Feb 23, 2017
Executives
Thomas Keltner - Executive Vice President and General Counsel John Kessler - President and COO Tom Durels - Executive Vice President and Director, Leasing and Operations David Karp - Executive Vice President and CFO Tony Malkin - Chairman and CEO
Analysts
Jamie Feldman - Bank of America Brad Burke - Goldman Sachs Blaine Heck - Wells Fargo John Guinee - Stifel Craig Mailman - KeyBanc John Kim - BMO Capital Tom Lesnick - Capital One
Operator
Greetings. And welcome to Empire State Realty Trust Fourth Quarter 2016 Earnings Conference Call.
At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.
[Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr.
Thomas Keltner, Executive Vice President and General Counsel for Empire State Realty Trust. Thank you, Mr.
Keltner. You may now begin.
Thomas Keltner
Good morning. Thank you for joining us today for Empire State Realty Trust's fourth quarter 2016 earnings conference call.
In addition to the press release distributed last evening, a quarterly supplemental package with further details 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 related to market conditions, property operations, 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, 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 Kessler
Good morning. We are delighted to welcome you to our fourth quarter 2016 earnings conference call.
Empire State Realty Trust is a pure play Manhattan and Greater New York metro area office and retail portfolio that offers a unique opportunity to grow income as we continue to redevelop and lease our properties at market rents and bring occupancies to market levels. Since inception, we have delivered and we expect to continue to deliver our embedded de-risked growth.
During 2016, we continued to execute on our focused strategy and again delivered strong results, the lease just under 1 million square feet at above market spreads. We grew Observatory revenue to a record.
We issued new shares totaling 9.9% of the fully dilutive equity of the company at $21 a share. And we increased our revolving credit facility borrowing capacity.
We continue to see strong tenant demand for our value price point and well-located quality buildings. During the fourth quarter, we completed approximately 211,000 square feet of total leasing.
We continue to capture significant upside in rents achieving average leasing spreads of 24.3% on our new Manhattan office leases and 21.8% on all new and renewal leases across our entire portfolio. Our Observatory produced a 22.1% year-over-year increase in revenues in the fourth quarter and 11.2% year-over-year increase in revenue for the full year.
We continue to introduce new visitor options and improve the overall experience. In our broadcast operations in the fourth quarter we signed a long-term lease and license renewal with WPIX at the Empire State Building.
We previously disclosed that we have successfully renewed lease and licensing agreements with Univision, MS and ABC and we remain in ongoing negotiations with our other broadcast tenants. We were busy internally as well in 2016.
We completed a move to our new headquarters space at 111 West 33rd Street and it is great to have the bulk of the company on one floor in our open plan offices. We strengthened our team and we brought in-house functions we had historically outsourced.
Tony and I are proud of our team’s hard work over the past year and we thank them for their efforts. We believe we will continue to drive growth and unlock value as we redevelop and re-lease our space at attractive spreads.
We believe our portfolio and strategy can outperform regardless of market conditions and with our highly liquid and low-level balance sheet we are well-positioned for additional opportunities in 2017 and beyond. Our prepared comments this morning will be fairly brief.
Tom Durels, our Executive Vice President and Director of Leasing and Operations will provide an update on our portfolio; and David Karp, our Executive Vice President and Chief Financial Officer will then review financial results in more detail and discuss our balance sheet, after that, our team including our Chairman and CEO, Tony Malkin are here to answer your questions. I'll now turn the call over to Tom Durels, Tom?
Tom Durels
Thanks, John, and good morning, everyone. On today's call, I will provide an update on our four key growth drivers, review our overall leasing activity in the fourth quarter, given overview of our current and future space availabilities and discuss the timing of new lease commencement.
As you know from our Investor Day in March 2015, we set forth our four key growth drivers from our existing portfolio. At that time, we present the revenue growth of $90 million to $100 million from these four growth drivers over the following five to six years.
As I look back upon the completion of 2016, I am very happy with our accomplishments which have been better than we presented on that day. In just two years when we excluded the contribution to NOI growth from the Observatory and adjusted for the mid 2014 acquisitions of 1400 Broadway 111 West 33rd Street we have delivered $50 million in cash NOI growth.
This is net of the loss of income from the vacancies we create through our redevelopment and re-leasing program. Our updated numbers for our four key growth drivers are, one, upside from signed leases not commenced of $13 million, two, lease-up of developed vacant office space of $37 million, three, the mark-to-market on expiring Manhattan office leases of $21 million, and four, the mark-to-market and lease-up of available retail space of $13 million.
So based on our updated numbers we estimate these drivers will contribute approximately $84 million of growth over the next five to six years as of December 31, 2016 and that’s relative to our trailing 12 months cash NOI of $356 million. Remember we calculate these numbers based on our view of current market for starting rents without consideration for potential increases in future starting rents.
As we discussed earlier quarter we expect our occupancy will fluctuate from quarter-to-quarter as we vacate and consolidate spaces in order to redevelop and re-lease those spaces at higher rents to better tenants. There was a time lag between the move outs of existing tenants and when we complete our work before lease-up and when new leases commenced specifically for prebuilts overall downtime is generally nine months to 18 months following last date of occupancy by prior tenant to allow time for redevelopment and lease-up, there could be less or more depending on the space and our overall inventory.
And for fourth quarters’ overall downtime including time for redevelopment work and lease-up can be 10 months to 24 months following last date of occupancy by prior tenant, again, depending on the space in our total inventory. As we execute our strategy, we unlock the embedded growth within our portfolio and drive significant increases in rental rates and future cash flows.
In the fourth quarter we signed a 64 new and renewal leases totaling approximately 211,000 square feet. This included approximately 120,000 square feet in our Manhattan office properties, 79,000 square feet in our Greater New York metropolitan properties and 11,600 square feet of retail.
At quarter-end, our total portfolio was 88.1% occupied, which is up 20 basis points from the third quarter and including signed leases that have not yet commenced, the total portfolio leased percentage was down 10 basis points from the third quarter at 90.2% leased. At our flagship property, the Empire State Building, we were up 40 basis points from the third quarter 2016 to 90.5% occupied, including our signed leases not yet commenced, our leased percentage was 91.8%, up 30 basis points from the last quarter.
As a result of our redevelopment strategy, we continue to capture healthy rental growth spreads which are aligned with our regular investor and analysts meetings and investor deck updates. During the third quarter, rental rates on new and renewal leases across our entire portfolio were 21.8% higher on a cash basis compared to prior escalated rents and at our Manhattan office properties, we signed new leases at rent spreads of 24.3%.
We are pleased that we continue to meet these spreads at the levels we have set forth in our corporate presentations. Throughout our total portfolio as of December 31, 2016, we had 1,209,000 square feet of vacancy, against which we have 216,000 square feet of signed leases not commenced for a net total of 993,000 square feet of unleased space, which is comprised of Manhattan office vacancy of 822,000 square feet, retail vacancy of 73,000 square feet and Greater New York metropolitan office vacancy of 98,000 square feet.
Now of the 822,000 square feet of unleased Manhattan office space, approximately 604,000 square feet is consolidated and redeveloped space that includes prebuilts and white-boxed space. Approximately 81,000 square feet is being held off market until it can be consolidated for future redevelopment and the balance of our vacant space is being planned for redevelopment.
Looking ahead we expect to vacate 324,000 square feet in our Manhattan office portfolio by year-end, with in-place fully escalated rent of just under $47 per square foot, we will redevelop this space and re-lease it at much higher rents. And as a reminder, as of 12/31/16, we have signed leases that have not yet commenced of 216,000 square feet, all of which are expected to commence by early 2018 and will add $13 million in NOI growth.
Returning to our office availabilities, we currently have 10 full floors totaling 224,000 square feet throughout our Manhattan office portfolio including three floors at 250 West 57th Street and two floors at 111 West 33rd Street. At both of these buildings we are currently underway with new building lobbies and entrances, elevated cabs and store fronts.
And we also have one full floor at the Empire State Building, two floors at 1400 Broadway and two full floors at One Grand Central Place. Turning to our retail business, we signed seven leases in the quarter for 11,600 square feet in total.
Rental rates on both new and renewal leases were 44.3% higher than prior fully escalated rents. The new and renewal leases will contribute $1.9 million in annual NOI growth.
Significant leases signed during the fourth quarter include the food purveyor Maison Kayser for 2,600 square feet at 1400 Broadway that was a new lease, Stamford 2,200 square feet renewal lease on 86th Street and Dr. Martens for 1,800 square foot new lease at 1333 Broadway.
Within our larger retail portfolio we are currently marketing at 112 West 34th Street approximately 3,000 square feet including nearly 8,000 square feet at street level and directly opposite Macy’s flagship store. The space looks fantastic with 20-foot ceiling heights and Great 34th Street frontage with it’s over $100 million in annual foot traffic.
And at the Empire State Building we are marketing a fourth -- 14,200 square foot availability that includes 5,600 square feet on ground level with 100-feet of frontage on 34th Street. We feel very good about our leasing pipeline and I am very confident in our team's ability to execute and deliver on our four key growth drivers.
Overall, we continue to see steady demand for our properties, which offer prospective tenants an attractive combination of location and amenities at a value price point. We continue to lease up our vacant space and execute on our proven strategy to consolidate, vacate and deliver redeveloped space in order to lease to new better credit tenants at higher rents, increase NOI and improve shareholder value.
Now I'm going to turn the call over to Dave Karp. Dave?
David Karp
Thanks, Tom, and good morning, everyone. I'll start with a review of our financial performance and follow with an update on our balance sheet.
For the fourth quarter, we reported core FFO of $74.2 million or $0.25 per diluted share. Modified FFO, which is defined as FFO plus adjustments for any above or below market ground lease amortization was also $74.2 million or $0.25 per fully diluted share.
Cash NOI was $96.3 million, up 15.9 from the prior year period. For the full year ended December 31, 2016 core FFO was $269 million or $0.97 per fully diluted share.
Modified FFO was $268.4 million or $0.97 per fully diluted share. Cash NOI was $356.1 million, up 9.5% from the prior year period.
As Tom mentioned, at our Investor Day in March 2015 we set forth our four key growth drivers from our existing portfolio. At that time, we presented revenue growth of $90 million to $100 million from these four growth drivers over the following five to six years.
As I look back upon the completion of 2016, we are pleased that our performance has been better than what we presented on that day. In just two years excluding the Observatory we have delivered $50 million in cash NOI growth.
Again, our updated four key growth drivers numbers are, one, upside from signed leases not commenced of $13 million, two, lease-up of developed vacant office space of $37 million, three, the mark-to-market on expiring Manhattan office leases of $21 million, and four, the mark-to-market and lease-up of available retail space of $13 million. So for our updated total we estimate these drivers will contribute approximately $84 million of revenue growth as of December 31, 2016 over the next five to six year relative to our trailing 12 months cash NOI of $356 million.
As we continually highlight, our occupancy has fluctuated from quarter-to-quarter as we vacated and consolidated spaces in order to redevelop and re-lease those spaces at higher rents to better tenants. We believe this timing lag between the move outs of existing tenants and when we complete our work before lease-up and when new leases commence will continue.
Our strategy is to unlock the embedded growth within our portfolio and drive significant increases in rental rates and future cash flows. The $84 million of new revenue which together with the NOI growth we have already achieved will put us well ahead of the original embedded growth figures we have shared at our Investor Day.
Turning to our Observatory operations, revenue for the fourth quarter 2016 grew 22.1% to $43.7 million from $27.6 million in the fourth quarter 2015. The Observatory hosted approximately 1.07million visitors in the fourth quarter 2016 compared to 949,000 visitors in the fourth quarter 2015, an increase of 12.5%.
The increase in revenue is attributable to tourist visits, improved ticket mix and new product offerings. In the fourth quarter 2016, there were 14 bad weather days, five of which fell on weekend days compared to 15 weather days one of which fell on weekend day in the fourth quarter 2015.
For the full year ended December 31, 2016, the Observatory hosted approximately 4.25 million visitors, up 4.6% compared to 4.06 million visitors in the prior year period and Observatory revenue was $124.8 million, up 11.2% compared to $112.2 million in the prior year period. The revenue increase was due to more tourist visits, favorable weather conditions, improved ticket mix and new product offerings.
Turning to our balance sheet, our strong joint venture free and flexible balance sheet including significant cash on hand remains a competitive advantage for us in any market environment. We continued to increase our financial flexibility capacity, lengthening our maturities and lowered our cost of capital.
As we reported in our third quarter, we saw 29.6 million newly issued Class A common shares and raised $622 million in gross proceeds. We increased our borrowing capacity by $300 million to a total committed borrowing capacity of $1.1 billion and we can further increase our capacity to an additional exercise of the accordion feature to $1.25 billion.
At December 31, 2016, we had total debt outstanding of approximately $1.6 billion. Approximately $1.35 billion of this debt is fixed rate with weighted average interest rate of 4.54% and a weighted average term to maturity of 4.5 years.
The remaining $265 million of debt is variable rate with weighted average interest rate of 2.37% and a weighted average term to maturity of 5.4 years. At the end of the fourth quarter, we had no outstanding balance on our revolver and $554.4 million in cash and cash equivalents.
Our leverage ratio reflected by consolidated net debt to total market capitalization was 14.9% and our consolidated net debt to EBITDA was 3.1 times. I'll now update you on our redemption requests.
For operating partnership units, our lockup period expired one year after issuance, which was October 7, 2014 for units issued in the IPO and July 15, 2015 for units issued on the acquisition of 111 West 34th Street and 1400 Broadway. Upon such expiration, holders of such operating partnership units could have their holdings redeemed for Class A shares, which are listed and traded on the NYSE.
As of December 31, 2016, we have had conversions from operating partnership units and Class B common shares to Class A common shares totaling 28.1 million shares or approximately $565 million at the closing share price of $20.19 on December 31, 2016. This represents a 34% increase in the number of Class A shares since our IPO.
Finally, our Board of Directors approved a quarterly dividend of $0.105 per share for the fourth quarter of 2016. This dividend was paid on December 29th to shareholders of record on December 15th.
With that, I would like to open up the call for your questions. Operator?
Operator
Thank you. [Operator Instructions] Our first question is coming from Jamie Feldman of Bank of America.
Please go ahead.
Jamie Feldman
Great. Thank you and good morning.
I was just hoping you can talk more about the leasing market, may be changes you’ve seen -- seen since the election or since the beginning of the year in terms of what types of tenants are out there, what the leasing volume looks like and maybe you ability to push rent?
Tom Durels
Sure. Jamie, this is Tom, and good morning.
First, I’d start up with saying, we had a very strong 2016 with nearly a $1 million square feet of leases signed for the year. And despite of bit of market wide slower momentum in the fourth quarter, we are very pleased with the 211,000 square feet of leasing that we signed during the quarter.
But I would say, since the beginning of the year have seen a steady increase in activity based upon the inbound calls, number of showings, RFPs and number of proposals that are being exchanged and leases in negotiation. You may have read about our announcement last week that we signed a full floor lease with Mount Sinai for 26,000 square feet at 250 West 57th Street.
I would say that we are also in negotiation on full floors for office and the remaining retail space at 111 West 33rd Street. I am very pleased with the activity that we are seeing in both 111 and 250 well before the completion of our lobby work.
The new storefronts and entrance of 250 looks fantastic. We received fairly positive comment back from touring brokers and tenants and both the lobbies of 250 and 111 are in unconventional but they will look fantastic.
So I am feeling very, very positive.
Jamie Feldman
Okay. When you say there’s a shifted all in tenants looking at your portfolio?
Tom Durels
No. We’ve always focused on and have successful leasing to a wide variety of tenants in diverse industries.
If you look at our fourth quarter leasing, we lease to tenants in the fire sector, professional services, consumer goods, healthcare, some legal tech, it’s been very broad based and I can’t say that there is a significant noticeable change in any one industry type. As I look at the leasing activity that we have throughout the portfolio it ranges from fire sector both at One Grand Central is the healthcare not for profit some tech and maybe a tenant.
So it runs the gamut.
Jamie Feldman
Okay. Thank you.
And then, the balance sheet is in good shape here, you have capital. Can you maybe talk potential, what you are seeing on the investment front, maybe when you look at in maybe past over the quarter and then kind of what might be in the pipeline?
John Kessler
Yeah. Good morning, Jamie.
This is John here. No comment right now about future plans.
When we have something to say we are certainly going to let you guys know, until then we really like the strong balance sheet that we have and we think our low leverage and liquidity position us well for any situation. We continue to pursue off market opportunities that we see -- that we think can provide all shareholders with long-term value.
In our low levered balance sheet and cash balance certainly give us flexibility to take advantage of opportunities when we see them. Importantly for the next couple of years businesses not need to make acquisitions to grow NOI given the significant growth that we have from the redevelopment and re-leasing of our space.
And as you heard earlier in our comments, we currently have $84 million in gross relative to our existing NOI base of $56 million that we see yet to deliver and we are getting really good returns on the redevelopment of our space. I think when we see that we can invest at prices which compete with the returns that we get through investment in our own portfolio we are certainly going to pursue that.
Jamie Feldman
Okay. And there are certain property types that maybe you seeing more dislocation than others and more opportunities than others, I know we have seen the pull back in retail rents?
Tom Durels
I think, from a capital market perspective we still see New York is being very, very competitive across asset types.
Tony Malkin
Tony here Jamie, I would just add that as we have always said, we are much more focused on complicated things then on the market transactions. Again, we feel that’s in our DNA.
We have the unique advantage there being able to understand the complicated things and people who have complicated situations where we can provide help on just pound for pound basis things are very competitive and remain very competitive.
Jamie Feldman
Okay. Great.
Thank you.
Operator
Thank you. The next question is from Brad Burke of Goldman Sachs.
Please go ahead.
Brad Burke
Hi. Good morning, guys.
Tony, I wanted to ask about the Observatory, the result this year were obviously great, looking at ticket sales, ticket mix revenue up 11% to costs were staying flat. But as you look at it at this point, how much more upside do you think is left to push Observatory income higher?
Tony Malkin
Well, first of all, thanks Brad and good to hear from you and I will have another comment about your particular exports earlier this month shortly.
Brad Burke
Great.
Tony Malkin
But, no, look, again, we want to be helpful and hope you guys understand our business and so on the investor -- the Investor Day forward we brought forth this broader disclosure. The Observatory we have always been very shy from releasing anything other than report than reporting what we do.
But we have looked at a couple of different metrics. At 4.25 million visitors we are in a bit of 50% occupancy.
What can we do to improve on that? Well, we can try to improve reasons to come during bad weather.
We can try to improve the comfort of people during cold weather. We can look at the opportunity in our shorter periods where frankly we have made good progress.
And we also look to come up with continuing new on the margin offerings be at our sunrise experience which we have put in place, which is primarily a warmer weather event but we did the sunrise experience with special tours for Chinese visitors during the Lunar New Year, and of course, the Empire State Building was lit by the ambassador counsel general for the Chinese Lunar New Year with the lighting scheme put together by the China -- Chinese academy of fine arts, so that our brand is very strong in China. And things like that actually when you add them up along with our premier experience, our special guided tours, which -- when people have them they are thrilled with that.
These things on the margin add a drop to the bottomline. And then, of course, our ticket mix and getting rid of sky ride and the hawkers upfront greatly improve the overall experience for visitors, our brand, our ticket advisor scores have gone way up, getting rid of those hawkers on the side wall.
Most importantly, however, it drives our traffic in that walks to the building to our ticker office, which is a higher margin product for us. We did disclose a price increase in April of 2016 for tour and travel.
We increased our prices on November of 2016 to $34. We have certain peak pricing in place and we are just heartened by what we see as the power of brand and what really strong brand of attraction are able to accomplish.
Disney announced a 5% increase in its ticket price at Disney World. From our perspective, remember we are not a price leader but we are always pricing ourselves consistent with whatever offerings are and our job is to drive the most traffic towards our stated price, which is different from what a lot of other attractions do, a lot of other attractions work with a stated price and then really operate based on discounting.
So, our long answer to a short question what -- which I think gets to a lot of different things about which people might be thinking. Our branding efforts which we started really 10 years ago in earnest when we took over day-to-day operation of the Empire State Building and it’s just helped what was already an international icon be even more prominent and if you read about in news yesterday about a crack in a glacier in Antarctica which was the width of the Empire State Building or the asteroid the size of the Empire State Building that might hit earth.
This has become a form of measurement around the world. So that brand and capitalizing on that brand and delivering those people a full price to our front door, as well as premium product our availability based on how much of our occupancy we use at about 50% and different things we can do to improve the customer experience are all we think opportunity.
Brad Burke
Okay. No.
I appreciate the expanded thoughts. Switching over to the property NOI on a GAAP basis, in the fourth quarter it seemed like there were a number of signed leases that were going to commence and you also had a modest uptick in occupancy.
I am surprised that from Q3 to Q4 there wasn’t sequential increase in property NOI on a GAAP basis? Was there something else that maybe offset some of the signed leases commencing?
David Karp
Brad, it’s David. No.
I think, what we saw throughout the year and comparing it to quarter-over-quarter, year-over-year, we did have a number of leases that are in their free rent period in the fourth quarter and if you look at the prior year, some of these leases were rent paying. So, for example, we had food locker which year ago was rent paying and this past quarter was in the rent free period.
Brad Burke
Okay. But on a GAAP basis even if they are in the free rent period certainly recognizing GAAP income on them, correct?
David Karp
It’s correct. Once they commence.
Brad Burke
Got it. And I guess, what I had…
Tom Durels
Yeah. Brad…
Brad Burke
Go ahead.
Tom Durels
Yeah. Brad, this is Tom, I was just going to add there, as a reminder, there is a lag or downtime between the time a prior tenant vacates, where vacate space intentionally for with the intent of re-leasing a space with the higher rents kind of brought to consolidate redevelop that space then lease it up and then the time period before the new lease commences.
So, just as a reminder, there is that lag period.
Brad Burke
Got it. And I guess, just a couple quick modeling questions.
David, sorry, if you mentioned this, but what drove the big uptick in other revenue and fees and also on G&A there was anything specific that drove the sequential increase?
David Karp
These cancellation income which can vary quarter-to-quarter, parking income from metro center, insurance settlements, sales from our restaurant at the Empire State Building state grill and bar. They are all components of other revenue and fees.
This past quarter this cancellation income was $70.2 million. This was primarily driven by one large $6 million termination payment that we received from the departing tenant at 10 Bank Street, where I will point out we've already released entire full floor to Sidney Frank, the spirit distributor and half floor to Mitsui Plastics.
So that would be the driver behind the other revenue. With respect to the increase in the G&A.
This is really primarily attributable to higher compensation expense related to a performance driven cash bonuses which we accrue for in the fourth quarter.
Brad Burke
Okay. Thank you.
Operator
Thank you. The next question is from Blaine Heck of Wells Fargo.
Please go ahead.
Blaine Heck
Thanks. Good morning.
Just a follow-up on Jamie's last question, maybe this for David, but what do you think your investment capacity would be whether would be for one large acquisition or a series of deals before you hit any of your kind of internal leverage targets or limits?
David Karp
Well, I think, we talk about our leverage targets where we want to be. I think it’s important to note that we have tremendous capacity already.
As of December 31 we pointed out that our net debt to capitalize value was only 14.9% and our net debt to EBITDA is 3.1 times. While, I don’t want to speculate on our target per se, what we would say, that we are comfortable here where we are to leverage and we are comfortable where we were when we went public, so a lot of capacity.
I am happy with our leverage levels.
Blaine Heck
Okay. That's fair.
Tom, can you just talk a little bit about the Greater New York office portfolio, looks like it was a really strong quarter from a same-store NOI perspective. Can you give some color on what was driving the increase in revenues?
They were up 33% sequentially even given the downtick in occupancy? Did that have to do with the termination fee you mentioned at 10 Bank Street?
Tom Durels
Yeah. Sure.
Thanks for asking about the greater metropolitan portfolio, as I have said in the past we have been actively addressing our upcoming maturities and that’s exactly what we did in 2016 with 215,000 square feet of leases signed and we have remained active discussions with other tenants on other early renewals. As David mentioned, we signed a number of leases in the fourth quarter where we have awarded downtime collective termination income through the early recapture of space from an existing tenant.
Extended term and sign leases of new quality tenants as Dave mentioned, Sydney Frank, Mitsui Plastics and then another tenant OMS, which was also announced following the close of the quarter, we signed a nearly 57,000 square foot lease with partner for Stamford Place. So we have been busy.
We are just under 95% leased. We have modest role in 2017 only about 190,000 square feet and we said we are actively working out on renewals.
With regard to the cash NOI update, do you want to fill that?
David Karp
Well, I think, I mean, the question was the cash NOI gone up.
Tom Durels
Yeah.
David Karp
I mean, major driver of that is that lease termination income that we received in the fourth quarter. As you have point out we have $6 million from one tenant, which is the 10 Bank Street in Greater New York metropolitan area portfolio.
Blaine Heck
Okay. So that is included in the $25 million roughly of revenue in the quarter?
David Karp
Yes.
Blaine Heck
Okay. Great.
Thanks.
Operator
The next question is from John Guinee of Stifel. Please go ahead.
John Guinee
Yeah. Great.
Thank you. A couple questions, first, I was at the East Dale 50th anniversary event about a month ago by Mr.
Karp and Mr. Kessler and if you believe East Dale the chances of you finding competitive investment opportunities are pretty darn slim.
You've got an amazing amount of institutional capital chasing almost anything that comes up and I realize you guys have a [ph] LP (42:06) unit advantage and the complexity advantage. But how -- so a couple questions, one, how small you go in terms of deals, how far off the island will you go in terms of deals, and three, is there a share price at which you would be interested in buying back your shares?
John Kessler
Let’s say, John, this is John here. We agree that the New York City market is competitive and a lot of capital trying to get invested.
Our buyers is going to, when we look at where we spend our time, we are definitely focused on larger situations, larger opportunities that are more complex and I think, our view is that that there are fewer competitors that can compete in those types of situations, and therefore, we have a better chance to succeed. Certainly we think the [ph] LP (43:10) unit currency is something that is a tool that’s unique and that it represents now a tax efficiency but also way for a seller to participate in our grow and then I think we are continuing to focus on the relationship aspects of trying source off market opportunities.
But, again, I think the focus is bigger and more complex. We like the markets that we are in here in New York, so I think, that’s going to continue to be a primary focus from a geographic perspective.
And then I guess, your last question was on potentially buying back stock, is that right.
John Guinee
Yeah. Is $18 a number or $19 is a number or $20 is a number, would you be buying back your…
John Kessler
Look, John, those are all definitely numbers, I mean, I was an English major but I noted $18, $19, $20 are numbers. But aside from that this is, it’s all on a relative basis to us.
We put together this balance sheet in order to have maximum flexibility and in order to really take advantage of any opportunity, which is compelling to us and I am very big shareholders, so whatever is good for me is going to be good for shareholders and that's really the way we look at this. We are all equally based here.
So as far as the price at which we might buy back in this comes up from time to time with the Board, but certainly, we have no hard and fast and we are looking to grow the business at an intelligent time and we still believe in cycles and we still believe that our extraordinarily low leverage, high flexibility liquidity and access to borrowing are all unique advantages for ESRT.
John Guinee
Great. And then the second question, there's a couple REIT’s out, one REIT in particular, couple REITs that are threatening to redevelop Penn Station.
Are you involved at all in any discussions with the city in terms of the big Penn Station redevelopment and how does that affect your portfolio?
Tom Durels
John, the answer to your first question we are not involve in the discussion with the city on the redevelopment. However, we are following it and we think it’s all positive for us.
Certainly, we would be a beneficiary of the improvements to Penn Station and the surrounding area. We have transform the Time Square South sub-market, we have got great access to mass transient, we view Penn Station as obviously a key transportation hub that serves our tenants, so any improvement there is going to be a vast improvement for us.
So it’s all good news for us. We like to see it go forward.
John Guinee
Great. Thank you.
Operator
Thank you. Our next question is from Craig Mailman of KeyBanc.
Please go ahead.
Craig Mailman
Thanks, guys. Just a quick question on rent spreads.
I know you guys don't give guidance here. But maybe you could just give some color on how we should think about that trending the next couple quarters, because, obviously, the -- some of the space you guys have that’s been vacant that you are going to lease up is that lower expiration versus what we're seeing as the average expiration for ‘17 and there's different rent points for buildings and floors.
I am just kind of curious how we should think about that trending?
Tom Durels
Sure. Good morning, Craig.
This is Tom. First, I would say, that we are pleased with the recent rent spreads on an absolute basis and in comparison to the levels that we had anticipated in our earlier corporate presentations.
And remember, we are giving you cash spreads, not GAAP spreads that means the new starting rents against our fully escalated prior expired rents. Generally, our spreads on GAAP rents are going to be greater than our reported leasing spreads which are only cash basis since GAAP rents factor in, rent increases that occur during the lease term along with free rent.
As a reminder, during the fourth quarter our spreads were healthy at 24.3% on new office leasing in Manhattan just under 22% overall. But going forward, I think, the way you should think about that is that on the prior full escalator rents on our developed vacant Manhattan office space was only about $42 a square foot.
On that space that we intent to vacate during 2017 of about 324,000 square feet the prior escalated rents on average just under $47 a square foot. Now, given the, in fact we are asking rents in the call the height $50 per square foot to low $60 per square foot, we expect to achieve superior rent spreads.
I wouldn’t read too much into a quarter-over-quarter, it all depends on just what happens to be the prior escalated rents for the specific leases in spaces where we did in the given quarter.
Thomas Keltner
And Craig, I will just add, as always, we will be updating our corporate presentation, which contains a support details for our four growth drivers, one of which is the mark-to-market. This presentation should be available on our IR website within next few days.
Craig Mailman
That's helpful. And Tom, maybe just on the leasing pipeline you're seeing.
I'm just curious as you guys are marketing prebuilts versus full floor, just any trends you're seeing in terms of velocity or demand in the different space sizes?
Tom Durels
Well, as I commented earlier, I am pleased with the activity that we have been seeing following the beginning of the year. We said we have seen steady activity across the Board that includes full floors at 111 West 33rd Street and 250 West 57th Street where I mentioned we signed following the close of the quarter 26,000 square foot full floor lease with Mount Sinai.
We have activity on full floors at 250 West 57th Street and 111 West 33rd Street Empire State Building and at One Grand Central Place. As far as prebuilts, we have activity at -- really at all the buildings where we are delivering new prebuilt inventory.
Craig Mailman
That's helpful. And just one last one for David.
I know we're going to hear about acquisitions when they happen, but with you guys sitting on $550 million plus of cash and looking at just some debt maturities you have commented this year including one of the bigger ones in Stamford. I mean, is there any thought from just a cash management, earnings management standpoint, potentially using some of that cash to pay down some of these higher coupon mortgages and ultimately hitting the unsecured market at a point where it makes sense to fund acquisitions and go more terms unsecured strategy?
David Karp
Yeah. What I say to that is, we look forward to reporting our actions with regard to our 2017 mortgage maturities as they occur.
I would make one comment and that is we believe it is valuable to our shareholders to maintain this significant liquidity on our balance sheet. That’s how we are looking at this.
Craig Mailman
Okay. Thanks, guys.
Operator
Thank you. The next question is from John Kim of BMO Capital.
Please go ahead.
John Kim
Thank you. Good morning.
I had a question on your stronger Observatory growth this quarter. It seems like overall the visitor pie gotten bigger, but I was wondered if you could comment on your Observatory market share and how that's trended especially now that One World has been around for more than one full year?
Tom Durels
Sure. Thanks.
We see that the -- we benefit -- our performance benefits from the market awareness of what we have versus other offering, I would say, that’s the biggest comment and I would further say that while each tries its own unique way all of these new Observatories are pretty much offering up their own version of the Burj al-Khalifa and they don’t have the iconic statue. What their views actually are I think matters as well, but the cultural and emotional connection is really very different.
So when we look at this, I really do look at this and we look at this as it’s a large group of people competing to be the other Observatory that which people go.
John Kim
Is there an opportunity to recapture market share or increase market share going forward in some of the new Observatories opening up?
Tom Durels
We work every day on visitor ship and our pricing on the visitors we do get. And so we clearly think there is opportunity like our competitor position and we like how we are performing.
John Kim
Okay. And looking at your total portfolio square footage it went up almost 1% this year on a same-store floor and I am wondering if this amount of increase when the reassessment occur is that customary or is it usually high this year based on redevelopment?
Tony Malkin
Well, we constantly -- we always re-measure space to bring it to market on any leases that expire, I believe it may have also increase by the effect of the space that have been offline at our former offices at One Grand Central Place but the top floors on the 426 and 48 floors inspire the major driver. That combined with some re-measurement of other spaces.
John Kim
Okay. And then, finally, earlier this month QIA registered it shares for sale, I know that doesn't really impact ESRT directly.
But I was wondering if you could just comment on this and maybe remind us what the lock up period is for them?
David Karp
This was a -- it’s David, this was a requirement for the terms of the shareholder agreement which we executed with them on August 23, 2016, ahead of the expiration of the six months lock up on 50% of QIA’s shares. In addition, stockholders have been advised an additional six month lock up for the remaining 50% QIA’s shares.
So nothing to be read into this. This was something that we have committed to do in the stockholders agreement to register these shares at a point in time and went ahead and did that.
Tony Malkin
Now, we just say, consider our partnership with our investors at with QIA specific very strong. We have maintained regular contact and I think from our most recent conversations they are very happy and we are very happy with them.
John Kim
That’s great. Thank you.
Operator
Thank you. The next question is from Tom Lesnick of Capital One.
Please go ahead.
Tom Lesnick
Hey. Good morning, guys.
Most of my questions have been answered, so just a couple quick ones from me. But looking at the capital expenditures and redevelopment program and supplemental, it shows you guys have 190,000 square feet of undeveloped expiring space in 2017.
Just wondering if you can comment on how the cadence of that might be coming offline throughout the year?
Tom Durels
Sure. Well, as I, Tom, as I commented before, we expect to vacate about 324,000 square feet in 2017, where the prior escalated rent is just under $47 per square foot.
That space that we are taking online will significantly fuel our pipeline for additional redevelopment. As I gave the numbers previously on the run down of our unleased space and how much is developed out of total 993,000 square feet about 822,000 square feet even 22,000 square feet is unleased office in Manhattan and about 600,000 square feet has been consolidated and then we have plans in place to consolidate and redevelop the balance along with the additional space there we are vacating this year.
Tom Lesnick
No. I appreciate that.
But from a modeling perspective are you able to comment on whether it might be weighted towards the front half of the year or back half of the year, how should we be thinking about NOI coming offline?
David Karp
It’s pretty steady through the course of the year, we haven’t broken it down by quarter, we are vacating space on steady basis from now through the end of the year of that 324,000 square feet, but it’s not really lumpy and one given space lot of -- mostly a lot of small spaces.
Tom Lesnick
Okay. That's helpful.
And then, last one for me, you guys spent $21.8 million on first-generation building improvements in the quarter. That's been a relatively consistent run rate for you guys over the last few quarters.
What's left in terms of first-generation building improvements, what kind of capital expenditure should we see in that line going forward?
David Karp
Well, most of the common area redevelopment consistent of the work that I have talked about before at 111 West 33rd Street and 250 West 57th Street where we are installing new lobbies, building on some store fronts and elevators and then we still have a good amount of work left at Empire State Building that consist primarily of elevator modernization core doors and bathrooms. And then as far as 1st Jan work on in terms of the redevelopment of space that we take offline and redeveloped to deliver tenants we have gone through those numbers.
As far as the specific number we haven’t -- we have not given that, but that gives you an idea of at least of the work that we have underway as well as the redevelopment of tenant spaces.
Tom Lesnick
All right, guys. That's all I have got.
Thank you.
Operator
Thank you. At this time, I would like to turn the conference back over to Mr.
Malkin for closing remarks.
Tony Malkin
So thank you everyone for attending today's call. We really appreciate the questions.
We have enjoyed welcoming some of you here to our new offices and particularly those of you who come through with investors, so keep that in mind. We’ve -- we like to share what we're doing here at 111 West 33rd Street, very happy about our teams work and how we've executed on leasing and delivering our embedded de-risked growth, very happy with our growth in NOI and our prospects for additional growth from our four drivers.
We are ahead of our goals and we're ready for what lies ahead. As the Chairman and CEO I am happy with the team as its work and as a shareholder I am delighted and I hope that our investors are too.
Now, I do have an important piece of disclosure and alphabetical order not by finish Brad Burke, [ph] Justin Degree, Scott Freetay (58:48), John Guinee and John Kim took on this February’s Empire State Building run up, our biggest analyst flight ever. Congratulations on their victory of reaching the top.
We have room for all next year's race. There was a new feature this year.
Our President and CEO, John Kessler bought beers for the analyst flight after the race, so free beer. Why wouldn’t you run up 86 floors?
Thank you very much for your time. We're very much looking forward to reporting next quarter's results and until then all the best.
Operator
Thank you. Ladies and gentlemen, this does conclude today's teleconference.
You may disconnect your lines at this time and thank you for your participation.