Empire State Realty Trust(ESRT) - 2022 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q4 2022, the company reported core FFO of $59 million or $0.22 per diluted share, compared to core FFO of $50 million or $0.18 per diluted share for Q4 2021, indicating a year-over-year increase of 22% in core FFO per share [39] - The full-year 2022 core FFO was $244 million or $0.90 per diluted share, up from $195 million or $0.70 per diluted share in 2021, exceeding guidance expectations [61] - The company's balance sheet as of December 31, 2022, had total liquidity of $1.1 billion, consisting of $264 million in cash and $850 million in undrawn capacity on its revolving credit facility [41] Business Line Data and Key Metrics Changes - The observatory hosted 660,000 visitors in Q4 2022, generating NOI of $23.8 million, significantly up from 360,000 visitors and NOI of $10.7 million in Q4 2021 [40] - The company signed office and retail leases totaling 144,000 square feet in Q4 and over 1.1 million square feet for the full year, with a 260 basis points increase in Manhattan office portfolio leased percentage [60] - The observatory NOI expectations for 2023 are projected to be approximately $88 million to $96 million, up from $75 million in 2022 [47] Market Data and Key Metrics Changes - The Manhattan office leased percentage improved by 260 basis points, and occupancy increased by 210 basis points for the year, benefiting from the flight to quality trend [139] - The company achieved positive mark-to-market lease spreads in each of the last four quarters, with steady net effective rent growth throughout the year [138] - The commercial portfolio is now over 85% occupied and over 88% leased, reflecting strong demand for high-quality assets [69] Company Strategy and Development Direction - The company aims to lease space, sell tickets to the observatory, manage its portfolio proactively, achieve sustainability goals, and drive shareholder value [19] - The addition of multi-family assets to the portfolio since December 2021 has diversified cash flow streams and strengthened the company's position in New York City [10] - The company has executed a capital recycling strategy, selling suburban assets and reinvesting in Manhattan multi-family properties [44] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to drive leased rates higher in 2023, supported by a strong balance sheet and ongoing demand for quality office space [33] - The company anticipates same-store cash NOI to decline by 4% to 6% in 2023, primarily due to an expected 8% increase in property operating expenses [66] - Management highlighted the importance of maintaining a strong customer experience at the observatory while balancing volume and price [54] Other Important Information - The company achieved carbon neutrality in 2022 and aims for net zero emissions by 2035, reflecting its commitment to sustainability [28] - The company repurchased $88.9 million of its common stock in 2022, bringing the cumulative buyback total to $281 million, representing approximately 11% of total shares outstanding [141] - The company is the only New York City commercial landlord on the Local Law 97 implementation Advisory Board, emphasizing its leadership in ESG initiatives [29] Q&A Session Summary Question: What are the expectations around leasing spreads for Greater New York Metropolitan office and retail portfolios? - Management expects flat to modest negative spreads in the Greater New York Metropolitan portfolio, offset by the value of leasing up vacant space [75] Question: How are you balancing volume and price for the observatory? - Management emphasized maintaining customer experience while increasing average ticket prices, focusing on quality over volume [54] Question: What is the outlook for same-store NOI in 2023? - Management provided guidance of a 4% to 6% decline in same-store cash NOI, reflecting conservatism due to uncertainties in the market [66][125] Question: What are the plans for the use of proceeds from asset sales? - Most proceeds will be redeployed, with further details to be provided as more information becomes available [111] Question: How does the company view the current office market and potential dispositions? - The company is monitoring the market closely and will explore sales when conditions are favorable, leveraging its strong balance sheet [115]