Empire State Realty Trust - Earnings Call - Q2 2018
July 26, 2018
Transcript
Speaker 0
Greetings, and welcome to Empire State Realty Trust Second Quarter twenty eighteen Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr.
Thomas Keltner, General Counsel at Empire State Realty Trust. Please proceed.
Speaker 1
Good morning. Thank you for joining us today for Empire State Realty Trust's second quarter twenty eighteen earnings conference call. In addition to the press release distributed last evening, a quarterly supplemental package with further detail on our results has 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 applicable securities laws, including those relating 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. Good morning. Welcome to our second quarter twenty eighteen earnings conference call. At Empire State Realty Trust, our fully modernized portfolio is centrally located near mass transit. Our market position offers tenants a value price point between trophy Class A and Class B properties, which provides us with both upside opportunity and downside protection.
We have a derisked embedded growth strategy and generate market leading leasing spreads from redevelopment of our office space. We have the lowest levered balance sheet among office REITs, a significant cash position and no outstanding borrowings against our line. And we are an industry leader in sustainability and energy efficiency. Today, Tom Durels will speak about the second quarter's approximately 143,000 square feet of leases, market demand for our properties and our market leading leasing spreads. Our leasing results include LinkedIn's approximate 30,000 square foot expansion at the Empire State Building, their sixth expansion since they joined us as a tenant in 2011.
And then David Clark will address our financial performance and our balance sheet. After that, our team is here to answer your questions. I'll now turn the call over to Tom Durels. Tom?
Speaker 2
Thanks, John, and good morning, everyone. Our second quarter numbers reflect further progress on our four drivers of top line derisked embedded growth over the next five to six years. The breakdown of our four revenue growth drivers, which as of June 3038, we estimate to be $100,000,000 can be found on Page nine of our investor presentation available in the Investors section of our website. For reference, this compares to $377,000,000 in trailing twelve months cash NOI and $536,000,000 in trailing twelve month cash rental revenue and tenant reimbursements as of June 3038. Just as a reminder, the $100,000,000 is revenue growth and not all of this will flow through to NOI.
In the second quarter, we signed 37 new and renewal leases totaling approximately 143,000 square feet. This included approximately 111,000 square feet in our Manhattan office properties, 31,000 square feet in our Greater New York Metropolitan office properties and 1,000 square feet of retail. Significant new office leases signed during the quarter include a 30,200 square foot full floor expansion lease with LinkedIn at the Empire State Building. We have updated the disclosure on potential vacates and renewals for leases that expire by year end 2019, which can be found on Page nine of our supplemental. This chart shows tenants to be relocated within our portfolio and vacates to be replaced by new tenants with whom leases have been signed.
We have continued with our proven strategy to vacate and consolidate spaces, redevelop them and re lease those spaces at higher rents to better tenants. As a reminder, the resulting occupancy can vary quarter by quarter. There is a timing delay between the move out of existing tenants and the commencement of the replacement new leases and a further delay between legal commencement and GAAP revenue recognition. These timing lags impact our reported revenue. During the second quarter, rental rates on new and renewal leases across our entire portfolio were 17.9% higher on a cash basis compared to prior escalator rents.
And at our Manhattan office properties, we signed new leases at a positive rent spread of 26.5%. Of course, leasing spreads always depend on the expiring fully escalated rents, which we disclosed on Page 11 of our supplemental. We continue to see demand for our product, locations and price points and feel confident in our offerings. Heading into the third quarter, we have a very healthy pipeline of leases in negotiation across the portfolio for both full floors and prebuilts. As a reminder, leasing volume may vary significantly by quarter given the timing of particular deals.
We remain focused on our strategy to vacate and redevelop space that we will bring to market for future lease up. Now I will turn the call over to David Clark. David?
Speaker 3
Thanks, Tom, and good morning, everyone. For the second quarter, we reported core FFO of $71,000,000 or $0.24 per diluted share. Cash NOI was $96,600,000 essentially flat with the prior year period. Starting this quarter, we reported interest income as a separate line item on our income statement on Page 18 of our supplemental and now include short term investments as a separate line item on our balance sheet on Page 17. Turning to our Observatory operations, which are highlighted on Page 16 of our supplemental.
Revenue for the 2018 increased to $35,200,000 or 3.6% from the prior year period. NOI was $27,500,000 up 2.7% from the 2017 despite a lower visitor count this year. A combination of previously announced price increases, implementation of dynamic pricing and a better mix of ticket types drove the year over year improvement in NOI. The Observatory hosted approximately 1,080,000 visitors in the 2018, a decrease of 4.3 compared to the second quarter twenty seventeen. This year, the Easter holiday was split between the first and second quarters, whereas in the prior year, the Easter holiday fell entirely within the second quarter.
We estimate that this shift in the Easter holiday resulted in approximately forty nine thousand fewer visitors in the 2018 as compared to the 2017. For the second quarter, we estimate that fewer bad weather days resulted in approximately 19,000 more visitors than in the prior year period. For the six months ended June 3038, Observatory revenue was $56,500,000 a 2.8% increase compared to the prior year period. Net operating income for the 2018 was $41,400,000 up 2.4% from the prior year period. This strong performance was achieved despite the fact that the 100 And Second Floor Observation Deck was closed in the 2018 for the replacement of the original elevator machinery with a new higher speed glass elevator.
Excluding first quarter revenue from the 100 And Second Floor Observation Deck, which was $1,900,000 in 2017, Observatory revenue would have increased 6.4% for the six months ended June 3038, as compared with the same period in 2017. The Observatory hosted approximately 1,740,000 visitors in the 2018, down 1.4% compared to 1,760,000 in the prior year period. Moving to our balance sheet. Our low leverage, joint venture free and flexible balance sheet, including significant cash on hand, remains a differentiating and competitive advantage for us in any market environment. As of June 3038, we had total debt outstanding of approximately $1,900,000,000 and no borrowing under our $1,100,000,000 unsecured line of credit.
The debt has a weighted average interest rate of 3.84 and a weighted average term to maturity of eight point six years. Our debt maturities are well added with only a single $250,000,000 issue maturing before 2022. None of our outstanding debt has variable rates. As of June 3038, the company's consolidated net debt to total market capitalization was 19.7% and consolidated net debt to EBITDA was 3.6 times. And we have cash, cash equivalents and short term investments of $652,000,000 With that, I would like to open the call for your questions.
Operator?
Speaker 0
Thank you, sir. At this time, we will be conducting a question and answer session. Our first question today comes from Craig Mailman of KeyBanc.
Speaker 4
Tom, maybe to start with you. Just curious, you guys have been really successful since the IPO in kind of moving rent levels up at your redeveloped buildings. I'm just curious if the overall market you guys are in or submarkets you're in become a little bit tougher from a market rent growth perspective. Just curious how you guys kind of view your ability to continue to push your price point higher given the money you've put in and how you think maybe your assets stack up to kind of what the average that's in some of the market statistics?
Speaker 2
Sure, Craig. We have seen some modest rent growth year to date and year over year. I think that as far as being able to drive rents, I'd say that the office market feels healthy. Offerings and some are certainly our submarkets are healthy. As we continue to see employment growth numbers continue to be positive.
And given the steady activity we see for our product, our locations and price point, I think going forward, we can expect to see some modest rent growth. As we've always said, we provide a unique offering between Class A properties and traditional Class B. We offer a great value in modernized properties and great locations. So as long as we continue to see good employment numbers, I think we'll be able to continue to see modest rent growth for our offerings.
Speaker 4
That's helpful. And then could you guys just talk to, I think 2019 vacates were up about 100,000 square feet. It looks like maybe that was mostly in the Greater New York portfolio. Could you just talk to whether that's, due to kind of visibility on a tenant move out that you guys have found out about? Or is that just updated thoughts given what's expiring?
Speaker 2
Craig, it's due to the expected nonrenewal of a 96,000 square foot tenant. I'd comment that the space that, that tenant occupies is old. They've been in there for more than twenty five years. It's inefficient and needs to be rebuilt for today's workplace environment.
Speaker 5
Okay. That's helpful.
Speaker 4
And then just on the Observatory, I mean, guys had a good rebound in ticket price kind of mix and where it came in. Just curious on your thoughts as you guys kind of opened the new entrance to the Observatory and continue to fund the 150,000,000 kind of what you guys view as your ability or appetite to kind of push through additional ticket pricing increases that could offset some volatility in visitors?
Speaker 6
Craig, Tony Malkin here. We very much look forward to the opening, which is just a few weeks away. We absolutely believe that this is offense for us, which is exciting. We look forward to that. The fact is, while we don't speculate on results when we get support, we have been able to put together some per cap price increases and ticket mix improvements.
We think the new Observatory presentation will help us do more in both areas and in providing a reason to go to the Empire State Building even when the views are weather impacted. So by the way, don't forget, it's not going just to drive the bottom line behind the Observatory. These changes are going to increase the desirability of our 30 Fourth Street retail opportunities And the reduction of tourist volume in our Fifth Avenue lobby is going to help improve the environment for office tenants and their visitors. Now helps us raise rents to make ESP as we make ESP even more desirable to tenants. So we absolutely think that this is a plus for us, and we're very excited to get this out.
Speaker 4
Great. Thanks, guys.
Speaker 0
The next question is from Jamie Feldman of Bank of America Merrill Lynch. Please go ahead.
Speaker 5
Great. Thanks. Just following up on the 96,000 square foot move out in the suburbs next year. Can you talk maybe about average rent or just what the earnings implications might be from that move? I assume it's a pretty low rent compared to the portfolio average.
Speaker 2
As compared to the entire portfolio average, that 96,000 square foot space is occupied by a tenant that is at rents that are roughly half our average rents that we're seeing in New York City. So I think that's a good relevant question in the sense that it's equivalent to a tenant half that size in New York as it impacts our overall rent rolls. Then as far as yes, go ahead.
Speaker 5
No, I'm sorry, go ahead.
Speaker 2
Yes, I'm good. Thanks.
Speaker 5
And then do you expect to take that property out of service for a full rehab? Or is it just certain spaces?
Speaker 2
As I've mentioned before, that space has been occupied by a tenant for more than twenty five years. It's old. It needs to be completely redeveloped. So yes, we will take it offline and redevelop it and then re lease it.
Speaker 7
Is it the full building, though?
Speaker 2
No. No,
Speaker 5
okay. And then sticking with the schedule, it looks like maybe some of your I might be wrong here, but I think some of your tenant vacates got pushed back to the third quarter. There's just some moving pieces from your 2Q actual versus your 2Q projected last quarter and then even the third quarter now versus the third quarter in the last supplemental. Can you just talk us through the moving pieces of both tenant vacates and intentional vacates?
Speaker 2
Jamie, as it relates to the tenant vacates, most of this increase in the third quarter is due to the rollover of some month to month leases and some short term extensions. You'll see on a new line was added on Page nine of the supplemental for short term renewals and holdover tenants. We've also added a footnote with regard to month to month tenants. That accounts for the bulk of that change.
Speaker 5
Okay. And then as you think about your kind of your you guys always give the statistics on how much space you have that's developed ready to lease. Can you just talk about the leasing pipeline for that space? Are you seeing and how maybe it's changed over the last year or so? Are you seeing more larger tenants, smaller tenants?
Just kind of frame what might be ahead in the next twelve months or so.
Speaker 2
Jamie, I feel good about our portfolio and pipelines of deals under discussion. As I mentioned in my opening remarks, we have a solid pipeline of activity for our Manhattan office space for both full floors and prebuilt suites. We have a variety of offerings, and we have solid activity and a solid pipeline currently. So we continue to see demand for our product, our locations and our price points, and it ranges in both our prebuilt and our full floors of a variety of sizes.
Speaker 5
Okay. And then I guess just final question for me on the Observatory. I mean, given all the kind of global noise out there, can you give us some color on the types of visitors you're seeing? Are you seeing more domestic? Are you seeing more international?
Any trends on just kind of visitors New York and visitors to the Observatory specifically?
Speaker 6
Well, I will tell you that sorry, Jamie. I will tell you that from our perspective, when we look at the impact on the strong international market connection that we have, still I think we see two things occurring. One is that there is no question that The U. S. Image and how we're viewed internationally is less positive than it was.
At the same time, NYC And Company is reporting increased cross border travel into The United States. Look, while we historically have seen no relationship between foreign currency movements and observatory revenue, In today's world, we are seeing a slight decrease in all attractions across New York City, across border visitors. Our sales efforts under our new sales leader have begun to take effect. However, I think our goal is to get more of the cross border visitors, particularly long haul than we have historically. And they pay the higher prices.
And we think we're already beginning to see the benefits of those efforts in our ticket mix and our ticket pricing. Beyond that, candidly, we have a strategy where the Empire State Building Observatory is going to succeed regardless of overall trends. At the moment, I would say that we still have the majority of our visitors are from overseas, and we see that continuing going forward.
Speaker 5
Okay. All right. Thank you.
Speaker 0
The next question is from Rob Simone of Evercore ISI. Please go ahead.
Speaker 8
Hey guys, thanks. Just a quick question, a follow-up to Jamie's question earlier. That 96,000 square foot move out, that's going to occur in 4Q next year, correct? Which means, obviously, the earnings impact flows in primarily to 2020. Is that correct?
Speaker 2
That's correct. That lease expires at in November 2019.
Speaker 8
Got it. And you said it's roughly half the New York City average on the rent side?
Speaker 2
That's correct.
Speaker 8
Okay. And then just two quick follow ups, if there's time. It looks like the unknown bucket your leasing was down at about a 100 and down by about 126,000 square feet and vacates bucket between intentional and stated was up by about 105,000 So call it like a net 20,000 square feet that's out there. Is it safe to assume that, that was space that was leased in this quarter or pulled forward? Or is that kind of moving around elsewhere in that break?
And I'm just trying to understand how that moves.
Speaker 2
Well, I'm not sure which periods you're comparing. Just like, know, sorry. Okay. So the again, the big change there was moving the 96,000 square foot tenant in our Greater New York Metropolitan office portfolio from an unknown to a tenant vacate. And then the others are just updated forecast as we currently see it.
I think the big change was that one tenant change in Connecticut.
Speaker 8
Yes. I get that. But like if I compare the 2019 number this quarter to what you guys reported in 2019 for 2019 last quarter, it seems like about 20,000 or so square feet, if I just look at those vacate buckets plus the unknown, it looks like there was a reduction by about 20,000 square feet. Does that mean that was already leased? Or in the as a portion of the 140,000 square feet of leasing you did this quarter?
Just am I or am I thinking about that the wrong way? That's really the question.
Speaker 2
If you're referring to the total portfolio and a change of about 20,000 square feet, it could be comprised of a number of small changes. I can't point to one single thing. So again, this 2019 period is simply our updated forecast.
Speaker 8
Okay, understood. And then just lastly for me on the David, on the short term investments. I guess, A, was that technically it looks like your interest income, as you restated it or broken out, excuse me, started to tick up in Q1. Was that a, what did you guys invest in to the extent that you talked about it b, did that kind of start in Q1? And c, the what was the intention there?
Was it kind of like just an opportunity to enhance yield as you release the portfolio? Just trying to understand that a little bit more.
Speaker 3
Yes, Rob. So we placed 400,000,000 in a series of time deposits with laddered winners to nine months. And we did this with some leading national and regional banks. We did this in mid June. And we believe this is a prudent way to retain access to our cash balances while taking advantage of rising rates.
So you'll see that it had an impact in Q2 a little bit. It will have a larger impact as we go into Q3.
Speaker 0
The next question is from John Guinee of Stifel. John
Speaker 9
Guinee here. A couple of questions. First, David, it looks like your cash plus restricted cash plus notes is around $700,000,000 now. It was $750,000,000 at the end of the first quarter. You look at your spend for base building renovations, both the CBD and in the suburbs, your releasing costs and the Observatory costs.
When do you turn cash flow positive? And what do you and in what quarter? And what do you expect your total cash balance to be when you turn cash flow positive, assuming no acquisitions or dispositions?
Speaker 3
Yes. So just John, in summary, the change in the cash balance quarter over quarter, the biggest was the move of that $400,000,000 into short term investments. And then of the remaining difference, the decline was principally due to the CapEx and the leasing costs, which were about $55,000,000 quarterly dividends, which was $32,000,000 and this was all offset by operating cash flow, which was positive of $41,000,000 As we look forward, while we don't provide guidance, we feel that we become a we're no longer a net user of cash into 2019. I can't give you a specific quarter.
Speaker 9
And what do you think your right now, have $650,000,000 of cash plus short term investments and $50,000,000 of restricted cash. What do you think your balance is at that time?
Speaker 3
Well, again, that's if you go back, the reason we put that cash on the balance sheet was specifically for a purpose, and that was position ourselves well for investment opportunity. Our goal is to retain that liquidity and that cash on the balance sheet. So as we use cash for other items, such as capital expenditures, we will be considering how much of that cash we want to continue to retain for future investment and how much of it we will allocate to funding our capital expenditures. So I can't give you a specific answer right now.
Speaker 9
Okay. And then you do a great job. Your scheduled initial free rent burn off, your lease is signed on commence on Page six or seven, guess, Page six. But then on Page four, you basically, you have a pretty much of a flat percent leased and a flat percent occupied.
Speaker 3
Do you
Speaker 9
guys have an economic occupancy number you could provide? Because it's awfully difficult to try to go through all of the ins and outs and a economic occupancy number quarter over quarter would get p give people a sense of the upside from here. Do you have that economic occupancy number handy?
Speaker 3
We don't have it handy right now. I mean, it's something you often see more with some of the apartment REITs and companies like that. Typically or we haven't typically seen it with many of the office companies. We can certainly take a look at it. We have looked at it in the past and felt that it was not really necessarily appropriate in the context of what we report, but happy to revisit that.
And if you have some thoughts on it offline, I'd be happy to talk to you about it.
Speaker 9
Okay. And then last couple of quick questions is Manhattan office property expiring leases on Page 11. Looks like you averaged about $54 in 2019 and 2020, very different than the sub-fifty dollars expirations over the last year Do you still think you can get the very healthy mark to markets that you've been getting, 26%, I think, this last quarter? And then the other question, I guess that's for Tom, then the other question, is there a strike price on the exchangeable notes due in twenty nineteen-twenty nineteen?
Speaker 2
John, this is Tom. First on the rent spreads, they will always depend on the expiring fully escalated rents, as you've pointed out. And I would highlight the fact that the prior fully escalated rent on our vacant developed Manhattan office space was $48.39 per square foot, given that, that represents our most significant leasing opportunity and that our asking rents are for spaces ranging in the high 50s to low 70s per square foot. For the near future, we expect to achieve superior rent spreads.
Speaker 3
And then with respect to your question on the exchangeable bond, the exchangeable matures in August 2019 and the current strike price is 19 roughly $19.35 I believe. It's $19 and change.
Speaker 9
Okay. So out of the money right now? Correct. Okay. Thank you.
Thank you.
Speaker 0
The next question comes from Blaine Heck of Wells Fargo. Please go ahead.
Speaker 8
Thanks. Good morning. John or Tony, just to touch on or get back to the investment picture, you've got all this cash, some of which will go to redevelopment, but there are a few significant properties on the market and a few that have recently traded. Can you give any color on whether you guys are pursuing anything right now and whether there are specific opportunities for kind of challenged assets, as Tony has said, still on the table today?
Speaker 3
Blaine, it's John. Look, we continue to
Speaker 1
look at and pursue opportunities that are in the market that we think would make a good use of our balance sheet. But we continue to be disciplined in terms of our decision making and deployment of that cash. We do think our balance sheet gives us a lot of flexibility and is a tool that we can use to deploy in the right situation. And so far, certainly, we're following what's happening in the market and we're looking hard at certain things, but that we believe that continues to be the best opportunity for us is the investment in our portfolio, which you've seen us continue to do. And but we're we think we're certainly well positioned should there be an opportunity that's attractive.
Speaker 6
I might add to John's comments that we've got very good ideas of things to do. We've done a lot of work.
Speaker 0
We just haven't been able
Speaker 6
to bring anything to fruition at this point. But we're working hard. We're looking to be sensible. Pricing remains high, while there are pundits who have soured on New York City office. Pricing of opportunities would indicate that the writers of articles who are in decline the value of New York City or reducing the value of New York City office I do not see things the way the writers of checks do.
So we're in a position where we want to stay disciplined.
Speaker 8
Okay. That's fair. Tom, a couple of quick ones for you. Are there any chunky leases other chunky leases within the 128,000 square feet of unknown leases in 2019 that could move that number around as we look forward? Or will any changes likely be smaller in the future?
Speaker 2
Really, the largest lease that we have expiring in 2019 is in the 30,000 square foot range. The rest are we've got a tower floor at 1 Grand Central Place, 12,000 square feet. And then so it's a mixed value. We got a lot of small to midsized tenants, so nothing significantly chunky.
Speaker 8
Okay. That's helpful. And then CapEx seemed to be up quite a bit in the quarter, and the lease term on executed leases was down. Was that just a mix issue? Or are there maybe any underlying trends there that we should think about?
Speaker 2
Well, as I commented in the past, our reported costs for TI and leasing commissions are going to vary by quarter depending upon the length of term, the space type, including white box prebuilt, first gen or second gen space and the ratio of new and renewal leases. During this quarter, about threefour of our Manhattan office leasing was for new leases and which typically have higher leasing costs than renewals. And then we did have a more first gen prebuilt leasing as a percentage of our overall leasing this quarter. So as you point out, our first quarter leasing costs in Manhattan actually decreased from the prior quarter. So it's going to vary based upon those things I just mentioned.
Speaker 8
Thanks, guys.
Speaker 2
I'm sorry, Blaine, I want to clarify. Actually, largest tenant that expires next year in Manhattan is a 60,000 square foot tenant. The next is, I guess, in the 30s, and the rest are smaller than that.
Speaker 8
Is that $60,000 still in the unknown bucket? Yes.
Speaker 2
Yes. Yes.
Speaker 0
Our final question will come from John Kim at BMO. On
Speaker 5
your intentional vacates, can you provide some color
Speaker 7
on how long it takes to typically aggregate the space and redevelop it and have it ready for lease?
Speaker 2
So typically, our overall downtime can range from nine to twenty four months. It really depends upon whether we're going to convert that space into a prebuilt or full floor. We've been successful leasing some floors in advance of tenants vacating. But given the overall construction duration, marketing time and lease up, they can range anywhere from nine to twenty four months.
Speaker 7
And then when the tenant vacates, is that available for lease immediately? Or does that take some time to close?
Speaker 2
Well, we began marketing many of our spaces in advance of tenants' leases expiring. However, truly from a marketing standpoint, it's much better showing, particularly for prebuilts when they're built and ready for show. We've been successful leasing prebuilts while they're under construction. And then similarly for full floors, we'd like to get our full floors in a white box condition for a better showing. But
Speaker 0
as
Speaker 2
I said, we start the market process in advance of existing tenants' lease expirations.
Speaker 5
And then on your inventory of current vacant space, you have 498,000
Speaker 7
of redeveloped Manhattan office space. Can you tell us how much of that is available for lease today versus what you're holding on for to aggregate inventory?
Speaker 2
Out of our total current inventory of vacant space of about 1,177,000 square feet, approximately 498,000 square feet is redeveloped Manhattan office space. All of that is currently available and we are marketing it. As I said in my opening remarks, we have a good pipeline of activity for both our prebuilt and our full floors. Of our redevelopment in our office space, approximately half is prebuilt and half are consolidated for partial floors. There is a breakdown of our inventory of vacant space on Page 17 in the investor presentation that's available on our website.
Speaker 7
Okay. Turning to 111 West 30 Third Street, I hate to just point at one asset, but it's been under leased for the past several quarters, meaning 70% or less leased. I know you signed espresso there recently, but is there something about an asset that makes it challenging to get a lease up?
Speaker 2
It reflects our program to vacate, consolidate and redevelop space. We've renovated the lobby. We're almost done with all of the elevator cabs. The building show is fantastic. The floors that we have redeveloped show great.
We are currently marketing six full floors that they are relatively new inventory, and they range in size. And we have a good pipeline of activity currently. And that comes on the heels of some very successful leasing that we have done, including the Nespresso deal that you just mentioned.
Speaker 7
Turning to the Observatory. I think Tony mentioned that the investments will give you the ability to increase the number of visitors. And I wanted to ask about the magnitude of that increase.
Speaker 5
And to clarify, is that additional visitors to the Observatory or to the building itself?
Speaker 6
Oh, gosh. Well, everything that we talk about reflects increase in visitors to the observatory. That's absolute job one. Number two, I think people have asked the question in some instances a little differently, do we think that we're going to be able to change the capacity of the observatory for our work? And I think that I'd emphasize we want to use more of the capacity we have right now.
So we're not in this work increasing capacity, but we do want to make the time that visitors spend in the observatory more entertaining, more pleasant, more enjoyable, number one. And number two, as I mentioned, provide a reason for people to come even when the weather is not good. So that's our job, that's our task, that's what we set out to do. And we really like what we see as our plans come to fruition and people will be able to see things for the first time in a few weeks themselves.
Speaker 5
I may have missed this, but do you
Speaker 7
plan to announce like additional details on your investment later this year or at some point in the future?
Speaker 6
Well, we plan to open the new Observatory entrance within the next few weeks. So we are right now burning in the electronics and the technology, which is a period of time that we need to go through to make sure
Speaker 2
it works.
Speaker 6
But when you see it and come and visit, you'll see it's revolutionary in the approach. And it builds on the iconic relationship that people have with the building in a sense that no new tower can have. But the fact of the matter is that what we're doing there is going to be absolutely unique out of itself and everything geared around making it more efficient, more pleasant and more profitable.
Speaker 7
Sorry, just one more. Are you gonna be able to attract more visitors even on bad weather days as part of this investment?
Speaker 6
We certainly hope so. That's fine.
Speaker 5
Looking forward to it. Thank you.
Speaker 0
The final question is a follow-up from John Guinee of Stifel. Please go ahead.
Speaker 9
Great. You've been talking a lot about this 96,000 square foot lease in Norwalk, I guess it is. Guys, question is, it looks like your in place rents are in the low 30s in that building. Is this a rent up or roll down despite all the CapEx we're going have to put in the space?
Speaker 2
Well, first, John, this is Tom. We have not identified which building or that, that space is expiring. It's in our Greater New York Metropolitan office portfolio. And I would only merely point to Page 35 of our investor presentation that shows you the mark to market for our Greater New York Metropolitan office portfolio and that 96 square foot space is captured within that Page 35 of the presentation.
Speaker 9
I don't have that open. So I'm just looking at Page 10, and I've got your building in Norwalk has about a $32 rent and Harrison's got about $29 rent. I'm assuming it's one of those two buildings, and it's not a big deal. I mean, it's Mhmm.
Speaker 2
You know,
Speaker 9
if you're if there's a de minimis portion of your NOI, I'm just curious if there's any potential roll rents up on a deal like that. You look at your friends at SL Green who have the same sort of mix, it's a hamster wheel type asset.
Speaker 2
It's going to be a if you look at 2019 on Page 35 of the investment presentation, it represents a modest markdown in rent. And as far as our CapEx spend, we're doing that throughout the portfolio out there.
Speaker 0
I would now like to turn the call back over to Mr. Malkin for closing remarks.
Speaker 1
Thank you very much,
Speaker 6
and thank you all for attending today's call. I'd like to complement our team. Our goal has been to get these calls shorter with more direct sights of our enhanced supplemental and investment presentation. I'm delighted to say that our prepared remarks today totaled a whopping eleven minutes. And if we drop out General Counsel Tom Keltner's broad disclaimers and comments and mine here, we're down to fewer than nine.
So in addition to our lease spread metrics, we lead our peers in earnings call efficiency. All seriousness, I'm very happy with our portfolio's value proposition and team's execution. And we're very, very busy on lots of fronts. It doesn't necessarily show up in every quarter, but we are very busy. The Observatory, we look forward to opening Phase one of the upgraded experience in the third quarter, and we look forward to hosting an event there for investors late in September.
It looks fantastic as we're about to open, and it is only Phase one. So we thank you very much for your time and questions. We look forward to reporting third quarter results in just three months. And until then, all the best.
Speaker 0
This concludes today's conference. You may now disconnect your lines. Thank you for your participation.