Good morning. On behalf of Empire State Realty Trust, I welcome you to our Annual Stockholders Meeting. We hope that all of you and your loved ones are safe during this time. I hereby call the meeting to order. This year, we joined a large number of public companies which have for public health and safety concerns utilized a virtual meeting format.
This format is accessible to stockholders and guests who enter our virtual meeting website. If you were a stockholder and entered your 16 digit control number in your notice of availability and or proxy card as requested when you entered the meeting website, you will be able to participate in the meeting by submitting up to 2 written questions, which can be sent now and will be addressed during the question and answer session following the formal meeting. And if you have not already voted or want to change a prior vote, you will be able to do so online until the polls close at the conclusion of the formal meeting. In accord with the rules of the meeting posted on the website, each stockholder is permitted to submit up to 2 written questions. All of our directors are in attendance.
Anthony E. Malkin, our Chairman and Chief Executive Officer Stephen J. Gilbert, our Lead Director William H. Burkman, Director and Chair of our Finance Committee Leslie D. Biddle, Director Thomas J.
DeRosa, Director S. Michael Giliberto, Director and Chair of our Audit Committee Patricia S. Hahn, Director James D. Robinson IV, Director and Chair of our Compensation Committee and Nominating and Corporate Governance Committee. Also present are Peter L.
Malkin, our Chairman, Emeritus John B. Kessler, our President and Chief Operating Officer Thomas P. Durels, our Executive Vice President, Real Estate Christina Chiu, our new Executive Vice President and Chief Financial Officer Christopher Woods, representing Broadridge, the Inspector of Elections and Michael Neary from Ernst and Young, our auditors. Mike has served ably as the partner in charge of our account for the past 5 years and now in accord with best practices for auditor independence rotates off of our account and leaves with our thanks. The meeting agenda and rules of conduct are on the virtual meeting website.
To assure an orderly meeting, we ask that all participants abide by these rules. We now turn to the formal business of the meeting. As confirmed by an affidavit of mailing from Broadridge, notice of this meeting was mailed commencing on April 2, 2020 to all Class A and Class B common stockholders as of March 5, 2020, the record date for the meeting. The Inspector of Elections has informed me that Class A and Class B common stockholders entitled to cast a majority of all the votes entitled to be cast at this meeting are in attendance either virtually or by proxy. We therefore recognize a quorum for the transaction of business.
The polls are open. Any stockholder who entered the 16 digit control number from his or her notice of availability and or proxy card and who has not yet voted or wishes to change a vote may do so by clicking on the voting button on the virtual meeting website and following the instructions there. The polls will close after this brief presentation of the 4 proposals on today's agenda. We consider these 4 proposals, each as described in the proxy statement. Number 1, the reelection of all eight members of the company's Board of Directors.
The Board recommends a vote for each of them. Number 2, the approval on a non binding advisory basis of the compensation of our named executive officers. The Board recommends a vote for this proposal. Number 3, the determination on a non binding advisory basis as to whether future non binding advisory votes on named executive officer compensation should occur every 1, 2 or 3 years. The Board recommends a vote of 1 year for this proposal.
And finally, number 4, the ratification of the selection of Ernst and Young as the company's independent registered public accounting firm for the fiscal year ending December 31, 2020. The Board recommends a vote for this proposal. Now that we have presented the business of the meeting, I hereby declare the polls closed. All ballots are now in the custody of the Inspector of Elections. I have received the preliminary vote tabulation from the Inspector of Elections.
Based on this tabulation, I'm pleased to report that all the director nominees have been reelected to the Board of Directors. The company's stockholders have approved the compensation of our named executive officers and a 1 year frequency for votes on compensation of named executive officers. And Ernst and Young has been ratified to serve as the company's independent registered public accounting firm for 2020. The final voting results of today's meeting will be reported on a Form 8 ks filed with the SEC within 4 business days after this meeting. As there is no further business to come before the meeting, this concludes the formal meeting and it is adjourned.
I would now like to introduce Greg Fajet, our Head of Investor Relations, who will be joined by Anthony Malkin, our Chairman and Chief Executive Officer, to conduct a question and answer session. If you are a stockholder and entered your 16 digit control number when you entered the meeting, you may submit a question at any time on the virtual meeting website.
Thank you, Tom. We appreciate the questions stockholders have submitted and we will try to answer all of them subject to practical time constraints. As stated in the rules of conduct, each stockholder is limited to 2 questions and if multiple questions are submitted on the same subject, we will consolidate them for a single response. Each question should be succinct and cover only one topic. If you have any remaining questions when we conclude today, you may Can you please explain the concept of burn off of pre rent for those of us less familiar with those commercial real estate concepts?
What are the prospects for successfully realizing these growth drivers? Operator, can you please open the line for Christina Chiu?
Free rent, burn off of free rent, we have leases currently during a free rent period and they begin when the space is finally due to collect revenue. So it's in a temporary period.
I think that that answer might need to be repeated because I believe the operator did not unmute you in time for the beginning of your response, Christine. If you could try that just reboot that one more time, that'd be great. Thanks.
Okay. So we have a number of leases that are contractual. However, they are currently in a free rent period. As we get to those dates, they will begin to generate income and it will be reported in the results.
Thank you.
The second question, when will the observation deck open back up?
This is Tony Malkin. And the Observatory is in preparation for reopening. We have maintained the necessary management staff and contact with our personnel to call them back to the operation of the Observatory, but we must await the governmental authority instructions as to when attractions like the Empire State Building Observatory will be allowed to reopen.
3rd question, what are the shares actually worth on the open market? There is a request for greater transparency and more sharing of information with Ayers.
This is Tony Malkin again. Shares are traded on the New York Stock Exchange under the symbol ESRT and those shares the price for them is set on a daily basis based upon trading on the New York Stock Exchange. If the question is with regard to publicly traded operating partnership units, they too are traded on the New York Stock Exchange under their symbols. If the question is with regard to operating partnership units that are not traded, we cannot provide any information as to those values, but we can note that operating partnership units can be exchanged for Class A shares, which are freely tradable on the New York Stock Exchange at any time subject to the desire of the operating partnership unitholder.
Next question. How is the virus impacting the observation deck's revenue? I know that the deck is a major source of revenue for the company.
At this time, the observation deck is closed. It was closed by March 16 by order of governmental authorities. We will reopen the observation deck as soon as we are allowed to by governmental authorities. We are prepared to do so
Next question, what is the company's plan for the dealing with the coronavirus and moving forward with the business in the near, medium and long term?
Let me start by saying, Tony Malkin here, that our thoughts are with all those affected by COVID-nineteen virus, particularly our colleagues and their families who have experienced illness and loss. And our thanks do go out to the frontline responders in New York City, United States. We honored them with the Empire State Building's nightly beating heart lighting. That said, we pulled out our crisis management plans for Empire State Realty Trust on the 22nd February and by the 2nd week of March had moved to work from home. We have a very engaged, active and effective work from home strategy.
Company morale is good. Company engagement is high. Before our new CFO, Christina Chu joined Drew Prentice, our acting CFO, Chief Accounting Officer and John Kessler, who is running the transition period, succeeded in getting out our quarterly numbers on time. Our Q was filed on time. In the next phase, return to office, we expect that we will bring back to our offices employees who do not have pre existing conditions, who do not live with people with pre existing conditions, who are not at risk or live with people who are at risk or who do not have child care issues.
And I will repeat that the company remains engaged, active and involved. We conduct virtual meetings and tours with brokers, all of whom are in work from home themselves. We maintain active dialogue with our tenants and we are prepared to accept tenants when they reenter our buildings, which have remained open, available to all tenants who have essential functions they must maintain throughout the entire period.
There was a request to repeat Tony your comment on the operating partnership shares. Can you please repeat it?
There are operating partnership units which are not publicly traded. If you own an operating partnership unit, that means that when we perfected, created, concluded our IPO, you opted not to accept Class A shares. And it also means you are not in one of the 3 publicly listed operating partnership units. Class A shares and publicly listed operating partnership units are traded on the New York Stock Exchange. Operating Partnership units, which are not publicly listed, can be converted to Class A shares at any time you wish.
There's a question. Would you agree that
the SALT tax
deduction in New York State has adversely affected the demand for office space? And do you think a reimplementation of the SALT deduction would be beneficial to ESRT?
I believe that the state and local tax deduction, which was eliminated, in general, has not been a positive for those cities and states which have their own taxing. That said, within those cities and states are included locations like New York City, which prior to COVID-nineteen continued to experience significant job growth and absorption of office space. Therefore, I believe that the primary issue is to get back to work, continue the absorption of office space. As for Empire State Realty Trust, 2020 was shaping up to be an excellent year as we noted in our quarterly call, January February were outstanding months for our Observatory benefiting from the completion of that work in the Q4 of 2019. And we had excellent leasing with market leading rent spreads that is the difference between fully escalated cash rents on expiring leases and commencing cash rents and our 4 drivers of growth poised to deliver significant upside to the company's bottom line.
I think the state and local tax issue was not immediately impacting our performance.
The next question. Can you comment on the degree to which non payment of rent has been a problem during the COVID-nineteen pandemic?
Collection of rent is something with which we presently work every day. Clearly, there are companies which are under stress, particularly small local retailers and small independent businesses. These are to be expected in a time of stress such as the one in which we are now. We also have some very large companies, which are absolutely capable of paying their rent, which have opted not to pay their rent. In all cases, those who have chosen not to pay their rent and can, we pursue them and are pursuing them presently aggressively through every venue available to us, including direct discussion with them.
Please note that the venue for rent collection typically utilized in matters of delinquent rent, local courts are closed and accepting no new cases due to the COVID-nineteen pandemic. There are certain tenants who have asked for accommodation through rent deferrals. We have a process through which they must go, questions which they must answer. We have negotiated several rent deferrals and have either documented them or documentation is underway. It is a taxing time for us in this regard.
Fortunately, our well organized team with excellent company engagement even during work from home is on top of this, the extent we can be on top of this given the fact that the courts are closed through which these actions are typically brought.
Next question. How much has been spent on upgrading the Empire State Building for energy efficiency? And how are these upgrades funded? Is this still ongoing?
It is difficult to pull out the dollars spent on upgrading buildings for energy efficiency as we incorporated energy efficiency into the extensive redevelopment and modernization for the 21st century of every one of our buildings. We also incorporate or require tenants to incorporate energy efficient measures in the build out of their tenant spaces. The best I can say as an example is covered in our investor presentation available on our website in the Investors section with regard to the Empire State Building. There are also, with regard to the Empire State Building, extensive materials available on the Empire State Building's website. This shows a very modest approximately $13,000,000 additional cost to make the retrofit of the Empire State Building, the redevelopment of the Empire State Building energy efficient with a very short term payback.
We do avail ourselves of publicly available funds and programs to enhance energy efficiency and to reduce our costs. And we avail ourselves special tax treatment that is set forth for capital improvements related to costs or building upgrades in general and energy efficiency in specific. We have very little work in the first phase of our energy efficiency program underway in our buildings. However, each time we build out a new tenant space or a new tenant builds out its own space, energy efficiency measures are incorporated. Finally, I would add that New York City's new Local Law 97 sets extremely high standards for reduction in greenhouse gas coefficients and those greenhouse gas coefficients are calculated through the various forms of energy consumed in buildings.
We have embarked upon Empire State Realty Trust's version 2.0 for energy efficiency. That program is underway under the leadership of our new as of October 2019 Senior Vice President of Energy and Sustainability, Dana Schneider. And that program includes extensive interaction with NYSERDA, the New York State Energy Research Development Authority and funding from them. I'm also on the Merus Advisory Board for the adoption of Local Law 97 as the only real estate ownership rep on that board that will incur additional expense
Final question. If there is a reduction in the quarterly dividend, would the Board of Directors be willing to take a corresponding reduction in their compensation?
The dividend is a matter which is decided on a quarterly basis based on a presentation by the company to the Board. Board compensation is a matter which is discussed at the Board meetings and determined by the Board. I will note that effective April 1, I, the Chairman and CEO, reduced my base pay voluntarily to $1 for the quarter subject to review in future quarters.