Greetings, and welcome to Empire State Realty Trust Q3 2021 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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.
Good afternoon. Thank you for joining us today for Empire State Realty Trust Q3 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 was posted in the investors section of the company's website at esrtreit.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, expense, and proposed transactions and events. 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. 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.
Finally, as a special note, last night we filed an eight-K to announce our conditional agreements for the purchase of two multi-family assets in Manhattan, totaling 625 residential units for a total purchase price of $307 million. We consider it worthy of an eight-K because this is the first acquisition by ESRT since our option properties in 2014. It is a new asset class within New York City, and our external growth has been a significant focus within the investment community. Our eight-K disclosed the key elements of asset type, size, location, and price. Additional detail is not currently permitted under the seller's confidentiality requirements. After the acquisitions close, we will provide more detail.
For now, we want to be clear that this is a voluntary filing for the reasons mentioned, and in the future, we would not expect to announce acquisitions absent special circumstances involving asset class, geography, or size. Now I will turn the call over to Tony Malkin, Chairman, President, and Chief Executive Officer.
Thanks, Tom, and good afternoon to everyone. This is a super busy time for ESRT. I have a lot to discuss, so please bear with me. New York City's recovery is slowly and steadily underway. Schools reopened, trains and subways more crowded, and there is traffic. Apartment occupancies have increased, and rents are back to and beyond, in many instances, 2019 levels. Restaurants and entertainment attractions are open and busy. Try to get a reservation on a Wednesday through Saturday night or for Sunday brunch and be prepared for disappointment. Herald Square, Times Square, Soho, all busy again.
Even The New York Times, which has for more than a year practiced an apparent editorial policy of bashing New York City at every opportunity, published an article on Sunday titled, quote, "To get ahead at work, lawyers find it actually helps to actually be at work." The article goes on to say, and I quote, "Amid the ranks of twenty- and thirty-somethings is a large and growing group of employees who, for reasons part careerist and part emotional, increasingly crave the office as well. Nearly two-thirds of millennials expressed concern about a lack of connection with colleagues more than any other age group." Close quotes. Building utilization had a Delta variant dip and now has continued to pick up to around 30% for our Manhattan office portfolio and 51% for our Greater New York office portfolio of comparable 2019 numbers.
To be clear, our pandemic low was below 3%. People have begun to recognize that work community matters. Learning, teamwork, performance reviews, promotion are incredibly hard, if not impossible, for most to execute remotely. Socialization matters. In the absence of it, the concepts of, quote, hybrid, unquote, and, quote, flexibility, unquote, will carry different meaning for different companies. It is not one size fits all. I still believe the office industry in New York City will not move fully to our front foot, and the storyline and the press will not change until after the Q1 of 2022. As Tom Durrell will discuss, we see the return of activity on long-term leases as tenants contemplate their future space needs post COVID-19. A sizable amount of our current activity is related to expansion of current tenants. Excellent tenants.
We continue to attract great companies who see us as long term partners in their real estate needs, and with the rare exception, who want to grow with us. Our properties continue to benefit from the flight to quality trends spoken of broadly in the market, and we see it in leasing activity underway and our results. ESRT is well positioned. Our assets are excellently located for commutation, modernized for the 21st century, industry leaders in energy efficiency and indoor environmental quality, and available at prices which range from the high $50s to the mid-$70s per sq ft based on current asking rents.
We make modernized buildings IEQ and energy efficiency accessible to the thousands of tenants to whom these are driving factors in decisions, and whose class A options and class B options largely fall short and therefore do not match our comprehensive suite of monitored and verified base building and tenant standards for energy efficiency, healthy buildings and sustainability, even if they can afford or want to pay triple digit rents for brand new buildings. Our IEQ certified pre-builts with full indoor environmental quality suite of MERV 13 filters, fresh ventilation and active bipolar ionization lease very well. We also can accommodate full and multiple floor requirements. This price accessibility to energy efficient, healthy, sustainable spaces for a wide range of businesses, not just those that pay triple digit rents, is part of the flight to quality movement.
Importantly, we attract and sign leases with tenants who are attracted to these qualities. We are happy to share ESRT's just announced results in our second year of GRESB submission and scoring. ESRT achieved the highest possible GRESB five-star rating for the second consecutive year. Perhaps most importantly, our actual score was 94, a six-point increase from our first year of participation in 2020, and that is the second highest score within our peer group nationally. Additionally, we received a score of 96 and an A rating in the public disclosure assessment, which measures ESG disclosure activities for the second year in a row. Our industry leadership in energy efficiency, sustainability and IEQ continue to set the industry standard while we show annual improvement. We look forward to our second annual sustainability report publication in Spring 2022. Shifting to our observatory operations.
As announced on October fifteenth, the U.S. will reopen its border to fully vaccinated international tourists effective November eighth. Early indications from our tour and travel partners who serve this market indicate an uptick in sales post this announcement. We are very happy that we have reached this point and look forward to a restoration of international visitors to the ESB Observatory. Our visits continue to improve along with our revenue per cap. Observatory NOI was $6.4 million for the Q3 2021, which is the second consecutive quarter of positive NOI since the onset of the COVID-19 pandemic, and more than double the Q2 2021 earnings contribution. The growth in NOI illustrates the progression from the closure period in 2Q 2020 through the steady ramp up over the past year.
Visitation has been primarily driven by domestically sourced travel at this retail, on-site and website sales. Customer satisfaction is at high levels, driven by our timed ticketing reservation system that enables us to manage volume in peak periods, our immersive, museum-quality exhibits and our focus on safety with top-of-the-line indoor environmental quality, including MERV 13 filters, ventilation and active bipolar ionization. Visitors to New York City, both domestic and international, want to visit this iconic and authentic destination and are willing to pay for the distinctive experience we offer. Q3 attendance was at approximately 24% of 2019 comparable attendance, a continued improvement from 2020 on the prior quarter. We registered strong July and early August visitation.
Attendance for the second half of the Q3 was impacted by a resurgent Delta variant and sustained U.S. border closure to international tourists. We have no new hypothetical admissions forecast. Our last was in our September 21 investor presentation update. Month to date through October 26, attendance was at 24% of 2019 comparable period attendance, above our revised hypothetical October admissions forecast of 20%. Our hypothetical admissions forecast suggests that we can reach 60% of 2019 attendance levels by the end of 2021, and return to 100% by the end of 2022. Remember two points for your modeling. One, we believe we can maintain our current observatory operating cost structure up to approximately 60% of our 2019 attendance.
We will continue to manage tightly expenses given the gradual pace of ramp up, including how we have tweaked our operating hours and staffing accordingly. Second point, with more international inbound tourists, we should see lower revenue per cap growth from our lower margin passes and online travel agent tourist visitors. A quick note on competition. The pass program data we have received indicate we are the number one redeemed observatory by an increased margin over number two. Cannibalization of the second visit market is underway and will increase with the SUMMIT's opening this past week. We believe there is a large enough market for multiple attractions to do well. We remain the only authentic, iconic attraction amongst all the observatories in New York City.
We have demonstrated repeatedly over time our ability to compete when other observatories, including Top of the Rock, One World Trade Center, and The Edge opened. We remain the only office building in the world to which you can address a letter from anywhere in the world with only Empire State Building and be certain of its delivery. We continue to operate competitively and nurture and invest in our iconic brand to command our leading position. We are confident in our continued ability to do so. We can't finish these discussions without a word on the recently announced purchase of The Edge by KKR. While we are not in a position to share inside information on this transaction, what we can share from publicly available information is very positive for ESRT and our jewel, the ESB Observatory.
A smart, sophisticated institutional buyer stepped up and bought ahead of the full recovery of tourism, a majority economic interest subject to a management agreement. There was debt in place on the Edge at the time of the acquisition. The projections the SUMMIT shared in materials that have been disseminated broadly enough for us to see them, predicted a lower visitor volume at lower per caps than ESB's historic attendance and current pricing. As to the Edge, our analysis based on the number of elevators, loading time, and elevator speed indicate we have an hourly capacity roughly 50% greater. Our takeaway on this is that this sale, coupled with a very strong level of financing proceeds attained by One Vanderbilt, also during the lull in tourist visits, show these are valuable assets which attract institutional interest, and that these are price discovery transactions, not fully priced.
We feel very encouraged that our higher capacity and our newly redeveloped authentic icon of New York City with record per cap revenues since we reopened by reservation only, should be valued at a significant premium to all these alternative transactions. We also feel very confident that our brand and our position remains unparalleled and stronger than it has ever been. Turning to external growth, as Tom Keltner noted, we filed an 8-K regarding potential acquisitions. Additional detail is not currently permitted under the seller's confidentiality requirements. After the acquisitions close, we will provide more detail. The transaction is consistent with our previously stated focus on New York City office, retail, and multifamily assets. We like the multifamily asset class and have a long institutional history of experience in multifamily assets via our predecessor entities and via Malkin Holdings.
There is remaining work to do before we close, and at that time, we will be prepared to provide more comment. In the interim, our investment team continues actively to underwrite new office, retail, and multifamily acquisition opportunities, and we remain well positioned with our flexible balance sheet as we continue to seek ways to deploy our capital through disciplined external growth opportunities. ESRT has a well-honed operational skill set, flexible balance sheet, disciplined track record of capital allocation, and ESG leadership position, all to deliver long-term shareholder value. The team works well and hard as we press forward. Now, I will turn it over to Tom Durels.
Hey, thanks, Tony, and good afternoon, everyone. In the Q3 , we signed 34 new and renewal leases totaling approximately 268,000 sq ft. That included 212,000 sq ft in our Manhattan office properties, 52,000 sq ft in our Greater New York Metropolitan office properties, and 4,000 sq ft in our retail portfolio. Major leases signed this quarter include a 29,000 sq ft expansion lease with iCapital Network at One Grand Central Place. This is the second expansion by iCapital, who now occupies 65,000 sq ft total.
A 30,000 sq ft new lease with Argo Group at 501 Seventh Avenue, and a 29,000 sq ft new lease with Playfly Sports, a leading sports marketing and media company at 1,333 Broadway. We also signed leases for 15 pre-built office spaces in Manhattan this quarter. Our fully modernized for the 21st century portfolio benefits from the flight to quality of which so many speak and write today. We were first in energy efficiency and amenitization. We have been leaders in healthy buildings and indoor environmental quality, the first portfolio in the Americas to be certified by the WELL Health-Safety standard. These are the qualities which remain front of mind for most tenants who have to look at how the space they occupy factors into their ESG and CSR goals. Tenants are focused on their employees' return to the office.
Our industry leadership in these areas is widely recognized by the brokerage community, and our more than a decade of work in indoor environmental quality and sustainability positions us to provide real estate solutions to a wide range of prospective tenants who seek a healthy workplace environment. Our focus on quantitative measures for energy efficiency, sustainability and indoor environmental quality really sets us apart. Another quantitative measure in which we distinguish ourselves is our pricing. Our range of rents for our great locations with convenient access to mass transit really stands out because to get the benefits of what we offer, tenants' alternatives are basically all at much higher prices. We are at the forefront of future-proof, affordable offices in Manhattan, and in this we truly stand out.
Tour volume in the Q3 of 2021 for our Manhattan office portfolio increased by approximately 64% compared to Q3 2020. We have seen an improvement in retention rates for our pre-built relative to 2020 levels and are close to 2019 levels. Fortunately, we have 289,000 sq ft of pre-built suites in our Manhattan portfolio that are built and ready for immediate lease up. We are also in active discussions with high quality tenants in finance, healthcare, TAMI, and professional services for full floor new renewal and expansion leases.
During the Q3 , rental rates on new and renewal leases signed at our Manhattan office properties increased by 1% on a cash basis compared to the prior escalator rents, and new and renewal leases across our entire office portfolio were flat. As previously communicated, GBG filed for Chapter 11 bankruptcy protection for its North American operations on July 29, 2021. Subsequently, GBG filed to reject their leases at 1333 Broadway for 162,000 sq ft, and at the Empire State Building for 191,000 sq ft, and both lease rejections were approved by the bankruptcy court during the Q3 2021. Christina will cover the financial implications shortly, but I wanted to share some leasing perspective.
We have automatically exercised our inurement rights on three subtenants that lease 133,000 sq ft at 1333 Broadway, and we are actively marketing the 220,000 sq ft balance of GBG's former space, most of which is located at the Empire State Building. The large floor plates previously occupied by GBG at the Empire State Building were highly desirable pre-COVID, remain so today, and we feel confident in our ability to re-lease the space. Our total portfolio lease percentage is 86.5%, down 170 basis points from last quarter, and occupancy of 83.5% was down 170 basis points from the prior quarter, primarily driven by the GBG lease rejection, partially offset by recent lease commencements.
For the balance of 2021, we anticipate tenant move-outs of 122,000 sq ft, which will be offset by signed leases that we anticipate will commence before year-end of 61,000 sq ft. Overall, we have over 355,000 sq ft of signed leases not yet commenced, most of which is due to commence by the end of 2023. Please refer to the tables on pages six and ten in our supplemental. In summary, we had a solid leasing quarter with 268,000 sq ft total leases signed. Our centrally located portfolio with convenient access to mass transit is well positioned, fully modernized, and has built tenant spaces ready for lease up. Our industry leadership and experience in indoor environmental quality and sustainability enhances our ability to attract and retain quality tenants.
Now I'll turn the call over to Christina. Christina?
Thanks, Tom. For the Q3 , we reported core FFO of $55 million or $0.20 per diluted share. Same-store property operations, if you exclude one-time lease termination fees and observatory results from the respective periods, yielded a 5.7% cash NOI decrease from the Q3 of 2020. This decrease was primarily driven by a reduction in revenues due to decreased occupancy, 3Q 2021 revenue from Global Brands Group treated partially as rental revenue and partially as lease termination income, and write-offs taken over the one-year period. Our rent collections totaled 95% of Q3 2021 total billings, consistent with recent quarters. Switching to Observatory results. Observatory revenue for the Q3 2021 was $12.8 million.
Observatory expenses were $6.4 million in the Q3 of 2021, and we continue to expect run rate expenses to be approximately $6 million-$7 million for the Q4 of 2021, depending upon the pace of visitor ramp up. As Tom noted, GBG rejected both leases at 1333 Broadway and at the Empire State Building, which had the following impact on our results. A $1.6 million non-cash write-off in 3Q of the straight-line rent receivable balance related to GBG's lease at 1333 Broadway, as we had previously announced on last quarter's call. We drew down in full the balance of GBG's $17 million letter of credit, which was applied as follows.
$5.2 million was applied against GBG's straight-line rent receivable balance related to their lease at the Empire State Building, and $1.7 million was recognized as GAAP rental revenue for the partial period in 3Q when the lease remained in place, and $10.1 million was recognized as lease termination income. Turning to our balance sheet. As of September 30, 2021, the company had $1.4 billion of liquidity, which is comprised of $582 million of cash and $850 million of undrawn capacity on our revolving credit facility. The company had total debt outstanding of approximately $2.2 billion on a gross basis and $1.6 billion on a net basis as of September 30, 2021.
The company's total debt has a weighted average interest rate of 3.9% and a weighted average term to maturity of 7.4 Years. We have a well-laddered maturity schedule with no outstanding debt maturity until November 2024. Our net debt to total market capitalization was 34.7%, and net debt to adjusted EBITDA was 5.6 times. In the Q3 and through October 26, 2021, the company repurchased $6.5 million of its common stock at a weighted average price of $10.41 per share. This brings the cumulative total to date since the stock repurchase program began on March 5, 2020, to $153.8 million at a weighted average price of $8.41 per share.
Our balance sheet flexibility provides us with the ability to evaluate opportunities to deploy capital for external growth as well as engage in the repurchase of our shares. Our investment team continues to actively underwrite investment opportunities against a backdrop of record levels of private equity capital, wide availability of low cost financing, and lack of distressed asset pricing. As we have emphasized, we will continue to exercise prudence in our capital allocation and focus on the creation of long-term shareholder value. I will now turn the call back to the operator for a Q&A session. Operator?
Our first question is from Steve Sakwa with Evercore ISI. Please proceed.
Thanks. Good afternoon. A couple of questions. You know, Tony, I guess I know you can't speak specifically about the two apartment acquisitions that you announced in the 8-K, but can you maybe talk philosophically about the apartment business and, you know, how you plan to grow it, how you plan to manage it over time, and, you know, what percentage investors should maybe expect this to be of the overall portfolio?
Thanks, Steve, for your question. The transaction is consistent with our previously stated focus on New York City office, retail, and multifamily. Please remember, we have a long history of experience in multifamily assets with our predecessor entities and with our Malkin Holdings, where we have a few thousand apartments outside of our REIT outside of the New York area. We really think we have an opportunity to add value through another asset class. We like the prospects for our capital in these two transactions. I think for the asset allocation piece, I'd like to hand it over to Christina.
Before I do, I would just add, we do think that with our true desire to grow the portfolio right now and with the fact that office performance is where it is, has the costs that it does, this is something which is more attractive to us at this time. Christina, maybe you could go on that a little bit.
Sure. Steve, you know, as we've discussed in the past, we view everything in balance. I think, you know, key question the investment community must have is what about share buybacks, the implied cap rate at which we trade. On that, we would say we recognize that our share price is discounted. It's a very attractive opportunity to buy back our portfolio. For that reason, buybacks are on the table as we've communicated and as demonstrated through some of the buyback activity that we've had in the quarter. That being said, that's only one toggle, as we've mentioned, right? There's also acquisitions that can help drive long-term shareholder value, cash flow growth, and contributes to the portfolio, in a strategic manner going forward.
Of course, we also balance that with operating runway and balance sheet flexibility, so we can see as the market evolves where we can tap into more opportunities.
Yep. I'll just add that, look, we look forward to when we have the opportunity to share the further details here, and think that people will understand how it fits with our local sharpshooter. Really, as I've said so many times, work through very complicated transactions to create value. It is very consistent with all of that.
Yeah. Tony, I can appreciate that. I think, look, what the investment community wants to understand is, are you planning to build out like an internal platform? You know, I know the press release said that the person you're buying these from will continue to manage the assets and keep a 10% stake, so they've got some skin in the game. You know, how do you add value to something that you're not managing day one? Does that imply that you're gonna keep it third party managed or that you'll build an apartment platform inside of ESRT?
Thanks. Sure. Look, we feel, and again, when it's disclosed, people understand this is a proven performer who's done very well with working with institutional and other meaningful investors. We appreciate the relationship that we can build with this particular party. It fits in very well with our goals. I would say that we look at this as an opportunity to expand, number one. Number two, we like the resi business on a relative basis and on an actual basis. We think that with the specter of inflation, it also fits very nicely. But the specter of inflation is not what drove us here. It's the unique attributes of this transaction, the partnership into which we will enter, the fact that we do like this as a use of our capital.
We think it provides, as we will disclose, you know, it will compare favorably to alternatives. Let's just put it that way. We like the opportunity relative to what else we might do. While I wouldn't put it past us at some point to have an internal platform, I would say that the partner we have here is an excellent proven partner, and that will become obvious as we're able to disclose. We may even have an opportunity to build within that relationship as well.
Okay, thanks. I guess just maybe moving on to leasing. You know, I know the GBG situation was kind of fluid in the Q3 , and it probably didn't exactly play out the way you had hoped. You know, when you kind of look at where your occupancy sits today at 83.5%, I know you're higher leased. You know, the portfolio's lost about 600 basis points of occupancy since kind of the end of the Q3 of 2019, so in about two years. Can you maybe just talk about the steps to rebuild that occupancy? You know, when do you see it bottoming, and how quickly can you get it back to kind of the high 80s?
Sure, Steve, this is Tom. Look, we had a really solid leasing quarter, and we've got a healthy pipeline of activity going into the Q4 . Today, we benefit from a flight to quality as tenants are focused on all the things that our portfolio provides, including modernized buildings for the 21st century, new energy-efficient tenant spaces, healthy buildings, and indoor environmental quality, and of course, convenient access to mass transit for commutation, which is so important to tenants today, and amenities both in building and neighborhood amenities. Of course, our value proposition at our range of rents, our portfolio really stands out because to get the benefits of what we offer, tenant alternatives are basically all at much higher prices. Again, solid leasing quarter. Good activity going into the Q4 .
I expect also improved mark-to-market rents compared to Q3 for the Q4 . We have interest from full floor tenants and pre-builts from a mix of tenants in financial services, tech, healthcare, professional services, and both new and renewal. We've got a healthy pipeline of activity from significant expansion deals from existing tenants within our portfolio. Tour activity is up, as I commented earlier, up 64% compared to Q3 2020. On occupancy and lease percentage, look, I expect higher year-end lease percentage based upon our current healthy pipeline. We have a total of 355,000 sq ft of signed leases not yet commenced. We expect 61,000 sq ft of that will commence by year-end.
Look, the 170 basis point decline in occupancy and lease percentage that we experienced this quarter was primarily driven by the termination of the GBG lease. The good news is that we collected $17 million in security deposit. That will go towards the cost to re-lease their former space at the base of the Empire State Building, where they occupied large full floors, in fact, the largest floor plates in our portfolio that have always leased really well. At Empire State Building, of course, it's fully modernized for the 21st century. We offer a full suite of amenities that are so much in demand by tenants today. We actively managed the GBG situation. We reduced our exposure to 220,000 sq ft through a number of actions.
We're gonna lease our way out with the benefit of our offering of energy efficiency, IEQ, healthy buildings, and a market, candidly, that's hungry for these qualities at accessible price.
Now, let's throw one thing in there, Tony here, Steve, which is that don't forget that a lot of that vacancy that was created after Q4 of 2019 was intentional by us in order to fulfill obligations for tenants for whom we already had signed leases. So it does show up right now. However, we had to take back space to prep it and gut it in order for tenants who'd signed leases to move in. So I realize that the stats are what they are, and we appreciate that. It was part of what's necessary in order for us to bring new tenants into the portfolio at much higher rents.
Okay, great. I'll yield the floor. Thanks.
Our next question is from Craig Mailman with KeyBanc Capital Markets. Please proceed.
Hey, everyone. Just to follow up on the acquisition, and again, I know you can't talk too much, but maybe, you know, higher level or just academically, you know, given where your stock is trading, at a discount to NAV and, traditionally, where multifamily is kinda traded. Could you just give us a sense of the type of returns you're targeting, kinda the upside you can see in these assets that justify putting the capital to work today? You know, as you point out, rents have already kinda rebounded to pre-COVID levels in certain parts of the city. Just kinda walk us through maybe just higher level, how you think about returns for this asset class vis-à-vis your cost of capital.
Sure. Thanks, Craig. I'll take a crack at this, and then Christina may add a comment. We actively review and underwrite a wide variety of market and off market and family sourced deals at all times. Okay? We have a whole crew, and this is meaningful. The team that brought us to contract signing is a mix of veterans, however, many new players, and they are energized, disciplined, and forward-looking. They found a lot of different activities which we could pursue on the acquisition analysis and underwriting side. We absolutely positively are confident that this particular transaction is better than any other alternative we have seen over the last 12 months. Now that may reflect our view of the future, may not be immediately apparent.
We think that when we are able to share, and again, I feel really frustrated that we had to put out this 8-K, which was advised for the reasons which Tom Keltner referenced for us to do. I would have much rather been able to speak very specifically and very clearly and succinctly. I can only say that as we were motivated by the party with whom we get to do business, we're motivated by our view of the alternatives out there, and we're motivated by our desire to grow the company, while at the same time, we did in fact buy back stock, which we think is at a value.
We reached a point where perhaps we had too much information that we could continue to buy back our stock at some point over the past quarter. With this disclosure, we're no longer in that position. Long story short, I'll throw it over to Christina, and anybody who has any further question, please feel free to ask. Christina, anything you wanna add?
Yeah. I would just add, as Tony mentioned, right, we do believe in buybacks. We've emphasized that, so that is on the table. Just to point out the obvious, there's no distrust in the market. Even if we were to stick within the office asset class, office is not trading at the implied cap rates that the stocks are at, right? We look to drive value over time. Some of the aspects that we look for in deals are upside to the going in price and how it adds strategic value to ESRT, right? ESRT is already a New York City local sharp shooter with diversified ways to drive value.
That includes our value price point within office with a full suite of very attractive features, our everyday retail, our observatory that benefits from tourism, and now we can add multifamily to that, which does have a different CapEx profile, has different drivers for tenant demand, and some inflation linkage that differs. We look at all of these factors, and rest assured what we seek is to drive value over time, and we look to contribute to shareholder value.
Right. I guess what I'm trying to get is actual numbers. I mean, you guys passed on acquisition, you know, a bunch of years ago when NYRT was selling because you said the return was sort of a 5% yield and that was unacceptable. What kind of yield are you guys underwriting to on potential apartment acquisitions with the stock trading, you know, on my numbers north of an eight cap? I'm just trying to get a sense of where you guys are actually underwriting to that gives you comfort and optimism that this is the right time to put capital out.
Look, I think we've probably said all we can. I just reiterate one thing, Craig. As a matter, I know we've said all we can with regard to the specific transaction. That's absolute. With regard to things in general, I'd say we're conscious of where the stock trades, and we're conscious of the numbers which you've said. We think this compares over time in a way that is logical for our goal to grow the company externally and produce a great result for shareholders, of which I expect to benefit significantly myself from our extensive holdings. The only thing I can say is I really look forward to the opportunity to be more specific and for us to do anything further here really goes well beyond what we're allowed to do.
What's the timeframe you think when you guys can close this and tell us more?
Well, we certainly hope it's done in the Q4 .
Okay. All right, great. Thank you.
Our next question is from Jamie Feldman with Bank of America. Please proceed.
Thank you. I appreciate the color on the Edge and your thoughts on that transaction. Can you talk about any appetite you may have to either sell or monetize a piece of that, of your observatory?
Sure. Thank you so much for that question because it's something I think we'd really like to communicate. When we think about the Empire State Building, we fought, as people who are students of history might remember, a very long multi-decade battle to unite the fee and collapse the master and operating leases so we have one asset. We fought a very long and hard battle to get rid of an attraction which had been leased in the Empire State Building during the time of its management by Helmsley Spear, long before anybody, I think, in this call, likely most of you, paid any attention to it. It did tremendous detriment to the value of the asset to have somebody else inside. That said, there's probably a way in which that could be done better over time.
Our view is that what we wanna do is recognize if/when ESB is sold, we want the market to be able to determine the highest price and whether or not to break it up. If we're ever to sell a part of the Empire State Building, our view is, to be clear, Jamie, we'd sell a slice of the Napoleon, not a layer. We would look carefully should we ever want to raise capital from ESB at a partial sale of the total gem and not split it up into different pieces, which proved over time in the past to create opportunities for litigation, diminution of brand, and frankly was, in our view, a great coup to put it all together, and we're not interested during our ownership period to break up the pieces.
Okay. I guess, just to be clear, are you considering a sale of a potential sale of part of the entire building, if not just the observatory, or would you consider it?
I think over time, let's be very clear. We have no active program underway right now to market any component of any part of our current portfolio. Let me be very clear about that, so there's no confusion, number one. Number two, the focus on the observatory, it's a great business. It's a high margin business with cash flows not dependent on continuous CapEx and has immediate inflation linkage. We get to adjust the rents every day with no commissions, free rent, tenant installation or base building work, particularly in light of our recent redevelopment. All incremental dollars flow to the bottom line. That's if you wanna talk about the observatory in one piece.
What I did say is that we would not take from this experience that is out there any indication that other than institutional investment is clearly focused on, accepts the value of, and is committed capital to two observatory attractions in New York City with no history of operation in a strong and regular period. We think this should drive value considerations by our buyer side and sell side friends much higher than people have given value to the observatory for in recent periods.
Okay. I guess just shifting gears to the prebuilt business. You know, WeWork is public and out there again with a better balance sheet. I'm just curious, like, are you seeing any change in the types of leases that you're signing, whether it's rent or if it's duration or if it's breaks or anything in the prebuilt business, the shorter lease duration business, based on some of these, you know, what's changed in the flexible office business or flexible office competitive landscape?
Sure, Jamie. This is Tom. I'd point out that we signed 15 prebuilds during the quarter, and it's always been an active part of our program. As you know, our prebuilt program goes back quite a few years. What is relatively new, and maybe you picked this up on prior calls, is that we offer ESRT suites, which is our full turnkey suites and gives tenants the option to have us provide fully furnished, fully wired, and actually even provide move coordination so that all a tenant has to do is literally pick up from the current location and plug in their laptop at their new location and be up and running. We have seen quite a bit of uptake on that.
Maybe as much as a third of the prebuilt prebuilds have been taking us up on those turnkey suites. Then of course our IEQ suites, which are, you know, MERV 13 filters, active bipolar ionization, increased fresh air, low VOC product for healthy air is also part of our prebuilt offering, and that's attracting a lot of tenants. That is one change. We view it as another part of our overall offering. Not all tenants opt for it, but it gives us another alternative to give to our prospective tenants. Yeah. As far as lease term, we're very clear.
We're signing lease terms pretty much the same as we have signed as length of leases we've had before, right, Tom? That's-
Yeah. Yeah.
What we've got out there.
Yeah, on prebuilds, generally five-year term. It can range anywhere from three-seven. When we go less than 5, we're gonna look at, okay, is this a tenant that has prospect for growth? Do we like to get the tenant in the portfolio? Generally on average, we're doing five-year term deals on prebuilds.
full floors, multi floors?
On full floors, generally can be anywhere from 7-15 years, but on average, 10-year terms. We really haven't seen any significant change in length of term. Of course, we're in negotiation right now with several expansion tenants with the existing tenants that would also lengthen the term of their existing lease. These are good sign, positive signs in terms of tenants making long-term commitments to their office occupancy in New York City.
Okay. Are you seeing a pickup in demand from smaller tenants at all or no, it's pretty much the same as it's been? How would you-
Well, we should.
Talk about it for larger.
Yes. Yeah. Last quarter, the bulk of our activity by way of showings, tours, and lease activity were in the smaller suites. This quarter, we actually had a good mix of full floors and pre-built tenants. I'd say the majority of our tours, by showing numbers, is with the smaller suites. We have seen also that pickup in full floor activity. I think the small tenants were kind of the first to be able to go home. They were quite nimble during COVID, but they were also the first to return to the market. Then I think that we'll see this followed up by you know, the multi-floor tenants.
Okay. Did I hear you correct that you said your IEQ suites have kind of the upgraded filters, and then does that imply the other suites don't? I'm just. You basically have, you know, a suite package that has the full upgrade and one that doesn't. Did I hear that right?
It's a full offering that includes active bipolar ionization that we offer on all of our new leasing as well as within our IEQ suites. Our entire portfolio, pre-COVID, had MERV 13 filters and continues to have that today. In answer to your question, the suites we're leasing today, we lease with IEQ. That is specific to your question, Jamie. That is not an alternative. It's what we do.
Okay. That makes more sense. Just last, can you just discuss the credit watch list as it stands today? Are there, I know GBG was a special circumstance, but how would you characterize the risk of any other similar tenant risk?
Jamie, we have no comment on others. You know, as we've discussed, GBG, we proactively managed over time, and nothing to speak of for the other tenants.
Meaning nothing on the watch list, or you just prefer not to comment?
I prefer not to comment, but since you're asking, everyone else is rent-paying, and we have nothing more to say on their businesses. GBG was a public company. They did their own filing. When we're tracking, they were able to monitor their financial health, but we don't want to speak further on the tenants' businesses.
Okay. All right. Thank you.
Our next question is from Manny Korchman with Citi. Please proceed.
Good morning. Good afternoon. It's Michael Bilerman here with Manny. Maybe, Kenny, we can just start just on Observatory, and obviously you referenced the KKR deal at the Edge and talked about the financing that SL Green was able to get on One Vanderbilt. You know, going back in history, the management team had sort of guided the Street without a lot of comparables, you know, just sort of gated entertainment type of businesses as a multiple for how, if you ever had sold an interest in the Observatory or sold it, how it should be valued.
I guess, can you give us a little bit more color today, now that you've seen how the debt markets are pricing a building with an observatory, how KKR stepped into the Edge, how we should sort of put some goalposts around the value of the observatory?
I love that question. Thank you for asking it. What we did in the past, and what we still have in our investor presentation was we tried to grab at what could be used. Don't forget, the most of the revenue that comes through the observatory is rent. If somebody else were to operate the observatory as an outside party, they would pay us rent. We disclose what the margins are. It's clearly a tremendously profitable business.
Well, it's intracompany rent, right? I mean, obviously any operator that's gonna buy is gonna negotiate a new lease with you to earn profitability on the business, right? Obviously.
Right.
Today you're losing money because of COVID. I'm not-
No, hold on. We're not losing any money because of COVID. The observatory has been profitable two quarters in a row with increased profitability in the most recent quarter, number one. Number two, the point that I would make is, it's what's the value of the piece above the rent? What we believe has occurred, Michael, is that the market has shown, no, we don't need to go to that high multiple, necessarily, that in fact, people are looking at these things as much more stable businesses. We believe that, if you want to look at that point of profitability as you call it, that probably deserves a higher multiple than we've put on it in the past. That's our view.
Gee.
Remember, we think these are early transactions in a world overflowing with capital. They're moving capital in this area because they think there's a value. We don't think these are the values. We think this is pricing discovery.
Right. I'm just trying to you know, you had put out pretty lofty valuations of the observatory, you know, grossing over $1.5 billion. I'm just trying to understand whether these transactions support that value or to your point, they're price discovery, therefore it would be lower.
My comment is that we try to link this to you with some thoughts we put in with regard to our capacity and of course, our per caps and our authenticity and our brand.
Yeah.
How well we thought out the redo. We just think that we believe that we can do a lot more business and at higher income per caps, and we deserve to, as I said, the best multiple.
Shifting to multifamily. You know, if we go back to the IPO in 2013 sitting in the old boardroom. You know, multifamily at that point obviously wasn't discussed, but was part of the predecessor and obviously your private holdings in Malkin Holdings. Can you give us a little bit more color as to what? Who's remaining in the entity that had, you know, what did you have as multifamily in the predecessor? You know, how long ago was that? Then also, you know, who within the company is it just you on Malkin Holdings that is sort of has insights to the multifamily, thousands of multifamily units you said you own in there? I'm just trying to understand the relationships and, you know-
Okay.
how it all fits.
It's publicly disclosed that we have service agreements for supervised properties, which include those multifamily units. We provide asset management services. Tom Durels was deeply involved in this. We have people on our property maintenance side, insurance, legal. Everybody has been involved in this. Our experience in the past ranges from the construction of the Corinthian and the Alexandria, the redevelopment of Le Grand Palais into the Mondrian at Fifty-fourth and Second. The fact of the matter is that the Alexandria ended up going rental, and, you know, we went through a lot of different workouts on that. It's thousands of units in New York City with which we had...
Probably close to 2,000 in New York City, with which we had experience, as well as outside. It's throughout the portfolio. We have an asset management function for multifamily existing in ESRT.
Okay. Are you I guess just in terms of scope of the future, in terms of what you're willing to look at on the multifamily side, is it purely Manhattan-centric, or are you willing to go sort of tri-state, go to Jersey City, go up into some of the northern suburbs? I guess how should we think about what you look at?
Yeah. I'd say our focus is New York City and, you know, within that New York City, probably down to two boroughs.
Two boroughs. Manhattan and what? We're going to Long Island? We're going to Queens?
Well, well, well, Long Island is not a borough of Manhattan last I checked.
Sorry.
I think there's.
We went Queens.
We might find our way to Brooklyn, you know, or Queens, I think. No, Manhattan is our focus right now. That's what we said.
Okay.
Throughout all our acquisition effort, focused on New York City office, retail, and multifamily assets.
Okay. In terms of. Is there any? This transaction doesn't involve any sort of related parties? Is it completely arm's length, third party, or is there some related party to either yourself, the family, or someone within the company?
There are multiple parties involved, and none of them is related.
Okay. Then how should we think about going forward, given the fact that you have multifamily outside of the company, are those potential now acquisition targets? I know at the time of the IPO, the option properties were only you know, the office assets. So how should we think about that going forward?
Yeah. None of our other assets. The assets that weren't included in the IPO on the residential side were specific because they're not within Manhattan or the Greater New York metro area. They still are not within Manhattan or the Greater New York metro area, and I would not expect to see anything with which the Malkin family is involved in residential part of ESRT.
Okay. Last one on multifamily. You know, I assume you're looking at how the stock has reacted, how investors are reacting, to this move. I recognize you've talked about potentially doing this for some time, and it's hard to judge, right? How much of it is just a lack of details, i.e., you know, you're buying these things at $500,000 a pop, but what are they? Where are they? What's the in-place rents? What's the cap rate you're going in at? What's all of the variety of things versus how much is just, oh my god, they just took $300 million, likely at rich pricing when their stock is trading at a meaningful discount.
I recognize you are active on buying, but $11 million is not putting $310 million to work. I'm just trying to get your internal reaction to how the market is reacting.
I think the market's just observing the information, and I think that we've got a week before we can take any action on buying our stock.
I guess, do you wanna put out at least some guideposts of like, look, you know, most of the apartment REITs have been exiting the coasts, given the regulatory concerns and then been investing in the Sun Belt. You know, you have SL Green and Vornado that, you know, went into multifamily over the last decade but really couldn't make much of it and were never getting values for it.
I'm just trying to piece all this together with your stock down 5%, whether you wanna sort of give a little bit more clarity around sort of the return profile, the going-in yield, and things like that to get at least a little bit more how you went about it and what the real value is relative to not doing it and just sitting on the cash and continuing to buy back your stock like SL Green does.
As I've commented, our goal is to grow the business, and as I've commented, we can't provide any more detail at this time. I wish I could, and I wish we could have done it when we made the 8-K. At the same time, we did not, cannot, and there we go.
Okay. All right, Tony. I appreciate all the time as always.
Thanks much.
Our next question is from John Kim with BMO Capital Markets. Please proceed.
Thank you. Notwithstanding today's share price reaction, how much multifamily exposure do you need for it to impact Empire State's valuation? I mean, these two assets are about 6% of enterprise value, so it's not that meaningful yet.
Yeah. Hey, John. So look, we'll look at deals on a deal by deal basis, right? They have to make sense. It can't be driven by strictly what percentage of the pie chart we want it to be. Obviously, we hope for this not to be an orphan asset and contribute strategically for the reasons that I mentioned. Just to touch on, you know, your comment as well as the previous question, the share price reaction, we recognize we have not given a lot of information, right? We're simply trying to be transparent as much as possible on something that we felt, you know, we should put out there, but recognize there could be some frustration. Understand the comment on the cap rate differential, and as a result, we've mentioned buybacks are definitely on the table.
If we can buy back at a discounted valuation, our own portfolio that we know the risk for, we will do that. The last comment I would say is, it's not new news that the market generally has criticized diversified components of REIT portfolios, right? It's not as well understood, the people prefer a pure play. The point that we would make is we're already diversified, and we think that this provides another way for us to be even better positioned for a New York City recovery. Again, office value price point offering a lot to tenants, and we traffic in a different price point versus the other public peers. Number two, the retail is everyday retail. We benefit from that high traffic.
Number three, the observatory is low CapEx, high margin, attractive business that we see smart, sophisticated capital entering, so we're really pleased with that. If we can have multifamily in the portfolio that has different CapEx profiles, demand drivers, and can further add to the portfolio, we look forward to the opportunity to do that. Having said that, we need the deals to speak for themselves in order to add to the portfolio so we can generate value.
Post these two assets, you'll have about $460 million of cash on hand. This quarter, your leverage improved at least on a net debt to EBITDA basis with the observatory earnings coming up. As that continues to improve, are you gonna be more proactively using cash, or are you gonna be funding acquisitions through sale of non-core assets, including maybe suburban office?
We've mentioned nothing is off the table in terms of sales. We're really pleased to have this liquidity. The net debt to EBITDA ratio does improve as operating results continue to improve. As we've mentioned, it's not 'cause we've levered up. We'll continue to focus on having that balance sheet flexibility. If we can borrow attractively, we'll use that as part of funding. You know, very fortunate to also have the cash. That also allows us to do buybacks along the way.
We're very fortunate to be able to say exactly what you just said. As the observatory comes back, wow, our net debt to enterprise value just drops back to where it was and gives us a much better perspective from which to work.
Tony, you mentioned in your prepared remarks not being able to share inside information on the Edge. Did you participate in the investment process at all, either for informational purposes or as a serious investment?
Look, it's our requirement as the leading destination attraction of its kind in New York City to know what's going on. Let it suffice to say that if I had stuff I felt I could share, I would. I don't. Therefore, we go back to publicly available information. There was information circulated as the Edge went out for financing. There is information we can deduce. I mean, we definitely have people out there who survey and check and follow everything that goes on with everybody else's operations, and I can only leave it at that.
Just to double-check, the sale was just an investment of the passive investor, right? The operations were not considered as part of the sale.
Yeah. We're in no position to make the comments other than what we've made. There's disclosure out there by other parties and our own insights. We're very careful to say what we can say, and we've said what we can say on that.
Got it. Thank you.
Got it. Thank you.
Our final question is from Blaine Heck with Wells Fargo. Please proceed.
Great. Thanks for the time. Tony, more of a big picture question on the office side. Can you give us your thoughts around how you expect the leasing decision process and the timetable to play out for large tenants as they return? I guess, you know, I'm wondering, once tenants physically return to the office, to whatever extent they will, how long do you think it'll take them to determine how work from home and more flexible work schedules are going to impact what their ultimate space requirements are going to be? And obviously, they can't act on that, you know, typically can't act on that until their lease expires in most cases. I'm, you know, more interested in that first assessment and planning and decision process and how long you think that could take.
Hey, Blaine, first of all, thank you so much for hanging on the line here, and thank you so much for that question, which I think is one that's been missed and is spot on. I can tell you from the behaviors we've seen with our existing portfolio of tenants that there are those who have acted with absolute clarity and focus, and there are those who are confused. The ones that have acted with the most clarity and focus, candidly, are the best businesses, and they do not hesitate. They know exactly what they will do.
We get to see the redevelopment plans and the new installation plans of some large tenants for whom we've signed leases, and some of those leases for which we created vacancy in order to bring people in. What we have succeeded in doing in that case was we're able to see, wow, look at the reduction in benching, the increase in convening areas. The very common and popular theme here is we will make the office a place which is so attractive, people will want to be here and to be more successful convening. Number one. Number two, this is the first full year in which we've got people looking at reviews and compensation and performance with salaries, promotions, and changing of personnel that's been completely out of the office for a lot of people.
The people with whom we speak to about that say they are absolutely lost. It is a huge HR nightmare for them. The folks who are in the office doing very well. A lot of confidence, a lot of clarity. Then there are the bigger businesses, candidly, where their growth is so strong and their business is so great that they will plow ahead and have great clarity of what they need and the way they wanna get things done. They understand what their culture is. They understand what they wanna create for their culture. Those people, there's no hesitation. We've seen a bunch of those people take spaces. The last thing I would say is we are a go-to for flight to quality. Flight to quality is a huge factor for us.
When we look at tenants who sign with us, sometimes they'll take a second space from what they've got. We see big growth within our portfolio, and it's in our investor deck, over 2 million sq ft of expansions since we went public in October 2013. We will add to that number handily in the Q4 . When we look at these things, all I would say is the areas that have the least clarity are finance, legal, and accounting, and I think that's because they are so overwhelmed and impacted by the combined fiscal and monetary stimulus that they're floating at the hilt with too much work to do. That will change. This is not that the snake has changed.
There's a rat in the snake, and it's this floating caused by the massive fiscal and monetary stimulus. I think that those people, when they realize in order to compete for business, they've gotta show up, they will.
Okay, great. I'll leave it at that. Thanks for going over and really appreciate the thoughts, Tony.
Thank you so much. We've got no other questions, so what I'll do is if I can just say, please remember that forward-looking statements on plans to ramp up the observatory and return to business are for discussion purposes only and to help you with your models. They're not guidance, nor are they guarantees. Many thanks to our great team who have done, do, and I have every confidence will continue to do a great job on behalf of stakeholders. A big thank you to Greg Faje, o ur IR lead, as he heads off to his next position out of the real estate industry for all his hard work and contributions. Thank you, Greg, and thank you to Jason McGrath as you step up and help carry the ball in the interim, as we transition in this space.
We look forward to the chance to meet with many of you at non-deal roadshows and property tours in the months ahead, and to share our Q4 results in February. Until then, stay safe, get your booster if you qualify, and thank you for your interest. Of course, onward and upward.
Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.