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Empire State Realty Trust, Inc. (ESRT) CEO Tony Malkin on Q1 2022 Results – Earnings Call Transcript – Seeking Alpha

Empire State Realty Trust, Inc. (NYSE:ESRT) Q1 2022 Earnings Conference Call April 28, 2022 12:00 PM ET
Company Participants
Tom Keltner – Executive Vice President & General Counsel
Tony Malkin – Chairman, President & Chief Executive Officer
Tom Durels – Executive Vice President, Real Estate
Christina Chiu – Executive Vice President & Chief Financial Officer
Conference Call Participants
Steve Sakwa – Evercore
Michael Bilerman – Citi
Daniel Ismail – Green Street
Operator
Greetings, and welcome to the Empire State Realty Trust First Quarter 2022 Earnings Call. [Operator Instructions] 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.
Tom Keltner
Good afternoon. Thank you for joining us today for Empire State Realty Trust’s First Quarter 2022 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 Investors 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 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.
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 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.
Tony Malkin
Thanks, Tom, and good afternoon to everyone. We are pleased to report a strong first quarter to start the year, and we have many reasons to be confident about the recovery that is underway both in New York City and within ESRT’s portfolio today.
At the start of COVID, we said we were both realistic and confident about New York City, and we still are today. The New York City market shows many signs that has passed its bottom and forward on new upward trend. The residential market has strongly rebounded as people have returned to enjoy the city. Overall, hotel demand in the city is up 80% year-over-year through March 31, primarily driven by tourism and green shoots of business travel.
Room rates surpassed 2019 levels in February. Foot traffic is near prepandemic levels in many of the neighborhoods that surround our portfolio. And office tenants plan their future space needs on the basis of where the see the importance and benefit of in-person collaboration.
These positive trends translate into improvements in office leasing activity, excellent performance from our multifamily assets and steady first quarter growth in our Observatory deck visitation. We believe that ESRT is well positioned to benefit from the recovery that is underway in New York City.
We are pleased to introduce inaugural earnings guidance to help the Street better understand our outlook. Christina will cover the details in her remarks.
Our team is focused on the identification of attractive external investment opportunities, which will continue ESRT’s next legs of growth. The valuation of our company presents a compelling opportunity to purchase our shares and benefit from our multiple sources of New York City upside, which include tourism, residential, retail and office demand as New York City continues to recover. Tom Durels will cover our healthy leasing this quarter.
Tenants consider their long-term space needs, their work cultures and our quality buildings with amenities in place or underway, healthy building attributes, indoor environmental quality and energy efficiency and commit to new and expansion leases within our portfolio. We continue to build back our leased percentage, and that will drive higher occupancy in the future. We have attracted great companies who see us as long-term partners for their needs of high-quality real estate and want to grow with us.
The evidence is in the recent expansions from Signature Bank and iCapital Network, just a couple of recent leases announced in recent months. The debate about the long-term outlook of Class A and Class B office buildings and their ability to attract tenants has been overly simplified. Tenants today prioritize well-amenitized, healthy, energy-efficient buildings, which are centrally located near mass transit at all price points. We are a destination for the flight to quality trend at a more accessible rental price point for the broadest population of tenants, not just those which can afford to pay triple-digit rents for brand-new buildings.
We are encouraged to see this in our leasing activity completed and underway.
First quarter visitation to the Empire State Building Observatory was 45% of 2019 levels, and that exceeds our hypothetical forecast of 40%. While the first quarter is historically the lightest quarter for the Observatory, we are encouraged with the start of the year. We discussed in our last earnings call that Omicron was somewhat of a speed bump earlier in the first quarter. We saw improvement towards the end of the first quarter with a recapture rate in March of 51%.
Momentum has continued through April with visitation of 62% month-to-date. Recent performance was dominated by domestic travel with green shoots of growth from some of our international markets. With more visitors, we see the percentage of our visitors from our past program and tour and travel partners steadily grow. That said, our revenue per capita remains stronger than prior periods with the same direct versus third-party sources of traffic, a big win for the Observatory at ESRT.
It is good to have had a few days with more than 10,000 visitors, and at the same time, with our new reservations-only system to provide our visitors with a unique, memorable, best-in-class experience to our very well-received exhibits and 102nd floor with high revenue per cap. It is important to note that the Empire State Building Observatory’s $165 million redevelopment has the capacity for thousands more visitors each day without lines or sacrifice in visitor experience.
Our online research and in-person polling confirms that the Empire State Building Observatory is the authentic New York experience.
Turning to acquisitions. We look to build on our successful fourth quarter multifamily investment. We see clear advantages and value creation potential for our stakeholders from our unique portfolio positioning that enables us to benefit from the continued recovery of New York City in multiple ways, including increased tourism and residential, retail and office demand. As such, our investment team continues actively to underwrite new office, retail and multifamily acquisition opportunities, which are complementary to our New York City focused portfolio, where risk-adjusted returns can be compelling and where we think we have an edge with our local knowledge, ability to spot unique opportunities and ability to be nimble with our flexible balance sheet.
We continue to measure the potential of these options against the purchase of our own stock. As we focus on shareholder value creation, we also look at potential capital recycling. In all of this, we actively review our portfolio and seek opportunities to monetize assets in which we have added value and reinvest the proceeds to fund buybacks and accretive acquisitions.
We are proud to report additional sustainability milestones achieved during the quarter. ESRT was among the first to achieve recertification of well health safety rating for our entire commercial portfolio. We were the first commercial portfolio in North America to achieve this distinction.
Additionally, last week, President Bill Clinton, Governor Kathy Hocol and Eric Adams were at the Empire State Building to reveal the Empire Building playbook, a guide to low carbon retrofit, which was codeveloped by Empire State Realty Trust and the New York State Energy Research Development Authority and supported by other New York City-based landlords and the Clinton Global initiative. We now have playbooks fully planned for more than half of our New York City portfolio.
On the property front, during the quarter, we announced a large community solar project at 500 Mamaroneck that will generate — supply more than double the building’s energy needs and require 0 capital investment. We will look to highlight more of these project-specific achievements going forward.
Finally, we just published our second annual sustainability report where you can learn more about our leadership in ESG.
Now I will turn it over to Tom Durels.
Tom Durels
Thanks, Tony, and good afternoon, everyone. The office leasing environment in New York City has improved significantly from a year ago. The 15-year average of quarterly leasing volume in New York City is 6.4 million square feet. First quarter 2022 saw 7.2 million square feet of new leases in the second consecutive quarter with over 7 million square feet of new leases.
In the first quarter, we benefited from the ongoing flight to quality and signed 44 new and renewal leases totaling approximately 319,000 square feet, which includes 256,000 square feet in our Manhattan office properties, 62,000 square feet in our Greater New York Metropolitan office properties and 1,000 square feet of retail.
The weighted average lease term of 8.7 years this past quarter reflects our tenants’ long-term commitments to our modernized, healthy, transit-oriented portfolio. Notable leases signed this quarter include a 71,000 square foot new direct lease with Progeny for 3 full floors at 1359 Broadway; a 33,000 square foot expansion lease with Signature Bank at 1400 Broadway, where Signature now leases 313,000 square feet for a term of 17.4 years. 1400 Broadway is now 100% leased, and we signed leases for 18 prebuilt office spaces in Manhattan.
Lease spreads for new and renewal leases signed at our Manhattan office properties in the first quarter improved to a positive 3.5% on a cash basis compared to the prior escalated rents. Leasing costs for tenant installations and free rents in our Manhattan office properties were relatively flat this quarter compared to our fourth quarter 2021 results.
Consistent with our expectation, which we communicated during our last earnings call, the total commercial portfolio leased percentage improved in the first quarter and was up 130 basis points quarter-over-quarter to 87% while our Manhattan office portfolio lease percentage increased by 160 basis points to 88.6%.
We remain laser focused on lease-up of our vacant space and tenant retention to drive occupancy. As stated in our 2022 guidance on which Christina will provide details, we expect occupancy in our entire commercial portfolio to reach between 84% to 86% by year-end.
Tenants remain focused on quality at all price points, and ESRT delivers modernized buildings with energy efficiency, low emissions, indoor environmental quality, healthy buildings features, convenience to mass transit and amenities, all at an accessible price point. We have new and exciting amenities underway with a basketball court, lounge and town hall assembly space at the Empire State Building. And additionally, we will open an outdoor rooftop tenant lounge at 1333 Broadway and town hall assembly space at 1400 Broadway to be shared with tenants in our Broadway portfolio. These amenities will be added to our portfolio’s current robust offering of state-of-the-art fitness centers, tenant lounges, comp centers and more than 60 usable outdoor terraces and 23 curated food and beverage providers in our ground floor spaces that are surrounded by robust neighborhood amenities.
Building utilization experienced an increase in February that continued throughout the first quarter, and Tuesday through Thursday comparison to 2019 is currently in the mid-40% range for our Manhattan office portfolio and high 60% range for the Greater New York Metropolitan office portfolio.
Same-store cash operating expenses and real estate taxes in the first quarter were $65.3 million, a $3.5 million increase from the fourth quarter 2021 due to increased building utilization. We project same-store operating expenses in 2022 to run about 7% below pre-pandemic levels due to a combination of earlier permanent cost-saving measures and gradual return to office through the year.
Our multifamily occupancy has increased 120 basis points since last quarter and up 260 basis points since our initial underwriting and now stands at 97.6% with strong mark-to-market increases and reduced concessions and broker commissions.
In summary, we had a solid leasing quarter with 319,000 square feet of total office and retail leases signed. Our centrally-located office portfolio with convenient access to mass transit is fully modernized and amenitized and has built healthy tenant spaces ready for lease. Our industry leadership and experience in indoor environmental quality and sustainability enhances our ability to attract and retain office tenants, and we continue to see strong fundamentals at our multifamily properties.
Now I’ll turn the call over to Christina. Christina?
Christina Chiu
Thanks, Tom. For the first quarter of 2022, we reported core FFO of $49 million or $0.18 per diluted share, which compares to core FFO of $41 million or $0.15 per diluted share for the first quarter of 2021 as Observatory results continue to improve.
Same-store property cash NOI, excluding lease termination fees, was up 90 basis points year-over-year. This was driven by a number of cash revenue items in the quarter that aggregate approximately $3.3 million that were generally onetime in nature, including lease modification payments received, largely offset by higher operating expenses as compared to the prior year quarter.
Observatory NOI was $7 million for the first quarter of ’22, up from negative $2 million in the prior year quarter. This is seasonally our lightest quarter. Visitation in the quarter exceeded our hypothetical forecast.
Turning to our balance sheet. As of March 31, 2022, the company had liquidity totaling $1.3 billion, which is comprised of $430 million of cash and $850 million of undrawn capacity on our revolving credit facility. Inclusive of our share of assumed debt from our multifamily acquisition that closed in late December 2021, the company had net debt of $1.9 billion with a weighted average interest rate of 3.9% and a weighted average term to maturity of 7.2 years. Notably, we are well positioned in a rising rate environment with 95% fixed-rate debt. We have a well-laddered maturity schedule with no outstanding debt maturities until November 2024.
Our pro rata net debt to total market capitalization was 39.8%, and net debt to adjusted EBITDA was 6.3x. Pro forma for full year contribution from the multifamily acquisition, net debt to adjusted EBITDA would be 6.1x.
In the first quarter and through April 21, 2022, the company repurchased $23.3 million of its common stock at a weighted average price of $9.34 per share. This brings the cumulative amount purchased to $215 million at a weighted average price of $8.67 per share, which represents approximately 8.5% of total shares outstanding as of March 5, 2020, to date, our share buyback program began.
Our well-positioned balance sheet affords us flexibility to engage in activities that align with our objective to generate shareholder value. This includes the repurchase of our shares at currently significantly discounted share prices, the pursuit of investment opportunities that are additive to our New York City-focused portfolio and potential capital recycling.
On acquisition, our investment team continues actively to pursue and underwrite investment opportunities in New York City across the office, retail and multifamily sectors. That said, we will remain disciplined in our underwriting against a backdrop of record levels of private equity capital, now coupled with the recent spike in interest rates and spreads.
On capital recycling, we take a hard look at each and every asset within our portfolio, and we’ll seek opportunities to monetize assets in which we have added value and to reinvest the proceeds to fund share buybacks and accretive acquisitions.
Last quarter, we mentioned that as part of this review, we engaged in discussions to transfer property ownership of 383 Main Avenue in Norwalk, Connecticut, which has a $30 million mortgage back to the lender. We concluded that such transfer is in the best interest of our shareholders given that property submarket fundamentals and the projected CapEx requirements that would be needed to lease up the property. We worked in close cooperation with the lender, and the transfer was successfully concluded on April 2, 2022, as a consensual foreclosure to avoid transfer tax. And we then completed a reverse 1031 exchange that we structured as part of our multifamily transaction in December 2021 to defer recognition of noncash taxable income that stems from debt cancellation. We expect to recognize an approximate $27 million noncash gain in connection with this transfer, which will be reflected in second quarter 2022 results but will have no impact on FFO. We would note again that this action is specific to this property and submarket, where ESRT does not own any other assets and has no bearing on the balance of ESRT’s Greater New York Metropolitan area portfolio.
Turning to guidance. We expect 2022 core FFO to range between $0.73 and $0.78 per fully diluted share, inclusive of the impact of our recent multifamily acquisition, which contributes roughly $0.02 per share for the year and the completed transfer of 383 Main Avenue.
Let me spend a moment to discuss the assumptions used in our guidance. In 2022, we expect same-store cash net operating income, excluding lease termination income, to decline 10% to 12% from 2021 levels. This change is primarily driven by the normalization of operating expenses as building utilization increases this year as well as the annualized impact of a large occupancy loss of Global Brands Group in late 2021. We expect roughly 10% year-over-year increase in same-store operating expenses this year.
As a reminder, our team actively managed expenses amid COVID and significantly reduced operating expenses in 2020 and 2021 compared to 2019. While we have realized some permanent savings, we expect operating expenses will normalize in 2022 to roughly 7% below 2019 levels as building utilization increases.
We expect same-store occupancy to be between 84% and 86% by year-end, up from 82.4% at year-end 2021.
Turning to the Observatory. We expect 2022 net operating income to be approximately $74 million to $77 million with the base case reflecting the hypothetical Observatory ramp-up that we provide in the latest investor presentation, which assumes 60% of 2019 visitation in second quarter 2022, 70% in the third quarter and 80% in the fourth quarter. This NOI reflects Observatory expenses of $6.2 million in the first quarter increasing to $8 million to $9 million per quarter thereafter depending on the pace of ramp-up.
The low end of our guidance range reflects the potential for a slower-than-expected Observatory ramp-up due to uncontrollable factors such as another COVID variant, the war in Ukraine or any other shutdown of orders that adversely impacts travel. The high end of our guidance reflects a slightly better-than-expected Observatory ramp-up and pace of tenant return to office, partially offset by higher building utilization and operating expenses.
Please note that the guidance estimates and assumptions just described do not include the impact from any potential future property acquisitions, dispositions or capital markets activity beyond April 21, 2022.
As we look ahead, we advanced through 2022 with a well-positioned and flexible balance sheet, a focus on disciplined capital allocation and continued commitment to ESG. We also look forward to benefiting from companies return to office and recovery of New York City tourism.
With that, I will now turn the call back to the Operator for a Q&A session. Operator?
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Our first questions come from the line of Steve Sakwa with Evercore. Please proceed with your questions.
Steve Sakwa
Yes, thanks, good afternoon, everyone. Maybe I was hoping that Tom could just talk a little bit more about the leasing pipeline. I know you don’t have a lot of unknown vacates kind of the rest of this year, but the figure is still a little bit high for ’23. And I’m just wondering, as you start working into the summer and talking to tenants next year, how is that discussion unfolding? Are tenants willing to kind of come back to the table now after kind of sitting on the sidelines for 2 years? And maybe just give us a sense for how the pipeline stands today versus, say, 3 to 6 months ago.
Tom Durels
Yes, Steve, thanks for that question. Certainly, lease-up of our vacant space and tenant retention is our #1 priority. I’d say that we have a very good pipeline of activity going into the second quarter with prospects in a variety of industries that includes financial services, professional services, tech and others. As we move forward, I’d say keep an eye on our leased percentage that will drive occupancy as we — as those leases that we sign commenced later in the year, and you might want to refer to the leased percentage page for each building on Page 9, where at 1400 Broadway, One Grand Central 111, 1333, they’re all over 90% leased. 1,400 Broadway is now post quarter — post the end of the quarter is now 100% leased. And where we have space to lease, we have good activity. We have 6 leases out in negotiation on 6 full floors and well over a dozen pre-builts at One Grand Central 1350, at Broadway and Empire State Building.
As you know, we update Page 10 to give as good of an early look as we can in terms of expectations on tenants who are making their decision to renew or relocate or not within our portfolio. And that gets updated regularly. And we’ll update that in the quarter ahead. But many of our spaces are smaller on the pre-built side — on pre-built. And those tenants often, I would say, hold out to their decision as close to when their lease expires. I’m excited about the amenities that are underway, a town hall assembly space at 1400 Broadway and at the Empire State Building, which is probably the most high amenitized building in the city. We’re adding to the robust amenities there with a new basketball court, town hall assembly space, tenant lounge, golf simulator. Adding to the state-of-the-art fitness center that we have and executive gym and comp center as well as the 8 on-site food and beverage operators. So, I think we’re well positioned and I’m optimistic about the year ahead.
Steve Sakwa
Great. I guess maybe for Tony or Aaron just on acquisitions. Your timing of the apartments, I guess. Negotiating that middle of last year was good. The markets, obviously, have recovered very quickly in multifamily and rents in New York are now kind of well above pre-COVID. I’m just wondering, the opportunity set that’s out there, is that kind of bigger or smaller than it was 6 to 12 months ago? How has pricing changed? And just how are your expectations changing on price given the ending in the bond market today?
Tony Malkin
Well, thanks very much, Steve. First of all, we remained very active. The acquisition team remains very active looking at a variety of investment opportunities. And we are very fortunate to have a significant balance sheet flexibility, with a strong liquidity position. I also would like to say that, look, we have a very interesting world on the transaction side with regard to the economic uncertainty, war in Ukraine and increase in interest rates. That has caused, I think, what will probably be more complicated opportunities to come about. We get to look at those with great relish because we are good at complicated things, the recapitalization in which we are involved in December, the conclusion in December is complicated.
So we feel pretty good. I think that it’s unavoidable with increased interest rates, you’re going to see reduced financial buyers, people who use high leverage will be less competitive who have used high leverage will be less competitive. And there’s always the opportunity for us to selectively recycle capital out of assets we have created value and use proceeds to fund a portion for our future external growth investment. So overall, we feel good. We are right now involved in lots of different activities on both how we look at — we might recycle our capital and how we might invest capital.
Steve Sakwa
Okay. And then just one last question. On the dispositions, it’s not something you guys have really done much of. And so I’m just curious, how do you think about the size of that? Or how should we think about the size of that and the kind of timing? Is that something you think is a 2022 event? Or this is very early and unlikely for anything to actually get to the finish line this year?
Tony Malkin
I think that you should consider the fact that we mentioned the prospect of the recycling of existing assets some time ago as an indication that, that is when we began to think about it.
Operator
Thank you. Our next questions come from the line of Manny Korchman with Citi. Please proceed with your questions.
Michael Bilerman
Hi, everyone. It’s Michael Bilerman here with Manny. Tony, congratulations on last week’s event and coming out with the playbook and the blueprint from an energy perspective, clearly something that’s very important for our world. I was wondering if you can unpack a little bit on just transaction activity in the sense of — and I recognize you want to always be nimble in the sense of looking at potential acquisitions, evaluating dispositions and then looking at your stock. I guess how does anything ever exceed buying back your stock, which is basically 50% of your NAV, right?
So, how — what assets, even if you can find complicated or structured investments or other things could ever drive the value relative to buying your shares, which granted are up well off of the lows from 2020, but still meaningfully below where you had been trading 5 years ago?
Tony Malkin
Thanks very much, Michael, and thank you very much. It was great to see you at the event with President Clinton, Governor Hocol and Mayor Adams. And yes, I think that the important thing to take away about that event for us is we are flight to quality. We really are at the lead, and we really are aware the most important and highest credit tenants want to be just at a different price point from the new AAA brand-new assets. So thank you for your attendance there. Our priorities include share buybacks, new acquisitions, capital recycling. We look at those in those 3 different baskets in the following way, and I’ll let Christina add to my comment when I’m done, if you don’t mind. The first is for our actual cash, so long as we can procure value for our investors, we are very interested in and continue to acquire our stock. Of course, we’re in the 10b5-1 period now. If we are buying back stock, so that’s not under our control.
That said, with regard to why we might look at acquisitions even at the value of our stock, we want to be very mindful. If you take a look at how we handle the Merit view hand back to the lender, we deferred, avoided current payment recognition of a lot of gain. And if you look at our disclosures, there was also tax protection on that asset, so for certain of the original contributors of value to the REIT on our consolidation. So we do look at our existing assets as an opportunity to recycle in the higher growth prospects for the future at the same time as we look at the cash that we can generate without tax effect to repurchase our stock. And Christina, I don’t know if you’d like to add to that.
Christina Chiu
I would just reiterate your message, Tony, which is — thanks for the question, Michael. I think that’s such an important question for all companies and to state very clearly, our priority is to engage in activities that align with our objective to drive shareholder value. So that absolutely includes the repurchase of our stock at very significantly discounted share prices, but that’s not the only thing we will do. We will look for interesting opportunities, and we have various sources of capital coming from balance sheet cash on hand, flexibility to increase leverage if we choose to and capital recycling.
And to the extent we can effectively recycle, sell assets and redeploy into new acquisitions, then a lot of our balance sheet capital can be utilized towards share buybacks without adding a lot of risk to the company. So those are the objectives that we have in mind. We don’t feel we have to choose between one or the other. If interesting opportunities come along, we will pursue them. And to the extent they’re accretive and we’re buying back our shares at a discount and can drive further accretion, we will do so.
Michael Bilerman
That’s helpful. I was wondering maybe you can unpack a little bit on the capital recycling front, and I understand the Norwalk transaction. And it sounds like you have the stuff up in Westport on Main Street up for sale as well. Do you have anything else on the market either as a full 100% sale or where you’re looking to raise joint venture capital against your existing assets? I’m just trying to get a sense of what is taking priority right now. Is it really aggressive on the acquisition front of retail, office and multifamily? Or is there more time being spent at looking at every one of the assets and seeing what the best opportunity to monetize at today’s valuations?
Tony Malkin
I love the question, Michael. That’s incredibly helpful, and I’ll take a crack at this and then ask perhaps if Tom Durels or Christina has further comment on it. Number one, we absolutely positively have looked at every single asset, and we do have a plan for what we wish to do. Number two, we do have right now, and you may not have seen it yet, but it went out on the market earlier this week, 10 Bank Street out in the market for sale. That’s been listed. And number three, we do look at a situation like Merit View. And just to give you some insight as to how we analyze and determine that. We looked at Merit View and said that could consume 8-figure number of cash over 10 years and not produce an effect. It might have an FFO effect, but it wouldn’t have a positive cash effect. So our view is that we actually made money for investors in order for us to have cash — facilitated us to have cash to allow us to deploy into growth rather than into stagnancy, and so I’ll just say that that’s a hyperbolic example of what we’re — what we’ve concluded we want to do. And with that in mind, Tom, I don’t know if — or, Christina, if there’s anything you wish to add. Do you think that’s covered enough?
Tom Durels
I think you’ve covered it. Just to emphasize, we do look at — we look at every one of our assets on a regular basis. And I think the Westport Retail and 10 Bank Street are good case studies where we’ve executed on full redevelopment and lease-up, and we see an opportunity to extract that value through a sale and redeploy the capital. And we’ll continue to look at our assets on an ongoing basis from that perspective.
Michael Bilerman
Yes. I was just trying to get at, Tony, if there was a more urgent sort of perspective of really trying to narrow this gap on your stock by more aggressively looking at capital recycling and share buybacks versus growing the base through additional. I was just trying to get a sense of where the intense focus is right now, whether it’s on external versus shrinking the base and trying to get to that value to improve your cost of capital. That’s where I was going with.
Tony Malkin
I’ll give you our 4 points of focus, if I may. Number one, lease space; number two, sell tickets; number three; attract investors; number four, constantly in the background, where do we have better opportunity for growth, in what we have or what we might acquire? And when we can remove something from our balance sheet in a tax effective fashion and go into — with those same dollars into something that we feel serves us better as far as our focus and what we want to accomplish, we will do that. And our focus is intense on those 4 things. It is an everyday conversation. It’s how we grow up in our business right now.
Michael Bilerman
Great. Thanks all for the great color.
Tony Malkin
Thank you.
Operator
Our next questions come from the line of Daniel Ismail with Green Street. Please proceed with your questions.
Daniel Ismail
Great, thank you. Maybe just along those lines of the capital allocation playbook Just a question on dispositions. I assume any disposition in Manhattan would have a large capital gain associated with that. Am I correct in that understanding?
Tony Malkin
So let’s just say that every situation is different. We have lots of different tax considerations. As stated in our public disclosures, we have certain assets with tax protection. If you look at how, Daniel, we actually handled the transaction with Merit View, the interesting structure that we were able to deploy there was actually to take an acquisition in the form of a tenancy in common, coordinate that with the handing back of Merit View to the lender, swap in that transaction, that transfer, into the tenancy in common, one of the tenants we created for the recapitalization on the assets in which we invested on the residential, deferred tax.
So let’s just say that we’ve — draw attention to the fact to people that we’ve had an acquisition team in place now for just over — approaching 2 years. And as we do that work, things are on 1031s, which we’ve done before effectively. Certainly, Tom Durels, Tom Keltner, and I have on our watch, we want to get the team. It’s a different sort of transaction process. It’s a different way of doing business. It has different focal points and pressure points. We want to get the team all working well together. Aaron and the team under him work — Aaron Ratner that is, who’s our CIO. These folks are working incredibly hard. They’re learning very well, and they’re also now with us approach a new cycle with a lot of folks who are in their 30s have never seen before.
That said, we’ve seen it. We’ve lived through it. And so that’s our experience, and wisdom comes into play there as well. So I hope that’s helpful for you. When you talk about that capital gain, so long as 1031 like kind exchanges are available, there’s a way to defer tax.
Daniel Ismail
Got it. That’s helpful, Tony. And then maybe just last one for me. On the ESG playbook, one of your New York City office peers mentioned publicly that maybe only half of the New York City office stock qualifies for the workplace of the future, where sustainability is obviously a critical factor there. I’m curious to get your sense of how much of the New York City office stock can be decarbonized or be on the path of decarbonization and really meet a lot of these sustainability factors that you guys have implemented in your own portfolio?
Tony Malkin
I’m so glad you brought that up. First, I’d like to point out that we are very proud of our 6-point improvement and achievement of the second highest score in our peer group of 94% in our GRAS filings. We’re very happy with the fact that we have the lowest carbon footprint of any publicly-traded New York City office REIT as actually cited by Green Street. We are an older portfolio of assets. We accomplished this with our office assets of age because we have a balance sheet that has allowed us to invest and modernize these assets.
Along with the investment in modernization, we have made them energy efficient. Along with the energy efficiency, we have created the highest standards for indoor environmental quality and health buildings. We are a green lease leader, platinum with our friends at the Environmental Protection Agency. So we are actually, what we call, flight to quality for a very broad-based opportunity set of tenants in the market, not just those who can pay $150 to $300 a square foot for what they are prepared to pay for their office space. I think that there’s a tremendous opportunity to redevelop what is existing. You need to have the balance sheet and you need to have the know-how. Our Senior Vice President of Sustainability Energy and ESG, Dana Schneider, who spearheaded our playbook activities with our partners and Development of the New York State Energy Research Development Authority, and by the way, of course, this work is now all publicly available. We’d encourage people to look at it. It’s available and it’s noted online. The fact is we’ve worked together for more than 1.5 decades in order to get to where we are.
So, I think it’s know-how, it’s balance sheet and then you get to the physical realities of the locations and the floor plates of the buildings. 1400 Broadway is now 100% leased. That was mid-priced lady sportswear. The floor plate was good. The location is excellent. We modernized the building. We produced everything that we did there. Signature Bank and A Credit Tenant is now over 330,000 square feet. So we are a flight to quality target. And I think it’s — when you get down to the bones, a lot of floor plates and locations that just don’t match, and that’s compounded by balance sheets, which are not adequate. And it’s then further compounded by the fact that there are a lot of practitioners who do not have the capacity, the intellectual capacity, the technical capacity to execute.
Daniel Ismail
Got it. I appreciate the color, Tony.
Tony Malkin
Thanks.
Operator
Thank you. [Operator Instructions] Our next questions come from the line of Jamie Feldman with Bank of America. Please proceed with your questions.
Unidentified Analyst
Hi, everyone. This is Suri Gangar [ph] on for Jamie. Could you talk about how the pace of leasing activity for your typical price point office spaces compares to the higher-end rents in the market?
Tom Durels
Yes. I think that a lot has been written about — when you say the high end, and maybe a lot of the focus has been on new development, but echoing what Tony had said, there are those that have modernized their buildings and made them energy efficient and sustainable. And we are a leader in that area. We definitely benefit and we see a flight to quality to our buildings as tenants are focused on the things that our portfolio provides, right? Healthy buildings that are modernized for the 21st century; latest technologies and indoor environmental quality; newly-built, modern, energy-efficient tenant spaces; convenient access to mass transit; full amenitization. So these are the ones that I mentioned before. I’m really excited about not only what we have, but we’re adding to our robust amenities. And at an accessible price point.
So you put all those things together, right, and I think that we are maybe unique in our price point that we get an outsized share of activity. That may not get the same headlines as the latest large lease in a new development. But certainly, there is an abundance of activity within our price point. The far majority of tenants pay rents with — that are below $100 per square foot, and we provide an important niche to businesses that want to be at our locations with community access to mass transit, newly-built modern office space at an accessible price point. So yes, I think that, that — our level of activity is very solid in that respect.
Unidentified Analyst
Okay, great. That was really helpful. And then could you just talk about your latest thoughts on how tenants will use their office space going forward? Like are they starting to get a better picture on the number of days in the office per week and what it means for their footprint? Is there a noticeable trend by tenant size or Manhattan versus your suburban portfolio?
Tom Durels
We have — in terms of number of days in the office, we constantly hear from tenants about the benefits of employees being together for collaboration, creativity, productivity, training, mentorship and all of those things. I was just speaking to the CEO of one of our tenants yesterday who has mandated a minimum of 3 days in the office, Tuesday through Thursday, which then reflects — there is no reduction in their footprint and they have been expanding with us, and that the tenants are the employees that initially voiced a desire to work from home during COVID are the very first to say they desire to come back to the office for the things that I just mentioned. They miss the interaction and the social connectivity and the excitement and the energy that generated from being in the office. And more and more of our tenants are definitely focused on — if it’s a hybrid or work from home, they definitely focus on at least 3 days in the office, and that speaks to really no reduction in footprint.
And as the leasing stats show that we’ve reported on, we have certainly tenants that are expanding their footprint within our portfolio and growing their employee base. And we’ve not seen any significant or any reduction in space size based upon less use of space or a number of days in the office.
Tony Malkin
I would just add to that. Look, our mid — Tuesday through Thursday, our occupancy in our Manhattan office properties is nearly 50% compared to 2019. And in our Greater New York Metro area, it’s above 60%. So if you look at that, you’d say, right now, Tuesday through Thursday, there’s a good deal of activity. And we feel very strongly that as the business becomes more competitive and people stop having work handed to them on their inboxes at home, they’re going to come into the office and find out what’s going on. At the same time, however, Tom’s comments, I think, about space utilization and need speak for themselves.
Unidentified Analyst
Okay, thank you. That’s all for me.
Tony Malkin
All right. Thank you.
Operator
Thank you. There are no further questions at this time. I will now turn the call back over to Anthony Malkin for some closing comments.
Tony Malkin
Thank you all very much for participating with us today. Please remember the forward-looking statements, including guidance, are meant to be helpful with forward modeling and are not guarantees. Many thanks to our great team who continue to work incredibly hard and in whom I have every confidence to continue to do a great job in behalf of stakeholders. 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 and onward and upward.
Operator
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.

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