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Empire State Realty Trust (NYSE:ESRT)
Q1 2021 Earnings Call
Apr 29, 2021, 12:00 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 and full-year 2020 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 -- Executive Vice President and General Counsel

Good afternoon. Thank you for joining us today for Empire State Realty Trust's first-quarter 2021 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 empirestaterealtytrust.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, and expense.

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. 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'll turn the call over to Tony Malkin, our chairman, president, and chief executive officer.

Tony Malkin -- Chairman, President, and Chief Executive Officer

Thanks, Tom, and good afternoon to everyone. We remain confident in New York City, realistic with regard to where we are and through what we will have to go to get to that recovery, and well-positioned with a balance sheet that gives us a long runway and the ability to take advantage of growth opportunities. The U.S. vaccination rollout, stimulus spending, and reduction in New York state pandemic linked restrictions all speak to a much better spring than any period we have had since lockdown in March of 2020.

Daily, there are new announcements from arts, cultural, hotel, hospitality, and entertainment venues, which all serve through remarkable and growing demand from New Yorkers to get out and enjoy their city. Rental apartment occupancy is up and apartment sales have increased. Schools are back in session. Airlines have announced rehiring and increased domestic flights.

Even if the much-discussed 100% of 2019 domestic schedules by summer does not occur, directionally, this is good news. Our No. 1 international tourist source for the Empire State Building Observatory, the United Kingdom, is well advanced in their inoculation program. people would like to paint the picture, the near-term future is brighter than it has been for more than a year.

As I've said for several quarters, I still believe that it will be the end of Q1 2022 before we see predominantly positive overall new stories on New York City, office utilization, retail sales, tourist visits, and life issues. We are well-positioned to bring back employees and tenants with confidence to our buildings, operate efficiently, and encourage Empire State Building Observatory visits. New York State has just announced the return in May of up 75% of office capacity. Our tenant presence has grown slightly since last quarter, and our building utilization stands now at approximately 30% in our New York City portfolio and 32% in our Greater New York portfolio.

Many tenets plan their return to the office around the widespread rollout of vaccinations, with major tenants announcements that returned to office beginning around July 4 and Labor Day. Importantly, even the incredibly negatively biased reporting around the death of the office has now shifted to an acknowledgment of the challenges in equities and worries about divided workplaces between home and office work and the impossibilities posed by the thought of onboarding new employees and the future of businesses without an office. The awareness of the selective discriminatory impacts on women, youth, and the service jobs of COVID, lockdown, school and child care, and the absence of the office, paint the road map to solutions driven by the reopening of our great city. All of this is good news to ESRT.

We are well-positioned with our flexible balance sheet. Our collection levels have been stable for several months. And we have shifted our focus from successfully implemented cost reduction measures to a rethink of our assets and practices around new ways to reduce our costs permanently. All this works to our advantage as we look to utilize our balance sheet flexibility and seek ways to deploy our capital through external growth opportunities.

We have done more work on that external growth in the last quarter than our entire prior period as a public company. Visitors to the Empire State Building Observatory continue to grow on a very low base with no discounts offered and fantastic visitor feedback from our largely local visitorship to our attraction that features top-of-the-line indoor and quality, including MERV 13 filters ventilation and active bipolar ionization. Driven in part by our timed reservation ticketing, local and regional visits, and limited utilization by our visitors of past programs and online travel agents, our per-cap revenues have never been higher. People are prepared to pay for quality and welcome the opportunity to enjoy our destination attraction with confidence.

First-quarter attendance was at nearly 9% of 2019 comparable attendance, a gradual improvement from 2020 levels, consistent with our hypothetical admissions forecast. Visitation is primarily domestic retail and website driven, which bolsters revenue Visitors remain very pleased with our focus on health and safety, an area where we excel with more than half a decade, focus on healthy buildings and indoor environmental quality. We have no change to our hypothetical Observatory admissions shown on Page 13 of the presentation. We have said in preceding quarters that we expect a higher local visitor mix, followed by a ramp-up of regionally then nationally sourced travel and then followed by a restoration of our typical that is approximately two-thirds international, that will not be achieved into a broad resumption of international air travel that we anticipate will occur sometime in 2022.

Again, our No. 1 international tourist source for the Empire State Building Observatory, the United Kingdom, is well advanced in their inoculation program compared to any other international nation. Our hypothetical suggests that can reach 60% of 2019 attendance levels by the end of 2021 and return to 100% by the end of 2022. Please remember these points for your modeling.

We believe we can essentially maintain our current Observatory operating cost structure and achieve up to 60% of our 2019 attendance with more distant and international inbound tourists, we will see growth from lower-margin passes and online travel agent tourists in the future as inbound tourism mixes with our current local and regional customers, and that will lower per caps. Our ESG leadership continues. I encourage all stakeholders to read our first-ever annual sustainability report that highlights our leadership, accomplishments, and certifications in this area. And that also can give you a clear understanding that we are well-positioned for where the puck will be in the future on issues of energy efficiency, healthy buildings, and indoor environmental quality.

Our sustainability report can be found at empirestaterealtytrust.com. Again, the full first annual sustainability report can be found at empirestaterealtytrust.com. In January, we announced that our portfolio is now 100% powered by renewable wind energy. This action builds on our earlier success with the Empire State Building has been 100% renewable-powered for a decade.

In April, we were awarded the ENERGY STAR Partner of the Year designation in recognition of our contributes and leadership in the fight against And I am pleased to say that we are currently 76% ENERGY STAR certified by the number of square feet in our portfolio. That said, our first annual sustainability report covers more issues, many more certifications, and many more facts, and I hope that you will view it online. New developments as of just last week, we joined New York State and the New York State Energy Research Development Authority and a commitment to the Empire Building Challenge, a $50 million state initiative to accelerate progress toward a reduction of 85% of greenhouse gas emissions by 2050. Our prior work at the Empire State Building, which we have extended throughout our entire portfolio over the past decade us with knowledge of what is possible and the skill set on how to execute.

We believe these commitments to a carbon-free future will offer us a competitive edge in a tenant-driven marketplace that increasingly focuses on ESG and how their occupied spaces can help them achieve their corporate goals. As I have said, I am confident and I am a realist. We're still in the time of uncertainty. And I have said and still believe, We will not hit the bottom of the market until the end of the first quarter of 2022.

Through the noise, we hear the sound of real companies that now approach real space needs with clarity and vision of how they want to use offices for their teams to work and grow together. We will have uncertainty in the press about return to the workplace, large amounts of sublease space on the market, and challenges with leasing and the reestablishment of New York City as a great world capital it is. I believe ESRT is well-positioned in 2021 with our well-priced and competitive product, operational flexible balance sheet, focus on prudent capital allocation, and leadership in ESG. I believe that ESRT is well-positioned to thrive and deliver long-term shareholder value.

And now folks, Tom Durels.

Tom Durels -- Executive Vice President, Real Estate

Thanks, Tony, and good afternoon, everyone. In the first quarter, we signed 26 new and renewal leases totaling approximately 172,000 square feet that included approximately 143,000 square feet in our Manhattan office properties, 28,000 square feet in our Greater New York Metropolitan office properties, and 1,000 square feet in our retail portfolio. Significant leases signed in the quarter were a 33,100 square foot expansion office lease with Burlington stores at 1400 Broadway, where it will now occupy approximately 68,300 square feet. A 31,400 square foot new office lease with Zentalis Pharmaceuticals at 1359 Broadway that will occupy space to be vacated by Li & Fung later this year.

And a 30,600 square foot new office lease with a law firm at One Grand Central Place. Our mark-to-market results are always driven by the escalated rents of leases that have expired. And in today's market, we will focus on retention of tenants, and that a result in reduction of rents on a market basis on renewals. That said, during the first quarter, rates on new leases signed at our Manhattan office properties increased by a healthy 14.7% on a cash basis compared to the prior escalated rents.

Spreads on renewal leases at our Manhattan office properties were down 11.6% on 32,000 square feet and 10 deals. New and renewal office leases across our entire portfolio were 6.8%. We estimate net effective rents in our portfolio today versus pre-COVID levels have declined 10% to 15% on a comparable space basis. Net effective rent is a combination of base rent, free rent, length of lease term and tenant work, all of which vary by deal and depends on the space condition, location, tenant credit, and other factors.

Our total portfolio lease percentage is 88.7%, unchanged from last quarter. Occupancy of 85% was down 90 basis points from the prior quarter due to anticipated tenant move-outs. And for the balance of 2021, we anticipate to tenant move-outs of 300,000 square feet, which will be offset by signed leases that we anticipate will commence before year end of 205,000 square feet. Please refer to the tables on Pages 6 and 10 in our supplemental.

We have seen a noticeable increase in tour volume during the past six weeks in our Manhattan office portfolio to about two-thirds of pre-COVID levels. While the recent increase is a positive sign that some tenants are beginning to reengage, the lease transactions that come from these tours will likely appear in the second half of the year. Healthy buildings and indoor environmental quality remains front of mind for all -- for nearly all tenants and is the most asked about topic before and during tours. We reduced property operating expenses by $11 million in the first quarter of 2021 compared to the prior-year period and a cumulative total of $50 million since the pandemic onset.

We achieved these cost savings without reduction services to our tenants and after the cost of implementing new and safety protocols. As previously mentioned, most of the cost reductions were primarily driven by low building utilization. However, we continue to focus on ways in which we can change our processes and reduce expense beyond savings driven by lower occupancy. Keep in mind that a portion of the reduction in operating expenses will be offset by a reduction in tenant expense recoveries from existing leases.

And looking ahead to the second half of 2021, with a greater increase in vaccination distribution and a return to the office, we expect a gradual increase in operating expense levels. In summary, we had a good leasing quarter that included expansions of existing tenants and the addition of new tenants to the portfolio. Our industry leadership and experience in indoor environmental quality and sustainability enhances our ability to attract and retain quality tenants. And we continue to manage property operating expenses tightly with a cumulative reduction of $50 million since the pandemic onset.

Now I'll turn it over to Christina. Christina?

Christina Chiu -- Executive Vice President and Chief Financial Officer

Thanks, Tom. For the first quarter, we reported a core FFO of $41 million or $0.15 per diluted share. Same-store property operations, if you exclude onetime lease termination fees and Observatory results from the respective period, yielded a 3% cash increase from the first quarter of 2020. This increase was primarily driven by lower property operating expenses, partially offset by lower revenue as compared to the prior-year period, driven by receivable write-offs and increased vacancy.

Our rent collections remained stable at 94% of first-quarter 2021 billings with 96% for office tenants and 86% for retail tenants. The company recorded a non-cash reduction of straight-line balances of $0.6 million and wrote off $0.5 million of tenant receivables assessed as uncollectible during the first quarter of 2021. Observatory results. Observatory revenue for the first quarter of 2021 was $2.6 million, and that included $0.1 million of deferred revenue from unused tickets and earned income from our travel partners.

Observator expenses were $4.6 million in the first quarter of 2021, which is our seasonally lightest quarter, and we continue to expect run rate expenses to be approximately $6 million to $7 million per quarter for the balance of 2021 depending upon the pace of visitor ramp-up Turning to our balance sheet. As of March 31, '21, the company had $1.4 billion of liquidity, which is comprised of $567 million of cash and $850 million of undrawn capacity on our new revolving credit facility entered into at the end of the quarter. The credit facility has an initial maturity of March 2025 and has two six-month extension options and a sustainability-linked green pricing mechanism that reduces the borrowing spread if certain benchmarks are achieved each year. The company had total debt outstanding of approximately $2.2 million on a gross basis and $1.6 billion on a net basis at March 31, 2021.

The company's total debt has a weighted average interest rate of 3.9% and a weighted average term to maturity of 7.9 years. We have a well-laddered maturity schedule with no outstanding debt maturity until November 2024. Our net debt to total market capitalization was 32.6% and net debt to adjusted EBITDA was six and a half times. Year-to-date through April 27, 2021, the company repurchased $3.5 million of common stock at an average price of $9.22 per share.

This brings the cumulative total since the stock repurchase program began on March 5, 2020, through April 27, 2021, to $147.2 million at an average price of $8.34 per share. Our balance sheet flexibility provides us with an operating runway to engage selectively in share buybacks and evaluate opportunities to deploy capital for external growth. Our investment team continues to underwrite office, retail and multifamily opportunities actively. As we have emphasized, we will prudently deploy capital when an opportunity presents itself.

Looking ahead, there are a few items to touch upon for your modeling consideration. We reduced property operating expenses by roughly $11 million in the first quarter of 2021 on a year-over-year basis, driven primarily by reduced building utilization. The company expects property operating expenses in the second quarter of 2021 will approximate our current levels based on continued low building utilization relative to 2019 levels. Also, the company expects annual G&A to be approximately $58 million.

And now we will turn it over to the operator for Q&A.

Questions & Answers:


Operator

Thank you. [Operator instructions] The first question comes from Steve Sakwa at Evercore ISI.

Steve Sakwa -- Evercore ISI -- Analyst

Thanks. Good afternoon. I was hoping that maybe Tom could speak a little bit more about the demand. And I guess, specifically, just sort of thinking about how tenants are looking at density as they're looking for new space and for the deals that you said you got an increase in activity.

Are those for just kind of reloads? Are they new deals? Are they expansions downsizing? Just a little color would be helpful.

Operator

One moment, please.

Tom Durels -- Executive Vice President, Real Estate

To about two-thirds of our pre-COVID pace for space tours. Of course, any of these things that lead to proposals will likely occur in the second half of the year, but it's a really good sign that tenants have reengaged in the market. IEQ, indoor environmental quality of the buildings remains the primary focus by most tenants, and it's often a gating issue before tours are scheduled, and it's certainly the most frequently asked about topic during tours. And of course, we encourage everybody to look at our sustainability report on our website.

I'd say about half the proposals on new activity that we see right now represent tenants that are growing and the other half are lateral moves. But if you look at this quarter, we're pleased with the expansion lease we do with Burlington. And the new leases with and These represent growth by tenants who committed to long-term leases in the middle of the pandemic. On spaces, we haven't really seen any change or significant change in what tenants are designing.

there's an awful lot of discussion on the topic. But as we've seen some slightly less dense furniture layouts, although pre-COVID many of our tenants were focused on employee productivity and really occupied space to their maximum density. We've seen some increase in phone rooms, breakout rooms, some additional offices being added. But that does not mean that there's a conversion to all built offices.

So overall, we had a really good quarter, 172,000 square feet of leases done. And I think that we're seeing a mix of tenants in legal, tech, financial services, government, media. So it's a good mix of tenants that we're seeing.

Steve Sakwa -- Evercore ISI -- Analyst

OK. I guess, second question. I guess, Tony, in your comments as well as in the press release, you sort of talked about a real step-up in city levels, looking at transactions. And I also noticed the share buyback volume was rather de minimis this quarter.

I don't know if those two were tied together, but could you maybe speak a little bit more about the types of deals you are doing if it's more or just the fact that the market getting better and the debt markets are opened and more product is coming to market?

Tony Malkin -- Chairman, President, and Chief Executive Officer

Thanks, Steve. Our team is busy. That means our new team and our seasoned players like Tom Durels and his property team and John Hogg is FP&A team. And we're looking at a broad variety of situations.

Our focus remains New York City office, retail, and multifamily. We're in conversation with families, many of whom were interested in talking about transactions four or five years ago who are more interested now. We've seen widely marketed transactions. We've seen off-market transactions, M&A.

We spend time on it all. At the same time, I want to make sure that we're not distracted by this bright shiny penny topic, if you will, when we have something we will now, and we'll give our rationale. As far as the source and motivation of the transactions that we see, would be quite similar to the leasing. Things just have begun to move.

There's a little bit less of, shall we say, the square that down in the middle of the road, not knowing to which way to go. We're actually in a process in which people have begun to make moves, come out of their shelves, recognize things they have to do, recognize things they would like to do. So I think it's all kinds of different motivations. And I think we will begin over the next few months to see price discovery come out on different assets as more deals are announced.

And we'll see more folks come to grips with, are they in a good position with a good runway, or do they need help?

Steve Sakwa -- Evercore ISI -- Analyst

And maybe just as one follow-up there, Tony. Does the potential for cap gains tax or the elimination of 1031s kind of accelerate some of that activity? Or you don't think either of those have kind of a big driving factor in transaction volume?

Tony Malkin -- Chairman, President, and Chief Executive Officer

Look, I think it's highly conjectural at this point. We don't see anything that really evidence is there. I think the only thing about which we feel reasonably confident with regard to the tax situation is that the Biden administration taxes to go higher, that there is a dialectic in Congress and that the democratic majority in the house is not large. And, therefore, in order to get any package passed, there is a growing contingent of members of the House of Representatives, who have said they will not approve anything without a removal of the cap on state and local tax deduction.

And while we think it's hard to predict the outcome of any potential decision, any decision that lessens the burden on high-income earners in our region is very positive.

Steve Sakwa -- Evercore ISI -- Analyst

Great. Thanks. That's it for me.

Operator

Thank you. Our next questions come from the line of Manny Korchman with Citi. Please proceed with your questions.

Manny Korchman -- Citi -- Analyst

Hey, Tony. You've spoken about this 1Q '22 date a couple of times now. You call it the bottom. But I guess what is the path to the bottom looks like? Is that going to be an increase in vacancy or sublease space? Is that going to be rent dipping? Is that going to be tenants leaving the market? Others have maybe been sort of more on the path of -- we're seeing the bottom because activity is up or lease leasing activities up or tours are up.

But you're saying that we have to wait a year to see sort of when the bottom hits. So what does the path to that look like?

Tony Malkin -- Chairman, President, and Chief Executive Officer

I think that what we see right now, Manny, and thank you for the question. uneven point of data. I wouldn't say that it lays the foundation at this for, this is where we are. What we've seen in prior periods is far more space put on the sublet market than as ever sublet, far more space as discussed than has ever shed.

We also see at a time like this where things are not necessarily restarted entirely. A lot of folks will try to generate business with big incentives, big breaks in rent. Brokers will go out with initial proposals, which are radically low. And I think that we -- in the intervening period upcoming, expect to see a lot of what really sets the base.

We'll see some halting commencement. We'll get price discovery, we'll get real demand discovery. So I think a lot of people don't know what's going on until they come back to the office. I would say that a big component, I'm sorry if this goes off of your question, but I think it's something which needs to be addressed for everybody.

With regard to this whole future of work, is that the conversation has really turned. The conversation has turned about the return to office on the basis that the world has started to reopen. I think companies now recognize the difficulties with regard to culture, team competition posed not just by work from home, but from the proposed hybrid or the discussed hybrid future. It's in the New York Times Journal Economist New York Post, the problems caused by this theoretical hybrid future.

So I think we understand there are a lot of motivations, exhaustion disconnection, fear to take a day off, youth want to be in the office. There are a lot of things which are occurring, which build back into clarity on what people uses will be. And I think, Manny, that will build on that base, the foundation as we move forward. So I think that's where the puck will be.

And I really don't think we have a clear vision of that. We don't get any more bad news until the end of the first-quarter '22. Directionally, things are greatly improved, and I think we'll continue to see them improve. I think that a lot of reporters will have to learn how to write something which isn't negative.

Manny Korchman -- Citi -- Analyst

Great. And maybe you sort of talked on this a little bit in Steve's -- in response to Steve's question, but when you say your team is as busy as it's ever been over the last three months compared to the entire history of the company, is that just looking under more rocks, is that you've had more inbounds or more receptivity to inquiries or offers you need that the net is now just wider, sort of what are the levers you pull to bring in so much more activity or volume or work?

Tony Malkin -- Chairman, President, and Chief Executive Officer

I would say it's three things. The first answer is, e, all of the above. So in every avenue -- and I -- there are multiple families who have come back to us to discuss issues that they've got that need resolution. They won't all lead to transactions, but people are assessing their situation more actively.

People assess their situations actively. Number two, I believe that we have spent a fair amount of very productive time working with our Board and our finance committee so that we get a good process in place. And the final piece is we've got a full team now And we're underwriting and analyzing a lot of different situations, looking at all the different structures we can put together to make us competitive. And we weigh it against our allocation of capital and how we use it.

So hopefully, that's helpful to you, but it's really coming from all angles and the fact that we're getting back into an expansion mode where, candidly, we haven't been as a public company, and we're quite pleased with that.

Manny Korchman -- Citi -- Analyst

Thanks, Tony.

Operator

Thank you. Our next questions come from the line of Blaine Heck Wells Fargo. Please proceed with your question.

Blaine Heck -- Wells Fargo Securities -- Analyst

Great. Thanks. Good afternoon. Just a follow-up on that, Tony, and I know you don't want to focus too much on transactions until you get something done.

But Christina both mentioned that you're looking at office, retail and multifamily opportunities. Number one, are there more opportunities in any one property type in another? And then number two, I guess, you guys have experience as a company in office and retail, but multifamily would be a different product. I guess how do you think about your ability to compete in that space? How do your skills at office and retail translate to acquiring and operating multifamily? Is it just more of a matter of some of the product you're looking at has a multifamily component? Or are you actually looking at true multifamily?

Tony Malkin -- Chairman, President, and Chief Executive Officer

So I think I'm going to just focus -- I'll focus on the last part of your question because the first part, I think, is pretty much straightforward in my prior response. On the multifamily piece, we've got a multifamily historically. And outside of the REIT, my family still owns thousands of apartment properties not in the New York area. That's part one.

They weren't included in the REIT because they weren't in New York -- in the Tri-state region. Number one. Number two, We've developed multifamily sale in New York City before, the Corinthian, the We have turned around assets before. Anyone who remembers that what was known as the Grand and became the Mondrian, the team that made that redo of that condo.

We've done New York City multifamily before. Members of our team who were involved in that and underwriting on that, the property side, the FP&A side, they're still here. So we believe we've got good experience in that area. And we find it interesting potential additional wheel on our tricycles.

Blaine Heck -- Wells Fargo Securities -- Analyst

OK. That's helpful. And then just shifting to kind of the balance sheet. You guys obviously have an enviable liquidity position, but leverage has been creeping up a little bit over the past several quarters.

Christina, can you just talk a little bit about where you guys are comfortable on a debt-to-EBITDA basis? I think you're at 6.5 times now on a net Are you running into any constraints on the share repurchases or potential investment side or not quite yet?

Christina Chiu -- Executive Vice President and Chief Financial Officer

Yes. No. Not feeling constrained. We're happy with our liquidity position.

That's over $550 million of cash and $850 million on our new line, which has been -- now has a maturity in 2025. So we feel good about that. In addition, we have no debt due until 2024 in November. So we feel very good about the flexibility that we have.

In terms of net debt-to-EBITDA, I think I've answered this question before, which is we don't really look to the exact level. It's really about how you're able to access further liquidity. The company has always had a relatively conservative stance on the balance sheet. We will continue to manage that responsibly.

But the increase in net debt to EBITDA is largely driven by Observatory revenues coming down. And in this quarter, we're now capturing the full impact of COVID between 2Q, 3Q, and 4Q of 2020. And we are seeing a ramp-up. We're managing expenses really well.

So we feel very comfortable at these levels, not constrained, but we will continue to manage the balance prudently.

Tony Malkin -- Chairman, President, and Chief Executive Officer

And I'd just like to add to Christina's comment we've made before people may forget. I know you folks on this call, a lot of different calls of which to keep track over this -- over today and over the quarters. But we are prepared to take our leverage up. And we're also prepared at the right time to issue more equity.

We're also prepared to recognize that there's a virtuous cycle in which we may find ourselves when we commence growth. And we're also cognizant of the fact that we have bought a lot of stock back at a price which is below where we currently trade. And at some point, we could reissue that stock at a high price and both make a game on behalf of our investors and increase our liquidity. So we really feel that we have all of the arrows in the quiver that we might like to have.

We feel very well-positioned at this point. If there were one thought that I think we would want to communicate here, we feel very well positioned right now. We feel comfortable. We're working very, very hard.

It's not the place where we'd like to be. We feel very well-positioned for the future.

Blaine Heck -- Wells Fargo Securities -- Analyst

Very helpful. Thank you, all.

Operator

Thank you. Our next questions come from the line of Craig Mailman with KeyBanc Capital Markets. Please proceed with your question.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Thanks, everyone. Maybe circling back, Tom, on your commentary on the leasing front, obviously, the pick in tours is a good kind of future indicator here. But I'm just kind of curious, you guys -- your portfolio is always going to serve as a little bit of a value relative to traditional midtown or newer midtown office buildings. And typically, in these situations, you see a little bit of a trade-up of space among tenants.

I'm just kind of curious, number one, has your -- the kind of the demo of the tenants kind of shifted at all versus what you've seen in the past? And do you think -- because we're hearing from everyone that tours are increasing, how much of an overlap do you think you guys are having relative to other portfolios, where maybe the net pool of tenants isn't necessarily increasing. It's just you're seeing everyone seeing the same over again?

Tom Durels -- Executive Vice President, Real Estate

Sure. So I would point to the fact that and Burlington were growth and committed to long-term leases. And so we are seeing growth in the market. Probably half of our proposals that are active right now represent tenants that are growing.

Both and the law firm that moved the One Grand Central Place, those were trade-ups, mean they moved up to our property from what I'd call inferior property. And so what did they see? They saw what we offer, which is well-located property next to mass transit in fully redeveloped modernized buildings with our kind of spaces that will be built in compliance with our state-of-the-art industry-leading standards for healthy buildings, IEQ, and energy efficiency, including active bipolar ionization, MERV 13 13 and 62.1 standards. So the -- that was an example -- those are examples of trading up in the market to come to our properties. And so we believe we still offer a great value proposition for the reasons I just stated.

We're at an affordable price point. We're well located near mass transit, and we're offering -- we offer fully modernized buildings and newly built tenant spaces. And of course, 95% of our portfolio has been redeveloped. And we have some 270,000 square feet of prebuilt space that's built and ready to go.

And what's interesting, we've seen a healthy pickup in activity and interest both proposed and tourist for our prebuilt suites, which in the fourth quarter, it was fairly slow to the level of proposals we were exchanged in, we've seen a big pickup this quarter. Now I would caution a lot of that activity will translate into activity in the second half of the year.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Great. Thanks for the color. Then maybe -- I don't know if this is for Tom or Christina, but you guys -- the $11 million reduction in OPEX in the first quarter is strong, and I know you guys -- a lot of some of that is due to lower utilization. But as we think about going forward, how much of that $11 million is kind of permanent? And as people come back, can you guys materially improve the NOI margins at kind of a stabilized point versus maybe historic levels?

Tom Durels -- Executive Vice President, Real Estate

So first, I'd say that echoing what Tony comments that he made in his opening remarks that we are actively looking at ways to improve our operational efficiency so that we can lock in permanent savings. The reductions made to date represent aggressively managing our expenses. Certainly, the bulk of it was due to reduced physical occupancies related to COVID, but we have completed redevelopment work which allows us to reduce permanently certain expenses and certainly keep a cap on the growth in expenses we get into next year. So we do expect to lock in a portion of those.

We haven't given a specific number. But I think that was -- our benchmark will be 2019, which are last year of full building utilization. And I think that we're going to see some improvement off of those numbers.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Great. Thanks, guys.

Operator

Thank you. Our next questions come from the line of Jamie Feldman with Bank of America Merrill Lynch. Please proceed with your questions.

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

Great. Thank you. Good afternoon. I was hoping you could talk a little bit about the smallest tenant leasing activity versus larger.

Just you were able to be your percent leased flat, which is impressive. It looks like you had a couple of buildings that had occupancy dip a little bit. Just curious if there's any kind of read-throughs for small tenants versus larger tenants based on what you're seeing?

Tom Durels -- Executive Vice President, Real Estate

Sure. So, Jamie, the increase -- or the increase in vacancy or decrease in occupancy that you noted from the prior quarter was really due to known tenant move-outs, which we had communicated last quarter. The most significant was the termination of full-floor tenant for 40,000 square feet, which we have already released to ClearView, which we announced last quarter, whose lease will commence by the end of this year. The most important thing is that our forecast of 300,000 square feet of tenant vacates in 2021 has not changed significantly from prior forecasts.

And we have 305,000 square feet of signed leases that we expect will commence by year-end. So I think from an occupancy standpoint, we're in very good shape. On the small tenant activity, as I just mentioned, we've seen a big pickup in activity and level of interest, both on tours and proposals being exchanged for our small suites that are fully built to comply with our standards for IEQ and sustainability. We offer turnkey suites.

That means before a price increase, we'll offer the suite fully furnished, fully wired, and provide move coordination. Comparing to where we were last quarter, I'd say we're probably about three-quarters or 80% of our pre-COVID level, which represents a big increase from last quarter.

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

OK. And then you had said you think net effectives are down about 10% to 15%. Can you break that out by face rents and concessions and free rent?

Tom Durels -- Executive Vice President, Real Estate

Well, first, I would say that our -- every deal is unique and really depends on space condition, the location, the tenant credit, and other factors. For example, the Burlington expansion, and leases were all turnkey deals with leases that range from 11 to 16 years. Generally, there's been more negotiation around concessions. But one of those deals, we gave maybe a rent discount of $2 to $3 per square foot compared to pre-COVID levels combined with three to four months of additional rent and a few dollars more Whereas the others, we held rent flat and gave more concessions.

So which really a mixed bag and it depends on the individual deal and the negotiation. I would point out that our average lease cost per lease year for this quarter for emissions was about just under $9.5 per square foot, which is right in line with our leasing costs for all of 2019. And of course, we had a weighted average lease term this quarter of 10 years, and that compares favorably with the last two to three quarters.

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

OK. And then, I guess, I know you've talked a lot about the investment activity. But just to be clear, are you -- would you consider assets outside of New York City or entity-level transactions if you have assets outside of New York City?

Tony Malkin -- Chairman, President, and Chief Executive Officer

We are -- and thanks for that, Jamie. We are. Omnivorous opportunity for us. I've used that word before.

Our focus is Manhattan and the Greater New York Metropolitan area. In order to grow the business, we need to look at all types of transactions. I would just say that.

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

OK. Is there -- it's funny because I was going to use the same word, but I do want to take it out of your mouth. You've been used to that for a long time. I mean is there a regional limit? I mean, would you look at national stuff or west of the Mississippi River or not necessarily?

Tony Malkin -- Chairman, President, and Chief Executive Officer

I mean, I didn't know that the world existed west of the Hudson River. Is there something else out there? No. I think -- joking aside. The last thing we want to do is generate speculation.

I think as prudent fiduciaries to our stakeholders, as prudent investors, we really need to look at all things which -- that could be logical. And how we allocate our capital, we look forward to have something to talk about other than speculation and we'll be much more talkative as and when we do.

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

OK. And then just some thoughts on the suburbs. That portfolio looks like it's been relatively flattish on the percent occupied side. I think you had a little bit of a dip at Bank Street.

Just any -- would you say there's been any pickup or it's been pretty flat?

Tony Malkin -- Chairman, President, and Chief Executive Officer

Well, Jamie, remember, we have a 63,000 square feet with Berkeley insurance that will commence later this year, and that comes on the heels of a fairly large earlier move-out by a tenant at Metro Center. So that will help our occupancy numbers. We have seen a pickup in tours like in Manhattan, and that pickup since the start of the year brings us to tour volume today at about just pre-COVID levels, which I think is a positive sign. Still, I think that that's going to translate into active in a second half of the year.

So it is a bit early on that. Downtown White Plains, I think it's generally performing good. Downtown, CBD Stanford is where we see a good amount of tour activity up in Norwalk, I'd say it's slower, but we are exchanging proposals with some fairly large tenants, have a large block of about 80,000 to 90,000 square feet at our property. And so we'll see that translates into real activity later in the year.

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

OK. I mean, is there anything in behavior during the pandemic that would make you want to grow transit-oriented suburban?

Tom Durels -- Executive Vice President, Real Estate

Yes. We like our portfolio. We think we're very well located near mass transit. We did recently complete upgrade of all of our common areas, including gyms, dining, coffee lounge, congresses, lobbies, and outdoor areas, we've got a little bit more work to do at Metro Center, but properties show really well.

And I think we're focused on leasing up our vacant space there.

Tony Malkin -- Chairman, President, and Chief Executive Officer

Yes. I would put it this way. I think it's important to note, which you didn't ask is, have we seen a big flow of tenants in that tour group out of New York City? And the answer is no. We haven't.

Tom Durels -- Executive Vice President, Real Estate

A handful, yes.

Tony Malkin -- Chairman, President, and Chief Executive Officer

A handful. And some leases done, smaller leases under 10,000 square feet on which we've reported.

Tom Durels -- Executive Vice President, Real Estate

Right.

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

OK. All right. Thanks for all that helpful color.

Operator

Thank you. [Operator instructions]

Tony Malkin -- Chairman, President, and Chief Executive Officer

There being no further questions, we're going to -- we'll finish up here. We have one -- we have no further questions. So what we will do is we will go to one last comment and then get you all to your 1:00. I do, again, want to complement our great team without them, ESRT is nothing, number one.

Number two, please do review our sustainability report. Don't do it today, but do when you've got a moment, it really will show you what's more than the 100% of renewable wind energy, what's more than healthy buildings. You get to see where the puck be when you read our first annual sustainability report. And, finally, we to make sure that you understand that our forward-looking statements on plans to ramp up the Observatory and return to business are for discussion purposes only to help you with your models.

They are not guidance nor are they guarantees. We look forward to a chance to meet with you at the upcoming NAREIT conference virtual, and we look forward to seeing you all return to office, return to here. We're healthy. We're vaccinated, and we're in a very, very safe place to come and visit.

So say hello. We look forward to seeing you in person. Thanks so much.

Operator

[Operator signoff]

Duration: 60 minutes

Call participants:

Tom Keltner -- Executive Vice President and General Counsel

Tony Malkin -- Chairman, President, and Chief Executive Officer

Tom Durels -- Executive Vice President, Real Estate

Christina Chiu -- Executive Vice President and Chief Financial Officer

Steve Sakwa -- Evercore ISI -- Analyst

Manny Korchman -- Citi -- Analyst

Blaine Heck -- Wells Fargo Securities -- Analyst

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Jamie Feldman -- Bank of America Merrill Lynch -- Analyst

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