Christina Chiu: Seasonality last year. But last year, we were still in the midst of ramping up. When you look overall in past years, there is a drop between 3Q and 4Q overall. I’m happy to go over that more when we have our call later.
Operator: Our next questions come from the line of Camille Bonnel with Bank of America.
Camille Bonnel: Can you talk to the renewal activity your teams are executing on? It seems like quite a step-up compared to the recent years. How far in advance are tenants coming to you?
Tom Durels: Sure. We proactively speak to all of our tenants on a regular basis, and we certainly ramp up those conversations starting 24 months out before lease expiration. And generally, what we find is that the smaller tenants, 10,000 square feet and really postponed their decision making until the year of their lease expiration and some don’t even get to until about 6 months prior to their expiration. And that’s why you see the — as we update Page 14 in our supplemental, you’ll continue to see a certain amount of tenancy that remains in an unknown category until those tends to get closer to those expiration dates. Generally, we’ve been averaging around a little over 60% on renewal rate when you factor in early renewals.
And I think that, look, it’s as a reflection of the fact that we’ve completed our redevelopment work. We’ve spent $1 billion to redevelop our portfolio. We’ve scraped and redeveloped 95% of our tenant spaces. We’ve added — we’ve built amenities that we’re adding to our amenities, and we’re definitely benefiting from a flight to quality as we deliver the best product and location in our price tier. And so I think that’s leading to better renewal rates and tenant retention overall.
Camille Bonnel: And you’ve definitely had a strong build of occupancy over the past few quarters, and I appreciate your comments on a lease percent outlook. But on the occupancy side, do you think you can also continue to maintain or grow that further from here?
Tom Durels: Well, occupancy has increased 460 basis points since the end of 2021. So again, it’s an increase of 460 basis points since the end of 2021. We’ve had 7 consecutive quarters of positive leased percentage absorption. Look, we’re confident we’ll achieve our guidance that we’ve provided for the year-end, and we’re very well positioned for 2024. We feel really good about our ability to increase occupancy next year based upon a modest amount of known move-outs. And look, as on, we have about 207,000 square feet of known vacates in 2024, and that’s against the backdrop of roughly 250,000 square feet of leases on vacant space that should commence by next year. And generally, we’re averaging over 600,000 square feet of new leasing per year. So I think we’re well positioned to improve both leased percentage and occupancy percentage next year.
Camille Bonnel: Appreciate the clarification there. And finally, just your comments around looking at office as potential investments. Can you expand a bit more on the opportunity you look at? Would it be more value-add or potentially looking at assets to further improve the quality of your overall portfolio?
Anthony Malkin: Tony here, our skill set is redevelopment. And our unique intellectual property, our IP advantage is we actually don’t have to do this conceptually. We know the costs, and we know the demand, and we know the time it takes because we’ve done it throughout our entire portfolio. At the same time, we’ll always react opportunistically to things which develop. What I would say at this point is there have been very little market clearing in the office environment. And if we had seen opportunity that was better than what we chose to invest in proceeds from our sales, we would have acted. We didn’t. And as soon as we see opportunity, we’ll let you know.
Operator: Our next questions come from the line of Blaine Heck with Wells Fargo.
Blaine Heck: Just want to follow up on that last question. Just hoping you could talk a little bit more about your appetite for additional new investments. And I guess what level of returns you might be targeting given the increase in rates. And again, how you’re kind of weighing those returns versus continued reinvestment in your own stock through repurchases. I guess just where do those returns need to be on property acquisition to make them compelling relative to repurchases?
Christina Chiu: Yes. So look, the returns sought and required have obviously gone up because cost of capital has gone up because traditional lenders have created a void and that has led to higher debt cost of capital in this period to make any deals work. So I think take that as a given across the board. As we look at the landscape, as Tony mentioned, we believe there will be distressed opportunities, and it all comes from buying in at the right basis so that we can do our work, which does require capital and understanding the rental price points, which will allow us to get leasing velocity, the way we have in our own portfolio. And that’s the way the returns pencil out. So clearly, it’s higher than before. But in the absence of actual investment transactions in the market don’t want to get ahead and quote what the returns are.
Everyone knows that the bar is higher and is higher for us as well. As for share buybacks, we do think it’s a very attractive opportunity. Even currently, when we look at our implied price per square foot, implied cap rate, even if there’s a question mark on private market valuations, these are very attractive values, especially considering we’ve already spent the CapEx. So when you buy into ESRT stock, our implied value per square foot is CapEx already spent, right? And that makes it a tremendous value. That said, when we think about share buybacks, it’s not just about the value opportunity. That is a huge component. It’s also about continued operating runway for the company, continued access to capital. And we all know we’re in a peak period of capital dislocation.
