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Empire State Realty Trust Inc (NYSE:ESRT)
Q4 2019 Earnings Call
Feb 20, 2020, 2:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Empire State Realty Trust Fourth Quarter 2019 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Tom Keltner, Executive Vice President, General Counsel and Secretary. Thank you. You may begin.

Thomas N. Keltner, Jr. -- Executive Vice President, General Counsel and Secretary

Good afternoon. Thank you for joining us today for Empire State Realty Trust Fourth Quarter 2019 Earnings Conference Call. In addition to the press release distributed last evening, a quarterly supplemental package with further details on our results and our latest investor presentation have been posted in the Investors section of the company's website at empirestaterealtytrust.com. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements as defined in the applicable securities laws including those related to market conditions, property operations, capital expenditures, income and expense. 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. Finally, 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 John Kessler, President and Chief Operating Officer.

John B. Kessler -- President and Chief Operating Officer

Good afternoon, and thank you, Tom. Welcome to our Fourth Quarter 2019 Earnings Conference Call. Team here is very pleased with our quarter, and here is the run of show for today's call. Tom Durels will speak about the fourth quarter's approximately 346,000 square feet of leases, market demand for our properties, and our market-leading leasing spreads. Greg Faje will then review our financial performance and balance sheet. As always, we are joined by Drew Prentice, our Chief Accounting Officer, Treasurer and acting CFO; and John Hogg, our Head of Financial Planning and Analysis, to also assist with questions. In the fourth quarter, we completed our multiyear redevelopment of the Empire State Building Observatory. Visitor feedback has been positive, and the fourth quarter Observatory results will be covered in more detail later in this call.

In addition, we completed the $62 million exchange offer for our 2019 series, private perpetual preferred units. This one-one exchange of 4.6 million operating partnership units for perpetual preferred units is accretive for shareholders, locked in effectively permanent capital and reduced our fully diluted share count without using any of our cash. We also renewed our $500 million Class A common stock and publicly traded operating partnership unit repurchase authorization through December 31, 2020.

I'll now turn the call over to Tom Durels. Tom?

Thomas P. Durels -- Executive Vice President, Real Estate

Thanks, John, and good afternoon. By every measurement, our fourth quarter was another strong quarter during which we made solid progress on our four drivers of top line and better growth. The breakdown of these top line revenue growth drivers, which as of December 31, 2019, over the next five years, we estimate to be $99 million can be found on Page seven of our investor presentation. For reference, this compares to $559 million in trailing 12-month cash rental revenue as of December 31, 2019. In the fourth quarter, we signed 47 new and renewal leases totaling approximately 346,000 square feet. This included approximately 225,000 square feet in our Manhattan office properties, 88,000 square feet in our Greater New York Metropolitan office properties and 33,000 square feet in our retail portfolio. Significant new office and retail leases signed during the quarter include a 46,000 square foot new office lease at 250 West 57th Street with Concord Music Group, and a 33,000 square foot new retail lease with Target at 10 Union Square East that is expected to commence after the existing tenant's lease expires in 2023.

As a reminder, on Page nine of our supplemental, we have maintained updated disclosure on potential vacates and renewals for leases that expire for the four quarters of 2020 and full year 2021. This schedule shows tenants to be relocated within our portfolio and vacates to be replaced by new tenants with whom leases have been signed. During the fourth quarter, rental rates on new and renewal leases across our entire portfolio were 20.2% higher on a cash basis compared to prior cash escalated rent. And at our Manhattan office properties, we signed new leases at a positive cash rent spread of 24.4%. Our leasing spreads vary from quarter-to-quarter as they are a factor of expired fully escalated rental rates and new leases. On Page 27 of our investor presentation, we estimate our future cash leasing spreads on the release of future expiring Manhattan office leases will vary between 12% and 19% based on the adoption of current market rents without any increase.

Our weighted average asking rents in our Manhattan office buildings have increased by over 3% on a trailing 12-month basis, and demand for our product, locations and price points remains good. As we show on Page 12 of our investor presentation, our trailing 12-month net effective rent growth on a year-over-year basis for new Manhattan office increased by 14.8%. This is the fifth straight quarter in which we have experienced net effective rent growth in excess of 5%. We have a healthy pipeline of leases in negotiation across the portfolio for both full floors and prebuilt. We remain focused on our strategy to vacate and redevelop space that we will bring to market for future lease-up.

And now I'll turn the call over to Greg Faje. Greg?

Greg Faje -- Vice President of Investor Relations

Thanks, Tom. For the fourth quarter, we reported core FFO of $75 million or $0.25 per diluted share. Same-store property operations exclude onetime lease termination fees, and the Observatory results from the respective period drove a 6.9% cash NOI increase. Page 16 of our supplemental highlights a 13.1% increase in Observatory net operating income to approximately $29 million, thanks to our completed redevelopment. Revenue for the fourth quarter of 2019 increased to $37.7 million or 9.2% in the prior year period, driven primarily by improved pacing. The brand-new hundred second floorobservation deck experience was opened for roughly 10 weeks in the fourth quarter, and drove approximately $1 million in additional performance compared to the fourth quarter of 2018 for a total hundred second floorcontribution for the quarter of $3.4 million. As reported on Page 16 of the supplemental, the Observatory hosted approximately 894,000 visitors in the fourth quarter of 2019, a decrease of 5.5% compared to the fourth quarter 2018.

For the 12 months ended December 31, 2019, Observatory revenue was $128.8 million, a decrease of $2.5 million or 1.9% from the prior year period due to the closure of the hundred second floorobservation deck for more than nine months and lower visitation, partially offset by improved pricing. Net operating income was $95 million, a decrease of $3.5 million compared to the prior period. Excluding the hundred second floorrevenue in the respective period, Observatory revenue was up 2.1%, and NOI was up 1.7% over the same period. The Observatory hosted approximately 3.5 million visitors in 2019, down 7.9% compared to the $3.8 million in the prior year. Our new pricing strategy for the new Observatory experience, which has been in place since January 2020 can be found at esbnyc.com just by clicking on the Buy Ticket button. Moving to our balance sheet. As of December 31, 2019, we had total debt outstanding of approximately $1.7 billion and no borrowing under our $1.1 billion unsecured line of credit. The debt has a weighted average interest rate of 4.03% and a weighted average term to maturity of 8.3 years. None of our outstanding debt has variable rates.

We are well under way with our efforts to replenish our cash balance after the repayment of $250 million exchangeable note in August 2019. We aim to finalize long-term financing in the first quarter, and we'll provide final details at such time. As we have stated on prior earnings calls, if you were to take into account our interest rate swap, current spreads and tenure, the initial GAAP interest expense would be in a 4.5% range. As of December 31, 2019, our consolidated net debt to total market capitalization was 25.2%, and our consolidated net debt-to-EBITDA was 4.1 times. And we held cash and cash equivalents of $234 million. As we look ahead to 2020, please listen carefully to the following insight on items that we expect to impact full year results. First, we have now completed the redevelopment of the Observatory and the hundred second floorobservation deck is back in service. The nine month closure of the hundred second floorwas an approximate $9 million headwind in 2019 results that won't repeat in 2020. In addition, we expect to benefit from our new pricing, which can be found on esbnyc.com.

Second, we anticipate higher G&A expense in 2020 than in 2019. As a standpoint, we would annualize the fourth quarter 2019 run rate of $16.6 million, as seen on Page 18 of the supplemental. When our officers and employees meet certain tests for length of service and age, there is an accelerated accounting vesting period for the time-based equity compensation. This accounting treatment will result $1.3 million more G&A expense in 2020 than in 2019. And last, please see Page six of the supplemental, on which you can see that we have $29 million of annualized free rent burn off, of which $20 million will be realized in cash revenue for 2020 with the balance in 2021. And we have $23 million of signed leases not commenced, of which we expect $4 million to be realized in 2020 revenue with an additional $11 million in 2021, an incremental $5 million in 2022, and an additional $1 million in 2023.

With that, I'd like to open the call for your questions. [Operator Instructions] Operator?

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Jason Green with Evercore ISI. Please proceed with your question.

Jason Green -- Evercore ISI -- Analyst

Just one question on Observatory visitation. I know revenue and NOI increased. But on visitation, are you seeing anything that gives you confidence that we're getting near a bottom that, that number might start to increase year-over-year?

Anthony E. Malkin -- Chairman and Chief Executive Officer

Jason, Tony Malkin here. I'm happy to say that our bottom line performance has improved as a result of the very well received redeveloped Observatory. That said, I think we have to look at how we're going to perform over the year ahead. We have a new competitor in the edge in Hudson Yards, which opens in March. We have previewed the product and believe it will compete most directly with One World, Top of The Rock and One Vanderbilt, when it opens. That said, we expect a lot of noise based upon the new competition, and yet it's tough to see how the full year is going to unfold.

Jason Green -- Evercore ISI -- Analyst

Got it. And then, I guess, I know it's difficult to track, but have you seen any quantifiable downtick and visitation due to coronavirus or just less tourism in general?

Anthony E. Malkin -- Chairman and Chief Executive Officer

While the Chinese market accounted for approximately 3% of revenue in Q1 2019. We disclosed that previously, and it accounts for a similar percentage of revenue on an annual basis. We have not seen it go to 0 here but we have seen a reduction. While we have a modest headwind perhaps here, it is not as severe for us as the headlines would suggest. Do keep in mind that while Chinese group travel to the U.S. has been canceled in total, in early 2019, we began our shift away from this highly discounted source of visitors.

So look, I think that there's no question. We have a study that was put together of all flights to and from New York City from China. They're down to six weekly flights to and from China. All carriers around the world, and these are just two Chinese carriers that are probably making these flights. So that's there is no question there's a big impact there. I think that if we have a more broad spread of this, we could have a more broad impact. At the moment, it's really not material to us.

Jason Green -- Evercore ISI -- Analyst

Got it. Thank you very much.

Operator

Our next question comes from the line of Craig Mailman from Keybank Capital Markets. Please proceed with your question.

Craig Mailman -- Keybank Capital Markets -- Analyst

Hey, guys, um, Could you give us an update on the CFO search?

Anthony E. Malkin -- Chairman and Chief Executive Officer

Sure. Tony Malkin again on that subject. Our transition team has done and continues to do an excellent job. I'd point out that the high level of execution we have maintained since David Karp's departure demonstrates that ESRT's success as a team-driven did not belong to any one person. That said, we have a lot of interest in this position. We're not going to sit until we have the right person. And as we've seen our team members step up post David's retirement, candidly, that helps us get a better definition as to who that right fit would be. So in short, very pleased with the way things are going. Very, very happy with the work that's been done by Drew Prentice and John Hogg under the watchful eye of John Kessler. And it's really making sure we've got the right person on a go-forward basis for us as we look toward growth in the future. And it's a different job definition than the one that David held. So a lot of interest, no rush. When we have something to report, we'll report it.

Craig Mailman -- Keybank Capital Markets -- Analyst

All right. And then, Greg, I know you had mentioned that you guys are still in process of sourcing the replacement debt for the exchangeable. I'm just curious, as you guys are kind of doing the calculus, I mean, does it make sense to just plus the $9 million on the swap and not replace the debt, given kind of the cash balance you guys have versus kind of the capital needs you're going to have here in the next 12 to 18 months?

Anthony E. Malkin -- Chairman and Chief Executive Officer

If we could Tony Malkin here. Let's just remember to be kind to everybody and ask one question. We'll answer this one, but we'll ask for you in the future, just ask one question, and that way we rotate ourselves around and then we get every chance to get his or her question in.

John B. Kessler -- President and Chief Operating Officer

Craig, John here. Just to respond there. I think, as you know, our plan has been consistent to replenish the capital from the exchangeable, and that's why we think we have the swap in place that we did. And I think that continues to be our plan. So during that, we're going to we'll keep that swap in place until it makes sense to unwind it.

Anthony E. Malkin -- Chairman and Chief Executive Officer

Right.

Operator

Our next question comes from the line of Manny Korchman from Citi. Please proceed with your question.

Michael Bilerman -- Citi -- Analyst

It's Michael Bilerman here. Tony, it's really hard to only ask one question, but I will for you. As we think about the unit exchange that you did, and I know John talked about on the in the opening comments, how that didn't use cash and took a what was perpetual in the sense of common stock and made it perpetual in the incentive preferred. My understanding is, while the liquidation preference is effectively where you bought it back at, how will that work in a buyout of that security? Number one. Number two, it does carry a higher dividend, right? So there is some cash leakage just from the fact that the preferred will carry a dividend yield of north of 5% relative to your common stock of about 3%. So if you can address those two points about introducing more of these preferred securities, what happens in a wind up or in a take out of the securities and dealing with the higher dividend distribution?

John B. Kessler -- President and Chief Operating Officer

Well, Manny Michael, excuse me Michael, it's John. Just first on the topic of the dividend. So the private perpetual preferred pays a $0.70 annual dividend, which is above what our common dividend is, as you know. And that but the key is that it's obviously, it's just a preferred, and it's got a fixed return. And it has the benefit of reducing our common share count. In the event of a liquidation of the company, there is a liquidation value, which is $13.52 a share. And then in certain other instances, such as a capital transaction and M&A transaction, there are triggers where we have the ability to call those preferred in, but that would be at our option in that case, if we had a premium preference.

Michael Bilerman -- Citi -- Analyst

And so they will not would they participate in that upside? So if someone is not going to be here tomorrow [Technical Issues]

John B. Kessler -- President and Chief Operating Officer

Yes. So we bought back.

Michael Bilerman -- Citi -- Analyst

Right. So you've effectively bought back $62 million worth of stock. You're giving that $62 million a higher rate of 5.2%. So $1 million more of cash flow, but you've effectively locked in that massive spread relative to NAV to do it. Fair way of characterizing it?

John B. Kessler -- President and Chief Operating Officer

Yes.

Anthony E. Malkin -- Chairman and Chief Executive Officer

And we will welcome another question from you, Michael, as soon as we make it through the queue.

Operator

Our next question comes from the line of John Guinee from Stifel. Please proceed with your question. Please proceed with your question.

John Guinee -- Stifel -- Analyst

Yeah. Great Mr. Bilerman's second question was that your G&A is up to $66 million for the run rate, which is 17% of overall cash NOI and 24% of cash NOI, excluding the Observatory. How big an impact do you think that has on your share price?

Greg Faje -- Vice President of Investor Relations

John, this is Greg here. We carefully monitor our G&A, and we've tried to communicate here to The Street so people understand what's coming as we look forward to 2020. It's something we look at in relation to our peer set and both the public peer set as well as the private real estate market. We compete within New York, it's a competitive market. And so we try and keep our competition in line with it. And we're giving all the details to The Streets so that they can fully digest it as they look out toward 2020.

Anthony E. Malkin -- Chairman and Chief Executive Officer

Yes. That said John, Tony Malkin here. We absolutely do maintain a focus on this. We have a couple of unique situations, which will work their way through the snake, as Greg laid them out specifically. We've got the unique situation that we got some folks who are aging in leadership. And as they age, due to our retirement policy, even though, divesting doesn't change, the accounting for the our investment stock, which they have issued. Thus we also have the recognition that we've got some unique situations that we've begun to look at the folks who have deferred cash comp in exchange for stock, and that's beginning to bite.

And we additionally, absolutely are looking at our total loan. We're looking at our total load and our total expenses versus what we've got on the ability to put capital out there, and that's something that's a major focus of mine specifically in 2020. I will add, of course, that a significant component of the G&A is on the basis of performance stock grants. Well, the bottom line is, we don't earn it, we don't get it. So if our stock price doesn't perform and if our bottom line doesn't perform, then that G&A has actually overstated to the extent that those grants will not be earned.

John Guinee -- Stifel -- Analyst

Thank you.

Operator

Our next question comes from the line of Elvis Rodriguez from Bank of America. Please proceed with your question.

Elvis Rodriguez -- Bank of America -- Analyst

Good afternoon, gentlemen. Perhaps we can get an update on the target lease that you did in Union Square? Maybe the mark-to-market on that lease? And how long those conversations took? And when will they actually occupy the space?

Thomas P. Durels -- Executive Vice President, Real Estate

Elvis, this is Tom. The new lease of Target, which is for 32,600 square feet is for long-term with nearly 16 years at down at 10 Union Square East. That space has 22,460 square feet on grade and about 9,000 square feet on a low level, plus 1,000 square foot loading dock and the blended rent for that store is $123 a square foot. So it's a blended rent on both the grade and below-grade space in loading dock.

And that equates to $4 million in annual starting rent, which resulted in a 100% mark-to-market. So we are doubling the rent from the prior fully escalated rent of the existing tenant. Now the existing tenant's lease does not expire until April 30 of 2023, and the expected new lease commencement will be in January of 2024. On a GAAP basis, that will be midyear of 2024. That is laid out on Page six of the supplemental.

Elvis Rodriguez -- Bank of America -- Analyst

Thank you

Operator

Our next question comes from the line of John Kim with BMO Capital Markets. Please proceed with your question.

John Kim -- BMO Capital Markets -- Analyst

Thank you. Good afternoon. I'd like to revisit one of my favorite topics, which is your signed leases not commenced disclosure on Page six. So if you look at 2020, you have $4.4 million of base cash rent that will be contributing, and starting this year, the $4.4 million for 2020. Last quarter, that figure was $7.3 million and a number of tenants who are no longer in the schedule, Distinguished Concerts, glass of Institutional Capital. It looks like those leases actually started in the fourth quarter on a GAAP basis. But my question is, is that $3 million difference, is that going to be contributing and be in addition to your first quarter 2020 cash NOI here? Or has that already been recognized in the fourth quarter?

Greg Faje -- Vice President of Investor Relations

John, no. This is Greg here. No, the short answer to your question, and we can walk you through it. I'll find the math behind it in detail. So you can get some grasp on the numbers, if that helps you.

John Kim -- BMO Capital Markets -- Analyst

I'm just wondering why those tenants are no longer on this list. I'm assuming it's because of GAAP recognition, but I'm just I would think that the cash contribution is still going across the year?

Greg Faje -- Vice President of Investor Relations

Yes. Well, the lease legally commenced. So those examples you said, it's when the lease legally commenced and under construction in the space, is a good example. So if you look at like InterDigital as an example, right, the lease legally commenced in the quarter and are under construction in the space. So GAAP revenue begins a little bit later in the year, and then cash revenue recognition behind that is an example. But we can walk you through individual leases offline, if you want, in detail.

John Kim -- BMO Capital Markets -- Analyst

Okay, thank you.

Operator

Our next question comes from the line of Daniel Ismail from Green Street Advisors. Please proceed with your question.

Daniel Ismail -- Green Street Advisors -- Analyst

Great, thank you. I was hoping you could talk a little bit more about the leasing environment and outlook for 2020. And maybe specifically, where you see concessions going for your Manhattan office portfolio?

Thomas P. Durels -- Executive Vice President, Real Estate

Sure, Dan, this is Tom. Overall, in Manhattan our pipeline of activity for Manhattan office space remains solid. We have leases or proposals in negotiation on full floors and prebuilts throughout our portfolio. And from a wide spectrum of tenant types, and that includes TAMI, financial sector, consumer products, professional service, non-property, you name it. We've increased, as I note before, our asking rents by 3% on a trailing 12-month basis, on a year-over-year weighted average basis for our Manhattan office portfolio. And of course, as I noted previously, our actual trailing 12-month net effective rent growth on a year-over-year basis for our new Manhattan office increased by 14.8% this quarter. And that's laid out on Page 12 of our investor presentation that also shows that our median Manhattan net effective rent growth for new leases over the last five years has been or last five quarters has been over 6%.

We see good activity. We've got deals in negotiation, as I said before, on both full floors and prebuilts and beyond that. I'm not going to provide greater guidance. But overall, the activity is healthy. And then also, I'm sorry, you had asked about concessions. I would point out that our average lease cost per lease year for TI and commissions for all new and renewal Manhattan office leases in the fourth quarter was $10.45 a square foot. And that's very much in line with our average of about $10.25 for the past eight quarters. So what we've been seeing is, steady run rate on our average lease cost per lease year on lease on concessions, combined with steady increase in rental rates, and that's been producing the above-average net effective rent growth.

Daniel Ismail -- Green Street Advisors -- Analyst

Rate double. Thank you. You bet.

Operator

[Operator Instructions] Our next question is a follow-up question from the line of Manny Korchman from Citi. Please proceed with your question.

Michael Bilerman -- Citi -- Analyst

And it's Michael Bilerman, again. So I wanted if you can maybe provide some goalposts on the Observatory for 2019? I think Greg sort of referenced $9 million of income of a loss in 2019 that won't repeat, right? So if you take the $95 million of NOI that's listed on Page 16, ideally, you're, I guess, at least indicating as a starting point getting to $104 million for calendar year 2020. The offsets being potentially with the coronavirus, has a bigger impact on travel, tourism overall, not just from China but other Asian regions. The competition from the Edge and eventually when One Vanderbilt opens up, offset by your revised pricing strategy. So maybe you can give us at least some range knowing that you've given us the $9 million already, but just sort of dialing into some sort of guideposts for the Observatory deck for 2020.

Craig Mailman -- Keybank Capital Markets -- Analyst

I'll start and maybe Tony can add on sorry, go ahead, Tony.

Anthony E. Malkin -- Chairman and Chief Executive Officer

Please do.

Greg Faje -- Vice President of Investor Relations

Matt Michael, just to clarify, it's a $9 million revenue impact from the hundred second floorin 2019 that we won't have. Now the hundred second floor is back online in 2020. So it's a revenue number, not an NOI number. And then I'll turn it over to Tony.

Michael Bilerman -- Citi -- Analyst

So why is [Indecipherable] on NOI then?

Greg Faje -- Vice President of Investor Relations

Correct. That's not on NOI, that's a revenue impact.

Michael Bilerman -- Citi -- Analyst

So what is that NOI impact then?

Greg Faje -- Vice President of Investor Relations

Yes. It's a fairly high contribution from hundred second floor. We have not broken out, but it's a fairly high contribution.

Michael Bilerman -- Citi -- Analyst

So the margins apply a higher margin than the rest of the business?

Greg Faje -- Vice President of Investor Relations

Correct.

Michael Bilerman -- Citi -- Analyst

Okay. And then, Tony, sorry.

Anthony E. Malkin -- Chairman and Chief Executive Officer

I just think to clarify what Greg just said, that the fact is that those are incremental dollars on top of fixed expenses. So I'm not sure if your question, Manny, were margin contribution, any additional revenue should flow. And as far as the business going forward, it's really very early. We're nonetheless, I can say we're very happy to look at what we have accomplished with the new Observatory. The reviews have been spectacular. The installation itself is great. The activity on social is huge. We are very happy to take a look at or get a preview of what was going on at the Edge with Hudson Yards. While that is new competition, it is very clear to us that, that is very much a sort of a One World experience with a nicer restaurant and an outside deck. It has an elevator, features similar to One World. That's about it as far as subtle features. I think they're going to have an added charge opportunity during better weather, involving some sort of limited activity where people cannot charge.

We're pleased with the pricing. Our pricing remains at constant and available at any time. That's one of the beauties of the new exhibit. It's really gotten rid of crowds inside the exhibit. People pace themselves through the exhibit. Whereas the Edge is anytime over $50. And so we like our competitive position there. The fact is know that there will be more competition. And the fact is that if we have something that extends broadly beyond China to impact international travel, we have a significant, as we've disclosed previously, international component to our visitors. At the moment, in the steady state world, we feel pretty comfortable. We feel very comfortable, very happy the way things are working, and we will see noise, I'm quite sure, from the opening of the Edge. So it is very difficult for us to give you better clarity than that.

Michael Bilerman -- Citi -- Analyst

Yes. I was just trying to I mean, with the office business, because of the leasing and the schedules, I think we can make pretty good assumptions. I think the Observatory has always been a little bit more difficult to model. And clearly, some of the stuff that's been going in the last few years has modeled it a little bit. I was just trying to get a sense for 2020. You gave us the hundred second floor sort of positive impact. I was trying to weigh the competitive landscape relative to your pricing and whether those wash it out? Whether you we should be thinking that NOI is going down? Or is NOI is going up outside of the hundred second floor being opened this year relative to last? And that's I didn't want The Street to get ahead of themselves nor did I want them to be too low either. So I was just trying to get a picture of what we should be thinking about for that business.

Anthony E. Malkin -- Chairman and Chief Executive Officer

Right. I would just encourage folks to take a look esbnyc.com, and go to the Buy Ticket section, take a look at our new pricing. And that covers all of our various upcharges. You'll note that we increased the pricing to the hundred second floor as part of its new experience. And then the additional part that I would say is, I feel quite confident that the Edge at Hudson Yards is going to open with quite a splash, with a big spend. At the same time, having been through the we were invited by a party, with them, we have a client relationship to an event that happened to be a preview of the Edge. And having seen the Edge, we feel very good. The entrance and the security is really not well laid out. It's not going to support high-volume.

The experience itself, aside from the elevator, is very sterile and modern. So I think that, that competes very much with the folks at One World. I think you should be prepared to see significant drop off in some of these folks who have relied significantly on the China bus tour business, specifically, One World has become really dominated by that business and that business has gone. When it comes back it was a highly discounted business to begin with. So our move to the independent traveler and our inroads in the China markets really paid off nicely. And outside of that, Michael, I wish I could give you a more definition. We're just eager to get this year under way and play it out as you are.

Michael Bilerman -- Citi -- Analyst

Yes. And that's really helpful color on the competitive landscape and what you're thinking about and the impact. And I think the pricing that we all can now look at on the website is some indication of the varied. I think we'd all love to be able to see the percentages of those tickets sold in each of those categories. And so that we can start to track, not just the baseline on net revenue that you're collecting, but how the composition of it is. So as you move to this pricing model, sharing a little bit more, getting to look under the skirt a little bit more about how investments are coming in by type would be something that would be great addition to the supplemental.

Anthony E. Malkin -- Chairman and Chief Executive Officer

Look, we appreciate that very much, and we'll look at that carefully. We really just like to see how the Edge and One Vandy open up. We don't want to influence the way they do their business by giving them too much insight as to how the business looks. And once we get a little bit of stability, and we see what they're doing, maybe we can look at that a little more closely, and give a little more information.

Michael Bilerman -- Citi -- Analyst

Okay, thank you.

Operator

Our next question is a follow-up question from the line of John Kim with BMO Capital Markets. Please proceed with your question.

John Kim -- BMO Capital Markets -- Analyst

Thank you. Just a question for Tom. I was wondering if you could describe like the depth of the office leasing market in Manhattan at the $60 to $70 price point as far as expansionary tenants, now that the co-working tenants are basically installed. And also if you could discuss leasing economics because it looks like capexthis quarter was unusually high during the quarter on relatively average leasing volume. So I was wondering if this is a good run rate going forward as far as tenant improvement cost?

Thomas P. Durels -- Executive Vice President, Real Estate

Sure, John. So first, as I said for the our pipeline of activity for our Manhattan office portfolio remains very solid. We've got activity across the portfolio for both full floors and prebuilts. And we're seeing inboard activity and interest from a wide spectrum of tenants that has always been a hallmark, I think, of our portfolio that we do attract a wide range of tenants. And that as I look at deals in negotiation or in proposal phase right now, they those tenant types range from TAMI, to active professional services, to the fire sector and beyond? As far as co-working or we work specifically, I just would make a comment that we've continued to see steady activity in our prebuilt program. We offer a wide range of prebuilt throughout our portfolio.

We for the year of 2019, we did over 45 prebuilt deals, about 0.25 million over 0.25 million square feet of prebuilt activity for the year. And so we really haven't seen any impact from that. And we have expanded our services as we look at broadening our appeal to tenants through offering truly turnkey experience of furnished, wired and move coordination services. And as far as concessions, I commented earlier, the average lease cost per lease year for TI and commissions has remained steady at we were at $10.45 per square foot, cost per lease year this past quarter. And that's very much in line with the past eight quarters.

John Kim -- BMO Capital Markets -- Analyst

Okay. So that $87 million, that's really just timing as far as when leases started or when you paid up TI?

Anthony E. Malkin -- Chairman and Chief Executive Officer

I don't know if Greg if you want to comment on it.

Greg Faje -- Vice President of Investor Relations

Yes. Correct. There is a bit of a timing lag between what we report. Tom's talking about the leasing activity in the quarter and when the actual capexdollars go out the door.

John Kim -- BMO Capital Markets -- Analyst

Okay, thank you.

Operator

Our next question is a follow-up question from the line of John Guinee with Stifel. Please proceed with your question.

John Guinee -- Stifel -- Analyst

Great, um, Investment market in New York City. Where are you guys overall? And current taking prices, current closing prices versus what you think is appropriate. Are you 5% low or 15% low in the current environment?

John B. Kessler -- President and Chief Operating Officer

John, John here. We continue to look and underwrite potential deals in our market. And we have not seen anything which has been attractive enough for us to act. The capital markets remain strong, and we haven't gotten close. I'm not going to quantify for you the gap.

John Guinee -- Stifel -- Analyst

Great. And then your cash and cash equivalents went down about $60 million this last quarter from $294 million to $234 million. How much burn rate more burn do we have? You're done with the Observatory. How much burn do you have until you break even on sources and uses?

Greg Faje -- Vice President of Investor Relations

John, this is Greg here. If we look at in terms of if you look at Page nine of our investor presentation, we still have some redevelopment work to go. We have approximately 550,000 square feet. So if we use an average cost per square foot of $200, that implies about $110 million in total spend until the entire portfolio has been redeveloped. In addition, as you know are well aware, as we noted in our first quarter earning first quarter 2018 earnings call, we anticipate additional spending of approximately $40 million in the greater New York, Manhattan the Greater New York Metropolitan portfolio. To date, we've spent $29 million. And so we're getting there, but there's still some additional capexspending to go. And the trend line has been trending down. And so that's where I'll leave it for right now.

John Guinee -- Stifel -- Analyst

Great, thank you.

Operator

There are no further questions in the queue. I'd like to hand the call back to Mr. Malkin for closing remarks.

Anthony E. Malkin -- Chairman and Chief Executive Officer

Thank you very much. So folks, this was a solid quarter for ESRT. Our leasing volume, cash spreads and net effective rent growth all highlights the strength of our core real estate operations, which experienced strong NOI growth from recurring operations. I'm pleased to see stronger bottom line contribution to our results from the multiyear Observatory redevelopment. As discussed on our last earnings call, we have expanded our team with key hires in ESG and technology.

You can find more details on our ESG and technology initiatives in our new slides in our investor presentation, and we look forward to sharing more details of our work over the course of 2020. Overall, hard work and great results. Thanks to the team. And we thank you very much for your time and your questions, and we look forward to chances to meet with you at upcoming conferences, MDRs and property tours. We look forward to reporting our first quarter results in April. And until then, all the best.

Operator

[Operator Closing Remarks]

Duration: 44 minutes

Call participants:

Thomas N. Keltner, Jr. -- Executive Vice President, General Counsel and Secretary

John B. Kessler -- President and Chief Operating Officer

Thomas P. Durels -- Executive Vice President, Real Estate

Greg Faje -- Vice President of Investor Relations

Anthony E. Malkin -- Chairman and Chief Executive Officer

Jason Green -- Evercore ISI -- Analyst

Craig Mailman -- Keybank Capital Markets -- Analyst

Michael Bilerman -- Citi -- Analyst

John Guinee -- Stifel -- Analyst

Elvis Rodriguez -- Bank of America -- Analyst

John Kim -- BMO Capital Markets -- Analyst

Daniel Ismail -- Green Street Advisors -- Analyst

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