actions together enhance shareholder value. We believe in New York City, and we offer four ways to play it. Office, the Empire State Building Observatory, retail, and multifamily. New York City is resilient. And ESRT is future ready and well positioned to drive value for ESRT shareholders in 2023 and beyond. Tom and Christina will provide more detail on our progress and how we plan to accomplish these goals in the balance of the year. Let's go over to Tom now.