This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk11: Greetings and welcome to the Empire State Realty Trust second quarter 2023 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 call, 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.
spk00: Good afternoon. Thank you for joining us today for Empire State Realty Trust's second 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 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 the 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.
spk09: Thanks, Heather, and good afternoon to everyone. We're pleased to report another solid quarter and first half of the year. We put points on the board with strong leasing and observatory performance. Our balance sheet positioning remains best in class. We have a positive outlook for the second half of 2023. Our focus on modernization, amenities, energy efficiency, indoor environmental quality, and an industry-leading balance sheet make us a destination in the flight to quality. ESRT is a New York City-focused landlord with four diverse drivers of value. When you walk the busy streets of New York now, it is clear how resilient this city really is, and we are primed to take advantage of New York City's continued recovery. People want to live here, people want to visit here, and people want to work here. This is a city that draws a regular migration of young, highly educated, hungry, and diverse talent to work in person and learn. New York is a top three city for return to office post-pandemic, according to Placer AI. Top companies offer talent a place to gather in person, to plan, mentor, learn, build, execute together, and move forward through uncertain times. And they want to be in office buildings like ours, which serve as talent attraction and retention tools. We leased more than 336,000 square feet in this quarter, and those leases were at double-digit positive leasing spreads. Our Manhattan leased office percentage is up to 91.6% and reflects an increase of 90 basis points sequentially and 330 basis points year over year. ESRT offers a trophy experience in pre-war assets. ESRT properties are fully modernized and amenitized. More than 95% of our office space has been stripped of the studs and redeveloped. Flight to quality is not as simple as new versus old. ESRT's properties perform consistently as measured on an occupancy percentage, lease percentage, and total leasing volume basis because we have made the investment to make our assets future ready. Our leasing progress meets the performance of newly built Class A office properties. We offer compelling value propositions and well-located, fully modernized, energy efficient, and monetized healthy buildings at our attractive price points. 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 have always said that our goal is to get the best deals in good times, get the deals in challenged times, and draw consistent leasing volumes through cycles. and we are absolutely focused. The observatory continues to perform well. For the second year in a row, our observatory experience was ranked the number one attraction in the United States by TripAdvisor. In the first half of the year, Observatory NOI exceeded comparable 2019 levels by 4%, with 71% of the admissions relative to 2019 levels. We continue to manage expenses, drive top-line growth, and provide visitors with unmatched customer experience. The Empire State Building Observatory is the authentic New York City experience. Our observatory's cash flows are reliable, as demonstrated on slide 17 of our investor presentation. ESRT's balance sheet is clean and the capital structure is simple. We have the lowest leverage amongst all New York City office REITs and have neither near-term debt maturities nor floating rate debt exposure. ESRT owns 100% of our office assets with no complex joint venture structures, and that allows for great flexibility and optionality for future financing and capitalization. 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, be it capital recycling, new acquisitions, or share repurchases. Our industry in environmental stewardship and healthy building performance matters more and more each year to tenants, landlords, and shareholders. For our tenants, this was put to the test this quarter. when the Canadian wildfires greatly impacted the air quality in New York City. IEQ testing during the Canadian wildfire event in early June met Empire State Realty Trust's rigorous indoor environmental standards, which are aligned with LEED version 4.1 and WELL version 2 standards. Our sustainability work at ESRT isn't an add-on to our platform. It is integrated within every decision we make. We uphold our values and adhere to the highest standards in reporting. I encourage you all to read our 2022 sustainability report that was released in the second quarter during Earth Day week, which contains full details on our recent accomplishments, new investments, and return-based goals. As we look ahead, We see opportunities created through the market and credit disruptions, and we will manage through them. ESRT is prepared to act on opportunities which arise from the disruption. Our priorities are unchanged. Lease space, sell tickets to the observatory, manage the balance sheet, and achieve sustainability goals. In short, put points on the board. These actions together enhance our 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 Empire State Realty Trust is future ready and well positioned to drive value for our shareholders in 2023. Tom and Christina will provide more detail on our progress and how we plan to accomplish these goals in the balance of the year. Tom?
spk08: Thanks, Tony, and good afternoon, everyone. We had another strong quarter with 336,000 square feet of total leasing at 10% positive mark-to-market rent spreads for our office and retail portfolio. Year-to-date, we've leased a total of 538,000 square feet. This represents our sixth consecutive quarter in which we achieved positive absorption based upon leased percentage for our office and retail portfolio, and our eighth straight quarter with positive mark-to-market lease spreads in our Manhattan office portfolio. Our leasing results demonstrate that our fully modernized buildings located in Midtown with convenient access to mass transit, quality amenities, best-in-class sustainability, and indoor environmental quality offered at an accessible price point continues to attract quality tenants. We increased our Manhattan office leased percentage to 91.6 percent in the second quarter, which increased 90 basis points compared to last quarter, is up 330 basis points compared to a year ago, and has increased 460 basis points since the end of 2021. In the second quarter, we signed over 336,000 square feet of leases, which include 308,000 square feet in our Manhattan office properties, where we achieved our highest rent levels to date in two of our properties. The average starting rent in all Manhattan office leases signed was $64.48 per square foot with an average lease term of 7.9 years and seven months of free rent, with a tenant improvement allowance of $64.58 per square foot. 18,000 square feet of lease assigned in our greater New York metropolitan office properties and 10,000 square feet in our retail portfolio, where we continue to bring food, wellness, and services to our campus properties to support the demand from growing office users. Notable leases signed in the second quarter include a full-floor 11-year lease for 27,000 square feet at the Empire State Building with Capco, a global management and technology consulting company, an 11-year lease for 25,000 square feet at the Empire State Building with Skanska, a world-leading project development and construction group, and ESB Tenant since 2008, an 11-year 12,000 square feet at lease at One Grand Central Place with Breakthrough Beverage, a leading North American distributor of luxury wines and spirits, a 30-year, 29,000-square-foot lease at 1333 Broadway with Rising Ground, a non-for-profit organization, leases for 18 pre-built office suites. And earlier this quarter, we were happy to announce that Flagstar assumed the entirety of Signature Bank's 313,000 square foot lease at 1400 Broadway. As shown on page six of our supplemental, we have $59 million in incremental initial cash revenue from signed leases not commenced and free rent burn off. We remain well positioned to increase our lease percentage by year end since we proactively managed our rent roll, executed early renewals, and expect only about 191,000 square feet of tennis to vacate by the end of 2023, which will be offset by any new leases that are signed before year end. We have a healthy pipeline of lease activity and have demonstrated our ability to lease space. We have invested nearly a billion dollars into our assets to create healthy, fully modernized buildings. Our tennis spaces are newly built with our leading standards for IEQ and sustainability. We are adding to our robust in-building and campus amenities. All our assets are centrally located near mass transit. As an industry leader, we offer our tenants the latest advancements in sustainability and indoor environmental quality. Our strong balance sheet allows us to compete in today's environment and gives tenants and brokers confidence that we will deliver on our promises. And we have an exceptional, dedicated team that delivers a high level of service to our tenants. Within our multifamily portfolio, the average occupancy of 97.4% reflects strong market fundamentals, and we are underway with property improvements that will enhance future performance. Our recently acquired 298 Mulberry continues to experience strong demand that exceeds our expectations. Once again, we had another solid quarter with 336,000 square feet of total office and retail leasing at strong positive market to market spreads. We increased our Manhattan office portfolio lease percentage by 90 basis points over the prior quarter and by 330 basis points from a year ago to reach 91.6%. We are well positioned to further increase our lease percentage in the second half of 2023. and we continue to see strong performance in our growing multifamily portfolio. And now I'll turn the call over to Christina. Christina.
spk01: Thanks, Tom. Our focus is to put points on the board. For the second quarter of 2023, we reported core FFO of $69 million, or 26 cents per diluted share, which is up 17% year-over-year, excluding lease termination fees. As previously announced, in the second quarter of 2023, we reversed 5.8 million of the $6.4 million straight line reserve taken in the first quarter of 2023 as a result of the Flagstar lease assumption at 1400 Broadway. This had a positive two cent impact on our second quarter FFO results. Same store property cash NOI, excluding lease termination fees, increased 1.1% year over year, primarily driven by an increase in cash rental revenue and timing of tenant expense reimbursements, partially offset by increases in property operating expenses and real estate taxes. In the second quarter, the Observatory generated NOI of $24.3 million, an increase of 26% year-over-year. This represents NOI recapture of 101% as compared to the same period in 2019. Observatory expense was $8.7 million in the second quarter. We have the balance sheet flexibility these uncertain times demand to generate shareholder value. As of June 30th, 2023, the company had total liquidity of $1.2 billion, which was comprised of $315 million of cash and $850 million of undrawn capacity on a revolving credit facility. At quarter end, the company had net debt at share of $2.3 billion with a weighted average interest rate of 3.9% and a weighted average term to maturity of 5.9 years. Our ratio of net debt to adjusted EBITDA was well below peer averages of 5.8 times. We have no floating rate debt exposure, a well-laddered maturity schedule, and no debt maturity until November 2024 when a $78 million mortgage matures. We can choose to recycle our balance sheet, pursue investment opportunities that are additive to our New York City-focused portfolio, and repurchase our shares. In the second quarter and through July 25th, 2023, the company repurchased $7.4 million of its common stock at a weighted average price of $6.09 per share. This brings the cumulative amount repurchased to $293.7 million at a weighted average price of $8.18 per share, which represents approximately 12% of total shares outstanding as of March 5th, 2020, the date our share buyback program began. In the second quarter, we completed the sale of our 500 Mamaroneck office property for $53 million, and the proceeds were partially utilized in a reverse 1031 tax deferral transaction into the 298 Mulberry residential acquisition that was executed in December 2022. We continue to evaluate opportunities to recycle our balance sheet and invest in new assets and remain prudent in our underwriting. And now onto our outlook for the balance of the year. We've adjusted our 2023 guidance as follows. Our 2023 FFO guidance range is increased to 83 to 86 cents per fully diluted share. The increase reflects the two cents positive impact from the reversal of the straight line reserve previously taken in the first quarter related to Signature Bank and the subsequent assumption of the lease at 1400 Broadway by Flagstar in the second quarter and updated our full-year same-store cash NOI outlook by 100 basis points. As a reminder, our team actively managed expenses amid COVID and significantly reduced operating expenses in 2020 and 2021 compared to 2019. Expenses and building utilization will normalize this year, but that said, full-year property operating expenses are still expected to be approximately 5% below 2019 levels which reflects some permanent cost savings and efficiencies we achieved from pre-COVID levels. Additionally, the year-over-year expense increases are partially offset by tenant expense reimbursements. The increase in our 2023 same-store cash NOI guidance range is primarily due to modestly higher cash rental revenue and lighter property operating expense increases relative to our initial expectations. Our same-store commercial occupancy guidance is unchanged at 85% to 87%. The leasing pipeline remains on track. As we stated last quarter, our range factors in some conservatism in terms of the timing of lease commencement. For the observatory, we continue to expect 2023 NOI to be approximately $88 to $96 million, up from $75 million in 2022. Our NOI guidance assumes observatory expenses at approximately $9 million per quarter on average for 2023. In summary, the company continues to manage our balance sheet prudently and strategically and have strong liquidity to take advantage of attractive investment opportunities that may emerge in this period of uncertainty and capital dislocation. We continued share buybacks, albeit at a more measured pace in the second quarter. In aggregate, we've repurchased 12% of total shares outstanding since the inception of our buyback program. Our commercial portfolio is now 86.8% occupied and 90.3% leased, and 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 landlords. Our observatory recovery continues with good momentum to start the year. And our fourth leg of growth, multifamily, continues to perform well and adds to the resiliency of ESRT's cash flows. And with that, I will now turn the call back to the operator for the Q&A session. Operator?
spk11: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit yourself to one question and one follow-up question and then re-queue for additional questions. One moment, please, while we poll for your questions. Our first questions come from the line of Steve Sacqua with Evercore ISI. Please proceed with your questions.
spk07: Thanks. Good afternoon. Tom, I was wondering if you could just provide a little bit more color and detail around the pipeline, maybe help size the pipeline for us where it is today versus, say, three to six months ago, and the types of tenants that you're seeing and maybe the size of tenants that you're seeing today?
spk08: Sure, Steve. Well, first, you know, our solid quarter demonstrates that there is tenant demand for our well-located, amenitized, quality product, and tenants have confidence in our ability to execute and deliver on our promises. That said, we've got a healthy pipeline. We have some 20 or so leases in negotiation for about 200,000 square feet, mostly in our Manhattan office properties for both really new renewal, relocations, and early extension deals, and comprised of both pre-builts and full floors. And then we have another 20 or so proposals that we're trading paper on for really several hundred thousand square feet, I'd say 14 of those deals range between 10,000 to 70,000 square feet, and then over a dozen proposals for pre-built variety sizes that add up to about 100,000 square feet. So overall, a pretty good, healthy pipeline. The tenant types that we're seeing are consistent with this past quarter and prior quarters, which represent a variety of industries that include professional services, nonprofit, consumer products, some tech, and fire sector tenants. So good diverse mix of tenants. So overall, you know, we feel pretty good about where we're at and the quarter ahead.
spk07: Okay, thanks. Excuse me. And then just in the follow-up, Christina, I guess on the share buyback, I don't know if the activity level was muted, just, you know, that was sort of share price driven. If you were looking at some other capital deployment opportunities that Just, I guess, with the rise in the stock price, I guess, how sensitive are you to kind of share buybacks? And I guess, how do you sort of evaluate, you know, when to say no, how to kind of lean into that or sort of lean out from the buyback?
spk01: Yeah, so we continue to believe in buybacks, and it's a strategic part of our capital allocation that's evident from the overall volume that we've done, $290 million worth since we started. As we've always mentioned, the pace can vary from period to period for a number of factors, including fluctuations in share price, but beyond that, because it's still at discounted levels, right? So beyond that, it's also 10b51 periods and other factors. And as a final reminder, we do value buybacks, but we also look at operating runway and liquidity, as well as the chance to evaluate and take advantage of opportunities that may arise in the marketplace. And we have been very active on capital recycling. So those are all of our priorities. Buybacks are on the list. We've done it in volume, but certainly the pace could vary.
spk03: Thank you.
spk11: Our next question has come from the line of Michael Griffin with Citi. Please proceed with your questions.
spk12: Great, thanks. Maybe to follow up on that leasing question at first, I'm curious if you've noticed if more tenants are quicker about making decisions when it comes to leasing. I mean, it seems like the positive commentary we've heard about more tenants coming into the market. Is there less uncertainty around them taking space than there was over the last few quarters?
spk08: I'd say that what we're seeing is... Tenants that are more committed to making a decision, a lot fewer tire kickers out there. And that's evidenced by really our conversion rates from what we see, strong conversion from tour to actual deals. So as I look at all of those prospects that we're speaking with right now, we feel very good about they are committed to landing somewhere. And so it's good for the overall market and good for us.
spk12: Great, thanks. And then just on capital allocation priorities, you touched on the various food groups, you know, the multifamily, the office, the share buybacks. I'm just curious with some distress we've seen in the office market recently, could there be an opportunity out there to potentially acquire an asset and maybe reposition it consistent with your current strategy?
spk09: So, Griff, Tony here. Thanks. As I tell our younger colleagues today, We really view this as 1989 to 1992 for the real estate industry. Bottom line, when you raise interest rates to levels which are more historical and you've gone through a period where people have borrowed as much as they could afford at low interest rates, you're going to have more than a few borrowers' heads go through the windshield, and the The benefit to us in our current position is that we have an opportunity, both because of our execution at a high level and because of our balance sheet, to take advantage of this. And we do believe that there are opportunities. We know very clearly and we understand very clearly what we rent, what our costs are to rent. More importantly, though, we understand what it costs to modernize amenitize, make energy efficient, and execute on indoor environmental quality the type of asset that we operate and that we can deliver at an attractive price. So we have our bogey. We know the locations where we want to be. We know the floor plates we want. We know the types of tenants who are interested. And we are definitely interested at the right price in office.
spk03: Great. That's it for me. Thanks for the time.
spk11: Thank you. Our next questions come from the line of Camille Bonnell with Bank of America. Please proceed with your questions.
spk06: Christina, you spoke about a number of factors impacting the positive same-store NOI growth for the quarter. Just wondering if you could provide a bit more context behind the moving pieces. And trying to get a sense of whether one or another may have played a bigger factor here.
spk01: Sure. So the key drivers are higher cash rental revenue. And as a reminder, we have long put out a schedule, sign lease, not commence, and free rent. And as the free rent burns off, that does contribute to our same-store cash NOI. So that was a primary and large factor. The second item, as we called out, was the timing of tenant reimbursement of some work. So over the course of a year, that would be a net wash pretty much. However, between quarters, that could lead to a little more bumpiness in the same store results. So that was another contributor. But free rent, I think, is something to look out for, which is why we continue to provide the disclosure of how much contractual rental revenue is on the comp.
spk06: And another core factor in your same-store guidance is that expectation of higher operating expense from tenants utilizing your buildings more. Could you just talk to how that's been tracking against your projections for the year?
spk01: Sure. We continue to trend up in operating expenses, but as I mentioned in our remarks, it was really due to the team doing a fantastic job, being very proactive and reducing expenses amidst low building utilization levels. So what we're seeing now is a normalization, which we called out beginning last year and continues into this year. That said, even with this increase, we've also mentioned we expect property operating expenses to still be about 5% below 2019 levels due to some permanent expense savings. So what we're seeing is sort of a normalization, and that will continue through the end of the year, consistent with our same-store NOI guidance range.
spk06: Thank you.
spk01: Thank you.
spk11: Thank you. Our next question has come from the line of Blaine Heck with Wells Fargo. Please proceed with your questions.
spk13: Okay. Thanks. Good afternoon. Just wanted to dig into occupancy guidance a little bit more. As you guys are at the upper end of the range, and I think you've got about 325,000 square feet of signed leases that haven't commenced. The guidance range for occupancy implies a decrease in the second half. I know you lay out some of the known vacates on page 10, but, you know, given the leasing pipeline, I'm still a little surprised occupancy guidance wasn't increased. Can you give us some more color on that and whether it's just a timing issue or anything else?
spk08: Yeah, Blaine, this is Tom. Look, we remain confident that we'll achieve our guidance of 85% to 87% for the portfolio and about 100 basis points higher for New York City office. That said, we might trend towards the mid to higher part of that. If you look at our expirations, we only have about 319,000 square feet of leases that expire through the balance of this year and about 191,000 square feet of uncovered vacates that are known. This will be partially offset by over 140,000 square feet of leases on vacant space that should commence by year-end, plus any additional leasing that commences this year. So it's really timing of tenant vacates and when those new leases commence.
spk13: Okay, great. That's really helpful, Tom. And then sticking with you, or Tony wants to jump in, we're hearing that some landlords are less willing to spend on TIs based on their higher cost of capital. So I guess how does that play out with respect to free rent increasing or even lower face rental rates? And how do you think you all can differentiate yourselves with a great balance sheet to compete with tenants or for tenants in this environment?
spk08: Well, Well, first, our average TI cost decreased this quarter from last quarter. And it's only slightly above our five-year average of about $62 per square foot. And of course, if you look at the lease metrics, our lease cost per year of term is in line with our five-year average. And it's actually below this quarter from the trailing 12-month average. That said, we have invested heavily into our tenant spaces. We have a lot of pre-built space that we've previously incurred the cost. And of course, then our balance sheet allows us to compete really for any deal. And that's how we look at it.
spk09: And we have enlarged our free rent. And frankly, look, tenants and brokers, sorry, Tony here, tenants and brokers look very carefully at landlord sponsorship quality. and that there are not a lot of short-sighted people out there. We began to talk about this with brokers about 12 months ago, 18 months ago, and now it's on the tip of every broker's tongue. Will they get paid? Will their tenants' TIs be funded? Will the tenants have prolonged quiet enjoyment of their spaces with a quality landlord?
spk05: and all of that inures to our benefit.
spk04: Very helpful. Thanks, guys.
spk11: Thank you. Our next questions come from the line of Dylan Brzezinski with Green Street. Please proceed with your questions.
spk04: Hi, guys. Thanks for taking the question.
spk10: Just curious, you know, obviously there's been a large-scale return to office announcements across various sectors. Are you seeing anything with regards to changes to how tenants are thinking about building out their space as a result?
spk08: Not really in terms of how they design their space. Some of the programming of space that began to develop even pre-COVID is still relevant today. I think that what we see is tenants, every tenant has their own, developing their own approach and policies to their work from office. But generally the themes remain the same and it's constant throughout, which is tenants and companies recognize the importance of people being together for collaboration and training. and creativity and really the importance of having an office to run their business effectively.
spk09: I guess the only thing that I would say, Dylan, that stands out is these CASL numbers are all screwy. Midtown Manhattan is probably the number one recovery in office in the United States. New York City is a fantastic market. Our business is strong. People are on the streets. We had to dodge people yesterday as we headed over to look at some new corridors at the Empire State Building around 530, 545 as people were, we basically were salmon swimming upstream going across 33rd Street. The observatory is packed. We've extended hours as anyone can see from our online ticket sales for our reservations. So we feel quite good about where we are and with regard to the use of space.
spk04: And then just one on cash release and spread.
spk10: You know, year-to-date results are significantly better than, call it, the last three years through the pandemic. Just curious, on a go-forward basis, I mean, do we expect this momentum to continue on that front? And I realize in any given quarter it's going to depend on the lease, on which leases are rolling, where you're signing leases, but just curious. Over a longer term time horizon, I mean, is low single digits fair?
spk08: Well, it will always depend on the mix of spaces that are leased. But for our Manhattan office leases, I expect positive spreads in the near term. Since the prior fully escalated rent on our vacant Manhattan office space that we're marketing is about $56 per square foot. And that compares to our starting rent for our recent Manhattan office leases around $66 a square foot. So I feel good about our ability to post positive spreads in the near term.
spk11: Thank you. Our next questions come from the line of John Kim with BMO Capital Markets. Please proceed with your questions.
spk02: Hi, good afternoon. This is Regan Sweeney on the line with John. Just want to follow up on those cash spreads. Was that concentrated in one lease or asset, or is that kind of spread out across all of your leases in Manhattan, the positive 35.6?
spk08: Well, this quarter, we had 10.1% positive spreads for our entire office and retail portfolio. and then just under 15% for our Manhattan office space for both new and renewal office leases. And that's our eighth straight quarter with positive spreads for our Manhattan office portfolio.
spk09: So I think it's really important to make the, no one should leave this call without a real understanding of the single most important message here. We have outperformed our peers in, We've got proven leasing results with an increase in leased rate of 330 BIPs over the second quarter year over year. We've got increased occupancy, 360 BIPs second quarter year over year. This whole narrative that only the AAA brand new stuff will lease, we've said that's wrong for several quarters. Just look at the points on the board. And I think that's really the key issue here. And we get quality tenants who are prepared to pay rents, which are good for us and a great and attractive value for them in our modernized, amenitized, energy-efficient buildings with indoor environmental quality. So I think that's the biggest, most important thing. I don't know if that addresses your question, Reid, or not, if you have other questions you might like.
spk02: Yeah, I appreciate the color. Thank you. And then just shifting to the observatory, what percentage of these visitors are international versus domestic? And has there been any sign of a pickup in international tourism or demand?
spk09: So look, the headline on the observatory clearly is that we are the number one attraction in the United States, according to TripAdvisor, for the second year in a row. And that is a terrific indication of what people think of our value proposition, the quality of our experience, and the the experience they have when they're with us. Number one. Number two, international is definitely not back to where it was, and yet we still deliver in excess of 2019 NOI. And as I said, because we're all reservations and we want to maintain that quality experience, we only allow a certain number of people in park at a time. And because of that, we've added hours. We're going 9 a.m. to 1 a.m., right now at the observatory. So we've got good demand. Look, international travel is extremely positive. It's mostly Americans going back and forth across the ocean right now. Nonetheless, it's a tailwind for us as we go forward and as that tourism visit normalizes.
spk03: Thank you very much. I appreciate it, and congrats on the quarter. Thank you.
spk11: Thank you. There are no further questions at this time. With that, I'll turn the call back over to Tony Malkin, Chairman, President, and CEO for closing remarks.
spk09: Thank you very much, everybody. A few final notes. First and foremost, a call of gratitude and appreciation for points on the board by the entire ESR team. Everyone is executed at a high level, from Christina and her team to Tom and the property team to Jean-Yves Gazi and the entire observatory team. Jean-Yves, Dan Rogofsky, and I have promised the entire observatory team that we will take pies in our faces if we win the TripAdvisor Award three years in a row. Tom Durrell, Ryan Cass, Mike Prunty, Dana Schneider, and Pete Schoen have made and delivered on promises for our buildings' modernization, energy efficiency, indoor environmental quality, and amenities, and tenants just lease it up. Christina Chu said, John Hogg, Steve Horn are the engine behind our reporting, financial planning, and analysis, and fantastic work with our capital partners. Christina has also been a tremendous partner to me in her added title of COO. And Abby Rickards and her team successfully spread the word. Special call out to the Empire State Building Observatory besties and their new rookie board member, Grant Hill. And of course, Emma Pyre. All of you can follow us and what we do on Instagram, LinkedIn, and TikTok at Second, on transitions, we salute Bill Regan, who's done a fantastic job as SVP Financial Reporting. Thank you, Bill, for your decade of contributions. Finally, we welcome Christina Van Tassel and Hana Yang to our board. I encourage everyone to read through our latest investor presentation, as it includes many great improvements, including tenant testimonials that speak to the flight to quality from which our portfolio benefits, And also our sustainability report shows you the future, here, now, science-based targets and numbers, not fluffernutter. 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.
spk11: Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.
Disclaimer