Welcome to the 8:50 A.M. session of Citi's 2024 Global Property CEO Conference. I'm Michael Griffin with Citi Research, and we're pleased to have with us Empire State Realty and CEO, Tony Malkin. This session is for Citi clients only. If media or other individuals are on the line, please disconnect now. Disclosures are available on the webcast and at the AV desk. For those in the room or the webcast, you can go to liveqa.com and enter code GPC24 to submit any questions if you do not want to raise your hand. Tony, we'll turn it over to you to introduce ESRT and the team, provide any opening remarks, and then we'll get into Q&A. Super, I will just let you know that shortly I will be joined by a female voice who is our newly appointed president, Christina Chiu, who had to stop by an essential place on her way from our last meeting. So, thank you, Citi, for the opportunity to present, and to those here physically and electronically. I'm Tony Malkin, Chairman and CEO of ESRT. Christina Chiu will join me shortly. In 2023, we continued to put points on the board in line with our four priorities: to lease space with nearly 1 million sq ft leased, meaningful increases in occupancy and lease rates in 2023, and further gains as expected, as outlined in our 2024 guidance. Sell tickets to our observatory, which was named the number one attraction in the United States by Tripadvisor for the second year in a row and saw NOI return to pre-pandemic levels in 2023. Three, achieve our sustainability goals for energy efficiency, indoor environmental quality, and continued leadership in sustainability initiatives. And four, maintain our best-in-class balance sheet, which is a big differentiator to tenants and brokers in this environment and positions us to allocate capital as we think best for our investors, be it capital recycling, new acquisitions, or share repurchases. ESRT is the pure-play New York City REIT, and we have four diverse ways in which to play it: an office portfolio that is top of our tier and targets the deepest market segment, our top-ranked observatory, our high-foot traffic everyday street retail, and a growing multifamily platform. Remember, our NOI is derived 60% office, 25% observatory, 10% retail, and 5% in our growing residential, and the 40% that is not office throws a lot more to the bottom line than office does. We have maintained a strong and flexible balance sheet, and that is a major differentiator in this environment and ensures our ability to execute on our goals and drive further value and growth for shareholders in 2024. So, Griff, happy to take any question you'd like, and thanks again for being here. Folks online, you, Christina has joined. Thank you very much, Tony. We're starting off each of these roundtables with the same opening question: what are the top reasons investors should buy ESRT's stock today? Number one, we're the only pure-play New York City REIT that benefits from four diverse drivers of demand: office, retail, multifamily, and tourism in the greatest city on Earth. And that, oh, just remember, our NOI composition, the diversity in that, is great. It plays to New York City. It plays to strengths. Two, balance sheet strength. Allows us to execute, win new tenants, take advantage of opportunities created through market disruption. Three, market-ready portfolio, future-ready portfolio. We see it in our leasing. We see it in our positive absorption. Four, proven track record of leasing results. When you look at nearly 1 million sq ft leased in 2023, eight consecutive quarters of positive leased percentage absorption, 10 consecutive quarters of positive mark-to-market lease spreads for Manhattan office, over 2.6 million sq ft of tenant expansions in our portfolio since the IPO. Perhaps the most important, number five, we are on our front foot. We're in a position to take advantage of this once-in-a-15-year cycle to act while at the same time to deliver our portfolio where we've already invested $1 billion in modernization, not just lobbies and elevators, but scraped 92% of our available office area clean, of our total office area clean. No asbestos, new hot water, cold water, wastewater risers, electric distribution, energy efficiency, indoor environmental quality, and that's why we're killing it in leasing right now. Tony, with the headwinds facing the office macro environment broadly, how is ESRT differentiated from the competition in terms of portfolio composition, tenant makeup, or any other growth opportunities? New York City is a great market, and that differentiates us from anyone who is not in New York City. Number two, we have a unique value proposition. We are top of tier. We serve the deepest component of the market with fully modernized, energy-efficient, amenitized buildings in great locations, and service distinguishes us to our tenants and to the brokerage community. And then on our front foot, we have this opportunity because of the unique intellectual property we have where we have renovated and gutted and redone all our buildings. We know how to do it. We know what it takes. We know how to bid it out, and we know the time it takes to release it once we get it done and at what prices we can. We've got the best-in-class balance sheet. All that together, we provide a flight to quality, and as people realize now, said it a year ago right here, the narrative was wrong. Now people understand it's not just AAA brand new buildings which will experience positive absorption. We had over 700 basis points positive leased percentage absorption at 1359 Broadway in the Empire State Building alone in our portfolio. So again, we demonstrate and deliver points on the board quarter- after- quarter. Tony, why do you think the demand for the medium price point but highly amenitized product is more attractive to prospective tenants relative to newer buildings that command higher rents in New York? Yeah. So we think that the price point is extremely attractive because of everything that we offer. You know, there was a common narrative, very pervasive last year that said $200 price point product is new, shiny, looks great, and everything else will be in trouble. And we sought to prove the point that if you have competitive product that is amenitized, has modernized, has modern HVAC, energy efficiency, you can provide services in the full package, but you can do it at a price point of high $50s-high $60s in our Broadway Campus and $70s-$80s at Empire State Building and One Grand Central Place, that is a huge value proposition. And the work that we have done on the portfolio, the $1 billion of CapEx that we've invested to be fully ready to go, has translated into our portfolio being 92% leased. I think tenants, the common link is not everyone is in the market for $200 space. Everyone is in the market for the best possible space that they can get for their money, and you're seeing that translate in leasing results. Maybe we can just touch on leasing for a bit. Can you give us a sense of what you're expecting in terms of leasing volumes for 2024, and are real estate decision-makers shortening their time when it comes to making leasing decisions? So first, I'd just like to say January was the highest number of tour visits in any month since 2019. February, only 29 days, was right up there. So we've already concluded 125,000 sq ft of long-term leases signed after 12/31/2023. 16,000, excuse me, 16 years, 68,000 sq ft expansion lease with Burlington at 1400 Broadway. 57,000 sq ft new lease was Sol de Janeiro, a L'Occitane subsidiary at One Grand Central Place. L'Occitane is a tenant of ours at 111 West 34th Street. They just expanded at 111 West 34th, 3rd Street, excuse me, not 34th Street, and they are about to expand again at 111 West 33rd Street, taking on an option that they took when they did their last expansion. By the way, a humorous anecdote, I almost didn't do the L'Occitane lease because I insisted on the French parent guarantee of the lease. Our leasing people didn't really enjoy that thought. We did get the French parent guarantee. During COVID, their U.S. piece was thrown into bankruptcy. We kept the tenant. Now they've grown with us. So in addition, we have 30 leases in negotiation right now on about 200,000 sq ft for new renewal relocations and early extensions, including pre-builts and full floors. A few hundred thousand sq ft of active proposals. So very good activity. And the market itself is at least flat at this point, but we are truly outperforming the market. Tony, can you give us a sense? You talked about the highest tour numbers since 2019. Of those tours, how many prospective tenants are likely to convert to a lease? Tenants who come to us on tours really since COVID have been tenants who are willing to do leases. And tenants who come to us specifically are typically tenants who want to move from where they are presently. We are a flight-to-quality destination. We are a different product. So this is not a commodity visit. It's a question of, in the case of super top quality tenants, do they wish to downgrade to our top of tier in a lower price range? That's what it is. And we've been able to convert a number of them because they realize, "Wow, I got all of this at a better price point." Are people prepared to upgrade to our higher price point? Are people already paying the price where we are and what we want and just say, "I can get a better product for that." So, you know, but let's be clear. People don't go out idly shopping today. They go out with a purpose, number one, and number two. When they come to look at us, they know they are looking at a differentiated product. So therefore, it really comes down to will they come to our locations? We had a question come in through the live QA feed. Can you give any update as it relates from the fallout of New York Community Bank? Is there any potential impact to Flagstar given that they assumed the leases from Signature Bank last year? Sure. So as a recap, Flagstar is a little over 300,000 sq ft at 1400 Broadway. That's our best leased building, 100% occupied currently. We have a few leases up for expiry and already spoken for. So very strong building, well amenitized, well located, the full package. In context, the Flagstar lease is 2.5% of ESRT's total revenues. So just for sizing, big headline, but it's 2.5% that we're talking about. We stay in touch with the tenant. We remain close. We don't know more about their specific situation than what everyone's reading in the papers, but we remain close and engage with them. And it's business as usual, from a day-to-day perspective. In terms of what we can do, what's within our control, we are very proactively looking at alternative options for the space, as we plan for contingency. And within that, those are very attractive floor plans. We have a combination of contiguous floors and separate floors, so it offers us a lot of options for leasing, and it finally gives us something that we can potentially offer to tenants, which is also good in a well-leased building. In terms of pricing, Flagstar is currently in at just under $60, so there is a mark-to-market opportunity in terms of rent. If you look at our last lease that we announced in the building, Burlington, for just under 70,000 sq ft, that was signed close to mid-60s. So there is a mark-to-market opportunity. So overall, as always, we will be very proactive, closely monitor, and be in a very good position to backfill the space if we need to do so. So I think what's really important to note, look, there's no question we were happy to maintain the tenancy when Signature was taken over, and there's no question we would be happier to have Flagstar survive. That said, we have one floor in our New York City portfolio available for direct lease right now. That's how good our leasing has been. So when you look at the total size of our portfolio with 92%+ leased and you look at 8% vacancy, we have about 720,000 sq ft to lease right now based on our vacancy. And, you know, we have some roll in 2024. We've got most of that covered already. So as again, as we have said in our guidance, we anticipate further leased percentage gains in 2024. And so we do have demand for this space. If we had a choice, we'd love to keep them, and if not, we think they'll be demanded. We could probably get a positive mark. Maybe we can talk about the 2024 leasing pipeline for a bit. Can you remind us if there are any large notable leases coming due, and if so, how are those renewal conversations going? Sure. No large renewal, no large leases coming due. All in all, we have just under 600,000 sq ft of expiries, and 320,000 sq ft is already expected for renewals and relocation or new leases. That does include the 125,000 sq ft of leases we already announced, for the start of 2024. So we feel really good between the pipeline Tony mentioned earlier and the progress we've made, that we'll be able to backfill the space, anything that comes available, and also reach our occupancy guidance, which as a reminder is 87%-89% for the year. How have you noticed concessions, both tenant improvement dollars and free rent, been trending this year, and how do you expect them to trend over the next few years? Yeah. So concessions have largely stabilized. We've been saying this for 12, 18 months. They haven't gone away, but they haven't gotten worse either. So very rough rule of thumb, about one month of free rent per year of lease and on TI contributions about $120 per sq ft. When you look at this data across different leases and data points, the important thing is to look for the quality of the lease, quality of the tenant, and whether you're getting term. $120 spread over 11 years is very different from $120 spread over 5 years. And so that's where we spend a lot of time, which is doing our part to offer a lot for the tenant and on the other side making sure we're striking economic leases that are attractive with high-quality tenants and terms. In terms of where concessions will go, this seems to be where market is. As we continue to be able to lease up space, drive lease percentage, we would look to improve on economics, but for now, it's stabilized at these levels. Maybe turning next to street retail. You know, what's your sense of demand for these properties, and is there any incremental occupancy from street retail baked into your occupancy assumptions for 2024? Well, let's break that into two. Number one, there is no question that at the right price, there, at, and with the right locations, retail is back. Physical retail is back. New concepts, yes, some older concepts. And the bloom is largely off the rose from, you know, years back conversation about, you know, online, home delivery, changed the world forever. It was in this room several years ago that I said, "If you look at the percentage of catalog sales to retail sales and look at catalog sales at that time plus online to retail sales in bricks and mortar, there hadn't been that big a growth. There's some growth, but not that big a growth in the online catalog combo versus just catalog in prior years versus bricks and mortar." That said, you know, removal of free delivery, free shipping, a lot of online, and direct-to-consumer retail efforts, beginning to fail, or have failed already. So that's a plus. That said, we do see some demand, and we do see some— we see basically with the return to our CBD locations of workers, people want to be there to service them. As far as what's in our guidance, Christina, what do we have? For retail, we don't give specific retail, occupancy, but it's 90% occupied and it's currently 92% leased. Both those figures fit into our overall occupancy guidance of 87%-89%. Next, maybe, shifting to the observatory. With NOI expected to be above pre-pandemic levels in 2024, how much room is there to run in, in terms of growing this part of the business? Will it be mainly through maximizing revenue or controlling expenses or some of both? Well, first of all, let's just remember that you're talking about the number one rated Best of the Best Tripadvisor attraction in the United States for two years in a row. We never thought we'd get it once. We didn't even know the award existed, to be quite candid with you. We certainly never thought we'd get it twice. And I have said to our staff, both union and salaried, that they can throw pies at my face if we get it a third time. That said, we like the business a lot. We've gone to entirely reservations only. We control our flows. We charge a higher price. We give lower discounts to our tour and travel, online travel agent, and past program partners. And people like the experience more than ever based on the ratings and the fact that we give them a better quality experience. We continued to see increased visitorship on the top of higher prices and lower discounts. So we like that mix, and we think we see that. People have asked in our one-on-ones in our cubicle whether or not people think that people should think that we will see back to 4 million people in a day, excuse me, 4 million people in a year visiting. And we just don't think that's realistic. We have limited the number of people in the park. We have limited the number of people at different times of day at sunset. We basically have half of the decks available for viewing because everybody wants to be on one side of the building. That got horrendous reviews when we didn't control the number of people in the park at the time. So we do think that there's more room. At the same time, we can create more room by adding more hours, and we know we need to add more hours if reservations fill up the hours for which we have openings. But I wouldn't expect that we'll get back to 4 million. We certainly think we'll see continued growth. Tony, is there a worry, if any, that competing observatory decks could impact demand for ESB? No. All righty. You've talked about being a New York-focused REIT, be it office, retail, multifamily, or the observatory. Why does this diversified strategy work given that many investors prefer pure-play options when looking at REITs? Yeah. So, we are a diversified New York City play. For us, when we added multifamily, the logic went something along the lines of we already own office, the observatory on top, and the retail at the bottom. So already, we were not pure-play. When you look at the fabric of New York City and the various sources of tenant demand, there's office demand, there's shopping demand, and there's also tourism demand, and it seemed to make a lot of sense for us to add residential demand into that mix for a vibrant city like Manhattan and overall New York City. So that set off along with having good pricing at the time that we transacted to add multifamily into the portfolio at the end of 2021. So with that, we have four components, and as Tony mentioned earlier, it's well balanced. It's about 60% of net operating income contribution from office, which, as a reminder, has already been invested in, ready to go, 92% leased. We have retail, and for us, that's everyday retail, high-foot traffic. Very pleased with that. That's about 10% of the portfolio. Multifamily is about 5%, and observatory is 25%. The concept of the REIT investors like pure-play is a bit antiquated when you consider look across the landscape. Very few are actually pure-play. SL Green does a variety of things. Vornado does a variety of things. PGRE is an office, but they also have different markets, including San Fran. Then you go down. JBG is looking for multifamily. You go on the West Coast. You also have, Douglas Emmett that also does multifamily. You have HPP that does studios. You get the gist. You know, very few pure-play. It's pure-play in concept, but the reality is companies tend to expand and do other things based on what's good for their portfolios and the opportunity set, and that's what we look to do. We won't be random. We won't keep adding. But with these four food groups, we think we are an excellent play for New York City. I would just add to that that when we look at pure-play, we do think of ourselves as pure in focus on what we think can deliver long-term value. So we don't look to chase the bright shiny penny. Don't expect us to do any medical research facilities. When that came out, it was hot. We looked at it. We said, you know, we focus on what are the drivers of occupancy." We said, "Okay. A lot of venture private equity fund companies that don't make money. We've seen that play in tech. Doesn't make sense. Special purpose buildings with multi-hundred dollar TIs. Doesn't make sense. Studios, you know, we looked at it and said, "Big demand driver is the growth of streaming. We don't see that long term. Probably going to end up with an oversupply situation." We are really fortunate, as I like to say, that my family didn't stop in Cleveland or Cincinnati. Instead, the good news is we were so broke, we only made it to New York. And the bottom line is it's the best market in the world, and we're very fortunate to be there, and we have to choose our targets, and we like what we have. Yeah. I want to add one more point is, we are New York City-focused. We have these groups, but it's not really just about having multiple groups and saying you're diversified. We look at the resiliency of the cash flows, right? So to have office, which, you know, is more CapEx intensive but as a trade-off offers long-term contractual leases and a structured rate can be very beneficial. You have multifamily, which is generally one-year leases, a little more closely tied to inflation and different CapEx profile. You have the observatory, which has much higher margins, no CapEx, not subject to leases, however, offers dynamic pricing and a closer link to inflation, and we can control expenses very well, and then retail runs somewhere, you know, in between those trades. What you want is to build a portfolio that has characteristics of ZIG and ZAG and can outperform depending on the market cycle, and we think what we've created is pretty resilient. I'll say one more thing. We are omnivorous opportunivores. Where we think there is value, that's where we'll go. Maybe shifting gears to external growth opportunities. You know, obviously, you've done a good job redeveloping the existing portfolio, but given the capital markets dislocation out there and the distress, it seems like there might be potential opportunities in New York. Have you started seeing distressed opportunities? And if so, how best do you think you could capitalize on these potential opportunities? Yeah. So, the investment market is still pretty light in terms of available opportunities. The capital markets are certainly dislocated, and you would think there would be more, but a lot of what's going on and is pervasive is a lot of kick the can down the road, extend and pretend. A lot of loans remain on bank balance sheets and other holders. They continue to work with existing operators. One, they don't want to take over the asset. Even after you take over the asset, there's no sale market because there's no financing. In addition, even after you take over, there's more capital required to get the asset to where it needs to be to be able to compete in today's market. So for a lot of those reasons, there's almost a suspended reality. The market was probably closer to seeing some more last year, and then Powell and Forward announced a few rate cuts, and I think that pulled, you know, some capitulation off the market. So we are where we are today. It does seem like between the volume of debt maturities and the continued extend and pretend that something should come to a head, and we should eventually see it. To quantify what those debt maturities are, last year, when you look at 2023, 2024, and 2025 maturities, the total was $2 trillion coming due. Fast forward. 2023 is behind us. When you look at 2024, 2025, 2026, 2024 has now grown and the same, $2 trillion of maturities because of this, kick the can down the road. So we see opportunities ahead. And when we think about it, you know, really, it requires a real basis reset. We will be patient, prudent, and look for the types of assets that we want to own, and we believe we can apply our operational expertise, our experience from having redeveloped 9 million sq ft within our portfolio to create competitive product and create attractive returns. Then in terms of any future dispositions, would you expect these to come mainly from the greater New York portfolio and look to reinvest the proceeds into your Manhattan properties? Yeah. So for the past 18-24 months, what we've done is capital recycling exactly that, Griff, right, selling out of greater New York, and reinvesting into multifamily. So in the future, what we have is non-core sales. We've mentioned Stamford, Connecticut, our last two assets could be within that category. The main issue today is that the capital markets are a bit dislocated, so we'll see what happens there. And then just on the balance sheet, Christina, you obviously have a, you know, relatively strong balance sheet with limited debt maturities, a favorable leverage profile. If the right opportunity came along, could you look to increase leverage, and at what level in terms of net debt to EBITDA do you think you would be comfortable with? Yeah. Our current net debt to EBITDA is 5.4%. It's lower relative to peers. We have room to lever up. We're not looking to lever up in and of itself, also not looking for a specific target. You know, what we think about is continued access to capital and ensuring that we have operating runway and maintain a very flexible balance sheet. That does mean we can take advantage of opportunities, but we'll always look for maintaining flexibility. Maybe just switching to, you know, quality of life issues. Obviously, you know, I live in New York. I've seen it rebound, substantially from kind of the lows of the pandemic. But Tony, when you're talking with key public stakeholders, you know, what is really important in terms of, you know, driving confidence to get people back into, you know, the, you know, areas like Midtown and make them feel safer? Hey, let's be really straight and get right to the point, okay? People are back, and more people will be back just based on the leases we have signed and the increase we have seen in the occupancy of our assets, number one. Number two, you know, I grew up in New York in the late 1970s and the 1980s. There wasn't a single subway car that wasn't covered with graffiti, including the windows. I would board the cars between the cars in order to get to a car that had air conditioning. We're not in that world, number one. Number two, crime is actually down. Number three, we have a fundamental issue based in Washington, D.C. about immigration. And number four, we've already begun to see rollback in a lot of places of some of the very liberal policies which have caused issues in quality of life. Oregon has recriminalized drugs. We see these changes. I feel very confident in the future of New York City, and people are already voted, and they will continue to vote with their feet and back to work. And then maybe just on the topic of office-to-residential conversions. Obviously, you know, you talked about your portfolio being highly leased, but for supply overall in New York, it does remain elevated. What do you think needs to get done either at the local or the state level in order to incentivize some of these conversion opportunities? It's all about basis. The basis has to get low enough to account for the fact that, number one, these things are expensive, and number two, when they rent, they rent for less because the floor plates are goofy. Every bedroom requires a window. The utilities are much higher on a per-unit basis because the HVAC, we call them sweater buildings. In the summer, it's too hot, and in the winter, it's too cold, and that's with your heater or your air conditioning running full time. So it's all about basis. Basis has to be driven low, and that means to the extent that subsidies can be generated or tax benefits, that will help. ESG is obviously a very important focus for a lot of investors, and it's something that ESRT pays great attention to. Can you highlight some ESG initiatives that you've currently been working on? First of all, let's be clear. Our sustainability leadership gets us leases with the best companies and helps us box above our weight. That's proven by how people come to us, what they say when they come to us. We have over 80 tenants who partner annually with our director of sustainability to help fill out their corporate sustainability reports. So it is a moneymaker for us. That's our view. That's how we look at it, number one. Number two, the level of sustainability with which we work is metrics, details, facts, not bike racks, not showers, not water features, not green walls of plants. It's actual reduction in occupancy cost due to energy savings. During the Canadian wildfires, the air inside our buildings was as clean as when the wildfires were not there because of the work that we put in to keep the air clean going back to the SARS virus. So these factors, energy efficiency, indoor environmental quality, these are the things which move the needle and which the tenants really want. We're pleased to be recognized as one of Newsweek's most responsible companies. We were awarded the Governance Intelligence's 2023 Governance Award, for best small-cap proxy. We were the number one rated company by GRESB in our category in the last report, not top five, top six, not best for disclosure or grade A. We're number one. There's only room for number one, and that's where we are on sustainability, and it makes us money. We had a question come in from LiveQA here. Would you give any thoughts to adding coworking spaces within your portfolio? No. Why? Anybody who's looked at this, you can Google my comments on WeWork. We don't believe in it. We believe it's disintermediation between the landlord and the tenant. That's the relationship we want. We think it's a mix mismatch of obligation versus revenue stream. And frankly, we have our pre-built programs, and we can offer you a pre-built space all the way down to 2,500 sq ft, though we don't have that many that are that small. We can offer it to you with furniture. We can offer it to you with furniture prewired for data. We'll even do the move for you. We just price it all into your lease. Nobody else has that kind of turnkey solution, which we offer. And again, it gets us tenants. We don't see the need to bring someone in from the outside to do our business, and we've benefited, and our shareholders benefit from the fact that we didn't do it. Well, if there are no other questions from the audience, I have my three rapid fires to end the session. What is the best real estate decision today: buy, sell, develop, redevelop, or pause? Buy at the right prices. What do you expect same-store growth for 2025 for the office sector overall to be? Up. Lastly, will there be more, fewer, or the same number of publicly traded office REITs a year from now? Fewer. Great. Thank you so much. Thank you, Griff.